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.











                                       27

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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 half 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, required debt repayments and other liquidity
requirements associated with our operations.



                                       28

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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                   Six Months Ended
                                             October 30,        October 25,       October 30,       October 25,
                                                2020               2019              2020              2019
Net revenues                                $       1,416      $       1,371     $       2,719     $       2,607
Gross profit                                $         933      $         925     $       1,805     $       1,741
Gross profit margin percentage                         66 %               67 %              66 %              67 %
Income from operations                      $         182      $         296     $         318     $         400
Income from operations as a percentage of
net revenues                                           13 %               22 %              12 %              15 %
Net income                                  $         137      $         243     $         214     $         346
Diluted net income per share                $        0.61      $        1.03     $        0.96     $        1.44
Net cash provided by (used in) operating
activities                                  $         161      $         (53 )   $         401     $         257




                                                           October 30,        April 24,
                                                              2020              2020

Deferred revenue and financed unearned services revenue $ 3,651 $ 3,698






Dividend Activity

During the second quarter of fiscal 2021, we declared aggregate cash dividends
of $0.48 per share, for which we paid $107 million. During the first six months
of fiscal 2021, aggregate cash dividends declared totaled $0.96 per share, for
which we paid an aggregate of $214 million.

Restructuring Event



On August 25, 2020, we committed to a restructuring plan (the August 2020 Plan)
to optimize our business and fund our biggest opportunities. In connection with
the August 2020 Plan, we reduced our global workforce by approximately 5% and
recognized expenses totaling $37 million in the second quarter of fiscal 2021,
consisting primarily of employee severance-related costs. Substantially all
activities under the August 2020 Plan are expected to be complete by the end of
the third quarter of fiscal 2021.

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.

                                       29

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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.

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                     Six Months Ended
                                            October 30,         October 25,       October 30,         October 25,
                                               2020                2019              2020                2019
Revenues:
Product                                               53 %                56 %              51 %                54 %
Software maintenance                                  21                  19                22                  19
Hardware maintenance and other services               26                  25                27                  26
Net revenues                                         100                 100               100                 100
Cost of revenues:
Cost of product                                       25                  25                25                  25
Cost of software maintenance                           2                   1                 1                   1
Cost of hardware maintenance and other
services                                               7                   7                 7                   7
Gross profit                                          66                  67                66                  67
Operating expenses:
Sales and marketing                                   31                  28                32                  30
Research and development                              15                  15                16                  16
General and administrative                             5                   5                 5                   5
Restructuring charges                                  3                   -                 2                   1
Acquisition-related expense                            -                   -                 -                   -
Gain on sale or derecognition of assets                -                  (3 )               -                  (1 )
Total operating expenses                              53                  46                55                  51
Income from operations                                13                  22                12                  15
Other income (expense), net                            -                   -                (1 )                 1
Income before income taxes                            12                  22                10                  16
Provision for income taxes                             3                   4                 2                   3
Net income                                            10 %                18 %               8 %                13 %



Percentages may not add due to rounding

Discussion and Analysis of Results of Operations

Overview



Net revenues for the second quarter and first six months of fiscal 2021 were
$1,416 million and $2,719 million, respectively, reflecting an increase of $45
million, or 3%, and $112 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. In the first six
months of fiscal 2021, software and hardware maintenance revenues benefitted
from the extra week in that period.

Gross profit as a percentage of net revenues for the second quarter and first
six months of fiscal 2021 decreased by approximately one percentage point each
compared to the corresponding periods in fiscal 2020, primarily as a result of a
reduction in gross profit margins on product revenues. Gross profit margins on
product revenues decreased by four percentage points and three percentage points
in the second quarter and first six 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 and an increase in average unit
materials costs. The decline in gross profit margins on product revenues was
partially offset by an increase in software and hardware maintenance revenues.

Sales and marketing, research and development, and general and administrative
expenses for the second quarter and first six months of fiscal 2021 totaled $711
million, or 50%, and $1,434 million, or 53% of net revenues, respectively,
reflecting an increase of approximately two percentage points and one percentage
point, respectively, compared to the corresponding periods of fiscal 2020.

                                       30

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Net Revenues (in millions, except percentages):





                                                Three Months Ended                                  Six Months Ended
                                   October 30,       October 25,                      October 30,       October 25,
                                      2020              2019           % Change          2020              2019           % Change
Net revenues                      $       1,416     $       1,371              3 %   $       2,719     $       2,607              4 %




The increase in net revenues for the second quarter and first six 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 six months of 2021 benefitted from an additional week in that period.
Product revenues as a percentage of net revenues decreased by approximately
three percentage points in both the second quarter and first six months of
fiscal 2021 compared to the corresponding periods of fiscal 2020.

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



                                                     Three Months Ended                      Six Months Ended
                                             October 30,           October 25,        October 30,         October 25,
                                                2020                   2019              2020                2019
Arrow Electronics, Inc.                                25 %                   24 %              24 %                24 %
Tech Data Corporation                                  20 %                   21 %              20 %                21 %





Product Revenues (in millions, except percentages):





                                                Three Months Ended                                    Six Months Ended
                                   October 30,        October 25,                       October 30,       October 25,
                                      2020               2019           % Change           2020              2019           % Change
Product revenues                  $         749      $         771             (3 )%   $       1,376     $       1,415             (3 )%




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 second quarter and first six 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. Product revenues in the
second quarter of fiscal 2021 benefitted slightly from the favorable impact of
foreign exchange rate fluctuations.

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 $332 million,
representing 44% of product revenues, in the second quarter of fiscal 2021,
compared to $405 million, representing 53% of product revenues, in the
corresponding period of the prior year. Revenues from the hardware component of
product revenues totaled $648 million, representing 47% of product revenues, in
the first six months of fiscal 2021, compared to $743 million, representing 53%
of product revenues, in the first six months of fiscal 2020. The software
component of product revenues totaled $417 million, representing 56% of product
revenues, in the second quarter of fiscal 2021, compared to $366 million,
representing 47% of product revenues, in the corresponding period of the prior
year. The software component of product revenues totaled $728 million,
representing 53% of product revenues, in the first six months of fiscal 2021,
compared to $672 million, representing 47% of product revenues, in the
corresponding period of the prior year. The increase in the software component
percentage of product revenues in the second quarter and first six 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                                   Six Months Ended
                                   October 30,        October 25,                      October 30,       October 25,
                                      2020               2019           % Change          2020              2019           % Change

Software maintenance revenues $ 303 $ 254


   19 %   $         604     $         504             20 %



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 reflect 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 second quarter and first six months of
fiscal 2021 benefitted from the continued growth in all-flash array product
sales, as all flash systems carry a higher support dollar content than our other
products. Software maintenance revenues in the first six 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                                   Six Months Ended
                                   October 30,         October 25,                      October 30,       October 25,
                                      2020                2019           % Change          2020              2019           % Change
Hardware maintenance and other
services revenues                 $         364       $         346              5 %   $         739     $         688              7 %



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



Hardware maintenance contract revenues were $296 million and $603 million,
respectively, for the second quarter and first six months of fiscal 2021,
compared to $286 million and $570 million, respectively, for the corresponding
periods of fiscal 2020, reflecting an increase of 3% and 6%, respectively. The
increase in the first six 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 $136 million, respectively, for the second quarter and first six
months of fiscal 2021, compared to $60 million and $118 million, respectively,
for the corresponding periods of the prior year.

Revenues by Geographic Area:





                                                     Three Months Ended                      Six Months Ended
                                             October 30,           October 25,        October 30,         October 25,
                                                2020                   2019              2020                2019
United States, Canada and Latin America
(Americas)                                             55 %                   56 %              55 %                54 %
Europe, Middle East and Africa (EMEA)                  30 %                   29 %              30 %                31 %
Asia Pacific (APAC)                                    15 %                   14 %              16 %                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 second
quarter and first six 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                                   Six Months Ended
                                   October 30,         October 25,                      October 30,       October 25,
                                      2020                2019           % Change          2020              2019           % Change
Cost of product revenues          $         360       $         341              6 %   $         676     $         653              4 %



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





                                                      Three Months Ended          Six Months Ended
                                                    Fiscal 2021 to Fiscal      Fiscal 2021 to Fiscal
                                                             2020                       2020
                                                      Percentage Change          Percentage Change
                                                            Points                     Points
Materials costs                                                          7                          7
Excess and obsolete inventory                                           (1 )                       (1 )
Warranty                                                                (1 )                       (1 )
Other                                                                    1                         (1 )
Total change                                                             6                          4


Cost of product revenues represented 48% and 49% of product revenues for the
second quarter and first six months of fiscal 2021, respectively, compared to
44% and 46% for the corresponding periods of fiscal 2020. Materials costs
represented 89% and 88% of product costs for the second quarter and first six
months of fiscal 2021, respectively, compared to 86% and 84% in the
corresponding periods of fiscal 2020.

Materials costs increased by approximately $25 million and $48 million in the
second quarter and first six 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 second quarter and first six months of
fiscal 2021 compared to the corresponding periods 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 second quarter and first six 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
second quarter and first six 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                                   Six Months Ended
                                   October 30,         October 25,                     October 30,        October 25,
                                      2020                2019          % Change          2020               2019           % Change
Cost of software maintenance
revenues                          $          24       $          11           118 %   $          39      $          21             86 %




Cost of software maintenance revenues increased in the second quarter and first
six months of fiscal 2021 compared to the corresponding periods of fiscal 2020,
in part due to an increase in amortization expense for acquired developed
technology, and represented 8% and 6% of software maintenance revenues,
respectively, for the second quarter and first six months of fiscal 2021, and 4%
for each of the corresponding periods of fiscal 2020.



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



                                                 Three Months Ended                                   Six Months Ended
                                   October 30,         October 25,                      October 30,       October 25,
                                      2020                2019           % Change          2020              2019           % Change
Cost of hardware maintenance
and other services revenues       $          99       $          94              5 %   $         199     $         192              4 %




Cost of hardware maintenance and other services revenues increased in the second
quarter and first six 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 second quarter and first six months of fiscal
2021, compared to 27% and 28% in the corresponding periods of fiscal 2020.



                                       33

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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 $43 million, or 7%, in the second quarter of fiscal 2021 compared to the corresponding period of the prior year, reflecting a 5% increase in average headcount and higher incentive compensation expense.



Total compensation costs included in operating expenses increased $101 million,
or 8% in the first six months of fiscal 2021, compared to the corresponding
period of the prior year, reflecting an increase in average headcount of 5%,
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                                   Six Months Ended
                                   October 30,        October 25,                      October 30,       October 25,
                                      2020               2019           % Change          2020              2019           % Change
Sales and marketing expenses      $         432      $         389             11 %   $         861     $         794              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.



                                                      Three Months Ended          Six Months Ended
                                                    Fiscal 2021 to Fiscal      Fiscal 2021 to Fiscal
                                                             2020                       2020
                                                      Percentage Change          Percentage Change
                                                            Points                     Points
Compensation costs                                                       8                          8
Commissions                                                              4                          4
Advertising and marketing promotional expense                            2                          -
Travel and entertainment                                                (4 )                       (4 )
Other                                                                    1                          -
Total change                                                            11                          8


The increase in compensation costs for the second quarter and first six months
of fiscal 2021 reflected an increase in average headcount of 9% and 7%,
respectively, 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 six months of fiscal 2021
also reflected the impact of one additional week in the first quarter.

The increase in commissions expense for the second quarter and first six months
of fiscal 2021 is primarily due to higher performance against sales goals than
in fiscal 2020. Advertising and marketing promotional expense increased in the
second 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                                   Six Months Ended
                                     October 30,         October 25,                      October 30,       October 25,
                                        2020                2019           % Change          2020              2019           % Change

Research and development expenses $ 212 $ 209


       1 %   $         445     $         424              5 %


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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:



                                                      Three Months Ended          Six Months Ended
                                                    Fiscal 2021 to Fiscal      Fiscal 2021 to Fiscal
                                                             2020                       2020
                                                      Percentage Change          Percentage Change
                                                            Points                     Points
Compensation costs                                                       4                          7
Facilities and IT support costs                                         (1 )                       (1 )
Travel and entertainment                                                (1 )                       (1 )
Other                                                                   (1 )                        -
Total change                                                             1                          5


The increase in compensation costs for the second quarter and first six 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 six
months of fiscal 2021 also reflected the impact of one additional week in the
first quarter. The decrease in facilities and IT support costs were primarily
due to cost containment efforts, and travel and entertainment expense decreased
due to the impact of the ongoing COVID-19 pandemic.

General and Administrative (in millions, except percentages):





                                                     Three Months Ended                                    Six Months Ended
                                       October 30,         October 25,                       October 30,       October 25,
                                          2020                2019           % Change           2020              2019           % Change

General and administrative expenses $ 67 $ 69

         (3 )%   $         128     $         140             (9 )%


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:



                                                     Three Months Ended        Six Months Ended
                                                       Fiscal 2021 to           Fiscal 2021 to
                                                        Fiscal 2020              Fiscal 2020
                                                     Percentage Change        Percentage Change
                                                           Points                   Points
Compensation costs                                                     6                        5
Professional and legal fees and outside services                     (15 )                    (17 )
Litigation settlement                                                  7                        4
Other                                                                 (1 )                     (1 )
Total change                                                          (3 )                     (9 )


The increase in compensation costs in the second quarter and first six 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 second quarter and first six
months of fiscal 2021 was primarily due to lower spending on business
transformation projects in the current year. 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                              Six Months Ended
                                    October 30,       October 25,                  October 30,       October 25,
                                       2020              2019          % Change       2020              2019          % Change
Restructuring charges              $          37     $           -           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
expect to complete 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.



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



                                                Three Months Ended                              Six Months Ended
                                    October 30,       October 25,                  October 30,       October 25,
                                       2020              2019          % Change       2020              2019          % Change
Acquisition-related expense        $           3                 -           NM   $          11     $           -           NM




NM - Not Meaningful

In the first six months of fiscal 2021, we incurred $11 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                              Six Months Ended
                                    October 30,       October 25,                  October 30,       October 25,
                                       2020              2019          % Change       2020              2019          % Change
Gain on sale or derecognition of
assets                             $           -     $         (38 )         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                                   Six Months Ended
                                   October 30,       October 25,                       October 30,       October 25,
                                      2020              2019           % Change           2020              2019           % Change
Interest income                   $           2     $          12            (83 )%   $           5     $          31            (84 )%
Interest expense                            (18 )             (12 )           50 %              (36 )             (27 )           33 %
Other income (expense), net                   9                 3            200 %               (8 )              14           (157 )%
Total                             $          (7 )   $           3           (333 )%   $         (39 )   $          18           (317 )%


Interest income decreased in the second quarter and first six 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 second quarter and first six 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 second quarter and first six 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 six 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 six 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                                   Six Months Ended
                                   October 30,         October 25,                      October 30,       October 25,
                                      2020                2019          % Change           2020              2019          % Change
Provision for income taxes        $          38       $          56           (32 )%   $          65     $          72           (10 )%


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Our effective tax rate for the second quarter of fiscal 2021 was 21.7% compared
to 18.7% for the second quarter of fiscal 2020. Our effective tax rate for the
first six months of fiscal 2021 was 23.3% compared to 17.2% 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 second
quarter and first six months of fiscal 2021 increased compared to the
corresponding period of the prior year primarily due to the impact of taxes
resulting from the integration of acquired companies. The remaining differences
in effective tax rates for the second 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 six 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 in fiscal 2021.

As of October 30, 2020, we had $224 million of gross unrecognized tax benefits,
of which $138 million has been recorded in other long-term liabilities.
Inclusive of penalties, interest and certain income tax benefits, $138 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

October 30,       April 24,
(In millions, except percentages)                       2020             

2020

Cash, cash equivalents and short-term investments $ 3,646 $ 2,882 Principal amount of debt

$       2,650     $     1,673

The following is a summary of our cash flow activities:





                                                                 Six Months Ended
                                                          October 30,        October 25,
(In millions)                                                 2020              2019
Net cash provided by operating activities                $          401     $         257
Net cash provided by (used in) investing activities                (321 )   

1,116


Net cash provided by (used in) financing activities                 746            (1,148 )
Effect of exchange rate changes on cash, cash
equivalents and restricted cash                                      44                (5 )
Net increase in cash, cash equivalents and restricted
cash                                                     $          870     $         220


Cash Flows

As of October 30, 2020, our cash, cash equivalents and short-term investments
were $3.6 billion, an increase of $0.8 billion from April 24, 2020. The increase
was primarily due to $2.0 billion of net proceeds from the issuance of long-term
debt and $401 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, $214 million used for the payment of dividends,
and $92 million in purchases of property and equipment. Working capital
increased by $1.2 billion to $1.9 billion as of October 30, 2020 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 six months of fiscal 2021, we generated cash from operating
activities of $401 million, reflecting net income of $214 million, adjusted by
non-cash depreciation and amortization of $105 million and stock-based
compensation of $103 million, compared to $257 million of cash generated from
operating activities during the first six months of fiscal 2020.

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

• Accounts receivable decreased $197 million, reflecting more favorable shipping

linearity and seasonally lower invoicing levels for the first six months of


    fiscal 2021 compared to the last six months of fiscal 2020.


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• Deferred revenue and financed unearned services revenue decreased $118


    million, primarily due to a decrease in deferred software and hardware
    maintenance contract revenues reflecting the seasonality of maintenance
    contract renewal activities.


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.

Cash Flows from Investing Activities



During the first six months of fiscal 2021, we generated $107 million from
maturities and sales of investments, net of purchases, and paid $92 million for
capital expenditures, while during the first six months of fiscal 2020, we
generated $1.1 billion from maturities and sales of investments, net of
purchases, and paid $68 million for capital expenditures. Additionally, during
the first six 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 six months of fiscal 2020 for a
privately-held company. Additionally, during the first six months of fiscal
2020, we received $96 million for the sale of land in Sunnyvale, California.

Cash Flows from Financing Activities



During the first six months of fiscal 2021, cash flows provided by financing
activities totaled $746 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, $214 million for the payment of dividends, and $176
million for the repayment of commercial paper notes with original maturities of
greater than three months. During the first six months of fiscal 2020, we used
$750 million for the repurchase of 14 million shares of common stock, $226
million for the payment of dividends, and $400 million for the repayment of our
Senior Notes due September 2019, partially offset by $249 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 October 30, 2020 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):



                             October 30,       April 24,
                                2020             2020
Cash and cash equivalents   $       3,529     $     2,658
Short-term investments                117             224
Total                       $       3,646     $     2,882


As of October 30, 2020 and April 24, 2020, $2.2 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 $1.4 billion and $0.4 billion, respectively, were available in
the U.S. The 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.

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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.

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 October
30, 2020.

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 October 30, 2020 (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 October 30,
2020.

In connection with the Program, we have a senior unsecured credit agreement that
expires on December 10, 2021. The credit agreement provides a $1.0 billion
revolving unsecured credit facility that serves as a back-up for the Program.
Proceeds from the facility may also be used for general corporate purposes,
providing another potential source of liquidity to the extent that the credit
facility exceeds the outstanding debt issued under the Program. The credit
agreement also includes options that allow us to request an increase in the
facility of up to an additional $300 million and to extend its maturity date for
two additional one-year periods, both subject to certain conditions. As of
October 30, 2020, we were in compliance with all associated covenants in this
agreement. No amounts were drawn against this 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 $50 million and $100 million.

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Dividends and Stock Repurchase Program

On November 23, 2020, we declared a cash dividend of $0.48 per share of common stock, payable on January 27, 2021 to holders of record as of the close of business on January 8, 2021.



As of October 30, 2020, 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 October 30, 2020, we repurchased a total of 338 million shares of our
common stock at an average price of $38.86 per share, for an aggregate purchase
price of $13.1 billion. As of October 30, 2020, the remaining authorized amount
for stock repurchases under this program was $0.5 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. More recently,
we have been encouraged by the stability of our business, broader macro trends
and the positive results of several COVID-19 vaccine trials. As a result, we
plan to reinitiate our share repurchase program during our 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 manufacturer lead times and meet product
forecasts, and to other parties to purchase various key components used in the
manufacture of our products. A significant portion of our reported purchase
commitments arising from these agreements consists of firm, non-cancelable, and
unconditional commitments. As of October 30, 2020, we had $566 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 October 30, 2020, we had $192 million in other purchase
obligations.

Unrecognized Tax Benefits

As of October 30, 2020, our liability for uncertain tax positions was
$138 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. Provided
all other revenue recognition criteria have been met, we recognize product
revenues for these arrangements, net of any payment discounts from financing
transactions, upon product acceptance. We sold $26 million and $34 million of
receivables during the first six 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 and we recognize revenue upon delivery to
the end-user customer, if all other revenue recognition criteria have been met.

Some of the leasing arrangements described above have been financed on a
recourse basis through third-party financing institutions. Under the terms of
recourse leases, which are generally three years or less, we remain liable for
the aggregate unpaid remaining lease payments to the third-party leasing
companies in the event of end-user customer default. These arrangements are
generally collateralized by a security interest in the underlying assets. Where
we provide a guarantee for recourse leases and collectability is probable, we
account for these transactions as sales type leases. If collectability is not
probable, the cash received is recorded as a deposit liability and revenue is
deferred until the arrangement is deemed collectible. For leases that we are not
a party to, other than providing recourse, we recognize revenue when control is
transferred. As of October 30, 2020 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.

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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 October 30, 2020, 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.

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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