0001564590-18-029831.txt : 20181119 0001564590-18-029831.hdr.sgml : 20181119 20181119160910 ACCESSION NUMBER: 0001564590-18-029831 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 110 CONFORMED PERIOD OF REPORT: 20181026 FILED AS OF DATE: 20181119 DATE AS OF CHANGE: 20181119 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NetApp, Inc. CENTRAL INDEX KEY: 0001002047 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER STORAGE DEVICES [3572] IRS NUMBER: 770307520 STATE OF INCORPORATION: CA FISCAL YEAR END: 0426 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27130 FILM NUMBER: 181192574 BUSINESS ADDRESS: STREET 1: 1395 CROSSMAN AVENUE CITY: SUNNYVALE STATE: CA ZIP: 94089 BUSINESS PHONE: 4088226000 MAIL ADDRESS: STREET 1: 1395 CROSSMAN AVENUE CITY: SUNNYVALE STATE: CA ZIP: 94089 FORMER COMPANY: FORMER CONFORMED NAME: NETWORK APPLIANCE INC DATE OF NAME CHANGE: 19951010 10-Q 1 ntap-10q_20181026.htm 10-Q ntap-10q_20181026.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

(Mark One)

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

For the quarterly period ended October 26, 2018

or

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

For the transition period from                      to                     

Commission File Number 000-27130

NetApp, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

77-0307520

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

1395 Crossman Avenue,

Sunnyvale, California 94089

(Address of principal executive offices, including zip code)

(408) 822-6000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes      No  

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

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of November 14, 2018, there were 251,885,962 shares of the registrant’s common stock, $0.001 par value, outstanding.

 

 

 

 

 


TABLE OF CONTENTS

 

PART I — FINANCIAL INFORMATION

 

 

 

 

 

Item 1

  

Condensed Consolidated Financial Statements (Unaudited)

  

3

 

  

Condensed Consolidated Balance Sheets as of October 26, 2018 and April 27, 2018

  

3

 

  

Condensed Consolidated Statements of Operations for the Three and Six Months Ended October 26, 2018 and October 27, 2017

  

4

 

  

Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended October 26, 2018 and October 27, 2017

  

5

 

  

Condensed Consolidated Statements of Cash Flows for the Six Months Ended October 26, 2018 and October 27, 2017

  

6

 

  

Notes to Condensed Consolidated Financial Statements

  

7

Item 2

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

26

Item 3

  

Quantitative and Qualitative Disclosures About Market Risk

  

41

Item 4

  

Controls and Procedures

  

42

 

 

 

PART II — OTHER INFORMATION

  

 

 

 

 

 

 

Item 1

  

Legal Proceedings

  

43

Item 1A

  

Risk Factors

  

43

Item 2

  

Unregistered Sales of Equity Securities and Use of Proceeds

  

53

Item 3

  

Defaults upon Senior Securities

  

54

Item 4

  

Mine Safety Disclosures

  

54

Item 5

  

Other Information

  

54

Item 6

  

Exhibits

  

55

SIGNATURE

  

56

 

 

TRADEMARKS

© 2018 NetApp, Inc. All Rights Reserved. No portions of this document may be reproduced without prior written consent of NetApp, Inc. NetApp, the NetApp logo, and the marks listed at http://www.netapp.com/TM are trademarks of NetApp, Inc. Other company and product names may be trademarks of their respective owners.

 

 

 

2


PART I — FINANCIAL INFORMATION

 

 

Item 1. Condensed Consolidated Financial Statements (Unaudited)

NETAPP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except par value)

(Unaudited)

 

 

 

October 26,

2018

 

 

April 27,

2018

 

ASSETS

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,359

 

 

$

2,941

 

Short-term investments

 

 

1,940

 

 

 

2,450

 

Accounts receivable

 

 

765

 

 

 

1,047

 

Inventories

 

 

86

 

 

 

122

 

Other current assets

 

 

321

 

 

 

392

 

Total current assets

 

 

5,471

 

 

 

6,952

 

Property and equipment, net

 

 

770

 

 

 

756

 

Goodwill

 

 

1,742

 

 

 

1,739

 

Other intangible assets, net

 

 

69

 

 

 

94

 

Other non-current assets

 

 

499

 

 

 

450

 

Total assets

 

$

8,551

 

 

$

9,991

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

472

 

 

$

609

 

Accrued expenses

 

 

652

 

 

 

825

 

Commercial paper notes

 

 

249

 

 

 

385

 

Current portion of long-term debt

 

 

399

 

 

 

 

Short-term deferred revenue and financed unearned services revenue

 

 

1,538

 

 

 

1,712

 

Total current liabilities

 

 

3,310

 

 

 

3,531

 

Long-term debt

 

 

1,144

 

 

 

1,541

 

Other long-term liabilities

 

 

899

 

 

 

992

 

Long-term deferred revenue and financed unearned services revenue

 

 

1,668

 

 

 

1,651

 

Total liabilities

 

 

7,021

 

 

 

7,715

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock and additional paid-in capital, $0.001 par value; 254 and 263 shares issued and outstanding as of October 26, 2018 and April 27, 2018

 

 

1,605

 

 

 

2,355

 

Retained earnings (accumulated deficit)

 

 

 

 

 

(9

)

Accumulated other comprehensive loss

 

 

(75

)

 

 

(70

)

Total stockholders' equity

 

 

1,530

 

 

 

2,276

 

Total liabilities and stockholders' equity

 

$

8,551

 

 

$

9,991

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

3


NETAPP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

October 26,

2018

 

 

October 27,

2017

 

 

October 26,

2018

 

 

October 27,

2017

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

$

913

 

 

$

819

 

 

$

1,788

 

 

$

1,546

 

Software maintenance

 

 

236

 

 

 

224

 

 

 

465

 

 

 

447

 

Hardware maintenance and other services

 

 

368

 

 

 

372

 

 

 

738

 

 

 

743

 

Net revenues

 

 

1,517

 

 

 

1,415

 

 

 

2,991

 

 

 

2,736

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product

 

 

428

 

 

 

397

 

 

 

826

 

 

 

773

 

Cost of software maintenance

 

 

8

 

 

 

6

 

 

 

15

 

 

 

13

 

Cost of hardware maintenance and other services

 

 

107

 

 

 

112

 

 

 

213

 

 

 

226

 

Total cost of revenues

 

 

543

 

 

 

515

 

 

 

1,054

 

 

 

1,012

 

Gross profit

 

 

974

 

 

 

900

 

 

 

1,937

 

 

 

1,724

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

408

 

 

 

421

 

 

 

817

 

 

 

844

 

Research and development

 

 

211

 

 

 

194

 

 

 

419

 

 

 

387

 

General and administrative

 

 

69

 

 

 

69

 

 

 

142

 

 

 

137

 

Restructuring charges

 

 

 

 

 

 

 

 

19

 

 

 

 

Total operating expenses

 

 

688

 

 

 

684

 

 

 

1,397

 

 

 

1,368

 

Income from operations

 

 

286

 

 

 

216

 

 

 

540

 

 

 

356

 

Other income, net

 

 

7

 

 

 

6

 

 

 

25

 

 

 

11

 

Income before income taxes

 

 

293

 

 

 

222

 

 

 

565

 

 

 

367

 

Provision for income taxes

 

 

52

 

 

 

48

 

 

 

41

 

 

 

62

 

Net income

 

$

241

 

 

$

174

 

 

$

524

 

 

$

305

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.93

 

 

$

0.65

 

 

$

2.02

 

 

$

1.13

 

Diluted

 

$

0.91

 

 

$

0.63

 

 

$

1.96

 

 

$

1.10

 

Shares used in net income per share calculations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

258

 

 

 

269

 

 

 

260

 

 

 

270

 

Diluted

 

 

264

 

 

 

275

 

 

 

267

 

 

 

277

 

Cash dividends declared per share

 

$

0.40

 

 

$

0.20

 

 

$

0.80

 

 

$

0.40

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

4


NETAPP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)

 

.

 

Three Months Ended

 

 

Six Months Ended

 

 

 

October 26,

2018

 

 

October 27,

2017

 

 

October 26,

2018

 

 

October 27,

2017

 

Net income

 

$

241

 

 

$

174

 

 

$

524

 

 

$

305

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(3

)

 

 

(2

)

 

 

(3

)

 

 

8

 

Defined benefit obligations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification adjustments related to defined

    benefit obligations

 

 

(1

)

 

 

(1

)

 

 

(1

)

 

 

(1

)

Income tax effect

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Unrealized gains (losses) on available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains (losses) arising during the period

 

 

(1

)

 

 

(4

)

 

 

(1

)

 

 

2

 

Other comprehensive income (loss)

 

 

(5

)

 

 

(6

)

 

 

(5

)

 

 

10

 

Comprehensive income

 

$

236

 

 

$

168

 

 

$

519

 

 

$

315

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

5


NETAPP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

 

 

Six Months Ended

 

 

 

October 26,

2018

 

 

October 27,

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

524

 

 

$

305

 

Adjustments to reconcile net income to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

98

 

 

 

102

 

Stock-based compensation

 

 

78

 

 

 

87

 

Deferred income taxes

 

 

(25

)

 

 

40

 

Other items, net

 

 

11

 

 

 

(5

)

Changes in assets and liabilities, net of acquisitions of businesses:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

269

 

 

 

146

 

Inventories

 

 

36

 

 

 

58

 

Other operating assets

 

 

(19

)

 

 

29

 

Accounts payable

 

 

(127

)

 

 

34

 

Accrued expenses

 

 

(162

)

 

 

(68

)

Deferred revenue and financed unearned services revenue

 

 

(129

)

 

 

(163

)

Long-term taxes payable

 

 

(63

)

 

 

2

 

Other operating liabilities

 

 

 

 

 

(3

)

Net cash provided by operating activities

 

 

491

 

 

 

564

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of investments

 

 

(20

)

 

 

(609

)

Maturities, sales and collections of investments

 

 

509

 

 

 

657

 

Purchases of property and equipment

 

 

(107

)

 

 

(65

)

Acquisitions of businesses, net of cash acquired

 

 

(3

)

 

 

(75

)

Other investing activities, net

 

 

2

 

 

 

 

Net cash provided by (used in) investing activities

 

 

381

 

 

 

(92

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock under employee stock

   award plans

 

 

65

 

 

 

57

 

Payments for taxes related to net share settlement of stock awards

 

 

(89

)

 

 

(60

)

Repurchase of common stock

 

 

(1,061

)

 

 

(300

)

Proceeds from (repayments of) commercial paper notes, net

 

 

(135

)

 

 

218

 

Issuance of long-term debt, net

 

 

 

 

 

795

 

Dividends paid

 

 

(207

)

 

 

(108

)

Other financing activities, net

 

 

(2

)

 

 

(1

)

Net cash provided by (used in) financing activities

 

 

(1,429

)

 

 

601

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

(25

)

 

 

13

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

(582

)

 

 

1,086

 

Cash, cash equivalents and restricted cash:

 

 

 

 

 

 

 

 

Beginning of period

 

 

2,947

 

 

 

2,450

 

End of period

 

$

2,365

 

 

$

3,536

 

See accompanying notes to condensed consolidated financial statements.

 

 

6


NETAPP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

1. Description of Business and Significant Accounting Policies

NetApp, Inc. (we, us, or the Company) provides global organizations the ability to manage and share their data across on-premises, private and public clouds. Together with our partners, we provide a full range of enterprise-class software, systems and services solutions that customers use to modernize their infrastructures, build next generation data centers and harness the power of hybrid clouds.

Basis of Presentation and Preparation

Our fiscal year is reported on a 52- or 53-week year ending on the last Friday in April. An additional week is included in the first fiscal quarter approximately every six years to realign fiscal months with calendar months. Fiscal years 2019 and 2018, ending on April 26, 2019, and April 27, 2018, respectively, are each 52-week years, with 13 weeks in each of their quarters.

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company, and reflect all adjustments, consisting only of normal recurring adjustments, that are, in the opinion of management, necessary for the fair presentation of our financial position, results of operations, comprehensive income and cash flows for the interim periods presented. The statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information. Accordingly, these statements do not include all information and footnotes required by GAAP for annual consolidated financial statements, and should be read in conjunction with our audited consolidated financial statements as of and for the fiscal year ended April 27, 2018 contained in our Annual Report on Form 10-K. The results of operations for the three and six months ended October 26, 2018 are not necessarily indicative of the operating results to be expected for the full fiscal year or future operating periods.

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Such estimates include, but are not limited to, revenue recognition, reserves and allowances; inventory valuation and purchase order accruals; valuation of goodwill and intangibles; restructuring reserves; product warranties; employee compensation and benefit accruals; stock-based compensation; loss contingencies; valuation of investment securities; income taxes and fair value measurements. Actual results could differ materially from those estimates.

   Accounting Changes

In May 2014, the Financial Accounting Standards Board (FASB) issued a new standard, Revenue from Contracts with Customers (ASC 606), which establishes a comprehensive new revenue recognition model designed to depict the transfer of goods or services to a customer in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. In the first quarter of fiscal 2019, we adopted this new standard using the full retrospective method of adoption. Accordingly, our prior period condensed consolidated financial statements and information, as presented herein, have been restated to conform to the new rules. Refer to Note 5 – Revenue for a summary of the impacts of adopting this standard, and a discussion of our updated policies related to revenue recognition.

In October 2016, the FASB issued an accounting standards update (ASU) which eliminates the deferred tax effects of intra-entity asset transfers other than inventory. As a result, tax expense from the sale of an asset in the seller’s tax jurisdiction is recognized when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. In the first quarter of fiscal 2019, we adopted this ASU using a modified retrospective transition approach and recorded a cumulative-effect adjustment to decrease retained earnings by $51 million, with a corresponding reduction of prepaid taxes, which were classified as other non-current assets on our condensed consolidated balance sheets.

In November 2016, the FASB issued an ASU that requires a statement of cash flows to explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. In the first quarter of fiscal 2019, we adopted this ASU using a retrospective transition method. Accordingly, our condensed consolidated statement of cash flows for the three and six months ended October 27, 2017, as presented herein, has been restated to comply with the new requirements. Refer to Note 4 – Supplemental Financial Information for a detail of the components of our cash, cash equivalents and restricted cash balances.

There have been no other significant changes in our significant accounting policies as of and for the six months ended October 26, 2018, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended April 27, 2018.

 

7


2. Recent Accounting Standards Not Yet Effective

Leases

In February 2016, the FASB issued an accounting standards update on financial reporting for leasing arrangements, including requiring lessees to recognize an operating lease with a term greater than one year on their balance sheets as a right-of-use asset and corresponding lease liability, measured at the present value of the lease payments. This new standard will be effective for us in our first quarter of fiscal 2020, although early adoption is permitted. Upon adoption, the new standard, as amended, allows lessees to apply the transition requirements either (1) retrospectively to each prior reporting period presented in the financial statements with the cumulative effect of applying the new rules recognized at the beginning of the earliest comparative period presented, or (2) retrospectively at the beginning of the period of adoption with the cumulative effect of applying the new rules recognized then. We are currently in the assessment phase to determine the adoption methodology and are evaluating the impact of this new standard on our consolidated financial statements and disclosures. We expect that most of our operating lease commitments will be subject to the new standard and recognized as lease liabilities and right-of-use assets upon adoption, which will increase the total assets and total liabilities we report.

Credit Losses on Financial Instruments

In June 2016, the FASB issued an accounting standards update on the measurement of credit losses on financial instruments. The standard introduces a new model for measuring and recognizing credit losses on financial instruments, requiring financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. It also requires that credit losses be recorded through an allowance for credit losses. This new standard will be effective for us in our first quarter of fiscal 2021, although early adoption is permitted. Upon adoption, companies must apply a modified retrospective transition approach through a cumulative-effect adjustment to retained earnings, though a prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date. Based on the composition of our investment portfolio, current market conditions, and historical credit loss activity, the adoption of this standard is not expected to have a material impact on our consolidated financial statements.

 

 

3. Goodwill and Purchased Intangible Assets, Net

    Goodwill activity is summarized as follows (in millions):

 

Balance as of April 27, 2018

 

$

1,739

 

Additions

 

 

3

 

Balance as of October 26, 2018

 

$

1,742

 

On September 17, 2018, we acquired all of the outstanding shares of a privately-held software company for $3 million in cash. Substantially all of the purchase price was recorded to goodwill.

Purchased intangible assets, net are summarized below (in millions):

 

 

 

October 26, 2018

 

 

April 27, 2018

 

 

 

Gross

 

 

Accumulated

 

 

Net

 

 

Gross

 

 

Accumulated

 

 

Net

 

 

 

Assets

 

 

Amortization

 

 

Assets

 

 

Assets

 

 

Amortization

 

 

Assets

 

Developed technology

 

$

160

 

 

$

(95

)

 

$

65

 

 

$

164

 

 

$

(80

)

 

$

84

 

Customer contracts/relationships

 

 

41

 

 

 

(37

)

 

 

4

 

 

 

43

 

 

 

(33

)

 

 

10

 

Other purchased intangibles

 

 

 

 

 

 

 

 

 

 

 

9

 

 

 

(9

)

 

 

 

Total purchased intangible assets

 

$

201

 

 

$

(132

)

 

$

69

 

 

$

216

 

 

$

(122

)

 

$

94

 

Amortization expense for purchased intangible assets is summarized below (in millions):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

Statements of

 

 

October 26,

2018

 

 

October 27,

2017

 

 

October 26,

2018

 

 

October 27,

2017

 

 

Operations

Classification

Developed technology

 

$

9

 

 

$

9

 

 

$

18

 

 

$

17

 

 

Cost of revenues

Customer contracts/relationships

 

 

3

 

 

 

4

 

 

 

7

 

 

 

8

 

 

Operating expenses

Other purchased intangibles

 

 

 

 

 

1

 

 

 

 

 

 

2

 

 

Operating expenses

Total

 

$

12

 

 

$

14

 

 

$

25

 

 

$

27

 

 

 

8


As of October 26, 2018, future amortization expense related to purchased intangible assets is as follows (in millions):

 

Fiscal Year

 

Amount

 

Remainder of 2019

 

$

22

 

2020

 

 

31

 

2021

 

 

16

 

Total

 

$

69

 

 

 

4. Supplemental Financial Information

Cash, cash equivalents and restricted cash (in millions):

 

The following table presents cash and cash equivalents as reported in our condensed consolidated balance sheets, as well as the sum of cash, cash equivalents and restricted cash as reported on our condensed consolidated statement of cash flows in accordance with our adoption of the ASU discussed in Note 1 – Description of Business and Significant Accounting Policies:

 

 

 

October 26,

2018

 

 

April 27,

2018

 

Cash

 

$

2,251

 

 

$

2,727

 

Cash equivalents

 

 

108

 

 

 

214

 

Cash and cash equivalents

 

$

2,359

 

 

$

2,941

 

Short-term restricted cash

 

 

5

 

 

 

5

 

Long-term restricted cash

 

 

1

 

 

 

1

 

Restricted cash

 

$

6

 

 

$

6

 

Cash, cash equivalents and restricted cash

 

$

2,365

 

 

$

2,947

 

 

Inventories (in millions):

 

 

 

October 26,

2018

 

 

April 27,

2018

 

Purchased components

 

$

12

 

 

$

12

 

Finished goods

 

 

74

 

 

 

110

 

Inventories

 

$

86

 

 

$

122

 

 

Property and equipment, net (in millions):

 

 

 

October 26,

2018

 

 

April 27,

2018

 

Land

 

$

106

 

 

$

106

 

Buildings and improvements

 

 

604

 

 

 

594

 

Leasehold improvements

 

 

87

 

 

 

88

 

Computer, production, engineering and other equipment

 

 

786

 

 

 

733

 

Computer software

 

 

357

 

 

 

357

 

Furniture and fixtures

 

 

104

 

 

 

99

 

Construction-in-progress

 

 

8

 

 

 

27

 

 

 

 

2,052

 

 

 

2,004

 

Accumulated depreciation and amortization

 

 

(1,282

)

 

 

(1,248

)

Property and equipment, net

 

$

770

 

 

$

756

 

 

In September 2017, we entered into an agreement to sell certain land and buildings located in Sunnyvale, California, through two separate and independent closings, the first of which was completed in the third quarter of fiscal 2018. The remaining properties, consisting of land with a net book value of $52 million, were classified as assets held for sale, and included as other current assets in our condensed consolidated balance sheets as of October 26, 2018 and April 27, 2018. We will consummate the sale of these properties, and receive cash proceeds of $96 million, upon the completion of the second closing, which is expected to occur within the next 12 months. That closing is subject to due diligence, certain termination rights and customary closing conditions, including local governmental approval of the subdivision of a land parcel.

 

9


Other non-current assets (in millions):

 

 

 

October 26,

2018

 

 

April 27,

2018

 

Deferred tax assets

 

$

223

 

 

$

229

 

Other assets

 

 

276

 

 

 

221

 

Other non-current assets

 

$

499

 

 

$

450

 

 

Accrued expenses (in millions):

 

 

 

October 26,

2018

 

 

April 27,

2018

 

Accrued compensation and benefits

 

$

314

 

 

$

441

 

Product warranty liabilities

 

 

26

 

 

 

25

 

Other current liabilities

 

 

312

 

 

 

359

 

Accrued expenses

 

$

652

 

 

$

825

 

 

Product warranty liabilities:

Equipment and software systems sales include a standard product warranty. The following tables summarize the activity related to product warranty liabilities and their balances as reported in our condensed consolidated balance sheets (in millions):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

October 26,

2018

 

 

October 27,

2017

 

 

October 26,

2018

 

 

October 27,

2017

 

Balance at beginning of period

 

$

38

 

 

$

44

 

 

$

40

 

 

$

50

 

Expense accrued during the period

 

 

6

 

 

 

7

 

 

 

10

 

 

 

8

 

Warranty costs incurred

 

 

(5

)

 

 

(7

)

 

 

(11

)

 

 

(14

)

Balance at end of period

 

$

39

 

 

$

44

 

 

$

39

 

 

$

44

 

 

 

 

October 26,

2018

 

 

April 27,

2018

 

Accrued expenses

 

$

26

 

 

$

25

 

Other long-term liabilities

 

 

13

 

 

 

15

 

Total warranty liabilities

 

$

39

 

 

$

40

 

 

Warranty expense accrued during the period includes amounts accrued for systems at the time of shipment, adjustments for changes in estimated costs for warranties on systems shipped in the period and changes in estimated costs for warranties on systems shipped in prior periods.

 

 

Other long-term liabilities (in millions):

 

 

October 26,

2018

 

 

April 27,

2018

 

Liability for uncertain tax positions

 

$

324

 

 

$

314

 

Income taxes payable

 

 

476

 

 

 

549

 

Product warranty liabilities

 

 

13

 

 

 

15

 

Other liabilities

 

 

86

 

 

 

114

 

Other long-term liabilities

 

$

899

 

 

$

992

 

 

Statements of cash flows additional information (in millions):

 

Non-cash investing and financing activities and supplemental cash flow information are as follows:

10


 

 

Six Months Ended

 

 

 

October 26,

2018

 

 

October 27,

2017

 

Non-cash Investing and Financing Activities:

 

 

 

 

 

 

 

 

Capital expenditures incurred but not paid

 

$

7

 

 

$

17

 

 

 

 

 

 

 

 

 

 

Supplemental Cash Flow Information:

 

 

 

 

 

 

 

 

Income taxes paid, net of refunds

 

$

104

 

 

$

28

 

Interest paid

 

$

26

 

 

$

24

 

 

 

5. Revenue

 

     Effective our first quarter of fiscal 2019, we adopted ASC 606 using the full retrospective method and have restated each prior reporting period presented to conform to the new rules. The most significant impact of the new standard relates to our accounting for arrangements containing software. For our enterprise software license agreements (ELAs), we now recognize the license fee component of such arrangements up front. Under the prior rules, the software license fee was recognized over the term of the enterprise license based on our inability to establish vendor specific objective evidence of fair value for the undelivered software support element of these arrangements. In addition, for other software arrangements, revenue deferred for the undelivered elements that was previously allocated based on the residual method is now allocated based on relative fair value, which generally results in more software arrangement revenue being recognized earlier. The new standard also impacts our estimation of variable consideration for certain arrangements with contract terms such as rights of return, potential penalties and acceptance clauses.

 

      The following table presents the impacts of adoption of ASC 606 to select line items of our condensed consolidated balance sheet as of the end of fiscal 2018:

 

 

As of April 27, 2018

 

 

 

As Previously Reported

 

 

Impact of ASC 606 Adoption

 

As Adjusted

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

$

1,009

 

 

$

38

 

 

(1

)

$

1,047

 

Inventories

 

$

126

 

 

$

(4

)

 

 

 

$

122

 

Other current assets

 

$

330

 

 

$

62

 

 

(2

)

$

392

 

Other non-current assets

 

$

420

 

 

$

30

 

 

(2

)

$

450

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term deferred revenue and financed unearned services revenue

 

$

1,804

 

 

$

(92

)

 

(3

)

$

1,712

 

Other long-term liabilities

 

$

961

 

 

$

31

 

 

(4

)

$

992

 

Long-term deferred revenue and financed unearned services revenue

 

$

1,673

 

 

$

(22

)

 

(3

)

$

1,651

 

Accumulated deficit

 

$

(218

)

 

$

209

 

 

(5

)

$

(9

)

 

(1)

Netting of accounts receivable and deferred revenue balances for certain customer arrangements has been updated to reflect the impact of adoption

(2)

Reflects capitalization of commissions and reduction of long-term deferred tax assets

(3)

Reflects cumulative change in revenue and the impact of adoption to the netting of accounts receivable and deferred revenue balances for certain customer arrangements

(4)

Reflects increase in long-term deferred tax liabilities

(5)

Reflects cumulative impact to net income (loss)

11


      The following table presents the impacts of adoption of ASC 606 to our statement of operations for the second quarter and first six months of fiscal 2018: