NVidia to Restate Three Years of Earnings

Last month, graphics processor producer nVidia appealed a possible de-listing on the NASDAQ exchange, on account of the company failing to file its quarterly 10-Q report for the first quarter of its fiscal year 2007, which ended in July.

The company is one of many targeted by a US Securities and Exchange Commission probe into the practice of granting backdated stock options to senior executives - specifically, into whether companies record those grants as expenses. The appeal bought nVidia some time while its accountants determined the extent of the damage.

Today, we learned how bad the damage may be, at least to this company: nVidia said it will have to restate its earnings as far back as the beginning of fiscal 2004, thus covering 13 quarters' worth of statements. The total damage in dollars may be reflected in the company's already delayed second quarter report, and may be reported as a $150 million one-time, non-cash charge.

NVidia's language this morning works to minimize the impact: "The Company currently estimates that the restatement will not have a material impact on the Company's operating results for any period in the current fiscal year 2007," reads its statement this morning.

However, let's put these numbers into perspective: In nVidia's last published 10-Q, for the first fiscal quarter ending last April, it reported pre-tax income of $109.2 million, on about $682 million of revenue. Operating expenses for the quarter were $188 million. So this one-time charge could easily wipe out the entire profit for a quarter that would be seasonably down anyway.

If there's a bright side to this, an independent audit committee had reported earlier that published earnings statements from nVidia published as far back as the beginning of calendar year 1999 should not be trusted. Unless there are further restatements in the works, three years' worth of error is at least better than seven.

Nvidia said it will get on with the business of publishing its last-quarter's numbers "as soon as practicable."