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Revenue
12 Months Ended
Apr. 26, 2019
Revenue From Contract With Customer [Abstract]  
Revenue

 

7. 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. Refer to Note 1 for a detailed discussion of accounting policies related to revenue recognition, including deferred commissions. 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 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 of which $197 million was the cumulative-effect of adoption as of the beginning of fiscal 2017

The following tables present the impacts of adoption of ASC 606 to our consolidated statements of operations for the fiscal 2018 and 2017:

 

Year Ended

 

 

April 27, 2018

 

 

As Previously Reported

 

 

Impact of ASC 606 Adoption

As Adjusted

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Product

$

3,461

 

 

$

64

 

 

$

3,525

 

Software maintenance

 

958

 

 

 

(56

)

 

 

902

 

Hardware maintenance and other services

 

1,492

 

 

 

 

 

 

1,492

 

Net revenues

 

5,911

 

 

 

8

 

 

 

5,919

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

Cost of product

 

1,738

 

 

 

 

 

 

1,738

 

Cost of software maintenance

 

25

 

 

 

 

 

 

25

 

Cost of hardware maintenance and other services

 

449

 

 

 

(2

)

 

 

447

 

Total cost of revenues

 

2,212

 

 

 

(2

)

 

 

2,210

 

Gross profit

 

3,699

 

 

 

10

 

 

 

3,709

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

1,729

 

 

 

(23

)

 

 

1,706

 

Research and development

 

783

 

 

 

 

 

 

783

 

General and administrative

 

280

 

 

 

 

 

 

280

 

Gain on sale or derecognition of assets

 

(218

)

 

 

 

 

 

(218

)

Total operating expenses

 

2,574

 

 

 

(23

)

 

 

2,551

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

1,125

 

 

 

33

 

 

 

1,158

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income, net

 

41

 

 

 

 

 

 

41

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

1,166

 

 

 

33

 

 

 

1,199

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

1,090

 

 

 

(7

)

 

 

1,083

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

76

 

 

$

40

 

 

$

116

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.28

 

 

$

0.15

 

 

$

0.43

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

$

0.28

 

 

$

0.14

 

 

$

0.42

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares used in net income per share calculations:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

268

 

 

 

268

 

 

 

268

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

276

 

 

 

276

 

 

 

276

 

 

 

 

Year Ended

 

 

 

April 28, 2017

 

 

 

As Previously Reported

 

 

Impact of ASC 606 Adoption

As Adjusted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

$

3,006

 

 

$

54

 

 

$

3,060

 

Software maintenance

 

 

965

 

 

 

(60

)

 

 

905

 

Hardware maintenance and other services

 

 

1,548

 

 

 

(22

)

 

 

1,526

 

Net revenues

 

 

5,519

 

 

 

(28

)

 

 

5,491

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product

 

 

1,614

 

 

 

(2

)

 

 

1,612

 

Cost of software maintenance

 

 

28

 

 

 

 

 

 

28

 

Cost of hardware maintenance and other services

 

 

487

 

 

 

 

 

 

487

 

Total cost of revenues

 

 

2,129

 

 

 

(2

)

 

 

2,127

 

Gross profit

 

 

3,390

 

 

 

(26

)

 

 

3,364

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

1,633

 

 

 

18

 

 

 

1,651

 

Research and development

 

 

779

 

 

 

 

 

 

779

 

General and administrative

 

 

271

 

 

 

 

 

 

271

 

Restructuring charges

 

 

52

 

 

 

 

 

 

52

 

Gain on sale of properties

 

 

(10

)

 

 

 

 

 

(10

)

Total operating expenses

 

 

2,725

 

 

 

18

 

 

 

2,743

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

 

665

 

 

 

(44

)

 

 

621

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense), net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

665

 

 

 

(44

)

 

 

621

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

156

 

 

 

(16

)

 

 

140

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

509

 

 

$

(28

)

 

$

481

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.85

 

 

$

(0.10

)

 

$

1.75

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

$

1.81

 

 

$

(0.10

)

 

$

1.71

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares used in net income per share calculations:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

275

 

 

 

275

 

 

 

275

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

 

281

 

 

 

281

 

 

 

281

 

 

The adoption of ASC 606 had no impact to cash provided by or used in operating, investing or financing activities as presented on our consolidated statements of cash flows.

 

Disaggregation of revenue

 

To provide visibility into our transition from older products to our newer, higher growth products and clarity into the dynamics of our product revenue, we have historically grouped our products by “Strategic” and “Mature” solutions. Strategic solutions include Clustered ONTAP, branded E-Series, SolidFire, converged and hyper-converged infrastructure, ELAs and other optional add-on software products. Mature solutions include 7-mode ONTAP, add-on hardware and related operating system (OS) software and original equipment manufacturers (OEM) products. Both our Mature and Strategic product lines include a mix of disk, hybrid and all flash storage media. Additionally, we provide a variety of services including software maintenance, hardware maintenance and other services including professional services, global support solutions, and customer education and training.

The following table depicts the disaggregation of revenue by our products and services (in millions):

 

Year Ended

 

 

April 26, 2019

 

 

April 27, 2018

 

 

April 28, 2017

 

Product revenues

$

3,755

 

 

$

3,525

 

 

$

3,060

 

Strategic

 

2,709

 

 

 

2,468

 

 

 

2,000

 

Mature

 

1,046

 

 

 

1,057

 

 

 

1,060

 

Software maintenance revenues

 

946

 

 

902

 

 

905

 

Hardware maintenance and other services revenues

 

1,445

 

 

 

1,492

 

 

 

1,526

 

Hardware maintenance support contracts

 

1,182

 

 

 

1,214

 

 

 

1,258

 

Professional and other services

 

263

 

 

 

278

 

 

 

268

 

Net revenues

$

6,146

 

 

$

5,919

 

 

$

5,491

 

 

Revenues by geographic region are presented in Note 16 – Segment, Geographic, and Significant Customer Information.

 

Deferred revenue and financed unearned services revenue (in millions):

 

The following table summarizes the components of our deferred revenue and financed unearned services balance as reported in our consolidated balance sheets (in millions):

 

 

April 26,

2019

 

 

April 27,

2018

 

Deferred product revenue

 

$

84

 

 

$

107

 

Deferred services revenue

 

 

3,502

 

 

 

3,134

 

Financed unearned services revenue

 

 

82

 

 

 

122

 

Total

 

$

3,668

 

 

$

3,363

 

 

 

 

 

 

 

 

 

 

Reported as:

 

 

 

 

 

 

 

 

Short-term

 

$

1,825

 

 

$

1,712

 

Long-term

 

 

1,843

 

 

 

1,651

 

Total

 

$

3,668

 

 

$

3,363

 

 

Deferred product revenue represents unrecognized revenue related to undelivered product commitments and other product deliveries that have not met all revenue recognition criteria. Deferred services revenue represents customer payments made in advance for services, which include software and hardware maintenance contracts and other services. Financed unearned services revenue represents undelivered services for which cash has been received under certain third-party financing arrangements. See Note 18 – Commitments and Contingencies for additional information related to these arrangements.

The following tables summarize the activity related to deferred revenue and financed unearned services revenue (in millions):

 

 

Year Ended

 

 

 

April 26, 2019

 

 

April 27, 2018

 

Balance at beginning of period

 

$

3,363

 

 

$

3,213

 

Additions

 

 

2,763

 

 

 

2,566

 

Revenue recognized during the period

 

 

(2,458

)

 

 

(2,416

)

Balance at end of period

 

$

3,668

 

 

$

3,363

 

 

During the years ended April 26, 2019 and April 27, 2018, we recognized $1,722 million and $1,806 million, respectively, that was included in the deferred revenue and financed unearned services revenue balance at the beginning of the respective periods.

 

As of April 26, 2019, the aggregate amount of the transaction price allocated to the remaining performance obligations related to customer contracts that are unsatisfied or partially unsatisfied was $3,668 million, which is equivalent to our deferred revenue and unearned services revenue balance. Because customer orders are typically placed on an as-needed basis, and cancellable without penalty prior to shipment, orders in backlog may not be a meaningful indicator of future revenue and have not been included in this amount. We expect to recognize as revenue approximately 50% of our deferred revenue and financed unearned services revenue balance in the next 12 months, approximately 25% in the next 13 to 24 months, and the remainder thereafter.

 

Deferred commissions

As a result of our adoption of ASC 606, we capitalize sales commissions that are incremental direct costs of obtaining customer contracts for which revenue is not immediately recognized. We then amortize capitalized commissions based on the transfer of goods or services to which they relate. The following tables summarize the activity related to deferred commissions and their balances as reported in our consolidated balance sheets (in millions):

 

Year Ended

 

 

April 26, 2019

 

 

April 27, 2018

 

Balance at beginning of period

$

137

 

 

$

113

 

Additions

 

112

 

 

 

92

 

Expense recognized during the period

 

(77

)

 

 

(68

)

Balance at end of period

$

172

 

 

$

137

 

 

 

April 26, 2019

 

 

April 27, 2018

 

Other current assets

$

75

 

 

$

66

 

Other non-current assets

 

97

 

 

 

71

 

Total deferred commissions

$

172

 

 

$

137