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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 27, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-23985
nvidialogoa06.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 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 No
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
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
The number of shares of common stock, $0.001 par value, outstanding as of November 8, 2019, was 612 million.




NVIDIA CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED October 27, 2019
TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
Financial Statements (Unaudited)
 
 
 
 
 
a) Condensed Consolidated Statements of Income for the three and nine months ended October 27, 2019 and October 28, 2018
 
b) Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended October 27, 2019 and October 28, 2018
 
c) Condensed Consolidated Balance Sheets as of October 27, 2019 and January 27, 2019
 
d) Condensed Consolidated Statements of Shareholders' Equity for the three and nine months ended October 27, 2019 and October 28, 2018
 
e) Condensed Consolidated Statements of Cash Flows for the nine months ended October 27, 2019 and October 28, 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
 
Nine Months Ended
 
October 27,
 
October 28,
 
October 27,
 
October 28,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Revenue
$
3,014

 
$
3,181

 
$
7,813

 
$
9,511

Cost of revenue
1,098

 
1,260

 
3,060

 
3,547

Gross profit
1,916

 
1,921

 
4,753

 
5,964

Operating expenses
 

 
 
 
 
 
 
Research and development
712

 
605

 
2,091

 
1,729

Sales, general and administrative
277

 
258

 
806

 
725

Total operating expenses
989

 
863

 
2,897

 
2,454

Income from operations
927

 
1,058

 
1,856

 
3,510

Interest income
45

 
37

 
137

 
94

Interest expense
(13
)
 
(15
)
 
(39
)
 
(44
)
Other, net

 
1

 

 
12

Total other income (expense)
32

 
23

 
98

 
62

Income before income tax
959

 
1,081

 
1,954

 
3,572

Income tax expense (benefit)
60

 
(149
)
 
109

 
(3
)
Net income
$
899

 
$
1,230

 
$
1,845

 
$
3,575

 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
Basic
$
1.47

 
$
2.02

 
$
3.03

 
$
5.88

Diluted
$
1.45

 
$
1.97

 
$
2.99

 
$
5.71

 
 
 
 
 
 
 
 
Weighted average shares used in per share computation:
 
 
 
 
 
 
 
Basic
610

 
609

 
609

 
608

Diluted
618

 
625

 
617

 
626

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
 
Nine Months Ended
 
October 27,
 
October 28,
 
October 27,
 
October 28,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
Net income
$
899

 
$
1,230

 
$
1,845

 
$
3,575

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

 
3

 
9

 
6

Reclassification adjustments for net realized gain included in net income

 

 

 
1

Net change in unrealized gain

 
3

 
9

 
7

Cash flow hedges:
 
 
 
 
 
 
 
Net unrealized gain (loss)

 
1

 
4

 
(7
)
Reclassification adjustments for net realized loss included in net income
(2
)
 
(5
)
 
(4
)
 
(6
)
Net change in unrealized loss
(2
)
 
(4
)
 

 
(13
)
Other comprehensive income (loss), net of tax
(2
)
 
(1
)
 
9

 
(6
)
Total comprehensive income
$
897

 
$
1,229

 
$
1,854

 
$
3,569

See accompanying Notes to Condensed Consolidated Financial Statements.


4



NVIDIA CORPORATION AND SUBSIDIARIES 
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
 
October 27,
 
January 27,
 
2019
 
2019
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
9,765

 
$
782

Marketable securities
4

 
6,640

Accounts receivable, net
1,455

 
1,424

Inventories
1,047

 
1,575

Prepaid expenses and other current assets
149

 
136

Total current assets
12,420

 
10,557

Property and equipment, net
1,517

 
1,404

Operating lease assets
527

 

Goodwill
618

 
618

Intangible assets, net
43

 
45

Deferred income tax assets
569

 
560

Other assets
116

 
108

Total assets
$
15,810

 
$
13,292

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
591

 
$
511

Accrued and other current liabilities
884

 
818

Total current liabilities
1,475

 
1,329

Long-term debt
1,990

 
1,988

Long-term operating lease liabilities
469

 

Other long-term liabilities
662

 
633

Total liabilities
4,596

 
3,950

Commitments and contingencies - see Note 13


 


Shareholders’ equity:
 
 
 
Preferred stock

 

Common stock
1

 
1

Additional paid-in capital
6,824

 
6,051

Treasury stock, at cost
(9,726
)
 
(9,263
)
Accumulated other comprehensive loss
(3
)
 
(12
)
Retained earnings
14,118

 
12,565

Total shareholders' equity
11,214

 
9,342

Total liabilities and shareholders' equity
$
15,810

 
$
13,292

See accompanying Notes to Condensed Consolidated Financial Statements.


5



NVIDIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED OCTOBER 27, 2019 AND OCTOBER 28, 2018
(Unaudited)
 
Common Stock
Outstanding
 
Additional Paid-in Capital
 
Treasury Stock
 
Accumulated Other Comprehensive Loss
 
Retained Earnings
 
Total Shareholders' Equity
(In millions, except per share data)
Shares
 
Amount
 
 
 
 
 
Balances, July 28, 2019
609

 
$
1

 
$
6,543

 
$
(9,524
)
 
$
(1
)
 
$
13,317

 
$
10,336

Other comprehensive loss

 

 

 

 
(2
)
 

 
(2
)
Net income

 

 

 

 

 
899

 
899

Issuance of common stock from stock plans 
4

 

 
63

 

 

 

 
63

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

 

 
(202
)
 

 

 
(202
)
Cash dividends declared and paid ($0.16 per common share)

 

 

 

 

 
(98
)
 
(98
)
Stock-based compensation

 

 
218

 

 

 

 
218

Balances, October 27, 2019
612

 
$
1

 
$
6,824

 
$
(9,726
)
 
$
(3
)
 
$
14,118

 
$
11,214

Balances, July 29, 2018
608

 
$
1

 
$
5,681

 
$
(7,821
)
 
$
(23
)
 
$
10,957

 
$
8,795

Other comprehensive loss

 

 

 

 
(1
)
 

 
(1
)
Net income

 

 

 

 

 
1,230

 
1,230

Convertible debt conversion
1

 

 

 

 

 

 

Issuance of common stock from stock plans 
6

 

 
65

 

 

 

 
65

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

 

 
(467
)
 

 

 
(467
)
Share repurchase
(1
)
 

 

 
(200
)
 

 

 
(200
)
Exercise of convertible note hedges
(1
)
 

 
1

 
(1
)
 

 

 

Cash dividends declared and paid ($0.15 per common share)

 

 

 

 

 
(91
)
 
(91
)
Stock-based compensation

 

 
144

 

 

 

 
144

Balances, October 28, 2018
611

 
$
1

 
$
5,891

 
$
(8,489
)
 
$
(24
)
 
$
12,096

 
$
9,475

See accompanying Notes to Condensed Consolidated Financial Statements.

6



NVIDIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED OCTOBER 27, 2019 AND OCTOBER 28, 2018
(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 27, 2019
606

 
$
1

 
$
6,051

 
$
(9,263
)
 
$
(12
)
 
$
12,565

 
$
9,342

Other comprehensive income

 

 

 

 
9

 

 
9

Net income

 

 

 

 

 
1,845

 
1,845

Issuance of common stock from stock plans 
9

 

 
146

 


 

 

 
146

Tax withholding related to vesting of restricted stock units
(3
)
 

 

 
(463
)
 

 

 
(463
)
Cash dividends declared and paid ($0.48 per common share)

 

 

 

 

 
(292
)
 
(292
)
Stock-based compensation

 

 
627

 


 

 

 
627

Balances, October 27, 2019
612

 
$
1

 
$
6,824

 
$
(9,726
)
 
$
(3
)
 
$
14,118

 
$
11,214

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

 

 

 

 
(6
)
 

 
(6
)
Net income

 

 

 

 

 
3,575

 
3,575

Convertible debt conversion
1

 

 

 

 

 

 

Issuance of common stock from stock plans 
13

 

 
134

 

 

 

 
134

Tax withholding related to vesting of restricted stock units
(4
)
 

 

 
(982
)
 

 

 
(982
)
Share repurchase
(4
)
 

 

 
(855
)
 

 

 
(855
)
Exercise of convertible note hedges
(1
)
 

 
2

 
(2
)
 

 

 

Cash dividends declared and paid ($0.45 per common share)

 

 

 

 

 
(274
)
 
(274
)
Stock-based compensation

 

 
404

 

 

 

 
404

Balances, October 28, 2018
611

 
$
1

 
$
5,891

 
$
(8,489
)
 
$
(24
)
 
$
12,096

 
$
9,475

See accompanying Notes to Condensed Consolidated Financial Statements.

7



NVIDIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
Nine Months Ended
 
October 27,
 
October 28,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income
$
1,845

 
$
3,575

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

Stock-based compensation expense
624

 
400

Depreciation and amortization
275

 
184

Deferred income taxes
(5
)
 
30

Other
5

 
(35
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(32
)
 
(943
)
Inventories
531

 
(620
)
Prepaid expenses and other assets
55

 
(68
)
Accounts payable
91

 
224

Accrued and other current liabilities
(103
)
 
147

Other long-term liabilities
10

 
(49
)
Net cash provided by operating activities
3,296

 
2,845

Cash flows from investing activities:
 
 
 
Proceeds from maturities of marketable securities
4,744

 
6,267

Proceeds from sales of marketable securities
3,363

 
114

Purchases of marketable securities
(1,461
)
 
(10,112
)
Purchases of property and equipment and intangible assets
(344
)
 
(397
)
Investment in non-affiliates
(6
)
 
(9
)
Net cash provided by (used in) investing activities
6,296

 
(4,137
)
Cash flows from financing activities:
 
 
 
Proceeds related to employee stock plans
146

 
135

Payments related to tax on restricted stock units
(463
)
 
(982
)
Dividends paid
(292
)
 
(273
)
Payments related to repurchases of common stock

 
(855
)
Repayment of Convertible Notes

 
(12
)
Other

 
(2
)
Net cash used in financing activities
(609
)
 
(1,989
)
Change in cash and cash equivalents
8,983

 
(3,281
)
Cash and cash equivalents at beginning of period
782

 
4,002

Cash and cash equivalents at end of period
$
9,765

 
$
721

 
 
 
 
Other non-cash investing activity:
 
 
 
Assets acquired by assuming related liabilities
$
87

 
$
98

See accompanying Notes to Condensed Consolidated Financial Statements.

8

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 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 third 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

9

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. We expect to adopt the standard using the modified retrospective transition method beginning in the first quarter of fiscal year 2021. While we are still evaluating the impact of this standard on our Consolidated Financial Statements, we do not currently believe it will have a material impact upon adoption.
Note 2 - Acquisition of 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. In June 2019, Mellanox shareholders approved the acquisition. The closing of the acquisition is subject to approval by regulatory agencies. If the Merger Agreement is terminated under certain circumstances involving the failure to obtain the required regulatory approvals, we could be obligated to pay Mellanox a termination fee of $350 million. We have received regulatory approval in the United States and Mexico and are engaged with regulators in Europe and China. Although discussions with the European Union and China regulatory bodies are progressing and closing the acquisition is possible by the end of this calendar year, we believe the closing will likely occur in the early part of calendar 2020.
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 fiscal years 2020 and 2035.

10

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



Future minimum lease payments under our non-cancelable operating leases as of October 27, 2019, are as follows:   
 
Operating Lease Obligations
 
(In millions)
Fiscal Year:
 
2020 (excluding first nine months of fiscal year 2020)
$
28

2021
112

2022
104

2023
83

2024
60

2025 and thereafter
282

Total
669

Less imputed interest
111

Present value of net future minimum lease payments
558

Less short-term operating lease liabilities
89

Long-term operating lease liabilities
$
469


In addition to our existing operating lease obligations, we have entered into an operating lease that will commence in fiscal year 2021 with a lease term of 7 years for $62 million.
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 third quarter and first nine months of fiscal year 2020 was $28 million and $83 million, respectively. Operating lease expense for the third quarter and first nine months of fiscal year 2019 was $22 million and $58 million, respectively. Short-term and variable lease expenses for the third quarter and first nine months of fiscal year 2020 were not significant.


11

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



Other information related to leases was as follows:
 
Three Months Ended
 
Nine Months Ended
 
October 27, 2019
 
October 27, 2019
 
(In millions)
Supplemental cash flows information
 
 
 
Operating cash flows used for operating leases
$
28

 
$
78

Operating lease assets obtained in exchange for lease obligations
$
14

 
$
122


As of October 27, 2019, our operating leases had a weighted average remaining lease term of 8.5 years and a weighted average discount rate of 3.68%.
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
 
Nine Months Ended
 
October 27,
2019
 
October 28,
2018
 
October 27,
2019
 
October 28,
2018
 
(In millions)
Cost of revenue
$
15

 
$
5

 
$
27

 
$
21

Research and development
141

 
88

 
400

 
237

Sales, general and administrative
67

 
47

 
197

 
142

Total
$
223

 
$
140

 
$
624

 
$
400


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)
7

 
$
182.62

Vested restricted stock
(7
)
 
$
85.22

Canceled and forfeited
(1
)
 
$
186.34

Balances, October 27, 2019
15

 
$
173.01


(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.

12

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



As of October 27, 2019, there was $1.95 billion of aggregate unearned stock-based compensation expense, net of forfeitures. This amount is expected to be recognized over a weighted average period of 2.6 years for RSUs, PSUs, and market-based PSUs, and 1.0 year for ESPP.
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
 
Nine Months Ended
 
October 27,
 
October 28,
 
October 27,
 
October 28,
 
2019
 
2018
 
2019
 
2018
 
(In millions, except per share data)
Numerator:
 
 
 
 
 
 
 
Net income
$
899

 
$
1,230

 
$
1,845

 
$
3,575

Denominator:
 
 
 
 
 
 
 
Basic weighted average shares
610

 
609

 
609

 
608

Dilutive impact of outstanding equity awards
8

 
16

 
8

 
18

Diluted weighted average shares
618

 
625

 
617

 
626

Net income per share:
 
 
 
 
 
 
 
Basic (1)
$
1.47

 
$
2.02

 
$
3.03

 
$
5.88

Diluted (2)
$
1.45

 
$
1.97

 
$
2.99

 
$
5.71

Equity awards excluded from diluted net income per share because their effect would have been anti-dilutive
5

 
3

 
11

 
4


(1)
Calculated as net income divided by basic weighted average shares.
(2)
Calculated as net income divided by diluted weighted average shares.
Note 6Income Taxes
We recognized an income tax expense of $60 million and $109 million for the third quarter and first nine months of fiscal year 2020, respectively, and an income tax benefit of $149 million and $3 million for the third quarter and first nine months of fiscal year 2019, respectively. The income tax expense as a percentage of income before income tax was 6.3% and 5.6% for the third quarter and first nine months of fiscal year 2020, respectively, and income tax benefit as a percentage of income before income tax was 13.8% and nominal for the third quarter and first nine months of fiscal year 2019, respectively.
The increase in our effective tax rate for the third quarter and first nine months of fiscal year 2020 as compared to the third quarter and first nine months of fiscal year 2019 was primarily due to a decrease of tax benefits from stock-based compensation and an absence of the tax benefit related to the reduction in our provisional U.S. tax reform transition tax amount.
Our effective tax rates for the first nine months of fiscal years 2020 and 2019 were 5.6% and nominal, 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, the benefit of the U.S. federal research tax credit, and for fiscal year 2019, the reduction in our provisional U.S. tax reform transition tax amount.
For the first nine months 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

13

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



resolved with the respective tax authorities. As of October 27, 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.
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 October 27, 2019 and January 27, 2019:
 
October 27, 2019
 
Amortized
Cost
 
Unrealized
Gain
 
Unrealized
Loss
 
Estimated
Fair Value
 
Reported as
 
 
 
 
 
Cash Equivalents
 
Marketable Securities
 
(In millions)
Debt securities issued by the United States Treasury
$
5,883

 
$

 
$

 
$
5,883

 
$
5,883

 
$

Corporate debt securities
1,293

 

 

 
1,293

 
1,293

 

Debt securities of United States government agencies
1,204

 

 

 
1,204

 
1,204

 

Money market funds
1,070

 

 

 
1,070

 
1,070

 

Foreign government debt securities
178

 

 

 
178

 
178

 

Certificates of deposit
25

 

 

 
25

 
25

 

Asset-backed securities
4

 

 

 
4

 

 
4

Total
$
9,657

 
$

 
$

 
$
9,657

 
$
9,653

 
$
4

 
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 debt securities
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


For the third quarter and first nine months 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 October 27, 2019 and January 27, 2019 are shown below by contractual maturity.  
 
October 27, 2019
 
January 27, 2019
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
 
(In millions)
Less than 1 year
$
9,657

 
$
9,657

 
$
5,042

 
$
5,034

Due in 1 - 5 years

 

 
2,271

 
2,268

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

 

 
22

 
22

Total
$
9,657

 
$
9,657

 
$
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.
 
 
Fair Value at
 
Pricing Category
 
October 27, 2019
 
January 27, 2019
 
 
 
(In millions)
Assets
 
 
 
 
 
Cash equivalents and marketable securities:
 
 
 
Debt securities issued by the United States Treasury
Level 2
 
$
5,883

 
$
1,492

Corporate debt securities
Level 2
 
$
1,293

 
$