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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-K
 (Mark
One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the Fiscal Year Ended December 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission
File Number 000-31523
 IXIA
 (Exact name of Registrant as specified in its charter)
 California(State or other jurisdiction of incorporation or organization)
    
    95-4635982(I.R.S. Employer Identification No.)
 26601 West Agoura Road, Calabasas, CA 91302  (Address of principal executive offices, including zip code)
  
   o þ
 o þ
 þ o
 þ
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



IXIA
 FORM 10-K
 TABLE OF CONTENTS
 PagePART IItem 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    16Item 1B.
    
    Unresolved Staff Comments
    
    
    26Item 2.
    
    Properties
    
    
    26Item 3.
    
    Legal Proceedings
    
    
    27Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    27PART IIItem 5.
    
    Market for Registrant's Common Equity, Related Shareholder Matters and
Issuer Purchases of Equity Securities
    
    
    27Item 6.
    
    Selected Financial Data
    
    
    29Item 7.
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    
    30Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    41Item 8.
    
    Financial Statements and Supplementary Data
    
    
    42Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    42Item 9A.
    
    Controls and Procedures
    
    
    42Item 9B.
    
    Other Information
    
    
    43PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    44Item 11.
    
    Executive Compensation
    
    
    44Item 12.
    
    Security Ownership
of Certain Beneficial Owners and Management and Related Shareholder
Matters
    
    
    44Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    44Item 14.
    
    Principal Accounting Fees and Services
    
    
    44PART IVItem 15.
    
    Exhibits, Financial Statement Schedules
    
    
    45SIGNATURES
    
    
    
    
    48EXHIBIT 10.15EXHIBIT 21.1EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
  2




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PART I
 
 Item 1. Business
 Overview
   
    
    Leading network equipment manufacturers such as Cisco Systems, Alcatel-Lucent,
Nortel Networks, Juniper Networks, and Foundry Networks;
    
    Semiconductor manufacturers such as Broadcom, Texas Instruments, and Intel;
    
    Telephony equipment manufacturers such as Motorola, Ericsson, and Nokia;
    
    Voice and broadband service providers such as AT&T, Bell Canada, British Telecom,
Verizon, Telus Communications, and NTT;
    
    Cable operators such as Comcast Cable, Shaw Cablesystems, Time Warner, Rogers Cable,
Inc., and Charter Communications;
    
    Enterprises such as Morgan Stanley, GETCO, LLC, Amazon, and FirstEnergy Corporation;
and
    
    Government contractors, departments and agencies such as U.S. Navy, Lockheed Martin,
U.S. Army, MIT Lincoln Laboratory, and U.S. Air Force.
  The Increasing Need for Network and Application Testing and Measurement
  3




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
    
    Communications Chip Manufacturers. At the early stages of development of new
technologies, communications chip manufacturers use our test systems to evaluate and
analyze the performance of their components during the design and development phase,
typically prior to integration by network equipment manufacturers.
    
    Network Equipment Manufacturers. To meet the higher standards specified by network
operators and network users, equipment manufacturers who provide voice, video, data and
application service infrastructure equipment must ensure the quality of their products
during development and manufacturing and prior to shipping. Failure to ensure the
consistent functionality and performance of their products may result in the loss of
customers, increased research and development costs, increased support costs and losses
resulting from the return of products. Equipment manufacturers use our test systems to
run large-scale subscriber and service emulations, generating extreme traffic loads to
verify the performance and capacity of their IP-based devices prior to deployment in
production networks. Our systems are also used by equipment Manufacturers in the sales
and acceptance process to demonstrate to their customers (service providers and
enterprises) how their products will operate under real-world conditions.
    
    Network operators and service providers (Service Providers).Service Providers seek
to provide their customers with a growing variety of high quality network services.
Failure to provide satisfactory service can be costly and may result in high subscriber
churn rates and reduced Average Revenue Per User (ARPU). To ensure desired service
levels and overall quality of experience are acceptable, service provider R&D and
network engineering groups must verify the performance and functionality of staged
networks during the equipment selection and network design process prior to deployment.
Network operators and service providers use our test systems to emulate millions of
subscribers to realistically predict end user quality of experience delivered by their
IP-based infrastructure and services. Increasingly, Service Provider operations groups
also use Ixias products to diagnose issues in their production networks by executing
in-service tests similar to those conducted prior to deployment.
    
    Enterprises and Government.These large Service Provider customers spend significant
amounts on networks and network services. They deploy LANs and WANs that rival Service
Provider networks in size and complexity. These customers use Ixias solutions in much
the same way as Service Providers, verifying the performance and functionalities of
network equipment and making sure that new networks, services and applications will
perform as expected.
 Characteristics Demanded of Network and Application Test and Measurement Equipment
  The Ixia Solution
  4




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Versatile High Performance.
    Highly Scalable.
 Highly Customizable.
 Hardware Platform.
 5




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Highly Modular.
 Flexible.
 Open Architecture.
 Ease of Automation.
 Ease of Use.
 Strategy
  Continue to Expand our Addressable Markets.
 Maintain Focus on Technology Leadership.
 6




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Expand and Further Penetrate Customer Base.
 
    
    Continuing to develop and offer new and innovative systems that meet our existing
and potential customers needs;
    
    Expanding our sales and marketing efforts to increase penetration in
under-represented vertical and geographic market segments; and
    
    Building upon and further strengthening our reputation and brand name recognition.
  License and Acquire Key Technologies.
 Expand International Market Presence
 Products
    Chassis
  7




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Interface Cards
  System Management Software
  Application Specific Test Suites
  Video Testing
   8




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Voice Testing
    Intelligent Network Testing
  Conformance Testing
  Security Testing
  Application Testing
  Router Testing
   9




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Layer 2-3 Security Testing
   Switch Testing
    Wireless Testing
  Broadband Testing
   Automated Testing
  TM
 10




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Converged Monitoring Testing
  Products in Development
  
    
    Gigabit Ethernet
    
    10 Gigabit Ethernet
    
    Carrier and Metro Ethernet
    
    Layer 4  7
    
    MPLS
    
    VPLS
    
    Multicast
    
    IPv6
    
    Voice over IP
    
    Video over IP
    
    IPSec
    
    MACSec
    
    Fiber Channel over Ethernet
    
    Test Automation
    
    SSL
    
    Denial of Service
    
    WiMAX
    
    IMS
  Technology
  11




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Complex Logic Design
 Software Technology
 Customers
   Competition
   
    
    price and overall cost of product ownership;
    
    breadth of product offerings and features on a single platform;
    
    timeliness of new product introductions;
    
    product quality, reliability and performance;
    
    ease of installation, integration and use;
    
    customer service and technical support; and
    
    company reputation and size.
 12




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Sales, Marketing and Technical Support
 Sales
 Marketing
 
    
    sponsoring technical seminars and webinars that highlight our solutions;
    
    participating in industry trade shows and technical conferences;
    
    communicating through our corporate website; and
    
    advertising in trade journals.
 Technical Support
 
    
    offer solutions for performance validation needs;
    
    develop custom applications at our company headquarters;
    
    deploy to customer sites on short notice; and
    
    provide guidance to optimally utilize our systems.
 13




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Manufacturing
    Research and Development
     14




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Intellectual Property and Proprietary Rights
     Employees
  Available Information
  15




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Item 1A. Risk Factors
  Because we depend on a limited number of customers for a majority of our revenues, any
cancellation, reduction or delay in purchases by these customers could significantly harm our
revenues and results of operations
   Competition in our market could significantly harm our results of operations
     16




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If we are unable to successfully introduce new products to keep pace with the rapid technological
changes that characterize our market, our results of operations will be significantly harmed
  
    
    rapid technological change such as the recent advancements of IP-based networks and
wireless technologies;
    
    frequent new product introductions such as higher speed and more complex routers;
    
    evolving industry standards such as new Internet protocols;
    
    changing customer needs such as the increase in the levels of service agreed to
between network service providers and their customers; and
    
    short product life cycles as a result of rapid changes in our customers products.
   
    
    anticipate technological changes and industry trends;
    
    properly identify customer needs;
    
    innovate and develop and license or acquire new technologies and applications;
    
    hire and retain necessary technical personnel;
    
    successfully commercialize new technologies in a timely manner;
    
    timely obtain key components for the manufacture of new products;
    
    manufacture and deliver our products in sufficient volumes and on time;
    
    price our products competitively; and
    
    differentiate our offerings from our competitors offerings.
 17




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We depend on sales of a narrow range of products and if customers do not purchase our products, our
revenues and results of operations would be significantly harmed
  Our large customers have substantial negotiating leverage, which may require that we agree to terms
and conditions that may have an adverse effect on our business
  If we do not diversify our customer base, we may not be able to grow our business or increase our
profitability
  Our quarterly and annual operating results may fluctuate significantly as a result of new product
introductions and other factors, which fluctuations could cause our stock price to decline
significantly
   18




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We recorded a significant unrealized loss during the quarter ended December 31, 2007 to reduce the
carrying value of certain auction rate securities we hold, and the estimated fair value of these
securities could decrease further in the future based on market conditions
  The loss of any of our key personnel could significantly harm our results of operations and
competitive position
  Because of intense competition for technical personnel, we may not be able to recruit or retain
necessary personnel on a cost-effective basis
  19




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Continued growth will strain our operations and require us to incur costs to maintain and upgrade
our management and operational resources
  If we are unable to expand our sales and distribution channels or are unable to successfully manage
our expanded sales organization, our revenues and results of operations will be harmed
  If we are unable to expand our international sales and distribution channels or manage them
effectively, our results of operations will be harmed
  20




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Acquisitions undertaken and any that we may undertake could be difficult to integrate, disrupt our
business, dilute shareholder value and significantly harm our operating results
  
    
    problems assimilating the acquired operations, technologies or products;
    
    unanticipated costs associated with the acquisition;
    
    diversion of managements attention from our core business;
    
    adverse effects on existing business relationships with suppliers, contract
manufacturers, customers and industry experts;
    
    risks associated with entering markets in which we have no or limited prior
experience; and
    
    potential loss of the acquired organizations or our own key employees.
  International activity may increase our cost of doing business or disrupt our business
  
    
    difficulties in recruiting, training and retaining international personnel;
    
    increased complexity and costs of managing international operations;
    
    growing demand for and cost of technical personnel;
    
    increased exposure to foreign currency exchange rate fluctuations;
    
    commercial laws and business practices that favor local competition;
    
    changing governmental laws and regulations, including differing labor and employment
laws and longer sales cycles;
    
    supporting multiple languages;
    
    reduced or limited protections of intellectual property rights;
    
    more complicated logistical and distribution arrangements;
    
    political and economic instability; and
    
    difficulties in collecting receivables.
 21




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Some key components in our products come from sole or limited sources of supply, which exposes us
to potential supply shortages that could disrupt the manufacture and sale of our products
    If we fail to accurately forecast our manufacturing requirements, we could incur additional costs
and experience manufacturing delays
  Failure by our contract manufacturers to provide us with adequate supplies of high quality products
could harm our revenues, results of operations, competitive position and reputation
  22




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To the extent that our customers consolidate, they may reduce purchases of our products and demand
more favorable terms and conditions from us, which would harm our revenues and profitability
  Our products may contain defects which may cause us to incur significant costs, divert our
attention from product development efforts and result in a loss of customers
  Our failure to protect our intellectual property may significantly harm our results of operations
and reputation
    23




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Claims that we infringe third-party intellectual property rights could result in significant
expenses or restrictions on our ability to sell our products
   
    
    be time-consuming;
    
    result in costly litigation;
    
    divert the efforts of our technical and management personnel;
    
    require us to modify the infringing products or to develop alternative technology,
thereby causing product shipment delays and the loss or deferral of revenues;
    
    require us to cease selling the products containing the intellectual property at
issue;
    
    require us to pay substantial damage awards;
    
    damage our reputation; or
    
    require us to enter into royalty or licensing agreements which, if required, may not
be available on terms acceptable to us, if at all.
  Changes in laws, regulations and financial accounting standards may adversely affect our results of
operations
   24




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Our business is subject to changing regulation of corporate governance and public disclosure that
has resulted in increased costs and may continue to result in additional costs in the future
   If we fail to maintain our relationships with industry experts, our products may lose industry and
market recognition and sales could decline
  Our business may be adversely affected by unfavorable general economic and market conditions
  25




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Our headquarters, many of our customers and some of our contract manufacturers and suppliers are
located in California where natural disasters have occurred and may occur in the future
  Man-made problems such as computer viruses or terrorism may disrupt our operations and harm our
operating results
  Provisions of our articles of incorporation and bylaws may make it difficult for a third party to
acquire us, despite the possible benefits to our shareholders
   
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
  26




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Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 PART II
 
 Item 5. Market for Registrants Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities
   High
    
    Low2007First quarter
    
    $
    11.67
    
    
    $
    9.11Second quarter
    
    
    9.80
    
    
    
    8.52Third quarter
    
    
    10.19
    
    
    
    8.72Fourth quarter
    
    
    10.60
    
    
    
    8.802006First quarter
    
    $
    15.04
    
    
    $
    11.62Second quarter
    
    
    13.91
    
    
    
    8.68Third quarter
    
    
    10.28
    
    
    
    7.31Fourth quarter
    
    
    10.26
    
    
    
    8.70
    27




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Comparison of Five-Year Cumulative Total Return*
among Ixia, the Nasdaq Composite Index
and the Nasdaq Telecommunications Index
 
 12/31/02
    
    12/31/03
    
    12/31/04
    
    12/31/05
    
    12/31/06
    
    12/31/07Ixia
    
    $
    100
    
    
    $
    320.55
    
    
    $
    460.55
    
    
    $
    405.48
    
    
    $
    263.01
    
    
    $
    259.73Nasdaq Composite Index
    
    
    100
    
    
    
    149.75
    
    
    
    164.64
    
    
    
    160.60
    
    
    
    187.83
    
    
    
    205.22Nasdaq Telecommunications
Index
    
    
    100
    
    
    
    188.21
    
    
    
    199.04
    
    
    
    192.18
    
    
    
    244.38
    
    
    
    253.12
 
 *
    
    Assumes (i) $100 invested on December 31, 2002 in Ixia Common Stock, the Nasdaq Composite
Index and the Nasdaq Telecommunications Index and
(ii) immediate reinvestment of all dividends. (b)
    
    Use of Proceeds
  (c)
    
    Issuer Repurchases of Equity Securities
   Total Number of
    
    
    Approximate DollarShares Purchased
    
    
    Value of Sharesas Part of Publicly
    
    
    that mayAnnounced
    
    
    yet be PurchasedTotal Number of
    
    
    Average Price Paid
    
    
    Plans or
    
    
    under the Plans orPeriod
    
    Shares Purchased
    
    
    Per Share
    
    
    Programs
    
    
    ProgramsOctober 1  October 31
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    48,753,424November 1  November 30
    
    
    577,131
    
    
    
    10.13
    
    
    
    577,131
    
    
    
    42,909,488December 1  December 31
    
    
    206,419
    
    
    
    10.04
    
    
    
    206,419
    
    
    
    40,836,758783,550
    
    
    $
    10.10
    
    
    
    783,550
    
    
    $
    40,836,758
 28




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Item 6. Selected Financial Data
  2007(2)
    
    
    2006(3)
    
    
    2005
    
    
    2004
    
    
    2003Consolidated Statement of Income Data (in
thousands, except per share data):Revenues:Products
    
    $
    148,226
    
    
    $
    155,388
    
    
    $
    130,045
    
    
    $
    97,200
    
    
    $
    72,674Services
    
    
    25,895
    
    
    
    24,744
    
    
    
    20,808
    
    
    
    13,464
    
    
    
    7,400Total revenues
    
    
    174,121
    
    
    
    180,132
    
    
    
    150,853
    
    
    
    110,664
    
    
    
    80,074Costs and operating expenses:(1)Cost of revenues  products
    
    
    32,724
    
    
    
    29,437
    
    
    
    24,239
    
    
    
    20,592
    
    
    
    15,661Cost of revenues  amortization of
purchased technology
    
    
    5,196
    
    
    
    4,705
    
    
    
    3,891
    
    
    
    3,044
    
    
    
    1,183Cost of revenues  services
    
    
    3,870
    
    
    
    2,681
    
    
    
    2,216
    
    
    
    1,423
    
    
    
    1,208Research and development
    
    
    47,407
    
    
    
    43,450
    
    
    
    32,404
    
    
    
    24,960
    
    
    
    21,980Sales and marketing
    
    
    57,420
    
    
    
    59,020
    
    
    
    39,359
    
    
    
    30,566
    
    
    
    23,942General and administrative
    
    
    24,927
    
    
    
    23,800
    
    
    
    16,438
    
    
    
    12,479
    
    
    
    9,179Amortization of intangible assets
    
    
    1,912
    
    
    
    1,745
    
    
    
    1,278
    
    
    
    1,532
    
    
    
    1,070Impairment of goodwill, purchased
technology and/or other intangible
assets
    
    
    3,263
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    410Total costs and operating expenses
    
    
    176,719
    
    
    
    164,838
    
    
    
    119,825
    
    
    
    94,596
    
    
    
    74,633Income (loss) from operations
    
    
    (2,598
    )
    
    
    15,294
    
    
    
    31,028
    
    
    
    16,068
    
    
    
    5,441Interest and other income, net
    
    
    11,723
    
    
    
    9,409
    
    
    
    5,055
    
    
    
    2,960
    
    
    
    3,062Income before income taxes
    
    
    9,125
    
    
    
    24,703
    
    
    
    36,083
    
    
    
    19,028
    
    
    
    8,503Income tax expense
    
    
    2,119
    
    
    
    11,222
    
    
    
    7,593
    
    
    
    4,007
    
    
    
    1,912Net income
    
    $
    7,006
    
    
    $
    13,481
    
    
    $
    28,490
    
    
    $
    15,021
    
    
    $
    6,591Earnings per share:Basic
    
    $
    0.10
    
    
    $
    0.20
    
    
    $
    0.44
    
    
    $
    0.25
    
    
    $
    0.11Diluted
    
    $
    0.10
    
    
    $
    0.20
    
    
    $
    0.41
    
    
    $
    0.23
    
    
    $
    0.11Weighted average number of common and
common equivalent shares outstanding:Basic
    
    
    67,936
    
    
    
    67,005
    
    
    
    65,168
    
    
    
    60,687
    
    
    
    58,344Diluted
    
    
    69,386
    
    
    
    68,792
    
    
    
    69,227
    
    
    
    64,745
    
    
    
    62,227
 29




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2007(2)
    
    
    2006(3)
    
    
    2005
    
    
    2004
    
    
    2003(1) Stock-based compensation
included in:Cost of revenues  products
    
    $
    519
    
    
    $
    590
    
    
    $
    
    
    
    $
    30
    
    
    $
    157Cost of revenues  services
    
    
    197
    
    
    
    224
    
    
    
    
    
    
    
    3
    
    
    
    7Research and development
    
    
    5,243
    
    
    
    6,481
    
    
    
    
    
    
    
    271
    
    
    
    1,316Sales and marketing
    
    
    4,416
    
    
    
    7,838
    
    
    
    
    
    
    
    77
    
    
    
    159General and administrative
    
    
    2,659
    
    
    
    2,890
    
    
    
    
    
    
    
    38
    
    
    
    280
 (2)
    
    Our 2007 results include a pre-tax impairment charge of $3.3 million, which consists of the impairment of purchased technology of $1.5 million
and the impairment of certain intangible assets of $1.8 million related to the acquisition of Communication Machinery Corporation in July 2005 and to the
acquisition of the mobile video test product line from Dilithium Networks in January 2006.(3)
    
    Due to the adoption of SFAS 123R effective January 1, 2006, our results of operations for 2007 and 2006 include $13.0 million and $18.0 million,
respectively, of pre-tax stock-based compensation expense. 2007
    
    2006
    
    2005
    
    2004
    
    2003Consolidated Balance Sheet Data (in thousands):Cash and cash equivalents
    
    $
    188,892
    
    
    $
    64,644
    
    
    $
    51,837
    
    
    $
    16,383
    
    
    $
    21,133Short-term investments in marketable
securities
    
    
    4,999
    
    
    
    152,703
    
    
    
    124,456
    
    
    
    81,757
    
    
    
    42,718Working capital
    
    
    206,059
    
    
    
    235,168
    
    
    
    191,176
    
    
    
    104,515
    
    
    
    74,032Long-term investments in marketable
securities
    
    
    54,609
    
    
    
    4,354
    
    
    
    25,392
    
    
    
    49,015
    
    
    
    58,072Total assets
    
    
    369,440
    
    
    
    349,059
    
    
    
    322,216
    
    
    
    241,451
    
    
    
    191,115Total shareholders equity
    
    
    316,500
    
    
    
    300,789
    
    
    
    263,480
    
    
    
    193,491
    
    
    
    157,477
 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Business Overview
  30




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Revenues.
      31




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Stock-Based Compensation.
 32




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Cost of Revenues
  
    
    changes in our pricing policies and those of our competitors;
    
    the pricing we are able to obtain from our component suppliers and contract
manufacturers;
    
    the mix of customers and sales channels through which our products are sold;
    
    the mix of our products sold, such as the mix of software versus hardware product
sales, including the effects of any related deferral, reversal and recognition of
revenues for implied PCS obligations;
    
    new product introductions by us and by our competitors;
    
    demand for our products;
    
    expenses related to acquired technologies, such as royalties and amortization of
purchased technology; and
    
    production volume.
  Operating Expenses
 33




---



##### Table of Contents



Interest and Other Income, Net.
 Income Tax.
 Critical Accounting Policies and Estimates
   
    
    Revenue Recognition Policy. We recognize revenue as discussed in Revenues in the
Business Overview section of Item 7.
    
    Allowance for Doubtful Accounts. Trade accounts receivable are recorded at the
invoiced amount and do not bear interest. The allowance for doubtful accounts is based
on our best estimate of the amount of probable credit losses in existing accounts
receivable. The allowance for doubtful accounts is determined based on historical
write-off experience, current customer information and other relevant data. We review
the allowance for doubtful accounts monthly. Past due balances of 60 days and over are
reviewed individually for collectibility. Account balances are charged off against the
allowance when we believe it is probable the receivable will not be recovered. We do
not have any off-balance-sheet credit exposure related to our customers.
 34




---



##### Table of Contents




    
    Write-Down of Obsolete Inventory.We write-down inventory for estimated
obsolescence, excessive quantities or unmarketable inventory equal to the difference
between the cost of inventory and the estimated market value based upon assumptions
about future demand and market conditions. If actual future demand is less favorable
than our initial estimate, additional inventory write-downs may be required.
    
    Income Taxes.We operate in numerous states and countries through our various
subsidiaries, and must allocate our income, expenses, and earnings under the various
laws and regulations of each of these taxing jurisdictions. Accordingly, our provision
for income taxes represents our total estimate of the liability that we have incurred
in doing business each year in all of our locations. Deferred income tax balances
reflect the effects of temporary differences between the carrying amounts of assets and
liabilities and their tax bases and are stated at enacted tax rates expected to be in
effect when taxes are actually paid or recovered. Annually, we file tax returns that
represent our filing positions with each jurisdiction and settle our return
liabilities. Each jurisdiction has the right to audit those returns and may take
different positions with respect to income and expense allocations and taxable earnings
determinations. In accordance with Financial Accounting Standards Board (FASB)
Interpretation No. 48, Accounting for Uncertainty in Income Taxes  An Interpretation
of FASB Statement No. 109 (FIN 48), we may provide for estimated liabilities in our
consolidated financial statements associated with uncertain tax return filing positions
that are subject to audit by various tax authorities. Because the determinations of
our annual provisions are subject to judgments and estimates, it is likely that actual
results will vary from those recognized in our consolidated financial statements. As a
result, additions to, or reductions of, income tax expense will occur each year for
prior reporting periods as our estimates change and actual tax returns and tax audits
are settled. We recognize any such prior year adjustment in the discrete quarterly
period in which it is determined.
    
    Acquisition Purchase Price Allocation.When we acquire a business, product line or
rights to a product or technology, we allocate the purchase price, including related
transaction costs, to the various tangible and intangible assets acquired and the
liabilities assumed, based on their estimated fair values. Determining the fair value
of certain assets and liabilities acquired is subjective in nature and often involves
the use of significant estimates and assumptions. To assist in this process, we may
obtain appraisals from valuation specialists for certain of these items. Most of the
assumptions used to determine fair value are made based on forecasted information. The
useful lives of amortizable intangible assets are reviewed for reasonableness
periodically by management in light of current conditions.
    
    Impairment of Long-Lived Assets.We evaluate the recoverability of our identifiable
definite life intangible assets and other long-lived assets in accordance with SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144),
which generally requires that we assess these assets for recoverability when events or
circumstances indicate a potential impairment by estimating the undiscounted cash flows
to be generated from the use and ultimate disposition of these assets. To the extent
that the estimated undiscounted cash flows fall below the carrying value of the
intangible or other long lived assets we write-down the assets to fair value. Fair
value is generally determined based on discounted cash flows. Determining the fair
value based on discounted cash flows is subjective in nature and often involves the use
of significant estimates and assumptions about future results and discount rates. We
evaluate the recoverability of our goodwill in accordance with SFAS No. 142, Goodwill
and Other Intangible Assets (SFAS 142), which requires us to assess our goodwill
annually for impairment. Impairment losses are recorded to the extent that the
carrying value of the goodwill exceeds the fair value.
    
    Stock-Based Compensation.We record stock-based compensation in accordance with
SFAS 123R as discussed in Stock-based Compensation in the Business Overview section
of Item 7.
    
    Contingencies and Litigation. We evaluate contingent liabilities, including
threatened or pending litigation, in accordance with SFAS No. 5, Accounting for
Contingencies, and we record accruals when the loss is deemed probable and the
liability can reasonably be estimated. We make these assessments based on the facts
and circumstances of each situation and in some instances based in part on the advice
of outside legal counsel.
 35




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##### Table of Contents



Results of Operations
  2007
    
    2006
    
    2005Revenues:Products
    
    
    85.1
    %
    
    
    86.3
    %
    
    
    86.2
    %Services
    
    
    14.9
    
    
    
    13.7
    
    
    
    13.8Total revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Costs and operating expenses:(1)Cost of revenues  products
    
    
    18.8
    
    
    
    16.3
    
    
    
    16.1Cost of revenues  amortization of purchased technology
    
    
    3.0
    
    
    
    2.6
    
    
    
    2.6Cost of revenues  services
    
    
    2.2
    
    
    
    1.5
    
    
    
    1.5Research and development
    
    
    27.2
    
    
    
    24.1
    
    
    
    21.4Sales and marketing
    
    
    33.0
    
    
    
    32.8
    
    
    
    26.0General and administrative
    
    
    14.3
    
    
    
    13.2
    
    
    
    10.9Amortization of intangible assets
    
    
    1.1
    
    
    
    1.0
    
    
    
    0.9Impairment of purchased technology and intangible
assets
    
    
    1.9
    
    
    
    
    
    
    
    Total costs and operating expenses
    
    
    101.5
    
    
    
    91.5
    
    
    
    79.4Income (loss) from operations
    
    
    (1.5
    )
    
    
    8.5
    
    
    
    20.6Interest and other income, net
    
    
    6.7
    
    
    
    5.2
    
    
    
    3.3Income before income taxes
    
    
    5.2
    
    
    
    13.7
    
    
    
    23.9Income tax expense
    
    
    1.2
    
    
    
    6.2
    
    
    
    5.0Net income
    
    
    4.0
    %
    
    
    7.5
    %
    
    
    18.9
    %
 
 (1) Stock-based compensation included in:Cost of revenues  products
    
    
    0.3
    %
    
    
    0.3
    %
    
    
    0.0
    %Cost of revenues  services
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.0Research and development
    
    
    3.0
    
    
    
    3.6
    
    
    
    0.0Sales and marketing
    
    
    2.5
    
    
    
    4.4
    
    
    
    0.0General and administrative
    
    
    1.5
    
    
    
    1.6
    
    
    
    0.0
 Comparison of the Years Ended December 31, 2007 and 2006
 Revenues.
 Cost of Revenues
 36




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##### Table of Contents



Research and Development Expenses.
 Sales and Marketing Expenses.
 General and Administrative Expenses.
 Amortization of Intangible Assets.
 Impairment of Purchased Technology and Intangible Assets.
 Interest and Other Income, Net.
 Income Tax Expense.
 Comparison of the Years Ended December 31, 2006 and 2005
 Revenues.
 37




---



##### Table of Contents



Cost of Revenues
 Research and Development Expenses.
 Sales and Marketing Expenses.
 General and Administrative Expenses.
 Amortization of Intangible Assets.
 38




---



##### Table of Contents



Interest and Other Income, Net.
 Income Tax Expense.
 Liquidity and Capital Resources
      39




---



##### Table of Contents



Financial Commitments
  Total
    
    

Less
than
1 year
    
    

1-3
years
    
    

3-5
years
    
    

More
 than
5 yearsOperating leases
    
    $
    24,573
    
    
    $
    4,844
    
    
    $
    9,565
    
    
    $
    7,534
    
    
    $
    2,630Purchase obligations
    
    
    462
    
    
    
    462
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    25,035
    
    
    $
    5,306
    
    
    $
    9,565
    
    
    $
    7,534
    
    
    $
    2,630
   Recent Accounting Pronouncements
   40




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##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Sensitivity
   Exchange Rate Sensitivity
  41




---



##### Table of Contents



Item 8. Financial Statements and Supplementary Data
  
 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 Internal Control  Integrated Framework
 42




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##### Table of Contents



Changes in Internal Control over Financial Reporting
  Inherent Limitations on Effectiveness of Controls
  
 Item 9B. Other Information
  43




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##### Table of Contents



PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
   
 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
  44




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##### Table of Contents



PART IV
 
 Item 15. Exhibits, Financial Statement Schedules
 (a)
    
    The following documents are filed as part of this Report:
 (1)
    
    Consolidated Financial Statements
  (2)
    
    Financial Statement Schedule
  (3)
    
    Exhibits
 3.1
    
    Amended and Restated Articles of Incorporation, as amended(1)3.2
    
    Bylaws, as amended(2)10.1*
    
    Amended and Restated 1997 Equity Incentive Plan (3)10.2*
    
    Amended and Restated Non-Employee Director Stock Option Plan(4)10.3*
    
    Employee Stock Purchase Plan(5)10.3.1*
    
    Amendment No. 1, dated May 9, 2003, to Ixia Employee Stock Purchase Plan(6)10.3.2
    
    Supplemental Provisions, effective April 14, 2006, to Ixia Employee Stock Purchase Plan(7)10.4*
    
    Officer Severance Plan(8)10.5*
    
    Form of Indemnity Agreement between Ixia and its directors and executive officers(9)10.6
    
    Office Lease Agreement dated September 14, 2007 between MS LPC Malibu Property Holdings, LLC and
Ixia(10)10.7*
    
    Warrants dated August 2, 2000 to Purchase 80,000 Shares of
Common Stock issued to Robert W.
Bass(11)10.8
    
    Registration Rights and Stock Transfer Restriction Agreement dated as of
September 15, 2000 among
Ixia, Technology Capital Group S.A. and Stéphane Ratel(12)10.9*
    
    Employment offer letter agreement dated October 27, 2001 between Ixia and David
Anderson(13)10.10*
    
    Employment offer letter agreement dated as of February 27, 2003 between Ixia and Robert W.
Bass(14)10.12
    
    License, Distribution and Option Agreement, dated July 7, 2003, between NetIQ Corporation and
Ixia(15)10.12.1
    
    First Amendment to License, Distribution and Option Agreement dated as of January 6, 2005 between
the Registrant and NetIQ Corporation(16)10.12.2
    
    Second Amendment to License, Distribution and Option Agreement dated as of June 16, 2005 between the
Registrant and NetIQ Corporation(17)(18)10.13*
    
    2006 Employee Bonus Plan(19)10.14*
    
    Summary of 2006 Compensation for the Registrants Named Executive Officers(20)10.15*
    
    Summary of 2007 Compensation for the Registrants Named Executive Officers10.16
    
    Summary of Compensation for the Registrants Non-Employee Directors(21)10.17*
    
    2007 Executive Officer Bonus Plan(22)10.18*
    
    Employment Offer Letter Agreement dated as of August 8, 2007 between the Company and Atul
Bhatnagar(23)14.1
    
    Code of Ethics for Chief Executive and Senior Financial Officers(24)21.1
    
    Subsidiaries of the Registrant23.1
    
    Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm31.1
    
    Certificate of Chief Executive Officer of Ixia pursuant to Rule 13a-14(a) under the Exchange Act, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certificate of Chief Financial Officer of Ixia pursuant to Rule 13a-14(a) under the Exchange Act, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certificate of Chief Executive Officer and Chief Financial Officer of Ixia pursuant to Rule
13a-14(b) under the Exchange Act and Section 906 of the Sarbanes-Oxley Act of 2002.
 45




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##### Table of Contents



*
    
    Constitutes a management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Annual Report on Form 10-K.(1)
    
    Incorporated by reference to Exhibit No. 3.1 to the Registrants Current Report on Form
8-K (File No. 000-31523) filed with the Commission on November 16, 2007.(2)
    
    Incorporated by reference to Exhibit No. 3.2 to Amendment No. 2 to the Registrants
Registration Statement on Form S-1 (Reg. No. 333-42678) filed with the Commission on
September 19, 2000.(3)
    
    Incorporated by reference to Exhibit 4.1 to the Registrants Registration Statement on
Form S-8 (Reg. No. 333-117969) filed with the Commission on August 5, 2004.(4)
    
    Incorporated by reference to Exhibit 4.2 to the Registrants Registration Statement on
Form S-8 (Reg. No. 333-117969) filed with the Commission on August 5, 2004.(5)
    
    Incorporated by reference to Exhibit No. 10.3 to Amendment No. 1 to the Registrants
Registration Statement on Form S-1 (Reg. No. 333-42678) filed with the Commission on
September 5, 2000.(6)
    
    Incorporated by reference to Exhibit 4.2 to the Registrants Registration Statement on
Form S-8 (Registration No. 333-107818) filed with the Commission on August 8, 2003.(7)
    
    Incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form
8-K (File No. 000-31523) filed with the Commission on April 20, 2006.(8)
    
    Incorporated by reference to Exhibit No. 10.4 to Amendment No. 1 to the Registrants
Registration Statement on Form S-1 (Reg. No. 333-42678) filed with the Commission on
September 5, 2000.(9)
    
    Incorporated by reference to Exhibit No. 10.5 to Amendment No. 1 to the Registrants
Registration Statement on Form S-1 (Reg. No. 333-42678) filed with the Commission on
September 5, 2000.(10)
    
    Incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form
8-K (File No. 000-31523) filed with the Commission on September 25, 2007.(11)
    
    Incorporated by reference to Exhibit No. 10.15 to Amendment No. 1 to the Registrants
Registration Statement on Form S-1 (Reg. No. 333-42678) filed with the Commission on
September 5, 2000.(12)
    
    Incorporated by reference to Exhibit No. 10.17 to Amendment No. 3 to the Registrants
Registration Statement on Form S-1 (Reg. No. 333-42678) filed with the Commission on
September 27, 2000.(13)
    
    Incorporated by reference to Exhibit No. 10.13 to the Registrants Annual Report on
Form 10-K (File No. 000-31523) for the fiscal year ended December 31, 2001.(14)
    
    Incorporated by reference to Exhibit No. 10.14 to the Registrants Annual Report on
Form 10-K (File No. 000-31523) for the fiscal year ended December 31, 2002.(15)
    
    Incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K
(File No. 000-31523) filed with the Commission on August 19, 2003.(16)
    
    Incorporated by reference to Exhibit 10.1 to the Registrants Quarterly Report on Form
10-Q (File No. 000-31523) for the fiscal quarter ended June 30, 2005.(17)
    
    Incorporated by reference to Exhibit 10.2 to the Registrants Quarterly Report on Form
10-Q (File No. 000-31523) for the fiscal quarter ended June 30, 2005.(18)
    
    Confidential treatment has been requested with respect to a portion of this exhibit,
which portion has been omitted and filed separately with the Commission.(19)
    
    Incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K
(File No. 000-31523) filed with the Commission on July 12, 2006.(20)
    
    Incorporated by reference to Exhibit 10.16 to the Registrants Annual Report on Form
10-K (File No. 000-31523) for the fiscal year ended December 31, 2006. 46




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##### Table of Contents



(21)
    
    Incorporated by reference to Exhibit 10.17 to the Registrants Annual Report on Form
10-K (File No. 000-31523) for the fiscal year ended December 31, 2006.(22)
    
    Incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form
8-K (File No. 000-31523) filed with the Commission on July 26, 2007.(23)
    
    Incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form
8-K (File No. 000-31523) filed with the Commission on September 4, 2007.(24)
    
    Incorporated by reference to Exhibit 14.1 to the Registrants Annual Report on Form
10-K (File No. 000-31523) for the fiscal year ended December 31, 2003. (b)
    
    Exhibits
  (c)
    
    Financial Statement Schedules
  47




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##### Table of Contents



SIGNATURES
  Dated: March 5, 2008
    IXIA/s/ Errol GinsbergErrol GinsbergChief Executive Officer  Name
    
    Title
    
    Date/s/ Errol Ginsberg

Errol Ginsberg
    
    Chief Executive Officer and Chairman of the
Board
(Principal Executive Officer)
    
    March 5, 2008/s/ Thomas B. Miller

Thomas B. Miller
    
    Chief Financial Officer
(Principal Financial and Accounting Officer)
    
    March 5, 2008/s/ Atul Bhatnagar

Atul Bhatnagar
    
    President, Chief Operating Officer and Director
    
    March 5, 2008/s/ Jon F. Rager

Jon F. Rager
    
    Director
    
    March 5, 2008/s/ Massoud Entekhabi

Massoud Entekhabi
    
    Director
    
    March 5, 2008/s/ Gail Hamilton

Gail Hamilton
    
    Director
    
    March 5, 2008/s/ Jonathan Fram

Jonathan Fram
    
    Director
    
    March 5, 2008
 48




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##### Table of Contents



IXIA
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm
    
    50Consolidated Balance Sheets as of December 31, 2007 and 2006
    
    51Consolidated Statements of Income for the years ended December 31, 2007, 2006 and 2005
    
    52Consolidated Statements of Shareholders Equity for the years ended December 31, 2007,
2006 and 2005
    
    53Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005
    
    54Notes to Consolidated Financial Statements
    
    55
 49




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
  Internal
Control  Integrated Framework
      
 50




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##### Table of Contents



IXIA
Consolidated Balance Sheets
(in thousands)
 December 31,
    
    
    December 31,2007
    
    
    2006AssetsCurrent assets:Cash and cash equivalents
    
    $
    188,892
    
    
    $
    64,644Short-term investments in marketable securities
    
    
    4,999
    
    
    
    152,703Accounts receivable, net
    
    
    32,405
    
    
    
    36,221Inventories
    
    
    12,731
    
    
    
    11,604Deferred income taxes
    
    
    5,613
    
    
    
    6,382Prepaid expenses and other current assets
    
    
    3,385
    
    
    
    4,182Total current assets
    
    
    248,025
    
    
    
    275,736Investments in marketable securities
    
    
    54,609
    
    
    
    4,354Property and equipment, net
    
    
    21,433
    
    
    
    22,044Deferred income taxes
    
    
    13,543
    
    
    
    9,486Intangible assets, net
    
    
    14,147
    
    
    
    20,224Goodwill
    
    
    16,728
    
    
    
    16,728Other assets
    
    
    955
    
    
    
    487Total assets
    
    $
    369,440
    
    
    $
    349,059Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    2,474
    
    
    $
    2,195Accrued expenses
    
    
    19,440
    
    
    
    15,873Deferred revenues
    
    
    18,748
    
    
    
    17,346Income taxes payable
    
    
    1,304
    
    
    
    5,154Total current liabilities
    
    
    41,966
    
    
    
    40,568Deferred revenues
    
    
    7,167
    
    
    
    7,202Other liabilities
    
    
    3,807
    
    
    
    500Total liabilities
    
    
    52,940
    
    
    
    48,270Commitments and contingencies (Note 7)Shareholders equity:Preferred stock, without par value; 1,000
shares authorized and none outstanding
    
    
    
    
    
    
    Common stock, without par value; 200,000
shares authorized at December 31, 2007 and
December 31, 2006; 68,171 and 67,351 shares
issued and outstanding as of December 31, 2007
and December 31, 2006, respectively
    
    
    132,092
    
    
    
    132,413Additional paid-in capital
    
    
    98,157
    
    
    
    86,305Retained earnings
    
    
    89,077
    
    
    
    82,071Accumulated other comprehensive loss
    
    
    (2,826
    )
    
    
    Total shareholders equity
    
    
    316,500
    
    
    
    300,789Total liabilities and shareholders equity
    
    $
    369,440
    
    
    $
    349,059
 The accompanying notes are an integral part of these consolidated financial statements
 51




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##### Table of Contents



IXIA
Consolidated Statements of Income
(in thousands, except per share data)
 Year Ended December 31,2007
    
    
    2006
    
    
    2005Revenues:Products
    
    $
    148,226
    
    
    $
    155,388
    
    
    $
    130,045Services
    
    
    25,895
    
    
    
    24,744
    
    
    
    20,808Total revenues
    
    
    174,121
    
    
    
    180,132
    
    
    
    150,853Costs and operating expenses:(1)Cost of revenues  products
    
    
    32,724
    
    
    
    29,437
    
    
    
    24,239Cost of
revenues  amortization of purchased technology
    
    
    5,196
    
    
    
    4,705
    
    
    
    3,891Cost of revenues  services
    
    
    3,870
    
    
    
    2,681
    
    
    
    2,216Research and development
    
    
    47,407
    
    
    
    43,450
    
    
    
    32,404Sales and marketing
    
    
    57,420
    
    
    
    59,020
    
    
    
    39,359General and administrative
    
    
    24,927
    
    
    
    23,800
    
    
    
    16,438Amortization of intangible assets
    
    
    1,912
    
    
    
    1,745
    
    
    
    1,278Impairment of purchased technology and intangible
assets
    
    
    3,263
    
    
    
    
    
    
    
    Total costs and operating expenses
    
    
    176,719
    
    
    
    164,838
    
    
    
    119,825(Loss) income from operations
    
    
    (2,598
    )
    
    
    15,294
    
    
    
    31,028Interest and other income, net
    
    
    11,723
    
    
    
    9,409
    
    
    
    5,055Income before income taxes
    
    
    9,125
    
    
    
    24,703
    
    
    
    36,083Income tax expense
    
    
    2,119
    
    
    
    11,222
    
    
    
    7,593Net income
    
    $
    7,006
    
    
    $
    13,481
    
    
    $
    28,490Earnings per share:Basic
    
    $
    0.10
    
    
    $
    0.20
    
    
    $
    0.44Diluted
    
    $
    0.10
    
    
    $
    0.20
    
    
    $
    0.41Weighted average number of common and common
equivalent shares outstanding:Basic
    
    
    67,936
    
    
    
    67,005
    
    
    
    65,168Diluted
    
    
    69,386
    
    
    
    68,792
    
    
    
    69,227(1)   Stock-based compensation included in:Cost of revenues  products
    
    $
    519
    
    
    $
    590
    
    
    $
    Cost of revenues  services
    
    
    197
    
    
    
    224
    
    
    
    Research and development
    
    
    5,243
    
    
    
    6,481
    
    
    
    Sales and marketing
    
    
    4,416
    
    
    
    7,838
    
    
    
    General and administrative
    
    
    2,659
    
    
    
    2,890
    
    
    
    
 The accompanying notes are an integral part of these consolidated financial statements
 52




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##### Table of Contents



IXIA
Consolidated Statements of Shareholders Equity
(in thousands)
 AccumulatedAdditional
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Paid-In
    
    
    Retained
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Income (loss)
    
    
    TotalBalance as of December 31, 2004
    
    
    62,459
    
    
    $
    100,144
    
    
    $
    53,247
    
    
    $
    40,100
    
    
    $
    
    
    
    $
    193,491Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,490
    
    
    
    
    
    
    
    28,490Shares issued pursuant to stock
incentive plans and exercise of
employee stock purchase plan
options
    
    
    4,121
    
    
    
    26,648
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,648Stock award tax benefit
    
    
    
    
    
    
    
    
    
    
    14,851
    
    
    
    
    
    
    
    
    
    
    
    14,851Balance as of December 31, 2005
    
    
    66,580
    
    
    
    126,792
    
    
    
    68,098
    
    
    
    68,590
    
    
    
    
    
    
    
    263,480Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,481
    
    
    
    
    
    
    
    13,481Shares issued pursuant to stock
incentive plans and exercise of
employee stock purchase plan
options
    
    
    771
    
    
    
    5,621
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,621Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    18,023
    
    
    
    
    
    
    
    
    
    
    
    18,023Stock award tax benefit
    
    
    
    
    
    
    
    
    
    
    184
    
    
    
    
    
    
    
    
    
    
    
    184Balance as of December 31, 2006
    
    
    67,351
    
    
    
    132,413
    
    
    
    86,305
    
    
    
    82,071
    
    
    
    
    
    
    
    300,789Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,006
    
    
    
    
    
    
    
    7,006Unrealized loss on investments,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,844
    )
    
    
    (2,844
    )Cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    18Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,180Shares issued pursuant to stock
incentive plans, warrants and
employee stock purchase plan
options
    
    
    1,739
    
    
    
    8,870
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,870Repurchase of shares pursuant to
stock buyback program
    
    
    (919
    )
    
    
    (9,191
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,191
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    13,034
    
    
    
    
    
    
    
    
    
    
    
    13,034Stock award tax shortfall
    
    
    
    
    
    
    
    
    
    
    (1,182
    )
    
    
    
    
    
    
    
    
    
    
    (1,182
    )Balance as of December 31, 2007
    
    
    68,171
    
    
    $
    132,092
    
    
    $
    98,157
    
    
    $
    89,077
    
    
    $
    (2,826
    )
    
    $
    316,500
 The accompanying notes are an integral part of these consolidated financial statements
 53




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IXIA
Consolidated Statements of Cash Flows
(in thousands)
 Year Ended December 31,2007
    
    
    2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    7,006
    
    
    $
    13,481
    
    
    $
    28,490Adjustments to reconcile net income to net cash provided by
operating activities, net of effect of acquisitions:Depreciation and amortization
    
    
    11,560
    
    
    
    10,038
    
    
    
    5,925Amortization of purchased technology and intangible
assets
    
    
    7,108
    
    
    
    6,450
    
    
    
    5,169Impairment of purchased technology and intangible assets
    
    
    3,263
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    13,034
    
    
    
    18,023
    
    
    
    Deferred income taxes
    
    
    (1,478
    )
    
    
    5,739
    
    
    
    (8,141
    )Tax (shortfall) benefit from stock award transactions
    
    
    (1,182
    )
    
    
    184
    
    
    
    14,851Excess tax benefits from stock-based compensation
    
    
    (309
    )
    
    
    (255
    )
    
    
    Changes in operating assets and liabilities, net of
effect of acquisitions:Accounts receivable, net
    
    
    3,816
    
    
    
    (4,656
    )
    
    
    (9,377
    )Inventories
    
    
    (1,127
    )
    
    
    (1,758
    )
    
    
    (3,156
    )Income taxes receivable
    
    
    
    
    
    
    
    
    
    
    1,687Prepaid expenses and other current assets
    
    
    797
    
    
    
    (663
    )
    
    
    (629
    )Other assets
    
    
    (468
    )
    
    
    (172
    )
    
    
    297Accounts payable
    
    
    279
    
    
    
    (677
    )
    
    
    1,312Accrued expenses
    
    
    2,146
    
    
    
    2,168
    
    
    
    3,339Deferred revenues
    
    
    1,367
    
    
    
    (15,014
    )
    
    
    10,299Income taxes payable and other liabilities
    
    
    (43
    )
    
    
    1,023
    
    
    
    (72
    )Net cash provided by operating activities
    
    
    45,769
    
    
    
    33,911
    
    
    
    49,994Cash flows from investing activities:Purchases of property and equipment
    
    
    (10,931
    )
    
    
    (12,332
    )
    
    
    (13,396
    )Purchases of available-for-sale securities
    
    
    (54,150
    )
    
    
    (153,400
    )
    
    
    (143,336
    )Proceeds from available-for-sale securities
    
    
    161,850
    
    
    
    114,225
    
    
    
    109,186Purchases of held-to-maturity securities
    
    
    (45,469
    )
    
    
    (7,978
    )
    
    
    (22,030
    )Proceeds from held-to-maturity securities
    
    
    30,564
    
    
    
    39,944
    
    
    
    37,104Purchases of other intangible assets
    
    
    (175
    )
    
    
    (165
    )
    
    
    (180
    )Payments in connection with acquisitions
    
    
    (3,198
    )
    
    
    (7,274
    )
    
    
    (8,536
    )Net cash provided by (used in) investing activities
    
    
    78,491
    
    
    
    (26,980
    )
    
    
    (41,188
    )Cash flows from financing activities:Proceeds from exercise of stock options, warrants and
employee stock purchase plan options
    
    
    8,870
    
    
    
    5,621
    
    
    
    26,648Repurchase of common stock
    
    
    (9,191
    )
    
    
    
    
    
    
    Excess tax benefits from stock-based compensation
    
    
    309
    
    
    
    255
    
    
    
    Net cash (used in) provided by financing activities
    
    
    (12
    )
    
    
    5,876
    
    
    
    26,648Net increase in cash and cash equivalents
    
    
    124,248
    
    
    
    12,807
    
    
    
    35,454Cash and cash equivalents at beginning of year
    
    
    64,644
    
    
    
    51,837
    
    
    
    16,383Cash and cash equivalents at end of year
    
    $
    188,892
    
    
    $
    64,644
    
    
    $
    51,837Supplemental disclosure of cash flow information:Cash paid during the year for:Income taxes
    
    $
    4,724
    
    
    $
    4,291
    
    
    $
    853
 The accompanying notes are an integral part of these consolidated financial statements
 54




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IXIA
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Business and Summary of Significant Accounting Policies
 Business
  Use of Estimates
  Consolidation
  Cash and Cash Equivalents
  Fair Value of Financial Instruments
   55




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IXIA
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Investments in Marketable Securities
   Accounts Receivable and Allowance for Doubtful Accounts
  Inventories
  Property and Equipment
  Goodwill and Purchased Intangible Assets
  56




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IXIA
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Litigation
  Product Warranty Costs
  Revenue Recognition
    57




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##### Table of Contents



IXIA
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       Cost of Revenues
  58




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##### Table of Contents



IXIA
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Research and Development
  Software Developed for Internal Use
  Advertising
  Stock-Based Compensation
   59




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##### Table of Contents



IXIA
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Income Taxes
   Earnings Per Share
  Foreign Currency Translation
  Comprehensive Income
  Segments
  60




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IXIA
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Reclassifications and Presentation
  Recent Accounting Pronouncements
    2. Concentrations
 Credit Risk
   61




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IXIA
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Significant Customer
  Year Ended December 31,2007
    
    2006
    
    2005Amount of total revenues
    
    $
    41,655
    
    
    $
    46,280
    
    
    $
    53,045As a percentage of total revenues
    
    
    23.9
    %
    
    
    25.7
    %
    
    
    35.2
    %
  International Data
  Year Ended December 31,2007
    
    2006
    
    2005Amount of total revenues
    
    $
    60,946
    
    
    $
    57,275
    
    
    $
    40,917As a percentage of total revenues
    
    
    35.0
    %
    
    
    31.8
    %
    
    
    27.1
    %
  Sources of Supply
  3. Selected Balance Sheet Data (in thousands)
 Accounts Receivable, Net
  December 31,
    
    December 31,2007
    
    2006Trade accounts receivable
    
    $
    33,019
    
    
    $
    37,395Allowance for doubtful accounts
    
    
    (614
    )
    
    
    (1,174
    )$
    32,405
    
    
    $
    36,221
 62




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IXIA
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Balance at
    
    Charged to
    
    Reversals to
    
    
    
    
    
    Balance atBeginning
    
    Cost and
    
    Cost and
    
    
    
    
    
    End ofYear Ended December 31,
    
    of Period
    
    Expenses
    
    Expenses
    
    Deductions
    
    Period2007
    
    $
    1,174
    
    
    $
    300
    
    
    $
    (60
    )
    
    $
    (800
    )
    
    $
    6142006
    
    
    854
    
    
    
    335
    
    
    
    
    
    
    
    (15
    )
    
    
    1,1742005
    
    
    842
    
    
    
    300
    
    
    
    (150
    )
    
    
    (138
    )
    
    
    854
 Investments in Marketable Securities
  Carrying
    
    
    FairValue
    
    
    ValueAvailable-for-sale  short-term:Auction rate securities
    
    $
    2,001
    
    
    $
    2,001Held-to-maturity  maturities of less than one year:Government agency debt securities
    
    
    2,998
    
    
    
    2,9844,999
    
    
    
    4,985Available-for-sale  long-term:Auction rate securities
    
    
    14,345
    
    
    
    14,345Held-to-maturity  maturities of one to five years:Government agency debt securities
    
    
    25,058
    
    
    
    25,220Corporate debt securities
    
    
    15,206
    
    
    
    15,23454,609
    
    
    
    54,799$
    59,608
    
    
    $
    59,784
  63




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IXIA
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Carrying
    
    
    FairValue
    
    
    ValueAvailable-for-sale  short-term:Auction rate securities
    
    $
    128,701
    
    
    $
    128,701Held-to-maturity  maturities of less than one year:Government agency debt securities
    
    
    23,002
    
    
    
    22,928Corporate debt securities
    
    
    1,000
    
    
    
    998152,703
    
    
    
    152,627Held-to-maturity  maturities of one to five years:Government agency debt securities
    
    
    4,354
    
    
    
    4,2924,354
    
    
    
    4,292$
    157,057
    
    
    $
    156,919
 Inventories
  December 31,
    
    
    December 31,2007
    
    
    2006Raw materials
    
    $
    2,276
    
    
    $
    3,391Work in process
    
    
    6,680
    
    
    
    6,891Finished goods
    
    
    3,775
    
    
    
    1,322$
    12,731
    
    
    $
    11,604
 Property and Equipment, Net
  December 31,
    
    
    December 31,Useful Life
    
    
    2007
    
    
    2006(in years)Computer equipment
    
    
    3
    
    
    $
    7,701
    
    
    $
    6,667Computer software
    
    
    3-5
    
    
    
    7,652
    
    
    
    6,697Demonstration equipment
    
    
    2
    
    
    
    13,196
    
    
    
    11,397Development equipment
    
    
    5
    
    
    
    13,404
    
    
    
    10,643Furniture and other equipment
    
    
    5
    
    
    
    14,271
    
    
    
    12,751Leasehold improvements
    
    
    5-10
    
    
    
    3,556
    
    
    
    3,44359,780
    
    
    
    51,598Accumulated depreciation
    
    
    
    
    
    
    (38,347
    )
    
    
    (29,554
    )$
    21,433
    
    
    $
    22,044
 64




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##### Table of Contents



IXIA
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Accrued Expenses
  December 31,
    
    
    December 31,2007
    
    
    2006Accrued payroll
    
    $
    4,216
    
    
    $
    3,253Accrued vacation
    
    
    2,981
    
    
    
    2,315Due to third parties for technology and certain assets
    
    
    2,377
    
    
    
    1,000Accrued bonuses
    
    
    2,319
    
    
    
    1,704Accrued commissions
    
    
    1,566
    
    
    
    1,401Accrued legal and professional fees
    
    
    1,033
    
    
    
    1,635Accrued travel
    
    
    642
    
    
    
    644Accrued warranty
    
    
    577
    
    
    
    344Employee stock purchase plan payroll deductions
    
    
    545
    
    
    
    550Accrued property taxes
    
    
    339
    
    
    
    452Sales tax payable
    
    
    221
    
    
    
    308Other
    
    
    2,624
    
    
    
    2,267$
    19,440
    
    
    $
    15,873
 4. Acquisitions
  Acquisition of Test Business from Dilithium Networks
   Intangible assets
    
    $
    2,430Goodwill
    
    
    3,260Total assets acquired
    
    
    5,690Current liabilities assumed
    
    
    (477
    )Net assets acquired
    
    $
    5,213
  65




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IXIA
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Acquisition of Certain Assets from Bell Canada
  Communication Machinery Corporation
   Current assets
    
    $
    144Property and equipment
    
    
    11Deferred taxes
    
    
    727Intangible assets
    
    
    2,420Goodwill
    
    
    2,091Total assets acquired
    
    
    5,393Current liabilities assumed
    
    
    (254
    )Deferred taxes
    
    
    (958
    )Net assets acquired
    
    $
    4,181
   66




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IXIA
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 5. Goodwill and Other Intangible Assets
  Accumulated
    
    
    AccumulatedGross
    
    
    Amortization
    
    
    Impairment
    
    
    NetGoodwill
    
    $
    16,728
    
    
    $
    
    
    
    $
    
    
    
    $
    16,728Other intangible assets:Technology
    
    $
    35,539
    
    
    $
    (21,021
    )
    
    $
    (1,445
    )
    
    $
    13,073Non-compete
    
    
    962
    
    
    
    (929
    )
    
    
    (25
    )
    
    
    8Trademark
    
    
    676
    
    
    
    (426
    )
    
    
    
    
    
    
    250Workforce
    
    
    395
    
    
    
    (395
    )
    
    
    
    
    
    
    Customer relationships
    
    
    3,246
    
    
    
    (1,498
    )
    
    
    (1,735
    )
    
    
    13Other
    
    
    2,560
    
    
    
    (1,699
    )
    
    
    (58
    )
    
    
    803$
    43,378
    
    
    $
    (25,968
    )
    
    $
    (3,263
    )
    
    $
    14,147
   AccumulatedGross
    
    
    Amortization
    
    
    NetGoodwill
    
    $
    16,728
    
    
    $
    
    
    
    $
    16,728Other intangible assets:Technology
    
    $
    31,900
    
    
    $
    (15,313
    )
    
    $
    16,587Non-compete
    
    
    912
    
    
    
    (802
    )
    
    
    110Trademark
    
    
    676
    
    
    
    (327
    )
    
    
    349Workforce
    
    
    395
    
    
    
    (346
    )
    
    
    49Customer relationships
    
    
    3,246
    
    
    
    (1,170
    )
    
    
    2,076Other
    
    
    1,955
    
    
    
    (902
    )
    
    
    1,053$
    39,084
    
    
    $
    (18,860
    )
    
    $
    20,224
  2008
    
    $
    5,5922009
    
    
    4,6872010
    
    
    3,0182011
    
    
    6412012
    
    
    72Thereafter
    
    
    137$
    14,147
 67




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IXIA
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 6. Income Taxes
  Year Ended December 31,2007
    
    
    2006
    
    
    2005U.S.
    
    $
    5,761
    
    
    $
    24,673
    
    
    $
    35,703Foreign
    
    
    3,364
    
    
    
    30
    
    
    
    380$
    9,125
    
    
    $
    24,703
    
    
    $
    36,083
  Year Ended December 31,2007
    
    
    2006
    
    
    2005Current:Federal
    
    $
    3,123
    
    
    $
    4,672
    
    
    $
    13,086State
    
    
    (268
    )
    
    
    503
    
    
    
    2,635Foreign
    
    
    741
    
    
    
    309
    
    
    
    14Deferred:Federal
    
    
    (543
    )
    
    
    4,785
    
    
    
    (5,109
    )State
    
    
    (1,483
    )
    
    
    1,212
    
    
    
    (3,049
    )Foreign
    
    
    549
    
    
    
    (259
    )
    
    
    16Income tax expense
    
    $
    2,119
    
    
    $
    11,222
    
    
    $
    7,593
  Year Ended December 31,2007
    
    
    2006
    
    
    2005Federal statutory expense
    
    $
    3,194
    
    
    $
    8,646
    
    
    $
    12,629State taxes, net of federal benefit
    
    
    (1,138
    )
    
    
    1,242
    
    
    
    (244
    )Research and development credits
    
    
    (625
    )
    
    
    (969
    )
    
    
    (1,937
    )Stock-based compensation
    
    
    809
    
    
    
    2,644
    
    
    
    (1,924
    )Domestic production activities deduction
    
    
    (276
    )
    
    
    (249
    )
    
    
    Other
    
    
    155
    
    
    
    (92
    )
    
    
    (931
    )Income tax expense
    
    $
    2,119
    
    
    $
    11,222
    
    
    $
    7,593Net effective income tax rate
    
    
    23.2
    %
    
    
    45.4
    %
    
    
    21.0
    %
 68




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IXIA
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  December 31,
    
    
    December 31,2007
    
    
    2006Deferred tax assets:Allowance for doubtful accounts
    
    $
    239
    
    
    $
    465Research and development credit carryforward
    
    
    4,999
    
    
    
    6,176Deferred revenue
    
    
    4,500
    
    
    
    5,277Stock-based compensation
    
    
    5,074
    
    
    
    4,548Inventory adjustments
    
    
    1,790
    
    
    
    1,532Net operating loss carryforward
    
    
    509
    
    
    
    870Unrealized loss on investments
    
    
    1,811
    
    
    
    Accrued liabilities and other
    
    
    1,873
    
    
    
    1,209Total deferred tax assets
    
    
    20,795
    
    
    
    20,077Deferred tax liabilities:Depreciation and amortization
    
    
    (1,639
    )
    
    
    (4,209
    )Net deferred taxes
    
    $
    19,156
    
    
    $
    15,868
       69




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IXIA
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    Unrecognized Tax Benefits  January 1, 2007
    
    $
    4,848Gross increases   Tax positions taken in prior period
    
    
    164Gross decreases  Tax positions taken in prior period
    
    
    (1,183
    )Gross increases   Tax positions taken in current period
    
    
    707Lapse of statute of limitations
    
    
    (169
    )Unrecognized Tax Benefits  December 31, 2007
    
    $
    4,367
  7. Commitments and Contingencies
  Year Ending December 31,2008
    
    $
    4,8442009
    
    
    4,9392010
    
    
    4,6262011
    
    
    3,8822012
    
    
    3,652Thereafter
    
    
    2,630$
    24,573
   Litigation
  70




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IXIA
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Indemnifications
  8. Shareholders Equity
 Stock Award Plans
    Weighted AverageWeighted Average
    
    
    Remaining
    
    
    AggregateNumber
    
    
    Exercise Price
    
    
    Contractual
    
    
    Intrinsicof Options
    
    
    Per Share
    
    
    Life (in years)
    
    
    ValueOutstanding as of December 31, 2006
    
    
    10,120
    
    
    $
    10.59Granted
    
    
    2,209
    
    
    
    9.51Exercised
    
    
    (1,123
    )
    
    
    4.89Forfeited/canceled
    
    
    (1,301
    )
    
    
    13.14Outstanding as of December 31, 2007
    
    
    9,905
    
    
    $
    10.67
    
    
    
    4.24
    
    
    $
    9,611Exercisable as of December 31, 2007
    
    
    6,425
    
    
    $
    10.48
    
    
    
    3.31
    
    
    $
    9,079
 71




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##### Table of Contents



IXIA
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Weighted AverageGrant DateNumber
    
    
    Fair Valueof Awards
    
    
    Per ShareOutstanding as of December 31, 2006
    
    
    323
    
    
    $
    9.64Awarded
    
    
    643
    
    
    
    9.30Released
    
    
    (194
    )
    
    
    9.42Forfeited/canceled
    
    
    (99
    )
    
    
    9.48Outstanding as of December 31, 2007
    
    
    673
    
    
    $
    9.40
  Employee Stock Purchase Plan
    72




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IXIA
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Stock-Based Compensation Expense
  Year Ended December 31,2007
    
    2006
    
    2005Expected lives (in years)
    
    
    4.5
    
    
    
    4.1
    
    
    
    4.0Risk-free interest rates
    
    
    4.4
    %
    
    
    4.8
    %
    
    
    4.2
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Expected volatility
    
    
    52.4
    %
    
    
    61.0
    %
    
    
    62.4
    %
  Year EndedDecember 31,2005Net income  as reported for prior period (1)
    
    $
    28,490Stock-based compensation expense related to share-based awards,
net of tax (2)
    
    
    (8,402
    )Net income  including the effects of stock-based compensation
    
    $
    20,088Earnings per share:Basic  as reported for prior period (1)
    
    $
    0.44Basic  including the effects of stock-based compensation
    
    $
    0.31Diluted  as reported for prior period (1)
    
    $
    0.41Diluted  including the effects of stock-based compensation
    
    $
    0.29
 
 (1)
    
    Net income and earnings per share for the year ended
December 31, 2005 did not include stock-based compensation
expense for share-based awards under SFAS 123 because we
did not adopt the recognition provisions of SFAS 123.(2)
    
    Stock-based compensation expense, excluding tax effects,
under SFAS 123 for the year ended December 31, 2005 was
$15.4 million. Warrants
  Stock Buyback Program
  73




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##### Table of Contents



IXIA
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 9. Retirement Plan
  10. Earnings Per Share
  Year Ended December 31,2007
    
    
    2006
    
    
    2005Basic PresentationNumerator:Net income
    
    $
    7,006
    
    
    $
    13,481
    
    
    $
    28,490Denominator:Weighted average common shares
    
    
    67,936
    
    
    
    67,005
    
    
    
    65,168Basic earnings per share
    
    $
    0.10
    
    
    $
    0.20
    
    
    $
    0.44Diluted presentationDenominator:Shares used above
    
    
    67,936
    
    
    
    67,005
    
    
    
    65,168Weighted average effect of
stock options and other
share-based awards
    
    
    1,450
    
    
    
    1,787
    
    
    
    4,059Denominator for diluted computation
    
    
    69,386
    
    
    
    68,792
    
    
    
    69,227Diluted earnings per share
    
    $
    0.10
    
    
    $
    0.20
    
    
    $
    0.41
  11. Quarterly Financial Summary (Unaudited) (in thousands, except per share data)
 Three Months EndedDec. 31
    
    Sep. 30
    
    Jun. 30
    
    Mar. 31
    
    Dec. 31
    
    Sep. 30
    
    Jun. 30
    
    Mar. 312007
    
    2007
    
    2007(1)
    
    2007
    
    2006
    
    2006
    
    2006
    
    2006(in thousands, except per share data)Statement of Income Data:Total revenues
    
    $
    46,385
    
    
    $
    44,034
    
    
    $
    42,999
    
    
    $
    40,703
    
    
    $
    47,367
    
    
    $
    55,228
    
    
    $
    40,470
    
    
    $
    37,067Total cost of revenues
    
    
    10,132
    
    
    
    10,608
    
    
    
    10,722
    
    
    
    10,328
    
    
    
    9,868
    
    
    
    9,579
    
    
    
    9,285
    
    
    
    8,091Gross profit
    
    
    36,253
    
    
    
    33,426
    
    
    
    32,277
    
    
    
    30,375
    
    
    
    37,499
    
    
    
    45,649
    
    
    
    31,185
    
    
    
    28,976Income (loss) before
income taxes
    
    
    5,526
    
    
    
    2,994
    
    
    
    1,057
    
    
    
    (452
    )
    
    
    7,949
    
    
    
    15,378
    
    
    
    1,620
    
    
    
    (244
    )Net income (loss)
    
    
    4,439
    
    
    
    1,926
    
    
    
    1,400
    
    
    
    (759
    )
    
    
    4,501
    
    
    
    8,100
    
    
    
    942
    
    
    
    (62
    )Earnings (loss) per share:Basic
    
    $
    0.07
    
    
    $
    0.03
    
    
    $
    0.02
    
    
    $
    (0.01
    )
    
    $
    0.07
    
    
    $
    0.12
    
    
    $
    0.01
    
    
    $
    (0.00
    )Diluted
    
    $
    0.06
    
    
    $
    0.03
    
    
    $
    0.02
    
    
    $
    (0.01
    )
    
    $
    0.07
    
    
    $
    0.12
    
    
    $
    0.01
    
    
    $
    (0.00
    )
 
 (1)
    
    In the second quarter of 2007, we recorded an impairment charge of $3.3 million, which consists of the impairment of purchased technology of
$1.5 million and the impairment of certain intangible assets of $1.8 million related to the acquisition of Communication Machinery Corporation in July 2005
and to the acquisition of the mobile video test product line from Dilithium Networks in January 2006. 74




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EXHIBIT INDEX
 Exhibit No.
    
    Description10.15
    
    Summary of 2007 Compensation for the Registrants Named
Executive Officers21.1
    
    Subsidiaries of the Registrant23.1
    
    Consent of PricewaterhouseCoopers LLP, Independent Registered
Public Accounting Firm31.1
    
    Certification of Chief Executive Officer of Ixia pursuant to
Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer of Ixia pursuant to
Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certifications of Chief Executive Officer and Chief Financial
Officer of Ixia pursuant to Rule 13a-14(b) under the Exchange
Act and 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
 75