NVIDIA 2011 Annual Report Download - page 25

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 equity incentive 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.
We record compensation expense for stock options, restricted stock units and our employee stock purchase plan using the fair value of those awards in
accordance with generally accepted accounting principles in United States of America, or U.S. GAAP. Stock-based compensation expense was $100.4
million, $107.1 million and $162.7 million for the fiscal years 2011, 2010 and 2009, respectively, related to on-going vesting of equity awards, which
negatively impacted our operating results. Additionally, in March 2009, we completed a cash tender offer to purchase certain employee stock options. A total
of 28.5 million options were tendered under the offer for an aggregate cash purchase price of $78.1 million, in exchange for the cancellation of the eligible
options. As a result of the tender offer, we incurred a charge of $140.2 million consisting of the remaining unamortized stock based compensation expense
associated with the unvested portion of the options tendered in the offer, stock-based compensation expense resulting from amounts paid in excess of the fair
value of the underlying options, plus associated payroll taxes and professional fees. We believe that expensing employee equity compensation will continue
to negatively impact our operating results.
To the extent that expensing employee equity compensation makes it more expensive to grant stock options and restricted stock units 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 U.S. GAAP, 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 from
acquisitions 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. 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 13 of these Notes to the 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.
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