1
EXHIBIT 99.3
The following unaudited pro forma condensed combined financial
statements reflect the acquisition by the Registrant of IMC in exchange for
shares of the Registrant's Common Stock and options to purchase shares of the
Registrant's Common Stock. The acquisition was accounted for using the
purchase method of accounting. The pro forma condensed combined balance sheet
assumes the merger took place on January 24, 1997 and combines the January 24,
1997 balance sheet of the Registrant with the January 31, 1997 balance sheet of
IMC. The pro forma condensed combined statement of operations for the fiscal
year ended April 30, 1996 assumes the acquisition took place as of the
beginning of the fiscal year and combines the Registrant's historical results
for the fiscal year ended April 30, 1996 (for which period IMC was not in
operation) with pro forma adjustments. The pro forma condensed combined
statement of operations for the nine months ended January 24, 1997 assumes the
acquisition took place as of the beginning of the most recently completed
fiscal year and combines the Registrant's historical results for the nine
months ended January 24, 1997 with the historical results of IMC for the period
from inception (May 6, 1996) to January 31, 1997. The pro forma condensed
combined statements of operations exclude the effect of any nonrecurring
charges directly attributable to the acquisition.
The pro forma information is presented for illustrative purposes only
and is not necessarily indicative of the operating results or financial
position that would have occurred had the acquisition of IMC by the Registrant
been consummated at the beginning of the periods presented, nor is it
necessarily indicative of future operating results or financial position. These
pro forma financial statements are based on and should be read in conjunction
with the historical consolidated financial statements and the related notes
thereto of the Registrant and IMC.
1
2
NETWORK APPLIANCE, INC. AND INTERNET MIDDLEWARE CORPORATION
PRO FORMA CONDENSED COMBINED BALANCE SHEET
JANUARY 24, 1997
(IN THOUSANDS)
(UNAUDITED)
Network Pro Forma Adjustments Pro Forma
Appliance IMC Debit Credit Balances
--------- --- ----- ------ ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 20,938 $ - $ - $ - $ 20,938
Short-term investments 6,850 - - - 6,850
Accounts receivable, net 12,336 26 - - 12,362
Inventories 9,585 - - - 9,585
Prepaid expenses and other 3,298 2 - - 3,300
-------- -------- -------- -------- --------
Total current assets 53,007 28 - - 53,035
PROPERTY AND EQUIPMENT, net 6,148 48 - - 6,196
OTHER ASSETS 202 - 2,203 (1),(2),(3),(4) 240 (4) 2,165
-------- -------- -------- -------- --------
$ 59,357 $ 76 $ 2,203 $ 240 $ 61,396
======== ======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIENCY)
CURRENT LIABILITIES:
Current portion of long-term
obligations $ 21 $ 155 $ - $ - $ 176
Accounts payable 4,991 193 - 250 (5) 5,434
Income taxes payable 708 - - - 708
Accrued compensation and related
benefits 3,131 134 - - 3,265
Other accrued liabilities 2,178 - - - 2,178
Deferred revenue 1,804 22 - - 1,826
-------- -------- -------- -------- --------
Total current liabilities 12,833 504 - 250 13,587
-------- -------- -------- -------- --------
LONG-TERM OBLIGATIONS 233 - - - 233
-------- -------- -------- -------- --------
SHAREHOLDERS' EQUITY (DEFICIENCY):
Common stock 41,495 1 1 (6) 10,500 (7),(8) 51,995
Retained earnings
(Accumulated deficit) 4,796 (429) 10,519 (8),(9) 1,733 (1),(6) (4,419)
-------- -------- -------- -------- --------
46,291 (428) 10,520 12,233 47,576
-------- -------- -------- -------- --------
$ 59,357 $ 76 $ 10,520 $ 12,483 $ 61,396
======== ======== ======== ======== ========
(1) Entry to record a deferred tax asset on the compensation charge recognized
on the issuance of discounted stock options
(2) Entry to record goodwill
(3) Entry to capitalize developed technology of IMC
(4) Entry to record a deferred tax liability related to the capitalized
technology
(5) Entry to record acquisition-related expenses
(6) Entry to eliminate common stock and the accumulated deficit of IMC
(7) Entry to record the acquisition of IMC by the issuance of 187,023 shares
of common stock and options to purchase shares of the Registrant's
Common Stock
(8) Entry to record compensation expense related to the issuance of discounted
options to purchase shares of the Registrant's Common Stock
(9) Entry to expense in-process technology of IMC
See accompanying notes to pro forma condensed combined financial statements.
2
3
NETWORK APPLIANCE, INC. AND INTERNET MIDDLEWARE CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Network Pro Forma Adjustments Pro Forma
Appliance IMC(3) Debit Credit Results
--------- ----- ----- ------ ---------
NET SALES $ 46,632 $ - $ - $ - $ 46,632
COST OF SALES 20,557 - 199 (1) - 20,756
-------- -------- -------- -------- --------
GROSS MARGIN 26,075 - (199) - 25,876
-------- -------- -------- -------- --------
OPERATING EXPENSES:
Sales and marketing 12,735 - - - 12,735
Research and development 4,762 - - - 4,762
General and administrative 2,578 - - - 2,578
-------- -------- -------- -------- --------
Total operating expenses 20,075 - - - 20,075
-------- -------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS 6,000 - (199) - 5,801
OTHER INCOME, net 600 - - - 600
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES 6,600 - (199) - 6,401
PROVISION FOR INCOME TAXES - - - - -
-------- -------- -------- -------- --------
NET INCOME (NET LOSS) $ 6,600 $ - $ (199) $ - $ 6,401
======== ======== ======== ======== ========
NET INCOME PER SHARE $ 0.42 $ 0.40
======== ========
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES 15,820 16,075 (2)
======== ========
(1) Entry to record amortization of purchased intangibles based on an
estimated life of five years
(2) Weighted average common and common equivalent shares reflect the
shares issued and the impact of dilutive stock options assumed and
granted in connection with the acquisition
(3) IMC didn't commence operations until May 6, 1996
See accompanying notes to pro forma condensed combined financial statements.
3
4
NETWORK APPLIANCE, INC. AND INTERNET MIDDLEWARE CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JANUARY 24, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Network Pro Forma Adjustments Pro Forma
Appliance IMC Debit Credit Results
-------- -------- -------- -------- --------
NET SALES $ 64,353 $ 219 $ - $ - $ 64,572
COST OF SALES 26,292 12 149 (1) - 26,453
-------- -------- -------- -------- --------
GROSS MARGIN 38,061 207 (149) - 38,119
-------- -------- -------- -------- --------
OPERATING EXPENSES:
Sales and marketing 16,644 39 - - 16,683
Research and development 5,986 366 - - 6,352
General and administrative 3,201 231 - - 3,432
Litigation settlement 4,300 - - - 4,300
-------- -------- -------- -------- --------
Total operating expenses 30,131 636 - - 30,767
-------- -------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS 7,930 (429) (149) - 7,352
OTHER INCOME, net 793 - - - 793
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 8,723 (429) (149) - 8,145
PROVISION FOR (BENEFIT OF) INCOME TAXES 3,053 - - 207(3) 2,846
-------- -------- -------- -------- --------
NET INCOME (NET LOSS) $ 5,670 $ (429) $ (149) $ 207 $ 5,299
======== ======== ======== ======== ========
NET INCOME PER SHARE $ 0.32 $ 0.30
======== ========
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES 17,636 17,903 (2)
======== ========
(1) Entry to record amortization of purchased intangibles based on an
estimated life of five years
(2) Weighted average common and common equivalent shares reflect the
shares issued and the impact of dilutive stock options assumed and
granted in connection with the acquisition
(3) Entry to record tax effect of pro forma adjustment (1) at the statutory
rate and to record the tax benefits of losses incurred
See accompanying notes to pro forma condensed combined financial statements.
4
5
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. On March 17, 1997 the Registrant acquired IMC in exchange for
approximately 187,023 shares of the Registrant's Common Stock and options to
purchase shares of the Registrant's Common Stock. In connection with the
acquisition certain former employees of IMC who entered into employment
agreements with the Registrant were granted options to purchase shares of the
Registrant's Common Stock at a discount to the market price of the Registrant's
Common Stock immediately preceding the acquisition. IMC was founded in 1996 to
develop and commercialize Internet/Intranet proxy caching software. The
acquisition was accounted for as a purchase.
In connection with the acquisition, intangible assets of $8.4 million
were acquired by the Registrant of which $7.4 million was allocated to
in-process research and development and will be charged to operations in the
fiscal quarter ending April 30, 1997 as the technology had not achieved
technological feasibility and had no alternative future use. The remaining $1.0
million of intangible assets will be amortized over an estimated useful life of
five years. Also in connection with the acquisition, a compensation expense of
$3.2 million, relating to the granting of discounted stock options, will be
charged to operations in the fiscal quarter ending April 30, 1997.
The pro forma condensed combined statements of operations for the fiscal
year ended April 30, 1996 and for the nine months ended January 24, 1997 exclude
the impact of the nonrecurring charge associated with expensing in-process
research and development and the one-time compensation charge, net of deferred
taxes, related to the granting of options to certain former IMC employees to
purchase shares of the Registrant's Common Stock at a discount to the market
price of the Registrant's Common Stock immediately preceding the acquisition.
The unaudited pro forma condensed combined financial statements give
effect to the merger of the Registrant and IMC on a purchase accounting basis.
The pro forma condensed combined balance sheet assumes the merger took place on
January 24, 1997 and combines the January 24, 1997 balance sheet of the
Registrant with the January 31, 1997 balance sheet of IMC. The pro forma
condensed combined statement of operations for the fiscal year ended April 30,
1996 assumes the merger took place as of the beginning of the fiscal year and
combines the Registrant's historical results for the fiscal year ended April
30, 1996 (for which period IMC was not in operation) with pro forma
adjustments. The pro forma condensed combined statement of operations for the
nine months ended January 24, 1997 assumes the merger took place as of the
beginning of the most recently completed fiscal year and combines the
Registrant's historical results for the nine months ended January 24, 1997 with
the historical results of IMC for the period from inception (May 6, 1996) to
January 31, 1997.
2. The pro forma condensed combined financial statements included herein
have been prepared by the Registrant, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. However, the Registrant believes that the disclosures are
adequate to make the information not misleading. These pro forma condensed
combined financial statements should be read in conjunction with the financial
statements and the notes thereto included in the Registrant's annual report on
Form 10-K for the fiscal year ended April 30, 1996 and the financial statements
of IMC included in this filing.
3. Net income per share for each period is calculated by dividing net
income by the weighted average number of common and common equivalent shares
outstanding during the period plus approximately 172,375 shares of the
Registrant's Common Stock which was exchanged for all issued and outstanding
shares of IMC Common Stock. Common equivalent shares consist of stock options
(using the treasury stock method).
5