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IXIA - 10-Q/A - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors. The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2013, or for any other future period. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Item 1 of this Quarterly Report and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2012 ("2012 Form 10-K"), including the "Risk Factors" section and the consolidated financial statements and notes included therein. Restatement of Previously Issued Financial Statements. As discussed further in Note 13 of the Notes to the condensed consolidated financial statements contained in this Form 10-Q/A, we are restating herein our unaudited quarterly condensed consolidated financial statements for the quarters ended March 31, 2013 and 2012. There have been no revisions to the previously presented restated unaudited quarterly condensed consolidated financial information for the quarter ended March 31, 2012 that were disclosed in Note 15, Restatement, in our 2012 Form 10-K and as reported herein. The following discussion has been updated to reflect the effects of the restatement. BUSINESS OVERVIEW We are a leading provider of converged Internet Protocol (IP) network validation and network visibility solutions. Equipment manufacturers, service providers, enterprises, and government agencies use our solutions to design, verify, and monitor a broad range of Ethernet, Wi-Fi, and 3G/LTE equipment and networks. Our product solutions consist of our hardware platforms, such as our chassis, interface cards and appliances, software application tools, and services, including our warranty and maintenance offerings and professional services. During 2013 first quarter, our cash, cash equivalents and investments in the aggregate increased by $30.8 million to $208.3 million from the $177.5 million reported three months earlier at December 31, 2012. Total revenues increased 40.2% to $121.5 million during the 2013 first quarter from $86.7 million during the 2012 first quarter due to the completion of two significant acquisitions in June and August of 2012. Sales to service providers were at record levels and sales to network equipment manufacturers remained solid during the 2013 first quarter as our customers continue to transition to mobile networks, virtual data centers and hybrid cloud environments to deliver next generation applications. We believe that these market trends will continue to be strong and drive our growth over the long term. However, we believe there are some concerns that are creating uncertainty in the market, such as the Federal sequestration in the United States and the capital spending plans of large service providers. This uncertainty may adversely impact our sales, results of operations and financial position over the near term. 25 -------------------------------------------------------------------------------- Acquisition of BreakingPoint Systems, Inc. On August 24, 2012, we completed our acquisition of all of the outstanding shares of capital stock of BreakingPoint Systems, Inc. ("BreakingPoint"). The aggregate cash consideration paid totaled $163.7 million, or $150.3 million net of BreakingPoint's existing cash and cash equivalents balances at the time of the acquisition. The acquisition was funded from our existing cash and sale of investments. BreakingPoint is a leader in security testing, and its solutions provide global visibility into emerging threats and applications, along with advance insight into the resiliency of an organization's information technology infrastructure under operationally relevant conditions and malicious attacks. With this acquisition, we have expanded our addressable market, broadened our product portfolio and grown our customer base. In addition, we expect to leverage BreakingPoint's existing sales channels and assembled workforce, including its experienced product development and sales teams. The results of operations of BreakingPoint have been included in our consolidated statements of operations and cash flows since the date of the acquisition. See Note 3 to the condensed consolidated financial statements included in this Form 10-Q/A. Acquisition of Anue Systems, Inc. On June 1, 2012, we completed our acquisition of all of the outstanding shares of capital stock and other equity interests of Anue Systems, Inc. ("Anue"). The aggregate consideration paid totaled $152.4 million, or $148.7 million net of Anue's existing cash and cash equivalents balances at the time of the acquisition, and remains subject to certain adjustments including an adjustment based on the final amount of Anue's net working capital on the closing date. The acquisition was funded from our existing cash and sale of investments. Anue provides solutions to monitor and test complex networks, including Anue's Net Tool Optimizer solution that efficiently aggregates and filters network traffic to help optimize network monitoring tool usage. With this acquisition, we have expanded our addressable market, broadened our product portfolio and grown our customer base. In addition, we expect to leverage Anue's existing sales channels and assembled workforce, including its experienced product development team. The results of operations of Anue have been included in our consolidated statements of operations and cash flows since the date of the acquisition. See Note 3 to the condensed consolidated financial statements included in this Form 10-Q/A. Revenues. Our revenues are principally derived from the sale and support of our test and visibility systems. Sales of our network test hardware products primarily consist of traffic generation and analysis hardware platforms containing multi-slot chassis and interface cards. Our primary network test hardware platform is enabled by our operating system software that is essential to the functionality of the hardware platform. Sales of our network visibility hardware products typically include an integrated, purpose-built hardware appliance with essential, proprietary software. Our software products consist of a comprehensive suite of technology-specific applications for certain of our network test hardware platforms. Our software products are typically installed on and work with these hardware products to further enhance the core functionality of the overall network test system, although some of our software products can be operated independently from our network test platforms. Our service revenues primarily consist of technical support, warranty and software maintenance services related to our network test and visibility hardware and software products. Most of our products include up to one year of these services with the initial product purchase, and our customers may separately purchase extended services for annual or multi-year periods. Our technical support, warranty and software maintenance services include assistance with the set-up, configuration and operation of our products, repair or replacement of defective products, bug fixes, and unspecified when and if available software upgrades. For certain network test products, our technical support and software maintenance service revenues also include our Application and Threat Intelligence (ATI) service, which provides a comprehensive suite of application protocols, software updates and technical support. The ATI service provides full access to the latest security attacks and application updates for use in real-world test and assessment scenarios. Our customers may purchase the ATI service for annual or multi-year periods. Service revenues also include training and other professional services. Sales to AT&T were approximately $22.6 million, or 18.6%, and $1.2 million, or 1.4%, of our total revenues for the three months ended March 31, 2013 and 2012, respectively. Sales to Cisco Systems were approximately $14.0 million, or 11.5%, and $14.8 million, or 17.1%, of our total revenues for the three months ended March 31, 2013 and 2012, respectively. To date, we have generated the majority of our revenues from sales to network equipment manufacturers, but this percentage has been declining over the past several years. While we expect that we will continue to have some customer concentration with network equipment manufacturers for the foreseeable future, we expect to continue to see some declines as a percentage of total revenues as we continue to sell our products to a wider variety and increasing number of service provider, enterprise and government customers. To the extent that we develop a broader and more diverse customer base, our reliance on any one customer or customer type should diminish. We also expect that our 2012 acquisitions of Anue and BreakingPoint (the "2012 Acquisitions") will further diversify our customer base. From a geographic perspective, we generated revenues from shipments to international locations of $46.0 million, or 37.8%, and $42.5 million, or 49.1%, of our total revenues for the three months ended March 31, 2013 and 2012, respectively. The decline in the percentage of our revenue from shipments to international locations was primarily due to our 2012 Acquisitions, which have a higher concentration of revenue from customers in the United States. Over the next 12 months, we expect to leverage and expand our international sales force to sell our Anue and BreakingPoint products to a larger global customer base, and as a result, we expect to increase our percentage of revenue from shipments to international locations. Total revenues from product shipments to Japan were $15.1 million, or 12.4%, and $12.1 million, or 14.0%, of our total revenue, for the three months ended March 31, 2013 and 2012, respectively. 26 -------------------------------------------------------------------------------- Stock-Based Compensation. For the three months ended March 31, 2013 and 2012, stock-based compensation expense was $6.9 million and $4.1 million, respectively. The increase in stock-based compensation expense in the three months ended March 31, 2013 as compared to the same period in 2012 was primarily due to (i) the incremental impact of the share-based awards granted to the employees related to our 2012 acquisitions of Anue and BreakingPoint and (ii) an increase in the number of participants in our employee stock purchase plan. The aggregate amount of gross unrecognized stock-based compensation to be expensed in the years 2013 through 2017 related to unvested share-based awards as of March 31, 2013 was approximately $32.9 million. To the extent that we grant additional share-based awards, future expense may increase by the additional unearned compensation resulting from those grants. We anticipate that we will continue to grant additional share-based awards in the future as part of our long-term incentive compensation programs. The impact of future grants cannot be estimated at this time because it will depend on a number of factors, including the amount of share-based awards granted and the then current fair values of such awards for accounting purposes. Cost of Revenues. Our cost of revenues related to the sale of our hardware and software products includes materials, payments to third-party contract manufacturers, royalties, and salaries and other expenses related to our manufacturing and supply operations, technical support and professional service personnel. We outsource the majority of our manufacturing operations, and we conduct supply chain management, quality assurance, documentation control, shipping and some final assembly and testing at our facilities in Calabasas, California, Austin, Texas and Penang, Malaysia. Accordingly, a significant portion of our cost of revenues related to our products consists of payments to our contract manufacturers. Cost of revenues related to the provision of services includes salaries and other expenses associated with technical support services, professional services and the cost of extended warranty and maintenance services. Cost of revenues does not include the amortization of purchased technology and trade names related to our acquisitions of certain businesses, product lines and purchased technologies of $6.5 million and $2.7 million for the three months ended March 31, 2013 and 2012, respectively, which are included within our Amortization of intangible assets line item on our condensed consolidated statements of operations. Our cost of revenues as a percentage of total revenues is primarily affected by the following factors: ? our pricing policies and those of our competitors; ? the pricing we are able to obtain from our component suppliers and contract manufacturers; ? the mix of customers and sales channels through which our products are sold; ? the mix of our products sold, such as the mix of software versus hardware product sales; ? new product introductions by us and by our competitors; ? demand for and quality of our products; and ? shipment volume. In the near term, although we anticipate that our cost of revenues as a percentage of total revenues will remain relatively flat, we expect to continue to experience pricing pressure on larger transactions and from larger customers as a result of competition. Operating Expenses. Our operating expenses are generally recognized when incurred and consist of research and development, sales and marketing, general and administrative, amortization of intangible assets, acquisition and other related costs and restructuring expenses. In dollar terms, we expect total operating expenses, excluding stock-based compensation expense discussed above and amortization of intangible assets, acquisition and other related, and restructuring costs discussed below, to increase modestly for the remainder of 2013 due primarily to the impact of our annual merit increases, the expansion of our sales force and investments in certain product initiatives. 27 -------------------------------------------------------------------------------- ? Research and development expenses consist primarily of salaries and other personnel costs related to the design, development, testing and enhancement of our products. We expense our research and development costs as they are incurred. We also capitalize and depreciate over a five-year period costs of our products used for internal purposes. ? Sales and marketing expenses consist primarily of compensation and related costs for personnel engaged in direct sales, sales support and marketing functions, as well as promotional and advertising expenditures. We also capitalize and depreciate over a two-year period costs of our products used for sales and marketing activities, including product demonstrations for potential customers. ? General and administrative expenses consist primarily of salaries and related expenses for certain executive, finance, legal, human resources, information technology and administrative personnel, as well as professional fees (e.g., legal and accounting), facility costs related to our corporate headquarters, insurance costs and other general corporate expenses. ? Amortization of intangible assets consists of the purchase price of various intangible assets over their estimated useful lives. We evaluate our identifiable definite-lived intangible assets and other long-lived assets for impairment when events or changes in circumstances indicate that a potential impairment may exist. An impairment charge would be recorded to the extent that the carrying value of the intangible asset exceeds its undiscounted cash flows and its estimated fair value in the period that the impairment circumstances occurred. We also evaluate the recoverability of our goodwill on an annual basis or if events or changes in circumstances indicate that an impairment in the value of goodwill recorded on our balance sheet may exist. Impairment losses are recorded to the extent that the carrying value of the goodwill exceeds its estimated fair value. The future amortization expense of acquired intangible assets depends on a number of factors, including the extent to which we acquire additional businesses, technologies or product lines or are required to record impairment charges related to our acquired intangible assets. ? Acquisition and other related costs are expensed as incurred and consist primarily of transaction and integration related costs such as success-based banking fees, professional fees for legal, accounting, tax, due diligence, valuation and other related services, change in control payments, amortization of deferred compensation, consulting fees, required regulatory costs, certain employee, facility and infrastructure transition costs, and other related expenses. We expect our acquisition and other related expenses to fluctuate over time based on the timing of our acquisitions and related integration activities. ? Restructuring expenses consist primarily of employee severance costs and other related charges, as well as facility-related charges to exit certain locations. See Note 4 to the condensed consolidated financial statements included in this Form 10-Q/A. Interest Income and Other, Net represents interest on cash and a variety of securities, including money market funds, U.S. government and government agency debt securities, corporate debt securities and auction rate securities, realized gains/losses on the sale of investment securities, certain foreign currency gains and losses, and other non-operating items. Interest Expense consists of interest due to the holders of our 3.00% convertible senior notes issued in December 2010, as well as the amortization of the associated debt issuance costs. See Note 5 to the condensed consolidated financial statements included in this Form 10-Q/A. Income tax is determined based on the amount of earnings and enacted federal, state and foreign tax rates, adjusted for allowable credits and deductions, and for other effects of equity compensation plans. Our income tax provision may be significantly affected by changes to our estimates for tax in jurisdictions in which we operate and other estimates utilized in determining the global effective tax rate. Actual results may also differ from our estimates based on changes in economic conditions. Such changes could have substantial impact on the income tax provision. Our income tax provision could also be significantly impacted by estimates surrounding our uncertain tax positions and changes to valuation allowance set against certain deferred tax assets. We reevaluate the judgments surrounding our estimates and make adjustments as appropriate each reporting period. 28 -------------------------------------------------------------------------------- CRITICAL ACCOUNTING POLICIES AND ESTIMATES Management's discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements included in this Form 10-Q/A which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, allowance for doubtful accounts, write-downs for obsolete inventory, income taxes, acquisition purchase price allocation, impairments of long-lived assets, goodwill and marketable securities, stock-based compensation, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. None of these accounting policies and estimates have significantly changed since our Annual Report on Form 10-K for the year ended December 31, 2012. Critical accounting policies and estimates are more fully described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 2012 Form 10-K. Actual results may differ from these estimates under different assumptions or conditions. 29 -------------------------------------------------------------------------------- RESULTS OF OPERATIONS The following table sets forth certain statement of operations data as a percentage of total revenues for the periods indicated and reflects the impact of the restatement in this Form 10-Q/A of the prior period consolidated financial statements as described in "Restatement of Previously Issued Financial Statements" above and in Note 13 of the Notes to the condensed consolidated financial statements included herein: Three months ended March 31, 2013 2012 Revenues: Products 78.6 % 80.3 % Services 21.4 19.7 Total revenues 100.0 100.0 Costs and operating expenses:(1) Cost of revenues - products (2) 17.6 17.1 Cost of revenues - services 2.5 2.5 Research and development 24.5 24.1 Sales and marketing 28.9 28.4 General and administrative 9.9 13.3 Amortization of intangible assets 8.3 4.7 Acquisition and other related 1.0 0.5 Restructuring 0.1 - Total costs and operating expenses 92.8 90.4 Income from operations 7.2 9.6 Interest income and other, net 0.2 0.1 Interest expense (1.6 ) (2.1 ) Income before income taxes 5.8 7.6 Income tax expense (benefit) (0.7 ) 1.7 Net income 6.5 % 6.0 % (1) Stock-based compensation included in: Cost of revenues - products 0.1 % 0.1 % Cost of revenues - services 0.0 0.0 Research and development 2.0 1.5 Sales and marketing 1.7 1.2 General and administrative 1.8 1.9 (2) Cost of revenues - products excludes amortization of intangible assets, related to product lines and purchased technologies of $6.5 million and $2.7 million for the three months ended March 31, 2013 and 2012, respectively, which is included in Amortization of intangible assets. Comparison of Three Months Ended March 31, 2013 and 2012 As a result of our acquisitions of Anue on June 1, 2012 and BreakingPoint on August 24, 2012 (the "2012 Acquisitions"), our 2013 consolidated results of operations include the financial results of these acquisitions from their respective acquisition dates. To assist the readers of our financial statements in reviewing our year-over-year consolidated operating results, we have estimated the impacts of these acquisitions for the 2013 first quarter in the related statement of operations sections below. Revenues. In the first quarter of 2013, total revenues increased 40.2% to $121.5 million from the $86.7 million recorded in the first quarter of 2012. The first quarter of 2013 included revenues of $38.4 million related to the 2012 Acquisitions. Excluding the revenues from our 2012 Acquisitions, revenues decreased to $83.1 million in the first quarter of 2013 primarily due to a $5.1 million decrease in shipments of our hardware products (primarily our core network test Gigabit and 10 Gigabit Ethernet interface cards, offset by an increase in our core 40/100 Gigabit Ethernet interface cards and IxVeriwave products). 30 -------------------------------------------------------------------------------- Cost of Revenues. As a percentage of total revenues, our total cost of revenues increased to 20.1% in the 2013 first quarter from 19.6% in the 2012 first quarter primarily due to lower sales prices on certain of our Ethernet interface cards in the 2013 first quarter when compared to the sales prices in the 2012 first quarter, without a similar reduction in the material costs of the interface cards. Research and Development Expenses. In the first quarter of 2013, research and development expenses increased 42.5% to $29.7 million from $20.9 million in the first quarter of 2012. As a result of our 2012 Acquisitions, our research and development expenditures in the first quarter of 2013 included approximately $6.9 million related to the research and development activities of the acquired operations. Excluding the incremental research and development costs related to the 2012 Acquisitions, research and development expenses in the first quarter of 2013 were $22.8 million compared to $20.9 million in the first quarter of 2012. This increase was primarily due to an increase in stock-based compensation expense of $1.2 million and higher spending on new product initiatives of $1.1 million. Sales and Marketing Expenses. In the first quarter of 2013, sales and marketing expenses increased 42.4% to $35.0 million from $24.6 million in the first quarter of 2012. As a result of our 2012 Acquisitions, our sales and marketing expenditures in the first quarter of 2013 included approximately $9.5 million related to the sales and marketing activities of Anue and BreakingPoint. Excluding the incremental sales and marketing costs related to the 2012 Acquisitions, sales and marketing expenses in the first quarter of 2013 were $25.5 million compared to $24.6 million in the first quarter of 2012. This increase was primarily due to an increase in stock-based compensation expense of $1.0 million and higher marketing events and activities related costs (e.g., trade shows) of $650,000, partially offset by lower compensation and related employee costs. The net decrease in compensation and related employee costs was primarily due to a decrease in sales commissions principally due to commissions earned at lower rates in the 2013 first quarter when compared to the comparable prior year period. General and Administrative Expenses. In the first quarter of 2013, general and administrative expenses increased 4.7% to $12.1 million from $11.5 million in the first quarter of 2012. As a result of our 2012 Acquisitions, our general and administrative expenses in the first quarter of 2013 included approximately $822,000 related to the general and administrative activities of Anue and BreakingPoint. Our general and administrative expenditures in the first three months of 2013 also included one-time items including proceeds of $1.2 million from the settlement of a legal matter and $846,000 of costs incurred in the first quarter of 2013 related to the restatement of certain of our previously filed financial statements (See Note 13 to the condensed consolidated financial statements included in this Form 10-Q/A). Our general and administrative expenditures in the first quarter of 2012 included a one-time charge of $1.7 million incurred in connection with the departure (in 2012) of our former CEO. Excluding these one-time items and the incremental general and administrative costs related to the 2012 Acquisitions, general and administrative expenses in the first quarter of 2013 were $11.5 million compared to $9.8 million in the first quarter of 2012. This increase was primarily due to higher stock-based compensation expense of $539,000, higher compensation and related employee costs of $411,000 and an increase in accounting fees of $360,000. Amortization of Intangible Assets. In the first quarter of 2013, amortization of intangible assets increased to $10.1 million from $4.0 million in the first quarter of 2012. This increase was primarily due to the incremental amortization of intangibles related to our acquisitions of Anue in June 2012 and BreakingPoint in August 2012. Acquisition and Other Related Expenses. Acquisition and other related expenses for the three months ended March 31, 2013 and 2012 were $1.3 million and $425,000, respectively, and related to our acquisitions of Veriwave, Inc., which we acquired in July 2011, Anue and BreakingPoint. Acquisition and other related costs primarily consisted of transaction and integration related costs such as professional fees for legal, accounting and tax services, integration related consulting fees, amortization of deferred compensation payable to certain pre-acquisition employees of BreakingPoint, certain employee, facility and infrastructure costs, and other acquisition-related costs. Restructuring. There were no restructuring expenses incurred in the first quarter of 2012. Restructuring expenses for the three months ended March 31, 2013 were $58,000. See Note 4 to the condensed consolidated financial statements included in this Form 10-Q/A. Interest Income and Other, Net. Interest income and other, net was $207,000 in the first quarter of 2013 and $110,000 in the first quarter of 2012. 31 -------------------------------------------------------------------------------- Interest Expense. Interest expense, including the amortization of debt issuance costs, was $1.9 million for the first quarter of 2013 and $1.8 million for the first quarter of 2012. Interest expense relates to our Notes, which were issued in December 2010, as well as the amortization of deferred issuance costs and commitment fees related to our credit facility which we established in December 2012. For additional information, see Note 5 to the condensed consolidated financial statements included in this Form 10-Q/A. Income Tax. Income tax expense decreased to a benefit of ($788,000) or an effective rate of (11.2)%, in the first quarter of 2013 from an expense of $1.4 million, or an effective rate of 21.9%, recorded in the first quarter of 2012. The decrease in the effective tax rate was primarily due to the retroactive renewal of the 2012 federal research and development tax credit during the 2013 first quarter. Our effective tax rate of (11.2)% differs from the federal statutory rate of 35% due to benefits associated with the differential in tax rates for certain foreign operations, state taxes and significant permanent differences. Significant permanent differences arise primarily due to research and development credits (federal research credits were not available in 2012) and certain stock-based compensation expenses that are not expected to generate a tax deduction, such as stock-based compensation expense on grants to foreign employees, offset by tax benefits from disqualifying dispositions. Realization of our deferred tax assets is dependent primarily on the generation of future taxable income. In considering the need for a valuation allowance we consider our historical, as well as future, projected taxable income along with other objectively verifiable evidence. Management has concluded it is more likely than not that all of its U.S. deferred tax assets, with the exception of its deferred tax assets for capital loss carryforwards, will be realized. Any reversal of our valuation allowance will favorably impact our results of operations in the period of the reversal. 32 -------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES Our cash, cash equivalents and short- and long-term investments, when viewed as a whole, increased to $208.3 million as of March 31, 2013 from $177.5 million as of December 31, 2012 primarily due to $26.6 million in net cash provided by our operating activities and $7.8 million of cash generated from exercises of share-based awards, partially offset by capital expenditures of $4.6 million. Of our total cash, cash equivalents and short- and long-term investments, $30.2 million and $22.5 million were held outside of the United States in various foreign subsidiaries as of March 31, 2013 and December 31, 2012, respectively. Under current tax laws and regulations, if our cash, cash equivalents or investments associated with the subsidiaries' undistributed earnings were to be repatriated in the form of dividends or deemed distributions, we would be subject to additional U.S. income taxes and foreign withholding taxes. We consider these funds to be indefinitely reinvested in our foreign operations and do not intend to repatriate them. We had no exposure to European sovereign debt as of March 31, 2013. The following table sets forth our summary cash flows for the three months ended March 31, 2013 and 2012 (in thousands): Three Months Ended March 31, 2013 2012 Net cash provided by operating activities $ 26,586 $ 33,857 Net cash used in investing activities (17,107 ) (33,716 ) Net cash provided by financing activities 8,350 6,544 Cash Flows from Operating Activities Net cash provided by operating activities was $26.6 million in the 2013 first quarter and $33.9 million in the same period of 2012. This decrease in cash flow generated from operations was primarily due to the $21.9 million decrease related to net working capital changes in the 2013 first quarter as compared to the 2012 first quarter, partially offset by an increase in net income in the 2013 first quarter compared to the same period in 2012 which was driven by the 40.2% year-over-year increase in revenues. The working capital changes were principally due to the timing of payments of accounts payable and accrued liabilities, including the increase in year-end bonus and commission payments in the 2013 first quarter compared to the 2012 first quarter. Cash Flows from Investing Activities Net cash used in investing activities was $17.1 million and $33.7 million for the first three months of 2013 and 2012, respectively. Excluding marketable security purchases and proceeds, net cash used in investing activities was $4.4 million and $5.0 million for the first three months of 2013 and 2012, respectively, and primarily related to capital expenditures. Cash Flows from Financing Activities Net cash provided by financing activities was $8.4 million and $6.5 million for the first three months of 2013 and 2012, respectively. This increase in cash provided by financing activities was primarily due to a $1.8 million increase in proceeds from the exercises of share-based awards for the first three months of 2013 when compared to the first three months of 2012. 33 -------------------------------------------------------------------------------- We believe that our existing balances of cash and cash equivalents, investments and cash flows expected to be generated from our operations, and borrowings available under our $150 million credit facility established in December 2012, will be sufficient to satisfy our operating requirements for at least the next 12 months. Our credit facility is expected to mature on December 21, 2016, but may mature on September 14, 2015 if we do not have available liquidity (domestic cash and investments, plus availability under the credit facility) of $25.0 million in excess of the amount required to repay our Convertible Senior Notes (the "Notes") of $200.0 million in full beginning on June 15, 2015. If we satisfy this requirement between June 15, 2015 and September 14, 2015, but fail to do so after September 15, 2015 and prior to December 15, 2015, the maturity date is the date on which the requirement is no longer satisfied. Nonetheless, we may seek additional sources of capital as necessary or appropriate to fund acquisitions or to otherwise finance our growth or operations; however, there can be no assurance that such funds, if needed, will be available on favorable terms, if at all. Our access to the capital markets to raise funds, through the sale of equity or debt securities, is subject to various factors, including the conditions in the U.S. capital markets and the timely filing of our periodic reports with the Commission. Our failure to timely file our Annual Report on Form 10-K for the year ended December 31, 2012 with the Securities and Exchange Commission may currently limit our ability to access the capital markets using short form registration. In addition, our $200 million Notes have various default provisions, which, under certain circumstances, could accelerate our repayment obligations under the Notes or could lead to an increase in the overall interest rate charged on outstanding borrowings and adversely impact our liquidity. Upon the occurrence of certain events, such as any delisting of our common stock, we could be required to offer to repurchase the Notes, which could also adversely impact our liquidity. Our credit facility also has certain default provisions, which, under certain circumstances, could affect our ability to utilize the credit facility and accelerate repayment of any amounts outstanding thereunder. 34-------------------------------------------------------------------------------- SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Statements that are not historical facts in this Management's Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Quarterly Report on Form 10-Q/A may be deemed to be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and are subject to the safe harbor created by that Section. Words such as "may," "will," "should," "could," "would," "expect," "plan," "anticipate," "believe," "estimate," "project," "predict," "potential," and variations of these words and similar expressions are intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and are subject to risks and uncertainties. These risks, uncertainties and other factors may cause our future results, performances or achievements to be materially different from those expressed or implied by our forward-looking statements and include, among other things: anticipated benefits and synergies of our 2012 acquisitions of Anue and BreakingPoint will not be realized, changes in the global economy, competition, consistency of orders from significant customers, our success in developing and producing new products, market acceptance of our products, risks relating to the restatement of certain of our previously issued financial statements, war, terrorism, political unrest, natural disasters and other circumstances that could, among other consequences, reduce the demand for our products, disrupt our supply chain and/or impact the delivery of our products. The factors that may cause future results to differ materially from our current expectations also include, without limitation, the risks identified in our Annual Report on Form 10-K for the year ended December 31, 2012, and in our other filings with the Securities and Exchange Commission. |