UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

OR

NVIDIA CORPORATION

27012788 San Tomas Expressway

Santa Clara, California 9505095051

(408) 486-2000

NVIDIA CORPORATION

FORM 10-Q

TABLE OF CONTENTS

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: 

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

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.

NVIDIA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share data)

(Unaudited)

NVIDIA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)

NVIDIA CORPORATION AND SUBSIDIARIES 

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

NVIDIA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

Basis of Presentation

Significant Accounting Policies

Fiscal Year

We operate on a 52- or 53-week year, ending on the last Sunday in January. Fiscal years 20182019 and 20172018 are both 52-week years. The second quarterfirst quarters of fiscal years 20182019 and 20172018 were both 13-week quarters.

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

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

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 materially from thoseour estimates. On an on-goingongoing 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, 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.

In January 2016, the FASB issued an accounting standards update to amend certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. We are now required to recognize changes in the fair value of our equity investments through net income tax consequences of an intra-entity transfer of an asset,rather than other than inventory, when the transfer occurs.comprehensive income. We elected to early adoptadopted this new guidance in the first quarter of fiscal year 2018, which required us to reflect any adjustments as of January 30, 2017. Upon2019 and applied it prospectively. The adoption of this guidance we recordeddid not have a cumulative-effect adjustment as of the first day of fiscal year 2018 to decrease retained earnings by $28 million, with a corresponding decrease to prepaid taxes that had not been previously recognized in income tax expense.

Recent Accounting PronouncementsPronouncement Not Yet Adopted

In February 2016, the FASB issued an accounting standards update regarding the accounting for leases by which we will begin recognizing lease assets and liabilities on the balance sheet for leases with a lease termterms of more than 12 months. The update will require additional disclosures regarding key information about leasing arrangements. Under existing guidance, operating leases are not recorded as lease assets and lease liabilities on the balance sheet. The update will be effective for us beginning in ourthe first quarter of fiscal year 2020, with early adoption permitted.2020. We are currently evaluating the impact of the adoption of this accounting guidance on our consolidated financial statements. However, we expect the adoption of this accounting guidance to result in an increase in lease assets and a corresponding increase in lease liabilities on our Consolidated Balance Sheets.

On January 29, 2018, we adopted the new revenue accounting standard using the modified retrospective method and applied it to contracts that were not completed as of that date. Upon adoption, we recognized the cumulative effect of the new standard as an increase to opening retained earnings of $7 million, net of tax. Comparative information for prior periods has not been adjusted. The FASB issued an accounting standards update that creates a single sourceimpact of applying the new standard on our consolidated financial statements for the quarter ended April 29, 2018 was not significant.

Deferred revenue guidance under U.S. GAAP for all companies,is comprised mainly of customer advances and deferrals related to license and development arrangements and PCS related to software licenses. The following table shows the changes in all industries. We expect to adopt this guidance beginning in ourdeferred revenue during the first quarter of fiscal year 2019 using the modified retrospective approach. While we are still finalizing our analysis to quantify the adoption impact of the provisions of the new standard, we do not expect it to have a material impact on our consolidated financial statements.2019:

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.

Equity Award Activity

Of the total fair value of equity awards granted during the second quarter and first halfquarters of fiscal yearyears 2019 and 2018, we estimated that the stock-based compensation expense related to equity awards that are not expected to vest was $10$18 million and $39$27 million, respectively. Of the total fair value of equity awards granted during the second quarter and first half of fiscal year 2017, we estimated that the stock-based compensation expense related to equity awards that are not expected to vest was $5 million and $17 million, respectively.

The following summarizes the aggregate unearned stock-based compensation expense and estimated weighted average amortization period as of July 30, 2017April 29, 2018 and January 29, 2017:28, 2018:

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

For the quarter exceeds the adjusted strike price of $26.9876 per share. All outstanding Warrants were terminated during the secondfirst quarter of fiscal year 2018.

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

We recognized income tax expense of $67 million and Warrants.$29 million for the first quarter of fiscal years 2019 and 2018, respectively. Income tax expense as a percentage of income before income tax was 5.1% and 5.5% for the first quarter of fiscal years 2019 and 2018, respectively.

For the first halfquarter of fiscal year 2018,2019, there have been no material changes to our tax years that remain subject to examination by major tax jurisdictions. Additionally, there have been no material changes to our unrecognized tax benefits and any related interest or penalties since the fiscal year ended January 29, 2017.

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 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 July 30, 2017,April 29, 2018, 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.

All of our cash equivalents and marketable securities are classified as “available-for-sale” debt 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 total other income (expense) on the Condensed Consolidated Statements of Income.

The following is a summary of cash equivalents and marketable securities as of July 30, 2017April 29, 2018 and January 29, 2017:

The gross unrealized losses related to fixed income securities were primarily due to changes in interest rates. We have determined that the gross unrealized losses on investment securities as of July 30, 2017rates, which we believe are temporary in nature. Currently, we have the intent and ability to hold our investments with impairment indicators until maturity. Net realized gains and losses were not significant forFor the secondfirst quarter and first half of fiscal years 2019 and 2018, there were no other-than-temporary impairment losses and 2017.

The amortized cost and estimated fair value of cash equivalents and marketable securities which are primarily debt instruments, are classified as available-for-sale as of July 30, 2017April 29, 2018 and January 29, 2017 and28, 2018 are shown below by contractual maturity:  

The fair values of our financial assets and liabilities are determined using quoted market prices of identical assets or quoted market prices of similar assets from active markets. We review the fair value hierarchy classification on a quarterly basis. There were no significant transfers between Levels 1 and 2 financial assets and liabilities for the secondfirst quarter of fiscal year 2018. We did not have any investments classified as2019. Level 3 as of July 30, 2017.

The components of our amortizable intangible assets are as follows:

Note 89 - Balance Sheet Components

Certain balance sheet components are as follows:

As of July 30, 2017,April 29, 2018, we had outstanding inventory purchase obligations totaling $1.04$1.69 billion.

We enter 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 hedge relationships on a spot to spot basis. Gains or losses on the contracts are recorded in accumulated other comprehensive income (loss)or loss and reclassified to operating expense when the related operating expenses are recognized in earnings or ineffectiveness should occur. The fair value of the contracts was not significant as of July 30, 2017 was not significant.

We also enter into foreign currency forward contracts to mitigate the impact of foreign currency movements on monetary assets and liabilities that are denominated in currencies other than our reporting currency.U.S. dollar. These foreign currency forward contracts were not designated for hedge accounting treatment. Therefore, the change in fair value of these contracts is recorded as a component of totalin other income (expense)or expense and offsets the change in fair value of the hedged foreign currency denominated monetary assets and liabilities, which is also recorded in total other income (expense).

The table below presents the notional value of our foreign currency forward contracts:contracts outstanding as of April 29, 2018 and January 28, 2018:

As of July 30, 2017, the maturities of theApril 29, 2018, all designated foreign currency forward contracts were three months or less.mature within twelve months. We expect to realize all gains and losses deferred into accumulated other comprehensive income (loss) related to foreign currency forward contracts within the next twelve months.

Note Hedges and Warrants

Concurrently with the issuance of the Convertible Notes, we entered into the Note Hedges. The Note Hedges have an adjusted strike price of $20.0480$20.0296 per share and 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 Convertible Notes upon conversion. During the second quarter of fiscal yearThrough April 29, 2018, we had received 556 million shares of our common stock from the exercise of a portion of the Note Hedges related to the settlement of $136 million$1.49 billion in principal amount of the Convertible Notes. Subsequently, we expect to receive additional shares of our common stock related to at least an additional $62 million in principal amount that is expected to settle during the third quarter of fiscal year 2018.

In addition, concurrent with the offering of the Convertible Notes and the purchase of the Note Hedges, we entered into a separate warrant transaction.

In the second quarter of fiscal year 2018, we entered intoestablished a second agreementcommercial paper program to terminatesupport general corporate purposes. Under the remaining 12program, we can issue up to $575 million Warrants outstandingin commercial paper. As of April 29, 2018, we had not issued any commercial paper and in consideration, we delivered a total of 10 million shares of common stock to the counterparty bank.

Polaris Innovations Limited

On May 16, 2016, Polaris Innovations Limited, or Polaris, a non-practicing entity and wholly-owned subsidiary of Quarterhill Inc. (formerly WiLAN Inc.), filed a complaint against NVIDIA for patent infringement in the United States District Court for the Western District of Texas allegingTexas. Polaris alleges that NVIDIA has infringed and is continuing to infringe six U.S. patents relating to the control of dynamic random-access memory, (DRAM).or DRAM: 6,532,505; 7,124,325; 7,405,993; 7,886,122; 8,161,344; and 8,207,976. The complaint seeks unspecified monetary damages, enhanced damages, interest, fees, expenses, and costs against NVIDIA. On September 14, 2016, NVIDIA answered the Polaris Complaint and asserted various defenses including non-infringement and invalidity of the six Polaris patents.

On June 15, 2017, the California Court granted NVIDIA’s motion to stay the district court litigation pending resolution of the petitions for IPR. The California Court has not set a trial date.

An oral hearing has beenis scheduled for February 21, 2019.

On December 29, 2017, ZiiLabs filed a request with the U.S. International Trade Commission, or USITC, to commence an Investigation pursuant to Section 337 of the Tariff Act of 1930 relating to the unlawful importation of certain graphics processors and products containing the same. ZiiLabs alleges that the nullity actions against EP1428225unlawful importation results from the infringement of the ZiiLabs 2 Patents by products from respondents NVIDIA, ASUSTeK Computer Inc., ASUS Computer International, EVGA Corporation, Gigabyte Technology Co., Ltd., G.B.T. Inc., Micro-Star International Co., Ltd., MSI Computer Corp., Nintendo Co., Ltd., Nintendo of America Inc., PNY Technologies Inc., Zotac International (MCO) Ltd., and DE 1020066043668 were served on PolarisZotac USA Inc.

On February 28, 2018, NVIDIA and that Polaris has filed a formal response opposing each nullity complaint. On July 14, 2017, the German Patent Court acknowledged receiptother respondents answered the ITC complaint and asserted various defenses including non-infringement and invalidity of a nullity action filed by NVIDIA challenging the validity of DE 10223167. Polaris has not yet responded to this action.

Accounting for Loss Contingencies

While there can be no assurance of favorable outcomes, we believe the claims made by the other partyparties in the above ongoing matters are without merit and we intend to vigorously defend the actions. As of July 30, 2017,April 29, 2018, 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 loss or 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.

Beginning August 2004, our Board of Directors authorized us subject to certain specifications, to repurchase shares of our common stock.

During the secondfirst quarter and first half of fiscal year 2018,2019, we repurchased a total of 53 million shares for $758$655 million and madepaid $91 million in cash dividend paymentsdividends to our shareholders of $84 million and $166 million, respectively.

Through July 30, 2017,April 29, 2018, we have repurchased an aggregate of 250254 million shares under our share repurchase program for a total cost of $5.35 billion since the inception of the program.$6.16 billion. All shares delivered from these repurchases have been placed into treasury stock. As of July 30, 2017,April 29, 2018, we were authorized, subject to certain specifications, to repurchase additional shares of our common stock up to $1.97$1.16 billion through December 2020.

As of July 30, 2017April 29, 2018 and January 29, 2017,28, 2018, there were no shares of preferred stock outstanding.

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

Our CODM does not review any information regarding total assets on a reportable segment basis. 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.