UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

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

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

Commission file number: 000-24923

CONEXANT SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Delaware		25-1799439
(State of incorporation)		(I.R.S. Employer Identification No.)

4000 MacArthur Boulevard
Newport Beach, California 92660-3095
(Address of principal executive offices) (Zip code)

(949) 483-4600
(Registrant’s telephone number, including area code)

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 þ No o

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 o No o

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 o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ
				(Do not check if a 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 o No þ

As of April 30, 2010, there were 81,186,507 shares of the registrant’s common stock outstanding.

 

 

FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements within the meaning of the federal securities laws. Any statements that do not relate to historical or current facts or matters are forward-looking statements. You can identify some of the forward-looking statements by the use of forward-looking words, such as “may,” “will,” “could,” “project,” “believe,” “anticipate,” “expect,” “estimate,” “continue,” “potential,” “plan,” “forecasts,” and the like, the negatives of such expressions, or the use of future tense. Statements concerning current conditions may also be forward-looking if they imply a continuation of current conditions. Examples of forward-looking statements include, but are not limited to, statements concerning:

	•		expectations regarding the market share of our products, growth in the markets we serve and our market opportunities;
	•		our expectation that we will be able to sustain the recoverability of our goodwill, intangible and tangible long-term assets;
	•		expectations that we will be able to use our net operating losses and other tax attributes to offset future taxable income;
	•		expectations regarding price and product competition;
	•		continued demand and future growth in demand for our products in the communications, PC and consumer markets we serve;
	•		our plans and expectations regarding the transition of our semiconductor products to smaller line width geometries;
	•		our product development plans;
	•		expectations regarding the sale of our real property in Newport Beach;
	•		expectations, subject to the qualifications expressed, regarding the sufficiency of our existing sources of liquidity, together with cash expected to be generated from operations, to fund our operations, research and development, anticipated capital expenditures, and working capital for at least the next twelve months;
	•		our expectation that our largest customers will continue to account for a substantial portion of our revenue;
	•		expectations regarding our contractual obligations and commitments;
	•		our expectation that we will be able to protect our products and services with proprietary technology and intellectual property protection;
	•		our expectation that we will be able to meet our lease obligations (and other financial commitments); and
	•		our expectation that we will be able to continue to rely on third party manufacturers to manufacture, assemble and test our products to meet our customers’ demands.

Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. You are urged to carefully review the disclosures we make concerning risks and other factors that may affect our business and operating results, including, but not limited to, those made in Part II, Item 1A of this Quarterly Report on Form 10-Q, and any of those made in our other reports filed with the Securities and Exchange Commission (SEC). Please consider our forward-looking statements in light of those risks as you read this Quarterly Report on Form 10-Q. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document. We do not intend, and undertake no obligation, to publish revised forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events.

CONEXANT SYSTEMS, INC. AND SUBSIDIARIES

		PAGE
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets — April 2, 2010 (unaudited) and October 2, 2009			3
Unaudited Consolidated Statements of Operations — Fiscal Quarter and Six Fiscal Months Ended April 2, 2010 and April 3, 2009			4
Unaudited Consolidated Statements of Cash Flows — Six Fiscal Months Ended April 2, 2010 and April 3, 2009			5
Notes to Unaudited Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
Item 3. Quantitative and Qualitative Disclosures About Market Risk			30
Item 4. Controls and Procedures			30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			31
Item 1A. Risk Factors			31
Item 5. Other Information			41
Item 6. Exhibits			41
SIGNATURE			43
EX-10.1.1
EX-10.1.2
EX-10.1.3
EX-10.2
EX-10.3
EX-10.3.1
EX-10.6
EX-10.6.1
EX-10.6.2
EX-10.6.3
EX-10.6.4
EX-10.6.5
EX-31.1
EX-31.2
EX-32

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

CONEXANT SYSTEMS, INC. AND SUBSIDIARIES

		April 2,				October 2,
		2010				2009 (1)
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	187,526			$	125,385
Restricted cash			—				8,500
Receivables, net of allowances of $333 and $453			27,798				30,110
Inventories, net			9,570				9,216
Other current assets			30,557				26,148
Assets held for sale			12,247				—
Total current assets			267,698				199,359
Property, plant and equipment, net of accumulated depreciation of $39,734 and $70,139			6,263				15,299
Goodwill			109,908				109,908
Other assets			47,686				25,635
Total assets		$	431,555			$	350,201
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt		$	—			$	61,400
Short-term debt			120,817				28,653
Accounts payable			18,007				24,553
Accrued compensation and benefits			9,696				8,728
Other current liabilities			33,450				33,978
Total current liabilities			181,970				157,312
Long-term debt			173,381				228,578
Other liabilities			59,261				62,089
Total liabilities			414,612				447,979
Commitments and contingencies (Note 6)
Shareholders’ equity (deficit):
Preferred and junior preferred stock: 20,000 and 5,000 shares authorized, respectively			—				—
Common stock, $0.01 par value: 200,000 shares authorized; 81,187 and 56,917 shares issued and outstanding at April 2, 2010 and October 2, 2009, respectively			812				570
Additional paid-in capital			4,916,168				4,833,919
Accumulated deficit			(4,910,530	)			(4,929,743	)
Accumulated other comprehensive income (loss)			10,493				(2,524	)
Total shareholders’ equity (deficit)			16,943				(97,778	)
Total liabilities and shareholders’ equity (deficit)		$	431,555			$	350,201

See accompanying notes to consolidated financial statements

CONEXANT SYSTEMS, INC. AND SUBSIDIARIES

		Fiscal Quarter Ended								Six Fiscal Months Ended
		April 2,				April 3,				April 2,				April 3,
		2010				2009 (1)				2010				2009 (1)
Net revenues		$	61,868			$	43,965			$	123,681			$	101,428
Cost of goods sold (2)			24,087				18,930				48,291				43,876
Gross margin			37,781				25,035				75,390				57,552
Operating expenses:
Research and development (2)			14,100				12,766				27,345				26,333
Selling, general and administrative (2)			12,681				17,060				25,083				34,926
Amortization of intangible assets			284				1,340				680				1,857
Gain on sale of intellectual property			—				—				—				(12,858	)
Special (credits) charges			(210	)			2,016				136				12,593
Total operating expenses			26,855				33,182				53,244				62,851
Operating income (loss)			10,926				(8,147	)			22,146				(5,299	)
Interest expense			7,775				8,633				17,278				17,259
Other (income) expense, net			(7,755	)			(1,815	)			(14,959	)			112
Income (loss) from continuing operations before income taxes and loss on equity method investments			10,906				(14,965	)			19,827				(22,670	)
Income tax provision			331				175				101				643
Income (loss) from continuing operations before loss on equity method investments			10,575				(15,140	)			19,726				(23,313	)
Income (loss) on equity method investments			209				(835	)			(245	)			(1,681	)
Income (loss) from continuing operations			10,784				(15,975	)			19,481				(24,994	)
Income (loss) from discontinued operations, net of tax (2)			95				(1,138	)			(268	)			(13,111	)
Net income (loss)		$	10,879			$	(17,113	)		$	19,213			$	(38,105	)
Income (loss) per share from continuing operations — basic		$	0.16			$	(0.32	)		$	0.30			$	(0.50	)
Income (loss) per share from continuing operations — diluted		$	0.15			$	(0.32	)		$	0.30			$	(0.50	)
Income (loss) per share from discontinued operations — basic		$	0.00			$	(0.02	)		$	0.00			$	(0.27	)
Income (loss) per share from discontinued operations — diluted		$	0.00			$	(0.02	)		$	(0.01	)		$	(0.27	)
Net income (loss) per share — basic		$	0.16			$	(0.34	)		$	0.30			$	(0.77	)
Net income (loss) per share — diluted		$	0.15			$	(0.34	)		$	0.29			$	(0.77	)
Shares used in basic per-share computations			69,136				49,755				64,579				49,706
Shares used in diluted per-share computations			70,513				49,755				65,273				49,706

		Fiscal Quarter Ended								Six Fiscal Months Ended
		April 2,				April 3,				April 2,				April 3,
		2010				2009				2010				2009
Cost of goods sold		$	95			$	82			$	153			$	119
Research and development			544				294				945				729
Selling, general and administrative			1,216				1,274				2,253				2,987
Income (loss) from discontinued operations, net of tax			5				583				(30	)			771

See accompanying notes to consolidated financial statements

CONEXANT SYSTEMS, INC. AND SUBSIDIARIES

		Six Fiscal Months Ended
		April 2,				April 3,
		2010				2009 (1)
Cash flows from operating activities:
Net Income (loss)		$	19,213			$	(38,105	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation			1,906				4,659
Amortization of intangible assets			680				6,255
Reversal of provision for bad debts, net			(120	)			—
Charges for (reversal of) inventory provisions, net			32				(24	)
Amortization of debt discount			6,979				6,895
Deferred income taxes			118				(158	)
Stock-based compensation			3,321				4,606
Increase in fair value of derivative instruments			(18,201	)			(90	)
Losses on equity method investments			1,099				2,560
Other-than-temporary impairment of marketable securities			—				2,635
Other-than-temporary impairment of cost method investments			—				135
Loss on termination of swap			1,728				—
Loss on extinguishment of secured debt			614				—
Loss on extinguishment of convertible debt			9,991				—
Gain on sale of marketable securities			(7,734	)			—
Gain on sale of intellectual property			—				(12,858	)
Other items, net			234				1,006
Changes in assets and liabilities:
Receivables			2,432				11,825
Inventories			(386	)			19,319
Accounts payable			(9,935	)			(16,529	)
Accrued expenses and other current liabilities			1,065				(12,743	)
Other, net			(1,817	)			16,521
Net cash provided by (used in) operating activities			11,219				(4,091	)
Cash flows from investing activities:
Purchases of property, plant and equipment			(525	)			(347	)
Proceeds from sale of property, plant and equipment			397				—
Payments for acquisitions			(625	)			(3,578	)
Proceeds from sales of marketable securities			8,030				—
Release of restricted cash			8,500				9,300
Proceeds from sale of intellectual property, net of expenses of $132			—				14,548
Net cash provided by investing activities			15,777				19,923
Cash flows from financing activities:
Net repayments of short-term debt, including debt costs of $483 and $901			(29,136	)			(11,297	)
Extinguishment of long-term debt			(166,676	)			—
Proceeds from common stock offerings, net of expenses of $4,872			62,519				—
Proceeds from issuance of long-term bonds, net of expenses of $4,911			168,449				—
Proceeds from issuance of common stock under employee stock plans			18				28
Repurchase of shares upon exercise of employee stock awards			(29	)			—
Interest rate swap security deposit			—				(207	)
Repayment of shareholder note receivable			—				32
Net cash provided by (used in) financing activities			35,145				(11,444	)
Net increase in cash and cash equivalents			62,141				4,388
Cash and cash equivalents at beginning of period			125,385				105,883
Cash and cash equivalents at end of period		$	187,526			$	110,271

See accompanying notes to consolidated financial statements

CONEXANT SYSTEMS, INC. AND SUBSIDIARIES

1. Description of Business

Conexant Systems, Inc. (“Conexant,” “the “Company,” “we,” “us” or “our”) designs, develops and sells semiconductor system solutions, comprised of semiconductor devices, software and reference designs, for imaging, audio, embedded-modem, and video applications. These solutions include a comprehensive portfolio of imaging solutions for multifunction printers (MFPs), fax platforms, and “connected” frame market segments. The Company’s audio solutions include high-definition (HD) audio integrated circuits, HD audio codecs, and speakers-on-a-chip solutions for personal computers (PCs), PC peripheral sound systems, audio subsystems, speakers, notebook docking stations, voice-over-IP speakerphones, intercom, door phone, and audio-enabled surveillance applications. The Company also offers a full suite of embedded-modem solutions for set-top boxes, point-of-sale systems, home automation and security systems, and desktop and notebook PCs. Additional products include decoders and media bridges for video surveillance and security applications, and system solutions for analog video-based multimedia applications.

2. Sale of Assets and Discontinued Operations

Sale of Property

In November 2009, the Company committed to a plan for the sale of certain of the Company’s property located on Jamboree Road adjacent to its Newport Beach, California headquarters. The property consists of an approximately 25-acre site, including two leased buildings, certain personal property on the site, and all easements and other intangible rights appurtenant to the property. The Company determined that this property met the criteria for “held for sale accounting” in accordance with the accounting guidance for impairment or disposal of long-lived assets and has presented the respective group of assets separately on the face of the consolidated balance sheet as of April 2, 2010.

Sale of Broadband Access Business

On August 24, 2009, the Company completed the sale of its Broadband Access (“BBA”) business to Ikanos Communications, Inc. (“Ikanos”). Assets sold pursuant to the agreement with Ikanos included, among other things, specified patents, inventory, contracts and tangible assets. Ikanos assumed certain liabilities, including obligations under transferred contracts and certain employee-related liabilities. The Company also granted to Ikanos a license to use certain of the Company’s retained technology assets in connection with Ikanos’ current and future products in certain fields of use, along with a patent license covering certain of the Company’s retained patents to make, use, and sell such products (or, in some cases, components of such products).

In accordance with the accounting guidance for the impairment or disposal of long-lived assets, the Company determined that the BBA business, which constituted an operating segment of the Company, qualifies as a discontinued operation. The results of the BBA business have been reported as discontinued operations in the consolidated statements of operations for all periods presented. Interest expense has been allocated based on the accounting guidance for allocation of interest to discontinued operations. For the fiscal quarter and six fiscal months ended April 3, 2009, interest expense allocated to discontinued operations was $0.7 million and $1.4 million, respectively.

For the fiscal quarter ended April 2, 2010, BBA revenues and pretax income classified as discontinued operations were $0.7 million and $0.6 million, respectively. For the fiscal quarter ended April 3, 2009, BBA revenues and pretax loss classified as discontinued operations was $30.5 million and $2.1 million, respectively.

For the six fiscal months ended April 2, 2010, BBA revenues and pretax income classified as discontinued operations was $0.9 million and $0.7 million, respectively. For the six fiscal months ended April 3, 2009, BBA revenues and pretax loss classified as discontinued operations was $59.5 million and $6.4 million, respectively.

The Company has entered into a short-term transitional services agreement (“TSA”) with Ikanos which provides for ongoing logistical support by the Company to Ikanos, for which Ikanos will reimburse the Company. As of April 2, 2010, the Company had a receivable under the TSA from Ikanos of approximately $1.4 million, which is classified in other current assets.

Sale of Broadband Media Processing Business

On August 8, 2008, the Company completed the sale of its Broadband Media Processing (“BMP”) business to NXP B.V. (“NXP”). Pursuant to the asset purchase agreement with NXP, NXP acquired certain assets including, among other things, specified patents, inventory and contracts, and assumed certain employee-related liabilities. Pursuant to the agreement, the Company obtained a license to utilize technology that was sold to NXP and NXP obtained a license to utilize certain intellectual property that the Company retained. In addition, NXP agreed to provide employment to approximately 700 of the Company’s employees at locations in the United States, Europe, Israel, Asia-Pacific and Japan.

In the third fiscal quarter of 2008, in accordance with the accounting guidance for impairment or disposal of long-lived assets, the Company determined that the BMP business, which constituted an operating segment of the Company, qualifies as a discontinued operation. The results of the BMP business have been reported as discontinued operations in the consolidated statements of operations for all periods presented.

For the fiscal quarter ended April 2, 2010, there were no BMP revenues and the loss classified as discontinued operations was $0.4 million. For the fiscal quarter ended April 3, 2009, BMP revenues and income classified as discontinued operations were $2.1 million and $1.1 million, respectively.

For the six fiscal months ended April 2, 2010, there were no BMP revenues and the loss classified as discontinued operations was $0.9 million. For the six fiscal months ended April 3, 2009, BMP revenues and loss classified as discontinued operations were $3.0 million and $6.1 million, respectively.

3. Basis of Presentation and Significant Accounting Policies

Interim Reporting — The unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated.

These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended October 2, 2009 and the Current Report on Form 8-K filed on February 8, 2010. The financial information presented in the accompanying statements reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the periods indicated. All such adjustments are of a normal recurring nature. The year-end balance sheet data was derived from the audited consolidated financial statements. Prior year quarterly information has been recast to reflect the reclassification of discontinued operations described in Note 2 and the retrospective application of FASB ASC 470-20 for convertible debt instruments that may be settled wholly or partially in cash on conversion, adopted effective October 3, 2009.

Fiscal Periods — The Company’s fiscal year is the 52- or 53-week period ending on the Friday closest to September 30. In a 52-week year, each fiscal quarter consists of 13 weeks. The additional week in a 53-week year is added to the fourth quarter, making such quarter consist of 14 weeks. Fiscal 2010 consists of, and fiscal 2009 consisted of, 52 weeks.

Use of Estimates — The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Among the significant estimates affecting the consolidated financial statements are those related to business combinations, revenue recognition, allowance for doubtful accounts, inventories, long-lived assets (including goodwill and intangible assets), deferred income taxes, valuation of warrants, valuation of equity securities, stock-based compensation, restructuring charges and litigation. On an ongoing basis, management reviews its estimates based upon currently available information. Actual results could differ materially from those estimates.

Revenue Recognition — The Company recognizes revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the sales price and terms are fixed and determinable, and (iv) the collection of the receivable is reasonably assured. These terms are typically met upon shipment of product to the customer. The majority of the Company’s distributors have limited stock rotation rights, which allow them to rotate up to 10% of product in their inventory two times per year. The Company recognizes revenue to these distributors upon shipment of product to the distributor, as the stock rotation rights are limited and the Company believes that it has the ability to reasonably estimate and establish allowances for expected product returns in accordance with the accounting guidance for revenue recognition when right of return exists. Development revenue is recognized when services are performed and was not significant for any periods presented.

Restricted Cash — Upon the expiration of the Company’s $50 million credit facility and repayment of the amount owed under the agreement, $8.5 million of restricted cash included in the consolidated balance sheets as of October 2, 2009 was released back to the Company.

The Company has outstanding letters of credit collateralized by restricted cash aggregating $5.7 million to secure various long-term operating leases and the Company’s self-insured worker’s compensation plan. The restricted cash associated with these letters of credit is classified as other long-term assets on the consolidated balance sheets.

Investments — The Company accounts for non-marketable investments using the equity method of accounting if the investment gives the Company the ability to exercise significant influence over, but not control of, an investee. Significant influence generally exists if the Company has an ownership interest representing between 20% and 50% of the voting stock of the investee. Under the equity method of accounting, investments are stated at initial cost and are adjusted for subsequent additional investments and the Company’s proportionate share of earnings or losses and distributions. Additional investments by other parties in the investee will result in a reduction in the Company’s ownership interest, and the resulting gain or loss will be recorded in the consolidated statements of operations. Where the Company is unable to exercise significant influence over the investee, investments are accounted for under the cost method. Under the cost method, investments are carried at cost and adjusted only for other-than-temporary declines in fair value, distributions of earnings or additional investments.

Assets Held for Sale — The Company evaluates the asset at the time an asset qualifies for “held for sale accounting,” to determine whether or not the carrying value exceeds its fair value less cost to sell. Any loss as a result of the carrying value being in excess of fair value less cost to sell is recorded in the period the asset meets “held for sale accounting.” Management judgment is required to assess the criteria required to meet “held for sale accounting” and estimate the expected net amount recoverable upon sale. As of April 2, 2010, the carrying values of the respective assets held for sale did not exceed their fair values less costs to sell.

Income Taxes — The provision for income taxes is determined in accordance with accounting guidance for income taxes. Deferred tax assets and liabilities are determined based on the temporary differences between the financial reporting and tax bases of assets and liabilities, applying enacted legislation and statutory tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is recorded when it is more likely than not that some or all of the deferred tax assets will not be realized.

In assessing the need for a valuation allowance, the Company considers all positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance. Forming a conclusion that a valuation allowance is not required is difficult when there is negative evidence, such as cumulative losses in recent years. As a result of the Company’s cumulative losses in the U.S. and the full utilization of our loss carryback opportunities, management has concluded that a full valuation allowance against its net deferred tax assets is appropriate in such jurisdictions. In certain other foreign jurisdictions where the

Company does not have cumulative losses, a valuation allowance is recorded to reduce the net deferred tax assets to the amount management believes is more likely than not to be realized. In the future, if the Company realizes a deferred tax asset that currently carries a valuation allowance, a reduction to income tax expense may be recorded in the period of such realization.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position in accordance with the accounting guidance for uncertainty in income taxes. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company recognizes interest and penalties related to these unrecognized tax benefits in the income tax provision.

The accounting guidance also provides for derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures.

As a multinational corporation, the Company is subject to taxation in many jurisdictions, and the calculation of its tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing jurisdictions. If, based on new facts that arise in a period, management ultimately determines that the payment of these liabilities will be unnecessary, the liability will be reversed and the Company will recognize a tax benefit during the period in which it is determined the liability no longer applies. Conversely, the Company records additional tax charges in a period in which it is determined that a recorded tax liability is less than the ultimate assessment is expected to be.

The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability for U.S. or foreign taxes may be materially different from management’s estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities. Interest and penalties are included in tax expense.

Accounting for Convertible Debt — On October 3, 2009, the Company adopted the accounting guidance for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement). The new accounting guidance requires the issuer to separately account for the liability and equity components of convertible debt instruments in a manner that reflects the issuer’s hypothetical nonconvertible debt borrowing rate. The guidance resulted in the Company recognizing higher interest expense in the statement of operations due to amortization of the discount that results from separating the liability and equity components. The provisions of the new accounting guidance were retrospectively applied, and all prior period amounts have been adjusted to apply the new method of accounting.

The new accounting guidance applies to our 4.00% convertible subordinated notes issued in 2006. In March 2006, the Company issued $200.0 million principal amount of 4.00% convertible subordinated notes due March 2026 (“convertible notes”) and, in May 2006, the initial purchaser of the convertible notes exercised its option to purchase an additional $50.0 million principal amount of the convertible notes. Total proceeds to the Company from these issuances, net of issuance costs, were $243.6 million. The convertible notes are general unsecured obligations of the Company. Interest on the convertible notes is payable in arrears semiannually on each March 1 and September 1, beginning on September 1, 2006. The notes are convertible, at the option of the holder upon satisfaction of certain conditions, into shares of the Company’s common stock at a conversion price of $49.20 per share, subject to adjustment for certain events. Upon conversion, the Company has the right to deliver, in lieu of common stock, cash or a combination of cash and common stock. Beginning on March 1, 2011, the convertible notes may be redeemed at the Company’s option at a price equal to 100% of the principal amount, plus any accrued and unpaid interest. Holders may require the Company to repurchase, for cash, all or part of their convertible notes on March 1, 2011, March 1, 2016 and March 1, 2021 at a price of 100% of the principal amount, plus any accrued and unpaid interest. During the fiscal quarter ended April 2, 2010, the Company repurchased by means of a tender offer approximately $104.7 million of its convertible notes. As a result of the repurchase the Company included $6.2 million of unamortized debt discount in the loss on extinguishment. The remaining $127.7 million convertible notes, less debt discount of $6.9 million, are classified as short-term debt as of April 2, 2010. Subsequent to April 2, 2010, the Company repurchased approximately $115.2 million of its 4.00% convertible subordinated notes due March 2026 by means of a private purchase, and paid accrued and unpaid interest on the convertible notes through the date of the repurchase. The Company will record an extinguishment loss on this transaction, which is primarily composed of the unamortized debt discount related to the notes repurchased.

The Company applied the accounting guidance to measure the fair value of the liability component of the convertible notes using a discounted cash flow model. The Company assessed the expected life and approximate discount rate of the liability component to be 5.0 years and 11.8% for the $200.0 million convertible notes and 4.8 years and 10.3% for the $50.0 million convertible notes, based on yields of similarly rated nonconvertible instruments. The Company determined the carrying amount of the equity component by deducting the fair value of the liability component from the principal amount of the convertible notes. Since the Company’s effective tax rate is zero, there was no tax effect for the temporary basis difference associated with the liability component of the convertible notes. The Company amortizes the transaction costs related to the liability component to interest expense over the expected life of the convertible notes.

The adoption of the new accounting guidance for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) resulted in the following amounts recognized in our financial statements (in thousands):

		April 2,				October 2,
		2010				2009
Principal of the liability component of 4.00% convertible subordinated notes		$	127,708			$	250,000
Unamortized debt discount			(6,891	)			(21,422	)
Net carrying amount of liability component of 4.00% convertible subordinated notes		$	120,817			$	228,578
Net carrying amount of equity component of 4.00% convertible subordinated notes (net of $1,742 issuance costs)		$	66,045			$	66,045

Interest expense related to the 4.00% convertible subordinated notes (in thousands):

		Fiscal Quarter Ended								Six Fiscal Months Ended
		April 2,				April 3,				April 2,				April 3,
		2010				2009				2010				2009
Contractual interest coupon		$	2,326			$	2,500			$	4,798			$	5,000
Amortization of the debt discount on the liability component			3,397				3,475				6,958				6,896
Total		$	5,723			$	5,975			$	11,756			$	11,896
Effective interest rate for the liability component for the period			9.95	%			9.56	%			9.95	%			9.52	%

The estimated amortization expense for the debt discount for the 4.00% convertible subordinated notes through the remaining expected life of 11 months is as follows (in thousands):

		2010				2011
Estimated debt discount amortization expense		$	3,718			$	3,173

The adoption of the new accounting guidance requires the retrospective application to all periods presented as of the beginning of the first period presented. As of October 3, 2009, the new accounting guidance was adopted and comparative financial statements for prior periods have been adjusted to apply it retrospectively. The line items for the financial statements that are affected by the change in accounting principle are indicated below (in thousands):

CONSOLIDATED BALANCE SHEETS

						October 2, 2009
		As Reported				Effect of Change				As Adjusted
ASSETS
Total current assets:		$	199,359			$	—			$	199,359
Property, plant and equipment, net			15,299				—				15,299
Goodwill			109,908				—				109,908
Other assets			26,284				(649	)			25,635
Total assets		$	350,850			$	(649	)		$	350,201
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Total current liabilities:		$	157,312			$	—			$	157,312
Long-term debt			250,000				(21,422	)			228,578
Other liabilities			62,089				—				62,089
Total liabilities			469,401				(21,422	)			447,979
Commitments and contingencies			—				—				—
Shareholders’ deficit:
Preferred and junior preferred stock			—				—				—
Common stock			570				—				570
Additional paid-in capital			4,767,874				66,045				4,833,919
Accumulated deficit			(4,884,471	)			(45,272	)			(4,929,743	)
Accumulated other comprehensive loss			(2,524	)			—				(2,524	)

						October 2, 2009
		As Reported				Effect of Change				As Adjusted
Total shareholders’ deficit			(118,551	)			20,773				(97,778	)
Total liabilities and shareholders’ deficit		$	350,850			$	(649	)		$	350,201

CONSOLIDATED STATEMENTS OF OPERATIONS

		Fiscal Quarter Ended April 3, 2009												Six Fiscal Months Ended April 3, 2009
						Effect of												Effect of
		As Reported				Change				As Adjusted				As Reported				Change				As Adjusted
Interest expense		$	5,276			$	3,357			$	8,633			$	10,599			$	6,660			$	17,259
Loss from continuing operations before income taxes and (loss) gain on equity method investments			(11,608	)			(3,357	)			(14,965	)			(16,010	)			(6,660	)			(22,670	)
Loss from continuing operations before (loss) gain on equity method investments			(11,783	)			(3,357	)			(15,140	)			(16,653	)			(6,660	)			(23,313	)
Loss from continuing operations			(12,618	)			(3,357	)			(15,975	)			(18,334	)			(6,660	)			(24,994	)
Net loss		$	(13,756	)		$	(3,357	)		$	(17,113	)		$	(31,445	)		$	(6,660	)		$	(38,105	)
Net loss per share — basic and diluted		$	(0.28	)		$	(0.06	)		$	(0.34	)		$	(0.63	)		$	(0.14	)		$	(0.77	)
Shares used in basic and diluted per-share computations			49,755				—				49,755				49,706				—				49,706

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Six Fiscal Months Ended April 3, 2009
						Effect of
		As Reported				Change				As Adjusted
Cash flows from operating activities
Net loss		$	(31,445	)		$	(6,660	)		$	(38,105	)
Debt discount amortization			—				6,895				6,895
Other items, net			1,241				(235	)			1,006
Net cash used in operating activities		$	(4,091	)		$	—			$	(4,091	)

Derivative Financial Instruments — The Company’s derivative financial instruments as of April 2, 2010 principally consisted of the Company’s warrant to purchase 6.1 million shares of Mindspeed Technologies, Inc. (“Mindspeed”) common stock (See Note 5).

The Company may use other derivatives from time to time to manage its exposure to changes in interest rates, equity prices or other risks. The Company does not enter into derivative financial instruments for speculative or trading purposes.

Supplemental Cash Flow Information — Cash paid for interest was $6.2 million and $7.5 million for the six fiscal months ended April 2, 2010 and April 3, 2009, respectively. Cash paid for income taxes for the six fiscal months ended April 2, 2010 and April 3, 2009 was $2.5 million and $1.3 million, respectively. Non-cash financing activity associated with the equity and debt transactions costs in the six fiscal months ended April 2, 2010 was $0.6 million and $0.6 million, respectively.

Net Income (loss) Per Share — Net income (loss) per share is computed in accordance with the accounting guidance for earnings per share. Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding and potentially dilutive securities outstanding during the period. Potentially dilutive securities include stock options, restricted stock units and shares of stock issuable upon conversion of the Company’s convertible notes. The dilutive effect of stock options and restricted stock units is computed under the treasury stock method, and the dilutive effect of convertible notes is computed using the if-converted method. Potentially dilutive securities are excluded from the computations of diluted net income (loss) per share if their effect would be antidilutive.

The following potentially dilutive securities have been excluded from the diluted net income (loss) per share calculations because their effect would have been antidilutive (in thousands):

		Fiscal Quarter Ended								Six Fiscal Months Ended
		April 2,				April 3,				April 2,				April 3,
		2010				2009				2010				2009
Employee stock options and restricted stock units			3,386				5,847				3,649				6,324
4.00% convertible subordinated notes due March 2026			4,676				5,081				4,802				5,081
			8,062				10,928				8,451				11,405

The following potentially dilutive securities have been included in the diluted net income (loss) per share calculations (in thousands):

		Fiscal Quarter Ended								Six Fiscal Months Ended
		April 2,				April 3,				April 2,				April 3,
		2010				2009				2010				2009
Weighted average shares for basic net income (loss) per share			69,136				49,755				64,579				49,706
Employee stock options and restricted stock units			1,377				—				694				—
Weighted average shares for diluted income (loss) per share			70,513				49,755				65,273				49,706

Business Enterprise Segments — The Company operates in one reportable segment, which was determined by the Company based on the accounting guidance for disclosures about segments of an enterprise and related information, which establishes standards for the way that public business enterprises report information about operating segments in their annual consolidated financial statements. Following the sale of the Company’s BBA operating segment, the results of which have been classified in discontinued operations, the Company has one remaining operating segment, comprised of one reporting unit, which was identified based upon the availability of discrete financial information and the chief operating decision makers’ regular review of the financial information for this operating segment.

Acquisitions — In the fiscal quarter ended January 2, 2009, the Company acquired certain assets from Analog Devices Inc. (“ADI”) used in the operation of ADI’s Integrated Audio Group (“ADI Audio”) and a license to manufacture and sell certain products related to ADI Audio. The cost of the assets, which included inventory, test equipment and photomasks, was approximately $1.3 million. The cost of the license was $2.5 million, which was paid in four quarterly installments following completion of the acquisition. Payments through April 2, 2010 for the acquired assets totaled $3.8 million. Also, in the fiscal quarter ended April 3, 2009, the Company made a final payment of $1.0 million to Zarlink Semiconductor Inc. (“Zarlink”) as part of the acquisition of Zarlink’s packet switching business in 2006.

Goodwill — In accordance with the accounting guidance for goodwill and other intangible assets, goodwill is not amortized. Instead, goodwill is tested for impairment on an annual basis and between annual tests whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Goodwill is tested at the reporting unit level, which is defined as an operating segment or one level below the operating segment. Goodwill is tested annually during the fourth fiscal quarter and, if necessary, whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. During the second fiscal quarter of 2010, based on current business forecasts, the Company determined there were no indicators of impairment and therefore no interim goodwill impairment analysis was considered necessary for this period.

Recently Adopted Accounting Pronouncements

On October 3, 2009, the Company adopted accounting guidance for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement), which requires the issuer to separately account for the liability and equity components of convertible debt instruments in a manner that reflects the issuer’s hypothetical nonconvertible debt borrowing rate. The guidance resulted in the Company recognizing higher interest expense in the statement of operations due to amortization of the discount that results from separating the liability and equity components. The provisions of the accounting guidance were retrospectively applied, and all prior period amounts have been adjusted to apply the new method of accounting.

Effective the first quarter of fiscal 2010, the Company adopted revised accounting guidance for business combinations, which changed its previous accounting practices regarding business combinations. The statement requires a number of changes to the purchase method of accounting for acquisitions, including changes in the way assets and liabilities are recognized in the purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. The impact of this accounting guidance and its relevant updates on the Company’s results of operations or financial position will vary depending on each specific business combination or asset purchase. The Company did not close any business combinations or asset purchases in the second quarter of fiscal 2010.

Effective the first quarter of fiscal 2010, the Company adopted revised accounting guidance for the determination of the useful life of intangible assets. This accounting guidance amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. This change is intended to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset. The requirement for determining useful lives must be applied prospectively to intangible assets acquired after the effective date and the disclosure requirements must be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. The Company’s adoption of this accounting guidance did not have a material impact on its financial position, results of operations or liquidity.

Effective the first quarter of fiscal 2010, the Company adopted revised accounting guidance for measuring liabilities at fair value. This accounting guidance provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following methods: 1) a valuation technique that uses a) the quoted price of the identical liability when traded as an asset or b) quoted prices for similar liabilities or similar liabilities when traded as assets and/or 2) a valuation technique that is consistent with the principles of the accounting guidance for fair value measurements and disclosures. This accounting guidance also clarifies that when estimating the fair value of a liability, a reporting entity is not required to adjust to include inputs relating to the existence of transfer restrictions on that liability. The Company’s adoption of this accounting guidance did not have a material impact on its financial position, results of operations or liquidity.

Recently Issued Accounting Pronouncements

In June 2009, the FASB issued revised guidance for the accounting of transfers of financial assets. This guidance improves the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. This accounting guidance will be effective for financial statements issued for fiscal years beginning after November 15, 2009, and interim periods within those fiscal years. Early adoption is not permitted. The Company is currently assessing the potential impact that adoption of this guidance will have on its financial position and results of operations.

In June 2009, the FASB issued revised guidance for the accounting of variable interest entities, which replaces the quantitative-based risks and rewards approach with a qualitative approach that focuses on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance. This accounting guidance also requires an ongoing reassessment of whether an entity is the primary beneficiary and requires additional disclosures about an enterprise’s involvement in variable interest entities. This accounting guidance will be effective for financial statements issued for fiscal years beginning after November 15, 2009, and interim periods within those fiscal years. Early adoption is not permitted. The Company does not believe that adoption of this guidance will have a material impact on its financial position and results of operations.

4. Fair Value of Certain Financial Assets and Liabilities

In accordance with the accounting guidance for fair value measurements, the following represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of April 2, 2010 (in thousands):

		Level 1				Level 2				Total
Assets:
Cash and cash equivalents		$	187,526			$	—			$	187,526
Marketable securities			10,768				—				10,768
Mindspeed warrant			—				23,254				23,254
Long-term restricted cash			5,703				—				5,703
Total Assets		$	203,997			$	23,254			$	227,251

Level 1 assets consist of the Company’s cash and cash equivalents, and restricted cash and marketable securities with a market value listed from a stock exchange.

Level 2 assets consist of the Company’s warrant to purchase approximately 6.1 million shares of Mindspeed common stock at an exercise price of $16.74 per share through June 2013. See Note 5 for the fair valuation of these warrants.

The Company had no financial assets or liabilities classified as Level 3 as of April 2, 2010.

The fair value of other financial instruments, which consist of the Company’s 4.00% convertible subordinated notes due March 2026 and the Company’s 11.25% senior secured notes due 2015, was $127.3 million (for the 4.00% convertible subordinated notes) and $175 million (for the 11.25% senior secured notes) as of April 2, 2010. The fair value of the 4.00% convertible subordinated notes was calculated using a quoted market price in an active market. The fair value of the 11.25% senior secured notes approximates the carrying value.

Inventories consist of the following (in thousands):

		April 2,				October 2,
		2010				2009
Work-in-process		$	6,641			$	5,002
Finished goods			2,929				4,214
Total inventories, net		$	9,570			$	9,216

At April 2, 2010 and October 2, 2009, inventories were net of excess and obsolete inventory reserves of $3.4 million and $6.4 million, respectively.

Intangible Assets

Intangible assets consist of the following (in thousands):

		April 2, 2010												October 2, 2009
		Gross												Gross
		Carrying				Accumulated				Book				Carrying				Accumulated				Book
		Amount				Amortization				Value				Amount				Amortization				Value
Product licenses			2,400				(821	)			1,579			$	2,400			$	(628	)		$	1,772
Other intangible assets			6,830				(3,533	)			3,297				6,830				(3,045	)			3,785
		$	9,230			$	(4,354	)		$	4,876			$	9,230			$	(3,673	)		$	5,557

Intangible assets are amortized over a weighted-average remaining period of approximately 4.9 years. Annual amortization expense is expected to be as follows (in thousands):

		2010				2011				2012				2013				Thereafter
Amortization expense		$	568			$	1,137			$	1,137			$	1,017			$	1,017

Assets Held for Sale

In November 2009, the Company committed to a plan for the sale of certain of the Company’s property located on Jamboree Road adjacent to its Newport Beach, California headquarters. The property consists of an approximately 25-acre site, including two leased buildings, certain personal property on the site, and all easements and other intangible rights appurtenant to the property. The cost of the assets classified as held for sale consists of the following (in thousands):

		April 2,
		2010
Land		$	1,662
Land and leasehold improvements, net			307
Buildings, net			5,312
Machinery and equipment, net			268
Site development costs			4,698
		$	12,247

The Company expects that the sale of these assets will be completed within approximately a one-year time period from the respective periods that they met the criteria for “held for sale accounting.”

Mindspeed Warrant

The Company has a warrant to purchase approximately 6.1 million shares of Mindspeed common stock at an exercise price of $16.74 per share through June 2013. At April 2, 2010 and October 2, 2009, the market value of Mindspeed common stock was $8.04 and $3.05 per share, respectively. The Company accounts for the Mindspeed warrant as a derivative instrument, and changes in the fair value of the warrant are included in other (expense) income, net each period. At April 2, 2010 and October 2, 2009, the aggregate fair value of the Mindspeed warrant included on the accompanying consolidated balance sheets was $23.3 million and $5.1 million, respectively. At April 2, 2010, the warrant was valued using the Black-Scholes-Merton model with an expected term of 3.24 years, expected volatility of 96%, a weighted average risk-free interest rate of 1.82% and no dividend yield. The aggregate fair value of the warrant is reflected as a long-term asset on the accompanying consolidated balance sheets because the Company does not intend to liquidate any portion of the warrant in the next twelve months.

The valuation of this derivative instrument is subjective, and option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Changes in these assumptions can materially affect the fair value estimate. The Company could, at any point in time, ultimately realize amounts significantly different than the carrying value.

Debt

Debt consists of the following (in thousands):

		April 2,				October 2,
		2010				2009
4.00% convertible subordinated notes due March 2026, net of debt discount of $6.9 million (1)		$	120,817			$	—
Accounts receivable financing facility			—				28,653
Current portion of long-term debt			—				61,400
Short-term debt		$	120,817			$	90,053
Floating rate senior secured notes due November 2010		$	—			$	61,400
4.00% convertible subordinated notes due March 2026, net of debt discount of $21.4 million (1)			—				228,578
11.25% senior secured notes due March 2015, net of discount of $1,619			173,381				—
Total			173,381				289,978
Less: current portion of long-term debt			—				(61,400	)
Long-term debt		$	173,381			$	228,578

11.25% senior secured notes due 2015— In March 2010, the Company issued $175.0 million aggregate principal amount of senior secured notes due 2015 (“senior notes”) that mature on March 15, 2015. The senior notes were sold at 99.06% of the principal amount, resulting in gross proceeds of approximately $173.4 million. Deferred debt offering expenses were approximately $4.9 million, and are being amortized over the term of the debt. The senior notes have not been registered under the Securities Act of 1933, as amended, and may not be sold in the United States absent registration or an applicable exemption from registration requirements. The senior notes accrue interest at a rate of 11.25% per annum payable semiannually on March 15 and September 15 of each year, commencing on September 15, 2010. The senior notes mature on March 15, 2015. The obligations under the senior notes are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis, by all of the Company’s existing domestic subsidiaries (except for Conexant CF, LLC and Conexant USA, LLC) and by all of the Company’s future domestic subsidiaries (except for immaterial subsidiaries and receivables financing subsidiaries). Conexant CF, LLC is the Company’s receivables financing subsidiary, and Conexant USA, LLC has no material assets, revenue or operations. In addition, the senior notes and the note guarantees are secured by liens on substantially all of the Company’s and the guarantors’ tangible and intangible property, subject to certain exceptions and permitted liens. On or after March 15, 2013, the Company may redeem all or a part of the senior notes at a price of 105.625% during the remainder of 2013 and 100.00% thereafter plus accrued and unpaid interest, if any, to the applicable redemption date. In addition, at any time prior to March 15, 2013, the Company may, on one or more occasions, redeem all or a part of the senior notes at any time at a redemption price equal to 100% of the principal amount of the senior notes redeemed, plus a “make-whole” premium, plus accrued and unpaid interest, if any, to the applicable redemption date. On or after January 1, 2011 until March 15, 2013, the Company may also redeem up to 35% of the original aggregate principal amount of the senior notes, using the proceeds of certain qualified equity offerings, at a redemption price of 111.25% of the principal amount thereof, plus accrued and unpaid interest, if any, to the applicable redemption date. If a change of control occurs, the Company must offer to repurchase the senior notes at a repurchase price equal to 101% of the principal amount of the senior notes repurchased, plus accrued and unpaid interest, if any, to the applicable repurchase date. In addition, certain asset dispositions will be triggering events that may require the Company to use the proceeds from those sales to make an offer to repurchase the senior notes at a repurchase price equal to 100% of the principal amount of the senior notes repurchased, plus accrued and unpaid interest, if any, to the applicable repurchase date if such proceeds are not otherwise invested in the Company’s business within a specific period of time. The senior notes and the note guarantees rank senior to all of the Company’s and the guarantors’ existing and future subordinated indebtedness, including the convertible notes, but they are structurally subordinated to all existing and future indebtedness and other liabilities (including non-trade payables) of the Company’s non-guarantor subsidiaries.

Floating rate senior secured notes due November 2010 — In December 2009, the Company repurchased all outstanding floating rate senior secured notes due November 2010 at a price of 101% of par and recorded a loss on extinguishment of $0.6 million. The notes were guaranteed by certain of the Company’s U.S. subsidiaries. The guarantee was released on December 22, 2009.

4.00% convertible subordinated notes due March 2026 — In March 2006, the Company issued $200.0 million principal amount of convertible notes and, in May 2006, the initial purchaser of the convertible notes exercised its option to purchase an additional $50.0 million principal amount of the convertible notes. Total proceeds to the Company from these issuances, net of issuance costs, were $243.6 million. The convertible notes are general unsecured obligations of the Company. Interest on the convertible notes is payable in arrears semiannually on each March 1 and September 1, beginning on September 1, 2006. The convertible notes are convertible, at the option of the holder upon satisfaction of certain conditions, into shares of the Company’s common stock at a conversion price of $49.20 per share, subject to adjustment for certain events. Upon

conversion, the Company has the right to deliver, in lieu of common stock, cash or a combination of cash and common stock. Beginning on March 1, 2011, the convertible notes may be redeemed at the Company’s option at a price equal to 100% of the principal amount, plus any accrued and unpaid interest. Holders may require the Company to repurchase, for cash, all or part of their convertible notes on March 1, 2011, March 1, 2016 and March 1, 2021 at a price of 100% of the principal amount, plus any accrued and unpaid interest.

During the fiscal quarter ended January 1, 2010, the Company exchanged 7.1 million shares of the Company’s common stock for $17.6 million aggregate principal amount of the convertible notes and recorded an extinguishment loss of $0.5 million on the exchange. The Company also paid accrued and unpaid interest in cash on the convertible notes exchanged through the settlement date of the exchange.

During the fiscal quarter ended April 2, 2010, the Company repurchased approximately $104.7 million of its 4.00% convertible subordinated notes due March 2026 by means of a tender offer. The remaining $120.8 million balance of 4.00% convertible subordinated notes, net of unamortized debt discount of $6.9 million, is classified as short term on the Company’s consolidated balance sheets because it is the intention of the Company to repurchase or redeem all of the remaining 4.00% convertible subordinated notes on or before March 1, 2011. Subsequent to April 2, 2010, the Company repurchased approximately $115.2 million of its 4.00% convertible subordinated notes due March 2026 by means of a private purchase, and paid accrued and unpaid interest on the convertible notes through the date of the repurchase. The Company will record an extinguishment loss on this transaction, which is primarily composed of the unamortized debt discount related to the notes repurchased.

Accounts Receivable Financing Facility

On November 29, 2005, the Company established an accounts receivable financing facility whereby it sold, from time to time, certain accounts receivable to Conexant USA, LLC (“Conexant USA”), a special purpose entity that is a consolidated subsidiary of the Company. Under the terms of the Company’s agreements with Conexant USA, the Company retained the responsibility to service and collect accounts receivable sold to Conexant USA and received a weekly fee from Conexant USA for handling administrative matters, which equaled to 1.0%, on a per annum basis, of the uncollected value of the accounts receivable. The Company’s $50.0 million credit facility secured by the assets of Conexant USA expired on November 27, 2009. All amounts owed on the credit facility were repaid as of January 1, 2010.

On December 22, 2009, the Company established a new accounts receivable financing facility whereby it sells, from time to time, certain accounts receivable to Conexant CF, LLC (“Conexant CF”), a special purpose entity which is a consolidated subsidiary of the Company. Under the terms of the Company’s agreements with Conexant CF, the Company retains the responsibility to service and collect accounts receivable sold to Conexant CF and receives a weekly fee from Conexant CF for handling administrative matters which is equal to 1.0%, on a per annum basis, of the uncollected value of the purchased accounts receivable.

Concurrently with entering into the new accounts receivable financing facility, Conexant CF entered into a new credit facility with a bank to finance the cash portion of the purchase price of eligible receivables. The new credit facility is secured by the assets of Conexant CF. Conexant CF is required to maintain certain minimum amounts on deposit (restricted cash) of approximately $0.8 million with the bank during the term of the credit agreement. Borrowings under the credit facility, which cannot exceed the lesser of $15.0 million (which may be increased up to $20 million pursuant to certain conditions set forth in the Credit Agreement) or 60% of the uncollected value of purchased accounts receivable that are eligible for coverage under an insurance policy for the receivables and bear interest equal to the bank Prime Rate (minimum of 4%) plus applicable margins (between 1.5% to 2.25%). In addition, if the aggregate amount of interest earned by the bank in any month is less than $20,000, Conexant CF pays an amount equal to the minimum monthly interest of $20,000 minus the aggregate amount of all interest earned by the bank. The credit agreement matures on December 31, 2010 and remains subject to additional 364-day renewal periods at the discretion of the bank.

The credit facility is subject to financial covenants including a minimum level of shareholders’ equity covenant, an adjusted quick ratio covenant, and a minimum cash and cash equivalents covenant. Further, any failure by the Company or Conexant CF to pay their respective debts as they become due would allow the bank to terminate the credit agreement and cause all borrowings under the credit facility to immediately become due and payable. At April 2, 2010, Conexant CF had not borrowed any amounts under this credit facility.

6. Commitments and Contingencies

Legal Matters

Certain claims have been asserted against the Company, including claims alleging the use of the intellectual property rights of others in certain of the Company’s products. The resolution of these matters may entail the negotiation of a license agreement, a settlement, or the adjudication of such claims through arbitration or litigation. The outcome of litigation cannot be predicted with certainty, and some lawsuits, claims or proceedings may be disposed of unfavorably for the Company. Many intellectual property disputes have a risk of injunctive relief and there can be no assurance that a license will be granted. Injunctive relief could have a material adverse effect on the financial condition or results of operations of the Company. Based on its evaluation of matters that are pending or asserted and taking into account the Company’s reserves for such matters, management believes that the disposition of such matters will not have a material adverse effect on the Company’s financial condition, results of operations, or cash flows.

Guarantees and Indemnifications

The Company has made guarantees and indemnities, under which it may be required to make payments to a guaranteed or indemnified party, in relation to certain transactions. In connection with the Company’s spin-off from Rockwell International Corporation (“Rockwell”), the Company assumed responsibility for all contingent liabilities and then-current and future litigation (including environmental and intellectual property proceedings) against Rockwell or its subsidiaries in respect of the operations of the semiconductor systems business of Rockwell. In connection with the Company’s contribution of certain of its manufacturing operations to Jazz Semiconductor, Inc. (“Jazz”), the Company agreed to

indemnify Jazz for certain environmental matters and other customary divestiture-related matters. In connection with the Company’s sale of the BMP business to NXP, the Company agreed to indemnify NXP for certain claims related to the transaction. In connection with the Company’s sale of the BBA business to Ikanos, the Company agreed to indemnify Ikanos for certain claims related to the transaction. In connection with the sales of its products, the Company provides intellectual property indemnities to its customers. In connection with certain facility leases, the Company has indemnified its lessors for certain claims arising from the facility or the lease. The Company indemnifies its directors and officers to the maximum extent permitted under the laws of the State of Delaware.

The durations of the Company’s guarantees and indemnities vary, and in many cases are indefinite. The guarantees and indemnities to customers in connection with product sales generally are subject to limits based upon the amount of the related product sales. The majority of other guarantees and indemnities do not provide for any limitation of the maximum potential future payments the Company could be obligated to make. The Company has not recorded any liability for these guarantees and indemnities in the accompanying consolidated balance sheets as they are not estimated to be material. Product warranty costs are not significant.

7. Stock-Based Award Plans

The Company has stock option plans and long-term incentive plans under which employees and directors may be granted options to purchase shares of the Company’s common stock. As of April 2, 2010, approximately 9.8 million shares of the Company’s common stock are available for grant under the stock option and long-term incentive plans. Stock options are granted with exercise prices of not less than the fair market value at grant date, generally vest over three to four years and expire eight or ten years after the grant date. The Company settles stock option exercises with newly issued shares of common stock. The Company has also assumed stock option plans in connection with business combinations.

Stock Options

The Company accounts for its stock options in accordance with the accounting guidance for share-based payments. The Company is required to measure compensation cost for all stock-based awards at fair value on the date of grant and recognize compensation expense in its consolidated statements of operations over the service period that the awards are expected to vest. The Company measures the fair value of service-based awards on the date of grant.

The following weighted average assumptions were used in the estimated grant date fair value calculations for share-based payments:

		Fiscal Quarter Ended								Six Fiscal Months Ended
		April 2,				April 3,				April 2,				April 3,
		2010				2009				2010				2009
Stock option plans:
Expected dividend yield			—				0	%			—				0	%
Expected stock price volatility			—				79	%			—				77	%
Risk free interest rate			—				1.80	%			—				2.00	%
Average expected life (in years)			—				4.68				—				4.86
Stock purchase plans:
Expected dividend yield			—				0	%			—				0	%
Expected stock price volatility			94	%			74	%			94	%			74	%
Risk free interest rate			0.17	%			3.14	%			0.17	%			3.14	%
Average expected life (in years)			0.50				0.50				0.50				0.50

The expected stock price volatility rates are based on the historical volatility of the Company’s common stock. The risk-free interest rates are based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option or award. The average expected life represents the weighted average period of time that options or awards granted are expected to be outstanding.

A summary of stock option activity is as follows (shares in thousands):

						Weighted
						Average Exercise
		Shares				Price
Outstanding, October 2, 2009			4,210			$	23.20
Granted			—				—
Exercised			(30	)			0.59
Forfeited			(1,021	)			18.40
Outstanding, April 2, 2010			3,159				24.92
Shares vested and expected to vest, April 2, 2010			3,156				24.94
Exercisable, April 2, 2010			2,989			$	25.76

At April 2, 2010, of the 3.2 million stock options outstanding, approximately 2.4 million options were held by current employees and directors of the Company, and approximately 0.8 million options were held by employees of former businesses of the Company (i.e., Mindspeed, Skyworks) who remain employed by one of these businesses. At April 2, 2010, stock options outstanding had an aggregate intrinsic value of approximately $0.1 million and a weighted-average remaining contractual term of 2.1 years. At April 2, 2010, exercisable stock options had an immaterial aggregate intrinsic value and a weighted-average remaining contractual term of 1.9 years. Options exercised during the fiscal quarter ended April 2, 2010 had an intrinsic value of $0.1 million. No options were exercised during the fiscal quarter ended April 3, 2009. At April 2, 2010, the total unrecognized fair value compensation cost related to non-vested stock option awards was $0.4 million, which is expected to be recognized over a remaining weighted average period of approximately one year.

During the fiscal quarter and six fiscal months ended April 2, 2010, the Company recognized stock-based compensation expense of $0.6 million and $1.2 million, respectively, for stock options, in its consolidated statements of operations. During the fiscal quarter and six fiscal months ended April 3, 2009, the Company recognized stock-based compensation expense of $1.7 million and $3.1 million, respectively, for stock options, in its consolidated statements of operations.

Restricted Stock Units

The Company’s long-term incentive plans also provide for the issuance of share-based restricted stock unit (“RSU”) awards to officers and other employees and certain non-employees of the Company. These awards are subject to forfeiture if employment terminates during the prescribed vesting period (generally within one to two years of the date of award). The Company maintains the 2010 Equity Incentive Plan, which was approved by stockholders in February 2010 and under which the Company has reserved 12 million shares for issuance and the 2004 New Hire Equity Incentive Plan, under which it reserved 1.2 million shares for issuance. The 2000 Non-Qualified plan expired in the fiscal quarter ended January 1, 2010 and the Company may not make new awards under that plan after its expiration. All awards granted under these plans are service-based awards. Awards issued under the 2000 Non-Qualified Plan and the 2004 New Hire Equity Incentive Plan are settled in shares of common stock.

A summary of RSU award activity under the Company’s plans is as follows (shares in thousands):

						Weighted
						Average Grant
		Shares				Date Fair Value
Outstanding, October 2, 2009			165			$	2.82
Granted			3,575				2.87
Vested			(42	)			2.80
Forfeited			(88	)			2.79
Outstanding, April 2, 2010			3,610			$	2.87

During the fiscal quarter and six fiscal months ended April 2, 2010, the Company recognized stock-based compensation expense of $1.3 million and $2.1 million, respectively, related to RSU awards. During the fiscal quarter and six fiscal months ended April 3, 2009, the Company recognized stock-based compensation expense of $0.5 million and $1.4 million, respectively, related to RSU awards. At April 2, 2010, the total unrecognized fair value stock-based compensation cost related to RSU awards was $8.3 million, which is expected to be recognized over a weighted average period of 1.3 years.

In the first fiscal quarter of 2010, the Company reinstated the 2001 Employee Stock Purchase Plan (“ESPP”) for eligible domestic employees and the 1999 Non Qualified ESPP for eligible international employees. The first purchase period commenced February 1, 2010. The ESPP allows eligible employees to purchase shares of the Company’s common stock at six-month intervals during an offering period at 85% of the lower of the fair market value on the first day of the offering period or the purchase date. Under the ESPP, employees authorize the Company to withhold up to 15% of their compensation for each pay period, up to a maximum annual amount of $25,000, to purchase shares under the plan, subject to

certain limitations, and employees are limited to the purchase of 600 shares per offering period. Offering periods generally commence on the first trading day of February and August of each year and are generally six months in duration, but may be terminated earlier under certain circumstances.

During the fiscal quarter and six fiscal months ended April 2, 2010, the Company recognized stock-based compensation expense of $40 thousand for stock purchase plans in its consolidated statements of operations. During the fiscal quarter and six fiscal months ended April 3, 2009, the Company recognized stock-based compensation expense of $34 thousand and $0.1 million, respectively, for stock purchase plans in its consolidated statements of operations.

8. Comprehensive Income (Loss)

Comprehensive income (loss) consists of the following (in thousands):

		Fiscal Quarter Ended								Six Fiscal Months Ended
		April 2,				April 3,				April 2,				April 3,
		2010				2009				2010				2009
Net income (loss)		$	10,879			$	(17,113	)		$	19,213			$	(38,105	)
Other comprehensive income (loss):
Foreign currency translation adjustments			427				(660	)			820				(1,755	)
Unrealized gains on marketable securities			10,469				664				10,469				650
Unrealized losses on foreign currency forward hedge contracts			—				—				—				(153	)
Unrealized losses on interest rate swap contracts			—				(408	)			—				(2,592	)
Realized loss on impairment of marketable securities			—				—				—				1,986
Realized loss on interest rate swap contracts			—				—				1,728				—
Gains on settlement of foreign currency forward hedge contracts			—				—				—				659
Other comprehensive income (loss)			10,896				(404	)			13,017				(1,205	)
Comprehensive income (loss)		$	21,775			$	(17,517	)		$	32,230			$	(39,310	)

Accumulated other comprehensive income (loss) consists of the following (in thousands):

		April 2,				October 2,
		2010				2009
Unrealized gain on marketable securities		$	10,469			$	—
Foreign currency translation adjustments			24				(796	)
Unrealized losses on derivative instruments			—				(1,728	)
Accumulated other comprehensive income (loss)		$	10,493			$	(2,524	)

9. Income Taxes

The Company recorded a tax provision of $0.3 million and $0.1 million for the fiscal quarter and six fiscal months ended April 2, 2010, respectively, primarily reflecting income taxes imposed on our foreign subsidiaries. The Company recorded a tax provision of $0.2 million and $0.6 million for the fiscal quarter and six fiscal months ended April 3, 2009, respectively, primarily reflecting income taxes imposed on our foreign subsidiaries. All of our U.S. federal income taxes and the majority of our state income taxes are offset by fully reserved deferred tax assets.

10. Gain on Sale of Intellectual Property

In October 2008, the Company sold a portfolio of patents, including patents related to its prior wireless networking technology, to a third party for cash of $14.5 million, net of costs, and recognized a gain of $12.9 million on the transaction for the quarter ended January 2, 2009. In accordance with the terms of the agreement with the third party, the Company retains a cross-license to this portfolio of patents.

11. Special Charges

For the fiscal quarter ended April 2, 2010, special credits consisted of $0.2 million for restructuring expense credits primarily related to an adjustment as a result of re-utilization of a portion of a facility. For the six fiscal months ended April 2, 2010, special charges consisted of $0.1 million for restructuring charges primarily related to accretion of lease liability offset by the utilization adjustment in the second fiscal quarter. For the fiscal quarter ended April 3, 2009, special charges consisted primarily of $1.9 million of restructuring charges. For the six fiscal months ended April 3, 2009, special charges primarily consisted of $8.4 million for restructuring charges related to revised sublease assumptions associated with vacated facilities and a $3.7 million charge for a legal settlement.

Restructuring Charges

The Company has implemented a number of cost reduction initiatives since fiscal 2005 to improve its operating cost structure. The cost reduction initiatives included workforce reductions and the closure or consolidation of certain facilities, among other actions.

As of April 2, 2010, the Company has remaining restructuring accruals of $38.5 million, of which $0.3 million relates to workforce reductions and $38.2 million relates to facility and other costs. Of the $38.5 million of restructuring accruals at April 2, 2010, $7.2 million is included in other current liabilities and $31.3 million is included in other non-current liabilities in the accompanying consolidated balance sheets. The Company expects to pay the amounts accrued for the workforce reductions through fiscal 2010 and expects to pay the obligations for the non-cancelable lease and other commitments over their respective terms, which expire at various dates through fiscal 2021. The facility charges were determined in accordance with the accounting guidance for accounting for costs associated with exit or disposal activities. The Company’s accrued liabilities include the net present value of the future lease obligations of $68.9 million, net of contracted sublease income of $16.4 million, and projected sublease income of $14.3 million, and the Company will accrete the remaining amounts into expense over the remaining terms of the non-cancellable leases. Cash payments to complete the restructuring actions will be funded from available cash reserves and funds from operating activities and are not expected to significantly impact the Company’s liquidity. In the six fiscal months ended April 2, 2010, the Company recorded $0.8 million additional restructuring expense, primarily due to accretion of lease liability on restructured facilities. Of this amount, $0.7 million was classified in discontinued operations.

Fiscal 2009 Restructuring Actions — As part of a workforce reduction implemented during fiscal 2009, the Company completed actions that resulted in the elimination of 183 positions worldwide. In relation to these restructuring actions in fiscal 2009, the Company recorded $4.9 million of total charges for the cost of severance benefits for the affected employees, $0.6 million of which were included in discontinued operations related to our BBA business. In the six fiscal months ended April 2, 2010, the Company recorded an adjustment to severance expense of $0.1 million related to the 2009 restructuring action.

Activity and liability balances recorded as part of the fiscal 2009 restructuring actions through April 2, 2010 were as follows (in thousands):

		Workforce
		Reductions
Charged to costs and expenses		$	4,893
Cash payments			(3,311	)
Restructuring balance, October 2, 2009			1,582
Charged to costs and expenses			(69	)
Cash payments			(1,227	)
Restructuring balance, April 2, 2010		$	286

Fiscal 2008 Restructuring Actions — During fiscal 2008, the Company announced its decision to discontinue investments in standalone wireless networking solutions and other product areas. In relation to these announcements, the Company has recorded $6.3 million of total charges for the cost of severance benefits for the affected employees. Additionally, the Company recorded charges of $1.8 million relating to the consolidation of certain facilities under non-cancelable leases which were vacated. As a result of the sale of the BBA business, restructuring expenses of $0.8 million incurred in fiscal 2008, which related to fiscal 2008 restructuring actions, were reclassified to discontinued operations in the consolidated statements of operations.

Restructuring charges in the fiscal year ended October 2, 2009 related to the fiscal 2008 restructuring actions included $0.6 million of additional severance charges.

Restructuring charges in the six fiscal months ended April 2, 2010 related to the fiscal 2008 restructuring actions included $0.1 million of additional facility charges.

Activity and liability balances recorded as part of the fiscal 2008 restructuring actions through April 2, 2010 were as follows (in thousands):

		Workforce				Facility
		Reductions				and Other				Total
Charged to costs and expenses		$	6,254			$	1,762			$	8,016
Cash payments			(6,161	)			(731	)			(6,892	)
Restructuring balance, October 3, 2008			93				1,031				1,124
Charged to costs and expenses			580				36				616
Reclassification to other current liabilities and other liabilities			—				(127	)			(127	)
Cash payments			(673	)			(876	)			(1,549	)
Restructuring balance, October 2, 2009			—				64				64
Charged to costs and expenses			—				94				94
Cash payments			—				(44	)			(44	)
Restructuring balance, April 2, 2010		$	—			$	114			$	114

Fiscal 2007 Restructuring Actions — During fiscal 2007, the Company announced several facility closures and workforce reductions. In total, the Company notified approximately 670 employees of their involuntary termination and recorded $9.5 million of total charges for the cost of severance benefits for the affected employees. Additionally, the Company recorded charges of $2.0 million relating to the consolidation of certain facilities under non-cancelable leases that were vacated. The non-cash facility accruals resulted from the reclassification of deferred gains on the previous sale-leaseback of two facilities totaling $8.0 million in fiscal 2008 and $4.9 million in fiscal 2007. As a result of the Company’s sale of its BMP business unit in fiscal 2008, $2.9 million and $2.2 million incurred in fiscal 2008 and 2007, respectively, related to the fiscal 2007 restructuring actions and were reclassified to discontinued operations in the consolidated statements of operations. The domestic economic downturn experienced during fiscal 2009 resulted in declines in real estate lease rates and adversely impacted the Company’s ability to secure sub-tenants for a facility located in San Diego. These declines resulted in a decrease in estimated future projected sub lease rental income, causing a $14.3 million additional restructuring charge for the facility. The remaining additional facility restructuring charge of $1.8 million is due to accretion of lease liability. The majority of the facility supported the operations of the BMP business sold in August 2008. The additional restructuring charge of $16.1 million was allocated between the BMP business and continuing operations based upon the historical use of the facility. Of the $16.1 million restructuring charge, $10.8 million was included in discontinued operations and $5.3 million was charged to operating expenses.

As a result of the sale of the BBA business, restructuring expenses of $2.7 million, incurred in fiscal 2007, which related to fiscal 2007 restructuring actions, were reclassified to discontinued operations in the consolidated statements of operations.

Restructuring charges in the six fiscal months ended April 2, 2010 related to the fiscal 2007 restructuring actions included $1.1 million of a credit to facility charges due to re-utilization of the facility offset by $0.6 million additional facility charges resulting from accretion of lease liability on restructured facilities. Of these amounts, $0.7 million was classified in discontinued operations because it related to the BMP facility.

Activity and liability balances recorded as part of the fiscal 2007 restructuring actions through April 2, 2010 were as follows (in thousands):

		Workforce				Facility
		Reductions				and Other				Total
Charged to costs and expenses		$	9,477			$	2,040			$	11,517
Non-cash items			—				4,868				4,868
Cash payments			(5,841	)			(268	)			(6,109	)
Restructuring balance, September 28, 2007			3,636				6,640				10,276
Charged to costs and expenses			11				6,312				6,323
Non-cash items			—				8,039				8,039
Cash payments			(3,631	)			(4,309	)			(7,940	)
Restructuring balance, October 3, 2008			16				16,682				16,698
Charged to costs and expenses			(1	)			16,130				16,129
Cash payments			(15	)			(5,579	)			(5,594	)
Restructuring balance, October 2, 2009			—				27,233				27,233
Charged to costs and expenses			—				495				495
Cash payments			—				(2,882	)			(2,882	)
Restructuring balance, April 2, 2010		$	—			$	24,846			$	24,846

Fiscal 2006 and 2005 Restructuring Actions — During fiscal years 2006 and 2005, the Company announced operating site closures and workforce reductions. In total, the Company notified approximately 385 employees of their involuntary termination. During fiscal 2006 and 2005, the Company recorded total charges of $24.1 million based on the estimates of the cost of severance benefits for the affected employees and the

estimated relocation benefits for those employees who were offered and accepted relocation assistance. Additionally, the Company recorded charges of $21.3 million relating to the consolidation of certain facilities under non-cancelable leases that were vacated. Restructuring charges in fiscal 2009 related to the fiscal 2006 and 2005 restructuring actions included $4.2 million due to a decrease in estimated future rental income from sub-tenants resulting from declines in sub lease activity and $0.8 million due to accretion of lease liability.

Restructuring charges in six fiscal months ended April 2, 2010 related to the fiscal 2006 and 2005 restructuring actions included $0.3 million of additional facility charges due to accretion of lease liability.

Activity and liability balances recorded as part of the fiscal 2006 and fiscal 2005 restructuring actions through April 2, 2010 were as follows (in thousands):

		Workforce				Facility
		Reductions				and Other				Total
Restructuring balance, October 1, 2005		$	3,609			$	25,220			$	28,829
Charged to costs and expenses			1,852				1,407				3,259
Reclassification from accrued compensation and benefits and other			1,844				55				1,899
Cash payments			(5,893	)			(8,031	)			(13,924	)
Restructuring balance, September 29, 2006			1,412				18,651				20,063
Reclassification to other current liabilities and other liabilities			—				(2,687	)			(2,687	)
Charged to costs and expenses			55				559				614
Cash payments			(1,336	)			(4,007	)			(5,343	)
Restructuring balance, September 28, 2007			131				12,516				12,647
Reclassification from other current liabilities and other liabilities			—				3,359				3,359
Charged to costs and expenses			(130	)			285				155
Cash payments			(1	)			(5,123	)			(5,124	)
Restructuring balance, October 3, 2008			—				11,037				11,037
Charged to costs and expenses			—				4,989				4,989
Cash payments			—				(2,175	)			(2,175	)
Restructuring balance, October 2, 2009			—				13,851				13,851
Charged to costs and expenses			—				293				293
Cash payments			—				(906	)			(906	)
Restructuring balance, April 2, 2010		$	—			$	13,238			$	13,238

12. Other (Income) Expense, net

Other (income) expense, net consists of the following (in thousands):

		Fiscal Quarter Ended								Six Fiscal Months Ended
		April 2,				April 3,				April 2,				April 3,
		2010				2009				2010				2009
Investment and interest income		$	(64	)		$	(451	)		$	(120	)		$	(1,308	)
Gain on sale of investments			(3,621	)			—				(7,734	)			(53	)
Loss on extinguishment of secured debt			—				—				614				—
Loss on extinguishment of convertible debt			9,481				—				9,991				—
Other-than-temporary impairment of marketable securities and cost based investments			—				135				—				2,770
Increase in the fair value of derivative instruments			(13,916	)			(1,078	)			(18,201	)			(596	)
Other			365				(421	)			491				(701	)
Other (income) expense, net		$	(7,755	)		$	(1,815	)		$	(14,959	)		$	112

Other (income), net during the fiscal quarter ended April 2, 2010 was primarily comprised of a $3.6 million gain on sale of equity investments and a $13.9 million increase in the fair value of the Company’s warrant to purchase 6.1 million shares of Mindspeed common stock, offset by a loss of $9.5 million on extinguishment of convertible debt, which consists of $6.2 million of unamortized debt discount and $3.3 million of transaction costs. Other (income), net during the six fiscal months ended April 2, 2010 was primarily comprised of a $7.7 million gain on sale of equity investments and a $18.2 million increase in the fair value of the Company’s warrant to purchase 6.1 million shares of Mindspeed common stock, offset by a loss of $10.0 million on extinguishment of convertible debt, which consists of $7.6 million of unamortized debt discount, $3.4 million of transaction costs offset by $1.0 million of gain on exchange below par value, and a loss of $0.6 million on extinguishment of secured debt.

Other (income), net during the fiscal quarter ended April 3, 2009 was primarily comprised of investment and interest income on invested cash balances of $0.5 million and a $1.1 million increase in the fair value of the Company’s warrant to purchase 6.1 million shares of Mindspeed common stock, offset by an other-than-temporary impairment of cost based investments of $0.1 million. Other expense, net during the six fiscal months ended April 3, 2009 was primarily comprised of an other-than-temporary impairment of marketable and cost based investments of $2.7 million, offset by investment and interest income on invested cash balances of $1.3 million and a $0.6 million increase in the fair value of the Company’s warrant to purchase 6.1 million shares of Mindspeed common stock.

13. Related Party Transactions

Mindspeed Technologies, Inc.

As of April 2, 2010, the Company holds a warrant to purchase 6.1 million shares of Mindspeed common stock at an exercise price of $16.74 per share exercisable through June 2013. In addition, two members of the Company’s Board of Directors also serve on the Board of Mindspeed. No significant amounts were due to or receivable from Mindspeed at April 2, 2010 or at October 2, 2009.

Lease Agreement — The Company subleases an office building to Mindspeed. Under the sublease agreement, Mindspeed pays amounts for rental expense and operating expenses, which include utilities, common area maintenance, and security services. During the fiscal quarter and six fiscal months ended April 2, 2010 and April 3, 2009, the Company recorded income related to the Mindspeed sublease agreement of $0.4 million and $0.8 million, and $0.4 million and $0.8 million, respectively. Additionally, Mindspeed made payments directly to the Company’s landlord totaling $0.9 million and $0.8 million during the fiscal quarters ended April 2, 2010 and April 3, 2009, respectively, and $1.8 million and $1.6 million during the six fiscal months ended April 2, 2010 and April 3, 2009, respectively.

14. Geographic Information

Net revenues by geographic area, based upon country of destination, were as follows (in thousands):

		Fiscal Quarter Ended								Six Fiscal Months Ended
		April 2,				April 3,				April 2,				April 3,
		2010				2009				2010				2009
United States		$	3,103			$	1,449			$	5,841			$	3,676
Other Americas			1,129				656				2,385				2,146
Total Americas			4,232				2,105				8,226				5,822
China			35,461				28,551				71,211				63,838
Other Asia-Pacific			21,486				12,558				42,541				30,016
Total Asia-Pacific			56,947				41,109				113,752				93,854
Europe, Middle East and Africa			689				751				1,703				1,752
		$	61,868			$	43,965			$	123,681			$	101,428