Conexant Exceeds Guidance for Fourth Quarter of Fiscal 2009

Conference Call Today

Financial analysts, members of the media, and the public are invited to participate in a conference call that will take place today at 5:00 p.m. Eastern Time (ET)/ 2:00 p.m. Pacific Time (PT). Conexant senior management will discuss fourth quarter fiscal 2009 financial results and the company’s outlook. To listen to the conference call via telephone, dial 866-650-4882 (in the U.S. and Canada) or 706-679-7338 (from other international locations); participant pass code: Conexant; Conference ID number: 35114866.

To listen via the Internet, visit the Investor Relations section of Conexant's Web site at www.conexant.com/ir. Playback of the conference call will be available shortly after the call concludes and will be accessible on Conexant’s Web site at www.conexant.com/ir or by calling 800-642-1687 (in the U.S. and Canada) or 706-645-9291 (from other international locations); Conference ID number: 35114866.

About Conexant

Conexant’s comprehensive portfolio of innovative semiconductor solutions includes products for imaging, audio, embedded-modem, and video applications. Conexant is a fabless semiconductor company headquartered in Newport Beach, Calif. For more information, visit www.conexant.com.

Safe Harbor Statement

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: This release includes forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally can be identified by phrases such as Conexant or its management “believes,” “expects,” “anticipates,” “foresees,” “forecasts,” “estimates” or other words or phrases of similar import. Similarly, statements in this release that describe our business strategy, outlook, objectives, plans, intentions, or goals are also forward-looking statements. All such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.

These risks and uncertainties include, but are not limited to: The availability of manufacturing capacity; changes in our product mix; pricing pressures and other competitive factors; our ability to timely develop and implement new technologies and to obtain protection for the related intellectual property; the cyclical nature of the semiconductor industry, which is subject to significant downturns that may negatively impact our business, financial condition, cash flow, and results of operations; the cyclical nature of the markets addressed by our products and our customers’ products; volatility in the technology sector and the semiconductor industry; the risk that capital needed for our business and to repay our indebtedness will not be available when needed; our successful development of new products; the timing of our new product introductions and our product quality; demand for and market acceptance of our new and existing products; our ability to anticipate trends and develop products for which there will be market demand; product obsolescence; the ability of our customers to manage inventory; our ability to identify and execute acquisitions, divestitures, mergers or restructurings, as deemed appropriate by management; the financial risks of default by tenants and subtenants in the space we own or lease; the risk that the value of our common stock may be adversely affected by market volatility or failure to meet all applicable listing requirements of the NASDAQ Global Market; the substantial losses we have incurred; the uncertainties of litigation, including claims of infringement of third-party intellectual property rights or demands that we license third-party technology, and the demands it may place on the time and attention of our management and the expense it may place on our company; general economic and political conditions and conditions in the markets we address; and possible disruptions in commerce related to terrorist activity or armed conflict, as well as other risks and uncertainties, including those detailed from time to time in our Securities and Exchange Commission filings.

CONEXANT SYSTEMS, INC.

GAAP Condensed Consolidated Statements of Operations

(unaudited, in thousands, except per share amounts)

 
  Fiscal Quarter Ended   Twelve Fiscal Months Ended
October 2,

2009

  July 3,

2009

  October 3,

2008

October 2,

2009

  October 3,

2008

 
Net revenues (Note 1) $ 56,155 $ 50,844 $ 81,115 $ 208,427 $ 331,504
Cost of goods sold   22,265     20,533     34,161     86,674     137,251  
Gross margin 33,890 30,311 46,954 121,753 194,253
Operating expenses:
Research and development 12,568 12,450 15,072 51,351 58,439
Selling, general and administrative 13,001 14,813 19,172 62,740 77,905
Amortization of intangible assets 429 690 1,383 2,976 3,652
Gain on sale of intellectual property - - - (12,858 ) -
Asset impairments 5,629 43 23 5,672 277
Special charges (Note 2)   5,373     1,017     3,026     18,983     18,682  
Total operating expenses   37,000     29,013     38,676     128,864     158,955  
Operating (loss) income (3,110 ) 1,298 8,278 (7,111 ) 35,298
Interest expense 5,514 5,035 5,982 21,148 27,804
Other (income) expense, net   (1,570 )   (3,567 )   2,457     (5,025 )   9,223  
Loss from continuing operations before income taxes and (loss) gain on equity method investments (7,054 ) (170 ) (161 ) (23,234 ) (1,729 )
Provision for income taxes   52     176     488     871     849  
Loss from continuing operations before (loss) gain on equity method investments (7,106 ) (346 ) (649 ) (24,105 ) (2,578 )
(Loss) gain on equity method investments   (641 )   (485 )   (808 )   (2,807 )   2,804  
(Loss) income from continuing operations (7,747 ) (831 ) (1,457 ) (26,912 ) 226
Gain on sale of discontinued operations, net of tax 36,653

-

6,268 36,653 6,268
(Loss) income from discontinued operations, net of tax   (5,450 )   3,557     (3,894 )   (15,004 )   (306,670 )
Net income (loss) $ 23,456   $ 2,726   $ 917   $ (5,263 ) $ (300,176 )
(Loss) income per share from continuing operations — basic and diluted $ (0.15 ) $ (0.02 ) $ (0.03 ) $ (0.54 ) $ 0.00  
Gain per share on sale of discontinued operations — basic and diluted $ 0.73   $ 0.00   $ 0.13   $ 0.73   $ 0.13  
(Loss) income per share from discontinued operations — basic $ (0.11 ) $ 0.07   $ (0.08 ) $ (0.30 ) $ (6.21 )
(Loss) income per share from discontinued operations — diluted $ (0.11 ) $ 0.07   $ (0.08 ) $ (0.30 ) $ (6.18 )
Net income (loss) per share — basic $ 0.47   $ 0.05   $ 0.02   $ (0.11 ) $ (6.08 )
Net income (loss) per share — diluted $ 0.47   $ 0.05   $ 0.02   $ (0.11 ) $ (6.05 )
Shares used in computing basic per-share computations   50,146     49,867     49,565     49,856     49,394  
Shares used in computing diluted per-share computations   50,146     49,867     49,565     49,856     49,653  

Note 1 -

  Net revenues for the twelve fiscal months ended October 3, 2008 includes $14.7 million for the buyout of a future royalty stream.
 

Note 2 -

Special charges consist primarily of restructuring charges. Special charges in the twelve fiscal months ended October 2, 2009 also include a $3.5 million charge related to a legal settlement. Special charges in the twelve fiscal months ended October 3, 2008 include a $6.3 million charge related to the termination of our voluntary early retirement plan.
 

CONEXANT SYSTEMS, INC.

Reconciliation of GAAP Financial Measures to Non-GAAP Core Financial Measures

(unaudited, in thousands, except per share amounts)

 

 

 

Fiscal Quarter Ended

 

Twelve Fiscal Months Ended

October 2,

2009

  July 3,

2009

  October 3,

2008

October 2,

2009

  October 3,

2008

 
GAAP net revenues $ 56,155 $ 50,844 $ 81,115 $ 208,427 $ 331,504
Royalty buyout (n)   -     -     -     -     (14,700 )
Non-GAAP Core net revenues less impact of royalty buyout $ 56,155   $ 50,844   $ 81,115   $ 208,427   $ 316,804  
 
GAAP cost of goods sold $ 22,265 $ 20,533 $ 34,161 $ 86,674 $ 137,251
Stock-based compensation (a) (51 ) (77 ) (60 ) (247 ) (370 )
Other (f)   145     -     (459 )   (466 )   349  
Non-GAAP Core cost of goods sold $ 22,359   $ 20,456   $ 33,642   $ 85,961   $ 137,230  
 
GAAP gross margin $ 33,890 $ 30,311 $ 46,954 $ 121,753 $ 194,253
Gross margin adjustments (a,f)   (94 )   77     519     713     21  
Non-GAAP Core gross margin 33,796 30,388 47,473 122,466 194,274
Royalty buyout (n)   -     -     -     -     (14,700 )
Non-GAAP Core gross margin less impact of royalty buyout $ 33,796   $ 30,388   $ 47,473   $ 122,466   $ 179,574  
 
GAAP operating expenses $ 37,000 $ 29,013 $ 38,676 $ 128,864 $ 158,955
Stock-based compensation (a) (449 ) (440 ) (2,032 ) (4,605 ) (11,910 )
Amortization of intangible assets (b) (429 ) (690 ) (1,383 ) (2,976 ) (3,652 )
Gain on sale of intellectual property (c) - - - 12,858 -
Asset impairments (d) (5,629 ) (43 ) (23 ) (5,672 ) (277 )
Special charges (e) (5,466 ) (1,033 ) (2,426 ) (18,591 ) (17,895 )
Other (f)   -     -     (800 )   -     (800 )
Non-GAAP Core operating expenses $ 25,027   $ 26,807   $ 32,012   $ 109,878   $ 124,421  
 
GAAP operating (loss) income $ (3,110 ) $ 1,298 $ 8,278 $ (7,111 ) $ 35,298
Gross margin adjustments (a,f) (94 ) 77 519 713 21
Operating expense adjustments (a-f)   11,973     2,206     6,664     18,986     34,534  
Non-GAAP Core operating income 8,769 3,581 15,461 12,588 69,853
Royalty buyout (n)   -     -     -     -     (14,700 )
Non-GAAP Core operating income less impact of royalty buyout $ 8,769   $ 3,581   $ 15,461   $ 12,588   $ 55,153  
 
GAAP other (income) expense, net $ (1,570 ) $ (3,567 ) $ 2,457 $ (5,025 ) $ 9,223
Unrealized gain (loss) on Mindspeed warrant (g) 2,746 1,166 (2,312 ) 4,508 (14,974 )
Gain on sale of equity securities (h) - 1,802 21 1,855 896
Loss on impairment of investments (i) - - - (2,770 ) -
Loss on impairment of facility (j) - - (1,435 ) - (1,435 )
Loss on termination of swap (k)   (1,087 )   -     -     (1,087 )   -  
Non-GAAP Core other expense (income) $ 89   $ (599 ) $ (1,269 ) $ (2,519 ) $ (6,290 )
 
GAAP (loss) income from continuing operations $ (7,747 ) $ (831 ) $ (1,457 ) $ (26,912 ) $ 226
Gross margin adjustments (a,f) (94 ) 77 519 713 21
Operating expense adjustments (a-f) 11,973 2,206 6,664 18,986 34,534
Loss (gain) on equity method investments (l) 641 485 808 2,807 (2,804 )
Other (income) expense adjustments (g-k) (1,659 ) (2,968 ) 3,726 (2,506 ) 15,513
Interest expense adjustments (m)   380     -     -     380     1,344  
Non-GAAP Core income (loss) from continuing operations 3,494 (1,031 ) 10,260 (6,532 ) 48,834
Royalty buyout (n)   -     -     -     -     (14,700 )
Non-GAAP Core income (loss) from continuing operations less impact of royalty buyout $ 3,494   $ (1,031 ) $ 10,260   $ (6,532 ) $ 34,134  
 
Basic and Diluted (loss) income per share from continuing operations:
GAAP Basic and Diluted $ (0.15 ) $ (0.02 ) $ (0.03 ) $ (0.54 ) $ 0.00  
Non-GAAP Basic $ 0.07   $ (0.02 ) $ 0.21   $ (0.13 ) $ 0.99  
Non-GAAP Diluted $ 0.07   $ (0.02 ) $ 0.21   $ (0.13 ) $ 0.98  
Royalty buyout (n) $ 0.00   $ 0.00   $ 0.00   $ 0.00   $ (0.30 )
Non-GAAP Basic less impact of royalty buyout $ 0.07   $ (0.02 ) $ 0.21   $ (0.13 ) $ 0.69  
Non-GAAP Diluted less impact of royalty buyout $ 0.07   $ (0.02 ) $ 0.21   $ (0.13 ) $ 0.68  
Shares used in basic and diluted per-share computations:
Basic   50,146     49,867     49,565     49,856     49,394  
Diluted   50,146     49,867     49,565     49,856     49,653  
 

See “GAAP to Non-GAAP Core Adjustments” below

 

GAAP to Non-GAAP Core Adjustments:

 
(a)   Stock-based compensation expense is based on the fair value of all stock options and employee stock purchase plan shares in accordance with SFAS No. 123(R).
 
(b) Amortization of intangible assets resulting from business combinations.
 
(c) Gain on sale of intellectual property which is not part of our core, on-going operations.
 
(d) Asset impairments in the fiscal quarter and twelve fiscal months ended October 2, 2009 consist primarily of $5.0 million for impairment of a patent license with Freescale.
 
(e) Special charges consist primarily of restructuring charges. Special charges in the twelve fiscal months ended October 2, 2009 also include a $3.5 million charge related to a legal settlement. Special charges in the twelve fiscal months ended October 3, 2008 include a $6.3 million charge related to the termination of our voluntary early retirement plan.
 
(f) The fiscal quarter and twelve fiscal months ended October 2, 2009 and October 3, 2008 include the impact of environmental remediation charges and a charge to inventory acquired through the purchase of the “SigmaTel” multifunction printer imaging product lines. The fiscal quarter and twelve fiscal months ended October 3, 2008 includes purchase accounting expense of in-process research and development acquired through the purchase of the “SigmaTel” multifunction printer imaging product lines.
 
(g) Unrealized gain and loss associated with the change in the fair value of our warrant to purchase 6 million shares of Mindspeed Technologies, Inc. common stock, which is accounted for as a derivative instrument.
 
(h) Gain on sale of equity securities and on the liquidation of companies in which we held equity securities.
 
(i) Losses from other than temporary impairment of marketable securities and cost based investments.
 
(j) Loss incurred on a non-cancelable lease obligation related to a facility.
 
(k) Loss incurred upon termination of our interest rate swap in connection with repurchase of $80.0 million of floating rate senior notes.
 
(l) Loss (gain) on equity method investments.
 
(m) Other interest expense which is not part of our on-going operations. For the fiscal quarter and twelve fiscal months ended October 2, 2009, the adjustment relates to the accelerated amortization of debt issuance costs related to the repurchase of $80.0 million of floating rate senior notes. For the twelve fiscal months ended October 3, 2008, the adjustment relates to the accelerated amortization of debt issuance costs related to the repurchase of $53.6 million of floating rate senior notes.
 
(n) The twelve fiscal months ended October 3, 2008 includes $14.7 million of non-recurring revenue that resulted from the buyout of a future royalty stream.

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