NVIDIA 2013 Annual Report Download - page 190

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include, but are not limited to, weighted average expected term, risk-free interest rate, expected stock price volatility, dividend
yield, actual and projected employee stock option exercise behaviors, vesting schedules and death and disability probabilities
We also segregate options into groups of employees with relatively homogeneous exercise behavior in order to calculate
the best estimate of fair value using the binomial valuation model.
The expected life of employee stock options is a derived output of our valuation model and is impacted by the underlying
assumptions of our company. The risk-free interest rate assumption is based upon observed interest rates on Treasury bills
appropriate for the term of our employee stock options. Our management has determined that the use of implied volatility
is expected to be more reflective of market conditions and, therefore, can reasonably be expected to be a better indicator of
our expected volatility than historical volatility. Dividend yield is based on history and expectation of dividend payouts.
Our RSU awards are not eligible for cash dividends prior to vesting; therefore, the fair value of RSUs is discounted by
the dividend yield. Additionally, for employee stock option and RSU awards, we estimate forfeitures annually and revise
the estimates of forfeiture in subsequent periods if actual forfeitures differ from those estimates. Forfeitures are estimated
based on historical experience. If factors change and we employ different assumptions in the application of accounting
standards in future periods, the compensation expense that we record under these accounting standards may differ
significantly from what we have recorded in the current period.
Using the binomial model, we estimated the fair value of the stock options granted under our stock option plans using
the following assumptions during fiscal year 2014:
Weighted average expected life (in years) .................................................................................................. 2.4-3.5
Risk-free interest rate.................................................................................................................................. 1.8%-3.0%
Volatility...................................................................................................................................................... 28%-37%
Dividend yield............................................................................................................................................. 1.9%-2.4%
We used the Black-Scholes model to estimate the fair value of shares issued under our ESPP during fiscal year 2014,
using the following assumptions:
Weighted average expected life (in years)................................................................................................... 0.5-2.0
Risk-free interest rate .................................................................................................................................. 0.1%-0.4%
Volatility...................................................................................................................................................... 32%-37%
Dividend yield ............................................................................................................................................. 2.0%-2.4%
Litigation, Investigation and Settlement Costs
From time to time, we are involved in legal actions and/or investigations by regulatory bodies. We are aggressively
defending our current litigation matters. However, there are many uncertainties associated with any litigation or
investigations, and we cannot be certain that these actions or other third-party claims against us will be resolved without
costly litigation, fines and/or substantial settlement payments. If that occurs, our business, financial condition and results
of operations could be materially and adversely affected. If information becomes available that causes us to determine that
a loss in any of our pending litigation, investigations or settlements is probable, and we can reasonably estimate the loss
associated with such events, we will record the loss in accordance with U.S. GAAP. However, the actual liability in any
such litigation or investigation may be materially different from our estimates, which could require us to record additional
costs.