##### 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 December 31, 2005*
 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 þ
    
    Accelerated filer o
    
    Non-accelerated filer o
 o þ




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##### Table of Contents



CAUTIONARY STATEMENT
  2




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##### 



CONEXANT SYSTEMS, INC.
 INDEX
 PAGEPART I. FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (unaudited):Condensed Consolidated Balance Sheets  December 31, 2005 and September 30, 2005
    
    
    4Condensed Consolidated Statements of Operations  Three Months Ended December
31, 2005 and 2004
    
    
    5Condensed Consolidated Statements of Cash Flows  Three Months Ended December
31, 2005 and 2004
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    26Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    50Item 4.
    
    Controls and Procedures
    
    
    52PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    53Item 6.
    
    Exhibits
    
    
    54Signature
    
    
    55EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
 3




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 CONEXANT SYSTEMS, INC.
 
 Condensed Consolidated Balance Sheets
(unaudited, in thousands, except par value)
 December 31,
    
    
    September 30,2005
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    299,228
    
    
    $
    202,704Marketable securities
    
    
    115,570
    
    
    
    139,306Restricted cash
    
    
    7,500
    
    
    
    Receivables, net of allowances of $2,218 and $3,803
    
    
    84,586
    
    
    
    87,240Inventories
    
    
    78,831
    
    
    
    95,329Other current assets
    
    
    14,910
    
    
    
    14,701Total current assets
    
    
    600,625
    
    
    
    539,280Property, plant and equipment, net
    
    
    50,322
    
    
    
    50,700Goodwill
    
    
    714,786
    
    
    
    717,013Intangible assets, net
    
    
    98,803
    
    
    
    106,709Mindspeed warrant
    
    
    28,826
    
    
    
    33,137Marketable securities  long-term
    
    
    51,288
    
    
    
    38,485Other assets
    
    
    93,441
    
    
    
    96,200Total assets
    
    $
    1,638,091
    
    
    $
    1,581,524LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    196,825
    
    
    $
    196,825Short-term debt
    
    
    76,568
    
    
    
    Accounts payable
    
    
    108,041
    
    
    
    108,957Accrued compensation and benefits
    
    
    30,085
    
    
    
    27,505Restructuring and reorganization liabilities
    
    
    27,171
    
    
    
    28,829Other current liabilities
    
    
    64,114
    
    
    
    51,308Total current liabilities
    
    
    502,804
    
    
    
    413,424Long-term debt
    
    
    515,000
    
    
    
    515,000Other liabilities
    
    
    80,177
    
    
    
    84,007Total liabilities
    
    
    1,097,981
    
    
    
    1,012,431Commitments and contingencies (Note 5)Shareholders equity:Preferred and junior preferred stock
    
    
    
    
    
    
    Common stock, $0.01 par value: 1,000,000 shares authorized; 475,921
and 474,683 shares issued; and 474,639 and 473,500 shares
outstanding
    
    
    4,759
    
    
    
    4,747Treasury stock: 1,282 and 1,184 shares, at cost
    
    
    (5,823
    )
    
    
    (5,584
    )Additional paid-in capital
    
    
    4,653,724
    
    
    
    4,657,901Accumulated deficit
    
    
    (4,077,437
    )
    
    
    (4,053,166
    )Accumulated other comprehensive loss
    
    
    (34,807
    )
    
    
    (22,012
    )Notes receivable from stock sales
    
    
    (306
    )
    
    
    (304
    )Unearned compensation
    
    
    
    
    
    
    (12,489
    )Total shareholders equity
    
    
    540,110
    
    
    
    569,093Total liabilities and shareholders equity
    
    $
    1,638,091
    
    
    $
    1,581,524
  4




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##### Table of Contents



CONEXANT SYSTEMS, INC.
 
 Condensed Consolidated Statements of Operations
(unaudited, in thousands, except per share amounts)
 Three Months EndedDecember 31,2005
    
    
    2004Net revenues
    
    $
    230,706
    
    
    $
    140,621Cost of goods sold (1)
    
    
    134,953
    
    
    
    133,465Gross margin
    
    
    95,753
    
    
    
    7,156Operating expenses:Research and development(1)
    
    
    64,359
    
    
    
    72,541Selling, general and administrative(1)
    
    
    38,601
    
    
    
    30,006Amortization of intangible assets
    
    
    7,907
    
    
    
    8,293Special charges
    
    
    915
    
    
    
    19,257Total operating expenses
    
    
    111,782
    
    
    
    130,097Operating loss
    
    
    (16,029
    )
    
    
    (122,941
    )Interest expense
    
    
    8,802
    
    
    
    8,431Other (income) expense, net
    
    
    (1,276
    )
    
    
    (11,186
    )Loss before income taxes
    
    
    (23,555
    )
    
    
    (120,186
    )Provision for income taxes
    
    
    716
    
    
    
    532Net loss
    
    $
    (24,271
    )
    
    $
    (120,718
    )Net loss per
share  basic and diluted
    
    $
    (0.05
    )
    
    $
    (0.26
    )Shares used in computing basic and diluted net loss per share
    
    
    474,043
    
    
    
    468,369
 
 (1) These captions include non-cash employee stock-based compensation expense as
follows (see Note 1): Three Months EndedDecember 31,2005
    
    
    2004Cost of goods
sold
    
    $
    298
    
    
    $
    Research and
development
    
    
    5,290
    
    
    
    2,245Selling,
general and administrative
    
    
    8,728
    
    
    
    744Total
    
    $
    14,316
    
    
    $
    2,989
  5




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##### Table of Contents



CONEXANT SYSTEMS, INC.
 
 Condensed Consolidated Statements of Cash Flows
(unaudited, in thousands)
 Three Months EndedDecember 31,2005
    
    
    2004Cash flows from operating activities:Net loss
    
    $
    (24,271
    )
    
    $
    (120,718
    )Adjustments to reconcile net loss to net cash provided by
(used in) operating activities, net of effects of
acquisitions:Depreciation
    
    
    4,433
    
    
    
    4,838Amortization of intangible assets
    
    
    7,907
    
    
    
    8,293Reduction of provision for bad debt
    
    
    (1,010
    )
    
    
    (500
    )Inventory provisions
    
    
    1,724
    
    
    
    45,001Decrease (increase) in fair value of Mindspeed warrant
    
    
    4,311
    
    
    
    (14,773
    )Losses of equity method investments
    
    
    2,071
    
    
    
    3,089Gain on sale of equity securities
    
    
    (3,837
    )
    
    
    Stock-based compensation
    
    
    14,316
    
    
    
    2,989Other non-cash items, net
    
    
    (1,012
    )
    
    
    (95
    )Changes in assets and liabilities:Receivables
    
    
    3,664
    
    
    
    92,824Inventories
    
    
    14,734
    
    
    
    13,427Accounts payable
    
    
    (916
    )
    
    
    (53,016
    )Agere patent litigation settlement
    
    
    
    
    
    
    (8,000
    )Special charges and other restructuring related items
    
    
    (5,297
    )
    
    
    8,632Accrued expenses and other current liabilities
    
    
    12,069
    
    
    
    (1,291
    )Other
    
    
    1,134
    
    
    
    3,250Net cash provided by (used in) operating activities
    
    
    30,020
    
    
    
    (16,050
    )Cash flows from investing activities:Payments for acquisitions, net of cash acquired
    
    
    
    
    
    
    (14,501
    )Restricted cash
    
    
    (7,500
    )
    
    
    Proceeds from sales of equity securities and other assets
    
    
    4,664
    
    
    
    Purchases of marketable securities
    
    
    (3,539
    )
    
    
    (7,080
    )Sales and maturities of marketable securities
    
    
    2,455
    
    
    
    34,170Purchases of property, plant and equipment
    
    
    (5,780
    )
    
    
    (2,082
    )Investments in businesses
    
    
    (984
    )
    
    
    (1,755
    )Net cash (used in) provided by investing activities
    
    
    (10,684
    )
    
    
    8,752Cash flows from financing activities:Proceeds from short-term debt, net of expenses of $1,044
    
    
    75,524
    
    
    
    Proceeds from issuance of common stock
    
    
    1,664
    
    
    
    397Repayment of notes receivable from stock sales
    
    
    
    
    
    
    196Net cash provided by financing activities
    
    
    77,188
    
    
    
    593Net increase (decrease) in cash and cash equivalents
    
    
    96,524
    
    
    
    (6,705
    )Cash and cash equivalents at beginning of period
    
    
    202,704
    
    
    
    139,031Cash and cash equivalents at end of period
    
    $
    299,228
    
    
    $
    132,326
  6




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##### Table of Contents



CONEXANT SYSTEMS, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 1. Basis of Presentation and Significant Accounting Policies
  Interim Reporting 
 Fiscal Periods
 Supplemental Cash Flow Information
 Revenue Recognition
  Shipping and Handling 
 7




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##### Table of Contents



CONEXANT SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 Recent Accounting Pronouncements 
  Cash, Cash Equivalents and Marketable Securities 
   December 31,
    
    
    September 30,2005
    
    
    2005Cash and cash equivalents
    
    $
    299,228
    
    
    $
    202,704Short-term marketable equity securities (6.2 million
shares of Skyworks Solutions, Inc. at December 31,
2005 and September 30, 2005)
    
    
    31,471
    
    
    
    43,404Short-term marketable debt securities (primarily
domestic government agency securities and corporate
debt securities)
    
    
    84,099
    
    
    
    95,902Subtotal- short-term marketable securities
    
    
    115,570
    
    
    
    139,306Long-term marketable securities (primarily domestic
government agency securities and corporate debt
securities)
    
    
    51,288
    
    
    
    38,485Total cash, cash equivalents and marketable securities
    
    $
    466,086
    
    
    $
    380,495
 8




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##### Table of Contents



CONEXANT SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
  Restricted Cash
 Stock-Based Compensation
   Three Months EndedDecember 31, 2004Net loss, as reported
    
    $
    (120,718
    )Add: stock-based compensation expense included in reported net loss, net of tax
    
    
    2,989Deduct: stock-based compensation expense determined under fair value method, net of tax
    
    
    (18,566
    )Net loss, pro forma
    
    $
    (136,295
    )Net loss per share:Basic  as reported
    
    $
    (0.26
    )Basic  pro forma
    
    $
    (0.29
    )Diluted  as reported
    
    $
    (0.26
    )Diluted  pro forma
    
    $
    (0.29
    )
  9




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CONEXANT SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
    Three Months EndedDecember
31, 2005
    
    

December
31, 2004Stock option plans:Expected dividend yield
    
    
    0
    %
    
    
    0
    %Expected stock price volatility
    
    
    75
    %
    
    
    97
    %Risk free interest rate
    
    
    4.4
    %
    
    
    3.6
    %Average expected life (in years)
    
    
    5.25
    
    
    
    4.50Stock purchase plan:Expected dividend yield
    
    
    0
    %
    
    
    0
    %Expected stock price volatility
    
    
    79
    %
    
    
    97
    %Risk free interest rate
    
    
    4.0
    %
    
    
    4.2
    %Average expected life (in years)
    
    
    0.50
    
    
    
    0.50
  Net Income (Loss) Per Share
 10




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##### Table of Contents



CONEXANT SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
  Three Months EndedDecember 31,2005
    
    2004Stock options and warrants
    
    
    8,647
    
    
    
    1,9215.25% Convertible Subordinated Notes due May 2006
    
    
    5,840
    
    
    
    5,8404.25% Convertible Subordinated Notes due May 2006
    
    
    7,364
    
    
    
    7,3644.00% Convertible Subordinated Notes due February 2007
    
    
    12,137
    
    
    
    12,137Total
    
    
    33,988
    
    
    
    27,262
 2. Business Combinations
 Paxonet Communications, Inc.
   3. Supplemental Financial Information
 Marketable Securities
  Cost or
    
    
    Gross Unrealized
    
    
    Gross UnrealizedAmortized
    
    
    Holding
    
    
    Holding
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDecember 31, 2005:Corporate debt securities
    
    $
    33,802
    
    
    $
    
    
    
    $
    (37
    )
    
    $
    33,765Domestic government agency securities
    
    
    50,437
    
    
    
    
    
    
    
    (103
    )
    
    
    50,334Equity securities
    
    
    52,524
    
    
    
    
    
    
    
    (21,053
    )
    
    
    31,471$
    136,763
    
    
    $
    
    
    
    $
    (21,193
    )
    
    $
    115,570September 30, 2005:Corporate debt securities
    
    $
    37,974
    
    
    $
    
    
    
    $
    (40
    )
    
    $
    37,934Domestic government agency securities
    
    
    58,137
    
    
    
    2
    
    
    
    (171
    )
    
    
    57,968Equity securities
    
    
    52,524
    
    
    
    
    
    
    
    (9,120
    )
    
    
    43,404$
    148,635
    
    
    $
    2
    
    
    $
    (9,331
    )
    
    $
    139,306
  11




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##### Table of Contents



CONEXANT SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
  Cost or
    
    
    Gross Unrealized
    
    
    Gross UnrealizedAmortized
    
    
    Holding
    
    
    Holding
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDecember 31, 2005:Domestic government agency securities
    
    $
    25,826
    
    
    $
    
    
    
    $
    (191
    )
    
    $
    25,635Corporate debt securities
    
    
    25,954
    
    
    
    
    
    
    
    (301
    )
    
    
    25,653$
    51,780
    
    
    $
    
    
    
    $
    (492
    )
    
    $
    51,288September 30, 2005:Domestic government agency securities
    
    $
    15,964
    
    
    $
    
    
    
    $
    (102
    )
    
    $
    15,862Corporate debt securities
    
    
    22,910
    
    
    
    
    
    
    
    (287
    )
    
    
    22,623$
    38,874
    
    
    $
    
    
    
    $
    (389
    )
    
    $
    38,485
  Inventories
  December 31,
    
    
    September 30,2005
    
    
    2005Work-in-process
    
    $
    61,612
    
    
    $
    61,535Finished goods
    
    
    17,219
    
    
    
    33,794$
    78,831
    
    
    $
    95,329
  Goodwill
  Goodwill at September 30, 2005
    
    $
    717,013Additions
    
    
    6,000Adjustments
    
    
    (8,227
    )Goodwill at December 31, 2005
    
    $
    714,786
  12




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##### Table of Contents



CONEXANT SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 Intangible Assets
  December 31, 2005
    
    
    September 30, 2005Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Book
    
    
    Carrying
    
    
    Accumulated
    
    
    BookAmount
    
    
    Amortization
    
    
    Value
    
    
    Amount
    
    
    Amortization
    
    
    ValueDeveloped technology
    
    $
    146,146
    
    
    $
    (61,233
    )
    
    $
    84,913
    
    
    $
    146,146
    
    
    $
    (54,133
    )
    
    $
    92,013Customer base
    
    
    4,660
    
    
    
    (1,998
    )
    
    
    2,662
    
    
    
    4,660
    
    
    
    (1,781
    )
    
    
    2,879Other intangible assets
    
    
    21,888
    
    
    
    (10,660
    )
    
    
    11,228
    
    
    
    21,888
    
    
    
    (10,071
    )
    
    
    11,817$
    172,694
    
    
    $
    (73,891
    )
    
    $
    98,803
    
    
    $
    172,694
    
    
    $
    (65,985
    )
    
    $
    106,709
  Remainderof 2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    ThereafterAmortization expense
    
    $
    22,798
    
    
    $
    29,801
    
    
    $
    29,333
    
    
    $
    13,831
    
    
    $
    2,079
    
    
    $
    961
 Mindspeed Warrant
   Short-Term Debt
  13




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##### Table of Contents



CONEXANT SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 Long-Term Debt
  5.25%
Convertible Subordinated Notes due May 2006 with a conversion price of $22.26
    
    $
    130,0004.25% Convertible Subordinated Notes due May 2006 with a conversion price of $9.08
    
    
    66,8254.00% Convertible Subordinated Notes due February 2007 with a conversion price of $42.43
    
    
    515,000Total
    
    
    711,825Less: current portion of long-term debt
    
    
    (196,825
    )Long-term debt
    
    $
    515,000
 Other (Income) Expense, Net
  Three Months EndedDecember 31,
    
    
    December 31,2005
    
    
    2004Investment and interest income
    
    $
    (3,265
    )
    
    $
    (551
    )Decrease (increase) in fair value of the Mindspeed warrant
    
    
    4,311
    
    
    
    (14,773
    )Losses of equity method investments
    
    
    2,071
    
    
    
    3,089Gains on sales of equity securities
    
    
    (3,837
    )
    
    
    Other
    
    
    (556
    )
    
    
    1,049Other (income) expense, net
    
    $
    (1,276
    )
    
    $
    (11,186
    )
 4. Shareholders Equity
  1 1
 Stock Option Plans
  14




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##### Table of Contents



CONEXANT SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
  WeightedAverage
    
    
    AggregateWeighted
    
    
    Remaining
    
    
    IntrinsicShares
    
    
    Average Exercise
    
    
    Contractual
    
    
    Value(in thousands)
    
    
    Price Per Share
    
    
    Term (in years)
    
    
    (in thousands)Outstanding, September 30, 2005
    
    
    111,195
    
    
    $
    2.81Granted
    
    
    526
    
    
    
    2.18Exercised
    
    
    (1,083
    )
    
    
    1.77Canceled
    
    
    (5,297
    )
    
    
    4.80Outstanding, December 31, 2005
    
    
    105,341
    
    
    $
    2.71
    
    
    
    4.83
    
    
    $
    81,494Exercisable, December 31, 2005
    
    
    70,743
    
    
    $
    3.15
    
    
    
    3.66
    
    
    $
    72,943
   Directors Stock Plan
  Employee Stock Purchase Plan
   Performance Share Plan
  15




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##### Table of Contents



CONEXANT SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 5. Commitments and Contingencies
 Lease Commitments
   Fiscal YearRemainder of 2006
    
    $
    24,9692007
    
    
    28,4902008
    
    
    22,6182009
    
    
    15,4412010
    
    
    15,337Thereafter
    
    
    77,220Total future minimum lease payments
    
    $
    184,075
    Legal Matters
  IPO Litigation 
 16




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##### Table of Contents



CONEXANT SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
  Texas Instruments, Inc. 
 Class Action Suits  Witriol v. Conexant, et al.
 Graden v. Conexant, et al.
 17




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##### Table of Contents



CONEXANT SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
  Shareholder Derivative Suits Witriol
v. Conexant, et al Witriol
 Guarantees and Indemnifications
    18




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##### Table of Contents



CONEXANT SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 Other
   6. Comprehensive Loss
  Three Months EndedDecember 31,
    
    
    December 31,2005
    
    
    2004Net loss
    
    $
    (24,271
    )
    
    $
    (120,718
    )Other comprehensive income (loss):Foreign currency translation adjustments
    
    
    (901
    )
    
    
    1,628Unrealized losses on available-for-sale securities
    
    
    (11,967
    )
    
    
    (15,464
    )Minimum pension liability adjustments
    
    
    73
    
    
    
    87Other comprehensive loss
    
    
    (12,795
    )
    
    
    (13,749
    )Comprehensive loss
    
    $
    (37,066
    )
    
    $
    (134,467
    )
  December 31,
    
    
    September 30,2005
    
    
    2005Foreign currency translation adjustments
    
    $
    (4,321
    )
    
    $
    (3,420
    )Unrealized losses on available-for-sale securities
    
    
    (21,685
    )
    
    
    (9,718
    )Minimum pension liability adjustments
    
    
    (8,801
    )
    
    
    (8,874
    )Accumulated other comprehensive loss
    
    $
    (34,807
    )
    
    $
    (22,012
    )
 7. Special Charges
  Three Months EndedDecember 31,
    
    
    December 31,2005
    
    
    2004Restructuring charges
    
    $
    930
    
    
    $
    11,971Integration (credits) charges
    
    
    (400
    )
    
    
    3,525Asset impairments
    
    
    85
    
    
    
    455Other
    
    
    300
    
    
    
    3,306$
    915
    
    
    $
    19,257
 19




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##### Table of Contents



CONEXANT SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 Restructuring Charges
  2006 Restructuring Action
  Workforce
    
    
    FacilityReductions
    
    
    and Other
    
    
    TotalCharged to costs and expenses
    
    $
    278
    
    
    $
    
    
    
    $
    278Cash payments
    
    
    (5
    )
    
    
    
    
    
    
    (5
    )Restructuring balance, December 31, 2005
    
    $
    273
    
    
    $
    
    
    
    $
    273
 2005 Restructuring Action
 20




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##### Table of Contents



CONEXANT SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
  Workforce
    
    
    FacilityReductions
    
    
    and Other
    
    
    TotalCharged to costs and expenses
    
    $
    19,708
    
    
    $
    7,244
    
    
    $
    26,952Non-cash items
    
    
    (46
    )
    
    
    13,629
    
    
    
    13,583Cash payments
    
    
    (16,118
    )
    
    
    (1,535
    )
    
    
    (17,653
    )Restructuring balance, September 30, 2005
    
    
    3,544
    
    
    
    19,338
    
    
    
    22,882Charged to costs and expenses
    
    
    191
    
    
    
    346
    
    
    
    537Reclassification to accrued compensation and benefits
    
    
    1,899
    
    
    
    
    
    
    
    1,899Cash payments
    
    
    (1,626
    )
    
    
    (1,675
    )
    
    
    (3,301
    )Restructuring balance, December 31, 2005
    
    $
    4,008
    
    
    $
    18,009
    
    
    $
    22,017
 2004 Restructuring Actions
  21




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##### Table of Contents



CONEXANT SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
  Workforce
    
    
    FacilityReductions
    
    
    and Other
    
    
    TotalRecorded in purchase price allocation
    
    $
    1,300
    
    
    $
    13,509
    
    
    $
    14,809Adjusted to purchase price allocation
    
    
    210
    
    
    
    (3,554
    )
    
    
    (3,344
    )Cash payments
    
    
    (536
    )
    
    
    (788
    )
    
    
    (1,324
    )Restructuring balance, September 30, 2004
    
    
    974
    
    
    
    9,167
    
    
    
    10,141Adjusted to purchase price allocation
    
    
    12
    
    
    
    (4,967
    )
    
    
    (4,955
    )Cash payments
    
    
    (986
    )
    
    
    (855
    )
    
    
    (1,841
    )Restructuring balance, September 30, 2005
    
    
    
    
    
    
    3,345
    
    
    
    3,345Credited to costs and expenses
    
    
    
    
    
    
    (55
    )
    
    
    (55
    )Cash payments
    
    
    
    
    
    
    (141
    )
    
    
    (141
    )Restructuring balance, December 31, 2005
    
    $
    
    
    
    $
    3,149
    
    
    $
    3,149
    Workforce
    
    
    FacilityReductions
    
    
    and Other
    
    
    TotalCharged to costs and expenses
    
    $
    7,066
    
    
    $
    1,877
    
    
    $
    8,943Cash payments
    
    
    (2,368
    )
    
    
    (281
    )
    
    
    (2,649
    )Restructuring balance, September 30, 2004
    
    
    4,698
    
    
    
    1,596
    
    
    
    6,294Charged to costs and expenses
    
    
    1,504
    
    
    
    (11
    )
    
    
    1,493Cash payments
    
    
    (6,137
    )
    
    
    (754
    )
    
    
    (6,891
    )Restructuring balance, September 30, 2005
    
    
    65
    
    
    
    831
    
    
    
    896Charged to costs and expenses
    
    
    170
    
    
    
    
    
    
    
    170Cash payments
    
    
    (224
    )
    
    
    (183
    )
    
    
    (407
    )Restructuring balance, December 31, 2005
    
    $
    11
    
    
    $
    648
    
    
    $
    659
 22




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##### Table of Contents



CONEXANT SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 2003 Corporate Restructuring Plan 
  Workforce
    
    
    FacilityReductions
    
    
    and Other
    
    
    TotalCharged to costs and expenses
    
    $
    1,181
    
    
    $
    2,830
    
    
    $
    4,011Cash payments
    
    
    (364
    )
    
    
    
    
    
    
    (364
    )Restructuring balance, September 30, 2003
    
    
    817
    
    
    
    2,830
    
    
    
    3,647Charged to costs and expenses
    
    
    350
    
    
    
    98
    
    
    
    448Credited to costs and expenses
    
    
    (81
    )
    
    
    
    
    
    
    (81
    )Cash payments
    
    
    (1,086
    )
    
    
    (933
    )
    
    
    (2,019
    )Restructuring balance, September 30, 2004
    
    
    
    
    
    
    1,995
    
    
    
    1,995Credited to costs and expenses
    
    
    
    
    
    
    (950
    )
    
    
    (950
    )Cash payments
    
    
    
    
    
    
    (329
    )
    
    
    (329
    )Restructuring balance, September 30, 2005
    
    
    
    
    
    
    716
    
    
    
    716Cash payments
    
    
    
    
    
    
    (144
    )
    
    
    (144
    )Restructuring balance, December 31, 2005
    
    $
    
    
    
    $
    572
    
    
    $
    572
 2002 Corporate and Manufacturing Restructuring Plan
  23




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##### Table of Contents



CONEXANT SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
  Workforce
    
    
    FacilityReductions
    
    
    and Other
    
    
    TotalCharged to costs and expenses
    
    $
    2,437
    
    
    $
    12,519
    
    
    $
    14,956Cash payments
    
    
    (1,664
    )
    
    
    (431
    )
    
    
    (2,095
    )Restructuring balance, September 30, 2002
    
    
    773
    
    
    
    12,088
    
    
    
    12,861Charged to costs and expenses
    
    
    2,898
    
    
    
    888
    
    
    
    3,786Expense reversal
    
    
    
    
    
    
    (1,100
    )
    
    
    (1,100
    )Cash payments
    
    
    (3,173
    )
    
    
    (3,930
    )
    
    
    (7,103
    )Restructuring balance, September 30, 2003
    
    
    498
    
    
    
    7,946
    
    
    
    8,444Credited to costs and expenses
    
    
    (46
    )
    
    
    
    
    
    
    (46
    )Cash payments
    
    
    (452
    )
    
    
    (3,949
    )
    
    
    (4,401
    )Restructuring balance, September 30, 2004
    
    
    
    
    
    
    3,997
    
    
    
    3,997Charged to costs and expenses
    
    
    
    
    
    
    554
    
    
    
    554Cash payments
    
    
    
    
    
    
    (3,561
    )
    
    
    (3,561
    )Restructuring balance, September 30, 2005
    
    
    
    
    
    
    990
    
    
    
    990Cash payments
    
    
    
    
    
    
    (489
    )
    
    
    (489
    )Restructuring balance, December 31, 2005
    
    $
    
    
    
    $
    501
    
    
    $
    501
  Integration (Credits) Charges
   Asset Impairments
   Other
   24




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##### Table of Contents



CONEXANT SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 8. Segment and Geographic Information
   
    
    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 four 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.
   Three Months EndedDecember 31,
    
    
    December 31,2005
    
    
    2004Americas
    
    $
    19,210
    
    
    $
    18,439Asia-Pacific
    
    
    196,864
    
    
    
    105,472Europe, Middle East and Africa
    
    
    14,632
    
    
    
    16,710$
    230,706
    
    
    $
    140,621
  25




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
  Overview
    26




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##### Table of Contents



Results of Operations
 Net Revenues
 Three Months Ended
    
    Change from
    
    Change fromDecember 31,
    
    September 30,
    
    December 31,
    
    September 2005
    
    December 2004(in millions)
    
    2005
    
    2005
    
    2004
    
    Quarter
    
    QuarterNet revenues
    
    $
    230.7
    
    
    $
    214.9
    
    
    $
    140.6
    
    
    
    7
    %
    
    
    64
    %
   Gross Margin
 Three Months Ended
    
    Change from
    
    Change fromDecember 31,
    
    September 30,
    
    December 31,
    
    September 2005
    
    December 2004(in millions)
    
    2005
    
    2005
    
    2004
    
    Quarter
    
    QuarterGross margin
    
    $
    95.8
    
    
    $
    86.6
    
    
    $
    7.2
    
    
    
    11
    %
    
    
    1,238
    %Percent of net revenues
    
    
    42
    %
    
    
    40
    %
    
    
    5
    %
 27




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##### Table of Contents



Three Months EndedDecember 31,
    
    
    December 31,(in millions)
    
    2005
    
    
    2004E&O reserves at beginning of period
    
    $
    44.8
    
    
    $
    23.3Additions
    
    
    2.6
    
    
    
    28.2Release upon sales of product
    
    
    (3.0
    )
    
    
    Scrap
    
    
    (1.6
    )
    
    
    Standards adjustments and other
    
    
    (0.6
    )
    
    
    E&O reserves at end of period
    
    $
    42.2
    
    
    $
    51.5
  28




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##### Table of Contents



Three Months EndedDecember 31,
    
    
    December 31,(in millions)
    
    2005
    
    
    2004LCM reserves at beginning of period
    
    $
    6.7
    
    
    $
    Additions
    
    
    3.0
    
    
    
    18.9Release upon sales of product
    
    
    (0.8
    )
    
    
    LCM reserves at end of period
    
    $
    8.9
    
    
    $
    18.9
 Research and Development
 Three Months Ended
    
    Change from
    
    Change fromDecember 31,
    
    September 30,
    
    December 31,
    
    September 2005
    
    December 2004(in millions)
    
    2005
    
    2005
    
    2004
    
    Quarter
    
    QuarterResearch and development
    
    $
    64.4
    
    
    $
    58.6
    
    
    $
    72.5
    
    
    
    10
    %
    
    
    (11
    )%Percent of net revenues
    
    
    28
    %
    
    
    27
    %
    
    
    52
    %
    29




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##### Table of Contents



Selling, General and Administrative
 Three Months Ended
    
    Change from
    
    Change fromDecember 31,
    
    September 30,
    
    December 31,
    
    September 2005
    
    December 2004(in millions)
    
    2005
    
    2005
    
    2004
    
    Quarter
    
    QuarterSelling, general and administrative
    
    $
    38.6
    
    
    $
    28.4
    
    
    $
    30.0
    
    
    
    36
    %
    
    
    29
    %Percent of net revenues
    
    
    17
    %
    
    
    13
    %
    
    
    21
    %
    Amortization of Intangible Assets
 Three Months EndedDecember 31,
    
    December 31,(in millions)
    
    2005
    
    2004Amortization of intangible assets
    
    $
    7.9
    
    
    $
    8.3
   Special Charges
 Three Months EndedDecember 31,
    
    
    December 31,(in millions)
    
    2005
    
    
    2004Restructuring charges
    
    $
    0.9
    
    
    $
    12.0Asset impairment charges
    
    
    0.1
    
    
    
    0.5Integration (credits) charges
    
    
    (0.4
    )
    
    
    3.5Other special charges
    
    
    0.3
    
    
    
    3.3$
    0.9
    
    
    $
    19.3
   30




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##### Table of Contents



Interest Expense
 Three Months EndedDecember 31,
    
    December 31,(in millions)
    
    2005
    
    2004Interest expense
    
    $
    8.8
    
    
    $
    8.4
  Other (Income) Expense, Net
 Three Months EndedDecember 31,
    
    
    December 31,(in millions)
    
    2005
    
    
    2004Investment and interest income
    
    $
    (3.3
    )
    
    $
    (0.5
    )Decrease (increase) in fair value of the Mindspeed warrant
    
    
    4.3
    
    
    
    (14.8
    )Losses of equity method investments
    
    
    2.1
    
    
    
    3.1Gains on sales of equity securities
    
    
    (3.8
    )
    
    
    Other
    
    
    (0.6
    )
    
    
    1.0Other (income) expense, net
    
    $
    (1.3
    )
    
    $
    (11.2
    )
    Provision for Income Taxes
   31




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Liquidity and Capital Resources
     32




---



##### Table of Contents



December 31,
    
    
    September 30,(in millions)
    
    2005
    
    
    2005Cash and cash equivalents
    
    $
    299.2
    
    
    $
    202.7Short-term marketable debt securities (primarily
domestic government agency securities and corporate
debt securities)
    
    
    84.1
    
    
    
    95.9Long-term marketable debt securities (primarily
domestic government agency securities and corporate
debt securities)
    
    
    51.3
    
    
    
    38.5Subtotal
    
    
    434.6
    
    
    
    337.1Short-term marketable equity securities (6.2 million
shares of Skyworks Solutions, Inc. at December 31,
2005 and September 30, 2005)
    
    
    31.5
    
    
    
    43.4Total cash, cash equivalents and marketable securities
    
    $
    466.1
    
    
    $
    380.5
     Payments due by periodLess than 1
    
    
    
    
    
    
    
    
    
    
    More than 5(in millions)
    
    Total
    
    
    year
    
    
    1-3 years
    
    
    3-5 years
    
    
    yearsLong-term debt
    
    $
    711.8
    
    
    $
    196.8
    
    
    $
    515.0
    
    
    $
    
    
    
    $
    Short-term debt
    
    
    76.6
    
    
    
    76.6
    
    
    
    
    
    
    
    
    
    
    
    Interest on
debt
    
    
    41.4
    
    
    
    29.5
    
    
    
    11.9
    
    
    
    
    
    
    
    Operating leases
    
    
    184.1
    
    
    
    25.0
    
    
    
    51.1
    
    
    
    30.8
    
    
    
    77.2Assigned leases
    
    
    6.6
    
    
    
    2.6
    
    
    
    1.8
    
    
    
    1.3
    
    
    
    0.9Capital commitments
    
    
    4.9
    
    
    
    4.9
    
    
    
    
    
    
    
    
    
    
    
    $
    1,025.4
    
    
    $
    335.4
    
    
    $
    579.8
    
    
    $
    32.1
    
    
    $
    78.1
  33




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##### Table of Contents



Off-Balance Sheet Arrangements
   Special Purpose Entities
   Recent Accounting Pronouncements
   Critical Accounting Policies
  34




---



##### Table of Contents



Business combinations
  Impairment of long-lived assets
   Deferred income taxes
  35




---



##### Table of Contents



Inventories
  Allowance for doubtful accounts
  Non-marketable equity securities
  Revenue recognition
  36




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##### Table of Contents



Valuation of derivative instruments
  Restructuring charges
  Employee benefit plans
  Stock-based compensation
  37




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##### Table of Contents



Risk Factors
   We may be subject to claims of infringement of third-party intellectual property rights or demands
that we license third-party technology, which could result in significant expense and loss of our
ability to use, make, sell, export or import our products or one or more components comprising our
products.
  
    
    pay substantial damages;
    
    cease the manufacture, use or sale of infringing products;
    
    discontinue the use of infringing technology;
    
    expend significant resources to develop non-infringing technology; or
    
    license technology from the third party claiming infringement, which license may not
be available on commercially reasonable terms, or at all.
 38




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##### Table of Contents



We face a risk that capital needed for our business and to repay our convertible notes will not be
available when we need it.
    The value of our common stock may be adversely affected by market volatility.
  
    
    our operating and financial performance and prospects;
    
    our ability to repay our debt;
    
    the depth and liquidity of the market for our common stock;
    
    investor perception of us and the industry and markets in which we operate;
    
    our inclusion in, or removal from, any equity market indices;
    
    the level of research coverage of our common stock;
    
    changes in earnings estimates or buy/sell recommendations by analysts;
    
    general financial, domestic, international, economic and
other market conditions; and
    
    judgments favorable or adverse to us.
  We have recently incurred substantial losses and we anticipate additional future losses.
   We operate in the highly cyclical semiconductor industry, which is subject to significant
downturns.
   39




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##### Table of Contents



Our operating results may be negatively affected by substantial quarterly and annual fluctuations
and market downturns.
  
    
    changes in end-user demand for the products manufactured and sold by our customers;
    
    the timing of receipt, reduction or cancellation of significant orders by customers;
    
    seasonal customer demand;
    
    the gain or loss of significant customers;
    
    market acceptance of our products and our customers products;
    
    our ability to develop, introduce and market new products and technologies on a timely basis;
    
    the timing and extent of product development costs;
    
    new product and technology introductions by competitors;
    
    changes in the mix of products we develop and sell;
    
    fluctuations in manufacturing yields;
    
    availability and cost of products from our suppliers;
    
    intellectual property disputes; and
    
    the effects of competitive pricing pressures, including decreases in average selling
prices of our products.
  We are subject to intense competition.
   
    
    time-to-market;
    
    product quality, reliability and performance;
    
    level of integration;
    
    price and total system cost;
    
    compliance with industry standards;
    
    design and engineering capabilities;
    
    strategic relationships with customers;
    
    customer support;
    
    new product innovation; and
    
    access to manufacturing capacity.
  40




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##### Table of Contents



The loss of a key customer could seriously impact our revenue levels and harm our business. In
addition, if we are unable to continue to sell existing and new products to our key customers in
significant quantities or to attract new significant customers, our future operating results could
be adversely affected.
   
    
    most of our customers can stop incorporating our products into their own products with limited notice
to us and suffer little or no penalty;
    
    our agreements with our customers typically do not require them to purchase a minimum quantity of our
products;
    
    many of our customers have pre-existing or concurrent relationships with our current or
potential competitors that may affect the customers decisions to purchase our products;
    
    our customers face intense competition from other manufacturers that do not use our products; and
    
    some of our customers offer or may offer products that compete with our products.
  Our success depends on our ability to timely develop competitive new products and reduce costs.
  
    
    our ability to anticipate customer and market requirements and changes in technology
and industry standards;
    
    our ability to accurately define new products;
    
    our ability to timely complete development of new products and bring our products to
market on a timely basis;
    
    our ability to differentiate our products from offerings of our competitors;
    
    overall market acceptance of our products;
    
    our ability to invest in significant amounts of research and development; and
    
    our ability to transition product development efforts between and among our sites,
particularly into India and China.
 41




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##### Table of Contents



Our success depends, in part, on our ability to effect suitable investments, alliances and
acquisitions.
   
    
    issuances of equity securities dilutive to our existing shareholders;
    
    large initial one-time write-offs of in-process research and development;
    
    the incurrence of substantial debt and assumption of unknown liabilities;
    
    the potential loss of key employees from the acquired company;
    
    amortization expenses related to intangible assets; and
    
    the diversion of managements attention from other business concerns.
  42




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##### Table of Contents



We are subject to the risks of doing business internationally.
  
    
    currency exchange rate fluctuations;
    
    local economic and political conditions;
    
    disruptions of commerce and capital or trading markets due to or related to
terrorist activity or armed conflict;
    
    restrictive governmental actions, such as restrictions on the transfer or
repatriation of funds and trade protection measures, including export duties and quotas
and customs duties and tariffs;
    
    changes in legal or regulatory requirements;
    
    difficulty in obtaining distribution and support;
    
    the laws and policies of the United States and other countries affecting trade,
foreign investment and loans, and import or export licensing requirements;
    
    tax laws, including the cost of services provided and products sold between the
Company and its subsidiaries which are subject to review by taxing authorities; and
    
    limitations on our ability under local laws to protect our intellectual property.
  43




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##### Table of Contents



We may not be able to keep abreast of the rapid technological changes in our markets.
  
    
    rapid technological developments;
    
    rapid changes in customer requirements;
    
    frequent new product introductions and enhancements;
    
    short product life cycles with declining prices over the life cycle of the products; and
    
    evolving industry standards.
  We may not be able to attract and retain qualified management, technical and other personnel
necessary for the design, development and sale of our products. Our success could be negatively
affected if key personnel leave.
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If OEMs of communications electronics products do not design our products into their equipment, we
will be unable to sell those products. Moreover, a design win from a customer does not guarantee
future sales to that customer.
  Because of the lengthy sales cycles of many of our products, we may incur significant expenses
before we generate any revenues related to those products.
  Uncertainties involving the ordering and shipment of our products could adversely affect our
business.
  We are dependent upon third parties for the manufacture, assembly and test of our products.
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
    
    the lack of assured wafer supply, potential wafer shortages and higher wafer prices;
    
    limited control over delivery schedules, manufacturing yields, production costs and
product quality; and
    
    the unavailability of, or delays in obtaining, access to key process technologies.
      We may experience difficulties in transitioning to smaller geometry process technologies or in
achieving higher levels of design integration, which may result in reduced manufacturing yields,
delays in product deliveries and increased expenses.
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If we are not successful in protecting our intellectual property rights, it may harm our ability to
compete.
  
    
    the steps we take to prevent misappropriation or infringement of our intellectual
property or the intellectual property of our customers will be successful;
    
    any existing or future patents will not be challenged, invalidated or circumvented; or
    
    any of the measures described above would provide meaningful protection.
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Uncertainties involving litigation could adversely affect our business.
  We may be liable for penalties under environmental laws, rules and regulations, which could
adversely impact our business.
   We may be limited in the future in the amount of net operating losses that we can use to offset
taxable income
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Provisions in our organizational documents and rights agreement and Delaware law may make it
difficult for someone to acquire control of us.
  
    
    the division of our board of directors into three classes to be elected on a
staggered basis, one class each year;
    
    the ability of our board of directors to issue shares of our preferred stock in one
or more series without further authorization of our shareholders;
    
    a prohibition on shareholder action by written consent;
    
    a requirement that shareholders provide advance notice of any shareholder
nominations of directors or any proposal of new business to be considered at any
meeting of shareholders;
    
    a requirement that a supermajority vote be obtained to remove a director for cause
or to amend or repeal certain provisions of our restated certificate of incorporation
or by-laws;
    
    elimination of the right of shareholders to call a special meeting of shareholders; and
    
    a fair price provision.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  .
       (in millions)
    
    Carrying Value
    
    Fair ValueCash and cash equivalents
    
    $
    299.2
    
    
    $
    299.2Marketable debt securities
    
    
    59.4
    
    
    
    59.4Marketable government agency securities
    
    
    76.0
    
    
    
    76.0Marketable equity securities
    
    
    31.5
    
    
    
    31.5Mindspeed warrant
    
    
    28.8
    
    
    
    28.8Short-term debt
    
    
    76.6
    
    
    
    76.6Current portion of long-term debt
    
    
    196.8
    
    
    
    194.9Long-term debt
    
    
    515.0
    
    
    
    499.6
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ITEM 4. CONTROLS AND PROCEDURES
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PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 Texas Instruments, Inc. 
 Class Action Suits  Witriol v. Conexant, et al.
 Graden v. Conexant, et al.
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ITEM 6. EXHIBITS
 10.1
    
    Deferred Compensation Plan II, effective January 1, 2005, filed as Exhibit 99.1 to the Companys
Current Report on Form 8-K filed on January 5, 2006 is incorporated by reference.10.2
    
    Receivables Purchase Agreement, dated as of November 29, 2005, by and between Conexant USA, LLC and the
Company, filed as Exhibit 99.1 to the Companys Current Report on Form 8-K filed on December 1, 2005 is
incorporated by reference.10.3
    
    Credit and Security Agreement, dated as of November 29, 2005, by and between Conexant USA, LLC and
Wachovia Bank, National Association, filed as Exhibit 99.2 to the Companys Current Report on Form 8-K
filed on December 1, 2005 is incorporated by reference.10.4
    
    Servicing Agreement, dated as of November 29, 2005, by and between the Company and Conexant USA, LLC,
filed as Exhibit 99.3 to the Companys Current Report on Form 8-K filed on December 1, 2005 is
incorporated by reference.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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SIGNATURE
  CONEXANT SYSTEMS, INC.(Registrant)Date: February 3, 2006
    
    By
    
    /s/J. Scott BlouinJ. Scott Blouin
Senior Vice President and
Chief Financial Officer
(principal financial officer)
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EXHIBIT INDEX
 10.1
    
    Deferred Compensation Plan II, effective January 1, 2005, filed as Exhibit 99.1 to the Companys
Current Report on Form 8-K filed on January 5, 2006 is incorporated by reference.10.2
    
    Receivables Purchase Agreement, dated as of November 29, 2005, by and between Conexant USA, LLC and the
Company, filed as Exhibit 99.1 to the Companys Current Report on Form 8-K filed on December 1, 2005 is
incorporated by reference.10.3
    
    Credit and Security Agreement, dated as of November 29, 2005, by and between Conexant USA, LLC and
Wachovia Bank, National Association, filed as Exhibit 99.2 to the Companys Current Report on Form 8-K
filed on December 1, 2005 is incorporated by reference.10.4
    
    Servicing Agreement, dated as of November 29, 2005, by and between the Company and Conexant USA, LLC,
filed as Exhibit 99.3 to the Companys Current Report on Form 8-K filed on December 1, 2005 is
incorporated by reference.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.
 56