Quarterly Report (10-q)

Date : 05/16/2019 @ 9:43PM
Source : Edgar (US Regulatory)
Stock : Nvidia Corp. (NVDA)
Quote : 151.48  0.0 (0.00%) @ 1:00AM

Quarterly Report (10-q)



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 April 28, 2019
OR
[_]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-23985
NVIDIALOGOCOLORA15.JPG
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.)
2788 San Tomas Expressway
Santa Clara, California 95051
(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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.001 par value per share
NVDA
The Nasdaq Global Select Market
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 ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 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, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x
Accelerated filer o  
Non-accelerated filer o   
Smaller reporting company o
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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  May 10, 2019 , was  609 million .




NVIDIA CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED April 28, 2019
TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
Financial Statements (Unaudited)
 
 
 
 
 
a) Condensed Consolidated Statements of Income for the three months ended April 28, 2019 and April 29, 2018
 
b) Condensed Consolidated Statements of Comprehensive Income for the three months ended April 28, 2019 and April 29, 2018
 
c) Condensed Consolidated Balance Sheets as of April 28, 2019 and January 27, 2019
 
d) Condensed Consolidated Statements of Shareholders' Equity for the three months ended April 28, 2019 and April 29, 2018
 
e) Condensed Consolidated Statements of Cash Flows for the three months ended April 28, 2019 and April 29, 2018
 
f) Notes to Condensed Consolidated Financial Statements
 
 
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
Quantitative and Qualitative Disclosures About Market Risk
 
 
 
Controls and Procedures
 
 
 
 
 
 
 
 
Legal Proceedings
 
 
 
Risk Factors
 
 
 
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Exhibits
 
 
 
 
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)
NVIDIA Instagram Page (https://www.instagram.com/nvidia)
In addition, investors and others 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.

2



PART I. FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS (UNAUDITED)
NVIDIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)
(Unaudited)
 
Three Months Ended
 
April 28,
 
April 29,
 
2019
 
2018
 
 
 
 
Revenue
$
2,220

 
$
3,207

Cost of revenue
924

 
1,139

Gross profit
1,296

 
2,068

Operating expenses
 

 
 
Research and development
674

 
542

Sales, general and administrative
264

 
231

Total operating expenses
938

 
773

Income from operations
358

 
1,295

Interest income
44

 
25

Interest expense
(13
)
 
(15
)
Other, net

 
6

Total other income (expense)
31

 
16

Income before income tax
389

 
1,311

Income tax expense (benefit)
(5
)
 
67

Net income
$
394

 
$
1,244

 
 
 
 
Net income per share:
 
 
 
Basic
$
0.65

 
$
2.05

Diluted
$
0.64

 
$
1.98

 
 
 
 
Weighted average shares used in per share computation:
 
 
 
Basic
607

 
606

Diluted
616

 
627

See accompanying Notes to Condensed Consolidated Financial Statements.


3


NVIDIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
 
Three Months Ended
 
April 28,
 
April 29,
 
2019
 
2018
 
 
Net income
$
394

 
$
1,244

Other comprehensive income (loss), net of tax
 
 
 
Available-for-sale securities:
 
 
 
Net change in unrealized gain (loss)
7

 
(3
)
Cash flow hedges:
 
 
 
Net unrealized gain (loss)
4

 
(3
)
Reclassification adjustments for net realized gain (loss) included in net income
(1
)
 
1

Net change in unrealized gain (loss)
3

 
(2
)
Other comprehensive income (loss), net of tax
10

 
(5
)
Total comprehensive income
$
404

 
$
1,239

See accompanying Notes to Condensed Consolidated Financial Statements.


4



NVIDIA CORPORATION AND SUBSIDIARIES 
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
 
April 28,
 
January 27,
 
2019
 
2019
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
2,772

 
$
782

Marketable securities
5,030

 
6,640

Accounts receivable, net
1,242

 
1,424

Inventories
1,426

 
1,575

Prepaid expenses and other current assets
159

 
136

Total current assets
10,629

 
10,557

Property and equipment, net
1,473

 
1,404

Operating lease assets
536

 

Goodwill
618

 
618

Intangible assets, net
54

 
45

Deferred income tax assets
601

 
560

Other assets
110

 
108

Total assets
$
14,021

 
$
13,292

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
368

 
$
511

Accrued and other current liabilities
815

 
818

Total current liabilities
1,183

 
1,329

Long-term debt
1,988

 
1,988

Long-term operating lease liabilities
486

 

Other long-term liabilities
660

 
633

Total liabilities
4,317

 
3,950

Commitments and contingencies - see Note 13


 


Shareholders’ equity:
 
 
 
Preferred stock

 

Common stock
1

 
1

Additional paid-in capital
6,317

 
6,051

Treasury stock, at cost
(9,474
)
 
(9,263
)
Accumulated other comprehensive loss
(2
)
 
(12
)
Retained earnings
12,862

 
12,565

Total shareholders' equity
9,704

 
9,342

Total liabilities and shareholders' equity
$
14,021

 
$
13,292

See accompanying Notes to Condensed Consolidated Financial Statements.


5



NVIDIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
 
Common Stock
Outstanding
 
Additional Paid-in Capital
 
Treasury Stock
 
Accumulated Other Comprehensive Income (Loss)
 
Retained Earnings
 
Total Shareholders' Equity
(In millions, except per share data)
Shares
 
Amount
 
 
 
 
 
Balances, January 27, 2019
606

 
$
1

 
$
6,051

 
$
(9,263
)
 
$
(12
)
 
$
12,565

 
$
9,342

Other comprehensive income

 

 

 

 
10

 

 
10

Net income

 

 

 

 

 
394

 
394

Issuance of common stock from stock plans 
4

 

 
83

 

 

 

 
83

Tax withholding related to vesting of restricted stock units
(1
)
 

 

 
(211
)
 

 

 
(211
)
Cash dividends declared and paid ($0.160 per common share)

 

 

 

 

 
(97
)
 
(97
)
Stock-based compensation

 

 
183

 

 

 

 
183

Balances, April 28, 2019
609

 
$
1

 
$
6,317

 
$
(9,474
)
 
$
(2
)
 
$
12,862

 
$
9,704


 
Common Stock
Outstanding
 
Additional Paid-in Capital
 
Treasury Stock
 
Accumulated Other Comprehensive Income (Loss)
 
Retained Earnings
 
Total Shareholders' Equity
(In millions, except per share data)
Shares
 
Amount
 
 
 
 
 
Balances, January 28, 2018
606

 
$
1

 
$
5,351

 
$
(6,650
)
 
$
(18
)
 
$
8,787

 
$
7,471

Retained earnings adjustment due to adoption of new revenue accounting standard

 

 

 

 

 
8

 
8

Other comprehensive loss

 

 

 

 
(5
)
 

 
(5
)
Net income

 

 

 

 

 
1,244

 
1,244

Issuance of common stock from stock plans 
6

 

 
66

 

 

 

 
66

Tax withholding related to vesting of restricted stock units
(2
)
 

 

 
(450
)
 

 

 
(450
)
Share repurchase
(3
)
 

 

 
(655
)
 

 

 
(655
)
Cash dividends declared and paid ($0.150 per common share)

 

 

 

 

 
(91
)
 
(91
)
Stock-based compensation

 

 
129

 

 

 

 
129

Balances, April 29, 2018
607

 
$
1

 
$
5,546

 
$
(7,755
)
 
$
(23
)
 
$
9,948

 
$
7,717

See accompanying Notes to Condensed Consolidated Financial Statements.

6



NVIDIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
Three Months Ended
 
April 28,
 
April 29,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income
$
394

 
$
1,244

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

Stock-based compensation expense
178

 
129

Depreciation and amortization
91

 
57

Deferred income taxes
(42
)
 
51

Other
(2
)
 
(8
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
182

 
56

Inventories
153

 
(2
)
Prepaid expenses and other assets
5

 
(38
)
Accounts payable
(123
)
 
22

Accrued and other current liabilities
(129
)
 
(81
)
Other long-term liabilities
13

 
15

Net cash provided by operating activities
720

 
1,445

Cash flows from investing activities:
 
 
 
Proceeds from maturities of marketable securities
2,219

 
239

Proceeds from sales of marketable securities
26

 
33

Purchases of marketable securities
(622
)
 
(3,705
)
Purchases of property and equipment and intangible assets
(128
)
 
(118
)
Net cash provided by (used in) investing activities
1,495

 
(3,551
)
Cash flows from financing activities:
 
 
 
Proceeds related to employee stock plans
83

 
66

Payments related to tax on restricted stock units
(211
)
 
(449
)
Dividends paid
(97
)
 
(91
)
Payments related to repurchases of common stock

 
(655
)
Repayment of Convertible Notes

 
(2
)
Net cash used in financing activities
(225
)
 
(1,131
)
Change in cash and cash equivalents
1,990

 
(3,237
)
Cash and cash equivalents at beginning of period
782

 
4,002

Cash and cash equivalents at end of period
$
2,772

 
$
765

 
 
 
 
Other non-cash investing activity:
 
 
 
Assets acquired by assuming related liabilities
$
114

 
$
43

See accompanying Notes to Condensed Consolidated Financial Statements.

7

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 27, 2019 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 27, 2019 , 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 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 27, 2019 .  
Significant Accounting Policies
Except for the accounting policy for leases, which was updated as a result of adopting a new accounting standard related to leases, there have been no material changes to our significant accounting policies in 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 27, 2019.
Leases
We determine if an arrangement is or contains a lease at inception. Operating leases with lease terms of more than 12 months are included in operating lease assets, accrued and other current liabilities, and long-term operating lease liabilities on our consolidated balance sheet. Operating lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments over the lease term.
Operating lease assets and liabilities are recognized based on the present value of the remaining lease payments discounted using our incremental borrowing rate. Operating lease assets also include initial direct costs incurred and prepaid lease payments, minus any lease incentives. Our lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term.
We combine the lease and non-lease components in determining the operating lease assets and liabilities.
Refer to Note 3 of these Notes to Condensed Consolidated Financial Statements for additional information.
Fiscal Year
We operate on a 52- or 53-week year, ending on the last Sunday in January. Fiscal years 2020 and 2019 are both 52-week years. The first quarters of fiscal years 2020 and 2019 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 intercompany balances and transactions have been eliminated in consolidation.
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 materially from our 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, litigation, investigation and settlement costs, restructuring and other charges, and

8

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



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
Recently Adopted Accounting Pronouncement
The Financial Accounting Standards Board, or FASB, issued an accounting standards update regarding the accounting for leases under which lease assets and liabilities are recognized on the balance sheet. We adopted this guidance on January 28, 2019 using the optional transition method by recognizing a cumulative-effect adjustment to the consolidated balance sheet. Refer to Note 3 of these Notes to Condensed Consolidated Financial Statements for additional information.
Recent Accounting Pronouncement Not Yet Adopted
In June 2016, the FASB issued a new accounting standard to replace the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. We will be required to use a forward-looking expected credit loss model for accounts receivable and other financial instruments, including available-for-sale debt securities. The standard will be effective for us beginning in the first quarter of fiscal year 2021, with early adoption permitted. We are currently evaluating the impact of this standard on our Consolidated Financial Statements.
Note 2 - Merger Agreement with Mellanox Technologies, Ltd .
On March 10, 2019, we entered into an Agreement and Plan of Merger, or the Merger Agreement, with Mellanox Technologies Ltd, or Mellanox, pursuant to which we will acquire all of the issued and outstanding common shares of Mellanox for $125 per share in cash, representing a total enterprise value of approximately $6.9 billion as of the date of the Merger Agreement. The closing of the merger is subject to certain conditions, including the approval by Mellanox shareholders and various regulatory agencies. If the Merger Agreement is terminated under certain circumstances involving the failure to obtain required regulatory approvals, we could be obligated to pay Mellanox a termination fee of $350 million .
Note 3 - New Lease Accounting Standard
Method and Impact of Adoption
On January 28, 2019, we adopted the new lease accounting standard using the optional transition method by recognizing a cumulative-effect adjustment to the consolidated balance sheet and not adjusting comparative information for prior periods. In addition, we elected the package of practical expedients permitted under the transition guidance, which allowed us not to reassess (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases, and (3) initial direct costs for any existing leases.
The cumulative-effect adjustment upon adoption of the new lease accounting standard resulted in the recognition of $ 470 million of operating lease assets and $ 500 million of operating lease liabilities on our Consolidated Balance Sheet. The difference of $ 30 million represents deferred rent for leases that existed as of the date of adoption, which was an offset to the opening balance of operating lease assets.
Lease Obligations
Our lease obligations consist of operating leases for our headquarters complex, domestic and international office facilities, and data center space, with lease periods expiring between 2019 and 2035 .

9

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Future minimum lease payments under our non-cancelable operating leases as of April 28, 2019, are as follows:   
 
Operating Lease Obligations
 
(In millions)
Fiscal Year:
 
2020 (excluding first quarter of fiscal year 2020)
$
77

2021
100

2022
92

2023
79

2024
57

2025 and thereafter
277

Total
682

Less imputed interest
116

Present value of net future minimum lease payments
566

Less short-term operating lease liabilities
80

Long-term operating lease liabilities
$
486


Future minimum lease payments under our non-cancelable operating leases as of January 27, 2019, based on the previous lease accounting standard, are as follows:
 
Lease Obligations
 
(In millions)
Fiscal Year:
 
2020
$
100

2021
97

2022
90

2023
77

2024
54

2025 and thereafter
265

Total
$
683


Operating lease expense for the first quarter of fiscal years 2020 and 2019 was $27 million and $16 million , respectively. Short-term and variable lease expenses for the first quarter of fiscal year 2020 were not significant.

Other information related to leases was as follows:
 
Three Months Ended
 
April 28, 2019
 
(In millions)
Supplemental cash flows information
 
Operating cash flows used for operating leases
$
24

Operating lease assets obtained in exchange for lease obligations
$
87

Weighted-average remaining lease term - operating leases
8.9 years

Weighted-average remaining discount rate - operating leases
3.73
%

10

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Note 4 - Stock-Based Compensation
Our stock-based compensation expense is associated with 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.
Our Condensed Consolidated Statements of Income include stock-based compensation expense, net of amounts allocated to inventory, as follows:
 
Three Months Ended
 
April 28,
2019
 
April 29,
2018
 
(In millions)
Cost of revenue
$
4

 
$
8

Research and development
114

 
74

Sales, general and administrative
60

 
47

Total
$
178

 
$
129

Equity Award Activity
The following is a summary of equity award transactions under our equity incentive plans:
 
RSUs, PSUs, and Market-based PSUs Outstanding
 
Number of Shares
 
Weighted Average Grant-Date Fair Value Per Share
 
(In millions, except per share data)
Balances, January 27, 2019
16

 
$
129.92

Granted (1) (2)
6

 
$
183.83

Vested restricted stock
(3
)
 
$
53.97

Canceled and forfeited
(1
)
 
$
191.92

Balances, April 28, 2019
18

 
$
159.28

(1)
Includes the number of PSUs granted that will be issued and eligible to vest if the maximum corporate financial performance goal for fiscal year 2020 is achieved. Depending on the actual level of the corporate performance achievement at the end of fiscal year 2020 , the PSUs issued could be up to 0.4 million shares.
(2)
Includes the number of market-based PSUs granted that will be issued and eligible to vest if the maximum goal for total shareholder return, or TSR, over the 3 -year measurement period is achieved. Depending on the ranking of our TSR compared to those of the companies comprising the Standard & Poor’s 500 Index during that period, the market-based PSUs issued could be up to 60 thousand shares.
Of the total fair value of equity awards granted during the first quarter of fiscal year 2020 , we estimated that the stock-based compensation expense related to equity awards that are not expected to vest was  $85 million
As of April 28, 2019 , there was $2.27 billion of aggregate unearned stock-based compensation expense. This amount is expected to be recognized over a weighted average period of 2.7 years for RSUs, PSUs, and market-based PSUs, and 1.3 years for ESPP.

11

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Note 5 – Net Income Per Share
The following is a reconciliation of the denominator of the basic and diluted net income per share computations for the periods presented:
 
Three Months Ended
 
April 28,
 
April 29,
 
2019
 
2018
 
(In millions, except per share data)
Numerator:
 
 
 
Net income
$
394

 
$
1,244

Denominator:
 
 
 
Basic weighted average shares
607

 
606

Dilutive impact of outstanding securities:
 
 
 
Equity awards
9

 
20

1.00% Convertible Senior Notes

 
1

Diluted weighted average shares
616

 
627

Net income per share:
 
 
 
Basic (1)
$
0.65

 
$
2.05

Diluted (2)
$
0.64

 
$
1.98

Equity awards excluded from diluted net income per share because their effect would have been anti-dilutive
11

 
1

(1)
Calculated as net income divided by basic weighted average shares.
(2)
Calculated as net income divided by diluted weighted average shares.
Note 6 – Income Taxes
We recognized an income tax benefit of $5 million for the first quarter of fiscal year 2020 and income tax expense of $67 million for the first quarter of fiscal year 2019 . The income tax benefit as a percentage of income before income tax was 1.3% for the first quarter of fiscal year 2020 and income tax expense as a percentage of income before tax was 5.1% for the first quarter of fiscal year 2019 .
The decrease in our effective tax rate for the first quarter of fiscal year 2020 as compared to the same period in the prior fiscal year was primarily due to a decrease in the amount of earnings subject to United States tax, and an increase in the impact of tax benefits from stock-based compensation and the U.S. federal research tax credit.
Our effective tax rates for the first quarter of fiscal years 2020 and 2019 were (1.3)% and 5.1% , respectively, and were lower than the U.S. federal statutory rate of 21% , due to income earned in jurisdictions that are subject to taxes lower than the U.S. federal statutory tax rate, tax benefits related to stock-based compensation, and the benefit of the U.S. federal research tax credit.
For the first quarter of fiscal year 2020, 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 27, 2019.
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 April 28, 2019, 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.

12

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Note 7 - Marketable Securities  
Our cash equivalents and marketable securities are classified as “available-for-sale” debt securities.
The following is a summary of cash equivalents and marketable securities as of April 28, 2019 and January 27, 2019 :
 
April 28, 2019
 
Amortized
Cost
 
Unrealized
Gain
 
Unrealized
Loss
 
Estimated
Fair Value
 
Reported as
 
 
 
 
 
Cash Equivalents
 
Marketable Securities
 
(In millions)
Corporate debt securities
$
2,899

 
$
2

 
$
(2
)
 
$
2,899

 
$
1,048

 
$
1,851

Debt securities of United States government agencies
1,882

 

 
(1
)
 
1,881

 

 
1,881

Debt securities issued by the United States Treasury
1,833

 

 

 
1,833

 
932

 
901

Money market funds
681

 

 

 
681

 
681

 

Foreign government bonds
183

 

 

 
183

 

 
183

Asset-backed securities
133

 

 
(1
)
 
132

 

 
132

Mortgage-backed securities issued by United States government-sponsored enterprises
81

 
1

 

 
82

 

 
82

Total
$
7,692

 
$
3

 
$
(4
)
 
$
7,691

 
$
2,661

 
$
5,030

 
January 27, 2019
 
Amortized
Cost
 
Unrealized
Gain
 
Unrealized
Loss
 
Estimated
Fair Value
 
Reported as
 
 
 
 
 
Cash Equivalents
 
Marketable Securities
 
(In millions)
Corporate debt securities
$
2,626

 
$

 
$
(6
)
 
$
2,620

 
$
25

 
$
2,595

Debt securities of United States government agencies
2,284

 

 
(4
)
 
2,280

 

 
2,280

Debt securities issued by the United States Treasury
1,493

 

 
(1
)
 
1,492

 
176

 
1,316

Money market funds
483

 

 

 
483

 
483

 

Foreign government bonds
209

 

 

 
209

 

 
209

Asset-backed securities
152

 

 
(1
)
 
151

 

 
151

Mortgage-backed securities issued by United States government-sponsored enterprises
88

 
1

 

 
89

 

 
89

Total
$
7,335

 
$
1

 
$
(12
)
 
$
7,324

 
$
684

 
$
6,640

The following table provides the breakdown of unrealized losses as of April 28, 2019 , aggregated by investment category and length of time that individual securities have been in a continuous loss position: 
 
Less than 12 Months
 
12 Months or Greater
 
Total
 
Estimated Fair Value
 
Gross
Unrealized
Losses
 
Estimated Fair Value
 
Gross
Unrealized
Losses
 
Estimated Fair Value
 
Gross
Unrealized
Losses
 
(In millions)
Debt securities issued by United States government agencies
$
1,429

 
$

 
$
306

 
$
(1
)
 
$
1,735

 
$
(1
)
Corporate debt securities
330

 
(1
)
 
453

 
(1
)
 
783

 
(2
)
Asset-backed securities

 

 
132

 
(1
)
 
132

 
(1
)
Total
$
1,759

 
$
(1
)
 
$
891

 
$
(3
)
 
$
2,650

 
$
(4
)
The gross unrealized losses are related to fixed income securities, temporary in nature, and driven primarily by changes in interest rates. We have the intent and ability to hold our investments until maturity. For the first quarter of fiscal years 2020 and 2019 , there were no other-than-temporary impairment losses and net realized gains were not significant.
The amortized cost and estimated fair value of cash equivalents and marketable securities as of April 28, 2019 and January 27, 2019 are shown below by contractual maturity.  
 
April 28, 2019
 
January 27, 2019
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
 
(In millions)
Less than 1 year
$
5,773

 
$
5,770

 
$
5,042

 
$
5,034

Due in 1 - 5 years
1,896

 
1,898

 
2,271

 
2,268

Mortgage-backed securities issued by United States government-sponsored enterprises not due at a single maturity date
23

 
23

 
22

 
22

Total
$
7,692

 
$
7,691

 
$
7,335

 
$
7,324

Note 8 – Fair Value of Financial Assets and Liabilities
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 fair value hierarchy classification on a quarterly basis. There were no significant transfers between Levels 1 and 2 financial assets and liabilities for the first quarter of fiscal year 2020 . Level 3 financial assets and liabilities are based on unobservable inputs to the valuation methodology and include our own data about assumptions market participants would use in pricing the asset or liability based on the best information available under the circumstances.

13

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



 
 
Fair Value at
 
Pricing Category
 
April 28, 2019
 
January 27, 2019
 
 
 
(In millions)
Assets
 
 
 
 
 
Cash equivalents and marketable securities:
 
 
 
Corporate debt securities
Level 2
 
$
2,899

 
$
2,620

Debt securities of United States government agencies
Level 2
 
$
1,881

 
$
2,280

Debt securities issued by the United States Treasury
Level 2
 
$
1,833

 
$
1,492

Money market funds
Level 1
 
$
681

 
$
483

Foreign government bonds
Level 2
 
$
183

 
$
209

Asset-backed securities
Level 2
 
$
132

 
$
151

Mortgage-backed securities issued by United States government-sponsored enterprises
Level 2
 
$
82

 
$
89

 
 
 
 
 
 
Liabilities
 
 
 
 
 
Other noncurrent liabilities:
 
 
 
 
 
2.20% Notes Due 2021 (1)
Level 2
 
$
989

 
$
978

3.20% Notes Due 2026 (1)
Level 2
 
$
997

 
$
961

(1)
These liabilities are carried on our Consolidated Balance Sheets at their original issuance value, net of unamortized debt discount and issuance costs, and are not marked to fair value each period. Refer to Note 12 of these Notes to Condensed Consolidated Financial Statements for additional information.
Note 9 - Amortizable Intangible Assets
The components of our amortizable intangible assets are as follows:
 
April 28, 2019
 
January 27, 2019
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Amount
 
(In millions)
 
(In millions)
Acquisition-related intangible assets
$
195

 
$
(188
)
 
$
7

 
$
195

 
$
(188
)
 
$
7

Patents and licensed technology
507

 
(460
)
 
47

 
491

 
(453
)
 
38

Total intangible assets
$
702

 
$
(648
)
 
$
54

 
$
686

 
$
(641
)
 
$
45

The increase in gross carrying amount of intangible assets is due to purchases of licensed technology during the first quarter of fiscal year 2020 . Amortization expense associated with intangible assets was $7 million and $11 million for the first quarter of fiscal years 2020 and 2019 , respectively. Future amortization expense related to the net carrying amount of intangible assets as of April 28, 2019 is estimated to be $18 million for the remainder of fiscal year 2020 , $17 million in fiscal year 2021 , $9 million in fiscal year 2022 , $7 million in fiscal year 2023 , and $3 million in fiscal year 2024 .

14

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Note 10 - Balance Sheet Components 
Certain balance sheet components are as follows:
 
April 28,
 
January 27,
 
2019
 
2019
Inventories:
(In millions)
Raw materials
$
484

 
$
613

Work in-process
189

 
238

Finished goods
753

 
724

Total inventories
$
1,426

 
$
1,575

 
April 28,
 
January 27,
 
2019
 
2019
Accrued and Other Current Liabilities:
(In millions)
Customer program accruals
$
263

 
$
302

Accrued payroll and related expenses
136

 
186

Taxes payable
107

 
91

Deferred revenue (1)
85

 
92

Operating lease liabilities
80

 

Accrued legal settlement costs
25

 
24

Licenses payable
23

 
12

Warranty accrual (2)
18

 
18

Professional service fees
10

 
14

Coupon interest on debt obligations
7

 
20

Accrued royalties
6

 
10

Other
55

 
49

Total accrued and other current liabilities
$
815

 
$
818

(1)
Deferred revenue primarily includes customer advances and deferrals related to license and development arrangements and post contract customer support, or PCS.
(2)
Refer to Note 13 of these Notes to Condensed Consolidated Financial Statements for a discussion regarding warranties.
 
April 28,
 
January 27,
 
2019
 
2019
Other Long-Term Liabilities:
(In millions)
Income tax payable (1)
$
524

 
$
513

Deferred revenue (2)
49

 
46

Licenses payable
34

 
1

Employee benefits liability
21

 
20

Deferred income tax liability
21

 
19

Deferred rent

 
21

Other
11

 
13

Total other long-term liabilities
$
660

 
$
633

(1)
As of April 28, 2019 , represents the long-term portion of the one-time transition tax payable of $351 million , as well as unrecognized tax benefits of $151 million and related interest and penalties of $22 million .
(2)
Deferred revenue primarily includes deferrals related to PCS.

15

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Deferred Revenue
The following table shows the changes in deferred revenue during the first quarter of fiscal years 2020 and 2019 .
 
April 28,
 
April 29,
 
2019
 
2018
 
(In millions)
Balance at beginning of period
$
138

 
$
63

Deferred revenue added during the period
49

 
86

Revenue recognized during the period
(53
)
 
(75
)
Balance at end of period
$
134

 
$
74

Note 11 - Derivative Financial Instruments
We enter into foreign currency forward contracts to mitigate the impact of foreign currency exchange rate movements on our operating expenses. These contracts are designated as cash flow hedges for hedge accounting treatment. Gains or losses on the contracts are recorded in accumulated other comprehensive income 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 April 28, 2019 and January 27, 2019 .
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 U.S. dollar. These forward contracts were not designated for hedge accounting treatment. Therefore, the change in fair value of these contracts is recorded in other income or expense and offsets the change in fair value of the hedged foreign currency denominated monetary assets and liabilities, which is also recorded in other income or expense.
The table below presents the notional value of our foreign currency forward contracts outstanding as of April 28, 2019 and January 27, 2019 :
 
April 28,
2019
 
January 27,
2019
 
(In millions)
Designated as cash flow hedges
$
411

 
$
408

Not designated for hedge accounting
$
253

 
$
241

As of  April 28, 2019 , all designated foreign currency forward contracts mature within eighteen months. The expected realized gains and losses deferred into accumulated other comprehensive income (loss) related to foreign currency forward contracts within the next twelve months was no t significant.
During the first quarter of fiscal years 2020 and 2019 , the impact of derivative financial instruments designated for hedge accounting treatment on other comprehensive income or loss was not significant and all such instruments were determined to be highly effective. Therefore, there were no gains or losses associated with ineffectiveness.

16

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Note 12 - Debt
Long-Term Debt
2.20% Notes Due 2021 and 3.20% Notes Due 2026
In fiscal year 2017, we issued $1.00 billion of the 2.20% Notes Due 2021, and $1.00 billion of the 3.20% Notes Due 2026, or collectively, the Notes. Interest on the Notes is payable on March 16 and September 16 of each year, beginning on March 16, 2017. Upon 30 days' notice to holders of the Notes, we may redeem the Notes for cash prior to maturity, at redemption prices that include accrued and unpaid interest, if any, and a make-whole premium. However, no make-whole premium will be paid for redemptions of the Notes Due 2021 on or after August 16, 2021, or for redemptions of the Notes Due 2026 on or after June 16, 2026. The net proceeds from the Notes were $1.98 billion , after deducting debt discount and issuance costs.
The Notes are our unsecured senior obligations and rank equally in right of payment with all existing and future unsecured and unsubordinated indebtedness. The Notes are structurally subordinated to the liabilities of our subsidiaries and are effectively subordinated to any secured indebtedness to the extent of the value of the assets securing such indebtedness. All existing and future liabilities of our subsidiaries will be effectively senior to the Notes.
The carrying value of the Notes and the associated interest rates were as follows:
 
 
Expected
Remaining Term (years)
 
Effective
Interest Rate
 
April 28, 2019
 
January 27, 2019
 
 
 
 
 
 
(In millions)
2.20% Notes Due 2021
 
2.4
 
2.38%
 
$
1,000

 
$
1,000

3.20% Notes Due 2026
 
7.4
 
3.31%
 
1,000

 
1,000

Unamortized debt discount and issuance costs
 
 
 
 
 
(12
)
 
(12
)
Net carrying amount
 
 
 
 
 
$
1,988

 
$
1,988

Revolving Credit Facility
We have a Credit Agreement under which we may borrow up to  $575 million for general corporate purposes and can obtain revolving loan commitments up to  $425 million . As of April 28, 2019 , we had no t borrowed any amounts under this agreement.
Commercial Paper
We have a $575 million commercial paper program to support general corporate purposes. As of April 28, 2019 , we had no t issued any commercial paper.

17

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Note 13 - Commitments and Contingencies
Inventory Purchase Obligations
As of April 28, 2019 , we had outstanding inventory purchase obligations totaling $782 million .
Capital Purchase Obligations
As of April 28, 2019 , we had outstanding capital purchase obligations totaling $194 million .
Performance Obligations
Revenue related to remaining performance obligations represents the amount of contracted license and development arrangements and PCS that has not been recognized. As of April 28, 2019 , the amount of our remaining performance obligations that has not been recognized as revenue was $294 million , of which we expect to recognize approximately 57 % as revenue over the next twelve months and the remainder thereafter. This amount excludes the value of remaining performance obligations for contracts with an original expected length of one year or less.
Accrual for Product Warranty Liabilities
The estimated amount of product returns and warranty liabilities was $18 million as of both April 28, 2019 and January 27, 2019 .

In connection with certain agreements that we have entered in the past, we have provided indemnification to cover the indemnified party for matters such as tax, product, and employee liabilities. We have 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. We have not recorded any liability in our Condensed Consolidated Financial Statements for such indemnifications.
Litigation
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 and Germany.
NVIDIA and Polaris entered into an agreement effective April 3, 2019 that settled the litigation between the parties, which had an immaterial impact on our financial results. The agreement includes a license to NVIDIA for certain patents owned by Polaris, as well as options for NVIDIA to renew the license through the life of the patents.
ZiiLabs 1 Patents Lawsuit
On October 2, 2017, ZiiLabs Inc., Ltd., or ZiiLabs, a non-practicing entity, filed a complaint in the United States District Court for the District of Delaware alleging that NVIDIA had infringed and was continuing to infringe four U.S. patents relating to GPUs, or the ZiiLabs 1 Patents. ZiiLabs is a Bermuda corporation and a wholly-owned subsidiary of Creative Technology Asia Limited, a Hong Kong company which is itself is a wholly-owned subsidiary of Creative Technology Ltd., a publicly traded Singapore company. The complaint sought unspecified monetary damages, enhanced damages, interest, costs, and fees against NVIDIA and an injunction against further direct or indirect infringement of the ZiiLabs 1 Patents.

On February 22, 2018, the Delaware Court stayed the ZiiLabs 1 case pending the resolution of the U.S. International Trade Commission, or USITC, investigation over the ZiiLabs 2 patents.

On February 1, 2019, NVIDIA entered into an agreement in which it received a license to the ZiiLabs patents and a dismissal of the ZiiLabs 1 and 2 Patent Lawsuits, which had an immaterial impact on our financial results. The ZiiLabs 1 and 2 district court cases were dismissed pursuant to a stipulation of dismissal filed on February 8, 2019. The Administrative Law Judge issued an Initial Determination on February 12, 2019, granting the motion to terminate the USITC investigation addressing the ZiiLabs 2 patents.

18

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



ZiiLabs 2 Patents Lawsuits
On December 27, 2017, ZiiLabs filed a second complaint in the United States District Court for the District of Delaware alleging that NVIDIA has infringed four additional U.S. patents, or the ZiiLabs 2 Patents. The second complaint also sought unspecified monetary damages, enhanced damages, interest, costs, and fees against NVIDIA and an injunction against further direct or indirect infringement of the ZiiLabs 2 Patents.

On December 29, 2017, ZiiLabs filed a request with the 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 alleged that the unlawful importation resulted 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 Zotac USA Inc.

On February 1, 2019, NVIDIA entered into an agreement in which it received a license to the ZiiLabs patents and a dismissal of the ZiiLabs 1 and 2 Patent Lawsuits, which had an immaterial impact on our financial results. The ZiiLabs 1 and 2 district court cases were dismissed pursuant to a stipulation of dismissal filed on February 8, 2019. The Administrative Law Judge issued an Initial Determination on February 12, 2019, granting the motion to terminate the USITC investigation addressing the ZiiLabs 2 patents.
Securities Class Action and Derivative Lawsuits
On December 21, 2018, a purported securities class action lawsuit was filed in the United States District Court for the Northern District of California, captioned Iron Workers Joint Funds v. Nvidia Corporation, et al. (Case No. 18-cv-7669), naming as defendants NVIDIA and certain of NVIDIA’s officers. The complaint asserts that the defendants violated Section 10(b) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and SEC Rule 10b-5, by making materially false or misleading statements related to channel inventory and the impact of cryptocurrency mining on GPU demand between August 10, 2017 and November 15, 2018. The plaintiff also alleges that the NVIDIA officers who they named as defendants violated Section 20(a) of the Exchange Act. The plaintiff seeks class certification, an award of unspecified compensatory damages, an award of equitable/injunctive or other further relief as the Court may deem just and proper. On December 28, 2018, a substantially similar purported securities class action was commenced in the Northern District of California, captioned Oto v. Nvidia Corporation, et al. (Case No. 18-cv-07783), naming the same defendants, and seeking substantially similar relief. On February 19, 2019, a number of shareholders filed motions to consolidate the two cases and to be appointed lead plaintiff and for their respective counsel to be appointed lead counsel. On March 12, 2019, the two cases were consolidated under case number 4:18-cv-07669-HSG and titled In Re NVIDIA Corporation Securities Litigation. On May 2, 2019, the Court appointed lead plaintiff and lead counsel.
On January 18, 2019, a shareholder, purporting to act on the behalf of NVIDIA, filed a derivative lawsuit in the Northern District of California, captioned Han v. Huang, et al. (Case No. 19-cv-00341), seeking to assert claims on behalf of NVIDIA against the members of NVIDIA’s board of directors and certain officers. The lawsuit asserts claims for breach of fiduciary duty, unjust enrichment, waste of corporate assets, and violations of Sections 14(a), 10(b), and 20(a) of the Exchange Act based on the dissemination of allegedly false and misleading statements related to channel inventory and the impact of cryptocurrency mining on GPU demand. The plaintiff is seeking unspecified damages and other relief, including reforms and improvements to NVIDIA’s corporate governance and internal procedures. On February 12, 2019, a substantially similar derivative lawsuit was filed in the Northern District of California captioned Yang v. Huang, et. al. (Case No. 19-cv-00766), naming the same named defendants, and seeking the same relief. On February 19, 2019, a third substantially similar derivative lawsuit was filed in the Northern District of California captioned The Booth Family Trust v. Huang, et. al. (Case No. 3:19-cv-00876), naming the same named defendants, and seeking substantially the same relief. On March 12, 2019, the three derivative actions were consolidated under case number 4:19-cv-00341-HSG, and titled In re NVIDIA Corporation Consolidated Derivative Litigation. The parties stipulated to stay the In re NVIDIA Corporation Consolidated Derivative Litigation pending resolution of any motion to dismiss that NVIDIA may file in the In Re NVIDIA Corporation Securities Litigation.
It is possible that additional suits will be filed, or allegations received from shareholders, with respect to these same or other matters, naming us and/or our officers and directors as defendants.

19

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Litigation Related to Mellanox Merger
On May 3, 2019, an alleged stockholder of Mellanox filed a putative class action lawsuit alleging that the proxy statement filed by Mellanox in connection with the stockholder vote on NVIDIA’s pending acquisition of Mellanox violates Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 and asserting claims under those statutes against Mellanox and its board of directors as well as NVIDIA. The complaint, which is captioned Stein v. Mellanox Technologies, Ltd., et al., Case No. 19-2428 (United States District Court, Northern District of California), seeks declaratory and injunctive relief and unspecified damages. A number of other alleged Mellanox stockholders have filed substantially similar lawsuits against Mellanox and its directors in the United States District Court for the Northern District of California and in the United States District Court for the Southern District of New York, but to date, NVIDIA has not been named as a defendant in any of these other lawsuits.
Accounting for Loss Contingencies
We are engaged in legal actions not described above arising in the ordinary course of 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. As of April 28, 2019 , 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, except as specifically described above, any possible loss or range of loss in these matters cannot be reasonably estimated at this time.
Note 14 - Shareholders’ Equity  
Capital Return Program 
Beginning August 2004, our Board of Directors authorized us to repurchase our stock.
During the first quarter of fiscal year 2020 , we paid $97 million in cash dividends to our shareholders.
Through April 28, 2019 , we have repurchased an aggregate of 260 million shares under our share repurchase program for a total cost of $7.08 billion . All shares delivered from these repurchases have been placed into treasury stock. As of April 28, 2019 , we were authorized, subject to certain specifications, to repurchase additional shares of our common stock up to $7.24 billion through December 2022.
Preferred Stock
As of April 28, 2019 and January 27, 2019 , 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.
Note 15 - 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 reportable segments - the GPU business and the Tegra Processor business - based on a single underlying architecture.
Our GPU product brands are aimed at specialized markets including GeForce for gamers; Quadro for designers; Tesla and DGX for artificial intelligence, data scientists and big data researchers; and GRID for cloud-based visual computing users. Our Tegra brand integrates an entire computer onto a single chip, and incorporates GPUs and multi-core CPUs to drive supercomputing for autonomous robots, drones, and cars, as well as for game consoles and mobile gaming and entertainment devices.
Under the single unifying architecture for our GPU and Tegra Processors, we leverage 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 reportable segments, our CODM assigns 100% of those expenses to the reportable segment that benefits the most.

20

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, acquisition-related costs, legal settlement costs, contributions, restructuring and other charges, product warranty charge, 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 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 our consolidated financial statements. The table below presents details of our reportable segments and the “All Other” category.
 
GPU
 
Tegra Processor
 
All Other
 
Consolidated
 
(In millions)
Three Months Ended April 28, 2019
 
 
 
 
 
 
 
Revenue
$
2,022

 
$
198

 
$

 
$
2,220

Depreciation and amortization expense
$
76

 
$
12

 
$
3

 
$
91

Operating income (loss)
$
669

 
$
(44
)
 
$
(267
)
 
$
358

 
 
 
 
 
 
 
 
Three Months Ended April 29, 2018
 

 
 

 
 

 
 

Revenue
$
2,765

 
$
442

 
$

 
$
3,207

Depreciation and amortization expense
$
40

 
$
10

 
$
7

 
$
57

Operating income (loss)
$
1,394

 
$
97

 
$
(196
)
 
$
1,295

 
Three Months Ended
 
April 28,
2019
 
April 29,
2018
 
(In millions)
Reconciling items included in "All Other" category:
 
 
 
Stock-based compensation expense
$
(178
)
 
$
(129
)
Unallocated cost of revenue and operating expenses
(68
)
 
(63
)
Legal settlement costs
(11
)
 
(2
)
Acquisition-related and other costs
(10
)
 
(2
)
Total
$
(267
)
 
$
(196
)

21

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 the invoicing address by geographic regions:
 
Three Months Ended
 
April 28,
 
April 29,
 
2019
 
2018
 
(In millions)
Revenue:
 
 
 
Taiwan
$
698

 
$
967

China (including Hong Kong)
553

 
754

Other Asia Pacific
422

 
583

Europe
249

 
235

United States
165

 
434

Other countries
133

 
234

Total revenue
$
2,220

 
$
3,207


The following table summarizes information pertaining to our revenue by each of the specialized markets we serve:
 
Three Months Ended
 
April 28,
 
April 29,
 
2019
 
2018
 
(In millions)
Revenue:
 
 
 
Gaming
$
1,055

 
$
1,723

Professional Visualization
266

 
251

Data Center
634

 
701

Automotive
166

 
145

OEM and Other
99

 
387

Total revenue
$
2,220

 
$
3,207

Revenue from significant customers, those representing 10% or more of total revenue, was approximately 11% of our total revenue from one customer for the first quarter of fiscal year 2020 , and aggregated approximately  20%  of our total revenue from two customers for the first quarter of fiscal year 2019, and was attributable primarily to the GPU business.
Accounts receivable from significant customers, those representing more than 10% of total accounts receivable, aggregated approximately 21% of our accounts receivable balance from one customer as of April 28, 2019 , and approximately 19% of our accounts receivable balance from one customer as of January 27, 2019 .

22



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 NVID IA Corporation and its subsidiaries.
NVIDIA, the NVIDIA logo, CUDA, CUDA-X AI, GeForce, GeForce GTX, NVIDIA DGX, NVIDIA DRIVE, NVIDIA DRIVE Constellation, NVIDIA GRID, NVIDIA Omniverse, NVIDIA RTX, Quadro, Quadro RTX, Tegra and Tesla are trademarks and/or registered trademarks of NVIDIA Corporation in the United States and/or other countri es. Other company and product names may be trademarks of the respective companies with which they are associated. Features, pricing, availability, and specifications are subject to change without notice.
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 27, 2019 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
Starting with a focus on PC graphics, NVIDIA invented the GPU to solve some of the most complex problems in computer science. We have extended our focus in recent years to the revolutionary field of AI. Fueled by the sustained demand for better 3D graphics and the scale of the gaming market, NVIDIA has evolved the GPU into a computer brain at the intersection of virtual reality, high performance computing, or HPC, and artificial intelligence, or AI.
Our two reportable segments - GPU and Tegra Processor - are based on a single underlying architecture. From our proprietary processors, we have created platforms that address four large markets where our expertise is critical: Gaming, Professional Visualization, Data Center, and Automotive.
Our GPU product brands are aimed at specialized markets including GeForce for gamers; Quadro for designers; Tesla and DGX for AI data scientists and big data researchers; and GRID for cloud-based visual computing users. Our Tegra brand integrates an entire computer onto a single chip, and incorporates GPUs and multi-core CPUs to drive supercomputing for autonomous robots, drones, and cars, as well as for consoles and mobile gaming and entertainment devices.
Headquartered in Santa Clara, California, NVIDIA was incorporated in California in April 1993 and reincorporated in Delaware in April 1998.

23



Recent Developments, Future Objectives and Challenges
First Quarter of Fiscal Year 2020 Summary
 
Three Months Ended
 
 
 
 
 
April 28, 2019
 
January 27, 2019
 
April 29, 2018
 
Quarter-over-Quarter Change
 
Year-over-Year Change
 
($ in millions, except per share data)
 
 
 
 
Revenue
$
2,220

 
$
2,205

 
$
3,207

 
1
 %
 
(31
)%
Gross margin
58.4
%
 
54.7
%
 
64.5
%
 
370 bps

 
(610) bps

Operating expenses
$
938

 
$
913

 
$
773

 
3
 %
 
21
 %
Income from operations
$
358

 
$
294

 
$
1,295

 
22
 %
 
(72
)%
Net income
$
394

 
$
567

 
$
1,244

 
(31
)%
 
(68
)%
Net income per diluted share
$
0.64

 
$
0.92

 
$
1.98

 
(30
)%
 
(68
)%
Revenue for the first quarter of fiscal year 2020 decreased 31% year over year and increased 1% sequentially.
GPU business revenue was $2.02 billion , down 27% from a year earlier and up 2% sequentially. The year-on-year decrease reflects declines in gaming and data center revenue, as well as the absence of $ 289 million of OEM revenue from cryptocurrency mining processors, or CMP.
Tegra Processor business revenue - which includes automotive, SOC modules for gaming platforms, and embedded edge AI platforms - was $198 million , down 55% from a year ago and down 12% sequentially. The year-on-year decrease primarily reflects a decline in shipments of SOC modules for gaming platforms.
Gaming revenue was $1.05 billion, down 39% from a year ago and up 11% sequentially. The year-on-year decrease primarily reflects a decline in shipments of gaming GPUs and SOC modules for gaming platforms. The sequential increase primarily reflects growth in gaming GPUs. We believe a shortage of Intel processors that is impacting the global PC market will affect our sales of gaming GPUs for laptops in the second quarter of fiscal year 2020.
Professional Visualization revenue was $266 million , up 6% from a year earlier and down 9% sequentially. The year-on-year increase reflects strength across both desktop and mobile workstation products. The sequential decrease largely reflects a seasonal decline.
Data Center revenue was $634 million , down 10% from a year ago and down 7% sequentially, primarily reflecting a slowdown in purchases by certain hyperscale and enterprise customers, partially offset by growth in inference sales. We believe this slowdown in purchases will likely persist into the second quarter of fiscal year 2020.
Automotive revenue of $166 million was up 14% from a year earlier and up 2% sequentially, primarily reflecting growth in AI cockpit modules.
OEM and Other revenue was $99 million , down 74% from a year ago and down 15% sequentially. The year-on-year decrease is primarily due to the absence of $ 289 million from CMP sales.
Gross margin for the first quarter of fiscal year 2020 was 58.4% , down 610 basis points from a year earlier and up 370 basis points sequentially. The year-on-year decrease reflects lower gaming margins and mix shifts across the portfolio. The sequential increase reflects the absence of approximately $128 million in charges recorded in the fourth quarter of fiscal year 2019 for excess DRAM, boards, and other components.
Operating expenses for the first quarter of fiscal year 2020 were $938 million , up 21% from a year earlier and up 3% sequentially, reflecting primarily employee additions and increases in employee compensation and other related costs, including infrastructure costs.
Income from operations for the first quarter of fiscal year 2020 was $358 million , down 72% from a year earlier and up 22% sequentially. Net income and net income per diluted share for the first quarter of fiscal year 2020 were $394 million and $0.64 , respectively, both down 68% from a year earlier. The year-on-year decrease reflects lower revenue and gross margin, and higher operating expenses. The sequential decrease reflects U.S. tax reform benefits recognized in the fourth quarter of fiscal year 2019.

24



As previously communicated, we intend to return $3.00 billion to shareholders by the end of fiscal year 2020, including $700 million in share repurchases made during the fourth quarter of fiscal year 2019. In the first quarter of fiscal year 2020, we returned $97 million in quarterly cash dividends. We intend to return the remaining $2.20 billion by the end of fiscal year 2020, through a combination of share repurchases and cash dividends.
Cash, cash equivalents and marketable securities were $7.80 billion as of April 28, 2019 , compared with $7.42 billion as of January 27, 2019. The increase was primarily related to operating income and changes in working capital.
On March 10, 2019, we entered into an Agreement and Plan of Merger, or the Merger Agreement, with Mellanox Technologies Ltd, or Mellanox, pursuant to which we will acquire all of the issued and outstanding common shares of Mellanox for $125 per share in cash, representing a total enterprise value of approximately $6.9 billion as of the date of the Merger Agreement. The closing of the merger is subject to certain conditions, including the approval by Mellanox shareholders and various regulatory agencies. If the Merger Agreement is terminated under certain circumstances involving the failure to obtain required regulatory approvals, we could be obligated to pay Mellanox a termination fee of $350 million .
GPU Business
During the first quarter of fiscal year 2020 , we introduced the GeForce GTX 1660 Ti, GTX 1660 and GTX 1650 gaming GPUs with improved performance and efficiency for today’s most popular games; announced a number of gaming laptop models based on Turing GPUs from top makers; and announced that real-time ray tracing is now integrated into Unreal Engine and Unity commercial game engines.
For our professional visualization platform, we announced expanded adoption of NVIDIA RTX ray-tracing technology by top 3D application providers and unveiled the NVIDIA Omniverse open-collaboration platform to simplify creative workflows for content creation.
For our data center platform, we introduced the NVIDIA CUDA-X AI platform for accelerating data science; announced availability of NVIDIA T4 Tensor Core GPUs from leading OEMs and Amazon Web Services; partnered with global system builders to create powerful data-science workstations integrating NVIDIA Quadro RTX GPUs and NVIDIA CUDA-X AI; and launched beta access to NVIDIA Quadro Virtual Workstation software in the Alibaba Cloud Marketplace.
Tegra Processor Business
During the first quarter of fiscal year 2020 , for the automotive market, we announced that we are partnering with Toyota Research Institute-Advanced Development to develop, train and validate self-driving vehicles; unveiled the NVIDIA DRIVE AP2X automated driving solution, encompassing DRIVE AutoPilot software, DRIVE AGX and DRIVE validation tools; introduced NVIDIA DRIVE AV Safety Force Field to enable safe, comfortable driving experiences; and announced availability of the NVIDIA DRIVE Constellation autonomous vehicle simulation platform.
Financial Information by Business Segment and Geographic Data
Refer to Note 1 5 of the Notes to Condensed Consolidated Financial Statements for disclosure regarding segment information.

25



Results of Operations
The following table sets forth, for the periods indicated, certain items in our Condensed Consolidated Statements of Income expressed as a percentage of revenue.
 
Three Months Ended
 
April 28,
2019
 
April 29,
2018
Revenue
100.0
 %
 
100.0
 %
     Cost of revenue
41.6

 
35.5

Gross profit
58.4

 
64.5

Operating expenses
 

 
 
     Research and development
30.4

 
16.9

     Sales, general and administrative
11.9

 
7.2

Total operating expenses
42.3

 
24.1

Income from operations
16.1

 
40.4

     Interest income
2.0

 
0.8

     Interest expense
(0.6
)
 
(0.5
)
     Other, net

 
0.2

Total other income (expense)
1.4

 
0.5

Income before income tax
17.5

 
40.9

Income tax expense (benefit)
(0.2
)
 
2.1

Net income
17.7
 %
 
38.8
 %
Revenue
Revenue by Reportable Segments
 
Three Months Ended
 
April 28,
2019
 
April 29,
2018
 
$
Change
 
%
Change
 
($ in millions)
GPU
$
2,022

 
$
2,765

 
$
(743
)
 
(27
)%
Tegra Processor
198

 
442

 
(244
)
 
(55
)%
Total
$
2,220

 
$
3,207

 
$
(987
)
 
(31
)%
GPU Business. GPU business revenue decreased by 27% in the first quarter of fiscal year 2020 compared to the first quarter of fiscal year 2019 , which reflects declines in gaming GPU and data center revenue, as well as the absence of $ 289 million of revenue from cryptocurrency mining processors. GeForce GPU product sales for gaming decreased 28%. Data center revenue, including Tesla, GRID and DGX, decreased 10%, primarily reflecting a slowdown in certain hyperscale and enterprise customer purchases, partially offset by growth in inference sales. Revenue from Quadro GPUs for professional visualization increased 6% due primarily to higher sales across desktop and mobile workstation products. Our PC OEM revenue decreased by 78% primarily driven by the absence of cryptocurrency mining processor sales.
Tegra Processor Business. Tegra Processor business revenue decreased by 55% for the first quarter of fiscal year 2020 compared to the first quarter of fiscal year 2019 . This was driven by a decline in shipments of SOC modules for gaming platforms, which was only partially offset by an increase of 14% in automotive revenue, primarily from growth in AI cockpit modules.
Concentration of Revenue 
Revenue from sales to customers outside of the United States accounted for 93% and 86% of total revenue for the first quarter of fiscal years 2020 and 2019 , respectively. 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.

26



Revenue from significant customers, those representing 10% or more of total revenue, was approximately 11% of our total revenue from one customer for the first quarter of fiscal year 2020 , and aggregated approximately  20%  of our total revenue from two customers for the first quarter of fiscal year 2019, and was attributable primarily to the GPU business.
Gross Margin
Our overall gross margin decreased to 58.4% for the first quarter of fiscal year 2020 from 64.5% for the first quarter of fiscal year 2019 . The decrease in fiscal year 2020 is primarily due to lower gaming margins and mix shifts across the portfolio.
Inventory provisions totaled $43 million and $33 million for the first quarter of fiscal years 2020 and 2019 , respectively. Sales of inventory that was previously written-off or written-down totaled $12 million and $4 million for the first quarter of fiscal years 2020 and 2019 , respectively. As a result, the overall net effect on our gross margin was an unfavorable impact of 1.4% and 0.9% for the first quarter of fiscal years 2020 and 2019 , respectively.
A discussion of our gross margin results for each of our reportable segments is as follows:
GPU Business. The gross margin of our GPU business decreased during the first quarter of fiscal year 2020 compared to the first quarter of fiscal year 2019 , primarily due to lower gaming GPU margins and mix shifts across the portfolio.
Tegra Processor Business.  The gross margin of our Tegra Processor business decreased during the first quarter of fiscal year 2020 compared to the first quarter of fiscal year 2019 , primarily due to mix shifts.
Operating Expenses 
 
Three Months Ended
 
April 28,
2019
 
April 29,
2018
 
$
Change
 
%
Change
 
($ in millions)
Research and development expenses
$
674

 
$
542