CERTAIN FINANCIAL STATEMENT INFORMATION

Accounts receivable:



	September 30, 2013			March 31, 2013
	(In thousands)
Accounts receivable	$	27,165		$	25,278
Less: allowance for bad debts	(458		)	(703		)
	$	26,707		$	24,575

Inventories:



	September 30, 2013		March 31, 2013
	(In thousands)
Finished goods	$	5,802	$	7,247
Work in process	4,778		4,098
Raw materials	2,215		1,555
	$	12,795	$	12,900

Other current assets:



	September 30, 2013		March 31, 2013
	(In thousands)
Prepaid expenses	$	12,321	$	13,762
Executive deferred compensation assets	1,075		693
Deposits	652		828
Receivable from sale of strategic investment and TPack	3,353		1,331
Other	1,994		1,384
	$	19,395	$	17,998

Property and equipment:



	Useful Life	September 30, 2013			March 31, 2013
	(In years)	(In thousands)
Machinery and equipment *	5-7	$	44,900		$	40,063
Leasehold improvements	1-15	11,480			14,202
Computers, office furniture and equipment	3-7	43,845			43,485
Buildings	31.5	2,756			2,756
Land	—	9,800			9,800
		112,781			110,306
Less: accumulated depreciation and amortization		(78,789		)	(75,915		)
		$	33,992		$	34,391

* Includes capitalized mask costs.

Goodwill and purchased intangibles:

Goodwill is as follows:



	September 30, 2013		March 31, 2013
	(In thousands)
Goodwill	$	11,425	$	13,183

The reduction in Goodwill of $1.8 million relates to the sale of TPack. Please refer to Note 8, Sale of TPack A/S, to the Condensed Consolidated Financial Statements for details.

Purchase-related intangibles were as follows:



	September 30, 2013								March 31, 2013
	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	)	$	—	—	$	441,300	$	(431,771	)	$	9,529	3.5
Customer relationships	6,330		(6,101		)	229		0.9	12,830		(10,507		)	2,323		2.1
Patents/core technology rights/tradename	62,306		(62,306		)	—		—	63,206		(63,067		)	139		0.3
	$	493,636	$	(493,407	)	$	229		$	517,336	$	(505,345	)	$	11,991

During the quarter ended June 30, 2013, $11.4 million of purchased intangibles were written off pursuant to the sale of TPack. Please refer to Note 8, Sale of TPack A/S, to the Condensed Consolidated Financial Statements for further discussion.

As of September 30, 2013, the estimated future amortization expense of purchased intangible assets to be charged to operating expenses was as follows (in thousands):



	Operating Expenses
Fiscal Years Ending March 31,
2014 (remainder of year)	$	125
2015	104
2016 and thereafter	—
Total	$	229

Other assets:



	September 30, 2013		March 31, 2013
	(In thousands)
Non-current portion of prepaid expenses	$	5,650	$	7,866
Strategic investments	3,000		3,000
	$	8,650	$	10,866

Other accrued liabilities:



	September 30, 2013		March 31, 2013
	(In thousands)
Employee related liabilities	$	2,168	$	2,236
Executive deferred compensation	1,310		1,284
Income taxes	1,127		903
Professional fees	3,977		3,840
Other	4,482		2,467
	$	13,064	$	10,730

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. 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 six months ended September 30, 2013 and 2012, the Company did not record any other-than-temporary impairment charges of its strategic investments and invested zero and $0.5 million, respectively, in non-marketable equity investments and these amounts are carried at cost.

Short-term investments:

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



	September 30, 2013								March 31, 2013
	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	$	20,652	$	—	$	—	$	20,652	$	8,529	$	—	$	—	$	8,529
Cash equivalents	7,256		—		—		7,256		10,536		—		—		10,536
U.S. Treasury securities and agency bonds	12,400		12		2		12,410		12,363		10		—		12,373
Corporate bonds	11,927		45		1		11,971		15,567		63		2		15,628
Mortgage-backed and asset-backed securities*	4,144		339		25		4,458		3,655		355		7		4,003
Closed-end bond funds	14,374		2,120		530		15,964		21,914		5,340		39		27,215
Preferred stock	2,406		851		—		3,257		4,878		2,314		—		7,192
	$	73,159	$	3,367	$	558	$	75,968	$	77,442	$	8,082	$	48	$	85,476
Reported as:
Cash and cash equivalents							$	27,908							$	19,065
Short-term investments available-for-sale							48,060								66,411
							$	75,968							$	85,476

* At September 30, 2013 and March 31, 2013, approximately $1.2 million and $1.4 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 instrument measured at fair value on a recurring basis (in thousands):



	September 30, 2013								March 31, 2013
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash	$	20,652	$	—	$	—	$	20,652	$	8,529	$	—	$	—	$	8,529
Cash equivalents	7,156		100		—		7,256		9,508		1,028		—		10,536
U.S. Treasury securities and agency bonds	11,951		459		—		12,410		12,373		—		—		12,373
Corporate bonds	—		11,971		—		11,971		—		15,628		—		15,628
Mortgage-backed and asset-backed securities	—		4,458		—		4,458		—		4,003		—		4,003
Closed-end bond funds	15,964		—		—		15,964		27,215		—		—		27,215
Preferred stock	—		3,257		—		3,257		—		7,192		—		7,192
	$	55,723	$	20,245	$	—	$	75,968	$	57,625	$	27,851	$	—	$	85,476

There were no significant transfers in and out of Level 1 and Level 2 fair value measurement categories during the three and six months ended September 30, 2013 and 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):



	September 30, 2013				March 31, 2013
	Cost		Fair Value		Cost		Fair Value
Less than 1 year	$	7,867	$	8,040	$	9,205	$	9,217
Mature in 1 – 2 years	19,341		19,386		19,843		20,040
Mature in 3 – 5 years	353		446		1,575		1,649
Mature after 5 years	910		967		962		1,098
	$	28,471	$	28,839	$	31,585	$	32,004

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



	Less Than 12 Months of Unrealized Losses					12 Months or More of Unrealized Losses					Total
As of September 30, 2013	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	$	1,468	$	(2	)	$	—	$	—		$	1,468	$	(2	)
Corporate bonds	1,654		(1		)	—		—			1,654		(1		)
Mortgage-backed and asset-backed securities	1,675		(25		)	12		—			1,687		(25		)
Closed-end bond funds	4,705		(448		)	391		(82		)	5,096		(530		)
	$	9,502	$	(476	)	$	403	$	(82	)	$	9,905	$	(558	)



	Less Than 12 Months of Unrealized Losses					12 Months or More of Unrealized Losses					Total
As of March 31, 2013	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	$	300	$	—		$	—	$	—		$	300	$	—
Corporate bonds	2,276		(2		)	113		—			2,389		(2		)
Mortgage-backed and asset-backed securities	647		(3		)	—		(4		)	647		(7		)
Closed-end bond funds	—		—			6,991		(39		)	6,991		(39		)
	$	3,223	$	(5	)	$	7,104	$	(43	)	$	10,327	$	(48	)

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 six months ended September 30, 2013 and 2012. 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 September 30, 2013 and March 31, 2013, the Company also had $3.4 million and $8.1 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						Six months ended
	September 30,						September 30,
	2013			2012			2013			2012
Beginning balance	$	203		$	447		$	220		$	454
Charged to costs of revenues	(11		)	85			(26		)	215
Cost incurred	(5		)	(162		)	(7		)	(299		)
Ending balance	$	187		$	370		$	187		$	370

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



	Three Months Ended				Six months ended
	September 30,				September 30,
	2013		2012		2013		2012
Interest income	$	402	$	568	$	870	$	1,230
Net realized gain on short-term investments	86		177		3,284		1,194
	$	488	$	745	$	4,154	$	2,424

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 RSUs and outstanding warrants. 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						Six months ended
	September 30,						September 30,
	2013			2012			2013			2012
Net loss	$	(32,383	)	$	(21,557	)	$	(21,526	)	$	(44,947	)
Shares used in net loss per share computation:
Weighted average common shares outstanding, basic	72,610			64,947			70,985			63,678
Net effect of dilutive common share equivalents	—			—			—			—
Weighted average common shares outstanding, diluted	72,610			64,947			70,985			63,678
Basic and diluted net loss per share	$	(0.45	)	$	(0.33	)	$	(0.30	)	$	(0.71	)

The effect of anti-dilutive securities (comprised of options and restricted stock units) totaling 4.3 million and 5.2 million equivalent shares for the three and six months ended September 30, 2013, respectively, and 10.2 million and 10.3 million equivalent shares for the three and six months ended September 30, 2012, respectively, have been excluded from the net loss per share computation, as their impact would be anti-dilutive.

The effect of dilutive securities (comprised of options and restricted stock units) totaling 1.7 million and 1.3 million shares for the three and six months ended September 30, 2013, respectively, and 0.5 million and 0.4 million shares for the three and six months ended September 30, 2012, respectively, have been excluded from the net loss per share computation, as their impact would be anti-dilutive because the Company incurred net losses in the periods presented.

Total equivalent shares excluded from the net loss per share computation are 6.0 million and 6.5 million for the three and six months ended September 30, 2013, respectively, and 10.7 million each for the three and six months ended September 30, 2012.