Conexant presents financial results based on 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 non-GAAP to GAAP reconciliation in the accompanying financial data.
Fourth fiscal quarter 2005 revenues of $214.9 million increased 9 percent from third fiscal quarter 2005 revenues of $197.5 million, compared to $213.1 million in the fourth fiscal quarter of 2004. Gross margins in the fourth fiscal quarter increased to 40 percent of revenues from 38 percent in the prior quarter.
On a core measures basis, core operating expenses declined by $6 million sequentially, from $86 million in the third fiscal quarter to the company's previously announced target level of $80 million, as a result of accelerated progress on restructuring initiatives. Core operating income in the fourth fiscal quarter was $6.7 million, compared to a core operating loss of $11.2 million in the prior quarter. Core net income for the fourth fiscal quarter of 2005 was $0.3 million, or $0.00 per diluted share, compared to a loss of $17.6 million, or $0.04 per diluted share, in the third fiscal quarter.
On a GAAP measures basis, GAAP operating expenses decreased from $113.7 million in the prior quarter to $99.7 million in the fourth fiscal quarter of 2005, and $135.1 million in the fourth fiscal quarter of 2004. GAAP operating loss decreased from $38.7 million in the previous quarter to $13.1 million in the fourth fiscal quarter of 2005, as compared to an operating loss of $49.6 million in the fourth fiscal quarter of 2004. GAAP net income for the fourth quarter of fiscal 2005 was $50.1 million, or $0.10 per diluted share, compared to a net loss of $32.2 million, or $0.07 per diluted share, in the third quarter of fiscal 2005, and a net loss of $370.5 million, or $0.79 per diluted share, in the fourth quarter of fiscal 2004.
Fiscal 2005 revenues of $722.7 million decreased 20 percent compared to fiscal 2004 revenues of $901.9 million. The GAAP net loss for fiscal 2005 was $176.0 million, or $0.37 per diluted share, compared to a net loss in fiscal 2004 of $544.6 million, or $1.40 per diluted share.
"For Conexant, fiscal 2005 was a year of recovery," said Dwight W. Decker, Conexant chairman and chief executive officer. "We stabilized our business, and we made major progress against key goals. Most importantly, we delivered core net income profitability a quarter ahead of schedule. Achieving this milestone successfully concludes the second phase of our three-phase recovery strategy, which required growing revenues, improving gross margins, reducing operating expenses, and returning to profitability.
"The entire Conexant team did an outstanding job as we delivered fourth fiscal quarter results that exceeded our expectations," Decker said. "Coming into the quarter, we anticipated revenues of $207 million, gross margins of approximately 39 percent, and core operating expenses of approximately $83 million. We grew revenues 9 percent sequentially to $214.9 million, primarily as a result of more stable pricing and increased demand across all of our businesses. We improved gross margins by two points sequentially, from 38 percent of revenues in the prior quarter to 40 percent, due to better-than-expected pricing and benefits from our manufacturing cost-reduction initiatives. Finally, we reduced core operating expenses from $86 million in the previous quarter to $80 million in the fourth fiscal quarter, primarily by completing our cost-reduction initiatives one quarter ahead of schedule.
"From a balance-sheet perspective, our cash, cash equivalents and investments decreased by $5 million sequentially, from $386 million in the prior quarter to $381 million in the September quarter," Decker continued. "This was an improvement over our cash consumption target for the quarter of approximately $10 million. Days sales outstanding improved sequentially from 38 days to 37 days, and internal inventory was further reduced by $8 million, with inventory turns increasing from 4.7 times in the previous quarter to 5.4 times in the fourth fiscal quarter.
"With the second part of our three-phase recovery plan now completed, we are turning our full attention to the third and final phase of our recovery," Decker said. "During this period, we intend to capitalize on the profit leverage in our current business model to deliver accelerated earnings growth. For phase three, we have set as our highest priority target the achievement of double-digit core operating margins before the end of next calendar year. At the conclusion of phase three, we will continue our focus on building shareholder value by developing innovative products for high-growth, converged consumer electronics applications, and achieving our target business model of 45 percent gross margins and 15 percent core operating income."
First Fiscal Quarter 2006 Outlook
"Entering our first fiscal quarter, the end-market demand outlook remains positive for each of our businesses. We expect increasing Broadband Media Processing shipments to contribute most significantly to overall revenue growth as satellite set-top box designs ramp into production," Decker said. "In total, we expect to grow revenues approximately 5 percent sequentially to $225 million. We anticipate that gross margins for the current quarter will be in a range of 40 to 41 percent of revenues, and we expect core operating expenses to increase to a range of $82 to $83 million, primarily as a result of employee performance compensation costs associated with our return to profitability.
"Based on the above metrics, we anticipate that we will increase our core operating income by more than 30 percent sequentially, and we expect to increase our core net income to approximately $0.01 per share, based on approximately 479 million fully diluted shares," Decker concluded.
Note to Editors, Analysts and Investors
Conexant's conference call will take place on Thursday, Oct. 27, 2005, 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) or 706-679-7338 (from other international locations); security code: Conexant. To listen via the Internet, visit the Investor Relations section of Conexant's Web site at www.conexant.com/ir. Playback of the conference call will be available shortly after the call concludes and will be accessible on Conexant's Web site at www.conexant.com/ir or by calling 800-642-1687 (in the U.S. and Canada) or 706-645-9291 (from other international locations); pass code: 1394478.
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 combined, and continues to develop highly integrated silicon solutions for broadband data and media processing networks.
Key products include client-side xDSL and cable modem solutions, home network processors, broadcast video encoders and decoders, digital set-top box components and systems solutions, and dial-up modems. Conexant's suite of networking components includes a leadership portfolio of IEEE 802.11a/b/g-compliant WLAN chipsets, software and reference designs, as well as solutions for applications based on HomePlug(SM) and HomePNA(TM). The company also offers a complete line of asymmetric and symmetric 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 that recorded more than $720 million in revenues in fiscal year 2005. The company has approximately 2,400 employees worldwide, and is headquartered in Newport Beach, Calif. To learn more, please visit us at www.conexant.com.
Safe Harbor Statement
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: This release includes forward-looking statements 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.
Our future GAAP-based results will be affected by the implementation of new accounting rules related to the expensing of stock options commencing in fiscal 2006. Other risks and uncertainties include, but are not limited to: general economic and political conditions and conditions in the markets we address; the substantial losses the company has incurred recently; the cyclical nature of the semiconductor industry and the markets addressed by the company's and its customers' products; continuing volatility in the technology sector and the semiconductor industry; demand for and market acceptance of new and existing products; successful development of new products; the timing of new product introductions and product quality; the company's 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 product mix; product obsolescence; the ability of our customers to manage inventory; the ability to develop and implement new technologies and to obtain protection for the related intellectual property; the uncertainties of litigation and the demands it may place on the time and attention of company management; 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.
These forward-looking statements in this release and the related conference call for analysts and investors 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.
CONEXANT SYSTEMS, INC.
GAAP Consolidated Condensed Statements of Operations
(Unaudited, in Thousands, Except Per Share Amounts)
Three months ended Twelve months ended
--------------------------------------------------
Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30,
2005 2005 2004 2005 2004
--------------------------------------------------
Net revenues $214,916 $197,464 $213,123 $722,739 $901,854
Cost of goods sold 128,312 122,430 127,681 493,973 523,129
--------------------------------------------------
Gross margin 86,604 75,034 85,442 228,766 378,725
Operating expenses:
Research and
development 58,634 66,282 72,766 267,996 239,971
Selling, general
and administrative 28,412 31,081 35,692 117,861 125,474
Amortization of
intangible assets 7,920 7,969 8,205 32,322 20,769
In-process research
and development -- -- -- -- 160,818
Special charges 4,715 8,409 18,388 45,977 32,801
--------------------------------------------------
Total operating
expenses 99,681 113,741 135,051 464,156 579,833
--------------------------------------------------
Operating loss (13,077) (38,707) (49,609) (235,390) (201,108)
Interest expense 8,401 8,396 8,386 33,691 30,708
Other (income)
expense, net (72,046) (15,610) 70,131 (95,413) 69,100
--------------------------------------------------
Income (loss) before
income taxes 50,568 (31,493) (128,126) (173,668) (300,916)
Provision for income
taxes 487 673 242,365 2,322 243,733
--------------------------------------------------
Net income (loss) $50,081 $(32,166)$(370,491)$(175,990)$(544,649)
==================================================
Basic income (loss)
per share $0.11 $(0.07) $(0.79) $(0.37) $(1.40)
==================================================
Diluted income
(loss) per share $0.10 $(0.07) $(0.79) $(0.37) $(1.40)
==================================================
Number of shares
used in per share
computation - basic 472,828 471,247 467,556 470,658 389,630
==================================================
Number of shares
used in per share
computation -
diluted 484,825 471,247 467,556 470,658 389,630
==================================================
The GAAP consolidated statements of operations include the results
of operations of GlobespanVirata, Inc. from Feb. 27, 2004, the
date of the company's merger with GlobespanVirata. No restatement
has been made to earlier periods.
CONEXANT SYSTEMS, INC.
Reconciliation of Non-GAAP Core Financial Measures to GAAP
Financial Measures
(Unaudited, in Thousands, Except Per Share Amounts)
Three months ended Twelve months ended
--------------------------------------------------
Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30,
2005 2005 2004 2005 2004
--------------------------------------------------
GAAP operating
expenses $99,681 $113,741 $135,051 $464,156 $579,833
Non-cash stock
compensation (a) (3,019) (3,019) (2,977) (12,046) (7,137)
Transitional salaries
and benefits (b) (1,207) (4,818) (7,732) (14,960) (9,020)
IP litigation support
costs (c) (2,875) (3,293) (2,680) (10,513) (5,274)
Amortization of
intangible assets
(d) (7,920) (7,969) (8,205) (32,322) (20,769)
In-process research
and development (e) -- -- -- -- (160,818)
Special charges (f) (4,715) (8,409) (18,388) (45,977) (32,801)
--------------------------------------------------
Non-GAAP Core
operating expenses $79,945 $86,233 $95,069 $348,338 $344,014
==================================================
GAAP operating
income (loss) $(13,077) $(38,707) $(49,609)$(235,390)$(201,108)
Operating expense
adjustments
described above
(a-f) 19,736 27,508 39,982 115,818 235,819
Merger-related
inventory
impairment (g) -- -- -- -- 812
--------------------------------------------------
Non-GAAP Core
operating income
(loss) $6,659 $(11,199) $(9,627)$(119,572) $35,523
==================================================
GAAP net income
(loss) $50,081 $(32,166)$(370,491)$(175,990)$(544,649)
Operating expense
adjustments
described above
(a-f) 19,736 27,508 39,982 115,818 235,819
Merger-related
inventory
impairment (g) -- -- -- -- 812
Losses (earnings) of
equity method
investees (h) 2,055 2,127 (1,672) 10,642 (14,422)
Unrealized (gain)
loss on Mindspeed
warrant (i) (21,951) 16,085 54,284 (7,147) 92,663
(Gain) loss on sale
of equity
securities (j) (49,032) (31,198) 6,148 (91,285) (20,869)
Write-down (recovery)
of investments (k) 57 -- 12,823 (600) 13,423
Unrealized loss on
note receivable from
Skyworks (l) -- -- -- -- 6,292
Federal income tax
refund (m) -- -- (14,749) -- (14,749)
Impairment of
deferred tax
assets (n) -- -- 255,738 -- 255,738
Other (o) (633) -- 376 (633) 376
--------------------------------------------------
Non-GAAP Core net
income (loss) $313 $(17,644) $(17,561)$(149,195) $10,434
==================================================
Net income (loss)
per share, basic:
GAAP $0.11 $(0.07) $(0.79) $(0.37) $(1.40)
==================================================
Non-GAAP Core (p) $0.00 $(0.04) $(0.04) $(0.32) $0.03
==================================================
Net income (loss) per
share, diluted:
GAAP $0.10 $(0.07) $(0.79) $(0.37) $(1.40)
==================================================
Non-GAAP Core (p) $0.00 $(0.04) $(0.04) $(0.32) $0.03
==================================================
See "Non-GAAP Core to GAAP Adjustments" below
(a) Non-cash stock compensation charges are based on the intrinsic
value of acquired or exchanged unvested stock options in business
combinations.
(b) Transitional salaries and benefits represent amounts earned by
employees who have been notified of their termination as part of
the company's restructuring activities, from the date of their
notification. Included in the amounts for the three and twelve
months ended Sept. 30, 2005, are $151 and $1,650, respectively,
of facilities related costs.
(c) IP litigation support costs are related to one of the company's
intellectual property litigation matters.
(d) Non-cash amortization of intangible assets resulting from the
company's previous business combinations.
(e) In-process research and development cost was a one-time charge
associated with the company's merger with GlobespanVirata.
(f) Special charges consist of asset impairments, restructuring
charges, integration costs and other special items.
(g) Inventory impairment charge for on-hand inventory products
which were determined to be obsolete as a result of the company's
merger with GlobespanVirata.
(h) Non-operating gains and losses resulting from the company's
equity method investments.
(i) Non-operating unrealized gains and losses associated with fair
value changes in the company's ownership of the Mindspeed warrant
accounted for as a derivative instrument.
(j) Recognized gains and losses on the sale of investments,
primarily equity securities in publicly held companies.
(k) Write downs or (recoveries) of non-marketable cost basis
investments.
(l) Non-operating unrealized gains and losses associated with the
conversion feature of the note receivable from Skyworks which was
accounted for as a derivative instrument.
(m) Federal income tax refund represents cash received in
September 2004 related to the carryback of a portion of our fiscal
year 2001 net operating loss. The loss was carried back under the
five-year carryback provision enacted in 2002 and income taxes
paid while Conexant was a subsidiary of Rockwell were recovered.
(n) Impairment on deferred tax assets represents a non-cash charge
for a full valuation allowance on the deferred tax assets as a
result of the company's cumulative operating losses.
(o) Other gains and losses which are not part of the core on-going
operations of the company.
(p) In periods of net income, the dilutive effect of stock options
and warrants under the treasury stock method has been added to
basic weighted average shares to compute diluted weighted average
shares. For the three months ended Sept, 30, 2005, and the
twelve months ended Sept. 30, 2004, 4,633 and 18,268 shares,
respectively, have been added to arrive at non-GAAP diluted
weighted average shares.
GAAP Guidance
The company does not present GAAP guidance because of its 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 investees accounted for using the equity
method of accounting.
Non-GAAP Financial Measures
The company has presented 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 the
company's core results of operations on an ongoing basis. The
non-GAAP financial measures also enhance comparisons of the company's
core results of operations with historical periods. The company is
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 the company's 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 the company may be different than
non-GAAP financial measures presented by other companies.
CONEXANT SYSTEMS, INC.
Consolidated Condensed Balance Sheets
(Unaudited, in Thousands)
Sept. 30, June 30, Sept. 30,
2005 2005 2004
---------------------------------
ASSETS
Current assets:
Cash and cash equivalents
(See Note 1) $202,704 $160,496 $139,031
Marketable securities (See Note 1) 139,306 153,286 163,040
Receivables, net 87,240 82,345 185,037
Inventories 95,329 103,491 194,754
Mindspeed warrant - current portion -- -- 3,599
Other current assets 14,701 19,745 20,768
---------------------------------
Total current assets 539,280 519,363 706,229
Property, plant and equipment, net 50,700 50,333 55,741
Goodwill 717,013 718,335 708,544
Intangible assets, net 106,709 114,628 135,241
Mindspeed warrant 33,137 11,242 23,000
Marketable securities - long term
(See Note 1) 38,485 72,024 137,604
Other assets 96,200 105,871 114,163
---------------------------------
Total assets $1,581,524 $1,591,796 $1,880,522
=================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $108,957 $94,655 $141,533
Accrued compensation and benefits 27,505 38,149 40,423
Restructuring and reorganization
liabilities 28,829 25,278 22,427
Other current liabilities 51,308 58,329 67,044
Current portion of convertible
subordinated notes 196,825 196,825 --
---------------------------------
Total current liabilities 413,424 413,236 271,427
Convertible subordinated notes 515,000 515,000 711,825
Other liabilities 84,007 97,653 68,883
---------------------------------
Total liabilities 1,012,431 1,025,889 1,052,135
---------------------------------
Shareholders' equity 569,093 565,907 828,387
---------------------------------
Total liabilities and
shareholders' equity $1,581,524 $1,591,796 $1,880,522
=================================
Note 1 - Total cash, cash equivalents and marketable securities at
Sept. 30, 2005, June 30, 2005, and Sept. 30, 2004, are as follows:
Sept. 30, June 30, Sept. 30,
2005 2005 2004
---------------------------------
Cash and cash equivalents $202,704 $160,496 $139,031
Other short-term marketable
securities (primarily mutual funds,
domestic government agencies and
corporate debt securities) 95,902 58,061 13,764
Long-term marketable securities
(primarily domestic government
agencies and corporate debt
securities) 38,485 72,024 137,604
---------------------------------
Subtotal 337,091 290,581 290,399
---------------------------------
Equity securities - Skyworks
Solutions, Inc. (6.2 million
shares at Sept. 30, 2005,
June 30, 2005, and Sept. 30, 2004) 43,404 46,248 61,767
Equity securities - SiRF Technologies,
Inc. (zero shares at Sept. 30,
2005, 2.8 million shares at June 30,
2005, and 5.9 million shares at
Sept. 30, 2004) (See Note 2) -- 48,977 87,509
---------------------------------
Subtotal Skyworks and SiRF 43,404 95,225 149,276
---------------------------------
Total cash, cash equivalents and
marketable securities $380,495 $385,806 $439,675
=================================
Note 2 - The decrease in value of SiRF shares from Sept. 30, 2004, to
Sept. 30, 2005, of approximately $87.5 million is related to the sale
of 5.9 million shares of SiRF for net proceeds of $93.8 million.
CONEXANT SYSTEMS, INC.
Selected Other Data
(Unaudited, in Thousands)
Three months ended Twelve months ended
-------------------------------------------------
Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30,
2005 2005 2004 2005 2004
-------------------------------------------------
Selected Data:
Depreciation
(See Note 3) $4,540 $4,524 $4,814 $18,594 $16,151
Capital expenditures 5,365 4,064 3,641 21,791 17,563
Revenues By Region:
Americas $20,984 $24,490 $23,822 $85,180 $101,264
Asia-Pacific 181,311 160,989 167,236 580,357 721,693
Europe, Middle East
and Africa 12,621 11,985 22,065 57,202 78,897
-------------------------------------------------
$214,916 $197,464 $213,123 $722,739 $901,854
=================================================
Note 3 - Does not include amortization of intangible assets, as
applicable.
Contact:
Conexant Systems, Inc. Gwen Carlson (Media), 949-483-7363 or Bruce Thomas (Investors), 949-483-2698