01—Abstract
Summary
Summary of the 10-K filed June 26, 2007. Cited figures are marked; the original filing is the authoritative source.
Network Appliance, Inc. (now NetApp, Inc.) reported fiscal 2007 (year ended April 27, 2007) total revenues of $2.80 billiona, up from $2.07 billion in fiscal 2006, with net income of $297.7 million, or $0.77 per diluted share, compared with $266.5 million, or $0.69 per diluted share, a year earlier.
Product revenues were $2.09 billionb, software upgrade and maintenance arrangements revenues were $341.3 million, and service revenues were $377.1 million. Gross margin held roughly flat at 60.8%, while operating expenses rose to 50.1% of revenues from 45.9%, driven by sales and marketing expense of $895.8 million and stock-based compensation of $163.0 million following adoption of SFAS No. 123R. Income from operations was $301.2 million, slightly below the prior year's $308.3 million.
Cash flow from operations was $864.5 millionc, up from $554.3 million. The company repurchased $805.7 million of common stock and closed the Topio acquisition for $131.2 million in cash, while cash, cash equivalents and short-term investments ended the year at $1.31 billion. Deferred revenue rose to $1.10 billion.
Management stated that it would slow hiring and investment spending to return to its targeted business model, after fourth-quarter fiscal 2007 bookings finished below forecast and left non-deferred backlog lower than normal, which lowered its first-quarter fiscal 2008 revenue, operating margin and earnings forecasts. The filing also notes that 59.6%d of fiscal 2007 revenues came through indirect channels and 44.7% from international customers. A GSA audit of the company's schedule contract records remains ongoing, and management does not expect it to have a material adverse effect.
02—Key points
Key Highlights
- Total revenues rose to $2,804.3 million in fiscal 2007 from $2,066.5 million in fiscal 2006, a 35.7% increase.
- Net income was $297.7 million ($0.77 per diluted share), versus $266.5 million ($0.69 per diluted share) in fiscal 2006.
- Gross margin was 60.8%, unchanged from fiscal 2006, while operating expenses rose to 50.1% of revenues from 45.9%.
- Stock-based compensation expense was $163.0 million in fiscal 2007 following adoption of SFAS No. 123R, compared with $13.3 million in fiscal 2006.
- Operating cash flow was $864.5 million, and the company repurchased $805.7 million of common stock during the year.
- Fourth-quarter bookings were back-end loaded and below forecast, so non-deferred backlog entering fiscal 2008 was lower than normal, and first-quarter fiscal 2008 forecasts were lowered.
- Indirect channels accounted for 59.6% of revenues and international customers for 44.7% of total revenues in fiscal 2007.
03—Questions
Frequently Asked Questions
How did Network Appliance perform financially in fiscal 2007?
Total revenues grew 35.7% to $2.80 billion, and net income rose to $297.7 million from $266.5 million. Income from operations was slightly lower at $301.2 million versus $308.3 million, mainly because operating expenses grew faster than revenue, including a large increase in stock-based compensation.
Why did the company lower its first-quarter fiscal 2008 outlook?
Fourth-quarter fiscal 2007 bookings were back-end loaded, finished lower than forecast because of a U.S. IT spending slowdown, and shifted toward more deferred elements. As a result, the company did not build its normal level of non-deferred backlog, so it lowered its first-quarter fiscal 2008 forecasts for revenues, operating margins and earnings.
What is the company doing with its cash?
In fiscal 2007 the company used $805.7 million to repurchase common stock and $131.2 million in cash, net of cash acquired, to acquire Topio. Cash, cash equivalents and short-term investments ended at $1,308.8 million. On May 24, 2007, it repurchased an additional $200.0 million of shares, and $399.9 million remained available under its repurchase program at April 27, 2007.
What risks does the filing highlight regarding government and regulatory matters?
The U.S. government has become an important customer, but its demand is unpredictable and subject to budget constraints. The General Services Administration is auditing the company's schedule contract records, and if it finds noncompliance, the company may have to pay a settlement. Management does not believe the audit will have a material adverse effect.
04—Continue