# NetApp, Inc.: Form 10-Q for the period ended Jan 27, 2023

- Company: [NetApp, Inc.](/companies/ntap.md) (CIK 1002047)
- Form: 10-Q
- Filed: 2023-03-01
- Accepted by EDGAR: Mar 1, 2023, 21:19 ET
- Period: 2023-01-27
- Accession: 0000950170-23-005545
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1002047/000095017023005545/ntap-20230127.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1002047/000095017023005545/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-01-27.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-10-29 to 2023-01-27 | $1.53bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-04-30 to 2023-01-27 | $4.78bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-10-29 to 2023-01-27 | $525.0m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2022-04-30 to 2023-01-27 | $1.65bn | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2022-10-29 to 2023-01-27 | $1.00bn | us-gaap:GrossProfit |
| Gross profit | 9 months, 2022-04-30 to 2023-01-27 | $3.13bn | us-gaap:GrossProfit |
| Research and development | 3 months, 2022-10-29 to 2023-01-27 | $230.0m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2022-04-30 to 2023-01-27 | $713.0m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2022-10-29 to 2023-01-27 | $172.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-04-30 to 2023-01-27 | $709.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-10-29 to 2023-01-27 | $16.0m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2022-04-30 to 2023-01-27 | $51.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2022-10-29 to 2023-01-27 | $112.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-04-30 to 2023-01-27 | −$277.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-10-29 to 2023-01-27 | $65.0m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-04-30 to 2023-01-27 | $1.03bn | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-10-29 to 2023-01-27 | $0.30 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-04-30 to 2023-01-27 | $4.66 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-10-29 to 2023-01-27 | $0.30 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-04-30 to 2023-01-27 | $4.72 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-10-29 to 2023-01-27 | 219,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-04-30 to 2023-01-27 | 221,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-04-30 to 2023-01-27 | $872.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2022-04-30 to 2023-01-27 | $200.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2022-04-30 to 2023-01-27 | $326.0m | us-gaap:PaymentsOfDividends |
| Share repurchases | 9 months, 2022-04-30 to 2023-01-27 | $700.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-01-27 | $2.64bn | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-01-27 | $4.54bn | us-gaap:AssetsCurrent |
| Total assets | at 2023-01-27 | $9.71bn | us-gaap:Assets |
| Current liabilities | at 2023-01-27 | $3.39bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-01-27 | $8.61bn | us-gaap:Liabilities |
| Long-term debt | at 2023-01-27 | $2.39bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-01-27 | $0 | us-gaap:LongTermDebtCurrent |
| Short-term borrowings | at 2023-01-27 | $0 | us-gaap:CommercialPaper |
| Shareholders' equity | at 2023-01-27 | $1.10bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 55,518 characters.

*This section and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, as amended, 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 described in our 2022 Annual Report on Form 10-K, including under the heading “Risk Factors” and discussed in 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 29, 2022, 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.*

### Overview

### Our Company

NetApp is a global cloud-led, data-centric software company that gives organizations the freedom to put data to work in the applications that elevate their business. We help our customers get the most out of their data with industry-leading public cloud services, and hybrid cloud solutions. Building on more than three decades of innovation, we give customers the freedom to manage applications and data across hybrid multicloud environments. We envision a better IT experience – an evolved cloud state where on-premises and cloud environments are united, always delivering simplicity, security, savings, and sustainability. To that end, we build solutions that drive faster innovation wherever a customer’s data and applications are located, with unified management and AI-driven optimization.

Our operations are organized into two segments: Hybrid Cloud and Public Cloud.

*Hybrid Cloud* offers a portfolio of storage management and infrastructure solutions that help customers recast their data centers with the power of cloud. This portfolio is designed to operate with public clouds to unlock the potential of hybrid, multi-cloud operations. We offer a broad portfolio of cloud-connected all-flash, hybrid-flash, and object storage systems, powered by intelligent data management software. Hybrid Cloud is composed of software, hardware, and related support, as well as professional and other services.

*Public Cloud* offers a portfolio of products delivered primarily as-a-service, including related support. This portfolio includes cloud storage and data services, and cloud operations services. Our enterprise-class solutions and services enable customers to control and manage storage in the cloud, consume high-performance storage services for primary workloads, and optimize cloud environments for cost and efficiency. These solutions and services are generally available on the leading public clouds, including Microsoft Azure, Google Cloud Platform and Amazon AWS.

### Global Business Environment

#### Macroeconomic Conditions

Continuing global economic uncertainty, political conditions and fiscal challenges in the U.S. and abroad have resulted, and could continue to result in adverse macroeconomic conditions, including inflation, rising interest rates, foreign exchange volatility, slower growth or recession. In particular, during the first nine months of fiscal 2023, we continued to experience inflationary pressure, constraints in our supply chain and foreign exchange volatility. We also observed a slowdown in customer demand during the second and third quarters of fiscal 2023 as a result of continuing global economic uncertainty.

Supply chain constraints, which substantially began to impact us in the second half of fiscal 2022, and have eased in the second half of fiscal 2023, led to higher product component and freight costs in the first nine months of fiscal 2023 than incurred in the first nine months of fiscal 2022. Supply chain constraints also delayed our ability to fulfill certain customer orders during the first six months of fiscal 2023.

If these macroeconomic uncertainties or supply chain challenges persist or worsen for the remainder of fiscal 2023, we may continue to observe reduced customer demand for our offerings, increased competition for critical components, challenges fulfilling certain customer orders or continued increases in component and freight costs, any of which could impact our operating results.

#### COVID-19

The COVID-19 pandemic and efforts to control its spread have significantly curtailed the movement of people, goods and services worldwide, including in many 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.

#### Russia Sanctions

Beginning in February 2022, in response to Russian military actions in Ukraine, the U.S. and other countries imposed sanctions on Russia, and we suspended business operations, including sales, support on existing contracts and professional services, in Russia and Belarus. In the second quarter of fiscal 2023, we discontinued business operations in Russia, Belarus, and certain regions of Ukraine. The impact of these actions was not significant to our results in either the third quarter or first nine months of fiscal 2023.

The magnitude and duration of the disruption to our business, and impact to our operational and financial performance of the factors above remain uncertain. Refer to Part II, Item 1A. – Risk Factors for the significant risks we have identified related to the global business environment.

### Stock Repurchase and Dividend Activity

During the first nine months of fiscal 2023, we repurchased approximately 10 million shares of our common stock at an average price of $66.93 per share, for an aggregate of $700 million. We also declared aggregate cash dividends of $1.50 per share in that period, for which we paid $326 million.

### Restructuring Events

In the third quarter of fiscal 2023 management approved a restructuring plan to redirect resources to highest return activities and reduce costs, which will reduce our global workforce by approximately 8%. Activities under this plan are expected to substantially complete by the end of fiscal 2023. Aggregate charges recorded from restructuring plans in the third quarter and first nine months of fiscal 2023 totaled $87 million and $109 million, respectively, and consisted primarily of employee severance-related costs.

### Results of Operations

Our fiscal year is reported as a 52- or 53-week year that ends on the last Friday in April. Fiscal years 2023 and 2022, ending on April 28, 2023 and April 29, 2022, respectively, are each 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 in April and the associated quarters, months and periods of those fiscal years.

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

| Net revenues: | Three Months Ended January 27, 2023 | January 28, 2022 | Nine Months Ended January 27, 2023 | January 28, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Product | 45% | 52% | 48% | 52% |
| Services | 55 | 48 | 52 | 48 |
| Net revenues | 100 | 100 | 100 | 100 |
| **Cost of revenues:** |  |  |  |  |
| Cost of product | 24 | 25 | 25 | 24 |
| Cost of services | 10 | 8 | 10 | 9 |
| **Gross profit** | 66 | 66 | 66 | 68 |
| **Operating expenses:** |  |  |  |  |
| Sales and marketing | 29 | 29 | 29 | 30 |
| Research and development | 15 | 14 | 15 | 14 |
| General and administrative | 4 | 4 | 4 | 4 |
| Restructuring charges | 6 | — | 2 | 1 |
| Acquisition-related expense | — | — | — | — |
| Total operating expenses | 54 | 47 | 51 | 49 |
| **Income from operations** | 11 | 20 | 15 | 19 |
| Other income (expense), net | — | (1) | 1 | (1) |
| **Income before income taxes** | 12 | 19 | 16 | 18 |
| Provision (benefit) for income taxes | 7 | 3 | (6) | 3 |
| **Net income** | 4% | 16% | 22% | 15% |

Percentages may not add due to rounding

### Discussion and Analysis of Results of Operations

### Net Revenues (in millions, except percentages):

|  | Three Months Ended January 27, 2023 | January 28, 2022 | % Change | Nine Months Ended January 27, 2023 | January 28, 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net revenues | $1,526 | $1,614 | (5)% | $4,781 | $4,638 | 3% |

The decrease in net revenues for the third quarter of fiscal 2023 compared to the corresponding period of fiscal 2022 was primarily due to a decrease in product revenues, partially offset by an increase in services revenues. The increase in net revenues for the first nine months of fiscal 2023 compared to the corresponding period of fiscal 2022 was primarily due to an increase in services revenues, partially offset by a decrease in product revenues. Product revenues as a percentage of net revenues decreased by eight percentage points and three percentage points in the third quarter and first nine months of fiscal 2023, respectively, compared to the corresponding periods of fiscal 2022. Fluctuations in foreign currency exchange rates adversely impacted net revenues percent growth by three percentage points and four percentage points in the third quarter and first nine months of fiscal 2023, respectively, compared to the corresponding periods of fiscal 2022.

### Product Revenues (in millions, except percentages):

|  | Three Months Ended January 27, 2023 | January 28, 2022 | % Change | Nine Months Ended January 27, 2023 | January 28, 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| **Product revenues** | **$682** | **$846** | **(19)%** | **$2,305** | **$2,390** | **(4)%** |
| Hardware (Non-GAAP) | 292 | 338 | (14)% | 945 | 993 | (5)% |
| Software (Non-GAAP) | 390 | 508 | (23)% | 1,360 | 1,397 | (3)% |

#### Hybrid Cloud

Product revenues 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.

In order to provide visibility into the value created by our software innovation and R&D investment, we disclose the software and hardware components of our product revenues. Software product revenues include the operating system software and optional add-on software solutions attached to our systems across our entire product set, while hardware product revenues include the non-software component of our systems across the entire set. 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, 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.

Total product revenues decreased in the third quarter and first nine months of fiscal 2023 compared to the corresponding periods of the prior year primarily due to lower sales of all flash array systems, as a result of softening customer demand. Product revenues were also unfavorably impacted by foreign exchange rate fluctuations.

Revenues from the hardware component of product revenues represented 43% and 41% of product revenues in the third quarter and first nine months of fiscal 2023, compared to 40% and 42% of product revenues in the corresponding periods of the prior year. The software component of product revenues represented 57% and 59% of product revenues in the third quarter and first nine months of fiscal 2023, compared to 60% and 58% of product revenues in the corresponding periods of the prior year. The decrease in the software component percentage of product revenues in the third quarter of fiscal 2023 was primarily due to the mix of systems sold.

### Services Revenues (in millions, except percentages):

|  | Three Months Ended January 27, 2023 | January 28, 2022 | % Change | Nine Months Ended January 27, 2023 | January 28, 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| **Services revenues** | **$844** | **$768** | **10%** | **$2,476** | **$2,248** | **10%** |
| Support | 616 | 586 | 5% | 1,821 | 1,754 | 4% |
| Professional and other services | 78 | 72 | 8% | 231 | 218 | 6% |
| Public cloud | 150 | 110 | 36% | 424 | 276 | 54% |

#### Hybrid Cloud

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.

Support revenues increased in the third quarter and first nine months of fiscal 2023 compared to the corresponding periods of the prior year as a result of a higher aggregate support contract value for our installed based, primarily due to a higher mix of all-flash systems (which carry a higher support dollar content than our other products). This increase was partially offset by an unfavorable impact from foreign exchange rate fluctuations.

Professional and other services revenues increased slightly in the third quarter and first nine months of fiscal 2023 compared to the corresponding periods of the prior year.

#### Public Cloud

Public Cloud revenues are derived from the sale of public cloud offerings primarily delivered as-a-service, which include cloud storage and data services, and cloud operations services.

Public Cloud revenues increased in the third quarter and first nine months of fiscal 2023 compared to the corresponding periods of the prior year primarily due to customer demand for NetApp’s diversified cloud offerings, coupled with overall growth in the cloud market and the acquisition of Instaclustr early in the first quarter of fiscal 2023. Revenues in the first nine months of fiscal 2023 also benefitted from the acquisition of CloudCheckr in the third quarter of fiscal 2022.

### Cost of Revenues

Our cost of revenues consists of:

(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 Product Revenues (in millions, except percentages):

|  | Three Months Ended January 27, 2023 | January 28, 2022 | % Change | Nine Months Ended January 27, 2023 | January 28, 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| **Cost of product revenues** | **$367** | **$407** | **(10)%** | **$1,182** | **$1,108** | **7%** |
| Hybrid Cloud | 365 | 404 | (10)% | 1,177 | 1,099 | 7% |
| Unallocated | 2 | 3 | (33)% | 5 | 9 | (44)% |

#### Hybrid Cloud

Cost of Hybrid Cloud product revenues represented approximately 54% and 51% of product revenues for the third quarter and first nine months of fiscal 2023 compared to 48% and 46% for the corresponding periods of fiscal 2022. Materials costs represented 94% of cost of Hybrid Cloud product revenues for each of the third quarter and first nine months of fiscal 2023, respectively, compared to 94% and 92% for the corresponding periods of fiscal 2022.

Materials costs decreased by approximately $29 million in the third quarter of fiscal 2023 compared to the corresponding period of the prior year, reflecting the decrease in product revenues. Material costs increased by approximately $95 million in the first nine months of fiscal 2023 compared to the corresponding period of the prior year, reflecting the higher component and freight costs as a result of COVID-19 related supply chain challenges, partially offset by the decrease in product revenues.

Hybrid Cloud product gross margins decreased by approximately six percentage points and five percentage points in the third quarter and first nine months of fiscal 2023, respectively, compared to the corresponding periods of the prior year, primarily due to the mix of products sold and the adverse impacts of fluctuations in foreign currency exchange rates on product revenues. For the first nine months of fiscal 2023, Hybrid Cloud product gross margins were also impacted by higher component and freight costs.

#### Unallocated

Unallocated cost of product revenues decreased in the third quarter and first nine months of fiscal 2023 compared to the corresponding periods of the prior year due to certain intangible assets becoming fully amortized during the first quarter of fiscal 2023.

### Cost of Services Revenues (in millions, except percentages):

|  | Three Months Ended January 27, 2023 | January 28, 2022 | % Change | Nine Months Ended January 27, 2023 | January 28, 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| **Cost of services revenues** | **$158** | **$134** | **18%** | **$465** | **$399** | **17%** |
| Support | 44 | 45 | (2)% | 132 | 141 | (6)% |
| Professional and other services | 50 | 46 | 9% | 156 | 151 | 3% |
| Public cloud | 47 | 32 | 47% | 132 | 80 | 65% |
| Unallocated | 17 | 11 | 55% | 45 | 27 | 67% |

#### Hybrid Cloud

Cost of Hybrid Cloud services revenues, which are composed of the costs of support and professional and other services, increased in the third quarter of fiscal 2023 and decreased in the first nine months of fiscal 2023 compared to the corresponding periods of fiscal 2022. Cost of Hybrid Cloud services revenues represented approximately 14% of Hybrid Cloud services revenues in the third quarter and first nine months of fiscal 2023, compared to 14% and 15% for the corresponding periods of fiscal 2022, respectively.

Hybrid Cloud support gross margins increased by one percentage point in the third quarter and first nine months of fiscal 2023 compared to the corresponding periods of the prior year due to growth in support revenues achieved with a slightly reduced cost base resulting from operational efficiencies. Hybrid Cloud professional and other services gross margins were flat in the third quarter of fiscal 2023 compared to the corresponding period of fiscal 2022, while they increased by two percentage points in the first nine months of fiscal 2023 compared to the corresponding period of fiscal 2022 due to the mix of services provided.

#### Public Cloud

Cost of Public Cloud revenues increased in the third quarter and first nine months of fiscal 2023 compared to the corresponding periods of fiscal 2022 reflecting the increase in Public Cloud revenues. Public Cloud gross margins decreased by two percentage points in the third quarter and first nine months of fiscal 2023, respectively, compared to the corresponding periods of fiscal 2022, primarily due to the mix of offerings provided.

#### Unallocated

Unallocated cost of services revenues increased in the third quarter and first nine months of fiscal 2023 compared to the corresponding periods of the prior year due to our acquisition of Instaclustr in the first quarter of fiscal 2023, which resulted in higher amortization expense from acquired intangible assets.

### Operating Expenses

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

Sales and marketing, research and development, and general and administrative expenses for the third quarter of fiscal 2023 totaled $739 million, or 48% of net revenues, reflecting an increase of two percentage points compared to the corresponding period of fiscal 2022.

Sales and marketing, research and development, and general and administrative expenses for the first nine months of fiscal 2023 totaled $2,298 million, or 48% of net revenues, which was flat compared to the corresponding period of fiscal 2022.

While fluctuations in foreign currency exchange rates adversely impacted net revenues in the third quarter and first nine months of fiscal 2023 compared to the corresponding periods of fiscal 2022, they favorably impacted sales and marketing, research and development and general and administrative expenses by approximately 3% in both periods.

Compensation costs represent the largest component of sales and marketing, research and development and general and administrative 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 sales and marketing, research and development and general and administrative expenses increased by $14 million, or 3%, in the third quarter of fiscal 2023, and by $99 million, or 8%, in the first nine months of fiscal 2023, compared to the corresponding periods of the prior year, primarily due to higher salaries and stock-based compensation expense, reflecting an increase in average headcount of 12% and 11%, respectively. Stock-based compensation expense in the current year periods also included incremental expense related to the reset and rollover mechanism of our employee stock purchase plan. These increases were partially offset by lower incentive compensation expense.

#### Sales and Marketing (in millions, except percentages):

|  | Three Months Ended January 27, 2023 | January 28, 2022 | % Change | Nine Months Ended January 27, 2023 | January 28, 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Sales and marketing expenses | $450 | $461 | (2)% | $1,387 | $1,377 | 1% |

32

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

|  | Three Months Ended Fiscal 2023 to Fiscal 2022 | Nine Months Ended Fiscal 2023 to Fiscal 2022 |
| --- | ---: | ---: |
| Compensation costs | 2 | 3 |
| Commissions | (2) | (2) |
| Advertising and marketing promotional expense | (3) | (2) |
| Travel and entertainment | 1 | 2 |
| Total change | (2) | 1 |

The increase in compensation costs for the third quarter and first nine months of fiscal 2023 compared to the corresponding periods of the prior year each reflected an increase in average headcount of approximately 9%. The impact of the increase in headcount was partially offset by lower incentive compensation expense and the impact of foreign exchange rate fluctuations.

The decrease in commissions expense for the third quarter and first nine months of fiscal 2023 compared to the corresponding periods of the prior year was primarily due to lower performance against sales goals.

Advertising and marketing promotional expense decreased in the third quarter and first nine months of fiscal 2023 compared to the corresponding periods of the prior year, primarily due to lower spending on certain marketing programs.

Travel and entertainment expense increased in the third quarter and first nine months of fiscal 2023 compared to the corresponding periods of the prior year as COVID-19 related travel restrictions eased.

#### Research and Development (in millions, except percentages):

|  | Three Months Ended January 27, 2023 | January 28, 2022 | % Change | Nine Months Ended January 27, 2023 | January 28, 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Research and development expenses | $230 | $220 | 5% | $713 | $646 | 10% |

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

|  | Three Months Ended Fiscal 2023 to Fiscal 2022 | Nine Months Ended Fiscal 2023 to Fiscal 2022 |
| --- | ---: | ---: |
| Compensation costs | 4 | 9 |
| Development projects and outside services | 1 | 1 |
| Total change | 5 | 10 |

The increase in compensation costs for the third quarter and first nine months of fiscal 2023 compared to the corresponding periods in the prior year was primarily attributable to an increase in average headcount of 16% and 14%, respectively. The impact of the increase in headcount was partially offset by lower incentive compensation expense and the impact of foreign exchange rate fluctuations.

The increase in development projects and outside services for the third quarter and first nine months of fiscal 2023 compared to the corresponding periods in the prior year was primarily due to the higher spending on certain engineering projects.

#### General and Administrative (in millions, except percentages):

|  | Three Months Ended January 27, 2023 | January 28, 2022 | % Change | Nine Months Ended January 27, 2023 | January 28, 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| General and administrative expenses | $59 | $65 | (9)% | $198 | $207 | (4)% |

33

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

|  | Three Months Ended Fiscal 2023 to Fiscal 2022 | Nine Months Ended Fiscal 2023 to Fiscal 2022 |
| --- | ---: | ---: |
| Compensation costs | (7) | — |
| Facilities and IT support costs | (6) | (5) |
| Other | 4 | 1 |
| Total change | (9) | (4) |

The decrease in compensation costs in the third quarter of fiscal 2023 compared to the corresponding period of the prior year was primarily attributable to lower incentive compensation expense, partially offset by the increase in salaries and stock-based compensation expenses.

The decrease in facilities and IT support costs in the third quarter and first nine months of fiscal 2023 was primarily related to lower spending for certain IT projects.

#### Restructuring Charges (in millions, except percentages):

|  | Three Months Ended January 27, 2023 | January 28, 2022 | % Change | Nine Months Ended January 27, 2023 | January 28, 2022 | % Change |
| --- | ---: | ---: | --- | ---: | ---: | ---: |
| Restructuring charges | $87 | $— | NM | $109 | $29 | 276% |

NM – Not Meaningful

The restructuring charges for the third quarter and first nine months of fiscal 2023 consisted primarily of severance-related costs associated with a restructuring plan approved by management during the third quarter of fiscal 2023 to redirect resources to highest return activities and reduce costs. This plan will result in a reduction of our global workforce by approximately 8%. The restructuring charges in fiscal 2023 also included severance-related costs, legal costs and tax-related consulting costs for ongoing restructuring activities related to the establishment of an international headquarters in Cork, Ireland, and a restructuring plan executed in the first quarter of fiscal 2023, which resulted in a reduction of our global workforce by approximately 1%.

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

|  | Three Months Ended January 27, 2023 | January 28, 2022 | % Change | Nine Months Ended January 27, 2023 | January 28, 2022 | % Change |
| --- | ---: | ---: | --- | ---: | ---: | --- |
| Acquisition-related expense | $3 | $6 | NM | $18 | $8 | NM |

NM – Not Meaningful

Acquisition-related expenses, primarily legal and consulting fees, totaled $3 million and $18 million in the third quarter and first nine months of fiscal 2023, respectively, and were primarily related to our acquisition of Instaclustr US Holding, Inc.

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

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

|  | Three Months Ended January 27, 2023 | January 28, 2022 | % Change | Nine Months Ended January 27, 2023 | January 28, 2022 | % Change |
| --- | ---: | ---: | --- | ---: | ---: | --- |
| Interest income | $21 | $2 | NM | $42 | $5 | NM |
| Interest expense | (16) | (19) | (16)% | (51) | (55) | (7)% |
| Other, net | — | 2 | NM | 52 | 9 | NM |
| Total | $5 | $(15) | NM | $43 | $(41) | NM |

NM – Not Meaningful

Interest income increased in the third quarter and first nine months of fiscal 2023 compared to the corresponding periods of the prior year due primarily to higher yields earned on our cash and investments. Interest expense decreased in the third quarter and first nine months of fiscal 2023 compared to the corresponding periods of fiscal 2022 due to the extinguishment of certain senior notes in the second quarter of fiscal 2023.

Other, net for the first nine months of fiscal 2023 includes $21 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 the first nine months of 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 approximately $59 million. The remaining differences in Other, net for the third quarter and first nine months of fiscal 2023 as compared to the corresponding periods of the prior year are partially due to foreign exchange gains and losses year-over-year.

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

|  | Three Months Ended January 27, 2023 | January 28, 2022 | % Change | Nine Months Ended January 27, 2023 | January 28, 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | --- |
| Provision (benefit) for income taxes | $112 | $54 | 107% | $(277) | $145 | NM |

NM – Not Meaningful

Our effective tax rate for the three months ended January 27, 2023 increased compared to the corresponding period of the prior year, primarily due to the discrete tax expense recorded as a result of the Danish Supreme Court ruling received January 9, 2023. Our effective tax rate for the nine months ended January 27, 2023 decreased compared to the corresponding period of the prior year, primarily due to the discrete tax benefit resulting from an intra-entity asset transfer of certain IP.

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, expenses 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 (“OECD”) 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 condensed consolidated statements of cash flows during the quarter ended January 27, 2023, was not material.

During the third quarter of fiscal 2023, the Danish Supreme Court issued a non-appealable ruling on the distributions declared in 2005 and 2006. The Danish Supreme Court reversed the lower court's decision and ruled the 2005 dividend was subject to at-source dividend withholding tax while the smaller 2006 distribution would not be subject to withholding tax. We recorded $69 million of tax expense, which includes $23 million of withholding tax and $46 million of interest, associated with the Danish Supreme Court ruling as a discrete item during the quarter ended January 27, 2023.

As of January 27, 2023, we had $228 million of gross unrecognized tax benefits. Inclusive of penalties, interest and certain income tax benefits, $141 million would affect our provision for income taxes if recognized. Net unrecognized tax benefits of $141 million have been recorded in other long-term liabilities.

### Liquidity, Capital Resources and Cash Requirements

*(In millions)*

|  | January 27, 2023 | April 29, 2022 |
| --- | ---: | ---: |
| Cash, cash equivalents and short-term investments | $3,141 | $4,134 |
| Principal amount of debt | $2,400 | $2,650 |

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The following is a summary of our cash flow activities:

*(In millions)*

|  | Nine Months Ended January 27, 2023 | January 28, 2022 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $872 | $800 |
| Net cash used in investing activities | (1,105) | (481) |
| Net cash used in financing activities | (1,244) | (651) |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | 4 | (26) |
| Net change in cash, cash equivalents and restricted cash | $(1,473) | $(358) |

### Cash Flows

As of January 27, 2023, our cash, cash equivalents and short-term investments were $3.1 billion, which represents a decrease of $1.0 billion for the first nine months of fiscal 2023. The decrease was primarily due to $491 million, net of cash acquired, used for the acquisition of a privately-held company, $700 million paid for the repurchase of our common stock, $326 million used for the payment of dividends and $250 million repayment of our Senior Notes, partially offset by $872 million provided by operating activities. Net working capital was $1.1 billion as of January 27, 2023, a reduction of $845 million when compared to April 29, 2022, primarily due to the decrease in cash, cash equivalents and short-term investments discussed above.

#### Cash Flows from Operating Activities

During the first nine months of fiscal 2023, we generated cash from operating activities of $872 million, reflecting net income of $1.0 billion which was reduced by $577 million for non-cash deferred tax benefits and increased for non-cash depreciation and amortization expense of $182 million and non-cash stock-based compensation expense of $238 million, compared to $800 million of cash generated from operating activities during the first nine months of fiscal 2022.

Significant changes in assets and liabilities in the first nine months of fiscal 2023 included the following:

- *Accounts receivable* decreased $425 million, reflecting lower billings in the first nine months of fiscal 2023 compared to the last nine months of fiscal 2022.
- *Accounts payable* decreased by $173 million, primarily reflecting lower inventory purchases, and the timing of those purchases from, and payments to, our contract manufacturers.
- *Accrued expenses* decreased by $117 million, primarily due to employee compensation payouts related to fiscal year 2022 incentive compensation and commissions plans.

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.

#### Cash Flows from Investing Activities

During the first nine months of fiscal 2023, we used $474 million for the purchases of investments, net of maturities and sales, and paid $200 million for capital expenditures, as compared to the same period of fiscal 2022, in which we generated $36 million from maturities and sales of investments, net of purchases, and paid $158 million for capital expenditures. During the first nine months of fiscal 2023, we paid approximately $491 million, net of cash acquired for a privately-held company, as compared to $359 million, net of cash acquired, that we paid for two privately-held companies in the first nine months of fiscal 2022. Additionally, we received proceeds of $59 million from the sale of one of our minority investments during the first nine months of fiscal 2023.

#### Cash Flows from Financing Activities

During the first nine months of fiscal 2023, cash flows used in financing activities totaled $1.2 billion and include $700 million for the repurchase of approximately ten million shares of common stock, $326 million for the payment of dividends and $250 million to redeem our Senior Notes due in December 2022. During the first nine months of fiscal 2022, cash flows used in financing activities totaled $651 million and included $350 million for the repurchase of approximately four million shares of common stock and $335 million for the payment of dividends.

Key factors that could affect our cash flows include changes in our revenue mix and profitability, our ability to effectively manage our working capital, in particular, accounts receivable, accounts payable and inventories, the timing and amount of stock repurchases and payment of cash dividends, the impact of foreign exchange rate changes, our ability to effectively integrate acquired products, businesses and technologies and the timing of repayments of our debt. Based on past performance and our current business outlook, we believe that our sources of liquidity, including cash, 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. 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 Part II, Item 1A. Risk Factors.

### Liquidity

Our principal sources of liquidity as of January 27, 2023 consisted of cash, cash equivalents and short-term investments, cash we expect to generate from operations, and our commercial paper program and related credit facility.

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

|  | January 27, 2023 | April 29, 2022 |
| --- | ---: | ---: |
| Cash and cash equivalents | $2,640 | $4,112 |
| Short-term investments | 501 | 22 |
| Total | $3,141 | $4,134 |

As of January 27, 2023 and April 29, 2022, $2.0 billion and $2.3 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 $1.1 billion and $1.8 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 January 27, 2023.

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.

#### Senior Notes

The following table summarizes the principal amount of our Senior Notes as of January 27, 2023 (in millions):

|  | Amount |
| --- | ---: |
| 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 | $2,400 |

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Interest on the Senior Notes is payable semi-annually. For further information on the underlying terms, see Note 7 – Financing Arrangements of the Notes to Condensed Consolidated Financial Statements.

On September 15, 2022, we extinguished our 3.25% Senior Notes due December 2022 for an aggregate cash redemption price of $252 million, comprised of the principal and unpaid interest.

#### 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 27, 2023.

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 27, 2023, 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 2023 to be between $25 million and $75 million.

### Transition Tax Payments

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 January 27, 2023, outstanding payments related to the transition tax are estimated to be approximately $303 million of which $88 million, $115 million and $100 million are expected to be paid during fiscal 2024, fiscal 2025 and fiscal 2026, respectively. During the first nine months of fiscal 2023, transition tax payments totaled $48 million. Our estimates for future transition tax payments, however, could change with further guidance or review from U.S. federal and state tax authorities or other regulatory bodies.

### Dividends and Stock Repurchase Program

On February 17, 2023, we declared a cash dividend of $0.50 per share of common stock, payable on April 26, 2023, to holders of record as of the close of business on April 6, 2023.

As of January 27, 2023, our Board of Directors had authorized the repurchase of up to $15.1 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 January 27, 2023, we repurchased a total of 358 million shares of our common stock at an average price of $40.74 per share, for an aggregate purchase price of $14.6 billion. As of January 27, 2023, the remaining authorized amount for stock repurchases under this program was $0.5 billion.

### Purchase Commitments

In the ordinary course of business, we make commitments to third-party contract manufacturers and component suppliers to manage manufacturer lead times and meet product forecasts, and to other parties, to purchase various key components used in the manufacture of our products. In addition, we have open purchase orders and contractual obligations associated with our ordinary course of business for which we have not yet received goods or services. These off-balance sheet purchase commitments totaled approximately $0.8 billion at January 27, 2023.

### 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 $32 million and $48 million of receivables during the first nine months of fiscal 2023 and fiscal 2022, 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 27, 2023 and April 29, 2022, 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 27, 2023, 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.

### 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 15 – Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements.

### Critical Accounting Policies and Estimates

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

The summary of significant accounting policies is included under Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations of our fiscal 2022 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, except with respect to Income Taxes, specifically estimates related to the intra-entity asset transfer of the IP to our international headquarters during the second quarter of fiscal 2023. The following are the key estimates and assumptions and corresponding uncertainties for estimating the value of the IP:

|  | Key Estimates and Assumptions |  | Key Uncertainties |
| --- | --- | --- | --- |
| · | The assessment of the fair value of the IP transferred to our international headquarters is based on factors that market participants would use in an orderly transaction in accordance with the accounting guidance for the fair value measurement of nonfinancial assets and transfer pricing principles from the Organisation for Economic Co-operation and Development. The valuation of our IP is principally based on estimates of the future performance and cash flows expected to be generated through use of the IP. | · | While we employ experts to determine the fair value of IP, its fair value is 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 IP valuation. Volatile macroeconomic and market conditions caused by the COVID-19 pandemic have increased the level of uncertainty and subjectivity of certain management assumptions and estimates. |

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## Market risk

As filed, 4,754 characters.

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.

### Interest Rate Risk

*Fixed Income Investments —* As of January 27, 2023, we had fixed income debt investments of $501 million and certificates of deposit of $50 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 corporate bonds and 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 an adverse impact on interest income for our investment portfolio. A hypothetical 100 basis point increase in market interest rates from levels as of January 27, 2023 would have resulted in a decrease in the fair value of our fixed-income securities of approximately $1 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 that is other-than-temporary. We monitor and evaluate our investment portfolio on a quarterly basis for any other-than-temporary impairments.

*Debt —* As of January 27, 2023, we have outstanding $2.4 billion aggregate principal amount of Senior Notes. We carry these instruments at face value less unamortized discount and issuance costs on our condensed 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 7 – Financing Arrangements of the Notes to Condensed Consolidated Financial Statements 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 January 27, 2023, no amounts were outstanding under the credit facility.

### Foreign Currency Exchange Rate Risk

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 10 – Derivatives and Hedging Activities of the Notes to Condensed Consolidated Financial Statements for more information regarding our derivatives and hedging activities.

## Controls and procedures

As filed, 2,016 characters.

#### Disclosure Controls and Procedures

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 Quarterly Report on Form 10-Q, 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 CEO and 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 conducted 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 January 27, 2023, the end of the fiscal period covered by this Quarterly Report on Form 10-Q (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.

#### Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) identified in connection with our evaluation that occurred during the third quarter of fiscal 2023 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

## Risk factors

As filed, 7,352 characters.

Our future business, operations and financial results are subject to various risks and uncertainties, including those described in Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended April 29, 2022, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common and capital stock. Except as set forth below, there have been no material changes to the Company’s risk factors since our Annual Report on Form 10-K for the year ended April 29, 2022.

### Risks Related to Our Business and Industry

***Continuing uncertain economic and political conditions restrict our visibility and may harm our business, operating results, including our revenue growth and profitability, financial condition and cash flows.***

Continuing global economic uncertainty, political conditions and fiscal challenges in the U.S. and abroad, such as inflation, foreign exchange volatility and potential economic recession, have, among other things, limited our ability to forecast future demand for our products, contributed to increased periodic volatility in the computer, storage and networking industries at large, as well as the IT market, impacted availability of supplies and could constrain future access to capital for our suppliers, customers and partners. The impacts of these circumstances are global and pervasive, and the timing and nature of any ultimate resolution of these matters remain highly uncertain. Adverse macroeconomic conditions, including inflation, slower growth or recession, new or increased tariffs or other barriers to global trade, changes to fiscal and monetary policy and higher interest rates, could materially adversely impact our business and operating results. In fiscal 2023, the global economic uncertainty has had, and could continue to have, a material adverse impact on the demand for our products. In addition, the constraints in our supply chain, including higher component and freight costs, have resulted, and could continue to result in, increased costs of revenue and the delay in fulfillment of certain customer orders. Consequently, these concerns have challenged our business and we expect them to continue to challenge our business for the foreseeable future, which could cause harm to our operating results. Such conditions have resulted, and may in the future again result, in failure to meet our forecasted financial expectations and to achieve historical levels of revenue growth.

***If we are unable to attract and retain qualified personnel, our business, operating results, financial condition and cash flows could be harmed.***

Our continued success depends, in part, on our ability to hire and retain qualified personnel and to advance our corporate strategy and preserve the key aspects of our corporate culture. Because our future success is dependent on our ability to continue to enhance and introduce new products, we are particularly dependent on our ability to hire and retain qualified engineers, including in emerging areas of technology such as artificial intelligence and machine learning. In addition, to increase revenues, we will be required to increase the productivity of our sales force and support infrastructure to achieve adequate customer coverage. Competition for qualified employees, particularly in Silicon Valley, is intense. We have periodically reduced our workforce, including reductions of approximately 5% and 8% announced in fiscal 2021 and the fourth quarter of fiscal 2023, respectively, and these actions may make it more difficult to attract and retain qualified employees. Our inability to hire and retain qualified management and skilled personnel, particularly engineers, salespeople and key executive management, could disrupt our development efforts, sales results, business relationships and/or our ability to execute our business plan and strategy on a timely basis and could materially and adversely affect our operating results, financial condition and cash flows.

Equity grants are a critical component of our current compensation programs. If we reduce, modify or eliminate our equity programs or fail to grant equity competitively, we may have difficulty attracting and retaining critical employees.

In addition, because of the structure of our sales, cash and equity incentive compensation plans, we may be at increased risk of losing employees at certain times. For example, the retention value of our compensation plans decreases after the payment of periodic bonuses or the vesting of equity awards.

### General Risks

### We could be subject to additional income tax liabilities.

Our effective tax rate is influenced by a variety of factors, many of which are outside of our control. These factors include among other things, fluctuations in our earnings and financial results in the various countries and states in which we do business, changes to the tax laws in such jurisdictions and the outcome of income tax audits. Changes to any of these factors could materially impact our operating results, financial condition and cash flows.

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 Organisation for Economic Co-operation and Development’s Base Erosion and Profit Shifting recommendations 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, could increase our worldwide effective tax rate and harm our operating results, financial condition and cash flows.

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. For example, on August 16, 2022, the U.S. enacted the Inflation Reduction Act, which includes a corporate minimum tax and a 1% excise tax on net stock repurchases. 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.

Filed Mar 1, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-005545. Last ingested by Listed: Oct 24, 2026, 15:01 ET. No prices; not investment advice.