What drove the growth in net sales in fiscal 1998?

The filing attributes the increase principally to higher filer volume, driven by expansion of the direct sales force and new products introduced in June and July 1997, particularly the NetApp F630, F520 and F230. A shift toward higher-end systems with higher average selling prices, along with increased multiprotocol licensing and service and software subscription revenue, also contributed.

How profitable was the company, and how did it compare with the prior year?

Net income was $20.965 million in fiscal 1998, or $0.65 basic and $0.58 diluted per share, compared with $250 thousand in fiscal 1997. Fiscal 1997 results were reduced by a $10.5 million charge for purchased in-process technology and related compensation from the IMC acquisition and a $4.3 million Whipsaw litigation settlement.

What is the company's financial position at year end?

At April 30, 1998, total assets were $115.7 million and shareholders' equity was $86.3 million, up from $68.9 million and $54.0 million a year earlier. Cash, cash equivalents and short-term investments totaled $48.1 million, and working capital was $69.6 million.

What significant commitments or events occurred after the fiscal year end?

In June 1998, the company agreed to acquire 5.9 acres of land and a 127,000 square foot building in Sunnyvale, California for a $33.75 million purchase price, paying a $5.0 million nonrefundable deposit. It also signed a 25-year operating lease with annual payments of $3.084 million for a 6.2 acre site in Sunnyvale, along with an option to buy that land for $23.7 million, and in July 1998 it secured a $5.0 million unsecured revolving credit facility.

What are the main risks identified in the filing?

Key risks include dependence on the growing network file server market, reliance on a limited number of suppliers, particularly a single supplier for most disk drives, and the possibility of component shortages or price increases. The company also faces intense competition from specialized file server vendors and large systems companies, the need to introduce new products on time, dependence on key personnel, quarterly fluctuations in results, international operations, and Year 2000 compliance issues.

NTAP 10-K FY1998 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed July 22, 1998. Cited figures are marked; the original filing is the authoritative source.

Network Appliance, Inc. reported net sales of $166.2 million^a for the fiscal year ended April 30, 1998 (fiscal 1998), up from $93.3 million in fiscal 1997, with the filing stating an increase of 78.0%.

Net income was $21.0 million^b, or $0.58 per diluted share, compared with $0.3 million in fiscal 1997, which had been reduced by the IMC acquisition charge and the Whipsaw litigation settlement. Gross margin was essentially flat at 59.3% of net sales, and income from operations rose to $32.7 million from $3.1 million. The growth was attributed mainly to higher filer unit volume, a shift toward higher-end systems, and new products such as the NetApp F630, F520 and F230, with international net sales rising to $37.8 million from $16.1 million.

The balance sheet strengthened over the year, with total assets of $115.7 million^c and shareholders' equity of $86.3 million at April 30, 1998. Cash, cash equivalents and short-term investments increased by $19.7 million to $48.1 million, and operating cash flow was $22.7 million. The company stated that its existing liquidity, including a new $5.0 million unsecured revolving credit facility, is sufficient for at least the next twelve months.

Subsequent to year end, in June 1998, the company agreed to acquire a Sunnyvale, California building for a $33.8 million^d purchase price with a $5.0 million deposit, and signed a 25-year operating lease with an option to purchase land in the same city. The filing also highlights risk factors typical of the sector, including dependence on the network file server market, reliance on a single supplier for most disk drives, intense competition from companies such as Auspex, Sun Microsystems and EMC, and Year 2000 compliance uncertainty.

The company has never paid cash dividends and has 284 holders of record. Its common stock trades on the Nasdaq National Market under the symbol NTAP.

02—Key points

Key Highlights

Net sales rose to $166.2 million in fiscal 1998 from $93.3 million in fiscal 1997, an increase of 78.0%.
Net income was $21.0 million ($0.58 per diluted share) versus $0.3 million in fiscal 1997.
Income from operations increased to $32.7 million from $3.1 million, with operating expenses at 39.6% of net sales versus 55.9% in fiscal 1997.
Gross margin held steady at 59.3% of net sales compared with 59.2% in fiscal 1997.
International net sales grew to $37.8 million from $16.1 million, driven largely by European growth.
Cash, cash equivalents and short-term investments increased by $19.7 million to $48.1 million, with operating cash flow of $22.7 million.
Management said its $5.0 million credit line and existing liquidity are sufficient for at least the next twelve months, and no customer accounted for 10% or more of net sales.

03—Questions

Frequently Asked Questions

What drove the growth in net sales in fiscal 1998?
The filing attributes the increase principally to higher filer volume, driven by expansion of the direct sales force and new products introduced in June and July 1997, particularly the NetApp F630, F520 and F230. A shift toward higher-end systems with higher average selling prices, along with increased multiprotocol licensing and service and software subscription revenue, also contributed.
How profitable was the company, and how did it compare with the prior year?
Net income was $20.965 million in fiscal 1998, or $0.65 basic and $0.58 diluted per share, compared with $250 thousand in fiscal 1997. Fiscal 1997 results were reduced by a $10.5 million charge for purchased in-process technology and related compensation from the IMC acquisition and a $4.3 million Whipsaw litigation settlement.
What is the company's financial position at year end?
At April 30, 1998, total assets were $115.7 million and shareholders' equity was $86.3 million, up from $68.9 million and $54.0 million a year earlier. Cash, cash equivalents and short-term investments totaled $48.1 million, and working capital was $69.6 million.
What significant commitments or events occurred after the fiscal year end?
In June 1998, the company agreed to acquire 5.9 acres of land and a 127,000 square foot building in Sunnyvale, California for a $33.75 million purchase price, paying a $5.0 million nonrefundable deposit. It also signed a 25-year operating lease with annual payments of $3.084 million for a 6.2 acre site in Sunnyvale, along with an option to buy that land for $23.7 million, and in July 1998 it secured a $5.0 million unsecured revolving credit facility.
What are the main risks identified in the filing?
Key risks include dependence on the growing network file server market, reliance on a limited number of suppliers, particularly a single supplier for most disk drives, and the possibility of component shortages or price increases. The company also faces intense competition from specialized file server vendors and large systems companies, the need to introduce new products on time, dependence on key personnel, quarterly fluctuations in results, international operations, and Year 2000 compliance issues.

04—Continue

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