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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 15, 2007
----------------------
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)
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:
[] 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. Results of Operations and Financial Condition
On August 15, 2007, Network Appliance, Inc. issued a press release
announcing its earnings for the first quarter of fiscal year 2008. 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 Financial Statements and Exhibits
(d) Exhibits.
Network Appliance, Inc.'s August 15, 2007 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 15, 2007 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 15, 2007.
- --------------------------------------------------------------------------------
Exhibit 99.1
Network Appliance Announces Results for First Quarter Fiscal Year 2008
SUNNYVALE, Calif.--(BUSINESS WIRE)--Aug. 15, 2007--Network
Appliance, Inc. (NASDAQ: NTAP), the leader in advanced networked
storage solutions, today reported results for the first quarter and
fiscal year 2008. Revenues for the first fiscal quarter were $689.2
million, an increase of 11% compared to revenues of $621.3 million for
the same period a year ago and a decrease of 14% compared to $801.2
million in the prior quarter.
For the first fiscal quarter, GAAP net income was $34.3 million,
or $0.09 per share(1) compared to GAAP net income of $54.7 million, or
$0.14 per share for the same period in the prior year. Non-GAAP(2) net
income for the first fiscal quarter was $76.0 million, or $0.20 per
share, compared to non-GAAP net income of $96.6 million, or $0.25 per
share for the same period a year ago.
"We are clearly disappointed with our revenue growth this quarter,
yet confident about our underlying business strength and continued
health," said Dan Warmenhoven, chief executive officer. "Our bookings
growth and cash flow are both very encouraging, and we are optimistic
about getting back on track for higher growth in revenue and profits
going forward."
Outlook
-- Network Appliance ("NetApp") expects revenue for the second
quarter fiscal year 2008 to be between $752 million and $768
million, with year-over-year growth of 15% to 18% and
sequential growth of 9% to 11%.
-- Including the implementation of SFAS123R and with current
information and assumptions, the company estimates that the
second quarter fiscal year 2008 GAAP earnings per share will
be approximately $0.16 to $0.18 per share.
-- Network Appliance expects second quarter fiscal year 2008
non-GAAP earnings per share to be approximately $0.24 to $0.26
per share.
Quarterly Highlights
During the first quarter of fiscal year 2008, NetApp(R) continued
to offer customer solutions to reduce power and manage costs and
complexity in the data center through several new product
announcements, membership in The Green Grid, and solution enhancements
with key partners. The company also continued to gain momentum in all
of its key storage markets, including software, services, Fibre
Channel (FC) storage area network (SAN), network-attached storage
(NAS), and iSCSI.
This quarter NetApp set a new industry standard for deduplication
technology by offering NetApp advanced single-instance storage (A-SIS)
deduplication for NetApp NearStore(R) and FAS storage systems. This
technology helps customers achieve the cost benefits of deduplication
across a wide variety of environments, including backup, archival,
compliance storage, and primary data sets as diverse as home
directories and genomic data. The introduction of NetApp A-SIS
deduplication provides customers with the ability to reduce capital
expenditures and management costs by dramatically reducing the amount
of storage they need to purchase and manage. The reduction in quantity
of physical storage translates into savings in power and cooling costs
and data center real estate costs.
Strengthening customer data manageability, NetApp also enhanced
both SnapDrive(R), for server storage management, and Virtual File
Manager(TM) Enterprise Edition (VFM(R)-EE), for file data management,
which customers leverage for increased productivity and flexibility by
allowing application administrators to manage their data and react
quickly to changing business conditions.
From a market perspective, according to IDC's Worldwide Quarterly
Disk Storage Systems Tracker Q1 2007(3), NetApp gained revenue share
in networked storage, growing to a 10.5% share in Q1 2007, up from
a 9.3% share at year-end 2006. NetApp also gained capacity share in
networked storage, growing to 20.4% from 17.5% in the same period.
In Fibre Channel (FC) SAN, NetApp continues to grow faster than
the market in both revenue and capacity, both sequentially and year
over year. Sequentially, the FC SAN market revenue dropped 10.4%,
while NetApp grew 12.6%. Year over year, the FC SAN market revenue
grew 12.6%, while NetApp grew 103.0%. NetApp dramatically outpaced the
FC SAN market in terms of capacity, growing at 263.7% year over year,
compared to market growth of 57.1% during that period.
In its core NAS market, NetApp grew faster than the market
sequentially in terms of both revenue and capacity. Sequentially, the
NAS market revenue dropped 8.0%, while NetApp grew 10.7%. NetApp
continues to lead the NAS market in terms of capacity, with a 39.3%
share in Q1 2007, up from a 32.4% share in Q4 2006.
NetApp demonstrated continued leadership in the iSCSI market in
terms of revenue and capacity, with first-place market share for Q1
2007 in capacity shipped (33.3%) and in revenue (24.3%). In Q1 2006,
the iSCSI market revenue grew 8.6% sequentially, while NetApp
grew 14.9%.
In the storage software market, NetApp grew 10 times faster than
the overall storage software market from Q4'06 to Q1'07 and maintained
or gained share in each submarket segment in which it provides
offerings. According to IDC's Worldwide Quarterly Storage Software
Tracker Q1 2007(4), NetApp also maintained the number two market share
position in the storage replication software market, closing the gap
on the market leader.
NetApp continued its leadership in storage services with a
position in the Leaders quadrant of the Gartner Magic Quadrant for
Storage Services, Q2'07(5) report.
In corporate news, NetApp was honored by the Boston Business
Journal as a "Best Place to Work" in the Boston area for 2007. The
NetApp New England office ranked number six in the mid-size company
category, which included companies with 101 to 500 employees. NetApp
was also recognized by Indiatimes Infotech, a leading technology media
Website in India, as one of the "Best Tech Companies to Work For" in
India for 2007.
In other corporate news, NetApp received a second Job Development
Investment Grant (JDIG) from the State of North Carolina to expand its
operations in Research Triangle Park.
Webcast and Conference Call Information
-- The NetApp quarterly results conference call will be broadcast
live via the Internet at http://investors.netapp.com on
Wednesday, August 15, 2007, at 2:00 p.m. Pacific time. This
press release and any other information related to the call
will also be posted on the Website at that location.
-- The conference call will also be available live in a
listen-only format at (866) 510-0707 in the United States and
(617) 597-5376 outside the United States. The pass code for
both numbers is 35531174.
-- A replay will be available for 72 hours following the
completion of the live call by dialing (888) 286-8010 in the
United States and (617) 801-6888 outside the United States,
using replay code 65528258. 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(TM) solutions and services is available at www.netapp.com.
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
relating to our forecasted operating results and metrics for the
second quarter of fiscal 2008 and statements regarding the anticipated
benefits of our products, technologies, and services relative to the
offerings of our competitors. These forward-looking statements involve
risks and uncertainties, and actual results could vary. Important
factors that could cause actual results to differ materially from
those in the forward-looking statements include our ability to build
non-deferred backlog to levels consistent with our past results and to
increase our revenue over the next several quarters; general economic
and industry conditions, including expenditure trends for
storage-related products; risks associated with the anticipated growth
in network storage and content delivery markets; our ability to
deliver new product architectures and enterprise service offerings;
competition risks, including our ability to design products and
services that compete effectively from a price and performance
perspective; risks with new product introductions; our reliance on a
limited number of suppliers; our ability to accurately forecast demand
for our products and successfully manage our relationships with our
contract manufacturers; our ability to expand our direct sales
operations and reseller distribution channels; our ability to develop,
maintain, and strengthen our relationships and product offerings with
strategic partners; risks associated with international operations;
our ability to successfully acquire and integrate complementary
businesses and technologies; foreign currency exchange rate
fluctuations; and other important factors as described in Network
Appliance, Inc. reports and documents filed from time to time with the
Securities and Exchange Commission, including the factors described
under the sections captioned "Risk Factors" in our most recently
submitted 10-K and 10-Q. We disclaim any obligation to update
information contained in these forward-looking statements whether as a
result of new information, future events, or otherwise.
(1) Earnings per share represents the diluted number of shares for
all periods presented.
(2) Non-GAAP results of operations exclude amortization of
intangible assets, stock-based compensation
expenses, acquisition-related retention costs, gain on sale of
investment, restructuring charges/recoveries, prior
acquisition-related costs, and the related effects on income taxes as
well as certain discrete GAAP provisions for income tax matters
recognized ratably for non-GAAP purposes.
(3) IDC's Worldwide Quarterly Disk Storage Systems Tracker, Q1
2007.
(4) IDC's Worldwide Quarterly Storage Software Tracker, Q1 2007.
(5) Gartner Inc., Magic Quadrant for Storage Services, Q2'07.
NetApp, NearStore, SnapDrive, and VFM are registered trademarks
and Network Appliance and Virtual File Manager 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. These non-GAAP results of operations exclude amortization
of intangible assets, stock-based compensation
expenses, acquisition-related retention costs, gain on sale of
investment, restructuring charges/recoveries, prior
acquisition-related costs, and the related effects on income taxes as
well as certain discrete GAAP provisions for income tax matters
recognized ratably for non-GAAP purposes. We have excluded these items
in order to enhance investors' understanding of our ongoing
operations. The use of these non-GAAP financial measures has material
limitations because they should not be used to evaluate our company
without reference to their corresponding GAAP financial measures. As
such, we compensate for these material limitations by using these
non-GAAP financial measures in conjunction with GAAP financial
measures.
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 27, April 27,
2007 2007
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 623,990 $ 489,079
Short-term investments 706,270 819,702
Accounts receivable, net (1) 403,159 548,249
Inventories 58,019 54,880
Prepaid expenses and other assets (1) 86,696 99,840
Short-term restricted cash and investments 103,906 118,312
Short-term deferred income taxes 106,810 110,741
---------- ----------
Total current assets 2,088,850 2,240,803
PROPERTY AND EQUIPMENT, net 629,124 603,523
GOODWILL 601,056 601,056
INTANGIBLE ASSETS, net 76,115 83,009
LONG-TERM RESTRICTED CASH AND INVESTMENTS 5,242 3,639
LONG-TERM DEFERRED INCOME TAXES AND OTHER ASSETS 155,037 126,448
---------- ----------
$3,555,424 $3,658,478
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 69,150 $ 85,110
Accounts payable 136,077 144,112
Income taxes payable 5,675 53,371
Accrued compensation and related benefits 107,377 177,327
Other accrued liabilities 89,887 97,017
Deferred revenue 663,865 630,610
---------- ----------
Total current liabilities 1,072,031 1,187,547
---------- ----------
LONG-TERM DEFERRED REVENUE 485,970 472,423
OTHER LONG-TERM OBLIGATIONS 70,288 9,487
---------- ----------
1,628,289 1,669,457
---------- ----------
STOCKHOLDERS' EQUITY 1,927,135 1,989,021
---------- ----------
$3,555,424 $3,658,478
========== ==========
(1) In the first quarter of fiscal 2008, the Company began to classify
VAT and sales tax receivable balances from its customers within
prepaid expenses and other assets. These balances were included in
accounts receivable, net, in previous periods ($43,075 at April 27,
2007) and such amounts have been reclassified in the accompanying
interim financial statements to conform to the current period
classification.
NETWORK APPLIANCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except net income per share amounts)
(Unaudited)
Quarter Ended
-------------------
July 27, July 28,
2007 2006
--------- ---------
REVENUES:
Product $463,333 $465,611
Software entitlements and maintenance 107,927 74,830
Service 117,975 80,847
--------- ---------
Total revenues 689,235 621,288
--------- ---------
COST OF REVENUES:
Cost of product 186,751 187,965
Cost of software entitlements and maintenance 2,084 2,292
Cost of service 83,203 57,961
--------- ---------
Total cost of revenues 272,038 248,218
--------- ---------
GROSS MARGIN 417,197 373,070
--------- ---------
OPERATING EXPENSES:
Sales and marketing 244,643 195,518
Research and development 106,556 88,678
General and administrative 41,450 32,396
Restructuring recoveries - (74)
--------- ---------
Total operating expenses 392,649 316,518
--------- ---------
INCOME FROM OPERATIONS 24,548 56,552
OTHER INCOME (EXPENSES), net:
Interest income 17,035 16,656
Interest expense (1,081) (3,871)
Other income, net 832 779
--------- ---------
Total other income, net 16,786 13,564
--------- ---------
INCOME BEFORE INCOME TAXES 41,334 70,116
PROVISION FOR INCOME TAXES 6,997 15,446
--------- ---------
NET INCOME $ 34,337 $ 54,670
========= =========
NET INCOME PER SHARE:
BASIC $ 0.09 $ 0.15
========= =========
DILUTED $ 0.09 $ 0.14
========= =========
SHARES USED IN PER SHARE CALCULATION:
BASIC 364,457 373,869
========= =========
DILUTED 377,631 391,319
========= =========
NETWORK APPLIANCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
Quarter Ended
---------------------
July 27, July 28,
2007 2006
---------- ----------
Cash Flows from Operating Activities:
Net income $ 34,337 $ 54,670
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 26,734 18,714
Amortization of intangible assets 6,398 4,686
Amortization of patents 495 495
Stock-based compensation 40,411 43,022
Net loss on disposal of equipment 117 81
Allowance for doubtful accounts 84 144
Deferred income taxes (22,692) -
Deferred rent 399 199
Excess tax benefit from stock-based
compensation (8,339) (4,489)
Changes in assets and liabilities:
Accounts receivable 188,072 69,914
Inventories (3,145) (520)
Prepaid expenses and other assets (27,392) (26,337)
Accounts payable (14,082) (1,139)
Income taxes payable 18,434 (6,914)
Accrued compensation and related benefits (69,889) (38,964)
Other accrued liabilities (15,591) (10,980)
Deferred revenue 46,548 61,982
---------- ----------
Net cash provided by operating activities 200,899 164,564
---------- ----------
Cash Flows from Investing Activities:
Purchases of investments (328,893) (874,416)
Redemptions of investments 447,022 906,423
Redemptions of restricted investments 14,930 16,322
(Increase) decrease in restricted cash (1,767) 252
Proceeds from sales of nonmarketable securities - 17
Purchases of property and equipment (33,586) (23,056)
Purchases of nonmarketable securities (4,035) (1,183)
---------- ----------
Net cash provided by investing activities 93,671 24,359
---------- ----------
Cash Flows from Financing Activities:
Proceeds from sale of common stock related to
employee stock transactions 49,991 36,831
Excess tax benefit from stock-based
compensation 8,339 4,489
Repayment of debt (15,960) (27,866)
Tax withholding payments reimbursed by
restricted stock (2,742) (980)
Repurchases of common stock (200,000) (220,000)
---------- ----------
Net cash used in financing activities (160,372) (207,526)
---------- ----------
Effect of Exchange Rate Changes on Cash 713 (324)
Net (Decrease) Increase in Cash and Cash
Equivalents 134,911 (18,927)
Cash and Cash Equivalents:
Beginning of period 489,079 461,256
---------- ----------
End of period $ 623,990 $ 442,329
========== ==========
NETWORK APPLIANCE, INC.
SUPPLEMENTAL INFORMATION
(In thousands)
(Unaudited)
QUARTER ENDED JULY 27, 2007
---------------------------------------------
Amortization of Acquisition-
Intangible Stock-based Related
Assets Compensation Retention
Expenses Cost
--------------------------------------------
Cost of product revenues $5,278 $945 -
Cost of service revenues - 2,671 -
Sales and marketing
expense 970 17,491 1,162
Research and development
expense - 13,175 -
General and
administrative expense 150 6,129 -
Restructuring recoveries - - -
--------------------------------------------
Effect on pre-tax income $6,398 $40,411 $1,162
QUARTER ENDED JULY 28, 2006
---------------------------------------------
Acquisition-
Amortization of Stock-based Related
Intangible Compensation Retention
Assets Expenses Cost
--------------------------------------------
Cost of product revenues $3,866 $670 -
Cost of service revenues - 2,634 -
Sales and marketing
expense 583 18,717 -
Research and development
expense - 13,868 -
General and
administrative expense 237 7,133 -
Restructuring recoveries - - -
--------------------------------------------
Effect on pre-tax income $4,686 $43,022 -
QUARTER ENDED JULY 27, 2007
-------------------------------------
Prior
Restructuring Acquisition-
Recoveries related Costs Total
-------------------------------------
Cost of product revenues - - $6,223
Cost of service revenues - - 2,671
Sales and marketing expense - - 19,623
Research and development expense - - 13,175
General and administrative
expense - 2,800 9,079
Restructuring recoveries - - -
-------------------------------------
Effect on pre-tax income - $2,800 $50,771
QUARTER ENDED JULY 28, 2006
-------------------------------------
Prior
Restructuring Acquisition-
Recoveries related Costs Total
-------------------------------------
Cost of product revenues - - $4,536
Cost of service revenues - - 2,634
Sales and marketing expense - - 19,300
Research and development expense - - 13,868
General and administrative
expense - - 7,370
Restructuring recoveries (74) - (74)
-------------------------------------
Effect on pre-tax income ($74) - $47,634
NETWORK APPLIANCE, INC.
RECONCILIATION OF NON-GAAP AND GAAP
IN THE CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except net income per share amounts)
(Unaudited)
Quarter Ended
-----------------
July 27, July 28,
2007 2006
-------- --------
SUMMARY RECONCILIATION OF NET INCOME
- ----------------------------------------------------
NET INCOME $34,337 $54,670
Adjustments:
Amortization of intangible assets 6,398 4,686
Stock-based compensation expenses 40,411 43,022
Acquisition-related retention cost 1,162 -
Restructuring recoveries - (74)
Prior acquisition-related costs 2,800 -
Discrete GAAP tax provision items 443 -
Income tax effect (9,564) (5,749)
-------- --------
NON-GAAP NET INCOME $75,987 $96,555
======== ========
NET INCOME PER SHARE $ 0.091 $ 0.140
Adjustments:
Amortization of intangible assets 0.017 0.012
Stock-based compensation expenses 0.107 0.110
Acquisition-related retention cost 0.003 -
Restructuring recoveries - -
Prior acquisition-related costs 0.007 -
Discrete GAAP tax provision items 0.001 -
Income tax effect (0.025) (0.015)
-------- --------
NON-GAAP NET INCOME PER SHARE $ 0.201 $ 0.247
======== ========
NETWORK APPLIANCE, INC.
RECONCILIATION OF NON GAAP GUIDANCE TO GAAP
EXPRESSED AS EARNINGS PER SHARE
SECOND QUARTER 2008
(Unaudited)
Second Quarter
2008
--------------
Non-GAAP Guidance $0.24 - $0.26
Adjustments of Specific Items to
Earnings Per Share for the Second
Quarter 2008:
Amortization of intangible assets (0.02)
Stock based compensation expense (0.11)
Gain on sale of investment 0.04
Income tax effect 0.01
--------------
Total Adjustments (0.08)
GAAP Guidance - Earnings Per Share $0.16 - $0.18
CONTACT: Network Appliance, Inc.
Jodi Baumann, 408-822-3974 (Press)
jodi@netapp.com
Ingemar Lanevi, 919-476-5750 (Investors)
ingemar@netapp.com
Billie Fagenstrom, 408-822-6428 (Investors)
billief@netapp.com