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Income Taxes | 12 Months Ended
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Apr. 27, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | 14. Income Taxes Income before income taxes is as follows (in millions):
|  | Year Ended |
|  | April 27, 2018 |  |  | April 28, 2017 |  |  | April 29, 2016 |
Domestic |  | $ | 565 |  |  | $ | 206 |  |  | $ | 88 |
Foreign |  |  | 601 |  |  |  | 459 |  |  |  | 257 |
Total |  | $ | 1,166 |  |  | $ | 665 |  |  | $ | 345 |
Domestic income before taxes is lower than foreign income before taxes due to significant domestic expenses related to stock-based compensation. The provision for income taxes consists of the following (in millions):
|  | Year Ended |
|  | April 27, 2018 |  |  | April 28, 2017 |  |  | April 29, 2016 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 764 |  |  | $ | 22 |  |  | $ | 180 |
State |  |  | 10 |  |  |  | 3 |  |  |  | 14 |
Foreign |  |  | 39 |  |  |  | 41 |  |  |  | 35 |
Total current |  |  | 813 |  |  |  | 66 |  |  |  | 229 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 250 |  |  |  | 75 |  |  |  | (91 | )
State |  |  | 26 |  |  |  | 18 |  |  |  | (17 | )
Foreign |  |  | 1 |  |  |  | (3 | ) |  |  | (5 | )
Total deferred |  |  | 277 |  |  |  | 90 |  |  |  | (113 | )
Provision for income taxes |  | $ | 1,090 |  |  | $ | 156 |  |  | $ | 116 |
The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate as follows (in millions):
|  | Year Ended |
|  | April 27, 2018 |  |  | April 28, 2017 |  |  | April 29, 2016 |
Tax computed at federal statutory rate |  | $ | 356 |  |  | $ | 233 |  |  | $ | 121 |
State income taxes, net of federal benefit |  |  | 17 |  |  |  | 9 |  |  |  | (4 | )
Foreign earnings in lower tax jurisdictions |  |  | (108 | ) |  |  | (100 | ) |  |  | (81 | )
Stock-based compensation |  |  | (23 | ) |  |  | 16 |  |  |  | 13 |
Research and development credits |  |  | (10 | ) |  |  | (8 | ) |  |  | (14 | )
Resolution of income tax examinations |  |  | — |  |  |  | — |  |  |  | 20 |
Domestic production activities deduction |  |  | (7 | ) |  |  | (4 | ) |  |  | (10 | )
Tax charge from integration of intellectual property from the SolidFire acquisition |  |  | — |  |  |  | — |  |  |  | 64 |
Tax rate changes |  |  | 126 |  |  |  | 5 |  |  |  | 1 |
Transition tax |  |  | 732 |  |  |  | — |  |  |  | — |
Other |  |  | 7 |  |  |  | 5 |  |  |  | 6 |
Provision for income taxes |  | $ | 1,090 |  |  | $ | 156 |  |  | $ | 116 |
We generated foreign earnings in lower tax jurisdictions primarily related to income from our European operations which are headquartered in the Netherlands. On December 22, 2017, the 2017 Tax Reform Reconciliation Act, originally referred to as the TCJA was enacted into law. The TCJA made significant changes to the U.S. corporate income tax system including a reduction of the U.S. federal corporate income tax rate, the imposition of a one-time transition tax on deferred foreign earnings, and a shift to a modified territorial tax regime. Given the timing and pace of regulatory guidance, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) 118, which allows for the recording of provisional amounts related to U.S. tax reform and subsequent related adjustments during a measurement period. As of April 27, 2018, we have not fully completed the accounting for the tax impacts of the TCJA and, in connection with SAB 118, have recorded provisional tax charges based on reasonable estimates for the remeasurement of deferred tax assets and liabilities based on the new corporate rate and for the transition tax on our total post-1986 foreign earnings and profits (E&P). The TCJA also includes provisions for a global minimum tax on intangible low-taxed income (GMT) of foreign subsidiaries, a base erosion anti-abuse tax on certain intercompany payments, and beneficial tax treatment for foreign derived intangible income. These provisions will be effective for us beginning in our fiscal 2019. We will continue to refine provisional balances and make adjustments during the measurement period based on the issuance of further regulatory guidance, changes in interpretations, and the collection and analysis of additional information; these adjustments could be material to our financial statements. The provisional amounts recorded during the current year are explained below. The TCJA decreased the U.S. federal corporate tax rate from 35% to 21% as of January 1, 2018. For fiscal 2018, this decrease results in a blended statutory tax rate of 30.5%. As a result of the tax rate change, we remeasured our deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future periods. We recorded $126 million of tax expense for fiscal 2018 related to all tax rate changes. The final remeasurement impact could vary from the provisional amount if actual future activities impacting deferred tax balances differ from our estimates. The TCJA imposes a mandatory, one-time transition tax on accumulated foreign E&P not previously subject to U.S. income tax at a rate of 15.5% on earnings to the extent of foreign cash and other liquid assets, and 8% on the remaining earnings. For fiscal 2018, we recorded $732 million of tax expense for the estimated U.S. federal and state income tax impacts of the transition tax. Our estimates may change with further guidance from U.S. federal and state tax authorities or other regulatory bodies and additional analyses that we expect to complete during the measurement period with respect to various components of the computations. We intend to make the election to pay the one-time transition tax over a period of eight years. Under the TCJA, the GMT provision taxes foreign income in excess of a deemed return on tangible assets of foreign corporations. Under U.S. GAAP, companies are allowed to make an accounting policy election to either (i) account for GMT as a component of tax expense in the period in which a company is subject to the rules (the period cost method), or (ii) account for GMT in a company’s measurement of deferred taxes (the deferred method). Because of the complexity of the new tax rules, we are continuing to evaluate this provision and the application of ASC 740 and have not yet made an accounting policy election. During fiscal 2017, we adopted a new accounting standard that simplifies stock-based compensation income tax accounting and presentation within the financial statements and recorded a tax charge of $18 million following the post-adoption rules which require that all excess tax benefits and deficiencies from stock-based compensation be recognized as a component of income tax expense. During fiscal 2016, we acquired SolidFire and recorded a tax charge of $64 million related to the integration of SolidFire intellectual property into our worldwide operations. The components of our deferred tax assets and liabilities are as follows (in millions):
|  | April 27, 2018 |  |  | April 28, 2017 |
Deferred tax assets: |  |  |  |  |  |  |  |
Reserves and accruals |  | $ | 57 |  |  | $ | 149 |
Net operating loss and credit carryforwards |  |  | 131 |  |  |  | 104 |
Stock-based compensation |  |  | 22 |  |  |  | 49 |
Deferred revenue |  |  | 211 |  |  |  | 329 |
Other |  |  | 29 |  |  |  | 32 |
Gross deferred tax assets |  |  | 450 |  |  |  | 663 |
Valuation allowance |  |  | (109 | ) |  |  | (94 | )
Deferred tax assets, net of valuation allowance |  |  | 341 |  |  |  | 569 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Prepaids and accruals |  |  | 2 |  |  |  | 3 |
Acquired intangibles |  |  | 29 |  |  |  | 36 |
Property and equipment |  |  | 25 |  |  |  | 4 |
Other |  |  | 16 |  |  |  | 2 |
Total deferred tax liabilities |  |  | 72 |  |  |  | 45 |
Deferred tax assets, net of valuation allowance and deferred tax liabilities |  | $ | 269 |  |  | $ | 524 |
The valuation allowance increased by $15 million in fiscal 2018. The increase is mainly attributable to corresponding changes in deferred tax assets, primarily foreign tax credit carryforwards and certain state tax credit carryforwards. As of April 27, 2018, we have federal net operating loss and tax credit carryforwards of approximately $7 million and $3 million, respectively. In addition, we have gross state net operating loss and tax credit carryforwards of $29 million and $146 million, respectively. The majority of the state credit carryforwards are California research credits which are offset by a valuation allowance as we believe it is more likely than not that these credits will not be utilized. We also have $4 million of foreign net operating losses, and $28 million of foreign tax credit carryforwards generated by our Dutch subsidiary which are fully offset by a valuation allowance. Certain acquired net operating loss and credit carryforwards are subject to an annual limitation under Internal Revenue Code Section 382, but are expected to be realized with the exception of those which have a valuation allowance. The federal, state, and foreign net operating loss carryforwards and credits will expire in various years from fiscal 2019 through 2038. The California research credit and Dutch foreign tax credit carryforwards do not expire. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):
|  | Year Ended |
|  | April 27, 2018 |  |  | April 28, 2017 |  |  | April 29, 2016 |
Balance at beginning of period |  | $ | 218 |  |  | $ | 216 |  |  | $ | 272 |
Additions based on tax positions related to the current year |  |  | 131 |  |  |  | 7 |  |  |  | 14 |
Additions for tax positions of prior years |  |  | — |  |  |  | 7 |  |  |  | 21 |
Decreases for tax positions of prior years |  |  | (1 | ) |  |  | — |  |  |  | (39 | )
Settlements |  |  | — |  |  |  | (12 | ) |  |  | (52 | )
Balance at end of period |  | $ | 348 |  |  | $ | 218 |  |  | $ | 216 |
As of April 27, 2018, we had $348 million of gross unrecognized tax benefits, of which $318 million has been recorded in other long-term liabilities. Unrecognized tax benefits of $294 million, including penalties, interest and indirect benefits, would affect our provision for income taxes if recognized. As a result of U.S. tax reform, we recorded provisional gross unrecognized tax benefits of $114 million. We recognized accrued interest and penalties related to unrecognized tax benefits in the income tax provision of approximately $5 million in each of fiscal 2018 and 2017, and $2 million in fiscal 2016. Accrued interest and penalties of $22 million and $16 million were recorded in the consolidated balance sheets as of April 27, 2018 and April 28, 2017, respectively. The tax years that remain subject to examination for our major tax jurisdictions are shown below: Fiscal Years Subject to Examination for Major Tax Jurisdictions at April 27, 2018
2012 — 2018 |  | United States — federal income tax
2008 — 2018 |  | United States — state and local income tax
2012 — 2018 |  | Australia
2013 — 2018 |  | Germany
2007 — 2018 |  | India
2012 — 2018 |  | Japan
2013 — 2018 |  | The Netherlands
2015 — 2018 |  | United Kingdom
2010 — 2018 |  | Canada
We are currently undergoing various income tax audits in the U.S. and several foreign tax jurisdictions. Transfer pricing calculations are key issues under these audits and are often subject to dispute and appeals. In October 2015, the Internal Revenue Service (IRS) completed the examination of our fiscal 2008 to 2010 income tax returns and made certain agreed-to transfer pricing adjustments. During fiscal 2016, we recorded charges totaling $23 million attributable to audit settlements and the related re-measurement of uncertain tax positions for tax years subject to future audits. The IRS commenced the examination of our federal income tax returns for our fiscal years 2012 and 2013 in August 2016. In addition, we are effectively subject to federal tax examination adjustments for tax years ended on or after fiscal 2001, in that we have carryforward attributes from these years that could be subject to adjustment in the tax years of utilization. In September 2010, the Danish Tax Authorities issued a decision concluding that distributions declared in 2005 and 2006 by our Danish subsidiary were subject to Danish at-source dividend withholding tax. We do not believe that our Danish subsidiary is liable for such withholding tax and filed an appeal with the Danish Tax Tribunal to that effect. In December 2011, the Danish Tax Tribunal issued a ruling in favor of NetApp. The Danish tax examination agency appealed this decision at the Danish High Court (DHC) in March 2012. In February 2016, the DHC requested a preliminary ruling from the Court of Justice of the European Union (CJEU). Parties were heard before the court in October 2017. During March 2018, the Advocate General issued an opinion which was largely in favor of NetApp, however, the CJEU is not bound by the opinion of the Advocate General. It is expected that the preliminary ruling will be issued during our fiscal year 2019. Once a ruling has been issued by the CJEU, it will be reviewed and may be subjected to additional briefing by the DHC. Once complete, the DHC will then issue its final decision. We expect this decision to be complete sometime during our fiscal year 2019 or 2020. We continue to monitor the progress of ongoing discussions with tax authorities and the impact, if any, of the expected expiration of the statute of limitations in various taxing jurisdictions. We engage in continuous discussion and negotiation with taxing authorities regarding tax matters in multiple jurisdictions. We believe that within the next 12 months, it is reasonably possible that either certain audits will conclude, certain statutes of limitations will lapse, or both. As a result of uncertainties regarding tax audits and their possible outcomes, an estimate of the range of possible impacts to unrecognized tax benefits in the next twelve months cannot be made at this time. Prior to the passage of the TCJA, we had not provided U.S. income taxes and foreign withholding taxes on the undistributed earnings of foreign subsidiaries because we had intended to indefinitely reinvest such earnings outside the U.S. The TCJA imposes a one-time transition tax on substantially all accumulated foreign earnings through December 31, 2017 and generally allows companies to make distributions of foreign earnings without incurring additional federal taxes. As a part of the provisional estimates recorded during fiscal 2018, we considered the impacts of the TCJA and reviewed our projected global cash requirements, and have determined that certain historical and future foreign earnings will no longer be indefinitely reinvested. As of April 27, 2018, we estimate the unrecognized deferred tax liability related to the earnings we expect to be indefinitely reinvested to be immaterial. We will continue to monitor our plans to indefinitely reinvest undistributed earnings of foreign subsidiaries and will assess the related unrecognized deferred tax liability considering our ongoing projected global cash requirements, tax consequences associated with repatriation and any U.S. or foreign government programs designed to influence remittances.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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