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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ÈANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended January 26, 2003
OR
‘TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-23985
NVIDIA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-3177549
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2701 San Tomas Expressway
Santa Clara, California 95050
(408) 486-2000
(Address, including zip code, and telephone number, including area code, of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $.001 par value per share
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes ÍNo ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Í
Indicate by check mark whether the registrant is an accelerated filer (as defined in the Exchange
Rule 12b-2) Yes ÍNo ‘
The aggregate market value of the voting stock held by non-affiliates of the registrant as of July 26, 2002
was approximately $1,974,616,679. Shares of common stock held by each current executive officer and director
and by each person who is known by the registrant to own 5% or more of the outstanding common stock have
been excluded from this computation in that such persons may be deemed to be affiliates of the registrant. Share
ownership information of certain persons known by the registrant to own greater than 5% of the outstanding
common stock for purposes of the preceding calculation is based solely on information on Schedule 13G filed
with the Commission and is as of July 26, 2002. This determination of affiliate status is not a conclusive
determination for other purposes.
The number of shares of common stock outstanding as of March 31, 2003 was 159,036,369.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant has incorporated by reference portions of its Proxy Statement for its 2003 Annual Meeting of
Stockholders to be filed by May 27, 2003.

Table of contents

  • Page 1
    ... Incorporation or Organization) 94-3177549 (I.R.S. Employer Identification No.) 2701 San Tomas Expressway Santa Clara, California 95050 (408) 486-2000 (Address, including zip code, and telephone number, including area code, of principal executive offices) Securities registered pursuant to Section...

  • Page 2
    ... Owners and Management and Related Stockholder Matters ...Certain Relationships and Related Transactions ...Controls and Procedures ... 2 9 9 10 11 12 13 22 35 35 36 36 36 36 36 38 70 71 PART IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K ...Signatures ...Certifications...

  • Page 3
    ... future growth in the markets for three dimensional, or 3D, graphics and media communication processors; our product development efforts; the timing of our introduction of new products; industry and consumer acceptance of our products; and future profitability. Discussions containing these forward...

  • Page 4
    ... meet the needs of end users, application developers and OEMs. Our Products We have five major product families: GeForce, nForce, GeForce Go, Quadro and TNT2. In addition, we sell a two-processor chipset for use in the Xbox video game console. Our entire product line provides superior 2 BUSINESS

  • Page 5
    ...general purpose business and financial trading. NVIDIA Quadro products are fully certified for all professional workstation applications, and are designed to deliver the graphics performance and precision required by professional applications. TNT2. The TNT2 family of graphics processors delivers 3D...

  • Page 6
    .... Our Strategy We design our GPUs, platform processors and graphics processors to enable PC OEMs, system builders, motherboard and add-in board manufacturers to build award-winning products by delivering state-of-the-art interactive 3D graphics capability, while maintaining affordable prices. We...

  • Page 7
    ... 3D graphics processors for desktop PCs. Our sales and marketing teams work closely with PC OEMs, system integrators, motherboard manufacturers, add-in board manufacturers and industry trendsetters, collectively our Channel, to define product features, performance, price and timing of new products...

  • Page 8
    ... and add-in board manufacturer customers from our Santa Clara, California warehouse and third-party warehouses in Singapore and Hong Kong. Generally, these manufacturers assemble and test the boards based on our design kit and test specifications, then ship the products to retailers, system...

  • Page 9
    ... channels, backward-forward software support, conformity to industry standard APIs, manufacturing capabilities, price of graphics processors and total system costs of add-in boards or motherboards. We expect competition to increase both from existing competitors and new market entrants with products...

  • Page 10
    ... agreements, and we believe our relationships with our employees are good. Financial Information by Business Segment and Geographic Data We operate in a single industry segment: the design, development and marketing of 3D graphics and media communication processors and related software for PCs...

  • Page 11
    ... marketing positions at Hewlett-Packard Company. Mr. Vivoli holds a B.S.E.E. degree from the University of Illinois at Champaign-Urbana. Available Information Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and, if applicable, amendments to those reports...

  • Page 12
    ... our agreement contemplated use of a third party to resolve matters and on April 23, 2002 Microsoft submitted the matter to binding arbitration. On February 6, 2003, NVIDIA and Microsoft announced that the companies had settled all issues related to pricing of the Microsoft Xbox GPU and MCP chipset...

  • Page 13
    ...there was no public market for our common stock. As of March 31, 2003, we had approximately 1,515 stockholders of record, not including those shares held in street or nominee name. The following table sets forth for the periods indicated the high and low sales price for our common stock as quoted on...

  • Page 14
    ... of our arbitration with Microsoft regarding Xbox pricing. (B) Fiscal 2003 included a charge for stock option exchange expenses of $61,832 related to personnel associated with cost of revenue (for manufacturing personnel), research and development, and sales, general and administrative of $6,164...

  • Page 15
    ... tools to advance our GPUs. IBM plans to begin manufacturing the next-generation GeForce graphics processor this summer at IBM's plant in East Fishkill, New York. Beyond the chip manufacturing technology, IBM also offers an automated management system that not only controls production on the factory...

  • Page 16
    ... of revenue at the time the incentive is offered. We also record a reduction to revenue for estimated product returns at the time revenue is recognized based on historical return rates. For all sales, we use a binding purchase order and in certain cases we use a contractual agreement as evidence of...

  • Page 17
    ... of the Company's records with respect to all issues raised by the SEC staff for the periods mentioned. The Company's Audit Committee worked in close cooperation with the SEC to provide it with extensive information and conclusions of the review. As discussed in the Form 8-K filed by NVIDIA on May...

  • Page 18
    ... ...Cost of revenue related to stock option exchange ...Gross profit ...Operating expenses: Research and development ...Sales, general and administrative ...Stock option exchange ...Amortization of goodwill ...Acquisition related charges ...Discontinued use of property ...Total operating expenses...

  • Page 19
    ... we expect that the average selling prices of our products will decline over the lives of the products. The declines in average selling prices of 3D graphics processors in general may accelerate as the market continues to develop and competition increases. Gross Profit Gross profit consists of total...

  • Page 20
    ..., expand our sales and protect our business interests. Stock Option Exchange On September 26, 2002, we commenced an offer (the "Offer") to our employees to exchange outstanding stock options with exercise prices equal to or greater than $27.00 per share ("Eligible Options"). Stock options to...

  • Page 21
    ... Discontinued use of property consists of write-offs of $3.7 million relating to our previous office space in Santa Clara, California. Since we relocated in June 2001, we have been unable to secure a subtenant for our previous office space due to the decrease in demand for commercial rental space...

  • Page 22
    ... 2004, primarily for software licenses, emulation equipment, computer and engineering workstations and future phases of our enterprise resource planning system implementation. In addition, we may continue to use cash in connection with the acquisition of businesses or assets. Financing activities...

  • Page 23
    ... maturity and not redeemed or converted into shares of common stock at an earlier date. The convertible subordinated notes are redeemable at our option on or after October 20, 2003. The notes are convertible at the option of the holder at any time prior to the close of business on the maturity date...

  • Page 24
    ...of NVIDIA's financial statements. During the fourth quarter of fiscal year 2003, our Audit Committee did approve new and recurring engagements performed by KPMG LLP for the following non-audit services (1) income tax, transactional tax and payroll tax return preparation, (2) general tax consultation...

  • Page 25
    ... of securities analysts or investors, which could cause the trading price of our common stock to decline, perhaps substantially. We believe that our quarterly and annual results of operations will be affected by a variety of factors that could harm our revenue, gross profit and results of operations...

  • Page 26
    ... year. We need to develop new products and to manage product transitions in order to succeed. Our business depends to a significant extent on our ability to successfully develop new products for the 3D graphics market. Our add-in board and motherboard manufacturers and major OEM customers typically...

  • Page 27
    ... introduce new products and enhancements to existing products to maintain overall average selling prices and gross margins. In order for our 3D graphics processors to achieve high volumes, leading PC OEMs and add-in board and motherboard manufacturers must select our 3D graphics processor for design...

  • Page 28
    ... costs. We currently use 0.15-micron process technology for the GeForce4, Quadro4, GeForce3, Quadro DCC, Xbox and nForce families of graphics processors, and we believe that the transition of our products to increasingly smaller geometries will be important to our competitive position. In November...

  • Page 29
    ... on the performance of our executive officers and key employees. None of our officers or employees is bound by an employment agreement, and so our relationships with these officers and employees are at will. We do not have "key person" life insurance policies on any of our employees. The loss of the...

  • Page 30
    ... change in control of NVIDIA. We may not be able to realize the potential financial or strategic benefits of business acquisitions and that could hurt our ability to grow our business and sell our products. In the past we have acquired and invested in other businesses that offered products, services...

  • Page 31
    ... of competition in the game console product line. During fiscal 2003, sales of Xbox processors comprised 23% of our overall revenue. If the Xbox program is not successful, our business may be harmed. We depend on foreign foundries and independent contractors to manufacture our products and these...

  • Page 32
    ... on a timely basis. On March 26, 2003, we announced that we have formed a multi-year strategic alliance under which IBM will manufacture our next-generation GeForce GPUs. As part of the agreement, we will gain access to IBM's suite of foundry services and manufacturing technologies, including power...

  • Page 33
    ...channels, backward-forward software support, conformity to industry standard APIs, manufacturing capabilities, price of graphics processors and total system costs of add-in boards and motherboards. We expect competition to increase both from existing competitors and new market entrants with products...

  • Page 34
    ... in 3D graphics, including the filing of patent infringement suits against competitors; follow business practices in its PC business, which strongly encourage use of Intel integrated chipsets; increasingly dominate the PC platform; and promote its product offerings through advertising campaigns...

  • Page 35
    ... 3D graphics in PC applications. The market for 3D graphics processors has been characterized by unpredictable and sometimes rapid shifts in the popularity of products, often caused by the publication of competitive industry benchmark results, changes in dynamic random memory devices pricing...

  • Page 36
    ..., following periods of volatility in the market price of a company's stock, securities class action litigation has been initiated against the issuing company. Since February 2002, multiple securities class action lawsuits and several derivative suits have been filed against us. We expect that this...

  • Page 37
    ... our trade secrets or intellectual property. Our failure to effectively protect our intellectual property could harm our business. We have licensed technology from third parties for incorporation in our graphics processors, and expect to continue to enter into license agreements for future products...

  • Page 38
    ... Officer and our Chief Financial Officer, after evaluating the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c)) as of a date (the "Evaluation Date") within 90 days before the filing date of this annual report...

  • Page 39
    ...; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. 37

  • Page 40
    ... ...Financial Statement Schedules Schedule II Valuation and Qualifying Accounts ...Exhibits The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as a part of this annual report. Reports on Form 8-K None filed in the fourth quarter of fiscal 2003. 39...

  • Page 41
    ... AUDITORS' REPORT The Board of Directors and Stockholders NVIDIA Corporation: We have audited the consolidated financial statements of NVIDIA Corporation and subsidiaries (the "Company") as listed in the accompanying index. In connection with our audits of the consolidated financial statements...

  • Page 42
    ...Total current liabilities ...Capital lease obligations, less current portion ...Long-term convertible debenture ...Stockholders' equity: Common stock, $.001 par value; 1,000,000,000 shares authorized; 157,790,022 and 149,553,130 shares issued and outstanding in 2003 and 2002, respectively Additional...

  • Page 43
    ... ...Cost of revenue related to stock option exchange (1) ...Gross profit ...Operating expenses: Research and development ...Sales, general and administrative ...Stock option exchange (1) ...Amortization of goodwill ...Acquisition related charges ...Discontinued use of property ...Total operating...

  • Page 44
    ...Comprehensive Shares Amount Capital sation Earnings Income Equity Income Balances, January 30, 2000 . 124,400,628 Issuance of common stock from stock plans ...9,664,606 Sale of common stock under public offering, net of issuance costs of $9.6 million ...2,800,000 Tax benefit from stock plans - Stock...

  • Page 45
    ... cash ...Net cash used in investing activities ...Cash flows from financing activities: Convertible debenture, net of issuance costs ...Sale of common stock under public offering, net of issuance costs ...Common stock issued under employee stock plans ...Sale lease back financing ...Principal...

  • Page 46
    ... FINANCIAL STATEMENTS Note 1-Organization and Significant Accounting Policies Organization NVIDIA Corporation and subsidiaries (the "Company") designs, develops and markets 3D graphics and media communication processors and related software for PCs, workstations and digital entertainment platforms...

  • Page 47
    ... Board of Directors approved a two-for-one stock split of the Company's common stock for stockholders of record on August 28, 2001, effected in the form of a 100% stock dividend. The transfer agent distributed the shares resulting from the split on September 17, 2001. All share and per-share numbers...

  • Page 48
    ... of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. Income Taxes The Company records income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial...

  • Page 49
    ... of Long-Lived Assets. In conjunction with the implementation of SFAS No. 142, during the first quarter of fiscal 2003 the Company completed a transitional goodwill impairment test and concluded that no impairment was indicated. Upon adoption of the new business combination rules, acquired workforce...

  • Page 50
    ... Assets. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supercedes SFAS No. 121 and the accounting and reporting provisions of APB Opinion No. 30 as it relates to the disposal of a segment of a business. SFAS No. 144 is effective...

  • Page 51
    ... account for its stock-based employee compensation plans. Deferred compensation arising from stock-based awards is amortized in accordance with Financial Accounting Standards Board Interpretation No. 28, which generally accelerates the compensation expense as compared to the straight-line method. As...

  • Page 52
    ...87,650 For the purpose of the pro forma calculation the fair value of shares purchased under the Company's Employee Stock Purchase Plan (the "Purchase Plan") has been estimated at the date of purchase using the Black-Scholes option pricing model with the following assumptions: Year Ended January 26...

  • Page 53
    ... net income per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period, using the as-if-converted method for the convertible debentures and the treasury stock method for stock options. Under the as-if-converted method and the...

  • Page 54
    ... common equivalent shares: Year Ended January 26, 2003 Year Ended Year Ended January 27, January 28, 2002 2001 (in thousands) Stock options outstanding ...Convertible debentures ... 5,892 6,472 12,364 2,504 6,472 8,976 4,476 6,472 10,948 The weighted-average price of stock options excluded...

  • Page 55
    ...treated as "available-for-sale" under SFAS No. 115. Cash equivalents consist of financial instruments which are readily convertible into cash and have original maturities of three months or less at the time of acquisition. Marketable securities consist of highly liquid investments with a maturity of...

  • Page 56
    ... unable to secure a subtenant for its previous office space due to the decrease in demand for commercial rental space as a result of the declining economy. The Company recorded a loss of approximately $3.7 million during fiscal 2002 for the remaining costs related to the preexisting lease, including...

  • Page 57
    ... offering. Convertible Preferred Stock As of January 26, 2003, there are no shares of preferred stock outstanding and the Company has no current plans to issue any of the authorized preferred stock. 2000 Nonstatutory Equity Incentive Plan On August 1, 2000, the Company's Board of Directors approved...

  • Page 58
    ...,265,519 shares are available for future issuance as of January 26, 2003. Pursuant to the 1998 Plan, the exercise price for incentive stock options is at least 100% of the fair market value on the date of grant or for employees owning in excess of 10% of the voting power of all classes of stock, 110...

  • Page 59
    ... Plan until such time as shares may become available under the Directors Plan. Employee Stock Purchase Plan In February 1998, the Company's Board of Directors approved the 1998 Employee Stock Purchase Plan (the "Purchase Plan"). In June 1999, the plan was amended to increase the number of shares...

  • Page 60
    ... are employed by the Company or an affiliate of the Company designated by the Board. Employees who participate in an offering may have up to 10% of their earnings withheld pursuant to the Purchase Plan and applied on specified dates determined by the Board to the purchase of shares of common stock...

  • Page 61
    ... Revenue Service annual contribution limits. Note 8-Stock Option Exchange On September 26, 2002, the Company commenced an offer (the "Offer") to its employees to exchange outstanding stock options with exercise prices equal to or greater than $27.00 per share ("Eligible Options"). Stock options to...

  • Page 62
    ... in employer and employee related taxes. The number of fully vested, non-forfeitable shares of the Company's common stock to be issued was determined by dividing the total consideration due (less the amount of applicable tax withholdings) by the closing price of the Company's common stock on October...

  • Page 63
    ... consolidated balance sheet and are amortized using the straight line method over the term of the financing. Lease Obligations In April 2000, the Company entered into leases for its new headquarters complex in Santa Clara, California. The first phase of two buildings was completed in June 2001, the...

  • Page 64
    ... profits from insider trading by officers and directors. The Actions are in the preliminary stages. The Federal Class Actions have been consolidated and lead plaintiffs appointed. Plaintiffs filed a consolidated amended complaint and, in response, NVIDIA filed a motion to dismiss. On March 28, 2003...

  • Page 65
    ..., former landlords of 3dfx, have filed suits against the Company seeking payment of the rents due by 3dfx. The Company was engaged with Microsoft in discussions related to pricing and volumes of the Xbox chipset. These discussions and the Company's agreement contemplated use of a third party...

  • Page 66
    NVIDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Note 10-Income Taxes The provision for income taxes applicable to income before income taxes consists of the following: Year Ended January 26, 2003... attributable to employer stock option plans ...Provision for...

  • Page 67
    ... processors for use in the Xbox video game console. The terms of the Microsoft Agreement also state that in the event that an individual or corporation makes an offer to purchase shares equal to or greater than thirty percent (30%) of the outstanding shares of the Company's common stock, Microsoft...

  • Page 68
    ...: the design, development and marketing of 3D graphics and media communication processors and related software for personal computers, or PCs, workstations and digital entertainment platforms. The Company's chief operating decision maker, the Chief Executive Officer, reviews financial information...

  • Page 69
    .... 27, 2002 Fiscal 2002 Quarters Ended Oct. 28, 2001 July 29, 2001 As As As As Restated Reported Restated Reported (in thousands, except per share data) April 29, 2001 As As Restated Reported Statement of Operations Data: Revenue ...Cost of revenue ...Gross profit ...Net income ...Basic net income...

  • Page 70
    ... 26, 2003, the Company announced that it has formed a multi-year strategic alliance under which IBM will manufacture the Company's next-generation GeForce GPUs. As part of the agreement, the Company will gain access to IBM's suite of foundry services and manufacturing technologies, including power...

  • Page 71
    NVIDIA CORPORATION AND SUBSIDIARIES SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS Balance at Beginning of Period Balance at End of Period Description Additions(3) Deductions (in thousands) Year ended January 26, 2003 Allowance for sales returns and allowances ...Allowance for doubtful accounts ...

  • Page 72
    ... of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on April 25, 2003. NVIDIA Corporation By: /s/ JEN-HSUN HUANG Jen-Hsun Huang President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that...

  • Page 73
    ... registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the...

  • Page 74
    ... registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the...

  • Page 75
    ...Option Plan (Annual Grant). Form of Nonstatutory Stock Option Agreement under the 1998 Non-Employee Directors' Stock Option Plan (Committee Grant). 2000 Nonstatutory Equity Incentive Plan, as amended Lease dated April 4, 2000 between NVIDIA Corporation and Sobrato Interests III for Building A. Lease...

  • Page 76
    ... as Exhibit 4.4 to our Quarterly Report on Form 10-Q, for the quarter ended May 2, 1999 filed on June 15, 1999 (No. 000-23985) and incorporated by reference herein. (8) Previously filed as Exhibit 4.5 to our Annual Report on Form 10-K405, for the year ended January 28, 2001 filed on April 27, 2001...

  • Page 77
    ...-year period ended January 26, 2003, and the related schedule, which report appears in the January 26, 2003 annual report on Form 10-K of NVIDIA Corporation. Our report contains a paragraph discussing the Company's adoption of the provisions of Statement of Financial Accounting Standards No. 142...

  • Page 78
    ... and Investor Protection Act of 2002 (18 U.S.C. § 1350, as adopted), Jen-Hsun Huang, the President and Chief Executive Officer of NVIDIA Corporation (the "Company"), hereby certifies that, to the best of his knowledge: 1. The Company's Annual Report on Form 10-K for the year ended January 26, 2003...

  • Page 79
    ... Reform and Investor Protection Act of 2002 (18 U.S.C. § 1350, as adopted), Marvin D. Burkett, the Chief Financial Officer of NVIDIA Corporation (the "Company"), hereby certifies that, to the best of his knowledge: 1. The Company's Annual Report on Form 10-K for the year ended January 26, 2003, to...