MACOM Technology Solutions Holdings, Inc. - Quarter Report: 2014 July (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended July 4, 2014

or

For the transition period from                      to                     

Commission File Number: 001-35451

M/A-COM Technology Solutions Holdings, Inc.

(Exact name of registrant as specified in its charter)

100 Chelmsford Street

Lowell, MA 01851

(Address of principal executive offices and zip code)

(978) 656-2500

(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  x    No  ¨

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

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

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

As of July 28, 2014, there were 47,528,883 shares of the registrant’s common stock outstanding.

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M/A-COM TECHNOLOGY SOLUTIONS HOLDINGS, INC.

FORM 10-Q

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PART I—FINANCIAL INFORMATION

M/A-COM TECHNOLOGY SOLUTIONS HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

See notes to condensed consolidated financial statements.

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M/A-COM TECHNOLOGY SOLUTIONS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

See notes to condensed consolidated financial statements.

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M/A-COM TECHNOLOGY SOLUTIONS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

See notes to condensed consolidated financial statements.

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M/A-COM TECHNOLOGY SOLUTIONS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

See notes to condensed consolidated financial statements.

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M/A-COM TECHNOLOGY SOLUTIONS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

See notes to condensed consolidated financial statements.

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M/A-COM TECHNOLOGY SOLUTIONS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ACCOUNTING

Description of Business—M/A-COM Technology Solutions Holdings, Inc. (MACOM or the Company) was incorporated in Delaware on March 25, 2009. MACOM is a provider of high-performance analog semiconductor solutions for use in wireless and wireline applications across the radio frequency (RF), microwave and millimeterwave spectrum and in high speed communications. Headquartered in Lowell, Massachusetts, MACOM has offices in North America, Europe, Asia and Australia.

The Company has one reportable operating segment which designs, develops, manufactures and markets semiconductors and modules.

Basis of Presentation—The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.

The Company’s fiscal year ends on the Friday closest to September 30. For fiscal years in which there are 53 weeks, the first quarter reporting period includes 14 weeks. Fiscal year 2013 was 52 weeks in length. Fiscal year 2014 is 53 weeks in length and the three and nine months ended July 4, 2014 include 13 and 40 weeks, respectively.

MACOM acquired Nitronex, LLC (Nitronex) in connection with a common-control business combination on February 13, 2014 (Nitronex Acquisition). Nitronex, a supplier of high-performance gallium nitride (GaN) semiconductors for RF, microwave, and millimeterwave applications, was previously acquired by GaAs Labs, LLC (GaAs Labs) on June 25, 2012. GaAs Labs is a stockholder in MACOM and GaAs Labs, Nitronex and MACOM were under common control from June 25, 2012 through February 13, 2014 due to a common controlling stockholder. The accompanying condensed financial statements for the nine months ended July 4, 2014 and three and nine months ended June 28, 2013 combine MACOM’s historical consolidated financial statements with the historical financial statements of Nitronex from June 25, 2012 through February 13, 2014, and have been presented in a manner similar to a pooling-of-interests to include the results of operations of each business since the date of common control. Since February 13, 2014, the results of Nitronex are included with those of MACOM on a consolidated basis. The accompanying combined, condensed, and consolidated financial statements are referred to as “consolidated” for all periods presented.

These consolidated financial statements should be read in conjunction with the Company’s combined consolidated financial statements and notes as of September 27, 2013 and September 28, 2012, and for each of the three years in the period ended September 27, 2013 included in the Company’s Current Report on Form 8-K filed with the SEC on July 3, 2014, which financial statements were reissued to include the historical financial results and financial position of Nitronex since June 25, 2012.

In the opinion of management, the accompanying unaudited consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full fiscal year 2014. The condensed consolidated financial statements include the Company and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated.

Use of Estimates—The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities during the reporting periods, the reported amounts of revenue and expenses during the reporting periods, and the disclosure of contingent assets and liabilities at the date of the financial statements. On an ongoing basis, the Company bases estimates and assumptions on historical experience, currently available information and various other factors that management believes to be reasonable under the circumstances. Actual results may differ materially from these estimates and assumptions. The accounting policies which our management believes involve the most significant application of judgment, or involve complex estimation include revenue recognition, inventory, warranty obligations, share-based compensation, income taxes, fair value measurements related to purchase accounting, and stock warrant liabilities. Actual results could differ from estimates, and material effects on our operating results and financial position may result.

Revenue Recognition—Revenue from the sale of products is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the price to the buyer is fixed or determinable, and collectability is reasonably assured. Provided other revenue recognition criteria are met, product revenue is recognized upon transfer of title and risk of loss, which is

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generally upon shipment. The Company has distribution agreements that provide distributors with rights to return certain products and price protection on certain products. Generally, revenue is recognized upon delivery of products, providing all other criteria is met. When rights of return exist, the Company will provide a reserve for estimated returns at the time of product delivery. When the Company is unable to estimate the amount of its products that may be returned by such distributors or the ultimate sales price of products sold to such distributors, revenue is recognized when the distributors have sold the products to third-party customers, at which point the return rights and any price protection feature lapse. Accordingly, in this circumstance, the Company defers the recognition of revenue until the products are sold by the distributors to third-party customers and the Company defers both the revenue recognition and related cost of revenue on these products by recording the revenue as deferred revenue and the associated cost remains recorded in inventory in the accompanying consolidated balance sheets. When these products are sold to a distributor’s customers, the Company recognizes the revenue and associated cost of revenue. Shipping and handling fees billed to customers are recorded as revenue while the related costs are classified as a component of costs of revenue. The Company provides warranties for its products and accrues the estimated costs of warranty claims in the period the related revenue is recorded.

Recent Accounting Standards—Under the Jumpstart Our Business Startups Act (JOBS Act), the Company meets the definition of an emerging growth company. The Company has elected to avail itself of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act.

In April 2014, the FASB issued Accounting Standards Update 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU 2014-08”), which raises the threshold for disposals to qualify as discontinued operations. A discontinued operation is defined as: (1) a component of an entity or group of components that has been disposed of or classified as held for sale and represents a strategic shift that has or will have a major effect on an entity’s operations and financial results; or (2) an acquired business that is classified as held for sale on the acquisition date. ASU 2014-08 also requires additional disclosures regarding discontinued operations, as well as material disposals that do not meet the definition of discontinued operations. The application of this guidance is prospective from the date of adoption and applies only to disposals (or new classifications to held for sale) that have not been reported as discontinued operations in our previously issued financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 requires revenue recognition to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 sets forth a new revenue recognition model that requires identifying the contract, identifying the performance obligations, determining the transaction price, allocating the transaction price to performance obligations and recognizing the revenue upon satisfaction of performance obligations. The amendments in the ASU can be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the update recognized at the date of the initial application along with additional disclosures. The Company is currently evaluating the impact of ASU 2014-09, which is effective for the Company in our fiscal year beginning on September 30, 2017.

2. ACQUISITIONS

Acquisition under Common Control—On February 13, 2014, MACOM acquired Nitronex, an entity under common control, whereby MACOM completed the Nitronex Acquisition for $26.1 million in cash in exchange for all of the outstanding ownership interests of Nitronex. The purchase price includes $3.9 million held on account by a third-party escrow agent pending any claims by MACOM in connection with general representation matters made by GaAs Labs in the transaction. The escrow agreement expires in August 2015, at which point if no claims are made, all amounts will be paid to GaAs Labs. MACOM funded the Nitronex Acquisition through the use of available cash and debt.

The Company has presented payments in the form of capital contributions received by Nitronex from GaAs Labs prior to the Nitronex Acquisition of $3.2 million and $6.5 million, respectively, in the nine months ended July 4, 2014 and June 28, 2013, as an increase to additional paid-in capital in the accompanying consolidated financial statements.

Acquisition of Mindspeed Technologies, Inc.—On December 18, 2013, MACOM completed the acquisition of Mindspeed Technologies, Inc. (Mindspeed), a supplier of high performance analog products (Mindspeed Acquisition). MACOM acquired Mindspeed to further its expansion into new products and applications.

MACOM completed the Mindspeed Acquisition through a cash tender offer (Offer) by Micro Merger Sub, Inc. (Merger Sub), a wholly-owned subsidiary of MACOM, for all of the outstanding shares of common stock, par value $0.01 per share, of Mindspeed (Shares) at a purchase price of $5.05 per share, net to the seller in cash, without interest, less any applicable withholding taxes (Offer Price). Immediately following the Offer, Merger Sub merged with and into Mindspeed, with Mindspeed surviving as a wholly-owned subsidiary of MACOM. At the effective time of the merger, each Share not acquired in the Offer (other than shares held by MACOM, Merger Sub and Mindspeed, and shares of restricted stock assumed by MACOM in the merger) was converted into the right to receive the Offer Price. MACOM funded the Mindspeed Acquisition

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through the use of available cash and debt (see Note 6). The aggregate purchase price for the Shares, net of cash acquired, was $232.0 million and MACOM assumed $80.4 million of liabilities and incurred costs of $4.5 million expensed in the nine months ended July 4, 2014.

The Mindspeed Acquisition was accounted for as a purchase and the operations of Mindspeed have been included in MACOM’s consolidated financial statements since December 18, 2013, the date of acquisition.

MACOM is recognizing all assets acquired and liabilities assumed based upon the fair value of such assets and liabilities measured as of the date of acquisition. The aggregate purchase price for Mindspeed is being allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. A preliminary allocation follows (in thousands):

In connection with the Mindspeed Acquisition, MACOM assumed all of the outstanding options and all unvested restricted stock awards under Mindspeed’s equity plans and converted such options and stock awards into equivalent MACOM awards under the same general terms and conditions as were in existence with adjustments made to shares and exercise prices, if any, pursuant to a formula stipulated in the terms of the acquisition. The fair value of the assumed options and stock awards was $4.1 million, of which $0.8 million relates to vested stock options and has been included in the purchase consideration and the remainder relates to unvested stock options and stock awards, which will be expensed as the remaining services are provided.

The components of the acquired intangible assets on a preliminary basis were as follows (in thousands):

The overall weighted-average life of the identified intangible assets acquired in the acquisition is estimated to be seven years and the assets are being amortized over their estimated useful lives based upon the pattern over which the Company expects to receive the economic benefit from these assets.

The purchase accounting is preliminary and subject to completion, including the areas of taxation and certain fair value measurements, particularly the finalization of the valuation assessment of the acquired tangible and intangible assets. The adjustments arising from the completion of the outstanding matters may materially affect the preliminary purchase accounting and would be retroactively reflected in the financial statements as of July 4, 2014 and for the interim periods then ended.

The following is a summary of Mindspeed revenue and earnings, excluding a restructuring charge and change-in-control payments aggregating $14.9 million, included in MACOM’s accompanying condensed consolidated statements of operations for the nine months ended July 4, 2014 (in thousands):

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Subsequent to closing the Mindspeed Acquisition, MACOM divested the wireless business of Mindspeed. The operations of the wireless business are included in discontinued operations through the date of sale. The Company completed the sale of the wireless business in February 2014. The accompanying condensed consolidated statement of operations for the nine months ended July 4, 2014, include the following operating results related to the business to be divested (in thousands):

On May 9, 2014, Mindspeed completed the sale of its CPE communication processor product line for $12.0 million and a potential additional $2.0 million based upon the achievement of certain revenue-related milestones through December 31, 2014. No gain or loss was recognized on the transaction.

Supplemental Pro Forma Data — The pro forma statements of operations data for the nine months ended July 4, 2014 below give effect to the Mindspeed Acquisition, described above, as if it had occurred at September 28, 2013. These amounts have been calculated after applying MACOM’s accounting policies and adjusting the results of Mindspeed to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets and additional interest expense on acquisition-related borrowings had been applied and incurred since September 28, 2013. The supplemental pro forma earnings for the nine months ended July 4, 2014 were adjusted to exclude discontinued operations, acquisition costs of $4.5 million paid by MACOM, seller-related professional fees incurred by Mindspeed prior to the acquisition, amortization and impairments of intangible assets incurred by Mindspeed prior to the acquisition and $14.9 million of restructuring charges and change-in-control payments, as well as the impact of the step-up to fair value of the acquired inventory. This pro forma data is presented for informational purposes only and does not purport to be indicative of the Company’s future results of operations.

3. FINANCIAL INSTRUMENTS

Financial instruments measured at fair value on a recurring basis consist of the following (in thousands):

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The changes in financial instruments with inputs classified within Level 3 of the fair value hierarchy consist of the following (in thousands):

As of July 4, 2014, the fair value of the stock warrants has been estimated using a Black-Scholes option pricing model giving consideration to the quoted market price of the common stock on that date, an expected life of 6.5 years, expected volatility of 42.4% and risk free rate of 2.2%. As of July 4, 2014, the fair value of the securities have been estimated to approximate cost.

These estimates include significant judgments about potential future liquidity events and actual results could differ and could have an impact upon the values of the recorded financial instruments. Any changes in the estimated fair values of the financial instruments in the future will be reflected in the Company’s earnings and such changes could be material.

4. INVENTORIES

Inventories consist of the following (in thousands):

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5. PROPERTY AND EQUIPMENT

Property and equipment consists of the following (in thousands):

Depreciation and amortization expense related to property and equipment for the three and nine months ended July 4, 2014 was $3.7 million and $10.8 million, respectively. Depreciation and amortization expense related to property and equipment for the three and nine months ended June 28, 2013 was $2.6 million and $7.9 million, respectively.

6. DEBT

On September 26, 2013, and as amended November 5, 2013, the Company entered into an amended and restated loan agreement with a syndicate of lenders, which provided for a revolving credit facility of up to $300.0 million that was due to mature in September 2018 (Prior Facility). Borrowings under the revolving credit facility either bore a variable interest rate equal to (i) the greater of the lender’s prime rate, the federal funds effective rate plus 0.5%, or an adjusted LIBOR plus 1.0%, in each case plus either an additional 1.00%, 1.25% or 1.50%, subject to certain conditions, or (ii) an adjusted LIBOR rate plus either 2.00%, 2.25% or 2.50%, subject to certain conditions. The revolving credit facility was secured by a first priority lien on substantially all of the Company’s assets and required compliance with certain financial and non-financial covenants. In connection with the Mindspeed and Nitronex acquisitions, MACOM drew down an aggregate of $245.0 million of indebtedness on its revolving credit facility.

On May 8, 2014, the Company refinanced its outstanding indebtedness under the Prior Facility and discharged its obligations thereunder by entering into a credit agreement (Credit Agreement) with Goldman Sachs Bank USA and a syndicate of lenders. Concurrent with the execution of the Credit Agreement, the Company terminated the Prior Facility and repaid the outstanding $245.0 million principal and interest due. The Credit Agreement provides for term loans in an aggregate principal amount of $350.0 million, which mature in May 2021 (Term Loans) and a revolving credit facility of up to $100.0 million, which matures in May 2019 (Revolving Facility). The Term Loans were issued with an original issue discount of 0.75%, which is being amortized over the term of the Term Loans using the straight-line method, which approximates the effective interest rate method. Borrowings under the Term Loans bear interest (payable quarterly) at: (i) for LIBOR loans, a rate per annum equal to the LIBOR rate (subject to a floor of 0.75%), plus an applicable margin of 3.75%, and (ii) for base rate loans, a rate per annum equal to the prime rate (subject to a floor of 1.75%), plus an applicable margin of 2.75%. Borrowings under the Revolving Facility bear interest (payable quarterly) at (i) for LIBOR loans, a rate per annum equal to the LIBOR rate, plus an applicable margin in the range of 2.00% to 2.50% (based on the Company’s total net leverage ratio being within certain defined ranges), and (ii) for base rate loans, a rate per annum equal to the prime rate, plus an applicable margin in the range of 1.00% to 1.50% (based on the Company’s total net leverage ratio being within certain defined ranges). The Company also pays a quarterly unused line fee for the Revolving Facility in the range of 0.25% to 0.375% (based on the Company’s total net leverage ratio being within certain defined ranges) as well as overall agency fees. The Term Loans are payable in quarterly principal installments of 0.25% of the Term Loans on the last business day of each calendar quarter, beginning on the last business day of September 2014, with the remainder due on the maturity date. At the signing of the Credit Agreement, the entire $350 million principal amount of the Term Loans was funded, and no draws were made on the Revolving Facility through July 4, 2014. The Term Loans and Revolving Facility are secured by a first priority lien on substantially all of the Company’s assets and provide that the Company must comply with certain financial and non-financial covenants. Upon terminating the Prior Facility, previously deferred financing costs pertaining to that facility of $2.1 million were expensed as additional interest.

As of July 4, 2014, the following remained outstanding on the Term Loans:

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As of July 4, 2014, the minimum principal payments under the Term Loans in future fiscal years was as follows (in thousands):

As of July 4, 2014, the Company had an outstanding note payable to a financial institution, which was assumed in the Mindspeed Acquisition and accrues interest at a rate of 6.5% per annum. The note is payable at $4.5 million upon demand by the holder at any time and, if not paid earlier, becomes due in June 2017. This note payable amount of $4.5 million is included in the current portion of long-term debt in the accompanying condensed consolidated balance sheet as of July 4, 2014.

7. GOODWILL AND INTANGIBLE ASSETS

Amortization expense related to intangible assets is as follows (in thousands):

Intangible assets consist of the following (in thousands):

A summary of the activity in intangible assets and goodwill follows (in thousands):

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

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Accumulated amortization for the acquired technology and customer relationships was $23.2 million and $7.2 million, respectively, as of July 4, 2014, and $9.6 million and $5.8 million, respectively, as of September 27, 2013.

As of July 4, 2014, estimated amortization of the intangible assets in future fiscal years, subject to the completion of the purchase price allocation for the Mindspeed Acquisition, was as follows (in thousands):

8. STOCKHOLDER’S EQUITY

The Company has authorized 10 million shares of $0.001 par value preferred stock and 300 million shares of $0.001 par value common stock as of July 4, 2014.

Outstanding shares of our common stock as of July 4, 2014 and September 27, 2013, presented in the accompanying consolidated statements of stockholders’ equity exclude 81,000 and 74,000 unvested shares of restricted common stock, respectively, issued as compensation to employees that remained subject to forfeiture.

9. INCOME (LOSS) PER SHARE

Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted-average number of common shares and, if dilutive, potential common shares outstanding during the period. The Company’s potential dilutive common shares consist of common shares issuable upon the exercise of warrants, stock options and vesting of restricted stock units. The dilutive effect of outstanding stock options is reflected in diluted earnings per share by application of the treasury stock method.

The following table sets forth the computation for basic and diluted net income per share of common stock (in thousands, except per share data):

The table above excludes the effects of 1,349 potential shares of common stock issuable upon exercise of stock options, restricted stock, and warrants for the nine months ended July 4, 2014, as the inclusion of which would be antidilutive.

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10. COMMITMENTS AND CONTINGENCIES

Purchase Commitments—As of July 4, 2014 and September 27, 2013, the Company had outstanding non-cancelable purchase commitments aggregating $5.0 million and $4.4 million, respectively, pursuant to inventory supply arrangements. The Company has a long-term technology licensing and transfer commitment that calls for remaining potential payments by the Company of up to $5.3 million through July 2016.

Litigation—The Company is periodically subject to legal proceedings, claims and contingencies arising in the ordinary course of business.

CSR Matter. In January 2013, CSR Technology Inc. (“CSR”) filed a complaint against the Company in the Massachusetts Superior Court for Suffolk County alleging breach of contract, breach of the implied covenant of good faith and fair dealing, misrepresentation, deceptive business practices, and unfair competition, all relating to the Company’s purported failure to honor an alleged minimum purchase commitment contract with respect to certain semiconductor chips to be supplied by CSR for use in the Company’s automotive module product. The complaint claimed alleged damages of $2.2 million and asked for attorney’s fees and other remedies. The Company filed an answer to the complaint on January 28, 2013. The parties have concluded fact discovery and CSR has filed a motion for summary judgment, which the Company opposed. The case was subsequently resolved in principle between the parties before CSR’s summary judgment motion was considered by the Court. As a result, the case is in process to be dismissed based on a settlement and without any finding of liability or judgment against the Company.

Mindspeed Tender Offer Litigation in Delaware and California. Following the Company’s November 2013 announcement of the execution of a definitive agreement between the Company and Mindspeed Technologies, Inc. (“Mindspeed”) contemplating a tender offer by the Company for all outstanding shares of common stock of Mindspeed and thereafter a merger with Mindspeed (“Merger”), a number of purported class action lawsuits were filed against Mindspeed, its directors, the Company’s merger subsidiary and the Company in the Delaware Court of Chancery and the California Superior Court for Orange County.

The complaints alleged, generally, that the Mindspeed director defendants breached their fiduciary duties to Mindspeed stockholders, and that the other defendants aided and abetted such breaches, by seeking to sell Mindspeed through an allegedly defective process, for an unfair price, and on unfair terms. The lawsuits sought, among other things, equitable relief that would enjoin the consummation of the proposed Merger, rescission of the proposed Merger (to the extent the proposed Merger has already been consummated), damages, and attorneys’ fees and costs.

Further Discussion of Delaware Tender Offer Litigation. On November 22, 2013, an amended complaint was filed in the Delaware Court of Chancery. The amended complaint included similar allegations to the original complaint, along with claims that the Mindspeed Schedule 14D-9 filed in connection with the Merger included misstatements or omissions of material facts. On November 25, 2013, a motion for preliminary injunction was filed in the Delaware Court of Chancery in the Hoffman Action. On December 3, 2013, all of the complaints filed in the Delaware Court of Chancery were consolidated (the “Delaware Actions”).

On December 6, 2013, the plaintiffs in the Delaware Actions filed their brief in support of a motion to enjoin the proposed Merger. While the Defendants denied the allegations made in the lawsuits and maintain that they have committed no wrongdoing whatsoever, to permit the timely consummation of the Merger, and without admitting the validity of any allegations made in the lawsuits, the Defendants concluded that it was desirable that the Delaware Actions be resolved.

On December 9, 2013, the Defendants’ and plaintiffs’ counsel in the Delaware Actions entered into a memorandum of understanding to settle the Delaware Actions and to resolve all allegations which were brought or could have been brought by the purported class of Mindspeed shareholder plaintiffs. The proposed settlement, which is subject to confirmatory discovery and court approval, provides for the release of all claims against the Defendants relating to the proposed Merger. In connection with the settlement, Mindspeed agreed to provide additional supplemental disclosures concerning the tender offer as reflected in Amendment No. 3 to the Schedule 14D-9 filed with the SEC on December 10, 2013, which supplement the information provided in the Schedule 14D-9. There can be no assurance that the settlement will be finalized or that the Delaware Court of Chancery will approve the settlement. After the parties entered into the memorandum of understanding, the motion for a preliminary injunction was withdrawn and the hearing vacated in the Delaware Actions. The Merger closed on December 18, 2013. The parties submitted final settlement papers to the Delaware Court of Chancery, which ordered that notice of the settlement be issued to class members and scheduled a hearing for September 23, 2014, to consider the settlement. The parties also agreed on an attorneys’ fee payable to the plaintiffs’ counsel of up to $425,000, subject to the approval of the Delaware Court of Chancery.

Further Discussion of California Tender Offer Litigation. On December 5, 2013, an amended complaint was filed in one of the California actions. The amended complaint includes similar allegations to the original complaint along with claims that the Mindspeed Schedule 14D-9 filed in connection with the Merger included misstatements or omissions of material facts. On December 5, 2013, the plaintiffs filed an ex parte application for an order shortening time in which to bring a motion for expedited discovery, which was denied on December 6, 2013.

On December 30, 2013, the California Court entered an Initial Case Management Order. Among other things, the Initial Case Management Order set an Initial Case Management Conference for February 4, 2014 and stayed all discovery and motion practice until that date. On January 6, 2014, the Defendants filed notices of special appearance and intent to file, or join in, a motion to stay or dismiss the amended complaint. The Case Management Conference has been continued until October 14, 2014. The Company intends to continue to defend the lawsuit vigorously.

Patent Suit Against Laird. The Company brought a patent infringement suit against Laird Technologies, Inc. (“Laird”) in the Federal District Court for the District of Delaware on February 11, 2014, seeking monetary damages and a permanent injunction. The suit alleges that Laird infringes on the Company’s United States Patent No. 6,272,349 (“the ‘349 Patent”), titled “Integrated Global Positioning System Receiver”, by making, using, selling, offering to sell, or selling products incorporating an integrated global positioning receiver that include structure(s) recited in the ‘349 Patent, including global positioning system modules for automotive industry customers. On April 15, 2014, the Company filed an amended complaint adding claims for misappropriation of trade secrets, unjust enrichment, and unfair competition. After an unsuccessful motion to dismiss these additional claims, Laird filed an answer and declaratory judgment claims of invalidity and noninfringement on June 30, 2014. The Company filed a reply to the counterclaims on July 24, 2014.

The Company filed a motion for preliminary injunction, seeking to enjoin Laird’s infringement pending full trial on the merits. The court granted the motion for a preliminary injunction on June 13, 2014. In doing so, the court found that the Company is likely to succeed on the merits of its case at a full trial and that the equities weighed in favor of preliminarily enjoining Laird from making sales of its product until trial. Trial is scheduled to begin on May 16, 2016.

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The Company intends to continue to pursue and defend the aforementioned lawsuits vigorously and does not expect that the ultimate cost to resolve these cases will have a material effect on the consolidated financial statements.

11. RESTRUCTURINGS

The Company has periodically implemented restructuring actions in connection with broader plans to reduce staffing, reduce its internal manufacturing footprint and, generally, reduce operating costs. The restructuring expenses are comprised of direct and incremental costs related to change-in-control obligations of $10.2 million, severance and outplacement fees for the terminated employees. The following is a summary of the costs incurred and remaining balances included in accrued expenses related to restructuring actions taken (in thousands):

In the nine months ended July 4, 2014, the Company implemented restructuring plans to reduce manufacturing and operating costs of the Mindspeed and Nitronex operations through a reduction of staffing. These restructuring plans resulted in a charge to continuing operations in the nine months ended July 4, 2014 and the related obligations are expected to be paid through the first quarter of fiscal year 2015.

12. SHARE-BASED COMPENSATION

The following table presents the effects of share-based compensation expense related to share-based awards to employees and non-employees in the Company’s condensed consolidated statements of operations during the periods presented (in thousands):

Effective September 28, 2013, pursuant to an “evergreen” provision, the number of shares of common stock available for issuance under the 2012 Omnibus Incentive Plan (2012 Plan) and the 2012 Employee Stock Purchase Plan (ESPP) were increased by 1.9 million shares and 0.6 million shares, respectively. As of July 4, 2014, MACOM had 10.0 million shares available for future grants under the 2012 Plan.

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Stock option activity for the nine months ended July 4, 2014, is as follows (in thousands, except per share amounts):

Aggregate intrinsic value represents the difference between the Company’s closing stock price on July 4, 2014, and the exercise price of outstanding, in-the-money options. The total intrinsic value of options exercised was $6.3 million for the nine months ended July 4, 2014. As of July 4, 2014, total unrecognized compensation cost, excluding the impact of the assumed Mindspeed stock options, adjusted for estimated forfeitures, related to unvested stock options was $2.9 million, which is expected to be recognized over the next 3.0 years.

In April 2014, the Company granted stock options as to 405,000 shares of common stock with a grant date fair value of $3.4 million that are subject to vesting only upon the market price of the Company’s underlying public stock closing above a certain price target within ten years of the grant date. These options are included in the table and other information above.

A summary of restricted stock and restricted stock units’ activity for the nine months ended July 4, 2014, is as follows (in thousands):

The total intrinsic value of restricted stock awards vesting was $8.9 million for the nine months ended July 4, 2014. As of July 4, 2014, total unrecognized compensation cost, excluding the impact of the assumed Mindspeed stock awards, adjusted for estimated forfeitures, related to restricted stock and units was $19.9 million, which is expected to be recognized over the next 2.8 years.

As of July 4, 2014, total unrecognized compensation cost related to the ESPP was not material.

Certain of the share-based awards granted and outstanding as of July 4, 2014, are subject to accelerated vesting upon a sale of the Company or similar changes in control.

There were no material modifications to stock-based awards during the periods presented.

13. INCOME TAXES

The Company is subject to income tax in the United States as well as other tax jurisdictions in which it conducts business. Earnings from non-U.S. activities are subject to local country income tax and may also be subject to current U.S. income tax. For interim periods, the Company records a tax provision or benefit based upon the estimated effective tax rate expected for the full fiscal year, adjusted for material discrete taxation matters arising during the interim periods.

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The difference between the U.S. federal statutory income tax rate of 35% and the Company’s effective income tax rates for the three and nine months ended July 4, 2014 and June 28, 2013, was primarily impacted in both periods by changes in fair values of the common stock warrant liability which is not deductible nor taxable for tax purposes, income taxed in foreign jurisdictions at generally lower tax rates, offset by U.S. state income taxes, and, for the three and nine months ended July 4, 2014, by nondeductible expenses for tax purposes resulting from the Mindspeed Acquisition.

At the closing of the Mindspeed Acquisition, Mindspeed had, on a preliminary basis, federal net operating loss (NOL) carryforwards of approximately $683.7 million, which will expire at various dates through 2033, and federal research and development tax credit carryforwards of $19.5 million. Both the NOL and the tax credits are subject to change-in-control limitations within the Internal Revenue Code and, accordingly, these carryforwards were reduced to $305.9 million, the estimated realizable amount after consideration of the limitations. The NOL carryforwards and tax credits are included in the computation of net deferred income tax assets arising from the Mindspeed Acquisition. The aggregate net deferred income tax assets acquired in the Mindspeed Acquisition is estimated to be $84.3 million, which includes a net deferred income tax liability of $68.0 million related to the difference between the book and tax bases of the intangible and other assets acquired in the acquisition. A valuation allowance of $16.8 million was also recorded to reduce the overall net deferred tax assets to estimated realizable value.

The tax effect of the difference between the book and tax bases in the net assets acquired in the Nitronex Acquisition of $6.2 million has been recorded as an increase to additional paid-in capital in the nine months ended July 4, 2014.

14. RELATED PARTY TRANSACTIONS

GaAs Labs, a stockholder and an affiliate of directors and majority stockholders John and Susan Ocampo, engaged the Company to provide administrative and business development services provided to GaAs Labs on a time and materials basis. There are no minimum service requirements or payment obligations and the agreement may be terminated by either party with 30 days notice. For the nine months ended July 4, 2014, the Company billed GaAs Labs $118,000 and for the three and nine months ended June 28, 2013, the Company billed GaAs Labs $123,000 and $293,000, respectively, for services provided pursuant to this agreement and has recorded these amounts as other income in the accompanying condensed consolidated statements of operations.

In the three and nine months ended July 4, 2014, the Company recorded revenue of $65,000 from sales of product to a privately-held company with a common director. In the three and nine months ended June 28, 2013, the Company recorded revenue of $242,000 and $345,000, respectively, from sales of product to this customer.

15. SUPPLEMENTAL CASH FLOW INFORMATION

As of July 4, 2014 and June 28, 2013, the Company had $0.7 million and $0.8 million, respectively, in unpaid amounts related to purchases of property and equipment included in accounts payable and accrued liabilities. These amounts have been excluded from the payments for purchases of property and equipment in the accompanying condensed consolidated statements of cash flows until paid.

Upon closing the Mindspeed Acquisition, MACOM assumed $39.8 million of the seller’s indebtedness, $35.0 million of which was paid in the nine months ended July 4, 2014.

16. GEOGRAPHIC AND SIGNIFICANT CUSTOMER INFORMATION

Information about the Company’s operations in different geographic regions, based upon customer locations, is presented below (in thousands):