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Conexant Reports Financial Results For First Quarter Of Fiscal 2011

Conexant Systems, Inc. (NASDAQ: CNXT) today announced financial results for the first quarter of fiscal 2011.

Conexant presents financial results based on Generally Accepted Accounting Principles (GAAP) as well as select 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 certain non-cash and other non-core items as fully described in the GAAP to non-GAAP reconciliation in the accompanying financial data.

For the first quarter of fiscal 2011, Conexant core revenues were $46.1 million. Core gross margins were 59.6 percent of revenues. Core operating expenses were $23.2 million. Core operating income was $4.2 million, and core net loss was $1.4 million, or $0.02 per share, based on an average of 82 million shares outstanding during the quarter.

On a GAAP basis, net revenues for the first quarter of fiscal 2011 were $46.1 million. GAAP gross margins were 59.4 percent of revenues. GAAP operating expenses were $26.1 million. GAAP net loss including discontinued operations and a $7.3 million unrealized loss associated with the change in the fair value of our Mindspeed warrants, was $9.7 million, or $0.12 per share.

The company ended the quarter with $99.6 million in cash and short-term investments, compared to $74.5 million in the previous quarter, due primarily to cash generated by the sale of real estate in Newport Beach.

Conexant will not be hosting a conference call to discuss its first fiscal quarter results or providing an outlook for the second quarter of fiscal 2011.

About Conexant

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

CONEXANT SYSTEMS, INC.
GAAP Condensed Consolidated Statements of Operations

(unaudited, in thousands, except per share amounts)

 
  Fiscal Quarter Ended
December 31,   October 1,   January 1,
2010 2010 2010
 
Net revenues $ 46,110 $ 56,315 $ 61,813
Cost of goods sold   18,709     22,221     24,204  
Gross margin 27,401 34,094 37,609
Operating expenses:
Research and development 13,548 13,831 13,245
Selling, general and administrative 11,187 11,519 12,402
Amortization of intangible assets 284 284 396
Gain on sale of intellectual property (1,249 ) - -
Special charges (Note 1)   2,282     (22 )   346  
Total operating expenses   26,052     25,612     26,389  
Operating income 1,349 8,482 11,220
Interest expense (Note 2) 5,714 5,635 9,503
Other expense (income), net   5,851     (6,744 )   (7,204 )
(Loss) income from continuing operations before income taxes and income (loss) on equity method investments (10,216 ) 9,591 8,921
Income tax provision (benefit)   94     144     (230 )
(Loss) income from continuing operations before income (loss) on equity method investments (10,310 ) 9,447 9,151
Income (loss) on equity method investments   663     309     (454 )
(Loss) income from continuing operations (9,647 ) 9,756 8,697
Loss from discontinued operations, net of tax   (31 )   (1,282 )   (363 )
Net (loss) income $ (9,678 ) $ 8,474   $ 8,334  
(Loss) income per share from continuing operations – basic and diluted $ (0.12 ) $ 0.12   $ 0.14  
Loss per share from discontinued operations – basic and diluted $ 0.00   $ (0.02 ) $ 0.00  
Net (loss) income per share – basic and diluted $ (0.12 ) $ 0.10   $ 0.14  
Shares used in computing basic per-share computations   81,787     81,252     60,023  
Shares used in computing diluted per-share computations   81,787     82,240     60,091  
 

Note 1 –

Special charges in the fiscal quarter ended December 31, 2010 consist primarily of severance and other expenses related to workforce reductions.

 

Note 2 –

Effective October 3, 2009 we adopted FSP APB 14-1, which changed the method of accounting for our convertible notes. In addition, as required, we revised our previously reported financial statements to retrospectively apply this change in accounting to prior periods. Under this new method of accounting, the debt and equity components of our convertible notes are bifurcated and accounted for separately. The equity components of our convertible notes are included in Stockholders’ equity in our Condensed Consolidated Balance Sheets with a corresponding reduction in the carrying values of our convertible notes as of the date of issuance or modification, as applicable. The reduced carrying values of our convertible notes are being accreted back to their principal amounts through the recognition of non-cash interest expense. This results in recognizing interest expense on these borrowings at effective rates approximating what we would have incurred had we issued nonconvertible debt with otherwise similar terms. In connection with applying this new accounting to current and prior periods, we recorded $0.1 million, $0.1 million, and $3.4 million of additional non-cash interest expense in the fiscal quarters ended December 31, 2010, October 1, 2010, and January 1, 2010, respectively.

 
CONEXANT SYSTEMS, INC.
Reconciliation of GAAP Financial Measures to Non-GAAP Core Financial Measures

(unaudited, in thousands, except per share amounts)

 

 

 

Fiscal Quarter Ended

December 31,

  October 1,   January 1,
  2010     2010     2010  
 
GAAP and Core net revenues $ 46,110   $ 56,315   $ 61,813  
 
GAAP cost of goods sold $ 18,709 $ 22,221 $ 24,204
Stock-based compensation (a) (73 ) (71 ) (58 )
Other (e)   -     (19 )   (55 )
Non-GAAP Core cost of goods sold $ 18,636   $ 22,131   $ 24,091  
 
GAAP gross margin $ 27,401 $ 34,094 $ 37,609
Gross margin adjustments (a,e)   73     90     113  
Non-GAAP Core gross margin $ 27,474   $ 34,184   $ 37,722  
 
GAAP operating expenses $ 26,052 $ 25,612 $ 26,389
Stock-based compensation (a) (1,932 ) (1,554 ) (1,438 )
Amortization of intangible assets (b) (284 ) (284 ) (396 )
Gain on sale of intellectual property (c) 1,249 - -
Special charges (d)   (1,844 )   22     (346 )
Non-GAAP Core operating expenses $ 23,241   $ 23,796   $ 24,209  
 
GAAP operating income (loss) $ 1,349 $ 8,482 $ 11,220
Gross margin adjustments (a,e) 73 90 113
Operating expense adjustments (a-d)   2,811     1,816     2,180  
Non-GAAP Core operating income $ 4,233   $ 10,388   $ 13,513  
 
GAAP interest expense $ 5,714 $ 5,635 $ 9,503
Debt discount and debt issuance cost expense (f) (139 ) (137 ) (3,407 )
Interest expense adjustments (g)   -     -     (2,400 )
Non-GAAP Core interest expense $ 5,575   $ 5,498   $ 3,696  
 
GAAP other expense (income), net $ 5,851 $ (6,744 ) $ (7,204 )
Unrealized (losses) gains on Mindspeed warrant (h) (7,276 ) 4,279 4,285
Gains on sales of equity securities (i) 1,393 3,143 4,113
Losses on repurchase and exchange of debt (j) - (2 ) (1,123 )
Recognized cumulative translation adjustments (k)   -     (363 )   -  
Non-GAAP Core other (income) expense $ (32 ) $ 313   $ 71  
 
GAAP (loss) income from continuing operations $ (9,647 ) $ 9,756 $ 8,697
Gross margin adjustments (a,e) 73 90 113
Operating expense adjustments (a-d) 2,811 1,816 2,180
(Gain) loss on equity method investments (l) (663 ) (309 ) 454
Other expense (income) adjustments (h-k) 5,883 (7,057 ) (7,275 )
Interest expense adjustments (f-g)   139     137     5,807  
Non-GAAP Core (loss) income from continuing operations $ (1,404 ) $ 4,433   $ 9,976  
 
Basic and Diluted (loss) income per share from continuing operations:
GAAP basic and diluted $ (0.12 ) $ 0.12   $ 0.14  
Non-GAAP basic and diluted $ (0.02 ) $ 0.05   $ 0.17  
 
Shares used in basic and diluted per-share computations:
Basic   81,787     81,252     60,023  
Diluted   81,787     82,240     60,091  
 

See “GAAP to Non-GAAP Core Adjustments” below

 
CONEXANT SYSTEMS, INC.
GAAP to Non-GAAP Core Adjustments:
 
(a)   Stock-based compensation expense is based on the fair value of all stock awards 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) Special charges in the fiscal quarter ended December 31, 2010 consist primarily of severance and other expenses related to downsizing activities.
 
(e) Represents environmental remediation charges.
 
(f) Consists of non-cash interest expense resulting from the amortization of debt discount and debt issuance costs of $0.1 million, $0.1 million and $3.4 million in the fiscal quarters ended December 31, 2010, October 1, 2010, and January 1, 2010, respectively.
 
(g) Other interest expense which is not part of our on-going operations. For the fiscal quarter ended January 1, 2010, the adjustment consists of $1.7 million expense from the termination of our interest rate swap, $0.6 million of accelerated amortization of debt issuance costs related to the extinguishment of $61.4 million of floating rate senior notes and $0.1 million of accelerated amortization of debt issuance costs related to extinguishment of convertible subordinated notes.
 
(h) Unrealized (losses) gains associated with the change in the fair value of our warrant to purchase 6.1 million shares of Mindspeed Technologies, Inc. common stock, which is accounted for as a derivative instrument.
 
(i) Net gains on sale of debt and equity securities.
 
(j) The loss in the fiscal quarter ended January 1, 2010 consists of a $0.6 million loss incurred on extinguishment of $61.4 million of floating rate senior secured notes and a loss of $0.5 million on exchange of convertible subordinated notes with a face value of $17.6 million.
 
(k) Recognized cumulative translation adjustments upon liquidation of foreign subsidiaries.
 
(l) (Gain) loss on equity method investments.
 

Non-GAAP Financial Measures:

We have presented non-GAAP cost of goods sold, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP interest expense, non-GAAP other (income) expense, non-GAAP (loss) income from continuing operations and non-GAAP basic and diluted (loss) income per share from continuing operations, 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.

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