##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2008
 OR
 o
    
    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 000-31523
 IXIA
 (Exact name of Registrant as specified in its charter)
 California
    
    95-4635982(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 26601 West Agoura Road, Calabasas, CA 91302  (Address of principal executive offices, including zip code)
 (818) 871-1800  (Registrants telephone number, including area code)
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
  Common Stock
    
    66,208,493(Class of Common Stock)
    
    (Outstanding at April 30, 2008)




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##### 



IXIA
 TABLE OF CONTENTS
 Page NumberPART I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)Condensed Consolidated Balance Sheets as of March 31,
2008 and December 31, 2007
    
    
    3Condensed Consolidated Statements of Income for the
three months ended March 31, 2008 and 2007
    
    
    4Condensed Consolidated Statements of Cash Flows for
the three months ended March 31, 2008 and 2007
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures about Market
Risk
    
    
    20Item 4. Controls and Procedures
    
    
    21PART II. OTHER INFORMATIONItem 1A. Risk Factors
    
    
    22Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    22Item 5. Other Information
    
    
    22Item 6. Exhibits
    
    
    22SIGNATURES
    
    
    23EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
  2




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IXIA
 
 Condensed Consolidated Balance Sheets
 (in thousands)
 March 31,
    
    
    December 31,2008
    
    
    2007(unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    186,920
    
    
    $
    188,892Short-term investments in marketable securities
    
    
    7,993
    
    
    
    4,999Accounts receivable, net of allowance for
doubtful accounts of $686 and $614 as of March
31, 2008 and December 31, 2007, respectively
    
    
    33,940
    
    
    
    32,405Inventories
    
    
    10,552
    
    
    
    12,731Deferred income taxes
    
    
    5,307
    
    
    
    5,613Prepaid expenses and other current assets
    
    
    3,804
    
    
    
    3,385Total current assets
    
    
    248,516
    
    
    
    248,025Investments in marketable securities
    
    
    49,538
    
    
    
    54,609Property and equipment, net
    
    
    21,093
    
    
    
    21,433Deferred income taxes
    
    
    13,814
    
    
    
    13,543Intangible assets, net
    
    
    12,743
    
    
    
    14,147Goodwill
    
    
    16,728
    
    
    
    16,728Other assets
    
    
    972
    
    
    
    955Total assets
    
    $
    363,404
    
    
    $
    369,440Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    2,349
    
    
    $
    2,474Accrued expenses
    
    
    19,068
    
    
    
    19,440Deferred revenues
    
    
    18,996
    
    
    
    18,748Income taxes payable
    
    
    882
    
    
    
    1,304Total current liabilities
    
    
    41,295
    
    
    
    41,966Deferred revenues
    
    
    6,864
    
    
    
    7,167Other liabilities
    
    
    3,799
    
    
    
    3,807Total liabilities
    
    
    51,958
    
    
    
    52,940Shareholders equity:Common stock, without par value; 200,000
shares authorized, 67,324 and 68,171 shares
issued and outstanding as of March 31, 2008
and December 31, 2007, respectively
    
    
    124,552
    
    
    
    132,092Additional paid-in capital
    
    
    100,479
    
    
    
    98,157Retained earnings
    
    
    89,183
    
    
    
    89,077Accumulated other comprehensive loss
    
    
    (2,768
    )
    
    
    (2,826
    )Total shareholders equity
    
    
    311,446
    
    
    
    316,500Total liabilities and shareholders equity
    
    $
    363,404
    
    
    $
    369,440
  3




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IXIA
 
 Condensed Consolidated Statements of Income
 (in thousands, except per share data)
  Three months endedMarch 31,2008
    
    
    2007Revenues:Products
    
    $
    34,934
    
    
    $
    34,715Services
    
    
    6,717
    
    
    
    5,988Total revenues
    
    
    41,651
    
    
    
    40,703Costs and operating expenses:(1)Cost of revenues  products
    
    
    8,182
    
    
    
    7,855Cost of revenues  amortization of purchased technology
    
    
    1,220
    
    
    
    1,329Cost of revenues  services
    
    
    1,054
    
    
    
    1,144Research and development
    
    
    11,986
    
    
    
    11,668Sales and marketing
    
    
    14,702
    
    
    
    14,843General and administrative
    
    
    7,004
    
    
    
    6,484Amortization of intangible assets
    
    
    261
    
    
    
    531Total costs and operating expenses
    
    
    44,409
    
    
    
    43,854Loss from operations
    
    
    (2,758
    )
    
    
    (3,151
    )Interest and other income, net
    
    
    2,777
    
    
    
    2,699Income (loss) before income taxes
    
    
    19
    
    
    
    (452
    )Income tax (benefit) expense
    
    
    (87
    )
    
    
    307Net income (loss)
    
    $
    106
    
    
    $
    (759
    )Earnings (loss) per share:Basic
    
    $
    0.00
    
    
    $
    (0.01
    )Diluted
    
    $
    0.00
    
    
    $
    (0.01
    )Weighted average number of common and common equivalent
shares outstanding:Basic
    
    
    67,948
    
    
    
    67,414Diluted
    
    
    68,922
    
    
    
    67,414(1)     Stock-based compensation included in:Cost of revenues  products
    
    $
    157
    
    
    $
    142Cost of revenues  services
    
    
    60
    
    
    
    54Research and development
    
    
    1,109
    
    
    
    1,421Sales and marketing
    
    
    914
    
    
    
    1,710General and administrative
    
    
    696
    
    
    
    515
  4




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IXIA
 
 Condensed Consolidated Statements of Cash Flows
 (in thousands)
  Three months endedMarch 31,2008
    
    
    2007Cash flows from operating activities:Net income (loss)
    
    $
    106
    
    
    $
    (759
    )Adjustments to reconcile net income (loss) to net cash
provided by operating activities, net of effect of
acquisitions:Depreciation and amortization
    
    
    2,968
    
    
    
    2,803Amortization of purchased technology and intangible assets
    
    
    1,481
    
    
    
    1,860Stock-based compensation
    
    
    2,936
    
    
    
    3,842Deferred income taxes
    
    
    39
    
    
    
    229Tax shortfall from stock option transactions
    
    
    (614
    )
    
    
    (55
    )Excess tax benefits from stock-based compensation
    
    
    (15
    )
    
    
    (91
    )Changes in operating assets and liabilities, net of
effect of acquisitions:Accounts receivable, net
    
    
    (1,535
    )
    
    
    2,873Inventories
    
    
    2,179
    
    
    
    (192
    )Prepaid expenses and other current assets
    
    
    (419
    )
    
    
    348Other assets
    
    
    (17
    )
    
    
    4Accounts payable
    
    
    (125
    )
    
    
    1,347Accrued expenses
    
    
    (291
    )
    
    
    (405
    )Deferred revenues
    
    
    (55
    )
    
    
    (686
    )Income taxes payable and other liabilities
    
    
    (430
    )
    
    
    (714
    )Net cash provided by operating activities
    
    
    6,208
    
    
    
    10,404Cash flows from investing activities:Purchases of property and equipment
    
    
    (2,564
    )
    
    
    (2,914
    )Purchases of available-for-sale securities
    
    
    
    
    
    
    (22,300
    )Proceeds from available-for-sale securities
    
    
    2,001
    
    
    
    15,200Purchases of held-to-maturity securities
    
    
    (4,995
    )
    
    
    (20,217
    )Proceeds from held-to-maturity securities
    
    
    5,061
    
    
    
    15,000Purchases of other intangible assets
    
    
    (77
    )
    
    
    (48
    )Payments in connection with acquisitions
    
    
    (81
    )
    
    
    (13
    )Net cash used in investing activities
    
    
    (655
    )
    
    
    (15,292
    )Cash flows from financing activities:Proceeds from exercise of stock options
    
    
    712
    
    
    
    1,209Repurchase of common stock
    
    
    (8,252
    )
    
    
    Excess tax benefits from stock-based compensation
    
    
    15
    
    
    
    91Net cash (used in) provided by financing activities
    
    
    (7,525
    )
    
    
    1,300Net decrease in cash and cash equivalents
    
    
    (1,972
    )
    
    
    (3,588
    )Cash and cash equivalents at beginning of period
    
    
    188,892
    
    
    
    64,644Cash and cash equivalents at end of period
    
    $
    186,920
    
    
    $
    61,056
  5




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IXIA
 
 Notes to Condensed Consolidated Financial Statements
 (unaudited)
 1. Business
  2. Basis of Presentation
    3. Inventories
  March 31,
    
    
    December 31,2008
    
    
    2007Raw materials
    
    $
    2,020
    
    
    $
    2,276Work in process
    
    
    3,918
    
    
    
    6,680Finished goods
    
    
    4,614
    
    
    
    3,775$
    10,552
    
    
    $
    12,731
 6




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4. Shareholders Equity
 Stock-Based Compensation
   Three Months EndedMarch 31,2008
    
    2007Expected life (in years)
    
    
    4.1
    
    
    
    4.5Risk-free interest rate
    
    
    2.5
    %
    
    
    4.7
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Expected volatility
    
    
    49.7
    %
    
    
    59.0
    %
   WeightedWeighted
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateNumber
    
    
    Exercise Price
    
    
    Contractual
    
    
    Intrinsicof Options
    
    
    Per Share
    
    
    Life (in years)
    
    
    ValueOutstanding as of December 31, 2007
    
    
    9,905
    
    
    $
    10.67Granted
    
    
    839
    
    
    
    7.61Exercised
    
    
    (165
    )
    
    
    4.32Forfeited/canceled
    
    
    (858
    )
    
    
    12.16Outstanding as of March 31, 2008
    
    
    9,721
    
    
    $
    10.38
    
    
    
    4.30
    
    
    $
    5,873Exercisable as of March 31, 2008
    
    
    5,879
    
    
    $
    10.58
    
    
    
    3.15
    
    
    $
    5,531
  WeightedAverage GrantNumber
    
    
    Date Fair Valueof Awards
    
    
    Per ShareOutstanding as of December 31, 2007
    
    
    673
    
    
    $
    9.40Awarded
    
    
    67
    
    
    
    7.25Released
    
    
    (63
    )
    
    
    9.38Forfeited/canceled
    
    
    (31
    )
    
    
    9.40Outstanding as of March 31, 2008
    
    
    646
    
    
    $
    9.17
 7




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Stock Buyback Program
  5. Earnings Per Share
   Three months endedMarch 31,2008
    
    
    2007Numerator:Net income (loss)
    
    $
    106
    
    
    $
    (759
    )Denominator:Basic presentation:Weighted average common shares
    
    
    67,948
    
    
    
    67,414Denominator for basic calculation
    
    
    67,948
    
    
    
    67,414Diluted presentation:Shares used above
    
    
    67,948
    
    
    
    67,414Weighted average effect of dilutive
stock options and other share-based
awards
    
    
    974
    
    
    
    Denominator for diluted calculation
    
    
    68,922
    
    
    
    67,414Basic earnings (loss) per share
    
    $
    0.00
    
    
    $
    (0.01
    )Diluted earnings (loss) per share
    
    $
    0.00
    
    
    $
    (0.01
    )
  8




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6. Concentrations
 Significant Customer
  Three months endedMarch 31,2008
    
    2007Amount of total revenues
    
    $
    10,567
    
    
    $
    12,280As a percentage of total revenues
    
    
    25.4
    %
    
    
    30.2
    %
  International Data
  Three months endedMarch 31,2008
    
    2007Amount of total revenues
    
    $
    13,816
    
    
    $
    13,072As a percentage of total revenues
    
    
    33.2
    %
    
    
    32.1
    %
  7. Fair Value Measurements
  Level 1.
    
    Observable inputs such as quoted prices in active markets;Level 2.
    
    Inputs, other than the quoted prices in active markets, that are
observable either directly or indirectly; andLevel 3.
    
    Unobservable inputs in which there is little or no market data,
which require the reporting entity to develop its own
assumptions.
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Quoted Prices inActive Markets
    
    
    Significant Other
    
    
    SignificantFair Value
    
    
    for Identical
    
    
    Observable
    
    
    UnobservableMarch 31, 2008
    
    
    Assets (Level 1)
    
    
    Inputs (Level 2)
    
    
    Inputs (Level 3)Cash equivalents:Money market funds
    
    $
    182,243
    
    
    $
    182,243
    
    
    $
    
    
    
    $
    Long-term investments:Auction rate securities (1)
    
    
    14,335
    
    
    
    
    
    
    
    
    
    
    
    14,335Total financial assets
    
    $
    196,578
    
    
    $
    182,243
    
    
    $
    
    
    
    $
    14,335
 
 (1)
    
    Given the disruption in the auction process described below, there is no longer an
actively quoted market price for these securities. Accordingly, we utilized a model to
estimate the fair value of these auction rate securities based on, among other items: (i)
the underlying structure of each security; (ii) the present value of future principal and
interest payments discounted at rates considered to reflect current market conditions; (iii)
consideration of the probabilities of default, auction failure, or repurchase at par for
each period; and (iv) estimates of the recovery rates in the event of default for each
security. These estimated fair values could change significantly based on future market
conditions.  Investments inMarketableSecurities(Non-current)Balance at December 31, 2007
    
    $
    14,345Unrealized loss recorded to other comprehensive income
    
    
    (10
    )Balance at March 31, 2008
    
    $
    14,335
   10




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8. Recent Accounting Pronouncements
  9. Subsequent Events
  11




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  OVERVIEW
  Revenues.
  12




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13




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Stock-Based Compensation.
  Cost of Revenues
  
    
    changes in our pricing policies and those of our competitors;
    
    the pricing we are able to obtain from our component suppliers and contract
manufacturers;
    
    the mix of customers and sales channels through which our products are sold;
    
    the mix of our products sold, such as the mix of software versus hardware product
sales;
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
    
    new product introductions by us and by our competitors;
    
    demand for our products;
    
    expenses related to acquired technologies, such as royalties and amortization of
intangible assets; and
    
    production volume.
  Operating Expenses
     Interest and Other Income, Net.
 Income Tax.
 15




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RESULTS OF OPERATIONS
  Three months endedMarch 31,2008
    
    2007Revenues:Products
    
    
    83.9
    %
    
    
    85.3
    %Services
    
    
    16.1
    
    
    
    14.7Total revenues
    
    
    100.0
    
    
    
    100.0Costs and operating expenses:(1)Cost of revenues  products
    
    
    19.6
    
    
    
    19.3Cost of revenues  amortization of purchased technology
    
    
    2.9
    
    
    
    3.3Cost of revenues  services
    
    
    2.5
    
    
    
    2.8Research and development
    
    
    28.8
    
    
    
    28.7Sales and marketing
    
    
    35.4
    
    
    
    36.4General and administrative
    
    
    16.8
    
    
    
    15.9Amortization of intangible assets
    
    
    0.6
    
    
    
    1.3Total costs and operating expenses
    
    
    106.6
    
    
    
    107.7Loss from operations
    
    
    (6.6
    )
    
    
    (7.7
    )Interest and other income, net
    
    
    6.7
    
    
    
    6.6Income (loss) before income taxes
    
    
    0.1
    
    
    
    (1.1
    )Income tax (benefit) expense
    
    
    (0.2
    )
    
    
    0.8Net income (loss)
    
    
    0.3
    %
    
    
    (1.9
    )%(1)      Stock-based compensation included in:Cost of revenues  products
    
    
    0.4
    %
    
    
    0.3
    %Cost of revenues  services
    
    
    0.1
    
    
    
    0.1Research and development
    
    
    2.7
    
    
    
    3.5Sales and marketing
    
    
    2.2
    
    
    
    4.2General and administrative
    
    
    1.7
    
    
    
    1.3
 Comparison of Three Months Ended March 31, 2008 and 2007
 Revenues.
  Cost of Revenues
 16




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Research and Development Expenses.
 Sales and Marketing Expenses.
 General and Administrative Expenses.
 Amortization of Intangible Assets.
 Interest and Other Income, Net.
 Income Tax.
 LIQUIDITY AND CAPITAL RESOURCES
   17




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Investments inMarketableSecurities(Non-current)Balance at December 31, 2007
    
    $
    14,345Unrealized loss recorded to other comprehensive income
    
    
    (10
    )Balance at March 31, 2008
    
    $
    14,335
  18




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SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
  19




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Sensitivity
   Exchange Rate Sensitivity
  20




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ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  Inherent Limitations on Effectiveness of Controls
  21




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PART II. OTHER INFORMATION
 
 ITEM 1A. Risk Factors
  
 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
   Total Number of
    
    Approximate DollarShares Purchased
    
    Value of Sharesas Part of Publicly
    
    that mayAverage Price
    
    Announced
    
    yet be PurchasedTotal Number of
    
    Paid
    
    Plans or
    
    under the Plans orPeriod
    
    Shares Purchased
    
    Per Share
    
    Programs
    
    ProgramsJanuary 1  January 31
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    40,836,758February 1  February 29
    
    
    144,702
    
    
    
    7.45
    
    
    
    144,702
    
    
    
    39,758,204March 1  March 31
    
    
    929,809
    
    
    
    7.68
    
    
    
    929,809
    
    
    
    32,617,0081,074,511
    
    
    $
    7.65
    
    
    
    1,074,511
    
    
    $
    32,617,008
 
 ITEM 5. Other Information
  
 ITEM 6. Exhibits
 31.1
    
    Certification of Chief Executive Officer of Ixia pursuant to Section
302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer of Ixia pursuant to Section
302 of the Sarbanes-Oxley Act of 200232.1
    
    Certifications of Chief Executive Officer and Chief Financial Officer
of Ixia pursuant to Rule 13a-14(b) under the Exchange Act and 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 22




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SIGNATURES
  IXIADate: May 9, 2008
    By:
    /s/ Atul BhatnagarAtul BhatnagarPresident and Chief Executive OfficerDate: May 9, 2008
    By:
    /s/ Thomas B. MillerThomas B. MillerChief Financial Officer 23




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EXHIBIT INDEX
 Exhibit No.
    
    Description31.1
    
    Certification of Chief Executive Officer of Ixia pursuant to
Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer of Ixia pursuant to
Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certifications of Chief Executive Officer and Chief Financial
Officer of Ixia pursuant to Rule 13a-14(b) under the Exchange
Act and 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
 24