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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 16, 2006
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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)
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- --------------------------------------------------------------------------------
Item 2.02.
On August 16, 2006, Network Appliance, Inc. issued a press release
announcing its earnings for the first quarter of fiscal year 2007. 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 16, 2006 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 16, 2006 By: /s/ Steven Gomo
--------------------------
Steven J. Gomo
Chief Financial Officer
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Index to Exhibits
Exhibit Description
- ------- -----------
99.1 Press release of Network Appliance, Inc. issued on August 16, 2006.
- --------------------------------------------------------------------------------
Exhibit 99.1
Network Appliance Announces Results for First Quarter Fiscal Year 2007;
Achieves 39% Year-Over-Year Revenue Growth
SUNNYVALE, Calif.--(BUSINESS WIRE)--Aug. 16, 2006--Network
Appliance, Inc. (NASDAQ:NTAP), the leader in advanced networked
storage solutions, today reported results for the first quarter of
fiscal year 2007. Revenues for the first fiscal quarter were $621.3
million, an increase of 39% compared to revenues of $448.4 million for
the same period a year ago and an increase of 4% compared to $598.0
million in the prior quarter.
For the first fiscal quarter, GAAP net income was $54.7 million,
or $0.14 per share(1) compared to GAAP net income of $60.1 million, or
$0.16 per share for the same period in the prior year. This first
quarter of fiscal year 2007 is the first quarter in which Network
Appliance adopted the implementation of FAS 123R expensing of stock
options in the GAAP results. Non-GAAP(2) net income for the first
fiscal quarter increased 55% to $96.6 million, or $0.25 per share,
compared to non-GAAP net income of $62.1 million, or $0.16 per share
for the same period a year ago.
"NetApp delivered another strong quarter, driven by strong growth
in every region of the world," said Dan Warmenhoven, CEO of Network
Appliance. "Our new products and new relationships are gaining
momentum, and our business with enterprise customers reached record
levels. Our results demonstrate that the NetApp value proposition
resonates with customers and continues to drive our competitive
success."
Outlook
-- Network Appliance estimates that growth in revenue for the
second quarter of fiscal year 2007 will be in the range of 2
1/2% to 4%, which translates to 32% to 34% growth year over
year.
-- Including the implementation of SFAS123R and with current
information and assumptions, the company expects second
quarter GAAP earnings per share to finish between $0.13 and
$0.16 per share. Network Appliance expects second quarter
non-GAAP earnings per share to be in the range of $0.25 to
$0.26 per share.
-- For the full fiscal year 2007, Network Appliance estimates
that revenues will finish in the range of 32% to 33% higher
than fiscal year 2006.
-- Including the implementation of SFAS123R and with current
information and assumptions, the company expects GAAP earnings
per share for fiscal year 2007 to be in the target range of
$0.61 to $0.69 per share. Network Appliance estimates
full-year non-GAAP earnings per share to be in the range of
$1.04 to $1.06 per share.
Quarterly Highlights
During the first quarter of fiscal year 2007, Network Appliance
demonstrated value and leadership in the data center with new products
and solutions for the enterprise, introduced the industry's first
all-in-one solution for the small and medium business (SMB) market,
and continued its leadership position in the iSCSI and
network-attached storage markets.
This quarter, NetApp challenged the largest storage competitors
for data center leadership by introducing a new line of products and
services designed to enhance customers' data management capabilities,
offer the best total cost of ownership, and achieve the highest
productivity. The FAS6030 and FAS6070, new flagship systems that
greatly extend the breadth and scale of the NetApp storage systems
portfolio, extend the NetApp FAS line to a substantially higher level
of performance and scalability. Additionally, NetApp debuted an
enhanced NetApp Manageability Software family and new Fibre Channel
(FC) SAN capabilities as well as Premium Support Services for the
FAS6070 and Rapid Deployment Services for Storage Implementation.
Highlighting its greater value in data center environments, the
expanded NetApp portfolio offers modular, transparent scalability for
the largest data center applications and consolidations; maximum
flexibility to help customers adapt to business changes; and the
highest availability of application data, ultimately enabling more
productivity for IT administrators and achieving the best overall
total cost of ownership. These offerings are aimed at enterprises that
have vast data requirements and demanding service-level agreements and
that operate large-scale Oracle(R), SAP, and Microsoft(R) enterprise
applications.
During the quarter, NetApp announced the availability of its new
Data ONTAP(R) GX operating system, giving customers with
high-performance computing (HPC) applications extreme throughput,
flexibility, and NetApp hallmark simplicity and reliability. Data
ONTAP GX combines the global namespace functionality of SpinOS
(acquired through the Spinnaker Networks(R) acquisition) with the key
data management, performance, and high-availability features of Data
ONTAP 7G. Although the needs of NetApp enterprise customers are well
served by the performance, features, and functionality of Data ONTAP
7G, HPC customers in the areas of energy, entertainment, and
electronic design automation have an insatiable demand for extreme
levels of performance. Coupled with the new FAS6070 and/or FAS3050
systems, HPC customers can leverage the clustered file system
technology inherent in Data ONTAP GX, which enables individual files
or datasets to be striped across multiple nodes to achieve far greater
performance than can be achieved with a traditional storage system.
Data ONTAP GX, coupled with the new FAS6070, scales in capacity up to
6PB and achieves the unprecedented industry performance of more than
one million operations per second, based on the SPEC SFS benchmark.
During the quarter, NetApp unveiled the StoreVault(TM) S500, aimed
at the small and medium business market segment. StoreVault S500
combines enterprise-proven storage technology from NetApp with the
scalability, simplicity, security, and affordability that are missing
in today's network storage solutions for SMBs. The StoreVault S500 is
the industry's first scalable all-in-one network storage appliance for
the SMB market segment that supports NAS, iSCSI SAN, and FC SAN,
providing SMB customers unparalleled flexibility compared to
direct-attached storage.
Continuing disclosures of privacy breaches are driving
requirements for enterprise-wide encryption and key management. This
quarter, Decru, a NetApp company, unveiled a new key management
platform, the Decru(R) Lifetime Key Management(TM) 3.0 Appliance (LKM
Appliance). The LKM Appliance extends Decru's capabilities for secure,
automated, enterprise-class management of storage encryption keys and
adds integration capabilities for third-party encryption products.
In other product news, NetApp was awarded Storage Vendor of the
Year and NAS Product of the Year for the NetApp(R) NearStore(R) R200
storage system at the Storage Awards: The Storries III. Judged by the
readers of Storage Magazine, the UK's leading IT storage magazine, the
Storage Awards recognize excellence and innovation in the UK storage
industry.
From a market perspective, according to IDC's Worldwide Quarterly
Disk Storage Systems Tracker Q1 2006,(3) NetApp gained revenue share
in the networked storage market, growing to a 9.6% share in Q1 2006,
up from an 8.5% share at year-end 2005. NetApp also gained capacity
share in networked storage, growing to 19.5% from 15.8% in the same
period.
In the FC SAN market, NetApp continued to grow faster than the
market in both revenue and capacity, both sequentially and year over
year. Sequentially, FC SAN market revenue dropped 12.9% while NetApp
grew 17.4%. Year over year, the FC SAN market revenue grew 14.8% while
NetApp grew 60.2%.
In the NAS market, NetApp grew faster than the market in both
revenue and capacity, both sequentially and year over year.
Sequentially, the NAS market revenue dropped 1.5% while NetApp grew
7.3%. Year over year, the NAS market revenue grew 14.7% while NetApp
grew 17.8%. NetApp continues to lead the NAS market in terms of
capacity, with a 45.8% share in Q1 2006, up from a 42.6% share at
year-end 2005.
NetApp demonstrated continued leadership in the iSCSI market in
terms of revenue and capacity, with first place market share for Q1
2006 in capacity shipped (40.0%) and in revenue (29.7%). In Q1 2006,
the iSCSI market revenue dropped 7.2% sequentially, while NetApp grew
10.0%.
Also this quarter, NetApp announced it has shown the strongest
market share growth among the top 10 vendors of storage software and
has moved into the top four vendors for market share in 2005.
According to Gartner's report "Market Share: Storage Management
Software, Worldwide, 2005,"(4) the total market for new license
revenue in 2004 to 2005 grew at a rate of 8.8%, with NetApp beating
the market with a growth rate of 42.3% for the same period. For the
third year in a row, this was the fastest growth rate among the top 10
vendors in the space and for the first year places NetApp in the top
four, with a total overall market share of 6.5%.
On the partner front, NetApp unveiled several new solution
enhancements and partner offerings with Attune Systems, Brocade,
Cisco, Emulex, Microsoft, Symantec, and Reconnex, to address a variety
of data concerns, including network file management, data content
monitoring, data protection, and FC SAN scalability.
In corporate news, NetApp entered into a definitive agreement to
sell its NetCache(TM) business to Blue Coat Systems. Also during the
quarter, Edward Kozel, a member of the Yahoo! board of directors and
CEO of cRight, Inc., a developer of anti-piracy software, joined the
NetApp board of directors.
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 16, 2006, at 1:30 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 (866) 700-0133 in the United States and
(617) 213-8831 outside the United States. The passcode for
both numbers is 31954843.
-- 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,
with replay code 85474493. The Webcast replay will be posted
on our Web site 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.
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 second
quarter of fiscal 2007 and for all of fiscal 2007; statements
regarding our optimism for our 2007 fiscal year generally; statements
regarding the anticipated benefits of our new products, technologies,
and services, including Data ONTAP GX, Decru Lifetime Key Management
3.0 Appliance, StoreVault, the FAS6030, and the FAS6070; and
statements regarding anticipated benefits from partner offerings.
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 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 represent the diluted number of shares for
all periods presented.
(2) Non-GAAP results of operations exclude amortization of
intangible assets, stock-based compensation, restructuring
charges/recoveries, net gain/loss on investments, and the related
effects on income taxes.
(3) IDC's Worldwide Quarterly Disk Storage Systems Tracker Q1
2006.
(4) Gartner Dataquest, "Market Share: Storage Management Software,
Worldwide, 2005," Aman Munglani and Nikhil Pank, June 28, 2006.
NetApp, Data ONTAP, NearStore, and Spinnaker Networks are
registered trademarks and Network Appliance, NetCache, and StoreVault
are trademarks of Network Appliance Inc. in the United States and
other countries. Decru is a registered trademark and Lifetime Key
Management is a trademark of Decru Inc., a NetApp company. 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 financial measures exclude amortization of
intangible assets, in-process research and development, stock
compensation, restructuring charges/recoveries, net gain/loss on
investments, and the related effects on income taxes as well as
certain discrete GAAP provision 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 28, April 30,
2006 2006
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $442,329 $461,256
Short-term investments 830,051 861,636
Accounts receivable, net 376,920 415,295
Inventories 56,242 64,452
Prepaid expenses and other assets 41,140 43,536
Short-term restricted cash and investments 135,141 138,539
Deferred income taxes 48,496 48,496
----------- -----------
Total current assets 1,930,319 2,033,210
PROPERTY AND EQUIPMENT, net 533,121 513,193
GOODWILL 487,535 487,535
INTANGIBLE ASSETS, net 69,869 75,051
LONG-TERM RESTRICTED CASH AND INVESTMENTS 96,632 108,371
OTHER ASSETS 63,193 43,605
----------- -----------
$3,180,669 $3,260,965
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $163,354 $166,211
Accounts payable 99,927 101,278
Income taxes payable 33,527 51,577
Accrued compensation and related benefits 90,979 129,636
Other accrued liabilities 65,122 69,073
Deferred revenue 433,599 399,388
----------- -----------
Total current liabilities 886,508 917,163
----------- -----------
LONG-TERM DEBT 108,780 133,789
LONG-TERM DEFERRED REVENUE 309,611 282,149
LONG-TERM OBLIGATIONS 4,943 4,411
----------- -----------
1,309,842 1,337,512
----------- -----------
STOCKHOLDERS' EQUITY 1,870,827 1,923,453
----------- -----------
$3,180,669 $3,260,965
=========== ===========
NETWORK APPLIANCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Quarter Ended
-------------------
July 28, July 29,
2006 2005
--------- ---------
REVENUES:
Product $465,611 $340,926
Software subscriptions 74,830 53,704
Service 80,847 53,773
--------- ---------
Total revenues 621,288 448,403
--------- ---------
COST OF REVENUES:
Cost of product 187,965 131,499
Cost of software subscriptions 2,292 2,256
Cost of service 57,961 41,162
--------- ---------
Total cost of revenues 248,218 174,917
--------- ---------
GROSS MARGIN 373,070 273,486
--------- ---------
OPERATING EXPENSES:
Sales and marketing 195,518 137,814
Research and development 88,678 52,160
General and administrative 32,396 21,196
Restructuring recoveries (74) (1,256)
--------- ---------
Total operating expenses 316,518 209,914
--------- ---------
INCOME FROM OPERATIONS 56,552 63,572
OTHER INCOME (EXPENSES), net:
Interest income 16,656 9,048
Interest expense (3,871) (48)
Other income (expense), net 779 (224)
Net gain on investments - 33
--------- ---------
Total other income, net 13,564 8,809
---------- --------
INCOME BEFORE INCOME TAXES 70,116 72,381
PROVISION FOR INCOME TAXES 15,446 12,261
--------- ---------
NET INCOME $ 54,670 $ 60,120
========= =========
NET INCOME PER SHARE:
BASIC $ 0.15 $ 0.16
========= =========
DILUTED $ 0.14 $ 0.16
========= =========
SHARES USED IN PER SHARE CALCULATION:
BASIC 373,869 367,438
========= =========
DILUTED 391,319 386,383
========= =========
NETWORK APPLIANCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
Three Months Ended
--------------------
July 28, July 29,
2006 2005
---------- ----------
Cash Flows from Operating Activities:
Net income $ 54,670 $ 60,120
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 18,714 14,756
Amortization of intangible assets 4,686 2,671
Amortization of patents 495 495
Stock-based compensation 43,022 2,028
Net loss (gain) on investments 6 (33)
Net loss on disposal of equipment 81 404
Allowance (reduction) for doubtful
accounts 144 (379)
Deferred rent 199 48
Excess tax benefit from stock-based
compensation (4,489) -
Changes in assets and liabilities:
Accounts receivable 38,187 57,892
Inventories (520) (4,998)
Prepaid expenses and other assets 5,384 (3,997)
Accounts payable (1,139) (2,691)
Income taxes payable (6,914) 9,648
Accrued compensation and related
benefits (38,964) (32,418)
Other accrued liabilities (10,980) (1,302)
Deferred revenue 61,982 36,716
---------- ----------
Net cash provided by operating
activities 164,564 138,960
---------- ----------
Cash Flows from Investing Activities:
Purchases of investments (874,416) (222,787)
Redemptions of investments 906,423 213,977
Redemptions of restricted investments 16,322 -
Increase (decrease) in restricted cash 252 (1,504)
Purchases of property and equipment (23,056) (33,538)
Proceeds from sales of investments 17 62
Purchases of equity securities (1,183) (275)
Purchase of business, net of cash acquired - (11,831)
---------- ----------
Net cash provided by (used in)
investing activities 24,359 (55,896)
---------- ----------
Cash Flows from Financing Activities:
Proceeds from sale of common stock related to
employee stock transactions 36,831 50,763
Excess tax benefit from stock-based
compensation 4,489 -
Repayment of debt (27,866) -
Tax withholding payments reimbursed by
restricted stock (980) (419)
Repurchases of common stock (220,000) (95,543)
---------- ----------
Net cash used in financing activities (207,526) (45,199)
---------- ----------
Effect of Exchange Rate Changes on Cash (324) 178
Net Increase (Decrease) in Cash and Cash
Equivalents (18,927) 38,043
Cash and Cash Equivalents:
Beginning of period 461,256 193,542
---------- ----------
End of period $ 442,329 231,585
========== ==========
NETWORK APPLIANCE, INC.
SUPPLEMENTAL INFORMATION
(In thousands)
(Unaudited)
QUARTER ENDED JULY 28, 2006
----------------------------------------------------
Stock- Net
Amortizat based (Gain)/
-ion of Compensat Restructuring Loss on
Intangible -ion (Recoveries)/ Invest
Assets Expenses Charges -ments Total
----------------------------------------------------
Cost of product
revenues $3,866 $670 - - $4,536
Cost of service
revenues - 2,634 - - 2,634
Sales and
marketing
expenses 583 18,717 - - 19,300
Research and
development
expenses - 13,868 - - 13,868
General and
administrative
expenses 237 7,133 - - 7,370
Restructuring
(recoveries)/
charges - - (74) - (74)
----------------------------------------------------
Effect on pre-tax
income $4,686 $43,022 ($74) - $47,634
QUARTER ENDED JULY 29, 2005
----------------------------------------------------
Stock- Net
Amortizat based (Gain)/
-ion of Compensat Restructuring Loss on
Intangible -ion (Recoveries)/ Invest
Assets Expenses Charges -ments Total
----------------------------------------------------
Cost of product
revenues $1,108 - - - $1,108
Cost of service
revenues - - - - -
Sales and
marketing
expenses 207 515 - - 722
Research and
development
expenses - 1,358 - - 1,358
General and
administrative
expenses 1,356 155 - - 1,511
Restructuring
(recoveries)/
charges - - (1,256) - (1,256)
Net (gain)/loss
on investments - - - (33) (33)
----------------------------------------------------
Effect on pre-tax
income $2,671 $2,028 ($1,256) ($33) $3,410
NETWORK APPLIANCE, INC.
RECONCILIATION OF NET INCOME
(In thousands, except per share amounts)
(Unaudited)
Quarter Ended
-----------------
July 28, July 29,
2006 2005
-------- --------
NET INCOME $54,670 $60,120
Adjustments:
Amortization of intangible assets 4,686 2,671
Stock-based compensation expenses 43,022 2,028
Restructuring (recoveries)/charges (74) (1,256)
Net (gain)/loss on investments - (33)
Income tax effect (5,749) (1,381)
-------- --------
NON-GAAP NET INCOME $96,555 $62,149
======== ========
EARNINGS PER SHARE $0.140 $0.156
Adjustments:
Amortization of intangible assets 0.012 0.007
Stock-based compensation expenses 0.110 0.005
Restructuring (recoveries)/charges (0.000) (0.003)
Net (gain)/loss on investments 0.000 (0.000)
Income tax effect (0.015) (0.004)
-------- --------
NON-GAAP EARNINGS PER SHARE $0.247 $0.161
======== ========
NETWORK APPLIANCE, INC.
RECONCILIATION OF NON GAAP GUIDANCE TO GAAP
EXPRESSED AS EARNINGS PER SHARE
SECOND QUARTER and FULL YEAR 2007
(Unaudited)
Second Quarter Full Year
2007 2007
--------------- ---------------
ADJUSTMENTS OF SPECIFIC ITEMS
TO EARNINGS PER SHARE FOR
THE SECOND QUARTER AND FULL
YEAR 2007 ($):
Adjustment:
Amortization of intangible assets (0.012) (0.048)
Stock based compensation expense (0.100 - 0.122) (0.389 - 0.456)
Restructuring (recoveries)/charges - -
Income tax effect 0.016 - 0.018 0.063 - 0.073
--------------- ---------------
NET DECREASE IN EARNINGS PER SHARE (0.096 - 0.116) (0.374 - 0.431)
=============== ===============
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