10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2013

OR

¨ 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 0000-26251

NETSCOUT SYSTEMS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	04-2837575
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification No.)

310 Littleton Road, Westford, MA 01886

(978) 614-4000

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  x    NO  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)    YES  x    NO  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	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  ¨    NO  x

The number of shares outstanding of the registrant’s common stock, par value $0.001 per share, as of January 24, 2014 was 41,329,074.

NETSCOUT SYSTEMS, INC.

FORM 10-Q

FOR THE QUARTER ENDED DECEMBER 31, 2013

TABLE OF CONTENTS

PART I: FINANCIAL INFORMATION
Item 1.	Unaudited Financial Statements:
	Consolidated Balance Sheets: As of December 31, 2013 and March 31, 2013	1
	Consolidated Statements of Operations: For the three and nine months ended December 31, 2013 and 2012	2
	Consolidated Statements of Comprehensive Income: For the three and nine months ended December 31, 2013 and 2012	3
	Consolidated Statements of Cash Flows: For the nine months ended December 31, 2013 and 2012	4
	Notes to Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32
PART II: OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 6.	Exhibits	34
SIGNATURES		35
EXHIBIT INDEX		36

PART I: FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements

NetScout Systems, Inc.

Consolidated Balance Sheets

(In thousands, except share and per share data)

	December 31, 2013			March 31, 2013
Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$	88,648		$	99,930
Marketable securities	56,343			37,338
Accounts receivable, net of allowance for doubtful accounts of $147 and $971 at December 31, 2013 and March 31, 2013, respectively	74,263			73,900
Inventories	11,128			7,563
Deferred income taxes	9,419			9,538
Prepaid expenses and other current assets	8,800			9,043
Total current assets	248,601			237,312
Fixed assets, net	21,350			19,678
Goodwill	203,201			202,453
Intangible assets, net	59,827			63,827
Deferred income taxes	5,629			9,211
Long-term marketable securities	37,222			16,823
Other assets	2,047			2,872
Total assets	$	577,877		$	552,176
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	8,679		$	10,161
Accrued compensation	32,327			31,585
Accrued other	7,070			8,256
Income taxes payable	705			114
Deferred revenue	102,010			95,055
Total current liabilities	150,791			145,171
Other long-term liabilities	2,415			2,249
Deferred tax liability	991			941
Accrued long-term retirement benefits	1,578			1,757
Long-term deferred revenue	22,285			25,907
Contingent liabilities, net of current portion	4,219			4,248
Total liabilities	182,279			180,273
Commitments and contingencies (Note 12)
Stockholders’ equity:
Preferred stock, $0.001 par value:
5,000,000 shares authorized; no shares issued or outstanding at December 31, 2013 and March 31, 2013	0			0
Common stock, $0.001 par value:
150,000,000 shares authorized; 49,826,807 and 49,007,491 shares issued and 41,326,074 and 41,466,921 shares outstanding at December 31, 2013 and March 31, 2013, respectively	50			49
Additional paid-in capital	267,649			253,202
Accumulated other comprehensive income	2,521			671
Treasury stock at cost, 8,500,733 and 7,540,570 shares at December 31, 2013 and March 31, 2013, respectively	(108,513		)	(83,480		)
Retained earnings	233,891			201,461
Total stockholders’ equity	395,598			371,903
Total liabilities and stockholders’ equity	$	577,877		$	552,176

The accompanying notes are an integral part of these consolidated financial statements.

1

NetScout Systems, Inc.

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2013			2012			2013			2012
Revenue:
Product	$	68,561		$	52,676		$	163,895		$	139,100
Service	41,867			38,891			120,435			113,373
Total revenue	110,428			91,567			284,330			252,473
Cost of revenue:
Product	14,534			12,182			36,117			32,582
Service	9,068			6,982			24,111			20,386
Total cost of revenue	23,602			19,164			60,228			52,968
Gross profit	86,826			72,403			224,102			199,505
Operating expenses:
Research and development	18,348			15,352			50,951			44,630
Sales and marketing	32,425			30,105			96,184			86,997
General and administrative	7,929			8,539			22,367			22,071
Amortization of acquired intangible assets	860			846			2,571			2,077
Restructuring charges	0			(1		)	0			1,065
Total operating expenses	59,562			54,841			172,073			156,840
Income from operations	27,264			17,562			52,029			42,665
Interest and other income (expense), net:
Interest income	66			115			210			423
Interest expense	(198		)	(293		)	(575		)	(1,085		)
Other income, net	176			74			277			86
Total interest and other income (expense), net	44			(104		)	(88		)	(576		)
Income before income tax expense	27,308			17,458			51,941			42,089
Income tax expense	10,014			6,320			19,511			16,033
Net income	$	17,294		$	11,138		$	32,430		$	26,056
Basic net income per share	$	0.42		$	0.27		$	0.78		$	0.62
Diluted net income per share	$	0.41		$	0.26		$	0.77		$	0.62
Weighted average common shares outstanding used in computing:
Net income per share - basic	41,425			41,709			41,417			41,715
Net income per share - diluted	41,884			42,298			41,969			42,364

The accompanying notes are an integral part of these consolidated financial statements.

2

NetScout Systems, Inc.

Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2013			2012			2013		2012
Net income	$	17,294		$	11,138		$	32,430	$	26,056
Other comprehensive income:
Cumulative translation adjustments	405			719			1,624		1,003
Changes in market value of investments:
Changes in unrealized gains (losses)	3			(24		)	7		97
Total net change in market value of investments	3			(24		)	7		97
Changes in market value of derivatives:
Changes in market value of derivatives, net of taxes (benefit) of $31, ($17), $35 and ($6)	56			(29		)	55		(16		)
Reclassification adjustment for net (losses) gains included in net income, net of (benefits) taxes of ($15), ($6), $85 and $94	(25		)	(9		)	164		154
Total net change in market value of derivatives	31			(38		)	219		138
Other comprehensive income	439			657			1,850		1,238
Comprehensive income	$	17,733		$	11,795		$	34,280	$	27,294

The accompanying notes are an integral part of these consolidated financial statements.

3

NetScout Systems, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Nine Months Ended
	December 31,
	2013			2012
Cash flows from operating activities:
Net income	32,430			26,056
Adjustments to reconcile net income to cash provided by operating activities, net of the effects of acquisitions:
Depreciation and amortization	13,774			13,826
Loss on disposal of fixed assets	38			71
Deal related compensation expense and accretion charges	114			205
Share-based compensation expense associated with equity awards	9,959			7,254
Net change in fair value of contingent and contractual liabilities	(289		)	400
Deferred income taxes	4,259			6,237
Other gains	(69		)	(16		)
Changes in assets and liabilities
Accounts receivable	(302		)	12,130
Inventories	(5,346		)	1,568
Prepaid expenses and other assets	1,345			(4,358		)
Accounts payable	(1,255		)	(3,137		)
Accrued compensation and other expenses	2,259			6,400
Contingent liabilities	0			449
Income taxes payable	591			0
Deferred revenue	3,259			(107		)
Net cash provided by operating activities	60,767			66,978
Cash flows from investing activities:
Purchase of marketable securities	(88,802		)	(102,478		)
Proceeds from maturity of marketable securities	49,405			153,046
Purchase of fixed assets	(8,709		)	(8,115		)
Purchase of intangible assets	(713		)	(197		)
Decrease (increase) in deposits	37			(804		)
Acquisition of businesses, net of cash acquired	0			(51,273		)
Net cash used in investing activities	(48,782		)	(9,821		)
Cash flows from financing activities:
Issuance of common stock under stock plans	755			516
Payment of contingent consideration	(841		)	(3,197		)
Treasury stock repurchases	(25,033		)	(20,727		)
Repayment of long-term debt	0			(62,000		)
Excess tax benefit from share-based compensation awards	2,039			1,934
Net cash used in financing activities	(23,080		)	(83,474		)
Effect of exchange rate changes on cash and cash equivalents	(187		)	(102		)
Net decrease in cash and cash equivalents	(11,282		)	(26,419		)
Cash and cash equivalents, beginning of period	99,930			117,255
Cash and cash equivalents, end of period	$	88,648		$	90,836
Supplemental disclosures:
Cash paid for interest	$	0		$	325
Cash paid for income taxes	$	12,628		$	12,460
Non-cash transactions:
Transfers of inventory to fixed assets	$	1,781		$	583
Additions to property, plant and equipment included in accounts payable	$	233		$	370
Gross decrease in contractual liability relating to fair value adjustment	$	(148	)	$	(135	)
Gross (decrease) increase in contingent consideration liability relating to fair value adjustment	$	(141	)	$	535
Issuance of common stock under employee stock plans	$	2,230		$	2,224

The accompanying notes are an integral part of these consolidated financial statements.

4

NetScout Systems, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited interim consolidated financial statements have been prepared by NetScout Systems, Inc., or NetScout or the Company. Certain information and footnote disclosures normally included in financial statements prepared under generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). In the opinion of management, the unaudited interim consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the Company’s financial position, results of operations and cash flows. The year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The results reported in these consolidated financial statements are not necessarily indicative of results that may be expected for the entire year. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements, including the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2013.

Recent Accounting Pronouncements

In March 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2013-05 Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (ASU 2013-05).  ASU 2013-05 provides guidance on releasing cumulative translation adjustments when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or a business within a foreign entity.   ASU 2013-05 is effective on a prospective basis for fiscal years and interim reporting periods within those years, beginning after December 15, 2013 (the fourth quarter of fiscal year 2014 for the Company). Early adoption is permitted. This standard is not expected to have a material impact on the Company's financial condition, results of operations, or cash flows.

NOTE 2 – CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS

Financial instruments that potentially subject us to concentration of credit risk consist primarily of investments, trade accounts receivable and accounts payable. Our cash, cash equivalents, and marketable securities are placed with financial institutions with high credit standings.

At December 31, 2013, the Company had no single indirect channel partner which accounted for more than 10% of the accounts receivable balance, while two direct customers accounted for more than 10% of the accounts receivable balance. At March 31, 2013, no single direct customer or indirect channel partner accounted for more than 10% of the accounts receivable balance.

During the three and nine months ended December 31, 2013, one direct customer accounted for more than 10% of our total revenue, while no indirect channel partner accounted for more than 10% of total revenue during the three and nine months ended December 31, 2013. During the three and nine months ended December 31, 2012, no one direct customer or indirect channel partner accounted for more than 10% of total revenue.

Historically, the Company has not experienced any significant failure of its customers to meet their payment obligations nor does the Company anticipate material non-performance by its customers in the future; accordingly, the Company does not require collateral from its customers. However, if the Company’s assumptions are incorrect, there could be an adverse impact on its allowance for doubtful accounts.

5

NOTE 3 – SHARE-BASED COMPENSATION

The following is a summary of share-based compensation expense including restricted stock units and employee stock purchases made under our employee stock purchase plan (ESPP) based on estimated fair values within the applicable cost and expense lines identified below (in thousands):

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2013		2012		2013		2012
Cost of product revenue	$	62	$	61	$	174	$	176
Cost of service revenue	194		96		566		249
Research and development	1,157		778		3,316		2,164
Sales and marketing	944		775		2,952		2,301
General and administrative	860		754		2,951		2,353
	$	3,217	$	2,464	$	9,959	$	7,243

Employee Stock Purchase Plan – The Company maintains an ESPP for all eligible employees as described in the Company’s Annual Report on Form 10-K for the year ended March 31, 2013. Under the ESPP, shares of the Company’s common stock may be purchased on the last day of each bi-annual offering period at 85% of the fair value on the last day of such offering period. The offering periods run from March 1 through August 31 and from September 1 through February 28 of each year. During the nine months ended December 31, 2013, employees purchased 89,765 shares under the ESPP and the value per share was $24.84.

NOTE 4 – CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents and those investments with original maturities greater than three months to be marketable securities. Cash and cash equivalents consisted of money market instruments and cash maintained with various financial institutions at December 31, 2013 and March 31, 2013.

Marketable Securities

The following is a summary of marketable securities held by NetScout at December 31, 2013 classified as short-term and long-term (in thousands):

	Amortized Cost		Unrealized Gains		Fair Value
Type of security:
U.S. government and municipal obligations	$	39,433	$	5	$	39,438
Commercial paper	7,093		0		7,093
Corporate bonds	7,749		4		7,753
Certificates of deposit	2,059		0		2,059
Total short-term marketable securities	56,334		9		56,343
U.S. government and municipal obligations	35,147		18		35,165
Corporate bonds	2,057		0		2,057
Total long-term marketable securities	37,204		18		37,222
Total marketable securities	$	93,538	$	27	$	93,565

6

The following is a summary of marketable securities held by NetScout at March 31, 2013, classified as short-term and long-term (in thousands):

	Amortized Cost		Unrealized Gains		Fair Value
Type of security:
U.S. government and municipal obligations	$	17,416	$	11	$	17,427
Commercial paper	12,390		0		12,390
Corporate bonds	2,559		2		2,561
Certificates of deposit	4,960		0		4,960
Total short-term marketable securities	37,325		13		37,338
U.S. government and municipal obligations	14,211		7		14,218
Corporate bonds	2,605		0		2,605
Total long-term marketable securities	16,816		7		16,823
Total marketable securities	$	54,141	$	20	$	54,161

Contractual maturities of the Company’s marketable securities held at December 31, 2013 and March 31, 2013 were as follows (in thousands):

	December 31, 2013		March 31, 2013
Available-for-sale securities:
Due in 1 year or less	$	56,343	$	37,338
Due after 1 year through 5 years	37,222		16,823
	$	93,565	$	54,161

NOTE 5 – FAIR VALUE MEASUREMENTS

The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs, and Level 3 includes fair values estimated using significant non-observable inputs. The following tables present the Company’s financial assets and liabilities measured on a recurring basis using the fair value hierarchy as of December 31, 2013 and March 31, 2013 (in thousands).

	Fair Value Measurements at
	December 31, 2013
	Level 1		Level 2			Level 3			Total
ASSETS:
Cash and cash equivalents	$	88,648	$	0		$	0		$	88,648
U.S. government and municipal obligations	74,603		0			0			74,603
Commercial paper	0		7,093			0			7,093
Corporate bonds	9,810		0			0			9,810
Certificate of deposits	0		2,059			0			2,059
Derivative financial instruments	0		367			0			367
	$	173,061	$	9,519		$	0		$	182,580
LIABILITIES:
Contingent purchase consideration	$	0	$	0		$	(4,219	)	$	(4,219	)
Contingent contractual non-compliance liability	0		0			(98		)	(98		)
Derivative financial instruments	0		(138		)	0			(138		)
	$	0	$	(138	)	$	(4,317	)	$	(4,455	)

7

	Fair Value Measurements at
	March 31, 2013
	Level 1		Level 2			Level 3			Total
ASSETS:
Cash and cash equivalents	$	99,930	$	0		$	0		$	99,930
U.S. government and municipal obligations	31,645		0			0			31,645
Commercial paper	0		12,390			0			12,390
Corporate bonds	5,166		0			0			5,166
Certificate of deposits	0		4,960			0			4,960
Derivative financial instruments	0		71			0			71
	$	136,741	$	17,421		$	0		$	154,162
LIABILITIES:
Contingent purchase consideration	$	0	$	0		$	(5,087	)	$	(5,087	)
Contingent contractual non-compliance liability	0		0			(246		)	(246		)
Derivative financial instruments	0		(249		)	0			(249		)
	$	0	$	(249	)	$	(5,333	)	$	(5,582	)

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. On a recurring basis, the Company measures certain financial assets and liabilities at fair value, including marketable securities and derivative financial instruments.

The Company’s Level 1 investments are classified as such because they are valued using quoted market prices or alternative pricing sources with reasonable levels of price transparency.

The Company’s Level 2 investments are classified as such because fair value is being calculated using data from similar but not identical sources, or a discounted cash flow model using the contractual interest rate as compared to the underlying interest yield curve. The Company's derivative financial instruments consist of forward foreign exchange contracts and are classified as Level 2 because the fair values of these derivatives are determined using models based on market observable inputs, including spot prices for foreign currencies and credit derivatives, as well as an interest rate factor. Commercial paper and certificate of deposits are classified as Level 2 because the Company uses market information from similar but not identical instruments and discounted cash flow models based on interest rate yield curves to determine fair value. For further information on the Company's derivative instruments refer to Note 9.

The Company’s contingent purchase consideration and contingent contractual non-compliance liability at December 31, 2013 and March 31, 2013 were classified as Level 3 in the fair value hierarchy. They are valued by probability weighting expected payment scenarios and then applying a discount based on the present value of the future cash flow streams. The Company has elected to account for the contractual non-compliance liability at fair value. This election has been made as both contingent liabilities are related. The fair value election created parity between the two items during the settlement period. These liabilities are classified as Level 3 because the probability weighting of future payment scenarios is based on assumptions developed by management.

The following table sets forth a reconciliation of changes in the fair value of the Company’s Level 3 financial liabilities for the nine months ended December 31, 2013 (in thousands):

	Contingent Purchase Consideration			Contingent Contractual Non-compliance Liability
Balance at beginning of period	$	(5,087	)	$	(246	)
Change in fair value (included within research and development expense)	27			148
Payments	841			0
Balance at end of period	$	(4,219	)	$	(98	)

The Company has updated the probabilities used in the fair value calculation of the contingent liabilities during the nine months ended December 31, 2013 which reduced the liability by $289 thousand and is included as part of earnings for the nine

8

months ended December 31, 2013. The fair value of the contingent purchase consideration was estimated by applying a probability based model, which utilizes significant inputs that are unobservable in the market. Key assumptions include a 3.3% discount rate and a percent weighted-probability of the settlement of the contingent contractual non-compliance liability. Deal related compensation expense, accretion charges and changes related to settlements of contractual non-compliance liabilities for the nine months ended December 31, 2013 were $114 thousand and were included as part of earnings.

During the nine months ended December 31, 2013, $841 thousand related to the acquisition of Simena, LLC (Simena) was paid to the former owner.

NOTE 6 – INVENTORIES

Inventories are stated at the lower of actual cost or net realizable value. Cost is determined by using the first in, first out (FIFO) method. Inventories consist of the following (in thousands):

	December 31, 2013		March 31, 2013
Raw materials	$	6,959	$	3,986
Work in process	246		272
Finished goods	3,923		3,305
	$	11,128	$	7,563

NOTE 7 – ACQUISITIONS

While the Company uses its best estimates and assumptions as part of the purchase price allocation process to value the assets acquired and liabilities assumed on the acquisition date, its estimates and assumptions are subject to refinement. As a result, during the preliminary purchase price allocation period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with a corresponding offset to goodwill. The Company records adjustments to the assets acquired and liabilities assumed subsequent to the purchase price allocation period in the Company’s operating results in the period in which the adjustments were determined. The results of operations of the acquired businesses described below have been included in the Company’s consolidated financial statements beginning on their respective acquisition dates unless indicated otherwise below.

ONPATH

On October 31, 2012, the Company acquired ONPATH Technologies, Inc. (ONPATH), an established provider of scalable packet flow switching technology for high-performance networks for the aggregation and distribution of network traffic for data, voice, video testing, monitoring, performance management and cybersecurity deployments. ONPATH’s packet flow switch technology is synergistic with the Company’s network monitoring switch strategy. The acquisition of the packet flow switch technology further strengthens the Company’s Unified Service Delivery Management strategy by enabling scalable access to all relevant network traffic across highly distributed network environments for use by any network monitoring, performance management and security system. ONPATH’s test automation technology is used to monitor networks in test environments which simulate existing and planned network environments. The results of ONPATH’s operations have been included in the consolidated financial statements since October 31, 2012. The total cash transferred and to be transferred of $41.0 million consisted entirely of cash consideration, of which $8.2 million will be paid to employees and directors of ONPATH pursuant to ONPATH’s transaction bonus and retention plan. Approximately $4.0 million of the transaction bonuses are considered compensation and are therefore not included as consideration within the table below.

9

The following table summarizes the allocation of the purchase price (in thousands):

Allocation of the purchase consideration:
Current assets, including cash and cash equivalents of $527	$	8,356
Fixed assets	784
Identifiable intangible assets	10,970
Goodwill	19,897
Deferred tax asset	7,329
Other assets	1,432
Total assets acquired	48,768
Current liabilities	(6,387		)
Deferred revenue	(921		)
Deferred income tax liabilities	(4,660		)
	$	36,800

Goodwill was recognized for the excess purchase price over the fair value of the assets acquired. Goodwill of $17.5 million from the ONPATH acquisition was included within the Company’s existing Unified Service Delivery reporting unit and $2.4 million was included within the Test Automation reporting unit. Both reporting units resulting from the acquisition of ONPATH were included in the Company’s annual impairment review on January 31, 2013.

The fair values of intangible assets were based on valuations using an income approach, with estimates and assumptions provided by management of ONPATH and the Company. These assumptions include estimates of future revenues associated with the technology purchased as part of the acquisition and the migration of the current technology to more advanced version of the software. This fair value measurement was based on significant inputs not observable in the market and thus represents Level 3 fair value measurements. The following table reflects the fair value of the acquired identifiable intangible assets and related estimates of useful lives (in thousands, except for years):

	Fair Value		Useful Life (Years)
Developed technology	$	4,970	8
Customer relationships	6,000		7
	$	10,970

The weighted average useful life of identifiable intangible assets acquired from ONPATH is 7.5 years. Acquired software is amortized using an accelerated amortization method. Customer relationships are amortized on a straight-line basis.

Goodwill and intangible assets recorded as part of the ONPATH acquisition are not deductible for tax purposes.

The Company notes that it acquired net operating losses from ONPATH. ONPATH has represented to the Company that there were no historical changes in control that would limit NetScout’s ability to utilize these net operating losses in its consolidated federal return. During the fourth quarter of the Company's fiscal year ended March 31, 2013, the Company completed a 382 study with its tax advisors and concluded that ONPATH's representations were correct. The Company also notes that ONPATH did not claim research and development credits for historical tax returns. NetScout believes that certain ONPATH activities qualify for a research and development credit, and in the second quarter of fiscal year 2014, performed an analysis on the historical periods to identify and claim credits for historical research and development activities. A net tax credit of $517 thousand has been recorded within the acquisition allocation related to ONPATH's research and development activities.

Accanto

On July 20, 2012, the Company acquired certain assets, technology and employees of Accanto Systems, S.r.l. (Accanto), a supplier of service assurance solutions for telecommunication service providers which enables carriers to monitor and manage the delivery of voice services over converged, next generation telecom architectures. Accanto’s technology is synergistic with the Company’s packet flow strategy and brings voice service monitoring capabilities for legacy environments and for next generation network voice services. The Company maintains a relationship with the selling entity such that the selling entity serves as a distributor for the Company. The results of Accanto’s operations, related to those assets, technology and employees acquired, have been included in the consolidated financial statements since that date. The total purchase price of

10

$15.0 million consisted entirely of cash consideration. The goodwill recognized primarily relates to the value in combining Accanto’s product with our customer base.

The following table summarizes the allocation of the purchase price (in thousands):

Allocation of the purchase consideration:
Current assets	$	389
Fixed assets	237
Identifiable intangible assets	5,280
Goodwill	11,157
Total assets acquired	17,063
Current liabilities	(839		)
Deferred revenue	(240		)
Deferred income tax liabilities	(984		)
	$	15,000

Goodwill was recognized for the excess purchase price over the fair value of the assets acquired. Goodwill from the Accanto acquisition is included within the Company’s Unified Service Delivery reporting unit and was included in the Company’s annual impairment review. The acquired software intangible had a tax basis of approximately $2.1 million which carried over as part of the acquisition and will be deductible for tax purposes.  The remaining value of the acquired software intangible asset and the full value of the customer relationship intangible asset and goodwill is not deductible for tax purposes.

The fair values of intangible assets were based on valuations using an income approach, with estimates and assumptions provided by management of Accanto and the Company. These assumptions include estimates of future revenues associated with the technology purchased as part of the acquisition and the migration of the current technology to more advanced versions of the software. This fair value measurement was based on significant inputs not observable in the market and thus represents Level 3 fair value measurements. The following table reflects the fair value of the acquired identifiable intangible assets and related estimates of useful lives (in thousands, except for years):

	Fair Value		Useful Life (Years)
Developed technology	$	3,500	8
Distributor relationships	1,780		6
	$	5,280

The weighted average useful life of identifiable intangible assets acquired from Accanto is 7.3 years. Acquired software is amortized using an accelerated amortization method. Distributor relationships are amortized on a straight-line basis.

The following table presents unaudited proforma results of the historical Consolidated Statements of Operations of the Company ONPATH and Accanto for the three and nine months ended December 31, 2012, giving effect to the mergers as if they occurred on April 1, 2012 (in thousands, except per share data):

	Three Months Ended		Nine Months Ended
	December 31, 2012		December 31, 2012
	(unaudited)		(unaudited)
Pro forma revenue	$	94,221	$	263,009
Pro forma net income	$	11,038	$	20,036
Pro forma income per share:
Basic	$	0.26	$	0.48
Diluted	$	0.26	$	0.47
Pro forma shares outstanding
Basic	41,709		41,715
Diluted	42,298		42,364

11

The proforma results for the three and nine months ended December 31, 2012 primarily include adjustments for amortization of intangibles. This proforma information does not purport to indicate the results that would have actually been obtained had the acquisitions been completed on the assumed date, or which may be realized in the future.

During the nine months ended December 31, 2013, the Company has recorded $9.0 million of revenue directly attributable to ONPATH and Accanto within its consolidated financial statements.

NOTE 8 – GOODWILL AND INTANGIBLE ASSETS

Goodwill

The Company has two reporting units: (1) Unified Service Delivery and (2) Test Automation. As of December 31, 2013 and March 31, 2013, goodwill attributable to the Unified Service Delivery reporting unit was $200.8 million and $199.5 million, respectively. Goodwill attributable to the Test Automation reporting unit was $2.4 million and $3.0 million as of December 31, 2013 and March 31, 2013, respectively. Goodwill is tested for impairment at a reporting unit level at least annually, or on an interim basis if an event occurs or circumstances change that would, more likely than not, reduce the fair value of the reporting unit below its carrying value.

The changes in the carrying amount of goodwill for the nine months ended December 31, 2013 are due to purchase accounting adjustments and the impact of foreign currency translation adjustments related to asset balances that are recorded in currencies other than the U.S. dollar.

The changes in the carrying amount of goodwill for the nine months ended December 31, 2013 are as follows (in thousands):

	Nine Months Ended
	December 31, 2013
Balance as of March 31, 2013	$	202,453
Purchase accounting adjustments	(665		)
Foreign currency translation impact	1,413
Balance as of December 31, 2013	$	203,201

Intangible Assets

The net carrying amounts of intangible assets were $59.8 million and $63.8 million as of December 31, 2013 and March 31, 2013, respectively. Intangible assets acquired in a business combination are recorded under the acquisition method of accounting at their estimated fair values at the date of acquisition. The Company amortizes intangible assets over their estimated useful lives, except for the acquired trade name which resulted from the Network General Central Corporation (Network General) acquisition, which has an indefinite life and thus is not amortized. The carrying value of the indefinite lived trade name is evaluated for potential impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired.

During the three months ended December 31, 2013, the Company acquired certain rights to Accanto software not previously purchased as part of the acquisition transaction in fiscal year 2013 for $500 thousand.  This amount is included within developed technology as of December 31, 2013 and will be amortized using the economic benefit period over 6.3 years.

Intangible assets include an indefinite lived trade name with a carrying value of $18.6 million and the following amortizable intangible assets as of December 31, 2013 (in thousands):

	Cost		Accumulated Amortization			Net
Developed technology	$	31,603	$	(22,964	)	$	8,639
Customer relationships	38,789		(13,294		)	25,495
Distributor relationships	1,996		(480		)	1,516
Core technology	7,553		(2,389		)	5,164
Non-compete agreements	352		(264		)	88
Other	696		(371		)	325
	$	80,989	$	(39,762	)	$	41,227

12

Intangible assets include an indefinite lived trade name with a carrying value of $18.6 million and the following amortizable intangible assets as of March 31, 2013 (in thousands):

	Cost		Accumulated Amortization			Net
Developed technology	$	30,848	$	(21,343	)	$	9,505
Customer relationships	38,718		(11,038		)	27,680
Distributor relationships	1,895		(219		)	1,676
Core technology	7,446		(1,455		)	5,991
Non-compete agreements	334		(167		)	167
Other	483		(275		)	208
	$	79,724	$	(34,497	)	$	45,227

Amortization of software and core technology included as cost of product revenue was $837 thousand and $2.5 million for the three and nine months ended December 31, 2013, respectively. Amortization of other intangible assets included as operating expense was $891 thousand and $2.7 million for the three and nine months ended December 31, 2013, respectively.

Amortization of software and core technology included as cost of product revenue was $1.0 million and $3.9 million for the three and nine months ended December 31, 2012, respectively. Amortization of other intangible assets included as operating expense was $906 thousand and $2.2 million for the three and nine months ended December 31, 2012, respectively.

The following is the expected future amortization expense as of December 31, 2013 for the years ended March 31 (in thousands):

2014 (remaining three months)	$	2,052
2015	6,984
2016	6,439
2017	5,858
2018	5,078
Thereafter	14,816
	$	41,227

The weighted average amortization period of developed technology and core technology is 6.7 years. The weighted average amortization period for customer and distributor relationships is 13.3 years. The weighted average amortization period for amortizing all intangibles is 10.1 years.

NOTE 9 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

NetScout operates internationally and, in the normal course of business, is exposed to fluctuations in foreign currency exchange rates. The exposures result from costs that are denominated in currencies other than the U.S. Dollar, primarily the Euro, British Pound, Canadian Dollar, and Indian Rupee. The Company manages its foreign cash flow risk by hedging forecasted cash flows for operating expenses denominated in foreign currencies for up to twelve months, within specified guidelines through the use of forward contracts. The Company enters into foreign currency exchange contracts to hedge cash flow exposures from costs that are denominated in currencies other than the U.S. Dollar. These hedges are designated as cash flow hedges at inception.

All of the Company’s derivative instruments are utilized for risk management purposes, and the Company does not use derivatives for speculative trading purposes. These contracts will mature over the next twelve months and are expected to impact earnings on or before maturity.

13

The notional amounts and fair values of derivative instruments in the consolidated balance sheets as of December 31, 2013 and March 31, 2013 were as follows (in thousands):

	Notional Amounts (a)				Other Current Assets				Accrued Other Liabilities
	December 31, 2013		March 31, 2013		December 31, 2013		March 31, 2013		December 31, 2013		March 31, 2013
Derivatives Designated as Hedging Instruments:
Forward contracts	$	15,675	$	17,071	$	367	$	71	$	138	$	249

(a) Notional amounts represent the gross contract/notional amount of the derivatives outstanding.

The following table provides the effect foreign exchange forward contracts had on other comprehensive income (loss) (OCI) and results of operations for the three months ended December 31, 2013 and 2012 (in thousands):

Derivatives in Cash Flow Hedging Relationships	Effective Portion												Ineffective Portion
	Gain (Loss) Recognized in OCI on Derivative (a)					Gain (Loss) Reclassified from Accumulated OCI into Income (b)							Gain (Loss) Recognized in Income (Amount Excluded from Effectiveness Testing) (c)
	December 31, 2013		December 31, 2012			Location	December 31, 2013			December 31, 2012			Location	December 31, 2013		December 31, 2012
Forward contracts	$	87	$	(46	)	Research and development	$	(109	)	$	(52	)	Research and development	$	75	$	51
						Sales and marketing	149			67			Sales and marketing	3		(9		)
	$	87	$	(46	)		$	40		$	15			$	78	$	42

(a) The amount represents the change in fair value of derivative contracts due to changes in spot rates.

(b) The amount represents reclassification from other comprehensive income to earnings that occurs when the hedged item affects earnings.

(c) The amount represents the change in fair value of derivative contracts due to changes in the difference between the spot price and forward price that is excluded from the assessment of hedge effectiveness and therefore recognized in earnings. No gains or losses were reclassified as a result of discontinuance of cash flow hedges.

The following table provides the effect foreign exchange forward contracts had on other comprehensive income (loss) (OCI) and results of operations for the nine months ended December 31, 2013 and 2012 (in thousands):

Derivatives in Cash Flow Hedging Relationships	Effective Portion												Ineffective Portion
	Gain (Loss) Recognized in OCI on Derivative (a)					Gain (Loss) Reclassified from Accumulated OCI into Income (b)							Gain (Loss) Recognized in Income (Amount Excluded from Effectiveness Testing) (c)
	December 31, 2013		December 31, 2012			Location	December 31, 2013			December 31, 2012			Location	December 31, 2013			December 31, 2012
Forward contracts	$	90	$	(22	)	Research and development	$	(293	)	$	(289	)	Research and development	$	172		$	137
						Sales and marketing	44			41			Sales and marketing	(3		)	(4		)
	$	90	$	(22	)		$	(249	)	$	(248	)		$	169		$	133

(a) The amount represents the change in fair value of derivative contracts due to changes in spot rates.

(b) The amount represents reclassification from other comprehensive income to earnings that occurs when the hedged item affects earnings.

(c) The amount represents the change in fair value of derivative contracts due to changes in the difference between the spot price and forward price that is excluded from the assessment of hedge effectiveness and therefore recognized in earnings. No gains or losses were reclassified as a result of discontinuance of cash flow hedges.

NOTE 10 – LONG-TERM DEBT

On October 29, 2012, the Company paid down its outstanding balance in the amount of $62.0 million on its credit facility. As of December 31, 2013, there were no amounts outstanding under this credit facility.

14

On November 22, 2011, the Company entered into a credit facility (the Credit Agreement) with a syndicate of lenders led by KeyBank National Association (KeyBank) providing the Company with a $250 million revolving credit facility, which may be increased to $300 million at any time up to 90 days before maturity. The revolving credit facility includes a swing line loan sub-facility of up to $10 million and a letter of credit sub-facility of up to $10 million. The credit facility under the Credit Agreement matures on November 21, 2016.

At the Company’s election, revolving loans under the Credit Agreement bear interest at either (a) a rate per annum equal to the highest of (1) KeyBank’s prime rate, (2) 0.50% in excess of the federal funds effective rate, or (3) one hundred (100.00) basis points in excess of the London Interbank Offered Rate (LIBOR) for one-month interest periods, or the Base Rate; or (b) the one-, two-, three-, or six-month per annum LIBOR, as selected by the Company, multiplied by the statutory reserve adjustment, or collectively, the Eurodollar Rate, in each case plus an applicable margin. Swing line loans will bear interest at the Base Rate plus the applicable Base Rate margin. Beginning with the delivery of the Company’s financial statements for the quarter ended December 31, 2011, the applicable margin began to depend on the Company’s leverage ratio, ranging from 100 basis points for Base Rate loans and 200 basis points for Eurodollar Rate loans if the Company’s consolidated leverage ratio is 2.50 to 1.00 or higher, down to 25 basis points for Base Rate loans and 125 basis points for Eurodollar Rate loans if the Company’s consolidated leverage ratio is 1.00 to 1.00 or less.

The Company may prepay loans under the Credit Agreement at any time, without penalty, subject to certain notice requirements. Debt is recorded at the amount drawn on the revolving credit facility plus interest based on floating rates reflective of changes in the market which approximates fair value.

The loans are guaranteed by each of the Company’s domestic subsidiaries and are collateralized by all of the assets of the Company and its domestic subsidiaries, as well as 65% of the capital stock of the Company’s foreign subsidiaries directly owned by the Company and its domestic subsidiaries. The Credit Agreement generally prohibits any other liens on the assets of the Company and its subsidiaries, subject to certain exceptions as described in the Credit Agreement. The Credit Agreement contains certain covenants applicable to the Company and its subsidiaries, including, without limitation, limitations on additional indebtedness, liens, various fundamental changes (including material mergers and dispositions of assets), dividends and distributions, capital expenditures, investments (including material acquisitions and investments in foreign subsidiaries), transactions with affiliates, sale-leaseback transactions, hedge agreements, payment of junior financing, material changes in business, and other limitations customary in senior secured credit facilities. In addition, the Company is required to maintain certain consolidated leverage and interest coverage ratios as well as a minimum liquidity amount. As of December 31, 2013, the Company was in compliance with all of these covenants.

NOTE 11 – RESTRUCTURING CHARGES

During the fiscal year ended March 31, 2013, the Company restructured part of its international sales organization related to an overlap of personnel acquired as part of the Accanto acquisition. The Company recorded $1.2 million of restructuring charges related to severance costs.

The following table provides a summary of the activity related to these restructuring plans and the related liability included as accrued compensation on the Company's consolidated balance sheet (in thousands):

	Three Months Ended		Nine Months Ended
Employee Severance:	December 31, 2013		December 31, 2013
Balance at beginning of period	$	71	$	910
Other adjustments	—		(49		)
Cash payments	—		(790		)
Balance as of December 31, 2013	$	71	$	71

The balance is expected to be paid in full by December 31, 2014.

NOTE 12 – COMMITMENTS AND CONTINGENCIES

Acquisition related– The Company recorded two contingent liabilities related to the acquisition of Simena, one relates to future consideration to be paid to the former owner which had an initial fair value of $8.0 million at the time of acquisition and another relates to contractual non-compliance liabilities incurred by Simena with an initial fair value of $1.6 million at the time of acquisition. At December 31, 2013, the present value of the future consideration was $4.2 million and the contractual non-compliance liability was $98 thousand.

15

Legal – From time to time, NetScout is subject to legal proceedings and claims in the ordinary course of business. In the opinion of management, the amount of ultimate expense with respect to any current legal proceedings and claims, if determined adversely, will not have a significant adverse effect on the Company’s financial condition, results of operations or cash flows.

As disclosed in Part II, Item 1, in March 2012, NetScout uncovered and investigated, and in April 2012, disclosed to the U.S. Department of Justice and the California State Attorney General potential violations of federal and California state anti-trust laws.  The potential violations involve a former employee and one or more third parties in connection with sales to state governmental agencies during fiscal year 2012.   The California State Attorney General is conducting an investigation into the matter.  NetScout has been informed by the Department of Justice that it does not intend to take any action against NetScout.  NetScout believes we did not benefit from any of the transactions uncovered and believes that the amounts involved are not material.  

NOTE 13 – TREASURY STOCK

On September 17, 2001, the Company announced an open market stock repurchase program to purchase up to one million shares of outstanding Company common stock, subject to market conditions and other factors. Any purchases under the Company’s stock repurchase program may be made from time to time without prior notice. On July 26, 2006, the Company announced that it had expanded the existing open market stock repurchase program to enable the Company to purchase up to an additional three million shares of the Company’s outstanding common stock, bringing the total number of shares authorized for repurchase to four million shares. Through December 31, 2013, the Company had repurchased a total of 3,506,700 shares of common stock through the open market stock repurchase program. The Company repurchased 750,407 shares for $19.7 million under the program during the nine months ended December 31, 2013.

In connection with the vesting and release of the restriction on previously vested shares of restricted stock units, the Company repurchased 209,756 shares for $5.3 million related to minimum statutory tax withholding requirements on these restricted stock units during the nine months ended December 31, 2013. These repurchase transactions do not fall under the repurchase program described above, and therefore do not reduce the amount that is available for repurchase under that program.

NOTE 14 – NET INCOME PER SHARE

Calculations of the basic and diluted net income per share and potential common shares are as follows (in thousands, except for per share data):

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2013		2012		2013		2012
Numerator:
Net income	$	17,294	$	11,138	$	32,430	$	26,056
Denominator:
Denominator for basic net income per share - weighted average shares outstanding	41,425		41,709		41,417		41,715
Dilutive common equivalent shares:
Weighted average stock options	43		111		63		127
Weighted average restricted stock units	416		478		489		522
Denominator for diluted net income per share - weighted average shares outstanding	41,884		42,298		41,969		42,364
Net income per share:
Basic net income per share	$	0.42	$	0.27	$	0.78	$	0.62
Diluted net income per share	$	0.41	$	0.26	$	0.77	$	0.62

16

The following table sets forth restricted stock units excluded from the calculation of diluted net income per share, since their inclusion would be antidilutive (in thousands).

	Three Months Ended		Nine Months Ended
	December 31,		December 31,
	2013	2012	2013	2012
Restricted stock units	—	43	195	283

Basic EPS is calculated by dividing net income by the weighted average number of shares outstanding during the period. Unvested restricted shares, although legally issued and outstanding, are not considered outstanding for purposes of calculating basic earnings per share. Diluted EPS is calculated by dividing net income by the weighted average number of shares outstanding plus the dilutive effect, if any, of outstanding stock options, restricted shares and restricted stock units using the treasury stock method. The calculation of the dilutive effect of outstanding equity awards under the treasury stock method includes consideration of proceeds from the assumed exercise of stock options, unrecognized compensation expense and any tax benefits as additional proceeds.

NOTE 15 – INCOME TAXES

Our effective income tax rates were 37.6% and 36.3% for the nine months ended December 31, 2013 and the fiscal year ended March 31, 2013, respectively.  Generally, the effective tax rates differ from statutory rates due to the impact of the domestic production activities deduction, the impact of state taxes, and federal, foreign and state tax credits.The effective tax rate for the nine months ended December 31, 2013 is higher than the effective rate for our fiscal year ended March 31, 2013 primarily due to the interim accounting treatment of certain foreign losses for which no benefit can be recognized.

Our effective tax rates were 37.6% and 38.1% for the nine months ended December 31, 2013 and 2012, respectively. At this time, the effective tax rate is lower than the comparable year primarily due to the impact of the reinstatement of the research and development credit.

NOTE 16 – SEGMENT AND GEOGRAPHIC INFORMATION

The Company reports revenues and income under one reportable segment. The consolidated financial information is used by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance.

The Company manages its business in the following geographic areas: United States, Europe, Asia and the rest of the world. In accordance with United States export control regulations, the Company does not sell or do business with countries subject to economic sanctions and export controls.

Total revenue by geography is as follows (in thousands):

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2013		2012		2013		2012
United States	$	86,747	$	66,990	$	216,364	$	188,701
Europe	12,313		12,940		33,906		31,373
Asia	4,035		4,201		14,788		12,678
Rest of the world	7,333		7,436		19,272		19,721
	$	110,428	$	91,567	$	284,330	$	252,473

The United States revenue includes sales to resellers in the United States. These resellers fulfill customer orders and may subsequently ship the Company’s products to international locations. The Company reports these shipments as United States revenue since the Company ships the products to a United States location. A majority of revenue attributable to locations outside of the United States is a result of export sales. Substantially all of the Company’s identifiable assets are located in the United States.

17

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

In addition to historical information, the following discussion and other parts of this Quarterly Report contain forward-looking statements under Section 21E of the Exchange Act and other federal securities laws. These forward looking statements involve risks and uncertainties. These statements relate to future events or our future financial performance and are identified by terminology such as “may,” “will,” “could,” “should,” “expects,” “plans,” “intends,” “seeks,” “anticipates,” “believes,” “estimates,” “potential” or “continue,” or the negative of such terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on these forward-looking statements. Actual events or results may differ materially due to competitive factors and other factors referred to in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for our fiscal year ended March 31, 2013 and elsewhere in this Quarterly Report. These factors may cause our actual results to differ materially from any forward-looking statement.

Overview

NetScout was founded in 1984 and is headquartered in Westford, Massachusetts. We design, develop, manufacture, market, sell and support market leading unified service delivery management, service assurance and application performance management solutions focused on assuring service delivery for the world’s largest, most demanding and complex IP based service delivery environments. We manufacture and market these products in integrated hardware and software solutions that are used by commercial enterprises, large governmental agencies and telecommunication service providers worldwide. We have a single operating segment and substantially all of our identifiable assets are located in the United States.

Our operating results are influenced by a number of factors, including, but not limited to, the mix and quantity of products and services sold, pricing, costs of materials used in our products, growth in employee related costs, including commissions, and the expansion of our operations. Factors that affect our ability to maximize our operating results include, but are not limited to, our ability to introduce and enhance existing products, the marketplace acceptance of those new or enhanced products, continued expansion into international markets, development of strategic partnerships, competition, successful acquisition integration efforts, our ability to achieve expense reductions and make structural improvements and current economic conditions.

Our key objectives have been to continue to gain market share in the wireless service provider market and to accelerate our enterprise growth by extending into the application performance management segment. A common component of both initiatives has been the acceptance of our Unified Services Delivery Management Strategy. This strategy has been bolstered by our acquisitions and integration of both voice/video and packet flow or monitoring switch technology.

During the first quarter of our fiscal year 2014, NetScout announced the release of the nGeniusONE Unified Performance Management platform. The nGeniusONE platform converges application and network performance management functionality into a single unified platform that delivers a top-down, serviced-focused perspective of performance characteristics of all infrastructure and application elements associated with service delivery.

During the first quarter of our fiscal year 2014, management performed a review of its summation of revenue by industry. As a result, we changed our method of apportioning revenue to our revenue sectors, and the categorization of certain customers to different sectors. This change in the manner of describing fluctuations by sector will not affect our total net revenues, total product and service revenues, or revenue by geography.

Results Overview

We saw continued growth during the quarter ended December 31, 2013, with product revenue growth of 30% and overall revenue growth of 21% compared to the same period in the prior year.

Our business maintained strong gross profit margins. Our gross profit for the quarter ended December 31, 2013 increased by $14.4 million, or 20%, when compared to the quarter ended December 31, 2012. The gross profit percentage remained flat at 79% during the quarters ended December 31, 2013 and 2012.

We continue to maintain strong liquidity. At December 31, 2013, we had cash, cash equivalents and marketable securities of $182.2 million. This represents an increase of $28.1 million from March 31, 2013.

18

Use of Non-GAAP Financial Measures

We supplement the generally accepted accounting principles (GAAP) financial measures we report in quarterly earnings announcements, investor presentations and other investor communications by reporting the following non-GAAP measures: non-GAAP revenue, non-GAAP net income and non-GAAP net income per diluted share. Non-GAAP revenue eliminates the GAAP effects of acquisitions by adding back revenue related to deferred revenue revaluation. Non-GAAP net income includes the foregoing adjustment and also removes inventory fair value adjustments, expenses related to the amortization of acquired intangible assets, share-based compensation, restructuring, certain expenses relating to acquisitions including compensation for post-combination services and business development charges, net of related income tax effects. Non-GAAP diluted net income per share also excludes these expenses as well as the related impact of all these adjustments on the provision for income taxes.

These non-GAAP measures are not in accordance with GAAP, should not be considered an alternative for measures prepared in accordance with GAAP (revenue, net income and diluted net income per share), and may have limitations in that they do not reflect all our results of operations as determined in accordance with GAAP. These non-GAAP measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures. The presentation of non-GAAP information is not meant to be considered superior to, in isolation from or as a substitute for results prepared in accordance with GAAP.

Management believes these non-GAAP financial measures enhance the reader's overall understanding of our current financial performance and its prospects for the future by providing a higher degree of transparency for certain financial measures and providing a level of disclosure that helps investors understand how we plan and measure our business. We believe that providing these non-GAAP measures affords investors a view of our operating results that may be more easily compared to our peer companies and also enables investors to consider our operating results on both a GAAP and non-GAAP basis during and following the integration period of our acquisitions. Presenting the GAAP measures on their own may not be indicative of our core operating results. Furthermore, management believes that the presentation of non-GAAP measures when shown in conjunction with the corresponding GAAP measures provide useful information to management and investors regarding present and future business trends relating to our financial condition and results of operations.

The following table reconciles revenue, net income and net income per share on a GAAP and non-GAAP basis for the three and nine months endedDecember 31, 2013 and 2012 (in thousands, except for per share amounts):

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2013			2012			2013			2012
GAAP revenue	$	110,428		$	91,567		$	284,330		$	252,473
Deferred revenue fair value adjustment	140			400			419			671
Non-GAAP revenue	$	110,568		$	91,967		$	284,749		$	253,144
GAAP net income	$	17,294		$	11,138		$	32,430		$	26,056
Deferred revenue fair value adjustment	140			400			419			671
Inventory fair value adjustment	—			249			—			249
Share based compensation expense	3,217			2,464			9,959			7,243
Amortization of acquired intangible assets	1,697			1,805			5,051			5,938
Business development and integration expense	78			543			482			1,374
Compensation for post combination services	530			1,005			1,685			1,819
Restructuring charges	—			(1		)	—			1,065
Income tax adjustments	(1,941		)	(2,257		)	(6,034		)	(6,498		)
Non-GAAP net income	$	21,015		$	15,346		$	43,992		$	37,917
GAAP diluted net income per share	$	0.41		$	0.26		$	0.77		$	0.62
Per share impact of non-GAAP adjustments identified above	0.09			0.10			0.28			0.28
Non-GAAP diluted net income per share	$	0.50		$	0.36		$	1.05		$	0.90

19

Critical Accounting Policies

 Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America consistently applied. The preparation of these consolidated financial statements requires us to make significant estimates and judgments that affect the amounts reported in our consolidated financial statements and the accompanying notes. These items are regularly monitored and analyzed by management for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are recorded in the period in which they become known. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from our estimates.

While all of our accounting policies impact the consolidated financial statements, certain policies are viewed to be critical. Critical accounting policies are those that are both most important to the portrayal of our financial condition and results of operations and that require management's most subjective or complex judgments and estimates. We consider the following accounting policies to be critical in fully understanding and evaluating our financial results:

• marketable securities;

• revenue recognition;

• valuation of goodwill, intangible assets and other acquisition accounting items; and

• share-based compensation.

Please refer to the critical accounting policies set forth in our Annual Report on Form 10-K for the fiscal year ended March 31, 2013, filed with the Securities and Exchange Commission (SEC) on May 24, 2013, for a description of all of our critical accounting policies.

Three Months Ended December 31, 2013 and 2012

Revenue

Product revenue consists of sales of our hardware products and licensing of our software products. Service revenue consists of customer support agreements, consulting and training. During the three months ended December 31, 2013, one customer accounted for more than 10% of total revenue. During the three months ended December 31, 2012, there were no customers that accounted for more than 10% of total revenue.

	Three Months Ended								Change
	December 31,
	(Dollars in Thousands)
	2013				2012
			% of Revenue				% of Revenue		$		%
Revenue:
Product	$	68,561	62	%	$	52,676	58	%	$	15,885	30	%
Service	41,867		38		38,891		42		2,976		8	%
Total revenue	$	110,428	100	%	$	91,567	100	%	$	18,861	21	%

Product.The 30%, or $15.9 million, increase in product revenue was due to a $12.3 million increase in revenue from our service provider sector, a $2.2 million increase in our general enterprise sector and a $1.4 million increase in our government enterprise sector.

Compared to the same period in the prior year, we realized a 30% increase in units shipped, as well as a 15% increase in the average selling price per unit of our products.

We expect continued growth in our service provider sector through the year ended March 31, 2014.

Service.The 8%, or $3.0 million, increase in service revenue was due to a $2.4 million increase in revenue from new maintenance contracts and renewals from a growing support base and a $685 thousand increase in premium support contracts.

20

These were partially offset by a $96 thousand decrease in consulting revenue and an $88 thousand decrease in training revenue. We expect single digit percentage growth in our service revenues. We expect this to be generated by product revenue growth which increases our installed base and therefore our related maintenance contracts.

Total product and service revenue from direct and indirect channels are as follows:

	Three Months Ended								Change
	December 31,
	(Dollars in Thousands)
	2013				2012
			% of Revenue				% of Revenue		$		%
Indirect	$	53,930	49	%	$	47,907	52	%	$	6,023	13	%
Direct	56,498		51		43,660		48		12,838		29	%
Total revenue	$	110,428	100	%	$	91,567	100	%	$	18,861	21	%

The 13%, or $6.0 million, increase in indirect channel revenue is the result of the increase in sales to our general enterprise sectors across all geographies. Sales to customers outside the United States are export sales typically through channel partners, who are generally responsible for distributing our products and providing technical support and service to customers within their territories. Our reported international revenue does not include any revenue from sales to customers outside the United States that are shipped to our United States-based indirect channel partners. These domestic resellers fulfill customer orders based upon joint selling efforts in conjunction with our direct sales force and may subsequently ship our products to international locations; however, we report these shipments as United States revenue since we ship the products to a domestic location. The 29%, or $12.8 million, increase in direct revenue is primarily the result of increased domestic revenue from our service provider sector.

Total revenue by geography is as follows:

	Three Months Ended								Change
	December 31,
	(Dollars in Thousands)
	2013				2012
			% of Revenue				% of Revenue		$			%
United States	$	86,747	79	%	$	66,990	73	%	$	19,757		29	%
International:
Europe	12,313		11		12,940		14		(627		)	(5	)%
Asia	4,035		4		4,201		5		(166		)	(4	)%
Rest of the world	7,333		6		7,436		8		(103		)	(1	)%
Subtotal international	23,681		21		24,577		27		(896		)	(4	)%
Total revenue	$	110,428	100	%	$	91,567	100	%	$	18,861		21	%

United States revenues increased 29%, or $19.8 million, as a result of gains within the service provider and general enterprise sectors. The 4%, or $896 thousand, decrease in international revenue is primarily due to a decrease in our international service provider sector. We expect revenue from sales to customers outside the United States to continue to account for a significant portion of our total revenue in the future. In accordance with United States export control regulations we do not sell to, or do business with, countries subject to economic sanctions and export controls.

Cost of Revenue and Gross Profit

Cost of product revenue consists primarily of material components, manufacturing personnel expenses, manuals, packaging materials, overhead and amortization of capitalized software, acquired software and core technology. Cost of service revenue consists primarily of personnel, material, overhead and support costs.

21

	Three Months Ended										Change
	December 31,
	(Dollars in Thousands)
	2013					2012
				% of Revenue					% of Revenue		$		%
Cost of revenue
Product	$	14,534		13	%	$	12,182		13	%	$	2,352	19	%
Service	9,068			8		6,982			8		2,086		30	%
Total cost of revenue	$	23,602		21	%	$	19,164		21	%	$	4,438	23	%
Gross profit:
Product $	$	54,027		49	%	$	40,494		44	%	$	13,533	33	%
Product gross profit %	79		%			77		%
Service $	$	32,799		30	%	$	31,909		35	%	$	890	3	%
Service gross profit %	78		%			82		%
Total gross profit $	$	86,826				$	72,403				$	14,423	20	%
Total gross profit %	79		%			79		%

Product. The 19%, or $2.4 million, increase in cost of product revenue was primarily due to the $15.9 million, or 30%, increase in product revenue during the three months ended December 31, 2013. This was partially offset by a $249 thousand decrease in amortization of inventory fair value adjustment resulting from a fair value adjustment to acquired inventory in the ONPATH acquisition and a $122 thousand decrease in amortization of software and core technology included as cost of product revenue during such period. The product gross profit percentage increased by two percentage points to 79% during the three months ended December 31, 2013 as compared to the three months ended December 31, 2012. The 33%, or $13.5 million, increase in product gross profit corresponds with the 30%, or $15.9 million, increase in product revenue, offset by the 19%, or $2.4 million, increase in cost of product revenue. Average headcount in manufacturing was 32 and 30 for the three months ended December 31, 2013 and 2012, respectively.

Service. The 30%, or $2.1 million, increase in cost of service revenue was primarily due to a $1.1 million increase in employee related expenses resulting in part from headcount to support our growing installed base. In addition, there was an $847 thousand increase in cost of materials used to support customers under service contracts. The service gross profit percentage decreased by four percentage points to 78% for the three months ended December 31, 2013 as compared to the three months ended December 31, 2012, primarily related to the increases in cost mentioned above. The 3%, or $890 thousand, increase in service gross profit corresponds with the 8%, or $3.0 million, increase in service revenue, offset by the 30%, or $2.1 million, increase in cost of services. Average service headcount was 145 and 135 for the three months ended December 31, 2013 and 2012, respectively.

Gross profit. Our gross profit increased 20%, or $14.4 million. This increase is attributable to our increase in revenue of 21%, or $18.9 million, partially offset by a 23%, or $4.4 million, increase in cost of revenue. The gross profit percentage remained flat at 79% for the three months ended December 31, 2013 as compared to the three months ended December 31, 2012. Overall we expect our gross profit percentage to remain relatively flat in future periods with increased sales volumes offset by corresponding increases in product and service costs.

22

Operating Expenses

	Three Months Ended									Change
	December 31,
	(Dollars in Thousands)
	2013				2012
			% of Revenue					% of Revenue		$			%
Research and development	$	18,348	17	%	$	15,352		17	%	$	2,996		20	%
Sales and marketing	32,425		29		30,105			33		2,320			8	%
General and administrative	7,929		7		8,539			9		(610		)	(7	)%
Amortization of acquired intangible assets	860		1		846			1		14			2	%
Restructuring charges	—		—		(1		)	0		1			(100	)%
Total operating expenses	$	59,562	54	%	$	54,841		60	%	$	4,721		9	%

Research and development. Research and development expenses consist primarily of personnel expenses, fees for outside consultants, overhead and related expenses associated with the development of new products and the enhancement of existing products.

The 20%, or $3.0 million, increase in research and development expenses is due to a $2.1 million increase in employee related expenses, a $372 thousand increase in depreciation expenses, a $237 thousand increase in non-recurring engineering expenses, a $147 thousand increase in temporary hire expenses and a $133 thousand increase in computer supplies. These expenses were partially offset by a $174 thousand decrease in deal related compensation. Average headcount in research and development was 347 and 359 for the three months ended December 31, 2013 and 2012, respectively.

Sales and marketing. Sales and marketing expenses consist primarily of personnel expenses and commissions, overhead and other expenses associated with selling activities and marketing programs such as trade shows, seminars, advertising, and new product launch activities.

The 8%, or $2.3 million, increase in total sales and marketing expenses was due to a $1.8 million increase in commissions due to higher shipments as well as an increase in anticipated higher quota attainment and special incentive programs related to the nGenius One product introduction during the three months ended December 31, 2013 compared to the three months ended December 31, 2012. In addition, there was a $1.7 million increase in employee related expenses due to an increase in headcount and share-based compensation. These increases were partially offset by a $583 thousand decrease in depreciation expense, a $315 thousand decrease in sales meeting expenses and a $268 thousand decrease in recruiting costs. Average headcount in sales and marketing was 361 and 349 for the three months ended December 31, 2013 and 2012, respectively.

General and administrative. General and administrative expenses consist primarily of personnel expenses for executive, financial, legal and human resource employees, overhead and other corporate expenditures.

The 7%, or $610 thousand, decrease in general and administrative expenses was due to a $540 thousand decrease in bad debt expense, a $451 thousand decrease in business development expenses, a $309 thousand decrease in deal related compensation, and a $72 thousand decrease in depreciation expenses. These decreases were partially offset by an $888 thousand increase in employee related expenses. Average headcount in general and administrative was 116 and 118 for the three months ended December 31, 2013 and 2012, respectively.

Amortization of acquired intangible assets. Amortization of acquired intangible assets consists primarily of amortization of customer relationships related to the acquisitions of ONPATH, Accanto Systems, S.r.l. (Accanto), Simena, LLC (Simena), Fox Replay BV (Replay), Psytechnics, Ltd (Psytechnics) and Network General Central Corporation (Network General).

The 2%, or $14 thousand, increase in amortization of acquired intangible assets is due to the increase of expense recorded related to the acquisitions of ONPATH and Accanto.

23

Interest and Other Income (Expense), Net. Interest and other income (expense), net includes interest earned on our cash, cash equivalents and marketable securities, interest expense and other non-operating gains or losses.

	Three Months Ended									Change
	December 31,
	(Dollars in Thousands)
	2013				2012
			% of Revenue					% of Revenue		$		%
Interest and other income (expense), net	$	44	—	%	$	(104	)	—	%	$	148	142	%

The 142%, or $148 thousand, increase in interest and other income was due to a $102 thousand decrease in foreign currency exchange expense and a $95 thousand decrease in interest expense due to the payment of our outstanding debt during the quarter ended December 31, 2012. These increases to interest and other (expense) income, net were partially offset by a $49 thousand decrease in interest income received on investments.

Income Tax Expense. Our effective income tax rates were 36.7% and 36.2% for the three months ended December 31, 2013 and 2012, respectively.  Generally, the effective tax rates differ from statutory rates due to the impact of the domestic production activities deduction, the impact of state taxes, and federal, foreign and state tax credits.At this time,the effective tax rate for the three months ended December 31, 2013 is higher than the comparable prior year period primarily due to the interim accounting treatment of certain foreign losses for which no benefit can be recognized.

	Three Months Ended								Change
	December 31,
	(Dollars in Thousands)
	2013				2012
			% of Revenue				% of Revenue		$		%
Income tax expense	$	10,014	9	%	$	6,320	7	%	$	3,694	58	%

Nine months endedDecember 31, 2013 and 2012

Revenue

During the nine months endedDecember 31, 2013, one customer accounted for more than 10% of total revenue. During the nine months ended December 31, 2012, no customers accounted for more than 10% of total revenue.

	Nine Months Ended								Change
	December 31,
	(Dollars in Thousands)
	2013				2012
			% of Revenue				% of Revenue		$		%
Revenue:
Product	$	163,895	58	%	$	139,100	55	%	$	24,795	18	%
Service	120,435		42	%	113,373		45	%	7,062		6	%
Total revenue	$	284,330	100	%	$	252,473	100	%	$	31,857	13	%

Product.The 18%, or $24.8 million, increase in product revenue was due to an $11.4 million increase in revenue from our general enterprise sector, a $10.9 million increase in revenue from our service provider sector and a $2.5 million increase in revenue from our government enterprise sector. Compared to the same period in the prior year, we realized a 13% increase in units shipped and an 8% increase in the average selling price per unit of our products.

Service.The 6%, or $7.1 million, increase in service revenue was due to a $5.0 million increase in revenue from maintenance contracts due to increased new maintenance contracts and renewals from a growing support base and a $2.4 million increase in premium support contracts. These were partially offset by a $325 thousand decrease in consulting revenue and a $138 thousand decrease in training revenue.

24

Total product and service revenue from direct and indirect channels are as follows:

	Nine Months Ended								Change
	December 31,
	(Dollars in Thousands)
	2013				2012
			% of Revenue				% of Revenue		$		%
Indirect	$	142,420	50	%	$	122,708	49	%	$	19,712	16	%
Direct	141,910		50		129,765		51		12,145		9	%
Total revenue	$	284,330	100	%	$	252,473	100	%	$	31,857	13	%

The 16%, or $19.7 million, increase in indirect channel revenue is the result of increases in sales to our general enterprise sectors across all geographies as well as an increase to our service provider sector domestically. Sales to customers outside the United States are export sales typically through channel partners, who are generally responsible for distributing our products and providing technical support and service to customers within their territories. Our reported international revenue does not include any revenue from sales to customers outside the United States that are shipped to our United States-based indirect channel partners. These domestic resellers fulfill customer orders based upon joint selling efforts in conjunction with our direct sales force and may subsequently ship our products to international locations; however, we report these shipments as United States revenue since we ship the products to a domestic location. The 9%, or $12.1 million, increase in direct revenue is primarily the result of increased domestic revenue from our service provider customers.

Total revenue by geography is as follows:

	Nine Months Ended								Change
	December 31,
	(Dollars in Thousands)
	2013				2012
			% of Revenue				% of Revenue		$			%
United States	$	216,364	76	%	$	188,701	75	%	$	27,663		15	%
International:
Europe	33,906		12		31,373		12		2,533			8	%
Asia	14,788		5		12,678		5		2,110			17	%
Rest of the world	19,272		7		19,721		8		(449		)	(2	)%
Subtotal international	67,966		24		63,772		25		4,194			7	%
Total revenue	$	284,330	100	%	$	252,473	100	%	$	31,857		13	%

United States revenues increased 15%, or $27.7 million, as a result of an increase in our service provider and general enterprise sectors. The 7%, or $4.2 million, increase in international revenue is primarily due to an increase in our general enterprise sector in Europe and Asia.

25

Cost of Revenue and Gross Profit

	Nine Months Ended										Change
	December 31,
	(Dollars in Thousands)
	2013					2012
				% of Revenue					% of Revenue		$		%
Cost of revenue
Product	$	36,117		13	%	$	32,582		13	%	$	3,535	11	%
Service	24,111			8		20,386			8		3,725		18	%
Total cost of revenue	$	60,228		21	%	$	52,968		21	%	$	7,260	14	%
Gross profit:
Product $	$	127,778		45	%	$	106,518		42	%	$	21,260	20	%
Product gross profit %	78		%			77		%
Service $	$	96,324		34	%	$	92,987		37	%	$	3,337	4	%
Service gross profit %	80		%			82		%
Total gross profit $	$	224,102				$	199,505				$	24,597	12	%
Total gross profit %	79		%			79		%

Product. The 11%, or $3.5 million, increase in cost of product revenue was mainly a result of the 18%, or $24.8 millionincrease in product revenue. In addition, there was a $460 thousand increase in employee related expenses due to increased headcount. These increases were partially offset by a $1.4 million decrease in amortization of software and core technology included as cost of product revenue for the nine months ended December 31, 2013. In addition, there was a $249 thousand decrease in amortization of inventory fair value adjustment, and a $180 thousand decrease in obsolescence charges as we did not discontinue or make plans to discontinue, any product during the nine months ended December 31, 2013. The product gross profit percentage increased by one percentage point to 78% during the nine months ended December 31, 2013. Average headcount in manufacturing was 32 and 28 for the nine months ended December 31, 2013 and 2012, respectively.

Service. The 18%, or $3.7 million, increase in cost of service revenue was primarily due to a $2.5 million increase in employee related expenses resulting in part from increased headcount to support our growing installed base, as well as from increased share-based compensation. In addition, there was a $988 thousand increase in cost of materials used to support customers under service contracts, $306 thousand increase in software licenses, and a $162 thousand increase in travel expenses. These increases were partially offset by a $321 thousand decrease in consulting expenses. The service gross profit percentage decreased by two percentage points to 80% for the nine months ended December 31, 2013 when compared to the nine months endedDecember 31, 2012 primarily related to the increases in cost mentioned above. The 4%, or $3.3 million, increase in service gross profit corresponds with the 6%, or $7.1 million, increase in service revenue, partially offset by the 18%, or $3.7 million, increase in cost of services. Average service headcount was 144 and 130 for the nine months ended December 31, 2013 and 2012, respectively.

Gross profit. Our gross profit increased 12%, or $24.6 million. This increase is attributable to our increase in revenue of 13% or $31.9 million, partially offset by a 14%, or $7.3 million, increase in cost of revenue. The gross profit percentage remained flat at 79% for the nine months ended December 31, 2013 when compared to the nine months ended December 31, 2012.

26

Operating Expenses

	Nine Months Ended								Change
	December 31,
	(Dollars in Thousands)
	2013				2012
			% of Revenue				% of Revenue		$			%
Research and development	$	50,951	18	%	$	44,630	18	%	$	6,321		14	%
Sales and marketing	96,184		34		86,997		34	%	9,187			11	%
General and administrative	22,367		8		22,071		9	%	296			1	%
Amortization of acquired intangible assets	2,571		1		2,077		1	%	494			24	%
Restructuring charges	—		—		1,065		0	%	(1,065		)	(100	)%
Total operating expenses	$	172,073	61	%	$	156,840	62	%	$	15,233		10	%

Research and development. The 14%, or $6.3 million, increase in research and development expenses is due to a $4.1 million increase in employee related expenses, as a result of increased headcount and increased share-based compensation, a $751 thousand increase in non-recurring engineering expenses, a $635 thousand increase in depreciation expense, a $360 thousand increase in travel expense, a $328 thousand increase in temporary hire expenses, a $282 thousand increase in software licenses, a $194 thousand increase in computer supplies and a $183 thousand increase in manufacturing supplies. These expenses were offset by a $461 thousand decrease in deal related compensation related to the acquisition of Simena and a $196 thousand decrease in meeting expenses. Average headcount in research and development was 353 and 331 for the nine months ended December 31, 2013 and 2012, respectively.

Sales and marketing. The 11%, or $9.2 million, increase in total sales and marketing expenses was due to a $3.9 million increase in employee related expenses as a result of increased headcount and share-based compensation, a $3.8 million increase in commissions due to both higher shipments as well as an increase in anticipated higher quota attainment and special incentive programs related to the nGenius One product introduction during the nine months ended December 31, 2013 compared to the nine months ended December 31, 2012. In addition, there was an $835 thousand increase in trade show expenses, a $709 thousand increase related to the NetScout user conference, a $564 thousand increase in travel expenses and a $140 thousand increase in consulting expenses. These expenses were partially offset by a $587 thousand decrease in sales meeting expenses and a $427 thousand decrease in recruitment expenses. Average headcount in sales and marketing was 355 and 339 for the nine months ended December 31, 2013 and 2012, respectively.

General and administrative. The 1%, or $296 thousand, increase in general and administrative expenses was due to a $690 thousand increase in employee related expenses as a result of increased headcount and share-based compensation, a $258 thousand increase in compensation for post combination services, a $251 thousand increase in tax and accounting related services, a $227 thousand increase in expenses for software licenses, and a $112 thousand increase in office expenses. These increases were partially offset by an $877 thousand decrease in business development expenses, and a $475 thousand decrease in bad debt expense. Average headcount in general and administrative was 119 and 113 for the nine months ended December 31, 2013 and 2012, respectively.

Amortization of acquired intangible assets. Amortization of acquired intangible assets consists primarily of amortization of customer relationships related to the acquisitions of ONPATH, Accanto, Simena, Replay, Psytechnics and Network General.

The 24%, or $494 thousand, increase in amortization of acquired intangible assets is due to the increase of expense recorded related to the acquisitions of ONPATH and Accanto.

Restructuring charges. During the quarter ended September 30, 2012, we restructured part of our international sales organization related to an overlap of personnel acquired as part of the Accanto acquisition. As a result, we recorded $1.2 million of restructuring charges during the nine months ended December 31, 2012.

27

Interest and Other (Expense) Income, Net. Interest and other (expense) income, net includes interest earned on our cash, cash equivalents and marketable securities, interest expense and other non-operating gains or losses.

	Nine Months Ended								Change
	December 31,
	(Dollars in Thousands)
	2013				2012
			% of Revenue				% of Revenue		$		%
Interest and other (expense), net	(88	)	0	%	(576	)	—	%	$	488	85	%

The 85%, or $488 thousand, decrease in interest and other expense, net was due to a $510 thousand decrease in interest expense due to the repayment of our outstanding debt during the quarter ended December 31, 2012, as well as an $191 thousand decrease in foreign currency exchange expense. These decreases to interest and other expense, net were partially offset by a $213 thousand decrease in interest income received on investments.

Income Tax Expense. Our effective income tax rates were 37.6% and 38.1% for the nine months ended December 31, 2013 and 2012, respectively.  Generally, the effective tax rates differ from statutory rates due to the impact of the domestic production activities deduction, the impact of state taxes, and federal, foreign and state tax credits.At this time,the effective tax rate for the nine months ended December 31, 2013 is lower than the comparable prior year period primarily due to reinstatement of the research and development credit.

	Nine Months Ended						Change
	December 31,
	(Dollars in Thousands)
	2013			2012
		% of Revenue			% of Revenue		$		%
Income tax expense	19,511	7	%	16,033	6	%	$	3,478	22	%

Off-Balance Sheet Arrangements

As of December 31, 2013 and 2012, we did not have any off-balance sheet arrangements as defined in Regulation S-K, Item 303(a)(4)(ii).

Commitment and Contingencies

We account for claims and contingencies in accordance with authoritative guidance that requires us to record an estimated loss from a claim or loss contingency when information available prior to issuance of our consolidated financial statements indicates that it is probable that a liability has been incurred at the date of the consolidated financial statements and the amount of the loss can be reasonably estimated. If we determine that it is reasonably possible but not probable that an asset has been impaired or a liability has been incurred or if the amount of a probable loss cannot be reasonably estimated, then in accordance with the authoritative guidance, we disclose the amount or range of estimated loss if the amount or range of estimated loss is material. Accounting for claims and contingencies requires us to use our judgment. We consult with legal counsel on those issues related to litigation and seek input from other experts and advisors with respect to matters in the ordinary course of business. For additional information with respect to legal proceedings, refer to Part II, Item 1 “Legal Proceedings.”

We recorded two contingent liabilities related to the acquisition of Simena. One relates to future consideration to be paid to the former owner which had an initial fair value of $8.0 million at the time of acquisition and another relates to contractual non-compliance liabilities incurred by Simena with an initial fair value of $1.6 million at the time of acquisition. At December 31, 2013, the present value of the future consideration was $4.2 million and the contractual non-compliance liability was $98 thousand.

As disclosed in Part II, Item 1, in March 2012, we uncovered and investigated, and in April 2012, disclosed to the U.S. Department of Justice and the California State Attorney General potential violations of federal and California state anti-trust laws.  The potential violations involve a former employee and one or more third parties in connection with sales to state governmental agencies during fiscal year 2012.   The California State Attorney General is conducting an investigation into the

28

matter.  We have been informed by the Department of Justice that it does not intend to take any action against NetScout.  We believe we did not benefit from any of the transactions uncovered and believe that the amounts involved are not material.  

Liquidity and Capital Resources

Cash, cash equivalents and marketable securities consist of the following (in thousands):

	December 31, 2013		March 31, 2013
Cash and cash equivalents	$	88,648	$	99,930
Short-term marketable securities	56,343		37,338
Long-term marketable securities	37,222		16,823
Cash, cash equivalents and marketable securities	$	182,213	$	154,091

Cash, cash equivalents and marketable securities

At December 31, 2013, cash, cash equivalents and marketable securities totaled $182.2 million, up $28.1 million from $154.1 million at March 31, 2013 due primarily to cash flow from operations of $60.8 million, partially offset by $25.0 million of cash used to repurchase shares of our common stock and $9.4 million of cash used for capital expenditures.

Substantially all of our cash, cash equivalents and marketable securities are located in the United States. At December 31, 2013, cash and short-term and long-term investments in the United States was $180.2 million, while cash held outside the United States was approximately $2.0 million.

Cash and cash equivalents were impacted by the following:

	Nine months ended December 31,
	(Dollars in Thousands)
	2013			2012
Net cash provided by operating activities	$	60,767		$	66,978
Net cash used in investing activities	$	(48,782	)	$	(9,821	)
Net cash used in financing activities	$	(23,080	)	$	(83,474	)

Net cash provided by operating activities

Cash provided by operating activities was $60.8 million during the nine months ended December 31, 2013, compared to $67.0 million of cash provided by operating activities during the nine months ended December 31, 2012. This $6.2 milliondecrease was due in part to accounts receivable, which had a $12.4 million unfavorable impact in the nine months ended December 31, 2013 as compared to the nine months ended December 31, 2012. Days sales outstanding of 61 days as of the end of the third quarter of fiscal year 2014 compared to 68 days at March 31, 2013 and 61 days at the end of the third quarter of fiscal year 2013. In addition, there was a $6.9 million decrease in cash flows from inventories related to an increase in the inventory balance as of December 31, 2013. The decreases in cash flow from accounts receivable and inventories is related to increases in those balances to support increases in sales volume. There was a $4.1 million decrease from accrued compensation and other expenses largely due to the timing of accruals and payments for incentive compensation as a result of an increase in the payout for fiscal year 2013 incentive compensation during the nine months ended December 31, 2013 as compared to the payout for the fiscal year 2012 incentive compensation during the nine months ended December 31, 2012, partially offset by an increase from accrued commissions. Additionally, there was a $2.0 million decrease from deferred income taxes. These decreases were partially offset by a $6.4 million increase from net income, a $5.7 million increase from prepaid expenses and other assets, a $3.4 million increase from deferred revenues, a $2.7 million increase from share-based compensation and a $1.9 million increase from accounts payable due to timing of payments.

29

Net cash used in investing activities

	Nine months ended December 31,
	(Dollars in Thousands)
	2013			2012
Cash used in investing activities included the following:
Purchase of marketable securities	$	(88,802	)	$	(102,478	)
Proceeds from maturity of marketable securities	49,405			153,046
Purchase of fixed assets	(8,709		)	(8,115		)
Purchase of intangible assets	(713		)	(197		)
Decrease (increase) in deposits	37			(804		)
Acquisition of businesses, net of cash acquired	—			(51,273		)
	$	(48,782	)	$	(9,821	)

Cash used in investing activities was up$39.0 million to $48.8 million during the nine months ended December 31, 2013, compared to $9.8 million of cash used in investing activities in the nine months ended December 31, 2012.

Our investments in property and equipment consist primarily of computer equipment, demonstration units, office equipment and facility improvements. We plan to continue to invest in capital expenditures to support our infrastructure in our fourth quarter of fiscal year 2014.

Purchases of intangible assets increased by $516 thousand during the nine months ended December 31, 2013 compared to the nine months ended December 31, 2012. During the three months ended December 31, 2013, the Company acquired certain rights to Accanto software for $500 thousand not previously purchased as part of the acquisition transaction in fiscal year 2013. 

The net inflow related to the purchase and sales of marketable securities during the nine months ended December 31, 2013 when compared to the nine months ended December 31, 2012 was driven by the impact of a change in investment mix and the sale of securities to repay our outstanding debt during the nine months ended December 31, 2012.

Net cash used in financing activities

	Nine months ended December 31,
	(Dollars in Thousands)
	2013			2012
Cash used in financing activities included the following:
Issuance of common stock under stock plans	$	755		$	516
Payment of contingent consideration	(841		)	(3,197		)
Treasury stock repurchases	(25,033		)	(20,727		)
Repayment of long-term debt	0			(62,000		)
Excess tax benefit from share-based compensation awards	2,039			1,934
	$	(23,080	)	$	(83,474	)

Cash used in financing activities was down$60.4 million to $23.1 million during the nine months ended December 31, 2013, compared to $83.5 million of cash used in financing activities in the nine months ended December 31, 2012.

During the quarter ended December 31, 2012, we paid down our outstanding credit facility in the amount of $62.0 million. As of the date of this filing there are no amounts outstanding under this credit facility.

During the nine months ended December 31, 2013 and 2012, we paid $841 thousand and $3.2 million, respectively, related to the contingent purchase consideration for the acquisition of Simena. For additional information with respect to the contingent purchase consideration, see Note 12 in the Notes to the Consolidated Financial Statements of this Form 10-Q.

Our Board of Directors has periodically authorized us to repurchase shares of our common stock. We are currently authorized to repurchase up to four million shares with cash from operations. During the nine months ended December 31,

30

2013 and 2012, we repurchased 750,407 and 749,499 shares at a cost of $19.7 million and $17.0 million, respectively, under this program. Future repurchases of shares will reduce our cash balances. In addition, during the nine months ended December 31, 2013 and 2012, we had 209,756 and 161,327 shares transferred to us from employees for tax withholding at a cost of $5.3 million and $3.7 million, respectively.

We generated $2.0 million and $1.9 million during the nine months ended December 31, 2013 and 2012, respectively, of the excess tax benefits from share-based compensation awards.

Credit Facility

On November 22, 2011, we entered into a new credit facility with a syndicate of lenders led by KeyBank National Association (KeyBank) which provides us with a $250 million revolving credit facility, which may be increased to $300 million at any time up to 90 days before maturity. The revolving credit facility includes a swing line loan sub-facility of up to $10 million and a letter of credit sub-facility of up to $10 million. The credit facility matures on November 21, 2016 and is secured by substantially all of our assets. At December 31, 2013, there were no amounts outstanding under the credit facility.

Expectations for Fiscal Year 2014

We believe that our cash balances, short-term marketable securities classified as available-for-sale and future cash flows generated by operations will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. In addition, we expect that cash provided by operating activities for our fiscal year 2014 will be in line with cash provided in our fiscal year 2013. Capital expenditures in our fiscal year 2014 are currently anticipated to be in line with previous years' trends.

Additionally, a portion of our cash may be used to acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies. From time to time, in the ordinary course of business, we evaluate potential acquisitions of such businesses, products or technologies such as our acquisitions of Psytechnics on April 1, 2011, Replay on October 3, 2011, Simena on November 18, 2011, certain assets, technology and employees of Accanto on July 20, 2012 and ONPATH on October 31, 2012. If our existing sources of liquidity are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or debt securities. The sale of additional equity or debt securities could result in additional dilution to our stockholders.

Recently Issued Accounting Pronouncements

In March 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2013-05 Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (ASU 2013-05).  ASU 2013-05 provides guidance on releasing cumulative translation adjustments when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or a business within a foreign entity.   ASU 2013-05 is effective on a prospective basis for fiscal years and interim reporting periods within those years, beginning after December 15, 2013 (the fourth quarter of fiscal year 2014 for us). Early adoption is permitted. This standard is not expected to have a material impact on our financial condition, results of operations, or cash flows.

31

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Credit Risk. Our cash equivalents and marketable securities consist primarily of money market instruments, U.S. Treasury bills, certificates of deposit, commercial paper, corporate bonds and municipal obligations.

At December 31, 2013, we maintained cash balances in various operating accounts in excess of federally insured limits. We limit the amount of credit exposure with any one financial institution by evaluating the creditworthiness of the financial institutions with which we invest.

Foreign Currency Exchange Risk. As a result of our foreign operations, we face exposure to movements in foreign currency exchange rates, primarily the Euro, British Pound, Canadian Dollar and Indian Rupee. The current exposures arise primarily from expenses denominated in foreign currencies. We currently engage in foreign currency hedging activities in order to limit these exposures. We do not use derivative financial instruments for speculative trading purposes.

As of December 31, 2013, we had foreign currency forward contracts with notional amounts totaling $15.7 million. The valuation of outstanding foreign currency forward contracts at December 31, 2013 resulted in an asset balance of $367 thousand, reflecting favorable rates in comparison to current market rates and a liability balance of $138 thousand, reflecting unfavorable contract rates in comparison to current market rates at this date. As of March 31, 2013, we had foreign currency forward contracts with notional amounts totaling $17.1 million. The valuation of outstanding foreign currency forward contracts at March 31, 2013 resulted in a liability balance of $249 thousand, reflecting unfavorable contract rates in comparison to current market rates at this date and an asset balance of $71 thousand reflecting favorable rates in comparison to current market rates.

Item 4.  Controls and Procedures

As of December 31, 2013, NetScout, under the supervision and with the participation of our management, including the Company's principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of December 31, 2013, our disclosure controls and procedures were effective in ensuring that material information relating to NetScout, including its consolidated subsidiaries, required to be disclosed by NetScout in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, including ensuring that such material information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

There were no changes in our internal controls that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

32

PART II: OTHER INFORMATION

Item 1.  Legal Proceedings

From time to time, NetScout is subject to legal proceedings and claims in the ordinary course of business. In the opinion of management, the amount of ultimate expense with respect to any current legal proceedings and claims, if determined adversely, will not have a significant adverse effect on our financial condition, results of operations or cash flows.

In March 2012, NetScout uncovered and investigated, and in April 2012, disclosed to the U.S. Department of Justice and the California State Attorney General potential violations of federal and California state anti-trust laws.  The potential violations involve a former employee and one or more third parties in connection with sales to state governmental agencies during fiscal year 2012.  NetScout believes it did not benefit from any of the transactions uncovered and that the amounts involved are not believed to be material.  The California State Attorney General is conducting an investigation into the matter.  NetScout is cooperating fully and is providing all requested information.  In general, the federal and state agencies have the authority to seek fines and other remedies for anti-trust violations; however, no charges or proceedings have been initiated by any governmental agency against NetScout and we have been informed by the Department of Justice that it does not intend to take any action against NetScout.

Item 1A.  Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for our fiscal year ended March 31, 2013. The risks discussed in our Annual Report on Form 10-K could materially affect our business, financial condition and future results. There have been no material changes to those risk factors since we filed our Annual Report on Form 10-K. The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition or operating results.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information about purchases we made during the quarter ended December 31, 2013 of equity securities that are registered by us pursuant to Section 12 of the Exchange Act:

Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares  That May Yet be Purchased Under the Plans or Programs
10/1/2013 - 10/31/2013	85,681	$	28.51	64,400	703,900
11/1/2013 - 11/30/2013	162,091	29.18		159,725	544,175
12/1/2013 - 12/31/2013	51,031	29.61		50,875	493,300
Total	298,803	$	29.06	275,000	493,300

(1) We purchased an aggregate of 23,803 shares transferred to us from employees in satisfaction of minimum tax withholding obligations associated with the vesting of restricted stock units during the period. These purchases reflected in the table do not reduce the maximum number of shares that may be purchased under the plan.

33

Item 6. Exhibits

(a) Exhibits

10.1	+	Form of Amended and Restated Indemnification Agreement between the Company and each director and executive officer.
31.1	+	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	+	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	++	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	++	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	**	XBRL Instance Document.
101.SCH	**	XBRL Taxonomy Extension Schema Document.
101.CAL	**	XBRL Taxonomy Extension Calculation Linkbase document.
101.DEF	**	XBRL Taxonomy Extension Definition Linkbase document.
101.LAB	**	XBRL Taxonomy Extension Label Linkbase document.
101.PRE	**	XBRL Taxonomy Extension Presentation Linkbase document.

+	Filed herewith.
++	Furnished herewith.
**	XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

34

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.

	NETSCOUT SYSTEMS, INC.
Date: January 28, 2014	/s/ Anil K. Singhal
	Anil K. Singhal
	President, Chief Executive Officer and Chairman
	(Principal Executive Officer)
Date: January 28, 2014	/s/ Jean Bua
	Jean Bua
	Senior Vice President and Chief Financial Officer
	(Principal Financial Officer)
	(Principal Accounting Officer)

35

EXHIBIT INDEX

Exhibit No.		Description
10.1	+	Form of Amended and Restated Indemnification Agreement between the Company and each director and executive officer.
31.1	+	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	+	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	++	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	++	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	**	XBRL Instance Document.
101.SCH	**	XBRL Taxonomy Extension Schema Document.
101.CAL	**	XBRL Taxonomy Extension Calculation Linkbase document.
101.DEF	**	XBRL Taxonomy Extension Definition Linkbase document.
101.LAB	**	XBRL Taxonomy Extension Label Linkbase document.
101.PRE	**	XBRL Taxonomy Extension Presentation Linkbase document.

+	Filed herewith.
++	Furnished herewith.
**	XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

36

EX-10.1

Exhibit 10.1

AMENDED AND RESTATED INDEMNIFICATION AGREEMENT

THIS AMENDED AND RESTATED INDEMNIFICATION AGREEMENT (the “Agreement”) is made and entered into as of __________, 2013 between NetScout Systems, Inc., a Delaware corporation (the “Company”), and ___________ (“Indemnitee”).

WITNESSETH THAT:

WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, officers and directors to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be indemnified;

WHEREAS, this Agreement is a supplement to and in furtherance of the certificate of incorporation and bylaws of the Company, as each shall be amended from time to time, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder;

WHEREAS, the Company and Indemnitee previously entered into an Indemnification Agreement with respect to the subject matter hereof (the “Prior Agreement”), and each of the Company and Indemnitee now desire to amend and restate the Prior Agreement in its entirety as set forth in this Agreement;

NOW, THEREFORE, in consideration of Indemnitee’s agreement to [continue to] serve as an [officer] [director] of the Company after the date hereof, the parties hereto agree to amend and restate the Prior Agreement in its entirety as follows:

1.Service by Indemnitee. The Indemnitee will serve and/or continue to serve as a director or officer of the Company faithfully and to the best of the Indemnitee’s ability so long as the Indemnitee is duly elected or appointed and until such time as the Indemnitee is removed, terminated, or tenders a resignation.

2.Indemnity of Indemnitee. The Company hereby agrees to hold harmless and indemnify Indemnitee to the fullest extent permitted by law, as such may be amended from time to time. In furtherance of the foregoing indemnification, and without limiting the generality thereof:

(a)Proceedings Other Than Proceedings by or in the Right of the Company. Indemnitee shall be entitled to the rights of indemnification provided in this Section 2(a) if, by reason of his Corporate Status (as hereinafter defined), the Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding (as hereinafter defined) other than a Proceeding by or in the right of the Company. Pursuant to this Section 2(a), Indemnitee shall be indemnified against all Expenses (as hereinafter defined), judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him, or on his behalf, in connection with such Proceeding or any claim, issue or matter therein, if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and with respect to any criminal Proceeding, had no reasonable cause to believe the Indemnitee’s conduct was unlawful. For the purposes hereof, being a “participant in any Proceeding” shall include the Indemnitee being made, or threatened to be made, a witness in any Proceeding to which Indemnitee is not a party by reason of Indemnitee’s Corporate Status.

1.

(b)Proceedings by or in the Right of the Company. Indemnitee shall be entitled to the rights of indemnification provided in this Section 2(b) if, by reason of his Corporate Status, the Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding brought by or in the right of the Company. Pursuant to this Section 2(b), Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by the Indemnitee, or on the Indemnitee’s behalf, in connection with such Proceeding if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company; provided, however, if applicable law so provides, no indemnification against such Expenses shall be made in respect of any claim, issue or matter in such Proceeding as to which Indemnitee shall have been adjudged to be liable to the Company unless and to the extent that the Court of Chancery of the State of Delaware shall determine that such indemnification may be made.

(c)Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, he shall be indemnified to the maximum extent permitted by law, as such may be amended from time to time, against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

3.Additional Indemnity. In addition to, and without regard to any limitations on, the indemnification provided for in Section 2 of this Agreement, the Company shall and hereby does indemnify and hold harmless Indemnitee against all Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf if, by reason of his Corporate Status, he is, or is threatened to be made, a party to or participant in any Proceeding (including a Proceeding by or in the right of the Company), including, without limitation, all liability arising out of the negligence or active or passive wrongdoing of Indemnitee. The only limitation that shall exist upon the Company’s obligations pursuant to this Agreement shall be that the Company shall not be obligated to make any payment to Indemnitee that is finally determined (under the procedures, and subject to the presumptions, set forth in Sections 6 and 7 hereof) to be unlawful.

4.Contribution. If the indemnification provided in Sections 2 and 3 is unavailable and may not be paid to Indemnitee, then in respect of any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), the Company shall contribute to the amount of expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by Indemnitee in such proportion as is appropriate to reflect (i) the relative benefits received by the Company on the one hand and Indemnitee on the other hand from the transaction from which such action, suit or proceeding arose, and (ii) the relative fault of the Company on the one hand and of Indemnitee on the other in connection with the events which resulted in such expenses, judgments, fines or settlement amounts, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and of Indemnitee on the other shall be determined by reference to, among other things, the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent the circumstances resulting in such expenses, judgments, fines or settlement amounts. The Company agrees that it would not be just and equitable if contribution pursuant to this Section 4 were determined by pro rata allocation or any other method of allocation that does not take account of the foregoing equitable considerations.

2.

5.Advancement of Expenses. To the extent not prohibited by law, the Company shall advance all Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding by reason of Indemnitee’s Corporate Status (but only with respect to such Expenses incurred prior to final disposition of such Proceeding) within 10 days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether such notice is received prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by an undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately be determined that Indemnitee is not entitled to be indemnified against such Expenses. Any advances and undertakings to repay pursuant to this Section 5 shall be unsecured and interest free and without regard to Indemnitee’s ability to repay the Expenses.

6.Procedures and Presumptions for Determination of Entitlement to Indemnification. It is the intent of this Agreement to secure for Indemnitee rights of indemnity that are as favorable as may be permitted under the Delaware General Corporation Law and public policy of the State of Delaware. Accordingly, the parties agree that the following procedures and presumptions shall apply in the event of any question as to whether Indemnitee is entitled to indemnification under this Agreement.

(a)To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification.

(b)Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 6(a) hereof, a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall be made (A) if a Change in Control (as hereinafter defined) shall have occurred and if so requested in writing by Indemnitee, by Independent Counsel (as hereinafter defined) in a written opinion to the Board of Directors; or (B) if a Change in Control shall not have occurred (or if a Change in Control shall have occurred but Indemnitee shall not have requested that indemnification be determined by Independent Counsel as provided in clause (A)), by one of the following methods (unless ordered by a court), which shall be at the election of the Board of Directors: (1) by a majority vote of the disinterested directors, even though less than a quorum, by a committee of disinterested directors designated by a majority vote of the disinterested directors, even though less than a quorum, (2) if there are no disinterested directors or if the disinterested directors so direct, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to the Indemnitee, or (3) by the stockholders of the Company. For purposes hereof, disinterested directors are those members of the Board of Directors of the Company who are not parties to the action, suit or proceeding in respect of which indemnification is sought by Indemnitee. The Company agrees to pay the reasonable fees of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

(c)If the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 6(b) hereof, the Independent Counsel shall be selected as provided in this Section 6(c). The Independent Counsel shall be selected by the Board of Directors and shall be reasonably acceptable to Indemnitee. The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in connection with acting pursuant to Section 6(b) hereof, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 6(c), regardless of the manner in which such Independent Counsel was selected or appointed.

3.

(d)In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.

(e)If the person, persons or entity empowered or selected under Section 6 to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such 60-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making such determination with respect to entitlement to indemnification in good faith requires such additional time to obtain or evaluate documentation and/or information relating thereto.

(f)Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any Independent Counsel, member of the Board of Directors or stockholder of the Company shall act reasonably and in good faith in making a determination regarding the Indemnitee’s entitlement to indemnification under this Agreement.

(g)The Company acknowledges that a settlement or other disposition short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and uncertainty. In the event that any action, claim or proceeding to which Indemnitee is a party is resolved in any manner other than by adverse judgment against Indemnitee (including, without limitation, settlement of such action, claim or proceeding with or without payment of money or other consideration) it shall be presumed that Indemnitee has been successful on the merits or otherwise in such action, suit or proceeding. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.

(h)The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful.

7.Remedies of Indemnitee.

(a)In the event that (i) a determination is made pursuant to Section 6 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 5 of this Agreement, (iii) no determination of entitlement to indemnification is made within the timeframe provided in Section 6, (iv) payment of indemnification is not made pursuant to this Agreement within ten (10) days after receipt by the Company of a written request therefor or (v) payment of indemnification is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification or such determination is deemed to have been made pursuant to Section 6 of this Agreement, Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction, of Indemnitee’s entitlement

4.

to such indemnification. Indemnitee shall commence such proceeding seeking an adjudication within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 7(a). The Company shall not oppose Indemnitee’s right to seek any such adjudication.

(b)In the event that a determination shall have been made pursuant to Section 6 of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding commenced pursuant to this Section 7 shall be conducted in all respects as a de novo trial on the merits, and Indemnitee shall not be prejudiced by reason of the adverse determination under Section 6.

(c)The Company shall be precluded from asserting in any judicial proceeding commenced pursuant to this Section 7 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court that the Company is bound by all the provisions of this Agreement.

(d)Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding.

8.Non-Exclusivity; Survival of Rights; Insurance; Subrogation.

(a)The rights of indemnification as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the certificate of incorporation of the Company, the Bylaws, any agreement, a vote of stockholders, a resolution of directors or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in the Delaware General Corporation Law, whether by statute or judicial decision, permits greater indemnification than would be afforded currently under the certificate of incorporation, Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

(b)To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or agents or fiduciaries of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that such person serves at the request of the Company, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any director, officer, employee, agent or fiduciary under such policy or policies. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.

(c)In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

5.

(d)The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.

9.Exceptions to Right of Indemnification; Securities Act Liabilities. Notwithstanding any provision in this Agreement:

(a)With respect to any Proceeding initiated against the Company by the Indemnitee (whether initiated by the Indemnitee in or by reason of such person’s capacity as an officer or director of the Company or in or by reason of any other capacity, including, without limitation, as an employee or agent of the Company or a director, officer, employee, or agent of another entity), the Company shall not be required to indemnify or to advance Expenses to the Indemnitee in connection with prosecuting such Proceeding (or any part thereof) or in defending any counterclaim, cross-claim, affirmative defense, or like claim of the Company in such Proceeding (or part thereof) unless such Proceeding was authorized by the Board of Directors of the Company. For purposes of this Section 9, a compulsory counterclaim by the Indemnitee against the Company in connection with a Proceeding initiated against the Indemnitee by the Company shall not be considered a Proceeding (or part thereof) initiated against the Company by the Indemnitee, and the Indemnitee shall have all rights of indemnification and advancement with respect to any such compulsory counterclaim in accordance with and subject to the terms of this Agreement

(b)Except as provided in Section 2(c) hereof with respect to indemnification of Expenses in connection with whole or partial success on the merits or otherwise in defending any Proceeding, the Company shall not be required to indemnify the Indemnitee in connection with any claim made against Indemnitee for (i) an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of state statutory law or common law, or (ii) any reimbursement of the Company by the Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by the Indemnitee from the sale of securities of the Company, as required in each case under the Securities Exchange Act of 1934, as amended, (including any such reimbursements that arise from an accounting restatement of the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), or the payment to the Company of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act).

10.Assumption of Defense.

(a)Except as otherwise provided in this Section 10, to the extent that it may wish, the Company may, separately or jointly with any other indemnifying party, assume the defense of the Proceeding, or to participate to the extent permissible in such Proceeding.  After notice from the Company to Indemnitee of its election to assume the defense of a Proceeding, the Company shall not be liable to Indemnitee under this Agreement for any Expenses subsequently incurred by Indemnitee except as otherwise provided below.  Indemnitee shall have the right to employ Indemnitee’s own counsel in such Proceeding, but the fees and expenses of such counsel incurred after notice from the Company of its assumption of the defense thereof shall be at the expense of Indemnitee unless (i) the employment of counsel by Indemnitee has been authorized by the Company, (ii) the Company shall not within twenty (20) days of providing notice to Indemnitee of its election to assume the defense of a Proceeding in fact have engaged counsel to assume the defense of a Proceeding, or (iii) Indemnitee’s qualified legal counsel shall have determined, reasonably and in good faith, that there is a material conflict of interest between the Indemnitee, on the one hand, and the Company or the counsel the Company has retained or proposed to retain to represent the Indemnitee, on the other hand, relating to the conduct or defense of the Proceeding (or that there is a significant and reasonable likelihood of such a material

6.

conflict of interest imminently arising), and the Company is promptly notified of such determination in writing, which writing shall set forth the bases for such determination in reasonable detail. 

(b)The Company shall not be entitled to assume the defense of any Proceeding brought by or on behalf of the Company, or as to which Indemnitee’s qualified legal counsel shall have made the determination provided for in clause (a)(iii) above. 

(c)If the Indemnitee fails to provide the Company written notice of a Proceeding in accordance with Section 16 of this Agreement within a reasonable time after the Indemnitee is served with any summons, citation, subpoena, complaint, indictment, information or other document relating to the commencement or threatened commencement of any Proceeding, then the Company shall have no obligation to indemnify or advance Expenses to Indemnitee as to Expenses incurred prior to Indemnitee’s notification of Company.

11.Duration of Agreement. All agreements and obligations of the Company contained herein shall continue during the period Indemnitee is an officer or director of the Company (or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise) and shall continue thereafter so long as Indemnitee shall be subject to any Proceeding (or any proceeding commenced under Section 7 hereof) by reason of his Corporate Status, whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), assigns, spouses, heirs, executors and personal and legal representatives.

12.Enforcement.

(a)The Company expressly confirms and agrees that it has entered into this Agreement and assumes the obligations imposed on it hereby in order to induce Indemnitee to serve as an officer or director of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as an officer or director of the Company.

(b)This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof, including, but not limited to, the Prior Agreement.

13.Definitions. For purposes of this Agreement.

(a)“Change in Control” means the occurrence, after the date hereof, of any of the following events: (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company acting in such capacity or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the total voting power represented by the Company’s then outstanding voting stock, (ii) during any period of two (2) consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company’s stockholders was approved by a vote

7.

of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation other than a merger or consolidation that would result in the voting stock of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting stock of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting stock of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company (in one transaction or a series of related transactions) of all or substantially all of the Company’s assets.

(b)“Corporate Status” describes the status of a person who is or was a director, officer, employee, agent or fiduciary of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that such person is or was serving at the express written request of the Company.

(c)“Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.

(d)“Expenses” shall include all reasonable attorneys’ fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees and all other direct or indirect disbursements or expenses of the reasonably customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, participating, or being or preparing to be a witness in a Proceeding. Expenses also shall include Expenses incurred in connection with any appeal resulting from any Proceeding, including without limitation the premium, security for, and other costs relating to any cost bond, supersede as bond, or other appeal bond or its equivalent. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments, penalties or fines against Indemnitee for such individual’s violations of the law.

(e)“Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.

(f)“Proceeding” includes any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought by or in the right of the Company or otherwise and whether civil, criminal, administrative or investigative, and whether formal or informal, in which Indemnitee was, is or will be involved as a party or otherwise, by reason of the fact that Indemnitee is or was an officer or director of the Company, by reason of any action taken by him or of any inaction on his part while acting as an officer or director of the Company, or by reason of the fact that he is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise; in each case whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification, reimbursement or advancement of expenses may be provided under this Agreement; including one pending on or before the date of this

8.

Agreement, but excluding one initiated by an Indemnitee pursuant to Section 7 of this Agreement to enforce his rights under this Agreement.

14.Severability. The invalidity of unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. Without limiting the generality of the foregoing, this Agreement is intended to confer upon Indemnitee indemnification rights to the fullest extent permitted by applicable laws. In the event any provision hereof conflicts with any applicable law, such provision shall be deemed modified, consistent with the aforementioned intent, to the extent necessary to resolve such conflict.

15.Modification and Waiver. No supplement, modification, termination or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

16.Notice By Indemnitee. Indemnitee agrees promptly to notify the Company in writing upon being served with or otherwise receiving any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification covered, or pursuant to which amounts may be advanced, hereunder. The failure to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise unless and only to the extent that such failure or delay materially prejudices the Company.

17.Notices. All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent:

(a)To Indemnitee at the address set forth below Indemnitee signature hereto.

(b)To the Company at:

NetScout Systems, Inc.

310 Littleton Road

Westford, MA 01886-4105

Attention: Chief Executive Officer

or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.

18.Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement. This Agreement may also be executed and delivered by facsimile signature and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

19.Headings. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

9.

20.Governing Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. The Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the “Delaware Court”), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) appoint, to the extent such party is not otherwise subject to service of process in the State of Delaware, irrevocably the Company as its agent in the State of Delaware as such party’s agent for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.

10.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and year first above written.

NETSCOUT SYSTEMS, INC.

By:______________________________________

Name:______________________________________

Title:_______________________________________

INDEMNITEE

________________________________________

Name:___________________________________

Address:

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Anil K. Singhal, certify that:

1. I have reviewed this quarterly report on Form 10-Q of NetScout Systems, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: January 28, 2014

/s/ Anil K. Singhal

Anil K. Singhal

President, Chief Executive Officer and Chairman

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Jean Bua, certify that:

1. I have reviewed this quarterly report on Form 10-Q of NetScout Systems, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: January 28, 2014

/s/ Jean Bua

Jean Bua

Senior Vice President and Chief Financial Officer

(Principal Financial Officer)

(Principal Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of NetScout Systems, Inc. (the “Company”) on Form 10-Q for the period ending December 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Anil K. Singhal, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Anil K. Singhal

Anil K. Singhal

President, Chief Executive Officer and Chairman

January 28, 2014

This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Netscout Systems, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of NetScout Systems, Inc. (the “Company”) on Form 10-Q for the period ending December 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jean Bua, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Jean Bua

Jean Bua

Senior Vice President and Chief Financial Officer

(Principal Financial Officer)

(Principal Accounting Officer)

January 28, 2014

This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Netscout Systems, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

XML

CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES - Contractual Maturities of Marketable Securities (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Mar. 31, 2013
Available-for-sale securities:
Due in 1 year or less	$ 56,343	$ 37,338
Due after 1 year through 5 years	37,222	16,823
Fair Value	$ 93,565	$ 54,161

XML

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - Additional Information (Detail)	9 Months Ended
	Dec. 31, 2013
Derivative Instruments and Hedging Activities Disclosure [Abstract]
Hedging forecasted cash flows for operating expenses denominated in foreign currencies managed in months	12 months
Contract maturing over next months	12 months

XML

GOODWILL AND INTANGIBLE ASSETS - Schedule of Changes in Carrying Amount of Goodwill (Detail) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Dec. 31, 2013
Goodwill [Roll Forward]
Balance as of March 31, 2013	$ 202,453
Purchase accounting adjustments	(665)
Foreign currency translation impact	1,413
Balance as of December 31, 2013	$ 203,201

XML

LONG-TERM DEBT - Additional Information (Detail) (USD $)	0 Months Ended		9 Months Ended
	Oct. 29, 2012	Nov. 22, 2011	Dec. 31, 2013
Debt Instrument [Line Items]
Payment of outstanding credit facility	$ 62,000,000
Revolving credit facility outstanding amount		250,000,000
Increase in revolving credit facility outstanding amount		300,000,000
Term for increase in revolving credit facility before maturity date, days		90 days
Line of credit facility, maturity		Nov. 21, 2016
Percentage of capital stock of foreign subsidiaries used as guarantee			65.00%
Federal funds effective rate
Debt Instrument [Line Items]
Interest rate in excess of effective rate		0.50%
LIBOR
Debt Instrument [Line Items]
Margin over applicable interest rate		1.00%
Maximum
Debt Instrument [Line Items]
Leverage ratio		2.50
Maximum | Base rate loans
Debt Instrument [Line Items]
Margin over applicable interest rate		1.00%
Maximum | Eurodollar rate loans
Debt Instrument [Line Items]
Margin over applicable interest rate		2.00%
Minimum
Debt Instrument [Line Items]
Leverage ratio		1.00
Minimum | Base rate loans
Debt Instrument [Line Items]
Margin over applicable interest rate		0.25%
Minimum | Eurodollar rate loans
Debt Instrument [Line Items]
Margin over applicable interest rate		1.25%
Swing line loan sub-facility | Maximum
Debt Instrument [Line Items]
Revolving credit facility outstanding amount		10,000,000
Letter of credit sub-facility | Maximum
Debt Instrument [Line Items]
Revolving credit facility outstanding amount		$ 10,000,000

XML

ACQUISITIONS - Pro Forma Results of Consolidated Statement of Operations (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended	9 Months Ended
	Dec. 31, 2012	Dec. 31, 2012
Business Acquisition, Pro Forma Information [Abstract]
Pro forma revenue	$ 94,221	$ 263,009
Pro forma net income	$ 11,038	$ 20,036
Pro forma income per share:
Basic (in dollars per share)	$ 0.26	$ 0.48
Diluted (in dollars per share)	$ 0.26	$ 0.47
Pro forma shares outstanding
Basic	41,709	41,715
Diluted	42,298	42,364

XML

NET INCOME PER SHARE (Tables)

9 Months Ended

Dec. 31, 2013

Earnings Per Share [Abstract]

Calculations of the Basic and Diluted Net Income Per Share and Potential Common Shares

Calculations of the basic and diluted net income per share and potential common shares are as follows (in thousands, except for per share data):

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2013		2012		2013		2012
Numerator:
Net income	$	17,294	$	11,138	$	32,430	$	26,056
Denominator:
Denominator for basic net income per share - weighted average shares outstanding	41,425		41,709		41,417		41,715
Dilutive common equivalent shares:
Weighted average stock options	43		111		63		127
Weighted average restricted stock units	416		478		489		522
Denominator for diluted net income per share - weighted average shares outstanding	41,884		42,298		41,969		42,364
Net income per share:
Basic net income per share	$	0.42	$	0.27	$	0.78	$	0.62
Diluted net income per share	$	0.41	$	0.26	$	0.77	$	0.62

Antidilutive Securities Excluded from Computation of Diluted EPS

The following table sets forth restricted stock units excluded from the calculation of diluted net income per share, since their inclusion would be antidilutive (in thousands).

	Three Months Ended		Nine Months Ended
	December 31,		December 31,
	2013	2012	2013	2012
Restricted stock units	—	43	195	283

XML

RESTRUCTURING CHARGES - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended		12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Mar. 31, 2013 Severance
Restructuring Cost and Reserve [Line Items]
Restructuring charges	$ 0	$ (1)	$ 0	$ 1,065	$ 1,200

XML

SHARE-BASED COMPENSATION (Tables)

9 Months Ended

Dec. 31, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Components Of Share-Based Compensation Expense

The following is a summary of share-based compensation expense including restricted stock units and employee stock purchases made under our employee stock purchase plan (ESPP) based on estimated fair values within the applicable cost and expense lines identified below (in thousands):

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2013		2012		2013		2012
Cost of product revenue	$	62	$	61	$	174	$	176
Cost of service revenue	194		96		566		249
Research and development	1,157		778		3,316		2,164
Sales and marketing	944		775		2,952		2,301
General and administrative	860		754		2,951		2,353
	$	3,217	$	2,464	$	9,959	$	7,243

XML

GOODWILL AND INTANGIBLE ASSETS - Schedule of Expected Future Amortization Expense (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013
Finite-Lived Intangible Assets, Net, Amortization Expense, Fiscal Year Maturity [Abstract]
2014 (remaining three months)	$ 2,052
2015	6,984
2016	6,439
2017	5,858
2018	5,078
Thereafter	14,816
Total	$ 41,227

XML

FAIR VALUE MEASUREMENTS - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Recognized adjustment earnings	$ 289
Fair value assumption, discount rate	3.30%
Deal related compensation expense and accretion charges	114	205
Contingent Purchase Consideration
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Payments	$ 841

XML

SHARE-BASED COMPENSATION - Additional Information (Detail) (USD $)	9 Months Ended
	Dec. 31, 2013
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Percentage of common stock price for employees	85.00%
Shares purchased by employees under ESPP plan	89,765
Shares purchased by employees under ESPP plan, fair value per share (in dollars per share)	$ 24.84

XML

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - Summary of Notional Amounts and Fair Values of Derivative Instruments on Consolidated Balance Sheet (Detail) (Forward contracts, USD $) In Thousands, unless otherwise specified	Dec. 31, 2013		Mar. 31, 2013
Derivatives, Fair Value [Line Items]
Notional Amounts	$ 15,675	[1]	$ 17,071	[1]
Other Current Assets
Derivatives, Fair Value [Line Items]
Liability derivatives fair value	367		71
Accrued Other Liabilities
Derivatives, Fair Value [Line Items]
Asset derivatives fair value	$ 138		$ 249

[1] Notional amounts represent the gross contract/notional amount of the derivatives outstanding.

XML

NET INCOME PER SHARE - Antidilutive Securities Excluded from Computation of Diluted EPS (Detail) (Restricted stock units) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012
Restricted stock units
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluding from calculation of diluted net income per share	0	43	195	283

XML

ACQUISITIONS - Additional Information (Detail) (USD $)	9 Months Ended							0 Months Ended			0 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Mar. 31, 2013	Dec. 31, 2013 Unified Service Delivery	Mar. 31, 2013 Unified Service Delivery	Dec. 31, 2013 Test Automation	Mar. 31, 2013 Test Automation	Oct. 31, 2012 Onpath	Oct. 31, 2012 Onpath Unified Service Delivery	Oct. 31, 2012 Onpath Test Automation	Jul. 20, 2012 Accanto Systems Srl
Business Acquisition [Line Items]
Preliminary purchase price allocation period, years	1 year
Total purchase price								$ 41,000,000
Cash consideration to employee and directors								8,200,000
Transaction bonus considered as compensation								4,000,000
Goodwill acquired	203,201,000		202,453,000	200,800,000	199,500,000	2,400,000	3,000,000	19,897,000	17,500,000	2,400,000	11,157,000
Weighted average useful life of identifiable intangible assets acquired	10 years 1 month 6 days							7 years 6 months			7 years 3 months 18 days
Net tax credit recorded for research and development activities of acquiree								517,000
Cash payments to acquire business	0	51,273,000									15,000,000
Acquired software intangible, tax deductible amount											2,100,000
Business acquisition, revenue recorded	$ 9,000,000

XML

CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS

9 Months Ended

Dec. 31, 2013

Risks and Uncertainties [Abstract]

CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS

CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS

Financial instruments that potentially subject us to concentration of credit risk consist primarily of investments, trade accounts receivable and accounts payable. Our cash, cash equivalents, and marketable securities are placed with financial institutions with high credit standings.

At December 31, 2013, the Company had no single indirect channel partner which accounted for more than 10% of the accounts receivable balance, while two direct customers accounted for more than 10% of the accounts receivable balance. At March 31, 2013, no single direct customer or indirect channel partner accounted for more than 10% of the accounts receivable balance.

During the three and nine months ended December 31, 2013, one direct customer accounted for more than 10% of our total revenue, while no indirect channel partner accounted for more than 10% of total revenue during the three and nine months ended December 31, 2013. During the three and nine months ended December 31, 2012, no one direct customer or indirect channel partner accounted for more than 10% of total revenue.

Historically, the Company has not experienced any significant failure of its customers to meet their payment obligations nor does the Company anticipate material non-performance by its customers in the future; accordingly, the Company does not require collateral from its customers. However, if the Company’s assumptions are incorrect, there could be an adverse impact on its allowance for doubtful accounts.

XML

Income Taxes - Additional Information (Detail)	9 Months Ended		12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Mar. 31, 2013
Income Tax Disclosure [Abstract]
Estimated annual effective tax rate	37.60%	38.10%	36.30%

XML

INVENTORIES - Components of Inventories (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Mar. 31, 2013
Inventory Disclosure [Abstract]
Raw materials	$ 6,959	$ 3,986
Work in process	246	272
Finished goods	3,923	3,305
Total inventories	$ 11,128	$ 7,563

XML

ACQUISITIONS (Tables)

9 Months Ended

Dec. 31, 2013

Business Acquisition [Line Items]

Pro Forma Results of Consolidated Statement of Operations

The following table presents unaudited proforma results of the historical Consolidated Statements of Operations of the Company ONPATH and Accanto for the three and nine months ended December 31, 2012, giving effect to the mergers as if they occurred on April 1, 2012 (in thousands, except per share data):

	Three Months Ended		Nine Months Ended
	December 31, 2012		December 31, 2012
	(unaudited)		(unaudited)
Pro forma revenue	$	94,221	$	263,009
Pro forma net income	$	11,038	$	20,036
Pro forma income per share:
Basic	$	0.26	$	0.48
Diluted	$	0.26	$	0.47
Pro forma shares outstanding
Basic	41,709		41,715
Diluted	42,298		42,364

Onpath

Business Acquisition [Line Items]

Summary of Purchase Price Allocation

The following table summarizes the allocation of the purchase price (in thousands):

Allocation of the purchase consideration:
Current assets, including cash and cash equivalents of $527	$	8,356
Fixed assets	784
Identifiable intangible assets	10,970
Goodwill	19,897
Deferred tax asset	7,329
Other assets	1,432
Total assets acquired	48,768
Current liabilities	(6,387		)
Deferred revenue	(921		)
Deferred income tax liabilities	(4,660		)
	$	36,800

Fair value of Acquired Identifiable Intangible Assets and Related Estimates of Useful Lives

The following table reflects the fair value of the acquired identifiable intangible assets and related estimates of useful lives (in thousands, except for years):

	Fair Value		Useful Life (Years)
Developed technology	$	4,970	8
Customer relationships	6,000		7
	$	10,970

Accanto Systems Srl

Business Acquisition [Line Items]

Summary of Purchase Price Allocation

The following table summarizes the allocation of the purchase price (in thousands):

Allocation of the purchase consideration:
Current assets	$	389
Fixed assets	237
Identifiable intangible assets	5,280
Goodwill	11,157
Total assets acquired	17,063
Current liabilities	(839		)
Deferred revenue	(240		)
Deferred income tax liabilities	(984		)
	$	15,000

Fair value of Acquired Identifiable Intangible Assets and Related Estimates of Useful Lives

The following table reflects the fair value of the acquired identifiable intangible assets and related estimates of useful lives (in thousands, except for years):

	Fair Value		Useful Life (Years)
Developed technology	$	3,500	8
Distributor relationships	1,780		6
	$	5,280

XML

INVENTORIES (Tables)

9 Months Ended

Dec. 31, 2013

Inventory Disclosure [Abstract]

Components Of Inventories

Inventories consist of the following (in thousands):

	December 31, 2013		March 31, 2013
Raw materials	$	6,959	$	3,986
Work in process	246		272
Finished goods	3,923		3,305
	$	11,128	$	7,563

XML

RESTRUCTURING CHARGES - Schedule of Restructuring Liability (Detail) (Severance, USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Dec. 31, 2013	Dec. 31, 2013
Severance
Employee Severance:
Balance at beginning of period	$ 71	$ 910
Other adjustments	0	(49)
Cash payments	0	(790)
Balance as of December 31, 2013	$ 71	$ 71

XML

ACQUISITIONS - Allocation of Purchase Price (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Mar. 31, 2013	Oct. 31, 2012 Onpath	Jul. 20, 2012 Accanto Systems Srl
Allocation of the purchase consideration:
Current assets, including cash and cash equivalents of $527			$ 8,356	$ 389
Cash and cash equivalents			527
Fixed assets			784	237
Identifiable intangible assets			10,970	5,280
Goodwill	203,201	202,453	19,897	11,157
Deferred tax asset			7,329
Other assets			1,432
Total assets acquired			48,768	17,063
Current liabilities			(6,387)	(839)
Deferred revenue			(921)	(240)
Deferred income tax liabilities			(4,660)	(984)
Net assets acquired			$ 36,800	$ 15,000

XML

GOODWILL AND INTANGIBLE ASSETS (Tables)

9 Months Ended

Dec. 31, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule Of Changes In The Carrying Amount Of Goodwill

The changes in the carrying amount of goodwill for the nine months ended December 31, 2013 are as follows (in thousands):

	Nine Months Ended
	December 31, 2013
Balance as of March 31, 2013	$	202,453
Purchase accounting adjustments	(665		)
Foreign currency translation impact	1,413
Balance as of December 31, 2013	$	203,201

Schedule Of Acquired Intangible Assets

Intangible assets include an indefinite lived trade name with a carrying value of $18.6 million and the following amortizable intangible assets as of December 31, 2013 (in thousands):

	Cost		Accumulated Amortization			Net
Developed technology	$	31,603	$	(22,964	)	$	8,639
Customer relationships	38,789		(13,294		)	25,495
Distributor relationships	1,996		(480		)	1,516
Core technology	7,553		(2,389		)	5,164
Non-compete agreements	352		(264		)	88
Other	696		(371		)	325
	$	80,989	$	(39,762	)	$	41,227

Intangible assets include an indefinite lived trade name with a carrying value of $18.6 million and the following amortizable intangible assets as of March 31, 2013 (in thousands):

	Cost		Accumulated Amortization			Net
Developed technology	$	30,848	$	(21,343	)	$	9,505
Customer relationships	38,718		(11,038		)	27,680
Distributor relationships	1,895		(219		)	1,676
Core technology	7,446		(1,455		)	5,991
Non-compete agreements	334		(167		)	167
Other	483		(275		)	208
	$	79,724	$	(34,497	)	$	45,227

Schedule Of Expected Future Amortization Expense

The following is the expected future amortization expense as of December 31, 2013 for the years ended March 31 (in thousands):

2014 (remaining three months)	$	2,052
2015	6,984
2016	6,439
2017	5,858
2018	5,078
Thereafter	14,816
	$	41,227

XML

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Tables)

9 Months Ended

Dec. 31, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Summary Of Notional Amounts And Fair Values Of Derivative Instruments On Consolidated Balance Sheet

The notional amounts and fair values of derivative instruments in the consolidated balance sheets as of December 31, 2013 and March 31, 2013 were as follows (in thousands):

	Notional Amounts (a)				Other Current Assets				Accrued Other Liabilities
	December 31, 2013		March 31, 2013		December 31, 2013		March 31, 2013		December 31, 2013		March 31, 2013
Derivatives Designated as Hedging Instruments:
Forward contracts	$	15,675	$	17,071	$	367	$	71	$	138	$	249

(a) Notional amounts represent the gross contract/notional amount of the derivatives outstanding.

Effect Of Foreign Exchange Forward Contracts On OCI And Results Of Operations

The following table provides the effect foreign exchange forward contracts had on other comprehensive income (loss) (OCI) and results of operations for the three months ended December 31, 2013 and 2012 (in thousands):

Derivatives in Cash Flow Hedging Relationships	Effective Portion												Ineffective Portion
	Gain (Loss) Recognized in OCI on Derivative (a)					Gain (Loss) Reclassified from Accumulated OCI into Income (b)							Gain (Loss) Recognized in Income (Amount Excluded from Effectiveness Testing) (c)
	December 31, 2013		December 31, 2012			Location	December 31, 2013			December 31, 2012			Location	December 31, 2013		December 31, 2012
Forward contracts	$	87	$	(46	)	Research and development	$	(109	)	$	(52	)	Research and development	$	75	$	51
						Sales and marketing	149			67			Sales and marketing	3		(9		)
	$	87	$	(46	)		$	40		$	15			$	78	$	42

(a) The amount represents the change in fair value of derivative contracts due to changes in spot rates.

(b) The amount represents reclassification from other comprehensive income to earnings that occurs when the hedged item affects earnings.

(c) The amount represents the change in fair value of derivative contracts due to changes in the difference between the spot price and forward price that is excluded from the assessment of hedge effectiveness and therefore recognized in earnings. No gains or losses were reclassified as a result of discontinuance of cash flow hedges.

The following table provides the effect foreign exchange forward contracts had on other comprehensive income (loss) (OCI) and results of operations for the nine months ended December 31, 2013 and 2012 (in thousands):

Derivatives in Cash Flow Hedging Relationships	Effective Portion												Ineffective Portion
	Gain (Loss) Recognized in OCI on Derivative (a)					Gain (Loss) Reclassified from Accumulated OCI into Income (b)							Gain (Loss) Recognized in Income (Amount Excluded from Effectiveness Testing) (c)
	December 31, 2013		December 31, 2012			Location	December 31, 2013			December 31, 2012			Location	December 31, 2013			December 31, 2012
Forward contracts	$	90	$	(22	)	Research and development	$	(293	)	$	(289	)	Research and development	$	172		$	137
						Sales and marketing	44			41			Sales and marketing	(3		)	(4		)
	$	90	$	(22	)		$	(249	)	$	(248	)		$	169		$	133

(a) The amount represents the change in fair value of derivative contracts due to changes in spot rates.

(b) The amount represents reclassification from other comprehensive income to earnings that occurs when the hedged item affects earnings.

(c) The amount represents the change in fair value of derivative contracts due to changes in the difference between the spot price and forward price that is excluded from the assessment of hedge effectiveness and therefore recognized in earnings. No gains or losses were reclassified as a result of discontinuance of cash flow hedges.

XML

BASIS OF PRESENTATION

9 Months Ended

Dec. 31, 2013

Organization, Consolidation and Presentation of Financial Statements [Abstract]

BASIS OF PRESENTATION

BASIS OF PRESENTATION

The accompanying unaudited interim consolidated financial statements have been prepared by NetScout Systems, Inc., or NetScout or the Company. Certain information and footnote disclosures normally included in financial statements prepared under generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). In the opinion of management, the unaudited interim consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the Company’s financial position, results of operations and cash flows. The year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The results reported in these consolidated financial statements are not necessarily indicative of results that may be expected for the entire year. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements, including the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2013.

Recent Accounting Pronouncements

In March 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2013-05 Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (ASU 2013-05).  ASU 2013-05 provides guidance on releasing cumulative translation adjustments when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or a business within a foreign entity.   ASU 2013-05 is effective on a prospective basis for fiscal years and interim reporting periods within those years, beginning after December 15, 2013 (the fourth quarter of fiscal year 2014 for the Company). Early adoption is permitted. This standard is not expected to have a material impact on the Company's financial condition, results of operations, or cash flows.

XML

RESTRUCTURING CHARGES (Tables)

9 Months Ended

Dec. 31, 2013

Restructuring and Related Activities [Abstract]

Schedule Of Restructuring Liability

The following table provides a summary of the activity related to these restructuring plans and the related liability included as accrued compensation on the Company's consolidated balance sheet (in thousands):

	Three Months Ended		Nine Months Ended
Employee Severance:	December 31, 2013		December 31, 2013
Balance at beginning of period	$	71	$	910
Other adjustments	—		(49		)
Cash payments	—		(790		)
Balance as of December 31, 2013	$	71	$	71

XML

FAIR VALUE MEASUREMENTS - Schedule of Financial Assets and Liabilities (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Mar. 31, 2013
ASSETS:
Cash and cash equivalents	$ 88,648	$ 99,930
Marketable securities	93,565	54,161
Derivative financial instruments	367	71
Total assets	182,580	154,162
LIABILITIES:
Contingent purchase consideration	(4,219)	(5,087)
Contingent contractual non-compliance liability	(98)	(246)
Derivative financial instruments	(138)	(249)
Total liabilities	(4,455)	(5,582)
U.S. government and municipal obligations
ASSETS:
Marketable securities	74,603	31,645
Commercial paper
ASSETS:
Marketable securities	7,093	12,390
Corporate bonds
ASSETS:
Marketable securities	9,810	5,166
Certificates of deposit
ASSETS:
Marketable securities	2,059	4,960
Level 1
ASSETS:
Cash and cash equivalents	88,648	99,930
Derivative financial instruments	0	0
Total assets	173,061	136,741
LIABILITIES:
Contingent purchase consideration	0	0
Contingent contractual non-compliance liability	0	0
Derivative financial instruments	0	0
Total liabilities	0	0
Level 1 | U.S. government and municipal obligations
ASSETS:
Marketable securities	74,603	31,645
Level 1 | Commercial paper
ASSETS:
Marketable securities	0	0
Level 1 | Corporate bonds
ASSETS:
Marketable securities	9,810	5,166
Level 1 | Certificates of deposit
ASSETS:
Marketable securities	0	0
Level 2
ASSETS:
Cash and cash equivalents	0	0
Derivative financial instruments		71
Total assets	9,519	17,421
LIABILITIES:
Contingent purchase consideration	0	0
Contingent contractual non-compliance liability	0	0
Derivative financial instruments	(138)	(249)
Total liabilities	(138)	(249)
Level 2 | U.S. government and municipal obligations
ASSETS:
Marketable securities	0	0
Level 2 | Commercial paper
ASSETS:
Marketable securities	7,093	12,390
Level 2 | Corporate bonds
ASSETS:
Marketable securities	0	0
Level 2 | Certificates of deposit
ASSETS:
Marketable securities	2,059	4,960
Level 3
ASSETS:
Cash and cash equivalents	0	0
Derivative financial instruments	0	0
Total assets	0	0
LIABILITIES:
Contingent purchase consideration	(4,219)	(5,087)
Contingent contractual non-compliance liability	(98)	(246)
Derivative financial instruments	0	0
Total liabilities	(4,317)	(5,333)
Level 3 | U.S. government and municipal obligations
ASSETS:
Marketable securities	0	0
Level 3 | Commercial paper
ASSETS:
Marketable securities	0	0
Level 3 | Corporate bonds
ASSETS:
Marketable securities	0	0
Level 3 | Certificates of deposit
ASSETS:
Marketable securities	$ 0	$ 0

XML

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - Effect of Foreign Exchange Forward Contracts on Other Comprehensive Income And Results Of Operations (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended				9 Months Ended
	Dec. 31, 2013		Dec. 31, 2012		Dec. 31, 2013		Dec. 31, 2012
Derivative Instruments, Gain (Loss) [Line Items]
Gain (Loss) Recognized in OCI on Derivative					$ 90	[1]	$ (22)	[1]
Gain (Loss) Reclassified from Accumulated OCI into Income					(249)	[2]	(248)	[2]
Gain (Loss) Recognized in Income (Amount Excluded from Effectiveness Testing)					169	[3]	133	[3]
Forward contracts
Derivative Instruments, Gain (Loss) [Line Items]
Gain (Loss) Recognized in OCI on Derivative	87	[1]	(46)	[1]
Gain (Loss) Reclassified from Accumulated OCI into Income	40	[2]	15	[2]
Gain (Loss) Recognized in Income (Amount Excluded from Effectiveness Testing)	78	[3]	42	[3]
Forward contracts | Research and development
Derivative Instruments, Gain (Loss) [Line Items]
Gain (Loss) Recognized in OCI on Derivative					90	[1]	(22)	[1]
Gain (Loss) Reclassified from Accumulated OCI into Income	(109)	[2]	(52)	[2]	(293)	[2]	(289)	[2]
Gain (Loss) Recognized in Income (Amount Excluded from Effectiveness Testing)	75	[3]	51	[3]	172	[3]	137	[3]
Forward contracts | Sales and marketing
Derivative Instruments, Gain (Loss) [Line Items]
Gain (Loss) Reclassified from Accumulated OCI into Income	149	[2]	67	[2]	44	[2]	41	[2]
Gain (Loss) Recognized in Income (Amount Excluded from Effectiveness Testing)	$ 3	[3]	$ (9)	[3]	$ (3)	[3]	$ (4)	[3]

[1] The amount represents the change in fair value of derivative contracts due to changes in spot rates.

[2] The amount represents reclassification from other comprehensive income to earnings that occurs when the hedged item affects earnings.

[3] The amount represents the change in fair value of derivative contracts due to changes in the difference between the spot price and forward price that is excluded from the assessment of hedge effectiveness and therefore recognized in earnings. No gains or losses were reclassified as a result of discontinuance of cash flow hedges.

XML

Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Mar. 31, 2013
Current assets:
Cash and cash equivalents	$ 88,648	$ 99,930
Marketable securities	56,343	37,338
Accounts receivable, net of allowance for doubtful accounts of $147 and $971 at December 31, 2013 and March 31, 2013, respectively	74,263	73,900
Inventories	11,128	7,563
Deferred income taxes	9,419	9,538
Prepaid expenses and other current assets	8,800	9,043
Total current assets	248,601	237,312
Fixed assets, net	21,350	19,678
Goodwill	203,201	202,453
Intangible assets, net	59,827	63,827
Deferred income taxes	5,629	9,211
Long-term marketable securities	37,222	16,823
Other assets	2,047	2,872
Total assets	577,877	552,176
Current liabilities:
Accounts payable	8,679	10,161
Accrued compensation	32,327	31,585
Accrued other	7,070	8,256
Income taxes payable	705	114
Deferred revenue	102,010	95,055
Total current liabilities	150,791	145,171
Other long-term liabilities	2,415	2,249
Deferred tax liability	991	941
Accrued long-term retirement benefits	1,578	1,757
Long-term deferred revenue	22,285	25,907
Contingent liabilities, net of current portion	4,219	4,248
Total liabilities	182,279	180,273
Commitments and contingencies
Preferred stock, $0.001 par value:
5,000,000 shares authorized; no shares issued or outstanding at December 31, 2013 and March 31, 2013	0	0
Common stock, $0.001 par value:
150,000,000 shares authorized; 49,826,807 and 49,007,491 shares issued and 41,326,074 and 41,466,921 shares outstanding at December 31, 2013 and March 31, 2013, respectively	50	49
Additional paid-in capital	267,649	253,202
Accumulated other comprehensive income	2,521	671
Treasury stock at cost, 8,500,733 and 7,540,570 shares at December 31, 2013 and March 31, 2013, respectively	(108,513)	(83,480)
Retained earnings	233,891	201,461
Total stockholders’ equity	395,598	371,903
Total liabilities and stockholders’ equity	$ 577,877	$ 552,176

XML

ACQUISITIONS - Fair Value Of Acquired Identifiable Intangible Assets and Related Estimated Useful Lives (Detail) (USD $) In Thousands, unless otherwise specified	9 Months Ended	3 Months Ended	0 Months Ended
	Dec. 31, 2013	Dec. 31, 2013 Developed technology	Oct. 31, 2012 Onpath	Oct. 31, 2012 Onpath Developed technology	Oct. 31, 2012 Onpath Distributor relationships	Jul. 20, 2012 Accanto Systems Srl	Jul. 20, 2012 Accanto Systems Srl Developed technology	Jul. 20, 2012 Accanto Systems Srl Distributor relationships
Acquired Finite-Lived Intangible Assets [Line Items]
Fair value of finite-lived intangible assets acquired			$ 10,970	$ 4,970	$ 6,000	$ 5,280	$ 3,500	$ 1,780
Estimated useful life of identifiable finite-lived intangible assets acquired	10 years 1 month 6 days	6 years 3 months 18 days	7 years 6 months	8 years	7 years	7 years 3 months 18 days	8 years	6 years

XML

Consolidated Statements of Comprehensive Income (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012
Changes in market value of derivatives, taxes	$ 31	$ (17)	$ 35	$ (6)
Reclassification adjustment for net losses included in net income, benefits	$ (15)	$ (6)	$ 85	$ 94

XML

TREASURY STOCK - Additional Information (Detail) (USD $) In Thousands, except Share data, unless otherwise specified	9 Months Ended				9 Months Ended	147 Months Ended	9 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Jul. 26, 2006	Sep. 17, 2001	Dec. 31, 2013 Open market stock repurchase program	Dec. 31, 2013 Open market stock repurchase program	Dec. 31, 2013 Restricted stock units
Equity, Class of Treasury Stock [Line Items]
Stock authorized to repurchase under stock repurchase program (in shares)			4,000,000	1,000,000
Additional stock authorized to repurchase under stock repurchase program (in shares)			3,000,000
Shares repurchased during the period, shares					750,407	3,506,700	209,756
Shares repurchased during the period, value	$ 25,033	$ 20,727			$ 19,700		$ 5,300

XML

CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS - Additional Information (Detail) (Customer concentration risk)			3 Months Ended		9 Months Ended				3 Months Ended		9 Months Ended
	Dec. 31, 2013 Indirect Customer Accounts receivable Customer	Mar. 31, 2013 Indirect Customer Accounts receivable Customer	Dec. 31, 2013 Indirect Customer Revenue Customer	Dec. 31, 2012 Indirect Customer Revenue Customer	Dec. 31, 2013 Indirect Customer Revenue Customer	Dec. 31, 2012 Indirect Customer Revenue Customer	Dec. 31, 2013 Direct Customer Accounts receivable Customer	Mar. 31, 2013 Direct Customer Accounts receivable Customer	Dec. 31, 2013 Direct Customer Revenue Customer	Dec. 31, 2012 Direct Customer Revenue Customer	Dec. 31, 2013 Direct Customer Revenue Customer	Dec. 31, 2012 Direct Customer Revenue Customer
Concentration Risk [Line Items]
Number of customers contributing to more than 10% of accounts receivable	0	0					2	0
Number of customers contributing to more than 10% of total revenue			0	0	0	0			1	0	1	0

XML

INCOME TAXES

9 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

Our effective income tax rates were 37.6% and 36.3% for the nine months ended December 31, 2013 and the fiscal year ended March 31, 2013, respectively.  Generally, the effective tax rates differ from statutory rates due to the impact of the domestic production activities deduction, the impact of state taxes, and federal, foreign and state tax credits.The effective tax rate for the nine months ended December 31, 2013 is higher than the effective rate for our fiscal year ended March 31, 2013 primarily due to the interim accounting treatment of certain foreign losses for which no benefit can be recognized.

Our effective tax rates were 37.6% and 38.1% for the nine months ended December 31, 2013 and 2012, respectively. At this time, the effective tax rate is lower than the comparable year primarily due to the impact of the reinstatement of the research and development credit.

XML

SHARE-BASED COMPENSATION - Components of Share-Based Compensation Expense (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share-based compensation expense	$ 3,217	$ 2,464	$ 9,959	$ 7,243
Cost of product revenue
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share-based compensation expense	62	61	174	176
Cost of service revenue
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share-based compensation expense	194	96	566	249
Research and development
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share-based compensation expense	1,157	778	3,316	2,164
Sales and marketing
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share-based compensation expense	944	775	2,952	2,301
General and administrative
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share-based compensation expense	$ 860	$ 754	$ 2,951	$ 2,353

XML

BASIS OF PRESENTATION (Policies)

9 Months Ended

Dec. 31, 2013

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In March 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2013-05 Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (ASU 2013-05).  ASU 2013-05 provides guidance on releasing cumulative translation adjustments when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or a business within a foreign entity.   ASU 2013-05 is effective on a prospective basis for fiscal years and interim reporting periods within those years, beginning after December 15, 2013 (the fourth quarter of fiscal year 2014 for the Company). Early adoption is permitted. This standard is not expected to have a material impact on the Company's financial condition, results of operations, or cash flows.

XML

Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Cash flows from operating activities:
Net income	$ 32,430	$ 26,056
Adjustments to reconcile net income to cash provided by operating activities, net of the effects of acquisitions:
Depreciation and amortization	13,774	13,826
Loss on disposal of fixed assets	38	71
Deal related compensation expense and accretion charges	114	205
Share-based compensation expense associated with equity awards	9,959	7,254
Net change in fair value of contingent and contractual liabilities	(289)	400
Deferred income taxes	4,259	6,237
Other gains	(69)	(16)
Changes in assets and liabilities
Accounts receivable	(302)	12,130
Inventories	(5,346)	1,568
Prepaid expenses and other assets	1,345	(4,358)
Accounts payable	(1,255)	(3,137)
Accrued compensation and other expenses	2,259	6,400
Contingent liabilities	0	449
Income taxes payable	591	0
Deferred revenue	3,259	(107)
Net cash provided by operating activities	60,767	66,978
Cash flows from investing activities:
Purchase of marketable securities	(88,802)	(102,478)
Proceeds from maturity of marketable securities	49,405	153,046
Purchase of fixed assets	(8,709)	(8,115)
Purchase of intangible assets	(713)	(197)
Decrease (increase) in deposits	37	(804)
Acquisition of businesses, net of cash acquired	0	(51,273)
Net cash used in investing activities	(48,782)	(9,821)
Cash flows from financing activities:
Issuance of common stock under stock plans	755	516
Payment of contingent consideration	(841)	(3,197)
Treasury stock repurchases	(25,033)	(20,727)
Repayment of long-term debt	0	(62,000)
Excess tax benefit from share-based compensation awards	2,039	1,934
Net cash used in financing activities	(23,080)	(83,474)
Effect of exchange rate changes on cash and cash equivalents	(187)	(102)
Net decrease in cash and cash equivalents	(11,282)	(26,419)
Cash and cash equivalents, beginning of period	99,930	117,255
Cash and cash equivalents, end of period	88,648	90,836
Supplemental disclosures:
Cash paid for interest	0	325
Cash paid for income taxes	12,628	12,460
Non-cash transactions:
Transfers of inventory to fixed assets	1,781	583
Additions to property, plant and equipment included in accounts payable	233	370
Gross decrease in contractual liability relating to fair value adjustment	(148)	(135)
Gross (decrease) increase in contingent consideration liability relating to fair value adjustment	(141)	535
Issuance of common stock under employee stock plans	$ 2,230	$ 2,224

XML

Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2013	Mar. 31, 2013
Accounts receivable, allowance for doubtful accounts	$ 147	$ 971
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	150,000,000	150,000,000
Common stock, shares issued	49,826,807	49,007,491
Common stock, shares outstanding	41,326,074	41,466,921
Treasury stock, shares	8,500,733	7,540,570

XML

LONG-TERM DEBT

9 Months Ended

Dec. 31, 2013

Debt Disclosure [Abstract]

LONG-TERM DEBT

LONG-TERM DEBT

On October 29, 2012, the Company paid down its outstanding balance in the amount of $62.0 million on its credit facility. As of December 31, 2013, there were no amounts outstanding under this credit facility.

On November 22, 2011, the Company entered into a credit facility (the Credit Agreement) with a syndicate of lenders led by KeyBank National Association (KeyBank) providing the Company with a $250 million revolving credit facility, which may be increased to $300 million at any time up to 90 days before maturity. The revolving credit facility includes a swing line loan sub-facility of up to $10 million and a letter of credit sub-facility of up to $10 million. The credit facility under the Credit Agreement matures on November 21, 2016.

At the Company’s election, revolving loans under the Credit Agreement bear interest at either (a) a rate per annum equal to the highest of (1) KeyBank’s prime rate, (2) 0.50% in excess of the federal funds effective rate, or (3) one hundred (100.00) basis points in excess of the London Interbank Offered Rate (LIBOR) for one-month interest periods, or the Base Rate; or (b) the one-, two-, three-, or six-month per annum LIBOR, as selected by the Company, multiplied by the statutory reserve adjustment, or collectively, the Eurodollar Rate, in each case plus an applicable margin. Swing line loans will bear interest at the Base Rate plus the applicable Base Rate margin. Beginning with the delivery of the Company’s financial statements for the quarter ended December 31, 2011, the applicable margin began to depend on the Company’s leverage ratio, ranging from 100 basis points for Base Rate loans and 200 basis points for Eurodollar Rate loans if the Company’s consolidated leverage ratio is 2.50 to 1.00 or higher, down to 25 basis points for Base Rate loans and 125 basis points for Eurodollar Rate loans if the Company’s consolidated leverage ratio is 1.00 to 1.00 or less.

The Company may prepay loans under the Credit Agreement at any time, without penalty, subject to certain notice requirements. Debt is recorded at the amount drawn on the revolving credit facility plus interest based on floating rates reflective of changes in the market which approximates fair value.

The loans are guaranteed by each of the Company’s domestic subsidiaries and are collateralized by all of the assets of the Company and its domestic subsidiaries, as well as 65% of the capital stock of the Company’s foreign subsidiaries directly owned by the Company and its domestic subsidiaries. The Credit Agreement generally prohibits any other liens on the assets of the Company and its subsidiaries, subject to certain exceptions as described in the Credit Agreement. The Credit Agreement contains certain covenants applicable to the Company and its subsidiaries, including, without limitation, limitations on additional indebtedness, liens, various fundamental changes (including material mergers and dispositions of assets), dividends and distributions, capital expenditures, investments (including material acquisitions and investments in foreign subsidiaries), transactions with affiliates, sale-leaseback transactions, hedge agreements, payment of junior financing, material changes in business, and other limitations customary in senior secured credit facilities. In addition, the Company is required to maintain certain consolidated leverage and interest coverage ratios as well as a minimum liquidity amount. As of December 31, 2013, the Company was in compliance with all of these covenants.

XML

Document and Entity Information	9 Months Ended
	Dec. 31, 2013	Jan. 24, 2014
Document Information [Line Items]
Entity Registrant Name	NETSCOUT SYSTEMS INC
Entity Central Index Key	0001078075
Current Fiscal Year End Date	--03-31
Entity Filer Category	Large Accelerated Filer
Document Type	10-Q
Document Period End Date	Dec. 31, 2013
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q3
Trading Symbol	NTCT
Amendment Flag	false
Entity Common Stock, Shares Outstanding		41,329,074

XML

RESTRUCTURING CHARGES

9 Months Ended

Dec. 31, 2013

Restructuring and Related Activities [Abstract]

RESTRUCTURING CHARGES

RESTRUCTURING CHARGES

During the fiscal year ended March 31, 2013, the Company restructured part of its international sales organization related to an overlap of personnel acquired as part of the Accanto acquisition. The Company recorded $1.2 million of restructuring charges related to severance costs.

The following table provides a summary of the activity related to these restructuring plans and the related liability included as accrued compensation on the Company's consolidated balance sheet (in thousands):

	Three Months Ended		Nine Months Ended
Employee Severance:	December 31, 2013		December 31, 2013
Balance at beginning of period	$	71	$	910
Other adjustments	—		(49		)
Cash payments	—		(790		)
Balance as of December 31, 2013	$	71	$	71

The balance is expected to be paid in full by December 31, 2014.

XML

Consolidated Statements of Operations (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012
Revenue:
Product	$ 68,561	$ 52,676	$ 163,895	$ 139,100
Service	41,867	38,891	120,435	113,373
Total revenue	110,428	91,567	284,330	252,473
Cost of revenue:
Product	14,534	12,182	36,117	32,582
Service	9,068	6,982	24,111	20,386
Total cost of revenue	23,602	19,164	60,228	52,968
Gross profit	86,826	72,403	224,102	199,505
Operating expenses:
Research and development	18,348	15,352	50,951	44,630
Sales and marketing	32,425	30,105	96,184	86,997
General and administrative	7,929	8,539	22,367	22,071
Amortization of acquired intangible assets	860	846	2,571	2,077
Restructuring charges	0	(1)	0	1,065
Total operating expenses	59,562	54,841	172,073	156,840
Income from operations	27,264	17,562	52,029	42,665
Interest and other income (expense), net:
Interest income	66	115	210	423
Interest expense	(198)	(293)	(575)	(1,085)
Other income, net	176	74	277	86
Total interest and other income (expense), net	44	(104)	(88)	(576)
Income before income tax expense	27,308	17,458	51,941	42,089
Income tax expense	10,014	6,320	19,511	16,033
Net income	$ 17,294	$ 11,138	$ 32,430	$ 26,056
Basic net income per share (in dollars per share)	$ 0.42	$ 0.27	$ 0.78	$ 0.62
Diluted net income per share (in dollars per share)	$ 0.41	$ 0.26	$ 0.77	$ 0.62
Weighted average common shares outstanding used in computing:
Net income per share - basic (in shares)	41,425	41,709	41,417	41,715
Net income per share - diluted (in shares)	41,884	42,298	41,969	42,364

XML

FAIR VALUE MEASUREMENTS

9 Months Ended

Dec. 31, 2013

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs, and Level 3 includes fair values estimated using significant non-observable inputs. The following tables present the Company’s financial assets and liabilities measured on a recurring basis using the fair value hierarchy as of December 31, 2013 and March 31, 2013 (in thousands).

	Fair Value Measurements at
	December 31, 2013
	Level 1		Level 2			Level 3			Total
ASSETS:
Cash and cash equivalents	$	88,648	$	0		$	0		$	88,648
U.S. government and municipal obligations	74,603		0			0			74,603
Commercial paper	0		7,093			0			7,093
Corporate bonds	9,810		0			0			9,810
Certificate of deposits	0		2,059			0			2,059
Derivative financial instruments	0		367			0			367
	$	173,061	$	9,519		$	0		$	182,580
LIABILITIES:
Contingent purchase consideration	$	0	$	0		$	(4,219	)	$	(4,219	)
Contingent contractual non-compliance liability	0		0			(98		)	(98		)
Derivative financial instruments	0		(138		)	0			(138		)
	$	0	$	(138	)	$	(4,317	)	$	(4,455	)

	Fair Value Measurements at
	March 31, 2013
	Level 1		Level 2			Level 3			Total
ASSETS:
Cash and cash equivalents	$	99,930	$	0		$	0		$	99,930
U.S. government and municipal obligations	31,645		0			0			31,645
Commercial paper	0		12,390			0			12,390
Corporate bonds	5,166		0			0			5,166
Certificate of deposits	0		4,960			0			4,960
Derivative financial instruments	0		71			0			71
	$	136,741	$	17,421		$	0		$	154,162
LIABILITIES:
Contingent purchase consideration	$	0	$	0		$	(5,087	)	$	(5,087	)
Contingent contractual non-compliance liability	0		0			(246		)	(246		)
Derivative financial instruments	0		(249		)	0			(249		)
	$	0	$	(249	)	$	(5,333	)	$	(5,582	)

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. On a recurring basis, the Company measures certain financial assets and liabilities at fair value, including marketable securities and derivative financial instruments.

The Company’s Level 1 investments are classified as such because they are valued using quoted market prices or alternative pricing sources with reasonable levels of price transparency.

The Company’s Level 2 investments are classified as such because fair value is being calculated using data from similar but not identical sources, or a discounted cash flow model using the contractual interest rate as compared to the underlying interest yield curve. The Company's derivative financial instruments consist of forward foreign exchange contracts and are classified as Level 2 because the fair values of these derivatives are determined using models based on market observable inputs, including spot prices for foreign currencies and credit derivatives, as well as an interest rate factor. Commercial paper and certificate of deposits are classified as Level 2 because the Company uses market information from similar but not identical instruments and discounted cash flow models based on interest rate yield curves to determine fair value. For further information on the Company's derivative instruments refer to Note 9.

The Company’s contingent purchase consideration and contingent contractual non-compliance liability at December 31, 2013 and March 31, 2013 were classified as Level 3 in the fair value hierarchy. They are valued by probability weighting expected payment scenarios and then applying a discount based on the present value of the future cash flow streams. The Company has elected to account for the contractual non-compliance liability at fair value. This election has been made as both contingent liabilities are related. The fair value election created parity between the two items during the settlement period. These liabilities are classified as Level 3 because the probability weighting of future payment scenarios is based on assumptions developed by management.

The following table sets forth a reconciliation of changes in the fair value of the Company’s Level 3 financial liabilities for the nine months ended December 31, 2013 (in thousands):

	Contingent Purchase Consideration			Contingent Contractual Non-compliance Liability
Balance at beginning of period	$	(5,087	)	$	(246	)
Change in fair value (included within research and development expense)	27			148
Payments	841			0
Balance at end of period	$	(4,219	)	$	(98	)

The Company has updated the probabilities used in the fair value calculation of the contingent liabilities during the nine months ended December 31, 2013 which reduced the liability by $289 thousand and is included as part of earnings for the nine months ended December 31, 2013. The fair value of the contingent purchase consideration was estimated by applying a probability based model, which utilizes significant inputs that are unobservable in the market. Key assumptions include a 3.3% discount rate and a percent weighted-probability of the settlement of the contingent contractual non-compliance liability. Deal related compensation expense, accretion charges and changes related to settlements of contractual non-compliance liabilities for the nine months ended December 31, 2013 were $114 thousand and were included as part of earnings.

During the nine months ended December 31, 2013, $841 thousand related to the acquisition of Simena, LLC (Simena) was paid to the former owner.

XML

CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES

9 Months Ended

Dec. 31, 2013

Investments, Debt and Equity Securities [Abstract]

CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES

CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents and those investments with original maturities greater than three months to be marketable securities. Cash and cash equivalents consisted of money market instruments and cash maintained with various financial institutions at December 31, 2013 and March 31, 2013.

Marketable Securities

The following is a summary of marketable securities held by NetScout at December 31, 2013 classified as short-term and long-term (in thousands):

	Amortized Cost		Unrealized Gains		Fair Value
Type of security:
U.S. government and municipal obligations	$	39,433	$	5	$	39,438
Commercial paper	7,093		0		7,093
Corporate bonds	7,749		4		7,753
Certificates of deposit	2,059		0		2,059
Total short-term marketable securities	56,334		9		56,343
U.S. government and municipal obligations	35,147		18		35,165
Corporate bonds	2,057		0		2,057
Total long-term marketable securities	37,204		18		37,222
Total marketable securities	$	93,538	$	27	$	93,565

The following is a summary of marketable securities held by NetScout at March 31, 2013, classified as short-term and long-term (in thousands):

	Amortized Cost		Unrealized Gains		Fair Value
Type of security:
U.S. government and municipal obligations	$	17,416	$	11	$	17,427
Commercial paper	12,390		0		12,390
Corporate bonds	2,559		2		2,561
Certificates of deposit	4,960		0		4,960
Total short-term marketable securities	37,325		13		37,338
U.S. government and municipal obligations	14,211		7		14,218
Corporate bonds	2,605		0		2,605
Total long-term marketable securities	16,816		7		16,823
Total marketable securities	$	54,141	$	20	$	54,161

Contractual maturities of the Company’s marketable securities held at December 31, 2013 and March 31, 2013 were as follows (in thousands):

	December 31, 2013		March 31, 2013
Available-for-sale securities:
Due in 1 year or less	$	56,343	$	37,338
Due after 1 year through 5 years	37,222		16,823
	$	93,565	$	54,161

XML

SEGMENT AND GEOGRAPHIC INFORMATION

9 Months Ended

Dec. 31, 2013

Segment Reporting [Abstract]

SEGMENT AND GEOGRAPHIC INFORMATION

SEGMENT AND GEOGRAPHIC INFORMATION

The Company reports revenues and income under one reportable segment. The consolidated financial information is used by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance.

The Company manages its business in the following geographic areas: United States, Europe, Asia and the rest of the world. In accordance with United States export control regulations, the Company does not sell or do business with countries subject to economic sanctions and export controls.

Total revenue by geography is as follows (in thousands):

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2013		2012		2013		2012
United States	$	86,747	$	66,990	$	216,364	$	188,701
Europe	12,313		12,940		33,906		31,373
Asia	4,035		4,201		14,788		12,678
Rest of the world	7,333		7,436		19,272		19,721
	$	110,428	$	91,567	$	284,330	$	252,473

The United States revenue includes sales to resellers in the United States. These resellers fulfill customer orders and may subsequently ship the Company’s products to international locations. The Company reports these shipments as United States revenue since the Company ships the products to a United States location. A majority of revenue attributable to locations outside of the United States is a result of export sales. Substantially all of the Company’s identifiable assets are located in the United States.

XML

COMMITMENTS AND CONTINGENCIES

9 Months Ended

Dec. 31, 2013

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

Acquisition related– The Company recorded two contingent liabilities related to the acquisition of Simena, one relates to future consideration to be paid to the former owner which had an initial fair value of $8.0 million at the time of acquisition and another relates to contractual non-compliance liabilities incurred by Simena with an initial fair value of $1.6 million at the time of acquisition. At December 31, 2013, the present value of the future consideration was $4.2 million and the contractual non-compliance liability was $98 thousand.

Legal – From time to time, NetScout is subject to legal proceedings and claims in the ordinary course of business. In the opinion of management, the amount of ultimate expense with respect to any current legal proceedings and claims, if determined adversely, will not have a significant adverse effect on the Company’s financial condition, results of operations or cash flows.

As disclosed in Part II, Item 1, in March 2012, NetScout uncovered and investigated, and in April 2012, disclosed to the U.S. Department of Justice and the California State Attorney General potential violations of federal and California state anti-trust laws.  The potential violations involve a former employee and one or more third parties in connection with sales to state governmental agencies during fiscal year 2012.   The California State Attorney General is conducting an investigation into the matter.  NetScout has been informed by the Department of Justice that it does not intend to take any action against NetScout.  NetScout believes we did not benefit from any of the transactions uncovered and believes that the amounts involved are not material.

XML

GOODWILL AND INTANGIBLE ASSETS

9 Months Ended

Dec. 31, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND INTANGIBLE ASSETS

GOODWILL AND INTANGIBLE ASSETS

Goodwill

The Company has two reporting units: (1) Unified Service Delivery and (2) Test Automation. As of December 31, 2013 and March 31, 2013, goodwill attributable to the Unified Service Delivery reporting unit was $200.8 million and $199.5 million, respectively. Goodwill attributable to the Test Automation reporting unit was $2.4 million and $3.0 million as of December 31, 2013 and March 31, 2013, respectively. Goodwill is tested for impairment at a reporting unit level at least annually, or on an interim basis if an event occurs or circumstances change that would, more likely than not, reduce the fair value of the reporting unit below its carrying value.

The changes in the carrying amount of goodwill for the nine months ended December 31, 2013 are due to purchase accounting adjustments and the impact of foreign currency translation adjustments related to asset balances that are recorded in currencies other than the U.S. dollar.

The changes in the carrying amount of goodwill for the nine months ended December 31, 2013 are as follows (in thousands):

	Nine Months Ended
	December 31, 2013
Balance as of March 31, 2013	$	202,453
Purchase accounting adjustments	(665		)
Foreign currency translation impact	1,413
Balance as of December 31, 2013	$	203,201

Intangible Assets

The net carrying amounts of intangible assets were $59.8 million and $63.8 million as of December 31, 2013 and March 31, 2013, respectively. Intangible assets acquired in a business combination are recorded under the acquisition method of accounting at their estimated fair values at the date of acquisition. The Company amortizes intangible assets over their estimated useful lives, except for the acquired trade name which resulted from the Network General Central Corporation (Network General) acquisition, which has an indefinite life and thus is not amortized. The carrying value of the indefinite lived trade name is evaluated for potential impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired.

During the three months ended December 31, 2013, the Company acquired certain rights to Accanto software not previously purchased as part of the acquisition transaction in fiscal year 2013 for $500 thousand.  This amount is included within developed technology as of December 31, 2013 and will be amortized using the economic benefit period over 6.3 years.

Intangible assets include an indefinite lived trade name with a carrying value of $18.6 million and the following amortizable intangible assets as of December 31, 2013 (in thousands):

	Cost		Accumulated Amortization			Net
Developed technology	$	31,603	$	(22,964	)	$	8,639
Customer relationships	38,789		(13,294		)	25,495
Distributor relationships	1,996		(480		)	1,516
Core technology	7,553		(2,389		)	5,164
Non-compete agreements	352		(264		)	88
Other	696		(371		)	325
	$	80,989	$	(39,762	)	$	41,227

Intangible assets include an indefinite lived trade name with a carrying value of $18.6 million and the following amortizable intangible assets as of March 31, 2013 (in thousands):

	Cost		Accumulated Amortization			Net
Developed technology	$	30,848	$	(21,343	)	$	9,505
Customer relationships	38,718		(11,038		)	27,680
Distributor relationships	1,895		(219		)	1,676
Core technology	7,446		(1,455		)	5,991
Non-compete agreements	334		(167		)	167
Other	483		(275		)	208
	$	79,724	$	(34,497	)	$	45,227

Amortization of software and core technology included as cost of product revenue was $837 thousand and $2.5 million for the three and nine months ended December 31, 2013, respectively. Amortization of other intangible assets included as operating expense was $891 thousand and $2.7 million for the three and nine months ended December 31, 2013, respectively.

Amortization of software and core technology included as cost of product revenue was $1.0 million and $3.9 million for the three and nine months ended December 31, 2012, respectively. Amortization of other intangible assets included as operating expense was $906 thousand and $2.2 million for the three and nine months ended December 31, 2012, respectively.

The following is the expected future amortization expense as of December 31, 2013 for the years ended March 31 (in thousands):

2014 (remaining three months)	$	2,052
2015	6,984
2016	6,439
2017	5,858
2018	5,078
Thereafter	14,816
	$	41,227

The weighted average amortization period of developed technology and core technology is 6.7 years. The weighted average amortization period for customer and distributor relationships is 13.3 years. The weighted average amortization period for amortizing all intangibles is 10.1 years.

XML

NET INCOME PER SHARE - Calculations of Basic and Diluted Net Income Per Share and Potential Common Shares (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012
Numerator:
Net income	$ 17,294	$ 11,138	$ 32,430	$ 26,056
Denominator:
Denominator for basic net income per share - weighted average shares outstanding	41,425	41,709	41,417	41,715
Dilutive common equivalent shares:
Weighted average stock options	43	111	63	127
Weighted average restricted stock units	416	478	489	522
Denominator for diluted net income per share - weighted average shares outstanding	41,884	42,298	41,969	42,364
Net income per share:
Basic net income per share (in dollars per share)	$ 0.42	$ 0.27	$ 0.78	$ 0.62
Diluted net income per share (in dollars per share)	$ 0.41	$ 0.26	$ 0.77	$ 0.62

XML

INVENTORIES

9 Months Ended

Dec. 31, 2013

Inventory Disclosure [Abstract]

INVENTORIES

INVENTORIES

Inventories are stated at the lower of actual cost or net realizable value. Cost is determined by using the first in, first out (FIFO) method. Inventories consist of the following (in thousands):

	December 31, 2013		March 31, 2013
Raw materials	$	6,959	$	3,986
Work in process	246		272
Finished goods	3,923		3,305
	$	11,128	$	7,563

XML

ACQUISITIONS

9 Months Ended

Dec. 31, 2013

Business Combinations [Abstract]

ACQUISITIONS

ACQUISITIONS

While the Company uses its best estimates and assumptions as part of the purchase price allocation process to value the assets acquired and liabilities assumed on the acquisition date, its estimates and assumptions are subject to refinement. As a result, during the preliminary purchase price allocation period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with a corresponding offset to goodwill. The Company records adjustments to the assets acquired and liabilities assumed subsequent to the purchase price allocation period in the Company’s operating results in the period in which the adjustments were determined. The results of operations of the acquired businesses described below have been included in the Company’s consolidated financial statements beginning on their respective acquisition dates unless indicated otherwise below.

ONPATH

On October 31, 2012, the Company acquired ONPATH Technologies, Inc. (ONPATH), an established provider of scalable packet flow switching technology for high-performance networks for the aggregation and distribution of network traffic for data, voice, video testing, monitoring, performance management and cybersecurity deployments. ONPATH’s packet flow switch technology is synergistic with the Company’s network monitoring switch strategy. The acquisition of the packet flow switch technology further strengthens the Company’s Unified Service Delivery Management strategy by enabling scalable access to all relevant network traffic across highly distributed network environments for use by any network monitoring, performance management and security system. ONPATH’s test automation technology is used to monitor networks in test environments which simulate existing and planned network environments. The results of ONPATH’s operations have been included in the consolidated financial statements since October 31, 2012. The total cash transferred and to be transferred of $41.0 million consisted entirely of cash consideration, of which $8.2 million will be paid to employees and directors of ONPATH pursuant to ONPATH’s transaction bonus and retention plan. Approximately $4.0 million of the transaction bonuses are considered compensation and are therefore not included as consideration within the table below.

The following table summarizes the allocation of the purchase price (in thousands):

Allocation of the purchase consideration:
Current assets, including cash and cash equivalents of $527	$	8,356
Fixed assets	784
Identifiable intangible assets	10,970
Goodwill	19,897
Deferred tax asset	7,329
Other assets	1,432
Total assets acquired	48,768
Current liabilities	(6,387		)
Deferred revenue	(921		)
Deferred income tax liabilities	(4,660		)
	$	36,800

Goodwill was recognized for the excess purchase price over the fair value of the assets acquired. Goodwill of $17.5 million from the ONPATH acquisition was included within the Company’s existing Unified Service Delivery reporting unit and $2.4 million was included within the Test Automation reporting unit. Both reporting units resulting from the acquisition of ONPATH were included in the Company’s annual impairment review on January 31, 2013.

The fair values of intangible assets were based on valuations using an income approach, with estimates and assumptions provided by management of ONPATH and the Company. These assumptions include estimates of future revenues associated with the technology purchased as part of the acquisition and the migration of the current technology to more advanced version of the software. This fair value measurement was based on significant inputs not observable in the market and thus represents Level 3 fair value measurements. The following table reflects the fair value of the acquired identifiable intangible assets and related estimates of useful lives (in thousands, except for years):

	Fair Value		Useful Life (Years)
Developed technology	$	4,970	8
Customer relationships	6,000		7
	$	10,970

The weighted average useful life of identifiable intangible assets acquired from ONPATH is 7.5 years. Acquired software is amortized using an accelerated amortization method. Customer relationships are amortized on a straight-line basis.

Goodwill and intangible assets recorded as part of the ONPATH acquisition are not deductible for tax purposes.

The Company notes that it acquired net operating losses from ONPATH. ONPATH has represented to the Company that there were no historical changes in control that would limit NetScout’s ability to utilize these net operating losses in its consolidated federal return. During the fourth quarter of the Company's fiscal year ended March 31, 2013, the Company completed a 382 study with its tax advisors and concluded that ONPATH's representations were correct. The Company also notes that ONPATH did not claim research and development credits for historical tax returns. NetScout believes that certain ONPATH activities qualify for a research and development credit, and in the second quarter of fiscal year 2014, performed an analysis on the historical periods to identify and claim credits for historical research and development activities. A net tax credit of $517 thousand has been recorded within the acquisition allocation related to ONPATH's research and development activities.

Accanto

On July 20, 2012, the Company acquired certain assets, technology and employees of Accanto Systems, S.r.l. (Accanto), a supplier of service assurance solutions for telecommunication service providers which enables carriers to monitor and manage the delivery of voice services over converged, next generation telecom architectures. Accanto’s technology is synergistic with the Company’s packet flow strategy and brings voice service monitoring capabilities for legacy environments and for next generation network voice services. The Company maintains a relationship with the selling entity such that the selling entity serves as a distributor for the Company. The results of Accanto’s operations, related to those assets, technology and employees acquired, have been included in the consolidated financial statements since that date. The total purchase price of $15.0 million consisted entirely of cash consideration. The goodwill recognized primarily relates to the value in combining Accanto’s product with our customer base.

The following table summarizes the allocation of the purchase price (in thousands):

Allocation of the purchase consideration:
Current assets	$	389
Fixed assets	237
Identifiable intangible assets	5,280
Goodwill	11,157
Total assets acquired	17,063
Current liabilities	(839		)
Deferred revenue	(240		)
Deferred income tax liabilities	(984		)
	$	15,000

Goodwill was recognized for the excess purchase price over the fair value of the assets acquired. Goodwill from the Accanto acquisition is included within the Company’s Unified Service Delivery reporting unit and was included in the Company’s annual impairment review. The acquired software intangible had a tax basis of approximately $2.1 million which carried over as part of the acquisition and will be deductible for tax purposes.  The remaining value of the acquired software intangible asset and the full value of the customer relationship intangible asset and goodwill is not deductible for tax purposes.

The fair values of intangible assets were based on valuations using an income approach, with estimates and assumptions provided by management of Accanto and the Company. These assumptions include estimates of future revenues associated with the technology purchased as part of the acquisition and the migration of the current technology to more advanced versions of the software. This fair value measurement was based on significant inputs not observable in the market and thus represents Level 3 fair value measurements. The following table reflects the fair value of the acquired identifiable intangible assets and related estimates of useful lives (in thousands, except for years):

	Fair Value		Useful Life (Years)
Developed technology	$	3,500	8
Distributor relationships	1,780		6
	$	5,280

The weighted average useful life of identifiable intangible assets acquired from Accanto is 7.3 years. Acquired software is amortized using an accelerated amortization method. Distributor relationships are amortized on a straight-line basis.

The following table presents unaudited proforma results of the historical Consolidated Statements of Operations of the Company ONPATH and Accanto for the three and nine months ended December 31, 2012, giving effect to the mergers as if they occurred on April 1, 2012 (in thousands, except per share data):

	Three Months Ended		Nine Months Ended
	December 31, 2012		December 31, 2012
	(unaudited)		(unaudited)
Pro forma revenue	$	94,221	$	263,009
Pro forma net income	$	11,038	$	20,036
Pro forma income per share:
Basic	$	0.26	$	0.48
Diluted	$	0.26	$	0.47
Pro forma shares outstanding
Basic	41,709		41,715
Diluted	42,298		42,364

The proforma results for the three and nine months ended December 31, 2012 primarily include adjustments for amortization of intangibles. This proforma information does not purport to indicate the results that would have actually been obtained had the acquisitions been completed on the assumed date, or which may be realized in the future.

During the nine months ended December 31, 2013, the Company has recorded $9.0 million of revenue directly attributable to ONPATH and Accanto within its consolidated financial statements.

XML

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

9 Months Ended

Dec. 31, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

NetScout operates internationally and, in the normal course of business, is exposed to fluctuations in foreign currency exchange rates. The exposures result from costs that are denominated in currencies other than the U.S. Dollar, primarily the Euro, British Pound, Canadian Dollar, and Indian Rupee. The Company manages its foreign cash flow risk by hedging forecasted cash flows for operating expenses denominated in foreign currencies for up to twelve months, within specified guidelines through the use of forward contracts. The Company enters into foreign currency exchange contracts to hedge cash flow exposures from costs that are denominated in currencies other than the U.S. Dollar. These hedges are designated as cash flow hedges at inception.

All of the Company’s derivative instruments are utilized for risk management purposes, and the Company does not use derivatives for speculative trading purposes. These contracts will mature over the next twelve months and are expected to impact earnings on or before maturity.

The notional amounts and fair values of derivative instruments in the consolidated balance sheets as of December 31, 2013 and March 31, 2013 were as follows (in thousands):

	Notional Amounts (a)				Other Current Assets				Accrued Other Liabilities
	December 31, 2013		March 31, 2013		December 31, 2013		March 31, 2013		December 31, 2013		March 31, 2013
Derivatives Designated as Hedging Instruments:
Forward contracts	$	15,675	$	17,071	$	367	$	71	$	138	$	249

(a) Notional amounts represent the gross contract/notional amount of the derivatives outstanding.

The following table provides the effect foreign exchange forward contracts had on other comprehensive income (loss) (OCI) and results of operations for the three months ended December 31, 2013 and 2012 (in thousands):

Derivatives in Cash Flow Hedging Relationships	Effective Portion												Ineffective Portion
	Gain (Loss) Recognized in OCI on Derivative (a)					Gain (Loss) Reclassified from Accumulated OCI into Income (b)							Gain (Loss) Recognized in Income (Amount Excluded from Effectiveness Testing) (c)
	December 31, 2013		December 31, 2012			Location	December 31, 2013			December 31, 2012			Location	December 31, 2013		December 31, 2012
Forward contracts	$	87	$	(46	)	Research and development	$	(109	)	$	(52	)	Research and development	$	75	$	51
						Sales and marketing	149			67			Sales and marketing	3		(9		)
	$	87	$	(46	)		$	40		$	15			$	78	$	42

(a) The amount represents the change in fair value of derivative contracts due to changes in spot rates.

(b) The amount represents reclassification from other comprehensive income to earnings that occurs when the hedged item affects earnings.

(c) The amount represents the change in fair value of derivative contracts due to changes in the difference between the spot price and forward price that is excluded from the assessment of hedge effectiveness and therefore recognized in earnings. No gains or losses were reclassified as a result of discontinuance of cash flow hedges.

The following table provides the effect foreign exchange forward contracts had on other comprehensive income (loss) (OCI) and results of operations for the nine months ended December 31, 2013 and 2012 (in thousands):

Derivatives in Cash Flow Hedging Relationships	Effective Portion												Ineffective Portion
	Gain (Loss) Recognized in OCI on Derivative (a)					Gain (Loss) Reclassified from Accumulated OCI into Income (b)							Gain (Loss) Recognized in Income (Amount Excluded from Effectiveness Testing) (c)
	December 31, 2013		December 31, 2012			Location	December 31, 2013			December 31, 2012			Location	December 31, 2013			December 31, 2012
Forward contracts	$	90	$	(22	)	Research and development	$	(293	)	$	(289	)	Research and development	$	172		$	137
						Sales and marketing	44			41			Sales and marketing	(3		)	(4		)
	$	90	$	(22	)		$	(249	)	$	(248	)		$	169		$	133

(a) The amount represents the change in fair value of derivative contracts due to changes in spot rates.

(b) The amount represents reclassification from other comprehensive income to earnings that occurs when the hedged item affects earnings.

(c) The amount represents the change in fair value of derivative contracts due to changes in the difference between the spot price and forward price that is excluded from the assessment of hedge effectiveness and therefore recognized in earnings. No gains or losses were reclassified as a result of discontinuance of cash flow hedges.

XML

SEGMENT AND GEOGRAPHIC INFORMATION - Additional Information (Detail)	9 Months Ended
	Dec. 31, 2013 Segment
Segment Reporting [Abstract]
Number of reportable segments	1

XML

SEGMENT AND GEOGRAPHIC INFORMATION - Total Revenue by Geography (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012
Segment Reporting Information [Line Items]
Total revenue	$ 110,428	$ 91,567	$ 284,330	$ 252,473
United States
Segment Reporting Information [Line Items]
Total revenue	86,747	66,990	216,364	188,701
Europe
Segment Reporting Information [Line Items]
Total revenue	12,313	12,940	33,906	31,373
Asia
Segment Reporting Information [Line Items]
Total revenue	4,035	4,201	14,788	12,678
Rest of the world
Segment Reporting Information [Line Items]
Total revenue	$ 7,333	$ 7,436	$ 19,272	$ 19,721

XML

SEGMENT AND GEOGRAPHIC INFORMATION (Tables)

9 Months Ended

Dec. 31, 2013

Segment Reporting [Abstract]

Total Revenue By Geography

Total revenue by geography is as follows (in thousands):

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2013		2012		2013		2012
United States	$	86,747	$	66,990	$	216,364	$	188,701
Europe	12,313		12,940		33,906		31,373
Asia	4,035		4,201		14,788		12,678
Rest of the world	7,333		7,436		19,272		19,721
	$	110,428	$	91,567	$	284,330	$	252,473

XML

GOODWILL AND INTANGIBLE ASSETS - Additional Information (Detail) (USD $)	3 Months Ended		9 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Mar. 31, 2013
Acquired Finite-Lived Intangible Assets [Line Items]
Goodwill	$ 203,201,000		$ 203,201,000		$ 202,453,000
Carrying value of intangible assets	59,827,000		59,827,000		63,827,000
Payments to acquire software rights			713,000	197,000
Weighted average useful life of acquired intangible assets			10 years 1 month 6 days
Amortization expenses	860,000	846,000	2,571,000	2,077,000
Trade name
Acquired Finite-Lived Intangible Assets [Line Items]
Indefinite-lived intangible assets	18,600,000		18,600,000		18,600,000
Developed technology
Acquired Finite-Lived Intangible Assets [Line Items]
Payments to acquire software rights	500,000
Weighted average useful life of acquired intangible assets	6 years 3 months 18 days
Acquired software and core technology
Acquired Finite-Lived Intangible Assets [Line Items]
Weighted average useful life of acquired intangible assets			6 years 8 months 12 days
Acquired software and core technology | Included as cost of product revenue
Acquired Finite-Lived Intangible Assets [Line Items]
Amortization expenses	837,000	1,000,000	2,500,000	3,900,000
Other acquired intangible assets | Included as operating expense
Acquired Finite-Lived Intangible Assets [Line Items]
Amortization expenses	891,000	906,000	2,700,000	2,200,000
Customer relationships
Acquired Finite-Lived Intangible Assets [Line Items]
Weighted average useful life of acquired intangible assets			13 years 3 months 18 days
Unified Service Delivery
Acquired Finite-Lived Intangible Assets [Line Items]
Goodwill	200,800,000		200,800,000		199,500,000
Test Automation
Acquired Finite-Lived Intangible Assets [Line Items]
Goodwill	$ 2,400,000		$ 2,400,000		$ 3,000,000

XML

NET INCOME PER SHARE

9 Months Ended

Dec. 31, 2013

Earnings Per Share [Abstract]

NET INCOME PER SHARE

NET INCOME PER SHARE

Calculations of the basic and diluted net income per share and potential common shares are as follows (in thousands, except for per share data):

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2013		2012		2013		2012
Numerator:
Net income	$	17,294	$	11,138	$	32,430	$	26,056
Denominator:
Denominator for basic net income per share - weighted average shares outstanding	41,425		41,709		41,417		41,715
Dilutive common equivalent shares:
Weighted average stock options	43		111		63		127
Weighted average restricted stock units	416		478		489		522
Denominator for diluted net income per share - weighted average shares outstanding	41,884		42,298		41,969		42,364
Net income per share:
Basic net income per share	$	0.42	$	0.27	$	0.78	$	0.62
Diluted net income per share	$	0.41	$	0.26	$	0.77	$	0.62

The following table sets forth restricted stock units excluded from the calculation of diluted net income per share, since their inclusion would be antidilutive (in thousands).

	Three Months Ended		Nine Months Ended
	December 31,		December 31,
	2013	2012	2013	2012
Restricted stock units	—	43	195	283

Basic EPS is calculated by dividing net income by the weighted average number of shares outstanding during the period. Unvested restricted shares, although legally issued and outstanding, are not considered outstanding for purposes of calculating basic earnings per share. Diluted EPS is calculated by dividing net income by the weighted average number of shares outstanding plus the dilutive effect, if any, of outstanding stock options, restricted shares and restricted stock units using the treasury stock method. The calculation of the dilutive effect of outstanding equity awards under the treasury stock method includes consideration of proceeds from the assumed exercise of stock options, unrecognized compensation expense and any tax benefits as additional proceeds.

XML

CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES (Tables)

9 Months Ended

Dec. 31, 2013

Investments, Debt and Equity Securities [Abstract]

Components Of Marketable Securities

The following is a summary of marketable securities held by NetScout at December 31, 2013 classified as short-term and long-term (in thousands):

	Amortized Cost		Unrealized Gains		Fair Value
Type of security:
U.S. government and municipal obligations	$	39,433	$	5	$	39,438
Commercial paper	7,093		0		7,093
Corporate bonds	7,749		4		7,753
Certificates of deposit	2,059		0		2,059
Total short-term marketable securities	56,334		9		56,343
U.S. government and municipal obligations	35,147		18		35,165
Corporate bonds	2,057		0		2,057
Total long-term marketable securities	37,204		18		37,222
Total marketable securities	$	93,538	$	27	$	93,565

The following is a summary of marketable securities held by NetScout at March 31, 2013, classified as short-term and long-term (in thousands):

	Amortized Cost		Unrealized Gains		Fair Value
Type of security:
U.S. government and municipal obligations	$	17,416	$	11	$	17,427
Commercial paper	12,390		0		12,390
Corporate bonds	2,559		2		2,561
Certificates of deposit	4,960		0		4,960
Total short-term marketable securities	37,325		13		37,338
U.S. government and municipal obligations	14,211		7		14,218
Corporate bonds	2,605		0		2,605
Total long-term marketable securities	16,816		7		16,823
Total marketable securities	$	54,141	$	20	$	54,161

Contractual Maturities Of Marketable Securities

Contractual maturities of the Company’s marketable securities held at December 31, 2013 and March 31, 2013 were as follows (in thousands):

	December 31, 2013		March 31, 2013
Available-for-sale securities:
Due in 1 year or less	$	56,343	$	37,338
Due after 1 year through 5 years	37,222		16,823
	$	93,565	$	54,161

XML

GOODWILL AND INTANGIBLE ASSETS - Schedule of Intangible Assets (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Mar. 31, 2013
Finite-Lived Intangible Assets [Line Items]
Cost	$ 80,989	$ 79,724
Accumulated Amortization	(39,762)	(34,497)
Net	41,227	45,227
Developed technology
Finite-Lived Intangible Assets [Line Items]
Cost	31,603	30,848
Accumulated Amortization	(22,964)	(21,343)
Net	8,639	9,505
Customer relationships
Finite-Lived Intangible Assets [Line Items]
Cost	38,789	38,718
Accumulated Amortization	(13,294)	(11,038)
Net	25,495	27,680
Distributor relationships
Finite-Lived Intangible Assets [Line Items]
Cost	1,996	1,895
Accumulated Amortization	(480)	(219)
Net	1,516	1,676
Core technology
Finite-Lived Intangible Assets [Line Items]
Cost	7,553	7,446
Accumulated Amortization	(2,389)	(1,455)
Net	5,164	5,991
Non-compete agreements
Finite-Lived Intangible Assets [Line Items]
Cost	352	334
Accumulated Amortization	(264)	(167)
Net	88	167
Other
Finite-Lived Intangible Assets [Line Items]
Cost	696	483
Accumulated Amortization	(371)	(275)
Net	$ 325	$ 208

XML

FAIR VALUE MEASUREMENTS - Reconciliation of Changes in Fair Value of Level Three Financial Assets (Detail) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Payments	$ 841	$ 3,197
Fair value, measurements, recurring | Contingent Purchase Consideration
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance at beginning of period	(5,087)
Change in fair value (included within research and development expense)	27
Payments	841
Balance at end of period	(4,219)
Fair value, measurements, recurring | Contingent Contractual Non-compliance Liability
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance at beginning of period	(246)
Change in fair value (included within research and development expense)	148
Payments	0
Balance at end of period	$ (98)

XML

Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012
Net income	$ 17,294	$ 11,138	$ 32,430	$ 26,056
Other comprehensive income:
Cumulative translation adjustments	405	719	1,624	1,003
Changes in market value of investments:
Changes in unrealized gains (losses)	3	(24)	7	97
Total net change in market value of investments	3	(24)	7	97
Changes in market value of derivatives:
Changes in market value of derivatives, net of taxes (benefit) of $31, ($17), $35 and ($6)	56	(29)	55	(16)
Reclassification adjustment for net (losses) gains included in net income, net of (benefits) taxes of ($15), ($6), $85 and $94	(25)	(9)	164	154
Total net change in market value of derivatives	31	(38)	219	138
Other comprehensive income	439	657	1,850	1,238
Comprehensive income	$ 17,733	$ 11,795	$ 34,280	$ 27,294

XML

SHARE-BASED COMPENSATION

9 Months Ended

Dec. 31, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

SHARE-BASED COMPENSATION

SHARE-BASED COMPENSATION

The following is a summary of share-based compensation expense including restricted stock units and employee stock purchases made under our employee stock purchase plan (ESPP) based on estimated fair values within the applicable cost and expense lines identified below (in thousands):

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2013		2012		2013		2012
Cost of product revenue	$	62	$	61	$	174	$	176
Cost of service revenue	194		96		566		249
Research and development	1,157		778		3,316		2,164
Sales and marketing	944		775		2,952		2,301
General and administrative	860		754		2,951		2,353
	$	3,217	$	2,464	$	9,959	$	7,243

Employee Stock Purchase Plan – The Company maintains an ESPP for all eligible employees as described in the Company’s Annual Report on Form 10-K for the year ended March 31, 2013. Under the ESPP, shares of the Company’s common stock may be purchased on the last day of each bi-annual offering period at 85% of the fair value on the last day of such offering period. The offering periods run from March 1 through August 31 and from September 1 through February 28 of each year. During the nine months ended December 31, 2013, employees purchased 89,765 shares under the ESPP and the value per share was $24.84.

XML

COMMITMENTS AND CONTINGENCIES - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Mar. 31, 2013	Mar. 31, 2012 Minimum Employee	Dec. 31, 2013 Simena LLC liability	Dec. 31, 2013 Simena LLC Present value of future consideration
Commitments and Contingencies Disclosure [Line Items]
Number of contingent liabilities recorded				2
Number of contingent liabilities recorded pertaining to future consideration to be paid to acquiree				1
Fair value of contingent liability	$ 4,219	$ 5,087		$ 8,000	$ 4,200
Contractual non-compliance liabilities incurred by Simena	$ 98	$ 246		$ 1,600	$ 98
Number of former employees that are party to potential Anti-Trust laws violation			1

XML

FAIR VALUE MEASUREMENTS (Tables)

9 Months Ended

Dec. 31, 2013

Fair Value Disclosures [Abstract]

Schedule Of Financial Assets And Liabilities

The following tables present the Company’s financial assets and liabilities measured on a recurring basis using the fair value hierarchy as of December 31, 2013 and March 31, 2013 (in thousands).

	Fair Value Measurements at
	December 31, 2013
	Level 1		Level 2			Level 3			Total
ASSETS:
Cash and cash equivalents	$	88,648	$	0		$	0		$	88,648
U.S. government and municipal obligations	74,603		0			0			74,603
Commercial paper	0		7,093			0			7,093
Corporate bonds	9,810		0			0			9,810
Certificate of deposits	0		2,059			0			2,059
Derivative financial instruments	0		367			0			367
	$	173,061	$	9,519		$	0		$	182,580
LIABILITIES:
Contingent purchase consideration	$	0	$	0		$	(4,219	)	$	(4,219	)
Contingent contractual non-compliance liability	0		0			(98		)	(98		)
Derivative financial instruments	0		(138		)	0			(138		)
	$	0	$	(138	)	$	(4,317	)	$	(4,455	)

	Fair Value Measurements at
	March 31, 2013
	Level 1		Level 2			Level 3			Total
ASSETS:
Cash and cash equivalents	$	99,930	$	0		$	0		$	99,930
U.S. government and municipal obligations	31,645		0			0			31,645
Commercial paper	0		12,390			0			12,390
Corporate bonds	5,166		0			0			5,166
Certificate of deposits	0		4,960			0			4,960
Derivative financial instruments	0		71			0			71
	$	136,741	$	17,421		$	0		$	154,162
LIABILITIES:
Contingent purchase consideration	$	0	$	0		$	(5,087	)	$	(5,087	)
Contingent contractual non-compliance liability	0		0			(246		)	(246		)
Derivative financial instruments	0		(249		)	0			(249		)
	$	0	$	(249	)	$	(5,333	)	$	(5,582	)

Reconciliation Of Changes In Fair Value Of Level III Financial Assets

The following table sets forth a reconciliation of changes in the fair value of the Company’s Level 3 financial liabilities for the nine months ended December 31, 2013 (in thousands):

	Contingent Purchase Consideration			Contingent Contractual Non-compliance Liability
Balance at beginning of period	$	(5,087	)	$	(246	)
Change in fair value (included within research and development expense)	27			148
Payments	841			0
Balance at end of period	$	(4,219	)	$	(98	)

XML

CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES - Components of Marketable Securities (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Mar. 31, 2013
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 93,538	$ 54,141
Unrealized Gains	27	20
Fair Value	93,565	54,161
U.S. government and municipal obligations
Schedule of Available-for-sale Securities [Line Items]
Fair Value	74,603	31,645
Commercial paper
Schedule of Available-for-sale Securities [Line Items]
Fair Value	7,093	12,390
Corporate bonds
Schedule of Available-for-sale Securities [Line Items]
Fair Value	9,810	5,166
Certificates of deposit
Schedule of Available-for-sale Securities [Line Items]
Fair Value	2,059	4,960
Short-term marketable securities
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	56,334	37,325
Unrealized Gains	9	13
Fair Value	56,343	37,338
Short-term marketable securities | U.S. government and municipal obligations
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	39,433	17,416
Unrealized Gains	5	11
Fair Value	39,438	17,427
Short-term marketable securities | Commercial paper
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	7,093	12,390
Unrealized Gains	0	0
Fair Value	7,093	12,390
Short-term marketable securities | Corporate bonds
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	7,749	2,559
Unrealized Gains	4	2
Fair Value	7,753	2,561
Short-term marketable securities | Certificates of deposit
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	2,059	4,960
Unrealized Gains	0	0
Fair Value	2,059	4,960
Long-term marketable securities
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	37,204	16,816
Unrealized Gains	18	7
Fair Value	37,222	16,823
Long-term marketable securities | U.S. government and municipal obligations
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	35,147	14,211
Unrealized Gains	18	7
Fair Value	35,165	14,218
Long-term marketable securities | Corporate bonds
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	2,057	2,605
Unrealized Gains	0	0
Fair Value	$ 2,057	$ 2,605

XML

TREASURY STOCK

9 Months Ended

Dec. 31, 2013

Equity [Abstract]

TREASURY STOCK

TREASURY STOCK

On September 17, 2001, the Company announced an open market stock repurchase program to purchase up to one million shares of outstanding Company common stock, subject to market conditions and other factors. Any purchases under the Company’s stock repurchase program may be made from time to time without prior notice. On July 26, 2006, the Company announced that it had expanded the existing open market stock repurchase program to enable the Company to purchase up to an additional three million shares of the Company’s outstanding common stock, bringing the total number of shares authorized for repurchase to four million shares. Through December 31, 2013, the Company had repurchased a total of 3,506,700 shares of common stock through the open market stock repurchase program. The Company repurchased 750,407 shares for $19.7 million under the program during the nine months ended December 31, 2013.

In connection with the vesting and release of the restriction on previously vested shares of restricted stock units, the Company repurchased 209,756 shares for $5.3 million related to minimum statutory tax withholding requirements on these restricted stock units during the nine months ended December 31, 2013. These repurchase transactions do not fall under the repurchase program described above, and therefore do not reduce the amount that is available for repurchase under that program.