NVIDIA CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In millions, except par value) January 27, 2019 January 28, 2018 $ $ ASSETS Current assets Cash and cash equivalents Marketable secunties Accounts receivable, net Inventones Prepaid expenses and other current assets Total current assets Property and equipment, net Goodwill Intangible assets, net Other assets Total assets 782 6,640 1,424 1,575 136 10,557 1,404 + +18 1145 668 13,292 4,002 3,106 1,265 796 86 9,255 997 618 52 319 11,241 $ $ $ 511 818 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable Accrued and other current liabilities Convertible short-term debt Total current liabilities Long-term debt Other long-term liabilities Total liabilities Commitments and contingencies - see Note 12 Shareholders' equity Preferred stock, $.001 par value; 2 shares authorized: none issued Common stock, $.001 par value; 2,000 shares authorized; 945 shares issued and 606 outstanding as of January 27, 2019, 932 shares issued and 606 outstanding as of January 28, 2018 Additional paid-in capital Treasury stock, at cost (339 shares in 2019 and 326 shares in 2018) Accumulated other comprehensive loss Retained earnings Total shareholders' equity Total liabilities and shareholders' equity 1,329 1,988 633 3,950 596 542 15 1,153 1,985 632 3,770 6,051 (9,263) (12) 12,565 9,342 13,292 1 5,351 (6,650) (18) 8,787 7,471 11,241 $ See accompanying notes to the consolidated financial statements 2018 NVIDIA COMMON-SIZE BALANCE SHEET 2017 2016 Cash and Cash Equivalents 782 5.88% 4,002 35.60% 1,766 17.95% Short-term Investments 6,640 49.95% 3,106 27.63% 5,032 51.13% Net Accounts Receivables 1,424 10.71% 1,265 11.25% 826 8.39% 1,575 11.85% 796 7.08% 794 8.07% Inventory Prepaid expenses & other current assets 136 1.02% 86 0.77% 118 1.20% Total Current Assets 10,557 79.42% 9,255 82.33% 8,536 86.74% Net PP&E 1,404 10.56% 997 8.87% 521 5.29% Long-term investments Goodwill and Acquisition Intangibles 663 4.99% 670 5.96% 722 7.34% Other Assets 668 5.03% 319 2.84% 62 0.63% Total Assets 13,292 100.00% 11,241 100.00% 9,841 100.00% Current Portion of long-term debt 15 0.13% 796 8.09% Accounts Payable 511 3.84% 596 5.30% 485 4.93% Other Accrued expenses 818 6.15% 542 4.82% 507 5.15% Total Current Liabilities 1,329 10.00% 1,153 10.26% 1,788 18.17% Long-term Debt 1,988 14.96% 1,985 17.66% 1,983 20.15% Other long-term-jabilities 633 4.76% 632 5.62% 308 3.13% Total Liabilities 3,950 29.72% 3,770 33.54% 4,079 41.45% -1,298 -11.55% -24.16% 94.53% -330 -3.35% 8,787 78.17% Contributed Capital Retained Earnings AOCI and Other Stockholders' Equity Total Liab & Stockholders' Equity 62.07% -3,211 12,565 -12 9,342 13,292 6,108 -16 -18 -0.16% -0.16% -0.09% 70.28% 100.00% 7,471 66.46% 5,762 58.55% 11,241 100.00% 9,841 100.00% NVIDIA % CHANGE BALANCE SHEET 2018 2017 2016 Cash and Cash Equivalents 782 -80.46% 126.61% 1,766 Short-term Investments 113.78% 4,002 3,106 1,265 -38.28% 5,032 6,640 1,424 1,575 Net Accounts Receivables 12.57% 53.15% 826 Inventory 97.86% 796 0.25% 794 Prepaid expenses and other current assets 136 58.14% 86 -27.12% 118 Total Current Assets 10,557 14.07% 9,255 8.42% 8,536 1,404 40.82% 997 91.36% 521 Net PP&E Long-term investments Goodwill and Acquisition Intangibles Other Assets 663 -1.04% 670 -7.20% 722 668 109.40% 319 414.52% Total Assets 62 9,841 13,292 18.25% 11,241 14.23% Current Portion of long-term debt Accounts Payable 15 -98.12% 796 511 -14.26% 596 22.89% 485 Other Accrued expenses 818 50.92% 542 6.90% 507 Total Current Liabilities 1,329 15.26% 1,153 -35.51% 1.788 1,988 0.15% 1,985 0.10% 1,983 Long-term Debt Other long-term liabilities Total Liabilities 633 0.16% 632 105.19% 308 3,950 4.77% 3,770 -7.58% 4,079 147.38% -1,298 293.33% -330 -3,211 12,565 -12 43.00% 8,787 43.86% Contributed Capital Retained Earnings AOCI and Other Stockholders' Equity Total Liab & Stockholders' Equity 6,108 -33.33% -18 12.50% -16 25.04% 29.66% 9,342 13,292 5,762 7,471 11,241 18.25% 14.23% 9,841 Consolidated Balance Sheets (Muhons of dollars, except share amounts) December 31, 2018 2017 Assets Current assets Cash and cash equivalents Short-term investments Accounts receivable net of allowances of ($19) and (58) Raw materials Work in process Finished goods Inventories Prepaid expenses and other current assets Total current assets Property, plant and equipment at cost Accumulated depreciation Property, plant and equipment Long-term investments Goodwill Acquisition-related intangibles Deferred tax assets Capitalized software licenses Overtunded retirement plans Other long-term assets Total assets $ 2,438 S 1,656 1,795 2,813 1,207 1,278 181 126 1,070 1,089 742 2,217 1,957 440 1.030 8,097 8.734 5,425 4,789 (2,242) (2,125) 3,183 2,664 251 268 4,362 4.362 628 946 296 264 89 110 92 208 140 86 $ 17,137 $17.642 $ $ 749 478 724 103 420 500 466 722 128 442 2.258 3,577 89 78 T .. Liabilities and stockholders' equity Current liabilities: Current portion of long-term debt Accounts payable Accrued compensation income taxes payable Accrued expenses and other liabilities Total current liabilities Long-term debt Underfunded retirement plans Deferred tax liabilities Other long-term liabilities Total liabilities Stockholders' equity Preferred S$25 par value. Authorized - 10,000,000 shares Participati sumulative preferred - None issued Common stock, $1 par value. Authorized - 2,400,000,000 shares Staros issued - 1,740,815,939 Pald-in capital Retained earnings Treasury common stock al cost Shares: 2018 - 795 665,646: 2017 - 757,667.217 kecumulated other comprehensive income (loss), net of taxes (AOCD Total stockholders' equily Total liabilities and stockholders' equity 2,474 4,319 118 42 1,190 8,143 1,303 7.305 1.741 1,950 37,906 1.741 1,776 34,662 (27.458) (384) (32,130) (473) 8,994 $ 17,137 10.337 $ 17,642 TI % CHANGE BALANCE SHEET 12/31/2018 12/31/2017 12/31/2016 Cash and Cash Equivalents 2,438 47.22% 1,656 43.50% 1,154 Short-term Investments 1,795 36.19% 2,813 20.42% 2,336 Net Accounts Receivables -5.56% 0.87% 1,267 1,207 2,217 1,278 1,957 13.29% 9.33% 1,790 Inventory Prepaid expenses and other current assets 440 57.28% 13.19% 1,030 8,734 910 7,457 Total Current Assets 8,097 -7.29% 17.12% Net PP&E 3,183 19.48% 2,664 6.05% 2,512 251 -6.34% 268 14.04% 235 Long-term investments Goodwill and Acquisition Intangibles Other Assets 4,990 -5.99% 5,308 -5.65% 5,626 616 -7.78% 668 11.15% 601 Total Assets 17,137 -2.86% 17,642 7.37% 16,431 749 49.80% 500 -20.76% 631 478 2.58% 466 Current Portion of long-term debt Accounts Payable Other Accrued expenses Total Current Liabilities 17.68% 396 1,247 -3.48% 1,292 4.45% 1,237 2,474 9.57% 2,258 -0.27% 2,264 4,319 20.74% 3,577 20.11% Long-term Debt Other long-term liabilities Total Liabilities 2,978 716 1,350 -8.16% 1,470 105.31% 8,143 11.47% 7,305 22.61% 5,958 -28,439 18.79% 8.29% -22.108 Contributed Capital Retained Earnings AOCI and Other 37,906 9.36% -23,941 34,662 -384 4.70% -473 33, 107 -526 23.18% -27.00% 12.99% 10,337 Stockholders' Equity Total Liab & Stockholders' Equity -1.30% 8,994 17,137 10,473 -2.86% 17,642 7.37% 16,431 2. A percentage-change balance sheet is called horizontal analysis because it analyzes how balance sheet accounts have changed over time. It is important to look at the changes relative to the change in total assets. It is also important to remember that a large percentage change can be related to a small initial value so the overall change is not that significant to understanding financial performance. Use Nvidia's Percentage-Change Balance Sheets from the most recent year to answer the following questions. a. What is the percentage change in total assets? b. What are the important changes in individual asset accounts? c. What are the important changes in individual liability accounts? d. What are the important changes in individual equity accounts? 3. A common-size balance sheet provides vertical analysis because it standardizes every balance sheet account by total assets. It highlights the relative importance of individual accounts listed vertically for a particular firm on each balance sheet date and allows for meaningful comparisons across firms of different sizes. Use TI and Nvidia's Common-Size Balance Sheet in the most recent year to answer the following questions about TI vs. Nvidia. Fill in the following table to help you answer these questions. As a % of Total Assets TI (17,137 Total Assets) Nvidia (13,292 Total Assets) Current Asset Noncurrent Assets Total Liabilities Total Shareholders' Equity Current Liabilities Noncurrent Liabilities Contributed Capital Retained Earnings a. What are the total assets of TI vs. Nvidia. Given this difference, do you think it is important to standardize by total assets to compare the two firms? b. What does the difference in the percentage of current vs. noncurrent assets communicate about the financial position of the two firms? c. What does the difference in the percentage of liabilities vs. equity financing communicate about the financial position of the two firms? d. What does the difference in the percentage of current vs. noncurrent liability financing communicate about the financial position of the two firms? e. Why is contributed capital negative for both firms? What does the difference in financing of contributed capital vs. retained earnings communicate about the financial position of the two firms? 1. Nvidia and TI are in similar industries so it's not surprising their market-to-book ratios are similar and greater than one. a. Provide a reason related to accounting recognition as to why this ratio is greater than one b. Provide a reason related to accounting measurement explaining why this ratio is greater than one. C. Provide a reason related to market expectations explaining why this ratio is greater than one d. Use the equation below to calculate Nvidia market-to-book ratio. Use a stock price $143.75 per share. Stock Price Per Share = Stock Price Per Share Book Value Per Share Total Shareholders' Equity on Bal. Sheet - Shares Outstanding e. Use Macrotrends to compare the market-to-book ratios for TI and Nvidia through 2018 and share any insights. Note that Macrotrends calls this ratio price/book. TO 2. Management Decision: Given what you have learned from the balance sheet ONLY, name one operating challenge that management needs to address for TI given its performance compared to Nvidia. 3. Investment Decision: Would you choose to invest in Ti's or Nvidia's stock at the end of 2018 based ONLY on the analysis of their balance sheet? 4. Credit Decision: Lenders charge higher interest rates to firms with higher perceived risk, meaning there is a greater probability those firms will not be able to pay back their loan. If you were lending money to Tl and Nvidia in 2018, based ONLY on the analysis of their balance sheet, would you charge TI or Nvidia a higher interest rate because of higher perceived risk? NVIDIA CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In millions, except par value) January 27, 2019 January 28, 2018 $ $ ASSETS Current assets Cash and cash equivalents Marketable secunties Accounts receivable, net Inventones Prepaid expenses and other current assets Total current assets Property and equipment, net Goodwill Intangible assets, net Other assets Total assets 782 6,640 1,424 1,575 136 10,557 1,404 + +18 1145 668 13,292 4,002 3,106 1,265 796 86 9,255 997 618 52 319 11,241 $ $ $ 511 818 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable Accrued and other current liabilities Convertible short-term debt Total current liabilities Long-term debt Other long-term liabilities Total liabilities Commitments and contingencies - see Note 12 Shareholders' equity Preferred stock, $.001 par value; 2 shares authorized: none issued Common stock, $.001 par value; 2,000 shares authorized; 945 shares issued and 606 outstanding as of January 27, 2019, 932 shares issued and 606 outstanding as of January 28, 2018 Additional paid-in capital Treasury stock, at cost (339 shares in 2019 and 326 shares in 2018) Accumulated other comprehensive loss Retained earnings Total shareholders' equity Total liabilities and shareholders' equity 1,329 1,988 633 3,950 596 542 15 1,153 1,985 632 3,770 6,051 (9,263) (12) 12,565 9,342 13,292 1 5,351 (6,650) (18) 8,787 7,471 11,241 $ See accompanying notes to the consolidated financial statements 2018 NVIDIA COMMON-SIZE BALANCE SHEET 2017 2016 Cash and Cash Equivalents 782 5.88% 4,002 35.60% 1,766 17.95% Short-term Investments 6,640 49.95% 3,106 27.63% 5,032 51.13% Net Accounts Receivables 1,424 10.71% 1,265 11.25% 826 8.39% 1,575 11.85% 796 7.08% 794 8.07% Inventory Prepaid expenses & other current assets 136 1.02% 86 0.77% 118 1.20% Total Current Assets 10,557 79.42% 9,255 82.33% 8,536 86.74% Net PP&E 1,404 10.56% 997 8.87% 521 5.29% Long-term investments Goodwill and Acquisition Intangibles 663 4.99% 670 5.96% 722 7.34% Other Assets 668 5.03% 319 2.84% 62 0.63% Total Assets 13,292 100.00% 11,241 100.00% 9,841 100.00% Current Portion of long-term debt 15 0.13% 796 8.09% Accounts Payable 511 3.84% 596 5.30% 485 4.93% Other Accrued expenses 818 6.15% 542 4.82% 507 5.15% Total Current Liabilities 1,329 10.00% 1,153 10.26% 1,788 18.17% Long-term Debt 1,988 14.96% 1,985 17.66% 1,983 20.15% Other long-term-jabilities 633 4.76% 632 5.62% 308 3.13% Total Liabilities 3,950 29.72% 3,770 33.54% 4,079 41.45% -1,298 -11.55% -24.16% 94.53% -330 -3.35% 8,787 78.17% Contributed Capital Retained Earnings AOCI and Other Stockholders' Equity Total Liab & Stockholders' Equity 62.07% -3,211 12,565 -12 9,342 13,292 6,108 -16 -18 -0.16% -0.16% -0.09% 70.28% 100.00% 7,471 66.46% 5,762 58.55% 11,241 100.00% 9,841 100.00% NVIDIA % CHANGE BALANCE SHEET 2018 2017 2016 Cash and Cash Equivalents 782 -80.46% 126.61% 1,766 Short-term Investments 113.78% 4,002 3,106 1,265 -38.28% 5,032 6,640 1,424 1,575 Net Accounts Receivables 12.57% 53.15% 826 Inventory 97.86% 796 0.25% 794 Prepaid expenses and other current assets 136 58.14% 86 -27.12% 118 Total Current Assets 10,557 14.07% 9,255 8.42% 8,536 1,404 40.82% 997 91.36% 521 Net PP&E Long-term investments Goodwill and Acquisition Intangibles Other Assets 663 -1.04% 670 -7.20% 722 668 109.40% 319 414.52% Total Assets 62 9,841 13,292 18.25% 11,241 14.23% Current Portion of long-term debt Accounts Payable 15 -98.12% 796 511 -14.26% 596 22.89% 485 Other Accrued expenses 818 50.92% 542 6.90% 507 Total Current Liabilities 1,329 15.26% 1,153 -35.51% 1.788 1,988 0.15% 1,985 0.10% 1,983 Long-term Debt Other long-term liabilities Total Liabilities 633 0.16% 632 105.19% 308 3,950 4.77% 3,770 -7.58% 4,079 147.38% -1,298 293.33% -330 -3,211 12,565 -12 43.00% 8,787 43.86% Contributed Capital Retained Earnings AOCI and Other Stockholders' Equity Total Liab & Stockholders' Equity 6,108 -33.33% -18 12.50% -16 25.04% 29.66% 9,342 13,292 5,762 7,471 11,241 18.25% 14.23% 9,841 Consolidated Balance Sheets (Muhons of dollars, except share amounts) December 31, 2018 2017 Assets Current assets Cash and cash equivalents Short-term investments Accounts receivable net of allowances of ($19) and (58) Raw materials Work in process Finished goods Inventories Prepaid expenses and other current assets Total current assets Property, plant and equipment at cost Accumulated depreciation Property, plant and equipment Long-term investments Goodwill Acquisition-related intangibles Deferred tax assets Capitalized software licenses Overtunded retirement plans Other long-term assets Total assets $ 2,438 S 1,656 1,795 2,813 1,207 1,278 181 126 1,070 1,089 742 2,217 1,957 440 1.030 8,097 8.734 5,425 4,789 (2,242) (2,125) 3,183 2,664 251 268 4,362 4.362 628 946 296 264 89 110 92 208 140 86 $ 17,137 $17.642 $ $ 749 478 724 103 420 500 466 722 128 442 2.258 3,577 89 78 T .. Liabilities and stockholders' equity Current liabilities: Current portion of long-term debt Accounts payable Accrued compensation income taxes payable Accrued expenses and other liabilities Total current liabilities Long-term debt Underfunded retirement plans Deferred tax liabilities Other long-term liabilities Total liabilities Stockholders' equity Preferred S$25 par value. Authorized - 10,000,000 shares Participati sumulative preferred - None issued Common stock, $1 par value. Authorized - 2,400,000,000 shares Staros issued - 1,740,815,939 Pald-in capital Retained earnings Treasury common stock al cost Shares: 2018 - 795 665,646: 2017 - 757,667.217 kecumulated other comprehensive income (loss), net of taxes (AOCD Total stockholders' equily Total liabilities and stockholders' equity 2,474 4,319 118 42 1,190 8,143 1,303 7.305 1.741 1,950 37,906 1.741 1,776 34,662 (27.458) (384) (32,130) (473) 8,994 $ 17,137 10.337 $ 17,642 TI % CHANGE BALANCE SHEET 12/31/2018 12/31/2017 12/31/2016 Cash and Cash Equivalents 2,438 47.22% 1,656 43.50% 1,154 Short-term Investments 1,795 36.19% 2,813 20.42% 2,336 Net Accounts Receivables -5.56% 0.87% 1,267 1,207 2,217 1,278 1,957 13.29% 9.33% 1,790 Inventory Prepaid expenses and other current assets 440 57.28% 13.19% 1,030 8,734 910 7,457 Total Current Assets 8,097 -7.29% 17.12% Net PP&E 3,183 19.48% 2,664 6.05% 2,512 251 -6.34% 268 14.04% 235 Long-term investments Goodwill and Acquisition Intangibles Other Assets 4,990 -5.99% 5,308 -5.65% 5,626 616 -7.78% 668 11.15% 601 Total Assets 17,137 -2.86% 17,642 7.37% 16,431 749 49.80% 500 -20.76% 631 478 2.58% 466 Current Portion of long-term debt Accounts Payable Other Accrued expenses Total Current Liabilities 17.68% 396 1,247 -3.48% 1,292 4.45% 1,237 2,474 9.57% 2,258 -0.27% 2,264 4,319 20.74% 3,577 20.11% Long-term Debt Other long-term liabilities Total Liabilities 2,978 716 1,350 -8.16% 1,470 105.31% 8,143 11.47% 7,305 22.61% 5,958 -28,439 18.79% 8.29% -22.108 Contributed Capital Retained Earnings AOCI and Other 37,906 9.36% -23,941 34,662 -384 4.70% -473 33, 107 -526 23.18% -27.00% 12.99% 10,337 Stockholders' Equity Total Liab & Stockholders' Equity -1.30% 8,994 17,137 10,473 -2.86% 17,642 7.37% 16,431 2. A percentage-change balance sheet is called horizontal analysis because it analyzes how balance sheet accounts have changed over time. It is important to look at the changes relative to the change in total assets. It is also important to remember that a large percentage change can be related to a small initial value so the overall change is not that significant to understanding financial performance. Use Nvidia's Percentage-Change Balance Sheets from the most recent year to answer the following questions. a. What is the percentage change in total assets? b. What are the important changes in individual asset accounts? c. What are the important changes in individual liability accounts? d. What are the important changes in individual equity accounts? 3. A common-size balance sheet provides vertical analysis because it standardizes every balance sheet account by total assets. It highlights the relative importance of individual accounts listed vertically for a particular firm on each balance sheet date and allows for meaningful comparisons across firms of different sizes. Use TI and Nvidia's Common-Size Balance Sheet in the most recent year to answer the following questions about TI vs. Nvidia. Fill in the following table to help you answer these questions. As a % of Total Assets TI (17,137 Total Assets) Nvidia (13,292 Total Assets) Current Asset Noncurrent Assets Total Liabilities Total Shareholders' Equity Current Liabilities Noncurrent Liabilities Contributed Capital Retained Earnings a. What are the total assets of TI vs. Nvidia. Given this difference, do you think it is important to standardize by total assets to compare the two firms? b. What does the difference in the percentage of current vs. noncurrent assets communicate about the financial position of the two firms? c. What does the difference in the percentage of liabilities vs. equity financing communicate about the financial position of the two firms? d. What does the difference in the percentage of current vs. noncurrent liability financing communicate about the financial position of the two firms? e. Why is contributed capital negative for both firms? What does the difference in financing of contributed capital vs. retained earnings communicate about the financial position of the two firms? 1. Nvidia and TI are in similar industries so it's not surprising their market-to-book ratios are similar and greater than one. a. Provide a reason related to accounting recognition as to why this ratio is greater than one b. Provide a reason related to accounting measurement explaining why this ratio is greater than one. C. Provide a reason related to market expectations explaining why this ratio is greater than one d. Use the equation below to calculate Nvidia market-to-book ratio. Use a stock price $143.75 per share. Stock Price Per Share = Stock Price Per Share Book Value Per Share Total Shareholders' Equity on Bal. Sheet - Shares Outstanding e. Use Macrotrends to compare the market-to-book ratios for TI and Nvidia through 2018 and share any insights. Note that Macrotrends calls this ratio price/book. TO 2. Management Decision: Given what you have learned from the balance sheet ONLY, name one operating challenge that management needs to address for TI given its performance compared to Nvidia. 3. Investment Decision: Would you choose to invest in Ti's or Nvidia's stock at the end of 2018 based ONLY on the analysis of their balance sheet? 4. Credit Decision: Lenders charge higher interest rates to firms with higher perceived risk, meaning there is a greater probability those firms will not be able to pay back their loan. If you were lending money to Tl and Nvidia in 2018, based ONLY on the analysis of their balance sheet, would you charge TI or Nvidia a higher interest rate because of higher perceived risk