EX-99 2 a03236exv99.htm EXHIBIT 99 Exhibit 99
 

Exhibit 99

CONEXANT SYSTEMS, INC.
Consolidated Statements of Operations
(unaudited, in thousands, except per share amounts)

                                 
    Three months ended
   Year ended
    Sept. 30,   Sept. 30,   Sept. 30,   Sept. 30,
    2004
   2003
   2004
   2003
Net revenues
   $ 213,123     $ 164,703     $ 901,854     $ 599,977  
Cost of goods sold
     127,681       92,592       523,129       338,161  
 
    
 		      
 		      
 		      
 		  
Gross margin
     85,442       72,111       378,725       261,816  
Operating expenses:
                                
Research and development (including non-cash stock compensation of $2,233 and $5,364 for the three and twelve months ended September 30, 2004, respectively, and $33 and $477 for the three and twelve months ended September 30, 2003, respectively)
     72,766       41,527       239,971       159,354  
Selling, general and administrative (including non-cash stock compensation of $744 and $1,773 for the three and twelve months ended September 30, 2004, and $0 and $1,272 for the three and twelve months ended September 30, 2003, respectively)
     35,692       23,955       125,474       93,426  
Amortization of intangible assets
     8,205       914       20,769       3,437  
In-process research and development
     —       —       160,818       —  
Special charges (See Note 1)
     18,388       4,794       32,801       18,379  
 
    
 		      
 		      
 		      
 		  
Total operating expenses
     135,051       71,190       579,833       274,596  
 
    
 		      
 		      
 		      
 		  
Operating income (loss)
     (49,609 )     921       (201,108 )     (12,780 )
Gain on extinguishment of debt
     —       —       —       (42,021 )
Other (income) expense, net
     78,517       (34,977 )     99,808       5,808  
 
    
 		      
 		      
 		      
 		  
Income (loss) before income taxes
     (128,126 )     35,898       (300,916 )     23,433  
Provision (benefit) for income taxes
     242,365       (1,314 )     243,733       (129 )
 
    
 		      
 		      
 		      
 		  
Income (loss) from continuing operations
     (370,491 )     37,212       (544,649 )     23,562  
Discontinued operations, net of tax
     —       —       —       (728,877 )
 
    
 		      
 		      
 		      
 		  
Net income (loss)
   $ (370,491 )   $ 37,212     $ (544,649 )   $ (705,315 )
 
    
 		      
 		      
 		      
 		  
Income (loss) per share, basic:
                                
Continuing operations
   $ (0.79 )   $ 0.14     $ (1.40 )   $ 0.09  
Discontinued operations
     —       —       —       (2.72 )
 
    
 		      
 		      
 		      
 		  
Net income (loss)
   $ (0.79 )   $ 0.14     $ (1.40 )   $ (2.63 )
 
    
 		      
 		      
 		      
 		  
Income (loss) per share, diluted:
                                
Continuing operations
   $ (0.79 )   $ 0.12     $ (1.40 )   $ 0.09  
Discontinued operations
     —       —       —       (2.65 )
 
    
 		      
 		      
 		      
 		  
Net income (loss)
   $ (0.79 )   $ 0.12     $ (1.40 )   $ (2.56 )
 
    
 		      
 		      
 		      
 		  
Number of shares used in per share computation—basic
     467,556       273,241       389,630       268,586  
 
    
 		      
 		      
 		      
 		  
Number of shares used in per share computation—diluted
     467,556       303,488       389,630       275,230  
 
    
 		      
 		      
 		      
 		  

The consolidated statements of operations include the results of operations of GlobespanVirata, Inc. from February 27, 2004, the date of the company’s merger with GlobespanVirata. No restatement has been made to earlier periods.

Note 1 — Special charges consist of asset impairments, restructuring charges, integration costs, other special items and gains and losses on the disposal of certain operating assets. The three months and twelve months ended September 30, 2004 includes a charge of $3,000 related to the Company’s litigation settlement with Agere Systems, Inc.

 

 

CONEXANT SYSTEMS, INC.
Pro Forma (Non-GAAP) Consolidated Statements of Operations
(unaudited, in thousands, except per share amounts)

                                 
    Three months ended
   Year ended
    Sept. 30,   Sept. 30,   Sept. 30,   Sept. 30,
    2004
   2003
   2004
   2003
Net revenues
   $ 213,123     $ 164,703     $ 901,854     $ 599,977  
Cost of goods sold
     127,681       92,592       522,317       338,161  
 
    
 		      
 		      
 		      
 		  
Gross margin
     85,442       72,111       379,537       261,816  
Operating expenses:
                                
Research and development
     64,495       41,467       227,827       158,799  
Selling, general and administrative
     30,574       23,942       115,874       92,117  
 
    
 		      
 		      
 		      
 		  
Total operating expenses
     95,069       65,409       343,701       250,916  
 
    
 		      
 		      
 		      
 		  
Pro forma operating income (loss)
     (9,627 )     6,702       35,836       10,900  
Other income, net
     (944 )     (2,684 )     (6,854 )     (17,527 )
 
    
 		      
 		      
 		      
 		  
Pro forma income (loss) before income taxes
     (8,683 )     9,386       42,690       28,427  
Provision (benefit) for income taxes
     698       (1,314 )     2,066       (129 )
 
    
 		      
 		      
 		      
 		  
Pro forma net income (loss)
   $ (9,381 )   $ 10,700     $ 40,624     $ 28,556  
 
    
 		      
 		      
 		      
 		  
Basic income (loss) per share pro forma (non-GAAP)
   $ (0.02 )   $ 0.04     $ 0.10     $ 0.10  
 
    
 		      
 		      
 		      
 		  
Diluted income (loss) per share pro forma (non-GAAP)
   $ (0.02 )   $ 0.03     $ 0.09     $ 0.10  
 
    
 		      
 		      
 		      
 		  
Number of shares used in per share computation — basic — pro forma (non-GAAP).
     492,897       292,742       412,612       286,007  
 
    
 		      
 		      
 		      
 		  
Number of shares used in per share computation — diluted — pro forma (non-GAAP)
     494,676       315,625       430,880       292,651  
 
    
 		      
 		      
 		      
 		  

The pro forma (non-GAAP) consolidated statements of operations include the results of operations of GlobespanVirata, Inc. from February 27, 2004, the date of the company’s merger with GlobespanVirata. No restatement has been made to earlier periods.

Pro forma operating income (loss), pro forma net income (loss), and basic and fully diluted income (loss) per share pro forma (non-GAAP) excludes certain non-cash and special items related to operations, certain non-operating gains and losses and interest expense on the convertible subordinated notes. The company believes these measures of income provide a better understanding of its underlying operating results and the company uses these measures internally to evaluate its underlying operating performance. These measures of income are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from pro forma measures used by other companies.

Basic weighted-average shares of common stock outstanding assume conversion of $711.8 million of convertible subordinated notes at their applicable conversion prices. Diluted weighted-average shares of common stock outstanding also includes the effect of outstanding options and warrants using the treasury stock method.

A reconciliation of consolidated statements of operations, shares and per share information as determined under generally accepted accounting principles with the pro forma net income (loss), pro forma share and per share information presented above is presented in the following table.

 

 

CONEXANT SYSTEMS, INC.
Reconciliation of Consolidated Statements of Operations to
Pro Forma (Non-GAAP) Consolidated Statements of Operations
(unaudited, in thousands, except per share amounts)

                                 
    Three months ended
   Year ended
    Sept. 30,   Sept. 30,   Sept. 30,   Sept. 30,
    2004
   2003
   2004
   2003
Income (loss) from continuing operations (unaudited)
   $ (370,491 )   $ 37,212     $ (544,649 )   $ 23,562  
Non-cash and special items:
                                
Amortization of intangible assets
     8,205       914       20,769       3,437  
In-process research and development
     —       —       160,818       —  
IP litigation support costs
     2,680       —       5,274       —  
Special charges (See Note 2)
     18,388       4,794       32,801       18,379  
Stock compensation
     2,977       33       7,137       1,749  
Transitional salaries and benefits (See Note 3)
     7,732       —       9,020       —  
Gain on debt extinguishment
     —       —       —       (42,021 )
Interest expense on convertible subordinated notes
     8,180       6,473       29,877       27,862  
Payroll taxes associated with stock options exercised by employees
     —       40       313       115  
Equity in losses (earnings) of equity method investees
     (1,672 )     (114 )     (14,422 )     3,119  
Unrealized loss (gain) on note receivable from Skyworks
     —       (11,234 )     6,292       (9,402 )
Unrealized loss (gain) on Mindspeed warrant
     54,284       (30,230 )     92,663       (30,230 )
Inventory impairment
     —       —       812       —  
Environmental charge
     376       1,202       376       1,202  
Federal income tax refund
     (14,749 )     —       (14,749 )     —  
Impairment of deferred tax assets
     255,738       —       255,738       —  
Loss (gain) on sales of investments and assets
     6,148       (3,390 )     (20,869 )     (8,618 )
Write-down of investments
     12,823       5,000       13,423       39,402  
 
    
 		      
 		      
 		      
 		  
Pro forma net income (loss)
   $ (9,381 )   $ 10,700     $ 40,624     $ 28,556  
 
    
 		      
 		      
 		      
 		  
Income (loss) per share, basic:
                                
Income (loss) from continuing operations (GAAP)
   $ (0.79 )   $ 0.14     $ (1.40 )   $ 0.09  
Non-cash and special items
     0.77       (0.10 )     1.50       0.01  
 
    
 		      
 		      
 		      
 		  
Pro forma (non-GAAP) income (loss)
   $ (0.02 )   $ 0.04     $ 0.10     $ 0.10  
 
    
 		      
 		      
 		      
 		  
Income (loss) per share, diluted:
                                
Income (loss) from continuing operations (GAAP)
   $ (0.79 )   $ 0.12     $ (1.40 )   $ 0.09  
Non-cash and special items
     0.77       (0.09 )     1.49       0.01  
 
    
 		      
 		      
 		      
 		  
Pro forma (non-GAAP) income (loss)
   $ (0.02 )   $ 0.03     $ 0.09     $ 0.10  
 
    
 		      
 		      
 		      
 		  
Number of shares used in per share computation — basic (GAAP)
     467,556       273,241       389,630       268,586  
Assumed conversion of convertible subordinated notes
     25,341       19,501       22,982       17,421  
 
    
 		      
 		      
 		      
 		  
Number of shares used in per share computation — basic — pro forma (non-GAAP)
     492,897       292,742       412,612       286,007  
Effect of stock options and warrants
     1,779       22,883       18,268       6,644  
 
    
 		      
 		      
 		      
 		  
Number of shares used in per share computation — diluted — pro forma (non-GAAP)
     494,676       315,625       430,880       292,651  
 
    
 		      
 		      
 		      
 		  

Note 2 — Special charges consist of asset impairments, restructuring charges, integration costs, other special items and gains and losses on the disposal of certain operating assets. The three months and twelve months ended September 30, 2004 includes a charge of $3,000 related to the Company’s litigation settlement with Agere Systems, Inc.

Note 3 — Transitional salaries and benefits of $7,732 and $9,020 for the three months and year ended September 30, 2004 represent amounts earned by employees, from the beginning of each period presented, who have been notified of their termination as part of our restructuring activities. Included in the above amounts are $295 of facilities related costs.

 

 

CONEXANT SYSTEMS, INC.
Consolidated Condensed Balance Sheets
(unaudited, in thousands)

                 
    September 30,   September 30,
    2004
   2003
ASSETS
Current assets:
                
Cash and cash equivalents (See Note 4)
   $ 139,031     $ 76,186  
Marketable securities (See Note 4)
     163,040       99,283  
Receivables, net
     185,037       79,557  
Inventories
     194,754       59,548  
Deferred income taxes
     —       13,600  
Mindspeed warrant-current portion
     3,599       —  
Other current assets
     20,768       26,524  
 
    
 		      
 		  
Total current assets
     706,229       354,698  
Property, plant and equipment, net
     55,741       36,310  
Goodwill
     708,544       56,865  
Intangible assets, net
     135,241       12,506  
Deferred income taxes
     —       241,260  
Mindspeed warrant
     23,000       119,230  
Marketable securities-long term (See Note 4)
     137,604       —  
Other assets
     114,163       110,838  
 
    
 		      
 		  
Total assets
   $ 1,880,522     $ 931,707  
 
    
 		      
 		  
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
                
Accounts payable
   $ 141,533     $ 55,909  
Accrued compensation and benefits
     40,423       28,865  
Restructuring and reorganization liabilities
     22,427       12,091  
Other current liabilities
     67,044       24,816  
 
    
 		      
 		  
Total current liabilities
     271,427       121,681  
Convertible subordinated notes
     711,825       581,825  
Other liabilities
     68,883       61,435  
 
    
 		      
 		  
Total liabilities
     1,052,135       764,941  
 
    
 		      
 		  
Shareholders’ equity
     828,387       166,766  
 
    
 		      
 		  
Total liabilities and shareholders’ equity
   $ 1,880,522     $ 931,707  
 
    
 		      
 		  

The consolidated condensed balance sheet at September 30, 2004 includes the assets and liabilities at fair value of GlobespanVirata, Inc. and allocation of purchase price to intangibles and goodwill as of February 27, 2004, the date of the company’s merger with GlobespanVirata, adjusted for subsequent changes.

Note 4 — Total cash, cash equivalents and marketable securities at September 30, 2004 and at September 30, 2003 are as follows:

                 
    Sept. 30,   Sept. 30,
    2004
   2003
Cash and cash equivalents
   $ 139,031     $ 76,186  
Skyworks 15% convertible senior subordinated notes
     —       55,566  
Equity securities- Skyworks Solutions, Inc. (6.2 million shares at September 30, 2004, 0.5 million shares at September 30, 2003)
     61,767       4,576  
Equity securities- SiRF Technologies, Inc. (5.9 million shares at September 30, 2004)
     87,509       —  
Other short-term marketable securities (primarily mutual funds, domestic government agencies and corporate debt securities)
     13,764       39,141  
Long-term marketable securities (primarily domestic government agencies and corporate debt securities)
     137,604       —  
 
    
 		      
 		  
 
   $ 439,675     $ 175,469  
 
    
 		      
 		  

 

 

CONEXANT SYSTEMS, INC.
Selected Other Data
(unaudited, in thousands)

                                 
    Three months ended
   Year ended
    Sept. 30,   Sept. 30,   Sept. 30,   Sept. 30,
    2004
   2003
   2004
   2003
Selected Data—From Continuing Operations (See Note 5):
                                
Depreciation (See Note 6)
   $ 4,814     $ 3,252     $ 16,151     $ 16,828  
Capital expenditures
     3,641       6,289       17,563       19,844  
Revenues By Region:
                                
Americas
   $ 23,822     $ 18,145     $ 101,264     $ 68,738  
Asia-Pacific
     167,236       128,474       721,693       481,055  
Europe, Middle East and Africa
     22,065       18,084       78,897       50,184  
 
    
 		      
 		      
 		      
 		  
 
   $ 213,123     $ 164,703     $ 901,854     $ 599,977  
 
    
 		      
 		      
 		      
 		  

Note 5 — Continuing operations excludes the discontinued Mindspeed Technologies Internet infrastructure business which was spun off in June 2003.

Note 6 — Does not include amortization of intangible assets, as applicable.