EX-99.1 2 a5022681ex99_1.txt EXHIBIT 99.1 Exhibit 99.1 Network Appliance Announces Results for Second Quarter Fiscal Year 2006; Achieves 29% Year-over-Year Revenue Growth and Record Operating Income SUNNYVALE, Calif.--(BUSINESS WIRE)--Nov. 16, 2005--Network Appliance, Inc. (NASDAQ:NTAP), the leader in advanced networked storage solutions, today reported results for the second quarter of fiscal year 2006. Revenues for the second fiscal quarter were $483.1 million, an increase of 29% compared to revenues of $375.2 million for the same period a year ago and an increase of 8% compared to $448.4 million in the prior quarter. For the second fiscal quarter, GAAP net income was $70.7 million, or $0.18 per share(1) compared to GAAP net income of $55.3 million, or $0.15 per share for the same period in the prior year. Non-GAAP(2) net income for the second fiscal quarter was $79.1 million, or $0.21 per share, compared to non-GAAP net income of $58.4 million, or $0.16 per share for the same period a year ago. Revenues for the first six months of the current fiscal year totaled $931.5 million, compared to revenues of $733.6 million for the first six months of the prior fiscal year, an increase of 27% year over year. For the first six months of the current fiscal year, GAAP net income increased 28% to $130.8 million, or $0.34 per share, compared with GAAP net income of $102.2 million, or $0.27 per share for the same period in the prior year. Non-GAAP net income for the first six months of the current fiscal year totaled $141.3 million, or $0.37 per share, compared to non-GAAP net income of $108.2 million, or $0.29 per share for the first six months of the prior fiscal year. "We achieved significant growth in revenue and profitability during the quarter driven by the compelling value proposition of our new FAS3000 midrange product line," said Dan Warmenhoven, CEO of Network Appliance. "NetApp provides customers with the best storage utilization rates in the industry, allowing them to decrease their total cost of ownership and increase their return on investment." Outlook -- Network Appliance estimates that year-over-year growth in revenue for the third quarter of fiscal year 2006 will be in the range of 25% to 28%. -- The company expects third quarter GAAP earnings per share to finish between $0.17 and $0.18 per share. Network Appliance expects third quarter non-GAAP earnings per share to be in the range of $0.20 to $0.21 per share. -- For the full fiscal year, Network Appliance estimates that revenues will finish in the range of 26% to 28% higher than fiscal year 2005. -- The company expects GAAP earnings per share for fiscal year 2006 to be between $0.70 and $0.73 per share. Network Appliance estimates full-year non-GAAP earnings per share to be in the range of $0.77 to $0.80 per share. Quarterly Highlights During the second quarter of fiscal year 2006, Network Appliance solidified its leadership in data security with the completion of the Decru acquisition; demonstrated growth in iSCSI, NAS, and SAN; and expanded its operations in Research Triangle Park, North Carolina. This quarter, NetApp maintained its position as market leader in iSCSI, grew its capacity market share lead in NAS, and grew the fastest among vendors tracked in the Fibre Channel (FC) SAN arena. According to IDC's Worldwide Quarterly Disk Storage Systems Tracker Q2 2005, NetApp demonstrated continued leadership in its core NAS market, with a 44.6% capacity share, up almost three (3) percentage points over Q1. NetApp also maintained its strong lead in the iSCSI storage market, with number-one share positions in capacity shipped (45.2%), revenue (41.6%), and units (36%). NetApp was also the fastest growing of the vendors tracked in iSCSI revenue, with a year-over-year growth rate of 120.9%. Finally, of the vendors tracked, NetApp posted the strongest year-over-year increase in FC SAN revenue, with a growth rate of 130.2%. Also according to IDC, NetApp experienced the fastest growth among the top five vendors in storage software with 49.4% year-over-year growth from Q2 2004 to Q2 2005 versus a market growth rate of 11.8% for the same period. Total NetApp market share in storage software grew from 5% in Q2 2004 to 6.6% in Q2 2005. Additional details are available in IDC's Worldwide Quarterly Storage Software Tracker Q2 2005. During the quarter, NetApp completed the acquisition of Decru, a privately held company based in Redwood City, California. The acquisition of Decru allows NetApp to offer the strongest security option in the industry. Decru is a clear market leader in storage security, helping enterprise and government customers address requirements 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 data encryption, authentication, key management, and compartmentalization. The first new products from Decru since the completion of the acquisition occurred during the quarter with the unveiling of next-generation storage security platforms. The new 10-port and SCSI models of Decru DataFort appliances, DataFort FC1020 and DataFort S115, deliver increased enterprise-class scalability native support for legacy tape environments, simplified management, and greater price/performance. Also this quarter, NetApp announced that it plans to join IBM as one of 10 founding members in a new open-source community, initially working under the project name Aperi, to give customers more choices for deploying open-standards-based storage infrastructure software. The organization plans to develop a common storage software management platform that will give customers greater flexibility in the way they manage their storage environments. Earlier this quarter, NetApp introduced NetApp(R) SnapManager(R) for Oracle(R) Database environments, which leverages the unique power of NetApp Snapshot(TM) technology and is a tightly integrated disk-based backup and granular recovery solution for Oracle customers using Oracle Automatic Storage Management technology. The solution provides customers with continuous uptime for online backups. NetApp SnapManager turns a multi-step backup and restore process into two simple commands from a single host machine. On the partner front, NetApp unveiled several new solution enhancements and partner offerings with Bus-Tech Inc., Cisco, NeoPath Networks, Network Intelligence, NuView, Oracle, SAP, and Symantec to address a variety of data concerns, including management and monitoring of enterprise grid environments, data replication, enterprise compliance, ILM management, data analysis, file storage management and utilization, mainframe tape replacement, storage virtualization, and consolidation of remote office/branch office (ROBO) data. Also this quarter, NetApp and Kazeon, a leading provider of information classification and management solutions for the enterprise, signed an OEM, development, and marketing agreement to integrate the intelligent data classification and search capabilities of Kazeon's Information Server with Network Appliance(TM) storage systems. Additionally, NetApp will resell Kazeon's Information Server as part of a jointly marketed solution. In corporate news, NetApp expanded to a new facility in Research Triangle Park, North Carolina. The company currently employs 360 employees in the Kit Creek Road facility and operates a 24x7 global service and support center in addition to a state-of-the-art data center with a capacity of multiple petabytes. 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, November 16, 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) 299-7089 in the United States and (617) 801-9714 outside the United States. The passcode for both numbers is 19259021. -- 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 51378149. 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. "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 relating to our forecasted operating results and metrics for the third quarter of fiscal 2006 and for all of fiscal 2006, statements regarding the anticipated benefits our FAS3000 product line, Decru network storage platforms, the Aperi open source community, our partner offerings and solution enhancements and our OEM, development and marketing agreement with Kazeon. 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; 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 with strategic partners; 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.'s 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, 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. NetApp and SnapManager are registered trademarks and Network Appliance and Snapshot are trademarks of Network Appliance Inc. in the United States and other countries. Decru DataFort is a trademark of Decru Inc., a Network Appliance company, in the United States and other countries. Oracle is a registered trademark of Oracle Corporation. All other trademarks belong to their respective owners 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) October 28, April 30, 2005 2005 ----------- ----------- ASSETS CURRENT ASSETS: Cash and cash equivalents $221,713 $193,542 Short-term investments 887,886 976,423 Accounts receivable, net 325,855 296,885 Inventories 44,111 38,983 Prepaid expenses and other 30,444 32,472 Deferred income taxes 35,558 37,584 ----------- ----------- Total current assets 1,545,567 1,575,889 PROPERTY AND EQUIPMENT, net 465,587 418,749 GOODWILL 491,089 291,816 INTANGIBLE ASSETS, net 87,735 21,448 OTHER ASSETS 60,493 64,745 ----------- ----------- $2,650,471 $2,372,647 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $93,370 $83,572 Income taxes payable 28,759 20,823 Accrued compensation and related benefits 88,974 100,534 Other accrued liabilities 57,760 53,262 Deferred revenue 307,007 261,998 ----------- ----------- Total current liabilities 575,870 520,189 LONG-TERM DEFERRED REVENUE 227,547 187,180 LONG-TERM OBLIGATIONS 3,441 4,474 ----------- ----------- 806,858 711,843 ----------- ----------- STOCKHOLDERS' EQUITY 1,843,613 1,660,804 ----------- ----------- $2,650,471 $2,372,647 =========== =========== NETWORK APPLIANCE, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited) Three Months Ended Six Months Ended ------------------- ------------------- Oct. 28, Oct. 29, Oct. 28, Oct. 29, 2005 2004 2005 2004 --------- --------- --------- --------- REVENUES: Product revenue $424,776 $336,804 $819,405 $661,431 Service revenue 58,286 38,372 112,059 72,166 --------- --------- --------- --------- Total revenues 483,062 375,176 931,464 733,597 --------- --------- --------- --------- COST OF REVENUES: Cost of product revenue 141,104 111,728 274,858 225,943 Cost of service revenue 42,866 32,287 84,028 61,535 --------- --------- --------- --------- Total cost of revenues 183,970 144,015 358,886 287,478 --------- --------- --------- --------- GROSS MARGIN 299,092 231,161 572,578 446,119 --------- --------- --------- --------- OPERATING EXPENSES: Sales and marketing 138,218 109,109 275,517 212,420 Research and development 56,037 40,650 106,839 79,353 General and administrative 21,566 17,870 42,607 34,752 In process research and development 5,000 - 5,000 - Stock compensation 3,344 2,139 5,372 4,243 Restructuring charges 645 - (611) - --------- --------- --------- --------- Total operating expenses 224,810 169,768 434,724 330,768 --------- --------- --------- --------- INCOME FROM OPERATIONS 74,282 61,393 137,854 115,351 OTHER INCOME (EXPENSES), net: Interest income 9,651 6,103 18,699 10,185 Other expenses, net (277) 90 (549) (822) Net gain on investments 68 - 101 - --------- --------- --------- --------- Total other income, net 9,442 6,193 18,251 9,363 --------- --------- --------- --------- INCOME BEFORE INCOME TAXES 83,724 67,586 156,105 124,714 PROVISION FOR INCOME TAXES 13,006 12,257 25,267 22,523 --------- --------- --------- --------- NET INCOME $70,718 $55,329 $130,838 $102,191 ========= ========= ========= ========= NET INCOME PER SHARE: BASIC $0.19 $0.15 $0.35 $0.29 ========= ========= ========= ========= DILUTED $0.18 $0.15 $0.34 $0.27 ========= ========= ========= ========= SHARES USED IN PER SHARE CALCULATION: BASIC 371,002 357,787 369,220 357,265 ========= ========= ========= ========= DILUTED 385,442 375,074 385,912 374,024 ========= ========= ========= ========= NETWORK APPLIANCE, INC. NON-GAAP (1) CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited) Three Months Ended Six Months Ended ----------------------------------------- Oct. 28, Oct. 29, Oct. 28, Oct. 29, 2005 2004 2005 2004 --------- --------- --------- --------- REVENUES: Product revenue $424,776 $336,804 $819,405 $661,431 Service revenue 58,286 38,372 112,059 72,166 --------- --------- --------- --------- Total revenues 483,062 375,176 931,464 733,597 --------- --------- --------- --------- COST OF REVENUES: Cost of product revenue 138,158 110,870 270,804 224,227 Cost of service revenue 42,866 32,287 84,028 61,535 --------- --------- --------- --------- Total cost of revenues 181,024 143,157 354,832 285,762 --------- --------- --------- --------- GROSS MARGIN 302,038 232,019 576,632 447,835 --------- --------- --------- --------- OPERATING EXPENSES: Sales and marketing 137,711 108,903 274,803 212,007 Research and development 56,037 40,650 106,839 79,353 General and administrative 21,167 16,601 40,852 32,215 --------- --------- --------- --------- Total operating expenses 214,915 166,154 422,494 323,575 --------- --------- --------- --------- INCOME FROM OPERATIONS 87,123 65,865 154,138 124,260 OTHER INCOME (EXPENSES), net 9,374 6,193 18,150 9,363 --------- --------- --------- --------- INCOME BEFORE INCOME TAXES 96,497 72,058 172,288 133,623 PROVISION FOR INCOME TAXES 17,370 13,691 31,012 25,388 --------- --------- --------- --------- NET INCOME $79,127 $58,367 $141,276 $108,235 ========= ========= ========= ========= NET INCOME PER SHARE: BASIC $0.21 $0.16 $0.38 $0.30 ========= ========= ========= ========= DILUTED $0.21 $0.16 $0.37 $0.29 ========= ========= ========= ========= SHARES USED IN PER SHARE CALCULATION: BASIC 371,002 357,787 369,220 357,265 ========= ========= ========= ========= DILUTED 385,442 375,074 385,912 374,024 ========= ========= ========= ========= (1) Non-GAAP results of operations 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. NETWORK APPLIANCE, INC. RECONCILIATION OF NON-GAAP AND GAAP IN THE CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited) Three Months Ended Six Months Ended ------------------- ------------------- Oct. 28, Oct. 29, Oct. 28, Oct. 29, 2005 2004 2005 2004 --------- --------- --------- --------- SUMMARY RECONCILIATION OF NET INCOME ----------------------------- NET INCOME $70,718 $55,329 $130,838 $102,191 Adjustments: Amortization of intangible assets 3,852 2,333 6,523 4,666 Stock compensation 3,344 2,139 5,372 4,243 In process research and development 5,000 - 5,000 - Restructuring charges 645 - (611) - Net gain on investments (68) - (101) - Discrete GAAP provision matters recognized ratably for non-GAAP purposes (2,437) - (2,437) - Income tax effect (1,927) (1,434) (3,308) (2,865) --------- --------- --------- --------- NON-GAAP NET INCOME $79,127 $58,367 $141,276 $108,235 ========= ========= ========= ========= DETAILED RECONCILIATION OF SPECIFIC ITEMS: -------------------------- COST OF REVENUES $183,970 $144,015 $358,886 $287,478 Adjustment: Amortization of intangible assets (2,946) (858) (4,054) (1,716) --------- --------- --------- --------- NON-GAAP COST OF REVENUES $181,024 $143,157 $354,832 $285,762 ========= ========= ========= ========= GROSS MARGIN $299,092 $231,161 $572,578 $446,119 Adjustment: Amortization of intangible assets 2,946 858 4,054 1,716 --------- --------- --------- --------- NON-GAAP GROSS MARGIN $302,038 $232,019 $576,632 $447,835 ========= ========= ========= ========= SALES AND MARKETING EXPENSES $138,218 $109,109 $275,517 $212,420 Adjustments: Amortization of intangible assets (507) (206) (714) (413) --------- --------- --------- --------- NON-GAAP SALES AND MARKETING EXPENSES $137,711 $108,903 $274,803 $212,007 ========= ========= ========= ========= GENERAL AND ADMINISTRATIVE EXPENSES $21,566 $17,870 $42,607 $34,752 Adjustments: Amortization of intangible assets (399) (1,269) (1,755) (2,537) --------- --------- --------- --------- NON-GAAP GENERAL AND ADMINISTRATIVE EXPENSES $21,167 $16,601 $40,852 $32,215 ========= ========= ========= ========= OPERATING EXPENSES $224,810 $169,768 $434,724 $330,768 Adjustments: Stock compensation (3,344) (2,139) (5,372) (4,243) In process research and development (5,000) - (5,000) - Amortization of intangible assets (906) (1,475) (2,469) (2,950) Restructuring charges (645) - 611 - --------- --------- --------- --------- NON-GAAP OPERATING EXPENSES $214,915 $166,154 $422,494 $323,575 ========= ========= ========= ========= INCOME FROM OPERATIONS $74,282 $61,393 $137,854 $115,351 Adjustments: In process research and development 5,000 - 5,000 - Amortization of intangible assets 3,852 2,333 6,523 4,666 Stock compensation 3,344 2,139 5,372 4,243 Restructuring charges 645 - (611) - --------- --------- --------- --------- NON-GAAP INCOME FROM OPERATIONS $87,123 $65,865 $154,138 $124,260 ========= ========= ========= ========= TOTAL OTHER INCOME (EXPENSES), NET $9,442 $6,193 $18,251 $9,363 Adjustments: Net gain on investments (68) - (101) - --------- --------- --------- --------- NON-GAAP TOTAL OTHER INCOME (EXPENSES), NET $9,374 $6,193 $18,150 $9,363 ========= ========= ========= ========= INCOME BEFORE INCOME TAXES $83,724 $67,586 $156,105 $124,714 Adjustments: Amortization of intangible assets 3,852 2,333 6,523 4,666 In process research and development 5,000 - 5,000 - Stock compensation 3,344 2,139 5,372 4,243 Restructuring charges 645 - (611) - Net gain on investments (68) - (101) - --------- --------- --------- --------- NON-GAAP INCOME BEFORE INCOME TAXES $96,497 $72,058 $172,288 $133,623 ========= ========= ========= ========= PROVISION FOR INCOME TAXES $13,006 $12,257 $25,267 $22,523 Adjustments: Discrete GAAP provision matters recognized ratably for non-GAAP purposes 2,437 - 2,437 - Income tax effect 1,927 1,434 3,308 2,865 --------- --------- --------- --------- NON-GAAP PROVISION FOR INCOME TAXES $17,370 $13,691 $31,012 $25,388 ========= ========= ========= ========= NETWORK APPLIANCE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (In thousands) (Unaudited) Three Months Ended Six Months Ended ------------------- ------------------- Oct. 28, Oct. 29, Oct. 28, Oct. 29, 2005 2004 2005 2004 --------- --------- --------- --------- Cash Flows from Operating Activities: Net income $70,718 $55,329 $130,838 $102,191 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 15,328 13,410 30,084 26,652 In process research and development 5,000 - 5,000 - Amortization of intangible assets 3,852 2,333 6,523 4,666 Amortization of patents 496 451 991 901 Stock compensation 3,344 2,139 5,372 4,243 Income tax benefit from employee stock transactions - 8,942 16,289 14,677 Net gain on investments (68) - (101) (29) Net loss on disposal of equipment 756 512 1,160 519 Allowance for doubtful accounts 725 557 346 403 Deferred rent 321 136 369 226 Changes in assets and liabilities: Accounts receivable (86,163) (19,596) (28,271) (25,353) Inventories (8,567) (2,662) (13,565) (5,993) Prepaid expenses and other assets 932 7,428 (3,065) 5,999 Accounts payable 12,463 5,746 9,772 4,671 Income taxes payable 14,496 (325) 7,855 (1,166) Accrued compensation and related benefits 21,360 18,336 (11,058) 3,801 Other accrued liabilities (1,577) (2,917) (2,879) (220) Deferred revenue 49,059 30,013 85,775 60,355 ------------------- --------- --------- Net cash provided by operating activities 102,475 119,832 241,435 196,543 ------------------- --------- --------- Cash Flows from Investing Activities: Purchases of investments (111,010) (200,302) (333,797) (348,948) Redemptions of investments 204,596 124,257 418,573 263,302 Increase in restricted cash (562) - (2,066) - Purchases of property and equipment (29,474) (15,246) (63,012) (47,511) Proceeds from sales of investments 68 - 130 298 Purchases of equity securities (6,675) - (6,950) - Purchase of businesses, net of cash acquired (41,916) - (53,747) - --------- --------- --------- --------- Net cash provided by (used in) investing activities 15,027 (91,291) (40,869) (132,859) --------- --------- --------- --------- Cash Flows from Financing Activities: Proceeds from sale of common stock related to employee stock transactions 21,726 23,515 72,489 46,717 Tax withholding payments reimbursed by restricted stock (183) - (602) (43) Repurchases of common stock (149,021) (35,271) (244,564) (83,013) --------- --------- --------- --------- Net cash used in financing activities (127,478) (11,756) (172,677) (36,339) --------- --------- --------- --------- Effect of Exchange Rate Changes on Cash 104 537 282 871 Net Increase (Decrease) in Cash and Cash Equivalents (9,872) 17,322 28,171 28,216 Cash and Cash Equivalents: Beginning of period 231,585 103,222 193,542 92,328 ------------------- --------- --------- End of period $221,713 $120,544 $221,713 $120,544 =================== ========= ========= Noncash Investing and Financing Activities: Conversion of evaluation inventory to fixed assets $5,473 $2,022 $9,111 $4,751 Deferred stock compensation, net of reversals (445) 173 2,189 (373) Acquisition of property and equipment on account 2,564 - 6,125 - Common stock issued and options assumed for acquired businesses 228,016 - 230,330 - Supplemental cash flow information: - Income taxes paid 1,675 3,346 3,689 10,172 Income Tax Refund 2,264 9,156 2,332 10,572 NETWORK APPLIANCE, INC. RECONCILIATION OF NON GAAP GUIDANCE TO GAAP EXPRESSED AS EARNINGS PER SHARE THIRD QUARTER AND FISCAL YEAR 2006 (Unaudited) Projected Year Projected Year Over Year Third Over Year Quarter Revenue Annual FY06 Growth Range Revenue Growth Range --------------------------------- 25% 28% 26% 28% ------- ------- ------- ------- ADJUSTMENTS OF SPECIFIC ITEMS TO EARNINGS PER SHARE FOR THE THIRD QUARTER AND FISCAL YEAR 2006 ($): COST OF REVENUES Adjustment: Amortization of intangible assets (0.010) (0.010) (0.031) (0.031) OPERATING EXPENSES Adjustments: Stock compensation (0.011) (0.011) (0.036) (0.036) Amortization of intangible assets (0.002) (0.002) (0.011) (0.011) Restructuring charges (0.001) (0.001) 0.003 0.003 In-process research and development - - (0.013) (0.013) TOTAL OTHER INCOME (EXPENSES), NET Adjustments: Net (gain)/loss on investments 0.000 0.000 PROVISION FOR INCOME TAXES Adjustments: Income tax effect 0.002 0.001 0.017 0.017 ------- ------- ------- ------- NET DECREASE IN EARNINGS PER SHARE (0.022) (0.022) (0.070) (0.070) ======= ======= ======= ======= CONTACT: Network Appliance, Inc. Jodi Baumann, 408-822-3974 (Press) jodi@netapp.com Tara Calhoun, 408-822-6909 (Investor) tara@netapp.com Billie Fagenstrom, 408-822-6428 (Investor) billief@netapp.com