8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): February 7, 2007

SONICWALL, INC.

(Exact name of registrant as specified in its charter)

California
(State or Other Jurisdiction of
Incorporation) 000-27723
(Commission File Number) 77-0270079
(I.R.S. Employer
Identification Number)

1143 Borregas Avenue
Sunnyvale, California 94089
(408) 745-9600
(Address, including zip code and telephone number, of principal executive offices)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o  Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

	ITEM 2.02.     RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
	ITEM 9.01.     FINANCIAL STATEMENTS AND EXHIBITS.
SIGNATURES
EXHIBIT INDEX
EXHIBIT 99.1

ITEM 2.02.     RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

     On February 7, 2007, the Registrant issued a press release announcing its financial results for its fiscal year ended December 31, 2006. A copy of the Registrant’s press release is being furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.

     The information in this Current Report on Form 8-K, including Exhibit 99.1, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section. This information shall not be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

ITEM 9.01.     FINANCIAL STATEMENTS AND EXHIBITS.

     (c) Exhibits

Exhibit
Number	Description
99.1*	Text of press release issued by SonicWALL, Inc., dated February 7, 2007

* This exhibit is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Sonicwall, Inc
By:	/s/ Robert D. Selvi
	Chief Financial Officer

Dated: February 7, 2007

EXHIBIT INDEX

Exhibit
Number	Description
99.1*	Text of press release issued by SonicWALL, Inc., dated February 7, 2007

* This exhibit is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section.

EX-99.1

Exhibit 99.1

For additional information, contact:

Denise Franklin
SonicWALL, Inc. Investor Relations
+ 1 (408) 752-7907
dfranklin@sonicwall.com Mary McEvoy
SonicWALL, Inc. Media Relations
+1 (408) 962-7110
mmcevoy@sonicwall.com

SONICWALL ANNOUNCES FOURTH QUARTER AND FISCAL YEAR 2006 FINANCIAL RESULTS

Company increases annual revenue 30% over previous year and reports record fourth quarter
revenue, record unit shipments, and $34 million in cash flow from operations for the year

Sunnyvale, Calif. — February 7, 2007 — SonicWALL, Inc. (Nasdaq: SNWL), today reported record performance in the quarter ended December 31, 2006, with revenue of $46.7 million and deferred revenue reaching $67.9 million. Revenue in the quarter increased 28% compared to revenue of $36.4 million in the fourth quarter of 2005 and increased 3% compared to $45.2 million in the third quarter of 2006. The company shipped a record 51,400 revenue units in the quarter.

Net earnings for the fourth quarter of 2006 calculated in accordance with U.S. generally accepted accounting principles (GAAP), inclusive of share-based compensation expense as required by Statement of Financial Accounting Standards No. 123R (FAS 123R), were $442,000, or $0.01 per diluted share, as compared to GAAP net earnings for the fourth quarter of 2005 of $795,000, or $0.01 per diluted share. GAAP net income for the fourth quarter of 2005 did not include share-based compensation expenses as now required by FAS 123R.

For the purposes of comparison, net income excluding share-based compensation for the fourth quarter of 2006 was $4.2 million or $0.06 per diluted share, compared to net income excluding share-based compensation of $795,000 or $0.01 per diluted share for the fourth quarter of 2005. The reconciliation between net income excluding share-based compensation and GAAP net income is provided in a table following the unaudited financial statements attached to this press release.

Non-GAAP net income for the fourth quarter of 2006 was $6.0 million or $0.09 per diluted share as compared to non-GAAP net income for the fourth quarter of 2005 of $2.9 million or $0.04 per diluted share. Non-GAAP net income excludes amortization of purchased intangible assets and share-based compensation expense primarily associated with the expensing of stock options in accordance with FAS 123R. An explanation of our use of non-GAAP measures is included in the section in this press release entitled “Use of Non-GAAP Financial Measures.”

Fiscal Year 2006 Results
For the fiscal year 2006, total revenue was $175.5 million, a 30% increase compared to revenue of $135.3 million in fiscal year 2005.

GAAP net loss for fiscal year 2006, inclusive of share-based compensation expense as required by FAS 123R, was $(10.8) million, or $(0.17) per share, compared to GAAP net earnings for fiscal year 2005 of $6.3 million, or $0.09 per diluted share. GAAP net income for fiscal year 2005 did not include share-based compensation expenses as now required by FAS 123R.

For purposes of comparison, net income excluding share-based compensation for fiscal year 2006 was $3.7 million, or $0.05 per diluted share, compared to net income excluding share-based compensation of $6.3 million, or $0.09 per diluted share, for the fiscal year 2005. The reconciliation between net income excluding share-based compensation and GAAP net income is provided in a table following the unaudited financial statements attached to this press release.

Non-GAAP net earnings for fiscal year 2006 were $14.5 million, or $0.21 per diluted share, compared to non-GAAP net earnings for fiscal year 2005 of $13.9 million, or $0.21 per diluted share. Non-GAAP net earnings exclude amortization of purchased intangible assets, restructuring charges, in-process research and development, and share-based compensation expense primarily associated with the expensing of stock options in accordance with FAS 123R. An explanation of our use of non-GAAP measures is included in the section in this press release entitled “Use of Non-GAAP Financial Measures.” The reconciliation between GAAP and non-GAAP results is provided in a table following the unaudited financial statements attached to this press release.

“Our record results for 2006 and continued growth during our fourth quarter demonstrate SonicWALL’s ability to execute on our business objectives during a year of change and challenge in the security industry,” said Matt Medeiros, SonicWALL president and CEO. “By broadening our technology offerings, growing revenue from licenses and services, and increasing revenue from our international operations, we have delivered continual growth opportunities for our worldwide channel partners. I am very pleased with the company’s achievements for the year and for the quarter.”

Guidance for Q1 2007 and Fiscal Year 2007
In the first quarter of 2007, SonicWALL expects revenue to be in the range of $45 million to $47 million and expects non-GAAP gross margin to be in the range of 69% to 70% of revenue.

SonicWALL expects earnings per share in the first quarter of 2007 to be in the range of $0.04 to $0.05 per diluted share on a non-GAAP basis. On a GAAP basis, inclusive of a total of approximately $5.2 million, net of taxes, in combined amortization of purchased intangibles assets and share-based compensation expense, the Company expects loss per share to be in the range of $(0.04) to $(0.03). Share-based compensation expense associated with the expensing of stock options in accordance with FAS 123R is estimated to be approximately $3.8 million or $(0.06) per share for the first quarter of 2007.

For fiscal year 2007, SonicWALL expects revenue to be in the range of $200 million to $210 million, non-GAAP gross margin to be in the range of 69.5% to 70.5% of revenue, and non-GAAP operating margin to be in the range of 10% to 14% of revenue.

This is the only guidance SonicWALL will be giving during the quarter unless a decision is made to provide an update.

Conference Call
A conference call to discuss fourth quarter and fiscal year 2006 results will take place today at 5:30 a.m. PST (8:30 a.m. EST). SonicWALL President and CEO Matt Medeiros and SonicWALL CFO Rob Selvi will host the call. A web cast of the live call can be accessed at http://www.sonicwall.com/us/company/2518.html. A replay of the call will be available beginning at approximately 7:30 a.m. PST (10:30 a.m. EST) today at the Company’s website for 30 days. A replay can also be accessed via telephone through February 14 at (800) 642-1687 (domestic) or (706) 645-9291 (international). The conference call ID number is #5656424.

About SonicWALL, Inc.
Founded in 1991, SonicWALL, Inc. designs, develops and manufactures comprehensive network security, email security, secure remote access, and continuous data protection solutions. For more information, contact SonicWALL at +1 (408) 745-9600 or visit the company web site at http://www.sonicwall.com/.

Use of Non-GAAP Financial Measures
To supplement our consolidated financial statements presented in accordance with GAAP, SonicWALL uses non-GAAP measures of results of operations. These non-GAAP results are provided to enhance the user’s overall understanding of our current financial performance and our prospects for the future. We believe the non-GAAP results provide useful information to both management and investors by excluding certain expenses. The non-GAAP measures are included to provide investors and management with an alternative method for assessing SonicWALL’s operating results. In addition, since we have historically reported non-GAAP results to the investment community, we believe the inclusion of non-GAAP numbers provides consistency in our financial reporting. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.

Cautionary Note Regarding Forward-looking Statements
Certain statements in this press release are “forward-looking statements.” The forward-looking statements include without limitation statements regarding our expected revenue for the first quarter of 2007 and for fiscal year 2007, GAAP and non-GAAP earnings per share for the first quarter of 2007, non-GAAP gross margin for the first quarter of 2007 and for fiscal year 2007, and non-GAAP operating margin for fiscal year 2007; estimate of share-based compensation expense for the first quarter 2007 associated with the expensing of stock options in accordance with FAS123R; our ability to execute on our business objectives; continued growth opportunities for our channel partners and the impact of broadened offerings; and increases in revenue from licenses and service and international operations on corporate performance. These forward-looking statements are based on the opinions and estimates of management at the time the statements are made and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that could affect SonicWALL’s actual results include, but are not limited to, increased competition in each of the geographic areas in which we do business; exchange rate fluctuations; global macroeconomic and geopolitical conditions; increased competition across all of the market segments in which SonicWALL participates; new product and service introductions by our competitors; significant turnover of our key employees; and unpredictability in the rate of growth of spending of our customers for products and services that SonicWALL provides. In addition, for a more detailed description of the risks and uncertainties that could cause our actual results to differ materially from those anticipated in the forward-looking statements, please see the “Risk Factors” described in our Securities and Exchange Commission filings, including our Annual Report on Form 10-K for the year ended December 31, 2005 and our quarterly reports on Form 10-Q for subsequent periods. All forward-looking statements included in this release are based upon information available to SonicWALL as of the date of the release, and we assume no obligation to update any such forward-looking statement.

NOTE: SonicWALL is a registered trademark of SonicWALL, Inc. Other product and company names mentioned herein may be trademarks and/or registered trademarks of their respective companies.

SonicWALL, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)

	Three Months Ended						Year Ended
	December 31,						December 31,
	2006			2005			2006			2005
Revenue:
Product	$	24,917		$	19,649		$	92,797		$	75,525
License and service		21,794			16,766			82,741			59,799
Total revenue		46,711			36,415			175,538			135,324
Cost of revenue:
Product		10,487			7,379			39,164			27,699
License and service		3,257			2,165			12,287			8,031
Amortization of purchased technology		963			1,142			5,387			4,552
Total cost of revenue		14,707			10,686			56,838			40,282
Gross profit		32,004			25,729			118,700			95,042
Operating expenses:
Research and development		8,191			6,282			33,670			22,804
Sales and marketing		16,789			14,911			71,256			53,367
General and administrative		5,116			4,574			20,324			15,535
Amortization of purchased intangible assets		419			786			2,721			2,893
Restructuring charges		—			—			1,409			—
In-process research and development		—			—			1,580			—
Total operating expenses		30,515			26,553			130,960			94,599
Income (loss) from operations		1,489			(824	)		(12,260	)		443
Interest income and other expense, net		2,783			2,199			9,713			6,867
Income (loss) before income taxes		4,272			1,375			(2,547	)		7,310
Provision for income taxes		(3,830	)		(580	)		(8,206	)		(1,034	)
Net income (loss)	$	442		$	795		$	(10,753	)	$	6,276
Net income (loss) per share:
Basic	$	0.01		$	0.01		$	(0.17	)	$	0.10
Diluted	$	0.01		$	0.01		$	(0.17	)	$	0.09
Shares used in computing net income (net loss) per share:
Basic		65,855			64,733			65,117			64,684
Diluted		69,174			67,503			65,117			66,797

SonicWALL, Inc.
NON-GAAP CONSOLIDATED STATEMENTS OF OPERATIONS
Excluding Amortization of Purchased Intangible Assets
Restructuring Charges, Share-Based Compensation,
and In-Process Research and Development
(In thousands, except per share amounts)
(Unaudited)

	Three Months Ended						Year Ended
	December 31,						December 31,
	2006			2005			2006			2005
Revenue:
Product	$	24,917		$	19,649		$	92,797		$	75,525
License and service		21,794			16,766			82,741			59,799
Total revenue		46,711			36,415			175,538			135,324
Cost of revenue:
Product		10,352			7,379			38,694			27,699
License and service		3,216			2,165			12,143			8,031
Total cost of revenue		13,568			9,544			50,837			35,730
Gross profit		33,143			26,871			124,701			99,594
Operating expenses:
Research and development		7,289			6,100			29,302			22,603
Sales and marketing		15,441			14,911			66,297			53,367
General and administrative		3,745			4,574			15,850			15,535
Total operating expenses		26,475			25,585			111,449			91,505
Income from operations		6,668			1,286			13,252			8,089
Interest income and other expense, net		2,783			2,199			9,713			6,867
Income before income taxes		9,451			3,485			22,965			14,956
Provision for income taxes		(3,497	)		(580	)		(8,497	)		(1,034	)
Non-GAAP net income	$	5,954		$	2,905		$	14,468		$	13,922
Non-GAAP net income per share:
Basic	$	0.09		$	0.04		$	0.22		$	0.22
Diluted	$	0.09		$	0.04		$	0.21		$	0.21
Shares used in computing net income per share:
Basic		65,855			64,733			65,117			64,684
Diluted		69,174			67,503			68,010			66,797

SonicWALL, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS

	December 31,		December 31,
	2006		2005
	(Unaudited)
	(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	25,927	$	42,593
Short-term investments		209,251		197,849
Accounts receivable, net		23,205		13,113
Inventories		5,210		3,707
Prepaid expenses and other current assets		10,888		7,331
Total current assets		274,481		264,593
Property and equipment, net		4,085		2,595
Goodwill, purchased intangibles and other assets, net		137,725		120,495
	$	416,291	$	387,683
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	6,677	$	7,445
Accrued payroll and related benefits		13,593		9,054
Other accrued liabilities		9,900		6,277
Deferred revenue		61,622		44,642
Income taxes payable		162		95
Total current liabilities		91,954		67,513
Deferred revenue, non-current		6,269		—
Total liabilities		98,223		67,513
Stockholders’ Equity		318,068		320,170
	$	416,291	$	387,683

SonicWALL, Inc.
NET INCOME (LOSS), EXCLUDING SHARE-BASED COMPENSATION EXPENSE
(In thousands, except per share amounts)

	Three Months Ended					Year Ended
	December 31,					December 31,
	2006		2005			2006			2005
Net income (loss) (1)	$	442	$	(537	)	$	(10,753	)	$	(7,954	)
Stock-based compensation expense, net of related tax effect (2)		3,797		1,332			14,415			14,230
Net income (loss), excluding share-based compensation expense, net of tax	$	4,239	$	795		$	3,662		$	6,276
Diluted net income (loss) per share (1)	$	0.01	$	(0.01	)	$	(0.17	)	$	(0.12	)
Diluted net income (loss) per share, excluding share-based compensation expense	$	0.06	$	0.01		$	0.05		$	0.09

(1)	Net loss and net loss per share prior to January 1, 2006 represents pro forma information based on SFAS123.
(2)	Share-based compensation expense prior to January 1, 2006 was calculated based on the pro forma application of SFAS 123.

     In the quarter ended December 31, 2006, total stock-based compensation expense of $3,797 was allocated as follows: $176 to cost of revenue ($135 to product cost of revenue and $41 to license and service cost of revenue), $902 to research and development, $1,348 to sales and marketing and $1,371 to general and administrative.

     In the twelve months ended December 31, 2006, total stock-based compensation expense of $14,415 was allocated as follows: $614 to cost of revenue ($470 to product cost of revenue and $144 to license and service cost of revenue), $4,368 to research and development, $4,959 to sales and marketing and $4,474 to general and administrative.

SonicWALL, Inc.
RECONCILIATION of GAAP to NON-GAAP NET INCOME (LOSS)
(In thousands, except per share amounts)

	Three Months Ended						Year Ended
	December 31,						December 31,
	2006			2005			2006			2005
Non-GAAP net income	$	5,954		$	2,905		$	14,468		$	13,922
Share-based compensation expense		(3,797	)		(182	)		(14,415	)		(201	)
Amortization of purchased intangible assets		(1,382	)		(1,928	)		(8,108	)		(7,445	)
Restructuring charges		—			—			(1,409	)		—
In-process research and development		—			—			(1,580	)		—
Tax effect of adjustments		(333	)		—			291			—
Net effect of pro forma adjustments		(5,512	)		(2,110	)		(25,221	)		(7,646	)
Net income (loss)	$	442		$	795		$	(10,753	)	$	6,276
Diluted Non-GAAP net income per share	$	0.09		$	0.04		$	0.21		$	0.21
Diluted net income (loss) per share	$	0.01		$	0.01		$	(0.17	)	$	0.09

SonicWALL, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

	Three Months Ended						Year Ended
	December 31,						December 31,
	2006			2005			2006			2005
Cash flows from operating activities:
Net cash provided by operating activities	$	4,206		$	12,966		$	33,572		$	32,502
Cash flows from investing activities:
Purchase of property and equipment		(992	)		(775	)		(3,378	)		(1,440	)
Cash paid for acquisitions, net of cash acquired		—			(16,637	)		(29,502	)		(16,637	)
Change in restricted cash in escrow		3,335			(2,163	)		(1,295	)		(2,163	)
Maturity and sale of short-term investments, net of purchases		(4,694	)		(4,358	)		(11,233	)		30,779
Net cash (used in) provided by investing activities		(2,351	)		(23,933	)		(45,408	)		10,539
Cash flows from financing activities:
Issuance of common stock under employee stock options and purchase plans		1,926			2,623			16,269			6,324
Repurchase of common stock		(11,982	)		—			(21,099	)		(30,218	)
Net cash (used in) provided by financing activities		(10,056	)		2,623			(4,830	)		(23,894	)
Net (decrease) increase in cash and cash equivalents		(8,201	)		(8,344	)		(16,666	)		19,147
Cash and cash equivalents at beginning of period		34,128			50,937			42,593			23,446
Cash and cash equivalents at end of period	$	25,927		$	42,593		$	25,927		$	42,593