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

Effective Date 3/30/2012

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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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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

       

Contingent consideration

  $ 10,038      $ —        $ —        $ 10,038   
 

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities at fair value

  $ 10,038      $ —        $ —        $ 10,038   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

    Fair Value as of
September 30,
2011
    Fair Value Measurements at September 30, 2011
Using Fair Value Hierarchy
 
      Level 1     Level 2     Level 3  
    (in thousands)  

Assets

       

Money market fund

  $ 10,517      $ 10,517      $ —        $ —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Assets at fair value

  $ 10,517      $ 10,517      $ —        $ —     
 

 

 

   

 

 

   

 

 

   

 

 

 

The following table presents a reconciliation of the beginning and ending balances of the Company’s contingent consideration liability measured and recorded at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended March 30, 2012:

 

     Contingent
Consideration
 

Balance as of September 30, 2011

   $ —     

Additions - picoChip acquisition

     10,038   
  

 

 

 

Balance as of March 30, 2012

   $ 10,038   
  

 

 

 

See Note 3 for a discussion of fair value measurements of contingent consideration.

 

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Table of Contents

5. Stock-Based Compensation

The Company has stock-based incentive plans in effect that provide for the grant of stock options, unrestricted stock, restricted stock units and other stock-awards to employees and non-employee directors. These stock-based incentive plans include inducement grants that are occasionally made to new employees of the Company. The Company also provides an employee stock purchase plan for all eligible employees. The fair value of stock-based awards are estimated on the date of grant and recognized as an expense ratably over the requisite service period.

In January 2012, the Company adopted an inducement incentive plan, under which 500,000 shares of common stock may be issued upon exercise or issued upon grant and sold upon vesting. In January 2012, the stockholders of the Company approved an amendment to the Company’s employee stock purchase plan, which included an increase of 800,000 in the authorized number of shares reserved for issuance under such plan.

A management bonus accrual of $1.1 million was recorded in the second quarter of fiscal 2012. The Company expects to pay half of the bonus in cash and the remaining half in stock awards.

The following table presents stock-based compensation by functional line item presented on the unaudited consolidated condensed statements of operations:

 

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

Cost of goods sold

   $ 42       $ 45         (1     88   

Research and development

     1,177         308         1,829        616   

Selling, general and administrative

     2,086         697         3,628        1,508   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total stock-based compensation

   $ 3,305       $ 1,050       $ 5,456      $ 2,212   
  

 

 

    

 

 

    

 

 

   

 

 

 

Stock option grant date fair value was estimated using the Black-Scholes pricing model with the following weighted-average assumptions:

 

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

Weighted-average assumptions:

        

Expected option life

     2.7 years        3.5 years        2.7 years        2.9 years   

Risk-free interest rate

     0.3     1.3     0.3     0.7

Expected volatility

     91     93     97     99

Dividend yield

     —          —          —          —     

Weighted-average grant date fair value per share

   $ 2.59      $ 4.37      $ 2.59      $ 4.02   

 

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Table of Contents

Stock Option Awards

The following tables summarize stock option activity:

 

     Number
of Shares
    Weighted-Average
Exercise Price
     Weighted-Average
Remaining
Contractual Term
     Aggregate
Intrinsic
Value
 
            
     (in thousands)                   (in thousands)  

Outstanding at September 30, 2011

     2,588      $ 6.93         5.4 years       $ 2,624   

Granted

     459        6.28         

Exercised

     (251     2.58         

Forfeited or expired

     (118     6.73         
  

 

 

         

Outstanding at March 30, 2012

     2,678        7.23         5.3 years         2,901   
  

 

 

         

Exercisable at March 30, 2012

     1,380      $ 7.80         3.6 years       $ 2,174   

 

Vesting Condition

   Remaining
Unrecognized
Compensation
Cost
     Remaining
Years
to Vest
 
     (in thousands)         

Service-based

   $ 3,730         1.4   
  

 

 

    

 

 

 

Stock Awards

The following tables summarize stock award activity:

 

     Number
of Shares
    Weighted-
Average
Grant Date
Fair  Value
     Fair Value of
Shares Vested
 
     (in thousands)            (in thousands)  

Nonvested shares at September 30, 2011

     2,054      $ 7.74      

Granted

     1,165        6.40      

Vested

     (288     7.08       $ 1,718   

Forfeited

     (71     8.10      
  

 

 

      

Nonvested shares at March 30, 2012

     2,860      $ 7.25      
  

 

 

      

 

Vesting Condition

   Remaining
Unrecognized
Compensation
Cost
     Remaining
Years
to Vest
 
     (in thousands)         

Service-based

   $ 15,662         2.3   

Market based

     450         0.6   
  

 

 

    

Total stock awards

   $ 16,112      
  

 

 

    

 

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Table of Contents

6. Revolving Credit Facility and Long-Term Debt

Loan and Security Agreement

A loan and security agreement was entered into between the Company and Silicon Valley Bank (SVB) on February 6, 2012. The loan and security agreement includes: (i) a term loan facility of $15.0 million; and (ii) a revolving credit facility of up to $20.0 million. As of March 30, 2012, the outstanding balance on the term loan was $15.0 million and the outstanding balance on the revolving credit facility was $13.5 million. The obligations under the loan and security agreement are guaranteed by material subsidiaries of the Company and secured by a security interest in substantially all of the Company’s assets and the guarantors’ assets, excluding intellectual property.

The principal on the term loan will be payable in quarterly installments beginning on March 31, 2013 and ending on the maturity date of the term loan, February 6, 2017. Quarterly principal payments of $375,000 are due for each quarter during calendar year 2013, $750,000 for each quarter during calendar year 2014, $1.1 million for each quarter during calendar year 2015 and $1.5 million for each quarter during calendar year 2016. Interest on the term loan will be paid quarterly beginning in calendar year 2012. The revolving credit facility also has a maturity date of February 6, 2017. Interest on the revolving credit facility will be paid quarterly beginning in calendar year 2012.

The total amount available under the revolving credit facility is $20.0 million. The Company is eligible to borrow amounts against the revolving credit facility up to the amount allowable by the borrowing base. The borrowing base is calculated on a monthly basis and is based on the amount of the Company’s eligible accounts receivable. At March 30, 2012, the Company’s outstanding revolving credit facility balance of $13.5 million totalled the entire amount of the eligible borrowing base. To the extent that the eligible borrowing base is reduced, the Company is required to pay down the outstanding revolving credit facility balance to the amount of the eligible borrowing base. During the next 12 months, the Company intends to maintain its borrowings on the revolving credit facility at a minimum of $8.0 million. Consequently, it has classified $8.0 million of the revolving credit facility as a long-term liability.

The Company has the option to choose, with a few exceptions, whether the term loan facility and the revolving credit facility bear interest based on a base rate, which is the prime rate published in The Wall Street Journal, or a LIBOR rate, which has a floor of 0.75%. A base rate facility will bear interest ranging from the base rate plus 1.25% to base rate plus 1.75%. A LIBOR rate facility will bear interest ranging from LIBOR rate plus 3.25% to LIBOR rate plus 3.75%. Both the base rate margin and LIBOR margin vary based upon the Company’s liquidity ratio. As of March 30, 2012, the interest rate on both the term loan facility and the revolving credit facility was 4.25%. Total interest expense incurred on the term loan facility and revolving credit facility for both the first three and six months ended fiscal 2012 was approximately $165,000.

The revolving credit facility is subject to an unused line of credit fee. This fee is payable quarterly in an amount equal to 0.25% - 0.50% of the average daily unused portion of the credit facility. The unused line fee will vary based upon the Company’s liquidity ratio.

The Company incurred approximately $378,000 of debt issuance costs related to the loan and security agreement, which is being amortized to interest expense over the term of the facility through February 6, 2017 using the effective interest method. At March 30, 2012, debt issuance costs of approximately $365,000, net of accumulated amortization, was included in other assets.

Convertible Senior Notes

On July 30, 2008, the Company entered into separate exchange agreements with certain holders of its previously outstanding 3.75% convertible senior notes, pursuant to which holders of an aggregate of $15.0 million of the notes agreed to exchange their notes for $15.0 million in aggregate principal amount of a new series of 6.50% convertible senior notes due in August 2013 (the Exchange Offer). The Exchange Offer closed on August 1, 2008. The Company paid at the closing an aggregate of approximately $100,000 in accrued and unpaid interest on the 3.75% convertible senior notes that were exchanged for the 6.50% convertible senior notes, as well as approximately $900,000 in transaction fees.

The 6.50% convertible senior notes are convertible at the option of the holders, at any time on or prior to maturity, into shares of the Company’s common stock at a conversion rate initially equal to approximately $4.74 per

 

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share of common stock, which is subject to adjustment in certain circumstances. Upon conversion of the notes, the Company generally has the right to deliver to the holders thereof, at the Company’s option: (i) cash; (ii) shares of the Company’s common stock; or (iii) a combination thereof. The initial conversion price of the 6.50% convertible senior notes will be adjusted to reflect stock dividends, stock splits, issuances of rights to purchase shares of the Company’s common stock, and upon other events. If the Company undergoes certain fundamental changes prior to maturity of the notes, the holders thereof will have the right, at their option, to require us to repurchase for cash some or all of their 6.50% convertible senior notes at a repurchase price equal to 100% of the principal amount of the notes being repurchased, plus accrued and unpaid interest (including additional interest, if any) to, but not including, the repurchase date, or convert the notes into shares of its common stock and, under certain circumstances, receive additional shares of its common stock in the amount provided in the indenture.

The Company’s contingent obligation to issue additional shares or make additional cash payment upon conversion following a fundamental change is considered an embedded derivative. As of March 30, 2012, the liability under the fundamental change adjustment has been recorded at its estimated fair value and is not significant.

The following table sets forth balance sheet information related to the 6.50% convertible senior notes:

 

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

Principal value of the liability component

   $ 15,000      $ 15,000   

Unamortized value of debt discount

     (577     (784
  

 

 

   

 

 

 

Net carrying value of the liability component

   $ 14,423      $ 14,216   
  

 

 

   

 

 

 

The following table sets forth interest expense information related to the 6.50% convertible senior notes:

 

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

Interest expense - coupon

   $ 245      $ 244      $ 488      $ 488   

Interest expense - debt discount amortization

     104        99        208        202   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 349      $ 343      $ 696      $ 690   
  

 

 

   

 

 

   

 

 

   

 

 

 

Effective interest rate on the liability for the period

     9.31     9.15     9.28     9.20
  

 

 

   

 

 

   

 

 

   

 

 

 

7. Commitments and Contingencies

Various lawsuits, claims and proceedings have been or may be instituted or asserted against the Company, including those pertaining to product liability, intellectual property, environmental, safety and health and employment matters. As is common in the industry, the Company currently has in effect a number of agreements in which it has agreed to defend, indemnify and hold harmless certain of its suppliers and customers from damages and costs which may arise from the infringement by the Company’s products of third-party patents, trademarks or other proprietary rights. The Company has not incurred significant costs to defend lawsuits or settle claims related to these indemnification agreements.

The outcome of litigation cannot be predicted with certainty and some lawsuits, claims or proceedings may be determined unfavorably against the Company. Many intellectual property disputes have a risk of injunctive relief, and there can be no assurance that the Company will be able to license a third party’s intellectual property. Injunctive relief could have a material adverse effect on the financial condition or results of operations of the Company. Unless specifically noted below, during the period presented we have not: recorded any accrual for loss contingencies associated with the legal proceedings described below; determined that an unfavorable outcome is probable or reasonably possible; or determined that the amount or range of any possible loss is reasonably estimable. Based on its evaluation of matters which are pending or asserted, while there can be no assurance, management of the Company believes the disposition of such matters will not have a material adverse effect on the financial condition or results of operations of the Company.

 

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In June 2011, the Company was notified by a customer, with whom the Company has an indemnification obligation, that such customer had settled an outstanding patent infringement claim that the customer asserts relates to products it purchased from the Company. The customer requested that the Company contribute approximately $1.3 million to the settlement, representing its estimate of the Company’s pro rata share of the settlement and related legal fees. The Company has notified the customer that it believes the indemnification obligation does not apply to the contribution sought by the customer, and the Company intends to vigorously defend this position.

8. Restructuring Charges

The Company has, and may in the future, commit to restructuring plans to help manage the costs of the Company or to help implement strategic initiatives, among other reasons. Restructuring charges totaled $1.3 million in the three and six months ended March 30, 2012. Restructuring charges consisted of reversals totaling $18,000 in the three and six months ended April 1, 2011.

Second Quarter of Fiscal 2012 Restructuring Plan – In the second quarter of fiscal 2012, the Company committed to the implementation of a restructuring plan to realize synergies in connection with its acquisition of picoChip, which was completed on February 6, 2012. The plan consisted primarily of a targeted headcount reduction in connection with the Company’s acquisition of picoChip. The restructuring plan is expected to be substantially completed during the third quarter of fiscal 2012. The Company incurred $1.3 million in charges in the second quarter of fiscal 2012 related to severance costs for affected employees.

Activity and liability balances related to the Company’s second quarter of fiscal 2012 restructuring plan were as follows:

 

     Workforce
Reductions
 
     (in thousands)  

Charges to costs and expenses

   $ 1,320   

Cash payments

     (530
  

 

 

 

Restructuring balance, March 30, 2012

   $ 790   
  

 

 

 

The remaining accrued restructuring balance principally represents employee severance costs. The Company expects to pay these remaining obligations through the third quarter of fiscal 2012.

Fourth Quarter of Fiscal 2011 Restructuring Plan – In the fourth quarter of fiscal 2011, the Company implemented a restructuring plan, which consisted primarily of a targeted headcount reduction in the selling, general and administrative functions and wide area networking (WAN) business unit. The Company incurred $1.1 million of charges related to severance costs for the affected employees during the fourth quarter of fiscal 2011. The restructuring plan was substantially completed during the fourth quarter of fiscal 2011.

Activity and liability balances related to the Company’s fourth quarter of fiscal 2011 restructuring plan from September 30, 2011 through March 30, 2012 were as follows:

 

     Workforce
Reductions
 
     (in thousands)  

Restructuring balance, September 30, 2011

   $ 902   

Cash payments

     (812

Non-cash credits

     (13
  

 

 

 

Restructuring balance, March 30, 2012

   $ 77   
  

 

 

 

 

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The remaining accrued restructuring balance principally represents employee severance costs. The Company expects to pay these remaining obligations through the fourth quarter of fiscal 2012.

Fourth Quarter of Fiscal 2010 Restructuring Plan – In the fourth quarter of fiscal 2010, the Company implemented a restructuring plan, which consisted primarily of a targeted headcount reduction in its WAN product family and selling, general and administrative functions. The restructuring plan was substantially completed during the fourth quarter of fiscal 2010. Of the $1.3 million in charges incurred during the fourth quarter of fiscal 2010, $966,000 related to severance costs for affected employees and $311,000 related to abandoned technology.

Activity and liability balances related to the Company’s fourth quarter of fiscal 2010 restructuring plan from September 30, 2011 through March 30, 2012 were as follows:

 

     Workforce
Reductions
 
     (in thousands)  

Restructuring balance, September 30, 2011

   $ 42   

Cash payments

     (7

Non-cash credits

     (35
  

 

 

 

Restructuring balance, March 30, 2012

   $ —     
  

 

 

 

During the second quarter of fiscal 2012, any amounts left to be paid under this plan were paid and any remaining accrued amount was reversed.

9. Income Taxes

The Company utilizes the liability method of accounting for income taxes. The federal statutory rate was 34% for all periods. The difference between the Company’s effective tax rate and the federal statutory rate is primarily due to the full valuation allowance offsetting any current period benefit from operating losses and the effect of foreign earnings taxed at rates differing from the federal statutory rate.

10. Related Party Transactions

In June 2011, the Company entered into an agreement to license certain intellectual property from a related party. The licensor is a related party because one of the Company’s directors also serves as a director of the licensor and one of the Company’s members of management serves on the licensor’s technical advisory board. Pursuant to terms of the license agreement, the Company will pay an aggregate of $6.0 million upon the completion of certain milestones, including the delivery of licensed intellectual property. In addition, the Company is obligated to pay royalties not to exceed an additional $2.5 million for products sold that include the licensed intellectual property. As of March 30, 2012, the Company has paid $2.6 million in related license fees.

11. Subsequent Events

On April 10, 2012, the Company entered into a third amendment with its landlord with respect to the lease of its headquarters located in Newport Beach, California, effective as of April 4, 2012. Pursuant to the terms of the amendment, a five year option to extend the lease was eliminated and the term of the lease was extended and will expire on December 31, 2019. The Company may, at its option, extend the term an additional four years at fair market rent. The amendment provides that the premises leased by the Company will be reduced from approximately 96,829 square feet to approximately 88,160 square feet by January 1, 2013. The amendment provides for the abatement of fixed monthly rent for the period from January 1, 2013 through July 31, 2013, subject to no event of default occurring. The landlord has the option to pay the Company $1.2 million during the first week of January 2013 in lieu of foregoing the fixed monthly rent abatement. The amendment also provides that the landlord will pay the Company approximately $4.5 million for costs incurred by the Company in connection with construction of any alterations in the premises or as a payment against rent due under the lease.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This information should be read in conjunction with our unaudited consolidated condensed financial statements and the notes thereto included in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for our fiscal year ended September 30, 2011.

Overview

Mindspeed Technologies, Inc. designs, develops and sells semiconductor solutions for communications applications in the wireline and wireless network infrastructure equipment, which includes metropolitan and wide area networks (WAN) (fixed and mobile), broadband access networks (fixed and mobile) and enterprise networks. We have organized our solutions for these interrelated and rapidly converging networks into three product families: communications convergence processing, high-performance analog and WAN communications. Our communications convergence processing products include ultra-low-power, multi-core digital signal processor (DSP) system-on-chip (SoC) products for the fixed and mobile (3G/4G) carrier infrastructure and residential and enterprise platforms. Our high-performance analog products include high-density crosspoint switches, optical drivers, equalization and signal-conditioning solutions that solve difficult switching, timing and synchronization challenges in next-generation optical networking, enterprise storage and broadcast video transmission applications. Our WAN communications portfolio helps optimize today’s circuit-switched networks that furnish much of the Internet’s underlying long-distance infrastructure.

Our products are sold to original equipment manufacturers (OEMs) for use in a variety of network infrastructure equipment, including:

 

   

Communications Convergence Processing – triple-play access gateways for Voice-over-Internet Protocol (VoIP) and data processing platforms; broadband customer premises equipment (CPE) gateways and other equipment that carriers use to deliver voice, data and video services to residential subscribers; Internet Protocol (IP) private branch exchange (PBX) equipment and security appliances used in the enterprise and 3G/4G mobile base stations in the carrier infrastructure;

 

   

High-Performance Analog – next-generation fiber access network equipment (including passive optical networking, or PON, systems); switching and signal conditioning products supporting fiber-to-the-premise, optical transport networks (OTN), storage and server systems and broadcast video, inclusive of routers and other systems that are driving the migration to 3G high-definition (HD) transmission; and

 

   

WAN Communications – circuit-switched networking equipment that implements asynchronous transfer mode (ATM) and T1/E1 and T3/E3 communications protocols.

Our customers include Alcatel-Lucent, Cisco Systems, Inc., Huawei Technologies Co. Ltd., Hitachi Ltd., LM Ericsson Telephone Company, Mitsubishi Electric Corporation, Nokia Siemens Networks and Zhongxing Telecom Equipment Corp.

Trends and Factors Affecting Our Business

Our products are components of network infrastructure equipment. As a result, we rely on network infrastructure OEMs to select our products from among alternative offerings to be designed into their equipment. These “design wins” are an integral part of the long sales cycle for our products. Our customers may need six months or longer to test and evaluate our products and an additional six months or more to begin volume production of equipment that incorporates our products. We believe our close relationships with leading network infrastructure OEMs facilitate early adoption of our products during development of their products, enhance our ability to obtain design wins and encourage adoption of our technology by the industry. We believe our diverse portfolio of semiconductor solutions has us well positioned to capitalize on some of the most significant trends in telecommunications and enterprise spending, including: next generation network convergence; VoIP/fiber access deployment in developing and developed markets; 3G/4G wireless infrastructure build-out; the adoption of higher speed interconnectivity solutions; and the migration of broadcast video to HD.

 

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We market and sell our semiconductor products directly to network infrastructure OEMs. We also sell our products indirectly through electronic component distributors and third-party electronic manufacturing service providers, who manufacture products incorporating our semiconductor solutions for OEMs. Sales to distributors accounted for approximately 63% of our revenue for the first six months of fiscal 2012. Our revenue is well diversified globally, with 83% of the revenue in the first six months of fiscal 2012 coming from outside of the Americas. We believe a substantial portion of the products we sell to OEMs and third-party manufacturing service providers in the Asia-Pacific region is ultimately shipped to end markets in the Americas and Europe. Approximately 35% of our revenue for the first six months of fiscal 2012 was derived from customers in China.

We have significant research, development, engineering and product design capabilities. Our success depends to a substantial degree upon our ability to develop and introduce in a timely fashion new products and enhancements to our existing products that meet changing customer requirements and emerging industry standards. We have made, and plan to make, substantial investments in research and development and to participate in the formulation of industry standards. We spent approximately $32.7 million on research and development in the first six months of fiscal 2012. We seek to maximize our return on our research and development spending by focusing our research and development investment in what we believe are key growth markets, including communications convergence processor applications such as CPE processors for high-bandwidth multiservice access applications, high-performance analog applications such as optical networking and broadcast-video transmission, and wireless infrastructure solutions for small base stations. We have developed and maintain a broad intellectual property portfolio, and we may periodically enter into strategic arrangements to leverage our portfolio by licensing or selling our intellectual property.

We are dependent upon third parties for the development, manufacturing, assembly and testing of our products. Our ability to bring new products to market, to fulfill orders and to achieve long-term revenue growth is dependent upon our ability to obtain sufficient external manufacturing capacity, including wafer fabrication capacity. Periods of upturn in the semiconductor industry may be characterized by rapid increases in demand and a shortage of capacity for wafer fabrication and assembly and test services. In such periods, we may experience longer lead times or indeterminate delivery schedules, which may adversely affect our ability to fulfill orders for our products. During periods of capacity shortages for manufacturing, assembly and testing services, our primary foundries and other suppliers may devote their limited capacity to fulfill the requirements of their other customers that are larger than we are, or who have superior contractual rights to enforce manufacture of their products, including to the exclusion of producing our products. The foundries and other suppliers on whom we rely may experience financial difficulties or suffer disruptions in their operations due to causes beyond our control, including deteriorations in general economic conditions, labor strikes, work stoppages, electrical power outages, fire, earthquake, flooding or other natural disasters. We may also incur increased manufacturing costs, including costs of finding acceptable alternative foundries or assembly and test service providers.

Our ability to achieve revenue growth will depend on increased demand for network infrastructure equipment that incorporates our products, which in turn depends primarily on the level of capital spending by communications service providers, the level of which may decrease due to general economic conditions and uncertainty, over which we have no control. We believe the market for network infrastructure equipment in general, and for communications semiconductors, in particular, offers attractive long-term growth prospects due to increasing demand for network capacity, the continued upgrading and expansion of existing networks and the build-out of communication networks in developing countries. However, the semiconductor industry is highly cyclical and is characterized by constant and rapid technological change, rapid product obsolescence and price erosion, evolving technical standards, short product life cycles and wide fluctuations in product supply and demand. In addition, there has been an increasing trend toward industry consolidation, particularly among major network equipment and telecommunications companies. Consolidation in the industry has generally led to pricing pressure and loss of market share. These factors have caused substantial fluctuations in our revenue and our results of operations in the past, and we may experience cyclical fluctuations in our business in the future. In order to achieve sustained profitability and positive cash flows from operations, we may need to further reduce operating expenses and/or increase our revenue. We have completed a series of cost reduction actions, which have improved our operating cost structure, and we will continue to perform additional actions, when necessary.

 

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Critical Accounting Policies and Estimates

The accounting policies that have the greatest impact on our financial condition and results of operations and that require the most judgment are those relating to revenue recognition, inventories, stock-based compensation, deferred income taxes and uncertain tax positions, and impairment of long-lived assets. These policies are described in further detail in our Annual Report on Form 10-K for the fiscal year ended September 30, 2011. There have been no significant changes in our critical accounting policies and estimates during the fiscal quarters ended December 30, 2011 and March 30, 2012 as compared to what was previously disclosed in our Annual Report on Form 10-K 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 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. We determine 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. We adjust the preliminary purchase price allocation, as necessary, up to periods of one year after the acquisition closing date as we obtain more information regarding asset valuations and liabilities assumed. We refer 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, customer relationships and in-process research and development, or IPR&D. We currently amortize our 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. We capitalize IPR&D projects acquired as part of a business combination. On completion of each project, IPR&D assets are reclassified to developed technology and will be amortized over their estimated useful lives.

Impairment of Goodwill and Other Long-Lived Assets – We will evaluate goodwill on an annual basis beginning in the fourth quarter of fiscal 2012 or more frequently if we believe indicators of impairment exist. We will first assess qualitative factors to determine whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount. If we conclude that it is more likely than not that the fair value of our reporting unit is less than its carrying amount, we will conduct a two step goodwill impairment test. The first step of the impairment test involves comparing the fair values of our reporting unit with its carrying values. We determine the fair values of our reporting unit using the income valuation approach, as well as other generally accepted valuation methodologies. If the carrying amount of our reporting unit exceeds its fair value, we will perform the second step of the goodwill impairment test. The second step of the goodwill impairment test involves comparing the implied fair value of our 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 lived intangible asset and is evaluated for impairment in accordance with our policy for long-lived assets.

Recent Accounting Pronouncements

There have been no accounting pronouncements since the filing of our Annual Report on Form 10-K for the fiscal year ended September 30, 2011 that we expect to have a material impact on our consolidated condensed financial statements.

 

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Results of Operations

Net Revenue by Product Line

The following table summarizes fiscal quarter net revenue by product line:

 

     Three Months Ended        
     March 30,
2012
     % of Net
Revenue
    April 1,
2011
     % of Net
Revenue
    Change  
               $     %  
     (in thousands, except percentages)  

Communications convergence processing

   $ 15,146         43.0   $ 15,569         40.0   $ (423     -2.7

High-performance analog

     15,657         45.0     14,949         39.0     708        4.7

WAN communications

     4,055         11.0     8,035         21.0     (3,980     -49.5
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

Total net product revenue

     34,858         99.0     38,553         100.0     (3,695     -9.6

Intellectual property

     501         1.0     —           0.0     501     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

Net revenue

   $ 35,359         100.0   $ 38,553         100.0   $ (3,194     -8.3
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

The decrease in our net revenue for the second quarter of fiscal 2012 compared to the second quarter of fiscal 2011 was due to lower sales volumes for our communications convergence processing products and WAN communications products. These decreases were partially offset by an increase in demand for our high-performance analog products and an increase in intellectual property revenue. Net revenue from our communications convergence processing products decreased in the second quarter of fiscal 2012 when compared to the second quarter of fiscal 2011 due to a decrease in net revenue from a slowdown in 3G investments, which resulted in fewer shipments of wireless media gateways used in terminating calls between the public switch telephone network (PTSN) and mobile networks. This decrease was partially offset by an increase in shipments of CPE products, which are used in broadband CPE gateways and other equipment that service providers are deploying in order to deliver voice, data and video services to residential subscribers, as well as shipments of small cell base stations resulting from our acquisition of picoChip, which closed on February 6, 2012. Net revenue from high-performance analog products increased in the second quarter of fiscal 2012 when compared to the second quarter of fiscal 2011 due to increased demand for physical media devices, which are primarily used in equipment for fiber-to-the-premise deployments. This increase was partially offset by a decrease in demand for crosspoint switches. Net revenue from WAN communications products decreased in the second quarter of fiscal 2012 compared to the second quarter of fiscal 2011 due to a slowdown in demand at several large customers, particularly in legacy ATM-based systems. WAN communications products represent a legacy business for us, as we have shifted almost all of our research and development investment into our two growth businesses of communications convergence processing products and high-performance analog products. Net revenue from intellectual property licensing and sales increased in the second quarter of fiscal 2012 compared to the second quarter of fiscal 2011 due to the timing of intellectual property sales and timing of licensing revenues. We have developed and maintain a broad intellectual property portfolio, and we may periodically enter into strategic arrangements to leverage our portfolio by licensing or selling our patents.

 

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The following table summarizes year-to-date net revenue by product line:

 

     Six Months Ended              
     March 30,      % of Net     April 1,      % of Net     Change  
     2012      Revenue     2011      Revenue     $     %  
     (in thousands, except percentages)  

Communications convergence processing

   $ 30,135         44.0   $ 32,194         41.0   $ (2,059     -6.4

High-performance analog

     30,001         43.0     29,053         37.0     948        3.3

WAN communications

     8,564         12.0     15,349         19.0     (6,785     -44.2
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

Total net product revenue

     68,700         99.0     76,596         97.0     (7,896     -10.3

Intellectual property

     591         1.0     2,500         3.0     (1,909  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

Net revenue

   $ 69,291         100.0   $ 79,096         100.0   $ (9,805     -12.4
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

The decrease in our net revenue for the first six months of fiscal 2012 compared to the first six months of fiscal 2011 was due to lower sales volumes for our communications convergence processing products, WAN communications products and intellectual property revenue. These decreases were partially offset by an increase in demand for our high-performance analog products. Net revenue from our communications convergence processing products decreased in the first six months of fiscal 2012 when compared to the first six months of fiscal 2011 due to a decrease in net revenue from a slowdown in 3G investments, which resulted in fewer shipments of wireless media gateways used in terminating calls between the PTSN and mobile networks. This decrease was partially offset by an increase in shipments of CPE products, which are used in broadband CPE gateways and other equipment that service providers are deploying in order to deliver voice, data and video services to residential subscribers, as well as shipments of small cell base stations resulting from our acquisition of picoChip, which closed on February 6, 2012. Net revenue from high-performance analog products increased in the first six months of fiscal 2012 when compared to the first six months of fiscal 2011 due to increased demand for physical media devices, which are primarily used in equipment for fiber-to-the-premise deployments. This increase was partially offset by a decrease in demand for crosspoint switches. Net revenue from WAN communications products decreased in the first six months of fiscal 2012 compared to the first six months of fiscal 2011 due to a slowdown in demand at several large customers, particularly in legacy ATM-based systems. WAN communications products represent a legacy business for us, as we have shifted almost all of our research and development investment into our two growth businesses of communications convergence processing products and high-performance analog products. Net revenue from intellectual property licensing and sales decreased in the first six months of fiscal 2012 compared to the first six months of fiscal 2011 due to the timing of intellectual property sales. We have developed and maintain a broad intellectual property portfolio, and we may periodically enter into strategic arrangements to leverage our portfolio by licensing or selling our patents.

Gross Margin

Gross margin represents net revenue less cost of goods sold. As a fabless semiconductor company, we use third parties, including Taiwan Semiconductor Manufacturing Co., Ltd. (TSMC), Amkor Technology, Inc., Unisem, Inc. and Advanced Semiconductor Engineering, Inc. (ASE), for wafer fabrication and assembly and test services. Cost of goods sold primarily consisted of: purchased finished wafers; assembly and test services; royalty and other intellectual property costs; labor and overhead costs associated with product procurement; amortization of the cost of mask sets purchased; and sustaining engineering expenses pertaining to products sold.

The following table presents fiscal quarter gross margin:

 

     Three Months Ended              
     March 30,      % of Net     April 1,      % of Net     Change  
     2012      Revenue     2011      Revenue     $     %  
     (in thousands, except percentages)  

Gross margin

   $ 20,520         58.0   $ 24,270         63.0   $ (3,750     -15.5
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

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Gross margin decreased for the second quarter of fiscal 2012 compared to the second quarter of fiscal 2011 due to a $3.7 million, or 10%, decrease in product revenue, partially offset by a $501,000 increase in intellectual property revenue, which had little associated cost. The decrease in our gross margin as a percent of net revenue for the second quarter of fiscal 2012 compared to the second quarter of fiscal 2011 was driven primarily by a change in product mix, as well as the sale of near-zero margin inventory for which a step-up in basis was recorded with the acquisition of picoChip.

The following table presents fiscal year-to-date gross margin:

 

     Six Months Ended              
     March 30,      % of Net     April 1,      % of Net     Change  
     2012      Revenue     2011      Revenue     $     %  
     (in thousands, except percentages)  

Gross margin

   $ 40,233         58.0   $ 50,532         63.9   $ (10,299     -20.4
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

Gross margin decreased for the first six months of fiscal 2012 compared to the first six months of fiscal 2011 due to both a $7.9 million, or 10%, decrease in product revenue, and a $1.9 million decrease in intellectual property revenue. The decrease in our gross margin as a percent of net revenue for the first six months of fiscal 2012 compared to the first six months of fiscal 2011 was driven primarily by a change in product mix, as well as a decrease in intellectual property revenue, which had little associated cost.

Research and Development

Research and development (R&D) expenses consisted primarily of: direct personnel costs, including stock-based compensation; photomasks; electronic design automation tools; and pre-production evaluation and test costs.

The following table presents details of fiscal quarter R&D expenses:

 

     Three Months Ended              
     March 30,      % of Net     April 1,      % of Net     Change  
     2012      Revenue     2011      Revenue     $     %  
     (in thousands, except percentages)  

Personnel-related costs

   $ 10,461         $ 8,655         $ 1,806        20.9

Stock-based compensation

     1,216           329           887        269.6

Design & development costs

     3,111           3,277           (166     -5.1

Facilities

     1,698           1,395           303        21.7

Depreciation

     738           512           226        44.1

Other

     516           357           159        44.5
  

 

 

      

 

 

      

 

 

   

Research and development

   $ 17,740         50.0   $ 14,525         38.0   $ 3,215        22.1
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

R&D expenses increased for the second quarter of fiscal 2012 compared to the second quarter of fiscal 2011 primarily due to an increase in personnel-related costs and stock-based compensation expense. These increases were primarily due to the effect of merit increases effective in the fourth quarter of fiscal 2011 and bonuses awarded and addition of personnel costs related to the picoChip R&D employees during the second quarter of fiscal 2012.

 

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The following table presents details of fiscal year-to-date R&D expenses:

 

     Six Months Ended              
     March 30,      % of Net     April 1,      % of Net     Change  
     2012      Revenue     2011      Revenue     $     %  
     (in thousands, except percentages)  

Personnel-related costs

   $ 19,426         $ 16,890         $ 2,536        15.0

Stock-based compensation

     1,886           644           1,242        192.9

Design & development costs

     6,064           6,527           (463     -7.1

Facilities

     3,061           2,767           294        10.6

Depreciation

     1,330           904           426        47.1

Other

     981           716           265        37.0
  

 

 

      

 

 

      

 

 

   

Research and development

   $ 32,748         47.0   $ 28,448         36.0   $ 4,300        15.1
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

R&D expenses increased for the first six months of fiscal 2012 compared to first six months of fiscal 2011 primarily due to an increase personnel-related costs and stock-based compensation expense. These increases were primarily due to the effect of merit increases effective in the fourth quarter of fiscal 2011 and bonuses awarded and addition of personnel costs related to the picoChip R&D employees during the second quarter of fiscal 2012.

Selling, General and Administrative

Our selling, general and administrative (SG&A) expenses include personnel costs, independent sales representative commissions and product marketing, applications engineering and other marketing costs. Our SG&A expenses also include costs of corporate functions, including accounting, finance, legal, human resources, information systems and communications.

The following table presents details of fiscal quarter SG&A expenses:

 

     Three Months Ended              
     March 30,      % of Net     April 1,      % of Net     Change  
     2012      Revenue     2011      Revenue     $     %  
     (in thousands, except percentages)  

Personnel-related costs

   $ 6,605         $ 6,453         $ 152        2.4

Stock-based compensation

     2,145           728           1,417        194.6

Professional fees & outside services

     890           871           19        2.2

Facilities

     798           862           (64     -7.4

Depreciation

     125           166           (41     -24.7

Other

     2,525           999           1,526        152.8
  

 

 

      

 

 

      

 

 

   

Selling, general and administrative

   $ 13,088         37.0   $ 10,079         26.0   $ 3,009        29.9
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

SG&A expenses increased for the second quarter of fiscal 2012 compared to the second quarter of fiscal 2011 primarily due to an increase in stock-based compensation expense and other SG&A. The increase in stock-based compensation expense was primarily due to an increase in the number of stock awards vesting in the second quarter of fiscal 2012. The most significant component of the increase in other SG&A was retention bonuses to picoChip employees.

 

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The following table presents details of fiscal year-to-date SG&A expenses:

 

     Six Months Ended              
     March 30,      % of Net     April 1,      % of Net     Change  
     2012      Revenue     2011      Revenue     $     %  
     (in thousands, except percentages)  

Personnel-related costs

   $ 11,680         $ 12,832         $ (1,152     -9.0

Stock-based compensation

     3,712           1,549           2,163        139.6

Professional fees & outside services

     1,816           1,874           (58     -3.1

Facilities

     1,560           1,684           (124     -7.4

Depreciation

     311           309           2        0.6

Other

     3,331           2,042           1,289        63.1
  

 

 

      

 

 

      

 

 

   

Selling, general and administrative

   $ 22,410         32.0   $ 20,290         26.0   $ 2,120        10.4
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

SG&A expenses increased for the first six months of fiscal 2012 compared to the first six months of fiscal 2011 primarily due to an increase in stock-based compensation expense and other SG&A. The increase in stock-based compensation expense was primarily due to an increase in the number of stock awards vesting in the first six months of fiscal 2012. The most significant component of the increase in other SG&A was retention bonuses to picoChip employees. These increases were partially offset by a decrease in personnel-related costs mainly due to a decrease in headcount.

Acquisition-Related Costs

Acquisition-related costs totaled $2.3 million for the three months ended March 30, 2012 and $3.1 million for the six months ended March 30, 2012. Acquisition-related costs consisted primarily of professional fees incurred as a result of our acquisition of picoChip, which was completed on February 6, 2012. There were no acquisition-related costs incurred in the corresponding fiscal 2011 periods.

Restructuring Charges

We have, and may in the future, commit to restructuring plans to help manage our costs or to help implement strategic initiatives, among other reasons. Restructuring charges totaled $1.3 million in the three and six months ended March 30, 2012. Restructuring charges consisted of reversals totaling $18,000 in the three and six months ended April 1, 2011.

Second Quarter of Fiscal 2012 Restructuring Plan – In the second quarter of fiscal 2012, we committed to the implementation of a restructuring plan to realize synergies in connection with our acquisition of picoChip, which was completed on February 6, 2012. The plan consisted primarily of a targeted headcount reduction in connection with our acquisition of picoChip. The restructuring plan is expected to be substantially completed during the third quarter of fiscal 2012. We incurred $1.3 million in charges in the second quarter of fiscal 2012 related to severance costs for affected employees.

Activity and liability balances related to our second quarter of fiscal 2012 restructuring plan were as follows:

 

     Workforce
Reductions
 
     (in thousands)  

Charges to costs and expenses

   $ 1,320   

Cash payments

     (530
  

 

 

 

Restructuring balance, March 30, 2012

   $ 790   
  

 

 

 

The remaining accrued restructuring balance principally represents employee severance costs. We expect to pay these remaining obligations through the third quarter of fiscal 2012.

 

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Fourth Quarter of Fiscal 2011 Restructuring Plan – In the fourth quarter of fiscal 2011, we implemented a restructuring plan, which consisted primarily of a targeted headcount reduction in the SG&A functions and wide area networking (WAN) business unit. We incurred $1.1 million of charges related to severance costs for the affected employees during the fourth quarter of fiscal 2011. The restructuring plan was substantially completed during the fourth quarter of fiscal 2011.

Activity and liability balances related to our fourth quarter of fiscal 2011 restructuring plan from September 30, 2011 through March 30, 2012 were as follows:

 

     Workforce
Reductions
 
     (in thousands)  

Restructuring balance, September 30, 2011

   $ 902   

Cash payments

     (812

Non-cash credits

     (13
  

 

 

 

Restructuring balance, March 30, 2012

   $ 77   
  

 

 

 

The remaining accrued restructuring balance principally represents employee severance costs. We expect to pay these remaining obligations through the fourth quarter of fiscal 2012.

Fourth Quarter of Fiscal 2010 Restructuring Plan – In the fourth quarter of fiscal 2010, we implemented a restructuring plan, which consisted primarily of a targeted headcount reduction in our WAN product family and SG&A functions. The restructuring plan was substantially completed during the fourth quarter of fiscal 2010. Of the $1.3 million in charges incurred during the fourth quarter of fiscal 2010, $966,000 related to severance costs for affected employees and $311,000 related to abandoned technology.

Activity and liability balances related to our fourth quarter of fiscal 2010 restructuring plan from September 30, 2011 through March 30, 2012 were as follows:

 

     Workforce
Reductions
 
     (in thousands)  

Restructuring balance, September 30, 2011

   $ 42   

Cash payments

     (7

Non-cash credits

     (35
  

 

 

 

Restructuring balance, March 30, 2012

   $ —     
  

 

 

 

During the second quarter of fiscal 2012, any amounts left to be paid under this plan were paid and any remaining accrued amount was reversed.

Interest Expense

The following tables present details of fiscal quarter and fiscal year-to-date interest expense:

 

     Three Months Ended               
     March 30,     % of Net     April 1,     % of Net     Change  
     2012     Revenue     2011     Revenue     $      %  
     (in thousands, except percentages)  

Interest expense

   $ (571     2.0   $ (399     1.0   $ 172         43.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

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     Six Months Ended              
     March 30,     % of Net     April 1,     % of Net     Change  
     2012     Revenue     2011     Revenue     $     %  
     (in thousands, except percentages)  

Interest expense

   $ (959     -1.0   $ (797     -1.0   $ (162     20.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense primarily consisted of interest on our convertible senior notes in periods prior to the second quarter of fiscal 2012. In the second quarter of 2012, interest expense consisted of interest on our loan and security agreement in addition to interest on our convertible senior notes.

Other Income, Net

Other income, net, principally consisted of interest income, income from reimbursable foreign R&D incentives, foreign exchange gains and losses and other non-operating gains and losses. The following table presents details of fiscal quarter other income, net:

 

     Three Months Ended               
     March 30,      % of Net     April 1,      % of Net     Change  
     2012      Revenue     2011      Revenue     $      %  
     (in thousands, except percentages)  

Other income, net

   $ 309         1.0   $ 109         0.0   $ 200         183.5
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

The increase in other income, net, in the second quarter of fiscal 2012 compared to the second quarter of fiscal 2011 reflected an $80,000 increase in reimbursable foreign research and development credits and a $130,000 increase in net foreign exchange gains.

The following table presents details of fiscal year-to-date other income, net:

 

     Six Months Ended               
     March 30,      % of Net     April 1,      % of Net     Change  
     2012      Revenue     2011      Revenue     $      %  
     (in thousands, except percentages)  

Other income, net

   $ 611         1.0   $ 259         0.0   $ 352         135.9
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

The increase in other income, net, in the first six months of fiscal 2012 compared to the first six months of fiscal 2011 reflected a $160,000 increase in reimbursable foreign research and development credits and a $200,000 increase in net foreign exchange gains.

Income Taxes

Our provision for income taxes for the first three and six months of fiscal 2012 and 2011 principally consisted of income taxes incurred by our foreign subsidiaries. As a result of our history of operating losses and the uncertainty of future operating results, we determined that it is more likely than not that the U.S. federal and state income tax benefits (principally net operating losses we can carry forward to future years) will not be realized. Based on available objective evidence, we believe it is more likely than not that our deferred tax assets will not be realized. Accordingly, we continue to provide a full valuation allowance against our U.S. federal and state net deferred tax assets at March 30, 2012. Should sufficient positive objectively verifiable evidence of the realization of our net deferred tax assets exist at a future date, we would reverse any remaining valuation allowance to the extent supported by estimates of future taxable income at that time.

 

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Liquidity and Capital Resources

Our principal sources of liquidity are our existing cash and cash equivalent balances and cash generated from product sales.

In order to achieve profitability and positive cash flows from operations, we may need to further reduce operating expenses and/or increase revenue. We have recently completed a series of cost reduction actions, which have improved our operating expense structure and we will continue to perform additional actions, if necessary. In addition, we may commit to additional restructurings to help implement strategic initiatives. These restructurings and other cost saving measures alone may not allow us to achieve profitability. Our ability to increase current revenue levels to achieve profitability will depend on demand for network infrastructure equipment that incorporates our products, which in turn depends primarily on the level of capital spending by communications service providers and enterprises, the level of which may decrease due to general economic conditions, and uncertainty, over which we have no control. We may be unable to increase current revenue levels or sustain past and future expense reductions in subsequent periods. We may not be able to achieve sustained profitability.

On February 6, 2012, we completed the acquisition of picoChip. We paid approximately $26.7 million (less certain deductions) and issued an aggregate of 5.2 million shares of our authorized common stock, par value $0.01 per share, to the stockholders of picoChip. We 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 2013, and we may make earnout payments in the form of cash, stock or any combination thereof.

We believe that our existing cash balances, along with cash expected to be generated from product sales will be sufficient to fund our operations, research and development efforts, anticipated capital expenditures, potential earnout payments, working capital and other financing requirements, including interest payments on debt obligations, for the next 12 months. We have no principal payments on currently outstanding debt due in the next 12 months. We may acquire our debt securities through privately negotiated transactions, tender offers, exchange offers (for new debt or other securities), redemptions or otherwise, upon such terms and at such prices as we may determine appropriate. We will need to continue a focused program of capital expenditures to meet our research and development and corporate requirements. We may also consider acquisition opportunities to extend our technology portfolio and design expertise and to expand our product offerings. In order to fund capital expenditures, increase our working capital, re-pay debt or complete any acquisitions, we may seek to obtain additional debt or equity financing. We may also need to seek to obtain additional debt or equity financing if we experience downturns or cyclical fluctuations in our business that are more severe or longer than anticipated or if we fail to achieve anticipated revenue and expense levels. However, we cannot assure you that such financing will be available to us on favorable terms, or at all, particularly in light of recent economic conditions in the capital markets.

The following table presents details of our working capital and cash and cash equivalents:

 

     March 30,      September 30,      Change  
     2012      2011      $     %  
     (in thousands, except percentages)  

Working capital

   $ 12,473       $ 50,346       $ (37,873     -75.2
  

 

 

    

 

 

    

 

 

   

 

 

 

Cash and cash equivalents

   $ 32,354       $ 45,227       $ (12,873     -28.5
  

 

 

    

 

 

    

 

 

   

 

 

 

Cash and cash equivalents decreased as a result of cash used in our operating and investing activities. The cash used in our operating and investing activities was partially offset by cash provided by financing activities.

 

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The following table presents the major components of the consolidated statements of cash flows:

 

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

Net cash (used in)/provided by:

    

Net (loss)/income

   $ (19,834   $ 940   

Non-cash operating expenses, net

     13,167        6,309   

Changes in operating assets and liabilities:

    

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   

Net cash used in investing activities

     (29,771     (8,929

Net cash provided by financing activities

     28,618        691   

Effect of foreign exchange rate changes on cash

     (50     (41
  

 

 

   

 

 

 

Net (decrease)/increase in cash and cash equivalents

   $ (12,873   $ 1,223   
  

 

 

   

 

 

 

Operating activities used cash for the first six months of fiscal 2012 due to our net loss and net cash used in changes in operating assets and liabilities, partially offset by cash provided by net non-cash operating activities. Significant non-cash operating expenses included stock-based compensation expense and depreciation and amortization. The changes in operating assets and liabilities that had a significant impact on cash used in operating activities included an increase in accounts receivable due to the timing of sales and collections and a decrease in accrued compensation and benefits mainly due to the payment of bonuses under our fiscal 2011 cash bonus plan in the first quarter of fiscal 2012. These cash outflows were partially offset by an increase in accounts payable due to the timing of payments and a decrease in inventories due to our focused efforts in decreasing our inventory on hand and increasing our inventory turns.

Operating activities generated cash for the first six months of fiscal 2011, reflecting our net income, net non-cash operating activities and net changes in operating assets and liabilities. Significant non-cash operating expenses included stock-based compensation expense and depreciation and amortization. The significant components of our net changes in operating assets and liabilities included a decrease in accounts receivable, which was due to both the timing of sales and the timing of collections. In addition, accounts payable increased due to the timing of inventory receipts and payments. These cash inflows were partially offset by an increase in our inventory balance resulting from an acceleration of our ordering of certain raw materials in an effort to ensure supply on these items in light of the impact that the Japan natural disaster could have had on production. In addition, accrued compensation and benefits decreased mainly due to the fiscal 2010 management bonus that was included in this balance at the end of fiscal 2010 and paid in early fiscal 2011.

Investing Activities

Investing activities used cash for the first six months of fiscal 2012 due to payments under license agreements of $7.3 million, the purchase of property, plant and equipment of $2.3 million and the acquisition of picoChip of $20.1 million.

 

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Investing activities used cash for the first six months of fiscal 2011 due to the purchase of property, plant and equipment of $3.9 million and payments under license agreements of $5.0 million.

Financing Activities

Financing activities provided cash for the first six months of fiscal 2012 due to $28.5 million in borrowings under our line of credit and term loan and $1.4 million in proceeds from equity compensation programs. These cash inflows were partially offset by $575,000 in payments made related to shares of our common stock withheld from, or delivered by, employees in order to satisfy applicable tax withholding obligations in connection with the vesting of restricted stock and $281,000 in payments made on capital lease obligations.

Financing activities provided cash for the first six months of fiscal 2011 primarily due to $1.3 million in proceeds from equity compensation programs, partially offset by $291,000 in payments made related to shares of our common stock withheld from, or delivered by, employees in order to satisfy applicable tax withholding obligations in connection with the vesting of restricted stock and $274,000 in payments made on capital lease obligations.

Revolving Credit Facility and Long-Term Debt

Loan and Security Agreement

As discussed above, in February 2012, we completed the acquisition of picoChip and paid approximately $26.7 million (less certain deductions) and issued an aggregate of 5.2 million shares of our authorized common stock, par value $0.01 per share, to the stockholders of picoChip. The cash payment of the initial purchase price of picoChip was financed in part with bank debt, which was issued pursuant to a loan and security agreement dated as of February 6, 2012 between us and Silicon Valley Bank. Borrowings under the loan and security agreement were also used to pay costs and expenses related to the acquisition and the closing of the loan and security agreement, and may be used for working capital and other general corporate purposes.

The loan and security agreement includes: (i) a term loan facility of $15.0 million; and (ii) a revolving credit facility of up to $20.0 million. As of March 30, 2012, the outstanding balance on the term loan was $15.0 million and the outstanding balance on the revolving credit facility was $13.5 million. The obligations under the loan and security agreement are guaranteed by our material subsidiaries and secured by a security interest in substantially all of our assets and guarantors’ assets, excluding intellectual property.

The principal on the term loan will be payable in quarterly installments beginning on March 31, 2013 and ending on the maturity date of the term loan, February 6, 2017. Quarterly principal payments of $375,000 are due for each quarter during calendar year 2013, $750,000 for each quarter during calendar year 2014, $1.1 million for each quarter during calendar year 2015 and $1.5 million for each quarter during calendar year 2016. Interest on the term loan will be paid quarterly beginning in calendar year 2012. The revolving credit facility also has a maturity date of February 6, 2017. Interest on the revolving credit facility will be paid quarterly beginning in calendar year 2012.

The total amount available under the revolving credit facility is $20.0 million. We are eligible to borrow amounts against the revolving credit facility up to the amount allowable by the borrowing base. The borrowing base is calculated on a monthly basis and is based on the amount of our eligible accounts receivable. At March 30, 2012, our outstanding revolving credit facility balance of $13.5 million totalled the entire amount of the eligible borrowing base. To the extent that the eligible borrowing base is reduced, we are required to pay down the outstanding revolving credit facility balance to the amount of the eligible borrowing base. During the next 12 months, we intend to maintain our borrowings on the revolving credit facility at a minimum of $8.0 million. Consequently, we have classified $8.0 million of the revolving credit facility as a long-term liability.

We have the option to choose, with a few exceptions, whether the term loan facility and revolving credit facility bear interest based on a base rate, which is the prime rate published in The Wall Street Journal, or a LIBOR rate, which has a floor of 0.75%. A base rate facility will bear interest ranging from the base rate plus 1.25% to base rate plus 1.75%. A LIBOR rate facility will bear interest ranging from LIBOR rate plus 3.25% to LIBOR rate plus 3.75%. Both the base rate margin and LIBOR margin vary based upon our liquidity ratio. As of March 30, 2012, the interest rate on both the term loan facility and the revolving credit facility was 4.25%. Total interest expense incurred on the term loan facility and revolving credit facility for both the first three and six months of fiscal 2012 was approximately $165,000.

 

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The revolving credit facility is subject to an unused line of credit fee. This fee is payable quarterly in an amount equal to 0.25% - 0.50% of the average daily unused portion of the credit facility. The unused line fee will vary based upon our liquidity ratio.

We incurred approximately $378,000 of debt issuance costs related to the loan and security agreement, which is being amortized to interest expense over the term of the facility through February 6, 2017 using the effective interest method. At March 30, 2012, debt issuance costs of approximately $365,000, net of accumulated amortization, was included in other assets.

6.50% Convertible Senior Notes due 2013

We issued our 6.50% convertible senior notes due in August 2013 pursuant to an indenture, dated as of August 1, 2008, between us and Wells Fargo Bank, N.A., as trustee. At maturity, we will be required to repay the outstanding principal amount of the notes. At March 30, 2012, $15.0 million in aggregate principal amount of our 6.50% convertible senior notes were outstanding.

The 6.50% convertible senior notes are convertible at the option of the holders, at any time on or prior to maturity, into shares of our common stock at a conversion rate equal to approximately $4.74 per share of common stock, which is subject to adjustment in certain circumstances. Upon conversion of the notes, we generally have the right to deliver to the holders thereof, at our option: (i) cash; (ii) shares of our common stock; or (iii) a combination thereof. The initial conversion price of the notes will be adjusted to reflect stock dividends, stock splits, issuances of rights to purchase shares of our common stock, and upon other events. If we undergo certain fundamental changes prior to maturity of the notes, the holders thereof will have the right, at their option, to require us to repurchase for cash some or all of their 6.50% convertible senior notes at a repurchase price equal to 100% of the principal amount of the notes being repurchased, plus accrued and unpaid interest (including additional interest, if any) to, but not including, the repurchase date, or convert the notes into shares of our common stock and, under certain circumstances, receive additional shares of our common stock in the amount provided in the indenture.

For financial accounting purposes, our contingent obligation to issue additional shares or make additional cash payment upon conversion following a fundamental change is an “embedded derivative.” At March 30, 2012, the liability under the fundamental change adjustment has been recorded at its estimated fair value and is not significant.

If there is an event of default under the 6.50% convertible senior notes, the principal of and premium, if any, on all the notes and the interest accrued thereon may be declared immediately due and payable, subject to certain conditions set forth in the indenture. An event of default under the indenture will occur if we: (i) are delinquent in making certain payments due under the notes; (ii) fail to deliver shares of common stock or cash upon conversion of the notes; (iii) fail to deliver certain required notices under the notes; (iv) fail, following notice, to cure a breach of a covenant under the notes or the indenture; (v) incur certain events of default with respect to other indebtedness; or (vi) are subject to certain bankruptcy proceedings or orders. If we fail to deliver certain SEC reports to the trustee in a timely manner as required by the indenture: (x) the interest rate applicable to the notes during the delinquency will be increased by 0.25% or 0.50%, as applicable (depending on the duration of the delinquency); and (y) if the required reports are not delivered to the trustee within 180 days after their due date under the indenture, a holder of the notes will generally have the right, subject to certain limitations, to require us to repurchase all or any portion of the notes then held by such holder.

Contractual Obligations

There have been no material changes in our contractual obligations as of March 30, 2012, as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2011, except as discussed below:

Upon the close of the picoChip acquisition, we assumed additional contractual obligations, including contingent consideration and various operating and capital leases. The cash payment of the initial purchase price of picoChip

 

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was financed in part with bank debt, which was issued pursuant to a loan and security agreement dated as of February 6, 2012 between us and Silicon Valley Bank. The loan and security agreement includes: (i) a term loan facility of $15.0 million; and (ii) a revolving credit facility of up to $20.0 million. As of March 30, 2012, the outstanding balance on the term loan was $15.0 million and the outstanding balance on the revolving credit facility was $13.5 million. The principal on the term loan will be payable in quarterly installments beginning on March 31, 2013 and ending on the maturity date of the term loan, February 6, 2017. Quarterly principal payments of $375,000 are due for each quarter during calendar year 2013, $750,000 for each quarter during calendar year 2014, $1.1 million for each quarter during calendar year 2015 and $1.5 million for each quarter during calendar year 2016. Interest on the term loan will be paid quarterly beginning in May 2012. The revolving credit facility also has a maturity date of February 6, 2017. Interest on the revolving credit facility will be paid quarterly beginning in May 2012.

Off-Balance Sheet Arrangements

We have made guarantees and indemnities, under which we may be required to make payments to a guaranteed or indemnified party, in relation to certain transactions. In connection with a June 2003 distribution to stockholders of our former parent company of all outstanding shares of common stock of Mindspeed, we generally assumed responsibility for all contingent liabilities and then-current and future litigation against our former parent company or its subsidiaries related to our business. In connection with certain facility leases, we have indemnified our lessors for certain claims arising from the facility or the lease. We indemnify our directors, officers, employees and agents to the maximum extent permitted under the laws of the State of Delaware. The duration of the guarantees and indemnities varies, and in many cases is indefinite. The majority of our guarantees and indemnities do not provide for any limitation of the maximum potential future payments we could be obligated to make. We have not recorded any liability for these guarantees and indemnities in the accompanying consolidated condensed balance sheets.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not use derivative instruments for speculative or investment purposes.

Interest Rate Risk

Our cash and cash equivalents are not subject to significant interest rate risk. As of March 30, 2012, the carrying value of our cash and cash equivalents approximated fair value.

At March 30, 2012, our debt consisted of a revolving credit facility, a term loan facility and long-term convertible senior notes. Our revolving credit facility and term loan facility carry variable interest rates and are therefore subject to interest rate risk. We have the option to choose, with a few exceptions, whether the term loan facility and revolving credit facility bear interest based on a base rate, which is the prime rate published in The Wall Street Journal, or a LIBOR rate, which has a floor of 0.75%. If the prime rate or LIBOR rate changed by 1.0%, thereby changing our effective borrowing rate by the same amount, cash interest expense related to the credit facility and term loan facility would change by approximately $300,000, annually. Our convertible senior notes bear interest at a fixed rate of 6.50% per annum. Consequently, our results of operations and cash flows are not subject to any significant interest rate risk relating to our convertible senior notes. The fair value of the debt could increase or decrease if interest rates decreases or increase, respectively, and that could impact our ability and cost to negotiate a settlement of such notes prior to maturity.

Foreign Exchange Risk

We transact business in various foreign currencies and we face foreign exchange risk on assets and liabilities that are denominated in foreign currencies. Currently, our foreign exchange risks are not hedged; however, from time to time, we may utilize foreign currency forward exchange contracts to hedge a portion of our exposure to foreign exchange risk. `

Hedging transactions are intended to offset the gains and losses we experience on foreign currency transactions with gains and losses on the forward contracts, so as to mitigate our overall risk of foreign exchange gains and losses. We do not enter into forward contracts for speculative or trading purposes. At March 30, 2012, we held no

 

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foreign currency forward exchange contracts. Based on our overall currency rate exposure at March 30, 2012, a 10% change in currency rates would not have a material effect on our consolidated financial position, results of operations or cash flows.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 30, 2012. Disclosure controls and procedures are defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act), as controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within required time periods, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure. Based upon that evaluation, our chief executive officer and our chief financial officer have concluded that, as of March 30, 2012, these disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act, during the fiscal quarter ended March 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

We have revised the risk factors that relate to our business, as set forth below. These risks include any material changes to and supersede the risks previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2011. We encourage investors to review these risk factors, as well as those contained under “Forward-Looking Statements” preceding Part I of this Quarterly Report on Form 10-Q.

Our business, financial condition and operating results can be affected by a number of factors, including those listed below, any one of which could cause our actual results to vary materially from recent results or from our anticipated future results. Any of these risks could also materially and adversely affect our business, financial condition or the price of our common stock or other securities.

Our operating results may be adversely impacted by worldwide economic uncertainties and specific conditions in the markets we address, including the cyclical nature of and volatility in the semiconductor industry.

We operate in the semiconductor industry, which is cyclical and subject to rapid change and evolving industry standards. From time to time, the semiconductor industry has experienced significant downturns characterized by decreases in product demand, excess customer inventories and accelerated erosion of prices. The semiconductor industry also periodically experiences increased demand and production capacity constraints, which may affect our ability to ship products. Furthermore, during challenging economic times, our customers and vendors may face issues gaining timely access to sufficient credit, which could impact their ability to make timely payments to us. As a result, we may experience growth patterns that are different than the end demand for products, particularly during periods of high volatility. Accordingly, our operating results may vary significantly as a result of the general conditions in the semiconductor industry, which could cause large fluctuations in our stock price.

We cannot predict the timing, strength or duration of any economic slowdown or the impact it will have on our customers, our vendors or us. The combination of our lengthy sales cycle coupled with challenging macroeconomic conditions could have a compound impact on our business. The impact of market volatility is not limited to revenue, but may also affect our product gross margins and other financial metrics. Any downturns in the semiconductor

 

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industry could be severe and prolonged, and any failure of the industry or wired and wireless communications markets to fully recover from downturns could seriously impact our revenue and harm our business, financial condition and results of operations.

Our operating results are subject to substantial quarterly and annual fluctuations.

We have incurred significant losses in prior periods. Our net revenue and operating results have fluctuated in the past and may fluctuate in the future and we may incur losses and negative cash flows in future periods. These fluctuations are due to a number of factors, many of which are beyond our control. These factors include, among others:

 

   

changes in end-user demand for the products manufactured and sold by our customers;

 

   

the effects of competitive pricing pressures, including decreases in average selling prices of our products;

 

   

the gain or loss of significant customers;

 

   

market acceptance of our products and our customers’ products;

 

   

our ability to timely develop, introduce, market and support new products and technologies;

 

   

availability and cost of products from our suppliers;

 

   

intellectual property disputes;

 

   

the timing of receipt, reduction or cancellation of significant orders by customers;

 

   

fluctuations in the levels of component inventories held by our customers and changes in our customers’ inventory management practices;

 

   

shifts in our product mix and the effect of maturing products;

 

   

the timing and extent of product development costs;

 

   

new product and technology introductions by us or our competitors;

 

   

fluctuations in manufacturing yields; and

 

   

significant warranty claims, including those not covered by our suppliers.

The foregoing factors are difficult to forecast, and these, as well as other factors, could materially and adversely affect our quarterly or annual operating results.

We have substantial cash requirements to fund our operations, research and development efforts and capital expenditures. Our capital resources are limited and capital needed for our business may not be available when we need it.

Although we have recently generated cash through operating activities, we have used significant cash in operating activities in previous periods. Our principal sources of liquidity are our existing cash balances, cash generated from product sales and our revolving credit facility with Silicon Valley Bank (SVB). We believe that our existing cash balances, along with cash expected to be generated from product sales and our revolving credit facility, will be sufficient to fund our operations, research and development efforts, anticipated capital expenditures, working capital and other financing requirements, including interest payments on our debt obligations, for at least the next 12 months. However, if we incur operating losses and negative cash flows in the future, we may need to further reduce our operating costs or obtain alternate sources of financing, or both. The loan and security agreement with respect to our revolving credit facility with SVB contains financial and operating restrictions that may limit our

 

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access to credit. If we fail to comply with covenants in the loan and security agreement or other events of default occur, we may be required to repay our indebtedness thereunder, which may have a material adverse effect on our liquidity. We have completed transactions that involved the issuance of equity and the issuance or incurrence of indebtedness, including credit facilities. Even after completing these transactions, we may need additional capital in the future and may not have access to additional sources of capital on favorable terms or at all. If we raise additional funds through the issuance of equity, equity-based or debt securities, such securities may have rights, preferences or privileges senior to those of our common stock and our stockholders may experience dilution of their ownership interests. In addition, there can be no assurance that we will continue to benefit from the sale or licensing of intellectual property as we have in previous periods.

Our acquisition of picoChip Inc. and its wholly owned subsidiaries on February 6, 2012 will expose us to risks arising from the acquisition. Any failure to integrate picoChip into our operations successfully could have a material adverse effect on our financial position, results of operations and/or cash flows.

Acquisition transactions are subject to inherent risks and uncertainties, including, among others, risks associated with the successful integration of geographically separate organizations; the ability to integrate the companies’ technologies; and the potential for key employee attrition. Acquisition transactions could also result in large one-time write-offs, amortization expenses related to intangible assets, limitations on our ability to use our net operating loss carryforwards, litigation or other claims in connection with the acquired company and the diversion of management’s time and attention from operating our business to acquisition integration challenges. Operationally, the business of picoChip has depended on key customer and supplier relationships, and we will need to maintain those relationships. If we fail to maintain those relationships, it would have an adverse effect on our operating objectives and could have an adverse effect on our future operating results. Integration of our respective operations, including technology integration and integration of financial and administrative functions, may not proceed as we currently anticipate and could result in presently unanticipated costs or expenses (including unanticipated capital expenditures) that could have an adverse effect on our future operating results. We may also incur liability for activities of picoChip and its subsidiaries prior to the acquisition, including patent and trademark infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities. In addition, we have no recent experience operating our business in the United Kingdom and lack familiarity with local laws, regulations and business practices. We cannot provide any assurances that we will achieve our business and financial objectives in connection with the acquisition of picoChip.

The cash payment of the initial purchase price for the acquisition of picoChip was financed in part with bank debt and through the issuance of shares of our common stock that resulted in dilution to our existing stockholders. We will be required to service this additional indebtedness and cannot provide assurances that picoChip’s business will generate sufficient net cash flows, if any, to permit us to service the indebtedness without relying on cash flows, if any, generated by our incumbent businesses. The benefits or synergies we may expect from the acquisition of picoChip may not be realized to the extent or in the time frame we initially anticipate, which may result in an adverse effect on our stock price or our ability to raise additional financing, either in the public capital markets or through further debt financing.

We are entirely dependent upon third parties for the manufacture of our products and are vulnerable to their capacity constraints during times of increasing demand for semiconductor products.

We are entirely dependent upon outside wafer fabrication facilities, known as foundries, for wafer fabrication services. Our principal suppliers of wafer fabrication services are TSMC and Jazz Semiconductor. We are also dependent upon third parties, including Amkor and ASE, for the assembly and testing of all of our products. Under our fabless business model, our long-term revenue growth is dependent on our ability to obtain sufficient external manufacturing capacity, including wafer production capacity. Periods of upturns in the semiconductor industry may be characterized by rapid increases in demand and a shortage of capacity for wafer fabrication and assembly and test services.

 

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The risks associated with our reliance on third parties for manufacturing services include:

 

   

the lack of assured supply, potential shortages and higher prices;

 

   

the effects of disputes or litigation involving our third-party foundries;

 

   

increased lead times;

 

   

limited control over delivery schedules, manufacturing yields, production costs and product quality; and

 

   

the unavailability of, or delays in obtaining, products or access to key process technologies.

Our standard lead time, or the time required to manufacture our products (including wafer fabrication, assembly and testing), is typically 12 to 16 weeks. During periods of manufacturing capacity shortages, the foundries and other suppliers on whom we rely may devote their limited capacity to fulfill the production requirements of other customers that are larger or better financed than we are, or who have superior contractual rights to enforce the manufacture of their products, including to the exclusion of producing our products.

Additionally, if we are required to seek alternative foundries or assembly and test service providers, we would be subject to longer lead times, indeterminate delivery schedules and increased manufacturing costs, including costs to find and qualify acceptable suppliers. For example, if we choose to use a new foundry, the qualification process may take as long as six months over the standard lead time before we can begin shipping products from the new foundry. Such delays could negatively affect our relationships with our customers.

Wafer fabrication processes are subject to obsolescence, and foundries may discontinue a wafer fabrication process used for certain of our products. In such event, we generally offer our customers a “last-time buy” program to satisfy their anticipated requirements for our products. Any unanticipated discontinuation of a wafer fabrication process on which we rely may adversely affect our revenue and our customer relationships.

The foundries and other suppliers on whom we rely may experience financial difficulties or suffer disruptions in their operations due to causes beyond our control, including deteriorations in general economic conditions, labor strikes, work stoppages, electrical power outages, fire, earthquake, flooding or other natural disasters. Certain of our suppliers’ manufacturing facilities are located near major earthquake fault lines in the Asia-Pacific region and in California. Due to cross dependencies, supply chain disruptions could negatively impact demand of our products, including, for example, if our customers are unable to obtain sufficient supply of other components required for their end product. In the event of a disruption of the operations of one or more of our suppliers, we may not have an alternate source immediately available. Such an event could cause significant delays in shipments until we are able to shift the products from an affected facility or supplier to another facility or supplier. The manufacturing processes we rely on are specialized and are available from a limited number of suppliers. Alternate sources of manufacturing capacity, particularly wafer production capacity, may not be available to us on a timely basis. Even if alternate manufacturing capacity is available, we may not be able to obtain it on favorable terms, or at all. Difficulties or delays in securing an adequate supply of our products on favorable terms, or at all, could impair our ability to meet our customers’ requirements and have a material adverse effect on our operating results.

In addition, the highly complex and technologically demanding nature of semiconductor manufacturing has caused foundries to experience, from time to time, lower than anticipated manufacturing yields, particularly in connection with the introduction of new products and the installation and start-up of new process technologies. Lower than anticipated manufacturing yields may affect our ability to fulfill our customers’ demands for our products on a timely basis. Moreover, lower than anticipated manufacturing yields may adversely affect our gross margin and our results of operations.

 

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The price of our common stock may fluctuate significantly.

The price of our common stock is volatile and may fluctuate significantly. There can be no assurance as to the prices at which our common stock will trade or that an active trading market in our common stock will be sustained in the future. The market price at which our common stock trades may be influenced by many factors, including:

 

   

our operating and financial performance and prospects, including our ability to achieve sustained profitability;

 

   

the depth and liquidity of the market for our common stock which can impact, among other things, the volatility of our stock price and the availability of market participants to borrow shares;

 

   

investor perception of us and the industry in which we operate;

 

   

the recently completed acquisition of picoChip may not be accretive and may cause dilution to our earnings per share;

 

   

the level of research coverage of our common stock;

 

   

changes in earnings estimates or buy/sell recommendations by analysts;

 

   

the issuance and sale of additional shares of common stock;

 

   

limitations placed on our investors by our stockholders rights agreement, which is designed to protect our net operating loss carryforwards;

 

   

general financial and other market conditions; and

 

   

domestic and international economic conditions.

In addition, public stock markets have experienced, and may in the future experience, extreme price and trading volume volatility, particularly in the technology sectors of the market. This volatility has significantly affected the market prices of securities of many technology companies for reasons frequently unrelated to or disproportionately impacted by the operating performance of these companies. These broad market fluctuations may adversely affect the market price of our common stock. If we do not meet the requirements for continued quotation on the Nasdaq Global Select Market (NASDAQ), our common stock could be delisted which would adversely affect the ability of investors to sell shares of our common stock and could otherwise adversely affect our business.

Our success depends on our ability to timely develop competitive new products and keep abreast of the rapid technological changes in our market.

Our operating results will depend largely on our ability to continue to timely introduce new and enhanced semiconductor products, as well as our ability to keep abreast of rapid technological changes in our markets. Our products could become obsolete sooner than we expect because of faster than anticipated, or unanticipated, changes in one or more of the technologies related to our products. The introduction of new technology representing a substantial advance over current technology could adversely affect demand for our existing products. Currently accepted industry standards are also subject to change, which may also contribute to the obsolescence of our products. If we are unable to develop and introduce new or enhanced products in a timely manner, our business may be adversely affected.

Successful product development and introduction depends on numerous factors, including, among others:

 

   

our ability to anticipate customer and market requirements and changes in technology and industry standards;

 

   

our ability to accurately define new products;

 

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our ability to complete development of new products, and bring our products to market, on a timely basis;

 

   

our ability to differentiate our products from offerings of our competitors; and

 

   

overall market acceptance of our products.

We may not have sufficient resources to make the substantial investment in research and development in order to develop and bring to market new and enhanced products, particularly if we are required to take further cost reduction actions. Furthermore, we are required to continually evaluate expenditures for planned product development and to choose among alternative technologies based on our expectations of future market growth. We may be unable to timely develop and introduce new or enhanced products, our products may not satisfy customer requirements or achieve market acceptance, or we may be unable to anticipate new industry standards and technological changes. We also may not be able to respond successfully to new product announcements and introductions by competitors.

Research and development projects may experience unanticipated delays related to our internal design efforts. New product development also requires the production of photomask sets and the production and testing of sample devices. In the event we experience delays in obtaining these services from the wafer fabrication and assembly and test vendors on whom we rely, our product introductions may be delayed and our revenue and results of operations may be adversely affected.

We are subject to intense competition.

The communications semiconductor industry in general, and the markets in which we compete in particular, are intensely competitive. We compete worldwide with a number of U.S. and international semiconductor manufacturers that are both larger and smaller than we are in terms of resources and market share. We currently face significant competition in our markets and expect that intense price and product competition will continue. This competition has resulted, and is expected to continue to result, in declining average selling prices for our products.

Many of our current and potential competitors have certain advantages over us, including:

 

   

stronger financial position and liquidity;

 

   

longer, or stronger, presence in key markets;

 

   

greater name recognition;

 

   

more secure supply chain;

 

   

lower cost alternatives to our products;

 

   

access to larger customer bases; and

 

   

significantly greater sales and marketing, manufacturing, distribution, technical and other resources.

As a result, these competitors may be able to adapt more quickly to new or emerging technologies and changes in customer requirements or may be able to devote greater resources to the development, promotion and sale of their products than we can. Moreover, we have incurred substantial operating losses and we may in the future incur losses in future periods. We believe that financial stability of suppliers is an important consideration in our customers’ purchasing decisions. If our OEM customers perceive that we lack adequate financial stability, they may choose semiconductor suppliers that they believe have a stronger financial position or liquidity.

Current and potential competitors also have established or may establish financial or strategic relationships among themselves or with our existing or potential customers, resellers or other third parties. These relationships may affect customers’ purchasing decisions. Accordingly, it is possible that new competitors or alliances among competitors could emerge and rapidly acquire significant market share. We may not be able to compete successfully against current and potential competitors.

 

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The loss of one or more key customers or distributors, or the diminished demand for our products from a key customer could significantly reduce our net revenue, gross margin and results of operations.

A relatively small number of end customers and distributors have accounted for a significant portion of our net revenue in any particular period. There has been an increasing trend toward industry consolidation in our markets in recent years, particularly among major network equipment and telecommunications companies. Industry consolidation could decrease the number of significant customers for our products thereby increasing our reliance on key customers. In addition, industry consolidation has generally led, and may continue to lead, to pricing pressures and loss of market share. We have no long-term volume purchase commitments from our key customers. One or more of our key customers or distributors may discontinue operations as a result of consolidation, financial instability, liquidation or otherwise. Reductions, delays and cancellation of orders from our key customers or the loss of one or more key customers could significantly reduce our net revenue and results of operations. We cannot assure you that our current customers will continue to place orders with us, that orders by existing customers will continue at current or historical levels or that we will be able to obtain orders from new customers.

Because of the lengthy sales cycles of many of our products, we may incur significant expenses before we generate any revenue related to those products.

Our customers generally need six months or longer to test and evaluate our products and an additional six months or more to begin volume production of equipment that incorporates our products. These lengthy periods also increase the possibility that a customer may decide to cancel or change product plans, which could reduce or eliminate sales to that customer. As a result of this lengthy sales cycle, we may incur significant research and development and selling, general and administrative expenses before we generate any revenue from new products. We may never generate the anticipated revenue if our customers cancel or change their product plans as customers may increasingly do if economic conditions continue to deteriorate.

Substantial sales of the shares of our common stock issuable upon conversion of our convertible senior notes or exercise of our outstanding warrant and antidilution and other provisions in our outstanding warrant, or substantial sales of the shares of our common stock issued in connection with the picoChip acquisition could adversely affect our stock price or our ability to raise additional financing in the public capital markets.

At March 30, 2012, we had $15.0 million aggregate principal amount of convertible senior notes outstanding. These notes are convertible at any time, at the option of the holder, into a total of approximately 3.2 million shares of common stock. In connection with the acquisition of picoChip, we issued an aggregate of approximately 5.2 million shares of our common stock to the stockholders of picoChip, which cannot be transferred for six months from the closing date of February 6, 2012. The conversion of the notes and subsequent sale of a substantial number of shares of our common stock related to the notes or the sale of a substantial number of the picoChip acquisition shares could also adversely affect demand for, and the market price of, our common stock. Each of these transactions could adversely affect our ability to raise additional financing by issuing equity or equity-based securities in the public capital markets.

A warrant is outstanding to acquire approximately 6.1 million shares of our common stock at a price of $16.74 per share, as adjusted, exercisable through June 27, 2013, representing approximately 13% of our outstanding common stock on a fully diluted basis. The warrant may be transferred or sold in whole or part at any time. If the warrant holder sells the warrant or if it or a transferee of the warrant exercises the warrant and sells a substantial number of shares of our common stock in the future, or if investors perceive that these sales may occur, the market price of our common stock could decline or market demand for our common stock could be sharply reduced.

The warrant contains antidilution provisions that provide for adjustment of the warrant’s exercise price, and the number of shares issuable under the warrant, upon the occurrence of certain events. If we issue, or are deemed to have issued, shares of our common stock, or securities convertible into our common stock, at prices below the current market price of our common stock (as defined in the warrant) at the time of the issuance of such securities, the warrant’s exercise price will be reduced and the number of shares issuable under the warrant will be increased. The amount of such adjustment, if any, will be determined pursuant to a formula specified in the warrant and will depend on the number of shares issued, the offering price and the current market price of our common stock at the time of the issuance of such securities. Adjustments to the warrant pursuant to these antidilution provisions may result in significant dilution to the interests of our existing stockholders and may adversely affect the market price of our common stock. The antidilution provisions may also limit our ability to obtain additional financing on terms favorable to us.

Moreover, we may not realize any cash proceeds from the exercise of the warrant. The holder of the warrant may opt for a cashless exercise of all or part of the warrant. In a cashless exercise, the holder of the warrant would make no cash payment to us, and would receive a number of shares of our common stock having an aggregate value equal to the excess of the then-current market price of the shares of our common stock issuable upon exercise of the warrant over the exercise price of the warrant. Such an issuance of common stock would be immediately dilutive to the interests of other stockholders.

We are subject to the risks of doing business internationally.

A significant part of our strategy involves our continued pursuit of growth opportunities in a number of international markets. We market, sell, design and service our products internationally. Products shipped to international destinations, primarily in the Asia-Pacific region and Europe, were approximately 83% of our net revenue for the first six months of fiscal 2012. China is a particularly important international market for us, as approximately 35% of our revenue for the first six months of fiscal 2012 came from customers in China. In addition, we have design centers, customer support centers and rely on suppliers, located outside the U.S., including foundries and assembly and test service providers located in the Asia-Pacific region. We intend to continue to expand our international business activities and may open other design centers and customer support centers abroad. Our international sales and operations are subject to a number of risks inherent in selling and operating abroad which could adversely impact our international sales and could make our international operations more expensive. These include, but are not limited to, risks regarding:

 

   

currency exchange rate fluctuations;

 

   

local economic and political conditions;

 

   

difficulties in staffing and managing foreign operations;

 

   

potential hostilities and changes in diplomatic and trade relationships;

 

   

tax laws;

 

   

natural disasters, including earthquakes or flooding;

 

   

restrictive governmental actions (such as restrictions on the transfer or repatriation of funds and trade protection measures, including export duties and quotas and customs duties and tariffs);

 

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changes in legal or regulatory requirements;

 

   

difficulty in obtaining distribution and support;

 

   

disruptions of capital and trading markets;

 

   

acts of terrorism;

 

   

wage inflation;

 

   

accounts receivable collection and longer payment cycles;

 

   

the laws and policies of the U.S. and other countries affecting trade, foreign investment and loans and import or export licensing requirements;

 

   

existing or future environmental laws and regulations governing, among other things, air emissions, wastewater discharges, the contents of our products, the use, handling and disposal of hazardous substances and wastes, soil and groundwater contamination and employee health and safety;

 

   

limitations on our ability under local laws to protect our intellectual property; and

 

   

cultural differences in the conduct of business.

Because most of our international sales are currently denominated in U.S. dollars, our products could become less competitive in international markets if the value of the U.S. dollar increases relative to foreign currencies. As we continue to shift a portion of our operations offshore, more of our expenses are incurred in currencies other than those in which we bill for the related services. An increase in the value of certain currencies, such as the Euro, Japanese yen, Ukrainian hryvnia and Indian rupee, against the U.S. dollar could increase costs of our offshore operations by increasing labor and other costs that are denominated in local currencies.

We may in the future enter into foreign currency forward exchange contracts to mitigate the risk of loss from currency exchange rate fluctuations for foreign currency commitments entered into in the ordinary course of business. We do not enter into foreign currency forward exchange contracts for other purposes. Our financial condition and results of operations could be adversely affected by currency fluctuations.

We may be subject to claims, or we may be required to defend and indemnify customers against claims, of infringement of third-party intellectual property rights or demands that we, or our customers, license third-party technology, which could result in significant expense.

The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights. From time to time, third parties have asserted and may in the future assert patent, copyright, trademark and other intellectual property rights against technologies that are important to our business. The resolution or compromise of any litigation or other legal process to enforce such alleged third party rights, including claims arising through our contractual indemnification of our customers, or claims challenging the validity of our patents, regardless of its merit or resolution, could be costly and divert the efforts and attention of our management and technical personnel.

We may not prevail in any such litigation or other legal process or we may compromise or settle such claims because of the complex technical issues and inherent uncertainties in intellectual property disputes and the significant expense in defending such claims. If litigation or other legal process results in adverse rulings, we may be required to:

 

   

pay substantial damages for past, present and future use of the infringing technology;

 

   

cease the manufacture, use or sale of infringing products;

 

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discontinue the use of infringing technology;

 

   

expend significant resources to develop non-infringing technology;

 

   

pay substantial damages to our customers or end users to discontinue use or replace infringing technology with non-infringing technology;

 

   

license technology from the third party claiming infringement, which license may not be available on commercially reasonable terms, or at all; or

 

   

relinquish intellectual property rights associated with one or more of our patent claims, if such claims are held invalid or otherwise unenforceable.

If we are not successful in protecting our intellectual property rights, it may harm our ability to compete.

We rely primarily on patent, copyright, trademark and trade secret laws, as well as employee and third-party nondisclosure and confidentiality agreements and other methods, to protect our proprietary technologies and processes. We may be required to engage in litigation to enforce or protect our intellectual property rights, which may require us to expend significant resources and to divert the efforts and attention of our management from our business operations; in particular:

 

   

the steps we take to prevent misappropriation or infringement of our intellectual property may not be successful;

 

   

any existing or future patents may be challenged, invalidated or circumvented; or

 

   

the measures described above may not provide meaningful protection.

Despite the preventive measures and precautions that we take, a third party could copy or otherwise obtain and use our technology without authorization, develop similar technology independently or design around our patents. We generally enter into confidentiality agreements with our employees, consultants and strategic partners. We also try to control access to and distribution of our technologies, documentation and other proprietary information. Despite these efforts, internal or external parties may attempt to copy, disclose, obtain or use our products, services or technology without our authorization. Also, former employees may seek employment with our business partners, customers or competitors, and the confidential nature of our proprietary information may not be maintained in the course of such future employment. Further, in some countries outside the U.S., patent protection is not available or not reliably enforced. Some countries that do allow registration of patents do not provide meaningful redress for patent violations. As a result, protecting intellectual property in those countries is difficult and competitors may sell products in those countries that have functions and features that infringe on our intellectual property.

We may not be able to attract and retain qualified personnel necessary for the design, development, sale and support of our products. Our success could be negatively affected if key personnel leave.

Our future success depends on our ability to attract, retain and motivate qualified personnel, including executive officers and other key management, technical and support personnel. As the source of our technological and product innovations, our key technical personnel represent a significant asset. The competition for such personnel can be intense in the semiconductor industry. We may not be able to attract and retain qualified management and other personnel necessary for the design, development, sale and support of our products.

In periods of poor operating performance, we have experienced, and may experience in the future, particular difficulty attracting and retaining key personnel. If we are not successful in assuring our employees of our financial stability and our prospects for success, our employees may seek other employment, which may materially and adversely affect our business. We intend to continue to expand our international business activities including expansion of design and operations centers abroad and may have difficulty attracting and maintaining international employees. The loss of the services of one or more of our key employees, including Raouf Y. Halim, our chief executive officer, or certain key design and technical personnel, or our inability to attract, retain and motivate qualified personnel could have a material adverse effect on our ability to operate our business.

 

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Some of our engineers are foreign nationals working in the U.S. under work visas. The visas permit qualified foreign nationals working in specialty occupations, such as certain categories of engineers, to reside in the U.S. during their employment. The number of new visas approved each year may be limited and may restrict our ability to hire additional qualified technical employees. In addition, immigration policies are subject to change, and these policies have generally become more stringent since the events of September 11, 2001. Any additional significant changes in immigration laws, rules or regulations may further restrict our ability to retain or hire technical personnel.

We may make business acquisitions or investments, which involve significant risk.

In addition to the acquisition of picoChip, we may, from time to time, make acquisitions, enter into alliances or make investments in other businesses to complement our existing product offerings, augment our market coverage or enhance our technological capabilities. However, any such transactions could result in:

 

   

issuances of equity securities dilutive to our existing stockholders;

 

   

substantial cash payments;

 

   

the incurrence of substantial debt and assumption of unknown liabilities;

 

   

large one-time write-offs;

 

   

amortization expenses related to intangible assets;

 

   

a limitation on our ability to use our net operating loss carryforwards;

 

   

the diversion of management’s time and attention from operating our business to acquisition integration challenges;

 

   

adverse tax consequences; and

 

   

the potential loss of key employees, customers and suppliers of the acquired business.

Additionally, in periods subsequent to an acquisition, we must evaluate goodwill and acquisition-related intangible assets for impairment. If such assets are found to be impaired, they will be written down to estimated fair value, with a charge against earnings.

Integrating acquired organizations and their products and services may be expensive, time-consuming and a strain on our resources and our relationships with employees, customers and suppliers, and ultimately may not be successful. The benefits or synergies we may expect from the acquisition of complementary or supplementary businesses may not be realized to the extent or in the time frame we initially anticipate. Some of the risks that may affect our ability to successfully integrate acquired companies include those associated with:

 

   

failure to successfully further develop the acquired products or technology;

 

   

conforming the acquired company’s standards, policies, processes, procedures and controls with our operations;

 

   

coordinating new product and process development, especially with respect to highly complex technologies;

 

   

loss of key employees or customers of the acquired company;

 

   

hiring additional management and other critical personnel;

 

   

in the case of foreign acquisitions, the need to integrate operations across different cultures and languages and to address the particular economic, currency, political and regulatory risks associated with specific countries;

 

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increasing the scope, geographic diversity and complexity of our operations;

 

   

consolidation of facilities, integration of the acquired company’s accounting, human resource and other administrative functions and coordination of product, engineering and sales and marketing functions;

 

   

the geographic distance between the companies;

 

   

liability for activities of the acquired company before the acquisition, including patent and trademark infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities; and

 

   

litigation or other claims in connection with the acquired company, including claims for terminated employees, customers, former stockholders or other third parties.

Uncertainties involving the ordering and shipment of our products could adversely affect our business.

Our sales are typically made pursuant to individual purchase orders and we generally do not have long-term supply arrangements with our customers. Generally, our customers may cancel orders until 30 days prior to shipment. In addition, we sell a substantial portion of our products through distributors, some of whom have a right to return unsold products to us. Sales to distributors accounted for approximately 63% of our revenue for the first six months of fiscal 2012.

Because of the significant lead times for wafer fabrication and assembly and test services, we routinely purchase inventory based on estimates of end-market demand for our customers’ products. End-market demand may be subject to dramatic changes and is difficult to predict. End-market demand is highly influenced by the timing and extent of carrier capital expenditures which may decrease due to general economic conditions, and uncertainty, over which we have no control. The difficulty in predicting demand may be compounded when we sell to OEMs indirectly through distributors or contract manufacturers, or both, as our forecasts of demand are then based on estimates provided by multiple parties. In addition, our customers may change their inventory practices on short notice for any reason. The cancellation or deferral of product orders, the return of previously sold products or overproduction due to the failure of anticipated orders to materialize could result in our holding excess or obsolete inventory, which could result in write-downs of inventory. Conversely, if we fail to anticipate inventory needs we may be unable to fulfill demand for our products, resulting in a loss of potential revenue.

If network infrastructure OEMs do not design our products into their equipment, we will be unable to sell those products. Moreover, a design win from a customer does not guarantee future sales to that customer.

Our products are not sold directly to the end-user but are components of other products. As a result, we rely on network infrastructure OEMs to select our products from among alternative offerings to be designed into their equipment. We may be unable to achieve these “design wins.” Without design wins from OEMs, we would be unable to sell our products. Once an OEM designs another supplier’s semiconductors into one of its product platforms, it is more difficult for us to achieve future design wins with that OEM’s product platform because changing suppliers involves significant cost, time, effort and risk for the OEM. Achieving a design win with a customer does not ensure that we will receive significant revenue from that customer, and we may be unable to convert design wins into actual sales. Even after a design win, the customer is not obligated to purchase our products and can choose at any time to stop using our products if, for example, its own products are not commercially successful.

The complexity of our products may lead to errors, defects and/or bugs, each of which could subject us to significant costs or damages and adversely affect market acceptance of our products.

Although we, our customers and our suppliers rigorously test our products, our products are complex and may contain errors, defects or bugs when first introduced or as new versions are released. We have in the past experienced, and may in the future experience, errors, defects and bugs. If any of our products contain production defects or reliability, safety, quality or compatibility problems that are significant to our customers, our reputation

 

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may be damaged and customers may be reluctant to buy our products, which could adversely affect our ability to retain existing customers and attract new customers. In addition, these defects or bugs could interrupt or delay sales of affected products to our customers, which could adversely affect our results of operations.

If defects or bugs are discovered after commencement of commercial production of a new product, we may be required to make significant expenditures of capital and other resources to resolve the problems. This could result in significant additional development costs and the diversion of technical and other resources from our other development efforts. We could also incur significant costs to repair or replace defective products, and we could be subject to claims for damages by our customers or others against us. We could also be exposed to product liability claims or indemnification claims by our customers. These costs or damages could have a material adverse effect on our financial condition and results of operations.

Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.

As of September 30, 2011, we had net operating loss carryforwards of approximately $629.4 million for federal income tax purposes. Furthermore, we acquired additional net operating loss carryforwards upon the acquisition of picoChip. As of December 31, 2010, picoChip had net operating loss carryforwards for U.S. federal and California income tax purposes of $1.1 million each and for U.K. corporation tax purposes of $22.8 million. Under Section 382 of the Internal Revenue Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income may be significantly limited. An ownership change is generally defined as a greater than 50% change in equity ownership by value over a three-year period. In August 2009, our board of directors adopted a stockholders’ rights agreement that is designed to help preserve our ability to utilize fully certain tax assets primarily associated with net operating loss carryforwards under Section 382 of the Internal Revenue Code. Even with this rights agreement in place, we may experience an ownership change in the future as a result of shifts in our stock ownership, including upon the issuance of our common stock, the exercise of stock options or warrants or as a result of any conversion of our convertible notes into shares of our common stock, among other things. If we were to trigger an ownership change in the future, our ability to use any net operating loss carryforwards existing at that time could be significantly limited.

Our results of operations could vary as a result of the methods, estimates and judgments we use in applying our accounting policies.

The methods, estimates and judgments we use in applying our accounting policies have a significant impact on our results of operations (see “Critical Accounting Policies and Estimates” in Part I, Item 2 of this Quarterly Report on Form 10-Q). Such methods, estimates and judgments are, by their nature, subject to substantial risks, uncertainties and assumptions, and changes in rule making by various regulatory bodies. Factors may arise over time that lead us to change our methods, estimates and judgments. Changes in those methods, estimates and judgments could significantly affect our results of operations.

Provisions in our organizational documents and stockholders rights agreements and Delaware law will make it more difficult for someone to acquire control of us.

Our restated certificate of incorporation, our amended and restated bylaws, our stockholders rights agreements and the Delaware General Corporation Law contain several provisions that would make more difficult an acquisition of control of us in a transaction not approved by our board of directors. Our restated certificate of incorporation and amended and restated bylaws include provisions such as:

 

   

the division of our board of directors into three classes to be elected on a staggered basis, one class each year;

 

   

the exclusive responsibility of the board of directors to fill vacancies on the board of directors;

 

   

the ability of our board of directors to issue shares of our preferred stock in one or more series without further authorization of our stockholders;

 

   

a prohibition on stockholder action by written consent;

 

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a requirement that stockholders provide advance notice of any stockholder nominations of directors or any proposal of new business to be considered at any meeting of stockholders;

 

   

a requirement that a supermajority vote be obtained to remove a director for cause or to amend or repeal certain provisions of our restated certificate of incorporation or amended and restated bylaws;

 

   

elimination of the right of stockholders to call a special meeting of stockholders; and

 

   

a fair price provision.

Our stockholders rights agreements give our stockholders certain rights that would substantially increase the cost of acquiring us in a transaction not approved by our board of directors.

In addition to the stockholders rights agreements and the provisions in our restated certificate of incorporation and amended and restated bylaws, Section 203 of the Delaware General Corporation Law generally provides that a corporation shall not engage in any business combination with any interested stockholder during the three-year period following the time that such stockholder becomes an interested stockholder, unless a majority of the directors then in office approves either the business combination or the transaction that results in the stockholder becoming an interested stockholder or specified stockholder approval requirements are met.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

 

     Total Number
of Shares
(or Units)
Purchased (a)
     Average Price
Paid per  Share
(or Unit)
 

December 31, 2011 to January 27, 2012

     —         $ —     

January 28, 2012 to February 24, 2012

     42,037         6.45   

February 25, 2012 to March 30, 2012

     5,830         6.94   
  

 

 

    

 

 

 
     47,867       $ 6.51   
  

 

 

    

 

 

 

 

(a) Represents shares of our common stock withheld from, or delivered by, employees in order to satisfy applicable tax withholding obligations in connection with the vesting of restricted stock. These repurchases were not made pursuant to any publicly announced plan or program.

I TEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

 

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ITEM 6. EXHIBITS

 

*†2.1

   Agreement and Plan of Merger, dated January 5, 2012, by and among the Registrant, Platinum Acquisition U.K. Limited, Platinum Acquisition Corporation, Picochip, LLC (formerly known as picoChip Inc.), Mindspeed Technologies U.K., Limited (formerly known as Picochip Ltd.) and Shareholder Representative Services LLC, as the stockholder representative.

    3.1

   Restated Certificate of Incorporation of the Registrant, filed as Exhibit 4.1 to the Registrant’s Registration Statement on Form S-3 (Registration Statement No. 333-106146), is incorporated herein by reference.

    3.2

   Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant, filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K dated July 1, 2008, is incorporated herein by reference (SEC File No. 001-31650).

    3.3

   Certificate of Designation of Series B Junior Participating Preferred Stock, filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K dated August 9, 2009, is incorporated herein by reference (SEC File No. 001-31650).

    3.4

   Amended and Restated Bylaws of the Registrant, filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K dated May 27, 2011, is incorporated herein by reference (SEC File No. 000-31650).

    4.1

   Specimen Certificate for the Registrant’s Common Stock, par value $.01 per share, filed as Exhibit 4.1 to the Registrant’s Registration Statement on Form S-8 dated April 6, 2011, is incorporated herein by reference (SEC File No. 333-173328).

    4.2

   Rights Agreement dated as of June 26, 2003, by and between the Registrant and Mellon Investor Services LLC, as Rights Agent, filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated July 1, 2003, is incorporated herein by reference (SEC File No. 001-31650).

    4.3

   First Amendment to Rights Agreement, dated as of December 6, 2004, by and between the Registrant and Mellon Investor Services LLC, filed as Exhibit 4.4 to the Registrant’s Current Report on Form 8-K dated December 2, 2004, is incorporated herein by reference (SEC File No. 001-31650).

    4.4

   Second Amendment to Rights Agreement, dated as of June 16, 2008, by and between the Registrant and Mellon Investor Services LLC, filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated June 11, 2008, is incorporated herein by reference (SEC File No. 000-50499).

    4.5

   Section 382 Rights Agreement, dated as of August 9, 2009, between the Registrant and Mellon Investor Services LLC, filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated August 10, 2009, is incorporated herein by reference (SEC File No. 001-31650).

    4.6

   Common Stock Purchase Warrant dated June 27, 2003, issued by the Registrant to Conexant Systems, Inc., filed as Exhibit 4.5 to the Registrant’s Registration Statement on Form S-3 (Registration Statement No. 333-109523), is incorporated herein by reference.

    4.7

   Registration Rights Agreement dated as of June 27, 2003 by and between the Registrant and Conexant Systems, Inc., filed as Exhibit 4.6 to the Registrant’s Registration Statement on Form S-3 (Registration Statement No. 333-109523), is incorporated herein by reference.

    4.8

   Indenture, dated as of August 1, 2008, between the Registrant and Wells Fargo Bank, N.A., filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated August 4, 2008, is incorporated herein by reference (SEC File No. 001-31650).

    4.9

   Form of 6.50% Convertible Senior Notes due 2013, attached as Exhibit A to the Indenture (Exhibit 4.8 hereto), is incorporated herein by reference.

    4.10

   Declaration of Registration Rights, dated February 6, 2012, from the Registrant.

+10.1

   Mindspeed Technologies, Inc. Employee Stock Purchase Plan, as amended and restated, filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated February 3, 2012, is incorporated herein by reference (SEC File No. 001-31650).

  10.2

   Voting Agreement, dated January 5, 2012, by and among the Registrant, Picochip, LLC (formerly known as picoChip Inc.) and certain stockholders listed on the signature pages thereto.

 

52


Table of Contents

      †10.3

   Loan and Security Agreement, dated February 6, 2012, by and between Silicon Valley Bank and the Registrant.

        10.4

   Escrow Agreement, dated February 6, 2012, by and among the Registrant, Platinum Acquisition (UK) Limited, Shareholder Representative Services LLC and Computershare Trust Company, N.A.

      +10.5

   Mindspeed Technologies, Inc. Inducement Incentive Plan filed as Exhibit 4.10 to the Registrant’s Registration Statement on Form S-8 (Registration Statement No. 333-180593), is incorporated herein by reference.

      +10.6

   Restricted Stock Terms and Conditions under the Mindspeed Technologies, Inc. Inducement Incentive Plan.

      +10.7

   Form of Restricted Stock Award under the Mindspeed Technologies, Inc. Inducement Incentive Plan.

      +10.8

   Restricted Stock Terms and Conditions for International Employees under the Mindspeed Technologies, Inc. Inducement Incentive Plan.

      +10.9

   Form of Restricted Stock United Kingdom Award under the Mindspeed Technologies, Inc. Inducement Incentive Plan.

        31.1

   Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

        31.2

   Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

    **32.1

   Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

    **32.2

   Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

***101.INS

   XBRL Instance Document

***101.SCH

   XBRL Taxonomy Extension Schema Document

***101.CAL

   XBRL Taxonomy Extension Calculation Linkbase Document

***101.LAB

   XBRL Taxonomy Extension Label Linkbase Document

***101.PRE

   XBRL Taxonomy Extension Presentation Linkbase Document

 

* The schedules (and similar attachments) in this exhibit have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. A list of omitted schedules (and similar attachments) is contained in the agreement. The Registrant agrees to furnish a supplemental copy of any omitted schedule (or similar attachment) to the SEC upon request.
** In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.
*** Pursuant to applicable securities laws and regulations, the Registrant is deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and are not subject to liability under any anti-fraud provisions of the federal securities laws as long as the Registrant has made a good faith attempt to comply with the submission requirements and promptly amend the interactive data files after becoming aware that the interactive data files fail to comply with the submission requirements. Users of this data are advised that, pursuant to Rule 406T, these interactive data files are deemed not filed and otherwise are not subject to liability.
Certain confidential portions of this exhibit have been omitted pursuant to a request for confidential treatment. Omitted portions have been filed separately with the SEC.
+ Management contract or compensatory arrangement.

 

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

MINDSPEED TECHNOLOGIES, INC.

(Registrant)

Date: May 8, 2012   By  

/s/ STEPHEN N. ANANIAS

    Stephen N. Ananias
   

Senior Vice President and

Chief Financial Officer

    (principal financial and accounting officer)

 

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Table of Contents

EXHIBIT INDEX

 

      *†2.1

   Agreement and Plan of Merger, dated January 5, 2012, by and among the Registrant, Platinum Acquisition U.K. Limited, Platinum Acquisition Corporation, Picochip, LLC (formerly known as picoChip Inc.), Mindspeed Technologies U.K., Limited (formerly known as Picochip Ltd.) and Shareholder Representative Services LLC, as the stockholder representative.

          4.10

   Declaration of Registration Rights, dated February 6, 2012, from the Registrant.

        10.2

   Voting Agreement, dated January 5, 2012, by and among the Registrant, Picochip, LLC (formerly known as picoChip Inc.) and certain stockholders listed on the signature pages thereto.

      †10.3

   Loan and Security Agreement, dated February 6, 2012, by and between Silicon Valley Bank and the Registrant.

        10.4

   Escrow Agreement, dated February 6, 2012, by and among the Registrant, Platinum Acquisition (UK) Limited, Shareholder Representative Services LLC and Computershare Trust Company, N.A.

      +10.6

   Restricted Stock Terms and Conditions under the Mindspeed Technologies, Inc. Inducement Incentive Plan.

      +10.7

   Form of Restricted Stock Award under the Mindspeed Technologies, Inc. Inducement Incentive Plan.

      +10.8

   Restricted Stock Terms and Conditions for International Employees under the Mindspeed Technologies, Inc. Inducement Incentive Plan.

      +10.9

   Form of Restricted Stock United Kingdom Award under the Mindspeed Technologies, Inc. Inducement Incentive Plan.

        31.1

   Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

        31.2

   Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

    **32.1

   Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

    **32.2

   Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

***101.INS

   XBRL Instance Document

***101.SCH

   XBRL Taxonomy Extension Schema Document

***101.CAL

   XBRL Taxonomy Extension Calculation Linkbase Document

***101.LAB

   XBRL Taxonomy Extension Label Linkbase Document

***101.PRE

   XBRL Taxonomy Extension Presentation Linkbase Document

 

* The schedules (and similar attachments) in this exhibit have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. A list of omitted schedules (and similar attachments) is contained in the agreement. The Registrant agrees to furnish a supplemental copy of any omitted schedule (or similar attachment) to the SEC upon request.
** In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.
*** Pursuant to applicable securities laws and regulations, the Registrant is deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and are not subject to liability under any anti-fraud provisions of the federal securities laws as long as the Registrant has made a good faith attempt to comply with the submission requirements and promptly amend the interactive data files after becoming aware that the interactive data files fail to comply with the submission requirements. Users of this data are advised that, pursuant to Rule 406T, these interactive data files are deemed not filed and otherwise are not subject to liability.
Certain confidential portions of this exhibit have been omitted pursuant to a request for confidential treatment. Omitted portions have been filed separately with the SEC.
+ Management contract or compensatory arrangement.

 

55

XNAS:MSPD Quarterly Report 10-Q Filling

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