Recent Accounting Standards

Recently adopted authoritative guidance

Revenue Recognition - Contracts with Customers. In May 2014, the Financial Accounting Standards Board ("FASB") issued new authoritative guidance for revenue from contracts with customers. The standard’s core principle is that a company recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration that the company expects to receive in exchange for those goods or services. In addition, companies are required to capitalize certain contract acquisition costs, including commissions paid, when contracts are signed. The asset recognized from capitalized incremental and recoverable acquisition costs is amortized on a straight-line basis consistent with the timing of transfer of the products or services to which the asset relates.

On March 31, 2018, the first day of our fiscal 2019, we adopted the new guidance on a modified retrospective basis, applying the practical expedient to all uncompleted contracts as of March 31, 2018, and as a result, results for reporting periods beginning in the first quarter of our fiscal 2019 are presented under the new revenue recognition guidance, while prior period amounts are not adjusted and continue to be reported under the prior revenue recognition guidance.

During the three months ended June 29, 2018, as a result of the adoption of the new revenue recognition guidance, our net revenue increased $5 million and operating expenses decreased $9 million.

The effects of the adoption of the new revenue recognition guidance on our June 29, 2018 Condensed Consolidated Balance Sheets were as follows:



	As of June 29, 2018
(In millions)	As Reported			Balances Without Adoption of New Standard			Effect of Change
Accounts receivable, net	$	502		$	459		$	43
Other current assets ⁽¹⁾	$	501		$	490		$	11
Other long-term assets ⁽²⁾	$	1,308		$	1,260		$	48
Total assets	$	16,248		$	16,146		$	102

Short-term contract liabilities	$	2,137		$	2,242		$	(105	)
Other current liabilities	$	403		$	377		$	26
Long-term contract liabilities	$	630		$	708		$	(78	)
Deferred income tax liabilities	$	598		$	551		$	47
Total liabilities	$	10,330		$	10,440		$	(110	)

Accumulated other comprehensive loss	$	(20	)	$	(16	)	$	(4	)
Retained earnings	$	1,158		$	942		$	216
Total stockholders’ equity	$	5,918		$	5,706		$	212


(1)	As reported includes short-term deferred commissions of $87 million. The balance without adoption of new standard includes short-term deferred commissions of $80 million.


(2)	As reported includes long-term deferred commissions of $88 million. The balance without adoption of new standard includes long-term deferred commissions of $39 million.

The adoption of the new revenue recognition guidance had no impact on our Condensed Consolidated Statements of Cash Flows.

Financial Instruments - Recognition and Measurement. In January 2016, the FASB issued new authoritative guidance on financial instruments. The new guidance enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure. We adopted this new guidance in the first quarter of fiscal 2019. Substantially all of our equity investments that were not accounted for under the equity method were previously accounted for under the cost method and are now accounted for using the measurement alternative defined as cost, less impairments, adjusted for observable price changes. Based on the composition of our investment portfolio, the adoption of this guidance did not have a material impact on our Consolidated Financial Statements.

Income Taxes - Intra-Entity Asset Transfers Other Than Inventory. In October 2016, the FASB issued new authoritative guidance that requires entities to immediately recognize the tax consequences of intercompany asset transfers, excluding inventory, at the transaction date, rather than deferring the tax consequences under legacy GAAP. We adopted this new guidance in the first quarter of fiscal 2019 using a modified retrospective transition method. The adoption resulted in a cumulative-effect adjustment of a $742 million increase to retained earnings. This cumulative-effect adjustment primarily consisted of additional deferred tax assets related to an intra-entity sale of intangible assets in periods prior to adoption, partially offset by the write-off of income tax consequences deferred from pre-adoption intra-entity transfers and other liabilities for amounts not recognized under legacy GAAP.

Opening Balance Sheet Adjustments

The following summarizes the effect of adopting the above new accounting standards:



(in millions)	Balance as of March 30, 2018		Revenue Recognition Guidance			Accounting for Income Taxes Guidance			Opening Balance as of March 31, 2018
Accounts receivable, net	$	809	$	24		$	—		$	833
Other current assets ⁽¹⁾	$	522	$	(8	)	$	(8	)	$	506
Other long-term assets ⁽²⁾	$	526	$	57		$	750		$	1,333
Total assets	$	15,759	$	73		$	742		$	16,574

Short-term contract liabilities	$	2,368	$	(107	)	$	—		$	2,261
Other current liabilities	$	372	$	(2	)	$	—		$	370
Long-term contract liabilities	$	735	$	(62	)	$	—		$	673
Deferred income tax liabilities	$	592	$	47		$	—		$	639
Total liabilities	$	10,736	$	(124	)	$	—		$	10,612

Stockholders’ equity:
Retained earnings	$	328	$	197		$	742		$	1,267


(1)	The balance as of March 30, 2018, includes income tax receivable and prepaid income taxes of $107 million and short-term deferred commissions of $94 million. The opening balance as of March 31, 2018, includes income tax receivable and prepaid income taxes of $99 million and short-term deferred commissions of $86 million.

(2)

The balance as of March 30, 2018, includes long-term deferred commissions of $35 million, long-term income tax receivable and prepaid income taxes of $61 million and deferred income tax assets of $46 million. The opening balance as of March 31, 2018, includes long-term deferred commissions of $92 million, long-term income tax receivable and prepaid income taxes of $29 million and deferred income tax assets of $828 million.

Recently issued authoritative guidance not yet adopted

Leases. In February 2016, the FASB issued new guidance on lease accounting which will require lessees to recognize assets and liabilities on their balance sheet for the rights and obligations created by operating leases and will also require disclosures designed to give users of financial statements information on the amount, timing, and uncertainty of cash flows arising from leases. The new guidance will be effective for us in our first quarter of fiscal 2020. Early adoption is permitted but we do not plan to adopt the provisions of the new guidance early. 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. We are evaluating the impact to our Consolidated Financial Statements as it relates to other aspects of the business.

Credit Losses. In June 2016, the FASB issued new authoritative guidance on credit losses which changes the impairment model for most financial assets and certain other instruments. For trade receivables and other instruments, we will be required to use a new forward-looking “expected loss” model. Additionally, for available-for-sale debt securities with unrealized losses, we will measure credit losses in a manner similar to today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. The standard will be effective for us in our first quarter of fiscal 2021. We are currently evaluating the impact of the adoption of this guidance on our Consolidated Financial Statements.

Accumulated Other Comprehensive Income. In February 2018, the FASB issued new authoritative guidance that will permit entities to reclassify tax effects stranded in accumulated other comprehensive income as a result of the Tax Cuts and Jobs Act (H.R.1) (the “Act”) to retained earnings. The amendment will be effective for us in our first quarter of fiscal 2020. If we decide to adopt this amendment, we do not expect that it will have a material impact on our Consolidated Financial Statements.

Although there are several other new accounting pronouncements issued or proposed by the FASB that we have adopted or will adopt, as applicable, we do not believe any of these accounting pronouncements has had, or will have, a material impact on our consolidated financial position, operating results or disclosures.