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 1, May 2, 2022 2021 Revenue $ 8,288 $ 5,661 Cost of revenue 2,857 2,032 Gross profit 5,431 3,629 Operating expenses Research and development 1,618 1,153 Sales, general and administrative 592 520 Acquisition termination cost 1,353 — Total operating expenses 3,563 1,673 Income from operations 1,868 1,956 Interest income 18 6 Interest expense ( 68 ) ( 53 ) Other, net ( 13 ) 135 Other income (expense), net ( 63 ) 88 Income before income tax 1,805 2,044 Income tax expense 187 132 Net income $ 1,618 $ 1,912 Net income per share: Basic $ 0.65 $ 0.77 Diluted $ 0.64 $ 0.76 Weighted average shares used in per share computation: Basic 2,506 2,484 Diluted 2,537 2,528 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 1, May 2, 2022 2021 Net income $ 1,618 $ 1,912 Other comprehensive loss, net of tax Available-for-sale securities: Net change in unrealized loss ( 22 ) — Cash flow hedges: Net unrealized loss ( 29 ) ( 14 ) Reclassification adjustments for net realized gain (loss) included in net income ( 2 ) 9 Net change in unrealized loss ( 31 ) ( 5 ) Other comprehensive loss, net of tax ( 53 ) ( 5 ) Total comprehensive income $ 1,565 $ 1,907 See accompanying Notes to Condensed Consolidated Financial Statements. 4 NVIDIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In millions) (Unaudited) May 1, January 30, 2022 2022 ASSETS Current assets: Cash and cash equivalents $ 3,887 $ 1,990 Marketable securities 16,451 19,218 Accounts receivable, net 5,438 4,650 Inventories 3,163 2,605 Prepaid expenses and other current assets 636 366 Total current assets 29,575 28,829 Property and equipment, net 2,916 2,778 Operating lease assets 856 829 Goodwill 4,365 4,349 Intangible assets, net 2,211 2,339 Deferred income tax assets 1,784 1,222 Other assets 3,505 3,841 Total assets $ 45,212 $ 44,187 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 1,999 $ 1,783 Accrued and other current liabilities 3,563 2,552 Total current liabilities 5,562 4,335 Long-term debt 10,947 10,946 Long-term operating lease liabilities 752 741 Other long-term liabilities 1,631 1,553 Total liabilities 18,892 17,575 Commitments and contingencies - see Note 13 Shareholders’ equity: Preferred stock — — Common stock 3 3 Additional paid-in capital 10,623 10,385 Accumulated other comprehensive loss ( 64 ) ( 11 ) Retained earnings 15,758 16,235 Total shareholders' equity 26,320 26,612 Total liabilities and shareholders' equity $ 45,212 $ 44,187 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 1, 2022 AND MAY 2, 2021 (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 30, 2022 2,506 $ 3 $ 10,385 $ — $ ( 11 ) $ 16,235 $ 26,612 Net income — — — — — 1,618 1,618 Other comprehensive loss — — — — ( 53 ) — ( 53 ) Issuance of common stock from stock plans 9 — 204 — — — 204 Tax withholding related to vesting of restricted stock units ( 2 ) — ( 538 ) — — — ( 538 ) Share repurchase ( 9 ) — ( 1 ) — — ( 1,995 ) ( 1,996 ) Cash dividends declared and paid ($ 0.04 per common share) — — — — — ( 100 ) ( 100 ) Stock-based compensation — — 573 — — — 573 Balances, May 1, 2022 2,504 $ 3 $ 10,623 $ — $ ( 64 ) $ 15,758 $ 26,320 Balances, January 31, 2021 2,479 $ 3 $ 8,719 $ ( 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 15 — 126 — — — 126 Tax withholding related to vesting of restricted stock units ( 3 ) — — ( 486 ) — — ( 486 ) Cash dividends declared and paid ($ 0.04 per common share) — — — — — ( 99 ) ( 99 ) Stock-based compensation — — 433 — — — 433 Balances, May 2, 2021 2,491 $ 3 $ 9,278 $ ( 11,242 ) $ 14 $ 20,721 $ 18,774 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 1, May 2, 2022 2021 Cash flows from operating activities: Net income $ 1,618 $ 1,912 Adjustments to reconcile net income to net cash provided by operating activities: Acquisition termination cost 1,353 — Stock-based compensation expense 578 429 Depreciation and amortization 334 281 Losses (gains) on investments in non-affiliates, net 17 ( 133 ) Deferred income taxes ( 542 ) 24 Other 23 ( 3 ) Changes in operating assets and liabilities, net of acquisitions: Accounts receivable ( 788 ) ( 595 ) Inventories ( 560 ) ( 159 ) Prepaid expenses and other assets ( 1,261 ) 2 Accounts payable 255 36 Accrued and other current liabilities 634 33 Other long-term liabilities 70 47 Net cash provided by operating activities 1,731 1,874 Cash flows from investing activities: Proceeds from maturities of marketable securities 5,947 3,140 Proceeds from sales of marketable securities 1,029 358 Purchases of marketable securities ( 3,932 ) ( 4,470 ) Purchases related to property and equipment and intangible assets ( 361 ) ( 298 ) Acquisitions, net of cash acquired ( 36 ) — Investments and other, net ( 35 ) ( 2 ) Net cash provided by (used in) investing activities 2,612 ( 1,272 ) Cash flows from financing activities: Proceeds related to employee stock plans 204 126 Payments related to repurchases of common stock ( 1,996 ) — Payments related to tax on restricted stock units ( 532 ) ( 477 ) Dividends paid ( 100 ) ( 99 ) Principal payments on property and equipment and intangible asset ( 22 ) ( 19 ) Other — ( 2 ) Net cash used in financing activities ( 2,446 ) ( 471 ) Change in cash and cash equivalents 1,897 131 Cash and cash equivalents at beginning of period 1,990 847 Cash and cash equivalents at end of period $ 3,887 $ 978 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 30, 2022 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 30, 2022, 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 30, 2022. On July 19, 2021, we executed a four -for-one stock split of our common stock. All share, equity award, and per share amounts and related shareholders' equity balances presented herein have been retroactively adjusted to reflect the stock split. 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 30, 2022. Fiscal Year We operate on a 52- or 53-week year, ending on the last Sunday in January. Fiscal years 2023 and 2022 are both 52-week years. The first quarters of fiscal years 2023 and 2022 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. 8 NVIDIA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 2 - Business Combination Termination of the Arm Share Purchase Agreement On February 8, 2022, NVIDIA and SoftBank Group Corp, or SoftBank, announced the termination of the Share Purchase Agreement whereby NVIDIA would have acquired Arm Limited from SoftBank. The parties agreed to terminate because of significant regulatory challenges preventing the completion of the transaction. We recorded an acquisition termination cost of $ 1.35 billion in the first quarter of fiscal year 2023 reflecting the write-off of the prepayment provided at signing in September 2020. 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 2023 and 2035. Future minimum lease payments under our non-cancelable operating leases as of May 1, 2022 are as follows: Operating Lease Obligations (In millions) Fiscal Year: 2023 (excluding first quarter of fiscal year 2023) $ 121 2024 167 2025 144 2026 130 2027 119 2028 and thereafter 318 Total 999 Less imputed interest 100 Present value of net future minimum lease payments 899 Less short-term operating lease liabilities 147 Long-term operating lease liabilities $ 752 In addition to our existing operating lease obligations, we have operating leases that are expected to commence between the second quarter of fiscal year 2023 and fiscal year 2024 with lease terms of 3 to 8 years for $ 755 million, consisting primarily of data center space. Operating lease expenses were $ 44 million and $ 39 million for the first quarter of fiscal years 2023 and 2022, respectively. Short-term and variable lease expenses for the first quarter of fiscal years 2023 and 2022 were not significant. Other information related to leases was as follows: Three Months Ended May 1, 2022 May 2, 2021 (In millions) Supplemental cash flows information Operating cash flows used for operating leases $ 45 $ 39 Operating lease assets obtained in exchange for lease obligations $ 62 $ 54 9 NVIDIA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) As of May 1, 2022, our operating leases had a weighted average remaining lease term of 7.2 years and a weighted average discount rate of 2.51 %. As of January 30, 2022, our operating leases had a weighted average remaining lease term of 7.1 years and a weighted average discount rate of 2.51 %. 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 1, 2022 May 2, 2021 (In millions) Cost of revenue $ 38 $ 25 Research and development 384 276 Sales, general and administrative 156 128 Total $ 578 $ 429 Equity Award Activity The following is a summary of our equity award transactions under our equity incentive plans: RSUs, PSUs, and Market-based PSUs Outstanding Number of Shares Weighted Average Grant-Date Fair Value Per Share (In millions, except per share data) Balances, January 30, 2022 46 $ 114.19 Granted 3 $ 216.00 Vested restricted stock ( 7 ) $ 83.70 Balances, May 1, 2022 42 $ 125.32 As of May 1, 2022, there was $ 4.95 billion of aggregate unearned stock-based compensation expense. This amount is expected to be recognized over a weighted average period of 2.3 years for RSUs, PSUs, and market-based PSUs, and 1.1 years for ESPP. 10 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 1, May 2, 2022 2021 (In millions, except per share data) Numerator: Net income $ 1,618 $ 1,912 Denominator: Basic weighted average shares 2,506 2,484 Dilutive impact of outstanding equity awards 31 44 Diluted weighted average shares 2,537 2,528 Net income per share: Basic (1) $ 0.65 $ 0.77 Diluted (2) $ 0.64 $ 0.76 Equity awards excluded from diluted net income per share because their effect would have been anti-dilutive 3 4 (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 $ 187 million and $ 132 million for the first quarter of fiscal years 2023 and 2022, respectively. The income tax expense as a percentage of income before income tax was 10.3 % and 6.5 % for the first quarter of fiscal years 2023 and 2022, respectively. The increase in our effective tax rate was primarily due to an increase in the amount of earnings subject to U.S. tax, the Arm acquisition termination cost recorded in the first quarter of fiscal year 2023 which did not result in any material tax benefit, and a decreased impact of tax benefit from the U.S. federal research tax credit, partially offset by the increased benefits from the foreign-derived intangible income deduction and stock-based compensation. Our effective tax rate for the first quarter of fiscal year 2023 was lower than the U.S. federal statutory rate of 21% due to tax benefits from the foreign-derived intangible income deduction, stock-based compensation and the U.S. federal research tax credit. Our effective tax rate for the first quarter of fiscal year 2022 was 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 and tax benefits related to stock-based compensation and the U.S. federal research tax credit. For the first quarter of fiscal year 2023, 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 30, 2022. 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 1, 2022, 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. 11 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 1, 2022 and January 30, 2022: May 1, 2022 Amortized Cost Unrealized Gain Unrealized Loss Estimated Fair Value Reported as Cash Equivalents Marketable Securities (In millions) Corporate debt securities $ 9,827 $ — $ ( 9 ) $ 9,818 $ 1,232 $ 8,586 Debt securities issued by the United States Treasury 6,157 3 ( 38 ) 6,122 1,324 4,798 Debt securities issued by United States government agencies 2,116 — — 2,116 460 1,656 Certificates of deposit 1,302 — — 1,302 41 1,261 Money market funds 419 — — 419 419 — Foreign government bonds 185 — — 185 35 150 Total $ 20,006 $ 3 $ ( 47 ) $ 19,962 $ 3,511 $ 16,451 January 30, 2022 Amortized Cost Unrealized Gain Unrealized Loss Estimated Fair Value Reported as Cash Equivalents Marketable Securities (In millions) Corporate debt securities $ 9,977 $ — $ ( 3 ) $ 9,974 $ 1,102 $ 8,872 Debt securities issued by the United States Treasury 7,314 — ( 14 ) 7,300 — 7,300 Debt securities issued by United States government agencies 1,612 — — 1,612 256 1,356 Certificates of deposit 1,561 — — 1,561 21 1,540 Money market funds 316 — — 316 316 — Foreign government bonds 150 — — 150 — 150 Total $ 20,930 $ — $ ( 17 ) $ 20,913 $ 1,695 $ 19,218 The following tables provide the breakdown of unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous loss position: May 1, 2022 Less than 12 Months 12 Months or Greater Total Estimated Fair Value Gross Unrealized Loss Estimated Fair Value Gross Unrealized Loss Estimated Fair Value Gross Unrealized Loss (In millions) Debt securities issued by the United States Treasury $ 2,955 $ ( 38 ) $ — $ — $ 2,955 $ ( 38 ) Corporate debt securities 2,594 ( 9 ) 19 — 2,613 ( 9 ) Total $ 5,549 $ ( 47 ) $ 19 $ — $ 5,568 $ ( 47 ) January 30, 2022 Less than 12 Months 12 Months or Greater Total Estimated Fair Value Gross Unrealized Loss Estimated Fair Value Gross Unrealized Loss Estimated Fair Value Gross Unrealized Loss (In millions) Debt securities issued by the United States Treasury $ 5,292 $ ( 14 ) $ — $ — $ 5,292 $ ( 14 ) Corporate debt securities 2,445 ( 3 ) 19 — 2,464 ( 3 ) Total $ 7,737 $ ( 17 ) $ 19 $ — $ 7,756 $ ( 17 ) The gross unrealized losses are related to fixed income securities, driven primarily by changes in interest rates. 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 1, 2022 and January 30, 2022 are shown below by contractual maturity. May 1, 2022 January 30, 2022 Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value (In millions) Less than one year $ 15,196 $ 15,185 $ 16,346 $ 16,343 Due in 1 - 5 years 4,810 4,777 4,584 4,570 Total $ 20,006 $ 19,962 $ 20,930 $ 20,913 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. 12 NVIDIA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Fair Value at Pricing Category May 1, 2022 January 30, 2022 (In millions) Assets Cash equivalents and marketable securities: Money market funds Level 1 $ 419 $ 316 Corporate debt securities Level 2 $ 9,818 $ 9,974 Debt securities issued by the United States Treasury Level 2 $ 6,122 $ 7,300 Debt securities issued by United States government agencies Level 2 $ 2,116 $ 1,612 Certificates of deposit Level 2 $ 1,302 $ 1,561 Foreign government bonds Level 2 $ 185 $ 150 Other assets (Investment in non-affiliated entities): Publicly-held equity securities (1) Level 1 $ 48 $ 58 Privately-held equity securities Level 3 $ 238 $ 208 Liabilities (2) 0.309 % Notes Due 2023 Level 2 $ 1,221 $ 1,236 0.584 % Notes Due 2024 Level 2 $ 1,191 $ 1,224 3.20 % Notes Due 2026 Level 2 $ 995 $ 1,055 1.55 % Notes Due 2028 Level 2 $ 1,100 $ 1,200 2.85 % Notes Due 2030 Level 2 $ 1,393 $ 1,542 2.00 % Notes Due 2031 Level 2 $ 1,071 $ 1,200 3.50 % Notes Due 2040 Level 2 $ 903 $ 1,066 3.50 % Notes Due 2050 Level 2 $ 1,756 $ 2,147 3.70 % Notes Due 2060 Level 2 $ 433 $ 551 (1) Unrealized losses of $ 24 million and an unrealized gain of $ 124 million from investments in publicly-traded equity securities were recorded in other income (expense), net, in the first quarter of fiscal years 2023 and 2022, respectively. (2) These liabilities are carried on our Condensed Consolidated Balance Sheets at their original issuance value, net of unamortized debt discount and issuance costs. Note 9 - Amortizable Intangible Assets and Goodwill The components of our amortizable intangible assets are as follows: May 1, 2022 January 30, 2022 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount (In millions) Acquisition-related intangible assets (1) $ 3,253 $ ( 1,260 ) $ 1,993 $ 3,418 $ ( 1,304 ) $ 2,114 Patents and licensed technology 719 ( 501 ) 218 717 ( 492 ) 225 Total intangible assets $ 3,972 $ ( 1,761 ) $ 2,211 $ 4,135 $ ( 1,796 ) $ 2,339 (1) During the first quarter of fiscal year 2023, we commenced amortization of the $ 630 million in-process research and development intangible asset related to our acquisition of Mellanox. 13 NVIDIA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Amortization expense associated with intangible assets was $ 155 million and $ 137 million for the first quarter of fiscal years 2023 and 2022, respectively. Future amortization expense related to the net carrying amount of intangible assets as of May 1, 2022 is estimated to be $ 541 million for the remainder of fiscal year 2023, $ 597 million in fiscal year 2024, $ 536 million in fiscal year 2025, $ 248 million in fiscal year 2026, $ 143 million in fiscal year 2027, and $ 146 million in fiscal year 2028 and thereafter. In the first quarter of fiscal year 2023, goodwill increased by $ 16 million and intangible assets increased by $ 25 million from acquisitions. We assigned $ 14 million of the increase in goodwill to our Compute & Networking segment and $ 2 million of the increase to our Graphics segment. Note 10 - Balance Sheet Components Certain balance sheet components are as follows: May 1, January 30, 2022 2022 Inventories: (In millions) Raw materials $ 1,119 $ 791 Work in-process 672 692 Finished goods 1,372 1,122 Total inventories $ 3,163 $ 2,605 May 1, January 30, 2022 2022 Other assets: (In millions) Prepaid supply agreements $ 2,752 $ 1,747 Prepaid royalties 405 409 Investment in non-affiliated entities 285 266 Advanced consideration for acquisition (1) — 1,353 Other 63 66 Total other assets $ 3,505 $ 3,841 (1) Refer to Note 2 - Business Combination for further details on the Arm acquisition. May 1, January 30, 2022 2022 Accrued and Other Current Liabilities: (In millions) Customer program accruals $ 1,088 $ 1,000 Taxes payable 736 132 Deferred revenue (1) 334 300 Accrued payroll and related expenses 327 409 Payables to brokers for unsettled investment trades 325 — Excess inventory purchase obligations 258 196 Other 495 515 Total accrued and other current liabilities $ 3,563 $ 2,552 (1) Deferred revenue primarily includes customer advances and deferrals related to license and development arrangements, support for hardware and software, and cloud services. 14 NVIDIA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) May 1, January 30, 2022 2022 Other Long-Term Liabilities: (In millions) Income tax payable (1) $ 1,051 $ 980 Deferred income tax 257 245 Deferred revenue (2) 203 202 Other 120 126 Total other long-term liabilities $ 1,631 $ 1,553 (1) As of May 1, 2022, income tax payable represents the long-term portion of the one-time transition tax payable of $ 251 million, unrecognized tax benefits of $ 733 million, and related interest and penalties of $ 67 million. As of January 30, 2022, income tax payable represents the long-term portion of the one-time transition tax payable of $ 251 million, unrecognized tax benefits of $ 670 million, and related interest and penalties of $ 59 million. (2) Deferred revenue primarily includes deferrals related to support for hardware and software. Deferred Revenue The following table shows the changes in deferred revenue during the first quarter of fiscal years 2023 and 2022: May 1, May 2, 2022 2021 (In millions) Balance at beginning of period $ 502 $ 451 Deferred revenue additions during the period 212 178 Revenue recognized during the period ( 177 ) ( 123 ) Balance at end of period $ 537 $ 506 Revenue related to remaining performance obligations represents the contracted license and development arrangements and support for hardware and software. This includes deferred revenue currently recorded and amounts that will be invoiced in future periods. As of May 1, 2022, $ 652 million of revenue related to performance obligations had not been recognized, of which we expect to recognize approximately 47 % over the next twelve months and the remainder thereafter. This excludes revenue related to performance obligations for contracts with a 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 1, 2022 and January 30, 2022. 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. 15 NVIDIA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) The table below presents the notional value of our foreign currency forward contracts outstanding as of May 1, 2022 and January 30, 2022: May 1, 2022 January 30, 2022 (In millions) Designated as cash flow hedges $ 1,070 $ 1,023 Not designated for hedge accounting $ 382 $ 408 As of May 1, 2022, all designated foreign currency forward contracts mature within eighteen months . The expected realized gains and losses deferred into accumulated other comprehensive income or loss related to foreign currency forward contracts within the next twelve months was not significant. During the first quarter of fiscal years 2023 and 2022, the impact of derivative financial instruments designated for hedge accounting treatment on other comprehensive income or loss was not significant. Note 12 - Debt Long-Term Debt The carrying values of our outstanding notes and their associated interest rates were as follows: Carrying Value at Expected Remaining Term (years) Effective Interest Rate May 1, 2022 January 30, 2022 (In millions) 0.309 % Notes Due 2023 1.1 0.41 % $ 1,250 $ 1,250 0.584 % Notes Due 2024 2.1 0.66 % 1,250 1,250 3.20 % Notes Due 2026 4.4 3.31 % 1,000 1,000 1.55 % Notes Due 2028 6.1 1.64 % 1,250 1,250 2.85 % Notes Due 2030 7.9 2.93 % 1,500 1,500 2.00 % Notes Due 2031 9.1 2.09 % 1,250 1,250 3.50 % Notes Due 2040 17.9 3.54 % 1,000 1,000 3.50 % Notes Due 2050 27.9 3.54 % 2,000 2,000 3.70 % Notes Due 2060 37.9 3.73 % 500 500 Unamortized debt discount and issuance costs ( 53 ) ( 54 ) Net carrying amount $ 10,947 $ 10,946 All our notes are unsecured senior obligations. All existing and future liabilities of our subsidiaries will be effectively senior to the notes. Our notes pay interest semi-annually. We may redeem each of our notes prior to maturity, subject to a make-whole premium as defined in the applicable form of note. As of May 1, 2022, we have complied with the required covenants under the notes. Commercial Paper We have a $ 575 million commercial paper program to support general corporate purposes. As of May 1, 2022, we had no t issued any commercial paper. 16 NVIDIA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 13 - Commitments and Contingencies Purchase Obligations Our purchase obligations primarily include our commitments to purchase components used to manufacture our products, including long-term supply agreements, certain software and technology licenses, other goods and services and long-lived assets. We have entered into several long-term supply agreements, under which we have made advance payments and have $ 1.02 billion remaining unpaid. As of May 1, 2022, we had outstanding inventory purchase and long-term supply obligations totaling $ 9.59 billion, inclusive of the $ 1.02 billion. We also had other purchase obligations totaling $ 1.85 billion. Total future unconditional purchase commitments as of May 1, 2022, are as follows: Commitments (In millions) Fiscal Year: 2023 (excluding first quarter of fiscal year 2023) $ 8,344 2024 2,238 2025 406 2026 48 2027 70 2028 and thereafter 330 Total $ 11,436 Accrual for Product Warranty Liabilities The estimated amount of product warranty liabilities was $ 55 million and $ 46 million as of May 1, 2022 and January 30, 2022, respectively, and the activities were not significant. With certain agreements that we have entered in the past, we have provided indemnities 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 an appeal from judgment in the United States Court of Appeals for the Ninth Circuit, case number 21-15604. Oral argument on the appeal was held on May 10, 2022. 17 NVIDIA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) 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 , was stayed pending resolution of the plaintiffs’ appeal in the In Re NVIDIA Corporation Securities Litigation action. On February 22, 2022, the court administratively closed the case, but stated that it would reopen the case once the appeal in the In Re NVIDIA Corporation Securities Litigation action is resolved. The lawsuit asserts claims, purportedly on behalf of us, against certain officers and directors of the Company 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, purportedly on behalf of us, against certain officers and directors of the Company 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. Settlement In May 2022, NVIDIA entered into a settlement with the SEC relating to MD&A disclosures in our Forms 10-Q for the second and third quarters of fiscal year 2018 concerning the impact of cryptocurrency mining on year-over-year growth in revenue for our gaming specialized market during those periods. As part of the settlement, without admitting or denying the findings in the administrative order issued by the SEC, NVIDIA agreed to cease-and-desist from violating certain federal securities laws and paid a $ 5.5 million civil penalty. Accounting for Loss Contingencies As of May 1, 2022, 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. 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 2023, we repurchased a total of 8.6 million shares for $ 2.00 billion. Through May 1, 2022, we have repurchased an aggregate of 1.05 billion shares under our share repurchase program for a total cost of $ 9.08 billion. On May 23, 2022, our Board of Directors increased and extended our share repurchase program to repurchase additional common stock up to a total of $ 15 billion through December 2023. During the first quarter of fiscal years 2023 and 2022, we paid $ 100 million and $ 99 million in cash dividends to our shareholders, respectively. 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 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 workstation 18 NVIDIA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) graphics; vGPU software for cloud-based visual and virtual computing; automotive platforms for infotainment systems; and Omniverse software for building 3D designs and virtual worlds. Our Compute & Networking segment includes Data Center platforms and systems for artificial intelligence, or AI, high-performance computing, and accelerated computing; Mellanox networking and interconnect solutions; automotive AI Cockpit, autonomous driving development agreements, and autonomous vehicle solutions; cryptocurrency mining processors, or CMP; Jetson for robotics and other embedded platforms; and NVIDIA AI Enterprise and other software. 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 1, 2022 Revenue $ 4,616 $ 3,672 $ — $ 8,288 Operating income (loss) $ 2,476 $ 1,606 $ ( 2,214 ) $ 1,868 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 May 1, 2022 May 2, 2021 (In millions) Reconciling items included in "All Other" category: Acquisition termination cost $ ( 1,353 ) $ — Stock-based compensation expense ( 578 ) ( 429 ) Acquisition-related and other costs ( 149 ) ( 167 ) Unallocated cost of revenue and operating expenses ( 127 ) ( 90 ) IP-related and legal settlement costs ( 7 ) ( 5 ) Total $ ( 2,214 ) $ ( 691 ) 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: 19 NVIDIA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Three Months Ended May 1, May 2, 2022 2021 (In millions) Revenue: Taiwan $ 2,777 $ 1,784 China (including Hong Kong) 2,081 1,391 United States 1,932 768 Other countries 1,498 1,718 Total revenue $ 8,288 $ 5,661 The following table summarizes information pertaining to our revenue by each of the specialized markets we serve: Three Months Ended May 1, May 2, 2022 2021 (In millions) Revenue: Gaming $ 3,620 $ 2,760 Data Center 3,750 2,048 Professional Visualization 622 372 Automotive 138 154 OEM and Other 158 327 Total revenue $ 8,288 $ 5,661 No customer represented 10% or more of total revenue for the first quarter of fiscal years 2023 or 2022. One customer represented 12 % of our accounts receivable balance as of May 1, 2022. Two customers each represented 10% or more of accounts receivable for a total of 22 % as of January 30, 2022. 20