These risks and uncertainties include, but are not limited to: 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 and the markets addressed by our products and our customers’ products; volatility in the technology sector and the semiconductor industry; 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; the availability of manufacturing capacity; changes in our product mix; product obsolescence; the ability of our customers to manage inventory; the risk that capital needed for our business and to repay our indebtedness will not be available when needed; the risk that the value of our common stock may be adversely affected by market volatility; 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.
The forward-looking statements are made only as of the date hereof. 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.
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CONEXANT SYSTEMS, INC. GAAP Condensed Consolidated Statements of Operations (unaudited, in thousands, except per share amounts) |
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| Three Months Ended | Six Months Ended | ||||||||||||||||||
| March 28, | December 28, | March 30, | March 28, | March 30, | |||||||||||||||
| 2008 | 2007 | 2007 | 2008 | 2007 | |||||||||||||||
| Net revenues | $ | 173,992 | $ | 196,958 | $ | 199,865 | $ | 370,950 | $ | 445,399 | |||||||||
| Cost of goods sold | 94,979 | 97,687 | 110,016 | 192,666 | 246,061 | ||||||||||||||
| Gross margin | 79,013 | 99,271 | 89,849 | 178,284 | 199,338 | ||||||||||||||
| Operating expenses: | |||||||||||||||||||
| Research and development | 52,477 | 60,390 | 69,345 | 112,867 | 140,795 | ||||||||||||||
| Selling, general and administrative | 23,540 | 23,101 | 26,803 | 46,641 | 54,279 | ||||||||||||||
| Amortization of intangible assets | 3,069 | 4,781 | 6,254 | 7,850 | 12,492 | ||||||||||||||
| Asset impairments (Note 1) | 121,655 | 130 | 155,000 |
|
121,785 | 155,000 | |||||||||||||
| Special charges | 3,973 | 5,784 | 5,121 | 9,757 | 8,019 | ||||||||||||||
| Total operating expenses | 204,714 | 94,186 | 262,523 | 298,900 | 370,585 | ||||||||||||||
| Operating (loss) income | (125,701 | ) | 5,085 | (172,674 | ) | (120,616 | ) | (171,247 | ) | ||||||||||
| Interest expense | 10,969 | 11,563 | 13,220 | 22,532 | 26,256 | ||||||||||||||
| Other expense (income), net | 4,148 | 5,345 | (9,660 | ) | 9,493 | (22,721 | ) | ||||||||||||
| Loss before income taxes and gain of equity method investments |
(140,818 |
) |
(11,823 | ) |
(176,234 |
) |
|
(152,641 |
) |
(174,782 |
) |
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| Provision for income taxes | 972 | 1,168 | 1,232 | 2,140 | 1,703 | ||||||||||||||
| Loss before gain of equity method investments |
(141,790 |
) |
(12,991 | ) |
(177,466 |
) |
|
(154,781 |
) |
(176,485 |
) |
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| (Loss) gain of equity method investments (Note 2) | (214 | ) | 3,773 | 44,020 | 3,559 | 44,015 | |||||||||||||
| Net loss | $ | (142,004 | ) | $ | (9,218 | ) | $ | (133,446 | ) | $ | (151,222 | ) | $ | (132,470 | ) | ||||
| Basic and diluted net loss per share | $ | (0.29 | ) | $ | (0.02 | ) | $ | (0.27 | ) | $ | (0.31 | ) | $ | (0.27 | ) | ||||
| Shares used in basic and diluted per-share computations | 493,122 | 492,363 | 489,302 | 492,743 | 487,630 | ||||||||||||||
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Note 1 – Asset impairments for the three and six months ended March 28, 2008 consist primarily of a non-cash goodwill impairment charge related to our Broadband Media Processing business of $119.6 million. Asset impairments for the three and six months ended March 30, 2007 include non-cash goodwill and intangible asset impairment charges related to our Embedded Wireless Networking business of $135.0 million and $20.0 million. |
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Note 2 – Gain (loss) of equity method investments for the three and six months ended March 30, 2007 includes a gain on the sale of our investment in Jazz Semiconductor, Inc. of $43.5 million. |
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CONEXANT SYSTEMS, INC. Reconciliation of GAAP Financial Measures to Non-GAAP Core Financial Measures (unaudited, in thousands, except per share amounts) |
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| Three Months Ended | Six Months Ended | |||||||||||||||||||
| March 28, | December 28, | March 30, | March 28, | March 30, | ||||||||||||||||
| 2008 | 2007 | 2007 | 2008 | 2007 | ||||||||||||||||
| GAAP gross margin | $ | 79,013 | $ | 99,271 | $ | 89,849 | $ | 178,284 | $ | 199,338 | ||||||||||
| Stock-based compensation (a) | 81 | 114 | 115 | 195 | 218 | |||||||||||||||
| Other (f) | (797 | ) | — | — | (797 | ) | — | |||||||||||||
| Non-GAAP Core gross margin | 78,297 | 99,385 | 89,964 | 177,682 | 199,556 | |||||||||||||||
| Royalty buyout (k) | — | (14,700 | ) | — | (14,700 | ) | — | |||||||||||||
| Non-GAAP Core gross margin less impact of royalty buyout | $ | 78,297 | $ | 84,685 | $ | 89,964 | $ | 162,982 | $ | 199,556 | ||||||||||
| GAAP operating expenses | $ | 204,714 | $ | 94,186 | $ | 262,523 | $ | 298,900 | $ | 370,585 | ||||||||||
| Stock-based compensation (a) | (3,685 | ) | (3,170 | ) | (4,656 | ) | (6,855 | ) | (8,890 | ) | ||||||||||
| Transitional salaries and benefits (b) | — | — | (1,591 | ) | — | (2,331 | ) | |||||||||||||
| Amortization of intangible assets (c) | (3,069 | ) | (4,781 | ) | (6,254 | ) | (7,850 | ) | (12,492 | ) | ||||||||||
| Asset impairments (d) | (121,655 | ) | (130 | ) | (155,000 | ) | (121,785 | ) | (155,000 | ) | ||||||||||
| Special charges (e) | (3,973 | ) | (5,784 | ) | (5,121 | ) | (9,757 | ) | (8,019 | ) | ||||||||||
| Other | — | — | — | — | (400 | ) | ||||||||||||||
| Non-GAAP Core operating expenses | $ | 72,332 | $ | 80,321 | $ | 89,901 | $ | 152,653 | $ | 183,453 | ||||||||||
| GAAP operating (loss) income | $ | (125,701 | ) | $ | 5,085 | $ | (172,674 | ) | $ | (120,616 | ) | $ | (171,247 | ) | ||||||
| Gross margin adjustment (a,f) | (716 | ) | 114 | 115 | (602 | ) | 218 | |||||||||||||
| Operating expense adjustments (a-e) | 132,382 | 13,865 | 172,622 | 146,247 | 187,132 | |||||||||||||||
| Non-GAAP Core operating income | 5,965 | 19,064 | 63 | 25,029 | 16,103 | |||||||||||||||
| Royalty buyout (k) | — | (14,700 | ) | — | (14,700 | ) | — | |||||||||||||
| Non-GAAP Core operating income less impact of royalty buyout | $ | 5,965 | $ | 4,364 | $ | 63 | $ | 10,329 | $ | 16,103 | ||||||||||
| GAAP net loss | $ | (142,004 | ) | $ | (9,218 | ) | $ | (133,446 | ) | $ | (151,222 | ) | $ | (132,470 | ) | |||||
| Gross margin adjustments (a, f) | (716 | ) | 114 | 115 | (602 | ) | 218 | |||||||||||||
| Operating expense adjustments (a-e) | 132,382 | 13,865 | 172,622 | 146,247 | 187,132 | |||||||||||||||
| Losses (gains) of equity method investments (g) | 214 | (3,773 | ) | (44,020 | ) | (3,559 | ) | (44,015 | ) | |||||||||||
| Losses (gains) on Mindspeed warrant (h) | 6,179 | 8,364 | (3,882 | ) | 14,543 | (6,924 | ) | |||||||||||||
| Gains on sales of equity securities (i) | — | — | (1,337 | ) | — | (6,469 | ) | |||||||||||||
| Other (j) | 628 | — | — | 628 | — | |||||||||||||||
| Non-GAAP Core net (loss) income | $ | (3,317 | ) | $ | 9,352 | $ | (9,948 | ) | $ | 6,035 | $ | (2,528 | ) | |||||||
| Basic and diluted net (loss) income per share: | ||||||||||||||||||||
| GAAP | $ | (0.29 | ) | $ | (0.02 | ) | $ | (0.27 | ) | $ | (0.31 | ) | $ | (0.27 | ) | |||||
| Non-GAAP Core (l) | $ | (0.01 | ) | $ | 0.02 | $ | (0.02 | ) | $ | 0.01 | $ | (0.01 | ) | |||||||
|
See “ GAAP to Non-GAAP Core Adjustments ” below |
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GAAP to Non-GAAP Core Adjustments: |
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(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. |
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(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. |
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(c) Amortization of intangible assets resulting from business combinations. |
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(d) Asset impairment charges for the three and six months ended March 28, 2008 consist primarily of a non-cash goodwill impairment charge related to our Broadband Media Processing business of $119.6 million. Asset impairment charges for the three and six months ended March 30, 2007 include a non-cash goodwill impairment charge of $135.0 million and an intangible asset impairment charge of $20.0 million, both of which were related to our Embedded Wireless Networking business. |
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(e) Special charges for the three and six months ended March 28, 2008, primarily consist of restructuring charges. Special charges for the three and six months ended March 30, 2007 consist of restructuring charges and the expense related to the settlement of our Dutch tax audit. |
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(f) Other gains and losses which are not part of our core, on-going operations. For the three and six months ended March 28, 2008, this amount relates to an environmental remediation charge. |
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(g) Gain (loss) of equity method investments for the three and six months ended March 30, 2007 includes a gain on the sale of our investment in Jazz Semiconductor, Inc. of $43.5 million. |
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(h) Gains and losses 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. |
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(i) Gains on sales of equity securities or on the liquidation of companies in which we held equity securities. |
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(j) Other gains and losses which are not part of our core, on-going operations. For the three and six months ended March 28, 2008, this amount primarily relates to the accelerated amortization of debt issuance costs related to the repurchase of $53.6 million of floating rate senior notes. |
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(k) 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. |
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(l) The dilutive effect of stock options and warrants under the treasury method are added to basic weighted average shares to compute diluted weighted average shares. |
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