NVIDIA 2015 Annual Report Download - page 138

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
58
Research and Development Expense
Research and development expense includes the conceptual formulation, design, and testing of product alternatives,
construction of prototypes, and operation of pilot plants Research and development costs are charged to expense as incurred.
Advertising Expenses
We expense advertising costs in the period in which they are incurred. Advertising expenses for fiscal years 2015, 2014
and 2013 were $14.6 million, $13.1 million and $9.2 million, respectively.
Rent Expense
We recognize rent expense on a straight-line basis over the lease period and accrue for rent expense incurred, but not
paid.
Product Warranties
We generally offer limited warranty to end-users that ranges from one to three years for products in order to repair or
replace products for any manufacturing defects or hardware component failures. Cost of revenue includes the estimated
cost of product warranties that are calculated at the point of revenue recognition. Under limited circumstances, we may
offer an extended limited warranty to customers for certain products. We also accrue for known warranty and indemnification
issues if a loss is probable and can be reasonably estimated.
Stock-based Compensation
We estimate the fair value of employee stock options on the date of grant using a binomial model and recognize the
expense using a straight-line attribution method over the requisite employee service period. We use the closing trading price
of our common stock on the date of grant, minus a dividend yield discount, as the fair value of awards of restricted stock
units, or RSUs, and performance stock units, or PSUs. The compensation expense for the RSUs is recognized using a
straight-line attribution method over the requisite employee service period while compensation expense for PSUs is
recognized using an accelerated amortization model. We estimate the fair value of shares to be issued under our employee
stock purchase plan, or ESPP, using the Black-Scholes model at the commencement of an offering period in March and
September of each year. Stock-based compensation for our ESPP is expensed using an accelerated amortization model.
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 investigation,
and we cannot be certain that these actions or other third-party claims against us will be resolved without 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.
Foreign Currency Remeasurement
We use the United States dollar as our functional currency for all of our subsidiaries. Foreign currency monetary assets
and liabilities are remeasured into United States dollars at end-of-period exchange rates. Non-monetary assets and liabilities
such as property and equipment, and equity are remeasured at historical exchange rates. Revenue and expenses are
remeasured at average exchange rates in effect during each period, except for those expenses related to the previously noted