<PAGE>
<TABLE>
<S><C>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1999
-------------
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number 0-25622
-------
DSP COMMUNICATIONS , INC.
-------------------------
(Exact name of registrant as specified in its charter)
Delaware 77-0389180
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
20300 Stevens Creek Boulevard, Cupertino, California 95014
----------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (408) 777-2700
--------------
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 periods 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
--- ---
As of August 5, 1999, there were 41,031,847 shares of Common Stock ($.001 par
value) outstanding.
</TABLE>
<PAGE>
INDEX
DSP COMMUNICATIONS, INC.
<TABLE>
<CAPTION> Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
- ---------------------------------
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets-June 30, 1999 and
December 31, 1998........................................................................................3
Condensed consolidated statements of operations-quarter
ended June 30, 1999 and 1998, and six months
ended June 30, 1999 and 1998.............................................................................4
Condensed consolidated statements of cash flows-six months
ended June 30, 1999 and 1998.............................................................................5
Notes to condensed consolidated financial statements-
June 30, 1999............................................................................................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................................8
Item 3. Quantitative and Qualitative Disclosures About Market Risk..............................................20
PART II. OTHER INFORMATION
- -----------------------------
Item 1. Legal Proceedings........................................................................................21
Item 2. Changes in Securities and Use of Proceeds................................................................21
Item 3. Defaults upon Senior Securities..........................................................................21
Item 4. Submission of Matters to a Vote of Security Holders......................................................21
Item 5. Other Information........................................................................................22
Item 6. Exhibits and Reports on Form 8-K.........................................................................22
SIGNATURES.......................................................................................................23
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DSP COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---------- ------------
(Unaudited) (Note 1)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 39,875 $ 66,818
Short term investments 87,003 27,071
Trade accounts receivable 20,085 29,351
Other current assets 6,469 5,717
--------- ----------
Total current assets 153,432 128,957
Property and equipment, net 6,012 5,323
Other assets 4,705 5,063
Goodwill 5,149 5,894
--------- ----------
$ 169,298 $ 145,237
--------- ----------
--------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 12,964 $ 16,474
Accrued liabilities 19,254 17,110
Deferred income 127 285
--------- ----------
Total current liabilities 32,345 33,869
STOCKHOLDERS' EQUITY
Common stock 40 38
Additional paid-in capital 87,024 78,777
Notes from shareholders (5,099) (5,099)
Retained earnings 55,096 37,624
Accumulated other comprehensive income (108) 28
--------- ----------
Total stockholders' equity 136,953 111,368
--------- ----------
$ 169,298 $ 145,237
--------- ----------
--------- ----------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
Note 1: The balance sheet at December 31, 1998 has been derived from
audited financial statements at that date, but does not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
3
<PAGE>
DSP COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. DOLLARS AND SHARES IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Product $ 39,600 $ 29,566 $ 73,738 $ 51,482
Technology development 2,274 906 4,054 2,076
-------- -------- -------- --------
Total revenues 41,874 30,472 77,792 53,558
COST OF REVENUES
Product 23,124 16,202 42,565 26,836
Technology development 1,326 517 2,211 1,521
-------- -------- -------- --------
Total cost of revenues 24,450 16,719 44,776 28,357
-------- -------- -------- --------
Gross profit 17,424 13,753 33,016 25,201
OPERATING EXPENSES
Research and development 3,769 2,943 7,386 5,116
Sales and marketing 1,554 979 3,100 1,938
General and administrative 2,906 2,307 5,637 4,526
-------- -------- -------- --------
8,229 6,229 16,123 11,580
-------- -------- -------- --------
Operating income 9,195 7,524 16,893 13,621
Interest and other income, net 1,534 1,568 2,738 2,957
-------- -------- -------- --------
Income before provision
for income taxes 10,729 9,092 19,631 16,578
Provision for income taxes (1,180) (954) (2,159) (1,740)
-------- -------- -------- --------
Net income $ 9,549 $ 8,138 $ 17,472 $ 14,838
-------- -------- -------- --------
-------- -------- -------- --------
Earnings per share:
Basic $ 0.24 $ 0.20 $ 0.44 $ 0.37
-------- -------- -------- --------
-------- -------- -------- --------
Diluted $ 0.22 $ 0.19 $ 0.40 $ 0.35
-------- -------- -------- --------
-------- -------- -------- --------
Shares used in computing earnings per share:
Basic 39,563 40,351 39,506 40,281
-------- -------- -------- --------
-------- -------- -------- --------
Diluted 43,905 42,629 43,770 42,744
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
DSP COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(US DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income for the period $ 17,472 $ 14,838
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,207 1,273
Compensation expense related to shares issued in a subsidiar -- 150
Compensation expense related to stock options -- 42
Changes in operating assets and liabilities:
Trade accounts receivable 9,266 (4,855)
Other current assets (752) 2,155
Other assets 1,187 --
Accounts payable (3,510) (1,301)
Accrued liabilities 2,144 2,243
Deferred income (158) (185)
-------- --------
Net cash provided by operating activities 26,856 14,350
-------- --------
INVESTING ACTIVITIES:
Cash purchases of equipment (1,980) (1,467)
Purchases of short-term investments (92,488) (25,563)
Sales and maturities of short-term investments 32,556 19,792
-------- --------
Net cash used in investing activities (61,912) (7,238)
-------- --------
FINANCING ACTIVITIES:
Repurchase of common stock (9,527) (19,982)
Issuance of common stock for cash 17,640 8,895
-------- --------
Net cash provided by (used in) financing activities 8,113 (11,087)
-------- --------
Decrease in cash and cash equivalents (26,943) (3,965)
Cash and cash equivalents at beginning of period 66,818 82,322
-------- --------
Cash and cash equivalents at end of period $ 39,875 $ 78,357
-------- --------
-------- --------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
<PAGE>
DSP COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of DSP
Communications, Inc. ("DSPC" or the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the interim period are not necessarily indicative of the
results that may be expected for the full year. For further information, refer
to the consolidated financial statements and notes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1998.
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share for the three and six months ended June 30 as follows (in thousands except
per share data):
<TABLE>
<CAPTION>
THREE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator for basic and diluted earnings per share -
net income $ 9,549 $ 8,138 $ 17,472 $ 14,838
------- ------- -------- --------
------- ------- -------- --------
Denominator for basic earnings per share -
weighted average shares 39,563 40,351 39,506 40,281
Effect of dilutive securities - employee stock options 4,342 2,278 4,264 2,463
------- ------- -------- --------
Denominator for diluted earnings per share -
adjusted weighted average shares 43,905 42,629 43,770 42,744
------- ------- -------- --------
------- ------- -------- --------
Earnings per share:
Basic $ 0.24 $ 0.20 $ 0.44 $ 0.37
------- ------- -------- --------
------- ------- -------- --------
Diluted $ 0.22 $ 0.19 $ 0.40 $ 0.35
------- ------- -------- --------
------- ------- -------- --------
Potentially dilutive securities excluded from
computations as the effect would be antidilutive 6,484 551 7,569 491
------- ------- -------- --------
------- ------- -------- --------
</TABLE>
3. SEGMENT INFORMATION
DSPC and its subsidiaries operate in one industry segment, principally the
development and marketing of integrated circuits for the wireless communications
market. Operations in Israel and Canada include research, development and sales.
Operations in the United States include marketing and sales.
4. COMPREHENSIVE INCOME
During the second quarter of 1999 and 1998, total comprehensive income was
$9,428,000 and $8,117,000, respectively. For the first six months of 1999 and
1998, total comprehensive income amounted to $17,336,000 and $14,795,000,
respectively. Other comprehensive income represents unrealized gains or
losses on the Company's available-for-sale securities.
6
<PAGE>
5. NEW ACCOUNTING STANDARDS
Effective January 1, 1999, the Company adopted Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed For or Obtained For
Internal Use" (the "SOP"). The SOP requires the capitalization of certain costs
incurred in connection with developing or obtaining software for internal use.
The adoption of the new SOP does not have a material impact on the Company's
consolidated results of operations, financial position or cash flows.
In June 1999, the FASB issued Statement No. 137, "Accounting for Derivative
Instruments and Hedging Activities Deferral of the Effective Date of FASB
Statement No. 133." This Statement defers for one year the effective date of
FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." The rule now will apply to fiscal years beginning after June 15,
2000. Because of the Company's minimal use of derivatives, the Company does not
anticipate that the adoption of SFAS 133 will have a significant effect on the
Company's consolidated results of operations or financial position.
6. STOCKHOLDERS' EQUITY
During the first six months of 1999 the Company repurchased 644,100 shares of
its common stock for $9,527,000. In addition, during the first six months of
1999, options to purchase 2,731,000 shares of the Company's common stock were
exercised for total proceeds of $17,777,000.
7. ISRAELI GOVERNMENT RESEARCH GRANTS
The Company is participating in programs sponsored by the Israeli Government for
the support of research and development activities. The Company has obtained
approval for grants from the Office of the Chief Scientist in the Israeli
Ministry of Industry and Trade (the "Chief Scientist") totaling approximately
$2,100,000, of which, in the second quarter of 1999, $540,000 has been accrued
(included in other current assets). The terms of the grants from the Chief
Scientist prohibit the transfer of technology developed pursuant to the terms of
these grants to any person, without the prior written consent of the Chief
Scientist. The grant is repayable to the Chief Scientist, at the rate of 4% of
the sales of products developed out of the projects funded, up to an amount
equal to 100% of the grant received.
8. LITIGATION
On May 12, 1997, a class action lawsuit was filed against the company and
several of its officers and directors in the Superior Court of California, Santa
Clara County. A second, identical lawsuit was filed on May 22, 1997. The
complaints, which were consolidated, alleged that the Company and certain of its
officers and directors violated California securities laws in connection with
certain statements allegedly made during the first quarter of 1997, and sought
damages in an unspecified amount, interest, attorney's fees and other costs, and
other equitable and injunctive relief. On February 26, 1998, two of the
plaintiffs in the state action filed a similar complaint in the U.S. District
Court for the Northern District of California. The complaint made the same
allegations as the amended complaint filed in state court, but charged
violations of federal securities laws.
Settlement of the previously disclosed class action lawsuits was approved by the
court on April 9, 1999. Under the terms of the agreement, the claims were
settled for $3,000,000, which was funded by insurance proceeds. The Company
believes that settlement was in the best interests of its investors and
continues to deny all allegations.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following information should be read in conjunction with the condensed
consolidated interim financial statements and the notes thereto in Part I,
Item 1 of this Quarterly Report and with Management's Discussion and Analysis
of Financial Condition and Results of Operations contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998. The matters
addressed in this Management's Discussion and Analysis of Financial Condition
and Results of Operations, with the exception of the historical information
presented, contain forward-looking statements involving risks and
uncertainties. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including, without limitation, those set forth under the heading
"Certain Factors That May Affect Future Results" following this Management's
Discussion and Analysis section, and elsewhere in this report.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationships of certain items
from the Company's consolidated statements of operations as a percentage of
total revenues:
<TABLE>
<CAPTION>
THREE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Product 94.6 % 97.0 % 94.8 % 96.1 %
Technology development 5.4 3.0 5.2 3.9
----- ----- ----- ------
Total revenues 100.0 100.0 100.0 100.0
COST OF REVENUES
Product 55.2 53.2 54.7 50.1
Technology development 3.2 1.7 2.9 2.8
----- ----- ----- -----
Total cost of revenues 58.4 54.9 57.6 52.9
----- ----- ----- -----
Gross profit 41.6 45.1 42.4 47.1
OPERATING EXPENSES
Research and development, net 9.0 9.7 9.5 9.6
Sales and marketing 3.7 3.2 4.0 3.6
General and administrative 6.9 7.5 7.2 8.5
----- ----- ----- -----
19.6 20.4 20.7 21.7
----- ----- ----- -----
Operating income 22.0 24.7 21.7 25.4
Interest and other income, net 3.7 5.1 3.5 5.6
----- ----- ----- -----
Income before provision for income taxes 25.7 29.8 25.2 31.0
Provision for income taxes (2.8) (3.1) (2.8) (3.3)
----- ----- ----- -----
Net income 22.9 % 26.7 % 22.4 % 27.7 %
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
8
<PAGE>
REVENUES
PRODUCT: Product revenues increased to $39.6 million in the second quarter of
1999 from $29.6 million in the second quarter of 1998 and to $73.7 million in
the six months ended June 30, 1999 from $51.5 million in the first six months of
1998. Product revenues consist primarily of baseband chip sets for digital
cellular telephones. Revenues from sales to distributors are recognized at the
time the products are shipped by the distributor to the original equipment
manufacturer ("OEM") customer.
The increase in product revenues for the three months and six months ended June
30, 1999 as compared to the same periods in 1998, was a result of stronger
demand for the Company's PDC chip sets and volume sales of the Company's CDMA
chip sets, which began in the second quarter of 1998.
TECHNOLOGY DEVELOPMENT: Technology development revenues increased to $2.3
million in the second quarter of 1999 from $906,000 in the second quarter of
1998 and to $4.1 million in the six months ended June 30, 1999 from $2.1 million
in the first six months of 1998. The Company's technology development revenues
fluctuate, and may continue to fluctuate, depending on the number and size of
technology development agreements and the timing of related milestones and
deliverables.
Technology development revenues mainly relate to contracts for development and
enhancement of products for PDC, TDMA and CDMA applications, and revenues from
reference design projects undertaken by the Company's subsidiary, CTP Systems.
GROSS PROFIT
Gross profit in the second quarter of 1999 was $17.4 million (41.6% of revenues)
compared to $13.8 million (45.1% of revenues) in the second quarter of 1998.
Gross profit in the first half of 1999 was $33.0 million (42.4% of revenues), as
compared to $25.2 million (47.1% of revenues) in the first half of 1998.
The gross margins on product revenues in the second quarter of 1999 were 41.6%,
as compared to 45.2% in the second quarter of 1998. Gross margins on product
revenues in the first half of 1999 were 42.3%, as compared to 47.9% in the first
half of 1998. The gross margins on product revenues were affected by changes in
the customer and product mix from quarter to quarter, and by price pressures
which are impacted by, among other factors, fluctuations in the dollar/yen rate
of exchange.
The Company anticipates that the average sales prices of chip sets may continue
to decrease as a result of volume discounts and price pressures, which would
increase the cost of products sold as a percentage of product revenues; however,
any such price decreases may be offset to a certain extent by changes in the
Company's terms of trade, and further cost reductions from suppliers if the
Company's order volumes increase, and if the Company is successful in
negotiating such lower prices.
The gross margins on technology development revenues vary from quarter to
quarter depending on the number and size of technology development agreements
and the timing of related milestones.
In connection with its license agreement for CDMA, the Company has agreed to pay
royalties based on specified rates. The Company initiated payment of these
royalties in 1998 upon commencement of sales of its CDMA products. Royalty
expenses in the first six months of 1999 amounted to $947,000.
9
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased to $3.8 million in the second
quarter of 1999 from $2.9 million in the second quarter of 1998 and to $7.4
million in the first half of 1999 from $5.1 million in the first half of 1998.
The increases were a result of increases in the number of engineering personnel
involved in research and development activities, including the addition of
engineering and software personnel hired by the Company's subsidiary in Canada,
Isotel Corp. ("Isotel"), as a result of the acquisition on December 31, 1998 of
substantially all of the assets of Isotel Research Ltd., an OEM software
company, and the amortization of developed technology purchased within the
framework of the Isotel acquisition (the "Isotel acquisition"). As a percentage
of total revenues, research and development expenses decreased to 9.0% in the
second quarter of 1999, from 9.7% in the second quarter of 1998, mainly as a
result of the increase in revenues, and to 9.5% in the first half of 1999 from
9.6% in the first half of 1998. The Company expects that its research and
development expenses will increase in the future.
The Company is participating in programs sponsored by the Israeli Government for
the support of research and development activities. The Company has obtained
approval for grants from the Office of the Chief Scientist in the Israeli
Ministry of Industry and Trade (the "Chief Scientist") totaling approximately
$2,100,000, of which, in the second quarter of 1999, $540,000 has been accrued
(included in other current assets). The terms of the grants from the Chief
Scientist prohibit the transfer of technology developed pursuant to the terms of
these grants to any person, without the prior written consent of the Chief
Scientist. The grant is repayable to the Chief Scientist, at the rate of 4% of
the sales of products developed out of the projects funded, up to an amount
equal to 100% of the grant received.
SALES AND MARKETING EXPENSES
Sales and marketing expenses increased to $1.6 million (3.7% of revenues) in the
second quarter of 1999 from $1.0 million (3.2% of revenues) in the second
quarter of 1998 and to $3.1 million (4.0% of revenues) in the first half of 1999
from $1.9 million (3.6% of revenues) in the first half of 1998. The increase was
a result of increased sales and marketing staff at the Company's headquarters in
Cupertino, California, the addition of Isotel's sales and marketing staff, and
increased promotion and marketing activities. The Company expects that its sales
and marketing expenses will increase, in absolute dollars.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased to $2.9 million (6.9% of revenues)
in the second quarter of 1999 as compared to $2.3 million (7.5% of revenues) in
the second quarter of 1998 and $5.6 million (7.2% of revenues) in the first half
of 1999 as compared to $4.5 million (8.5% of revenues) in the first half of
1998. The increase in absolute dollars was a result of increased staffing levels
at the facility of DSPC Technologies Ltd., an Israeli subsidiary of the Company,
the addition of Isotel's administrative staff, increased facility expenses
resulting from additional space that was leased by the Company's subsidiary in
Israel, increased administration expenses and fees, and amortization of goodwill
related to the Isotel acquisition.
INTEREST AND OTHER INCOME, NET
Interest and other income, net, includes interest and investment income, foreign
currency remeasurement gains and losses and other miscellaneous expenses.
Interest and other income decreased marginally to $1.5 million in the second
quarter of 1999 from $1.6 million in the second quarter of 1998 and to $2.7
million in the first half of 1999 from $3.0 million in the first half of 1998.
10
<PAGE>
Interest and other income, net, in the first six months of 1999 and 1998 was
generated primarily from interest and realized gains on the Company's cash and
short-term investment balances, which were at an average level of approximately
$110 million and $118 million, during the first six months of 1999 and 1998,
respectively.
Interest and other income fluctuates as a result of changes in the level of the
Company's cash and investment balances, which was primarily caused by the
repurchase of shares (see below, Liquidity and Capital Resources) and the Isotel
acquisition; changes in the rate of exchange between the Japanese yen and the
United States dollar and between the new Israeli shekel and the United States
dollar; and fluctuations in the available interest rates applicable to the
Company's deposits and short-term investments.
PROVISION FOR INCOME TAXES
The tax provisions have been favorably impacted by the benefits of the Israeli
"Approved Enterprise" status. The Approved Enterprise status was granted
according to investment plans and will allow the Company's Israeli subsidiaries
a two to four year tax holiday on undistributed earnings, and a corporate tax
rate of 10% to 25% for an additional six to eight years on each of the
investment plans' proportionate share of income. The benefits under these
current investment plans are scheduled to expire between the years 2005 and
2008.
As of December 31, 1998, the Company had United States federal, state, and
Israeli net operating loss carryforwards of approximately $34.0 million, $16.2
million and $5.3 million, respectively. The United States federal and state net
operating loss carryforwards will expire at various dates beginning in years
2001 through 2013. These loss carryforwards primarily relate to stock option
deductions, the benefit of which will be credited to paid in capital when
realized. The Israeli loss carryforwards have no expiration date, but can only
be used to offset certain Israeli subsidiary earnings.
The Company's effective tax rate was 11% for the first half of 1999 compared
to10.5% for the first half of 1998. Over time, the Company's tax rate is
expected to increase due to elimination of the tax benefits awarded with
Approved Enterprise status, as well as potential increases due to rules
regarding controlled foreign corporations ("CFC"). Losses incurred by the
Company or any of its subsidiaries in one country generally will not be
deductible by entities in other countries in the calculation of their respective
local taxes. Likewise, losses incurred by one Israeli entity or a combined loss
of the U.S. entities will increase the Company's effective tax rate.
The Company believes that, based upon a number of factors, the available
objective evidence creates sufficient uncertainty regarding the realizability of
the deferred tax asset such that a partial valuation allowance has been
provided. The deferred tax asset recorded of $2.2 million is realizable based
upon current levels of future taxable income on a jurisdictional basis. The
Company will continue to assess, on a quarterly basis, the realizability of the
deferred tax assets based on actual and forecasted operating results of each
legal entity. The unbenefited U.S. deferred tax assets primarily relate to stock
option deductions, the benefit of which will be credited to paid in capital when
realized.
DSPC Technologies Ltd., DSP Telecom Ltd., DSPC Israel Ltd. and CTP Systems Ltd.
(collectively, the "Israeli Companies") are CFCs for United States income tax
purposes. Accordingly, all or a portion of the earnings of these Israeli
Companies are subject to United States taxation if, among other things, the
Israeli Companies lend funds to the Company or otherwise invest in certain
proscribed assets; or the Israeli Companies engage in various types of
transactions defined in the Subpart F provisions of the United States Internal
Revenue Code. However, if the Israeli Companies' earnings become subject to
United States taxation, DSPC may be eligible to utilize its Israeli and other
foreign income taxes as a credit against its United States income taxes. The
Company believes that its existing plans will minimize the impact of the CFC
rules for the immediate future, subject to any changes in United States tax laws
that may occur. However, over time, the CFC rules may cause the Company's tax
rate to increase.
11
<PAGE>
FOREIGN CURRENCY ISSUES AND IMPACT OF RATE OF INFLATION
The United States dollar is the Company's functional currency as it is the
primary currency in the economic environment in which the Company operates.
Accordingly, monetary accounts maintained in currencies other than the dollar
(principally cash and liabilities) are remeasured using the foreign exchange
rate at the balance sheet date. Operational accounts and nonmonetary balance
sheet items are remeasured and recorded at the rate in effect at the date of the
transaction. The effects of foreign currency remeasurement, which have not been
material to date, are reported in current operations.
While most of the Company's revenues and costs are denominated in United States
dollars, a material portion of the sales prices for certain products sold by the
Company, and a material portion of the purchase prices for certain components
purchased by the Company, are quoted in, or linked to, yen-based prices.
Therefore, fluctuations in the exchange rate of the yen in relation to the
United States dollar could have a material adverse effect on the Company's
results of operations and financial condition.
A portion of the Company's expenses is denominated in Israeli shekels. The
Company's primary expense paid in Israeli currency is Israeli-based employee
salaries. In addition, the Company also has certain Israeli shekel-based
liabilities and assets. As a result, fluctuations in the value of Israeli
currency in comparison to the United States dollar and inflationary pressures on
the Israeli shekel could affect the cost of technology development, research and
development expenses and general and administrative expenses, and could have a
material adverse effect on the Company's results of operations.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, the Company had $126.9 million of cash, cash equivalents
and short-term investments, compared to $118.4 million as of June 30, 1998. The
Company uses independent foundries to fabricate its baseband chip set products,
minimizing its need to invest in manufacturing equipment and to develop
integrated circuit fabrication processes. However, the Company relies on its
independent foundries to achieve acceptable manufacturing yields and to allocate
to the Company a sufficient portion of foundry capacity to meet the Company's
needs. The Company to date has ordered products from its foundries primarily
upon receipt of orders for chip sets from its distributors or OEM customers and
has not maintained any significant inventory of its chip sets. This strategy
allows the Company to avoid utilizing its capital resources for manufacturing
facilities and inventory and allows the Company to focus substantially all of
its resources on the design, development and marketing of its products. The
Company maintains limited inventory in anticipation of orders from its
distributors or OEM customers. CTP Systems manufactures its wireless PBX systems
product primarily through external subcontractor assembly facilities. To date,
production of wireless PBX systems has been limited and has not had a material
effect on the Company's liquidity or capital resources.
The Company has financed its operations and investments in capital equipment
primarily through cash provided by operations. During the first six months of
1999, the Company repurchased 644,100 shares of its common stock in its share
repurchase program, using an aggregate of approximately $9.5 million. A total of
approximately 11 million shares have been repurchased through June 30, 1999,
with a total aggregate purchase price of approximately $106.5 million. The
Company may from time to time repurchase additional shares of its Common Stock
under its share repurchase program.
During the first six months of 1999, options to purchase 2,731,000 shares of the
Company's common stock were exercised for total proceeds of $17,777,000
The Company's operating activities provided cash of $26.9 million in the first
six months of 1999, as compared to $11.1 million in the first six months of
1998. Net cash provided from operations in the first six months of 1999
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was comprised primarily of net income and a decrease in trade accounts
receivable, less a decrease in current liabilities.
The Company's investing activities in the first six months of 1999, other than
purchases of and proceeds from sales and maturities of short-term investments,
have consisted of expenditures for fixed assets, which totaled $2.0 million.
As of June 30, 1999, the Company also had issued bank guarantees and letters of
credit totaling $2.7 million.
While operating activities may provide cash in certain periods, to the extent
the Company may experience growth in the future, the Company anticipates that
its operating and investing activities may use cash and consequently, such
growth may require the Company to obtain additional sources of financing. The
Company may also from time to time consider the acquisition of complementary
businesses, projects or technologies which may require additional financing or
require the use of a significant portion of its existing cash, although the
Company has no present understandings, commitments or agreements with respect to
any such transaction.
The Company believes that its existing cash, cash equivalents and short-term
investment balances, will be sufficient to meet its cash requirements for at
least the next twelve months.
IMPACT OF YEAR 2000
Many currently installed computer systems and software products experience
problems handling dates beyond the year 1999 and will need to be modified before
the year 2000 in order to remain functional. As a result, before the year 2000,
computer systems and/or software products and applications used by many
companies may need to be upgraded to comply with such year 2000 requirements.
The Company is implementing its year 2000 plan (the "Plan") which is designed to
cover all of the Company's activities. The Plan, which has executive
sponsorship, is reviewed regularly by senior management and includes the
evaluation of both information technology ("IT") and non-IT systems, and
consists of five steps.
Step one involved increasing awareness by educating and involving all
appropriate levels of management regarding the need to address year 2000 issues.
Step two consisted of identifying all of the Company's systems, products and
relationships that may be impacted by year 2000. Step three involved determining
the current state of year 2000 readiness for those areas identified in step two
and prioritizing areas that need to be fixed. Step four consisted of developing
a plan for those areas, including the Company's internal computers and operating
systems, identified as needing correction. Step five consists of the
implementation and execution of the Company's Plan and completing the steps
identified to attain year 2000 readiness. The Company is in the final stages of
completing step five. Based on the Company's assessment to date, it has
determined that it is unlikely that it has any exposure related to the year 2000
issue with respect to the Company's systems and products.
The majority of the costs associated with this effort are not incremental to
the Company, but represent a reallocation of existing resources. The Company
believes that modifications deemed necessary will be made on a timely basis and
does not believe that the cost of such modifications will have a material effect
on the Company's operating results. To date, the Company's costs related to the
year 2000 issues have amounted to approximately $60,000 and the Company does not
expect the aggregate amount spent on the year 2000 issue to exceed $90,000. In
addition, the Company is in the process of evaluating the need for contingency
plans with respect to year 2000 requirements. The necessity of any contingency
plan must be evaluated on a case-by-case basis and may vary considerably in
nature depending on the year 2000 issue it may address.
The Company's expectations as to the extent and timeliness of modifications
required in order to achieve year 2000 compliance is a forward-looking statement
subject to risks and uncertainties. Actual results may vary materially as a
result of a number of factors, including, among others, those described above in
this section. There
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can be no assurance however, that unexpected delays or problems, including
the failure to ensure year 2000 compliance by systems or products supplied to
the Company by third parties, will not have an adverse effect on the Company,
its financial performance and results of operations. In addition, the Company
cannot predict the effect of the year 2000 issues on its customers or the
resulting effect on the Company. As a result, if such customers do not take
preventative and/or corrective actions in a timely manner, the year 2000
issue could have an adverse effect on their operations and accordingly have a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, the Company's current understanding of
expected costs is subject to change as the project progresses and does not
include the cost of internal software and hardware replaced in the normal
course of business whose installation otherwise may be accelerated to provide
solutions to year 2000 compliance issues.
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CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This Form 10-Q contains forward looking statements concerning our existing and
future products, markets, expenses, revenues, liquidity, performance and cash
needs as well as our plans and strategies. These forward looking statements
involve risks and uncertainties and are based on current management
expectations, and we are not obligated to update this information. Many factors
could cause actual results and events to differ significantly from the results
anticipated by us and described in these forward looking statements, including
but not limited to the following risk factors.
WE RELY ON A LIMITED NUMBER OF CHIP SET PRODUCTS USED IN DIGITAL WIRELESS
TELEPHONES; WE MUST MAINTAIN AND INCREASE SALES OF EACH OF OUR PRODUCTS AND
DEVELOP NEXT-GENERATIONS OF OUR PRODUCTS AND THIRD GENERATION PRODUCTS TO BE
SUCCESSFUL
Unlike companies that sell a large number of products, substantially all of our
sales are from only three chip set products used in cellular telephones. Because
we sell so few products, a decrease or slowdown in sales of any single product
could have a material adverse effect on our results and financial condition. Our
success will also depend on our ability to develop and market successive
generations of these products. To succeed in the future, we may also need to
develop and market new products. If we are not successful in developing,
manufacturing and marketing next-generation products or any new products, our
business and results of operations could be materially and adversely affected.
Third generation digital wireless standards are currently being proposed and
developed worldwide to address the growing needs for high-capacity voice
communications and high-speed data, video and multimedia applications. The
Company is developing chipsets for use in Wideband CDMA and other third
generation standards. If we do not succeed in timely developing and marketing
third generation products that meet the new standards, our business would be
materially adversely affected.
IF OUR CELLULAR TELEPHONE MANUFACTURER CUSTOMERS DO NOT SUCCEED, WE WILL
NOT SUCCEED
Sales of our PDC, TDMA and CDMA chip sets will depend on the success of our
cellular telephone manufacturer customers in developing, introducing and
marketing competitive handsets using these chip sets, and in successfully
competing in their intensely competitive wireless personal communications
markets. In addition, our subsidiary, CTP Systems, will depend on the success of
its manufacturer customers in the market for intra-office wireless
communications systems, known as private branch exchange, or PBX, systems, for
sales of CTP Systems' wireless PBX systems. We will not be successful if our
customers are not successful.
THE FAILURE OF THIRD PARTIES ON WHICH WE RELY TO MANUFACTURE OUR INTEGRATED
CIRCUIT PRODUCTS COULD ADVERSELY AFFECT FUTURE OPERATIONS
All of our integrated circuit products and certain of the components included in
CTP Systems' products are currently made by independent third parties, and we
intend to continue using independent foundries in the future. Accordingly, we
are and will remain dependent on independent foundries to achieve acceptable
manufacturing yields, to allocate to us a sufficient amount of foundry capacity
to meet our needs and to offer us competitive pricing. Since we are a
comparatively small customer of our chip set suppliers, some of these suppliers
have in the past, when market shortages of integrated circuits have occurred,
failed to allocate to us sufficient capacity to manufacture our chip sets upon
receiving our orders. These failures have caused delays in shipments. We
anticipate that if shortages of integrated circuits occur in the future, our
suppliers may again be unable or unwilling to allocate sufficient capacity to us
and may cause delays in shipments of our products to customers. Any failure by
our independent foundries to allocate sufficient capacity to us, or any other
material quality or pricing problems with our independent foundries could have a
material adverse effect on our business, financial condition and results of
operations.
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WE SELL TO A SMALL NUMBER OF CUSTOMERS; THE LOSS OF EITHER OF OUR DISTRIBUTORS
OR ANY OF OUR CUSTOMERS COULD HAVE ADVERSE CONSEQUENCES
We sell substantially all of our baseband chip sets for digital cellular
telephones to Tomen Electronics Corp., our distributor in Japan, and to Tomen
Electronics America Inc., our distributor in the United States. These
distributors sell our products to a small number of cellular telephone
manufacturer customers. In the first six months of 1999, seven cellular
telephone manufacturer customers accounted for substantially all of the sales of
our personal digital cellular, or PDC, baseband chip sets, while two cellular
telephone manufacturers accounted for all sales of our code division multiple
access, or CDMA, chip sets, and two customers accounted for all sales of our
time division multiple access, or TDMA, chip sets. The loss of either of our
distributors or the loss of or significant reduction in the distributors' sales
to any of these cellular telephone manufacturers could have a material adverse
effect on our business, financial condition and results of operations.
DECLINING SALES PRICES OF CHIP SETS COULD ADVERSELY IMPACT OUR FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Prices of wireless personal communications equipment have declined, and we
expect this decline to continue. As a result, prices for our chip set products
have declined and will likely continue to decline. In addition, pricing
competition among handset manufacturers and component suppliers has increased.
If we are unable to offset these price decreases with either increases in unit
volume, changes in our terms of trade, or reductions in per unit costs, our
gross profit would be adversely affected. Since cellular telephone manufacturers
often negotiate supply arrangements well in advance of delivery dates, we must
often commit to price reductions for our products before we are aware of how, or
if, adequate cost reductions can be obtained. If we are unable to lower costs in
response to these price reduction commitments, our business, financial condition
and results of operations could be materially and adversely affected. In
addition, our inability to respond to increased price competition would have a
material adverse effect on our business, financial condition and results of
operations.
WE COULD BE ADVERSELY AFFECTED BY ANY DECREASE IN THE GROWTH OF THE WORLDWIDE
DIGITAL CELLULAR MARKETS IN WHICH WE SELL OUR PRODUCTS
Our increasing sales of chip set products have resulted to date largely from the
rapid growth of the global digital wireless telephone markets in which we sell
our chip set products. A slowdown in the growth of any of these markets could
have a material adverse effect on our business.
RISKS RELATED TO NEW MARKETS FOR OUR TDMA, CDMA AND WIRELESS PBX PRODUCTS
Our success in marketing our TDMA-based and CDMA-based chip sets will depend on,
among other things, the success of the relatively new TDMA and CDMA standards
and growth of these markets worldwide. These standards may not be widely
adopted, and our TDMA or CDMA chip sets or successive generations of these
products may not be successful in the marketplace. In addition, increased sales
of CTP Systems' wireless PBX systems will depend on, among other things, growth
in the market for PBX systems and other low-mobility wireless communications
applications. This market has to date not grown as fast as previously
anticipated, and may not become large enough to support significant sales of CTP
Systems' products.
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WE COMPETE IN DIGITAL WIRELESS TELEPHONE CHIP SET MARKETS AGAINST COMPANIES
WITH GREATER RESOURCES
The digital wireless telephone chip set market is intensely competitive. Many
of our competitors have entrenched market positions, established patents,
copyrights, tradenames, trademarks and other intellectual property rights and
substantial technological capabilities. Our current and potential competitors
in the digital cellular market include:
- - other manufacturers and suppliers of digital signal processing-based
chip sets,
- - cellular telephone manufacturers that develop chip set solutions
internally, and
- - smaller companies offering design solutions.
Many of these competitors have significantly greater financial, technical,
manufacturing, marketing, sales and distribution resources and management
expertise than we do. We believe that we will rely on our ability to compete
successfully based on price, quality, availability, performance and features of
our products, timing of our new product introductions, and customer service and
technical support. Other factors outside our control will also affect our
ability to compete, such as pricing by our competitors, and the timing and
quality of their new product introductions. We may not have the financial
resources, technical expertise, intellectual property, or marketing, sales,
distribution and customer service and technical support capabilities to compete
successfully.
WE MAY BE SUBJECT TO INFRINGEMENT CLAIMS BY THIRD PARTIES
Both the semiconductor and the wireless personal communications industries are
subject to frequent litigation regarding patent and other intellectual property
rights. Leading companies and organizations in the wireless personal
communications industry have numerous patents that protect their intellectual
property rights in these areas. Third parties may assert claims against us, our
distributors or our customers with respect to our existing and future products.
In the event of litigation to determine the validity of any third party's
claims, we could be required to expend significant resources and divert the
efforts of our technical and management personnel, whether or not such
litigation is determined in our favor. In the event of an adverse result of any
such litigation, among other requirements, we could be required to develop
non-infringing technology; to obtain licenses to the technology that is the
subject of the litigation; or to indemnify our customers from their damages
under certain contracts. We may not be successful in developing non-infringing
technology or in obtaining a license to use the technology on commercially
reasonable terms.
OUR SUCCESS DEPENDS IN LARGE PART ON OUR SUCCESS IN THE JAPANESE MARKET
Our future performance will depend, in large part, upon our ability to continue
to compete successfully in the Japanese market. A number of factors could
adversely impact our ability to do so, including any deterioration of existing
trade relations between Japan, Israel and the United States, the imposition of
tariffs in the wireless personal communications industry, or any adverse changes
in Japanese political conditions, trade policy or telecommunications
regulations. To remain competitive in Japan, we must also continue to develop
products that meet the technical requirements of our Japanese customers and
maintain satisfactory relationships with our Japanese customers and
distributors. Our inability to compete in Japan for any reason could have a
material adverse effect on our business, financial condition and results of
operations.
DECLINE IN JAPANESE AND OTHER ECONOMIES COULD HAVE ADVERSE CONSEQUENCES
Since we sell a large percentage of our products in Japan, the current
difficulties in the Japanese economy may materially affect our revenues. If the
Japanese economy remains weak or declines further, our business, financial
condition and results of operations could be materially and adversely affected.
An increasing amount of our sales are made to cellular telephone manufacturers
for sale outside of Japan. The economies of other global regions in which we or
our customers do business, such as North and South America
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and South Korea, may also be negatively affected by the current economic
difficulties in Japan and Asia and other causes. Deterioration of economic
conditions in these regions could have a material negative impact on our
business, financial condition and results of operations.
FLUCTUATION OF EXCHANGE RATES BETWEEN US DOLLAR AND JAPANESE YEN COULD HAVE
ADVERSE EFFECTS
While virtually all of our sales to our Japanese customers are denominated in
United States dollars, a material portion of the sales prices for certain
products we sell to these customers are quoted in dollars linked to Japanese
yen-based prices. Fluctuations in the exchange rate for the United States dollar
in relation to the yen could materially affect the price of our products in
Japan and could have a material adverse effect on our sales and results of
operations. In addition, an increasing number of the components used in our
products are quoted in or linked to yen based prices, and an increase in the
value of yen relative to the United States dollar could materially increase the
cost of these materials. This increase could have a material adverse effect on
our results of operations and financial condition.
SHORT VISIBILITY FOR FUTURE PRODUCT ORDERS COULD ADVERSELY AFFECT QUARTERLY
OPERATING RESULTS
The market for our chip sets is characterized by short-term order and shipment
schedules. Accordingly, since our revenue expectations and planned operating
expenses are in large part based on estimates rather than on firm customer
orders, our quarterly operating results could be materially adversely affected
if orders and revenues do not meet expectations.
RISKS OF INTERNATIONAL OPERATIONS, PARTICULARLY IN ISRAEL
We market and sell our products internationally and have offices and operations
in Israel, Japan and Canada in addition to our offices in the United States. We
are therefore subject to the many risks of doing business internationally and in
maintaining international operations, including:
- - unexpected changes in regulatory requirements,
- - fluctuations in the exchange rate for the United States dollar,
- - the impact of recessions in economies outside the United States,
- - the imposition of tariffs and other barriers and restrictions,
- - the burdens of complying with a variety of foreign laws,
- - global political and economic instability, and
- - changes in diplomatic and trade relationships.
Our principal research and development facilities are located in Israel, and
over 80% of our employees are located in Israel, including a substantial portion
of our senior management and research and development personnel. Israel's
political, economic and military conditions therefore directly affect us. In
addition, we pay many of our expenses in Israel with Israeli currency, and we
are subject to foreign currency fluctuations and to economic pressures resulting
from Israel's generally high rate of inflation. While our functional currency is
the United States dollar, a portion of our expenses, including Israeli based
employee salaries, are denominated in Israeli shekels. In addition, we also have
certain Israeli shekel-based liabilities and assets. As a result, fluctuations
in the value of Israeli currency in comparison to the United States dollar and
inflationary pressures on the Israeli shekel could increase the cost of
technology development, research and development expenses and general and
administrative expenses. Currency fluctuations, changes in the rate of inflation
in Israel or any of the other factors noted above may have a material adverse
effect on our business, financial condition and results of operations.
RISK OF INCREASED INCOME TAXES IN ISRAEL AND THE UNITED STATES
DSPC Technologies Ltd. and CTP Systems, two of our Israeli subsidiaries, operate
as "Approved Enterprises" under Israel's Law for the Encouragement of Capital
Investments, 1959. An Approved Enterprise is eligible for
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significant income tax rate reductions for several years following the first
year in which it has income subject to taxation in Israel, after
consideration of tax losses carried forward. This favorable tax treatment may
not continue, and any change in this tax treatment could have a material
adverse effect on our net income and results of operations. We are not
currently aware of any circumstances that might cause us to lose our
favorable tax treatment. If Israel's tax incentives or rates applicable to
DSPC Technologies or CTP Systems are rescinded or changed, their income taxes
could increase and their results of operations and cash flow would be
adversely affected. In addition, our income tax rate would increase if any of
the earnings of our Israeli subsidiaries were to become subject to United
States federal and state income tax as a result of actual or deemed dividends
or through operation of United States tax rules applicable to "controlled
foreign corporations."
OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE HIGHLY VOLATILE
The price of our common stock has been particularly volatile and will likely
continue to fluctuate in the future. Certain of the factors which may cause the
price of our common stock and our quarterly operating results to fluctuate
include:
- - the timing of our new product introductions and of new product introductions
by our cellular telephone manufacturer customers,
- - the timing of product introduction by our competitors and our customers'
competitors,
- - changes in general economic conditions, particularly in Japan, South Korea,
other countries in the Far East and North and South America,
- - the timing of adoption of new cellular technologies and standards,
- - the mix of products sold,
- - the quality and availability of chip sets manufactured for us by
third parties,
- - acquisitions of other businesses,
- - the timing of sales of wireless subscriber equipment by our customers, and
- - fluctuations in the exchange rates of the currencies in which we do business.
It is possible that in some future quarter, our operating results may be below
public market analyst and investor expectations. If that occurs, the price of
our stock may fall. In addition, in recent years the stock market in general,
and the market for shares of technology stocks such as ours in particular, have
experienced extreme price fluctuations, which have often been unrelated to the
operating performance of affected companies. Such fluctuations could have a
material adverse effect on the market price of our common stock.
RISK OF SECURITIES LITIGATION
In the past, we have been the object of securities class action litigation in
connection with the volatility of the market price of our common stock. If we
were the object of additional securities class action litigation in the future,
it could result in substantial costs and a diversion of management's attention
and resources.
WE MAY BE UNABLE TO ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS
Although we have made efforts to protect our intellectual property rights, other
unauthorized parties may be able to copy portions of our products or reverse
engineer or obtain or use technology or other information that we regard as
proprietary. In addition, the laws of the countries in which our products are or
may be developed, manufactured or sold, including Hong Kong, Japan, South Korea
and Taiwan, may not protect our products and intellectual property rights to the
same extent as the laws of the United States.
MANAGEMENT OF GROWTH
The growth and development in our business has placed, and is expected to
continue to place, a significant strain on our management and operations. To
manage our growth and development, we must continue to implement and
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improve our operational, financial and management information systems and
expand, train and manage our employees. The anticipated increase in product
development, general and administrative, and marketing and sales expenses
coupled with our reliance on wireless telephone equipment manufacturers to
successfully market and develop products that use our products could have an
adverse effect on our performance. Our failure to manage growth effectively
and efficiently could have a material adverse effect on our business,
financial condition and results of operations.
OUR ACQUISITION OF ISOTEL OR OTHER COMPANIES MAY NOT BE SUCCESSFUL
In December 1998, we purchased the assets of Isotel Research, Ltd., a Canadian
software developer. As with any new acquisition, our management will need to
devote attention to the integration of our new Isotel subsidiary with the rest
of our company, and Isotel will likely divert management resources from other
areas of our operations. Our strategy in acquiring Isotel in order to include
software components together with our other products may not be successful. In
addition, we need continually to develop expertise in digital wireless software
development and marketing, which has been a field outside our current area of
focus. Although our purchase agreement with Isotel provides incentives for
Isotel's management to remain with our company for the next year or more, they
may leave after a limited period of time. Any of these factors could have a
material adverse affect on our business and results of operations.
Our strategy continues to include obtaining additional technologies and may
involve acquisitions of products, technologies or businesses from third parties.
Identifying and negotiating these acquisitions may divert substantial management
resources. An acquisition could use substantial cash, could require us to incur
or assume debt obligations, or could involve the issuance of additional common
or preferred stock. The issuance of additional stock would dilute existing
stockholders and could represent an interest senior to the rights of our then
outstanding common stock. An acquisition that is accounted for as a purchase
could involve significant one-time, non-cash write-offs, or could involve the
amortization of goodwill and other intangibles over a number of years, which
would adversely affect earnings in those years. Public market analysts may view
acquisitions outside the digital communications area as a diversion of our focus
on digital communications. For these and other reasons, the market for our stock
may react negatively to the announcement of any acquisition. As with Isotel and
other acquisitions, future acquisitions will require attention from our
management to integrate the acquired entity into our operations and may require
us to develop expertise in fields outside our current area of focus. Management
of the acquired entity may leave after the purchase. An acquired entity may have
unknown liabilities, and its business may not achieve the results anticipated at
the time of the acquisition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, the financial position of the Company is
routinely subjected to a variety of risks, including market risk associated with
interest rate movements and currency rate movements on non - U.S. dollar
denominated assets and liabilities, as well as collectibility of accounts
receivable. The Company regularly assesses these risks and has established
policies and business practices to protect against the adverse effects of these
and other potential exposures. As a result, the Company does not anticipate
material losses in these areas.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously disclosed in the Company's quarterly report on Form 10-Q
for the period ended March 31, 1999, settlement of the previously disclosed
class action lawsuits was approved by the court on April 9, 1999. Under the
terms of the agreement, the claims were settled for $3,000,000, which was funded
by insurance proceeds. The Company believes that settlement was in the best
interests of its investors and continues to deny all allegations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders was held on May 11, 1999.
At the annual meeting, the following matters were voted upon and approved by the
stockholders:
1. The election of two (2) Class I directors to serve for a three-year term
until the 2002 Annual Meeting of Stockholders. The results of the voting were as
follows:
a. Avraham Fischer
Number of shares voted FOR 35,989,064
Number of shares WITHHOLDING AUTHORITY 388,923
b. Andrew Schonzeit
Number of shares voted FOR 36,090,934
Number of shares WITHHOLDING AUTHORITY 287,053
2. Ratification of the appointment of Ernst & Young LLP as independent auditors
of the Company for the fiscal year ending December 31, 1999. The results of the
voting were as follows:
Number of shares voted FOR 36,333,116
Number of shares voted AGAINST 15,048
Number of shares ABSTAINING 29,823
Number of Broker Non-Votes -0-
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ITEM 5. OTHER INFORMATION
On June 1, 1999, David Gilo, the Company's Chairman of the Board, was
appointed as Chief Executive Officer of the Company, replacing Joseph Perl in
that capacity. Dr. Perl resigned as Chief Executive Officer, President and as a
Director of the Company, and he will continue to serve as an employee of the
Company, acting as an advisor to Mr. Gilo.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.32 Amendment to Employment Agreement, dated as of
June 1, 1999, and between DSP Telecom, Inc. and Joseph Perl.
10.33 Employment Agreement, dated as of July 15, 1999, between DSP
Telecom, Inc., and Shmuel Arditi.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
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SIGNATURE
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.
Date: August 10, 1999
DSP COMMUNICATIONS, INC.
By: /s/ David Aber
--------------------
David Aber, Senior Vice President and
Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)
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EXHIBIT 10.32
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment"), is entered
into effective as of the 1st day of June, 1999, by and between DSP TELECOM,
INC., a California corporation (the "Corporation"), and JOSEPH PERL ("Perl").
RECITALS
A. Effective July 22, 1998, Perl and the Corporation entered into an
Employment Agreement (the "Employment Agreement"), for the provision by Perl of
certain services to the Corporation.
B. Effective June 1, 1999, Perl resigned from his position as Chief
Executive Officer of both the Corporation and of the Corporation's parent
corporation, DSP Communications, Inc. ("DSPC"), which resignation was accepted
by the Boards of the Corporation and of DSPC.
C. Notwithstanding Perl's resignation of his offices, Perl and the
Corporation desire that Perl continue to provide services through August 31,
2001, in a non-policy making role.
D. The Corporation and Perl desire to amend the Employment Agreement
according to the terms and conditions set forth in this Amendment.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements and covenants
contained in this Amendment, the parties hereby agree as follows:
1. DUTIES OF PERL. Section 1 of the Employment Agreement
is hereby amended and restated to read in its entirety as follows:
"1. EMPLOYMENT DUTIES. Perl shall act as an advisor to Davidi
Gilo and shall report to Mr. Gilo, in a non-policy making role, on
matters related to the business and affairs of the Corporation and of
DSP Communications, Inc. Notwithstanding anything in the Employment
Agreement to the contrary, Perl shall be entitled to act as a part-time
consultant to other companies that are not directly or indirectly
competitive with the activities of the Corporation or any of its
affiliates and shall cease such activities should they become
competitive."
2. TERM. Section 2 of the Employment Agreement is hereby
amended and restated to read in its entirety as follows:
"2. TERM. This Agreement shall terminate on August 31,
2001, unless terminated sooner under the terms of this Agreement."
3. COMPENSATION.
a. Section 3.c. of the Employment Agreement shall be amended
by so that in 1999, the applicable bonus should be 5/12ths of the amount therein
for calendar year 1999, and after December 31, 1999, no bonus amounts shall be
owing. The 1999 bonus shall be calculated for Perl when it is calculated for
other senior employees with bonuses based upon overall performance of the
Corporation and shall be payable (as to 5/12ths of it only) regardless of
whether Perl remains employed with the Corporation.
<PAGE>
b. Section 3.e of the Employment Agreement shall be amended by
striking therefrom the final two sentences, and replacing those sentences with
the following two sentences:
"To the extent that the Sales Price of the home is less than
the Purchase Price, the principal amount due hereunder shall be reduced
by an amount equal to the amount by which the Purchase Price exceeds
the Sales Price; provided that the Corporation is given the option of
purchasing the home at the proposed Sales Price and/or has agreed to
the proposed Sales Price. As used in this Agreement, the term "Purchase
Price" shall mean One Million Seven Hundred Fifty Thousand Dollars
($1,750,000); and "Sales Price" refers to the price paid by a
subsequent buyer of the Perl home less any applicable real estate
brokerage commissions paid by Perl by reason of the sale."
4. SEVERANCE PAY. Section 7.d. of the Employment Agreement is hereby
amended and restated to read in its entirety as follows:
"d. SEVERANCE PAY. (i) If (A) this Agreement is terminated by
the Corporation without cause pursuant to Section 7.a (above), or by
Perl voluntarily, the Corporation shall pay Perl a severance fee equal
to his monthly salary at his then current rate of fixed salary
compensation, multiplied by the number of full months left until the
end of the term stated herein. THE ABOVE SEVERANCE FEE SHALL BE PAYABLE
IN ACCORDANCE WITH THE CORPORATION'S NORMAL PAYROLL PRACTICES, OR SHALL
BE PAYABLE IN FULL AT THE TIME OF SUCH TERMINATION AT THE CORPORATION'S
OPTION.
"(ii) In the event that this Agreement is terminated
pursuant to Section 7.b(i) (above), the Corporation shall pay Perl a
severance fee equal to his monthly salary at his then-current rate of
fixed salary compensation multiplied by the number six (6), but not
more than the number of full months left in the term of the Agreement.
"(iii) In the event that Perl's employment is
terminated pursuant to Section 7.b(ii) or (iii) (above), he shall be
entitled to no severance pay."
5. OTHER TERMS OF EMPLOYMENT AGREEMENT. Except as amended hereby, the
terms and conditions of the Employment Agreement shall remain in full force and
effect.
6. OFFICE. The Corporation shall allow Perl to use an office at the
Corporation's Cupertino facilities for a period ending August 31, 2001, provided
that he is still performing services pursuant to Section 1 (above).
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
DSP TELECOM, INC. JOSEPH PERL
20300 Stevens Creek Blvd., 4th Floor
Cupertino, California 95013
By: /s/ Stephen P. Pezzola /s/ Joseph Perl
-------------------------------- -----------------
Stephen P. Pezzola, Secretary Joseph Perl
and General Counsel
<PAGE>
EXHIBIT 10.33
EMPLOYMENT AGREEMENT
OF SHMUEL ARDITI
WITH
DSP TELECOM, INC.
THIS EMPLOYMENT AGREEMENT (this "Agreement"), is made and entered into
this 15th day of July, 1999 ("Effective Date"), by and between DSP TELECOM,
INC., a California corporation (hereinafter the "Corporation"), and SHMUEL
ARDITI (hereinafter "Arditi").
RECITAL
The Corporation hereby agrees to employ Arditi, and Arditi hereby
agrees to accept employment with the Corporation, on the terms and conditions
hereinafter set forth.
AGREEMENT
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. EMPLOYMENT DUTIES.
A. CORPORATION'S DUTIES. The Corporation shall allow Arditi
to, and Arditi shall, perform responsibilities normally incident to his position
as Chief Operating Officer of the Corporation's parent corporation, DSP
COMMUNICATIONS, INC. ("DSPC"), or other equivalent position commensurate with
his background, education, experience and professional standing. The Corporation
shall provide Arditi with a private office, stenographic help, office equipment,
supplies, customary services and cooperation suitable for the performance of his
duties.
B. ARDITI'S DUTIES. Unless otherwise agreed to by the parties,
Arditi shall serve as Chief Operating Officer of DSPC or other equivalent
position. Arditi shall devote his full productive time, attention, energy, and
skill to the business of DSPC during the employment term set forth below, and
shall not become engaged to render similar services on behalf of any other
entity while employed hereunder, without the Corporation's written consent.
Arditi shall report directly to Davidi Gilo, the Corporation's Chairman of the
Board and Chief Executive
<PAGE>
Officer. Arditi, however, shall be allowed to perform services for the
Corporation's affiliates, including, without limitation: DSP
TELECOMMUNICATIONS, LTD.; CTP SYSTEMS, LTD.; DSPC (ISRAEL), LTD.; DSPC
(JAPAN), INC.; CTP SYSTEMS, INC.; and ISOTEL CORP. (Arditi may only spend
time with ComBox, Ltd. and may only have limited duties that do not consume
in the aggregate more than five percent (5%) of his time.)
2. TERM. This Agreement shall be for an unlimited period of time
subject to termination as set forth herein. As used herein, "employment term"
refers to the entire period of employment of Arditi hereunder.
3. COMPENSATION. Arditi shall be compensated as follows:
a. FIXED SALARY. Arditi shall receive a fixed annual salary of
One Hundred Fifty-five Thousand Dollars ($155,000) effective May 1st. The
Corporation agrees to review the fixed salary following the end of each twelve
(12) month period during the employment term based upon Arditi's services and
the Corporation's financial results during the calendar year, and to make such
increases as may be determined appropriate in the discretion of the
Corporation's Chief Executive Officer.
b. PAYMENT. Arditi's fixed salary shall be payable on a
semi-monthly basis, in arrears.
c. BONUS COMPENSATION. During the employment term, Arditi
shall be entitled to a management by objective plan and Corporate bonus plan
as determined by the Corporation's Chief Executive Officer.
d. VACATION. Arditi shall accrue paid vacation at the rate
of twenty (20) working days for each twelve (12) months of employment.
Arditi shall be compensated at his usual rate of compensation during any such
vacation. Arditi shall be entitled to ten (10) paid holidays during each
twelve (12) months of employment as set forth in the Corporation's employee
manual as amended from time to time.
e. BENEFITS. During the employment term, Arditi and his
dependents shall be entitled to participate in any group plans or programs
maintained by the Corporation for any employees relating to group health,
disability, life insurance and other related benefits as in effect from time
to time. The level of
2
<PAGE>
benefits shall be based on the salary payable to Arditi. The Corporation and
DSPC shall provide Arditi with Officer Insurance, if reasonably available to
the Corporation and DSPC, and of its officers. Arditi shall in no event
receive less insurance coverage than that available to any other
vice-presidential level employee of the Corporation.
4. EXPENSES. The Corporation shall reimburse Arditi for expenses as
follows:
a. BUSINESS. For Arditi's normal and reasonable expenses
incurred for travel, entertainment and similar items in promoting and
carrying out the business of the Corporation in accordance with the
Corporation's general policy as adopted by the Corporation's management from
time to time, and for all expenses incurred at DSPC's request. As a condition
of reimbursement, Arditi agrees to provide the Corporation with copies of all
available invoices and receipts, and otherwise account to the Corporation in
sufficient detail to allow the Corporation to claim an income tax deduction
for such paid item, if such item is deductible. Reimbursements shall be made
on a monthly, or more frequent, basis.
b. PROFESSIONAL DUES. The Corporation shall also reimburse
Arditi for all professional membership dues incurred at the request of the
Corporation.
c. RELOCATION EXPENSES. The Corporation agrees to reimburse
Arditi for the airfare for Arditi and his immediate family to fly to the
United States (business class for Arditi and his spouse, economy class for
his children), plus up to Twenty Thousand Dollars ($20,000) for all
reasonable expenses incurred and substantiated by receipts for moving Arditi
and his immediate family from Israel to California, including but not limited
to car rental, and any other reasonable expenses associated with Arditi's
relocation. In addition, Arditi shall be given a monthly housing subsidy of
up to an aggregate amount of One Thousand Five Hundred Dollars ($1,500) per
month for the first two (2) years for housing in California, as well as
housing while in Israel on the Corporation's business. For amounts to be
eligible for said housing subsidy, receipts for the expenses must be
delivered to the Corporation. The Corporation also agrees to
3
<PAGE>
reimburse Arditi for the airfare for Arditi and his immediate family to
fly back to Israel (business class for Arditi and his spouse, economy class
for his children) and up to Ten Thousand Dollars ($10,000) for all other
reasonable expenses incurred and substantiated by receipts to relocate Arditi
and his immediate family back to Israel at the conclusion of Arditi's
employment with the Corporation. There shall be no reimbursement for return
travel to Israel should Arditi take other employment in the United States
prior to returning to Israel. The Corporation shall reimburse Arditi for his
reasonable expenses in attaining a Green Card Visa status.
d. TRAVEL TO ISRAEL. For each six (6) months of Arditi's
employment with the Corporation, Arditi and his family will be entitled to
travel once to Israel by business class, at the Corporation's expense.
5. CONFIDENTIALITY AND COMPETITIVE ACTIVITIES. Arditi agrees that
during the employment term, he is in a position of special trust and confidence
and has access to confidential and proprietary information about the
Corporation's business and plans. Arditi agrees that he will not, directly or
indirectly, either as an employee, employer, consultant, agent, principal,
partner, stockholder, corporate officer, director, or in any similar individual
or representative capacity, engage or participate in any business that is in
competition, in any manner whatsoever, with the Corporation. Notwithstanding
anything in the foregoing to the contrary, Arditi shall be allowed to invest as
a shareholder in publicly-traded companies, or through a venture capital firm or
an investment pool. Further notwithstanding anything to the contrary herein,
Arditi may remain as a shareholder and director of ComBox, LTD under the terms
above.
For purposes of this Section 5, the term "Corporation" shall also
mean DSPC or any of its subsidiaries.
4
<PAGE>
6. TRADE SECRETS.
a. SPECIAL TECHNIQUES. It is hereby agreed that the
Corporation has developed or acquired certain products, technology, unique or
special method, manufacturing and assembly processes and techniques, trade
secrets, special written marketing plans and special customer arrangements, and
other proprietary rights and confidential information and shall during the
employment term continue to develop, compile and acquire said items (all
hereinafter collectively referred to as the "Corporation's Property"). It is
expected that Arditi will gain knowledge of and utilize the Corporation's
Property during the course and scope of his employment with the Corporation, and
will be in a position of trust with respect to the Corporation's Property.
b. CORPORATION'S PROPERTY. It is hereby stipulated and agreed
that the Corporation's Property shall remain the Corporation's sole property. In
the event that Arditi's employment is terminated, for whatever reason, Arditi
agrees not to copy, make known, disclose or use, any of the Corporation's
Property without the Corporation's prior written consent, which shall not be
unreasonably withheld. In such event, Arditi further agrees not to endeavor or
attempt in any way to interfere with or induce a breach of any prior proprietary
contractual relationship that the Corporation may have with any employee,
customer, contractor, supplier, representative, or distributor for twelve (12)
months. Arditi agrees upon termination of employment to deliver to the
Corporation all confidential papers, documents, records, lists and notes
(whether prepared by Arditi or others) comprising or containing the
Corporation's Property. Arditi recognizes that violation of covenants and
agreements contained in this Section 6 may result in irreparable injury to the
Corporation which would not be fully compensable by way of money damages.
c. COVENANT NOT TO COMPETE. For a period of one (1) year from
the date of any termination of Arditi's employment with the Corporation,
provided that he has sold substantially all of his stock in the Corporation,
Arditi shall not, directly or indirectly, either as an employee, employer,
consultant, agent,
5
<PAGE>
principal, partner, stockholder, corporate officer, Director, or in any other
individual or representative capacity, engage or participate in any
activities within the State of California, which are the same as, or directly
competitive with, the activities in which the Corporation is presently
engaged.
d. CORPORATION DEFINED. For purposes of this Section 6, the
term "Corporation" shall also mean DSPC and any of its subsidiaries.
7. TERMINATION.
a. GENERAL. The Corporation may terminate Arditi's employment
under this Agreement without cause, upon sixty (60) days' advance written notice
to Arditi. Arditi may voluntarily terminate his employment hereunder upon sixty
(60) days' advance written notice to the Corporation.
b. TERMINATION FOR CAUSE. The Corporation may immediately
terminate Arditi's employment at any time for cause. Termination for cause shall
be effective from the receipt of written notice thereof to Arditi specifying the
grounds for termination and all relevant facts. Cause shall be deemed to include
clearly proven: (i) material neglect of his duties or a significant violation of
any of the provisions of this Agreement, which continues after written notice
and a reasonable opportunity (not to exceed fifteen (15) days) in which to cure;
(ii) fraud, embezzlement, defalcation or conviction of any felonious offense; or
(iii) intentionally imparting confidential information relating to the
Corporation or DSPC or their business to competitors or to other third parties
other than in the course of carrying out his duties hereunder. The Corporation's
exercise of its rights to terminate with cause shall be without prejudice to any
other remedy it may be entitled at law, in equity, or under this Agreement.
c. TERMINATION UPON DEATH OR DISABILITY. This Agreement shall
automatically terminate upon Arditi's death. In addition, if any disability or
incapacity of Arditi to perform his duties as the result of any injury,
sickness, or physical, mental or emotional condition continues for a period of
thirty (30) business days (excluding any accrued vacation) out of any one
hundred twenty (120) calendar day period, the Corporation may
6
<PAGE>
terminate Arditi's employment upon written notice. Payment of salary to
Arditi during any sick leave shall only be to the extent that Arditi has
accrued sick leave or vacation days. Arditi shall accrue sick leave at the
same rate generally available to the Corporation's vice-president level
employees.
d. SEVERANCE PAY. If this Agreement is terminated by the
Corporation without cause pursuant to the first sentence in Section 7.a (above),
the Corporation shall pay Arditi a severance fee equal to his monthly salary at
his then current rate of fixed salary compensation, multiplied by the number six
(6). There shall be no severance in the event that this Agreement is terminated
in accordance with Section 7.b. If Arditi voluntarily terminates his employment,
he shall not be entitled to any severance unless he gives the Corporation at
least four (4) months' written notice and actively works to train a successor
and provides the Corporation with a list of all of his marketing contacts and
current projects ("Arditi Cooperation"). In the event of Arditi's voluntary
termination and Arditi Cooperation, Arditi shall be entitled to a severance fee
equal to his monthly salary at his then current rate of fixed salary
compensation, multiplied by the number four (4).
8. CORPORATE OPPORTUNITIES.
a. DUTY TO NOTIFY. In the event that Arditi, during the
employment term, shall become aware of any material and significant business
opportunity related to the Corporation's or DSPC's business, Arditi shall
promptly notify the Corporation's Chief Executive Officer of such opportunity.
Arditi shall not appropriate for himself or for any other person other than the
Corporation, or any affiliate of the Corporation, any such opportunity unless,
as to any particular opportunity, the Board of Directors, or the Chief Executive
Officer, of the Corporation fails to take appropriate action within thirty (30)
days. Arditi's duty to notify the Corporation and to refrain from appropriating
all such opportunities for thirty (30) days shall neither be limited by, nor
shall such duty limit, the application of the general law of California relating
to the fiduciary duties of an agent or employee.
b. FAILURE TO NOTIFY. In the event that Arditi fails
7
<PAGE>
to notify the Corporation of, or so appropriates, any such opportunity
without the express written consent of the Chief Executive Officer, Arditi
shall be deemed to have violated the provisions of this Section,
notwithstanding the following:
i. The capacity in which Arditi shall have
acquired such opportunity; or
ii. The probable success in the Corporation's
hands of such opportunity.
9. MISCELLANEOUS.
a. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding between the parties with respect to the subject
matters herein, and supersedes and replaces any prior agreements and
understandings, whether oral or written between them with respect to such
matters, specifically excluding stock option agreements, the terms of which
shall not change by the mere fact that Arditi is employed by the Corporation and
not the Israeli affiliate of the Corporation. The provisions of this Agreement
may be waived, altered, amended or repealed in whole or in part only upon the
written consent of both parties to this Agreement.
b. NO IMPLIED WAIVERS. The failure of either party at any time
to require performance by the other party of any provision hereof shall not
affect in any way the right to require such performance at any time thereafter,
nor shall the waiver by either party of a breach of any provision hereof be
taken or held to be a waiver of any subsequent breach of the same provision or
any other provision.
c. PERSONAL SERVICES. It is understood that the services to be
performed by Arditi hereunder are personal in nature and the obligations to
perform such services and the conditions and covenants of this Agreement cannot
be assigned by Arditi. Subject to the foregoing, and except as otherwise
provided herein, this Agreement shall inure to the benefit of, and bind the
successors and assigns of, the Corporation.
d. SEVERABILITY. If for any reason any provision of this
Agreement shall be determined to be invalid or inoperative, the validity and
effect of the other provisions hereof shall not be affected thereby, provided
that no such severability shall be
8
<PAGE>
effective if it causes a material detriment to any party.
e. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, applicable to
contracts between California residents entered into and to be performed entirely
within the State of California.
f. NOTICES. All notices, requests, demands, instructions or
other communications required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given upon delivery,
if delivered personally, or if given by prepaid telegram, or mailed first-class,
postage prepaid, registered or certified mail, return receipt requested, shall
be deemed to have been given seventy-two (72) hours after such delivery, if
addressed to the other party at the addresses as set forth on the signature page
below. Either party hereto may change the address to which such communications
are to be directed by giving written notice to the other party hereto of such
change in the manner above provided.
g. MERGER, TRANSFER OF ASSETS, OR DISSOLUTION OF THE
CORPORATION. This Agreement shall not be terminated by any dissolution of the
Corporation resulting from either merger or consolidation in which the
Corporation is not the consolidated or surviving corporation or a transfer of
all or substantially all of the assets of the Corporation. In such event, the
rights, benefits and obligations herein shall automatically be assigned to the
surviving or resulting corporation or to the transferee of the assets.
IN WITNESS WHEREOF, the parties have executed this Employment Agreement
as of the date first written above.
DSP TELECOM, INC.,
a California corporation
20300 Stevens Creek Blvd, 4th Floor
Cupertino, California 95014
By: /s/ Stephen P. Pezzola /s/ Shmuel Arditi
------------------------- -----------------------------
Stephen P. Pezzola, SHMUEL ARDITI
General Counsel
-----------------------------
-----------------------------
9
<PAGE>
(Print Address)
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN THE QUARTERLY REPORT ON FORM 10-Q OF DSP COMMUNICATIONS,
INC. FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 39,875
<SECURITIES> 87,003
<RECEIVABLES> 20,285
<ALLOWANCES> 200
<INVENTORY> 1,567
<CURRENT-ASSETS> 153,432
<PP&E> 12,925
<DEPRECIATION> 6,913
<TOTAL-ASSETS> 169,298
<CURRENT-LIABILITIES> 32,345
<BONDS> 0
0
0
<COMMON> 40
<OTHER-SE> 136,913
<TOTAL-LIABILITY-AND-EQUITY> 136,953
<SALES> 73,738
<TOTAL-REVENUES> 77,792
<CGS> 42,565
<TOTAL-COSTS> 44,776
<OTHER-EXPENSES> 7,386
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 19,631
<INCOME-TAX> 2,159
<INCOME-CONTINUING> 17,472
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,472
<EPS-BASIC> 0.44
<EPS-DILUTED> 0.40
</TABLE>
