Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read together with the financial statements and the accompanying notes set forth under Item 8. – Financial Statements and Supplementary Data. The following discussion also contains trend information and other forward-looking statements that involve a number of risks and uncertainties. The Risk Factors set forth in Item 1A. – Risk Factors are hereby incorporated into the discussion by reference.

Executive Overview

Our Company

NetApp is a global cloud-led, data-centric software company that give organizations the freedom to put data to work in the applications that elevate their business. We help our customers get the most out of their data with industry-leading cloud data services, storage systems, and software. Throughout our history, we have kept our focus on one thing – the data, continuously improving how data are managed, stored, analyzed, protected, and moved. Our strategy has been shaped around helping our customers embrace the full potential of new technologies – from the rise of the internet, to helping large enterprise customers in vertical markets, to bringing new systems to market. Today, we are focused on unlocking the best of cloud.

NetApp helps customers move from building data centers to building data fabrics that achieve business objectives. A data fabric simplifies the integration and orchestration of data services across clouds and on-premises to accelerate digital transformation. We help organizations to get the most out of their cloud experience – whether private, public, or hybrid – by enabling IT to discover, integrate, automate, optimize, protect, and secure data and applications. NetApp delivers the full range of capabilities organizations need for their data fabrics, enabling the business to deliver the right data and applications to the right place at the right time with the right capabilities to fuel innovation.

We bring the enterprise-grade data services our customers rely on into the cloud, and the simple flexibility of cloud into the data center. Our industry-leading solutions work across diverse environments and the world’s biggest clouds. NetApp can help a company wherever it is on its hybrid cloud journey.

We focus on delivering an exceptional customer experience to become our customers’ preferred data partner. NetApp’s unique approach to data enables organizations to create new customer experiences, seize every opportunity to innovate, and optimize operations for cost, scale, speed, and agility – all while thriving in a multi-cloud world.

We employ a multichannel distribution strategy, selling products and services to end users and service providers through a direct sales force and through channel partners, including value-added resellers, system integrators, original equipment manufacturers (OEMs) and distributors.

As our product portfolio evolves, market dynamics change, and management continues to assess our largest opportunities, we periodically change how we group product revenue. To provide improved visibility into the value created by our software innovation and R&D investment, beginning in fiscal 2021, we no longer group our products by “Strategic” and “Mature” solutions, but instead disclose the “Software” and “Hardware” components of our product revenues. The engineering DNA of NetApp and the value we provide to customers is grounded in software (particularly our ONTAP OS) and we will continue to look for opportunities to highlight and reinvest in this innovation engine. Software product revenue includes the OS software and optional add-on software solutions attached to our systems across our entire product set: All-Flash FAS, SolidFire, EF-series, Hybrid FAS, E-series, NetApp HCI, and StorageGrid. Hardware product revenues include the non-software component of our systems across our entire product set.

In addition to our products and solutions, we provide a variety of services to our customers, including software support, hardware support and other services including professional services, and customer education and training to help customers most effectively build their unique data fabrics and efficiently manage their data. Revenues generated by our Public Cloud Services (formerly referred to as Cloud Data Services) offerings, are included in software support revenues.

COVID-19

The novel coronavirus, or COVID-19, pandemic and efforts to control its spread have significantly curtailed the movement of people, goods and services worldwide, including in most or all of the regions in which we sell our products and services and conduct our business operations. We have taken precautionary measures intended to minimize the risk of the virus to our employees, our customers, and the communities in which we operate. Since March 2020, the vast majority of our employees have been working remotely and we have suspended business travel.

During fiscal 2021, due to macroeconomic uncertainty caused by COVID-19, we continued to observe certain customers delay purchases of our products and services, while other customers accelerated or placed new orders to address the demands of remote working and digital business. We also experienced certain logistical challenges in delivering our products and services to customers in

certain regions, and minor supply chain constraints. Given recent developments in the broader technology supply chain, we have begun to invest in inventory and certain longer-term commitments to help mitigate the risk of supply shortages.

We believe our existing balances of cash, cash equivalents and investments, cash generated from operations, and ability to access capital markets and committed lines of credit will be sufficient to satisfy our working capital needs, capital expenditures, dividends, stock repurchases, required debt repayments and other liquidity requirements associated with our operations.

The magnitude and duration of the disruption to our business, and impact to our operational and financial performance, caused by COVID-19 pandemic remain uncertain. Refer to Item 1A. – Risk Factors for the significant risks we have identified as a result of the COVID-19 pandemic.

Financial Results and Key Performance Metrics Overview

The following table provides an overview of key financial metrics for each of the last three fiscal years (in millions, except per share amounts and percentages):

		Year Ended
		April 30, 2021				April 24, 2020				April 26, 2019
Net revenues		$	5,744			$	5,412			$	6,146
Gross profit		$	3,815			$	3,623			$	3,945
Gross profit margin percentage			66	%			67	%			64	%
Income from operations		$	1,031			$	945			$	1,221
Income from operations as a percentage of net revenues			18	%			17	%			20	%
Provision for income taxes		$	232			$	125			$	99
Net income		$	730			$	819			$	1,169
Diluted net income per share		$	3.23			$	3.52			$	4.51
Net cash provided by operating activities		$	1,333			$	1,060			$	1,341

		April 30, 2021				April 24, 2020
Deferred revenue and financed unearned services revenue		$	4,003			$	3,698

	•	Net revenues: Our net revenues increased 6% in fiscal 2021 compared to fiscal 2020, primarily due to an increase in software support revenues.

	•	Gross profit margin percentage: Our gross profit margin as a percentage of net revenues decreased by approximately one percentage point in fiscal 2021 compared to fiscal 2020, primarily due to a reduction in gross profit margins on product revenues, partially offset by software support revenues representing a higher percentage of total revenues in fiscal 2021.

	•	Income from operations as a percentage of net revenues: Our income from operations as a percentage of net revenues increased by approximately one percentage point in fiscal 2021 compared to fiscal 2020, primarily due to the gain on sale of certain properties in fiscal 2021, partially offset by higher sales and marketing expense and the lower gross profit margin percentage.

	•	Provision for income taxes: Our provision for income taxes increased in fiscal 2021 compared to fiscal 2020 primarily as a result of discrete tax impacts in the prior year.

	•	Net income and Diluted income per share: The decrease in both net income and diluted net income per share in fiscal 2021 compared to fiscal 2020 reflect the factors discussed above. The impact of the lower net income in fiscal year 2021 on diluted net income per share was partially offset by a decrease in the number of weighted average dilutive shares outstanding primarily as a result of share repurchases.

	•	Operating cash flows: Operating cash flows increased by 26% in fiscal 2021 compared to fiscal 2020, primarily reflecting lower cash payments for incentive compensation.

	•	Deferred revenue and financed unearned services revenue: Total deferred revenue and financed unearned services revenue increased $305 million, or 8%, as of fiscal 2021 compared to fiscal 2020 primarily due to increases in the installed base and aggregate contract values under software and hardware support contracts, Public Cloud Services contracts, and the favorable impact of foreign exchange rate fluctuations.

Stock Repurchase Program and Dividend Activity

During fiscal 2021, we repurchased approximately 2 million shares of our common stock at an average price of $67.61 per share, for an aggregate purchase price of $125 million. We also declared aggregate cash dividends of $1.92 per share in fiscal 2021, for which we paid a total of $427 million.

Acquisitions

On April 28, 2020, we acquired all the outstanding shares of privately-held Cloud Jumper Corporation, a provider of virtual desktop infrastructure and remote desktop services solutions, for $34 million in cash.

On July 9, 2020, we acquired all the outstanding shares of privately-held Spot, Inc. (Spot) for $340 million in cash. Spot is a provider of compute management cost optimization services on the public clouds and is based in Israel.

Restructuring Events

In each of the first quarter and second quarter of fiscal 2021, we announced separate restructuring plans to reduce costs and redirect resources to our highest return activities, which included a reduction in our global workforce by less than 1% and approximately 5%, respectively, and incurred charges of approximately $5 million and $37 million, respectively, consisting primarily of employee severance costs. See Note 13 – Restructuring Charges for additional information.

Senior Notes Issuance and Redemption

In June 2020, we issued $750 million aggregate principal amount of 1.875% Senior Notes due 2025, $550 million aggregate principal amount of 2.375% Senior Notes due 2027 and $700 million aggregate principal amount of 2.70% Senior Notes due 2030, for which we received total proceeds of approximately $2.0 billion, net of discount and issuance costs. On July 27, 2020, we extinguished our 3.375% Senior Notes due June 2021 for an aggregate cash redemption price of $513 million, plus accrued and unpaid interest and fees.

Real Estate Transactions

In April 2021, we announced the sale of our corporate headquarters located in Sunnyvale, California, consisting primarily of land, buildings and improvements, for cash proceeds of $365 million. The assets sold had a net book value totaling $210 million. To facilitate an orderly transition to a new location, we executed short-term lease agreements with the buyer to lease back these properties. The agreed lease payments were below market rates and as a result we recognized an asset of $7 million for the difference between the fair value of the leases and the agreed lease payments. The cash proceeds, less direct selling costs, plus the fair value of the below-market leases resulted in a net gain on the sale of $156 million.

Contemporaneous with the sale, we executed a lease with a separate landlord for our new corporate headquarters located in San Jose, California, which is comprised of approximately three hundred thousand square feet of office space. The lease commenced in the first quarter of fiscal 2022 and requires future minimum undiscounted payments of approximately $180 million over the initial 11-year lease term. It also provides us two successive renewal options, each for five years.

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP), which require management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, net revenues and expenses, and the disclosure of contingent assets and liabilities. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances, including the ongoing COVID-19 pandemic, the results of which form the basis for making judgments about the carrying values of assets and liabilities. We believe that the accounting estimates employed and the resulting balances are reasonable; however, actual results may differ from these estimates and such differences may be material.

The summary of significant accounting policies is included in Note 1 – Description of Business and Significant Accounting Policies of the Notes to Consolidated Financial Statements. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably possible could materially impact the financial statements. The accounting policies described below reflect the significant judgments, estimates and assumptions used in the preparation of the consolidated financial statements.

Revenue Recognition

Our contracts with customers often include the transfer of multiple products and services to the customer. In determining the amount and timing of revenue recognition, we assess which products and services are distinct performance obligations and allocate the

transaction price, which may include fixed and/or variable amounts, among each performance obligation on a relative standalone selling price (SSP) basis. The following are the key estimates and assumptions and corresponding uncertainties included in this approach:

	Key Estimates and Assumptions			Key Uncertainties
•	We evaluate whether products and services promised in our contracts with customers are distinct performance obligations that should be accounted for separately versus together.		•	In certain contracts, the determination of our distinct performance obligations requires significant judgment. As our business and offerings to customers change over time, the products and services we determine to be distinct performance obligations may change. Such changes may adversely impact the amount of revenue and gross margin we report in a particular period.
•	In determining the transaction price of our contracts, we estimate variable consideration based on the expected value, primarily relying on our history. In certain situations, we may also use the most likely amount as the basis of our estimate.		•	We may have insufficient relevant historical data or other information to arrive at an accurate estimate of variable consideration using either the “expected value” or “most likely amount” method. Additionally, changes in business practices, such as those related to sales returns or marketing programs, may introduce new forms of variable consideration, as well as more complexity and uncertainty in the estimation process.
•	In contracts with multiple performance obligations, we establish SSPs based on the price at which products and services are sold separately. If SSPs are not observable through past transactions, we estimate them by maximizing the use of observable inputs including pricing strategy, market data, internally-approved pricing guidelines related to the performance obligations and other observable inputs.		•	As our business and offerings evolve over time, modifications to our pricing and discounting methodologies, changes in the scope and nature of product and service offerings and/or changes in customer segmentation may result in a lack of consistency, making it difficult to establish and/or maintain SSPs. Changes in SSPs could result in different and unanticipated allocations of revenue in contracts with multiple performance obligations. These factors, among others, may adversely impact the amount of revenue and gross margin we report in a particular period.

Inventory Valuation and Purchase Order Accruals

Inventories consist primarily of purchased components and finished goods and are stated at the lower of cost or net realizable value, which approximates actual cost on a first-in, first-out basis. A provision is recorded when inventory is determined to be in excess of anticipated demand or obsolete in order to adjust inventory to its estimated realizable value. The following are the key estimates and assumptions and corresponding uncertainties for estimating the value of our inventories:

	Key Estimates and Assumptions			Key Uncertainties
•	We periodically perform an excess and obsolete analysis of our inventory. Inventories are written down based on excess and obsolete reserves determined primarily on assumptions about future demand forecasts and market conditions. At the point of the loss recognition, a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.		•	Although we use our best estimates to forecast future product demand, any significant unanticipated changes in demand, which could be exacerbated by the effects of the COVID-19 pandemic, or obsolescence related to technological developments, new product introductions, customer requirements, competition or other factors could have a significant impact on the valuation of our inventory. If actual market conditions are less favorable than those projected, additional write-downs and other charges against earnings that adversely impact gross margins may be required. If actual market conditions are more favorable, we may realize higher gross profits in the period when the written-down inventory is sold. We are subject to a variety of environmental laws relating to the manufacture of our products. If there are changes to the current regulations, we may be required to make product design changes which may result in excess or obsolete inventory, which could adversely impact our operating results.

•	We make commitments to our third-party contract manufacturers and other suppliers to manage lead times and meet product forecasts and to other parties to purchase various key components used in the manufacture of our products. We establish accruals for estimated losses on non-cancelable purchase commitments when we believe it is probable that the components will not be utilized in future operations.		•	If the actual materials demand is significantly lower than our forecast, we may be required to increase our recorded liabilities for estimated losses on non-cancelable purchase commitments, including incremental commitments made in response to recent developments in the broader technology supply chain, which would adversely impact our operating results.

Goodwill and Purchased Intangible Assets

We allocate the purchase price of acquisitions to identifiable assets acquired and liabilities assumed at their acquisition date fair values based on established valuation techniques. Goodwill represents the residual value as of the acquisition date, which in most cases is measured as the excess of the purchase consideration transferred over the net of the acquisition date fair values of the assets acquired and liabilities assumed.

The carrying values of purchased intangible assets are reviewed whenever events and circumstances indicate that the net book value of an asset may not be recovered through expected future cash flows from its use and eventual disposition. We periodically review the estimated remaining useful lives of our intangible assets. This review may result in impairment charges or shortened useful lives, resulting in charges to our consolidated statements of income.

We review goodwill for impairment annually and whenever events or changes in circumstances indicate the carrying amount of our reporting unit may exceed its fair value. The provisions of the accounting standard for goodwill allow us to first assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. For our annual goodwill impairment test in the fourth quarter of fiscal 2021, we performed a quantitative test and determined the fair value of our reporting unit substantially exceeded its carrying amount, therefore, found no impairment of goodwill. To date, the impacts of the COVID-19 pandemic have not significantly adversely affected the fair value of our reporting unit.

The following are the key estimates and assumptions and corresponding uncertainties for estimating the value of our goodwill and purchased intangible assets:

	Key Estimates and Assumptions			Key Uncertainties
•	The assessment of fair value for goodwill and purchased intangible assets is based on factors that market participants would use in an orderly transaction in accordance with the accounting guidance for the fair value measurement of nonfinancial assets. The valuation of purchased intangible assets is principally based on estimates of the future performance and cash flows expected to be generated by the acquired assets from the acquired business.		•	While we employ experts to determine the acquisition date fair value of acquired intangibles, the fair values of assets acquired and liabilities assumed are based on significant management assumptions and estimates, which are inherently uncertain and highly subjective and as a result, actual results may differ from estimates. If different assumptions were to be used, it could materially impact the purchase price allocation. Volatile macroeconomic and market conditions caused by the COVID-19 pandemic have increased the level of uncertainty and subjectivity of certain management assumptions and estimates.
•	Evaluations of possible goodwill and purchased intangible asset impairment require us to make judgments and assumptions related to the allocation of our balance sheet and income statement amounts and estimate future cash flows and fair market values of our reporting unit and assets.		•	In response to changes in industry and market conditions, we could be required to strategically realign our resources and consider restructuring, disposing of, or otherwise exiting businesses, which could result in an impairment of goodwill or purchased intangible assets. Assumptions and estimates about expected future cash flows and the fair values of our reporting unit and purchased intangible assets are complex and subjective. They can be affected by a variety of factors, including external factors such as the adverse impact of unanticipated changes in macroeconomic conditions, such as those related to the COVID-19 pandemic, and technological changes or new product introductions from competitors. They can also be affected by internal factors such as changes in business strategy or in forecasted product life cycles and roadmaps. Our ongoing consideration of these and other factors could result in future impairment charges or accelerated amortization expense, which could adversely affect our operating results.

Valuation of Investment Securities

Our investments in debt securities are reported at fair value and are subject to periodic impairment review. Unrealized gains and losses related to changes in the fair value of these securities are recognized in accumulated other comprehensive income, net of tax, unless they are determined to be other-than-temporary impairments. The ultimate value realized on these securities is subject to market price volatility until they are sold.

The following are the key estimates and assumptions and corresponding uncertainties for the valuation of our investment securities:

	Key Estimates and Assumptions			Key Uncertainties
•	The estimated fair value of our debt securities, and the associated accounting for unrealized losses is based on an evaluation of current economic and market conditions, the credit rating of the security’s issuer, the length of time and extent the security’s fair value has been below its amortized cost and our ability and intent to hold the security for a period of time sufficient to allow for anticipated recovery in value. If we determine that an investment has an other-than-temporary decline in fair value, we recognize the investment loss in earnings.		•	The fair value of our investments in debt securities could decrease significantly from uncertainties in the credit and capital markets, credit rating downgrades and/or solvency of the issuer or decreases in the marketability of the securities, with the ongoing COVID-19 pandemic contributing to these uncertainties. If the fair value of our investments decreases significantly and, if because of changes in our ability and intent to continue to hold the securities or other factors, it is determined to be other-than-temporary, we may incur impairment charges that could adversely affect our results of operations.

Income Taxes

We are subject to income taxes in the United States and numerous foreign jurisdictions. We compute our provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets or liabilities are expected to be realized or settled. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

The following are the key estimates and assumptions and corresponding uncertainties for our income taxes:

	Key Estimates and Assumptions			Key Uncertainties
•	Our income tax provision is based on existing tax law and advanced pricing agreements or letter rulings we have with various tax authorities.		•	Our provision for income taxes is subject to volatility and could be adversely impacted by future changes in existing tax laws, such as a change in tax rate, possible U.S. changes to the taxation of earnings of our foreign subsidiaries, and uncertainties as to future renewals of favorable tax agreements and rulings.
•	The determination of whether we should record or adjust a valuation allowance against our deferred tax assets is based on assumptions regarding our future profitability.		•	Our future profits could differ from current expectations resulting in a change to our determination as to the amount of deferred tax assets that are more likely than not to be realized. We could adjust our valuation allowance with a corresponding impact to the tax provision in the period in which such determination is made.
•	The estimates for our uncertain tax positions are based primarily on company specific circumstances, applicable tax laws, tax opinions from outside firms and past results from examinations of our income tax returns.		•	Significant judgment is required in evaluating our uncertain tax positions. Although we believe our reserves are reasonable, no assurance can be given that the final tax outcome or tax court rulings of these matters will not be different from that which is reflected in our historical tax provisions and accruals.

New Accounting Standards

See Note 1 – Description of Business and Significant Accounting Policies for the impact to our financial statements of the adoption of the accounting standard update on the measurement of credit losses on financial instruments in the first quarter of fiscal 2021.

See Note 2 – Recent Accounting Standards Not Yet Effective of the Notes to Consolidated Financial Statements for a full description of new accounting pronouncements, including the respective expected dates of adoption and effects on our financial statements.

Results of Operations

Our fiscal year is reported on a 52- or 53-week year that ends 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 2021, ending on April 30, 2021 is a 53-week year, with 14 weeks included in its first quarter and 13 weeks in each subsequent quarter. Fiscal year 2020, which ended on April 24, 2020, and fiscal year 2019, which ended on April 26, 2019 were both 52-week years. Unless otherwise stated, references to particular years, quarters, months and periods refer to our fiscal years ended in April and the associated quarters, months and periods of those fiscal years.

The following table sets forth certain Consolidated Statements of Income data as a percentage of net revenues for the periods indicated:

		Fiscal Year
		2021				2020				2019
Revenues:
Product			52		%		55		%		61		%
Software support			22				19				15
Hardware support and other services			26				26				24
Net revenues			100				100				100
Cost of revenues:
Cost of product			25				25				29
Cost of software support			2				1				1
Cost of hardware support and other services			7				7				7
Gross profit			66				67				64
Operating expenses:
Sales and marketing			30				29				27
Research and development			15				16				13
General and administrative			4				5				5
Restructuring charges			1				—				1
Acquisition-related expense			—				—				—
Gain on sale or derecognition of assets			(3	)			(1	)			(1	)
Total operating expenses			48				49				44
Income from operations			18				17				20
Other (expense) income, net			(1	)			—				1
Income before income taxes			17				17				21
Provision for income taxes			4				2				2
Net income			13		%		15		%		19		%

Percentages may not add due to rounding

Discussion and Analysis of Results of Operations

Net Revenues (in millions, except percentages):

			Fiscal Year
			2021				2020				% Change				2019				% Change
Net revenues			$	5,744			$	5,412				6	%		$	6,146				(12	)%

The increase in net revenues for fiscal 2021 compared to fiscal 2020 was primarily due to an increase in hardware and software support revenues, which benefited from an additional week in the first quarter of fiscal 2021, while product revenues were relatively flat. Product revenues as a percentage of net revenues decreased by approximately three percentage points compared to fiscal 2020. Fluctuations in foreign currency exchange rates benefited net revenues by approximately one percentage point for fiscal 2021 compared to fiscal 2020.

The decrease in net revenues for fiscal 2020 compared to fiscal 2019 was primarily due to a decrease in product revenues. Product revenues as a percent of net revenues decreased six percentage points in fiscal 2020 compared to fiscal 2019.

Sales through our indirect channels represented 77%, 79% and 76% of net revenues in fiscal 2021, 2020 and 2019, respectively.

The following customers, each of which is a distributor, accounted for 10% or more of net revenues:

		Fiscal Year
		2021				2020				2019
Arrow Electronics, Inc.			24	%			25	%			24	%
Tech Data Corporation			20	%			21	%			20	%

Product Revenues (in millions, except percentages):

			Fiscal Year
			2021				2020				% Change				2019				% Change
Product revenues			$	2,991			$	2,995				—	%		$	3,755				(20	)%

Product revenues are derived through the sale of our data solutions and consist of sales of configured all-flash array and hybrid systems, which are bundled hardware and software products, as well as add-on flash, disk and/or hybrid storage and related OS, NetApp HCI, StorageGrid, OEM products and add-on optional software.

Total product revenues were relatively flat in fiscal 2021 compared to fiscal 2020, suffering from less favorable macroeconomic conditions through most of the current year, in part due to the economic uncertainty caused by the COVID-19 pandemic, but then improving in the last quarter of the year. Sales of all-flash array systems increased in the current year, though this increase was offset by a decline in sales of our other products. Fluctuations in foreign currency exchange rates benefited product revenues by approximately one percentage point for fiscal 2021 compared to fiscal 2020.

Total product revenues declined in fiscal 2020 compared to fiscal 2019 primarily due to less favorable macroeconomic conditions, lower enterprise IT spending throughout fiscal 2020 and go-to-market execution issues experienced in the first quarter of fiscal 2020 with some of our largest global customer accounts. Additionally, in the fourth quarter of fiscal 2020, increasing macroeconomic uncertainty caused by the COVID-19 pandemic contributed to demand weakness, while associated logistical challenges led to delays in deliveries of products and services to certain customers.

As discussed in the Overview section, beginning in fiscal 2021, we disclose the software and hardware components of our product revenues. Because our revenue recognition policy under generally accepted accounting principles in the United States of America (GAAP) defines a configured storage system, inclusive of the operating system software essential to its functionality, as a single performance obligation, the hardware and software components of our product revenues are considered non-GAAP measures. The hardware and software components of our product revenues are derived from an estimated fair value allocation of the transaction price of our contracts with customers, down to the level of the product hardware and software components. This allocation is primarily based on the contractual prices at which NetApp has historically billed customers for such respective components. We believe that the presentation of the software and hardware components of our product revenues is meaningful to investors and management as it illustrates the significance of the Company’s software and provides improved visibility into the value created by our software innovation and R&D investment.

Revenues from the hardware component of product revenues totaled $1,355 million, representing 45% of product revenues, in fiscal 2021, compared to $1,541 million, representing 51% of product revenues, in fiscal 2020, compared to $1,935 million, representing 52% of product revenues, in fiscal 2019. The software component of product revenues totaled $1,636 million, representing 55% of product revenues, in fiscal 2021, compared to $1,454 million, representing 49% of product revenues, in fiscal 2020, compared to $1,820 million, representing 48% of product revenues, in fiscal 2019. The increase in the software component percentage of product revenues in fiscal 2021 is primarily due to a higher mix of all-flash array systems revenues, which contain a higher proportion of software components than other products.

Software Support Revenues (in millions, except percentages):

			Fiscal Year
			2021				2020				% Change				2019				% Change
Software support revenues			$	1,281			$	1,034				24	%		$	946				9	%

Software support revenues are associated with contracts which entitle customers to receive unspecified product upgrades and enhancements on a when-and-if-available basis, bug fixes and patch releases, as well as internet and telephone access to technical support personnel located in our global support centers.

The growth in software support revenues reflects higher Public Cloud Services revenue and the higher aggregate contract value of the installed base under software support contracts, which is recognized as revenue ratably over the terms of the underlying contracts.

Software support for fiscal 2021 benefitted from the continued growth in all-flash array product sales, as all-flash systems carry a higher support dollar content than our other products. Software support revenues were also favorably impacted by the additional week of deferred revenue amortization in the first quarter of fiscal 2021, which contributed approximately $20 million of additional revenues.

Hardware Support and Other Services Revenues (in millions, except percentages):

			Fiscal Year
			2021				2020				% Change				2019				% Change
Hardware support and other services revenues			$	1,472			$	1,383				6	%		$	1,445				(4	)%

Hardware support and other services revenues include hardware support, professional services and educational and training services revenues.

Hardware support contract revenues were $1,195 million, $1,142 million and $1,182 million in fiscal 2021, 2020 and 2019, respectively. The increase in fiscal 2021 is primarily due to the additional week in the first quarter of fiscal 2021, which contributed approximately $20 million of additional revenues, and an increase in our installed base. The decrease in fiscal 2020 was primarily attributable to a decline in average selling price on contracts executed during the year.

Professional services and educational and training services revenues were $277 million, $241 million and $263 million in fiscal 2021, 2020 and 2019, respectively.

Revenues by Geographic Area:

		Fiscal Year
		2021				2020				2019
United States, Canada and Latin America (Americas)			54	%			53	%			56	%
Europe, Middle East and Africa (EMEA)			31	%			32	%			30	%
Asia Pacific (APAC)			15	%			15	%			14	%

Percentages may not add due to rounding

Americas revenues consist of sales to Americas commercial and United States (U.S.) public sector markets. Demand across geographies was relatively consistent in fiscal 2021 compared to fiscal 2020. During fiscal 2020, Americas revenues were negatively impacted by general macroeconomic conditions in the region and go-to-market execution issues with some of our largest customer accounts in the first quarter of fiscal 2020, which was reflected in the geographic distribution of revenues as a percentage of net revenues in fiscal 2020 compared to fiscal 2019.

Cost of Revenues

Our cost of revenues consists of three elements: (1) cost of product revenues, which includes the costs of manufacturing and shipping our storage products, amortization of purchased intangible assets, inventory write-downs, and warranty costs, (2) cost of software support, which includes the costs of providing software support and third-party royalty costs and (3) cost of hardware support and other services revenues, which includes costs associated with providing support activities for hardware support, global support partnership programs, professional services and educational and training services.

Cost of Product Revenues (in millions, except percentages):

			Fiscal Year
			2021				2020				% Change				2019				% Change
Cost of product revenues			$	1,432			$	1,368				5	%		$	1,752				(22	)%

The changes in cost of product revenues consisted of the following (in percentage points of the total change):

		Fiscal 2021 to Fiscal 2020				Fiscal 2020 to Fiscal 2019
Materials costs			7				(22	)
Excess and obsolete inventory			(1	)			—
Warranty			(1	)			—
Total change			5				(22	)

Cost of product revenues represented 48%, 46% and 47% of product revenues for fiscal 2021, 2020 and 2019, respectively. Materials cost represented 89%, 86% and 90% of product costs for fiscal 2021, 2020 and 2019, respectively.

Total materials costs increased by approximately $96 million in fiscal 2021 compared to fiscal 2020. The trend in product mix toward all-flash array systems, which have higher margins, but carry higher materials costs, than hybrid systems, was the primary driver of these increases. Excess and obsolete inventory reserves and warranty expenses were lower in fiscal 2021 compared to fiscal 2020.

Product gross margins in fiscal 2021 decreased by two percentage points compared to fiscal 2020 primarily due to a decrease in the average selling prices of most of our products, partially offset by a higher mix of all-flash array product sales.

Materials costs decreased $393 million in fiscal 2020 compared to fiscal 2019, primarily due to a decline in product revenue and, to a lesser extent, a decline in the price of certain product components.

Product gross margins in fiscal 2020 increased one percentage point compared to fiscal 2019, primarily due to a higher mix of all-flash array product sales in fiscal 2020, partially offset by a decrease in high-margin revenue recognized from the software license component of several enterprise license agreements.

Cost of Software Support Revenues (in millions, except percentages):

			Fiscal Year
			2021				2020				% Change				2019				% Change
Cost of software support revenues			$	95			$	48				98	%		$	35				37	%

Cost of software support revenues increased in fiscal 2021 compared to fiscal 2020, reflecting the increase in Public Cloud Services revenue and an increase in amortization expense for acquired developed technology. Cost of software support revenues increased in fiscal 2020 compared to fiscal 2019, in line with the increase in software support revenues. Cost of software support revenues represented 7%, 5% and 4% of software support revenues for fiscal 2021, 2020 and 2019, respectively.

Cost of Hardware Support and Other Services Revenues (in millions, except percentages):

			Fiscal Year
			2021				2020				% Change				2019				% Change
Cost of hardware support and other services revenues			$	402			$	373				8	%		$	414				(10	)%

Cost of hardware support and other services revenues increased in fiscal 2021 compared to fiscal 2020, in line with the increase in hardware support and other services revenues. Cost of hardware support and other services revenues decreased in fiscal 2020 compared to fiscal 2019, primarily due to the favorable impact of cost savings initiatives, and the decrease in hardware support and other services revenues. Costs represented 27%, 27% and 29% of hardware support and other services revenues for fiscal 2021, 2020 and 2019, respectively.

Operating Expenses

Sales and Marketing, Research and Development and General and Administrative Expenses

Sales and marketing, research and development, and general and administrative expenses for fiscal 2021 totaled $2,882 million, or 50% of net revenues, remaining relatively flat in percentage points as compared to fiscal 2020. Sales and marketing, research and development, and general and administrative expenses for fiscal 2020 totaled $2,695 million, or 50% of net revenues, representing an increase of five percentage points compared to fiscal 2019, primarily due to lower net revenues in fiscal 2020.

Compensation costs represent the largest component of operating expenses. Included in compensation costs are salaries, benefits, other compensation-related costs, stock-based compensation expense and employee incentive compensation plan costs.

Total compensation costs included in operating expenses increased by $225 million, or 15% during fiscal 2021 compared to fiscal 2020, primarily reflecting higher incentive compensation expense, a 3% increase in average headcount and the impact of one additional week in the first quarter of fiscal 2021.

Total compensation costs included in operating expenses decreased $22 million, or 1% during fiscal 2020 compared to fiscal 2019, primarily due to lower incentive compensation expenses, partially offset by higher salaries, reflecting a 3% increase in average headcount.

Sales and Marketing (in millions, except percentages):

			Fiscal Year
			2021				2020				% Change				2019				% Change
Sales and marketing expenses			$	1,744			$	1,585				10	%		$	1,657				(4	)%

Sales and marketing expenses consist primarily of compensation costs, commissions, outside services, facilities and IT support costs, advertising and marketing promotional expense and travel and entertainment expense. The changes in sales and marketing expenses consisted of the following (in percentage points of the total change):

		Fiscal 2021 to Fiscal 2020				Fiscal 2020 to Fiscal 2019
Compensation costs			9				(1	)
Commissions			3				(2	)
Advertising and marketing promotional expense			1				—
Travel and entertainment			(4	)			—
Other			1				(1	)
Total change			10				(4	)

The increase in compensation costs in fiscal 2021 compared to fiscal 2020 reflected an increase in average headcount of 7%, with this expansion of our sales and marketing teams supporting our ability to execute on key market opportunities. Compensation costs for fiscal 2021 also reflected the impact of one additional week in the first quarter.

The increase in commissions expense for fiscal 2021 is primarily due to higher performance against sales goals than in fiscal 2020. Advertising and marketing promotional expense increased in fiscal 2021 compared to fiscal 2020, primarily due to higher spending levels on certain projects. Travel and entertainment spend decreased significantly due to the ongoing COVID-19 pandemic.

The decrease in compensation costs in fiscal 2020 compared to fiscal 2019 reflects a slight reduction in average headcount, while the decrease in commissions expense was primarily due to lower performance against sales goals. We incurred $3 million of non-recurring expenses in fiscal 2020, primarily due to the cancellation of a major sales event, as a direct result of the COVID-19 pandemic.

Research and Development (in millions, except percentages):

			Fiscal Year
			2021				2020				% Change				2019				% Change
Research and development expenses			$	881			$	847				4	%		$	827				2	%

Research and development expenses consist primarily of compensation costs, facilities and IT support costs, depreciation, equipment and software related costs, prototypes, non-recurring engineering charges and other outside services costs. Changes in research and development expense consisted of the following (in percentage points of the total change):

		Fiscal 2021 to Fiscal 2020				Fiscal 2020 to Fiscal 2019
Compensation costs			7				2
Development projects and outside services			(1	)			—
Facilities and IT support costs			(1	)			—
Travel and entertainment			(1	)			—
Total change			4				2

The increase in compensation costs during fiscal 2021 compared to fiscal 2020 was primarily due to higher incentive compensation expense, while average headcount was relatively consistent in each period. Compensation costs for fiscal 2021 also reflected the impact of one additional week in the first quarter. The decrease in development projects and outside services was primarily due to the lower spending on certain engineering projects. The decrease in facilities and IT support costs was primarily due to cost containment efforts, and lower travel and entertainment expense was due to the impact of the ongoing COVID-19 pandemic.

The increase in compensation costs during fiscal 2020 compared to fiscal 2019 was attributable to an increase in average headcount of 8%, resulting in higher salaries and benefits expense. This increase was partially offset by lower incentive compensation plan expense. The average headcount increase in fiscal 2020 reflected our investment in additional engineering resources to support the expansion and enhancement of products and solutions targeted at our most important customer and market opportunities.

General and Administrative (in millions, except percentages):

			Fiscal Year
			2021				2020				% Change				2019				% Change
General and administrative expenses			$	257			$	263				(2	)%		$	278				(5	)%

General and administrative expenses consist primarily of compensation costs, professional and corporate legal fees, outside services and facilities and IT support costs. Changes in general and administrative expense consisted of the following (in percentage points of total change):

		Fiscal 2021 to Fiscal 2020				Fiscal 2020 to Fiscal 2019
Compensation costs			9				(7	)
Professional and legal fees and outside services			(14	)			5
Litigation settlement			2				—
Facilities and IT support costs			1				(3	)
Total change			(2	)			(5	)

The increase in compensation costs in fiscal 2021 compared to fiscal 2020 was primarily due to higher incentive compensation expense, while average headcount was relatively consistent in each period. The decrease in professional and legal fees and outside services expense in fiscal 2021 was primarily due to lower spending on business transformation projects in the current year. The increase in facilities and IT support costs was primarily due to higher spending levels on IT projects. During the second quarter of fiscal 2021, we incurred a litigation settlement charge of approximately $5 million that was included in general and administrative expenses in our consolidated statements of income.

The decrease in compensation costs in fiscal 2020 compared to fiscal 2019 was primarily attributable to lower incentive compensation plan expense and lower stock-based compensation expense. While average headcount increased in fiscal 2020 compared to fiscal 2019, salaries and benefits expense remained relatively flat as a greater percentage of employees were located in lower cost geographies. The increase in professional and legal fees and outside services expense in fiscal 2020 compared to fiscal 2019 was due to higher spending levels on projects and outside services. The decrease in facilities and IT support costs in fiscal 2020 compared to fiscal 2019 was primarily due to lower spending levels on IT projects.

Restructuring Charges (in millions, except percentages):

			Fiscal Year
			2021				2020				% Change				2019				% Change
Restructuring charges			$	42			$	21				100	%		$	35				(40	)%

In an effort to reduce our cost structure and redirect resources to our highest return activities, in fiscal years 2021, 2020 and 2019, we initiated a number of business realignment plans designed to streamline our business and focus on key strategic opportunities, resulting in aggregate reductions of our global workforce of approximately 6% in fiscal 2021, 2% in fiscal 2020 and less than 3% in fiscal 2019, for which we recognized aggregate charges of $42 million, $21 million and $35 million, respectively, consisting primarily of employee severance costs. See Note 13 – Restructuring Charges of the Notes to Consolidated Financial Statements for more details regarding our restructuring plans.

Acquisition-related Expense (in millions, except percentages)

			Fiscal Year
			2021				2020				% Change		2019				% Change
Acquisition-related expense			$	16			$	—			NM		$	—			NM

During fiscal 2021, we incurred $16 million of acquisition-related costs, primarily legal and consulting fees associated with our acquisition and subsequent integration of Spot Inc.

Gain on Sale or Derecognition of Assets (in millions, except percentages):

			Fiscal Year
			2021				2020				% Change				2019				% Change
Gain on sale or derecognition of assets			$	(156	)		$	(38	)			311	%		$	(73	)			(48	)%

In April 2021, we sold certain land and buildings located in Sunnyvale, California with an aggregate net book value of $210 million and received cash proceeds of $365 million, resulting in a gain, net of direct selling cost, and adjusted for below-market rent, of $156 million.

In September 2017, we entered into an agreement to sell certain land and buildings located in Sunnyvale, California, through two separate and independent closings, the first of which was completed in fiscal 2018. On August 29, 2019, the second closing occurred and we consummated the sale of the land, with a net book value of $53 million, and received cash proceeds of $96 million, resulting in a gain, net of direct selling costs, of $38 million.

In February 2019, we contributed cash and other assets with a total book value of $7 million to a newly formed joint venture with Lenovo in exchange for a non-controlling 49% equity interest in the new entity, Lenovo NetApp Technology Limited (“LNTL”). The value of our equity interest was $80 million, resulting in a gain of $73 million in fiscal 2019.

Other (Expense) Income, Net (in millions, except percentages)

The components of other (expense) income, net were as follows:

			Fiscal Year
			2021				2020				% Change				2019				% Change
Interest income			$	9			$	48				(81	)%		$	88				(45	)%
Interest expense				(74	)			(55	)			35	%			(58	)			(5	)%
Other (expense) income, net				(4	)			6				(167	)%			17				(65	)%
Total			$	(69	)		$	(1	)		NM				$	47			NM

NM - Not Meaningful

Interest income decreased during fiscal 2021 compared to fiscal 2020 due to both a reduction in the size of our investment portfolio and lower yields earned on the investments. Interest income decreased during fiscal 2020 compared to fiscal 2019, primarily due to a reduction in the size of our investment portfolio as a result of our sale of approximately $1.0 billion of available-for-sale debt securities in the first quarter of fiscal 2020 and net maturities over the remainder of the year.

Interest expense increased during fiscal 2021 compared to fiscal 2020, as we issued Senior Notes in aggregate principal amount of $2.0 billion in the first quarter of fiscal 2021. The impact from the issuance of these Senior Notes was partially offset by the extinguishment of our Senior Notes due June 2021 in the first quarter of fiscal 2021, and a lower average outstanding commercial paper balance during fiscal 2021. Interest expense remained relatively flat in fiscal 2020 compared to fiscal 2019 as we repaid our maturing Senior Notes, but increased our average outstanding commercial paper balance.

In fiscal 2021, other (expense) income, net includes a $6 million gain recognized on our sale of a minority equity interest in a privately held company for proceeds of approximately $8 million. This benefit was more than offset by a $14 million loss recognized from the extinguishment of our Senior Notes due June 2021 in the first quarter of fiscal 2021.

Other (expense) income, net decreased during fiscal 2020 compared to fiscal 2019, primarily due to a $10 million impairment of our equity method investment in LNTL and the net unfavorable impact of foreign exchange rate fluctuations in fiscal 2020, partially offset by a $14 million gain we realized from the sale of approximately $1.0 billion of available-for-sale debt securities.

Provision for Income Taxes (in millions, except percentages):

			Fiscal Year
			2021				2020				% Change				2019				% Change
Provision for income taxes			$	232			$	125				86	%		$	99				26	%

Our effective tax rate for fiscal 2021 was 24.1% compared to an effective tax rate of 13.2% for fiscal 2020. Our effective tax rate for fiscal 2021 was higher than the prior year primarily due to the impact of taxes resulting from the integration of acquired companies

and a shift in jurisdictional mix of income resulting in a lower foreign rate differential. Additionally, the fiscal 2020 tax provision included a benefit of $61 million related to the lapse of statute of limitations compared to a benefit of $6 million recognized in fiscal 2021. Our effective tax rate for fiscal 2019 of 7.8% was lower than fiscal 2020 as it included larger benefits related to foreign profits taxed at effective rates lower than the U.S. federal statutory rates as well as larger benefits related to stock-based compensation.

Liquidity, Capital Resources and Cash Requirements

(In millions, except percentages)		April 30, 2021				April 24, 2020
Cash, cash equivalents and short-term investments		$	4,596			$	2,882
Principal amount of debt		$	2,650			$	1,673

The following is a summary of our cash flow activities:

		Fiscal Year
(In millions)		2021				2020
Net cash provided by operating activities		$	1,333			$	1,060
Net cash provided by investing activities			21				1,269
Net cash provided by (used in) financing activities			444				(1,960	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash			71				(34	)
Net increase in cash, cash equivalents and restricted cash		$	1,869			$	335

As of April 30, 2021, our cash, cash equivalents and short-term investments totaled $4.6 billion, reflecting an increase of $1.7 billion from April 24, 2020. The increase was primarily due to $2.0 billion of net proceeds from the issuance of Senior Notes, $1.3 billion of cash provided by operating activities and $365 million proceeds from the sale of properties in Sunnyvale, California, partially offset by $513 million used for the extinguishment of our Senior Notes due June 2021, $420 million used for the net repayment of commercial paper notes with original maturities of three months or less, $350 million used for the acquisitions of two privately-held companies, $427 million used for the payment of dividends, $162 million in purchases of property and equipment and $125 million used to repurchase shares of our common stock. Working capital increased by $1.9 billion to $2.5 billion as of April 30, 2021 compared to April 24, 2020 primarily due to the increases in cash, cash equivalents and short-term investments discussed above.

Cash Flows from Operating Activities

During fiscal 2021, we generated cash from operating activities of $1.3 billion, reflecting net income of $730 million, adjusted by adding non-cash depreciation and amortization expense of $207 million and non-cash stock-based compensation expense of $197 million and subtracting the gain on sale or derecognition of assets of $156 million.

Significant changes in assets and liabilities during fiscal 2021 included the following:

	•	Deferred revenue and financed unearned services revenue increased $193 million, primarily due to an increase in deferred software and hardware support contracts associated with a growing installed base as well as growth in Public Cloud Services.

	•	Accrued expenses increased $134 million, primarily due to higher accruals for incentive compensation plans.

During fiscal 2020, we generated cash from operating activities of $1.1 billion, reflecting net income of $819 million, adjusted by adding non-cash depreciation and amortization expense of $193 million and non-cash stock-based compensation expense of $153 million and subtracting the gain on derecognition of assets of $38 million.

Significant changes in assets and liabilities during fiscal 2020 included the following:

	•	Accounts receivable decreased $238 million, reflecting more favorable shipping linearity and lower billings.

	•	Accounts payable decreased $117 million, reflecting the timing of payments to our suppliers*.*

	•	Accrued expenses decreased $177 million, primarily due to employee compensation payouts related to fiscal 2019 commissions and incentive compensation plans that exceeded fiscal 2020 accruals.

	•	Long-term taxes payable decreased $163 million, primarily due to resolution of income tax matters and transition taxes associated with U.S. tax reform.

We expect that cash provided by operating activities may materially fluctuate in future periods due to a number of factors, including fluctuations in our operating results, shipment linearity, accounts receivable collections performance, inventory and supply chain management, vendor payment initiatives, tax benefits or charges from stock-based compensation, and the timing and amount of compensation and other payments.

Cash Flows from Investing Activities

During fiscal 2021, we generated $365 million from the sale of properties located in Sunnyvale, California and $160 million from maturities and sales of investments in available-for-sale debt securities, net of purchases. We paid $350 million to acquire two privately-held companies and $162 million for capital expenditures.

During fiscal 2020, we generated $1.4 billion from maturities and sales of investments in available-for-sale debt securities, net of purchases and paid $124 million for capital expenditures. Additionally, we received $96 million for the sale of land in Sunnyvale, California and paid $73 million to acquire two privately-held companies.

Cash Flows from Financing Activities

During fiscal 2021, we received $2.0 billion from the issuance of Senior Notes, which was partially offset by the use of $513 million for the extinguishment of our Senior Notes due June 2021, $420 million for the net repayment of commercial paper notes with original maturities of three months or less, $427 million for the payment of dividends, and $125 million for the repurchase of two million shares of our common stock.

During fiscal 2020, we used $1.4 billion for the purchase of 25 million shares of our common stock, $439 million for the payment of dividends and $400 million for the repayment of our Senior Notes due September 2019. These purchases and payments were partially offset by $273 million in proceeds from the issuance of commercial paper notes, net and $102 million in proceeds from the issuance of common stock under employee common stock award plans.

Key factors that could affect our cash flows include changes in our revenue mix and profitability, our ability to effectively manage our working capital, in particular, accounts receivable, accounts payable and inventories, the timing and amount of stock repurchases and payment of cash dividends, the impact of foreign exchange rate changes, our ability to effectively integrate acquired products, businesses and technologies, and the timing of repayments of our debt. Based on past performance and our current business outlook, we believe that our sources of liquidity, including cash generated from operations, and our ability to access capital markets and committed credit lines will satisfy our working capital needs, capital expenditures, investment requirements, stock repurchases, cash dividends, contractual obligations, commitments, principal and interest payments on our debt and other liquidity requirements associated with operations and meet our cash requirements for at least the next 12 months. However, in the event our liquidity is insufficient, we may be required to curtail spending and implement additional cost saving measures and restructuring actions or enter into new financing arrangements. We cannot be certain that we will continue to generate cash flows at or above current levels or that we will be able to obtain additional financing, if necessary, on satisfactory terms, if at all. For further discussion of factors that could affect our cash flows and liquidity requirements, including the impact of the COVID-19 pandemic, see Item 1A. Risk Factors.

Liquidity

Our principal sources of liquidity as of April 30, 2021 consisted of cash, cash equivalents and short-term investments, cash we expect to generate from operations, and our commercial paper program and related credit facility.

Cash, cash equivalents and short-term investments consisted of the following (in millions):

		April 30, 2021				April 24, 2020
Cash and cash equivalents		$	4,529			$	2,658
Short-term investments			67				224
Total		$	4,596			$	2,882

As of April 30, 2021 and April 24, 2020, $2.5 billion of cash, cash equivalents and short-term investments were held by various foreign subsidiaries and were generally based in U.S. dollar-denominated holdings, while $2.1 billion and $0.4 billion, respectively, were available in the U.S. The Tax Cuts and Jobs Act (TCJA) enacted into law in December 2017 imposed 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 recognition of the impacts of the TCJA, we reviewed our projected global cash requirements and determined that certain historical and future foreign earnings were no longer indefinitely reinvested.

Our principal liquidity requirements are primarily to meet our working capital needs, support ongoing business activities, fund research and development, meet capital expenditure needs, invest in critical or complementary technologies through asset purchases and/or business acquisitions, service interest and principal payments on our debt, fund our stock repurchase program, and pay dividends, as and if declared.

The principal objectives of our investment policy are the preservation of principal and maintenance of liquidity. We attempt to mitigate default risk by investing in high-quality investment grade securities, limiting the time to maturity and monitoring the counter-parties and underlying obligors closely. We believe our cash equivalents and short-term investments are liquid and accessible. We are not aware of any significant deterioration in the fair value of our cash equivalents or investments from the values reported as of April 30, 2021.

Our investment portfolio has been and will continue to be exposed to market risk due to trends in the credit and capital markets. We continue to closely monitor current economic and market events to minimize the market risk of our investment portfolio. We routinely monitor our financial exposure to both sovereign and non-sovereign borrowers and counterparties. We utilize a variety of planning and financing strategies in an effort to ensure our worldwide cash is available when and where it is needed. We also have an automatic shelf registration statement on file with the Securities and Exchange Commission (SEC). We may in the future offer an additional unspecified amount of debt, equity and other securities.

Senior Notes

The following table summarizes the principal amount of our Senior Notes as of April 30, 2021 (in millions):

3.25% Senior Notes Due December 2022		$	250
3.30% Senior Notes Due September 2024			400
1.875% Senior Notes Due June 2025			750
2.375% Senior Notes Due June 2027			550
2.70% Senior Notes Due June 2030			700
Total		$	2,650

Interest on the Senior Notes is payable semi-annually. For further information on the underlying terms, see Note 9 – Financing Arrangements of the Notes to Consolidated Financial Statements.

Commercial Paper Program and Credit Facility

We have a commercial paper program (the Program), under which we may issue unsecured commercial paper notes. Amounts available under the Program may be borrowed, repaid and re-borrowed, with the aggregate face or principal amount of the notes outstanding under the program at any time not to exceed $1.0 billion. The maturities of the notes can vary, but may not exceed 397 days from the date of issue. The notes are sold under customary terms in the commercial paper market and may be issued at a discount from par or, alternatively, may be sold at par and bear interest at rates dictated by market conditions at the time of their issuance. The proceeds from the issuance of the notes are used for general corporate purposes. No commercial paper notes were outstanding as of April 30, 2021.

In connection with the Program, we have a senior unsecured credit agreement with a syndicated group of lenders. The credit agreement, which was amended on January 22, 2021, provides for a $1.0 billion revolving unsecured credit facility, with a sublimit of $50 million available for the issuance of letters of credit on our behalf. The credit facility matures on January 22, 2026, with an option for us to extend the maturity date for two additional 1-year periods, subject to certain conditions. The proceeds of the loans may be used by us for general corporate purposes and as liquidity support for our existing commercial paper program. As of April 30, 2021, we were compliant with all associated covenants in the agreement. No amounts were drawn against this credit facility during any of the periods presented.

Capital Expenditure Requirements

We expect to fund our capital expenditures, including our commitments related to facilities, equipment, operating leases and internal-use software development projects over the next few years through existing cash, cash equivalents, investments and cash generated from operations. The timing and amount of our capital requirements cannot be precisely determined and will depend on a number of factors, including future demand for products, changes in the network storage industry, hiring plans and our decisions related to the financing of our facilities and equipment requirements. We anticipate capital expenditures for fiscal 2022 to be between $225 million and $250 million.

Dividends and Stock Repurchase Program

On May 28, 2021, we declared a cash dividend of $0.50 per share of common stock, payable on July 28, 2021 to holders of record as of the close of business on July 9, 2021.

As of April 30, 2021, our Board of Directors had authorized the repurchase of up to $13.6 billion of our common stock under our stock repurchase program, and on May 28, 2021 authorized the repurchase of an additional $500 million of our common stock. Under this program, we may purchase shares of our outstanding common stock through solicited or unsolicited transactions in the open market, in privately negotiated transactions, through accelerated share repurchase programs, pursuant to a Rule 10b5-1 plan or in such other manner as deemed appropriate by our management. The stock repurchase program may be suspended or discontinued at any time. Since the May 13, 2003 inception of this program through April 30, 2021, we repurchased a total of 340 million shares of our common stock at an average price of $39.02 per share, for an aggregate purchase price of $13.3 billion. As of April 30, 2021, the remaining authorized amount for stock repurchases under this program was $0.3 billion.

Purchase Commitments

In the ordinary course of business, we make commitments to third-party contract manufacturers and component suppliers to manage manufacturer lead times and meet product forecasts, and to other parties, to purchase various key components used in the manufacture of our products. In addition, we have open purchase orders and contractual obligations associated with our ordinary course of business for which we have not yet received goods or services. These off-balance sheet purchase commitments totaled $800 million at April 30, 2021, of which $584 million is due in fiscal 2022, with the remainder due thereafter.

Financing Guarantees

While most of our arrangements for sales include short-term payment terms, from time to time we provide long-term financing to creditworthy customers. We have generally sold receivables financed through these arrangements on a non-recourse basis to third party financing institutions within 10 days of the contracts’ dates of execution, and we classify the proceeds from these sales as cash flows from operating activities in our consolidated statements of cash flows. We account for the sales of these receivables as “true sales” as defined in the accounting standards on transfers of financial assets, as we are considered to have surrendered control of these financing receivables. We sold $102 million and $59 million of receivables during fiscal 2021 and 2020, respectively.

In addition, we enter into arrangements with leasing companies for the sale of our hardware systems products. These leasing companies, in turn, lease our products to end-users. The leasing companies generally have no recourse to us in the event of default by the end-user.

Some of the leasing arrangements described above have been financed on a recourse basis through third-party financing institutions. Under the terms of recourse leases, which are generally three years or less, we remain liable for the aggregate unpaid remaining lease payments to the third-party leasing companies in the event of end-user customer default. These arrangements are generally collateralized by a security interest in the underlying assets. As of April 30, 2021 and April 24, 2020, the aggregate amount by which such contingencies exceeded the associated liabilities was not significant. To date, we have not experienced significant losses under our lease financing programs or other financing arrangements.

We have entered into service contracts with certain of our end-user customers that are supported by third-party financing arrangements. If a service contract is terminated as a result of our non-performance under the contract or our failure to comply with the terms of the financing arrangement, we could, under certain circumstances, be required to acquire certain assets related to the service contract or to pay the aggregate unpaid payments under such arrangements. As of April 30, 2021, we have not been required to make any payments under these arrangements, and we believe the likelihood of having to acquire a material amount of assets or make payments under these arrangements is remote. The portion of the financial arrangement that represents unearned services revenue is included in deferred revenue and financed unearned services revenue in our consolidated balance sheets*.*

Legal Contingencies

We are subject to various legal proceedings and claims which arise in the normal course of business. See further details on such matters in Note 18 – Commitments and Contingencies of the Notes to Consolidated Financial Statements.