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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): August 17, 2005
-------------------
Network Appliance, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 0-27130 77-0307520
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification Number)
495 East Java Drive
Sunnyvale, CA 94089
(Address of principal executive offices) (Zip Code)
(408) 822-6000
(Registrant's telephone number, including area code)
NA
- -------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[_] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[_] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 2.02.
On August 17, 2005, Network Appliance, Inc. issued a press release
announcing its earnings for the first quarter of its fiscal year 2006. The press
release is attached as an exhibit to this Form 8-K, and the information set
forth therein is hereby incorporated by reference into this Item 2.02.
Item 9.01(c).
Network Appliance, Inc.'s August 17, 2005 press release is hereby
furnished as Exhibit 99.1 to this Form 8-K in connection with the
disclosures under Item 2.02 of this Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
August 17, 2005 By: /s/ Steven Gomo
-------------------------------
Steven J. Gomo
Chief Financial Officer
Index to Exhibits
Exhibit Description
- --------- -----------
99.1 Press release of Network Appliance, Inc. issued on August 17, 2005.
Exhibit 99.1
Network Appliance Announces Results for First Quarter Fiscal Year 2006
SUNNYVALE, Calif.--(BUSINESS WIRE)--Aug. 17, 2005--Network
Appliance, Inc. (NASDAQ:NTAP), the leader in advanced networked
storage solutions, today reported results for the first quarter of
fiscal year 2006. Revenues for the first fiscal quarter were $448.4
million, an increase of 25% compared to revenues of $358.4 million for
the same period a year ago and a decrease of 1% compared to $451.8
million in the prior quarter.
For the first fiscal quarter, GAAP net income was $60.1 million,
or $0.16 per share(1) compared to GAAP net income of $46.9 million, or
$0.13 per share for the same period in the prior year. Non-GAAP(2) net
income for the first fiscal quarter was $62.1 million, or $0.16 per
share, compared to non-GAAP net income of $49.9 million, or $0.13 per
share for the same period a year ago.
"With 25% revenue growth, we continue to grow significantly faster
than the storage market and gain share. We are pleased with the
success of our new FAS3000 midrange product line, despite the product
transition issues that resulted in revenues a little short of our
expectations," said Dan Warmenhoven, CEO of Network Appliance. "We are
also encouraged by our growing relationships with partners,
particularly IBM's recent introduction of their first product
resulting from our OEM agreement."
Outlook
-- Network Appliance estimates that year-over-year growth in
revenue for the second quarter of fiscal year 2006 will be in
the range of 25% to 28%. This projection reflects a
quarter-over-quarter sequential growth rate of approximately
5% to 7%.
-- The company expects second quarter GAAP earnings per share to
finish between $0.17 and $0.18 per share. Network Appliance
expects second quarter non-GAAP earnings per share to be in
the range of $0.18 to $0.19 per share.
-- For the full fiscal year, Network Appliance estimates that
revenues will finish in the range of 25% to 28% higher than
fiscal year 2005.
-- The company expects GAAP earnings per share for fiscal year
2006 to be between $0.74 and $0.77 per share. Network
Appliance estimates full-year non-GAAP earnings per share to
be in the range of $0.76 to $0.79 per share.
Quarterly Highlights
During the first quarter of fiscal year 2006, Network Appliance
extended its leadership in data protection through a definitive
agreement to acquire Decru, expanded its footprint in midrange storage
and in global service offerings, and advanced its relationship with
IBM in the virtualization and NAS markets.
In this quarter, NetApp entered into a definitive agreement to
acquire Decru, a privately held company based in Redwood City,
California, for approximately $272 million in cash and stock. Decru, a
market leader in storage security, offers data protection solutions to
address a range of needs for enterprises and governments, including
regulatory compliance, privacy, secure consolidation, and outsourcing.
Decru DataFort(TM) appliances protect the core of the storage network
by seamlessly inserting a layer of strong encryption, authentication,
access controls, and compartmentalization. Since January 2004, NetApp
and Decru have worked together to deliver solutions to customers in
sectors including investment banking, healthcare, semiconductors,
software, and the federal government. This acquisition is expected to
close during the second quarter of fiscal year 2006, subject to
receipt of required regulatory approvals and other customary closing
conditions.
Also during the quarter, NetApp and IBM announced their intention
to extend their strong relationship to encompass the growing
technologies of virtualization and blade solutions. The focus is on
combining IBM's storage virtualization technologies and the full line
of NetApp V-Series and FAS storage systems into integrated solutions,
signaling the beginning of efforts to collaborate to exploit the
synergies between the companies' respective virtualization
technologies. NetApp also announced that it plans to join IBM as one
of nine founding members in the new Blade.org industry community. The
community was conceived to enhance the relationships between the
founding members and to serve as a catalyst for the industry to create
new blade technology. NetApp is already providing back-end storage
systems for IBM eServer(R) BladeCenter(TM).
On the product front, NetApp unveiled two new midrange storage
systems -- the NetApp FAS3020 and FAS3050 plus a new serial ATA (SATA)
option for primary storage applications. Concurrently, NetApp debuted
two new V-Series virtualization engines -- the NetApp V3020 and V3050.
These new solutions, combined with Data ONTAP(TM) 7G software, address
three significant customer pain points -- high storage acquisition
costs, low storage resource utilization, and increasing storage
management costs -- with elegant, powerful, and scalable solutions
that help today's enterprise tailor its storage needs to its business
and data demands. The new systems also significantly increase NetApp
midrange performance.
Additionally, NetApp debuted two new midrange NetCache systems --
the NetApp C2300 and C3300 -- to strengthen the company's Internet
access and security solution for enterprise data centers. The C2300
and C3300 provide more midrange deployment options than the previous
NetCache portfolio. The new systems double NetCache price performance
compared to older NetCache systems.
NetApp maintained its leadership in the Secure Content and
Application Delivery market for the fourth consecutive time according
to IDC's (3)Secure Content and Application Delivery 2005-2009 Forecast
and Analysis, IDC# 33455. According to IDC, in 2004, NetApp captured
32.1% of the revenue market share and maintained a leadership position
with its NetCache customer offerings, which include solutions for
Internet access and security, streaming media, and business
application acceleration. Overall, the secure content and application
delivery market grew by 15% from 2003 to 2004.
In service and support, NetApp announced a new generation of its
service and support offering, ConsultingEdge, with six packaged
consulting and integration services, designed to simplify complex
storage and data management needs and speed time to production of
NetApp solutions within customers' data infrastructures and the first
support solution designed exclusively for government agencies,
SupportEdge Secure for Government. NetApp SupportEdge Secure for
Government is a highly customized service package that provides
confidential and secure assistance in the support and management of
NetApp storage solutions to both classified and nonclassified
government agencies. With this offering, NetApp has designed a
pioneering set of tools that allows filtering of restricted or
classified information from government files prior to making them
available for troubleshooting purposes.
On the partner front, NetApp unveiled several new solution
enhancements and partner offerings with Arkivio, Decru, FileNet,
Interwoven, Microsoft, SAP, and Symantec to address a variety of data
concerns including bringing scalability to ILM, compliance, IP SAN
support, content management, enhancing data protection and consumer
data security, increased data recovery, SQL server support, enhanced
storage management and other business-critical initiatives facing
enterprise customers.
In corporate news, NetApp was named by IDG's Computerworld as one
of the "100 Best Places to Work in IT." NetApp ranked in fifth place
on an impressive list of U.S. companies spanning several industries,
based on employee feedback. NetApp also appointed Jeffry R. Allen to
its board of directors. Allen transitioned to the board from his
former role as the executive vice president of Business Operations at
Network Appliance. Allen's appointment brought the number on the
Network Appliance board to 10.
Conference Call and Webcast Information
-- The NetApp quarterly results conference call will be broadcast
live via the Internet at http://investors.netapp.com/ on
Wednesday, August 17, 2005, at 2:00 p.m. Pacific Time. This
press release and any other information related to the call
will also be posted to the Web site at that location. The
conference call will also be available live in a listen-only
format at (800) 299-7098 in the United States and (617)
801-9715 outside the United States. The passcode for both
numbers is 27942294.
-- A replay will be available for seven days following completion
of the live call by dialing (888) 286-8010 in the United
States and (617) 801-6888 outside the United States, with
replay code 73629016. The webcast replay will be posted on our
website for at least one year.
About Network Appliance
Network Appliance is a world leader in unified storage solutions
for today's data-intensive enterprise. Since its inception in 1992,
Network Appliance has delivered technology, product, and partner
firsts that simplify data management. Information about Network
Appliance solutions and services is available at www.netapp.com.
"Safe Harbor" Statement under U.S. Private Securities Litigation
Reform Act of 1995
This press release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements include all of the statements under the Outlook section,
statements regarding the anticipated closing of and benefits to be
derived from NetApp's pending acquisition of Decru, and statements
regarding anticipated benefits from NetApp's relationship with IBM and
other industry partners. These forward-looking statements involve
risks and uncertainties, and actual results could vary. Factors that
could impact our ability to achieve our goals include general economic
and industry conditions, including expenditure trends for
storage-related products; our ability to deliver new product
architectures and enterprise service offerings, and our ability to
design products and services that compete effectively from a price and
performance perspective; foreign currency exchange rate fluctuations,
and other important factors as described in Network Appliance, Inc.'s
reports and documents filed from time to time with the Securities and
Exchange Commission, including our most recently submitted 10-K and
10-Q.
(1) Earnings per share represent the diluted number of shares for all
periods presented.
(2) Non-GAAP results for all periods presented and the projections in
the Outlook section exclude amortization of intangible assets, stock
compensation, restructuring charges (recoveries), net gain on
investments and the related effects on income taxes.
(3) IDC's Secure Content and Application Delivery 2005-2009 Forecast
and Analysis, IDC# 33455.
NetApp and NetCache are trademarks and Network Appliance and Data
ONTAP are trademarks of Network Appliance, Inc. in the U.S. and other
countries. All other brands or products are trademarks or registered
trademarks of their respective holders and should be treated as such.
Network Appliance Usage of Non-GAAP Financials
The Company refers to the non-GAAP financial measures cited above
in making operating decisions because they provide meaningful
supplemental information regarding the Company's operational
performance. In addition, these non-GAAP financial measures facilitate
management's internal comparisons to the Company's historical
operating results and comparisons to competitors' operating results.
We include these non-GAAP financial measures in our earnings
announcement because we believe they are useful to investors in
allowing for greater transparency with respect to supplemental
information used by management in its financial and operational
decision making such as employee compensation planning. In addition,
we have historically reported similar non-GAAP financial measures to
our investors and believe that the inclusion of comparative numbers
provides consistency in our financial reporting at this time.
NETWORK APPLIANCE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
July 29, April 30,
2005 2005
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 231,585 $ 193,542
Short-term investments 983,153 976,423
Accounts receivable, net 239,015 296,885
Inventories 40,343 38,983
Prepaid expenses and other 32,663 32,472
Deferred income taxes 35,558 37,584
---------- ----------
Total current assets 1,562,317 1,575,889
PROPERTY AND EQUIPMENT, net 443,760 418,749
GOODWILL 297,661 291,816
INTANGIBLE ASSETS, net 23,982 21,448
OTHER ASSETS 68,943 64,745
---------- ----------
$2,396,663 $2,372,647
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 80,579 $ 83,572
Income taxes payable 14,251 20,823
Accrued compensation and related benefits 66,839 100,534
Other accrued liabilities 55,414 53,262
Deferred revenue 278,705 261,998
---------- ----------
Total current liabilities 495,788 520,189
LONG-TERM DEFERRED REVENUE 206,705 187,180
LONG-TERM OBLIGATIONS 3,340 4,474
---------- ----------
705,833 711,843
---------- ----------
STOCKHOLDERS' EQUITY 1,690,830 1,660,804
---------- ----------
$2,396,663 $2,372,647
========== ==========
NETWORK APPLIANCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Quarter Ended
--------------------
July 29, July 30,
2005 2004
--------- ---------
REVENUES:
Product revenue $394,630 $324,627
Service revenue 53,773 33,794
-------- --------
Total revenues 448,403 358,421
-------- --------
COST OF REVENUES:
Cost of product revenue 133,755 114,215
Cost of service revenue 41,162 29,248
-------- --------
Total cost of revenues 174,917 143,463
-------- --------
GROSS MARGIN 273,486 214,958
-------- --------
OPERATING EXPENSES:
Sales and marketing 137,299 103,311
Research and development 50,802 38,703
General and administrative 21,041 16,882
Stock compensation 2,028 2,104
Restructuring charges (recoveries) (1,256) -
-------- --------
Total operating expenses 209,914 161,000
-------- --------
INCOME FROM OPERATIONS 63,572 53,958
OTHER INCOME (EXPENSES), net:
Interest income 9,048 4,082
Other expenses, net (272) (912)
Net gain on investments 33 -
-------- --------
Total other income, net 8,809 3,170
-------- --------
INCOME BEFORE INCOME TAXES 72,381 57,128
PROVISION FOR INCOME TAXES 12,261 10,266
-------- --------
NET INCOME $ 60,120 $ 46,862
======== ========
NET INCOME PER SHARE:
BASIC $ 0.16 $ 0.13
======== ========
DILUTED $ 0.16 $ 0.13
======== ========
SHARES USED IN PER SHARE CALCULATION:
BASIC 367,438 356,743
======== ========
DILUTED 386,383 372,974
======== ========
NETWORK APPLIANCE, INC.
NON-GAAP (1) CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Quarter Ended
--------------------
July 29, July 30,
2005 2004
--------- ---------
REVENUES:
Product revenue $394,630 $324,627
Service revenue 53,773 33,794
-------- --------
Total revenues 448,403 358,421
-------- --------
COST OF REVENUES:
Cost of product revenue 132,647 113,357
Cost of service revenue 41,162 29,248
-------- --------
Total cost of revenues 173,809 142,605
-------- --------
GROSS MARGIN 274,594 215,816
-------- --------
OPERATING EXPENSES:
Sales and marketing 137,092 103,104
Research and development 50,802 38,703
General and administrative 19,685 15,614
-------- --------
Total operating expenses 207,579 157,421
-------- --------
INCOME FROM OPERATIONS 67,015 58,395
OTHER INCOME (EXPENSES), net 8,776 3,170
-------- --------
INCOME BEFORE INCOME TAXES 75,791 61,565
PROVISION FOR INCOME TAXES 13,642 11,697
--------- ---------
NET INCOME $ 62,149 $ 49,868
======== ========
NET INCOME PER SHARE:
BASIC $ 0.17 $ 0.14
======== ========
DILUTED $ 0.16 $ 0.13
======== ========
SHARES USED IN PER SHARE CALCULATION:
BASIC 367,438 356,743
======== ========
DILUTED 386,383 372,974
======== ========
(1) Non-GAAP results of operations exclude amortization of intangible
assets, stock compensation, restructuring charges (recoveries), net
gain on investments and the related effects on income taxes.
NETWORK APPLIANCE, INC.
RECONCILIATION OF NON-GAAP AND GAAP
IN THE CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Quarter Ended
--------------------
July 29, July 30,
2005 2004
--------- ---------
SUMMARY RECONCILIATION OF NET INCOME
- ------------------------------------
NET INCOME $ 60,120 $ 46,862
Adjustments:
Amortization of intangible assets 2,671 2,333
Stock compensation 2,028 2,104
Restructuring (recoveries) (1,256) -
Net (gain) on investments (33) -
Income tax effect (1,381) (1,431)
--------- ---------
NON-GAAP NET INCOME $ 62,149 $ 49,868
======== ========
DILUTED NON-GAAP NET INCOME PER SHARE $ 0.16 $ 0.13
======== ========
SHARES USED IN DILUTED NON-GAAP NET INCOME
PER SHARE CALCULATION: 386,383 372,974
======== ========
DETAILED RECONCILIATION OF SPECIFIC ITEMS:
- ------------------------------------------
COST OF REVENUES $174,917 $143,463
Adjustment:
Amortization of intangible assets (1,108) (858)
--------- ---------
NON-GAAP COST OF REVENUES $173,809 $142,605
======== ========
GROSS MARGIN $273,486 $214,958
Adjustment:
Amortization of intangible assets 1,108 858
--------- ---------
NON-GAAP GROSS MARGIN $274,594 $215,816
======== ========
SALES AND MARKETING EXPENSES $137,299 $103,311
Adjustments:
Amortization of intangible assets (207) (207)
--------- ---------
NON-GAAP SALES AND MARKETING EXPENSES $137,092 $103,104
======== ========
GENERAL AND ADMINISTRATIVE EXPENSES $ 21,041 $ 16,882
Adjustments:
Amortization of intangible assets (1,356) (1,268)
--------- ---------
NON-GAAP GENERAL AND ADMINISTRATIVE EXPENSES $ 19,685 $ 15,614
======== ========
OPERATING EXPENSES $209,914 $161,000
Adjustments:
Stock compensation (2,028) (2,104)
Amortization of intangible assets (1,563) (1,475)
Restructuring recoveries 1,256 -
--------- ---------
NON-GAAP OPERATING EXPENSES $207,579 $157,421
======== ========
INCOME FROM OPERATIONS $ 63,572 $ 53,958
Adjustments:
Amortization of intangible assets 2,671 2,333
Stock compensation 2,028 2,104
Restructuring (recoveries) (1,256) -
--------- ---------
NON-GAAP INCOME FROM OPERATIONS $ 67,015 $ 58,395
======== ========
TOTAL OTHER INCOME (EXPENSES), NET $ 8,809 $ 3,170
Adjustments:
Net (gain) on investments (33) -
--------- ---------
NON-GAAP TOTAL OTHER INCOME (EXPENSES), NET $ 8,776 $ 3,170
======== ========
INCOME BEFORE INCOME TAXES $ 72,381 $ 57,128
Adjustments:
Amortization of intangible assets 2,671 2,333
Stock compensation 2,028 2,104
Restructuring (recoveries) (1,256) -
Net (gain) on investments (33) -
--------- ---------
NON-GAAP INCOME BEFORE INCOME TAXES $ 75,791 $ 61,565
======== ========
PROVISION FOR INCOME TAXES $ 12,261 $ 10,266
Adjustments:
Income tax effect 1,381 1,431
--------- ---------
NON-GAAP PROVISION FOR INCOME TAXES $ 13,642 $ 11,697
======== ========
NETWORK APPLIANCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
Three Months Ended
----------------------
July 29, July 30,
2005 2004
---------- ----------
Cash Flows from Operating Activities:
Net income $ 60,120 $ 46,862
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 14,756 13,242
Amortization of intangible assets 2,671 2,333
Amortization of patents 495 450
Stock compensation 2,028 2,104
Net (gain) on investments (33) (29)
Net loss on disposal of equipment 404 7
Allowance for doubtful accounts (379) (154)
Deferred rent 48 90
Changes in assets and liabilities:
Accounts receivable 57,892 (5,757)
Inventories (4,998) (3,331)
Prepaid expenses and other assets (3,997) (1,429)
Accounts payable (2,691) (1,075)
Income taxes payable 9,648 4,851
Accrued compensation and related
benefits (32,418) (14,535)
Other accrued liabilities (1,302) 2,697
Deferred revenue 36,716 30,342
--------- ---------
Net cash provided by
operating activities 138,960 76,668
--------- ---------
Cash Flows from Investing Activities:
Purchases of investments (222,787) (148,646)
Redemptions of investments 213,977 139,045
Increase in restricted cash (1,504) -
Purchases of property and equipment (33,538) (32,265)
Proceeds from sales of investments 62 298
Purchases of equity securities (275) -
Purchase of business, net of cash acquired (11,831) -
--------- ---------
Net cash used in investing
activities (55,896) (41,568)
--------- ---------
Cash Flows from Financing Activities:
Proceeds from sale of common stock related to
employee stock transactions 50,763 23,202
Tax withholding payments reimbursed by
restricted stock (419) -
Repurchases of common stock (95,543) (47,742)
--------- ---------
Net cash used in financing
activities (45,199) (24,540)
--------- ---------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents 178 334
Net Increase in Cash and Cash Equivalents 38,043 10,894
Cash and Cash Equivalents:
Beginning of period 193,542 92,328
--------- ---------
End of period $ 231,585 $ 103,222
========= =========
Noncash Investing and Financing Activities:
Conversion of evaluation inventory to
fixed assets $ 3,638 $ 2,729
Deferred stock compensation, net
of reversals $ 2,634 $ (546)
Income tax benefit from employee stock
transactions $ 16,289 $ 5,692
Acquisition of property and equipment
on account $ 3,561 $ -
Options assumed for acquired business $ 2,314 $ -
Supplemental cash flow information:
Income taxes paid $ 2,014 $ 6,826
NETWORK APPLIANCE, INC.
RECONCILIATION OF NON-GAAP GUIDANCE TO GAAP
EXPRESSED AS EARNINGS PER SHARE
SECOND QUARTER AND FISCAL YEAR 2006
(Unaudited)
Projected Second Projected Annual
Quarter Revenue FY06 Revenue
Growth Range Growth Range
---------------------------------------
5% 7% 25% 28%
-------- -------- -------- --------
ADJUSTMENTS OF SPECIFIC ITEMS TO
EARNINGS PER SHARE FOR THE
SECOND QUARTER
AND FISCAL YEAR 2006 ($):
COST OF REVENUES
Adjustment:
Amortization of intangible
assets (0.0029) (0.0029) (0.0115) (0.0115)
OPERATING EXPENSES
Adjustments:
Stock compensation (0.0055) (0.0055) (0.0227) (0.0227)
Amortization of intangible
assets (0.0009) (0.0009) (0.0056) (0.0056)
Restructuring charges 0.0033 0.0033
TOTAL OTHER INCOME
(EXPENSES), NET
Adjustments:
Net (gain)/loss on
investments 0.0001 0.0001
PROVISION FOR INCOME TAXES
Adjustments:
Income tax effect 0.0039 0.0040 0.0160 0.0163
-------- ---------- -------- --------
NET DECREASE IN EARNINGS
PER SHARE (0.0054) (0.0053) (0.0204) (0.0201)
======== ========== ======== ========
CONTACT: Network Appliance, Inc.
Jodi Baumann, 408-822-3974 (Press)
jodi@netapp.com
Tara Calhoun, 408-822-6909 (Investors)
tara@netapp.com
Billie Fagenstrom, 408-822-6428 (Investors)
billief@netapp.com