Conexant Exceeds Expectations and Delivers Double-Digit Core Operating Profitability Two Quarters Ahead of Schedule; Company Achieves Core Operating Margins of 10 Percent and Expands Core Gross Margins by 170 Basis Points.NEWPORT BEACH Newport Beach, residential and resort city (1990 pop. 66,643), Orange co., S Calif., on Newport Bay and the Pacific Ocean; inc. 1906. It is a popular seaside resort and yachting center. Manufactures include electrical and medical equipment, computers, boats, and adhesives. , Calif. -- Conexant Please wikify (format) this article or section as suggested in the Guide to layout and the Manual of Style. Remove this template after wikifying. This article has been tagged since September 2007. Systems, Inc. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on :CNXT), today reported financial results for the third quarter of fiscal 2006, which ended June June: see month. 30, 2006. The results exceeded the company's prior expectations for improvements in both core gross margins and core operating margins Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: . Conexant's highest-priority goal, established 18 months ago, had been to return to double-digit dou·ble-dig·it adj. Being between 10 and 99 percent: double-digit inflation. core operating margins by the end of this calendar year. By delivering core operating margins of 10.1 percent in the third fiscal quarter, the company achieved its goal two quarters ahead of schedule. Conexant presents financial results based on generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting (GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). ) as well as selected non-GAAP financial measures intended to reflect its core results of operations. The company believes these core financial measures provide investors with additional insight into its underlying operating results. Core financial measures exclude non-cash and other non-core items as fully described in the GAAP to non-GAAP reconciliation in the accompanying ac·com·pa·ny v. ac·com·pa·nied, ac·com·pa·ny·ing, ac·com·pa·nies v.tr. 1. To be or go with as a companion. 2. financial data. Third quarter fiscal 2006 revenues of $251.6 million increased 3.7 percent from second quarter fiscal 2006 revenues of $242.6 million, in line with prior expectations of a 3 to 5 percent sequential One after the other in some consecutive order such as by name or number. increase and up 27.4 percent from $197.5 million in the third quarter of fiscal 2005. Core gross margins in the third quarter of fiscal 2006 increased to 45.2 percent of revenues, up 170 basis points from 43.5 percent in the immediate-prior quarter and above prior expectations of approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 44 percent. Core operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. increased in the third quarter of fiscal 2006 to $88.4 million from $86.1 million in the prior quarter, primarily due to increased investments in new product development and in line with expectations at the beginning of the quarter. Core operating expenses in the year-ago quarter were $86.2 million. Core operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. in the third quarter of fiscal 2006 was $25.5 million, a sequential increase of 31.7 percent from second quarter fiscal 2006 core operating income of $19.3 million and above prior expectations for a sequential improvement of approximately 15 percent. The core operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. in the third quarter of fiscal 2005 was $11.2 million. Core net income for the third quarter of fiscal 2006 increased 42 percent sequentially se·quen·tial adj. 1. Forming or characterized by a sequence, as of units or musical notes. 2. Sequent. se·quen to $18.6 million, or $0.04 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, compared to $13.1 million, or $0.03 per diluted share in the second quarter of fiscal 2006. In the year-ago quarter, the core net loss was $17.6 million, or $0.04 per diluted share. On a GAAP basis, gross margins for the third quarter of fiscal 2006 increased to 52.3 percent of revenues, from 43.8 percent in the prior quarter. Third fiscal quarter gross margins included a gain of $17.5 million related to the termination The point where a line, channel or circuit ends. See SCSI termination and hybrid. of a wafer (1) A small, thin continuous-loop magnetic tape cartridge that has been used from time to time for data storage and specialized applications. (2) The base unit of chip making. It is a slice taken from a salami-like silicon crystal ingot up to 12" (300mm) in diameter. supply and services agreement with Jazz Semiconductor Jazz Semiconductor is a US based pure-play semiconductor wafer foundry that serves customers targeting wireless, optical networking, power management, storage, aerospace/defense and other high-performance applications. Inc. GAAP operating expenses decreased to $137.3 million in the third quarter of fiscal 2006 from $147.8 million in the prior quarter. As previously announced, the company settled its GlobespanVirata-derived litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. with Texas Instruments See TI. (company) Texas Instruments - (TI) A US electronics company. A TI engineer, Jack Kilby invented the integrated circuit in 1958. Three TI employees left the company in 1982 to start Compaq. for $70.0 million. The company recorded $30.0 million of the total in the third quarter of fiscal 2006 and $40.0 million in the second quarter of fiscal 2006. The GAAP operating loss was $5.7 million in the third quarter of fiscal 2006 compared to a loss of $41.6 million in the previous quarter. The GAAP net loss for the third quarter of fiscal 2006 was $67.1 million, or $0.14 per diluted share, compared to a GAAP net loss of $10.1 million, or $0.02 per diluted share, in the second quarter of fiscal 2006. The company's third fiscal quarter 2006 GAAP results also included a $35.1 million decrease in the value of warrants in Mindspeed Technologies Inc. and an $18.5 million impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. of the value of its investment in Skyworks Solutions  This article or section is written like an .Please help [ rewrite this article] from a neutral point of view. Mark blatant advertising for , using . Inc. For the year-ago quarter, GAAP gross margins were 38.0 percent, GAAP operating expenses were $113.7 million, GAAP operating loss was $38.7 million, and GAAP net loss was $32.2 million, or $0.07 per diluted share. "In our third fiscal quarter, we once again exceeded our overall performance expectations," said Dwight Dwight , Timothy 1752-1817. American clergyman, author, and educator who was a leading supporter of Federalism and served as president of Yale University (1795-1817). His grandson Timothy (1828-1916) was also president of Yale (1886-1899). W. Decker, Conexant chairman and chief executive officer. "Most importantly Adv. 1. most importantly - above and beyond all other consideration; "above all, you must be independent" above all, most especially , we delivered on our highest-priority goal, established 18 months ago, which was to return to double-digit core operating margins before the end of calendar 2006. The entire Conexant team deserves credit for achieving this final recovery-phase goal two full quarters ahead of our previously committed schedule. "In achieving double-digit core operating profitability, we delivered core operating income of $25.5 million, a sequential increase of nearly 32 percent and double the 15 percent we expected entering the quarter," Decker said. "This above-plan performance was largely driven by a 170-basis-point improvement in core gross margins, which was more than twice what we anticipated at the beginning of the quarter and primarily attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to our continuing success in reducing product costs and firmer-than-expected pricing. "We entered the third fiscal quarter with $595 million in cash, cash equivalents, and investments," Decker said. "During the quarter, we redeemed re·deem tr.v. re·deemed, re·deem·ing, re·deems 1. To recover ownership of by paying a specified sum. 2. To pay off (a promissory note, for example). 3. $197 million of convertible notes that had reached maturity, and we paid $70 million to settle our litigation with Texas Instruments. These reductions to our cash and equivalents were partially offset by $49 million in net proceeds Net Proceeds The amount received after all costs are deducted from the sale of a piece of property or security. Notes: In the case of an investor selling a security, net proceeds represent the proceeds from the sale minus any trading costs (i.e. commissions). from the exercise of a 'green shoe' option related to our $200 million convertible debt offering that we completed in the second fiscal quarter. "We exited the third fiscal quarter with $366 million in cash, cash equivalents, and investments," Decker continued. "Conexant has $456.5 million of convertible debt coming due in February February: see month. 2007, and we expect that an additional financing will be required before the end of the calendar year. We anticipate that the size of this financing will range between $100 million and $200 million, and we are focusing on a transaction that will not be dilutive to shareholders." Fourth Fiscal Quarter 2006 Outlook "The overall semiconductor market has clearly weakened weak·en tr. & intr.v. weak·ened, weak·en·ing, weak·ens To make or become weak or weaker. weak  en·er n. over
the past couple of months, and our outlook for the current quarter is
not as strong as we expected it would be a quarter ago," Decker
said.
"We expect the broadly reported weakness in the PC market to drive a sequential decline in revenues from our PC modem modem [modulator/demodulator], an external device or internal electronic circuitry used to transmit and receive digital data over a communications line normally used for analog signals. and PC video products ranging between $4 million and $6 million. In Wireless Networking See wireless network. , revenues from legacy wireless products nearing their end of life are declining faster than the growth of our newer embedded Inserted into. See embedded system. wireless LAN A local area network that transmits over the air typically in the 2.4 GHz or 5 GHz unlicensed frequency band. It does not require line of sight between sender and receiver. Wireless base stations (access points) are wired to an Ethernet network and transmit a radio frequency over an area solutions. We expect the impact of this transition to drive a $3 million to $5 million sequential decline in revenues. In Broadband Access See broadband and wireless broadband. , although we have less order visibility than in prior quarters, we do not believe there is a slow-down in our DSL DSL in full Digital Subscriber Line Broadband digital communications connection that operates over standard copper telephone wires. It requires a DSL modem, which splits transmissions into two frequency bands: the lower frequencies for voice (ordinary markets and we expect this business to be approximately flat on a sequential basis. In Broadband broadband Term describing the radiation from a source that produces a broad, continuous spectrum of frequencies (contrasted with a laser, which produces a single frequency or very narrow range of frequencies). Media Processing See media control. , we continue to see strong customer demand across our set-top box The cable TV box that sits on "top" of the TV "set," although it is often located several feet away in an equipment rack. The set-top box descrambles the premium channels and provides a tuner for the higher cable numbers that very old TVs did not support. portfolio, and we anticipate that these products will deliver yet another quarter of double-digit revenue growth. "In total, we anticipate that Conexant's fourth fiscal quarter revenues will be in a range from up 1 percent to down 3 percent sequentially," Decker said. "For gross margins, we expect to continue our improvement trend with an increase in core gross margins of about 50 basis points. We also plan to continue to modestly grow our investments in new Broadband Media Processing and DSL products, which will increase core operating expenses slightly. We anticipate that core operating income will be in a range between flat to down $4 million sequentially. As a result, we expect our core net income to be $0.03 to $0.04 per share, based on approximately 505 million diluted shares outstanding." Note to Editors, Analysts and Investors Conexant's conference call will take place on Thursday Thursday: see week. , July July: see month. 27, 2006, at 5 p.m. Eastern time/2 p.m. Pacific time. To listen to the conference call via telephone, dial 866-650-4882 (in the U.S. and Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of ) or 706-679-7338 (from other international locations); security code: Conexant. To listen via the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the , visit the Investor Relations Investor relations The process by which the corporation communicates with its investors. section of Conexant's Web site at www.conexant.com/ir. Playback Playback could mean:
About Conexant Conexant's innovative semiconductor solutions are driving broadband communications and digital home networks worldwide. The company has leveraged its expertise and leadership position in modem technologies to enable more Internet connections than all of its competitors COMPETITORS, French law. Persons who compete or aspire to the same office, rank or employment. As an English word in common use, it has a much wider application. Ferriere, Dict. de Dr. h.t. combined, and continues to develop highly integrated silicon solutions for broadband data and media processing networks. Key products include client-side Refers to any operation that is performed at the client workstation. Contrast with server-side. xDSL Refers to DSL technologies in general, including ADSL, HDSL, SDSL and VDSL. See DSL. xDSL - Digital Subscriber Line and cable modem cable modem Modem used to convert analog data signals to digital form and vise versa, for transmission or receipt over cable television lines, especially for connecting to the Internet. solutions, home network processors, broadcast video encoders and decoders, digital set-top box components and systems solutions, and dial-up Refers to using the regular "dial-up" telephone network to send data from a computer to a remote network or to a remote device. The computer's digital data are converted to analog signals in the same frequency range as human voice by a modem. modems. Conexant's suite of networking components includes a leadership portfolio of IEEE (Institute of Electrical and Electronics Engineers, New York, www.ieee.org) A membership organization that includes engineers, scientists and students in electronics and allied fields. 802.11-compliant WLAN See wireless LAN. WLAN - wireless local area network chipsets, software and reference designs, as well as solutions for applications based on HomePlug A powerline network that is designed to run Ethernet over the existing electrical system and use AC wall outlets as connecting points. HomePlug provides a non-wireless alternative to stringing network cables to all the rooms in the house. (R) and HomePNA (HOME Phoneline Networking Alliance) A phoneline network that is designed to run Ethernet over existing telephone lines and use RJ-11 wall jacks as connecting points. (TM). The company also offers a complete line of asymmetric A difference between two opposing modes. It typically refers to a speed disparity. For example, in asymmetric operations, it takes longer to compress and encrypt data than to decompress and decrypt it. Contrast with symmetric. See asymmetric compression and public key cryptography. and symmetric DSL See DSL. central office solutions, which are used by service providers worldwide to deliver broadband data, voice, and video over copper telephone lines. Conexant is a fabless semiconductor company A fabless semiconductor company specializes in the design and sale of hardware devices implemented on semiconductor chips. It achieves an advantage by outsourcing the fabrication of the devices to a specialized semiconductor manufacturer called a semiconductor foundry or "fab. with an annual revenue run-rate in excess of $1 billion. The company has approximately 2,800 employees worldwide, and is headquartered in Newport Beach, Calif. To learn more, please visit www.conexant.com. Safe Harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. "Safe Harbor" Statement under the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995: This release includes forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. 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 also are 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 forward-looking statements. These risks and uncertainties include, but are not limited to: the uncertainties of litigation, including claims of infringement The encroachment, breach, or violation of a right, law, regulation, or contract. The term is most frequently used in reference to the invasion of rights secured by Copyright, patent, or trademark. 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 the company; the risk that capital needed for our business and to repay our convertible notes will not be available when needed; the risk that the value of our common stock may be adversely affected by market volatility Volatility 1. A statistical measure of the tendency of a market or security to rise or fall sharply within a period of time. 2. A variable in option pricing formulas that denotes the extent to which the return of the underlying asset will fluctuate between now and the ; general economic and political conditions and conditions in the markets we address; the substantial losses we have incurred; the cyclical cyclical Of or relating to a variable, such as housing starts, car sales, or the price of a certain stock, that is subject to regular or irregular up-and-down movements. nature of the semiconductor industry and the markets addressed by our products and our customers' products; continuing volatility in the technology sector and the semiconductor industry; demand for and market acceptance of our new and existing products; our successful development of new products; the timing of our new product introductions and our product quality; our ability to anticipate trends and develop products for which there will be market demand; the availability of manufacturing capacity; pricing pressures and other competitive factors; changes in our product mix; product obsolescence ob·so·les·cent adj. 1. Being in the process of passing out of use or usefulness; becoming obsolete. 2. Biology Gradually disappearing; imperfectly or only slightly developed. ; the ability of our customers to manage inventory; our ability to develop and implement new technologies and to obtain protection for the related intellectual property; 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. The forward-looking statements are made only as of the date hereof here·of adv. Of this. hereof Adverb Formal or law of or concerning this Adv. 1. hereof - of or concerning this; "the twigs hereof are physic" . We undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. Conexant is a registered trademark of Conexant Systems, Inc. Other brands and names contained in this release are the property of their respective owners.
CONEXANT SYSTEMS, INC.
GAAP Condensed Consolidated Statements of Operations
(unaudited, in thousands, except per share amounts)
Three Months Ended Nine Months Ended
----------------------------- ---------------------
June 30, March 31, June 30, June 30, June 30,
2006 2006 2005 2006 2005
--------- --------- --------- ---------- ----------
Net revenues $251,635 $242,583 $197,464 $724,924 $507,823
Cost of goods sold
(Note 1) 137,598 136,373 122,430 408,924 365,661
Gain on
cancellation of
supply agreement
(Note 2) (17,500) -- -- (17,500) --
--------- --------- --------- ---------- ----------
Gross margin 131,537 106,210 75,034 333,500 142,162
Operating
expenses:
Research and
development 70,096 64,831 66,282 199,286 209,362
Selling, general
and
administrative 27,037 36,320 31,081 101,958 89,449
Amortization of
intangible
assets 7,520 7,758 7,969 23,185 24,402
Special charges
(Note 3) 32,610 38,854 8,409 72,379 41,262
--------- --------- --------- ---------- ----------
Total
operating
expenses 137,263 147,763 113,741 396,808 364,475
--------- --------- --------- ---------- ----------
Operating loss (5,726) (41,553) (38,707) (63,308) (222,313)
Interest expense 10,426 10,052 8,396 29,280 25,290
Other expense
(income), net 49,907 (42,208) (15,610) 6,423 (23,367)
--------- --------- --------- ---------- ----------
Loss before income
taxes (66,059) (9,397) (31,493) (99,011) (224,236)
Provision for
income taxes 1,031 735 673 2,482 1,835
--------- --------- --------- ---------- ----------
Net loss $(67,090) $(10,132) $(32,166) $(101,493) $(226,071)
========= ========= ========= ========== ==========
Basic and diluted
net loss per
share $(0.14) $(0.02) $(0.07) $(0.21) $(0.48)
========= ========= ========= ========== ==========
Shares used in
basic and diluted
per-share
computations 481,626 477,480 471,247 477,716 469,935
========= ========= ========= ========== ==========
Note 1- Includes $45.0 million of charges for internal inventory
during the nine months ended June 30, 2005.
Note 2- During the three months ended June 30, 2006, Conexant and Jazz
Semiconductor Inc. terminated a wafer supply and services
agreement. In lieu of credits toward future purchases of
product from Jazz, we received an additional investment in
Jazz and recorded a gain of $17.5 million during the three and
nine months ended June 30, 2006.
Note 3- Includes charges of $30.0 million, $40.0 million, and $70.0
million related to the litigation with Texas Instruments Inc.
during the three months ended June 30, 2006, the three months
ended March 31, 2006, and the nine months ended June 30, 2006,
respectively.
CONEXANT SYSTEMS, INC.
Reconciliation of GAAP Financial Measures to Non-GAAP Core Financial
Measures (unaudited, in thousands, except per share amounts)
Three Months Ended Nine Months Ended
----------------------------- ---------------------
June 30, March 31, June 30, June 30, June 30,
2006 2006 2005 2006 2005
----------------------------- ---------------------
GAAP gross margin $131,537 $106,210 $75,034 $333,500 $142,162
Stock-based
compensation(a) 31 131 -- 460 --
Gain on
cancellation of
supply
agreement(b) (17,500) -- -- (17,500) --
Other(k) (245) (883) -- (1,128) --
--------- --------- --------- ---------- ----------
Non-GAAP Core
gross margin $113,823 $105,458 $75,034 $315,332 $142,162
========= ========= ========= ========== ==========
GAAP operating
expenses $137,263 $147,763 $113,741 $396,808 $364,475
Stock-based
compensation(a) (10,145) (12,621) (3,019) (36,784) (9,027)
Transitional
salaries and
benefits(c) (792) (685) (4,818) (1,694) (13,753)
IP litigation
support credits
(costs)(d) 1,897 (7,233) (3,293) (10,993) (7,638)
Amortization of
intangible
assets(e) (7,520) (7,758) (7,969) (23,185) (24,402)
Special
charges(f) (32,610) (38,854) (8,409) (72,379) (41,262)
Other(k) 277 5,515 -- 5,792 --
--------- --------- --------- ---------- ----------
Non-GAAP Core
operating
expenses $88,370 $86,127 $86,233 $257,565 $268,393
========= ========= ========= ========== ==========
GAAP operating
loss $(5,726) $(41,553) $(38,707) $(63,308) $(222,313)
Cost of goods
sold
adjustments(a-
b, k) (17,714) (752) -- (18,168) --
Operating
expense
adjustments(a,
c-f, k) 48,893 61,636 27,508 139,243 96,082
--------- --------- --------- ---------- ----------
Non-GAAP Core
operating income
(loss) $25,453 $19,331 $(11,199) $57,767 $(126,231)
========= ========= ========= ========== ==========
GAAP net loss $(67,090) $(10,132) $(32,166) $(101,493) $(226,071)
Cost of goods
sold
adjustments(a-
b, k) (17,714) (752) -- (18,168) --
Operating
expense
adjustments(a,
c-f, k) 48,893 61,636 27,508 139,243 96,082
Losses of equity
method
investments(g) 648 584 2,127 3,303 8,587
Unrealized
(gains) losses
on Mindspeed
warrant(h) 35,131 (35,642) 16,085 3,800 14,804
Gains on sales
of equity
securities(i) -- (577) (31,198) (4,414) (42,310)
Impairment of
equity
securities(j) 18,456 -- -- 18,456 --
Other(k) 285 (2,010) -- (1,725) (600)
--------- --------- --------- ---------- ----------
Non-GAAP Core net
income (loss) $18,609 $13,107 $(17,644) $39,002 $(149,508)
========= ========= ========= ========== ==========
Basic net income
(loss) per share:
GAAP $(0.14) $(0.02) $(0.07) $(0.21) $(0.48)
========= ========= ========= ========== ==========
Non-GAAP Core $0.04 $0.03 $(0.04) $0.08 $(0.32)
========= ========= ========= ========== ==========
Diluted net income
(loss) per share:
GAAP $(0.14) $(0.02) $(0.07) $(0.21) $(0.48)
========= ========= ========= ========== ==========
Non-GAAP Core(l) $0.04 $0.03 $(0.04) $0.08 $(0.32)
========= ========= ========= ========== ==========
See "GAAP to Non-GAAP Core Adjustments" below
GAAP to Non-GAAP Core Adjustments:
(a) Stock-based compensation expense for the three months ended June
30, 2006, and March 31, 2006, and the nine months ended June 30,
2006, is based on the fair value of all stock options and employee
stock purchase plan shares in accordance with SFAS No. 123R, which
we adopted on Oct. 1, 2005. Stock-based compensation expense for
the three and nine months ended June 30, 2005, is based on the
intrinsic value of acquired or exchanged unvested stock options in
business combinations, which is in accordance with previous
accounting standards.
(b) Gain resulting from the cancellation of a wafer supply and
services agreement with Jazz Semiconductor Inc.
(c) Transitional salaries and benefits represent amounts earned by
employees who have been notified of their termination as part of
our restructuring activities, from the date of their notification.
Included in the amounts for the three months ended June 30, 2006,
March 31, 2006, and June 30, 2005, and the nine months ended June
30, 2006, and June 30, 2005, are $45, $43, $571, $97, and $1,499,
respectively, of facilities related costs.
(d) IP litigation support costs comprise legal fees related to our
litigation with Texas Instruments Inc., which was settled in May
2006. During the three months ended June 30, 2006, we recorded a
net credit of $1.9 million based on the finalization of legal
costs associated with the TI litigation.
(e) Amortization of intangible assets resulting from our previous
business combinations.
(f) Restructuring charges, asset impairments, integration costs and
other special items, including charges of $30.0 million, $40.0
million, and $70.0 million related to our litigation with Texas
Instruments Inc. during the three months ended June 30, 2006, and
March 31, 2006, and the nine months ended June 30, 2006,
respectively. The litigation with Texas Instruments Inc. was
settled in May 2006.
(g) Losses resulting from our equity method investments.
(h) Unrealized gains and losses associated with fair value changes in
our ownership of the Mindspeed warrant accounted for as a
derivative instrument.
(i) Gains on sales of equity securities.
(j) Represents a write-down of our investment in Skyworks Solutions
Inc. to fair value as of June 30, 2006.
(k) Other gains and losses which are not part of our core, on-going
operations. For the three months ended March 31, 2006, and the
nine months ended June 30, 2006, these adjustments primarily
relate to a property tax settlement.
(l) In periods of non-GAAP core net income, the dilutive effect of
stock options and warrants under the treasury stock method and the
dilutive effect of shares issuable upon conversion of convertible
subordinated notes under the if-converted method are added to
basic weighted average shares to compute diluted weighted average
shares. For the three months ended June 30, 2006, the three months
ended March 31, 2006, and the nine months ended June 30, 2006,
21.0 million, 15.6 million and 13.6 million shares, respectively,
have been added to basic weighted average shares to arrive at
diluted weighted average shares for purposes of computing non-GAAP
core diluted net income per share.
Non-GAAP Financial Measures:
We have presented non-GAAP gross margin, non-GAAP operating expenses,
non-GAAP operating income (loss), non-GAAP net income (loss) and
non-GAAP basic and diluted net income (loss) per share, on a basis
consistent with its historical presentation to assist investors in
understanding our core results of operations on an on-going basis.
These non-GAAP financial measures also enhance comparisons of our core
results of operations with historical periods. We are providing these
non-GAAP financial measures to investors to enable them to perform
additional financial analysis and because it is consistent with the
financial models and estimates published by analysts who follow the
Company. Management believes that these are important measures in the
evaluation of our results of operations. Investors should consider
non-GAAP financial measures in addition to, and not as a substitute
for, or superior to, measures of financial performance prepared in
accordance with GAAP. The non-GAAP financial measures presented by us
may be different than non-GAAP financial measures presented by other
companies.
GAAP Guidance:
We do not present GAAP guidance due to our inability to project (i)
future market prices of the common stock of a third party underlying a
derivative financial instrument, (ii) realized gains or losses from
the sale of equity securities in third parties, and (iii) the
financial results of investments accounted for using the equity method
of accounting.
CONEXANT SYSTEMS, INC.
Condensed Consolidated Balance Sheets
(unaudited, in thousands)
June 30, March 31, Sept. 30,
2006 2006 2005
----------- ----------- -----------
ASSETS
Current assets:
Cash and cash equivalents (Note
4) $225,461 $454,795 $202,704
Marketable securities (Note 4) 140,360 140,347 139,306
Restricted cash 8,800 8,800 --
Receivables 145,412 103,085 87,240
Inventories 83,476 87,302 95,329
Other current assets 19,665 32,762 14,701
----------- ----------- -----------
Total current assets 623,174 827,091 539,280
Property, plant and equipment 60,949 55,519 50,700
Goodwill 711,645 714,786 717,013
Intangible assets 83,527 91,046 106,709
Mindspeed warrant 29,337 64,468 33,137
Marketable securities-long term
(Note 4) -- -- 38,485
Other assets 121,051 102,007 96,200
----------- ----------- -----------
Total assets $1,629,683 $1,854,917 $1,581,524
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term
debt $456,500 $653,325 $196,825
Short-term debt 80,000 80,000 --
Accounts payable 135,969 134,335 108,957
Accrued compensation and
benefits 34,181 27,465 27,505
Other current liabilities 65,461 106,135 63,197
----------- ----------- -----------
Total current
liabilities 772,111 1,001,260 396,484
Long-term debt 250,000 200,000 515,000
Other liabilities 89,112 89,490 100,947
----------- ----------- -----------
Total liabilities 1,111,223 1,290,750 1,012,431
----------- ----------- -----------
Shareholders' equity 518,460 564,167 569,093
----------- ----------- -----------
Total liabilities and
shareholders' equity $1,629,683 $1,854,917 $1,581,524
=========== =========== ===========
Note 4- Cash, Cash Equivalents and Marketable Securities
June 30, March 31, Sept. 30,
2006 2006 2005
----------- ----------- -----------
Cash and cash equivalents $225,461 $454,795 $202,704
Short-term marketable debt
securities (U.S. government
agency and corporate debt
securities) 106,292 98,427 95,902
Long-term marketable debt
securities (U.S. government
agency and corporate debt
securities) -- -- 38,485
----------- ----------- -----------
Subtotal 331,753 553,222 337,091
Marketable equity securities-
Skyworks Solutions Inc. (6.2
million shares) 34,068 41,920 43,404
----------- ----------- -----------
Total cash, cash equivalents and
marketable securities $365,821 $595,142 $380,495
CONEXANT SYSTEMS, INC.
Selected Other Data
(unaudited, in thousands)
Three Months Ended Nine Months Ended
----------------------------- -------------------
June 30, March 31, June 30, June 30, June 30,
2006 2006 2005 2006 2005
----------------------------- -------------------
Revenues By Region:
Americas $32,346 $23,849 $24,490 $75,405 $64,196
Asia-Pacific 196,627 203,232 160,989 596,723 399,046
Europe, Middle East
and Africa 22,662 15,502 11,985 52,796 44,581
--------- --------- --------- --------- ---------
$251,635 $242,583 $197,464 $724,924 $507,823
========= ========= ========= ========= =========
Cash Flow Data:
Depreciation of PP&E $5,063 $4,671 $4,524 $14,167 $14,054
Capital expenditures $10,361 $7,359 $4,064 $23,500 $16,426
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