<PAGE> 1
Filed by 3dfx Interactive, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12(b)
under the Securities Exchange Act of 1934
Subject Company: 3dfx Interactive, Inc.
Commission File No. 000-22651
On December 15, 2000, 3dfx Interactive, Inc. held the following conference call
to discuss its financial results and current business developments:
Moderator: Good afternoon, ladies and gentlemen, and welcome to the 3dfx third
quarter earnings release conference call. At this time all participants are in a
listen-only mode. Later we will conduct a question and answer session and
instructions will follow at that time. If anyone should require assistance
during the call, please press the star followed by the zero on your touchtone
phone. As a reminder, ladies and gentlemen, this conference is being recorded.
I would now like to introduce your host for today's conference, Mr. Richard
Heddleson, the Chief Financial Officer. Please go ahead, sir.
Heddleson: Welcome to 3dfx's third-quarter fiscal 2001 conference call. I am
Richard Heddleson, CFO and with me today are Alex Leupp, president and CEO, and
Steve Lapinski, senior vice president of marketing. During this conference call
we will review our financial results for the third quarter and the company's
plans to substantially reduce expenses. We will also review the terms of a
definitive agreement signed today between 3dfx and nVidia Corporation. Finally,
we will discuss a recommendation by the Board of Directors that shareholders
approve a plan of dissolution whereby following closing of the transaction with
nVidia Corporation, 3dfx will liquidate its remaining assets, pay or otherwise
provide for its debts and liabilities, and distribute its remaining assets to
its shareholders.
Before we get started, I'd like to remind everyone that other than statements of
historical fact, the statements made in this meeting are forward-looking
statements within the
<PAGE> 2
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These statements
regarding future events and the future performance of 3dfx Interactive involve
risks and uncertainties that could cause actual results to differ materially.
Please refer to our filings with the SEC for the identification of some of these
risks and uncertainties, including those set forth in our most recent Form 10-Q
under the caption "Risk Factors."
This call does not constitute an offer of any securities for sale. In connection
with the proposed asset sale by and between 3dfx and nVidia Corporation, and
nVidia's plan to file with the SEC the Proxy Statement/Prospectus of 3dfx and
nVidia relating to the asset sale, as well as documents incorporated by
reference therein. You are urged to read the Proxy Statement/Prospectus when it
is filed and any other relevant documents filed with the SEC because they
contain important information. You may obtain the documents free of charge at
the SEC's web site, http://www.sec.gov. In addition, documents filed by 3dfx
with the SEC can be obtained by contacting 3dfx at the following address and
telephone number: Shareholder Relations, 4435 Fortran Drive, San Jose,
California 95134, telephone: (408) 935-4400. When it becomes available, please
read the Proxy Statement/Prospectus carefully before making a decision
concerning the asset sale. 3dfx, its officers, directors, employees and agents
may be soliciting proxies from 3dfx shareholders in connection with the asset
sale. Information concerning the participants in the solicitation will be set
forth in the Proxy Statement/Prospectus.
<PAGE> 3
This conference call will be taped and available immediately after the call and
will run for 72 hours, 24 hours per day. To access the replay, please call:
800-625-5288, and use passcode: 880445.
As a reminder, during the quarter, 3dfx may meet privately with investors,
media, investment analysts and other people. During those meetings, 3dfx may
reiterate the
<PAGE> 4
information included in today's conference call. However, 3dfx will publicly
disclose any subsequent material changes to the information provided today.
Now I'd like read to you the summary of our financial results. Then I'll
turn it back to Alex to discuss the other initiatives and recommendations that
were announced earlier today. Following Alex's discussion of those topics we'll
open up the call to questions from financial analysts and institutional
investors.
Revenues for the nine months ended October 31, 2000, were down 14
percent over the same period last fiscal year to $214.8 million compared to
revenues of $251.1 million for the nine months ended October 31, 1999. Revenues
for the third fiscal quarter were down 63 percent over the same period last
fiscal year to $39.2 million compared to $105.9 million for the third quarter of
fiscal 2000, ended October 31, 1999.
In the third quarter fiscal 2001 we had a gross loss of $21.7 million
compared to a gross profit of $17.2 million in the three months ended October
31, 1999. Gross losses as a percentage of revenues were (55.5)% in the three
months ending October 31, 2000 compared to a gross profit of 16.3% in the
comparable period of the previous year.
The company reported an operating loss before changes for amortization
and impairment of goodwill and intangibles for the third quarter fiscal 2001 of
$55.9 million. Operating losses before in process research and development and
charges for amortization and impairment of goodwill and intangibles for the
first nine months of the fiscal year 2001 were $90.7 million, compared to $30.3
million for the first nine months of fiscal year 2000. The third quarter fiscal
2001 net loss includes a $117.1 million charge for impairment of goodwill and
other intangible assets and $9.7 million for amortization expenses.
<PAGE> 5
The company reported a net loss of $178.6 million for the quarter, or
$4.53 per share using 39,442,000 shares in the per share calculation. For the
nine months ended October 31, 2000, the company reported a net loss of $291.5
million, or $9.69 per share.
Now I'd like to turn it over to Alex Leupp who will explain the
contributing factors to the current financial situation.
Leupp: Thank you, Dick. Clearly we're all deeply disappointed about the
financial results we have to disclose today. Although we have reached many
exciting milestones since the third quarter, they have not been reached soon
enough to have a significant impact on our financial situation. For the third
quarter let's first address the reasons for the revenue shortfall.
Due to the nature of 3dfx's business, we currently address the retail
business exclusively which represents approximately 10% of the overall graphics
market. The retail market is subject to extreme fluctuations for a variety of
reasons including consummer sentiment, seasonality and the availably of new game
titles. Therefore, as a company that serves the retail market exclusively, 3dfx
is subject to those same fluctuations in its financial results. As we said in
our revenue shortfall press release issued last month, 3dfx experienced overall
softness in its channels during the period.
Many in our market expected the high end of the graphics retail market
to grow faster than it actually did. 3dfx also made the assumption and planned
its product mix accordingly. We built up our inventory in the high end to
support the anticipated demand which in reality fell short of our expectations.
Specifically, sell-through of 3dfx's Voodoo5 products was affected by these
market contitions. We believe this slowdown in expected demand was due in part
to the overall slowdown in the PC market.
Another contributing factor was the consumer's reliance on performance
benchmarks as the criterion upon which they should base their buying decision.
3dfx, on the other hand, has focused its design talent on improving the quality
of 3D rendered graphics, using its full-scene anti-aliasing technology. Although
we strongly believe that visual quality will be the benchmark for future
graphics success, we did not sufficiently establish visual quality as the most
important attribute for consumers to rely on when making their purchase
decisions to affect third quarter results. Therefore, our competitiveness was
impacted which resulted in lower than expected revenues as well as pricing
pressures that were not anticipated.
During our last conference call we explained that we were pursuing
additional sources of credit to cover our expenses in the coming months.
Although we pursued a variety of sources, due to the increasing softness in the
PC market, it was not possible to secure an additional line of credit. Therefore
the lack of a bank line negatively impacted our cash position, which in turn
limited our ability to build inventory and ramp certain products into the
channel.
The pricing pressure we experienced during the quarter on the Voodoo5
product line resulted in additional price protection reserves. And the emphasis
in the market on performance benchmarks over 3D quality affected our
competitiveness. In addition, the combined need to move inventory and recover
cash in Q4 lead to the pricing action.
<PAGE> 6
On the expense side, our gross profit decrease was due to four key
factors: the previously mentioned pricing pressures; the under-utilization of
our factory in Juarez, Mexico; an increase in component pricing including memory
devices; and our delay in getting our Voodoo 4500 board products to market.
Our fixed costs are still very high because during the quarter, all of
boards were still produced in our Juarez, Mexico facility. Once production
decreased due to the lower demand and lack of cash to build inventory, the per
unit cost per board increased, which resulted in a reduced overall gross profit
margin. Although in the fourth quarter we announced our intention to sell the
Juarez facility and outsource our board manufacturing, during the third quarter
we were still reliant on internal production.
Additional details of our financial results and balance sheet can be
found on our SEC Form 10Q which we expect to file in the next five days. Now I'd
like to talk about the additional business developments announced earlier today.
In an effort to protect its creditors and maximize shareholder value,
3dfx announced today that it will substantially reduce all of its workforce as
part of an initiative to significantly reduce expenses. In addition, the company
said its Board of Directors recommended to its shareholders that they approve
the sale of most of the company's assets to nVidia Corporation as outlined in a
definitive agreement
<PAGE> 7
between the companies that was signed today, and also approve a plan to dissolve
the company following completion of the asset sale.
After aggressively pursuing a wide range of options that take into
consideration the interests of our creditors, shareholders, employees and our
customers, we strongly believe that to reduce expenses, sell our assets and
dissolve the company provides the highest return to our creditors, shareholders,
and employees.
We expect that the combined technologies of 3dfx and nVidia will
continue the legacy that 3dfx began in 1994. nVidia is the number one supplier
of graphics technology to the OEM market. With the addition of 3dfx's
high-quality technology that leads the retail market, we believe the combination
of the two will result in even greater PC graphics leadership.
As part of the announcement today, we announced that we plan to
substantially reduce our costs in order to best conserve our resources. These
cost-cutting measures include a reduction of substantially all of the company's
workforce by early next year, reduction in office space, and other efforts to
reduce non-essential expenses. 3dfx is also providing manufacturing services to
third parties to help cover the overhead associated with its Juarez, Mexico
manufacturing facility pending the sale of that facility.
In the meantime, we expect to continue to maintain an adequate workforce
to support our customers.
Under the terms of the agreement signed today, nVidia has agreed to pay
a value of $112 million ($70 million cash and one million shares of registered
nVidia common stock, as valued based on nVidia's closing price on December 14,
2000).
<PAGE> 8
Upon signing the definitive agreement, nVidia has agreed to loan to 3dfx
$15 million for working capital, which will be credited to the cash portion of
the purchase price. In addition, 3dfx and nVidia have agreed to stay the patent
infringement litigation between them through closing of the transaction, at
which time the suits will be jointly dismissed with prejudice. Assets included
in the transaction include all 3dfx intellectual property and chip inventory as
well as certain other assets. In addition, upon signing the definitive
agreement, 3dfx transferred to nVidia the "3dfx" and "Voodoo" brand names and
trademarks.
The closing of the transaction is subject to a variety of conditions,
including 3dfx shareholder approval, receipt of governmental approvals including
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and receipt of all
necessary consents of third parties.
After closing the nVidia asset sale and upon 3dfx shareholder approval,
3dfx will proceed to pay or adequately provide for its debts and liabilities.
3dfx will thereafter distribute its remaining assets to its shareholders in one
or more distributions.
I must tell you that with the assistance of our financial advisors, we
have pursued a wide variety of options including potential mergers, pursuit of
additional funding, entering into strategic relationships with potential
customers or other partners, and even bankruptcy as alternatives.
After considerable deliberation and review of available options, the
Board of Directors strongly believes that the reduction in expenses, the sale of
the company's assets to nVidia, and the subsequent dissolution of the company
best serve the interests of our creditors, our shareholders, our employees and
our customers.
<PAGE> 9
Now I'll turn the call over to the moderator who will facilitate
the question and answer session.
Moderator: Thank you, sir. Ladies and gentlemen, at this time if
you have a question, you will need to press the one on your
touchtone phone and you will hear a tone acknowledging your
request. Your questions will be taken in the order they are
received. If your question has already been answered, you may
remove yourself from queue by pressing the pound key. Also, if
you are using a speaker phone, please pick up your handset before
pressing the buttons.
Mark Edlestone from Morgan Stanley, please state your company
name followed by your question.
Edlestone: Morgan Stanley. Yes, I wonder if can provide some more
color on the level of channel inventories that you have and if
you can break it out by product, that'd be great.
Lapinski: This is Steve Lapinski. Channel inventory right now is
very low. There's probably only about 8,000 units in the channel
and the inventory position is well under control. We feel very
confident with the price moves that we currently have and the
positions that we have in the marketplace worldwide we'll be able
to sell through that inventory quite nicely.
Edlestone: And I haven't seen your balance sheet yet, but what is
the stated inventory on your balance sheet?
Heddleson: Net inventories are $45,000,794.
Edlestone: And can you help out with the composition of that?
Heddleson: Composition of that is roughly one-quarter piece
parts, one-quarter finished goods assemblies, and one-half chips,
3D FX chips.
Edlestone: And percentage of that being VooDoo5?
Heddleson: Of the finished goods, substantially all.
Edlestone: And how about the unassembled or the chips that you
have that are not in finished goods?
Heddleson: Substantially all Voodoo5.
Edlestone: Thank you very much.
Heddleson: You're welcome.
Moderator: Ladies and gentlemen, if there are any additional or
follow up questions, please press the one at this time. Remember
to pick up your handset before doing so. One moment please.
Gentlemen, there are no further questions at this time. Please
continue.
Heddleson: Thank you very much, ladies and gentlemen, for
attending the third quarter 3dfx conference call and we
appreciate your attendance. Good day.
Moderator: Ladies and gentlemen, that does conclude our
conference call for today. You may all disconnect and thank you
for participating.
