2. CERTAIN FINANCIAL STATEMENT INFORMATION

Accounts receivable:


	December 31, 2011			March 31, 2011
	(In thousands)
Accounts receivable	$	31,960		$	21,321
Less: allowance for doubtful accounts		(1,132	)		(1,324	)

	$	30,828		$	19,997

Inventories:


	December 31, 2011		March 31, 2011
	(In thousands)
Finished goods	$	15,284	$	21,255
Work in process		1,433		4,334
Raw materials		852		972

	$	17,569	$	26,561

Other current assets:


	December 31, 2011		March 31, 2011
	(In thousands)
Prepaid expenses	$	17,053	$	12,972
Executive deferred compensation assets		1,992		2,003
VAT receivable		771		377
Deposits		912		749
Other		1,189		683

	$	21,917	$	16,784

Property and equipment:


	Useful Life		December 31, 2011			March 31, 2011
	(In years)		(In thousands)
Machinery and equipment		3-7	$	34,641		$	29,837
Leasehold improvements		1-15		12,660			12,783
Computers, office furniture and equipment		3-7		43,013			37,664
Buildings		31.5		2,756			2,756
Land		—		9,800			9,800

				102,870			92,840
Less: accumulated depreciation and amortization				(66,773	)		(60,817	)

			$	36,097		$	32,023

Goodwill and purchased intangibles:

Goodwill is as follows:


	(In thousands)
Gross	$	4,441,026
Accumulated amortization and impairments		(4,441,026	)

Net, as of March 31, 2010		—
Goodwill related to TPack acquisition (see Note 10)		13,183

Net, as of December 31, 2011 and March 31, 2011	$	13,183

Purchased intangibles were as follows:


	December 31, 2011									March 31, 2011
	Gross		Accumulated Amortization and Impairments			Net		Weighted average remaining useful life		Gross		Accumulated Amortization and Impairments			Net		Weighted average remaining useful life
	(In thousands)							(In years)		(In thousands)							(In years)
Developed technology/in-process research and development	$	441,300	$	(428,375	)	$	12,925		4.8	$	441,300	$	(425,502	)	$	15,798		5.2
Customer relationships		12,830		(8,306	)		4,524		3.0		12,830		(6,581	)		6,249		3.5
Patents/core technology rights/tradename		63,206		(62,692	)		514		1.8		63,206		(61,865	)		1,341		1.5

	$	517,336	$	(499,373	)	$	17,963			$	517,336	$	(493,948	)	$	23,388

As of December 31, 2011, the estimated future amortization expense of purchased intangible assets to be charged to cost of sales and operating expenses was as follows (in thousands):


	Cost of Sales		Operating Expenses		Total
Fiscal Years Ending March 31,
2012 (remaining)	$	679		650		1,329
2013		2,717		1,926		4,643
2014		2,717		1,189		3,906
2015		2,717		904		3,621
2016		2,717		369		3,086
2017 and thereafter		1,378		—		1,378

Total	$	12,925	$	5,038	$	17,963

Other assets:


	December 31, 2011		March 31, 2011
	(In thousands)
Non-current portion of prepaid expenses	$	6,154	$	7,340
Strategic investments		6,083		1,330

	$	12,237	$	8,670

Strategic Investments

The Company has entered into certain equity investments in privately held businesses for the promotion of business and strategic objectives. The Company's investments in equity securities of privately held businesses are accounted for under the cost method. Under the cost method, strategic investments in which the Company holds less than a 20% voting interest and on which the Company does not have the ability to exercise significant influence are carried at the lower of cost or cost reduced by other-than-temporary impairments, as appropriate. These investments are included in other assets on the Company's condensed consolidated balance sheets. The Company periodically reviews these investments for other-than-temporary declines in fair value based on the specific identification method and writes down investments when an other-than-temporary decline has occurred. During the three and nine months ended December 31, 2011, the Company invested $2.25 million and $4.75 million, respectively, in non-marketable equity investments and this amount was carried at cost.

Short-term investments:

The following is a summary of cash, cash equivalents and available-for-sale investments by type of instruments (in thousands):


	December 31, 2011								March 31, 2011
	Amortized Cost		Gross Unrealized				Estimated Fair Value		Amortized Cost		Gross Unrealized				Estimated Fair Value
	Amortized Cost		Gains		Losses		Estimated Fair Value		Amortized Cost		Gains		Losses		Estimated Fair Value
Cash	$	19,615	$	—	$	—	$	19,615	$	8,766	$	—	$	—	$	8,766
Cash equivalents		30,616		—		—		30,616		75,636		—		—		75,636
U.S. Treasury securities and agency bonds		13,513		4		4		13,513		9,685		4		58		9,631
Corporate bonds		8,908		26		30		8,904		6,428		32		48		6,412
Mortgage-backed and asset-backed securities*		7,915		328		88		8,155		9,281		271		45		9,507
Mutual funds		—		—		—		—		17,611		—		—		17,611
Closed-end bond funds		26,402		3,945		1,846		28,501		29,255		5,561		1,186		33,630
Preferred stock		6,209		1,764		—		7,973		6,209		649		—		6,858

	$	113,178	$	6,067	$	1,968	$	117,277	$	162,871	$	6,517	$	1,337	$	168,051

Reported as:
Cash and cash equivalents							$	50,231							$	84,402
Short-term investments available-for-sale								67,046								83,649

							$	117,277							$	168,051

*	At December 31, 2011 and March 31, 2011, approximately $5.1 million and $6.5 million of the estimated fair value presented were mortgage-backed securities, respectively.

The established guidelines for measuring fair value and expanded disclosures regarding fair value measurements are defined as a three-level valuation hierarchy for disclosure of fair value measurements as follows:


Level 1 —		Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2 —		Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument's anticipated life.
Level 3 —		Inputs reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Valuation of instruments includes unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of assets or liabilities.

The following is a summary of cash, cash equivalents and available-for-sale investments by type of instruments measured at fair value on a recurring basis (in thousands):


	December 31, 2011									March 31, 2011
	Level 1		Level 2			Level 3		Total		Level 1		Level 2		Level 3		Total
Cash	$	19,615	$	—		$	—	$	19,615	$	8,766	$	—	$	—	$	8,766
Cash equivalents		26,635		3,981	*		—		30,616		75,636		—		—		75,636
U.S. Treasury securities and agency bonds		13,513		—			—		13,513		9,631		—		—		9,631
Corporate bonds		—		8,904			—		8,904		—		6,412		—		6,412
Mortgage-backed and asset-backed securities		—		8,155			—		8,155		—		9,507		—		9,507
Mutual funds		—		—			—		—		17,611		—		—		17,611
Closed-end bond funds		28,501		—			—		28,501		33,630		—		—		33,630
Preferred stock		—		7,973			—		7,973		—		6,858		—		6,858

	$	88,264	$	29,013		$	—	$	117,277	$	145,274	$	22,777	$	—	$	168,051

*	Represents corporate bonds with an original maturity from the date of purchase of 90 days or less.

There were no transfers in and out of Level 1 and Level 2 fair value measurements during the three and nine months ended December 31, 2011.

The Company periodically reviews its strategic investments for other-than-temporary declines in fair value based on the specific identification method and writes down investments when an other-than-temporary decline has occurred.

The following is a summary of the cost and estimated fair values of available-for-sale securities with stated maturities, which include U.S. Treasury securities and agency bonds, corporate bonds and mortgage-backed and asset-backed securities, by contractual maturity (in thousands):


	December 31, 2011				March 31, 2011
	Cost		Fair Value		Cost		Fair Value
Less than 1 year	$	2,405	$	2,403	$	—	$	—
Mature in 1 – 2 years		6,389		6,389		2,075		2,065
Mature in 3 – 5 years		15,311		15,283		13,991		13,902
Mature after 5 years		6,231		6,497		9,328		9,583

	$	30,336	$	30,572	$	25,394	$	25,550

The following is a summary of gross unrealized losses (in thousands):


	Less Than 12 Months of Unrealized Losses				12 Months or More of Unrealized Losses				Total
As of December 31, 2011	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
U.S. Treasury securities and agency bonds	$	3,924	$	4	$	—	$	—	$	3,924	$	4
Corporate bonds		8,043		30		—		—		8,043		30
Mortgage-backed and asset-backed securities		2,368		38		349		50		2,717		88
Closed-end bond funds		32		1		6,432		1,845		6,464		1,846

	$	14,367	$	73	$	6,781	$	1,895	$	21,148	$	1,968


	Less Than 12 Months of Unrealized Losses				12 Months or More of Unrealized Losses				Total
As of March 31, 2011	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
U.S. Treasury securities and agency bonds	$	6,227	$	58	$	—	$	—	$	6,227	$	58
Corporate bonds		3,672		48		—		—		3,672		48
Mortgage-backed and asset-backed securities		2,105		45		—		—		2,105		45
Closed-end bond funds		7,951		1,186		—		—		7,951		1,186

	$	19,955	$	1,337	$	—	$	—	$	19,955	$	1,337

Other-Than-Temporary Impairment

Based on an evaluation of securities that have been in a loss position, the Company did not recognize any other-than-temporary impairment charges, for the three and nine months ended December 31, 2011 and for the fiscal year ended March 31, 2011. The Company considered various factors which included a credit and liquidity assessment of the underlying securities and the Company's intent and ability to hold the underlying securities until its estimated recovery of amortized cost. As of December 31, 2011 and March 31, 2011, the Company also had $6.1 million and $6.5 million in gross unrealized gains, respectively. The basis for computing realized gains or losses is by specific identification.

Other accrued liabilities:


	December 31, 2011		March 31, 2011
	(In thousands)
Customer deposits*	$	3,416	$	953
Employee related liabilities		2,126		2,306
Executive deferred compensation		1,992		2,003
Income taxes		1,402		1,157
Contingent consideration (see note 10)		883		3,150
Professional fees		632		735
Other		2,672		2,444

	$	13,123	$	12,748

*	This includes credit balances in Accounts Receivables that have been reclassified as Other Accrued Liabilities.

Warranty reserves:

The Company's products typically carry a one year warranty. The Company establishes reserves for estimated product warranty costs at the time revenue is recognized. Although the Company engages in extensive product quality programs and processes, its warranty obligation is affected by product failure rates, use of materials and service delivery costs incurred in correcting any product failure. Should actual product failure rates, use of materials or service delivery costs differ from the Company's estimates, additional warranty reserves could be required, which could reduce its gross margin.

The following table summarizes warranty reserve activity (in thousands):


	Three Months Ended December 31,						Nine Months Ended December 31,
	2011			2010			2011			2010
Beginning balance	$	244		$	167		$	176		$	169
Charged to costs of revenues		210			52			515			93
Charges incurred		(8	)		(55	)		(245	)		(98	)

Ending balance	$	446		$	164		$	446		$	164

Interest income, net (in thousands):


	Three Months Ended December 31,				Nine Months Ended December 31,
	2011		2010		2011		2010
Interest income	$	807	$	1,893	$	2,896	$	4,978
Net realized gain on short-term investments		21		306		682		1,802

	$	828	$	2,199	$	3,578	$	6,780

Other income, net (in thousands):


	Three Months Ended December 31,				Nine Months Ended December 31,
	2011		2010		2011			2010
Net gain (loss) on disposals of property	$	—	$	19	$	(10	)	$	323
Other, net		86		107		219			405

	$	86	$	126	$	209		$	728

Net (loss) income per share:

Shares used in basic net (loss) income per share are computed using the weighted average number of common shares outstanding during each period. Shares used in diluted net income per share include the dilutive effect of common shares potentially issuable upon the exercise of stock options, vesting of restricted stock units ("RSUs") and outstanding warrants. However, potentially issuable common shares are not used in computing diluted net loss per share as their effect would be anti-dilutive due to the loss recorded for the three and nine months ended December 31, 2011. The reconciliation of shares used to calculate basic and diluted net (loss) income per share consists of the following (in thousands, except per share data):


	Three Months Ended December 31,						Nine Months Ended December 31,
	2011			2010			2011			2010
Net (loss) income	$	(7,077	)	$	(1,961	)	$	(15,106	)	$	3,005

Shares used in net (loss) income per share computation:
Weighted average common shares outstanding, basic		60,990			64,647			62,465			65,468
Net effect of dilutive common share equivalents		—			—			—			2,081

Weighted average common shares outstanding, diluted		60,990			64,647			62,465			67,549

Basic net (loss) income per share	$	(0.12	)	$	(0.03	)	$	(0.24	)	$	0.05

Diluted net (loss) income per share	$	(0.12	)	$	(0.03	)	$	(0.24	)	$	0.04

The effect of anti-dilutive securities (comprised of options and restricted stock units) totaling 10.7 million and 8.8 million equivalent shares for the three and nine months ended December 31, 2011, respectively, and 4.1 million and 3.9 million equivalent shares for the three and nine months ended December 31, 2010, respectively, have been excluded from the net (loss) income per share computation.

The effect of dilutive securities (comprised of options and restricted stock units) totaling 0.2 million and 0.5 million equivalent shares for the three and nine months ended December 31, 2011, respectively, and 1.2 million equivalent shares for the three months ended December 31, 2010, have been excluded from the net loss per share computation, as their impact would be anti-dilutive because the Company has incurred losses in the period.

Total equivalent shares excluded from the net (loss) income per share computation is 10.9 million and 9.3 million for the three and nine months ended December 31, 2011, respectively, and 5.3 million and 3.9 million for the three and nine months ended December 31, 2010, respectively.