This section and other parts of this Form 10-Q contain forward-looking
statements, within the meaning of the Private Securities Litigation Reform Act
of 1995, that involve risks and uncertainties. Forward-looking statements
provide current expectations of future events based on certain assumptions and
include any statement that does not directly relate to any historical or current
fact. Forward-looking statements also can be identified by words such as
"future," "anticipates," "believes," "estimates," "expects," "intends," "will,"
"would," "could," "can," "may," and similar terms. Forward-looking statements
are not guarantees of future performance and the actual results of NetApp, Inc.
("we," "us," or the "Company") may differ significantly from the results
discussed in the forward-looking statements. Factors that might cause such
differences include, but are not limited to, those discussed in Part II, Item 1A
of this Form 10-Q under the heading "Risk Factors," which are incorporated
herein by reference. The following discussion should be read in conjunction with
our consolidated financial statements as of and for the fiscal year ended April
24, 2020, and the notes thereto, contained in our Annual Report on Form 10-K,
and the condensed consolidated financial statements and notes thereto included
elsewhere in this Form 10-Q. We assume no obligation to revise or update any
forward-looking statements for any reason, except as required by law.











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Overview

Our Company

NetApp is a leader in hybrid cloud data services. In a world of increasing
complexity, we simplify. We help our customers ensure their data and
applications are in the right place at the right time with the right
characteristics and capabilities in order to achieve new insights and accelerate
innovation. Only NetApp delivers everything IT organizations need to build their
own unique data fabrics.

NetApp helps customers move from building data centers to building data fabrics.
A data fabric simplifies the integration and orchestration of data services
across clouds and on-premises to accelerate digital transformation. Only NetApp
can deliver the full range of capabilities organizations need for their data
fabrics: the power to discover resources, integrate disparate data services,
automate operations, optimize over time, and protect and secure data everywhere.

Together with our partners, we empower organizations to unleash the full potential of their data to expand customer touchpoints, foster greater innovation and optimize their operations.



We focus on delivering an exceptional customer experience to become our
customers' preferred data partner. NetApp's unique approach to data services
enables organizations to drive data-driven innovation with the cloud, build
clouds to gain speed and agility, and modernize and simplify IT to accelerate
critical business applications.

With NetApp products and solutions, customers can:

• Adopt new cloud-based capabilities by leveraging the best cloud resources


        for their business and simplify the complexities of managing data across
        multiple, public clouds and on-premises


     •  Add new capabilities to their current environment by delivering new
        applications and services faster, and run existing workloads more
        efficiently with a foundation that brings the power of cloud-native data
        services on premises


     •  Run their current IT application environment more efficiently by
        optimizing and future proofing infrastructure with high-performing,
        cloud-integrated technologies and converged infrastructure.


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

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

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

COVID-19



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

During the first nine months of fiscal 2021, due to the macroeconomic
uncertainty caused by COVID-19, we continue to observe certain customers delay
purchases of our products and services, while other customers accelerate or
place new orders to address the demands of remote working and digital business,
though on a net basis the impact to product revenues was unfavorable. We also
continue to experience certain logistical challenges in delivering our products
and services to customers in certain regions, and minor supply chain
constraints.



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



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



Financial Results and Key Performance Metrics Overview

The following table provides an overview of some of our key financial metrics (in millions, except per share amounts and percentages):





                                                   Three Months Ended                   Nine Months Ended
                                             January 29,        January 24,       January 29,       January 24,
                                                2021               2020              2021              2020
Net revenues                                $       1,470      $       1,404     $       4,189     $       4,011
Gross profit                                $         975      $         941     $       2,780     $       2,682
Gross profit margin percentage                         66 %               67 %              66 %              67 %
Income from operations                      $         258      $         268     $         576     $         668
Income from operations as a percentage of
net revenues                                           18 %               19 %              14 %              17 %
Net income                                  $         182      $         277     $         396     $         623
Diluted net income per share                $        0.80      $        1.21     $        1.76     $        2.64
Net cash provided by operating activities   $         373      $         420     $         774     $         677




                                                           January 29,        April 24,
                                                              2021              2020

Deferred revenue and financed unearned services revenue $ 3,828 $ 3,698

Stock Repurchase and Dividend Activity



During the third quarter of fiscal 2021, we repurchased 0.8 million shares of
our common stock at an average price of $64.78 per share, for an aggregate of
$50 million. We also declared aggregate cash dividends of $0.48 per share in
that period, for which we paid $107 million. During the first nine months of
fiscal 2021, aggregate cash dividends declared totaled $1.44 per share, for
which we paid an aggregate of $321 million.

Critical Accounting Policies and Estimates



Our condensed consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America,
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. Management's estimates include, as applicable, the
anticipated impacts of the COVID-19 pandemic.

The summary of our significant accounting policies is included under Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations of our fiscal 2020 Form 10-K. 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. There have been no material changes to the critical accounting
policies and estimates as filed in such report.

New Accounting Standards



See Note 2 - Recently Adopted Accounting Standards of the Notes to Condensed
Consolidated Financial Statements for a full description of new accounting
pronouncements, including the respective expected dates of adoption and effects
on our financial statements.

Results of Operations



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

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The following table sets forth certain condensed consolidated statements of operations data as a percentage of net revenues for the periods indicated:





                                                  Three Months Ended                     Nine Months Ended
                                            January 29,         January 24,       January 29,         January 24,
                                               2021                2020              2021                2020
Revenues:
Product                                               53 %                56 %              51 %                55 %
Software maintenance                                  23                  19                22                  19
Hardware maintenance and other services               25                  25                26                  26
Net revenues                                         100                 100               100                 100
Cost of revenues:
Cost of product                                       25                  26                25                  25
Cost of software maintenance                           2                   1                 2                   1
Cost of hardware maintenance and other
services                                               7                   6                 7                   7
Gross profit                                          66                  67                66                  67
Operating expenses:
Sales and marketing                                   30                  29                31                  30
Research and development                              15                  15                16                  16
General and administrative                             4                   4                 5                   5
Restructuring charges                                  -                   -                 1                   1
Acquisition-related expense                            -                   -                 -                   -
Gain on sale or derecognition of assets                -                   -                 -                  (1 )
Total operating expenses                              49                  48                53                  50
Income from operations                                18                  19                14                  17
Other income (expense), net                           (1 )                 1                (1 )                 1
Income before income taxes                            17                  20                13                  17
Provision (benefit) for income taxes                   4                   -                 3                   2
Net income                                            12 %                20 %               9 %                16 %



Percentages may not add due to rounding

Discussion and Analysis of Results of Operations

Overview



Net revenues for the third quarter and first nine months of fiscal 2021 were
$1,470 million and $4,189 million, respectively, reflecting an increase of $66
million, or 5%, and $178 million, or 4%, respectively, compared to the
corresponding periods of the prior year. The growth in net revenues reflects an
increase in software maintenance revenues and hardware maintenance and other
services revenues, offset by a decrease in product revenues. For the third
quarter of fiscal 2021, net revenues benefited by approximately two percentage
points from fluctuations in foreign currency exchanges rates. For the first nine
months of fiscal 2021, software and hardware maintenance revenues benefited from
the extra week in our first quarter of fiscal 2021.

Gross profit as a percentage of net revenues for the third quarter and first
nine months of fiscal 2021 decreased by approximately one percentage point each
compared to the corresponding periods in fiscal 2020, primarily due to a
reduction in gross profit margins on product revenues. Gross profit margins on
product revenues decreased by two percentage points and three percentage points
in the third quarter and first nine months of fiscal 2021, respectively,
compared to the corresponding periods of fiscal 2020 primarily due to a decline
in the average selling prices of our products. For the first nine months of
fiscal 2021 our gross profit margins on product revenues were also impacted by
an increase in average unit materials costs. The decline in gross profit margins
on product revenues was partially offset by an increase in software maintenance
revenues.

Sales and marketing, research and development, and general and administrative
expenses for the third quarter and first nine months of fiscal 2021 totaled $714
million, or 49%, and $2,148 million, or 51% of net revenues, respectively,
reflecting an increase of approximately one percentage point in both the third
quarter and first nine months of fiscal 2021 compared to the corresponding
periods of fiscal 2020.

Net Revenues (in millions, except percentages):





                                                Three Months Ended                                 Nine Months Ended
                                   January 29,       January 24,                      January 29,       January 24,
                                      2021              2020           % Change          2021              2020           % Change
Net revenues                      $       1,470     $       1,404              5 %   $       4,189     $       4,011              4 %


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The increase in net revenues for the third quarter and first nine months of
fiscal 2021 compared to the corresponding periods of fiscal 2020 was primarily
due to an increase in hardware and software maintenance revenues, which in the
first nine months of 2021 benefited from an additional week in that period.
Product revenues as a percentage of net revenues decreased by approximately
three percentage points and four percentage points in the third quarter and
first nine months of fiscal 2021, respectively, compared to the corresponding
periods of fiscal 2020. Fluctuations in foreign currency exchange rates
benefited third quarter net revenues by approximately two percentage points for
fiscal 2021 compared to the corresponding period of fiscal 2020.

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



                                                     Three Months Ended                       Nine Months Ended
                                             January 29,           January 24,        January 29,           January 24,
                                                2021                   2020              2021                  2020
Arrow Electronics, Inc.                                24 %                   25 %              24 %                  25 %
Tech Data Corporation                                  19 %                   20 %              20 %                  20 %





Product Revenues (in millions, except percentages):





                                                Three Months Ended                                   Nine Months Ended
                                   January 29,        January 24,                       January 29,       January 24,
                                      2021               2020           % Change           2021              2020           % Change
Product revenues                  $         775      $         787             (2 )%   $       2,151     $       2,202             (2 )%




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

Total product revenues decreased in the third quarter and first nine months of
fiscal 2021 compared to the corresponding periods of the prior year primarily
due to less favorable macroeconomic conditions in the current year, in part due
to the economic uncertainty caused by the COVID-19 pandemic. While sales of
all-flash array systems increased in the current year, this increase was more
than offset by a decline in sales of our other products. Fluctuations in foreign
currency exchange rates benefited third quarter product revenues by
approximately two percentage points for fiscal 2021 compared to the
corresponding period of fiscal 2020.

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

Revenues from the hardware component of product revenues totaled $347 million,
representing 45% of product revenues, in the third quarter of fiscal 2021,
compared to $412 million, representing 52% of product revenues, in the
corresponding period of the prior year. Revenues from the hardware component of
product revenues totaled $995 million, representing 46% of product revenues, in
the first nine months of fiscal 2021, compared to $1,155 million, representing
52% of product revenues, in the first nine months of fiscal 2020. The software
component of product revenues totaled $428 million, representing 55% of product
revenues, in the third quarter of fiscal 2021, compared to $375 million,
representing 48% of product revenues, in the corresponding period of the prior
year. The software component of product revenues totaled $1,156 million,
representing 54% of product revenues, in the first nine months of fiscal 2021,
compared to $1,047 million, representing 48% of product revenues, in the
corresponding period of the prior year. The increase in the software component
percentage of product revenues in the third quarter and first nine months of
fiscal 2021 is primarily due to a higher mix of all-flash array systems
revenues, which contain a higher proportion of software components than other
products.

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Software Maintenance Revenues (in millions, except percentages):





                                                Three Months Ended                                  Nine Months Ended
                                   January 29,        January 24,                      January 29,       January 24,
                                      2021               2020           % Change          2021              2020           % Change

Software maintenance revenues $ 334 $ 263


   27 %   $         938     $         767             22 %



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



The growth in software maintenance revenues reflects higher Public Cloud
Services revenue and the higher aggregate contract value of the installed base
under software maintenance contracts, which is recognized as revenue ratably
over the terms of the underlying contracts. Software maintenance revenues in the
third quarter and first nine months of fiscal 2021 benefited from the continued
growth in all-flash array product sales, as all flash systems carry a higher
support dollar content than our other products. Software maintenance revenues in
the first nine months of fiscal 2021 were favorably impacted by the additional
week of deferred revenue amortization in that period, which contributed
approximately $20 million of additional revenues.

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



                                                 Three Months Ended                                  Nine Months Ended
                                   January 29,         January 24,                      January 29,       January 24,
                                      2021                2020           % Change          2021              2020           % Change
Hardware maintenance and other
services revenues                 $         361       $         354              2 %   $       1,100     $       1,042              6 %



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



Hardware maintenance contract revenues were flat at $293 million in the third
quarter of each fiscal 2021 and fiscal 2020, while they were $896 million for
the first nine months of fiscal 2021, compared to $863 million for the
corresponding period of fiscal 2020, reflecting an increase of 4%. The increase
in the first nine months of fiscal 2021 is partially due to the additional week
in that period which contributed approximately $20 million of additional
revenues.

Professional services and educational and training services revenues were $68
million and $204 million, respectively, for the third quarter and first nine
months of fiscal 2021, compared to $61 million and $179 million, respectively,
for the corresponding periods of the prior year. The increase in the first nine
months of fiscal 2021 is partially due to the additional week in that period.

Revenues by Geographic Area:





                                                     Three Months Ended                       Nine Months Ended
                                             January 29,           January 24,        January 29,           January 24,
                                                2021                   2020              2021                  2020
United States, Canada and Latin America
(Americas)                                             53 %                   50 %              54 %                  52 %
Europe, Middle East and Africa (EMEA)                  32 %                   35 %              31 %                  32 %
Asia Pacific (APAC)                                    15 %                   15 %              15 %                  15 %



Percentages may not add due to rounding

Americas revenues consist of sales to Americas commercial and U.S. public sector
markets. Demand across geographies was relatively consistent in the third
quarter and first nine months of fiscal 2021 as compared to the corresponding
periods of the prior year.

Cost of Revenues

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

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





                                                 Three Months Ended                                  Nine Months Ended
                                   January 29,         January 24,                      January 29,       January 24,
                                      2021                2020           % Change          2021              2020           % Change
Cost of product revenues          $         369       $         360              3 %   $       1,045     $       1,013              3 %



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





                                                     Three Months         Nine Months
                                                         Ended               Ended
                                                    Fiscal 2021 to      Fiscal 2021 to
                                                      Fiscal 2020         Fiscal 2020
Materials costs                                                   4                   6
Excess and obsolete inventory                                    (2 )                (2 )
Warranty                                                         (1 )                (1 )
Other                                                             2                   -
Total change                                                      3                   3


Cost of product revenues represented 48% and 49% of product revenues for the
third quarter and first nine months of fiscal 2021, respectively, compared to
46% for each of the corresponding periods of fiscal 2020. Materials costs
represented 89% of product costs for each of the third quarter and first nine
months of fiscal 2021, compared to 87% and 85% in the corresponding periods of
fiscal 2020.

Materials costs increased by approximately $15 million and $62 million in the
third quarter and first nine months of fiscal 2021, respectively, compared to
the corresponding periods of the prior year. The trend in product mix toward all
flash-array systems, which carry higher materials costs than hybrid systems, was
the primary driver of these increases. The average unit materials cost of all
flash-array systems also increased in the first nine months of fiscal 2021
compared to the corresponding period of fiscal 2020, due to an increase in the
price of certain product components, which adversely impacted product margins.
Excess and obsolete inventory reserves and warranty expenses were lower in the
third quarter and first nine months of fiscal 2021 compared to the corresponding
periods of fiscal 2020.

In addition to the increase in average unit materials costs of all flash-array
systems described above, product margins were also adversely impacted in the
third quarter and first nine months of fiscal 2021 by a decrease in the average
selling prices of most of our products.

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





                                                Three Months Ended                                  Nine Months Ended
                                   January 29,         January 24,                     January 29,        January 24,
                                      2021                2020          % Change          2021               2020          % Change
Cost of software maintenance
revenues                          $          28       $          12           133 %   $          67      $          33           103 %




Cost of software maintenance revenues increased in the third quarter and first
nine months of fiscal 2021 compared to the corresponding periods of fiscal 2020,
reflecting the increase in Public Cloud Services revenue and an increase in
amortization expense for acquired developed technology. Cost of software
maintenance revenues represented 8% and 7% of software maintenance revenues,
respectively, for the third quarter and first nine months of fiscal 2021, and 5%
and 4%, respectively, for the corresponding periods of fiscal 2020.



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



                                                 Three Months Ended                                   Nine Months Ended
                                   January 29,         January 24,                      January 29,        January 24,
                                      2021                2020           % Change          2021               2020           % Change
Cost of hardware maintenance
and other services revenues       $          98       $          91              8 %   $         297      $         283              5 %




Cost of hardware maintenance and other services revenues increased in the third
quarter and first nine months of fiscal 2021 compared to the corresponding
periods of fiscal 2020, in line with the increase in hardware maintenance and
other services revenues. Costs represented 27% of hardware maintenance and other
services revenues in both the third quarter and first nine months of fiscal
2021, compared to 26% and 27%, respectively, in the corresponding periods of
fiscal 2020.



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Operating Expenses

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

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

Total compensation costs included in operating expenses increased by $64 million, or 17%, in the third quarter of fiscal 2021 compared to the corresponding period of the prior year, primarily reflecting higher incentive compensation expense and a 2% increase in average headcount.



Total compensation costs included in operating expenses increased $165 million,
or 15% in the first nine months of fiscal 2021, compared to the corresponding
period of the prior year, reflecting an increase in average headcount of 4%,
higher incentive compensation expense, and the impact of one additional week in
the first quarter of fiscal 2021.

Sales and Marketing (in millions, except percentages):





                                                 Three Months Ended                                  Nine Months Ended
                                   January 29,         January 24,                      January 29,       January 24,
                                      2021                2020           % Change          2021              2020           % Change

Sales and marketing expenses $ 436 $ 402

      8 %   $       1,297     $       1,196              8 %


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



                                                     Three Months         Nine Months
                                                         Ended               Ended
                                                    Fiscal 2021 to      Fiscal 2021 to
                                                      Fiscal 2020         Fiscal 2020
Compensation costs                                               10                   9
Commissions                                                       1                   3
Advertising and marketing promotional expense                     1                   1
Travel and entertainment                                         (4 )                (4 )
Other                                                             -                  (1 )
Total change                                                      8                   8


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

The increase in commissions expense for the third quarter and first nine months
of fiscal 2021 is primarily due to higher performance against sales goals than
in the corresponding periods of fiscal year 2020. Advertising and marketing
promotional expense increased in the third quarter of fiscal 2021 compared to
the corresponding period of the prior year, primarily due to higher spending
levels on certain projects. Travel and entertainment spend decreased
significantly due to the ongoing COVID-19 pandemic.

Research and Development (in millions, except percentages):





                                                   Three Months Ended                                   Nine Months Ended
                                     January 29,         January 24,                      January 29,        January 24,
                                        2021                2020           % Change          2021               2020           % Change

Research and development expenses $ 215 $ 211

        2 %   $         660      $         635              4 %


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



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


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The increase in compensation costs for the third quarter and first nine months
of fiscal 2021 compared to the corresponding periods in the prior year was
primarily due to higher incentive compensation expense as a result of stronger
company achievement against financial targets. Compensation costs for the first
nine months of fiscal 2021 also reflected the impact of one additional week in
the first quarter. The decrease in development projects and outside services
were primarily due to the lower spending on certain engineering projects. The
decrease in facilities and IT support costs were primarily due to cost
containment efforts, and lower travel and entertainment expense was due to the
impact of the ongoing COVID-19 pandemic.

General and Administrative (in millions, except percentages):





                                                     Three Months Ended                                  Nine Months Ended
                                       January 29,         January 24,                      January 29,       January 24,
                                          2021                2020           % Change          2021              2020           % Change

General and administrative expenses $ 63 $ 60

          5 %   $         191     $         200             (5 )%


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



                                                                               Nine Months
                                                     Three Months Ended           Ended
                                                       Fiscal 2021 to        Fiscal 2021 to
                                                        Fiscal 2020            Fiscal 2020
Compensation costs                                                    13                   7
Professional and legal fees and outside services                     (12 )               (15 )
Litigation settlement                                                  -                   3
Facilities and IT support costs                                        2                   1
Other                                                                  2                  (1 )
Total change                                                           5                  (5 )


The increase in compensation costs in the third quarter and first nine months of
fiscal 2021 compared to the corresponding periods of the prior year was
primarily due to higher incentive compensation expense as a result of stronger
company achievement against financial targets. The decrease in professional and
legal fees and outside services expense in the third quarter and first nine
months of fiscal 2021 was primarily due to lower spending on business
transformation projects in the current year. The increase in facilities and IT
support costs was primarily due to higher spending levels on IT projects. During
the second quarter of fiscal 2021, we incurred a litigation settlement charge of
approximately $5 million that was included in general and administrative
expenses in our condensed consolidated statements of operations.

Restructuring Charges (in millions, except percentages):





                                                Three Months Ended                              Nine Months Ended
                                    January 29,       January 24,                  January 29,        January 24,
                                       2021              2020          % Change       2021               2020          % Change
Restructuring charges              $           -     $           -           NM   $          42      $          21           100 %




NM - Not Meaningful





In the second quarter of fiscal 2021, we announced a restructuring plan (the
August 2020 Plan) to optimize our business and fund our biggest opportunities,
which included a reduction in our global workforce of approximately 5%. Charges
related to the plan consisted primarily of employee severance-related costs. We
completed substantially all activities under the plan by the end of the third
quarter fiscal 2021. See Note 12 - Restructuring Charges of the Notes to
Condensed Consolidated Financial Statements for more details.



Acquisition-related Expense (in millions, except percentages):



                                                Three Months Ended                             Nine Months Ended
                                    January 29,       January 24,                  January 29,       January 24,
                                       2021              2020          % Change       2021              2020          % Change
Acquisition-related expense        $           3                 -           NM   $          14     $           -           NM




NM - Not Meaningful

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In the first nine months of fiscal 2021, we incurred $14 million of acquisition-related costs, primarily legal and consulting fees associated with our acquisition and subsequent integration of Spot Inc.

Gain on sale or derecognition of assets (in millions, except percentages)



                                                Three Months Ended                             Nine Months Ended
                                    January 29,       January 24,                  January 29,       January 24,
                                       2021              2020          % Change       2021              2020          % Change
Gain on sale or derecognition of
assets                             $           -     $           -           NM   $           -     $         (38 )         NM




NM - Not Meaningful



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





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

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





                                                Three Months Ended                                  Nine Months Ended
                                   January 29,       January 24,                       January 29,       January 24,
                                      2021              2020           % Change           2021              2020           % Change
Interest income                   $           2     $          10            (80 )%   $           7     $          41            (83 )%
Interest expense                            (19 )             (14 )           36 %              (55 )             (41 )           34 %
Other income (expense), net                   6                12            (50 )%              (2 )              26           (108 )%
Total                             $         (11 )   $           8           (238 )%   $         (50 )   $          26           (292 )%


Interest income decreased in the third quarter and first nine months of fiscal
2021 compared to the corresponding periods of the prior year due to both a
reduction in the size of our investment portfolio and lower yields earned on the
investments.

Interest expense increased in the third quarter and first nine months of fiscal
2021 compared to the corresponding periods of the prior year, as we issued
Senior Notes in aggregate principal amount of $2.0 billion in the first quarter
of fiscal 2021. The impact from the issuance of these Senior Notes was partially
offset by the extinguishment of our Senior Notes due June 2021 in the first
quarter of fiscal 2021, and a lower average outstanding commercial paper balance
during fiscal 2021.

In the first nine months of fiscal 2021, Other income (expense), net includes a
$6 million gain recognized on our sale of a minority equity interest in a
privately held company for proceeds of approximately $8 million. This benefit
was more than offset in the first nine months period by a $14 million loss
recognized from the extinguishment of our Senior Notes due June 2021 in the
first quarter of fiscal 2021. Other income (expense), net for the first nine
months of fiscal 2020 includes a $14 million gain we realized on the sale of
available-for-sale debt securities during that period. The remaining
fluctuations in other income (expense), net are primarily due to foreign
exchange gains and losses.

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





                                                    Three Months Ended                               Nine Months Ended
                                        January 29,       January 24,                  January 29,        January 24,
                                           2021              2020          % Change       2021               2020           % Change

Provision (benefit) for income taxes $ 65 $ (1 )


     NM   $         130      $          71             83 %




NM - Not Meaningful

Our effective tax rate for the third quarter of fiscal 2021 was 26.3% compared
to (0.4)% for the third quarter of fiscal 2020. Our effective tax rate for the
first nine months of fiscal 2021 was 24.7% compared to 10.2% for the
corresponding period of fiscal 2020. Our effective tax rates reflect the impact
of a significant amount of our earnings being taxed in foreign jurisdictions at
rates below the U.S. statutory tax rate. Our effective tax rates for the third
quarter and first nine months of fiscal 2021 increased compared to the
corresponding periods of the prior year primarily due to the impact of taxes
resulting from the integration of acquired companies. Additionally, the
corresponding prior periods included discrete benefits for lapses in statutes of
limitations. The remaining differences in effective tax rates for the third
quarter of fiscal 2021 compared to the corresponding period of the prior year
are primarily due to differences in discrete tax benefits/expenses for
stock-based compensation. The remaining differences in effective tax rates for
the first nine months of fiscal 2021 compared to the corresponding period of the
prior year are primarily due to certain discrete expenses, including foreign
audit results and differences in discrete tax benefits for stock-based
compensation.

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As of January 29, 2021, we had $224 million of gross unrecognized tax benefits,
of which $133 million has been recorded in other long-term liabilities.
Inclusive of penalties, interest and certain income tax benefits, $133 million
would affect our provision for income taxes if recognized.

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.




Liquidity, Capital Resources and Cash Requirements

January 29,       April 24,
(In millions, except percentages)                       2021             

2020

Cash, cash equivalents and short-term investments $ 3,894 $ 2,882 Principal amount of debt

$       2,650     $     1,673

The following is a summary of our cash flow activities:





                                                                Nine Months Ended
                                                          January 29,       January 24,
(In millions)                                                2021              2020
Net cash provided by operating activities                $         774     $         677
Net cash (used in) provided by investing activities               (320 )    

1,227


Net cash provided by (used in) financing activities                624            (1,520 )
Effect of exchange rate changes on cash, cash
equivalents and restricted cash                                     70                (4 )
Net increase in cash, cash equivalents and restricted
cash                                                     $       1,148     $         380


Cash Flows

As of January 29, 2021, our cash, cash equivalents and short-term investments
were $3.9 billion, an increase of $1.0 billion from April 24, 2020. The increase
was primarily due to $2.0 billion of net proceeds from the issuance of Senior
Notes and $774 million of cash provided by operating activities, partially
offset by $513 million used for the extinguishment of our Senior Notes due June
2021, $420 million used for the net repayment of commercial paper notes with
original maturities of three months or less, $350 million used for the
acquisitions of two privately-held companies, $321 million used for the payment
of dividends, and $124 million in purchases of property and equipment. Working
capital increased by $1.4 billion to $2.1 billion as of January 29, 2021
compared to April 24, 2020 primarily due to the increases in cash, cash
equivalents and short-term investments discussed above, and the net repayment of
commercial paper notes.

Cash Flows from Operating Activities



During the first nine months of fiscal 2021, we generated cash from operating
activities of $774 million, reflecting net income of $396 million, adjusted by
non-cash depreciation and amortization of $159 million and stock-based
compensation of $149 million, compared to $677 million of cash generated from
operating activities during the first nine months of fiscal 2020.

Changes in assets and liabilities in the first nine months of fiscal 2021 included the following:

• Accounts receivable decreased $208 million, reflecting more favorable


     shipping linearity for the third quarter of fiscal 2021 compared to the
     fourth quarter of fiscal 2020.

• Accounts payable decreased by $92 million, reflecting the timing of purchases

from, and payments to, our contract manufacturers.




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

                                       37

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Cash Flows from Investing Activities



During the first nine months of fiscal 2021, we generated $140 million from
maturities and sales of investments, net of purchases, and paid $124 million for
capital expenditures, while during the first nine months of fiscal 2020, we
generated $1.3 billion from maturities and sales of investments, net of
purchases, and paid $100 million for capital expenditures. Additionally, during
the first nine months of fiscal 2021, we paid $350 million, net of cash acquired
for two privately-held companies, as compared to $56 million, net of cash
acquired that we paid in the first nine months of fiscal 2020 for a
privately-held company. Additionally, during the first nine months of fiscal
2020, we received $96 million for the sale of land in Sunnyvale, California.

Cash Flows from Financing Activities



During the first nine months of fiscal 2021, cash flows provided by financing
activities totaled $624 million, primarily due to net cash proceeds of $2.0
billion from the issuance of Senior Notes, partially offset by the use of $513
million for the extinguishment of our Senior Notes due June 2021, $420 million
for the net repayment of commercial paper notes with original maturities of
three months or less, $321 million for the payment of dividends, $176 million
for the repayment of commercial paper notes with original maturities of greater
than three months, and $50 million for the repurchase of 1 million shares of
common stock. During the first nine months of fiscal 2020, we used $1.3 billion
for the repurchase of 22 million shares of common stock, $334 million for the
payment of dividends, and $400 million for the repayment of our Senior Notes due
September 2019, partially offset by $443 million in net proceeds from the
issuance of commercial paper notes with original maturities of three months or
less.

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

Liquidity

Our principal sources of liquidity as of January 29, 2021 consisted of cash and cash equivalents, short-term investments, cash we expect to generate from operations, and our commercial paper program and related credit facility.



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



                             January 29,       April 24,
                                2021             2020
Cash and cash equivalents   $       3,808     $     2,658
Short-term investments                 86             224
Total                       $       3,894     $     2,882


As of January 29, 2021 and April 24, 2020, $2.3 billion and $2.5 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 $1.6 billion and $0.4 billion, respectively, were available in
the U.S. The Tax Cuts and Jobs Act ("TCJA") imposed a one-time transition tax on
substantially all accumulated foreign earnings through December 31, 2017, and
generally allows companies to make distributions of foreign earnings without
incurring additional federal taxes. As a part of the recognition of the impacts
of the TCJA, we have reviewed our projected global cash requirements and have
determined that certain historical and future foreign earnings will no longer be
indefinitely reinvested.

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

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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 January
29, 2021.

Our investment portfolio has been and will continue to be exposed to market risk
due to trends in the credit and capital markets. We continue to closely monitor
current economic and market events to minimize the market risk of our investment
portfolio. We routinely monitor our financial exposure to both sovereign and
non-sovereign borrowers and counterparties. We utilize a variety of planning and
financing strategies in an effort to ensure our worldwide cash is available when
and where it is needed. Based on past performance and current expectations, we
believe our cash and cash equivalents, investments, cash generated from
operations, and ability to access capital markets and committed credit lines
will satisfy, through at least the next 12 months, our liquidity requirements,
both in total and domestically, including the following: working capital needs,
capital expenditures, stock repurchases, cash dividends, contractual
obligations, commitments, principal and interest payments on debt, and other
liquidity requirements associated with our operations. We also have an automatic
shelf registration statement on file with the Securities and Exchange Commission
(SEC). We may in the future offer an additional unspecified amount of debt,
equity and other securities.

Senior Notes

The following table summarizes the principal amount of our Senior Notes as of January 29, 2021 (in millions):





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


Interest on the Senior Notes is payable semi-annually. For further information
on the underlying terms, see Note 8 - Financing Arrangements of the Notes to
Condensed Consolidated Financial Statements.

Commercial Paper Program and Credit Facility



We have a commercial paper program (the Program), under which we may issue
unsecured commercial paper notes. Amounts available under the Program may be
borrowed, repaid and re-borrowed, with the aggregate face or principal amount of
the notes outstanding under the Program at any time not to exceed $1.0 billion.
The maturities of the notes can vary, but may not exceed 397 days from the date
of issue. The notes are sold under customary terms in the commercial paper
market and may be issued at a discount from par or, alternatively, may be sold
at par and bear interest at rates dictated by market conditions at the time of
their issuance. The proceeds from the issuance of the notes are used for general
corporate purposes. No commercial paper notes were outstanding as of January 29,
2021.

In connection with the Program, we have a senior unsecured credit agreement with
a syndicated group of lenders. The credit agreement, which was amended on
January 22, 2021, provides for a $1.0 billion revolving unsecured credit
facility, with a sublimit of $50 million available for the issuance of letters
of credit on our behalf. The credit facility matures on January 22, 2026, with
an option for us to extend the maturity date for two additional 1-year periods,
subject to certain conditions. The proceeds of the loans may be used by us for
general corporate purposes and as liquidity support for our existing commercial
paper program. As of January 29, 2021, we were compliant with all associated
covenants in the agreement. No amounts were drawn against this credit facility
during any of the periods presented.

Capital Expenditure Requirements



We expect to fund our capital expenditures, including our commitments related to
facilities, equipment, operating leases and internal-use software development
projects over the next few years through existing cash, cash equivalents,
investments and cash generated from operations. The timing and amount of our
capital requirements cannot be precisely determined and will depend on a number
of factors, including future demand for products, changes in the network storage
industry, hiring plans and our decisions related to the financing of our
facilities and equipment requirements. We anticipate capital expenditures for
the remainder of fiscal 2021 to be between $25 million and $50 million.

Dividends and Stock Repurchase Program

On February 19, 2021, we declared a cash dividend of $0.48 per share of common stock, payable on April 28, 2021 to holders of record as of the close of business on April 9, 2021.


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As of January 29, 2021, our Board of Directors has authorized the repurchase of
up to $13.6 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 January 29, 2021, we repurchased a total of 339 million shares of our
common stock at an average price of $38.92 per share, for an aggregate purchase
price of $13.2 billion. As of January 29, 2021, the remaining authorized amount
for stock repurchases under this program was $0.4 billion.

During the first quarter of fiscal 2021, we announced the suspension of our
stock repurchases to strengthen our liquidity position given the uncertainty
surrounding the overall impact of the ongoing COVID-19 pandemic. We reinitiated
our stock repurchase program during the third quarter of fiscal 2021.

Contractual Obligations

Purchase Orders and Other Commitments



In the ordinary course of business, we make commitments to our third-party
contract manufacturers to manage 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 consists of firm, non-cancelable, and unconditional
commitments. As of January 29, 2021, we had $602 million 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. 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 construction related obligations
associated with our ordinary course of business for which we have not received
goods or services. As of January 29, 2021, we had $181 million in other purchase
obligations.

Unrecognized Tax Benefits

As of January 29, 2021, our liability for uncertain tax positions was
$133 million, including interest, penalties and certain income tax benefits. Due
to uncertainties regarding tax audits and their possible outcomes, we are unable
to make reasonably reliable estimates of the period of cash settlement with the
taxing authorities.

Financing Guarantees

While most of our arrangements for sales include short-term payment terms, from
time to time we provide long-term financing to creditworthy customers. We have
generally sold receivables financed through these arrangements on a non-recourse
basis to third party financing institutions within 10 days of the contracts'
dates of execution, and we classify the proceeds from these sales as cash flows
from operating activities in our condensed 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
$61 million and $49 million of receivables during the first nine months of
fiscal 2021 and fiscal 2020, respectively.

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

Some of the leasing arrangements described above have been financed on a
recourse basis through third-party financing institutions. Under the terms of
recourse leases, which are generally three years or less, we remain liable for
the aggregate unpaid remaining lease payments to the third-party leasing
companies in the event of end-user customer default. These arrangements are
generally collateralized by a security interest in the underlying assets. As of
January 29, 2021 and April 24, 2020, the aggregate amount by which such
contingencies exceeded the associated liabilities was not significant. To date,
we have not experienced significant losses under our lease financing programs or
other financing arrangements.

We have entered into service contracts with certain of our end-user customers
that are supported by third-party financing arrangements. If a service contract
is terminated as a result of our non-performance under the contract or our
failure to comply with the terms of the financing arrangement, we could, under
certain circumstances, be required to acquire certain assets related to the
service contract or to pay the aggregate unpaid payments under such
arrangements. As of January 29, 2021, we have not been required to make any
payments under these arrangements, and we believe the likelihood of having to
acquire a material amount of assets or make payments under these arrangements is
remote. The portion of the financial arrangement that represents unearned
services revenue is included in deferred revenue and financed unearned services
revenue in our condensed consolidated balance sheets.

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Off-Balance Sheet Arrangements



We enter into indemnification agreements with third parties in the ordinary
course of business. Generally, these indemnification agreements require us to
reimburse losses suffered by the third-parties due to various events, such as
lawsuits arising from patent or copyright infringement. These indemnification
obligations are considered off-balance sheet arrangements under accounting
guidance.

Legal Contingencies



We are subject to various legal proceedings and claims which arise in the normal
course of business. See further details on such matters in Note 16 - Commitments
and Contingencies of the Notes to Condensed Consolidated Financial Statements.

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