-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ObYX9alnkjBs+zP5tVS6ElAqP36mHFLYwZ/o4skTyr4whQusRu6m7abInwtTHQ4o axC8anGwjZzbwArjAsLQKw== 0001157523-06-001623.txt : 20060215 0001157523-06-001623.hdr.sgml : 20060215 20060215160533 ACCESSION NUMBER: 0001157523-06-001623 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20060215 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20060215 DATE AS OF CHANGE: 20060215 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NETWORK APPLIANCE INC CENTRAL INDEX KEY: 0001002047 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER STORAGE DEVICES [3572] IRS NUMBER: 770307520 STATE OF INCORPORATION: CA FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-27130 FILM NUMBER: 06621962 BUSINESS ADDRESS: STREET 1: 495 EAST JAVA DR CITY: SUNNYVALE STATE: CA ZIP: 94089 BUSINESS PHONE: 4088226000 MAIL ADDRESS: STREET 1: 495 EAST JAVA DR CITY: SUNNYVALE STATE: CA ZIP: 94089 8-K 1 a5081984.txt NETWORK APPLIANCE, INC., 8-K 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): February 15, 2006 ------------------------ 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) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Item 2.02. On February 15, 2006, Network Appliance, Inc. issued a press release announcing its earnings for the third 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 February 15, 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. February 15, 2006 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 February 15, 2006. EX-99.1 2 a5081984ex99_1.txt EXHIBIT 99.1 EXHIBIT 99.1 Network Appliance Announces Results for Third Quarter Fiscal Year 2006; Achieves 30% Year-over-Year Revenue Growth SUNNYVALE, Calif.--(BUSINESS WIRE)--Feb. 15, 2006--Network Appliance, Inc. (NASDAQ:NTAP), the leader in advanced networked storage solutions, today reported results for the third quarter of fiscal year 2006. Revenues for the third fiscal quarter were $537.0 million, an increase of 30% compared to revenues of $412.7 million for the same period a year ago and an increase of 11% compared to $483.1 million in the prior quarter. For the third fiscal quarter, GAAP net income was $76.4 million, or $0.20 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. Non-GAAP(2) net income for the third fiscal quarter increased 35% to $84.7 million, or $0.22 per share, compared to non-GAAP net income of $62.8 million, or $0.16 per share for the same period a year ago. Revenues for the first nine months of the current fiscal year totaled $1.5 billion, compared to revenues of $1.1 billion for the first nine months of the prior fiscal year, an increase of 28% year over year. For the first nine months of the current fiscal year, GAAP net income increased 28% to $207.2 million, or $0.54 per share, compared with GAAP net income of $162.3 million, or $0.43 per share for the same period in the prior year. Non-GAAP net income for the first nine months of the current fiscal year increased 32% to $226.0 million, or $0.58 per share, compared to non-GAAP net income of $171.1 million, or $0.45 per share for the first nine months of the prior fiscal year. "NetApp achieved significant growth in revenue and profitability during the quarter, driven in large part by the compelling value proposition of our new FAS3000 midrange product line," said Dan Warmenhoven, CEO of Network Appliance. "We provide 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. Combining this with the performance and ease-of-use inherent in our full line of systems and data protection solutions, we are seeing increased uptake of NetApp in data centers around the globe." Outlook -- Network Appliance estimates that year-over-year growth in revenue for the fourth quarter of fiscal year 2006 will be in the range of 28% to 30%. -- The company expects fourth quarter GAAP earnings per share to finish between $0.20 and $0.21 per share. Network Appliance expects fourth quarter non-GAAP earnings per share to be in the range of $0.22 to $0.23 per share. -- For the full fiscal year, Network Appliance estimates that revenues will finish in the range of 28% to 29% higher than fiscal year 2005. -- The company expects GAAP earnings per share for fiscal year 2006 to be between $0.73 and $0.74 per share. Network Appliance estimates full-year non-GAAP earnings per share to be in the range of $0.80 to $0.81 per share. Quarterly Highlights This quarter, NetApp(R) was listed in the "leader" quadrant for midrange enterprise disk arrays in Gartner's research note, "Magic Quadrant for Midrange Enterprise Disk Array, 2H05."(3) NetApp SAN solutions provide an unmatched combination of high-performance, robustness, and ease-of-use for Windows(R), Solaris(R), HP/UX, IBM AIX, and Linux(R) computing platforms. Also this quarter, according to IDC's Worldwide Quarterly Disk Storage Systems Tracker Q3 2005(4), NetApp demonstrated continued leadership in the iSCSI storage market, with number-one market share in capacity shipped (38.4%) and revenue (35.1%). NetApp maintained leadership in its core NAS market, with a 44.3% capacity share. Of the vendors tracked, NetApp posted the strongest year-over-year increase in FC SAN revenue, with a growth rate of 118%. 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. Earlier in the quarter, NetApp unveiled its Uncompromised Security Initiative, a visionary program that challenges the status quo of data security and promises to deliver industry-best solutions to the enterprise. NetApp has numerous product lines shipping today that enable it to deliver uncompromised security, including Decru(R) DataFort(TM) storage security appliances, NetApp disk systems running Data ONTAP(R) security features, and NetCache(R) internet access and security appliances, as well as strong partnerships with leading vendors such as Symantec that enhance the security portfolio. The NetApp Uncompromised Security Initiative provides a vision and a roadmap for customers who expect best-in-class data management, coupled with military-grade security. In other product news, Network Appliance announced the NetCache C1300 system, the first enterprise Web security appliance delivering unmatched value for highly distributed environments and another component in the NetApp Uncompromised Security portfolio. Furthering the relationship with NetApp, this quarter IBM announced the introduction of the IBM(R) System Storage(TM) N5000, a new series of networked storage systems designed to help midrange customers dramatically reduce their total cost of ownership, particularly enterprises operating distributed networks across remote sites. The N5000 series represents the second major technology offering resulting from IBM's relationship with NetApp announced in April 2005. During the quarter, the FAS3020c was named "Best NAS Solution of the Year" in InfoWorld's 2006 Technology of the Year honors. This marked the second consecutive year that NetApp won Best NAS from InfoWorld. In 2005, the NetApp FAS200 series also received the award. On the partner front, NetApp unveiled several new solution enhancements and partner offerings with Acopia Networks, Cisco, Microsoft and Network Intelligence to address a variety of data concerns, including backup and recovery, file virtualization, data migration, log management lifecycles, storage management and consolidation. In corporate news, NetApp was named by FORTUNE magazine as one of the "100 Best Companies to Work For" for the fourth consecutive year. This year, NetApp again ranked in the top half of the list, at number 27, reflecting the company's emphasis on attracting and retaining the best talent in the industry and continuing to demonstrate the values of what NetApp CEO Dan Warmenhoven calls a "model company." Internationally, NetApp established a regional headquarters in Hong Kong as part of the company's continuing worldwide expansion and growth. The NetApp Hong Kong office will offer regional headquarters' functions to NetApp offices, distribution, channel and systems integrator partners in Asia Pacific, including Australia, Greater China, India, Japan, New Zealand, South Korea and Southeast Asia. NetApp celebrated 10 years as a publicly traded company on November 21, 2005. Tom Mendoza, president of NetApp, rang the opening bell at NASDAQ in New York, along with Dan Warmenhoven, CEO and David Hitz and James Lau, both founders and executive vice presidents. 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, February 15, 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 (800) 591-6930 in the United States and (617) 614-4908 outside the United States. The passcode for both numbers is 29758742. -- 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 12867394. 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 fourth quarter of fiscal 2006 and for all of fiscal 2006, statements regarding the anticipated benefits of our FAS3000 product line, our Uncompromised Security Initiative, and regarding our OEM relationship with IBM or our partner offerings and solution enhancements. 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. (3) Magic Quadrant for Midrange Enterprise Disk Array, 2H05 (4) IDC's Worldwide Quarterly Disk Storage Systems Tracker Q3 2005 NetApp, Data ONTAP, Decru and NetCache are registered trademarks and Network Appliance and DataFort 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. IBM is a registered trademark of IBM. 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. 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 because they derive from unusual events that are not attributable to normal on-going operations and thus makes it more difficult for an investor to understand our recurring operational performance. 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) January April 27, 30, 2006 2005 ----------- ----------- ASSETS CURRENT ASSETS: Cash and cash equivalents $188,125 $193,542 Short-term investments 952,819 976,423 Accounts receivable, net 367,490 296,885 Inventories 64,072 38,983 Prepaid expenses and other 35,768 32,472 Deferred income taxes 35,544 37,584 ----------- ----------- Total current assets 1,643,818 1,575,889 PROPERTY AND EQUIPMENT, net 492,793 418,749 GOODWILL 491,089 291,816 INTANGIBLE ASSETS, net 82,433 21,448 OTHER ASSETS 59,817 64,745 ----------- ----------- $2,769,950 $2,372,647 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $99,720 $83,572 Income taxes payable 38,226 20,823 Accrued compensation and related benefits 113,067 100,534 Other accrued liabilities 66,790 53,262 Deferred revenue 336,944 261,998 ----------- ----------- Total current liabilities 654,747 520,189 LONG-TERM DEFERRED REVENUE 256,528 187,180 LONG-TERM OBLIGATIONS 3,427 4,474 ----------- ----------- 914,702 711,843 ----------- ----------- STOCKHOLDERS' EQUITY 1,855,248 1,660,804 ----------- ----------- $2,769,950 $2,372,647 =========== =========== NETWORK APPLIANCE, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited) Three Months Ended Nine Months Ended ------------------- ----------------------- January January January January 27, 28, 27, 28, 2006 2005 2006 2005 --------- --------- ----------- ----------- REVENUES: Product revenue $474,236 $367,903 $1,293,642 $1,029,334 Service revenue 62,795 44,803 174,853 116,969 --------- --------- ----------- ----------- Total revenues 537,031 412,706 1,468,495 1,146,303 --------- --------- ----------- ----------- COST OF REVENUES: Cost of product revenue 163,505 127,118 438,363 353,060 Cost of service revenue 46,502 33,454 130,530 94,990 --------- --------- ----------- ----------- Total cost of revenues 210,007 160,572 568,893 448,050 --------- --------- ----------- ----------- GROSS MARGIN 327,024 252,134 899,602 698,253 --------- --------- ----------- ----------- OPERATING EXPENSES: Sales and marketing 152,008 118,668 427,526 331,087 Research and development 62,622 43,603 169,462 122,957 General and administrative 24,742 20,136 67,349 54,888 In process research and development - - 5,000 - Stock compensation 4,070 2,189 9,442 6,432 Restructuring charges 117 (270) (495) (270) --------- --------- ----------- ----------- Total operating expenses 243,559 184,326 678,284 515,094 --------- --------- ----------- ----------- INCOME FROM OPERATIONS 83,465 67,808 221,318 183,159 OTHER INCOME (EXPENSES), net: Interest income 9,891 6,031 28,590 16,216 Other expenses, net 1,001 (500) 453 (1,322) Net gain on investments - 41 101 41 --------- --------- ----------- ----------- Total other income, net 10,892 5,572 29,144 14,935 --------- --------- ----------- ----------- INCOME BEFORE INCOME TAXES 94,357 73,380 250,462 198,094 PROVISION FOR INCOME TAXES 17,964 13,253 43,231 35,776 --------- --------- ----------- ----------- NET INCOME $76,393 $60,127 $207,231 $162,318 ========= ========= =========== =========== NET INCOME PER SHARE: BASIC $0.21 $0.17 $0.56 $0.45 ========= ========= =========== =========== DILUTED $0.20 $0.16 $0.54 $0.43 ========= ========= =========== =========== SHARES USED IN PER SHARE CALCULATION: BASIC 371,768 362,563 370,069 359,031 ========= ========= =========== =========== DILUTED 389,149 385,869 386,991 377,972 ========= ========= =========== =========== NETWORK APPLIANCE, INC. NON-GAAP(1) CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited) Three Months Ended Nine Months Ended ----------------------- ----------------------- January January January January 27, 28, 27, 28, 2006 2005 2006 2005 ----------- ----------- ----------- ----------- REVENUES: Product revenue $474,236 $367,903 $1,293,642 $1,029,334 Service revenue 62,795 44,803 174,853 116,969 ----------- ----------- ----------- ----------- Total revenues 537,031 412,706 1,468,495 1,146,303 ----------- ----------- ----------- ----------- COST OF REVENUES: Cost of product revenue 159,639 126,260 430,443 350,486 Cost of service revenue 46,502 33,454 130,530 94,990 ----------- ----------- ----------- ----------- Total cost of revenues 206,141 159,714 560,973 445,476 ----------- ----------- ----------- ----------- GROSS MARGIN 330,890 252,992 907,522 700,827 ----------- ----------- ----------- ----------- OPERATING EXPENSES: Sales and marketing 151,305 118,461 426,109 330,467 Research and development 62,622 43,603 169,462 122,957 General and administrative 24,505 18,868 65,357 51,083 ----------- ----------- ----------- ----------- Total operating expenses 238,432 180,932 660,928 504,507 ----------- ----------- ----------- ----------- INCOME FROM OPERATIONS 92,458 72,060 246,594 196,320 OTHER INCOME (EXPENSES), net 10,892 5,531 29,043 14,894 ----------- ----------- ----------- ----------- INCOME BEFORE INCOME TAXES 103,350 77,591 275,637 211,214 PROVISION FOR INCOME TAXES 18,603 14,742 49,615 40,131 ----------- ----------- ----------- ----------- NET INCOME $84,747 $62,849 $226,022 $171,083 =========== =========== =========== =========== NET INCOME PER SHARE: BASIC $0.23 $0.17 $0.61 $0.48 =========== =========== =========== =========== DILUTED $0.22 $0.16 $0.58 $0.45 =========== =========== =========== =========== SHARES USED IN PER SHARE CALCULATION: BASIC 371,768 362,563 370,069 359,031 =========== =========== =========== =========== DILUTED 389,149 385,869 386,991 377,972 =========== =========== =========== =========== (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 Nine Months Ended -------------------- ------------------- January January January January 27, 28, 27, 28, 2006 2005 2006 2005 --------- --------- --------- --------- SUMMARY RECONCILIATION OF NET INCOME - ------------------------------ NET INCOME $76,393 $60,127 $207,231 $162,318 Adjustments: Amortization of intangible assets 4,806 2,333 11,329 6,999 Stock compensation 4,070 2,189 9,442 6,432 In process research and development - - 5,000 - Restructuring charges (recoveries) 117 (270) (495) (270) Net gain on investments - (41) (101) (41) Discrete GAAP provision matters recognized ratably for non-GAAP purposes (1,358) - (3,799) - Income tax effect 719 (1,489) (2,585) (4,355) --------- --------- --------- --------- NON-GAAP NET INCOME $84,747 $62,849 $226,022 $171,083 ========= ========= ========= ========= DETAILED RECONCILIATION OF SPECIFIC ITEMS: - ------------------------------ COST OF REVENUES $210,007 $160,572 $568,893 $448,050 Adjustment: Amortization of intangible assets (3,866) (858) (7,920) (2,574) --------- --------- --------- --------- NON-GAAP COST OF REVENUES $206,141 $159,714 $560,973 $445,476 ========= ========= ========= ========= GROSS MARGIN $327,024 $252,134 $899,602 $698,253 Adjustment: Amortization of intangible assets 3,866 858 7,920 2,574 --------- --------- --------- --------- NON-GAAP GROSS MARGIN $330,890 $252,992 $907,522 $700,827 ========= ========= ========= ========= SALES AND MARKETING EXPENSES $152,008 $118,668 $427,526 $331,087 Adjustments: Amortization of intangible assets (703) (207) (1,417) (620) --------- --------- --------- --------- NON-GAAP SALES AND MARKETING EXPENSES $151,305 $118,461 $426,109 $330,467 ========= ========= ========= ========= GENERAL AND ADMINISTRATIVE EXPENSES $24,742 $20,136 $67,349 $54,888 Adjustments: Amortization of intangible assets (237) (1,268) (1,992) (3,805) --------- --------- --------- --------- NON-GAAP GENERAL AND ADMINISTRATIVE EXPENSES $24,505 $18,868 $65,357 $51,083 ========= ========= ========= ========= OPERATING EXPENSES $243,559 $184,326 $678,284 $515,094 Adjustments: Stock compensation (4,070) (2,189) (9,442) (6,432) In process research and development - - (5,000) - Amortization of intangible assets (940) (1,475) (3,409) (4,425) Restructuring charges (117) 270 495 270 --------- --------- --------- --------- NON-GAAP OPERATING EXPENSES $238,432 $180,932 $660,928 $504,507 ========= ========= ========= ========= INCOME FROM OPERATIONS $83,465 $67,808 $221,318 $183,159 Adjustments: In process research and development - - 5,000 - Amortization of intangible assets 4,806 2,333 11,329 6,999 Stock compensation 4,070 2,189 9,442 6,432 Restructuring charges (recoveries) 117 (270) (495) (270) --------- --------- --------- --------- NON-GAAP INCOME FROM OPERATIONS $92,458 $72,060 $246,594 $196,320 ========= ========= ========= ========= TOTAL OTHER INCOME (EXPENSES), NET $10,892 $5,572 $29,144 $14,935 Adjustments: Net gain on investments - (41) (101) (41) --------- --------- --------- --------- NON-GAAP TOTAL OTHER INCOME (EXPENSES), NET $10,892 $5,531 $29,043 $14,894 ========= ========= ========= ========= INCOME BEFORE INCOME TAXES $94,357 $73,380 $250,462 $198,094 Adjustments: Amortization of intangible assets 4,806 2,333 11,329 6,999 In process research and development - - 5,000 - Stock compensation 4,070 2,189 9,442 6,432 Restructuring charges (recoveries) 117 (270) (495) (270) Net gain on investments - (41) (101) (41) --------- --------- --------- --------- NON-GAAP INCOME BEFORE INCOME TAXES $103,350 $77,591 $275,637 $211,214 ========= ========= ========= ========= PROVISION FOR INCOME TAXES $17,964 $13,253 $43,231 $35,776 Adjustments: Discrete GAAP provision matters recognized ratably for non-GAAP purposes 1,358 - 3,799 - Income tax effect (719) 1,489 2,585 4,355 --------- --------- --------- --------- NON-GAAP PROVISION FOR INCOME TAXES $18,603 $14,742 $49,615 $40,131 ========= ========= ========= ========= NETWORK APPLIANCE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (In thousands) (Unaudited) Three Months Ended Nine Months Ended --------------------- ------------------- January January January January 27, 28, 27, 28, 2006 2005 2006 2005 ----------- --------- --------- --------- Cash Flows from Operating Activities: Net income $76,393 $60,127 $207,231 $162,318 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 16,091 13,217 46,175 39,869 In process research and development - - 5,000 - Amortization of intangible assets 4,806 2,333 11,329 6,999 Amortization of patents 496 451 1,487 1,352 Stock compensation 4,070 2,189 9,442 6,432 Net gain on investments - (41) (101) (70) Net loss on disposal of equipment 158 388 1,318 907 Allowance for doubtful accounts 575 (78) 921 325 Deferred income taxes 14 730 14 730 Deferred rent (68) 2 301 228 Changes in assets and liabilities: Accounts receivable (41,882) (14,712) (70,153) (40,065) Inventories (24,832) (6,390) (38,397) (12,383) Prepaid expenses and other assets (3,525) (2,988) (6,590) 3,011 Accounts payable 6,300 10,684 16,072 15,355 Income taxes payable 15,462 11,066 39,606 24,577 Accrued compensation and related benefits 24,050 12,707 12,992 16,508 Other accrued liabilities 3,849 8,228 970 8,008 Deferred revenue 58,962 50,179 144,737 110,534 ----------- --------- --------- --------- Net cash provided by operating activities 140,919 148,092 382,354 344,635 ----------- --------- --------- --------- Cash Flows from Investing Activities: Purchases of investments (116,758) (320,614) (450,555) (669,562) Redemptions of investments 53,182 193,085 471,755 456,387 Increase in restricted cash 69 - (1,997) - Purchases of property and equipment (33,464) (17,245) (96,476) (64,756) Proceeds from sales of investments - 49 130 347 Purchases of equity securities (150) (125) (7,100) (125) Purchase of business, net of cash acquired - - (53,747) - ----------- --------- --------- --------- Net cash used in investing activities (97,121) (144,850) (137,990) (277,709) ----------- --------- --------- --------- Cash Flows from Financing Activities: Proceeds from sale of common stock related to employee stock transactions 69,236 106,743 141,725 153,460 Tax withholding payments reimbursed by restricted stock (192) - (794) (43) Repurchases of common stock (145,583) (49,980) (390,147) (132,993) ----------- --------- --------- --------- Net cash provided by (used in) financing activities (76,539) 56,763 (249,216) 20,424 ----------- --------- --------- --------- Effect of Exchange Rate Changes on Cash (847) 824 (565) 1,695 Net Increase (Decrease) in Cash and Cash Equivalents (33,588) 60,829 (5,417) 89,045 Cash and Cash Equivalents: Beginning of period 221,713 120,544 193,542 92,328 ----------- --------- --------- --------- End of period $188,125 $181,373 $188,125 $181,373 =========== ========= ========= ========= Noncash Investing and Financing Activities: Conversion of evaluation inventory to fixed assets $5,282 3,717 14,393 8,468 Deferred stock compensation, net of reversals 708 885 2,897 512 Income tax benefit from employee stock transactions 6,045 13,152 22,334 27,829 Acquisition of property and equipment on account 5,033 - 11,158 - Stock issued for acquisition - - 191,874 - Options assumed for acquired business - - 38,456 - Supplemental cash flow information: Income taxes paid 1,936 1,803 5,625 11,975 Income tax refund 13 16 2,345 10,588 NETWORK APPLIANCE, INC. RECONCILIATION OF NON GAAP GUIDANCE TO GAAP EXPRESSED AS EARNINGS PER SHARE FOURTH QUARTER AND FISCAL YEAR 2006 (Unaudited) Projected Year Projected Year Over Year Fourth Over Year Quarter Revenue Annual FY06 Growth Range Revenue Growth Range ------------------- --------------- 28% 30% 28% 29% ------- ---------- ------- ------- ADJUSTMENTS OF SPECIFIC ITEMS TO EARNINGS PER SHARE FOR THE FOURTH QUARTER AND FISCAL YEAR 2006 ($): COST OF REVENUES Adjustment: Amortization of intangible assets (0.010) (0.010) (0.030) (0.030) OPERATING EXPENSES Adjustments: Stock compensation (0.010) (0.010) (0.035) (0.035) Amortization of intangible assets (0.002) (0.002) (0.011) (0.011) Restructuring charges - - 0.001 0.001 In-process research and development - - (0.013) (0.013) TOTAL OTHER INCOME (EXPENSES), NET Adjustments: Net (gain)/loss on investments - - - - PROVISION FOR INCOME TAXES Adjustments: 0.001 0.001 0.018 0.018 Income tax effect ------- ---------- ------- ------- NET DECREASE IN EARNINGS PER SHARE (0.021) (0.021) (0.070) (0.070) ======= ========== ======= ======= 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 -----END PRIVACY-ENHANCED MESSAGE-----