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 Conexant Reports Financial Results for First Quarter of Fiscal 2011
   Monday, February 07, 2011 4:31:00 PM ET

Conexant Systems, Inc. (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       (10,216 )           9,591             8,921
income (loss) on equity method investments
Income tax provision (benefit)                                              94               144              (230 )
                                                                       -------            ------            ------ ----
(Loss) income from continuing operations before income (loss) on       (10,310 )           9,447             9,151
equity method investments
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       $   (0.12 )        $   0.12          $   0.14
diluted
                                                                  ==== ======= ====  ==== ====== ====  ==== ====== ====
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.

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 31,     October 1,
                                                                         2010            2010
                                                                    --------------- --------------
                                              ASSETS
Current assets:
Cash and cash equivalents                                                $  79,606      $  54,466
Marketable securities                                                       20,028         20,059
Receivables, net                                                            24,500         31,463
Inventories, net                                                             7,884          8,747
Other current assets                                                        12,141         14,690
Current assets held for sale                                                     -         13,059
                                                                           -------        -------
   Total current assets                                                    144,159        142,484
Property, plant and equipment, net                                           5,505          6,080
Goodwill                                                                   109,908        109,908
Other assets                                                                40,507         47,372
                                                                           -------        -------
   Total assets                                                          $ 300,079      $ 305,844
                                                                    ====== =======  ===== =======
                               LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term debt, net of debt discount of $96 and $240                       11,122         10,978
Accounts payable                                                            11,583         12,516
Accrued compensation and benefits                                            6,616          7,682
Other current liabilities                                                   32,258         31,836
                                                                           -------        -------
   Total current liabilities                                                61,579         63,012
Long-term debt, net of debt discount of $1,376 and $1,457 (Note 2)         173,624        173,543
Other liabilities                                                           61,029         57,197
                                                                           -------        -------
   Total liabilities                                                       296,232        293,752
                                                                           -------        -------
Shareholders’ equity                                                         3,847         12,092
                                                                           -------        -------
   Total liabilities and shareholders’ equity                            $ 300,079      $ 305,844
                                                                    ====== =======  ===== =======
                                Selected Other Data
                             (unaudited, in thousands)
                                                   Fiscal Quarter Ended
                                       --------------------------------------------
                                        December 31,    October 1,     January 1,
                                            2010           2010           2010
                                       --------------     ------      -------------
Revenues By Region:
Americas                                    $  3,393    $  4,313          $  3,994
Asia-Pacific                                  42,372      51,578            56,805
Europe, Middle East and Africa                   345         424             1,014
                                              ------      ------            ------
                                            $ 46,110    $ 56,315          $ 61,813
                                       ====== ======  === ======      ===== ======
Cash Flow Data:
Depreciation of PP&E                        $    638    $    763          $  1,067
Capital expenditures                        $    354    $  1,205          $    219
Cash provided by (used in) Operations       $  3,466    $ (1,802 )        $ 10,205

SOURCE: Conexant Systems, Inc.

Conexant Systems, Inc. 
Editorial Contact: 
Gwen Carlson, 949-483-7363 
or 
Investor Relations Contact: 
Scott Allen, 949-483-2698


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