01—Abstract
Summary
Summary of the 10-K filed June 17, 2013. Cited figures are marked; the original filing is the authoritative source.
NetApp, Inc. (NTAP) reported fiscal 2013 (year ended April 26, 2013) net revenues of $6,332.4 milliona, up $99.2 million, or 2%, from $6,233.2 million in fiscal 2012.
Net income declined to $505.3 millionb from $605.4 million, and diluted EPS was $1.37 versus $1.58. Gross profit margin was 59.4% (versus 59.6%), and income from operations fell to $607.8 million from $746.5 million, or 9.6% of net revenues versus 12.0%. Product revenues fell 3% to $4,092.3 million, while software entitlements and maintenance (SEM) revenues rose 10% to $893.5 million and service revenues rose 11% to $1,346.6 million.
Indirect channel sales represented 81% of net revenues. The balance sheet strengthened: cash, cash equivalents and short-term investments reached $6,952.6 millionc, against $1,265 million of 1.75% Convertible Notes due June 2013 and $1.0 billion of newly issued Senior Notes due 2017 and 2022. Operating cash flow was $1,386.3 million.
Management repurchased 18.1 million shares for $590.0 milliond during fiscal 2013 and announced a $1.6 billion increase to the repurchase program, a $0.15 quarterly dividend beginning in fiscal 2014, and a $750.0 million collared accelerated share repurchase agreement entered in June 2013. The filing also notes a May 2013 restructuring plan to reduce the global workforce by about 900 employees, with $50.0 million to $60.0 million in expected charges. Key risks cited include European macroeconomic uncertainty, reliance on distributors such as Arrow Electronics (19% of revenues) and Avnet (15%), the transition to clustered Data ONTAP, and a Netherlands tax ruling expiring April 30, 2015.
02—Key points
Key Highlights
- Net revenues rose 2% to $6,332.4 million, driven by hardware maintenance contract and SEM growth; product revenues declined 3% to $4,092.3 million.
- Net income fell to $505.3 million (diluted EPS $1.37) from $605.4 million (diluted EPS $1.58); income from operations dropped to 9.6% of net revenues from 12.0%.
- Gross profit margin was 59.4%, down slightly from 59.6%, reflecting higher warranty costs.
- Cash, cash equivalents and short-term investments totaled $6,952.6 million, with $3.6 billion held in foreign countries.
- Issued $1.0 billion of Senior Notes in December 2012 and settled the $1.265 billion Convertible Notes in June 2013.
- Board approved a $1.6 billion increase to the stock repurchase program in May 2013, leaving $3.0 billion remaining; a $0.15 quarterly dividend begins in fiscal 2014.
- Announced a restructuring plan in May 2013 to reduce the workforce by about 900 employees, with $50.0 million to $60.0 million in expected charges.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, NetApp kept $0.08.
- Revenue$6.33B100.0%
- Cost of revenue−$2.57B40.6%
- Gross profit$3.76B59.4%
- Operating costs−$3.15B49.8%
- Operating income$607.8M9.6%
- Interest, other & tax−$102.5M1.6%
- Net income$505.3M8.0%
Where FY2013 revenue went
$6.33B- Cost of revenue: $2.57B, 41% of revenue
- Other operating costs: $2.25B, 36% of revenue
- R&D: $904.2M, 14% of revenue
- Net income: $505.3M, 8.0% of revenue
- Interest, other & tax: $102.5M, 1.6% of revenue
Kept 8.0% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed June 17, 2013Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $6.33B$6.23B | +1.6% |
| Cost of Revenue | $2.57B$2.52B | +2.0% |
| Gross Profit | $3.76B$3.71B | +1.3% |
| R&D Expenses | $904.20M$828.20M | +9.2% |
| Operating Expenses | $3.15B$2.97B | +6.3% |
| Operating Income | $607.80M$746.50M | −18.6% |
| Interest Expense | $91.70M$74.70M | +22.8% |
| Net Income | $505.30M$605.40M | −16.5% |
| EPS (Basic) | $1.40$1.66 | −15.7% |
| EPS (Diluted) | $1.37$1.58 | −13.3% |
| Shares Outstanding (Basic) | 361.50M363.90M | −0.7% |
| Shares Outstanding (Diluted) | 368.00M384.30M | −4.2% |
05—Questions
Frequently Asked Questions
How did NetApp perform financially in fiscal 2013?
Net revenues grew 2% to $6,332.4 million, but net income fell 17% to $505.3 million and diluted EPS declined to $1.37 from $1.58. Lower operating income, both in dollars and as a percentage of revenue, drove the decline, partly offset by a lower effective tax rate of 10.8%.
What is driving revenue mix changes at NetApp?
Product revenues fell 3% to $4,092.3 million, while software entitlements and maintenance revenues rose 10% to $893.5 million and service revenues rose 11% to $1,346.6 million. Indirect channel sales were 81% of net revenues, and OEM revenue was $787.2 million.
How is NetApp returning capital to shareholders?
In fiscal 2013 NetApp repurchased 18.1 million shares for $590.0 million. In May 2013 it increased the repurchase program by $1.6 billion, and on June 5, 2013 it prepaid $750.0 million under a collared accelerated share repurchase agreement. It also declared a $0.15 quarterly dividend starting in fiscal 2014.
What debt obligations does NetApp have after fiscal 2013?
NetApp issued $750.0 million of 2.00% Senior Notes due 2017 and $250.0 million of 3.25% Senior Notes due 2022 in December 2012. It repaid $1.265 billion of 1.75% Convertible Notes at maturity on June 1, 2013. It also has an unsecured $250.0 million revolving credit facility with no borrowings outstanding.
What are the main risks highlighted in the filing?
Risks include uncertain economic conditions in Europe, dependence on distributors such as Arrow Electronics (19% of revenues) and Avnet (15%), reliance on limited component suppliers, the transition from Data ONTAP 7-Mode to clustered Data ONTAP, potential tax changes including expiration of the Netherlands tax ruling on April 30, 2015, and dilution from convertible notes and warrants.
06—Continue