Why did revenue decline so sharply in fiscal 2002?

Management attributed the decline to a decrease in product sales to Internet-based companies and reduced capital spending among technology companies across all geographies, primarily in North America. Lower unit and software license volume, reduced demand from deteriorating macroeconomic conditions, and declining average selling prices on the F700 filers and older caching products also contributed.

Is the company still profitable, and what drove the drop in earnings?

Net income was $3.0 million for fiscal 2002, compared with $74.9 million in fiscal 2001. Gross margin held at 60.2% of revenues, but sales and marketing expense rose to 35.6% of revenues, and restructuring charges of $12.2 million and amortization of intangible assets of $20.9 million added to operating costs, pushing the company to a small operating loss.

How strong is the company's financial position and liquidity?

At April 30, 2002, the company held $454.1 million in cash, cash equivalents and short-term investments, had working capital of $463.6 million, and reported stockholders' equity of $858.5 million. Management stated that existing liquidity and capital resources are sufficient to fund operations for at least the next twelve months. The company had no amounts outstanding under its $5.0 million unsecured revolving credit facility.

What actions has management taken to control costs?

In fiscal 2002 the company implemented two restructuring plans, including a reduction of approximately 200 employees and facility consolidation in August 2001, and a further closure of an engineering facility with a 34-person headcount reduction in April 2002. Management expects these actions to yield annual cost savings of approximately $29.8 million, and it also purchased its Sunnyvale headquarters, terminating operating leases.

How concentrated is the customer base and how exposed is the company internationally?

No customer accounted for 10% or more of total revenues in fiscal 2002, 2001 or 2000. International revenues, including U.S. exports, were $335.2 million, or 42.0% of total revenues in fiscal 2002, and the company hedges foreign currency exposures with forward contracts.

NTAP 10-K FY2002 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed June 28, 2002. Cited figures are marked; the original filing is the authoritative source.

Network Appliance, Inc. reported fiscal 2002 (year ended April 30, 2002) total revenues of $798.4 million^a, down from $1,006.2 million in fiscal 2001, and net income of $3.0 million, down sharply from $74.9 million.

Product revenue was $729.9 million^b and service revenue was $68.5 million, with service revenue growing as the installed base expanded. Loss from operations was $1.1 million, compared with income from operations of $109.7 million the prior year, as sales and marketing expense ($284.4 million) and restructuring charges ($12.2 million) weighed on results. Management attributed the product revenue decline to reduced demand from Internet-related and technology customers and weaker macroeconomic conditions, with international revenue at $335.2 million, or 42.0% of total revenues.

The balance sheet remained strong, with cash, cash equivalents and short-term investments of $454.1 million^c and stockholders' equity of $858.5 million at April 30, 2002. Operating cash flow was $143.9 million, and capital expenditures were $284.2 million, including $249.8 million to purchase the Sunnyvale headquarters land and buildings and terminate operating leases. Management stated that existing liquidity is sufficient to fund operations for at least the next twelve months.

The company took two restructuring actions in fiscal 2002, cutting roughly 200 employees in August 2001 and 34 in April 2002, and recorded a $13.0 million^d write-down on investments. Management expects annual cost savings of approximately $29.8 million from the restructurings and expects interest income to decline further in fiscal 2003.

02—Key points

Key Highlights

Total revenues fell to $798.4 million from $1,006.2 million, with product revenue down 23.8% to $729.9 million.
Net income declined to $3.0 million ($0.01 per diluted share) from $74.9 million ($0.21 per diluted share) in fiscal 2001.
Loss from operations of $1.1 million versus income from operations of $109.7 million a year earlier; total operating expenses rose to $481.6 million.
Service revenue increased 41.6% to $68.5 million, driven by a growing installed base and support contract renewals.
Cash, cash equivalents and short-term investments totaled $454.1 million at April 30, 2002, and the company generated $143.9 million in operating cash flow.
Capital expenditures of $284.2 million included the $249.8 million purchase of the Sunnyvale headquarters land and buildings.
Two restructuring plans reduced workforce and consolidated facilities, with expected annual cost savings of approximately $29.8 million; a $13.0 million impairment write-down on investments was also recorded.

03—Questions

Frequently Asked Questions

Why did revenue decline so sharply in fiscal 2002?
Management attributed the decline to a decrease in product sales to Internet-based companies and reduced capital spending among technology companies across all geographies, primarily in North America. Lower unit and software license volume, reduced demand from deteriorating macroeconomic conditions, and declining average selling prices on the F700 filers and older caching products also contributed.
Is the company still profitable, and what drove the drop in earnings?
Net income was $3.0 million for fiscal 2002, compared with $74.9 million in fiscal 2001. Gross margin held at 60.2% of revenues, but sales and marketing expense rose to 35.6% of revenues, and restructuring charges of $12.2 million and amortization of intangible assets of $20.9 million added to operating costs, pushing the company to a small operating loss.
How strong is the company's financial position and liquidity?
At April 30, 2002, the company held $454.1 million in cash, cash equivalents and short-term investments, had working capital of $463.6 million, and reported stockholders' equity of $858.5 million. Management stated that existing liquidity and capital resources are sufficient to fund operations for at least the next twelve months. The company had no amounts outstanding under its $5.0 million unsecured revolving credit facility.
What actions has management taken to control costs?
In fiscal 2002 the company implemented two restructuring plans, including a reduction of approximately 200 employees and facility consolidation in August 2001, and a further closure of an engineering facility with a 34-person headcount reduction in April 2002. Management expects these actions to yield annual cost savings of approximately $29.8 million, and it also purchased its Sunnyvale headquarters, terminating operating leases.
How concentrated is the customer base and how exposed is the company internationally?
No customer accounted for 10% or more of total revenues in fiscal 2002, 2001 or 2000. International revenues, including U.S. exports, were $335.2 million, or 42.0% of total revenues in fiscal 2002, and the company hedges foreign currency exposures with forward contracts.

04—Continue

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