SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended January 30, 2004 | ||
| or | ||
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from to | ||
Commission file number 0-27130
Network Appliance, Inc.
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Delaware
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77-0307520 | |
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(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
495 East Java Drive,
Registrant’s telephone number, including area code:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o
Number of shares outstanding of the registrant’s common stock, $.001 par value, as of the latest practicable date.
| Outstanding at | ||
| Class | January 30, 2004 | |
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Common Stock
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347,516,353 |
TABLE OF CONTENTS
| Page No. | ||||||
| PART I — FINANCIAL INFORMATION | ||||||
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Item 1.
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Condensed Consolidated Financial Statements (Unaudited) | 2 | ||||
| Condensed Consolidated Balance Sheets as of January 30, 2004 (Unaudited) and April 30, 2003 | 2 | |||||
| Condensed Consolidated Statements of Income for the three and nine-month periods ended January 30, 2004 and January 24, 2003 (Unaudited) | 3 | |||||
| Condensed Consolidated Statements of Cash Flows for the nine-month periods ended January 30, 2004 and January 24, 2003 (Unaudited) | 4 | |||||
| Notes to Condensed Consolidated Financial Statements (Unaudited) | 5 | |||||
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 | ||||
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk | 43 | ||||
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Item 4.
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Controls and Procedures | 45 | ||||
| PART II — OTHER INFORMATION | ||||||
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Item 1.
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Legal Proceedings | 45 | ||||
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Item 2.
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Changes in Securities | 45 | ||||
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Item 3.
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Defaults Upon Senior Securities | 45 | ||||
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Item 4.
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Submission of Matters to Vote of Securityholders | 45 | ||||
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Item 5.
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Other Information | 45 | ||||
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Item 6.
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Exhibits and Reports on Form 8-K | 45 | ||||
| SIGNATURE | 47 | |||||
1
PART I. FINANCIAL INFORMATION
| Item 1. | Condensed Consolidated Financial Statements (Unaudited) |
NETWORK APPLIANCE, INC.
| January 30, | April 30, | |||||||||
| 2004 | 2003 | |||||||||
| ASSETS | ||||||||||
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Current Assets:
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Cash and cash equivalents
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$ | 263,644 | $ | 284,161 | ||||||
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Short-term investments
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514,460 | 334,677 | ||||||||
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Accounts receivable, net of allowances of $5,010
at January 30, 2004 and $5,355 at April 30, 2003
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194,274 | 151,637 | ||||||||
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Inventories
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38,704 | 31,559 | ||||||||
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Prepaid expenses and other
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26,036 | 24,014 | ||||||||
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Deferred income taxes
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44,390 | 27,444 | ||||||||
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Total current assets
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1,081,508 | 853,492 | ||||||||
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Property and Equipment, net
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366,749 | 362,862 | ||||||||
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Goodwill
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48,212 | 48,212 | ||||||||
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Intangible Assets, net
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7,963 | 2,954 | ||||||||
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Other Assets
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62,883 | 51,653 | ||||||||
| $ | 1,567,315 | $ | 1,319,173 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
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Current Liabilities:
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Accounts payable
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$ | 43,000 | $ | 39,600 | ||||||
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Income taxes payable
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5,809 | 30,256 | ||||||||
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Accrued compensation and related benefits
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55,287 | 40,647 | ||||||||
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Other accrued liabilities
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43,942 | 43,841 | ||||||||
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Deferred revenue
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142,260 | 110,672 | ||||||||
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Total current liabilities
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290,298 | 265,016 | ||||||||
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Long-Term Deferred Revenue
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94,534 | 63,698 | ||||||||
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Long-Term Obligations
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4,453 | 3,102 | ||||||||
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Total liabilities
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389,285 | 331,816 | ||||||||
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Stockholders’ Equity:
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Common stock
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348 | 341 | ||||||||
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Additional paid-in capital
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825,506 | 704,338 | ||||||||
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Deferred stock compensation
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(2,277 | ) | (1,363 | ) | ||||||
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Treasury stock
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(44,862 | ) | — | |||||||
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Retained earnings
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399,775 | 284,137 | ||||||||
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Accumulated other comprehensive loss
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(460 | ) | (96 | ) | ||||||
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Total stockholders’ equity
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1,178,030 | 987,357 | ||||||||
| $ | 1,567,315 | $ | 1,319,173 | |||||||
See accompanying notes to unaudited condensed consolidated financial statements.
2
NETWORK APPLIANCE, INC.
| Three Months Ended | Nine Months Ended | ||||||||||||||||||
| January 30, | January 24, | January 30, | January 24, | ||||||||||||||||
| 2004 | 2003 | 2004 | 2003 | ||||||||||||||||
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Revenues:
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Product revenue
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$ | 268,955 | $ | 205,046 | $ | 754,273 | $ | 585,143 | |||||||||||
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Service revenue
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28,332 | 23,418 | 79,073 | 65,320 | |||||||||||||||
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Total revenues
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297,287 | 228,464 | 833,346 | 650,463 | |||||||||||||||
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Cost of Revenues:
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Cost of product revenue
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93,442 | 72,865 | 266,571 | 203,898 | |||||||||||||||
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Cost of service revenue
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23,722 | 16,911 | 65,466 | 47,172 | |||||||||||||||
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Total cost of revenues
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117,164 | 89,776 | 332,037 | 251,070 | |||||||||||||||
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Gross margin
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180,123 | 138,688 | 501,309 | 399,393 | |||||||||||||||
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Operating Expenses:
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Sales and marketing
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85,975 | 76,969 | 247,516 | 225,078 | |||||||||||||||
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Research and development
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32,948 | 28,289 | 96,002 | 84,530 | |||||||||||||||
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General and administrative
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13,744 | 9,833 | 38,737 | 26,403 | |||||||||||||||
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Stock compensation(1)
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465 | 1,238 | 2,012 | 3,106 | |||||||||||||||
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Restructuring charges
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— | 1,257 | 1,110 | 1,257 | |||||||||||||||
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Total operating expenses
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133,132 | 117,586 | 385,377 | 340,374 | |||||||||||||||
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Income from Operations
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46,991 | 21,102 | 115,932 | 59,019 | |||||||||||||||
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Other Income (Expense), net:
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Interest income
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3,862 | 3,068 | 9,737 | 9,099 | |||||||||||||||
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Other income (expense), net
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(833 | ) | 270 | (2,089 | ) | (919 | ) | ||||||||||||
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Net gain (loss) on investments
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217 | — | 362 | (726 | ) | ||||||||||||||
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Gain on sale of intangible asset
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— | — | — | 604 | |||||||||||||||
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Total other income, net
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3,246 | 3,338 | 8,010 | 8,058 | |||||||||||||||
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Income before Income Taxes
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50,237 | 24,440 | 123,942 | 67,077 | |||||||||||||||
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Provision for Income Taxes
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10,085 | 4,769 | 8,304 | 15,428 | |||||||||||||||
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Net Income
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$ | 40,152 | $ | 19,671 | $ | 115,638 | $ | 51,649 | |||||||||||
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Net Income per Share:
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Basic
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$ | 0.12 | $ | 0.06 | $ | 0.34 | $ | 0.15 | |||||||||||
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Diluted
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$ | 0.11 | $ | 0.06 | $ | 0.32 | $ | 0.15 | |||||||||||
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Shares Used in per Share
Calculations:
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Basic
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346,305 | 338,345 | 343,906 | 336,911 | |||||||||||||||
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Diluted
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366,429 | 351,114 | 363,214 | 349,449 | |||||||||||||||
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(1) Stock compensation includes:
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Sales and marketing
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$ | 194 | $ | 361 | $ | 1,153 | $ | 1,228 | |||||||||||
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Research and development
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173 | 796 | 553 | 1,638 | |||||||||||||||
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General and administrative
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98 | 81 | 306 | 240 | |||||||||||||||
| $ | 465 | $ | 1,238 | $ | 2,012 | $ | 3,106 | ||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
3
NETWORK APPLIANCE, INC.
| Nine Months Ended | ||||||||||||
| January 30, | January 24, | |||||||||||
| 2004 | 2003 | |||||||||||
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Cash Flows from Operating
Activities:
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Net income
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$ | 115,638 | $ | 51,649 | ||||||||
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Adjustments to reconcile net income to net cash
provided by operating activities:
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Depreciation
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40,021 | 38,924 | ||||||||||
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Amortization of patents
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1,052 | — | ||||||||||
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Amortization of intangible assets
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2,954 | 4,114 | ||||||||||
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Stock compensation
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2,012 | 3,106 | ||||||||||
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Net (gain) loss on investments
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(362 | ) | 726 | |||||||||
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Gain on sale of intangible asset
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— | (604 | ) | |||||||||
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Allowance for doubtful accounts (reversal)
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(221 | ) | (1,636 | ) | ||||||||
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Deferred income taxes
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(16,184 | ) | (16,231 | ) | ||||||||
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Deferred rent
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142 | (62 | ) | |||||||||
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Changes in assets and liabilities:
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Accounts receivable
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(42,416 | ) | (20,898 | ) | ||||||||
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Inventories
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(13,170 | ) | (19,619 | ) | ||||||||
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Prepaid expenses and other assets
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(14,610 | ) | (7,783 | ) | ||||||||
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Accounts payable
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3,400 | (2,128 | ) | |||||||||
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Income taxes payable
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22,589 | 27,069 | ||||||||||
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Accrued compensation and related benefits
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14,640 | (8,450 | ) | |||||||||
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Other accrued liabilities
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(192 | ) | 5,537 | |||||||||
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Deferred revenue
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62,424 | 49,213 | ||||||||||
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Net cash provided by operating activities
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177,717 | 102,927 | ||||||||||
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Cash Flows from Investing
Activities:
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Purchases of short-term investments
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(438,058 | ) | (261,636 | ) | ||||||||
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Redemptions of short-term investments
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257,681 | 200,260 | ||||||||||
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Purchases of property and equipment
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(35,609 | ) | (45,905 | ) | ||||||||
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Proceeds from disposal of fixed assets
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105 | — | ||||||||||
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Proceeds from sales of investments
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636 | — | ||||||||||
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Purchases of patents
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(9,015 | ) | — | |||||||||
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Purchase of equity securities
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(325 | ) | (650 | ) | ||||||||