Network Appliance Announces Results for Fourth Fiscal Quarter and Fiscal Year 2002

Sunnyvale, CA - May 14, 2002 -- Network Appliance, Inc. (NASDAQ: NTAP) today announced results for the fourth quarter and fiscal year 2002. Revenues for the fourth fiscal quarter were $204.9 million, compared to revenues of $225.8 million for the same period a year ago, and $198.3 million in the prior quarter.

Pro forma net income for the fourth quarter was $14.6 million, compared with $7.9 million for the same period a year ago. Pro forma earnings per share for the fourth quarter was $0.04 per share compared with $0.02 per share for the same period a year ago, and $0.04 per share in the prior quarter. For the fourth quarter, on an as-reported basis, net income for the quarter was $7.8 million, or $0.02 per share, compared with net income of $0.5 million, or breakeven per share for the same period in the prior year.

During the fourth quarter, NetApp discontinued its synthetic leases by purchasing the land and buildings at its Sunnyvale headquarters site for $249.8 million, converting restricted investments to property and equipment on the balance sheet.

Also during the fourth quarter, NetApp incurred a restructuring charge of $4.2 million primarily related to the closure of an engineering facility and consolidation of resources to the Sunnyvale headquarters.

Revenues for the fiscal year 2002 totaled $798.4 million, compared to revenue of $1.0 billion for fiscal year 2001.

Pro forma net income for fiscal year 2002 totaled $42.5 million, or $0.12 per share, compared to pro forma net income of $116.4 million, or $0.32 per share for the fiscal year 2001. For fiscal year 2002, on an as-reported basis, the net income for the fiscal year was $3.0 million, or $0.01 per share, compared with net income of $74.9 million, or $0.21 per share for the same period in the prior year.

"This quarter Network Appliance increased its penetration of six targeted enterprise vertical markets, and successfully built backlog levels. We also shipped NearStore™, the industry's first disk-based online backup solution for enterprise storage management," said Dan Warmenhoven, CEO of Network Appliance. "The challenging economic conditions have changed customers' IT spending patterns and caused them to look for approaches that deliver immediate return on investment. That shift benefits Network Appliance because our solutions help customers substantially drive down costs, simplify data management and increase the efficiency of network storage infrastructures."

Quarterly Highlights

Throughout the fourth quarter and this fiscal year, Network Appliance made significant progress towards achieving business, partner and product goals. The company launched more new products in the last year than at any time in the company's decade-long history. The broad customer base of Network Appliance now includes over 35,000 active systems installed in over 90 countries.

Success in the enterprise market continued in the fourth quarter, as customers chose Network Appliance for data consolidation projects, data center operations, business continuance initiatives and distributed enterprise application deployments. The energy, U.S. federal government, financial services, life sciences, major manufacturing, and telecommunications vertical markets contributed 60% of revenues in the fourth quarter.

Network Appliance customer wins included Bear Stearns, Boeing Satellite Systems, Petrobas, Raytheon, Shandong Telecom, Verizon and an award with Lockheed Martin for storage management at the National Imagery and Mapping Agency (NIMA).

The company successfully focused on enhancing business and applications relationships with Oracle, Sybase, IBM, SAP and Microsoft during the quarter. We announced a business relationship with EYT, formerly known as Ernst and Young Technologies, to offer storage-on-demand solutions. The company established a global services and support partnership with IBM Lotus, for Lotus Notes customers deploying NetApp® filers, and also became one of the first storage companies to be included in the mySAP advanced infrastructure program.

Product milestones in the fourth quarter included the NearStore family product launch, a new category of storage appliances from NetApp for online backup and archiving data. In addition, ADIC, Computer Associates, Connected, Enigma Data Systems, IXOS Software, Legato, Quantum, Spectra Logic, Storage-Tek and Veritas Software all joined with Network Appliance to announce integrated NearStore solutions for customers. The first DAFS products were shipped to customers, delivering significant performance and enhanced functions for Sybase, IBM DB2 and Oracle database environments. At the same time, record setting TPC-C benchmarks were announced with Fujitsu Siemens, Sybase and Emulex, which further validated NetApp's value proposition for DAFS customers with enterprise database architectures.

Warmenhoven continued, "We are encouraged with the customer acceptance of our technology and the direction we are headed with our product roadmap. In the coming year, Network Appliance expects to continue building upon our strong market-leading position, deliver innovative network storage solutions and focus on being a full line storage provider to Fortune 500 customers."

Pro forma results exclude the impact of in-process research and development, amortization of intangible assets, stock compensation expense, restructuring charges, write-down on equity investments and the related income tax effect.

Earnings per share represent the diluted number of shares for all periods presented.

The conference call will be broadcast live via the Internet from Network Appliance's Web site at http://investors.netapp.com. The conference call will also be available live in a listen-only format at (800) 240-8621 in the United States, and (303) 262-0069 outside the United States. A replay will be available by dialing (800) 405-2236, replay code 465180.

About Network Appliance

Network Appliance is a world leader in open network storage solutions for today's data-intensive enterprise. Since its inception in 1992, Network Appliance has pioneered technology, product, and partner firsts that continue to drive the evolution of storage.

"Safe Harbor" Statement under U.S. Private Securities Litigation Reform Act of 1995

The statement regarding market trends toward the network storage model is a forward-looking statement within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include any statement regarding future events or the future financial performance of Network Appliance Inc. that involves risks or uncertainties. In evaluating these statements, readers should specifically consider various factors that could cause actual events or results to differ materially from those indicated, including without limitation; continuing decline in the general economic conditions, customer demand for products and services, customer acceptance of product architectures, increased competition, inherent risk in the international operations and other important factors as described in Network Appliance, Inc. reports and documents filed from time to time with the Securities and Exchange Commission, including its mostly recently submitted 10-K and 10-Q.

Press Contact:
Adam Trunkey
Network Appliance, Inc.
(408) 822-6314
atrunkey@netapp.com


Investor Contact:

Rod Mathews
Network Appliance, Inc.
(408) 822-6108
rmathews@netapp.com


Network Appliance, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)


Apr 30, 2002

Apr 30, 2001

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$ 210,756

$ 271,931

Short-term investments

243,371

92,094

Accounts receivable, net

146,511

186,956

Inventories

23,849

22,504

Prepaid expenses and other assets

22,112

25,745

Deferred income taxes

32,529

36,287

Total current assets

679,128

635,517

RESTRICTED CASH

0

193,747

PROPERTY AND EQUIPMENT, net

345,195

103,238

INTANGIBLE ASSETS, net

58,615

79,510

OTHER ASSETS

25,868

24,240

$1,108,806

$1,036,252


LIABILITIES, AND SHAREHOLDERS' EQUITY


CURRENT LIABILITIES:

Accounts payable

$ 40,243

$ 53,493

Income taxes payable

17,073

21,844

Accrued compensation and related benefits

36,912

50,523

Other accrued liabilities

45,193

34,597

Deferred revenue

76,139

58,316

Total current liabilities

215,560

218,773

LONG TERM DEFERRED REVENUE

31,036

12,882

LONG TERM OBLIGATIONS

3,734

149

250,330

231,804

SHAREHOLDERS' EQUITY

$ 858,476

$ 804,448

$ 1,108,806

$ 1,036,252


NETWORK APPLIANCE, INC.
PRO FORMA (1) CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)

Quarter Ended

Year Ended

Apr 30, 2002

Apr 30, 2001

Apr 30, 2002

Apr 30, 2001

NET SALES

$ 204,879

$ 225,841

$ 798,369

$ 1,006,186

COST OF SALES

73,773

99,173

317,846

401,707

GROSS MARGIN

131,106

126,668

480,523

604,479

OPERATING EXPENSES

Sales and marketing

75,065

76,439

284,355

289,003

Research and development

30,837

34,131

116,725

120,938

General and administrative

8,781

10,288

40,182

40,238

Total operating expenses

114,683

120,858

441,262

450,179

INCOME FROM OPERATIONS

16,423

5,810

39,261

154,300

OTHER INCOME, net

2,800

6,277

16,603

23,352

INCOME BEFORE INCOME TAXES

19,223

12,087

55,864

177,652

PROVISION FOR INCOME TAXES

4,613

4,170

13,407

61,290

NET INCOME

$ 14,610

$ 7,917

$ 42,457

$ 116,362

NET INCOME PER SHARE (1)

BASIC

$ 0.04

$ 0.02

$ 0.13

$ 0.36

DILUTED

$ 0.04

$ 0.02

$ 0.12

$ 0.32

SHARES USED IN PER SHARE CALCULATION

BASIC

334,401

327,229

331,645

320,435

DILUTED

353,841

353,884

350,498

359,824


(1) Pro forma results of operations exclude amortization of intangible assets, in-process research and development, stock compensation, restructuring charges, impairment loss on investments and the related effects on income taxes.


NETWORK APPLIANCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

Quarter Ended

Year Ended

April 30, 2002

April 30, 2001

April 30, 2002

April 30, 2001

NET SALES

$ 204,879

$ 225,841

$ 798,369

$ 1,006,186

COST OF SALES

73,773

99,173

317,846

401,707

GROSS MARGIN

131,106

126,668

480,523

604,479

OPERATING EXPENSES

Sales and marketing

75,065

76,439

284,355

289,003

Research and development

30,837

34,131

116,725

120,938

General and administrative

8,781

10,288

40,182

40,238

Amortization of intangible assets

5,217

5,226

20,895

11,732

In-process research and development

- -

- -

- -

26,688

Stock compensation

1,447

4,211

7,202

6,223

Restructuring charges

4,246

- -

12,226

- -

Total operating expenses

125,593

130,295

481,585

494,822

INCOME (LOSS) FROM OPERATIONS

5,513

(3,627)

(1,062)

109,657

OTHER INCOME (EXPENSE), net

Interest income and other, net

2,800

6,277

16,603

23,352

Impairment loss on
investments

0

0

(13,008)

0

Total other income, net

2,800

6,277

3,595

23,352

INCOME BEFORE INCOME TAXES

8,313

2,650

2,533

133,009

PROVISION (BENEFIT) FOR INCOME TAXES

540

2,171

(500)

58,123

NET INCOME

$ 7,773

$ 479

$ 3,033

$ 74,886

NET INCOME PER SHARE

BASIC

$ 0.02

$ 0.00

$ 0.01

$ 0.23

DILUTED

$ 0.02

$ 0.00

$ 0.01

$ 0.21

SHARES USED IN PER SHARE CALCULATION

BASIC

334,401

327,229

331,645

320,435

DILUTED

353,841

353,884

350,498

359,824

SUPPLEMENTAL INFORMATION:

NET INCOME

7,773

479

3,033

74,886

Adjustments:

Amortization of intangible assets

5,217

5,226

20,895

11,732

In-process research and development

- -

- -

- -

26,688

Stock compensation

1,447

4,211

7,202

6,223

Restructuring charges

4,246

- -

12,226

- -

Impairment loss on investments

- -

- -

13,008

- -

Income tax effect

(4,073)

(1,999)

(13,907)

(3,167)

PRO FORMA NET INCOME

14,610

7,917

42,457

116,362

DILUTED PRO FORMA NET INCOME PER SHARE

0.04

0.02

0.12

0.32

SHARES USED IN DILUTED PRO FORMA NET INCOME PER SHARE CALCULATION

353,841

353,884

350,498

359,824