Attached files
file | filename |
---|---|
EX-31.2 - EX-31.2 - IXIA | v56944exv31w2.htm |
EX-31.1 - EX-31.1 - IXIA | v56944exv31w1.htm |
EX-32.1 - EX-32.1 - IXIA | v56944exv32w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2010
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 000-31523
IXIA
(Exact name of Registrant as specified in its charter)
California (State or other jurisdiction of incorporation or organization) |
95-4635982 (I.R.S. Employer Identification No.) |
26601 West Agoura Road, Calabasas, CA 91302
(Address of principal executive offices, including zip code)
(Address of principal executive offices, including zip code)
(818) 871-1800 (Registrants telephone number, including area code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files). Yes o
No o
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large
accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date.
Common Stock (Class of Common Stock) |
65,298,962 (Outstanding at July 26, 2010) |
Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited)
IXIA
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 28,246 | $ | 15,061 | ||||
Short-term investments in marketable securities |
42,191 | 10,337 | ||||||
Accounts receivable, net of allowance for
doubtful accounts of $934 and $654 as of June
30, 2010 and December 31, 2009, respectively |
67,621 | 55,765 | ||||||
Inventories |
17,744 | 14,541 | ||||||
Prepaid expenses and other current assets |
8,716 | 9,727 | ||||||
Total current assets |
164,518 | 105,431 | ||||||
Investments in marketable securities |
32,474 | 53,582 | ||||||
Property and equipment, net |
19,886 | 18,693 | ||||||
Intangible assets, net |
59,930 | 69,132 | ||||||
Goodwill |
60,121 | 60,121 | ||||||
Other assets |
1,595 | 2,129 | ||||||
Total assets |
$ | 338,524 | $ | 309,088 | ||||
Liabilities and Shareholders Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 12,144 | $ | 6,136 | ||||
Accrued expenses |
26,586 | 21,253 | ||||||
Deferred revenues |
33,516 | 29,842 | ||||||
Income taxes payable |
312 | 1,263 | ||||||
Total current liabilities |
72,558 | 58,494 | ||||||
Deferred revenues |
7,142 | 7,309 | ||||||
Other liabilities |
6,748 | 6,620 | ||||||
Total liabilities |
86,448 | 72,423 | ||||||
Shareholders equity: |
||||||||
Common stock, without par value; 200,000
shares authorized, 64,981 and 63,062 shares
issued and outstanding as of June 30, 2010 and
December 31, 2009, respectively |
96,254 | 87,283 | ||||||
Additional paid-in capital |
124,579 | 118,754 | ||||||
Retained earnings |
29,487 | 28,979 | ||||||
Accumulated other comprehensive income |
1,756 | 1,649 | ||||||
Total shareholders equity |
252,076 | 236,665 | ||||||
Total liabilities and shareholders equity |
$ | 338,524 | $ | 309,088 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Table of Contents
IXIA
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues: |
||||||||||||||||
Products |
$ | 54,925 | $ | 30,441 | $ | 105,594 | $ | 60,522 | ||||||||
Services |
11,179 | 7,964 | 22,551 | 15,007 | ||||||||||||
Total revenues |
66,104 | 38,405 | 128,145 | 75,529 | ||||||||||||
Costs and operating expenses:(1) |
||||||||||||||||
Cost of revenues products |
13,773 | 7,944 | 25,218 | 15,510 | ||||||||||||
Cost of revenues services |
1,518 | 801 | 3,026 | 1,744 | ||||||||||||
Research and development |
17,882 | 11,443 | 36,521 | 23,309 | ||||||||||||
Sales and marketing |
19,160 | 13,358 | 38,321 | 27,757 | ||||||||||||
General and administrative |
8,357 | 6,514 | 17,224 | 12,738 | ||||||||||||
Amortization of intangible assets |
5,086 | 1,386 | 10,144 | 2,711 | ||||||||||||
Acquisition and other related |
1,556 | 2,522 | 2,679 | 2,522 | ||||||||||||
Restructuring |
67 | 1,011 | 3,557 | 1,011 | ||||||||||||
Total costs and operating expenses |
67,399 | 44,979 | 136,690 | 87,302 | ||||||||||||
Loss from operations |
(1,295 | ) | (6,574 | ) | (8,545 | ) | (11,773 | ) | ||||||||
Interest and other income, net |
309 | 668 | 9,096 | 1,229 | ||||||||||||
Other-than-temporary impairment on investments |
| | | 1,405 | ||||||||||||
(Loss) income before income taxes |
(986 | ) | (5,906 | ) | 551 | (11,949 | ) | |||||||||
Income tax (benefit) expense |
(625 | ) | (3,252 | ) | 43 | (5,304 | ) | |||||||||
Net (loss) income |
$ | (361 | ) | $ | (2,654 | ) | $ | 508 | $ | (6,645 | ) | |||||
(Loss) earnings per share: |
||||||||||||||||
Basic |
$ | (0.01 | ) | $ | (0.04 | ) | $ | 0.01 | $ | (0.11 | ) | |||||
Diluted |
$ | (0.01 | ) | $ | (0.04 | ) | $ | 0.01 | $ | (0.11 | ) | |||||
Weighted average number of common and common
equivalent shares outstanding: |
||||||||||||||||
Basic |
64,603 | 62,349 | 64,052 | 62,699 | ||||||||||||
Diluted |
64,603 | 62,349 | 65,628 | 62,699 |
(1) | Stock-based compensation included in: |
Cost of revenues products |
$ | 133 | $ | 93 | $ | 256 | $ | 263 | ||||||||
Cost of revenues services |
50 | 36 | 96 | 100 | ||||||||||||
Research and development |
1,356 | 1,042 | 2,557 | 2,663 | ||||||||||||
Sales and marketing |
896 | 797 | 1,731 | 2,061 | ||||||||||||
General and administrative |
961 | 644 | 1,552 | 1,360 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Table of Contents
IXIA
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Six months ended | ||||||||
June 30, | ||||||||
2010 | 2009 | |||||||
Cash flows from operating activities: |
||||||||
Net income (loss) |
$ | 508 | $ | (6,645 | ) | |||
Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |
||||||||
Depreciation and amortization |
5,501 | 5,114 | ||||||
Amortization of intangible assets |
10,144 | 2,711 | ||||||
Stock-based compensation |
6,192 | 6,447 | ||||||
Deferred income taxes |
| (6,444 | ) | |||||
Impairment on investments |
| 1,405 | ||||||
Tax (shortfall) benefit from stock option transactions |
(367 | ) | 61 | |||||
Excess tax benefits from stock-based compensation |
(410 | ) | (53 | ) | ||||
Changes in operating assets and liabilities, net of
effect of acquisitions: |
||||||||
Accounts receivable, net |
(11,856 | ) | 6,167 | |||||
Inventories |
(3,203 | ) | 496 | |||||
Prepaid expenses and other current assets |
1,011 | 563 | ||||||
Other assets |
534 | 1,436 | ||||||
Accounts payable |
5,608 | (1,391 | ) | |||||
Accrued expenses |
5,508 | (6,581 | ) | |||||
Deferred revenues |
3,507 | (72 | ) | |||||
Income taxes payable and other liabilities |
(794 | ) | 72 | |||||
Net cash provided by operating activities |
21,883 | 3,286 | ||||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(6,543 | ) | (4,611 | ) | ||||
Purchases of available-for-sale securities |
(41,582 | ) | (211,260 | ) | ||||
Proceeds from available-for-sale securities |
30,763 | 133,988 | ||||||
Purchases of other intangible assets |
(192 | ) | (156 | ) | ||||
Payments in
connection with acquisitions, net of cash acquired |
(525 | ) | (76,360 | ) | ||||
Net cash used in investing activities |
(18,079 | ) | (158,399 | ) | ||||
Cash flows from financing activities: |
||||||||
Proceeds from exercise of stock options and employee stock
purchase plan options |
8,971 | 1,626 | ||||||
Repurchase of common stock |
| (8,424 | ) | |||||
Excess tax benefits from stock-based compensation |
410 | 53 | ||||||
Net cash provided by (used in) financing activities |
9,381 | (6,745 | ) | |||||
Net increase
(decrease) in cash and cash equivalents |
13,185 | (161,858 | ) | |||||
Cash and cash equivalents at beginning of period |
15,061 | 192,791 | ||||||
Cash and cash equivalents at end of period |
$ | 28,246 | $ | 30,933 | ||||
The accompanying notes are an integral part of these condensed consolidated financial
statements.
5
Table of Contents
IXIA
Notes to Condensed Consolidated Financial Statements
(unaudited)
(unaudited)
1. Business
We were incorporated on May 27, 1997 as a California corporation. We are a leading provider
of converged test systems and services for wireless and wired infrastructures and services. Our
hardware and software allow our customers to test and measure the performance, functionality,
service quality and conformance of wireless and wired Internet Protocol (IP) equipment and
networks, and the applications that run over them. Our solutions generate, capture, characterize
and analyze high volumes of realistic network and application traffic, identifying problems,
assessing performance, ensuring functionality and interoperability, and verifying conformance to
industry specifications. We offer hardware platforms with interchangeable media interfaces,
utilizing a common set of applications, Application Programming Interfaces (APIs) and automation
tools that allow our customers to create integrated, easy-to-use automated test environments. The
networks that our systems analyze primarily include Ethernet networks operating at speeds of up to
100 gigabits per second and wireless networks that carry data traffic over optical fiber,
electrical cable and airwaves. We also offer hardware platforms and equipment that test wireless
equipment, especially those associated with 3G (third generation), 4G (fourth generation) and
Long-Term Evolution (LTE) networks.
2. Basis of Presentation
The accompanying condensed consolidated financial statements as of June 30, 2010 and for the
three and six months ended June 30, 2010 and 2009, are unaudited and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of our financial position, operating results and cash flows for the
interim periods presented. The results of operations for the current interim periods presented are
not necessarily indicative of results to be expected for the full year ending December 31, 2010 or
any other future period.
These condensed consolidated financial statements have been prepared in accordance with the
rules and regulations of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance with U.S. generally
accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and
regulations. The condensed consolidated balance sheet as of December 31, 2009 has been derived
from our audited financial statements included in the Annual Report on Form 10-K for the year ended
December 31, 2009. These condensed consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and related notes included in our Annual Report
on Form 10-K for the year ended December 31, 2009.
3. Acquisitions
We acquired Catapult Communications Corporation (Catapult) on June 23, 2009 and Agilent
Technologies, Inc.s N2X Data Network Testing Product Line business (N2X) on October 30, 2009 and
have included the results of these acquisitions in our consolidated results of operations since the
acquisition dates.
The following table summarizes the three and six months ended June 30, 2009 pro forma total
revenues and net loss of the combined entities had the acquisitions of Catapult and N2X occurred on
January 1, 2009 (in thousands):
Three Months | Six Months | |||||||
Ended June 30, | Ended June 30, | |||||||
2009 | 2009 | |||||||
(Pro forma) | (Pro forma) | |||||||
Total revenues |
$ | 53,880 | $ | 112,682 | ||||
Net loss |
(17,730 | ) | (26,445 | ) |
6
Table of Contents
The combined results in the table above have been prepared for comparative purposes only and
include acquisition related adjustments for, among others items, amortization of identifiable
intangible assets and reductions in revenues related to the estimated fair value adjustment to
deferred revenues. The combined results do not purport to be indicative of the results of
operations which would have resulted had the acquisition been effective at the beginning of the
applicable period noted above, or the future results of operations of the combined entity.
4. Restructuring Costs
During the first quarter of 2010, our management approved, committed to and initiated a plan
to restructure our operations in light of our acquisition of N2X (the N2X Restructuring). The
N2X Restructuring included a net reduction in force of approximately 80 positions, which
represented approximately 7% of our worldwide work force, including contractors, at the beginning
of the first quarter of 2010. The restructuring was substantially completed during the first
quarter of 2010.
During the third quarter of 2009, our management approved, committed to and initiated a plan
to restructure our operations in light of our acquisition of Catapult (the Catapult
Restructuring). The Catapult Restructuring included a net reduction in force of approximately 45
positions, which represented approximately 4% of our worldwide work force, including contractors,
at the beginning of the third quarter of 2009. The restructuring was substantially completed
during the fourth quarter of 2009.
During the second quarter of 2009 and prior to the acquisition of Catapult, our management
approved, committed to and initiated a plan to restructure our operations (the Ixia
Restructuring). The Ixia Restructuring included a net reduction in force of approximately 80
positions, which represented approximately 10% of our worldwide work force, including contractors,
prior to the June 2009 announcement of the restructuring. The restructuring was substantially
completed during the third quarter of 2009.
Activity related to our restructuring plans is as follows (in thousands):
N2X | Catapult | Ixia | ||||||||||||||
Total | Restructuring | Restructuring | Restructuring | |||||||||||||
Accrual at January 1, 2010 |
$ | 879 | $ | | $ | 837 | $ | 42 | ||||||||
Charges |
3,490 | 3,479 | 11 | | ||||||||||||
Payments |
(1,896 | ) | (1,209 | ) | (655 | ) | (32 | ) | ||||||||
Accrual at March 31, 2010 |
$ | 2,473 | $ | 2,270 | $ | 193 | $ | 10 | ||||||||
Charges |
140 | 132 | 8 | | ||||||||||||
Payments |
(2,263 | ) | (2,201 | ) | (62 | ) | | |||||||||
Adjustments |
(73 | ) | | (63 | ) | (10 | ) | |||||||||
Accrual at June 30, 2010 |
$ | 276 | $ | 201 | $ | 75 | $ | | ||||||||
5. Inventories
Inventories consist of the following (in thousands):
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Raw materials |
$ | 5,423 | $ | 3,674 | ||||
Work in process |
4,507 | 4,731 | ||||||
Finished goods |
7,814 | 6,136 | ||||||
$ | 17,744 | $ | 14,541 | |||||
7
Table of Contents
6. Shareholders Equity
Other Comprehensive (Loss) Income
For the three month periods ended June 30, 2010 and 2009, comprehensive loss was $552,000 and
$1.1 million, respectively. Comprehensive income (loss) for the six month periods ended June 30,
2010 and 2009, was $616,000 and $(5.1) million, respectively. In addition to net (loss) income in
2010 and 2009, the other components of comprehensive (loss) income, net of tax, were changes in
unrealized gain or loss on our investments and foreign currency translation adjustments.
Employee Stock Purchase Plan
During the second quarter of 2010, our shareholders approved the 2010 Employee Stock Purchase
Plan (the 2010 Purchase Plan), which permits eligible employees to purchase Common Stock at a
discounted price, subject to limitations as set forth in the 2010 Purchase Plan. The 2010 Purchase
Plan will replace the existing 2000 Employee Stock Purchase Plan (the 2000 Purchase Plan) upon
its expiration in September 2010 (i.e., no new offering periods will be offered under the 2000
Purchase Plan, although the open offering periods prior to the September 2000 expiration will
continue until the applicable two-year offering periods end). The last offering period under the
2000 Purchase Plan commenced on May 1, 2010 and will end on April 30, 2012. We have reserved a
total of 500,000 shares of Common Stock for issuance under the 2010 Purchase Plan, together with
the potential for an annual increase in the number of shares reserved under the 2010 Purchase Plan
on May 1 of each year. The 2010 Purchase Plan is implemented in a series of consecutive,
overlapping 24-month offering periods, with each offering period consisting of four six-month
purchase periods. Offering periods begin on the first trading day on or after May 1 and November 1
of each year. The first 24-month offering period under the 2010 Purchase Plan is scheduled to
begin on November 1, 2010 and to end on October 31, 2012. The 2010 Purchase Plan will terminate in
March 2020, unless it is earlier terminated by the Board of Directors.
7. (Loss) Earnings Per Share
Basic (loss) earnings per share is based on the weighted average number of common shares
outstanding during the period. Diluted (loss) earnings per share is based on the weighted average
number of common shares and dilutive potential common shares outstanding during the period.
The following table sets forth the computation of basic and diluted (loss) earnings per share
for the three and six months ended June 30, 2010 and 2009 (in thousands, except per share data):
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Numerator: |
||||||||||||||||
Net (loss) income |
$ | (361 | ) | $ | (2,654 | ) | $ | 508 | $ | (6,645 | ) | |||||
Denominator: |
||||||||||||||||
Basic presentation: |
||||||||||||||||
Weighted average common shares |
64,603 | 62,349 | 64,052 | 62,699 | ||||||||||||
Denominator for basic calculation |
64,603 | 62,349 | 64,052 | 62,699 | ||||||||||||
Diluted presentation: |
||||||||||||||||
Shares used above |
64,603 | 62,349 | 64,052 | 62,699 | ||||||||||||
Weighted average effect of
dilutive stock options and other
share-based awards |
| | 1,576 | | ||||||||||||
Denominator for diluted calculation |
64,603 | 62,349 | 65,628 | 62,699 | ||||||||||||
Basic (loss) earnings per share |
$ | (0.01 | ) | $ | (0.04 | ) | $ | 0.01 | $ | (0.11 | ) | |||||
Diluted (loss) earnings per share |
$ | (0.01 | ) | $ | (0.04 | ) | $ | 0.01 | $ | (0.11 | ) | |||||
8
Table of Contents
Due to our net loss position for the three months ended June 30, 2010 and 2009 and for
the six months ended June 30, 2009, the diluted earnings per share computations exclude weighted
employee stock options and other share-based awards of 11.9 million, 10.2 million, and 10.2 million
shares, respectively, which were antidilutive. The diluted earnings per share computation for the
six months ended June 30, 2010 excludes weighted employee stock options and other share-based
awards of 3.4 million shares as the inclusion of these shares in the calculation would have been
antidilutive.
8. Concentrations
Significant Customer
For the three and six months ended June 30, 2010 and 2009, only one customer accounted for
more than 10% of total revenues as follows (in thousands, except percentages):
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Amount of total revenues |
$ | 9,437 | $ | 7,134 | $ | 21,453 | $ | 13,984 | ||||||||
As a percentage of total revenues |
14.3 | % | 18.6 | % | 16.7 | % | 18.5 | % |
As of June 30, 2010 and December 31, 2009, we had receivable balances from this customer
approximating 17.6% and 14.2%, respectively, of total accounts receivable. As of June 30, 2010, we
had a receivable balance from a second significant customer that approximated 10.3% of total
accounts receivable, compared to approximately 4.0% of total accounts receivable as of December 31,
2009.
International Data
For the three and six months ended June 30, 2010 and 2009, total revenues from international
product shipments consisted of the following (in thousands, except percentages):
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Amount of total international revenues |
$ | 26,403 | $ | 13,477 | $ | 59,841 | $ | 30,205 | ||||||||
As a percentage of total revenues |
39.9 | % | 35.1 | % | 46.7 | % | 40.0 | % |
As of June 30, 2010 and December 31, 2009, our property and equipment were geographically
located as follows (in thousands):
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
United States |
$ | 11,527 | $ | 10,874 | ||||
India |
2,208 | 2,506 | ||||||
Romania |
2,167 | 2,647 | ||||||
Other |
3,984 | 2,666 | ||||||
$ | 19,886 | $ | 18,693 | |||||
9
Table of Contents
9. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer
a liability in the principal or most advantageous market for an asset or liability in an orderly
transaction between market participants at the measurement date. The hierarchy below lists three
levels of fair value based on the extent to which inputs used in measuring fair value are
observable in the market, and requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs. We categorize each of our fair value measurements in one
of these three levels based on the lowest level input that is significant to the fair value
measurement in its entirety. These levels are:
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; and | |||
Level 3. | Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. |
Financial assets carried at fair value as of June 30, 2010 and December 31, 2009 are
classified in the table below in one of the three categories described above (in thousands):
June 30, 2010 | December 31, 2009 | |||||||||||||||||||||||||||||||
Quoted | ||||||||||||||||||||||||||||||||
Quoted Prices | Prices in | |||||||||||||||||||||||||||||||
in Active | Significant | Active | Significant | |||||||||||||||||||||||||||||
Markets for | Other | Significant | Markets for | Other | Significant | |||||||||||||||||||||||||||
Identical | Observable | Unobservable | Identical | Observable | Unobservable | |||||||||||||||||||||||||||
Assets | Inputs | Inputs | Assets | Inputs | Inputs | |||||||||||||||||||||||||||
Fair Value | (Level 1) | (Level 2) | (Level 3) | Fair Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||||||||||||
Cash equivalents:(1) |
||||||||||||||||||||||||||||||||
Money market funds |
$ | 943 | $ | 943 | $ | | $ | | $ | 241 | $ | 241 | $ | | $ | | ||||||||||||||||
Short-term investments:(1) |
||||||||||||||||||||||||||||||||
U.S.
Treasury, government and
agency debt securities |
35,164 | | 35,164 | | 5,713 | | 5,713 | | ||||||||||||||||||||||||
Corporate debt securities |
7,027 | | 7,027 | | 4,624 | | 4,624 | | ||||||||||||||||||||||||
Long-term investments: |
||||||||||||||||||||||||||||||||
U.S. Treasury, government and agency
debt securities |
12,565 | | 12,565 | | 34,673 | | 34,673 | | ||||||||||||||||||||||||
Corporate debt securities |
14,722 | | 14,722 | | 13,236 | | 13,236 | | ||||||||||||||||||||||||
Auction rate securities (2) |
5,187 | | | 5,187 | 5,673 | | | 5,673 | ||||||||||||||||||||||||
Total financial assets |
$ | 75,608 | $ | 943 | $ | 69,478 | $ | 5,187 | $ | 64,160 | $ | 241 | $ | 58,246 | $ | 5,673 | ||||||||||||||||
(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 in the auction rate securities market, 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 default on interest or principal payments by the issuer of the securities. |
10
Table of Contents
There were no transfers of assets between levels within the fair value hierarchy for the
six-month period ended June 30, 2010.
The following table summarizes the activity for the three and six months ended June 30, 2010
and 2009 for those financial assets (primarily our auction rate securities) where fair value
measurements are estimated utilizing Level 3 inputs (in thousands):
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Beginning balance |
$ | 5,819 | $ | 1,806 | $ | 5,673 | $ | 3,211 | ||||||||
Unrealized (loss) gain recorded in other comprehensive income |
(353 | ) | 1,462 | (92 | ) | 1,462 | ||||||||||
Unrealized loss recorded in earnings |
| | | (1,405 | ) | |||||||||||
Additions from Catapult acquisition |
| 4,366 | | 4,366 | ||||||||||||
Settlements |
(279 | ) | | (394 | ) | | ||||||||||
Ending balance |
$ | 5,187 | $ | 7,634 | $ | 5,187 | $ | 7,634 | ||||||||
Unrealized losses recorded in earnings for level 3 assets still held at June 30 |
$ | | $ | | $ | | $ | (1,405 | ) | |||||||
Auction Rate Securities Settlement
During the first quarter of 2010, we entered into an $8.9 million favorable legal settlement
with a former investment manager attributable to our purchase in prior periods of certain
investments in auction rate securities that have been substantially written down. We retained the
auction rate securities at issue, which have an aggregate par value of $19.0 million and a fair
value of $2.2 million as of June 30, 2010. The settlement proceeds were recorded to the Interest
and other income, net line item within our consolidated statement of operations.
10. Commitments and Contingencies
Litigation
IneoQuest Technologies, Inc. vs. Ixia. In November 2008, IneoQuest filed a complaint against
Ixia in the United States District Court for the Central District of California. The complaint
alleges that Ixia makes and sells products that infringe a patent owned by IneoQuest, and that Ixia
misappropriated IneoQuests trade secrets, in addition to numerous other related claims. The
patent at issue allegedly relates to a system and method for analyzing the performance of multiple
transportation streams of streaming media in packet-based networks. IneoQuest seeks a permanent
injunction enjoining Ixia from infringing the patent at issue and from using IneoQuests trade
secrets and confidential information, unspecified general and exemplary damages, and attorneys
fees and costs.
In January 2009, Ixia filed an answer and counterclaim to IneoQuests complaint denying
IneoQuests claims and raising several affirmative defenses. Ixia has also asserted a counterclaim
against IneoQuest seeking declaratory relief that Ixia has not infringed the IneoQuest patent and
that such patent is invalid. In April 2009, Ixia filed an amended answer and counterclaim to
IneoQuests complaint in which Ixia asserted that IneoQuest has infringed four patents owned by
Ixia. Although the Company cannot predict the outcome of this matter, Ixia believes that it has
strong defenses to IneoQuests claims and is defending the action vigorously. The parties
commenced discovery in this matter in the 2009 second quarter. The parties filed a Joint Claim
Construction brief on November 30, 2009. On July 27, 2010, the Court issued a claim construction
ruling relating to certain terms within the claims of IneoQuests patent and ordered the parties to
further brief claim construction issues related to Ixias four asserted patents. Fact discovery is
set to conclude 90 days after the issuance of the claim construction ruling. Expert discovery is
set to conclude 150 days after the issuance of the claim construction ruling. As yet, a trial date
has not been set.
11
Table of Contents
Tucana Telecom NV vs. Catapult. On May 22, 2007, the Antwerp Court of Appeal heard an appeal
by Tucana Telecom NV, a Belgian company, of the previous dismissal by the Antwerp Commercial Court
of an action by Tucana against Catapult. Tucana had sought damages of 10.4 million Euros
(approximately $12.7 million as of June 30, 2010) for the alleged improper termination in 2002 by
Catapult of Tucanas purported distribution agreement with Catapult. On June 19, 2007, the Antwerp
Court of Appeal confirmed the Commercial Courts dismissal of Tucanas action and assessed the
costs of the appeal against Tucana. On July 22, 2008, Catapult was notified by its Belgian counsel
that Tucana has appealed the judgment of the Antwerp Court of Appeal to the Belgian Supreme Court.
In a decision dated January 14, 2010, the Belgian Supreme Court set aside the decision of the
Antwerp Court of Appeal and remanded the matter for trial to the Ghent Court of Appeal. The matter
has not yet been set for trial.
In June 2010, Catapult filed a complaint against Tucana in the Superior Court of the State of
California, County of Los Angeles, seeking declaratory and injunctive relief and damages for breach
of the distribution agreement. Catapult seeks a declaration that the distribution agreement is a
valid and enforceable agreement, and that the distribution agreements mandatory forum selection
and choice of law provisions are enforceable and require that the litigation of any dispute
involving the agreement be brought in a court located in the County of Los Angeles. Catapult also
seeks an order permanently enjoining Tucana from prosecuting any claims arising out of Tucanas
distribution relationship with Catapult in any judicial forum outside the County of Los Angeles.
Tucana has not yet responded to the complaint. Catapult also seeks compensatory damages of not
less than $200,000 for damages suffered by Catapult arising out of Tucanas breach of the
distribution agreement.
Catapult believes that it properly terminated any contract it had with Tucana and that Tucana
is not entitled to any damages in this matter. Catapult has defended the action vigorously to date
and will continue to do so. Catapult may be able to seek indemnification from Tekelec for any
damages assessed against Catapult in this matter under the terms of the Asset Purchase Agreement
that Catapult entered into with Tekelec, although there is no assurance that such indemnification
would be available. On March 30, 2010, Tekelecs legal counsel in Belgium informed Catapults
Belgian counsel that its client is considering intervening voluntarily in the Ghent appeal
proceedings but that no final decision has been taken in this respect yet. It is not possible to
determine the amount of any loss that might be incurred in this matter.
We are not aware of any other pending legal proceedings than the matters mentioned above that,
individually or in the aggregate, would have a material adverse effect on our business, results of
operations or financial position. We may in the future be party to litigation arising in the
ordinary course of business, including claims that we allegedly infringe upon third party
trademarks or other intellectual property rights. Such claims, even if without merit, could result
in the expenditure of significant financial and managerial resources.
11. Recent Accounting Pronouncements
In October 2009, the Financial Accounting Standards Board (FASB) issued authoritative
guidance for the accounting of multiple-deliverable revenue arrangements, which establishes the
accounting and reporting guidance for arrangements including multiple revenue-generating
activities. This guidance provides amendments to the criteria for separating deliverables, and
measuring and allocating arrangement consideration to one or more units of accounting. The
amendments also establish a selling price hierarchy for determining the selling price of a
deliverable. Significantly enhanced disclosures are also required to provide information about a
vendors multiple-deliverable revenue arrangements, including information about the nature and
terms, significant deliverables, and its performance within arrangements. This guidance also
requires providing information about the significant judgments made and changes to those judgments
and about how the application of the relative selling-price method affects the timing or amount of
revenue recognition. This guidance is effective prospectively for revenue arrangements entered
into or materially modified in the fiscal years beginning on or after June 15, 2010 or on a
retrospective basis. Early application is permitted. We expect to adopt the new guidance on
January 1, 2011 and are currently evaluating the impact on our consolidated financial position,
results of operations and cash flows.
In October 2009, the FASB issued authoritative guidance for the accounting of certain revenue
arrangements that include software elements, which changes the accounting model for revenue
arrangements that include both tangible products and software elements that are essential to the
functionality, and scopes these
12
Table of Contents
products out of current software revenue guidance. The new
guidance includes factors to help companies determine the software elements that are considered essential to the functionality. The amendments
will now subject software-enabled products to other revenue guidance and disclosure requirements,
such as guidance surrounding revenue arrangements with multiple-deliverables. The amendments are
effective prospectively for revenue arrangements entered into or materially modified in the fiscal
years beginning on or after June 15, 2010 or on a retrospective basis. Early application is
permitted. We expect to adopt the new guidance on January 1, 2011 relating to new revenue
arrangements entered into or modified after that date, and are currently evaluating the impact on
our consolidated financial position, results of operations and cash flows.
In January 2010, the FASB issued authoritative guidance for the accounting of fair value
measurements and disclosures, which amends the disclosure requirements related to recurring and
nonrecurring fair value measurements. The guidance requires new disclosures on the transfers of
assets and liabilities between Level 1 (quoted prices in active market for identical assets or
liabilities) and Level 2 (significant other observable inputs) of the fair value measurement
hierarchy, including the reasons and the timing of the transfers. Additionally, the guidance
requires a roll forward of activities on purchases, sales, issuance, and settlements of the assets
and liabilities measured using significant unobservable inputs (Level 3 fair value measurements).
The guidance became effective for us with the reporting period beginning January 1, 2010, except
for the disclosure on the roll forward activities for Level 3 fair value measurements, which will
become effective for us with the reporting period beginning January 1, 2011. Other than requiring
additional disclosures, adoption of this new guidance did not have a material impact on our
consolidated financial position, results of operations and cash flows.
13
Table of Contents
ITEM 2 | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of many factors. The results of operations for the three
and six months ended June 30, 2010 are not necessarily indicative of the results that may be
expected for the full year ending December 31, 2010, or for any other future period. The following
discussion should be read in conjunction with the unaudited condensed consolidated financial
statements and the notes thereto included in Item 1 of this Quarterly Report and in conjunction
with our Annual Report on Form 10-K for the year ended December 31, 2009 (2009 Form 10-K),
including the Risk Factors section and the consolidated financial statements and notes included
therein.
OVERVIEW
We were incorporated on May 27, 1997 as a California corporation. We are a leading provider
of converged test systems and services for wireless and wired infrastructures and services. Our
hardware and software allow our customers to test and measure the performance, functionality,
service quality and conformance of wireless and wired Internet Protocol (IP) equipment and
networks, and the applications that run over them. Our solutions generate, capture, characterize
and analyze high volumes of realistic network and application traffic, identifying problems,
assessing performance, ensuring functionality and interoperability, and verifying conformance to
industry specifications. We offer hardware platforms with interchangeable media interfaces,
utilizing a common set of applications, Application Programming Interfaces (APIs) and automation
tools that allow our customers to create integrated, easy-to-use automated test environments. The
networks that our systems analyze primarily include Ethernet networks operating at speeds of up to
100 gigabits per second and wireless networks that carry data traffic over optical fiber,
electrical cable and airwaves. We also offer hardware platforms and equipment that test wireless
equipment, especially those associated with 3G (third generation), 4G (fourth generation) and
Long-Term Evolution (LTE) networks.
Acquisition of Catapult Communications Corporation. On June 23, 2009, we completed our
acquisition of all of the outstanding shares of common stock of Catapult Communications Corporation
(Catapult). Our IxCatapult products now provide advanced wireless test systems to network
equipment manufacturers and service providers worldwide. The IxCatapult 3G and 4G wireless
networking test solutions complement our wireline IP performance test systems and service
verification platforms. With this acquisition, we have been able to broaden our product portfolio
and provide a single source solution for testing converged multiplay IP services over wireless and
wireline networks to new and existing customers. The purchase price for Catapult totaled $106.6
million, or $65.4 million net of Catapults existing cash and investment balances at the time of
the acquisition. The Catapult acquisition was funded from our existing cash and cash equivalents.
The results of operations of Catapult have been included in the consolidated statements of
operations and cash flows since the date of the acquisition.
Acquisition of Agilent Technologies N2X Data Network Testing Product Line. On October 30,
2009, we completed our acquisition from Agilent Technologies, Inc. of its N2X Data Network Testing
Product Line business (N2X) for $43.5 million in cash and the assumption of certain liabilities
of N2X. In return for the consideration paid, we acquired certain assets and liabilities of N2X,
including inventory, accounts receivables, fixed assets, accounts payable, customer relationships,
certain intellectual property rights, and other assets required to run the business. The N2X
products provide network equipment manufacturers and service providers with solutions to validate
the performance and scalability characteristics of next-generation network equipment for voice,
video and data (multiplay) services. The acquisition was funded from our existing cash and
investments. The results of operations of N2X have been included in the consolidated statements of
operations and cash flows since the date of the acquisition.
Revenues. Our revenues are principally derived from the sale and support of our test systems.
Product revenues primarily consist of sales of our hardware and software products. Our service
revenues primarily consist of the provision of post contract customer support and maintenance
(PCS) related to the initial period provided with the product purchase (generally for 90-day or
12-month periods) and separately purchased extended PCS contracts, and to our implied PCS
obligations. Service revenues also include separately purchased extended hardware warranty support
for certain of our products, training and other professional services. PCS on our
14
Table of Contents
software
products includes unspecified when and if available software upgrades and customer technical
support services.
Our hardware products primarily consist of chassis and interface cards, and our Ethernet
interface cards continue to represent the majority of our product revenues. In general, our
Ethernet interface cards are used to test equipment and advanced IP services in the core and at the
edge of the Internet at network speeds of up to 100 Gigabits per second. During the second quarter
of 2010, we saw increased sales for our testing solutions across our Gigabit Ethernet, 10 Gigabit
Ethernet and high-speed Ethernet interface cards, with our 10 Gigabit Ethernet interface cards
continuing to be our strongest seller. Over the next 12 months, we expect that the sale of our
Ethernet interface cards will continue to represent the majority of our revenues. Over the past
few quarters, we have seen some positive signs with respect to the stabilization and growth of our
business. However, we continue to remain cautiously optimistic about the extent and length of the
economic recovery and about some of our customers willingness to continue spending at the levels
we saw during the first half of 2010.
Sales to our largest customer accounted for approximately $9.4 million, or 14.3%, and $21.5
million, or 16.7%, of our total revenues for the three and six months ended June 30, 2010,
respectively, and $7.1 million, or 18.6%, and $14.0 million, or 18.5%, of our total revenues for
the three and six months ended June 30, 2009, respectively. To date, we have sold the majority of
our products to network equipment manufacturers, and in the second quarter of 2010, sales to
network equipment manufacturers represented nearly two-thirds of our total sales. While we expect
that we will continue to have some customer concentration for the foreseeable future, we continue
to sell our products to a wider variety and increasing number of customers. To the extent that we
continue to develop a broader and more diverse customer base, our reliance on any one customer or
customer type should decline. From a geographic perspective, we have historically generated the
majority of our revenues from product shipments to customer locations within the United States.
For the three and six months ended June 30, 2010, we generated revenues from product shipments to
international locations of $26.4 million, or 39.9%, and $59.8 million, or 46.7%, of our total
revenues for the three and six months ended June 30, 2010, respectively, compared to $13.5 million,
or 35.1%, and $30.2 million, or 40.0%, of our total revenues for the three and six months ended
June 30, 2009, respectively. During the three and six months ended June 30, 2010, our revenues
generated from international locations increased both in dollars and as a percentage of revenues
when compared to the same period in 2009 primarily due to additional sales arising from our
acquisitions of Catapult in June 2009 and N2X in October 2009. We also intend to continue
increasing our sales efforts internationally with a targeted focus in the Europe and Asia Pacific
regions. Looking forward, and given our 2009 acquisitions of Catapult and N2X, we expect our
international revenues to continue to grow on an annualized basis as a percentage of our total
revenues.
In some instances our software products may be installed and operated independently from our
hardware products. At other times, our software products are installed on and work with our
hardware products to enhance the functionality of the overall test system. As our software is
generally more than incidental to the sale of our test systems, we recognize revenue by applying
software revenue recognition guidance.
Our test systems are generally fully functional at the time of shipment and do not require us
to perform any significant production, modification, customization or installation after shipment.
As such, revenue from hardware and software product sales to customers, including distributors, is
recognized upon shipment provided that (i) evidence of an arrangement exists, which is typically in
the form of a customer purchase order; (ii) delivery has occurred (i.e., risks and rewards of
ownership have passed to the customer); (iii) the sales price is fixed or determinable; and (iv)
collection is deemed probable.
When sales arrangements involve multiple elements, or multiple products, and we have
vendor-specific objective evidence (VSOE) of fair value for each element in the arrangement, we
recognize revenue based on the relative fair value of all elements within the arrangement. We
determine VSOE based on sales prices charged to customers when the same element is sold separately
or based upon stated substantive PCS renewal rates for certain arrangements. Many of our products,
such as our software products, typically include an initial period (generally 90-day or 12month
periods) of free PCS, which is not sold separately. Accordingly, we are unable to establish VSOE
for these products.
In cases where VSOE only exists for the undelivered elements such as PCS, we apply the
residual method to recognize revenue. Under the residual method, the total arrangement fee is
allocated first to the undelivered elements, typically PCS, based on their VSOE, and the residual
portion of the fee is allocated to the delivered
15
Table of Contents
elements, typically our hardware and software
products, and is recognized as revenue assuming all other revenue recognition criteria as described
above have been met.
If VSOE cannot be determined for all undelivered elements of an arrangement, we defer revenue
until the earlier of (i) the delivery of all elements or (ii) the establishment of VSOE for all
undelivered elements, provided that if the only undelivered element is PCS or a service, the total
arrangement fee is recognized as revenue over the PCS or service term.
Services revenues from our initial and separately purchased extended PCS arrangements
(generally offered for 12-month periods) are recognized ratably over the contractual coverage
period. In addition, for implied PCS obligations we defer revenues from product sales and allocate
these amounts to PCS revenues to account for the circumstances in which we provide PCS after the
expiration of the customers contractual PCS period. Deferred revenues for these implied PCS
obligations are recognized ratably over the implied PCS period, which is typically based on the
expected economic life of our software products of four years. To the extent we determine that
implied PCS is no longer being provided after the expiration of the customers contractual PCS
period, the remaining deferred revenue balance related to the implied PCS obligation is reversed
and recognized as revenue in the period of cessation of the implied PCS obligation. The implied
PCS obligation for our software products ceases upon (i) the license management of our software
upgrades and (ii) our determination not to provide PCS after the expiration of the contractual PCS
period. Our license management systems manage and control the provision of software upgrades to
ensure that the upgrades are only provided to customers that are entitled to receive such upgrades
during an initial or extended PCS period. For software products that are not controlled under a
license management system and for certain customers where we provide implied PCS outside of the
contractual PCS period, we allocate and defer revenue for these implied PCS obligations and
recognize this revenue ratably over the implied PCS periods as described above. For the three
months ended June 30, 2010 and 2009, services revenues related to our implied PCS obligations were
$857,000 and $1.0 million, respectively. For the six months ended June 30, 2010 and 2009, services
revenues related to our implied PCS were $1.8 million and $2.1 million, respectively. For the
three and six months ended June 30, 2009, $576,000 of deferred revenue relating to implied PCS was
reversed and recognized as product revenues as a result of a certain product that is no longer
developed, sold or supported. There were no such reversals for the three and six months ended June
30, 2010. Future reversals of implied PCS deferred revenue may occur over the next 12 months as a
result of the future license management of additional products and our determination not to provide
PCS to certain customers after the expiration of the contractual PCS period.
Revenues from our separately purchased extended hardware warranty arrangements are recognized
ratably over the contractual coverage period. We recognize revenues from training and other
professional services at the time the services are provided or completed, as applicable.
We use distributors to complement our direct sales and marketing efforts in certain
international markets. Due to the broad range of features and options available with our hardware
and software products, distributors generally do not stock our products and typically place orders
with us after receiving an order from an end customer. These distributors receive business terms
of sale generally similar to those received by our other customers.
Stock-Based Compensation. Share-based payments, including grants of stock options, restricted
stock units and employee stock purchase rights, are required to be recognized in the financial
statements based on the estimated fair values for accounting purposes on the grant date. We use
the Black-Scholes option pricing model to estimate the fair value for accounting purposes of our
share-based awards. The determination of the fair value for accounting purposes of share-based
awards using the Black-Scholes model is affected by our stock price and a number of assumptions,
including expected volatility, expected life and risk-free interest rate. The expected life and
expected volatility are estimated based on historical and other data trended into the future. The
risk-free interest rate assumption is based on observed interest rates appropriate for the terms of
our share-based awards. Stock-based compensation expense recognized in our consolidated financial
statements is based on awards that are ultimately expected to vest. The amount of stock-based
compensation expense is reduced for estimated forfeitures based on historical experience as well as
future expectations. Forfeitures are required to be estimated at the time of grant and revised, if
necessary, in subsequent periods if estimated and actual forfeitures differ from these initial
estimates. We evaluate the assumptions used to value share-based awards on a periodic basis. If
factors change and we employ different assumptions, stock-based compensation expense may differ
significantly from what we have recorded in the past. If there are any modifications or
cancellations of the underlying unvested securities, we may
16
Table of Contents
be required to accelerate, increase or
cancel any remaining unearned stock-based compensation expense. Consistent with our past practice,
we attribute the value of stock-based compensation to expense based on the graded, or accelerated
multiple-option, approach.
For the three and six months ended June 30, 2010, stock-based compensation expense was $3.4
million and $6.2 million, respectively. Stock-based compensation for the three and six months
ended June 30, 2009 was $2.6 million and $6.4 million, respectively. Our stock-based compensation
expense increased for the quarter ended June 30, 2010 as compared to the same period in 2009 due in
part to the incremental impact of the share-based awards granted to the employees related to our
2009 acquisitions of Catapult and N2X, as well as the incremental impact of the March 2010 annual
refresher share-based grants to our executive officers. The aggregate balance of gross
unrecognized stock-based compensation to be expensed in the remainder of 2010 and through 2014
related to unvested share-based awards as of June 30, 2010 was approximately $17.9 million. To the
extent that we grant additional share-based awards, future expense may increase by the additional
amortization of deferred compensation resulting from those grants. We anticipate that we will
continue to grant additional share-based awards in the future as part of our long-term incentive
compensation programs. The impact of future grants cannot be reasonably estimated at this time
because it will depend on a number of factors, including the amount of share-based awards granted
and the then current fair values of such awards for accounting purposes.
Cost of Revenues. Our cost of revenues related to the sale of our hardware and software
products includes materials, payments to third party contract manufacturers, royalties, and
salaries and other expenses related to our manufacturing, operations, technical support and
professional service personnel. We outsource the majority of our manufacturing operations, and we
conduct supply chain management, quality assurance, documentation control, shipping and some final
assembly in Calabasas, California and/or Penang, Malaysia. Accordingly, a significant portion of
our cost of revenues related to our products consists of payments to our contract manufacturers.
Cost of revenues related to the provision of services includes salaries and other expenses
associated with customer and technical support services, professional services and the warranty
cost of hardware that is replaced or repaired during the warranty coverage period. Cost of
revenues does not include an allocation of the amortization of intangible assets related to our
acquisitions of certain businesses, product lines and technologies, which are discussed below and
included on a separate line item within our consolidated statements of operations.
Our cost of revenues as a percentage of total revenues is primarily affected by the following
factors:
| 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. |
In the near term, although we anticipate that our cost of revenues as a percentage of total
revenues will remain relatively flat, we have seen some increases in costs due to an industry-wide
shortage in certain component parts and other supply chain constraints. Additionally, we expect to
continue to experience pricing pressure on larger transactions and from larger customers as a
result of competition.
Operating Expenses. Our operating expenses are generally recognized when incurred and consist
of research and development, sales and marketing, general and administrative, amortization of
intangible assets, acquisition and other related costs and restructuring expenses. In dollar
terms, we expect total operating expenses, excluding stock-based compensation expenses discussed
above and amortization of intangible assets, acquisition and other related costs and restructuring
expenses discussed below, to increase for the second half of 2010 when
17
Table of Contents
compared to the same period
in 2009 due in part to our acquisition of N2X in October 2009 and to the reinstatement of our
global bonus plan in 2010.
Research and development expenses consist primarily of salaries and other personnel costs
related to the design, development, testing and enhancement of our products. We expense our
research and development costs as they are incurred. We also capitalize and depreciate over a
five-year period costs of our products used for internal purposes.
Sales and marketing expenses consist primarily of compensation and related costs for personnel
engaged in direct sales, sales support and marketing functions, as well as promotional and
advertising expenditures. We also capitalize and depreciate over a two-year period costs of our
products used for sales and marketing activities, including product demonstrations for potential
customers.
General and administrative expenses consist primarily of salaries and related expenses for
certain executive, finance, legal, human resources, information technology and administrative
personnel, as well as professional fees (e.g., legal and accounting), facility costs related to our
corporate headquarters, insurance costs and other general corporate expenses.
Amortization of intangible assets consists of the amortization of the purchase price of the
various intangible assets over their estimated useful lives. Periodically we review goodwill and
other intangible assets for impairment. An impairment charge would be recorded to the extent that
the carrying value exceeds its estimated fair value in the period that the impairment circumstances
occurred. The future amortization of acquired intangible assets depends on a number of factors,
including the extent to which we acquire additional businesses, technologies or product lines or
are required to record impairment charges related to our acquired intangible assets.
Acquisition and other related costs are expensed as incurred and consist primarily of
transaction and integration related costs such as success-based banking fees, professional fees for
legal, accounting, tax, due diligence, valuation and other related services, change in control
payments, consulting fees, required regulatory costs, certain employee, facility and infrastructure
transition costs, and other related expenses. We expect our acquisition and other related expenses
to fluctuate over time based on the timing of our acquisitions and related integration activities.
Restructuring expenses consist primarily of employee severance costs and related charges, as
well as some facility-related charges to exit certain locations.
Interest and Other Income, Net. Interest and other income, net represents interest on cash
and a variety of securities, including money market funds, U.S. government and government agency
debt securities, corporate debt securities and auction rate securities, certain foreign currency
gains and losses, and other non-operating items such as legal settlement proceeds.
Income Tax. Income tax is determined based on the amount of earnings and enacted federal,
state and foreign tax rates, adjusted for allowable credits and deductions, and for other effects
of equity compensation plans. Our income tax provision may be significantly affected by changes to
our estimates for tax in jurisdictions in which we operate and other estimates utilized in
determining the global effective tax rate. Actual results may also differ from our estimates based
on changes in economic conditions. Such changes could have a substantial impact on the income tax
provision. Our income tax provision could also be significantly impacted by estimates surrounding
our uncertain tax positions and the recording of valuation allowances against certain deferred tax
assets and changes to these valuation allowances in future periods. We continually reevaluate the
judgments surrounding our estimates and make adjustments as appropriate.
18
Table of Contents
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a percentage of total
revenues for the periods indicated:
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues: |
||||||||||||||||
Products |
83.1 | % | 79.3 | % | 82.4 | % | 80.1 | % | ||||||||
Services |
16.9 | 20.7 | 17.6 | 19.9 | ||||||||||||
Total revenues |
100.0 | 100.0 | 100.0 | 100.0 | ||||||||||||
Costs and operating expenses:(1) |
||||||||||||||||
Cost of revenues products |
20.8 | 20.7 | 19.7 | 20.5 | ||||||||||||
Cost of revenues services |
2.3 | 2.1 | 2.4 | 2.3 | ||||||||||||
Research and development |
27.1 | 29.8 | 28.5 | 30.9 | ||||||||||||
Sales and marketing |
29.0 | 34.7 | 29.9 | 36.8 | ||||||||||||
General and administrative |
12.6 | 17.0 | 13.4 | 16.8 | ||||||||||||
Amortization of intangible assets |
7.7 | 3.6 | 7.9 | 3.6 | ||||||||||||
Acquisition and other related |
2.4 | 6.6 | 2.1 | 3.3 | ||||||||||||
Restructuring |
0.1 | 2.6 | 2.8 | 1.3 | ||||||||||||
Total costs and operating expenses |
102.0 | 117.1 | 106.7 | 115.5 | ||||||||||||
Loss from operations |
(2.0 | ) | (17.1 | ) | (6.7 | ) | (15.5 | ) | ||||||||
Interest and other income, net |
0.6 | 1.7 | 7.1 | 1.6 | ||||||||||||
Other-than-temporary impairment on investments |
| | | (1.9 | ) | |||||||||||
(Loss) income before income taxes |
(1.4 | ) | (15.4 | ) | 0.4 | (15.8 | ) | |||||||||
Income tax (benefit) expense |
(0.9 | ) | (8.5 | ) | 0.0 | (7.0 | ) | |||||||||
Net (loss) income |
(0.5 | )% | (6.9 | )% | 0.4 | % | (8.8 | )% | ||||||||
(1) Stock-based compensation included in: | ||||||||||||||||
Cost of revenues products |
0.2 | % | 0.2 | % | 0.2 | % | 0.3 | % | ||||||||
Cost of revenues services |
0.1 | 0.1 | 0.1 | 0.1 | ||||||||||||
Research and development |
2.1 | 2.7 | 2.0 | 3.5 | ||||||||||||
Sales and marketing |
1.4 | 2.1 | 1.4 | 2.7 | ||||||||||||
General and administrative |
1.5 | 1.7 | 1.2 | 1.8 |
Comparison of Three and Six Months Ended June 30, 2010 and 2009
As a result of our acquisitions of Catapult Communications Corporation (Catapult) on June
23, 2009 and of the N2X Data Network Testing Product Line business (N2X) of Agilent Technologies,
Inc. on October 30, 2009 (collectively the 2009 Acquisitions), our consolidated results of
operations for the three and six months ended June 30, 2010 include the results of these
operations. The three and six month periods ended June 30, 2009 include the results of operations
of our Catapult acquisition from the respective acquisition date (i.e., June 23, 2009). The
integration of Catapult and its processes was substantially completed as of December 31, 2009,
while the integration activities with respect to N2X are expected to be completed during the third
quarter of 2010. To assist the readers of our financial statements in reviewing our year over year
consolidated operating results, we have estimated the impacts of the 2009 Acquisitions in the
statement of operations sections below, although some activities cannot be reasonably extracted and
included as either a Catapult or N2X activity.
Revenues. In the second quarter of 2010, total revenues increased 72.1% to $66.1 million from
the $38.4 million recorded in the second quarter of 2009. As a result of our 2009 Acquisitions,
revenues for the second
19
Table of Contents
quarter of 2010 included approximately $15.3 million related to the 2009 Acquisitions. The second
quarter of 2009 included approximately $2.8 million in revenue related to Catapult from the
acquisition date through June 30, 2009. Excluding the revenues from our 2009 Acquisitions,
revenues increased to $50.8 million in the second quarter of 2010 from $35.6 million in the second
quarter of 2009 principally due to a $13.2 million increase in shipments of our hardware products
(primarily our 10 Gigabit and 1 Gigabit Ethernet interface cards) in the second quarter of 2010
over the same period in 2009.
In the first six months of 2010, total revenues increased 69.7% to $128.1 million from $75.5
million recorded in the same period of 2009. As a result of our 2009 Acquisitions, revenues for
the first six months of 2010 included approximately $34.4 million related to the 2009 Acquisitions.
The second quarter of 2009 included approximately $2.8 million in revenue related to Catapult from
the acquisition date through June 30, 2009. Excluding the revenues from our 2009 Acquisitions,
revenues increased to $93.7 million in the first six months of 2010 from $72.7 million in the first
six months of 2009 principally due to a $16.6 million increase in shipments of our hardware and
software products (primarily our 10 Gigabit and 1 Gigabit Ethernet interface cards and our IxLoad
and IxNetwork software products) in the first six months of 2010 over the same period in 2009.
Revenues from Cisco Systems, our largest account, were $9.4 million, representing 14.3% of our
total revenues for the second quarter of 2010, compared to $7.1 million or 18.6% of our total
revenues for the second quarter of 2009. Revenues from Cisco Systems were $21.5 million,
representing 16.7% of our total revenues for the first six months of 2010, compared to $14.0
million or 18.5% of our total revenues for the same period in 2009.
Cost of Revenues. As a percentage of total revenues, our total cost of revenues increased to
23.1% in the second quarter of 2010 from 22.8% in the second quarter of 2009. Our second quarter of
2010 and 2009 cost of goods sold included approximately $2.5 million and $361,000, respectively, of
cost of goods sold attributable to our 2009 Acquisitions. Excluding the cost of revenues related
to our 2009 Acquisitions, our total cost of revenues increased to $12.8 million in the second
quarter of 2010 from $8.4 million in the second quarter of 2009 primarily due to the increased
sales volumes in the second quarter of 2010 compared to the same period in 2009, partially offset
by lower inventory-related charges for slow moving and excess inventory that were incurred in the
second quarter of 2009 compared to the same period in 2010.
As a percentage of total revenues, our total cost of revenues decreased to 22.1% in the first
six months of 2010 from 22.8% in the first six months of 2009. As a result of our 2009
Acquisitions, our cost of revenues for the first six months of 2010 and 2009 included approximately
$6.2 million and $361,000, respectively, related to the 2009 Acquisitions. Excluding the cost of
revenues related to our 2009 Acquisitions, our total cost of revenues increased to $22.1 million in
the first six months of 2010 from $16.9 million in the first six months of 2009 primarily due to
the increased sales volumes in the first six months of 2010 compared to the same period in 2009,
partially offset by lower inventory-related charges for slow moving and excess inventory that were
incurred in the second quarter of 2009 compared to the same period in 2010.
Research and Development Expenses. In the second quarter of 2010, research and development
expenses increased 56.3% to $17.9 million from $11.4 million in the second quarter of 2009. As a
result of our 2009 Acquisitions, our research and development expenditures in the second quarter of
2010 and 2009 included approximately $5.0 million and $220,000, respectively, related to the
research and development activities of the acquired operations. Excluding the incremental research
and development costs related to the 2009 Acquisitions, research and development expenses in the
second quarter of 2010 were $12.9 million compared to $11.2 million in the second quarter of 2009.
This increase was primarily due to an increase in compensation and related employee costs,
including travel, of $1.2 million and an increase in stock-based compensation expense of $314,000,
partially offset by a reduction in consulting costs of $275,000. The increase in compensation and
related employee costs was primarily due to the reinstatement of our global bonus plan in 2010.
Research and development expenses for the first six months of 2010 and 2009 increased 56.7% to
$36.5 million from $23.3 million in the same period of 2009. As a result of our 2009 Acquisitions,
our research and development expenditures in the first six months of 2010 and 2009 included
approximately $11.3 million and $220,000, respectively, related to the research and development
activities of the acquired operations. Excluding the incremental research and development costs
related to the 2009 Acquisitions, research and development expense in the first six months of 2010
were $25.2 million compared to $23.1 million in the first six months of 2009. This increase was
primarily due to an increase in compensation and related employee costs, including travel, of $2.4
20
Table of Contents
million, partially offset by a reduction in consulting costs of $482,000. The increase in
compensation and related employee costs was primarily due to the reinstatement of our global bonus
plan in 2010.
Sales and Marketing Expenses. In the second quarter of 2010, sales and marketing expenses
increased 43.4% to $19.2 million from $13.4 million in the second quarter of 2009. As a result of
our 2009 Acquisitions, our sales and marketing costs in the second quarter of 2010 and 2009
included approximately $6.4 million and $365,000, respectively, related to these acquisitions.
Excluding the incremental sales and marketing costs related to the 2009 Acquisitions, second
quarter 2010 sales and marketing expenses of $12.8 million were relatively flat compared to $13.0
million in the second quarter of 2009.
Sales and marketing expenses for the first six months of 2010 and 2009 increased 38.1% to
$38.3 million from $27.8 million in the same period of 2009. As a result of our 2009 Acquisitions,
our sales and marketing expenditures in the first six months of 2010 and 2009 included
approximately $11.6 million and $365,000, respectively, related to the sales and marketing
activities of the acquired operations. Excluding the incremental sales and marketing costs related
to the 2009 Acquisitions, sales and marketing expense in the first six months of 2010 declined to
$26.7 million from $27.4 million in the first six months of 2009 as higher sales commissions to
employees were offset by lower depreciation expenses and lower stock-based compensation charges.
General and Administrative Expenses. In the second quarter of 2010, general and
administrative expenses increased 28.3% to $8.4 million from $6.5 million in the second quarter of
2009. General and administrative costs attributable to our 2009 Acquisitions were not significant
in the second quarters of 2010 and 2009. The increase in general and administrative expenses was
primarily due to an increase in compensation and related employee costs of $753,000, including
costs related to the reinstatements of our global bonus plan in 2010 and annual salary increases,
an increase in stock-based compensation expense of $317,000 and certain increases in information
technology support costs of $200,000.
For the first six months of 2010, general and administrative expenses increased 35.2% to $17.2
million from $12.7 million in the same period of 2009. As a result of our 2009 Acquisitions, the
first six months of 2010 and 2009 included approximately $918,000 and $149,000, respectively, of
general and administrative costs of the acquired operations. Excluding the incremental general and
administrative costs related to the 2009 Acquisitions, general and administrative expenses in the
first six months of 2010 were $16.3 million compared to $12.6 million in the first six months of
2009. This increase was primarily due to an increase in compensation and related employee costs of
$1.8 million, an increase in legal expenses of $630,000, and an increase in costs related to
outside services (principally information technology support costs) of $443,000. The increase in
compensation and related employee costs was primarily due to the reinstatement of our global bonus
plan in 2010.
Amortization of Intangible Assets. In the second quarter of 2010, amortization of intangible
assets increased to $5.1 million from $1.4 million in the second quarter of 2009. In the first six
months of 2010, amortization of intangible assets increased to $10.1 million from the $2.7 million
recorded in the first six months of 2009. These increases were primarily due to the incremental
amortization in the 2010 periods of intangibles related to our 2009 Acquisitions.
Acquisition and Other Related Expenses. Acquisition and other related expenses for the second
quarter of 2010 and 2009 were $1.6 million and $2.5 million, respectively. Acquisition and other
related expenses for the six months ended June 30, 2010 and 2009 were $2.7 million and $2.5
million, respectively. These acquisition and other related expenses are a result of our 2009
Acquisitions. For the second quarter and first six months of 2009, acquisition and other related
expenses consisted primarily of success-based banking fees and professional fees. For the second
quarter and first six months of 2010, acquisition and other related expenses consisted primarily of
employee, facility and infrastructure transition costs, as well as professional fees. For
additional information, please see Note 3 of the Notes to Condensed Consolidated Financial
Statements included in this report.
Restructuring. Restructuring expenses for the second quarter of 2010 and 2009 were $67,000
and $1.0 million, respectively. Restructuring expenses for the six months ended June 30, 2010 and
2009 were $3.6 million and $1.0 million, respectively. For additional information, please see Note
4 of the Notes to Condensed Consolidated Financial Statements included in this report.
Interest and Other Income, Net. Interest and other income, net decreased to $309,000 in the
second quarter of 2010 from the $668,000 recorded in the second quarter of 2009. Interest and
other income, net increased to $9.1
21
Table of Contents
million in the first six months of 2010 from the $1.2 million
recorded in the first six months of 2009. The significant increase in the first six months of 2010
as compared to the first six months of 2009 was primarily due to an $8.9 million favorable
settlement with a former investment manager in the first quarter of 2010 attributable to our
purchase in prior periods of certain investments in auction rate securities with an aggregate par
value of $19.0 million that have been substantially written down.
Other-than-Temporary Impairment on Investments. In the first six months of 2009,
other-than-temporary impairments on investments totaled $1.4 million related to our illiquid
auction rate securities. There were no such write-downs in the same period of 2010.
Income Tax. Income tax benefit was $625,000, or an effective rate of 63.4%, for the second
quarter of 2010 as compared to an income tax benefit of $3.3 million, or an effective rate of
55.1%, for the second quarter of 2009. The overall increase in the effective rate for the second
quarter of 2010 as compared to the same period in 2009 was primarily due to a significantly lower
pre-tax loss in the second quarter of 2010 compared to the same period in 2009, and the
corresponding effects of discrete items on the pre-tax loss amounts.
Income tax expense was $43,000, or an effective rate of 7.8%, for the first six months of 2010
as compared to an income tax benefit of $5.3 million, or an effective rate of 44.4%, for the first
six months of 2009. The overall decrease in the effective rate for the first six months of 2010 as
compared to the same period in 2009 was primarily due to an increase in pre-tax income from an
$11.9 million pre-tax loss for the first six months of 2009 to $551,000 pre-tax income for the
first six months of 2010, which resulted in a greater effective rate impact in 2010 from discrete
items, such as disqualifying dispositions of incentive stock options.
22
Table of Contents
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations with our cash balances, cash generated from operations and
proceeds from our initial public offering and from stock option exercises. The following table
sets forth our summary cash flows for the six months ended June 30, 2010 and 2009 (in thousands):
Six Months Ended June 30, | ||||||||
2010 | 2009 | |||||||
Net cash provided by operating activities |
$ | 21,883 | $ | 3,286 | ||||
Net cash used in investing activities |
(18,079 | ) | (158,399 | ) | ||||
Net cash provided by (used in) financing activities |
9,381 | (6,745 | ) |
Our cash, cash equivalents and short- and long-term investments, when viewed in the aggregate,
increased to $102.9 million as of June 30, 2010 from $79.0 million as of December 31, 2009 due in
part to the $8.9 million receipt of settlement proceeds from a former investment manager in the
first quarter of 2010 related to our previous purchase of certain investments in auction rate
securities and proceeds from exercises of share-based awards of $9.0 million.
Net cash provided by operating activities was $21.9 million in the first six months of 2010
and $3.3 million in the same period of 2009. This increase in cash flow generated from operations
was primarily due to the $8.9 million settlement proceeds discussed above as well as better overall
operating results in the first six months of 2010 as compared to the first six months of 2009.
Net cash used in investing activities was $18.1 million and $158.4 million for the first six
months of 2010 and 2009, respectively. Excluding marketable security purchases and proceeds, net
cash used in investing activities was $7.3 million and $81.1 million for the first six months of
2010 and 2009, respectively. This decline in net cash used was primarily due to the acquisition of
Catapult in June 2009 which resulted in cash paid, net of cash acquired, of $76.4 million in the
second quarter of 2009 compared to no such payment in the first six months of 2010.
Net cash provided by financing activities for the first six months of 2010 was $9.4 million as
compared to net cash used in financing activities of $6.7 million for the first six months of 2009.
This increase in cash provided by financing activities was due to (i) there being no stock
repurchases in the first six months of 2010 when compared to stock purchases of $8.4 million in the
first six months of 2009 due to the expiration of our stock buyback plan in May 2009 and (ii) an
increase in proceeds from the exercises of share-based awards of $7.3 million for the first six
months of 2010 when compared to the first six months of 2009.
We believe that our existing balances of cash and cash equivalents and investments (excluding
our illiquid long-term auction rate securities with an estimated fair value of $5.2 million), and
cash flows expected to be generated from our operations will be sufficient to satisfy our operating
requirements for at least the next 12 months. Nonetheless, we may seek additional sources of
capital as necessary or appropriate to fund acquisitions or to otherwise finance our growth or
operations; however, there can be no assurance that such funds, if needed, will be available on
favorable terms, if at all. Our access to the capital markets to raise funds, through the sale of
equity or debt securities, is subject to various factors, including the timely filing of our
periodic reports with the Commission.
23
Table of Contents
SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements that are not historical facts in this Managements Discussion and Analysis of
Financial Condition and Results of Operations and other sections of this Quarterly Report on Form
10-Q may be deemed to be forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended (the Exchange Act), and are subject to the safe
harbor created by that Section. Words such as may, will, should, could, would, expect,
plan, anticipate, believe, estimate, project, predict, potential and variations of
these words and similar expressions are intended to identify forward-looking statements. These
statements reflect our current views with respect to future events and are based on assumptions and
subject to risks and uncertainties. These risks, uncertainties and other factors may cause our
actual results, performances or achievements to be materially different from those expressed or
implied by our forward-looking statements and include, among other things: the current global
economy, our success with the integration of our recently completed acquisitions, competition,
consistency of orders from significant customers, our success in developing and producing new
products and market acceptance of our products. Many of these risks and uncertainties are outside
of our control and are difficult for us to forecast or mitigate. Factors that may cause our actual
results to differ materially from our forward-looking statements include the risks and other
factors set forth in the Risk Factors and other sections of the Companys 2009 Form 10-K and in
our other filings with the Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity
The primary objective of our investment activities is to maintain the safety of principal and
preserve liquidity while maximizing yields without significantly increasing risk. Some of the
fixed rate securities that we have invested in may be subject to market risk. This means that a
change in prevailing interest rates may cause the fair value of the investment to fluctuate. We do
not enter into investments for trading or speculative purposes. We maintain our portfolio of cash
equivalents and investments in a variety of securities, including U.S. government and federal
agency securities, corporate debt securities, auction rate securities and money market funds. Our
cash equivalents and investments consist of both fixed and variable rate securities. We do not use
any derivatives or similar instruments to manage our interest rate risk. Fixed-rate securities may
have their fair market value adversely impacted due to a rise in interest rates. Our fixed rate
securities are currently classified as available-for-sale securities. While we do not intend to
sell these fixed rate securities prior to maturity based on a sudden change in market interest
rates, should we choose to sell these securities in the future, our consolidated operating results
may be adversely affected. A small portion of our cash equivalents and investments portfolio
consists of variable interest rate securities. Accordingly, we also have interest rate risk with
these variable rate securities as the income produced may decrease if interest rates fall.
Exchange Rate Sensitivity
The majority of our revenue and expenses are denominated in U.S. dollars. However, since we
have sales, support, marketing, development and other operations outside of the United States, we
have transactions that are denominated in foreign currencies, primarily the Japanese Yen, Romanian
Lei, Indian Rupee, Chinese Yuan, Singapore Dollar, Malaysian Ringgit, Australian Dollar, Canadian
Dollar, Swedish Kronor, Euro and British Pound. We utilize foreign currency forward contracts to
hedge certain accounts receivable amounts denominated in foreign currencies, primarily in Japanese
Yen. These contracts are used to reduce our risk associated with exchange rate movements, as gains
and losses on these contracts are intended to offset exchange losses and gains on underlying
exposures. Changes in the fair value of these forward contracts are recorded immediately in
earnings. We do not enter into foreign exchange forward contracts for speculative or trading
purposes and we do not expect net gains or losses on these derivative instruments to have a
material impact on our results of operations or cash flows.
24
Table of Contents
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Exchange Act, we have carried out an evaluation, under
the supervision and with the participation of the Companys management, including our Chief
Executive Officer and our Chief Financial Officer, of the effectiveness, as of the end of the
period covered by this report (i.e., as of June 30, 2010), of the design and operation of our
disclosure controls and procedures as defined in Rule 13a-15(e) promulgated by the Commission
under the Exchange Act. Based upon that evaluation, our Chief Executive Officer and our Chief
Financial Officer concluded that our disclosure controls and procedures, as of the end of such
period, were adequate and effective to ensure that information required to be disclosed by us in
the reports that we file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Commissions rules and forms and to ensure that
such information is accumulated and communicated to our management, including our Chief Executive
Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting (as such term
is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended
June 30, 2010 that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and our Chief Financial Officer, does
not expect that our disclosure controls and procedures or our internal control over financial
reporting are or will be capable of preventing or detecting all errors and all fraud. Any
controls, no matter how well designed and operated, can provide only reasonable, not absolute,
assurance that the objectives of the controls will be met. The design of controls must reflect the
fact that there are resource constraints, and the benefits of controls must be considered relative
to their costs. Further, because of the inherent limitations in all controls, no evaluation of
controls can provide absolute assurance that misstatements due to error or fraud will not occur or
that all control issues and instances of fraud, if any, within the Company have been detected.
These inherent limitations include the realities that judgments in decision-making can be faulty
and that breakdowns can occur because of simple error or mistake. Controls can also be
circumvented by the individual acts of some persons, by collusion of two or more people, or by
management override of the controls. The design of controls is based in part on certain
assumptions about the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future conditions.
25
Table of Contents
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Discussion of legal matters is incorporated by reference from Note 10, Commitments and
Contingencies, in Part I, Item 1 of this report.
ITEM 1A. Risk Factors
Information regarding risk factors appears in Part I, Item 1A. Risk Factors, in our Annual
Report on Form 10-K for the year ended December 31, 2009 and in certain of our other filings with
the Securities and Exchange Commission. There have been no material changes to our risk factors
previously disclosed in the 2009 Form 10-K.
ITEM 5. Other Information
Our policy governing transactions in our securities by our directors, officers and employees
permits such persons to adopt stock trading plans pursuant to Rule 10b5-1 promulgated by the
Securities and Exchange Commission under the Exchange Act. Our directors, officers and employees
may from time to time establish such stock trading plans. We do not undertake any obligation to
disclose, or to update or revise any disclosure regarding, any such plans and specifically do not
undertake to disclose the adoption, amendment, termination or expiration of any such plans.
ITEM 6. Exhibits
10.1
|
2010 Employee Stock Purchase Plan (1) | |
10.2
|
Amended and Restated 2008 Equity Incentive Plan (2) | |
31.1
|
Certification of Chief Executive Officer of Ixia pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2
|
Certification of Chief Financial Officer of Ixia pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1
|
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 |
(1) | Incorporated by reference to Exhibit 10.1 to Ixias Current Report on Form 8-K dated May 27, 2010 (File No. 000-31523), as filed with the Commission on June 3, 2010. | |
(2) | Incorporated by reference to Exhibit 10.2 to Ixias Current Report on Form 8-K dated May 27, 2010 (File No. 000-31523), as filed with the Commission on June 3, 2010. |
26
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
IXIA |
||||
Date: August 6, 2010 | By: | /s/ Atul Bhatnagar | ||
Atul Bhatnagar | ||||
President and Chief Executive Officer | ||||
Date: August 6, 2010 | By: | /s/ Thomas B. Miller | ||
Thomas B. Miller | ||||
Chief Financial Officer | ||||
27
Table of Contents
EXHIBIT INDEX
Exhibit No. | Description | |
31.1
|
Certification of Chief Executive Officer of Ixia pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2
|
Certification of Chief Financial Officer of Ixia pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1
|
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 |