Certain reclassifications have been made to all periods presented to conform to the current year presentation and prior fiscal periods contain certain reclassifications to conform with the presentation used in fiscal 2007.
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, employee stock purchase plan shares, and performance share grants in accordance with SFAS No. 123(R).
(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.
(d) IP litigation support costs comprise legal fees related to our litigation with Texas Instruments Incorporated, which was settled in May 2006.
(e) Amortization of intangible assets resulting from business combinations.
(f) Asset impairment charges for the three and twelve months ended September 28, 2007 totaled $192.5 million and $350.9 million, respectively, and were primarily comprised of non-cash goodwill and intangible asset impairment charges. Asset impairment charges for the three months ended June 29, 2007 totaled $3.4 million and resulted from the termination of a license agreement.
(g) Special charges for the three and twelve months ended September 28, 2007 were primarily comprised of legal settlements totaling $20.0 million for each period and $4.1 million and $12.1 million, respectively, of restructuring charges. Special charges for the twelve months ended September 29, 2006 included charges of $70.0 million related to the settlement of our litigation with Texas Instruments Incorporated and $3.3 million of restructuring charges. Special charges for the three months ended June 29, 2007 and September 29, 2006 were comprised of restructuring charges.
(h) Unrealized gains associated with changes in the fair value of our warrant to purchase 30 million shares of Mindspeed Technologies, Inc. common stock, which is accounted for as a derivative instrument.
(i) Gains on sales of equity securities or on the liquidation of companies in which we held equity securities.
(j) Gain (loss) of equity method investments for the three and twelve months ended September 28, 2007, includes gains on the sale of our investment in Jazz Semiconductor, Inc. of $6.7 million and $50.3 million, respectively.
(k) Represents a write-down of private company equity investment during the three and twelve months ended September 30, 2006 and an $18.5 million write-down of our investment in Skyworks Solutions, Inc. to fair value during the twelve months ended September 29, 2006.
(l) Other gains and losses which are not part of our core, on-going operations. For the three and twelve months ended September 28, 2007, the adjustment relates to an environmental charge. For the twelve months ended September 29, 2006, these adjustments primarily relate to a property tax settlement.
(m) Represents other income and expenses which are not part of our core, on-going operations including investment credits for asset disposals in the three and twelve months ended September 28, 2007 and a property tax settlement in the twelve months ended September 29, 2006.
(n) 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 and twelve months ended September 29, 2006, 4.0 million and 8.9 million shares, respectively, have been added to basic weighted average shares to arrive at diluted weighted average shares for purposes of the non-GAAP core diluted net income per share computations.
Non-GAAP Financial Measures:
We have presented non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP net income (loss) and non-GAAP basic and diluted net income (loss) per share, on a basis consistent with our 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. Management believes that these are important measures in the evaluation of our results of operations. 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 our company. 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)
September September
28, 29,
2007 2006
--------- ----------
ASSETS
Current assets:
Cash and cash equivalents (Note 5) $ 235,605 $ 225,626
Marketable securities (Note 5) -- 115,709
Restricted cash 8,800 8,800
Receivables 80,906 123,025
Inventories 63,174 97,460
Other current assets 20,361 19,353
--------- ----------
Total current assets 408,846 589,973
Property, plant and equipment, net 67,967 65,405
Goodwill 406,323 710,790
Intangible assets, net 26,067 76,008
Other assets 76,766 131,449
--------- ----------
Total assets $ 985,969 $1,573,625
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 58,000 $ 188,375
Short-term debt 80,000 80,000
Accounts payable 80,667 113,690
Accrued compensation and benefits 26,154 28,307
Other current liabilities 70,631 51,966
--------- ----------
Total current liabilities 315,452 462,338
Long-term debt 467,000 518,125
Other liabilities 57,002 83,064
--------- ----------
Total liabilities 839,454 1,063,527
--------- ----------
Shareholders' equity 146,515 510,098
--------- ----------
Total liabilities and shareholders'
equity $ 985,969 $1,573,625
========= ==========
Note 5 - Cash, Cash Equivalents and Marketable
Securities
September September
28, 29,
2007 2006
--------- ----------
Cash and cash equivalents $ 235,605 $ 225,626
Marketable debt securities -- 83,620
--------- ----------
Subtotal 235,605 309,246
Marketable equity securities - Skyworks
Solutions, Inc. (6.2 million shares at September
29, 2006) -- 32,089
--------- ----------
Total cash, cash equivalents and marketable
securities $ 235,605 $ 341,335
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