ntap-10q_20150731.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2015

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  x    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  x    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 x

  

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  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of August 31, 2015, there were 294,900,435 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 July 31, 2015 and April 24, 2015

  

3

 

  

Condensed Consolidated Statements of Operations for the Three Months Ended July 31, 2015 and July 25, 2014

  

4

 

  

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended July 31, 2015 and July 25, 2014

  

5

 

  

Condensed Consolidated Statements of Cash Flows for the Three Months Ended July 31, 2015 and July 25, 2014

  

6

 

  

Notes to Condensed Consolidated Financial Statements

  

7

Item 2

  

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

  

22

Item 3

  

Quantitative and Qualitative Disclosures About Market Risk

  

34

Item 4

  

Controls and Procedures

  

35

 

 

 

PART II — OTHER INFORMATION

  

 

 

 

 

 

 

Item 1

  

Legal Proceedings

  

36

Item 1A

  

Risk Factors

  

36

Item 2

  

Unregistered Sales of Equity Securities and Use of Proceeds

  

46

Item 3

  

Defaults upon Senior Securities

  

46

Item 4

  

Mine Safety Disclosures

  

46

Item 5

  

Other Information

  

46

Item 6

  

Exhibits

  

46

SIGNATURE

  

47

 

 

TRADEMARKS

© 2015 NetApp, Inc. All rights reserved. No portions of this document may be reproduced without prior written consent of NetApp, Inc. Specifications are subject to change without notice. NetApp, the NetApp logo, Go Further, Faster, AltaVault, ASUP, AutoSupport, Campaign Express, Cloud ONTAP, Clustered Data ONTAP, Customer Fitness, Data ONTAP, DataMotion, Fitness, Flash Accel, Flash Cache, Flash Pool, FlashRay, FlexArray, FlexCache, FlexClone, FlexPod, FlexScale, FlexShare, FlexVol, FPolicy, GetSuccessful, LockVault, Manage ONTAP, Mars, MetroCluster, MultiStore, NetApp Insight, OnCommand, ONTAP, ONTAPI, RAID DP, RAID-TEC. SANtricity, SecureShare, Simplicity, Simulate ONTAP, SnapCenter, Snap Creator, SnapCopy, SnapDrive, SnapIntegrator, SnapLock, SnapManager, SnapMirror, SnapMover, SnapProtect, SnapRestore, Snapshot, SnapValidator, SnapVault, StorageGRID, Tech OnTap, Unbound Cloud, WAFL and other names are trademarks or registered trademarks of NetApp Inc., in the United States and/or other countries.

 

 

 

2


PART I — FINANCIAL INFORMATION

 

 

Item 1. Condensed Consolidated Financial Statements (Unaudited)

NETAPP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except par value)

(Unaudited)

 

 

 

July 31,

2015

 

 

April 24,

2015

 

ASSETS

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,324

 

 

$

1,922

 

Short-term investments

 

 

2,626

 

 

 

3,404

 

Accounts receivable

 

 

415

 

 

 

779

 

Inventories

 

 

193

 

 

 

146

 

Other current assets

 

 

561

 

 

 

522

 

Total current assets

 

 

6,119

 

 

 

6,773

 

Property and equipment, net

 

 

1,011

 

 

 

1,030

 

Goodwill

 

 

1,027

 

 

 

1,027

 

Other intangible assets, net

 

 

64

 

 

 

90

 

Other non-current assets

 

 

476

 

 

 

481

 

Total assets

 

$

8,697

 

 

$

9,401

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

249

 

 

$

284

 

Accrued expenses

 

 

592

 

 

 

701

 

Short-term deferred revenue and financed unearned services revenue

 

 

1,639

 

 

 

1,724

 

Total current liabilities

 

 

2,480

 

 

 

2,709

 

Long-term debt

 

 

1,488

 

 

 

1,487

 

Other long-term liabilities

 

 

302

 

 

 

318

 

Long-term deferred revenue and financed unearned services revenue

 

 

1,427

 

 

 

1,473

 

Total liabilities

 

 

5,697

 

 

 

5,987

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock and additional paid-in capital, $0.001 par value, (297 and 306 shares issued and outstanding as of July 31, 2015 and April 24, 2015, respectively)

 

 

3,065

 

 

 

3,385

 

Retained earnings (accumulated deficit)

 

 

(31

)

 

 

53

 

Accumulated other comprehensive loss

 

 

(34

)

 

 

(24

)

Total stockholders' equity

 

 

3,000

 

 

 

3,414

 

Total liabilities and stockholders' equity

 

$

8,697

 

 

$

9,401

 

 

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

 

 

 

July 31,

2015

 

 

July 25,

2014

 

Revenues:

 

 

 

 

 

 

 

 

Product

 

$

664

 

 

$

883

 

Software maintenance

 

 

248

 

 

 

221

 

Hardware maintenance and other services

 

 

423

 

 

 

385

 

Net revenues

 

 

1,335

 

 

 

1,489

 

Cost of revenues:

 

 

 

 

 

 

 

 

Cost of product

 

 

345

 

 

 

394

 

Cost of software maintenance

 

 

10

 

 

 

8

 

Cost of hardware maintenance and other services

 

 

164

 

 

 

149

 

Total cost of revenues

 

 

519

 

 

 

551

 

Gross profit

 

 

816

 

 

 

938

 

Operating expenses:

 

 

 

 

 

 

 

 

Sales and marketing

 

 

492

 

 

 

480

 

Research and development

 

 

244

 

 

 

228

 

General and administrative

 

 

79

 

 

 

70

 

Restructuring and other charges

 

 

27

 

 

 

 

Total operating expenses

 

 

842

 

 

 

778

 

Income (loss) from operations

 

 

(26

)

 

 

160

 

Other income, net

 

 

4

 

 

 

 

Income (loss) before income taxes

 

 

(22

)

 

 

160

 

Provision for income taxes

 

 

8

 

 

 

72

 

Net income (loss)

 

$

(30

)

 

$

88

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

Basic

 

$

(0.10

)

 

$

0.27

 

Diluted

 

$

(0.10

)

 

$

0.27

 

Shares used in net income (loss) per share calculations:

 

 

 

 

 

 

 

 

Basic

 

 

304

 

 

 

323

 

Diluted

 

 

304

 

 

 

329

 

Cash dividends declared per share

 

$

0.180

 

 

$

0.165

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

4


NETAPP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In millions)

(Unaudited)

 

.

 

Three Months Ended

 

 

 

July 31,

2015

 

 

July 25,

2014

 

Net income (loss)

 

$

(30

)

 

$

88

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(1

)

 

 

(1

)

Defined benefit obligations:

 

 

 

 

 

 

 

 

Defined benefit obligation adjustments

 

 

 

 

 

2

 

Reclassification adjustments related to defined

    benefit obligations

 

 

1

 

 

 

 

Unrealized losses on available-for-sale securities:

 

 

 

 

 

 

 

 

Unrealized holding losses arising during the period

 

 

(9

)

 

 

(2

)

Unrealized gains (losses) on cash flow hedges:

 

 

 

 

 

 

 

 

Unrealized holding losses arising during the period

 

 

(2

)

 

 

(1

)

Reclassification adjustments for losses included in

    net income (loss)

 

 

1

 

 

 

2

 

Other comprehensive income (loss)

 

 

(10

)

 

 

 

Comprehensive income (loss)

 

$

(40

)

 

$

88

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

5


NETAPP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

July 31,

2015

 

 

July 25,

2014

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(30

)

 

$

88

 

Adjustments to reconcile net income (loss) to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

69

 

 

 

78

 

Stock-based compensation

 

 

77

 

 

 

62

 

Deferred income taxes

 

 

(51

)

 

 

8

 

Excess tax benefit from stock-based compensation

 

 

(2

)

 

 

(43

)

Other non-cash items, net

 

 

17

 

 

 

38

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

361

 

 

 

271

 

Inventories

 

 

(47

)

 

 

18

 

Other operating assets

 

 

17

 

 

 

(13

)

Accounts payable

 

 

(33

)

 

 

(62

)

Accrued expenses

 

 

(119

)

 

 

(227

)

Deferred revenue and financed unearned services revenue

 

 

(121

)

 

 

(26

)

Other operating liabilities

 

 

(9

)

 

 

24

 

Net cash provided by operating activities

 

 

129

 

 

 

216

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of investments

 

 

(238

)

 

 

(332

)

Maturities, sales and collections of investments

 

 

1,016

 

 

 

523

 

Purchases of property and equipment

 

 

(38

)

 

 

(58

)

Other investing activities, net

 

 

2

 

 

 

 

Net cash provided by investing activities

 

 

742

 

 

 

133

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Issuance of common stock under employee stock award plans

 

 

19

 

 

 

28

 

Repurchase of common stock

 

 

(430

)

 

 

(119

)

Excess tax benefit from stock-based compensation

 

 

2

 

 

 

43

 

Issuance of long-term debt, net

 

 

 

 

 

495

 

Dividends paid

 

 

(54

)

 

 

(53

)

Other financing activities, net

 

 

(1

)

 

 

(2

)

Net cash provided by (used in) financing activities

 

 

(464

)

 

 

392

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(5

)

 

 

 

Net increase in cash and cash equivalents

 

 

402

 

 

 

741

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

Beginning of period

 

 

1,922

 

 

 

2,291

 

End of period

 

$

2,324

 

 

$

3,032

 

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 2016, ending on April 29, 2016 is a 53-week year, with a 14th week included in its first quarter. Fiscal year 2015, which ended on April 24, 2015, was a 52-week year, with 13 weeks in its first 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 (loss) 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 and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. 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 24, 2015 contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on June 12, 2015. The results of operations for the three months ended July 31, 2015 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.

There have been no significant changes in our significant accounting policies as of and for the three months ended July 31, 2015, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended April 24, 2015.

 

2. Recent Accounting Standards Not Yet Effective

In August 2015, the Financial Accounting Standards Board (FASB) issued an update that deferred the effective date of the new guidance they previously issued in May 2014 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 will be effective for us beginning April 28, 2018, although adoption as of the original effective date of April 29, 2017 is permitted. We are currently evaluating the impact of this new standard on our consolidated financial statements, as well as which transition method and adoption date we intend to use.

 

 

7


3. Statements of Cash Flows Additional Information

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

 

 

 

Three Months Ended

 

 

 

July 31,

2015

 

 

July 25,

2014

 

Non-cash Investing Activities:

 

 

 

 

 

 

 

 

Capital expenditures incurred but not paid

 

$

13

 

 

$

12

 

Supplemental Cash Flow Information:

 

 

 

 

 

 

 

 

Income taxes paid, net of refunds

 

$

40

 

 

$

68

 

Interest paid

 

$

20

 

 

$

12

 

 

 

 

4. Purchased Intangible Assets, Net

 

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

 

 

 

July 31, 2015

 

 

April 24, 2015

 

 

 

Gross

 

 

Accumulated

 

 

Net

 

 

Gross

 

 

Accumulated

 

 

Net

 

 

 

Assets

 

 

Amortization

 

 

Assets

 

 

Assets

 

 

Amortization

 

 

Assets

 

Developed technology

 

$

304

 

 

$

(242

)

 

$

62

 

 

$

313

 

 

$

(225

)

 

$

88

 

Customer contracts/relationships

 

 

5

 

 

 

(3

)

 

 

2

 

 

 

5

 

 

 

(3

)

 

 

2

 

Other purchased intangibles

 

 

1

 

 

 

(1

)

 

 

 

 

 

3

 

 

 

(3

)

 

 

 

Total purchased intangible assets

 

$

310

 

 

$

(246

)

 

$

64

 

 

$

321

 

 

$

(231

)

 

$

90

 

In the three months ended July 31, 2015, we recorded a charge of $11 million to fully impair developed technology related to our fiscal 2013 acquisition of CacheIQ as a result of our discontinued use of such technology. The impairment charge is included in accumulated amortization in the table above.

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

 

 

 

Three Months Ended

 

 

Statement of

 

 

July 31,

2015

 

 

July 25,

2014

 

 

Operations

Classifications

Developed technology

 

$

14

 

 

$

15

 

 

Cost of revenues

Customer contracts/relationships

 

 

 

 

 

 

 

Operating expenses

Total

 

$

14

 

 

$

15

 

 

 

As of July 31, 2015, future amortization expense related to purchased intangible assets is as follows (in millions):

 

Fiscal Year

 

Amount

 

Remainder of 2016

 

$

40

 

2017

 

 

10

 

2018

 

 

6

 

2019

 

 

5

 

2020

 

 

3

 

Total

 

$

64

 

 

 

5. Balance Sheet Details

Cash and cash equivalents (in millions):

 

 

 

July 31,

2015

 

 

April 24,

2015

 

Cash

 

$

2,120

 

 

$

1,666

 

Cash equivalents

 

 

204

 

 

 

256

 

Cash and cash equivalents

 

$

2,324

 

 

$

1,922

 

 

8


Inventories (in millions):

 

 

 

July 31,

2015

 

 

April 24,

2015

 

Purchased components

 

$

63

 

 

$

36

 

Finished goods

 

 

130

 

 

 

110

 

Inventories

 

$

193

 

 

$

146

 

 

Other current assets (in millions):

 

 

 

July 31,

2015

 

 

April 24,

2015

 

Prepaid expenses and other current assets

 

$

271

 

 

$

268

 

Deferred tax assets

 

 

290

 

 

 

254

 

Other current assets

 

$

561

 

 

$

522

 

 

Property and equipment, net (in millions):

 

 

 

July 31,

2015

 

 

April 24,

2015

 

Land

 

$

265

 

 

$

265

 

Buildings and improvements

 

 

606

 

 

 

607

 

Leasehold improvements

 

 

109

 

 

 

107

 

Computer, production, engineering and other equipment

 

 

759

 

 

 

754

 

Computer software

 

 

369

 

 

 

372

 

Furniture and fixtures

 

 

85

 

 

 

85

 

Construction-in-progress

 

 

38

 

 

 

33

 

 

 

 

2,231

 

 

 

2,223

 

Accumulated depreciation and amortization

 

 

(1,220

)

 

 

(1,193

)

Property and equipment, net

 

$

1,011

 

 

$

1,030

 

 

Other non-current assets (in millions):

 

 

 

July 31,

2015

 

 

April 24,

2015

 

Deferred tax assets

 

$

273

 

 

$

256

 

Other assets

 

 

203

 

 

 

225

 

Other non-current assets

 

$

476

 

 

$

481

 

 

Accrued expenses (in millions):

 

 

 

July 31,

2015

 

 

April 24,

2015

 

Accrued compensation and benefits

 

$

258

 

 

$

359

 

Product warranty liability

 

 

54

 

 

 

58

 

Other current liabilities

 

 

280

 

 

 

284

 

Accrued expenses

 

$

592

 

 

$

701

 

 

9


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

 

 

 

July 31,

2015

 

 

July 25,

2014

 

Balance at beginning of period

 

$

86

 

 

$

110

 

Expense accrued during the period

 

 

9

 

 

 

10

 

Warranty costs incurred

 

 

(14

)

 

 

(16

)

Balance at end of period

 

$

81

 

 

$

104

 

 

 

 

July 31,

2015

 

 

April 24,

2015

 

Accrued expenses

 

$

54

 

 

$

58

 

Other long-term liabilities

 

 

27

 

 

 

28

 

Total warranty liabilities

 

$

81

 

 

$

86

 

 

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):

 

 

 

July 31,

2015

 

 

April 24,

2015

 

Deferred product revenue

 

$

25

 

 

$

17

 

Deferred services revenue

 

 

2,934

 

 

 

3,075

 

Financed unearned services revenue

 

 

107

 

 

 

105

 

Total

 

$

3,066

 

 

$

3,197

 

 

 

 

 

 

 

 

 

 

Reported as:

 

 

 

 

 

 

 

 

Short-term

 

$

1,639

 

 

$

1,724

 

Long-term

 

 

1,427

 

 

 

1,473

 

Total

 

$

3,066

 

 

$

3,197

 

 

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 15 for additional information related to these arrangements.

 

6. Other income, net

Other income, net consists of the following (in millions):

 

 

 

Three Months Ended

 

 

 

July 31,

2015

 

 

July 25,

2014

 

Interest income

 

$

13

 

 

$

8

 

Interest expense

 

 

(11

)

 

 

(9

)

Other income, net

 

 

2

 

 

 

1

 

Total other income, net

 

$

4

 

 

$

 

 

 

 

10


7. Financial Instruments and Fair Value Measurements

The accounting guidance for fair value measurements provides a framework for measuring fair value on either a recurring or nonrecurring basis, whereby the inputs used in valuation techniques are assigned a hierarchical level. The following are the three levels of inputs to measure fair value:

Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2: Inputs that reflect quoted prices for identical assets or liabilities in less active markets; quoted prices for similar assets or liabilities in active markets; benchmark yields, reported trades, broker/dealer quotes, inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3: Unobservable inputs that reflect our own assumptions incorporated in valuation techniques used to measure fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

We consider an active market to be one in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, and consider an inactive market to be one in which there are infrequent or few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers. Where appropriate, our own or the counterparty’s non-performance risk is considered in measuring the fair values of liabilities and assets, respectively.

Investments

The following is a summary of our investments (in millions):

 

 

 

July 31, 2015

 

 

April 24, 2015

 

 

 

Cost or

 

 

 

 

 

Estimated

 

 

Cost or

 

 

 

 

 

Estimated

 

 

 

Amortized

 

 

Gross Unrealized

 

 

Fair

 

 

Amortized

 

 

Gross Unrealized

 

 

Fair

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

Corporate bonds

 

$

1,712

 

 

$

3

 

 

$

(2

)

 

$

1,713

 

 

$

2,249

 

 

$

9

 

 

$

 

 

$

2,258

 

U.S. Treasury and government debt

   securities

 

 

838

 

 

 

1

 

 

 

 

 

 

839

 

 

 

1,056

 

 

 

2

 

 

 

 

 

 

1,058

 

Foreign government debt securities

 

 

44

 

 

 

 

 

 

 

 

 

44

 

 

 

38

 

 

 

 

 

 

 

 

 

38

 

Commercial paper

 

 

25

 

 

 

 

 

 

 

 

 

25

 

 

 

20

 

 

 

 

 

 

 

 

 

20

 

Certificates of deposit

 

 

209

 

 

 

 

 

 

 

 

 

209

 

 

 

286

 

 

 

 

 

 

 

 

 

286

 

Mutual funds

 

 

34

 

 

 

 

 

 

 

 

 

34

 

 

 

32

 

 

 

 

 

 

 

 

 

32

 

Total debt and equity securities

 

$

2,862

 

 

$

4

 

 

$

(2

)

 

$

2,864

 

 

$

3,681

 

 

$

11

 

 

$

 

 

$

3,692

 

 

As of July 31, 2015, gross unrealized losses related to individual securities were not significant.

The following table presents the contractual maturities of our debt investments as of July 31, 2015 (in millions):

 

 

 

Amortized Cost

 

 

Fair Value

 

Due in one year or less

 

$

1,024

 

 

$

1,025

 

Due after one year through five years

 

 

1,804

 

 

 

1,805

 

 

 

$

2,828

 

 

$

2,830

 

Actual maturities may differ from the contractual maturities because borrowers may have the right to call or prepay certain obligations.

11


Fair Value of Financial Instruments

The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis (in millions):

 

 

 

July 31, 2015

 

 

 

 

 

 

 

Fair Value Measurements at Reporting Date Using

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

Cash

 

$

2,120

 

 

$

2,120

 

 

$

 

Corporate bonds

 

 

1,713

 

 

 

 

 

 

1,713

 

U.S. Treasury and government debt securities

 

 

839

 

 

 

138

 

 

 

701

 

Foreign government debt securities

 

 

44