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NEW ACCOUNTING PRONOUNCEMENTS | 6 Months Ended
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Apr. 30, 2019
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] |
NEW ACCOUNTING PRONOUNCEMENTS | 2. NEW ACCOUNTING PRONOUNCEMENTS Accounting Standards Update ("ASU") 2014-09, Revenue From Contracts With Customers. In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09 and has since modified the standard with several ASUs (collectively, the “new revenue standard” or "ASC 606"). The new revenue standard requires entities to recognize revenue through the application of a five-step model, which includes: identification of the contract, identification of the performance obligations, determination of the transaction price, allocation of the transaction price to the performance obligations, and recognition of revenue as the entity satisfies the performance obligations. We adopted the new revenue standard on November 1, 2018, using the modified retrospective method with the cumulative effect of initially applying the guidance recognized at the date of adoption. Comparative information has not been restated and continues to be reported under the standards in effect for the prior periods presented. We have applied the new revenue standard only to contracts not completed as of the date of adoption, referred to as open contracts. We have elected the practical expedient that permits an entity to reflect the aggregate effect of all modifications (on a contract-by-contract basis) that occurred before the date of adoption in determining the transaction price, identifying the satisfied and unsatisfied performance obligations, and allocating the transaction price to the performance obligations. The most significant impact of the new revenue standard was our accounting for software license revenue. Historically, we have deferred revenue for certain types of license arrangements and recognize the revenue ratably over the license term. Under the new revenue standard, we are no longer required to establish vendor-specific objective evidence to recognize software license revenue separately from the other elements, and we are required to recognize software license revenue once the customer obtains control of the license, which will generally occur at the start of each license term. The new revenue standard further requires certain costs, primarily sales-related commissions on contracts, to be capitalized rather than expensed. We reclassified our allowance for sales returns from accounts receivable, net to other accrued liabilities due to the adoption of the new revenue standard. See Note 3, "Revenue." The cumulative effect of initially applying the new revenue standard to all open contracts as of November 1, 2018 was as follows:
| October 31, 2018 |  | Adjustments Due to ASC 606 |  | November 1, 2018
| (in millions)
Assets: |  |  |  |  |
Accounts receivable, net | $ | 624 |  |  | $ | 7 |  |  | $ | 631 |
Other current assets | 222 |  |  | 28 |  |  | 250 |
Long-term deferred tax assets | 750 |  |  | (15 | ) |  | 735 |
Other assets | 279 |  |  | 3 |  |  | 282 |
Liabilities: |  |  |  |  |
Deferred revenue | $ | 334 |  |  | $ | (53 | ) |  | $ | 281 |
Income and other taxes payable | 42 |  |  | 1 |  |  | 43 |
Other accrued liabilities | 69 |  |  | 7 |  |  | 76 |
Long-term deferred revenue | 127 |  |  | (11 | ) |  | 116 |
Other long-term liabilities | 287 |  |  | 3 |  |  | 290 |
Stockholders' equity: |  |  |  |  |
Retained earnings | $ | 1,212 |  |  | $ | 76 |  |  | $ | 1,288 |
The following tables summarize the impact of ASC 606 on our condensed consolidated financial statements:
| Three months ended
| April 30, 2019
| As Reported |  | Balances Without Adoption of ASC 606 |  | Effect of Change Higher/(Lower)
| (in millions)
Net revenue: |  |  |  |  |
Products | $ | 911 |  |  | $ | 903 |  |  | $ | 8 |
Services and other | 179 |  |  | 184 |  |  | (5 | )
Total net revenue | 1,090 |  |  | 1,087 |  |  | 3 |
Costs and expenses: |  |  |  |  |
Cost of products | 360 |  |  | 360 |  |  | — |
Cost of services and other | 82 |  |  | 82 |  |  | — |
Total costs | 442 |  |  | 442 |  |  | — |
Research and development | 171 |  |  | 171 |  |  | — |
Selling, general and administrative | 300 |  |  | 298 |  |  | 2 |
Other operating expense (income), net | (8 | ) |  | (8 | ) |  | — |
Total costs and expenses | 905 |  |  | 903 |  |  | 2 |
Income from operations | 185 |  |  | 184 |  |  | 1 |
Interest income | 6 |  |  | 6 |  |  | — |
Interest expense | (20 | ) |  | (20 | ) |  | — |
Other income (expense), net | 22 |  |  | 22 |  |  | — |
Income before taxes | 193 |  |  | 192 |  |  | 1 |
Provision for income taxes | 40 |  |  | 40 |  |  | — |
Net income | $ | 153 |  |  | $ | 152 |  |  | $ | 1 |
Net income per share: |  |  |  |  |
Basic | $ | 0.81 |  |  | $ | 0.81 |  |  | $ | — |
Diluted | $ | 0.80 |  |  | $ | 0.79 |  |  | $ | 0.01 |
| Six months ended
| April 30, 2019
| As Reported |  | Balances Without Adoption of ASC 606 |  | Effect of Change Higher/(Lower)
| (in millions)
Net revenue: |  |  |  |  |
Products | $ | 1,748 |  |  | $ | 1,725 |  |  | $ | 23 |
Services and other | 348 |  |  | 354 |  |  | (6 | )
Total net revenue | 2,096 |  |  | 2,079 |  |  | 17 |
Costs and expenses: |  |  |  |  |
Cost of products | 707 |  |  | 706 |  |  | 1 |
Cost of services and other | 163 |  |  | 163 |  |  | — |
Total costs | 870 |  |  | 869 |  |  | 1 |
Research and development | 344 |  |  | 344 |  |  | — |
Selling, general and administrative | 588 |  |  | 585 |  |  | 3 |
Other operating expense (income), net | (12 | ) |  | (12 | ) |  | — |
Total costs and expenses | 1,790 |  |  | 1,786 |  |  | 4 |
Income from operations | 306 |  |  | 293 |  |  | 13 |
Interest income | 10 |  |  | 10 |  |  | — |
Interest expense | (40 | ) |  | (40 | ) |  | — |
Other income (expense), net | 37 |  |  | 37 |  |  | — |
Income before taxes | 313 |  |  | 300 |  |  | 13 |
Provision for income taxes | 46 |  |  | 44 |  |  | 2 |
Net income | $ | 267 |  |  | $ | 256 |  |  | $ | 11 |
Net income per share: |  |  |  |  |
Basic | $ | 1.42 |  |  | $ | 1.36 |  |  | $ | 0.06 |
Diluted | $ | 1.40 |  |  | $ | 1.34 |  |  | $ | 0.06 |
| April 30, 2019
| As Reported |  | Balances Without Adoption of ASC 606 |  | Effect of Change Higher/(Lower)
| (in millions)
Assets: |  |  |  |  |
Accounts receivable, net | $ | 660 |  |  | $ | 652 |  |  | $ | 8 |
Inventory | 660 |  |  | 661 |  |  | (1 | )
Other current assets | 227 |  |  | 202 |  |  | 25 |
Long-term deferred tax assets | 727 |  |  | 744 |  |  | (17 | )
Other assets | 317 |  |  | 314 |  |  | 3 |
Liabilities: |  |  |  |  |
Deferred revenue | $ | 333 |  |  | $ | 397 |  |  | $ | (64 | )
Income and other taxes payable | 61 |  |  | 60 |  |  | 1 |
Other accrued liabilities | 74 |  |  | 67 |  |  | 7 |
Long-term deferred revenue | 150 |  |  | 166 |  |  | (16 | )
Other long-term liabilities | 251 |  |  | 248 |  |  | 3 |
Stockholders' equity: |  |  |  |  |
Retained earnings | $ | 1,555 |  |  | $ | 1,468 |  |  | $ | 87 |
ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. In January 2016, the FASB issued guidance related to certain aspects of recognition, measurement, presentation and disclosure of financial instruments. Most prominent among the changes in the standard is the requirement for changes in the fair value of our equity investments, with certain exceptions, to be recognized in net income rather than other comprehensive income. We adopted the standard effective November 1, 2018 using a modified retrospective approach. We elected to prospectively measure equity investments without readily determinable fair values at cost with adjustments for observable changes in price or impairments. The adoption of this guidance did not have a material impact to our condensed consolidated financial statements. ASU 2016-02, Leases. In February 2016, the FASB issued guidance that will require substantially all leases to be reported on the balance sheet as right-of-use assets and lease obligations. We expect our leases designated as operating leases in Note 16 to the consolidated financial statements in our Annual Report on Form 10-K for fiscal year ended October 31, 2018 will be reported in the consolidated balance sheet upon adoption. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. The standard is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. We expect to adopt the new standard on November 1, 2019 using the modified retrospective approach provided by ASU 2018-11, Leases: Targeted Improvements, that allows for a cumulative effect adjustment in the period of adoption. We will elect the transition package of practical expedients, which among other things, allows us to carry forward the historical lease classification. We do not plan to elect the practical expedient to use hindsight in determining the lease term and in assessing impairment of right-of-use assets. The company has selected a leasing software solution and is in the process of identifying changes to our business processes, systems, and controls to support adoption of the new standard. ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments. In August 2016, the FASB issued guidance that adds or clarifies guidance on eight cash flow classification issues that had been creating diversity in practice. We adopted this guidance during the first quarter of 2019 retrospectively to all periods presented, which resulted in the following change to our previously reported condensed consolidated statement of cash flows for the six months ended April 30, 2018 related to the classification of acquisition-related contingent consideration.
| Six Months Ended April 30, 2018
| As Originally Reported |  | As Adjusted |  | Change
| (in millions)
Net cash provided by operating activities | $ | 282 |  |  | $ | 282 |  |  | $ | — |
Net cash used in investing activities | $ | (49 | ) |  | $ | (46 | ) |  | $ | 3 |
Net cash used in financing activities | $ | (271 | ) |  | $ | (274 | ) |  | $ | (3 | )
ASU 2016-18, Restricted Cash. In November 2016, the FASB issued guidance that requires an entity to include in its cash and cash equivalent balances in the statement of cash flows those amounts that are deemed to be restricted cash and restricted cash equivalents. We adopted this guidance during the first quarter of 2019 retrospectively to all periods presented. See Note 7, "Supplemental Cash Flow Information." ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-Retirement Benefit Cost. In March 2017, the FASB issued guidance that requires the service cost component of net periodic pension cost and net periodic post-retirement benefit cost to be included in operating expenses (together with other employee compensation costs) and the other components of the cost to be presented in the statement of operations separately from the service cost component and outside of income from operations. We retrospectively adopted this guidance during the first quarter of 2019. The interest cost, expected return on assets, amortization of prior service credits and other costs have been reclassified from cost of products, research and development, selling, general and administrative, and other operating expenses (income) to other income (expense). We elected to apply the practical expedient, which allows us to reclassify amounts disclosed previously in our retirement plans and post-retirement benefit plans note as the basis for applying retrospective presentation for comparative periods as it is impractical to determine the disaggregation of the components for amounts capitalized and reclassified in those periods. On a prospective basis, the service cost component of net periodic pension and post-retirement benefit cost is presented with other current compensation costs in operating income. The remaining components are included in other income (expense) and will not be included in amounts capitalized in inventory or property, plant, and equipment. The effect of the retrospective presentation change related to the retirement plans and post-retirement benefit plans to our previously reported condensed consolidated statement of operations for the three and six months ended April 30, 2018 was as follows:
| Three Months Ended April 30, 2018 |  | Six Months Ended April 30, 2018
| As Originally Reported |  | As Adjusted |  | Effect of Change Higher/(Lower) |  | As Originally Reported |  | As Adjusted |  | Effect of Change Higher/(Lower)
| (in millions) |  | (in millions) |  |  |  |
Cost of products | $ | 367 |  |  | $ | 370 |  |  | $ | 3 |  |  | $ | 704 |  |  | $ | 709 |  |  | $ | 5 |
Cost of services | $ | 80 |  |  | $ | 81 |  |  | $ | 1 |  |  | $ | 153 |  |  | $ | 154 |  |  | $ | 1 |
Research and development | $ | 156 |  |  | $ | 160 |  |  | $ | 4 |  |  | $ | 302 |  |  | $ | 310 |  |  | $ | 8 |
Selling, general and administrative | $ | 299 |  |  | $ | 305 |  |  | $ | 6 |  |  | $ | 588 |  |  | $ | 600 |  |  | $ | 12 |
Other income (expense), net | $ | 2 |  |  | $ | 16 |  |  | $ | 14 |  |  | $ | 3 |  |  | $ | 29 |  |  | $ | 26 |
ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities. In August 2017, the FASB issued guidance to enable entities to better portray the economics of their risk management activities in the financial statements and enhance transparency and understandability of hedge results. We adopted this guidance during the first quarter of 2019 and elected to continue to record changes in the fair value of components excluded from the effectiveness assessment of cash flow hedges in earnings. The adoption of this guidance did not have a material impact to our condensed consolidated financial statements. ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. In February 2018, the FASB issued guidance that allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (the "Tax Act") enacted in December 2017. The standard is effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. We adopted this guidance on November 1, 2018. We elected to retain the income tax effects of the Tax Act as a component of accumulated other comprehensive income. Given this election, the adoption of this guidance did not have a material impact on our condensed consolidated financial statements. ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. In August 2018, the FASB issued guidance that requires a customer in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal-use software guidance to determine which implementation costs to defer and recognize as an asset and aligns the recognition of implementation costs to those incurred in an arrangement that includes an internal-use software license. Further, new disclosures about implementation costs for both internal-use software and hosting arrangements are required. The standard is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. We are evaluating the impact of adopting this guidance on our consolidated financial statements. Other amendments to GAAP that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption.

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- Definition The entire disclosure of changes in accounting principles, including adoption of new accounting pronouncements, that describes the new methods, amount and effects on financial statement line items. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 250 -URI http://asc.fasb.org/topic&trid=2122394 + Details
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