NVIDIA 2009 Annual Report Download - page 34

Expensing employee equity compensation adversely affects our operating results and could also adversely affect our competitive
position.
Since inception, we have used equity through our stock option plans and our employee stock purchase program as a fundamental
component of our compensation packages. We believe that these programs directly motivate our employees and, through the use of
vesting, encourage our employees to remain with us.
In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123(R), or SFAS No. 123(R) , Share-based
Payment, which requires the measurement and recognition of compensation expense for all stock-based compensation payments.
SFAS No. 123(R) requires that we record compensation expense for stock options and our employee stock purchase plan using the fair
value of those awards. Stock-based compensation expense resulting from our compliance with SFAS No. 123(R), was $162.7 million,
$133.4 million and $116.7 million for fiscal years 2009, 2008 and 2007, respectively, which negatively impacted our operating
results. Additionally, on February 11, 2009, we announced that our Board of Directors approved a cash tender offer for certain
employee stock options. The tender offer commenced on February 11, 2009 and expired at 12:00 midnight (Pacific Time) on March
11, 2009. As of January 25, 2009, there were approximately 33.1 million options eligible to participate in the tender offer. If all these
options were tendered and accepted in the offer, the aggregate cash purchase price for these options would be approximately $92.0
million. As a result of the tender offer, we may incur a non-recurring charge of up to approximately $150.0 million if all of the
unvested eligible options are tendered. This charge would be reflected in our financial results for the first fiscal quarter of fiscal year
2010 and represents stock-based compensation expense, consisting of the remaining unamortized stock-based compensation expense
associated with the unvested portion of the eligible options tendered in the offer, stock-based compensation expense resulting from
amounts paid in excess of the fair value of the underlying options, if any, plus associated payroll taxes and professional fees. We are
currently tallying information on the number of options tendered under the offer to determine the actual aggregate cash to be paid in
exchange for the cancellation of the eligible options and the non-recurring charge to be incurred pertaining to the unvested eligible
options that have been tendered. We believe that SFAS No. 123(R) will continue to negatively impact our operating results.
To the extent that SFAS No. 123(R) makes it more expensive to grant stock options or to continue to have an employee stock
purchase program, we may decide to incur increased cash compensation costs. In addition, actions that we may take to reduce
stock-based compensation expense that may be more severe than any actions our competitors may implement and may make it
difficult to attract retain and motivate employees, which could adversely affect our competitive position as well as our business and
operating results.
We may be required to record a charge to earnings if our goodwill or amortizable intangible assets become impaired, which
could negatively impact our operating results.
Under accounting principles generally accepted in the United States, we review our amortizable intangible assets and goodwill for
impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is tested for
impairment at least annually. The carrying value of our goodwill or amortizable assets may not be recoverable due to factors such as a
decline in stock price and market capitalization, reduced estimates of future cash flows and slower growth rates in our industry or in
any of our business units. For example, during the twelve months ended January 25, 2009, our market capitalization declined from
approximately $14 billion to approximately $4 billion. Estimates of future cash flows are based on an updated long-term financial
outlook of our operations. However, actual performance in the near-term or long-term could be materially different from these
forecasts, which could impact future estimates. For example, if one of our business units does not meet its near-term and longer-term
forecasts, the goodwill assigned to the business unit could be impaired. We may be required to record a charge to earnings in our
financial statements during a period in which an impairment of our goodwill or amortizable intangible assets is determined to exist,
which may negatively impact our results of operations.
Our stock price continues to be volatile and investors may suffer losses.
Our stock has at times experienced substantial price volatility as a result of variations between our actual and anticipated financial
results, announcements by us and our competitors, or uncertainty about current global economic conditions. The stock market as a
whole also has experienced extreme price and volume fluctuations that have affected the market price of many technology companies
in ways that may have been unrelated to these companies’ operating performance.
In the past, securities class action litigation has often been brought against a company following periods of volatility in the market
price of its securities. For example, following our announcement in July 2008 that we would take a charge against cost of revenue to
cover anticipated costs and expenses arising from a weak die/packaging material set in certain versions of our previous generation
MCP and GPU products and that we were revising financial guidance for our second fiscal quarter of 2009, the trading price of our
common stock declined. In September, October and November 2008, several putative class action lawsuits were filed against us
relating to this announcement. Please refer to Note 12 of the Notes to Consolidated Financial Statements in Part IV, Item 15 of this
Form 10-K for further information regarding these lawsuits. Due to changes in the potential volatility of our stock price, we may be
the target of securities litigation in the future. Such lawsuits could result in the diversion of management’s time and attention away
from business operations, which could harm our business. In addition, the costs of defense and any damages resulting from litigation,
a ruling against us, or a settlement of the litigation could adversely affect our cash flow and financial results.
28
Source: NVIDIA CORP, 10-K, March 13, 2009 Powered by Morningstar® Document Research℠