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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 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 December 31, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from ________ to ________
 Commission File Number 000-31523
 IXIA
 (Exact name of Registrant as specified in its charter)
 California
    
    95-4635982(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 26601 West Agoura Road, Calabasas, CA 91302  (Address of principal executive offices, including zip code)
  
   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
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



IXIA
 FORM 10-K
 TABLE OF CONTENTS
 PagePART IItem 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    17Item 1B.
    
    Unresolved Staff Comments
    
    
    30Item 2.
    
    Properties
    
    
    30Item 3.
    
    Legal Proceedings
    
    
    30Item 4.
    
    Reserved
    
    
    31PART IIItem 5.
    
    Market for Registrants Common Equity, Related
Shareholder Matters and Issuer Purchases of Equity Securities
    
    
    32Item 6.
    
    Selected Financial Data
    
    
    33Item 7.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    36Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    51Item 8.
    
    Financial Statements and Supplementary Data
    
    
    51Item 9.
    
    Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
    
    
    51Item 9A.
    
    Controls and Procedures
    
    
    51Item 9B.
    
    Other Information
    
    
    53PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    54Item 11.
    
    Executive Compensation
    
    
    54Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and
Related Shareholder Matters
    
    
    54Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    54Item 14.
    
    Principal Accounting Fees and Services
    
    
    54PART IVItem 15.
    
    Exhibits, Financial Statement Schedules
    
    
    55SIGNATURES
    
    
    58EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1
  2




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PART I
 
 Item 1.
    
    Business
 Overview
   
    
    Leading network equipment manufacturers such as Cisco Systems, Juniper Networks, and
Alcatel-Lucent;
    
    Semiconductor manufacturers such as Broadcom, LSI Corporation, and Intel;
    
    Telecommunications equipment manufacturers such as Motorola, Ericsson, and ZTE
Corporation;
    
    Voice, broadband and/or wireless service providers such as AT&T, NTT, and Bell
Canada;
    
    Cable operators such as Comcast Cable, Time Warner, and Charter Communications;
    
    Enterprises such as the New York Stock Exchange, JP Morgan, and Wells Fargo; and
    
    Government contractors, departments and agencies such as the U.S. Navy, General
Dynamics and Northrop Grumman.
   3




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The Increasing Need for Network and Application Testing and Measurement
  
    
    Communications Chip Manufacturers. At the early stages of development of new
components, communications chip manufacturers use our test systems to evaluate and
analyze the conformance, interoperability, and performance of their components. This
occurs during the design and development phase  typically prior to integration by
network equipment manufacturers.
    
    Network/Telecommunications Equipment Manufacturers (NEMs/TEMs). NEMs and TEMs
provide voice, video, and data service infrastructure equipment to customer network
operators, service providers, and network users, who specify high standards of
functionality, performance and reliability. To meet these higher standards, NEMs and
TEMs 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. NEMs
use our test systems to run large-scale subscriber and service emulations, generating
extreme traffic loads to verify the performance and capacity of their wired and
wireless devices prior to deployment in production networks. Our systems are also used
by NEMs and TEMs in the sales and acceptance process to demonstrate to their customers
(e.g., service providers and enterprises) how their products will operate under
real-world conditions. Our conformance test suites are used by NEMs and TEMs to ensure
that their devices conform to published standards  ensuring that they will be
interoperable with other equipment.
    
    Network Operators and Service Providers (Service Providers).Service Providers seek
to provide their customers with a growing variety of high quality, advanced 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.
Service Providers use our test systems to emulate millions of subscribers to
realistically predict end user quality of experience delivered by their wired and
wireless infrastructure and services. Increasingly, Service Provider operations groups
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 some
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 functionality
of network equipment and making sure that new networks, services and applications will
perform as expected. They also use our products to test the performance and scalability
of their internal applications, often based on proprietary protocols.
 Characteristics Demanded of Network and Application Test and Measurement Equipment
  4




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The Ixia Solution
   Versatile High Performance.
   Highly Scalable.
 5




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Hardware Platform.
 Highly Modular.
 Flexible.
 Open Architecture.
 Ease of Automation.
 Ease of Use.
 Strategy
  Continue to Expand our Addressable Markets.
 6




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Maintain Focus on Technology Leadership.
 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
   7




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Chassis
    Interface Cards
   System Management Software
  8




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Application Specific Test Suites
  Video Testing
   Voice Testing
   Intelligent Network Testing
  Conformance Testing
  Security Testing
   9




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Application Testing
  Router Testing
   Layer 2-3 Security Testing
   Switch Testing
    Wireless Testing
   10




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Broadband Testing
   Automated Testing
     Converged Monitoring Testing
  Products in Development
  
    
    10, 40 and 100 Gigabit Ethernet
    
    Carrier, Metro and Data Center Ethernet
    
    MPLS
    
    Multicast
    
    IPv6
    
    Voice and Video over IP
    
    IPSec
    
    Data Center Ethernet
 11




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
    
    Test Automation
    
    Security
    
    LTE
    
    IMS
    
    Energy efficiency
  Technology
  Complex Logic Design
 Software Technology
 Customers
   12




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Competition
   
    
    Breadth of product offerings and features on a single platform,
    
    Timeliness of new product introductions,
    
    Product quality, reliability and performance,
    
    Price and overall cost of product ownership,
    
    Ease of installation, integration and use,
    
    Customer service and technical support, and
    
    Company reputation and size.
    Sales, Marketing and Technical Support
 Sales
 13




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Marketing
 
    
    Sponsoring technical seminars and webinars that highlight our solutions,
    
    Participating in industry trade shows and technical conferences,
    
    Writing and distribution of various forms of collateral, including brochures, white
papers, and application notes,
    
    Demonstrating the performance and scalability of our products at our iSimCity
proof-of-concept labs,
    
    Communicating through our corporate website, and
    
    Advertising in trade journals.
 Technical Support
 
    
    Offer solutions for performance validation needs,
    
    Develop custom applications,
    
    Deploy to customer sites on short notice, and
    
    Provide guidance to optimally utilize our systems.
 Manufacturing
    14




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Research and Development
     Intellectual Property and Proprietary Rights
    15




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Employees
  Available Information
  16




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Item 1A.
    
    Risk Factors
  Our business may be adversely affected by unfavorable general economic and market conditions
   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 or delays in assimilating or transitioning (from a larger organization)
the acquired operations, systems, processes, controls, technologies, products, or
personnel;
    
    loss of acquired customer accounts;
 17




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
    
    unanticipated costs associated with the acquisition;
    
    multiple and overlapping product lines as a result of our acquisitions that are
offered, priced and supported differently, which could cause customer confusion and
delays;
    
    higher than anticipated costs in continuing support and development of acquired
products;
    
    diversion of managements attention from our core business and the challenges of
managing larger and more widespread operations resulting from acquisitions;
    
    adverse effects on existing business relationships with suppliers, licensors,
contract manufacturers, customers and industry experts;
    
    we may incur significant impairment, exit and/or restructuring charges if the
products or technologies acquired in an acquisition do not meet our sales expectations
or are unsuccessful;
    
    insufficient revenue to offset increased expenses associated with acquisitions;
    
    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.
  Because we depend on a limited number of customers for a majority of our revenues, any
cancellation, reduction or delay in purchases by one of these customers could significantly harm
our revenues and results of operations
   18




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Competition in our market could significantly harm our results of operations
      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 (e.g., LTE);
    
    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 advanced IP services agreed to
between network service providers and their customers; and
    
    short product life cycles as a result of rapid changes in our customers products.
  19




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
    
    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.
  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
  20




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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
      21




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The loss of any of our key personnel could significantly harm our results of operations and
competitive position
   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
  22




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If we are unable to expand our international sales and distribution channels or manage them
effectively, our results of operations would be harmed
   Changes in industry and market conditions could lead to charges related to discontinuances of
certain of our products and asset impairments
  Our workforce restructurings can be disruptive
  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
   23




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Our reported financial results could suffer if there is an impairment of goodwill
   International activity may increase our cost of doing business or disrupt our business
  
    
    difficulties in recruiting, hiring, 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;
    
    differing labor and employment laws;
    
    changing governmental laws and regulations, including those related to income
taxes;
    
    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.
 24




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Adverse Resolution of Litigation May Harm Our Results of Operations or Financial Condition
  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;
    
    expose us to indemnity claims from our customers;
    
    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.
  25




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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
   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
  26




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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
    The inability to successfully defend claims from taxing authorities or the adoption of new tax
legislation could adversely affect our operating results and financial position
  27




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Our investment portfolio may become impaired by further deterioration of the financial markets
   Changes in laws, regulations and financial accounting standards may affect our reported results of
operations
  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
   28




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If we fail to maintain our relationships with industry experts, our products may lose industry and
market recognition and sales could decline
  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
  29




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Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
  
 Item 3. Legal Proceedings
 Ixia v. Charles Bettinelli and IneoQuest Technologies, Inc.
  IneoQuest Technologies, Inc. vs. Ixia.
 30




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Tucana Telecom NV vs. Catapult.
   
 Item 4. Reserved
 31




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PART II
 
 Item 5. Market for Registrants Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities
 (a)
    
    Market Price, Dividends and Related Matters
  High
    
    Low2009First quarter
    
    $
    6.00
    
    
    $
    4.36Second quarter
    
    
    7.03
    
    
    
    4.98Third quarter
    
    
    7.70
    
    
    
    6.08Fourth quarter
    
    
    8.22
    
    
    
    6.332008First quarter
    
    $
    9.52
    
    
    $
    6.82Second quarter
    
    
    8.36
    
    
    
    6.30Third quarter
    
    
    9.09
    
    
    
    6.75Fourth quarter
    
    
    7.40
    
    
    
    4.73
    32




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Comparison of Five-Year Cumulative Total Return*
among Ixia, the Nasdaq Composite Index
and the Nasdaq Telecommunications Index
 
 12/31/04
    
    12/31/05
    
    12/31/06
    
    12/31/07
    
    12/31/08
    
    12/31/09Ixia
    
    $
    100
    
    
    $
    88.04
    
    
    $
    57.11
    
    
    $
    56.40
    
    
    $
    34.38
    
    
    $
    44.32Nasdaq Composite Index
    
    
    100
    
    
    
    101.33
    
    
    
    114.01
    
    
    
    123.71
    
    
    
    73.11
    
    
    
    105.61Nasdaq
Telecommunications
Index
    
    
    100
    
    
    
    91.66
    
    
    
    119.67
    
    
    
    132.55
    
    
    
    77.09
    
    
    
    107.17
 
 *
    
    Assumes (i) $100 invested on December 31, 2004 in Ixia Common Stock, the Nasdaq Composite
Index and the Nasdaq Telecommunications Index and (ii) immediate reinvestment of all
dividends.     
 Item 6. Selected Financial Data
  33




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##### Table of Contents



2009(2)
    
    
    2008(2)
    
    
    2007(3)
    
    
    2006(4)
    
    
    2005Consolidated Statement of Operations Data (in
thousands, except per share data):Revenues:Products
    
    $
    142,871
    
    
    $
    146,802
    
    
    $
    148,226
    
    
    $
    155,388
    
    
    $
    130,045Services
    
    
    35,123
    
    
    
    29,065
    
    
    
    25,895
    
    
    
    24,744
    
    
    
    20,808Total revenues
    
    
    177,994
    
    
    
    175,867
    
    
    
    174,121
    
    
    
    180,132
    
    
    
    150,853Costs and operating expenses:(1)Cost of revenues  products
    
    
    36,722
    
    
    
    32,411
    
    
    
    32,724
    
    
    
    29,437
    
    
    
    24,239Cost of revenues  services
    
    
    3,859
    
    
    
    4,475
    
    
    
    3,870
    
    
    
    2,681
    
    
    
    2,216Research and development
    
    
    53,977
    
    
    
    49,167
    
    
    
    47,407
    
    
    
    43,450
    
    
    
    32,404Sales and marketing
    
    
    60,374
    
    
    
    59,374
    
    
    
    57,420
    
    
    
    59,020
    
    
    
    39,359General and administrative
    
    
    28,061
    
    
    
    25,502
    
    
    
    24,927
    
    
    
    23,800
    
    
    
    16,438Amortization of intangible assets
    
    
    11,391
    
    
    
    5,664
    
    
    
    7,108
    
    
    
    6,450
    
    
    
    5,169Acquisition related(5)
    
    
    6,179
    
    
    
    1,479
    
    
    
    
    
    
    
    
    
    
    
    Restructuring
    
    
    4,637
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Impairment of purchased technology and
intangible assets
    
    
    
    
    
    
    
    
    
    
    3,263
    
    
    
    
    
    
    
    Total costs and operating expenses
    
    
    205,200
    
    
    
    178,072
    
    
    
    176,719
    
    
    
    164,838
    
    
    
    119,825(Loss) income from operations
    
    
    (27,206
    )
    
    
    (2,205
    )
    
    
    (2,598
    )
    
    
    15,294
    
    
    
    31,028Interest and other income, net
    
    
    2,160
    
    
    
    6,574
    
    
    
    11,723
    
    
    
    9,409
    
    
    
    5,055Other-than-temporary impairment on
investments
    
    
    (2,761
    )
    
    
    (20,243
    )
    
    
    
    
    
    
    
    
    
    
    (Loss) income before income taxes
    
    
    (27,807
    )
    
    
    (15,874
    )
    
    
    9,125
    
    
    
    24,703
    
    
    
    36,083Income tax expense
    
    
    16,396
    
    
    
    21
    
    
    
    2,119
    
    
    
    11,222
    
    
    
    7,593Net (loss) income
    
    $
    (44,203
    )
    
    $
    (15,895
    )
    
    $
    7,006
    
    
    $
    13,481
    
    
    $
    28,490(Loss) earnings per share:Basic
    
    $
    (0.70
    )
    
    $
    (0.24
    )
    
    $
    0.10
    
    
    $
    0.20
    
    
    $
    0.44Diluted
    
    $
    (0.70
    )
    
    $
    (0.24
    )
    
    $
    0.10
    
    
    $
    0.20
    
    
    $
    0.41Weighted average number of common and
common equivalent shares outstanding:Basic
    
    
    62,710
    
    
    
    65,087
    
    
    
    67,936
    
    
    
    67,005
    
    
    
    65,168Diluted
    
    
    62,710
    
    
    
    65,087
    
    
    
    69,386
    
    
    
    68,792
    
    
    
    69,227
 
 (1)Stock-based compensation
included in:Cost of revenues  products
    
    $
    478
    
    
    $
    513
    
    
    $
    519
    
    
    $
    590
    
    
    $
    Cost of revenues  services
    
    
    182
    
    
    
    195
    
    
    
    197
    
    
    
    224
    
    
    
    Research and development
    
    
    4,491
    
    
    
    4,166
    
    
    
    5,243
    
    
    
    6,481
    
    
    
    Sales and marketing
    
    
    2,989
    
    
    
    3,411
    
    
    
    4,416
    
    
    
    7,838
    
    
    
    General and administrative
    
    
    2,395
    
    
    
    2,360
    
    
    
    2,659
    
    
    
    2,890
    
    
    
    
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(2)
    
    Our 2009 and 2008 results include a pre-tax other-than-temporary impairment charge of $2.8 million and $15.8 million, respectively, to earnings related
to our investments in auction rate securities. Our 2008 results also include a pre-tax other-than-temporary impairment charge of $4.4 million to earnings related to
our investments in bonds issued by Lehman Brothers Holdings, Inc. In 2009, our income tax expense includes a $28.1 million charge related primarily to the
establishment of a valuation allowance against our remaining net U.S. deferred tax assets. In 2008, our income tax expense includes a $7.9 million charge related
primarily to the establishment of a valuation allowance against our deferred tax assets associated with the unrealized impairment (capital) losses as discussed above.(3)
    
    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.(4)
    
    Effective January 1, 2006, our results of operations for 2009, 2008, 2007 and 2006 include $10.5 million, $10.6 million, $13.0 million and $18.0 million,
respectively, of pre-tax stock-based compensation expense.(5)
    
    In 2009, we adopted new accounting guidance for business combinations. As a result, transactions costs related to our acquisitions of Catapult and the
N2X Business were expensed as incurred rather than treated as part of the purchase price. 2009
    
    2008
    
    2007
    
    2006
    
    2005Consolidated Balance Sheet Data (in thousands):Cash and cash equivalents
    
    $
    15,061
    
    
    $
    192,791
    
    
    $
    188,892
    
    
    $
    64,644
    
    
    $
    51,837Short-term investments in marketable
securities
    
    
    10,337
    
    
    
    9,850
    
    
    
    4,999
    
    
    
    152,703
    
    
    
    124,456Working capital
    
    
    46,937
    
    
    
    217,882
    
    
    
    206,059
    
    
    
    235,168
    
    
    
    191,176Long-term investments in marketable
securities
    
    
    53,582
    
    
    
    3,657
    
    
    
    54,609
    
    
    
    4,354
    
    
    
    25,392Total assets
    
    
    309,088
    
    
    
    328,426
    
    
    
    369,440
    
    
    
    349,059
    
    
    
    322,216Total shareholders equity
    
    
    236,665
    
    
    
    273,196
    
    
    
    316,500
    
    
    
    300,789
    
    
    
    263,480
 35




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##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Business Overview
  Acquisition of Catapult Communications Corporation.
 Acquisition of Agilent Technologies N2X Data Network Testing Product Line.
 Revenues.
 36




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##### Table of Contents



37




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##### Table of Contents



Stock-Based Compensation.
 38




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##### Table of Contents



Cost of Revenues
  
    
    our pricing policies and those of our competitors;
    
    the pricing we are able to obtain from our component suppliers and contract
manufacturers;
    
    the mix of customers and sales channels through which our products are sold;
    
    the mix of our products sold, such as the mix of software versus hardware product
sales;
    
    new product introductions by us and by our competitors;
    
    demand for our products; and
    
    production volume.
  Operating Expenses
 39




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##### Table of Contents



Interest and Other Income, Net.
 Income Tax.
 Critical Accounting Policies and Estimates
  40




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##### Table of Contents




    
    Revenue Recognition Policy. We recognize revenue as discussed in Revenues in the
Business Overview section of Item 7.
    
    Acquisition Purchase Price Allocation.When we acquire a business, product line or
rights to a product or technology, we allocate the purchase price 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, some of which may be based in part on historical experience and
information obtained from the management of the acquired business, and are inherently
uncertain. Many of the estimates and assumptions used to determine fair values, such
as those for purchased technologies and customer relationships, are made based on
forecasted information and discount rates. To assist in the purchase price allocation
process, as well as the determination of estimated useful lives of acquired intangible
assets, we may obtain appraisals from valuation specialists. Unanticipated events and
circumstances may occur which may affect the accuracy or validity of such estimates and
assumptions.
    
    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, our assessment of 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. In light of the recent
turmoil in the domestic and global economies that has affected many companies, our
estimates and judgments with respect to the collectability of our receivables have
become subject to greater uncertainty than in more stable periods. If our estimate of
uncollectible accounts is too low, cost and expenses may increase in future periods.
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.
    
    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. In determining whether we need to
record a valuation allowance against our deferred tax assets, management must make a
number of estimates, assumptions and judgments, including estimates of future earnings
and taxable income. We establish a valuation allowance to reduce deferred tax assets to
the amount we believe is more likely than not to be realized.
 41




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##### Table of Contents



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. Effective January 1, 2007, we adopted changes
issued by the Financial Accounting Standards Board (FASB) to accounting for
uncertainty in income taxes. Under the accounting guidance, 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 assumptions,
judgments and estimates, it is likely that actual results may 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 or
judgments change, or as 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.
    
    Impairment of Long-Lived Assets.We evaluate our identifiable definite life
intangible assets and other long-lived assets for impairment, when events or changes in
circumstances indicate that a potential impairment may exist. We first estimate the
undiscounted cash flows to be generated from the use and ultimate disposition of the
applicable asset. To the extent that the estimated undiscounted cash flows fall below
the carrying value of the related intangible or other long lived asset, we write-down
the asset to its estimated 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 on an annual basis or if events or changes in circumstances indicate that
an impairment in the value of goodwill recorded on our balance sheet may exist.
Impairment losses are recorded to the extent that the carrying value of the goodwill
exceeds its estimated fair value. We completed our annual goodwill impairment test of
our single reporting unit in the fourth quarter of 2009 and determined that there was
no impairment.
    
    Stock-Based Compensation.We record stock-based compensation as discussed in
Stock-based Compensation in the Business Overview section of Item 7.
    
    Impairment of Marketable Securities.We periodically review our marketable
securities for impairment. If we conclude that any of our investments are impaired, we
determine whether such impairment is other-than-temporary. Factors we consider to
make such a determination include, among others, the severity of the impairment, the
reason for the decline in value and the potential recovery period. If any impairment
is considered other-than-temporary, we write down the asset to its fair value and
take a charge to earnings for the portion of the write-down related to credit losses
with the balance, if any, recorded to other comprehensive income.
    
    Contingencies and Litigation. We evaluate contingent liabilities, including
threatened or pending litigation, and 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.
 42




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##### Table of Contents



Results of Operations
  2009
    
    2008
    
    2007Revenues:Products
    
    
    80.3
    %
    
    
    83.5
    %
    
    
    85.1
    %Services
    
    
    19.7
    
    
    
    16.5
    
    
    
    14.9Total revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Costs and operating expenses:(1)Cost of revenues  products
    
    
    20.6
    
    
    
    18.4
    
    
    
    18.8Cost of revenues  services
    
    
    2.2
    
    
    
    2.5
    
    
    
    2.2Research and development
    
    
    30.3
    
    
    
    28.0
    
    
    
    27.2Sales and marketing
    
    
    33.9
    
    
    
    33.8
    
    
    
    33.0General and administrative
    
    
    15.7
    
    
    
    14.6
    
    
    
    14.3Amortization of intangible assets
    
    
    6.4
    
    
    
    3.2
    
    
    
    4.1Acquisition related
    
    
    3.5
    
    
    
    0.8
    
    
    
    Restructuring
    
    
    2.6
    
    
    
    
    
    
    
    Impairment
of purchased technology and intangible assets
    
    
    
    
    
    
    
    
    
    
    1.9Total costs and operating expenses
    
    
    115.2
    
    
    
    101.3
    
    
    
    101.5Loss from operations
    
    
    (15.2
    )
    
    
    (1.3
    )
    
    
    (1.5
    )Interest and other income, net
    
    
    1.2
    
    
    
    3.7
    
    
    
    6.7Other-than-temporary impairment on investments
    
    
    (1.6
    )
    
    
    (11.4
    )
    
    
    (Loss) income before income taxes
    
    
    (15.6
    )
    
    
    (9.0
    )
    
    
    5.2Income tax expense
    
    
    9.2
    
    
    
    
    
    
    
    1.2Net (loss) income
    
    
    (24.8
    )%
    
    
    (9.0
    )%
    
    
    4.0
    %
 
 (1)      Stock-based compensation included in:Cost of revenues  products
    
    
    0.3
    %
    
    
    0.3
    %
    
    
    0.3
    %Cost of revenues  services
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1Research and development
    
    
    2.5
    
    
    
    2.4
    
    
    
    3.0Sales and marketing
    
    
    1.7
    
    
    
    1.9
    
    
    
    2.5General and administrative
    
    
    1.3
    
    
    
    1.3
    
    
    
    1.5
 Comparison of the Years Ended December 31, 2009 and 2008
  Revenues.
 43




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##### Table of Contents



Cost of Revenues
 Research and Development Expenses.
 Sales and Marketing Expenses.
 General and Administrative Expenses.
 Amortization of Intangible Assets.
 Acquisition Related Expenses.
 44




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##### Table of Contents



Restructuring
   Interest and Other Income, Net.
 Other-than-temporary Impairment on Investments.
 Income Tax Expense.
   45




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##### Table of Contents



Comparison of the Years Ended December 31, 2008 and 2007
 Revenues.
 Cost of Revenues
 Research and Development Expenses.
 Sales and Marketing Expenses.
 General and Administrative Expenses.
 46




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##### Table of Contents



Amortization of Intangible Assets.
 Acquisition Related Expenses.
 Impairment of Purchased Technology and Intangible Assets.
 Interest and Other Income, Net.
 Other-than-temporary Impairment on Investments.
 Income Tax Expense.
 Liquidity and Capital Resources
  As of December 31,2009
    
    
    2008
    
    
    2007Cash and cash equivalents
    
    $
    15,061
    
    
    $
    192,791
    
    
    $
    188,892Short-term marketable securities
    
    
    10,337
    
    
    
    9,850
    
    
    
    4,999Long-term marketable securities
    
    
    53,582
    
    
    
    3,657
    
    
    
    54,609$
    78,980
    
    
    $
    206,298
    
    
    $
    248,500
 47




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##### Table of Contents



Year Ended December 31,2009
    
    2008
    
    2007Cash (used in) provided by operating activities
    
    $
    (4,725
    )
    
    $
    24,335
    
    
    $
    45,769Cash (used in) provided by investing activities
    
    
    (168,005
    )
    
    
    19,082
    
    
    
    78,491Cash used in financing activities
    
    
    (5,000
    )
    
    
    (39,518
    )
    
    
    (12
    )
 Cash Flows from Operating Activities
    48




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##### Table of Contents



Cash Flows from Investing Activities
    Cash Flows from Financing Activities
     49




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##### Table of Contents



Financial Commitments
  Less than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 year
    
    

1-3 years
    
    

3-5 years
    
    
    5 yearsOperating leases
    
    $
    18,290
    
    
    $
    7,025
    
    
    $
    8,864
    
    
    $
    2,139
    
    
    $
    262Purchase obligations
    
    
    2,875
    
    
    
    2,875
    
    
    
    
    
    
    
    
    
    
    
    $
    21,165
    
    
    $
    9,900
    
    
    $
    8,864
    
    
    $
    2,139
    
    
    $
    262
   Recent Accounting Pronouncements
  50




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##### Table of Contents



Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Sensitivity
  Exchange Rate Sensitivity
  
 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
  51




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##### Table of Contents



Managements Report on Internal Control over Financial Reporting
  Internal ControlIntegrated Framework Internal Control Integrated Framework
   Changes in Internal Control over Financial Reporting
  Inherent Limitations on Effectiveness of Controls
  52




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##### Table of Contents



Item 9B.
    
    Other Information
  53




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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
  54




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##### Table of Contents



PART IV
 
 Item 15.
    
    Exhibits, Financial Statement Schedules
  Consolidated Financial Statements
  Financial Statement Schedule
  Exhibits
 2.1
    
    Agreement and Plan of Merger dated as of May 11, 2009 among the Company, Catapult Communications
Corporation and Josie Acquisition Company(1)2.2
    
    Asset Purchase Agreement, dated October 21, 2009, by and between the Company and Agilent Technologies,
Inc.(2)3.1
    
    Amended and Restated Articles of Incorporation, as amended(3)3.2
    
    Bylaws, as amended(4)10.1*
    
    Amended and Restated 1997 Equity Incentive Plan (5)10.2*
    
    Amended and Restated Non-Employee Director Stock Option Plan(6)10.3*
    
    Employee Stock Purchase Plan(7)10.3.1*
    
    Amendment No. 1, dated May 9, 2003, to Ixia Employee Stock Purchase Plan(8)10.3.2*
    
    Supplemental Provisions, effective April 14, 2006, to Ixia Employee Stock Purchase Plan(9)10.4*
    
    Officer Severance Plan(10), together with Amendment to the Officer Severance Plan(11)10.5*
    
    Ixia Officer Severance Plan (as Amended and Restated effective January 1, 2009)(12)10.6*
    
    Form of Indemnity Agreement between Ixia and its directors and executive officers(13)10.7
    
    Office Lease Agreement dated September 14, 2007 between MS LPC Malibu Property Holdings, LLC and
Ixia(14)10.8
    
    License, Distribution and Option Agreement, dated July 7, 2003, between NetIQ Corporation and
Ixia(15)10.9
    
    First Amendment to License, Distribution and Option Agreement dated as of January 6, 2005 between the
Registrant and NetIQ Corporation(16)10.10
    
    Second Amendment to License, Distribution and Option Agreement dated as of June 16, 2005 between the
Registrant and NetIQ Corporation(17)(18)10.11*
    
    Compensation of Named Executive Officers and Chief Executive Officer for 2008 and 2009(19)10.12*
    
    Summary of Compensation for the Registrants Non-Employee Directors(20)10.13*
    
    Ixia 2008 Executive Officer Bonus Plan(21)10.14*
    
    Employment Offer Letter Agreement dated as of August 8, 2007 between the Company and Atul
Bhatnagar(22)10.15.1*
    
    Ixia 2008 Equity Incentive Plan, including Amendment No. 1 dated May 28, 2008(23)10.15.2
    
    Amendment No. 2 to Ixia 2008 Equity Incentive Plan, as amended(24)10.16
    
    Master Services Agreement dated as of January 26, 2009 between the Company and Plexus Services Corp and
its Affiliates and subsidiaries(25)14.1
    
    Code of Ethics for Chief Executive and Senior Financial Officers(26)21.1
    
    Subsidiaries of the Registrant23.1
    
    Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm
 55




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##### Table of Contents



31.1
    
    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.
 
 *
    
    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 2.1 to Ixias Current Report on Form 8-K (File No.
000-31523), as filed with the Commission on May 12, 2009.(2)
    
    Incorporated by reference to Exhibit 2.1 to Ixias Current Report on Form 8-K (File No.
000-31523), as filed with the Commission on October 27, 2009.(3)
    
    Incorporated by reference to Exhibit No. 3.1 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.(4)
    
    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.(5)
    
    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.(6)
    
    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.(7)
    
    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.(8)
    
    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.(9)
    
    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.(10)
    
    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.(11)
    
    Incorporated by reference to Exhibit 10.2 to the Registrants Current Report on Form 8-K
(File No. 000-31523) filed with the Commission on January 7, 2009.(12)
    
    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 January 7, 2009.(13)
    
    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.(14)
    
    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.(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. 56




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##### Table of Contents



(19)
    
    Incorporated by reference to Exhibit 10.2 to the Registrants Annual Report on Form 10-K
(File No. 000-31523) for the fiscal year ended December 31, 2008.(20)
    
    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.(21)
    
    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 17, 2008.(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 September 4, 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 June 3, 2008.(24)
    
    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 June 2, 2009.(25)
    
    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 March 31, 2009.(26)
    
    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. Exhibits
  Financial Statement Schedules
  57




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##### Table of Contents



SIGNATURES
  Dated: March 5, 2010
    IXIA/s/ Atul BhatnagarAtul BhatnagarChief Executive Officer  Name
    
    Title
    
    Date/s/ Atul Bhatnagar

Atul Bhatnagar
    
    President, Chief Executive Officer and Director
(Principal Executive Officer)
    
    March 5, 2010/s/ Thomas B. Miller

Thomas B. Miller
    
    Chief Financial Officer

(Principal Financial and Accounting Officer)
    
    March 5, 2010/s/ Errol Ginsberg

Errol Ginsberg
    
    Chief Innovation Officer and Chairman of the Board
    
    March 5, 2010/s/ Jon F. Rager

Jon F. Rager
    
    Director
    
    March 5, 2010/s/ Gail Hamilton

Gail Hamilton
    
    Director
    
    March 5, 2010/s/ Jonathan Fram

Jonathan Fram
    
    Director
    
    March 5, 2010/s/ Laurent Asscher

Laurent Asscher
    
    Director
    
    March 5, 2010
 58




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##### Table of Contents



IXIA
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm
    
    
    60Consolidated Balance Sheets as of December 31, 2009 and 2008
    
    
    62Consolidated Statements of Operations for the years ended December 31, 2009, 2008 and 2007
    
    
    63Consolidated Statements of Shareholders Equity for the years ended December 31, 2009, 2008 and 2006
    
    
    64Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007
    
    
    66Notes to Consolidated Financial Statements
    
    
    67
 59




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Report of Independent Registered Public Accounting Firm
  Internal Control  Integrated Framework
     60




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61




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##### Table of Contents



IXIA
 
 Consolidated Balance Sheets
(in thousands)
 December 31,
    
    
    December 31,2009
    
    
    2008AssetsCurrent assets:Cash and cash equivalents
    
    $
    15,061
    
    
    $
    192,791Short-term investments in marketable securities
    
    
    10,337
    
    
    
    9,850Accounts receivable, net
    
    
    55,765
    
    
    
    34,001Inventories
    
    
    14,541
    
    
    
    14,966Deferred income taxes
    
    
    
    
    
    
    4,855Prepaid expenses and other current assets
    
    
    9,727
    
    
    
    4,981Total current assets
    
    
    105,431
    
    
    
    261,444Investments in marketable securities
    
    
    53,582
    
    
    
    3,657Property and equipment, net
    
    
    18,693
    
    
    
    18,506Deferred income taxes
    
    
    
    
    
    
    14,945Intangible assets, net
    
    
    69,132
    
    
    
    10,592Goodwill
    
    
    60,121
    
    
    
    16,728Other assets
    
    
    2,129
    
    
    
    2,554Total assets
    
    $
    309,088
    
    
    $
    328,426Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    6,136
    
    
    $
    4,729Accrued expenses
    
    
    21,253
    
    
    
    18,823Deferred revenues
    
    
    29,842
    
    
    
    19,558Income taxes payable
    
    
    1,263
    
    
    
    452Total current liabilities
    
    
    58,494
    
    
    
    43,562Deferred revenues
    
    
    7,309
    
    
    
    6,109Other liabilities
    
    
    6,620
    
    
    
    5,559Total liabilities
    
    
    72,423
    
    
    
    55,230Commitments and contingencies (Note 9)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, 2009 and
2008; 63,062 and 63,391 shares issued and
outstanding as of December 31, 2009 and 2008,
respectively
    
    
    87,283
    
    
    
    92,386Additional paid-in capital
    
    
    118,754
    
    
    
    107,882Retained earnings
    
    
    28,979
    
    
    
    73,182Accumulated other comprehensive income (loss)
    
    
    1,649
    
    
    
    (254
    )Total shareholders equity
    
    
    236,665
    
    
    
    273,196Total liabilities and shareholders equity
    
    $
    309,088
    
    
    $
    328,426
 The accompanying notes are an integral part of these consolidated financial statements
 62




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IXIA
 
 Consolidated Statements of Operations
(in thousands, except per share data)
 Year Ended December 31,2009
    
    
    2008
    
    
    2007Revenues:Products
    
    $
    142,871
    
    
    $
    146,802
    
    
    $
    148,226Services
    
    
    35,123
    
    
    
    29,065
    
    
    
    25,895Total revenues
    
    
    177,994
    
    
    
    175,867
    
    
    
    174,121Costs and operating expenses:(1)Cost of revenues  products
    
    
    36,722
    
    
    
    32,411
    
    
    
    32,724Cost of revenues  services
    
    
    3,859
    
    
    
    4,475
    
    
    
    3,870Research and development
    
    
    53,977
    
    
    
    49,167
    
    
    
    47,407Sales and marketing
    
    
    60,374
    
    
    
    59,374
    
    
    
    57,420General and administrative
    
    
    28,061
    
    
    
    25,502
    
    
    
    24,927Amortization of intangible assets
    
    
    11,391
    
    
    
    5,664
    
    
    
    7,108Acquisition related
    
    
    6,179
    
    
    
    1,479
    
    
    
    Restructuring
    
    
    4,637
    
    
    
    
    
    
    
    Impairment of purchased technology and intangible
assets
    
    
    
    
    
    
    
    
    
    
    3,263Total costs and operating expenses
    
    
    205,200
    
    
    
    178,072
    
    
    
    176,719Loss from operations
    
    
    (27,206
    )
    
    
    (2,205
    )
    
    
    (2,598
    )Interest and other income, net
    
    
    2,160
    
    
    
    6,574
    
    
    
    11,723Other-than-temporary impairment on investments
    
    
    (2,761
    )
    
    
    (20,243
    )
    
    
    (Loss) income before income taxes
    
    
    (27,807
    )
    
    
    (15,874
    )
    
    
    9,125Income tax expense
    
    
    16,396
    
    
    
    21
    
    
    
    2,119Net (loss) income
    
    $
    (44,203
    )
    
    $
    (15,895
    )
    
    $
    7,006(Loss) earnings per share:Basic
    
    $
    (0.70
    )
    
    $
    (0.24
    )
    
    $
    0.10Diluted
    
    $
    (0.70
    )
    
    $
    (0.24
    )
    
    $
    0.10Weighted average number of common and common
equivalent shares outstanding:Basic
    
    
    62,710
    
    
    
    65,087
    
    
    
    67,936Diluted
    
    
    62,710
    
    
    
    65,087
    
    
    
    69,386(1)Stock-based compensation included in:Cost of revenues  products
    
    $
    478
    
    
    $
    513
    
    
    $
    519Cost of revenues  services
    
    
    182
    
    
    
    195
    
    
    
    197Research and development
    
    
    4,491
    
    
    
    4,166
    
    
    
    5,243Sales and marketing
    
    
    2,989
    
    
    
    3,411
    
    
    
    4,416General and administrative
    
    
    2,395
    
    
    
    2,360
    
    
    
    2,659
 The accompanying notes are an integral part of these consolidated financial statements
 63




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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, 2006
    
    
    67,351
    
    
    $
    132,413
    
    
    $
    86,305
    
    
    $
    82,071
    
    
    $
    
    
    
    $
    300,789Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,006
    
    
    
    
    
    
    
    7,006Change in unrealized gains and
losses on investments, net of
tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,844
    )
    
    
    (2,844
    )Cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    18Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,180Shares issued pursuant to stock
incentive plans, exercise of
employee stock purchase plan
options and warrants
    
    
    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
    )
    
    
    316,500Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,895
    )
    
    
    
    
    
    
    (15,895
    )Change in unrealized gains and
losses on investments, net of
tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,680
    )
    
    
    (1,680
    )Reclassification adjustment for
investment losses recognized in
net loss, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,191
    
    
    
    4,191Cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61
    
    
    
    61Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,323
    )Shares issued pursuant to stock
incentive plans and employee
stock purchase plan options
    
    
    1,029
    
    
    
    3,897
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,897Repurchase of shares pursuant to
stock buyback programs
    
    
    (5,809
    )
    
    
    (43,603
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (43,603
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    10,645
    
    
    
    
    
    
    
    
    
    
    
    10,645Stock award tax shortfall
    
    
    
    
    
    
    
    
    
    
    (920
    )
    
    
    
    
    
    
    
    
    
    
    (920
    )Balance as of December 31, 2008
    
    
    63,391
    
    
    
    92,386
    
    
    
    107,882
    
    
    
    73,182
    
    
    
    (254
    )
    
    
    273,196Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (44,203
    )
    
    
    
    
    
    
    (44,203
    )Change in unrealized gains and
losses on investments, net of
tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,959
    
    
    
    1,959Cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (56
    )
    
    
    (56
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42,300
    )
 64




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##### Table of Contents



Shares issued pursuant to stock
incentive plans and employee
stock purchase plan options
    
    
    1,294
    
    
    
    3,321
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,321Repurchase of shares pursuant to
stock buyback programs
    
    
    (1,623
    )
    
    
    (8,424
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,424
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    10,535
    
    
    
    
    
    
    
    
    
    
    
    10,535Stock award tax windfall
    
    
    
    
    
    
    
    
    
    
    337
    
    
    
    
    
    
    
    
    
    
    
    337Balance as of December 31, 2009
    
    
    63,062
    
    
    $
    87,283
    
    
    $
    118,754
    
    
    $
    28,979
    
    
    $
    1,649
    
    
    $
    236,665
 The accompanying notes are an integral part of these consolidated financial statements
 65




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##### Table of Contents



IXIA
Consolidated Statements of Cash Flows
(in thousands)
 Year Ended December 31,2009
    
    
    2008
    
    
    2007Cash flows from operating activities:Net (loss) income
    
    $
    (44,203
    )
    
    $
    (15,895
    )
    
    $
    7,006Adjustments to reconcile net (loss) income to net cash
provided by operating activities:Depreciation
    
    
    10,195
    
    
    
    11,527
    
    
    
    11,560Amortization of intangible assets
    
    
    11,391
    
    
    
    5,664
    
    
    
    7,108Impairment on investments
    
    
    2,761
    
    
    
    20,243
    
    
    
    Impairment of purchased technology and intangible assets
    
    
    
    
    
    
    
    
    
    
    3,263Stock-based compensation
    
    
    10,535
    
    
    
    10,645
    
    
    
    13,034Deferred income taxes
    
    
    22,955
    
    
    
    (2,455
    )
    
    
    (1,478
    )Tax benefit (shortfall) from stock award transactions
    
    
    337
    
    
    
    (920
    )
    
    
    (1,182
    )Excess tax benefits from stock-based compensation
    
    
    (103
    )
    
    
    (188
    )
    
    
    (309
    )Changes in operating assets and liabilities, net of
effect of acquisitions:Accounts receivable, net
    
    
    (11,819
    )
    
    
    (1,596
    )
    
    
    3,816Inventories
    
    
    5,606
    
    
    
    (2,235
    )
    
    
    (1,127
    )Prepaid expenses and other current assets
    
    
    (2,589
    )
    
    
    (1,596
    )
    
    
    797Other assets
    
    
    1,560
    
    
    
    (1,599
    )
    
    
    (468
    )Accounts payable
    
    
    (240
    )
    
    
    2,255
    
    
    
    279Accrued expenses
    
    
    (6,494
    )
    
    
    (167
    )
    
    
    2,146Deferred revenues
    
    
    361
    
    
    
    (248
    )
    
    
    1,367Income taxes payable and other liabilities
    
    
    (4,978
    )
    
    
    900
    
    
    
    (43
    )Net cash (used in) provided by operating activities
    
    
    (4,725
    )
    
    
    24,335
    
    
    
    45,769Cash flows from investing activities:Purchases of property and equipment
    
    
    (8,025
    )
    
    
    (8,540
    )
    
    
    (10,931
    )Purchases of available-for-sale securities
    
    
    (262,704
    )
    
    
    
    
    
    
    (54,150
    )Proceeds from available-for-sale securities
    
    
    225,529
    
    
    
    2,001
    
    
    
    161,850Purchases of held-to-maturity securities
    
    
    
    
    
    
    (8,924
    )
    
    
    (45,469
    )Proceeds from held-to-maturity securities
    
    
    
    
    
    
    37,104
    
    
    
    30,564Purchases of other intangible assets
    
    
    (362
    )
    
    
    (314
    )
    
    
    (175
    )Payments in connection with acquisitions, net of cash
acquired
    
    
    (122,443
    )
    
    
    (2,245
    )
    
    
    (3,198
    )Net cash (used in) provided by investing activities
    
    
    (168,005
    )
    
    
    19,082
    
    
    
    78,491Cash flows from financing activities:Proceeds from exercise of stock options, warrants and
employee stock purchase plan options
    
    
    3,321
    
    
    
    3,897
    
    
    
    8,870Repurchase of common stock
    
    
    (8,424
    )
    
    
    (43,603
    )
    
    
    (9,191
    )Excess tax benefits from stock-based compensation
    
    
    103
    
    
    
    188
    
    
    
    309Net cash used in financing activities
    
    
    (5,000
    )
    
    
    (39,518
    )
    
    
    (12
    )Net (decrease) increase in cash and cash equivalents
    
    
    (177,730
    )
    
    
    3,899
    
    
    
    124,248Cash and cash equivalents at beginning of year
    
    
    192,791
    
    
    
    188,892
    
    
    
    64,644Cash and cash equivalents at end of year
    
    $
    15,061
    
    
    $
    192,791
    
    
    $
    188,892Supplemental disclosure of cash flow information:Cash paid during the year for:Income taxes
    
    $
    1,326
    
    
    $
    5,443
    
    
    $
    4,724
 The accompanying notes are an integral part of these consolidated financial statements
 66




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##### Table of Contents



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
   67




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##### Table of Contents



Investments in Marketable Securities
    Accounts Receivable and Allowance for Doubtful Accounts
  Inventories
  68




---



##### Table of Contents



Property and Equipment
  Goodwill, Purchased Intangible and Other Long-Lived Assets
   Litigation
  Product Warranty
  69




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##### Table of Contents



December 31,
    
    
    December 31,
    
    
    December 31,2009
    
    
    2008
    
    
    2007Balance at beginning of year
    
    $
    933
    
    
    $
    577
    
    
    $
    344Current year provision
    
    
    533
    
    
    
    619
    
    
    
    596Expenditures
    
    
    (544
    )
    
    
    (263
    )
    
    
    (363
    )Adjustments relating to pre-existing warranties
    
    
    (421
    )
    
    
    
    
    
    
    Balance at end of year
    
    $
    501
    
    
    $
    933
    
    
    $
    577
 Revenue Recognition
       70




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##### Table of Contents



Cost of Revenues
  Research and Development
  Software Developed for Internal Use
  71




---



##### Table of Contents



Advertising
  Stock-Based Compensation
   Income Taxes
   Earnings (Loss) Per Share
  Foreign Currency Translation and Transactions
  72




---



##### Table of Contents



Comprehensive Income
  Segments
  Reclassifications and Presentation
  Recent Accounting Pronouncements
    73




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##### Table of Contents



2. Acquisitions
  Catapult Communications Corporation
    Cash and cash equivalents
    
    $
    28,190Short-term investments in marketable securities
    
    
    8,638Accounts receivable
    
    
    3,815Inventories
    
    
    3,950Other current assets
    
    
    3,331Long-term investments in marketable securities
    
    
    4,366Deferred income taxes (non-current)
    
    
    2,490Other non-current assets
    
    
    2,108Identifiable intangible assets
    
    
    48,790Goodwill
    
    
    22,466
 74




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##### Table of Contents



Total assets acquired
    
    
    128,144Accounts payable and accrued expenses
    
    
    (9,116
    )Deferred revenues
    
    
    (5,900
    )Other liabilities (non-current)
    
    
    (6,570
    )Net assets acquired
    
    $
    106,558
   Agilent Technologies N2X Data Networks Product Line
    Accounts receivable
    
    $
    6,130Inventories
    
    
    1,231Property and equipment
    
    
    1,439Identifiable intangible assets
    
    
    21,800Goodwill
    
    
    20,927Total assets acquired
    
    
    51,527Accounts payable and accrued expenses
    
    
    (2,757
    )Deferred revenues
    
    
    (5,223
    )Net assets acquired
    
    $
    43,547
 75




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##### Table of Contents



Pro Forma and Post Acquisition Results
  Year EndedDecember 31,2009
    
    
    2008(Pro forma)
    
    
    (Pro forma)Total revenues
    
    $
    229,978
    
    
    $
    283,616Net loss
    
    
    (67,625
    )
    
    
    (22,928
    )
   3. Restructuring Costs
   76




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##### Table of Contents



Ixia
    
    
    CatapultTotal
    
    
    Restructuring
    
    
    RestructuringReserve balances at January 1, 2009
    
    $
    
    
    
    $
    
    
    
    $
    Charges
    
    
    4,637
    
    
    
    1,120
    
    
    
    3,517Payments
    
    
    (3,662
    )
    
    
    (1,078
    )
    
    
    (2,584
    )Non-cash items
    
    
    (96
    )
    
    
    
    
    
    
    (96
    )Reserve balances at December 31, 2009
    
    $
    879
    
    
    $
    42
    
    
    $
    837
  4. Concentrations
 Credit Risk
   Significant Customer
  Year Ended December 31,2009
    
    
    2008
    
    
    2007Amount of total revenues
    
    $
    27,792
    
    
    $
    36,857
    
    
    $
    41,655As a percentage of total revenues
    
    
    15.6
    %
    
    
    21.0
    %
    
    
    23.9
    %
  77




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##### Table of Contents



International Data
  Year Ended December 31,2009
    
    2008
    
    2007Amount of total revenues
    
    $
    76,325
    
    
    $
    63,045
    
    
    $
    60,946As a percentage of total revenues
    
    
    42.9
    %
    
    
    35.8
    %
    
    
    35.0
    %
  As of December 31,2009
    
    
    2008United States
    
    $
    10,874
    
    
    $
    11,361Romania
    
    
    2,647
    
    
    
    3,419India
    
    
    2,506
    
    
    
    2,761Other
    
    
    2,666
    
    
    
    965$
    18,693
    
    
    $
    18,506
 Sources of Supply
  5. Selected Balance Sheet Data
 Accounts Receivable, Net
  December 31,
    
    
    December 31,2009
    
    
    2008Trade accounts receivable
    
    $
    56,419
    
    
    $
    34,765Allowance for doubtful accounts
    
    
    (654
    )
    
    
    (764
    )$
    55,765
    
    
    $
    34,001
 78




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##### Table of Contents



December 31,
    
    
    December 31,
    
    
    December 31,2009
    
    
    2008
    
    
    2007Balance at beginning of year
    
    $
    764
    
    
    $
    614
    
    
    $
    1,174Charged to cost and expenses
    
    
    372
    
    
    
    300
    
    
    
    300Reversal of cost and expenses
    
    
    
    
    
    
    
    
    
    
    (60
    )Deductions
    
    
    (482
    )
    
    
    (150
    )
    
    
    (800
    )Balance at end of year
    
    $
    654
    
    
    $
    764
    
    
    $
    614
 Investments in Marketable Securities
  Amortized
    
    
    FairCost
    
    
    ValueAvailable-for-sale  short-term:U.S. government and agency debt securities
    
    $
    5,711
    
    
    $
    5,713Corporate debt securities
    
    
    4,584
    
    
    
    4,62410,295
    
    
    
    10,337Available-for-sale  long-term:U.S. government and agency debt securities
    
    
    34,534
    
    
    
    34,673Corporate debt securities
    
    
    12,605
    
    
    
    13,236Auction rate securities
    
    
    3,823
    
    
    
    5,67350,962
    
    
    
    53,582$
    61,257
    
    
    $
    63,919
  Amortized
    
    
    FairCost
    
    
    ValueAvailable-for-sale  short-term:Corporate debt securities
    
    $
    10,182
    
    
    $
    9,850Available-for-sale  long-term:Auction rate securities
    
    
    3,211
    
    
    
    3,211Corporate debt securities
    
    
    446
    
    
    
    4463,657
    
    
    
    3,657$
    13,839
    
    
    $
    13,507
   79




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##### Table of Contents



80




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##### Table of Contents



Inventories
  December 31,
    
    
    December 31,2009
    
    
    2008Raw materials
    
    $
    3,674
    
    
    $
    1,987Work in process
    
    
    4,731
    
    
    
    4,932Finished goods
    
    
    6,136
    
    
    
    8,047$
    14,541
    
    
    $
    14,966
 Property and Equipment, Net
  December 31,
    
    
    December 31,Useful Life
    
    
    2009
    
    
    2008(in years)Computer equipment
    
    
    3
    
    
    $
    10,178
    
    
    $
    8,580Computer software
    
    
    3-5
    
    
    
    9,725
    
    
    
    8,601Demonstration equipment
    
    
    2
    
    
    
    13,382
    
    
    
    12,592Development equipment
    
    
    5
    
    
    
    16,872
    
    
    
    15,466Furniture and other equipment
    
    
    5
    
    
    
    16,751
    
    
    
    15,216Leasehold improvements
    
    
    5-10
    
    
    
    6,645
    
    
    
    4,25573,553
    
    
    
    64,710Accumulated depreciation
    
    
    
    
    
    
    (54,860
    )
    
    
    (46,204
    )$
    18,693
    
    
    $
    18,506
 Accrued Expenses
  December 31,
    
    
    December 31,2009
    
    
    2008Accrued vacation
    
    $
    4,990
    
    
    $
    3,797Accrued payroll
    
    
    3,457
    
    
    
    2,682Accrued legal and professional fees
    
    
    2,395
    
    
    
    1,251Accrued commissions
    
    
    1,203
    
    
    
    1,524Due to third parties for technology and certain assets
    
    
    949
    
    
    
    1,796Accrued bonuses
    
    
    915
    
    
    
    2,509Accrued property and sales tax payable
    
    
    734
    
    
    
    811Accrued royalties
    
    
    727
    
    
    
    14Employee stock purchase plan payroll deductions
    
    
    689
    
    
    
    687Accrued warranty
    
    
    501
    
    
    
    933Deferred rent
    
    
    412
    
    
    
    357Accrued travel
    
    
    349
    
    
    
    479Other
    
    
    3,932
    
    
    
    1,983$
    21,253
    
    
    $
    18,823
 81




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##### Table of Contents



6.
    
    Fair Value Measurements
  Level 1.
    
    Observable inputs such as quoted prices in active markets;Level 2.
    
    Inputs, other than the quoted prices in active markets, that are
observable either directly or indirectly; andLevel 3.
    
    Unobservable inputs in which there is little or no market data,
which require the reporting entity to develop its own
assumptions.
  December 31, 2009
    
    
    December 31, 2008QuotedQuoted Prices
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Prices inin Active
    
    
    Significant
    
    
    
    
    
    
    
    
    
    
    Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    Significant
    
    
    
    
    
    
    Markets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    Unobservable
    
    
    
    
    
    
    Identical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    Inputs
    
    
    
    
    
    
    Assets
    
    
    Inputs
    
    
    InputsFair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    Fair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Cash equivalents:(1)Money market funds
    
    $
    241
    
    
    $
    241
    
    
    $
    
    
    
    $
    
    
    
    $
    185,858
    
    
    $
    185,858
    
    
    $
    
    
    
    $
    Short-term investments:(1)U.S. Treasury, government and agency
debt securities
    
    
    5,713
    
    
    
    
    
    
    
    5,713
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate debt securities
    
    
    4,624
    
    
    
    
    
    
    
    4,624
    
    
    
    
    
    
    
    9,850
    
    
    
    
    
    
    
    9,850
    
    
    
    Long-term investments:U.S. Treasury, government and agency
debt securities
    
    
    34,673
    
    
    
    
    
    
    
    34,673
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate debt securities
    
    
    13,236
    
    
    
    
    
    
    
    13,236
    
    
    
    
    
    
    
    446
    
    
    
    
    
    
    
    446
    
    
    
    Auction rate securities (2)
    
    
    5,673
    
    
    
    
    
    
    
    
    
    
    
    5,673
    
    
    
    3,211
    
    
    
    
    
    
    
    
    
    
    
    3,211Total financial assets
    
    $
    64,160
    
    
    $
    241
    
    
    $
    58,246
    
    
    $
    5,673
    
    
    $
    199,365
    
    
    $
    185,858
    
    
    $
    10,296
    
    
    $
    3,211
 
 (1)
    
    To estimate the fair value of our money market funds, U.S. government and agency debt
securities, and corporate debt securities, we use the estimated fair value per our
investment brokerage/custodial statements. To the extent deemed necessary, we may also
obtain non-binding market quotes to corroborate the estimated fair values reflected in our
investment brokerage/custodial statements.(2)
    
    Given the disruption in the auction process described in Note 5, there is no longer an
actively quoted market price for these securities. Accordingly, we utilized models to
estimate the fair values of these auction rate securities based on, among other items: (i)
the underlying structure of each security; (ii) the present value of future principal,
interest and/or dividend payments discounted at the appropriate rate considering the market
rate and conditions; (iii) consideration of the probabilities of default, auction failure,
or repurchase at par for each period; and (iv) credit quality and estimates of the recovery
rates in the event of default for each security. These estimated fair values could change
significantly based on, among other events: (i) a further deterioration in market
conditions; (ii) further declines in the credit quality
of our auction rate securities or of the issuers of our auction rate securities; or (iii) a
cessation of dividend payments or default on interest or principal payments by the issuer of
the securities. 82




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##### Table of Contents



Year Ended December 31,2009
    
    
    2008Beginning balance
    
    $
    3,211
    
    
    $
    14,345Unrealized gain recorded in other comprehensive income
    
    
    1,849
    
    
    
    Unrealized loss recorded in earnings (See Note 5)
    
    
    (2,761
    )
    
    
    (11,134
    )Settlements
    
    
    (992
    )
    
    
    Additions from Catapult acquisition (See Note 2)
    
    
    4,366
    
    
    
    Ending balance
    
    $
    5,673
    
    
    $
    3,211Unrealized losses recorded in earnings for Level 3 assets
still held at December 31
    
    $
    (2,761
    )
    
    $
    (11,134
    )
    7.
    
    Goodwill and Other Intangible Assets
  WeightedAverage
    
    
    
    
    
    
    AccumulatedUseful Life
    
    
    Gross
    
    
    Amortization
    
    
    Net(in years)Goodwill
    
    
    
    
    
    $
    60,121
    
    
    $
    
    
    
    $
    60,121Other intangible assets:Technology
    
    
    5.4
    
    
    $
    70,742
    
    
    $
    (33,031
    )
    
    $
    37,711
 83




---



##### Table of Contents



WeightedAverage
    
    
    
    
    
    
    AccumulatedUseful Life
    
    
    Gross
    
    
    Amortization
    
    
    Net(in years)Customer relationships
    
    
    5.9
    
    
    
    24,910
    
    
    
    (2,943
    )
    
    
    21,967Service agreements
    
    
    4.7
    
    
    
    6,770
    
    
    
    (1,144
    )
    
    
    5,626Non-compete
    
    
    3.8
    
    
    
    2,338
    
    
    
    (1,059
    )
    
    
    1,279Trademark
    
    
    4.7
    
    
    
    1,576
    
    
    
    (783
    )
    
    
    793Workforce
    
    
    4.0
    
    
    
    395
    
    
    
    (395
    )
    
    
    Other
    
    
    0.8
    
    
    
    4,038
    
    
    
    (2,282
    )
    
    
    1,756$
    110,769
    
    
    $
    (41,637
    )
    
    $
    69,132
  WeightedAverage
    
    
    
    
    
    
    AccumulatedUseful Life
    
    
    Gross
    
    
    Amortization
    
    
    Net(in years)Goodwill
    
    
    
    
    
    $
    16,728
    
    
    $
    
    
    
    $
    16,728Other intangible assets:Technology
    
    
    6.0
    
    
    $
    35,633
    
    
    $
    (26,341
    )
    
    $
    9,292Non-compete
    
    
    2.4
    
    
    
    937
    
    
    
    (937
    )
    
    
    Trademark
    
    
    7.0
    
    
    
    676
    
    
    
    (526
    )
    
    
    150Workforce
    
    
    4.0
    
    
    
    395
    
    
    
    (395
    )
    
    
    Customer relationships
    
    
    5.1
    
    
    
    1,511
    
    
    
    (1,511
    )
    
    
    Other
    
    
    1.4
    
    
    
    3,072
    
    
    
    (1,922
    )
    
    
    1,150$
    42,224
    
    
    $
    (31,632
    )
    
    $
    10,592
   2010
    
    $
    17,3302011
    
    
    14,4962012
    
    
    14,0032013
    
    
    13,1532014
    
    
    7,267Thereafter
    
    
    2,883$
    69,132
 84




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##### Table of Contents



8.
    
    Income Taxes
  Year Ended December 31,2009
    
    
    2008
    
    
    2007U.S.
    
    $
    (33,246
    )
    
    $
    (19,992
    )
    
    $
    5,761Foreign
    
    
    5,439
    
    
    
    4,118
    
    
    
    3,364$
    (27,807
    )
    
    $
    (15,874
    )
    
    $
    9,125
  Year Ended December 31,2009
    
    
    2008
    
    
    2007Current:Federal
    
    $
    (3,549
    )
    
    $
    856
    
    
    $
    3,123State
    
    
    670
    
    
    
    594
    
    
    
    (268
    )Foreign
    
    
    1,692
    
    
    
    1,025
    
    
    
    741Deferred:Federal
    
    
    17,112
    
    
    
    (1,171
    )
    
    
    (543
    )State
    
    
    558
    
    
    
    (1,418
    )
    
    
    (1,483
    )Foreign
    
    
    (87
    )
    
    
    135
    
    
    
    549Income tax expense
    
    $
    16,396
    
    
    $
    21
    
    
    $
    2,119
  Year Ended December 31,2009
    
    
    2008
    
    
    2007Federal statutory expense
    
    $
    (9,733
    )
    
    $
    (5,556
    )
    
    $
    3,194State taxes, net of federal benefit
    
    
    (2,017
    )
    
    
    (1,393
    )
    
    
    (1,138
    )Research and development credits
    
    
    (1,292
    )
    
    
    (813
    )
    
    
    (625
    )Stock-based compensation
    
    
    633
    
    
    
    543
    
    
    
    809Domestic production activities deduction
    
    
    
    
    
    
    (138
    )
    
    
    (276
    )Foreign tax rate differential
    
    
    (298
    )
    
    
    (282
    )
    
    
    113Acquisition related costs
    
    
    702
    
    
    
    
    
    
    
    Valuation allowance
    
    
    28,078
    
    
    
    7,942
    
    
    
    Other
    
    
    323
    
    
    
    (282
    )
    
    
    42Income tax expense
    
    $
    16,396
    
    
    $
    21
    
    
    $
    2,119Net effective income tax rate
    
    
    (59.0
    )%
    
    
    (0.1
    )%
    
    
    23.2
    %
  85




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##### Table of Contents



December 31,
    
    
    December 31,2009
    
    
    2008Deferred tax assets:Allowance for doubtful accounts
    
    $
    307
    
    
    $
    297Research and development credit carryforward
    
    
    10,732
    
    
    
    5,380Foreign tax credit carryforward
    
    
    1,418
    
    
    
    Deferred revenue
    
    
    3,078
    
    
    
    4,168Stock-based compensation
    
    
    8,635
    
    
    
    6,385Inventory adjustments
    
    
    2,796
    
    
    
    1,876Net operating loss carryforward
    
    
    6,035
    
    
    
    445Unrealized loss on investments
    
    
    7,913
    
    
    
    8,004Accrued liabilities and other
    
    
    2,986
    
    
    
    2,71343,900
    
    
    
    29,268Valuation allowance
    
    
    (36,150
    )
    
    
    (8,072
    )7,750
    
    
    
    21,196Deferred tax liabilities:Depreciation and amortization
    
    
    (8,020
    )
    
    
    (1,396
    )Net deferred tax assets
    
    $
    (270
    )
    
    $
    19,800
        86




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##### Table of Contents



2009
    
    
    2008
    
    
    2007Unrecognized Tax Benefits  beginning balance
    
    $
    4,320
    
    
    $
    4,367
    
    
    $
    4,848Acquired unrecognized tax benefits
    
    
    5,655
    
    
    
    
    
    
    
    Gross increases   Tax positions taken in prior period
    
    
    6
    
    
    
    18
    
    
    
    164Gross decreases  Tax positions taken in prior period
    
    
    
    
    
    
    (13
    )
    
    
    (1,183
    )Gross increases   Tax positions taken in current
period
    
    
    878
    
    
    
    617
    
    
    
    707Lapse of statute of limitations
    
    
    (230
    )
    
    
    (669
    )
    
    
    (169
    )Unrecognized Tax Benefits  ending balance
    
    $
    10,629
    
    
    $
    4,320
    
    
    $
    4,367
  87




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##### Table of Contents



9.
    
    Commitments and Contingencies
  Year EndingDecember 31,2010
    
    $
    7,0252011
    
    
    4,6922012
    
    
    4,1722013
    
    
    1,8962014
    
    
    243Thereafter
    
    
    262$
    18,290
  Litigation
 Ixia v. Charles Bettinelli and IneoQuest Technologies, Inc.
  IneoQuest Technologies, Inc. vs. Ixia.
  88




---



##### Table of Contents



Tucana Telecom NV vs. Catapult.
   Indemnifications
  10. Shareholders Equity
 Stock Award Plans
  89




---



##### Table of Contents



WeightedWeighted
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateNumber
    
    
    Exercise Price
    
    
    Contractual
    
    
    Intrinsicof Options
    
    
    Per Share
    
    
    Life (in years)
    
    
    ValueOutstanding as of December 31, 2008
    
    
    8,443
    
    
    $
    8.30Granted
    
    
    1,939
    
    
    $
    6.12Exercised
    
    
    (268
    )
    
    $
    1.53Forfeited/canceled
    
    
    (887
    )
    
    $
    8.97Outstanding as of December 31, 2009
    
    
    9,227
    
    
    $
    7.98
    
    
    
    3.74
    
    
    $
    5,534Exercisable as of December 31, 2009
    
    
    5,359
    
    
    $
    8.40
    
    
    
    2.44
    
    
    $
    2,925
  90




---



##### Table of Contents



WeightedAverage GrantNumber
    
    
    Date Fair Valueof Awards
    
    
    Per ShareOutstanding as of December 31, 2008
    
    
    1,475
    
    
    $
    6.77Awarded
    
    
    1,166
    
    
    $
    6.40Released
    
    
    (467
    )
    
    $
    7.21Forfeited/canceled
    
    
    (90
    )
    
    $
    6.54Outstanding as of December 31, 2009
    
    
    2,084
    
    
    $
    6.53
  Employee Stock Purchase Plan
    Stock-Based Compensation Expense
  Year Ended December 31,2009
    
    
    2008
    
    
    2007Expected lives (in years)
    
    
    3.6
    
    
    
    4.0
    
    
    
    4.5Risk-free interest rates
    
    
    1.7
    %
    
    
    2.4
    %
    
    
    4.4
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Expected volatility
    
    
    46.5
    %
    
    
    48.2
    %
    
    
    52.4
    %
 91




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##### Table of Contents



Stock Buyback Programs
  Option Exchange Program
  Accumulated Other Comprehensive Income (Loss)
  December 31,2009
    
    
    2008Unrealized gains (losses) on marketable securities
    
    $
    1,627
    
    
    $
    (332
    )Foreign currency translation gains
    
    
    22
    
    
    
    78Total accumulated other comprehensive income (loss)
    
    $
    1,649
    
    
    $
    (254
    )
 11. Retirement Plan
  92




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##### Table of Contents



12. Earnings Per Share
  Year Ended December 31,2009
    
    
    2008
    
    
    2007Basic PresentationNumerator:Net (loss) income
    
    $
    (44,203
    )
    
    $
    (15,895
    )
    
    $
    7,006Denominator:Weighted average common shares
    
    
    62,710
    
    
    
    65,087
    
    
    
    67,936Basic (loss) earnings per share
    
    $
    (0.70
    )
    
    $
    (0.24
    )
    
    $
    0.10Diluted presentationDenominator:Shares used to calculate basic
    
    
    62,710
    
    
    
    65,087
    
    
    
    67,936Weighted average effect of
stock options and other
share-based awards
    
    
    
    
    
    
    
    
    
    
    1,450Denominator for diluted computation
    
    
    62,710
    
    
    
    65,087
    
    
    
    69,386Diluted (loss) earnings per share
    
    $
    (0.70
    )
    
    $
    (0.24
    )
    
    $
    0.10
  13. Quarterly Financial Summary (Unaudited)
 Three Months EndedDec. 31
    
    
    Sep. 30
    
    
    Jun. 30
    
    
    Mar. 31
    
    
    Dec. 31
    
    
    Sep. 30
    
    
    Jun. 30
    
    
    Mar. 312009
    
    
    2009
    
    
    2009
    
    
    2009
    
    
    2008(1)
    
    
    2008(1)
    
    
    2008
    
    
    2008(in thousands, except per share data)Statement of Operations Data:Total revenues
    
    $
    56,091
    
    
    $
    46,374
    
    
    $
    38,405
    
    
    $
    37,124
    
    
    $
    40,972
    
    
    $
    47,324
    
    
    $
    45,920
    
    
    $
    41,651Total cost of revenues(2)
    
    
    15,820
    
    
    
    14,324
    
    
    
    9,983
    
    
    
    9,674
    
    
    
    9,958
    
    
    
    10,238
    
    
    
    11,012
    
    
    
    10,456Gross profit
    
    
    40,271
    
    
    
    32,050
    
    
    
    28,422
    
    
    
    27,450
    
    
    
    31,014
    
    
    
    37,086
    
    
    
    34,908
    
    
    
    31,195(Loss) income before income taxes
    
    
    (6,470
    )
    
    
    (9,388
    )
    
    
    (5,906
    )
    
    
    (6,043
    )
    
    
    (19,164
    )
    
    
    509
    
    
    
    2,762
    
    
    
    19Net (loss) income(3)
    
    
    (31,335
    )
    
    
    (6,223
    )
    
    
    (2,654
    )
    
    
    (3,991
    )
    
    
    (18,265
    )
    
    
    483
    
    
    
    1,781
    
    
    
    106(Loss) earnings per share:Basic
    
    $
    (0.50
    )
    
    $
    (0.10
    )
    
    $
    (0.04
    )
    
    $
    (0.06
    )
    
    $
    (0.29
    )
    
    $
    0.01
    
    
    $
    0.03
    
    
    $
    0.00Diluted
    
    $
    (0.50
    )
    
    $
    (0.10
    )
    
    $
    (0.04
    )
    
    $
    (0.06
    )
    
    $
    (0.29
    )
    
    $
    0.01
    
    
    $
    0.03
    
    
    $
    0.00
 
 (1)
    
    In the third and fourth quarters of 2008, we recorded other-than-temporary impairment charges of $4.3 million and $15.9 million, respectively, related to our
previous investments in auction rate securities and our investment in long term bonds issued by Lehman Brothers Holdings, Inc. See Note 5 for additional information.(2)
    
    For the quarters ended December 31, 2009, September 30, 2009, June 30, 2009, March 31, 2009, December 31, 2008, September 30, 2008, June 30, 2008, March 31, 2008, total
cost of revenues include charges related to amortization of intangible assets of $3.8 million, $3.0 million, $1.2 million, $1.2 million, $1.2 million, $1.2 million, $1.2
million, and $1.2 million, respectively.(3)
    
    In the fourth quarter of 2009, our income tax expense includes a $27.6 million charge related primarily to the establishment of a valuation allowance against our remaining
net U.S. deferred tax assets. In the fourth quarter of 2008, our income tax expense includes a $7.7 million charge, related primarily to the establishment of a valuation
allowance against our deferred tax assets associated with the unrealized impairment (capital) losses discussed in footnote 1 above. 93




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EXHIBIT INDEX
 Exhibit No.
    
    Description21.1
    
    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
 94