01—Abstract
Summary
Summary of the 10-K filed June 17, 2009. Cited figures are marked; the original filing is the authoritative source.
NetApp, Inc. reported fiscal 2009 (year ended April 24, 2009) net revenues of $3,406.4 milliona, up 3.1% from $3,303.2 million in fiscal 2008, but net income fell sharply to $86.5 million ($0.26 per diluted share) from $309.7 million ($0.86 per diluted share).
Income from operations was $47.2 millionb versus $313.6 million a year earlier. The decline reflected a $128.7 million GSA settlement recorded as a reduction of revenue, $54.4 million of restructuring and other charges, a $29.6 million net loss on investments tied largely to Lehman Brothers exposure and auction rate securities, and a $41.7 million income tax benefit. Product revenues fell 4.0% to $2,152.7 million, while software entitlements and maintenance revenues rose 27.0% and service revenues rose 33.2%.
The balance sheet strengthened in liquidity terms during the year. Cash, cash equivalents and short-term investments rose to $2,604.2 millionc, driven largely by the June 2008 issuance of $1.265 billion of 1.75% convertible senior notes due 2013, with a conversion price of $31.85. Stockholders' equity declined to $1,662.3 million, and the company repurchased $400.0 million of common stock during the year, with $1,096.3 million remaining under its authorization.
Operating cash flow was $889.2 milliond, compared with $1,008.9 million in fiscal 2008. The filing also describes a pending acquisition of Data Domain, Inc., announced May 20, 2009 and amended June 3, 2009.
The merger consideration was revised to approximately $1.9 billion net of Data Domain's cash, and the transaction is valued at approximately $2 billion and expected to close in 60 to 120 days. Ongoing risks include Sun Microsystems patent litigation with no accrual recorded, a class action filed June 12, 2009 by Data Domain stockholders, and investment exposure to the Reserve Primary Fund, of which NetApp's pro rata share of the $3.5 billion special reserve is approximately $41.5 million.
02—Key points
Key Highlights
- Net revenues rose 3.1% to $3,406.4 million, while net income fell to $86.5 million from $309.7 million.
- A $128.7 million GSA settlement reduced revenue; the company paid $128.0 million plus $0.7 million interest on April 27, 2009.
- Product revenues declined 4.0% to $2,152.7 million, while software entitlements and maintenance grew 27.0% and service revenues grew 33.2%.
- Restructuring and other charges totaled $54.4 million, including severance for approximately 450 regular positions and the cessation of the SMOS product.
- Cash, cash equivalents and short-term investments reached $2,604.2 million, supported by the $1.265 billion convertible notes issuance.
- Pending Data Domain acquisition is valued at approximately $2 billion, with at least $1 billion of cash expected to be used.
- Investment losses of $29.6 million were driven by Lehman Brothers-related impairments, auction rate securities, and privately held company write-downs.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2009, NetApp kept $0.02.
- Revenue$3.41B100.0%
- Cost of revenue−$1.42B41.6%
- Gross profit$1.99B58.4%
- Operating costs−$1.94B57.0%
- Operating income$47.2M1.4%
- Interest, other & tax$17.4M0.5%
- Net income$64.6M1.9%
Where FY2009 revenue went
$3.41B- Other operating costs: $1.44B, 42% of revenue
- Cost of revenue: $1.42B, 42% of revenue
- R&D: $498.5M, 15% of revenue
- Operating income: $47.2M, 1.4% of revenue
Kept 1.4% as operating incomeOperating income $47.2M · 1.4%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2009filed June 17, 2009Financial Statements
| Revenue | $3.41B |
| Cost of Revenue | $1.42B |
| Gross Profit | $1.99B |
| R&D Expenses | $498.50M |
| Operating Expenses | $1.94B |
| Operating Income | $47.20M |
| Interest Expense | $63.40M |
| Net Income | $64.60M |
| EPS (Basic) | $0.20 |
| EPS (Diluted) | $0.19 |
| Shares Outstanding (Basic) | 330.30M |
| Shares Outstanding (Diluted) | 334.60M |
05—Questions
Frequently Asked Questions
Why did net income fall so sharply in fiscal 2009 despite revenue growth?
Income from operations dropped to $47.2 million from $313.6 million. The company recorded the $128.7 million GSA settlement as a reduction of revenue, $54.4 million in restructuring and other charges, and a $29.6 million net loss on investments. These were partly offset by a $41.7 million income tax benefit, leaving net income at $86.5 million.
How is NetApp's liquidity position after the convertible notes issuance?
At April 24, 2009, cash, cash equivalents and short-term investments totaled $2,604.2 million, and working capital was $1,759.5 million. The company also had an unsecured $250.0 million revolving credit facility with $0.6 million allocated to letters of credit. Operating cash flow was $889.2 million.
What are the terms of the convertible senior notes?
NetApp issued $1.265 billion of 1.75% convertible senior notes due June 1, 2013 in June 2008. The initial conversion price is $31.85 per share. The company purchased note hedges for $254.9 million and sold warrants for $163.1 million with a strike price of $41.28.
What is the status of the Data Domain acquisition?
NetApp agreed on May 20, 2009 to acquire Data Domain, Inc., and amended the agreement on June 3, 2009 to increase the aggregate merger consideration to $1.9 billion net of Data Domain's cash. The transaction is valued at approximately $2 billion and is expected to close in 60 to 120 days, subject to customary conditions including regulatory approvals. A class action was filed by Data Domain stockholders on June 12, 2009, which the company believes is without merit.
What key litigation and investment risks does the filing disclose?
Sun Microsystems has three patent lawsuits pending with no trial date set, and no accrual has been recorded. NetApp holds an investment in the Reserve Primary Fund with an estimated fair value of $51.6 million, and its pro rata share of the $3.5 billion special reserve is approximately $41.5 million. The company also holds $66.5 million of auction rate securities classified as long-term.
06—Continue