##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended March 28, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number: 000-24923
 CONEXANT SYSTEMS, INC.
  Delaware
(State of incorporation)
    
    25-1799439
(I.R.S. Employer Identification No.)
 4000 MacArthur Boulevard
Newport Beach, California 92660-3095
 (949) 483-4600
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### Table of Contents



FORWARD-LOOKING STATEMENTS
  
    
    pricing pressures and other competitive factors;
    
    our ability to anticipate trends and successfully develop products for which there will
be market demand;
    
    the market acceptance and timing of our new product introductions, demand for existing
products and product quality;
    
    the cyclical nature of the semiconductor industry and the markets addressed by our
products and our customers products;
    
    continuing volatility in the technology sector and the semiconductor industry;
    
    the uncertainties of litigation, including claims of infringement of third-party
intellectual property rights or demands that we license third-party technology, and the
demands it may place on the time and attention of our management and the expense it may
place on our company;
    
    our ability to develop and implement new technologies and to obtain protection for the
related intellectual property;
    
    the risk that the value of our common stock may be adversely affected by market
volatility;
    
    the substantial losses we have incurred recently;
    
    changes in product mix and product obsolescence;
    
    changes in general economic conditions, conditions in the markets we address, and
changes in financial markets, including fluctuations in interest rates and exchange rates;
    
    the ability of our customers to manage inventory;
    
    the availability of manufacturing capacity;
    
    the risk that capital needed for our business and to repay our indebtedness will not be
available when needed;
    
    the ability of management to structure and execute on new restructuring plans;
    
    possible disruptions in commerce related to terrorist activity or armed conflict,




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##### 



PAGEPART I. FINANCIAL INFORMATIONItem 1.
    
    Condensed Consolidated Financial Statements (unaudited):Condensed Consolidated Balance Sheets  March 28, 2008 and September 28, 2007
    
    3Condensed Consolidated Statements of Operations  Three and Six Months Ended March28, 2008 and March 30, 2007
    
    4Condensed Consolidated Statements of Cash Flows  Six Months Ended March 28, 2008and March 30, 2007
    
    5Notes to Condensed Consolidated Financial Statements
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    33Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    41Item 4.
    
    Controls and Procedures
    
    42PART II. OTHER INFORMATION
    
    43Item 1.
    
    Legal Proceedings
    
    43Item 1A.
    
    Risk Factors
    
    43Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    44Item 6.
    
    Exhibits
    
    45SIGNATURE
    
    46EXHIBIT 10.1EXHIBIT 10.2EXHIBIT 10.3EXHIBIT 10.4EXHIBIT 10.5EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
  2




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PART I. FINANCIAL INFORMATION
 
 ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
   March 28,
    
    
    September 28,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    164,112
    
    
    $
    235,605Restricted cash
    
    
    8,800
    
    
    
    8,800Receivables, net of allowances of $961 and $1,659
    
    
    73,084
    
    
    
    80,906Inventories
    
    
    55,387
    
    
    
    63,174Other current assets
    
    
    28,247
    
    
    
    20,361Total current assets
    
    
    329,630
    
    
    
    408,846Property, plant and equipment, net
    
    
    52,650
    
    
    
    67,967Goodwill
    
    
    286,037
    
    
    
    406,323Intangible assets, net
    
    
    18,218
    
    
    
    26,067Other assets
    
    
    62,046
    
    
    
    76,766Total assets
    
    $
    748,581
    
    
    $
    985,969LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    
    
    
    $
    58,000Short-term debt
    
    
    71,096
    
    
    
    80,000Accounts payable
    
    
    69,924
    
    
    
    80,667Accrued compensation and benefits
    
    
    22,809
    
    
    
    26,154Other current liabilities
    
    
    51,751
    
    
    
    70,631Total current liabilities
    
    
    215,580
    
    
    
    315,452Long-term debt
    
    
    471,400
    
    
    
    467,000Other liabilities
    
    
    59,669
    
    
    
    57,002Total liabilities
    
    
    746,649
    
    
    
    839,454Commitments and contingencies (Note 5)Shareholders equity:Preferred and junior preferred stock
    
    
    
    
    
    
    Common stock, $0.01 par value: 1,000,000 shares
authorized; 493,575 and 492,362 shares issued
and outstanding
    
    
    4,936
    
    
    
    4,924Additional paid-in capital
    
    
    4,730,501
    
    
    
    4,721,298Accumulated deficit
    
    
    (4,730,265
    )
    
    
    (4,578,219
    )Accumulated other comprehensive loss
    
    
    (3,135
    )
    
    
    (1,385
    )Shareholder notes receivable
    
    
    (105
    )
    
    
    (103
    )Total shareholders equity
    
    
    1,932
    
    
    
    146,515Total liabilities and shareholders equity
    
    $
    748,581
    
    
    $
    985,969
  3




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Three Months Ended
    
    
    Six Months EndedMarch 28,
    
    
    March 30,
    
    
    March 28,
    
    
    March 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net revenues
    
    $
    173,992
    
    
    $
    199,865
    
    
    $
    370,950
    
    
    $
    445,399Cost of goods sold (1)
    
    
    94,979
    
    
    
    110,016
    
    
    
    192,666
    
    
    
    246,061Gross margin
    
    
    79,013
    
    
    
    89,849
    
    
    
    178,284
    
    
    
    199,338Operating expenses:Research and development (1)
    
    
    52,477
    
    
    
    69,345
    
    
    
    112,867
    
    
    
    140,795Selling, general and administrative (1)
    
    
    23,540
    
    
    
    26,803
    
    
    
    46,641
    
    
    
    54,279Amortization of intangible assets
    
    
    3,069
    
    
    
    6,254
    
    
    
    7,850
    
    
    
    12,492Asset impairment
    
    
    121,655
    
    
    
    155,000
    
    
    
    121,785
    
    
    
    155,000Special charges
    
    
    3,973
    
    
    
    5,121
    
    
    
    9,757
    
    
    
    8,019Total operating expenses
    
    
    204,714
    
    
    
    262,523
    
    
    
    298,900
    
    
    
    370,585Operating loss
    
    
    (125,701
    )
    
    
    (172,674
    )
    
    
    (120,616
    )
    
    
    (171,247
    )Interest expense
    
    
    10,969
    
    
    
    13,220
    
    
    
    22,532
    
    
    
    26,256Other expense (income), net
    
    
    4,148
    
    
    
    (9,660
    )
    
    
    9,493
    
    
    
    (22,721
    )Loss before income taxes and gain of equity method
investments
    
    
    (140,818
    )
    
    
    (176,234
    )
    
    
    (152,641
    )
    
    
    (174,782
    )Provision for income taxes
    
    
    972
    
    
    
    1,232
    
    
    
    2,140
    
    
    
    1,703Loss before gain of equity method investments
    
    
    (141,790
    )
    
    
    (177,466
    )
    
    
    (154,781
    )
    
    
    (176,485
    )(Loss) gain of equity method investments
    
    
    (214
    )
    
    
    44,020
    
    
    
    3,559
    
    
    
    44,015Net loss
    
    $
    (142,004
    )
    
    $
    (133,446
    )
    
    $
    (151,222
    )
    
    $
    (132,470
    )Net loss per share  basic
    
    $
    (0.29
    )
    
    $
    (0.27
    )
    
    $
    (0.31
    )
    
    $
    (0.27
    )Shares used in computing basic net loss per share
    
    
    493,122
    
    
    
    489,302
    
    
    
    492,743
    
    
    
    487,630
 
 (1)
    
    These captions include non-cash employee stock-based compensation expense as follows
(see Note 6): Three Months Ended
    
    Six Months EndedMarch 28,
    
    March 30,
    
    March 28,
    
    March 30,2008
    
    2007
    
    2008
    
    2007Cost of goods sold
    
    $
    81
    
    
    $
    115
    
    
    $
    195
    
    
    $
    218Research and development
    
    
    1,378
    
    
    
    2,715
    
    
    
    3,538
    
    
    
    5,082Selling, general and administrative
    
    
    2,307
    
    
    
    1,941
    
    
    
    3,317
    
    
    
    3,808
  4




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Six Months EndedMarch 28,
    
    
    March 30,2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (151,222
    )
    
    $
    (132,470
    )Adjustments to reconcile net loss to net cash provided by
operating activities, net of effects of acquisitions:Depreciation
    
    
    11,534
    
    
    
    11,989Amortization of intangible assets
    
    
    7,851
    
    
    
    12,492Asset impairments
    
    
    121,785
    
    
    
    155,000Reversals of provision for bad debts, net
    
    
    (698
    )
    
    
    (219
    )Charges (reversals) for inventory provisions, net
    
    
    4,715
    
    
    
    (3,256
    )Deferred income taxes
    
    
    121
    
    
    
    Stock-based compensation
    
    
    7,050
    
    
    
    9,108Decrease (increase) in fair value of derivative instruments
    
    
    14,161
    
    
    
    (6,924
    )Gains of equity method investments
    
    
    28
    
    
    
    (44,015
    )Gains on equity securities and other assets
    
    
    
    
    
    
    (6,190
    )Other items, net
    
    
    451
    
    
    
    (363
    )Changes in assets and liabilities:Receivables
    
    
    8,520
    
    
    
    12,519Inventories
    
    
    3,072
    
    
    
    25,451Accounts payable
    
    
    (10,743
    )
    
    
    (19,586
    )Accrued expenses and other current liabilities
    
    
    (26,636
    )
    
    
    (14,456
    )Other, net
    
    
    10,926
    
    
    
    (7,306
    )Net cash provided by (used in) operating activities
    
    
    915
    
    
    
    (8,226
    )Cash flows from investing activities:Purchases of marketable debt securities
    
    
    
    
    
    
    (25,877
    )Proceeds from sales and maturities of marketable debt securities
    
    
    
    
    
    
    78,645Purchases of equity securities
    
    
    (755
    )
    
    
    (600
    )Proceeds from equity securities and other assets
    
    
    
    
    
    
    105,491Purchases of property, plant and equipment
    
    
    (3,689
    )
    
    
    (14,939
    )Proceeds from sale of property, plant and equipment
    
    
    574
    
    
    
    Payments for acquisitions
    
    
    
    
    
    
    (5,029
    )Net cash (used in) provided by investing activities
    
    
    (3,870
    )
    
    
    137,691Cash flows from financing activities:Interest rate swap security deposit
    
    
    (6,741
    )
    
    
    Proceeds from short-term debt
    
    
    39,287
    
    
    
    Repayments of short-term debt, net of expenses of $1,175 and $1,198
    
    
    (48,191
    )
    
    
    (1,198
    )Proceeds from long-term debt, net of expenses of $9,249
    
    
    
    
    
    
    265,751Repurchases and retirements of long-term debt
    
    
    (53,600
    )
    
    
    (456,500
    )Proceeds from issuance of common stock
    
    
    707
    
    
    
    7,202Repayment of shareholder notes receivable
    
    
    
    
    
    
    21Net cash used in financing activities
    
    
    (68,538
    )
    
    
    (184,724
    )Net decrease in cash and cash equivalents
    
    
    (71,493
    )
    
    
    (55,259
    )Cash and cash equivalents at beginning of period
    
    
    235,605
    
    
    
    225,626Cash and cash equivalents at end of period
    
    $
    164,112
    
    
    $
    170,367
  5




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
 
 Notes to Condensed Consolidated Financial Statements
 (unaudited)
 1. Description of Business
  2. Basis of Presentation and Significant Accounting Policies
 Interim Reporting 
  Fiscal Periods
 Revenue Recognition
 6




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
  Uncertain Tax Positions
   Liquidity
  Reclassifications
 Three Months
    
    
    Six MonthsEnded
    
    
    EndedMarch 30, 2007
    
    
    March 30, 2007Special charges, before reclassification
    
    $
    160,121
    
    
    $
    163,019Asset impairments
    
    
    (155,000
    )
    
    
    (155,000
    )Special charges, after reclassification
    
    $
    5,121
    
    
    $
    8,019
 Review
of Accounting for Research and Development Costs 
 7




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
 Derivative Financial Instruments
     Supplemental
Cash Flow Information
 Non-cash
Investing Activity
 Net Loss Per Share
 8




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
   Three Months Ended
    
    
    Six Months EndedMarch 28,
    
    
    March 30,
    
    
    March 28,
    
    
    March 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Stock options and warrants
    
    
    90,099
    
    
    
    5,486
    
    
    
    91,869
    
    
    
    6,0654.00% convertible
subordinated notes due
February 2007
    
    
    
    
    
    
    3,890
    
    
    
    
    
    
    
    7,3184.00% convertible
subordinated notes due
March 2026
    
    
    50,813
    
    
    
    50,813
    
    
    
    50,813
    
    
    
    50,813140,912
    
    
    
    60,189
    
    
    
    142,682
    
    
    
    64,196
 Long-lived assets
 Goodwill
 Business Enterprise Segments
  
    
    the nature of products and services;
 9




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
 
 
    
    the nature of the production processes;
    
    the type or class of customer for their products and services; and
    
    the methods used to distribute their products or provide their services.
  
    
    the sale of semiconductor products is the only material source of revenue for each of the
Companys three operating segments;
 
    
    the products sold by each of the Companys operating segments use the same standard
manufacturing process;
 
    
    the products marketed by each of the Companys operating segments are sold to similar
customers; and
 
    
    all of the Companys products are sold through its internal sales force and common
distributors.
  Recent Accounting Pronouncements
   10




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
  Business Combinations
 Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB 51
   3. Impairments
   11




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
  Goodwill at September 28, 2007
    
    $
    406,323Additions
    
    
    Impairments
    
    
    (119,600
    )Other Adjustments
    
    
    (686
    )Goodwill at March 28, 2008
    
    $
    286,037
 4. Supplemental Financial Information
 Inventories
  March 28,
    
    
    September 28,2008
    
    
    2007Work-in-process
    
    $
    21,477
    
    
    $
    24,219Finished goods
    
    
    33,910
    
    
    
    38,955$
    55,387
    
    
    $
    63,174
  Intangible Assets
  March 28, 2008
    
    
    September 28, 2007Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Book
    
    
    Carrying
    
    
    Accumulated
    
    
    BookAmount
    
    
    Amortization
    
    
    Value
    
    
    Amount
    
    
    Amortization
    
    
    ValueDeveloped technology
    
    $
    74,985
    
    
    $
    (60,621
    )
    
    $
    14,364
    
    
    $
    75,865
    
    
    $
    (54,605
    )
    
    $
    21,260Product licenses
    
    
    9,327
    
    
    
    (7,044
    )
    
    
    2,283
    
    
    
    9,327
    
    
    
    (6,547
    )
    
    
    2,780Other intangible assets
    
    
    5,116
    
    
    
    (3,545
    )
    
    
    1,571
    
    
    
    6,015
    
    
    
    (3,988
    )
    
    
    2,027$
    89,428
    
    
    $
    (71,210
    )
    
    $
    18,218
    
    
    $
    91,207
    
    
    $
    (65,140
    )
    
    $
    26,067
  Remainder of 2008
    
    2009
    
    2010
    
    2011
    
    2012
    
    ThereafterAmortization expense
    
    $
    7,582
    
    
    $
    7,700
    
    
    $
    1,214
    
    
    $
    679
    
    
    $
    402
    
    
    $
    641
 Mindspeed Warrant
   12




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
  Short-Term Debt
    13




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
 Long-Term Debt
  March 28,
    
    
    September 28,2008
    
    
    2007Floating rate senior secured notes due November 2010
    
    $
    221,400
    
    
    $
    275,0004.00% convertible subordinated notes due March 2026
with a conversion price of $4.92
    
    
    250,000
    
    
    
    250,000Total
    
    
    471,400
    
    
    
    525,000Less: current portion of long-term debt
    
    
    
    
    
    
    (58,000
    )Long-term debt
    
    $
    471,400
    
    
    $
    467,000
 Floating rate senior secured notes due November 2010
   14




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
  4.00% convertible subordinated notes due March 2026
  5. Commitments and Contingencies
 Legal Matters
  IPO Litigation 
 15




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
  Class Action Suit  Graden v. Conexant,
et al.
  Guarantees and Indemnifications
   Other
 Capital Investments
 Income Taxes
 16




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
  17




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
 6. Stock Option Plans
    Three Months Ended
    
    Six Months EndedMarch 28,
    
    March 30,
    
    March 28,
    
    March 30,2008
    
    2007
    
    2008
    
    2007Stock option plans:Expected dividend yield
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Expected stock price volatility
    
    
    67
    %
    
    
    70
    %
    
    
    66
    %
    
    
    71
    %Risk-free interest rate
    
    
    3.2
    %
    
    
    4.7
    %
    
    
    3.8
    %
    
    
    4.7
    %Average expected life (in years)
    
    
    5.25
    
    
    
    5.25
    
    
    
    5.0
    
    
    
    5.25Stock purchase plan:Expected dividend yield
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Expected stock price volatility
    
    
    68
    %
    
    
    53
    %
    
    
    68
    %
    
    
    53
    %Risk-free interest rate
    
    
    3.0
    %
    
    
    4.7
    %
    
    
    3.0
    %
    
    
    4.7
    %Average expected life (in years)
    
    
    0.50
    
    
    
    0.50
    
    
    
    0.50
    
    
    
    0.50
   WeightedAverageShares
    
    
    Exercise PriceOutstanding, September 28, 2007
    
    
    100,812
    
    
    $
    2.39Granted
    
    
    2,735
    
    
    
    0.79Exercised
    
    
    (13
    )
    
    
    0.62Forfeited
    
    
    (17,360
    )
    
    
    2.28Outstanding, March 28, 2008
    
    
    86,174
    
    
    
    2.37Exercisable, March 28, 2008
    
    
    57,550
    
    
    
    2.74
 18




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
  Directors Stock Plan
  Employee Stock Purchase Plan
   2001 Performance Share Plan and 2004 New Hire Equity Incentive Plan
  19




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
 Performance Plan
  WeightedAverage GrantShares
    
    
    Date Fair ValueOutstanding, September 28, 2007
    
    
    900
    
    
    $
    2.29Granted
    
    
    750
    
    
    
    1.24Forfeited
    
    
    (700
    )
    
    
    2.90Outstanding, March 28, 2008
    
    
    950
    
    
    $
    1.46
 WeightedAverage GrantShares
    
    
    Date Fair ValueOutstanding, September 29, 2006
    
    
    275
    
    
    $
    2.90Granted
    
    
    900
    
    
    
    2.29Vested
    
    
    (275
    )
    
    
    2.90Outstanding, March 30, 2007
    
    
    900
    
    
    $
    2.29
  2004 New Hire Plan
    WeightedAverage GrantShares
    
    
    Date Fair ValueOutstanding, September 28, 2007
    
    
    3,110
    
    
    $
    1.15Granted
    
    
    250
    
    
    
    0.45Forfeited
    
    
    
    
    
    
    Outstanding, March 28, 2008
    
    
    3,360
    
    
    $
    1.10
 20




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##### Table of Contents



CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
  7. Comprehensive (Loss) Income
  Three Months Ended
    
    
    Six Months EndedMarch 28,
    
    
    March 30,
    
    
    March 28,
    
    
    March 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net loss
    
    $
    (142,004
    )
    
    $
    (133,446
    )
    
    $
    (151,222
    )
    
    $
    (132,470
    )Other comprehensive (loss) income:Foreign currency translation adjustments
    
    
    1,204
    
    
    
    3,523
    
    
    
    1,503
    
    
    
    4,504Unrealized (losses) gains on marketable securities
    
    
    
    
    
    
    (5,052
    )
    
    
    
    
    
    
    6,744Unrealized (losses) gains on foreign currency
forward hedge contracts
    
    
    (1,805
    )
    
    
    123
    
    
    
    (2,182
    )
    
    
    372Minimum pension liability adjustments
    
    
    37
    
    
    
    55
    
    
    
    (1,073
    )
    
    
    109Other comprehensive (loss) income
    
    
    (564
    )
    
    
    (1,351
    )
    
    
    (1,752
    )
    
    
    11,729Comprehensive loss
    
    $
    (142,568
    )
    
    $
    (134,797
    )
    
    $
    (152,974
    )
    
    $
    (120,741
    )
  March 28,
    
    
    September 28,2008
    
    
    2007Foreign currency translation adjustments
    
    $
    3,495
    
    
    $
    1,994Unrealized gains on foreign currency forward hedge contracts
    
    
    (1,800
    )
    
    
    380Minimum pension liability adjustments
    
    
    (4,830
    )
    
    
    (3,759
    )Accumulated other comprehensive loss
    
    $
    (3,135
    )
    
    $
    (1,385
    )
 8. Special Charges
  Restructuring Charges
   21




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##### Table of Contents



CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
  Fiscal 2008 Restructuring Actions
  Workforce
    
    
    FacilityReductions
    
    
    And Other
    
    
    TotalRestructuring balance, September 28, 2007
    
    $
    
    
    
    $
    
    
    
    $
    Charged to costs and expenses
    
    
    3,042
    
    
    
    1,145
    
    
    
    4,187Cash payments
    
    
    (1,756
    )
    
    
    (53
    )
    
    
    (1,809
    )Restructuring balance, December 28, 2007
    
    
    1,286
    
    
    
    1,092
    
    
    
    2,378Charged to costs and expenses
    
    
    1,107
    
    
    
    85
    
    
    
    1,192Cash payments
    
    
    (1,210
    )
    
    
    (260
    )
    
    
    (1,470
    )Restructuring balance, March 28, 2008
    
    $
    1,183
    
    
    $
    917
    
    
    $
    2,100
 Fiscal 2007 Restructuring Actions
  Workforce
    
    
    FacilityReductions
    
    
    And Other
    
    
    TotalRestructuring balance, September 28, 2007
    
    $
    3,636
    
    
    $
    6,640
    
    
    $
    10,276Charged to costs and expenses
    
    
    373
    
    
    
    2,086
    
    
    
    2,459Non-cash items
    
    
    
    
    
    
    (70
    )
    
    
    (70
    )Cash payments
    
    
    (1,071
    )
    
    
    (632
    )
    
    
    (1,703
    )Restructuring balance December 28, 2007
    
    
    2,938
    
    
    
    8,024
    
    
    
    10,962Charged to costs and expenses
    
    
    (290
    )
    
    
    2,050
    
    
    
    1,760Non-cash items
    
    
    
    
    
    
    1,287
    
    
    
    1,287Cash payments
    
    
    (1,818
    )
    
    
    (1,110
    )
    
    
    (2,928
    )Restructuring balance March 28, 2008
    
    $
    830
    
    
    $
    10,251
    
    
    $
    11,081
 Fiscal 2006 and 2005 Restructuring Actions
  Workforce
    
    
    FacilityReductions
    
    
    And Other
    
    
    TotalRestructuring balance, September 28, 2007
    
    $
    131
    
    
    $
    12,516
    
    
    $
    12,647Charged to costs and expenses
    
    
    
    
    
    
    244
    
    
    
    244Cash payments
    
    
    (1
    )
    
    
    (506
    )
    
    
    (507
    )Restructuring balance, December 28, 2007
    
    
    130
    
    
    
    12,254
    
    
    
    12,384Charged to costs and expenses
    
    
    (130
    )
    
    
    59
    
    
    
    (71
    )Cash payments
    
    
    
    
    
    
    (641
    )
    
    
    (641
    )Restructuring balance, March 28, 2008
    
    $
    
    
    
    $
    11,672
    
    
    $
    11,672
 22




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##### Table of Contents



CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
 9. Other (expense) income, net
  Three Months Ended
    
    
    Six Months EndedMarch 28,
    
    
    March 30,
    
    
    March 28,
    
    
    March 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Investment and interest income
    
    $
    2,042
    
    
    $
    3,800
    
    
    $
    4,813
    
    
    $
    9,189Increase (decrease) in the fair value of
derivative instruments
    
    
    (6,179
    )
    
    
    3,882
    
    
    
    (14,543
    )
    
    
    6,924Gains on investments in equity securities
    
    
    
    
    
    
    1,337
    
    
    
    
    
    
    
    6,469Other
    
    
    (11
    )
    
    
    641
    
    
    
    237
    
    
    
    139Other (expense) income, net
    
    $
    (4,148
    )
    
    $
    9,660
    
    
    $
    (9,493
    )
    
    $
    22,721
   10. Related Party Transactions
 Mindspeed Technologies, Inc.
  Lease Agreement
 23




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##### Table of Contents



CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
 11. Geographic Information
  Three Months Ended
    
    
    Six Months EndedMarch 28,
    
    
    March 30,
    
    
    March 28,
    
    
    March 30,2008
    
    
    2007
    
    
    2008
    
    
    2007United States
    
    $
    10,409
    
    
    $
    15,648
    
    
    $
    18,314
    
    
    $
    42,550Other Americas
    
    
    2,980
    
    
    
    9,939
    
    
    
    9,822
    
    
    
    20,811Total Americas
    
    
    13,389
    
    
    
    25,587
    
    
    
    28,136
    
    
    
    63,361China
    
    
    106,447
    
    
    
    105,162
    
    
    
    223,752
    
    
    
    234,655South Korea
    
    
    10,492
    
    
    
    17,492
    
    
    
    23,565
    
    
    
    38,887Taiwan
    
    
    6,178
    
    
    
    12,444
    
    
    
    16,715
    
    
    
    24,089Other Asia-Pacific
    
    
    28,097
    
    
    
    25,476
    
    
    
    59,368
    
    
    
    57,700Total Asia-Pacific
    
    
    151,209
    
    
    
    160,574
    
    
    
    323,400
    
    
    
    355,331Europe, Middle East and Africa
    
    
    9,394
    
    
    
    13,704
    
    
    
    19,414
    
    
    
    26,707$
    173,992
    
    
    $
    199,865
    
    
    $
    370,950
    
    
    $
    445,399
 24




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##### Table of Contents



CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
   March 28,
    
    
    September 28,2008
    
    
    2007United States
    
    $
    77,282
    
    
    $
    84,267India
    
    
    14,565
    
    
    
    17,377Other Asia-Pacific
    
    
    11,419
    
    
    
    10,934Europe, Middle East and Africa
    
    
    1,565
    
    
    
    1,831$
    104,831
    
    
    $
    114,409
 12. Supplemental Guarantor Financial Information
   25




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##### Table of Contents



CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
  March 28, 2008Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCurrent assets:Cash and cash equivalents
    
    $
    122,827
    
    
    $
    
    
    
    $
    41,285
    
    
    $
    
    
    
    $
    164,112Restricted cash
    
    
    
    
    
    
    
    
    
    
    8,800
    
    
    
    
    
    
    
    8,800Receivables, net
    
    
    (3,753
    )
    
    
    
    
    
    
    76,837
    
    
    
    
    
    
    
    73,084Inventories
    
    
    55,387
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,387Other current assets
    
    
    19,970
    
    
    
    3
    
    
    
    8,274
    
    
    
    
    
    
    
    28,247Total current assets
    
    
    194,431
    
    
    
    3
    
    
    
    135,196
    
    
    
    
    
    
    
    329,630Property and equipment, net
    
    
    26,689
    
    
    
    
    
    
    
    25,961
    
    
    
    
    
    
    
    52,650Goodwill
    
    
    68,748
    
    
    
    30,835
    
    
    
    186,454
    
    
    
    
    
    
    
    286,037Intangible assets, net
    
    
    4,412
    
    
    
    1,572
    
    
    
    12,234
    
    
    
    
    
    
    
    18,218Other assets
    
    
    59,589
    
    
    
    
    
    
    
    2,457
    
    
    
    
    
    
    
    62,046Investments in subsidiaries
    
    
    392,859
    
    
    
    12,892
    
    
    
    
    
    
    
    (405,751
    )
    
    
    Total assets
    
    $
    746,728
    
    
    $
    45,302
    
    
    $
    362,302
    
    
    $
    (405,751
    )
    
    $
    748,581Current liabilities:Short-term debt
    
    $
    
    
    
    $
    
    
    
    $
    71,096
    
    
    $
    
    
    
    $
    71,096Accounts payable
    
    
    61,916
    
    
    
    
    
    
    
    8,008
    
    
    
    
    
    
    
    69,924Accrued compensation and benefits
    
    
    15,395
    
    
    
    
    
    
    
    7,414
    
    
    
    
    
    
    
    22,809Intercompany payable (receivable)
    
    
    110,038
    
    
    
    (169,158
    )
    
    
    59,120
    
    
    
    
    
    
    
    Other current liabilities
    
    
    47,367
    
    
    
    932
    
    
    
    3,452
    
    
    
    
    
    
    
    51,751Total current liabilities
    
    
    234,716
    
    
    
    (168,226
    )
    
    
    149,090
    
    
    
    
    
    
    
    215,580Long-term debt
    
    
    471,400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    471,400Other liabilities
    
    
    56,761
    
    
    
    
    
    
    
    2,908
    
    
    
    
    
    
    
    59,669Total liabilities
    
    
    762,877
    
    
    
    (168,226
    )
    
    
    151,998
    
    
    
    
    
    
    
    746,649Shareholders equity
    
    
    (16,149
    )
    
    
    213,528
    
    
    
    210,304
    
    
    
    (405,751
    )
    
    
    1,932Total liabilities and equity
    
    $
    746,728
    
    
    $
    45,302
    
    
    $
    362,302
    
    
    $
    (405,751
    )
    
    $
    748,581
 26




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##### Table of Contents



CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
 September 28, 2007Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCurrent assets:Cash and cash equivalents
    
    $
    199,263
    
    
    $
    
    
    
    $
    36,342
    
    
    $
    
    
    
    $
    235,605Restricted cash
    
    
    
    
    
    
    
    
    
    
    8,800
    
    
    
    
    
    
    
    8,800Receivables
    
    
    (10,071
    )
    
    
    
    
    
    
    90,977
    
    
    
    
    
    
    
    80,906Inventories
    
    
    63,174
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63,174Other current assets
    
    
    13,028
    
    
    
    2
    
    
    
    7,331
    
    
    
    
    
    
    
    20,361Total current assets
    
    
    265,934
    
    
    
    2
    
    
    
    143,450
    
    
    
    
    
    
    
    408,846Property and equipment, net
    
    
    39,543
    
    
    
    
    
    
    
    28,424
    
    
    
    
    
    
    
    67,967Goodwill
    
    
    68,834
    
    
    
    307,051
    
    
    
    30,438
    
    
    
    
    
    
    
    406,323Intangible assets, net
    
    
    5,764
    
    
    
    18,244
    
    
    
    2,059
    
    
    
    
    
    
    
    26,067Other assets
    
    
    73,635
    
    
    
    
    
    
    
    3,131
    
    
    
    
    
    
    
    76,766Investments in subsidiaries
    
    
    513,340
    
    
    
    11,563
    
    
    
    
    
    
    
    (524,903
    )
    
    
    Total assets
    
    $
    966,510
    
    
    $
    336,860
    
    
    $
    207,502
    
    
    $
    (524,903
    )
    
    $
    985,969Current liabilities:Current portion of long-term debt
    
    $
    58,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    58,000Short-term debt
    
    
    
    
    
    
    
    
    
    
    80,000
    
    
    
    
    
    
    
    80,000Accounts payable
    
    
    77,581
    
    
    
    
    
    
    
    3,086
    
    
    
    
    
    
    
    80,667Accrued compensation and benefits
    
    
    18,478
    
    
    
    
    
    
    
    7,676
    
    
    
    
    
    
    
    26,154Intercompany payable (receivable)
    
    
    96,258
    
    
    
    (169,158
    )
    
    
    72,900
    
    
    
    
    
    
    
    Other current liabilities
    
    
    66,035
    
    
    
    931
    
    
    
    3,665
    
    
    
    
    
    
    
    70,631Total current liabilities
    
    
    316,352
    
    
    
    (168,227
    )
    
    
    167,327
    
    
    
    
    
    
    
    315,452Long-term debt
    
    
    467,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    467,000Other liabilities
    
    
    53,410
    
    
    
    
    
    
    
    3,592
    
    
    
    
    
    
    
    57,002Total liabilities
    
    
    836,762
    
    
    
    (168,227
    )
    
    
    170,919
    
    
    
    
    
    
    
    839,454Shareholders equity
    
    
    129,748
    
    
    
    505,087
    
    
    
    36,583
    
    
    
    (524,903
    )
    
    
    146,515Total liabilities and equity
    
    $
    966,510
    
    
    $
    336,860
    
    
    $
    207,502
    
    
    $
    (524,903
    )
    
    $
    985,969
 27




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##### Table of Contents



CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
  Fiscal Quarter Ended March 28, 2008Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet revenues
    
    $
    165,596
    
    
    $
    (3,278
    )
    
    $
    8,396
    
    
    $
    3,278
    
    
    $
    173,992Cost of goods sold
    
    
    84,350
    
    
    
    
    
    
    
    7,351
    
    
    
    3,278
    
    
    
    94,979Gross margin
    
    
    81,246
    
    
    
    (3,278
    )
    
    
    1,045
    
    
    
    
    
    
    
    79,013Operating expenses:Research and development
    
    
    52,043
    
    
    
    
    
    
    
    434
    
    
    
    
    
    
    
    52,477Selling, general and administrative
    
    
    21,882
    
    
    
    
    
    
    
    1,658
    
    
    
    
    
    
    
    23,540Amortization of intangible assets
    
    
    677
    
    
    
    243
    
    
    
    2,149
    
    
    
    
    
    
    
    3,069Asset impairments
    
    
    121,655
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    121,655Special charges
    
    
    3,459
    
    
    
    
    
    
    
    514
    
    
    
    
    
    
    
    3,973Total operating expenses
    
    
    199,716
    
    
    
    243
    
    
    
    4,755
    
    
    
    
    
    
    
    204,714Operating income (loss)
    
    
    (118,470
    )
    
    
    (3,521
    )
    
    
    (3,710
    )
    
    
    
    
    
    
    (125,701
    )Equity in (loss) income of subsidiaries
    
    
    (4,869
    )
    
    
    (314
    )
    
    
    
    
    
    
    5,183
    
    
    
    Interest expense
    
    
    10,189
    
    
    
    
    
    
    
    780
    
    
    
    
    
    
    
    10,969Other expense (income), net
    
    
    8,234
    
    
    
    
    
    
    
    (4,086
    )
    
    
    
    
    
    
    4,148(Loss) income before income taxes and
gain (loss) on equity method
investments
    
    
    (141,762
    )
    
    
    (3,835
    )
    
    
    (404
    )
    
    
    5,183
    
    
    
    (140,818
    )Provision for income taxes
    
    
    28
    
    
    
    
    
    
    
    944
    
    
    
    
    
    
    
    972Income (loss) before gain (loss) on
equity method investments
    
    
    (141,790
    )
    
    
    (3,835
    )
    
    
    (1,348
    )
    
    
    5,183
    
    
    
    (141,790
    )(Loss) gain on equity method investments
    
    
    (214
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (214
    )Net (loss) income
    
    $
    (142,004
    )
    
    $
    (3,835
    )
    
    $
    (1,348
    )
    
    $
    5,183
    
    
    $
    (142,004
    )
 Fiscal Quarter Ended March 30, 2007Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet revenues
    
    $
    171,348
    
    
    $
    6,198
    
    
    $
    28,517
    
    
    $
    (6,198
    )
    
    $
    199,865Cost of goods sold
    
    
    89,622
    
    
    
    
    
    
    
    26,592
    
    
    
    (6,198
    )
    
    
    110,016Gross margin
    
    
    81,726
    
    
    
    6,198
    
    
    
    1,925
    
    
    
    
    
    
    
    89,849Operating expenses:Research and development
    
    
    69,212
    
    
    
    
    
    
    
    133
    
    
    
    
    
    
    
    69,345Selling, general and administrative
    
    
    23,930
    
    
    
    
    
    
    
    2,873
    
    
    
    
    
    
    
    26,803Amortization of intangible assets
    
    
    754
    
    
    
    5,256
    
    
    
    244
    
    
    
    
    
    
    
    6,254Special charges
    
    
    5,121
    
    
    
    155,000
    
    
    
    
    
    
    
    
    
    
    
    160,121Total operating expenses
    
    
    99,017
    
    
    
    160,256
    
    
    
    3,250
    
    
    
    
    
    
    
    262,523Operating loss
    
    
    (17,291
    )
    
    
    (154,058
    )
    
    
    (1,325
    )
    
    
    
    
    
    
    (172,674
    )Equity in income (loss) of subsidiaries
    
    
    (151,291
    )
    
    
    742
    
    
    
    
    
    
    
    150,549
    
    
    
    Interest expense
    
    
    11,591
    
    
    
    
    
    
    
    1,629
    
    
    
    
    
    
    
    13,220Other income, net
    
    
    4,095
    
    
    
    
    
    
    
    5,565
    
    
    
    
    
    
    
    9,660(Loss) income before income taxes and
gain of equity method investments
    
    
    (176,078
    )
    
    
    (153,316
    )
    
    
    2,611
    
    
    
    150,549
    
    
    
    (176,234
    )Provision for (benefit from) income taxes
    
    
    1,388
    
    
    
    
    
    
    
    (156
    )
    
    
    
    
    
    
    1,232(Loss) income before gain of equity
method investments
    
    
    (177,466
    )
    
    
    (153,316
    )
    
    
    2,767
    
    
    
    150,549
    
    
    
    (177,466
    )Gain of equity method investments
    
    
    44,020
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,020Net (loss) income
    
    $
    (133,446
    )
    
    $
    (153,316
    )
    
    $
    2,767
    
    
    $
    150,549
    
    
    $
    (133,446
    )
 28




---



##### Table of Contents



CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
  Six Months Ended March 28, 2008Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet revenues
    
    $
    336,590
    
    
    $
    7,918
    
    
    $
    34,360
    
    
    $
    (7,918
    )
    
    $
    370,950Cost of goods sold
    
    
    169,644
    
    
    
    
    
    
    
    30,940
    
    
    
    (7,918
    )
    
    
    192,666Gross margin
    
    
    166,946
    
    
    
    7,918
    
    
    
    3,420
    
    
    
    
    
    
    
    178,284Operating expenses:Research and development
    
    
    112,258
    
    
    
    
    
    
    
    609
    
    
    
    
    
    
    
    112,867Selling, general and administrative
    
    
    41,485
    
    
    
    
    
    
    
    5,156
    
    
    
    
    
    
    
    46,641Amortization of intangible assets
    
    
    1,353
    
    
    
    487
    
    
    
    6,010
    
    
    
    
    
    
    
    7,850Asset impairments
    
    
    121,785
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    121,785Special charges
    
    
    8,871
    
    
    
    
    
    
    
    886
    
    
    
    
    
    
    
    9,757Total operating expenses
    
    
    285,752
    
    
    
    487
    
    
    
    12,661
    
    
    
    
    
    
    
    298,900Operating (loss) income
    
    
    (118,806
    )
    
    
    7,431
    
    
    
    (9,241
    )
    
    
    
    
    
    
    (120,616
    )Equity in income (loss) of subsidiaries
    
    
    4,212
    
    
    
    1,327
    
    
    
    
    
    
    
    (5,539
    )
    
    
    Interest expense
    
    
    19,962
    
    
    
    
    
    
    
    2,570
    
    
    
    
    
    
    
    22,532Other expense (income), net
    
    
    19,417
    
    
    
    
    
    
    
    (9,924
    )
    
    
    
    
    
    
    9,493(Loss) income before income taxes and
gain of equity method investments
    
    
    (153,973
    )
    
    
    8,758
    
    
    
    (1,887
    )
    
    
    (5,539
    )
    
    
    (152,641
    )Provision for (benefit from) income taxes
    
    
    808
    
    
    
    
    
    
    
    1,332
    
    
    
    
    
    
    
    2,142(Loss) income before gain of equity
method investments
    
    
    (154,781
    )
    
    
    8,758
    
    
    
    (3,219
    )
    
    
    (5,539
    )
    
    
    (154,781
    )Gain of equity method investments
    
    
    3,559
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,559Net (loss) income
    
    $
    (151,222
    )
    
    $
    8,758
    
    
    $
    (3,219
    )
    
    $
    (5,539
    )
    
    $
    (151,222
    )
 Six Months Ended March 30, 2007Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet revenues
    
    $
    379,822
    
    
    $
    13,103
    
    
    $
    65,577
    
    
    $
    (13,103
    )
    
    $
    445,399Cost of goods sold
    
    
    197,827
    
    
    
    
    
    
    
    61,337
    
    
    
    (13,103
    )
    
    
    246,061Gross margin
    
    
    181,995
    
    
    
    13,103
    
    
    
    4,240
    
    
    
    
    
    
    
    199,338Operating expenses:Research and development
    
    
    139,699
    
    
    
    
    
    
    
    1,096
    
    
    
    
    
    
    
    140,795Selling, general and administrative
    
    
    47,543
    
    
    
    
    
    
    
    6,736
    
    
    
    
    
    
    
    54,279Amortization of intangible assets
    
    
    1,481
    
    
    
    10,512
    
    
    
    499
    
    
    
    
    
    
    
    12,492Special charges
    
    
    8,019
    
    
    
    155,000
    
    
    
    
    
    
    
    
    
    
    
    163,019Total operating expenses
    
    
    196,742
    
    
    
    165,512
    
    
    
    8,331
    
    
    
    
    
    
    
    370,585Operating loss
    
    
    (14,747
    )
    
    
    (152,409
    )
    
    
    (4,091
    )
    
    
    
    
    
    
    (171,247
    )Equity in (loss) income of subsidiaries
    
    
    (148,870
    )
    
    
    1,207
    
    
    
    
    
    
    
    147,663
    
    
    
    Interest expense
    
    
    22,933
    
    
    
    
    
    
    
    3,323
    
    
    
    
    
    
    
    26,256Other income, net
    
    
    11,843
    
    
    
    
    
    
    
    10,878
    
    
    
    
    
    
    
    22,721Income (loss) before income taxes and
gain of equity method investments
    
    
    (174,707
    )
    
    
    (151,202
    )
    
    
    3,464
    
    
    
    147,663
    
    
    
    (174,782
    )Provision for (benefit from) income taxes
    
    
    1,778
    
    
    
    
    
    
    
    (75
    )
    
    
    
    
    
    
    1,703
 29




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##### Table of Contents



CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
 Six Months Ended March 30, 2007Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(Loss) income before gain of equity
method investments
    
    
    (176,485
    )
    
    
    (151,202
    )
    
    
    3,539
    
    
    
    147,663
    
    
    
    (176,485
    )Gain of equity method investments
    
    
    44,015
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,015Net (loss) income
    
    $
    (132,470
    )
    
    $
    (151,202
    )
    
    $
    3,539
    
    
    $
    147,663
    
    
    $
    (132,470
    )
  Six Months Ended March 28, 2008Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by (used in) operating
activities
    
    $
    (14,527
    )
    
    $
    
    
    
    $
    8,149
    
    
    $
    7,293
    
    
    $
    915Cash flows from investing activities:Purchases of accounts receivable
    
    
    
    
    
    
    
    
    
    
    (264,074
    )
    
    
    264,074
    
    
    
    Collections of accounts receivable
    
    
    
    
    
    
    
    
    
    
    271,367
    
    
    
    (271,367
    )
    
    
    Purchases of equity securities and other
assets
    
    
    (755
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (755
    )Proceeds from sale of property and
equipment
    
    
    574
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    574Purchases of property and equipment
    
    
    (2,094
    )
    
    
    
    
    
    
    (1,595
    )
    
    
    
    
    
    
    (3,689
    )Net cash (used in) provided by investing
activities
    
    
    (2,275
    )
    
    
    
    
    
    
    5,698
    
    
    
    (7,293
    )
    
    
    (3,870
    )Cash flows from financing activities:Repayment of short-term debt, net
    
    
    
    
    
    
    
    
    
    
    (8,904
    )
    
    
    
    
    
    
    (8,904
    )Interest rate swap security deposit
    
    
    (6,741
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,741
    )Repayment of long-term debt
    
    
    (53,600
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (53,600
    )Proceeds from common stock
    
    
    707
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    707Net cash provided by (used in) financing
activities
    
    
    (59,634
    )
    
    
    
    
    
    
    (8,904
    )
    
    
    
    
    
    
    (68,538
    )Net increase (decrease) in cash and cash
equivalents
    
    
    (76,436
    )
    
    
    
    
    
    
    4,943
    
    
    
    
    
    
    
    (71,493
    )Cash and cash equivalents at beginning of
period
    
    
    199,263
    
    
    
    
    
    
    
    36,342
    
    
    
    
    
    
    
    235,605Cash and cash equivalents at end of period
    
    $
    122,827
    
    
    $
    
    
    
    $
    41,285
    
    
    $
    
    
    
    $
    164,112
 Six Months Ended March 30, 2007Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet cash used in operating activities
    
    $
    (4,654
    )
    
    $
    
    
    
    $
    8,953
    
    
    $
    (12,525
    )
    
    $
    (8,226
    )Cash flows from investing activities:Payments for acquisitions
    
    
    (5,029
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,029
    )Proceeds from equity securities and other
assets
    
    
    105,491
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    105,491Purchases of equity securities
    
    
    (600
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (600
    )Proceeds from sales and maturities of
marketable securities
    
    
    78,645
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    78,645Purchases of marketable securities
    
    
    (25,877
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,877
    )Purchases of property and equipment
    
    
    (6,840
    )
    
    
    
    
    
    
    (8,099
    )
    
    
    
    
    
    
    (14,939
    )Purchases of accounts receivable
    
    
    
    
    
    
    
    
    
    
    (324,725
    )
    
    
    324,725
    
    
    
    Collections of accounts receivable
    
    
    
    
    
    
    
    
    
    
    327,895
    
    
    
    (327,895
    )
    
    
    Net cash provided by (used in) investing
activities
    
    
    145,790
    
    
    
    
    
    
    
    (4,929
    )
    
    
    (3,170
    )
    
    
    137,691
 30




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##### Table of Contents



CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
 Six Months Ended March 30, 2007Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from financing activities:Proceeds from short-term debt, net
    
    
    
    
    
    
    
    
    
    
    (1,198
    )
    
    
    
    
    
    
    (1,198
    )Proceeds from long-term debt, net
    
    
    265,751
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    265,751Repurchases and retirements of long-term
debt
    
    
    (456,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (456,500
    )Proceeds from issuance of common stock
    
    
    7,202
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,202Repayment of shareholder notes
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21Dividends paid
    
    
    
    
    
    
    
    
    
    
    (15,695
    )
    
    
    15,695
    
    
    
    Net cash used in financing activities
    
    
    (183,526
    )
    
    
    
    
    
    
    (16,893
    )
    
    
    15,695
    
    
    
    (184,724
    )Net decrease in cash and cash equivalents
    
    
    (42,390
    )
    
    
    
    
    
    
    (12,869
    )
    
    
    
    
    
    
    (55,259
    )Cash and cash equivalents at beginning of
period
    
    
    175,398
    
    
    
    
    
    
    
    50,228
    
    
    
    
    
    
    
    225,626Cash and cash equivalents at end of period
    
    $
    133,008
    
    
    $
    
    
    
    $
    37,359
    
    
    $
    
    
    
    $
    170,367
 31




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##### Table of Contents



CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
 13. Subsequent Events
 Asset Sale
    Employment Agreements
   Severance Agreement
  32




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Overview
      Critical Accounting Policies
  Business Enterprise Segments
  33




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##### Table of Contents




    
    the nature of products and services;
    
    the nature of the production processes;
    
    the type or class of customer for their products and services; and
    
    the methods used to distribute their products or provide their services.
  
    
    the sale of semiconductor products is the only material source of revenue for each of
our three operating segments;
    
    the products sold by each of our operating segments use the same standard manufacturing
process;
    
    the products marketed by each of our operating segments are sold to similar customers;
and
    
    all of our products are sold through our internal sales force and common distributors.
  Results of Operations
 Net Revenues
    34




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##### Table of Contents



Gross Margin
    Excess and Obsolete Inventory
  Three Months Ended
    
    
    Six Months EndedMarch 28,
    
    
    March 30,
    
    
    March 28,
    
    
    March 30,(in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007E&O reserves, beginning of period
    
    $
    23,299
    
    
    $
    30,793
    
    
    $
    22,181
    
    
    $
    36,632Additions
    
    
    3,148
    
    
    
    2,191
    
    
    
    7,043
    
    
    
    3,761Release upon sales of product
    
    
    (902
    )
    
    
    (3,482
    )
    
    
    (2,140
    )
    
    
    (6,132
    )Scrap
    
    
    (37
    )
    
    
    (1,346
    )
    
    
    (1,648
    )
    
    
    (6,018
    )Standards adjustments and other
    
    
    (111
    )
    
    
    (1,525
    )
    
    
    (39
    )
    
    
    (1,612
    )E&O reserves, end of period
    
    $
    25,397
    
    
    $
    26,631
    
    
    $
    25,397
    
    
    $
    26,631
  35




---



##### Table of Contents



Research and Development
     Selling, General and Administrative
   Amortization of Intangible Assets
   36




---



##### Table of Contents



Special Charges
   Asset Impairments
   Interest Expense
  Other (expense) income, net
 Three Months Ended
    
    
    Six Months EndedMarch 28,
    
    
    March 30,
    
    
    March 28,
    
    
    March 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Investment and interest income
    
    $
    2,042
    
    
    $
    3,800
    
    
    $
    4,813
    
    
    $
    9,189(Decrease) increase in fair value of
derivative instruments
    
    
    (6,179
    )
    
    
    3,882
    
    
    
    (14,543
    )
    
    
    6,924Gains on investments in equity securities
    
    
    
    
    
    
    1,337
    
    
    
    
    
    
    
    6,469Other
    
    
    (11
    )
    
    
    641
    
    
    
    237
    
    
    
    139$
    (4,148
    )
    
    $
    9,660
    
    
    $
    (9,493
    )
    
    $
    22,721
  37




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##### Table of Contents



Provision for Income Taxes
  Liquidity and Capital Resources
      38




---



##### Table of Contents



Six Months EndedMarch 28,
    
    
    March 30,(in thousands)
    
    2008
    
    
    2007Net cash provided by (used in) operating activities
    
    $
    915
    
    
    $
    (8,226
    )Net cash (used in) provided by investing activities
    
    
    (3,870
    )
    
    
    137,691Net cash (used in) financing activities
    
    
    (68,538
    )
    
    
    (184,724
    )Net (decrease) increase in cash and cash equivalents
    
    $
    (71,493
    )
    
    $
    55,259
    Off-Balance Sheet Arrangements
   39




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##### Table of Contents



Special Purpose Entities
   Recent Accounting Pronouncements
  40




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##### Table of Contents



Business Combinations
 Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB 51
   
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   41




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##### Table of Contents



(in thousands)
    
    Carrying Value
    
    Fair ValueCash and cash equivalents
    
    $
    164,112
    
    
    $
    164,112Mindspeed warrant
    
    
    976
    
    
    
    976Short-term debt
    
    
    71,096
    
    
    
    71,096Long-term debt: senior secured notes
    
    
    221,400
    
    
    
    208,393Long-term debt: convertible subordinated notes
    
    
    250,000
    
    
    
    170,000
  
 ITEM 4. CONTROLS AND PROCEDURES
   42




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 IPO Litigation 
 Class Action Suit  Graden v. Conexant, et al.
 
 ITEM 1A. RISK FACTORS
  ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  43




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##### Table of Contents



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  For
    
    WithheldS. J. Bilodeau
    
    
    360,613,429
    
    
    
    43,213,537D. S. Mercer
    
    
    360,213,537
    
    
    
    43,018,784
  For
    
    
    349,868,474Against
    
    
    52,611,012Abstain
    
    
    1,347,477Broker non-vote
    
    
    N/A
  For
    
    
    384,742,209Against
    
    
    13,247,412Abstain
    
    
    5,837,343Broker non-vote
    
    
    N/A
 44




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##### Table of Contents



Exhibit No.
    
    Description10.1
    
    Separation Agreement and Release, dated April 21, 2008, by and between the Company and
Daniel Artusi10.2
    
    Employment Agreement dated as of April 14, 2008, by and between the Company and D.
Scott Mercer10.3
    
    Employment Agreement dated as of April 14, 2008, by and between the Company and
Christian Scherp10.4
    
    Employment Agreement dated as of April 14, 2008, by and between the Company and Sailesh
Chittipeddi10.5
    
    Employment Agreement dated as of February 18, 2008, by and between the Company and Mark
Peterson.31.1
    
    Certification of the Chief Executive Officer of Periodic Report Pursuant to Rule
13a-15(e) or 15d-15(e).31.2
    
    Certification of the Chief Financial Officer of Periodic Report Pursuant to Rule
13a-15(e) or 15d-15(e).32
    
    Certification by Chief Executive Officer and Chief Financial Officer of Periodic Report
Pursuant to 18 U.S.C. Section 1350.
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##### Table of Contents



SIGNATURE
  CONEXANT SYSTEMS, INC.(Registrant)Date: May 6, 2008
    
    
    
    By
    
    /s/ KAREN ROSCHER

Karen RoscherSenior Vice President and Chief Financial Officer(principal financial officer)
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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description10.1
    
    Separation Agreement and Release, dated April 21, 2008, by and between the Company and
Daniel Artusi10.2
    
    Employment Agreement dated as of April 14, 2008, by and between the Company and D.
Scott Mercer10.3
    
    Employment Agreement dated as of April 14, 2008, by and between the Company and
Christian Scherp10.4
    
    Employment Agreement dated as of April 14, 2008, by and between the Company and Sailesh
Chittipeddi10.5
    
    Employment Agreement dated as of February 18, 2008, by and between the Company and Mark
Peterson.31.1
    
    Certification of the Chief Executive Officer of Periodic Report Pursuant to Rule
13a-15(e) or 15d-15(e).31.2
    
    Certification of the Chief Financial Officer of Periodic Report Pursuant to Rule
13a-15(e) or 15d-15(e).32
    
    Certification by Chief Executive Officer and Chief Financial Officer of Periodic Report
Pursuant to 18 U.S.C. Section 1350.
 47