##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended: September 30, 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: 1-34033
 DIGI INTERNATIONAL INC.
  Delaware
    
    41-1532464(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification Number)
 11001 Bren Road East  Minnetonka, Minnesota 55343  (Address of principal executive offices) (Zip Code)
 (952) 912-3444  (Registrants telephone number, including area code)
 Securities registered pursuant to Section 12(b) of the Act:
 Title of each class
    
    Name of each exchange on which registeredCommon Stock, par value $.01 per share
    
    The NASDAQ Global Select Market
 Securities registered pursuant to Section 12(g) of the Act:
 o þ
 o þ
  þ o
 o o
 þ
  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




---



##### Table of Contents



INDEX
   ITEM IN FORM 10-K
    
    PAGE/REFERENCEPART I.ITEM 1.
    
    Business
    
    
    4ITEM 1A.
    
    Risk Factors
    
    
    14ITEM 1B.
    
    Unresolved Staff Comments
    
    
    22ITEM 2.
    
    Properties
    
    
    23ITEM 3.
    
    Legal Proceedings
    
    
    24PART II.ITEM 5.
    
    Market for Registrants Common Equity,
Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    25ITEM 6.
    
    Selected Financial Data
    
    
    27ITEM 7.
    
    Managements Discussion and
Analysis of Financial Condition and
Results of Operations
    
    
    28ITEM 7A.
    
    Quantitative and Qualitative Disclosures
About Market Risk
    
    
    42ITEM 8.
    
    Financial Statements and Supplementary Data
    
    
    43ITEM 9.
    
    Changes in and Disagreements with Accountants
On Accounting and Financial Disclosure
    
    
    73ITEM 9A.
    
    Controls and Procedures
    
    
    73ITEM 9B.
    
    Other Information
    
    
    74
 2




---



##### Table of Contents



ITEM IN FORM 10-K
    
    PAGE/REFERENCEPART III.ITEM 10.
    
    Directors, Executive Officers and
Corporate Governance
    
    
    76ITEM 11.
    
    Executive Compensation
    
    
    77ITEM 12.
    
    Security Ownership of Certain Beneficial
Owners and Management and
Related Stockholder Matters
    
    
    77ITEM 13.
    
    Certain Relationships and Related
Transactions and Director Independence
    
    
    77ITEM 14.
    
    Principal Accounting Fees and Services
    
    
    77PART IV.ITEM 15.
    
    Exhibits, Financial Statement Schedules
    
    
    78EX-3.BEX-21EX-23EX-24EX-31.AEX-31.BEX-32
  3




---



##### Table of Contents



PART I
 FORWARD-LOOKING STATEMENTS
    
 ITEM 1.
    
    BUSINESS
  COMPANY OVERVIEW
  ®
 4




---



##### Table of Contents



ITEM 1.
    
    BUSINESS (CONTINUED)
 COMPANY OVERVIEW (CONTINUED)
    ® ® ®
  Digi Energy
 ®
 5




---



##### Table of Contents



ITEM 1.
    
    BUSINESS (CONTINUED)
 COMPANY OVERVIEW (CONTINUED)
 Digi Tank ® ® ® ®
 Digi Fleet  ®
 ®
 PRODUCTS
   Embedded Networking Products
 Modules  ®
 6




---



##### Table of Contents



ITEM 1.
    
    BUSINESS (CONTINUED)
 PRODUCTS (CONTINUED)
  Chips 
  Software and Development Tools  ® ® ® ®
 Single Board Computers 
 Satellite 
 Non-Embedded Networking Products
 Cellular Routers  ® ® ®
 7




---



##### Table of Contents



ITEM 1.
    
    BUSINESS (CONTINUED)
 PRODUCTS (CONTINUED)
 ®
 Gateways  ®
 Wireless Communication Adapters  ® ® ®
 Serial Servers  ®
 Console Servers 
 USB Connected Products 
 Serial Cards 
 8




---



##### Table of Contents



ITEM 1.
    
    BUSINESS (CONTINUED)
 PRODUCTS (CONTINUED)
  SERVICES
  iDigi® ® ®
 Digi m-Trak
 Engineering Design Services 
 APPLICATION MARKETS
  Smart Energy 
 Tank Monitoring/Management 
 9




---



##### Table of Contents



ITEM 1.
    
    BUSINESS (CONTINUED)
 APPLICATION MARKETS (CONTINUED)
 Fleet Management 
 Medical/Healthcare 
  ACQUISITIONS
  
    
    In July 2006, we acquired MaxStream®, Inc. (MaxStream), a leader in the wireless device
networking market. MaxStream supplies device manufacturers and integrators with reliable
wireless modules and box products that are easy to use and allow customers to wirelessly
monitor and control electronic devices. Typical applications include automated utility
meter reading, oil and gas monitoring, remote control and monitoring of commercial heating
and air conditioning systems, vehicle information access for fleet management, industrial
controls, wireless sensors, and electronic signals. MaxStream was also a pioneer in the
field of ZigBee®/802.15.4 wireless communications. The MaxStream acquisition significantly
expanded our wireless offering both with embedded modules and non-embedded wireless
communications adapters. The products also play a key role in our Drop-in Networking
initiative. Effective October 1, 2007, MaxStream merged into Digi International Inc.
    
    In April 2008, we acquired Sarian Systems, Ltd. (Sarian), a leader in the European
wireless router market. Sarian designs, develops and manufactures advanced
wireless/cellular IP-based routing equipment for mission critical applications. Sarian
developed its own comprehensive IP-based operating system and software and can offer
customers technical excellence, flexibility and rapid customization. Sarian has a strong
customer base in ATM connectivity, retail and payment systems connectivity, remote
monitoring telemetry, lottery terminal connectivity and wireless backup of wired broadband
connections. Effective October 1, 2009, Sarian merged into Digi International (UK) Ltd.
    
    In July 2008, we acquired Spectrum Design Solutions, Inc. (Spectrum), a leading design
services organization. Spectrum is a wholly owned subsidiary of Digi International Inc.
Spectrum focuses on solving a customers wireless development challenges. Spectrums
engineers have extensive experience in wireless technologies such as GSM, CDMA, GPS, Wi-Fi
and proprietary RF as well as ASIC design, FPGA integration, embedded software and complete
turn-key product development which allows them to address virtually any wireless
development need.
 10




---



##### Table of Contents



ITEM 1.  BUSINESS (CONTINUED)
 ACQUISITIONS (CONTINUED)
 
    
    In June 2009, we acquired substantially all the assets of MobiApps Holdings Private
Limited (MobiApps), a developer of M2M communications technology focusing on satellite,
cellular and hybrid satellite/cellular solutions. MobiApps has locations in India,
Singapore and in the U.S. Pursuant to the terms of the asset purchase agreements, Digi
International acquired the U.S. assets located in Herndon, Virginia. In addition, we
established Digi Wireless Singapore Pte. Ltd. and Digi m2m Solutions India Private Limited,
which acquired the assets of MobiApps affiliate companies, located in Singapore and India,
respectively. MobiApps provides a new generation of products based on its own custom
designed and patented mixed signal ASIC, which dramatically reduces the complexity and
improves performance of satellite M2M system solutions. Satellite M2M applications include
fleet management, marine vessel tracking, container tracking, agricultural monitoring,
energy management, and remote field service applications. Satellite is especially suited to
applications that cross country and continental boundaries, providing connectivity in very
remote locations, and providing mission critical wireless backup solutions when cellular
coverage is insufficient. MobiApps also has cellular and hybrid cellular/satellite products
packaged with various asset tracking management services, including vehicle tracking, taxi
dispatch and employee tracking, focused on markets in India and Southeast Asia.
  DISTRIBUTION AND PARTNERSHIPS
     11




---



##### Table of Contents



ITEM 1.
    
    BUSINESS (CONTINUED)
 DISTRIBUTION AND PARTNERSHIPS (CONTINUED)
     OPERATIONS
   SEASONALITY
  WORKING CAPITAL
  RESEARCH AND PATENTS
  12




---



##### Table of Contents



ITEM 1.
    
    BUSINESS (CONTINUED)
 RESEARCH AND PATENTS (CONTINUED)
   BACKLOG
  EMPLOYEES
  GEOGRAPHIC AREAS
   13




---



##### Table of Contents



ITEM 1.
    
    BUSINESS (CONTINUED)
 DIGI INTERNATIONAL WEBSITE
 www.digi.com www.sec.gov
  
 ITEM 1A.
    
    RISK FACTORS
  Risks Relating to Our Business
 Our dependence on new product development and the rapid technological change that characterizes our
industry makes us susceptible to loss of market share resulting from competitors product
introductions and similar risks.
   14




---



##### Table of Contents



ITEM 1A.
    
    RISK FACTORS (CONTINUED)
 We intend to continue to devote significant resources to our research and development, which, if
not successful, could cause a decline in our revenues and harm our business.
    Certain of our products are sold into mature markets, which could limit our ability to continue to
generate revenue from these products.
  Our failure to effectively manage product transitions could have a material adverse effect on our
revenues and profitability.
  15




---



##### Table of Contents



ITEM 1A.
    
    RISK FACTORS (CONTINUED)
 Our failure to compete successfully in our highly competitive market could result in reduced prices
and loss of market share.
  Our inability to obtain the appropriate telecommunications or satellite carrier certifications or
approvals from other governmental regulatory bodies could impede our ability to grow revenues in
our wireless products.
  Our entry into a services and solutions model, using cloud-based services, presents execution and
competitive risks.
  
    
    our ability to quickly and effectively put in place the infrastructure to deploy our
solution;
    
    competing effectively in our targeted application markets, including energy, tank
monitoring, fleet management and medical; and
    
    deploying complete end-to-end solutions that accelerate our customers time to market.
 We are dependent on wireless communication networks owned and controlled by others.
  16




---



##### Table of Contents



ITEM 1A.
    
    RISK FACTORS (CONTINUED)
 The cyclicality of the semiconductor industry may result in substantial period-to-period
fluctuations in operating results.
  Loss of one or more of our large customers could have an adverse effect on our revenues.
  The long and variable sales cycle for certain of our products makes it more difficult for us to
predict our operating results and manage our business.
  We depend on manufacturing relationships and on limited-source suppliers, and any disruptions in
these relationships may cause damage to our customer relationships.
  17




---



##### Table of Contents



ITEM 1A.
    
    RISK FACTORS (CONTINUED)
 Our use of suppliers in Southeast Asia involves risks that could negatively impact us.
  Our ability to compete could be jeopardized if we are unable to protect our intellectual property
rights.
   From time to time, we are subject to claims and litigation regarding intellectual property rights
or other claims, which could seriously harm us and require us to incur significant costs.
  18




---



##### Table of Contents



ITEM 1A.
    
    RISK FACTORS (CONTINUED)
 We face risks associated with our international operations and expansion that could impair our
ability to grow our revenues abroad.
  The loss of key personnel could prevent us from executing our business strategy.
  Any acquisitions we have made or will make could disrupt our business and seriously harm our
financial condition.
   
    
    problems combining the purchased operations, technologies, or products;
    
    unanticipated costs;
    
    diversion of managements attention from our core business;
    
    difficulties integrating businesses in different countries and cultures;
    
    adverse effects on existing business relationships with suppliers and customers;
    
    risks associated with entering markets in which we have no or limited prior experience; and
    
    potential loss of key employees, particularly those of the purchased organization.
  Unanticipated changes in our tax rates could affect our future results.
  19




---



##### Table of Contents



ITEM 1A.
    
    RISK FACTORS (CONTINUED)
  Our failure to effectively comply with the requirements of applicable environmental legislation and
regulation could have a material adverse effect on our revenues and profitability.
  Our failure to effectively comply with regulatory laws pertaining to our foreign operations could
have a material adverse effect on our revenues and profitability.
  Negative conditions in the global credit markets may impair a portion of our investment portfolio.
  Our consolidated operating results and financial condition may be adversely impacted by worldwide
economic conditions and credit tightening.
  20




---



##### Table of Contents



ITEM 1A.
    
    RISK FACTORS (CONTINUED)
  We may have additional tax liabilities.
  Risks Related to Our Common Stock
 If our stock price declines, we may need to recognize an impairment of our goodwill.
  The price of our common stock has been volatile and could continue to fluctuate in the future.
  Certain provisions of the Delaware General Corporation Law and our charter documents have an
anti-takeover effect.
   21




---



##### Table of Contents



ITEM 1A.
    
    RISK FACTORS (CONTINUED)
  
 ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
  22




---



##### Table of Contents



ITEM 2.
    
    PROPERTIES
  Ownership orApproximate
    
    LeaseLocation of
    
    
    
    Square
    
    ExpirationProperty
    
    Use of Facility
    
    Footage
    
    DateMinnetonka, MN
    
    Research & development, sales, sales support,
    
    
    130,000
    
    
    Owned(Corporate headquarters)
    
    marketing and administrationEden Prairie, MN
    
    Manufacturing and warehousing
    
    
    58,000
    
    
    OwnedMinneapolis, MN
    
    Engineering services
    
    
    16,837
    
    
    November 2016Waltham, MA
    
    Research & development, sales and sales support
    
    
    6,836
    
    
    October 2015Austin, TX
    
    Sales, sales support, marketing
and administration
    
    
    6,563
    
    
    March 2014Davis, CA
    
    Sales, sales support, research & development
    
    
    24,000
    
    
    December 2012Lindon, UT
    
    Sales, marketing, research & development
and administration
    
    
    11,986
    
    
    December 2015Herndon, VA
    
    Sales, marketing and tech support
    
    
    2,416
    
    
    October 2011Hong Kong, China
    
    Sales, marketing and administration
    
    
    4,061
    
    
    February 2013Beijing, China
    
    Sales, marketing and administration
    
    
    2,372
    
    
    November 2012Shanghai, China
    
    Sales, marketing and administration
    
    
    1,251
    
    
    June 2012Dortmund, Germany
    
    Sales, sales support, marketing and
administration
    
    
    21,485
    
    
    March 2013Breisach, Germany
    
    Sales, marketing, research & development,
manufacturing,
warehousing and administration
    
    
    8,748
    
    
    July 2013Neuilly sur Seine, France
    
    Sales and marketing
    
    
    2,895
    
    
    January 2015Ilkley, UK
    
    Sales, sales support, marketing and administration
    
    
    5,475
    
    
    October 2015Logrono, Spain
    
    Sales, research & development and administration
    
    
    3,228
    
    
    January 2017Tokyo, Japan
    
    Sales
    
    
    1,371
    
    
    November 2011Bangalore, India
    
    Sales, research & development and administration
    
    
    9,189
    
    
    July 2014
  23




---



##### Table of Contents



ITEM 3.
    
    LEGAL PROCEEDINGS
 Initial Public Offering Securities Litigation
    Shareholder Derivative Litigation
  Patent Infringement Lawsuit
  24




---



##### Table of Contents



ITEM 3.
    
    LEGAL PROCEEDINGS (CONTINUED)
  
 PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
 Stock Listing
   Stock Prices
 2010
    
    First
    
    Second
    
    Third
    
    FourthHigh
    
    $
    9.57
    
    
    $
    12.32
    
    
    $
    11.48
    
    
    $
    9.55Low
    
    $
    6.99
    
    
    $
    8.87
    
    
    $
    7.86
    
    
    $
    7.29
 2009
    
    First
    
    Second
    
    Third
    
    FourthHigh
    
    $
    11.10
    
    
    $
    8.98
    
    
    $
    10.72
    
    
    $
    10.87Low
    
    $
    6.88
    
    
    $
    6.26
    
    
    $
    6.40
    
    
    $
    8.11
 Dividend Policy
  Issuer Repurchases of Equity Securities
  25




---



##### Table of Contents



ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES (CONTINUED)
 Performance Evaluation
  
 FY05
    
    FY06
    
    FY07
    
    FY08
    
    FY09
    
    FY010Digi International Inc.
    
    
    100.00
    
    
    
    125.82
    
    
    
    132.71
    
    
    
    95.06
    
    
    
    79.40
    
    
    
    88.44CRSP Index
    
    
    100.00
    
    
    
    105.44
    
    
    
    124.80
    
    
    
    98.40
    
    
    
    78.96
    
    
    
    89.24Peer Index
    
    
    100.00
    
    
    
    111.56
    
    
    
    130.79
    
    
    
    90.70
    
    
    
    90.50
    
    
    
    115.14
 26




---



##### Table of Contents



ITEM 6.
    
    SELECTED FINANCIAL DATA
  For the fiscal years ended September 30
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Net sales (1)
    
    $
    182,548
    
    
    $
    165,928
    
    
    $
    185,056
    
    
    $
    173,263
    
    
    $
    144,663Gross profit
    
    $
    92,209
    
    
    $
    81,265
    
    
    $
    97,869
    
    
    $
    91,346
    
    
    $
    77,505Sales and marketing
    
    
    37,010
    
    
    
    35,304
    
    
    
    36,879
    
    
    
    33,499
    
    
    
    28,591Research and development
    
    
    27,825
    
    
    
    26,381
    
    
    
    27,040
    
    
    
    24,176
    
    
    
    20,861General and administrative (2)
    
    
    17,889
    
    
    
    14,557
    
    
    
    16,035
    
    
    
    13,343
    
    
    
    12,830Restructuring (benefit) costs
    
    
    (468
    )
    
    
    1,953
    
    
    
    
    
    
    
    
    
    
    
    Acquired in-process research and development
    
    
    
    
    
    
    
    
    
    
    1,900
    
    
    
    
    
    
    
    2,000Operating income
    
    
    9,953
    
    
    
    3,070
    
    
    
    16,015
    
    
    
    20,328
    
    
    
    13,223Total other income, net (3)
    
    
    566
    
    
    
    1,212
    
    
    
    2,900
    
    
    
    3,396
    
    
    
    2,044Income before income taxes
    
    
    10,519
    
    
    
    4,282
    
    
    
    18,915
    
    
    
    23,724
    
    
    
    15,267Income tax provision (4)
    
    
    1,578
    
    
    
    199
    
    
    
    6,564
    
    
    
    3,951
    
    
    
    4,154Net income
    
    $
    8,941
    
    
    $
    4,083
    
    
    $
    12,351
    
    
    $
    19,773
    
    
    $
    11,113Net income per common share, basic:Basic
    
    $
    0.36
    
    
    $
    0.16
    
    
    $
    0.48
    
    
    $
    0.78
    
    
    $
    0.48Diluted
    
    $
    0.36
    
    
    $
    0.16
    
    
    $
    0.47
    
    
    $
    0.76
    
    
    $
    0.46Balance sheet data as of September 30:Working capital (total current assets less
total current liabilities)
    
    $
    122,105
    
    
    $
    106,121
    
    
    $
    112,236
    
    
    $
    115,703
    
    
    $
    83,341Total assets
    
    $
    266,965
    
    
    $
    258,948
    
    
    $
    271,416
    
    
    $
    251,826
    
    
    $
    225,321Long-term debt and capital lease obligations
    
    $
    
    
    
    $
    9
    
    
    $
    345
    
    
    $
    358
    
    
    $
    725Stockholders equity
    
    $
    240,556
    
    
    $
    229,586
    
    
    $
    231,934
    
    
    $
    222,905
    
    
    $
    193,830Book value per common share (stockholders equity
divided by outstanding shares)
    
    $
    9.59
    
    
    $
    9.29
    
    
    $
    9.14
    
    
    $
    8.73
    
    
    $
    7.74Number of employees as of September 30
    
    
    648
    
    
    
    634
    
    
    
    663
    
    
    
    564
    
    
    
    549
 
 (1)
    
    Acquisitions provided the following net sales during the year of acquisition: MobiApps in fiscal 2009 of $0.4 million, Sarian and
Spectrum in fiscal 2008 of $6.5 million and MaxStream in fiscal 2006 of $3.2 million.(2)
    
    Included in general and administration expense in fiscal 2010 is $1.4 million ($0.9 million after tax) of investigation and
remediation expenses (see Note 19 to our Consolidated Financial Statements).(3)
    
    Included in total other income, net is an other-than-temporary impairment charge of $1.0 million ($0.7 million after tax) recorded
during fiscal 2008 on an investment in a bond issued by Lehman Brothers (see Note 6 to our Consolidated Financial Statements).(4)
    
    In fiscal 2010, 2009 and 2008, we recorded net discrete tax benefits of $2.3 million, $1.2 million and $0.5 million, respectively (see
Note 10 to our Consolidated Financial Statements). In fiscal 2007 and 2006, we reversed income tax reserves of $4.3 million and
$1.6 million, respectively, primarily due to the closing of a German tax audit and the statutory closing of a prior U.S. federal and
state tax year and other discrete tax benefits for fiscal 2007 and the settlement of tax audits with the French government in fiscal 2006. 27




---



##### Table of Contents



ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 OVERVIEW
       28




---



##### Table of Contents



ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
 OVERVIEW (CONTINUED)
  CONSOLIDATED RESULTS OF OPERATIONS
  % Increase (decrease)2010
    
    
    2009Year ended September 30,
    
    
    compared
    
    
    compared($ in thousands)
    
    2010
    
    
    2009
    
    
    2008
    
    
    to 2009
    
    
    to 2008Net sales
    
    $
    182,548
    
    
    
    100.0
    %
    
    $
    165,928
    
    
    
    100.0
    %
    
    $
    185,056
    
    
    
    100.0
    %
    
    
    10.0
    %
    
    
    (10.3
    )%Cost of sales (exclusive of amortization of
purchased
and core technology shown separately below)
    
    
    86,266
    
    
    
    47.3
    
    
    
    80,470
    
    
    
    48.5
    
    
    
    83,096
    
    
    
    44.9
    
    
    
    7.2
    
    
    
    (3.2
    )Amortization of purchased and core technology
    
    
    4,073
    
    
    
    2.2
    
    
    
    4,193
    
    
    
    2.5
    
    
    
    4,091
    
    
    
    2.2
    
    
    
    (2.9
    )
    
    
    2.5Gross profit
    
    
    92,209
    
    
    
    50.5
    
    
    
    81,265
    
    
    
    49.0
    
    
    
    97,869
    
    
    
    52.9
    
    
    
    13.5
    
    
    
    (17.0
    )Operating expenses:Sales and marketing
    
    
    37,010
    
    
    
    20.3
    
    
    
    35,304
    
    
    
    21.3
    
    
    
    36,879
    
    
    
    20.0
    
    
    
    4.8
    
    
    
    (4.3
    )Research and development
    
    
    27,825
    
    
    
    15.2
    
    
    
    26,381
    
    
    
    15.9
    
    
    
    27,040
    
    
    
    14.6
    
    
    
    5.5
    
    
    
    (2.4
    )General and administrative
    
    
    17,889
    
    
    
    9.8
    
    
    
    14,557
    
    
    
    8.7
    
    
    
    16,035
    
    
    
    8.6
    
    
    
    22.9
    
    
    
    (9.2
    )Restructuring (benefit) costs
    
    
    (468
    )
    
    
    (0.3
    )
    
    
    1,953
    
    
    
    1.2
    
    
    
    
    
    
    
    
    
    
    
    (124.0
    )
    
    
    N/MIn-process research and development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,900
    
    
    
    1.0
    
    
    
    N/M
    
    
    
    (100.0
    )Total operating expenses
    
    
    82,256
    
    
    
    45.0
    
    
    
    78,195
    
    
    
    47.1
    
    
    
    81,854
    
    
    
    44.2
    
    
    
    5.2
    
    
    
    (4.5
    )Operating income
    
    
    9,953
    
    
    
    5.5
    
    
    
    3,070
    
    
    
    1.9
    
    
    
    16,015
    
    
    
    8.7
    
    
    
    224.2
    
    
    
    (80.8
    )Total other income, net
    
    
    566
    
    
    
    0.3
    
    
    
    1,212
    
    
    
    0.7
    
    
    
    2,900
    
    
    
    1.5
    
    
    
    (53.3
    )
    
    
    (58.2
    )Income before income taxes
    
    
    10,519
    
    
    
    5.8
    
    
    
    4,282
    
    
    
    2.6
    
    
    
    18,915
    
    
    
    10.2
    
    
    
    145.7
    
    
    
    (77.4
    )Income tax provision
    
    
    1,578
    
    
    
    0.9
    
    
    
    199
    
    
    
    0.1
    
    
    
    6,564
    
    
    
    3.5
    
    
    
    693.0
    
    
    
    (97.0
    )Net income
    
    $
    8,941
    
    
    
    4.9
    %
    
    $
    4,083
    
    
    
    2.5
    %
    
    $
    12,351
    
    
    
    6.7
    %
    
    
    119.0
    %
    
    
    (66.9
    )%
  NET SALES
   29




---



##### Table of Contents



ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 NET SALES (CONTINUED)
   Net Sales by Product Category
  Net Sales
    
    
    % of Net Sales($ in millions)
    
    2010
    
    
    2009
    
    
    2008
    
    
    2010
    
    
    2009
    
    
    2008Non-embedded
    
    $
    100.1
    
    
    $
    91.2
    
    
    $
    98.5
    
    
    
    54.9
    %
    
    
    55.0
    %
    
    
    53.2
    %Embedded
    
    
    82.4
    
    
    
    74.7
    
    
    
    86.6
    
    
    
    45.1
    %
    
    
    45.0
    %
    
    
    46.8
    %Total
    
    $
    182.5
    
    
    $
    165.9
    
    
    $
    185.1
    
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 Non-Embedded
   Embedded
   30




---



##### Table of Contents



ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
 NET SALES (CONTINUED)
 Net Sales by Distribution Channel
  Net Sales
    
    
    % of Net Sales($ in millions)
    
    2010
    
    
    2009
    
    
    2008
    
    
    2010
    
    
    2009
    
    
    2008Direct / OEM channel
    
    $
    66.2
    
    
    $
    78.5
    
    
    $
    87.5
    
    
    
    36.3
    %
    
    
    47.3
    %
    
    
    47.3
    %Distribution channel
    
    
    116.3
    
    
    
    87.4
    
    
    
    97.6
    
    
    
    63.7
    %
    
    
    52.7
    %
    
    
    52.7
    %Total company
    
    $
    182.5
    
    
    $
    165.9
    
    
    $
    185.1
    
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    Net Sales by Geographic Area
  Net Sales
    
    
    % of Net Sales($ in millions)
    
    2010
    
    
    2009
    
    
    2008
    
    
    2010
    
    
    2009
    
    
    2008North America
    
    $
    107.3
    
    
    $
    90.7
    
    
    $
    107.3
    
    
    
    58.8
    %
    
    
    54.7
    %
    
    
    58.0
    %Europe, Middle East & Africa
    
    
    47.7
    
    
    
    56.0
    
    
    
    53.0
    
    
    
    26.2
    %
    
    
    33.7
    %
    
    
    28.6
    %Asian countries
    
    
    22.7
    
    
    
    15.6
    
    
    
    19.7
    
    
    
    12.4
    %
    
    
    9.4
    %
    
    
    10.6
    %Latin America
    
    
    4.8
    
    
    
    3.6
    
    
    
    5.1
    
    
    
    2.6
    %
    
    
    2.2
    %
    
    
    2.8
    %Total net sales
    
    $
    182.5
    
    
    $
    165.9
    
    
    $
    185.1
    
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    31




---



##### Table of Contents



ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
 NET SALES (CONTINUED)
  GROSS PROFIT
 2010 compared to 2009
  2009 Compared to 2008
  OPERATING EXPENSES
 2010 Compared to 2009
   32




---



##### Table of Contents



ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
 OPERATING EXPENSES (CONTINUED)
   2009 Compared to 2008
     33




---



##### Table of Contents



ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
 RESTRUCTURING
    ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
 Sarian Systems, Ltd.
   IPV6
    
    $
    1,300Gate Array
    
    
    400VPN technologies
    
    
    200Total in-process research and development
    
    $
    1,900
   34




---



##### Table of Contents



ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
 OTHER INCOME, NET
 2010 Compared to 2009
  2009 Compared to 2008
  INCOME TAXES
     35




---



##### Table of Contents



ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
 INFLATION
  LIQUIDITY AND CAPITAL RESOURCES
  Consolidated Statement of Cash Flow Highlights (in thousands)
 Year ended September 30,2010
    
    
    2009
    
    
    2008Operating activities
    
    $
    16,095
    
    
    $
    15,686
    
    
    $
    24,070Investing activities
    
    
    (15,167
    )
    
    
    25,286
    
    
    
    (22,370
    )Financing activities
    
    
    2,604
    
    
    
    (5,427
    )
    
    
    (2,564
    )Effect of exchange rate changes on cash
and cash equivalents
    
    
    (1,023
    )
    
    
    (1,287
    )
    
    
    (3,335
    )Net increase (decrease) in cash and cash equivalents
    
    $
    2,509
    
    
    $
    34,258
    
    
    $
    (4,199
    )
   36




---



##### Table of Contents



ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
 LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
     Payments due by fiscal periodLess than(in thousands)
    
    Total
    
    1 year
    
    1-3 years
    
    3-5 years
    
    ThereafterOperating leases
    
    $
    7,370
    
    
    $
    2,389
    
    
    $
    3,516
    
    
    $
    1,222
    
    
    $
    243Deferred payments on acquisition
    
    
    3,000
    
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    10,370
    
    
    $
    5,389
    
    
    $
    3,516
    
    
    $
    1,222
    
    
    $
    243
  FOREIGN CURRENCY
   37




---



##### Table of Contents



ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
 FOREIGN CURRENCY (CONTINUED)
   RECENT ACCOUNTING DEVELOPMENTS
    CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  38




---



##### Table of Contents



ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
 CRITICAL ACCOUNTING POLICIES AND ESTIMATES (CONTINUED)
       39




---



##### Table of Contents



ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
 CRITICAL ACCOUNTING POLICIES AND ESTIMATES (CONTINUED)
         40




---



##### Table of Contents



ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
 CRITICAL ACCOUNTING POLICIES AND ESTIMATES (CONTINUED)
      41




---



##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
         42




---



##### Table of Contents



ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM
  Internal Control over Financial Reporting
   
 43




---



##### Table of Contents



ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)
 DIGI INTERNATIONAL INC.  CONSOLIDATED STATEMENTS OF OPERATIONS
 For the fiscal years ended September 30,
    
    2010
    
    
    2009
    
    
    2008Net sales
    
    $
    182,548
    
    
    $
    165,928
    
    
    $
    185,056Cost of sales (exclusive of amortization of purchased
and core technology shown separately below)
    
    
    86,266
    
    
    
    80,470
    
    
    
    83,096Amortization of purchased and core technology
    
    
    4,073
    
    
    
    4,193
    
    
    
    4,091Gross profit
    
    
    92,209
    
    
    
    81,265
    
    
    
    97,869Operating expenses:Sales and marketing
    
    
    37,010
    
    
    
    35,304
    
    
    
    36,879Research and development
    
    
    27,825
    
    
    
    26,381
    
    
    
    27,040General and administrative
    
    
    17,889
    
    
    
    14,557
    
    
    
    16,035Restructuring (benefit) costs
    
    
    (468
    )
    
    
    1,953
    
    
    
    Acquired in-process research & development
    
    
    
    
    
    
    
    
    
    
    1,900Total operating expenses
    
    
    82,256
    
    
    
    78,195
    
    
    
    81,854Operating income
    
    
    9,953
    
    
    
    3,070
    
    
    
    16,015Other income (expense):Interest income
    
    
    355
    
    
    
    1,406
    
    
    
    3,579Interest expense
    
    
    (138
    )
    
    
    (257
    )
    
    
    (174
    )Impairment of marketable security
    
    
    
    
    
    
    
    
    
    
    (1,015
    )Other income, net
    
    
    349
    
    
    
    63
    
    
    
    510Total other income, net
    
    
    566
    
    
    
    1,212
    
    
    
    2,900Income before income taxes
    
    
    10,519
    
    
    
    4,282
    
    
    
    18,915Income tax provision
    
    
    1,578
    
    
    
    199
    
    
    
    6,564Net income
    
    $
    8,941
    
    
    $
    4,083
    
    
    $
    12,351Net income per common share:Basic
    
    $
    0.36
    
    
    $
    0.16
    
    
    $
    0.48Diluted
    
    $
    0.36
    
    
    $
    0.16
    
    
    $
    0.47Weighted average common shares, basic
    
    
    24,865
    
    
    
    24,901
    
    
    
    25,659Weighted average common shares, diluted
    
    
    25,154
    
    
    
    25,183
    
    
    
    26,242
  44




---



##### Table of Contents



ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)
 DIGI INTERNATIONAL INC.  CONSOLIDATED BALANCE SHEETS
 As of September 30,
    
    2010
    
    
    2009ASSETSCurrent assets:Cash and cash equivalents
    
    $
    50,943
    
    
    $
    48,434Marketable securities
    
    
    36,634
    
    
    
    22,311Accounts receivable, net
    
    
    24,090
    
    
    
    19,032Inventories
    
    
    26,550
    
    
    
    26,619Deferred tax assets
    
    
    3,344
    
    
    
    2,415Other
    
    
    2,141
    
    
    
    3,844Total current assets
    
    
    143,702
    
    
    
    122,655Marketable securities
    
    
    
    
    
    
    5,063Property, equipment and improvements, net
    
    
    16,396
    
    
    
    16,678Identifiable intangible assets, net
    
    
    19,851
    
    
    
    26,877Goodwill
    
    
    86,210
    
    
    
    86,558Deferred tax assets
    
    
    320
    
    
    
    440Other
    
    
    486
    
    
    
    677Total assets
    
    $
    266,965
    
    
    $
    258,948LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    7,449
    
    
    $
    5,567Accrued expenses:Compensation
    
    
    5,850
    
    
    
    3,275Warranty
    
    
    877
    
    
    
    970Other
    
    
    4,507
    
    
    
    3,756Deferred payment on acquisition
    
    
    2,914
    
    
    
    2,966Total current liabilities
    
    
    21,597
    
    
    
    16,534Deferred tax liabilities
    
    
    1,457
    
    
    
    4,331Income taxes payable
    
    
    2,838
    
    
    
    4,893Deferred payment on acquisition
    
    
    
    
    
    
    2,812Other noncurrent liabilities
    
    
    517
    
    
    
    792Total liabilities
    
    
    26,409
    
    
    
    29,362Commitments and contingenciesStockholders equity:Preferred stock, $.01 par value; 2,000,000 shares authorized; none
issued and outstanding
    
    
    
    
    
    
    Common stock, $.01 par value; 60,000,000 shares authorized;
28,666,311 and 28,409,198 shares issued
    
    
    287
    
    
    
    284Additional paid-in capital
    
    
    185,427
    
    
    
    181,282Retained earnings
    
    
    91,649
    
    
    
    82,708Accumulated other comprehensive loss
    
    
    (9,589
    )
    
    
    (6,527
    )Treasury stock, at cost, 3,584,215 and 3,708,302 shares
    
    
    (27,218
    )
    
    
    (28,161
    )Total stockholders equity
    
    
    240,556
    
    
    
    229,586Total liabilities and stockholders equity
    
    $
    266,965
    
    
    $
    258,948
  45




---



##### Table of Contents



ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)
 DIGI INTERNATIONAL INC.  CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the fiscal years ended September 30,
    
    2010
    
    
    2009
    
    
    2008Operating activities:Net income
    
    $
    8,941
    
    
    $
    4,083
    
    
    $
    12,351Adjustments to reconcile net income to net cash provided by operating activities:Depreciation of property, equipment and improvements
    
    
    2,649
    
    
    
    2,581
    
    
    
    2,488Amortization of identifiable intangible assets and other assets
    
    
    7,484
    
    
    
    7,476
    
    
    
    6,830Bad debt/product return (benefit) provision, net
    
    
    175
    
    
    
    (265
    )
    
    
    308Inventory obsolescence
    
    
    848
    
    
    
    881
    
    
    
    536Excess tax benefits from stock-based compensation
    
    
    (47
    )
    
    
    (80
    )
    
    
    (184
    )Impairment on marketable security
    
    
    
    
    
    
    
    
    
    
    1,015Stock-based compensation
    
    
    3,371
    
    
    
    3,518
    
    
    
    3,697Deferred income taxes, net
    
    
    (3,656
    )
    
    
    (2,714
    )
    
    
    (1,624
    )Restructuring
    
    
    (468
    )
    
    
    
    
    
    
    Acquired in-process research & development
    
    
    
    
    
    
    
    
    
    
    1,900Other
    
    
    27
    
    
    
    (230
    )
    
    
    (145
    )Changes in operating assets and liabilities (net of acquisitions):Accounts receivable
    
    
    (6,525
    )
    
    
    5,384
    
    
    
    (1,838
    )Inventories
    
    
    (891
    )
    
    
    2,695
    
    
    
    (3,093
    )Other assets
    
    
    749
    
    
    
    193
    
    
    
    96Income taxes (receivable) payable
    
    
    (1,235
    )
    
    
    (1,090
    )
    
    
    7Accounts payable
    
    
    1,486
    
    
    
    (4,561
    )
    
    
    3,322Accrued expenses
    
    
    3,187
    
    
    
    (2,185
    )
    
    
    (1,596
    )Net cash provided by operating activities
    
    $
    16,095
    
    
    $
    15,686
    
    
    $
    24,070Investing activities:Purchase of marketable securities
    
    
    (38,538
    )
    
    
    (30,489
    )
    
    
    (69,196
    )Proceeds from maturities of marketable securities
    
    
    29,335
    
    
    
    62,624
    
    
    
    77,857Proceeds from sale of property and equipment
    
    
    11
    
    
    
    10
    
    
    
    6,954Purchase of property, equipment, improvements and certain
other intangible assets
    
    
    (2,975
    )
    
    
    (3,873
    )
    
    
    (4,425
    )Increase in restricted cash  non-current
    
    
    
    
    
    
    
    
    
    
    (392
    )Contingent purchase price payments related to acquisition
    
    
    
    
    
    
    
    
    
    
    (1,315
    )Deferred cash payout for acquisition of business
    
    
    (3,000
    )
    
    
    
    
    
    
    Acquisition of businesses, net of cash acquired
    
    
    
    
    
    
    (2,986
    )
    
    
    (31,853
    )Net cash (used in) provided by investing activities
    
    
    (15,167
    )
    
    
    25,286
    
    
    
    (22,370
    )Financing activities:Payments on capital lease obligations
    
    
    (9
    )
    
    
    (336
    )
    
    
    (361
    )Borrowing on note payable
    
    
    
    
    
    
    
    
    
    
    25,000Payment on note payable
    
    
    
    
    
    
    
    
    
    
    (25,000
    )Purchase of treasury stock
    
    
    
    
    
    
    (6,576
    )
    
    
    (5,104
    )Proceeds from stock option plan transactions
    
    
    1,672
    
    
    
    423
    
    
    
    1,699Proceeds from employee stock purchase plan transactions
    
    
    894
    
    
    
    982
    
    
    
    1,018Excess tax benefits from stock-based compensation
    
    
    47
    
    
    
    80
    
    
    
    184Net cash provided by (used in) financing activities
    
    
    2,604
    
    
    
    (5,427
    )
    
    
    (2,564
    )Effect of exchange rates changes on cash and cash equivalents
    
    
    (1,023
    )
    
    
    (1,287
    )
    
    
    (3,335
    )Net increase (decrease) in cash and cash equivalents
    
    
    2,509
    
    
    
    34,258
    
    
    
    (4,199
    )Cash and cash equivalents, beginning of period
    
    
    48,434
    
    
    
    14,176
    
    
    
    18,375Cash and cash equivalents, end of period
    
    $
    50,943
    
    
    $
    48,434
    
    
    $
    14,176Supplemental Cash Flows Information:Interest paid
    
    $
    159
    
    
    $
    54
    
    
    $
    136Income taxes paid, net
    
    $
    6,479
    
    
    $
    3,944
    
    
    $
    8,143Other non-cash financing and investing items:Deferred payment liability related to acquisition
    
    $
    
    
    
    $
    
    
    
    $
    5,537Equipment acquired under capital lease
    
    $
    
    
    
    $
    
    
    
    $
    9
  46




---



##### Table of Contents



ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)
 DIGI INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS)
  AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    Treasury Stock
    
    
    Paid-In
    
    
    Retained
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Par Value
    
    
    Shares
    
    
    Value
    
    
    Capital
    
    
    Earnings
    
    
    Income
    
    
    EquityBalances, September 30, 2007
    
    
    28,154
    
    
    $
    281
    
    
    
    2,606
    
    
    $
    (18,435
    )
    
    $
    172,156
    
    
    $
    66,782
    
    
    $
    2,121
    
    
    $
    222,905Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,351
    
    
    
    
    
    
    
    12,351Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,018
    )
    
    
    (4,018
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,333Cumulative effect from adoption
of FIN 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (508
    )
    
    
    
    
    
    
    (508
    )Employee stock purchase issuances
    
    
    
    
    
    
    
    
    
    
    (117
    )
    
    
    848
    
    
    
    170
    
    
    
    
    
    
    
    
    
    
    
    1,018Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    471
    
    
    
    (5,104
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,104
    )Issuance of stock upon exercise of
stock options
    
    
    182
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    1,697
    
    
    
    
    
    
    
    
    
    
    
    1,699Tax benefit realized upon exercise
of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (106
    )
    
    
    
    
    
    
    
    
    
    
    (106
    )Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,697
    
    
    
    
    
    
    
    
    
    
    
    3,697Balances, September 30, 2008
    
    
    28,336
    
    
    
    283
    
    
    
    2,960
    
    
    
    (22,691
    )
    
    
    177,614
    
    
    
    78,625
    
    
    
    (1,897
    )
    
    $
    231,934Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,083
    
    
    
    
    
    
    
    4,083Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,622
    )
    
    
    (4,622
    )Net unrealized (loss) gain on
investments
(net of related tax effect of $2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    (4
    )Reclassification of gain into net
income
(net of related tax effect of $3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    (4
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (547
    )Employee stock purchase issuances
    
    
    
    
    
    
    
    
    
    
    (145
    )
    
    
    1,106
    
    
    
    (124
    )
    
    
    
    
    
    
    
    
    
    
    982Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    893
    
    
    
    (6,576
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,576
    )Issuance of stock upon exercise of
stock options
    
    
    73
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    422
    
    
    
    
    
    
    
    
    
    
    
    423Tax benefit realized upon exercise
of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (148
    )
    
    
    
    
    
    
    
    
    
    
    (148
    )Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,518
    
    
    
    
    
    
    
    
    
    
    
    3,518Balances, September 30, 2009
    
    
    28,409
    
    
    
    284
    
    
    
    3,708
    
    
    
    (28,161
    )
    
    
    181,282
    
    
    
    82,708
    
    
    
    (6,527
    )
    
    $
    229,586Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,941
    
    
    
    
    
    
    
    8,941Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,074
    )
    
    
    (3,074
    )Net unrealized gain on investments
(net of related tax effect of $22)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34
    
    
    
    34Reclassification of gain into net
income
(net of related tax effect of $14)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22
    )
    
    
    (22
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,879Employee stock purchase issuances
    
    
    
    
    
    
    
    
    
    
    (124
    )
    
    
    943
    
    
    
    (49
    )
    
    
    
    
    
    
    
    
    
    
    894Issuance of stock upon exercise of
stock options
    
    
    257
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    1,669
    
    
    
    
    
    
    
    
    
    
    
    1,672Tax benefit realized upon exercise
of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (846
    )
    
    
    
    
    
    
    
    
    
    
    (846
    )Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,371
    
    
    
    
    
    
    
    
    
    
    
    3,371Balances, September 30, 2010
    
    
    28,666
    
    
    
    287
    
    
    
    3,584
    
    
    
    (27,218
    )
    
    
    185,427
    
    
    
    91,649
    
    
    
    (9,589
    )
    
    $
    240,556
  47




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 BUSINESS DESCRIPTION
  PRINCIPLES OF CONSOLIDATION
  CASH EQUIVALENTS
  MARKETABLE SECURITIES
   ACCOUNTS RECEIVABLE
  48




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 ACCOUNTS RECEIVABLE (CONTINUED)
  INVENTORIES
  PROPERTY, EQUIPMENT AND IMPROVEMENTS, NET
   IDENTIFIABLE INTANGIBLE ASSETS
   49




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 GOODWILL
   
    
    At least 50 percent of a target companys equity sought by an acquirer,
    
    Target company considered operating (not in bankruptcy),
    
    Target company had publicly traded stock outstanding at the transaction date, and
    
    Transactions announced between June 30, 2006 and the valuation date.
    50




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 GOODWILL (CONTINUED)
   REVENUE RECOGNITION
    RESEARCH AND DEVELOPMENT
  51




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  INCOME TAXES
  NET INCOME PER COMMON SHARE
   Years ended September 30,
    
    2010
    
    
    2009
    
    
    2008Numerator:Net income
    
    $
    8,941
    
    
    $
    4,083
    
    
    $
    12,351Denominator:Denominator for basic net income per common
share  weighted average shares outstanding
    
    
    24,865
    
    
    
    24,901
    
    
    
    25,659Effect of dilutive securities:Employee stock options and employee stock purchase plan
    
    
    289
    
    
    
    282
    
    
    
    583Denominator for diluted net income per common
share  adjusted weighted average shares
    
    
    25,154
    
    
    
    25,183
    
    
    
    26,242Basic net income per common share
    
    $
    0.36
    
    
    $
    0.16
    
    
    $
    0.48Diluted net income per common share
    
    $
    0.36
    
    
    $
    0.16
    
    
    $
    0.47
   52




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 STOCK-BASED COMPENSATION
  FOREIGN CURRENCY TRANSLATION
  USE OF ESTIMATES AND RISKS AND UNCERTAINTIES
  RECLASSIFICATIONS
  COMPREHENSIVE INCOME (LOSS)
  RECENT ACCOUNTING DEVELOPMENTS
  53




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 RECENT ACCOUNTING DEVELOPMENTS (CONTINUED)
   2. ACQUISITIONS
 MobiApps Holdings Private Limited
   Sarian Systems, Ltd.
   54




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 2. ACQUISITIONS (CONTINUED)
  Year endedSeptember 30, 2008Net sales
    
    $
    192,734Net income
    
    $
    11,537Net income per common share, basic
    
    $
    0.45Net income per common share, diluted
    
    $
    0.44
  Spectrum Design Solutions, Inc.
   55




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 3. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS, NET
 Identifiable Intangible Assets, net
  As of September 30, 2010
    
    As of September 30, 2009Gross
    
    
    
    
    
    
    
    
    
    Grosscarrying
    
    Accumulated
    
    
    
    
    
    carrying
    
    Accumulatedamount
    
    amortization
    
    Net
    
    amount
    
    amortization
    
    NetPurchased and core technology
    
    $
    46,484
    
    
    $
    (38,917
    )
    
    $
    7,567
    
    
    $
    46,583
    
    
    $
    (34,893
    )
    
    $
    11,690License agreements
    
    
    2,840
    
    
    
    (2,537
    )
    
    
    303
    
    
    
    2,840
    
    
    
    (2,464
    )
    
    
    376Patents and trademarks
    
    
    9,753
    
    
    
    (6,522
    )
    
    
    3,231
    
    
    
    9,292
    
    
    
    (5,536
    )
    
    
    3,756Customer maintenance contracts
    
    
    700
    
    
    
    (604
    )
    
    
    96
    
    
    
    700
    
    
    
    (534
    )
    
    
    166Customer relationships
    
    
    17,481
    
    
    
    (9,096
    )
    
    
    8,385
    
    
    
    17,607
    
    
    
    (7,334
    )
    
    
    10,273Non-compete agreements
    
    
    1,039
    
    
    
    (770
    )
    
    
    269
    
    
    
    1,041
    
    
    
    (425
    )
    
    
    616Total
    
    $
    78,297
    
    
    $
    (58,446
    )
    
    $
    19,851
    
    
    $
    78,063
    
    
    $
    (51,186
    )
    
    $
    26,877
  Fiscal year
    
    Total2010
    
    $
    7,4842009
    
    $
    7,4762008
    
    $
    6,830
  Fiscal year
    
    Total2011
    
    $
    6,3582012
    
    $
    4,4672013
    
    $
    3,4322014
    
    $
    2,7842015
    
    $
    1,304
 Goodwill
  2010
    
    
    2009Beginning balance, October 1
    
    $
    86,558
    
    
    $
    86,578Acquisition of MobiApps
    
    
    
    
    
    
    1,701Currency translation adjustments
    
    
    (348
    )
    
    
    (1,721
    )Ending balance, September 30
    
    $
    86,210
    
    
    $
    86,558
 56




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 4. SEGMENT INFORMATION AND MAJOR CUSTOMERS
  Year ended September 30,2010
    
    
    2009
    
    
    2008Non-embedded
    
    $
    100,146
    
    
    $
    91,262
    
    
    $
    98,442Embedded
    
    
    82,402
    
    
    
    74,666
    
    
    
    86,614Total net sales
    
    $
    182,548
    
    
    $
    165,928
    
    
    $
    185,056
  Year ended September 30,2010
    
    
    2009
    
    
    2008North America
    
    $
    107,347
    
    
    $
    90,708
    
    
    $
    107,336Europe, Middle East & Africa
    
    
    47,698
    
    
    
    56,018
    
    
    
    52,956Asia countries
    
    
    22,742
    
    
    
    15,578
    
    
    
    19,672Latin America
    
    
    4,761
    
    
    
    3,624
    
    
    
    5,092Total net sales
    
    $
    182,548
    
    
    $
    165,928
    
    
    $
    185,056
  As of September 30,2010
    
    
    2009
    
    
    2008United States
    
    $
    15,015
    
    
    $
    15,324
    
    
    $
    14,920International, primarily Europe
    
    
    1,381
    
    
    
    1,354
    
    
    
    1,335Total net property, equipment and improvements
    
    $
    16,396
    
    
    $
    16,678
    
    
    $
    16,255
   57




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 5. SELECTED BALANCE SHEET DATA
 As of September 30, (in thousands)
    
    2010
    
    
    2009Accounts receivable, net:Accounts receivable
    
    $
    24,639
    
    
    $
    19,656Less allowance for doubtful accounts
    
    
    549
    
    
    
    624$
    24,090
    
    
    $
    19,032Inventories:Raw materials
    
    $
    21,678
    
    
    $
    21,359Work in process
    
    
    418
    
    
    
    452Finished goods
    
    
    4,454
    
    
    
    4,808$
    26,550
    
    
    $
    26,619Property, equipment and improvements, net:Land
    
    $
    1,800
    
    
    $
    1,800Buildings
    
    
    10,522
    
    
    
    10,522Improvements
    
    
    3,904
    
    
    
    3,542Equipment *
    
    
    12,625
    
    
    
    11,194Purchased software
    
    
    11,157
    
    
    
    10,788Furniture and fixtures
    
    
    2,886
    
    
    
    3,00242,894
    
    
    
    40,848Less accumulated depreciation and amortization
    
    
    26,498
    
    
    
    24,170$
    16,396
    
    
    $
    16,678Other accrued expenses:Deferred revenue
    
    $
    266
    
    
    $
    50Accrued professional fees
    
    
    838
    
    
    
    696Deferred gain on building sale  short-term
    
    
    289
    
    
    
    276Income taxes payable
    
    
    564
    
    
    
    Deferred income tax liability  current
    
    
    82
    
    
    
    48Restructuring
    
    
    73
    
    
    
    721Other accrued expenses
    
    
    2,395
    
    
    
    1,965$
    4,507
    
    
    $
    3,756
 
 *
    
    Included in equipment is an immaterial amount under capital leases at September 30, 2010. 6. MARKETABLE SECURITIES
   58




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 6. MARKETABLE SECURITIES (CONTINUED)
    Amortized
    
    
    Unrealized
    
    
    UnrealizedCost (1)
    
    
    Gains
    
    
    Losses (2)
    
    
    Fair Value (1)Current marketable securities:Corporate bonds
    
    $
    26,163
    
    
    $
    7
    
    
    $
    (9
    )
    
    $
    26,161Certificates of deposit
    
    
    5,001
    
    
    
    6
    
    
    
    
    
    
    
    5,007Government municipal bonds
    
    
    5,463
    
    
    
    5
    
    
    
    (2
    )
    
    
    5,466Current marketable securities
    
    $
    36,627
    
    
    $
    18
    
    
    $
    (11
    )
    
    $
    36,634
 
 (1)
    
    Included in amortized cost and fair value is purchased and accrued interest of $451.(2)
    
    The aggregate related fair value of securities with unrealized losses as of September 30, 2010 was $18,909.  Amortized
    
    
    Unrealized
    
    
    UnrealizedCost (1)
    
    
    Gains
    
    
    Losses (3)
    
    
    Fair Value (1)Current marketable securities:Corporate bonds (2)
    
    $
    4,236
    
    
    $
    18
    
    
    $
    
    
    
    $
    4,254Certificates of deposit
    
    
    10,022
    
    
    
    4
    
    
    
    (1
    )
    
    
    10,025Government municipal bonds
    
    
    8,023
    
    
    
    11
    
    
    
    (2
    )
    
    
    8,032Current marketable securities
    
    
    22,281
    
    
    
    33
    
    
    
    (3
    )
    
    
    22,311Non-current marketable securities:Corporate bonds
    
    
    5,107
    
    
    
    
    
    
    
    (44
    )
    
    
    5,063Total marketable securities
    
    $
    27,388
    
    
    $
    33
    
    
    $
    (47
    )
    
    $
    27,374
 
 (1)
    
    Included in amortized cost and fair value is purchased and accrued interest of $264.(2)
    
    The remaining portion of the Lehman Brothers Bond is included in amortized cost at a fair value
of $134.(3)
    
    The aggregate related fair value of securities with unrealized losses as of September 30, 2009
was $9,009. 59




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 7. FAIR VALUE MEASUREMENTS
   
    
    Level 1  Inputs are quoted prices in active markets for identical assets or liabilities.
    
    Level 2  Inputs include quoted prices for similar assets or liabilities in active
markets, quoted prices for identical or similar assets or liabilities in markets that
are not active, and inputs (other than quoted prices) that are observable for the asset
or liability, either directly or indirectly.
    
    Level 3  Inputs are unobservable for the asset or liability and their fair values are
determined using pricing models, discounted cash flow methodologies or similar
techniques and at least one significant model assumption or input is unobservable.
Level 3 also may include certain investment securities for which there is limited market
activity or a decrease in the observability of market pricing for the investments, such
that the determination of fair value requires significant judgment or estimation.
 Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
   Fair Value Measurements at September 30, 2010 using:Total carrying
    
    
    Quoted price in
    
    
    Significant other
    
    
    Significantvalue at
    
    
    active markets
    
    
    observable inputs
    
    
    unobservable inputsSeptember 30, 2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Cash equivalents:Money market
    
    $
    29,416
    
    
    $
    29,416
    
    
    $
    
    
    
    $
    Available-for-sale marketable securities:Corporate bonds
    
    
    26,161
    
    
    
    
    
    
    
    26,161
    
    
    
    Certificates of deposit
    
    
    5,007
    
    
    
    
    
    
    
    5,007
    
    
    
    Government municipal bonds
    
    
    5,466
    
    
    
    
    
    
    
    5,466
    
    
    
    Total cash equivalents and marketable
securities measured at fair value
    
    $
    66,050
    
    
    $
    29,416
    
    
    $
    36,634
    
    
    $
    
 60




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 7. FAIR VALUE MEASUREMENTS (CONTINUED)
 Fair Value Measurements at September 30, 2009 Using:Total carrying
    
    
    Quoted price in
    
    
    Significant other
    
    
    Significantvalue at
    
    
    active markets
    
    
    observable inputs
    
    
    unobservable inputsSeptember 30, 2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Cash equivalents:Money market
    
    $
    33,588
    
    
    $
    33,588
    
    
    $
    
    
    
    $
    Available-for-sale marketable securities:Corporate bonds
    
    
    9,317
    
    
    
    
    
    
    
    9,183
    
    
    
    134Certificates of deposit
    
    
    10,025
    
    
    
    
    
    
    
    10,025
    
    
    
    Government municipal bonds
    
    
    8,032
    
    
    
    
    
    
    
    8,032
    
    
    
    Total cash equivalents and marketable
securities measured at fair value
    
    $
    60,962
    
    
    $
    33,588
    
    
    $
    27,240
    
    
    $
    134
    Balance at September 30, 2009
    
    $
    134Realized gain recorded in other income (expense)
    
    
    36Sale of security
    
    
    (170
    )Balance at September 30, 2010
    
    $
    
  8. FINANCIAL GUARANTEES
  61




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 8. FINANCIAL GUARANTEES (CONTINUED)
  Accruals forFiscal
    
    Balance at
    
    Warranties
    
    Settlements
    
    Balance atyear
    
    October 1,
    
    issued
    
    made
    
    September 30,2010
    
    $
    970
    
    
    $
    738
    
    
    $
    (831
    )
    
    $
    8772009
    
    $
    1,214
    
    
    $
    612
    
    
    $
    (856
    )
    
    $
    9702008
    
    $
    1,155
    
    
    $
    979
    
    
    $
    (920
    )
    
    $
    1,214
  9. RESTRUCTURING
   EmployeeTermination Costs
    
    
    Other
    
    
    TotalBalance at September 30, 2008
    
    $
    
    
    
    $
    
    
    
    $
    Restructuring charge
    
    
    1,766
    
    
    
    187
    
    
    
    1,953Payments
    
    
    (1,146
    )
    
    
    (86
    )
    
    
    (1,232
    )Balance at September 30, 2009
    
    $
    620
    
    
    $
    101
    
    
    $
    721Restructuring charge
    
    
    75
    
    
    
    
    
    
    
    75Payments
    
    
    (244
    )
    
    
    (11
    )
    
    
    (255
    )Reversal
    
    
    (438
    )
    
    
    (30
    )
    
    
    (468
    )Balance at September 30, 2010
    
    $
    13
    
    
    $
    60
    
    
    $
    73
  62




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 9. RESTRUCTURING (CONTINUED)
  10. INCOME TAXES
  For the years ended September 30,2010
    
    
    2009
    
    
    2008United States
    
    $
    7,080
    
    
    $
    1,582
    
    
    $
    16,648International
    
    
    3,439
    
    
    
    2,700
    
    
    
    2,267$
    10,519
    
    
    $
    4,282
    
    
    $
    18,915
  For the years ended September 30,2010
    
    
    2009
    
    
    2008Current:Federal
    
    $
    3,072
    
    
    $
    1,160
    
    
    $
    6,654State
    
    
    327
    
    
    
    292
    
    
    
    622Foreign
    
    
    1,835
    
    
    
    1,461
    
    
    
    912Deferred:U.S.
    
    
    (3,052
    )
    
    
    (1,829
    )
    
    
    (1,983
    )Foreign
    
    
    (604
    )
    
    
    (885
    )
    
    
    359$
    1,578
    
    
    $
    199
    
    
    $
    6,564
  2010
    
    
    2009Current deferred tax assets
    
    $
    3,344
    
    
    $
    2,415Non-current deferred tax asset
    
    
    320
    
    
    
    440Current deferred tax liability
    
    
    (82
    )
    
    
    (48
    )Non-current deferred tax liability
    
    
    (1,457
    )
    
    
    (4,331
    )Net deferred tax asset (liability)
    
    $
    2,125
    
    
    $
    (1,524
    )
 2010
    
    
    2009Uncollectible accounts and other reserves
    
    $
    2,387
    
    
    $
    2,030Depreciation and amortization
    
    
    654
    
    
    
    567Inventories
    
    
    856
    
    
    
    165Compensation costs
    
    
    3,323
    
    
    
    2,999Tax credit carryforwards
    
    
    297
    
    
    
    329Identifiable intangible assets
    
    
    (5,392
    )
    
    
    (7,614
    )Net deferred tax asset (liability)
    
    $
    2,125
    
    
    $
    (1,524
    )
  63




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 10. INCOME TAXES (CONTINUED)
   2010
    
    2009
    
    2008Statutory income tax rate
    
    
    35.0
    %
    
    
    34.0
    %
    
    
    35.0
    %Increase (decrease) resulting from:State taxes, net of federal benefits
    
    
    1.1
    
    
    
    1.8
    
    
    
    0.2Utilization of tax credits
    
    
    (0.7
    )
    
    
    (15.6
    )
    
    
    (2.0
    )Manufacturing deduction
    
    
    (2.9
    )
    
    
    (2.9
    )
    
    
    (2.6
    )Foreign taxes
    
    
    (0.3
    )
    
    
    (9.0
    )
    
    
    (0.1
    )Research and development credit related to 2008
    
    
    
    
    
    
    (13.3
    )
    
    
    Acquired in-process research and development
    
    
    
    
    
    
    
    
    
    
    2.8Adjustment of tax contingency reserves
    
    
    (18.9
    )
    
    
    4.2
    
    
    
    1.4Non-deductible stock-based compensation
    
    
    0.9
    
    
    
    3.3
    
    
    
    0.7Other, net
    
    
    0.8
    
    
    
    2.1
    
    
    
    (0.7
    )15.0
    %
    
    
    4.6
    %
    
    
    34.7
    %
  Fiscal year ended September 30,2010
    
    
    2009
    
    
    2008Unrecognized tax benefits at beginning of fiscal year
    
    $
    4,146
    
    
    $
    3,652
    
    
    $
    3,464Increases related to:Prior year income tax positions
    
    
    36
    
    
    
    200
    
    
    
    27Current year income tax positions
    
    
    195
    
    
    
    838
    
    
    
    471Decreases related to:Prior year income tax positions
    
    
    
    
    
    
    
    
    
    
    (32
    )Settlements
    
    
    (1,740
    )
    
    
    (94
    )
    
    
    Expiration of the statute of limitations
    
    
    (372
    )
    
    
    (450
    )
    
    
    (278
    )Unrecognized tax benefits at end of fiscal year
    
    $
    2,265
    
    
    $
    4,146
    
    
    $
    3,652
   64




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 10. INCOME TAXES (CONTINUED)
       11. STOCK-BASED COMPENSATION
  65




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 11. STOCK-BASED COMPENSATION (CONTINUED)
      66




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 11. STOCK-BASED COMPENSATION (CONTINUED)
  Year ended September 30,2010
    
    
    2009
    
    
    2008Cost of sales
    
    $
    149
    
    
    $
    152
    
    
    $
    181Sales and marketing
    
    
    1,185
    
    
    
    1,269
    
    
    
    1,251Research and development
    
    
    739
    
    
    
    833
    
    
    
    858General and administrative
    
    
    1,298
    
    
    
    1,264
    
    
    
    1,407Stock-based compensation before income taxes
    
    
    3,371
    
    
    
    3,518
    
    
    
    3,697Income tax benefit
    
    
    (1,121
    )
    
    
    (1,141
    )
    
    
    (1,223
    )Stock-based compensation after income taxes
    
    $
    2,250
    
    
    $
    2,377
    
    
    $
    2,474
   WeightedOptions
    
    
    
    
    
    
    Weighted
    
    
    Average
    
    
    AggregateAvailable
    
    
    Options
    
    
    Average
    
    
    Contractual Term
    
    
    Intrinsicfor Grant
    
    
    Outstanding
    
    
    Exercise Price
    
    
    (in years)
    
    
    Value (1)Balance at September 30, 2009
    
    
    1,305
    
    
    
    4,714
    
    
    $
    11.10Additional Shares approved for
grant
    
    
    2,500Granted
    
    
    (1,017
    )
    
    
    1,017
    
    
    
    8.29Exercised
    
    
    
    
    
    
    (257
    )
    
    
    9.43Cancelled
    
    
    749
    
    
    
    (846
    )
    
    
    13.26Balance at September 30, 2010
    
    
    3,537
    
    
    
    4,628
    
    
    $
    10.34
    
    
    
    6.2
    
    
    $
    4,253Exercisable at September 30, 2010
    
    
    
    
    
    
    3,207
    
    
    $
    10.86
    
    
    
    5.0
    
    
    $
    2,843
 
 (1)
    
    The aggregate intrinsic value represents the total pre-tax intrinsic value, based on our
closing stock price of $9.49 as of September 30, 2010, which would have been received by the option
holders had all option holders exercised their options as of that date.   2010
    
    
    2009
    
    
    2008Fair value of options granted (in thousands)
    
    $
    3,445
    
    
    $
    2,667
    
    
    $
    3,727Weighted average per option grant date fair value
    
    $
    3.39
    
    
    $
    3.27
    
    
    $
    5.17Assumptions used for option grants:Risk free interest rate
    
    
    1.86% - 2.4
    %
    
    
    1.57% - 2.41
    %
    
    
    2.53% - 3.41
    %Expected term
    
    4.5 - 5 years
    
    4.5 - 5 years
    
    4 - 5 yearsExpected volatility
    
    
    43% - 45
    %
    
    
    41% - 45
    %
    
    
    36% - 45
    %Weighted average volatility
    
    
    44
    %
    
    
    42
    %
    
    
    40
    %Expected dividend yield
    
    
    0
    
    
    
    0
    
    
    
    0
 67




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 11. STOCK-BASED COMPENSATION (CONTINUED)
   Weighted AverageGrant DateNumber of
    
    Fair Value perOptions
    
    Common ShareNonvested at September
30, 2009
    
    
    1,285
    
    
    $
    3.80Granted
    
    
    1,017
    
    
    $
    3.39Vested
    
    
    (721
    )
    
    $
    3.96Forfeited
    
    
    (160
    )
    
    $
    3.77Nonvested at September
30, 2010
    
    
    1,421
    
    
    $
    3.42
   Options Outstanding
    
    Options ExercisableWeightedAverageRemaining
    
    Weighted
    
    Number of
    
    WeightedRange of
    
    Options
    
    Contractual Life
    
    Average
    
    Shares
    
    AverageExercise Prices
    
    Outstanding
    
    ( In Years)
    
    Exercise Price
    
    Vested
    
    Exercise Price$2.19  - $6.00
    
    
    313
    
    
    
    1.88
    
    
    $
    4.32
    
    
    
    313
    
    
    $
    4.32$6.01  - $8.00
    
    
    393
    
    
    
    2.99
    
    
    $
    7.32
    
    
    
    387
    
    
    $
    7.31$8.01  - $9.00
    
    
    1,404
    
    
    
    8.70
    
    
    $
    8.23
    
    
    
    338
    
    
    $
    8.40$9.01  - $11.00
    
    
    778
    
    
    
    5.32
    
    
    $
    10.17
    
    
    
    585
    
    
    $
    10.19$11.01  - $13.00
    
    
    527
    
    
    
    5.79
    
    
    $
    12.52
    
    
    
    519
    
    
    $
    12.53$13.01 - $14.00
    
    
    447
    
    
    
    5.99
    
    
    $
    13.42
    
    
    
    431
    
    
    $
    13.42$14.01 - $15.00
    
    
    240
    
    
    
    4.34
    
    
    $
    14.72
    
    
    
    237
    
    
    $
    14.73$15.01 - $16.88
    
    
    526
    
    
    
    6.75
    
    
    $
    15.29
    
    
    
    398
    
    
    $
    15.30$2.19 - $16.88
    
    
    4,628
    
    
    
    6.15
    
    
    $
    10.34
    
    
    
    3,208
    
    
    $
    10.86
  68




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 12. SALE AND LEASEBACK OF BUILDING
    13. COMMON STOCK REPURCHASE
  14. SHARE RIGHTS PLAN
  15. EMPLOYEE BENEFIT PLANS
   69




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 16. COMMITMENTS
   AmountFiscal Year
    
    (in thousands)2011
    
    $
    2,3892012
    
    
    2,1722013
    
    
    1,3442014
    
    
    7232015
    
    
    499Thereafter
    
    
    243Total minimum payments required
    
    $
    7,370
  2010
    
    
    2009
    
    
    2008Rentals
    
    $
    3,447
    
    
    $
    3,602
    
    
    $
    3,041Less: sublease rentals
    
    
    
    
    
    
    
    
    
    
    (301
    )$
    3,447
    
    
    $
    3,602
    
    
    $
    2,740
 17. CONTINGENCIES
 Initial Public Offering Securities Litigation
 In re Initial Public Offering Securities
Litigation
 Shareholder Derivative Litigation
  70




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 17. CONTINGENCIES (CONTINUED)
 Patent Infringement Lawsuit
   18. QUARTERLY FINANCIAL DATA (UNAUDITED)
  Quarter endedDec. 31
    
    Mar. 31
    
    June 30
    
    Sept. 302010Net sales
    
    $
    42,968
    
    
    $
    45,076
    
    
    $
    47,238
    
    
    $
    47,266Gross profit
    
    
    21,713
    
    
    
    22,748
    
    
    
    23,718
    
    
    
    24,030Net income (1)(2)(3)
    
    
    1,199
    
    
    
    1,686
    
    
    
    3,812
    
    
    
    2,244Net income per common share  basic
    
    
    0.05
    
    
    
    0.07
    
    
    
    0.15
    
    
    
    0.09Net income per common share  diluted
    
    
    0.05
    
    
    
    0.07
    
    
    
    0.15
    
    
    
    0.092009Net sales
    
    $
    41,361
    
    
    $
    40,085
    
    
    $
    44,470
    
    
    $
    40,012Gross profit
    
    
    21,248
    
    
    
    19,169
    
    
    
    21,437
    
    
    
    19,411Net income (1)(2)
    
    
    1,016
    
    
    
    715
    
    
    
    1,393
    
    
    
    959Net income per common share  basic
    
    
    0.04
    
    
    
    0.03
    
    
    
    0.06
    
    
    
    0.04Net income per common share  diluted
    
    
    0.04
    
    
    
    0.03
    
    
    
    0.06
    
    
    
    0.04
 
 (1)
    
    During 2010 and 2009, we recorded discrete income tax benefits of $2.3 million and $1.2 million, respectively. Discrete
income tax benefits for fiscal 2010 were recorded of $0.1 million in the first quarter and $2.2 million in the third quarter
related to the reversal of tax reserves primarily due to the closure of prior tax years through statute expiration and audit.
Discrete income tax benefits for fiscal 2009 were recorded of $0.4 million in the first quarter, $0.5 million in the third quarter
and $0.3 million in the fourth quarter related to the reversal of previously established income tax reserves, the resolution of
of certain state tax matters and the closing of a prior tax year.(2)
    
    We reversed a business restructuring accrual of $0.4 million ($0.2 million after tax) in the second quarter of fiscal 2010 and
$0.1 million ($0.1 million after tax) in the fourth quarter of fiscal 2010. During the third quarter of fiscal 2009, we recorded the
business restructuring charge of $2.0 million ($1.3 million after tax).(3)
    
    We incurred expenses related to the investigation (see Note 19) and recorded $1.1 million ($0.7 million after tax) in the third
quarter of fiscal 2010 and $0.3 million ($0.2 million after tax) in the fourth quarter of fiscal 2010. 71




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 19. INVESTIGATION
     72




---



##### Table of Contents



ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
  
 ITEM 9A.
    
    CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Managements Report on Internal Control over Financial Reporting
  Internal Control  Integrated Framework
 Changes in Internal Control Over Financial Reporting
  Investigation in Hong Kong
   73




---



##### Table of Contents



ITEM 9A.
    
    CONTROLS AND PROCEDURES (CONTINUED)
   
 ITEM 9B.
    
    OTHER INFORMATION
 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year
    74




---



##### Table of Contents



ITEM 9B.
    
    OTHER INFORMATION (CONTINUED)
      75




---



##### Table of Contents



PART III
 
 ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  Executive Officers of the Registrant
  Name
    
    Age
    
    PositionJoseph T. Dunsmore
    
    
    52
    
    
    Chairman, President and Chief Executive OfficerBrenda L. Mueller
    
    
    52
    
    
    Acting Principal Financial Officer, Acting Principal
Accounting Officer and Corporate ControllerLawrence A. Kraft
    
    
    44
    
    
    Senior Vice President of Sales and MarketingJoel K. Young
    
    
    46
    
    
    Senior Vice President of Research and Development
and Chief Technical Officer
     76




---



##### Table of Contents



ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE (CONTINUED)
    Code of Ethics
 www.digi.com www.digi.com
 
 ITEM 11.
    
    EXECUTIVE COMPENSATION
  
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
  
 ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
  
 ITEM 14.
    
    PRINCIPAL ACCOUNTING FEES AND SERVICES
  77




---



##### Table of Contents



PART IV
 
 ITEM 15.
    
    EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 (a)
    
    Consolidated Financial Statements and Schedules of the Company (filed as part of this
Annual Report on Form 10-K)
 1.
    
    Consolidated Statements of Operations for the fiscal years ended September 30,
2010, 2009 and 2008Consolidated Balance Sheets as of September 30, 2010 and 2009Consolidated Statements of Cash Flows for the fiscal years ended September 30, 2010, 2009
and 2008Consolidated Statements of Stockholders Equity and Comprehensive Income for the fiscal
years ended September 30, 2010, 2009 and 2008Notes to Consolidated Financial Statements2.
    
    Schedule of Valuation and Qualifying Accounts3.
    
    Report of Independent Registered Public Accounting Firm
 (b)
    
    Exhibits
 ExhibitNumber
    
    Description2(a)
    
    Share Purchase Agreement dated April 28, 2008 among Digi International Limited,
a subsidiary of Digi International Inc., and all of the shareholders of Sarian
Systems Limited (excluding schedules and exhibits which the Registrant agrees to
furnish supplementally to the Securities and Exchange Commission upon request)
(1)3(a)
    
    Restated Certificate of Incorporation of the Company, as amended (2)3(b)
    
    Amended and Restated By-Laws of the Company4(a)
    
    Share Rights Agreement, dated as of April 22, 2008, between the Company and
Wells Fargo Bank, N.A., as Rights Agent (3)4(b)
    
    Form of Amended and Restated Certificate of Powers, Designations, Preferences
and Rights of Series A Junior Participating Preferred Shares (4)10(a)
    
    Digi International Inc. Stock Option Plan as Amended and Restated as of November
27, 2006* (5)10(b)
    
    Form of indemnification agreement with directors and officers of the Company* (6)10(c)
    
    Agreement between the Company and Subramanian Krishnan dated March 26, 1999* (7)10(c)(i)
    
    Amendment to Agreement between the Company and Subramanian Krishnan dated
February 5, 2001* (8)10(d)
    
    Employment Agreement between the Company and Joseph T. Dunsmore dated September
27, 2006* (9)10(e)
    
    Digi International Inc. Employee Stock Purchase Plan, as amended and restated as
of December 4, 2009* (10)
 78




---



##### Table of Contents



ITEM 15.
    
    EXHIBITS, FINANCIAL STATEMENT SCHEDULES (CONTINUED)
 ExhibitNumber
    
    Description10(f)
    
    Digi International Inc. 2000 Omnibus Stock Plan, as amended and restated as of
December 4, 2009* (11)10(g)
    
    Digi International Inc. Non-Officer Stock Option Plan, as Amended and Restated
as of November 27, 2006 (12)10(h)
    
    NetSilicon, Inc. Amended and Restated 1998 Director Stock Option Plan (13)10(i)
    
    NetSilicon, Inc. Amended and Restated 1998 Incentive and Non-Qualified Stock
Option Plan (14)10(j)
    
    NetSilicon, Inc. 2001 Stock Option and Incentive Plan (15)10(k)
    
    Form of Notice of Grant of Stock Options and Option Agreement (for grants under
Digi International Inc. Stock Option Plan)* (16)10(l)
    
    Agreement between the Company and Lawrence A. Kraft, dated February 4, 2003* (17)10(l)(i)
    
    Amendment to Agreement between the Company and Lawrence A. Kraft dated July 30,
2007* (18)10(m)
    
    Agreement between the Company and Joel K. Young dated July 30, 2007* (19)10(n)
    
    Form of Notice of Grant of Stock Options and Option Agreement (for grants under
Digi International Inc. 2000 Omnibus Stock Plan before January 26, 2010)* (20)10(o)
    
    Form of Notice of Grant of Stock Options and Option Agreement (amended form for
grants under Digi International Inc. Omnibus Stock Plan on or after January 26,
2010)* (21)10(p)
    
    English Language Summary of Sale and Leaseback Agreement dated February 18, 2008
between Digi International GmbH and Deutsche Structured Finance GmbH & Co.
Alphard KG. (22)14
    
    Code of Ethics (23)21
    
    Subsidiaries of the Company23
    
    Consent of Independent Registered Public Accounting Firm24
    
    Powers of Attorney31(a)
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer31(b)
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer32
    
    Section 1350 Certification
 
 *
    
    Management contract or compensatory plan or arrangement required to be filed as an exhibit to this
Form 10-K.(1)
    
    Incorporated by reference to Exhibit 2(a) to the Companys Form 10-Q for the quarter ended
March 31, 2008 (File No. 1-34033).(2)
    
    Incorporated by reference to Exhibit 3(a) to the Companys Form 10-K for the year ended
September 30, 1993 (File no. 0-17972).(3)
    
    Incorporated by reference to Exhibit 4(a) to the Companys Registration Statement on Form 8-A
filed on April 25, 2008 (File No. 1-34033).(4)
    
    Incorporated by reference to Exhibit 4(b) to the Companys Registration Statement on Form 8-A
filed on April 25, 2008 (File No. 1-34033).(5)
    
    Incorporated by reference to Exhibit 10(a) to the Companys Form 10-K for the year ended
September 30, 2006 (File no. 0-17972). 79




---



##### Table of Contents



ITEM 15.
    
    EXHIBITS, FINANCIAL STATEMENT SCHEDULES (CONTINUED)
 (6)
    
    Incorporated by reference to Exhibit 10 to the Companys Form 10-Q for the quarter ended June
30, 2010 (File no. 1-34033).(7)
    
    Incorporated by reference to Exhibit 10(k) to the Companys Form 10-Q for the quarter ended
March 31, 1999 (File no. 0-17972)(8)
    
    Incorporated by reference to Exhibit 10(e)(i) to the Companys Form 10-Q for the quarter
ended December 31, 2000 (File no. 0-17972).(9)
    
    Incorporated by reference to Exhibit 10(d) to the Companys Form 10-K for the year ended
September 30, 2006 (File no. 0-17972).(10)
    
    Incorporated by reference to Exhibit 10(b) to the Companys Form 10-Q for the quarter ended
December 31, 2009 (File no. 1-34033).(11)
    
    Incorporated by reference to Exhibit 10(a) to the Companys Form 10-Q for the quarter ended
December 31, 2009 (File no. 1-34033).(12)
    
    Incorporated by reference to Exhibit 10(g) to the Companys Form 10-K for the year ended
September 30, 2006 (File no. 0-17972).(13)
    
    Incorporated by reference to Exhibit 4.3 to the Companys Registration Statement on Form S-8
dated February 13, 2002 (File no. 333-82672).(14)
    
    Incorporated by reference to Exhibit 4.3 to the Companys Registration Statement on Form S-8
dated February 13, 2002 (File no. 333-82670).(15)
    
    Incorporated by reference to Exhibit 4.3 to the Companys Registration Statement on Form S-8
dated February 13, 2002 (File no. 333-82668).(16)
    
    Incorporated by reference to Exhibit 10(a) to the Companys Form 8-K dated September 13, 2004
(File no. 0-17972).(17)
    
    Incorporated by reference to Exhibit 10(m) to the Companys Form 10-K for the year ended
September 30, 2006 (File no. 0-17972).(18)
    
    Incorporated by reference to Exhibit 10(a) to the Companys Form 10-Q for the quarter ended
June 30, 2007 (File no. 0-17972).(19)
    
    Incorporated by reference to Exhibit 10(b) to the Companys Form 10-Q for the quarter ended
June 30, 2007 (File no. 0-17972).(20)
    
    Incorporated by reference to Exhibit 10(o) to the Companys Form 10-K for the year ended
September 30, 2008 (File no. 1-34033).(21)
    
    Incorporated by reference to Exhibit 10(c) to the Companys Form 10-Q for the quarter ended
December 31, 2009 (File no. 1-34033).(22)
    
    Incorporated by reference to Exhibit 10(a) to the Companys Form 10-Q for the quarter ended
March 31, 2008 (File no. 1-34033).(23)
    
    Incorporated by reference to Exhibit 14 to the Companys Form 10-K for the year ended
September 30, 2003 (File no. 0-17972). 80




---



##### Table of Contents



SIGNATURES
  DIGI INTERNATIONAL INC.November 29, 2010
    By:
    /s/  Joseph T. DunsmoreJoseph T. DunsmoreChairman, President, Chief Executive Officer and Director  November 29, 2010
    /s/ Joseph T. DunsmoreJoseph T. DunsmoreChairman, President, Chief Executive Officer and Director
(Principal Executive Officer)November 29, 2010
    /s/ Brenda L. MuellerBrenda L. MuellerCorporate Controller and Acting Principal Financial Officer
(Acting Principal Financial Officer) GUY C. JACKSONKENNETH E. MILLARDAHMED NAWAZ
    
    A majority of the Board of Directors*WILLIAM N. PRIESMEYERBRADLEY J. WILLIAMS
 
 
 November 29, 2010
    /s/ Joseph T. DunsmoreJoseph T. DunsmoreAttorney-in-fact 81




---



##### Table of Contents



SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
 DIGI INTERNATIONAL INC.
(in thousands)
 IncreaseBalance at
    
    (Decrease) to
    
    
    
    
    
    Balance atbeginning
    
    costs and
    
    
    
    
    
    end ofDescription
    
    of period
    
    expenses
    
    Deductions
    
    periodValuation account  doubtful accountsSeptember 30, 2010
    
    $
    624
    
    
    $
    132
    
    
    $
    207
    (1)
    
    $
    549September 30, 2009
    
    $
    697
    
    
    $
    (1
    )
    
    $
    72
    (1)
    
    $
    624September 30, 2008
    
    $
    479
    
    
    $
    308
    
    
    $
    90
    (1)
    
    $
    697Reserve for future returns and pricing adjustmentsSeptember 30, 2010
    
    $
    1,058
    
    
    $
    43
    
    
    $
    (5
    )(2)
    
    $
    1,106September 30, 2009
    
    $
    1,369
    
    
    $
    (264
    )
    
    $
    47
    (2)
    
    $
    1,058September 30, 2008
    
    $
    1,442
    
    
    $
    9
    
    
    $
    82
    (2)
    
    $
    1,369
 
 (1)
    
    Uncollectible accounts charged against allowance, net of recoveries(2)
    
    Adjustments and recoveries 82




---



##### Table of Contents



EXHIBIT INDEX
 Exhibit
    
    Description
    
    Page2(e)
    
    Share Purchase Agreement dated April 28, 2008 among
Digi International Limited, a subsidiary of Digi
International Inc., and all of the shareholders of
Sarian Systems Limited (excluding schedules and
exhibits which the Registrant agrees to furnish
supplementally to the Securities and Exchange
Commission upon request)
    
    Incorporated by
Reference3(a)
    
    Restated Certificate of Incorporation of the
Company, as amended
    
    Incorporated by
Reference3(b)
    
    Amended and Restated By-Laws of the Company
    
    Filed Electronically4(a)
    
    Share Rights Agreement, dated as of April 22, 2008,
between the Company and Wells Fargo Bank, N.A., as
Rights Agent
    
    Incorporated by
Reference4(b)
    
    Form of Amended and Restated Certificate of Powers,
Designations, Preferences and Rights of Series A
Junior Participating Preferred Shares
    
    Incorporated by
Reference10(a)
    
    Digi International Inc. Stock Option Plan as Amended
and Restated as of November 27, 2006
    
    Incorporated by
Reference10(b)
    
    Form of indemnification agreement with directors and
officers of the Company
    
    Incorporated by
Reference10(c)
    
    Agreement between the Company and Subramanian
Krishnan dated March 26, 1999
    
    Incorporated by
Reference10(c)(i)
    
    Amendment to Agreement between the Company and
Subramanian Krishnan dated February 5, 2001
    
    Incorporated by
Reference10(d)
    
    Employment Agreement between the Company and Joseph
T. Dunsmore dated September 27, 2006
    
    Incorporated by
Reference10(e)
    
    Digi International Inc. Employee Stock Purchase
Plan, as amended and restated as of December 4, 2009
    
    Incorporated by
Reference10(f)
    
    Digi International Inc. 2000 Omnibus Stock Plan, as
amended and restated as of December 4, 2009
    
    Incorporated by
Reference10(g)
    
    Digi International Inc. Non-Officer Stock Option
Plan, as Amended and Restated as of November 27,
2006
    
    Incorporated by
Reference10(h)
    
    NetSilicon, Inc. Amended and Restated 1998 Director
Stock Option Plan
    
    Incorporated by
Reference10(i)
    
    NetSilicon, Inc. Amended and Restated 1998 Incentive
and Non-Qualified Stock Option Plan
    
    Incorporated by Reference10(j)
    
    NetSilicon, Inc. 2001 Stock Option and Incentive Plan
    
    Incorporated by Reference10(k)
    
    Form of Notice of Grant of Stock Options and Option
Agreement (for grants under Digi International Inc.
Stock Option Plan)
    
    Incorporated by Reference10(l)
    
    Agreement between the Company and Lawrence A. Kraft,
dated February 4, 2003
    
    Incorporated by Reference10(l)(i)
    
    Amendment to Agreement between the Company and
Lawrence A. Kraft dated July 30, 2007
    
    Incorporated by Reference10(m)
    
    Agreement between the Company and Joel K. Young
dated July 30, 2007
    
    Incorporated by Reference
 83




---



##### Table of Contents



Exhibit
    
    Description
    
    Page10(n)
    
    Form of Notice of Grant of Stock Options and Option Agreement (for grants under Digi International Inc.
2000 Omnibus Stock Plan before January 26, 2010)
    
    Incorporated by Reference10(o)
    
    Form of Notice of Grant of Stock Options and Option
Agreement (amended form for grants under Digi
International Inc. 2000 Omnibus Stock Plan on or
after January 26, 2010)
    
    Incorporated by Reference10(p)
    
    English Language Summary of Sale and Leaseback
Agreement dated February 18, 2008 between Digi
International GmbH and Deutsche Structured Finance
GmbH & Co. Alphard KG.
    
    Incorporated by Reference14
    
    Code of Ethics
    
    Incorporated by Reference21
    
    Subsidiaries of the Company
    
    Filed Electronically23
    
    Consent of Independent Registered Public Accounting
Firm
    
    Filed Electronically24
    
    Powers of Attorney
    
    Filed Electronically31(a)
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief
Executive Officer
    
    Filed Electronically31(b)
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief
Financial Officer
    
    Filed Electronically32
    
    Section 1350 Certification
    
    Filed Electronically
 84