Edgar Filing: NVIDIA CORP

NVDA 2014 Q3 10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



[x]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 27, 2013



[_]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 0-23985

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.)

2701 San Tomas Expressway

Santa Clara, California 95050

(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)

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 Q No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes Q No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer x	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No Q

The number of shares of common stock, $0.001 par value, outstanding as of November 15, 2013, was 568,535,613.

NVIDIA CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED October 27, 2013

TABLE OF CONTENTS



		Page
	PART I : FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	a) Condensed Consolidated Statements of Income for the three and nine months ended October 27, 2013 and October 28, 2012	3

	b) Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended October 27, 2013 and October 28, 2012	4

	c) Condensed Consolidated Balance Sheets as of October 27, 2013 and January 27, 2013	5

	d) Condensed Consolidated Statements of Cash Flows for the nine months ended October 27, 2013 and October 28, 2012	6

	e) Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38

Item 4.	Controls and Procedures	39

	PART II : OTHER INFORMATION

Item 1.	Legal Proceedings	40

Item 1A.	Risk Factors	40

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55

Item 6.	Exhibits	56

Signature		57

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 intend to also use the following social media channels as a means of disclosing information about the company, our services and other matters and for complying with our disclosure obligations under Regulation FD:

NVIDIA Company Blog (http://blogs.nvidia.com/)

NVIDIA Facebook Page (https://www.facebook.com/NVIDIA)

NVIDIA Twitter Account (https://twitter.com/NVIDIA)

NVIDIA LinkedIn Page (http://www.linkedin.com/company/nvidia?trk=hb_tab_compy_id_3608)

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.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

NVIDIA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(In thousands, except per share data)



	Three Months Ended						Nine Months Ended
	October 27,			October 28,			October 27,			October 28,
	2013			2012			2013			2012

Revenue	$	1,053,967		$	1,204,110		$	2,985,944		$	3,173,257
Cost of revenue	469,552			567,452			1,337,423			1,532,516
Gross profit	584,415			636,658			1,648,521			1,640,741
Operating expenses
Research and development	340,294			284,180			999,193			849,275
Sales, general and administrative	103,133			100,261			320,025			326,800
Total operating expenses	443,427			384,441			1,319,218			1,176,075
Income from operations	140,988			252,217			329,303			464,666
Interest income	4,022			4,701			12,963			15,215
Other expense, net	(3,526		)	(3,290		)	(900		)	(3,950		)
Income before income tax expense	141,484			253,628			341,366			475,931
Income tax expense	22,750			44,548			48,293			87,368
Net income	$	118,734		$	209,080		$	293,073		$	388,563

Basic net income per share	$	0.20		$	0.34		$	0.49		$	0.63
Shares used in basic per share computation	580,870			622,352			594,363			619,043

Diluted net income per share	$	0.20		$	0.33		$	0.49		$	0.62
Shares used in diluted per share computation	588,752			628,845			600,108			625,973

Cash dividends declared and paid per common share	$	0.075		$	—		$	0.225		$	—

See accompanying Notes to Condensed Consolidated Financial Statements.

NVIDIA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(In thousands)



	Three Months Ended						Nine Months Ended
	October 27,			October 28,			October 27,			October 28,
	2013			2012			2013			2012

Net income	$	118,734		$	209,080		$	293,073		$	388,563
Other comprehensive income (loss), net of tax:
Net change in unrealized gains (losses) on available-for-sale securities, net of tax benefit (expense) of ($126) and ($47) for the three and nine months ended October 27, 2013, respectively, and $95 and ($148) for the corresponding periods of fiscal 2013, respectively	8			(269		)	(2,978		)	497
Reclassification adjustments for net realized gains on available-for-sale securities included in net income, net of tax effects of $24 and $615 for the three and nine months ended October 27, 2013, respectively, and $16 and $135 for the corresponding periods of fiscal 2013, respectively	(43		)	(31		)	(1,141		)	(251		)
Other comprehensive income (loss)	$	(35	)	$	(300	)	$	(4,119	)	$	246
Total comprehensive income	$	118,699		$	208,780		$	288,954		$	388,809

See accompanying Notes to Condensed Consolidated Financial Statements.

NVIDIA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In thousands)



	October 27,			January 27,
	2013			2013
ASSETS
Current assets:
Cash and cash equivalents	$	562,084		$	732,786
Marketable securities	2,470,870			2,995,097
Accounts receivable, net	447,631			454,252
Inventories	380,319			412,467
Prepaid expenses and other	81,701			76,920
Deferred income taxes	107,236			103,736
Total current assets	4,049,841			4,775,258
Property and equipment, net	595,418			576,144
Goodwill	643,179			641,030
Intangible assets, net	320,589			312,332
Other assets	102,346			107,481
Total assets	$	5,711,373		$	6,412,245

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	333,283		$	356,428
Accrued liabilities and other	652,644			619,795
Total current liabilities	985,927			976,223
Other long-term liabilities	387,784			589,321
Capital lease obligations, long-term	17,015			18,998
Commitments and contingencies - see Note 11	—			—
Stockholders’ equity:
Preferred stock	—			—
Common stock	732			720
Additional paid-in capital	3,407,889			3,193,623
Treasury stock, at cost	(2,499,990		)	(1,622,709		)
Accumulated other comprehensive income	5,862			9,981
Retained earnings	3,406,154			3,246,088
Total stockholders' equity	4,320,647			4,827,703
Total liabilities and stockholders' equity	$	5,711,373		$	6,412,245

See accompanying Notes to Condensed Consolidated Financial Statements.

NVIDIA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)



	Nine Months Ended
	October 27,			October 28,
	2013			2012
Cash flows from operating activities:
Net income	$	293,073		$	388,563
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	184,310			167,834
Stock-based compensation expense	100,091			100,893
Deferred income taxes	7,914			42,684
Excess tax benefits from stock-based compensation	(23,743		)	(25,646		)
Other	11,311			39,978
Changes in operating assets and liabilities, net of effect of acquisition:
Accounts receivable	7,806			(109,008		)
Inventories	32,178			(88,378		)
Prepaid expenses and other current assets	(4,687		)	(16,786		)
Other assets	7,585			4,784
Accounts payable	(38,376		)	49,099
Accrued liabilities and other long-term liabilities	(143,028		)	(180,854		)
Net cash provided by operating activities	434,434			373,163
Cash flows from investing activities:
Purchases of marketable securities	(1,420,471		)	(1,729,307		)
Proceeds from sale of marketable securities	1,475,403			635,733
Proceeds from maturities of marketable securities	447,134			626,434
Purchases of property and equipment and intangible assets	(188,812		)	(135,551		)
Acquisition of business	(17,145		)	—
Other	(2,450		)	135
Net cash provided by (used in) investing activities	293,659			(602,556		)
Cash flows from financing activities:
Proceeds from issuance of common stock under employee stock plans	64,749			62,781
Excess tax benefits from stock-based compensation	23,743			25,646
Payments for repurchases of common stock	(850,000		)	—
Dividends paid	(133,007		)	—
Other	(4,280		)	(1,522		)
Net cash provided by (used in) financing activities	(898,795		)	86,905
Change in cash and cash equivalents	(170,702		)	(142,488		)
Cash and cash equivalents at beginning of period	732,786			667,876
Cash and cash equivalents at end of period	$	562,084		$	525,388
Supplemental disclosures of cash flow information:
Cash paid (received) for income taxes, net	$	8,454		$	(40,442	)
Cash paid for interest on capital lease obligations	$	1,915		$	2,189
Other non-cash activities:
Assets acquired by assuming related liabilities	$	28,963		$	43,792
Change in unrealized gains (losses) from marketable securities	$	(4,119	)	$	246

See accompanying Notes to Condensed Consolidated Financial Statements.

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. In the opinion of management, all adjustments, consisting only of normal recurring adjustments except as otherwise noted, 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 financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 27, 2013.

Fiscal Year

We operate on a 52- or 53-week year, ending on the last Sunday in January. Fiscal year 2014 and fiscal year 2013 are both 52-week years. The third quarters of fiscal years 2014 and 2013 are both 13-week quarters.

Principles of Consolidation

Our condensed consolidated financial statements include the accounts of NVIDIA Corporation and its wholly-owned subsidiaries. All material inter-company balances and transactions have been eliminated in consolidation.

Reclassifications

Certain prior fiscal year balances have been reclassified to conform to the current fiscal year presentation.

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 from those 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, warranty liabilities, litigation, investigation and settlement costs and other contingencies. These estimates are based on historical facts and various other assumptions that we believe are reasonable.

Revenue Recognition

Product Revenue

We recognize revenue from product sales when persuasive evidence of an arrangement exists, the product has been delivered, the price is fixed or determinable and collection of the related receivable is reasonably assured. For most sales, we use a binding purchase order and in certain cases we use a contractual agreement as evidence of an arrangement. We consider delivery to occur upon shipment provided title and risk of loss have passed to the customer. At the point of sale, we assess whether the arrangement fee is fixed or determinable and whether collection is reasonably assured. If we determine that collection of a fee is not reasonably assured, we defer the fee and recognize revenue at the time collection becomes reasonably assured, which is generally upon receipt of payment.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Our policy on sales to certain distributors, with rights of return, is to defer recognition of revenue and related cost of revenue until the distributors resell the product, as the level of returns cannot be reasonably estimated. Our customer programs primarily involve rebates, which are designed to serve as sales incentives to resellers of our products in various target markets. We accrue for 100% of the potential rebates and do not apply a breakage factor. We recognize a liability for these rebates at the later of the date at which we record the related revenue or the date at which we offer the rebate. Rebates typically expire six months from the date of the original sale, unless we reasonably believe that the customer intends to claim the rebate. Unclaimed rebates are reversed to revenue.

Our customer programs also include marketing development funds, or MDFs. We account for MDFs as either a reduction of revenue or an operating expense, depending on the nature of the program. MDFs represent monies paid to retailers, system builders, original equipment manufacturers, distributors and add-in card partners that are earmarked for market segment development and expansion and typically are designed to support our partners’ activities while also promoting NVIDIA products. Depending on market conditions, we may take actions to increase amounts offered under customer programs, possibly resulting in an incremental reduction of revenue at the time such programs are offered.

We also record a reduction to revenue by establishing a sales return allowance for estimated product returns at the time revenue is recognized, based primarily on historical return rates. However, if product returns for a particular fiscal period exceed historical return rates we may determine that additional sales return allowances are required to properly reflect our estimated exposure for product returns.

License and Development Revenue

For license arrangements that require significant customization of our intellectual property components, we generally recognize the related revenue over the period that services are performed. For most license and service arrangements, we determine progress to completion based on actual direct labor hours incurred to date as a percentage of the estimated total direct labor hours required to complete the project. We periodically evaluate the actual status of each project to ensure that the estimates to complete each contract remain accurate. A provision for estimated losses on contracts is made in the period in which the loss becomes probable and can be reasonably estimated. Costs incurred in advance of revenue recognized are recorded as deferred costs on uncompleted contracts. If the amount billed exceeds the amount of revenue recognized, the excess amount is recorded as deferred revenue. Revenue recognized in any period is dependent on our progress toward completion of projects in progress. Significant management judgment and discretion are used to estimate total direct labor hours. Any changes in or deviations from these estimates could have a material effect on the amount of revenue we recognize in any period.

For license arrangements that do not require significant customization but where we are obligated to provide further deliverables over the term of the license agreement, we record revenue over the life of the license term, with consideration received in advance of the performance period classified as deferred revenue.

Royalty revenue is recognized related to the distribution or sale of products that use our technologies under license agreements with third parties. We recognize royalty revenue upon receipt of a confirmation of earned royalties and when collectability is reasonably assured from the applicable licensee.

Inventories

Inventory cost is computed on an adjusted standard basis, which approximates actual cost on an average or first-in, first-out basis. Inventory costs consist primarily of the cost of semiconductors purchased from subcontractors, including wafer fabrication, assembly, testing and packaging, manufacturing support costs, including labor and overhead associated with such purchases, final test yield fallout, inventory provisions and shipping costs. We write down our inventory to the lower of cost or estimated market value. Excess, obsolete or unmarketable inventory is completely written off based upon assumptions about future demand, future product purchase commitments, estimated manufacturing yield levels and market conditions. If actual market conditions are less favorable than those projected by management, or if our current inventory or future product purchase commitments to our suppliers exceed our forecasted future demand for such products, additional future inventory write-downs may be required that could adversely affect our operating results. Inventory reserves once established are not reversed until the related inventory has been sold or scrapped. If actual market conditions are more favorable than expected and we sell products that we have previously written down, our reported gross margin would be favorably impacted.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Net Income Per Share

Basic net income per share is computed using the weighted average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted average number of common and potentially dilutive shares outstanding during the period, using the treasury stock method. Under the treasury stock method, the effect of equity awards outstanding is not included in the computation of diluted net income per share for periods when their effect is anti-dilutive.

Adoption of New and Recently Issued Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board, or FASB, issued guidance regarding the presentation of unrecognized tax benefits when a net operating loss carryforward, similar tax loss, or tax credit carryforward exists. The new guidance requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward when settlement in this manner is available under the tax law. This guidance is effective on a prospective basis for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2013. Retrospective and early adoption is permitted. We expect to adopt this guidance in our interim and annual periods beginning January 27, 2014. We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements.

In February 2013, the FASB issued updated guidance requiring entities to report the effect of significant reclassifications to accumulated other comprehensive income on the respective line items in net income. These reclassifications are reported, only if U.S. GAAP requires the entire amount to be reclassified to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety from accumulated other comprehensive income to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. We adopted this guidance in our interim period ended April 28, 2013. The adoption of this guidance did not impact our financial statements, as the guidance is related to disclosure only, and we have not had significant reclassifications out of accumulated other comprehensive income.

Note 2 - Stock-Based Compensation

We measure stock-based compensation expense based on the estimated fair value of equity awards at the grant date, and recognize the expense using a straight-line attribution method over the requisite employee service period. We estimate the fair value of employee stock options on the date of grant using a binomial model and we use the closing trading price of our common stock on the date of grant, minus a dividend yield discount, as the fair value of awards of restricted stock units, or RSUs. We estimate the fair value of shares to be issued under our employee stock purchase plan using the Black-Scholes model at the commencement of an offering period in March and September of each year. Stock-based compensation for our employee stock purchase plan is expensed using an accelerated amortization model.

Our condensed consolidated statements of income include stock-based compensation expense, net of amounts capitalized as inventory, as follows:



	Three Months Ended				Nine Months Ended
	October 27, 2013		October 28, 2012		October 27, 2013		October 28, 2012
	(In thousands)				(In thousands)
Cost of revenue	$	3,090	$	2,489	$	7,911	$	7,664
Research and development	20,902		20,056		61,392		60,148
Sales, general and administrative	10,307		10,524		30,788		33,081
Total	$	34,299	$	33,069	$	100,091	$	100,893

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

During the three and nine months ended October 27, 2013, we granted approximately 2.8 million and 6.0 million stock options, with an estimated total grant-date fair value of $10.8 million and $20.9 million and a weighted average grant-date fair value of $3.90 and $3.46 per option, respectively. During the three and nine months ended October 27, 2013, we granted approximately 4.9 million and 10.4 million RSUs with an estimated total grant-date fair value of $73.8 million and $140.1 million and a weighted average grant-date fair value of $15.15 and $13.44 per RSU, respectively.

During the three and nine months ended October 28, 2012, we granted approximately 3.2 million and 6.8 million stock options, with an estimated total grant-date fair value of $17.9 million and $37.2 million and a weighted average grant-date fair value of $5.54 and $5.45 per option, respectively. During the three and nine months ended October 28, 2012, we granted approximately 3.5 million and 7.5 million RSUs, with an estimated total grant-date fair value of $48.2 million and $104.7 million and a weighted average grant-date fair value of $13.72 and $13.99 per RSU, respectively.

Of the estimated total grant-date fair value, we estimated that the stock-based compensation expense related to the equity awards that were not expected to vest was $15.1 million and $28.8 million for the three and nine months ended October 27, 2013, respectively, and $11.8 million and $25.4 million for the three and nine months ended October 28, 2012, respectively. As of October 27, 2013 and January 27, 2013, the aggregate amount of unearned stock-based compensation expense related to our equity awards was $265.3 million and $208.7 million, respectively, adjusted for estimated forfeitures. As of October 27, 2013 and January 27, 2013, we expected to recognize the unearned stock-based compensation expense related to stock options over an estimated weighted average amortization period of 2.7 years. As of October 27, 2013 and January 27, 2013, we expected to recognize the unearned stock-based compensation expense related to RSUs over an estimated weighted average amortization period of 3.0 years and 2.7 years, respectively.

Valuation Assumptions

We determine the fair value of stock option awards on the date of grant using an option-pricing model that is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, weighted average expected term, risk-free interest rate, expected stock price volatility, dividend yield, actual and projected employee stock option exercise behaviors, vesting schedules and death and disability probabilities. We segregate options into groups of employees with relatively homogeneous exercise behavior in order to calculate the best estimate of fair value using the binomial valuation model. The expected life of employee stock options is a derived output of our valuation model and is impacted by the underlying assumptions of our company. The risk-free interest rate assumption is based upon observed interest rates on Treasury bills appropriate for the term of our employee stock options. Our management has determined that the use of implied volatility is expected to be more reflective of market conditions and, therefore, can reasonably be expected to be a better indicator of our expected volatility than historical volatility. Dividend yield is based on history and expectation of dividend payouts. Our RSU awards are not eligible for cash dividends prior to vesting; therefore, the fair value of RSUs is discounted by the dividend yield.

Prior to the initial declaration of a quarterly cash dividend on November 8, 2012, the fair value of our equity awards was based on an expected dividend yield of 0% reflecting our prior history in which we had not paid and did not expect to pay cash dividends on our common stock. For awards granted on or subsequent to November 8, 2012, we use the dividend yield at grant date based on the per share dividends declared during the most recent quarter.

Additionally, for employee stock option and RSU awards, we estimate forfeitures annually and revise the estimates of forfeiture in subsequent periods if actual forfeitures differ from those estimates. Forfeitures are estimated based on historical experience. If factors change and we employ different assumptions in the application of accounting standards in future periods, the compensation expense that we record under these accounting standards may differ significantly from what we have recorded in the current period.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The fair value of stock options granted under our equity incentive plans and shares issued under our employee stock purchase plan have been estimated at the date of grant with the following assumptions:



	Three Months Ended		Nine Months Ended
	October 27, 2013	October 28, 2012	October 27, 2013	October 28, 2012
Stock Options	(Using a binomial model)
Expected life (in years)	3.3-3.5	4.3-4.9	2.4-3.5	3.1-4.9
Risk-free interest rate	2.6%-3.0%	1.7%-1.8%	1.8%-3.0%	1.5% - 2.3%
Volatility	30%-32%	45%-49%	30%-37%	43% - 49%
Dividend yield	1.9%-2.0%	—	1.9%-2.4%	—



	Three Months Ended				Nine Months Ended
	October 27, 2013		October 28, 2012		October 27, 2013	October 28, 2012
Employee Stock Purchase Plan	(Using a Black-Scholes model)
Expected life (in years)	0.5-2.0		0.5-2.0		0.5 - 2.0	0.5 - 2.0
Risk-free interest rate	0.1%-0.4%		0.1%-0.2%		0.1%-0.4%	0.1% - 0.3%
Volatility	32	%	47	%	32%-37%	44%-47%
Dividend yield	2.0	%	—		2.0%-2.4%	—

Equity Award Activity

The following summarizes the stock option and RSU activity under our equity incentive plans:



	Options Outstanding		Weighted Average Exercise Price
Stock Options	(In thousands)		(Per share)
Balances, January 27, 2013	32,995		$	14.66
Granted	6,049		$	14.29
Exercised	(2,557	)	$	10.15
Cancelled	(3,358	)	$	22.14
Balances, October 27, 2013	33,129		$	14.18



	RSUs Outstanding		Weighted Average Grant-Date Fair Value
Restricted Stock Units	(In thousands)		(Per share)
Balances, January 27, 2013	15,159		$	14.46
Granted	10,427		$	13.44
Vested	(5,891	)	$	14.80
Cancelled	(921	)	$	13.87
Balances, October 27, 2013	18,774		$	13.82

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 3 – Net Income Per Share

The following is a reconciliation of the numerator and 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,
	2013		2012		2013		2012
	(In thousands, except per share data)
Numerator:
Net income	$	118,734	$	209,080	$	293,073	$	388,563
Denominator:
Denominator for basic net income per share, weighted average shares	580,870		622,352		594,363		619,043
Effect of dilutive securities:
Equity awards outstanding	7,882		6,493		5,745		6,930
Denominator for diluted net income per share, weighted average shares	588,752		628,845		600,108		625,973
Net income per share:
Basic net income per share	$	0.20	$	0.34	$	0.49	$	0.63
Diluted net income per share	$	0.20	$	0.33	$	0.49	$	0.62
Potentially dilutive securities excluded from income per diluted share because their effect would have been anti-dilutive	21,870		27,555		27,351		31,697

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 4 – Income Taxes

We recognized income tax expense of $22.8 million and $48.3 million for the three and nine months ended October 27, 2013, respectively, and $44.5 million and $87.4 million for the three and nine months ended October 28, 2012, respectively. Income tax expense as a percentage of income before taxes, or our effective tax rate, was 16.1% and 14.2% for the three and nine months ended October 27, 2013, respectively, and 17.6% and 18.4% for the three and nine months ended October 28, 2012, respectively.

The decrease in our effective tax rate compared to the prior year was primarily due to the benefit of the U.S. federal research tax credit which was re-enacted on January 2, 2013, or the fourth quarter of our fiscal year 2013, under the American Taxpayer Relief Act. The U.S. research tax credit was expired during the third quarter of fiscal year 2013. During the fourth quarter of fiscal year 2013, the credit was reenacted retroactively from December 31, 2011 through to December 31, 2013, with the entire benefit for all previous quarters required to be recognized in the fourth quarter. As a result, the third quarter of fiscal year 2013 reflects no tax benefit for the research tax credit and the third quarter of fiscal year 2014 includes the annualized benefit of a research tax credit (for the 11 months the law is in effect).

Our effective tax rate on income before tax for the first nine months of fiscal year 2014 of 14.2% and fiscal year 2013 of 18.4% were lower than the United States federal statutory rate of 35% due primarily to income earned in jurisdictions where the tax rate is lower than the United States federal statutory tax, and for fiscal year 2014 due to the benefit of the U.S. federal research tax credit.

For the nine months ended October 27, 2013, there have been no material changes to our tax years that remain subject to examination by major tax jurisdictions. Additionally, there have been no other material changes to our unrecognized tax benefits and any related interest or penalties from our fiscal year ended January 27, 2013, other than the recognition of tax benefits related to the expiration of statute of limitation in certain non-U.S. jurisdictions in the nine months ended October 27, 2013.

While we believe that we have adequately provided for all uncertain tax positions, or tax positions where it is believed not more-likely-than-not that the position will be sustained upon examination, 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 27, 2013, 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.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 5 - Marketable Securities

All of our cash equivalents and marketable securities are classified as “available-for-sale” securities. These securities are reported at fair value, with the related unrealized gains and losses included in accumulated other comprehensive income, a component of stockholders’ equity, net of tax, and net realized gains and losses recorded in other expense, net, on the Condensed Consolidated Statement of Income.

We performed an impairment review of our investment portfolio as of October 27, 2013. Based on our quarterly impairment review and having considered the guidance in the relevant accounting literature, we concluded that our investments were appropriately valued and that no other than temporary impairment charges were necessary on our portfolio as of October 27, 2013.

The following is a summary of cash equivalents and marketable securities at October 27, 2013 and January 27, 2013:



	October 27, 2013
	Amortized Cost		Unrealized Gain		Unrealized Loss			Estimated Fair Value
	(In thousands)
Corporate debt securities	$	1,099,456	$	2,020	$	(545	)	$	1,100,931
Debt securities of United States government agencies	726,382		798		(184		)	726,996
Debt securities issued by United States Treasury	441,075		561		(108		)	441,528
Mortgage backed securities issued by United States government-sponsored enterprises	190,993		4,129		(522		)	194,600
Asset-backed securities	60,886		6		(16		)	60,876
Money market funds	56,697		—		—			56,697
Total	$	2,575,489	$	7,514	$	(1,375	)	$	2,581,628
Classified as:
Cash equivalents								$	110,758
Marketable securities								2,470,870
Total								$	2,581,628



	January 27, 2013
	Amortized Cost		Unrealized Gain		Unrealized Loss			Estimated Fair Value
	(In thousands)
Corporate debt securities	$	1,255,297	$	3,175	$	(542	)	$	1,257,930
Debt securities of United States government agencies	867,087		1,199		(139		)	868,147
Debt securities issued by United States Treasury	785,228		1,102		(105		)	786,225
Mortgage backed securities issued by United States government-sponsored enterprises	183,034		6,194		(57		)	189,171
Asset-backed securities	—		—		—			—
Money market funds	195,790		—		—			195,790
Total	$	3,286,436	$	11,670	$	(843	)	$	3,297,263
Classified as:
Cash equivalents								$	302,166
Marketable securities								2,995,097
Total								$	3,297,263

The estimated fair value of cash equivalents and marketable securities was $2.58 billion and $3.30 billion at October 27, 2013 and January 27, 2013, respectively, a decrease of $715.6 million. This decrease was primarily due to the liquidation of a portion of our investment portfolio to fund the accelerated share repurchase transaction of $750 million that we entered into on May 14, 2013.

The following table provides the breakdown of the investments with unrealized losses at October 27, 2013:



	Less than 12 months					12 months or greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
	(In thousands)
Corporate debt securities	$	403,313	$	(16	)	$	697,618	$	(529	)	$	1,100,931	$	(545	)
Debt securities of United States government agencies	288,163		(5		)	438,833		(179		)	726,996		(184		)
Debt securities issued by United States Treasury	87,221		(42		)	354,307		(66		)	441,528		(108		)
Mortgage backed securities issued by United States government-sponsored enterprises	3,460		—			191,140		(522		)	194,600		(522		)
Asset-backed securities	10,709		(16		)	50,167		—			60,876		(16		)
Total	$	792,866	$	(79	)	$	1,732,065	$	(1,296	)	$	2,524,931	$	(1,375	)

As of October 27, 2013, we had 7 investments that were in an unrealized loss position with a duration of less than one year and 9 investments that were in an unrealized loss position with a duration of greater than one year. The gross unrealized losses related to fixed income securities were due to changes in interest rates. We have determined that the gross unrealized losses on investment securities at October 27, 2013 are temporary in nature. Currently, we have the intent and ability to hold our investments with impairment indicators until maturity.

The amortized cost and estimated fair value of cash equivalents and marketable securities which are primarily debt instruments are classified as available-for-sale at October 27, 2013 and January 27, 2013 and are shown below by contractual maturity.



	October 27, 2013				January 27, 2013
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	(In thousands)
Less than 1 year	$	848,672	$	849,564	$	1,397,350	$	1,399,304
Due in 1 - 5 years	1,628,882		1,632,651		1,777,785		1,783,103
Mortgage-backed securities issued by government-sponsored enterprises not due at a single maturity date	97,935		99,413		111,301		114,856
Total	$	2,575,489	$	2,581,628	$	3,286,436	$	3,297,263

Net realized gains for the three and nine months ended October 27, 2013 were $0.1 million and $1.8 million, respectively. Net realized gains for the three and nine months ended October 28, 2012 were $0.1 million and $0.4 million, respectively.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 6 – Fair Value of Cash Equivalents and Marketable Securities

We measure our cash equivalents and marketable securities at fair value. 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. Our Level 1 assets consist of our money market fund deposits. We classify securities within Level 1 assets when the fair value is obtained from real time quotes for transactions in active exchange markets involving identical assets. Our available-for-sale securities are classified as having Level 2 inputs. Our Level 2 assets are valued utilizing a market approach where the market prices of similar assets are provided by a variety of independent industry standard data providers to our investment custodian. There were no significant transfers between Levels 1 and 2 assets for the three and nine months ended October 27, 2013.

Financial assets and liabilities measured at fair value are summarized below:



			Fair Value Measurement as of October 27, 2013 Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs
	October 27, 2013		(Level 1)		(Level 2)
	(In thousands)
Corporate debt securities (1)	$	1,100,931	$	—	$	1,100,931
Debt securities issued by United States government agencies (2)	726,996		—		726,996
Debt securities issued by United States Treasury (2)	441,528		—		441,528
Asset-backed securities (2)	60,876		—		60,876
Mortgage-backed securities issued by government-sponsored enterprises (2)	194,600		—		194,600
Money market funds (3)	56,697		56,697		—
Total cash equivalents and marketable securities	$	2,581,628	$	56,697	$	2,524,931


(1)	Includes $54.1 million in Cash Equivalents and $1.05 billion in Marketable Securities on the Condensed Consolidated Balance Sheet.


(2)	Included in Marketable Securities on the Condensed Consolidated Balance Sheet.


(3)	Included in Cash Equivalents on the Condensed Consolidated Balance Sheet.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 7 - 3dfx

During fiscal year 2002, we completed the purchase of certain assets from 3dfx Interactive, Inc., or 3dfx, for an aggregate purchase price of approximately $74.2 million. On December 15, 2000, NVIDIA Corporation and one of our indirect subsidiaries entered into an Asset Purchase Agreement, or the APA, which closed on April 18, 2001, to purchase certain graphics chip assets from 3dfx.

In October 2002, 3dfx filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Northern District of California. In March 2003, the Trustee appointed by the Bankruptcy Court to represent 3dfx’s bankruptcy estate served his complaint on NVIDIA. The Trustee’s complaint asserted claims for, among other things, successor liability and fraudulent transfer and sought additional payments from us. In early November 2005, NVIDIA and the Official Committee of Unsecured Creditors, or the Creditors’ Committee, agreed to a Plan of Liquidation of 3dfx, which included a conditional settlement of the Trustee’s claims against us. This conditional settlement was subject to a confirmation process through a vote of creditors and the review and approval of the Bankruptcy Court. The conditional settlement called for a payment by NVIDIA of approximately $30.6 million to the 3dfx estate. Under the settlement, $5.6 million related to various administrative expenses and Trustee fees, and $25.0 million related to the satisfaction of debts and liabilities owed to the general unsecured creditors of 3dfx. Accordingly, during the three month period ended October 30, 2005, we recorded $5.6 million as a charge to settlement costs and $25.0 million as additional purchase price for 3dfx. The Trustee advised that he intended to object to the settlement.

The conditional settlement reached in November 2005 never progressed through the confirmation process and the Trustee’s case still remains pending appeal. As such, we have not reversed the accrual of $30.6 million - $5.6 million as a charge to settlement costs and $25.0 million as additional purchase price for 3dfx – that we recorded during the three months ended October 30, 2005, pending resolution of the appeal of the Trustee’s case.

The 3dfx asset purchase price of $95.0 million and $4.2 million of direct transaction costs were allocated based on fair values presented below. The final allocation of the purchase price of the 3dfx assets is contingent upon the outcome of all of the 3dfx litigation. Please refer to Note 11 of these Notes to the Condensed Consolidated Financial Statements for further information regarding this litigation.



	Fair Market Value		Straight-Line Amortization Period
	(In thousands)		(In years)
Property and equipment	$	2,433	1-2
Trademarks	11,310		5
Goodwill	85,418		—
Total	$	99,161

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 8 - Intangible Assets

The components of our amortizable intangible assets are as follows:



	October 27, 2013							January 27, 2013
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	(In thousands)
Acquisition-related intangible assets	$	189,239	$	(109,196	)	$	80,043	$	172,039	$	(96,389	)	$	75,650
Patents and licensed technology	453,654		(213,108		)	240,546		407,002		(170,320		)	236,682
Total intangible assets	$	642,893	$	(322,304	)	$	320,589	$	579,041	$	(266,709	)	$	312,332

The increase in gross carrying amount of intangible assets is primarily due to new purchases of licenses to technology and patents and an asset acquisition that closed during the nine months ended October 27, 2013.

Amortization expense associated with intangible assets for the three and nine months ended October 27, 2013 was $19.6 million and $55.6 million, respectively. Amortization expense associated with intangible assets for the three and nine months ended October 28, 2012 was $17.3 million and $51.1 million, respectively. Amortization expense increased compared to the prior year primarily due to the addition of licensed technology, a patent portfolio, and the purchase of certain assets of a business. Future amortization expense related to the net carrying amount of intangible assets at October 27, 2013 is estimated to be $26.0 million for the remainder of fiscal year 2014, $81.4 million in fiscal year 2015, $71.2 million in fiscal year 2016, $57.9 million in fiscal year 2017, $47.9 million in fiscal year 2018 and a total of $36.2 million in fiscal year 2019 and fiscal years subsequent to fiscal year 2019.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 9 - Balance Sheet Components

Certain balance sheet components are as follows:



	October 27,		January 27,
	2013		2013
Inventories:	(In thousands)
Raw materials	$	138,205	$	157,990
Work in-process	77,834		67,352
Finished goods	164,280		187,125
Total inventories	$	380,319	$	412,467

At October 27, 2013, we had outstanding inventory purchase obligations totaling approximately $383.7 million.



	October 27,		January 27,
	2013		2013
Prepaid Expenses and Other:	(In thousands)
Prepaid maintenance	$	17,705	$	18,013
Prepaid taxes	15,626		9,785
Assets held for sale (1)	7,547		—
Testing materials	7,282		7,219
Other	33,541		41,903
Total prepaid expenses and other	$	81,701	$	76,920

(1) As of October 27, 2013, $7.5 million of net properties, plant and equipment held for sale are recorded within “Prepaid Expenses and Other” on the Condensed Consolidated Balance Sheet. This asset is associated with an office building at an international location that is expected to be sold within the next twelve months.



	October 27,		January 27,
	2013		2013
Accrued Liabilities and Other:	(In thousands)
Deferred revenue, short-term	$	282,658	$	273,605
Accrued customer programs (1)	164,667		163,406
Warranty accrual (2)	15,962		14,874
Accrued payroll and related expenses	94,984		98,977
Accrued legal settlement (3)	30,600		30,600
Taxes payable, short-term	8,349		3,173
Other	55,424		35,160
Total accrued liabilities and other	$	652,644	$	619,795

(1) Please refer to Note 1 of these Notes to Condensed Consolidated Financial Statements for discussion regarding the nature of accrued customer programs and their accounting treatment related to our revenue recognition policies and estimates.

(2) Please refer to Note 10 of these Notes to Condensed Consolidated Financial Statements for discussion regarding the warranty accrual.

(3) Please refer to Note 11 of these Notes to Condensed Consolidated Financial Statements for discussion regarding the 3dfx litigation.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)



	October 27,		January 27,
	2013		2013
Other Long-Term Liabilities:	(In thousands)
Deferred income tax liability	$	204,364	$	192,950
Income taxes payable, long-term	117,112		115,267
Asset retirement obligation	10,959		10,165
Deferred revenue, long-term (1)	38,255		236,152
Other long-term liabilities	17,094		34,787
Total other long-term liabilities	$	387,784	$	589,321

(1) Represents annual consideration received in advance of our performance obligation under our patent cross licensing agreement with Intel entered into in January 2011. The decrease in deferred revenue, long-term, is a result of revenue recognized during the nine months ended October 27, 2013.

Note 10 - Guarantees

U.S. GAAP requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it assumes under that guarantee. In addition, U.S. GAAP requires disclosures about the guarantees that an entity has issued, including a tabular reconciliation of the changes of the entity’s product warranty liabilities.

Accrual for Product Warranty Liabilities

We record a reduction to revenue for estimated product returns at the time revenue is recognized primarily based on historical return rates. Cost of revenue includes the estimated cost of product warranties. Under limited circumstances, we may offer an extended limited warranty to customers for certain products. Additionally, we accrue for known warranty and indemnification issues if a loss is probable and can be reasonably estimated. The estimated product warranty liabilities for the three and nine months ended October 27, 2013 and October 28, 2012 were as follows:



	Three Months Ended						Nine Months Ended
	October 27,			October 28,			October 27,			October 28,
	2013			2012			2013			2012
	(In thousands)
Balance at beginning of period (1)	$	17,474		$	16,537		$	14,874		$	18,406
Additions	1,143			1,358			6,043			4,715
Deductions (2)	(2,655		)	(2,848		)	(4,955		)	(8,074		)
Balance at end of period	$	15,962		$	15,047		$	15,962		$	15,047

(1) Includes $9.1 million and $9.6 million for the three and nine months ended October 27, 2013, respectively, and $10.9 million and $13.2 million for the three and nine months ended October 28, 2012, respectively, related to warranty accrual associated with incremental repair and replacement costs from a weak die/packaging material set.

(2) Payments related to the warranty accrual associated with incremental repair and replacement costs from a weak die/packaging material set were $1.3 million and $1.8 million for the three and nine months ended October 27, 2013 respectively, and $1.1 million and $3.0 million for the three and nine months ended October 28, 2012, respectively.

In connection with certain agreements that we have executed in the past, we have at times provided indemnities to cover the indemnified party for matters such as tax, product and employee liabilities. We have also on occasion 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. As such, we have not recorded any liability in our Condensed Consolidated Financial Statements for such indemnifications.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 11 - Commitments and Contingencies

3dfx

On December 15, 2000, NVIDIA and one of our indirect subsidiaries entered into an Asset Purchase Agreement, or APA, to purchase certain graphics chip assets from 3dfx. The transaction closed on April 18, 2001. That acquisition, and 3dfx's October 2002 bankruptcy filing, led to four lawsuits against NVIDIA: two brought by 3dfx's former landlords, one by 3dfx's bankruptcy trustee and the fourth by a committee of 3dfx's equity security holders in the bankruptcy estate. The two landlord cases have been settled with payments from the landlords to NVIDIA, and the equity security holders lawsuit was dismissed with prejudice and no appeal was filed. Accordingly, only the bankruptcy trustee suit remains outstanding as more fully explained below.

In March 2003, the Trustee appointed by the Bankruptcy Court to represent 3dfx's bankruptcy estate served a complaint on NVIDIA asserting claims for, among other things, successor liability and fraudulent transfer and seeking additional payments from us. The Trustee's fraudulent transfer theory alleged that NVIDIA had failed to pay reasonably equivalent value for 3dfx's assets, and sought recovery of the difference between the $70.0 million paid and the alleged fair value, which the Trustee estimated to exceed $50.0 million. The Trustee's successor liability theory alleged NVIDIA was effectively 3dfx's legal successor and therefore was responsible for all of 3dfx's unpaid liabilities.

On October 13, 2005, the Bankruptcy Court heard the Trustee's motion for summary adjudication, and on December 23, 2005, denied that motion in all material respects and held that NVIDIA may not dispute that the value of the 3dfx transaction was less than $108.0 million. The Bankruptcy Court denied the Trustee's request to find that the value of the 3dfx assets conveyed to NVIDIA was at least $108.0 million.

In early November 2005, after several months of mediation, NVIDIA and the Official Committee of Unsecured Creditors, or the Creditors' Committee, agreed to a Plan of Liquidation of 3dfx, which included a conditional settlement of the Trustee's claims against us. This conditional settlement was subject to a confirmation process through a vote of creditors and the review and approval of the Bankruptcy Court. The conditional settlement called for a payment by NVIDIA of approximately $30.6 million to the 3dfx estate. Under the settlement, $5.6 million related to various administrative expenses and Trustee fees, and $25.0 million related to the satisfaction of debts and liabilities owed to the general unsecured creditors of 3dfx. Accordingly, during the three month period ended October 30, 2005, we recorded $5.6 million as a charge to settlement costs and $25.0 million as additional purchase price for 3dfx. The Trustee advised that he intended to object to the settlement. The conditional settlement never progressed substantially through the confirmation process.

On December 21, 2006, the Bankruptcy Court scheduled a trial for one portion of the Trustee's case against NVIDIA. On January 2, 2007, NVIDIA terminated the settlement agreement on grounds that the Bankruptcy Court had failed to proceed toward confirmation of the Creditors' Committee's plan. A non-jury trial began on March 21, 2007 on valuation issues in the Trustee's constructive fraudulent transfer claims against NVIDIA. Specifically, the Bankruptcy Court tried four questions: (1) what did 3dfx transfer to NVIDIA in the APA; (2) of what was transferred, what qualifies as “property” subject to the Bankruptcy Court's avoidance powers under the Uniform Fraudulent Transfer Act and relevant bankruptcy code provisions; (3) what is the fair market value of the “property” identified in answer to question (2); and (4) was the $70.0 million that NVIDIA paid “reasonably equivalent” to the fair market value of that property. The parties completed post-trial briefing on May 25, 2007.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

On April 30, 2008, the Bankruptcy Court issued its Memorandum Decision After Trial, in which it provided a detailed summary of the trial proceedings and the parties' contentions and evidence and concluded that “the creditors of 3dfx were not injured by the Transaction.” This decision did not entirely dispose of the Trustee's action, however, as the Trustee's claims for successor liability and intentional fraudulent conveyance were still pending. On June 19, 2008, NVIDIA filed a motion for summary judgment to convert the Memorandum Decision After Trial to a final judgment. That motion was granted in its entirety and judgment was entered in NVIDIA's favor on September 11, 2008. The Trustee filed a Notice of Appeal from that judgment on September 22, 2008, and on September 25, 2008, NVIDIA exercised its election to have the appeal heard by the United States District Court.

The District Court's hearing on the Trustee's appeal was held on June 10, 2009. On December 20, 2010, the District Court issued an Order affirming the Bankruptcy Court's entry of summary judgment in NVIDIA's favor. On January 19, 2011, the Trustee filed a Notice of Appeal to the United States Court of Appeals for the Ninth Circuit. The appeal remains pending.

While the conditional settlement reached in November 2005 never progressed through the confirmation process, the Trustee's case still remains pending on appeal. Accordingly, we have not reversed the accrual of $30.6 million - $5.6 million as a charge to settlement costs and $25.0 million as additional purchase price for 3dfx - that we recorded during the three months ended October 30, 2005, pending resolution of the appeal of the Trustee's case.

Product Defect Litigation and Securities Cases

Product Defect Litigation

In September, October and November 2008, several putative consumer class action lawsuits were filed against us, asserting various claims arising from a weak die/packaging material set in certain versions of our previous generation products used in notebook configurations. On February 26, 2009, the various lawsuits were consolidated in the United States District Court for the Northern District of California, San Jose Division, under the caption “The NVIDIA GPU Litigation.” On March 2, 2009, several of the parties filed motions for appointment of lead counsel and briefs addressing certain related issues. On April 10, 2009, the District Court appointed Milberg LLP lead counsel. On May 6, 2009, the plaintiffs filed an Amended Consolidated Complaint, alleging claims for violations of California Business and Professions Code Section 17200, Breach of Implied Warranty under California Civil Code Section 1792, Breach of the Implied Warranty of Merchantability under the laws of 27 other states, Breach of Warranty under the Magnuson-Moss Warranty Act, Unjust Enrichment, violations of the New Jersey Consumer Fraud Act, Strict Liability and Negligence, and violation of California's Consumer Legal Remedies Act.

After extensive motion practice and litigation, plaintiffs on December 14, 2009 filed a Second Amended Consolidated Complaint seeking unspecified damages and asserting claims for violations of California Business and Professions Code Section 17200, Breach of Implied Warranty under California Civil Code Section 1792, Breach of Warranty under the Magnuson-Moss Warranty Act, violations of the New Jersey Consumer Fraud Act, Strict Liability and Negligence, and violation of California's Consumer Legal Remedies Act.

On July 16, 2010, the parties filed a stipulation with the District Court advising that, following mediation they had reached a settlement in principle in The NVIDIA GPU Litigation. The settlement in principle was subject to certain approvals, including final approval by the court. As a result of the settlement in principle, and the other estimated settlement, and offsetting insurance reimbursements, NVIDIA recorded a net charge of$12.7 million to sales, general and administrative expense during the second quarter of fiscal year 2011. In addition, a portion of the $181.2 million of additional charges we recorded against cost of revenue related to the weak die/packaging set during the second quarter of fiscal year 2011, relates to estimated additional repair and replacement costs related to the implementation of these settlements. On August 12, 2010, the parties executed a Stipulation and Agreement of Settlement and Release. On September 15, 2010, the Court issued an order granting preliminary approval of the settlement and providing for notice to the potential class members. The Final Approval Hearing was held on December 20, 2010, and on that same day the Court approved the settlement and entered Final Judgment over several objections. In January 2011, several objectors filed Notices of Appeal of the Final Judgment to the United States Court of Appeals for the Ninth Circuit. The Ninth Circuit heard oral argument on August 13, 2013, and affirmed the District Court’s decision to approve the settlement on August 22, 2013. This case is now over.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Securities Cases

In September 2008, three putative securities class actions, or the Actions, were filed in the United States District Court for the Northern District of California arising out of our announcements on July 2, 2008, that we would take a charge against cost of revenue to cover anticipated costs and expenses arising from a weak die/packaging material set in certain versions of our previous generation MCP and GPU products and that we were revising financial guidance for our second quarter of fiscal year 2009. The Actions purport to be brought on behalf of purchasers of NVIDIA stock and assert claims for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, or the Securities Exchange Act. On October 30, 2008, the Actions were consolidated under the caption In re NVIDIA Corporation Securities Litigation, Civil Action No. 08-CV-04260-JW (HRL). Lead Plaintiffs and Lead Plaintiffs' Counsel were appointed on December 23, 2008. On February 6, 2009, co-Lead Plaintiff filed a Writ of Mandamus with the Ninth Circuit Court of Appeals challenging the designation of co-Lead Plaintiffs' Counsel. On February 19, 2009, co-Lead Plaintiff filed with the District Court, a motion to stay the District Court proceedings pending resolution of the Writ of Mandamus by the Ninth Circuit. On February 24, 2009, Judge Ware granted the stay. On November 5, 2009, the Court of Appeals issued an opinion reversing the District Court's appointment of one of the lead plaintiffs' counsel, and remanding the matter for further proceedings. On December 8, 2009, the District Court appointed Milberg LLP and Kahn Swick & Foti, LLC as co-lead counsel.

On January 22, 2010, Plaintiffs filed a Consolidated Amended Class Action Complaint for Violations of the Federal Securities Laws, asserting claims for violations of Section 10(b), Rule 10b-5, and Section 20(a) of the Securities Exchange Act. The consolidated complaint sought unspecified compensatory damages. We filed a motion to dismiss the consolidated complaint in March 2010 and a hearing was held on June 24, 2010 before Judge Seeborg. On October 19, 2010, Judge Seeborg granted our motion to dismiss with leave to amend. On December 2, 2010, co-Lead Plaintiffs filed a Second Consolidated Amended Complaint. We moved to dismiss the Second Consolidated Amended Complaint on February 14, 2011. Following oral argument, on October 12, 2011, Judge Seeborg granted our motion to dismiss without leave to amend, and on November 8, 2011, Plaintiffs filed a Notice of Appeal to the Ninth Circuit. The appeal has been fully briefed, and a hearing is currently scheduled for January 14, 2014.

Accounting for Loss Contingencies

While there can be no assurance of favorable outcomes, we believe the claims made by other parties in the above ongoing matters are without merit and we intend to vigorously defend the actions. With the exception of the 3dfx and product defect litigation cases, 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, any possible range of loss in these matters cannot be reasonably estimated at this time. We are engaged in other legal actions not described above arising in the ordinary course of its 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.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 12 - Stockholders’ Equity

Stock Repurchase Program

As of October 27, 2013, our Board of Directors' had authorized us, subject to certain specifications, to repurchase shares of our common stock up to an aggregate maximum amount of $2.7 billion through December 2014. On November 4, 2013, our Board extended the program through January 2016 and authorized an additional $1.0 billion under the repurchase program. Please refer to Note 14 of these Notes to Condensed Consolidated Financial Statements for a discussion regarding this subsequent event.

The repurchases will be made from time to time in the open market, in privately negotiated transactions, or in structured stock repurchase programs, and may be made in one or more larger repurchases, in compliance with Rule 10b-18 of the Securities Exchange Act, subject to market conditions, applicable legal requirements, and other factors. The program does not obligate NVIDIA to acquire any particular amount of common stock and the program may be suspended at any time at our discretion. As part of our share repurchase program, we have entered into, and we may continue to enter into, structured share repurchase transactions with financial institutions. These agreements generally require that we make an up-front payment in exchange for the right to receive a fixed number of shares of our common stock upon execution of the agreement, and a potential incremental number of shares of our common stock, within a pre-determined range, at the end of the term of the agreement.

As part of the repurchase program, on May 14, 2013, we executed a $750.0 million accelerated share repurchase, or ASR, agreement with Goldman, Sachs & Co.that was completed on October 22, 2013. Under the ASR, we repurchased 51.5 million shares in aggregate at an average price of $14.56 per share, of which 36.9 million shares were delivered in the second quarter of fiscal year 2014 and 14.6 million shares were delivered in the third quarter of fiscal year 2014. The shares delivered resulted in a reduction, on the delivery date, of the outstanding shares used to calculate the weighted-average common shares outstanding for basic and diluted earnings per share. As of October 27, 2013, shares delivered from the ASR have been placed into treasury stock.

Through October 27, 2013, we have received an aggregate of 159.0 million shares under our stock repurchase program for a total cost of $2.41 billion. As of October 27, 2013, we were authorized, subject to certain specifications, to repurchase additional shares of our common stock up to $285.7 million which subsequently increased to $1.29 billion on November 4, 2013 as a result of our Board of Directors' authorization of an additional $1.0 billion under our repurchase program and an extension of the program through January 2016. Please refer to Note 14 of these Notes to Condensed Consolidated Financial Statements for a discussion regarding this subsequent event.

Convertible Preferred Stock

There are no shares of preferred stock outstanding.

Common Stock

We are authorized to issue up to 2,000,000,000 shares of our common stock at $0.001 per share par value.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 13 - Segment Information

Our Chief Executive Officer, who is considered to be our chief operating decision maker, or CODM, reviews financial information presented on an operating segment basis for purposes of making operating decisions and assessing financial performance. Our operating segments are equivalent to our reportable segments. During the last several years, we have operated and reported three reporting segments to our CODM: the GPU business, the Professional Solutions business, and the Consumer Products business. However, during the fourth quarter of fiscal year 2013, we began reporting two segments to reflect the way we are now managing our businesses internally which is based on whether the underlying products leverage our GPU or our Tegra Processor technologies. Comparative periods presented reflect this change.

Our GPU business leverages our GPU technology across multiple end markets. It now consists of four primary product lines, including GeForce for desktop and notebook PCs and Macs; Quadro for professional workstations; Tesla for high-performance servers and workstations; and NVIDIA GRID for server graphics solutions. It also includes other related products, licenses and revenue supporting the GPU business, such as memory products. Our Tegra Processor business comprises product lines primarily based on our Tegra system-on-a-chip and modem processor technologies. This includes Tegra for smartphones and tablets for both Android and Windows RT-based devices; automotive computers, including infotainment and navigation systems; and gaming devices such as SHIELD. It also includes other related products, licenses, and revenue supporting the Tegra Processor business such as Icera baseband processors and RF transceivers, embedded products, and licenses and other revenue associated with game consoles.

In addition to the two reporting segments discussed above, the “All Other” category represents unallocated revenue and expenses, of which the revenue primarily relates to licensing revenue from our patent cross licensing agreement with Intel Corporation. Revenue related to this agreement is recognized ratably over the term of our agreement and is not actively managed. This category also includes corporate operating expenses that we do not allocate to our other reporting segments as such expenses are not directly related to the function or operations of our reporting segments. These expenses include certain corporate infrastructure and support costs that are deemed to be enterprise in nature. Additionally, we do not allocate stock-based compensation, amortization of acquisition-related intangible assets, other acquisition-related costs or credits and non-recurring expenses and benefits. The table below presents details of our reportable segments and the “All Other” category.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)



	GPU		Tegra Processor			All Other			Consolidated
	(In thousands)
Three Months Ended October 27, 2013
Revenue	$	876,833	$	111,134		$	66,000		$	1,053,967
Depreciation and amortization expense	$	33,439	$	17,714		$	11,573		$	62,726
Operating income (loss)	$	286,905	$	(132,856	)	$	(13,061	)	$	140,988

Three Months Ended October 28, 2012
Revenue	$	894,209	$	243,901		$	66,000		$	1,204,110
Depreciation and amortization expense	$	32,375	$	14,087		$	10,686		$	57,148
Operating income (loss)	$	264,087	$	1,276		$	(13,146	)	$	252,217

Nine Months Ended October 27, 2013
Revenue	$	2,521,058	$	266,886		$	198,000		$	2,985,944
Depreciation and amortization expense	$	95,990	$	56,067		$	32,253		$	184,310
Operating income (loss)	$	781,778	$	(407,694	)	$	(44,781	)	$	329,303

Nine Months Ended October 28, 2012
Revenue	$	2,419,198	$	556,059		$	198,000		$	3,173,257
Depreciation and amortization expense	$	94,833	$	41,204		$	31,797		$	167,834
Operating income (loss)	$	633,594	$	(106,588	)	$	(62,340	)	$	464,666



	Three Months Ended						Nine Months Ended
	October 27, 2013			October 28, 2012			October 27, 2013			October 28, 2012
	(In thousands)
Reconciling items included in "All Other" category :
Revenue not allocated to reporting segments	$	66,000		$	66,000		$	198,000		$	198,000
Unallocated corporate operating expenses and other expenses	(37,950		)	(37,009		)	(115,763		)	(111,880		)
Stock-based compensation	(34,299		)	(33,069		)	(100,091		)	(100,893		)
Amortization of acquisition-related intangibles	(4,906		)	(4,402		)	(12,801		)	(12,809		)
Other acquisition-related (costs) credits	329			(4,666		)	(9,601		)	(14,631		)
Other non-recurring expenses (1)	(2,235		)	—			(4,525		)	(20,127		)
Total	$	(13,061	)	$	(13,146	)	$	(44,781	)	$	(62,340	)

(1) For the nine months ended October 28, 2012, we recorded a non-recurring charge of $20.1 million. This charge represents the net present value of a $25.0 million charitable contribution pledged to Stanford Hospital and Clinics on June 12, 2012 and is payable over a ten year period.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Revenue by geographic region is allocated to individual countries based on the location to which the products are initially billed even if our customers’ revenue is attributable to end customers that are located in a different location. The following tables summarize information pertaining to our revenue from customers based on invoicing address in different geographic regions:



	Three Months Ended				Nine Months Ended
	October 27,		October 28,		October 27,		October 28,
	2013		2012		2013		2012
	(In thousands)
Revenue:
Taiwan	$	319,018	$	403,769	$	927,903	$	1,020,232
China	206,374		205,636		565,504		580,934
United States	195,529		257,551		545,303		557,561
Other Asia Pacific	174,691		192,814		507,065		583,858
Other Americas	79,382		81,463		220,920		239,291
Europe	78,973		62,877		219,249		191,381
Total revenue	$	1,053,967	$	1,204,110	$	2,985,944	$	3,173,257

Revenue from significant customers, those representing 10% or more of total revenue, was approximately 11% of our total revenue from one customer and approximately 21% of our total revenue from two customers for the three and nine months ended October 27, 2013, respectively. Revenue from significant customers, those representing 10% or more of total revenue, was approximately 14% and 12%, respectively, of our total revenue from one customer for the three and nine months ended October 28, 2012.

Accounts receivable from significant customers, those representing 10% or more of total accounts receivable, was approximately 36% of our accounts receivable balance from two customers at October 27, 2013 and approximately 40% of our accounts receivable balance from three customers at January 27, 2013.

Note 14 - Subsequent Event

On November 4, 2013, our Board of Directors' authorized an additional $1.0 billion under our share repurchase program and extended the program through January 2016.

On November 7, 2013, we announced a 13% increase in our quarterly cash dividend to $0.085 per share, or $0.34 per share on an annual basis from $0.075 per share, or $0.30 per share on an annual basis. We also declared to pay our next quarterly cash dividend on December 13, 2013, to all stockholders of record on November 21, 2013.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor” created by those sections. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “goal,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential” and similar expressions intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance, time frames or achievements to be materially different from any future results, performance, time frames or achievements expressed or implied by the forward-looking statements. We discuss many of these risks, uncertainties and other factors in this Quarterly Report on Form 10-Q in greater detail under the heading “Risk Factors.” Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this filing. You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We hereby qualify our forward-looking statements by these cautionary statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

All references to “NVIDIA,” “we,” “us,” “our” or the “Company” mean NVIDIA Corporation and its subsidiaries, except where it is made clear that the term means only the parent company.

NVIDIA, the NVIDIA logo, GeForce, NVIDIA GRID, GTX, ICERA, Kepler, Quadro, SHIELD, Tegra, Tesla, NVIDIA Titan, and vGPU are trademarks and/or registered trademarks of NVIDIA Corporation in the United States and other countries. Other company and product names may be trademarks of the respective companies with which they are associated.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Item 6. Selected Financial Data” of our Annual Report on Form 10-K for the fiscal year ended January 27, 2013 and “Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q and our Condensed Consolidated Financial Statements and related Notes thereto, as well as other cautionary statements and risks described elsewhere in this Quarterly Report on Form 10-Q, before deciding to purchase, hold or sell shares of our common stock.

Overview

Our Company

NVIDIA is a visual computing company, connecting people through the powerful medium of computer graphics. In a world increasingly filled with visual displays, our graphics technologies let our customers interact with the world of digital ideas, information and entertainment with an efficiency that no other communication medium can provide. Visualization transcends cultural and language boundaries and enhances the quality of life whether the setting is work or pleasure and the task is mission critical or for entertainment.

We have long been known to millions around the world for creating the graphics chips used in PCs that bring video games to life. With our invention of the GPU, we introduced the world to the power of programmable shading, which defines modern computer graphics. Today, we reach well beyond PC graphics and games. Our energy-efficient processors are at the heart of products ranging from mobile devices to supercomputers. PC gamers choose our GPUs by name to enjoy immersive fantasy worlds. Our Tegra processors power smartphones, tablets and automobile infotainment systems. Professional designers use our GPUs to create visual effects in movies and design everything from audio headsets to commercial aircraft. And supercomputers take advantage of the massively parallel processing capabilities of our GPUs to accelerate a wide range of important applications, from simulations of viruses at the molecular level, to modern weather forecasting and global oil exploration.

NVIDIA's research and development in visual computing has yielded more than 6,400 patents granted or pending worldwide, and including ones covering inventions essential to modern computing.

Our businesses are based on two important technologies: the GPU and the Tegra processor. GPUs, each with billions of transistors, are the engine of visual computing and among the world's most complex processors. We have GPU product brands designed for specific users and applications: GeForce for gamers; Quadro for designers; Tesla for researchers; and GRID VGX for cloud-based server graphics modules. We recently announced the NVIDIA GRID visual computing appliance, a fully integrated system with GRID VGX graphics modules that run NVIDIA's proprietary system software. GRID is a first-of-its-kind device, designed to serve graphics-intensive applications from the cloud simultaneously to a large number of concurrent users.

The Tegra processor is a system-on-a-chip, or SOC, integrating an entire computer on a single chip. Tegra processors incorporate multi-core GPUs and CPUs together with audio, video and input/output capabilities. They can also be integrated with baseband processors for phone and data communication. Unlike power-inefficient processors built for PCs, our Tegra SOC conserves power while delivering state-of-the-art graphics and multimedia processing. Tegra runs devices like smartphones, tablets and PCs; it can also be embedded into smart devices, such as televisions, monitors, set-top boxes, gaming devices and cars. We recently shipped SHIELD, the first Android device designed for gaming. SHIELD features our Tegra 4 processor, contains proprietary NVIDIA-developed software and system technologies and leverages our deep partnerships with game developers all over the world.

Headquartered in Santa Clara, California, we were incorporated in California in April 1993 and reincorporated in Delaware in April 1998. Our Internet address is www.nvidia.com. The contents of our website are not a part of this Quarterly Report on Form 10-Q.

Recent Developments, Future Objectives and Challenges

GPU Business

On November 7, 2013 we announced our new high-end Kepler-based gaming GPU - the GeForce GTX 780 Ti. During the third quarter of fiscal year 2014, we initiated shipments of our most powerful workstation graphics card - the Quadro K6000. In addition, we also introduced G-SYNC technology that enables synchronization between the GPU and the display to help eliminate on-screen lag and announced that VMware Horizon View supports NVIDIA GRID technology.

During the second quarter of fiscal year 2014, we launched a new family of high-end Kepler-based gaming GPUs - the GeForce GTX 760, GeForce GTX 770 and GeForce GTX 780, announced an IP licensing initiative designed to bring our GPU technology to new markets and generate revenue from markets previously inaccessible to us, and announced that Citrix's XenDesktop 7 has now fully integrated our GRID vGPU technology to share GPUs across virtual machines.

During the first quarter of fiscal year 2014, we shipped GeForce GTX Titan for gamers, launched GRID VCA - the industry's first visual computing appliance that enables businesses to deploy cloud-based, GPU-accelerated applications through any Windows, Linux or Mac client on their network, and shipped four new professional graphics products under our Quadro K Series - extending our Kepler technology into the workstation market.

Tegra Processor Business

During the third quarter of fiscal year 2014, we started shipping NVIDIA SHIELD, an open-platform gaming and entertainment portable, that enables gamers to play Android games or stream games from a PC with a GeForce processor. We also extended our reach in the mobile devices market with the first shipments of Tegra 4 devices - including Xiaomi's Mi3 smartphone in China and Tegra Note, a complete tablet platform.

During the second quarter of fiscal year 2014, we demonstrated the capabilities of the Kepler-based GPU in Project Logan, our next-generation mobile processor, prepared to release NVIDIA SHIELD, that began shipping on July 31, 2013, and demonstrated Tegra 4i making phone calls on AT&T's network.

During the first quarter of fiscal year 2014, we announced our first fully integrated 4G LTE mobile processor - Tegra 4i.

Stock Repurchase and Cash Dividends

In fiscal year 2014, we plan to return in excess of $1.0 billion to our shareholders, in the form of share repurchases and quarterly dividend payments. During the second quarter of fiscal 2014, we executed an accelerated share repurchase agreement to repurchase $750.0 million worth of shares of our common stock. We received an aggregate of 51.5 million shares under this repurchase agreement of which 36.9 million shares were delivered in the second quarter and 14.6 million shares were delivered in the third quarter of fiscal year 2014. Please refer to Note 12 of the Notes to the Condensed Consolidated Financial Statements for further disclosure regarding this accelerated share repurchase agreement.

During the first nine months of fiscal year 2014, we have returned $983.0 million to shareholders, including $850.0 million in share repurchases and $133.0 million in dividend payments. On November 4, 2013, our Board extended the repurchase program through January 2016 and authorized an additional $1.0 billion under the repurchase program, increasing the amount of remaining repurchase authorization to $1.29 billion. In addition, on November 7, 2013, we announced a 13% increase in our quarterly cash dividend from $0.075 per share to $0.085 per share and our intent to return $1.0 billion in capital to our shareholders in fiscal year 2015 through a combination of stock repurchases and quarterly dividend payments.

Financial Information by Business Segment and Geographic Data

Our GPU business leverages our GPU technology across multiple end markets. It now consists of four primary product lines, including GeForce for desktop and notebook PCs and Macs; Quadro for professional workstations; Tesla for high-performance servers and workstations; and NVIDIA GRID for server graphics solutions. It also includes other related products, licenses and revenue supporting the GPU business, such as memory products. Our Tegra Processor business comprises product lines primarily based on our Tegra SOC and modem processor technologies. This includes Tegra for smartphones and tablets for both Android and Windows RT-based devices; automotive computers, including infotainment and navigation systems; and gaming devices such as SHIELD. It also includes other related products, licenses, and revenue supporting the Tegra Processor business such as Icera baseband processors and RF transceivers, embedded products, and licenses and other revenue associated with game consoles.

Our CODM does not review any information regarding total assets on a reporting segment basis. Reporting segments do not record intersegment revenue, and, accordingly, there is none to be reported. The accounting policies for segment reporting are the same as for NVIDIA as a whole. Please refer to Note 13 of the Notes to the Condensed Consolidated Financial Statements for further disclosure regarding segment information.

Results of Operations

The following table sets forth, for the periods indicated, certain items in our condensed consolidated statements of operations expressed as a percentage of revenue.



	Three Months Ended				Nine Months Ended
	October 27, 2013		October 28, 2012		October 27, 2013		October 28, 2012
Revenue	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenue	44.6		47.1		44.8		48.3
Gross profit	55.4		52.9		55.2		51.7
Operating expenses
Research and development	32.3		23.6		33.5		26.8
Sales, general and administrative	9.8		8.3		10.7		10.3
Total operating expenses	42.1		31.9		44.2		37.1
Operating income	13.3		21.0		11.0		14.6
Interest and other income, net	—		0.1		0.4		0.4
Income before income tax	13.3		21.1		11.4		15.0
Income tax expense	2.2		3.7		1.6		2.8
Net income	11.1	%	17.4	%	9.8	%	12.2	%

Three and nine months ended October 27, 2013 and October 28, 2012

Revenue

Revenue was $1,054.0 million for the third quarter of fiscal year 2014, compared to $1,204.1 million for the third quarter of fiscal year 2013, which represents a decrease of approximately 12.5%. Revenue for the first nine months of fiscal year 2014 was $2,985.9 million, compared to $3,173.3 million for the first nine months of fiscal year 2013, which represents a decrease of approximately 5.9%. A discussion of our revenue results for each of our operating segments is as follows:

GPU Business. GPU business revenue decreased by approximately 1.9% to $876.8 million in the third quarter of fiscal year 2014, compared to $894.2 million for the third quarter of fiscal year 2013 due to lower revenue for desktop and notebook GPU products, offset by higher revenue largely attributable to Quadro products. Desktop GPU revenue was lower compared to revenue in the prior year quarter, which was particularly strong due to sales of our high-end Kepler-based GPU products following previous supply constraint issues, and due to price repositioning of our high-end GPU products in the third quarter of fiscal year 2014. Our notebook GPU revenue declined as unit volumes of our mainstream GPU products decreased. Revenue from high-end notebook GPU products had strong growth in both unit volume and average selling prices. The increase in Quadro revenue resulted from continued strong demand for our Kepler-based Quadro products.

GPU business revenue increased by approximately 4.2% to $2,521.1 million in the first nine months of fiscal year 2014, compared to $2,419.2 million for the first nine months of fiscal year 2013. This increase was primarily as a result of higher Quadro and Tesla revenue as we ramped up sales of our Kepler-based Quadro products in fiscal year 2014 and as accelerated computing continues to gain momentum. In addition, while desktop and notebook GPU product revenue was approximately flat in the first nine months of fiscal year 2014 compared to the first nine months of fiscal year 2013, each of these product lines experienced increased sales volume in high-end products, offset by decreased sales volume in mainstream products.

Tegra Processor Business. Tegra Processor business revenue decreased by approximately 54.4% to $111.1 million in the third quarter of fiscal year 2014, compared to $243.9 million for the third quarter of fiscal year 2013. This decrease is largely related to lower volume shipments of Tegra 4-based devices as compared to Tegra 3-based devices in the prior year. It also reflects lower revenue associated with the sale of embedded products and lower license and royalty revenue associated with game consoles, offset by increased revenue from automotive products.

Tegra Processor business revenue decreased by approximately 52.0% to $266.9 million in the first nine months of fiscal year 2014, compared to $556.1 million for the first nine months of fiscal year 2013. These decreases were anticipated and were primarily due to lower volume shipments of Tegra 4-based devices as compared to Tegra 3-based devices in the prior year. The decrease also reflects lower revenue from the sale of embedded products and lower license and royalty revenue associated with game consoles, partially offset by continued increases in revenue from automotive products.

All Other. We recognized $66.0 million and $198.0 million in revenue from the patent cross licensing arrangement with Intel during the third quarter of fiscal years 2014 and 2013 and first nine months of fiscal years 2014 and 2013, respectively.

Concentration of Revenue

Revenue from sales to customers outside of the United States and Other Americas accounted for 74% of total revenue for both the third quarter and first nine months of fiscal year 2014 and 72% and 75%, respectively, of total revenue for the third quarter and first nine months of fiscal year 2013. Revenue by geographic region is allocated to individual countries based on the location to which the products are initially billed even if the revenue is attributable to end customers in a different location.

Revenue from significant customers, those representing 10% or more of total revenue, was approximately 11% of our total revenue from one customer for the third quarter and aggregated approximately 21% of our total revenue from two customers for first nine months of fiscal year 2014. Revenue from significant customers was approximately 14% and 12%, respectively, of our total revenue from one customer for the third quarter and first nine months of fiscal year 2013.

Gross Profit and Gross Margin

Gross profit consists of total revenue, net of allowances, less cost of revenue. Cost of revenue consists primarily of the cost of semiconductors purchased from subcontractors, including wafer fabrication, assembly, testing and packaging, manufacturing support costs, including labor and overhead associated with such purchases, final test yield fallout, inventory and warranty provisions and shipping costs. Cost of revenue also includes development costs for license, service arrangements and stock-based compensation related to personnel associated with manufacturing.

Gross margin is the percentage of gross profit to revenue. Our gross margin can vary in any period depending on the mix of types of products sold. Our gross margin is significantly impacted by the mix of products we sell, which is often difficult to estimate with accuracy. Therefore, if we experience product transition challenges, if we achieve significant revenue growth in our lower margin product lines, or if we are unable to earn as much revenue as we expect from higher margin product lines, our gross margin may be negatively impacted.

Our overall gross margin was 55.4% and 52.9% for the third quarter of fiscal years 2014 and 2013, respectively and 55.2% and 51.7% for the first nine months of fiscal years 2014 and 2013, respectively.

Charges to cost of sales for inventory provisions totaled $9.6 million and $33.7 million for the third quarter and for the first nine months of fiscal year 2014, unfavorably impacting our gross margin by 0.9% and 1.1%, respectively. Charges to cost of sales for inventory provisions totaled $22.5 million and $56.8 million for the third quarter and for the first nine months of fiscal year 2013, unfavorably impacting our gross margin by 1.9% and 1.8%, respectively.

Sales of inventory that was previously written-off or written-down totaled $7.7 million for the third quarter, and $38.6 million for the first nine months, of fiscal year 2014, favorably impacting our gross margin by 0.7% and 1.3%, respectively. Sales of inventory that was previously written-off or written-down totaled $10.8 million for the third quarter, and $42.8 million for the first nine months, of fiscal year 2013, favorably impacting our gross margin by 0.9% and 1.3%, respectively.

As a result, the overall net effect on our gross margin from charges to cost of sales for inventory provisions and sales of items previously written-off or written-down was a 0.2% unfavorable impact for the third quarter, and a 0.2% favorable impact for the first nine months, of fiscal year 2014, and a 1.0% and 0.4% unfavorable impact for the third quarter and for the first nine months of fiscal year 2013, respectively.

A discussion of our gross margin results for each of our operating segments is as follows:

GPU Business. The gross margin of our GPU business increased in the third quarter and first nine months of fiscal year 2014 from the third quarter and first nine months of fiscal year 2013, respectively. GPU margins increased primarily due to an increase in unit volume of our high-end Kepler-based GeForce desktop and notebook GPU products, which contributed to a richer overall mix of product sales. Additionally, the volume increase of Kepler-based Quadro and Tesla products also contributed to a richer mix of GPU sales.

Tegra Processor Business. The gross margin of our Tegra Processor business decreased in the third quarter and first nine months of fiscal year 2014 when compared with the third quarter and first nine months of fiscal year 2013, respectively. Tegra Processor gross margin decreased primarily due to lower gross margins across most product categories. In addition, gross margins were negatively impacted as license and royalty revenue associated with game consoles also declined when compared to the same periods in the prior year.

Operating Expenses



	Three Months Ended										Nine Months Ended
	October 27, 2013			October 28, 2012			$ Change		% Change		October 27, 2013			October 28, 2012			$ Change			% Change
	(In millions)										($ in millions)
Research and development expenses	$	340.3		$	284.2		$	56.1	19.7	%	$	999.2		$	849.3		$	149.9		17.7		%
Sales, general and administrative expenses	103.1			100.3			2.9		2.9	%	320.0			326.8			(6.8		)	(2.1	)	%
Total operating expenses	$	443.4		$	384.4		$	59.0	15.3	%	$	1,319.2		$	1,176.1		$	143.1		12.2		%
Research and development as a percentage of net revenue	32.3		%	23.6		%					33.5		%	26.8		%
Sales, general and administrative as a percentage of net revenue	9.8		%	8.3		%					10.7		%	10.3		%

Research and Development

Research and development expenses were $340.3 million and $284.2 million during the third quarter of fiscal years 2014 and 2013, respectively, an increase of $56.1 million, or 19.7%. This increase was primarily due to an increase in compensation and benefits of $26.1 million, or 17%, an increase in development expenses of $6.5 million, primarily related to bring-up costs to support our next generation Tegra and GPU products, a $12.1 million increase in facilities and IT support expense, and a $6.2 million increase in depreciation and amortization expense.

Research and development expenses were $999.2 million and $849.3 million during the first nine months of fiscal years 2014 and 2013, respectively, an increase of $149.9 million, or 17.7%. This increase was primarily due to an increase in compensation and benefits of $79.0 million, or 17%, an increase in development expenses of $18.8 million, primarily related to bring-up costs to support our next generation Tegra and GPU products, a $30.8 million increase in facilities and IT support expense, and a $14.1 million increase in depreciation and amortization expense.

Sales, General and Administrative

Sales, general and administrative expenses were $103.1 million and $100.3 million during the third quarter of fiscal years 2014 and 2013, respectively, an increase of $2.9 million, or 2.9%. This increase was primarily due to an increase in headcount related expenses.

Sales, general and administrative expenses were $320.0 million and $326.8 million during the first nine months of fiscal years 2014 and 2013, respectively, a decrease of $6.8 million, or 2.1%. This decrease was primarily attributable to the absence of a $20.1 million charge for a charitable contribution and a charge of $3.1 million for a class action settlement in the prior fiscal year, offset by an increase in headcount related expenses, including compensation and benefit related increases.

Interest Income

Interest income consists of interest earned on cash, cash equivalents and marketable securities. Interest income was $4.0 million and $4.7 million for the third quarter of fiscal years 2014 and 2013, respectively, a decrease of $0.7 million. Interest income was $13.0 million and $15.2 million for the first nine months of fiscal years 2014 and 2013, respectively, a decrease of $2.3 million. The decrease in interest income for these periods was primarily due to a lower average cash equivalent and marketable securities balance for the period ended October 27, 2013 as we liquidated a portion of our investment portfolio to fund the accelerated share repurchase transaction.

Other Expense, net

Other expense, net primarily consists of realized gains and losses on the sale of marketable securities and foreign currency translation. Other expense, net of other income was approximately flat at $3.5 million in the third quarter of fiscal year 2014 compared to $3.3 million in the third quarter of fiscal year 2013.

Other expense, net was $0.9 million in the first nine months of fiscal year 2014 and $4.0 million for the first nine months of fiscal year 2013, a decrease in expense of $3.1 million. This change was primarily a result of higher realized gains during the first nine months of fiscal year 2014 when compared to the prior year due to the liquidation of a portion of our investment portfolio to fund the accelerated share repurchase transaction of $750.0 million we entered into on May 14, 2013.

Income Taxes

We recognized income tax expense of $22.8 million and $48.3 million for the third quarter and first nine months of fiscal year 2014, respectively, and $44.5 million and $87.4 million for the third quarter and first nine months of fiscal year 2013, respectively. Income tax expense as a percentage of income before taxes, or our effective tax rate, was 16.1% and 14.2% for the third quarter and first nine months of fiscal year 2014, respectively, and 17.6% and 18.4% for the third quarter and first nine months of fiscal year 2013, respectively.

Our effective tax rate on income before tax for the first nine months of fiscal year 2014 of 14.2% and the first nine months of fiscal year 2013 of 18.4% were lower than the United States federal statutory rate of 35% due primarily to income earned in jurisdictions where the tax rate is lower than the United States federal statutory tax, and for fiscal year 2014 due to the benefit of the U.S. federal research tax credit.

Please refer to Note 4 of the Notes to Condensed Consolidated Financial Statements for further information.

Liquidity and Capital Resources



	As of October 27, 2013		As of January 27, 2013
	(In millions)
Cash and cash equivalents	$	562.1	$	732.8
Marketable securities	2,470.9		2,995.1
Cash, cash equivalents, and marketable securities	$	3,033.0	$	3,727.9

As of October 27, 2013, we had $3.03 billion in cash, cash equivalents and marketable securities, a decrease of $694.9 million from $3.73 billion as of January 27, 2013. This decrease was primarily due to the liquidation of a portion of our investment portfolio to fund the accelerated share repurchase transaction of $750.0 million we entered into on May 14, 2013. Our portfolio of cash equivalents and marketable securities is managed on our behalf by several financial institutions that are required to follow our investment policy, which requires the purchase of high grade investment securities and the diversification of asset type and includes certain limits on our portfolio duration.



	Nine Months Ended
	October 27,			October 28,
	2013			2012
	(In millions)
Net cash provided by operating activities	$	434.4		$	373.2
Net cash provided by (used in) investing activities	$	293.7		$	(602.6	)
Net cash provided by (used in) financing activities	$	(898.8	)	$	86.9

Operating activities

Operating activities provided cash of $434.4 million and $373.2 million during the first nine months of fiscal years 2014 and 2013, respectively. The increase in cash provided by operating activities in the first nine months of fiscal year 2014 was primarily due to a decrease in our accounts receivable driven by strong collections and a decrease in inventory as we continue to tightly manage manufacturing production, offset by lower net income and changes in operating liabilities in the first nine months of fiscal year 2014 when compared to the first nine months of fiscal year 2013.

Investing activities

Investing activities consisted primarily of purchases, sales and maturities of marketable securities and purchases of property and equipment, which include leasehold improvements for our facilities, test equipment and computer hardware, as well as intangible assets. Investing activities provided cash of $293.7 million and used cash of $602.6 million during the first nine months of fiscal years 2014 and 2013, respectively. The increase in cash provided by investing activities during the first nine months of fiscal year 2014 was primarily the result of the liquidation of a portion of our investment portfolio to fund the accelerated share repurchase transaction of $750.0 million that was entered into on May 14, 2013. This was offset by increased purchases of property and equipment, intangible assets and the purchase of certain assets of a business when compared to the prior fiscal year.

Financing activities

Financing activities used cash of $898.8 million and provided cash of $86.9 million during the first nine months of fiscal years 2014 and 2013, respectively. The shift to net cash used by financing activities from cash provided by financing activities was primarily due to the utilization of our cash for stockholder capital return initiatives that began in the fourth quarter of fiscal year 2013. We repurchased $100.0 million of our common stock in the first quarter of fiscal year 2014, completed an accelerated share repurchase transaction of $750.0 million in the third quarter of fiscal year 2014, and made total cash dividend payments of $133.0 million during the first nine months of fiscal year 2014.

Liquidity

Our primary source of liquidity is cash generated by our operations. Our investment portfolio consists of cash and cash equivalents, commercial paper, mortgage-backed securities issued by government-sponsored enterprises, equity securities, money market funds, asset-backed securities and debt securities of corporations, municipalities and the United States government and its agencies. These investments are denominated in United States dollars.

All of our cash equivalents and marketable securities are treated as “available-for-sale”. Investments in both fixed and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate debt securities may have their market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or if the decline in fair value of our publicly traded debt or equity investments is judged to be other-than-temporary. We may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates. However, because any debt securities we hold are classified as “available-for-sale,” no gains or losses are realized in our statement of operations due to changes in interest rates unless such securities are sold prior to maturity or unless declines in market values are determined to be other-than-temporary. These securities are reported at fair value with the related unrealized gains and losses included in accumulated other comprehensive income, a component of stockholders’ equity, net of tax, and net realized gains and losses recorded in other expense, net, on the Condensed Consolidated Statement of Income.

As of October 27, 2013 and January 27, 2013, we had $3.03 billion and $3.73 billion, respectively, in cash, cash equivalents and marketable securities. Our investment policy requires the purchase of high grade investment securities and the diversification of asset types and includes certain limits on our portfolio duration, as specified in our investment policy guidelines. These guidelines also limit the amount of credit exposure to any one issue, issuer or type of instrument. As of October 27, 2013, we were in compliance with our investment policy. As of October 27, 2013, our investments in government agencies and government-sponsored enterprises represented approximately 53% of our total investment portfolio, while the financial sector accounted for approximately 24% of our total investment portfolio. All of our investments are with A/A2 or better rated securities.

We performed an impairment review of our investment portfolio as of October 27, 2013. Based on our quarterly impairment review, we concluded that our investments were appropriately valued and did not record any impairment during the third quarter of fiscal year 2014.

Net realized gains for the third quarter and the first nine months of fiscal year 2014 were $0.1 million and $1.8 million, respectively. Net realized gains for the third quarter and the first nine months of fiscal year 2013 were $0.1 million and $0.4 million, respectively. As of October 27, 2013, we had a net unrealized gain of $6.1 million, which was comprised of gross unrealized gains of $7.5 million, offset by gross unrealized losses of $1.4 million. As of January 27, 2013, we had a net unrealized gain of $10.9 million, which was comprised of gross unrealized gains of $11.7 million, offset by $0.8 million of gross unrealized losses.

Our accounts receivable are highly concentrated and make us vulnerable to adverse changes in our customers’ businesses, and to downturns in the industry and the worldwide economy. Two customers accounted for approximately 36% of our accounts receivable balance at October 27, 2013. While we strive to limit our exposure to uncollectible accounts receivable using a combination of credit insurance and letters of credit, difficulties in collecting accounts receivable could materially and adversely affect our financial condition and results of operations. These difficulties are heightened during periods when economic conditions worsen. We continue to work directly with more foreign customers and it may be difficult to collect accounts receivable from them. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. This allowance consists of an amount identified for specific customers and an amount based on overall estimated exposure. If the financial condition of our customers were to deteriorate, resulting in an impairment in their ability to make payments, additional allowances may be required, we may be required to defer revenue recognition on sales to affected customers, and we may be required to pay higher credit insurance premiums, any of which could adversely affect our operating results. In the future, we may have to record additional reserves or write-offs and/or defer revenue on certain sales transactions which could negatively impact our financial results.

Our cash balances are held in numerous locations throughout the world, including substantial amounts held outside of the United States. Most of the amounts held outside the United States may be repatriated to the United States. However, if we repatriate foreign earnings for cash requirements in the United States, we would incur U.S. Federal income tax at rate of 35% less utilization of any net operating loss carryforwards, and further offset by any applicable research and foreign tax credits, plus any state income taxes on such income. Repatriation of some foreign balances may be restricted by local laws.

Dividend payments and any stock repurchases must be made from cash held in the United States. In the first nine months of fiscal year 2014, we made total cash dividend payments of $133.0 million and repurchased $850.0 million of our common stock, utilizing a significant amount of our U.S. cash balance previously taxed as of the end of the third quarter of fiscal year 2014. For any future significant share repurchases, we anticipate that we would either need to repatriate cash and incur U.S. income tax or access external sources for financing.

Stock Repurchase Program

Cash Dividend Program

During the first nine months of fiscal year 2014, we paid $133.0 million in dividends to our common stockholders. On November 7, 2013, we announced a 13% increase in our quarterly cash dividend to $0.085 per share, or $0.34 per share on an annual basis from $0.075 per share, or $0.30 per share on an annual basis. We also declared to pay our next quarterly cash dividend on December 13, 2013, to all stockholders of record on November 21, 2013.

Our cash dividend program and the payment of future cash dividends under that program are subject to continued capital availability and our Board's continuing determination that the dividend program and the declaration of dividends thereunder are in the best interests of our stockholders and are in compliance with all laws and agreements of NVIDIA applicable to the declaration and payment of cash dividends.

Operating Capital and Capital Expenditure Requirements

In November 2013, we announced our intent to return $1.0 billion in capital to our shareholders in fiscal year 2015 through a combination of stock repurchases and quarterly dividend payments. We believe that our existing cash balances and anticipated cash flows from operations will be sufficient to meet our operating, acquisition, cash dividend and capital requirements for at least the next twelve months. However, there is no assurance that we will not need to raise additional equity or debt financing within this time frame. For example, if we require access to cash balances maintained outside of the U.S for any significant share repurchases, we anticipate that we would either need to repatriate cash and incur U.S. income tax or access external sources for financing. Additional financing may not be available on favorable terms or at all and may be dilutive to our then-current stockholders. We also may require additional capital for other purposes not presently contemplated. If we are unable to obtain sufficient capital, we could be required to curtail capital equipment purchases or research and development expenditures, which could harm our business. Factors that could affect our cash used or generated from operations and, as a result, our need to seek additional borrowings or capital include:


•	decreased demand and market acceptance for our products and/or our customers’ products;


•	inability to successfully develop and produce in volume our next-generation products;


•	competitive pressures resulting in lower than expected average selling prices; and


•	new product announcements or product introductions by our competitors.

For additional factors see “Item 1A. Risk Factors - Risks Related to Our Business, Industry and Partners - Our revenue may fluctuate while our operating expenses are relatively fixed, which makes our results difficult to predict and could cause our results to fall short of expectations.”

Contractual Obligations

As of October 27, 2013, we had outstanding inventory purchase obligations totaling approximately $383.7 million. In addition, in October 2013, we committed to a long term electronic design and automation license of $104.6 million payable over three years. There were no other material changes in our contractual obligations from those disclosed in our Annual Report on Form 10-K for the fiscal year ended January 27, 2013.

Please see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” in our Annual Report on Form 10-K for a description of our contractual obligations.

Off-Balance Sheet Arrangements

As of October 27, 2013, we had no material off-balance sheet arrangements as defined in Regulation S-K 303(a)(4)(ii).

Adoption of New and Recently Issued Accounting Pronouncements

Please see Note 1 of the Notes to Condensed Consolidated Financial Statements for a discussion of adoption of new and recently issued accounting pronouncements.