##### 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 30, 2007
 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
    
    25-1799439(State of incorporation)
    
    (I.R.S. Employer Identification No.)
 4000 MacArthur Boulevard
Newport Beach, California 92660-3095
 (949) 483-4600
 þ o
  þ o o
 o þ




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##### Table of Contents



FORWARD-LOOKING STATEMENTS
  
    
    pricing pressures and other competitive factors;
    
    the timing of our new product introductions and product quality;
    
    the cyclical nature of the semiconductor industry and the markets addressed by our
products and our customers products;
    
    the risk that the value of our common stock may be adversely affected by market volatility;
    
    the substantial losses we have incurred recently;
    
    general economic and political conditions and conditions in the markets we address;
    
    continuing volatility in the technology sector and the semiconductor industry;
    
    demand for and market acceptance of new and existing products;
    
    successful development of new products;
    
    our ability to anticipate trends and develop products for which there will be market demand;
    
    the availability of manufacturing capacity;
    
    changes in product mix;
    
    the risk that capital needed for our business and to repay our indebtedness will not be
available when needed;
    
    product obsolescence;
    
    the ability of our customers to manage inventory;
    
    our ability to develop and implement new technologies and to obtain protection for the
related intellectual property;
    
    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; and
    
    possible disruptions in commerce related to terrorist activity or armed conflict,
  1




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##### 



CONEXANT SYSTEMS, INC.
 INDEX
 PAGEPART I. FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (unaudited):Condensed Consolidated Balance Sheets  March 30, 2007 and September 29, 2006
    
    
    3Condensed Consolidated Statements of Operations  Three and Six Months Ended
March 30, 2007 and March 31, 2006
    
    
    4Condensed Consolidated Statements of Cash Flows  Six Months Ended March 30, 2007
and March 31, 2006
    
    
    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
    
    
    49Item 4.
    
    Controls and Procedures
    
    
    50PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    51Item 1A.
    
    Risk Factors
    
    
    53Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    64Item 6.
    
    Exhibits
    
    
    65Signature
    
    
    66EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
  2




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PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Balance Sheets
(unaudited, in thousands, except par value)
 March 30,
    
    
    September 29,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    170,367
    
    
    $
    225,626Marketable securities
    
    
    63,888
    
    
    
    115,709Restricted cash
    
    
    8,800
    
    
    
    8,800Receivables, net of allowances of $1,720 and $842
    
    
    110,725
    
    
    
    123,025Inventories, net
    
    
    76,504
    
    
    
    97,460Other current assets
    
    
    25,544
    
    
    
    19,353Total current assets
    
    
    455,828
    
    
    
    589,973Property, plant and equipment, net
    
    
    68,572
    
    
    
    65,405Goodwill
    
    
    580,694
    
    
    
    710,790Intangible assets, net
    
    
    45,945
    
    
    
    76,008Other assets
    
    
    97,098
    
    
    
    131,449Total assets
    
    $
    1,248,137
    
    
    $
    1,573,625LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    46,500
    
    
    $
    188,375Short-term debt
    
    
    80,000
    
    
    
    80,000Accounts payable
    
    
    95,105
    
    
    
    113,690Accrued compensation and benefits
    
    
    24,602
    
    
    
    28,307Other current liabilities
    
    
    46,274
    
    
    
    51,966Total current liabilities
    
    
    292,481
    
    
    
    462,338Long-term debt
    
    
    478,500
    
    
    
    518,125Other liabilities
    
    
    71,100
    
    
    
    83,064Total liabilities
    
    
    842,081
    
    
    
    1,063,527Commitments and contingencies (Note 4)Shareholders equity:Preferred and junior preferred stock
    
    
    
    
    
    
    Common stock, $0.01 par value: 1,000,000 shares authorized; 490,353
and 486,482 shares issued; and 490,353 and 485,200 shares
outstanding
    
    
    4,904
    
    
    
    4,866Treasury stock: zero and 1,282 shares, at cost
    
    
    
    
    
    
    (5,823
    )Additional paid-in capital
    
    
    4,709,847
    
    
    
    4,699,029Accumulated deficit
    
    
    (4,308,227
    )
    
    
    (4,175,757
    )Accumulated other comprehensive loss
    
    
    (367
    )
    
    
    (12,096
    )Shareholder notes receivable
    
    
    (101
    )
    
    
    (121
    )Total shareholders equity
    
    
    406,056
    
    
    
    510,098Total liabilities and shareholders equity
    
    $
    1,248,137
    
    
    $
    1,573,625
  3




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Operations
(unaudited, in thousands, except per share amounts)
 Three Months Ended
    
    
    Six Months EndedMarch 30,
    
    
    March 31,
    
    
    March 30,
    
    
    March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Net revenues
    
    $
    199,865
    
    
    $
    242,583
    
    
    $
    445,399
    
    
    $
    473,289Cost of goods sold (1)
    
    
    110,016
    
    
    
    136,373
    
    
    
    246,061
    
    
    
    271,326Gross margin
    
    
    89,849
    
    
    
    106,210
    
    
    
    199,338
    
    
    
    201,963Operating expenses:Research and development (1)
    
    
    69,345
    
    
    
    64,831
    
    
    
    140,795
    
    
    
    129,190Selling, general and administrative (1).
    
    
    26,803
    
    
    
    36,320
    
    
    
    54,279
    
    
    
    74,921Amortization of intangible assets
    
    
    6,254
    
    
    
    7,758
    
    
    
    12,492
    
    
    
    15,665Special charges
    
    
    160,121
    
    
    
    38,854
    
    
    
    163,019
    
    
    
    39,769Total operating expenses
    
    
    262,523
    
    
    
    147,763
    
    
    
    370,585
    
    
    
    259,545Operating loss
    
    
    (172,674
    )
    
    
    (41,553
    )
    
    
    (171,247
    )
    
    
    (57,582
    )Interest expense
    
    
    (13,220
    )
    
    
    (10,052
    )
    
    
    (26,256
    )
    
    
    (18,854
    )Other income, net
    
    
    9,660
    
    
    
    42,792
    
    
    
    22,721
    
    
    
    46,139Loss before income taxes and gain (loss) of equity
method investments
    
    
    (176,234
    )
    
    
    (8,813
    )
    
    
    (174,782
    )
    
    
    (30,297
    )Provision for income taxes
    
    
    1,232
    
    
    
    735
    
    
    
    1,703
    
    
    
    1,451Loss before gain (loss) of equity method investments
    
    
    (177,466
    )
    
    
    (9,548
    )
    
    
    (176,485
    )
    
    
    (31,748
    )Gain (loss) of equity method investments
    
    
    44,020
    
    
    
    (584
    )
    
    
    44,015
    
    
    
    (2,655
    )Net loss
    
    $
    (133,446
    )
    
    $
    (10,132
    )
    
    $
    (132,470
    )
    
    $
    (34,403
    )Net loss per share  basic and diluted
    
    $
    (0.27
    )
    
    $
    (0.02
    )
    
    $
    (0.27
    )
    
    $
    (0.07
    )Shares used in basic and diluted per-share
computations
    
    
    489,302
    
    
    
    477,480
    
    
    
    487,630
    
    
    
    475,761
 
 (1)
    
    These captions include non-cash employee stock-based compensation expense as follows
(see Note 1): Three Months Ended
    
    Six Months EndedMarch 30,
    
    March 31,
    
    March 30,
    
    March 31,2007
    
    2006
    
    2007
    
    2006Cost of goods sold
    
    $
    115
    
    
    $
    131
    
    
    $
    218
    
    
    $
    429Research and development
    
    
    2,715
    
    
    
    5,858
    
    
    
    5,082
    
    
    
    11,148Selling, general and administrative
    
    
    1,941
    
    
    
    6,763
    
    
    
    3,808
    
    
    
    15,491
  4




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Cash Flows
(unaudited, in thousands)
 Six Months EndedMarch 30,
    
    
    March 31,2007
    
    
    2006Cash flows from operating activities:Net loss
    
    $
    (132,470
    )
    
    $
    (34,403
    )Adjustments to reconcile net loss to net cash (used in) provided
by operating activities, net of effects of acquisitions:Depreciation
    
    
    11,989
    
    
    
    9,104Amortization of intangible assets
    
    
    12,492
    
    
    
    15,665Asset impairments
    
    
    155,000
    
    
    
    Reversal of provision for bad debts, net
    
    
    (219
    )
    
    
    (2,243
    )(Reversal of) charges for inventory provisions, net
    
    
    (3,256
    )
    
    
    58Stock-based compensation
    
    
    9,108
    
    
    
    27,068Increase in fair value of derivative instruments
    
    
    (6,924
    )
    
    
    (31,331
    )(Gains) losses of equity method investments
    
    
    (44,015
    )
    
    
    2,655Gains on sales of equity securities and other assets
    
    
    (6,190
    )
    
    
    (4,414
    )Other items, net
    
    
    (363
    )
    
    
    (609
    )Changes in assets and liabilities:Receivables
    
    
    12,519
    
    
    
    (13,602
    )Inventories
    
    
    25,451
    
    
    
    7,784Accounts payable
    
    
    (19,586
    )
    
    
    23,058Accrued expenses and other current liabilities
    
    
    (14,456
    )
    
    
    38,905Other, net
    
    
    (7,306
    )
    
    
    (23,412
    )Net cash (used in) provided by operating activities
    
    
    (8,226
    )
    
    
    14,283Cash flows from investing activities:Payments for acquisitions, net of cash acquired
    
    
    (5,029
    )
    
    
    (6,900
    )Proceeds from equity securities and other assets
    
    
    105,491
    
    
    
    5,200Purchases of equity securities
    
    
    (600
    )
    
    
    (1,848
    )Proceeds from sales and maturities of marketable securities
    
    
    78,645
    
    
    
    61,944Purchases of marketable securities
    
    
    (25,877
    )
    
    
    (26,473
    )Purchases of property, plant and equipment
    
    
    (14,939
    )
    
    
    (13,139
    )Restricted cash
    
    
    
    
    
    
    (8,800
    )Net cash provided by investing activities
    
    
    137,691
    
    
    
    9,984Cash flows from financing activities:Proceeds from short-term debt, net of expenses of $1,198 and $1,534
    
    
    (1,198
    )
    
    
    78,466Proceeds from long-term debt, net of expenses of $9,249 and $4,910
    
    
    265,751
    
    
    
    195,090Repurchases and retirements of long-term debt
    
    
    (456,500
    )
    
    
    (57,859
    )Proceeds from issuance of common stock
    
    
    7,202
    
    
    
    11,964Repayment of shareholder notes receivable
    
    
    21
    
    
    
    163Net cash (used in) provided by financing activities
    
    
    (184,724
    )
    
    
    227,824Net (decrease) increase in cash and cash equivalents
    
    
    (55,259
    )
    
    
    252,091Cash and cash equivalents at beginning of period
    
    
    225,626
    
    
    
    202,704Cash and cash equivalents at end of period
    
    $
    170,367
    
    
    $
    454,795
  5




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
 
 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
  6




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
 Notes to Condensed Consolidated Financial Statements
(unaudited)
 Shipping and Handling 
 Cash and Cash Equivalents 
 Marketable Securities 
  Restricted Cash
 Stock-Based Compensation
   7




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
  Three Months Ended
    
    
    Six Months EndedMarch 30,
    
    
    March 31,
    
    
    March 30,
    
    
    March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Stock option plans:Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Expected stock price volatility
    
    
    70
    %
    
    
    76
    %
    
    
    71
    %
    
    
    76
    %Risk-free interest rate
    
    
    4.7
    %
    
    
    4.4
    %
    
    
    4.7
    %
    
    
    4.4
    %Average expected life (in years)
    
    
    5.25
    
    
    
    5.25
    
    
    
    5.25
    
    
    
    5.25Stock purchase plan:Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Expected stock price volatility
    
    
    53
    %
    
    
    76
    %
    
    
    53
    %
    
    
    76
    %Risk-free interest rate
    
    
    4.7
    %
    
    
    4.4
    %
    
    
    4.7
    %
    
    
    4.4
    %Average expected life (in years)
    
    
    0.50
    
    
    
    0.50
    
    
    
    0.50
    
    
    
    0.50
  Derivative Financial Instruments
   8




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
  Net
Loss Per Share
  Three Months Ended
    
    
    Six Months EndedMarch 30,
    
    
    March 31,
    
    
    March 30,
    
    
    March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Stock options and warrants
    
    
    5,486
    
    
    
    15,559
    
    
    
    6,065
    
    
    
    9,8835.25% 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
    
    
    3,890
    
    
    
    11,796
    
    
    
    7,318
    
    
    
    11,9674.00% convertible subordinated notes due March 2026
    
    
    50,813
    
    
    
    11,168
    
    
    
    50,813
    
    
    
    5,58460,189
    
    
    
    51,727
    
    
    
    64,196
    
    
    
    40,638
 Business Enterprise Segments
  
    
    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.
  9




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
 Recent Accounting Pronouncements 
     Reclassification
 10




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
 Three Months
    
    
    Six MonthsEnded
    
    
    EndedMarch 31, 2006
    
    
    March 31, 2006Other income, net, before reclassification
    
    $
    42,208
    
    
    $
    43,484Losses of equity method investments
    
    
    584
    
    
    
    2,655Other income, net, after reclassification
    
    $
    42,792
    
    
    $
    46,139
 2. Business Combination
   3. Supplemental Financial Information
 Marketable Securities
  Cost or
    
    
    Gross Unrealized
    
    
    Gross UnrealizedAmortized
    
    
    Holding
    
    
    Holding
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueMarch 30, 2007:Corporate debt securities
    
    $
    4,563
    
    
    $
    29
    
    
    $
    
    
    
    $
    4,592U.S. government agency securities
    
    
    16,204
    
    
    
    187
    
    
    
    
    
    
    
    16,391Equity securities
    
    
    44,063
    
    
    
    1,484
    
    
    
    (2,642
    )
    
    
    42,905$
    64,830
    
    
    $
    1,700
    
    
    $
    (2,642
    )
    
    $
    63,888September 29, 2006:Corporate debt securities
    
    $
    22,719
    
    
    $
    30
    
    
    $
    (29
    )
    
    $
    22,720U.S. government agency securities
    
    
    60,777
    
    
    
    134
    
    
    
    (11
    )
    
    
    60,900Equity securities
    
    
    34,068
    
    
    
    
    
    
    
    (1,979
    )
    
    
    32,089$
    117,564
    
    
    $
    164
    
    
    $
    (2,019
    )
    
    $
    115,709
  11




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
 Inventories
  March 30,
    
    
    September 29,2007
    
    
    2006Work-in-process
    
    $
    32,368
    
    
    $
    53,884Finished goods
    
    
    44,136
    
    
    
    43,576$
    76,504
    
    
    $
    97,460
  Goodwill
  Goodwill at September 29, 2006
    
    $
    710,790Impairment
    
    
    (135,000
    )Additions
    
    
    1,921Other adjustments
    
    
    2,983Goodwill at March 30, 2007
    
    $
    580,694
   Intangible Assets
  March 30, 2007
    
    
    September 29, 2006Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Book
    
    
    Carrying
    
    
    Accumulated
    
    
    BookAmount
    
    
    Amortization
    
    
    Value
    
    
    Amount
    
    
    Amortization
    
    
    ValueDeveloped technology
    
    $
    125,614
    
    
    $
    (85,435
    )
    
    $
    40,179
    
    
    $
    139,483
    
    
    $
    (74,477
    )
    
    $
    65,006Product licenses
    
    
    9,327
    
    
    
    (6,050
    )
    
    
    3,277
    
    
    
    12,769
    
    
    
    (5,263
    )
    
    
    7,506Other intangible assets
    
    
    6,015
    
    
    
    (3,526
    )
    
    
    2,489
    
    
    
    7,015
    
    
    
    (3,519
    )
    
    
    3,496$
    140,956
    
    
    $
    (95,011
    )
    
    $
    45,945
    
    
    $
    159,267
    
    
    $
    (83,259
    )
    
    $
    76,008
 12




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
 Notes to Condensed Consolidated Financial Statements
(unaudited)
  Remainderof 2007
    
    2008
    
    2009
    
    2010
    
    2011
    
    ThereafterAmortization expense
    
    $
    9,607
    
    
    $
    18,853
    
    
    $
    11,123
    
    
    $
    4,638
    
    
    $
    679
    
    
    $
    1,045
  Mindspeed Warrant
   Short-Term Debt
   13




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
  Long-Term Debt
  March 30,
    
    
    September 29,2007
    
    
    2006Floating rate senior secured notes due November 2010
    
    $
    275,000
    
    
    $
    4.00% convertible subordinated notes due March 2026
    
    
    250,000
    
    
    
    250,0004.00% convertible subordinated notes due February 2007
    
    
    
    
    
    
    456,500Total
    
    
    525,000
    
    
    
    706,500Less: current portion of long-term debt
    
    
    (46,500
    )
    
    
    (188,375
    )Long-term debt
    
    $
    478,500
    
    
    $
    518,125
 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
  4.00% convertible subordinated notes due February 2007
 4. Commitments and Contingencies
 Lease Commitments
  15




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##### Table of Contents



CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
  Fiscal Year
    
    Lease Payments
    
    
    Sublease Income
    
    
    Net ObligationRemainder of 2007
    
    $
    14,977
    
    
    $
    (4,373
    )
    
    $
    10,6042008
    
    
    25,520
    
    
    
    (7,166
    )
    
    
    18,3542009
    
    
    18,009
    
    
    
    (3,384
    )
    
    
    14,6252010
    
    
    16,433
    
    
    
    (3,330
    )
    
    
    13,1032011
    
    
    14,208
    
    
    
    (2,178
    )
    
    
    12,030Thereafter
    
    
    63,110
    
    
    
    (5,582
    )
    
    
    57,528Total
    
    $
    152,257
    
    
    $
    (26,013
    )
    
    $
    126,244
   Legal Matters
  IPO Litigation 
 16




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##### Table of Contents



CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
 Class Action Suits  Witriol v. Conexant, et al. (Witriol)
 Graden v. Conexant, et al.
 Shareholder Derivative Suits Witriol Witriol
 Guarantees and Indemnifications
  17




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##### Table of Contents



CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
   Other
 Tax
Matter
 Environmental Remediation
 Capital Investments
 5. Shareholders Equity
  th th
 Stock Option Plans
  18




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##### Table of Contents



CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
   WeightedAverageExerciseShares
    
    
    PriceOutstanding, September 29, 2006
    
    
    103,782
    
    
    $
    2.65Granted
    
    
    1,633
    
    
    
    2.02Exercised
    
    
    (3,080
    )
    
    
    1.42Canceled
    
    
    (10,303
    )
    
    
    3.41Outstanding, March 30, 2007
    
    
    92,032
    
    
    
    2.60Exercisable, March 30, 2007
    
    
    67,032
    
    
    
    2.80
    Directors Stock Plan
  Employee Stock Purchase Plan
  19




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##### Table of Contents



CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
 Performance Share Plan
   6. Comprehensive Income (Loss)
  Three Months Ended
    
    
    Six Months EndedMarch 30,
    
    
    March 31,
    
    
    March 30,
    
    
    March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Net loss
    
    $
    (133,446
    )
    
    $
    (10,132
    )
    
    $
    (132,470
    )
    
    $
    (34,403
    )Other comprehensive income (loss):Currency translation adjustments
    
    
    3,523
    
    
    
    194
    
    
    
    4,504
    
    
    
    (707
    )Unrealized gains (losses) on
marketable securities
    
    
    (5,052
    )
    
    
    10,676
    
    
    
    6,744
    
    
    
    (1,291
    )Unrealized gains on foreign currency
forward hedge contracts
    
    
    123
    
    
    
    
    
    
    
    372
    
    
    
    Minimum pension liability adjustments
    
    
    55
    
    
    
    79
    
    
    
    109
    
    
    
    152Other comprehensive income (loss)
    
    
    (1,351
    )
    
    
    10,949
    
    
    
    11,729
    
    
    
    (1,846
    )Comprehensive income (loss)
    
    $
    (134,797
    )
    
    $
    817
    
    
    $
    (120,741
    )
    
    $
    (36,249
    )
   March 30,
    
    
    September 29,2007
    
    
    2006Currency translation adjustments
    
    $
    708
    
    
    $
    (3,796
    )Unrealized gains (losses) on marketable securities
    
    
    4,889
    
    
    
    (1,855
    )Unrealized gains on foreign currency forward hedge contracts
    
    
    552
    
    
    
    180Minimum pension liability adjustments
    
    
    (6,516
    )
    
    
    (6,625
    )Accumulated other comprehensive income (loss)
    
    $
    (367
    )
    
    $
    (12,096
    )
 20




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##### Table of Contents



CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
 7. Special Charges
  Three Months Ended
    
    
    Six Months EndedMarch 30,
    
    
    March 31,
    
    
    March 30,
    
    
    March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Asset impairments
    
    $
    155,000
    
    
    $
    
    
    
    $
    155,000
    
    
    $
    85Restructuring charges (credits)
    
    
    3,499
    
    
    
    (1,146
    )
    
    
    6,397
    
    
    
    (216
    )Litigation charges
    
    
    90
    
    
    
    40,000
    
    
    
    90
    
    
    
    40,000Other special charges (credits)
    
    
    1,532
    
    
    
    
    
    
    
    1,532
    
    
    
    (100
    )$
    160,121
    
    
    $
    38,854
    
    
    $
    163,019
    
    
    $
    39,769
 Asset Impairments
  Restructuring Charges
  Fiscal 2007 Restructuring Actions
  WorkforceReductionsCharged to costs and expenses
    
    $
    2,027Cash payments
    
    
    (214
    )Restructuring balance, December 29, 2006
    
    
    1,813Charged to costs and expenses
    
    
    3,218Cash payments
    
    
    (1,276
    )Restructuring balance, March 30, 2007
    
    $
    3,755
 Fiscal 2006 Restructuring Actions
 21




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##### Table of Contents



CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
 (unaudited)
  Workforce
    
    
    FacilityReductions
    
    
    and Other
    
    
    TotalRestructuring balance, September 29, 2006
    
    $
    1,216
    
    
    $
    392
    
    
    $
    1,608Charged to costs and expenses
    
    
    533
    
    
    
    5
    
    
    
    538Cash payments
    
    
    (951
    )
    
    
    (48
    )
    
    
    (999
    )Restructuring balance, December 29, 2006
    
    
    798
    
    
    
    349
    
    
    
    1,147Charged (credited) to costs and expenses
    
    
    (200
    )
    
    
    45
    
    
    
    (155
    )Cash payments
    
    
    (191
    )
    
    
    (129
    )
    
    
    (320
    )Restructuring balance, March 30, 2007
    
    $
    407
    
    
    $
    265
    
    
    $
    672
 Fiscal 2005 Restructuring Action
  Workforce
    
    
    FacilityReductions
    
    
    and Other
    
    
    TotalRestructuring balance, September 29, 2006
    
    $
    196
    
    
    $
    15,288
    
    
    $
    15,484Charged to costs and expenses
    
    
    
    
    
    
    311
    
    
    
    311Cash payments
    
    
    (141
    )
    
    
    (1,190
    )
    
    
    (1,331
    )Restructuring balance, December 29, 2006
    
    
    55
    
    
    
    14,409
    
    
    
    14,464Charged to costs and expenses
    
    
    
    
    
    
    430
    
    
    
    430Cash payments
    
    
    (5
    )
    
    
    (985
    )
    
    
    (990
    )Restructuring balance, March 30, 2007
    
    $
    50
    
    
    $
    13,854
    
    
    $
    13,904
 Fiscal 2004 and Prior Years Restructuring Actions
  Facilityand OtherRestructuring balance, September 29, 2006
    
    $
    2,971Charged to costs and expenses
    
    
    22Reclassification to other current liabilities and other liabilities
    
    
    (2,687
    )Cash payments
    
    
    (296
    )Restructuring balance, December 29, 2006
    
    
    10Charged to costs and expenses
    
    
    6Cash payments
    
    
    (16
    )Restructuring balance, March 30, 2007
    
    $
    
 22




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##### Table of Contents



CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
  Litigation Charges
  8. Other Income, Net
  Three Months Ended
    
    
    Six Months EndedMarch 30,
    
    
    March 31,
    
    
    March 30,
    
    
    March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Investment and interest income
    
    $
    3,800
    
    
    $
    6,632
    
    
    $
    9,189
    
    
    $
    9,897Increase in fair value of derivative
instruments
    
    
    3,882
    
    
    
    35,642
    
    
    
    6,924
    
    
    
    31,331Gains on investments in equity securities
    
    
    1,337
    
    
    
    577
    
    
    
    6,469
    
    
    
    4,414Other
    
    
    641
    
    
    
    (59
    )
    
    
    139
    
    
    
    497$
    9,660
    
    
    $
    42,792
    
    
    $
    22,721
    
    
    $
    46,139
   23




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##### Table of Contents



CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
 Notes to Condensed Consolidated Financial Statements
(unaudited)
 9. Related Party Transactions
 Jazz Technologies, Inc.
   Wafer and Probe Services Purchases
 Lease Agreement 
 Royalty Agreement
 Services Agreements
 Mindspeed Technologies, Inc.
  Lease Agreement
 24




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##### Table of Contents



CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
  Skyworks Solutions, Inc.
  Inventory and Assembly and Test Services Purchases
 Sublease Rent Share Agreement
 10. Geographic Information
  Three Months Ended
    
    
    Six Months EndedMarch 30,
    
    
    March 31,
    
    
    March 30,
    
    
    March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006United States
    
    $
    15,648
    
    
    $
    17,551
    
    
    $
    42,550
    
    
    $
    32,102Other Americas
    
    
    9,939
    
    
    
    6,298
    
    
    
    20,811
    
    
    
    10,957Total Americas
    
    
    25,587
    
    
    
    23,849
    
    
    
    63,361
    
    
    
    43,059China
    
    
    105,162
    
    
    
    124,252
    
    
    
    234,655
    
    
    
    235,931South Korea
    
    
    17,492
    
    
    
    27,104
    
    
    
    38,887
    
    
    
    55,672Taiwan
    
    
    12,444
    
    
    
    13,751
    
    
    
    24,089
    
    
    
    37,799Other Asia-Pacific
    
    
    25,476
    
    
    
    38,125
    
    
    
    57,700
    
    
    
    70,694Total Asia-Pacific
    
    
    160,574
    
    
    
    203,232
    
    
    
    355,331
    
    
    
    400,096Europe, Middle East and Africa
    
    
    13,704
    
    
    
    15,502
    
    
    
    26,707
    
    
    
    30,134$
    199,865
    
    
    $
    242,583
    
    
    $
    445,399
    
    
    $
    473,289
  25




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##### Table of Contents



CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
  March 30,
    
    
    September 29,2007
    
    
    2006United States
    
    $
    102,608
    
    
    $
    90,095India
    
    
    15,450
    
    
    
    10,826Other Asia-Pacific
    
    
    7,739
    
    
    
    7,117Europe, Middle East and Africa
    
    
    2,039
    
    
    
    2,201$
    127,836
    
    
    $
    110,239
 11. Supplemental Guarantor Financial Information
   26




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##### Table of Contents



CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
  March 30, 2007Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCurrent assets:Cash and cash equivalents
    
    $
    133,008
    
    
    $
    
    
    
    $
    37,359
    
    
    $
    
    
    
    $
    170,367Marketable securities
    
    
    63,888
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63,888Restricted cash
    
    
    
    
    
    
    
    
    
    
    8,800
    
    
    
    
    
    
    
    8,800Receivables
    
    
    14,415
    
    
    
    
    
    
    
    96,310
    
    
    
    
    
    
    
    110,725Inventories
    
    
    76,504
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76,504Other current assets
    
    
    17,843
    
    
    
    2
    
    
    
    7,699
    
    
    
    
    
    
    
    25,544Total current assets
    
    
    305,658
    
    
    
    2
    
    
    
    150,168
    
    
    
    
    
    
    
    455,828Property and equipment, net
    
    
    43,667
    
    
    
    
    
    
    
    24,905
    
    
    
    
    
    
    
    68,572Goodwill
    
    
    68,079
    
    
    
    481,659
    
    
    
    30,956
    
    
    
    
    
    
    
    580,694Intangible assets, net
    
    
    7,161
    
    
    
    36,239
    
    
    
    2,545
    
    
    
    
    
    
    
    45,945Other assets
    
    
    96,540
    
    
    
    
    
    
    
    558
    
    
    
    
    
    
    
    97,098Investments in subsidiaries
    
    
    680,262
    
    
    
    4,606
    
    
    
    
    
    
    
    (684,868
    )
    
    
    Total assets
    
    $
    1,201,367
    
    
    $
    522,506
    
    
    $
    209,132
    
    
    $
    (684,868
    )
    
    $
    1,248,137Current liabilities:Current portion of long-term debt
    
    $
    46,500
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    46,500Short-term debt
    
    
    
    
    
    
    
    
    
    
    80,000
    
    
    
    
    
    
    
    80,000Accounts payable
    
    
    91,803
    
    
    
    
    
    
    
    3,302
    
    
    
    
    
    
    
    95,105Accrued compensation and benefits
    
    
    17,409
    
    
    
    
    
    
    
    7,193
    
    
    
    
    
    
    
    24,602Intercompany payable (receivable)
    
    
    62,607
    
    
    
    (146,760
    )
    
    
    84,153
    
    
    
    
    
    
    
    Other current liabilities
    
    
    44,545
    
    
    
    (147
    )
    
    
    1,876
    
    
    
    
    
    
    
    46,274Total current liabilities
    
    
    262,864
    
    
    
    (146,907
    )
    
    
    176,524
    
    
    
    
    
    
    
    292,481Long-term debt
    
    
    478,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    478,500Other liabilities
    
    
    69,742
    
    
    
    
    
    
    
    1,358
    
    
    
    
    
    
    
    71,100Total liabilities
    
    
    811,106
    
    
    
    (146,907
    )
    
    
    177,882
    
    
    
    
    
    
    
    842,081Shareholders equity
    
    
    390,261
    
    
    
    669,413
    
    
    
    31,250
    
    
    
    (684,868
    )
    
    
    406,056Total liabilities and equity
    
    $
    1,201,367
    
    
    $
    522,506
    
    
    $
    209,132
    
    
    $
    (684,868
    )
    
    $
    1,248,137
 27




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##### Table of Contents



CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
 September 29, 2006Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCurrent assets:Cash and cash equivalents
    
    $
    175,398
    
    
    $
    
    
    
    $
    50,228
    
    
    $
    
    
    
    $
    225,626Marketable securities
    
    
    115,709
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    115,709Restricted cash
    
    
    
    
    
    
    
    
    
    
    8,800
    
    
    
    
    
    
    
    8,800Receivables
    
    
    19,140
    
    
    
    
    
    
    
    103,885
    
    
    
    
    
    
    
    123,025Inventories
    
    
    97,460
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    97,460Other current assets
    
    
    13,480
    
    
    
    3
    
    
    
    5,870
    
    
    
    
    
    
    
    19,353Total current assets
    
    
    421,187
    
    
    
    3
    
    
    
    168,783
    
    
    
    
    
    
    
    589,973Property and equipment, net
    
    
    45,430
    
    
    
    
    
    
    
    19,975
    
    
    
    
    
    
    
    65,405Goodwill
    
    
    54,914
    
    
    
    616,659
    
    
    
    39,217
    
    
    
    
    
    
    
    710,790Intangible assets, net
    
    
    6,213
    
    
    
    66,751
    
    
    
    3,044
    
    
    
    
    
    
    
    76,008Other assets
    
    
    131,037
    
    
    
    
    
    
    
    412
    
    
    
    
    
    
    
    131,449Investments in subsidiaries
    
    
    862,726
    
    
    
    (37,902
    )
    
    
    
    
    
    
    (824,824
    )
    
    
    Total assets
    
    $
    1,521,507
    
    
    $
    645,511
    
    
    $
    231,431
    
    
    $
    (824,824
    )
    
    $
    1,573,625Current liabilities:Current portion of long-term debt
    
    $
    188,375
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    188,375Short-term debt
    
    
    
    
    
    
    
    
    
    
    80,000
    
    
    
    
    
    
    
    80,000Accounts payable
    
    
    111,516
    
    
    
    
    
    
    
    2,174
    
    
    
    
    
    
    
    113,690Accrued compensation and benefits
    
    
    22,824
    
    
    
    
    
    
    
    5,483
    
    
    
    
    
    
    
    28,307Intercompany payable (receivable)
    
    
    50,218
    
    
    
    (117,590
    )
    
    
    67,372
    
    
    
    
    
    
    
    Other current liabilities
    
    
    51,109
    
    
    
    
    
    
    
    857
    
    
    
    
    
    
    
    51,966Total current liabilities
    
    
    424,042
    
    
    
    (117,590
    )
    
    
    155,886
    
    
    
    
    
    
    
    462,338Long-term debt
    
    
    518,125
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    518,125Other liabilities
    
    
    81,823
    
    
    
    
    
    
    
    1,241
    
    
    
    
    
    
    
    83,064Total liabilities
    
    
    1,023,990
    
    
    
    (117,590
    )
    
    
    157,127
    
    
    
    
    
    
    
    1,063,527Shareholders equity
    
    
    497,517
    
    
    
    763,101
    
    
    
    74,304
    
    
    
    (824,824
    )
    
    
    510,098Total liabilities and equity
    
    $
    1,521,507
    
    
    $
    645,511
    
    
    $
    231,431
    
    
    $
    (824,824
    )
    
    $
    1,573,625
 28




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##### Table of Contents



CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
  Three Months 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
    )
    
    
    
    
    
    
    (13,220
    )Other income (expense), net
    
    
    4,095
    
    
    
    
    
    
    
    5,565
    
    
    
    
    
    
    
    9,660Income (loss) before income taxes and
gain of equity method investments
    
    
    (176,078
    )
    
    
    (153,316
    )
    
    
    2,611
    
    
    
    150,549
    
    
    
    (176,234
    )Provision (benefit) for income taxes
    
    
    1,388
    
    
    
    
    
    
    
    (156
    )
    
    
    
    
    
    
    1,232Income (loss) 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 income (loss)
    
    $
    (133,446
    )
    
    $
    (153,316
    )
    
    $
    2,767
    
    
    $
    150,549
    
    
    $
    (133,446
    )
 Three Months Ended March 31, 2006Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet revenues
    
    $
    125,492
    
    
    $
    88,957
    
    
    $
    37,154
    
    
    $
    (9,020
    )
    
    $
    242,583Cost of goods sold
    
    
    30,745
    
    
    
    79,907
    
    
    
    34,741
    
    
    
    (9,020
    )
    
    
    136,373Gross margin
    
    
    94,747
    
    
    
    9,050
    
    
    
    2,413
    
    
    
    
    
    
    
    106,210Operating expenses:Research and development
    
    
    64,058
    
    
    
    2
    
    
    
    771
    
    
    
    
    
    
    
    64,831Selling, general and administrative
    
    
    26,147
    
    
    
    7,233
    
    
    
    2,940
    
    
    
    
    
    
    
    36,320Amortization of intangible assets
    
    
    688
    
    
    
    6,795
    
    
    
    275
    
    
    
    
    
    
    
    7,758Special charges (credits)
    
    
    (1,146
    )
    
    
    40,000
    
    
    
    
    
    
    
    
    
    
    
    38,854Total operating expenses
    
    
    89,747
    
    
    
    54,030
    
    
    
    3,986
    
    
    
    
    
    
    
    147,763Operating income (loss)
    
    
    5,000
    
    
    
    (44,980
    )
    
    
    (1,573
    )
    
    
    
    
    
    
    (41,553
    )Equity in income (loss) of subsidiaries
    
    
    (42,753
    )
    
    
    651
    
    
    
    
    
    
    
    42,102
    
    
    
    Interest expense
    
    
    (6,928
    )
    
    
    (1,707
    )
    
    
    (1,417
    )
    
    
    
    
    
    
    (10,052
    )Other income, net
    
    
    35,734
    
    
    
    
    
    
    
    7,058
    
    
    
    
    
    
    
    42,792Income (loss) before income taxes and
loss of equity method investments
    
    
    (8,947
    )
    
    
    (46,036
    )
    
    
    4,068
    
    
    
    42,102
    
    
    
    (8,813
    )Provision for income taxes
    
    
    601
    
    
    
    
    
    
    
    134
    
    
    
    
    
    
    
    735Income (loss) before loss of equity
method investments
    
    
    (9,548
    )
    
    
    (46,036
    )
    
    
    3,934
    
    
    
    42,102
    
    
    
    (9,548
    )Loss of equity method investments
    
    
    (584
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (584
    )Net income (loss)
    
    $
    (10,132
    )
    
    $
    (46,036
    )
    
    $
    3,934
    
    
    $
    42,102
    
    
    $
    (10,132
    )
 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
    
    
    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 income (loss) of subsidiaries
    
    
    (148,870
    )
    
    
    1,207
    
    
    
    
    
    
    
    147,663
    
    
    
    Interest expense
    
    
    (22,933
    )
    
    
    
    
    
    
    (3,323
    )
    
    
    
    
    
    
    (26,256
    )Other income (expense), 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 (benefit) for income taxes
    
    
    1,778
    
    
    
    
    
    
    
    (75
    )
    
    
    
    
    
    
    1,703Income (loss) 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 income (loss)
    
    $
    (132,470
    )
    
    $
    (151,202
    )
    
    $
    3,539
    
    
    $
    147,663
    
    
    $
    (132,470
    )
 Six Months Ended March 31, 2006Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet revenues
    
    $
    262,291
    
    
    $
    186,747
    
    
    $
    64,942
    
    
    $
    (40,691
    )
    
    $
    473,289Cost of goods sold
    
    
    82,613
    
    
    
    147,189
    
    
    
    59,948
    
    
    
    (18,424
    )
    
    
    271,326Gross margin
    
    
    179,678
    
    
    
    39,558
    
    
    
    4,994
    
    
    
    (22,267
    )
    
    
    201,963Operating expenses:Research and development
    
    
    128,338
    
    
    
    18,989
    
    
    
    1,602
    
    
    
    (19,739
    )
    
    
    129,190Selling, general and administrative
    
    
    55,951
    
    
    
    15,321
    
    
    
    6,177
    
    
    
    (2,528
    )
    
    
    74,921Amortization of intangible assets
    
    
    1,350
    
    
    
    13,738
    
    
    
    577
    
    
    
    
    
    
    
    15,665Special charges (credits)
    
    
    (231
    )
    
    
    40,000
    
    
    
    
    
    
    
    
    
    
    
    39,769Total operating expenses
    
    
    185,408
    
    
    
    88,048
    
    
    
    8,356
    
    
    
    (22,267
    )
    
    
    259,545Operating loss
    
    
    (5,730
    )
    
    
    (48,490
    )
    
    
    (3,362
    )
    
    
    
    
    
    
    (57,582
    )Equity in income (loss) of subsidiaries
    
    
    (48,443
    )
    
    
    885
    
    
    
    
    
    
    
    47,558
    
    
    
    Interest expense
    
    
    (13,596
    )
    
    
    (3,413
    )
    
    
    (1,845
    )
    
    
    
    
    
    
    (18,854
    )Other income, net
    
    
    37,245
    
    
    
    
    
    
    
    8,894
    
    
    
    
    
    
    
    46,139Income (loss) before income taxes and
loss of equity method investments
    
    
    (30,524
    )
    
    
    (51,018
    )
    
    
    3,687
    
    
    
    47,558
    
    
    
    (30,297
    )Provision for income taxes
    
    
    1,224
    
    
    
    
    
    
    
    227
    
    
    
    
    
    
    
    1,451Income (loss) before loss of equity
method investments
    
    
    (31,748
    )
    
    
    (51,018
    )
    
    
    3,460
    
    
    
    47,558
    
    
    
    (31,748
    )Loss of equity method investments
    
    
    (2,655
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,655
    )Net income (loss)
    
    $
    (34,403
    )
    
    $
    (51,018
    )
    
    $
    3,460
    
    
    $
    47,558
    
    
    $
    (34,403
    )
 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
    
    
    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
    )
    
    
    137,691Cash 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)
 Six Months Ended March 31, 2006Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating
activities
    
    $
    80,868
    
    
    $
    
    
    
    $
    7,045
    
    
    $
    (73,630
    )
    
    $
    14,283Cash flows from investing activities:Payments for acquisitions
    
    
    (6,900
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,900
    )Proceeds from equity securities and
other assets
    
    
    5,200
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,200Purchases of equity securities
    
    
    (1,848
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,848
    )Proceeds from sales and maturities
of marketable securities
    
    
    61,944
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,944Purchases of marketable securities
    
    
    (26,473
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,473
    )Purchases of property and equipment
    
    
    (6,454
    )
    
    
    
    
    
    
    (6,685
    )
    
    
    
    
    
    
    (13,139
    )Restricted cash
    
    
    
    
    
    
    
    
    
    
    (8,800
    )
    
    
    
    
    
    
    (8,800
    )Purchases of accounts receivable
    
    
    
    
    
    
    
    
    
    
    (259,377
    )
    
    
    259,377
    
    
    
    Collections of accounts receivable
    
    
    
    
    
    
    
    
    
    
    185,747
    
    
    
    (185,747
    )
    
    
    Net cash provided by (used in)
investing activities
    
    
    25,469
    
    
    
    
    
    
    
    (89,115
    )
    
    
    73,630
    
    
    
    9,984Cash flows from financing activities:Proceeds from short-term debt, net
    
    
    
    
    
    
    
    
    
    
    78,466
    
    
    
    
    
    
    
    78,466Proceeds from long-term debt, net
    
    
    195,090
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    195,090Repurchases and retirements of
long-term debt
    
    
    (57,859
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (57,859
    )Proceeds from issuance of common
stock
    
    
    11,964
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,964Repayment of shareholder notes
    
    
    163
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    163Net cash provided by financing
activities
    
    
    149,358
    
    
    
    
    
    
    
    78,466
    
    
    
    
    
    
    
    227,824Net increase (decrease) in cash and
cash equivalents
    
    
    255,695
    
    
    
    
    
    
    
    (3,604
    )
    
    
    
    
    
    
    252,091Cash and cash equivalents at
beginning of period
    
    
    170,793
    
    
    
    
    
    
    
    31,911
    
    
    
    
    
    
    
    202,704Cash and cash equivalents at end of
period
    
    $
    426,488
    
    
    $
    
    
    
    $
    28,307
    
    
    $
    
    
    
    $
    454,795
 32




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Overview
   Business Enterprise Segments
   
    
    the nature of products and services;
    
    the nature of the production processes;
 33




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##### Table of Contents




    
    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.
  Results of Operations
 Net Revenues
 Three Months Ended
    
    Six Months EndedMarch 30,
    
    March 31,
    
    March 30,
    
    March 31,(in thousands)
    
    2007
    
    2006
    
    2007
    
    2006Net revenues
    
    $
    199,865
    
    
    $
    242,583
    
    
    $
    445,399
    
    
    $
    473,289
    34




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##### Table of Contents



Gross Margin
 Three Months Ended
    
    Six Months EndedMarch 30,
    
    March 31,
    
    March 30,
    
    March 31,(in thousands)
    
    2007
    
    2006
    
    2007
    
    2006Gross margin
    
    $
    89,849
    
    
    $
    106,210
    
    
    $
    199,338
    
    
    $
    201,963Percent of net revenues
    
    
    45
    %
    
    
    44
    %
    
    
    45
    %
    
    
    43
    %
     35




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedMarch 30,
    
    
    March 31,
    
    
    March 31,
    
    
    March 31,(in thousands)
    
    2007
    
    
    2006
    
    
    2006
    
    
    2006E&O reserves, beginning of
period
    
    $
    30,793
    
    
    $
    42,157
    
    
    $
    36,632
    
    
    $
    44,833Additions
    
    
    2,191
    
    
    
    4,578
    
    
    
    3,761
    
    
    
    7,174Release upon sales of product
    
    
    (3,482
    )
    
    
    (3,608
    )
    
    
    (6,132
    )
    
    
    (6,651
    )Scrap
    
    
    (1,346
    )
    
    
    (1,197
    )
    
    
    (6,018
    )
    
    
    (2,842
    )Standards adjustments and other
    
    
    (1,525
    )
    
    
    (2,137
    )
    
    
    (1,612
    )
    
    
    (2,721
    )E&O reserves, end of period
    
    $
    26,631
    
    
    $
    39,793
    
    
    $
    26,631
    
    
    $
    39,793
    Three Months Ended
    
    
    Six Months EndedMarch 30,
    
    
    March 31,
    
    
    March 30,
    
    
    March 31,(in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006LCM reserves, beginning of period
    
    $
    491
    
    
    $
    8,864
    
    
    $
    1,761
    
    
    $
    6,739Additions
    
    
    467
    
    
    
    371
    
    
    
    467
    
    
    
    3,321Release upon sales of product
    
    
    (158
    )
    
    
    (3,007
    )
    
    
    (1,352
    )
    
    
    (3,786
    )Standards adjustments and other
    
    
    (147
    )
    
    
    
    
    
    
    (223
    )
    
    
    (46
    )LCM reserves, end of period
    
    $
    653
    
    
    $
    6,228
    
    
    $
    653
    
    
    $
    6,228
 Research and Development
 Three Months Ended
    
    Six Months EndedMarch 30,
    
    March 31,
    
    March 30,
    
    March 31,(in thousands)
    
    2007
    
    2006
    
    2007
    
    2006Research and development
    
    $
    69,345
    
    
    $
    64,831
    
    
    $
    140,795
    
    
    $
    129,190Percent of net revenues
    
    
    35
    %
    
    
    27
    %
    
    
    32
    %
    
    
    27
    %
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Selling, General and Administrative
 Three Months Ended
    
    Six Months EndedMarch 30,
    
    March 31,
    
    March 30,
    
    March 31,(in thousands)
    
    2007
    
    2006
    
    2007
    
    2006Selling, general and administrative
    
    $
    26,803
    
    
    $
    36,320
    
    
    $
    54,279
    
    
    $
    74,921Percent of net revenues
    
    
    13
    %
    
    
    15
    %
    
    
    12
    %
    
    
    16
    %
    37




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Amortization of Intangible Assets
 Three Months Ended
    
    Six Months EndedMarch 30,
    
    March 31,
    
    March 30,
    
    March 31,(in thousands)
    
    2007
    
    2006
    
    2007
    
    2006Amortization of intangible assets
    
    $
    6,254
    
    
    $
    7,758
    
    
    $
    12,492
    
    
    $
    15,665
    Special Charges
 Three Months Ended
    
    
    Six Months EndedMarch 30,
    
    
    March 31,
    
    
    March 30,
    
    
    March 31,(in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Asset impairments
    
    $
    155,000
    
    
    $
    
    
    
    $
    155,000
    
    
    $
    85Restructuring charges (credits)
    
    
    3,499
    
    
    
    (1,146
    )
    
    
    6,397
    
    
    
    (216
    )Litigation charges
    
    
    90
    
    
    
    40,000
    
    
    
    90
    
    
    
    40,000Other special charges
    
    
    1,532
    
    
    
    
    
    
    
    1,532
    
    
    
    (100
    )$
    160,121
    
    
    $
    38,854
    
    
    $
    163,019
    
    
    $
    39,769
   Interest Expense
 Three Months Ended
    
    Six Months EndedMarch 30,
    
    March 31,
    
    March 30,
    
    March 31,(in thousands)
    
    2007
    
    2006
    
    2007
    
    2006Interest expense
    
    $
    13,220
    
    
    $
    10,052
    
    
    $
    26,256
    
    
    $
    18,854
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Other Income, Net
 Three Months Ended
    
    
    Six Months EndedMarch 30,
    
    
    March 31,
    
    
    March 30,
    
    
    March 31,(in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Investment and interest income
    
    $
    3,800
    
    
    $
    6,632
    
    
    $
    9,189
    
    
    $
    9,897Increase in fair value of derivative
instruments
    
    
    3,882
    
    
    
    35,642
    
    
    
    6,924
    
    
    
    31,331Gains on investments in equity securities
    
    
    1,337
    
    
    
    577
    
    
    
    6,469
    
    
    
    4,414Other
    
    
    641
    
    
    
    (59
    )
    
    
    139
    
    
    
    497$
    9,660
    
    
    $
    42,792
    
    
    $
    22,721
    
    
    $
    46,139
   Provision for Income Taxes
   39




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Gain (Loss) of Equity Method Investments
 Three Months Ended
    
    Six Months EndedMarch 30,
    
    March 31,
    
    March 30,
    
    March 31,(in thousands)
    
    2007
    
    2006
    
    2007
    
    2006Gain (loss) of equity method
investments
    
    $
    44,020
    
    
    $
    (584
    )
    
    $
    44,015
    
    
    $
    (2,655
    )
  Liquidity and Capital Resources
  March 30,
    
    
    September 29,(in thousands)
    
    2007
    
    
    2006Cash and cash equivalents
    
    $
    170,367
    
    
    $
    225,626Marketable debt securities
    
    
    20,983
    
    
    
    83,620Subtotal
    
    
    191,350
    
    
    
    309,246Marketable equity securities  Skyworks Solutions,
Inc. (6.2 million shares at March 30, 2007 and
September 29, 2006)
    
    
    35,552
    
    
    
    32,089Marketable equity securities  Jazz Technologies,
Inc. (1.7 million shares at March 30, 2007)
    
    
    7,353
    
    
    
    Total cash, cash equivalents and marketable securities
    
    $
    234,255
    
    
    $
    341,335
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Six Months EndedMarch 30,
    
    
    March 31,(in thousands)
    
    2007
    
    
    2006Net cash (used in) provided by operating activities
    
    $
    (8,226
    )
    
    $
    14,283Net cash provided by investing activities
    
    
    137,691
    
    
    
    9,984Net cash (used in) provided by financing activities
    
    
    (184,724
    )
    
    
    227,824Net (decrease) increase in cash and cash equivalents
    
    $
    (55,259
    )
    
    $
    252,091
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Payments due by periodLess than 1
    
    
    
    
    
    
    
    
    
    
    More than 5(in thousands)
    
    Total
    
    
    year
    
    
    1-3 years
    
    
    3-5 years
    
    
    yearsLong-term debt
    
    $
    525,000
    
    
    $
    46,500
    
    
    $
    
    
    
    $
    478,500
    
    
    $
    Short-term debt
    
    
    80,000
    
    
    
    80,000
    
    
    
    
    
    
    
    
    
    
    
    Interest on debt
    
    
    121,501
    
    
    
    37,691
    
    
    
    61,633
    
    
    
    22,177
    
    
    
    Operating leases
    
    
    152,257
    
    
    
    27,737
    
    
    
    38,986
    
    
    
    31,440
    
    
    
    54,094Capital leases
    
    
    329
    
    
    
    329
    
    
    
    
    
    
    
    
    
    
    
    Assigned leases
    
    
    3,775
    
    
    
    1,103
    
    
    
    1,282
    
    
    
    1,282
    
    
    
    108Purchase commitments
    
    
    60,675
    
    
    
    44,565
    
    
    
    15,870
    
    
    
    240
    
    
    
    Capital commitments
    
    
    3,611
    
    
    
    3,611
    
    
    
    
    
    
    
    
    
    
    
    $
    947,148
    
    
    $
    241,536
    
    
    $
    117,771
    
    
    $
    533,639
    
    
    $
    54,202
  42




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Off-Balance Sheet Arrangements
    Special Purpose Entities
   Recent Accounting Pronouncements
  43




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Critical Accounting Policies
  Business combinations
  44




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Revenue recognition
   Allowance for doubtful accounts
  Inventories
  45




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Long-lived assets
   Deferred income taxes
  Valuation of warrants
  46




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Valuation of equity securities
  Stock-based compensation
     47




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Restructuring charges
  48




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
        (in thousands)
    
    Carrying Value
    
    Fair ValueCash and cash equivalents
    
    $
    170,367
    
    
    $
    170,367Marketable debt securities
    
    
    20,983
    
    
    
    20,983Marketable equity securities
    
    
    42,905
    
    
    
    42,905Mindspeed warrant
    
    
    23,395
    
    
    
    23,395Short-term debt
    
    
    80,000
    
    
    
    80,000Long-term debt: senior secured notes
    
    
    275,000
    
    
    
    284,625Long-term debt: convertible subordinated notes
    
    
    250,000
    
    
    
    220,188
  49




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ITEM 4. CONTROLS AND PROCEDURES
   50




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PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 IPO Litigation 
 Class Action Suits  Witriol v. Conexant, et al. (Witriol)
 Graden v. Conexant, et al.
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Shareholder Derivative Suits Witriol Witriol
 52




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ITEM 1A. RISK FACTORS
  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.
  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 in India and China.
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We operate in the highly cyclical semiconductor industry, which is subject to significant downturns
that may negatively impact our business, financial condition and results of operations.
  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;
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
    
    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 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, processes or technologies;
    
    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.
 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 may incur additional future losses.
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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.
  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;
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
    
    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 us and our
subsidiaries which are subject to review by taxing authorities; and
    
    limitations on our ability under local laws to protect our intellectual property.
    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 face a risk that capital needed for our business and to repay our debt obligations will not be
available when we need it.
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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.
   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.
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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.
   
    
    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.
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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, increased expenses and loss of design wins to our competitors.
  If we are not successful in protecting our intellectual property rights, it may harm our ability to
compete.
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
    
    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.
  Uncertainties involving litigation could adversely affect our business.
  Our success depends, in part, on our ability to effect suitable investments, alliances and
acquisitions.
   
    
    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.
  We have significant goodwill and intangible assets, and future impairment of our goodwill and
intangible assets could have a material negative impact on our financial condition and results of
operations.
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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.
  Provisions in our organizational documents and rights agreement and Delaware law may make it
difficult for someone to acquire control of us.
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
    
    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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   For
    
    WithheldD. R. Beall
    
    
    403,621,223
    
    
    
    31,600,241B. S. Iyer
    
    
    300,966,228
    
    
    
    134,255,236J. L. Stead
    
    
    331,999,269
    
    
    
    103,222,195
  For
    
    
    427,810,662Against
    
    
    6,038,105Abstain
    
    
    1,372,697Broker non-vote
    
    
    N/A
 64




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ITEM 6. EXHIBITS
 Exhibit No.
    
    Description31.1
    
    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: May 4, 2007
    
    By
    
    /s/ J. Scott BlouinJ. Scott BlouinSenior Vice President and Chief Financial Officer(principal financial officer)
 66




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EXHIBIT INDEX
 Exhibit No.
    
    Description31.1
    
    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.
 67