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FORM 10−K
NVIDIA CORP − NVDA
Filed: March 29, 2004 (period: January 25, 2004)
Annual report which provides a comprehensive overview of the company for the past year

Table of contents

  • Page 1
    FORM 10âˆ'K NVIDIA CORP âˆ' NVDA Filed: March 29, 2004 (period: January 25, 2004) Annual report which provides a comprehensive overview of the company for the past year

  • Page 2
    ... ITEM 9A. CONTROLS AND PROCEDURES ITEM 5. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ITEM 11. EXECUTIVE COMPENSATION ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATT ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...

  • Page 3
    ... or Organization) 94âˆ'3177549 (I.R.S. Employer Identification No.) 2701 San Tomas Expressway Santa Clara, California 95050 (408) 486âˆ'2000 (Address, including zip code, and telephone number, including area code, of principal executive offices) Securities registered pursuant to Section 12(b) of...

  • Page 4
    ...Disclosures about Market Risk Consolidated Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures PART III Directors and Executive Officers of the Registrant Executive Compensation Security Ownership of...

  • Page 5
    ...sold during calendar 2003. The combination of our DirectX 9 GPU with highâˆ'definition digital video technology, digital media software, and our close working relationship with Microsoft helped us become the technology partner of choice for 46 of the 50 Media Center PCs that shipped worldwide during...

  • Page 6
    ..., highâˆ'definition television, or HDTV, Dolby Digital audio playback and fast broadband and networking communications. nForce2 is a twoâˆ'chip solution, which includes either a System Platform Processor, or SPP, or an Integrated Graphics Processor, or IGP, combined with a MCP. The nForce2 family is...

  • Page 7
    ... encourage customers to use the next generation of our products. In the segments we serve, the sales process involves achieving key design wins with leading OEMs and major system integrators and supporting the product design into high volume production with key ODMs, motherboard manufacturers and...

  • Page 8
    ... quality assurance and then ship them to CEMs, stocking representatives, motherboard and addâˆ'in board manufacturer customers from our Santa Clara, California warehouse and thirdâˆ'party warehouses in Singapore and Hong Kong. Generally, these manufacturers assemble and test the boards based on our...

  • Page 9
    ... of product offerings, access to customers and distribution channels, backwardâˆ'forward software support, conformity to industry standard APIs, manufacturing capabilities, price of digital media processors and total system costs of addâˆ'in boards or motherboards. We expect competition to increase...

  • Page 10
    ... 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 digital media processors, and expect to continue to enter into license agreements for future products...

  • Page 11
    ... file such material with, or furnish it to, the Securities and Exchange Commission. ITEM 2. PROPERTIES Our headquarters complex is located on a leased site in Santa Clara, California and is comprised of five buildings. Additionally, we lease three other buildings in Santa Clara with one used...

  • Page 12
    ..., there was no public market for our common stock. As of March 5, 2004, we had approximately 436 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 13
    ... Report. Overview Our Company NVIDIA Corporation is a market leader in digital media processor technology, dedicated to creating products that enhance the interactive experience on consumer and professional computing platforms. We design, develop and market graphics processing units, or GPUs, media...

  • Page 14
    ...million of direct acquisition costs. With the integration of MediaQ, w e see an opportunity to leverage NVIDIA's resources and expertise in digital media processing to offer innovative products and thereby increase our revenues by entering into the multimedia handset market. Microsoft Xbox On August...

  • Page 15
    ..., future cell phones will be able to receive television programs, record digital video like a camcorder, enable video phone calls, and be your portable game player. .11 Micron Process On February 24, 2004, we announced that we will be one of the first semiconductor companies to manufacture select...

  • Page 16
    ... than those projected by management, additional inventory writeâˆ'downs may be required that could adversely affect our operating results. If actual market conditions are more favorable, we may have higher gross margins when products are sold. No significant sales of such products have occurred to...

  • Page 17
    ... revenue related to stock option exchange Gross profit Operating expenses: Research and development Sales, general and administrative Inâˆ'process research and development Stock option exchange Amortization of goodwill Acquisition related charges Discontinued use of property Total operating expenses...

  • Page 18
    ... the United States for fiscal 2003 as compared to fiscal 2002 is primarily due to increased sales of XGPUs and MCPs used in the Microsoft Xbox product. Sales to Microsoft accounted for approximately 15% of revenues for fiscal 2004. Our other three largest customers accounted for approximately 45% of...

  • Page 19
    ...to the acquisition of assets from 3dfx in fiscal 2002. These charges primarily consisted of bonuses to former 3dfx employees. Discontinued Use of Property. Discontinued use of property consists of writeâˆ'offs of $3.7 million relating to our previous office space in Santa Clara, California. Since we...

  • Page 20
    ... 2001, we filed a complaint against Extreme Networks Inc., the sublessor of the property, seeking payment of lease payments and other property charges for the period of July 2001 through December 2001 and seeking a declaration that we are not liable for any future payments under the lease. In July...

  • Page 21
    ... of securities analysts or investors, our stock price could decline." Other key factors that could affect our liquidity include: Shelf Registration Statement In December 2003, we filed a Form Sâˆ'3 with the Securities and Exchange Commission, or SEC, under their "shelf" registration process. This...

  • Page 22
    ...our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if forced to sell securities that decline in market value due to changes in interest rates. However, because our debt securities are classified as "availableâˆ'forâˆ'sale...

  • Page 23
    ...are our only officers or employees bound by an employment agreement, and so our relationships with our other officers and employees are at will. We do not have "key person" life insurance policies on any of our employees. The loss of the services of any of our executive officers, technical personnel...

  • Page 24
    ... U.S. and international economies; · competitive pressures resulting in lower than expected average selling prices; · product rates of return in excess of that forecasted or expected due to quality issues; · the rescheduling or cancellation of customer orders; · the loss of a key customer or the...

  • Page 25
    ... price our products competitively; and · introduce the products to the market within the limited window for OEMs, ODMs, and addâˆ'in board and motherboard manufacturers. 26 As a result, we believe that significant expenditures for research and development will continue to be required in the future...

  • Page 26
    ... a limited number of customers and our sales are highly concentrated. Our sales process involves achieving key design wins with leading PC OEMs and major system builders and supporting the product design into high volume production with key CEMs, ODMs, motherboard and addâˆ'in board manufacturers...

  • Page 27
    ... per unit costs and force us to allocate our available product supply among our customers. This could potentially harm customer relationships as well as revenue and gross profit. We also face the risk of product recalls or product returns resulting from design or manufacturing defects that are not...

  • Page 28
    ... of product offerings, access to customers and distribution channels, backwardâˆ'forward software support, conformity to industry standard APIs, manufacturing capabilities, price of digital media processors and total system costs of addâˆ'in boards and motherboards. We expect competition to increase...

  • Page 29
    ... design wins, which entails having our existing and future products chosen for hardware components or subassemblies designed by PC OEMs, ODMs, and addâˆ'in board and motherboard manufacturers. Our addâˆ'in board and motherboard manufacturers and major OEM and ODM customers typically introduce...

  • Page 30
    ...consumer electronics applications. The market for digital media 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 and...

  • Page 31
    ... 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 digital media processors, and expect to continue to enter into license agreements for future products...

  • Page 32
    ...reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when recorded. Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent...

  • Page 33
    ... "Election of Directors" in our 2004 Proxy Statement, which information is hereby incorporated by reference. Identification of Executive Officers Reference is made to the information regarding executive officers appearing under the heading "Management" in Part I of this Annual Report on Form 10...

  • Page 34
    ...the Company adopted the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. /s/ KPMG LLP Mountain View, California February 12, 2004 38 NVIDIA CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data...

  • Page 35
    ... lease obligations, less current portion Longâˆ'term convertible debenture Longâˆ'term liabilities Commitments and contingent liabilities - see Note 13 Stockholders' equity: Common stock, $.001 par value; 1,000,000,000 shares authorized; 164,145,787 and 157,790,022 shares issued and outstanding...

  • Page 36
    Gross profit Operating expenses: Research and development Sales, general and administrative Inâˆ'process research and development Stock option exchange (1) Amortization of goodwill Acquisition related charges Discontinued use of property Total operating expenses Income from operations Interest ...

  • Page 37
    ... and amortization Writeâˆ'off of convertible debenture issuance costs Deferred income taxes Stockâˆ'based compensation Amortization of deferred compensation Issuance of common stock in exchange for stock options Bad debt expense Tax benefit from employee stock plans Changes in operating assets and...

  • Page 38
    ... Acquisition of businesses Purchases of property and equipment and intangible assets Release of restricted cash Net cash provided by (used in) investing activities Cash flows from financing activities: Redemption of convertible debenture Common stock issued under employee stock plans Sale lease...

  • Page 39
    ... of highly liquid investments with a maturity of greater than three months when purchased. We classify our marketable debt securities at the date of acquisition in the availableâˆ'forâˆ'sale category as our intention is to convert them into cash for operations. These securities are reported at...

  • Page 40
    ..., 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 perâˆ'share numbers contained herein reflect this stock split. Revenue Recognition We recognize revenue from product sales when persuasive evidence...

  • Page 41
    ... lease agreements for our headquarters facility, we may be obligated to return a minimal amount of property to its original condition upon lease termination based on the landlord's discretion at that time. We believe this obligation, if any, is immaterial. Income Taxes We record income taxes using...

  • Page 42
    ... income to the pro forma amounts indicated below: Year Ended Year Ended Year Ended January 25, 2004 January 26, 2003 January 27, 2002 (In thousands, except per share data) Net income, as reported Add: Stockâˆ'based employee compensation expense included in reported net income, net of related tax...

  • Page 43
    ...the period. Diluted net income per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period, using the asâˆ'ifâˆ'converted method for the convertible debentures and the treasury stock method for stock options. Under the asâˆ'if...

  • Page 44
    ..., or 3D, and advanced video efforts, leverage existing MediaQ channel and design wins, and enhance MediaQ's PDA business through our existing OEM and ODM channels. We believe that these objectives are achievable through the addition of a number of qualified engineers and technical employees from the...

  • Page 45
    ... acquisition: Straightâˆ'Line Fair Market Depreciation/Amortization Value Period (In thousands) Accounts receivable Inventories Other assets Property and equipment Deferred income tax assets Inâˆ'process research and development Goodwill Intangible assets: Existing technology Customer relationships...

  • Page 46
    .... The Asset Purchase Agreement also provided, subject to the other provisions thereof, that if 3dfx properly certified that all its debts and other liabilities had been provided for, then we would have been obligated to pay 3dfx two million shares of NVIDIA common stock. If 3dfx could not make such...

  • Page 47
    ... of highly liquid investments with a maturity of greater than three months when purchased. We classify our marketable debt securities at the date of acquisition in the availableâˆ'forâˆ'sale category as our intention is to convert them into cash for operations. These securities are reported at...

  • Page 48
    ... Total $ 341,269 681,419 1,022,688 $ The amortized cost and estimated fair value of cash equivalents and marketable securities classified as availableâˆ'forâˆ'sale at January 25, 2004 and at January 26, 2003 by expected maturity are shown below. January 25, 2004 Amortized Cost Estimated...

  • Page 49
    NVIDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) January 25, 2004 Property and Equipment: Software Test equipment Computer equipment Leasehold improvements Construction in process Office furniture and equipment $ January 26, 2003 (In thousands) 116,150 73...

  • Page 50
    ... for sales returns. In connection with certain agreements that we have executed in the past, we have at times provided indemnities to cover the indemnified party for matters such as tax, product and employee liabilities. We have also on occasion included intellectual property indemnification...

  • Page 51
    ... available for future issuance. The Purchase Plan is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code. Under the Purchase Plan, the Board has authorized participation by eligible employees, including officers, in periodic offerings following the...

  • Page 52
    ... case their contributions are refunded. The following summarizes the transactions under the 1998 Plan, 2000 Plan and Directors Plan: Options Available for Grant Options Outstanding Weighted Average Price Per Share Balances, January 28, 2001 Authorized Granted Exercised Cancelled Balances, January...

  • Page 53
    ... Internal Revenue Service annual contribution limits. Note 11 - Stock Option Exchange On September 26, 2002, we commenced an offer, or the Offer, to our employees to exchange outstanding stock options with exercise prices equal to or greater than $27.00 per share, or Eligible Options. Stock options...

  • Page 54
    ... costs. Lease Obligations Our headquarters complex is located on a leased site in Santa Clara, California and is comprised of five buildings. The related leases expire in 2012 and each includes two sevenâˆ'year renewals at our option. Future minimum lease payments under these operating leases total...

  • Page 55
    ... District of California. In December 2002, we were served with a complaint filed by the landlord of 3dfx's Austin, Texas commercial real estate lease. The landlords' complaints both assert claims for, among other things, interference with contract, successor liability and fraudulent transfer. The...

  • Page 56
    ... attributable to employer stock option plans Provision for income ...taxes $ (51,369) 19,861 35,274 âˆ'âˆ' 55,135 8,488 12,254 $ 20,690 20,569 9,319 âˆ'âˆ' 29,888 9,180 59,758 $ 38,807 (43,738) (8,176) âˆ'âˆ' (51,914) 88,932 75,825 61 NVIDIA... Inâˆ'process research and...

  • Page 57
    ... 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 our common stock, Microsoft has first...

  • Page 58
    ... related to pricing and volumes of the Xbox platform processors. The Microsoft Agreement contemplated the use of a third party to resolve disputed matters, and on April 23, 2002 Microsoft submitted the pricing dispute to binding arbitration. On February 6, 2003, NVIDIA and Microsoft announced that...

  • Page 59
    ...Customer B Customer C Customer D Note 17 - Quarterly Summary (Unaudited) Fiscal 2004 Quarters Ended Jan. 25, 2004 Oct. 26, 2003 July 27, 2003 April 27, 2003 15% âˆ'âˆ' 18% 21% 12% âˆ'âˆ' 17% 18% (In thousands, except per share data) Statement of Operations Data: Revenue Cost of revenue Gross profit...

  • Page 60
    ... and Restated Investors' Rights Agreement, dated April 12, 1999. Form of Indemnity Agreement between NVIDIA Corporation and each of its directors and officers. 1998 Equity Incentive Plan, as amended. 1998 Employee Stock Purchase Plan, as amended. Form of Employee Stock Purchase Plan Offering, as...

  • Page 61
    ... Chief Financial Officer pursuant to Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002. * The certifications attached as Exhibit 32.1 and Exhibit 32.2 accompany this Annual Report on Form 10âˆ'K are not deemed filed with the Securities and Exchange Commission...

  • Page 62
    ... Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ JENâˆ'HSUN HUANG Jenâˆ'Hsun Huang President, Chief Executive Officer and Director (Principal Executive...

  • Page 63
    Mark A. Stevens Director March 29, 2004 69

  • Page 64
    ..., Inc. 100% NVIDIA US Investment Company 100% NVIDIA Singapore Pte Ltd 100% NVIDIA Pty Limited 100% NVIDIA Ltd. 100% NVIDIA GmbH 100% Exluna, Inc. 100% MediaQ, Inc. 100% MediaQ KK 100% MediaQ International, Inc. 100% NVIDIA Hong Kong Holdings Limited 100% NVIDIA Hong Kong Limited 100% NVIDIA KK 100...

  • Page 65
    ... related schedule, which report appears in the January 25, 2004 annual report on Form 10âˆ'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. /s/ KPMG LLP Mountain View, California March...

  • Page 66
    ...registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors...

  • Page 67
    ...registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors...

  • Page 68
    ... 63 of Title 18 of the United States Code (18 U.S.C. § 1350), Jenâˆ'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 10âˆ'K for the year ended January 25, 2004...

  • Page 69
    ...filing of NVIDIA Corporation under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10âˆ'K), irrespective of any general incorporation language contained in such filing. _____ Created by 10KWizard Technology...