Conexant Exceeds Guidance for Fourth Quarter of Fiscal 2009 Imaging and Audio Businesses Deliver Sequential Growth of 18 Percent, Account for 58 Percent of Total Revenues

NEWPORT BEACH, Calif., Oct 29, 2009 (BUSINESS WIRE) -- Conexant Systems, Inc.

(NASDAQ: CNXT) today announced that financial results for the fourth quarter of fiscal 2009 exceeded the guidance provided at the beginning of the quarter. The company also said that its imaging and audio businesses grew 18 percent on a sequential basis and accounted for 58 percent of total revenues.

Fourth Fiscal Quarter Financial Results 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.

On August 24, 2009 Conexant announced the completion of the sale of its Broadband Access product lines to Ikanos Communications, Inc. for $54 million.

The financial results of the Broadband Access business unit have been classified as discontinued operations in Conexant's fourth fiscal quarter financial statements.

Conexant's core net revenues for the fourth quarter of fiscal 2009 were $56.2 million. Core gross margins were 60.2 percent of revenues. Core operating expenses were $25 million, and core net income was $3.5 million, or $0.07 per share.

On a GAAP basis, net revenues for the fourth quarter of fiscal 2009 were $56.2 million. GAAP gross margins were 60.4 percent of revenues. GAAP operating expenses of $37 million included restructuring charges of $5.6 million associated with unutilized leases and a previously announced reduction in force, and asset impairments of $5.6 million. GAAP loss from continuing operations was $7.7 million. GAAP loss from discontinued operations was $5.5 million, offset by a gain of $36.7 million on the sale of the Broadband Access business. GAAP net income was $23.5 million, or $0.47 per diluted share.

The company ended the quarter with $125.4 million in cash and cash equivalents, compared to $123.4 million in the previous quarter. Fourth fiscal quarter cash and cash equivalents included the initial proceeds of $18.4 million from a public offering of common stock that raised a total amount of $21.2 million.

During the quarter, the company retired an aggregate amount of $80 million of its senior secured notes due in November 2010.

Financial-performance and Business Perspective "For the fourth fiscal quarter, the Conexant team again delivered performance that exceeded our expectations on all financial metrics," said Scott Mercer, Conexant's chairman and chief executive officer. "Fourth quarter revenues of $56.2 million were better than the $54 million we anticipated entering the quarter and increased 10 percent from third quarter revenues of $50.8 million.

Fourth quarter core gross margin of 60.2 percent was 40 basis points higher than core gross margin of 59.8 percent in the previous quarter. Core operating expenses of $25 million were lower than the approximately $27 million we anticipated and compared to $26.8 million in the third quarter. Core operating income of $8.8 million was above the $6 million we expected and compared to $3.6 million in the prior quarter. Core net income was $3.5 million, or $0.07 per share, rather than the $0.01 to $0.02 per share we anticipated entering the quarter.

"In our imaging and audio businesses, where we have focused our product-development and acquisitions efforts, we delivered fourth quarter sequential growth of 18 percent," Mercer said. "Together, these two businesses accounted for 58 percent of our total revenues.

"The recent sale of our Broadband Access business represented the completion of our restructuring strategy, which included the termination of new investments in wireless networking, the divestiture of our Broadband Media Processing business, and the strengthening of our product portfolio with targeted acquisitions," Mercer said. "Conexant today is a company transformed. We are now a smaller, more profitable enterprise focused on delivering operational excellence and innovative solutions for imaging, audio, embedded-modem, and video applications.

In each of these areas, we have established leadership positions.

"With a proven team, an outstanding IP portfolio, and a customer list that includes worldwide industry leaders, we plan to grow by capturing market share with existing designs and delivering new products for the areas we currently serve. In addition, we plan to apply our core capabilities in analog and mixed-signal design and firmware and software development to capitalize on new opportunities in adjacent markets." First Fiscal Quarter Business Outlook Conexant expects revenues for the first quarter of fiscal 2010 to be approximately $60 million. Core gross margins for the first quarter are expected to be about 60 percent of revenues. The company anticipates that core operating expenses will be approximately $25 million, which includes reinstatement of performance-based employee incentive plans. As a result, the company expects that first quarter core operating income will be approximately $11 million, with core net income of approximately $0.11 per share based on approximately 60 million shares outstanding.

Conference Call Today Financial analysts, members of the media, and the public are invited to participate in a conference call that will take place today at 5:00 p.m. Eastern Time (ET)/ 2:00 p.m. Pacific Time (PT). Conexant senior management will discuss fourth quarter fiscal 2009 financial results and the company's outlook. 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); participant pass code: Conexant; Conference ID number: 35114866.

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); Conference ID number: 35114866.

About Conexant Conexant's comprehensive portfolio of innovative semiconductor solutions includes products for imaging, audio, embedded-modem, and video applications.

Conexant is a fabless semiconductor company headquartered in Newport Beach, Calif. For more information, visit 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 are also 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 the forward-looking statements.

These risks and uncertainties include, but are not limited to: The availability of manufacturing capacity; changes in our product mix; 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, which is subject to significant downturns that may negatively impact our business, financial condition, cash flow, and results of operations; the cyclical nature of the markets addressed by our products and our customers' products; volatility in the technology sector and the semiconductor industry; the risk that capital needed for our business and to repay our indebtedness will not be available when needed; 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; product obsolescence; the ability of our customers to manage inventory; our ability to identify and execute acquisitions, divestitures, mergers or restructurings, as deemed appropriate by management; the financial risks of default by tenants and subtenants in the space we own or lease; the risk that the value of our common stock may be adversely affected by market volatility or failure to meet all applicable listing requirements of the NASDAQ Global Market; 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.

CONEXANT SYSTEMS, INC. GAAP Condensed Consolidated Statements of Operations (unaudited, in thousands, except per share amounts) Fiscal Quarter Ended Twelve Fiscal Months Ended October 2, July 3, October 3, October 2, October 3, 2009 2009 2008 2009 2008 Net revenues (Note 1) $ 56,155 $ 50,844 $ 81,115 $ 208,427 $ 331,504 Cost of goods sold 22,265 20,533 34,161 86,674 137,251 Gross margin 33,890 30,311 46,954 121,753 194,253 Operating expenses: Research and development 12,568 12,450 15,072 51,351 58,439 Selling, general and administrative 13,001 14,813 19,172 62,740 77,905 Amortization of intangible assets 429 690 1,383 2,976 3,652 Gain on sale of intellectual property - - - (12,858 ) - Asset impairments 5,629 43 23 5,672 277 Special charges (Note 2) 5,373 1,017 3,026 18,983 18,682 Total operating expenses 37,000 29,013 38,676 128,864 158,955 Operating (loss) income (3,110 ) 1,298 8,278 (7,111 ) 35,298 Interest expense 5,514 5,035 5,982 21,148 27,804 Other (income) expense, net (1,570 ) (3,567 ) 2,457 (5,025 ) 9,223 Loss from continuing operations before income taxes and (loss) gain (7,054 ) (170 ) (161 ) (23,234 ) (1,729 ) on equity method investments Provision for income taxes 52 176 488 871 849 Loss from continuing operations before (loss) gain on equity method (7,106 ) (346 ) (649 ) (24,105 ) (2,578 ) investments (Loss) gain on equity method investments (641 ) (485 ) (808 ) (2,807 ) 2,804 (Loss) income from continuing operations (7,747 ) (831 ) (1,457 ) (26,912 ) 226 Gain on sale of discontinued operations, net of tax 36,653 - 6,268 36,653 6,268 (Loss) income from discontinued operations, net of tax (5,450 ) 3,557 (3,894 ) (15,004 ) (306,670 ) Net income (loss) $ 23,456 $ 2,726 $ 917 $ (5,263 ) $ (300,176 ) (Loss) income per share from continuing operations -- basic and $ (0.15 ) $ (0.02 ) $ (0.03 ) $ (0.54 ) $ 0.00 diluted Gain per share on sale of discontinued operations -- basic and diluted $ 0.73 $ 0.00 $ 0.13 $ 0.73 $ 0.13 (Loss) income per share from discontinued operations -- basic $ (0.11 ) $ 0.07 $ (0.08 ) $ (0.30 ) $ (6.21 ) (Loss) income per share from discontinued operations -- diluted $ (0.11 ) $ 0.07 $ (0.08 ) $ (0.30 ) $ (6.18 ) Net income (loss) per share -- basic $ 0.47 $ 0.05 $ 0.02 $ (0.11 ) $ (6.08 ) Net income (loss) per share -- diluted $ 0.47 $ 0.05 $ 0.02 $ (0.11 ) $ (6.05 ) Shares used in computing basic per-share computations 50,146 49,867 49,565 49,856 49,394 Shares used in computing diluted per-share computations 50,146 49,867 49,565 49,856 49,653 Note 1 - Net revenues for the twelve fiscal months ended October 3, 2008 includes $14.7 million for the buyout of a future royalty stream. Note 2 - Special charges consist primarily of restructuring charges. Special charges in the twelve fiscal months ended October 2, 2009 also include a $3.5 million charge related to a legal settlement. Special charges in the twelve fiscal months ended October 3, 2008 include a $6.3 million charge related to the termination of our voluntary early retirement plan. CONEXANT SYSTEMS, INC. Reconciliation of GAAP Financial Measures to Non-GAAP Core Financial Measures (unaudited, in thousands, except per share amounts) Fiscal Quarter Ended Twelve Fiscal Months Ended October 2, July 3, October 3, October 2, October 3, 2009 2009 2008 2009 2008 GAAP net revenues $ 56,155 $ 50,844 $ 81,115 $ 208,427 $ 331,504 Royalty buyout (n) - - - - (14,700 ) Non-GAAP Core net revenues less impact of royalty buyout $ 56,155 $ 50,844 $ 81,115 $ 208,427 $ 316,804 GAAP cost of goods sold $ 22,265 $ 20,533 $ 34,161 $ 86,674 $ 137,251 Stock-based compensation (a) (51 ) (77 ) (60 ) (247 ) (370 ) Other (f) 145 - (459 ) (466 ) 349 Non-GAAP Core cost of goods sold $ 22,359 $ 20,456 $ 33,642 $ 85,961 $ 137,230 GAAP gross margin $ 33,890 $ 30,311 $ 46,954 $ 121,753 $ 194,253 Gross margin adjustments (a,f) (94 ) 77 519 713 21 Non-GAAP Core gross margin 33,796 30,388 47,473 122,466 194,274 Royalty buyout (n) - - - - (14,700 ) Non-GAAP Core gross margin less impact of royalty buyout $ 33,796 $ 30,388 $ 47,473 $ 122,466 $ 179,574 GAAP operating expenses $ 37,000 $ 29,013 $ 38,676 $ 128,864 $ 158,955 Stock-based compensation (a) (449 ) (440 ) (2,032 ) (4,605 ) (11,910 ) Amortization of intangible assets (b) (429 ) (690 ) (1,383 ) (2,976 ) (3,652 ) Gain on sale of intellectual property (c) - - - 12,858 - Asset impairments (d) (5,629 ) (43 ) (23 ) (5,672 ) (277 ) Special charges (e) (5,466 ) (1,033 ) (2,426 ) (18,591 ) (17,895 ) Other (f) - - (800 ) - (800 ) Non-GAAP Core operating expenses $ 25,027 $ 26,807 $ 32,012 $ 109,878 $ 124,421 GAAP operating (loss) income $ (3,110 ) $ 1,298 $ 8,278 $ (7,111 ) $ 35,298 Gross margin adjustments (a,f) (94 ) 77 519 713 21 Operating expense adjustments (a-f) 11,973 2,206 6,664 18,986 34,534 Non-GAAP Core operating income 8,769 3,581 15,461 12,588 69,853 Royalty buyout (n) - - - - (14,700 ) Non-GAAP Core operating income less impact of royalty buyout $ 8,769 $ 3,581 $ 15,461 $ 12,588 $ 55,153 GAAP other (income) expense, net $ (1,570 ) $ (3,567 ) $ 2,457 $ (5,025 ) $ 9,223 Unrealized gain (loss) on Mindspeed warrant (g) 2,746 1,166 (2,312 ) 4,508 (14,974 ) Gain on sale of equity securities (h) - 1,802 21 1,855 896 Loss on impairment of investments (i) - - - (2,770 ) - Loss on impairment of facility (j) - - (1,435 ) - (1,435 ) Loss on termination of swap (k) (1,087 ) - - (1,087 ) - Non-GAAP Core other expense (income) $ 89 $ (599 ) $ (1,269 ) $ (2,519 ) $ (6,290 ) GAAP (loss) income from continuing operations $ (7,747 ) $ (831 ) $ (1,457 ) $ (26,912 ) $ 226 Gross margin adjustments (a,f) (94 ) 77 519 713 21 Operating expense adjustments (a-f) 11,973 2,206 6,664 18,986 34,534 Loss (gain) on equity method investments (l) 641 485 808 2,807 (2,804 ) Other (income) expense adjustments (g-k) (1,659 ) (2,968 ) 3,726 (2,506 ) 15,513 Interest expense adjustments (m) 380 - - 380 1,344 Non-GAAP Core income (loss) from continuing operations 3,494 (1,031 ) 10,260 (6,532 ) 48,834 Royalty buyout (n) - - - - (14,700 ) Non-GAAP Core income (loss) from continuing operations less impact $ 3,494 $ (1,031 ) $ 10,260 $ (6,532 ) $ 34,134 of royalty buyout Basic and Diluted (loss) income per share from continuing operations: GAAP Basic and Diluted $ (0.15 ) $ (0.02 ) $ (0.03 ) $ (0.54 ) $ 0.00 Non-GAAP Basic $ 0.07 $ (0.02 ) $ 0.21 $ (0.13 ) $ 0.99 Non-GAAP Diluted $ 0.07 $ (0.02 ) $ 0.21 $ (0.13 ) $ 0.98 Royalty buyout (n) $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ (0.30 ) Non-GAAP Basic less impact of royalty buyout $ 0.07 $ (0.02 ) $ 0.21 $ (0.13 ) $ 0.69 Non-GAAP Diluted less impact of royalty buyout $ 0.07 $ (0.02 ) $ 0.21 $ (0.13 ) $ 0.68 Shares used in basic and diluted per-share computations: Basic 50,146 49,867 49,565 49,856 49,394 Diluted 50,146 49,867 49,565 49,856 49,653 See "GAAP to Non-GAAP Core Adjustments" below 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). (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) Asset impairments in the fiscal quarter and twelve fiscal months ended October 2, 2009 consist primarily of $5.0 million for impairment of a patent license with Freescale. (e) Special charges consist primarily of restructuring charges. Special charges in the twelve fiscal months ended October 2, 2009 also include a $3.5 million charge related to a legal settlement.

Special charges in the twelve fiscal months ended October 3, 2008 include a $6.3 million charge related to the termination of our voluntary early retirement plan. (f) The fiscal quarter and twelve fiscal months ended October 2, 2009 and October 3, 2008 include the impact of environmental remediation charges and a charge to inventory acquired through the purchase of the "SigmaTel" multifunction printer imaging product lines. The fiscal quarter and twelve fiscal months ended October 3, 2008 includes purchase accounting expense of in-process research and development acquired through the purchase of the "SigmaTel" multifunction printer imaging product lines. (g) Unrealized gain and loss associated with the change in the fair value of our warrant to purchase 6 million shares of Mindspeed Technologies, Inc. common stock, which is accounted for as a derivative instrument. (h) Gain on sale of equity securities and on the liquidation of companies in which we held equity securities. (i) Losses from other than temporary impairment of marketable securities and cost based investments. (j) Loss incurred on a non-cancelable lease obligation related to a facility. (k) Loss incurred upon termination of our interest rate swap in connection with repurchase of $80.0 million of floating rate senior notes. (l) Loss (gain) on equity method investments. (m) Other interest expense which is not part of our on-going operations. For the fiscal quarter and twelve fiscal months ended October 2, 2009, the adjustment relates to the accelerated amortization of debt issuance costs related to the repurchase of $80.0 million of floating rate senior notes. For the twelve fiscal months ended October 3, 2008, the adjustment relates to the accelerated amortization of debt issuance costs related to the repurchase of $53.6 million of floating rate senior notes. (n) The twelve fiscal months ended October 3, 2008 includes $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 net revenues, non-GAAP cost of goods sold, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP other expense (income), non-GAAP income (loss) from continuing operations, and non-GAAP basic and diluted income (loss) 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) October 2, October 3, 2009 2008 ASSETS Current assets: Cash and cash equivalents $ 125,385 $ 105,883 Restricted cash 8,500 26,800 Receivables, net 30,110 48,997 Inventories, net 9,216 19,372 Other current assets 26,148 37,938 Current assets held for sale - 29,730 Total current assets 199,359 268,720 Property, plant and equipment, net 15,299 17,410 Goodwill 109,908 110,412 Other assets 26,284 49,861 Total assets $ 350,850 $ 446,403 LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Current portion of long-term debt $ - $ 17,707 Short-term debt 28,653 40,117 Accounts payable 24,553 34,894 Accrued compensation and benefits 8,728 13,201 Other current liabilities 33,978 43,189 Current liabilities to be assumed - 3,995 Total current liabilities 95,912 153,103 Long-term debt 311,400 373,693 Other liabilities 62,089 56,341 Total liabilities 469,401 583,137 Shareholders' deficit (118,551 ) (136,734 ) Total liabilities and shareholders' deficit $ 350,850 $ 446,403 Selected Other Data (unaudited, in thousands) Fiscal Quarter Ended Twelve Fiscal Months Ended October 2, July 3, October 3, October 2, October 3, 2009 2009 2008 2009 2008 Revenues By Region: Americas $ 2,011 $ 1,251 $ 4,788 $ 9,084 $ 18,900 Asia-Pacific 53,693 48,989 75,190 196,536 305,835 Europe, Middle East and Africa 451 604 1,137 2,807 6,769 $ 56,155 $ 50,844 $ 81,115 $ 208,427 $ 331,504 Cash Flow Data: Depreciation of PP&E $ 1,603 $ 1,936 $ 2,532 $ 8,198 $ 19,311 Capital expenditures $ 168 $ 208 $ 1,718 $ 723 $ 5,958 Cash provided by (used in) operations $ 7,534 $ 4,773 $ (3,813 ) $ 8,216 $ (18,350 ) SOURCE: Conexant Systems, Inc.

CONTACT: Conexant Systems, Inc. Editorial Contact: Gwen Carlson, 949-483-7363 or Investor Relations Contact: Scott Allen, 949-483-2698 Copyright Business Wire 2009 -0- KEYWORD: United States

North America

California INDUSTRY KEYWORD: Technology

Hardware

Audio/Video

Telecommunications

Semiconductor SUBJECT CODE: Earnings

Conference Call

Webcast