Supplemental Financial Statement Data

6 Months Ended

Jan. 03, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Supplemental Financial Statement Data

Supplemental Financial Statement Data

Accounts receivable, net

From time to time, in connection with factoring agreements, the Company sells trade accounts receivable without recourse to third party purchasers in exchange for cash. During the six months ended January 3, 2020 and December 28, 2018, the Company sold trade accounts receivable and received cash proceeds of $198 million and $370 million, respectively. The discounts on the trade accounts receivable sold during the periods were not material and were recorded within Other income, net in the Condensed Consolidated Statements of Operations. As of January 3, 2020 and June 28, 2019, the amount of factored receivables that remained outstanding was $113 million and $318 million, respectively.

Inventories

	January 3, 2020		June 28, 2019
	(in millions)
Inventories:
Raw materials and component parts	$	1,334	$	1,142
Work-in-process	847		968
Finished goods	941		1,173
Total inventories	$	3,122	$	3,283

Property, plant and equipment, net

	January 3, 2020			June 28, 2019
	(in millions)
Property, plant and equipment:
Land	$	294		$	294
Buildings and improvements	1,806			1,743
Machinery and equipment	7,171			7,267
Computer equipment and software	447			441
Furniture and fixtures	55			56
Construction-in-process	184			202
Property, plant and equipment, gross	9,957			10,003
Accumulated depreciation	(7,235		)	(7,160		)
Property, plant and equipment, net	$	2,722		$	2,843

Goodwill

	Carrying Amount
	(in millions)
Balance at June 28, 2019	$	10,076
Goodwill recorded in connection with an acquisition	14
Reduction in goodwill in connection with disposition of business	(20		)
Foreign currency translation adjustment	(1		)
Balance at January 3, 2020	$	10,069

Acquisition

On September 10, 2019, the Company acquired substantially all the assets of Kazan Networks, Inc., an innovator in high-performance networking and non-volatile memory express over fabrics technology ("NVMe-oF"), and an industry leader in application-specific integrated circuit and adapter solutions to connect storage platforms and systems over ethernet fabrics. The purchase price of this acquisition was $22 million in cash, with net assets acquired primarily consisting of in-process research and development (“IPR&D”) of $8 million and $14 million allocated to Goodwill. Goodwill is primarily attributable to the benefits the Company expects to derive from diversifying product offerings in its Data Center Devices and Solutions and Client Solutions end markets as well as the acquired workforce. The expenses incurred by the Company related to the acquisition as well as the revenues and earnings related to the acquisition were not material to the Condensed Consolidated Financial Statements.

Dispositions

In September 2019, the Company announced the sale of its IntelliFlash business and intention to exit Storage Systems, which consists of IntelliFlash and ActiveScale. These actions will allow the Company to redirect investments to other high value priorities. In November 2019, the Company completed its sale of IntelliFlash for a price of $28 million, to be collected over the next three years. The sale of the IntelliFlash business included an immaterial amount of inventory, other tangible and intangible assets, and goodwill and resulted in a gain of approximately $17 million recorded in Employee termination, asset impairment, and other charges in the Condensed Consolidated Statements of Operations for both the three and six months ended January 3, 2020. Additionally, in February 2020, the Company entered into an agreement for the sale of ActiveScale. The net assets sold and the proceeds from the sale of ActiveScale were not material. The revenues and expenses related to these businesses were not material to the Condensed Consolidated Financial Statements and did not qualify to be reported as discontinued operations. The operating results of these businesses have and will be reflected in the Company’s results from continuing operations in the Condensed Consolidated Statements of Operations for all periods presented through the date of disposition.

Intangible assets

	January 3, 2020			June 28, 2019
	(in millions)
Finite-lived intangible assets	$	5,798		$	5,824
In-process research and development	80			72
Accumulated amortization	(4,567		)	(4,185		)
Intangible assets, net	$	1,311		$	1,711

As part of prior acquisitions, the Company recorded at the time of the acquisition acquired IPR&D for projects in progress that had not yet reached technological feasibility. IPR&D is initially accounted for as an indefinite-lived intangible asset. Once a project reaches technological feasibility, the Company reclassifies the balance to existing technology and begins to amortize the intangible asset over its estimated useful life.

Product warranty liability

Changes in the warranty accrual were as follows:

	Three Months Ended						Six Months Ended
	January 3, 2020			December 28, 2018			January 3, 2020			December 28, 2018
	(in millions)
Warranty accrual, beginning of period	$	357		$	323		$	350		$	318
Charges to operations	50			47			99			81
Utilization	(35		)	(42		)	(83		)	(68		)
Changes in estimate related to pre-existing warranties	6			9			12			6
Warranty accrual, end of period	$	378		$	337		$	378		$	337

The current portion of the warranty accrual is classified in Accrued expenses and the long-term portion is classified in Other liabilities as noted below:

	January 3, 2020		June 28, 2019
	(in millions)
Warranty accrual
Current portion (included in Accrued expenses)	$	193	$	188
Long-term portion (included in Other liabilities)	185		162
Total warranty accrual	$	378	$	350

Other liabilities

	January 3, 2020		June 28, 2019
	(in millions)
Other liabilities:
Non-current net tax payable	$	839	$	928
Payables related to unrecognized tax benefits	708		699
Other non-current liabilities	905		713
Total other liabilities	$	2,452	$	2,340

Accumulated other comprehensive income (loss)

Other comprehensive income (loss) (“OCI”), net of tax refers to expenses, gains and losses that are recorded as an element of shareholders’ equity but are excluded from net income. The following table illustrates the changes in the balances of each component of Accumulated other comprehensive income (loss) (“AOCI”):

	Actuarial Pension Gains (Losses)			Foreign Currency Translation Adjustment			Unrealized Gains (Losses) on Derivative Contracts			Total Accumulated Comprehensive Income (Loss)
	(in millions)
Balance at June 28, 2019	$	(53	)	$	4		$	(19	)	$	(68	)
Other comprehensive income (loss) before reclassifications	3			(10		)	(20		)	(27		)
Amounts reclassified from accumulated other comprehensive income (loss)	—			—			(19		)	(19		)
Income tax benefit (expense) related to items of other comprehensive income (loss)	(1		)	1			4			4
Net current-period other comprehensive income (loss)	2			(9		)	(35		)	(42		)
Balance at January 3, 2020	$	(51	)	$	(5	)	$	(54	)	$	(110	)

During the three and six months ended January 3, 2020 and December 28, 2018, the amounts reclassified out of AOCI related to derivative contracts were not material and substantially all were charged to Cost of revenue in the Condensed Consolidated Statements of Operations.