NVIDIA CORP 10-Q

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) NVIDIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In millions, except per share data) (Unaudited) Three Months Ended May 2, April 26, 2021 2020 Revenue $ 5,661 $ 3,080 Cost of revenue 2,032 1,076 Gross profit 3,629 2,004 Operating expenses Research and development 1,153 735 Sales, general and administrative 520 293 Total operating expenses 1,673 1,028 Income from operations 1,956 976 Interest income 6 31 Interest expense ( 53 ) ( 25 ) Other, net 135 ( 1 ) Other income (expense), net 88 5 Income before income tax 2,044 981 Income tax expense 132 64 Net income $ 1,912 $ 917 Net income per share: Basic $ 3.08 $ 1.49 Diluted $ 3.03 $ 1.47 Weighted average shares used in per share computation: Basic 621 614 Diluted 632 622 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 May 2, April 26, 2021 2020 Net income $ 1,912 $ 917 Other comprehensive loss, net of tax Cash flow hedges: Net unrealized loss ( 14 ) ( 10 ) Reclassification adjustments for net realized gain (loss) included in net income 9 ( 1 ) Net change in unrealized loss ( 5 ) ( 11 ) Total comprehensive income $ 1,907 $ 906 See accompanying Notes to Condensed Consolidated Financial Statements. 4 NVIDIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In millions) (Unaudited) May 2, January 31, 2021 2021 ASSETS Current assets: Cash and cash equivalents $ 978 $ 847 Marketable securities 11,689 10,714 Accounts receivable, net 3,024 2,429 Inventories 1,992 1,826 Prepaid expenses and other current assets 444 239 Total current assets 18,127 16,055 Property and equipment, net 2,268 2,149 Operating lease assets 727 707 Goodwill 4,193 4,193 Intangible assets, net 2,613 2,737 Deferred income tax assets 778 806 Other assets 2,090 2,144 Total assets $ 30,796 $ 28,791 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 1,218 $ 1,201 Accrued and other current liabilities 1,787 1,725 Short-term debt 999 999 Total current liabilities 4,004 3,925 Long-term debt 5,964 5,964 Long-term operating lease liabilities 640 634 Other long-term liabilities 1,414 1,375 Total liabilities 12,022 11,898 Commitments and contingencies - see Note 13 Shareholders’ equity: Preferred stock — — Common stock 1 1 Additional paid-in capital 9,280 8,721 Treasury stock, at cost ( 11,242 ) ( 10,756 ) Accumulated other comprehensive income 14 19 Retained earnings 20,721 18,908 Total shareholders' equity 18,774 16,893 Total liabilities and shareholders' equity $ 30,796 $ 28,791 See accompanying Notes to Condensed Consolidated Financial Statements. 5 NVIDIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY FOR THE THREE MONTHS ENDED MAY 2, 2021 AND APRIL 26, 2020 (Unaudited) 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 31, 2021 620 $ 1 $ 8,721 $ ( 10,756 ) $ 19 $ 18,908 $ 16,893 Net income — — — — — 1,912 1,912 Other comprehensive loss — — — — ( 5 ) — ( 5 ) Issuance of common stock from stock plans 4 — 126 — — — 126 Tax withholding related to vesting of restricted stock units ( 1 ) — — ( 486 ) — — ( 486 ) Cash dividends declared and paid ($ 0.16 per common share) — — — — — ( 99 ) ( 99 ) Stock-based compensation — — 433 — — — 433 Balances, May 2, 2021 623 $ 1 $ 9,280 $ ( 11,242 ) $ 14 $ 20,721 $ 18,774 Balances, January 26, 2020 612 $ 1 $ 7,045 $ ( 9,814 ) $ 1 $ 14,971 $ 12,204 Net income — — — — — 917 917 Other comprehensive loss — — — — ( 11 ) — ( 11 ) Issuance of common stock from stock plans 4 — 88 — — — 88 Tax withholding related to vesting of restricted stock units ( 1 ) — — ( 222 ) — — ( 222 ) Cash dividends declared and paid ($ 0.16 per common share) — — — — — ( 98 ) ( 98 ) Stock-based compensation — — 221 — — — 221 Balances, April 26, 2020 615 $ 1 $ 7,354 $ ( 10,036 ) $ ( 10 ) $ 15,790 $ 13,099 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 May 2, April 26, 2021 2020 Cash flows from operating activities: Net income $ 1,912 $ 917 Adjustments to reconcile net income to net cash provided by operating activities: Stock-based compensation expense 429 224 Depreciation and amortization 281 107 Deferred income taxes 24 16 (Gains) losses on investments in non-affiliates, net ( 133 ) 3 Other ( 3 ) 1 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable ( 595 ) ( 249 ) Inventories ( 159 ) ( 151 ) Prepaid expenses and other assets 2 ( 8 ) Accounts payable 70 71 Accrued and other current liabilities ( 1 ) ( 32 ) Other long-term liabilities 47 10 Net cash provided by operating activities 1,874 909 Cash flows from investing activities: Proceeds from maturities of marketable securities 3,140 — Proceeds from sales of marketable securities 358 1 Purchases of marketable securities ( 4,470 ) ( 861 ) Purchases related to property and equipment and intangible assets ( 298 ) ( 155 ) Investments and other, net ( 2 ) ( 6 ) Acquisitions, net of cash acquired — ( 34 ) Net cash used in investing activities ( 1,272 ) ( 1,055 ) Cash flows from financing activities: Proceeds related to employee stock plans 126 88 Payments related to tax on restricted stock units ( 477 ) ( 222 ) Dividends paid ( 99 ) ( 98 ) Principal payments on property and equipment ( 19 ) — Other ( 2 ) ( 3 ) Issuance of debt, net of issuance costs — 4,979 Net cash provided by (used in) financing activities ( 471 ) 4,744 Change in cash and cash equivalents 131 4,598 Cash and cash equivalents at beginning of period 847 10,896 Cash and cash equivalents at end of period $ 978 $ 15,494 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 31, 2021 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 31, 2021, 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 31, 2021. Significant Accounting Policies There have been no material changes to our significant accounting policies disclosed 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 31, 2021. Fiscal Year We operate on a 52- or 53-week year, ending on the last Sunday in January. Fiscal year 2022 is a 52-week year and fiscal year 2021 was a 53-week year. The first quarters of fiscal years 2022 and 2021 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 ongoing 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. The inputs into our judgments and estimates consider the economic implications of COVID-19. These estimates are based on historical facts and various other assumptions that we believe are reasonable. Note 2 - Business Combination Pending Acquisition of Arm Limited On September 13, 2020, we entered into a Share Purchase Agreement, or the Purchase Agreement, with Arm Limited, or Arm, and SoftBank Group Capital Limited and SVF Holdco (UK) Limited, or together, SoftBank, for us to acquire, from SoftBank, all allotted and issued ordinary shares of Arm in a transaction valued at $ 40 billion. We paid $ 2 billion in cash at signing, or the Signing Consideration, and will pay upon closing of the acquisition $ 10 billion in cash and issue to SoftBank 44.3 million shares of our common stock, which had an aggregate value of $ 21.5 billion as of the date of the Purchase Agreement. The transaction includes a potential earn out, which is contingent on the achievement of certain financial performance targets by Arm during the fiscal year ending March 31, 2022. If the financial targets are achieved, SoftBank can elect to receive either up to an additional $ 5 billion in cash or up to an additional 10.3 million shares of our common stock. We will issue up to $ 1.5 billion in restricted stock units to Arm employees after closing. The $ 2 billion 8 NVIDIA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) paid upon signing was allocated between advanced consideration for the acquisition of $ 1.36 billion and the prepayment of intellectual property licenses from Arm of $ 0.17 billion and royalties of $ 0.47 billion, both with a 20-year term. The closing of the acquisition is subject to customary closing conditions, including receipt of specified governmental and regulatory consents and approvals and the expiration of any related mandatory waiting period, and Arm's implementation of the reorganization and distribution of Arm’s IoT Services Group and certain other assets and liabilities. We are engaged with regulators in the United States, the United Kingdom, the European Union, China and other jurisdictions. If the Purchase Agreement is terminated under certain circumstances, we will be refunded $ 1.25 billion of the Signing Consideration. The Signing Consideration was allocated on a fair value basis and any refund of the Signing Consideration will use stated values in the Purchase Agreement. We believe the closing of the acquisition will likely occur in the first quarter of calendar year 2022. Acquisition of Mellanox Technologies, Ltd. On April 27, 2020, we completed the acquisition of all outstanding shares of Mellanox for a total purchase consideration of $ 7.13 billion. Mellanox is a supplier of high-performance interconnect products for computing, storage and communications applications. We acquired Mellanox to optimize data center workloads to scale across the entire computing, networking, and storage stack. Supplemental Unaudited Pro Forma Information The following unaudited pro forma financial information summarizes the combined results of operations for NVIDIA and Mellanox as if the companies were combined as of the beginning of fiscal year 2020: Pro Forma Three Months Ended April 26, 2020 (In millions) Revenue $ 3,509 Net income $ 918 The unaudited pro forma information includes adjustments related to amortization of acquired intangible assets, adjustments to stock-based compensation expense, fair value of acquired inventory, and transaction costs. The unaudited pro forma information presented above is for informational purposes only and is not necessarily indicative of our consolidated results of operations of the combined business had the acquisition occurred at the beginning of fiscal year 2020 or of the results of our future operations of the combined businesses. Note 3 - Leases Our lease obligations primarily consist of operating leases for our headquarters complex, domestic and international office facilities, and data center space, with lease periods expiring between fiscal years 2022 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 May 2, 2021, are as follows: Operating Lease Obligations (In millions) Fiscal Year: 2022 (excluding first quarter of fiscal year 2022) $ 106 2023 144 2024 123 2025 102 2026 94 2027 and thereafter 306 Total 875 Less imputed interest 100 Present value of net future minimum lease payments 775 Less short-term operating lease liabilities 135 Long-term operating lease liabilities $ 640 Operating lease expenses were $ 39 million and $ 31 million for the first quarter of fiscal years 2022 and 2021, respectively. Short-term and variable lease expenses for the first quarter of fiscal years 2022 and 2021 were not significant. Other information related to leases was as follows: Three Months Ended May 2, 2021 April 26, 2020 (In millions) Supplemental cash flows information Operating cash flows used for operating leases $ 39 $ 31 Operating lease assets obtained in exchange for lease obligations $ 54 $ 3 As of May 2, 2021, our operating leases had a weighted average remaining lease term of 7.5 years and a weighted average discount rate of 2.77 %. As of January 31, 2021, our operating leases had a weighted average remaining lease term of 7.6 years and a weighted average discount rate of 2.87 %. 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 May 2, 2021 April 26, 2020 (In millions) Cost of revenue $ 25 $ 21 Research and development 276 134 Sales, general and administrative 128 69 Total $ 429 $ 224 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 31, 2021 15 $ 264.69 Granted 1 $ 535.82 Vested restricted stock ( 4 ) $ 252.22 Balances, May 2, 2021 12 $ 279.79 As of May 2, 2021, there was $ 3.32 billion of aggregate unearned stock-based compensation expense, net of forfeitures. This amount is expected to be recognized over a weighted average period of 2.4 years for RSUs, PSUs, and market-based PSUs, and 1.1 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 May 2, April 26, 2021 2020 (In millions, except per share data) Numerator: Net income $ 1,912 $ 917 Denominator: Basic weighted average shares 621 614 Dilutive impact of outstanding equity awards 11 8 Diluted weighted average shares 632 622 Net income per share: Basic (1) $ 3.08 $ 1.49 Diluted (2) $ 3.03 $ 1.47 Equity awards excluded from diluted net income per share because their effect would have been anti-dilutive 1 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 expense of $ 132 million and $ 64 million for the first quarter of fiscal years 2022 and 2021, respectively. The income tax expense as a percentage of income before income tax was 6.5 % and 6.6 % for the first quarter of fiscal years 2022 and 2021, respectively. The slight decrease in our effective tax rate for the first quarter of fiscal year 2022 as compared to the first quarter of fiscal year 2021 was primarily due to a change in the jurisdiction of earnings, partially offset by a decrease in the impact of tax benefits from the U.S. federal research tax credit. Our effective tax rates for the first quarter of fiscal years 2022 and 2021 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, the benefit of the U.S. federal research tax credit, and tax benefits related to stock-based compensation. As of May 2, 2021, we intend to indefinitely reinvest approximately $ 1.3 billion of cumulative undistributed earnings held by Mellanox non-U.S. subsidiaries. We have not provided the amount of unrecognized deferred tax liabilities for temporary differences related to investments in Mellanox non-U.S. subsidiaries as the determination of such amount is not practicable. For the first quarter of fiscal year 2022, there have been no material changes to our tax years that remain subject to examination by major tax jurisdictions. We are currently under examination by the Internal Revenue Service for our fiscal years 2018 and 2019. Additionally, there have been no material changes to our unrecognized tax benefits and any related interest or penalties since the fiscal year ended January 31, 2021. 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 May 2, 2021, we do not believe that our estimates, as otherwise provided for, on such tax positions will significantly increase or decrease within the next 12 months. 12 NVIDIA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 7 - Cash Equivalents and Marketable Securities Our cash equivalents and marketable securities related to debt securities are classified as “available-for-sale” debt securities. The following is a summary of cash equivalents and marketable securities as of May 2, 2021 and January 31, 2021: May 2, 2021 Amortized Cost Unrealized Gain Unrealized Loss Estimated Fair Value Reported as Cash Equivalents Marketable Securities (In millions) Corporate debt securities $ 5,240 $ 2 $ — $ 5,242 $ 323 $ 4,919 Debt securities issued by United States government agencies 3,045 1 — 3,046 — 3,046 Debt securities issued by the United States Treasury 2,820 1 — 2,821 — 2,821 Certificates of deposit 884 — — 884 48 836 Money market funds 319 — — 319 319 — Foreign government bonds 67 — — 67 — 67 Total $ 12,375 $ 4 $ — $ 12,379 $ 690 $ 11,689 January 31, 2021 Amortized Cost Unrealized Gain Unrealized Loss Estimated Fair Value Reported as Cash Equivalents Marketable Securities (In millions) Corporate debt securities $ 4,442 $ 2 $ — $ 4,444 $ 234 $ 4,210 Debt securities issued by United States government agencies 2,975 1 — 2,976 28 2,948 Debt securities issued by the United States Treasury 2,846 — — 2,846 25 2,821 Certificates of deposit 705 — — 705 37 668 Money market funds 313 — — 313 313 — Foreign government bonds 67 — — 67 — 67 Total $ 11,348 $ 3 $ — $ 11,351 $ 637 $ 10,714 Net realized gains and unrealized gains and losses were not significant for all periods presented. The amortized cost and estimated fair value of cash equivalents and marketable securities as of May 2, 2021 and January 31, 2021 are shown below by contractual maturity. May 2, 2021 January 31, 2021 Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value (In millions) Less than one year $ 11,499 $ 11,502 $ 10,782 $ 10,783 Due in 1 - 5 years 876 877 566 568 Total $ 12,375 $ 12,379 $ 11,348 $ 11,351 13 NVIDIA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) 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. Fair Value at Pricing Category May 2, 2021 January 31, 2021 (In millions) Assets Cash equivalents and marketable securities: Money market funds Level 1 $ 319 $ 313 Corporate debt securities Level 2 $ 5,242 $ 4,444 Debt securities issued by United States government agencies Level 2 $ 3,046 $ 2,976 Debt securities issued by the United States Treasury Level 2 $ 2,821 $ 2,846 Certificates of deposit Level 2 $ 884 $ 705 Foreign government bonds Level 2 $ 67 $ 67 Prepaid expenses and other current assets: Publicly-held equity security (1) Level 1 $ 133 $ — Other assets: Investment in non-affiliated entities (2) Level 3 $ 146 $ 144 Liabilities 2.20 % Notes Due 2021 (3) Level 2 $ 1,006 $ 1,011 3.20 % Notes Due 2026 (3) Level 2 $ 1,101 $ 1,124 2.85 % Notes Due 2030 (3) Level 2 $ 1,592 $ 1,654 3.50 % Notes Due 2040 (3) Level 2 $ 1,095 $ 1,152 3.50 % Notes Due 2050 (3) Level 2 $ 2,158 $ 2,308 3.70 % Notes Due 2060 (3) Level 2 $ 552 $ 602 (1) The balance as of May 2, 2021 includes an investment that was reclassified from privately-held equity securities following the commencement of public market trading of the issuer in the first quarter of fiscal year 2022. As of May 2, 2021, the investment is subject to short-term selling restrictions. Due to the public market trading of the issuer, an unrealized gain on the investment of $ 124 million was recorded in other income (expense), net in the first quarter of fiscal year 2022. The net cumulative unrealized gain on the investment was $ 130 million as of May 2, 2021. (2) Investment in private non-affiliated entities is recorded at fair value on a non-recurring basis only if an impairment or observable price adjustment occurs in the period with changes in fair value recorded through net income. The amount recorded as of May 2, 2021 has not been significant. (3) 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 the Notes to Condensed Consolidated Financial Statements for additional information . 14 NVIDIA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 9 - Amortizable Intangible Assets and Goodwill The components of our amortizable intangible assets are as follows: May 2, 2021 January 31, 2021 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount (In millions) Acquisition-related intangible assets (1) $ 3,280 $ ( 904 ) $ 2,376 $ 3,280 $ ( 774 ) $ 2,506 Patents and licensed technology 719 ( 482 ) 237 706 ( 475 ) 231 Total intangible assets $ 3,999 $ ( 1,386 ) $ 2,613 $ 3,986 $ ( 1,249 ) $ 2,737 (1) As of May 2, 2021, acquisition-related intangible assets include the fair value of a Mellanox in-process research and development, or IPR&D, project of $ 630 million, which has not yet commenced amortization. Once the project reaches technological feasibility, we will begin to amortize the intangible asset over its estimated useful life. Amortization expense associated with intangible assets was $ 137 million and $ 7 million for the first quarter of fiscal years 2022 and 2021, respectively. Future amortization expense related to the net carrying amount of intangible assets, excluding IPR&D, as of May 2, 2021 is estimated to be $ 412 million for the remainder of fiscal year 2022, $ 546 million in fiscal year 2023, $ 424 million in fiscal year 2024, $ 370 million in fiscal year 2025, $ 99 million in fiscal year 2026, and $ 132 million in fiscal year 2027 and thereafter. There were no changes to the carrying amount of goodwill during the first quarter of fiscal year 2022. Note 10 - Balance Sheet Components Certain balance sheet components are as follows: May 2, January 31, 2021 2021 Inventories: (In millions) Raw materials $ 734 $ 632 Work in-process 504 457 Finished goods 754 737 Total inventories $ 1,992 $ 1,826 May 2, January 31, 2021 2021 Prepaid expenses and other current assets: (In millions) Prepaid expenses $ 179 $ 142 Publicly-held equity security (1) 133 — Other 132 97 Total prepaid expenses and other current assets $ 444 $ 239 (1) The balance as of May 2, 2021 includes an investment that was reclassified from privately-held equity securities following the commencement of public market trading of the issuer in the first quarter of fiscal year 2022. As of May 2, 2021, the investment is subject to short-term selling restrictions. Due to the public market trading of the issuer, an unrealized gain on the investment of $ 124 million was recorded in other income (expense), net in the first quarter of fiscal year 2022. The net cumulative unrealized gain on the investment was $ 130 million as of May 2, 2021. 15 NVIDIA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) May 2, January 31, 2021 2021 Other assets: (In millions) Advanced consideration for acquisition $ 1,357 $ 1,357 Prepaid royalties 428 440 Investment in non-affiliated entities 146 144 Deposits 123 136 Other 36 67 Total other assets $ 2,090 $ 2,144 May 2, January 31, 2021 2021 Accrued and Other Current Liabilities: (In millions) Customer program accruals $ 700 $ 630 Deferred revenue (1) 333 288 Accrued payroll and related expenses 265 297 Operating leases 135 121 Licenses and royalties 96 128 Taxes payable 96 61 Product warranty and return provisions 45 39 Professional service fees 33 26 Coupon interest on debt obligations 19 74 Other 65 61 Total accrued and other current liabilities $ 1,787 $ 1,725 (1) Deferred revenue primarily includes customer advances and deferrals related to license and development arrangements and post-contract customer support, or PCS. May 2, January 31, 2021 2021 Other Long-Term Liabilities: (In millions) Income tax payable (1) $ 864 $ 836 Deferred income tax 234 241 Deferred revenue (2) 173 163 Licenses payable 59 56 Employee benefits 34 33 Other 50 46 Total other long-term liabilities $ 1,414 $ 1,375 (1) As of May 2, 2021, income tax payable represents the long-term portion of the one-time transition tax payable of $ 284 million, unrecognized tax benefits of $ 374 million, related interest and penalties of $ 48 million, and other foreign long-term tax payable of $ 158 million. (2) Deferred revenue primarily includes deferrals related to PCS. 16 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 2022 and 2021: May 2, April 26, 2021 2020 (In millions) Balance at beginning of period $ 451 $ 201 Deferred revenue added during the period 178 110 Revenue recognized during the period ( 123 ) ( 70 ) Balance at end of period $ 506 $ 241 Revenue related to remaining performance obligations represents the remaining contracted license, development arrangements and PCS that has not been recognized. This includes related deferred revenue currently recorded and amounts that will be invoiced in future periods. As of May 2, 2021, the amount of our remaining performance obligations that has not been recognized as revenue was $ 680 million, of which we expect to recognize approximately 48 % as revenue over the next 12 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. 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 May 2, 2021 and January 31, 2021. 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 the 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 May 2, 2021 and January 31, 2021: May 2, 2021 January 31, 2021 (In millions) Designated as cash flow hedges $ 888 $ 840 Not designated for hedge accounting $ 402 $ 441 As of May 2, 2021, all designated foreign currency forward contracts mature within 18 months. The expected realized gains and losses deferred into accumulated other comprehensive income or loss related to foreign currency forward contracts within the next 12 months was not significant. During the first quarter of fiscal years 2022 and 2021, 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. 17 NVIDIA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 12 - Debt Long-Term Debt In March 2020, we issued $ 1.50 billion of the 2.85 % Notes Due 2030, $ 1.00 billion of the 3.50 % Notes Due 2040, $ 2.00 billion of the 3.50 % Notes Due 2050, and $ 500 million of the 3.70 % Notes Due 2060, or collectively, the March 2020 Notes. Interest on the March 2020 Notes is payable on April 1 and October 1 of each year. In September 2016, 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 September 2016 Notes. Interest on the September 2016 Notes is payable on March 16 and September 16 of each year. Both the September 2016 Notes and the March 2020 Notes, or collectively, 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 May 2, 2021 January 31, 2021 (In millions) 2.20 % Notes Due 2021 0.4 2.38 % $ 1,000 $ 1,000 3.20 % Notes Due 2026 5.4 3.31 % 1,000 1,000 2.85 % Notes Due 2030 8.9 2.93 % 1,500 1,500 3.50 % Notes Due 2040 18.9 3.54 % 1,000 1,000 3.50 % Notes Due 2050 28.9 3.54 % 2,000 2,000 3.70 % Notes Due 2060 38.9 3.73 % 500 500 Unamortized debt discount and issuance costs ( 37 ) ( 37 ) Net carrying amount 6,963 6,963 Less short-term portion ( 999 ) ( 999 ) Total long-term portion $ 5,964 $ 5,964 As of May 2, 2021, we were in compliance with the required covenants under the Notes. Credit Facilities 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 May 2, 2021, we had no t borrowed any amounts and were in compliance with the required covenants under this agreement. The Credit Agreement expires October 2021. We have a $ 575 million commercial paper program to support general corporate purposes. As of May 2, 2021, we had no t issued any commercial paper. Note 13 - Commitments and Contingencies Purchase Obligations As of May 2, 2021, we had outstanding inventory purchase obligations totaling $ 3.46 billion which are expected to occur over the next 12 months, and other purchase obligations totaling $ 396 million, which are primarily expected to occur over the next 18 months. 18 NVIDIA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Accrual for Product Warranty Liabilities The estimated amount of product warranty liabilities was $ 30 million and $ 22 million as of May 2, 2021 and January 31, 2021, respectively, and the activities related to the warranty liabilities were not significant. In connection with certain agreements that we have entered in the past, we have provided indemnities 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 Securities Class Action and Derivative Lawsuits The plaintiffs in the putative securities class action lawsuit, captioned 4:18-cv-07669-HSG, initially filed on December 21, 2018 in the United States District Court for the Northern District of California, and titled In Re NVIDIA Corporation Securities Litigation, filed an amended complaint on May 13, 2020. The amended complaint asserted that NVIDIA and certain NVIDIA executives 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 May 10, 2017 and November 14, 2018. Plaintiffs also alleged that the NVIDIA executives who they named as defendants violated Section 20(a) of the Exchange Act. Plaintiffs sought class certification, an award of unspecified compensatory damages, an award of reasonable costs and expenses, including attorneys’ fees and expert fees, and further relief as the Court may deem just and proper. On March 2, 2021, the district court granted NVIDIA’s motion to dismiss the complaint without leave to amend, entered judgment in favor of NVIDIA and closed the case. On March 30, 2021, plaintiffs filed a notice of appeal from judgment in the United States Court of Appeals for the Ninth Circuit, case number 21-15604. The putative derivative lawsuit pending in the United States District Court for the Northern District of California, captioned 4:19-cv-00341-HSG, initially filed January 18, 2019 and titled In re NVIDIA Corporation Consolidated Derivative Litigation, remains stayed pending resolution of the plaintiffs’ appeal in the In Re NVIDIA Corporation Securities Litigation action. 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 plaintiffs are seeking unspecified damages and other relief, including reforms and improvements to NVIDIA’s corporate governance and internal procedures. The putative derivative actions initially filed September 24, 2019 and pending in the United States District Court for the District of Delaware, Lipchitz v. Huang, et al. (Case No. 1:19-cv-01795-UNA) and Nelson v. Huang, et. al. (Case No. 1:19-cv-01798- UNA), remain stayed pending resolution of the plaintiffs’ appeal in the In Re NVIDIA Corporation Securities Litigation action. The lawsuits assert claims for breach of fiduciary duty, unjust enrichment, insider trading, misappropriation of information, corporate waste 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 plaintiffs seek unspecified damages and other relief, including disgorgement of profits from the sale of NVIDIA stock and unspecified corporate governance measures. It is possible that additional suits will be filed, or allegations received from shareholders, with respect to these same or other matters, naming NVIDIA and/or its officers and directors as defendants. Accounting for Loss Contingencies As of May 2, 2021, 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. 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. 19 NVIDIA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 14 - Shareholders’ Equity Capital Return Program Beginning August 2004, our Board of Directors authorized us to repurchase our stock. Through May 2, 2021, 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 May 2, 2021, we were authorized, subject to certain specifications, to repurchase additional shares of our common stock up to $ 7.24 billion through December 2022. During the first quarter of fiscal year 2022, we paid $ 99 million in cash dividends to our shareholders. 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 decisions and assessing financial performance. Our two operating segments are "Graphics" and "Compute & Networking." Our operating segments are equivalent to our reportable segments. Our Graphics segment includes GeForce GPUs for gaming and PCs, the GeForce NOW game streaming service and related infrastructure, and solutions for gaming platforms; Quadro/NVIDIA RTX GPUs for enterprise design; GRID software for cloud-based visual and virtual computing; and automotive platforms for infotainment systems. Our Compute & Networking segment includes Data Center platforms and systems for artificial intelligence, or AI, high performance computing, or HPC, and accelerated computing; Mellanox networking and interconnect solutions; automotive AI Cockpit, autonomous driving development agreements, and autonomous vehicle solutions; cryptocurrency mining processors, or CMP; and Jetson for robotics and other embedded platforms. Operating results by segment include costs or expenses that are directly attributable to each segment, and costs or expenses that are leveraged across our unified architecture and therefore allocated between our two segments. The “All Other” category includes the expenses that our CODM does not assign to either Graphics or Compute & Networking for purposes of making operating decisions or assessing financial performance. The expenses include stock-based compensation expense, corporate infrastructure and support costs, acquisition-related costs, IP-related costs, and other non-recurring charges and benefits that our CODM deems to be enterprise in nature. Our CODM does not review any information regarding total assets on a reportable segment basis. Depreciation and amortization expense directly attributable to each reportable segment is included in operating results for each segment. However, the CODM does not evaluate depreciation and amortization expense by operating segment and, therefore, it is not separately presented. There is no intersegment revenue. 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. Graphics Compute & Networking All Other Consolidated (In millions) Three Months Ended May 2, 2021 Revenue $ 3,451 $ 2,210 $ — $ 5,661 Operating income (loss) $ 1,786 $ 861 $ ( 691 ) $ 1,956 Three Months Ended April 26, 2020 Revenue $ 1,906 $ 1,174 $ — $ 3,080 Operating income (loss) $ 836 $ 451 $ ( 311 ) $ 976 20 NVIDIA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Three Months Ended May 2, 2021 April 26, 2020 (In millions) Reconciling items included in "All Other" category: Stock-based compensation expense $ ( 429 ) $ ( 224 ) Acquisition-related and other costs ( 167 ) ( 5 ) Unallocated cost of revenue and operating expenses ( 90 ) ( 82 ) IP-related costs ( 5 ) — Total $ ( 691 ) $ ( 311 ) 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 May 2, April 26, 2021 2020 (In millions) Revenue: Taiwan $ 1,784 $ 813 China (including Hong Kong) 1,391 758 Other Asia Pacific 1,001 607 United States 768 497 Europe 381 254 Other countries 336 151 Total revenue $ 5,661 $ 3,080 The following table summarizes information pertaining to our revenue by each of the specialized markets we serve: Three Months Ended May 2, April 26, 2021 2020 (In millions) Revenue: Gaming $ 2,760 $ 1,339 Data Center 2,048 1,141 Professional Visualization 372 307 Automotive 154 155 OEM and Other 327 138 Total revenue $ 5,661 $ 3,080 No customer represented 10% or more of total revenue for the first quarter of fiscal years 2022 or 2021. 21 NVIDIA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) One customer represented 13 % and 16 % of our accounts receivable balance as of May 2, 2021 and January 31, 2021, respectively. Note 16 – Subsequent Event On May 21, 2021, our Board of Directors declared a four -for-one split of our common stock in the form of a stock dividend, conditioned on obtaining stockholder approval at our 2021 Annual Meeting of Stockholders to be held on June 3, 2021, of an amendment to our Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 2 billion to 4 billion. The following table reflects basic and diluted weighted average shares and net income per share on an unaudited pro forma basis giving effect to the four-for-one stock split as if it had been effective for all periods presented: Pro Forma (Unaudited) Three Months Ended Twelve Months Ended May 2, April 26, January 31, January 26, January 27, 2021 2020 2021 2020 2019 (In millions, except per share data) Numerator: Net income $ 1,912 $ 917 $ 4,332 $ 2,796 $ 4,141 Denominator: Basic weighted average shares 2,484 2,456 2,468 2,436 2,432 Dilutive impact of outstanding equity awards 44 32 44 36 68 Diluted weighted average shares 2,528 2,488 2,512 2,472 2,500 Net income per share: Basic (1) $ 0.77 $ 0.37 $ 1.76 $ 1.15 $ 1.70 Diluted (2) $ 0.76 $ 0.37 $ 1.72 $ 1.13 $ 1.66 (1) Calculated as net income divided by basic weighted average shares. (2) Calculated as net income divided by diluted weighted average shares. 22