FinanceLooker

Excrept from filing document 2025-04-25

The aggregate market value of voting stock held by non affiliates of the registrant as of October 25 2024 the last business day of the registrant s most recently completed second fiscal quarter was approximately 16 6 billion 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
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 committed estimate intend plan positions predict seek strive 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
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
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
NetApp Inc NetApp we us or the Company helps customers make their data infrastructure more seamless more dynamic and higher performing We were incorporated in 1992 are headquartered in San Jose California and provide a full range of enterprise class software systems and services that customers use to transform their data infrastructures across data types workloads and environments to realize business possibilities
We leverage over thirty years of innovation to make data infrastructure intelligent Our unified data storage solutions deliver flexible simplified and silo free infrastructure Our active data management capabilities focus on security compliance and sustainability while our adaptive operations enhance performance efficiency and productivity Our extensive portfolio integrates hybrid and multi cloud environments addressing key customer priorities such as modernizing legacy systems enhancing resilience against ransomware and developing scalable high performance data pipelines for artificial intelligence AI workloads
NetApp empowers customers to harness their data for accelerated innovation improved operations and competitive advantage Our unified data storage solutions provide the flexibility to consistently and easily store any data type and support any workload As the only enterprise grade storage service natively embedded in the world s largest clouds we power data across Amazon AWS Microsoft Azure and Google Cloud Our integrated data services enable active data management security protection governance and sustainability Additionally our operational services support adaptive operations across infrastructure applications and teams Together with our Hybrid Cloud products these services enable customers to construct a seamless intelligent data infrastructure across hybrid multi cloud environments
Our strategy revolves around serving the world s most critical organizations by addressing their complex data management challenges in the age of data We emphasize the importance of an intelligent data infrastructure that provides flexibility security and simplicity at scale This infrastructure integrates seamlessly with hybrid cloud environments modernizes application portfolios and enhances security while ensuring efficiency and performance NetApp s unified storage and data management platform along with embedded data and operational services enables customers to unify their data for AI recover from malicious attacks and achieve significant productivity gains through autonomous self healing capabilities
Our unique approach is built on a unified platform that combines intelligent storage and data architecture with software AI and APIs creating an intelligent data fabric This platform exemplified by the ONTAP operating system and BlueXP control plane provides consistent data experiences and optimized storage operations across on premises cloud and edge environments Our long history of disciplined execution and architectural excellence has positioned us as a market leader with a strong presence in the world s leading public clouds and the ability to deliver transformative flexibility and simplicity at scale
Our market strategy targets large and growing markets including hybrid cloud public cloud flash storage block storage and AI We are expanding our strong position in the unstructured data market and disrupting the mature block storage market with block optimized flash storage Our integration with major public cloud providers like Amazon AWS Microsoft Azure and Google Cloud positions us to capitalize on cloud migrations and enterprise workloads In the AI space we leverage our expertise in unstructured data management to support the entire AI lifecycle from data foundations to deploying hybrid cloud architectures ensuring rapid time to market and responsible AI deployment
Hybrid Cloud provides a unified data storage portfolio of storage management and infrastructure solutions that helps customers modernize their data centers By leveraging on premises private cloud and public cloud capabilities we enable customers to modernize applications with a single solution that supports file block and object storage We deliver a versatile data infrastructure solution suitable for all environments and workloads including the strategic enterprise AI market Our Hybrid Cloud portfolio accommodates both structured and unstructured data with unified storage optimized for flash disk and cloud storage capable of handling data intensive workloads and applications Hybrid Cloud includes software hardware and related support along with professional and other services
NetApp ONTAP software is our foundational technology that underpins NetApp s critical storage solutions in the on premises data center and in private and public clouds ONTAP includes various data management and protection features and capabilities including automatic ransomware protection against cyber attacks built in data transport features and storage efficiency capabilities ONTAP provides the flexibility to design and deploy a storage environment across the broadest range of architectures from on premises to hybrid private and public clouds It can be used in NAS SAN object and container environments as well as software defined storage SDS situations
Data integrity security and business continuity are at the heart of any company s data center With the extensive software tools and utilities delivered in ONTAP One our all in one software license customers can realize their business continuity goals with time costs and personnel savings With NetApp Snapshot customers can create and manage point in time file system copies with no performance impact and minimal storage consumption This is important for continuous data protection of information in read only static and immutable form NetApp SnapCenter Backup Management software is designed to deliver high performance backup and recovery for database and application workloads hosted on ONTAP storage NetApp SnapMirror Data Replication software can replicate data at high speeds across environments SnapMirror delivers robust data management capabilities for virtualization protecting critical data while providing the flexibility to move data between locations and storage tiers including cloud service providers NetApp SnapLock Data Compliance software delivers high performance disk based data permanence for HDD and SSD deployments
ONTAP also includes industry leading cyber resilience solutions that are designed to maximize data protection and security and increase data governance and compliance NetApp keeps data protected and secured by aligning with the National Institute of Standards and Technology cybersecurity framework working to block cybersecurity threats and mitigate the high cost of downtime The built in AI powered Autonomous Ransomware Protection operates natively in the storage layer combating evolving threats with real time detection for rapid response and recovery
NetApp All Flash FAS AFF A Series is a scale out platform built for virtualized and containerized environments combining low latency performance via performance optimized flash solid state drives with best in class data management built in efficiencies integrated data protection multiprotocol support and nondisruptive operations AFF A Series powered by ONTAP allows customers to connect to clouds for more data services data tiering caching and disaster recovery The AFF A Series has a portfolio of products designed for multiple markets and price performance considerations from smaller channel commercial market offerings to large scale global enterprises
NetApp All Flash FAS with capacity flash AFF C Series provides customers with capacity optimized flash solid state drives which balance performance and affordability AFF C Series arrays powered by ONTAP are sustainable scalable and secure solutions for Tier 1 and Tier 2 applications The AFF C Series is ideal for transitioning from hybrid HDD to all flash storage running non latency sensitive VMware database applications and file environments and providing a solution for secondary storage targets for disaster recovery backup and tiering
NetApp All Flash SAN Array ASA A Series C Series is NetApp s modern block storage with best in class speed efficiency security sustainability and cloud integration to accelerate virtual machines and databases ASA arrays are also powered by NetApp ONTAP but optimized and simplified for SAN workloads The ASA includes a 99 9999 guaranteed uptime and guaranteed 4 1 storage efficiency
NetApp Fabric Attached Storage FAS series are high capacity data storage devices powered by NetApp ONTAP NetApp FAS Storage Arrays provide customers with a balance of performance and capacity running disk drives or hybrid flash configurations FAS systems are suitable for secondary storage targets for disaster recovery backup and tiering
NetApp E EF series is built for dedicated high bandwidth applications that need simple fast SAN storage with enterprise grade reliability The E Series is available as a hybrid flash platform while the EF Series is all flash Built on the SANtricity storage operating system the E EF Series storage appliances are designed for performance sensitive workloads like real time analytics high performance computing and databases
NetApp StorageGRID is a software defined object storage solution for large archives media repositories and web data stores Using the industry standard object APIs like the Amazon Simple Storage Service S3 StorageGRID is provided as a NetApp branded storage solution and as a software defined solution on third party hardware
Public Cloud offers a portfolio of products delivered primarily as a service including related support This portfolio includes cloud storage data services and operational services As the only provider of enterprise grade storage services natively embedded in the world s largest public cloud providers NetApp helps organizations harness the power of their data and applications NetApp s services leverage AI to maximize productivity across infrastructure and applications boost team productivity and reduce operations costs These solutions and services are generally available on the leading public clouds including Amazon AWS Microsoft Azure and Google Cloud
At the center of our hybrid multi cloud storage and data service offerings is NetApp BlueXP BlueXP is a unified control plane that enables customers to manage their entire data landscape through one single web based Software as a Service SaaS delivered control point NetApp BlueXP combines storage and data services via its unified control plane to change how hybrid multicloud environments are managed optimized and controlled An intuitive interface and powerful automation help decrease resource waste complexity and the risk of managing diverse environments It brings customers operational simplicity in a complex world Within BlueXP are standard and optional capabilities services that allow customers to control their data and operations
With BlueXP Copy and Sync customers can migrate data to the cloud securely and efficiently Customers can choose where to deploy primary workloads without re architecting applications or databases BlueXP Backup and Recovery delivers seamless and cost effective backup and restore capabilities for protecting and archiving cloud and on premises data managed by ONTAP BlueXP Classification service provides data discovery mapping and classification driven by AI algorithms with automated controls and reporting for data privacy regulations such as the General Data Protection Regulation GDPR California Consumer Privacy Act CCPA and more Lastly BlueXP Ransomware Protection provides AI driven protection of workloads with integrated real time detection and ability to respond quickly to threats and recover in minutes
NetApp Data Infrastructure Insights formally called Cloud Insights is an infrastructure monitoring tool that gives organizations visibility into their entire infrastructure It can monitor troubleshoot and optimize costs across all resources including public clouds and private data centers Working in conjunction with the BlueXP manageability and control plane services customers can have deep insights into their data operations
Instaclustr provides fully managed open source databases pipelines and workflow applications delivered as a service Instaclustr helps organizations deliver cloud native applications at scale by operating and supporting the data infrastructure through its SaaS platform for those designing and building around open source technologies while not wanting to maintain that infrastructure themselves
We market and sell our products and services in numerous countries throughout the world Our sales efforts are organized around the evolving needs of our current and targeted customers and our marketing initiatives reflect this focus NetApp uses a multichannel distribution strategy We sell our products solutions and services to end user business customers and service providers through a direct sales force and an ecosystem of partners including the leading cloud providers Our marketing is focused on building our brand reputation creating market awareness communicating customer advantages and generating demand for our sales force and channel partners
Our diversified customer base spans industry segments and vertical markets such as energy financial services government technology internet life sciences healthcare services manufacturing media entertainment animation video postproduction and telecommunications NetApp focuses primarily on the enterprise storage and data management cloud storage and cloud operations markets We design our products to meet the evolving requirements of a hybrid multicloud world driven by digital transformation and cloud initiatives
Our partnerships with the industry s leading cloud infrastructure consulting application and reseller partners are created with one goal in mind the success of our customers Global enterprises local businesses and government agencies look to NetApp and our ecosystem of partners to help maximize the business value of their IT and cloud investments
We work with a wide range of partners for our customers including technology partners value added resellers system integrators OEMs service providers and distributors During fiscal 2025 sales through our indirect channels represented 78 of our net revenues Our global partner ecosystem is critical to NetApp s growth and success We are continually strengthening existing partnerships and investing in new ones to ensure we are meeting the evolving needs of our customers
As of April 25 2025 our worldwide sales and marketing functions consisted of approximately 5 100 managers sales representatives and technical support personnel We have offices in approximately 26 countries Sales to customers Arrow Electronics Inc and TD Synnex Corporation accounted for 21 and 24 of our net revenues respectively in fiscal 2025 Information about sales to and accounts receivables from our major customers segment disclosures foreign operations and net sales attributable to our geographic regions is included in Note 15 Segment Geographic and Significant Customer Information of the Notes to Consolidated Financial Statements included in Part II Item 8
We have historically experienced a sequential decline in revenues in the first quarter of our fiscal year as the sales organization spends time developing new business after higher close rates in the fourth quarter and because sales to European customers are typically weaker during the summer months We derive a substantial amount of our revenue in any given quarter from customer orders booked in the same quarter Customer orders and revenues typically follow intra quarter seasonality patterns weighted toward the end of the quarter If recurring services and cloud revenue continue to increase as a percentage of our total revenues historical seasonal patterns may become less pronounced
We manufacture products based on a combination of specific order requirements and forecasts of our customers demand Orders are generally placed by customers on an as needed basis A substantial portion of our products is sold on the basis of standard purchase orders that are cancelable prior to shipment without penalty In certain circumstances purchase orders are subject to change with respect to quantity of product or timing of delivery resulting from changes in customer requirements Our business is characterized by seasonal and intra quarter variability in demand as well as short lead times and product delivery schedules Accordingly backlog at any given time may not be a meaningful indicator of future revenue
We have outsourced manufacturing operations to third parties located in Fremont California San Jose California Guadalajara Mexico Schiphol Airport The Netherlands Helmond The Netherlands Tiszaujvaros Hungary Taoyuan City Taiwan and Singapore These operations include materials procurement commodity management component engineering test engineering manufacturing engineering product assembly product assurance quality control final test and global logistics We rely on a limited number of suppliers for materials as well as several key subcontractors for the production of certain subassemblies and finished systems We strive to have multiple suppliers qualified to provide critical components where possible and have our products manufactured in a number of locations to mitigate our supply chain risk Our strategy has been to develop close relationships with our suppliers maximizing the exchange of critical information and facilitating the implementation of joint quality programs We use contract manufacturers for the production of major subassemblies and final system configuration This manufacturing strategy minimizes capital investments and overhead expenditures while creating flexibility for rapid expansion
Our research and development team delivers innovation to help customers create an evolved cloud experience Our R D structure allows us to align and accelerate the execution of our strategies and roadmaps across product groups We leverage our talent and shared IP for cloud and hybrid cloud solutions to remain agile to changing market conditions Our R D priorities are defined by how we can help customers realize operational simplicity cyber resilience and security AI innovation infrastructure savings and agility and sustainability We design our products and services from the ground up with cloud connectivity in mind including our capabilities for cyber resiliency tiering disaster recovery replication bursting and migration
We conduct research and development activities in various locations throughout the world Total research and development expenses were 1 012 million in fiscal 2025 1 029 million in fiscal 2024 and 956 million in fiscal 2023 These costs consist primarily of personnel and related expenses incurred to conduct product development activities Although we develop many of our products internally we also acquire technology through business combinations or through third party licensing when appropriate We believe that technical leadership is essential to our success and we expect to continue to commit substantial resources to research and development
We compete with many companies in the storage and data management markets Our hybrid cloud solutions primarily compete with legacy IT and storage vendors Some offer a broad spectrum of products solutions and services and others offer a more limited set of storage and data management products solutions or services In the emerging AI market we encounter both our traditional competitive set as well as newer entrants focused primarily on the AI model training space Additionally public cloud providers offer customers storage as an operating expense which competes with more traditional storage offerings that customers acquire
We compete with many companies in the cloud operations marketplace including new companies startups and larger software companies who target developers and operations engineering DevOps Some companies have single point solutions that compete with one of our services and others are building platforms Additionally public cloud providers offer similar services on their own cloud
We consider our hardware software innovation cloud integration and technology partnerships key to our competitive differentiation We believe our competitive advantage also includes the nature of the relationships we form with our customers and partners worldwide We strive to deliver an outstanding experience in every interaction we have with our customers and partners through our product service and support offerings which enables us to provide our customers with a full range of expertise before during and after their purchases
We generally rely on patent copyright trademark trade secret and contract laws to establish and maintain our proprietary rights in our technology products and services While our intellectual property rights are important to our success we believe that our business is not materially dependent on any particular patent trademark copyright license or other individual intellectual property right We have been granted or own by assignment well over two thousand U S patents hundreds of pending U S patent applications and many corresponding patents and patent applications in other countries From time to time we may make certain intellectual property available under an open source license Our primary trademarks are NetApp and the NetApp design logo which are registered trademarks in the U S and in many other countries In addition we have trademarks and trademark registrations in the U S and other countries covering our various product or service names
We generally enter into confidentiality agreements with our employees resellers distributors customers and suppliers In addition through various licensing arrangements we receive certain rights to the intellectual property of others We expect to maintain current licensing arrangements and to secure additional licensing arrangements in the future as needed and to the extent available on reasonable terms and conditions to support continued development and sales of our products and services Some of these licensing arrangements require or may require royalty payments and other licensing fees The amount of these payments and fees may depend on various factors including but not limited to the structure of royalty payments offsetting considerations if any and the degree of use of the licensed technology
The industry in which we compete is characterized by rapidly changing technology a large number of patents and frequent claims and related litigation regarding intellectual property rights and we may be exposed to various risks related to such claims or legal proceedings If we are unable to protect our intellectual property we may be subject to increased competition that could materially and adversely affect our business operations financial condition results of operations and or cash flows
We believe that our commitment to helping our customers and partners succeed and to positively affecting the communities where our employees work and live supports our efforts to deliver value to our stockholders We are committed to the reduction of greenhouse gas emissions the efficient use of resources and reducing relative to the growth of the Company the environmental impacts from our operations products and services as well as complying with laws and regulations related to these areas
We voluntarily measure monitor and publicly report our scope 1 scope 2 and scope 3 partial greenhouse gas emissions and water impacts We seek to optimize the energy efficiency of our buildings labs and data centers and we have increased our use of renewable energy especially at our facilities in Bangalore India 95 of the total energy consumed is renewable Cork Ireland 100 of electricity consumed is from renewable energy and Wichita Kansas 100 of the electricity consumed is produced by renewable wind energy
At the global regional and state levels various laws and regulations have been implemented or are under consideration to mitigate or report on the effects of climate change Environmental laws are complex and have tended to become more stringent over time However it is difficult to anticipate future regulations pertaining to environmental matters and to estimate their impacts on our operations Additionally we have implemented disaster recovery and business resiliency measures to mitigate the physical risks our
We are subject to international federal state and local regulations regarding workplace safety and protection of the environment Various international federal state and local provisions regulate the use and discharge of certain hazardous materials used in the manufacture of our products Failure to comply with environmental regulations in the future could cause us to incur substantial costs subject us to business interruptions or cause customers to cease purchasing from us We strive to comply with all applicable environmental laws All of our products meet the applicable requirements of the following European Union EU directives Registration Evaluation Authorisation and Restriction of Chemicals REACH Energy Related Products ErP and Restriction of Hazardous Substances RoHS We also comply with the China RoHS directive We have a global product take back program and an e waste scheme to comply with the EU directive on Waste Electrical and Electronic Equipment WEEE and Extended Producer Responsibility EPR regulations in India Singapore and California
We have maintained an environmental management system since December 2004 that provides the framework for setting monitoring and continuously improving our environmental goals and objectives As part of ISO 14001 requirements we set local environmental performance goals such as reducing energy use per square foot and minimizing waste generated on site that are aligned with our overall corporate strategy We also conduct periodic reviews and are subject to third party audits of our operations and we monitor environmental legislation and requirements to help make sure we are taking necessary measures to remain in compliance with applicable laws not only in our operations but also for our products
We take pride in and believe our success depends on attracting and retaining leading talent in the industry based on a culture fit approach From our inception NetApp has worked to build a model company and has embraced a culture of openness and trust Our employees are supported and encouraged to be innovative and we communicate openly and transparently so that employees can focus on critical and impactful work that ties directly to our business strategy We continue to invest in our global workforce to support inclusion and belonging and our employees well being and development
Flexible Work We offer a flexible hybrid work program that allows employees in consultation with their managers and teams flexibility around where when and how work is performed to deliver business outcomes understanding that certain roles may be tied to specific locations or require an in office presence due to business needs and job responsibilities and to collaborate and connect most effectively We are leaning into digital first workflows tools and resources and programs to continuously promote flexibility while enabling us to be productive wherever we are We also believe in the value of people being together building relationships fostering trust collaboration and innovation We have evolved into a hybrid model in which employees who are assigned to an office can divide their work between the office and other locations about half the time We continue to pilot test and iterate our approach to support new ways of working and evolving the employee experience
Employee Wellbeing We provide a wide range of wellbeing programs and tools to ensure employees and their families have the resources they need when they need them We offer emotional wellbeing resources and programs such as back up child and elder care student debt repayment educational assistance and legal services for employees and their dependents NetApp also offers a variety of time off programs to help support our employees who need time off Employees also have access to discounts and fitness centers
Engagement We help employees grow develop and succeed at NetApp by encouraging an open and interactive culture where individual needs are recognized and met and Company goals are supported For employees growth goals are tied to corporate objectives and key results to ensure that employees are progressing and are supported by management teams Managers are encouraged to set aside time at least each quarter to conduct a two way conversation with each team member to offer feedback guidance and support on goals priorities and career development The Company also conducts surveys that gauge employee sentiment in areas like cross functional collaboration manager performance and inclusivity and create action plans to address concerns and amplify opportunities
Giving Back The NetApp Cares programs support our employees efforts to make a positive difference in our communities In fiscal 2025 NetApp employees donated over 20 900 hours to serve their communities and make an impact around the world The NetApp Cares programs encourage employees to volunteer through individual team or company efforts
Our Board of Directors plays an active role in overseeing the Company s human capital management strategy and programs Our Talent and Compensation Committee provides oversight of our talent strategy and key programs related to corporate culture workforce inclusion talent acquisition engagement development and retention
George Kurian is the chief executive officer of NetApp a position he has held since June 1 2015 He joined our Board of Directors in June 2015 From September 2013 to May 2015 he was executive vice president of product operations overseeing all aspects of technology strategy product and solutions development across our portfolio Mr Kurian joined NetApp in April 2011 as the senior vice president of the storage solutions group and was appointed to senior vice president of the Data ONTAP group in December 2011 Prior to joining NetApp Mr Kurian held several positions with Cisco Systems from 2002 to 2011 including vice president and general manager of the application networking and switching technology group Additional roles include vice president of product management and strategy at Akamai Technologies from 1999 to 2002 as well as a management consultant at McKinsey and Company and a leader on the software engineering and product management teams at Oracle Corporation Mr Kurian is a board member at Cigna Corporation a global health services company where he serves on the compliance committee and people resources committee and holds a BS degree in electrical engineering from Princeton University and an MBA degree from Stanford University
César Cernuda came to NetApp in July 2020 as president and is responsible for leading the Company s global go to market organization spanning sales marketing services support and customer success Mr Cernuda joined NetApp after a long career at Microsoft that included various leadership roles Mr Cernuda is non executive director and chairman of the ESG committee at Gestamp an international group dedicated to automotive components He is also on the advisory boards of Georgetown University s McDonough School of Business and the IESE Business School University of Navarra Mr Cernuda is a graduate of the Harvard Business School Executive Leadership Program and the Program for Management Development at IESE Business School University
Wissam Jabre joined NetApp in March 2025 as executive vice president and chief financial officer overseeing the worldwide finance and investor relations organizations Mr Jabre is an accomplished finance executive with over 20 years of experience leading finance organizations and driving value creation through disciplined operational management Prior to joining NetApp Mr Jabre served as the executive vice president and CFO at Western Digital Corporation from February 2022 to February 2025 where he led the global finance organization and oversaw various critical functions Prior to joining Western Digital he served as the CFO of Dialog Semiconductor from March 2016 to August 2021 He has also held senior finance positions at prominent technology companies including Advanced Micro Devices Freescale Semiconductor since acquired by NXP Semiconductors and Motorola Mr Jabre s career began at Schlumberger where he gained valuable experience in both engineering and finance roles Mr Jabre holds a B E in Electrical Engineering from the American University of Beirut and an MBA from Columbia Business School He also serves on the board of directors of MKS Inc where he serves as a member of the audit committee
Harvinder S Bhela joined NetApp in January 2022 as executive vice president and chief product officer He is responsible for leading NetApp s product and engineering teams and building our multi cloud storage and data services products and solutions Before joining NetApp Mr Bhela spent 25 years at Microsoft where he held multiple executive leadership positions Most recently he served as corporate vice president of the Microsoft 365 Security Compliance and Management business Mr Bhela holds a Bachelor of Engineering from the University of Mumbai and a Master of Science in Computer Science from the University of Minnesota
Elizabeth M O Callahan joined NetApp in 2013 and has served as NetApp s executive vice president chief administrative officer and secretary since March 2025 Prior to her appointment as chief administrative officer Ms O Callahan served as executive vice president chief legal officer and secretary from January 2022 to February 2025 senior vice president and general counsel from May 2021 to December 2021 as vice president and deputy general counsel from May 2020 to April 2021 and as vice president corporate legal from October 2013 to April 2020 Ms O Callahan has over 20 years of experience advising technology companies on a variety of matters including corporate governance executive compensation securities law employment law mergers and acquisitions capital markets transactions corporate compliance and ethics data privacy intellectual property crisis management real estate litigation and government relations Before joining NetApp Ms O Callahan served in a senior legal role at Xilinx since acquired by AMD She began her legal career in private practice in Silicon Valley specializing in corporate law and business litigation Ms O Callahan holds a bachelor s degree from the University of California at Los Angeles and a J D from Santa Clara University
Our internet address is www netapp com We make available through our internet website our annual reports on Form 10 K quarterly reports on Form 10 Q current reports on Form 8 K including exhibits amendments to those reports and other documents filed or furnished pursuant to the Exchange Act of 1934 as soon as reasonably practicable after we electronically file such materials with or furnish them to the SEC
The following discussion and the sections entitled Management s Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk and Management s Report on Internal Control Over Financial Reporting reflect our current judgment regarding the most significant risks we face These risks can and will change in the future
As a global company our business is influenced by worldwide economic and market conditions including among others inflation slower growth economic downturn or recession changes in fiscal and monetary policies higher interest and tax rates economic uncertainty political instability regional conflicts military warfare extreme weather events and effects from climate change natural disasters and pandemics supply chain interruptions and shortages changes in laws reduced consumer confidence and spending international trade protection measures and disputes including economic and trade barriers tariffs sanctions and export controls and the threat and potential of retaliatory trade control policies including retaliatory tariffs These factors as well as the fear or anticipation of such conditions may influence decisions and actions by our key stakeholders and the market generally and can lead to increased volatility in the IT industry making it difficult to predict future demand for our products and services They can also negatively impact the availability of supplies and limit access to capital for our suppliers customers and partners
Any of these factors above as well as other adverse macroeconomic conditions can significantly reduce demand for our products and negatively affect our operating results due to customer concerns about declining demand for their products reduced asset values fluctuating energy costs geopolitical issues the cost and availability of credit and the stability of financial institutions markets businesses and governments These conditions may be widespread and their resolution could be uncertain If we are not able to efficiently and effectively resolve such issues in a timely manner or if our chosen strategies are not successful then our business operations and financial condition could be materially adversely impacted Consequently these risks and conditions could materially adversely affect our future sales and operating results
The growth in our industry and the markets we compete in is driven by the increasing demand for data which in turn drives the need for storage and data management solutions However our markets could face challenges due to technology transitions increased storage efficiency competitive pricing dynamics changing consumption models and uncertain macroeconomic conditions Additionally the impact of generative artificial intelligence GenAI on the storage and data management markets and regulation thereof is still unfolding and could evolve unpredictably
As customers undergo their information technology IT transformations leveraging modern architectures and hybrid cloud environments they seek simpler solutions and new consumption models This shift is directing spending towards transformational projects and architectures like flash storage hybrid cloud cloud storage and IT as a service The future impact of these trends on both short and long term demand for our products is uncertain and we may struggle to meet customer demand with the expected level of quality and support for new products or services
Our business may suffer if we fail to keep pace with rapid industry technological or market changes or if our products and services are not well received in the marketplace These factors along with other considerations discussed in this Annual Report on Form 10 K could lead to a decline in customer demand for our products and services resulting in decreased revenue on a year over year basis as seen in fiscal 2017 2020 and 2024 If the overall growth rate of industry declines if specific markets we compete in experience reduced growth if storage consumption models change if our new and existing products and services do not gain customer acceptance or if we do not adapt our sales programs to market changes our business operating results financial condition and cash flows could be adversely affected
A significant portion of our operations and revenues are derived from outside of the U S and most of our products are sourced and manufactured outside of the U S We also have research and development sales and service centers internationally Consequently our international operations and future financial results could be adversely affected by various economic business regulatory social and political factors in foreign countries These factors include government controls local political or economic conditions such as recessions economic downturns inflation and political uncertainty economic sanctions trade protections and regulations export and import requirements including but not limited to government and regulatory authorizations tariffs investment restrictions tax
Changes in laws or policies governing the terms of foreign trade and in particular increased trade restrictions tariffs or taxes on imports from countries where we source and or manufacture products including the impact on our suppliers and contract manufacturers who may look to pass through additional costs imposed on them could have a material adverse effect on our business and financial results The U S government has recently enacted changes to U S trade policy and has signaled plans for possible additional changes For example the U S government has imposed sweeping tariffs on certain products and countries and has signaled that further tariffs may be imposed in the future The U S government s tariffs policy remains fluid with tariffs on certain countries delayed or reduced in scope and additional tariffs likely to be forthcoming on other countries or specified products Additional tariffs and restrictive policies particularly with respect to the tariffs on Mexico could have a significant impact on our business and results of operations The exact magnitude of any potential impact remains uncertain given possible further changes in tariffs and increased tensions with U S trading partners targeted by tariffs or other restrictive trade policies Our risk exposure may increase further if any countries levy retaliatory tariffs taxes or other trade restrictions or penalties against the United States or U S companies
Additionally ongoing trade tensions between the U S and China and recent investment restrictions such as the U S Outbound Investment Security Program could impact our business and operating results Any increase in tensions between China and Taiwan including threats of military actions or escalation of military activities could adversely affect our or our contract manufacturers ability to source key supply chain components included in our products As a result of Russia s actions in Ukraine numerous countries and organizations have imposed sanctions and export controls while businesses including the Company have limited or suspended Russian operations Russia has likewise imposed currency restrictions and regulations and may further take retaliatory trade or other actions including the nationalization of foreign businesses These actions could impact our supply chain pricing business and operating results and expose us to cyberattacks In addition due to the global nature of our business we are subject to complex legal and regulatory requirements in the U S and the foreign jurisdictions in which we operate and sell our products including antitrust and anti competition laws and regulations related to data privacy data protection and cybersecurity We are also subject to the potential loss of proprietary information due to piracy misappropriation or laws that may be less protective of our intellectual property rights than U S laws Such factors have had or could have an adverse impact on our business operating results financial condition and cash flows
We face exposure to adverse movements in foreign currency exchange rates as a result of our international operations These exposures may change over time as business practices evolve and they could have a material adverse impact on our operating results financial condition and cash flows We utilize forward and option contracts in an attempt to reduce the adverse impact of exchange rate fluctuations on certain assets and liabilities Our hedging strategies may not be successful and currency exchange rate fluctuations could have a material adverse effect on our operating results and cash flows In addition our foreign currency exposure on assets liabilities and cash flows that we do not hedge could have a material impact on our financial results in periods when the U S dollar significantly fluctuates in relation to foreign currencies
Moreover in many foreign countries particularly in those with developing economies it is a common business practice to engage in activities that are prohibited by NetApp s internal policies and procedures or laws and regulations applicable to us There can be no assurance that all our employees contractors and agents as well as those companies to which we outsource certain of our business operations will comply with these policies procedures laws and or regulations Any such violation could subject us to fines and other penalties which could have a material adverse effect on our business operating results financial condition and cash flows
We participate in dynamic markets and employ diverse business and sales models which complicate revenue forecasting We sell to a wide range of customers across various industries and geographies both directly and through multiple channels each with different sales cycles Most of our sales are made and or fulfilled indirectly through channel partners including value added resellers systems integrators distributors original equipment manufacturers OEMs and strategic business partners including public cloud providers This structure makes it particularly difficult to predict future revenue especially within any specific fiscal quarter or year
Our relationships with our indirect channel partners and strategic business partners are crucial to our success The loss of one or more of our key indirect channel partners in a particular region or the failure of our channel or strategic partners including public cloud providers to promote our products could negatively impact our operating results Qualifying and developing new indirect channel partners typically requires significant time and resource investment before achieving acceptable productivity levels
Our business operating results financial condition and cash flows could be adversely affected if we are unable to develop introduce and gain market acceptance for new products and services while managing the transition from older ones or if we cannot provide the expected level of quality and support for our new products and services
Our future growth relies on the successful development and introduction of new hardware and software products and services The complexity of storage and data management software subsystems and appliances as well as the challenges in estimating the engineering effort required to produce new products and services pose significant technical and quality control risks for these new products and services If we encounter technological challenges customer reluctance or other obstacles that prevent us from developing introducing and gaining market acceptance for new products and services or if we fail to provide the expected level of product and support quality our business operating results financial condition and cash flows could be materially and adversely affected Introducing new products and features exposes us to additional financial and operational risks These include the ability to forecast customer preferences and demand managing production capacity to meet the demand for new products and services and avoid excessive inventories of older products and components manage the transition from older products and solutions and handle the impact of customer demand for new offerings versus those being replaced
As customers transition from older products to newer ones delays or decisions to postpone the transition could lead to non renewal of new offerings impacting our ability to manage and forecast customer churn and expansion rates Additionally uncertainties related to the price performance of new products compared to competitors competitors responses to our new products extended evaluation periods by customers and our partners investment in selling our new products add to the inherent risks If we do not manage these risks effectively our business operating results financial condition and cash flows could face significant adverse impacts Furthermore entering new or emerging markets will likely increase demands on our service and support operations and expose us to additional competition We may struggle to provide competitive products services and support for these market opportunities
Our gross margins are influenced by a variety of factors including macroeconomic volatility competitive pricing component and product design costs inflation foreign exchange currency fluctuations and the volume and relative mix of revenues from product sales software support hardware support and other services offerings Factors such as increased component and labor costs pricing and discounting pressures changes in component costs and product prices or shifts in revenue mix and volume from different offerings could negatively impact our revenues gross margins or earnings
Additionally our gross margins are affected by the cost of any substandard materials and our sales and distribution activities including pricing actions rebates sales initiatives discount levels and the timing of service contract renewals Third party component costs make up a significant portion of our product costs We may have difficulty managing these costs if supplies of certain components including NAND become limited or component prices rise Such limitations could increase our product costs
We have experienced and may continue to experience negative impacts on our gross margins due to rising component costs logistics costs tariffs and other trade barriers and inflationary pressures An increase in component or design costs relative to our product prices could harm our gross margins and earnings Failure to sustain or improve our gross margins may have a material adverse effect on our business and stock price
As a technology company at the forefront of AI innovation our business faces potential risks associated with the rapidly evolving regulatory landscape for AI Governments and regulatory bodies worldwide are increasingly enacting new laws and guidelines to address the ethical privacy and security implications of AI technologies Non compliance even if inadvertent or without our knowledge with these emerging regulations could result in legal and financial penalties reputational damage and operational disruptions Additionally the diverse and sometimes conflicting nature of international AI regulations may pose challenges in maintaining consistent compliance across different jurisdictions The complexity and novelty of these laws may also require investments in compliance infrastructure including enhanced data governance frameworks algorithmic transparency and bias mitigation strategies
We are increasingly building and or leveraging AI technology in certain products services and business operations and our research and development in this area is ongoing As with many innovations AI presents risks challenges and potential unintended consequences that could affect our and our customers adoption and use of this technology AI algorithms and training methodologies may be flawed and AI technologies are complex and rapidly evolving We face significant competition in the market and from other companies regarding such technologies
We may be unsuccessful in identifying or resolving ethical and legal issues presented by the use of AI before they arise AI related issues deficiencies and or failures could result in i legal or regulatory action including to enforce new legislation regulating AI in various jurisdictions where we operate and the application of existing data protection privacy intellectual property and other laws ii damage to our reputation iii time consuming and costly litigation including related to intellectual property iv inability to protect our intellectual property v disclosure of our confidential information or vi other material harm to our business If regulation significantly delays or impedes the adoption of AI we may not be able to meet our development goals or our sales forecasts
Our markets are highly competitive fragmented and characterized by rapidly changing technology We face competition from many companies including established public companies newer public companies with a strong focus on flash storage and new market entrants targeting opportunities in GenAI and application data management for Kubernetes Some competitors offer a broad range of IT products and services full stack vendors while others offer a more limited set
Technology trends such as GenAI hosted or public cloud storage software as a service SaaS IT as a service and flash storage are driving significant changes in storage architectures and solution requirements Cloud service providers offer storage on demand without requiring capital expenditure which meets rapidly evolving business needs and has altered the competitive landscape Competitors may develop new technologies products or services ahead of us or establish new business models more flexible purchase models or disruptive technologies By extending our offerings in flash cloud storage converged infrastructure and block storage and GenAI we are entering new segments and facing competition from both traditional competitors and emerging competitors The long term potential and competitiveness of emerging vendors remains uncertain
New competitors or alliances among existing competitors could emerge and quickly gain significant market share or buying power Changes in customer requirements or increased industry consolidation could result in stronger competitors better able to compete Additionally current and potential competitors may establish cooperative relationships among themselves or with third parties including some of our partners or suppliers For additional information regarding our competitors see the section entitled Competition contained in Part I Item 1 Business of this Annual Report on Form 10 K
We offer customers a variety of consumption models including cloud based storage services and storage as a service STaaS delivered on premises As these business models continue to evolve we may face challenges in competing effectively generating significant revenues or maintaining the profitability of our consumption based offerings Additionally the growing prevalence of cloud and SaaS delivery models offered by us and our competitors may reduce overall demand for our traditional on premises offerings sold through a capital expenditure capex model which could negatively impact our revenues and cash flow at least in the short term Failure to successfully execute our consumption model strategy or anticipate customer needs could lead to a decline in our revenues and our profitability could decline
As customer demand for our consumption model offerings increases we will encounter differences in the timing of revenue recognition compared to our traditional purchase arrangements Revenue from traditional purchases is generally recognized in full at the time of delivery whereas revenue from consumption model offerings is generally recognized ratably over the term of the arrangement We incur certain expenses related to the infrastructure and marketing of our consumption model offerings before we can recognize the associated revenues
Our success depends on our ability to hire and retain qualified personnel to advance our corporate strategy and maintain key aspects of our corporate culture As our future success relies on enhancing and introducing new products and features we particularly need to attract and retain qualified engineers and technical talent especially in emerging technology areas like AI and machine learning To increase revenues we must also increase the productivity of our sales force which may require an increase in support infrastructure and personnel to achieve adequate customer coverage
Competition for qualified employees particularly in the technology industry is intense We have periodically reduced our workforce including restructuring plans announced in fiscal 2023 fiscal 2024 and fiscal 2025 respectively These actions may make it more challenging to attract and retain qualified employees Failure to hire and retain skilled management and personnel particularly engineers salespeople and key executive management could disrupt our development efforts sales results business relationships and our ability to execute our business plan and strategy adversely affecting our operating results financial conditions and cash flows
Many of our employees participate in our hybrid work program and work remotely on a full or part time basis Changes to our office environments including the adoption of new work models and our requirements and or expectations about when or how often certain employees work on site or remotely may not meet the expectations of our employees and may create challenges in attracting and retaining qualified personnel adversely affecting our business operations and financial performance
Additionally many of our employees are foreign nationals relying on visas and entry permits to work legally in the U S and other countries and may be dependent on licenses to work with controlled technology Restrictions or difficulties in obtaining H 1B L 1 and other business visas as well as licenses to work with controlled technologies along with compliance with new immigration and labor laws and unintended impacts from changes in immigration policy or in the enforcement of existing immigration laws and policies could lead to unexpected labor costs and hinder our ability to retain and attract skilled professionals negatively impacting our business results of operations or financial conditions
Equity grants are a crucial part of our compensation programs supporting talent attraction and engagement and aligning employee interests with stockholders A competitive broad based equity compensation program is essential to compete for talent in both the hardware and software industries where competitors offer significant equity compensation Reducing modifying or eliminating our equity programs or failing to grant equity competitively may hinder our ability to attract and retain critical employees
As part of our strategy we may seek to acquire other businesses and technologies to complement our current products and services expand our market reach or enhance our technical capabilities The benefits we have received and expect to receive from these and other acquisitions depend on our ability to successfully conduct due diligence negotiate the terms of the acquisition and integrate the acquired business into our systems procedures and organizational structure We may also divest businesses product lines or divisions that no longer align with our current offerings For example we sold our FinOps business to Flexera in fiscal 2025 Realizing the benefits we would expect to receive from a divestiture would depend on our ability to manage the separation of operations services products and personnel in addition to other risks
Any inaccuracy in our assumptions or failures to identify and mitigate liabilities or risks associated with an acquisition or divestiture such as differing or inadequate cybersecurity and data privacy protection controls or contractual limitations of liability could reduce or eliminate the expected acquisition or divestiture benefits If we fail to make acquisitions or divestitures on favorable terms integrate or divest the subject business or assets as planned or retain or separate key employees our costs could increase our operations could be disrupted and we could face additional liabilities investigations and litigation This could harm our strategy business and operating results Additionally the failure to achieve expected benefits from acquisitions or divestitures may result in impairment charges for goodwill and intangible assets
We base our expense levels partly on future revenue expectations and a significant portion of our expenses are fixed Reducing these fixed costs quickly can be challenging and if our revenue falls below expectations our operating results could be adversely impacted During periods of uneven growth or decline we may incur costs before realizing the anticipated benefits which could also harm our operating results
We have made and will continue to make significant investments in engineering sales service and support marketing and other functions to support and grow our business The costs associated with these investments are likely to be recognized earlier than some of the related anticipated benefits such as revenue growth Additionally the return on these investments may be lower or may develop more slowly than we expect which could harm our business operating results financial condition and cash flows
We continuously strive to make our cost structure and business processes more efficient including by relocating our business activities from higher cost to lower cost locations outsourcing certain business processes and functions and implementing changes to our business information systems These efforts require significant investment of financial and human resources and substantial changes to our current operations For example in fiscal 2025 we continued our implementation of certain new business information systems including a new enterprise resource planning ERP system to enhance and standardize our processes improve oversight and better serve our customers However any disruption during this transition could impact our ability to send and track invoices process
We may also encounter difficulties in implementing new business information systems or maintaining and upgrading existing systems and software These difficulties could lead to significant expenses or losses due to unexpected additional costs disruption in business operations loss of sales or profits or delays in processing and reporting key financial information As a result our business results of operations financial condition and prospects could be materially adversely affected
Additionally as we move operations to lower cost jurisdictions and outsource certain business processes we become subject to new regulatory regimes and lose control of certain aspects of our operations increasing our dependence upon third party systems and processes If we fail to move operations outsource processes or implement new information in compliance with local laws and maintain adequate standards controls and procedures the quality of our products and services may suffer and we may face increased litigation risk These issues could adversely affect our business operating results and financial condition
We maintain an investment portfolio of various holdings types and maturities The credit ratings and pricing of our investments can be negatively affected by factors such as volatile macroeconomic conditions liquidity issues credit deterioration financial results economic risk political risk sovereign risk or other factors Consequently the value and liquidity of our investments and their returns may fluctuate significantly Unfavorable macroeconomic conditions rising interest rates international trade protection measures and disputes including economic and trade barriers tariffs sanctions and export controls or other circumstances could lead to an economic slowdown or global recession potentially causing failures of counterparties including financial institutions governments and insurers This could materially decrease the value of our investment portfolio and substantially reduce our investment returns
We regularly maintain cash balances at large third party financial institutions that exceed the Federal Deposit Insurance Corporation FDIC insurance limit of 250 000 and similar regulatory insurance limits outside the United States If a depository institution where we maintain deposits fails or faces adverse financial or credit markets conditions we may not be able to recover all of our deposits which adversely impacts our operating liquidity and financial performance
Additionally if our customers or partners experience liquidity issues due to financial institution defaults or non performance where they hold cash assets their ability to pay us may be impaired This could materially affect our results of operations including the collection of accounts receivable and cash flows
We have publicly announced and may continue to establish and announce initiatives regarding sustainability and corporate responsibility matters as well as other related matters in our Impact Report on our website and elsewhere These statements which are included in our Impact Report on our website in our SEC filings and elsewhere reflect our current plans and aspirations but are not guarantees of achievement Implementing these initiatives and goals can be challenging and costly and our current plans and aspirations may not all succeed or be achieved in the way and on the timelines we expect or at all While these initiatives and goals are not a critical part of our business operations and may not significantly impact our financial performance directly they are an important part of our business ethos and corporate culture that we believe is valued and appreciated by our investors and key stakeholders
There is growing attention from governments investors customers employees and other stakeholders on sustainability and corporate responsibility matters and laws and regulations regarding disclosure reporting and diligence requirements continue to evolve We may face scrutiny from stakeholders regarding the scope or nature of our sustainability and corporate responsibility initiatives or any changes to these initiatives In addition state attorneys general and other governmental authorities may take action against certain sustainability and corporate responsibility policies or practices and we may become subject to restrictions on sustainability and corporate responsibility initiatives Incomplete or inaccurate sustainability and corporate responsibility related data failure to achieve sustainability and corporate responsibility goals or government enforcement actions or litigation relating to sustainability and corporate responsibility initiatives could negatively impact our ability to attract or retain employees our attractiveness as an investment or business partner and ultimately our business financial performance and growth
A significant portion of our net revenues rely on sales to a limited number of customers and distributors We typically do not enter into binding long term purchase commitments with our customers resellers and distributors meaning there is no guarantee that we will continue to receive large recurring orders from them For instance our reseller agreements generally do not require minimum purchases and our customers resellers and distributors can stop purchasing and marketing our products at any time The loss cancellation or delay of purchases has previously impacted our revenues and could again in the future
Any deterioration in the financial stability of our customers resellers and distributors or their ability to obtain credit to finance purchases of our products could significantly adversely affect our results of operations and cash flow If any of our key customers resellers or distributors changes its pricing practices reduces the size or frequency of its orders or stops purchasing our products altogether our operating results financial condition and cash flows could be materially adversely impacted Additionally major customers may seek pricing payment intellectual property related or other commercial terms that are less favorable to us which could negatively impact our business cash flow and operating results
Our growth strategy relies on developing and maintaining strategic partnerships with major third party software and hardware vendors to integrate our products into their products and co market them Many of our strategic partners are industry leaders that provide us with expanded access to market segments where we do not directly participate Strategic partnerships with public cloud providers and other cloud service vendors are particularly critical to the success of our cloud based business
However there is intense competition for attractive strategic partners and these relationships may not be exclusive may not generate significant revenues and may be terminated on short notice Some of our partners also collaborate with our competitors which can increase the availability of competing solutions and hinder our ability to grow these relationships Additionally some partners especially large and diversified technology companies including major cloud providers are also our competitors complicating our relationships
If we are unable to establish new or maintain current partnerships if our strategic partners prioritize their relationships with other vendors in the storage industry if our strategic partners seek to renegotiate or terminate our agreements or if our strategic partners increasingly compete with us we could experience lower than expected revenues delays in product development and other adverse effects on our business operating results financial condition and cash flows
In fiscal 2024 and fiscal 2025 we reorganized our sales resources including changes and additions to our sales leadership team to gain operational efficiencies and better align our resources with customer and market opportunities However such reorganization and ongoing adjustments to our go to market model could disrupt our sales cycles in the short or long term may not yield the desired efficiencies and benefits and could harm our operating results financial condition and cash flows
We have undertaken and may in the future undertake initiatives that include reorganizing our workforce restructuring discontinuing certain products acquisitions and dispositions of businesses reducing facilities or a combination of these actions which could result in restructuring charges Rapid changes in the size alignment or organization of our workforce including our business unit structure structure of our sales team and sales account coverage could impair our ability to develop sell and deliver products and services as planned or hinder our ability to achieve our business and financial objectives Charges associated with these activities could harm our operating results
Our ability to achieve the anticipated cost savings and other benefits from these initiatives depends on many estimates and assumptions which are subject to uncertainties If our estimates and assumptions are incorrect if we are unsuccessful at implementing changes or if other unforeseen events occur our business financial condition and results of operations could be adversely affected
The U S government is an important customer for us but its demand is uncertain due to political and budgetary fluctuations and constraints Uncertainty related to the U S government budget and debt levels changes to governmental agency structure compliance with new initiatives and executive orders and reductions in force have increased demand uncertainty for our products Changes in administration may also lead to programs and initiatives moving in or out of favor which may lead to varied perception of our company in the U S government market and may negatively impact our sales to the U S government Additionally the U S government like other customers may evaluate competing products and delay purchases during technology transitions in the storage
Selling our products to the U S government whether directly or through channel partners subjects us to specific regulatory and contractual requirements which may change or increase at short notice Some of these requirements may extend past the specific nature and products of the arrangement and impact our broader corporate policies initiatives and employee resources Failure to comply with these requirements by either us or our channel partners could lead to investigations fines and other penalties including the loss of such government contracts harming our operating results and financial condition For example the U S Department of Justice DOJ has previously pursued claims and settlements with IT vendors including us and our competitors and channel partners under the False Claims Act and other statutes related to violations of regulatory and contractual requirements which may include such areas as pricing and discount practices cybersecurity or procurement integrity These actions in addition to potential fines and other penalties as well as potential government audits and investigations could also result in suspension or disbarment from future government contracts Additionally government certification requirements may change and in doing so restrict our ability to sell into the government sector until we have attained revised certifications or are able to make the required certifications to the government We could also be harmed by claims of non compliance with these requirements by us or our channel partners Any of these outcomes could materially adversely affect our business operating results financial condition and cash flows In response to evolving and increasing security threats the U S government has imposed additional requirements on IT vendors including us These requirements range from software development security e g the Executive Order on Improving the Nation s Cybersecurity EO 14028 issued in May 2021 to require attestation to minimum requirements for our software development framework to supply chain security e g Section 5949 of the FY23 National Defense Authorization Act NDAA prohibits us from including in our products or using in our corporate environment certain semiconductor products and services to cybersecurity e g the U S Department of Defense s Cybersecurity Maturity Model Certification CMMC program Failure to meet these requirements as they apply to us and our products may result in delays or inability to execute contracts with customers particularly with government entities
We derive a significant amount of our revenues in any given quarter from orders booked in the same quarter These orders typically follow intra quarter seasonality patterns with a significant portion occurring toward the end of the quarter If we fail to achieve the forecasted level timing and mix of orders in line with our quarterly targets and historical patterns or if we experience cancellations of significant orders our operating results financial condition and cash flows could be adversely affected
Most of our sales to customers are on an open credit basis with typical payment terms of 30 days During periods of economic uncertainty when access to liquidity may be limited we may experience increased losses as more customers become unable to pay their obligations to us either in full or in part Additionally some customers have entered into recourse and non recourse financing leasing arrangements using third party leasing companies Under recourse leases which typically last three years or less we remain liable for the unpaid remaining lease payments to the third party leasing companies if the end user customer defaults
We do not manufacture certain components used in our products We rely on third parties to manufacture critical components and handle associated logistics Our lack of direct control over these elements combined with the diverse international geographic locations of our manufacturing partners and suppliers creates significant risks for us including
These risks have subjected us and could in the future subject us to supply constraints price increases and minimum purchase requirements which could harm our business operating results financial condition and cash flows The risks associated with our outsourced manufacturing model are particularly acute when we transition products to new facilities or manufacturers introduce and increase volumes of new products or qualify new contract manufacturers or suppliers During these times our ability to manage relationships among ourselves our manufacturing partners and our component suppliers becomes critical New manufacturers products components or facilities create increased costs and risk that we will fail to deliver high quality products in the required volumes to our customers Any failure of a manufacturer or component supplier to meet our quality quantity or delivery requirements in a cost effective manner will harm our business including customer relationships and as a result could harm our operating results financial condition and cash flows Additionally disruption to our manufacturing operations or those of our contract manufacturers could significantly impact our ability to supply our customers and could produce a near term severe impact on the Company
We depend on a limited number of suppliers for drives and other components used in assembling our products including some single source suppliers This reliance has subjected us and could in the future subject us to price rigidity periodic supply constraints and challenges in producing our products with the required quality and quantities Consolidation among suppliers particularly within the semiconductor and storage media industries has led to price volatility and supply constraints When industry supply is constrained or the supply chain is disrupted our suppliers may allocate volumes away from us and to our competitors who depend on many of the same suppliers as we do As a result our business operating results financial condition and cash flows may be adversely affected
We store and transmit and sell products and services that store and transmit personal sensitive and proprietary data related to our products our employees customers clients partners including third party vendors such as data centers and providers of SaaS cloud computing and internet infrastructure and bandwidth and their respective customers This data includes intellectual property records and personal information It is critical to our business strategy that our infrastructure products and services remain secure and are perceived as secure by customers clients and partners
There are numerous and evolving cybersecurity and privacy risks including criminal hacking eCrime state sponsored intrusions industrial espionage hacktivism insider threats inadvertent disclosure ransomware attacks social engineering exploitation of unpatched or unmanaged vulnerabilities cyber attacks to the Company s service providers suppliers or vendors technological vulnerabilities or destruction or other misuse of data that could harm the Company operations or our competitive position In some cases these types of attacks have been successful Increasing use of AI in techniques employed by threat actors will continue to increase the risk of successful attacks while also providing opportunities for improved attack detection and prevention capabilities Our information systems and data have been specifically targeted by various threat actors including nation state affiliated threat actors and we expect that our information systems and data will continue to be targeted in the future Cybersecurity incidents or other security breaches have in the past and could in the future result in 1 unauthorized access to or loss or unauthorized use alteration or disclosure of personal sensitive and or proprietary data 2 litigation indemnity obligations government investigations and proceedings regulatory fines and penalties and other possible liabilities 3 revenue loss 4 negative publicity and damage to our reputation and 5 disruptions to our internal and external operations
These outcomes could damage our reputation harm our business and lead to significant liabilities Additionally a cybersecurity incident or loss of personal information has in the past and could in the future result in remediation costs disruption of internal operations increased cybersecurity protection costs significant fines and or lost revenues
Our clients and their customers use our platforms to transmit and store sensitive data We do not generally have the ability to review the information or content they upload and store nor do we control the substance of this information or content If our employees clients partners or their respective customers use our platforms for the transmission or storage of sensitive information or our supply chain cybersecurity is compromised and our security measures are breached as a result of third party action employee
Security industry experts and U S government officials continue to emphasize risks to our industry Cyber attacks and security breaches continue to increase and of particular concern are supply chain attacks against software development and breaches of technology service providers We anticipate that cyberattacks will continue to increase in the future given cyber warfare has become a consistent lever within geopolitical conflicts and increasingly leverages hacktivism We cannot give assurance that we will always be successful in preventing or repelling unauthorized access to our systems We also may face delays in our ability to identify or otherwise respond to any cybersecurity incident or any other breach Future cyber attacks or incidents could persist undetected in our environments for a period of time Additionally we use third party service providers to provide some services to us that involve the storage or transmission of data such as SaaS cloud computing and internet infrastructure and bandwidth and they face various cybersecurity threats and also may suffer cybersecurity incidents or other security breaches While we conduct diligence on these third parties our ability to monitor these third parties information security practices is limited and these third parties may not have adequate information security measures in place In addition supply chain attacks have increased in frequency and severity and we cannot guarantee that third parties infrastructure in our supply chain or our third party partners supply chains have not been or will not be compromised Many jurisdictions require companies to notify regulators or individuals of data security incidents involving certain types of personal data These mandatory disclosures regarding security incidents often lead to widespread negative publicity The risk of reputational harm may be magnified by the rapid dissemination of information online Any security incident loss of data or other security breach whether actual or perceived or whether impacting us or our third party service providers could harm our reputation erode customer confidence in the effectiveness of our data security measures negatively impact our ability to attract new customers cause existing customers to elect not to renew their support contracts or their SaaS subscriptions or subject us to third party lawsuits regulatory fines or other action or liability which could materially and adversely affect our business and operating results
There can be no assurance that the limitations of liability in our contracts would be enforceable or adequate or would otherwise protect us from any such liabilities or damages with respect to any particular claim Our existing general liability insurance coverage cybersecurity insurance coverage and coverage for errors and omissions may not continue to be available on acceptable terms or may not be available in sufficient amounts to cover one or more large claims or our insurers may deny coverage as to any future claim The successful assertion of one or more large claims against us that exceeds available insurance coverage or the occurrence of changes in our insurance policies including premium increases or the imposition of large deductible or co insurance requirements could have a material adverse effect on our business operating results financial condition and cash flows
Our clients including data centers SaaS providers cloud computing services and internet infrastructure and bandwidth providers rely on our products for their data storage needs These clients may authorize third party technology providers to access their data on our systems Errors or wrongdoing by clients their customers or third party technology providers resulting in actual or perceived security breaches may result in such actual or perceived breaches being attributed to us
A failure to meet our customers and partners expectations regarding security and confidentiality due to disruptions in services provided by third party vendors or the loss or alteration of data stored by such vendors could cause financial or reputational harm to our business This harm could occur if the disruption or data loss is caused by or perceived to be caused by defects in our products The risk of reputational harm may be magnified by the rapid dissemination of information over the internet including through news articles blogs social media and other online communication forums and services This could affect our ability to retain clients and attract new business
Additionally our operations and select cloud services rely on third party cloud providers Interruptions due to technical failures such as hardware or software issues or connectivity problems security incidents compliance changes operational challenges and natural disasters could reduce revenue due to the cloud services metered billing and could pose reputational risks Moreover dependence on key cloud infrastructure providers carries systemic risks as we could face amplified reputational damage if observability features fail during client outages
Our business is increasingly subject to regulation by various federal state and international governmental agencies responsible for enacting and enforcing laws and regulations relating to privacy data protection and information security For example since the EU s General Data Protection Regulation became effective in 2018 the Court of Justice of the EU has issued rulings that have impacted how multinational companies must implement that law and the European Commission EC has published new regulatory
requirements relating to cross border data transfers NetApp relies on compliance methods such as Standard Contractual Clauses SCCs to transfer personal data of individuals located in the European Economic Area EEA to other countries In June 2021 the EC imposed new SCC requirements which impose certain contractual and operational requirements on NetApp and its contracting parties including requirements related to government access transparency enhanced data subject rights and broader third party assessments to ensure safeguards necessary to protect personal data transferred from NetApp or its partners to countries outside the EEA requiring NetApp to revise customer and vendor agreements Other global governments have adopted new privacy and data protection laws implementing similarly comprehensive regulatory frameworks
The interpretation and application of many privacy data protection and information security laws and regulations along with industry standards are uncertain These laws regulations or standards may be interpreted and applied in ways that are inconsistent with our data management practices or product features Additionally government certification requirements for products like ours may change and in doing so restrict our ability to sell into the government sector until we have attained revised certifications Any failure or perceived failure by us or our business partners to comply with relevant laws regulations contractual commitments required certifications self regulatory standards or our policies could subject us to claims investigations sanctions enforcement actions disgorgement of profits fines damages civil and criminal liability penalties or injunctions
As a technology provider our customers expect us to demonstrate compliance with privacy data protection and information security laws and regulations Our inability or perceived inability to do so may adversely impact sales of our products and services especially to customers in highly regulated industries We have invested resources in complying with new laws and regulations and may need to make additional significant changes to our business operations which could adversely affect our revenue and overall business Non compliance could harm our reputation and brand incur significant costs materially affect our financial and operating results and require modifications to our products or business practices
Our business could face stricter obligations greater fines and private causes of action under new privacy data protection and information security laws and regulations including the GDPR which provides for penalties of up to 20 million Euros or four percent of our total worldwide annual turnover of the preceding financial year whichever is higher the California Consumer Privacy Act the California Privacy Rights Act and other similar U S state based regulations as well as new and emerging privacy laws globally
As NetApp provides technology services to EU financial institutions the Digital Operational Resilience Act DORA imposes financial and legal risks These include compliance costs for enhancing cybersecurity performing resilience testing requiring comprehensive documentation increased audits and detailed reporting Stricter contractual obligations will be imposed by financial institution clients necessitating more robust incident reporting and data protection measures Non compliance could result in legal liabilities suspension of services and reputational damage Additionally NetApp must ensure that its subcontractors and suppliers also comply with DORA requirements further increasing the complexity and potential liability
Our products and services are complex We have experienced in the past and expect to experience in the future quality issues impacting certain products and we could experience reliability issues with services we provide including security vulnerabilities software bugs hardware failure in networked storage appliances incompatibility issues with customer systems or other applications performance deficiencies causing slow data retrieval or processing firmware or software updates causing system instability compliance with various product certifications and data breaches due to flaws in the product design Such quality and reliability issues may be due to for example our own designs or processes the designs or processes of our suppliers and or flaws in third party software used in our products These types of risks are most acute when we are introducing new products Quality or reliability issues have and could again in the future cause customers to experience outages or disruptions in service data loss or data corruption If we fail to remedy a product defect or flaw we may experience a failure of a product line temporary or permanent withdrawal from a product or market damage to our reputation loss of revenue inventory costs or product reengineering expenses and higher ongoing warranty and service costs and these occurrences could have a material impact on our gross margins business and operating results In addition we exercise little control over how our customers use or maintain our products and services and in some cases improper usage or maintenance could impair the performance of our products and services which could lead to a perception of a quality or reliability issue Customers may experience losses that may result from or are alleged to result from defects or flaws in our products and services which could subject us to claims for damages including consequential damages
The laws and regulations governing the manufacturing sourcing distribution and use of our products have become increasingly complex and stringent For example in addition to various environmental laws relating to carbon emissions the use and discharge of hazardous materials and the use of certain minerals originating from identified conflict zones many governments including the U S
We incur costs to comply with these requirements Given the complexity of our supply chain we may face reputational harm if our customers or other stakeholders conclude that we are unable to verify sufficiently the origins of the minerals used in the products we sell or the actions of our suppliers with respect to workers As the laws and regulations governing our products continue to expand and change our costs are likely to rise and the failure to comply with any such laws and regulations could subject us to business interruptions litigation risks and reputational harm
Due to the global nature of our business we are subject to import and export restrictions and regulations including the Export Administration Regulations administered by the Commerce Department s Bureau of Industry and Security BIS and the trade and economic sanctions regulations administered by the Treasury Department s Office of Foreign Assets Control OFAC The U S through the BIS and OFAC places restrictions on the sale or export of certain products and services to certain countries entities and persons including most recently to Russia Belarus and regions of Ukraine These regulations have caused us to temporarily stop selling or servicing our products temporarily in restricted areas
Violators of export control and sanctions laws may be subject to significant penalties which may include significant monetary fines criminal proceedings against them and their officers and employees a denial of export privileges and suspension or debarment from selling products to the federal government Our products could be diverted by third parties including potentially our channel partners to countries or end users under sanctions embargo orders despite our precautions
If we were ever found to have violated U S export control laws or any trade related laws or regulations even if inadvertent or without our knowledge we may be subject to various penalties available under the laws any of which could have a material and adverse impact on our business operating results and financial condition Even if we were not found to have violated such laws the political and media scrutiny surrounding any governmental investigation of us could cause us significant expense and reputational harm Such collateral consequences could have a material adverse impact on our business operating results financial condition and cash flows
Our success depends significantly upon developing maintaining and protecting our proprietary technology We rely on a combination of patents copyrights trademarks trade secrets confidentiality procedures and contractual provisions with employees resellers strategic partners and customers to protect our proprietary rights We currently have multiple U S and international patent applications pending and multiple U S and international patents issued The pending applications may not be approved and our existing and future patents may be challenged If such challenges are brought the patents may be invalidated We may not be able to develop proprietary products or technologies that are patentable and patents issued to us may not provide us with any competitive advantages and may be challenged by third parties Further the patents of others may materially and adversely affect our ability to do business In addition a failure to obtain and defend our trademark registrations may impede our marketing and branding efforts and competitive condition Litigation may be necessary to protect our proprietary technology Any such litigation may be time consuming and costly Despite our efforts to protect our proprietary rights unauthorized parties may attempt to copy aspects of our products or obtain and use information that we regard as proprietary In addition the laws of some foreign countries do not protect proprietary rights to as great an extent as do the laws of the U S Our means of protecting our proprietary rights may not be adequate or our competitors may independently develop similar technology duplicate our products or design around patents issued to us or other intellectual property rights of ours There is persistent risk that some individuals will improperly take our intellectual property after terminating their employment or other engagements with us which could lead to intellectual property leakage to competitors and a loss of our competitive advantages
We compete in markets in which intellectual property infringement claims arise in the normal course of business Third parties have from time to time asserted intellectual property related claims against us including claims for alleged patent infringement brought by non practicing entities Such claims may be made against our products and services our customers use of our products and services or a combination of our products and third party products We also may be subject to claims and indemnification obligations from customers and resellers with respect to third party intellectual property rights pursuant to our agreements with them If we refuse to indemnify or defend such claims even in situations in which the third party s allegations are meritless then customers and resellers may refuse to do business with us
Patent litigation is particularly common in our industry We have been and continue to be in active patent litigations with non practicing entities There is no guarantee that in patent or other types of intellectual property litigation we will prevail at trial or be able to settle at a reasonable cost If a judge or jury were to find that our products infringe we could be required to pay significant monetary damages and be subject to an injunction that could cause product shipment delays require us to redesign our products affect our ability to supply or service our customers and or require us to enter into compulsory royalty or licensing agreements
We expect that companies in the enterprise storage and data management and cloud storage operational and workload services markets will increasingly be subject to infringement claims as the number of products and competitors in our industry segment grows and the functionality of products in different industry segments overlaps Any such claims and any such infringement claims discussed above could be time consuming result in costly litigation cause suspension of product shipments or product shipment delays require us to redesign our products or require us to enter into royalty or licensing agreements any of which could materially and adversely affect our operating results financial condition and cash flows Such royalty or licensing agreements if required may not be available on terms acceptable to us or at all
Many of our products are designed to include software licensed from third parties Such third party software includes software licensed from commercial suppliers and software licensed under public or open source licenses We have internal processes to manage our use of such third party software However if we fail to adequately manage our use of third party software then we may be subject to copyright infringement or other third party claims If we are non compliant with a license for commercial software then we may be required to pay penalties or undergo costly audits pursuant to the license agreement In the case of open source software licensed under certain copyleft licenses the license itself may require or a court imposed remedy for non compliant use of the open source software may require that proprietary portions of our own software be publicly disclosed or licensed Additionally contract proposals negotiations and software proposals are complex and frequently involve lengthy bidding and selection processes We may not be able to negotiate extensions to our current third party licenses when due for renewal or continue to secure such licenses under commercially reasonable terms Each of the foregoing could result in a loss of intellectual property rights increased costs damage to our reputation and or a loss of revenue
In addition many of our products use open source software Such open source software generally does not provide any warranty or contractual protection and may be susceptible to compromise and supply chain attacks by threat actors Further open source software or third party software may contain vulnerabilities which may or may not be known at the time of our inclusion of the software in a product If a vulnerability in such software is successfully exploited we could be subject to damages including remediation costs reputational damage and lost revenues
Emerging standards may adversely affect the UNIX Windows and World Wide Web server markets upon which we depend For example we provide our open access data retention solutions to customers within the financial services healthcare pharmaceutical and government market segments industries that are subject to various evolving governmental regulations certifications and controls with respect to data access reliability and permanence in the U S and in the other countries in which we operate If our products do not meet and continue to comply with these evolving governmental regulations in this regard customers in these market and geographical segments will not purchase our products and we may not be able to expand our product offerings in these market and geographical segments at the rates which we have forecasted
Our stock price is subject to changes in recommendations or earnings estimates by financial analysts changes in investors or analysts valuation measures for our stock changes in our capital structure including issuance of additional debt changes in our credit ratings our ability to pay dividends and to continue to execute our stock repurchase program as planned and market trends and economic volatility unrelated to our performance
If we fail to meet any investor expectations related to dividends and or stock repurchases the market price of our stock could decline significantly and could have a material adverse impact on investor confidence Additionally price volatility of our stock over a given period may cause the average price at which we repurchase our own stock to exceed the stock s market price at a given point in time
Furthermore speculation in the press or investment community about our strategic position financial condition results of operations or business can cause changes in our stock price These factors as well as general economic and political conditions and the timing of announcements in the public market regarding new products or services product enhancements or technological
Our operating results have fluctuated in the past and will continue to do so sometimes materially All of the matters discussed in this Risk Factors section could impact our operating results in any fiscal quarter or year In addition to those matters we face the following issues which could impact our quarterly results
As of April 25 2025 we had 3 3 billion aggregate principal amount of outstanding indebtedness for our senior notes that mature at specific dates in calendar years 2025 2027 2030 2032 and 2035 We may incur additional indebtedness in the future under existing credit facilities and or enter into new financing arrangements We may fail to pay these or additional future obligations as and when required Specifically if we are unable to generate sufficient cash flows from operations or to borrow sufficient funds in the future to service or refinance our debt our business operating results financial condition and cash flows will be harmed Any downgrades from credit rating agencies such as Moody s Investors Service or Standard Poor s Rating Services may adversely impact our ability to obtain additional financing or the terms of such financing and reduce the market capacity for our commercial paper Furthermore if prevailing interest rates or other factors result in higher interest rates upon any potential future financing then interest expense related to the refinance indebtedness would increase
In addition all our debt and credit facility arrangements subject us to continued compliance with restrictive and financial covenants If we do not comply with these covenants or otherwise default under the arrangements we may be required to repay any outstanding amounts borrowed under these agreements Moreover compliance with these covenants may restrict our strategic or operational flexibility in the future which could harm our business operating results financial condition and cash flows
We depend on the ability of our personnel inventories equipment and products to move reasonably unimpeded around the world Any political military terrorism global trade world health or other issue that hinders this movement or restricts the import or export of materials could lead to significant business disruptions For example the COVID 19 pandemic impeded the mobility of our personnel inventories equipment and products and disrupted our business operations Furthermore any economic failure or other material disruption caused by natural disasters including fires floods droughts hurricanes tornadoes earthquakes and volcanoes power or water loss or shortages environmental disasters telecommunications or business information systems failures or break ins and similar events could also adversely affect our ability to conduct business As a result of climate change we expect the frequency and impact of such natural disasters or other material disruptions to increase If such disruptions result in cancellations of customer orders or contribute to a general decrease in economic activity or corporate spending on IT or directly impact our marketing manufacturing financial and logistics functions or impair our ability to meet our customer demands our operating results and financial condition could be materially adversely affected Our headquarters is located in Northern California an area susceptible to earthquakes and wildfires If any significant disaster were to occur there our ability to operate our business and our operating results financial condition and cash flows could be adversely impacted
We receive significant tax benefits from sales to our non U S customers These benefits are contingent upon existing tax laws and regulations in the U S and in the countries in which our international operations are located Future changes in domestic or international tax laws and regulations or a change in how we manage our international operations could adversely affect our ability to continue realizing these tax benefits
Many countries around the world are beginning to implement legislation and other guidance to align their international tax rules with the Organization for Economic Co operation and Development s Base Erosion and Profit Shifting Project BEPS recommendation and related action plans that aim to standardize and modernize global corporate tax policy including changes to cross border tax transfer pricing documentation rules and nexus based tax incentive practices As a result many of these changes if enacted in whole or in part could increase our worldwide effective tax rate and harm our operating results financial condition and cash flows Implementation of the BEPS inclusive framework Inclusive Framework including potential incremental taxes under a new global minimum tax framework known as Pillar Two is effective in most jurisdictions for fiscal years beginning on or after January 1 2024 We are currently subject to Pillar Two rules starting in our fiscal year 2025 and could potentially be subject to additional taxes under the Inclusive Framework Amount B under Pillar One of the Inclusive Framework is related to standardized returns for baseline marketing and distribution activities Amount B is applicable to NetApp beginning in fiscal 2026 and we could be subject to higher controlled profit requirements for some of our global distribution entities which could increase our global tax burden
Our effective tax rate could also be adversely affected by changes in tax laws and regulations and interpretations of such laws and regulations which in turn would negatively impact our earnings and cash and cash equivalent balances we currently maintain Additionally our effective tax rate could also be adversely affected if there is a change in international operations our tax structure and how our operations are managed and structured and as a result we could experience harm to our operating results and financial condition We continue to evaluate the impacts of changes in tax laws and regulations on our business
We are routinely subject to income tax audits in the U S and several foreign tax jurisdictions If the ultimate determination of income taxes or at source withholding taxes assessed under these audits results in amounts in excess of the tax provision we have recorded or reserved for our operating results financial condition and cash flows could be adversely affected
We cannot be assured that significant deficiencies or material weaknesses in our internal control over financial reporting will not exist in the future Any failure to maintain or implement required new or improved controls or any difficulties we encounter in their implementation including in connection with our new ERP system could result in significant deficiencies or material weaknesses cause us to fail to timely meet our periodic reporting obligations or result in material misstatements in our financial statements Any such failure could also adversely affect the results of periodic management evaluations and annual auditor attestation reports regarding disclosure controls and the effectiveness of our internal control over financial reporting required under the Sarbanes Oxley Act and the rules promulgated thereunder The existence of a material weakness could result in errors in our financial statements that could result in a restatement of financial statements cause us to fail to timely meet our reporting obligations or cause investors to lose confidence in our reported financial information which could cause a decline in the market price of our stock and we could be subject to sanctions or investigations by the SEC or other regulatory authorities including equivalent foreign authorities Further irrespective of the controls that we adopt we cannot be assured that we will not experience fraudulent financial reporting in the future including earnings mismanagement recording fictitious revenues improper asset valuation understating liabilities or expenses inadequate disclosure reserve manipulation misuse of judgments in financial reporting concealing fraud or illegal activities information tampering and insider trading based on non public information about the Company s financials
The Company regularly assesses risks from cybersecurity threats monitors its information systems for potential vulnerabilities and tests those systems pursuant to the Company s cybersecurity policies standards processes and practices which are integrated into the Company s overall risk management system To protect the Company s information systems from cybersecurity threats the Company uses various security technologies and tools that help the Company identify escalate investigate manage resolve and recover from security incidents in a timely manner These efforts include
The Company takes a risk based approach to cybersecurity and has implemented cybersecurity policies throughout its operations that are designed to address cybersecurity threats and incidents In particular the Company follows an incident escalation process that is incorporated into its incident and risk management processes In the event the Company identifies a cybersecurity incident its senior management consisting of the Chief Financial Officer Chief Information Security Officer CISO Chief Administrative Officer and Executive Vice President of Business Technology and Operations review the facts and circumstances involved in such cybersecurity incident or series of related cybersecurity incidents
The Company partners with third parties to assess the effectiveness of its cybersecurity prevention and response systems and processes including third party review of the Company s Information Security Management System for ISO 27001 controls assessment of the Company s cloud products and managed services according to the American Institute of CPAs AICPA Service Organization Control SOC Audit Type II and new product validation as part of the Company s secure development lifecycle The Company additionally engages third party providers in support of endpoint detection and responses data loss prevention efforts and incident management efforts
To date the Company is not aware of cybersecurity threats including as a result of any previous cybersecurity incidents that have materially affected or are reasonably likely to materially affect the Company including its business strategy results of operations or financial condition For additional discussion of cybersecurity risks and potential related impacts on the Company refer to the risk factors in Part I Item 1A Risk Factors including If a material cybersecurity or other security breach impacts our services systems supply chain or end user customer systems or if stored data is improperly accessed our business could suffer significant harm
NetApp s Board of Directors oversees the Company s risk management process including cybersecurity risks directly and through its committees The Audit Committee of the Board of Directors oversees the Company s risk management program which focuses on the most significant risks the Company faces in the short intermediate and long term timeframes The Company s CISO regularly updates each of the Board of Directors and the Audit Committee at least twice a year Such updates include a review of cybersecurity risks affecting the Company related metrics and any incidents or issues that require attention from the Board of Directors
Certified Information Security Auditor Certified Information Security Manager with ISACA and a Certified Information Systems Security Professional with ISC2 The CISO stays informed on information security risks through regular meetings on key cybersecurity projects and KPIs Updates are communicated to the Global Security Steering Committee which provides quarterly reports to the Board of Directors and to the Audit Committee
We lease approximately 0 7 million square feet in other sales offices and research and development facilities throughout the U S and internationally We expect that our existing facilities and those being developed worldwide are suitable and adequate for our requirements over at least the next two years
The Company paid cash dividends of 0 52 per outstanding common share in each quarter of fiscal 2025 for an aggregate of 424 million and 0 50 per outstanding common share in each quarter of fiscal 2024 and fiscal 2023 for an aggregate of 416 million and 432 million respectively In the first quarter of fiscal 2026 the Company declared a cash dividend of 0 52 per share of common stock payable on July 23 2025 to shareholders of record as of the close of business on July 3 2025
The following graph shows a comparison of cumulative total shareholder return calculated on a dividend reinvested basis of an investment of 100 for the Company the S P 500 Index the S P 500 Information Technology Index and the S P 1500 Technology Hardware Equipment Index for the five years ended April 25 2025 The comparisons in the graphs below are based upon historical data and are not indicative of nor intended to forecast future performance of our common stock The graph and related information shall not be deemed soliciting material or be deemed to be filed with the SEC nor shall such information be incorporated by reference into any past or future filing with the SEC except to the extent that such filing specifically states that such graph and related information are incorporated by reference into such filing
In May 2003 our Board of Directors approved a stock repurchase program As of April 25 2025 our Board of Directors had authorized the repurchase of up to 17 1 billion of our common stock and on May 22 2025 authorized an additional 1 1 billion Since inception of the program through April 25 2025 we repurchased a total of 382 million shares of our common stock for an aggregate purchase price of 16 8 billion 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
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 Part II 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 Part I Item 1A Risk Factors are hereby incorporated into the discussion by reference
NetApp helps customers make their data infrastructure more seamless more dynamic and higher performing We were incorporated in 1992 are headquartered in San Jose California and provide a full range of enterprise class software systems and services that customers use to transform their data infrastructures across data types workloads and environments to realize business possibilities
We leverage over thirty years of innovation to make data infrastructure intelligent Our unified data storage solutions deliver flexible simplified and silo free infrastructure Our active data management capabilities focus on security compliance and sustainability while our adaptive operations enhance performance efficiency and productivity Our extensive portfolio integrates hybrid and multi cloud environments addressing key customer priorities such as modernizing legacy systems enhancing resilience against ransomware and developing scalable high performance data pipelines for artificial intelligence AI workloads
NetApp empowers customers to harness their data for accelerated innovation improved operations and competitive advantage Our unified data storage solutions provide the flexibility to consistently and easily store any data type and support any workload As the only enterprise grade storage service natively embedded in the world s largest clouds we power data across Amazon AWS Microsoft Azure and Google Cloud Our integrated data services enable active data management security protection governance and sustainability Additionally our operational services support adaptive operations across infrastructure applications and teams Together with our Hybrid Cloud products these services enable customers to construct a seamless intelligent data infrastructure across hybrid multi cloud environments
Hybrid Cloud offers a unified data storage portfolio of storage management and infrastructure solutions that helps customers modernize their data centers Our Hybrid Cloud portfolio accommodates both structured and unstructured data with unified storage optimized for flash disk and cloud storage capable of handling data intensive workloads and applications Hybrid Cloud includes software hardware and related support along with professional and other services
Public Cloud offers a portfolio of products delivered primarily as a service including related support This portfolio includes cloud storage data services and operational services These services are generally available on the leading public clouds including Amazon AWS Microsoft Azure and Google Cloud
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 years 2025 2024 and 2023 which ended on April 25 2025 April 26 2024 and April 28 2023 respectively are all 52 week years with 13 weeks in each of their quarters 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 increase in net revenues for fiscal 2025 compared to fiscal 2024 was due to an increase in both product revenues and services revenues Product revenues as a percentage of net revenues increased by approximately one percentage point in fiscal 2025 compared to fiscal 2024 while services revenues as a percentage of net revenues decreased by approximately one percentage point
The decrease in net revenues for fiscal 2024 compared to fiscal 2023 was due to a decrease in product revenues partially offset by an increase in services revenues Product revenues as a percentage of net revenues decreased by approximately three percentage points in fiscal 2024 compared to fiscal 2023 while services revenues as a percentage of net revenues increased by approximately three percentage points
In prior years we presented the hardware and software components of our GAAP product revenues to illustrate the significance and value of the Company s software Because our revenue recognition policy under GAAP defines a configured storage system inclusive of the operating system software essential to its functionality as a single performance obligation hardware and software components of our product revenues are considered non GAAP measures Effective in fiscal 2025 we are no longer presenting the non GAAP hardware and software components of our product revenues as management no longer considers them to be key financial measures Our current strategy is expected to deliver investor value through growth in total revenues including product revenues while maintaining operational discipline to drive earnings leverage While software continues to be the primary value driver of our products NetApp is primarily focused on driving growth in total product revenues through the sale of configured storage systems comprised of both hardware and software with less focus on the pricing of each component Additionally we are considering potential opportunities to simplify pricing for certain products in the future which may eliminate the existence of separate prices for hardware and software components and or impact our ability to allocate between them
Product revenues are derived through the sale of our Hybrid Cloud solutions and consist of sales of configured all flash array systems including All Flash FAS A Series and All Flash FAS C Series with capacity flash and hybrid systems which are bundled hardware and software products as well as add on flash disk and or hybrid storage and related OS StorageGrid OEM products NetApp HCI and add on optional software
Hybrid Cloud services revenues are derived from the sale of 1 support which includes both hardware and software support contracts the latter of which entitle customers to receive unspecified product upgrades and enhancements bug fixes and patch releases and 2 professional and other services which include customer education and training
1 cost of product revenues composed of a cost of Hybrid Cloud product revenues which includes the costs of manufacturing and shipping our products inventory write downs and warranty costs and b unallocated cost of product revenues which includes stock based compensation and amortization of intangibles and
2 cost of services revenues composed of a cost of support revenues which includes the costs of providing support activities for hardware and software support global support partnership programs and third party royalty costs b cost of professional and other services revenues c cost of public cloud revenues constituting the cost of providing our Public Cloud offerings which includes depreciation and amortization expense and third party datacenter fees and d unallocated cost of services revenues which includes stock based compensation and amortization of intangibles
Cost of Hybrid Cloud services revenues which are composed of the costs of support and professional and other services increased in fiscal 2025 and fiscal 2024 compared to the respective prior years reflecting the increase in Hybrid Cloud services revenues Cost of Hybrid Cloud services revenues represented 16 16 and 14 of Hybrid Cloud services revenues in fiscal 2025 2024 and 2023 respectively
Hybrid Cloud support gross margins were similar in fiscal 2025 fiscal 2024 and fiscal 2023 Hybrid Cloud professional and other services gross margins increased by approximately two percentage points in fiscal 2025 compared to fiscal 2024 while they decreased by approximately ten percentage points in fiscal 2024 compared to fiscal 2023 primarily due to the mix of services provided
Cost of Public Cloud revenues decreased in fiscal 2025 compared to fiscal 2024 while Public Cloud gross margins increased by eight percentage points in fiscal 2025 compared to fiscal 2024 The decrease in cost of Public Cloud revenues and improved gross margins was due to cost optimization that included a decrease in fixed assets depreciation and the mix of offerings provided
Unallocated cost of services revenues decreased in fiscal 2025 compared to fiscal 2024 due to the derecognition of certain intangible assets as a result of the sale of our cloud optimization and management software business known as Spot by NetApp during the fourth quarter of fiscal 2025 Unallocated cost of services revenues decreased in fiscal 2024 compared to fiscal 2023 due to certain intangible assets becoming fully amortized during the first quarter of fiscal 2024
The increase in research and development expenses in fiscal 2024 compared to fiscal 2023 was primarily due to higher compensation costs attributable to higher incentive compensation expense and stock based compensation expense partially offset by lower salaries expense reflecting a decrease in average headcount of 5
The increase in general and administrative expenses in fiscal 2024 compared to fiscal 2023 was attributable to increases in all components of compensation costs but predominately incentive compensation expense Professional and legal fees and outside services expense was also slightly higher in fiscal 2024 due to higher spending on certain business transformation projects
In an effort to reduce our cost structure and redirect resources to our highest return activities in fiscal 2025 2024 and 2023 we initiated a number of business realignment plans designed to streamline our business and focus on key strategic opportunities These plans resulted in aggregate charges of 83 million 44 million and 120 million respectively consisting primarily of employee severance related costs Additionally the aggregate charges for fiscal 2025 and fiscal 2024 included optimization of our global office space for our hybrid work model See Note 12 Restructuring Charges of the Notes to Consolidated Financial Statements included in Part II Item 8 for more details regarding our restructuring plans
Other net for fiscal 2023 includes 22 million of other income for non refundable up front payments from customers in Russia for support contracts which we were not able to fulfill due to imposed sanctions and for which we have no remaining legal obligation to perform Other net for fiscal 2023 also includes a 32 million gain recognized on our sale of a minority equity interest in a privately held company for proceeds of 59 million The remaining difference in Other net for fiscal 2024 compared to fiscal 2023 is primarily due to differences in foreign exchange gains and losses
The differences in the effective tax rates between fiscal years were primarily due to fiscal 2025 benefits related to the Internal Revenue Service IRS examination of our fiscal 2018 and fiscal 2019 U S income tax returns and fiscal 2023 benefits resulting from an intra entity asset transfer of certain IP partially offset by discrete tax expense recorded as a result of the Danish Supreme Court ruling received January 9 2023
During fiscal 2023 we completed an intra entity asset transfer of certain IP to our international headquarters the IP Transfer The transaction resulted in a step up of tax deductible basis in the transferred assets and accordingly created a temporary difference where the tax basis exceeded the financial statement basis of such intangible assets which resulted in the recognition of a discrete tax benefit and related deferred tax asset of 524 million during the second quarter of fiscal 2023 Management applied significant judgment when determining the fair value of the IP which serves as the tax basis of the deferred tax asset With the assistance of third party valuation specialists the fair value of the IP was determined principally based on the present value of projected cash flows related to the IP which reflects management s assumptions regarding projected revenues earnings before interest and taxes and a discount rate The tax deductible amortization related to the transferred IP rights will be recognized in future periods and any amortization that is unused in a particular year can be carried forward indefinitely The deferred tax asset and the tax benefit were measured based on the enacted tax rates expected to apply in the years the asset is expected to be realized We expect to realize the deferred tax asset resulting from the IP Transfer and will assess the realizability of the deferred tax asset quarterly Any Organisation for Economic Co operation and Development s actions adopted internationally could impact our financial results in future periods The impact of the transaction to net cash provided by or used in operating investing and financing activities on the consolidated statements of cash flows during fiscal 2023 was not material
During fiscal 2023 the Danish Supreme Court issued a non appealable ruling on the distributions declared in 2005 and 2006 The Danish Supreme Court ruled the 2005 dividend was subject to at source dividend withholding tax while the smaller 2006 distribution would not be subject to withholding tax During fiscal 2023 we recorded 69 million of tax expense which includes 23 million of withholding tax and 46 million of interest
As of April 25 2025 our cash cash equivalents and short term investments totaled 3 8 billion reflecting an increase of 594 million from April 26 2024 The increase was primarily due to 1 24 billion of net proceeds from the issuance of Senior Notes and 1 5 billion of cash generated from operating activities partially offset by 1 2 billion used to repurchase shares of our common stock a 400 million principal repayment of our 3 30 Senior Notes due September 2024 424 million used for the payment of dividends and 168 million in purchases of property and equipment Net working capital was 1 2 billion as of April 25 2025 an increase of 398 million when compared to April 26 2024 primarily due to the increases in cash cash equivalents and short term investments discussed above
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 shipping linearity accounts receivable collections performance inventory and supply chain management vendor payment initiatives and the timing and amount of compensation income taxes and other payments
Key factors that 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 cash equivalents and short term investments 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 and thereafter for the foreseeable future We may choose to periodically raise additional debt capital based on certain conditions including the refinancing of upcoming maturities and or for potential strategic acquisitions and investments Our ability to obtain this or any additional financing that we may pursue or need will depend on among other things our business plans operating performance and the condition of the capital markets at the time we seek financing We may not be able to obtain such financing on terms acceptable to us or at all In the event our liquidity is insufficient and we are unable to enter into new financing arrangements we may be required to curtail spending and implement additional cost saving measures and restructuring actions We cannot be certain that we will continue to generate cash flows at or above current levels For further discussion of factors that could affect our cash flows and liquidity requirements see Item 1A Risk Factors
As of April 25 2025 and April 26 2024 2 5 billion and 2 1 billion respectively 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 1 3 billion and 1 2 billion respectively were available in the U S
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 In the ordinary course of business we engage in periodic reviews of opportunities to invest in or acquire companies or units in companies to expand our total addressable market leverage technological synergies and establish new streams of revenue particularly in our Public Cloud segment
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 25 2025
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 U S Securities and Exchange Commission SEC We may in the future offer an additional unspecified amount of debt equity and other securities
In March 2025 we issued 625 million aggregate principal amount of 5 50 Senior Notes due 2032 and 625 million aggregate principal amount of 5 70 Senior Notes due 2035 for which we received total proceeds of 1 24 billion net of discount and issuance costs Interest on these Senior Notes is payable semi annually in March and September
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 25 2025
In connection with the Program we have a senior unsecured credit agreement with a syndicated group of lenders The credit agreement which was amended in March 2025 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 March 5 2030 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 25 2025 we were compliant with all associated covenants in the agreement No amounts were drawn against this credit facility during any of the periods presented
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 2026 to be between 175 million and 225 million
The Tax Cuts and Jobs Act of 2017 imposed a mandatory one time transition tax on accumulated foreign earnings and profits that had not previously been subject to U S income tax As of April 25 2025 a final transition tax payment of 178 million remains outstanding and is expected to be paid during fiscal 2026 During fiscal 2025 transition tax payments totaled 115 million
As of April 25 2025 our Board of Directors had authorized the repurchase of up to 17 1 billion of our common stock under our stock repurchase program 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 25 2025 we repurchased a total of 382 million shares of our common stock at an average price of 43 93 per share for an aggregate purchase price of 16 8 billion As of April 25 2025 the remaining authorized amount for stock repurchases under this program was 0 4 billion On May 22 2025 our Board of Directors authorized the repurchase of an additional 1 1 billion of our common stock
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 1 0 billion at April 25 2025 of which 0 6 billion is due in fiscal 2026 with the remainder due thereafter
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 65 million and 67 million of receivables during fiscal 2025 and 2024 respectively
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 25 2025 and April 26 2024 the aggregate amount
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 25 2025 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
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 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 included in Part II Item 8 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
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
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
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
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
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 including due to macroeconomic uncertainties 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 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
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 one of our reporting units 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 2025 we performed a qualitative assessment of goodwill impairment by evaluating relevant factors to determine whether it is more likely than not that the fair value of each of our reporting units is less than their carrying values As a result of the qualitative assessment we determined the quantitative test was not necessary and there was no impairment of goodwill
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
Assumptions and estimates about expected future cash flows and the fair values of our reporting units 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 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
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
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
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
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
We are exposed to market risk related to fluctuations in interest rates and foreign currency exchange rates We use certain derivative financial instruments to manage foreign currency exchange risks We do not use derivative financial instruments for speculative or trading purposes All financial instruments are used in accordance with management approved policies
Fixed Income Investments As of April 25 2025 we had fixed income debt investments of 2 0 billion and certificates of deposit of 24 million Our fixed income debt investment portfolio primarily consists of investments with original maturities greater than three months at the date of purchase which are classified as available for sale investments These fixed income debt investments which consist primarily of U S Treasury and government debt securities and our certificates of deposit are subject to interest rate and interest income risk and will decrease in value if market interest rates increase Conversely declines in interest rates including the impact from lower credit spreads could have a material adverse impact on interest income for our investment portfolio A hypothetical 100 basis point increase in market interest rates from levels as of April 25 2025 would have resulted in a decrease in the fair value of our fixed income securities of 3 million Volatility in market interest rates over time will cause variability in our interest income We do not use derivative financial instruments in our investment portfolio
Our investment policy is to limit credit exposure through diversification and investment in highly rated securities We further mitigate concentrations of credit risk in our investments by limiting our investments in the debt securities of a single issuer and by diversifying risk across geographies and type of issuer We actively review along with our investment advisors current investment ratings company specific events and general economic conditions in managing our investments and in determining whether there is a significant decline in fair value We monitor and evaluate our investment portfolio on a quarterly basis for any impairments
Debt As of April 25 2025 we have outstanding 3 3 billion aggregate principal amount of Senior Notes We carry these instruments at face value less unamortized discount and issuance costs on our consolidated balance sheets Since these instruments bear interest at fixed rates we have no financial statement risk associated with changes in interest rates However the fair value of these instruments fluctuates when interest rates change See Note 8 Financing Arrangements of the Notes to Consolidated Financial Statements included in Part II Item 8 for more information
Credit Facility We are exposed to the impact of changes in interest rates in connection with our 1 0 billion five year revolving credit facility Borrowings under the facility accrue interest at rates that vary based on certain market rates and our credit rating on our Senior Notes Consequently our interest expense would fluctuate with any changes in these market interest rates or in our credit rating if we were to borrow any amounts under the credit facility As of April 25 2025 no amounts were outstanding under the credit facility
We hedge risks associated with certain foreign currency transactions to minimize the impact of changes in foreign currency exchange rates on earnings We utilize foreign currency exchange forward contracts to hedge against the short term impact of foreign currency fluctuations on certain foreign currency denominated monetary assets and liabilities We also use foreign currency exchange forward contracts to hedge foreign currency exposures related to forecasted sales transactions denominated in certain foreign currencies These derivatives are designated and qualify as cash flow hedges under accounting guidance for derivatives and hedging
We do not enter into foreign currency exchange contracts for speculative or trading purposes In entering into foreign currency exchange forward contracts we have assumed the risk that might arise from the possible inability of counterparties to meet the terms of the contracts We attempt to limit our exposure to credit risk by executing foreign currency exchange contracts with creditworthy multinational commercial banks All contracts have a maturity of 12 months or less See Note 11 Derivatives and Hedging Activities of the Notes to Consolidated Financial Statements included in Part II Item 8 for more information regarding our derivatives and hedging activities
Description of Business NetApp Inc we us NetApp or the Company helps customers make their data infrastructure more seamless more dynamic and higher performing We provide a full range of enterprise class software systems and services that customers use to transform their data infrastructures across data types workloads and environments to realize business possibilities
Fiscal Year Our fiscal year is reported on a 52 or 53 week year ending on the last Friday in April An additional week is included in the first fiscal quarter approximately every six years to realign fiscal months with calendar months Fiscal years 2025 2024 and 2023 which ended on April 25 2025 April 26 2024 and April 28 2023 respectively are all 52 week years with 13 weeks in each of their quarters Unless otherwise stated references to particular years quarters months and periods refer to the Company s fiscal years ended on the last Friday of April and the associated quarters months and periods of those fiscal years
Use of Estimates The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods Such estimates include but are not limited to revenue recognition reserves and allowances inventory valuation valuation of goodwill and intangibles restructuring reserves employee benefit accruals stock based compensation loss contingencies investment impairments income taxes and fair value measurements Actual results could differ materially from those estimates the anticipated effects of which have been incorporated as applicable into management s estimates as of and for the year ended April 25 2025
Available for Sale Investments We classify our investments in debt securities as available for sale investments Debt securities primarily consist of U S Treasury and government debt securities and certificates of deposit These investments are primarily held in the custody of a major financial institution A specific identification method is used to determine the cost basis of debt securities sold These investments are recorded in the consolidated balance sheets at fair value
Unrealized gains and temporary losses net of related taxes are included in accumulated other comprehensive income loss AOCI Upon realization those amounts are reclassified from AOCI to earnings The amortization of premiums and discounts on the investments are included in our results of operations Realized gains and losses are calculated based on the specific identification method
Impairments on Investments All of our available for sale investments are subject to periodic impairment review When the fair value of a debt security is less than its amortized cost we assess what amount of the difference if any is caused by expected credit losses The amount of the difference representing credit losses defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis of the debt security is recognized in earnings and the amount relating to all other factors is recognized in other comprehensive income OCI If we intend to sell the security or if it is more likely than not we will be required to sell the security before recovery of the amortized cost basis the entire difference between the amortized cost and the fair value of the debt security is recognized in earnings
Inventories Inventories are stated at the lower of cost or net realizable value which approximates actual cost on a first in first out basis We write down excess and obsolete inventory based on the difference between the cost of inventory and the estimated net realizable value Net realizable value is estimated using management s best estimate of forecasts for future demand and expectations regarding market conditions At the point of a loss recognition a new lower cost basis for that inventory is established and subsequent changes in facts or circumstances do not result in the restoration or increase in that newly established basis In addition we record a liability for firm non cancelable and unconditional purchase commitments with contract manufacturers and suppliers for quantities in excess of our future demand forecasts consistent with our valuation of excess and obsolete inventory
Construction in progress will be depreciated over the estimated useful lives of the respective assets when they are ready for use We capitalize interest on significant facility assets under construction and on significant software development projects Interest capitalized during the periods presented was not material
Software Development Costs The costs for the development of new software products and substantial enhancements to existing software products are expensed as incurred until technological feasibility has been established at which time any additional costs would be capitalized in accordance with the accounting guidance for software Because our current process for developing software is essentially completed concurrently with the establishment of technological feasibility which occurs upon the completion of a working model no costs have been capitalized for any of the periods presented
Business Combinations We recognize identifiable assets acquired and liabilities assumed at their acquisition date fair values with the exception of contract assets and liabilities which we recognize in accordance with our revenue recognition policy as if we had originally executed the customer contract Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date values of the assets acquired and liabilities assumed While we use our best estimates and assumptions as a part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date our estimates are inherently uncertain and subject to refinement As a result during the measurement period which may be up to one year from the acquisition date we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill to the extent that we identify adjustments to the preliminary purchase price allocation Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed whichever comes first any subsequent adjustments are recorded to our consolidated statements of income
Goodwill and Purchased Intangible Assets Goodwill is recorded when the consideration paid for an acquisition exceeds the value of net tangible and intangible assets acquired Purchased intangible assets with finite lives are generally amortized on a straight line basis over their economic lives of three to five years for developed technology two to five years for customer contracts relationships two to three years for covenants not to compete and two to five years for trademarks and trade names as we believe this method most closely reflects the pattern in which the economic benefits of the assets will be consumed In process research and development is accounted for as an indefinite lived intangible asset and is assessed for potential impairment annually until development is complete or when events or circumstances indicate that their carrying amounts might be impaired Upon completion of development in process research and development is accounted for as a finite lived intangible asset
The carrying value of goodwill is tested for impairment on an annual basis in the fourth quarter of our fiscal year or more frequently if we believe indicators of impairment exist Triggering events for impairment reviews may be indicators such as adverse industry or economic trends restructuring actions lower projections of profitability or a sustained decline in our market capitalization For the purpose of impairment testing we have two reporting units which are the same as our two reportable segments We initially conduct a qualitative assessment to determine whether it is necessary to perform a quantitative goodwill impairment test The performance of the quantitative impairment test requires comparing the fair value of each reporting unit to its carrying amount including goodwill The fair value of each reporting unit is based on a combination of the income approach and the market approach
Under the income approach we estimate the fair value of a reporting unit based on the present value of estimated future cash flows Cash flow projections are based on discrete forecast periods as well as terminal value determinations and are derived based on forecasted revenue growth rates and operating margins These cash flow projections are discounted to arrive at the fair value of each reporting unit The discount rate used is based on the weighted average cost of capital of comparable public companies adjusted for the relevant risk associated with business specific characteristics and the uncertainty related to the reporting unit s ability to execute on the projected cash flows Under the market approach we estimate the fair value based on market multiples of revenue and earnings derived from comparable publicly traded companies with operating and investment characteristics similar to the reporting unit In addition we make certain judgments and assumptions in allocating shared assets and liabilities to individual reporting units to determine the carrying amount of each reporting unit An impairment exists if the fair value of a reporting unit is lower than its carrying amount The impairment loss is measured based on the amount by which the carrying amount of the reporting unit exceeds its fair value with the recognized loss not to exceed the total amount of allocated goodwill We did not recognize any impairment charges on our goodwill in any of the periods presented
Impairment of Long Lived Assets We review the carrying values of long lived assets whenever events and circumstances such as reductions in demand lower projections of profitability significant changes in the manner of our use of acquired assets or significant negative industry or economic trends indicate that the net book value of an asset may not be recovered through expected future cash flows from its use and eventual disposition If this review indicates that there is an impairment the impaired asset is written down to its fair value which is typically calculated using i quoted market prices and or ii expected future cash flows utilizing a discount rate Our estimates regarding future anticipated cash flows the remaining economic life of the products and technologies or both may differ materially from actual cash flows and remaining economic life In that event impairment charges or shortened useful lives of certain long lived assets may be required resulting in charges to our consolidated statements of income when such determinations are made
Balance Sheet Hedges We utilize foreign currency exchange forward and option contracts to hedge against the short term impact of foreign currency exchange rate fluctuations related to certain foreign currency denominated monetary assets and liabilities primarily intercompany receivables and payables These derivative instruments are not designated as hedging instruments and do not subject us to material balance sheet risk due to exchange rate movements because the gains and losses on these contracts are intended to offset the gains and losses in the underlying foreign currency denominated monetary assets and liabilities being hedged and the net amount is included in earnings
Cash Flow Hedges We utilize foreign currency exchange forward contracts to hedge foreign currency exchange exposures related to forecasted sales transactions denominated in certain foreign currencies These derivative instruments are designated and qualify as cash flow hedges and in general closely match the underlying forecasted transactions in duration The effective portion of the contracts gains and losses resulting from changes in fair value is recorded in AOCI until the forecasted transaction is recognized in the consolidated statements of income When the forecasted transactions occur we reclassify the related gains or losses on the cash flow hedges into net revenues If the underlying forecasted transactions do not occur or it becomes probable that they will not occur within the defined hedge period the gains or losses on the related cash flow hedges are reclassified from AOCI and recognized immediately in earnings We measure the effectiveness of hedges of forecasted transactions on a monthly basis by comparing the fair values of the designated foreign currency exchange forward purchase contracts with the fair values of the forecasted transactions
Factors that could have an impact on the effectiveness of our hedging programs include the accuracy of forecasts and the volatility of foreign currency markets These programs reduce but do not entirely eliminate the impact of currency exchange movements Currently we do not enter into any foreign currency exchange forward contracts to hedge exposures related to firm commitments Cash flows from our derivative programs are included under operating activities in the consolidated statements of cash flows
We combine two or more contracts entered into at or near the same time with the same customer as a single contract if the contracts are negotiated as one package with a single commercial objective if the amount of consideration to be paid on one contract depends on the price or performance of the other contract or if the goods and services promised in each of the contracts are a single performance obligation
Our contracts with customers may include hardware systems software licenses software support hardware support public cloud services and other services Software support contracts entitle our customers to receive unspecified upgrades and enhancements on a when and if available basis and patch releases Hardware support services include contracts for extended warranty and technical support with minimum response times Other services include professional services and customer education and training services
We identify performance obligations in our contracts to be those goods and services that are distinct A good or service is distinct where the customer can benefit from the good or service either on its own or together with other resources that are readily available from third parties or from us and is distinct in the context of the contract where the transfer of the good or service is separately identifiable from other promises in the contract
If a contract includes multiple promised goods or services we apply judgment to determine whether promised goods or services are distinct If they are not we combine the goods and services until we have a distinct performance obligation For example a configured storage system inclusive of the operating system OS software essential to its functionality is considered a single performance obligation while optional add on software is a separate performance obligation In general hardware support software support and different types of professional services are each separate performance obligations
We determine the transaction price of our contracts with customers based on the consideration to which we will be entitled in exchange for transferring goods or services Consideration promised may include fixed amounts variable amounts or both We sell public cloud services either on a subscription basis or a consumption basis We sell professional services either on a time and materials basis or under fixed price projects
We evaluate variable consideration in arrangements with contract terms such as rights of return potential penalties and acceptance clauses We generally use the expected value method primarily relying on our history to estimate variable consideration However when we believe it to provide a better estimate we use the most likely amount method In either case we consider variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur Reassessments of our variable consideration may occur as historical information changes Transaction prices are also adjusted for the effects of time value of money if the timing of payments provides either the customer or us a significant benefit of financing
Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation on a relative standalone selling price basis We determine standalone selling price based on the price at which the performance obligation is sold separately If the standalone selling price is not observable through past transactions we estimate the standalone selling price 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 We regularly review standalone selling prices and maintain internal controls over the establishment and updates of these estimates Variable consideration is also allocated to the performance obligations If the terms of variable consideration relate to one performance obligation it is entirely allocated to that obligation Otherwise it is allocated to all the performance obligations in the contract
We typically recognize revenue at a point in time upon the transfer of goods to a customer Products we transfer at a point in time include our configured hardware systems OS software licenses optional add on software licenses and add on hardware Services are typically transferred over time and revenue is recognized based on an appropriate method for measuring our progress toward
completion of the performance obligation Our stand ready services including both hardware and software support are transferred ratably over the period of the contract Our public cloud services are transferred either 1 for subscription arrangements ratably over the subscription period or 2 for consumption based arrangements as actually consumed by the customer For other services such as our fixed professional services contracts we use an input method to determine the percentage of completion That is we estimate the effort to date versus the expected effort required over the life of the contract
Deferred Commissions We capitalize sales commissions that are incremental direct costs of obtaining customer contracts for which revenue is not immediately recognized and classify them as current or non current based on the terms of the related contracts Capitalized commissions are amortized based on the transfer of goods or services to which they relate typically over one to three years and are also periodically reviewed for impairment Amortization expense is recorded to sales and marketing expense in our consolidated statements of income
Leases We determine if an arrangement is or contains a lease at inception and we classify leases as operating or finance leases at commencement In our consolidated balance sheets operating lease right of use ROU assets are included in other non current assets while finance lease ROU assets are included in property and equipment net Lease liabilities for both types of leases are included in accrued expenses and other long term liabilities ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments over that term
Operating and finance lease ROU assets and liabilities are recognized at commencement based on the present value of lease payments over the lease term ROU assets also include any lease payments made prior to lease commencement and exclude lease incentives The lease term is the noncancelable period of the lease and includes options to extend or terminate the lease when it is reasonably certain that an option will be exercised As the rate implicit in our leases is typically not readily determinable in computing the present value of lease payments we generally use our incremental borrowing rate based on information available at the commencement date Variable lease payments not dependent on an index or rate are expensed as incurred and not included within the calculation of ROU assets and lease liabilities Lease expense for operating lease payments is recognized on a straight line basis over the lease term
Foreign Currency Translation For international subsidiaries whose functional currency is the local currency gains and losses resulting from translation of these foreign currency financial statements into U S dollars are recorded in AOCI For international subsidiaries where the functional currency is the U S dollar gains and losses resulting from the process of remeasuring foreign currency financial statements into U S dollars are included in other expense income net
Benefit Plans We record actuarial gains and losses associated with defined benefit plans within AOCI and amortize net gains or losses in excess of 10 percent of the greater of the market value of plan assets as of the beginning of the fiscal year or the plans projected benefit obligation on a straight line basis over the remaining estimated service life of plan participants The measurement date for all defined benefit plans is our fiscal year end
Stock Based Compensation We measure and recognize stock based compensation for all stock based awards including employee stock options restricted stock units RSUs including time based RSUs and performance based RSUs PBRSUs and rights to purchase shares under our employee stock purchase plan ESPP based on their estimated fair value and recognize the costs in our financial statements using the straight line attribution approach over the requisite service period for the entire award
The fair value of employee time based RSUs and PBRSUs that include a performance condition is equal to the market value of our common stock on the grant date of the award less the present value of expected dividends during the vesting period discounted at a risk free interest rate The fair value of PBRSUs that include a market condition is measured using a Monte Carlo simulation model on the date of grant
The fair value of time based RSUs and PBRSUs that include a market condition is not remeasured as a result of subsequent stock price fluctuations When there is a change in management s estimate of expected achievement relative to the performance target for PBRSUs that include a performance condition such as our achievement against a billings result average target the change in estimate results in the recognition of a cumulative adjustment of stock based compensation expense
Our expected term assumption is based primarily on historical exercise and post vesting forfeiture experience Our stock price volatility assumption is based on a combination of our historical and implied volatility The risk free interest rates are based upon United States U S Treasury bills with equivalent expected terms and the expected dividends are based on our history and expected dividend payouts
We recognize the tax liability for uncertain income tax positions on the income tax return based on the two step process prescribed in the interpretation The first step is to determine whether it is more likely than not that each income tax position would be sustained upon audit The second step is to estimate and measure the tax benefit as the amount that has a greater than 50 likelihood of being realized upon ultimate settlement with the tax authority Estimating these amounts requires us to determine the probability of various possible outcomes We evaluate these uncertain tax positions on a quarterly basis We recognize interest and penalties related to unrecognized tax benefits within the provision for income taxes line on the accompanying consolidated statements of income
Net Income per Share Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding Diluted net income per share is computed giving effect to the weighted average number of dilutive potential shares that were outstanding during the period using the treasury stock method Potential dilutive common shares consist primarily of outstanding stock options shares to be purchased under our employee stock purchase plan and unvested RSUs
In November 2024 the Financial Accounting Standards Board FASB issued Accounting Standards Update ASU 2024 03 Income Statement Reporting Comprehensive Income Expense Disaggregation Disclosures Subtopic 220 40 Disaggregation of Income Statement Expenses which requires additional disclosure of the nature of expenses included in the income statement The standard requires disclosures about specific types of expenses included in the expense captions presented in the income statement as well as disclosures about selling expenses This ASU is effective for fiscal years beginning after December 15 2026 and interim periods beginning after December 15 2027 with early adoption permitted The requirements should be applied on a prospective basis while retrospective application is permitted We are currently evaluating the effect of this pronouncement on our disclosures
In December 2023 the FASB issued ASU 2023 09 Income Taxes Topic 740 Improvements to Income Tax Disclosures which expands the disclosures required for income taxes This ASU is effective for fiscal years beginning after December 15 2024 with early adoption permitted The amendment should be applied on a prospective basis while retrospective application is permitted We are currently evaluating the effect of this pronouncement on our income tax disclosures
In November 2023 the FASB issued ASU 2023 07 Segment Reporting Topic 280 Improvements to Reportable Segment Disclosures which requires disclosure of incremental segment information on an annual and interim basis We adopted this standard for our annual period beginning fiscal year 2025 on a retrospective basis to all periods presented The adoption of this standard did not result in a significant change to our consolidated financial statement disclosures See Note 15 Segment Geographic and Significant Customer Information of the Notes to Consolidated Financial Statements for our reportable segment disclosures
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash cash equivalents investments foreign currency exchange contracts and accounts receivable We maintain the majority of our cash and cash equivalents with several major financial institutions where the deposits exceed federally insured limits Cash equivalents and short term investments consist primarily of money market funds U S Treasury and government debt securities and certificates of deposit all of which are considered high investment grade Our policy is to limit the amount of credit exposure through diversification and investment in highly rated securities We further mitigate concentrations of credit risk in our investments by limiting our investments in the debt securities of a single issuer and by diversifying risk across geographies and type of issuer General macroeconomic uncertainty has led to an increase in market volatility however management believes that the financial institutions that hold our cash cash equivalents and investments are financially sound and accordingly are subject to minimal credit risk
By entering into foreign currency exchange contracts we have assumed the risk that might arise from the possible inability of counterparties to meet the terms of their contracts The counterparties to these contracts are major multinational commercial banks and we do not expect any losses as a result of counterparty defaults
We sell our products primarily to large organizations in different industries and geographies We do not require collateral or other security to support accounts receivable In addition we maintain an allowance for potential credit losses To reduce credit risk we perform ongoing credit evaluations on our customers financial condition We establish an allowance for doubtful accounts based upon factors surrounding the credit risk of customers historical trends and other information including the expected impact of macroeconomic disruptions and to date such losses have been within management s expectations Concentrations of credit risk with respect to trade accounts receivable are limited due to the wide variety of customers who are dispersed across many geographic regions
There are no concentrations of business transacted with a particular market that would severely impact our business in the near term However we rely on a limited number of suppliers for certain key components and a few key contract manufacturers to manufacture most of our products any disruption or termination of these arrangements could materially adversely affect our operating results
The acquired net assets and assumed debt of Instaclustr were recorded at their estimated values We determined the estimated values with the assistance of valuations and appraisals performed by third party specialists and estimates made by management We expect to realize revenue synergies and anticipate opportunities for growth through the ability to leverage additional future products and capabilities These factors among others contributed to a purchase price in excess of the estimated value of its identifiable net assets acquired and as a result we have recorded goodwill in connection with the acquisition The goodwill is not deductible for income tax purposes
The results of operations related to the acquisition of Instaclustr have been included in our consolidated statements of income from the acquisition date Pro forma results of operations have not been presented because the impact from the acquisition was not material to our consolidated results of operations
During fiscal 2025 we derecognized a portion of the Public Cloud goodwill in connection with the sale of our cloud optimization and management software business known as Spot by NetApp which formed part of our Public Cloud reportable segment See Gains losses on the sale or derecognition of assets section contained in Note 6 Supplemental Financial Information for additional information related to this derecognition
During fiscal 2025 we retired 25 million of fully amortized intangible assets We also derecognized certain intangible assets net in connection with the sale of our Spot by NetApp business See Gains losses on the sale or derecognition of assets section contained in Note 6 Supplemental Financial Information for additional information related to this derecognition
Other non current assets as of April 25 2025 and April 26 2024 include 92 million and 85 million respectively for our 49 non controlling equity interest in Lenovo NetApp Technology Limited LNTL a China based entity that we formed with Lenovo Beijing Information Technology Ltd in fiscal 2019 LNTL is integral to our sales channel strategy in China acting as a distributor of our offerings to customers headquartered there and involved in certain OEM sales to Lenovo LNTL is also focused on localizing our products and services and developing new joint offerings for the China market by leveraging NetApp and Lenovo technologies
Deferred product revenue represents unrecognized revenue related to undelivered product commitments and other product deliveries that have not met all revenue recognition criteria Deferred services revenue represents customer payments made in advance for services which include software and hardware support contracts certain public cloud services and other services Financed unearned services revenue represents undelivered services for which cash has been received under certain third party financing arrangements See Note 17 Commitments and Contingencies for additional information related to these arrangements
As of April 25 2025 the aggregate amount of the transaction price allocated to the remaining performance obligations related to customer contracts that are unsatisfied or partially unsatisfied was 5 0 billion Because customer orders are typically placed on an as needed basis and cancellable without penalty prior to shipment orders in backlog may not be a meaningful indicator of future revenue and have not been included in this amount We expect to recognize as revenue approximately 49 of our remaining performance obligations in the next 12 months and the remainder thereafter
Other net for fiscal 2023 includes 22 million of other income for non refundable up front payments from customers in Russia for support contracts which we were not able to fulfill due to imposed sanctions and for which we have no remaining legal obligation to perform Other net for fiscal 2023 also includes a 32 million gain recognized on our sale of a minority equity interest in a privately held company for proceeds of 59 million
In January 2025 we and Flexera Software LLC entered into a definitive agreement for the sale of our cloud optimization and management software business known as Spot by NetApp which formed part of our Public Cloud reportable segment Total sale consideration consists of i 70 million in up front cash consideration and ii up to 49 million in cash consideration contingent upon the achievement of certain financial performance metrics during the period from January 1 2025 through December 31 2025 The transaction closed on March 3 2025 and we received the up front cash consideration recognized 20 million for contingent consideration in other current assets derecognized the assets and liabilities conveyed to Flexera and recorded certain transaction costs No material gain or loss was recorded to our consolidated statements of income
Level 2 Inputs that reflect quoted prices for identical assets or liabilities in less active markets quoted prices for similar assets or liabilities in active markets benchmark yields reported trades broker dealer quotes inputs other than quoted prices that are observable for the assets or liabilities or inputs that are derived principally from or corroborated by observable market data by correlation or other means
We consider an active market to be one in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis and consider an inactive market to be one in which there are infrequent or few transactions for the asset or liability the prices are not current or price quotations vary substantially either over time or among market makers Where appropriate our own or the counterparty s non performance risk is considered in measuring the fair values of liabilities and assets respectively
Our Level 2 debt instruments are held by a custodian who prices some of the investments using standard inputs in various asset price models or obtains investment prices from third party pricing providers that incorporate standard inputs in various asset price models These pricing providers utilize the most recent observable market information in pricing these securities or if specific prices are not available for these securities use other observable inputs like market transactions involving identical or comparable securities We review Level 2 inputs and fair value for reasonableness and the values may be further validated by comparison to multiple independent pricing sources In addition we review third party pricing provider models key inputs and assumptions and understand the pricing processes at our third party providers in determining the overall reasonableness of the fair value of our Level 2 debt instruments As of April 25 2025 and April 26 2024 we have not made any adjustments to the prices obtained from our third party pricing providers
In March 2025 we issued 625 million aggregate principal amount of 5 50 Senior Notes due 2032 and 625 million aggregate principal amount of 5 70 Senior Notes due 2035 for which we received total proceeds of 1 24 billion net of discount and issuance costs Interest on these Senior Notes is payable semi annually in March and September
We may redeem the Senior Notes in whole or in part at any time at our option at specified redemption prices In addition upon the occurrence of certain change of control triggering events we may be required to repurchase the Senior Notes under specified terms The Senior Notes also include covenants that limit our ability to incur debt secured by liens on assets or on shares of stock or indebtedness of our subsidiaries to engage in certain sale and lease back transactions and to consolidate merge or sell all or substantially all of our assets As of April 25 2025 we were in compliance with all covenants associated with the Senior Notes
We have a commercial paper program the Program under which we may issue unsecured commercial paper notes Amounts available under the Program as amended in July 2017 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 There were no commercial paper notes outstanding as of April 25 2025 or April 26 2024
In connection with the Program we have a senior unsecured credit agreement with a syndicated group of lenders The credit agreement which was amended in March 2025 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 March 5 2030 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 25 2025 we were compliant with all associated covenants in the agreement No amounts were drawn against this credit facility during any of the periods presented
We lease real estate equipment and automobiles in the U S and internationally Our real estate leases which are responsible for the majority of our aggregate ROU asset and liability balances include leases for office space data centers and other facilities and as of April 25 2025 have remaining lease terms not exceeding 17 years Some of these leases contain options that allow us to extend or terminate the lease agreement Our equipment leases are primarily for servers and networking equipment and as of April 25 2025 have remaining lease terms not exceeding 4 years As of April 25 2025 our automobile leases have remaining lease terms not exceeding 5 years All our leases are classified as operating leases except for certain immaterial equipment finance leases
The 2021 Plan The 2021 Equity Incentive Plan the 2021 Plan was adopted by our Board of Directors and approved by the stockholders on September 10 2021 The 2021 Plan replaced the 1999 Stock Option Plan the 1999 Plan and the 1999 Plan terminated effective as of September 11 2021 except that the 1999 Plan will continue to govern awards outstanding thereunder as of the date of such plan s termination and such awards will continue in force and effect until terminated pursuant to their terms The 2021 Plan provides for the granting of incentive stock options nonstatutory stock options stock appreciation rights restricted stock restricted stock units and performance awards to our employees directors and consultants
Under the 2021 Plan the Board of Directors may grant to employees nonemployee directors consultants and independent advisors options to purchase shares of our common stock during their period of service The exercise price for an incentive stock option and a nonstatutory option cannot be less than 100 of the fair market value of the common stock on the grant date The 2021 Plan prohibits the repricing of any outstanding stock option or stock appreciation right after it has been granted or to cancel any outstanding stock option or stock appreciation right and immediately replace it with a new stock option or stock appreciation right with a lower exercise price unless approved by stockholders RSUs granted under the 2021 Plan include time based RSUs that generally vest over a four year period with 25 vesting on the first anniversary of the grant date and 6 25 vesting quarterly thereafter The Compensation Committee of the Board of Directors the Compensation Committee has the discretion to use different vesting schedules In addition performance based RSUs may be granted under the 2021 Plan and are subject to performance criteria and vesting terms specified by the Compensation Committee
In fiscal 2025 2024 and 2023 we granted PBRSUs to certain of our executives Each PBRSU has performance based vesting criteria in addition to the service based vesting criteria such that the PBRSUs cliff vest at the end of a three year performance period which began on the date specified in the grant agreements and typically ends on the last day of the third fiscal year following the grant date The number of shares that will be used to calculate the settlement amount for all of these PBRSUs at the end of the applicable performance and service period will range from 0 to 200 of a target number of shares originally granted For half of the PBRSUs granted in fiscal 2025 and 2024 and for most of the PBRSUs granted in fiscal 2023 the number of shares used to calculate
the settlement amount will depend upon our Total Stockholder Return TSR as compared to the TSR of a specified group of benchmark peer companies each expressed as a growth rate percentage calculated as of the end of the performance period For the remaining half of the PBRSUs granted in the fiscal 2025 and 2024 the number of shares used to calculate the settlement amount will depend upon the Company s billings result average over the three year performance period The billings result average is computed based on achievement against annual billings targets with each target set at the beginning of the respective fiscal year during the three year performance period Billings for purposes of measuring the performance of these PBRSUs means the total obtained by adding net revenues as reported on the Company s Consolidated Statements of Income to the amount reported as the change in deferred revenue and financed unearned services revenue on the Consolidated Statements of Cash Flows for the applicable measurement period excluding the impact of fluctuations in foreign currency exchange rates The aggregate grant date fair value of all PBRSUs granted in fiscal 2025 2024 and 2023 was 67 million 39 million and 28 million respectively and these amounts are being recognized to compensation expense over the remaining performance service periods
We primarily use the net share settlement approach upon vesting where a portion of the shares are withheld as settlement of employee withholding taxes which decreases the shares issued to the employee by a corresponding value The number and value of the shares netted for employee taxes are summarized in the table below in millions
Eligible employees are offered shares through a 24 month offering period which consists of four consecutive 6 month purchase periods Employees may purchase a limited number of shares of the Company s stock at a discount of up to 15 of the lesser of the market value at the beginning of the offering period or the end of each 6 month purchase period On September 13 2023 the ESPP was amended to increase the shares reserved for issuance by 3 million shares of common stock As of April 25 2025 2 million shares were available for issuance The following table summarizes activity related to the purchase rights issued under the ESPP in millions
As of April 25 2025 our Board of Directors has authorized the repurchase of up to 17 1 billion of our common stock Under this program which we may suspend or discontinue at any time 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 our stock repurchase program through April 25 2025 we repurchased a total of 382 million shares of our common stock at an average price of 43 93 per share for an aggregate purchase price of 16 8 billion On May 22 2025 our Board of Directors authorized the repurchase of an additional 1 1 billion of our common stock
Our Board of Directors has the authority to issue up to 5 million shares of preferred stock and to determine the price rights preferences privileges and restrictions including voting rights of those shares without any further vote or action by the stockholders No shares of preferred stock were issued or outstanding in any period presented
On May 22 2025 we declared a cash dividend of 0 52 per share of common stock payable on July 23 2025 to shareholders of record as of the close of business on July 3 2025 The timing and amount of future dividends will depend on market conditions corporate business and financial considerations and regulatory requirements All dividends declared have been determined by the Company to be legally authorized under the laws of the state in which we are incorporated
We use derivative instruments to manage exposures to foreign currency risk Our primary objective in holding derivatives is to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates The maximum length of time over which forecasted foreign currency denominated revenues are hedged is 12 months The program is not designated for trading or speculative purposes Our derivatives expose us to credit risk to the extent that the counterparties may be unable to meet their obligations under the terms of our agreements We seek to mitigate such risk by limiting our counterparties to major financial institutions In addition the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored on an ongoing basis We also have in place master netting arrangements to mitigate the credit risk of our counterparties and to potentially reduce our losses due to counterparty nonperformance We present our derivative instruments as net amounts in our consolidated balance sheets The gross and net fair value amounts of such instruments were not material as of April 25 2025 or April 26 2024 All contracts have a maturity of less than 12 months
In the fourth quarter of fiscal 2025 management approved a restructuring plan to redirect resources to the highest return activities and reduce costs Charges related to the plan consisted primarily of employee severance related costs and lease termination charges The activities under the plan are expected to be substantially completed by the end of the first quarter of fiscal 2026
In the first nine months of fiscal 2025 management approved restructuring plans to redirect resources to the highest return activities and reduce costs which included in the third quarter of fiscal 2025 a plan approved related to the sale of our cloud optimization and management software business known as Spot by NetApp Charges related to the plans consisted primarily of employee severance related costs The activities under these plans were substantially complete by the end of fiscal 2025
In fiscal 2024 management approved restructuring plans to redirect resources to the highest return activities and reduce costs Charges related to the plans consisted primarily of employee severance related costs One of the plans also included termination of certain real estate leases in various countries resulting in lease termination charges The activities under these plans were substantially complete by the end of fiscal 2024
In fiscal 2023 we executed or continued to execute restructuring plans to redirect resources to the highest return activities reduce costs and establish our international headquarters in Cork Ireland These plans resulted in restructuring charges comprised primarily of employee severance related costs and legal and tax related professional fees Activities under these plans were substantially complete by the end of fiscal 2023
During the second quarter of fiscal 2023 we completed an intra entity asset transfer of certain IP to our international headquarters the IP Transfer The transaction resulted in a step up of tax deductible basis in the transferred assets and accordingly created a temporary difference where the tax basis exceeded the financial statement basis of such intangible assets which resulted in the recognition of a discrete tax benefit and related deferred tax asset of 524 million during the second quarter of fiscal 2023 Management applied significant judgment when determining the fair value of the IP which serves as the tax basis of the deferred tax asset With the assistance of third party valuation specialists the fair value of the IP was determined principally based on the present value of projected cash flows related to the IP which reflects management s assumptions regarding projected revenues earnings before interest and taxes and a discount rate The tax deductible amortization related to the transferred IP rights will be recognized in future periods and any amortization that is unused in a particular year can be carried forward indefinitely The deferred tax asset and the tax benefit were measured based on the enacted tax rates expected to apply in the years the asset is expected to be realized We
In September 2010 the Danish Tax Authorities issued a decision concluding that distributions declared in 2005 and 2006 by our Danish subsidiary were subject to Danish at source dividend withholding tax We did not believe that our Danish subsidiary was liable for such withholding tax and filed an appeal with the Danish Tax Tribunal which issued a ruling in favor of NetApp in December 2011 However following escalations within the Danish judicial system over the course of numerous years on January 9 2023 the Danish Supreme Court ruled the 2005 dividend was subject to withholding tax while the smaller 2006 distribution would not be subject to withholding tax The Danish Supreme Court ruling on the distributions declared in 2005 and 2006 is non appealable During fiscal 2023 we recorded 69 million of discrete tax expense which includes 23 million of withholding tax and 46 million of interest
As of April 25 2025 we have federal net operating loss carryforwards of 9 million In addition we have gross state net operating loss and tax credit carryforwards of 4 million and 146 million respectively The majority of the state credit carryforwards are California research credits which are offset by a valuation allowance as we believe it is more likely than not that these credits will not be utilized We also have 9 million of U S foreign tax credit carryforwards and 33 million of foreign tax credit carryforwards of which the majority were generated by our Dutch subsidiary and are fully offset by a valuation allowance Certain acquired net operating loss carryforwards are subject to an annual limitation under Internal Revenue Code Section 382 but are expected to be realized with the exception of those which have a valuation allowance The state and foreign net operating loss carryforwards and credits will expire in various years from fiscal 2026 through 2042 The federal net operating loss carryforwards the California research credit and the Dutch foreign tax credit carryforwards do not expire
We recognized expense for increases to accrued interest and penalties related to unrecognized tax benefits in the income tax provision of 4 million 11 million and 7 million respectively in fiscal 2025 fiscal 2024 and fiscal 2023 Accrued interest and penalties of 8 million and 33 million were recorded in the consolidated balance sheets as of April 25 2025 and April 26 2024 respectively
The Organisation for Economic Co operation and Development OECD recently enacted model rules for a new global minimum tax framework known as Pillar Two These rules have been agreed to by most OECD members The OECD has since issued administrative guidance providing transition and safe harbor rules around the implementation of Pillar Two rules On February 1 2023 the FASB indicated that they believe taxes imposed under Pillar Two is an alternative minimum tax Accordingly deferred tax assets and liabilities associated with the minimum tax would not be recognized or adjusted for the estimated future effects of the minimum tax but would be recognized in the period incurred We are currently subject to Pillar Two rules starting in our fiscal year 2025 As of April 25 2025 Pillar Two taxes do not have a significant impact on our financial statements particularly due to the safe harbor relief during the transition period but we are still closely monitoring developments
We continue to monitor the progress of ongoing discussions with tax authorities and the impact if any of the expected expiration of the statute of limitations in various taxing jurisdictions We engage in continuous discussion and negotiation with taxing authorities regarding tax matters in multiple jurisdictions We believe that within the next 12 months it is reasonably possible that either certain audits will conclude certain statutes of limitations will lapse or both As a result of uncertainties regarding tax audits and their possible outcomes an estimate of the range of possible impacts to unrecognized tax benefits in the next twelve months cannot be made at this time
As of April 25 2025 we continue to record a deferred tax liability related to state taxes on unremitted earnings of certain foreign entities We estimate the unrecognized deferred tax liability related to the earnings we expect to be indefinitely reinvested to be immaterial We will continue to monitor our plans to indefinitely reinvest undistributed earnings of foreign subsidiaries and will assess the related unrecognized deferred tax liability considering our ongoing projected global cash requirements tax consequences associated with repatriation and any U S or foreign government programs designed to influence remittances
Our operations are organized into two segments Hybrid Cloud and Public Cloud The two segments are based on the information reviewed by our Chief Operating Decision Maker CODM who is the Chief Executive Officer to evaluate results and allocate resources The CODM measures performance of each segment based on segment revenue and segment gross profit by comparing actual revenue and gross profit results to historical results and previously forecasted financial information We do not allocate to our segments certain cost of revenues which we manage at the corporate level These unallocated costs include stock based compensation and amortization of intangible assets We do not allocate assets to our segments
Hybrid Cloud offers a unified data storage portfolio of storage management and infrastructure solutions that helps customers modernize their data centers This portfolio accommodates both structured and unstructured data with unified storage optimized for flash disk and cloud storage capable of handling data intensive workloads and applications Hybrid Cloud includes software hardware and related support along with professional and other services
Public Cloud offers a portfolio of products delivered primarily as a service including related support This portfolio includes cloud storage data services and operational services Public Cloud includes certain reseller arrangements in which the timing of our consideration follows the end user consumption of the reseller services
The majority of our assets excluding cash cash equivalents short term investments and accounts receivable were attributable to our domestic operations The following table presents cash cash equivalents and short term investments held in the U S and internationally in various foreign subsidiaries in millions
Our 401 k Plan is a deferred salary arrangement under Section 401 k of the Internal Revenue Code Under the 401 k Plan participating U S employees may defer a portion of their pre tax earnings up to the IRS annual contribution limit We match 100 of the first 2 of eligible earnings an employee contributes to the 401 k Plan and then match 50 of the next 4 of eligible earnings an employee contributes An employee receives the full 4 match when he she contributes at least 6 of his her eligible earnings up to a maximum calendar year matching contribution of 6 000 Our employer matching contributions to the 401 k Plan were as follows in millions
We have a non qualified deferred compensation plan that allows a group of employees within the U S to contribute base salary and commissions or incentive compensation on a tax deferred basis in excess of the IRS limits imposed on 401 k plans The marketable securities related to these investments are held in a Rabbi Trust The related deferred compensation plan assets and liabilities under the non qualified deferred compensation plan were as follows in millions
We maintain various defined benefit plans to provide termination and postretirement benefits to certain eligible employees outside of the U S We also provide disability benefits to certain eligible employees in the U S Eligibility is determined based on the terms of our plans and local statutory requirements
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 A significant portion of our reported purchase commitments arising from these agreements consist of firm non cancelable and unconditional commitments As of April 25 2025 we had 0 4 billion in non cancelable purchase commitments for inventory We record a liability for firm non cancelable and unconditional purchase commitments for quantities in excess of our future demand forecasts consistent with the valuation of our excess and obsolete inventory As of April 25 2025 and April 26 2024 such liability amounted to 22 million and 20 million respectively and is included in accrued expenses in our consolidated balance sheets To the extent that such forecasts are not achieved our commitments and associated accruals may change
In addition to inventory commitments with contract manufacturers and component suppliers 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 As of April 25 2025 we had 0 6 billion in other purchase obligations
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 Provided all other revenue recognition criteria have been met we recognize product revenues for these arrangements net of any payment discounts from financing transactions upon product acceptance We sold 65 million 67 million and 38 million of receivables during fiscal 2025 2024 and 2023 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 and we recognize revenue upon delivery to the end user customer if all other revenue recognition criteria have been met
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 Where we provide a guarantee for recourse leases and collectability is probable we account for these transactions as sales type leases If collectability is not probable the cash received is recorded as a deposit liability and revenue is deferred until the arrangement is deemed collectible For leases that we are not a party to other than providing recourse we recognize revenue when control is transferred As of April 25 2025 and April 26 2024 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 financing payments under such arrangements As of April 25 2025 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
When a loss is considered probable and reasonably estimable we record a liability in the amount of our best estimate for the ultimate loss However the likelihood of a loss with respect to a particular contingency is often difficult to predict and determining a meaningful estimate of the loss or a range of loss may not be practicable based on the information available and the potential effect of future events and decisions by third parties that will determine the ultimate resolution of the contingency
We are subject to various legal proceedings and claims that arise in the normal course of business We may from time to time receive claims that we are infringing third parties intellectual property rights including claims for alleged patent infringement brought by non practicing entities We are currently involved in patent litigation brought by non practicing entities and other third parties We believe we have strong arguments that our products do not infringe and or the asserted patents are invalid and we intend to vigorously defend against the plaintiffs claims However there is no guarantee that we will prevail at trial and if a jury were to find that our products infringe we could be required to pay significant monetary damages and may cause product shipment delays or stoppages require us to redesign our products or require us to enter into royalty or licensing agreements
Although management at present believes that the ultimate outcome of these proceedings individually and in the aggregate will not materially harm our financial position results of operations cash flows or overall trends legal proceedings are subject to inherent uncertainties and unfavorable rulings or other events could occur Unfavorable resolutions could include significant monetary damages In addition in matters for which injunctive relief or other conduct remedies are sought unfavorable resolutions could include an injunction or other order prohibiting us from selling one or more products at all or in particular ways or requiring other remedies An unfavorable outcome may result in a material adverse impact on our business results of operations financial position cash flows and overall trends No material accrual has been recorded as of April 25 2025 related to such matters
We have audited the accompanying consolidated balance sheets of NetApp Inc and its subsidiaries the Company as of April 25 2025 and April 26 2024 the related consolidated statements of income comprehensive income stockholders equity and cash flows for each of the three years in the period ended April 25 2025 and the related notes collectively referred to as the financial statements In our opinion the financial statements present fairly in all material respects the financial position of the Company as of April 25 2025 and April 26 2024 and the results of its operations and its cash flows for each of the three years in the period ended April 25 2025 in conformity with accounting principles generally accepted in the United States of America
We have also audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the Company s internal control over financial reporting as of April 25 2025 based on criteria established in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 9 2025 expressed an unqualified opinion on the Company s internal control over financial reporting
These financial statements are the responsibility of the Company s management Our responsibility is to express an opinion on the Company s financial statements based on our audits We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the US federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud Our audits included performing procedures to assess the risks of material misstatement of the financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the financial statements We believe that our audits provide a reasonable basis for our opinion
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that 1 relates to accounts or disclosures that are material to the financial statements and 2 involved our especially challenging subjective or complex judgments The communication of critical audit matters does not alter in any way our opinion on the financial statements taken as a whole and we are not by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates
The Company s contracts with customers often include the transfer of multiple products and services to the customer such as hardware systems software licenses software support hardware support public cloud services and other services Pursuant to accounting principles generally accepted in the United States of America the Company is required to evaluate whether each performance obligation represents goods and services that are distinct for purposes of determining the amount and timing of revenue recognition A good or service is distinct where the customer can benefit from the good or service either on its own or together with other resources that are readily available from third parties or from the Company and is distinct in the context of the contract where the transfer of the good or service is separately identifiable from other promises in the contract The evaluation of performance obligations can require significant judgment in certain contracts and could change the amount of revenue recognized in a given period
We identified the evaluation of performance obligations in certain contracts as a critical audit matter because of the significant judgment management makes in evaluating such contracts and the impact of such judgment on the amount of revenue recognized in a particular period This required a high degree of auditor judgment and an increased extent of testing
We have audited the internal control over financial reporting of NetApp Inc and subsidiaries the Company as of April 25 2025 based on criteria established in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission COSO In our opinion the Company maintained in all material respects effective internal control over financial reporting as of April 25 2025 based on criteria established in Internal Control Integrated Framework 2013 issued by COSO
We have also audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the consolidated financial statements as of and for the year ended April 25 2025 of the Company and our report dated June 9 2025 expressed an unqualified opinion on those financial statements
The Company s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management s Report on Internal Control Over Financial Reporting Our responsibility is to express an opinion on the Company s internal control over financial reporting based on our audit We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the US federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audit in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects Our audit included obtaining an understanding of internal control over financial reporting assessing the risk that a material weakness exists testing and evaluating the design and operating effectiveness of internal control based on the assessed risk and performing such other procedures as we considered necessary in the circumstances We believe that our audit provides a reasonable basis for our opinion
A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles A company s internal control over financial reporting includes those policies and procedures that 1 pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company 2 provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and 3 provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
The phrase disclosure controls and procedures refers to controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 as amended the Exchange Act such as this Annual Report on Form 10 K is recorded processed summarized and reported within the time periods specified in the rules and forms of the U S Securities and Exchange Commission SEC Disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to our management including our Chief Executive Officer CEO and our Chief Financial Officer CFO as appropriate to allow timely decisions regarding required disclosure
Under the supervision and with the participation of our management including our CEO and CFO we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a 15 e and 15d 15 e under the Exchange Act as of April 25 2025 the end of the fiscal period covered by this Annual Report on Form 10 K the Evaluation Date Based on this evaluation our CEO and CFO concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information required to be disclosed in our SEC reports i is recorded processed summarized and reported within the time periods specified in SEC rules and forms and ii is accumulated and communicated to our management including our CEO and CFO as appropriate to allow timely decisions regarding required disclosure
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a 15 f Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
Under the supervision and with the participation of our management including our principal executive officer and principal financial officer we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission Based on this assessment our management concluded that as of April 25 2025 our internal control over financial reporting was effective at the reasonable assurance level based on those criteria
There has been no change in our internal control over financial reporting identified in connection with our evaluation required by paragraph d of rules 13a 15 and 15d 15 under the Exchange Act that occurred during the fourth quarter of fiscal 2025 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting
No directors or executive officers of the Company adopted modified or terminated any contract instruction or written plan for the purchase or sale of the Company s securities that was intended to satisfy the affirmative defense conditions of Rule 10b5 1 c or any non Rule 10b5 1 trading arrangement as defined in Item 408 c of Regulation S K during the fourth quarter of fiscal 2025
The information required by Item 10 with respect to our executive officers is incorporated herein by reference from the information under Item 1 Business of Part I of this Annual Report on Form 10 K under the section entitled Information About Our Executive Officers The information required by Item 10 with respect to the Company s directors and corporate governance is incorporated herein by reference from the information provided under the headings Election of Directors and Corporate Governance respectively in the Proxy Statement for the 2025 Annual Meeting of Stockholders which will be filed with the Securities and Exchange Commission within 120 days of our year ended April 25 2025 The information required by Item 405 of Regulation S K is incorporated herein by reference from the information provided under the heading Delinquent Section 16 a Reports in the Proxy Statement for the 2025 Annual Meeting of Stockholders to the extent applicable
We have adopted a written code of ethics that applies to our Board of Directors and all of our employees including our principal executive officer and principal financial and accounting officer A copy of the code of ethics which we refer to as our Code of Conduct is available on our website at http netapp com us media code of conduct pdf We will post any amendments to or waivers from the provisions of our Code of Conduct on our website
We have adopted our Insider Trading Policy governing the purchase sale and or other dispositions of our securities by our directors officers and employees that we believe is reasonably designed to promote compliance with insider trading laws rules and regulations and the exchange listing standards applicable to us A copy of our Insider Trading Policy is filed as Exhibit 19 1 to this Annual Report on Form 10 K In addition with regards to the Company s trading in its own securities it is the Company s policy to comply with the federal securities laws and the applicable exchange listing requirements
Information regarding the compensation of executive officers and directors of the Company is incorporated by reference from the information under the headings Executive Compensation and Related Information and Director Compensation respectively in our Proxy Statement for the 2025 Annual Meeting of Stockholders provided that the information under the heading Pay Versus Performance shall not be deemed to be incorporated by reference herein
Information regarding security ownership of certain beneficial owners and management and related stockholder matters is incorporated by reference from the information under the heading Security Ownership of Certain Beneficial Owners and Management in our Proxy Statement for the 2025 Annual Meeting of Stockholders
All financial statement schedules have been omitted since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule or because the information required is included in the consolidated financial statements and notes thereto included in this Form 10 K
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears below constitutes and appoints George Kurian and Wissam Jabre and each of them as his true and lawful attorneys in fact and agents with full power of substitution and resubstitution for him and in his name place and stead in any and all capacities to sign any and all amendments including post effective amendments to this Annual Report on Form 10 K and to file the same with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission granting unto said attorneys in fact and agents and each of them full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith as fully to all intents and purposes as he might or could do in person hereby ratifying and confirming all that said attorneys in fact and agents or any of them or their or his substitutes may lawfully do or cause to be done by virtue thereof

Company Name	NetApp, Inc. Vist SEC web-site
Category	COMPUTER STORAGE DEVICES
Trading Symbol	NTAP