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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 25, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-23985
nvda-20201025_g1.jpg

NVIDIA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware94-3177549
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.001 par value per shareNVDAThe 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 filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging 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 13, 2020, was 619 million.



NVIDIA CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED October 25, 2020
TABLE OF CONTENTS
  Page
  
Financial Statements (Unaudited) 
 a) Condensed Consolidated Statements of Income for the three and nine months ended October 25, 2020 and October 27, 2019
b) Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended October 25, 2020 and October 27, 2019
 c) Condensed Consolidated Balance Sheets as of October 25, 2020 and January 26, 2020
d) Condensed Consolidated Statements of Shareholders' Equity for the three and nine months ended October 25, 2020 and October 27, 2019
 e) Condensed Consolidated Statements of Cash Flows for the nine months ended October 25, 2020 and October 27, 2019
 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 EndedNine Months Ended
 October 25,October 27,October 25,October 27,
2020201920202019
Revenue$4,726 $3,014 $11,672 $7,813 
Cost of revenue1,766 1,098 4,432 3,060 
Gross profit2,960 1,916 7,240 4,753 
Operating expenses  
Research and development1,047 712 2,778 2,091 
Sales, general and administrative515 277 1,437 806 
Total operating expenses1,562 989 4,215 2,897 
Income from operations1,398 927 3,025 1,856 
Interest income7 45 50 137 
Interest expense(53)(13)(131)(39)
Other, net(4) (5) 
Other income (expense), net
(50)32 (86)98 
Income before income tax1,348 959 2,939 1,954 
Income tax expense12 60 64 109 
Net income$1,336 $899 $2,875 $1,845 
Net income per share:
Basic$2.16 $1.47 $4.67 $3.03 
Diluted$2.12 $1.45 $4.59 $2.99 
Weighted average shares used in per share computation:
Basic618 610 616 609 
Diluted630 618 626 617 
See accompanying Notes to Condensed Consolidated Financial Statements.

3


NVIDIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
 Three Months EndedNine Months Ended
 October 25,October 27,October 25,October 27,
2020201920202019
 
Net income$1,336 $899 $2,875 $1,845 
Other comprehensive income (loss), net of tax
Available-for-sale securities:
Net change in unrealized gain (loss)(1) 3 9 
Reclassification adjustments for net realized gain (loss) included in net income  (2) 
Net change in unrealized gain (loss)(1) 1 9 
Cash flow hedges:
Net unrealized gain5  10 4 
Reclassification adjustments for net realized gain included in net income4 (2) (4)
Net change in unrealized gain (loss)9 (2)10  
Other comprehensive income (loss), net of tax8 (2)11 9 
Total comprehensive income$1,344 $897 $2,886 $1,854 
See accompanying Notes to Condensed Consolidated Financial Statements.

4


NVIDIA CORPORATION AND SUBSIDIARIES 
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
October 25,January 26,
 20202020
ASSETS
Current assets:  
Cash and cash equivalents$2,251 $10,896 
Marketable securities7,888 1 
Accounts receivable, net2,546 1,657 
Inventories1,495 979 
Prepaid expenses and other current assets213 157 
Total current assets14,393 13,690 
Property and equipment, net2,059 1,674 
Operating lease assets681 618 
Goodwill4,193 618 
Intangible assets, net2,861 49 
Deferred income tax assets666 548 
Other assets2,028 118 
Total assets$26,881 $17,315 
LIABILITIES AND SHAREHOLDERS’ EQUITY  
Current liabilities:  
Accounts payable$1,097 $687 
Accrued and other current liabilities1,574 1,097 
Short-term debt998  
Total current liabilities3,669 1,784 
Long-term debt5,963 1,991 
Long-term operating lease liabilities604 561 
Other long-term liabilities1,311 775 
Total liabilities11,547 5,111 
Commitments and contingencies - see Note 13
Shareholders’ equity:  
Preferred stock  
Common stock1 1 
Additional paid-in capital8,301 7,045 
Treasury stock, at cost(10,530)(9,814)
Accumulated other comprehensive income12 1 
Retained earnings17,550 14,971 
Total shareholders' equity15,334 12,204 
Total liabilities and shareholders' equity$26,881 $17,315 
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 25, 2020 AND OCTOBER 27, 2019
(Unaudited)
Common Stock
Outstanding
Additional Paid-in CapitalTreasury StockAccumulated Other Comprehensive Income (Loss)Retained EarningsTotal Shareholders' Equity
(In millions, except per share data)SharesAmount
Balances, July 26, 2020617 $1 $7,828 $(10,232)$4 $16,313 $13,914 
Net income— — — — — 1,336 1,336 
Other comprehensive income— — — — 8 — 8 
Issuance of common stock from stock plans 3 — 96 — — — 96 
Tax withholding related to vesting of restricted stock units(1)— — (298)— — (298)
Cash dividends declared and paid ($0.16 per common share)
— — — — — (99)(99)
Stock-based compensation— — 377 — — — 377 
Balances, October 25, 2020619 $1 $8,301 $(10,530)$12 $17,550 $15,334 
Balances, July 28, 2019609 $1 $6,543 $(9,524)$(1)$13,317 $10,336 
Net income— — — — — 899 899 
Other comprehensive loss— — — — (2)— (2)
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, 2019612 $1 $6,824 $(9,726)$(3)$14,118 $11,214 
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 25, 2020 AND OCTOBER 27, 2019
(Unaudited)
Common Stock
Outstanding
Additional Paid-in CapitalTreasury StockAccumulated Other Comprehensive Income (Loss)Retained EarningsTotal Shareholders' Equity
(In millions, except per share data)SharesAmount
Balances, January 26, 2020612 $1 $7,045 $(9,814)$1 $14,971 $12,204 
Net income— — — — — 2,875 2,875 
Other comprehensive income— — — — 11 — 11 
Issuance of common stock from stock plans 9 — 190 — — — 190 
Tax withholding related to vesting of restricted stock units(2)— — (716)— — (716)
Cash dividends declared and paid ($0.48 per common share)
— — — — — (296)(296)
Fair value of partially vested equity awards assumed in connection with acquisitions— — 86 — — — 86 
Stock-based compensation— — 980 — — — 980 
Balances, October 25, 2020619 $1 $8,301 $(10,530)$12 $17,550 $15,334 
Balances, January 27, 2019606 $1 $6,051 $(9,263)$(12)$12,565 $9,342 
Net income— — — — — 1,845 1,845 
Other comprehensive income— — — — 9 — 9 
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, 2019612 $1 $6,824 $(9,726)$(3)$14,118 $11,214 
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 25,October 27,
 20202019
Cash flows from operating activities:  
Net income$2,875 $1,845 
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense981 624 
Depreciation and amortization810 275 
Deferred income taxes(117)(5)
Other(2)5 
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable(667)(32)
Inventories(190)531 
Prepaid expenses and other assets(409)55 
Accounts payable289 91 
Accrued and other current liabilities111 (103)
Other long-term liabilities74 10 
Net cash provided by operating activities3,755 3,296 
Cash flows from investing activities:  
Proceeds from maturities of marketable securities5,165 4,744 
Proceeds from sales of marketable securities502 3,363 
Purchases of marketable securities(12,840)(1,461)
Acquisitions, net of cash acquired(8,524) 
Purchases related to property and equipment and intangible assets(845)(344)
Investments and other, net(4)(6)
Net cash provided by (used in) investing activities(16,546)6,296 
Cash flows from financing activities:  
Issuance of debt, net of issuance costs4,971  
Proceeds related to employee stock plans190 146 
Payments related to tax on restricted stock units(716)(463)
Dividends paid(296)(292)
Other(3) 
Net cash provided by (used in) financing activities4,146 (609)
Change in cash and cash equivalents(8,645)8,983 
Cash and cash equivalents at beginning of period10,896 782 
Cash and cash equivalents at end of period$2,251 $9,765 
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 26, 2020 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 26, 2020, 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 26, 2020. 
The unaudited condensed consolidated financial statements in this report include the financial results of Mellanox Technologies Ltd., or Mellanox, prospectively from April 27, 2020. For additional details, refer to Note 2 - Business Combination.
Significant Accounting Policies
Except for the accounting policies for business combination and investment in non-affiliated entities, 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 26, 2020.
Business Combination
We allocate the fair value of the purchase price of an acquisition to the tangible assets acquired, liabilities assumed, and intangible assets acquired, including in-process research and development, or IPR&D, based on their estimated fair values. The excess of the fair value of the purchase price over the fair values of these net tangible and intangible assets acquired is recorded as goodwill. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but our estimates and assumptions are inherently uncertain and subject to refinement. The estimates and assumptions used in valuing intangible assets include, but are not limited to, the amount and timing of projected future cash flows, discount rate used to determine the present value of these cash flows and asset lives. These estimates are inherently uncertain and, therefore, actual results may differ from the estimates made. As a result, during the measurement period of up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of the purchase price of an acquisition, whichever comes first, any subsequent adjustments are recorded to our condensed consolidated statements of income.
We initially capitalize the fair value of IPR&D as an intangible asset with an indefinite life. We assess for impairment thereafter. When IPR&D projects are completed, we reclassify the IPR&D as an amortizable purchased intangible asset and amortize over the asset’s estimated useful life.
Acquisition-related expenses are recognized separately from the business combination and expensed as incurred.
Investment in Non-Affiliated Entities
Non-marketable equity investments in privately-held companies are 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. These investments are valued using observable and unobservable inputs or data in an inactive market and the valuation requires our judgment due to the absence of market prices and inherent lack of liquidity. The estimated fair value is based on quantitative and qualitative factors including subsequent financing activities by the investee.

9

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


Fiscal Year
We operate on a 52- or 53-week year, ending on the last Sunday in January. Fiscal year 2021 is a 53-week year and fiscal year 2020 is a 52-week year. The third quarters of fiscal years 2021 and 2020 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 other contingencies. The inputs into our judgments and estimates consider the economic implications of COVID-19 on our critical and significant accounting estimates. 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
In June 2016, the Financial Accounting Standards Board issued a new accounting standard to replace the existing incurred loss impairment methodology 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 for accounts receivable and other financial instruments, including available-for-sale debt securities. We adopted the standard in the first quarter of fiscal year 2021 and the impact of the adoption was not material to our consolidated financial statements.
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 of the 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 with an aggregate value of $21.5 billion. 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 $5 billion in cash or up to 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 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. The closing of the acquisition is subject to customary closing conditions, including receipt of specified governmental and regulatory consents and approvals and 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. If the Purchase Agreement is terminated under certain circumstances, we will be refunded $1.25 billion of the Signing Consideration. The $2 billion payment upon signing 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.

10

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


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.
Preliminary Purchase Price Allocation
The aggregate purchase consideration has been preliminarily allocated as follows (in millions):

Purchase Price
Cash paid for outstanding Mellanox ordinary shares (1)$7,033 
Cash for Mellanox equity awards (2)16 
Total cash consideration7,049 
Fair value of Mellanox equity awards assumed by NVIDIA (3)85 
Total purchase consideration$7,134 
Allocation
Cash and cash equivalents$115 
Marketable securities699 
Accounts receivable, net216 
Inventories320 
Prepaid expenses and other assets179 
Property and equipment, net144 
Goodwill3,431 
Intangible assets2,970 
Accounts payable(136)
Accrued and other current liabilities(236)
Income tax liability(191)
Deferred income tax liability(258)
Other long-term liabilities(119)
$7,134 

(1)    Represents the cash consideration of $125.00 per share paid to Mellanox shareholders for approximately 56 million shares of outstanding Mellanox ordinary shares.
(2)    Represents the cash consideration for the settlement of approximately 249 thousand Mellanox stock options held by employees and non-employee directors of Mellanox.
(3)    Represents the fair value of Mellanox’s stock-based compensation awards attributable to pre-combination services.

We allocated the purchase price to tangible and identified intangible assets acquired and liabilities assumed based on the preliminary estimates of their estimated fair values, which were determined using generally accepted valuation techniques based on estimates and assumptions made by management at the time of the acquisition and are subject to change during the measurement period which is not expected to exceed one year. The primary tasks that are required to be completed include validation of business level forecasts, jurisdictional forecasts, customer attrition rates, contingent liabilities assessments and any related tax impacts from the acquisition. Any adjustments to our preliminary purchase price allocation identified during the measurement period will be recognized in the period in which the adjustments are determined.
The goodwill is primarily attributable to the planned growth in the combined business of NVIDIA and Mellanox. Goodwill is not amortized to earnings, but instead is reviewed for impairment at least annually, absent any interim indicators of impairment. Goodwill recognized in the acquisition is not expected to be deductible for foreign tax purposes. Goodwill
11

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


arising from the Mellanox acquisition has been allocated to the Compute and Networking segment. Refer to Note 15 – Segment Information for further details on segments.
The operating results of Mellanox have been included in our condensed consolidated financial statements for the third quarter and first nine months of fiscal year 2021 since the acquisition date of April 27, 2020. Revenue attributable to Mellanox was approximately 13% and 10% of consolidated revenue for the third quarter and first nine months of fiscal year 2021, respectively. There is not a practical way to determine net income attributable to Mellanox due to integration. Acquisition-related costs attributable to Mellanox of $27 million were included in selling, general and administrative expense for the first nine months of fiscal year 2021.
Intangible Assets
The estimated fair value and weighted average useful life of the acquired intangible assets are as follows:
Fair ValueWeighted Average Useful Lives
(In millions)
Developed technology (1)$1,640 5 years
Customer relationships (2)440 3 years
Order backlog (3)190 Based on actual shipments
Trade names (4)70 5 years
Total identified finite-lived intangible assets2,340 
IPR&D (5)630 N/A
Total identified intangible assets$2,970 

(1)    The fair value of developed technology was identified using the Multi-Period Excess Earning Method.
(2)    Customer relationships represent the fair value of the existing relationships using the With and Without Method.
(3)    Order backlog represents primarily the fair value of purchase arrangements with customers using the Multi-Period Excess Earning Method.
(4)    Trade names primarily relate to Mellanox trade names and fair value was determined by applying the Relief-from-Royalty Method under the income approach.
(5)    The fair value of IPR&D was determined using the Multi-Period Excess Earning Method.

The fair value of the finite-lived intangible assets will be amortized over the estimated useful lives based on the pattern in which the economic benefits are expected to be received to cost of revenue and operating expenses.
Mellanox had an IPR&D project associated with the next generation interconnect product that had not yet reached technological feasibility as of the acquisition date. Accordingly, we recorded an indefinite-lived intangible asset of $630 million for the fair value of this project, which will initially not be amortized. Instead, the project will be tested for impairment whenever events or changes in circumstances indicate that the project may be impaired or may have reached technological feasibility. Once the project reaches technological feasibility, we will begin to amortize the intangible asset over its estimated useful life.
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 EndedNine Months Ended
 October 25,
2020
October 27,
2019
October 25,
2020
October 27,
2019
(In millions)
Revenue$4,726 $3,350 $12,101 $8,765 
Net income$1,388 $786 $3,267 $1,190 
12

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


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 actually occurred at the beginning of fiscal year 2020 or of the results of our future operations of the combined businesses.
The pro forma results reflect the inventory step-up expense of $161 million in the first nine months of fiscal year 2020 and were excluded from the pro forma results for the first nine months of fiscal year 2021. There were no other material nonrecurring adjustments.
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 2021 and 2035.
Future minimum lease payments under our non-cancelable operating leases as of October 25, 2020, are as follows:   
Operating Lease Obligations
 (In millions)
Fiscal Year: 
2021 (excluding first nine months of fiscal year 2021)
$38 
2022143 
2023122 
2024102 
202583 
2026 and thereafter
347 
Total835 
Less imputed interest115 
Present value of net future minimum lease payments720 
Less short-term operating lease liabilities116 
Long-term operating lease liabilities$604 
Operating lease expense was $37 million and $28 million for the third quarter of fiscal years 2021 and 2020, respectively, and $104 million and $83 million for the first nine months of fiscal years 2021 and 2020, respectively. Short-term and variable lease expenses for the third quarter and first nine months of fiscal years 2021 and 2020 were not significant.
Other information related to leases was as follows:
Nine Months Ended
October 25, 2020October 27, 2019
 (In millions)
Supplemental cash flows information 
Operating cash flows used for operating leases$103 $78 
Operating lease assets obtained in exchange for lease obligations (1)$147 $122 
(1)    The first nine months of fiscal year 2021 includes $80 million of operating lease assets addition due to a business combination.
As of October 25, 2020, our operating leases had a weighted average remaining lease term of 7.8 years and a weighted average discount rate of 3.06%. As of January 26, 2020, our operating leases had a weighted average remaining lease term of 8.3 years and a weighted average discount rate of 3.45%.
13

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 EndedNine Months Ended
 October 25,
2020
October 27,
2019
October 25,
2020
October 27,
2019
(In millions)
Cost of revenue$28 $15 $62 $27 
Research and development232 141 594 400 
Sales, general and administrative123 67 325 197 
Total$383 $223 $981 $624 
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 SharesWeighted Average Grant-Date Fair Value Per Share
(In millions, except per share data)
Balances, January 26, 202014 $176.72 
Granted8 $300.75 
Vested restricted stock(6)$152.46 
Balances, October 25, 202016 $253.81 

As of October 25, 2020, there was $3.42 billion of aggregate unearned stock-based compensation expense, net of forfeitures. This amount is expected to be recognized over a weighted average period of 2.7 years for RSUs, PSUs, and market-based PSUs, and 0.9 years for ESPP.

14

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 EndedNine Months Ended
October 25,October 27,October 25,October 27,
2020201920202019
 (In millions, except per share data)
Numerator:  
Net income
$1,336 $899 $2,875 $1,845 
Denominator:
Basic weighted average shares
618 610 616 609 
Dilutive impact of outstanding equity awards
12 8 10 8 
Diluted weighted average shares
630 618 626 617 
Net income per share:
Basic (1)
$2.16 $1.47 $4.67 $3.03 
Diluted (2)
$2.12 $1.45 $4.59 $2.99 
Equity awards excluded from diluted net income per share because their effect would have been anti-dilutive 5 8 11 
(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 $12 million and $64 million for the third quarter and first nine months of fiscal year 2021, respectively, and $60 million and $109 million for the third quarter and first nine months of fiscal year 2020, respectively. The income tax expense as a percentage of income before income tax was 0.9% and 2.2% for the third quarter and first nine months of fiscal year 2021, respectively, and 6.3% and 5.6% for the third quarter and first nine months of fiscal year 2020, respectively.
The decrease in our effective tax rate for the third quarter and first nine months of fiscal year 2021 as compared to the same periods of fiscal year 2020 was primarily due to a decrease in the proportional amount of earnings subject to United States tax and an increase of tax benefits from stock-based compensation.
Our effective tax rates for the first nine months of fiscal years 2021 and 2020 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.
During the second quarter of fiscal year 2021, we completed the acquisition of Mellanox. As a result of the acquisition, we recorded $256 million of net deferred tax liabilities primarily on the excess of book basis over the tax basis of the acquired intangible assets and undistributed earnings in certain foreign subsidiaries. We also recorded $153 million of long-term tax liabilities related to tax basis differences in Mellanox. The net deferred tax liabilities and long-term tax liabilities are based upon certain assumptions underlying our purchase price allocation. Upon finalization of the purchase price allocation, additional adjustments to the amount of our net deferred taxes and long-term tax liabilities may be required. As a result of the acquisition, we intend to indefinitely reinvest approximately $675 million 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 nine months of fiscal year 2021, 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. In the second quarter of fiscal year 2021, we assumed $59 million of unrecognized tax
15

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


benefits and $4 million of related interest through the Mellanox acquisition. Other than these amounts, there have been no material changes to our unrecognized tax benefits and any related interest or penalties since the fiscal year ended January 26, 2020.
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 October 25, 2020, 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 - Cash Equivalents and Marketable Securities 
Our cash equivalents and marketable securities, except for money market funds and certificates of deposits, are classified as “available-for-sale” debt securities.
The following is a summary of cash equivalents and marketable securities as of October 25, 2020 and January 26, 2020:
 October 25, 2020
Amortized
Cost
Unrealized
Gain
Unrealized
Loss
Estimated
Fair Value
Reported as
 Cash EquivalentsMarketable Securities
 (In millions)
Debt securities issued by the United States Treasury$3,881 $ $ $3,881 $1,116 $2,765 
Corporate debt securities3,139 2  3,141 427 2,714 
Debt securities issued by United States government agencies1,571 1  1,572  1,572 
Certificates of deposit797   797 29 768 
Money market funds388   388 388  
Foreign government bonds117   117 48 69 
Total$9,893 $3 $ $9,896 $2,008 $7,888 


 January 26, 2020
Amortized
Cost
Unrealized
Gain
Unrealized
Loss
Estimated
Fair Value
Reported as
 Cash EquivalentsMarketable Securities
 (In millions)
Money market funds$7,507 $ $ $7,507 $7,507 $ 
Debt securities issued by the United States Treasury1,358   1,358 1,358  
Debt securities issued by United States government agencies1,096   1,096 1,096  
Corporate debt securities592   592 592  
Foreign government bonds200   200 200  
Certificates of deposit27   27 27  
Asset-backed securities1   1  1 
Total$10,781 $ $ $10,781 $10,780 $1 
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 October 25, 2020 and January 26, 2020 are shown below by contractual maturity.
October 25, 2020January 26, 2020
Amortized CostEstimated Fair ValueAmortized CostEstimated Fair Value
(In millions)
Less than one year$9,329 $9,330 $10,781 $10,781 
Due in 1 - 5 years564 566   
Total$9,893 $9,896 $10,781 $10,781 

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.
16

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


Fair Value at
Pricing CategoryOctober 25, 2020January 26, 2020
(In millions)
Assets
Cash equivalents and marketable securities:
Money market fundsLevel 1$388 $7,507 
Debt securities issued by the United States TreasuryLevel 2$3,881 $1,358 
Corporate debt securitiesLevel 2$3,141 $592 
Debt securities issued by United States government agenciesLevel 2$1,572 $1,096 
Certificates of depositLevel 2$797 $27 
Foreign government bondsLevel 2$117