Applied Micro Circuits (AMCC) 8-K Results of Operations and Financial Condition

Exhibit 99.1

Reconciliation of Non-GAAP Financial Measures

AMCC reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP”) and also provides additional financial data that have not been prepared in accordance with GAAP. The non-GAAP results and other financial measures reported by the Company exclude certain items that are required by GAAP, such as restructuring charges, amortization and impairments of purchased intangibles and goodwill, acquired in-process research and development charges, stock-based compensation charges, litigation settlement costs, realized gains on strategic equity investments, payroll tax on certain stock option exercises and expenses related to stock option investigation. Expenses related to stock option investigation consist primarily of fees paid to professional service firms in connection with the Company’s internal investigation of historical stock option grant practices and the resulting restatement of the Company’s financial statements, the investigations by the Securities and Exchange Commission and the U.S. Attorney’s office arising from the Company’s internal investigation and the defense of derivative lawsuits arising from the internal investigation. Income taxes are adjusted to an estimated non-GAAP effective tax rate. These non-GAAP measures are not a substitute for GAAP measures and may not be consistent with the presentation used by other companies. The Company uses the non-GAAP financial measures to evaluate and manage its operations. The Company is providing this information to allow investors to perform additional financial analysis and because it is consistent with the financial models and estimates published by analysts who follow the Company.

The tables that follow reconcile the historical non-GAAP results and other financial measures reported by the Company with the most directly comparable GAAP financial measures. The Company has not provided a reconciliation of forward-looking non-GAAP financial measures reported by the Company due to the difficulty in forecasting and quantifying the exact amount of certain items that will be excluded from the non-GAAP financial measures but included in the comparable GAAP financial measures when reported. These items, some of which are listed above, are dependent upon future market conditions and valuations that the Company cannot determine in advance.

Applied Micro Circuits Corporation

GAAP Consolidated Statements of Operations

(unaudited)

(in thousands, except per share data)

	FY05															FY06															FY07
	Q1			Q2			Q3			Q4			FY05			Q1			Q2			Q3			Q4			FY06			Q1			Q2				FY07 YTD
Net revenues	$	67,402		$	61,069		$	61,081		$	64,204		$	253,756		$	64,673		$	64,935		$	65,243		$	66,993		$	261,844		$	69,679		$	76,364			$	146,043
Cost of revenues		31,492			31,529			30,159			30,073			123,253			30,833			31,093			30,017			30,449			122,392			31,528			35,536				67,064
Gross profit		35,910			29,540			30,922			34,131			130,503			33,840			33,842			35,226			36,544			139,452			38,151			40,828				78,979
Operating expenses:
Research and development		30,990			31,702			31,411			24,562			118,665			22,974			23,161			22,775			22,170			91,080			22,839			24,853				47,692
Selling, general and administrative		14,378			15,298			15,887			14,258			59,821			15,550			14,344			14,239			14,263			58,396			17,000			17,312				34,312
Stock-based compensation:
Research and development (1)		1,032			915			752			708			3,407			696			674			654			666			2,690			—			—				—
Selling, general and administrative (1)		1,323			2,202			876			858			5,259			785			783			783			1,410			3,761			—			—				—
Amortization of purchased intangibles		1,557			1,962			1,833			1,608			6,960			1,267			1,107			1,107			1,107			4,588			1,107			1,188				2,295
Impairment of purchased intangibles		—			—			27,330			—			27,330			—			—			—			—			—			—			—				—
Impairment of goodwill		—			—			—			—			—			—			—			—			131,216			131,216			—			—				—
In-process R&D charge		13,400			—			—			—			13,400			—			—			—			—			—			—			13,300				13,300
Restructuring charges		—			310			8,079			1,233			9,622			—			3,559			1,339			7,704			12,602			1,247			1,419				2,666
Litigation settlement, net		—			—			28,900			350			29,250			—			—			—			—			—			—			—				—
Total operating expenses		62,680			52,389			115,068			43,577			273,714			41,272			43,628			40,897			178,536			304,333			42,193			58,072				100,265
Operating loss		(26,770	)		(22,849	)		(84,146	)		(9,446	)		(143,211	)		(7,432	)		(9,786	)		(5,671	)		(141,992	)		(164,881	)		(4,042	)		(17,244	)			(21,286	)
Interest and other income, net		5,281			4,530			4,780			4,108			18,699			3,404			3,537			4,940			3,992			15,873			3,365			3,429				6,794
Loss before income taxes		(21,489	)		(18,319	)		(79,366	)		(5,338	)		(124,512	)		(4,028	)		(6,249	)		(731	)		(138,000	)		(149,008	)		(677	)		(13,815	)			(14,492	)
Income tax expense (benefit)		335			—			2,526			—			2,861			176			175			(1,315	)		328			(636	)		140			74				214
Net income (loss)	$	(21,824	)	$	(18,319	)	$	(81,892	)	$	(5,338	)	$	(127,373	)	$	(4,204	)	$	(6,424	)	$	584		$	(138,328	)	$	(148,372	)	$	(817	)	$	(13,889	)		$	(14,706	)
Income (Loss) per share:
Diluted income (loss) per share	$	(0.07	)	$	(0.06	)	$	(0.27	)	$	(0.02	)	$	(0.41	)	$	(0.01	)	$	(0.02	)	$	0.00		$	(0.47	)	$	(0.49	)	$	(0.00	)	$	(0.05	)		$	(0.05	)
Shares used in calculating diluted income (loss) per share		311,519			310,128			307,729			308,448			309,456			306,327			305,476			299,049			294,442			300,841			291,178			281,762		��		286,470

(1) Stock-based compensation expense for these periods has been included within their natural classifications

Applied Micro Circuits Corporation

Reconciliation of GAAP to Non-GAAP Net Income/Loss

(unaudited)

(in thousands, except per share data)

	FY05															FY06															FY07
	Q1			Q2			Q3			Q4			FY05			Q1			Q2			Q3			Q4			FY06			Q1			Q2			FY07 YTD
GAAP net income/ loss	$	(21,824	)	$	(18,319	)	$	(81,892	)	$	(5,338	)	$	(127,373	)	$	(4,204	)	$	(6,424	)	$	584		$	(138,328	)	$	(148,372	)	$	(817	)	$	(13,889	)	$	(14,706	)
Adjustments:
Stock-based compensation charges		2,510			3,246			1,975			1,514			9,245			1,507			1,478			1,458			2,097			6,540			2,511			2,677			5,188
Amortization of purchased intangibles		8,259			9,539			7,884			6,805			32,487			6,463			6,305			4,732			4,732			22,232			4,733			5,941			10,674
Impairments of purchased intangibles		—			—			27,330			—			27,330			—			—			—			—			—			—			—			—
Impairment of goodwill		—			—			—			—			—			—			—			—			131,216			131,216			—			—			—
In-process R&D charge		13,400			—			—			—			13,400			—			—			—			—			—			—			13,300			13,300
Restructuring charges		—			310			8,079			1,233			9,622			—			3,559			1,339			7,704			12,602			1,247			1,419			2,666
Litigation settlement, net		—			—			28,900			350			29,250			—			—			—			—			—			—			—			—
Realized gains on strategic equity investments		—			—			—			—			—			—			—			(672	)		—			(672	)		—			—			—
Payroll taxes on certain stock option exercises		2			—			—			10			12			—			—			1			2			3			1			—			1
Income tax adjustments		(255	)		1,149			3,670			(1,006	)		3,558			(691	)		(945	)		(2,663	)		(1,377	)		(5,676	)		(94	)		(212	)		(306	)
Expenses related to stock option investigation		—			—			—			—			—			—			—			—			—			—			1,113			1,668			2,781
Total GAAP to non-GAAP adjustments		23,916			14,244			77,838			8,906			124,904			7,279			10,397			4,195			144,374			166,245			9,511			24,793			31,523
Non-GAAP net income (loss)	$	2,092		$	(4,075	)	$	(4,054	)	$	3,568		$	(2,469	)	$	3,075		$	3,973		$	4,779		$	6,046		$	17,873		$	8,694		$	10,904		$	16,817
Income (loss) per share:
GAAP loss per share	$	(0.07	)	$	(0.06	)	$	(0.27	)	$	(0.02	)	$	(0.41	)	$	(0.01	)	$	(0.02	)	$	0.00		$	(0.47	)	$	(0.49	)	$	(0.00	)	$	(0.05	)	$	(0.05	)
GAAP to non-GAAP adjustments		0.08			0.05			0.26			0.03			0.40			0.02			0.03			0.01			0.49			0.55			0.03			0.09			0.11
Non-GAAP income (loss) per share	$	0.01		$	(0.01	)	$	(0.01	)	$	0.01		$	(0.01	)	$	0.01		$	0.01		$	0.02		$	0.02		$	0.06		$	0.03		$	0.04		$	0.06
Reconciliation of shares used in calculating thenon-GAAP income (loss) per share:
GAAP diluted shares used		311,519			310,128			307,729			308,448			309,456			306,327			305,476			299,049			294,442			300,841			291,178			281,762			286,470
Adjustment for dilutive securities		6,808			—			—			1,972			—			1,030			1,680			—			2,119			1,690			948			824			886
Non-GAAP shares used in the EPS calculation		318,327			310,128			307,729			310,420			309,456			307,357			307,156			299,049			296,561			302,531			292,126			282,586			287,356

Applied Micro Circuits Corporation

Schedule of Selected GAAP to Non-GAAP Adjustments

(unaudited)

(in thousands)

	FY05															FY06															FY07
	Q1			Q2			Q3			Q4			FY05			Q1			Q2			Q3			Q4			FY06			Q1			Q2			FY07 YTD
REVENUES	$	67,401		$	61,069		$	61,081		$	64,204		$	253,755		$	64,673		$	64,935		$	65,243		$	66,993		$	261,844		$	69,679		$	76,364		$	146,043
GROSS PROFIT -
GAAP gross profit	$	35,910		$	29,540		$	30,922		$	34,131		$	130,503		$	33,840		$	33,842		$	35,226		$	36,544		$	139,452		$	38,151		$	40,828		$	78,979
Stock-based compensation expense		155			129			347			43			674			26			21			21			21			89			134			157			291
Amortization of purchased intangibles		6,702			7,577			6,051			5,197			25,527			5,196			5,198			3,625			3,625			17,644			3,626			4,753			8,379
Non-GAAP gross profit	$	42,767		$	37,246		$	37,320		$	39,371		$	156,704		$	39,062		$	39,061		$	38,872		$	40,190		$	157,185		$	41,911		$	45,738		$	87,649
GAAP gross margin		53.3	%		48.4	%		50.6	%		53.2	%		51.4	%		52.3	%		52.1	%		54.0	%		54.5	%		53.3	%		54.8	%		53.5	%		54.1	%
Non-GAAP gross margin		63.5	%		61.0	%		61.1	%		61.3	%		61.8	%		60.4	%		60.2	%		59.6	%		60.0	%		60.0	%		60.1	%		59.9	%		60.0	%
OPERATING EXPENSES -
GAAP operating expenses	$	62,680		$	52,389		$	115,068		$	43,577		$	273,714		$	41,272		$	43,628		$	40,897		$	178,536		$	304,333		$	42,193		$	58,072		$	100,265
Stock-based compensation expense		2,355			3,117			1,628			1,566			8,666			1,481			1,457			1,437			2,076			6,451			2,377			2,520			4,897
Amortization of purchased intangibles		1,557			1,962			1,833			1,608			6,960			1,267			1,107			1,107			1,107			4,588			1,107			1,188			2,295
Impairment of purchased intangibles		—			—			27,330			—			27,330			—			—			—			—			—			—			—			—
Impairment of goodwill		—			—			—			—			—			—			—			—			131,216			131,216			—			—			—
Restructuring charges		—			310			8,079			1,233			9,622			—			3,559			1,339			7,704			12,602			1,247			1,419			2,666
In-process R&D charge		13,400			—			—			—			13,400			—			—			—			—			—			—			13,300			13,300
Payroll taxes on certain stock option exercises		2			—			—			10			12			—			—			1			2			3			1			—			1
Litigation settlement, net		—			—			28,900			350			29,250			—			—			—			—			—			—			—			—
Expenses related to stock option investigation		—			—			—			—			—			—			—			—			—			—			1,113			1,668			2,781
Non-GAAP operating expenses	$	45,366		$	47,000		$	47,298		$	38,810		$	178,474		$	38,524		$	37,505		$	37,013		$	36,431		$	149,473		$	36,348		$	37,977		$	74,325
GAAP operating margin as %age of revenue		-39.7	%		-37.4	%		-137.8	%		-14.7	%		-56.4	%		-11.5	%		-15.1	%		-8.7	%		-212.0	%		-63.0	%		-5.8	%		-22.6	%		-14.6	%
Non-GAAP operating margin as %age of revenue		-3.9	%		-16.0	%		-16.3	%		0.9	%		-8.6	%		0.8	%		2.4	%		2.8	%		5.6	%		2.9	%		8.0	%		10.2	%		9.1	%
OTHER INCOME (EXPENSE), NET -
GAAP other income (expense), net	$	5,281		$	4,530		$	4,780		$	4,108		$	18,699		$	3,404		$	3,537		$	4,940		$	3,992		$	15,873		$	3,365		$	3,429		$	6,794
Realized gains on strategic equity investments		—			—			—			—			—			—			—			(672	)		—			(672	)		—			—			—
Non-GAAP other income (expense), net	$	5,281		$	4,530		$	4,780		$	4,108		$	18,699		$	3,404		$	3,537		$	4,268		$	3,992		$	15,201		$	3,365		$	3,429		$	6,794
Pre-tax net income (loss) as a %age of revenue—GAAP		-31.9	%		-30.0	%		-129.9	%		-8.3	%		-49.1	%		-6.2	%		-9.6	%		-1.1	%		-206.0	%		-56.9	%		-1.0	%		-18.1	%		-9.9	%
Pre-tax net income (loss) as a %age of revenue—Non-GAAP		4.0	%		-8.6	%		-8.5	%		7.3	%		-1.2	%		6.1	%		7.8	%		9.4	%		11.6	%		8.8	%		12.8	%		14.7	%		13.8	%
INCOME TAX EXPENSE (BENEFIT) -
GAAP income tax expense (benefit)	$	335		$	—		$	2,526		$	—		$	2,861		$	176		$	175		$	(1,315	)	$	328		$	(636	)	$	140		$	74		$	214
Income tax adjustments		255			(1,149	)		(3,670	)		1,006			(3,558	)		691			945			2,663			1,377			5,676			94			212			306
Non-GAAP income tax expense (benefit)	$	590		$	(1,149	)	$	(1,144	)	$	1,006		$	(697	)	$	867		$	1,120		$	1,348		$	1,705		$	5,040		$	234		$	286		$	520
RESEARCH AND DEVELOPMENT -
GAAP research and development	$	32,022		$	32,617		$	32,163		$	25,270		$	122,072		$	23,670		$	23,835		$	23,429		$	22,836		$	93,770		$	22,839		$	24,853		$	47,692
Stock-based compensation expense		1,032			915			752			708			3,407			696			674			654			666			2,690			1,069			1,028			2,097
Payroll taxes on certain stock option exercises		—			—			—			7			7			—			—			1			1			2			—			—			—
Non-GAAP research and development	$	30,990		$	31,702		$	31,411		$	24,555		$	118,658		$	22,974		$	23,161		$	22,774		$	22,169		$	91,078		$	21,770		$	23,825		$	45,595
SELLING, GENERAL AND ADMINISTRATIVE -
GAAP selling, general and administrative	$	15,701		$	17,500		$	16,763		$	15,116		$	65,080		$	16,335		$	15,127		$	15,022		$	15,673		$	62,157		$	17,000		$	17,312		$	34,312
Stock-based compensation expense		1,323			2,202			876			858			5,259			785			783			783			1,410			3,761			1,308			1,492			2,800
Payroll taxes on certain stock option exercises		2			—			—			3			5			—			—			—			1			1			1			—			1
Expenses related to stock option investigation		—			—			—			—			—			—			—			—			—			—			1,113			1,668			2,781
Non-GAAP selling, general and administrative	$	14,376		$	15,298		$	15,887		$	14,255		$	59,816		$	15,550		$	14,344		$	14,239		$	14,262		$	58,395		$	14,578		$	14,152		$	28,730

Applied Micro Circuits Corporation

GAAP Consolidated Balance Sheets and Other Metrics

(unaudited)

(in thousands, except inventory turns data)

	FY05												FY06												FY07
	Q1			Q2			Q3			Q4			Q1			Q2			Q3			Q4			Q1			Q2
ASSETS
Current assets:
Cash, cash equivalents and short-term investments	$	475,252		$	410,576		$	405,970		$	423,392		$	379,371		$	369,507		$	350,810		$	335,665		$	336,110		$	265,776
Accounts receivable, net		34,775			27,872			22,304			28,601			23,694			26,365			22,390			26,324			31,103			36,967
Inventories		14,075			18,842			19,847			18,014			16,399			18,697			20,648			24,941			26,333			34,128
Other current assets		15,100			17,362			46,623			51,448			15,585			14,937			14,999			12,618			14,918			14,436
Total current assets		539,202			474,652			494,744			521,455			435,049			429,506			408,847			399,548			408,464			351,307
Intangible assets		587,782			578,206			544,892			534,514			528,051			521,746			517,014			381,066			376,333			427,809
Property and equipment, net		40,996			39,762			47,102			44,461			44,668			41,076			38,237			36,127			33,394			33,438
Other assets		1,656			1,769			1,999			1,965			2,071			2,493			8,269			8,685			9,066			9,716
Total Assets	$	1,169,636		$	1,094,389		$	1,088,737		$	1,102,395		$	1,009,839		$	994,821		$	972,367		$	825,426		$	827,257		$	822,270
LIABILITIES & STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	25,385		$	26,163		$	14,164		$	24,016		$	19,747		$	25,984		$	28,268			24,656		$	28,729		$	29,673
Accrued payroll and related expenses		14,337			11,219			11,730			10,101			9,944			8,132			8,525			7,409			9,893			8,104
Other accrued liabilities		33,085			29,565			94,030			87,107			20,466			20,345			21,289			27,017			24,809			24,819
Deferred revenue		4,118			4,036			3,897			3,939			3,281			3,655			3,358			3,536			3,599			3,278
Current portion of long-term debt and capital lease obligations		233			171			103			34			7			—			—			—			—			—
Total current liabilities		77,158			71,154			123,924			125,197			53,445			58,116			61,440			62,618			67,030			65,874
Stockholders’ equity:
Common stock		3,118			3,081			3,078			3,083			3,054			3,027			2,933			2,954			2,832			2,817
Deferred compensation		(19,463	)		(14,228	)		(10,978	)		(9,101	)		(7,507	)		(5,869	)		(4,377	)		(2,087	)		—			—
Additional paid-in capital		6,036,381			5,971,370			5,992,833			6,013,958			5,992,428			5,980,206			5,956,113			5,945,555			5,943,581			5,946,278
Retained earnings (deficit)		(4,918,326	)		(4,936,645	)		(5,018,537	)		(5,023,875	)		(5,028,079	)		(5,034,503	)		(5,033,919	)		(5,172,247	)		(5,173,064	)		(5,186,953	)
Accumulated other comprehensive income or loss		(9,232	)		(343	)		(1,583	)		(6,867	)		(3,502	)		(6,156	)		(9,823	)		(11,367	)		(13,122	)		(5,746	)
Total stockholders’ equity		1,092,478			1,023,235			964,813			977,198			956,394			936,705			910,927			762,808			760,227			756,396
Total Liabilities and Stockholders’ Equity	$	1,169,636		$	1,094,389		$	1,088,737		$	1,102,395		$	1,009,839		$	994,821		$	972,367		$	825,426		$	827,257		$	822,270
GAAP inventory turns		8.9			6.7			6.1			6.7			7.5			6.7			5.8			4.9			4.8			4.2
Non-GAAP inventory turns		7.0			5.1			4.8			5.5			6.2			5.5			5.1			4.3			4.2			3.3

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