CERTAIN FINANCIAL STATEMENT INFORMATION

Accounts receivable:



	December 31, 2013			March 31, 2013
	(In thousands)
Accounts receivable	$	29,281		$	25,278
Less: allowance for bad debts	(481		)	(703		)
	$	28,800		$	24,575

Inventories:



	December 31, 2013		March 31, 2013
	(In thousands)
Finished goods	$	4,513	$	7,247
Work in process	4,637		4,098
Raw materials	1,332		1,555
	$	10,482	$	12,900

Assets held for sale:



	December 31, 2013		March 31, 2013
	(In thousands)
Assets held for sale	$	14,260	$	—

As of December 31, 2013, the Company classified its headquarters building in Sunnyvale, California as assets held for sale in the Condensed Consolidated Balance Sheets at $14.3 million representing the carrying amount of the asset. In January 2014, the Company agreed to sell the headquarters building for a purchase price of $40.8 million in cash, subject to a limited set of certain closing conditions. See Note 9, Subsequent Events, to the Condensed Consolidated Financial Statements for details.

Other current assets:



	December 31, 2013		March 31, 2013
	(In thousands)
Prepaid expenses	$	11,177	$	13,762
Executive deferred compensation assets	1,157		693
Deposits	653		828
Receivable from sale of strategic investment and TPack	3,353		1,331
Other	1,489		1,384
	$	17,829	$	17,998

Property and equipment:



	Useful Life	December 31, 2013			March 31, 2013
	(In years)	(In thousands)
Machinery and equipment *	5-7	$	44,887		$	40,063
Leasehold improvements **	1-15	9,011			14,202
Computers, office furniture and equipment	3-7	43,992			43,485
Buildings **	31.5	—			2,756
Land **	—	—			9,800
		97,890			110,306
Less: accumulated depreciation and amortization		(77,718		)	(75,915		)
		$	20,172		$	34,391

* Includes capitalized mask costs.

** December 31, 2013 balances exclude $14.3 million, including land, building and leasehold improvements related to the Company's headquarters in Sunnyvale, California, which have been reclassified as assets held for sale and included under current assets.

Goodwill and purchased intangibles:

Goodwill is as follows:



	December 31, 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. See Note 8, Sale of TPack A/S, to the Condensed Consolidated Financial Statements for details.

Purchase-related intangibles are as follows:



	December 31, 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		(6,163		)	167		0.7	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	$	(493,469	)	$	167		$	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 December 31, 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)	$	63
2015	104
Total	$	167

Other assets:



	December 31, 2013		March 31, 2013
	(In thousands)
Non-current portion of prepaid expenses	$	4,842	$	7,866
Strategic investments	3,000		3,000
	$	7,842	$	10,866

Other accrued liabilities:



	December 31, 2013		March 31, 2013
	(In thousands)
Employee related liabilities	$	1,902	$	2,236
Executive deferred compensation	1,415		1,284
Income taxes	1,254		903
Professional fees	2,033		3,840
Other	4,574		2,467
	$	11,178	$	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 nine months ended December 31, 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 adjusted cost.

Short-term investments:

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



	December 31, 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	$	19,716	$	—	$	—		$	19,716	$	8,529	$	—	$	—		$	8,529
Cash equivalents	3,914		—		—			3,914		10,536		—		—			10,536
U.S. Treasury securities and agency bonds	11,747		8		(4		)	11,751		12,363		10		—			12,373
Corporate bonds	15,482		56		(4		)	15,534		15,567		63		(2		)	15,628
Mortgage-backed and asset-backed securities*	4,015		300		(47		)	4,268		3,655		355		(7		)	4,003
Closed-end bond funds	14,374		2,261		(818		)	15,817		21,914		5,340		(39		)	27,215
Preferred stock	2,406		878		—			3,284		4,878		2,314		—			7,192
	$	71,654	$	3,503	$	(873	)	$	74,284	$	77,442	$	8,082	$	(48	)	$	85,476
Reported as:
Cash and cash equivalents								$	23,630								$	19,065
Short-term investments available-for-sale								50,654									66,411
								$	74,284								$	85,476

* At December 31, 2013 and March 31, 2013, approximately $1.1 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):



	December 31, 2013								March 31, 2013
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash	$	19,716	$	—	$	—	$	19,716	$	8,529	$	—	$	—	$	8,529
Cash equivalents	3,914		—		—		3,914		9,508		1,028		—		10,536
U.S. Treasury securities and agency bonds	11,596		155		—		11,751		12,373		—		—		12,373
Corporate bonds	—		15,534		—		15,534		—		15,628		—		15,628
Mortgage-backed and asset-backed securities	—		4,268		—		4,268		—		4,003		—		4,003
Closed-end bond funds	15,817		—		—		15,817		27,215		—		—		27,215
Preferred stock	—		3,284		—		3,284		—		7,192		—		7,192
	$	51,043	$	23,241	$	—	$	74,284	$	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 nine months ended December 31, 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):



	December 31, 2013				March 31, 2013
	Cost		Estimated Fair Value		Cost		Estimated Fair Value
Less than 1 year	$	7,259	$	7,411	$	9,205	$	9,217
Mature in 1 – 2 years	22,341		22,369		19,843		20,040
Mature in 3 – 5 years	707		771		1,575		1,649
Mature after 5 years	937		1,002		962		1,098
	$	31,244	$	31,553	$	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 December 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	$	2,566	$	(4	)	$	—	$	—		$	2,566	$	(4	)
Corporate bonds	2,811		(4		)	—		—			2,811		(4		)
Mortgage-backed and asset-backed securities	1,451		(47		)	6		—			1,457		(47		)
Closed-end bond funds	6,344		(721		)	377		(97		)	6,721		(818		)
	$	13,172	$	(776	)	$	383	$	(97	)	$	13,555	$	(873	)



	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 nine months ended December 31, 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 December 31, 2013 and March 31, 2013, the Company also had $3.5 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						Nine Months Ended
	December 31,						December 31,
	2013			2012			2013			2012
Beginning balance	$	187		$	370		$	220		$	454
Charged to costs of revenues	54			96			28			311
Cost incurred	(39		)	(108		)	(46		)	(407		)
Ending balance	$	202		$	358		$	202		$	358

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



	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2013		2012		2013		2012
Interest income	$	519	$	685	$	1,389	$	1,915
Net realized gain on short-term investments	6		207		3,290		1,401
	$	525	$	892	$	4,679	$	3,316

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						Nine Months Ended
	December 31,						December 31,
	2013			2012			2013			2012
Net loss	$	(7,284	)	$	(71,562	)	$	(28,810	)	$	(116,509	)
Shares used in net loss per share computation:
Weighted average common shares outstanding, basic	73,989			66,113			71,986			64,489
Net effect of dilutive common share equivalents	—			—			—			—
Weighted average common shares outstanding, diluted	73,989			66,113			71,986			64,489
Basic and diluted net loss per share	$	(0.10	)	$	(1.08	)	$	(0.40	)	$	(1.81	)

The effect of anti-dilutive securities (comprised of options and restricted stock units) totaling 3.8 million and 4.7 million equivalent shares for the three and nine months ended December 31, 2013, respectively, and 5.4 million and 8.7 million equivalent shares for the three and nine months ended December 31, 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 1.8 million and 1.4 million shares for the three and nine months ended December 31, 2013, respectively, and 1.4 million and 0.7 million shares for the three and nine months ended December 31, 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 5.6 million and 6.1 million for the three and nine months ended December 31, 2013, respectively, and 6.8 million and 9.4 million for the three and nine months ended December 31, 2012, respectively.