UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



[x]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~October 25, 2015~~July 31, 2016



[_]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 0-23985

NVIDIA CORPORATION

(Exact name of registrant as specified in its charter)



Delaware	94-3177549
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

2701 San Tomas Expressway

Santa Clara, California 95050

(408) 486-2000

(Address, including zip code, and telephone number,

including area code, of principal executive offices)

N/A

(Former name, former address and former fiscal year if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer x	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

The number of shares of common stock, $0.001 par value, outstanding as of ~~November 13, 2015~~August 19, 2016, was ~~538~~535 million.

NVIDIA CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED ~~October 25, 2015~~July 31, 2016

TABLE OF CONTENTS



		Page
	PART I : FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	a) Condensed Consolidated Statements of Income for the three and ~~nine~~six months ended ~~October 25,~~July 31, 2016 and July 26, 2015 ~~and October 26, 2014~~	3

	b) Condensed Consolidated Statements of Comprehensive Income for the three and ~~nine~~six months ended ~~October 25,~~July 31, 2016 and July 26, 2015 ~~and October 26, 2014~~	4

	c) Condensed Consolidated Balance Sheets as of ~~October 25, 2015~~July 31, 2016 and January ~~25, 2015~~31, 2016	5

	d) Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~October 25,~~July 31, 2016 and July 26, 2015 ~~and October 26, 2014~~	6

	e) Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2625

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3735

Item 4.	Controls and Procedures	3735

	PART II : OTHER INFORMATION

Item 1.	Legal Proceedings	3836

Item 1A.	Risk Factors	3836

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3937

Item 6.	Exhibits	4039

Signature		4140

WHERE YOU CAN FIND MORE INFORMATION

Investors and others should note that we announce material financial information to our investors using our investor relations website, press releases, SEC filings and public conference calls and webcasts. We also use the following social media channels as a means of disclosing information about the company, our products, our planned financial and other announcements and attendance at upcoming investor and industry conferences, and other matters and for complying with our disclosure obligations under Regulation FD:

NVIDIA Twitter Account (https://twitter.com/NVIDIA)

NVIDIA ~~Company~~ Blog (http://blogs.nvidia.com/)

NVIDIA Facebook Page (https://www.facebook.com/NVIDIA)

NVIDIA LinkedIn Page (http://www.linkedin.com/company/nvidia?trk=hb_tab_compy_id_3608)

In addition, investors and others can ~~use the Pulse news reader to subscribe to the NVIDIA Daily News feed~~follow us on Flipboard, YouTube and ~~can view NVIDIA videos on YouTube.~~Instagram.

The information we post through these social media channels may be deemed material. Accordingly, investors should monitor these accounts and the blog, in addition to following our press releases, SEC filings and public conference calls and webcasts. This list may be updated from time to time. The information we post through these channels is not a part of this quarterly report on Form 10-Q. These channels may be updated from time to time on NVIDIA's investor relations website.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

NVIDIA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

~~(UNAUDITED)~~(Unaudited)

(In millions, except per share data)


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	October 25,			October 26,			October 25,			October 26,			July 31,			July 26,			July 31,			July 26,
	2015			2014			2015			2014			2016			2015			2016			2015

Revenue	$	1,305		$	1,225		$	3,609		$	3,431		$	1,428		$	1,153		$	2,733		$	2,304
Cost of revenue	571			549			1,589			1,531			602			519			1,156			1,018
Gross profit	734			676			2,020			1,900			826			634			1,577			1,286
Operating expenses
Research and development	329			340			987			1,011			350			320			697			658
Sales, general and administrative	152			123			441			361			157			149			316			289
Restructuring and other charges	8			—			97			—			2			89			3			89
Total operating expenses	489			463			1,525			1,372			509			558			1,016			1,036
Income from operations	245			213			495			528			317			76			561			250
Interest income	9			7			28			20			12			9			23			18
Interest expense	(12		)	(11		)	(35		)	(35		)	(12		)	(12		)	(23		)	(22		)
Other income, net	3			—			1			14
Income before income tax	245			209			489			527
Income tax expense (benefit)	(1		)	36			83			90
Other income (expense), net													—			(1		)	(3		)	(2		)
Income before income tax expense													317			72			558			244
Income tax expense													64			46			109			84
Net income	$	246		$	173		$	406		$	437		$	253		$	26		$	449		$	160

Net income per share:
Basic	$	0.45		$	0.32		$	0.75		$	0.79		$	0.47		$	0.05		$	0.84		$	0.29
Diluted	$	0.44		$	0.31		$	0.72		$	0.77		$	0.40		$	0.05		$	0.73		$	0.28

Weighted average shares used in per share computation:
Basic	542			548			544			555			534			541			536			545
Diluted	565			558			563			566			631			556			617			563

Cash dividends declared and paid per common share	$	0.0975		$	0.0850		$	0.2800		$	0.2550		$	0.1150		$	0.0975		$	0.2300		$	0.1825

See accompanying Notes to Condensed Consolidated Financial Statements.

NVIDIA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

~~(UNAUDITED)~~(Unaudited)

(In millions)


	Three Months Ended					Nine Months Ended					Three Months Ended						Six Months Ended
	October 25,			October 26,		October 25,			October 26,		July 31,			July 26,			July 31,			July 26,
	2015			2014		2015			2014		2016			2015			2016			2015

Net income	$	246		$	173	$	406		$	437	$	253		$	26		$	449		$	160
Other comprehensive income (loss), net of tax:
Available-for-sale securities:
Net change in unrealized gains (losses) on available-for-sale securities	3			5		(1		)	5		5			(7		)	11			(6		)
Change in fair value of interest rate swap	(3		)	—		(3		)	—
Reclassification adjustments for net realized losses on available-for-sale securities included in net income	—			—		(2		)	—
Other comprehensive income (loss)	—			5		(6		)	5
Cash flow hedges:
Net change in unrealized losses on cash flow hedges											(3		)	—			(4		)	—
Other comprehensive income (loss), net of tax											2			(7		)	7			(6		)
Total comprehensive income	$	246		$	178	$	400		$	442	$	255		$	19		$	456		$	154

See accompanying Notes to Condensed Consolidated Financial Statements.

NVIDIA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

~~(UNAUDITED)~~(Unaudited)

(In millions)


	October 25,			January 25,			July 31,			January 31,
	2015			2015			2016			2016
ASSETS
Current assets:
Cash and cash equivalents	$	471		$	497		$	426		$	596
Marketable securities	4,257			4,126			4,453			4,441
Accounts receivable, net	536			474			644			505
Inventories	425			483			521			418
Prepaid expenses and other current assets	93			70			112			93
Deferred income taxes	52			63
Total current assets	5,834			5,713			6,156			6,053
Property and equipment, net	477			557			485			466
Goodwill	618			618			618			618
Intangible assets, net	172			222			138			166
Other assets	73			91			64			67
Total assets	$	7,174		$	7,201		$	7,461		$	7,370

LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES, CONVERTIBLE DEBT CONVERSION OBLIGATION AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	295		$	293		$	423		$	296
Accrued and other current liabilities	560			603			556			642
Convertible short-term debt							1,428			1,413
Total current liabilities	855			896			2,407			2,351

Long-term debt	1,406			1,384
Other long-term liabilities	437			489			494			453
Capital lease obligations, long-term	11			14			8			10
Total liabilities							2,909			2,814
Commitments and contingencies - see Note 12	—			—
Convertible debt conversion obligation							72			87
Shareholders’ equity:
Preferred stock	—			—			—			—
Common stock	1			1			1			1
Additional paid-in capital	4,170			3,855			4,408			4,170
Treasury stock, at cost	(3,912		)	(3,395		)	(4,608		)	(4,048		)
Accumulated other comprehensive income	2			8
Accumulated other comprehensive income (loss)							4			(4		)
Retained earnings	4,204			3,949			4,675			4,350
Total shareholders' equity	4,465			4,418			4,480			4,469
Total liabilities and shareholders' equity	$	7,174		$	7,201
Total liabilities, convertible debt conversion obligation and shareholders' equity							$	7,461		$	7,370

See accompanying Notes to Condensed Consolidated Financial Statements.

NVIDIA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

~~(UNAUDITED)~~(Unaudited)

(In millions)


	Nine Months Ended						Six Months Ended
	October 25,			October 26,			July 31,			July 26,
	2015			2014			2016			2015
Cash flows from operating activities:
Net income	$	406		$	437		$	449		$	160
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense							111			93
Depreciation and amortization	151			166			92			103
Stock-based compensation expense	145			115
Deferred income taxes							74			65
Amortization of debt discount							14			14
Tax benefits from stock-based compensation							(26		)	(6		)
Net gain on sale and disposal of long-lived assets and investments							(3		)	(3		)
Restructuring and other charges	37			—			—			32
Amortization of debt discount	22			21
Net gain on sale and disposal of long-lived assets and investments	(7		)	(18		)
Deferred income taxes	107			62
Tax benefits from stock-based compensation	(5		)	(12		)
Other	16			19			7			11
Changes in operating assets and liabilities:
Accounts receivable	(63		)	(138		)	(138		)	(41		)
Inventories	59			(20		)	(104		)	42
Prepaid expenses and other assets	(25		)	5			(17		)	(13		)
Accounts payable	7			10			131			(13		)
Accrued and other current liabilities	(41		)	(23		)	(85		)	60
Other long-term liabilities	(145		)	(161		)	(12		)	(95		)
Net cash provided by operating activities	664			463			493			409
Cash flows from investing activities:
Purchases of marketable securities	(2,669		)	(2,126		)
Proceeds from sale of marketable securities	1,651			1,100
Proceeds from sales of marketable securities							901			1,415
Proceeds from maturities of marketable securities	872			688			506			487
Proceeds from sale of long-lived assets and investments	7			21			6			2
Purchases of marketable securities							(1,415		)	(1,861		)
Purchases of property and equipment and intangible assets							(87		)	(54		)
Reimbursement of headquarters building development costs from banks	24			—			—			24
Purchases of property and equipment and intangible assets	(71		)	(91		)
Other	(1		)	(1		)	(4		)	(1		)
Net cash used in investing activities	(187		)	(409		)
Net cash provided by (used in) investing activities							(93		)	12
Cash flows from financing activities:
Proceeds from issuance of common stock under employee stock plans	99			129			40			64
Payments under capital lease obligations	(3		)	(2		)
Tax benefits from stock-based compensation	5			12			26			6
Payments related to repurchases of common stock	(452		)	(810		)	(509		)	(452		)
Dividends paid	(152		)	(140		)	(124		)	(99		)
Payments under capital lease obligations							(2		)	(2		)
Other							(1		)	—
Net cash used in financing activities	(503		)	(811		)	(570		)	(483		)
Change in cash and cash equivalents	(26		)	(757		)	(170		)	(62		)
Cash and cash equivalents at beginning of period	497			1,152			596			497
Cash and cash equivalents at end of period	$	471		$	395		$	426		$	435

Other non-cash activity:
Assets acquired by assuming related liabilities	$	—		$	14		$	15		$	2

See accompanying Notes to Condensed Consolidated Financial Statements.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Securities and Exchange Commission, or SEC, Regulation S-X. The January ~~25, 2015~~31, 2016 consolidated balance sheet was derived from our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended January ~~25, 2015,~~31, 2016, as filed with the SEC, but does not include all disclosures required by U.S. GAAP. In the opinion of management, all adjustments, consisting only of normal recurring adjustments except as otherwise noted, considered necessary for a fair statement of results of operations and financial position have been included. The results for the interim periods presented are not necessarily indicative of the results expected for any future period. The following information should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January ~~25, 2015.~~31, 2016.

Significant Accounting Policies

For a description of significant accounting policies, see Note 1, Organization and Summary of Significant Accounting Policies, of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended January ~~25, 2015.~~31, 2016. There have been no material changes to our significant accounting policies since the filing of the Annual Report on Form 10-K.

Fiscal Year

We operate on a 52- or 53-week year, ending on the last Sunday in January. Fiscal year ~~2016~~2017 is a ~~53-week~~52-week year and fiscal year ~~2015~~2016 was a ~~52-week~~53-week year. The ~~third quarters~~second quarter of fiscal years ~~2016~~2017 and ~~2015~~2016 were both 13-week quarters.

Reclassifications

Certain prior fiscal year balances have been reclassified to conform to the current fiscal year presentation.

Principles of Consolidation

Our condensed consolidated financial statements include the accounts of NVIDIA Corporation and our wholly-owned subsidiaries. All ~~material inter-company~~intercompany balances and transactions have been eliminated in consolidation.

~~Restructuring and Other Charges~~

Our restructuring and other charges primarily comprise of employee severance and related costs, write-down of assets, and other exit costs. The severance and related costs could include one-time termination benefits as well as certain statutory termination benefits or employee terminations under ongoing benefit arrangements. One-time termination benefits are recognized as a liability at estimated fair value when the approved plan of termination has been communicated to employees, unless employees must provide future service, in which case the benefits are recognized ratably over the future service period. Ongoing termination benefits arrangements are recognized as a liability at estimated fair value when the amount of such benefits becomes estimable and payment is probable. Any contract termination costs are recognized at estimated fair value when we terminate the contract in accordance with the contract terms. Other associated costs are recognized in the period the liability is incurred.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, cash equivalents and marketable securities, accounts receivable, inventories, income taxes, goodwill, stock-based compensation, ~~warranty liabilities,~~ litigation, investigation and settlement costs, restructuring and other charges, and other contingencies. These estimates are based on historical facts and various other assumptions that we believe are reasonable.

Adoption of New and Recently Issued Accounting Pronouncements

7In March 2016, the Financial Accounting Standards Board, or FASB, issued an accounting standards update which simplifies certain aspects of stock-based compensation accounting, including income taxes at settlement, classifications in the statement of cash flows, forfeitures and net settlements, and will be effective in our first quarter of fiscal year 2018. Early adoption is permitted in any annual or interim period. We are currently evaluating the impact of the adoption of this accounting guidance on our consolidated financial statements and whether or not to adopt it early. We expect that the adoption of this accounting guidance will result in increased volatility of our effective tax rate, and changes in certain tax-related balance sheet line items and statement of cash flows classifications.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

~~Adoption of New and Recently Issued Accounting Pronouncements~~

In ~~July 2015, the Financial Accounting Standards Board, or~~February 2016, FASB issued an accounting standards update regarding the accounting for the subsequent measurement of inventory. The amended guidance requires entities to measure inventory at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposalleases by which we will begin recognizing lease assets and transportation. The requirement would replace the current lower of cost or market evaluation. The update is effective for us beginning in our first quarter of fiscal year 2018, with early adoption permitted to be applied prospectively. We are currently evaluating the impact of this accounting guidance on our consolidated financial statements.

~~In April 2015, the FASB issued an accounting standards update that requires an entity to present debt issuance costs~~liabilities on the balance sheet asfor leases with a ~~direct deduction from the related debt liability as opposed to an asset. Amortization~~lease term of ~~the costs will continue to be reported as interest expense.~~more than 12 months. The update ~~is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2015. Early adoption is permitted for financial statements that have~~will require additional disclosures regarding key information about leasing arrangements. Under existing guidance, operating leases are not ~~been previously issued,~~recorded as lease assets and lease liabilities on the ~~new guidance would be applied retrospectively to all prior periods presented.~~balance sheet. The update will be effective for us beginning in our first quarter of fiscal year ~~2017. The~~2020, with early adoption permitted. We are currently evaluating the impact of the adoption of this accounting guidance ~~is not currently expected to have a material impact~~ on our consolidated financial statements.

In April 2015, the FASB issued an accounting standards update that provides clarification on whether a cloud computing arrangement includes a software license. If a software license is included, the customer should account for the license consistent with its accounting for other software licenses. If a software license is not included, the arrangement should be accounted for as a service contract. The update is effective for reporting periods beginning after December 15, 2015, with early adoption permitted. Companies can elect to adopt the standard update prospectively or retrospectively to arrangements entered into, or materially modified, after the effective date. The update will be effective for us beginning in our first quarter of fiscal year 2017. We However, we expect the adoption of this accounting guidance to result in an increase in ~~software license~~lease assets ~~and related depreciation expense,~~ and a corresponding ~~decrease~~increase in ~~prepaid service contract assets and related service contract expense in~~lease liabilities on our ~~consolidated financial statements.~~Condensed Consolidated Balance Sheets.

In May 2014, the FASB issued an accounting standards update that creates a single source of revenue guidance under U.S. GAAP for all companies, in all industries, effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. On July 9, 2015, the FASB voted to defer the effective date by one year, such that the new standard will be effective for us beginning in our first quarter of fiscal year 2019. The FASB will also permit entities to adopt the standard one year earlier if they choose (i.e., the original effective date). In March, April and May 2016, the FASB issued additional updates to the new revenue standard relating to reporting revenue on a gross versus net basis, identifying performance obligations and licensing arrangements, and narrow-scope improvements and practical expedients, respectively. We will adopt this guidance either by using a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach. We are currently evaluating the impact of this accounting guidance on our consolidated financial statements and have not yet determined which transition method we will apply.

~~NVIDIA CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

Note 2 - Stock-Based Compensation

Our stock-based compensation expense is associated with stock options, restricted stock units, or RSUs, performance stock units that are based on our corporate financial performance targets, or PSUs, performance stock units that are based on market conditions, or market-based PSUs, and our employee stock purchase plan, or ESPP.

~~We estimate the fair value~~Our Condensed Consolidated Statements of employee stock options on the date of grant using a binomial model and recognize the expense using a straight-line attribution method over the requisite employee service period. We use the closing trading price of our common stock on the date of grant, minus a dividend yield discount, as the fair value of awards of RSUs and PSUs, and we use a Monte Carlo simulation on the date of grant to estimate the fair value of market-based PSUs. We use a Black-Scholes valuation at the commencement of an offering period in March and September of each year to estimate the fair value of the shares to be issued under our ESPP.

Stock-based compensation expense for stock options, RSUs and market-based PSUs is recognized using a straight-line attribution method over the requisite employee service period, while compensation expense for PSUs and ESPP is recognized using an accelerated amortization model.

~~Our condensed consolidated statements of income~~Income include stock-based compensation expense, net of amounts capitalized as inventory, as follows:


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	October 25, 2015		October 26, 2014		October 25, 2015		October 26, 2014		July 31, 2016		July 26, 2015		July 31, 2016		July 26, 2015
	(In millions)								(In millions)
Cost of revenue	$	4	$	4	$	10	$	8	$	4	$	3	$	8	$	6
Research and development	28		22		82		65		30		27		59		54
Sales, general and administrative	19		16		53		42		24		17		44		33
Total	$	51	$	42	$	145	$	115	$	58	$	47	$	111	$	93

~~Equity Award Activity~~

~~The following summarizes the stock option, RSU, PSU and market-based PSU activity under our equity incentive plans:~~

Awards Outstanding Weighted Average Exercise Price
Stock Options (In millions) (Per share)
Balances, January 25, 2015 21
$14.61
Granted —
—
Exercised (6 ) $14.48
Cancelled —
—
Balances, October 25, 2015 15
$14.55

Awards Outstanding Weighted Average Grant-Date Fair Value
RSUs, PSUs and Market-based PSUs (In millions) (Per share)
Balances, January 25, 2015 23
$15.94
Granted (1) (2) 13
$21.61
Vested (8 ) $15.53
Cancelled (2 ) $16.40
Balances, October 25, 2015 26
$18.84

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Equity Award Activity

The following is a summary of our equity award transactions under our equity incentive plans:



	RSUs, PSUs and Market-based PSUs Outstanding				Options Outstanding
	Number of Shares		Weighted Average Grant-Date Fair Value Per Share		Number of Shares		Weighted Average Exercise Price Per Share
	(In millions, except per share data)
Balances, January 31, 2016	26		$	19.12	13		$	14.49
Granted (1) (2)	4		$	33.80	—		$	—
Exercised	—		$	—	(3	)	$	14.26
Vested restricted stock	(4	)	$	16.68	—		$	—
Canceled and forfeited	—		$	—	—		$	—
Balances, July 31, 2016	26		$	21.89	10		$	14.57

(1)

Includes ~~the total~~ PSUs that ~~become~~will be issued and eligible to vest if the corporate financial performance maximum target level for fiscal year ~~2016~~2017 is achieved. ~~Using an estimate for~~Depending on the actual level of achievement of the corporate performance target at the end of fiscal year ~~2016, we are estimating~~2017, the PSUs ~~that become eligible to vest for fiscal year 2016 performance to be in the~~issued could range offrom 0 to 2 million shares. ~~We granted PSUs during the first quarter of fiscal year 2016 to our CEO and senior management as approved by our Compensation Committee.~~

(2)

Includes ~~the~~ market-based PSUs that ~~become~~will be issued and eligible to vest if the maximum target for total shareholder return, or TSR, over the 3-year measurement period is achieved. Depending on the ranking of our TSR compared to the respective TSRs of the companies comprising the Standard & Poor’s 500 Index during a 3-year measurement period, the market-based PSUs ~~that become eligible to vest~~issued could range from 0 to ~~0.4~~0.3 million shares. ~~We granted market-based PSUs during the first quarter of fiscal year 2016 to our CEO and senior management as approved by our Compensation Committee.~~

Of the total fair value of equity awards granted during the three and ~~nine~~six months ended ~~October 25,~~July 31, 2016, the stock-based compensation expense related to equity awards that are not expected to vest was $5 million and $17 million, respectively. Of the total fair value of equity awards granted during the three and six months ended July 26, 2015, the stock-based compensation expense related to equity awards that are not expected to vest was ~~$34~~$2 million and $43 million, respectively. Of the total fair value of equity awards granted during the three and nine months ended October 26, 2014, the stock-based compensation expense related to equity awards that are not expected to vest was $28 million and $35$8 million, respectively.

The following summarizes the aggregate unearned stock-based compensation expense and estimated weighted average amortization period as of ~~October 25, 2015~~July 31, 2016 and January ~~25, 2015:~~31, 2016:


	October 25,	January 25,	July 31,		January 31,
	2015	2015	2016		2016
	(In millions)		(In millions)
Aggregate unearned stock-based compensation expense	$420	$291	$	392	$	381

Estimated weighted average amortization period	(In years)		(In years)
Stock options	1.3	1.8	0.8		1.1
RSUs, PSUs and market-based PSUs	3.0	2.8	2.6		2.7
ESPP	0.8	0.5	0.6		0.7

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 3 – Net Income Per Share

The following is a reconciliation of the numerator and denominator of the basic and diluted net income per share computations for the periods presented:

Three Months Ended Nine Months Ended
October 25, October 26, October 25, October 26,
2015 2014 2015 2014
(In millions, except per share data)
Numerator:
Net income $ 246
$ 173
$ 406
$ 437
Denominator:

Denominator for basic net income per share, weighted average shares 542
548
544
555
Effect of dilutive securities:

Equity awards outstanding 13
10
13
11
Assumed conversion of 1% Convertible Senior Notes Due 2018 10
—
6
—
Denominator for diluted net income per share, weighted average shares 565
558
563
566
Net income per share:

Basic net income per share $ 0.45
$ 0.32
$ 0.75
$ 0.79
Diluted net income per share $ 0.44
$ 0.31
$ 0.72
$ 0.77
Potentially dilutive equity awards excluded from diluted net income per share because their effect would have been anti-dilutive 9
11
13
16



	Three Months Ended				Six Months Ended
	July 31,		July 26,		July 31,		July 26,
	2016		2015		2016		2015
	(In millions, except per share data)
Numerator:
Net income	$	253	$	26	$	449	$	160
Denominator:
Basic weighted average shares	534		541		536		545
Dilutive impact of outstanding securities:
Equity awards outstanding	23		11		20		13
1% Convertible Senior Notes	43		4		37		5
Warrants issued with the Notes	31		—		24		—
Diluted weighted average shares	631		556		617		563
Net income per share:
Basic (1)	$	0.47	$	0.05	$	0.84	$	0.29
Diluted (2)	$	0.40	$	0.05	$	0.73	$	0.28
Equity awards excluded from diluted net income per share because their effect would have been anti-dilutive	—		1		4		4


(1)	Calculated as net income divided by basic weighted average shares.


(2)	Calculated as net income divided by diluted weighted average shares.

The 1.00% Convertible Senior Notes, or the Notes, are included in the calculation of diluted net income per ~~share if their inclusion is dilutive.~~share. The Notes ~~will generally~~ have a dilutive impact on net income per share if our average stock price for the reporting period exceeds the adjusted conversion price of ~~$20.1630~~$20.0877 per share. The Warrants outstanding are included in the calculation of diluted net income per share. The Warrants have a dilutive impact on net income per share if our average stock price for the quarter exceeds the adjusted strike price of $27.0411 per share. For the three and ~~nine~~six months ended ~~October 25, 2015,~~July 31, 2016, our average stock price ~~for~~was $46.57 and $39.69, respectively, which exceeded both the ~~reporting periods exceeded~~adjusted conversion price and the ~~conversion~~adjusted strike price, causing the Notes and the Warrants to have a dilutive impact for these periods.

The denominator for diluted net income per share does not include any effect from the convertible note hedge ~~transaction,~~transactions, or the Note Hedges, that we entered into concurrently with the issuance of the Notes, as its effect would be anti-dilutive. In the event ~~an actual~~of conversion ~~of any or all~~ of the Notes, ~~occurs,~~ the shares ~~that would be~~ delivered to us under the Note Hedges ~~are designed to neutralize~~will offset the dilutive effect of the shares that we would issue under the Notes.

The denominator for diluted net income per share will not include any effect from the warrants, which we entered into concurrently with the issuance of the Notes, unless our average stock price for the reporting period exceeds the strike price of $27.1119 per share.

Please refer to Note 11 of these Notes to Condensed Consolidated Financial Statements for additional discussion regarding the Notes.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 4 – Income Taxes

We recognized income tax ~~benefit~~expense of $1$64 million and $109 million for the three and six months ended ~~October 25, 2015~~July 31, 2016, respectively, and ~~income tax expense of $83 million, $36~~$46 million and ~~$90~~$84 million for the ~~nine~~three and six months ended ~~October 25,~~July 26, 2015, respectively. Our effective tax rate was 20.3% and ~~three and nine months ended October 26, 2014, respectively. Income tax benefit as a percentage of income before tax was 0.5%~~19.6% for the three and six months ended ~~October 25, 2015~~July 31, 2016, respectively, and ~~income tax expense as a percentage of income before tax was 16.9%, 17.3%~~64.0% and ~~17.0% for the nine months ended October 25, 2015 and three and nine months ended October 26, 2014, respectively.~~

~~Our income tax benefit~~34.3% for the three and six months ended ~~October 25,~~July 26, 2015, included a tax benefit of $49 million from a tax reserve release related to our Icera modem operations upon the expiration of applicable statutes of limitations. In addition to this benefit, our income tax expense for the nine months ended October 25, 2015 also included a $27 million charge for the write-down of a deferred tax asset related to our Icera modem operations, partially offset by the tax benefit related to restructuring and other charges.respectively.

The decrease in our effective tax rate in the three and six months ended ~~October 25, 2015 as~~July 31, 2016 compared to the same ~~period~~periods in the prior fiscal year was primarily due to the absence of tax-related restructuring charges recorded in the three months ended July 26, 2015, the favorable ~~impact~~benefit of the ~~benefit from the expiration of the applicable statutes of limitations, partially~~U.S. federal research tax credit, which was permanently re-enacted in December 2015, and lower permanent tax differences related to stock-based compensation, partly offset by an increase in the amount of earnings subject to U.S. tax.

Our effective tax rate for the ~~nine~~six months ended ~~October 25, 2015~~July 31, 2016 of ~~16.9%~~19.6% was lower than the U.S. federal statutory rate of 35% due primarily to income earned in jurisdictions where the tax rate is lower than the U.S. federal statutory tax rate, the benefit of the U.S. federal research tax credit and ~~certain~~ discrete events ~~including~~that occurred during the six months ended July 31, 2016 primarily attributable to tax ~~benefit~~benefits recognized upon the expiration of ~~the applicable~~ statutes of limitations ~~and other~~in certain non-U.S. jurisdictions.

During the three months ended July 31, 2016, we reduced certain unrecognized tax benefits related to various U.S. state income tax positions by $48 million as the ~~Icera modem operations, partially offset by~~state of California settled its review of our fiscal years 2011 and 2012. As a result, we recognized a $13 million state tax benefit, net of the ~~write-down~~agreed settlement, in the form of a deferred tax asset ~~related~~that is subject to ~~Icera.~~

~~Our effective tax rate for~~a full valuation allowance. For the ~~nine~~six months ended October 26, 2014 of 17.0% was lower than the U.S. federal statutory rate of 35% due primarily to income earned in jurisdictions where the tax rate is lower than the U.S. federal statutory tax rate and favorable discrete events primarily attributable to the tax benefit recognized upon the expiration of applicable statutes of limitations.

~~For the nine months ended October 25, 2015,~~July 31, 2016, there have been no ~~material~~other significant changes to our tax years that remain subject to ~~examination~~review by major tax jurisdictions. ~~Additionally,~~Further, there have been no other ~~material~~significant changes to our unrecognized tax benefits and any related interest or penalties since the fiscal year ended January ~~25, 2015,~~31, 2016, other than the closure of our aforementioned state income tax position and the recognition of tax benefits upon the expiration of ~~applicable~~ statutes of limitations in certain non-U.S. jurisdictions in the ~~nine~~six months ended ~~October 25, 2015.~~July 31, 2016.

While we believe that we have adequately provided for all uncertain tax positions, or tax positions where we believe it is not more-likely-than-not that the position will be sustained upon ~~examination,~~review, amounts asserted by tax authorities could be greater or less than our accrued position. Accordingly, our provisions on federal, state and foreign tax related matters to be recorded in the future may change as revised estimates are made or the underlying matters are settled or otherwise resolved with the respective tax authorities. As of ~~October 25, 2015,~~July 31, 2016, we do not believe that our estimates, as otherwise provided for, on such tax positions will significantly increase or decrease within the next twelve months.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 5 - Marketable Securities

All of our cash equivalents and marketable securities are classified as “available-for-sale” securities. These securities are reported at fair value with the related unrealized gains and losses included in accumulated other comprehensive income (loss), a component of shareholders’ equity, net of tax, and net realized gains and losses recorded in other income and expense, net, on the Condensed Consolidated Statements of Income.

We performed an impairment review of our investment portfolio as of ~~October 25, 2015.~~July 31, 2016. Based on our quarterly impairment review, we concluded that our investments were appropriately valued and that no other-than-temporary impairment charges were necessary on our portfolio of available-for-sale investments as of ~~October 25, 2015.~~July 31, 2016.

The following is a summary of cash equivalents and marketable securities ~~at October 25, 2015~~as of July 31, 2016 and January ~~25, 2015:~~31, 2016:


	October 25, 2015									July 31, 2016
	Amortized Cost		Unrealized Gain		Unrealized Loss			Estimated Fair Value		Amortized Cost		Unrealized Gain		Unrealized Loss			Estimated Fair Value
	(In millions)									(In millions)
Corporate debt securities	$	1,975	$	2	$	(2	)	$	1,975	$	1,972	$	5	$	(1	)	$	1,976
Debt securities of U.S. government agencies	994		1		—			995
Debt securities issued by the U.S. Treasury	554		1		—			555
Debt securities of United States government agencies										1,046		2		—			1,048
Debt securities issued by United States Treasury										809		3		—			812
Asset-backed securities	472		—		—			472		369		1		—			370
Mortgage-backed securities issued by U.S. government-sponsored enterprises	240		4		(1		)	243
Mortgage-backed securities issued by United States government-sponsored enterprises										175		3		(1		)	177
Foreign government bonds	83		—		—			83		80		—		—			80
Money market funds	30		—		—			30		47		—		—			47
Total	$	4,348	$	8	$	(3	)	$	4,353	$	4,498	$	14	$	(2	)	$	4,510
Classified as:
Cash equivalents								$	96								$	57
Marketable securities								4,257									4,453
Total								$	4,353								$	4,510


	January 25, 2015									January 31, 2016
	Amortized Cost		Unrealized Gain		Unrealized Loss			Estimated Fair Value		Amortized Cost		Unrealized Gain		Unrealized Loss			Estimated Fair Value
	(In millions)									(In millions)
Corporate debt securities	$	2,185	$	2	$	(1	)	$	2,186	$	1,903	$	1	$	(3	)	$	1,901
Debt securities of U.S. government agencies	750		1		(1		)	750
Debt securities issued by the U.S. Treasury	534		3		—			537
Debt securities of United States government agencies										1,170		1		(1		)	1,170
Debt securities issued by United States Treasury										800		1		—			801
Asset-backed securities	453		—		—			453		435		—		—			435
Mortgage-backed securities issued by U.S. government-sponsored enterprises	274		5		(1		)	278
Mortgage-backed securities issued by United States government-sponsored enterprises										229		3		(1		)	231
Foreign government bonds	85		—		—			85		92		—		—			92
Money market funds	132		—		—			132		43		—		—			43
Total	$	4,413	$	11	$	(3	)	$	4,421	$	4,672	$	6	$	(5	)	$	4,673
Classified as:
Cash equivalents								$	295								$	232
Marketable securities								4,126									4,441
Total								$	4,421								$	4,673

The following table provides the breakdown of the investments with unrealized losses ~~at October 25, 2015:~~as of July 31, 2016:

Less than 12 months 12 months or greater Total
Fair Value
Gross
Unrealized
Losses
Fair Value
Gross
Unrealized
Losses
Fair Value
Gross
Unrealized
Losses
(In millions)
Corporate debt securities $ 798
$ (2 ) $ 54
$ —
$ 852
$ (2 )
Mortgage-backed securities issued by U.S. government-sponsored enterprises 73
(1 ) 26
—
99
(1 )
Total $ 871
$ (3 ) $ 80
$ —
$ 951
$ (3 )



	Less than 12 months				12 months or greater				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(In millions)
Corporate debt securities	$	263	$	1	$	98	$	—	$	361	$	1
Mortgage-backed securities issued by United States government-sponsored enterprises	54		1		31		—		85		1
	$	317	$	2	$	129	$	—	$	446	$	2

The gross unrealized losses as of July 31, 2016 related to fixed income securities ~~were~~ due to changes in interest ~~rates. We have determined that the gross unrealized losses on investment securities at October 25, 2015~~rates and are temporary in nature. ~~Currently, we~~We have the intent and ability to hold our investments with impairment indicators until maturity.

The amortized cost and estimated fair value of cash equivalents and marketable securities, which are primarily debt instruments, are classified as available-for-sale ~~at October 25, 2015~~as of July 31, 2016 and January ~~25, 2015~~31, 2016 and are shown below by contractual maturity:


	October 25, 2015				January 25, 2015				July 31, 2016				January 31, 2016
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	(In millions)								(In millions)
Less than 1 year	$	1,453	$	1,454	$	1,570	$	1,571	$	1,846	$	1,847	$	1,619	$	1,619
Due in 1 - 5 years	2,811		2,815		2,720		2,726		2,591		2,601		3,019		3,020
Mortgage-backed securities issued by government-sponsored enterprises not due at a single maturity date	84		84		123		124
Mortgage-backed securities issued by United States government-sponsored enterprises not due at a single maturity date									61		62		34		34
Total	$	4,348	$	4,353	$	4,413	$	4,421	$	4,498	$	4,510	$	4,672	$	4,673

Net realized ~~gains~~losses were not significant for the three and six months ended ~~October 25, 2015~~July 31, 2016 and for the three ~~and nine~~ months ended ~~October~~July 26, ~~2014.~~2015. Net realized gains were $3 million for the ~~nine~~six months ended ~~October 25,~~July 26, 2015.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 6 – Fair Value of Financial Assets and Liabilities

We measure our cash equivalents, ~~and~~ marketable securities, and interest rate swap at fair ~~value. The fair values of our financial assets and liabilities are determined~~value using quoted market prices of identical assets or ~~quoted market prices of~~ similar assets from active markets. Our Level 1 assets consist of our money market funds. We classify securities within Level 1 assets when the fair value is obtained from real time quotes for transactions in active exchange markets involving identical assets. Our available-for-sale securities are classified as having Level 2 inputs. Our Level 2 assets are valued utilizing a market approach where the market prices of similar assets are provided by a variety of independent industry standard data providers to our investment custodian. We review the fair value hierarchy classification on a quarterly basis. ~~Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.~~ There were no significant transfers between Levels 1 and 2 assets or liabilities for the three ~~and nine~~ months ended ~~October 25, 2015.~~July 31, 2016, and we did not have any investments or liabilities classified as Level 3 as of July 31, 2016.


		Fair Value at					Fair Value at
	Pricing Category	October 25, 2015		January 25, 2015		Pricing Category	July 31, 2016		January 31, 2016
		(In millions)					(In millions)
Assets
Cash equivalents and Marketable securities
Cash equivalents and marketable securities:
Corporate debt securities (1)	Level 2	$	1,975	$	2,186	Level 2	$	1,976	$	1,901
Debt securities of U.S. government agencies (2)	Level 2	$	995	$	750
Debt securities issued by the U.S. Treasury (3)	Level 2	$	555	$	537
Debt securities of United States government agencies (2)						Level 2	$	1,048	$	1,170
Debt securities issued by United States Treasury (3)						Level 2	$	812	$	801
Asset-backed securities ~~(4)~~(3)	Level 2	$	472	$	453	Level 2	$	370	$	435
Mortgage-backed securities issued by government-sponsored enterprises (3)	Level 2	$	243	$	278
Mortgage-backed securities issued by United States government-sponsored enterprises (3)						Level 2	$	177	$	231
Foreign government bonds (3)	Level 2	$	83	$	85	Level 2	$	80	$	92
Money market funds ~~(5)~~(4)	Level 1	$	30	$	132	Level 1	$	47	$	43

Liabilities
Other noncurrent liabilities
Current liability:
1.00% Convertible Senior Notes (5)						Level 2	$	4,239	$	2,273
Other noncurrent liability:
Interest rate swap (6)	Level 2	$	3	$	—	Level 2	$	12	$	7
1.00% Convertible Senior Notes Due 2018 (7)	Level 2	$	2,198	$	1,680


(1)	~~Includes $51~~Included $5 million and ~~$147~~$51 million in cash equivalents as of ~~October 25, 2015~~July 31, 2016 and January ~~25, 2015,~~31, 2016, respectively, and ~~$1.9~~$1.97 billion and ~~$2.0~~$1.85 billion in marketable securities as of ~~October 25, 2015~~July 31, 2016 and January ~~25, 2015,~~31, 2016, respectively, on the Condensed Consolidated Balance Sheets.


(2)	~~Includes $14~~Included $5 million and ~~$15~~$90 million in cash equivalents as of ~~October 25, 2015~~July 31, 2016 and January ~~25, 2015,~~31, 2016, respectively, and ~~$981 million~~$1.04 billion and ~~$735 million~~$1.08 billion in marketable securities as of ~~October 25, 2015~~July 31, 2016 and January ~~25, 2015,~~31, 2016, respectively, on the Condensed Consolidated Balance Sheets.


(3)	InReported in marketable securities on the Condensed Consolidated Balance Sheets.


(4)	~~Includes $1 million~~Reported in cash equivalents ~~as of October 25, 2015 and $471 million and $453 million in marketable securities as of October 25, 2015 and January 25, 2015, respectively,~~ on the Condensed Consolidated Balance Sheets.


(5)	~~In cash equivalents~~The Notes are carried on ~~the~~our Condensed Consolidated Balance ~~Sheets.~~Sheets at their original issuance value, net of unamortized debt discount, and are not marked to fair value each period. See Note 11 of these Notes to Condensed Consolidated Financial Statements for additional information on the Notes.


(6)	Please refer to Note 9 of these Notes to Condensed Consolidated Financial Statements for a discussion regarding our interest rate swap.

(7) The Notes are carried on our Condensed Consolidated Balance Sheets at their original issuance value, net of unamortized debt discount, and are not marked to fair value each period. See Note 11 for additional information on the Notes.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 7 - Amortizable Intangible Assets

The components of our amortizable intangible assets are as follows:


	October 25, 2015							January 25, 2015							July 31, 2016							January 31, 2016
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	(In millions)														(In millions)
Acquisition-related intangible assets	$	193	$	(148	)	$	45	$	189	$	(134	)	$	55	$	193	$	(160	)	$	33	$	193	$	(152	)	$	41
Patents and licensed technology	451		(324		)	127		449		(282		)	167		469		(364		)	105		462		(337		)	125
Total intangible assets	$	644	$	(472	)	$	172	$	638	$	(416	)	$	222	$	662	$	(524	)	$	138	$	655	$	(489	)	$	166

Amortization expense associated with intangible assets was $18 million and ~~$56~~$35 million for the three and ~~nine~~six months ended ~~October 25, 2015,~~July 31, 2016, respectively, and $19 million and ~~$58~~$38 million for the three and ~~nine~~six months ended ~~October~~July 26, ~~2014,~~2015, respectively. Future amortization expense related to the net carrying amount of intangible assets ~~at October 25, 2015~~as of July 31, 2016 is estimated to be ~~$19~~$34 million for the remainder of fiscal year ~~2016, $63 million in fiscal year~~ 2017, ~~$50~~$54 million in fiscal year 2018, ~~$22~~$26 million in fiscal year 2019, ~~$13~~$16 million in fiscal year 2020, ~~and a total of $5~~$7 million in fiscal year 2021 and a total of $1 million in fiscal year 2022 and beyond.

~~NVIDIA CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

Note 8 - Balance Sheet Components

Certain balance sheet components are as follows:


	October 25,		January 25,		July 31,		January 31,
	2015		2015		2016		2016
Inventories:	(In millions)				(In millions)
Raw materials	$	117	$	157	$	133	$	105
Work in-process	91		92		143		103
Finished goods	217		234		245		210
Total inventories	$	425	$	483	$	521	$	418

~~At October 25, 2015,~~As of July 31, 2016, we had outstanding inventory purchase obligations totaling ~~$442~~$826 million.


	October 25,		January 25,		July 31,		January 31,
	2015		2015		2016		2016
Accrued and Other Current Liabilities:	(In millions)				(In millions)
Unearned revenue (1)	$	229	$	296
Deferred revenue					$	251	$	322
Customer related liabilities ~~(2)~~(1)	151		143		144		160
Accrued payroll and related expenses	98		112		90		79
Accrued restructuring and other charges (2)					15		23
Professional service fees	24		17		14		23
Accrued restructuring and other charges (3)	15		—
Warranty accrual ~~(4)~~(3)	13		8		8		11
Taxes payable	7		3
Income taxes payable					6		2
Contributions payable					4		3
Coupon interest on Notes	6		3		3		3
Facilities related liabilities	1		8
Other	16		13		21		16
Total accrued and other current liabilities	$	560	$	603	$	556	$	642


~~(1)~~	~~Unearned revenue primarily includes deferred revenue.~~


~~(2)~~	Customer related liabilities primarily includes accrued customer programs. Please refer to Note 1 of the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended January 25, 2015, for a discussion regarding the nature of accrued customer programs and their accounting treatment related to our revenue recognition policies and estimates.


~~(3)~~	~~Please refer to Note 15 of these Notes to Condensed Consolidated Financial Statements for a discussion regarding the accrued restructuring and other charges.~~


~~(4)~~	~~Please refer to Note 10 of these Notes to Condensed Consolidated Financial Statements for a discussion regarding the warranty accrual.~~

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)


(1)	Customer related liabilities include accrued customer programs, such as rebates and marketing development funds.


(2)	Please refer to Note 15 of these Notes to Condensed Consolidated Financial Statements for a discussion regarding restructuring and other charges.


(3)	Please refer to Note 10 of these Notes to Condensed Consolidated Financial Statements for a discussion regarding warranties.


	October 25,		January 25,		July 31,		January 31,
	2015		2015		2016		2016
Other Long-Term Liabilities:	(In millions)				(In millions)
Deferred income tax liability	$	325	$	232	$	372	$	301
Income taxes payable	76		121		80		78
Asset retirement obligation	7		7
Contributions payable					14		13
Interest rate swap (1)	3		—		12		7
Deferred revenue (2)	1		108		1		44
Other	25		21		15		10
Total other long-term liabilities	$	437	$	489	$	494	$	453


(1)	Please refer to Note 9 of these Notes to Condensed Consolidated Financial Statements for a discussion regarding our interest rate swap.

(2) Consists primarily of consideration received in advance of our performance obligations under the patent cross licensing agreement that we entered into with Intel Corporation in January 2011. The decrease in deferred revenue, long-term, is a result of revenue recognized during the nine months ended October 25, 2015.


(2)	Deferred revenue under our patent cross licensing agreement with Intel Corporation is now located in short term deferred revenue as less than twelve months remains on the agreement.

Note 9 - Derivative Financial ~~Instrument~~Instruments

In August 2015 we entered into an interest rate swap for a portion of the operating lease financing arrangement for our new headquarters building ~~which~~that entitles us to pay amounts based on a fixed interest rate in exchange for receipt of amounts based on variable interest rates. The objective of this interest rate swap is to mitigate variability in the benchmark interest rate on the first $200 million of existing operating lease financing payments.

This interest rate swap is designated as a cash flow hedge, will have settlements beginning in the second quarter of fiscal year 2019, and will terminate in the fourth quarter of fiscal year 2023. Gains or losses on this swap are recorded in accumulated other comprehensive income (loss) and will subsequently be recorded in earnings at the point when the related operating lease financing expense begins to affect earnings or if ineffectiveness of the swap should occur.

~~A summary~~During the three and six months ended July 31, 2016, we entered into foreign currency forward contracts with a total U.S. dollar equivalent notional value of $61 million and $96 million, respectively, to mitigate the impact of foreign currency exchange rate movements on our operating expenses. We designate these contracts as cash flow hedges and assess the effectiveness of the ~~notional amount~~hedge relationships on a spot to spot basis. Gains or losses on the contracts are recorded in accumulated other comprehensive income (loss) and reclassified to operating expense when the related operating expenses are recognized in earnings or ineffectiveness should occur. The fair value of the ~~interest rate swap~~contracts as of July 31, 2016 was not significant.

During the three months ended July 31, 2016, we also entered into a foreign currency forward contract to mitigate the impact of foreign currency movements on monetary assets and liabilities that are denominated in currencies other than our reporting currency. This foreign currency forward contract had a total U.S. dollar equivalent notional value of $13 million and was not designated for hedge accounting treatment. Therefore, the change in fair value of this contract is recorded as a component of other income (expense), net, and offsets the change in fair value of the foreign currency denominated monetary assets and liabilities, which is also recorded in other income (expense), net.

Under the master netting agreements with the respective counterparties to our foreign currency forward contracts, we are allowed to net settle transactions with the same counterparty, subject to applicable requirements. However, we present our derivative assets and liabilities at their gross fair values on ~~the~~our Condensed Consolidated Balance ~~Sheets at October 25, 2015~~Sheets. We are not required to pledge, and ~~January 25, 2015 is as follows (in millions):~~are not entitled to receive, cash collateral related to these derivative instruments.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Notional Amount Fair Value Asset (Liability)
October 25, 2015 January 25, 2015 October 25, 2015 January 25, 2015
Cash Flow Hedge
Interest rate swap $ 200
$ —
$ (3 ) $ —

As of July 31, 2016, the maturities of the designated foreign currency forward contracts were three months or less.

We formally assess, both at inception and on an ongoing basis, whether ~~the interest rate swap is~~derivative financial instruments designated for hedge accounting treatment are highly effective. For the three and ~~nine~~six months ended ~~October 25, 2015, the interest rate swap was~~July 31, 2016, all derivative financial instruments designated for hedge accounting treatment were determined to be highly effective and there were no gains or losses associated with ineffectiveness.

~~The effect~~During the three and six months ended July 31, 2016, we recognized unrealized losses on derivative financial instruments designated for hedge accounting treatment of $3 million and $4 million, respectively, net of tax, in other comprehensive income.

We expect to realize all of the ~~interest rate swap on~~amounts deferred into accumulated other comprehensive income ~~is as follows (in millions):~~

October 25, 2015 January 25, 2015
Cash Flow Hedge
Gain (loss) on interest rate swap $ (3 ) $ —

~~Over~~(loss) related to foreign currency forward contracts within the next twelve ~~months,~~months. However, we do not expect to reclassify any amount from accumulated other comprehensive income ~~or loss~~(loss) into earnings related to ~~income~~the interest rate swap as the underlying operating lease financing payments for our new headquarters building will not start within the next twelve months.

~~NVIDIA CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

Note 10 - Guarantees

U.S. GAAP requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it assumes under that guarantee. In addition, U.S. GAAP requires disclosures about the guarantees that an entity has issued, including a tabular reconciliation of the changes of the entity’s product warranty liabilities.

Accrual for Product Warranty Liabilities

We record a reduction to revenue for estimated product returns at the time revenue is recognized primarily based on historical return rates. Cost of revenue includes the estimated cost of product warranties. Under limited circumstances, we may offer an extended limited warranty to customers for certain products. Additionally, we accrue for known warranty and indemnification issues if a loss is probable and can be reasonably estimated.

On July 31, 2015, we announced a voluntary recall and replacement of our SHIELD 8-inch tablets that were sold between July 2014 and July 2015. We have determined that the battery in these tablets can overheat, posing a fire hazard. The recall does not affect any other NVIDIA products. During the ~~nine~~twelve months ended ~~October 25, 2015,~~January 31, 2016, we recorded a ~~$21~~$26 million charge against cost of revenue to cover anticipated customer warranty, repair, return, replacement and other associated costs.

The estimated product returns and estimated product warranty liabilities as of, and for the ~~three~~six months and ~~nine~~twelve months ended ~~October 25, 2015~~July 31, 2016 and ~~October 26, 2014~~January 31, 2016, respectively, were as follows:


	Three Months Ended						Nine Months Ended
	October 25,			October 26,			October 25,			October 26,			July 31,			January 31,
	2015			2014			2015			2014			2016			2016
	(In millions)												(In millions)
Balance at beginning of period	$	28		$	8		$	8		$	8		$	11		$	8
Additions	—			1			22			4			1			27
Deductions	(15		)	(2		)	(17		)	(5		)	(4		)	(24		)
Balance at end of period	$	13		$	7		$	13		$	7		$	8		$	11

In connection with certain agreements that we have entered into in the past, we have ~~at times~~ provided indemnities to cover the indemnified party for matters such as tax, product, and employee liabilities. We have ~~also on occasion~~ included intellectual property indemnification provisions in our technology related agreements with third parties. Maximum potential future payments cannot be estimated because many of these agreements do not have a maximum stated liability. ~~As such, we~~We have not recorded any liability in our Condensed Consolidated Financial Statements for such indemnifications.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 11 - ~~Long-Term~~Convertible Debt

1.00 % Convertible Senior Notes Due 2018

On December 2, 2013, we issued $1.50 billion in Notes. The Notes are unsecured, unsubordinated obligations of the Company, which pay interest in cash semi-annually at a rate of 1.00% per annum. The Notes will mature on December 1, 2018 unless repurchased or converted ~~earlier in accordance with their terms~~ prior to such date. ~~Under the terms of the~~The Notes ~~they may be converted based on an initial conversion~~were initially convertible at a rate of 49.5958 shares of common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of $20.1630 per share of common stock)~~, subject~~. The conversion rate and conversion price are adjusted upon the occurrence of certain events, including our cash dividends or distributions exceeding $0.085 per share. Accordingly, as of July 31, 2016, the conversion rate has been adjusted to ~~adjustment as described in~~49.7818 shares of common stock per $1,000 principal amount of Notes (equivalent to an adjusted conversion price of $20.0877 per share of common stock) for dividend increases made to that date.

We separately accounted for the ~~indenture governing the Notes.~~

~~As of October 25, 2015, none of the conditions allowing holders~~liability and equity components of the Notes at issuance and the value assigned to ~~convert had been met. The determination of whether or not~~ the ~~Notes are convertible must be performed quarterly. If~~debt component was the ~~Notes become convertible at the option~~estimated fair value, as of the ~~holder,~~issuance date, of a similar debt without the ~~carrying value of the Notes would be classified as a current liability and the~~conversion feature. The difference between the ~~principal amount~~net cash proceeds and this estimated fair value represented the ~~carrying~~ value ofassigned to the ~~Notes would be reflected~~equity component and was recorded as ~~convertible~~a debt indiscount. The debt discount is amortized using the ~~mezzanine equity section on our Condensed Consolidated Balance Sheets.~~effective interest method from the origination date through its stated contractual maturity date.

The initial debt component of the Notes was valued at $1.35 billion based on the contractual cash flows discounted at an appropriate market rate for a non-convertible debt at the date of issuance, which was determined to be 3.15%. The initial carrying value of the permanent equity component reported in additional paid-in-capital was valued at $126 million and recorded as a debt discount. This amount, together with the $23 million purchaser's discount to the par value of the Notes, ~~represents~~represented the total unamortized debt discount of ~~$149~~$148 million we recorded at the time of issuance of the Notes. The aggregate debt discount is amortized as interest expense over the contractual term of the Notes using the effective interest method ~~and~~using an interest rate of 3.15%.

The following table presents the carrying ~~amounts~~value of the ~~liability and equity components:~~Notes:


	October 25,			January 25,			July 31,			January 31,
	2015			2015			2016			2016
	(In millions)						(In millions)
Amount of the equity component	$	126		$	126

1.00% Convertible Senior Notes Due 2018	$	1,500		$	1,500		$	1,500		$	1,500
Unamortized debt discount (1)	(94		)	(116		)	(72		)	(87		)
Net carrying amount	$	1,406		$	1,384		$	1,428		$	1,413

(1) As of ~~October 25, 2015,~~July 31, 2016, the remaining period over which the unamortized debt discount will be amortized ~~over a remaining period of 3.1~~is 2.3 years.

The following table presents interest expense for the contractual interest and the accretion of debt discount and issuance costs:


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	October 25,		October 26,		October 25,		October 26,		July 31,		July 26,		July 31,		July 26,
	2015		2014		2015		2014		2016		2015		2016		2015
	(In millions)								(In millions)
Contractual coupon interest expense	$	4	$	4	$	11	$	11	$	4	$	4	$	8	$	8
Amortization of debt discount and issuance costs	7		7		22		21		7		7		14		14
Total interest expense related to Notes	$	11	$	11	$	33	$	32	$	11	$	11	$	22	$	22

19NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Holders may convert all or any portion of their Notes at their option at any time prior to August 1, 2018 only under the following circumstances: (1) during any fiscal quarter (and only during such fiscal quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the measurement period) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. On or after August 1, 2018 to the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Notes regardless of the foregoing conditions.

The Notes first became convertible as of February 1, 2016. As of July 31, 2016, the Notes continued to be convertible at the holders’ option through October 30, 2016 as the price of our common stock was greater than or equal to 130% of the conversion price for at least 20 trading days during the 30 consecutive trading days ending on the last trading day of our fiscal quarter ended July 31, 2016. As such, the $1.43 billion carrying value of the Notes continued to be classified as a current liability and the $72 million difference between the principal amount and the carrying value of the Notes continued to be classified as convertible debt conversion obligation in the mezzanine equity section of our Condensed Consolidated Balance Sheet, and will remain there for as long as the Notes are convertible. The determination of whether or not the Notes are convertible must continue to be performed on a quarterly basis. Consequently, the Notes may be reclassified as long-term debt and the convertible debt conversion obligation may be reclassified within shareholders' equity if the conversion threshold is not met in future quarters.

Upon conversion of the Notes, we will pay cash up to the aggregate principal amount of the Notes. We may pay or deliver cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, in respect of the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the Notes being converted. Based on the closing price of our common stock on July 29, 2016 (the last trading day of the second quarter of fiscal year 2017) of $57.10, the if-converted value of our Notes exceeded their principal amount by approximately $2.76 billion.

During the three months ended July 31, 2016, an aggregate of $0.2 million in principal amount of the Notes was converted at the holders’ option, and we paid cash of $0.2 million and issued 5,446 shares of our common stock with respect to the conversion obligation in excess of the principal amount. We recognized an insignificant loss on extinguishment related to the conversions of the Notes for the three months ended July 31, 2016. As of July 31, 2016, the remaining aggregate principal amount of the Notes outstanding was $1,499.8 million. As of July 31, 2016, we had received conversion notices for an aggregate of $229 million in principal amount of the Notes plus an additional notice subsequent to July 31, 2016 for $200 million in principal amount of the Notes. Settlements of these conversion requests are expected to be completed in the third quarter of fiscal year 2017.

Note Hedges and Warrants

Concurrently with the issuance of the Notes, we entered into a convertible note hedge transaction, or the Note Hedges, with a strike price equal to the initial conversion price of the Notes, or $20.1630 per share. Adjusting for dividends paid through July 31, 2016, the strike price of the Note Hedges has been adjusted to $20.0877 per share. The Note Hedges allow us to receive shares of our common stock and/or cash related to the excess conversion value that we would deliver and/or pay, respectively, to the holders of the Notes upon conversion. Through July 31, 2016, we had received 5,446 shares of our common stock from the exercise of a portion of the Note Hedges related to the conversion of an aggregate of $0.2 million in principal amount of the Notes.

In addition, concurrent with the offering of the Notes and the purchase of the Note Hedges, we entered into a separate warrant transaction, or the Warrants, with an initial strike price to the holders of the Warrants of $27.1425 per share. Under the terms of the Warrants, the strike price is adjusted upon the occurrence of certain events, including our cash dividends or distributions that deviate from $0.085 per share. Accordingly, as of July 31, 2016, the strike price was adjusted to $27.0411 per share, reflecting adjustments for our dividend increases made to that date. The Warrants are net share settled and cover, subject to customary anti-dilution adjustments, 75 million shares of our common stock. As of July 31, 2016, the warrants had not been exercised and remained outstanding. The value of the warrants was initially recorded in equity and continues to be classified as equity.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 12 - Commitments and Contingencies

Operating Lease Financing Arrangement

In ~~the second quarter of~~ fiscal year 2016, we began to construct a new headquarters building in Santa Clara, California, which is currently targeted for completion in the fourth quarter of fiscal year 2018. We are financing this construction under an off-balance sheet, build-to-suit operating lease arrangement. As a part of this arrangement, we leased the real property we own where the building will be constructed under a 99 year ground lease to a syndicate of banks and concurrently leased back the building under a real property lease.

Under the real property lease, we pay rent, taxes, maintenance costs, utilities, insurance and other property related costs. The lease has an initial 7.5 year term expiring on December 19, 2022, consisting of an approximately 2.5 year construction period followed by a 5 year lease term. We have the option to renew this lease for up to three additional 5 year periods, subject to approval by the banks.

We will oversee the construction of the headquarters building. The banks have committed to fund up to $380 million of costs relating to construction. Advances will be made periodically to reimburse us for construction costs we incur. Once construction is complete, the lease balance will remain static at the completed cost for the remaining duration of the lease term. During construction, accrued interest will be capitalized into the lease balance. Following construction, we will pay rent in the form of interest. We have guaranteed the obligations under the lease held by our subsidiary.

During the term of the lease, we may elect to purchase the headquarters building for the amount of the banks’ investment in the building and any accrued but unpaid rent. At the end of the lease term, we may elect to buy the building for the outstanding balance on the maturity date or arrange for the cash sale of the building to an unaffiliated third party. The aggregate guarantee made by us under the lease is no more than 87.5% of the costs incurred in connection with the construction of the building. However, under certain default circumstances, the lease guarantee may be 100% of the banks’ investment in the building plus any and all accrued but unpaid interest and all other rent due and payable under the operative agreements.

The operative agreements are subject to customary default provisions, including, for example, those relating to payment and performance defaults, and events of bankruptcy. We are also subject to financial covenants including a covenant to maintain a maximum total leverage ratio not to exceed 3.0 to 1.0 and a minimum interest coverage ratio in excess of 3.5 to 1.0 during the term. If certain events of default occur and are continuing under the operative agreements, the banks may accelerate repayment of their investment under the lease.

Patent Infringement Cases

OnIn September 4, 2014, NVIDIA filed complaints against Qualcomm, Inc.~~, or Qualcomm,~~ and various Samsung entities in both the United States International Trade Commission, or ITC, and the United States District Court for the District of Delaware alleging infringement of ~~seven~~certain patents relating to graphics processing. In the ITC action, NVIDIA seeks to exclude importation of Samsung Galaxy mobile phones and tablets and other consumer electronics and display devices containing Qualcomm’s Adreno, ARM’s Mali or Imagination’s PowerVR graphics architectures, or the Accused Products. On October 6, 2014, the ITC instituted an investigation of NVIDIA’s claim. On February 2 and 3, 2015, the court conducted a claim construction hearing on certain claim language from five of the seven patents at issue. In June 2015, NVIDIA moved to terminate all asserted claims on four patents and these motions were granted. The ITC held an evidentiary hearing on certain asserted claims of the three remaining patents from June 22 through June 26, 2015. On October 9, 2015, the ITC Administrative Law Judge rendered an initial determination that importation of the Samsung Accused Products did not violate U.S. law. NVIDIA is currently seeking review of the decision by the full commission of the ITC. The commission will decide whether to review parts of the initial determination on or before December 14, 2015 and the target date for the final decision is February 10, 2016.

In the Delaware action, NVIDIA seeks unspecified damages for Samsung and Qualcomm’s alleged patent infringement. On October 22, 2014, Samsung and Qualcomm exercised their statutory right to stay the Delaware proceedings in light of the pending ITC action and the court granted the motion to stay on October 23, 2014.

~~NVIDIA CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

On November ~~10,~~ 2014, Samsung filed ~~a complaint~~complaints against NVIDIA in the ITC and ~~Velocity Micro, Inc., in~~ the United States District Court for the Eastern District of Virginia, alleging that NVIDIA infringed six patents and falsely advertised that the Tegra K1 processor is the world’s fastest mobile processor. Samsung amended its complaint twice, first on December 19, 2014, and then on April 10, 2015, without changing its legal claims. Samsung seeks monetary damages and certain ~~injunctive relief as to some of the asserted~~ patents. NVIDIA answered the second amended complaint on April 16, 2015, and asserted counter-claims against Samsung for infringing four of NVIDIA’s patents and for non-infringement and invalidity of the six patents asserted in Samsung’s second amended complaint. On April 24, 2015, Samsung moved to sever NVIDIA’s counter-claims for patent infringement and its motion was granted on May 19, 2015. NVIDIA voluntarily withdrew its counter-claims on May 19, 2015. On June 17, 2015, Velocity Micro, Inc. voluntarily agreed to a permanent injunction preventing it from infringing two of the asserted patents and those patents were dismissed from the case with prejudice. Samsung’s false advertising claim was dismissed with prejudice on July 30, 2015. On October 15, 2015, NVIDIA’s Motion for Entry of Judgment of Noninfringement was granted as to one of Samsung’s patents. Five patents currently asserted against NVIDIA remain and a jury trial is currently scheduled to begin January 19, 2016.

On November 23, 2014, Samsung filed a complaint against NVIDIA, among others, in the ITC claiming infringement of four United States patents and seeking an exclusion order barring importation of NVIDIA products alleged to infringe Samsung’s patents. On December 23, 2014, the ITC instituted an investigation of Samsung’s claims. On June 5, 2015, Samsung withdrew one patent from the case. A hearing on Samsung’s three remaining patents was held from August 18 through August 21, 2015. Post-hearing briefing is complete and the Administrative Law Judge is scheduled to issue his initial determination by December 22, 2015. The target date for the final determination by the ITC is April 22, 2016.

NVIDIA and Samsung, ~~have~~and NVIDIA and Qualcomm, also challenged the validity of certain of each other’s patents through inter partes review before the United States Patent and Trademark Office.

On April 28, 2016, NVIDIA ~~has~~and Samsung entered a binding memorandum of understanding which resolved all existing intellectual property disputes between the parties, and requires the immediate dismissal of all pending litigation between them. As a result of this agreement, on May 5, 2016, Samsung filed ~~eleven requests~~a Stipulation of Dismissal in the United States District Court for the Eastern District of Virginia. On May 11, 2016, NVIDIA voluntarily dismissed its petition to the United States Court of Appeals for the Federal Circuit to review the ITC’s decision in Investigation No. 337-TA-932. On May 12, 2016, NVIDIA voluntarily dismissed its Complaint in the United States District Court for the District of Delaware. On May 19, 2016, Samsung filed a Corrected Joint Motion to Terminate Investigation No. 337-TA-941. On June 16, 2016, the ITC granted the joint motion and terminated the ITC investigation. The parties have also moved to dismiss all pending inter partes ~~review~~reviews. Also as part of this agreement, NVIDIA and Samsung each received a license to a small number of patents of the other, but no portfolio license was granted nor was any compensation paid by either party. On June 28, 2016, NVIDIA and Samsung executed a settlement agreement based on ~~eight~~the April 28, 2016 memorandum of ~~Samsung’s asserted patents. Samsung has~~understanding.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NVIDIA’s dismissals on May 11, 2016 and May 12, 2016 also terminated its claims against Qualcomm.

In December 2015, Advanced Silicon Technologies LLC filed ~~six requests~~complaints in the ITC and the United States District Court for ~~inter partes review~~the District of Delaware alleging infringement of certain patents relating to graphics processing and memory management. NVIDIA and Advanced Silicon Technologies resolved this litigation on ~~six~~April 22, 2016 and NVIDIA agreed to license the patents asserted and other patents owned and controlled by Advanced Silicon Technologies and certain of its affiliates. On April 27, 2016, NVIDIA and ~~Qualcomm has filed three additional requests for inter partes review on two patents asserted by~~Advanced Silicon Technologies jointly moved to terminate the investigation as to NVIDIA. The ~~United States Patent~~Office of Unfair Import Investigations supported the motion, and ~~Trademark Office has,~~none of the other parties opposed it. On May 10, 2016, the Administrative Law Judge issued an Initial Determination granting the joint request to ~~date, decided~~terminate the investigation as to NVIDIA. On June 1, 2016, the ITC issued a Notice determining not to review the Administrative Law Judge’s determination, thereby finalizing termination of the investigation as to NVIDIA. Pursuant to the license agreement, $10 million was recorded as a charge to cost of revenue during the three ~~patents owned by NVIDIA, and three patents owned by Samsung. All other requests are currently pending.~~months ended May 1, 2016.

Accounting for Loss Contingencies

While there can be no assurance of favorable outcomes, we believe the claims made by other parties in the above ongoing matters are without merit and we intend to vigorously defend the actions. As of October 25, 2015, we have not recorded any accrual for contingent liabilities associated with the legal proceedings described above based on our belief that liabilities, while possible, are not probable. Further, any possible range of loss in these matters cannot be reasonably estimated at this time. We are engaged in other legal actions not described above arising in the ordinary course of its business and, while there can be no assurance of favorable outcomes, we believe that the ultimate outcome of these actions will not have a material adverse effect on our operating results, liquidity or financial position.

~~NVIDIA CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

Note 13 - Shareholders’ Equity

~~Share Repurchase~~Capital Return Program

Beginning August 2004, our Board of Directors authorized us, subject to certain specifications, to repurchase shares of our common stock. In May 2015, the Board extended the previously authorized repurchase program through December 2018 and authorized an additional $1.62 billion under the repurchase program.

In ~~May 2015~~March 2016, we entered into ~~a $400 million~~an accelerated share repurchase, or ASR, agreement with an investment bank, ~~that was completed in October 2015. Under the ASR,~~under which we ~~repurchased 18~~made an upfront payment of $500 million to purchase shares atof our common stock and received an ~~average price~~initial delivery of ~~$21.63 per share, of which 14~~12 million ~~shares were delivered in the second quarter of fiscal year 2016 and 4 million shares were delivered in the third quarter of fiscal year 2016.~~shares. The shares delivered resulted in a reduction, on the delivery date, of the outstanding shares used to calculate the weighted-average common shares outstanding for basic and diluted earnings per share. The ASR agreement was settled in July 2016 with a cash payment of $9 million to the investment bank. As a result, a total of 12 million shares were repurchased under the ASR transaction for $509 million, or an average price of $42.06 per share.

During the three and six months ended July 31, 2016, we also paid $62 million and $124 million, respectively, in cash dividends to our shareholders, equivalent to $0.1150 per share. As a result, we returned $71 million and $633 million to shareholders during the three and six months ended July 31, 2016, respectively, in the form of share repurchases and dividend payments.

Through ~~October 25, 2015,~~July 31, 2016, we have repurchased an aggregate of ~~226~~243 million shares under our share repurchase program for a total cost of ~~$3.72~~$4.36 billion. All shares delivered from these repurchases have been placed into treasury stock. As of ~~October 25, 2015,~~July 31, 2016, we were authorized, subject to certain specifications, to repurchase additional shares of our common stock up to ~~$1.60~~$0.96 billion.

~~Cash Dividends~~

~~During the three and nine months ended October 25, 2015, we paid $53 million and $152 million, respectively, in cash dividends~~We intend to return approximately $1.00 billion to our ~~common shareholders. These dividends were equivalent to $0.0975~~shareholders in fiscal year 2017 through a combination of share repurchases and cash dividends. We also declared on August 11, 2016 that we would pay our next quarterly cash dividend of $0.1150 per share ~~for the six months ended October~~on September 16, 2016, to all shareholders of record on August 25, ~~2015 and $0.085 per share for the three months ended April 26, 2015.~~2016.

Convertible Preferred Stock

~~There are~~As of July 31, 2016 and January 31, 2016, there were no shares of preferred stock outstanding.

Common Stock

We are authorized to issue up to 2.00 billion shares of our common stock at $0.001 per share par value.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 14 - Segment Information

Our Chief Executive Officer, who is considered to be our chief operating decision maker, or CODM, reviews financial information presented on an operating segment basis for purposes of making operating decisions and assessing financial performance. Our operating segments are equivalent to our reportable segments.

We report our business in two primary ~~reporting~~reportable segments - the GPU business and the Tegra Processor business - based on a ~~single~~unified underlying graphics architecture.

Our GPU product brands are aimed at specialized markets ~~include~~including GeForce for gamers; Quadro for designers; Tesla for researchers and analysts focused on artificial intelligence, deep learning and ~~big-data analysts;~~big-data; and GRID for cloud-based visual computing users.

~~We also integrate our GPUs into mobile chips called system-on-a-chip (SOC) processors, which power tablets, and automotive infotainment and safety systems.~~ Our Tegra brand integrates an entire computer onto a single chip, incorporating GPUs and multi-core CPUs ~~with audio, video~~aimed at online gaming and ~~input/output capabilities. They can also be integrated with baseband processors to add voice~~entertainment devices, as well as autonomous robots, drones and ~~data communication. Tegra conserves power while delivering state-of-the-art graphics and multimedia processing.~~cars.

We have a single unifying architecture for our GPU and Tegra Processors. This architecture unification leverages our visual computing expertise by charging the operating expenses of certain core engineering functions to the GPU business, while charging the Tegra Processor business for the incremental cost of the teams working directly for that business. In instances where the operating expenses of certain functions benefit both ~~reporting~~reportable segments, our CODM assigns 100% of those expenses to the ~~reporting~~reportable segment that benefits the most.

~~NVIDIA CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

The “All Other” category presented below represents the revenue and expenses that our CODM does not assign to either the GPU business or the Tegra Processor business for purposes of making operating decisions or assessing financial performance. The revenue includes primarily patent licensing revenue and the expenses include stock-based compensation expense, corporate infrastructure and support costs, ~~stock-based compensation~~acquisition-related costs, ~~amortization of acquisition-related intangible assets,~~restructuring and other ~~acquisition-related costs,~~charges, contributions, product warranty charge, ~~restructuring and other charges,~~legal settlement costs, and other non-recurring charges and benefits that our CODM deems to be enterprise in nature.

Our CODM does not review any information regarding total assets on a ~~reporting~~reportable segment basis. ~~Reporting~~Reportable segments do not record intersegment revenue, and, accordingly, there is none to be reported. The accounting policies for segment reporting are the same as for NVIDIA as a whole. The table below presents details of our reportable segments and the “All Other” category.

NVIDIA CORPORATION AND SUBSIDIARIES

GPU Tegra Processor All Other Consolidated
(In millions)
Three Months Ended October 25, 2015
Revenue $ 1,110
$ 129
$ 66
$ 1,305
Depreciation and amortization expenses $ 26
$ 11
$ 11
$ 48
Operating income (loss) $ 367
$ (65 ) $ (57 ) $ 245

Three Months Ended October 26, 2014

Revenue $ 991
$ 168
$ 66
$ 1,225
Depreciation and amortization expenses $ 29
$ 15
$ 12
$ 56
Operating income (loss) $ 294
$ (53 ) $ (28 ) $ 213

Nine Months Ended October 25, 2015

Revenue $ 3,009
$ 402
$ 198
$ 3,609
Depreciation and amortization expense $ 81
$ 36
$ 34
$ 151
Operating income (loss) $ 917
$ (164 ) $ (258 ) $ 495

Nine Months Ended October 26, 2014

Revenue $ 2,767
$ 466
$ 198
$ 3,431
Depreciation and amortization expense $ 88
$ 43
$ 35
$ 166
Operating income (loss) $ 770
$ (169 ) $ (73 ) $ 528
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Three Months Ended Nine Months Ended
October 25,
2015 October 26,
2014 October 25,
2015 October 26,
2014
(In millions)
Reconciling items included in "All Other" category:
Unallocated revenue $ 66
$ 66
$ 198
$ 198
Unallocated cost of revenue and operating expenses (60 ) (42 ) (181 ) (128 )
Stock-based compensation (51 ) (42 ) (145 ) (115 )
Acquisition-related costs (4 ) (10 ) (18 ) (28 )
Product warranty charge —
—
(15 ) —
Restructuring and other charges (8 ) —
(97 ) —
Total $ (57 ) $ (28 ) $ (258 ) $ (73 )



	GPU		Tegra Processor			All Other			Consolidated
	(In millions)
Three Months Ended July 31, 2016
Revenue	$	1,196	$	166		$	66		$	1,428
Depreciation and amortization expense	$	29	$	7		$	11		$	47
Operating income (loss)	$	379	$	(14	)	$	(48	)	$	317

Three Months Ended July 26, 2015
Revenue	$	959	$	128		$	66		$	1,153
Depreciation and amortization expense	$	27	$	11		$	11		$	49
Operating income (loss)	$	273	$	(41	)	$	(156	)	$	76

Six Months Ended July 31, 2016
Revenue	$	2,275	$	326		$	132		$	2,733
Depreciation and amortization expense	$	57	$	14		$	21		$	92
Operating income (loss)	$	727	$	(52	)	$	(114	)	$	561

Six Months Ended July 26, 2015
Revenue	$	1,899	$	273		$	132		$	2,304
Depreciation and amortization expense	$	55	$	26		$	22		$	103
Operating income (loss)	$	551	$	(99	)	$	(202	)	$	250



	Three Months Ended						Six Months Ended
	July 31, 2016			July 26, 2015			July 31, 2016			July 26, 2015
	(In millions)
Reconciling items included in "All Other" category:
Unallocated revenue	$	66		$	66		$	132		$	132
Stock-based compensation expense	(58		)	(47		)	(111		)	(93		)
Unallocated cost of revenue and operating expenses	(49		)	(67		)	(104		)	(124		)
Acquisition-related costs	(4		)	(4		)	(8		)	(13		)
Restructuring and other charges	(2		)	(89		)	(3		)	(89		)
Contributions	(1		)	—			(4		)	—
Product warranty charge	—			(15		)	—			(15		)
Legal settlement costs	—			—			(16		)	—
Total	$	(48	)	$	(156	)	$	(114	)	$	(202	)

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Revenue by geographic region is allocated to individual countries based on the location to which the products are initially billed even if our customers’ revenue is attributable to end customers that are located in a different location. The following table summarizes information pertaining to our revenue from customers based on invoicing address in different geographic regions:


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	October 25,		October 26,		October 25,		October 26,		July 31,		July 26,		July 31,		July 26,
	2015		2014		2015		2014		2016		2015		2016		2015
	(In millions)								(In millions)
Revenue:
Taiwan	$	515	$	406	$	1,348	$	1,109	$	505	$	445	$	949	$	832
China	229		238		583		714		256		181		504		354
United States									206		138		400		318
Other Asia Pacific	181		170		554		475		191		185		351		373
United States	156		215		474		595
Europe	116		96		341		263		167		106		323		225
Other Americas	108		100		309		275		103		98		206		202
Total revenue	$	1,305	$	1,225	$	3,609	$	3,431	$	1,428	$	1,153	$	2,733	$	2,304

The following table summarizes information pertaining to our revenue by each of the specialized markets we serve:



	Three Months Ended				Six Months Ended
	July 31,		July 26,		July 31,		July 26,
	2016		2015		2016		2015
	(In millions)
Revenue:
Gaming	$	781	$	660	$	1,468	$	1,247
Professional Visualization	214		176		403		357
Datacenter	151		72		294		160
Automotive	119		71		232		148
OEM & IP	163		174		336		392
Total revenue	$	1,428	$	1,153	$	2,733	$	2,304

Revenue from significant customers, those representing 10% or more of total revenue ~~aggregated approximately 10% of our total revenue from one customer~~ for the ~~three months ended October 25, 2015 and October 26, 2014.~~ respective dates, is summarized as follows:



	Three Months Ended				Six Months Ended
	July 31,		July 26,		July 31,		July 26,
	2016		2015		2016		2015
Revenue:
Customer A	10	%	13	%	11	%	11	%
Customer B	8	%	10	%	8	%	10	%

Revenue from ~~significant~~both customers ~~those representing 10% or more of total revenue, aggregated approximately 11% and 10% of our total revenue from one customer for~~was attributable to the ~~nine months ended October 25, 2015 and October 26, 2014, respectively.~~GPU business.

Accounts receivable from significant customers, those representing 10% or more of total accounts receivable, aggregated approximately 19% of our accounts receivable balance from one customer at October 25, 2015 and approximately 30% of our accounts receivable balance from two customers at January 25, 2015.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Accounts receivable from significant customers, those representing 10% or more of total accounts receivable for the respective periods, is summarized as follows:

Note 15 - Restructuring and Other Charges

~~The results of any remaining ongoing Icera modem operations are reported in the Tegra Processor reporting segment, however, restructuring and other charges associated with~~2016, we began the wind-down of ~~the~~our Icera modem operations are separately reported with other non-recurring charges and benefits that our CODM deems to be enterprise in nature. Please refer to Note 14 of these Notes to Condensed Consolidated Financial Statements for a discussion regarding our reporting segments.

operations. Our operating expenses for the three and ~~nine~~six months ended ~~October 25, 2015~~July 31, 2016 included $8$2 million and ~~$97~~$3 million, respectively, of restructuring and other charges. ~~Please refer to Note 4 of these Notes to Condensed Consolidated Financial Statements for a discussion regarding the income tax charges associated with the wind-down of Icera modem operations.~~

Three Months Ended Nine Months Ended
October 25, October 25,
2015 2015
(In millions)
Employee severance and related costs $ 2
$ 58
Tax subsidy impairment —
17
Fixed assets impairment 3
14
Facilities and related costs 2
4
Other exit costs 1
4
Restructuring and other charges $ 8
$ 97

We expect to incur additional restructuring charges to operating expense of $25 million to $35 million in the fourth quarter of fiscal year 2016. These restructuring activities will impact approximately 5% of our global workforce, and we expect them to be substantially completed by the end of fiscal year 2016. The following table provides a summary of the restructuring activities and related liabilities recorded in accrued liabilities on our Condensed Consolidated Balance Sheets as of ~~October 25, 2015:~~July 31, 2016 (in millions):


	Three Months Ended			Nine Months Ended
	October 25,			October 25,
	2015			2015
	(In millions)
Balance at beginning of period	$	18		$	—
Balance as of January 31, 2016							$	23
Restructuring and other charges	8			97			3
Cash payments	(7		)	(46		)	(12		)
Non-cash adjustments	(4		)	(36		)	1
Balance at end of period	$	15		$	15
Balance as of July 31, 2016							$	15

The majority of the remaining balance of $15 million as of ~~October 25, 2015~~July 31, 2016 is expected to be paid during ~~the fourth quarter of~~ fiscal year ~~2016.~~2017.

~~NVIDIA CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

~~Note 16 - Subsequent Event~~

On November 9, 2015, as part of our stock repurchase program, we entered into an ASR with an investment bank, under which we made an upfront payment of $135 million to purchase shares of our common stock and received an initial delivery of 3 million shares. Upon final settlement of the ASR, we may either (1) receive additional shares of our common stock, or (2) be required to deliver shares of our common stock or elect to make a cash payment to the investment bank, based on the terms and conditions under the ASR. The shares we receive result in a reduction, on the delivery date, of the outstanding shares used to calculate the weighted-average common shares outstanding for basic and diluted earnings per share.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor” created by those sections. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “goal,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential” and similar expressions intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance, time frames or achievements to be materially different from any future results, performance, time frames or achievements expressed or implied by the forward-looking statements. We discuss many of these risks, uncertainties and other factors in this Quarterly Report on Form 10-Q in greater detail under the heading “Risk Factors.” Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this filing. You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We hereby qualify our forward-looking statements by these cautionary statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

All references to “NVIDIA,” “we,” “us,” “our” or the “Company” mean NVIDIA Corporation and our subsidiaries, except where it is made clear that the term means only the parent company.

NVIDIA, the NVIDIA logo, GeForce, ~~GeForce Experience,~~Quadro, Tegra, Tesla, Ansel, GeForce NOW, ~~ICERA,~~Icera, Iray, ~~Maxwell,~~NVIDIA DGX-1, NVIDIA DRIVE, NVIDIA DesignWorks, NVIDIA GRID, NVIDIA SHIELD, ~~Pascal, Quadro, SHIELD, Tegra, Tesla,~~NVIDIA VRWorks, and ~~TITAN~~Pascal are trademarks and/or registered trademarks of NVIDIA Corporation in the United States and other countries. Other company and product names may be trademarks of the respective companies with which they are associated.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Item 6. Selected Financial Data” of our Annual Report on Form 10-K for the fiscal year ended January ~~25, 2015~~31, 2016 and “Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q and our Condensed Consolidated Financial Statements and related Notes thereto, as well as other cautionary statements and risks described elsewhere in this Quarterly Report on Form 10-Q, before deciding to purchase or sell shares of our common stock.

Overview

Our Company and Our Businesses

NVIDIA is ~~dedicated to advancing~~the world leader in visual ~~computing, enabling individuals to interact with digital ideas, data and entertainment with an ease and efficiency unmatched by any other communication medium.~~

Our business model involves creating NVIDIA-branded products and services, and offering our processors to original equipment manufacturers, or OEMs. NVIDIA’s products and services are built on three computing platforms - PC, Datacenter/Cloud, and Mobile, and address primarilycomputing. NVIDIA has transformed into a specialized platform company that targets four large ~~markets:~~markets - Gaming, Professional Visualization, Datacenter and ~~Automotive.~~Automotive - where visual computing is essential and valued.

Our two ~~business~~reportable segments - GPU and Tegra Processor - are based on a single underlying graphics architecture. ~~In addition~~From our proprietary processors, we have created platforms that address the four large markets where our visual computing expertise is critically important. We are focused on delivering value through PC, mobile and cloud architectures. Our vertical integration enables us to bring together hardware, system software, programmable algorithms, systems and services to create unique value for the ~~two reporting segments, the “All Other” category primarily includes licensing revenue from our patent cross licensing agreement with Intel, which~~markets we ~~expect to recognize through March 2017.~~serve.

~~GPUs, the engines of visual computing, are among the world's most complex processors.~~ Our GPU product brands are aimed at specialized markets ~~include~~including GeForce for gamers; Quadro for designers; Tesla for researchers and analysts focused on artificial intelligence, deep learning and ~~big-data analysts;~~big-data; and GRID for cloud-based visual computing users.

Headquartered in Santa Clara, California, NVIDIA was incorporated in California in April 1993 and reincorporated in Delaware in April 1998.

Recent Developments, Future Objectives and Challenges

~~GPU Business~~Second Quarter of Fiscal Year 2017 Summary



	Three Months Ended
	July 31, 2016			May 1, 2016			July 26, 2015			Q/Q		Y/Y
	(In millions, except per share data)
Revenue	$	1,428		$	1,305		$	1,153		9	%	24	%
Gross margin	57.9		%	57.5		%	55.0		%	40 bps		290 bps
Operating expenses	$	509		$	506		$	558		1	%	(9	)%
Income from operations	$	317		$	245		$	76		29	%	317	%
Net income	$	253		$	196		$	26		29	%	873	%
Net income per diluted share	$	0.40		$	0.33		$	0.05		21	%	700	%

~~During~~Revenue increased 24% in the ~~third~~second quarter of fiscal year 2017 to $1.43 billion. Growth was driven by GPUs for gaming, datacenter and professional visualization, as well as by Tegra automotive systems. GPU business revenue was $1.2 billion, up 25% from a year earlier and up 11% sequentially, reflecting strength in GeForce gaming GPU, datacenter, and professional visualization revenue. Tegra Processor business revenue of $166 million was up 30% year on year and up 4% sequentially, reflecting growth in Tegra automotive systems.

Gaming platform revenue for the second quarter of fiscal year 2017 was $781 million, up 18% from a year ago, driven by Pascal gaming GPU sales across all regions. Datacenter revenue, including Tesla and NVIDIA GRID, was $151 million, up 110% from a year earlier and up 6% sequentially, amid strong demand for GPU acceleration related to deep learning. Professional visualization revenue from Quadro was $214 million, up 22% year over year and up 13% sequentially. Automotive revenue from infotainment modules and product development contracts was $119 million, up 68% from a year earlier and up 5% sequentially.

Gross margin for the second quarter of fiscal year 2017 was 57.9%, reflecting the strength of our GeForce gaming GPUs, our platform approach, and demand for deep learning.

Operating expenses for the second quarter of fiscal year 2017 were $509 million, down 9% from a year earlier and up 1% sequentially. The year over year decrease was driven primarily by $89 million in restructuring and other charges we recorded in the second quarter of fiscal year 2016 ~~we unveiled~~associated with the wind-down of our ~~next generation virtualized graphics platform - NVIDIA GRID 2.0, which delivers graphics-intensive applications to connected devices. We also announced that Microsoft Azure is~~Icera operations. The sequential increase reflects headcount related costs from hiring for our growth initiatives and marketing expenses associated with the introduction of our new Pascal family of GPUs.

Income from operations for the second quarter of fiscal year 2017 was $317 million, up 317% from $76 million a year ago. Net income and net income per diluted share for the second quarter of fiscal year 2017 was $253 million and $0.40, respectively, increases of 873% and 700%, respectively. These year over year increases were primarily a result of revenue growing at a faster rate than operating expenses, gross margin improvements, and the $89 million in restructuring and other charges recorded in the year ago quarter.

During the first ~~cloud-services provider to integrate NVIDIA GRID 2.0 capabilities to enable GPU-acceleration~~half of fiscal year 2017, we paid $509 million for share repurchases and $124 million in cash dividends.

Cash, cash equivalents and marketable securities were $4.88 billion as of July 31, 2016, compared with $4.75 billion at the ~~cloud. During~~end of the prior quarter, ~~we launched~~as operating cash flow was partially offset by the ~~GeForce GTX 950~~ quarterly cash dividend.

GPU and enabled a new category of enthusiast-class gaming notebooks with the launch of GTX 980 for notebook. We also introduced NVIDIA GameWorks VR, a software development kit that enables professional designers to bring virtual reality to applications and creates more immersive gameplay on virtual reality-ready desktops and notebooks. Additionally, we announced that the Swiss Federal Office of Meteorology and Climatology was the first major national weather service to use a GPU-accelerated supercomputer to improve daily forecasts.Business

During the second quarter of fiscal year ~~2016,~~2017, we began shipping our Pascal architecture with a set of gaming GPUs: NVIDIA GeForce GTX 1080, 1070, 1060, and TITAN X, and released our ~~new GeForce GTX 980 Ti~~first game, NVIDIA VR Funhouse. For our datacenter platform, we introduced the Tesla M10 for virtualizing enterprise applications, introduced Tesla P100 GPU accelerators, delivering substantial performance and ~~we nearly doubled~~value compared with CPU-based systems, and unveiled our Inception Program, which provides access to NVIDIA technology and expertise to support the ~~users~~growth of ~~our GeForce Experience PC gaming platform from a year earlier. Additionally, we shipped cuDNN 3.0, which improves performance of~~startups in deep learning ~~training on GPUs.~~and data science. For our professional virtualization platform, we unveiled Quadro P6000 to power advanced workstations, enabling designers to complete complex designs and refreshed NVIDIA DesignWorks and NVIDIA VRWorks with new updates and software development kits.

During the first quarter of fiscal year ~~2016,~~2017, we launched GeForce GTX 1080 and GTX 1070, based on our new NVIDIA Pascal architecture, expanded the NVIDIA VRWorks software development kit, and introduced NVIDIA Ansel, an in-game photography tool. We also unveiled the NVIDIA Tesla P100 GPU, based on the Pascal architecture, and revealed the NVIDIA DGX-1 supercomputer in a box, a purpose-built system for deep learning. In addition, we launched the ~~GeForce GTX TITAN X, a GPU with twice the performance and double the power efficiency of its predecessor. We also introduced~~24GB Quadro M6000, ~~a powerful professional GPU and~~ the Quadro ~~Visual Computing Appliance, containing eight M6000 GPUs. Further, we introduced a roadmap~~M2000, new NVIDIA Iray physically-based rendering solutions for ~~physically based rendering, including~~the professional visualization markets, and unveiled Iray 2015 rendering software. During the quarter we also announced that our next-generation Pascal GPU architecture. This architecture is expected to accelerate deep learning applications faster than the current-generation Maxwell processors.VR, which creates interactive, photorealistic virtual 3D worlds.

Tegra Processor Business

During the third quarter of fiscal year 2016, we were featured in new production vehicles and concept cars with NVIDIA-powered digital cockpits, including Mercedes-Benz, Audi, Porsche, Bentley and Honda, at the International Auto Show in Frankfurt, Germany. We also furthered our partnership with Tesla Motors, which introduced the Model X equipped with an NVIDIA-powered infotainment system and digital instrument cluster. Additionally, we launched GeForce NOW, which allows players to stream video games from the cloud to their SHIELD devices, and we extended sales of our SHIELD Android TV device to key European markets.

~~During the~~ second quarter of fiscal year ~~2016,~~2017, we ~~launched the NVIDIA SHIELD Android TV device. For the automotive market, we are partnering~~initiated collaborative research in advanced self-driving technology with ~~more than 50 companies to use our NVIDIA DRIVE PX platform - a car computer that utilizes~~New York University’s pioneering deep learning ~~to enable self-driving capabilities - previously announced in~~team.

During the first quarter of fiscal year ~~2016,~~2017, we expanded the NVIDIA SHIELD platform’s gaming content available for streaming from GeForce NOW. We introduced the HD Mapping platform for self-driving cars, and announced that NVIDIA DRIVE PX 2 will power all vehicles in ~~their~~ROBORACE, a new autonomous ~~driving efforts.~~

~~Capital Return~~car-racing circuit expected to ~~Shareholders~~debut later this year.

In May 2015 we entered into a $400 million accelerated share repurchase, or ASR, agreement with an investment bank that was completed in October 2015. Under the ASR, we repurchased 18 million shares at an average price of $21.63 per share, of which 14 million shares were delivered in the second quarter of fiscal year 2016 and 4 million shares were delivered in the third quarter of fiscal year 2016. Additionally, we paid $53 million in cash dividends during the third quarter of fiscal year 2016. For the first nine months of fiscal year 2016, we returned a total of $604 million of capital to shareholders. Please refer to Note 13 of the Notes to Condensed Consolidated Financial Statements for further disclosure regarding the ASR.

On November 5, 2015, we announced an 18% increase in the quarterly cash dividend to $0.115 per share from $0.0975 per share. We will pay our next quarterly cash dividend of $0.115 per share on December 14, 2015, to all shareholders of record on November 20, 2015. Further, we announced our intention to return approximately $1.0 billion to shareholders in fiscal year 2017 through quarterly cash dividends and share repurchases.

~~Litigation~~

In September 2014, we filed lawsuits against Qualcomm, Inc. and various Samsung entities in the United States International Trade Commission, or ITC, and the United States District Court for the District of Delaware for using our GPU patents without a license. The ITC action was heard in June 2015 and sought to permanently exclude importation of several Samsung products that rely on our patents in the United States, or the Accused Products. In October 2015, the ITC Administrative Law Judge rendered an initial determination that importation of the Samsung Accused Products did not violate U.S. law. We are currently seeking review of the decision by the full commission of the ITC. The commission will decide whether to review parts of the initial determination on or before December 14, 2015 and the target date for the final decision is February 10, 2016. The Delaware case has been stayed during the pendency of the ITC action.

On November 10, 2014, Samsung filed a complaint against NVIDIA and Velocity Micro, Inc., in the United States District Court for the Eastern District of Virginia. That complaint and subsequent amended complaints allege that we infringed six patents and falsely advertised that the Tegra K1 processor is the world’s fastest mobile processor. We have answered the most recent complaint and asserted counter-claims against Samsung for infringing four of NVIDIA’s patents and for non-infringement and invalidity of the six patents asserted by Samsung. After the court severed our counter-claims from the main action, we voluntarily dismissed our counter-claims from the case. In June 2015, Velocity Micro voluntarily agreed to a permanent injunction preventing it from infringing two of the asserted patents and those patents were dismissed from the case with prejudice. Samsung’s false advertising claim was dismissed with prejudice in July 2015. On October 15, 2015, NVIDIA’s Motion for Entry of Judgment of Noninfringement was granted as to one of Samsung’s patents. Five patents currently asserted against NVIDIA remain and a jury trial is currently scheduled to begin January 19, 2016.

On November 23, 2014, Samsung filed a complaint against NVIDIA, among others, in the ITC claiming infringement of four United States patents and seeking an exclusion order barring importation of NVIDIA products alleged to infringe Samsung’s patents. On June 5, 2015, Samsung withdrew one patent from the case, and a hearing on Samsung’s three remaining patents was held from August 18 through August 21, 2015. The Administrative Law Judge is scheduled to issue his initial determination by December 22, 2015. The target date for the final determination by the ITC is April 22, 2016.

NVIDIA and Samsung have also challenged the validity of certain of each other’s patents through inter partes review before the United States Patent and Trademark Office. NVIDIA has filed eleven requests for inter partes review on eight of Samsung’s asserted patents. Samsung has filed six requests for inter partes review on six patents asserted by NVIDIA, and Qualcomm has filed three additional requests for inter partes review on two patents asserted by NVIDIA. The United States Patent and Trademark Office has, to date, decided to review three patents owned by NVIDIA, and three patents owned by Samsung. All other requests are currently pending.

~~Please refer to Note 12 of the Notes to Condensed Consolidated Financial Statements for further discussion.~~

~~Restructuring and Other Charges~~

Our operating expenses for the third quarter and first nine months of fiscal year 2016 included $8 million and $97 million, respectively, of restructuring and other charges. We expect to incur additional restructuring charges to operating expense of $25 million to $35 million in the fourth quarter of fiscal year 2016. These restructuring activities will impact approximately 5% of our global workforce, and we expect them to be substantially completed by the end of fiscal year 2016. Please refer to Note 15 of the Notes to Condensed Consolidated Financial Statements for further discussion.

Financial Information by Business Segment and Geographic Data

We report our business in two primary ~~reporting~~reportable segments - the GPU business and the Tegra Processor business - based on a ~~single~~unified underlying graphics architecture.

We also integrate our GPUs into mobile chips called system-on-a-chip (SOC) processors, which power tablets, and automotive infotainment and safety systems. Our Tegra brand integrates an entire computer ontohave a single ~~chip, incorporating GPUs~~unifying architecture for our GPU and ~~multi-core CPUs with audio, video and input/output capabilities. They can also be integrated with baseband processors~~Tegra Processors. This architecture unification leverages our visual computing expertise by charging the operating expenses of certain core engineering functions to ~~add voice and data communication.~~the GPU business, while charging the Tegra ~~conserves power while delivering state-of-the-art graphics and multimedia processing.~~Processor business for the incremental cost of the teams working directly for that business. In instances where the operating expenses of certain functions benefit both reportable segments, our CODM assigns 100% of those expenses to the reportable segment that benefits the most.

Please refer to Note 14 of the Notes to Condensed Consolidated Financial Statements for further disclosure regarding segment information.

Results of Operations

The following table sets forth, for the periods indicated, certain items in our ~~condensed consolidated statements~~Condensed Consolidated Statements of ~~operations~~Income expressed as a percentage of revenue.


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	October 25, 2015		October 26, 2014		October 25, 2015		October 26, 2014		July 31, 2016		July 26, 2015		July 31, 2016		July 26, 2015
Revenue	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenue	43.8		44.8		44.0		44.6		42.1		45.0		42.3		44.2
Gross profit	56.2		55.2		56.0		55.4		57.9		55.0		57.7		55.8
Operating expenses:
Operating expenses
Research and development	25.2		27.8		27.3		29.5		24.5		27.8		25.5		28.6
Sales, general and administrative	11.6		10.1		12.2		10.5		11.0		12.9		11.6		12.5
Restructuring and other charges	0.6		—		2.7		—		0.1		7.7		0.1		3.9
Total operating expenses	37.4		37.9		42.2		40.0		35.6		48.4		37.2		45.0
Operating income	18.9		17.3		13.8		15.4
Income from operations									22.2		6.7		20.5		10.8
Interest income	0.7		0.6		0.8		0.6		0.8		0.8		0.8		0.8
Interest expense	(0.9	)	(0.9	)	(1.0	)	(1.0	)	(0.8	)	(1.0	)	(0.8	)	(1.0	)
Other income, net	0.2		—		—		0.4
Income before income tax	18.9		17.0		13.6		15.4
Income tax expense (benefit)	(0.1	)	2.9		2.3		2.6
Other income (expense), net									—		(0.1	)	(0.1	)	(0.1	)
Income before income tax expense									22.2		6.4		20.4		10.5
Income tax expense									4.5		4.0		4.0		3.6
Net income	19.0	%	14.1	%	11.3	%	12.8	%	17.7	%	2.4	%	16.4	%	6.9	%

Revenue

NVIDIA’s products and services are built for three computing platforms - PC, Datacenter/Cloud, and Mobile. InFor the first ~~nine months~~half of fiscal ~~year~~years 2017 and 2016, approximately 72% and 75% of our revenue, ~~stemmed from products and services~~respectively, was associated with the PC computing platform, of which GPUs for the gaming and professional visualization markets comprised ~~over 85%~~approximately 91% and 87%, respectively, while PC OEM represented ~~less than 15%.~~approximately 9% and 13%, respectively.

Revenue by ~~Operating~~Reportable Segments

Three Months Ended Nine Months Ended
October 25,
2015 October 26,
2014 $
Change %
Change October 25,
2015 October 26,
2014 $
Change %
Change
(In millions) (In millions)
GPU $ 1,110
$ 991
$ 119
12 % $ 3,009
$ 2,767
$ 242
9 %
Tegra Processor 129
168
(39 ) (23 ) 402
466
(64 ) (14 )
All Other 66
66
—
—
198
198
—
—
Total $ 1,305
$ 1,225
$ 80
7 % $ 3,609
$ 3,431
$ 178
5 %

Revenue for the third quarter of fiscal year 2016 increased by 7% when compared to the third quarter of fiscal year 2015. Revenue for the first nine months of fiscal year 2016 increased 5% when compared to the first nine months of fiscal year 2015.



	Three Months Ended								Six Months Ended
	July 31, 2016		July 26, 2015		$ Change		% Change		July 31, 2016		July 26, 2015		$ Change		% Change
	(In millions)
GPU	$	1,196	$	959	$	237	25	%	$	2,275	$	1,899	$	376	20	%
Tegra Processor	166		128		38		30	%	326		273		53		19	%
All Other	66		66		—		—	%	132		132		—		—	%
Total	$	1,428	$	1,153	$	275	24	%	$	2,733	$	2,304	$	429	19	%

GPU Business. GPU business revenue increased by ~~12% in~~25% for the ~~third~~second quarter of fiscal year ~~2016~~2017 compared to the ~~third~~second quarter of fiscal year 2015. This increase was due primarily to growth in revenue from high-end GeForce GPUs for gaming, which increased 40% fueled by continued strength in PC gaming. Revenue from Tesla GPUs for Datacenter decreased, reflecting variability in project purchasing. Revenue from Quadro GPUs for professional visualization declined due to weakness in the overall workstation market. Revenue from GeForce GPU products for mainstream PC OEMs declined year-over-year compared to the third quarter of fiscal year 2015, reflecting the decline in overall consumer PCs.

~~GPU business revenue increased by 9% in the first nine months of fiscal year 2016 compared to the first nine months of fiscal year 2015.~~2016. This increase was due primarily to increased revenue from sales of high-end GeForce GPU products for gaming, which increased ~~over 30%~~20%, reflecting a combination of continued strength in PC gaming and ~~increased sales of~~strong demand for our ~~Maxwell-based~~new Pascal-based GPU products. ~~Revenue from~~Datacenter revenue, including Tesla ~~GPUs for Datacenter~~and NVIDIA GRID, increased ~~driven by~~110%, reflecting strong demand ~~from cloud service providers.~~for GPU acceleration related to deep learning. Revenue from Quadro GPUs for professional visualization increased 22% due primarily to higher sales in both desktop and mobile workstation products year over year. Revenue from GeForce GPU products for mainstream PC OEMs declined ~~due~~compared to ~~weakness~~last year.

GPU business revenue increased by 20% in the ~~overall~~first half of fiscal year 2017 compared to the first half of fiscal year 2016. This increase was due primarily to increased revenue from sales of high-end GeForce GPU products for gaming, which increased 21%, reflecting a combination of continued strength in PC gaming and strong demand for our new Pascal-based GPU products. Datacenter revenue, including Tesla and NVIDIA GRID, increased 84%, reflecting strong demand for GPU acceleration related to deep learning. Revenue from Quadro GPUs for professional visualization increased 13% due primarily to higher sales in the both desktop and mobile workstation ~~market.~~products. Revenue from GeForce GPU products for mainstream PC OEMs declined compared to last year.

Tegra Processor Business. Tegra Processor business revenue ~~decreased~~increased by ~~23% in~~30% for the ~~third~~second quarter of fiscal year ~~2016~~2017 compared to the ~~third~~second quarter of fiscal year ~~2015.~~2016. This ~~decrease~~ was driven by ~~a decline in sales of Tegra products for OEM smartphones and tablets of over 80%, partially offset by~~ an increase ~~in sales~~ of ~~Tegra products for automotive infotainment systems of over 50%, plus increases in revenue from development services and sales of SHIELD devices.~~

Tegra Processor business revenue decreased by 14% in the first nine months of fiscal year 2016 compared to the first nine months of fiscal year 2015. This decrease was driven by a decline in sales of Tegra products for OEM smartphones and tablets of almost 90%, partially offset by an increase68% in sales of Tegra products serving automotive systems, ~~of over 75%. Revenue also grew from~~partially offset by a decline in development services ~~and~~compared to last year.

Tegra Processor business revenue increased by 19% in the first half of fiscal year 2017 compared to the first half of fiscal year 2016. This was driven by an increase of 57% in sales of ~~SHIELD devices.~~Tegra products serving automotive systems, partially offset by a decline in development services compared to last year.

All Other. We recognized $66 million in revenue during the ~~third~~second quarter of both fiscal years 2017 and 2016 and ~~2015 and $198~~$132 million in revenue during the first ~~nine months~~half of both fiscal years ~~2016~~2017 and ~~2015,~~2016, from the patent cross licensing arrangement with Intel.

Concentration of Revenue

Revenue from sales to customers outside of the United States and Other Americas accounted for 78%of total revenue for both the second quarter and the first half of fiscal year 2017. Revenue from sales to customers outside of the United States and Other Americas accounted for 80% of total revenue for the ~~third~~second quarter of fiscal year 2016 and ~~78%~~77% of total revenue for the first ~~nine months~~half of fiscal year 2016. Revenue from sales to customers outside of the United States and Other Americas accounted for 74% of total revenue for the third quarter and 75% of total revenue for the first nine months of fiscal year 2015. Revenue by geographic region is allocated to individual countries based on the location to which the products are initially billed even if the revenue is attributable to end customers in a different location.

~~We generated revenue~~Revenue from significant customers, those representing 10% or more of total ~~revenue. Please refer to Note 14 of~~revenue for the ~~Notes to Condensed Consolidated Financial Statements for further disclosure regarding significant customers.~~respective dates, is summarized as follows:



	Three Months Ended				Six Months Ended
	July 31, 2016		July 26, 2015		July 31, 2016		July 26, 2015
Revenue:
Customer A	10	%	13	%	11	%	11	%
Customer B	8	%	10	%	8	%	10	%

Gross Profit and Gross Margin

Gross profit consists of total revenue, net of allowances, less cost of revenue. Cost of revenue consists primarily of the cost of semiconductors purchased from subcontractors, including wafer fabrication, assembly, testing and packaging, board and device costs, manufacturing support costs, including labor and overhead associated with such purchases, final test yield fallout, inventory and warranty provisions and shipping costs. Cost of revenue also includes development costs for license and service arrangements and stock-based compensation related to personnel associated with operations.

Gross margin is the percentage of gross profit to revenue. Our gross margin can vary in any period depending on the mix of types of products sold. Product mix is difficult to estimate with accuracy. Therefore, if we experience product transition challenges, including the introduction of NVIDIA-branded products such as SHIELD devices, if we achieve significant revenue growth in lower margin product lines or if we are unable to earn as much revenue as we expect from higher margin product lines, our gross margin may be negatively impacted.

Our overall gross margin was ~~56.3%~~57.9% and ~~55.2%~~55.0% for the ~~third~~second quarter of fiscal years ~~2016~~2017 and ~~2015,~~2016, respectively, and ~~56.0%~~ 57.7%and ~~55.4%~~55.8% for the first ~~nine months~~half of fiscal ~~years~~year 2017 and 2016, ~~and 2015,~~ respectively. These increases were driven primarily by product mix in our GPU business, partially offset by lower gross margins in our Tegra business.

Charges to cost of sales for inventory provisions totaled ~~$40~~$5 million and ~~$13~~$18 million for the ~~third~~second quarter of fiscal years ~~2016~~2017 and ~~2015,~~2016, respectively, unfavorably impacting our gross margin by ~~3.1%~~0.3% and ~~1.0%~~1.5%, respectively. Sales of inventory that was previously written-off or written-down totaled $6$12 million and ~~$12~~$10 million for the ~~third~~second quarter of fiscal years ~~2016~~2017 and ~~2015,~~2016, respectively, favorably impacting our gross margin by ~~0.5% and 1.0%, respectively.~~0.9% for both years. As a result, the overall net effect on our gross margin from charges to cost of sales for inventory provisions and sales of items previously written-off or written-down was a ~~2.6%~~0.5% favorable impact for the second quarter of fiscal year 2017 and a 0.6% unfavorable impact for the ~~third~~second quarter of fiscal year ~~2016 and a 0.2% unfavorable impact for the third quarter of fiscal year 2015.~~2016.

Charges to cost of sales for inventory provisions totaled ~~$71~~$27 million and ~~$36~~$31 million for the first ~~nine months~~half of fiscal years ~~2016~~2017 and ~~2015,~~2016, respectively, unfavorably impacting our gross margin by ~~2.0%~~1.0% and ~~1.0%~~1.4%, respectively. Sales of inventory that was previously written-off or written-down totaled ~~$26~~$20 million and ~~$26~~$19 million for the first ~~nine months~~half of fiscal years ~~2016~~2017 and ~~2015,~~2016, respectively, favorably impacting our gross margin by 0.7% and 0.8%, respectively. As a result, the overall net effect on our gross margin from charges to cost of sales for inventory provisions and sales of items previously written-off or written-down was a ~~1.3%~~0.3% unfavorable impact for the first ~~nine months~~half of fiscal year ~~2016~~2017 and a ~~0.2%~~0.6% unfavorable impact for the first ~~nine months~~half of fiscal year ~~2015.~~2016.

A discussion of our gross margin results for each of our ~~operating~~reportable segments is as follows:

GPU Business. The gross margin of our GPU business increased induring the ~~third~~second quarter and first ~~nine months~~half of fiscal year ~~2016~~2017 compared to the ~~third~~second quarter and first ~~nine months~~half of fiscal year ~~2015, respectively.~~2016. GPU margins increased primarily due to ~~a richer product mix resulting from stronger sales of our GeForce GPU~~strong demand for Tesla products for ~~gaming~~deep learning and ~~lower sales of GeForce GPU~~high performance computing and Quadro products for ~~mainstream PC OEMs.~~professional visualization.

Tegra Processor Business. The gross margin of our Tegra Processor business ~~decreased in~~increased during the ~~third~~second quarter and first ~~nine months~~half of fiscal year ~~2016~~2017 compared to the ~~third~~second quarter and first ~~nine months~~half of fiscal year ~~2015, respectively.~~2016. The ~~decrease~~increase in Tegra margins was primarily due to ~~inventory provisions we recorded during the third quarter of fiscal year 2016 related primarily to older generation Tegra products,~~ the warranty charge we recorded ~~during~~in the ~~first six months of fiscal~~prior year ~~2016~~ associated with the SHIELD ~~8-inch~~ tablet product ~~recall, and a less rich product mix during the comparative fiscal year 2016 periods resulting from higher automotive and SHIELD product sales and lower sales of OEM smartphone and tablet products.~~recall.

Operating Expenses


	Three Months Ended											Nine Months Ended											Three Months Ended											Six Months Ended
	October 25, 2015			October 26, 2014			$ Change			% Change		October 25, 2015			October 26, 2014			$ Change			% Change		July 31, 2016			July 26, 2015			$ Change			% Change		July 31, 2016			July 26, 2015			$ Change			% Change
	(In millions)											(In millions)											(In millions)
Research and development expenses	$	329		$	340		$	(11	)	(3	)%	$	987		$	1,011		$	(24	)	(2	)%	$	350		$	320		$	30		9	%	$	697		$	658		$	39		6	%
Sales, general and administrative expenses	152			123			29			24		441			361			80			22		157			149			8			5	%	316			289			27			9	%
Restructuring and other charges	8			—			8			100		97			—			97			100		2			89			(87		)	(98	)%	3			89			(86		)	(97	)%
Total operating expenses	$	489		$	463		$	26		6	%	$	1,525		$	1,372		$	153		11	%	$	509		$	558		$	(49	)	(9	)%	$	1,016		$	1,036		$	(20	)	(2	)%
Research and development as a percentage of net revenue	25		%	28		%						27		%	29		%
Sales, general and administrative as a percentage of net revenue	12		%	10		%						12		%	11		%
Research and development expenses as a percentage of net revenue																							25		%	28		%						26		%	29		%
Sales, general and administrative expenses as a percentage of net revenue																							11		%	13		%						12		%	13		%
Restructuring and other charges as a percentage of net revenue	1		%	—		%						3		%	—		%						—		%	8		%						—		%	4		%

Research and Development

Research and development expenses ~~decreased~~increased by 3%9% during the ~~third~~second quarter of fiscal year ~~2016~~2017 compared to the ~~third~~second quarter of fiscal year ~~2015~~2016. Compensation and ~~decreased~~benefits increased by 2%$26 million primarily driven by employee additions and compensation increases.

Research and development expenses increased by 6% during the first ~~nine months~~half of fiscal year ~~2016~~2017 compared to the first ~~nine months~~half of fiscal year ~~2015. These decreases were~~2016. Compensation and benefits increased by $30 million primarily driven by ~~the wind-down of Icera modem operations~~employee additions and ~~other organization efficiencies, partially offset~~compensation increases. Engineering and development expenses increased by ~~increases in employee compensation and related costs, including stock-based compensation expense.~~$4 million associated with our newest platform architecture, Pascal.

Sales, General and Administrative

Sales, general and administrative expenses increased by ~~24%~~5% during the ~~third~~second quarter of fiscal year ~~2016~~2017 compared to the ~~third~~second quarter of fiscal year ~~2015. Outside professional fees increased, primarily due to $15 million of legal fees associated with our litigation against Samsung and Qualcomm.~~2016. Compensation and benefits increased by $8$24 million primarily driven by employee additions and compensation increases. Marketing expense increased by $5 million mainly due to the introduction of our new Pascal family of GPUs. Offsetting these increases was a decrease in outside professional fees of $24 million resulting from ~~employee additions, employee compensation increases~~the resolution of our intellectual property disputes with Samsung and ~~related costs, including stock-based compensation expense.~~Qualcomm.

Sales, general and administrative expenses increased by ~~22%~~9% during the first ~~nine months~~half of fiscal year ~~2016~~2017 compared to the first ~~nine months~~half of fiscal year ~~2015. Outside professional fees increased, primarily due to $55 million of legal fees associated with our litigation against Samsung and Qualcomm.~~2016. Compensation and benefits increased by ~~$23~~$37 million primarily driven by employee additions and compensation increases. Marketing expense increased by $6 million mainly due to the introduction of our new Pascal family of GPUs. Offsetting these increases was a decrease in outside professional fees of $27 million resulting from ~~employee additions, employee compensation increases~~the resolution of our intellectual property disputes with Samsung and ~~related costs, including stock-based compensation expense.~~Qualcomm.

Restructuring and Other Charges

In May 2015, we announced our intent to wind-down our Icera modem operations and that we were open to a sale of the technology or operations. We pursued the sale of Icera’s technology and operations but were unable to identify a viable buyer with genuine interest. As a result, we began the wind-down of Icera modem operations in the second quarter of fiscal year ~~2016. The~~2016, we began the wind-down of our Icera ~~modem operations allows for continued investment in strategic growth areas including our growth initiatives of deep learning, self-driving cars, and gaming.~~

operations. Our operating expenses for the ~~third quarter~~three and ~~first nine~~six months ~~of fiscal year~~ended July 31, 2016 included $8$2 million and ~~$97~~$3 million, respectively, of restructuring and other ~~charges, as follows:~~

We expect to incur additional restructuring charges to operating expense of $25 million to $35 million in the fourth quarter of fiscal year 2016. These restructuring activities will impact approximately 5% of our global workforce, and we expect them to be substantially completed by the end of fiscal year 2016.charges. Please refer to Note 15 of the Notes to Condensed Consolidated Financial Statements for further discussion.

Interest Income and Interest Expense

Interest income consists of interest earned on cash, cash equivalents and marketable securities. Interest expense is primarily comprised of coupon interest and debt discount amortization related to the convertible notes issued in December 2013.

Interest income was $9$12 million and $7$9 million during the ~~third~~second quarter of fiscal years 2017 and 2016, respectively, and ~~2015, respectively. Interest income was $28~~$23 million and ~~$20~~$18 million during the first ~~nine months~~half of fiscal years ~~2016~~2017 and ~~2015,~~2016, respectively. The increase in interest income was primarily due to higher average cash balances invested in interest bearing securities, as well as higher purchased yields.

Interest expense was $12 million during the second quarter of fiscal years 2017 and ~~$35~~2016 and $23 million and $22 million during the ~~third quarter and~~ first ~~nine months~~half of fiscal ~~year~~years 2017 and 2016, respectively, ~~relatively comparable~~consisting primarily of coupon interest and debt discount amortization related to ~~$11 million and $35 million during~~ the ~~third quarter and first nine months of fiscal year 2015, respectively.~~convertible notes we issued in December 2013.

Other Income ~~net~~(Expense), Net

Other income (expense), net, consists primarily of realized gains and losses from the sale of marketable securities, sales or impairments of investments in non-affiliated companies, and the impact of changes in foreign currency rates. ~~During~~Other income (expense), net, was not significant during the ~~third~~second quarter or the first half of either fiscal year ~~2016, we recorded other income, net, of $3 million. Other income, net was insignificant for the third quarter of~~2017 or fiscal year 2015. During the first nine months of fiscal years 2016 and 2015 we recorded other income, net, of $1 million and $14 million, respectively. Other income in the first nine months of fiscal year 2015 included a $17 million gain from the sale of a non-affiliated investment.2016.

Income Taxes

We recognized income tax ~~benefit~~expense of $1$64 million and $109 million for the ~~third~~second quarter and first half of fiscal year 2017, respectively, and $46 million and $84 million for the second quarter and first half of fiscal year 2016, respectively. Our effective tax rate was 20.3% and ~~income tax expense of $83 million, $36 million and $90 million~~19.6% for the second quarter and first ~~nine months~~half of fiscal year 2017, respectively, and 64.0% and 34.3% for the second quarter and first half of fiscal year 2016, ~~and third quarter and first nine months of fiscal year 2015,~~ respectively. Income tax benefit as a percentage of income before tax was 0.5% for the third quarter of fiscal year 2016 and income tax expense as a percentage of income before tax was 16.9%, 17.3% and 17.0% for the first nine months of fiscal year 2016 and third quarter and first nine months of fiscal year 2015, respectively.

Our income tax benefit for the third quarter of fiscal year 2016 included a tax benefit of $49 million from a tax reserve release related to our Icera modem operations upon the expiration of applicable statutes of limitations. In addition to this benefit, our income tax expense for the first nine months of fiscal year 2016 also included a $27 million charge for the write-down of a deferred tax asset related to our Icera modem operations, partially offset by the tax benefit related to restructuring and other charges.

The decrease in our effective tax rate in the ~~third~~second quarter and first half of fiscal year ~~2016 as~~2017 compared to the same ~~period~~periods in the prior fiscal year was primarily due to the absence of tax-related restructuring charges recorded in the second quarter of fiscal year 2016, the favorable ~~impact~~benefit of the ~~benefit from the expiration of the applicable statutes of limitations, partially~~U.S. federal research tax credit, which was permanently re-enacted in December 2015, and lower permanent tax differences related to stock-based compensation, partly offset by an increase in the amount of earnings subject to U.S. tax.

Our effective tax rate for the first ~~nine months~~half of fiscal year ~~2016~~2017 of 16.9% was lower than the U. S. federal statutory rate of 35% due primarily to income earned in jurisdictions where the tax rate is lower than the U.S. federal statutory tax rate, and certain discrete events including the tax benefit recognized upon the expiration of the applicable statutes of limitations and other tax benefits related to the Icera modem operations, partially offset by the write-down of a deferred tax asset related to Icera.

~~Our effective tax rate for the first nine months of fiscal year 2015 of 17.0%~~19.6% was lower than the U.S. federal statutory rate of 35% due primarily to income earned in jurisdictions where the tax rate is lower than the U.S. federal statutory tax ~~and favorable discrete events primarily attributable to the tax benefit recognized upon the expiration of applicable statutes of limitations.~~

~~Our effective tax rates for both the third quarter and first nine months of fiscal years 2016 and 2015 do not include~~rate, the benefit of the U.S. federal research tax credit ~~as it was expired during these periods. The U.S. federal research tax credit was reenacted~~and discrete events that occurred in the ~~fourth quarter~~first half of fiscal year ~~2015 while reenactment is uncertain for fiscal year 2016.~~2017 primarily attributable to tax benefits recognized upon the expiration of statutes of limitations in certain non-U.S. jurisdictions.

Please refer to Note 4 of the Notes to Condensed Consolidated Financial Statements for further information.

Liquidity and Capital Resources


	As of
	October 25, 2015		January 25, 2015		July 31, 2016		January 31, 2016
	(In millions)				(In millions)
Cash and cash equivalents	$	471	$	497	$	426	$	596
Marketable securities	4,257		4,126		4,453		4,441
Cash, cash equivalents, and marketable securities	$	4,728	$	4,623
Cash, cash equivalents and marketable securities					$	4,879	$	5,037



	Six Months Ended
	July 31, 2016			July 26, 2015
	(In millions)
Net cash provided by operating activities	$	493		$	409
Net cash provided by (used in) investing activities	$	(93	)	$	12
Net cash used in financing activities	$	(570	)	$	(483	)

As of ~~October 25, 2015,~~July 31, 2016, we had ~~$4.73~~$4.88 billion in cash, cash equivalents and marketable securities, ~~an increase~~a decrease of ~~$105~~$158 million from ~~$4.62 billion as of January 25, 2015. This increase was primarily due to~~ the ~~cash generated by operations, partially offset by share repurchases totaling $452 million and $152 million of dividends we paid during the first nine months~~end of fiscal year 2016. Our portfolio of cash equivalents and marketable securities is managed on our behalf by several financial institutions. Our portfolio managers are required to follow our investment policy, which requires the purchase of high grade investment securities, the diversification of asset types, and certain limits on our portfolio duration.

Nine Months Ended
October 25, 2015 October 26, 2014
(In millions)
Net cash provided by operating activities $ 664
$ 463
Net cash used in investing activities $ (187 ) $ (409 )
Net cash used in financing activities $ (503 ) $ (811 )

Cash provided by operating activities increased in the first ~~nine months~~half of fiscal year 2017 compared to the first half of fiscal year 2016, ~~compared~~primarily due to higher net income resulting from revenue growing at a faster rate than operating expenses and gross margin improvements.

Cash was used by investing activities in the first ~~nine months~~half of fiscal year ~~2015. The increase was~~2017, primarily due to ~~changes in working capital, partially offset by a decline in net income.~~

higher purchases of marketable securities and property and equipment and intangible assets than proceeds from sales and maturities of marketable securities. Cash ~~used~~was provided in investing activities ~~decreased~~ in the first ~~nine months~~half of fiscal year 2016, ~~compared to the first nine months of fiscal year 2015. The decrease was~~ primarily due to higher proceeds from sales and maturities of marketable securities.

Cash used in financing activities ~~decreased~~increased in the first ~~nine months~~half of fiscal year ~~2016~~2017 compared to the first ~~nine months~~half of fiscal year ~~2015.~~2016. The ~~decrease~~increase was primarily due to the ~~lower~~higher amount of ~~stock~~share repurchases and dividend payments in the ~~current year.~~first half of fiscal year 2017 compared to the first half of fiscal year 2016.

Liquidity

Our primary source of liquidity is cash generated by our operations. Our investment portfolio consists principally of cash and cash equivalents, corporate debt securities, debt securities of ~~corporations and the~~ United States government ~~and its~~ agencies, debt securities issued by United States Treasury, asset-backed securities, mortgage-backed securities issued by United States government-sponsored enterprises, foreign government bonds and money market ~~funds and foreign government bonds.~~funds. These investments are denominated in United States dollars. As of ~~October 25, 2015,~~July 31, 2016, we did not have any investments in auction-rate preferred securities.

Please refer to Note 5 of the Notes to Condensed Consolidated Financial Statements for additional information.

As of ~~October 25, 2015~~July 31, 2016 and January ~~25, 2015,~~31, 2016, we had ~~$4.73~~$4.88 billion and ~~$4.62~~$5.04 billion, respectively, in cash, cash equivalents and marketable securities. Our investment policy requires the purchase of high grade investment securities and the diversification of asset types and includes certain limits on our portfolio duration, as specified in our investment policy guidelines. These guidelines also limit the amount of credit exposure to any one issue, issuer or type of instrument. As of ~~October 25, 2015,~~July 31, 2016, we were in compliance with our investment policy. As of ~~October 25, 2015,~~July 31, 2016, our investments in government agencies and government-sponsored enterprises represented ~~41%~~45% of our total investment portfolio, while the financial sector accounted for ~~25%~~26% of our total investment portfolio. All of our investments are in A/A3 or better rated securities.

Our cash balances are held in numerous locations throughout the world, including substantial amounts held outside of the United States. Most of the amounts held outside the United States may be repatriated to the United States. However, if we repatriate foreign earnings for cash requirements in the United States, we would incur U.S. federal income tax at a rate of 35% less utilization of any net operating loss carryforwards, and further offset by any applicable research and foreign tax credits, plus any state income taxes on such income. Repatriation of some foreign balances may be restricted by local laws.

Dividend payments and any share repurchases must be made from cash held in the United States. In the ~~third~~second quarter and first ~~nine months~~half of fiscal year ~~2016,~~2017, we made total cash dividend payments of ~~$53~~$62 million and ~~$152~~$124 million, respectively, and repurchased ~~$111~~$9 million and ~~$452~~$509 million of our common stock, ~~in the third quarter and first nine months of fiscal year 2016,~~ respectively, utilizing a significant amount of our U.S. cash balance previously taxed as of ~~October 25, 2015.~~ July 31, 2016.

Convertible Notes

InOn December 2, 2013, we issued $1.50 billion of 1.00% Convertible Senior Notes, or the Notes, due in 2018 and concurrently entered into separate note hedge and warrant transactions. The Notes will mature on December 1, 2018 unless repurchased or converted prior to such date. The Notes were convertible during the second quarter of fiscal year ~~2016, we began~~2017 and are currently convertible at the wind-down of Icera modem operations. Our operating expenses for the third quarter and first nine months of fiscal year 2016 included $8 million and $97 million, respectively, of restructuring and other charges. We expect to incur additional restructuring charges to operating expense of $25 million to $35 millionholders’ option in the ~~fourth~~third quarter of fiscal year ~~2016.~~2017. During the second quarter of fiscal year 2017, we had received conversion notices for an aggregate of $229 million in principal amount of the Notes plus an additional notice subsequent to July 31, 2016 for $200 million in principal amount of the Notes. Settlements of these conversion requests are expected to be completed in the third quarter of fiscal year 2017.

Given the current price of our common stock, we expect to receive additional notices of early conversion, which could require us to use a substantial amount of our cash in the United States to settle. If our cash balances in the United States are insufficient to cover such settlements and we do not obtain additional financing, we may be required to repatriate foreign earnings, which could result in additional tax liabilities. Please refer to Note 1511 of the Notes to the Condensed Consolidated Financial Statements for further discussion.

Capital Return to Shareholders

In ~~May 2015~~March 2016, we entered into ~~a $400 million~~an accelerated share repurchase, or ASR, agreement with an investment bank, ~~that~~under which we made an upfront payment of $500 million to purchase shares of our common stock and received an initial delivery of 12 million shares. The shares delivered resulted in a reduction, on the delivery date, of the outstanding shares used to calculate the weighted-average common shares outstanding for basic and diluted earnings per share. The ASR agreement was ~~completed~~settled in ~~October 2015. Under~~July 2016 with a cash payment of $9 million to the investment bank. As a result, a total of 12 million shares were repurchased under the ASR ~~we repurchased 18~~transaction for $509 million, ~~shares at~~or an average price of ~~$21.63~~$42.06 per ~~share, of which 14 million shares were delivered in~~share.

During the second quarter and first half of fiscal year ~~2016~~2017, we also paid $62 million and 4$124 million, ~~shares were delivered~~respectively, in cash dividends to our shareholders, equivalent to $0.1150 per share. As a result, we returned $71 million and $633 million to shareholders during the ~~third~~second quarter and first half of fiscal year ~~2016. Additionally, we paid $53 million~~2017, respectively, in ~~cash dividends during~~ the ~~third quarter~~form of share repurchases and dividend payments.

We intend to return approximately $1.00 billion to our shareholders in fiscal year ~~2016.~~

~~On November 5, 2015,~~2017 through a combination of share repurchases and cash dividends. We also declared on August 11, 2016 that we ~~announced an 18% increase in the quarterly cash dividend to $0.115 per share from $0.0975 per share. We will~~would pay our next quarterly cash dividend of ~~$0.115~~$0.1150 per share on ~~December 14, 2015,~~September 16, 2016, to all shareholders of record on November 20, 2015. We intend to return $800 million to shareholders in fiscal year 2016 through quarterly cash dividends and share repurchases, of which $604 million has been returned in the first nine months of fiscal yearAugust 25, 2016.

Our cash dividend program and the payment of future cash dividends under that program are subject to continued capital availability and our Board's continuing determination that the dividend program and the declaration of dividends thereunder are in the best interests of our shareholders and are in compliance ofwith all laws and agreements of ~~NVIDIA.~~NVIDIA applicable to the declaration and payment of cash dividends.

Operating Capital and Capital Expenditure Requirements

We believe that our existing cash ~~cash equivalents and marketable securities~~ balances and anticipated cash flows from operations will be sufficient to meet our operating ~~acquisition, share repurchase, cash dividend and capital~~ requirements for at least the next twelve months. However, ~~there is no assurance that~~since substantial amounts of our cash are held outside of the United States, and the repayment of the principal amount of Notes, dividend payments and any share repurchases must be made from cash held in the United States, we ~~will not~~may need to raise additional debt or equity financing or ~~debt financing~~repatriate foreign earnings within this time frame. ~~Additional financing~~Repatriation of foreign earnings could result in additional tax liabilities related to such repatriated amount. We are continuously evaluating options for efficiently funding repayment of the principal amount of the Notes, early conversions of the Notes, dividend payments, share repurchases, ongoing operations and capital expenditures. We may ~~not be available on favorable terms~~engage in transactions for such purposes, including the issuance or ~~at all~~incurrence of secured and ~~may be dilutive to our then-current shareholders.~~unsecured debt and the refinancing and restructuring of existing debt. We also may require additional capital for other purposes not presently contemplated.

During the second quarter of fiscal year 2016, we began to construct a new headquarters building in Santa Clara, California, which is currently targeted for completion in the fourth quarter of fiscal year 2018. This headquarters building is being financed as an operating lease arrangement. Under the terms of this financing arrangement, costs incurred by us that are associated with the construction will be reimbursed by the banks.

Off-Balance Sheet Arrangements

During ~~the second quarter of~~ fiscal year 2016, we began to construct a new headquarters building in Santa Clara, California, which is currently targeted for completion in the fourth quarter of fiscal year 2018. We are financing this construction under an off-balance sheet, build-to-suit operating lease arrangement. The banks have committed to fund up to $380 million of costs relating to construction. Once construction is complete, the lease balance will remain static at the completed cost for the remaining duration of the lease term. During construction, accrued interest will be capitalized into the lease balance. Following construction, we will pay rent in the form of interest. The lease has an initial 7.5 year term expiring on December 19, 2022, consisting of an approximately 2.5 year construction period followed by a 5 year lease term. We have the option to renew this lease for up to three additional 5 year periods, subject to approval by the banks. During the term of the lease, we may elect to purchase the headquarters building for the amount of the banks’ investment in the building and any accrued but unpaid rent. At the end of the lease term, we may elect to buy the building for the outstanding balance on the maturity date or arrange for the cash sale of the building to an unaffiliated third party. The aggregate guarantee made by us under the lease is no more than 87.5% of the costs incurred in connection with the construction of the building. Please refer to Note 12 of the Notes to Condensed Consolidated Financial Statements for a discussion regarding our operating lease financing arrangement.

Contractual Obligations

As of ~~October 25, 2015,~~July 31, 2016, we had outstanding inventory purchase obligations totaling ~~$442~~$826 million. ~~Other than~~Except as described above with respect to the ~~off-balance sheet arrangement described above,~~Notes, there were no other material changes in our contractual obligations from those disclosed in our Annual Report on Form 10-K for the fiscal year ended January ~~25, 2015.~~31, 2016.

Please see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” in our Annual Report on Form 10-K for the fiscal year ended January 31, 2016 for a description of our contractual obligations.

Adoption of New and Recently Issued Accounting Pronouncements

Please see Note 1 of the Notes to Condensed Consolidated Financial Statements for a discussion of adoption of new and recently issued accounting pronouncements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Investment and Interest Rate Risk

Financial market risks related to investment and interest rate risk ~~and exchange rate risk~~ are described in our ~~2015~~2016 Annual Report on Form 10-K. ~~At October 25, 2015,~~As of July 31, 2016, there have been no material changes to the financial market risks described atas of January ~~25, 2015 with~~31, 2016.

Foreign Exchange Rate Risk

During the ~~exception~~first half of fiscal year 2017, we entered into foreign currency forward contracts to mitigate the impact of foreign currency exchange rate movements on our operating expenses. We designate these contracts as cash flow hedges and assess the effectiveness of the ~~risk identified below.~~hedge relationships on a spot to spot basis. Gains or losses on the contracts are recorded in accumulated other comprehensive income (loss) and reclassified to operating expense when the related operating expenses are recognized in earnings or ineffectiveness should occur.

During the second quarter of fiscal year ~~2016,~~2017, we ~~began to construct~~also entered into a new headquarters building in Santa Clara, California, which is currently targeted for completion in the fourth quarter of fiscal year 2018. We are financing this construction under an off-balance sheet, build-to-suit operating lease arrangement. The banks have committed to fund up to $380 million of costs relating to construction. Once construction is complete, the lease balance will remain static at the completed cost for the remaining duration of the lease term. During construction, accrued interest will be capitalized into the lease balance. Following construction, we will pay rent in the form of interest. Interest payable on the lease financing is based on a variable interest rate and is, therefore, affected by changes in market interest rates.

~~In order~~foreign currency forward contract to mitigate the ~~interest rate risk~~impact of foreign currency movements on monetary assets and liabilities that are denominated in currencies other than our reporting currency. The change in fair value of this contract is recorded as a component of other income (expense), net, and offsets the ~~operating lease financing arrangement,~~change in ~~August 2015, we entered into an interest rate swap for a portion~~fair value of the ~~operating lease financing arrangement,~~foreign currency denominated monetary assets and liabilities, which entitles us to pay amounts based on a fixed interest rate in exchange for receipt of amounts based on variable interest rates. If the syndicate of banks that are participants to the operating lease financing arrangement were to fail to fund loans for any reason, we would remain liable for payments due under the swap unless we were to settle the swap. If we were to settle the swap at a time when interest rates have fallen (relative to the swap’s inception), the price to settle the swap could be significant.

~~The notional amount of the interest rate swap~~ is ~~$200 million and the termination date is December 19, 2022. This interest rate swap is designated as a cash flow hedge. Gains or losses on this swap are~~also recorded in ~~accumulated~~ other ~~comprehensive~~ income ~~and will subsequently be recorded in earnings at the point when the related operating lease financing expense begins to affect earnings or if ineffectiveness of the swap should occur.~~(expense), net.

Please see Note 9 of the Notes to Condensed Consolidated Financial Statements for additional information.

ITEM 4. CONTROLS AND PROCEDURES

Controls and Procedures

Disclosure Controls and Procedures

Based on their evaluation as of ~~October 25, 2015~~July 31, 2016, our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) were effective to provide reasonable assurance.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal ~~controls~~control over financial reporting during ~~our~~the second quarter of fiscal ~~quarter ended~~ ~~October 25, 2015~~year 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls, will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within NVIDIA have been detected.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Please see Part I, Item 1, Note 12 of the Notes to Condensed Consolidated Financial Statementsfor a discussion of significant developments in our legal proceedings since January 31, 2016. Please also see Item 3, “Legal Proceedings” in our Annual Report on Form 10-K for the fiscal year ended January 31, 2016 for a prior discussion of our legal proceedings.

ITEM 1A. RISK FACTORS

Please refer to the description of the risk factors associated with our business previously disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended January ~~25, 2015.~~31, 2016. There have been no material changes from the risk factors previously described under Item 1A of our Annual Report on Form 10-K for the fiscal year ended January ~~25, 2015~~31, 2016 with the exception of the risks identified below.

Before you buy our common stock, you should know that making such an investment involves some risks including, but not limited to, the risks described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended January ~~25, 2015~~31, 2016 and ~~the~~any additional risks set forth below. Additionally, any one of those risks could harm our business, financial condition and results of operations, which could cause our stock price to decline. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.

We ~~are subject~~have a substantial amount of indebtedness which could adversely affect our financial position and prevent us from implementing our strategy or fulfilling our contractual obligations.

In December 2013, we issued $1.5 billion of 1.00% Convertible Senior Notes due 2018. Our indebtedness may limit our ability to ~~risks associated with development~~use our cash flow or borrow additional funds for working capital, capital expenditures, acquisitions and ~~construction of~~general corporate and other purposes.

Additionally, our ~~headquarters building under an operating lease financing arrangement.~~obligation to make payments related to the Notes when converted or due could impact our cash balance and limit our ability to use our cash for our capital return program and our other liquidity needs, including working capital, capital expenditures, acquisitions, investments and other general corporate purposes.

For example, our Notes have in the past been, and continue to be, eligible for early conversion. During the second quarter of fiscal year ~~2016,~~2017, we ~~began to construct a new headquarters building~~settled an aggregate of $0.2 million in ~~Santa Clara, California, which is currently targeted~~principal amount of the Notes that were submitted for ~~completion in~~conversion during the ~~fourth~~first quarter of fiscal year ~~2018. We are financing this construction under~~2017. During the third quarter of fiscal year 2017, we expect to settle at least an ~~operating lease arrangement.~~aggregate of $429 million in principal amount of the Notes that were submitted for conversion during the second and third quarters to date of fiscal year 2017. We may ~~encounter unanticipated occurrences or conditions during construction that may increase the expense~~receive additional notices of early conversion, which could represent a significant portion of the ~~project. We may also encounter unanticipated delays~~remaining Notes, the principal values of which would be settled in ~~the construction of the new building~~cash. If our domestic cash balances are insufficient to cover such settlements and ~~final city approval for occupancy~~we do not obtain additional financing, we may be ~~delayed. Delays and cost overruns during construction could result in a default under the operating lease financing arrangement described below,~~required to repatriate offshore cash, which could result in ~~liabilities and expenses and could harm our business, prospects, financial condition and results of operations.~~additional tax liabilities.

~~Additionally, any such difficulties could result~~The warrants associated with our Notes, or the Warrants, dilute our net income per share and the exercise of the Warrants would dilute the ownership interest of our existing shareholders.

When the average trading price of our common stock for a fiscal quarter exceeds the adjusted strike price of the Warrants, the number of diluted weighted average shares used in our ~~default under the operative agreements entered into with a syndicate of banks that are participants to the operating lease financing arrangement to finance development and construction of~~net income per share calculation increases, which dilutes our ~~headquarters. We have pledged~~net income per share. For example, our assets that relate to the new headquarters building in order to secure our obligations under the operating lease financing arrangement. We will need to maintain compliance with the requirements governing such agreements, including compliance with financial and other covenants, certain of which may be subject to events outside of our control. If we fail to comply with the covenants, we may be unable to obtain or utilize all or a portion of the financing contemplated by the operating lease financing arrangement. Further, noncompliance with such covenants or other event of default could lead to a termination of our lease of the property, and the lenders could have the right to, among other things, foreclose on the collateral for our obligations under the operating lease financing arrangement. A loss of financingaverage trading price for the ~~new headquarters building or foreclosure on the collateral could adversely affect our liquidity~~first and ~~business.~~

~~If we do not effectively manage the wind-down of our Icera modem operations, our financial condition and results of operations could be adversely affected.~~

~~In the~~ second ~~quarter~~quarters of fiscal year ~~2016, we began~~2017 was $32.63 and $46.57, respectively, which contributed approximately 13 million and 31 million weighted average shares, respectively, to our net income per share calculation.

The Warrants will be deemed to be automatically exercised on certain dates between March 2019 and June 2019, unless the ~~wind-down~~Warrant holder notifies us otherwise. Any issuance by us of shares upon exercise or any other settlement of the Warrants may dilute the ownership interest of our Icera modem operations. As a result, our operating expenses for the first nine months of fiscal year 2016 included $97 million of restructuring and other charges. We expect to incur additional restructuring charges to operating expense of $25 million to $35 million for the remainder of fiscal year 2016. These restructuring activities will impact approximately 5% of our global workforce, and we expect them to be substantially completed by the end of fiscal year 2016.existing shareholders.

Although the wind-down of the Icera modem operations is expected to continue to benefit our non-GAAP operating expenses in the fourth quarter of fiscal year 2016, there is no guarantee that a wind-down will be completed in the expected timeframe. Additionally, if we experience inefficiencies or incremental costs in connection with our restructuring activities, we may be unable to meaningfully realize cost savings and we may incur expenses in excess of what we anticipate. Either of these outcomes could adversely impact our results of operations and financial condition.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

Through ~~October 25, 2015,~~July 31, 2016, we have repurchased an aggregate of ~~226~~243 million shares under our share repurchase program for a total cost of ~~$3.72~~$4.36 billion. All shares delivered from these repurchases have been placed into treasury stock. As of ~~October 25, 2015,~~July 31, 2016, we ~~were~~are authorized, subject to certain specifications, to repurchase additional shares of our common stock up to ~~$1.60 billion.~~$0.96 billion through December 2018. We intend to return approximately $1.00 billion to shareholders in fiscal year 2017 in the form of share repurchases and cash dividends.

The repurchases will be made ~~from time to time~~ in the open market, in privately negotiated transactions, or in structured share repurchase programs, and may be made in one or more larger repurchases, in compliance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended, subject to market conditions, applicable legal requirements, and other factors. The program does not obligate NVIDIA to acquire any particular amount of common stock and the program may be suspended at any time at our discretion. As part of our share repurchase program, we have entered into, and we may continue to enter into, structured share repurchase transactions with financial institutions. These agreements generally require that we make an up-front payment in exchange for the right to receive a fixed number of shares of our common stock upon execution of the agreement, and a potential incremental number of shares of our common stock, within a pre-determined range, at the end of the term of the agreement.

The following table presents details of our share repurchase transactions during the ~~three months ended October 25, 2015 (in millions, except per share amounts):~~second quarter of fiscal year 2017:

Period Total Number of Shares Purchased Average Price Paid per Share (1) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
July 27, 2015 - August 23, 2015 —
$ —
—
$ 1,600
August 24, 2015 - September 20, 2015 —
—
—
$ 1,600
September 21, 2015 - October 25, 2015 4
—
4
$ 1,600
Total 4
$ —
4



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (In billions) (1)
May 2, 2016 - May 29, 2016	—	$	—	—	$	0.97
May 30, 2016 - June 26, 2016	—	$	—	—	$	0.97
June 27, 2016 - July 31, 2016	—	$	—	—	$	0.96
Total	—			—

(1)

In March 2016, we entered into an accelerated share repurchase, or ASR, agreement , under which we made an upfront payment of $500 million to purchase shares of our common stock and received an initial delivery of 12 million shares. The ASR agreement was settled in July 2016 with an additional cash payment of $9 million. A total of 12 million shares were repurchased under the ASR transaction for $509 million, or an average price of $42.06 per share. Our remaining authorization to repurchase shares of common stock is $0.96 billion. Please refer to Note 13 of the Notes to Condensed Consolidated Financial Statements for a discussion regarding the ASR program.

(1) In May 2015, we entered into a $400 million accelerated share repurchase, or ASR, agreement with an investment bank that was completed in October 2015. Under the ASR, we repurchased 18 million shares at an average price of $21.63 per share, of which 14 million shares were delivered inTransactions Related to our Notes and Note Hedges

During the second quarter of fiscal year ~~2016~~2017, we issued an aggregate of 5,446 shares of our common stock upon settlement of Notes submitted for conversion during the first quarter of fiscal year 2017. In connection with these conversions, we exercised a portion of our Note Hedges to acquire 5,446 shares of our common stock. The counterparty to the Note Hedges may be deemed an “affiliated purchaser” and ~~4 million~~may have purchased the shares ~~were delivered in~~of our common stock deliverable to us upon this exercise of our option.

During the third quarter of fiscal year ~~2016. However, because~~2017, we expect to settle at least an aggregate of $429 million in principal amount, and issue shares of our common stock for the ~~shares delivered~~excess conversion value, related to ~~us in~~ the ~~third quarter of~~Notes that were submitted for conversion to date for fiscal year ~~2016 occurred without further cash payment,~~2017. The actual number of shares issuable upon conversion will be determined based upon the ~~average price paid per share in~~terms of the ~~table above is nil.~~Notes. We expect to receive an equal number of shares of our common stock under the terms of the Note Hedges. Please refer to Note 1311 of the Notes to Condensed Consolidated Financial Statements for further discussion regarding the ~~ASR.~~Notes and the Note Hedges.

~~In addition to our share repurchase program, we~~

Restricted Stock Unit Share Withholding

We also withhold common stock shares associated with net share settlements to cover tax withholding obligations upon the vesting of restricted stock unit awards under our equity incentive program. During the first ~~nine months~~half of fiscal year ~~2016,~~2017, we withheld 3approximately 2 million shares at a total cost of ~~$65~~$51 million through net share settlements. Please refer to Note 2 of the Notes to Condensed Consolidated Financial Statements for further discussion regarding our equity incentive plans.

ITEM 6. EXHIBITS

EXHIBIT INDEX



Exhibit No.	Exhibit Description	Schedule /Form	File Number	Exhibit	Filing Date
10.1+	Amended and Restated 2007 Equity Incentive Plan	8-K	000-23985	10.1	May 23, 2016
10.2+	Amended and Restated 2012 Employee Stock Purchase Plan	8-K	000-23985	10.2	May 23, 2016
31.1*	Certification of Chief Executive Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934
31.2*	Certification of Chief Financial Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934
32.1#*	Certification of Chief Executive Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934
32.2#*	Certification of Chief Financial Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document

* Filed herewith

+ Management contract or compensatory plan or arrangement.

# In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos. 33-8238 and 34-47986, Final Rule: Management's Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purpose of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

Copies of above exhibits not contained herein are available to any shareholder upon written request to:

Investor Relations: NVIDIA Corporation, 2701 San Tomas Expressway, Santa Clara, CA 95050.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: ~~November 18, 2015~~August 23, 2016



	NVIDIA Corporation
By:	/s/ Colette M. Kress

	Colette M. Kress
	Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)

EXHIBIT INDEX



Exhibit No.	Exhibit Description	Schedule /Form	File Number	Exhibit	Filing Date
10.1+	Amended and Restated 2007 Equity Incentive Plan	8-K	000-23985	10.1	May 23, 2016
10.2+	Amended and Restated 2012 Employee Stock Purchase Plan	8-K	000-23985	10.2	May 23, 2016
31.1*	Certification of Chief Executive Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934
31.2*	Certification of Chief Financial Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934
32.1#*	Certification of Chief Executive Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934
32.2#*	Certification of Chief Financial Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document

* Filed herewith

+ Management contract or compensatory plan or arrangement.

Copies of above exhibits not contained herein are available to any shareholder upon written request to:

Investor Relations: NVIDIA Corporation, 2701 San Tomas Expressway, Santa Clara, CA 95050.

4241



	Awards Outstanding		Weighted Average Exercise Price
Stock Options	(In millions)		(Per share)
Balances, January 25, 2015	21		$14.61
Granted	—		—
Exercised	(6	)	$14.48
Cancelled	—		—
Balances, October 25, 2015	15		$14.55



	Awards Outstanding		Weighted Average Grant-Date Fair Value
RSUs, PSUs and Market-based PSUs	(In millions)		(Per share)
Balances, January 25, 2015	23		$15.94
Granted (1) (2)	13		$21.61
Vested	(8	)	$15.53
Cancelled	(2	)	$16.40
Balances, October 25, 2015	26		$18.84



	Notional Amount				Fair Value Asset (Liability)
	October 25, 2015		January 25, 2015		October 25, 2015			January 25, 2015
Cash Flow Hedge
Interest rate swap	$	200	$	—	$	(3	)	$	—



	Nine Months Ended
	October 25, 2015			October 26, 2014
	(In millions)
Net cash provided by operating activities	$	664		$	463
Net cash used in investing activities	$	(187	)	$	(409	)
Net cash used in financing activities	$	(503	)	$	(811	)



Period	Total Number of Shares Purchased	Average Price Paid per Share (1)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
July 27, 2015 - August 23, 2015	—	$	—	—	$	1,600
August 24, 2015 - September 20, 2015	—	—		—	$	1,600
September 21, 2015 - October 25, 2015	4	—		4	$	1,600
Total	4	$	—	4

January 31,

Accounts Receivable:

Customer B