01—Abstract
Summary
Summary of the 10-K filed June 18, 2010. Cited figures are marked; the original filing is the authoritative source.
NetApp, Inc. reported net revenues of $3.93 billiona for fiscal 2010 (ended April 30, 2010), up $525.0 million, or 15%, from $3.41 billion in fiscal 2009.
Income from operations rose to $488.4 millionb from $47.2 million, and net income was $400.4 million, or $1.13 per diluted share, compared with $64.6 million, or $0.19 per diluted share, in fiscal 2009. Fiscal 2009 was depressed by a $128.7 million GSA settlement and $54.4 million in restructuring charges. Fiscal 2010 was a 53-week year.
Indirect channels generated 69% of revenues, and international revenues were 50% of the total. Cash, cash equivalents and investments totaled $3.80 billionc at April 30, 2010, up from $2.73 billion a year earlier, supported by operating cash flow of $975.0 million. The company carries $1.265 billion of 1.75% convertible senior notes due June 2013, with a conversion price of $31.85 per share.
Because the Lehman OTC hedge was terminated and not replaced, the 20% unhedged portion of the notes remains exposed to dilution. Stockholders' equity rose to $2.53 billiond, and the company repurchased no shares in fiscal 2010, leaving $1.1 billion available under its authorization.
Key risks disclosed include reliance on distributors Arrow (14% of net revenues) and Avnet (11%), the U.S. government as an important customer, synthetic lease obligations with a $36.9 million expected residual guarantee shortfall, and ongoing patent litigation with Sun Microsystems, now owned by Oracle, for which no accrual has been recorded. Management concluded internal control over financial reporting was effective as of April 30, 2010.
02—Key points
Key Highlights
- Net revenues of $3,931.4 million, up 15% from $3,406.4 million in fiscal 2009.
- Income from operations of $488.4 million, compared with $47.2 million in fiscal 2009, which included $54.4 million of restructuring and other charges.
- Net income of $400.4 million, or $1.13 per diluted share, versus $64.6 million, or $0.19 per diluted share, in fiscal 2009.
- Net cash provided by operating activities of $975.0 million; cash, cash equivalents and investments of $3,796.8 million at April 30, 2010.
- $1,265.0 million of 1.75% convertible senior notes due 2013 with a $31.85 conversion price; 20% of the note hedge was terminated and not replaced.
- Indirect channel sales represented 69% of revenues; Arrow and Avnet accounted for 14% and 11% of net revenues, respectively.
- Stockholders' equity increased to $2,530.5 million from $1,784.2 million, with no stock repurchases in fiscal 2010.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, NetApp kept $0.10.
- Revenue$3.93B100.0%
- Cost of revenue−$1.41B35.9%
- Gross profit$2.52B64.1%
- Operating costs−$2.03B51.7%
- Operating income$488.4M12.4%
- Interest, other & tax−$88.0M2.2%
- Net income$400.4M10.2%
Where FY2010 revenue went
$3.93B- Other operating costs: $1.50B, 38% of revenue
- Cost of revenue: $1.41B, 36% of revenue
- R&D: $535.7M, 14% of revenue
- Net income: $400.4M, 10% of revenue
- Interest, other & tax: $88.0M, 2.2% of revenue
Kept 10% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2010filed June 18, 2010Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $3.93B$3.41B | +15.4% |
| Cost of Revenue | $1.41B$1.42B | −0.3% |
| Gross Profit | $2.52B$1.99B | +26.6% |
| R&D Expenses | $535.70M$498.50M | +7.5% |
| Operating Expenses | $2.03B$1.94B | +4.5% |
| Operating Income | $488.40M$47.20M | +934.7% |
| Interest Expense | $74.10M$63.40M | +16.9% |
| Net Income | $400.40M$64.60M | +519.8% |
| EPS (Basic) | $1.18$0.20 | +490.0% |
| EPS (Diluted) | $1.13$0.19 | +494.7% |
| Shares Outstanding (Basic) | 339.60M330.30M | +2.8% |
| Shares Outstanding (Diluted) | 353.20M334.60M | +5.6% |
05—Questions
Frequently Asked Questions
How did NetApp's revenue and profitability change in fiscal 2010?
Net revenues rose 15% to $3,931.4 million, driven mainly by product revenue growth. Fiscal 2009 had been reduced by a $128.7 million GSA settlement. Net income increased to $400.4 million from $64.6 million, and diluted EPS rose to $1.13 from $0.19. Fiscal 2010 included 53 weeks versus 52 in fiscal 2009.
What is the company's debt situation?
NetApp had $1,265.0 million principal of 1.75% convertible senior notes due June 1, 2013, with a carrying value of $1,101.5 million at April 30, 2010. The notes are convertible at $31.85 per share, and the if-converted value exceeded principal by approximately $112 million at April 30, 2010. The company also has synthetic lease arrangements for its Sunnyvale headquarters, with an estimated $36.9 million shortfall below guaranteed residual values.
Who are the company's largest customers and channel partners?
Distributors Arrow and Avnet were the largest customers, accounting for 14% and 11% of fiscal 2010 net revenues, respectively. Indirect channels, including value-added resellers, system integrators, OEMs and distributors, generated 69% of revenues. IBM operates under a non-exclusive OEM agreement with no minimum purchase commitment.
What are the main legal and regulatory risks?
NetApp is in three patent infringement lawsuits with Sun Microsystems, which Oracle acquired in January 2010. These are in discovery with no trial dates set, and no accrual has been recorded. The company paid $128.0 million plus $0.7 million interest under a 2009 GSA settlement, and it faces ongoing IRS audits of fiscal 2003 and 2004 returns, with a protest filed and the matter proceeding to Appeals.
How much cash does the company have, and what is its capital return activity?
Cash, cash equivalents and short-term investments totaled $3.7 billion at April 30, 2010, with total cash and investments of $3,796.8 million. Management believes these sources will meet working capital, capital expenditure and debt service needs for at least the next 12 months. The company made no share repurchases in fiscal 2010 and had $1.1 billion remaining under its repurchase authorization. It has never paid cash dividends.
06—Continue