How did Network Appliance's revenue and profitability change in fiscal 1998?

Net sales grew 78.0% to $166.2 million, driven by higher filer shipments, a larger direct sales force, and new products introduced in June and July 1997. Net income rose to $20.97 million, or $0.58 per diluted share, from $250 thousand in fiscal 1997, when results were reduced by a $10.5 million purchased in-process technology and compensation charge and a $4.3 million litigation settlement.

Is gross margin improving?

Gross margin was roughly flat, increasing slightly to 59.3% of net sales from 59.2% in fiscal 1997. Management attributed the improvement to higher product volume, lower component costs, manufacturing efficiencies, and cost-reduced product designs, partly offset by lower-priced sales of 4 gigabyte drives. The company notes that margin varies with system configuration and whether sales are direct or indirect.

How much is the company spending on growth, and will that continue?

Sales and marketing expenses were $42.8 million (25.7% of net sales) and research and development expenses were $16.6 million (10.0% of net sales) in fiscal 1998. Management expects sales and marketing spending to keep increasing to expand markets and channels, that significant R&D investment will be required to remain competitive, and that general and administrative expenses will rise in absolute dollars as infrastructure is built.

What is the company's liquidity position and what commitments did it make after year-end?

Cash, cash equivalents and short-term investments totaled $48.1 million at April 30, 1998, and working capital was $69.6 million. After year-end, the company paid a $5.0 million deposit on an agreement to acquire land and a 127,000 square foot building in Sunnyvale for $33.8 million, signed a 25-year operating lease with annual payments of $3.1 million, paid a $4.5 million option deposit, and negotiated a $5.0 million unsecured revolving credit facility. Management believes existing resources are sufficient for at least the next twelve months.

What does the filing say about the Year 2000 issue?

The company believes most of its current products are Year 2000 compliant and that new products are being designed to be compliant. It does not anticipate a material adverse impact from addressing the issue for its internal systems and products, but it is still assessing its suppliers' readiness and cannot yet determine the effect. The company acknowledges the issue could reduce demand and raise costs.

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

01—Abstract

Summary

Summary of the 10-K/A filed September 4, 1998. Cited figures are marked; the original filing is the authoritative source.

Network Appliance, Inc. filed this Form 10-K/A (Amendment No. 1) for the fiscal year ended April 24, 1998 (financial statements presented as of April 30).

Net sales rose to $166.2 million^a in fiscal 1998 from $93.3 million in fiscal 1997, an increase of 78.0%, driven mainly by higher filer shipments, the expansion of the direct sales force, and new products introduced in June and July 1997 such as the NetApp F630, F520 and F230. Net income increased to $20.97 million, or $0.58 diluted per share, from $250 thousand in fiscal 1997, which had been burdened by a $10.5 million purchased in-process technology and compensation charge tied to the IMC acquisition and a $4.3 million litigation settlement. Income from operations was $32.7 million, or 19.7% of net sales, compared with $3.1 million in fiscal 1997.

Gross margin was essentially flat at 59.3% of net sales versus 59.2% a year earlier. Operating expenses grew as the company invested in sales and marketing ($42.8 million^b, up 76.3%) and research and development ($16.6 million, up 85.6%), and management stated it expects these expenses to keep rising in absolute dollars. International net sales increased to $37.8 million from $16.1 million, largely from European growth.

Cash flow from operations was $22.7 million^c, and shareholders' equity reached $86.3 million at year-end, with total assets of $115.7 million. Subsequent to year-end, in June and July 1998, the company committed to Sunnyvale, California real estate transactions, including a $5.0 million deposit on an agreement to acquire land and a building for $33.8 million, and a 25-year operating lease with a $4.5 million option deposit, and it obtained a $5.0 million unsecured revolving credit facility. Management stated that existing liquidity is sufficient for at least the next twelve months and described the Year 2000 issue as not expected to have a material adverse impact, while noting it was still assessing supplier exposure.

02—Key points

Key Highlights

Net sales of $166.2 million in fiscal 1998, up 78.0% from $93.3 million in fiscal 1997.
Net income of $20.97 million ($0.58 per diluted share) versus $250 thousand in fiscal 1997.
Gross margin of 59.3% of net sales, essentially unchanged from 59.2% in fiscal 1997.
Income from operations of $32.7 million (19.7% of net sales) versus $3.1 million in fiscal 1997, which included a $10.5 million IMC-related charge and a $4.3 million litigation settlement.
International net sales rose to $37.8 million from $16.1 million, mainly from European sales growth.
Sales and marketing expenses rose 76.3% to $42.8 million, and research and development rose 85.6% to $16.6 million; both are expected to keep increasing.
Year-end cash and short-term investments of $48.1 million; working capital of $69.6 million; operating cash flow of $22.7 million.
June and July 1998 commitments include Sunnyvale real estate deals and a $5.0 million unsecured revolving credit line, with management stating liquidity is sufficient for at least twelve months.

03—Questions

Frequently Asked Questions

How did Network Appliance's revenue and profitability change in fiscal 1998?
Net sales grew 78.0% to $166.2 million, driven by higher filer shipments, a larger direct sales force, and new products introduced in June and July 1997. Net income rose to $20.97 million, or $0.58 per diluted share, from $250 thousand in fiscal 1997, when results were reduced by a $10.5 million purchased in-process technology and compensation charge and a $4.3 million litigation settlement.
Is gross margin improving?
Gross margin was roughly flat, increasing slightly to 59.3% of net sales from 59.2% in fiscal 1997. Management attributed the improvement to higher product volume, lower component costs, manufacturing efficiencies, and cost-reduced product designs, partly offset by lower-priced sales of 4 gigabyte drives. The company notes that margin varies with system configuration and whether sales are direct or indirect.
How much is the company spending on growth, and will that continue?
Sales and marketing expenses were $42.8 million (25.7% of net sales) and research and development expenses were $16.6 million (10.0% of net sales) in fiscal 1998. Management expects sales and marketing spending to keep increasing to expand markets and channels, that significant R&D investment will be required to remain competitive, and that general and administrative expenses will rise in absolute dollars as infrastructure is built.
What is the company's liquidity position and what commitments did it make after year-end?
Cash, cash equivalents and short-term investments totaled $48.1 million at April 30, 1998, and working capital was $69.6 million. After year-end, the company paid a $5.0 million deposit on an agreement to acquire land and a 127,000 square foot building in Sunnyvale for $33.8 million, signed a 25-year operating lease with annual payments of $3.1 million, paid a $4.5 million option deposit, and negotiated a $5.0 million unsecured revolving credit facility. Management believes existing resources are sufficient for at least the next twelve months.
What does the filing say about the Year 2000 issue?
The company believes most of its current products are Year 2000 compliant and that new products are being designed to be compliant. It does not anticipate a material adverse impact from addressing the issue for its internal systems and products, but it is still assessing its suppliers' readiness and cannot yet determine the effect. The company acknowledges the issue could reduce demand and raise costs.

04—Continue

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