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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the Fiscal Year Ended December 31, 2008
 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
 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
    
    
    16Item 1B. Unresolved Staff Comments
    
    
    27Item 2. Properties
    
    
    27Item 3. Legal Proceedings
    
    
    27Item 4. Submission of Matters to a Vote of Security Holders
    
    
    28PART IIItem 5. Market for Registrants Common Equity, Related
Shareholder Matters and Issuer Purchases of Equity
Securities
    
    
    28Item 6. Selected Financial Data
    
    
    30Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    32Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    45Item 8. Financial Statements and Supplementary Data
    
    
    45Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
    
    
    45Item 9A. Controls and Procedures
    
    
    45Item 9B. Other Information
    
    
    46PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    47Item 11. Executive Compensation
    
    
    47Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Shareholder Matters
    
    
    47Item 13. Certain Relationships and Related Transactions, and
Director Independence
    
    
    47Item 14. Principal Accounting Fees and Services
    
    
    47PART IVItem 15. Exhibits, Financial Statement Schedules
    
    
    48SIGNATURES
    
    
    51EX-10.12EX-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, Alcatel-Lucent, and
Juniper Networks;
    
    Semiconductor manufacturers such as Broadcom, LSI Corporation, and Intel;
    
    Telephony equipment manufacturers such as Motorola, Ericsson, and Nokia;
    
    Voice and broadband service providers such as AT&T, NTT, and Verizon;
    
    Cable operators such as Comcast Cable, Time Warner, and Cablevision Systems;
    
    Enterprises such as Wells Fargo, Barclays, and General Electric; and
    
    Government contractors, departments and agencies such as General Dynamics, the U.S.
Navy, and Lockheed Martin.
  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,
 3




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interoperability, and performance of their components. This occurs during the design and
development phase  typically prior to integration by network equipment manufacturers.
 
    
    Network Equipment Manufacturers (NEMs). NEMs provide voice, video, and data service
infrastructure equipment to customer network operators, service providers, and network
users, who specify high standards of performance and reliability. To meet these higher
standards, NEMs 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 IP-based devices prior to deployment in production networks. Our
systems are also used by NEMs 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 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 IP-based
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
  The Ixia Solution
  4




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




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Flexible.
 Open Architecture.
 Ease of Automation.
 Ease of Use.
 Strategy
  Continue to Expand our Addressable Markets.
 Maintain Focus on Technology Leadership.
 Expand and Further Penetrate Customer Base.
 6




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




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




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Intelligent Network Testing
  Conformance Testing
  Security Testing
   Application Testing
  Router Testing
   Layer 2-3 Security Testing
   9




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Switch Testing
    Wireless Testing
  Broadband Testing
   Automated Testing
     Converged Monitoring Testing
  10




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Products in Development
  
    
    10, 40 and 100 Gigabit Ethernet
    
    Carrier, Metro and Data Center Ethernet
    
    Layer 4  7
    
    MPLS
    
    VPLS
    
    Multicast
    
    IPv6
    
    Voice over IP
    
    Video over IP
    
    IPSec
    
    MACSec
    
    Fiber Channel over Ethernet
    
    Test Automation
    
    SSL
    
    Denial of Service
    
    WiMAX
    
    IMS
    
    Vulnerability assessment
    
    Energy efficiency
  Technology
  Complex Logic Design
 11




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Software Technology
 Customers
   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.
   12




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Sales, Marketing and Technical Support
 Sales
 Marketing
 
    
    Sponsoring technical seminars and webinars that highlight our solutions,
    
    Participating in industry trade shows and technical conferences,
    
    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 at our company headquarters,
    
    Deploy to customer sites on short notice, and
    
    Provide guidance to optimally utilize our systems.
 Manufacturing
  13




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Research and Development
     Intellectual Property and Proprietary Rights
  14




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Employees
  Available Information
  15




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Item 1A. Risk Factors
  Our business may be adversely affected by unfavorable general economic and market conditions
   Because we depend on a limited number of customers for a majority of our revenues, any
cancellation, reduction or delay in purchases by these customers could significantly harm our
revenues and results of operations
   16




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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;
    
    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.
  17




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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 will 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
  18




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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
      The loss of any of our key personnel could significantly harm our results of operations and
competitive position
  19




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




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Changes in industry and market conditions could lead to charges related to discontinuances of
certain of our products and asset impairments
  Our reported financial results could suffer if there is an impairment of goodwill
   Our investment portfolio may become impaired by further deterioration of the financial markets
   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
  21




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
    
    problems or delays in assimilating the acquired operations, technologies or
products;
    
    unanticipated costs associated with the acquisition;
    
    diversion of managements attention from our core business;
    
    adverse effects on existing business relationships with suppliers, contract
manufacturers, customers and industry experts;
    
    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;
    
    risks associated with entering markets in which we have no or limited prior
experience; and
    
    potential loss of the acquired organizations or our own key employees.
  International activity may increase our cost of doing business or disrupt our business
  
    
    difficulties in recruiting, training and retaining international personnel;
    
    increased complexity and costs of managing international operations;
    
    growing demand for and cost of technical personnel;
    
    increased exposure to foreign currency exchange rate fluctuations;
    
    commercial laws and business practices that favor local competition;
    
    changing governmental laws and regulations, including differing labor and employment
laws and longer sales cycles;
    
    supporting multiple languages;
    
    reduced or limited protections of intellectual property rights;
    
    more complicated logistical and distribution arrangements;
    
    political and economic instability; and
    
    difficulties in collecting receivables.
  22




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Some key components in our products come from sole or limited sources of supply, which exposes us
to potential supply shortages that could disrupt the manufacture and sale of our products
    If we fail to accurately forecast our manufacturing requirements, we could incur additional costs
and experience manufacturing delays
  Failure by our contract manufacturers to provide us with adequate supplies of high quality products
could harm our revenues, results of operations, competitive position and reputation
   23




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To the extent that our customers consolidate, they may reduce purchases of our products and demand
more favorable terms and conditions from us, which would harm our revenues and profitability
  Our products may contain defects which may cause us to incur significant costs, divert our
attention from product development efforts and result in a loss of customers
  Our failure to protect our intellectual property may significantly harm our results of operations
and reputation
    24




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Claims that we infringe third-party intellectual property rights could result in significant
expenses or restrictions on our ability to sell our products
   
    
    be time-consuming;
    
    result in costly litigation;
    
    divert the efforts of our technical and management personnel;
    
    require us to modify the infringing products or to develop alternative technology,
thereby causing product shipment delays and the loss or deferral of revenues;
    
    require us to cease selling the products containing the intellectual property at
issue;
    
    require us to pay substantial damage awards;
    
    damage our reputation; or
    
    require us to enter into royalty or licensing agreements which, if required, may not
be available on terms acceptable to us, if at all.
  Changes in laws, regulations and financial accounting standards may affect our reported results of
operations
   25




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Our business is subject to changing regulation of corporate governance and public disclosure that
has resulted in increased costs and may continue to result in additional costs in the future
   If we fail to maintain our relationships with industry experts, our products may lose industry and
market recognition and sales could decline
  Our 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
  26




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Provisions of our articles of incorporation and bylaws may make it difficult for a third party to
acquire us, despite the possible benefits to our shareholders
   
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
  
 Item 3. Legal Proceedings
 Ixia v. Charles Bettinelli and IneoQuest Technologies, Inc.
  27




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IneoQuest Technologies, Inc. vs. Ixia.
   
 Item 4. Submission of Matters to a Vote of Security Holders
  
 PART II
 
 Item 5. Market for Registrants Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities
   High
    
    Low2008First quarter
    
    $
    9.52
    
    
    $
    6.82Second quarter
    
    
    8.36
    
    
    
    6.30Third quarter
    
    
    9.09
    
    
    
    6.75Fourth quarter
    
    
    7.40
    
    
    
    4.732007First quarter
    
    $
    11.67
    
    
    $
    9.11Second quarter
    
    
    9.80
    
    
    
    8.52Third quarter
    
    
    10.19
    
    
    
    8.72Fourth quarter
    
    
    10.60
    
    
    
    8.80
   28




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Comparison of Five-Year Cumulative Total Return*
among Ixia, the Nasdaq Composite Index
and the Nasdaq Telecommunications Index
 
 12/31/03
    
    12/31/04
    
    12/31/05
    
    12/31/06
    
    12/31/07
    
    12/31/08Ixia
    
    $
    100
    
    
    $
    143.68
    
    
    $
    126.50
    
    
    $
    82.05
    
    
    $
    81.03
    
    
    $
    49.40Nasdaq Composite Index
    
    
    100
    
    
    
    110.08
    
    
    
    112.88
    
    
    
    126.51
    
    
    
    138.13
    
    
    
    80.47Nasdaq Telecommunications
    
    
    100
    
    
    
    106.64
    
    
    
    103.00
    
    
    
    131.01
    
    
    
    134.97
    
    
    
    78.22Index
 
 *
    
    Assumes (i) $100 invested on December 31, 2003 in Ixia Common Stock, the Nasdaq Composite
Index and the Nasdaq Telecommunications Index and (ii) immediate reinvestment of all
dividends.     29




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Total Number of
    
    
    Approximate DollarShares Purchased
    
    
    Value of Sharesas Part of Publicly
    
    
    that mayAverage Price
    
    
    Announced
    
    
    yet be PurchasedTotal Number of
    
    
    Paid
    
    
    Plans or
    
    
    under the Plans orPeriod
    
    Shares Purchased
    
    
    Per Share
    
    
    Programs
    
    
    ProgramsNovember 1  November 30
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    25,000,000December 1  December 31
    
    
    472,133
    
    
    
    5.89
    
    
    
    472,133
    
    
    
    22,220,495472,133
    
    
    $
    5.89
    
    
    
    472,133
    
    
    
    22,220,495
 
 Item 6. Selected Financial Data
  2008(2)
    
    
    2007(3)
    
    
    2006(4)
    
    
    2005
    
    
    2004Consolidated Statement of Income Data 
(in
thousands, except per share data):Revenues:Products
    
    $
    146,802
    
    
    $
    148,226
    
    
    $
    155,388
    
    
    $
    130,045
    
    
    $
    97,200Services
    
    
    29,065
    
    
    
    25,895
    
    
    
    24,744
    
    
    
    20,808
    
    
    
    13,464Total revenues
    
    
    175,867
    
    
    
    174,121
    
    
    
    180,132
    
    
    
    150,853
    
    
    
    110,664Costs and operating expenses:(1)Cost of revenues  products
    
    
    32,411
    
    
    
    32,724
    
    
    
    29,437
    
    
    
    24,239
    
    
    
    20,592Cost of revenues  amortization of
purchased technology
    
    
    4,778
    
    
    
    5,196
    
    
    
    4,705
    
    
    
    3,891
    
    
    
    3,044Cost of revenues  services
    
    
    4,475
    
    
    
    3,870
    
    
    
    2,681
    
    
    
    2,216
    
    
    
    1,423Research and development
    
    
    49,184
    
    
    
    47,407
    
    
    
    43,450
    
    
    
    32,404
    
    
    
    24,960Sales and marketing
    
    
    59,390
    
    
    
    57,420
    
    
    
    59,020
    
    
    
    39,359
    
    
    
    30,566General and administrative
    
    
    26,948
    
    
    
    24,927
    
    
    
    23,800
    
    
    
    16,438
    
    
    
    12,479Amortization of intangible assets
    
    
    886
    
    
    
    1,912
    
    
    
    1,745
    
    
    
    1,278
    
    
    
    1,532Impairment of goodwill, purchased
technology and/or other intangible
assets
    
    
    
    
    
    
    3,263
    
    
    
    
    
    
    
    
    
    
    
    Total costs and operating expenses
    
    
    178,072
    
    
    
    176,719
    
    
    
    164,838
    
    
    
    119,825
    
    
    
    94,596(Loss) income from operations
    
    
    (2,205
    )
    
    
    (2,598
    )
    
    
    15,294
    
    
    
    31,028
    
    
    
    16,068Interest and other income, net
    
    
    6,574
    
    
    
    11,723
    
    
    
    9,409
    
    
    
    5,055
    
    
    
    2,960Other-than-temporary impairment on
investments
    
    
    (20,243
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 30




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2008(2)
    
    
    2007(3)
    
    
    2006(4)
    
    
    2005
    
    
    2004(Loss) income before income taxes
    
    
    (15,874
    )
    
    
    9,125
    
    
    
    24,703
    
    
    
    36,083
    
    
    
    19,028Income tax expense
    
    
    21
    
    
    
    2,119
    
    
    
    11,222
    
    
    
    7,593
    
    
    
    4,007Net (loss) income
    
    $
    (15,895
    )
    
    $
    7,006
    
    
    $
    13,481
    
    
    $
    28,490
    
    
    $
    15,021(Loss) earnings per share:Basic
    
    $
    (0.24
    )
    
    $
    0.10
    
    
    $
    0.20
    
    
    $
    0.44
    
    
    $
    0.25Diluted
    
    $
    (0.24
    )
    
    $
    0.10
    
    
    $
    0.20
    
    
    $
    0.41
    
    
    $
    0.23Weighted average number of common and
common equivalent shares outstanding:Basic
    
    
    65,087
    
    
    
    67,936
    
    
    
    67,005
    
    
    
    65,168
    
    
    
    60,687Diluted
    
    
    65,087
    
    
    
    69,386
    
    
    
    68,792
    
    
    
    69,227
    
    
    
    64,745
 
 (1)
    
    Stock-based compensation
included in: Cost of revenues  products
    
    $
    513
    
    
    $
    519
    
    
    $
    590
    
    
    $
    
    
    
    $
    30Cost of revenues  services
    
    
    195
    
    
    
    197
    
    
    
    224
    
    
    
    
    
    
    
    3Research and development
    
    
    4,166
    
    
    
    5,243
    
    
    
    6,481
    
    
    
    
    
    
    
    271Sales and marketing
    
    
    3,411
    
    
    
    4,416
    
    
    
    7,838
    
    
    
    
    
    
    
    77General and administrative
    
    
    2,360
    
    
    
    2,659
    
    
    
    2,890
    
    
    
    
    
    
    
    38
 
 (2)
    
    Our 2008 results include a pre-tax other-than-temporary impairment charge of $20.2 million, which consists of an other-than-temporary impairment
charge of $15.8 million (pre-tax) to earnings related to our investments in auction rate securities and an other-than-temporary impairment charge of $4.4 million
(pre-tax) to earnings related to our investments in bonds issued by Lehman Brothers Holdings, Inc.(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)
    
    Due to the adoption of SFAS 123R effective January 1, 2006, our results of operations for 2008, 2007 and 2006 include $10.6 million, $13.0 million and
$18.0 million, respectively, of pre-tax stock-based compensation expense. 2008
    
    2007
    
    2006
    
    2005
    
    2004Consolidated Balance Sheet Data (in thousands):Cash and cash equivalents
    
    $
    192,791
    
    
    $
    188,892
    
    
    $
    64,644
    
    
    $
    51,837
    
    
    $
    16,383Short-term investments in marketable
securities
    
    
    9,850
    
    
    
    4,999
    
    
    
    152,703
    
    
    
    124,456
    
    
    
    81,757Working capital
    
    
    217,882
    
    
    
    206,059
    
    
    
    235,168
    
    
    
    191,176
    
    
    
    104,515Long-term investments in marketable
securities
    
    
    3,657
    
    
    
    54,609
    
    
    
    4,354
    
    
    
    25,392
    
    
    
    49,015Total assets
    
    
    328,426
    
    
    
    369,440
    
    
    
    349,059
    
    
    
    322,216
    
    
    
    241,451Total shareholders equity
    
    
    273,196
    
    
    
    316,500
    
    
    
    300,789
    
    
    
    263,480
    
    
    
    193,491
 31




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Business Overview
  Revenues.
   32




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##### Table of Contents



33




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##### Table of Contents



Stock-Based Compensation.
   34




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##### Table of Contents



Cost of Revenues
  
    
    changes in our pricing policies and those of our competitors;
    
    the pricing we are able to obtain from our component suppliers and contract
manufacturers;
    
    the mix of customers and sales channels through which our products are sold;
    
    the mix of our products sold, such as the mix of software versus hardware product
sales;
    
    new product introductions by us and by our competitors;
    
    demand for our products;
    
    expenses related to acquired technologies, such as royalties and amortization of
intangible assets; and
    
    production volume.
  Operating Expenses
    35




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##### Table of Contents



Interest and Other Income, Net.
 Income Tax.
 Critical Accounting Policies and Estimates
   
    
    Revenue Recognition Policy. We recognize revenue as discussed in Revenues in the
Business Overview section of Item 7.
    
    Allowance for Doubtful Accounts. Trade accounts receivable are recorded at the
invoiced amount and do not bear interest. The allowance for doubtful accounts is based
on our best estimate of the amount of probable credit losses in existing accounts
receivable. The allowance for doubtful accounts is determined based on historical
write-off experience, current customer information and other relevant data. We review
the allowance for doubtful accounts monthly. Past due balances of 60 days and over are
reviewed individually for collectibility. Account balances are charged off against the
allowance when we believe it is probable the receivable will not be recovered. We do
not have any off-balance-sheet credit exposure related to our customers.
    
    Write-Down of Obsolete Inventory.We write-down inventory for estimated
obsolescence, excessive quantities or unmarketable inventory equal to the difference
between the cost of inventory and the estimated market value based upon assumptions
about future demand and market conditions. If actual future demand is less favorable
than our initial estimate, additional inventory write-downs may be required.
    
    Income Taxes.We operate in numerous states and countries through our various
subsidiaries, and must allocate our income, expenses, and earnings under the various
laws and regulations of each of these taxing jurisdictions. Accordingly, our provision
for income taxes represents our total estimate of the liability that we have incurred
in doing business each year in all of our locations. Deferred income tax balances
reflect the effects of temporary differences between the carrying amounts of assets and
liabilities and their tax bases and are stated at enacted tax rates expected to be in
effect when taxes are actually paid or recovered. Annually, we file tax returns that
represent our filing positions with each jurisdiction and settle our return
liabilities. Each jurisdiction has the right to audit those returns and may take
different positions with respect to income and expense allocations and taxable earnings
determinations. In accordance with Financial Accounting Standards Board (FASB)
Interpretation
 36




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##### Table of Contents



No. 48, Accounting for Uncertainty in Income Taxes  An Interpretation of FASB
Statement No. 109 (FIN 48), we may provide for estimated liabilities in our
consolidated financial statements associated with uncertain tax return filing positions
that are subject to audit by various tax authorities. Because the determinations of our
annual provisions are subject to judgments and estimates, it is likely that actual
results will vary from those recognized in our consolidated financial statements. As a
result, additions to, or reductions of, income tax expense will occur each year for
prior reporting periods as our estimates change and actual tax returns and tax audits
are settled. We recognize any such prior year adjustment in the discrete quarterly
period in which it is determined.
    
    Acquisition Purchase Price Allocation.When we acquire a business, product line or
rights to a product or technology, we allocate the purchase price to the various
tangible and intangible assets acquired and the liabilities assumed, based on their
estimated fair values. Determining the fair value of certain assets and liabilities
acquired is subjective in nature and often involves the use of significant estimates
and assumptions. To assist in this process, we may obtain appraisals from valuation
specialists for certain of these items. Most of the assumptions used to determine fair
value are made based on forecasted information. The useful lives of amortizable
intangible assets are reviewed for reasonableness periodically by management in light
of current conditions.
    
    Impairment of Long-Lived Assets.We evaluate the recoverability of our identifiable
definite life intangible assets and other long-lived assets in accordance with SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144),
which generally requires that we assess these assets for recoverability when events or
circumstances indicate a potential impairment by estimating the undiscounted cash flows
to be generated from the use and ultimate disposition of these assets. To the extent
that the estimated undiscounted cash flows fall below the carrying value of the
intangible or other long lived assets we write-down the assets to fair value. Fair
value is generally determined based on discounted cash flows. Determining the fair
value based on discounted cash flows is subjective in nature and often involves the use
of significant estimates and assumptions about future results and discount rates. We
evaluate the recoverability of our goodwill in accordance with SFAS No. 142, Goodwill
and Other Intangible Assets (SFAS 142), which requires us to assess our goodwill
annually for impairment. Impairment losses are recorded to the extent that the
carrying value of the goodwill exceeds the fair value.
    
    Stock-Based Compensation.We record stock-based compensation in accordance with
SFAS 123R as discussed in Stock-based Compensation in the Business Overview section
of Item 7.
    
    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 as defined under the FASB
Staff Position 115-1/124-1, The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments (FSP 115-1/124-1). 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, and our intent and ability
to hold an investment until a recovery occurs. If any impairment is considered
other-than-temporary, we write down the asset to its fair value and take a
corresponding charge to earnings.
    
    Contingencies and Litigation. We evaluate contingent liabilities, including
threatened or pending litigation, in accordance with SFAS No. 5, Accounting for
Contingencies, and we record accruals when the loss is deemed probable and the
liability can reasonably be estimated. We make these assessments based on the facts
and circumstances of each situation and in some instances based in part on the advice
of outside legal counsel.
 37




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##### Table of Contents



Results of Operations
  2008
    
    2007
    
    2006Revenues:Products
    
    
    83.5
    %
    
    
    85.1
    %
    
    
    86.3
    %Services
    
    
    16.5
    
    
    
    14.9
    
    
    
    13.7Total revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Costs and operating expenses:(1)Cost of revenues  products
    
    
    18.4
    
    
    
    18.8
    
    
    
    16.3Cost of revenues  amortization of purchased technology
    
    
    2.7
    
    
    
    3.0
    
    
    
    2.6Cost of revenues  services
    
    
    2.5
    
    
    
    2.2
    
    
    
    1.5Research and development
    
    
    28.0
    
    
    
    27.2
    
    
    
    24.1Sales and marketing
    
    
    33.8
    
    
    
    33.0
    
    
    
    32.8General and administrative
    
    
    15.4
    
    
    
    14.3
    
    
    
    13.2Amortization of intangible assets
    
    
    0.5
    
    
    
    1.1
    
    
    
    1.0Impairment of purchased technology and intangible
assets
    
    
    
    
    
    
    1.9
    
    
    
    Total costs and operating expenses
    
    
    101.3
    
    
    
    101.5
    
    
    
    91.5(Loss) income from operations
    
    
    (1.3
    )
    
    
    (1.5
    )
    
    
    8.5Interest and other income, net
    
    
    3.7
    
    
    
    6.7
    
    
    
    5.2Other-than-temporary impairment on investments
    
    
    (11.4
    )
    
    
    
    
    
    
    (Loss) income before income taxes
    
    
    (9.0
    )
    
    
    5.2
    
    
    
    13.7Income tax expense
    
    
    
    
    
    
    1.2
    
    
    
    6.2Net (loss) income
    
    
    (9.0
    )%
    
    
    4.0
    %
    
    
    7.5
    %
 
 (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
    
    
    2.4
    
    
    
    3.0
    
    
    
    3.6Sales and marketing
    
    
    1.9
    
    
    
    2.5
    
    
    
    4.4General and administrative
    
    
    1.3
    
    
    
    1.5
    
    
    
    1.6
 Comparison of the Years Ended December 31, 2008 and 2007
 Revenues.
 Cost of Revenues
 38




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##### Table of Contents



Research and Development Expenses.
 Sales and Marketing Expenses.
 General and Administrative Expenses.
 Amortization of Intangible Assets.
 Impairment of Purchased Technology and Intangible Assets.
 Interest and Other Income, Net.
 Other-than-temporary Impairment on Investments.
 39




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##### Table of Contents



Income Tax Expense.
 Comparison of the Years Ended December 31, 2007 and 2006
 Revenues.
 Cost of Revenues
 Research and Development Expenses.
 Sales and Marketing Expenses.
 General and Administrative Expenses.
 Amortization of Intangible Assets.
 40




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##### Table of Contents



Impairment of Purchased Technology and Intangible Assets.
 Interest and Other Income, Net.
 Income Tax Expense.
 Liquidity and Capital Resources
  Year Ended December 31,2008
    
    2007
    
    2006Cash, cash equivalents and investments
    
    
    206,298
    
    
    
    248,500
    
    
    
    221,701Cash provided by operating activities
    
    
    24,335
    
    
    
    45,769
    
    
    
    33,911Cash provided by (used in) investing activities
    
    
    19,082
    
    
    
    78,491
    
    
    
    (26,980
    )Cash (used in) provided by financing activities
    
    
    (39,518
    )
    
    
    (12
    )
    
    
    5,876
    41




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##### Table of Contents



Investments inMarketableSecurities(Non-current)Balance at December 31, 2007
    
    $
    14,345Unrealized loss recorded to other comprehensive income
    
    
    (11,134
    )Balance at December 31, 2008
    
    $
    3,211
 42




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##### Table of Contents



Financial Commitments
  Less than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 year
    
    
    1  3 years
    
    
    3  5 years
    
    
    5 yearsOperating leases
    
    $
    20,730
    
    
    $
    5,666
    
    
    $
    9,213
    
    
    $
    5,410
    
    
    $
    441Purchase obligations
    
    
    641
    
    
    
    641
    
    
    
    
    
    
    
    
    
    
    
    $
    21,371
    
    
    $
    6,307
    
    
    $
    9,213
    
    
    $
    5,410
    
    
    $
    441
   43




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##### Table of Contents



Recent Accounting Pronouncements
   
    44




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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
  45




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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
  
 Item 9B. Other Information
  46




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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
  47




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##### Table of Contents



PART IV
 
 Item 15. Exhibits, Financial Statement Schedules
  Consolidated Financial Statements
  Financial Statement Schedule
  Exhibits
 3.1
    
    Amended and Restated Articles of Incorporation, as amended(1)3.2
    
    Bylaws, as amended(2)10.1*
    
    Amended and Restated 1997 Equity Incentive Plan (3)10.2*
    
    Amended and Restated Non-Employee Director Stock Option Plan(4)10.3*
    
    Employee Stock Purchase Plan(5)10.3.1*
    
    Amendment No. 1, dated May 9, 2003, to Ixia Employee Stock Purchase Plan(6)10.3.2*
    
    Supplemental Provisions, effective April 14, 2006, to Ixia Employee Stock Purchase Plan(7)10.4*
    
    Officer Severance Plan(8), together with Amendment to the Officer Severance Plan(9)10.5*
    
    Ixia Officer Severance Plan (as Amended and Restated effective January 1, 2009)(10)10.6*
    
    Form of Indemnity Agreement between Ixia and its directors and executive officers(11)10.7
    
    Office Lease Agreement dated September 14, 2007 between MS LPC Malibu Property Holdings, LLC and
Ixia(12)10.8
    
    License, Distribution and Option Agreement, dated July 7, 2003, between NetIQ Corporation and
Ixia(13)10.9
    
    First Amendment to License, Distribution and Option Agreement dated as of January 6, 2005 between the
Registrant and NetIQ Corporation(14)10.10
    
    Second Amendment to License, Distribution and Option Agreement dated as of June 16, 2005 between the
Registrant and NetIQ Corporation(15)(16)10.11*
    
    Summary of 2007 Compensation for the Registrants Named Executive Officers(17)10.12*
    
    Compensation of Named Executive Officers and Chief Executive Officer for 200810.13*
    
    Summary of Compensation for the Registrants Non-Employee Directors(18)10.14*
    
    2007 Executive Officer Bonus Plan(19)10.15*
    
    Ixia 2008 Executive Officer Bonus Plan(20)10.16*
    
    Employment Offer Letter Agreement dated as of August 8, 2007 between the Company and Atul
Bhatnagar(21)10.17*
    
    Ixia 2008 Equity Incentive Plan, including Amendment No. 1 dated May 28, 2008(22)14.1
    
    Code of Ethics for Chief Executive and Senior Financial Officers(23)21.1
    
    Subsidiaries of the Registrant23.1
    
    Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm31.1
    
    Certificate of Chief Executive Officer of Ixia pursuant to Rule 13a-14(a) under the Exchange Act, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certificate of Chief Financial Officer of Ixia pursuant to Rule 13a-14(a) under the Exchange Act, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certificate of Chief Executive Officer and Chief Financial Officer of Ixia pursuant to Rule 13a-14(b)
under the Exchange Act and Section 906 of the Sarbanes-Oxley Act of 2002.
 48




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##### Table of Contents



*
    
    Constitutes a management contract or compensatory plan or arrangement required to be filed as
an exhibit to this Annual Report on Form 10-K.(1)
    
    Incorporated by reference to Exhibit No. 3.1 to Amendment No. 2 to the Registrants
Registration Statement on Form S-1 (Reg. No. 333-42678) filed with the Commission on
September 5, 2000.(2)
    
    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.(3)
    
    Incorporated by reference to Exhibit 4.1 to the Registrants Registration Statement on
Form S-8 (Reg. No. 333-117969) filed with the Commission on August 5, 2004.(4)
    
    Incorporated by reference to Exhibit 4.2 to the Registrants Registration Statement on
Form S-8 (Reg. No. 333-117969) filed with the Commission on August 5, 2004.(5)
    
    Incorporated by reference to Exhibit No. 10.3 to Amendment No. 1 to the Registrants
Registration Statement on Form S-1 (Reg. No. 333-42678) filed with the Commission on
September 5, 2000.(6)
    
    Incorporated by reference to Exhibit 4.2 to the Registrants Registration Statement on Form
S-8 (Registration No. 333-107818) filed with the Commission on August 8, 2003.(7)
    
    Incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K
(File No. 000-31523) filed with the Commission on April 20, 2006.(8)
    
    Incorporated by reference to Exhibit No. 10.4 to Amendment No. 1 to the Registrants
Registration Statement on Form S-1 (Reg. No. 333-42678) filed with the Commission on
September 5, 2000.(9)
    
    Incorporated by reference to Exhibit 10.2 to the Registrants Current Report on Form 8-K
(File No. 000-31523) filed with the Commission on January 7, 2009.(10)
    
    Incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K
(File No. 000-31523) filed with the Commission on January 7, 2009.(11)
    
    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.(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 September 25, 2007.(13)
    
    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.(14)
    
    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.(15)
    
    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.(16)
    
    Confidential treatment has been requested with respect to a portion of this exhibit, which
portion has been omitted and filed separately with the Commission.(17)
    
    Incorporated by reference to Exhibit 10.15 to the Registrants Annual Report on Form 10-K
(File No. 000-31523) for the fiscal year ended December 31, 2007.(18)
    
    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.(19)
    
    Incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K
(File No. 000-31523) filed with the Commission on July 26, 2007.(20)
    
    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.(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 September 4, 2007.(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 June 3, 2008. 49




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##### Table of Contents



(23)
    
    Incorporated by reference to Exhibit 14.1 to the Registrants Annual Report on Form 10-K
(File No. 000-31523) for the fiscal year ended December 31, 2003.
 (b)
    
    ExhibitsSee the list of Exhibits under Item 15(a)(3) of this Annual Report on Form 10-K.(c)
    
    Financial Statement SchedulesSee the Schedule under Item 15(a)(2) of this Annual Report on Form 10-K.
 50




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##### Table of Contents



SIGNATURES
  Dated: March 6, 2009
    IXIA/s/ Atul BhatnagarAtul BhatnagarChief Executive Officer  Name
    
    Title
    
    Date/s/ Atul Bhatnagar
    
    President, Chief Executive Officer and Director
    
    March 6, 2009Atul Bhatnagar
    
    (Principal
Executive Officer)/s/ Thomas B. Miller
    
    Chief Financial Officer
    
    March 6, 2009Thomas B. Miller
    
    (Principal
Financial and Accounting Officer)/s/ Errol Ginsberg
    
    Chief Innovation Officer and Chairman of the Board
    
    March 6, 2009Errol Ginsberg/s/ Jon F. Rager
    
    Director
    
    March 6, 2009Jon F. Rager/s/ Gail Hamilton
    
    Director
    
    March 6, 2009Gail Hamilton/s/ Jonathan Fram
    
    Director
    
    March 6, 2009Jonathan Fram/s/ Laurent Asscher
    
    Director
    
    March 6, 2009Laurent Asscher
 51




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##### Table of Contents



IXIA
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageReport
of Independent Registered Public Accounting Firm
    
    
    53Consolidated Balance Sheets as of December 31, 2008 and 2007
    
    
    54Consolidated Statements of Income for the years ended December 31, 2008, 2007 and 2006
    
    
    55Consolidated Statements of Shareholders Equity for the years ended December 31, 2008,
2007 and 2006
    
    
    56Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006
    
    
    57Notes to Consolidated Financial Statements
    
    
    58
 52




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Report of Independent Registered Public Accounting Firm
  Internal
Control  Integrated Framework
     
 53




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##### Table of Contents



IXIA
 
 Consolidated Balance Sheets
(in thousands)
 December 31,
    
    
    December 31,2008
    
    
    2007AssetsCurrent assets:Cash and cash equivalents
    
    $
    192,791
    
    
    $
    188,892Short-term investments in marketable securities
    
    
    9,850
    
    
    
    4,999Accounts receivable, net
    
    
    34,001
    
    
    
    32,405Inventories
    
    
    14,966
    
    
    
    12,731Deferred income taxes
    
    
    4,855
    
    
    
    5,613Prepaid expenses and other current assets
    
    
    4,981
    
    
    
    3,385Total current assets
    
    
    261,444
    
    
    
    248,025Investments in marketable securities
    
    
    3,657
    
    
    
    54,609Property and equipment, net
    
    
    18,506
    
    
    
    21,433Deferred income taxes
    
    
    14,945
    
    
    
    13,543Intangible assets, net
    
    
    10,592
    
    
    
    14,147Goodwill
    
    
    16,728
    
    
    
    16,728Other assets
    
    
    2,554
    
    
    
    955Total assets
    
    $
    328,426
    
    
    $
    369,440Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    4,729
    
    
    $
    2,474Accrued expenses
    
    
    18,823
    
    
    
    19,440Deferred revenues
    
    
    19,558
    
    
    
    18,748Income taxes payable
    
    
    452
    
    
    
    1,304Total current liabilities
    
    
    43,562
    
    
    
    41,966Deferred revenues
    
    
    6,109
    
    
    
    7,167Other liabilities
    
    
    5,559
    
    
    
    3,807Total liabilities
    
    
    55,230
    
    
    
    52,940Commitments and contingencies (Note 8)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, 2008 and
2007; 63,391 and 68,171 shares issued and
outstanding as of December 31, 2008 and 2007,
respectively
    
    
    92,386
    
    
    
    132,092Additional paid-in capital
    
    
    107,882
    
    
    
    98,157Retained earnings
    
    
    73,182
    
    
    
    89,077Accumulated other comprehensive loss
    
    
    (254
    )
    
    
    (2,826
    )Total shareholders equity
    
    
    273,196
    
    
    
    316,500Total liabilities and shareholders equity
    
    $
    328,426
    
    
    $
    369,440
 The accompanying notes are an integral part of these consolidated financial statements
 54




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IXIA
 
 Consolidated Statements of Income
(in thousands, except per share data)
 Year Ended December 31,2008
    
    
    2007
    
    
    2006Revenues:Products
    
    $
    146,802
    
    
    $
    148,226
    
    
    $
    155,388Services
    
    
    29,065
    
    
    
    25,895
    
    
    
    24,744Total revenues
    
    
    175,867
    
    
    
    174,121
    
    
    
    180,132Costs and operating expenses:(1)Cost of revenues  products
    
    
    32,411
    
    
    
    32,724
    
    
    
    29,437Cost of revenues  amortization of purchased
technology
    
    
    4,778
    
    
    
    5,196
    
    
    
    4,705Cost of revenues  services
    
    
    4,475
    
    
    
    3,870
    
    
    
    2,681Research and development
    
    
    49,184
    
    
    
    47,407
    
    
    
    43,450Sales and marketing
    
    
    59,390
    
    
    
    57,420
    
    
    
    59,020General and administrative
    
    
    26,948
    
    
    
    24,927
    
    
    
    23,800Amortization of intangible assets
    
    
    886
    
    
    
    1,912
    
    
    
    1,745Impairment of purchased technology and
intangible assets
    
    
    
    
    
    
    3,263
    
    
    
    Total costs and operating expenses
    
    
    178,072
    
    
    
    176,719
    
    
    
    164,838(Loss) income from operations
    
    
    (2,205
    )
    
    
    (2,598
    )
    
    
    15,294Interest and other income, net
    
    
    6,574
    
    
    
    11,723
    
    
    
    9,409Other-than-temporary impairment on investments
    
    
    (20,243
    )
    
    
    
    
    
    
    (Loss) income before income taxes
    
    
    (15,874
    )
    
    
    9,125
    
    
    
    24,703Income tax expense
    
    
    21
    
    
    
    2,119
    
    
    
    11,222Net (loss) income
    
    $
    (15,895
    )
    
    $
    7,006
    
    
    $
    13,481(Loss) earnings per share:Basic
    
    $
    (0.24
    )
    
    $
    0.10
    
    
    $
    0.20Diluted
    
    $
    (0.24
    )
    
    $
    0.10
    
    
    $
    0.20Weighted average number of common and common
equivalent shares outstanding:Basic
    
    
    65,087
    
    
    
    67,936
    
    
    
    67,005Diluted
    
    
    65,087
    
    
    
    69,386
    
    
    
    68,792(1)   Stock-based compensation included in:Cost of revenues  products
    
    $
    513
    
    
    $
    519
    
    
    $
    590Cost of revenues  services
    
    
    195
    
    
    
    197
    
    
    
    224Research and development
    
    
    4,166
    
    
    
    5,243
    
    
    
    6,481Sales and marketing
    
    
    3,411
    
    
    
    4,416
    
    
    
    7,838General and administrative
    
    
    2,360
    
    
    
    2,659
    
    
    
    2,890
 The accompanying notes are an integral part of these consolidated financial statements
 55




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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, 2005
    
    
    66,580
    
    
    $
    126,792
    
    
    $
    68,098
    
    
    $
    68,590
    
    
    $
    
    
    
    $
    263,480Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,481
    
    
    
    
    
    
    
    13,481Shares issued pursuant to stock
incentive plans and exercise of
employee stock purchase plan
options
    
    
    771
    
    
    
    5,621
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,621Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    18,023
    
    
    
    
    
    
    
    
    
    
    
    18,023Stock award tax benefit
    
    
    
    
    
    
    
    
    
    
    184
    
    
    
    
    
    
    
    
    
    
    
    184Balance as of December 31, 2006
    
    
    67,351
    
    
    
    132,413
    
    
    
    86,305
    
    
    
    82,071
    
    
    
    
    
    
    
    300,789Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,006
    
    
    
    
    
    
    
    7,006Change 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 and exercise of
employee stock purchase plan
options
    
    
    1,739
    
    
    
    8,870
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,870Repurchase of shares pursuant to
stock buyback program
    
    
    (919
    )
    
    
    (9,191
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,191
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    13,034
    
    
    
    
    
    
    
    
    
    
    
    13,034Stock award tax shortfall
    
    
    
    
    
    
    
    
    
    
    (1,182
    )
    
    
    
    
    
    
    
    
    
    
    (1,182
    )Balance as of December 31, 2007
    
    
    68,171
    
    
    
    132,092
    
    
    
    98,157
    
    
    
    89,077
    
    
    
    (2,826
    )
    
    
    316,500Net 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
    )
    
    $
    273,196
 The accompanying notes are an integral part of these consolidated financial statements
 56




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IXIA
 
 Consolidated Statements of Cash Flows
(in thousands)
 Year Ended December 31,2008
    
    
    2007
    
    
    2006Cash flows from operating activities:Net (loss) income
    
    $
    (15,895
    )
    
    $
    7,006
    
    
    $
    13,481Adjustments to reconcile net (loss) income to net cash
provided by operating activities, net of effect of
acquisitions:Depreciation
    
    
    11,527
    
    
    
    11,560
    
    
    
    10,038Amortization of purchased technology and intangible
assets
    
    
    5,664
    
    
    
    7,108
    
    
    
    6,450Impairment on investments
    
    
    20,243
    
    
    
    
    
    
    
    Impairment of purchased technology and intangible assets
    
    
    
    
    
    
    3,263
    
    
    
    Stock-based compensation
    
    
    10,645
    
    
    
    13,034
    
    
    
    18,023Deferred income taxes
    
    
    (2,455
    )
    
    
    (1,478
    )
    
    
    5,739Tax (shortfall) benefit from stock award transactions
    
    
    (920
    )
    
    
    (1,182
    )
    
    
    184Excess tax benefits from stock-based compensation
    
    
    (188
    )
    
    
    (309
    )
    
    
    (255
    )Changes in operating assets and liabilities, net of
effect of acquisitions:Accounts receivable, net
    
    
    (1,596
    )
    
    
    3,816
    
    
    
    (4,656
    )Inventories
    
    
    (2,235
    )
    
    
    (1,127
    )
    
    
    (1,758
    )Prepaid expenses and other current assets
    
    
    (1,596
    )
    
    
    797
    
    
    
    (663
    )Other assets
    
    
    (1,599
    )
    
    
    (468
    )
    
    
    (172
    )Accounts payable
    
    
    2,255
    
    
    
    279
    
    
    
    (677
    )Accrued expenses
    
    
    (167
    )
    
    
    2,146
    
    
    
    2,168Deferred revenues
    
    
    (248
    )
    
    
    1,367
    
    
    
    (15,014
    )Income taxes payable and other liabilities
    
    
    900
    
    
    
    (43
    )
    
    
    1,023Net cash provided by operating activities
    
    
    24,335
    
    
    
    45,769
    
    
    
    33,911Cash flows from investing activities:Purchases of property and equipment
    
    
    (8,540
    )
    
    
    (10,931
    )
    
    
    (12,332
    )Purchases of available-for-sale securities
    
    
    
    
    
    
    (54,150
    )
    
    
    (153,400
    )Proceeds from available-for-sale securities
    
    
    2,001
    
    
    
    161,850
    
    
    
    114,225Purchases of held-to-maturity securities
    
    
    (8,924
    )
    
    
    (45,469
    )
    
    
    (7,978
    )Proceeds from held-to-maturity securities
    
    
    37,104
    
    
    
    30,564
    
    
    
    39,944Purchases of other intangible assets
    
    
    (314
    )
    
    
    (175
    )
    
    
    (165
    )Payments in connection with acquisitions
    
    
    (2,245
    )
    
    
    (3,198
    )
    
    
    (7,274
    )Net cash provided by (used in) investing activities
    
    
    19,082
    
    
    
    78,491
    
    
    
    (26,980
    )Cash flows from financing activities:Proceeds from exercise of stock options, warrants and
employee stock purchase plan options
    
    
    3,897
    
    
    
    8,870
    
    
    
    5,621Repurchase of common stock
    
    
    (43,603
    )
    
    
    (9,191
    )
    
    
    Excess tax benefits from stock-based compensation
    
    
    188
    
    
    
    309
    
    
    
    255Net cash (used in) provided by financing activities
    
    
    (39,518
    )
    
    
    (12
    )
    
    
    5,876Net increase in cash and cash equivalents
    
    
    3,899
    
    
    
    124,248
    
    
    
    12,807Cash and cash equivalents at beginning of year
    
    
    188,892
    
    
    
    64,644
    
    
    
    51,837Cash and cash equivalents at end of year
    
    $
    192,791
    
    
    $
    188,892
    
    
    $
    64,644Supplemental disclosure of cash flow information:Cash paid during the year for:Income taxes
    
    $
    5,443
    
    
    $
    4,724
    
    
    $
    4,291
 The accompanying notes are an integral part of these consolidated financial statements
 57




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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
   58




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##### Table of Contents



Investments in Marketable Securities
    Accounts Receivable and Allowance for Doubtful Accounts
  Inventories
  59




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##### Table of Contents



Property and Equipment
  Goodwill and Purchased Intangible Assets
  Litigation
  Product Warranty
  60




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##### Table of Contents



December 31,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2006Balance at beginning of year
    
    $
    577
    
    
    $
    344
    
    
    $
    230Current year provision
    
    
    619
    
    
    
    596
    
    
    
    230Expenditures
    
    
    (263
    )
    
    
    (363
    )
    
    
    (116
    )Balance at end of year
    
    $
    933
    
    
    $
    577
    
    
    $
    344
 Revenue Recognition
       61




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##### Table of Contents



Cost of Revenues
  Research and Development
  Software Developed for Internal Use
  62




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##### Table of Contents



Advertising
  Stock-Based Compensation
    Income Taxes
   Earnings Per Share
  63




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##### Table of Contents



Foreign Currency Translation
  Comprehensive Income
  Segments
  Reclassifications and Presentation
  Recent Accounting Pronouncements
  " 
  64




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##### Table of Contents



2. Concentrations
 Credit Risk
   65




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##### Table of Contents



Significant Customer
  Year Ended December 31,2008
    
    2007
    
    2006Amount of total revenues
    
    $
    36,857
    
    
    $
    41,655
    
    
    $
    46,280As a percentage of total revenues
    
    
    21.0
    %
    
    
    23.9
    %
    
    
    25.7
    %
  International Data
  Year Ended December 31,2008
    
    2007
    
    2006Amount of total revenues
    
    $
    63,045
    
    
    $
    60,946
    
    
    $
    57,275As a percentage of total revenues
    
    
    35.8
    %
    
    
    35.0
    %
    
    
    31.8
    %
  Sources of Supply
   66




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##### Table of Contents



3. Selected Balance Sheet Data
 Accounts Receivable, Net
  December 31,
    
    
    December 31,2008
    
    
    2007Trade accounts receivable
    
    $
    34,765
    
    
    $
    33,019Allowance for doubtful accounts
    
    
    (764
    )
    
    
    (614
    )$
    34,001
    
    
    $
    32,405
  December 31,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2006Balance at beginning of year
    
    $
    614
    
    
    $
    1,174
    
    
    $
    854Charged to cost and expenses
    
    
    300
    
    
    
    300
    
    
    
    335Reversal of cost and expenses
    
    
    
    
    
    
    (60
    )
    
    
    Deductions
    
    
    (150
    )
    
    
    (800
    )
    
    
    (15
    )Balance at end of year
    
    $
    764
    
    
    $
    614
    
    
    $
    1,174
 Investments in Marketable Securities
  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
  67




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##### Table of Contents



Amortized
    
    
    FairCost
    
    
    ValueAvailable-for-sale  short-term:Auction rate securities
    
    $
    2,001
    
    
    $
    2,001Held-to-maturity  maturities of less than one year:Government agency debt securities
    
    
    2,998
    
    
    
    2,9844,999
    
    
    
    4,985Available-for-sale  long-term:Auction rate securities
    
    
    14,345
    
    
    
    14,345Held-to-maturity  maturities of one to five years:Government agency debt securities
    
    
    25,058
    
    
    
    25,220Corporate debt securities
    
    
    15,206
    
    
    
    15,23454,609
    
    
    
    54,799$
    59,608
    
    
    $
    59,784
 68




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##### Table of Contents



Inventories
  December 31,
    
    
    December 31,2008
    
    
    2007Raw materials
    
    $
    1,987
    
    
    $
    2,276Work in process
    
    
    4,932
    
    
    
    6,680Finished goods
    
    
    8,047
    
    
    
    3,775$
    14,966
    
    
    $
    12,731
 Property and Equipment, Net
  December 31,
    
    
    December 31,Useful Life
    
    
    2008
    
    
    2007(in years)Computer equipment
    
    3
    
    
    $
    8,580
    
    
    $
    7,701Computer software
    
    3-5
    
    
    
    8,601
    
    
    
    7,652Demonstration equipment
    
    2
    
    
    
    12,592
    
    
    
    13,196Development equipment
    
    5
    
    
    
    15,466
    
    
    
    13,404Furniture and other equipment
    
    5
    
    
    
    15,216
    
    
    
    14,271Leasehold improvements
    
    5-10
    
    
    
    4,255
    
    
    
    3,55664,710
    
    
    
    59,780Accumulated depreciation
    
    
    
    
    
    
    (46,204
    )
    
    
    (38,347
    )$
    18,506
    
    
    $
    21,433
 Accrued Expenses
  December 31,
    
    
    December 31,2008
    
    
    2007Accrued vacation
    
    $
    3,797
    
    
    $
    2,981Accrued payroll
    
    
    2,682
    
    
    
    4,216Accrued bonuses
    
    
    2,509
    
    
    
    2,319Due to third parties for technology and certain assets
    
    
    1,796
    
    
    
    2,377Accrued commissions
    
    
    1,524
    
    
    
    1,566Accrued legal and professional fees
    
    
    1,251
    
    
    
    1,033Accrued warranty
    
    
    933
    
    
    
    577Employee stock purchase plan payroll deductions
    
    
    687
    
    
    
    545Accrued travel
    
    
    479
    
    
    
    642Sales tax payable
    
    
    444
    
    
    
    221Accrued property taxes
    
    
    367
    
    
    
    339Other
    
    
    2,354
    
    
    
    2,624$
    18,823
    
    
    $
    19,440
 69




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##### Table of Contents



4. 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.
  Quoted Prices inFair Value
    
    
    Active Markets
    
    
    Significant Other
    
    
    SignificantDecember 31,
    
    
    for Identical
    
    
    Observable
    
    
    Unobservable2008
    
    
    Assets (Level 1)
    
    
    Inputs (Level 2)
    
    
    Inputs (Level 3)Cash equivalents:U.S. Treasury-based money market funds
    
    $
    185,858
    
    
    $
    185,858
    
    
    $
    
    
    
    $
    Short-term investments:Corporate debt securities(1)
    
    
    9,850
    
    
    
    
    
    
    
    9,850
    
    
    
    Long-term investments:Corporate debt securities(1)
    
    
    446
    
    
    
    
    
    
    
    446
    
    
    
    Auction rate securities (2)
    
    
    3,211
    
    
    
    
    
    
    
    
    
    
    
    3,211Total financial assets
    
    $
    199,365
    
    
    $
    185,858
    
    
    $
    10,296
    
    
    $
    3,211
 
 (1)
    
    To estimate the fair value of our corporate debt securities, we use the average of
three indications of value, consisting of the estimated fair value per our investment
brokerage/custodial statement and two non-binding market quotes.(2)
    
    Given the disruption in the auction process described in Note 3, there is no longer
an actively quoted market price for these securities. Accordingly, we utilized a model to
estimate the fair value 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 rates considered to reflect current market
conditions; (iii) consideration of the probabilities of default, auction failure, or
repurchase at par for each period; and (iv) estimates of the recovery rates in the event
of default for each security. These estimated fair values could change significantly
based on future market conditions. 70




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Investments inMarketableSecurities(Non-current)Balance at December 31, 2007
    
    $
    14,345Realized loss included in earnings
    
    
    (11,134
    )Balance at December 31, 2008
    
    $
    3,211Additional loss included in earnings due to
reclassification from other comprehensive
income for securities still held at December
31, 2008
    
    $
    (4,655
    )
  5. Acquisitions
  Acquisition of Test Business from Dilithium Networks
   Intangible assets
    
    $
    2,430Goodwill
    
    
    3,260Total assets acquired
    
    
    5,690Current liabilities assumed
    
    
    (477
    )Net assets acquired
    
    $
    5,213
 71




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##### Table of Contents



Acquisition of Certain Assets from Bell Canada
  6. Goodwill and Other Intangible Assets
  AccumulatedGross
    
    
    Amortization
    
    
    NetGoodwill
    
    $
    16,728
    
    
    $
    
    
    
    $
    16,728Other intangible assets:Technology
    
    $
    35,633
    
    
    $
    (26,341
    )
    
    $
    9,292Non-compete
    
    
    937
    
    
    
    (937
    )
    
    
    Trademark
    
    
    676
    
    
    
    (526
    )
    
    
    150Workforce
    
    
    395
    
    
    
    (395
    )
    
    
    Customer relationships
    
    
    1,511
    
    
    
    (1,511
    )
    
    
    Other
    
    
    3,072
    
    
    
    (1,922
    )
    
    
    1,150$
    42,224
    
    
    $
    (31,632
    )
    
    $
    10,592
  AccumulatedGross
    
    
    Amortization
    
    
    NetGoodwill
    
    $
    16,728
    
    
    $
    
    
    
    $
    16,728Other intangible assets:Technology
    
    $
    34,094
    
    
    $
    (21,021
    )
    
    $
    13,073Non-compete
    
    
    937
    
    
    
    (929
    )
    
    
    8Trademark
    
    
    676
    
    
    
    (426
    )
    
    
    250Workforce
    
    
    395
    
    
    
    (395
    )
    
    
    Customer relationships
    
    
    1,511
    
    
    
    (1,498
    )
    
    
    13Other
    
    
    2,502
    
    
    
    (1,699
    )
    
    
    803$
    40,115
    
    
    $
    (25,968
    )
    
    $
    14,147
  72




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2009
    
    $
    5,1852010
    
    
    3,4732011
    
    
    1,0902012
    
    
    4502013
    
    
    194Thereafter
    
    
    200$
    10,592
 7. Income Taxes
  Year Ended December 31,2008
    
    
    2007
    
    
    2006U.S.
    
    $
    (19,992
    )
    
    $
    5,761
    
    
    $
    24,673Foreign
    
    
    4,118
    
    
    
    3,364
    
    
    
    30$
    (15,874
    )
    
    $
    9,125
    
    
    $
    24,703
  Year Ended December 31,2008
    
    
    2007
    
    
    2006Current:Federal
    
    $
    856
    
    
    $
    3,123
    
    
    $
    4,672State
    
    
    594
    
    
    
    (268
    )
    
    
    503Foreign
    
    
    1,025
    
    
    
    741
    
    
    
    309Deferred:Federal
    
    
    (1,171
    )
    
    
    (543
    )
    
    
    4,785State
    
    
    (1,418
    )
    
    
    (1,483
    )
    
    
    1,212Foreign
    
    
    135
    
    
    
    549
    
    
    
    (259
    )Income tax expense
    
    $
    21
    
    
    $
    2,119
    
    
    $
    11,222
 73




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##### Table of Contents



Year Ended December 31,2008
    
    
    2007
    
    
    2006Federal statutory expense
    
    $
    (5,556
    )
    
    $
    3,194
    
    
    $
    8,646State taxes, net of federal benefit
    
    
    (536
    )
    
    
    (1,138
    )
    
    
    1,242Research and development credits
    
    
    (813
    )
    
    
    (625
    )
    
    
    (969
    )Stock-based compensation
    
    
    543
    
    
    
    809
    
    
    
    2,644Domestic production activities
deduction
    
    
    (138
    )
    
    
    (276
    )
    
    
    (249
    )Foreign tax rate differential
    
    
    (282
    )
    
    
    113
    
    
    
    41Other
    
    
    (282
    )
    
    
    42
    
    
    
    (133
    )Valuation allowance
    
    
    7,085
    
    
    
    
    
    
    
    Income tax expense
    
    $
    21
    
    
    $
    2,119
    
    
    $
    11,222Net effective income tax rate
    
    
    (0.1
    )%
    
    
    23.2
    %
    
    
    45.4
    %
  December 31,
    
    
    December 31,2008
    
    
    2007Deferred tax assets:Allowance for doubtful accounts
    
    $
    297
    
    
    $
    239Research and development credit carryforward
    
    
    5,380
    
    
    
    4,999Deferred revenue
    
    
    4,168
    
    
    
    4,500Stock-based compensation
    
    
    6,385
    
    
    
    5,074Inventory adjustments
    
    
    1,876
    
    
    
    1,790Net operating loss carryforward
    
    
    445
    
    
    
    509Unrealized loss on investments
    
    
    8,004
    
    
    
    1,811Accrued liabilities and other
    
    
    2,713
    
    
    
    1,87329,268
    
    
    
    20,795Valuation allowance
    
    
    (8,072
    )
    
    
    21,196
    
    
    
    20,795Deferred tax liabilities:Depreciation and amortization
    
    
    (1,396
    )
    
    
    (1,639
    )Net deferred tax assets
    
    $
    19,800
    
    
    $
    19,156
   74




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##### Table of Contents



Unrecognized Tax Benefits  December 31, 2007
    
    $
    4,367Gross increases  Tax positions taken in prior period
    
    
    18Gross decreases  Tax positions taken in prior period
    
    
    (13
    )Gross increases  Tax positions taken in current period
    
    
    617Lapse of statute of limitations
    
    
    (669
    )Unrecognized Tax Benefits  December 31, 2008
    
    $
    4,320
  8. Commitments and Contingencies
  Year EndingDecember 31,2009
    
    $
    5,6662010
    
    
    5,1062011
    
    
    4,1072012
    
    
    3,7242013
    
    
    1,686Thereafter
    
    
    441$
    20,730
 75




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##### Table of Contents



Litigation
 Ixia v. Charles Bettinelli and IneoQuest Technologies, Inc.
  IneoQuest Technologies, Inc. vs. Ixia.
   Indemnifications
  76




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##### Table of Contents



9. Shareholders Equity
 Stock Award Plans
     77




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##### Table of Contents



WeightedWeighted
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateNumber
    
    
    Exercise Price
    
    
    Contractual
    
    
    Intrinsicof Options
    
    
    Per Share
    
    
    Life (in years)
    
    
    ValueOutstanding as of December 31, 2007
    
    
    9,905
    
    
    $
    10.67Granted
    
    
    4,332
    
    
    
    8.11Exercised
    
    
    (399
    )
    
    
    3.86Forfeited/canceled
    
    
    (5,395
    )
    
    
    12.82Outstanding as of December 31, 2008
    
    
    8,443
    
    
    $
    8.30
    
    
    
    3.94
    
    
    $
    2,889Exercisable as of December 31, 2008
    
    
    3,450
    
    
    $
    8.07
    
    
    
    2.46
    
    
    $
    2,881
   WeightedAverage GrantNumber
    
    
    Date Fair Valueof Awards
    
    
    Per ShareOutstanding as of December 31, 2007
    
    
    673
    
    
    $
    9.40Awarded
    
    
    1,090
    
    
    
    5.94Released
    
    
    (227
    )
    
    
    9.35Forfeited/canceled
    
    
    (61
    )
    
    
    9.28Outstanding as of December 31, 2008
    
    
    1,475
    
    
    $
    6.77
  Employee Stock Purchase Plan
    78




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##### Table of Contents



Stock-Based Compensation Expense
  Year Ended December 31,2008
    
    2007
    
    2006Expected lives (in years)
    
    
    4.0
    
    
    
    4.5
    
    
    
    4.1Risk-free interest rates
    
    
    2.4
    %
    
    
    4.4
    %
    
    
    4.8
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Expected volatility
    
    
    48.2
    %
    
    
    52.4
    %
    
    
    61.0
    %
 Warrants
  Stock Buyback Programs
  Option Exchange Program
  10. Retirement Plan
  79




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11. Earnings Per Share
  Year Ended December 31,2008
    
    
    2007
    
    
    2006Basic PresentationNumerator:Net (loss) income
    
    $
    (15,895
    )
    
    $
    7,006
    
    
    $
    13,481Denominator:Weighted average common shares
    
    
    65,087
    
    
    
    67,936
    
    
    
    67,005Basic (loss) earnings per share
    
    $
    (0.24
    )
    
    $
    0.10
    
    
    $
    0.20Diluted presentationDenominator:Shares used to calculate basic
    
    
    65,087
    
    
    
    67,936
    
    
    
    67,005Weighted
average effect of stock options and other
share-based awards
    
    
    
    
    
    
    1,450
    
    
    
    1,787Denominator for diluted computation
    
    
    65,087
    
    
    
    69,386
    
    
    
    68,792Diluted (loss) earnings per share
    
    $
    (0.24
    )
    
    $
    0.10
    
    
    $
    0.20
  12. Quarterly Financial Summary (Unaudited)
 Three Months EndedDec. 31
    
    Sep. 30
    
    Jun. 30
    
    Mar. 31
    
    Dec. 31
    
    Sep. 30
    
    Jun. 30
    
    Mar. 312008(1)
    
    2008 (1)
    
    2008
    
    2008
    
    2007
    
    2007
    
    2007(2)
    
    2007(in thousands, except per share data)Statement of Income Data:Total revenues
    
    $
    40,972
    
    
    $
    47,324
    
    
    $
    45,920
    
    
    $
    41,651
    
    
    $
    46,385
    
    
    $
    44,034
    
    
    $
    42,999
    
    
    $
    40,703Total cost of revenues
    
    
    9,958
    
    
    
    10,238
    
    
    
    11,012
    
    
    
    10,456
    
    
    
    10,132
    
    
    
    10,608
    
    
    
    10,722
    
    
    
    10,328Gross profit
    
    
    31,014
    
    
    
    37,086
    
    
    
    34,908
    
    
    
    31,195
    
    
    
    36,253
    
    
    
    33,426
    
    
    
    32,277
    
    
    
    30,375(Loss) income before
income taxes
    
    
    (19,164
    )
    
    
    509
    
    
    
    2,762
    
    
    
    19
    
    
    
    5,526
    
    
    
    2,994
    
    
    
    1,057
    
    
    
    (452
    )Net (loss) income
    
    
    (18,265
    )
    
    
    483
    
    
    
    1,781
    
    
    
    106
    
    
    
    4,439
    
    
    
    1,926
    
    
    
    1,400
    
    
    
    (759
    )(Loss) earnings per share:Basic
    
    $
    (0.29
    )
    
    $
    0.01
    
    
    $
    0.03
    
    
    $
    0.00
    
    
    $
    0.07
    
    
    $
    0.03
    
    
    $
    0.02
    
    
    $
    (0.01
    )Diluted
    
    $
    (0.29
    )
    
    $
    0.01
    
    
    $
    0.03
    
    
    $
    0.00
    
    
    $
    0.06
    
    
    $
    0.03
    
    
    $
    0.02
    
    
    $
    (0.01
    )
 
 (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 3 for additional information.(2)
    
    In the second quarter of 2007, we recorded an impairment charge of $3.3 million, which consists of the impairment of purchased technology of $1.5 million and the
impairment of certain intangible assets of $1.8 million related to the acquisitions of Communication Machinery Corporation in July 2005 and the mobile video test product line
from Dilithium Networks in January 2006. See Note 6 for additional information. 80




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EXHIBIT INDEX
 Exhibit No.
    
    Description10.12
    
    Compensation of Named Executive Officers and Chief Executive Officer for 200821.1
    
    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
 81