##### 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 September 30, 2009
 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(State or other jurisdiction of 
incorporation or organization)
    
    95-4635982(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
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ
  Common Stock(Class of Common Stock)
    
    62,914,417(Outstanding at November 2, 2009)




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##### 



IXIA
 TABLE OF CONTENTS
 Page NumberPART I. FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (unaudited)Condensed Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008
    
    
    3Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2009 and 2008
    
    
    4Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2008
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    28Item 4.
    
    Controls and Procedures
    
    
    29PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    30Item 1A.
    
    Risk Factors
    
    
    30Item 5.
    
    Other Information
    
    
    31Item 6.
    
    Exhibits
    
    
    31SIGNATURES
    
    
    32EX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



IXIA
 
 Condensed Consolidated Balance Sheets
(in thousands)
 September 30,
    
    
    December 31,2009
    
    
    2008AssetsCurrent assets:Cash and cash equivalents
    
    $
    15,322
    
    
    $
    192,791Short-term investments in marketable securities
    
    
    58,565
    
    
    
    9,850Accounts receivable, net of allowance for
doubtful accounts of $643 and $764 as of
September 30, 2009 and December 31, 2008,
respectively
    
    
    37,219
    
    
    
    34,001Inventories
    
    
    16,182
    
    
    
    14,966Deferred income taxes
    
    
    6,313
    
    
    
    4,855Prepaid expenses and other current assets
    
    
    4,140
    
    
    
    4,981Total current assets
    
    
    137,741
    
    
    
    261,444Investments in marketable securities
    
    
    54,813
    
    
    
    3,657Property and equipment, net
    
    
    18,056
    
    
    
    18,506Deferred income taxes
    
    
    26,835
    
    
    
    14,945Intangible assets, net
    
    
    52,032
    
    
    
    10,592Goodwill
    
    
    39,194
    
    
    
    16,728Other assets
    
    
    2,290
    
    
    
    2,554Total assets
    
    $
    330,961
    
    
    $
    328,426Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    4,228
    
    
    $
    4,729Accrued expenses
    
    
    20,612
    
    
    
    18,823Deferred revenues
    
    
    24,481
    
    
    
    19,558Income taxes payable
    
    
    673
    
    
    
    452Total current liabilities
    
    
    49,994
    
    
    
    43,562Deferred revenues
    
    
    4,681
    
    
    
    6,109Other liabilities
    
    
    12,321
    
    
    
    5,559Total liabilities
    
    
    66,996
    
    
    
    55,230Shareholders equity:Common stock, without par value; 200,000
shares authorized, 62,635 and 63,391 shares
issued and outstanding as of September 30,
2009 and December 31, 2008, respectively
    
    
    85,717
    
    
    
    92,386Additional paid-in capital
    
    
    116,155
    
    
    
    107,882Retained earnings
    
    
    60,314
    
    
    
    73,182Accumulated other comprehensive income (loss)
    
    
    1,779
    
    
    
    (254
    )Total shareholders equity
    
    
    263,965
    
    
    
    273,196Total liabilities and shareholders equity
    
    $
    330,961
    
    
    $
    328,426
  3




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##### Table of Contents



IXIA
 
 Condensed Consolidated Statements of Income
(in thousands, except per share data)
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues:Products
    
    $
    37,076
    
    
    $
    39,888
    
    
    $
    97,598
    
    
    $
    113,605Services
    
    
    9,298
    
    
    
    7,436
    
    
    
    24,305
    
    
    
    21,290Total revenues
    
    
    46,374
    
    
    
    47,324
    
    
    
    121,903
    
    
    
    134,895Costs and operating expenses:(1)Cost of revenues  products
    
    
    10,461
    
    
    
    8,100
    
    
    
    25,971
    
    
    
    24,940Cost of revenues  services
    
    
    823
    
    
    
    965
    
    
    
    2,567
    
    
    
    3,153Research and development
    
    
    13,692
    
    
    
    12,483
    
    
    
    37,001
    
    
    
    36,991Sales and marketing
    
    
    15,233
    
    
    
    14,474
    
    
    
    42,990
    
    
    
    44,197General and administrative
    
    
    7,359
    
    
    
    6,526
    
    
    
    20,097
    
    
    
    18,944Amortization of intangible assets
    
    
    3,774
    
    
    
    1,374
    
    
    
    6,485
    
    
    
    4,282Acquisition related
    
    
    880
    
    
    
    
    
    
    
    3,402
    
    
    
    738Restructuring
    
    
    2,527
    
    
    
    
    
    
    
    3,538
    
    
    
    Total costs and operating expenses
    
    
    54,749
    
    
    
    43,922
    
    
    
    142,051
    
    
    
    133,245(Loss) income from operations
    
    
    (8,375
    )
    
    
    3,402
    
    
    
    (20,148
    )
    
    
    1,650Interest and other income, net
    
    
    343
    
    
    
    1,405
    
    
    
    1,572
    
    
    
    5,938Other-than-temporary impairment on investments
    
    
    (1,356
    )
    
    
    (4,298
    )
    
    
    (2,761
    )
    
    
    (4,298
    )(Loss) income before income taxes
    
    
    (9,388
    )
    
    
    509
    
    
    
    (21,337
    )
    
    
    3,290Income tax (benefit) expense
    
    
    (3,165
    )
    
    
    26
    
    
    
    (8,469
    )
    
    
    920Net (loss) income
    
    $
    (6,223
    )
    
    $
    483
    
    
    $
    (12,868
    )
    
    $
    2,370(Loss) earnings per share:Basic
    
    $
    (0.10
    )
    
    $
    0.01
    
    
    $
    (0.21
    )
    
    $
    0.04Diluted
    
    $
    (0.10
    )
    
    $
    0.01
    
    
    $
    (0.21
    )
    
    $
    0.04Weighted average number of common and common
equivalent shares outstanding:Basic
    
    
    62,551
    
    
    
    63,473
    
    
    
    62,649
    
    
    
    65,580Diluted
    
    
    62,551
    
    
    
    64,416
    
    
    
    62,649
    
    
    
    66,539
 
 (1) Stock-based compensation included in:Cost of revenues  products
    
    $
    76
    
    
    $
    120
    
    
    $
    339
    
    
    $
    368Cost of revenues  services
    
    
    29
    
    
    
    45
    
    
    
    129
    
    
    
    140Research and development
    
    
    596
    
    
    
    866
    
    
    
    3,259
    
    
    
    2,749Sales and marketing
    
    
    271
    
    
    
    781
    
    
    
    2,332
    
    
    
    2,555General and administrative
    
    
    626
    
    
    
    552
    
    
    
    1,986
    
    
    
    1,920
  4




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IXIA
 
 Condensed Consolidated Statements of Cash Flows
(in thousands)
 Nine months endedSeptember 30,2009
    
    
    2008Cash flows from operating activities:Net (loss) income
    
    $
    (12,868
    )
    
    $
    2,370Adjustments to reconcile net (loss) income to net cash
provided by operating activities, net of effect of
acquisitions:Depreciation and amortization
    
    
    7,631
    
    
    
    8,716Amortization of intangible assets
    
    
    6,485
    
    
    
    4,282Stock-based compensation
    
    
    8,045
    
    
    
    7,732Deferred income taxes
    
    
    (10,212
    )
    
    
    (787
    )Impairment on investments
    
    
    2,761
    
    
    
    4,298Tax benefit (shortfall) from stock option transactions
    
    
    228
    
    
    
    (595
    )Excess tax benefits from stock-based compensation
    
    
    (77
    )
    
    
    (188
    )Changes in operating assets and liabilities, net of
effect of acquisitions:Accounts receivable, net
    
    
    597
    
    
    
    (4,829
    )Inventories
    
    
    2,734
    
    
    
    1,254Prepaid expenses and other current assets
    
    
    2,471
    
    
    
    (400
    )Other assets
    
    
    1,399
    
    
    
    (1,498
    )Accounts payable
    
    
    (1,053
    )
    
    
    1,016Accrued expenses
    
    
    (5,473
    )
    
    
    922Deferred revenues
    
    
    (2,405
    )
    
    
    (357
    )Income taxes payable and other liabilities
    
    
    133
    
    
    
    723Net cash provided by operating activities
    
    
    396
    
    
    
    22,659Cash flows from investing activities:Purchases of property and equipment
    
    
    (6,166
    )
    
    
    (7,117
    )Purchases of available-for-sale securities
    
    
    (236,204
    )
    
    
    Proceeds from available-for-sale securities
    
    
    149,621
    
    
    
    2,001Purchases of held-to-maturity securities
    
    
    
    
    
    
    (8,924
    )Proceeds from held-to-maturity securities
    
    
    
    
    
    
    13,071Purchases of other intangible assets
    
    
    (156
    )
    
    
    (203
    )Payments in connection with acquisitions, net of cash acquired
    
    
    (78,368
    )
    
    
    (2,200
    )Net cash used in investing activities
    
    
    (171,273
    )
    
    
    (3,372
    )Cash flows from financing activities:Proceeds from exercise of stock options and employee
stock purchase plan options
    
    
    1,755
    
    
    
    2,581Repurchase of common stock
    
    
    (8,424
    )
    
    
    (40,809
    )Excess tax benefits from stock-based compensation
    
    
    77
    
    
    
    188Net cash used in financing activities
    
    
    (6,592
    )
    
    
    (38,040
    )Net decrease in cash and cash equivalents
    
    
    (177,469
    )
    
    
    (18,753
    )Cash and cash equivalents at beginning of period
    
    
    192,791
    
    
    
    188,892Cash and cash equivalents at end of period
    
    $
    15,322
    
    
    $
    170,139
  5




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##### Table of Contents



IXIA
 
 Notes to Condensed Consolidated Financial Statements
(unaudited)
 1. Business
  2. Basis of Presentation
     3. Acquisition
 Catapult Communications Corporation
  6




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##### Table of Contents



Cash and cash equivalents
    
    $
    28,190Short-term investments in marketable securities
    
    
    8,638Accounts receivable
    
    
    3,815Inventories
    
    
    3,950Other current assets
    
    
    3,331Long-term investments in marketable securities
    
    
    4,366Deferred income taxes (non-current)
    
    
    2,490Other non-current assets
    
    
    2,108Identifiable intangible assets
    
    
    48,790Goodwill
    
    
    22,466Total assets acquired
    
    
    128,144Accounts payable and accrued expenses
    
    
    (9,116
    )Deferred revenues
    
    
    (5,900
    )Other liabilities (non-current)
    
    
    (6,570
    )Net assets acquired
    
    $
    106,558
    Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Actual)
    
    
    (Proforma)
    
    
    (Proforma)
    
    
    (Proforma)Total revenues
    
    $
    46,374
    
    
    $
    55,987
    
    
    $
    137,208
    
    
    $
    159,583Net loss
    
    
    (6,223
    )
    
    
    (2,157
    )
    
    
    (26,149
    )
    
    
    (10,614
    )
 7




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##### Table of Contents



Agilent Technologies N2X Data Networks Product Line
     4. Restructuring Costs
  8




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##### Table of Contents



Ixia
    
    
    CatapultTotal
    
    
    Restructuring
    
    
    RestructuringReserve balances at January 1, 2009
    
    $
    
    
    
    $
    
    
    
    $
    Initial costs
    
    
    1,011
    
    
    
    1,011
    
    
    
    Cash payments
    
    
    (256
    )
    
    
    (256
    )
    
    
    Adjustments
    
    
    
    
    
    
    
    
    
    
    Reserve balances at June 30, 2009
    
    
    755
    
    
    
    755
    
    
    
    Initial costs
    
    
    2,558
    
    
    
    
    
    
    
    2,558Cash payments
    
    
    (2,161
    )
    
    
    (657
    )
    
    
    (1,504
    )Adjustments
    
    
    (31
    )
    
    
    (31
    )
    
    
    Reserve balances at September 30,
2009
    
    $
    1,121
    
    
    $
    67
    
    
    $
    1,054
 5. Selected Balance Sheet Data
  Amortized
    
    
    FairCost
    
    
    ValueAvailable-for-sale  short-term:U.S. Treasury, government and agency debt securities
    
    $
    44,021
    
    
    $
    44,065Corporate debt securities
    
    
    13,850
    
    
    
    14,500Available-for-sale  long-term:U.S. Treasury, government and agency debt securities
    
    
    34,541
    
    
    
    34,728Corporate debt securities
    
    
    14,387
    
    
    
    14,538Auction rate securities
    
    
    3,866
    
    
    
    5,547$
    110,665
    
    
    $
    113,378
  9




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##### Table of Contents



Amortized
    
    
    FairCost
    
    
    ValueAvailable-for-sale  short-term:Corporate debt securities
    
    $
    10,182
    
    
    $
    9,850Available-for-sale  long-term:Auction rate securities
    
    
    3,211
    
    
    
    3,211Corporate debt securities
    
    
    446
    
    
    
    4463,657
    
    
    
    3,657$
    13,839
    
    
    $
    13,507
  September 30,
    
    
    December 31,2009
    
    
    2008Raw materials
    
    $
    4,072
    
    
    $
    1,987Work in process
    
    
    3,218
    
    
    
    4,932Finished goods
    
    
    8,892
    
    
    
    8,047$
    16,182
    
    
    $
    14,966
 6. Shareholders Equity
 Stock-Based Compensation
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Expected lives (in years)
    
    
    3.1
    
    
    
    4.1
    
    
    
    3.5
    
    
    
    4.1Risk-free interest rates
    
    
    2.0
    %
    
    
    2.8
    %
    
    
    1.6
    %
    
    
    2.6
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Expected volatility
    
    
    45.7
    %
    
    
    47.1
    %
    
    
    47.1
    %
    
    
    49.2
    %
  10




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Weighted AverageWeighted Average
    
    
    Remaining
    
    
    AggregateNumber
    
    
    Exercise Price
    
    
    Contractual
    
    
    Intrinsicof Options
    
    
    Per Share
    
    
    Life (in years)
    
    
    ValueOutstanding as of December 31, 2008
    
    
    8,443
    
    
    $
    8.30Granted
    
    
    980
    
    
    
    5.65Exercised
    
    
    (210
    )
    
    
    1.25Forfeited/canceled
    
    
    (627
    )
    
    
    9.00Outstanding as of September 30, 2009
    
    
    8,586
    
    
    $
    8.12
    
    
    
    3.62
    
    
    $
    3,871Exercisable as of September 30, 2009
    
    
    5,116
    
    
    $
    8.44
    
    
    
    2.44
    
    
    $
    2,555
  Weighted Average GrantNumber
    
    
    Date Fair Valueof Awards
    
    
    Per ShareOutstanding as of December 31, 2008
    
    
    1,475
    
    
    $
    6.77Awarded
    
    
    164
    
    
    
    5.34Released
    
    
    (352
    )
    
    
    7.24Forfeited/canceled
    
    
    (62
    )
    
    
    6.70Outstanding as of September 30, 2009
    
    
    1,225
    
    
    $
    6.55
  Stock Buyback Program
  Other Comprehensive Income
  7. (Loss) Earnings Per Share
  11




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##### Table of Contents



Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Numerator:Net (loss) income
    
    $
    (6,223
    )
    
    $
    483
    
    
    $
    (12,868
    )
    
    $
    2,370Denominator:Basic presentation:Weighted average common shares
    
    
    62,551
    
    
    
    63,473
    
    
    
    62,649
    
    
    
    65,580Denominator for basic calculation
    
    
    62,551
    
    
    
    63,473
    
    
    
    62,649
    
    
    
    65,580Diluted presentation:Shares used above
    
    
    62,551
    
    
    
    63,473
    
    
    
    62,649
    
    
    
    65,580Weighted average effect of
dilutive stock options and other
share-based awards
    
    
    
    
    
    
    943
    
    
    
    
    
    
    
    959Denominator for diluted calculation
    
    
    62,551
    
    
    
    64,416
    
    
    
    62,649
    
    
    
    66,539Basic (loss) earnings per share
    
    $
    (0.10
    )
    
    $
    0.01
    
    
    $
    (0.21
    )
    
    $
    0.04Diluted (loss) earnings per share
    
    $
    (0.10
    )
    
    $
    0.01
    
    
    $
    (0.21
    )
    
    $
    0.04
  8. Concentrations
 Significant Customer
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Amount of total revenues
    
    $
    6,354
    
    
    $
    9,228
    
    
    $
    20,338
    
    
    $
    28,973As a percentage of total revenues
    
    
    13.7
    %
    
    
    19.5
    %
    
    
    16.7
    %
    
    
    21.5
    %
  International Data
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Amount of total revenues
    
    $
    19,132
    
    
    $
    16,593
    
    
    $
    49,337
    
    
    $
    47,446As a percentage of total revenues
    
    
    41.3
    %
    
    
    35.1
    %
    
    
    40.5
    %
    
    
    35.2
    %
  12




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##### Table of Contents



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.
  September 30, 2009
    
    
    December 31, 2008Quoted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    QuotedPrices in
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Prices inActive
    
    
    Significant
    
    
    
    
    
    
    
    
    
    
    Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    Significant
    
    
    
    
    
    
    Markets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    Unobservable
    
    
    
    
    
    
    Identical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    Inputs
    
    
    
    
    
    
    Assets
    
    
    Inputs
    
    
    InputsFair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    Fair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Cash equivalents:(1)Money market funds
    
    $
    202
    
    
    $
    202
    
    
    $
    
    
    
    $
    
    
    
    $
    185,858
    
    
    $
    185,858
    
    
    $
    
    
    
    $
    Short-term investments:(1)U.S. Treasury, government and agency
debt securities
    
    
    44,065
    
    
    
    
    
    
    
    44,065
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate debt securities
    
    
    14,500
    
    
    
    
    
    
    
    14,500
    
    
    
    
    
    
    
    9,850
    
    
    
    
    
    
    
    9,850
    
    
    
    Long-term investments:U.S. Treasury, government and agency
debt securities
    
    
    34,728
    
    
    
    
    
    
    
    34,728
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate debt securities
    
    
    14,538
    
    
    
    
    
    
    
    14,538
    
    
    
    
    
    
    
    446
    
    
    
    
    
    
    
    446
    
    
    
    Auction rate securities (2)
    
    
    5,547
    
    
    
    
    
    
    
    
    
    
    
    5,547
    
    
    
    3,211
    
    
    
    
    
    
    
    
    
    
    
    3,211Total financial assets
    
    $
    113,580
    
    
    $
    202
    
    
    $
    107,831
    
    
    $
    5,547
    
    
    $
    199,365
    
    
    $
    185,858
    
    
    $
    10,296
    
    
    $
    3,211
 
 (1)
    
    To estimate the fair value of our money market funds, U.S. Treasury, 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 described below, 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 future market conditions. 13




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Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Beginning balance
    
    $
    7,634
    
    
    $
    13,383
    
    
    $
    3,211
    
    
    $
    14,345Unrealized gain (loss) recorded in
other comprehensive income
    
    
    219
    
    
    
    (1,242
    )
    
    
    1,681
    
    
    
    (2,204
    )Unrealized loss recorded in earnings
    
    
    (1,356
    )
    
    
    
    
    
    
    (2,761
    )
    
    
    Settlements
    
    
    (950
    )
    
    
    
    
    
    
    (950
    )
    
    
    Additions from Catapult (See Note 3)
    
    
    
    
    
    
    
    
    
    
    4,366
    
    
    
    Ending balance
    
    $
    5,547
    
    
    $
    12,141
    
    
    $
    5,547
    
    
    $
    12,141Unrealized losses recorded in earnings
for level 3 assets still held at
September 30
    
    $
    (1,356
    )
    
    $
    
    
    
    $
    (2,761
    )
    
    $
    
     14




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10. Commitments and Contingencies
  Litigation
 Ixia v. Charles Bettinelli and IneoQuest Technologies, Inc.
  IneoQuest Technologies, Inc. vs. Ixia.
  Tucana Telecom NV vs. Catapult.
 15




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11. Recent Accounting Pronouncements
    16




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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.
 17




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18




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Stock-Based Compensation.
 19




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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.
  20




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Operating Expenses
       Interest and Other Income, Net.
 Income Tax.
 21




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RESULTS OF OPERATIONS
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues:Products
    
    
    79.9
    %
    
    
    84.3
    %
    
    
    80.1
    %
    
    
    84.2
    %Services
    
    
    20.1
    
    
    
    15.7
    
    
    
    19.9
    
    
    
    15.8Total revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Costs and operating expenses:(1)Cost of revenues  products
    
    
    22.6
    
    
    
    17.2
    
    
    
    21.3
    
    
    
    18.5Cost of revenues  services
    
    
    1.7
    
    
    
    2.0
    
    
    
    2.1
    
    
    
    2.3Research and development
    
    
    29.6
    
    
    
    26.4
    
    
    
    30.4
    
    
    
    27.4Sales and marketing
    
    
    32.9
    
    
    
    30.6
    
    
    
    35.2
    
    
    
    32.8General and administrative
    
    
    15.9
    
    
    
    13.8
    
    
    
    16.5
    
    
    
    14.0Amortization of intangible assets
    
    
    8.1
    
    
    
    2.8
    
    
    
    5.3
    
    
    
    3.3Acquisition related
    
    
    1.9
    
    
    
    
    
    
    
    2.8
    
    
    
    0.5Restructuring
    
    
    5.4
    
    
    
    
    
    
    
    2.9
    
    
    
    Total costs and operating expenses
    
    
    118.1
    
    
    
    92.8
    
    
    
    116.5
    
    
    
    98.8(Loss) income from operations
    
    
    (18.1
    )
    
    
    7.2
    
    
    
    (16.5
    )
    
    
    1.2Interest and other income, net
    
    
    0.7
    
    
    
    3.0
    
    
    
    1.3
    
    
    
    4.4Other-than-temporary impairment on investments
    
    
    (2.9
    )
    
    
    (9.1
    )
    
    
    (2.3
    )
    
    
    (3.2
    )(Loss) income before income taxes
    
    
    (20.3
    )
    
    
    1.1
    
    
    
    (17.5
    )
    
    
    2.4Income tax (benefit) expense
    
    
    (6.9
    )
    
    
    0.1
    
    
    
    (6.9
    )
    
    
    0.6Net (loss) income
    
    
    (13.4
    )%
    
    
    1.0
    %
    
    
    (10.6
    )%
    
    
    1.8
    %
 
 (1) Stock-based compensation included in:Cost of revenues  products
    
    
    0.2
    %
    
    
    0.3
    %
    
    
    0.3
    %
    
    
    0.3
    %Cost of revenues  services
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1Research and development
    
    
    1.3
    
    
    
    1.8
    
    
    
    2.7
    
    
    
    2.0Sales and marketing
    
    
    0.6
    
    
    
    1.7
    
    
    
    1.9
    
    
    
    1.9General and administrative
    
    
    1.3
    
    
    
    1.2
    
    
    
    1.6
    
    
    
    1.4
 Comparison of Three and Nine Months Ended September 30, 2009 and 2008
 Revenues.
 22




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Cost of Revenues
  Research and Development Expenses.
  23




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Sales and Marketing Expenses.
  General and Administrative Expenses.
  Amortization of Intangible Assets.
 Acquisition Related Expenses.
 24




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Restructuring
 Interest and Other Income, Net.
 Other-than-Temporary Impairment on Investments.
    Income Tax.
 25




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LIQUIDITY AND CAPITAL RESOURCES
  Nine Months Ended September 30,2009
    
    2008Net cash provided by operating activities
    
    
    396
    
    
    
    22,659Net cash used in investing activities
    
    
    (171,273
    )
    
    
    (3,372
    )Net cash used in financing activities
    
    
    (6,592
    )
    
    
    (38,040
    )
      26




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Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Beginning balance
    
    $
    7,634
    
    
    $
    13,383
    
    
    $
    3,211
    
    
    $
    14,345Unrealized gain (loss) recorded in
other comprehensive income
    
    
    219
    
    
    
    (1,242
    )
    
    
    1,681
    
    
    
    (2,204
    )Unrealized loss recorded in earnings
    
    
    (1,356
    )
    
    
    
    
    
    
    (2,761
    )
    
    
    Settlements
    
    
    (950
    )
    
    
    
    
    
    
    (950
    )
    
    
    Additions from Catapult
    
    
    
    
    
    
    
    
    
    
    4,366
    
    
    
    Ending balance
    
    $
    5,547
    
    
    $
    12,141
    
    
    $
    5,547
    
    
    $
    12,141Unrealized losses recorded in earnings
for level 3 assets still held at
September 30
    
    $
    (1,356
    )
    
    $
    
    
    
    $
    (2,761
    )
    
    $
    
    27




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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
  28




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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
  29




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PART II. OTHER INFORMATION
 
 ITEM 1. Legal Proceedings
  
 ITEM 1A. Risk Factors
   We may not realize the expected financial benefits from our acquisition of Agilent Technologies
N2X Data Network Testing Product Line.
  We may not realize the expected financial benefits from our acquisition of Catapult Communications
Corporation.
  The inability to successfully defend claims from taxing authorities or the adoption of new tax
legislation could adversely affect our operating results and financial position.
  30




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##### Table of Contents












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


31



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SIGNATURES




|                            |      |                                       |  | 
|--------------------------- | ---- | ------------------------------------- |  | 
|                            | IXIA |                                      
|Date:      November 6, 2009 | By:  | /s/ Atul Bhatnagar                    | 
|                            |      | Atul Bhatnagar                        | 
|                            |      | President and Chief Executive Officer | 

|                       |     |                         |  | 
|---------------------- | --- | ----------------------- |  | 
|Date: November 6, 2009 | By: | /s/ Thomas B. Miller    | 
|                       |     | Thomas B. Miller        | 
|                       |     | Chief Financial Officer | 

32



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##### Table of Contents





| |  |  |  | 
| |  |  |  | 

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