Overview And Accounting Policies

6 Months Ended

Jun. 30, 2023

NOTE 1. OVERVIEW AND ACCOUNTING POLICIES

Basis of Presentation

The Condensed Consolidated Financial Statements include our results of our consolidated subsidiaries. Intercompany accounts and transactions have been eliminated.

We use a 52- to 53-week year ending on the Friday nearest to December 31. Both 2023 and 2022 are 52-week years. The second quarter of 2023 and 2022 ended on June 30, 2023 and July 1, 2022. Unless otherwise stated, all dates refer to these periods.

Use of Estimates

We prepared our interim Condensed Consolidated Financial Statements that accompany these notes in conformity with U.S. GAAP, consistent in all material respects with those applied in our Form 10-K filed with the U.S. Securities and Exchange Commission on February 17, 2023 (the “2022 Form 10-K”).

The interim financial information is unaudited, and reflects all normal adjustments that are, in our opinion, necessary to provide a fair statement of results for the interim periods presented. This report should be read in conjunction with our 2022 Form 10-K that includes additional information about our significant accounting policies and the methods and assumptions used in our estimates.

The preparation of financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates and assumptions are used for revenue recognition, including determining the nature and timing of satisfaction of performance obligations and determining standalone selling price (“SSP”) of performance obligations, provision for credit losses, sales returns reserve, inventory valuation, warranty costs, investments, acquired intangibles, goodwill and intangible asset impairment analysis, other long-lived asset impairment analysis, stock-based compensation, and income taxes. We base our estimates on historical experience and various other assumptions we believe to be reasonable. Actual results that we experience may differ materially from our estimates.

Change in Presentation

During the first quarter of 2023, we changed the presentation of revenue and cost of sales in the Condensed Consolidated Statements of Income. This change was made to better reflect our Connect and Scale strategy and business model evolution with a continued shift toward a more significant mix of recurring revenue, which includes subscription, maintenance and support, recurring transactions, and term licenses. As such, we revised our presentation, including (a) the combination of subscription and services into one line item, and (b) moving term licenses from product to subscription and services. The subscription and services line item is more aligned with our performance measures, how we manage our business, and is helpful to investors and others to better understand our results.

Previously, we presented revenue and cost of sales on three lines as follows:

•product, which included hardware and software licenses (both perpetual and term licenses);

•service, which included hardware and software maintenance and support and professional services;

•subscription, which included Software as a Service (“SaaS”), data, and hosting services.

The revised categories are as follows:

•product, which includes hardware and perpetual software licenses;

•subscription and services, which includes SaaS, data, and hosting services, as well as term licenses, hardware and software maintenance and support, and professional services.

Prior period amounts have been revised to conform to the current period presentation. This change in presentation did not affect the total revenue or total cost of sales. The effect of the changes on the Condensed Consolidated Statements of Income for the second quarter and first two quarters of 2022 were as follows:


	Second Quarter of 2022						First Two Quarters of 2022
(In millions)
	As Previously Reported		Effect of Change in Presentation		As Reported Herein		As Previously Reported		Effect of Change in Presentation		As Reported Herein
Revenue:
Product	$	564.5	$	(33.5)	$	531.0	$	1,186.1	$	(88.3)	$	1,097.8
Subscription and services	—		410.2		410.2		—		837.1		837.1
Service	158.0		(158.0)		—		319.1		(319.1)		—
Subscription	218.7		(218.7)		—		429.7		(429.7)		—

Total revenue	$	941.2	$	—	$	941.2	$	1,934.9	$	—	$	1,934.9

Cost of sales:
Product	$	269.9	$	(1.1)	$	268.8	$	578.3	$	(2.6)	$	575.7
Subscription and services	—		113.9		113.9		—		228.6		228.6
Service	63.4		(63.4)		—		126.7		(126.7)		—
Subscription	49.4		(49.4)		—		99.3		(99.3)		—
Amortization of purchased intangible assets	21.0		—		21.0		43.5		—		43.5
Total cost of sales	$	403.7	$	—	$	403.7	$	847.8	$	—	$	847.8

Recently issued Accounting Pronouncements not yet Adopted

There are no recently issued accounting pronouncements applicable to us not yet adopted.

Recently Adopted Accounting Pronouncements

There are no recently adopted accounting pronouncements.