NetApp
NetApp, Inc. (Form: 10-Q, Received: 02/28/2017 19:58:59)

 

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 January 27, 2017

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.)

495 East Java Drive,

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 and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes       No  

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

 

Large accelerated filer 

  

Accelerated filer 

  

Non-accelerated filer 

  

Smaller reporting company 

 

  

 

  

(Do not check if a smaller reporting company)

  

 

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 February 15, 2017, there were 270,951,328 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 January 27, 2017 and April 29, 2016

  

3

 

  

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended January 27, 2017 and January 29, 2016

  

4

 

  

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended January 27, 2017 and January 29, 2016

  

5

 

  

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended January 27, 2017 and January 29, 2016

  

6

 

  

Notes to Condensed Consolidated Financial Statements

  

7

Item 2

  

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

  

23

Item 3

  

Quantitative and Qualitative Disclosures About Market Risk

  

37

Item 4

  

Controls and Procedures

  

38

 

 

 

PART II — OTHER INFORMATION

  

 

 

 

 

 

 

Item 1

  

Legal Proceedings

  

39

Item 1A

  

Risk Factors

  

39

Item 2

  

Unregistered Sales of Equity Securities and Use of Proceeds

  

49

Item 3

  

Defaults upon Senior Securities

  

49

Item 4

  

Mine Safety Disclosures

  

49

Item 5

  

Other Information

  

49

Item 6

  

Exhibits

  

49

SIGNATURE

  

50

 

 

TRADEMARKS

© 2017 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


P ART I — FINANCIAL INFORMATION

 

 

Item 1. Condensed Consolidated Financial Statements (Unaudited)

NETAPP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except par value)

(Unaudited)

 

 

 

January 27,

2017

 

 

April 29,

2016

 

ASSETS

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,213

 

 

$

2,868

 

Short-term investments

 

 

2,426

 

 

 

2,435

 

Accounts receivable

 

 

605

 

 

 

813

 

Inventories

 

 

125

 

 

 

98

 

Other current assets

 

 

277

 

 

 

234

 

Total current assets

 

 

5,646

 

 

 

6,448

 

Property and equipment, net

 

 

892

 

 

 

937

 

Goodwill

 

 

1,676

 

 

 

1,676

 

Other intangible assets, net

 

 

145

 

 

 

180

 

Other non-current assets

 

 

696

 

 

 

796

 

Total assets

 

$

9,055

 

 

$

10,037

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

258

 

 

$

254

 

Accrued expenses

 

 

747

 

 

 

765

 

Commercial paper notes

 

 

392

 

 

 

 

Short-term loan

 

 

 

 

 

849

 

Current portion of long-term debt

 

 

748

 

 

 

 

Short-term deferred revenue and financed unearned services revenue

 

 

1,699

 

 

 

1,794

 

Total current liabilities

 

 

3,844

 

 

 

3,662

 

Long-term debt

 

 

744

 

 

 

1,490

 

Other long-term liabilities

 

 

238

 

 

 

413

 

Long-term deferred revenue and financed unearned services revenue

 

 

1,535

 

 

 

1,591

 

Total liabilities

 

 

6,361

 

 

 

7,156

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 16)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock and additional paid-in capital, $0.001 par value, (271 and 281 shares issued and outstanding as of January 27, 2017 and April 29, 2016, respectively)

 

 

2,731

 

 

 

2,912

 

Retained earnings

 

 

 

 

 

 

Accumulated other comprehensive loss

 

 

(37

)

 

 

(31

)

Total stockholders' equity

 

 

2,694

 

 

 

2,881

 

Total liabilities and stockholders' equity

 

$

9,055

 

 

$

10,037

 

 

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

 

 

Nine Months Ended

 

 

 

January 27,

2017

 

 

January 29,

2016

 

 

January 27,

2017

 

 

January 29,

2016

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

$

784

 

 

$

750

 

 

$

2,154

 

 

$

2,229

 

Software maintenance

 

 

240

 

 

 

234

 

 

 

723

 

 

 

715

 

Hardware maintenance and other services

 

 

380

 

 

 

402

 

 

 

1,161

 

 

 

1,222

 

Net revenues

 

 

1,404

 

 

 

1,386

 

 

 

4,038

 

 

 

4,166

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product

 

 

435

 

 

 

381

 

 

 

1,170

 

 

 

1,134

 

Cost of software maintenance

 

 

7

 

 

 

9

 

 

 

22

 

 

 

28

 

Cost of hardware maintenance and other services

 

 

111

 

 

 

141

 

 

 

369

 

 

 

449

 

Total cost of revenues

 

 

553

 

 

 

531

 

 

 

1,561

 

 

 

1,611

 

Gross profit

 

 

851

 

 

 

855

 

 

 

2,477

 

 

 

2,555

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

381

 

 

 

418

 

 

 

1,228

 

 

 

1,358

 

Research and development

 

 

181

 

 

 

200

 

 

 

588

 

 

 

660

 

General and administrative

 

 

64

 

 

 

70

 

 

 

201

 

 

 

223

 

Restructuring charges

 

 

52

 

 

 

 

 

 

52

 

 

 

28

 

Acquisition-related expense

 

 

 

 

 

2

 

 

 

 

 

 

2

 

Gain on sale of properties

 

 

(10

)

 

 

 

 

 

(10

)

 

 

 

Total operating expenses

 

 

668

 

 

 

690

 

 

 

2,059

 

 

 

2,271

 

Income from operations

 

 

183

 

 

 

165

 

 

 

418

 

 

 

284

 

Other income (expense), net

 

 

 

 

 

(2

)

 

 

(1

)

 

 

1

 

Income before income taxes

 

 

183

 

 

 

163

 

 

 

417

 

 

 

285

 

Provision for income taxes

 

 

37

 

 

 

10

 

 

 

98

 

 

 

48

 

Net income

 

$

146

 

 

$

153

 

 

$

319

 

 

$

237

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.53

 

 

$

0.52

 

 

$

1.15

 

 

$

0.80

 

Diluted

 

$

0.52

 

 

$

0.52

 

 

$

1.13

 

 

$

0.79

 

Shares used in net income per share calculations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

274

 

 

 

293

 

 

 

277

 

 

 

297

 

Diluted

 

 

281

 

 

 

296

 

 

 

282

 

 

 

300

 

Cash dividends declared per share

 

$

0.190

 

 

$

0.180

 

 

$

0.570

 

 

$

0.540

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

4


NETAPP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)

 

.

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

January 27,

2017

 

 

January 29,

2016

 

 

January 27,

2017

 

 

January 29,

2016

 

Net income

 

$

146

 

 

$

153

 

 

$

319

 

 

$

237

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(3

)

 

 

(5

)

 

 

(14

)

 

 

(7

)

Defined benefit obligations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Defined benefit obligation adjustments

 

 

25

 

 

 

 

 

 

25

 

 

 

 

Reclassification adjustments related to defined

    benefit obligations

 

 

 

 

 

 

 

 

1

 

 

 

2

 

Income tax effect

 

 

(10

)

 

 

 

 

 

(10

)

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding losses arising during the period

 

 

(8

)

 

 

(2

)

 

 

(10

)

 

 

(11

)

Reclassification adjustments for gains included in

    net income

 

 

 

 

 

 

 

 

 

 

 

(1

)

Unrealized gains on cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains arising during the period

 

 

5

 

 

 

3

 

 

 

8

 

 

 

 

Reclassification adjustments for gains included in

    net income

 

 

(5

)

 

 

(2

)

 

 

(6

)

 

 

 

Other comprehensive income (loss):

 

 

4

 

 

 

(6

)

 

 

(6

)

 

 

(17

)

Comprehensive income

 

$

150

 

 

$

147

 

 

$

313

 

 

$

220

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

5


NETAPP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

January 27,

2017

 

 

January 29,

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

319

 

 

$

237

 

Adjustments to reconcile net income to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

173

 

 

 

202

 

Stock-based compensation

 

 

149

 

 

 

199

 

Deferred income taxes

 

 

73

 

 

 

(104

)

Gain on sale of properties

 

 

(10

)

 

 

 

Other items, net

 

 

(8

)

 

 

30

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

208

 

 

 

190

 

Inventories

 

 

(27

)

 

 

44

 

Other operating assets

 

 

16

 

 

 

82

 

Accounts payable

 

 

13

 

 

 

(113

)

Accrued expenses

 

 

(121

)

 

 

(78

)

Deferred revenue and financed unearned services revenue

 

 

(148

)

 

 

(52

)

Other operating liabilities

 

 

(16

)

 

 

(8

)

Net cash provided by operating activities

 

 

621

 

 

 

629

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of investments

 

 

(1,383

)

 

 

(1,169

)

Maturities, sales and collections of investments

 

 

1,385

 

 

 

2,048

 

Purchases of property and equipment

 

 

(137

)

 

 

(125

)

Other investing activities, net

 

 

2

 

 

 

(1

)

Net cash provided by (used in) investing activities

 

 

(133

)

 

 

753

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Issuance of common stock under employee stock award plans

 

 

70

 

 

 

70

 

Repurchase of common stock

 

 

(576

)

 

 

(698

)

Changes in commercial paper notes, net

 

 

392

 

 

 

 

Repayment of short-term loan

 

 

(850

)

 

 

 

Dividends paid

 

 

(157

)

 

 

(159

)

Other financing activities, net

 

 

(7

)

 

 

(3

)

Net cash used in financing activities

 

 

(1,128

)

 

 

(790

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(15

)

 

 

(19

)

Net increase (decrease) in cash and cash equivalents

 

 

(655

)

 

 

573

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

Beginning of period

 

 

2,868

 

 

 

1,922

 

End of period

 

$

2,213

 

 

$

2,495

 

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 software, systems and services to manage and store computer data. We enable enterprises, service providers, governmental organizations, and partners to envision, deploy and evolve their information technology environments and to reduce costs and risk while driving growth and success for their organizations.

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 year 2017, ending on April 28, 2017, is a 52-week year, with 13 weeks in each of its quarters. Fiscal year 2016, which ended on April 29, 2016, was a 53-week year, with 14 weeks in its first quarter and 13 weeks in each subsequent quarter.

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 29, 2016 contained in our Annual Report on Form 10-K. The results of operations for the three and nine months ended January 27, 2017 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 benefit accruals; stock-based compensation; loss contingencies; investment impairments; income taxes and fair value measurements. Actual results could differ materially from those estimates.

Accounting Change – In the first quarter of fiscal 2017, we early adopted a new accounting standards update that the Financial Accounting Standards Board (FASB) issued in March 2016 that simplifies the accounting for certain aspects of stock-based payments to employees. The new standard requires that certain amendments relevant to us be applied using a modified-retrospective transition method by means of a cumulative-effect adjustment to retained earnings as of the beginning of the period in which the guidance is adopted.

In connection with the adoption, we elected to account for forfeitures as they occur and the cumulative-effect impact of that change in accounting policy was a $7 million increase in retained earnings and a corresponding decrease in additional paid-in capital as of April 30, 2016. We also recorded a $3 million cumulative-effect adjustment decrease to retained earnings and a related decrease in deferred tax assets related to the forfeiture rate policy change on outstanding stock-based awards as of April 30, 2016. The standard also eliminates the requirement that excess tax benefits be realized before companies can recognize them. Accordingly, we recorded a $17 million cumulative-effect adjustment increase in retained earnings and an offsetting increase in deferred tax assets for previously unrecognized excess tax benefits as of April 30, 2016.

The new standard eliminated the requirement to report excess tax benefits and certain tax deficiencies related to share-based payment transactions as additional paid-in capital. As a result, we recognized $18 million of tax deficiencies in our provision for income taxes, rather than additional paid–in capital, for the nine months ended January 27, 2017.

We elected to report cash flows related to excess tax benefits on a prospective basis. The presentation requirements for cash flows related to employee taxes paid for withheld shares had no impact to our statements of cash flows since such cash flows have historically been presented as a financing activity.

There have been no other significant changes in our significant accounting policies as of and for the nine months ended January 27, 2017, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended April 29, 2016.

 

7


2. Recent Accounting Standards Not Yet Effective

In May 2014, the FASB issued an accounting standards update related to the recognition and reporting of revenue that 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. The guidance allows for the use of either the full or modified retrospective transition method. This new standard, as amended, will be effective for us in our first quarter of fiscal 2019, although early adoption is permitted. We expect to adopt this accounting standard update in the first quarter of fiscal 2019, and are currently evaluating the impact of this new standard update on our consolidated financial statements, as well as which transition method we intend to use.

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, lessees must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We are currently evaluating the impact of this new standard on our consolidated financial statements.

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. We are currently evaluating the impact of this new standard on our consolidated financial statements.

In October 2016, the FASB issued an accounting standards update that requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This amends current GAAP which prohibits recognition of current and deferred income taxes for all types of intra-entity asset transfers until the asset has been sold to an outside party. This new standard will be effective for us in our first fiscal quarter of fiscal 2019, although early adoption is permitted. Upon adoption, companies must apply a modified retrospective transition approach through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. We are currently evaluating the impact of this new standard on our consolidated financial statements.

In January 2017, the FASB issued an accounting standards update that simplifies the subsequent measurement of goodwill. This standard will be effective for us in fiscal 2021, although early adoption is permitted after January 1, 2017. Companies must apply this standard on a prospective basis. We intend to adopt this accounting standard update in the fourth quarter of fiscal 2017, and we do not expect it to have a material impact on our consolidated financial statements.

 

 

3. Statements of Cash Flows Additional Information

Non-cash investing and financing activities and supplemental cash flow information are as follows (in millions):

 

 

 

Nine Months Ended

 

 

 

January 27,

2017

 

 

January 29,

2016

 

Non-cash Investing and Financing Activities:

 

 

 

 

 

 

 

 

Capital expenditures incurred but not paid

 

$

13

 

 

$

14

 

Non-cash extinguishment of sale-leaseback financing obligations

 

$

19

 

 

$

 

Supplemental Cash Flow Information:

 

 

 

 

 

 

 

 

Income taxes paid, net of refunds

 

$

90

 

 

$

113

 

Interest paid

 

$

43

 

 

$

40

 

 

 

8


4 . Purchased Intangible Assets, Net

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

 

 

 

January 27, 2017

 

 

April 29, 2016

 

 

 

Gross

 

 

Accumulated

 

 

Net

 

 

Gross

 

 

Accumulated

 

 

Net

 

 

 

Assets

 

 

Amortization

 

 

Assets

 

 

Assets

 

 

Amortization

 

 

Assets

 

Developed technology

 

$

148

 

 

$

(36

)

 

$

112

 

 

$

403

 

 

$

(289

)

 

$

114

 

Customer contracts/relationships

 

 

43

 

 

 

(15

)

 

 

28

 

 

 

46

 

 

 

(7

)

 

 

39

 

Other purchased intangibles

 

 

9

 

 

 

(4

)

 

 

5

 

 

 

10

 

 

 

(2

)

 

 

8

 

Total intangible assets subject to amortization

 

 

200

 

 

 

(55

)

 

 

145

 

 

 

459

 

 

 

(298

)

 

 

161

 

In-process research and development

 

 

 

 

 

 

 

 

 

 

 

19

 

 

 

 

 

 

19

 

Total purchased intangible assets

 

$

200

 

 

$

(55

)

 

$

145

 

 

$

478

 

 

$

(298

)

 

$

180

 

As of January 27, 2017, the in-process research and development project related to the SolidFire acquisition had been completed, and the associated intangible asset was included in developed technology.

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Statement of

 

 

January 27,

2017

 

 

January 29,

2016

 

 

January 27,

2017

 

 

January 29,

2016

 

 

Operations

Classifications

Developed technology

 

$

8

 

 

$

13

 

 

$

21

 

 

$

41

 

 

Cost of revenues

Customer contracts/relationships

 

 

4

 

 

 

1

 

 

 

11

 

 

 

1

 

 

Operating expenses

Other purchased intangibles

 

 

1

 

 

 

 

 

 

3

 

 

 

 

 

Operating expenses

Total

 

$

13

 

 

$

14

 

 

$

35

 

 

$

42

 

 

 

As of January 27, 2017, future amortization expense related to purchased intangible assets subject to amortization is as follows (in millions):

 

Fiscal Year

 

Amount

 

Remainder of 2017

 

$

13

 

2018

 

 

49

 

2019

 

 

42

 

2020

 

 

26

 

2021

 

 

15

 

Total

 

$

145

 

 

 

5. Balance Sheet Details

Cash and cash equivalents (in millions):

 

 

 

January 27,

2017

 

 

April 29,

2016

 

Cash

 

$

1,989

 

 

$

2,714

 

Cash equivalents

 

 

224

 

 

 

154

 

Cash and cash equivalents

 

$

2,213

 

 

$

2,868

 

 

Inventories (in millions):

 

 

 

January 27,

2017

 

 

April 29,

2016

 

Purchased components

 

$

19

 

 

$

10

 

Finished goods

 

 

106

 

 

 

88

 

Inventories

 

$

125

 

 

$

98

 

 

9


Property and equipment, net (in millions):

 

 

 

January 27,

2017

 

 

April 29,

2016

 

Land

 

$

183

 

 

$

215

 

Buildings and improvements

 

 

695

 

 

 

605

 

Leasehold improvements

 

 

101

 

 

 

106

 

Computer, production, engineering and other equipment

 

 

756

 

 

 

751

 

Computer software

 

 

352

 

 

 

352

 

Furniture and fixtures

 

 

98

 

 

 

88

 

Construction-in-progress

 

 

11

 

 

 

74

 

 

 

 

2,196

 

 

 

2,191

 

Accumulated depreciation and amortization

 

 

(1,304

)

 

 

(1,254

)

Property and equipment, net

 

$

892

 

 

$

937

 

 

As of January 27, 2017, we classified certain land previously reported as property and equipment as assets held-for-sale because we expect to sell it within the next twelve months. The book value of the land was $24 million as of January 27, 2017 and is included in other current assets in the condensed consolidated balance sheets.

In addition, during the three months ended January 27, 2017, we recognized the sale of a portion of our properties that were subject to a sale-leaseback arrangement as further discussed in Note 8.

 

Other non-current assets (in millions):

 

 

 

January 27,

2017

 

 

April 29,

2016

 

Deferred tax assets

 

$

533

 

 

$

621

 

Other assets

 

 

163

 

 

 

175

 

Other non-current assets

 

$

696

 

 

$

796

 

 

Accrued expenses (in millions):

 

 

 

January 27,

2017

 

 

April 29,

2016

 

Accrued compensation and benefits

 

$

307

 

 

$

371

 

Sale-leaseback financing obligations

 

 

130

 

 

 

 

Product warranty liability

 

 

34

 

 

 

48

 

Other current liabilities

 

 

276

 

 

 

346

 

Accrued expenses

 

$

747

 

 

$

765

 

 

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

 

 

Nine Months Ended

 

 

 

January 27,

2017

 

 

January 29,

2016

 

 

January 27,

2017

 

 

January 29,

2016

 

Balance at beginning of period

 

$

54

 

 

$

80

 

 

$

70

 

 

$

86

 

Expense accrued during the period

 

 

4

 

 

 

5

 

 

 

9

 

 

 

27

 

Warranty costs incurred

 

 

(8

)

 

 

(12

)

 

 

(29

)

 

 

(40

)

Balance at end of period

 

$

50

 

 

$

73

 

 

$

50

 

 

$

73

 

 

 

 

January 27,

2017

 

 

April 29,

2016

 

Accrued expenses

 

$

34

 

 

$

48

 

Other long-term liabilities

 

 

16

 

 

 

22

 

Total warranty liabilities

 

$

50

 

 

$

70

 

 

10


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.

 

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

 

 

 

January 27,

2017

 

 

April 29,

2016

 

Deferred product revenue

 

$

97

 

 

$

68

 

Deferred services revenue

 

 

2,941

 

 

 

3,100

 

Financed unearned services revenue

 

 

196

 

 

 

217

 

Total

 

$

3,234

 

 

$

3,385

 

 

 

 

 

 

 

 

 

 

Reported as:

 

 

 

 

 

 

 

 

Short-term