CERTAIN FINANCIAL STATEMENT INFORMATION

Accounts receivable:



	December 31, 2012			March 31, 2012
	(In thousands)
Accounts receivable	$	18,006		$	23,765
Less: allowance for bad debts	(644		)	(1,099		)
	$	17,362		$	22,666

Inventories:



	December 31, 2012		March 31, 2012
	(In thousands)
Finished goods	$	9,479	$	17,883
Work in process	3,246		3,818
Raw materials	1,132		1,543
	$	13,857	$	23,244

Other current assets:



	December 31, 2012		March 31, 2012
	(In thousands)
Prepaid expenses	$	13,470	$	20,353
Executive deferred compensation assets	1,375		1,344
Deposits	941		899
Proceeds receivable from sale of strategic investment	1,331		7,100
Other	2,180		1,409
	$	19,297	$	31,105

Property and equipment:



	Useful Life	December 31, 2012			March 31, 2012
	(In years)	(In thousands)
Machinery and equipment	5-7	$	37,357		$	36,600
Leasehold improvements	1-15	16,634			14,228
Computers, office furniture and equipment	3-7	43,292			43,929
Buildings	31.5	2,756			2,756
Land	—	9,800			9,800
		109,839			107,313
Less: accumulated depreciation and amortization		(73,668		)	(69,213		)
		$	36,171		$	38,100

Goodwill and purchased intangibles:

Goodwill is as follows:



	(In thousands)
Goodwill as of December 31, 2012 and March 31, 2012	$	13,183

Purchase-related intangibles were as follows:



	December 31, 2012								March 31, 2012
	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	$	(431,092	)	$	10,208	3.8	$	441,300	$	(429,054	)	$	12,246	4.6
Customer relationships	12,830		(10,244		)	2,586		2.6	12,830		(8,881		)	3,949		2.9
Patents/core technology rights/trade name	63,206		(62,992		)	214		0.8	63,206		(62,767		)	439		1.5
	$	517,336	$	(504,328	)	$	13,008		$	517,336	$	(500,702	)	$	16,634

As of December 31, 2012, 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,
2013 (remaining)	$	680	$	336	$	1,016
2014	2,717		1,189		3,906
2015	2,717		904		3,621
2016	2,717		369		3,086
2017 and thereafter	1,379		—		1,379
Total	$	10,210	$	2,798	$	13,008

Other assets:



	December 31, 2012		March 31, 2012
	(In thousands)
Non-current portion of prepaid expenses	$	8,754	$	4,193
Strategic investments	5,250		4,750
Other	—		1,331
	$	14,004	$	10,274

Other accrued liabilities:



	December 31, 2012		March 31, 2012
	(In thousands)
Customer deposits*	$	51	$	415
Employee related liabilities	3,868		2,051
Executive deferred compensation	1,375		1,344
Income taxes	1,626		1,401
Professional fees	891		961
Contingent consideration	—		618
Other	2,157		2,262
	$	9,968	$	9,052

* Includes credit balances in Accounts Receivable that have been reclassified as Other Accrued Liabilities

Strategic Investments

The Company has entered into certain equity investments in privately held businesses to achieve certain strategic business 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. No other-than-temporary declines were recorded during the three and nine months ended December 31, 2012 and 2011. During the three and nine months ended December 31, 2012 and 2011, the Company invested zero and $0.5 million, and $2.25 million and $4.75 million, respectively, in non-marketable equity investments and these amounts were 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, 2012								March 31, 2012
	Amortized Cost		Gross Unrealized				Estimated Fair Value		Amortized Cost		Gross Unrealized				Estimated Fair Value
	Amortized Cost		Gains		Losses		Estimated Fair Value		Amortized Cost				Losses		Estimated Fair Value
Cash	$	8,683	$	—	$	—	$	8,683	$	15,057	$	—	$	—	$	15,057
Cash equivalents	7,000		—		—		7,000		13,008		—		—		13,008
U.S. Treasury securities and agency bonds	12,141		15		2		12,154		16,771		11		19		16,763
Corporate bonds	18,365		78		8		18,435		23,361		56		10		23,407
Mortgage-backed and asset-backed securities*	4,076		349		9		4,416		7,308		364		61		7,611
Closed-end bond funds	23,057		4,959		1,225		26,791		26,401		5,161		1,649		29,913
Preferred stock	4,878		1,887		—		6,765		6,209		1,878		—		8,087
	$	78,200	$	7,288	$	1,244	$	84,244	$	108,115	$	7,470	$	1,739	$	113,846
Reported as:
Cash and cash equivalents							$	15,683							$	28,065
Short-term investments available-for-sale							68,561								85,781
							$	84,244							$	113,846

* At December 31, 2012 and March 31, 2012, approximately $1.7 million and $4.6 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, 2012								March 31, 2012
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash	$	8,683	$	—	$	—	$	8,683	$	15,057	$	—	$	—	$	15,057
Cash equivalents	7,000		—		—		7,000		10,510		2,498		—		13,008
U.S. Treasury securities and agency bonds	12,154		—		—		12,154		16,763		—		—		16,763
Corporate bonds	—		18,435		—		18,435		—		23,407		—		23,407
Mortgage-backed and asset-backed securities	—		4,416		—		4,416		—		7,611		—		7,611
Closed-end bond funds	26,791		—		—		26,791		29,913		—		—		29,913
Preferred stock	—		6,765		—		6,765		—		8,087		—		8,087
	$	54,628	$	29,616	$	—	$	84,244	$	72,243	$	41,603	$	—	$	113,846

There were no significant transfers in and out of Level 1 and Level 2 fair value measurements during the three and nine months ended December 31, 2012.

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, 2012				March 31, 2012
	Cost		Fair Value		Cost		Fair Value
Less than 1 year	$	13,979	$	14,152	$	16,683	$	16,722
Mature in 1 – 2 years	18,972		19,036		26,869		27,026
Mature in 3 – 5 years	415		459		2,421		2,496
Mature after 5 years	1,216		1,358		1,467		1,537
	$	34,582	$	35,005	$	47,440	$	47,781

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, 2012	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	$	2,131	$	(2	)	$	—	$	—		$	2,131	$	(2	)
Corporate bonds	2,950		(3		)	245		(5		)	3,195		(8		)
Mortgage-backed and asset-backed securities	580		(5		)	16		(4		)	596		(9		)
Closed-end bond funds	43		(2		)	6,950		(1,223		)	6,993		(1,225		)
	$	5,704	$	(12	)	$	7,211	$	(1,232	)	$	12,915	$	(1,244	)



	Less Than 12 Months of Unrealized Losses					12 Months or More of Unrealized Losses					Total
As of March 31, 2012	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	$	8,938	$	(19	)	$	—	$	—		$	8,938	$	(19	)
Corporate bonds	5,463		(10		)	—		—			5,463		(10		)
Mortgage-backed and asset-backed securities	894		(20		)	353		(41		)	1,247		(61		)
Closed-end bond funds	—		—			6,628		(1,649		)	6,628		(1,649		)
	$	15,295	$	(49	)	$	6,981	$	(1,690	)	$	22,276	$	(1,739	)

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, 2012 and 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, 2012 and March 31, 2012, the Company also had $7.3 million and $7.5 million in gross unrealized gains, respectively. The basis for computing realized gains or losses is by specific identification.

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						Nine Months Ended
	December 31,						December 31,
	2012			2011			2012			2011
Beginning balance	$	370		$	244		$	454		$	176
Charged to costs of revenues	96			210			311			515
Charges incurred	(108		)	(8		)	(407		)	(245		)
Ending balance	$	358		$	446		$	358		$	446

Interest income (expense), net (in thousands):



	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2012		2011		2012		2011
Interest income	$	685	$	807	$	1,915	$	2,896
Net realized gain on short-term investments	207		21		1,401		682
	$	892	$	828	$	3,316	$	3,578

Other income (expense), net (in thousands):



	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2012		2011		2012		2011
Net gain (loss) on disposals of property, equipment and other assets	$	1,299	$	—	$	1,289	$	(10	)
Other, net	67		86		250		219
	$	1,366	$	86	$	1,539	$	209

Net loss per share:

Shares used in basic net loss per share are computed using the weighted average number of common shares outstanding during each period. Shares used in diluted net loss 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 during the periods presented. The reconciliation of shares used to calculate basic and diluted net loss per share consists of the following (in thousands, except per share data):



	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2012			2011			2012			2011
Net loss	$	(71,562	)	$	(7,077	)	$	(116,509	)	$	(15,106	)
Shares used in net loss per share computation:
Weighted average common shares outstanding, basic	66,113			60,990			64,489			62,465
Net effect of dilutive common share equivalents	—			—			—			—
Weighted average common shares outstanding, diluted	66,113			60,990			64,489			62,465
Basic and diluted net loss per share	$	(1.08	)	$	(0.12	)	$	(1.81	)	$	(0.24	)

The effect of anti-dilutive securities (comprised of options and restricted stock units) totaling 5.4 million and 8.7 million equivalent shares for the three and nine months ended December 31, 2012, respectively, and 10.7 million and 8.8 million shares for the three and nine months ended December 31, 2011, respectively, 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 periods presented.

The effect of dilutive securities (comprised of options and restricted stock units) totaling 1.4 million and 0.7 million equivalent shares for the three and nine months ended December 31, 2012, respectively, and 0.2 million and 0.5 million shares for the three and nine months ended December 31, 2011, respectively, 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 periods presented.

Total equivalent shares excluded from the net loss per share computation are 6.8 million and 9.4 million for the three and nine months ended December 31, 2012, respectively, and 10.9 million and 9.3 million shares for three and nine months ended December 31, 2011, respectively.