As filedFiled with the Securities and Exchange Commission on April 20, 2000.November 30, 2001
Registration No. 333-33560333-
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SECURITIES AND EXCHANGE COMMISSION
Washington,WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
to---------------------------------
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act ofUNDER
THE SECURITIES ACT OF 1933
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NVIDIA CORPORATION
(Exact nameName of registrant as specifiedRegistrant As Specified in its charter)
----------------
DelawareIts Charter)
DELAWARE 94-3177549
(State of incorporation )or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
3535 Monroe Street2701 San Tomas Expressway
Santa Clara, CA 95051California 95050
(408) 615-2500486-2000
(Address, including zip code, and telephone number, including area
code, of Registrant'sregistrant's principal executive offices)
----------------
Jen-Hsun Huang
Chief Executive Officer
NVIDIA Corporation
3535 Monroe Street2701 San Tomas Expressway
Santa Clara, CA 95051California 95050
(408) 615-2500486-2000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
James C. Gaither
Eric C. Jensen, Esq.
Karyn S. Tucker, Alyssa R. Harvey
Heather L. McCormickEsq.
Cooley Godward LLP
One Maritime Plaza, 20th Floor
San Francisco, CA 94111
(415) 693-2000
Approximate date of commencement of proposed sale to the public:Five Palo Alto Square
3000 El Camino Real
Palo Alto, California 94306
(650) 843-5000
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: From time to time after the
effective date of this Registration Statement.registration statement.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [_]|_|
If any of the securities being registered on this Formform are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]|X|
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]|_|
If this formForm is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]|_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------|_|
CALCULATION OF REGISTRATION FEE
- ------------------------------- ----------------------- -------------------- --------------------- ------------------
Proposed Maximum Proposed Maximum
Title of Shares to be Amount to be Offering Aggregate Amount of
Registered Registered (1) Price per Share (2) Offering Price (2) Registration Fee
- ------------------------------- ----------------------- -------------------- --------------------- ------------------
Common Stock, par value 20,000,000 shares $49.30 $986,000,000 $235,654
$0.001 per share
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(1) This registration statement shall cover any additional shares of common
stock of NVIDIA Corporation ("NVIDIA") which become issuable by reason of
any stock dividend, stock split, recapitalization or any other similar
transaction without receipt of consideration which results in an increase
in the number of shares of NVIDIA's outstanding common stock.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) of the Securities Act of 1933. The price per
share and aggregate offering price are based the average of the high and
low prices of the Registrant's Common Stock as reported on the Nasdaq
Stock Market for November 23, 2001 (pursuant to Rule 457(c) under the
Act).
================================================================================
The registrant hereby amends this Registration Statementregistration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statementregistration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statementregistration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+TheThe information in this preliminary prospectus is not complete and may be
changed. WeThe securities may +
+not sell these securities or accept an offer to buy these securitiesnot be sold until +
+thethe registration statement filed
with the Securities and Exchange Commission +
+isis effective. This preliminary
prospectus is not an offer to sell these securities and we +
+are not soliciting offersnor does it seek an offer to buy these
securities in any statejurisdiction where such +
+offerthe offer or sale is not permitted.
+
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (SubjectSubject to Completion)
Issued April 20, 2000
$400,000,000
NVIDIA CORPORATION
[NVIDIA LOGO]
Common Stock
Debt Securities
-----------
This prospectus relates to offerings from time to time byCompletion, Dated November 30, 2001
NVIDIA Corporation
ofBy this prospectus, we may offer up to 20,000,000 shares of itsour common stock
and debt securities. Specific terms of these
securities will be provided in supplements to this prospectus. You should read
this prospectus and any supplements carefully before you invest.
-------------------------------------------------
Our common stock is quoted on the Nasdaq National Market under the symbol
"NVDA." -----------
INVESTING IN THE COMMON STOCK OR DEBT SECURITIES INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 4.
-----------The closing sale price of a share of our common stock on November 29,
2001 was $53.61.
--------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commissionother regulatory
body has approved or disapproved of these securities or passed upon the adequacyaccuracy
or accuracyadequacy of this prospectus. Any representation to the contrary is a criminal
offense.
-----------
If we sellWe will provide the specific terms of the securities through agents or underwriters, we will include
their names and the fees, commissions and discounts they will receive, as well
as the net proceedsoffered in a
supplement to us, in the applicable prospectus supplement.
, 2000
TABLE OF CONTENTS
Page
----
About This Prospectus..................................................... i
Prospectus Summary........................................................ 1
The Securities We May Offer............................................... 3
Risk Factors.............................................................. 4
Forward-Looking Information............................................... 14
Ratio of Earnings to Fixed Charges........................................ 14
Use of Proceeds........................................................... 15
Common Stock Price Range.................................................. 15
Dividend Policy........................................................... 15
Selected Financial Data................................................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 17
Business.................................................................. 23
Management................................................................ 32
Principal Stockholders.................................................... 35
Description Of Capital Stock.............................................. 37
Description of Debt Securities............................................ 39
Plan of Distribution...................................................... 47
Legal Matters............................................................. 48
Experts................................................................... 48
Where You Can Find More Information....................................... 48
Index to Financial Statements............................................. F-1
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No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely
on any unauthorized information or representation.should read this prospectus and the
supplements carefully before you invest.
This prospectus is aninvestment involves a high degree of risk. See "Risk Factors" in the
supplement to this prospectus.
We may offer
to sell only the securities offered hereby, but only under circumstances and
in jurisdictions where it is lawful to do so.directly or through underwriters, agents or
dealers. The supplement will describe the terms of that plan of distribution.
"Plan of Distribution" below also provides more information contained inon this prospectus is current only as of its date.
----------------
"NVIDIA," the NVIDIA logo, "GeForce 256," the GeForce 256 logo, "NVIDIA
Quadro," "NVIDIA Vanta" and "Vanta" are our trademarks. Other brands, names
and trademarks appearing in this prospectus are the property of their
respective owners.
----------------
ABOUT THIS PROSPECTUStopic.
--------------------------------------
Prospectus dated __________, 2001.
About This Prospectus
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission utilizing a shelf"shelf" registration process.
Under this shelf registration process, we may sell thefrom time to time offer up to 20,000,000 shares
of our common stock, at prices and debton terms to be determined at the time of
sale. The common stock is referred to herein as "securities." The securities
offered pursuant to this prospectus may be issued in one or more offerings up to a total dollar amountseries of
$400,000,000. This prospectus provides you with a general descriptionissuances and the number of the
securities we may offer.shares of common stock sold hereunder will not
exceed 20,000,000 shares.
Each time we sell common stock and debtoffer these securities, we will provide a prospectus
supplement that will contain more specific information as set forth below under "The Securities We May Offer." Please
carefully read bothabout the terms of that
offering.
The registration statement that contains this prospectus and any prospectus supplement together
with(including
exhibits to the registration statement) contains additional information described belowabout
our company and the securities offered under this prospectus. The registration
statement can be read at the SEC web site or at the SEC offices mentioned under
the heading "Where You Can FindGet More Information." iThis prospectus may not be
used to consummate sales of securities unless accompanied by a prospectus
supplement.
2
PROSPECTUS SUMMARY
This summary highlights some information from this prospectus, and it maydoes not contain all of the information that is important to you. To understand the
terms of the securities, you should
read this prospectus with the accompanying
prospectus supplement carefully. Together, these documents describe the
specific terms of the securities we are offering.consider before investing in our common stock. You should also carefully
read the section titled "Risk Factors"entire
prospectus carefully, especially the risks of investing in our common stock
discussed under the Risk Factors section. In addition, we incorporate by
reference important business and financial information into this prospectus and the accompanying
prospectus supplement and the documents identified under "Where You Can Find
More Information."
Overviewprospectus.
Our Business
We design, develop and market agraphics processors and related software for
personal computers, or PCs, workstations and digital entertainment platforms. We
provide an architecturally compatible "top-to-bottom" family of award-winning
performance 3D graphics processors and graphics processing units, or GPUs, and related software that
set the standard for performance, quality and features for every typea broad range of
desktop personal computer, or PC, user,PCs, from professional workstations to low-
cost PCs.low-cost PCs and mobile PCs, from
performance laptops to thin-and-light notebooks. Our 3D graphics processors are
used infor a wide variety of applications, including games, the Internet, industrial design, e-commerce,
enterprise visualization and education. Our graphics processors were the first
to incorporate a 128-bit multi-texturing graphics architecture designed to
deliver to users of our products a highly immersive, interactive 3D experience
with compelling visual quality, realistic imagery and motion, stunning effects,
and complex object and scene interaction at real-time frame rates. The NVIDIA
TNT2, TNT2 M64 and Vanta graphics processors deliver high performance 3D and 2D
graphics at an affordable price, making them the graphics hardware of choice
for a wide range of applications for both consumer and commercial use. Our
graphics processors are designed to be architecturally compatible backward and
forward, giving our original equipment manufacturer, or OEM, customers and end
users a low cost of ownership. We are recognized for developing the world's
first GPU, our latest generation graphics processor, which incorporates
independent hardware transform and lighting processing units along with a
complete rendering pipeline into a single-chip architecture. Our GPUs, the
GeForce 256 and NVIDIA Quadro, process over 200 billion operations per second
and increase the PC's ability to render high-definition 3D scenes in real-time.
Our GPU family provides superior processing and rendering power at competitive
prices and is architected to deliver the maximum performance from industry
standards such as Microsoft Corporation's Direct3D application programming
interface, or API, and Silicon Graphics Inc.'s, or SGI's, OpenGL API on Windows
98, Windows 2000 and Linux platforms alike. We are also developing an
integrated core logic/graphics chipset called Aladdin TNT2 through a
partnership with Acer Laboratories Inc., or ALi, one of the leading suppliers
of core logic chipsets for the PC. The Aladdin TNT2 chipset is intended to
bring NVIDIA-class industry-leading graphics performance and visual quality to
the value PC segment.
We designed our GPUs and graphics processors to enable PC OEMs and add-in
board manufacturers to build award-winning products by delivering state-of-the-
art interactive 3D graphics capability to end users while maintaining
affordable prices. We believe that a PC's interactive 3D graphics capability
represents one of the primary means by which users differentiate among various
systems. PC users today can easily differentiate the quality of graphics and
prefer personal computers that provide a superior visual experience. We believe
that by developing 3D graphics solutions that provide superior performance and
address the key requirements of the PC market, we will accelerate the adoption
of 3D graphics throughout this market. The benefits and performance of the
NVIDIA family of 3D graphics processors have received significant industry
validation and have enabled our customers to win over 400 industry awards. Our
graphics processors, GPUs and related software currently are designed into
products offered by virtually every leading branded PC OEM, including the Acer
Group, Compaq Computer Corporation, Dell Computer Corporation, eMachines, Inc.,
Gateway, Inc., Hewlett-Packard Company, International Business Machines
Corporation, Micron Technology, Inc., Packard Bell NEC, Inc. and Sony
Corporation, as well as leading contract electronics manufacturers, or CEMs,
including Celestica Hong Kong Ltd., Intel Corporation, Mitac International
Corporation, Micro-Star International Co., Ltd., SCI Systems, Inc. and
VisionTek, Inc. and leading add-in board manufacturers, including ASUSTeK
Computer Inc., Canopus Corporation, Creative Technology Ltd., ELSA AG, and
Guillemot Corporation. NVIDIA's products are distributed through a worldwide
channel that includes PC OEM, add-in card and motherboard partners in Europe,
Asia and North America. NVIDIA's products deliver leading-edge performance in
all areas of visual computing including: 3D and 2D graphics, VGA and digital video.
1
We were incorporated in California in April 1993 and reincorporated in
Delaware in April 1998. Our executive offices are located at 3535 Monroe
Street, Santa Clara, California 95051, and our telephone number is (408) 615-
2500. Our web site is located at www.nvidia.com. Information contained on our
web site should not be deemed to be part of this prospectus.
Recent Developments
On March 5, 2000, we entered into an agreement with Microsoft in which we
agreed to develop and sell graphics chips and to license certain technology to
Microsoft and its licensees for use in a product under development by
Microsoft. In April 2000, Microsoft paid us $200 million as an advance against
graphics chip purchases and for licensing our technology. Microsoft may
terminate the agreement at any time and if termination occurs prior to offset
in full of the advance payments, we would be required to return to Microsoft up
to $100 million of the prepayment and to convert the remainder into our
preferred stock at a 30% premium to the 30-day average trading price of our
common stock.
SUMMARY FINANCIAL DATA
Year Ended December
31, Month Ended Year Ended Year Ended
----------------------- January 31, January 31, January 30,
1995 1996 1997 1998 1999 2000
------ ------ ------- ----------- ----------- -----------
(In thousands, except per share data)
Statement of Operations
Data:
Revenues................ $1,182 $3,912 $29,071 $13,331 $158,237 $374,505
Operating income (loss). (6,470) (2,993) (3,459) 1,499 4,516 54,412
Net income (loss)....... (6,377) (3,077) (3,589) 1,347 4,130 38,098
Diluted net income
(loss) per share....... (.56) (.27) (.28) .05 .15 1.06
Shares used in diluted
per share
computation(1)......... 11,365 11,383 12,677 26,100 27,393 36,098
Other Data:
Ratio of earnings to
fixed charges.......... -- -- -- 37x 8x 68x
December 31, January 31,
----------------------- ----------------------- January 30,
1995 1996 1997 1998 1999 2000
------ ------ ------- ----------- ----------- -----------
Balance Sheet Data:
Cash and cash
equivalents............ $3,872 $3,133 $ 6,551 $ 7,984 $ 50,257 $ 61,560
Total assets............ 6,793 5,525 25,039 30,172 113,332 202,250
Capital lease
obligations, less
current portion........ 1,137 617 1,891 1,756 1,995 962
Total stockholders'
equity................. 4,013 1,037 6,897 8,610 64,209 124,563
- ----------------
(1) See Note 1 to Financial Statements for an explanation of the determination
of the number of shares used in per share computations.
2
THE SECURITIES WE MAY OFFER
We may offer shares of our common stock and various series of debt
securities, with a total value of up to $400 million, from time to time, under
this prospectus at prices and on terms to be determined by market conditions at
the time of offering. This prospectus provides you with a general description
of the securities we may offer. Each time we offer a type or series of
securities, we will provide a prospectus supplement that will describe the
specific amounts, prices and other important terms of the securities,
including, to the extent applicable:
. designation or classification;
. aggregate principal amount or aggregate offering price;
. maturity, if applicable;
. rates and times of payment of interest or dividends, if any;
. redemption, conversion or sinking fund terms, if any;
. voting or other rights, if any;
. conversion prices, if any; and
. important federal income tax considerations.
The prospectus supplement also may add, update or change information
contained in the prospectus or in documents we have incorporated by reference.
THIS PROSPECTUS MAY NOT BE USED TO COMPLETE ANY SALE OF SECURITIES UNLESS IT IS
ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
We may sell the securities directly to or through agents, underwriters or
dealers. We, and our agents or underwriters, reserve the right to accept or
reject all or part of any proposed purchase of securities. If we do offer
securities through agents or underwriters, we will include in the applicable
prospectus supplement:
. the names of those agents or underwriters;
. applicable fees, discounts and commissions to be paid to them; and
. the net proceeds to us.
Common Stock. We may issue shares of our common stock, from time to time.
Holders of common stock are entitled to one vote per share on all matters
submitted to a vote of stockholders, except those matters that are submitted
solely to a vote of the holders of preferred stock. Subject to any preferences
of outstanding shares of preferred stock, holders of common stock are entitled
to dividends when and if declared by the board of directors.
Debt Securities. We may offer debt securities from time to time, in one or
more series, as either senior or subordinated debt or as senior or subordinated
convertible debt. The senior debt securities will rank equally with all of our
other unsecured and unsubordinated debt. The subordinated debt securities will
be subordinate and junior in right of payment, to the extent and in the manner
described in the instrument governing the debt, to all of our senior
indebtedness. Convertible debt securities will be convertible into our common
stock. Conversion may be mandatory or at your option, and would be at
prescribed conversion rates.
The debt securities will be issued under indentures between us and Chase
Manhattan Bank and Trust Company, N.A., a national banking association. In this
prospectus, we have summarized certain general features of the debt securities.
We urge you, however, to read the prospectus supplements related to the series
of debt securities being offered, as well as the complete indentures, which
contain the terms of the debt securities. The indentures have been filed as
exhibits to the registration statement of which this prospectus is a part or
will be incorporated by reference from reports we file with the SEC.
3
RISK FACTORS
You should carefully consider and evaluate all of the information in this
prospectus, including the risk factors listed below. Any of these risks could
materially and adversely affect ourimage editing,
business financial condition and results
of operations, which in turn could materially and adversely affect the price
of the debt securities and the common stock. The prospectus supplement
applicable to each type or series of securities also will contain a discussion
of risks applicable to an investment in our company and to the particular
types of securities that we are offering under that supplement. Prior to
making a decision about investing in our securities, you should carefully
consider the specific factors discussed under the caption "Risk Factors" in
both the prospectus and the applicable prospectus supplement, together with
all of the other information contained in this prospectus and the prospectus
supplement or appearing or incorporated by reference in the registration
statement of which this prospectus is a part.
Keep these risk factors in mind when you read "forward-looking" statements
elsewhere in this prospectus and in the applicable prospectus supplements and
in the documents incorporated by reference. Such statements relate to our
expectations about future events and time periods. Generally, the words
"anticipate," "expect," "intend" and similar expressions identify forward-
looking statements. Forward-looking statements involve risks and
uncertainties, and future events and circumstances could differ significantly
from those anticipated in the forward-looking statements.
Our operating results are unpredictable and may fluctuate.
Many of our revenue components fluctuate and are difficult to predict, and
our operating expenses are largely independent of revenue in any particular
period. It is therefore difficult for us to accurately forecast revenue and
profits or losses. We believe that our quarterly and annual results of
operations will be affected by a variety of factors that could adversely
affect our revenue, gross profit and results of operations.
Factors that have affected our results of operations in the past, and could
affect our results of operations in the future, include the following:
. demand and market acceptance for our products and/or our customers'
products;
. the successful development and volume production of next-generation
products;
. new product announcements or product introductions by our competitors;
. our ability to introduce new products in accordance with OEM design
requirements and design cycles;
. changes in the timing of product orders due to unexpected delays in the
introduction of our customers' products;
. fluctuations in the availability of manufacturing capacity or
manufacturing yields;
. competitive pressures resulting in lower than expected average selling
prices;
. rates of return in excess of those forecasted or expected;
. the rescheduling or cancellation of customer orders;
. the loss of a key customer or the termination of a strategic
relationship;
. seasonal fluctuations associated with the PC market;
. substantial disruption in our suppliers' operations, either as a result
of a natural disaster, equipment failure or other cause;
. supply constraints for and changes in the cost of the other components
incorporated into our customers' products, including memory devices;
4
. our ability to reduce the manufacturing costs of our products;
. legal and other costs related to intellectual property matters;
. unexpected inventory write-downs; and
. introductions of enabling technologies to keep pace with faster
generations of processors and controllers.
Any one or more of the factors discussed above could prevent us from
achieving our expected future revenue or net income.
Because most operating expenses are relatively fixed in the short term, we
may be unable to adjust spending sufficiently in a timely manner to compensate
for any unexpected sales shortfall. We may be required to reduce prices in
response to competition or to pursue new market opportunities. If new
competitors, technological advances by existing competitors or other
competitive factors require us to invest significantly greater resources than
anticipated in research and development or sales and marketing efforts, our
business could suffer. Accordingly, we believe that period-to-period
comparisons of our results of operations should not be relied upon as an
indication of future performance. In addition, the results of any quarterly
period are not indicative of results to be expected for a full fiscal year.
Our 3D graphics solution may not continue to be accepted by the PC market.
Our success will depend in part upon continued broad adoption of our 3D
graphics processors for high performance 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 and other changes in the total system cost of
add-in boards, as well as by severe price competition and by frequent new
technology and product introductions. Only a small number of products have
achieved broad market acceptance and such market acceptance, if achieved, is
difficult to sustain due to intense competition. Since we have no other
product line, our business would suffer if for any reason our current or
future 3D graphics processors do not continue to achieve widespread acceptance
in the PC market. If we are unable to complete the timely development of or
successfully and cost-effectively manufacture and deliver products that meet
the requirements of the PC market, our business would be harmed.
Our integrated graphics product may not be accepted by the PC market.
We expect that integrated graphics chipset products will become an
increasing part of the lower cost segment of the PC graphics market. We have
only recently introduced a 3D graphics processor targeted at this segment. If
this product is not competitive in this segment and the integrated chipset
segment continues to account for an increasing percentage of the units sold in
the PC market, our business may suffer.
We need to develop new products and to manage product transitions in order
to succeed.
Our business will depend to a significant extent on our ability to
successfully develop new products for the 3D graphics market. Our add-in board
manufacturers and major OEM customers typically introduce new system
configurations as often as twice per year, typically based on spring and fall
design cycles. Accordingly, our existing products must have competitive
performance levels or we must timely introduce new products with such
performance characteristics in order to be included in new system
configurations. This requires that we do the following:
. anticipate the features and functionality that consumers will demand;
. incorporate those features and functionality into products that meet the
exacting design requirements of PC OEMs and add-in board manufacturers
or CEMs;
5
. price our products competitively; and
. introduce the products to the market within the limited window for PC
OEM and add-in board manufacturer.
As a result, we believe that significant expenditures for research and
development will continue to be required in the future. The success of new
product introductions will depend on several factors, including the following:
. proper new product definition;
. timely completion and introduction of new product designs;
. the ability of Taiwan Semiconductor Manufacturing Co., or TSMC, our
primary manufacturer, WaferTech, a joint venture controlled by TSMC, and
any additional third-party manufacturers to effectively manufacture our
new products;
. the quality of any new products;
. differentiation of new products from those of our competitors; and
. market acceptance of our and our customers' products.
Our strategy is to utilize the most advanced process technology appropriate
for our products and available from commercial third-party foundries. Use of
advanced processes has in the past resulted in initial yield problems. New
products that we introduce may not incorporate the features and functionality
demanded by PC OEMs, add-in board manufacturers and consumers of 3D graphics.
In addition, we may not successfully develop or introduce new products in
sufficient volumes within the appropriate time to meet both the PC OEMs'
design cycles and market demand. We have in the past experienced delays in the
development of some new products. Our failure to successfully develop,
introduce or achieve market acceptance for new 3D graphics products would harm
our business.
Our failure to identify new product opportunities or to develop new products
may result in production delays.
As markets for our 3D graphics processors develop and competition increases,
we anticipate that product life cycles at the high end will remain short and
average selling prices, or ASPs, will continue to decline. In particular, we
expect ASPs and gross margins for our 3D graphics processors to decline as
each product matures and as unit volume increases. As a result, we will need
to introduce new products and enhancements to existing products to maintain
overall ASPs and gross margins. In order for our 3D graphics processors to
achieve high volumes, leading PC OEMs and add-in board manufacturers must
select our 3D graphics processor for design into their products, and then
successfully complete the designs of their products and sell them. We may be
unable to successfully identify new product opportunities or to develop and
bring to market in a timely fashion any new products. In addition, we cannot
guarantee that any new products we develop will be selected for design into
PC OEMs' and add-in board manufacturers' products, that any new designs will
be successfully completed or that any new products will be sold. As the
complexity of our products and the manufacturing process for products
increases, there is an increasing risk that we will experience problems with
the performance of products and that there will be delays in the development,
introduction or volume shipment of our products. We may experience
difficulties related to the production of current or future products or other
factors may delay the introduction or volume sale of new products we
developed. In addition, we may be unable to successfully manage the production
transition risks with respect to future products. Failure to achieve any of
the foregoing with respect to future products or product enhancements could
result in rapidly declining ASPs, reduced margins, and reduced demand for
products or loss of market share. In addition, technologies developed by
others may render our 3D graphics products non-competitive or obsolete or
result in our holding excess inventory, either of which would harm our
business.
6
We rely on third-party vendors to supply us tools for the development of
our new products and we may be unable to obtain the tools necessary to develop
these products.
In the design and development of new products and product enhancements, we
rely on third-party software development tools. While we currently are not
dependent on any one vendor for the supply of these tools, some or all of
these tools may not be readily available in the future. For example, we have
experienced delays in the introduction of products in the past as a result of
the inability of then available software development tools to fully simulate
the complex features and functionalities of our products. The design
requirements necessary to meet consumer demands for more features and greater
functionality from 3D graphics products in the future may exceed the
capabilities of the software development tools available to us. If the
software development tools we use become unavailable or fail to produce
designs that meet consumer demands, our business could suffer.
Our industry is characterized by vigorous protection and pursuit of
intellectual property rights or positions that could result in substantial
costs to us.
The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights or positions, which has resulted in
protracted and expensive litigation. The 3D graphics market in particular has
been characterized recently by the aggressive pursuit of intellectual property
positions, and we expect our competitors to continue to pursue aggressive
intellectual property positions. In addition, from time to time we receive
notices alleging that we have infringed patents or other intellectual property
rights owned by third parties. We expect that, as the number of issued
hardware and software patents increases, and as competition in our markets
intensifies, the volume of intellectual property infringement claims will
increase. If infringement claims are made against us, we may seek licenses
under the claimant's patents or other intellectual property rights. However,
licenses may not be offered at all or on terms acceptable to us. The failure
to obtain a license from a third party for technology used by us could cause
us to incur substantial liabilities and to suspend the manufacture of
products. Furthermore, we may initiate claims or litigation against third
parties for infringement of our proprietary rights or to establish the
validity of our proprietary rights. We have agreed to indemnify certain
customers for claims of infringement arising out of sale of our products.
Litigation by or against us or our customers concerning infringement would
likely result in significant expense to us and divert the efforts of our
technical and management personnel, whether or not the litigation results in a
favorable determination for us.
We are subject to a patent infringement lawsuit that could divert our
resources and result in the payment of substantial damages.
On September 21, 1998, 3Dfx Interactive, Inc. filed a patent infringement
suit against us in the United States District Court for the Northern District
of California alleging infringement of a 3Dfx patent. On March 2, 1999, 3Dfx
added a second patent to the suit and on May 24, 1999, 3Dfx added a third
patent to the suit. The amended complaint alleges that our RIVA TNT, RIVA TNT2
and RIVA TNT2 Ultra products infringe the patents in suit and seeks
unspecified compensatory and trebled damages and attorney's fees. Our current
generation of products is not identified as infringing any of the patents in
suit. We have filed an answer and counter-claims asserting that the patents in
suit are invalid and not infringed. These assertions are supported by our
investigations to date and an opinion from our patent counsel in this suit. We
anticipate that the trial date will be set by the District Court after it
rules on claims construction issues. We have and will continue to defend
vigorously this suit. The litigation with 3Dfx has resulted, and we expect
that the 3Dfx litigation will continue to result, in significant legal
expenses, whether or not the litigation results in a favorable determination
for us. In the event of an adverse result in the 3Dfx suit, we might be
required to do one or more of the following:
. pay substantial damages (including treble damages);
. permanently cease the manufacture and sale of any of the infringing
products;
. expend significant resources to develop non-infringing products; or
. obtain a license from 3Dfx for infringing products.
We have in the past been subject to patent infringement suits with SGI and
S3 Incorporated, both of which were settled and resulted in cross-licenses
and, in the case of SGI, payments by us.
7
We may be unable to adequately protect our intellectual property.
We rely primarily on a combination of patents, trademarks, copyrights, trade
secrets, employee and third-party nondisclosure agreements and licensing
arrangements to protect our intellectual property. We own 28 issued United
States patents, have 4 United States patent applications allowed, 25 United
States patent applications pending and have 15 United States patent
applications being drafted for filing. Our issued patents have expiration
dates from April 14, 2015 to March 30, 2018. Our issued patents and pending
patent applications relate to technology developed by us in connection with
the development of our 3D graphics processors. Our pending patent applications
and any future applications may not be approved. In addition, any issued
patents may not provide us with competitive advantages or may be challenged by
third parties. The enforcement of patents of others may harm our ability to
conduct our business. Others may independently develop substantially
equivalent intellectual property or otherwise gain access to our trade secrets
or intellectual property, or disclose our intellectual property or trade
secrets. 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. These licenses may result in royalty
payments to third parties, the cross-license of technology by us or payment of
other consideration. If these arrangements are not concluded on commercially
reasonable terms, our business could suffer.
Our failure to achieve one or more design wins would harm our business.
Our future success will depend in large part on achieving design wins, which
entails having our existing and future products chosen as the 3D graphics
processors for hardware components or subassemblies designed by PC OEMs and
motherboard and add-in board manufacturers. Our add-in board manufacturers and
major OEM customers typically introduce new system configurations as often as
twice per year, generally based on spring and fall design cycles. Accordingly,
our existing products must have competitive performance levels or we must
timely introduce new products with such performance characteristics in order
to be included in new system configurations. Our failure to achieve one or
more design wins would harm our business. The process of being qualified for
inclusion in a PC OEM's product can be lengthy and could cause us to miss a
cycle in the demand of end users for a particular product feature, which also
could harm our business.
Our ability to achieve design wins also depends in part on our ability to
identify and ensure compliance with evolving industry standards. Unanticipated
changes in industry standards could render our products incompatible with
products developed by major hardware manufacturers and software developers,
including Intel and Microsoft. This would require us to invest significant
time and resources to redesign our products to ensure compliance with relevant
standards. If our products are not in compliance with prevailing industry
standards for a significant period of time, our ability to achieve design wins
could suffer.
We are dependent on the PC market, which may not continue to grow.
In fiscal 2000, we derived all of our revenue from the sale of products for
use in PCs. We expect to continue to derive substantially all of our revenue
from the sale or license of products for use in PCs in the next several years.
The PC market is characterized by rapidly changing technology, evolving
industry standards, frequent new product introductions and significant price
competition. These factors result in short product life cycles and regular
reductions of ASPs over the life of a specific product. Although the PC market
has grown substantially in recent years, this growth may not continue. A
reduction in sales of PCs, or a reduction in the growth rate of PC sales,
would likely reduce demand for our products. Moreover, changes in demand could
be large and sudden. Since PC manufacturers often build inventories during
periods of anticipated growth, they may be left with excess inventories if
growth slows or if they have incorrectly forecast product transitions. In
these cases, PC manufacturers may abruptly suspend substantially all purchases
of additional inventory from suppliers like us until the excess inventory has
been absorbed. Any reduction in the demand for PCs generally, or for a
particular product that incorporates our 3D graphic processors, could harm our
business.
8
The acceptance of next generation products in business PC 3D graphics may
not continue to develop.
Our success will depend in part upon the demand for performance 3D graphics
for business PC applications. The market for performance 3D graphics on
business PCs has only recently begun to emerge and is dependent on the future
development of, and substantial end-user and OEM demand for, 3D graphics
functionality. As a result, the market for business PC 3D graphics computing
may not continue to develop or may not grow at a rate sufficient to support
our business. The development of the market for performance 3D graphics on
business PCs will in turn depend on the development and availability of a
large number of business PC software applications that support or take
advantage of performance 3D graphics capabilities. Currently there are only a
limited number of software applications like this, most of which are games,
and a broader base of software applications may not develop in the near term
or at all. Consequently, a broad market for full function performance 3D
graphics on business PCs may not develop. Our business prospects will suffer
if the market for business PC 3D graphics fails to develop or develops more
slowly than expected.
We are dependent on a small number of customers and we are subject to order
and shipment uncertainties.
We have only a limited number of customers and our sales are highly
concentrated. We primarily sell our products to add-in board and motherboard
manufacturers and CEMs, which incorporate graphics products in the boards they
sell to PC OEMs. Sales to add-in board manufacturers and CEMs are primarily
dependent on achieving design wins with leading PC OEMs. We believe that a
substantial portion of our revenue in fiscal 2000 was attributable to products
that ultimately were incorporated into PCs sold by Compaq, Dell, Gateway, HP,
IBM and Micron. The number of add-in board manufacturers and CEMs and leading
PC OEMs is limited. We expect that a small number of add-in board
manufacturers and CEMs directly, and a small number of PC OEMs indirectly,
will continue to account for a substantial portion of our revenue for the
foreseeable future. As a result, our business could be harmed by the loss of
business from PC OEMs or add-in board manufacturers and CEMs. In addition,
revenue from add-in board manufacturers, motherboard manufacturers, CEMs and
PC OEMs that have directly or indirectly accounted for significant revenue in
past periods, individually or as a group, may not continue, or may not reach
or exceed historical levels in any future period. In October 1999, S3, a
supplier of graphics processors and a competitor, completed the acquisition of
Diamond Multimedia Systems, Inc., one of our largest customers. In the fourth
quarter of fiscal 2000, following the consummation of the acquisition, our
sales to Diamond declined significantly to only 3% of total revenue from 24%
of total revenue in the second quarter of fiscal 2000. 3Dfx, a 3D graphics
company and a competitor, completed the acquisition of STB Systems, Inc. in
May 1999. Sales to STB, another one of our largest customers, declined
significantly from prior levels following the acquisition and our relationship
with STB terminated in the fourth quarter of fiscal 2000.
We may be unable to manage our growth and, as a result, may be unable to
successfully implement our strategy.
Our rapid growth has placed, and is expected to continue to place, a
significant strain on our managerial, operational and financial resources. As
of January 30, 2000, we had 392 employees as compared to 248 employees as of
January 31, 1999. We expect that the number of our employees will increase
substantially over the next 12 months. Our future growth, if any, will depend
on our ability to continue to implement and improve operational, financial and
management information and control systems on a timely basis, as well as our
ability to maintain effective cost controls. Further, we will be required to
manage multiple relationships with various customers and other third parties.
Our systems, procedures or controls may not be adequate to support our
operations and our management may be unable to achieve the rapid execution
necessary to successfully implement our strategy.
We are dependent on key personnel and the loss of these employees could harm
our business.
Our performance will be substantially dependent on the performance of our
executive officers and key employees. None of our officers or employees is
bound by an employment agreement, and our relationships with
9
these officers and employees are, therefore, 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 or other key
employees, particularly Jen-Hsun Huang, our President and Chief Executive
Officer, would harm our business. Our success will depend on our ability to
identify, hire, train and retain highly qualified technical and managerial
personnel. Our failure to attract and retain the necessary technical and
managerial personnel would harm our business.
We depend on third-party fabrications to produce our products.
We do not manufacture the semiconductor wafers used for our products and do
not own or operate a wafer fabrication facility. Our products require wafers
manufactured with state-of-the-art fabrication equipment and techniques. We
utilize TSMC and WaferTech to produce our semiconductor wafers and utilize
independent contractors to perform assembly, test and packaging. We depend on
these suppliers to allocate to us a portion of their manufacturing capacity
sufficient to meet our needs, to produce products of acceptable quality and at
acceptable manufacturing yields, and to deliver those products to us on a
timely basis. These manufacturers may be unable to meet our near-term or long-
term manufacturing requirements. We obtain manufacturing services on a
purchase order basis and TSMC has no obligation to provide us with any
specified minimum quantities of product. TSMC fabricates wafers for other
companies, including certain of our competitors, and could choose to
prioritize capacity for other users or reduce or eliminate deliveries to us on
short notice. Because the lead time needed to establish a strategic
relationship with a new manufacturing partner could be several quarters, there
is no readily available alternative source of supply for any specific product.
We believe that long-term market acceptance for our products will depend on
reliable relationships with TSMC and any other manufacturers used by us to
ensure adequate product supply to respond to customer demand.
In September 1999, the earthquake in Taiwan contributed to a temporary
shortage of graphics processors in the third and fourth quarters of fiscal
2000. Any substantial disruption in our suppliers' operations, either as a
result of a natural disaster, equipment failure or other cause, could harm our
business.
We are dependent primarily on TSMC and we expect in the future to continue
to be dependent upon third-party manufacturers to do the following:
. produce wafers of acceptable quality and with acceptable manufacturing
yields;
. deliver those wafers to us and our independent assembly and testing
subcontractors on a timely basis; and;
. allocate to us a portion of their manufacturing capacity sufficient to
meet our needs.
Our wafer requirements represent a significant portion of the total
production capacity of TSMC. Although our products are designed using TSMC's
process design rules, TSMC may be unable to achieve or maintain acceptable
yields or deliver sufficient quantities of wafers on a timely basis or at an
acceptable cost. Additionally, TSMC may not continue to devote resources to
the production of our products, or to advance the process design technologies
on which the manufacturing of our products are based. Any difficulties like
these would harm our business.
Failure to achieve expected manufacturing yields would reduce our product
supply and harm our business.
Semiconductor manufacturing yields are a function both of product design,
which is developed largely by us, and process technology, which typically is
proprietary to the manufacturer. Since low yields may result from either
design or process technology failures, yield problems may not be effectively
determined or resolved until an actual product exists that can be analyzed and
tested to identify process sensitivities relating to the design rules that are
used. As a result, yield problems may not be identified until well into the
production process, and resolution of yield problems would require cooperation
by and communication between us and the manufacturer.
10
The risk of low yields is compounded by the offshore location of most of our
manufacturers, increasing the effort and time required to identify,
communicate and resolve manufacturing yield problems. Because of our
potentially limited access to wafer fabrication capacity from our
manufacturers, any decrease in manufacturing yields could result in an
increase in our 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. Our wafer manufacturers may be unable to
achieve or maintain acceptable manufacturing yields in the future. Our
inability to achieve planned yields from our wafer manufacturers could harm
our business. We also face the risk of product recalls or product returns
resulting from design or manufacturing defects that are not discovered during
the manufacturing and testing process. In the event of a significant number of
product returns due to a defect or recall, our business could suffer.
Failure to transition to new manufacturing process technologies could affect
our ability to compete effectively.
Our strategy is to utilize the most advanced process technology appropriate
for our products and available from commercial third-party foundries. Use of
advanced processes may have greater risk of initial yield problems.
Manufacturing process technologies are subject to rapid change and require
significant expenditures for research and development. We continuously
evaluate the benefits of migrating to smaller geometry process technologies in
order to improve performance and reduce costs. We have migrated to the .22
micron technology with the RIVA TNT2 and GeForce families of graphics
processors, and we believe that the transition of our products to increasingly
smaller geometries will be important to our competitive position. Other
companies in the industry have experienced difficulty in migrating to new
manufacturing processes and, consequently, have suffered reduced yields,
delays in product deliveries and increased expense levels. We may experience
similar difficulties and the corresponding negative effects. Moreover, we are
dependent on our relationships with our third-party manufacturers to migrate
to smaller geometry processes successfully. We may be unable to migrate to new
manufacturing process technologies successfully or on a timely basis.
The 3D graphics industry is highly competitive and we may be unable to
compete.
The market for 3D graphics processors for PCs in which we compete is
intensely competitive and is characterized by rapid technological change,
evolving industry standards and declining ASPs. We believe that the principal
competitive factors in this market are performance, breadth of product
offerings, access to customers and distribution 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 that may be less costly than
our 3D graphics processors or may provide better performance or additional
features not provided by our products. We may be unable to compete
successfully in the emerging PC graphics market.
Our primary source of competition is from companies that provide or intend
to provide 3D graphics solutions for the PC market. Our competitors include
the following:
. suppliers of graphics add-in boards that utilize their internally
developed graphics chips, such as ATI Technologies Inc., Matrox
Electronics Systems Ltd. and S3;
. suppliers of integrated core logic chipsets that incorporate 2D and 3D
graphics functionality as part of their existing solutions, such as
Intel, Silicon Integrated Systems and Via Technologies;
. companies that have traditionally focused on the professional market and
provide high end 3D solutions for PCs and workstations, including 3Dlabs
Inc., Ltd., SGI, Evans and Sutherland Computer Corporation and
Intergraph Corporation; and
. companies with strength in the video game market, such as 3Dfx and
VideoLogic Group plc.
11
We may compete with Intel in the integrated low-cost chipset market.
In June 1999, Intel began shipping the Intel 810, a 3D graphics chipset that
is targeted at the low-cost PC market. Intel has significantly greater
resources than we do, and our products may not compete effectively against
future products introduced by Intel. In addition, we may be unable to compete
effectively against Intel or Intel may introduce additional products that are
competitive with our products in either performance or price or both. We
expect Intel to continue to do the following:
. invest heavily in research and development and new manufacturing
facilities;
. maintain its position as the largest manufacturer of PC microprocessors
and one of the largest manufacturers of motherboards;
. increasingly dominate the PC platform; and
. promote its product offerings through advertising campaigns designed to
engender brand loyalty among PC users.
Intel may in the future develop graphics add-in cards or graphics-enabled
motherboards that could directly compete with graphics add-in cards or
graphics-enabled motherboards that our customers may develop. In addition, due
to the widespread industry acceptance of Intel's microprocessor architecture
and interface architecture, including its AGP, and Intel's intellectual
property position with respect to such architecture, Intel exercises
significant influence over the PC industry generally. Any significant
modifications by Intel to the AGP, the microprocessor or core logic components
or other aspects of the PC microprocessor architecture could result in
incompatibility with our technology, which would harm our business. In
addition, any delay in the public release of information relating to
modifications like this could harm our business.
We are dependent on third parties for assembly and testing of our products.
Our graphics processors are assembled and tested by Amkor Technology Inc.,
Siliconware Precision Industries Company Ltd., ChipPAC Incorporated and ASE.
We do not have long-term agreements with any of these subcontractors. As a
result of our dependence on third-party subcontractors for assembly and
testing of our products, we do not directly control product delivery schedules
or product quality. Any product shortages or quality assurance problems could
increase the costs of manufacture, assembly or testing of our products and
could harm our business. Due to the amount of time typically required to
qualify assemblers and testers, we could experience significant delays in the
shipment of our products if we are required to find alternative third parties
to assemble or test our products or components. Any delays in delivery of our
products could harm our business.
We are subject to risks associated with product defects and
incompatibilities.
Products as complex as those offered by us may contain defects or failures
when introduced or when new versions or enhancements to existing products are
released. We have in the past discovered software defects and
incompatibilities with customers' hardware in certain of our products and may
experience delays or lost revenue to correct any new defects in the future.
Errors in new products or releases after commencement of commercial shipments
could result in loss of market share or failure to achieve market acceptance.
Our products typically go through only one verification cycle prior to
beginning volume production and distribution. As a result, our products may
contain defects or flaws that are undetected prior to volume production and
distribution. The widespread production and distribution of defective products
could harm our business.
We are subject to risks associated with international operations.
Our reliance on foreign third-party manufacturing, assembly and testing
operations subjects us to a number of risks associated with conducting
business outside of the United States, including the following:
. unexpected changes in, or impositions of, legislative or regulatory
requirements;
12
. delays resulting from difficulty in obtaining export licenses for
certain technology, tariffs, quotas and other trade barriers and
restrictions;
. longer payment cycles;
. potentially adverse taxes;
. the burdens of complying with a variety of foreign laws; and
. other factors beyond our control.
We also are subject to general political risks in connection with our
international trade relationships. In addition, the laws of certain foreign
countries in which our products are or may be manufactured or sold, including
various countries in Asia, may not protect our products or intellectual
property rights to the same extent as do the laws of the United States. This
makes the possibility of piracy of our technology and products more likely.
Currently, all of our arrangements with third-party manufacturers provide for
pricing and payment in U.S. dollars, and to date we have not engaged in any
currency hedging activities, although we may do so in the future. Fluctuations
in currency exchange rates could harm our business in the future.
The semiconductor industry is cyclical in nature.
The semiconductor industry historically has been characterized by the
following factors:
. rapid technological change;
. cyclical market patterns;
. significant ASP erosion;
. fluctuating inventory levels;
. alternating periods of overcapacity and capacity constraints; and
. variations in manufacturing costs and yields and significant
expenditures for capital equipment and product development.
In addition, the industry has experienced significant economic downturns at
various times, characterized by diminished product demand and accelerated
erosion of ASPs. We may experience substantial period-to-period fluctuations
in results of operations due to general semiconductor industry conditions.
Failure in implementation of our enterprise resource planning system could
adversely affect our operations.
In December 1999, we began the implementation of an SAP A.G. system as our
enterprise resource planning, or ERP, system to replace our information
systems in business, finance, operations and service. The implementation is
expected to occur in phases throughout fiscal 2001. We are heavily dependent
upon the proper functioning of our internal systems to conduct our business.
There is no assurance that we will be successful in the implementation of our
ERP system. Delays in the implementation, system failure or malfunctioning may
result in disruptions of operations and inability to process transactions. Our
results of operations and financial position could be adversely affected if we
encounter unforeseen problems with respect to this implementation.
13
FORWARD-LOOKING INFORMATION
This prospectus contains forward-looking statements, within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, that are based on our current expectations about our
company and our industry. We use words such as "expect," "anticipate,"
"estimate," "believe," "intend," "plan" and other similar expressions to
identify some forward-looking statements, but not all forward-looking
statements include these words. All our forward-looking statements involve
risks and uncertainties. Our actual results may differ significantly from our
expectations and from the results expressed in or implied by these forward-
looking statements. The section captioned "Item 7A. Quantitative and
Qualitative Disclosures about Market Risk" that appears in our annual report
on Form 10-K for the year ended January 30, 2000, as well as the section
captioned "Risk Factors" in this prospectus and that will appear in prospectus
supplements accompanying this prospectus describe some, but not necessarily
all, of the factors that could cause these differences. We urge you to read
those sections carefully. Except as may be required by law, we undertake no
obligation to publicly update any forward-looking statements for any reason,
even if new information becomes available or other events occur in the future.
RATIO OF EARNINGS TO FIXED CHARGES
Our earnings were insufficient to cover fixed charges in each of the years
in the three-year period ended December 31, 1997. Additional earnings of $6.4
million, $3.1 million and $3.6 million were necessary to provide a 1:1
coverage ratio for December 31, 1995, 1996 and 1997, respectively. For the
purpose of these calculations, "earnings" consist of income before taxes, plus
fixed charges, and "fixed charges" consist of interest expense incurred and
the portion of rental expense deemed by us to be representative of the
interest factor of rental payments under leases.
Year Ended Year Ended
December 31, Month Ended -----------------------
-------------------- January 31, January 31, January 30,
1995 1996 1997 1998 1999 2000
------ ------ ------ ----------- ----------- -----------
Ratio of earnings to
fixed charges.......... -- -- -- 37x 8x 68x
14
USE OF PROCEEDS
Unless otherwise described in a prospectus supplement, the net proceeds from
the offering of the securities will be used to fund our anticipated growth,
including anticipated increases in inventory and accounts receivable; for
potential acquisitions; for costs associated with our expected move to new
facilities; and for general working capital.
COMMON STOCK PRICE RANGE
Our common stock is traded on the Nasdaq National Market under the symbol
NVDA. Public trading of our stock began on January 22, 1999. Prior to that,
there was no public market for our stock. We have never paid cash dividends on
our capital stock and do not anticipate paying cash dividends for the
foreseeable future. As of January 30, 2000, we had approximately 351
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 the common stock as quoted on the Nasdaq National Market:
High Low
------ ------
Year ended January 31, 1999
Fourth Quarter (beginning January 22, 1999)...................... $23.44 $18.63
Year ended January 30, 2000
First Quarter.................................................... 26.25 16.00
Second Quarter................................................... 23.13 16.38
Third Quarter.................................................... 28.38 16.75
Fourth Quarter................................................... 48.25 21.75
Year ended January 28, 2001
First Quarter (through April 19, 2000)........................... 148.44 35.00
On April 19, 2000, the last reported bid price of our common stock on the
Nasdaq National Market was $81.25 per share.
DIVIDEND POLICY
We have never paid any cash dividends on our common stock and do not expect
to pay cash dividends for the foreseeable future.
15
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with our
financial statements and the notes thereto, and with Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
statement of operations data for the years ended December 31, 1997, the one
month ended January 31, 1998, the year ended January 31, 1999 and the year
ended January 30, 2000 and the balance sheet data as of December 31, 1997,
January 31, 1998 and 1999 and January 30, 2000 have been derived from and
should be read in conjunction with our audited financial statements and the
notes included thereto. The statement of operations data for the years ended
December 31, 1995 and 1996 are derived from audited financial statements and
the notes thereto not included. The balance sheet data as of December 31, 1995
and 1996 are derived from audited financial statements and the notes thereto
not included.
Year Ended December 31, Month Ended Year Ended Year Ended
------------------------- January 31, January 31, January 30,
1995 1996 1997 1998 1999 2000
------- ------- ------- ----------- ----------- -----------
(In thousands, except per share data)
Statement of Operations
Data:
Revenue:
Product................ $ 1,103 $ 3,710 $27,280 $11,420 $151,413 $374,505
Royalty................ 79 202 1,791 1,911 6,824 --
------- ------- ------- ------- -------- --------
Total revenue......... 1,182 3,912 29,071 13,331 158,237 374,505
Cost of revenue......... 1,549 3,038 21,244 10,071 109,746 235,575
------- ------- ------- ------- -------- --------
Gross profit (loss)..... (367) 874 7,827 3,260 48,491 138,930
Operating expenses:
Research and
development........... 2,426 1,218 7,103 1,121 25,073 47,439
Sales, general and
administrative........ 3,677 2,649 4,183 640 18,902 37,079
------- ------- ------- ------- -------- --------
Total operating
expenses............. 6,103 3,867 11,286 1,761 43,975 84,518
------- ------- ------- ------- -------- --------
Operating income
(loss)............... (6,470) (2,993) (3,459) 1,499 4,516 54,412
Interest and other
income (expense), net.. 93 (84) (130) (18) (29) 1,754
------- ------- ------- ------- -------- --------
Income (loss) before
income tax expense..... (6,377) (3,077) (3,589) 1,481 4,487 56,166
Income tax expense...... -- -- -- 134 357 18,068
------- ------- ------- ------- -------- --------
Net income (loss)..... $(6,377) $(3,077) $(3,589) $ 1,347 $ 4,130 $ 38,098
======= ======= ======= ======= ======== ========
Basic net income (loss)
per share.............. $ (.56) $ (.27) $ (.28) $ .10 $ .28 $ 1.28
Diluted net income
(loss) per share....... $ (.56) $ (.27) $ (.28) $ .05 $ .15 $ 1.06
Shares used in basic per
share computation...... 11,365 11,383 12,677 14,141 14,565 29,872
Shares used in diluted
per share
computation(1)......... 11,365 11,383 12,677 26,100 27,393 36,098
December 31, January 31,
------------------------- ----------------------- January 30,
1995 1996 1997 1998 1999 2000
------- ------- ------- ----------- ----------- -----------
Balance Sheet Data:
Cash and cash
equivalents............ $ 3,872 $ 3,133 $ 6,551 $ 7,984 $ 50,257 $ 61,560
Total assets............ 6,793 5,525 25,039 30,172 113,332 202,250
Capital lease
obligations, less
current portion........ 1,137 617 1,891 1,756 1,995 962
Total stockholders'
equity................. 4,013 1,037 6,897 8,610 64,209 124,563
- --------
(1) See Note 1 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in per share computations.
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our
financial statements and notes thereto. Our fiscal years ended on December 31
from 1993 to 1997. Effective January 31, 1998, we changed our fiscal year-end
financial reporting period to a 52- or 53- week year ending on the last Sunday
in January. We elected not to restate the previous reporting periods ending
December 31. As a result, the first and fourth quarters of fiscal 1999 (year
ended January 31, 1999) are 12- and 14-week periods, respectively, with the
remaining quarters being 13-week periods. All four quarters of fiscal 2000
(year ended January 30, 2000) are 13-week periods.
Overview
We design, develop and market a "top-to-bottom" family of award-winning 3D
graphics processors, GPUs and related software that set the standard for
performance, quality and features for every type of desktop PC user, from
professional workstations to low-cost PCs. In the first quarter of fiscal
2000, we began commercial shipment of the RIVA TNT2 family of graphics
processors. During the third quarter, we launched the NVIDIA GeForce 256 and
NVIDIA Quadro, the industry's first GPUs, which are the first products to
incorporate transform and lighting into a single chip. The GeForce 256 and
Quadro GPUs are graphics processors capable of building a new generation of e-
commerce, e-business, education and entertainment applications. We expect that
a significant portion of our revenue for the foreseeable future will be
derived from the sale of our 3D graphics processors in the PC market. We
recognize product sales revenue upon shipment, net of appropriate allowances.
Our policy on sales to distributors is to defer recognition of sales and
related gross profit until the distributors resell the product. Royalty
revenue is generally recognized upon shipment of product to the licensee's
customers. Currently, all of our product sales and our arrangements with
third-party manufacturers provide for pricing and payment in U.S. dollars. We
have not engaged in any foreign currency hedging activities, although we may
do so in the future. Since we have no other product line, our business would
suffer if for any reason our graphics processors do not achieve widespread
acceptance in the PC market.
A majority of our sales have been to a limited number of customers and sales
are highly concentrated. We sell graphics processors to add-in board and
motherboard manufacturers, primarily ASUSTeK, Canopus, Creative, ELSA and
Guillemot and CEMs, including Celestica, Intel, Mitac, MSI, SCI and VisionTek.
These manufacturers incorporate our processors in the boards they sell to PC
OEMs, retail outlets and systems integrators. The ASPs for our products, as
well as our customers' products, vary by distribution channel. Our four
largest customers accounted for approximately 57% of revenues for fiscal 2000.
Sales to Creative accounted for 17%, sales to Edom Technology Co., Ltd., an
Asian distributor, accounted for 15%, sales to Diamond accounted for 15%, and
sales to ASUSTeK accounted for 10% of our total revenue for fiscal 2000. Sales
to STB accounted for 35%, sales to Diamond accounted for 27%, sales to
Creative accounted for 13% and sales to Intel accounted for 12% of our total
revenue for fiscal 1999. The number of potential customers for our products is
limited, and we expect sales to be concentrated to a few major customers for
the foreseeable future. In October 1999, S3, a supplier of graphics processors
and a competitor, completed the acquisition of Diamond. Our sales to Diamond
declined significantly to only 3% of total revenue in the fourth quarter of
fiscal 2000 from 24% of total revenue in the second quarter of fiscal 2000 and
Diamond is no longer one of our significant customers. 3Dfx, a 3D graphics
company and a competitor, completed the acquisition of STB in May 1999. Sales
to STB declined significantly from prior levels following the merger and our
relationship terminated in the fourth quarter of fiscal 2000. Currently, the
loss of business from Diamond and STB did not have a material impact on our
revenues and profitability due to our ability to expand product sales to other
customers.
As markets for our 3D graphics processors develop and competition increases,
we anticipate that product life cycles in the high end will remain short and
ASPs will continue to decline. In particular, ASPs and gross margins are
expected to decline as each product matures. Our add-in board manufacturers
and major OEM customers typically introduce new system configurations as often
as twice per year for the high end, typically
17
based on spring and fall design cycles. Accordingly, our existing products
must have competitive performance levels in order to be included in new system
configurations, or we must timely introduce new products with such performance
characteristics at costs and in sufficient volumes to maintain overall average
selling prices and gross margins. Failure to achieve necessary costs and
volume shipments with respect to future products or product enhancements could
result in rapidly declining ASPs, reduced margins, reduced demand for products
or loss of market share.
We currently utilize TSMC and WaferTech to produce semiconductor wafers, and
utilize independent contractors to perform assembly, test and packaging. We
depend on these suppliers to allocate to us a portion of their manufacturing
capacity sufficient to meet our needs, to produce products of acceptable
quality and at acceptable manufacturing yields, and to deliver those products
to us on a timely basis. These manufacturers may not always be able to meet
our near-term or long-term manufacturing requirements. Yields or product
performance could suffer due to difficulties associated with adapting our
technology and product design to the proprietary process technology and design
rules of a new manufacturer. The level of finished goods inventory we maintain
may fluctuate and therefore a manufacturing disruption experienced by these
manufacturers would impact the production of our products, which could harm
our business. In addition, as the complexity of our products and the
accompanying manufacturing process increases, there is an increasing risk that
we will experience problems with the performance of new products and that
there will be yield problems or other delays in the development or
introduction of these products.
Substantially all of our sales are made on the basis of purchase orders
rather than long-term agreements. As a result, we may commit resources to the
production of products without having received advance purchase commitments
from customers. Any inability to sell products to which we have devoted
significant resources could harm our business. In addition, cancellation or
deferral of product orders could result in our holding excess inventory, which
could adversely affect our profit margins and restrict our ability to fund
operations. Product returns or delays or difficulties in collecting accounts
receivable could result in significant charges against income, which could
harm our business.
Results of Operations
The following table sets forth, for the periods indicated, certain items in
our statements of operations expressed as a percentage of total revenue.
Year Ended Month Ended Year Ended Year Ended
December 31, January 31, January 31, January 30,
1997 1998 1999 2000
------------ ------------ ----------- -----------
Revenue:
Product.................... 93.8% 85.7 % 95.7% 100.0%
Royalty.................... 6.2 14.3 4.3 --
----- ----- ----- -----
Total revenue............ 100.0 100.0 100.0 100.0
Cost of revenue.............. 73.1 75.5 69.4 62.9
----- ----- ----- -----
Gross profit................. 26.9 24.5 30.6 37.1
Operating expenses:
Research and development... 24.4 8.4 15.8 12.7
Sales, general and
administrative............ 14.4 4.8 12.0 9.9
----- ----- ----- -----
Total operating
expenses................ 38.8 13.2 27.8 22.6
----- ----- ----- -----
Operating income (loss).. (11.9) 11.3 2.8 14.5
Interest and other income
(expense), net.............. (0.4) (0.1) -- 0.5
----- ----- ----- -----
Income (loss) before income
tax expense................. (12.3) 11.2 2.8 15.0
Income tax expense........... -- 1.0 0.2 4.8
----- ----- ----- -----
Net income (loss)........ (12.3)% 10.2 % 2.6% 10.2%
===== ===== ===== =====
18
Calendar Year Ended December 31, 1997 and Fiscal Years Ended January 31,
1999 and January 30, 2000
Revenue
Product Revenue. Product revenue was $27.3 million in 1997, $151.4 million
in fiscal 1999 and $374.5 million in fiscal 2000. Product revenues increased
by 455% from 1997 to fiscal 1999 and by 147% from fiscal 1999 to 2000. The
growth in both periods was primarily the result of increased sales of our
graphics processors and the strong demand for new products at higher unit
ASPs. Revenue derived from the bundling of DDR memories with a portion of our
new GeForce 256 GPU totaled $22.1 million in the second half of fiscal 2000.
Revenue from sales outside of the U.S. accounted for 72% and 24% of total
revenue for fiscal 2000 and 1999, respectively. Our international revenue
increased 623% to $270.9 million in fiscal 2000 from $37.4 million a year ago.
This increase in revenue from sales outside of the U.S. is primarily
attributable to (i) the geographic limitation of the worldwide license
agreement with ST Microelectronics, Inc. with respect to sales of the RIVA 128
and RIVA 128ZX graphics processors, which agreement did not restrict the sales
of the RIVA TNT, RIVA TNT2 and GeForce families of processors in fiscal 2000,
(ii) increased demand for our products in the Asia Pacific and European
regions, and (iii) expanded use of CEMs and add-in board manufacturers located
outside the US. Revenues by geographical region are allocated to individual
countries based on the location to which the products are initially shipped.
The portion of revenue derived from foreign CEMs and add-in board
manufacturers that are attributable to end customers in the U.S is not
separately disclosed. Substantially all of our revenue from product sales in
1997 was derived from sales in the U.S. Although we achieved substantial
growth in product revenue from fiscal 1999 to 2000, we do not expect to
sustain this rate of growth in future periods. In addition, we expect that the
ASPs of our products will decline over the lives of the products. The declines
in ASPs of 3D graphics processors generally may also accelerate as the market
develops and competition increases.
Royalty Revenue. ST has a worldwide license to sell the RIVA 128 and RIVA
128ZX graphics processors. Royalty revenue from sales by ST of the RIVA 128
graphics processor and a derivative of the RIVA 128ZX graphics processor
decreased to zero in fiscal 2000 due primarily to reduced sales of such
products and disputes with ST regarding payment. Royalty revenue from sales by
ST of the RIVA128 graphics processor represented approximately 6% of our total
revenue in 1997, and royalty revenue from sales by ST of the RIVA128 graphics
processor and a derivative of the RIVA128ZX graphics processor represented 4%
of our total revenue in fiscal 1999. We do not expect to record or receive
royalty revenue from ST in the future.
Gross Profit
Gross profit consists of total revenue net of allowances less cost of
revenue. Cost of revenue consists primarily of the costs of semiconductors
purchased from contract manufacturers (including assembly, test and
packaging), manufacturing support costs (labor and overhead associated with
such purchases), inventory provisions and shipping costs. Our gross profit
margin in any period varies depending on the mix of types of graphics
processors sold. Gross profit increased 187% from fiscal 1999 to 2000,
primarily due to significant increases in unit shipments and the favorable
impact of the higher margin RIVA TNT2 and GeForce graphics processors,
partially offset by declining profit margins in our older product families.
From 1997 to fiscal 1999, gross profit grew by 520% primarily due to the sales
of the higher margin RIVA TNT graphics processor and reductions to costs of
the RIVA128 graphics processor. Excluding royalty revenue, gross margin on
product revenue was 22% in 1997, 28% in fiscal 1999 and 37% in fiscal 2000. In
the second half of fiscal 2000, the inclusion of the DDR memories has reduced
the gross margin percentage but has no incremental impact on absolute margin
dollars as they are sold at cost. We expect to continue bundling DDR memories
with some of our high-performance products for at least the next six months.
Although we achieved substantial growth in gross profit and gross profit
margin from fiscal 1999 to 2000, we do not expect to sustain these rates of
growth in future periods.
Operating Expenses
Research and Development. Research and development expenses consist of
salaries and benefits, cost of development tools and software, costs of
prototypes of new products and consultant costs. Research and
19
development expenses increased by 89% from fiscal 1999 to 2000 and by 253%
from 1997 to 1999, primarily due to additional personnel and related
engineering costs to support our next generation products, such as
depreciation charges incurred on capital expenditures and software license and
maintenance fees. We anticipate that we will continue to devote substantial
resources to research and development, and we expect these expenses to
increase in absolute dollars in the foreseeable future. Research and
development expenses are likely to fluctuate from time to time to the extent
we make periodic incremental investments in research and development and our
level of revenue fluctuates.
As part of a strategic collaboration agreement with ST, we received contract
funding in support of research and development and marketing efforts for the
RIVA 128 and RIVA 128ZX graphics processors. Accordingly, we recorded
approximately $2.3 million and $2.3 million in 1997 and fiscal 1999,
respectively, as a reduction primarily to research and development, and to a
lesser extent, sales, general and administrative expenses. We were obligated
to provide continued development and support to ST through the end of calendar
1998.
Sales, General and Administrative. Sales, general and administrative
expenses consist primarily of salaries, commissions and bonuses earned by
sales, marketing and administrative personnel, promotional and advertising
expenses, travel and entertainment expenses and legal and accounting expenses.
Sales, general and administrative expenses increased 96% from fiscal 1999 to
2000, primarily due to additional personnel and commissions and bonuses on
sales of the RIVA TNT2 and GeForce 256 graphics processors, legal expenses
associated with patent litigation and costs of being a public company. From
1997 to fiscal 1999, sales, general and administrative expenses grew 352%,
primarily due to increased promotional expenses, additional personnel and
commissions and bonuses on sales of the RIVA128 and RIVA TNT graphics
processors. We expect sales and marketing expenses to continue to increase in
absolute dollars as we expand sales and marketing efforts and increase
promotional activities. While we expect sales, general and administrative
expenses to continue to increase in absolute dollars as we expand our
operations, we do not expect significant changes in these expenses as a
percentage of revenue in future periods.
Interest and Other Income (Expense), Net
Interest income primarily consists of interest earned on cash and cash
equivalents. Interest expense primarily consists of interest incurred as a
result of capital lease obligations, and in fiscal 1999, in part, to interest
on borrowings under our line of credit agreement. Interest expense remained
unchanged and interest and other income increased $1.8 million from fiscal
1999 to 2000 due to higher average cash balances as a result of cash proceeds
received from the initial public offering of our common stock in January 1999.
For fiscal 1999 compared to 1997, interest expense was essentially unchanged,
and interest and other income increased slightly by $0.1 million.
Income Taxes
We recorded no income taxes in 1997. The income taxes for the one month
ended January 31, 1998, consisted entirely of current federal tax expense.
Income taxes for the year ended January 31, 1999 of $357,000 consisted of
$583,000 current federal tax expense and $226,000 deferred federal tax
benefit. We had an effective tax rate of 32% in fiscal 2000. We anticipate our
income tax rates for fiscal 2001 to be relatively constant, depending on the
income tax attributable to foreign operations and availability of research and
experimentation credits. See Note 5 of Notes to Financial Statements.
Stock-Based Compensation
With respect to stock options granted to employees, we recorded deferred
compensation of $4.3 million in 1997 and $361,000 in the one month ended
January 31, 1998. These amounts are being amortized over the vesting period of
the individual options, generally four years. We amortized approximately
$961,000 in 1997, $2.5 million in fiscal 1999 and $662,000 in fiscal 2000. We
anticipate total amortization of approximately $113,000 in fiscal 2001. See
Note 3 of Notes to Financial Statements.
20
Quarterly Results of Operations
Selected quarterly financial data included in this table has been derived
from the internal quarterly financial reports for the periods shown. Effective
January 31, 1998, we changed our fiscal year-end financial reporting period to
a 52- or 53-week year ending on the last Sunday in January. We elected not to
restate our previous reporting periods ending December 31. Fiscal quarters for
fiscal 1999 ended April 26, 1998, July 26, 1998, October 25, 1998 and January
31, 1999. Fiscal quarters for fiscal 2000 ended on May 2, 1999, August 1,
1999, October 31, 1999 and January 30, 2000. This quarterly information is
unaudited, but has been prepared on the same basis as the audited annual
financial statements, and in the opinion of our management includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information for the periods presented. The unaudited
quarterly information should be read in conjunction with our audited financial
statements and the notes thereto included elsewhere herein. The growth in
revenue and improvement in results of operations experienced by us in recent
quarters are not necessarily indicative of future results. In addition, in
light of our significant growth in recent quarters, we believe that period-to-
period comparisons of our financial results should not be relied upon as an
indication of future performance.
Quarters Ended
------------------------------------------------------------------
April July Oct. Jan. Oct.
26, 26, 25, 31, May 2, Aug. 1, 31, Jan. 30,
1998 1998 1998 1999 1999 1999 1999 2000
------- ------- ------- ------- ------- ------- ------- --------
Statement of Operations Data:
Revenue................. $28,263 $12,134 $52,303 $65,537 $71,018 $78,017 $97,015 $128,455
Cost of revenue......... 20,873 12,961 33,566 42,346 45,946 49,625 60,195 79,809
------- ------- ------- ------- ------- ------- ------- --------
Gross profit (loss)..... 7,390 (827) 18,737 23,191 25,072 28,392 36,820 48,646
Net income (loss)....... (1,021) (9,652) 7,141 7,662 6,261 6,686 10,564 14,587
Basic net income (loss)
per share.............. $ (.07) $ (.68) $ .50 $ .48 $ .21 $ .23 $ .35 $ .47
Diluted net income
(loss) per share....... $ (.07) $ (.68) $ .26 $ .27 $ .18 $ .19 $ .29 $ .39
Seasonality
Our quarterly operating results vary significantly depending on factors such
as the timing of new product introductions, adequacy of component supply,
changes in component costs, variations in our product mix, seasonal promotions
by us and our customers and competitive pricing pressures. Because the timing
of these factors may vary, the results of any particular quarter may not be
indicative of results for the entire year or any future period. In addition,
the PC market generally experiences weaker sales during the summer months.
Liquidity and Capital Resources
As of January 30, 2000, we had $61.6 million in cash and cash equivalents,
an increase of $11.3 million over the same balance at the end of fiscal 1999.
We historically have held our cash balances in cash equivalents such as money
market funds or as cash. We place the money market funds with high-quality
financial institutions and limit the amount of exposure with any one financial
institution. We had $124.6 million of noncancelable manufacturing commitments
outstanding at January 30, 2000. See Note 4 of Notes to Financial Statements.
In July 1999, we entered into an amended loan and security agreement with a
bank, which included a $10.0 million revolving loan agreement with a borrowing
base equal to 80% of eligible accounts. Borrowings under the line of credit
bear interest at the prime rate and are due in July 2000. Covenants governing
the loan agreement require the maintenance of certain financial ratios. As of
January 30, 2000, we had no outstanding borrowings against the line of credit.
Operating activities generated cash of $15.9 million during fiscal 2000 and
used cash of $1.9 million and $1.2 million, during fiscal 1999 and 1997,
respectively. The increase from fiscal 1999 to 2000 was due to a substantial
increase in net income, offset by changes in operating assets and liabilities.
Our accounts receivable are highly concentrated. At January 30, 2000, the four
largest customers accounted for approximately 37% of accounts receivable.
Although we have not experienced any significant bad debt write-offs to date,
we may be required to write off bad debt in the future, which could harm our
business. In June 1999, we repurchased 428,572 shares of our common stock from
a major customer in settlement for a portion of then outstanding accounts
receivable in the amount of $7.5 million.
21
To date, our investing activities have consisted primarily of purchases of
property and equipment. Our capital expenditures, including capital leases,
increased from $5.8 million in 1997 to $10.1 million in fiscal 1999, and to
$22.9 million in fiscal 2000. The increase from fiscal 1999 to 2000 was
primarily attributable to a $10.0 million obligation pursuant to a long-term
licensing agreement with a supplier. For fiscal 1999 compared to 1997, the
increase was primarily due to additional capital leases and purchases of
computer equipment, including workstations and servers to support increased
research and development activities. We expect capital expenditures to
increase as we further expand research and development initiatives and as our
employee base grows. The timing and amount of future capital expenditures will
depend primarily on our future growth. We expect to spend approximately $30.0
million for capital expenditures in fiscal 2001, primarily for software
licenses, emulation equipment, purchase of computer and engineering
workstations, and enterprise resource planning system implementation.
Financing activities provided cash of $7.0 million during fiscal 2000,
compared to $52.0 million and $7.3 million during fiscal 1999 and 1997,
respectively, due primarily to proceeds of $37.5 million from the initial
public offering of 3.5 million shares of common stock in January 1999 and
$11.0 million in subordinated non-interest bearing notes issued in July and
August 1998. In March 1999, we used $5.0 million to repay in full amounts
outstanding under a bank line of credit.
On March 5, 2000, we entered into an agreement with Microsoft in which we
agreed to develop and sell graphics chips and to license certain technology to
Microsoft and its licensees for use in a product under development by
Microsoft. In April 2000, Microsoft paid us $200 million as an advance against
graphics chip purchases and for licensing our technology. Microsoft may
terminate the agreement at any time and if termination occurs prior to offset
in full of the advance payments, we would be required to return to Microsoft
up to $100 million of the prepayment and to convert the remainder into
preferred stock of NVIDIA at a 30% premium to the 30-day average trading price
of our common stock.
In April 2000, we entered into leases for our new headquarters complex in
Santa Clara, California. Our new complex will be comprised of four buildings,
representing approximately 500,000 total square feet. We expect the first
phase of two buildings consisting of approximately 250,000 square feet to be
completed in June 2001, the second phase of one building consisting of
approximately 125,000 square feet to be completed in July 2001 and the last
phase to be completed in March 2002. The leases expire in 2012 and include two
seven-year renewals at our option. Future minimum lease payments under these
operating leases total approximately $240 million over the terms of the
leases.
We believe that our existing cash balances, anticipated cash flows from
operations and existing credit facilities, will be sufficient to meet our
operating and capital requirements for at least the next 12 months. However,
there is no assurance that we will not need to raise additional equity or debt
financing within this time frame. Additional financing may not be available on
favorable terms or at all and may be dilutive to our then-current
stockholders. We also may require additional capital for other purposes not
presently contemplated. If we are unable to obtain sufficient capital, we
could be required to curtail capital equipment purchases or research and
development expenditures, which could harm our business.
Year 2000 Compliance
The Year 2000 issue is the result of computer programs written using two
digits rather than four to define the applicable year. Computer programs that
have date-sensitive software like this may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.
Through the first two months of the year 2000, our operations were fully
functioning and we have not experienced any significant issues associated with
the Year 2000 problem. At our offices worldwide, we have not experienced any
significant Year 2000-related issue that would affect our ability to ship,
sell or service our products and our customers have not reported any
consequential Year 2000 incidents. While we are encouraged by the success of
our Year 2000 efforts and that of our customers and partners, we will continue
to offer Year 2000 support to customers and monitor our own operations.
22
BUSINESS
Overview
We design, develop and market a "top-to-bottom" family of award-winning 3D
graphics processors, GPUs and related software that set the standard for
performance, quality and features for every type of desktop PC user, from
professional workstations to low-cost PCs. Our 3D graphics processors are used
in a wide variety of applications, including games,productivity, the Internet and industrial design. Our graphics
processors were the first to incorporate a 128-bit multi-texturing graphics
architecture designed to deliver to users of our products a highly immersive,
interactive 3D experience with compelling visual quality, realistic imagery and
motion, stunning effects and complex object and scene interaction at real-time
frame rates. The NVIDIA TNT2 TNT2
M64 and Vantafamily of graphics processors deliverdelivers high
performance 3D and 2D graphics at an affordable price,prices, making them the graphics
hardware of choice for a wide range of applications for both consumer and
commercial use. Our graphics processors are designed to be architecturally
compatible backward and forward between generations, giving our OEMoriginal
equipment manufacturers, or OEMs, customers and end users a low cost of
ownership. We are recognized for developing the world's first GPU, our latest generation
graphics processor,the GeForce
256, which incorporates independent hardware transform and lighting processing
units along with a complete rendering pipeline into a single-chip architecture.
The GeForce3, GeForce2 and Quadro2 family of desktop and laptop GPUs are the
first to incorporate pixel and vertex shaders, enabling the creation of
interactive, cinematic-quality images through the use of highly programmable
processing elements. The nForce and Xbox integrated graphics processor, or IGP,
and media and communications processor, or MCP, are the industry's first
highly-integrated platform processors to incorporate a comprehensive set of
multimedia capabilities, such as 2D, 3D, DVD, HDTV, Dolby Digital audio playback
and fast broadband and networking communications. Our GPUs, the GeForce 256 and NVIDIA Quadro, process
over 200 billion operations per second and increase the PC's ability to render
high-definition 3D scenes in real-time. Our GPUentire product family
provides superior processing and rendering power at competitive prices and is
architected to deliver the maximum performance from industry standards such as
Microsoft's Direct3D Application Programming Interface, or API, and SGI'sSilicon
Graphics, Inc.'s OpenGL API on Windows 98, Windows 2000operating systems and Linux platforms alike.platforms.
We are also developing an integrated core logic/graphics
chipset called Aladdin TNT2 through a partnership with ALi, one of the leading
suppliers of core logic chipsets for the PC. The Aladdin TNT2 chipset is
intended to bring NVIDIA-class graphics performance and quality to the value
PC segment.
Our products currently are designed into products offered by virtually every
leading branded PC OEM, such as Acer, Compaq, Dell, eMachines, Gateway, HP,
IBM, Micron, Packard Bell NEC and Sony, as well as leading CEMs, including
Celestica, Intel, Mitac, MSI, SCI and VisionTek, and leading add-in board
manufacturers, including ASUSTek, Canopus, Creative, ELSA and Guillemot. The
benefits and performance of the NVIDIA family of 3D graphics processors have
received significant industry validation and have enabled our customers to win
over 400 industry awards, including PC Magazine's "Editor's Choice" award,
Edge Magazine's "Hardware Innovation of the Year" and MicroDesign Research's
"1999 Analyst's Choice for Best 3D Processor," all of which were for products
incorporating the GeForce processor.
Industry Background
Interactive 3D graphics technology is emerging as one of the significant new
computing developments since the introduction of the graphical user interface.
3D graphics is a powerful digital medium that enables the communication and
visualization of the simplest information to the most complex, whether it is
professional applications like CAD/CAM and digital content creation,
commercial applications like financial analysis and business-to-business
collaboration or simply surfing the internet or playing games. The visually
engaging and interactive nature of 3D graphics responds to consumers' demands
for a convincing simulation of reality beyond what is possible with
traditional 2D graphics. The fundamental interactive capability of 3D graphics
is expected to make it the visual portal to a digitally connected world.
Interactive 3D graphics is required across various computing and
entertainment platforms, such as workstations, consumer and commercial desktop
PCs, internet appliances, hand held devices and home gaming consoles.
Continuing advancementsincorporated in semiconductor manufacturing have made available
more powerful and affordable microprocessors and 3D graphics processors, both
of which are essential to deliver interactive 3D graphics to the PC market.
Additionally, the industry has broadly adopted Microsoft's Direct3D API and
SGI's OpenGL API, which serve as a common and standard language between
software applications and 3D graphics processors, allowing the development of
numerous 3D games, which has, in turn, increased strong consumer demand.
We believe that a PC's interactive 3D graphics capability represents one of
the primary means by which users differentiate among various systems. PC users
today can easily differentiate the quality of graphics and
23
prefer personal computers that provide a superior visual experience. These
factors have dramatically increased demand for 3D graphics processors. Mercury
Research estimates that 3D graphics will be standard in every PC unit shipped
by 2001. Mercury Research also estimates that 126.8 million desktop 3D
graphics processors were sold worldwide in 1999 and 275.8 million will be sold
worldwide in 2004.
The technology required to create interactive and visually engaging 3D
graphics is algorithmically complex and computationally intensive. To deliver
high quality interactive 3D graphics, advanced 3D GPUs require millions of
transistors to process billions of arithmetic operations per second. Current
3D GPUs, like the GeForce 256, are over 100 times more complex than 2D
accelerators and comparable to the complexity of Intel Pentium(R) III
microprocessors. Yet despite these ongoing advances, PC 3D graphics available
today cannot deliver in real time the quality of graphics seen in digitally-
created films like "Toy Story 2." 3D graphics like those required over 1,400
powerful workstations to render 122,699 movie frames, each of which required
10 minutes to 3 days to complete. For PCs to provide this level of 3D graphics
capability, the performance of 3D graphics processors will need to be improved
by several more orders of magnitude, with the ultimate goal being to achieve
"real world" graphics performance even beyond that seen in "Toy Story 2."
We believe that a substantial market opportunity exists for providers of
performance 3D graphics processors for the PC market, particularly as
performance 3D graphics have become an increasingly important requirement and
point of differentiation for PC OEMs. Consumer PC users demand a compelling
visual experience and compatibility with existing and next-generation 3D
graphics applications at an affordable price. Application developers require
high-performance, standards-based 3D architectures with broad market
penetration. Since graphics is a key point of differentiation, PC OEMs
continually seek to incorporate leading-edge cost-effective 3D graphics
solutions to build award-winning products. We believe that providers of
interactive 3D graphics solutions will compete based on their ability to
leverage their technology expertise to simultaneously meet the needs of end
users, application developers and OEMs.
Our Solution
We designed our GPU's and graphics processors to enable PC OEMs and add-in
board manufacturers to build award-winning products by delivering state-of-
the-art interactive 3D graphics capability to end users while maintaining
affordable prices. We believe that a PC's interactive 3D graphics capability
represents one of the primary means by which users differentiate among various
systems. PC users today can easily differentiate the quality of graphics and
prefer personal computers that provide a superior visual experience. We
believe that by developing 3D graphics solutions that provide superior
performance and address the key requirements of the PC market, we will
accelerate the adoption of 3D graphics throughout this market. We combine
scalable architectural technology with mass market economies-of-scale to
deliver a complete family of products that span workstations to low-cost value
PCs.
The key features and benefits of our solution are as follows:
Advanced Scalable Single-Chip Graphics Architectures. In each of the past
three years, we have introduced a graphics processor that has subsequently
defined the 3D graphics standard widely adopted by the PC industry. In 1997,
we delivered the industry's first 128-bit graphics processor with the RIVA
128. In 1998, we introduced the industry's first dual pixel pipeline with the
RIVA TNT. In 1999, we introduced the world's first GPU by integrating
transform and lighting into the graphics processor with the GeForce 256. Each
of these generations then serves as a foundation for an architecturally
compatible family that is designed to offer additional products focused on
either enhanced performance and features or lower cost.
High-Performance, Forward-Backward Compatible Software Drivers. NVIDIA
graphics processors include an extensive set of reference drivers that
translate between the software API and hardware. The software driver is
designed to maximize performance of the graphics processor and to maintain
compatibility with each successive generation of our products. The software
drivers have the flexibility to be continually enhanced in order to further
improve the performance of the processors. We believe that the high
performance of our graphics processors provides a competitive advantage to our
OEM customers, enabling them to differentiate their systems from those of
other PC vendors.
24
We are the only graphics vendor that offers a family of graphics processors
that are binary software compatible, enabling both forward and backward
compatibility and a top-to-bottom product family. This is achieved through an
innovative graphics architecture that virtualizes the software interface
allowing us to innovate below API. This compatibility provides OEMs and end
users with a great degree of flexibility.
Feature-Optimized, Standards-Based. The NVIDIA family of graphics processors
are architected to take full advantage of industry standards such as
Microsoft's Direct3D and SGI's OpenGL. By working closely with Microsoft and
SGI, our family of graphics processors provide the most feature complete,
performance optimized drivers from one generation to the next. The standards-
compliant design of our graphics processors provides OEMs maximum flexibility
in the design and use of the systems. In particular, we believe that our focus
on the industry standard API's positions us well in the PC market as these
standards proliferate and support more advanced 3D visuals. Direct3D and
OpenGL have gained broad developer support, with numerous 3D titles currently
using those APIs.
Our Strategy
Our objective is to ultimately be the leading supplier of performance
graphics processors for PCs, laptops, Internet appliances, handhelds and any
future computing device with a display. Our current focus is on the PC market
and we plan to expand into other segments. Our strategy to achieve this
objective includes the following key elements:
Build Award-Winning, Architecturally-Compatible 3D Graphics Product Families
for the PC Market. Our strategy is to achieve market share leadership in the
PC market by providing award-winning performance at every price point. By
developing 3D graphics solutions that provide superior performance and address
the key requirements of the PC market, we believe that we will accelerate the
adoption of 3D graphics throughout the PC market. As part of our strategy to
broadly address the PC market, we have closely aligned our product development
with Direct3D and OpenGL, which we believe maximizes third-party software
support.
Target Leading OEMs. Our strategy is to enable our leading OEM customers to
differentiate their products in a highly competitive marketplace by using our
3D graphics processors. We believe that design wins with these industry
leaders provide market validation of our products, increase brand awareness
and enhance our ability to penetrate additional leading customer accounts. In
addition, we believe that close relationships with OEMs will allow us to
better anticipate and address customer needs with our future generations of
products. Our products currently are designed into products offered by
virtually every leading branded PC OEM, such as Acer, Compaq, Dell, eMachines,
Gateway, HP, IBM, Micron, Packard Bell NEC and Sony.
Sustain Technology and Roadmap Leadership in 3D Graphics. We are focused on
leveraging our advanced engineering capabilities to accelerate the quality and
performance of 3D graphics in PCs. A fundamental aspect of our strategy is to
actively recruit the best 3D graphics engineers in the industry, and we
believe that we have assembled an exceptionally experienced and talented
engineering team. The number of our employees engaged in research and
development activities increased to 214 at January 30, 2000 from 117 at
January 31, 1999. Our research and development strategy is to focus on
concurrently developing multiple generations of graphics processors using
independent design teams. We have in the past and intend to continue to
leverage this advantage to achieve new levels of graphics features and
performance, enabling our customers to achieve award-winning performance in
their products.
Increase Market Share. We believe that substantial market share will be
important to achieving success in the 3D graphics business. We intend to
achieve a leading share of the market by devoting substantial resources
towards building award-winning families of products for a wide range of
applications.
25
NVIDIA Architecture, Products and Products Under Development
3D Graphics Processing Architecture
3D graphics processors create two-dimensional images, which can be displayed
on computer monitors or other output devices, from computer specifications of
three-dimensional objects or "models." These two-dimensional images are
typically the perspective view of the objects from an eye-point that changes
with time, and as such are computationally very intensive. The 3D effect
arises from a variety of visual cues, such as perspective, occlusion, surface
shading, shadows, focus and motion. Convincing realism arises from precise
calculation of these and other effects, and these calculations require
dedicated processors, which provide far more power and bandwidth than
microprocessors can deliver.
The 3D graphics process is a series of specialized steps, often referred to
as the 3D graphics pipeline. Typically, the microprocessor chooses an eye-
point and decides which objects should be displayed. These are commonly
communicated to the graphics subsystem via a software interface, such as
Microsoft's Direct3D or SGI's OpenGL. The processing itself occurs in several
steps, as depicted and described below:
Model (right Transform and (right Polygon Setup (right Rasterization (right Display
arrow) Lighting arrow) arrow) arrow)
Model. The model typically is expressed as a set of polygons, such as
triangles, that form the basic shape of a three-dimensional object and have
attributes such as position and color at each vertex.
Transform and Lighting. In the transform and lighting step, the original
position and orientation of the polygons are transformed to their new position
on the screen. Based on their position and orientation, some aspects of their
surface color and lighting can be computed. The 3D visual cues of perspective
and motion are handled during this stage. These calculations require very high
floating-point computation power and are performed either by the host
microprocessor or on a higher performance GPU. Lighting occurs after transform
and provides high visual impact. Lighting effects enhance the realism of a
scene and bring rendered images one step closer to a "real world" perception.
Polygon Setup. Polygon setup calculates the slopes of the polygon sides and
various other derivatives that greatly accelerate the rasterization process.
Although early graphics devices performed these calculations in the host
microprocessor, today's 3D graphics processor perform these calculations,
permitting significantly higher performance.
Rasterization. Rasterization computes the color and other information for
every pixel (dot on the screen) that a transformed polygon touches. A number
of complex algorithms compute the color uniquely for each pixel, as well as
perform the remaining visual cues, such as shading, shadows, focus and
occlusion. This is the most computationally intensive step of the graphics
pipeline and the processors are required to perform up to 1,000 calculations
per pixel, with this number increasing rapidly.
Display. Display consists of sequentially reading out the color of each
pixel at a rate matched to the monitor. Unlike the other stages in the 3D
graphics pipeline, which are purely digital, the signals to the monitor are
analog, and the frequencies are far higher.
The complexity of the different steps in the 3D graphics pipeline requires
billions of floating-point and integer operations in real time to deliver a
realistic and interactive experience. Image quality determines whether 3D
computer representation looks realistic, and 3D performance determines whether
a 3D system conveys a sense of fluid motion in real time. If the performance
is below a certain threshold, a 3D system can in fact reduce the productivity
or the enjoyment of the user, even if the image quality is high. The challenge
with high-quality 3D is to deliver the processing power required to perform
these computations without creating bottlenecks in the 3D graphics pipeline.
26
Current Products
Key
Architectural Performance Commercial
Product Desktop Segment End User Features Metrics Ship Date
------- --------------- -------- ------------- ----------- ----------
NVIDIA Enthusiast Home users seeking Hardware 15 million August
GeForce Performance the best graphics transform and triangles per 1999
256 GPU performance and lighting second and
quality for digital engines, 480 million
multimedia and multi- pixels per
entertainment texturing second
applications. rendering
pipelines
designed to
deliver the
maximum
performance
for Direct3D
and OpenGL
applications.
NVIDIA Workstation Professionals 100% 17 million September
Quadro seeking high- hardware- triangles per 1999
GPU precision real-time accelerated second and
3D performance for OpenGL 540 million
CAD/CAM, digital transform and pixels per
content creation, lighting second
scientific analysis engines.
and life sciences
applications.
NVIDIA Mainstream Home and corporate 128-bit dual- 350 million April 1999
TNT2 users seeking pixel pixels per
performance and rendering second
features for pipeline for
business stunning
productivity and multi-textured
management. effects.
NVIDIA Value Home and corporate Low-cost 64- 286 million July 1999
TNT2 users seeking the bit memory pixels per
M64 optimal combination interface and second
of performance and package
features at an delivers good
affordable price. performance
and excellent
quality at a
lower cost.
NVIDIA Low-Cost Home and corporate Low-cost 64- 250 million July 1999
Vanta users seeking a bit memory pixels per
low-cost solution. interface and second
package
delivers good
performance
and excellent
quality at low
cost.
NVIDIA GeForce 256 GPU
We began commercial shipment of the NVIDIA GeForce 256 GPU in August 1999.
The NVIDIA GeForce 256 is designed for the PC enthusiast and performance
markets, and is our fifth-generation graphics processor.
The world's first GPU, GeForce 256 was the first to incorporate hardware
transform and lighting engines along with four-pixel per clock rendering
pipelines in a single chip. Fabricated on a .22 micron process technology, the
23 million transistors GeForce 256 delivers a significant increase in geometry
processing power and delivers superior performance for interactive content.
The GeForce 256 supports up to 64 megabytes of single data rate, or SDR, or
double data rate, or DDR, frame buffer memory. Increased memory results in a
higher performance solution and the ability to run at very high color depths
and resolution for outstanding quality. Other key performance features include
support for a higher bandwidth connection between the processor and the
graphics processor called accelerated graphics port 4X with fast write
capability. This feature is now standardized on motherboard solutions from
Intel and others.
The GeForce 256 GPU also provides support for digital flat panel displays,
DVD playback and HDTV support, the latest display technology for consumers and
businesses. Additional support for extremely high resolution (and refresh
rate) monitors is also included in the GeForce 256 GPU via a 350 MHz RAMDAC.
The GeForce 256 achieves high performance through a high frequency,
QuadEngine/QuadPipe architecture.
27
NVIDIA Quadro Workstation GPU
We began commercial shipment of the NVIDIA Quadro workstation GPU in
September 1999. The NVIDIA Quadro is designed for the professional
workstation, digital content creation and CAD/CAM markets. The Quadro GPU
integrates our QuadEngine/QuadPipe architecture for optimized transform and
lighting functions, critical for real-time visualization.
The Quadro is capable of processing over 200 billion operations per second,
delivering up to 17 million triangles per second and a peak texture fill rate
of 540 million pixels per second. Critical for supporting traditional
computer-aided design applications, the NVIDIA Quadro provides support for
anti-aliased points and lines and two-sided lighting as well as native support
for the OpenGL 3D API. The Quadro supports up to 128 megabytes of SDR or DDR
frame buffer memory.
NVIDIA TNT2 Graphics Processor
We began commercial shipment of the NVIDIA TNT2 graphics processor in April
1999. The NVIDIA TNT2 is designed for the mainstream PC market. The TNT2
features our fourth-generation, 128-bit multi-texturing 3D architecture. The
TNT2 extends the performance and function of the original RIVA TNT graphics
processor for PC OEMs and graphics card manufacturers. Fabricated on a .22
micron process technology, the TNT2 graphics processor delivers the highest
performance in its class through high frequency clock rates for the 3D
processor and memory. The TNT2 supports 32 megabytes of frame buffer memory.
NVIDIA TNT2 M64 and Vanta Graphics Processors
NVIDIA TNT2 M64 and Vanta graphics processors are designed for the value and
low-cost consumer and commercial desktop PC markets. Based on the award-
winning NVIDIA TNT2 architecture, these processors offer low-cost, highly
integrated choices for entry-level add-in card and motherboard solutions. The
TNT2 M64 and Vanta are manufactured on a .22 micron process technology and
offer good quality and performance at an affordable price. The TNT2 M64 and
Vanta support up to 32 and 16 megabytes of frame buffer memory, respectively.
Future Product and Projects
Aladdin TNT2 Integrated Chipset
The Aladdin TNT2 is a joint development with ALi. It combines the award
winning TNT2 core with ALi's M1631 North Bridge. This chipset is expected to
be sold with an ALi M1535D South Bridge and to bring NVIDIA graphics
performance and quality to the fast growing value PC segment. This chipset is
expected to reduce overall system cost without compromising graphics
performance. ALi will be responsible for the sale of this product. To our
knowledge, a commercial shipment date for this product has not yet been
announced.
Microsoft Product
On March 5, 2000, we entered into an agreement with Microsoft in which we
agreed to develop and sell graphics chips and to license certain technology to
Microsoft and its licensees for use in a product under development by
Microsoft. In April 2000, Microsoft paid us $200 million as an advance against
graphics chip purchases and for licensing our technology. Microsoft may
terminate the agreement at any time and if termination occurs prior to offset
in full of the advance payments, we would be required to return to Microsoft
up to $100 million of the prepayment and to convert the remainder into
preferred stock of NVIDIA at a 30% premium to the 30-day average trading price
of our common stock. In addition, in the event that an individual or
corporation makes an offer to purchase shares equal or greater than thirty
percent (30%) of the outstanding shares of our common stock, Microsoft has
first and last rights of refusal to purchase the stock. The graphics chip
contemplated by the agreement is highly complex and development and release of
the Microsoft product and its commercial success are dependent upon a number
of factors, many of which we cannot control. There can be no assurance that we
will be successful in developing the graphics chip for use by Microsoft or
that the product will be developed or released, or if released, will be
commercially successful.
28
Sales and Marketing
Our worldwide sales strategy is a key part of our objective to become the
leading supplier of performance 3D graphics processors for PCs. Our sales team
works closely with PC OEMs, add-in board manufacturers and industry
trendsetters to define product features, performance, price and timing of new
products. Members of our sales team have a high level of technical expertise
and product and industry knowledge to support a competitive and complex design
win process. We also employ a highly skilled team of application engineers to
assist PC OEMs and add-in board manufacturers in designing, testing and
qualifying system designs that incorporate our products. We believe that the
depth and quality of our design support are key to improving PC OEMs' and add-
in board manufacturers' time-to-market, maintaining a high level of customer
satisfaction among PC OEMs and add-in board manufacturers and fostering
relationships that encourage customers to use the next generation of our
products.
In the 3D graphics market, the sales process involves influencing leading PC
OEMs' and add-in board manufacturers' graphics processor purchasing decisions,
achieving key design wins and supporting the product design into high volume
production. These design wins in turn influence the retail and system
integrator channel that is serviced by add-in board and motherboard
manufacturers. Our distribution strategy is to work with a number of leading
CEMs and add-in board manufacturers that have relationships with a broad range
of major PC OEMs and/or strong brand name recognition in the retail channel.
Currently, we sell our entire family of graphics processors directly to CEMs
and add-in board manufacturers, which then sell boards with our graphics
processor to leading OEMs, to retail outlets and to a large number of system
integrators.
To encourage software title developers and publishers to develop games
optimized for platforms utilizing our products, we seek to establish and
maintain strong relationships in the software development community.
Engineering and marketing personnel interact with and visit key software
developers to promote and discuss our products, as well as to ascertain
product requirements and solve technical problems. Our developer program makes
products available to partners prior to volume availability to encourage the
development of software titles that are optimized for our products.
Backlog
Our sales are primarily made pursuant to standard purchase orders that are
cancelable without significant penalties. The quantity actually purchased by
the customer as well as shipment schedules are subject to revisions to reflect
changes in the customer's requirements and manufacturing availability. The
semiconductor industry is characterized by short lead time orders and quick
delivery schedules. In light of industry practice and experience, we do not
believe that backlog as of any particular date is indicative of future
results.
Manufacturing
We have a "fabless" manufacturing strategy whereby we employ world class
suppliers for all phases of the manufacturing process, including fabrication,
assembly and testing. This strategy leverages the expertise of industry-
leading, ISO-certified suppliers in such areas as fabrication, assembly,
quality control and assurance, reliability and testing. In addition, we are
able to avoid the significant costs and risks associated with owning and
operating manufacturing operations. These suppliers are also responsible for
procurement of raw materials used in the production of our products. As a
result, we can focus resources on product design, additional quality
assurance, marketing and customer support.
Our graphics processors are fabricated by TSMC and WaferTech and assembled
and tested by Amkor, Siliconware, ChipPAC, and Advanced Semiconductor
Engineering. We receive semiconductor products from our subcontractors,
perform incoming quality assurance, and then ship them to CEMs, motherboard
and add-in board manufacturer customers, from our Santa Clara location in the
U.S. and a third-party warehouse in Singapore. These manufacturers assemble
and test the boards based on our design kit and test specifications, then ship
the products to the retail, system integrator or OEM markets as add-in board
solutions. Our hardware and software
29
development teams work closely with certification agencies, Microsoft Windows
Hardware Quality Labs, and our OEM customers to ensure both our boards and
software drivers are certified for inclusion in the OEMs' products.
Research and Development
We believe that the continued introduction of new and enhanced products
designed to deliver leading 3D graphics performance and features will be
essential to our future success. Our research and development strategy is to
focus on concurrently developing multiple generations of graphics processors
using independent design teams. Our research and development efforts are
performed within specialized groups consisting of software engineering,
hardware engineering, VLSI design engineering, process engineering, and
architecture and algorithms. These groups act as a pipeline designed to allow
the efficient simultaneous development of multiple generations of products.
A critical component of our product development effort is our partnerships
with leaders in the CAD industry. We have invested significant resources to
develop relationships with industry leaders, including Avant! Corporation,
Cadence Design Systems, Inc., IKOS Systems, Inc. and Synopsys, Inc., often
assisting these companies in the product definition of their new products. We
believe that by forming these relationships, and utilizing next-generation
development tools to design, simulate and verify our products, we will be able
to remain at the forefront of the 3D graphics market and to continue to
develop products on a rapid basis that utilize leading-edge technology. We
believe this approach assists us in meeting the new design schedules of PC
manufacturers.
We have substantially increased our engineering and technical resources as
compared to prior years and have 214 full-time employees engaged in research
and development as of January 30, 2000, compared to 117 employees as of
January 31, 1999. Research and development expenses totaled $7.1 million in
1997, $25.1 million in the year ended January 31, 1999 and $47.4 million in
the year ended January 30, 2000.
Competition
The market for 3D graphics processors for PCs in which we compete is
intensely competitive and is characterized by rapid technological change,
evolving industry standards and declining ASPs. We believe that the principal
competitive factors in this market are performance, breadth of product
offerings, access to customers and distribution 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 that may be less costly than
our 3D graphics processors or may provide better performance or additional
features not provided by our products.
Our primary source of competition is from companies that provide or intend
to provide 3D graphics solutions for the PC market. Our competitors include
the following:
. suppliers of graphics add-in boards that utilize their internally
developed graphics chips, such as ATI Technologies Inc., Matrox
Electronics Systems Ltd. and S3;
. suppliers of integrated core logic chipsets that incorporate 2D and 3D
graphics functionality as part of their existing solutions, such as
Intel, Silicon Integrated Systems and Via Technologies;
. companies that have traditionally focused on the professional market and
provide high end 3D solutions for PCs and workstations, including 3Dlabs
Inc., SGI, Evans and Sutherland Computer Corporation and Intergraph
Corporation; and
. companies with strength in the video game market, such as 3Dfx and
VideoLogic Group plc.
Patents and Proprietary Rights
We rely primarily on a combination of patent, trademarks, copyrights, trade
secrets, employee and third-party nondisclosure agreements and licensing
arrangements to protect our intellectual property. We own 28 issued patents,
have 4 United States patent applications allowed, have 25 United States patent
applications pending and
30
have 15 United States patent applications being drafted for filing. Our issued
patents have expiration dates from April 14, 2015 to March 30, 2018. Our
issued patents and pending patent applications relate to technology developed
by us in connection with the development of our 3D graphics processors. We
have no foreign patents or patent applications. We seek patents that have
broad application in the semiconductor industry and that we believe will
provide a competitive advantage. However, our pending patent applications or
any future applications may not be approved, and any issued patents may not
provide us with competitive advantages or may be challenged by third parties.
We have licensed technology from third parties for incorporation in our
graphics processors and expect to continue to enter into agreements like this
for future products. These licenses may result in royalty payments to third
parties, the cross-license of technology by us or payment of other
consideration. If these arrangements are not concluded on commercially
reasonable terms, our business could suffer. We attempt to protect our trade
secrets and other proprietary information through confidentiality agreements
with manufacturers and other partners, proprietary information agreements with
employees and consultants and other security measures. We also rely on
trademarks and trade secret laws to protect our intellectual property.
Employees
As of January 30, 2000 we had 392 employees, 214 of whom were engaged in
research and development and 178 of whom were engaged in sales, marketing,
operations and administrative positions. None of our employees is covered by
collective bargaining agreements, and we believe our relationship with our
employees is good.
Facilities
We lease approximately 117,000 square feet for our headquarters in Santa
Clara, California under leases expiring in 2002. We also lease a design
center consisting of approximately 2,900 square feet in one building in
Durham, North Carolina, pursuant to a lease that expires in March 2002. In
addition, we lease sales and administrative offices in Texas, Washington,
Arizona, Singapore and the United Kingdom to support our customers. We believe
that we currently have sufficient facilities to conduct our operations for the
next twelve months, although we expect to continue to lease facilities
throughout the world as our business requires. In April 2000, we entered into
leases for our new headquarters complex in Santa Clara, California. Our new
complex will be comprised of four buildings, representing approximately
500,000 total square feet. We expect the first phase of two buildings
consisting of approximately 250,000 square feet to be completed in June 2001,
the second phase of one building consisting of approximately 125,000 square
feet to be completed in July 2001 and the last phase to be completed in March
2002. The leases expire in 2012 and include two seven-year renewals at our
option.
Legal Proceedings
On September 21, 1998, 3Dfx filed a patent infringement lawsuit against us
in the United States District Court for the Northern District of California
alleging infringement of a 3Dfx patent. On March 2, 1999, 3Dfx added a second
patent to the suit and on May 24, 1999, 3Dfx added a third patent to the suit.
The amended complaint alleges that our RIVA TNT, RIVA TNT2 and RIVA TNT2 Ultra
products infringe the patents in suit and seeks unspecified compensatory and
trebled damages and attorney's fees. Our current generation of products is not
identified as infringing any of the patents in suit. We have filed an answer
and counter-claims asserting that the patents in suit are invalid and not
infringed. These assertions are supported by our investigations to date and an
opinion from our patent counsel in this suit. We anticipate that the trial
date will be set by the District Court after it rules on claims construction
issues. We have and will continue to defend vigorously this suit. In the event
of an adverse result in the 3Dfx suit, we might be required to do one or more
of the following:
. pay substantial damages (including treble damages);
. permanently cease the manufacture and sale of any of the infringing
products;
. expend significant resources to develop non-infringing products; or
. obtain a license from 3Dfx for infringing products.
In addition to the above litigation, from time to time we are subject to
claims in the ordinary course of business, none of which in our view would
have a material adverse impact on our business or financial position if
resolved unfavorably.
31
MANAGEMENT
The following table sets forth certain information regarding our executive
officers and directors as of March 20, 2000:
Executive Officers, Key Employees and Directors
Name Age Position
---- --- --------
Jen-Hsun Huang 37 President, Chief Executive Officer and Director
Jeffrey D. Fisher 41 Executive Vice President, Worldwide Sales
Christine B. Hoberg 44 Chief Financial Officer
Chris A. Malachowsky 40 Vice President, Hardware Engineering
Curtis R. Priem 40 Chief Technical Officer
Tench Coxe (1) 42 Director
James C. Gaither 62 Director
Harvey C. Jones, Jr. (1) 47 Director
William J. Miller 54 Director
A. Brooke Seawell (2) 52 Director
Mark A. Stevens (2) 40 Director
- --------
(1)Member of the Compensation Committee.
(2)Member of the Audit Committee.
Jen-Hsun Huang co-founded NVIDIA in April 1993 and has servedreincorporated in
Delaware in April 1998. Our executive offices are located at 2701 San Tomas
Expressway, Santa Clara, California 95050, and our telephone number is (408)
486-2000. Our web site is located at www.nvidia.com. Information contained on
our web site should not be deemed to be part of this prospectus.
RISK FACTORS
Investing in our securities involves risk. Please see the risk factors set
forth in the supplement which accompanies this prospectus as well as our
President, Chief Executive Officerperiodic reports on Form 10-K and a member of the Board of Directors
since its inception. From 1985 to 1993, Mr. Huang was employed at LSI Logic
Corporation ("LSI"), a computer chip manufacturer, where he held a variety of
positions, most recently as Director of Coreware, the business unit
responsible for LSI's "system-on-a-chip" strategy. From 1983 to 1985, Mr.
Huang was a microprocessor designer for Advanced Micro Devices, a
semiconductor company. Mr. Huang holds a B.S.E.E. degree from Oregon State
University and an M.S.E.E. degree from Stanford University.
Jeffrey D. Fisher hasForm 10-Q which have been Executive Vice President, Worldwide Sales for
NVIDIA since July 1994. From September 1988 to July 1994, Mr. Fisher held
various positions at Weitek Corporation, a semiconductor technology company,
where his last position was as Director of Worldwide Sales. Mr. Fisher holds a
B.S.E.E. degree from Purdue University and an M.B.A. degree from Santa Clara
University.
Christine B. Hoberg has been Chief Financial Officer of NVIDIA since
December 1998. From June 1992 to December 1998, Ms. Hoberg held various
positions at Quantum Corporation, a mass storage company, where her last
position was as Vice President, Corporate Controller. Ms. Hoberg holds a B.A.
in German Studies from Stanford University and is a certified public
accountant.
Chris A. Malachowsky co-founded NVIDIA in April 1993 and has been our Vice
President, Hardware Engineering since that time. From 1987 until April 1993,
Mr. Malachowsky was a Senior Staff Engineer for Sun Microsystems, Inc., a
supplier of enterprise network computing products. From 1980 to 1986,
Mr. Malachowsky was a manufacturing design engineer at Hewlett-Packard
Company. Mr. Malachowsky was a co-inventor of Sun Microsystems' GX graphics
architecture and has authored 43 patents, most of which relate to graphics.
Mr. Malachowsky holds a B.S.E.E. degree from the University of Florida and an
M.S.C.S. degree from Santa Clara University.
Curtis R. Priem co-founded our company in April 1993 and has been our Chief
Technical Officer since that time. From 1986 to January 1993, Mr. Priem was
Senior Staff Engineer at Sun Microsystems where he architected the GX graphics
products, including the world's first single chip GUI accelerator. From 1984
to 1986,
32
Mr. Priem was a hardware engineer at GenRad, Inc., a supplier of diagnostic
equipment for electronic products. From 1982 to 1984, Mr. Priem was a staff
engineer for Vermont Microsystems, Inc., a personal computer company, where he
architected IBM's Professional Graphics Adapter, the PC industry's first
graphics processor. Mr. Priem has authored 87 U.S. and international patents,
all of which relate to graphics and Input/Output Systems. Mr. Priem holds a
B.S.E.E. degree from Rensselaer Polytechnic Institute.
Tench Coxe has served as a director of NVIDIA since June 1993. Mr. Coxe is a
managing director of Sutter Hill Ventures, a venture capital investment firm.
Prior to joining Sutter Hill Ventures in 1987, Mr. Coxe was Director of
Marketing and MIS at Digital Communication Associates. Mr. Coxe holds a B.A.
degree in Economics from Dartmouth College and an M.B.A. degree from the
Harvard Business School. Mr. Coxe also serves on the Board of Directors of
Edify Corporation, Alteon WebSystems Inc., Copper Mountain Networks Inc., E-
Loyalty Corp., Clarus Corporation, and several privately held companies.
James C. Gaither has served as a director of NVIDIA since December 1998. Mr.
Gaither has been a partner of the law firm of Cooley Godward LLP since 1971.
Prior to beginning his law practice with the firm in 1969, Mr. Gaither served
as a law clerk to The Honorable Earl Warren, Chief Justice of the United
States, Special Assistant to the Assistant Attorney General in the United
States Department of Justice and Staff Assistant to the President of the
United States, Lyndon Johnson. Mr. Gaither is a former president of the Board
of Trustees at Stanford University and is a member of the Board of Trustees of
the Carnegie Endowment for International Peace, RAND, The William and Flora
Hewlett Foundation, and the James Irvine Foundation. Mr. Gaither currently
serves on the Board of Directors of Amylin Pharmaceuticals, Inc., a
biotechnology company, Basic American, Inc., a food processing company, Levi
Strauss & Company, a manufacturer and marketer of brand-name apparel, Blue
Martini, Inc., a customer interaction company, and Siebel Systems, Inc., an
information software systems company. Mr. Gaither received a B.A. in Economics
from Princeton University and a J.D. from Stanford University.
Harvey C. Jones, Jr. has served as a director of NVIDIA since November 1993.
From December 1987 through February 1998, Mr. Jones held various positions at
Synopsys, Inc., a developer of electronic design automation software products,
where he served as President through December 1992, as Chief Executive Officer
until January 1994 and as Executive Chairman of the Board until February 1998.
Prior to joining Synopsys, Mr. Jones served as President and Chief Executive
Officer of Daisy Systems Corporation, a computer-aided engineering company
that Mr. Jones co-founded in 1981. Mr. Jones currently serves on the Board of
Directors of Synopsys, Remedy Corporation, an enterprise software company, and
several privately held companies. Mr. Jones holds a B.S. degree in Mathematics
and Computer Sciences from Georgetown University and an M.S. degree in
Management from the Massachusetts Institute of Technology.
William J. Miller has served as a director of NVIDIA since November 1994.
From April 1996 through October 1999, Mr. Miller was Chief Executive Officer
and Chairman of the Board of Avid Technology, Inc., a provider of digital
tools for multimedia. Mr. Miller also served as President of Avid Technology
from September 1996 through October 1999. From March 1992 to October 1995, Mr.
Miller served as Chief Executive Officer of Quantum Corporation, a mass
storage company. He was a member of the Board of Directors, and Chairman
thereof, from, respectively, May 1992 and September 1993 to August 1995. From
1981 to March 1992, he served in various positions at Control Data
Corporation, a supplier of computer hardware, software and services, most
recently as Executive Vice President and President, Information Services. Mr.
Miller holds a B.A. and a J.D. degree from the University of Minnesota. Mr.
Miller serves on the Board of Directors of Waters Corporation, a scientific
instrument manufacturing company and on the Board of Directors of Innovex
Inc., a manufacturer of flexible circuits.
A. Brooke Seawell has served as a director of NVIDIA since December 1997.
Mr. Seawell has been a general partner of Technology Crossover Ventures since
February 2000. From 1997 to 1998, Mr. Seawell was Executive Vice President of
NetDynamics, Inc., an Internet application server software company. From 1991
to 1997, Mr. Seawell was Senior Vice President and Chief Financial Officer of
Synopsys, Inc., an electronic design automation software company. Mr. Seawell
holds a B.A. degree in economics and an M.B.A. degree in finance from Stanford
University. Mr. Seawell serves on the board of directors of Accrue Software,
Inc., an Internet data
33
collection and analysis software company, Informatica Corporation, a data
integration software company, Mediaplex, Inc., a provider of e-business
advertising technology and services, and several privately held companies.
Mark A. Stevens has served as a director of NVIDIA since June 1993. Mr.
Stevens has been a managing member of Sequoia Capital, a venture capital
investment firm, since March 1993. Prior to that time, beginning in July 1989,
he was an associate at Sequoia Capital. Prior to joining Sequoia, he held
technical sales and marketing positions at Intel. Mr. Stevens holds a B.S.E.E.
degree, a B.A. degree in Economics and an M.S. degree in Computer Engineering
from the University of Southern California and an M.B.A. degree from the
Harvard Business School. Mr. Stevens currently serves on the Board of
Directors of Terayon Communication Systems, Inc., a broadband systems company,
MP3.com, Inc., an online music company, MedicaLogic, Inc., an online health
information company, and several privately held companies.
34
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us with respect
to beneficial ownership of our common stock as of February 29, 2000 by (1)
each of our executive officers and directors; (2) all of our executive
officers and directors as a group; and (3) each stockholder known by us to be
the beneficial owner of more than 5% of our common stock.
Number of
Shares
Beneficially Percentage of Shares
Name Owned(1) Beneficially Owned
---- ------------ --------------------
Jen-Hsun Huang(2)(3)......................... 2,759,500 8.7
Curtis Priem(2)(4)........................... 3,065,000 9.7
Chris Malachowsky(2)(5)...................... 2,115,490 6.7
Jeffrey D. Fisher(6)......................... 309,464 1.0
Christine B. Hoberg(7)....................... 20,796 *
Tench Coxe(8)................................ 268,459 *
James C. Gaither(9).......................... 108,242 *
Harvey C. Jones, Jr.(10)..................... 292,301 *
William J. Miller(11)........................ 203,094 *
A. Brooke Seawell(12)........................ 66,425 *
Mark A. Stevens(13).......................... 163,218 *
All directors and executive officers as a
group
(11 persons)(14)............................ 9,371,989 29.1
- --------
* Less than one percent
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G filed with the SecuritiesSEC,
incorporated by reference into this prospectus and Exchange Commission.available on EDGAR at
http://www.sec.gov. Before making an investment decision, you should carefully
consider these risks as well as the other information contained or incorporated
by reference into this prospectus.
USE OF PROCEEDS
Unless otherwise indicated in the footnotesapplicable prospectus supplement, we
intend to this tableuse the proceeds for working capital and subjectgeneral corporate purposes.
In particular, we expect to community property laws where
applicable, we believe that eachincur significant operating expenses in connection
with:
o continuing to develop our technology;
o hiring additional personnel;
o expanding our sales and marketing organization and activities;
3
o acquiring complementary technologies or businesses; and
o capital expenditures.
Pending application of the stockholders named in this table
has sole voting and investment power with respect to the shares indicated
as beneficially owned. Applicable percentages are based on 31,593,321
shares of common stock outstanding on February 29, 2000. In computing the
number of shares beneficially owned by a person and the percentage
ownership of that person, shares of common stock subject to options held
by that person that are exercisable within 60 days are deemed
outstanding. These shares, however, are not deemed outstanding for the
purpose of computing the percentage ownership of any other person.
(2) The address for Messrs. Huang, Fisher, Malachowsky and Priem is c/o
NVIDIA Corporation, 3535 Monroe Street, Santa Clara, California 95051.
(3) Includes 2,308,900 shares of common stock held by The Jen-Hsun and Lori
Huang Living Trust dated May 1, 1995, of which Mr. Huang is the trustee,
and 250,600 shares held by J. and L. Huang Investments, L.P., of which
Mr. Huang and his wife are general partners. Also includes 200,000 shares
of common stock issuable upon the exercise of vested options within 60
days of February 29, 2000.
(4) Includes 175,000 shares of common stock held by The Priem Family CRT and
1,970,000 shares held by The Priem Family Foundation. Mr. Priem disclaims
beneficial ownership over the shares of common stock held by the Priem
Family Foundation. Also includes 125,000 shares of common stock issuable
upon the exercise of vested options within 60 days of February 29, 2000.
(5) Includes 1,751,990 shares of common stock held by The Chris and Melody
Malachowsky Living Trust dated October 20, 1994, of which Mr. Malachowsky
is the trustee, and 238,500 shares of common stock held by C. and
M. Malachowsky Investments, L.P., of which Mr. Huang and his wife are
general partners. Also includes 125,000 shares of common stock issuable
upon exercise of vested options within 60 days of February 29, 2000.
35
(6) Includes 39,000 shares held by Jeffrey D. Fisher, as custodian for his
three minor children under the Uniform Gifts to Minors Act. Also includes
27,098 shares of common stock issuable upon exercise of vested options
within 60 days of February 29, 2000.
(7) Includes 18,437 shares of common stock issuable upon exercise of vested
options within 60 days of February 29, 2000.
(8) Includes 20,526 shares of common stock held in a retirement trust over
which Mr. Coxe exercises voting and investing power. Also includes 22,500
shares of common stock issuable upon exercise of vested options within 60
days of February 29, 2000.
(9) Includes 37,666 shares of common stock held by Cooley Godward LLP, of
which Mr. Gaither is a partner. Mr. Gaither disclaims beneficial
ownership of such shares held by such entity, except to the extent of his
pecuniary interest therein. Also includes 15,625 shares of common stock
issuable upon exercise of vested options within 60 days of February 29,
2000.
(10) Includes 22,500 shares of common stock issuable upon exercise of vested
options within 60 days of February 29, 2000.
(11) Includes 21,250 shares of common stock issuable upon exercise of vested
options within 60 days of February 29, 2000.
(12) Includes 66,425 shares of common stock issuable upon exercise of vested
options within 60 days of February 29, 2000.
(13) Includes 21,250 shares of common stock issuable upon exercise of vested
options within 60 days of February 29, 2000.
(14) Includes 665,085 shares of common stock issuable upon exercise of
options held by all current directors and executive officers within 60
days of February 29, 2000.
36
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 200,000,000 shares of common stock,
$.001 par value and 2,000,000 shares of preferred stock, $.001 par value. As
of February 29, 2000, there were 31,593,321 shares of common stock outstanding
and no shares of preferred stock outstanding.
Common Stock
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding shares of the Preferred
Stock, the holders of common stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. See "Dividend Policy." In the event of our liquidation,
dissolution, or winding up, holders of the common stock are entitled to share
ratably in all assets remaining after payment of liabilities and the
liquidation preferences of any outstanding shares of preferred stock. Holders
of common Stock have no preemptive rights and no right to convert their common
stock into any other securities. There are no redemption or sinking fund
provisions applicable to the common stock. All outstanding shares of common
stock are, and all shares of common stock to be outstanding upon the
completionnet proceeds of this offering, will be, fully paid and non-assessable.
Preferred Stock
Pursuantwe intend to
our Amended and Restated Certificate of Incorporation, or
Certificate,invest the Board of Directors has the authority, without further action
by the stockholders, to issue up to 2,000,000 shares of preferred stocknet proceeds in one
or more series and to fix the designations, powers, preferences, privileges,
and relative participating, optional, or special rights and the
qualifications, limitations, or restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption and liquidation
preferences, any or all of which may be greater than the rights of the common
stock. The Board of Directors, without stockholder approval, can issue
preferred Stock with voting, conversion, or other rights that could adversely
affect the voting power and other rights of the holders of common stock.
Preferred stock could thus be issued quickly with terms calculated to delay or
prevent our having a change in control or make removal of management more
difficult. Additionally, the issuance of preferred Stock may have the effect
of decreasing the market price of the common stock, and may adversely affect
the voting and other rights of the holders of common stock. We have no current
plans to issue any of the authorized preferred stock.
Registration Rights
In addition to the registration rights to be granted to the holder of the
notes, the holders (or their permitted transferees), or Holders of
approximately 786,287 shares of our common stock are entitled to certain
rights with respect to the registration of such shares under the Securities
Act. If we propose to register our common stock, subject to certain
exceptions, under the Securities Act, the Holders are entitled to notice of
the registration and are entitled at our expense to include such shares
therein, provided that the managing underwriters have the right to limit the
number of such shares included in the registration. These registration rights
will not apply to any offering of our common stock under this prospectus. In
addition, certain of the Holders may require us, at our expense, on no more
than one occasion, to file a registration statement under the Securities Act
with respect to their shares of common stock. Further, certain Holders may
require us, once every 12 months and, on no more than two occasions, at our
expense to register the shares on Form S-3, subject to certain conditions and
limitations. These rights expire in January 2004.
Anti-Takeover Effects of Provisions of Charter Documents and Delaware Law
Charter Documents
Our Certificate and Bylaws include a number of provisions that may have the
effect of deterring hostile takeovers or delaying or preventing changes in
control or management. First, the Certificate provides that all
37
stockholder action must be effected at a duly called meeting of holders and
not by a consent in writing. Second, the Bylaws provide that special meetings
of the holders may be called only by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by the Board of Directors. Third, the
Certificate and the Bylaws provide for a classified Board of Directors. The
Certificate includes a provision requiring cumulative voting for directors
only if required by applicable California law. Under cumulative voting, a
minority stockholder holding a sufficient percentage of a class of shares may
be able to ensure the election of one or more directors. As a result of the
provisions of the Certificate and applicable California and Delaware law, at
any annual meeting whereby we had at least 800 stockholders as of the end of
the fiscal year prior to the record date for the annual meeting, stockholders
will not be able to cumulate votes for directors. Finally, the Bylaws
establish procedures, including advance notice procedures with regard to the
nomination of candidates for election as directors and stockholder proposals.
These provisions of the Certificate and Bylaws could discourage potential
acquisition proposals and could delay or prevent our having a change in
control or management. These provisions also may have the effect of preventing
changes in our management.
Delaware Takeover Statute
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with a person
characterized as an "interested stockholder" for a period of three years after
the date of the transaction pursuant to which such person became an interested
stockholder, unless the business combination is approved in a manner
prescribed by Delaware law. For purposes of Section 203, a business
combination includes a merger, asset sale or other transaction resulting in a
financial benefit to the interested stockholder, and an "interested
stockholder" is a person who, together with affiliates and associates, owns
(or within three years prior, did own) 15% or more of the company's voting
stock.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is ChaseMellon
Shareholder Services, L.L.C. Its address is 235 Montgomery Street, 23rd Floor,
San Francisco, California 94104 and its telephone number is (415) 743-1444.
38
DESCRIPTION OF DEBT SECURITIES
We may issue either senior or subordinated debtinterest-bearing, investment grade securities. Senior debt or
senior convertible debt securities and subordinated debt or subordinated
convertible debt securities will be issued in one or more series under either
a senior indenture or a subordinated indenture between us and Chase Manhattan
Bank and Trust Company, N.A., a national banking association, as Trustee. In
the following discussion, we sometimes refer to the two indentures as the
"indentures".
This prospectus briefly outlines the provisions of the indentures. The
indentures are filed as exhibits to the registration statement and you should
read the indentures for provisions that may be important to you. The
indentures are substantially identical except for the subordination and
negative pledge provisions described below.
Issuances in Series
The indentures do not limit the amount of debt we may issue. We may issue
the debt securities in one or more series with the same or various maturities,
at a price of 100% of their principal amount or at a premium or a discount.
The debt securities will not be secured by any of our property or assets.
The prospectus supplement relating to any series of debt securities being
offered will contain the specific terms relating to the offering. These terms
will include some or all of the following:
. whether the debt securities are senior or subordinated;
. the total principal amount of the debt securities;
. the percentage of the principal amount at which the debt securities will
be issued and whether the debt securities will be "original issue
discount" securities for U.S. federal income tax purposes. If we issue
original issue discount debt securities (securities that are issued at a
substantial discount below their principal amount because they pay no
interest or pay interest that is below market rates at the time of
issuance), we will describe the special United States federal income tax
and other considerations of a purchase of original issue discount debt
securities in the prospectus supplement;
. the date or dates on which principal will be payable and whether the
debt securities will be payable on demand by the holders on any date;
. the manner in which we will calculate payments of principal, premium or
interest and whether any payment will be fixed or based on an index or
formula or the value of another security, commodity or other asset;
. the interest payment dates;
. optional or mandatory redemption terms;
. authorized denominations, if other than $1,000 and integral multiples of
$1,000;
. the terms on which holders of the debt securities may convert or
exchange these securities into or for our stock or other securities or
another entity and any specific terms relating to the conversion or
exchange feature;
. the currency in which the debt securities will be denominated or
principal, premium or interest will be payable, if other than U.S.
dollars;
. whether the debt securities are to be issued as individual certificates
to each holder or in the form of global securities held by a depositary
on behalf of holders;
. information describing any book-entry features;
. whether and under what circumstances we will pay additional amounts on
any debt securities held by a person who is not a United States person
for tax purposes and whether we can redeem the debt securities if we
have to pay additional amounts;
39
. the names and duties of any co-trustees, depositories, authenticating
agents, paying agents, transfer agents or registrars for any series; and
. any other terms consistent with the above.
Payment and Transfer
We may issue debt securities as registered securities, which means that the
name of the holder will be entered in a register which will be kept by the
Trustee or another of our agents, or unregistered securities.
Unless we state otherwise in a prospectus supplement, we will make principal
and interest payments at the office of the paying agent or agents we name in
the prospectus supplement or by mailing a check to you at the address we have
for you in the register.
Unless we describe other procedures in a prospectus supplement, you will be
able to transfer registered debt securities at the office of the transfer
agent or agents we name in the prospectus supplement. You may also exchange
registered debt securities at the office of the transfer agent for an equal
aggregate principal amount of registered debt securities of the same series
having the same maturity date, interest rate and other terms as long as the
debt securities are issued in authorized denominations.
Neither we nor the Trustee will impose any service charge for any transfer
or exchange of a debt security; however, we may ask you to pay any taxes or
other governmental charges in connection with a transfer or exchange of debt
securities.
Book Entry System
We may issue debt securities under a book-entry system in the form of one or
more global securities. We will register the global securities in the name of
a depositary or its nominee and deposit the global securities with that
depositary. Unless we state otherwise in the prospectus supplement, The
Depository Trust Company, New York, New York will be the depositary if we use
a depositary.
DTC has advised us as follows:
. DTC is:
. a limited purpose trust company organized under the laws of the
State of New York;
. a "banking organization" within the meaning of the New York banking
law;
. a member of the Federal Reserve System;
. a "clearing corporation" within the meaning of the New York Uniform
Commercial Code; and
. a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act.
. DTC was created to hold securities of its participants and to facilitate
the clearance and settlement of securities transactions among its
participants through electronic book entry changes in accounts of its
participants, eliminating the need for physical movements of securities
certificates.
. DTC's participants include securities brokers and dealers, banks, trust
companies, clearing corporations and others, some of whom own DTC.
. Access to DTC's book-entry system is also available to others that clear
through or maintain a custodial relationship with a participant, either
directly or indirectly.
Following the issuance of a global security in registered form, the
depositary will credit the accounts of its participants with the debt
securities upon our instructions. Only persons who hold directly or indirectly
through financial institutions that are participants in the depositary can
hold beneficial interests in the global securities. Since the laws of some
jurisdictions require certain types of purchasers to take physical delivery of
such securities in definitive form, you may encounter difficulties in your
ability to own, transfer or pledge beneficial interests in a global security.
40
So long as the depositary or its nominee is the registered owner of a global
security, we and the Trustee will treat the depositary as the sole owner or
holder of the debt securities for purposes of the applicable indenture.
Therefore, except as set forth below, you will not be entitled to have debt
securities registered in your name or to receive physical delivery of
certificates representing the debt securities. Accordingly, you will have to
rely on the procedures of the depositary and the participant in the depositary
through whom you hold your beneficial interest in order to exercise any rights
of a holder under the indenture. We understand that under existing practices,
the depositary would act upon the instructions of a participant or authorize
that participant to take any action that a holder is entitled to take.
We will make all payments of principal, premium and interest on the debt
securities to the depositary. We expect that the depositary will then credit
participants' accounts proportionately with these payments on the payment date
and that the participants will in turn credit their customers in accordance
with their customary practices. Neither we nor the Trustee will be responsible
for making any payments to participants or customers of participants or for
maintaining any records relating to the holdings of participants and their
customers and you will have to rely on the procedures of the depositary and
its participants.
Global securities are generally not transferable. We will issue physical
certificates to beneficial owners of a global security if:
. the depositary notifies us that it is unwilling or unable to continue as
depositary and we do not appoint a successor within 90 days;
. the depositary ceases to be a clearing agency registered under the
Exchange Act and we do not appoint a successor within 90 days; or
. we decide in our sole discretion that we do not want to have the debt
securities of that series represented by global securities.
Subordination
Payment on the subordinated debt securities will, to the extent provided in
the subordinated indenture, be subordinated in right of payment to the prior
payment in full of all of our senior indebtedness. The subordinated debt
securities also are effectively subordinated to all debt and other
liabilities, including trade payables and lease obligations, if any, of our
subsidiaries.
Upon any distribution of our assets upon any dissolution, winding up,
liquidation or reorganization, the payment of the principal of, or premium, if
any, interest, and liquidated damages, if any, on the subordinated debt
securities will be subordinated in right of payment to the prior payment in
full in cash or other payment satisfactory to the holders of senior
indebtedness of all senior indebtedness. In the event of any acceleration of
the subordinated debt securities because of an event of default, the holders
of any outstanding senior indebtedness would be entitled to payment in full in
cash or other payment satisfactory to the holders of senior indebtedness of
all senior indebtedness obligations before the holders of the subordinated
debt securities are entitled to receive any payment or distribution. We are
required under the subordinated indenture to promptly notify holders of senior
indebtedness if payment of the subordinated debt securities is accelerated
because of an event of default.
We may not make any payment on the subordinated debt securities if:
. a default in the payment of designated senior indebtedness occurs and is
continuing beyond any applicable period of grace (called a "payment
default"); or
. a default other than a payment default on any designated senior
indebtedness occurs and is continuing that permits holders of designated
senior indebtedness to accelerate its maturity, or in the case of a
lease, a default occurs and is continuing that permits the lessor to
either terminate the lease or require us to make an irrevocable offer to
terminate the lease following an event of default under the lease,
41
and the trustee receives a notice of such default (called a "payment
blockage notice") from us or any other person permitted to give such
notice under the indenture (called a "non-payment default").
We may resume payments and distributions on the subordinated debt
securities:
. in case of a payment default, upon the date on which such default is
cured or waived or ceases to exist; and
. in case of a non-payment default, the earlier of the date on which such
nonpayment default is cured or waived or ceases to exist or 179 days
after the date on which the payment blockage notice is received, if the
maturity of the designated senior indebtedness has not been accelerated,
or in the case of any lease, 179 days after notice is received if we
have not received notice that the lessor under such lease has exercised
its right to terminate the lease or require us to make an irrevocable
offer to terminate the lease following an event of default under the
lease.
No non-payment default that existed or was continuing on the date of
delivery of any payment blockage notice shall be the basis for any later
payment blockage notice.
If the trustee or any holder of the subordinated debt securities receives
any payment or distribution of our assets in contravention of the
subordination provisions on the subordinated debt securities before all senior
indebtedness is paid in full in cash or other payment satisfactory to holders
of senior indebtedness then such payment or distribution will be held in trust
for the benefit of holders of senior indebtedness or their representatives to
the extent necessary to make payment in full in cash or payment satisfactory
to the holders of senior indebtedness of all unpaid senior indebtedness.
In the event of our bankruptcy, dissolution or reorganization, holders of
senior indebtedness may receive more, ratably, and holders of the subordinated
debt securities may receive less, ratably, than our other creditors. This
subordination will not prevent the occurrence of any event of default under
the indenture.
As of January 30, 2000, no senior indebtedness was outstanding. We are not
prohibited from incurring debt, including senior indebtedness, under the
indentures. We may from time to time incur additional debt, including senior
indebtedness.
We are obligated to pay reasonable compensation to the Trustee and to
indemnify the Trustee against certain losses, liabilities or expenses incurred
by the Trustee in connection with its duties relating to the debt securities.
The Trustee's claims for these payments will generally be senior to those of
holders of debt securities in respect of all funds collected or held by the
Trustee.
Conversion Rights
The prospectus supplement will describe, if applicable, the terms on which
the holders may convert debt securities into common stock. The conversion may
be mandatory or may be at the option of the holder of debt securities. The
prospectus supplement will describe how the number of shares of common stock
to be received upon conversion would be calculated.
Certain Definitions
"designated senior indebtedness" shall mean senior indebtedness under the
loan agreement and our obligations under any other particular senior
indebtedness that expressly provides that such senior indebtedness shall be
"designated senior indebtedness" for purposes of the subordinated indenture.
The instrument or agreement for designated senior indebtedness may place
limitations and conditions on the right of senior indebtedness to exercise the
rights of designated senior indebtedness.
42
"indebtedness" means:
(1) all indebtedness, obligations and other liabilities for borrowed
money, including overdrafts, foreign exchange contracts, currency
exchange agreements, interest rate protection agreements, and any
loans or advances from banks, or evidenced by bonds, debentures, notes
or similar instruments, other than any account payable or other
accrued current liability or obligation incurred in the ordinary
course of business in connection with the obtaining of materials or
services;
(2) all reimbursement obligations and other liabilities with respect to
letters of credit, bank guarantees or bankers' acceptances;
(3) all obligations and liabilities in respect of leases required in
conformity with generally accepted accounting principles to be
accounted for as capitalized lease obligations on our balance sheet;
(4) all obligations and other liabilities under any lease or related
document in connection with the lease of real property which provides
that we are contractually obligated to purchase or cause a third party
to purchase the leased property and thereby guarantee a minimum
residual value of the leased property to the lessor and our
obligations under the lease or related document to purchase or to
cause a third party to purchase the leased property;
(5) all obligations with respect to an interest rate or other swap, cap or
collar agreement or other similar instrument or agreement or foreign
currency hedge, exchange, purchase agreement or other similar
instrument or agreement;
(6) all direct or indirect guaranties or similar agreements, our
obligations or liabilities to purchase, acquire or otherwise assure a
creditor against loss in respect of, indebtedness, obligations or
liabilities of others of the type described in (1) through (5) above;
(7) any indebtedness or other obligations described in (1) through (6)
above secured by any mortgage, pledge, lien or other encumbrance
existing on property which is owned or held by us; and
(8) any and all refinancings, replacements, deferrals, renewals,
extensions and refundings of, or amendments, modifications or
supplements to, any indebtedness, obligation or liability of the kind
described in clauses (1) through (7) above.
"loan agreement" means the loan and security agreement, dated as of
September 3, 1998, as amended by the amendment to loan and security agreement
dated as of July 30, 1999, between NVIDIA and Imperial Bank.
"senior indebtedness" means the principal, premium, if any, interest,
including any interest accruing after bankruptcy and rent or termination
payment on or other amounts due on our current or future indebtedness, whether
created, incurred, assumed, guaranteed or in effect guaranteed by us,
including any refinancings, replacements, deferrals, renewals, extensions,
refundings, amendments, modifications or supplements to the above. However,
senior indebtedness does not include:
. indebtedness that expressly provides that it shall not be senior in
right of payment to the subordinated debt securities or expressly
provides that it is on the same basis or junior to the subordinated debt
securities;
. our indebtedness to any of our majority-owned subsidiaries; and
. the subordinated debt securities.
Negative Pledge
We have agreed in the senior indenture for the benefit of the holders of the
senior debt securities that, with some exceptions, neither we nor our
subsidiaries will create a lien to secure debt that is the same seniority with
or subordinated to the senior debt securities, unless we secure the senior
debt securities equally with the secured debt.
43
Consolidation, Merger, Sale or Conveyance
The indentures do not prevent us from any consolidation or merger with any
other person or the sale of all of the property of our property to any other
person. In the event we undertake a consolidation, merger or sale of all of
our property, however, the person with which we consolidate, merge or sell all
of our property must agree:
. to pay the principal, premium and interest on the debt securities; and
. to the due and punctual performance of all of the covenants and
conditions of the indentures to be performed by us.
If the debt securities are convertible for our other securities or other
entities, the person with whom we consolidate, merge or sell all of our
property must make provisions for the conversion of the debt securities into
securities which the holders of the debt securities would have received if
they had converted the debt securities before the consolidation, merger or
sale.
We must deliver to the trustee an officer's certificate and an opinion of
counsel that the consolidation, merger or sale complies with the indentures.
Modification of the Indenture
In general, our rights and obligations and the rights of the holders under
the indenture may be modified if the holders of a majority in aggregate
principal amount of the outstanding debt securities of each series affected by
the modification consent to it. However, under the terms of the indentures,
each indenture provides that, unless each affected holder agrees, we cannot
make any adverse change to any payment term of a debt security such as:
. extending the maturity date;
. extending the date on which we have to pay interest or make a sinking
fund payment;
. reducing the interest rate;
. reducing the amount of principal we have to repay;
. changing the currency in which we have to make any payment of principal,
premium or interest;
. modifying any redemption or repurchase right to the detriment of the
holder;
. modifying any right to convert or exchange the debt securities for
another security to the detriment of the holder;
. impairing any right of a holder to bring suit for payment;
. reduce the percentage of the aggregate principal amount of debt
securities needed to make any amendment to the indenture or to waive any
covenant or default;
. waive any payment default; or
. make any change to such sections of either indenture.
However, if we and the Trustee agree, we can amend the indenture without
notifying any holders or seeking their consent if the amendment does not
materially and adversely affect any holder.
Events of Default
When we use the term "event of default" in the indenture, here are some
examples of what we mean.
Unless otherwise specified in a prospectus supplement, an event of default
with respect to a series of debt securities occurs if:
. we fail to pay the principal or any premium on any debt security of that
series when due;
44
. we fail to pay interest when due on any debt security of that series for
30 days;
. we fail to perform any other covenant in the indenture and this failure
continues for 60 days after we receive written notice of it from the
Trustee or from the holders of 25% in principal amount of the
outstanding debt securities of such series;
. a creditor commences involuntary bankruptcy, insolvency or similar
proceedings against us and we are unable to obtain a stay or a dismissal
of that proceeding within 90 days; or
. we voluntarily seek relief under bankruptcy, insolvency or similar laws
or a court enters an order for relief against us under these laws.
The supplemental indenture or the form of security for a particular series
of debt securities may include additional events of default or changes to the
events of default described above. For any additional or different events of
default applicable to a particular series of debt securities, see the
prospectus supplement relating to such series.
The Trustee may withhold notice to the holders of debt securities of any
default (except in the payment of principal or interest) if it considers such
withholding of notice to be in the best interests of the holders. By default
we mean any event which is an event of default described above or would be an
event of default but for the giving of notice or the passage of time.
If an event of default occurs and continues, the Trustee or the holders of
the aggregate principal amount of the debt securities specified below may
require us to repay immediately (or "accelerate"):
. the entire principal of the debt securities of such series; or
. if the debt securities are original issue discount securities, such
portion of the principal as may be described in the applicable
prospectus supplement.
If the event of default occurs because we defaulted in a payment of
principal or interest on the debt securities, then the Trustee or the holders
of at least 25% of the aggregate principal amount of debt securities of that
series can accelerate that series of debt securities. If the event of default
occurs because we failed to perform any other covenant in the Indenture or any
covenant that we agreed to for the benefit of one or more series of debt
securities, then the Trustee or the holders of at least 25% of the aggregate
principal amount of debt securities of all series affected, voting as one
class, can accelerate all of the affected series of debt securities. If the
event of default occurs because we become involved in bankruptcy proceedings
then all of the debt securities under the indenture will be accelerated
automatically. If the event of default occurs because we defaulted on some of
our other indebtedness or because that indebtedness becomes accelerated as
described above, then the Trustee or the holders of at least 25% of the
aggregate principal amount of the debt securities outstanding under the
indenture, voting as one class, can accelerate all of the debt securities
outstanding under the indenture. Therefore, except in the case of a default by
us on a payment of principal or interest on the debt securities of your series
or a default due to our bankruptcy or insolvency, it is possible that you may
not be able to accelerate the debt securities of your series because of the
failure of holders of other series to take action.
The holders of a majority of the aggregate principal amount of the debt
securities of all affected series, voting as one class, can rescind this
accelerated payment requirement or waive any past default or event of default
or allow us to not comply with any provision of the indenture. However, they
cannot waive a default in payment of principal of, premium, if any, or
interest on, any of the debt securities.
Other than its duties in case of a default, the Trustee is not obligated to
exercise any of its rights or powers under the indenture at the request, order
or direction of any holders, unless the holders offer the Trustee reasonable
indemnity. If they provide this reasonable indemnity, the holders of a
majority in principal amount of all affected series of debt securities, voting
as one class, may direct the time, method and place of conducting any
proceeding or any remedy available to the Trustee, or exercising any power
conferred upon the Trustee, for any series of debt securities.
45
We are not required to provide the Trustee with any certificate or other
document saying that we are in compliance with the indenture or that there are
no defaults.
Defeasance
When we use the term defeasance, we mean discharge from some or all of our
obligations under the indenture. Unless otherwise specified in a prospectus
supplement, if we deposit with the Trustee sufficient cash or U.S. government
securities to pay the principal, interest, any premium and any other sums due
to the stated maturity date or a redemption date of the debt securities of a
particular series, then at our option:
. we will be discharged from our obligations with respect to the debt
securities of such series, except as to any surviving rights of
registration or transfer or exchange or conversion of debt securities of
that series expressly provided for; or
. we will no longer be under any obligation to comply with the negative
pledge contained in the senior indenture, and the Events of Default
relating to failures to comply with covenants will no longer apply to
us.
If we are discharged from our obligations with respect to the debt
securities of a particular series, the holders of the debt securities of the
affected series will not be entitled to the benefits of the indenture except
for registration of transfer and exchange of debt securities and replacement
of lost, stolen or mutilated debt securities. Instead the holders will only be
able to rely on the deposited funds or obligations for payment.
We must deliver to the Trustee an opinion of counsel to the effect that the
deposit and related defeasance would not cause the holders of the debt
securities to recognize income, gain or loss for Federal income tax purposes.
We must also deliver a ruling to such effect received from or published by the
United States Internal Revenue Service if we are discharged from our
obligations with respect to the debt securities.
Concerning the Trustee
We have appointed Chase Manhattan Bank and Trust Company, N.A., a national
banking association, the trustee under the indentures. The trustee or its
affiliates may provide banking and other services to us in the ordinary course
of their business.
Governing Law
The laws of the State of New York will govern the indentures and the debt
securities.
46
PLAN OF DISTRIBUTION
We may sell the securities being offered by thisthrough underwriters, agents or dealers or
directly to purchasers. A prospectus through agents,supplement will set forth the terms of each
specific offering, including the name or names of any underwriters or agents,
the purchase price of the securities and the proceeds to us from such sales, any
delayed delivery arrangements, any underwriting discounts and other items
constituting underwriters' compensation, any public offering price and any
discounts or concessions allowed or reallowed or paid to dealers. Agents designatedAny public
offering price and any discounts or concessions allowed or reallowed or paid to
dealers may be changed from time to time.
If underwriters are used in the sale, the securities will be acquired by
usthe underwriters for their own account and may be resold from time to time in
one or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale. The
securities may solicit offersbe offered to the public either through underwriting syndicates
represented by one or more managing underwriters or directly by one or more
firms acting as underwriters. The underwriter or underwriters with respect to a
particular underwritten offering and, if an underwriting syndicate is used, the
managing underwriter or underwriters will be set forth on the cover of such
prospectus supplement. Unless otherwise set forth in the prospectus supplement,
the underwriters will be obligated to purchase all the securities if any are
purchased.
During and after an offering through underwriters, the underwriters may
purchase and sell the securities in the open market. These transactions may
include overallotment and stabilizing transactions and purchases to cover
syndicate short positions created in connection with the offering. The
underwriters also may impose a penalty bid, under which selling concessions
allowed to syndicate members or other broker-dealers for the securities they
sell for their account may be reclaimed by the syndicate if the syndicate
repurchases the securities in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
securities then offered, by this prospectus.which may be higher than the price that might otherwise
prevail in the open market, and, if commenced, may be discontinued at any time.
We may sell the securities directly or through agents we designate from
time to time. Any agent involved in the offer or sale of thosethe securities maycovered
by this prospectus will be deemed to be an underwriter under the Securities
Actnamed, and we will name that agent and describe any commissions payable by us to thatan agent
will be set forth in a prospectus supplement. Anysupplement relating thereto. Unless otherwise
indicated in a prospectus supplement, any such agent appointed by us will be acting on a reasonablebest
efforts basis for the period of its appointment or, if
indicated in the applicable prospectus supplement, on a firm commitment basis.
We may be obligated under agreements with these agents to indemnify them
against civil liabilities, including liabilities under the Securities Act.
These agents may also engage in transactions with or perform services for us
in the ordinary course of business.appointment.
If we utilize any underwritersdealers are used in any sale of the sales of securities in respect of
whichcovered by this
prospectus, is delivered, we will enter into an underwriting
agreement with those underwriters at the time of sale to them and the names of
the underwriters and the terms of the transaction will be set forth in the
prospectus supplement. That prospectus supplement will be used by the
underwriters to make resales of the securities in respect of which this
prospectus is delivered to the public. We may be obligated under the
underwriting agreements with these underwriters to indemnify them against
civil liabilities, including liabilities under the Securities Act. These
underwriters may also engage in transactions with or perform services for us
in the ordinary course of business.
If we utilize a dealer in any sale of the securities in respect of which the
prospectus is delivered, we will sell thethose securities to the dealer,dealers as principal.principals. The dealerdealers
may then resell thosethe securities to the public at varying prices to be determined by the dealerdealers
determine at the time of resale. The names of the dealers and the terms of the
transactions will be set forth in a prospectus supplement.
We may sell the securities directly to institutional investors or others
who may be obligated under agreements with these dealersdeemed to indemnify them against civil
liabilities, including liabilities underbe underwriters within the meaning of the Securities Act. These dealers may
also engageAct of
1933 with respect to any sale thereof. The terms of any such sales will be
described in transactions with or perform services for us in the ordinary
course of business.a prospectus supplement.
If so indicated in the applicablea prospectus supplement, we will authorize agents,
underwriters or dealers to solicit offers from purchaserscertain types of institutions to
purchase
the securities from us at the public offering price set forth in the
prospectus supplement underpursuant to delayed delivery contracts providing for
payment and delivery of those securities on a specified date in the future. These delayed delivery contracts will be
subject only to only those conditions set forth in the prospectus supplement, and wethe
prospectus supplement will set forth the commission payable for solicitation of
these offerssuch contracts.
Agents, dealers and underwriters may be entitled under agreements entered
into with us to indemnification by us against certain civil liabilities,
including liabilities under the Securities Act, or to contribution with respect
to payments which such agents, dealers or underwriters may be required to make
in the prospectus supplement.
47respect thereof. Agents, dealers and underwriters may be customers of, engage
in transactions with, or perform services on our behalf.
4
LEGAL MATTERSVALIDITY OF COMMON STOCK
The validity of any securities offered hereby will be passed upon for us by
Cooley Godward LLP, San Francisco, California will provide us with an
opinion asPalo Alto, California. Certain attorneys of Cooley Godward
hold approximately 5,600 shares of our common stock. In addition, James C.
Gaither, Senior Counsel to the legality of the securities we are offering.
Mr. Gaither,Cooley Godward LLP and one of our directors, and a partner of Cooley Godward LLP, owns
54,951holds
50,000 shares of our common stock and options to purchase 55,000 shares of our
common stock. In addition, Cooley Godward LLP owns 37,666 shares and attorneys
with Cooley Godward LLP own an aggregate of 72,653acquire 195,000 shares of our
common stock.
EXPERTS
The consolidated financial statements and schedule of NVIDIA Corporation
and subsidiaries as of January
31, 1999 and January 30, 2000 and for the year ended December 31, 1997, the
one-month period ended January 31, 199828, 2001, and for each of
the years in the two-yearthree-year period ended January 30, 2000,28, 2001, have been
includedincorporated by reference herein, and in the registration statement, in reliance
upon the report of KPMG LLP, independent certified public accountants, appearing elsewhereincorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
WeOur principal executive offices are a reporting companylocated at 2701 San Tomas Expressway,
Santa Clara, California 95050. Our telephone number is (408) 486-2000 and file annual, quarterly and current reports,
proxy statements and other information with the SEC.our
e-mail address is info@nvidia.com.
We have filed with the SEC a registration statement on Form S-3 underto register
the Securities Act with respect
to the shares of common stock and debt securities we are offering underoffered by this prospectus. ThisHowever, this prospectus does not
contain all of the information set forthcontained in the registration statement and the exhibits to the registration statement.
For further information with respect to us and the securities we are offering
under this prospectus, we refer you to the registration statement and the
exhibits and schedules filed as a part ofto the registration statement. You mayWe strongly encourage you
to carefully read and copy the registration statement as well as ourand the exhibits and schedules to
the registration statement. We also file annual, quarterly and special reports,
proxy statements and other information with the SEC.
You may inspect and copy such material at the SEC's public reference roomsfacilities
maintained by the SEC at, Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the SEC's
regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois,
60661, and at Seven World Trade Center, New York, New York 10048., 20549. You
can
requestmay also obtain copies of these documentssuch material from the SEC at prescribed rates by
writing to the Public Reference Section of the SEC, and paying a fee for
the copying cost.450 Fifth Street, N.W.,
Washington, D.C., 20549.
Please call the SEC at 1-800-SEC-0330 for morefurther information about the operation ofon the public
reference rooms. Our SEC filings are also available atto the public from the SEC's
web sitewebsite at "http://www.sec.gov."
In addition, you can
read and copy our SEC filings at the office of the National Association of
Securities Dealers, Inc at 1735 K Street, N.W., Washington, D.C. 20006.------------------
INCORPORATION BY REFERENCE
The SEC allows us to "incorporate by reference" the information contained
in documents that we file with it,them, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is an importantconsidered to be part of this prospectus.
ThisInformation in this prospectus andsupersedes information incorporated by reference
that we filed with the SEC prior to the date of this prospectus, while
information that we file later with the SEC maywill automatically update and
supersede the information
incorporated by reference.this information. We incorporate by reference the documents listed
below, and any future filingsfiling we will make with the SEC under Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934:
.1934 after the date we first filed the
registration statement of which this prospectus is a part and before the
effective date of the registration statement and any future filings we will make
with the SEC under those sections:
o Our Annual Report on Form 10-K10-K/A for the fiscal year ended January 30, 2000;28,
2001, filed on May 25, 2001, including all material incorporated by
reference therein;
o Our Quarterly Report on Form 10-Q for the quarter ended April 29,
2001, filed on June 12, 2001, including all material incorporated by
reference therein;
o Our Definitive Proxy Statement on Schedule 14A, filed on June 25,
2001, including all material incorporated by reference therein;
o Our Quarterly Report on Form 10-Q for the quarter ended July 29, 2001,
filed on September 10, 2001, including all material incorporated by
reference therein;
5
o Our Quarterly Report on Form 10-Q for the quarter ended October 28,
2001, filed on November 23, 2001, including all material incorporated
by reference therein;
o Our Current Report on Form 8-K/A filed on May 31, 2001, including all
material incorporated by reference therein; and
.o The description of ourthe common stock contained in our registration
statementRegistration
Statement on Form 8-A, filed with the SEC on January 12, 1999.1999, under the Exchange
Act.
You may request ofa copy of these filings, at no cost to you, by writing or
telephoning us at the following address:
Corporate Secretaryat: NVIDIA Corporation 3535 Monroe StreetAttention: Investor Relations, 2701 San
Tomas Expressway, Santa Clara, California 9505195050; Telephone (408) 615-2500
48
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of KPMG LLP, Independent Auditors.................................. F-2
Balance Sheets as of January 31, 1999 and January 30, 2000................ F-3
Statements of Operations for the year ended December 31, 1997, one month
ended January 31, 1998, year ended January 31, 1999 and year ended
January 30, 2000......................................................... F-4
Statements of Stockholders' Equity for the year ended December 31, 1997,
one month ended January 31, 1998, year ended January 31, 1999 and year
ended January 30, 2000................................................... F-5
Statements of Cash Flows for the year ended December 31, 1997, one month
ended January 31, 1998, year ended January 31, 1999 and year ended
January 30, 2000......................................................... F-6
Notes to Financial Statements............................................. F-7
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
NVIDIA Corporation:
We have audited the accompanying balance sheets of NVIDIA Corporation (the
Company) as of January 31, 1999 and January 30, 2000 and the related
statements of operations, stockholders' equity and cash flows for the year
ended December 31, 1997, the one-month period ended January 31, 1998, and each
of the years in the two-year period ended January 30, 2000. In connection with
our audits of the financial statements, we have also audited the accompanying
financial statement schedule. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NVIDIA Corporation as of
January 31, 1999 and January 30, 2000 and the results of its operations and
its cash flows for the year ended December 31, 1997, the one-month period
ended January 31, 1998, and each of the years in the two-year period ended
January 30, 2000, in conformity with generally accepted accounting principles.
Also in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Mountain View, California
March 6, 2000
F-2
NVIDIA CORPORATION
BALANCE SHEETS
(in thousands, except share data)
January 31, January 30,
1999 2000
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents............................ $ 50,257 $ 61,560
Accounts receivable, less allowances of $2,627 and
$6,443 in 1999 and 2000, respectively............... 20,633 67,224
Inventory............................................ 28,623 37,631
Prepaid expenses and other current assets............ 1,599 6,760
-------- --------
Total current assets............................... 101,112 173,175
Property and equipment, net............................ 11,650 25,886
Deposits and other assets.............................. 570 3,189
-------- --------
$113,332 $202,250
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 35,730 $ 64,910
Line of credit....................................... 5,000 --
Accrued liabilities.................................. 5,012 9,529
Current portion of capital lease obligations......... 1,386 1,786
-------- --------
Total current liabilities.......................... 47,128 76,225
Capital lease obligations, less current portion........ 1,995 962
Long-term payable...................................... -- 500
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value; 200,000,000 shares
authorized; 28,743,001 and 31,100,157 shares issued
and outstanding in 1999 and 2000, respectively...... 29 31
Additional paid-in capital........................... 74,372 95,964
Deferred compensation................................ (780) (118)
Retained earnings (accumulated deficit).............. (9,412) 28,686
-------- --------
Total stockholders' equity......................... 64,209 124,563
-------- --------
$113,332 $202,250
======== ========
See accompanying notes to financial statements.
F-3
NVIDIA CORPORATION
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Year Ended Month Ended Year Ended Year Ended
December 31, January 31, January 31, January 30,
1997 1998 1999 2000
------------ ----------- ----------- -----------
Revenue:
Product..................... $27,280 $11,420 $151,413 $374,505
Royalty..................... 1,791 1,911 6,824 --
------- ------- -------- --------
Total revenue............. 29,071 13,331 158,237 374,505
Cost of revenue............... 21,244 10,071 109,746 235,575
------- ------- -------- --------
Gross profit.................. 7,827 3,260 48,491 138,930
------- ------- -------- --------
Operating expenses:
Research and development.... 7,103 1,121 25,073 47,439
Sales, general and
administrative............. 4,183 640 18,902 37,079
------- ------- -------- --------
Total operating expenses.. 11,286 1,761 43,975 84,518
------- ------- -------- --------
Operating income (loss)... (3,459) 1,499 4,516 54,412
Interest and other income
(expense), net............... (130) (18) (29) 1,754
------- ------- -------- --------
Income (loss) before tax
expense...................... (3,589) 1,481 4,487 56,166
Income tax expense............ -- 134 357 18,068
------- ------- -------- --------
Net income (loss)......... $(3,589) $ 1,347 $ 4,130 $ 38,098
======= ======= ======== ========
Basic net income (loss) per
share........................ $ (.28) $ .10 $ .28 $ 1.28
======= ======= ======== ========
Diluted net income (loss) per
share........................ $ (.28) $ .05 $ .15 $ 1.06
======= ======= ======== ========
Shares used in basic per share
computation.................. 12,677 14,141 14,565 29,872
Shares used in diluted per
share computation............ 12,677 26,100 27,393 36,098
See accompanying notes to financial statements.
F-4
NVIDIA CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
Retained
Earnings
Preferred Stock Common Stock Additional Deferred (Accumu- Total
------------------ ------------------ Paid-in Compen- lated Stockholders'
Shares Amount Shares Amount Capital sation Deficit) Equity
---------- ------ ---------- ------ ---------- -------- -------- -------------
Balances, December 31,
1996................... 7,888,275 $ 8 11,567,374 $12 $12,317 -- $(11,300) $ 1,037
Issuance of Series D
preferred stock, net of
issuance costs of $30.. 1,438,812 1 -- -- 7,537 -- -- 7,538
Grant of common stock
options for lease
financing and
consulting services.... -- -- -- -- 120 -- -- 120
Issuance of common stock
upon exercise of stock
options................ -- -- 2,573,211 2 828 -- -- 830
Deferred compensation
related to grant of
common stock options... -- -- -- -- 4,277 (4,277) -- --
Amortization of deferred
compensation........... -- -- -- -- -- 961 -- 961
Net loss................ -- -- -- -- -- -- (3,589) (3,589)
---------- --- ---------- --- ------- ------ -------- --------
Balances, December 31,
1997................... 9,327,087 9 14,140,585 14 25,079 (3,316) (14,889) 6,897
Issuance of common stock
upon exercise of stock
options................ -- -- 1,125 -- 6 -- -- 6
Deferred compensation
related to grant of
common stock options... -- -- -- -- 361 (361) -- --
Amortization of deferred
compensation........... -- -- -- -- -- 360 -- 360
Net income.............. -- -- -- -- -- -- 1,347 1,347
---------- --- ---------- --- ------- ------ -------- --------
Balances, January 31,
1998................... 9,327,087 9 14,141,710 14 25,446 (3,317) (13,542) 8,610
Issuance of common stock
upon exercise of stock
options................ -- -- 202,775 -- 348 -- -- 348
Tax benefit from stock
options................ -- -- -- -- 45 -- -- 45
Sale of common stock
under public offering,
net of issuance costs
of $4.5 million........ -- -- 3,500,000 4 37,535 -- -- 37,539
Issuance and conversion
of mandatorily
convertible notes into
common stock........... -- -- 1,571,429 2 10,998 -- -- 11,000
Conversion of preferred
stock into common
stock.................. (9,327,087) (9) 9,327,087 9 -- -- -- --
Amortization of deferred
compensation........... -- -- -- -- -- 2,537 -- 2,537
Net income.............. -- -- -- -- -- -- 4,130 4,130
---------- --- ---------- --- ------- ------ -------- --------
Balances, January 31,
1999................... -- -- 28,743,001 $29 $74,372 $ (780) $ (9,412) $ 64,209
Sale of common stock
under public offering
(over-allotment), net
of issuance costs of
$0.6 million........... -- -- 525,000 1 5,740 -- -- 5,741
Issuance of common stock
in connection with
long-term software
license................ -- -- 243,902 -- 5,000 -- -- 5,000
Repurchase of common
stock in settlement of
accounts receivable.... -- -- (438,572) -- (7,452) -- -- (7,452)
Issuance of common stock
from stock plans....... -- -- 2,016,826 1 7,676 -- -- 7,677
Tax benefit from stock
plans.................. -- -- -- -- 10,613 -- -- 10,613
Grant of common stock
options for consulting
services............... -- -- -- -- 15 -- -- 15
Amortization of deferred
compensation........... -- -- -- -- -- 662 -- 662
Net income.............. -- -- -- -- -- -- 38,098 38,098
---------- --- ---------- --- ------- ------ -------- --------
Balances, January 30,
2000................... -- -- 31,100,157 $31 $95,964 $ (118) $ 28,686 $124,563
========== === ========== === ======= ====== ======== ========
See accompanying notes to financial statements.
F-5
NVIDIA CORPORATION
STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended Month Ended Year Ended Year Ended
December 31, January 31, January 31, January 30,
1997 1998 1999 2000
------------ ----------- ----------- -----------
Cash flows from operating
activities:
Net income (loss)............. $(3,589) $1,347 $ 4,130 $38,098
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation and
amortization................ 1,363 219 4,006 9,006
Stock options granted in
exchange for lease
financing and services...... 120 -- -- 15
Amortization of deferred
compensation................ 961 360 2,537 662
Tax benefit from employee
stock plans................. -- -- 45 10,613
Changes in operating assets
and liabilities:
Accounts receivable......... (11,446) (2,912) (5,234) (54,043)
Inventory................... 38 (496) (28,102) (9,008)
Prepaid expenses and other
current assets............. (237) (316) (1,005) (5,161)
Deposits and other assets... (59) -- (408) (3,008)
Accounts payable............ 11,295 3,740 20,418 24,180
Accrued liabilities......... 373 21 1,746 4,517
------- ------ ------- -------
Net cash provided by (used
in) operating
activities............... (1,181) 1,963 (1,867) 15,871
------- ------ ------- -------
Cash flows used in investing
activities:
Purchase of property and
equipment.................... (2,732) (163) (7,899) (11,589)
------- ------ ------- -------
Cash flows from financing
activities:
Borrowings (payments) under
line of credit............... -- -- 5,000 (5,000)
Common stock issued under
employee stock plans......... 830 6 348 7,677
Sale of common stock under
public offering, net of
issuance costs -- -- 37,539 5,741
Issuance and conversion of
mandatorily convertible
notes into common stock...... -- -- 11,000 --
Long-term payable related to
patent license agreement..... -- -- -- 500
Net proceeds from sale of
preferred stock.............. 7,538 -- -- --
Payments under capital
leases....................... (1,037) (373) (1,848) (1,897)
------- ------ ------- -------
Net cash provided by (used
in) financing
activities............... 7,331 (367) 52,039 7,021
------- ------ ------- -------
Change in cash and cash
equivalents................... 3,418 1,433 42,273 11,303
Cash and cash equivalents at
beginning of period........... 3,133 6,551 7,984 50,257
------- ------ ------- -------
Cash and cash equivalents at
end of period................. $ 6,551 $7,984 $50,257 $61,560
======= ====== ======= =======
Cash paid for interest......... $ 267 $ 31 $ 471 $ 332
======= ====== ======= =======
Cash paid for taxes............ $ -- $ -- $ -- $15,965
======= ====== ======= =======
Noncash financing and investing
activities:
Assets recorded under capital
lease........................ $ 3,023 $ 32 $ 2,245 $ 1,264
======= ====== ======= =======
Deferred compensation related
to grant of common stock
options...................... $ 4,277 $ 361 $ -- $ --
======= ====== ======= =======
Repurchase of common stock in
settlement of accounts
receivable................... $ -- $ -- $ -- $ 7,452
======= ====== ======= =======
Issuance of common stock in
connection with long-term
software license............. $ -- $ -- $ -- $ 5,000
======= ====== ======= =======
Liabilities assumed in
connection with long-term
software license............. $ -- $ -- $ -- $ 5,000
======= ====== ======= =======
See accompanying notes to financial statements.
F-6
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS
(1) Organization and Significant Accounting Policies
Organization
NVIDIA Corporation (the "Company") designs, develops and markets 3D graphics
processors for the PC market. The Company operates primarily in one industry
segment in the United States, Asia and Europe. In April 1998, the Company was
reincorporated as a Delaware corporation.
Fiscal Year
Effective January 1, 1998, the Company changed its fiscal year-end financial
reporting period to January 31. The Company elected not to restate its
previous reporting periods ending December 31. In addition, effective February
1, 1998, the Company changed its fiscal year end from January 31 to a 52- or
53-week year ending on the last Sunday in January. As a result, the first and
fourth quarters of fiscal 1999 are 12- and 14-week periods, respectively, with
the remaining quarters being 13-week periods. All four quarters of fiscal 2000
are 13-week periods.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a
maturity of three months or less at the time of purchase to be cash
equivalents. Currently, the Company's cash equivalents consist of $54.3
million invested in money market funds.
Inventories
Inventories are stated at the lower of first-in first-out, cost or market.
Write-downs to reduce the carrying value of obsolete, slow moving and non-
usable inventory to net realizable value are charged to cost of revenue.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based on estimated useful lives, generally three to
four years. Depreciation expense includes the amortization of assets recorded
under capital leases. Leasehold improvements and assets recorded under capital
leases are amortized over the shorter of the lease term or the estimated
useful life of the asset.
Software Development Costs
Software development costs are expensed as incurred until the technological
feasibility of the related product has been established. After technological
feasibility is established, any additional software development costs would be
capitalized in accordance with Financial Accounting Standards Board Statement
of Financial Accounting Standards ("SFAS") No. 86, Capitalization of Software
Development Costs. Through January 30, 2000, the Company's process for
developing software was completed concurrently with the establishment of
technological feasibility, and, accordingly, no software costs have been
capitalized to date. Software development costs incurred prior to achieving
technological feasibility are charged to research and development expense as
incurred.
Revenue Recognition
Revenue from product sales to all customers (excluding distributors) is
recognized upon shipment, net of appropriate allowances. The Company's policy
on sales to distributors is to defer recognition of sales and related gross
profit until the distributors resell the product. Royalty revenue is
recognized upon shipment of product by the licensee to its customers. The
Company believes that the software sold with its products is incidental to the
product as a whole.
F-7
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash equivalents and trade accounts
receivable. The Company invests primarily in money market funds and limits the
amount of exposure to any one financial institution. Four customers accounted
for approximately 37% of the Company's accounts receivable balance at January
30, 2000. The Company performs ongoing credit evaluations of its customers'
financial condition and maintains an allowance for potential credit losses.
Research and Development Arrangements
The Company entered into contractual agreements to provide design,
development and support services on a best efforts basis. All amounts funded
to the Company under these agreements are non-refundable once paid. The
Company recorded reductions to research and development expense after the
services were performed based on the achievement of contractually specified
milestones and the collectability of amounts was assured.
Accounting for Stock-Based Compensation
The Company uses the intrinsic value method to 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.
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 statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates in effect for the year in which those temporary differences are expected
to be recorded or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date.
Fair Value of Financial Instruments
The carrying value of cash, cash equivalents, accounts receivable, accounts
payable and accrued liabilities approximate fair value due to the short
maturity of those instruments.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting and displaying comprehensive income and its components in financial
statements. The Company had no other components of comprehensive income other
than the reported amounts of net income (loss) in all periods presented.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the recorded amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Reclassifications
Certain prior year amounts in the financial statements have been
reclassified to conform to the current year presentation. Such
reclassifications had no effect on net income (loss) or stockholders' equity.
F-8
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
New Accounting Pronouncement
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which provides
guidance on accounting for the costs of computer software intended for
internal use. Effective February 1, 1999, the Company adopted SOP 98-1. There
was no material change to the Company's results of operations or financial
position as a result of the adoption of SOP 98-1.
Net Income (Loss) Per Share
Basic net income (loss) per share is computed using the weighted average
number of common shares outstanding during the period. Diluted net income
(loss) per share is computed using the weighted average number of common and
dilutive common equivalent shares outstanding during the period, using either
the as-if-converted method for mandatorily convertible notes and convertible
preferred stock or the treasury stock method for options and warrants. The
following is a reconciliation of the numerators and denominators of the basic
and diluted net income (loss) per share computations for the periods
presented:
Income/(Loss) Shares Per Share
(Numerator) (Denominator) Amount
------------- ------------- ---------
(in thousands)
Year ended December 31, 1997
Basic and diluted net loss............. $(3,589) 12,677 $(0.28)
======= ====== ======
One month ended January 31, 1998
Basic net income....................... $ 1,347 14,141 $ 0.10
Effect of dilutive securities:
Stock options outstanding........... 2,531
Warrants............................ 101
Convertible preferred stock......... 9,327
------- ------
Diluted net income..................... $ 1,347 26,100 $ 0.05
======= ====== ======
Year ended January 31, 1999
Basic net income....................... $ 4,130 14,565 $ 0.28
Effect of dilutive securities:
Stock options outstanding........... 2,906
Warrants............................ 116
Mandatorily convertible notes....... 717
Convertible preferred stock......... 9,089
------
Diluted net income..................... $ 4,130 27,393 $ 0.15
======= ====== ======
Year ended January 30, 2000
Basic net income....................... $38,098 29,872 $ 1.28
Effect of dilutive securities:
Stock options outstanding........... 6,003
Warrants............................ 71
Common stock issuable in connection
with long-term software license..... 152
------- ------
Diluted net income..................... $38,098 36,098 $ 1.06
======= ====== ======
As of January 31, 1999 and 1998, options to acquire 642,750 and 149,032
shares of common stock with weighted-average exercise prices of $8.86 and
$5.50, respectively, were not included in the computation of
F-9
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
diluted earnings per share because the options' exercise price was greater
than the average market price of the Company's common shares and, therefore,
the effect would be antidilutive. Options to purchase 3,735,458 shares of
common stock with a weighted-average exercise price of $1.78, warrants to
purchase 158,806 shares of common stock as well as 9,327,087 shares of
convertible preferred stock were outstanding for the year ended December 31,
1997 but were not included in the calculation of diluted earnings per share
because the Company had a net loss for that year and to do so would have been
antidilutive.
(2) Balance Sheet Components
Certain balance sheet components are as follows:
January 31, January 30,
1999 2000
----------- -----------
(in thousands)
Inventory:
Work in-process......................................... $15,385 $ 6,446
Finished goods.......................................... 13,238 31,185
------- -------
Total inventory....................................... $28,623 $37,631
======= =======
At January 30, 2000, the Company had noncancelable inventory purchase
commitments totaling $124.6 million.
January 31, January 30,
1999 2000
----------- -----------
(in thousands)
Property and Equipment:
Purchased engineering software.......................... $ 4,102 $17,013
Test equipment.......................................... 3,625 8,103
Computer equipment...................................... 9,028 14,194
Leasehold improvements.................................. 475 878
Office furniture and equipment.......................... 1,361 1,142
------- -------
18,591 41,330
Accumulated depreciation and amortization............... (6,941) (15,444)
------- -------
Property and equipment, net............................. $11,650 $25,886
======= =======
Assets recorded under capital leases included in property and equipment were
$6,637,000 and $6,892,000 as of January 31, 1999 and January 30, 2000,
respectively. Accumulated amortization thereon was $3,238,000 and $5,285,000
as of January 31, 1999 and January 30, 2000, respectively.
January 31, January 30,
1999 2000
----------- -----------
(in thousands)
Accrued Liabilities:
Accrued sales and marketing allowances.................. $1,973 $5,377
Other................................................... 3,039 4,152
------ ------
Total accrued liabilities............................. $5,012 $9,529
====== ======
F-10
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(3) Stockholders' Equity
Mandatorily Convertible Notes
Convertible subordinated non-interest bearing notes were issued to three
major customers in July and August 1998 for a total of $11.0 million. The
notes were subordinated to certain senior indebtedness. On January 15, 1999,
the outstanding principal balance of these notes automatically converted into
1,571,429 shares of common stock of the Company at a conversion price equal to
$7.00 per share.
Convertible Preferred Stock
On January 22, 1999, 9,327,087 shares of preferred stock were automatically
converted into common stock upon the completion of the initial public offering
of common stock. As of January 31, 2000, there are no shares of preferred
stock outstanding and the Company has no current plans to issue any of the
authorized preferred stock.
1998 Equity Incentive Plan
The Equity Incentive Plan (the "Plan"), as amended and restated on February
17, 1998, provides for the issuance of up to 15,000,000 shares of the
Company's common stock to directors, employees and consultants. The Plan
provides for the issuance of stock bonuses, restricted stock purchase rights,
incentive stock options or nonstatutory stock options. Each year on the last
day of each fiscal year, starting with the year ending January 31, 1999, the
aggregate number of shares of common stock that are available for issuance
will automatically be increased by a number of shares equal to five percent
(5%) of the Company's outstanding common stock on such date, including on an
as-if-converted basis preferred stock and convertible notes, and outstanding
options and warrants, calculated using the treasury stock method. In January
2000, the shares of common stock available for issuance were increased by
1,930,962 shares pursuant to this provision.
Pursuant to the 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% of
the fair market value on the date of grant. For nonstatutory stock options,
the exercise price is no less than 85% of the fair market value on the date of
grant.
Options generally expire in 10 years. Vesting periods are determined by the
Board of Directors. However, options generally vest ratably over a four year
period, with 25% becoming vested approximately one year from the date of grant
and the remaining 75% vesting on a quarterly basis over the next three years.
Options granted prior to December 1997 could be exercised prior to full
vesting. Any unvested shares so purchased were subject to a repurchase right
in favor of the Company at a repurchase price per share that was equal to the
original per share purchase price. The right to repurchase at the original
price would lapse at the rate of 25% per year over the four-year period from
the date of grant. As of January 30, 2000, there were 499,611 such shares
subject to repurchase.
The Company accounts for the plan using the intrinsic value method. As such,
compensation expense is recorded if on the date of grant the current fair
value per share of the underlying stock exceeds the exercise price per share.
With respect to certain options granted during 1997 and the one month ended
January 31, 1998, the Company recorded deferred compensation of $4,277,000 and
$361,000, respectively, for the difference at the grant date between the
exercise price per share and the fair value per share, based upon independent
valuations and management's estimate of the fair value of the Company's stock
on the various grant dates of the common stock underlying the options. This
amount is being amortized over the vesting period of the individual options,
generally four years.
F-11
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Non-Employee Directors' Stock Option Plan
In February 1998, the Board adopted the 1998 Non-Employee Directors' Stock
Option Plan (the "Directors' Plan") to provide for the automatic grant of
options to purchase shares of common stock to directors of the Company who are
not employees of or consultants to the Company or an affiliate of the Company
(a "Non-Employee Director"). The Compensation Committee administers the
Directors' Plan. The aggregate number of shares of common stock that may be
issued pursuant to options granted under the Directors' Plan is 300,000
shares.
Stock-Based Compensation
As permitted under Statement of Financial Accounting Standards No. 123,
("SFAS 123"), the Company has elected to follow Accounting Principles Board
Opinion No. 25 ("APB 25") and related Interpretations in accounting for stock-
based awards to employees. Compensation cost for the Company's stock-based
compensation plans as determined consistent with SFAS 123, would have
increased net loss and would have decreased net income to the pro forma
amounts indicated below:
Year Ended Month Ended Year Ended Year Ended
December 31, January 31, January January
1997 1998 31, 1999 30, 2000
------------ ----------- ---------- ----------
Net income (loss)--as reported.. $(3,589) $1,347 $4,130 $38,098
Net income (loss)--pro forma.... $(3,694) $1,046 $ (256) $30,697
Basic net income (loss) per
share--as reported............. $ (0.28) $ 0.10 $ 0.28 $ 1.28
Basic net income (loss)--pro
forma.......................... $ (0.29) $ 0.07 $(0.02) $ 1.03
Diluted net income (loss) per
share--as reported............. $ (0.28) $ 0.05 $ 0.15 $ 1.06
Diluted net income (loss)--pro
forma.......................... $ (0.29) $ 0.04 $(0.01) $ 0.85
The fair value of options granted in fiscal 2000 has been estimated at the
date of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions: no dividend yield, risk free interest rate of
5.84% , expected life for the option of five years and volatility of 70%. The
fair value of options granted prior to the initial public offering is
estimated on the date of grant using the minimum value method with the
following weighted-average assumptions: no dividend yield; risk free interest
rate of 5.0% to 6.5%; expected life for the option of five years; and
volatility of 0%. The weighted-average per share fair value of options granted
during the year ended 1997, the one month ended January 31, 1998, the years
ended January 31, 1999 and January 30, 2000 was approximately $.08, $1.43,
$1.74, $1.45 and $13.53, respectively.
F-12
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following summarizes the transactions under the equity incentive and
non-employee director plans:
Shares
Number Weighted
Available of Shares Average Price
for Grant Under Option Per Share
---------- ------------ -------------
Balances, December 31, 1996.............. 3,506,606 2,176,020 0.27
Authorized............................. 2,000,000 -- --
Granted................................ (4,950,857) 5,000,857 1.43
Exercised.............................. -- (2,603,836) 0.32
Cancelled.............................. 868,208 (837,583) 0.29
---------- ----------
Balances, December 31, 1997.............. 1,423,957 3,735,458 1.78
Authorized............................. -- -- --
Granted................................ (605,000) 605,000 5.01
Exercised.............................. -- (1,125) 3.15
---------- ----------
Balances, January 31, 1998............... 818,957 4,339,333 2.23
Authorized............................. 6,878,606 -- --
Granted................................ (6,592,550) 6,612,550 7.22
Exercised.............................. -- (202,775) 1.91
Cancelled.............................. 1,692,688 (1,692,688) 6.35
---------- ----------
Balances, January 31, 1999............... 2,797,701 9,056,420 5.12
Authorized............................. 1,930,962 -- --
Granted................................ (3,394,600) 3,394,600 21.60
Exercised.............................. -- (1,789,469) 3.57
Cancelled.............................. 815,751 (815,751) 6.34
---------- ----------
Balances, January 30, 2000............... 2,149,814 9,845,800 10.97
---------- ----------
In July 1998, the Board of Directors adopted a resolution allowing employees
to exchange some or all of their existing unvested options to purchase common
stock of the Company for options having an exercise price of $6.30 per share.
The repriced options retain the same vesting schedule as the originally issued
options, but the repriced options did not become exercisable until July 1999.
Options to purchase approximately 1,253,500 shares of common stock were
repriced under this program. Stock options held by executive officers and
directors were not eligible for such repricing.
During 1997 and fiscal 2000, the Company granted common stock options within
the Plan to consultants for services rendered. The fair value of all option
grants to non-employees has been estimated using the Black-Scholes option
pricing model using the following assumptions: dividend yield--none; expected
life--contractual term; risk free interest rates--6.0% to 6.5%; volatility--
60%. The estimated fair value of these options was $120,000 and $22,000 in
1997 and fiscal 2000, respectively.
In 1997, options to purchase 50,000 shares of common stock were granted to
an outside investor during the Series D preferred stock offering. In 1998,
options to purchase 20,000 shares of common stock were granted to an outside
investor. As of January 30, 2000, options to purchase 35,625 shares of common
stock were outstanding, of which 2,500 shares were vested.
F-13
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about stock options outstanding
as of January 30, 2000:
Options Outstanding Options Exercisable
------------------------------------------- --------------------------
Weighted Average Weighted Weighted
Range of Exercise Number Remaining Average Number Average
Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
----------------- ----------- ---------------- -------------- ----------- --------------
$ 0.18 -- $ 1.30 832,798 7.26 $ 0.80 339,708 $ 0.68
2.64 -- 3.15 955,650 7.85 2.83 349,461 2.87
4.15 -- 6.30 2,006,818 8.45 6.08 537,108 5.98
6.65 -- 9.00 2,720,340 8.52 7.48 838,525 7.60
16.38 -- 20.13 1,820,194 9.43 17.93 45,901 17.01
20.50 -- 23.50 1,023,500 9.75 21.45 38,591 20.50
34.63 -- 37.38 486,500 9.89 35.98 -- --
--------- ---------
$ 0.18 -- $37.38 9,845,800 8.70 $10.97 2,149,294 $ 5.77
--------- ---------
Employee Stock Purchase Plan
In February 1998, the Board approved the 1998 Employee Stock Purchase Plan
(the "Purchase Plan"), covering an aggregate of 500,000 shares of common
stock. The Purchase Plan is intended to qualify as an "employee stock purchase
plan" within the meaning of Section 423 of the Code. Under the Purchase Plan,
the Board may authorize participation by eligible employees, including
officers, in periodic offerings following the adoption of the Purchase Plan.
Under the Purchase Plan, the offering period for any offering will be no
longer than 27 months. Under the plan offering adopted pursuant to the
Purchase Plan, each offering period has been set at six months. In June 1999,
the plan was amended to increase the number of shares reserved for issuance
automatically each year at the end of the Company's fiscal year for the next
10 years (commencing at the end of fiscal 2000 and ending 10 years later in
2009) by an amount equal to 2% of the outstanding shares of the Company on
each date, including on an as-if-converted basis preferred stock and
convertible notes, and outstanding options and warrants, calculated using the
treasury stock method, up to a maximum aggregate increase of 6 million shares
over the 10-year period. In January 2000, the shares of common stock available
for issuance were increased by 772,385 shares pursuant to this provision.
Employees are eligible to participate if they are employed by the Company or
an affiliate of the Company designated by the Board. Employees who participate
in an offering generally can 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. The Board may increase
this percentage at its discretion, up to 15%. The price of common stock
purchased under the Purchase Plan will be equal to 85% of the lower of the
fair market value of the common stock on the commencement date of each
offering period or the relevant purchase date. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment with the
Company. At January 30, 2000, 128,827 shares have been issued under the
Purchase Plan and 1,143,558 shares have been reserved for further issuance.
The fair value of options granted under the Purchase Plan in fiscal 2000 has
been estimated at the date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions: no dividend yield, risk
free interest rate of 5.21% , expected life for the option of 0.5 years and
volatility of 70%. The weighted-average fair value of shares granted under the
Purchase Plan during the year ended January 30, 2000 was approximately $3.92
per share.
F-14
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(4) Financial Arrangements, Commitments and Contingencies
Short-term Borrowings
In July 1999, the Company entered into an amended loan and security
agreement with a bank, which included a $10.0 million revolving loan agreement
with a borrowing base equal to 80% of eligible accounts. Borrowings under the
line of credit bear interest at the prime rate, which was 8.5% at January 30,
2000, and are due in July 2000. Covenants governing the loan agreement require
the maintenance of certain financial ratios. As of January 30, 2000, the
Company had no outstanding borrowings against the line of credit.
Lease Obligations
The Company leases certain office facilities under operating leases expiring
through 2003. Future minimum lease payments under the Company's noncancelable
capital and operating leases as of January 30, 2000, are as follows (in
thousands):
Year ending January Operating Capital
------------------- ----------- -----------
2001............................................... $ 2,614 $2,000
2002............................................... 2,722 705
2003............................................... 2,431 418
------- ------
Total payments..................................... $ 7,767 3,123
=======
Less amount representing interest, at rates ranging
from 8% to 10%.................................... 375
------
Present value of minimum debt payments............. 2,748
Less current portion............................... 1,786
------
Long term portion.................................. $ 962
======
The following is an analysis of the property and equipment under capital
leases by major classes:
January 31, January 30,
1999 2000
----------- -----------
(in thousands)
Classes of Property and Equipment:
Computer equipment................................. $ 4,450 $4,192
Test equipment..................................... 1,192 1,915
Software and other................................. 995 785
------- ------
6,637 6,892
Accumulated depreciation and amortization.......... (3,238) (5,285)
------- ------
Leased property and equipment, net................. $ 3,399 $1,607
======= ======
Rent expense for 1997, one month ended January 31, 1998, the years ended
January 31, 1999 and January 30, 2000 was approximately $425,000, $52,000,
$1,555,000 and $2,501,000, respectively.
Litigation
On April 9, 1998, the Company was notified that SGI had filed a patent
infringement lawsuit against it in the United States District Court for the
District of Delaware. The suit alleged that the sale and use of the Company's
RIVA family of 3D graphics processors infringed a United States patent held by
SGI. The suit sought unspecified damages (including treble damages), an order
permanently enjoining further alleged infringement and attorneys' fees. In
July 1999, the matter settled during trial and it has been dismissed. As part
of the settlement, the Company entered into agreements with SGI to create a
broad strategic alliance to collaborate on future graphics technologies. As
part of the agreements, SGI dismissed its patent infringement suit against the
Company
F-15
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
and the Company licensed SGI's 3D graphics patent portfolio. Additionally, SGI
agreed to incorporate the Company's graphics technology into new desktop
graphics systems and transfer engineering personnel to the Company during the
third quarter of fiscal 2000. The Company agreed to pay SGI a total of $3.0
million in nine quarterly installments with the final payment due in May 2001.
The rights to patents recorded under other assets are amortized using the
straight-line method over five years.
On May 11, 1998, S3 filed a patent infringement suit against the Company in
the United States District Court for the Northern District of California. The
suit alleged that the Company's sale of RIVA 128, 128ZX and TNT graphics
processors infringed three United States patents owned by S3. The suit sought
unspecified damages (including treble damages), an order permanently enjoining
further alleged infringement and attorneys' fees. The Company and S3 agreed to
settle this case on February 1, 2000, on the basis of mutual patent cross-
licenses and on February 7, 2000, the District Court entered a final judgment
in the Company's favor, dismissing all of S3's claims.
On September 21, 1998, 3Dfx filed a patent infringement lawsuit against the
Company in the United States District Court for the Northern District of
California alleging infringement of a 3Dfx patent. On March 2, 1999, 3Dfx
added a second patent to the suit and on May 24, 1999, 3Dfx added a third
patent to the suit. The amended complaint alleges that the Company's RIVA TNT,
RIVA TNT2 and RIVA TNT2 Ultra products infringe the patents in suit and seeks
unspecified compensatory and trebled damages and attorney's fees. The
Company's current generation of products is not identified as infringing any
of the patents in suit. The Company has filed an answer and counter-claims
asserting that the patents in suit are invalid and not infringed. These
assertions are supported by the Company's investigations to date and an
opinion from the Company's patent counsel in this suit. The Company
anticipates that the trial date will be set by the District Court after it
rules on claims construction issues. The Company has and will continue to
defend vigorously this suit. In the event of an adverse result in the 3Dfx
suit, the Company might be required to do one or more of the following: (i)
pay substantial damages (including treble damages); (ii) permanently cease the
manufacture and sale of any of the infringing products; (iii) expend
significant resources to develop non-infringing products; or (iv) obtain a
license from 3Dfx for infringing products.
In addition to the above litigation, from time to time the Company is
subject to claims in the ordinary course of business, none of which in the
Company's view, would have a material adverse impact on the Company's business
or financial position if resolved unfavorably.
(5) Income Taxes
The components of income tax expense are as follows:
Year Ended Month Ended Year Ended Year Ended
December 31, January 31, January 31, January 30,
1997 1998 1999 2000
------------ ----------- ----------- -----------
Current:
Federal..................... $-- $134 $538 $11,624
State....................... -- -- -- 824
---- ---- ---- -------
Total current............... -- 134 538 12,448
Deferred:
Federal..................... -- -- (226) (3,923)
State....................... -- -- -- (1,070)
---- ---- ---- -------
Total deferred.............. -- -- (226) (4,993)
Charge in lieu of taxes
attributable to employer
stock option plans........... -- -- 45 10,613
---- ---- ---- -------
Total income taxes.......... $-- $134 $357 $18,068
==== ==== ==== =======
F-16
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
The provision for income taxes differs from the amount computed by applying
the federal statutory income tax rate of 35% to income before taxes as
follows:
Year Ended Month Ended Year Ended Year Ended
December 31, January 31, January January
1997 1998 31, 1999 30, 2000
------------ ----------- ---------- ----------
Tax expense (benefit)
computed at federal
statutory rate............. $(1,256) $518 $ 1,570 $19,658
Loss carryforward........... 1,256 (518) (1,570) --
Alternate Minimum Tax....... -- 134 357 --
State income taxes, net of
federal tax benefit........ -- -- -- 1,531
Research and experimentation
credit..................... -- -- -- (1,389)
Change in valuation
allowance.................. -- -- -- (4,784)
Other....................... -- -- -- 3,052
------- ---- ------- -------
Total income taxes........ $ -- $134 $ 357 $18,068
======= ==== ======= =======
The tax effect of temporary differences that gives rise to significant
portions of the deferred tax assets are presented below:
January 31, January 31, January 30,
1998 1999 2000
----------- ----------- -----------
Net operating loss carryforwards........ $3,380 $ -- $ --
Accruals and reserves, not currently
taken for tax purposes................. 228 2,323 4,996
Research credit carryforwards........... 1,095 1,775 --
Advances on development contract........ 996 138 --
Other................................... 383 774 223
------ ------ ------
Total gross deferred tax assets......... 6,082 5,010 5,219
Less valuation allowance................ (6,082) (4,784) --
------ ------ ------
Net deferred tax assets................. $ -- $ 226 $5,219
====== ====== ======
The valuation allowance had decreases of $1,298,000 and $4,784,000 for the
year ended January 31, 1999 and the year ended January 30, 2000, respectively.
Management believes that it is more likely than not that future operations
will generate sufficient taxable income to realize the deferred tax assets.
(6) Development Agreement
The Company had a strategic collaboration agreement with ST for the
manufacture, marketing, and sale of certain of the Company's products. In
1996, ST paid the Company $2,500,000 for advanced royalty payments and agreed
to partially support the research and development and marketing efforts for
certain of the Company's products.486-2000.
In connection with this agreement, the
Company recorded royalty revenueoffering, no person is authorized to give any
information or to make any representations not contained in this prospectus. If
information is given or representations are made, you may not rely on that
information or representations as having been authorized by us. This prospectus
is neither an offer to sell nor a solicitation of $1,791,000, $1,911,000, and $6,824,000, in
1997, the one month ended January 31, 1998, and the year ended January 31,
1999, respectively. Royalty revenue decreasedan offer to zero in fiscal 2000 due
primarilybuy any securities
other than those registered by this prospectus, nor is it an offer to reduced salessell or a
solicitation of RIVA 128 graphics processor and derivative
products and disputes with ST regarding payment. The Company does not expectan offer to recordbuy securities where an offer or receive royalty revenue from ST in the future. The Company also
recorded a reduction to research and development cost of $1,936,000 and a
reduction to sales, general and administrative expense of $314,000 in 1997. In
January of 1998, ST agreed to forgive the $2,500,000 in advanced royalty
payments in exchange for the Company's obligation to provide ST continued
development and support on certain products developed through December 31,
1998 which was recorded as a reduction to research and development expense in
fiscal 1999. Accordingly, $2,500,000 is included in accrued liabilities at
December 31, 1997. The costs incurred under the development agreement
approximated the amounts recorded as reduction to expenses.
F-17
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(7) Long-term Software Licensing Agreement
On April 12, 1999, the Company entered into a $10.0 million five-year
software licensing agreement with a supplier in the electronic design
automation industry. Under this agreement, the $10.0 million is due in two
installments. The first installment was settled in June 1999 for 243,902
shares of the Company's common stock valued at $5.0 million. The second
installment is due on or before March 31, 2000 and may be settled in cash or
in stock at the option of the Company.
(8) Stock Repurchase Agreement
In June 1999, the Company repurchased 428,572 shares of the Company's common
stock from a major customer in settlement for a portion of then outstanding
accounts receivable, in the amount of $7.5 million.
(9) Segment Information
The Company operates in a single industry segment: the design, development
and marketing of 3D graphics processors for the PC market. The Company's chief
operating decision maker, the Chief Executive Officer, reviews financial
information presented on a consolidated basis for purposes of making operating
decisions and assessing financial performance. The following table summarizes
geographic information on net sales:
Year Ended Year Ended
Year Ended Month Ended January January
December 31, January 31, 31, 30,
1997 1998 1999 2000
------------ ----------- ---------- ----------
U.S........................... $29,071 $13,331 $120,788 $103,609
Asia Pacific.................. -- -- 29,649 208,832
Europe........................ -- -- 7,800 62,064
------- ------- -------- --------
Total revenue................. $29,071 $13,331 $158,237 $374,505
======= ======= ======== ========
Revenues to significant customers, those representing approximately 10% or
more of total revenue for the respective periods, are summarized as follows:
Year Ended Month Ended Year Ended Year Ended
December 31, January 31, January January
1997 1998 31, 1999 30, 2000
------------ ----------- ---------- ----------
Sales
Customer A.................. 63% 59% 35% 3%
Customer B.................. 31% 39% 27% 15%
Customer C.................. -- -- 13% 17%
Customer D.................. -- -- 12% 2%
Customer E.................. -- -- -- 15%
Customer F.................. -- -- 4% 10%
As of As of As of
January 31, 1998 January 31, 1999 January 30, 2000
---------------- ---------------- ----------------
Accounts Receivable
Customer A.............. 57% 19% --
Customer B.............. 43% 28% 4%
Customer C.............. -- 18% 15%
Customer D.............. -- 14% --
Customer E.............. -- -- 12%
Customer F.............. -- -- 6%
Customer G.............. -- -- 13%
F-18
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(10) Quarterly Summary (Unaudited)
Quarters Ended
------------------------------------------------------------------
April July Oct. Jan. Oct.
26, 26, 25, 31, May 2, Aug. 1, 31, Jan. 30,
1998 1998 1998 1999 1999 1999 1999 2000
------- ------- ------- ------- ------- ------- ------- --------
(in thousands, except per share data)
Statement of Operations Data:
Revenue................. $28,263 $12,134 $52,303 $65,537 $71,018 $78,017 $97,015 $128,455
Cost of revenue......... 20,873 12,961 33,566 42,346 45,946 49,625 60,195 79,809
Gross profit (loss)..... 7,390 (827) 18,737 23,191 25,072 28,392 36,820 48,646
Net income (loss)....... (1,021) (9,652) 7,141 7,662 6,261 6,686 10,564 14,587
Basic net income (loss)
per share.............. $ (.07) $ (.68) $ .50 $ .48 $ .21 $ .23 $ .35 $ .47
Diluted net income
(loss)
per share.............. $ (.07) $ (.68) $ .26 $ .27 $ .18 $ .19 $ .29 $ .39
(11) Subsequent Events
On March 5, 2000, the Company entered into an agreement with Microsoft in
which the Company agreed to develop and sell graphics chips and to license
certain technology to Microsoft and its licensees for use in a product under
development by Microsoft. The agreement provides that in April 2000, Microsoft
will pay the Company $200 million as an advance against graphics chip
purchases and for licensing the Company's technology. Microsoft may terminate
the agreement at any time and if termination occurs prior to offset in full of
the advance payments, the Companysolicitation would
be required to return to Microsoft up
to $100 millionunlawful. You may not imply from the delivery of this prospectus or from any
sale made under this prospectus that our affairs are unchanged since the prepayment and to convert the remainder into preferred
stockdate of
the Company at a 30% premium to the 30-day average trading price of
the common stock. The graphics chip and the game console contemplated by the
agreement is highly complex and development and release of the Microsoft
product and its commercial success are dependent upon a number of factors,
many of which the Company cannot control. There can be no assurance that the
Company will be successful in developing the graphics chip for use by
Microsoftthis prospectus or that the product will be developedinformation contained in this prospectus is correct
as of any time after the date of this prospectus.
6
================================================================================
No dealer, salesperson or released,other person is authorized to give any
information or if released,
will be commercially successful.
F-19
to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of this date.
---------------------
TABLE OF CONTENTS
Page
----
About this Prospectus ............................ 2
Prospectus Summary ............................... 3
Risk Factors ..................................... 3
Use of Proceeds .................................. 3
Plan of Distribution ............................. 4
Validity of Common Stock ......................... 5
Experts .......................................... 5
Where You Can Find More Information .............. 5
Incorporation by Reference ....................... 5
================================================================================
================================================================================
Up to 20,000,000 shares of Common Stock
NVIDIA CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Additions
Balance Charged to Charged Balance
Beginning Costs and to Other at End
Description of Period Expenses Accounts Deductions of Period
----------- --------- ---------- -------- ---------- ---------
Year ended January 30, 2000
Allowance for sales returns
and allowances............ $2,627 4,546 -- 3,081(1) $4,092
====== ===== ===== ===== ======
Allowance for doubtful
accounts.................. $ -- 2,395 -- 44(2) $2,351
====== ===== ===== ===== ======
Year ended January 31, 1999
Allowance for sales returns
and allowances............ $ 349 6,261 -- 3,983(1) $2,627
====== ===== ===== ===== ======
One month ended January 31,
1998
Allowances for sales
returns and accounts...... $ 100 249 -- -- $ 349
====== ===== ===== ===== ======
Year ended December 31, 1997
Allowances for sales
returns and accounts...... $ -- 100 -- -- $ 100
====== ===== ===== ===== ======
- --------
(1) Represents amounts written off against the allowance for sales returns.
(2) Uncollectible accounts written off.
F-20Corporation
_____________
PROSPECTUS
_____________
================================================================================
7
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses Ofof Issuance Andand Distribution.
The following table sets forth the estimated costs andall expenses, other than
the underwriting
discounts and commissions, payable by the registrantNVIDIA Corporation (the "Registrant") in
connection with the offeringsale of the Securitiescommon stock being registered. All the amounts
shown are estimates except for the registration fee.
SEC registration fee............................................... $105,600
Accounting fees and expenses....................................... $150,000Registration fee ................................... $235,654
Legal fees and expenses............................................ $250,000
Miscellaneous...................................................... $ 85,000
--------
Total............................................................ $590,600
========
We will pay all fees and expenses associated with filing this registration
statement............................. $ 20,000
Accounting fees and expenses ....................... $ 10,000
Printing expenses .................................. $ 5,000
Miscellaneous ...................................... $ 5,000
TOTAL ............................................... $275,654
Item 15. Indemnification of Officers and Directors.
Section 145 of the Delaware General Corporation Law, or the DGCL,
authorizes a court to award or a corporation's board of directors to grant
indemnification to directors and officers in terms sufficiently broad to permit
such indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act. Our
Amended and Restated Certificate of Incorporation and our Bylaws provide for
mandatory indemnification of our directors and permissive indemnification of
officers, employees and other agents to the maximum extent permitted by the
DGCL. We have entered into indemnification agreements with our officers and
directors. The indemnification agreements provide the registrant'sour officers and directors
with further indemnification to the maximum extent permitted by the DGCL. We
also have obtained directors and officers insurance to insure our directors and
officers against certain liabilities, including liabilities under the securities
laws.
The underwriting agreements filed as Exhibit 1.1 and Exhibit 1.2 to the
registration statement provide for indemnification by the underwriters of the
registrant and its officers and directors for certain liabilities under the
Securities Act or otherwise.II-1
Item 16. Exhibits
And Financial Statement Schedules.
(a)Exhibits Exhibits.
Exhibit Number Description of the Document
------- -----------------------Number
1.1 Form of Underwriting Agreement for common stock.
1.2 Form of Underwriting Agreement for debt securities.
4.1 Amended and Restated Certificate of Incorporation. Filed as an exhibit
to our registration statement on Form S-8 filed on March 23, 1999
(Registration No. 333-74905)Incorporation (1)
4.2 Certificate of Amendment of Amended and incorporated herein by reference.
4.2 Bylaws. Filed as an exhibit to our registration statement on Form S-8
filed on March 23, 1999 (Registration No. 333-74905) and incorporated
herein by reference.
4.3* FormRestated Certificate of Senior Debt Indenture to be entered into between NVIDIA and
Chase Manhattan Bank and Trust Company, N.A.
4.4* Form of Subordinated Debt Indenture to be entered between NVIDIA and
Chase Manhattan Bank and Trust Company, N.A.
4.5* Form of Senior Note.
4.6* Form of Subordinated Note.
II-1
Exhibit
Number Description of Document
------- -----------------------
Incorporation (2)
4.3 Bylaws (2)
4.4 Specimen Stock Certificate (3)
5.1 Opinion of Cooley Godward LLP.
10.1 Lease between NVIDIA and Sobrato Interests III for Building A, dated
April 4, 2000.
10.2 Lease between NVIDIA and Sobrato Interests III for Building B, dated
April 4, 2000.
10.3 Lease between NVIDIA and Sobrato Interests III for Building C, dated
April 4, 2000.
10.4 Lease between NVIDIA and Sobrato Interests III for Building D, dated
April 4, 2000.
12.1* Calculation of Ratio of Earnings to Fixed Charges.LLP
23.1 Consent of KPMG LLP.LLP
23.2 Consent of Cooley Godward LLP (included in Exhibit 5.1).
24.1*
24.1 Power of Attorney.
25.1 Statement of Eligibility and Qualification on Form T-1 of trustee to
act as trustee under indenture.Attorney (included in the signature page)
- --------
*(1) Previously filed.filed as Exhibit 4.1 to our registration statement on Form S-8
filed on March 23, 1999 (No. 333-74905) and incorporated by reference herein.
(2) Previously filed as Exhibit 3.2 to our quarterly report on Form 10-Q for
the quarter ended July 29, 2001 filed on September 10, 2001 (No. 000-23985) and
incorporated by reference herein.
(3) Previously filed as Exhibit 4.2 to our registration statement on Form S-1
filed March 6, 1998 (No. 333-47495), as amended, and incorporated by reference
herein.
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
II-2
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, described in Item 15 or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
(d) The undersigned registrant undertakes to file an applicationthat: (1) for the purposepurposes of determining
the eligibility of the trustee to actany liability under subsection (a) of
Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Act.
The undersigned registrant further undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, (ii) to reflect in the information omitted from the
form of prospectus any facts or events arising after the
effective datefiled as part of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, representreliance upon
Rule 430A and contained in a fundamental change in the information set
forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low
or high end of the estimated maximum offering range may be
reflected in the form of a prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the
maximum
II-2
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement, and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply
if the registration statement is on Forms S-3, Form S-8 or Form F-3, and
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant
to Section 13Rule 424(b)(1) or 15(d)(4) or 497(h) under the Securities Act of 1933 shall be
deemed to be part of the Securities Exchange Actregistration statement as of 1934 that are incorporated by
reference in the registration statement.time it was declared
effective; and (2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.thereof.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to the registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Santa Clara, County of Santa Clara, State of
California on April 20, 2000.
NVIDIA CorporationNovember 29, 2001.
By: /s/ Jen-Hsun Huang
By: _________________________________-------------------------------------
Jen-Hsun Huang
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Jen-Hsun Huang and Christine B. Hoberg
and each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments, exhibits thereto and other documents in connection
therewith) to this registration statement and any subsequent registration
statement filed by the registrant pursuant to Securities and Exchange Commission
Rule 462, which relates to this registration statement and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys- in-fact and agents, or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.indicated:
Signature Title DateSIGNATURE TITLE DATE
- --------- ----- ----
President, Chief Executive Officer and November 29, 2001
/s/ Jen-Hsun Huang President, Chief Executive April 20, 2000
____________________________________ Officer and Director
- -----------------------------------------
Jen-Hsun Huang (Principal Executive Officer)
/s/ Christine B. Hoberg*Hoberg Chief Financial Officer April 20, 2000
____________________________________ (Principal Financial andNovember 29, 2001
- -----------------------------------------
Christine B. Hoberg Financial and Accounting Officer)
Tench Coxe* Director April 20, 2000
____________________________________/s/ Tench Coxe Director November 29, 2001
- -----------------------------------------
Tench Coxe
/s/ James C. Gaither Director November 29, 2001
- -----------------------------------------
James C. Gaither
/s/ Harvey C. Jones Jr.* Director April 20, 2000
____________________________________November 29, 2001
- -----------------------------------------
Harvey C. Jones
Jr.
Mark/s/ William J. Miller Director November 29, 2001
- -----------------------------------------
William J. Miller
/s/ A. Stevens*Brooke Seawell Director April 20, 2000
____________________________________November 29, 2001
- -----------------------------------------
A. Brooke Seawell
/s/ Mark A. Stevens Director November 29, 2001
- -----------------------------------------
Mark A. Brooke Seawell* Director April 20, 2000
____________________________________
A. Brooke Seawell
James C. Gaither* Director April 20, 2000
____________________________________
James C. Gaither
William J. Miller* Director April 20, 2000
____________________________________
William J. Miller
. /s/ Jen-Hsun Huang
*By: _______________________________
Jen-Hsun Huang
Attorney-in-factStevens
II-4
EXHIBITS INDEX
Exhibit Description of the Document
Number
4.1 Amended and Restated Certificate of Incorporation (1)
4.2 Certificate of Amendment of Amended and Restated Certificate of Incorporation (2)
4.3 Bylaws (2)
4.4 Specimen Stock Certificate (3)
5.1 Opinion of Cooley Godward LLP
23.1 Consent of KPMG LLP
23.2 Consent of Cooley Godward LLP (included in Exhibit 5.1)
24.1 Power of Attorney (included in the signature page)
(1) Previously filed as Exhibit 4.1 to our registration statement on Form S-8
filed on March 23, 1999 (No. 333-74905) and incorporated by reference herein.
(2) Previously filed as Exhibit 3.2 to our quarterly report on Form 10-Q for
the quarter ended July 29, 2001 filed on September 10, 2001 (No. 000-23985) and
incorporated by reference herein.
(3) Previously filed as Exhibit 4.2 to our registration statement on Form S-1
filed March 6, 1998 (No. 333-47495), as amended, and incorporated by reference
herein.