##### 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, 2010
 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
 o 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(Class of Common Stock)
    
    64,204,096(Outstanding at April 26, 2010)




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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,
2010 and December 31, 2009
    
    
    3Condensed Consolidated Statements of Operations for
the three months ended March 31, 2010 and 2009
    
    
    4Condensed Consolidated Statements of Cash Flows for
the three months ended March 31, 2010 and 2009
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    23PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    24Item 1A. Risk Factors
    
    
    24Item 5. Other Information
    
    
    24Item 6. Exhibits
    
    
    24SIGNATURES
    
    
    25EX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



IXIA
 
 Condensed Consolidated Balance Sheets
 (in thousands)
 March 31,
    
    
    December 31,2010
    
    
    2009AssetsCurrent assets:Cash and cash equivalents
    
    $
    29,940
    
    
    $
    15,061Short-term investments in marketable securities
    
    
    13,970
    
    
    
    10,337Accounts receivable, net of allowance for
doubtful accounts of $705 and $654 as of March
31, 2010 and December 31, 2009, respectively
    
    
    58,669
    
    
    
    55,765Inventories
    
    
    14,449
    
    
    
    14,541Prepaid expenses and other current assets
    
    
    12,749
    
    
    
    9,727Total current assets
    
    
    129,777
    
    
    
    105,431Investments in marketable securities
    
    
    50,894
    
    
    
    53,582Property and equipment, net
    
    
    17,883
    
    
    
    18,693Intangible assets, net
    
    
    64,903
    
    
    
    69,132Goodwill
    
    
    60,121
    
    
    
    60,121Other assets
    
    
    2,616
    
    
    
    2,129Total assets
    
    $
    326,194
    
    
    $
    309,088Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    7,185
    
    
    $
    6,136Accrued expenses
    
    
    25,928
    
    
    
    21,253Deferred revenues
    
    
    33,389
    
    
    
    29,842Income taxes payable
    
    
    1,729
    
    
    
    1,263Total current liabilities
    
    
    68,231
    
    
    
    58,494Deferred revenues
    
    
    7,659
    
    
    
    7,309Other liabilities
    
    
    6,642
    
    
    
    6,620Total liabilities
    
    
    82,532
    
    
    
    72,423Shareholders equity:Common stock, without par value; 200,000
shares authorized, 63,954 and 63,062 shares
issued and outstanding as of March 31, 2010
and December 31, 2009, respectively
    
    
    90,591
    
    
    
    87,283Additional paid-in capital
    
    
    121,276
    
    
    
    118,754Retained earnings
    
    
    29,848
    
    
    
    28,979Accumulated other comprehensive income
    
    
    1,947
    
    
    
    1,649Total shareholders equity
    
    
    243,662
    
    
    
    236,665Total liabilities and shareholders equity
    
    $
    326,194
    
    
    $
    309,088
  3




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IXIA
 
 Condensed Consolidated Statements of Operations
 (in thousands, except per share data)
 Three months endedMarch 31,2010
    
    
    2009Revenues:Products
    
    $
    50,669
    
    
    $
    30,081Services
    
    
    11,372
    
    
    
    7,043Total revenues
    
    
    62,041
    
    
    
    37,124Costs and operating expenses:(1)Cost of revenues  products
    
    
    11,445
    
    
    
    7,566Cost of revenues  services
    
    
    1,508
    
    
    
    943Research and development
    
    
    18,639
    
    
    
    11,866Sales and marketing
    
    
    19,161
    
    
    
    14,399General and administrative
    
    
    8,867
    
    
    
    6,224Amortization of intangible assets
    
    
    5,058
    
    
    
    1,325Acquisition and other related
    
    
    1,123
    
    
    
    Restructuring
    
    
    3,490
    
    
    
    Total costs and operating expenses
    
    
    69,291
    
    
    
    42,323Loss from operations
    
    
    (7,250
    )
    
    
    (5,199
    )Interest and other income, net
    
    
    8,787
    
    
    
    561Other-than-temporary impairment on investments
    
    
    
    
    
    
    (1,405
    )Income (loss) before income taxes
    
    
    1,537
    
    
    
    (6,043
    )Income tax expense (benefit)
    
    
    668
    
    
    
    (2,052
    )Net income (loss)
    
    $
    869
    
    
    $
    (3,991
    )Earnings (loss) per share:Basic
    
    $
    0.01
    
    
    $
    (0.06
    )Diluted
    
    $
    0.01
    
    
    $
    (0.06
    )Weighted average number of common and common
equivalent shares outstanding:Basic
    
    
    63,496
    
    
    
    63,053Diluted
    
    
    64,785
    
    
    
    63,053
 
 (1)
    
    Stock-based compensation included in: Cost of revenues  products
    
    $
    123
    
    
    $
    170Cost of revenues  services
    
    
    46
    
    
    
    64Research and development
    
    
    1,201
    
    
    
    1,621Sales and marketing
    
    
    835
    
    
    
    1,264General and administrative
    
    
    591
    
    
    
    716
  4




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IXIA
 
 Condensed Consolidated Statements of Cash Flows
 (in thousands)
 Three months endedMarch 31,2010
    
    
    2009Cash flows from operating activities:Net income (loss)
    
    $
    869
    
    
    $
    (3,991
    )Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Depreciation and amortization
    
    
    2,457
    
    
    
    2,645Amortization of intangible assets
    
    
    5,058
    
    
    
    1,325Stock-based compensation
    
    
    2,796
    
    
    
    3,835Deferred income taxes
    
    
    
    
    
    
    (2,881
    )Impairment on investments
    
    
    
    
    
    
    1,405Tax (shortfall) benefit from stock option transactions
    
    
    (274
    )
    
    
    210Excess tax benefits from stock-based compensation
    
    
    (92
    )
    
    
    Changes in operating assets and liabilities, net of
effect of acquisitions:Accounts receivable, net
    
    
    (2,904
    )
    
    
    4,608Inventories
    
    
    92
    
    
    
    30Prepaid expenses and other current assets
    
    
    (3,022
    )
    
    
    613Other assets
    
    
    (487
    )
    
    
    199Accounts payable
    
    
    649
    
    
    
    (1,405
    )Accrued expenses
    
    
    4,850
    
    
    
    (2,407
    )Deferred revenues
    
    
    3,897
    
    
    
    212Income taxes payable and other liabilities
    
    
    284
    
    
    
    109Net cash provided by operating activities
    
    
    14,173
    
    
    
    4,507Cash flows from investing activities:Purchases of property and equipment
    
    
    (1,670
    )
    
    
    (1,858
    )Purchases of available-for-sale securities
    
    
    (9,393
    )
    
    
    (162,025
    )Proceeds from available-for-sale securities
    
    
    8,973
    
    
    
    Purchases of other intangible assets
    
    
    (79
    )
    
    
    (67
    )Payments in connection with acquisitions
    
    
    (525
    )
    
    
    Net cash used in investing activities
    
    
    (2,694
    )
    
    
    (163,950
    )Cash flows from financing activities:Proceeds from exercise of stock options
    
    
    3,308
    
    
    
    21Repurchase of common stock
    
    
    
    
    
    
    (5,323
    )Excess tax benefits from stock-based compensation
    
    
    92
    
    
    
    Net cash provided by (used in) financing activities
    
    
    3,400
    
    
    
    (5,302
    )Net increase (decrease) in cash and cash equivalents
    
    
    14,879
    
    
    
    (164,745
    )Cash and cash equivalents at beginning of period
    
    
    15,061
    
    
    
    192,791Cash and cash equivalents at end of period
    
    $
    29,940
    
    
    $
    28,046
  5




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IXIA
 
 Notes to Condensed Consolidated Financial Statements
(unaudited)
 1. Business
  2. Basis of Presentation
    3. Acquisitions
   6




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Three MonthsEnded March 31,2009(Pro forma)Total revenues
    
    $
    58,802Net loss
    
    
    (8,715
    )
  4. Restructuring Costs
     N2X
    
    
    Catapult
    
    
    IxiaTotal
    
    
    Restructuring
    
    
    Restructuring
    
    
    RestructuringAccrual at January 1, 2010
    
    $
    879
    
    
    $
    
    
    
    $
    837
    
    
    $
    42Charges
    
    
    3,490
    
    
    
    3,479
    
    
    
    11
    
    
    
    Payments
    
    
    (1,896
    )
    
    
    (1,209
    )
    
    
    (655
    )
    
    
    (32
    )Accrual at March 31, 2010
    
    $
    2,473
    
    
    $
    2,270
    
    
    $
    193
    
    
    $
    10
 5. Inventories
  March 31,
    
    
    December 31,2010
    
    
    2009Raw materials
    
    $
    3,046
    
    
    $
    3,674Work in process
    
    
    3,726
    
    
    
    4,731Finished goods
    
    
    7,677
    
    
    
    6,136$
    14,449
    
    
    $
    14,541
 7




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##### Table of Contents



6. Other Comprehensive Income (Loss)
  7. Earnings (Loss) Per Share
   Three months endedMarch 31,2010
    
    
    2009Numerator:Net income (loss)
    
    $
    869
    
    
    $
    (3,991
    )Denominator:Basic presentation:Weighted average common shares
    
    
    63,496
    
    
    
    63,053Denominator for basic calculation
    
    
    63,496
    
    
    
    63,053Diluted presentation:Shares used above
    
    
    63,496
    
    
    
    63,053Weighted average effect of dilutive
stock options and other share-based
awards
    
    
    1,289
    
    
    
    Denominator for diluted calculation
    
    
    64,785
    
    
    
    63,053Basic earnings (loss) per share
    
    $
    0.01
    
    
    $
    (0.06
    )Diluted earnings (loss) per share
    
    $
    0.01
    
    
    $
    (0.06
    )
  8. Concentrations
 Significant Customer
  Three months endedMarch 31,2010
    
    
    2009Amount of total revenues
    
    $
    12,016
    
    
    $
    6,850As a percentage of total revenues
    
    
    19.4
    %
    
    
    18.5
    %
 8




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International Data
  Three months endedMarch 31,2010
    
    
    2009Amount of total revenues
    
    $
    33,438
    
    
    $
    16,728As a percentage of total revenues
    
    
    53.9
    %
    
    
    45.1
    %
   March 31,
    
    
    December 31,2010
    
    
    2009United States
    
    $
    10,509
    
    
    $
    10,874Romania
    
    
    2,397
    
    
    
    2,647India
    
    
    2,392
    
    
    
    2,506Other
    
    
    2,585
    
    
    
    2,666$
    17,883
    
    
    $
    18,693
 9. 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.
 9




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March 31, 2010
    
    
    December 31, 2009Quoted Prices in
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Quoted Prices inActive Markets for
    
    
    Significant Other
    
    
    Significant
    
    
    
    
    
    
    Active Markets for
    
    
    Significant Other
    
    
    SignificantIdentical Assets
    
    
    Observable Inputs
    
    
    Unobservable Inputs
    
    
    
    
    
    
    Identical Assets
    
    
    Observable Inputs
    
    
    Unobservable InputsFair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    Fair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Cash equivalents:(1)Money market funds
    
    $
    78
    
    
    $
    78
    
    
    $
    
    
    
    $
    
    
    
    $
    241
    
    
    $
    241
    
    
    $
    
    
    
    $
    Short-term investments:(1)U.S. Treasury, government
and agency debt securities
    
    
    6,981
    
    
    
    
    
    
    
    6,981
    
    
    
    
    
    
    
    5,713
    
    
    
    
    
    
    
    5,713
    
    
    
    Corporate debt securities
    
    
    6,994
    
    
    
    
    
    
    
    6,994
    
    
    
    
    
    
    
    4,624
    
    
    
    
    
    
    
    4,624
    
    
    
    Long-term investments:U.S. Treasury, government
and agency debt securities
    
    
    27,650
    
    
    
    
    
    
    
    27,650
    
    
    
    
    
    
    
    34,673
    
    
    
    
    
    
    
    34,673
    
    
    
    Corporate debt securities
    
    
    17,420
    
    
    
    
    
    
    
    17,420
    
    
    
    
    
    
    
    13,236
    
    
    
    
    
    
    
    13,236
    
    
    
    Auction rate securities (2)
    
    
    5,819
    
    
    
    
    
    
    
    
    
    
    
    5,819
    
    
    
    5,673
    
    
    
    
    
    
    
    
    
    
    
    5,673Total financial assets
    
    $
    64,942
    
    
    $
    78
    
    
    $
    59,045
    
    
    $
    5,819
    
    
    $
    64,160
    
    
    $
    241
    
    
    $
    58,246
    
    
    $
    5,673
 
 (1)
    
    To estimate the fair value of our money market funds, U.S. government and agency debt
securities, and corporate debt securities, we use the estimated fair value per our
investment brokerage/custodial statements. To the extent deemed necessary, we may also
obtain non-binding market quotes to corroborate the estimated fair values reflected in our
investment brokerage/custodial statements.(2)
    
    Given the disruption in the auction process in the auction rate securities market,
there is no longer an actively quoted market price for these securities. Accordingly, we
utilized models to estimate the fair values of these auction rate securities based on,
among other items: (i) the underlying structure of each security; (ii) the present value of
future principal, interest and/or dividend payments discounted at the appropriate rate
considering the market rate and conditions; (iii) consideration of the probabilities of
default, auction failure, or repurchase at par for each period; and (iv) credit quality and
estimates of the recovery rates in the event of default for each security. These estimated
fair values could change significantly based on, among other events: (i) a further
deterioration in market conditions; (ii) further declines in the credit quality of our
auction rate securities or of the issuers of our auction rate securities; or (iii) a
cessation of dividend payments or default on interest or principal payments by the issuer
of the securities.  Three Months Ended March 31,2010
    
    
    2009Beginning balance
    
    $
    5,673
    
    
    $
    3,211Unrealized gain recorded in other comprehensive income
    
    
    261
    
    
    
    Unrealized loss recorded in earnings
    
    
    
    
    
    
    (1,405
    )Settlements
    
    
    (115
    )
    
    
    Ending balance
    
    $
    5,819
    
    
    $
    1,806Unrealized losses recorded in earnings for Level 3 assets
still held at March 31
    
    $
    
    
    
    $
    (1,405
    )
 Auction Rate Securities Settlement
  10




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10. Commitments and Contingencies
 Litigation
 IneoQuest Technologies, Inc. vs. Ixia.
  Tucana Telecom NV vs. Catapult.
   11. Recent Accounting Pronouncements
  11




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12




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ITEM 2
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  OVERVIEW
  Acquisition of Catapult Communications Corporation.
 Acquisition of Agilent Technologies N2X Data Network Testing Product Line.
 Revenues.
 13




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14




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Stock-Based Compensation.
  15




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Cost of Revenues
  
    
    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;
    
    new product introductions by us and by our competitors;
    
    demand for our products; and
    
    production volume.
  Operating Expenses
   16




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Interest and Other Income, Net.
 Income Tax.
 17




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RESULTS OF OPERATIONS
  Three months endedMarch 31,2010
    
    
    2009Revenues:Products
    
    
    81.7
    %
    
    
    81.0
    %Services
    
    
    18.3
    
    
    
    19.0Total revenues
    
    
    100.0
    
    
    
    100.0Costs and operating expenses:(1)Cost of revenues  products
    
    
    18.5
    
    
    
    20.4Cost of revenues  services
    
    
    2.4
    
    
    
    2.6Research and development
    
    
    30.0
    
    
    
    32.0Sales and marketing
    
    
    30.9
    
    
    
    38.7General and administrative
    
    
    14.3
    
    
    
    16.8Amortization of intangible assets
    
    
    8.2
    
    
    
    3.5Acquisition and other related
    
    
    1.8
    
    
    
    Restructuring
    
    
    5.6
    
    
    
    Total costs and operating expenses
    
    
    111.7
    
    
    
    114.0Loss from operations
    
    
    (11.7
    )
    
    
    (14.0
    )Interest and other income, net
    
    
    14.2
    
    
    
    1.5Other-than-temporary impairment on investments
    
    
    
    
    
    
    (3.8
    )Income (loss) before income taxes
    
    
    2.5
    
    
    
    (16.3
    )Income tax expense (benefit)
    
    
    1.1
    
    
    
    (5.5
    )Net income (loss)
    
    
    1.4
    %
    
    
    (10.8
    )%
 
 (1)
    
    Stock-based compensation included in: Cost of revenues  products
    
    
    0.2
    %
    
    
    0.5
    %Cost of revenues  services
    
    
    0.1
    
    
    
    0.2Research and development
    
    
    1.9
    
    
    
    4.4Sales and marketing
    
    
    1.3
    
    
    
    3.4General and administrative
    
    
    1.0
    
    
    
    1.9
 Comparison of Three Months Ended March 31, 2010 and 2009
  18




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Revenues.
 Cost of Revenues
 Research and Development Expenses.
 Sales and Marketing Expenses.
 General and Administrative Expenses.
 Amortization of Intangible Assets.
 Acquisition and Other Related Expenses.
 Restructuring
 19




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Interest and Other Income, Net.
 Other-than-Temporary Impairment on Investments.
 Income Tax.
 20




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LIQUIDITY AND CAPITAL RESOURCES
  Three Months Ended March 31,2010
    
    
    2009Net cash provided by operating activities
    
    $
    14,173
    
    
    $
    4,507Net cash used in investing activities
    
    
    (2,694
    )
    
    
    (163,950
    )Net cash provided by (used in) financing activities
    
    
    3,400
    
    
    
    (5,302
    )
      21




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SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
  
 ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Sensitivity
  Exchange Rate Sensitivity
  22




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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
  23




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PART II. OTHER INFORMATION
 
 ITEM 1.
    
    Legal Proceedings
  
 ITEM 1A.
    
    Risk Factors
  
 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
 24




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SIGNATURES
  IXIADate:      May 6, 2010
    By:
    /s/ Atul BhatnagarAtul BhatnagarPresident and Chief Executive OfficerDate:      May 6, 2010
    By:
    /s/ Thomas B. MillerThomas B. MillerChief Financial Officer 25




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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