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Supplemental Balance Sheet Data
 12 Months Ended
Sep. 30, 2011
Supplemental Balance Sheet Data [Abstract]  
Supplemental Balance Sheet Data
6. Supplemental Balance Sheet Data

Inventories

Inventories consist of the following (in thousands):

 

                 
    Successor     Predecessor  
    September 30,
2011		     October 1,
2010		  

Work-in-process

   $ 7,973     $ 4,840  

Finished goods

     4,720       3,907  
   

 

 

    

 

 

  

Total inventories

   $ 12,693     $ 8,747  
   

 

 

    

 

 

  

Finished goods as of September 30, 2011 includes $1.2 million remaining step-up to fair value recorded in connection with the Merger.

The Company assesses the recoverability of inventories through an ongoing review of inventory levels in relation to sales backlog and forecasts, product marketing plans and product life cycles. When the inventory on hand exceeds the foreseeable demand, the value of inventory that at the time of the review is not expected to be sold is written down. The amount of the write-down is the excess of historical cost over estimated realizable value. Once established, these write-downs are considered permanent adjustments to the cost basis of the excess inventory.

The assessment of the recoverability of inventories, and the amounts of any write-downs, are based on currently available information and assumptions about future demand (generally over 12 months) and market conditions. Demand for the Company’s products may fluctuate significantly over time, and actual demand and market conditions may be more or less favorable than those projected by management. In the event that actual demand is lower than originally projected, additional inventory write-downs may be required.

The Company may retain and make available for sale some or all of the inventories which have been written down. In the event that actual demand is higher than originally projected, the Company may be able to sell a portion of these inventories in the future. The Company generally scraps inventories which have been written down and are identified as obsolete.

The Company recorded a lower of cost or market adjustment of $0.2 million in the successor period from April 20, 2011 through September 30, 2011 reflecting a price decrease on certain inventory. There were no lower of cost or market adjustments in any other period presented.

Property, Plant and Equipment

Property, plant and equipment consist of the following (in thousands):

 

                 
    Successor     Predecessor  
    September 30,
2011		     October 1,
2010		  

Land and leasehold improvements

     2,893       4,721  

Buildings

     311       2,540  

Machinery and equipment

     9,335       28,857  

Construction in progress

     —         12  
   

 

 

    

 

 

  
      12,539       36,130  

Accumulated depreciation and amortization

     (1,747 )      (30,050 ) 
   

 

 

    

 

 

  
    $ 10,792     $ 6,080  
   

 

 

    

 

 

  

The basis of property, plant and equipment as of September 30, 2011 is fair value recorded as of the merger date and depreciation recorded for the period from April 20, 2011 through September 30, 2011.

For the successor period from April 20, 2011 through September 30, 2011 and the predecessor period from October 2, 2010 through April 19, 2011 and the fiscal years ended October 1, 2010 and October 2, 2009, depreciation expense was $1.7 million, $1.4 million, $3.4 million and $8.2 million, respectively.

During fiscal 2010, as a result of a physical inventory of fixed assets conducted during the fiscal year, the Company retired fixed assets with a gross book value of $31.6 million that were fully depreciated and no longer in use.

 

During fiscal 2009, the Company recorded an impairment charge of $0.9 million on its fixed assets, $0.2 million of which were charged to continuing operations and $0.7 million of which were charged to discontinued operations.

Goodwill and Purchased Intangible Assets

Intangible assets consist of the following as of September 30, 2011 (in thousands):

 

                                                 
    Successor  
    September 30, 2011  
    Weighted
Average
Life (yrs)		     Gross
Carrying
Amount		     Transfers     Accumulated
Amortization		     Impairment     Book
Value		  

Intangible assets subject to amortization:

                                                

Customer relationships

     7.0     $ 50,300     $ —       $ (4,682 )    $ (19,128 )    $ 26,490  

Backlog

     0.5       4,200       —         (4,200 )      —         —    

Patents

     8.3       2,900       —         (158 )      —         2,742  

R&D assets

     3.0       —         892       (54 )      —         838  

Software licenses

     —         —         —         —         —         —    

Non-compete agreement

     1.0       100       —         (45 )      —         55  
           

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
            $ 57,500     $ 892     $ (9,139 )    $ (19,128 )    $ 30,125  
           

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Intangible assets not subject to amortization:

                                                

In-process research and development

             46,000       (892 )              (18,258 )      26,850  

Trade name and trademarks

             15,100       —                 (3,650 )      11,450  
           

 

 

    

 

 

            

 

 

    

 

 

  
            $ 61,100     $ (892 )            $ (21,908 )    $ 38,300  
           

 

 

    

 

 

            

 

 

    

 

 

  

Intangible assets are amortized over their estimated useful lives either on a straight-line or accelerated basis that reflects the pattern in which the economic benefits of the intangible assets are expected to be realized, which range from approximately six months to eight years, with no residual value. During the successor period from April 20, 2011 through September 30, 2011, the Company recognized intangible amortization expense of $9.1 million. During the predecessor period from October 2, 2010 through April 19, 2011, the Company recognized intangible amortization expense of $0.6 million.

Intangible assets are amortized over a weighted-average remaining period of approximately 6.6 years. Annual amortization expense is expected to be as follows (in thousands):

 

                                                 
    Fiscal Year  
    2012     2013     2014     2015     2016     Thereafter  

Amortization expense

   $ 7,967     $ 6,240     $ 4,923     $ 3,658     $ 2,893     $ 4,444  

Acquired IPR&D intangible assets consist of projects in the Company’s audio, imaging and video product lines. All of the projects were in the development phase and were incomplete at the Merger date. In the successor period from April 20, 2011 through September 30, 2011, one audio project reached technological feasibility and the related product began shipping. The fair value of the project was determined to be $0.9 million, amortizable over the life of the product which is estimated to be three years. The remaining IPR&D projects have yet to reach technological feasibility and will continue to be amortized over their remaining estimated useful lives or, if they do not reach technological feasibility their cost will be charged to expense. Cash flows from IPR&D intangible assets in fiscal 2011 consist of project expenses. Revenues and gross margin contribution are not expected from remaining IPR&D intangible assets until fiscal 2012.

During the fourth quarter of fiscal 2011, the Company determined that indicators of impairment existed based on its operating results for the fiscal year ended September 30, 2011 and decreases in sales forecasts for future periods. As a result of these indicators of impairment the Company tested its amortizable intangible assets by comparing the sum of the undiscounted cash flows related to customer relationship and patent intangible assets to their carrying values as of September 30, 2011. The sum of undiscounted cash flows related to the customer relationships intangible asset was less than its carrying value, therefore we recorded an impairment charge of $19.1 million representing the difference between its fair value and its carrying value as of September 30, 2011. The sum of undiscounted cash flows related to the patents intangible asset was greater than its carrying value as of September 30, 2011 therefore no impairment charge was recorded on the patents intangible asset as of September 30, 2011.

 

The Company tested its indefinite-lived intangible assets for impairment by comparing the fair value of the indefinite-lived intangible assets to their carrying amounts. The fair value of the IPR&D intangible asset, based on a discounted cash flow model using the revised sales forecast for each project which continued to be classified as IPR&D as of September 30, 2011, was less than the carrying amount of the IPR&D intangible asset as of September 30, 2011 resulting in an impairment charge of $15.1 million. The fair value of the completed IPR&D project of $0.9 million was less than the historical carrying value of the project in IPR&D of $4.1 million as of the Merger date resulting in an impairment charge of $3.2 million. Amortization expense on the project in the successor period from April 20, 2011 through September 30, 2011 was $0.1 million. The fair value of the trade name and trademarks intangible asset, based on a discounted cash flow model using the revised sales forecast was less than the carrying amount of trade name and trademarks resulting in an impairment charge of $3.6 million.

Intangible assets consist of the following as of October 1, 2010 (in thousands):

 

                         
    Predecessor  
    October 1, 2010  
    Gross
Carrying
Amount		     Accumulated
Amortization		     Book
Value		  

Product licenses

   $ 2,400     $ (1,004 )    $ 1,396  

Other intangible assets

     6,830       (3,918 )      2,912  
   

 

 

    

 

 

    

 

 

  
    $ 9,230     $ (4,922 )    $ 4,308  
   

 

 

    

 

 

    

 

 

  

During the predecessor fiscal year ended October 2, 2009, the Company recorded impairment charges related to intangible assets of $0.3 million, which were charged to discontinued operations.

The changes in the carrying amounts of goodwill were as follows (in thousands):

 

                         
    Fiscal Period Ended  
    Successor     Predecessor  
    September 30,
2011		     April 19,
2011		     October 1,
2010		  

Goodwill at beginning of period

   $ 109,908     $ 109,908     $ 109,908  

Predecessor goodwill eliminated in purchase accounting

     (109,908 )      —         —    

Excess purchase price atttributed to goodwill acquired

     223,853       —         —    
   

 

 

    

 

 

    

 

 

  

Goodwill at end of period

   $ 223,853     $ 109,908     $ 109,908  
   

 

 

    

 

 

    

 

 

  

Based on the result of the first step of the goodwill impairment test, the Company determined that the fair value of its business was less than its carrying value as of September 30, 2011. As a result, the Company performed the second step of the goodwill impairment test. Based on the result of the second step test the Company determined that the implied fair value of goodwill was greater than the carrying amount of goodwill as of September 30, 2011 therefore no impairment of goodwill is required as of September 30, 2011. Because of the significance of the Company’s remaining goodwill and intangible asset balances, any future impairment of these assets could have a material adverse effect on its financial condition and results of operations, although, as a charge, it would have no effect on our cash flow. Significant impairments may also impact shareholders’ equity.

Other Current Assets

Other current assets consist of the following (in thousands):

 

                 
    Successor     Predecessor  
    September 30,
2011		     October 1,
2010		  

Other receivables

   $ 499     $ 678  

Deferred tax asset

     —         121  

Prepaid technical licenses

     3,792       4,180  

Other prepaid expenses

     2,228       6,402  

Other current assets

     1,050       3,309  
   

 

 

    

 

 

  
    $ 7,569     $ 14,690  
   

 

 

    

 

 

  

 

Other Assets

Other assets consist of the following (in thousands):

 

                 
    Successor     Predecessor  
    September 30,
2011		     October 1,
2010		  

Mindspeed warrant

   $ 1,708     $ 20,685  

Long-term restricted cash

     5,064       5,600  

Electronic design automation tools

     1,897       6,830  

Deferred debt issuance costs

     —         4,386  

Investments

     5,570       3,290  

Deferred tax asset

     1,348       1,409  

Other non-current assets

     1,252       864  
   

 

 

    

 

 

  
    $ 16,839     $ 43,064  
   

 

 

    

 

 

  

Amounts in the prior year have been reclassified to conform with the current year presentation.

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 September 30, 2011 and October 1, 2010, the market value of Mindspeed common stock was $5.20 and $7.73 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 (income) expense, net each period. At September 30, 2011 and October 1, 2010, the aggregate fair value of the Mindspeed warrant included on the accompanying consolidated balance sheets was $1.7 million and $20.7 million, respectively. At September 30, 2011, the warrant was valued using the Black-Scholes-Merton model with an expected term of 1.75 years, expected volatility of 64%, a weighted average risk-free interest rate of 0.22% 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.

Technology License

As a result of the sale of the Company’s BBA business and decrease in revenues in the continuing business, the Company determined that the technology license with Freescale Semiconductor Inc. had no value and therefore recorded an impairment charge of $8.3 million for the license, of which $3.3 million was recorded in discontinued operations and $5.0 million in operating expenses in the predecessor year ended October 2, 2009.

Other Current Liabilities

Other current liabilities consist of the following (in thousands):

 

                 
    Successor     Predecessor  
    September 30,
2011		     October 1,
2010		  

Restructuring and reorganization liabilities

   $ 4,242     $ 6,088  

Impaired lease liabilities

     1,090       500  

Accrued technical licenses

     3,948       5,139  

Income tax liabilities

     37       488  

Deferred tax liabilities

     9,277       —    

Accrued customer rebates

     11,306       9,918  

Accrued interest

     971       1,019  

Environmental remediation reserve - short-term.

     1,001       172  

Other

     1,802       8,512  
   

 

 

    

 

 

  
    $ 33,674     $ 31,836  
   

 

 

    

 

 

  

Amounts in the prior year have been reclassified to conform with the current year presentation.

 

Other Liabilities

Other liabilities consist of the following (in thousands):

 

                 
    Successor     Predecessor  
    September 30,
2011		     October 1,
2010		  

Restructuring and reorganization liabilities

     26,768       27,733  

Impaired lease liabilities

     1,989       1,036  

Deferred gain on sale of building

     —         6,887  

Deferred tax liability

     10,616       —    

Income tax liabilities

     7,977       9,186  

Accrued technical licenses

     1,498       6,038  

Retirement plans

     3,076       2,996  

Environmental remediation reserve - long-term

     2,756       492  

Other

     2,677       2,829  
   

 

 

    

 

 

  
    $ 57,357     $ 57,197  
   

 

 

    

 

 

  

Amounts in the prior year have been reclassified to conform with the current year presentation.