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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: September 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________.
Commission file number: 000-24923
CONEXANT SYSTEMS, INC.
HOURLY EMPLOYEES' SAVINGS PLAN
(Full title of the plan)
CONEXANT SYSTEMS, INC.
(Name of issuer of the securities held pursuant to the plan)
4311 JAMBOREE ROAD
NEWPORT BEACH, CA 92660
(Address of principal executive office)
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CONEXANT SYSTEMS, INC.
HOURLY EMPLOYEES' SAVINGS PLAN
Index
INDEPENDENT AUDITORS' REPORT 3
FINANCIAL STATEMENTS:
Statements of net assets available for benefits
as of September 30, 2001 and 2000 4
Statements of changes in net assets available for benefits
for the years ended September 30, 2001 and 2000 5
Notes to financial statements 6
SUPPLEMENTAL SCHEDULE:
Schedule of assets held for investment purposes
as of September 30, 2001 13
(Schedules, other than the schedule listed above, are omitted
because of the absence of conditions under which they are required.)
Signature 14
2
INDEPENDENT AUDITORS' REPORT
To Conexant Systems, Inc.
Hourly Employees' Savings Plan:
We have audited the accompanying statements of net assets available for benefits
of Conexant Systems, Inc. Hourly Employees' Savings Plan (the Plan) as of
September 30, 2001 and 2000, and the related statements of changes in net assets
available for benefits for the years then ended. These financial statements are
the responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the net assets available for benefits of the Plan as of September 30,
2001 and 2000, and the changes in net assets available for benefits for the
years then ended in conformity with accounting principles generally accepted in
the United States of America.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule listed in the
Index is presented for the purpose of additional analysis and is not a required
part of the basic financial statements, but is supplementary information
required by the Department of Labor's Rules and Regulations for Reporting and
Disclosure under the Employee Retirement Income Security Act of 1974. This
schedule is the responsibility of the Plan's management. Such schedule has been
subjected to the auditing procedures applied in our audit of the basic 2001
financial statements and, in our opinion, is fairly stated in all material
respects when considered in relation to the basic financial statements taken as
a whole.
/s/ DELOITTE & TOUCHE LLP
Costa Mesa, California
March 22, 2002
3
CONEXANT SYSTEMS, INC.
HOURLY EMPLOYEES' SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF SEPTEMBER 30, 2001 AND 2000
--------------------------------------------------------------------------------
2001 2000
---------- ----------
ASSETS:
Investments, at fair value (Note 3):
Conexant common stock funds $ 596,621 $1,264,893
Shares of mutual funds 1,698,180 2,178,571
Interest in collective trust 367,614 341,810
Participant loans receivable 344,796 358,419
---------- ----------
Total investments 3,007,211 4,143,693
Contributions receivable:
Employer 19 690
Other 1,200 4,541
---------- ----------
Total contributions receivable 1,219 5,231
Cash 6,511 15,783
---------- ----------
Total assets 3,014,941 4,164,707
LIABILITIES:
Payable for excess contributions -- 352
Other liabilities 948 2,733
---------- ----------
Total liabilities 948 3,085
---------- ----------
NET ASSETS AVAILABLE FOR BENEFITS $3,013,993 $4,161,622
========== ==========
The accompanying notes are an integral part of these financial statements.
4
CONEXANT SYSTEMS, INC.
HOURLY EMPLOYEES' SAVINGS PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEARS ENDED SEPTEMBER 30, 2001 AND 2000
------------------------------------------------------------------------------------------------------
2001 2000
----------- -----------
NET ADDITIONS (REDUCTIONS):
Investment income (loss):
Net appreciation (depreciation) in fair value of investments $(1,920,713) $ 985,230
Interest and dividends 131,350 124,629
----------- -----------
Total investment income (loss) (1,789,363) 1,109,859
Contributions:
Participant 694,023 847,855
Employer 154,351 209,937
Rollover 60,213 56,401
----------- -----------
Total contributions 908,587 1,114,193
----------- -----------
Total additions (reductions), net (880,776) 2,224,052
DEDUCTIONS:
Benefits paid and other distributions to participants (265,906) (83,531)
Transfer of funds to Conexant Systems, Inc. Retirement Savings Plan (868) (31,665)
Administrative fees and other deductions (79) (229)
----------- -----------
Total deductions (266,853) (115,425)
----------- -----------
NET INCREASE (DECREASE) (1,147,629) 2,108,627
NET ASSETS AVAILABLE FOR BENEFITS, beginning of year 4,161,622 2,052,995
----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS, end of year $ 3,013,993 $ 4,161,622
=========== ===========
The accompanying notes are an integral part of these financial statements.
5
CONEXANT SYSTEMS, INC.
HOURLY EMPLOYEES' SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2001 AND 2000
--------------------------------------------------------------------------------
1. DESCRIPTION OF PLAN
Effective January 1, 1999, Conexant Systems, Inc. (the Company or Plan
Sponsor) adopted the Conexant Systems, Inc. Hourly Employees' Savings Plan
(the Plan). The following description of the Plan provides only general
information. Participants should refer to the Plan document for a more
complete description of the Plan's provisions.
General - The Plan is a defined-contribution plan designed to qualify
under Internal Revenue Code (the Code) Section 401(a). The Plan covers
substantially all union employees of the Company. The Plan is subject to
the provisions of the Employee Retirement Income Security Act of 1974
(ERISA). At September 30, 2001, the Plan had 299 participants.
Fidelity Investments Institutional Operations Company, Inc. provides
recordkeeping services to the Plan in its capacity as agent for the
trustee, Fidelity Management Trust Company (Fidelity), pursuant to the
terms of the Trust Agreement between Conexant Systems, Inc. Master Trust
(the Trust) and Fidelity Management Trust Company. All of the Plan's
assets and the assets of the Conexant Systems, Inc. Retirement Savings
Plan are kept in the Trust. As of September 30, 2001 and 2000, the Plan
owned 4% and 5%, respectively, of the total net assets available for
benefits in the Trust. Net assets of the Trust and plan-specific expenses
are allocated to the Plans based on specific identification. Net
investment income, gains and losses, and general expenses are allocated
based on the Plans' proportional share of net assets in the Trust.
Contributions - Each year, participants may elect to contribute up to 15%
of pretax/post-tax annual compensation, as defined in the Plan. Total
participant pretax contributions may not exceed $10,500 for the year ended
September 30, 2001. For employees with 52 weeks of service, the Company
will match 55% of employee contributions, up to $550 in the form of
Conexant common stock for the calendar year ended December 31, 2001 and
has matched 60% of employee contributions, up to $450 in the form of
Conexant common stock for the calendar year ended December 31, 2000. The
amount allocated to any participant cannot exceed the lesser of $35,000 or
25% of a participant's total compensation for the Plan year ended
September 30, 2001. For purposes of this limitation, amounts allocated
shall be comprised of Company matching contributions and the participant's
pretax and post-tax contributions. All Company contributions are directed
to the Conexant Stock Fund A (not participant-directed), which was
established for company-matching contributions.
Benefit Distribution - Upon retirement, a participant's account shall be
distributed in either (a) a lump sum payment or (b) ten or fewer annual
installment payments, less any loans outstanding. Account withdrawals are
permitted by participants who suffer certain financial hardships and meet
criteria established by the Internal Revenue Service (IRS). Participants
who terminate employment prior to retirement and whose aggregate vested
account value is less than $5,000, will receive the vested portion of
their accounts in a lump-sum distribution. For aggregate vested accounts
with a value greater than $5,000, the account may be kept in the Plan at
the election of the participant.
6
Participant Accounts - Each participant's account reflects the
participant's contributions, the Company's matching contributions, an
allocation of Plan earnings (losses), and an allocation of administrative
expenses. Allocations of administrative expenses are equally allocated to
all participants.
Participants are permitted at any time to transfer all or a portion of the
value of their interest in the Plan's investment funds (including Conexant
Stock Fund B) which are attributable to their own participant
contributions into one or more of the other investment funds. A
participant who has attained the age of 59 1/2, whether or not retired
from the Company, is permitted to elect at any time to transfer all or a
portion of the total value of their interest in Conexant Stock Fund A to
any one or more of the other investment funds. If a participant who is
still an employee has made such an election, and as a result of that
election, 100% of the participant's interest in Conexant Stock Fund A has
been transferred to one or more of the investment funds, all subsequent
company-matching contributions, if any, made on the participant's behalf
after the effective date of the election will be made in cash and will be
invested in the same manner as his or her participant contributions.
Investment Options - As of September 30, 2001 and 2000, the Plan offered
investment options in the following funds (percentages are approximate and
descriptions are based on information extracted from the related
prospectus):
Conexant Stock Fund B - Conexant Systems, Inc. common stock, cash,
and the proceeds and income on such cash and common stock. Such
option became available to participants in August 2000.
Franklin Small-Cap Growth Fund - A (Fund removed during fiscal year
2001) - Primarily invests in equity securities of companies with
market capitalizations of less than $1.5 billion at the time of the
investment. The fund may also invest a portion of its assets in
foreign securities, including those of developing markets issuers,
which involve greater risk.
Franklin Small Mid-Cap Growth Fund - A (Fund added during fiscal
year 2001) - Normally invests at least 80% of its net assets in
equity securities of small capitalization companies and in the
equity securities of mid-capitalization companies. The fund may
invest in equity securities of larger companies, initial public
offerings of securities and may invest a very small portion of its
assets in private or illiquid securities, such as late-stage
venture capital financings.
Fidelity Fund - Invests primarily in common stocks. The fund
potentially invests a portion of its assets in bonds, including
lower-quality debt securities. Invests in domestic and foreign
issuers.
Fidelity Growth Company Fund - Invests primarily in common stocks
of domestic and foreign issuers. The fund invests in companies that
it believes have above-average growth potential.
7
Fidelity OTC Portfolio Fund - Normally invests primarily in common
stocks with at least 65% of its assets in securities principally
traded on the over-the-counter (OTC) market, which has more small-
and medium-sized companies than other markets. Potentially, the
fund may invest in non-OTC securities. The fund may invest in
domestic and foreign issuers. Securities traded on the OTC market
tend to be from smaller or newer companies, which generally involve
greater investment risk than investments in larger, well-known
companies.
Fidelity Equity-Income Fund - Primary investment focus on
income-producing stocks, such as common and preferred stocks, with
some limited focus on bonds producing income (in general, would
avoid securities without proven earnings or credit).
Fidelity Emerging Markets Fund - Primary investment focus is stock
of companies in emerging markets, with emphasis on countries with
relatively low Gross National Products compared to the world's
major economies, but with potential for rapid growth.
Fidelity Diversified International Fund - Primary focus is stocks
of larger companies which are located outside the United States and
which are viewed as being undervalued.
Fidelity Dividend Growth Fund - Stocks of companies that have
potential to increase the amount of their dividends or to begin
paying them if none are being paid now.
Fidelity Mid-Cap Stock Fund - Primary focus in stocks of mid-size
companies with capitalizations within the range of the Standard &
Poors MidCap 400 (approximate capitalization of $110 million to $5
billion).
Fidelity Freedom Income Fund - 20% in Fidelity stock mutual funds,
40% in Fidelity bond mutual funds, and 40% in Fidelity money market
mutual funds.
Fidelity Freedom 2000 Fund - 30% in Fidelity stock mutual funds,
42% in Fidelity bond mutual funds, and 28% in Fidelity money market
mutual funds. Percentage mix will gradually become more
conservative over time.
Fidelity Freedom 2010 Fund - 49% in Fidelity stock mutual funds,
43% in Fidelity bond mutual funds, and 8% in Fidelity money market
mutual funds. Percentage mix will gradually become more
conservative over time.
Fidelity Freedom 2020 Fund - 72% in Fidelity stock mutual funds and
28% in Fidelity bond mutual funds. Percentage mix will gradually
become more conservative over time.
Fidelity Freedom 2030 Fund - 83% in Fidelity stock mutual funds and
17% in Fidelity bond mutual funds. Percentage mix will gradually
become more conservative over time.
Fidelity U.S. Bond Index Fund - Investment-grade (medium to high
quality) or above with maturities of at least one year, including
U.S. Treasury and U.S. government securities, corporate bonds,
asset-backed and mortgage-backed securities, and U.S.
dollar-denominated foreign securities.
8
Spartan U.S. Equity Index Fund - Primary investment focus on the
500 domestic companies that make up the S&P 500 and in other
securities that are based on the value of that Index.
Fidelity Managed Income Portfolio (Stable Value) Fund - Primarily
invests in investment contracts providing a stated rate of interest
which is offered by major insurance companies, with some investment
in certain types of fixed income securities to provide daily
liquidity.
Vesting - Participant elective deferral contributions are fully vested at
all times. Each participant who is an employee and has at least five years
of vesting service, as defined in the Plan document, or has attained the
age of 65, shall be fully vested in their Company contribution account.
Plan Termination - The Company has the right under the Plan to discontinue
contributions at any time and to amend or terminate the Plan subject to
the provisions of ERISA.
Participant Loans Receivable - Participants who are active employees of
the Company may borrow up to the lesser of 50% of their account balance in
the Plan or $50,000. The minimum loan is $1,000. Loans are repayable
ratably through bi-weekly payroll deductions over a period not to exceed
five years, except for loans for the purchase or construction of a
participant's principal residence, which provide for repayment over a
reasonable period of time that may not exceed ten years. Loans bear
interest at the prime rate, as published by the Wall Street Journal on the
last day of the preceding quarter in which the loan funds, plus 1% (7.75%
at September 30, 2001). As of September 30, 2001 and 2000, no participant
loans were delinquent.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting and Presentation - The accompanying financial
statements and supplemental schedule have been prepared on the accrual
basis of accounting in accordance with accounting principles generally
accepted in the United States of America and present the net assets
available for benefits and changes in those net assets.
Reclassifications - Certain prior year amounts have been reclassified to
conform to the current year presentation.
Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires the Plan administrator to make estimates and assumptions
that affect the reported amounts and disclosures. Accordingly, actual
results may differ from those estimates.
Investment Valuation and Income Recognition - The Plan's investments are
stated at fair value. The Plan's investments are valued at their quoted
market price. Purchases and sales of securities are recorded on a
trade-date basis. Dividends are recorded on the ex-dividend date.
Payment of Benefits - Benefits are recorded when paid.
9
Administrative Expenses - The costs of administering the Plan are paid for
by the Company, with the exception of a per participant fee charged by
Fidelity Investments, which is applied equally to all participant accounts
on a quarterly basis.
Derivative Financial Instruments - Derivative financial instruments are
accounted for in accordance with Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities". SFAS 133 requires that the Plan recognize all
derivatives as either assets or liabilities in the statement of net assets
available for benefits and measure those instruments at fair value. As of
September 30, 2001 and 2000, the Plan had no derivative financial
instruments.
3. INVESTMENTS
The following is a summary of the investments held as of September 30:
2001 2000
------------------------ ------------------------
Cost Fair value Cost Fair value
---------- ---------- ---------- ----------
Conexant Stock Fund A $ 421,512 $ 190,761 $ 310,842 $ 480,442
Conexant Stock Fund B 1,169,132 405,860 577,453 784,451
Franklin Small-Cap Growth -- -- 2,619 2,840
Franklin Small Mid-Cap Growth 7,115 5,005 -- --
Fidelity Fund 10,585 8,578 -- --
Fidelity Growth Company 37,888 21,375 33,706 33,733
Fidelity OTC Portfolio 21,173 14,644 5,636 4,626
Fidelity Equity-Income 195,322 175,357 171,324 182,011
Fidelity Emerging Markets 10,630 6,608 9,606 8,485
Fidelity Diversified International 175,536 137,076 164,441 169,411
Fidelity Dividend Growth 494,643 442,438 493,075 534,291
Fidelity Mid-Cap Stock 307,452 232,347 333,304 359,710
Fidelity Freedom Income 9,857 9,446 11,174 11,318
Fidelity Freedom 2000 104,733 94,853 80,861 82,629
Fidelity Freedom 2010 90,800 79,038 81,394 86,656
Fidelity Freedom 2020 25,584 20,169 25,760 26,973
Fidelity Freedom 2030 60,136 44,906 64,922 68,635
Fidelity U.S. Bond Index 99,462 104,094 134,658 135,958
Spartan U.S. Equity Index 389,471 302,246 451,905 471,295
Fidelity Managed Income
Portfolio (stable value) 367,614 367,614 341,810 341,810
Participant loans receivable
(bearing interest between
approximately 7.75% and 10.50%) 344,796 344,796 358,419 358,419
---------- ---------- ---------- ----------
$4,343,441 $3,007,211 $3,652,909 $4,143,693
========== ========== ========== ==========
10
The following presents investments that represent 5% or more of the Plan's
net assets at fair value as of September 30:
2001 2000
-------- --------
Conexant Stock Fund A $190,761 $480,442
Conexant Stock Fund B 405,860 784,451
Fidelity Equity-Income 175,357 182,011
Fidelity Dividend Growth 442,438 534,291
Fidelity Mid-Cap Stock 232,347 359,710
Spartan U.S. Equity Index 302,246 471,295
Fidelity Managed Income Portfolio 367,614 341,810
Participant loans receivable 344,796 358,419
The Plan's investments (including gains and losses on investments bought
and sold, as well as held) depreciated in value for the year ended
September 30, 2001 and appreciated in value for the year ended September
30, 2000. A summary of the change in fair value of the investments is as
follows:
2001 2000
----------- -----------
Conexant Stock Fund A $ (434,988) $ (12,572)
Conexant Stock Fund B (997,057) 818,377
Mutual funds (488,668) 179,425
----------- -----------
$(1,920,713) $ 985,230
=========== ===========
4. INCOME TAXES
The Plan administrator believes that the Plan is currently designed and
being operated in compliance with the applicable requirements of the Code
and the related trust is tax exempt. Therefore, no provision for income
taxes has been included in the Plan's financial statements.
5. RISKS AND UNCERTAINTIES
The Plan provides for various investment options in any combination of
stocks, bonds, fixed-income securities, and mutual funds. Investment
securities are exposed to various risks, such as interest rate, market,
and credit. Because of the risks associated with certain investment
securities and the uncertainties related to changes in the value of
investment securities, it is possible that changes in the value of such
securities may materially affect participants' account balances and the
amounts reported in the statements of net assets available for benefits
and the statements of changes in net assets available for benefits.
11
6. NONPARTICIPANT-DIRECTED INVESTMENTS
As employer contributions are in the form of Conexant common stock, and
such investments cannot be transferred to other funds, except as described
in Note 1, these investments are considered nonparticipant-directed
investments.
Information about the net assets at fair value and significant components
of the changes in net assets relating to nonparticipant-directed
investments is as follows:
2001 2000
--------- ---------
Net assets:
Conexant Stock Fund A $ 190,761 $ 480,442
========= =========
Changes in net assets:
Contributions $ 154,351 $ 209,937
Net depreciation (434,988) (12,572)
Transfers (37) (2,212)
Withdrawal (9,007) (10,635)
--------- ---------
$(289,681) $ 184,518
========= =========
7. RELATED-PARTY TRANSACTIONS
Certain Plan investments are shares of mutual funds managed by an
affiliate of Fidelity. Fidelity is the trustee as defined by the Plan and,
therefore, these transactions qualify as party-in-interest transactions.
Administrative fees paid by the Plan for investment management services
amounted to $79 and $229 for the years ended September 30, 2001 and 2000,
respectively.
8. SUBSEQUENT EVENTS
On January 7, 2002, the Board of Directors of Conexant Systems, Inc.
approved a resolution to change the plan year-end to December 31,
effective with the plan year beginning October 1, 2001.
On March 12, 2002, the Company completed the sale of its manufacturing
operations, which employs the participants in the Plan. It is expected
that the Plan participants will cease to be employees of the Company as of
May 3, 2002. As a result of this transaction, all Plan participants will
become fully vested in the contributions made by the Company and no
further contributions to the Plan will be permitted after that date.
* * * * * *
12
CONEXANT SYSTEMS, INC.
HOURLY EMPLOYEES' SAVINGS PLAN
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AS OF SEPTEMBER 30, 2001
----------------------------------------------------------------------------------------------------
(c)
(b) Description of investment,
Identity of including maturity date,
issue, borrower, rate of interest, (e)
lessor, or collateral, par, (d) Current
(a) similar party or maturity value Cost value
----------------------- ---------------------------------- --------- ---------
* Fidelity Investments Conexant Stock Fund A $ 421,512 $ 190,761
* Fidelity Investments Conexant Stock Fund B 1,169,132 405,860
Franklin Resources, Inc. Franklin Small Mid-Cap Growth 7,115 5,005
* Fidelity Investments Fidelity Fund 10,585 8,578
* Fidelity Investments Fidelity Growth Company 37,888 21,375
* Fidelity Investments Fidelity OTC Portfolio 21,173 14,644
* Fidelity Investments Fidelity Equity-Income 195,322 175,357
* Fidelity Investments Fidelity Emerging Markets 10,630 6,608
* Fidelity Investments Fidelity Diversified International 175,536 137,076
* Fidelity Investments Fidelity Dividend Growth 494,643 442,438
* Fidelity Investments Fidelity Mid-Cap Stock 307,452 232,347
* Fidelity Investments Fidelity Freedom Income 9,857 9,446
* Fidelity Investments Fidelity Freedom 2000 104,733 94,853
* Fidelity Investments Fidelity Freedom 2010 90,800 79,038
* Fidelity Investments Fidelity Freedom 2020 25,584 20,169
* Fidelity Investments Fidelity Freedom 2030 60,136 44,906
* Fidelity Investments Fidelity U.S. Bond Index 99,462 104,094
* Fidelity Investments Spartan U.S. Equity Index 389,471 302,246
* Fidelity Investments Fidelity Managed Income Portfolio
(stable value) 367,614 367,614
Participant loans receivable (interest
rates ranging from 7.75% to 10.50%) 344,796 344,796
----------- ----------
$ 4,343,441 $3,007,211
=========== ==========
*Identified as a party-of-interest to the Plan.
13
SIGNATURES
THE PLAN. Pursuant to the requirements of the Securities Exchange Act of 1934,
the Plan Administrator has duly caused this annual report to be signed on its
behalf by the undersigned hereunto duly authorized.
CONEXANT SYSTEMS, INC.
HOURLY EMPLOYEES' SAVINGS PLAN
Date: March 27, 2002 By: /s/ Balakrishnan S. Iyer
------------------------------------
Balakrishnan S. Iyer
Senior Vice President and
Chief Financial Officer of
Conexant Systems, Inc. and
Member of the Plan Committee
14
INDEX TO EXHIBITS
Exhibit
Number Description
------- -----------
23 Independent Auditors' Consent