SEC – ‘UPLOAD’ from 5/8/06 re: NetApp, Inc. – ‘LETTER’

On:  Monday, 5/8/06, at 9:41am ET   ·   Private-to-Public:  Filing ¶  –  Release Delayed to:  8/15/07   ·   Accession #:  0-6-21529

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Delayed-Release Comment or Other Letter from the SEC
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: LETTER      Comment or Other Letter from the SEC                   9±    37K 

Document Table of Contents

Room 4561                                                                       
April 28, 2006                                                      

Steven J. Gomo                                                                  
Chief Financial Officer                                                         
Network Appliance, Inc.                                                         
495 East Java Drive                                                             
Sunnyvale, CA 94089                                                             

Re:     Network Appliance, Inc.                                                 
Form 10-K for the fiscal year ended April 30, 2005                  
Filed on July 8, 2005                                               
Form 8-Ks                                                           
Filed on August 17, 2005 and November 16, 2005                      
File No. 000-27130                                                  

Dear Mr. Gomo:                                                                  

We have reviewed the above referenced filings and have the          
following comments.  Please note that we have limited our review                
to                                                                              
the matters addressed in the comments below.  We may ask you to                 
provide us with supplemental information so we may better                       
understand                                                                      
your disclosures.  Please be as detailed as necessary in your                   
explanations.  After reviewing this information, we may raise                   
additional comments.                                                            

Please understand that the purpose of our review process is         
to                                                                              
assist you in your compliance with the applicable disclosure                    
requirements and to enhance the overall disclosure in your filing.              
We look forward to working with you in these respects.  We welcome              
any questions you may have about our comments or on any other                   
aspect                                                                          
of our review.  Feel free to call us at the telephone numbers                   
listed                                                                          
at the end of this letter.                                                      

Form 10-K for the Fiscal Year Ended April 30, 2005                              

Item  7.  Management`s Discussion and Analysis of Finance                       
Condition                                                                       
and Results of Operations                                                       

Overview, page 33                                                               

1. Tell us what consideration you gave to disclosing key                        
indicators                                                                      
of financial condition and operating performance pursuant to                    
Section                                                                         
III.B.1 of SEC Release 33-8350, Commission Guidance Regarding                   
Management`s Discussion and Analysis of Financial Condition and                 
Results of Operations.  As part of your response, clarify the key               
variables and other qualitative and quantitative factors you have               
identified that are necessary to understand and evaluate your                   
company.                                                                        

Critical Accounting Estimates and Polices, page 36                              

2. Your critical accounting policies should describe more fully                 
your                                                                            
estimates and assumptions that are highly uncertain or susceptible              
to                                                                              
change and the related material impact on financial condition or                
operating performance.  Disclosure should be considered as to why               
they bear risk of change, how you arrived at the estimate,                      
accuracy                                                                        
of the estimate/assumption in the past, how they have changed, and              
reasonably likely future changes.  For further disclosure guidance              
see Financial Reporting Release No. 60, Cautionary Advice                       
Regarding                                                                       
Disclosure About Critical Accounting Policies and Release No. 34-               
45907, Proposed Rule: Disclosure in Management`s Discussion and                 
Analysis about the Application of Critical Accounting Policies.                 

New Accounting Standards, page 40                                               

3. Your disclosure states that the adoption of SFAS 123R will have              
a                                                                               
"significant impact on our consolidated financial statements."                  
Tell                                                                            
us what consideration you gave to disclosing the impact that is                 
expected to have on your financial statements pursuant to SAB                   
Topic                                                                           
11M with respect to the following:                                              

* A discussion of the quantitative impact that adoption of the                  
standard is expected to have on the financial statements, unless                
not                                                                             
known or reasonably estimable and in that case include a statement              
to                                                                              
that effect.                                                                    
* Disclosure of the potential impact of other significant matters               
that you believe might result from the adoption of the standard                 
(such                                                                           
as technical violations of debt covenant agreements, planned or                 
intended changes in business practices, etc.).                                  

Fiscal 2005 Compared to Fiscal 2004                                             

Product Revenues, page 42                                                       

4. You disclose that "increase in product revenues was                          
specifically                                                                    
attributable to increased software licenses and software                        
subscriptions and an increase in units shipped."  You also                      
disclose                                                                        
on page 42 that product revenues were negatively affected by                    
lower-                                                                          
cost-per-megabyte disks and declines both in average selling                    
prices                                                                          
and older product unit sales. Tell us your consideration of                     
Regulation S-K, Item 303(a) (3) (ii) and (iii), which require you               
to                                                                              
disclose any known trends or uncertainties that have had or that                
you                                                                             
reasonably expect will have a material favorable or unfavorable                 
impact on net sales or revenues or income from continuing                       
operations.                                                                     
Address in your response the extent to which increases in revenues              
are attributable to increases in prices, the volume of goods or                 
services being sold, or to the introduction of new products or                  
services.  In this respect, we believe you should quantify the                  
impact                                                                          
of the favorable and negative factors that affect product                       
revenues.                                                                       
See Item 303 of Regulation S-K and the "Commission Guidance                     
Regarding                                                                       
Management`s Discussion and Analysis of Financial Condition and                 
Results of Operations," Release 33-8350 for further disclosure                  
guidance.                                                                       

5. You also disclose 2005 to 2004 material changes in Service                   
Revenues, International total revenues and Product Gross Margin.                
In                                                                              
addition, you state that product gross margin was favorably                     
affected                                                                        
by "favorable product and add-on software mix" and negatively                   
affected by "increased sales through certain indirect channels,                 
which                                                                           
typically carry a lower gross margin than our direct sales."  When              
discussing material changes and the impact of positive and                      
negative                                                                        
factors, your analysis should provide the underlying reasons or                 
implications of changes and factors and the financial implications              
of                                                                              
any trends, events or uncertainties.  See Item 303 of Regulation                
S-K                                                                             
and the "Commission Guidance Regarding Management`s Discussion and              
Analysis of Financial Condition and Results of Operations,"                     
Release                                                                         
33-8350 for further disclosure guidance.                                        

Note 2.  Significant Accounting Policies                                        

Revenue Recognition and Allowance, page 65                                      

6. We note you derive a significant portion of your sales from the              
resale of disk drives as components of your storage system from                 
your                                                                            
disclosure on page 25.  This and other disclosure noted in your                 
filing indicates that your product revenue includes a hardware and              
software element. For example we note the "add-on software"                     
related                                                                         
to sales of your current product portfolio as disclosed on page                 
42.                                                                             
Tell us how you considered EITF Issue No. 03-5 when determining                 
whether the non-software deliverables included in your arrangement              
(hardware, hardware installation and hardware maintenance) are                  
software related and included in the scope of SOP 97-2.                         

7. We note your arrangements include multiple elements and that                 
you                                                                             
allocate revenue to each element using the residual method based                
on                                                                              
vendor specific objective evidence ("VSOE") of fair value of the                
undelivered items.  Please address the following with respect to                
your                                                                            
policy for establishing VSOE of fair value of your elements.                    
* Clarify which elements of your arrangements that you have and                 
have                                                                            
not established VSOE of fair value.                                             
* Your disclosure indicates that VSOE of fair value is based on                 
the                                                                             
price charged when the element is sold separately.  Please provide              
your analysis that demonstrates how you have established VSOE of                
fair                                                                            
value for each element in accordance with paragraphs 10 and 57 of               
SOP                                                                             
97-2, as amended.                                                               
* We note that your software subscriptions and hardware                         
maintenance                                                                     
can have terms of up to three years.  If you have established VSOE              
of                                                                              
fair value of these elements based on renewal rates, explain how                
you                                                                             
have determine that such rates are substantive in accordance with               
TPA                                                                             
5100.52.                                                                        
* We note that you offer pricing discounts based on your                        
disclosure                                                                      
on page 43.  This implies that you sell your products and services              
at                                                                              
varying prices.  Explain the types of discounts that you offer for              
each element in your arrangements.  Clarify whether these                       
discounts                                                                       
impact your ability to establish VSOE of fair value of the                      
elements                                                                        
in your arrangements as there is no specific amount that                        
represents                                                                      
VSOE of fair value.                                                             

8. We note your disclosure, "(i)f undelivered products or services              
exist that are essential to the functionality of the delivered                  
product in the arrangement, delivery is not considered to have                  
occurred."  Clarify all post-delivery obligations that you include              
in                                                                              
your arrangements that cause you to determine that delivery has                 
not                                                                             
occurred and whether such terms are typical provisions in your                  
arrangements.  Further, explain how you determine that the post-                
delivery obligations have been satisfied and that delivery has                  
occurred.  For your multiple element arrangements that include                  
post-                                                                           
delivery obligations, explain how the post-delivery obligations                 
impact the revenue recognition of the other elements in the                     
arrangement.                                                                    

9. Where you have two or more undelivered elements in multiple                  
element arrangements, such as PCS and maintenance services                      
(comprised                                                                      
of technical support and hardware maintenance), tell us how your                
accounting and disclosure complies with paragraphs 12 and 58 of                 
SOP                                                                             
97-2.                                                                           

10. We note your disclosure that the software subscription element              
of                                                                              
your arrangements includes unspecified product upgrades and                     
enhancements on a when-and-if-available basis, bug fixes, and                   
patch                                                                           
releases.  Please clarify the following with respect to this                    
disclosure.                                                                     

* Please describe the various deliverables that comprise your                   
software subscription arrangements.                                             
* Clarify whether software subscriptions are post contract                      
customer                                                                        
support (PCS) as defined by paragraph 56 of SOP 97-2.  If so,                   
clarify                                                                         
why you characterize amounts generated from PCS sales as product,               
not                                                                             
service revenues.                                                               
* Explain whether this element includes unspecified additional                  
software products and if so, explain your consideration of                      
paragraphs                                                                      
48 and 49 of SOP 97-2.  Clarify how you differentiate between                   
unspecified product upgrades and additional software products.                  

11. We note you offer both recourse and non recourse lease                      
financing                                                                       
arrangements to your customers based on your disclosure on page                 
91.                                                                             
Your disclosure further indicates that the financing is provided                
by                                                                              
third-party leasing companies.  Clarify whether your involvement                
in                                                                              
this financing activity is limited to transferring financial                    
assets                                                                          
(i.e. accounts receivable) to the third-party leasing companies.                
If                                                                              
so, tell us how you consider paragraph 9 of SFAS 140 when                       
determining                                                                     
whether or not you have surrendered control of the transferred                  
receivables.  In addition, clarify whether you enter into                       
arrangements whereby you engage in leasing or financing activity                
directly to your customers.                                                     

12. Tell us the components of deferred revenue and your                         
consideration                                                                   
for disclosing such components.                                                 

Note 8.  Segment, Geographic, and Customer Information, page 83                 

13. We note that you aggregate your geographic operating segments               
into one reportable segment.  Tell us the operating segments you                
have                                                                            
identified and demonstrate how you have met all of the criteria of              
paragraph 17 of SFAS 131 to aggregate the identified operating                  
segments.  As part of your response, tell us your consideration of              
paragraphs 73 and 74 of SFAS 131, which indicates that aggregation              
is                                                                              
appropriate only if "operating segments have characteristics so                 
similar that they can be expected to essentially have the same                  
future                                                                          
prospects."                                                                     

14. We note that you market your products and services, in part,                
as                                                                              
`IT Solutions` and `Business Solutions`.  Clarify how you have                  
evaluated paragraphs 10 through 15 of SFAS 131 when determining                 
that                                                                            
these solutions do not represent separate operating segments.  In               
this respect, we note that you use combination of products,                     
technologies, and partners to deliver each solution.  Clarify what              
information is reviewed by your chief operating decision maker to               
allocate such resources to these solutions.                                     

Note 11.  Business Combination, page 85                                         

15. We note your disclosure of the Spinnaker acquisition here and               
the                                                                             
Decru acquisition on page 17 of the Form 10-Q for the quarterly                 
period ended October 28, 2005.  Explain why a significant amount                
of                                                                              
the purchase price for each acquisition was allocated to Goodwill               
and                                                                             
how you determined the fair value of the acquired technology.  In               
this respect, we note your disclosure that the "The combination of              
NetApp unified storage and data management solutions with advanced              
distributed storage technologies acquired from Spinnaker will                   
further                                                                         
our strategy to deliver Storage Grid solutions as the foundation                
for                                                                             
data infrastructures of the future" and  "Decru`s technology will               
augment our data protection and security solutions and provide for              
a                                                                               
wide variety of deployments with vendors` storage systems in NAS,               
DAS, SAN, iSCSI, and even tape backup environments, which will                  
allow                                                                           
us to pursue extended market opportunities."  Clarify why more                  
value                                                                           
was not allocated to acquired technology as your disclosure                     
indicates                                                                       
that you will generate significant cash flows from such                         
technology.                                                                     
In addition, your disclosure should include a description of the                
factors that contributed to a purchase price that resulted in                   
recognition of goodwill.  See paragraph 51(b) of SFAS 141.                      

16. Please provide your significance analysis of the Decru                      
acquisition in accordance with Rule 3-05 and Rule 1-02(w) of                    
Regulation S-X.                                                                 

Form 8-Ks filed on August 17, 2005 and November 16, 2005                        

17. We note your use of non-GAAP financial measures excludes a                  
number                                                                          
of recurring items.  Demonstrate the usefulness of each non-GAAP                
measure in assessing performance when these recurring items are a               
result of your operations and have contributed to your                          
performance.                                                                    
Refer to Question 8, Frequently Asked Questions Regarding the Use               
of                                                                              
Non-GAAP Financial Measures.  As part of your response, ensure to               
demonstrate the way that management uses the non-GAAP measure to                
conduct or evaluate your business.  If you are able to overcome                 
the                                                                             
burden of demonstrating the usefulness of each measure, ensure                  
future                                                                          
uses of non-GAAP measures include all of the disclosures                        
identified                                                                      
in Item 10 of Regulation S-X and the guidance set forth in the                  
Frequently Asked Questions Regarding the Use of Non-GAAP Financial              
Measures.                                                                       

*       *       *       *       *                                               

As appropriate, please amend your filings and respond to            
these                                                                           
comments within ten business days or tell us when you will provide              
us                                                                              
with a response.  Please submit all correspondence and                          
supplemental                                                                    
materials on EDGAR as required by Rule 101 of Regulation S-T.  You              
may wish to provide us with marked copies of any amendment to                   
expedite our review.  Please furnish a cover letter with any                    
amendment that keys your responses to our comments and provides                 
any                                                                             
requested information.  Detailed cover letters greatly facilitate               
our                                                                             
review.  Please understand that we may have additional comments                 
after                                                                           
reviewing any amendment and your responses to our comments.                     

We urge all persons who are responsible for the accuracy and        
adequacy of the disclosure in the filings reviewed by the staff to              
be                                                                              
certain that they have provided all information investors require               
for                                                                             
an informed decision.  Since the company and its management are in              
possession of all facts relating to a company`s disclosure, they                
are                                                                             
responsible for the accuracy and adequacy of the disclosures they               
have made.                                                                      

In connection with responding to our comments, please               
provide,                                                                        
in writing, a statement from the company acknowledging that:                    

* the company is responsible for the adequacy and accuracy of the               
disclosure in the filing;                                                       

* staff comments or changes to disclosure in response to staff                  
comments do not foreclose the Commission from taking any action                 
with                                                                            
respect to the filing; and                                                      

* the company may not assert staff comments as a defense in any                 
proceeding initiated by the Commission or any person under the                  
federal securities laws of the United States.                                   

In addition, please be advised that the Division of                 
Enforcement                                                                     
has access to all information you provide to the staff of the                   
Division of Corporation Finance in connection with our review of                
your                                                                            
filing or in response to our comments on your filing.                           

If you have any questions, please call Chris White at (202)     
551-                                                                            
3461 or myself at (202) 551-3226.                                               

                                          Sincerely,

                                            Craig Wilson
                                                      Senior Assistant Chief
Accountant                                                                      

Steven J. Gomo                                                                  
Network Appliance, Inc.                                                         
April 28, 2006                                                                  
Page 1                                                                          

Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘UPLOAD’ Filing		Date		Other Filings
Release Delayed to:		8/15/07		8-K,  CORRESP,  UPLOAD
Filed on:		5/8/06		UPLOAD
		4/28/06		UPLOAD
		11/16/05		8-K,  UPLOAD
		10/28/05		10-Q,  4,  UPLOAD
		8/17/05		4,  8-K,  UPLOAD
		7/8/05		10-K,  4,  DEF 14A,  UPLOAD
		4/30/05		10-K
				List all Filings

1 Previous Filing that this Filing References

  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 7/08/05  NetApp, Inc.                      10-K        4/30/05   19:1.8M                                   RR Donnelley