NetApp 10-K 2020-04-24

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

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

	For the fiscal year ended April 24, 2020

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.)

1395 Crossman Avenue,

Sunnyvale, California 94089

(Address of principal executive offices, including zip code)

(408) 822-6000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)		Name of exchange on which registered
Common Stock, $0.001 Par Value	NTAP		The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑

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 every Interactive Data File required to be submitted 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 such files). Yes ☑ No ☐

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

Large accelerated filer		☑		Accelerated filer		☐
Non-accelerated filer		☐		Smaller reporting company		☐
Emerging growth company		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

The aggregate market value of voting stock held by non-affiliates of the registrant, as of October 25, 2019, the last business day of the registrant’s most recently completed second fiscal quarter, was $7,099,736,024 (based on the closing price for shares of the registrant’s common stock as reported by the NASDAQ Global Select Market on that date). Shares of common stock held by each executive officer, director, and holder of 5% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of possible affiliate status is not a conclusive determination for other purposes.

On June 5, 2020, 221,816,300 shares of the registrant’s common stock, $0.001 par value, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The information called for by Part III of this Form 10-K is hereby incorporated by reference from the definitive Proxy Statement for our annual meeting of stockholders, which will be filed with the Securities and Exchange Commission not later than 120 days after April 24, 2020.

TABLE OF CONTENTS

		PART I
Item 1		Business		6
Item 1A		Risk Factors		15
Item 1B		Unresolved Staff Comments		28
Item 2		Properties		28
Item 3		Legal Proceedings		28
Item 4		Mine Safety Disclosures		28
		PART II
Item 5		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		29
Item 6		Selected Financial Data		32
Item 7		Management’s Discussion and Analysis of Financial Condition and Results of Operations		33
Item 7A		Quantitative and Qualitative Disclosures About Market Risk		52
Item 8		Financial Statements and Supplementary Data		54
Item 9		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		94
Item 9A		Controls and Procedures		94
Item 9B		Other Information		94
		PART III
Item 10		Directors, Executive Officers and Corporate Governance		95
Item 11		Executive Compensation		95
Item 12		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		95
Item 13		Certain Relationships and Related Transactions, and Director Independence		95
Item 14		Principal Accounting Fees and Services		95
		PART IV
Item 15		Exhibits, Financial Statement Schedules		95
Signatures				102

Cautionary Note on Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Forward-looking statements are all statements (and their underlying assumptions) included in this document that refer, directly or indirectly, to future events or outcomes and, as such, are inherently not factual, but rather reflect only our current projections for the future. Consequently, forward-looking statements usually include words such as “estimate,” “intend,” “plan,” “predict,” “seek,” “may,” “will,” “should,” “would,” “could,” “anticipate,” “expect,” “believe,” or similar words, in each case, intended to refer to future events or circumstances. A non-comprehensive list of the topics including forward-looking statements in this document includes:

	•	our future financial and operating results;

	•	our strategy;

	•	our beliefs and objectives for future operations, research and development;

	•	expectations regarding future product releases, growth and performance;

	•	political, economic and industry trends;

	•	expected timing of, customer acceptance of and benefits from, product introductions, developments and enhancements;

	•	expected benefits from acquisitions, joint ventures, growth opportunities and investments;

	•	expected outcomes from legal, regulatory and administrative proceedings;

	•	our competitive position;

	•	our short-term and long-term cash requirements, including, without limitation, anticipated capital expenditures;

	•	our anticipated tax rate;

	•	the repayment of our indebtedness; and

	•	future uses of our cash, including, without limitation, the continuation of our stock repurchase and cash dividend programs.

All forward-looking statements included in this document are inherently uncertain as they are based on management’s current expectations and assumptions concerning future events, and are subject to numerous known and unknown risks and uncertainties. Therefore, actual events and results may differ materially from these forward-looking statements. Factors that could cause actual results to differ materially from those described herein include, but are not limited to:

	•	the impacts of the global COVID-19 pandemic on our business operations, financial condition, results of operations or cash flows;

	•	the overall growth, structure and changes in the networked storage market;

	•	our ability to expand our total available market and grow our portfolio of products and solutions;

	•	our ability to introduce new and differentiated products, solutions and services without disruption;

	•	our ability to successfully execute new business models;

	•	our ability to successfully execute on our Data Fabric strategy to generate profitable growth and stockholder return;

	•	general global political, macroeconomic, social, health and market conditions;

	•	our ability to accurately forecast demand for our products, solutions and services, and future financial performance;

	•	our ability to successfully manage our backlog;

	•	disruptions in our supply chain, which could limit our ability to ship products to our customers in the amounts and at the prices forecasted;

	•	our ability to maintain our customer, partner, supplier and contract manufacturer relationships on favorable terms and conditions;

	•	our ability to maintain our gross profit margins;

	•	our ability to timely and successfully introduce and increase volumes of new products and services and to forecast demand and pricing for the same;

	•	changes in U.S. government spending;

	•	the actions of our competitors including, without limitation, their ability to introduce competitive products and to acquire businesses and technologies that negatively impact our strategy, operations or customer demand for our products;

	•	the impact of industry consolidation affecting our suppliers, competitors, partners and customers;

	•	our ability to grow direct and indirect sales and to efficiently provide global service and support;

	•	our ability to design, manufacture and market products meeting global environmental standards;

	•	failure of our products and services to meet our customers’ quality requirements, including, without limitation, any epidemic failure event relating to our systems installed by our customers in their IT infrastructures;

	•	our ability to resolve ongoing litigation, tax audits, government audits, inquiries and investigations in line with our expectations;

	•	the availability of acceptable financing to support our future cash requirements;

	•	our ability to effectively integrate acquired businesses, products and technologies;

	•	valuation and liquidity of our investment portfolio;

	•	foreign exchange rate impacts;

	•	our ability to successfully recruit and retain critical employees and to manage our investment in people, process and systems;

	•	our ability to anticipate techniques used to obtain unauthorized access or to sabotage systems and to implement adequate preventative measures against cybersecurity and other security breaches; and

	•	those factors discussed under the heading “Risk Factors” elsewhere in this Annual Report on Form 10-K.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document and are based upon information available to us at this time. These statements are not guarantees of future performance. Except as required by law, we disclaim any obligation to update information in any forward-looking statement. Actual results could vary from our forward-looking statements due to the foregoing factors as well as other important factors.

PART I

Overview

NetApp, Inc. (NetApp, we, or us) is a leader in hybrid cloud data services. In a world of increasing complexity, we simplify. We help our customers ensure their data and applications are in the right place at the right time with the right characteristics and capabilities to enable new insights and accelerate innovation. We do this by helping customers build their data fabrics. Together with our partners, we empower organizations to unleash the full potential of their data to expand customer touchpoints, foster greater innovation and optimize their operations. We were incorporated in 1992 and are headquartered in Sunnyvale, California.

Customer Business and IT Needs

In a world where technology is changing our everyday lives, digital transformation tops the strategic agenda in most organizations. To successfully transform, data must become the lifeblood of an organization, accelerating efforts to optimize operations, create innovative business opportunities and enable new customer touchpoints. This puts IT leaders under tremendous pressure to harness today’s wealth of data and leverage technology to create new value across the entire organization - all with limited time, resources and budget. Digital transformation requires IT transformation. This is no small undertaking. Organizations are innovating on their choice of clouds, building private clouds to gain speed and agility, and modernizing and simplifying IT to accelerate critical business applications - sometimes all at the same time.

NetApp helps customers move from building data centers to building data fabrics. A data fabric simplifies the integration and orchestration of data services across clouds and on-premises to accelerate digital transformation. It delivers consistent and integrated hybrid cloud data services for data visibility and insights, data access and control and data protection and security. Data fabric is an architecture and set of data services that provide consistent capabilities across a choice of endpoints spanning on-premises and multiple cloud environments. Only NetApp can deliver the full range of capabilities organizations need for their data fabrics: the power to discover resources, integrate disparate data services, automate operations, optimize, and protect and secure data everywhere.

For customers looking to transform with cloud, only NetApp offers data services across the world’s biggest clouds: Microsoft Azure, Amazon Web Services (AWS) and Google Cloud Platform. Customers can choose the cloud resources that are best for their workloads and reduce the complexities of managing data across multiple clouds and on premises.

For customers looking to grow by adding new capabilities, speed and agility to their current environment, NetApp provides leading private cloud capabilities. This enables customers to deliver new applications and services faster and run existing workloads more efficiently. Customers enjoy performance, at scale, on premises, all with a single experience that unifies on-premises and public cloud.

For customers looking to run their current application environment more efficiently, NetApp provides high-performing, cloud-integrated technologies and converged and hyper-converged infrastructures. This includes a highly differentiated portfolio of all-flash and hybrid array offerings. Customers get better results with simplicity, speed and automation across core, edge, and cloud.

Product, Solutions and Services Portfolio

NetApp helps organizations unleash the power of their data to meet business demands and gain a competitive edge. Our products, solutions, and services portfolio focus on customers’ top IT imperatives as they undertake digital transformations. NetApp’s unique approach to data services enables organizations to modernize and simplify IT, build private clouds for speed and agility, and fuel data-driven innovation on any cloud.

NetApp Keystone

During fiscal year 2020, NetApp introduced Keystone - our group of programs, offerings and services that simplify the business of hybrid cloud data services. It provides flexible cloud consumption models that make it easy to buy, easy to consume and easy to operate NetApp capabilities, whether it's on premises or in the public cloud. With Keystone companies can lessen the complexities associated with IT infrastructure and lifecycle management. Keystone gives IT buyers a clear, easy-to-understand path forward for managing IT, providing employees time to focus on more important business.

For IT organizations that want to take advantage of NetApp capabilities available on all the public clouds with cloud native, fully integrated and managed data and storage services paid for as a true utility, Keystone starts with NetApp cloud data services. For IT organizations that want cloud-like experiences in their own data center, NetApp Keystone subscription services offer a public cloud-like experience based on performance tier and storage service type – block, file, or object, available as customer-managed or NetApp-managed. For IT organizations that want to continue to buy capital infrastructure and capital equipment, Keystone offers a radically simplified experience. Our unique combination of efficiency, performance and availability guarantees helps IT organizations protect their storage investment. NetApp Active IQ AI-driven insights optimize the health of systems while predicting capacity and performance bottlenecks from an easy-to-use dashboard.

Cloud Data Services

NetApp Cloud Data Services is a portfolio of enterprise-class solutions that enable customers to fully control and manage storage systems in the cloud, consume high-performance storage services for primary workloads, and optimize cloud environments for cost and efficiency – available on all the biggest clouds.

NetApp delivers cloud storage as a software or service, enabling customers to choose whether to fully control and manage their own storage system in the cloud or simply choose their performance levels, service level agreements (SLAs) and service level objectives (SLOs). Customers benefit from the ability to migrate data to the cloud with ease, securely, and efficiently with built-in data transport features and services for existing NetApp or third-party storage and can choose where to deploy primary workloads, without having to re-architect the applications or databases. Products include: Cloud Volumes ONTAP, Azure NetApp Files, Cloud Volumes Service for Google Cloud, and Cloud Volumes Service for AWS.

NetApp cloud storage offers data management capabilities previously unavailable in public clouds, with services that deliver protection, orchestration, and optimization, as well as security and compliance.

NetApp Cloud Sync

Cloud Sync delivers simple, rapid, and continuous data migration and synchronization service for file systems with any cloud or on-premises target.

NetApp Cloud Tiering

NetApp’s Cloud Tiering service allows customers to retain on-premises, high-performance All Flash FAS (AFF) and FAS Solid-State Disk (SSD) storage and combine it with the benefits of cloud economics, leveraging the low costs of Azure Blob and Amazon S3 object storage.

NetApp Global File Cache

NetApp Global File Cache is a software-based solution that delivers fast and secure access to data for users by caching ‘active data’ sets to distributed offices globally.

NetApp SaaS Backup

SaaS Backup service is a complete software-as-a-service (SaaS) offering that enables organizations to protect Office 365 and Salesforce data against threats or accidental deletion with secure backup and restore.

NetApp Cloud Manager

Cloud Manager provides IT experts and cloud architects with a centralized control plane to manage, monitor and automate data in hybrid-cloud environments, providing an integrated experience of NetApp’s Cloud Data Services.

NetApp Fabric Orchestrator

NetApp Fabric Orchestrator discovers data, applications, and ser

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