XNAS:MSPD Quarterly Report 10-Q Filing - 3/30/2012

Effective Date 3/30/2012

Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 30, 2012

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-31650

 

MINDSPEED TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware   01-0616769
(State of incorporation)  

(I.R.S. Employer

Identification No.)

4000 MacArthur Boulevard, East Tower

Newport Beach, California

  92660-3095
(Address of principal executive offices)   (Zip code)

Registrant’s telephone number, including area code:

(949) 579-3000

 

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of outstanding shares of the Registrant’s Common Stock as of April 27, 2012 was 41,331,146.

 

 

 


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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains statements (including certain projections and business trends) relating to Mindspeed Technologies, Inc. that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), and are subject to the “safe harbor” created by those sections. All statements included in this Quarterly Report on Form 10-Q, other than those that are purely historical, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “outlook,” “could,” “target,” “project,” “intend,” “plan,” “seek,” “estimate,” “should,” “may,” “assume” and “continue,” as well as variations of such words and similar expressions, also identify forward-looking statements. Forward-looking statements in this Quarterly Report on Form 10-Q include, without limitation, statements regarding:

 

   

our expectations regarding the achievement of the potential earnout payments in connection with our acquisition of picoChip Inc. and its wholly owned subsidiaries;

 

   

our plans to maintain our position in the 3G small cell base station market as the small cell base station market transitions to dual-mode 3G/4G and 4G-only products;

 

   

the ability of our relationships with leading network infrastructure original equipment manufacturers to facilitate early adoption of our products, enhance our ability to obtain design wins and encourage adoption of our technology in the industry;

 

   

the growth prospects for the network infrastructure equipment and communications semiconductors markets, including increased demand for network capacity, the upgrade and expansion of existing networks and the build-out of networks in developing countries;

 

   

our belief that our diverse portfolio of semiconductor solutions has positioned us to capitalize on some of the most significant trends in telecommunications spending;

 

   

our belief that we are well-situated in China and that fiber deployments are being rolled out by the country’s major telecommunications carriers;

 

   

our plans to make substantial investments in research and development and participate in the formulation of industry standards;

 

   

our belief that we can maximize our return on our research and development spending by focusing our investment in what we believe are key growth markets;

 

   

the increasing trend toward industry consolidation and the effect it could have on our operating results;

 

   

the sufficiency of our cash balances, along with cash expected from product sales, to fund our operations, research and development efforts, anticipated capital expenditures, working capital and other financing requirements, including interest payments on debt obligations, for the next 12 months;

 

   

our restructuring plans, including timing, expected workforce reductions, the expected cost savings under our restructuring plans and the uses of those savings, the timing and amount of payments, the impact on our business, the amounts of future charges to complete our restructuring plans, including any future plans to reduce operating expenses and/or increase revenue;

 

   

our intention to continue to expand our international business activities, including expansion of design and operations centers abroad, and the challenges associated with such expansion;

 

   

our expectations regarding the cyclical nature of the semiconductor industry; and

 

   

the impact of recent accounting pronouncements and the adoption of new accounting standards.

Our expectations, beliefs, anticipations, objectives, intentions, plans and strategies regarding the future are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results, and actual events that occur, to differ materially from results contemplated by the forward-looking statement. These risks and uncertainties include, but are not limited to:

 

   

worldwide political and economic uncertainties and specific conditions in the markets we address;

 

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fluctuations in our operating results and future operating losses;

 

   

cash requirements and terms and availability of financing;

 

   

our acquisition of picoChip Inc. and its wholly owned subsidiaries;

 

   

constraints in the supply of wafers and other product components from our third-party manufacturers;

 

   

fluctuations in the price of our common stock;

 

   

successful development and introduction of new products;

 

   

pricing pressures and other competitive factors;

 

   

loss of or diminished demand from one or more key customers or distributors;

 

   

lengthy sales cycles;

 

   

doing business internationally and our ability to successfully and cost effectively establish and manage operations in foreign jurisdictions;

 

   

the expense of and our ability to defend our intellectual property against infringement claims by others;

 

   

our ability to attract and retain qualified personnel;

 

   

business acquisitions and investments;

 

   

order and shipment uncertainty;

 

   

our ability to obtain design wins and develop revenue from them;

 

   

product defects and bugs; and

 

   

our ability to utilize our net operating loss carryforwards and certain other tax attributes.

The forward-looking statements in this report are subject to additional risks and uncertainties, including those set forth in Part II, Item 1A “Risk Factors” and those detailed from time to time in our other filings with the SEC. These forward-looking statements are made only as of the date hereof and, except as required by law, we undertake no obligation to update or revise any of them, whether as a result of new information, future events or otherwise.

Mindspeed® and Mindspeed Technologies® are registered trademarks of Mindspeed Technologies, Inc. Other brands, names and trademarks contained in this report are the property of their respective owners.

 

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MINDSPEED TECHNOLOGIES, INC.

INDEX

 

     PAGE  

PART I. FINANCIAL INFORMATION

  

Item 1. Financial Statements (unaudited):

  

Consolidated Condensed Balance Sheets — March 30, 2012 and September 30, 2011

     5   

Consolidated Condensed Statements of Operations — Three Months and Six Months Ended March  30, 2012 and April 1, 2011

     6   

Consolidated Condensed Statements of Cash Flows — Six Months Ended March 30, 2012 and April  1, 2011

     7   

Notes to Consolidated Condensed Financial Statements

     8   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     24   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     38   

Item 4. Controls and Procedures

     39   

PART II. OTHER INFORMATION

  

Item 1. Legal Proceedings

     39   

Item 1A. Risk Factors

     39   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     51   

Item 3. Defaults upon Senior Securities

     51   

Item 4. Mine Safety Disclosures

     51   

Item 5. Other Information

     51   

Item 6. Exhibits

     52   

Signature

     54   

 

 

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MINDSPEED TECHNOLOGIES, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(unaudited, in thousands, except par value)

 

     March 30,
2012
    September 30,
2011
 
ASSETS     

Current Assets

    

Cash and cash equivalents

   $ 32,354      $ 45,227   

Receivables, net of allowance for doubtful accounts of $494 at March 30, 2012 and $376 at September 30, 2011

     22,307        13,393   

Inventories

     10,837        14,216   

Prepaid expenses and other current assets

     5,799        3,067   
  

 

 

   

 

 

 

Total current assets

     71,297        75,903   

Property, plant and equipment, net

     17,214        15,369   

Intangible assets, net

     37,339        17,357   

Goodwill

     57,639        —     

Other assets

     2,848        1,982   
  

 

 

   

 

 

 

Total assets

   $ 186,337      $ 110,611   
  

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY     

Current Liabilities

    

Accounts payable

   $ 15,659      $ 5,532   

Accrued compensation and benefits

     7,331        7,292   

Accrued income taxes

     990        690   

Deferred income on sales to distributors

     4,875        5,346   

Deferred revenue

     4,086        653   

Restructuring

     867        944   

Line of credit – current

     5,490        —     

Contingent consideration

     10,038        —     

Other current liabilities

     9,488        5,100   
  

 

 

   

 

 

 

Total current liabilities

     58,824        25,557   

Line of credit – long-term

     8,000        —     

Long-term debt

     29,423        14,216   

Other liabilities

     1,091        1,426   
  

 

 

   

 

 

 

Total liabilities

     97,338        41,199   

Commitments and contingencies (Note 7)

    

Stockholders’ Equity

    

Preferred stock, $0.01 par value: 25,000 shares authorized; no shares issued or outstanding

     —          —     

Common stock, $0.01 par value, 100,000 shares authorized; 41,029 (March 30, 2012) and 34,515 (September 30, 2011) issued and outstanding shares

     411        345   

Additional paid-in capital

     366,306        326,863   

Accumulated deficit

     (277,590     (257,756

Accumulated other comprehensive loss

     (128     (40
  

 

 

   

 

 

 

Total stockholders’ equity

     88,999        69,412   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 186,337      $ 110,611   
  

 

 

   

 

 

 

See accompanying notes to consolidated condensed financial statements.

 

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MINDSPEED TECHNOLOGIES, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share amounts)

 

     Three Months Ended     Six Months Ended  
     March 30,
2012
    April 1,
2011
    March 30,
2012
    April 1,
2011
 

Net revenue:

        

Products

   $ 34,858      $ 38,553      $ 68,700      $ 76,596   

Intellectual property

     501        —          591        2,500   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net revenue

     35,359        38,553        69,291        79,096   

Cost of goods sold

     14,839        14,283        29,058        28,564   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

     20,520        24,270        40,233        50,532   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Research and development

     17,740        14,525        32,748        28,448   

Selling, general and administrative

     13,088        10,079        22,410        20,290   

Acquisition-related costs

     2,259        —          3,067        —     

Restructuring charges

     1,272        —          1,272        (18
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     34,359        24,604        59,497        48,720   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss)/income

     (13,839     (334     (19,264     1,812   

Interest expense

     (571     (399     (959     (797

Other income, net

     309        109        611        259   
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss)/income before income taxes

     (14,101     (624     (19,612     1,274   

Provision for income taxes

     134        135        222        334   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss)/income

   $ (14,235   $ (759   $ (19,834   $ 940   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss)/income per share:

        

Basic

   $ (0.39   $ (0.02   $ (0.57   $ 0.03   

Diluted

   $ (0.39   $ (0.02   $ (0.57   $ 0.03   

Weighted-average number of shares used in per share computation:

        

Basic

     36,293        32,133        34,597        32,021   

Diluted

     36,293        32,133        34,597        33,032   

See accompanying notes to consolidated condensed financial statements.

 

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MINDSPEED TECHNOLOGIES, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

 

     Six Months Ended  
     March 30,
2012
    April 1,
2011
 

Cash Flows From Operating Activities

    

Net (loss)/income

   $ (19,834   $ 940   

Adjustments required to reconcile net (loss)/income to net cash provided by operating activities:

    

Depreciation and amortization

     3,108        2,572   

Amortization of intangible assets

     1,457        1,135   

Restructuring charges

     1,272        (18

Stock-based compensation

     5,456        2,212   

Inventory provision

     1,539        181   

Amortization of debt discount on convertible debt

     300        223   

Other non-cash items, net

     35        4   

Changes in assets and liabilities, net of acquisitions:

    

Receivables

     (7,632     6,442   

Inventories

     3,779        (2,572

Other assets, net

     1,001        (223

Accounts payable

     4,425        1,931   

Deferred income on sales to distributors

     (471     575   

Restructuring charges

     (1,349     (491

Accrued compensation and benefits

     (3,656     (3,229

Accrued expenses and other current liabilities

     (1,024     (213

Other liabilities, net

     (76     33   
  

 

 

   

 

 

 

Net cash (used in)/provided by operating activities

     (11,670     9,502   
  

 

 

   

 

 

 

Cash Flows From Investing Activities

    

Purchases of property, plant and equipment

     (2,334     (3,920

Payments under license agreements

     (7,341     (5,009

Net cash paid for business acquisition

     (20,096     —     
  

 

 

   

 

 

 

Net cash used in investing activities

     (29,771     (8,929
  

 

 

   

 

 

 

Cash Flows From Financing Activities

    

Payments made on capital lease obligations

     (281     (274

Borrowings under term loan

     15,000        —     

Borrowings under line of credit

     14,807        —     

Payments made on line of credit

     (1,317     —     

Deferred financing costs

     (378     —     

Repurchase of restricted stock for income tax withholding

     (575     (291

Proceeds from equity compensation programs

     1,362        1,256   
  

 

 

   

 

 

 

Net cash provided by financing activities

     28,618        691   
  

 

 

   

 

 

 

Effect of foreign currency exchange rates on cash

     (50     (41
  

 

 

   

 

 

 

Net (decrease)/increase in cash and cash equivalents

     (12,873     1,223   

Cash and cash equivalents at beginning of period

     45,227        43,685   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 32,354      $ 44,908   
  

 

 

   

 

 

 

See accompanying notes to consolidated condensed financial statements.

 

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MINDSPEED TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

1. Basis of Presentation and Significant Accounting Policies

Mindspeed Technologies, Inc. (Mindspeed or the Company) designs, develops and sells semiconductor solutions for communications applications in the wireline and wireless network infrastructure equipment, which includes metropolitan and WAN (fixed and mobile), broadband access networks (fixed and mobile) and enterprise networks.

Basis of Presentation – The consolidated condensed financial statements, prepared in accordance with generally accepted accounting principles (GAAP) in the United States of America, include the accounts of Mindspeed and each of its subsidiaries. All intercompany accounts and transactions among Mindspeed and its subsidiaries have been eliminated in consolidation. In the opinion of management, the accompanying consolidated condensed financial statements contain all adjustments, consisting of adjustments of a normal recurring nature and restructuring charges (Note 8), necessary to present fairly the Company’s financial position, results of operations and cash flows in accordance with GAAP. The results of operations for interim periods are not necessarily indicative of the results that may be expected for a full year. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2011.

Fiscal Periods – The Company’s interim fiscal quarters end on the thirteenth Friday of each quarter. The second quarter of fiscal 2012 and 2011 ended on March 30, 2012 and April 1, 2011, respectively.

Reclassifications – Amounts previously reported in the three and six months ended April 1, 2011 have been adjusted to reclassify $150,000 and $300,000, respectively, of refundable tax credits from the provision for income taxes to other income, net.

Recent Accounting Standards – There have been no accounting pronouncements since the filing of the Company’s Annual Report on Form 10-K, filed on November 18, 2011, that the Company expects will have a material impact on its consolidated condensed financial statements.

Significant Accounting Policies – There were no significant changes to the Company’s significant accounting policies disclosed in its Annual Report on Form 10-K, filed on November 18, 2011, for the fiscal year ended September 30, 2011, other than the addition of the following policies due to the acquisition of picoChip Inc. and its wholly owned subsidiaries (picoChip) on February 6, 2012.

Business Combinations – The purchase price of an acquisition is allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. To the extent the purchase price exceeds the fair value of the net identifiable tangible and intangible assets acquired and liabilities assumed, such excess is allocated to goodwill. The Company determines the estimated fair values after review and consideration of relevant information, including discounted cash flows, quoted market prices and estimates made by management. Accordingly, these can be affected by contract performance and other factors over time, which may cause final amounts to differ materially from original estimates. The Company adjusts the preliminary purchase price allocation, as necessary, up to periods of one year after the acquisition closing date as it obtains more information regarding asset valuations and liabilities assumed. The Company refers to this preliminary purchase price allocation period as the measurement period. Goodwill acquired in business combinations is assigned to the reporting unit expected to benefit from the combination as of the acquisition date. Acquisition-related costs are recognized separately from the acquisition and are expensed as incurred.

Goodwill and Other Long-Lived Assets – Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the acquired net tangible and intangible assets. Other long-lived assets include the acquired intangible assets of developed technology, trademarks and tradenames, customer relationships and in-process research and development, or IPR&D. The Company currently amortizes its acquired intangible assets with definitive lives over periods ranging from one to twelve years using a method that reflects the pattern in which the economic benefits of the intangible asset are consumed or otherwise used or, if that pattern cannot be reliably determined, using a straight-line amortization method. The Company capitalizes IPR&D projects acquired as part of a business combination. On completion of each project, IPR&D assets will be reclassified to developed technology and amortized over their estimated useful lives.

Impairment of Goodwill and Other Long-Lived Assets – The Company will evaluate goodwill on an annual basis beginning in the fourth quarter of fiscal 2012 or more frequently if it believes indicators of impairment exist.

The Company will first assess qualitative factors to determine whether it is more likely than not that the fair value of its reporting unit is less than its carrying amount. If the Company concludes that it is more likely than not that the fair value of its reporting unit is less than its carrying amount, the Company will conduct a two step goodwill impairment test. The first step of the impairment test involves comparing the fair values of its reporting unit with its carrying values. The Company determines the fair values of its reporting unit using the income

 

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valuation approach, as well as other generally accepted valuation methodologies. If the carrying amount of its reporting unit exceeds its reporting unit’s fair value, the Company performs the second step of the goodwill impairment test. The second step of the goodwill impairment test involves comparing the implied fair value of its reporting unit’s goodwill with the carrying value of that goodwill. The amount, by which the carrying value of the goodwill exceeds its implied fair value, if any, will be recognized as an impairment loss.

During development, IPR&D is not subject to amortization and is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test consists of a comparison of the fair value to its carrying amount. If the carrying value exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. Once an IPR&D project is complete, it becomes a definite long-lived intangible asset and is evaluated for impairment in accordance with the Company’s policy for long-lived assets.

2. Supplemental Financial Statement Data

Inventories

Inventories consisted of the following:

 

     March 30,
2012
     September 30,
2011
 
     (in thousands)  

Work-in-process

   $ 4,908       $ 6,200   

Finished goods

     5,929         8,016   
  

 

 

    

 

 

 

Total inventories

   $ 10,837       $ 14,216   
  

 

 

    

 

 

 

Intangible Assets, Net

Intangible assets, net, consisted of licensed and acquired intangibles.

Licensed intangibles consisted mainly of licenses of intellectual property. As of March 30, 2012, licensed intangibles, net, was $23.1 million.

Acquired intangibles consisted of the following:

 

     March 30, 2012       
     Gross      Accumulated
Amortization
     Net      Weighted-
Average
Useful Life
     (in thousands)      (in years)

Tradenames and trademarks

   $ 310       $ 32       $ 278       1.5

Developed technology

     11,800         152         11,648       12

Customer relationships

     1,500         33         1,467       7

In-process research and development

     800         —           800       Indefinite
  

 

 

    

 

 

    

 

 

    
   $ 14,410       $ 217       $ 14,193      
  

 

 

    

 

 

    

 

 

    

 

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Amortization of acquired intangible assets included in the costs of goods sold and operating expense categories was as follows:

 

     Three Months Ended      Six Months Ended  
     March 30,
2012
     April 1,
2011
     March 30,
2012
     April 1,
2011
 

Cost of goods sold

   $ 152       $ —         $ 152       $ —     

Selling, general and administrative

     65         —           65         —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 217       $ —         $ 217       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Estimated future amortization of existing acquired intangible assets, excluding IPR&D, is as follows:

 

     Purchased Intangible Assets Amortization by Fiscal Year  
     2013      2014      2015      2016      2017      Thereafter      Total  
     (in thousands)  

Cost of goods sold

   $ 983       $ 983       $ 983       $ 983       $ 983       $ 5,993       $ 10,910   

Selling, general and adminstrative

     337         214         214         214         214         235         1,429   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,320       $ 1,197       $ 1,197       $ 1,197       $ 1,197       $ 6,228       $ 12,339   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Deferred Income on Sales to Distributors

Deferred income on sales to distributors was as follows:

 

     March 30,
2012
    September 30,
2011
 
     (in thousands)  

Deferred revenue on shipments to distributors

   $ 5,319      $ 5,799   

Deferred cost of goods sold on shipments to distributors

     (493     (503

Reserves

     49        50   
  

 

 

   

 

 

 

Deferred income on sales to distributors

   $ 4,875      $ 5,346   
  

 

 

   

 

 

 

 

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Other Liabilities

Details of other liabilities were as follows:

 

     March 30,
2012
     September 30,
2011
 
     (in thousands)  

Current

     

Deferred rent

   $ 200       $ 617   

Capital lease obligations

     499         459   

Accrued royalties

     347         429   

Accrued license fees

     947         1,446   

Escrow payable

     3,491         —     

Accrued professional fees

     1,593         470   

Other

     2,411         1,679   
  

 

 

    

 

 

 

Total other current liabilities

   $ 9,488       $ 5,100   
  

 

 

    

 

 

 

Long-term

     

Capital lease obligations

   $ 107       $ 111   

Accrued license fees

     —           305   

Other

     984         1,010   
  

 

 

    

 

 

 

Total other liabilities

   $ 1,091       $ 1,426   
  

 

 

    

 

 

 

Computation of Net (Loss)/ Income Per Share

The following table presents the computation of net (loss)/income per share:

 

     Three Months Ended     Six Months Ended  
     March 30,
2012
    April 1,
2011
    March 30,
2012
    April 1,
2011
 
     (in thousands, except per share amounts)  

Net (loss)/income per share - basic

        

Net (loss)/income

   $ (14,235   $ (759   $ (19,834   $ 940   

Basic weighted average common shares outstanding

     36,293        32,133        34,597        32,021   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss)/income per share - basic

   $ (0.39   $ (0.02   $ (0.57   $ 0.03   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic weighted average common shares outstanding

     36,293        32,133        34,597        32,021   

Effect of dilutive securities:

        

Dilutive stock awards

     —          —          —          993   

Dilutive employee stock purchase plan shares

     —          —          —          18   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted weighted average common shares outstanding

     36,293        32,133        34,597        33,032   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss)/income per share - diluted

   $ (0.39   $ (0.02   $ (0.57   $ 0.03   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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The following table presents the number of potentially dilutive shares of the Company’s common stock excluded from the computation of diluted net (loss)/income per share as their effect would have been anti-dilutive:

 

     Three Months Ended      Six Months Ended  
     March 30,
2012
     April 1,
2011
     March 30,
2012
     April 1,
2011
 
     (in thousands)  

Convertible senior notes

     3,165         3,165         3,165         3,165   

Stock awards

     3,308         1,704         3,205         1,697   

Employee stock purchase plan shares

     99         26         99         26   

Warrants

     6,109         6,109         6,109         6,109   
  

 

 

    

 

 

    

 

 

    

 

 

 

Anti-dilutive common shares

     12,681         11,004         12,578         10,997   
  

 

 

    

 

 

    

 

 

    

 

 

 

Comprehensive (Loss)/Income

Comprehensive (loss)/income was as follows:

 

     Three Months Ended     Six Months Ended  
     March 30,     April 1,     March 30,     April 1,  
     2012     2011     2012     2011  
     (in thousands)  

Net (loss)/income

   $ (14,235   $ (759   $ (19,834   $ 940   

Foreign currency translation adjustments, net of tax

     23        111        (88     35   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive (loss)/income

   $ (14,212   $ (648   $ (19,922   $ 975   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Revenue by Product Line

Net revenue by product line was as follows:

 

     Three Months Ended      Six Months Ended  
     March 30,      April 1,      March 30,      April 1,  
     2012      2011      2012      2011  
     (in thousands)  

Communications convergence processing products

   $ 15,146       $ 15,569       $ 30,135       $ 32,194   

High-performance analog products

     15,657         14,949         30,001         29,053   

WAN communications products

     4,055         8,035         8,564         15,349   

Intellectual property

     501         —           591         2,500   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total net revenue

   $ 35,359       $ 38,553       $ 69,291       $ 79,096   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net Revenue by Geographic Area

Revenue by geographic area, based upon country of destination, was as follows:

 

     Three Months Ended      Six Months Ended  
     March 30,      April 1,      March 30,      April 1,  
     2012      2011      2012      2011  
     (in thousands)  

Americas

   $ 6,150       $ 7,796       $ 11,666       $ 19,827   

Asia-Pacific

     26,380         27,414         52,938         52,586   

Europe, Middle East and Africa

     2,829         3,343         4,687         6,683   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total net revenue

   $ 35,359       $ 38,553       $ 69,291       $ 79,096   
  

 

 

    

 

 

    

 

 

    

 

 

 

The Company believes a substantial portion of the products sold to original equipment manufacturers (OEMs) and third-party manufacturing service providers in the Asia-Pacific region are ultimately shipped to end-markets in the Americas and Europe.

 

12


Table of Contents

Supplemental Cash Flow Information

Non-cash investing and financing activities consisted of the following:

 

     Six Months Ended  
     March 30,      April 1,  
     2012      2011  
     (in thousands)  

Purchase of property and equipment through capital leasing arrangements

   $ 113       $ —     

Contingent consideration payable in connection with business acquisition

     10,038         —     

Purchase of property and equipment on account

     331         516   

License of intellectual property on account

     2,872         3,756   

Issuance of equity in a business acquisition

     33,791         —     

Customer Concentrations

The following direct customers accounted for 10% or more of net revenue in the periods presented:

 

     Three Months Ended     Six Months Ended  
     March 30,     April 1,     March 30,     April 1,  
     2012     2011     2012     2011  

Customer A

     22.9     17.8     21.5     16.9

Customer B

     22.9     24.6     22.1     21.5

Customer C

     4.2     10.2     5.1     8.6

The following direct customers accounted for 10% or more of total accounts receivable at each period end:

 

     March 30,     September 30,  
     2012     2011  

Customer A

     24.3     28.3

Customer B

     22.9     4.5

3. Business Combination

On February 6, 2012, the Company completed the acquisition of picoChip and its wholly owned subsidiaries (picoChip). picoChip is a supplier of integrated system-on-chip (SoC) solutions for small cell base stations. The acquisition will expand the small cell base station product portfolio of the Company, which addresses the next generation mobile broadband communications infrastructure. Pursuant to the terms of the acquisition agreement, all of picoChip’s outstanding shares were converted into the right to receive consideration consisting of cash and shares of the Company’s common stock.

The acquisition-date fair value of the consideration transferred totalled $64.3 million, which consisted of the following:

 

     Fair Value of
Consideration
Transferred
 
     (in thousands)  

Cash

   $ 20,479   

Common stock

     33,791   

Contingent consideration

     10,038   
  

 

 

 

Total

   $ 64,308   
  

 

 

 

The Company paid $26.7 million (less certain deductions) in cash and issued an aggregate of approximately 5.2 million shares of the Company’s authorized common stock, par value $0.01 per share, to the stockholders of picoChip. The issuance of the approximate 5.2 million shares was valued based on the Company’s closing common stock price on the acquisition’s closing date.

 

13


Table of Contents

The $26.7 million of cash consideration was reduced by $6.7 million of assumed liabilities, which primarily consisted of accrued employee bonuses, management transaction bonuses, direct costs of the acquisition incurred by picoChip that remained unpaid as of the acquisition’s closing date, an estimated closing net asset adjustment and other liabilities pursuant to the acquisition agreement. The reduction in cash consideration was partially offset by $383,000, which represented the amount of picoChip’s cash on hand immediately prior to the close of the acquisition. The cash consideration transferred upon the close of the acquisition was $20.5 million, of which, $14.3 million was deposited into an escrow account and a majority of the remaining $6.2 million was used to pay the remainder of picoChip’s outstanding debt. Claims against the escrow account can be made until June 30, 2013, which is subject to extension if outstanding claims against the escrow remain unresolved at that date. Due to the nature of the escrow account, the cash portion of the consideration transferred has been determined only provisionally and is subject to change pending the outcome of potential escrow claims.

The Company may also become obligated to make additional earnout payments, contingent on the achievement of milestones relating to: (i) revenue associated with sales of certain picoChip products for the period beginning on the closing of the acquisition and ending on December 31, 2012; and (ii) product and business development milestones. The maximum amount payable upon achievement of the revenue and development milestones is $25.0 million. Earnout payments, if any, will be paid in the first quarter of calendar year 2013 and may be made in the form of cash, stock or any combination thereof at the discretion of the Company.

The maximum earnout payments related to the revenue milestone is $13.0 million based on a 1.3x multiple of picoChip revenue generated in excess of $25.0 million between the close of the acquisition and December 31, 2012. The Company does not expect picoChip revenue will meet this minimum revenue amount in calendar year 2012. As such, no value has been ascribed to this portion of the earnout.

The remaining potential earnout payments consist of a business development earnout payment of $7.0 million and a product development earnout payment of $5.0 million. The Company currently estimates that these earnout payments will be made; however, the Company has applied a discount rate in determining the fair value in order to reflect the risk of the underlying conditions not being satisfied such that no payment would be due.

The Company has the right to offset its earnout payments with certain employee termination liabilities incurred subsequent to the close of the acquisition. The Company also has the right to offset the product development earnout with certain expenses incurred by the Company subsequent to the close of the acquisition in order to achieve the product development earnout. The estimated employee termination liabilities and costs to be incurred to achieve the product development earnout as of the close of the acquisition have been discounted at a risk-free rate because the Company will not realize the benefit of these reductions to earnout payments until the earnout payments have been made.

The fair value measurements of the contingent consideration discussed above was based primarily on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in ASC 820. The key assumptions were as follows:

 

Quantitative Information about Level 3 Fair Value Measurements

Liability

   Fair
Value
     Valuation
Technique
  

Unobservable Inputs

  

Range (Selected Input)

Revenue Earnout

   $ —         N/A    Probability of Achieving    0.0% - 5.0% (0.0%)

Business Development Earnout

   $ 6,275       Income Approach    Probability of Achieving    90.0% - 100.0% (100.0%)
        

Required Rate of Return

   8.0% - 12.0% (10.0%)

Product Development Earnout

   $ 4,482       Income Approach    Probability of Achieving    90.0% - 100.0% (100.0%)
        

Required Rate of Return

   8.0% - 12.0% (10.0%)

As of March 30, 2012, the offsetting employee termination expenses and costs expected to be incurred to achieve the product development earnout were estimated to be $719,000 and are not included in the above table. As of March 30, 2012, there were no significant changes in the range of outcomes for the contingent consideration recognized as a result of the acquisition of picoChip.

 

14


Table of Contents

The total fair value of consideration transferred for the acquisition was allocated to the preliminary net tangible and intangible assets based upon their estimated fair values as of the date of the acquisition. The excess of the purchase price over the preliminary net tangible and intangible assets was recorded as goodwill. The acquisition transaction was a stock purchase in which the income tax attributes of picoChip carryover to the Company. The estimated deferred income tax attributes of picoChip, after establishment of deferred income tax liabilities associated with the step-up of the fair values of the net assets acquired over their pre-acquisition tax basis, resulted in a net deferred income tax asset. Given picoChip’s history of reporting net losses, management concluded that realization of the net deferred income tax asset acquired is not more likely than not and therefore a valuation allowance was established to offset the entire net deferred income tax asset. As a result, deferred income taxes are not reflected in the table below. The Company’s allocation of the purchase price is preliminary as it is still finalizing the amounts related to contingent consideration, identifiable intangible assets, deferred revenues and the effects of income taxes resulting from the transaction. Any measurement period adjustments will be recorded retrospectively to the acquisition date. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date:

 

     At February 6,
2012
 
     (in thousands)  

Assets acquired:

  

Cash and cash equivalents

   $ 383   

Receivables

     1,401   

Inventories

     1,939   

Prepaid expenses and other current assets

     4,230   

Capital lease

     178   

Property, plant and equipment, net

     2,475   

Intangible assets

  

Tradenames and trademarks

     310   

Developed technology

     11,800   

Customer relationships

     1,500   

In-process research and development

     800   

Goodwill

     57,639   
  

 

 

 

Total assets acquired

   $ 82,655   

Liabilities assumed:

  

Accounts payable

   $ 5,251   

Accrued compensation and benefits

     3,207   

Deferred revenue

     2,890   

Other current liabilities

     6,796   

Capital lease obligation

     203   
  

 

 

 

Total liabilities assumed

   $ 18,347   
  

 

 

 

Purchase price

   $ 64,308   
  

 

 

 

As a result of the acquisition, the Company has a presence in the 3G small cell base station market and plans to maintain this position as the small cell base station market transitions to dual-mode 3G/4G and 4G-only products. The goodwill recognized is therefore attributable primarily to the future business operations and market opportunity of delivering a more complete portfolio of small cell solutions spanning residential to enterprise and metro product segments. None of the goodwill is expected to be deductible for UK income tax purposes, however it is expected to be deductible for US income tax purposes.

The fair value of accounts receivables acquired was $1.4 million, with the gross contractual amount being $1.5 million. The Company expects approximately $105,000 to be uncollectible.

The fair value of tradenames and trademarks and customer relationships was capitalized as of the acquisition date and will be subsequently amortized using a straight-line method to selling, general and administrative expenses over their estimated period of use of 18 months and seven years, respectively. The fair value of developed technology was capitalized as of the acquisition date and will be subsequently amortized using a straight-line method to cost of products sold over the estimated remaining life of 12 years.

The Company incurred $3.1 million of acquisition-related costs to date, of which, $2.3 million and $3.1 million was expensed, respectively, in “Acquisition-related costs” in the first three and six fiscal months ended March 30, 2012.

 

15


Table of Contents

The amount of net revenue and net loss of picoChip included in the Company’s consolidated condensed statements of operations from the acquisition date to the first three and six fiscal months ended March 30, 2012 were as follows:

 

     February 7, 2012
to March 30, 2012
 
     (in thousands)  

Net revenue

   $ 2,060   

Net loss

   $ (4,293

Supplemental Pro Forma Data (Unaudited)

The unaudited pro forma statements of operations data below gives effect to the acquisition, described above, as if it had occurred at October 2, 2010. These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of picoChip to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets and additional interest expense on acquisition-related borrowings had been applied and incurred since October 2, 2010. The supplemental pro forma earnings for the three and six months ended March 30, 2012 were adjusted to exclude $4.6 million of professional fees, transition-related fees and restructuring charges incurred in the second quarter of fiscal 2012. The supplemental pro forma earnings for the three and six months ended April 1, 2011 were adjusted to include these charges. This pro forma data is presented for informational purposes only and does not purport to be indicative of the results of future operations.

 

     Three Months Ended     Six Months Ended  
     March 30,
2012
    April 1,
2011
    March 30,
2012
    April 1,
2011
 
     (in thousands)     (in thousands)  

Net revenue

   $ 36,114      $ 43,653      $ 72,218      $ 91,239   

Net loss

   $ (16,656   $ (10,088   $ (24,802   $ (11,457

4. Fair Value Measurements

On October 4, 2008, the Company adopted certain provisions under ASC 820, Fair Value Measurements and Disclosures, for financial assets and financial liabilities and for non-financial assets and non-financial liabilities that we recognize or disclose at fair value on a recurring basis (at least annually). As of the date of adoption, these included cash equivalents.

ASC 820 defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 establishes a three-level hierarchy for disclosure that is based on the extent and level of judgment used to estimate the fair value of assets and liabilities.

 

   

Level 1 uses unadjusted quoted prices that are available in active markets for identical assets or liabilities. The Company’s Level 1 assets include investments in money market funds.

 

   

Level 2 uses inputs other than quoted prices included in Level 1 that are either directly or indirectly observable through correlation with market data. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs to valuation models or other pricing methodologies that do not require significant judgment because the inputs used in the model, such as interest rates and volatility, can be corroborated by readily observable market data.

 

   

Level 3 uses one or more significant inputs that are unobservable and supported by little or no market activity, and reflect the use of significant management judgment. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques and significant management judgment or estimation.

 

16


Table of Contents

In May 2011, the FASB issued additional guidance on fair value measurements that clarified the application of existing guidance and disclosure requirements, changed certain fair value measurement principles and required additional disclosures about fair value measurements. The updated guidance was effective on a prospective basis for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011. The Company does not expect the adoption of these provisions to have a material impact on the Company’s consolidated condensed financial statements.

The following table represents the Company’s assets and liabilities subject to fair value measurements on a recurring basis and hierarchy in accordance with ASC 825, Financial Instruments, and ASC 820:

 

    Fair Value as of
March 30, 2012
    Fair Value Measurements at March 30, 2012
Using Fair Value Hierarchy
 
      Level 1     Level 2     Level 3  
    (in thousands)  

Assets

       

Money market fund

  $ 10,525      $ 10,525      $ —        $ —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Assets at fair value

  $ 10,525      $ 10,525      $ —        $ —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities

       

XNAS:MSPD Quarterly Report 10-Q Filling

XNAS:MSPD Stock - Get Quarterly Report SEC Filing of XNAS:MSPD stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

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XNAS:MSPD Quarterly Report 10-Q Filing - 3/30/2012
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