MSPD Mindspeed Technologies, Inc. (MM)

Mindspeed Technologies, Inc. (NASDAQ: MSPD), a leading supplier of semiconductor solutions for network infrastructure applications, today reported results for its fiscal fourth quarter of 2010, which ended on October 1, 2010.

Fiscal Fourth Quarter 2010 Financial Highlights:

• Total Revenue: $57.6 million, including patent sales of $12.8 million; excluding patent sales, product revenue was $44.8 million, up 3.6 percent from the prior fiscal quarter.
• Non-GAAP Gross Margin: 71.4 percent; excluding patent sales, non-GAAP gross margin was 64.0 percent; GAAP Gross Margin: 71.3 percent.
• Non-GAAP Diluted Earnings per Share: $0.46; excluding patent sales, non-GAAP diluted earnings per share was $0.19; GAAP Diluted Earnings per Share: $0.38.
• Generated approximately $9.6 million of cash; the company ended the fiscal fourth quarter of 2010 with cash totaling $43.7 million.

Revenues for the fiscal fourth quarter of 2010 were $57.6 million. Excluding patent sales of $12.8 million, product revenues were $44.8 million and increased sequentially by 3.6 percent from product revenues of $43.3 million in the prior fiscal quarter and increased year-over-year by 29 percent from revenues of $34.7 million in the fiscal fourth quarter of 2009.

Product revenues from communications convergence processing solutions, formerly known as multiservice access, contributed 43 percent of fiscal fourth quarter of 2010 product revenues and increased 6 percent sequentially from the prior fiscal quarter. Product revenues from high-performance analog products increased 4 percent sequentially from the prior fiscal quarter and represented 33 percent of product revenues. Wide area networking communications product revenues contributed the remaining 24 percent of fiscal fourth quarter of 2010 product revenues and decreased 1 percent sequentially from the prior fiscal quarter.

The company’s non-GAAP gross margin for the fiscal fourth quarter of 2010 was $41.1 million, including the net effect of patent sales of $12.4 million. Excluding the net effect of patent sales, non-GAAP gross margin was $28.7 million, or 64.0 percent of revenues. This is compared to the company’s non-GAAP gross margin of $27.8 million, or 64.3 percent of revenues, for the prior fiscal quarter. Presented on a GAAP basis, gross margin for the fiscal fourth quarter of 2010 was $41.1 million, compared to $27.8 million in the prior fiscal quarter.

Total non-GAAP operating expenses for the fiscal fourth quarter of 2010 were $24.1 million, including $2.3 million of operating expenses associated with patent sales. Excluding operating expenses associated with patent sales, non-GAAP operating expenses were $21.8 million, up $0.3 million sequentially from $21.5 million in the prior fiscal quarter. Total GAAP operating expenses for the fiscal fourth quarter of 2010 were $27.1 million, compared to $22.7 million in the prior fiscal quarter.

Non-GAAP operating income for the fiscal fourth quarter of 2010 was $17.0 million, including $10.1 million of net effect from patent sales. Excluding patent sales and associated expenses, non-GAAP operating income was $6.9 million, compared to non-GAAP operating income of $6.3 million for the prior fiscal quarter. On a GAAP basis, operating income for the fiscal fourth quarter of 2010 was $14.0 million, compared to $5.0 million in the prior fiscal quarter.

Non-GAAP other income and expenses and the provision for income taxes for the fiscal fourth quarter of 2010 totaled a net expense of approximately $0.6 million, including $0.2 million for the provision for income taxes, which consisted primarily of income tax related to income from patent sales.

The company’s non-GAAP net income for the fiscal fourth quarter of 2010 was $16.4 million, or $0.46 per share, including $10.0 million of net effect from patent sales. Excluding patent sales and associated expenses, non-GAAP net income was $6.4 million, or $0.19 per share, compared to non-GAAP net income for the prior fiscal quarter of $6.2 million, or $0.18 per share. Presented on a GAAP basis, the company’s net income was $13.2 million, or $0.38 per share, compared to $4.9 million, or $0.15 per share, in the prior fiscal quarter. All GAAP net income and earnings per share results include stock-based compensation and related payroll costs, asset impairment charges and special charges, among other items. Reconciliations of the non-GAAP measures to GAAP measures are included in the accompanying financial data.

In the fiscal fourth quarter of 2010, the company generated approximately $9.6 million of cash. The company ended the quarter with cash totaling $43.7 million, up from $34.1 million at the end of the prior fiscal quarter.

Commentary

“The fiscal fourth quarter was another great quarter of execution for Mindspeed. It marked the sixth quarter of sequential revenue growth and concluded a fiscal year for Mindspeed in which we grew product revenue 36 percent and delivered record profitability. Looking forward to fiscal 2011, we expect to continue expanding our market leading positions in fiber optic access and high-performance analog, as well as to continue our design win traction with our newest initiative into the fast growing 3G/4G wireless infrastructure market,” said Raouf Y. Halim, Mindspeed’s chief executive officer.

Outlook

Mindspeed expects fiscal first quarter of 2011 revenues to decline between 8 and 10 percent, or to approximately $41.2 million to $40.3 million, from the fiscal fourth quarter of 2010, excluding $2.5 million in expected patent sales in the fiscal first quarter of 2011 and $12.8 million in patent sales in the fiscal fourth quarter of 2010. The company expects fiscal first quarter of 2011 non-GAAP gross margin to be approximately 62.0 to 62.5 percent, excluding patent sales. The company also expects non-GAAP operating expenses to be approximately $23.0 million in the fiscal first quarter of 2011.

Fiscal Fourth Quarter 2010 Conference Call

Mindspeed will conduct a conference call announcing its fourth quarter fiscal 2010 results on Monday, November 1, 2010, at 2:00 p.m. Pacific Time / 5:00 p.m. Eastern Time. To listen to the conference call via telephone, call 800-593-9968 (domestic) or 210-795-2680 (international); password: Mindspeed. To listen via the Internet, please visit the Investors section of Mindspeed's web site at www.mindspeed.com. Replay of the conference call will be available via telephone for a period of 30 days beginning one hour after the conference call concludes by calling 888-566-0497 (domestic) or 402-998-0664 (international). Replay will also be available in the Investors section of Mindspeed’s web site at www.mindspeed.com during such 30 day period.

About Mindspeed Technologies

Mindspeed Technologies, Inc. designs, develops and sells semiconductor solutions for communications applications in the wireline and wireless network infrastructure, which includes today's separate but interrelated and converging enterprise, broadband access, metropolitan and wide area networks. Our products are classified into three focused product families: communications convergence processing, high-performance analog and wide area networking communications. Our products are sold to original equipment manufacturers (OEMs) for use in a variety of network infrastructure equipment, including voice and media gateways, high-speed routers, switches, access multiplexers, cross-connect systems, add-drop multiplexers, digital loop carrier equipment, IP private branch exchanges (PBXs), optical modules, broadcast video systems and wireless basestation equipment.

Safe Harbor Statement

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements include statements regarding the company's expectations, goals or intentions, including but not limited to, statements under the headings “Commentary” and “Outlook” regarding: the company’s planned market share expansion in fiber optic access and high-performance analog; anticipated continued design win success and traction in the 3G/4G wireless infrastructure market; and expected levels of revenues, gross margin and operating expenses. These forward-looking statements are based on management's current expectations, estimates, forecasts and projections about the company and are subject to risks and uncertainties that could cause actual results and events to differ materially from those stated in the forward-looking statements. These risks and uncertainties include, but are not limited to: fluctuations in our operating results and future operating losses; worldwide political and economic uncertainties and specific conditions in the markets we address; constraints in the supply of wafers and other product components from our third-party manufacturers; fluctuations in the price of our common stock; cash requirements and terms and availability of financing; loss of or diminished demand from one or more key customers or distributors; our ability to attract and retain qualified personnel; doing business internationally and our ability to successfully and cost effectively establish and manage operations in foreign jurisdictions; pricing pressures and other competitive factors; successful development and introduction of new products; lengthy sales cycles; order and shipment uncertainty; our ability to obtain design wins and develop revenues from them; the expense of and our ability to defend our intellectual property against infringement claims by others; product defects and bugs; business acquisitions and investments; and our ability to utilize our net operating loss carryforwards and certain other tax attributes. Risks and uncertainties that could cause the company's actual results to differ from those set forth in any forward-looking statement are discussed in more detail under "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the company's Quarterly Report on Form 10-Q for the quarter ended July 2, 2010, as well as similar disclosures in the company's subsequent SEC filings. Forward-looking statements contained in this press release are made only as of the date hereof, and the company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

  MINDSPEED TECHNOLOGIES, INC.   Consolidated Condensed Statements of Operations

(unaudited, in thousands, except per share amounts)

          Three months ended Year ended October 1, July 2, October 2, October 1, October 2, 2010 2010 2009 2010 2009 (As Adjusted)(*) (As Adjusted)(*) Net revenues: Product $ 44,819 $ 43,281 $ 34,743 $ 165,379 $ 121,552 Intellectual property   12,800     —     —     12,800     5,000   Total net revenues   57,619     43,281     34,743     178,179     126,552   Cost of goods sold: Cost of goods sold, excluding asset impairments (a)(b) 16,543 15,501 13,084 59,840 46,314 Asset impairments (c)   —     —     —     —     3,667   Total cost of goods sold (a)(b)(c)   16,543     15,501     13,084     59,840     49,981     Gross margin 41,076 27,780 21,659 118,339 76,571   Operating expenses: Research and development (a) 13,889 12,669 12,109 51,367 50,650 Selling, general and administrative (a) 11,247 10,147 9,877 41,419 41,582 Special charges (d)   1,974     (79 )   —     2,684     6,896   Total operating expenses   27,110     22,737     21,986     95,470     99,128     Operating income/(loss) 13,966 5,043 (327 ) 22,869 (22,557 )   Other expense, net   (499 )   (73 )   (910 )   (1,393 )   (2,075 )   Income/(loss) before income taxes 13,467 4,970 (1,237 ) 21,476 (24,632 )   Provision for income taxes   241     106     93     406     482     Net income/(loss) $ 13,226   $ 4,864   $ (1,330 ) $ 21,070   $ (25,114 )   Net income/(loss) per share: Basic $ 0.42 $ 0.15 $ (0.05 ) $ 0.70 $ (1.04 ) Diluted (e) $ 0.38 $ 0.15 $ (0.05 ) $ 0.65 $ (1.04 )   Weighted-average number of shares

used in per share computation:

Basic 31,697 31,481 26,024 30,260 24,156 Diluted 35,965 36,075 26,024 34,579 24,156  

(*) On October 3, 2009, the Company adopted FASB ASC 470-20 for the accounting of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlements). In accordance with this standard, our prior period financial statements have been adjusted to record a debt discount for the conversion feature and the subsequent amortization to interest expense. The associated increase in our net loss for the three and twelve months ended October 2, 2009 was $0.4 million and $3.1 million, respectively. The increase in our net loss in the first twelve months of fiscal 2009 represents both amortization of the debt discounts as well as a reduction in the gain we recorded on our debt extinguishments.

(a) Includes stock-based compensation expense and related payroll costs.

(b) Cost of goods sold includes the favorable effect of sales of certain inventories written down to a zero cost basis during fiscal 2001. The favorable effect of such sales, by quarter, was approximately $0.1 million (October 2010), $0.2 million (July 2010) and $0.2 million (October 2009). For the twelve months ended October 1, 2010 and October 2, 2009, the favorable effect of such sales was $1.2 million and $1.5 million.

(c) Asset impairments include the write-down of the carrying value of technology developed by Ample Communications, Inc., which was previously acquired by the company ($2.3 million), certain Ample related inventory ($1.0 million) and certain manufacturing related fixed assets ($0.3 million).

(d) Special charges consists of tangible and intangible asset impairments and restructuring charges.

(e) In accordance with FASB ASC 260, since shares related to the potential conversion of our convertible debt are included in the third quarter of fiscal 2010, fourth quarter of fiscal 2010 and fiscal year 2010 diluted shares, interest expense associated with the convertible debt has been added back to net income for the purpose of calculating diluted earnings per share.

MINDSPEED TECHNOLOGIES, INC.

 

Reconciliation of Non-GAAP Measures to GAAP Measures

(unaudited, in thousands, except per share amounts)   Three months ended Year ended October 1,   July 2,   October 2, October 1,   October 2, 2010 2010 2009 2010 2009 (As Adjusted)(*) (As Adjusted)(*) Reconciliation of Non-GAAP Gross Margin

to GAAP Gross Margin

Non-GAAP gross margin $ 41,121 $ 27,824 $ 21,687 $ 118,498 $ 80,489 Items excluded from non-GAAP gross margin: Stock-based compensation and related payroll costs 45 44 18 159 86 Amortization of intangible assets (f) — — — — 155 Asset impairments (g) — — — — 3,667 Employee separation costs (h)   —     —     10     —     10   Gross margin $ 41,076   $ 27,780   $ 21,659   $ 118,339   $ 76,571     Reconciliation of Non-GAAP Research and Development Expenses to GAAP Research and Development Expenses Non-GAAP research and development expenses $ 13,599 $ 12,344 $ 11,972 $ 50,218 $ 49,930 Items excluded from non-GAAP research and development expenses: Stock-based compensation and related payroll costs 290 248 114 1,072 767 Employee separation costs (h)   —     77     23     77     (47 ) Research and development expenses $ 13,889   $ 12,669   $ 12,109   $ 51,367   $ 50,650     Reconciliation of Non-GAAP Selling, General and Administrative Expenses to GAAP Selling, General and Administrative Expenses Non-GAAP selling, general and administrative expenses $ 10,490 $ 9,153 $ 9,140 $ 37,969 $ 39,184 Items excluded from non-GAAP selling, general and administrative expenses: Stock-based compensation and related payroll costs 757 735 347 3,177 1,829 Employee separation costs (h) — 159 374 159 360 Legal settlement costs (i) — 100 — 100 — Reverse stock split costs (k) — — — — (19 ) Employee option exchange costs (l)   —     —     16     14     228   Selling, general and administrative expenses $ 11,247   $ 10,147   $ 9,877   $ 41,419   $ 41,582     Reconciliation of Non-GAAP Operating Expenses to GAAP Operating Expenses Non-GAAP operating expenses $ 24,089 $ 21,497 $ 21,112 $ 88,187 $ 89,114 Items excluded from non-GAAP operating expenses: Stock-based compensation and related payroll costs 1,047 983 461 4,249 2,596 Employee separation costs (h) — 236 397 236 313 Legal settlement costs (i) — 100 — 100 — Special charges (j) 1,974 (79 ) — 2,684 6,896 Reverse stock split costs (k) — — — — (19 ) Employee option exchange costs (l)   —     —     16     14     228   Operating expenses $ 27,110   $ 22,737   $ 21,986   $ 95,470   $ 99,128     Reconciliation of Non-GAAP Operating Income/(Loss)

to GAAP Operating Income/(Loss)

Non-GAAP operating income/(loss) $ 17,032 $ 6,327 $ 575 $ 30,311 $ (8,625 ) Items excluded from non-GAAP operating income/(loss): Stock-based compensation and related payroll costs 1,092 1,027 479 4,408 2,682 Amortization of intangible assets (f) — — — — 155 Asset impairments (g) — — — — 3,667 Employee separation costs (h) — 236 407 236 323 Legal settlement costs (i) — 100 — 100 — Special charges (j) 1,974 (79 ) — 2,684 6,896 Reverse stock split costs (k) — — — — (19 ) Employee option exchange costs (l)   —     —     16     14     228   Operating income/(loss) $ 13,966   $ 5,043   $ (327 ) $ 22,869   $ (22,557 )   Reconciliation of Non-GAAP Other Income/(Expense), Net to GAAP Other Expense, Net Non-GAAP other income/(expense), net $ (399 ) $ 26 $ (564 ) $ (861 ) $ (1,733 ) Items excluded from non-GAAP other income/(expense), net: Gain on debt extinguishment (m) — — — — 1,121 Non-cash interest expense on convertible senior notes (n)   (100 )   (99 )   (346 )   (532 )   (1,463 ) Other expense, net $ (499 ) $ (73 ) $ (910 ) $ (1,393 ) $ (2,075 )   Reconciliation of Non-GAAP Net Income/(Loss) to GAAP Net Income/(Loss) Non-GAAP net income/(loss) $ 16,392 $ 6,247 $ (82 ) $ 29,044 $ (10,840 ) Items excluded from non-GAAP net income/(loss): Stock-based compensation and related payroll costs 1,092 1,027 479 4,408 2,682 Amortization of intangible assets (f) — — — — 155 Asset impairments (g) — — — — 3,667 Employee separation costs (h) — 236 407 236 323 Legal settlement costs (i) — 100 — 100 — Special charges (j) 1,974 (79 ) — 2,684 6,896 Reverse stock split costs (k) — — — — (19 ) Employee option exchange costs (l) — — 16 14 228 Gain on debt extinguishment (m) — — — — (1,121 ) Non-cash interest expense on convertible senior notes (n)   100     99     346     532     1,463   Net income/(loss) $ 13,226   $ 4,864   $ (1,330 ) $ 21,070   $ (25,114 )   Reconciliation of Non-GAAP Net Income/(Loss) Per Share to GAAP Net Income/(Loss) Per Share Net income/(loss) per share, basic: Non-GAAP net income/(loss) $ 0.52 $ 0.20 $ (0.00 ) $ 0.96 $ (0.45 ) Adjustments   (0.10 )   (0.05 )   (0.05 )   (0.26 )   (0.59 ) Net income/(loss) $ 0.42   $ 0.15   $ (0.05 ) $ 0.70   $ (1.04 )   Net income per share, diluted: Non-GAAP net income (o) $ 0.46 $ 0.18 $ 0.87 Adjustments   (0.08 )   (0.03 )   (0.22 ) Net income (o) $ 0.38   $ 0.15   $ 0.65  

(*) On October 3, 2009, the Company adopted FASB ASC 470-20 for the accounting of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlements). In accordance with this standard, our prior period financial statements have been adjusted to record a debt discount for the conversion feature and the subsequent amortization to interest expense. The associated increase in our net loss for the three and twelve months ended October 2, 2009 was $0.4 million and $3.1 million, respectively. The increase in our net loss in the first twelve months of fiscal 2009 represents both amortization of the debt discounts as well as a reduction in the gain we recorded on our debt extinguishments.

(f) Amortization of intangible assets reflects amortization expense on purchased intangibles from the acquisition of certain of the assets of Ample in the fourth quarter of fiscal 2007.

(g) Asset impairments include the write-down of the carrying value of technology developed by Ample ($2.3 million), certain Ample related inventory ($1.0 million) and certain manufacturing related fixed assets ($0.3 million) performed in the second quarter of fiscal 2009.

(h) Employee separation costs consist of severance benefits payable to certain former employees of the company as a result of organizational changes.

(i) Legal settlement costs consists of amounts paid to settle a dispute with the former landlord of our corporate headquarters.

(j) Special charges consists of tangible and intangible asset impairments and restructuring charges.

(k) Reverse stock split costs consist of the costs incurred to effect and account for the reverse stock split.

(l) Employee option exchange costs consist of the costs incurred to implement and account for the employee option exchange program.

(m) Gain on debt extinguishment represents the gain we recorded in connection with extinguishing portions of our convertible debt instrument.

(n) Non-cash interest expense on convertible senior notes represents the amortization of debt discounts recorded in accordance with FASB ASC 470-20, related to the Company’s 3.75% and 6.5% convertible senior notes.

(o) In accordance with FASB ASC 260, since shares related to the potential conversion of our convertible debt are included in the third quarter of fiscal 2010, fourth quarter of fiscal 2010 and fiscal year 2010 diluted shares, interest expense associated with the convertible debt has been added back to net income for the purpose of calculating diluted earnings per share.

Non-GAAP Measures

We provide non-GAAP measures as a supplement to financial results based on GAAP. A detailed reconciliation of the non-GAAP results to the most directly comparable GAAP measures is set forth above under the heading “Reconciliation of Non-GAAP Measures to GAAP Measures.” Investors are encouraged to review the accompanying press release reconciliations. We believe the presentation of non-GAAP measures provides investors with additional insight into underlying operating results and prospects for the future by excluding stock-based compensation and related payroll costs, asset impairments, amortization of intangible assets, legal settlement costs, employee separation costs, costs related to our reverse stock split and employee option exchange program, the effects of special charges such as asset impairments and restructuring charges, gain on extinguishment of debt and/or non-cash interest expense on our convertible senior notes. We have historically reported similar financial measures and believe that the inclusion of comparative numbers provides consistency in our financial reporting.

We also discuss certain non-GAAP measures excluding patent sales as a supplement to financial results based on GAAP. The sale of patents in the fiscal fourth quarter of 2010 impacted our net revenue, gross margin, operating expenses and provision for income taxes. Information needed to reconcile our non-GAAP financial measures excluding the impact of patent sales is provided within the text of our earnings release.

We use non-GAAP gross margin, research and development expenses, selling, general and administrative expenses, operating expenses, operating income/(loss), other income/(expense), net, net income/(loss) and net income/(loss) per share internally to evaluate our operating performance and to determine certain components of management compensation. In addition, we use these non-GAAP measures for internal budgets and forecasts. We believe that these non-GAAP measures can be useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. We also use certain non-GAAP measures excluding patent sales for the same reasons that we use the underlying non-GAAP measures.

Non-GAAP gross margin excludes stock-based compensation expense and related payroll costs, amortization of intangible assets, asset impairments and employee separation costs. Non-GAAP research and development expenses excludes stock-based compensation and related payroll costs and employee separation costs. Non-GAAP selling, general and administrative expenses excludes stock-based compensation and related payroll costs, employee separation costs, legal settlement costs, reverse stock split costs and employee option exchange costs. Non-GAAP operating expenses excludes stock-based compensation expense and related payroll costs, employee separation costs, legal settlement costs, special charges, reverse stock split costs and employee option exchange costs. Non-GAAP operating income/(loss) excludes stock-based compensation expense and related payroll costs, employee separation costs, amortization of intangible assets, asset impairments, legal settlement costs, special charges, reverse stock split costs and employee option exchange costs. Non-GAAP other income/(expense), net, excludes gain on extinguishment of debt and non-cash interest expense on our convertible senior notes. Non-GAAP net income/(loss) and non-GAAP net income/(loss) per share exclude stock-based compensation expense and related payroll costs, amortization of intangible assets, asset impairments, employee separation costs, legal settlement costs, special charges, reverse stock split costs, employee option exchange costs, gain on extinguishment of debt and non-cash interest expense on our convertible senior notes. We further exclude patent sales from non-GAAP net revenue, gross margin, operating expenses and provision for income taxes.

We exclude stock-based compensation and related payroll costs from non-GAAP measures because we believe that excluding these costs can enhance the understanding of our performance. We exclude the amortization of intangible assets and asset impairments from non-GAAP measures because we believe it provides a helpful perspective on our operating performance. We exclude special charges, employee separation costs, legal settlement costs, reverse stock split costs, costs related to our employee option exchange program and non-cash interest expense on our convertible senior notes because they include restructuring charges, asset impairments or other significant discrete items that may not be indicative of our ongoing operations or economic performance. We exclude gain on debt extinguishment because it is considered by management to be outside our core operating activities. We exclude patents in order to provide investors with the ability to compare our current financial results with those of previous periods and provide consistency in our financial reporting.

We do not provide forward-looking GAAP measures or a reconciliation of the forward-looking non-GAAP measures to GAAP measures because of our inability to project special charges, asset impairments, employee separation costs and stock-based compensation and related payroll costs.

The non-GAAP financial measures we provide have certain limitations because they do not reflect all of the costs associated with the operation of our business as determined in accordance with GAAP. The non-GAAP measures are in addition to, and not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP and may be different from non-GAAP measures used by other companies. We endeavor to compensate for the limitations of these non-GAAP measures by providing GAAP financial statements, descriptions of the reconciling items and a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures so that investors can appropriately incorporate the non-GAAP measures and their limitations into their analyses. For complete information on stock-based compensation and related payroll costs, amortization of intangible assets, asset impairments, our reverse stock split, our employee option exchange program, employee separation costs, legal settlement costs, special charges, gain on extinguishment of debt and non-cash interest expense on our convertible senior notes, please see our financial statements and “Management’s Discussion and Analysis of Results of Operations and Financial Condition” that will be included in the periodic report we expect to file with the SEC with respect to the financial periods discussed herein.

  MINDSPEED TECHNOLOGIES, INC.   Consolidated Condensed Balance Sheets

(unaudited, in thousands)

      October 1, October 2, 2010 2009 (As Adjusted)(*) ASSETS Current Assets Cash and cash equivalents $ 43,685 $ 20,891 Receivables, net 25,678 7,662 Inventories 10,205 10,902 Deferred tax assets - current 2,264 1,574 Prepaid expenses and other current assets   3,035   2,529 Total current assets 84,867 43,558   Property, plant and equipment, net 12,700 11,018 License agreements 9,887 6,505 Other assets   1,230   1,382 Total assets $ 108,684 $ 62,463     LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 9,303 $ 6,338 Accrued compensation and benefits 9,336 5,788 Accrued income taxes 1,503 525 Deferred income on sales to distributors 5,199 2,604 Deferred revenue 658 1,106 Restructuring 710 448 Convertible senior notes – short term — 10,349 Other current liabilities   4,396   2,177 Total current liabilities 31,105 29,335   Convertible senior notes – long term 13,810 13,415 Other liabilities   2,133   823 Total liabilities 47,048 43,573   Stockholders' equity   61,636   18,890 Total liabilities and stockholders' equity $ 108,684 $ 62,463

(*) On October 3, 2009, the Company adopted FASB ASC 470-20 for the accounting of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlements). In accordance with this standard, our prior period financial statements have been adjusted to record a debt discount for the conversion feature and the subsequent amortization to interest expense. The associated increase in our net loss for the three and twelve months ended October 2, 2009 was $0.4 million and $3.1 million, respectively. The increase in our net loss in the first twelve months of fiscal 2009 represents both amortization of the debt discounts as well as a reduction in the gain we recorded on our debt extinguishments.

  MINDSPEED TECHNOLOGIES, INC.   Consolidated Condensed Statements of Cash Flows

(unaudited, in thousands)

    Year ended October 1, October 2, 2010 2009 (As Adjusted)(*) Cash Flows From Operating Activities Net income/(loss) $ 21,070 $ (25,114 ) Adjustments required to reconcile net income/(loss) to the net cash provided by/(used in) operating activities: Depreciation and amortization 6,293 6,106 Asset impairments 828 5,498 Restructuring charges 1,856 4,031 Stock compensation 4,239 2,675 Inventory provisions 1,497 657 Deferred income tax (847 ) — Gain on debt extinguishment — (1,121 ) Amortization of debt discount on convertible senior notes 546 1,463 Other non-cash items, net 255 174 Changes in assets and liabilities: Receivables (17,986 ) 6,903 Inventories (800 ) 4,628 Accounts payable 1,430 (5,069 ) Deferred income on sales to distributors 2,595 (2,265 ) Restructuring (1,283 ) (3,391 ) Accrued expenses and other current liabilities 4,458 (1,379 ) Other   (944 )   819     Net cash provided by/(used in) operating activities   23,207     (5,385 )   Cash Flows From Investing Activities Capital expenditures   (8,027 )   (8,058 )   Net cash used in investing activities   (8,027 )   (8,058 )   Cash Flows From Financing Activities Gross proceeds from sale of equity 18,300 8,947 Offering costs from sale of equity (1,307 ) — Extinguishment of convertible debt (10,500 ) (17,320 ) Payments made on capital lease obligations (470 ) — Borrowings under line of credit 7,000 — Payments made on borrowings under line of credit (7,000 ) — Debt issuance costs — (256 ) Exercise of options and warrants   1,564     —     Net cash provided by/(used in) financing activities   7,587     (8,629 )   Effect of foreign currency exchange rates on cash 27 (70 )   Net increase/(decrease) in cash and cash equivalents 22,794 (22,142 ) Cash and cash equivalents at beginning of period   20,891     43,033     Cash and cash equivalents at end of period $ 43,685   $ 20,891  

(*) On October 3, 2009, the Company adopted FASB ASC 470-20 for the accounting of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlements). In accordance with this standard, our prior period financial statements have been adjusted to record a debt discount for the conversion feature and the subsequent amortization to interest expense. The associated increase in our net loss for the three and twelve months ended October 2, 2009 was $0.4 million and $3.1 million, respectively. The increase in our net loss in the first twelve months of fiscal 2009 represents both amortization of the debt discounts as well as a reduction in the gain we recorded on our debt extinguishments.

  MINDSPEED TECHNOLOGIES, INC.   Selected Corporate Data

(unaudited, in thousands)

          Three months ended Year ended October 1, July 2, October 2, October 1, October 2, 2010 2010 2009 2010 2009   Gross margin % 71 % 64 % 62 % 66 % 61 %   Cash provided by/(used in): Operating activities $ 12,722 $ 3,784 $ 2,267 $ 23,207 $ (5,385 ) Investing activities (3,082 ) (1,898 ) (2,126 ) (8,027 ) (8,058 ) Financing activities 4 865 8,947 7,587 (8,629 ) Effect of foreign currency on cash   (66 )   8     (68 )   27     (70 ) Net increase/(decrease) in cash $ 9,578   $ 2,759   $ 9,020   $ 22,794   $ (22,142 )   Depreciation $ 1,143 $ 1,232 $ 1,256 $ 4,796 $ 5,063 Capital expenditures 2,224 1,976 1,232 7,348 4,510   Revenues by region: Americas $ 18,318 $ 10,472 $ 9,059 $ 45,296 $ 37,102 Europe 4,012 2,977 2,807 12,849 12,185 Asia-Pacific   35,289     29,832     22,877     120,034     77,265   $ 57,619   $ 43,281   $ 34,743   $ 178,179   $ 126,552     Revenues by product line: Communications convergence processing products $ 18,977 $ 17,823 $ 14,240 $ 66,923 $ 49,452 High-performance analog products 14,869 14,332 10,405 54,311 39,084 WAN communications products   10,973     11,126     10,098     44,145     33,016   Total net product revenues 44,819 43,281 34,743 165,379 121,552 Intellectual property   12,800     —     —     12,800     5,000   Total net revenues $ 57,619   $ 43,281   $ 34,743   $ 178,179   $ 126,552