NVIDIA 2003 Annual Report Download - page 70

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In January 2002, the Audit Committee of the Company’s Board of Directors initiated a review of certain
financial matters at the request of, and in cooperation with, the staff of the Securities & Exchange Commission.
Based on the findings of the review, the Company’s consolidated financial statements for the first three quarters
of fiscal 2002 and for the fiscal years 2001 and 2000 were restated. In addition, the financial results announced
by the Company on February 14, 2002, for the fourth quarter of fiscal 2002 were also impacted (together, the
“Restatement”). As a result of the Restatement, total net income for the three year period increased by
approximately $1.3 million.
As a result of the Restatement, for fiscal 2002 total revenue decreased $1.9 million, cost of revenue
decreased $3.3 million, operating expenses increased by $1.6 million, resulting in a decrease in net income of
less than $0.2 million. The quarterly financial statements below reflect the following adjustments made to fiscal
2002 as a result of the Restatement:
• Of the $1.9 million in adjustments to revenue in fiscal 2002, $0.4 million, $0.3 million and $1.2 million
related to adjustments to increase the accrual for a customer rebate program in the second quarter, third
quarter and fourth quarter, respectively. In addition, the Restatement included a $5.0 million adjustment
that deferred revenue related to sales to Microsoft of our Xbox media communications processor from
the third quarter to the fourth quarter, which had no impact on total fiscal 2002 revenue.
• Of the $3.3 million in adjustments to cost of revenue in fiscal 2002, $2.5 million, $0.2 million and
$2.3 million primarily related to adjustments to decrease the work-in-process inventory scrap reserve in
the first quarter, third quarter and fourth quarter, respectively, offset by $1.2 million primarily related to
an adjustment to increase the work-in-process inventory scrap reserve in the second quarter as well as
other miscellaneous adjustments in various quarters that totaled approximately $0.5 million.
• Of the $1.6 million in adjustments to operating expenses in fiscal 2002, $0.8 million and $1.7 million
primarily related to adjustments to increase our payroll accrual in the first quarter and fourth quarter,
respectively, offset by $0.5 million and $0.4 million to decrease our payroll accrual in the second
quarter and third quarter, respectively. In addition, the Restatement included a reclassification of
approximately $0.6 million from the fourth quarter to the first quarter to correct the amortization of a
support contract as well as other miscellaneous offsetting adjustments in various quarters, none of which
had a significant impact on total fiscal 2002 operating expenses.
Note 14—Subsequent Events (Unaudited)
On March 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-efficient
copper wiring, and a roadmap that is designed to lead to 65nm (nanometer; a billionth of a meter) in the next
several years, giving the Company valuable tools to advance its GPUs. IBM plans to begin manufacturing the
next-generation GeForce graphics processor this summer at IBM’s plant in East Fishkill, New York.
In April 2003, subsequent to receiving a Wells notice indicating the SEC staff intended to recommend to the
SEC that an enforcement action be initiated, the Company reached an agreement in principle with the SEC staff
that would resolve the SEC’s investigation of the Company in matters related to the restatement. The agreement
is subject to final approval of the SEC. Under the terms of the agreement in principle, the Company, without
admitting or denying liability or wrongdoing, would agree to an administrative cease and desist order prohibiting
any future violations of certain non-fraud financial reporting, books and records, and internal control provisions
of the federal securities laws. The Company would not be required to pay any fines or penalties. The
documentation of the agreement and the SEC’s review of the agreement may take several weeks or months to
complete. Further, there can be no assurance that the agreement will be approved by the SEC.
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