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), which we adopted on October 1, 2005.
(b) 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.
(c) Amortization of intangible assets resulting from business combinations.
(d) Asset impairment charges for the three months ended September 28, 2007 totaled $192.5 million and were primarily comprised of non-cash goodwill and intangible asset impairment charges.
(e) Special charges for the three months ended December 28 and September 28, 2007 and December 29, 2006 included restructuring charges of $6.8 million, $4.1 million and $2.9 million, respectively. In addition, legal settlements totaling $20.0 million were incurred during the three months ended September 28, 2007.
(f) Other gains and losses which are not part of our core, on-going operations.
(g) Represents a write-down of an equity investment.
(h) Unrealized gains and losses associated with the change 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) Represents other income which is not part of our core, on-going operations including investment credits for asset disposals in the three months ended September 28, 2007.
(k) 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 fiscal quarters ended December 28 and September 28, 2007 and December 29, 2006, 1.6 million, 4.0 million and 6.6 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.
(l) Our first quarter fiscal 2008 financial results included $14.7 million of non-recurring revenue that resulted from the buyout of a future royalty stream.
Non-GAAP Financial Measures:
We have presented non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP net income and non-GAAP basic and diluted net income 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. 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. 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)
December 28, September 28,
2007 2007
-------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents $ 232,141 $ 235,605
Restricted cash 8,800 8,800
Receivables 71,727 80,906
Inventories 60,899 63,174
Other current assets 23,917 20,361
-------------- ---------------
Total current assets 397,484 408,846
Property, plant and equipment 58,222 67,967
Goodwill 405,737 406,323
Intangible assets 21,531 26,067
Other assets 66,634 76,766
-------------- ---------------
Total assets $ 949,608 $ 985,969
============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 54,900 $ 58,000
Short-term debt 70,973 80,000
Accounts payable 75,613 80,667
Accrued compensation and benefits 25,716 26,154
Other current liabilities 49,886 70,631
-------------- ---------------
Total current liabilities 277,088 315,452
Long-term debt 470,100 467,000
Other liabilities 62,391 57,002
-------------- ---------------
Total liabilities 809,579 839,454
-------------- ---------------
Shareholders' equity 140,029 146,515
-------------- ---------------
Total liabilities and
shareholders' equity $ 949,608 $ 985,969
============== ===============
