CERTAIN FINANCIAL STATEMENT INFORMATION

Accounts receivable:



	June 30, 2014			March 31, 2014
	(In thousands)
Accounts receivable	$	23,387		$	25,629
Less: allowance for bad debts	(455		)	(451		)
	$	22,932		$	25,178

Inventories:



	June 30, 2014		March 31, 2014
	(In thousands)
Finished goods	$	11,609	$	9,375
Work in process	8,103		6,510
Raw materials	961		3,061
	$	20,673	$	18,946

Other current assets:



	June 30, 2014		March 31, 2014
	(In thousands)
Prepaid expenses	$	9,888	$	10,978
Executive deferred compensation assets	1,071		1,035
Deposits	554		585
Proceeds receivable from sale of strategic investment	—		3,353
Other	759		848
	$	12,272	$	16,799

Property and equipment:



	Useful Life	June 30, 2014			March 31, 2014
	(In years)	(In thousands)
Machinery and equipment	3-5	$	45,984		$	44,503
Leasehold improvements	1-5	11,722			11,574
Computers, office furniture and equipment	3-5	43,500			43,365
		101,206			99,442
Less: accumulated depreciation and amortization		(80,903		)	(78,696		)
		$	20,303		$	20,746

Goodwill and purchased intangibles:

Goodwill is as follows:



	June 30, 2014		March 31, 2014
	(In thousands)
Goodwill	$	11,425	$	11,425

Purchase-related intangibles are as follows:



	June 30, 2014								March 31, 2014
	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	$	425,000	$	(425,000	)	$	—	0.0	$	425,000	$	(425,000	)	$	—	0.0
Customer relationships	6,330		(6,288		)	42		0.2	6,330		(6,225		)	105		0.4
Patents/core technology rights/trade name	62,306		(62,306		)	—		0.0	62,306		(62,306		)	—		0.0
	$	493,636	$	(493,594	)	$	42		$	493,636	$	(493,531	)	$	105

As of June 30, 2014, the remaining balance of purchased intangible assets is expected to be charged to operating expenses over the remainder of the fiscal year ending March 31, 2015.

Other assets:



	June 30, 2014		March 31, 2014
	(In thousands)
Non-current portion of prepaid expenses	$	3,416	$	4,235
Strategic investments*	3,000		3,000
Other	519		519
	$	6,935	$	7,754

*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 in which the Company does not have the ability to exercise significant influence are carried at cost reduced by other-than-temporary impairments, as appropriate. 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 months ended June 30, 2014 and 2013, the Company did not record any other-than-temporary impairment charges of its strategic investments.

Other accrued liabilities:



	June 30, 2014		March 31, 2014
	(In thousands)
Employee related liabilities	$	1,734	$	1,733
Executive deferred compensation	1,363		1,314
Income taxes	941		962
Professional fees	1,300		1,259
Other	4,924		5,609
	$	10,262	$	10,877

Short-term investments:

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



	June 30, 2014									March 31, 2014
	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	$	56,869	$	—	$	—		$	56,869	$	65,867	$	—	$	—		$	65,867
Cash equivalents	5,398		—		—			5,398		5,672		—		—			5,672
U.S. Treasury securities and agency bonds	2,838		—		—			2,838		2,838		—		—			2,838
Corporate bonds	11,320		41		(1		)	11,360		10,599		30		(2		)	10,627
Mortgage-backed and asset-backed securities*	1,709		323		(2		)	2,030		1,793		297		(16		)	2,074
Closed-end bond funds	14,373		2,709		(102		)	16,980		14,373		2,392		(402		)	16,363
Preferred stock	2,406		729		—			3,135		2,406		736		—			3,142
	$	94,913	$	3,802	$	(105	)	$	98,610	$	103,548	$	3,455	$	(420	)	$	106,583
Reported as:
Cash and cash equivalents								$	62,267								$	71,539
Short-term investments available-for-sale								36,343									35,044
								$	98,610								$	106,583

* At June 30, 2014 and March 31, 2014, approximately $1.1 million of the estimated fair value presented were mortgage-backed securities.

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 instrument measured at fair value on a recurring basis (in thousands):



	June 30, 2014								March 31, 2014
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash	$	56,869	$	—	$	—	$	56,869	$	65,867	$	—	$	—	$	65,867
Cash equivalents	5,398		—		—		5,398		5,672		—		—		5,672
U.S. Treasury securities and agency bonds	2,838		—		—		2,838		2,838		—		—		2,838
Corporate bonds	—		11,360		—		11,360		—		10,627		—		10,627
Mortgage-backed and asset-backed securities	—		2,030		—		2,030		—		2,074		—		2,074
Closed-end bond funds	16,980		—		—		16,980		16,363		—		—		16,363
Preferred stock	—		3,135		—		3,135		—		3,142		—		3,142
	$	82,085	$	16,525	$	—	$	98,610	$	90,740	$	15,843	$	—	$	106,583

There were no significant transfers in and out of Level 1 and Level 2 fair value measurement categories during the three months ended June 30, 2014 and 2013.

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):



	June 30, 2014
	Cost		Estimated Fair Value
Less than 1 year	$	7,172	$	7,300
Mature in 1 – 2 years	7,030		7,080
Mature in 3 – 5 years	525		536
Mature after 5 years	1,140		1,312
	$	15,867	$	16,228

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 June 30, 2014	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	$	—	$	—		$	—	$	—		$	—	$	—
Corporate bonds	500		(1		)	—		—			500		(1		)
Mortgage-backed and asset-backed securities	175		(1		)	124		(1		)	299		(2		)
Closed-end bond funds	22		—			5,475		(102		)	5,497		(102		)
	$	697	$	(2	)	$	5,599	$	(103	)	$	6,296	$	(105	)



	Less Than 12 Months of Unrealized Losses					12 Months or More of Unrealized Losses					Total
As of March 31, 2014	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	$	—	$	—		$	—	$	—		$	—	$	—
Corporate bonds	992		(2		)	—		—			992		(2		)
Mortgage-backed and asset-backed securities	431		(16		)	—		—			431		(16		)
Closed-end bond funds	4,819		(333		)	405		(69		)	5,224		(402		)
	$	6,242	$	(351	)	$	405	$	(69	)	$	6,647	$	(420	)

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 months ended June 30, 2014 and 2013. 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 the estimated date of recovery of its amortized cost. As of June 30, 2014 and March 31, 2014, the Company also had $3.8 million and $3.5 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
	June 30,
	2014			2013
Beginning balance	$	199		$	220
Consumption of reserve	(7		)	(15		)
Settlements and expirations	(15		)	(2		)
Ending balance	$	177		$	203

Interest income, net (in thousands):



	Three Months Ended
	June 30,
	2014			2013
Interest income	$	341		$	468
Net realized (loss) gain on short-term investments	(5		)	3,198
	$	336		$	3,666

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 (loss) income per share include the dilutive effect of common shares potentially issuable upon the exercise of stock options and vesting of RSUs. 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
	June 30,
	2014			2013
Net (loss) income	$	(13,065	)	$	10,857
Shares used in net (loss) income per share computation:
Weighted average common shares outstanding, basic	77,916			69,360
Net effect of dilutive common share equivalents	—			874
Weighted average common shares outstanding, diluted	77,916			70,234
Basic net (loss) income per share	$	(0.17	)	$	0.16
Diluted net (loss) income per share	$	(0.17	)	$	0.15

The effect of dilutive securities (comprised of options and restricted stock units) totaling 1.2 million shares for the three months ended June 30, 2014 has been excluded from the diluted net loss per share computation because the Company incurred a net loss in the period presented and since their effect would be antidilutive.