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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999*
COMMISSION FILE NUMBER 000-24923
CONEXANT SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 25-1799439
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4311 JAMBOREE ROAD, NEWPORT BEACH, CALIFORNIA 92660-3095
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
Registrant's telephone number including area code: (949) 483-4600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Registrant's number of shares of common stock outstanding as of July 31,
1999 was 97,467,845.
- ---------------
* For presentation purposes, references made to the June 30, 1999 period relate
to the actual third fiscal quarter ended July 2, 1999.
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CONEXANT SYSTEMS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Unaudited Consolidated Condensed Balance Sheets -- June 30,
1999 and September 30, 1998................................. 3
Unaudited Consolidated Condensed Statements of
Operations -- Three Months and Nine Months Ended June 30,
1999 and 1998............................................... 4
Unaudited Consolidated Condensed Statements of Cash
Flows -- Nine Months Ended June 30, 1999 and 1998........... 5
Notes to Unaudited Consolidated Condensed Financial
Statements.................................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 11
Item 3. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 16
Item 6. Exhibits and Reports on Form 8-K............................ 17
Signatures.................................................. 19
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONEXANT SYSTEMS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1999 1998
---------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................... $ 411,741 $ 14,000
Receivables (less allowance for doubtful accounts: June 30,
1999, $8,169; September 30, 1998, $8,975)................. 181,739 166,386
Inventories, net............................................ 190,268 200,926
Deferred income taxes....................................... 89,844 152,559
Assets held for disposal.................................... -- 42,346
Other current assets........................................ 27,105 10,735
---------- ----------
Total current assets................................... 900,697 586,952
Property, plant and equipment, net.......................... 638,648 713,400
Other assets................................................ 116,648 118,178
---------- ----------
TOTAL ASSETS........................................... $1,655,993 $1,418,530
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt............................................. $ -- $ 14,000
Accounts payable............................................ 175,987 151,044
Accrued litigation.......................................... -- 65,000
Other current liabilities................................... 92,812 100,219
---------- ----------
Total current liabilities.............................. 268,799 330,263
Other liabilities........................................... 86,975 78,892
Convertible subordinated notes.............................. 350,000 --
SHAREHOLDERS' EQUITY:
Rockwell's net investment (September 30, 1998).............. -- 1,009,375
Preferred stock (25,000 shares authorized; no shares issued
or outstanding)........................................... -- --
Common stock (500,000 shares authorized; 97,268 issued and
outstanding).............................................. 97,268 --
Additional paid-in capital.................................. 822,290 --
Retained earnings........................................... 32,007 --
Accumulated other comprehensive loss........................ (1,346) --
---------- ----------
Total shareholders' equity............................. 950,219 1,009,375
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............. $1,655,993 $1,418,530
========== ==========
</TABLE>
See notes to unaudited consolidated condensed financial statements.
3
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CONEXANT SYSTEMS, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET REVENUES.................................... $380,330 $277,807 $991,940 $935,500
Cost of goods sold.............................. 216,114 183,497 619,545 539,489
-------- -------- -------- --------
GROSS MARGIN.................................... 164,216 94,310 372,395 396,011
Research and development........................ 77,927 90,802 217,838 255,047
Selling, general and administrative............. 51,780 62,895 164,323 191,256
Amortization of intangibles..................... 2,059 2,771 6,186 8,421
Special charges -- Rockwell Retained Assets..... -- -- 20,000 --
Special charges -- Other........................ -- -- 17,906 --
-------- -------- -------- --------
OPERATING EARNINGS (LOSS)....................... 32,450 (62,158) (53,858) (58,713)
Other income, net............................... 2,389 751 2,263 6,411
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES............... 34,839 (61,407) (51,595) (52,302)
Provision (benefit) for income taxes............ 10,449 (27,989) (26,479) (23,839)
-------- -------- -------- --------
NET INCOME (LOSS)............................... $ 24,390 $(33,418) $(25,116) $(28,463)
======== ======== ======== ========
EARNINGS PER SHARE:
BASIC........................................... $ 0.25
========
DILUTED......................................... $ 0.24
========
WEIGHTED AVERAGE SHARES:
BASIC........................................... 95,785
========
DILUTED......................................... 103,202
========
</TABLE>
See notes to unaudited consolidated condensed financial statements.
4
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CONEXANT SYSTEMS, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
---------------------
1999 1998
-------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................... $(25,116) $ (28,463)
Adjustments to net loss to arrive at cash provided by (used
in) operating activities:
Depreciation and amortization.......................... 157,119 152,682
Deferred income taxes.................................. 11,909 (6,428)
Amortization of deferred compensation -- restricted
stock................................................. 10,407 --
Special charges -- Rockwell Retained Assets............ 20,000 --
Special charges -- Other............................... 17,906 --
Changes in assets and liabilities:
Receivables.......................................... (15,353) 27,831
Inventories.......................................... 10,658 (109,781)
Accounts payable..................................... 24,943 (45,845)
Other current liabilities............................ (9,024) (21,526)
Other................................................ (25,502) 18,562
-------- ---------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES... 177,947 (12,968)
-------- ---------
INVESTING ACTIVITIES -
Capital expenditures........................................ (75,431) (185,386)
-------- ---------
CASH USED IN INVESTING ACTIVITIES................. (75,431) (185,386)
-------- ---------
FINANCING ACTIVITIES:
Increase in short-term borrowings........................... -- --
Payments of short-term debt................................. (14,075) (26)
Increase in long-term borrowings, net of issuance costs..... 340,375 --
Net transfers (to) from Rockwell............................ (44,670) 198,380
Issuance of common stock.................................... 13,595 --
-------- ---------
CASH PROVIDED BY FINANCING ACTIVITIES............. 295,225 198,354
-------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS....................... 397,741 --
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 14,000 14,000
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $411,741 $ 14,000
======== =========
</TABLE>
Non-cash activity: During the nine months ended June 30, 1999, the Company
transferred its wafer fabrication facilities in Colorado Springs, Colorado (and
the related tax benefit) with a book value of $58 million to Rockwell, as well
as certain other tax benefits of $23 million related to the Celeritas
litigation. In addition, Rockwell transferred $64 million of restricted cash to
Conexant to be used to satisfy the $65 million liability which Conexant recorded
in the year ended September 30, 1998, related to the Celeritas judgment. During
the second fiscal quarter of 1999, the restricted cash balance of $64 million
transferred from Rockwell was used to settle the Celeritas judgment, the
additional $1 million paid directly by Rockwell was recorded as additional
paid-in capital, and the corresponding $65 million liability was eliminated.
See notes to unaudited consolidated condensed financial statements.
5
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CONEXANT SYSTEMS, INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
On December 31, 1998, Conexant Systems, Inc. (formerly named Rockwell
Semiconductor Systems, Inc.) (the Company or Conexant), became an independent,
separately traded, publicly-held company when Rockwell International Corporation
(Rockwell) spun off its semiconductor systems business (Semiconductor Systems)
by means of a distribution (the Distribution) of all the outstanding shares of
common stock of the Company to the shareholders of Rockwell in a tax-free
spin-off. In the Distribution, each Rockwell shareholder of record on December
11, 1998, received one share of the Company's common stock (including an
associated preferred share purchase right) for every two shares of Rockwell
common stock owned on December 11, 1998.
The unaudited consolidated condensed financial statements of Conexant have
been prepared in accordance with generally accepted accounting principles, which
require management to make estimates and assumptions that affect the amounts
reported in the financial statements. Actual results could differ from those
estimates. In the opinion of the management of Conexant, the unaudited financial
statements contain all adjustments, consisting of adjustments of a normal
recurring nature, as well as the special charges recorded in the first quarter
of 1999 (see notes 2 and 3), necessary to present fairly the financial position,
results of operations, and cash flows for the periods presented. Certain
reclassification entries have been made to prior periods for consistency
purposes. These statements should be read in conjunction with the Company's
Registration Statement on Form 10, as amended, as filed with the Securities and
Exchange Commission. The results of operations for the three-month period and
nine-month period ended June 30, 1999, are not necessarily indicative of the
results that may be expected for the full year.
The accompanying unaudited consolidated condensed financial statements
through the date of the Distribution present the historical financial position,
results of operations, and cash flows of Semiconductor Systems, as it was spun
off, and exclude the assets, liabilities, and results of operations of
non-semiconductor businesses retained by Rockwell. The financial statements
prior to the Distribution are not necessarily indicative of what the financial
position, results of operations, or cash flows would have been had Conexant been
an independent public company during all periods presented. Financial data
included in the accompanying unaudited consolidated condensed financial
statements, for periods subsequent to the Distribution, have been prepared on a
basis that reflects the historical assets, liabilities, and operations of the
business contributed to Conexant by Rockwell.
For presentation purposes, references made to the June 30, 1999 and June
30, 1998 periods relate to the actual third fiscal quarters ended July 2, 1999
and July 3, 1998, respectively. In addition, references made to the December 31,
1998 period relate to the actual first fiscal quarter ended January 1, 1999, as
previously reported.
Prior to the Distribution, Rockwell provided certain management services
that were allocated based on sales in proportion to total Rockwell sales.
Rockwell continues to provide certain services to the Company, including payroll
and employee benefits administration, data processing and telecommunications
services, and research and development activities under the terms of a
transition agreement. Costs for these services and programs are billed to
Conexant based on actual usage and are included in Conexant's Unaudited
Consolidated Condensed Statements of Operations. Management believes that the
methods of billing these costs are reasonable and that the costs charged to
Conexant are approximately those which would have been incurred on a stand-alone
basis.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (FAS 133), "Accounting for Derivative
Instruments and Hedging Activities." FAS 133 is effective for Conexant's fiscal
year beginning October 1, 2000. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that the Company recognize all derivative instruments as
6
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CONEXANT SYSTEMS, INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
either assets or liabilities in the Unaudited Consolidated Condensed Balance
Sheets and measure those instruments at fair value. Management believes the
impact of adopting this standard will not be material to the financial position
or results of operations of the Company.
2. SPECIAL CHARGES -- ROCKWELL RETAINED ASSETS
Prior to the Distribution, the Company distributed its wafer fabrication
facilities in Colorado Springs, Colorado (and the related tax benefit) to
Rockwell. The transition agreement with Rockwell provided for the lease of the
Colorado Springs facilities by Conexant through April 30, 1999, pursuant to a
triple-net lease under which Conexant paid all costs of the facilities.
In the first fiscal quarter of 1999, Conexant recorded a special charge for
an additional asset impairment of $20 million for the Colorado Springs wafer
fabrication facilities as a result of Rockwell's decision to further write-down
the facilities, which were retained by Rockwell as part of the spin-off. This
non-cash charge was required to be reported in the Company's last fiscal quarter
as a subsidiary of Rockwell.
3. SPECIAL CHARGES -- OTHER
In the fourth fiscal quarter of 1998, Conexant restructured its business
and recorded special charges of $147 million. In the first fiscal quarter of
1999, Conexant recorded additional special charges of $18 million. The
additional charges include approximately $17 million relating to the Voluntary
Early Retirement Program (VERP) and $1 million to decommission equipment and
contract cancellations at the Colorado Springs wafer fabrication facilities. At
June 30, 1999, approximately $25.1 million of accruals remained for these
special charges relating primarily to the VERP, contract cancellations, facility
lease termination costs and decommission of equipment. The restructuring actions
are expected to be substantially completed by the end of fiscal year 1999.
4. INVENTORIES
Inventories are summarized as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1999 1998
-------- -------------
<S> <C> <C>
Finished goods.............................................. $ 39,904 $ 71,328
Work-in-process............................................. 125,586 107,002
Raw materials, parts, and supplies.......................... 24,778 22,596
-------- --------
Inventories, net............................................ $190,268 $200,926
======== ========
</TABLE>
5. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) for the three- and nine-month periods ended
June 30, 1999, was $23.0 million and $(26.5) million, respectively. Accumulated
other comprehensive income includes $1.3 million in translation loss at June 30,
1999. Translation gains and losses for periods prior to the Distribution were
reflected as part of Rockwell's net investment and were not considered material.
6. CONTINGENT LIABILITIES
Claims have been asserted against Conexant for utilizing the intellectual
property rights of others in certain of the Company's products. The resolution
of these matters may entail the negotiation of a license agreement, a
settlement, or the resolution of such claims through arbitration or litigation.
7
<PAGE> 8
CONEXANT SYSTEMS, INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
On October 14, 1997, Brent Townshend (Townshend) filed suit against
Rockwell and Conexant in the Superior Court of California for San Mateo County
seeking an injunction to halt the sale of products containing Conexant's
K56Flex(TM) chipsets and requesting unspecified damages, claiming that Conexant
had engaged in unfair competition, misappropriation of trade secrets, breach of
contract and breach of confidence by using technical information allegedly
disclosed in confidence by Mr. Townshend to accelerate its development of 56
Kbps modem technology. In January 1999, Townshend dismissed his State Court
action and re-filed the same claims and three new claims for patent infringement
in the U.S. District Court for the Northern District of California. In the
Federal action, Townshend alleges that each of his patents (the Townshend
Patents) covers certain aspects of the V.90 standard and are infringed by
Conexant's 56 Kbps products. In the Federal action, Townshend seeks injunctive
relief, compensatory damages, restitution and exemplary and punitive damages.
Townshend and 3Com Corporation had publicly announced that 3Com was the
exclusive licensee for the Townshend Patents and acted as Townshend's agent in
sublicensing the Townshend Patents to third parties. More recently, Townshend
and 3Com publicly announced that Townshend has reacquired exclusive control over
the licensing and enforcement of the patents as well as other ownership rights,
while 3Com retained a non-exclusive license to practice the Townshend
inventions. Conexant has filed its answer to Townshend and counterclaims against
Townshend and claims against 3Com. Conexant is vigorously defending its position
that it independently developed the 56 Kbps modem technology using entirely its
own skills and public domain information and will vigorously contest the
infringement claims and the validity of the asserted patents.
Various other lawsuits, claims and proceedings have been or may be
instituted or asserted against Rockwell or Conexant or their respective
subsidiaries, including those pertaining to product liability, intellectual
property, environmental, safety and health, and employment matters.
In connection with the Distribution, Conexant assumed responsibility for
all contingent liabilities and current and future litigation (including
environmental and intellectual property proceedings) against Rockwell or its
subsidiaries in respect of Semiconductor Systems.
The outcome of litigation cannot be predicted with certainty and some
lawsuits, claims or proceedings may be disposed of unfavorably to Conexant. Many
intellectual property disputes have a risk of injunctive relief and there can be
no assurance that a license will be granted. Injunctive relief could have a
material adverse effect on the financial condition or results of operations of
Conexant. Based on its evaluation of matters which are pending or asserted and
taking into account Conexant's reserves for such matters, management of Conexant
believes the disposition of such matters will not have a material adverse effect
on the financial condition or results of operations of Conexant.
7. FINANCING AGREEMENTS
On December 21, 1998, the Company and three of its subsidiaries entered
into a three-year $350 million senior secured revolving loan facility (the
Credit Facility) with a group of banks. Loans under the Credit Facility are to
be used for working capital needs and other general corporate purposes. The
Credit Facility is guaranteed by substantially all of the Company's domestic
subsidiaries. It is also secured by (i) a first-priority security interest in
substantially all domestic assets of the Company and its domestic subsidiaries,
and (ii) a pledge of the stock of the Company's domestic and foreign
subsidiaries, subject to certain exceptions. At June 30, 1999, there were no
amounts outstanding under the Credit Facility.
Loans obtained under the Credit Facility bear interest at a rate per annum
equal, at the election of the Company, to either (i) a base rate (ABR), which is
the higher of Credit Suisse First Boston's prime rate and 0.50 percent over the
federal funds rate or (ii) the London interbank offered rate for offshore dollar
deposits (LIBOR); plus, in either case, a variable margin. For the first six
months following the Distribution, the margin was fixed at 75 basis points for
ABR-based loans and 175 basis points for LIBOR-based loans.
8
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CONEXANT SYSTEMS, INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Thereafter, the margin is based on the Company's total debt to capitalization
ratio. The Company pays a facility fee on the unused amount of the Credit
Facility at a per annum rate that will vary depending on the same criteria used
to determine the interest rate margin. The Company also pays other customary
fees.
The Credit Facility contains, among other terms, representations and
warranties, conditions precedent, covenants, mandatory and voluntary prepayment
provisions and events of default customary for facilities of this type. The
Company was in compliance with all covenants under the Credit Facility for the
three-month period ended June 30, 1999.
In May 1999, Conexant issued $350 million of its 4 1/4% convertible
subordinated notes due May 1, 2006 (the Notes) in a private placement. Holders
of the Notes may convert the Notes into shares of the Company's common stock at
any time prior to redemption or maturity at a conversion price of $46.196 per
share, subject to adjustment. The Company has the option to redeem the Notes at
any time on or after May 6, 2002, at a declining premium to par. The Notes are
subordinated to all existing and future senior indebtedness of the Company.
The Company used $100 million of the net proceeds from the issuance of the
Notes to repay all amounts outstanding under the Credit Facility. The remaining
net proceeds will be used to acquire additional manufacturing equipment, to make
strategic investments to secure long-term access to advanced silicon wafer
fabrication capacity from third parties and for general corporate purposes.
In connection with the offering of the Notes, the Company entered into a
registration rights agreement pursuant to which the Company filed a shelf
registration statement registering the resale by holders of the Notes and the
shares of the Company's common stock into which the Notes are convertible. The
Company is required to keep the shelf registration statement effective until the
earlier of (i) the resale of all the securities registered under the shelf
registration and (ii) the expiration of the holding period applicable for the
securities held by persons who are not affiliates of the Company under Rule
144(k) of the Securities Act of 1933, as amended, subject to certain permitted
exceptions.
8. PRO-FORMA LOSS PER SHARE
The number of pro-forma weighted average outstanding shares and common
share equivalents used in the pro-forma loss per share calculation set forth
below was based upon the weighted average number of Rockwell shares and share
equivalents outstanding for the applicable periods, adjusted for the
distribution ratio in the Distribution of one share of the Company's common
stock for every two shares of Rockwell common stock. For the nine months ended
June 30, 1999, the weighted average common shares was determined based upon the
weighted average of (i) the Rockwell method for the first fiscal quarter, as
previously described, and (ii) the actual Conexant share activity for the second
and third fiscal quarters, as described further in note 9. These pro-forma
results are not indicative of future results.
The pro-forma effect of common share equivalents outstanding for the
three-months ended June 30, 1998, and for the nine-months ended June 30, 1999
and June 30, 1998, were not included in the computation of diluted loss per
share for those periods as the Company incurred a loss and, therefore, the
impact was antidilutive.
9
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CONEXANT SYSTEMS, INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Pro-forma basic and diluted loss per share (in thousands, except per share
data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------ --------------------
1998 1999 1998
------------------ -------- --------
<S> <C> <C> <C>
Net loss.................................... $(33,418) $(25,116) $(28,463)
Pro-forma basic and diluted loss per
share..................................... $ (0.34) $ (0.26) $ (0.28)
Pro-forma basic and diluted weighted average
common shares............................. 97,700 95,233 100,100
</TABLE>
9. STOCK OPTIONS AND EARNINGS PER SHARE
The number of weighted average shares and common share equivalents
outstanding used in the earnings per share calculation for the third quarter of
fiscal 1999 was based upon the weighted average number of Conexant common shares
outstanding and Conexant common share equivalents for the third quarter of
fiscal 1999. The common share equivalent calculation assumes the dilutive effect
of stock options to purchase approximately 6.4 million shares of common stock
and approximately 1.0 million shares of restricted stock which are subject to
vesting requirements.
The total stock options outstanding were approximately 16.8 million as of
June 30, 1999, which include approximately 8.4 million options issued in
connection with the Distribution, as well as approximately 8.4 million options
for Conexant common stock issued under the Company's 1999 Long-Term Incentives
Plan (the 1999 LTIP). In connection with the Distribution, outstanding options
to purchase Rockwell common stock held by Conexant employees, as well as certain
options held by others, were converted into options to purchase approximately
10.1 million shares of Conexant common stock based on formulas designed to
preserve the intrinsic value of the options. The options issued in connection
with the Distribution have the same terms and vesting schedule as the original
Rockwell options, and the options issued under the 1999 LTIP generally vest over
four years and expire after ten years.
For the three-month period ended June 30, 1999, approximately 0.2 million
stock options were excluded from the calculation of diluted earnings per share,
because their exercise price was greater than the average market price of the
common shares during the quarterly period, and the effect of such inclusion
would be antidilutive.
Restricted stock grants under the 1999 LTIP consist of time vesting and
performance dependent grants. Approximately 1.0 million restricted shares are
outstanding as of June 30, 1999 under the 1999 LTIP. The time vesting restricted
stock generally is restricted for a two-year period and fully vests on the
second anniversary of the grant date. For the performance dependent restricted
stock, 50 percent vests upon the completion of twenty consecutive trading days
during which the fair market value of the stock on each such trading day is at
least 50 percent higher than the value of the stock on the grant date, and the
remaining 50 percent vests upon the completion of twenty consecutive trading
days during which the fair market value of the stock on each such trading day is
at least 100 percent higher than the value of the stock on the grant date,
provided that no performance dependent restricted stock vests prior to one year
after the date of grant. In any event, the performance dependent restricted
stock will fully vest on the eighth anniversary of the grant date. Management
has recommended and the Board of Directors (the Board) has approved potential
acceleration of certain of the time vesting and performance dependent restricted
stock grants under the 1999 LTIP, provided certain objectives are met for the
third and fourth quarters of fiscal 1999. The Board may deem such awards to be
earned as of October 1, 1999. The total amount of compensation expense recorded
for restricted stock grants under the 1999 LTIP was $8.1 million in the third
fiscal quarter of 1999.
10
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ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This information should be read in conjunction with the unaudited
consolidated condensed financial statements and the notes thereto included in
Part I, Item 1 of this Quarterly Report, and the audited combined financial
statements and notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in the Company's
Registration Statement on Form 10.
The results of operations for the periods prior to January 1, 1999 reflect
the Company's operations as a subsidiary of Rockwell. The results of operations
subsequent to December 31, 1998 reflect the Company's operations as a
stand-alone entity subsequent to the spin-off from Rockwell. The results of
operations while the Company was a subsidiary of Rockwell may not be indicative
of the results of operations of the Company if it had been a stand-alone entity
for the time periods shown herein.
RESULTS OF OPERATIONS
The following table summarizes the net revenues of the Company's five
product platforms for the periods presented (dollars are in thousands and
percentages are expressed as a percentage of total net revenues):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, NINE MONTHS ENDED JUNE 30,
-------------------------------- --------------------------------
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Personal Computing........... $154,416 41% $142,751 51% $456,249 46% $524,672 56%
Network Access............... 82,601 22% 38,941 14% 171,350 17% 101,451 11%
Wireless Communications...... 70,047 18% 41,656 15% 172,360 18% 118,155 13%
Digital Infotainment......... 47,868 12% 32,508 12% 129,956 13% 109,993 12%
Personal Imaging............. 25,398 7% 21,951 8% 62,025 6% 81,229 8%
-------- --- -------- --- -------- --- -------- ---
Totals............. $380,330 100% $277,807 100% $991,940 100% $935,500 100%
======== === ======== === ======== === ======== ===
</TABLE>
NET REVENUES: Net revenues were $380.3 million and $991.9 million for the
three- and nine-month periods ended June 30, 1999, respectively, compared to
$277.8 million and $935.5 million for the three- and nine-month periods ended
June 30, 1998, respectively. The increase for both the three- and nine-month
periods ended June 30, 1999, over the similar periods in fiscal 1998 was
primarily due to net revenue growth of the expansion platform products. The
expansion platform products are comprised of all products excluding the Personal
Computing products. Net revenues for Network Access increased 112% and 69% for
the three- and nine-month periods ended June 30, 1999, respectively, over the
similar periods in fiscal 1998 mainly fueled by the continuing expansion of the
worldwide Internet infrastructure. The Company's Broadband Access portfolio,
including symmetrical and asymmetrical digital subscriber line products, had
significant growth as a result. Also, shipments of the AnyPort Multi-Service
Access product family had significant growth as networking original equipment
manufacturers (OEMs) continued their deployment of IP gateways. Finally, the
Company's WAN transport portfolio had significant growth as the result of the
strong demand for T1/E1 framers and transceivers, HDLC controllers, and ATM SAR
solutions. Net revenues for Wireless Communications increased 68% and 46% for
the three- and nine-month periods ended June 30, 1999, respectively, over the
similar periods in fiscal 1998, mainly due to the strong demand for digital
cellular handsets worldwide. This resulted in a significant increase in
shipments of CDMA power amplifiers, GSM power amplifiers for cellular phones and
strong demand for CDMA RF products. Net revenues for Digital Infotainment
increased 47% and 18% for the three- and nine-month periods ended June 30, 1999,
respectively, over the similar periods in fiscal 1998 mainly due to the solid
demand for satellite set-top box tuners and demodulators, video encoders for DVD
and set-top boxes and video decoders for TV in the PC applications. Net revenues
for Personal Computing increased by 8% but decreased by 13% for the three- and
nine-month periods ended June 30, 1999, respectively, over the similar periods
in fiscal 1998. The increase for the third fiscal quarter of 1999 over the
similar period in fiscal 1998 was mainly due to a more favorable portfolio mix.
The decrease for the nine-month period ended June 30, 1999 was mainly due to a
shift towards lower priced products over the similar period in fiscal 1998. Net
revenues for Personal Imaging increased 16% but decreased 24% for the three- and
nine-month periods ended June 30, 1999, respectively, over the similar periods
in fiscal 1998. The increase for the third fiscal quarter of 1999 over the
similar period in fiscal 1998 was mainly due to the strong
11
<PAGE> 12
demand for consumer fax in the North American market, continued migration to
higher speed solutions for SOHO and commercial applications, and increased
penetration of the expanding multifunctional peripheral market. The decrease for
the nine-month period ended June 30, 1999 was mainly due to the weakness
experienced in the Asian market over the similar period in fiscal 1998.
GROSS MARGIN: Gross margin was $164.2 million or 43% of net revenues for
the three-month period ended June 30, 1999, compared to $94.3 million or 34% of
net revenues for the similar period in 1998. The increase was mainly due to
better product mix, better PC modem pricing environment, and higher factory
utilization at our wafer fabrication facilities. Gross margin was $372.4 million
or 38% for the nine-month period ended June 30, 1999, compared to $396.0 million
or 42% for the nine-month period ended June 30, 1998. The decrease in gross
margin was primarily due to pricing pressures in Personal Computing and
unusually high inventory costs associated with lower manufacturing capacity
utilization in the first fiscal quarter of 1999.
RESEARCH AND DEVELOPMENT: Research and development (R&D) expenses were
$77.9 million and $217.8 million for the three- and nine-month periods ended
June 30, 1999, respectively, compared to $90.8 million and $255.0 million for
the similar periods in 1998, respectively. The decrease for both of these
periods was mainly due to cost reduction actions initiated in the fourth quarter
of fiscal 1998 to reduce the Company's overall cost structure. These actions
included headcount reductions, design center closures, and project
cancellations.
SELLING, GENERAL, AND ADMINISTRATIVE: Selling, general, and administrative
(SG&A) expenses were $51.8 million and $164.3 million for the three- and
nine-month periods ended June 30, 1999, respectively, compared to $62.9 million
and $191.3 million for the similar periods in 1998, respectively. The decrease
for both of these periods was mainly due to reductions in headcount,
advertising, and consulting expenses.
SPECIAL CHARGES -- ROCKWELL RETAINED ASSETS: In the first fiscal quarter of
1999, Conexant recorded a special charge for an additional asset impairment of
$20 million for the Colorado Springs wafer fabrication facilities as a result of
Rockwell's decision to further write-down the facilities, which were retained by
Rockwell as part of the spin-off. This non-cash charge was required to be
reported in the Company's last fiscal quarter as a subsidiary of Rockwell.
SPECIAL CHARGES -- OTHER: In the first fiscal quarter of 1999, Conexant
recorded additional special charges of approximately $18 million. The additional
charges include approximately $17 million relating to the VERP and $1 million to
decommission equipment and contract cancellations at the Colorado Springs wafer
fabrication facilities.
OTHER INCOME, NET: Other income, net was $2.4 million for the three-month
period ended June 30, 1999, compared to $0.8 million for the similar period in
1998 mainly due to a gain on the sale of a minority interest investment and
higher interest income due to the net cash received from the $350 million
convertible notes offering, partially offset by higher interest expense related
to the $350 million convertible notes. Other income, net was $2.3 million for
the nine-month period ended June 30, 1999, compared to $6.4 million for the
similar period in 1998, mainly due to the receipt of a contract cancellation fee
of $3.3 million in the nine-month period ended June 30, 1998.
PROVISION (BENEFIT) FOR INCOME TAXES: The income tax provision for the
three-month period ended June 30, 1999, was $10.4 million, or 30% of income
before income taxes. In the similar period in 1998, an income tax benefit of
$28.0 million was recorded due to a loss from operations. The income tax
provision for the nine-month period ended June 30, 1999, was a benefit of $26.5
million or 51% of loss before income taxes. In the similar period in 1998, a
benefit of $23.8 million, or 46% of loss before income taxes was recorded. The
tax rate for the remainder of the fiscal year is expected to remain at 30%,
primarily due to the positive impact of various tax credits available to the
Company. The effective tax rate includes state tax credits and federal research
and experimentation tax credits.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $177.9 million for the nine-month
period ended June 30, 1999, compared to cash used by operating activities of
$13.0 million for the similar period in 1998. Net operating
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<PAGE> 13
cash flows for the nine-month period ended June 30, 1999, were favorably
impacted due to a net decrease in inventories of $10.7 million, despite an
increase in net revenues of $56.4 million over the similar period in 1998,
reflecting the results of the Company's efforts to better align inventories to
net revenues. This was partially offset by an increase in net receivables as a
result of the increase in net revenues. The improvement in net operating cash
flow was also impacted by the adjustments to net income as a result of non-cash
special charges of $37.9 million and non-cash charges for depreciation and
amortization of $157.1 million.
Investing activities used $75.4 million of cash during the nine-month
period ended June 30, 1999, compared to $185.4 million for the similar period in
1998. Lower current period investments relate to the timing of capital
expenditures for additional capacity and new process technologies.
The Company's financing activities provided cash of $295.2 million during
the nine-month period ended June 30, 1999, compared to $198.4 million during the
similar period in 1998. Financing sources of cash for the nine-month period
ended June 30, 1999 were the issuance of $350 million of convertible
subordinated notes. This was partially offset by repayment of $100 million that
was outstanding under the Credit Facility, net transfers to Rockwell, repayment
of a loan at the Company's Japanese subsidiary, and satisfaction of the
Company's obligation for the Celeritas matter. In the similar period in 1998,
the financing sources of cash were predominantly transfers of cash from
Rockwell.
In December 1998, the Company and three of its subsidiaries entered into a
three-year $350 million senior secured revolving loan facility with a group of
banks. As of June 30, 1999, no amount was outstanding on the Credit Facility.
The Credit Facility includes facilities for revolving loans and swingline loans
in multiple currencies and letters of credit. The Credit Facility is guaranteed
by substantially all of the Company's domestic subsidiaries. It is also secured
by (i) a first-priority security interest in substantially all domestic assets
of the Company and its domestic subsidiaries and (ii) a pledge of the stock of
the Company's domestic and foreign subsidiaries, subject to certain exceptions.
For further details on the Credit Facility, see note 7.
The Credit Facility contains, among other terms, representations and
warranties, conditions precedent, covenants, mandatory and voluntary prepayment
provisions and events of default customary for facilities of this type.
Covenants include certain restrictions on capital expenditures, consolidations
and mergers, sales of assets, incurrence of indebtedness and creation of liens
and encumbrances. The Credit Facility includes various financial covenants,
including a minimum net worth requirement and required financial ratios in
respect of (i) earnings before interest, taxes, depreciation and amortization
(EBITDA) to interest expense, (ii) debt to EBITDA and (iii) minimum cash
balance. The Company was in compliance with all covenants under the Credit
Facility for the three-month period ended June 30, 1999. However, if the Company
experiences a decrease in revenues or an increase in expenses, the Company
could, under the terms of the Credit Facility, be deemed in default and may need
to seek waivers for any such default, or amendments to maintain compliance with
the covenants of the Credit Facility. There can be no assurance the Company will
be successful in obtaining such waivers or amendments, if required.
In May 1999, the Company issued $350 million of its 4 1/4% convertible
subordinated notes due May 1, 2006 in a private placement. Holders of the Notes
may convert the Notes into shares of the Company's common stock at any time
prior to redemption or maturity at a conversion price of $46.196 per share,
subject to adjustment. The Company has the option to redeem the Notes at any
time on or after May 6, 2002, at a declining premium to par. The Notes are
subordinated to all existing and future senior indebtedness of the Company. The
Company used $100 million of the net proceeds from the Notes to repay all
amounts outstanding under the Credit Facility. The remaining net proceeds will
be used to acquire additional manufacturing equipment, to make strategic
investments to secure long-term access to advanced silicon wafer fabrication
capacity from third parties and for general corporate purposes.
The Company believes that its existing sources of liquidity and cash
expected to be generated from future operations are sufficient to fund
operations, capital expenditures, and research and development efforts for the
foreseeable future.
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<PAGE> 14
YEAR 2000 READINESS DISCLOSURE
Conexant is addressing the impact of the Year 2000 on each of five major
areas: the Company's products, business systems (computer systems that handle
business processes), infrastructure (servers, desktop computers, networks,
telecom systems and software), manufacturing systems (computer systems used in
the manufacturing process) and suppliers (critical materials suppliers to the
business). Each of the five areas is undergoing the following process to ensure
readiness for the Year 2000. First, in the inventory phase, all Conexant assets
are inventoried to identify those that have any type of software or hardware
with Year 2000-related issues. Second, in the assessment phase, all inventoried
items are assessed to confirm that a Year 2000-related issue is present and the
extent of remediation required. Third, in the strategy phase, a remediation
strategy is created to ensure that all critical systems are upgraded to be Year
2000 ready by September 30, 1999. Fourth, in the conversion/upgrade phase,
upgrades are performed on all items identified in the assessment and strategy
phases. Finally, in the certification phase, all upgraded items receive final
certification testing to verify Year 2000 readiness. Conexant has completed the
inventory phase for all five areas. In addition, it has completed the assessment
and strategy phases and is currently in the conversion and certification phases
for the business systems, infrastructure and manufacturing systems areas. All
five phases for the Company's products have been completed. The Company has
completed the assessment and strategy phase and is now in the remediation and
certification phases for the suppliers' area. The Company has begun auditing
those suppliers who did not perform up to standards during the assessment phase.
Conexant is integrating its testing efforts with SEMATECH, a consortium of
semiconductor manufacturing companies, to ensure best practice testing. The
manufacturing systems, hardware systems and software applications areas are
being tested under the SEMATECH guidelines.
The Company's greatest area of uncertainty centers primarily in the
supplier area, due to the number of equipment and materials suppliers involved
and their various stages of readiness for Year 2000. In particular, the Company
is dependent on suppliers to upgrade their systems to ensure an uninterrupted
supply of materials. Approximately 98 percent of our manufacturing tools have
achieved certification. A Year 2000-related failure by a significant materials
supplier could result in the temporary slowdown of production by the Company,
the duration of which the Company reasonably estimates would be not more than a
few days. As a result, the Company's contingency plan centers heavily on the
supplier area. For the top five to ten percent of its critical materials and
manufacturing suppliers, the Company is performing on-site audits and intends to
monitor specific Year 2000-based milestones to ensure readiness. The Company has
completed its assessment of all Tier 1 critical suppliers and has begun its
audit process. In the event a supplier does not meet the Company's milestones
for Year 2000 readiness, the Company has identified all critical materials
suppliers and has completed a critical supplier contingency plan that includes
alternate sourcing and stockpiling of materials as of June 30, 1999.
Part of the Company's initial assessment phase included a detailed Year
2000 questionnaire which was sent to all critical materials and manufacturing
suppliers. This questionnaire included questions on products, services, internal
operating systems, and the supplier's own supply chain. To date, the Company has
received responses from all of those questioned. The Company is following up on
the questionnaires, where necessary, with on-site audits to ensure Year 2000
readiness. The Company has also contacted its major customers with respect to
their Year 2000 readiness efforts and does not believe that customers will have
any Year 2000 readiness problems that would have a material adverse effect on
the Company's business.
In connection with the Company's receipt of transition services pursuant to
the transition agreement with Rockwell, the Company is relying on certain of
Rockwell's computer systems, including its payroll and benefits administration
systems, for a period of up to two years after the Distribution. The Company
believes that the Rockwell systems on which it relies for transition services
will be Year 2000 ready, such that its reliance thereon will not have a material
adverse effect on the Company's financial position or results of operations.
Overall, utilizing both internal and external resources to address the Year
2000 issue, Conexant has achieved a certification level of 99 percent as of June
30, 1999 and plans to be 100 percent complete by September 30, 1999. The current
estimate of total project cost is approximately $6 million, which includes the
cost of purchasing certain hardware and software. Approximately $5 million of
this amount is for capital
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<PAGE> 15
investments, with the remainder being expenses (primarily salary costs). As of
June 30, 1999, approximately $4.6 million had been spent, with the majority of
the remaining amount to be spent by the end of this fiscal year. Conexant
continues to evaluate the estimated costs associated with these efforts based on
actual experience. Management believes, based on available information, that the
Company will be able to remediate Year 2000-related issues in the products,
business systems, and infrastructure areas without any material adverse effect
on its business operations, products, or financial condition. However, the
Company could be adversely impacted by the Year 2000 issues faced by major
suppliers, distributors, customers, vendors, and financial services
organizations with which the Company interacts. Any disruption in the Company's
operations as a result of the failure of any of these third parties to be Year
2000 ready could have a material adverse effect on Conexant's business
operations, products, and financial condition.
The Company has begun initial preparation of a Year 2000 contingency plan
for the entire Company, and anticipates completion of this plan by September
1999.
CAUTIONARY STATEMENT
This Quarterly Report contains statements relating to future results of the
Company (including certain projections and business trends) that are
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Actual results may differ materially from those projected as
a result of certain risks and uncertainties. These risks and uncertainties
include, but are not limited to: global and market conditions, including, but
not limited to, the cyclical nature of the semiconductor industry and the
markets addressed by the Company's and its customers' products; demand for, and
market acceptance of, new and existing products; successful development of new
products; the timing of new product introductions; the availability and extent
of utilization of manufacturing capacity and raw materials; pricing pressures
and other competitive factors; changes in product mix; fluctuations in
manufacturing yields; product obsolescence; the ability to develop and implement
new technologies and to obtain protection of the related intellectual property;
the successful implementation of the Company's diversification strategy; labor
relations of the Company, its customers and suppliers; timely completion of Year
2000 modifications by the Company and its key suppliers and customers; and the
uncertainties of litigation, as well as other risks and uncertainties, including
but not limited to those discussed in the Company's Registration Statement on
Form 10 or detailed from time to time in the Company's Securities and Exchange
Commission filings. Reference is made to the Risk Factors section on pages 12 to
21 of the Information Statement included in the Company's Registration Statement
on Form 10. These forward-looking statements are made only as of the date
hereof, and the Company undertakes no obligation to update or revise the
forward-looking statements, whether as a result of new information, future
events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's financial instruments include cash, cash equivalents and
long-term debt. At June 30, 1999, the carrying values of the Company's financial
instruments approximated their fair values based on current market prices and
rates.
It is the policy of the Company not to enter into derivative financial
instruments for speculative purposes. The Company enters into foreign currency
forward exchange contracts to protect itself from adverse currency rate
fluctuations on foreign currency commitments entered into in the ordinary course
of business. These commitments are generally for terms of less than one year.
The foreign currency forward exchange contracts are executed with creditworthy
banks and are denominated in currencies of major industrial countries. The
notional amount of all the Company's outstanding foreign currency forward
exchange contracts aggregated $19 million at June 30, 1999, and $17 million at
September 30, 1998. The gains and losses relating to these foreign currency
forward exchange contracts are deferred and included in the measurement of the
foreign currency transaction subject to the hedge. The Company believes that any
gain or loss incurred on foreign currency forward exchange contracts is offset
by the effects of currency movements on the respective underlying hedged
transactions.
Based on the Company's overall currency rate exposure at June 30, 1999, a
10 percent change in currency rates would not have had a material effect on the
financial position, results of operations or cash flows of the Company.
15
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Conexant was joined on April 7, 1998 as a defendant in a suit filed by
Harris Corporation against PairGain Technologies, Inc. in the Superior Court of
California for Orange County. Harris alleged that a "teaming agreement" between
it and PairGain to develop a complete ADSL solution constituted a joint venture
and that Conexant's subsequent exclusive agreement with PairGain to develop
digital modem products using PairGain's ADSL technology constituted an
intentional interference with contractual relations, intentional interference
with prospective economic advantage, negligent interference with contractual
relations and an unfair trade practice in violation of the California Business &
Professions Code. As of November 3, 1998, Conexant settled its portion of the
lawsuit. This suit was dismissed with prejudice on June 7, 1999.
On October 14, 1997, Brent Townshend (Townshend) filed suit against
Rockwell and Conexant in the Superior Court of California for San Mateo County
seeking an injunction to halt the sale of products containing Conexant's
K56Flex(TM) chipsets and requesting unspecified damages, claiming that Conexant
had engaged in unfair competition, misappropriation of trade secrets, breach of
contract and breach of confidence by using technical information allegedly
disclosed in confidence by Mr. Townshend to accelerate its development of 56
Kbps modem technology. In January 1999, Townshend dismissed his State Court
action and re-filed the same claims and three new claims for patent infringement
in the U.S. District Court for the Northern District of California. In the
Federal action, Townshend alleges that each of his patents (the Townshend
Patents) covers certain aspects of the V.90 standard and are infringed by
Conexant's 56 Kbps products. In the Federal action, Townshend seeks injunctive
relief, compensatory damages, restitution and exemplary and punitive damages.
Townshend and 3Com Corporation had publicly announced that 3Com was the
exclusive licensee for the Townshend Patents and acted as Townshend's agent in
sublicensing the Townshend Patents to third parties. More recently, Townshend
and 3Com publicly announced that Townshend has reacquired exclusive control over
the licensing and enforcement of the patents as well as other ownership rights,
while 3Com retained a non-exclusive license to practice the Townshend
inventions. Conexant has filed its answer to Townshend and counterclaims against
Townshend and claims against 3Com. Conexant is vigorously defending its position
that it independently developed the 56 Kbps modem technology using entirely its
own skills and public domain information and will vigorously contest the
infringement claims and the validity of the asserted patents.
On July 29, 1991, Shumpei Yamazaki filed suit against a Japanese subsidiary
of Rockwell in the Tokyo District Court, Twenty-ninth Civil Division for patent
infringement relating to Conexant's facsimile modem chipsets seeking 685 million
yen (approximately $5.98 million based on the exchange rate on July 30, 1999)
and court costs. In October 1998, the District Court rendered its decision
dismissing the suit, from which decision Mr. Yamazaki appealed. On April 12,
1999, Mr. Yamazaki presented his position at the first portion of the appellate
hearing. Conexant presented its position to the appellate court on June 16,
1999. Conexant believes it has meritorious defenses to these claims and is
vigorously defending this action.
On May 30, 1997, Klaus Holtz filed suit against Rockwell in the U.S.
District Court for the Northern District of California for patent infringement
relating to Conexant's modem products utilizing the V.42bis standard for data
compression. On September 30, 1998, the Court barred any alleged damages arising
before May 30, 1997. On December 17, 1998, the Court issued an order construing
the claims of the patent. Conexant filed a motion for Summary Judgment of
Non-Infringement on February 22, 1999. A hearing was held thereon on June 14,
1999. The parties are waiting for a written decision. Conexant believes it has
meritorious defenses to these claims and is vigorously defending this action.
Conexant conducts its business in market sectors where the Lemelson
Foundation broadly asserts certain intellectual property rights against all
participants. The Lemelson Foundation has made explicit demands that virtually
all semiconductor companies must be licensed under those intellectual property
rights and must pay the Foundation a royalty calculated as a percentage of
product sales. The Lemelson Foundation filed a patent infringement suit in the
U.S. District Court in Arizona against approximately 88 defendants from the
semiconductor industry, including Rockwell and Conexant. Rockwell and Conexant
were dismissed from the
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<PAGE> 17
lawsuit on June 29, 1999, and have negotiated a broad, fully paid license to the
Lemelson patent portfolio with the right to pass through the license to their
respective customers on product purchased from them.
On May 6, 1998, Western Atlas, Inc. filed suit against Rockwell and
Conexant in the U.S. District Court for the Southern District of Texas alleging
infringement of several patents acquired by Western Atlas covering certain
aspects of GPS technology. The complaint explicitly identifies Conexant's
Jupiter(TM) GPS receiver as an allegedly infringing product. On July 2, 1999,
Rockwell and Conexant reached agreement on a settlement with Western Atlas for a
fully paid license to the technology. Conexant will also obtain the right to
pass through the license to its customers on product purchased from Conexant.
Various other lawsuits, claims and proceedings have been or may be
instituted or asserted against Rockwell or Conexant or their respective
subsidiaries, including those pertaining to product liability, intellectual
property, environmental, safety and health, and employment matters.
In connection with the Distribution, Conexant assumed responsibility for
all current and future litigation (including environmental and intellectual
property proceedings) against Rockwell or its subsidiaries in respect of
Semiconductor Systems.
The outcome of litigation cannot be predicted with certainty and some
lawsuits, claims or proceedings may be disposed of unfavorably to Conexant. Many
intellectual property disputes have a risk of injunctive relief and there can be
no assurance that a license will be granted. Injunctive relief could have a
material adverse effect on the financial condition or results of operations of
Conexant. Based on its evaluation of matters which are pending or asserted and
taking into account Conexant's reserves for such matters, management of Conexant
believes the disposition of such matters will not have a material adverse effect
on the financial condition or results of operations of Conexant.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<S> <C>
10.1 Indenture, dated as of May 1, 1999, between the Company and
The First National Bank of Chicago, as trustee, including
the form of 4 1/4% Convertible Subordinated Note Due May 1,
2006 attached as Exhibit A thereto, filed as Exhibit 4.1 to
the Company's Registration Statement on Form S-3
(Registration No. 333-82399), is incorporated herein by
reference.
10.2 Registration Rights Agreement, dated as of May 12, 1999, by
and among the Company, Morgan Stanley & Co. Incorporated,
Credit Suisse First Boston Corporation and Lehman Brothers,
Inc., filed as Exhibit 4.2 to the Company's Registration
Statement on Form S-3 (Registration No. 333-82399), is
incorporated herein by reference.
10.3 First Amendment to Loan Documents dated as of June 11, 1999
among the Company, certain of its subsidiaries, the Lenders
and the Issuing Banks thereunder, and Credit Suisse First
Boston, as administrative agent.
11 Computation of Per Share Data.
27 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated May 3, 1999, in
respect of the Company's press release dated May 3, 1999 reporting the proposed
private offering of its convertible subordinated notes to certain qualified
institutional investors (Items 5 and 7(c)).
The Company filed a Current Report on Form 8-K dated May 12, 1999, in
respect of the Company's press release dated May 12, 1999 reporting the
completion of the private offering of $350 million of its convertible
subordinated notes to certain qualified institutional investors (Items 5 and
7(c)).
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<PAGE> 18
The Company filed a Current Report on Form 8-K dated June 11, 1999, in
respect of the Company's press release dated June 8, 1999 reporting that the
Company expected to significantly exceed analysts' estimates of earnings for the
third fiscal quarter of 1999 (Items 5 and 7(c)).
The Company filed a Current Report on Form 8-K dated July 22, 1999, in
respect of the Company's press release reporting earnings for the three months
ended June 30, 1999 (Items 5 and 7(c)).
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<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CONEXANT SYSTEMS, INC.
(Registrant)
Date: August 9, 1999 By /s/ BALAKRISHNAN S. IYER
------------------------------------
Balakrishnan S. Iyer
Senior Vice President and
Chief Financial Officer
(principal financial officer)
Date: August 9, 1999 By /s/ STEVEN M. THOMSON
------------------------------------
Steven M. Thomson
Vice President and Controller
(principal accounting officer)
Date: August 9, 1999 By /s/ DENNIS E. O'REILLY
------------------------------------
Dennis E. O'Reilly
Senior Vice President,
General Counsel and Secretary
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
- -------
<S> <C>
10.1 Indenture, dated as of May 1, 1999, between the Company and
The First National Bank of Chicago, as trustee, including
the form of 4 1/4% Convertible Subordinated Note Due May 1,
2006 attached as Exhibit A thereto, filed as Exhibit 4.1 to
the Company's Registration Statement on Form S-3
(Registration No. 333-82399), is incorporated herein by
reference.
10.2 Registration Rights Agreement, dated as of May 12, 1999, by
and among the Company, Morgan Stanley & Co. Incorporated,
Credit Suisse First Boston Corporation and Lehman Brothers,
Inc., filed as Exhibit 4.2 to the Company's Registration
Statement on Form S-3 (Registration No. 333-82399), is
incorporated herein by reference.
10.3 First Amendment to Loan Documents dated as of June 11, 1999
among the Company, certain of its subsidiaries, the Lenders
and the Issuing Banks thereunder, and Credit Suisse First
Boston, as administrative agent.
11 Computation of Per Share Data.
27 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.3
FIRST AMENDMENT TO LOAN DOCUMENTS
THIS FIRST AMENDMENT ("Amendment"), dated as of June 11, 1999, is
entered into by and among CONEXANT SYSTEMS, INC. (the "Company"), each of the
Subsidiaries party to the Credit Agreement as of the date hereof (the "Borrower
Subsidiaries" and together with the Company, each a "Borrower" and collectively,
the "Borrowers"), the Lenders, the Issuing Banks and CREDIT SUISSE FIRST BOSTON,
a bank organized under the laws of Switzerland, acting through its New York
branch, as administrative agent (in such capacity, the "Administrative Agent")
and as collateral agent for the Lenders (in such capacity, the "Collateral
Agent", and together with the Administrative Agent, the "Agents").
RECITALS.
A. The Borrowers, Lenders, and Administrative Agent are parties to a
certain Credit Agreement dated as of December 21, 1998 (the "Credit Agreement")
pursuant to which the Lenders have agreed to extend credit to the Borrower.
B. The Company has requested that the Lenders amend certain provisions
of the Credit Agreement and the Security Agreement and Mortgages referred to
therein.
C. The parties are willing to amend and modify the Credit Agreement, the
Security Agreement and the Mortgages subject to the terms and conditions of this
Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized terms
used herein shall have the meanings, if any, assigned to them in the Credit
Agreement, as amended.
2. Amendment of the Credit Agreement.
(a) The Credit Agreement is hereby amended by deleting Section
2.13(b) in its entirety and inserting the following in lieu thereof:
(b) Not later than the six month anniversary of the date
on which the Company or its Subsidiaries receives Net Cash
Proceeds in respect of any Asset Sale in any fiscal year in
which such Net Cash Proceeds, when added to the Net Cash
Proceeds of all prior Asset Sales which have occurred during
such fiscal year, exceeds 10% of the Company's Net Worth as of
the Company's immediately preceding fiscal year end (to the
extent the requirements of Section 6.5(b)(v) have been waived or
modified to permit such Asset Sale), unless the Company shall
have (1) given the Administrative Agent written notice (within
the 6 month period ending on such anniversary date) of the
Company's intention to reinvest such Net Cash Proceeds (or a
portion thereof) to purchase assets (not
<PAGE> 2
consisting of Permitted Investments) for the Company or its
Subsidiaries and (2) the Company reinvests such Net Cash
Proceeds to purchase assets (not consisting of Permitted
Investments) for the Company or its Subsidiaries within such 6
month period, the Total Revolving Commitment shall be reduced on
a dollar for dollar basis by the amount of such Net Cash
Proceeds or portion thereof not used to purchase such assets.
(b) The Credit Agreement is further amended by deleting Section
2.13(d) in its entirety and inserting the following in lieu thereof:
(d) In the event that there shall occur any Casualty or
Condemnation, unless the Company shall have (1) given the
Administrative Agent written notice (within 6 months after the
occurrence of such Casualty or Condemnation) of the Company's
intention to reinvest such Net Cash Proceeds (or a portion
thereof) to rebuild, replace, repair or restore any property
affected by such Casualty or Condemnation, or otherwise to
purchase assets (not consisting of Permitted Investments) for the
Company or any of its Subsidiaries using Net Cash Proceeds
received by or on behalf of the Company or its Subsidiaries as a
result of such Casualty or Condemnation and (2) pursued such
rebuilding, replacement, repair, restoration or purchase in a
commercially reasonable manner within 6 months of receiving such
Net Cash Proceeds, the Total Revolving Commitment shall be
reduced on a dollar for dollar basis for any Net Cash Proceeds
received by or on behalf of the Company or its Subsidiaries as a
result of such Casualty or Condemnation which have not been
identified by the Company in the notice provided in clause (1)
hereof as intended for use to rebuild, replace, repair, restore
or purchase property as herein provided.
(c) The Credit Agreement is further amended by deleting from
Section 5.11(b)(ii) each reference to "$1,000,000" and substituting therefor
"$5,000,000" in each such place.
(d) The Credit Agreement is further amended by deleting clause
(xi) of Section 6.4(b) and inserting the following in lieu thereof:
(xi) Investments made with the Net Cash Proceeds from
issuance of equity securities or Convertible Debt of the Company
within 6 months of receipt of such Net Cash Proceeds; provided
that such issuance is made in connection with and for the express
purpose of making the specific Investment then being made;
(e) The Credit Agreement is further amended by adding in clause
(xiii) of Section 6.4(b) the following:
-2-
<PAGE> 3
(1) at the beginning of clause (y)(A), immediately
preceding the first "the" in such clause, the phrase, "except as
provided in the last sentence of this Section 6.4(b)(xiii)," and
(2) at the end of Section 6.4(b)(xiii), the following
sentence:
"Notwithstanding any contrary provision in clause (y)(A)
of this Section 6.4(b)(xiii), the Company shall have no
obligation to deliver a certificate certifying the
information set forth in clause (y)(A) in respect of any
Investment in a Related Business which has an Acquisition
Cost of less than $10,000,000 until the first to occur of
(i) the aggregate Acquisition Cost of all such Investments
for which no certificate has been delivered pursuant to
clause (y)(A) exceeds $25,000,000, or (ii) the Company
makes such an Investment with an Acquisition Cost equal to
or greater than $10,000,000, at which time the Company
shall deliver the certificate certifying the information
set forth in clause (y)(A) on a combined basis for all
such Investments in a Related Business for which no
certificate has previously been delivered pursuant to such
clause."
(f) The Credit Agreement is further amended by adding at the
beginning of clause (C) of Section 6.5(a)(i), immediately preceding the first
"the" in such clause, the following:
"any Foreign Subsidiary may merge into or consolidate with any
other Foreign Subsidiary and (D)"
(g) The Credit Agreement is further amended by deleting from
Section 6.9 the reference to "September 30" and substituting therefor "September
30 or the Friday closest to September 30".
(h) The Credit Agreement is further amended by deleting Section
6.10 and inserting the following in lieu thereof:
Section 6.10. Capital Expenditures. Permit the aggregate
amount of Consolidated Capital Expenditures made by the Company
and the Subsidiaries, taken as a whole, in the fiscal year of the
Company ending in calendar year 1999 to exceed $225,000,000, in
the fiscal year of the Company ending in calendar year 2000 to
exceed $275,000,000 and in the fiscal year of the Company ending
in calendar year 2001 to exceed $300,000,000. If the full amount
of Consolidated Capital Expenditures permitted in any fiscal year
are not made, the unused allowance may be carried forward to the
next fiscal year (but not to any subsequent fiscal year).
-3-
<PAGE> 4
(i) The Credit Agreement is further amended by deleting Section
6.14 in its entirety and inserting the following in lieu thereof:
Section 6.14 Minimum Cash Balance. Permit, at any time on
or after March 31, 1999, the sum of (x) the Company's balance of
readily available unencumbered (other than any Lien created under
the Loan Documents, customary banker's liens and rights of
setoff) cash on deposit or similar accounts plus (y) the fair
market value of all Permitted Investments of the Company not
subject to a Lien (other than any Lien created under the Loan
Documents, customary broker's liens and rights of setoff
unrelated to margin activity) to be less than $75,000,000 as at
the last day of any fiscal quarter of the Company.
3. Amendment of the Security Agreement.
(a) Section 3.2(a) of the Security Agreement is hereby amended by
deleting in the fourth parenthetical of the second sentence thereof the
reference to "$20,000,000" and substituting therefor "$75,000,000".
(b) Section 4.1(a) of the Security Agreement is hereby amended by
deleting from clause (ii) thereof each reference to "$1,000,000" and
substituting therefor "$5,000,000" in each such place.
(c) Section 4.9 of the Security Agreement is hereby amended by
deleting the last sentence and substituting therefor the following sentence:
"Without limiting the generality of the foregoing, each Grantor
agrees that it shall not permit any Inventory to be in the
possession or control of any warehouseman, bailee, agent or
processor that is not a Grantor unless either (x) the value of
all Inventory (as shown in the consolidated financial statements
of the Company and its Subsidiaries) as of the end of any fiscal
quarter that is in the possession or control of such
warehouseman, bailee, agent or processor does not exceed an
amount equal to 20% of the aggregate value of all Inventory (as
shown in such consolidated financial statements of the Company
and its Subsidiaries) as of the end of such quarter, or (y) such
warehouseman, bailee, agent or processor shall have been (or
shall promptly be) notified of the Security Interest and such
Grantor shall have taken (or shall promptly take) all
commercially reasonable steps necessary to obtain the agreement
from such warehouseman, bailee, agent or processor in writing to
hold the Inventory subject to the Security Interest and the
instructions of the Collateral Agent and to waive and release any
Lien held by it with respect to such Inventory, whether arising
by operation of law or otherwise."
4. Amendment of the Mortgages.
(a) Section 1.7(a) of each Mortgage is hereby amended by deleting
the
-4-
<PAGE> 5
reference therein to "$10,000" and substituting therefor "$5,000,000".
(b) Section 1.7(b) of each Mortgage is hereby amended by deleting
the reference therein to "$1,000,000" and substituting therefor "$10,000,000".
5. Representations and Warranties. The Borrowers hereby represent and
warrant to the Administrative Agent and the Lenders as follows:
(a) No Default or Event of Default has occurred and is continuing
after giving effect to this Amendment.
(b) The execution, delivery and performance by the Borrowers of
this Amendment has been duly authorized by all necessary corporate and other
action and do not and will not require any registration with, consent or
approval of, notice to or action by, any Person in order to be effective and
enforceable. Each of the Credit Agreement, the Security Agreement and the
Mortgages as amended by this Amendment constitutes the legal, valid and binding
obligation of the Borrowers parties thereto, enforceable against them in
accordance with its respective terms.
(c) All representations and warranties of the Borrowers contained
in the Credit Agreement and in the other Loan Documents are true and correct in
all material respects as of the date hereof with the same effect as though made
on the date hereof and as though applied to the Credit Agreement as herein
amended, except to the extent such representations and warranties expressly
relate to an earlier date.
(d) The Borrowers are entering into this Amendment on the basis
of their own investigation and for their own reasons, without reliance upon the
Agents, the Lenders or any other Person.
6. Effectiveness Date. This Amendment shall become effective as of the
date (the "Closing Date") as of which the Administrative Agent shall have
received all of the following, in form and substance satisfactory to the
Administrative Agent:
(a) Counterparts (or if elected by the Administrative Agent, an
executed facsimile copy) of this Amendment executed by (x) in the case of
Section 2, the Required Lenders, the Borrowers and the Administrative Agent, (y)
in the case of Section 3, the Persons referred to in clause (x), the
Subsidiaries that are parties to the Security Agreement and the Collateral Agent
and (z) in the case of Section 4, the respective parties to each Mortgage, the
Required Lenders, the Administrative Agent and the Collateral Agent, together
with a Guarantor Acknowledgment and Consent in the form attached hereto (the
"Acknowledgment") executed by the Company and the Subsidiary Guarantors; and
(b) Evidence of payment of all unpaid fees and expenses of
counsel to the Administrative Agent (McDermott, Will & Emery) which have been
incurred and billed pursuant to Section 9.5 of the Credit Agreement and Section
8 of this Agreement.
-5-
<PAGE> 6
7. Reservation of Rights. The Borrowers acknowledge and agree that the
execution and delivery by the Agents and the Lenders of this Amendment, shall
not be deemed (i) to create a course of dealing or otherwise obligate the
Administrative Agent or the Lenders to forbear or execute similar amendments
under the same or similar circumstances in the future, or (ii) to amend,
relinquish or impair any right of the Agents or the Lenders to receive any
indemnity or similar payment from any Person or entity as a result of any matter
arising from or relating to this Amendment.
8. Miscellaneous.
(a) Except as herein expressly amended, all terms, covenants and
provisions of the Credit Agreement, the Security Agreement and the Mortgages are
and shall remain in full force and effect and all references therein to such
Credit Agreement, the Security Agreement and the Mortgages shall henceforth
refer to the Credit Agreement, the Security Agreement and the Mortgages as
amended by this Amendment. This Amendment shall be deemed incorporated into, and
a part of, the Credit Agreement, the Security Agreement and the Mortgages, as
applicable.
(b) This Amendment shall be binding upon and inure to the benefit
of the parties hereto and thereto and their respective successors and assigns.
No third party beneficiaries are intended in connection with this Amendment.
(c) This Amendment shall be governed by and construed in
accordance with the law of the State of New York.
(d) This Amendment may be executed in any number of counterparts,
each of which shall be deemed an original, but all such counterparts together
shall constitute but one and the same instrument. Each of the parties hereto
understands and agrees that this document (and any other document required
herein) may be delivered by any party thereto either in the form of an executed
original or an executed original sent by facsimile transmission to be followed
promptly by mailing of a hard copy original, and that receipt by the
Administrative Agent of a facsimile transmitted document purportedly bearing the
signature of a Lender or a Borrower shall bind such Lender or such Borrower,
respectively, with the same force and effect as the delivery of a hard copy
original. Any failure by the Administrative Agent to receive the hard copy
executed original of such document shall not diminish the binding effect of
receipt of the facsimile transmitted executed original of such document of the
party whose hard copy page was not received by the Administrative Agent.
(e) This Amendment, together with the Credit Agreement and the
other Loan Documents, contains the entire and exclusive agreement of the parties
hereto with reference to the matters discussed herein and therein. This
Amendment supersedes all prior drafts and communications with respect thereto.
This Amendment may not be amended except in accordance with the provisions of
Section 9.8 of the Credit Agreement.
-6-
<PAGE> 7
(f) If any term or provision of this Amendment shall be deemed
prohibited by or invalid under any applicable law, such provision shall be
invalidated without affecting the remaining provisions of this Amendment or the
Credit Agreement, the Security Agreement or the Mortgages, respectively.
(g) The Borrowers covenant to pay to or reimburse the
Administrative Agent, upon demand, for all reasonable costs and expenses
(including costs of its outside legal counsel and allocated costs of in-house
counsel) actually incurred by the Administrative Agent in connection with the
development, preparation, negotiation, execution and delivery of this Amendment.
(a) The Borrowers (and each Guarantor by execution of the
Acknowledgement) confirm that the Security Documents secure the Obligations
under the Credit Agreement as amended. Each Guarantor by execution of the
Acknowledgment confirms that the benefit of such Guarantor's Company Guarantee
Agreement or Subsidiary Guarantee Agreement, as applicable, applies to all
Obligations under the Credit Agreement as amended.
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Amendment as of the date first above written.
CONEXANT SYSTEMS, INC.
By: /s/ Kerry K. Petry
-------------------------------------
Name: Kerry K. Petry
Title: Vice President and Treasurer
CONEXANT SYSTEMS WORLDWIDE, INC.
By: /s/ Kerry K. Petry
-------------------------------------
Name: Kerry K. Petry
Title: Treasurer
BROOKTREE CORPORATION
By: /s/ Kerry K. Petry
-------------------------------------
Name: Kerry K. Petry
Title: Treasurer
BROOKTREE WORLDWIDE SALES CORPORATION
By: /s/ Kerry K. Petry
-------------------------------------
Name: Kerry K. Petry
Title: Treasurer
<PAGE> 9
CONEXANT SYSTEMS FRANCE S.A.S.
By: /s/ Ugolini Marc
-------------------------------------
Name: Ugolini Marc
Title: President
CONEXANT SYSTEMS U.K. LIMITED
By: /s/ Kerry K. Petry
-------------------------------------
Name: Kerry K. Petry
Title: Treasurer
CONEXANT SYSTEMS HOLDINGS LIMITED
By: /s/ Kerry K. Petry
-------------------------------------
Name: Kerry K. Petry
Title: Treasurer
<PAGE> 10
CREDIT SUISSE FIRST BOSTON,
individually and as Administrative Agent,
Collateral Agent and Swingline Lender
By: /s/ Chris T. Horgan
-------------------------------------
Name: Chris T. Horgan
Title: Vice President
By: /s/ Kristin Lepri
-------------------------------------
Name: Kristin Lepri
Title: Associate
UNION BANK OF CALIFORNIA, N.A.
as a Lender
By:
--------------------------------------
Name:
Title:
BANK POLSKA KASA OPIEKI, S.A.-PEKAO S.A.
GROUP, NEW YORK BRANCH,
as a Lender
By: /s/ Harvey Winter
-------------------------------------
Name: Harvey Winter
Title: Vice President
BANQUE NATIONALE DE PARIS,
as a Lender
By: /s/ C. Bettles
-------------------------------------
Name: C. Bettles
Title: Sr. Vice President & Manager
<PAGE> 11
By: /s/ James P. Culhane
-------------------------------------
Name: James P. Culhane, CFA
Title: Assistant Vice President
COMERICA WEST INCORPORATED,
as a Lender
By: /s Emmanuel Skevofilax
-------------------------------------
Name: Emmanuel Skevofilax
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO,
as a Lender
By: /s/ Mark A. Isley
-------------------------------------
Name: Mark A. Isley
Title: First Vice President
KEYBANK NATIONAL ASSOCIATION,
as a Lender
By: /s/ Thomas A. Crandall
-------------------------------------
Name: Thomas A. Crandall
Title: Vice President
NATIONAL BANK OF CANADA,
as a Lender
By: /s/ John Curry
-------------------------------------
Name: John Curry
Title: Vice President
By: /s/ R.A. McKerroll
-------------------------------------
Name: R.A. McKerroll
Title: Vice President
<PAGE> 12
TRANSAMERICA COMMERCIAL FINANCE
CORPORATION,
as a Lender
By: /s/ Andrew E. Kefsa
-------------------------------------
Name: Andrew E. Kefsa
Title: Vice President
CHIAO TUNG BANK,
as a Lender
By:
--------------------------------------
Name:
Title:
HAMILTON BANK,
as a Lender
By: /s/ J.C. Bemaci
-------------------------------------
Name: J.C. Bemaci
Title: President
By: /s/ Hector F. Ramirez
-------------------------------------
Name: Hector F. Ramirez
Title: Senior Vice President
IBM CREDIT CORPORATION,
as a Lender
By: /s/ Salvatore Grasso
-------------------------------------
Name: Salvatore Grasso
Title: Manager Credit Operations
<PAGE> 13
UBS AG, STAMFORD BRANCH,
as a Lender
By: /s/ Robert H. Riley III
-------------------------------------
Name: Robert H. Riley III
Title: Executive Director
By: /s/ Leo [Last Name Illegible]
-------------------------------------
Name: Leo [Last Name Illegible]
Title: Director
<PAGE> 14
GUARANTOR ACKNOWLEDGMENT
AND CONSENT
The undersigned, each a guarantor or third party pledgor with respect to
the Borrowers' obligations to the Agents and the Lenders under the Credit
Agreement, each hereby (i) acknowledges and consents to the execution, delivery
and performance by the Company and the Borrower Subsidiaries of the foregoing
First Amendment to Credit Agreement ("Amendment"), and (ii) reaffirm and agree
that the respective guaranty, pledge agreement or security agreement to which
the undersigned is party and all other documents and agreements executed and
delivered by the undersigned to the Administrative Agent or the Collateral Agent
and the Lenders in connection with the Credit Agreement are in full force and
effect, without defense, offset or counterclaim. (Capitalized terms used herein
have the meanings specified in the Amendment.)
GUARANTORS
CONEXANT SYSTEMS, INC.
CONEXANT SYSTEMS WORLDWIDE, INC
BROOKTREE CORPORATION
BROOKTREE WORLDWIDE SALES CORPORATION
Dated: June 11, 1999 By: /s/ Kerry K. Petry
-------------------------------------
Title: Treasurer
----------------------------------
<PAGE> 1
EXHIBIT 11
COMPUTATION OF PER SHARE DATA:
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, 1999
-----------------
<S> <C>
BASIC NET INCOME PER SHARE:
Net Income .............................................. $ 24,390
Weighted average number of common shares
outstanding ............................................. 95,785
--------
Basic Net Income Per Share .............................. $ 0.25
========
DILUTED NET INCOME PER SHARE:
Net Income .............................................. $ 24,390
Weighted average number of common and common equivalent
shares assuming issuance of all outstanding dilutive
stock options and restricted stock:
Common stock ........................................ 95,785
Dilutive stock options .............................. 6,426
Restricted stock .................................... 991
--------
Total ............................................ 103,202
--------
Diluted Net Income Per Share ............................ $ 0.24
========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1999 UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS, UNAUDITED CONSOLIDATED
CONDENSED STATEMENTS OF OPERATIONS FOR THE PERIOD ENDED JUNE 30, 1999 AND NOTES
TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH UNAUDITED CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 411,741
<SECURITIES> 0
<RECEIVABLES> 189,908
<ALLOWANCES> 8,169
<INVENTORY> 190,268
<CURRENT-ASSETS> 900,697
<PP&E> 1,479,138
<DEPRECIATION> 840,490
<TOTAL-ASSETS> 1,655,993
<CURRENT-LIABILITIES> 268,799
<BONDS> 0
0
0
<COMMON> 97,268
<OTHER-SE> 852,951
<TOTAL-LIABILITY-AND-EQUITY> 1,655,993
<SALES> 991,940
<TOTAL-REVENUES> 991,940
<CGS> 619,545
<TOTAL-COSTS> 619,545
<OTHER-EXPENSES> 426,253
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,744
<INCOME-PRETAX> (51,595)
<INCOME-TAX> (26,479)
<INCOME-CONTINUING> (25,116)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25,116)
<EPS-BASIC> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
