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UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K


|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|þ |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
| 
|  |  | For the fiscal year ended September 30, 2005                                            

Commission file number: 000-24923





CONEXANT SYSTEMS, INC.


(Exact name of registrant as specified in its charter)


|                                                                                               |  |                                         
|---------------------------------------------------------------------------------------------- |  | ----------------------------------------
|Delaware                                                                                       |  | 25-1799439                              
|(State of incorporation)                                                                       |  | (I.R.S. Employer
    Identification No.)
|                                                                                              
|4000 MacArthur Boulevard
    Newport Beach, California(Address of principal executive offices) |  | 92660-3095(Zip code)                    

Registrants telephone number, including area code:


(949) 483-4600


Securities registered pursuant to Section 12(b) of the
Act:


NONE


Securities registered pursuant to Section 12(g) of the
Act:


Common Stock, $0.01 Par Value Per Share


(including associated Preferred Share Purchase Rights)


þ o


o þ


þ o


þ


o þ


þ o




Documents Incorporated by Reference












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|                                                                                                     |                                                                                                                      |  |  |  |  |  |  | 
|---------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|CAUTIONARY STATEMENT                                                                                
|PART I                                                                                              
|                                                                                                     | Item 1. Business                                                                                                    
|                                                                                                     | Item 2. Properties                                                                                                  
|                                                                                                     | Item 3. Legal Proceedings                                                                                           
|                                                                                                     | Item 4. Submission of Matters to Vote of Security Holders                                                           
|PART II                                                                                             
|                                                                                                     | Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|                                                                                                     | Item 6. Selected Financial Data                                                                                     
|                                                                                                     | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations                       
|                                                                                                     | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                                                 
|                                                                                                     | Item 8. Financial Statements and Supplementary Data                                                                 
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                                             
|                                                                                                     | Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure                        
|                                                                                                     | Item 9A. Controls and Procedures                                                                                    
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING
|                                                                                                     | Item 9B. Other Information                                                                                          
|PART III                                                                                            
|                                                                                                     | Item 10. Directors and Executive Officers of the Registrant                                                         
|                                                                                                     | Item 11. Executive Compensation                                                                                     
|                                                                                                     | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters             
|                                                                                                     | Item 13. Certain Relationships and Related Transactions                                                             
|                                                                                                     | Item 14. Principal Accountant Fees and Services                                                                     
|PART IV                                                                                             
|                                                                                                     | Item 15. Exhibits and Financial Statement Schedules                                                                 
|SIGNATURES                                                                                          
|VALUATION AND QUALIFYING ACCOUNTS                                                                   
|EXHIBIT INDEX                                                                                       
|EXHIBIT 10.P.2                                                                                      
|EXHIBIT 21                                                                                          
|EXHIBIT 23                                                                                          
|EXHIBIT 31.1                                                                                        
|EXHIBIT 31.2                                                                                        
|EXHIBIT 32                                                                                          



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CAUTIONARY STATEMENT




i



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PART I







|        |         
|------- | --------
|Item 1. | Business

General










1



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Our Business










| |                          
| | -------------------------
| | Broadband Access Products



2



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tm tm










| |                                    
| | -----------------------------------
| | Broadband Media Processing Products



3



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| |                           
| | --------------------------
| | Set-top Box (STB) Products













4



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| |                           
| | --------------------------
| | Convergence Video Products









| |                                    
| | -----------------------------------
| | Universal and Voice Access Products







5



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| |                             
| | ----------------------------
| | Wireless Networking Products







6



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Research and Development






7



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Manufacturing








Social and Environmental Responsibility












8



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Quality and Reliability










Customers, Marketing and Sales










9



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Backlog




Competition






Intellectual Property and Proprietary Rights




Environmental Regulation






Cyclicality; Seasonality; Possible Significant Downturns






10



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Employees




Certain Business Risks








| |                                                                                    
| | -----------------------------------------------------------------------------------
| | We have incurred substantial losses and we anticipate
    additional future losses.







| |                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------
| | We face a risk that capital needed for our business and to
    repay our convertible notes will not be available when we need
    it.



11



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| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | We operate in the highly cyclical semiconductor industry,
    which is subject to significant downturns.







| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | 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.



12



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| |                                       
| | --------------------------------------
| | 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.            







| |                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





13



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| |   |                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.





14



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| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | 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.    







| |                                                                                  
| | ---------------------------------------------------------------------------------
| | 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; and 

15



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| |   |                                                                                      
| | - | -------------------------------------------------------------------------------------
| |  | general financial, domestic, international, economic and other
    market conditions.





| |                                                                   
| | ------------------------------------------------------------------
| | 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 Conexant and its subsidiaries which are subject to
    review by taxing authorities; and                                     
|
| |  | limitations on our ability under local laws to protect our
    intellectual property.                                                                                                                        







16



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| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | 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.







| |                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



17



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| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | 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.                      







18



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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 and increased
    expenses.





| |                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



19



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| |   |                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.



| |                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------
| | 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.                                                                                        





| |                                                                            
| | ---------------------------------------------------------------------------
| | 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.



20



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| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | 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.





| |   |                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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;

21



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| |   |                                                                                            
| | - | -------------------------------------------------------------------------------------------
| |  | elimination of the right of shareholders to call a special
    meeting of shareholders; and
|
| |  | a fair price provision.                                                                    





Executive Officers




|                   |  |     |    |  |          |                                                         
|------------------ |  | --- | -- |  | -------- | --------------------------------------------------------
|Name               |  | Age |    |  | Position
|                   |  |     |    |  |         
|Dwight W. Decker   |  |     | 55 |  |          | Chairman of the Board and Chief Executive Officer       
|F. Matthew Rhodes  |  |     | 48 |  |          | President                                               
|Lewis C. Brewster  |  |     | 41 |  |          | Executive Vice President and Chief Operating Officer    
|J. Scott Blouin    |  |     | 55 |  |          | Senior Vice President and Chief Financial Officer       
|Dennis E. OReilly |  |     | 61 |  |          | Senior Vice President, Chief Legal Officer and Secretary



Dwight W. Decker 


F. Matthew Rhodes 


Lewis C. Brewster 


J. Scott Blouin 


22



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Dennis E. OReilly 


Available Information









|        |           
|------- | ----------
|Item 2. | Properties


















|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

IPO Litigation.


23



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Texas Instruments, Inc.


Class Action Suits. Witriol v. Conexant, et al.


Graden v. Conexant, et al


24



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Shareholder Derivative Suits. Witriol v. Conexant, et al. Witriol









|        |                                                  
|------- | -------------------------------------------------
|Item 4. | Submission of Matters to Vote of Security Holders






PART II







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities



|                                      |                |      |   |      |     |  |   |      | 
|------------------------------------- | -------------- | ---- | - | ---- | --- |  | - | ---- | 
|                                      |                | High |   |      | Low | 
|                                      |                |      |   |      |     | 
|Fiscal year ended September 30, 2005: |                |      |   |      |     |  |   |     
|                                      | First quarter  |      | $ | 2.23 |     |  | $ | 1.50 | 
|                                      | Second quarter |      |   | 2.05 |     |  |   | 1.36 | 
|                                      | Third quarter  |      |   | 1.75 |     |  |   | 0.95 | 
|                                      | Fourth quarter |      |   | 2.17 |     |  |   | 1.57 | 
|Fiscal year ended September 30, 2004: |                |      |   |      |     |  |   |     
|                                      | First quarter  |      | $ | 6.42 |     |  | $ | 4.64 | 
|                                      | Second quarter |      |   | 7.85 |     |  |   | 5.16 | 
|                                      | Third quarter  |      |   | 6.70 |     |  |   | 3.72 | 
|                                      | Fourth quarter |      |   | 2.65 |     |  |   | 1.37 | 



25



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|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data





|                                                    |                                            |                                          |          |         |         |   |          |         |         |   |          |         |         |      |          |         |         |   |            |         |         | 
|--------------------------------------------------- | ------------------------------------------ | ---------------------------------------- | -------- | ------- | ------- | - | -------- | ------- | ------- | - | -------- | ------- | ------- | ---- | -------- | ------- | ------- | - | ---------- | ------- | ------- | 
|                                                    |                                            | 2005                                     |          |         | 2004    |   |          | 2003    |         |   | 2002     |         |         | 2001 |         
|                                                    |                                            |                                          |          |         |         |   |          |         |         |   |          |         |         |      |         
|                                                    |                                            | (In thousands, except per share amounts) |         
|Net revenues                                        |                                            | $                                        | 722,739  |         |         | $ | 901,854  |         |         | $ | 599,977  |         |         | $    | 521,726  |         |         | $ | 541,688    |        
|Cost of goods sold                                  |                                            |                                          | 493,973  |         |         |   | 523,129  |         |         |   | 338,161  |         |         |      | 317,921  |         |         |   | 522,560    |        
|                                                    |                                            |                                          |          |         |         |   |          |         |         |   |          |         |         |      |         
|Gross margin                                        |                                            |                                          | 228,766  |         |         |   | 378,725  |         |         |   | 261,816  |         |         |      | 203,805  |         |         |   | 19,128     |        
|Operating expenses:                                 |                                            |                                          |          |         |         |   |          |         |         |   |          |         |         |      |          |         |         |   |            |        
|                                                    | Research and development                   |                                          |          | 267,996 |         |   |          | 239,971 |         |   |          | 159,354 |         |      |          | 156,350 |         |   |            | 175,026 |        
|                                                    | Selling, general and administrative        |                                          |          | 117,861 |         |   |          | 125,474 |         |   |          | 93,426  |         |      |          | 95,750  |         |   |            | 141,276 |        
|                                                    | Amortization of intangible assets          |                                          |          | 32,322  |         |   |          | 20,769  |         |   |          | 3,437   |         |      |          | 19,489  |         |   |            | 19,814  |        
|                                                    | In-process research and
    development(1) |                                          |          |        |         |   |          | 160,818 |         |   |          |        |         |      |          |        |         |   |            |        |        
|                                                    | Special charges(2)                         |                                          |          | 45,977  |         |   |          | 32,801  |         |   |          | 18,379  |         |      |          | 30,499  |         |   |            | 369,258 |        
|                                                    |                                            |                                          |          |         |         |   |          |         |         |   |          |         |         |      |         
|                                                    |                                            | Total operating expenses                 |          |         | 464,156 |   |          |         | 579,833 |   |          |         | 274,596 |      |          |         | 302,088 |   |            |         | 705,374 | 
|                                                    |                                            |                                          |          |         |         |   |          |         |         |   |          |         |         |      |         
|Operating loss                                      |                                            |                                          | (235,390 | )       |         |   | (201,108 | )       |         |   | (12,780  | )       |         |      | (98,283  | )       |         |   | (686,246   | )      
|Debt conversion costs                               |                                            |                                          |         |         |         |   |         |         |         |   |         |         |         |      | 10,435   |         |         |   | 42,584     |        
|Gain on extinguishment of debt                      |                                            |                                          |         |         |         |   |         |         |         |   | (42,021  | )       |         |      |         |         |         |   | (11,710    | )      
|Interest expense                                    |                                            |                                          | 33,691   |         |         |   | 30,708   |         |         |   | 28,120   |         |         |      | 31,069   |         |         |   | 33,597     |        
|Other (income) expense, net(3)                      |                                            |                                          | (95,413  | )       |         |   | 69,100   |         |         |   | (22,312  | )       |         |      | 5,801    |         |         |   | (34,434    | )      
|                                                    |                                            |                                          |          |         |         |   |          |         |         |   |          |         |         |      |         
|Income (loss) before income taxes                   |                                            |                                          | (173,668 | )       |         |   | (300,916 | )       |         |   | 23,433   |         |         |      | (145,588 | )       |         |   | (716,283   | )      
|Provision (benefit) for income taxes(1)             |                                            |                                          | 2,322    |         |         |   | 243,733  |         |         |   | (129     | )       |         |      | (1,838   | )       |         |   | (55,373    | )      
|                                                    |                                            |                                          |          |         |         |   |          |         |         |   |          |         |         |      |         
|Income (loss) from continuing
    operations        |                                            |                                          | (175,990 | )       |         |   | (544,649 | )       |         |   | 23,562   |         |         |      | (143,750 | )       |         |   | (660,910   | )      
|Loss from discontinued operations(4)                |                                            |                                          |         |         |         |   |         |         |         |   | (728,877 | )       |         |      | (737,017 | )       |         |   | (784,424   | )      
|                                                    |                                            |                                          |          |         |         |   |          |         |         |   |          |         |         |      |         
|Net loss                                            |                                            | $                                        | (175,990 | )       |         | $ | (544,649 | )       |         | $ | (705,315 | )       |         | $    | (880,767 | )       |         | $ | (1,445,334 | )      
|                                                    |                                            |                                          |          |         |         |   |          |         |         |   |          |         |         |      |         
|Income (loss) from continuing operations per share: |                                            |                                          |          |         |         |   |          |         |         |   |          |         |         |      |          |         |         |   |            |        
|                                                    | Basic                                      |                                          | $        | (0.37   | )       |   | $        | (1.40   | )       |   | $        | 0.09    |         |      | $        | (0.56   | )       |   | $          | (2.70   | )      
|                                                    | Diluted                                    |                                          |          | (0.37   | )       |   |          | (1.40   | )       |   |          | 0.09    |         |      |          | (0.56   | )       |   |            | (2.70   | )      

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|                                                  |  |                                          |           |  |      |   |           |      |  |   |         |  |  |      |           |  |  |   |           | 
|------------------------------------------------- |  | ---------------------------------------- | --------- |  | ---- | - | --------- | ---- |  | - | ------- |  |  | ---- | --------- |  |  | - | --------- | 
|                                                  |  | 2005                                     |           |  | 2004 |   |           | 2003 |  |   | 2002    |  |  | 2001 |          
|                                                  |  |                                          |           |  |      |   |           |      |  |   |         |  |  |      |          
|                                                  |  | (In thousands, except per share amounts) |          
|Balance Sheet Data                                |  |                                          |           |  |      |   |           |      |  |   |         |  |  |      |           |  |  |   |           | 
|Working capital                                   |  | $                                        | 125,856   |  |      | $ | 434,802   |      |  | $ | 233,017 |  |  | $    | 443,948   |  |  | $ | 444,974   | 
|Total assets                                      |  |                                          | 1,581,524 |  |      |   | 1,880,522 |      |  |   | 931,707 |  |  |      | 1,911,035 |  |  |   | 2,815,480 | 
|Current portion of convertible subordinated notes |  |                                          | 196,825   |  |      |   |          |      |  |   |        |  |  |      |          |  |  |   |          | 
|Long-term obligations                             |  |                                          | 599,007   |  |      |   | 780,708   |      |  |   | 643,260 |  |  |      | 743,523   |  |  |   | 761,927   | 
|Shareholders equity                              |  |                                          | 569,093   |  |      |   | 828,387   |      |  |   | 166,766 |  |  |      | 947,827   |  |  |   | 1,773,176 | 






|    |                                                                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In fiscal 2004, we recorded $160.8 million of in-process
    research and development expenses related to the Merger and a
    $255.7 million charge for the impairment of deferred tax
    assets.                                                                                                                                         
|   
|(2) | See Note 15 of Notes to Consolidated Financial Statements
    for components of special charges. In fiscal 2001, we recorded
    special charges of $369.3 million, principally related to
    the impairment of certain manufacturing assets and restructuring
    activities.                                                             
|   
|(3) | See Note 7 of Notes to Consolidated Financial Statements
    for components of other (income) expense, net.                                                                                                                                                                                                                                 
|   
|(4) | Loss from discontinued operations (net of income taxes) for all
    periods represents the operating results of our former wireless
    communications business and our Mexicali Operations which we
    disposed of in June 2002 and the Mindspeed Technologies
    Internet infrastructure business which we disposed of in
    June 2003.






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations





| |                            
| | ---------------------------
| | Merger with GlobespanVirata





| |                                            
| | -------------------------------------------
| | Spin-off of Mindspeed Technologies Business





| |                             
| | ----------------------------
| | Business Enterprise Segments



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| |   |                                                                             
| | - | ----------------------------------------------------------------------------
| |  | 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 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.              





|                                       |  |      |       |  |      |   |       |      |  |   |       | 
|-------------------------------------- |  | ---- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                                       |  | 2005 |       |  | 2004 |   |       | 2003 | 
|                                       |  |      |       |  |      |   |       |      | 
|Broadband Access Products              |  | $    | 192.0 |  |      | $ | 254.6 |      |  | $ | 64.3  | 
|Broadband Media Processing Products    |  |      | 155.4 |  |      |   | 214.2 |      |  |   | 165.5 | 
|Universal and Voice Access Products    |  |      | 289.2 |  |      |   | 323.1 |      |  |   | 325.2 | 
|Wireless Networking Products and other |  |      | 86.1  |  |      |   | 110.0 |      |  |   | 45.0  | 
|                                       |  |      |       |  |      |   |       |      | 
|                                       |  | $    | 722.7 |  |      | $ | 901.9 |      |  | $ | 600.0 | 
|                                       |  |      |       |  |      |   |       |      | 

Overview of 2005 Financial Performance






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Results of Operations




| |             
| | ------------
| | Net Revenues

|              |  |      |       |  |        |  |     |      |  |   |        |  |  |      |    |   |  |   |       | 
|------------- |  | ---- | ----- |  | ------ |  | --- | ---- |  | - | ------ |  |  | ---- | -- | - |  | - | ----- | 
|              |  | 2005 |       |  | Change |  |     | 2004 |  |   | Change |  |  | 2003 |   
|              |  |      |       |  |        |  |     |      |  |   |        |  |  |      |   
|(In millions) | 
|Net revenues  |  | $    | 722.7 |  |        |  | (20 | )%   |  | $ | 901.9  |  |  |      | 50 | % |  | $ | 600.0 | 









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| |             
| | ------------
| | Gross Margin

|                        |  |      |       |   |        |  |     |      |  |   |        |   |  |      |    |   |  |   |       |  
|----------------------- |  | ---- | ----- | - | ------ |  | --- | ---- |  | - | ------ | - |  | ---- | -- | - |  | - | ----- | -
|                        |  | 2005 |       |   | Change |  |     | 2004 |  |   | Change |   |  | 2003 |   
|                        |  |      |       |   |        |  |     |      |  |   |        |   |  |      |   
|(In millions)           | 
|Gross margin            |  | $    | 228.8 |   |        |  | (40 | )%   |  | $ | 378.7  |   |  |      | 45 | % |  | $ | 261.8 |  
|Percent of net revenues |  |      | 32    | % |        |  |     |      |  |   | 42     | % |  |      |    |   |  |   | 44    | %











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|                                  |  |      |         |   |      |   |        |  
|--------------------------------- |  | ---- | ------- | - | ---- | - | ------ | -
|                                  |  | 2005 |         |   | 2004 |  
|                                  |  |      |         |   |      |  
|E&O reserves, beginning of period |  | $    | 23,319  |   |      | $ | 25,177 |  
|Additions                         |  |      | 35,944  |   |      |   | 11,586 |  
|Release upon sales of product     |  |      | (5,864  | ) |      |   | (7,123 | )
|Scrap                             |  |      | (11,319 | ) |      |   | (3,792 | )
|Standards adjustments and other   |  |      | 2,753   |   |      |   | (2,529 | )
|                                  |  |      |         |   |      |  
|E&O reserves, end of period       |  | $    | 44,833  |   |      | $ | 23,319 |  
|                                  |  |      |         |   |      |  







|                                  |  |      |        |  
|--------------------------------- |  | ---- | ------ | -
|                                  |  | 2005 |       
|                                  |  |      |       
|LCM reserves, beginning of period |  | $    |       |  
|Additions                         |  |      | 20,179 |  
|Release upon sales of product     |  |      | (6,175 | )
|Standards adjustments and other   |  |      | (7,265 | )
|                                  |  |      |       
|LCM reserves, end of period       |  | $    | 6,739  |  
|                                  |  |      |       



| |                         
| | ------------------------
| | Research and Development

|                         |  |      |       |   |        |  |    |      |  |   |        |   |  |      |    |   |  |   |       |  
|------------------------ |  | ---- | ----- | - | ------ |  | -- | ---- |  | - | ------ | - |  | ---- | -- | - |  | - | ----- | -
|                         |  | 2005 |       |   | Change |  |    | 2004 |  |   | Change |   |  | 2003 |   
|                         |  |      |       |   |        |  |    |      |  |   |        |   |  |      |   
|(In millions)            | 
|Research and development |  | $    | 268.0 |   |        |  | 12 | %    |  | $ | 240.0  |   |  |      | 51 | % |  | $ | 159.4 |  
|Percent of net revenues  |  |      | 37    | % |        |  |    |      |  |   | 27     | % |  |      |    |   |  |   | 27    | %



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| |                                    
| | -----------------------------------
| | Selling, General and Administrative

|                                    |  |      |       |   |        |  |    |      |  |   |        |   |  |      |    |   |  |   |      |  
|----------------------------------- |  | ---- | ----- | - | ------ |  | -- | ---- |  | - | ------ | - |  | ---- | -- | - |  | - | ---- | -
|                                    |  | 2005 |       |   | Change |  |    | 2004 |  |   | Change |   |  | 2003 |   
|                                    |  |      |       |   |        |  |    |      |  |   |        |   |  |      |   
|(In millions)                       | 
|Selling, general and administrative |  | $    | 117.9 |   |        |  | (6 | )%   |  | $ | 125.5  |   |  |      | 34 | % |  | $ | 93.4 |  
|Percent of net revenues             |  |      | 16    | % |        |  |    |      |  |   | 14     | % |  |      |    |   |  |   | 16   | %









| |                                  
| | ---------------------------------
| | Amortization of Intangible Assets

|                                  |  |      |      |  |      |   |      |      |  |   |     | 
|--------------------------------- |  | ---- | ---- |  | ---- | - | ---- | ---- |  | - | --- | 
|                                  |  | 2005 |      |  | 2004 |   |      | 2003 | 
|                                  |  |      |      |  |      |   |      |      | 
|(In millions)                     | 
|Amortization of intangible assets |  | $    | 32.3 |  |      | $ | 20.8 |      |  | $ | 3.4 | 



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| |                                    
| | -----------------------------------
| | In-Process Research and Development





| |                
| | ---------------
| | Special Charges



|                      |  |      |      |  |      |   |      |      |  |   |      | 
|--------------------- |  | ---- | ---- |  | ---- | - | ---- | ---- |  | - | ---- | 
|                      |  | 2005 |      |  | 2004 |   |      | 2003 | 
|                      |  |      |      |  |      |   |      |      | 
|(In millions)         | 
|Asset impairments     |  | $    | 3.8  |  |      | $ | 5.4  |      |  | $ | 9.6  | 
|Restructuring charges |  |      | 28.0 |  |      |   | 9.3  |      |  |   | 5.2  | 
|Integration costs     |  |      | 7.7  |  |      |   | 7.3  |      |  |   |     | 
|Other                 |  |      | 6.5  |  |      |   | 10.8 |      |  |   | 3.6  | 
|                      |  |      |      |  |      |   |      |      | 
|                      |  | $    | 46.0 |  |      | $ | 32.8 |      |  | $ | 18.4 | 
|                      |  |      |      |  |      |   |      |      | 





| |                               
| | ------------------------------
| | Gain on Extinguishment of Debt





| |                 
| | ----------------
| | Interest Expense

|                 |  |      |      |  |      |   |      |      |  |   |      | 
|---------------- |  | ---- | ---- |  | ---- | - | ---- | ---- |  | - | ---- | 
|                 |  | 2005 |      |  | 2004 |   |      | 2003 | 
|                 |  |      |      |  |      |   |      |      | 
|(In millions)    | 
|Interest expense |  | $    | 33.7 |  |      | $ | 30.7 |      |  | $ | 28.1 | 







| |                            
| | ---------------------------
| | Other (Income) Expense, Net

|                            |  |      |       |   |      |   |      |      |  |   |       |  
|--------------------------- |  | ---- | ----- | - | ---- | - | ---- | ---- |  | - | ----- | -
|                            |  | 2005 |       |   | 2004 |   |      | 2003 | 
|                            |  |      |       |   |      |   |      |      | 
|(In millions)               | 
|Other (income) expense, net |  | $    | (95.4 | ) |      | $ | 69.1 |      |  | $ | (22.3 | )



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| |                                     
| | ------------------------------------
| | Provision (Benefit) for Income Taxes







34



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Quarterly Results of Operations




|                                    |                          |                                          |         |        |          |   |         |          |  |   |          |         |  |           |          |         |          |   |         |          |  |   |          |         |  |   |          |         |  |   |         |        | 
|----------------------------------- | ------------------------ | ---------------------------------------- | ------- | ------ | -------- | - | ------- | -------- |  | - | -------- | ------- |  | --------- | -------- | ------- | -------- | - | ------- | -------- |  | - | -------- | ------- |  | - | -------- | ------- |  | - | ------- | ------ | 
|                                    |                          | Three Months Ended                       |        
|                                    |                          |                                          |        
|                                    |                          | Sept. 30,                                |         |        | June 30, |   |         | Mar. 31, |  |   | Dec. 31, |         |  | Sept. 30, |          |         | June 30, |   |         | Mar. 31, |  |   | Dec. 31, |        
|                                    |                          | 2005                                     |         |        | 2005     |   |         | 2005     |  |   | 2004     |         |  | 2004      |          |         | 2004     |   |         | 2004     |  |   | 2003     |        
|                                    |                          |                                          |         |        |          |   |         |          |  |   |          |         |  |           |          |         |          |   |         |          |  |   |          |        
|                                    |                          | (In thousands, except per share amounts) |        
|Statement of Operations Data        |                          |                                          |         |        |          |   |         |          |  |   |          |         |  |           |          |         |          |   |         |          |  |   |          |         |  |   |          |         |  |   |         |       
|Net revenues                        |                          | $                                        | 214,916 |        |          | $ | 197,464 |          |  | $ | 169,738  |         |  | $         | 140,621  |         |          | $ | 213,123 |          |  | $ | 267,617  |         |  | $ | 243,781  |         |  | $ | 177,333 |       
|Cost of goods sold                  |                          |                                          | 128,312 |        |          |   | 122,430 |          |  |   | 109,766  |         |  |           | 133,465  |         |          |   | 127,681 |          |  |   | 155,136  |         |  |   | 142,116  |         |  |   | 98,196  |       
|                                    |                          |                                          |         |        |          |   |         |          |  |   |          |         |  |           |          |         |          |   |         |          |  |   |          |        
|Gross margin                        |                          |                                          | 86,604  |        |          |   | 75,034  |          |  |   | 59,972   |         |  |           | 7,156    |         |          |   | 85,442  |          |  |   | 112,481  |         |  |   | 101,665  |         |  |   | 79,137  |       
|Research and development            |                          |                                          | 58,634  |        |          |   | 66,282  |          |  |   | 70,539   |         |  |           | 72,541   |         |          |   | 72,766  |          |  |   | 74,317   |         |  |   | 53,734   |         |  |   | 39,154  |       
|Selling, general and administrative |                          |                                          | 28,412  |        |          |   | 31,081  |          |  |   | 28,362   |         |  |           | 30,006   |         |          |   | 35,692  |          |  |   | 36,371   |         |  |   | 30,602   |         |  |   | 22,809  |       
|Amortization of intangible assets   |                          |                                          | 7,920   |        |          |   | 7,969   |          |  |   | 8,140    |         |  |           | 8,293    |         |          |   | 8,205   |          |  |   | 7,956    |         |  |   | 3,653    |         |  |   | 955     |       
|In-process research and development |                          |                                          |        |        |          |   |        |          |  |   |         |         |  |           |         |         |          |   |        |          |  |   |         |         |  |   | 160,818  |         |  |   |        |       
|Special charges                     |                          |                                          | 4,715   |        |          |   | 8,409   |          |  |   | 13,596   |         |  |           | 19,257   |         |          |   | 18,388  |          |  |   | 8,294    |         |  |   | 5,514    |         |  |   | 605     |       
|                                    |                          |                                          |         |        |          |   |         |          |  |   |          |         |  |           |          |         |          |   |         |          |  |   |          |        
|                                    | Total operating expenses |                                          |         | 99,681 |          |   |         | 113,741  |  |   |          | 120,637 |  |           |          | 130,097 |          |   |         | 135,051  |  |   |          | 126,938 |  |   |          | 254,321 |  |   |         | 63,523 | 
|                                    |                          |                                          |         |        |          |   |         |          |  |   |          |         |  |           |          |         |          |   |         |          |  |   |          |        
|Operating income (loss)             |                          |                                          | (13,077 | )      |          |   | (38,707 | )        |  |   | (60,665  | )       |  |           | (122,941 | )       |          |   | (49,609 | )        |  |   | (14,457  | )       |  |   | (152,656 | )       |  |   | 15,614  |       
|Interest expense                    |                          |                                          | 8,401   |        |          |   | 8,396   |          |  |   | 8,463    |         |  |           | 8,431    |         |          |   | 8,386   |          |  |   | 8,373    |         |  |   | 7,260    |         |  |   | 6,689   |       
|Other (income) expense, net         |                          |                                          | (72,046 | )      |          |   | (15,610 | )        |  |   | 3,429    |         |  |           | (11,186  | )       |          |   | 70,131  |          |  |   | 47,935   |         |  |   | (16,996  | )       |  |   | (31,970 | )     
|                                    |                          |                                          |         |        |          |   |         |          |  |   |          |         |  |           |          |         |          |   |         |          |  |   |          |        

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|                                                |  |                                          |         |  |          |   |         |          |  |   |          |   |  |           |          |   |          |   |          |          |  |   |          |   |  |   |          |   |  |   |         | 
|----------------------------------------------- |  | ---------------------------------------- | ------- |  | -------- | - | ------- | -------- |  | - | -------- | - |  | --------- | -------- | - | -------- | - | -------- | -------- |  | - | -------- | - |  | - | -------- | - |  | - | ------- | 
|                                                |  | Three Months Ended                       |        
|                                                |  |                                          |        
|                                                |  | Sept. 30,                                |         |  | June 30, |   |         | Mar. 31, |  |   | Dec. 31, |   |  | Sept. 30, |          |   | June 30, |   |          | Mar. 31, |  |   | Dec. 31, |  
|                                                |  | 2005                                     |         |  | 2005     |   |         | 2005     |  |   | 2004     |   |  | 2004      |          |   | 2004     |   |          | 2004     |  |   | 2003     |  
|                                                |  |                                          |         |  |          |   |         |          |  |   |          |   |  |           |          |   |          |   |          |          |  |   |          |  
|                                                |  | (In thousands, except per share amounts) |        
|Income (loss) before income taxes               |  |                                          | 50,568  |  |          |   | (31,493 | )        |  |   | (72,557  | ) |  |           | (120,186 | ) |          |   | (128,126 | )        |  |   | (70,765  | ) |  |   | (142,920 | ) |  |   | 40,895  | 
|Provision for income taxes                      |  |                                          | 487     |  |          |   | 673     |          |  |   | 630      |   |  |           | 532      |   |          |   | 242,365  |          |  |   | 661      |   |  |   | 459      |   |  |   | 248     | 
|                                                |  |                                          |         |  |          |   |         |          |  |   |          |   |  |           |          |   |          |   |          |          |  |   |          |  
|Net income (loss)                               |  | $                                        | 50,081  |  |          | $ | (32,166 | )        |  | $ | (73,187  | ) |  | $         | (120,718 | ) |          | $ | (370,491 | )        |  | $ | (71,426  | ) |  | $ | (143,379 | ) |  | $ | 40,647  | 
|                                                |  |                                          |         |  |          |   |         |          |  |   |          |   |  |           |          |   |          |   |          |          |  |   |          |  
|Income (loss) per share, basic                  |  | $                                        | 0.11    |  |          | $ | (0.07   | )        |  | $ | (0.16    | ) |  | $         | (0.26    | ) |          | $ | (0.79    | )        |  | $ | (0.15    | ) |  | $ | (0.41    | ) |  | $ | 0.15    | 
|                                                |  |                                          |         |  |          |   |         |          |  |   |          |   |  |           |          |   |          |   |          |          |  |   |          |  
|Income (loss) per share, diluted                |  | $                                        | 0.10    |  |          | $ | (0.07   | )        |  | $ | (0.16    | ) |  | $         | (0.26    | ) |          | $ | (0.79    | )        |  | $ | (0.15    | ) |  | $ | (0.41    | ) |  | $ | 0.13    | 
|                                                |  |                                          |         |  |          |   |         |          |  |   |          |   |  |           |          |   |          |   |          |          |  |   |          |  
|Shares used in computing loss per share-basic   |  |                                          | 472,828 |  |          |   | 471,247 |          |  |   | 470,189  |   |  |           | 468,369  |   |          |   | 467,556  |          |  |   | 463,804  |   |  |   | 349,968  |   |  |   | 277,190 | 
|                                                |  |                                          |         |  |          |   |         |          |  |   |          |   |  |           |          |   |          |   |          |          |  |   |          |  
|Shares used in computing loss per share-diluted |  |                                          | 484,825 |  |          |   | 471,247 |          |  |   | 470,189  |   |  |           | 468,369  |   |          |   | 467,556  |          |  |   | 463,804  |   |  |   | 349,968  |   |  |   | 307,545 | 
|                                                |  |                                          |         |  |          |   |         |          |  |   |          |   |  |           |          |   |          |   |          |          |  |   |          |  













Liquidity and Capital Resources




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|                                                                                                                                            |  |               |       |  |               |   |       | 
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ----- |  | ------------- | - | ----- | 
|                                                                                                                                            |  | September 30, |       |  | September 30, |  
|                                                                                                                                            |  | 2005          |       |  | 2004          |  
|                                                                                                                                            |  |               |       |  |               |  
|                                                                                                                                            |  | (In millions) |      
|Cash and cash equivalents                                                                                                                   |  | $             | 202.7 |  |               | $ | 139.0 | 
|Other short-term marketable securities (primarily mutual funds,
    domestic government agencies and corporate debt securities)             |  |               | 95.9  |  |               |   | 13.8  | 
|Long-term marketable securities (primarily domestic government
    agencies and corporate debt securities)                                  |  |               | 38.5  |  |               |   | 137.6 | 
|                                                                                                                                            |  |               |       |  |               |  
|Subtotal                                                                                                                                    |  |               | 337.1 |  |               |   | 290.4 | 
|                                                                                                                                            |  |               |       |  |               |  
|Equity securities  Skyworks Solutions, Inc.
    (6.2 million shares at September 30, 2005 and
    September 30, 2004)                      |  |               | 43.4  |  |               |   | 61.8  | 
|Equity securities  SiRF Technology Holdings, Inc.
    (zero shares at September 30, 2005 and 5.9 million
    shares at September 30, 2004) |  |               |      |  |               |   | 87.5  | 
|                                                                                                                                            |  |               |       |  |               |  
|Subtotal Skyworks and SiRF                                                                                                                  |  |               | 43.4  |  |               |   | 149.3 | 
|                                                                                                                                            |  |               |       |  |               |  
|Total cash, cash equivalents and marketable securities                                                                                      |  | $             | 380.5 |  |               | $ | 439.7 | 
|                                                                                                                                            |  |               |       |  |               |  





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Commitments




|                                         |  |                        |       |           |        |   |       |           |           |   |           |  |  |         |      |  |  |   |      | 
|---------------------------------------- |  | ---------------------- | ----- | --------- | ------ | - | ----- | --------- | --------- | - | --------- |  |  | ------- | ---- |  |  | - | ---- | 
|                                         |  | Payments Due by Period |      
|                                         |  |                        |      
|                                         |  |                        |       | Less Than |        |   |       |           | More Than |  
|                                         |  | Total                  |       |           | 1 Year |   |       | 1-3 Years |           |   | 3-5 Years |  |  | 5 Years |     
|                                         |  |                        |       |           |        |   |       |           |           |   |           |  |  |         |     
|                                         |  | (In millions)          |      
|Convertible subordinated notes(1)        |  | $                      | 711.8 |           |        | $ | 196.8 |           |           | $ | 515.0     |  |  | $       |     |  |  | $ |     | 
|Operating leases                         |  |                        | 193.1 |           |        |   | 34.0  |           |           |   | 51.1      |  |  |         | 30.8 |  |  |   | 77.2 | 
|Assigned leases                          |  |                        | 7.2   |           |        |   | 2.6   |           |           |   | 2.2       |  |  |         | 1.3  |  |  |   | 1.1  | 
|Contingent consideration on acquisitions |  |                        | 6.0   |           |        |   | 6.0   |           |           |   |          |  |  |         |     |  |  |   |     | 
|Capital commitments                      |  |                        | 5.7   |           |        |   | 5.7   |           |           |   |          |  |  |         |     |  |  |   |     | 
|                                         |  |                        |       |           |        |   |       |           |           |   |           |  |  |         |     
|                                         |  | $                      | 923.8 |           |        | $ | 245.1 |           |           | $ | 568.3     |  |  | $       | 32.1 |  |  | $ | 78.3 | 
|                                         |  |                        |       |           |        |   |       |           |           |   |           |  |  |         |     






|    |                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------
|(1) | Excludes interest. See Note 9 of Notes to Consolidated
    Financial Statements for interest terms.



Off-Balance Sheet Arrangements




38



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Special Purpose Entities






Recent Accounting Pronouncements








Critical Accounting Policies




39



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| |                      
| | ---------------------
| | Business combinations





| |                                
| | -------------------------------
| | Impairment of long-lived assets







| |                      
| | ---------------------
| | Deferred income taxes





| |            
| | -----------
| | Inventories



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| |                                
| | -------------------------------
| | Allowance for doubtful accounts





| |                                 
| | --------------------------------
| | Non-marketable equity securities





| |                    
| | -------------------
| | Revenue recognition





41



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| |                                    
| | -----------------------------------
| | Valuation of derivative instruments





| |                      
| | ---------------------
| | Restructuring charges





| |                       
| | ----------------------
| | Employee benefit plans





| |                         
| | ------------------------
| | Stock-based compensation



42



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|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk















|                                        |  |                |       |  |            |   |       | 
|--------------------------------------- |  | -------------- | ----- |  | ---------- | - | ----- | 
|                                        |  | Carrying Value |       |  | Fair Value |  
|                                        |  |                |       |  |            |  
|                                        |  | (In millions)  |      
|Cash and cash equivalents               |  | $              | 202.7 |  |            | $ | 202.7 | 
|Marketable debt securities              |  |                | 60.6  |  |            |   | 60.6  | 
|Marketable government agency securities |  |                | 73.8  |  |            |   | 73.8  | 
|Marketable equity securities            |  |                | 43.4  |  |            |   | 43.4  | 
|Mindspeed warrant                       |  |                | 33.1  |  |            |   | 33.1  | 
|Current portion of long-term debt       |  |                | 196.8 |  |            |   | 194.7 | 
|Long-term debt                          |  |                | 515.0 |  |            |   | 499.5 | 



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|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data

CONEXANT SYSTEMS, INC.


CONSOLIDATED BALANCE SHEETS


|                                                       |                                                                                                                                                                              |                                            |         |            |           |  |         |            |           | 
|------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ---------- | --------- |  | ------- | ---------- | --------- | 
|                                                       |                                                                                                                                                                              | September 30,                              |        
|                                                       |                                                                                                                                                                              |                                            |        
|                                                       |                                                                                                                                                                              | 2005                                       |         |            | 2004      | 
|                                                       |                                                                                                                                                                              |                                            |         |            |           | 
|                                                       |                                                                                                                                                                              | (In thousands, except per share            |        
|                                                       |                                                                                                                                                                              | amounts)                                   |        
|ASSETS                                                
|Current Assets                                         |                                                                                                                                                                              |                                            |         |            |           |  |         |           
|                                                       | Cash and cash equivalents                                                                                                                                                    |                                            | $       | 202,704    |           |  | $       | 139,031    |          
|                                                       | Short-term investments                                                                                                                                                       |                                            |         | 139,306    |           |  |         | 163,040    |          
|                                                       | Receivables, net of allowance of $3,803 (2005) and $5,974
    (2004)                                                                                                         |                                            |         | 87,240     |           |  |         | 185,037    |          
|                                                       | Inventories                                                                                                                                                                  |                                            |         | 95,329     |           |  |         | 194,754    |          
|                                                       | Mindspeed warrant-current portion                                                                                                                                            |                                            |         |           |           |  |         | 3,599      |          
|                                                       | Other current assets                                                                                                                                                         |                                            |         | 14,701     |           |  |         | 20,768     |          
|                                                       |                                                                                                                                                                              |                                            |         |            |           | 
|                                                       |                                                                                                                                                                              | Total current assets                       |         |            | 539,280   |  |         |            | 706,229   | 
|Property, plant and equipment, net                     |                                                                                                                                                                              |                                            | 50,700  |            |           |  | 55,741  |           
|Goodwill                                               |                                                                                                                                                                              |                                            | 717,013 |            |           |  | 708,544 |           
|Intangible assets, net                                 |                                                                                                                                                                              |                                            | 106,709 |            |           |  | 135,241 |           
|Mindspeed warrant                                      |                                                                                                                                                                              |                                            | 33,137  |            |           |  | 23,000  |           
|Marketable securities                                  |                                                                                                                                                                              |                                            | 38,485  |            |           |  | 137,604 |           
|Other assets                                           |                                                                                                                                                                              |                                            | 96,200  |            |           |  | 114,163 |           
|                                                       |                                                                                                                                                                              |                                            |         |            |           | 
|                                                       |                                                                                                                                                                              | Total assets                               |         | $          | 1,581,524 |  |         | $          | 1,880,522 | 
|                                                       |                                                                                                                                                                              |                                            |         |            |           | 
|                                                      
|LIABILITIES AND SHAREHOLDERS EQUITY                  
|Current Liabilities                                    |                                                                                                                                                                              |                                            |         |            |           |  |         |           
|                                                       | Accounts payable                                                                                                                                                             |                                            | $       | 108,957    |           |  | $       | 141,533    |          
|                                                       | Accrued compensation and benefits                                                                                                                                            |                                            |         | 27,505     |           |  |         | 40,423     |          
|                                                       | Restructuring and reorganization liabilities                                                                                                                                 |                                            |         | 28,829     |           |  |         | 22,427     |          
|                                                       | Other current liabilities                                                                                                                                                    |                                            |         | 51,308     |           |  |         | 67,044     |          
|                                                       | Current portion of convertible subordinated notes                                                                                                                            |                                            |         | 196,825    |           |  |         |           |          
|                                                       |                                                                                                                                                                              |                                            |         |            |           | 
|                                                       |                                                                                                                                                                              | Total current liabilities                  |         |            | 413,424   |  |         |            | 271,427   | 
|Convertible subordinated notes, net of current portion |                                                                                                                                                                              |                                            | 515,000 |            |           |  | 711,825 |           
|Other liabilities                                      |                                                                                                                                                                              |                                            | 84,007  |            |           |  | 68,883  |           
|                                                       |                                                                                                                                                                              |                                            |         |            |           | 
|                                                       |                                                                                                                                                                              | Total liabilities                          |         |            | 1,012,431 |  |         |            | 1,052,135 | 
|                                                       |                                                                                                                                                                              |                                            |         |            |           | 
|Commitments and contingencies                          |                                                                                                                                                                              |                                            |        |            |           |  |        |           
|Shareholders Equity                                   |                                                                                                                                                                              |                                            |         |            |           |  |         |           
|                                                       | Preferred and junior preferred stock, no par value:
    25,000 shares authorized; no shares issued or outstanding                                                            |                                            |         |           |           |  |         |           |          
|                                                       | Common stock, $0.01 par value: 1,000,000 authorized shares;
    474,683 (2005) and 469,441 (2004) shares issued and 473,500
    (2005) and 468,257 (2004) shares outstanding |                                            |         | 4,747      |           |  |         | 4,694      |          
|                                                       | Treasury stock, 1,184 shares at cost                                                                                                                                         |                                            |         | (5,584     | )         |  |         | (5,584     | )        
|                                                       | Additional paid-in capital                                                                                                                                                   |                                            |         | 4,657,901  |           |  |         | 4,648,325  |          
|                                                       | Accumulated deficit                                                                                                                                                          |                                            |         | (4,053,166 | )         |  |         | (3,877,176 | )        
|                                                       | Accumulated other comprehensive income (loss)                                                                                                                                |                                            |         | (22,012    | )         |  |         | 82,551     |          
|                                                       | Notes receivable from stock sales                                                                                                                                            |                                            |         | (304       | )         |  |         | (576       | )        
|                                                       | Unearned compensation                                                                                                                                                        |                                            |         | (12,489    | )         |  |         | (23,847    | )        
|                                                       |                                                                                                                                                                              |                                            |         |            |           | 
|                                                       |                                                                                                                                                                              | Total shareholders equity                 |         |            | 569,093   |  |         |            | 828,387   | 
|                                                       |                                                                                                                                                                              |                                            |         |            |           | 
|                                                       |                                                                                                                                                                              | Total liabilities and shareholders equity |         | $          | 1,581,524 |  |         | $          | 1,880,522 | 
|                                                       |                                                                                                                                                                              |                                            |         |            |           | 



44



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CONEXANT SYSTEMS, INC.


CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                       |                                        |                                          |          |         |         |   |          |         |         |   |          |         |         | 
|------------------------------------------------------ | -------------------------------------- | ---------------------------------------- | -------- | ------- | ------- | - | -------- | ------- | ------- | - | -------- | ------- | ------- | 
|                                                       |                                        | Years Ended September 30,                |         
|                                                       |                                        |                                          |         
|                                                       |                                        | 2005                                     |          |         | 2004    |   |          | 2003    |        
|                                                       |                                        |                                          |          |         |         |   |          |         |        
|                                                       |                                        | (In thousands, except per share amounts) |         
|Net revenues                                           |                                        | $                                        | 722,739  |         |         | $ | 901,854  |         |         | $ | 599,977  |        
|Cost of goods sold                                     |                                        |                                          | 493,973  |         |         |   | 523,129  |         |         |   | 338,161  |        
|                                                       |                                        |                                          |          |         |         |   |          |         |        
|Gross margin                                           |                                        |                                          | 228,766  |         |         |   | 378,725  |         |         |   | 261,816  |        
|Operating expenses:                                    |                                        |                                          |          |         |         |   |          |         |         |   |          |        
|                                                       | Research and development(1)            |                                          |          | 267,996 |         |   |          | 239,971 |         |   |          | 159,354 |        
|                                                       | Selling, general and administrative(1) |                                          |          | 117,861 |         |   |          | 125,474 |         |   |          | 93,426  |        
|                                                       | Amortization of intangible assets      |                                          |          | 32,322  |         |   |          | 20,769  |         |   |          | 3,437   |        
|                                                       | In-process research and development    |                                          |          |        |         |   |          | 160,818 |         |   |          |        |        
|                                                       | Special charges                        |                                          |          | 45,977  |         |   |          | 32,801  |         |   |          | 18,379  |        
|                                                       |                                        |                                          |          |         |         |   |          |         |        
|                                                       |                                        | Total operating expenses                 |          |         | 464,156 |   |          |         | 579,833 |   |          |         | 274,596 | 
|                                                       |                                        |                                          |          |         |         |   |          |         |        
|Operating loss                                         |                                        |                                          | (235,390 | )       |         |   | (201,108 | )       |         |   | (12,780  | )      
|Interest expense                                       |                                        |                                          | 33,691   |         |         |   | 30,708   |         |         |   | 28,120   |        
|Other (income) expense, net                            |                                        |                                          | (95,413  | )       |         |   | 69,100   |         |         |   | (22,312  | )      
|Gain on extinguishment of debt                         |                                        |                                          |         |         |         |   |         |         |         |   | (42,021  | )      
|                                                       |                                        |                                          |          |         |         |   |          |         |        
|Income (loss) before income taxes                      |                                        |                                          | (173,668 | )       |         |   | (300,916 | )       |         |   | 23,433   |        
|Provision (benefit) for income taxes                   |                                        |                                          | 2,322    |         |         |   | 243,733  |         |         |   | (129     | )      
|                                                       |                                        |                                          |          |         |         |   |          |         |        
|Income (loss) from continuing operations               |                                        |                                          | (175,990 | )       |         |   | (544,649 | )       |         |   | 23,562   |        
|Loss from discontinued operations, net of income taxes |                                        |                                          |         |         |         |   |         |         |         |   | (728,877 | )      
|                                                       |                                        |                                          |          |         |         |   |          |         |        
|Net loss                                               |                                        | $                                        | (175,990 | )       |         | $ | (544,649 | )       |         | $ | (705,315 | )      
|                                                       |                                        |                                          |          |         |         |   |          |         |        
|Income (loss) per share, basic:                        |                                        |                                          |          |         |         |   |          |         |         |   |          |        
|                                                       | Continuing operations                  |                                          | $        | (0.37   | )       |   | $        | (1.40   | )       |   | $        | 0.09    |        
|                                                       | Discontinued operations                |                                          |          |        |         |   |          |        |         |   |          | (2.72   | )      
|                                                       |                                        |                                          |          |         |         |   |          |         |        
|                                                       | Net loss                               |                                          | $        | (0.37   | )       |   | $        | (1.40   | )       |   | $        | (2.63   | )      
|                                                       |                                        |                                          |          |         |         |   |          |         |        
|Income (loss) per share, diluted:                      |                                        |                                          |          |         |         |   |          |         |         |   |          |        
|                                                       | Continuing operations                  |                                          | $        | (0.37   | )       |   | $        | (1.40   | )       |   | $        | 0.09    |        
|                                                       | Discontinued operations                |                                          |          |        |         |   |          |        |         |   |          | (2.65   | )      
|                                                       |                                        |                                          |          |         |         |   |          |         |        
|                                                       | Net loss                               |                                          | $        | (0.37   | )       |   | $        | (1.40   | )       |   | $        | (2.56   | )      
|                                                       |                                        |                                          |          |         |         |   |          |         |        
|Number of shares used in per share computation-basic   |                                        |                                          | 470,658  |         |         |   | 389,630  |         |         |   | 268,586  |        
|                                                       |                                        |                                          |          |         |         |   |          |         |        
|Number of shares used in per share computation-diluted |                                        |                                          | 470,658  |         |         |   | 389,630  |         |         |   | 275,230  |        
|                                                       |                                        |                                          |          |         |         |   |          |         |        






|    |                                                                                       
|--- | --------------------------------------------------------------------------------------
|(1) | Non-cash employee stock compensation is included in the above
    captions as follows:

|                                    |  |                           |       |  |      |   |       |      |  |   |       | 
|----------------------------------- |  | ------------------------- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                                    |  | Years Ended September 30, |      
|                                    |  |                           |      
|                                    |  | 2005                      |       |  | 2004 |   |       | 2003 | 
|                                    |  |                           |       |  |      |   |       |      | 
|Research and development            |  | $                         | 9,070 |  |      | $ | 5,364 |      |  | $ | 477   | 
|Selling, general and administrative |  |                           | 2,976 |  |      |   | 1,773 |      |  |   | 1,272 | 



45



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CONEXANT SYSTEMS, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                                                                                                                       |                                                                          |                                                                                                                                               |          |         |         |   |          |         |         |   |          |         |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------- | -------- | ------- | ------- | - | -------- | ------- | ------- | - | -------- | ------- | ------- | -
|                                                                                                                                                                                       |                                                                          | Years Ended September 30,                                                                                                                     |         
|                                                                                                                                                                                       |                                                                          |                                                                                                                                               |         
|                                                                                                                                                                                       |                                                                          | 2005                                                                                                                                          |          |         | 2004    |   |          | 2003    |        
|                                                                                                                                                                                       |                                                                          |                                                                                                                                               |          |         |         |   |          |         |        
|                                                                                                                                                                                       |                                                                          | (In thousands)                                                                                                                                |         
|Cash Flows From Operating Activities                                                                                                                                                   |                                                                          |                                                                                                                                               |          |         |         |   |          |         |         |   |          |        
|Income (loss) from continuing operations                                                                                                                                               |                                                                          | $                                                                                                                                             | (175,990 | )       |         | $ | (544,649 | )       |         | $ | 23,562   |        
|Adjustments required to reconcile income (loss) from continuing
    operations to net cash used in operating activities, net of
    effects of acquisition/dispositions of businesses: |                                                                          |                                                                                                                                               |          |         |         |   |          |         |         |   |          |        
|                                                                                                                                                                                       | Depreciation                                                             |                                                                                                                                               |          | 18,594  |         |   |          | 16,151  |         |   |          | 16,828  |        
|                                                                                                                                                                                       | Amortization of intangible assets                                        |                                                                                                                                               |          | 32,322  |         |   |          | 20,769  |         |   |          | 3,437   |        
|                                                                                                                                                                                       | In-process research and development                                      |                                                                                                                                               |          |        |         |   |          | 160,818 |         |   |          |        |        
|                                                                                                                                                                                       | Write-down of non-marketable investments                                 |                                                                                                                                               |          |        |         |   |          | 13,423  |         |   |          | 39,402  |        
|                                                                                                                                                                                       | Provision for (recovery of) losses on accounts receivable                |                                                                                                                                               |          | (1,587  | )       |   |          | 4,475   |         |   |          | (3,958  | )      
|                                                                                                                                                                                       | Inventory provisions                                                     |                                                                                                                                               |          | 56,123  |         |   |          | 11,586  |         |   |          | 14,451  |        
|                                                                                                                                                                                       | Deferred income taxes                                                    |                                                                                                                                               |          |        |         |   |          | 256,041 |         |   |          | 682     |        
|                                                                                                                                                                                       | Stock compensation, option modification charges and other                |                                                                                                                                               |          | 14,340  |         |   |          | 9,616   |         |   |          | 2,520   |        
|                                                                                                                                                                                       | Gain on extinguishment of debt                                           |                                                                                                                                               |          |        |         |   |          |        |         |   |          | (42,021 | )      
|                                                                                                                                                                                       | Decrease (increase) in fair value of derivative instruments              |                                                                                                                                               |          | (7,147  | )       |   |          | 98,955  |         |   |          | (39,632 | )      
|                                                                                                                                                                                       | Gain on sales of equity securities, investments and other assets         |                                                                                                                                               |          | (91,264 | )       |   |          | (24,071 | )       |   |          | (8,618  | )      
|                                                                                                                                                                                       | Other non-cash charges, net                                              |                                                                                                                                               |          | 6,054   |         |   |          | (9,868  | )       |   |          | 6,103   |        
|                                                                                                                                                                                       | Changes in assets and liabilities, net of
    acquisitions/dispositions: |                                                                                                                                               |          |         |         |   |          |         |         |   |          |         |        
|                                                                                                                                                                                       |                                                                          | Receivables                                                                                                                                   |          |         | 99,535  |   |          |         | (17,782 | ) |          |         | (14,621 | )
|                                                                                                                                                                                       |                                                                          | Inventories                                                                                                                                   |          |         | 45,747  |   |          |         | (73,524 | ) |          |         | (21,910 | )
|                                                                                                                                                                                       |                                                                          | Accounts payable                                                                                                                              |          |         | (33,249 | ) |          |         | 43,453  |   |          |         | (27,166 | )
|                                                                                                                                                                                       |                                                                          | Agere patent litigation settlement                                                                                                            |          |         | (8,000  | ) |          |         |        |   |          |         |        |  
|                                                                                                                                                                                       |                                                                          | Special charges and other restructuring related items, net of
    $58.6 million, $25.2 million and $9.3 million of
    payments, respectively |          |         | (14,953 | ) |          |         | 6,839   |   |          |         | 9,070   |  
|                                                                                                                                                                                       |                                                                          | Accrued expenses and other current liabilities                                                                                                |          |         | (4,973  | ) |          |         | 1,474   |   |          |         | (9,599  | )
|                                                                                                                                                                                       |                                                                          | Other                                                                                                                                         |          |         | 4,690   |   |          |         | (4,719  | ) |          |         | 19,313  |  
|                                                                                                                                                                                       |                                                                          |                                                                                                                                               |          |         |         |   |          |         |        
|Net cash used in operating activities                                                                                                                                                  |                                                                          |                                                                                                                                               | (59,758  | )       |         |   | (31,013  | )       |         |   | (32,157  | )      
|                                                                                                                                                                                       |                                                                          |                                                                                                                                               |          |         |         |   |          |         |        
|Cash Flows From Investing Activities                                                                                                                                                   |                                                                          |                                                                                                                                               |          |         |         |   |          |         |         |   |          |        
|Purchase of marketable securities                                                                                                                                                      |                                                                          |                                                                                                                                               | (49,628  | )       |         |   | (74,586  | )       |         |   | (79,632  | )      
|Sales and maturities of marketable securities                                                                                                                                          |                                                                          |                                                                                                                                               | 68,985   |         |         |   | 114,323  |         |         |   | 142,143  |        
|Proceeds from sale of equity securities, assets and investments                                                                                                                        |                                                                          |                                                                                                                                               | 97,244   |         |         |   | 57,236   |         |         |   | 18,228   |        
|Capital expenditures                                                                                                                                                                   |                                                                          |                                                                                                                                               | (21,791  | )       |         |   | (17,563  | )       |         |   | (19,844  | )      
|Net proceeds from purchase and sale-leaseback and other                                                                                                                                |                                                                          |                                                                                                                                               | 49,014   |         |         |   |         |         |         |   |         |        
|Advances to Skyworks                                                                                                                                                                   |                                                                          |                                                                                                                                               |         |         |         |   |         |         |         |   | (35,000  | )      
|Repayment of Term Notes and advances by Skyworks                                                                                                                                       |                                                                          |                                                                                                                                               |         |         |         |   |         |         |         |   | 170,000  |        
|Cash received from (paid for) acquisitions, net                                                                                                                                        |                                                                          |                                                                                                                                               | (18,817  | )       |         |   | 24,752   |         |         |   | (7,714   | )      
|Payment of acquisition related costs                                                                                                                                                   |                                                                          |                                                                                                                                               |         |         |         |   | (30,196  | )       |         |   |         |        
|Payment of deferred purchase consideration                                                                                                                                             |                                                                          |                                                                                                                                               |         |         |         |   | (4,000   | )       |         |   |         |        
|Investments in businesses                                                                                                                                                              |                                                                          |                                                                                                                                               | (2,817   | )       |         |   | (3,015   | )       |         |   | (4,500   | )      
|                                                                                                                                                                                       |                                                                          |                                                                                                                                               |          |         |         |   |          |         |        
|Net cash provided by investing activities                                                                                                                                              |                                                                          |                                                                                                                                               | 122,190  |         |         |   | 66,951   |         |         |   | 183,681  |        
|                                                                                                                                                                                       |                                                                          |                                                                                                                                               |          |         |         |   |          |         |        
|Cash Flows From Financing Activities                                                                                                                                                   |                                                                          |                                                                                                                                               |          |         |         |   |          |         |         |   |          |        
|Proceeds from exercise of stock options and warrants                                                                                                                                   |                                                                          |                                                                                                                                               | 1,045    |         |         |   | 24,559   |         |         |   | 22,293   |        
|Repayment of notes receivable from stock sales and other
    employee notes                                                                                                            |                                                                          |                                                                                                                                               | 196      |         |         |   | 2,348    |         |         |   |         |        
|Repurchase of convertible subordinated notes                                                                                                                                           |                                                                          |                                                                                                                                               |         |         |         |   |         |         |         |   | (56,378  | )      
|                                                                                                                                                                                       |                                                                          |                                                                                                                                               |          |         |         |   |          |         |        
|Net cash provided by (used in) financing activities                                                                                                                                    |                                                                          |                                                                                                                                               | 1,241    |         |         |   | 26,907   |         |         |   | (34,085  | )      
|                                                                                                                                                                                       |                                                                          |                                                                                                                                               |          |         |         |   |          |         |        
|Net cash used in discontinued operations                                                                                                                                               |                                                                          |                                                                                                                                               |         |         |         |   |         |         |         |   | (202,341 | )      
|                                                                                                                                                                                       |                                                                          |                                                                                                                                               |          |         |         |   |          |         |        
|Net increase (decrease) in cash and cash equivalents                                                                                                                                   |                                                                          |                                                                                                                                               | 63,673   |         |         |   | 62,845   |         |         |   | (84,902  | )      
|Cash and cash equivalents at beginning of year                                                                                                                                         |                                                                          |                                                                                                                                               | 139,031  |         |         |   | 76,186   |         |         |   | 161,088  |        
|                                                                                                                                                                                       |                                                                          |                                                                                                                                               |          |         |         |   |          |         |        
|Cash and cash equivalents at end of year                                                                                                                                               |                                                                          | $                                                                                                                                             | 202,704  |         |         | $ | 139,031  |         |         | $ | 76,186   |        
|                                                                                                                                                                                       |                                                                          |                                                                                                                                               |          |         |         |   |          |         |        



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CONEXANT SYSTEMS, INC.


CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND
COMPREHENSIVE LOSS


|                                                                                                         |                    |                |         |  |            |   |          |             |  |       |               |  |            |               |            |   |          |   |         |          |  |   |               |   |  |        |        |   |  |   |         |   |  |   |           |          |  
|-------------------------------------------------------------------------------------------------------- | ------------------ | -------------- | ------- |  | ---------- | - | -------- | ----------- |  | ----- | ------------- |  | ---------- | ------------- | ---------- | - | -------- | - | ------- | -------- |  | - | ------------- | - |  | ------ | ------ | - |  | - | ------- | - |  | - | --------- | -------- | -
|                                                                                                         |                    |                |         |  |            |   |          | Accumulated |  |       | Notes         |  |            |               |            |   |          |  
|                                                                                                         |                    | Common Stock   |         |  | Additional |   |          |             |  | Other |               |  | Receivable |               |            |   |          |   |         | Total    | 
|                                                                                                         |                    |                |         |  | Paid-In    |   |          | Accumulated |  |       | Comprehensive |  |            | from Stock    |            |   | Treasury |   |         | Unearned |  |   | Shareholders |  
|                                                                                                         |                    | Shares         |         |  | Amount     |   |          | Capital     |  |       | Deficit       |  |            | Income (Loss) |            |   | Sales    |   |         | Stock    |  |   | Compensation  |   |  | Equity |       
|                                                                                                         |                    |                |         |  |            |   |          |             |  |       |               |  |            |               |            |   |          |   |         |          |  |   |               |   |  |        |       
|                                                                                                         |                    | (In thousands) |        
|Balance at September 30, 2002                                                                            |                    |                | 265,676 |  |            | $ | 265,676  |             |  | $     | 3,219,044     |  |            | $             | (2,507,407 | ) |          | $ | (28,077 | )        |  | $ |              |   |  | $      |       |   |  | $ | (1,409  | ) |  | $ | 947,827   |         
|Net loss                                                                                                 |                    |                |        |  |            |   |         |             |  |       |              |  |            |               | (705,315   | ) |          |   |        |          |  |   |              |   |  |        |       |   |  |   |        |   |  |   | (705,315  | )       
|Currency translation adjustment                                                                          |                    |                |        |  |            |   |         |             |  |       |              |  |            |               |           |   |          |   | 2,211   |          |  |   |              |   |  |        |       |   |  |   |        |   |  |   | 2,211     |         
|Change in unrealized gains on available-for-sale securities                                              |                    |                |        |  |            |   |         |             |  |       |              |  |            |               |           |   |          |   | 1,388   |          |  |   |              |   |  |        |       |   |  |   |        |   |  |   | 1,388     |         
|Minimum pension liability adjustment                                                                     |                    |                |        |  |            |   |         |             |  |       |              |  |            |               |           |   |          |   | (2,731  | )        |  |   |              |   |  |        |       |   |  |   |        |   |  |   | (2,731    | )       
|                                                                                                         |                    |                |         |  |            |   |          |             |  |       |               |  |            |               |            |   |          |   |         |          |  |   |               |   |  |        |       
|                                                                                                         | Comprehensive loss |                |         |  |            |   |          |             |  |       |               |  |            |               |            |   |          |   |         |          |  |   |               |   |  |        |        |   |  |   |         |   |  |   |           | (704,447 | )
|Effect of change in par value                                                                            |                    |                |        |  |            |   | (263,779 | )           |  |       | 263,779       |  |            |               |           |   |          |   |        |          |  |   |              |   |  |        |       |   |  |   |        |   |  |   |          |         
|Purchase acquisitions                                                                                    |                    |                | 150     |  |            |   | 2        |             |  |       | 812           |  |            |               |           |   |          |   |        |          |  |   |              |   |  |        |       |   |  |   |        |   |  |   | 814       |         
|Issuance of common stock                                                                                 |                    |                | 10,308  |  |            |   | 862      |             |  |       | 21,971        |  |            |               |           |   |          |   |        |          |  |   |              |   |  |        |       |   |  |   | (154    | ) |  |   | 22,679    |         
|Tax benefits from stock plans                                                                            |                    |                |        |  |            |   |         |             |  |       | 464           |  |            |               |           |   |          |   |        |          |  |   |              |   |  |        |       |   |  |   |        |   |  |   | 464       |         
|Compensation expense related to employee stock plans                                                     |                    |                |        |  |            |   |         |             |  |       |              |  |            |               |           |   |          |   |        |          |  |   |              |   |  |        |       |   |  |   | 1,521   |   |  |   | 1,521     |         
|Distribution of business (discontinued operations)                                                       |                    |                |        |  |            |   |         |             |  |       |              |  |            |               | (119,805   | ) |          |   | 17,713  |          |  |   |              |   |  |        |       |   |  |   |        |   |  |   | (102,092  | )       
|                                                                                                         |                    |                |         |  |            |   |          |             |  |       |               |  |            |               |            |   |          |   |         |          |  |   |               |   |  |        |       
|Balance at September 30, 2003                                                                            |                    |                | 276,134 |  |            |   | 2,761    |             |  |       | 3,506,070     |  |            |               | (3,332,527 | ) |          |   | (9,496  | )        |  |   |              |   |  |        |       |   |  |   | (42     | ) |  |   | 166,766   |         
|Net loss                                                                                                 |                    |                |        |  |            |   |         |             |  |       |              |  |            |               | (544,649   | ) |          |   |        |          |  |   |              |   |  |        |       |   |  |   |        |   |  |   | (544,649  | )       
|Currency translation adjustment                                                                          |                    |                |        |  |            |   |         |             |  |       |              |  |            |               |           |   |          |   | (183    | )        |  |   |              |   |  |        |       |   |  |   |        |   |  |   | (183      | )       
|Change in unrealized gains on available-for-sale securities                                              |                    |                |        |  |            |   |         |             |  |       |              |  |            |               |           |   |          |   | 90,551  |          |  |   |              |   |  |        |       |   |  |   |        |   |  |   | 90,551    |         
|Minimum pension liability adjustment                                                                     |                    |                |        |  |            |   |         |             |  |       |              |  |            |               |           |   |          |   | 1,679   |          |  |   |              |   |  |        |       |   |  |   |        |   |  |   | 1,679     |         
|                                                                                                         |                    |                |         |  |            |   |          |             |  |       |               |  |            |               |            |   |          |   |         |          |  |   |               |   |  |        |       
|                                                                                                         | Comprehensive loss |                |         |  |            |   |          |             |  |       |               |  |            |               |            |   |          |   |         |          |  |   |               |   |  |        |        |   |  |   |         |   |  |   |           | (452,602 | )
|Purchase acquisitions                                                                                    |                    |                | 180,553 |  |            |   | 1,805    |             |  |       | 1,108,138     |  |            |               |           |   |          |   |        |          |  |   | (2,469        | ) |  |        | (4,778 | ) |  |   | (30,948 | ) |  |   | 1,071,748 |         
|Issuance of common stock                                                                                 |                    |                | 12,754  |  |            |   | 128      |             |  |       | 32,859        |  |            |               |           |   |          |   |        |          |  |   |              |   |  |        |       |   |  |   |        |   |  |   | 32,987    |         
|Interest earned on notes receivable                                                                      |                    |                |        |  |            |   |         |             |  |       |              |  |            |               |           |   |          |   |        |          |  |   | (39           | ) |  |        |       |   |  |   |        |   |  |   | (39       | )       
|Settlement of notes receivable                                                                           |                    |                |        |  |            |   |         |             |  |       |              |  |            |               |           |   |          |   |        |          |  |   | 1,932         |   |  |        | (806   | ) |  |   |        |   |  |   | 1,126     |         
|Tax benefits from stock plans                                                                            |                    |                |        |  |            |   |         |             |  |       | 462           |  |            |               |           |   |          |   |        |          |  |   |              |   |  |        |       |   |  |   |        |   |  |   | 462       |         
|Stock option modifications                                                                               |                    |                |        |  |            |   |         |             |  |       | 796           |  |            |               |           |   |          |   |        |          |  |   |              |   |  |        |       |   |  |   |        |   |  |   | 796       |         
|Compensation expense related to employee stock plans                                                     |                    |                |        |  |            |   |         |             |  |       |              |  |            |               |           |   |          |   |        |          |  |   |              |   |  |        |       |   |  |   | 7,143   |   |  |   | 7,143     |         
|                                                                                                         |                    |                |         |  |            |   |          |             |  |       |               |  |            |               |            |   |          |   |         |          |  |   |               |   |  |        |       
|Balance at September 30, 2004                                                                            |                    |                | 469,441 |  |            |   | 4,694    |             |  |       | 4,648,325     |  |            |               | (3,877,176 | ) |          |   | 82,551  |          |  |   | (576          | ) |  |        | (5,584 | ) |  |   | (23,847 | ) |  |   | 828,387   |         
|Net loss                                                                                                 |                    |                |        |  |            |   |         |             |  |       |              |  |            |               | (175,990   | ) |          |   |        |          |  |   |              |   |  |        |       |   |  |   |        |   |  |   | (175,990  | )       
|Currency translation adjustment                                                                          |                    |                |        |  |            |   |         |             |  |       |              |  |            |               |           |   |          |   | (214    | )        |  |   |              |   |  |        |       |   |  |   |        |   |  |   | (214      | )       
|Reclassification adjustment for realized gains on
    available-for-sale securities included in net loss |                    |                |        |  |            |   |         |             |  |       |              |  |            |               |           |   |          |   | (85,290 | )        |  |   |              |   |  |        |       |   |  |   |        |   |  |   | (85,290   | )       
|Change in unrealized losses on available-for-sale securities                                             |                    |                |        |  |            |   |         |             |  |       |              |  |            |               |           |   |          |   | (16,886 | )        |  |   |              |   |  |        |       |   |  |   |        |   |  |   | (16,886   | )       
|Minimum pension liability adjustment                                                                     |                    |                |        |  |            |   |         |             |  |       |              |  |            |               |           |   |          |   | (2,173  | )        |  |   |              |   |  |        |       |   |  |   |        |   |  |   | (2,173    | )       
|                                                                                                         |                    |                |         |  |            |   |          |             |  |       |               |  |            |               |            |   |          |   |         |          |  |   |               |   |  |        |       
|                                                                                                         | Comprehensive loss |                |         |  |            |   |          |             |  |       |               |  |            |               |            |   |          |   |         |          |  |   |               |   |  |        |        |   |  |   |         |   |  |   |           | (280,553 | )
|Purchase acquisitions                                                                                    |                    |                |        |  |            |   |         |             |  |       |              |  |            |               |           |   |          |   |        |          |  |   |              |   |  |        |       |   |  |   | (692    | ) |  |   | (692      | )       
|Issuance of common stock                                                                                 |                    |                | 5,242   |  |            |   | 53       |             |  |       | 6,962         |  |            |               |           |   |          |   |        |          |  |   |              |   |  |        |       |   |  |   |        |   |  |   | 7,015     |         
|Interest earned on notes receivable                                                                      |                    |                |        |  |            |   |         |             |  |       |              |  |            |               |           |   |          |   |        |          |  |   | (20           | ) |  |        |       |   |  |   |        |   |  |   | (20       | )       
|Settlement of notes receivable                                                                           |                    |                |        |  |            |   |         |             |  |       |              |  |            |               |           |   |          |   |        |          |  |   | 292           |   |  |        |       |   |  |   |        |   |  |   | 292       |         
|Stock option modifications                                                                               |                    |                |        |  |            |   |         |             |  |       | 2,614         |  |            |               |           |   |          |   |        |          |  |   |              |   |  |        |       |   |  |   |        |   |  |   | 2,614     |         
|Compensation expense related to employee stock plans                                                     |                    |                |        |  |            |   |         |             |  |       |              |  |            |               |           |   |          |   |        |          |  |   |              |   |  |        |       |   |  |   | 12,050  |   |  |   | 12,050    |         
|                                                                                                         |                    |                |         |  |            |   |          |             |  |       |               |  |            |               |            |   |          |   |         |          |  |   |               |   |  |        |       
|Balance at September 30, 2005                                                                            |                    |                | 474,683 |  |            | $ | 4,747    |             |  | $     | 4,657,901     |  |            | $             | (4,053,166 | ) |          | $ | (22,012 | )        |  | $ | (304          | ) |  | $      | (5,584 | ) |  | $ | (12,489 | ) |  | $ | 569,093   |         
|                                                                                                         |                    |                |         |  |            |   |          |             |  |       |               |  |            |               |            |   |          |   |         |          |  |   |               |   |  |        |       



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CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|   |                                                          
|-- | ---------------------------------------------------------
|1. | Basis of Presentation and Significant Accounting Policies









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CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






Basis of Presentation


Fiscal Year


Use of Estimates


Revenue Recognition




Shipping and Handling 


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CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Cash, Cash Equivalents and Marketable
Securities 






|                                                                                                                                      |                                  |               |         |         |               |   |         |         | 
|------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------- | ------------- | ------- | ------- | ------------- | - | ------- | ------- | 
|                                                                                                                                      |                                  | September 30, |         |         | September 30, |  
|                                                                                                                                      |                                  | 2005          |         |         | 2004          |  
|                                                                                                                                      |                                  |               |         |         |               |  
|Cash and cash equivalents                                                                                                             |                                  | $             | 202,704 |         |               | $ | 139,031 |        
|Equity securities  Skyworks Solutions, Inc.
    (6.2 million shares at September 30, 2005 and 2004)                                  |                                  |               | 43,404  |         |               |   | 61,767  |        
|Equity securities  SiRF Technology Holdings, Inc.
    (zero and 5.9 million shares at September 30, 2005 and
    2004, respectively) |                                  |               |        |         |               |   | 87,509  |        
|Other short-term marketable securities (primarily domestic
    government agency securities and corporate debt securities)            |                                  |               | 95,902  |         |               |   | 13,764  |        
|                                                                                                                                      |                                  |               |         |         |               |  
|                                                                                                                                      | Subtotal- short-term investments |               |         | 139,306 |               |   |         | 163,040 | 
|                                                                                                                                      |                                  |               |         |         |               |  
|Long-term marketable securities (primarily domestic government
    agency securities and corporate debt securities)                   |                                  |               | 38,485  |         |               |   | 137,604 |        
|                                                                                                                                      |                                  |               |         |         |               |  
|Total cash, cash equivalents, and marketable securities                                                                               |                                  | $             | 380,495 |         |               | $ | 439,675 |        
|                                                                                                                                      |                                  |               |         |         |               |  



Inventories


Property, Plant and Equipment


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CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Investments


Impairment of Long-Lived Assets




Foreign Currency Translation and
Remeasurement


Derivative Financial Instruments


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CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








Earnings (Loss) Per Share




|                                                                  |                                                              |      |   |          |      |  |   |          |   |  |   |          |  
|----------------------------------------------------------------- | ------------------------------------------------------------ | ---- | - | -------- | ---- |  | - | -------- | - |  | - | -------- | -
|                                                                  |                                                              | 2005 |   |          | 2004 |  |   | 2003     |  
|                                                                  |                                                              |      |   |          |      |  |   |          |  
|Numerator (dollars in thousands):                                 |                                                              |      |   |          |      |  |   |          |   |  |   |         
|                                                                  | Income (loss) from continuing operations                     |      | $ | (175,990 | )    |  | $ | (544,649 | ) |  | $ | 23,562   |  
|                                                                  | Loss from discontinued operations, net of income taxes       |      |   |         |      |  |   |         |   |  |   | (728,877 | )
|                                                                  |                                                              |      |   |          |      |  |   |          |  
|                                                                  | Net loss                                                     |      | $ | (175,990 | )    |  | $ | (544,649 | ) |  | $ | (705,315 | )
|                                                                  |                                                              |      |   |          |      |  |   |          |  
|Denominator (weighted-average number of shares in
    thousands): |                                                              |      |   |          |      |  |   |          |   |  |   |         
|                                                                  | Weighted average shares outstanding-basic                    |      |   | 470,658  |      |  |   | 389,630  |   |  |   | 268,586  |  
|                                                                  | Stock options and warrants (under the treasury stock method) |      |   |         |      |  |   |         |   |  |   | 6,644    |  
|                                                                  |                                                              |      |   |          |      |  |   |          |  
|                                                                  | Weighted average shares outstanding  diluted                |      |   | 470,658  |      |  |   | 389,630  |   |  |   | 275,230  |  
|                                                                  |                                                              |      |   |          |      |  |   |          |  

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CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                             |       |                             |        |        |      |  |        |        |  |  |        |        | 
|------------------------------------------------------------ | ----- | --------------------------- | ------ | ------ | ---- |  | ------ | ------ |  |  | ------ | ------ | 
|                                                             |       | 2005                        |        |        | 2004 |  |        | 2003   | 
|                                                             |       |                             |        |        |      |  |        |        | 
|                                                             |       | (Weighted-average number of |       
|                                                             |       | shares, in thousands)       |       
|Stock options and warrants (under the treasury stock method) |       |                             | 2,094  |        |      |  | 18,255 |        |  |  |       |       
|4.25% Convertible Subordinated Notes due 2006                |       |                             | 7,364  |        |      |  | 7,364  |        |  |  | 6,242  |       
|4.0% Convertible Subordinated Notes due 2007                 |       |                             | 12,137 |        |      |  | 12,137 |        |  |  | 11,178 |       
|5.25% Convertible Subordinated Notes due 2006                |       |                             | 5,840  |        |      |  | 3,482  |        |  |  |       |       
|Restricted stock                                             |       |                             | 5      |        |      |  | 13     |        |  |  |       |       
|                                                             |       |                             |        |        |      |  |        |        | 
|                                                             | Total |                             |        | 27,440 |      |  |        | 41,251 |  |  |        | 17,420 | 
|                                                             |       |                             |        |        |      |  |        |        | 

Stock-Based Compensation




|                                                                                                                          |  |      |          |   |      |   |          |      |  |   |         |  
|------------------------------------------------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | ---- |  | - | ------- | -
|                                                                                                                          |  | 2005 |          |   | 2004 |   |          | 2003 | 
|                                                                                                                          |  |      |          |   |      |   |          |      | 
|Income (loss) from continuing operations, as reported                                                                     |  | $    | (175,990 | ) |      | $ | (544,649 | )    |  | $ | 23,562  |  
|Add: expense determined under fair value accounting included in
    income (loss) from continuing operations, as reported |  |      | 12,050   |   |      |   | 7,137    |      |  |   | 1,749   |  
|Deduct: total expense determined under fair value accounting for
    all awards                                           |  |      | (61,805  | ) |      |   | (57,068  | )    |  |   | (60,105 | )
|                                                                                                                          |  |      |          |   |      |   |          |      | 
|Pro forma loss from continuing operations                                                                                 |  | $    | (225,745 | ) |      | $ | (594,580 | )    |  | $ | (34,794 | )
|                                                                                                                          |  |      |          |   |      |   |          |      | 
|Income (loss) from continuing operations per
    share  basic, as reported                                               |  | $    | (0.37    | ) |      | $ | (1.40    | )    |  | $ | 0.09    |  
|Pro forma loss from continuing operations per
    share  basic                                                           |  | $    | (0.48    | ) |      | $ | (1.53    | )    |  | $ | (0.13   | )
|Income (loss) from continuing operations per
    share  diluted, as reported                                             |  | $    | (0.37    | ) |      | $ | (1.40    | )    |  | $ | 0.09    |  
|Pro forma loss from continuing operations per
    share  diluted                                                         |  | $    | (0.48    | ) |      | $ | (1.53    | )    |  | $ | (0.13   | )

53



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CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                               |  |      |      |   |      |   |      |      |  |   |      |  
|---------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                               |  | 2005 |      |   | 2004 |   |      | 2003 | 
|                                               |  |      |      |   |      |   |      |      | 
|Risk-free interest rate                        |  |      | 3.8  | % |      |   | 3.3  | %    |  |   | 3.2  | %
|Expected volatility                            |  |      | 85   | % |      |   | 97   | %    |  |   | 97   | %
|Dividend yield                                 |  |      |     |   |      |   |     |      |  |   |     |  
|Expected life (years)                          |  |      | 4.9  |   |      |   | 4.1  |      |  |   | 4.5  |  
|Weighted-average fair value of options granted |  | $    | 1.04 |   |      | $ | 4.91 |      |  | $ | 2.27 |  





Income Taxes


Concentrations 




Supplemental Cash Flow Information


Non-cash activities:


54



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##### Table of Contents



CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Comprehensive Income (Loss)


|                                                           |                                               |      |        |         |      |   |        |        | 
|---------------------------------------------------------- | --------------------------------------------- | ---- | ------ | ------- | ---- | - | ------ | ------ | 
|                                                           |                                               | 2005 |        |         | 2004 |  
|                                                           |                                               |      |        |         |      |  
|Foreign currency translation adjustments                   |                                               | $    | (3,420 | )       |      | $ | (3,206 | )     
|Unrealized gains (losses) on available-for-sale securities |                                               |      | (9,718 | )       |      |   | 92,458 |       
|Minimum pension liability adjustments                      |                                               |      | (8,874 | )       |      |   | (6,701 | )     
|                                                           |                                               |      |        |         |      |  
|                                                           | Accumulated other comprehensive income (loss) |      | $      | (22,012 | )    |   | $      | 82,551 | 
|                                                           |                                               |      |        |         |      |  

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 products is the only material source of revenue for
    each of its four operating segments;
|
| |  | the products sold by each of its operating segments use the same
    standard manufacturing process;    
|
| |  | the products marketed by each of its operating segments are sold
    to similar customers; and          
|
| |  | all of its products are sold through an internal sales force and
    common distributors.               



Change in Accounting Principle


55



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##### Table of Contents



CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






Recent Accounting Pronouncements 








|   |             
|-- | ------------
|2. | Acquisitions



| |            
| | -----------
| | Fiscal 2005



| |                                            
| | -------------------------------------------
| | Acquisition of Paxonet Communications, Inc.





56



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CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










| |            
| | -----------
| | Fiscal 2004



| |                                     
| | ------------------------------------
| | Acquisition of Amphion Semiconductor









| |                                  
| | ---------------------------------
| | Merger with GlobespanVirata, Inc.



57



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##### Table of Contents



CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                                   |  |   |           | 
|-------------------------------------------------- |  | - | --------- | 
|Fair market value of Conexant common stock issued  |  | $ | 1,027,342 | 
|Fair value of Conexant common stock options issued |  |   | 81,011    | 
|Transaction costs                                  |  |   | 12,900    | 
|                                                   |  |   |          
|Total purchase consideration                       |  | $ | 1,121,253 | 
|                                                   |  |   |          









58



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##### Table of Contents



CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                     |  |   |           |  
|---------------------------------------------------- |  | - | --------- | -
|Cash and cash equivalents                            |  | $ | 42,515    |  
|Short-term and long-term investments                 |  |   | 153,099   |  
|Accounts receivable                                  |  |   | 91,259    |  
|Inventories                                          |  |   | 73,281    |  
|Prepaids and other current assets                    |  |   | 4,345     |  
|Property and equipment                               |  |   | 46,883    |  
|Other long-term assets                               |  |   | 20,600    |  
|Identifiable intangible assets                       |  |   | 137,931   |  
|In-process research and development                  |  |   | 160,818   |  
|Goodwill                                             |  |   | 625,181   |  
|Accounts payable                                     |  |   | (41,580   | )
|Accrued expenses                                     |  |   | (72,161   | )
|Accrued restructuring and reorganization liabilities |  |   | (10,239   | )
|Long-term debt                                       |  |   | (130,000  | )
|Other long-term liabilities                          |  |   | (23,284   | )
|Treasury stock                                       |  |   | 9,188     |  
|Notes receivable from stock sales                    |  |   | 2,469     |  
|Unearned compensation                                |  |   | 30,948    |  
|                                                     |  |   |          
|Net assets acquired                                  |  | $ | 1,121,253 |  
|                                                     |  |   |          



|                                     |  |   |         | 
|------------------------------------ |  | - | ------- | 
|Product licenses (7 years)           |  | $ | 10,964  | 
|Trademark (7 years)                  |  |   | 2,006   | 
|Developed technologies (2  5 years) |  |   | 124,961 | 
|                                     |  |   |        
|Total identifiable intangible assets |  | $ | 137,931 | 
|                                     |  |   |        





59



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##### Table of Contents



CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|   |                        
|-- | -----------------------
|3. | Discontinued Operations





60



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CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                       |  |      |          |  
|------------------------------------------------------ |  | ---- | -------- | -
|                                                       |  | 2003 |         
|                                                       |  |      |         
|Net revenues                                           |  | $    | 58,719   |  
|                                                       |  |      |         
|Loss before income taxes                               |  | $    | (155,231 | )
|Provision for income taxes                             |  |      | 462      |  
|Cumulative effect of change in accounting for goodwill |  |      | (573,184 | )
|                                                       |  |      |         
|Loss from discontinued operations                      |  | $    | (728,877 | )
|                                                       |  |      |         



|   |                
|-- | ---------------
|4. | Sales of Assets



| |            
| | -----------
| | Fiscal 2005









| |            
| | -----------
| | Fiscal 2004





61



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##### Table of Contents



CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |            
| | -----------
| | Fiscal 2003







|   |                      
|-- | ---------------------
|5. | Marketable Securities





|                                      |  |                |         |            |         |   |            |         |  |   |            |   |  |   |         | 
|------------------------------------- |  | -------------- | ------- | ---------- | ------- | - | ---------- | ------- |  | - | ---------- | - |  | - | ------- | 
|                                      |  |                |         | Gross      |         |   | Gross      |         |  |  
|                                      |  |                |         | Unrealized |         |   | Unrealized |         |  |  
|                                      |  | Amortized      |         |            | Holding |   |            | Holding |  |   |           
|Short-Term Investments                |  | Cost           |         |            | Gains   |   |            | Losses  |  |   | Fair Value |  
|                                      |  |                |         |            |         |   |            |         |  |   |            |  
|                                      |  | (In thousands) |        
|September 30, 2005:                   |  |                |         |            |         |   |            |         |  |   |            |   |  |   |         | 
|Corporate debt securities             |  | $              | 37,974  |            |         | $ |           |         |  | $ | (40        | ) |  | $ | 37,934  | 
|Domestic government agency securities |  |                | 58,137  |            |         |   | 2          |         |  |   | (171       | ) |  |   | 57,968  | 
|Equity securities                     |  |                | 52,524  |            |         |   |           |         |  |   | (9,120     | ) |  |   | 43,404  | 
|                                      |  |                |         |            |         |   |            |         |  |   |            |  
|                                      |  | $              | 148,635 |            |         | $ | 2          |         |  | $ | (9,331     | ) |  | $ | 139,306 | 
|                                      |  |                |         |            |         |   |            |         |  |   |            |  
|September 30, 2004:                   |  |                |         |            |         |   |            |         |  |   |            |   |  |   |         | 
|Mutual funds                          |  | $              | 10,837  |            |         | $ |           |         |  | $ | (125       | ) |  | $ | 10,712  | 
|Corporate debt securities             |  |                | 2,274   |            |         |   |           |         |  |   | (3         | ) |  |   | 2,271   | 
|Equity securities                     |  |                | 56,524  |            |         |   | 93,533     |         |  |   |           |   |  |   | 150,057 | 
|                                      |  |                |         |            |         |   |            |         |  |   |            |  
|                                      |  | $              | 69,635  |            |         | $ | 93,533     |         |  | $ | (128       | ) |  | $ | 163,040 | 
|                                      |  |                |         |            |         |   |            |         |  |   |            |  

62



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##### Table of Contents



CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                      |  |                |         |            |         |            |         |  |  |            |      |   |  |   |         | 
|------------------------------------- |  | -------------- | ------- | ---------- | ------- | ---------- | ------- |  |  | ---------- | ---- | - |  | - | ------- | 
|                                      |  |                |         | Gross      |         | Gross      |         |  | 
|                                      |  |                |         | Unrealized |         | Unrealized |         |  | 
|                                      |  | Amortized      |         |            | Holding |            | Holding |  |  |           
|Long-Term Investments                 |  | Cost           |         |            | Gains   |            | Losses  |  |  | Fair Value |     
|                                      |  |                |         |            |         |            |         |  |  |            |     
|                                      |  | (In thousands) |        
|September 30, 2005:                   |  |                |         |            |         |            |         |  |  |            |      |   |  |   |         | 
|Domestic government agency securities |  | $              | 15,964  |            |         | $          |        |  |  | $          | (102 | ) |  | $ | 15,862  | 
|Corporate debt securities             |  |                | 22,910  |            |         |            |        |  |  |            | (287 | ) |  |   | 22,623  | 
|                                      |  |                |         |            |         |            |         |  |  |            |      |  
|                                      |  | $              | 38,874  |            |         | $          |        |  |  | $          | (389 | ) |  | $ | 38,485  | 
|                                      |  |                |         |            |         |            |         |  |  |            |      |  
|September 30, 2004:                   |  |                |         |            |         |            |         |  |  |            |      |   |  |   |         | 
|Domestic government agency securities |  | $              | 105,956 |            |         | $          |        |  |  | $          | (800 | ) |  | $ | 105,156 | 
|Corporate debt securities             |  |                | 32,595  |            |         |            |        |  |  |            | (147 | ) |  |   | 32,448  | 
|                                      |  |                |         |            |         |            |         |  |  |            |      |  
|                                      |  | $              | 138,551 |            |         | $          |        |  |  | $          | (947 | ) |  | $ | 137,604 | 
|                                      |  |                |         |            |         |            |         |  |  |            |      |  





|                      |  |           |         |  |            |   |         | 
|--------------------- |  | --------- | ------- |  | ---------- | - | ------- | 
|                      |  | Amortized |         |  |           
|                      |  | Cost      |         |  | Fair Value |  
|                      |  |           |         |  |            |  
|Due in 1 year or less |  | $         | 96,111  |  |            | $ | 95,902  | 
|Due in 1  2 years    |  |           | 17,301  |  |            |   | 17,194  | 
|Due in 2  5 years    |  |           | 19,397  |  |            |   | 19,130  | 
|Due after 5 years     |  |           | 2,176   |  |            |   | 2,161   | 
|                      |  |           |         |  |            |  
|                      |  | $         | 134,985 |  |            | $ | 134,387 | 
|                      |  |           |         |  |            |  



|   |               
|-- | --------------
|6. | Skyworks Notes





63



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##### Table of Contents



CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|   |                                      
|-- | -------------------------------------
|7. | Supplemental Financial Statement Data



| |            
| | -----------
| | Inventories



|                |  |      |        |  |      |   |         | 
|--------------- |  | ---- | ------ |  | ---- | - | ------- | 
|                |  | 2005 |        |  | 2004 |  
|                |  |      |        |  |      |  
|Work-in-process |  | $    | 61,535 |  |      | $ | 99,226  | 
|Finished goods  |  |      | 33,794 |  |      |   | 95,528  | 
|                |  |      |        |  |      |  
|                |  | $    | 95,329 |  |      | $ | 194,754 | 
|                |  |      |        |  |      |  



|                                  |  |      |         |   |      |   |        |  
|--------------------------------- |  | ---- | ------- | - | ---- | - | ------ | -
|                                  |  | 2005 |         |   | 2004 |  
|                                  |  |      |         |   |      |  
|E&O reserves, beginning of period |  | $    | 23,319  |   |      | $ | 25,177 |  
|Additions                         |  |      | 35,944  |   |      |   | 11,586 |  
|Release upon sales of product     |  |      | (5,864  | ) |      |   | (7,123 | )
|Scrap                             |  |      | (11,319 | ) |      |   | (3,792 | )
|Standards adjustments and other   |  |      | 2,753   |   |      |   | (2,529 | )
|                                  |  |      |         |   |      |  
|E&O reserves, end of period       |  | $    | 44,833  |   |      | $ | 23,319 |  
|                                  |  |      |         |   |      |  







64



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##### Table of Contents



CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                  |  |      |        |  
|--------------------------------- |  | ---- | ------ | -
|                                  |  | 2005 |       
|                                  |  |      |       
|LCM reserves, beginning of period |  | $    |       |  
|Additions                         |  |      | 20,179 |  
|Release upon sales of product     |  |      | (6,175 | )
|Standards adjustments and other   |  |      | (7,265 | )
|                                  |  |      |       
|LCM reserves, end of period       |  | $    | 6,739  |  
|                                  |  |      |       



| |                              
| | -----------------------------
| | Property, Plant and Equipment



|                                          |  |      |          |   |      |   |          |  
|----------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | -
|                                          |  | 2005 |          |   | 2004 |  
|                                          |  |      |          |   |      |  
|Land                                      |  | $    | 1,973    |   |      | $ | 1,960    |  
|Land and leasehold improvements           |  |      | 10,346   |   |      |   | 17,678   |  
|Buildings                                 |  |      | 34,610   |   |      |   | 35,133   |  
|Machinery and equipment                   |  |      | 167,217  |   |      |   | 152,617  |  
|Construction in progress                  |  |      | 2,825    |   |      |   | 178      |  
|                                          |  |      |          |   |      |  
|                                          |  |      | 216,971  |   |      |   | 207,566  |  
|Accumulated depreciation and amortization |  |      | (166,271 | ) |      |   | (151,825 | )
|                                          |  |      |          |   |      |  
|                                          |  | $    | 50,700   |   |      | $ | 55,741   |  
|                                          |  |      |          |   |      |  



| |             
| | ------------
| | Other Assets



|            |  |      |        |  |      |   |         | 
|----------- |  | ---- | ------ |  | ---- | - | ------- | 
|            |  | 2005 |        |  | 2004 |  
|            |  |      |        |  |      |  
|Investments |  | $    | 61,083 |  |      | $ | 69,555  | 
|Other       |  |      | 35,117 |  |      |   | 44,608  | 
|            |  |      |        |  |      |  
|            |  | $    | 96,200 |  |      | $ | 114,163 | 
|            |  |      |        |  |      |  





| |         
| | --------
| | Goodwill



|                                                  |  |   |         |  
|------------------------------------------------- |  | - | ------- | -
|Goodwill, September 30, 2004                      |  | $ | 708,544 |  
|Acquisitions                                      |  |   | 16,097  |  
|Adjustments to prior purchase price allocation(1) |  |   | (7,628  | )
|                                                  |  |   |        
|Goodwill, September 30, 2005                      |  | $ | 717,013 |  
|                                                  |  |   |        






|    |                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In the Merger, the Company acquired reserves for income tax
    contingencies for foreign income tax matters which arose due to
    items recorded in the income tax returns of the former
    GlobespanVirata

65



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##### Table of Contents



CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | subsidiaries. During fiscal 2005, certain of these income tax
    contingencies were settled with the taxing authorities, and as a
    result, the amount of the liability in excess of the settlement
    amount, or $6.3 million, was reduced with a corresponding
    reduction to goodwill. In the fourth quarter of fiscal 2005, the
    Company realized a $0.4 million income tax refund related
    to R&D credits of the Amphion subsidiary. This amount was
    recorded as a reduction of goodwill as the deferred tax assets
    in the Amphion acquisition were assigned a zero fair value.
    Additionally, in the quarter ended March 31, 2005, as a
    result of subsequent decisions on the consolidation of
    facilities, the Company reduced certain restructuring and other
    facilities reserves established at the time of the Merger by a
    net of $0.9 million, with a corresponding reduction to
    goodwill.



| |                  
| | -----------------
| | Intangible Assets



|                        |  |       |         |  |              |   |         |     |  |       |         |  |             |              |         |  |     |   |         |   |  |   |         | 
|----------------------- |  | ----- | ------- |  | ------------ | - | ------- | --- |  | ----- | ------- |  | ----------- | ------------ | ------- |  | --- | - | ------- | - |  | - | ------- | 
|                        |  | 2005  |         |  | 2004         |  
|                        |  |       |         |  |              |  
|                        |  | Gross |         |  | Accumulated  |   |         |     |  | Gross |         |  | Accumulated |              |         | 
|                        |  | Asset |         |  | Amortization |   |         | Net |  |       | Asset   |  |             | Amortization |         |  | Net |  
|                        |  |       |         |  |              |   |         |     |  |       |         |  |             |              |         |  |     |  
|Developed technology    |  | $     | 146,146 |  |              | $ | (54,133 | )   |  | $     | 92,013  |  |             | $            | 145,946 |  |     | $ | (25,359 | ) |  | $ | 120,587 | 
|Customer base           |  |       | 4,660   |  |              |   | (1,781  | )   |  |       | 2,879   |  |             |              | 2,050   |  |     |   | (847    | ) |  |   | 1,203   | 
|Other intangible assets |  |       | 21,888  |  |              |   | (10,071 | )   |  |       | 11,817  |  |             |              | 20,908  |  |     |   | (7,457  | ) |  |   | 13,451  | 
|                        |  |       |         |  |              |   |         |     |  |       |         |  |             |              |         |  |     |  
|                        |  | $     | 172,694 |  |              | $ | (65,985 | )   |  | $     | 106,709 |  |             | $            | 168,904 |  |     | $ | (33,663 | ) |  | $ | 135,241 | 
|                        |  |       |         |  |              |   |         |     |  |       |         |  |             |              |         |  |     |  



|                     |  |      |        |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |       | 
|-------------------- |  | ---- | ------ |  | ---- | - | ------ | ---- |  | - | ------ |  |  | ---- | ------ |  |  | - | ----- | 
|                     |  | 2006 |        |  | 2007 |   |        | 2008 |  |   | 2009   |  |  | 2010 |       
|                     |  |      |        |  |      |   |        |      |  |   |        |  |  |      |       
|Amortization expense |  | $    | 30,701 |  |      | $ | 29,801 |      |  | $ | 29,333 |  |  | $    | 13,831 |  |  | $ | 3,043 | 



| |                  
| | -----------------
| | Mindspeed Warrant





66



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##### Table of Contents



CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                  
| | -----------------
| | Other Liabilities



|                                              |  |      |        |  |      |   |        | 
|--------------------------------------------- |  | ---- | ------ |  | ---- | - | ------ | 
|                                              |  | 2005 |        |  | 2004 |  
|                                              |  |      |        |  |      |  
|Deferred gains on sale-leaseback transactions |  | $    | 48,557 |  |      | $ | 16,367 | 
|Employee benefit plan liabilities             |  |      | 14,982 |  |      |   | 19,038 | 
|Other                                         |  |      | 20,468 |  |      |   | 33,478 | 
|                                              |  |      |        |  |      |  
|                                              |  | $    | 84,007 |  |      | $ | 68,883 | 
|                                              |  |      |        |  |      |  



| |                            
| | ---------------------------
| | Other (Income) Expense, Net



|                                                                                                                  |  |      |         |   |      |   |         |      |  |   |         |  
|----------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                                  |  | 2005 |         |   | 2004 |   |         | 2003 | 
|                                                                                                                  |  |      |         |   |      |   |         |      | 
|Investment and interest income                                                                                    |  | $    | (6,457  | ) |      | $ | (7,742  | )    |  | $ | (15,622 | )
|Change in the fair value of the conversion right under the
    Skyworks 15% convertible senior subordinated notes |  |      |        |   |      |   | 6,292   |      |  |   | (9,402  | )
|Change in the fair value of the Mindspeed warrant                                                                 |  |      | (7,147  | ) |      |   | 92,663  |      |  |   | (30,230 | )
|Gain on sales of investments                                                                                      |  |      | (91,285 | ) |      |   | (24,071 | )    |  |   | (8,618  | )
|Equity in (earnings) losses of equity method investees                                                            |  |      | 10,642  |   |      |   | (14,422 | )    |  |   | 3,119   |  
|Write down of non-marketable investments                                                                          |  |      |        |   |      |   | 13,423  |      |  |   | 39,402  |  
|Other, net                                                                                                        |  |      | (1,166  | ) |      |   | 2,957   |      |  |   | (961    | )
|                                                                                                                  |  |      |         |   |      |   |         |      | 
|Other (income) expense, net                                                                                       |  | $    | (95,413 | ) |      | $ | 69,100  |      |  | $ | (22,312 | )
|                                                                                                                  |  |      |         |   |      |   |         |      | 











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CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |             
|-- | ------------
|8. | Income Taxes



|          |                 |                |       |       |       |   |         |         |         |   |      |      |      |  
|--------- | --------------- | -------------- | ----- | ----- | ----- | - | ------- | ------- | ------- | - | ---- | ---- | ---- | -
|          |                 | 2005           |       |       | 2004  |   |         | 2003    |        
|          |                 |                |       |       |       |   |         |         |        
|Current:  |                 |                |       |       |       |   |         |         |         |   |      |     
|          | United States   |                | $     |      |       |   | $       | (12,890 | )       |   | $    | (668 | )   
|          | Foreign         |                |       | 1,842 |       |   |         | 1,565   |         |   |      | 457  |     
|          | State and local |                |       | 480   |       |   |         | 198     |         |   |      | (134 | )   
|          |                 |                |       |       |       |   |         |         |        
|          |                 | Total current  |       |       | 2,322 |   |         |         | (11,127 | ) |      |      | (345 | )
|          |                 |                |       |       |       |   |         |         |        
|Deferred: |                 |                |       |       |       |   |         |         |         |   |      |     
|          | United States   |                |       |      |       |   |         | 254,286 |         |   |      |     |     
|          | Foreign         |                |       |      |       |   |         | 574     |         |   |      | 216  |     
|          |                 |                |       |       |       |   |         |         |        
|          |                 | Total deferred |       |       |      |   |         |         | 254,860 |   |      |      | 216  |  
|          |                 |                |       |       |       |   |         |         |        
|          |                 | $              | 2,322 |       |       | $ | 243,733 |         |         | $ | (129 | )   
|          |                 |                |       |       |       |   |         |         |        



|                        |  |      |       |  |      |   |         |      |  |   |      |  
|----------------------- |  | ---- | ----- |  | ---- | - | ------- | ---- |  | - | ---- | -
|                        |  | 2005 |       |  | 2004 |   |         | 2003 | 
|                        |  |      |       |  |      |   |         |      | 
|Continuing operations   |  | $    | 2,322 |  |      | $ | 243,733 |      |  | $ | (129 | )
|Discontinued operations |  |      |      |  |      |   |        |      |  |   | 462  |  
|                        |  |      |       |  |      |   |         |      | 
|                        |  | $    | 2,322 |  |      | $ | 243,733 |      |  | $ | 333  |  
|                        |  |      |       |  |      |   |         |      | 



|                          |                                                 |                                |   |            |         |   |   |            |         |  
|------------------------- | ----------------------------------------------- | ------------------------------ | - | ---------- | ------- | - | - | ---------- | ------- | -
|                          |                                                 | 2005                           |   |            | 2004    |  
|                          |                                                 |                                |   |            |         |  
|Deferred tax assets:      |                                                 |                                |   |            |         |   |   |           
|                          | Investments                                     |                                | $ | 77,437     |         |   | $ | 64,781     |        
|                          | Intangible assets                               |                                |   | 161,251    |         |   |   | 167,402    |        
|                          | Capitalized research and development            |                                |   | 290,330    |         |   |   | 117,635    |        
|                          | Net operating losses                            |                                |   | 428,362    |         |   |   | 566,148    |        
|                          | Research and development and investment credits |                                |   | 149,366    |         |   |   | 138,376    |        
|                          | Other, net                                      |                                |   | 151,475    |         |   |   | 130,980    |        
|                          | Valuation allowance                             |                                |   | (1,192,971 | )       |   |   | (1,123,077 | )      
|                          |                                                 |                                |   |            |         |  
|                          |                                                 | Total deferred tax assets      |   |            | 65,250  |   |   |            | 62,245  |  
|                          |                                                 |                                |   |            |         |  
|Deferred tax liabilities: |                                                 |                                |   |            |         |   |   |           
|                          | Deferred state taxes                            |                                |   | (65,250    | )       |   |   | (62,245    | )      
|                          |                                                 |                                |   |            |         |  
|                          |                                                 | Total deferred tax liabilities |   |            | (65,250 | ) |   |            | (62,245 | )
|                          |                                                 |                                |   |            |         |  
|                          |                                                 | Net deferred tax assets        |   | $          |        |   |   | $          |        |  
|                          |                                                 |                                |   |            |         |  



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CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)
















|                                                  |  |      |         |   |      |   |          |      |  |   |        |  
|------------------------------------------------- |  | ---- | ------- | - | ---- | - | -------- | ---- |  | - | ------ | -
|                                                  |  | 2005 |         |   | 2004 |   |          | 2003 | 
|                                                  |  |      |         |   |      |   |          |      | 
|U.S. Federal statutory tax at 35%                 |  | $    | (60,784 | ) |      | $ | (105,321 | )    |  | $ | 8,202  |  
|State taxes, net of federal effect                |  |      | (7,102  | ) |      |   | (8,567   | )    |  |   | (3,444 | )
|U.S. and foreign income taxes on foreign earnings |  |      | 5,834   |   |      |   | (3,874   | )    |  |   | (822   | )
|Research and development credits                  |  |      | (8,014  | ) |      |   | (9,682   | )    |  |   | (7,876 | )
|In-process research and development               |  |      |        |   |      |   | 56,286   |      |  |   |       |  
|Valuation allowance                               |  |      | 74,287  |   |      |   | 314,569  |      |  |   | 3,569  |  
|Other                                             |  |      | (1,899  | ) |      |   | 322      |      |  |   | 242    |  
|                                                  |  |      |         |   |      |   |          |      | 
|Provision (benefit) for income taxes              |  | $    | 2,322   |   |      | $ | 243,733  |      |  | $ | (129   | )
|                                                  |  |      |         |   |      |   |          |      | 

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CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|              |  |      |          |   |      |   |          |      |  |   |        | 
|------------- |  | ---- | -------- | - | ---- | - | -------- | ---- |  | - | ------ | 
|              |  | 2005 |          |   | 2004 |   |          | 2003 | 
|              |  |      |          |   |      |   |          |      | 
|United States |  | $    | (174,229 | ) |      | $ | (318,097 | )    |  | $ | 19,160 | 
|Foreign       |  |      | 561      |   |      |   | 17,181   |      |  |   | 4,273  | 
|              |  |      |          |   |      |   |          |      | 
|              |  | $    | (173,668 | ) |      | $ | (300,916 | )    |  | $ | 23,433 | 
|              |  |      |          |   |      |   |          |      | 







|   |               
|-- | --------------
|9. | Long-Term Debt



|                                                                                            |  |   |          |  
|------------------------------------------------------------------------------------------- |  | - | -------- | -
|4.0% Convertible Subordinated Notes due February 2007 with
    a conversion price of $42.43 |  | $ | 515,000  |  
|4.25% Convertible Subordinated Notes due May 2006 with a
    conversion price of $9.08      |  |   | 66,825   |  
|5.25% Convertible Subordinated Notes due May 2006 with a
    conversion price of $22.26     |  |   | 130,000  |  
|                                                                                            |  |   |         
|Total convertible subordinated notes                                                        |  |   | 711,825  |  
|Less, current portion of convertible subordinated notes                                     |  |   | (196,825 | )
|                                                                                            |  |   |         
|Long-term portion of convertible subordinated notes                                         |  | $ | 515,000  |  
|                                                                                            |  |   |         





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CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|    |            
|--- | -----------
|10. | Commitments





|            |                                     |   |        |         | 
|----------- | ----------------------------------- | - | ------ | ------- | 
|Fiscal Year |                                     |  
|            |                                     |  
|2006        |                                     | $ | 33,975 |        
|2007        |                                     |   | 28,490 |        
|2008        |                                     |   | 22,618 |        
|2009        |                                     |   | 15,441 |        
|2010        |                                     |   | 15,337 |        
|Thereafter  |                                     |   | 77,220 |        
|            |                                     |   |       
|            | Total future minimum lease payments |   | $      | 193,081 | 
|            |                                     |   |       







71



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CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|    |                          
|--- | -------------------------
|11. | Mindspeed Credit Facility





|    |              
|--- | -------------
|12. | Contingencies



| |              
| | -------------
| | Legal Matters



IPO Litigation.


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CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Texas Instruments, Inc.


Class Action Suits. Witriol v. Conexant, et al.


Graden v. Conexant, et al.


73



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CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Shareholder Derivative Suits. Witriol v. Conexant, et al. Witriol




| |      
| | -----
| | Other







|    |            
|--- | -----------
|13. | Stock Plans



1 200


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CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


1 200




| |              
| | -------------
| | Stock Options











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CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                           |  |           |         |           |          |   |      |           |           |  |          |   |  |           |      |  |          |  |         |   |  |   |      | 
|------------------------------------------ |  | --------- | ------- | --------- | -------- | - | ---- | --------- | --------- |  | -------- | - |  | --------- | ---- |  | -------- |  | ------- | - |  | - | ---- | 
|                                           |  | 2005      |         |           | 2004     |   |      | 2003      |          
|                                           |  |           |         |           |          |   |      |           |          
|                                           |  |           |         | Weighted- |          |   |      |           | Weighted- |  |          |   |  | Weighted- |     
|                                           |  |           |         | Average   |          |   |      |           | Average   |  |          |   |  | Average   |     
|                                           |  | Number of |         |           | Exercise |   |      | Number of |           |  | Exercise |   |  | Number of |      |  | Exercise | 
|                                           |  | Shares    |         |           | Price    |   |      | Shares    |           |  | Price    |   |  | Shares    |      |  | Price    | 
|                                           |  |           |         |           |          |   |      |           |           |  |          |   |  |           |      |  |          | 
|Outstanding at beginning of year           |  |           | 127,120 |           |          | $ | 4.78 |           |           |  | 81,089   |   |  | $         | 3.02 |  |          |  | 88,805  |   |  | $ | 3.90 | 
|Granted                                    |  |           | 35,342  |           |          |   | 1.51 |           |           |  | 19,984   |   |  |           | 7.16 |  |          |  | 16,529  |   |  |   | 3.13 | 
|Adjustments for the Mindspeed Spin         |  |           |        |           |          |   |     |           |           |  |         |   |  |           |     |  |          |  | (1,451  | ) |  |   |     | 
|Assumed/exchanged in business combinations |  |           | 590     |           |          |   | 0.87 |           |           |  | 43,602   |   |  |           | 3.45 |  |          |  |        |   |  |   |     | 
|Exercised                                  |  |           | (831    | )         |          |   | 1.23 |           |           |  | (8,015   | ) |  |           | 2.73 |  |          |  | (8,320  | ) |  |   | 2.85 | 
|Cancelled                                  |  |           | (51,026 | )         |          |   | 5.65 |           |           |  | (9,540   | ) |  |           | 9.74 |  |          |  | (14,474 | ) |  |   | 4.78 | 
|                                           |  |           |         |           |          |   |      |           |           |  |          |   |  |           |      |  |          | 
|Outstanding at end of year                 |  |           | 111,195 |           |          |   | 2.81 |           |           |  | 127,120  |   |  |           | 4.78 |  |          |  | 81,089  |   |  |   | 3.02 | 
|                                           |  |           |         |           |          |   |      |           |           |  |          |   |  |           |      |  |          | 
|Exercisable at end of year                 |  |           | 72,235  |           |          |   | 3.34 |           |           |  | 83,024   |   |  |           | 4.57 |  |          |  | 52,109  |   |  |   | 3.13 | 
|                                           |  |           |         |           |          |   |      |           |           |  |          |   |  |           |      |  |          | 



|                         |  |             |         |           |              |  |           |          |  |   |           |           |  |          |        |  |  |   |      | 
|------------------------ |  | ----------- | ------- | --------- | ------------ |  | --------- | -------- |  | - | --------- | --------- |  | -------- | ------ |  |  | - | ---- | 
|                         |  | Outstanding |         |           | Exercisable  | 
|                         |  |             |         |           |              | 
|                         |  |             |         | Average   |              |  | Weighted- |          |  |   |           | Weighted- | 
|                         |  |             |         | Remaining |              |  | Average   |          |  |   |           | Average   | 
|                         |  | Number of   |         |           | Contractual  |  |           | Exercise |  |   | Number of |           |  | Exercise |       
|Range of Exercise Prices |  | Shares      |         |           | Life (Years) |  |           | Price    |  |   | Shares    |           |  | Price    |       
|                         |  |             |         |           |              |  |           |          |  |   |           |           |  |          |       
|$0.20 -  1.48            |  |             | 11,845  |           |              |  | 5.07      |          |  | $ | 1.33      |           |  |          | 5,280  |  |  | $ | 1.29 | 
|1.49                     |  |             | 29,069  |           |              |  | 7.25      |          |  |   | 1.49      |           |  |          | 3,736  |  |  |   | 1.49 | 
|1.50 -  2.60             |  |             | 8,379   |           |              |  | 3.90      |          |  |   | 2.12      |           |  |          | 5,671  |  |  |   | 2.29 | 
|2.63                     |  |             | 16,105  |           |              |  | 3.19      |          |  |   | 2.63      |           |  |          | 16,094 |  |  |   | 2.63 | 
|2.63 -  2.76             |  |             | 1,143   |           |              |  | 1.52      |          |  |   | 2.68      |           |  |          | 1,142  |  |  |   | 2.68 | 
|2.76                     |  |             | 7,269   |           |              |  | 5.69      |          |  |   | 2.76      |           |  |          | 6,357  |  |  |   | 2.76 | 
|2.77                     |  |             | 6,142   |           |              |  | 2.80      |          |  |   | 2.77      |           |  |          | 6,136  |  |  |   | 2.77 | 
|2.78 -  3.44             |  |             | 3,775   |           |              |  | 3.66      |          |  |   | 3.11      |           |  |          | 3,217  |  |  |   | 3.10 | 
|3.45                     |  |             | 14,407  |           |              |  | 4.13      |          |  |   | 3.45      |           |  |          | 14,339 |  |  |   | 3.45 | 
|3.45 - 96.93             |  |             | 13,061  |           |              |  | 3.66      |          |  |   | 6.99      |           |  |          | 10,263 |  |  |   | 7.44 | 
|                         |  |             |         |           |              |  |           |          |  |   |           |           |  |          |       
|0.20 - 96.93             |  |             | 111,195 |           |              |  | 4.09      |          |  |   | 2.81      |           |  |          | 72,235 |  |  |   | 3.34 | 
|                         |  |             |         |           |              |  |           |          |  |   |           |           |  |          |       





| |                 
| | ----------------
| | Restricted Stock



76



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CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                     
| | --------------------
| | Directors Stock Plan





| |                             
| | ----------------------------
| | Employee Stock Purchase Plan





| |                        
| | -----------------------
| | Performance Shares Plan





77



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##### Table of Contents



CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                       
|--- | ----------------------
|14. | Employee Benefit Plans



| |                         
| | ------------------------
| | Retirement Savings Plans





| |                        
| | -----------------------
| | Retirement Medical Plan





|                                               |                                          |      |      |     |      |   |      |     | 
|---------------------------------------------- | ---------------------------------------- | ---- | ---- | --- | ---- | - | ---- | --- | 
|                                               |                                          | 2005 |      |     | 2004 |  
|                                               |                                          |      |      |     |      |  
|Change in benefit obligation:                  |                                          |      |      |     |      |   |      |    
|Benefit obligation at beginning of year        |                                          | $    | 1.9  |     |      | $ | 3.8  |    
|Interest cost                                  |                                          |      | 0.1  |     |      |   | 0.1  |    
|Plan participants contributions               |                                          |      | 1.2  |     |      |   | 1.0  |    
|Amendments                                     |                                          |      | 0.7  |     |      |   |     |    
|Actuarial (gain) loss                          |                                          |      |     |     |      |   | (0.3 | )  
|Benefits paid                                  |                                          |      | (2.3 | )   |      |   | (2.7 | )  
|                                               |                                          |      |      |     |      |  
|                                               | Benefit obligation at end of year        |      | $    | 1.6 |      |   | $    | 1.9 | 
|                                               |                                          |      |      |     |      |  
|Change in plan assets:                         |                                          |      |      |     |      |   |      |    
|Fair value of plan assets at beginning of year |                                          | $    |     |     |      | $ |     |    
|Employer contribution                          |                                          |      | 1.1  |     |      |   | 1.6  |    
|Plan participants contributions               |                                          |      | 1.2  |     |      |   | 1.1  |    
|Benefits paid, including expenses              |                                          |      | (2.3 | )   |      |   | (2.7 | )  
|                                               |                                          |      |      |     |      |  
|                                               | Fair value of plan assets at end of year |      | $    |    |      |   | $    |    | 
|                                               |                                          |      |      |     |      |  

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CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                                 |                           |      |          |      |      |   |          |       |  
|---------------------------------------------------------------- | ------------------------- | ---- | -------- | ---- | ---- | - | -------- | ----- | -
|                                                                 |                           | 2005 |          |      | 2004 |  
|                                                                 |                           |      |          |      |      |  
|Reconciliation of funded status to accrued benefit cost:         |                           |      |          |      |      |   |          |      
|Funded status                                                    |                           | $    | (1.6     | )    |      | $ | (1.9     | )    
|Unrecognized net actuarial loss                                  |                           |      | 4.9      |      |      |   | 6.7      |      
|Unrecognized prior service cost                                  |                           |      | (12.5    | )    |      |   | (18.5    | )    
|Adjustment for fourth quarter contributions                      |                           |      | 0.2      |      |      |   |         |      
|                                                                 |                           |      |          |      |      |  
|                                                                 | Accrued benefit cost      |      | $        | (9.0 | )    |   | $        | (13.7 | )
|                                                                 |                           |      |          |      |      |  
|Weighted average assumptions as of September 30:                 |                           |      |          |      |      |   |          |      
|Measurement date                                                 |                           |      | 06/30/05 |      |      |   | 06/30/04 |      
|Discount rate                                                    |                           |      | 3.00     | %    |      |   | 3.00     | %    
|Expected return on plan assets                                   |                           |      | N/A      |      |      |   | N/A      |      
|Rate of compensation increase                                    |                           |      | N/A      |      |      |   | N/A      |      
|Weighted average assumptions for net periodic benefit
    costs: |                           |      |          |      |      |   |          |      
|Discount rate                                                    |                           |      | 3.00     | %    |      |   | 3.25     | %    
|Expected return on plan assets                                   |                           |      | N/A      |      |      |   | N/A      |      
|Rate of compensation increase                                    |                           |      | N/A      |      |      |   | N/A      |      
|Components of net periodic benefit cost:                         |                           |      |          |      |      |   |          |      
|Interest cost                                                    |                           | $    | 0.1      |      |      | $ | 0.1      |      
|Amortization of prior service costs                              |                           |      | (5.3     | )    |      |   | (5.3     | )    
|Recognized net actuarial loss                                    |                           |      | 1.8      |      |      |   | 1.9      |      
|                                                                 |                           |      |          |      |      |  
|                                                                 | Net periodic benefit cost |      | $        | (3.4 | )    |   | $        | (3.3  | )
|                                                                 |                           |      |          |      |      |  
|Expected benefit payouts:                                        |                           |      |          |      |      |   |          |      
|2006                                                             |                           | $    | 0.8      |      |      |   |          |      
|2007                                                             |                           |      | 0.5      |      |      |   |          |      
|2008                                                             |                           |      | 0.1      |      |      |   |          |      



| |              
| | -------------
| | Pension Plans



79



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CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                 |                                          |      |          |      |      |   |          |      |  
|---------------------------------------------------------------- | ---------------------------------------- | ---- | -------- | ---- | ---- | - | -------- | ---- | -
|                                                                 |                                          | 2005 |          |      | 2004 |  
|                                                                 |                                          |      |          |      |      |  
|Change in benefit obligation:                                    |                                          |      |          |      |      |   |          |     
|Benefit obligation at beginning of year                          |                                          | $    | 22.3     |      |      | $ | 23.5     |     
|Interest cost                                                    |                                          |      | 1.3      |      |      |   | 1.3      |     
|Actuarial (gain) loss                                            |                                          |      | 2.8      |      |      |   | (0.5     | )   
|Benefits paid                                                    |                                          |      | (2.0     | )    |      |   | (2.0     | )   
|                                                                 |                                          |      |          |      |      |  
|                                                                 | Benefit obligation at end of year        |      | $        | 24.4 |      |   | $        | 22.3 |  
|                                                                 |                                          |      |          |      |      |  
|Change in plan assets:                                           |                                          |      |          |      |      |   |          |     
|Fair value of plan assets at beginning of year                   |                                          | $    | 14.2     |      |      | $ | 10.6     |     
|Actual return on plan assets                                     |                                          |      | 1.0      |      |      |   | 1.4      |     
|Employer contribution                                            |                                          |      | 2.4      |      |      |   | 4.2      |     
|Benefits paid, including expenses                                |                                          |      | (2.0     | )    |      |   | (2.0     | )   
|                                                                 |                                          |      |          |      |      |  
|                                                                 | Fair value of plan assets at end of year |      | $        | 15.6 |      |   | $        | 14.2 |  
|                                                                 |                                          |      |          |      |      |  
|Reconciliation of funded status to net amounts recognized:       |                                          |      |          |      |      |   |          |     
|Funded status                                                    |                                          | $    | (8.8     | )    |      | $ | (8.1     | )   
|Unrecognized net actuarial loss                                  |                                          |      | 9.1      |      |      |   | 7.0      |     
|Adjustment for fourth quarter expenses                           |                                          |      | (0.2     | )    |      |   | (0.3     | )   
|Adjustment for fourth quarter contributions                      |                                          |      | 1.2      |      |      |   | 1.1      |     
|                                                                 |                                          |      |          |      |      |  
|                                                                 | Net amount recognized                    |      | $        | 1.3  |      |   | $        | (0.3 | )
|                                                                 |                                          |      |          |      |      |  
|Amounts recognized in the statement of financial position:       |                                          |      |          |      |      |   |          |     
|Accrued benefit liability                                        |                                          | $    | (7.6     | )    |      | $ | (7.0     | )   
|Accumulated other comprehensive loss                             |                                          |      | 8.9      |      |      |   | 6.7      |     
|                                                                 |                                          |      |          |      |      |  
|                                                                 | Net amount recognized                    |      | $        | 1.3  |      |   | $        | (0.3 | )
|                                                                 |                                          |      |          |      |      |  
|Accumulated benefit obligation in excess of plan assets:         |                                          |      |          |      |      |   |          |     
|Projected benefit obligation                                     |                                          | $    | 24.4     |      |      | $ | 22.3     |     
|Accumulated benefit obligation                                   |                                          |      | 24.4     |      |      |   | 22.3     |     
|Fair value of plan assets at end of year                         |                                          |      | 15.6     |      |      |   | 14.2     |     
|Weighted average assumptions as of September 30:                 |                                          |      |          |      |      |   |          |     
|Measurement date                                                 |                                          |      | 06/30/05 |      |      |   | 06/30/04 |     
|Discount rate                                                    |                                          |      | 5.00     | %    |      |   | 6.25     | %   
|Expected return on plan assets                                   |                                          |      | 4.00     | %    |      |   | 4.00     | %   
|Rate of compensation increase                                    |                                          |      | N/A      |      |      |   | N/A      |     
|Weighted average assumptions for net periodic benefit
    costs: |                                          |      |          |      |      |   |          |     
|Discount rate                                                    |                                          |      | 6.25     | %    |      |   | 6.00     | %   
|Expected return on plan assets                                   |                                          |      | 4.00     | %    |      |   | 4.00     | %   
|Rate of compensation increase                                    |                                          |      | N/A      |      |      |   | N/A      |     

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CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                             |                           |      |      |       |      |   |      |       |  
|------------------------------------------------------------ | ------------------------- | ---- | ---- | ----- | ---- | - | ---- | ----- | -
|                                                             |                           | 2005 |      |       | 2004 |  
|                                                             |                           |      |      |       |      |  
|Unfunded accumulated benefit obligation at
    September 30: |                           |      |      |       |      |   |      |      
|Accumulated benefit obligation                               |                           | $    | 24.4 |       |      | $ | 22.3 |      
|Fair value of plan assets at end of year                     |                           |      | 15.6 |       |      |   | 14.2 |      
|Increase (decrease) in other comprehensive loss              |                           |      | 2.2  |       |      |   | (1.7 | )    
|Components of net periodic benefit cost:                     |                           |      |      |       |      |   |      |      
|Interest cost                                                |                           | $    | 1.3  |       |      | $ | 1.3  |      
|Expected return on plan assets                               |                           |      | (0.5 | )     |      |   | (0.5 | )    
|Recognized net actuarial loss                                |                           |      | 0.2  |       |      |   | 0.3  |      
|                                                             |                           |      |      |       |      |  
|                                                             | Net periodic benefit cost |      | $    | 1.0   |      |   | $    | 1.1   |  
|                                                             |                           |      |      |       |      |  
|Weighted average asset allocation at September 30:           |                           |      |      |       |      |   |      |      
|Asset Class                                                  |                           |      |      |       |      |   |      |      
|Domestic equity funds                                        |                           |      | 67.4 | %     |      |   | 63.7 | %    
|Domestic fixed income funds                                  |                           |      | 31.6 | %     |      |   | 35.1 | %    
|Other                                                        |                           |      | 1.0  | %     |      |   | 1.2  | %    
|                                                             |                           |      |      |       |      |  
|                                                             | Total                     |      |      | 100.0 | %    |   |      | 100.0 | %
|                                                             |                           |      |      |       |      |  
|Expected benefit payouts:                                    |                           |      |      |       |      |   |      |      
|2006                                                         |                           | $    | 1.9  |       |      |   |      |      
|2007                                                         |                           |      | 1.8  |       |      |   |      |      
|2008                                                         |                           |      | 1.7  |       |      |   |      |      
|2009                                                         |                           |      | 1.7  |       |      |   |      |      
|2010                                                         |                           |      | 1.7  |       |      |   |      |      
|2011 - 2015                                                  |                           |      | 8.1  |       |      |   |      |      





|    |                
|--- | ---------------
|15. | Special Charges



|                      |  |      |        |  |      |   |        |      |  |   |        | 
|--------------------- |  | ---- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                      |  | 2005 |        |  | 2004 |   |        | 2003 | 
|                      |  |      |        |  |      |   |        |      | 
|Asset impairments     |  | $    | 3,761  |  |      | $ | 5,435  |      |  | $ | 9,575  | 
|Restructuring charges |  |      | 28,049 |  |      |   | 9,264  |      |  |   | 5,215  | 
|Integration charges   |  |      | 7,748  |  |      |   | 7,310  |      |  |   |       | 
|Other                 |  |      | 6,419  |  |      |   | 10,792 |      |  |   | 3,589  | 
|                      |  |      |        |  |      |   |        |      | 
|                      |  | $    | 45,977 |  |      | $ | 32,801 |      |  | $ | 18,379 | 
|                      |  |      |        |  |      |   |        |      | 



| |                  
| | -----------------
| | Asset Impairments

2005 Impairments


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CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


2004 Impairments


2003 Impairments






| |                      
| | ---------------------
| | Restructuring Charges



2005 Restructuring Action




|                                          |  |            |         |   |           |   |        |       |  |   |         |  
|----------------------------------------- |  | ---------- | ------- | - | --------- | - | ------ | ----- |  | - | ------- | -
|                                          |  | Workforce  |         |   | Facility  |   |        |      
|                                          |  | Reductions |         |   | and Other |   |        | Total | 
|                                          |  |            |         |   |           |   |        |       | 
|Charged to costs and expenses             |  | $          | 19,708  |   |           | $ | 7,244  |       |  | $ | 26,952  |  
|Non-cash items                            |  |            | (46     | ) |           |   | 13,629 |       |  |   | 13,583  |  
|Cash payments                             |  |            | (16,118 | ) |           |   | (1,535 | )     |  |   | (17,653 | )
|                                          |  |            |         |   |           |   |        |       | 
|Restructuring balance, September 30, 2005 |  | $          | 3,544   |   |           | $ | 19,338 |       |  | $ | 22,882  |  
|                                          |  |            |         |   |           |   |        |       | 

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CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


2004 Restructuring Actions






|                                          |  |            |       |   |           |   |        |       |  |   |        |  
|----------------------------------------- |  | ---------- | ----- | - | --------- | - | ------ | ----- |  | - | ------ | -
|                                          |  | Workforce  |       |   | Facility  |   |        |      
|                                          |  | Reductions |       |   | and Other |   |        | Total | 
|                                          |  |            |       |   |           |   |        |       | 
|Recorded in purchase price allocation     |  | $          | 1,300 |   |           | $ | 13,509 |       |  | $ | 14,809 |  
|Adjusted to purchase price allocation     |  |            | 210   |   |           |   | (3,554 | )     |  |   | (3,344 | )
|Cash payments                             |  |            | (536  | ) |           |   | (788   | )     |  |   | (1,324 | )
|                                          |  |            |       |   |           |   |        |       | 
|Restructuring balance, September 30, 2004 |  |            | 974   |   |           |   | 9,167  |       |  |   | 10,141 |  
|Adjusted to purchase price allocation     |  |            | 12    |   |           |   | (4,967 | )     |  |   | (4,955 | )
|Cash payments                             |  |            | (986  | ) |           |   | (855   | )     |  |   | (1,841 | )
|                                          |  |            |       |   |           |   |        |       | 
|Restructuring balance, September 30, 2005 |  | $          |      |   |           | $ | 3,345  |       |  | $ | 3,345  |  
|                                          |  |            |       |   |           |   |        |       | 



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CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|                                          |  |            |        |   |           |   |       |       |  |   |        |  
|----------------------------------------- |  | ---------- | ------ | - | --------- | - | ----- | ----- |  | - | ------ | -
|                                          |  | Workforce  |        |   | Facility  |   |       |      
|                                          |  | Reductions |        |   | and Other |   |       | Total | 
|                                          |  |            |        |   |           |   |       |       | 
|Charged to costs and expenses             |  | $          | 7,066  |   |           | $ | 1,877 |       |  | $ | 8,943  |  
|Cash payments                             |  |            | (2,368 | ) |           |   | (281  | )     |  |   | (2,649 | )
|                                          |  |            |        |   |           |   |       |       | 
|Restructuring balance, September 30, 2004 |  |            | 4,698  |   |           |   | 1,596 |       |  |   | 6,294  |  
|Charged to costs and expenses             |  |            | 1,504  |   |           |   | (11   | )     |  |   | 1,493  |  
|Cash payments                             |  |            | (6,137 | ) |           |   | (754  | )     |  |   | (6,891 | )
|                                          |  |            |        |   |           |   |       |       | 
|Restructuring balance, September 30, 2005 |  | $          | 65     |   |           | $ | 831   |       |  | $ | 896    |  
|                                          |  |            |        |   |           |   |       |       | 

2003 Corporate Restructuring Plan




|                                          |  |            |        |   |           |   |       |       |  |   |        |  
|----------------------------------------- |  | ---------- | ------ | - | --------- | - | ----- | ----- |  | - | ------ | -
|                                          |  | Workforce  |        |   | Facility  |   |       |      
|                                          |  | Reductions |        |   | and Other |   |       | Total | 
|                                          |  |            |        |   |           |   |       |       | 
|Charged to costs and expenses             |  | $          | 1,181  |   |           | $ | 2,830 |       |  | $ | 4,011  |  
|Cash payments                             |  |            | (364   | ) |           |   |      |       |  |   | (364   | )
|                                          |  |            |        |   |           |   |       |       | 
|Restructuring balance, September 30, 2003 |  |            | 817    |   |           |   | 2,830 |       |  |   | 3,647  |  
|Charged to costs and expenses             |  |            | 350    |   |           |   | 98    |       |  |   | 448    |  
|Expense reversal                          |  |            | (81    | ) |           |   |      |       |  |   | (81    | )
|Cash payments                             |  |            | (1,086 | ) |           |   | (933  | )     |  |   | (2,019 | )
|                                          |  |            |        |   |           |   |       |       | 
|Restructuring balance, September 30, 2004 |  |            |       |   |           |   | 1,995 |       |  |   | 1,995  |  
|Charged to costs and expenses             |  |            |       |   |           |   | (950  | )     |  |   | (950   | )
|Cash payments                             |  |            |       |   |           |   | (329  | )     |  |   | (329   | )
|                                          |  |            |        |   |           |   |       |       | 
|Restructuring balance, September 30, 2005 |  | $          |       |   |           | $ | 716   |       |  | $ | 716    |  
|                                          |  |            |        |   |           |   |       |       | 

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CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


2002 Corporate and Manufacturing Restructuring
Plan






|                                          |  |            |        |   |           |   |        |       |  |   |        |  
|----------------------------------------- |  | ---------- | ------ | - | --------- | - | ------ | ----- |  | - | ------ | -
|                                          |  | Workforce  |        |   | Facility  |   |        |      
|                                          |  | Reductions |        |   | and Other |   |        | Total | 
|                                          |  |            |        |   |           |   |        |       | 
|Charged to costs and expenses             |  | $          | 2,437  |   |           | $ | 12,519 |       |  | $ | 14,956 |  
|Cash payments                             |  |            | (1,664 | ) |           |   | (431   | )     |  |   | (2,095 | )
|                                          |  |            |        |   |           |   |        |       | 
|Restructuring balance, September 30, 2002 |  |            | 773    |   |           |   | 12,088 |       |  |   | 12,861 |  
|Charged to costs and expenses             |  |            | 2,898  |   |           |   | 888    |       |  |   | 3,786  |  
|Expense reversal                          |  |            |       |   |           |   | (1,100 | )     |  |   | (1,100 | )
|Cash payments                             |  |            | (3,173 | ) |           |   | (3,930 | )     |  |   | (7,103 | )
|                                          |  |            |        |   |           |   |        |       | 
|Restructuring balance, September 30, 2003 |  |            | 498    |   |           |   | 7,946  |       |  |   | 8,444  |  
|Expense reversal                          |  |            | (46    | ) |           |   |       |       |  |   | (46    | )
|Cash payments                             |  |            | (452   | ) |           |   | (3,949 | )     |  |   | (4,401 | )
|                                          |  |            |        |   |           |   |        |       | 
|Restructuring balance, September 30, 2004 |  |            |       |   |           |   | 3,997  |       |  |   | 3,997  |  
|Charged to costs and expenses             |  |            |       |   |           |   | 554    |       |  |   | 554    |  
|Cash payments                             |  |            |       |   |           |   | (3,561 | )     |  |   | (3,561 | )
|                                          |  |            |        |   |           |   |        |       | 
|Restructuring balance, September 30, 2005 |  | $          |       |   |           | $ | 990    |       |  | $ | 990    |  
|                                          |  |            |        |   |           |   |        |       | 



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CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                  
| | -----------------
| | Integration Costs





| |                      
| | ---------------------
| | Other Special Charges









|    |                          
|--- | -------------------------
|16. | Related Party Transaction





|    |                    
|--- | -------------------
|17. | Segment Information



|                               |                    |      |         |         |      |   |         |         |  |   |         |         | 
|------------------------------ | ------------------ | ---- | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|                               |                    | 2005 |         |         | 2004 |   |         | 2003    | 
|                               |                    |      |         |         |      |   |         |         | 
|United States                  |                    | $    | 70,192  |         |      | $ | 82,508  |         |  | $ | 57,652  |        
|Other Americas                 |                    |      | 14,988  |         |      |   | 18,756  |         |  |   | 11,086  |        
|                               |                    |      |         |         |      |   |         |         | 
|                               | Total Americas     |      |         | 85,180  |      |   |         | 101,264 |  |   |         | 68,738  | 
|Taiwan                         |                    |      | 96,026  |         |      |   | 140,257 |         |  |   | 88,369  |        
|China                          |                    |      | 332,441 |         |      |   | 327,267 |         |  |   | 211,642 |        
|Other Asia-Pacific             |                    |      | 124,186 |         |      |   | 200,674 |         |  |   | 96,101  |        
|                               |                    |      |         |         |      |   |         |         | 
|                               | Total Asia-Pacific |      |         | 552,653 |      |   |         | 668,198 |  |   |         | 396,112 | 
|Japan                          |                    |      | 27,704  |         |      |   | 53,495  |         |  |   | 84,943  |        
|Europe, Middle East and Africa |                    |      | 57,202  |         |      |   | 78,897  |         |  |   | 50,184  |        
|                               |                    |      |         |         |      |   |         |         | 
|                               |                    | $    | 722,739 |         |      | $ | 901,854 |         |  | $ | 599,977 |        
|                               |                    |      |         |         |      |   |         |         | 



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CONEXANT SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                       |  |      |         |  |      |   |         |      |  |   |         | 
|-------------------------------------- |  | ---- | ------- |  | ---- | - | ------- | ---- |  | - | ------- | 
|                                       |  | 2005 |         |  | 2004 |   |         | 2003 | 
|                                       |  |      |         |  |      |   |         |      | 
|Broadband Access Products              |  | $    | 192,038 |  |      | $ | 254,581 |      |  | $ | 64,310  | 
|Broadband Media Processing Products    |  |      | 155,394 |  |      |   | 214,186 |      |  |   | 165,493 | 
|Universal and Voice Access Products    |  |      | 289,223 |  |      |   | 323,073 |      |  |   | 325,220 | 
|Wireless Networking Products and Other |  |      | 86,084  |  |      |   | 110,014 |      |  |   | 44,954  | 
|                                       |  |      |         |  |      |   |         |      | 
|                                       |  | $    | 722,739 |  |      | $ | 901,854 |      |  | $ | 599,977 | 
|                                       |  |      |         |  |      |   |         |      | 



|                               |  |      |        |  |      |   |         |      |  |   |        | 
|------------------------------ |  | ---- | ------ |  | ---- | - | ------- | ---- |  | - | ------ | 
|                               |  | 2005 |        |  | 2004 |   |         | 2003 | 
|                               |  |      |        |  |      |   |         |      | 
|United States                  |  | $    | 76,270 |  |      | $ | 86,564  |      |  | $ | 63,027 | 
|Europe, Middle East and Africa |  |      | 2,702  |  |      |   | 9,577   |      |  |   | 2,159  | 
|Other                          |  |      | 6,845  |  |      |   | 4,209   |      |  |   | 1,609  | 
|                               |  |      |        |  |      |   |         |      | 
|                               |  | $    | 85,817 |  |      | $ | 100,350 |      |  | $ | 66,795 | 
|                               |  |      |        |  |      |   |         |      | 



|    |                  
|--- | -----------------
|18. | Subsequent Events



87



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
















Internal Control 
Integrated Framework








88



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|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosure








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls
and Procedures




Managements Report on Internal Control Over Financial
Reporting


Internal Control 
Integrated Framework Internal
Control  Integrated Framework


89



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##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON


INTERNAL CONTROL OVER FINANCIAL REPORTING






Internal Control  Integrated Framework


















90



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Changes in Internal Control Over Financial Reporting









|         |                  
|-------- | -----------------
|Item 9B. | Other Information






PART III









|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant

Executive Officers


Directors


Audit Committee Financial Expert


www.conexant.com









|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters








|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions



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|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services






PART IV







|         |                                           
|-------- | ------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules

Financial Statements






| |                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Consolidated Balance Sheets, Consolidated Statements of
    Operations, Consolidated Statements of Cash Flows, Consolidated
    Statements of Shareholders Equity and Comprehensive Loss,
    Notes to Consolidated Financial Statements, and Report of
    Deloitte & Touche LLP, Independent Registered Public
    Accounting Firm.

Supplemental Schedules






Exhibits


|         |       |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-------- | ----- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibits |       | Description
|         |       |            
|         | 3-a-1 |             |  | Amended and Restated Certificate of Incorporation of the
    Company, as amended, filed as Exhibit 3.a.1 to the
    Companys Quarterly Report on Form 10-Q for the
    quarter ended March 31, 2004, is incorporated herein by
    reference.                                                                                                                                                                                                                                   
|        
|         | 3-a-2 |             |  | Amended By-Laws of the Company, filed as
    Exhibit 3.(ii) to the Companys Current Report on
    Form 8-K dated February 28, 2005, is incorporated
    herein by reference.                                                                                                                                                                                                                                                                                                    
|        
|         | 4-a-1 |             |  | Rights Agreement, dated as of November 30, 1998, by and
    between the Company and Mellon Investor Services, L.L.C.
    (formerly ChaseMellon Shareholder Services, L.L.C.), as rights
    agent, filed as Exhibit 4.4 to the Companys
    Registration Statement on Form S-8 (Registration
    No. 333-68755), is incorporated herein by reference.                                                                                                                           
|        
|         | 4-a-2 |             |  | First Amendment to Rights Agreement, dated as of
    December 9, 1999, filed as Exhibit 4.1 to the
    Companys Quarterly Report on Form 10-Q for the
    quarter ended December 31, 1999, is incorporated herein by
    reference.                                                                                                                                                                                                                                             
|        
|         | 4-b-1 |             |  | Indenture, dated as of May 1, 1999, between the Company and
    Bank One Trust Company, National Association, as successor to
    The First National Bank of Chicago, as trustee, including the
    form of the Companys
    41/4% Convertible
    Subordinated Notes Due May 1, 2006 attached as
    Exhibit A thereto, filed as Exhibit 4.1 to the
    Companys Registration Statement on Form S-3
    (Registration No. 333-82399), is incorporated herein by
    reference.
|        
|         | 4-b-2 |             |  | Indenture, dated as of February 1, 2000, between the
    Company and Bank One Trust Company, National Association, as
    trustee, including the form of the Companys
    4% Convertible Subordinated Notes Due February 1, 2007
    attached as Exhibit A thereto, filed as Exhibit 4.04
    to the Companys Registration Statement on Form S-4
    (Registration No. 333-96033), is incorporated herein by
    reference.                                                    

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|         |          |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-------- | -------- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibits |          | Description
|         |          |            
|        
|         | 4-b-3    |             |  | Indenture, dated as of May 11, 2001, between
    GlobespanVirata, Inc. (now named Conexant, Inc.) and The Bank of
    New York (successor to United States Trust Company of New York),
    as Trustee, including the form of 5.25% Convertible
    Subordinated Note due 2006 of GlobespanVirata, Inc. attached as
    Exhibit A thereto, filed as Exhibit 4.1 to
    GlobespanVirata, Inc.s Current Report on Form 8-K
    dated May 15, 2001 (File No. 000-26401), is incorporated
    herein by reference.
|        
|         | 4-b-4    |             |  | First Supplemental Indenture, dated as of February 27,
    2004, between GlobespanVirata, Inc. (now named Conexant, Inc.)
    and The Bank of New York (successor to United States Trust
    Company of New York), as Trustee, filed as Exhibit 4.2 to
    the Companys Quarterly Report on Form 10-Q for the
    quarter ended March 31, 2004, is incorporated herein by
    reference.                                                                                                                     
|        
|         | *10-a-1  |             |  | Conexant Systems, Inc. 1998 Stock Option Plan, filed as
    Exhibit 10.6 to the Companys Registration Statement
    on Form 10 (File No. 000-24923), is incorporated herein by
    reference.                                                                                                                                                                                                                                                                                                                
|        
|         | *10-a-2  |             |  | Copy of resolution of the Board of Directors of the Company,
    adopted March 1, 1999, amending the Companys 1998
    Stock Option Plan, filed as Exhibit 10-b-2 to the
    Companys Annual Report on Form 10-K for the year
    ended September 30, 1999, is incorporated herein by
    reference.                                                                                                                                                                                                        
|        
|         | *10-a-3  |             |  | Forms of Stock Option Agreements under Rockwells 1988
    Long-Term Incentives Plan for options granted after
    December 1, 1994, filed as Exhibit 10-d-7 to
    Rockwells Annual Report on Form 10-K for the year
    ended September 30, 1994 (File No. 1-1035), are
    incorporated herein by reference.                                                                                                                                                                                              
|        
|         | *10-a-4  |             |  | Forms of Stock Option Agreements under Rockwells 1995
    Long-Term Incentives Plan for options granted prior to
    December 3, 1997, filed as Exhibit 10-e-2 to
    Rockwells Annual Report on Form 10-K for the year
    ended September 30, 1994 (File No. 1-1035), are
    incorporated herein by reference.                                                                                                                                                                                           
|        
|         | *10-a-5  |             |  | Forms of Stock Option Agreements under Rockwells 1995
    Long-Term Incentives Plan for options granted between
    December 3, 1997 and August 31, 1998, filed as
    Exhibit 10-b-3 to Rockwells Annual Report on
    Form 10-K for the year ended September 30, 1998 (File
    No. 1-12383), are incorporated herein by reference.                                                                                                                                                                       
|        
|         | *10-a-6  |             |  | Form of Stock Option Agreement under Rockwells 1995
    Long-Term Incentives Plan for options granted on April 23,
    1998, filed as Exhibit 10-b-4 to Rockwells Annual
    Report on Form 10-K for the year ended September 30,
    1998 (File No. 1-12383), is incorporated herein by
    reference.                                                                                                                                                                                                     
|        
|         | *10-a-7  |             |  | Form of Stock Option Agreement under Rockwells 1995
    Long-Term Incentives Plan for options granted on August 31,
    1998, filed as Exhibit 10-b-5 to Rockwells Annual
    Report on Form 10-K for the year ended September 30,
    1998 (File No. 1-12383), is incorporated herein by
    reference.                                                                                                                                                                                                    
|        
|         | *10-a-8  |             |  | Form of Stock Option Agreement under Rockwells Directors
    Stock Plan, filed as Exhibit 10-d to Rockwells
    Quarterly Report on Form 10-Q for the quarter ended
    March 31, 1996 (File No. 1-1035), is incorporated
    herein by reference.                                                                                                                                                                                                                                                          
|        
|         | *10-a-9  |             |  | Copy of resolution of the Board of Directors of Rockwell,
    adopted November 6, 1996, adjusting outstanding awards
    under Rockwells (i) 1988 Long-Term Incentives Plan,
    (ii) 1995 Long-Term Incentives Plan and
    (iii) Directors Stock Plan, filed as Exhibit 4-g-2 to
    Rockwells Registration Statement on Form S-8
    (Registration No. 333-17055), is incorporated herein by
    reference.                                                                                              
|        
|         | *10-a-10 |             |  | Copy of resolution of the Board of Directors of Rockwell,
    adopted September 3, 1997, adjusting outstanding awards
    under Rockwells (i) 1988 Long-Term Incentives Plan,
    (ii) 1995 Long-Term Incentives Plan and
    (iii) Directors Stock Plan, filed as Exhibit 10-e-3 to
    Rockwells Annual Report on Form 10-K for the year
    ended September 30, 1997 (File No. 1-12383), is
    incorporated herein by reference.                                                                        
|        
|         | *10-a-11 |             |  | Copy of resolution of the Board of Directors of Rockwell,
    adopted December 2, 1998, assigning to the Company
    outstanding options to purchase shares of Company Common Stock,
    filed as Exhibit 4.f.4 to the Companys Registration
    Statement on Form S-3 (Registration No. 333-70085), is
    incorporated herein by reference.                                                                                                                                                                

93



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##### Table of Contents



|         |          |             |  |                                                                                                                                                                                                                                                                                                                                                                                                      
|-------- | -------- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibits |          | Description
|         |          |            
|        
|         | *10-a-12 |             |  | Copy of resolution of the Board of Directors of the Company,
    adopted November 30, 1998, assuming outstanding options to
    purchase shares of Company Common Stock, filed as
    Exhibit 4.f.5 to the Companys Registration Statement
    on Form S-3 (Registration No. 333-70085), is incorporated
    herein by reference.                                                                   
|         | *10-b-1  |             |  | Conexant Systems, Inc. 1999 Long-Term Incentives Plan, as
    amended, filed as Exhibit 4.7 to the Companys
    Registration Statement on Form S-8 (Registration
    No. 333-37918), is incorporated herein by reference.                                                                                                                                                                           
|        
|         | *10-b-2  |             |  | Copy of resolution of the Board of Directors of the Company,
    adopted April 20, 1999, amending the Companys 1999
    Long-Term Incentives Plan, filed as Exhibit 10-c-2 to the
    Companys Annual Report on Form 10-K for the year
    ended September 30, 1999, is incorporated herein by
    reference.                                                                                      
|        
|         | *10-b-3  |             |  | Form of Stock Option Agreement under the Companys 1999
    Long-Term Incentives Plan, filed as Exhibit 10.1 to the
    Companys Quarterly Report on Form 10-Q for the
    quarter ended March 31, 1999, is incorporated herein by
    reference.                                                                                                                                                   
|        
|         | *10-b-4  |             |  | Form of Restricted Stock Agreement (Performance Vesting) under
    the Companys 1999 Long-Term Incentives Plan, filed as
    Exhibit 10.2 to the Companys Quarterly Report on
    Form 10-Q for the quarter ended March 31, 1999, is
    incorporated herein by reference.                                                                                                                         
|        
|         | *10-b-5  |             |  | Form of Restricted Stock Agreement (Time Vesting) under the
    Companys 1999 Long-Term Incentives Plan, filed as
    Exhibit 10.3 to the Companys Quarterly Report on
    Form 10-Q for the quarter ended March 31, 1999, is
    incorporated herein by reference.                                                                                                                                
|        
|         | *10-b-6  |             |  | Memorandum of Adjustments to Outstanding Options Under the
    Conexant Stock Plans approved and adopted by the Board of
    Directors of the Company on May 9, 2002, as amended
    June 13, 2002, in connection with the Skyworks Spin, filed
    as Exhibit 10-b-9 to the Companys Annual Report on
    Form 10-K for the year ended September 30, 2002, is
    incorporated herein by reference.
|        
|         | *10-b-7  |             |  | Memorandum of Proposed Amendments to the Conexant Systems, Inc.
    Stock Option Plans adopted by the Board of Directors of the
    Company on June 13, 2002 in connection with the Skyworks
    Spin, filed as Exhibit 10-b-10 to the Companys Annual
    Report on Form 10-K for the year ended September 30,
    2002, is incorporated herein by reference.                                      
|        
|         | *10-b-8  |             |  | Memorandum of Adjustments to Outstanding Options Under the
    Conexant Stock Plans approved and adopted by the Board of
    Directors of the Company on June 5, 2003 in connection with
    the Mindspeed Spin, filed as Exhibit 10-b-11 to the
    Companys Annual Report on Form 10-K for the year
    ended September 30, 2003, is incorporated herein by
    reference.                        
|        
|         | *10-b-9  |             |  | Memorandum of Proposed Amendments to the Conexant Systems, Inc.
    Stock Option Plans adopted by the Board of Directors of the
    Company on June 5, 2003 in connection with the Mindspeed
    Spin, filed as Exhibit 10-b-12 to the Companys Annual
    Report on Form 10-K for the year ended September 30,
    2003, is incorporated herein by reference.                                      
|        
|         | *10-c-1  |             |  | Conexant Systems, Inc. Retirement Savings Plan, as amended,
    filed as Exhibit 4.5 to the Companys Registration
    Statement on Form S-8 (Registration No. 333-73142), is
    incorporated herein by reference.                                                                                                                                                                                  
|        
|         | *10-d-1  |             |  | Copy of resolutions of the Board of Directors of the Company,
    adopted August 13, 1999 amending, among other things, the
    Companys 1999 Long-Term Incentives Plan, filed as
    Exhibit 10-e-1 to the Companys Annual Report on
    Form 10-K for the year ended September 30, 1999, is
    incorporated herein by reference.                                                                
|        
|         | *10-e-1  |             |  | Conexant Systems, Inc. Directors Stock Plan, as amended, filed
    as Exhibit 4.5 to the Companys Registration Statement
    on Form S-8 (Registration No. 333-113395), is
    incorporated herein by reference.                                                                                                                                                                                    
|        
|         | *10-f-1  |             |  | Conexant Systems, Inc. 2000 Non-Qualified Stock Plan, as
    amended, filed as Exhibit (D) (2) to the Companys
    Amendment No. 2 to Schedule TO dated December 1, 2004,
    is incorporated herein by reference.                                                                                                                                                                                  

94



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##### Table of Contents



|         |         |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-------- | ------- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibits |         | Description
|         |         |            
|        
|         | *10-f-2 |             |  | Resolutions adopted by the Board of Directors of the Company on
    February 25, 2004 with respect to the use of shares
    available under certain GlobespanVirata, Inc. stock plans for
    future grants under the Conexant Systems, Inc. 2000
    Non-Qualified Stock Plan, filed as Exhibit 4.5.2 to the
    Companys Registration Statement on Form S-8
    (Registration No. 333-113595), is incorporated herein by
    reference.
|        
|         | *10-f-3 |             |  | Form of Stock Option Agreement under the Conexant Systems, Inc.
    2000 Non-Qualified Stock Plan, as amended, filed as
    Exhibit 10-f-3 to the Companys Annual Report on
    Form 10-K for the year ended September 30, 2004, is
    incorporated herein by reference.                                                                                                                                                                
|        
|         | *10-g-1 |             |  | Conexant Systems, Inc. GlobespanVirata, Inc. 1999 Equity
    Incentive Plan, as amended, filed as Exhibit 4.5.1 to the
    Companys Registration Statement on Form S-8
    (Registration No. 333-113399), is incorporated herein by
    reference.                                                                                                                                                                                       
|        
|         | *10-h-1 |             |  | Conexant Systems, Inc. GlobespanVirata, Inc. 1999 Supplemental
    Stock Option Plan, as amended, filed as Exhibit 4.5.2 to
    the Companys Registration Statement on Form S-8
    (Registration No. 333-113399), is incorporated herein by
    reference.                                                                                                                                                                              
|        
|         | *10-i-1 |             |  | Conexant Systems, Inc. Amended and Restated GlobespanVirata,
    Inc. 1999 Stock Incentive Plan, as amended, filed as
    Exhibit 4.5.3 to the Companys Registration Statement
    on Form S-8 (Registration No. 333-113399), is incorporated
    herein by reference.                                                                                                                                                                   
|        
|         | *10-j-1 |             |  | Conexant Systems, Inc. 2004 New-Hire Equity Incentive Plan,
    filed as Exhibit 99.1 to the Companys Registration
    Statement on Form S-8 (Registration No. 333-115983),
    is incorporated herein by reference.                                                                                                                                                                                                                     
|        
|         | *10-j-2 |             |  | Form of Stock Option Agreement under the Conexant Systems, Inc.
    2004 New-Hire Equity Incentive Plan, filed as
    Exhibit 10-j-2 to the Companys Annual Report on
    Form 10-K for the year ended September 30, 2004, is
    incorporated herein by reference.                                                                                                                                                                      
|        
|         | *10-k-1 |             |  | Employment Agreement dated December 15, 1998 filed as
    Exhibit 10.5 to the Companys Quarterly Report on
    Form 10-Q for the quarter ended December 31, 1998, is
    incorporated herein by reference.                                                                                                                                                                                                                               
|        
|         | *10-k-2 |             |  | Schedule identifying agreements substantially identical to the
    Employment Agreement constituting Exhibit 10-k-1 hereto
    entered into by the Company with L.C. Brewster, D.E.
    OReilly and F.M. Rhodes, filed as Exhibit 10-f-2 to
    the Companys Annual Report on Form 10-K for the year
    ended September 30, 2003, is incorporated herein by
    reference.                                                             
|        
|         | *10-k-3 |             |  | Employment Agreement dated December 15, 1998 between the
    Company and D.W. Decker, filed as Exhibit 10.7 to the
    Companys Quarterly Report on Form 10-Q for the
    quarter ended December 31, 1998, is incorporated herein by
    reference.                                                                                                                                                                                      
|        
|         | *10-k-4 |             |  | Agreement dated March 28, 2003 between the Company and B.S.
    Iyer, filed as Exhibit 10.1 to the Companys Quarterly
    Report on Form 10-Q for the quarter ended March 31,
    2003, is incorporated herein by reference.**                                                                                                                                                                                                           
|        
|         | *10-k-5 |             |  | Employment Agreement dated as of December 18, 2002 by and
    between the Company and J.S. Blouin, filed as
    Exhibit 10-f-5 to the Companys Annual Report on
    Form 10-K for the year ended September 30, 2003, is
    incorporated herein by reference.                                                                                                                                                                            
|        
|         | *10-k-6 |             |  | General Agreement dated as of September 30, 2003 by and
    between the Company and D.E. OReilly, filed as
    Exhibit 10-f-6 to the Companys Annual Report on
    Form 10-K for the year ended September 30, 2003, is
    incorporated herein by reference.                                                                                                                                                                            
|        
|         | *10-k-7 |             |  | Employment Agreement between the Company and A. Geday dated as
    of January 15, 2004, filed as Exhibit 10.b to the
    Companys Registration Statement on Form S-4
    (Registration No. 333-111179), is incorporated herein by
    reference.                                                                                                                                                                                         
|        
|         | *10-k-8 |             |  | Employment Agreement between the Company and F.M. Rhodes dated
    as of January 15, 2004, filed as Exhibit 10.c to the
    Companys Registration Statement on Form S-4
    (Registration No. 333-111179), is incorporated herein by
    reference.                                                                                                                                                                                      
|        
|         | *10-k-9 |             |  | Employment Agreement between the Company and D.E. OReilly
    dated as of January 15, 2004, filed as Exhibit 10.e to
    the Companys Registration Statement on Form S-4
    (Registration No. 333-111179), is incorporated herein by
    reference.                                                                                                                                                                                    

95



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##### Table of Contents



|         |          |             |  |                                                                                                                                                                                                                                                                                                                               
|-------- | -------- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibits |          | Description
|         |          |            
|        
|         | *10-k-10 |             |  | Amendment dated as of February 27, 2004 to Employment
    Agreement between the Company and J.S. Blouin, filed as
    Exhibit 10.1 to the Companys Quarterly Report on
    Form 10-Q for the quarter ended March 31, 2004, is
    incorporated herein by reference.                                                          
|        
|         | *10-k-11 |             |  | Employment Agreement between the Company and L.C. Brewster dated
    as of February 27, 2004, filed as Exhibit 10.2 to the
    Companys Quarterly Report on Form 10-Q for the
    quarter ended March 31, 2004, is incorporated herein by
    reference.                                                                     
|        
|         | *10-k-12 |             |  | Amendment dated November 12, 2004 between the Company and
    F.M. Rhodes to Employment Agreement dated as of January 15,
    2004 between the Company and F.M. Rhodes, filed as
    Exhibit 10 to the Companys Current Report on
    Form 8-K dated November 15, 2004, is incorporated
    herein by reference.             
|        
|         | *10-k-13 |             |  | Amended and Restated Employment Agreement by and between the
    Company and D. W. Decker, filed as Exhibit 10.1 to the
    Companys Current Report on Form 8-K dated
    March 14, 2005, is incorporated herein by reference.                                                                                               
|        
|         | *10-k-14 |             |  | D. W. Decker Performance Share Award Grant Letter and Terms and
    Conditions, filed as Exhibit 10.2 to the Companys
    Current Report on Form 8-K dated May 9, 2005, is
    incorporated herein by reference.                                                                                                             
|        
|         | *10-k-15 |             |  | Separation Agreement by and between the Company and A. Geday,
    filed as Exhibit 10.1 to the Companys Current Report
    on Form 8-K dated December 22, 2004, is incorporated
    herein by reference.                                                                                                                     
|        
|         | *10-l-1  |             |  | Conexant Systems, Inc. 2001 Performance Share Plan and related
    Performance Share Award Terms and Conditions, filed as
    Exhibit 99.1 to the Companys Registration Statement
    on Form S-8 (Registration Statement No. 333-73858), is
    incorporated herein by reference.                                           
|        
|         | 10-m-1   |             |  | Contribution and Distribution Agreement dated as of
    December 16, 2001, as amended as of June 25, 2002, by
    and between the Company and Washington Sub, Inc. (excluding
    schedules) filed as Exhibit 2.2 to the Companys
    Current Report on Form 8-K dated July 1, 2002, is
    incorporated herein by reference.
|        
|         | 10-m-2   |             |  | Employee Matters Agreement dated as of June 25, 2002 by and
    among the Company, Washington Sub, Inc. and Alpha Industries,
    Inc. (excluding schedules) filed as Exhibit 2.3 to the
    Companys Current Report on Form 8-K dated
    July 1, 2002, is incorporated herein by reference.                                
|        
|         | 10-m-3   |             |  | Tax Allocation Agreement dated as of June 25, 2002 by and
    among the Company, Washington Sub, Inc. and Alpha Industries,
    Inc. (excluding schedules) filed as Exhibit 2.4 to the
    Companys Current Report on Form 8-K dated
    July 1, 2002, is incorporated herein by reference.                                  
|        
|         | 10-n-1   |             |  | Distribution Agreement dated as of June 25, 2003, by and
    between the Company and Mindspeed Technologies, Inc. (excluding
    schedules) filed as Exhibit 2.1 to the Companys
    Current Report on Form 8-K dated July 1, 2003, is
    incorporated herein by reference.                                                 
|        
|         | 10-n-2   |             |  | Employee Matters Agreement dated as of June 27, 2003 by and
    between the Company and Mindspeed Technologies, Inc. (excluding
    schedules) filed as Exhibit 2.2 to the Companys
    Current Report on Form 8-K dated July 1, 2003, is
    incorporated herein by reference.                                              
|        
|         | 10-n-3   |             |  | Tax Allocation Agreement dated as of June 27, 2003 by and
    between the Company and Mindspeed Technologies, Inc. (excluding
    schedules) filed as Exhibit 2.3 to the Companys
    Current Report on Form 8-K dated July 1, 2003, is
    incorporated herein by reference.                                                
|        
|         | 10-o-1   |             |  | Capacity & Reservation Deposit Agreement dated as of
    March 20, 2000 by and between the Company and UMC Group
    (USA), filed as Exhibit 10-k-1 to the Companys Annual
    Report on Form 10-K for the year ended September 30,
    2002, is incorporated herein by reference.**                                         
|        
|         | 10-o-2   |             |  | Amendment No. 1 to Capacity & Reservation Deposit
    Agreement dated as of March 24, 2000 between the Company
    and UMC Group (USA), filed as Exhibit 10-k-2 to the
    Companys Annual Report on Form 10-K for the year
    ended September 30, 2002, is incorporated herein by
    reference.                           
|        
|         | 10-o-3   |             |  | Amendment No. 2 to Capacity & Reservation Deposit
    Agreement dated as of August 1, 2000 between the Company
    and UMC Group (USA), filed as Exhibit 10-k-3 to the
    Companys Annual Report on Form 10-K for the year
    ended September 30, 2002, is incorporated herein by
    reference.**                         

96



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##### Table of Contents



|         |         |             |  |                                                                                                                                                                                                                                                                                                       
|-------- | ------- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibits |         | Description
|         |         |            
|        
|         | 10-o-4  |             |  | Amendment No. 3 to Capacity & Reservation Deposit
    Agreement dated as of May 17, 2001 between the Company and
    UMC Group (USA), filed as Exhibit 10-k-4 to the
    Companys Annual Report on Form 10-K for the year
    ended September 30, 2002, is incorporated herein by
    reference.**   
|        
|         | 10-o-5  |             |  | Amendment No. 4 to Capacity & Reservation Deposit
    Agreement dated as of August 24, 2001 between the Company
    and UMC Group (USA), filed as Exhibit 10-k-5 to the
    Companys Annual Report on Form 10-K for the year
    ended September 30, 2002, is incorporated herein by
    reference.**
|        
|         | 10-o-6  |             |  | Foundry Agreement dated as of July 27, 2000 by and between
    the Company and UMC Group (USA), filed as Exhibit 10-k-6 to
    the Companys Annual Report on Form 10-K for the year
    ended September 30, 2002, is incorporated herein by
    reference.**                                         
|        
|         | *10-p-1 |             |  | Form of Indemnity Agreement between the Company and the
    directors and certain executives of the Company, filed as
    Exhibit 10-q-1 to the Companys Annual Report on
    Form 10-K for the year ended September 30, 2004, is
    incorporated herein by reference.                              
|        
|         | *10-p-2 |             |  | Schedule identifying agreements substantially identical to the
    Form of Indemnity Agreement constituting Exhibit 10-p-1
    hereto entered into by the Company and the directors and certain
    executives of the Company.                                                                        
|        
|         | *10-q-1 |             |  | Summary of Non-Employee Director Compensation and Benefits,
    filed as Exhibit 99 to the Companys Quarterly Report
    on Form 10-Q for the quarter ended December 31, 2004,
    is incorporated herein by reference.                                                                              
|        
|         | 10-r-1  |             |  | 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 dated December 1, 2005.                                                                                
|        
|         | 10-r-2  |             |  | 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 dated
    December 1, 2005.                                                     
|        
|         | 10-r-3  |             |  | 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 dated December 1, 2005.                                                                                           
|        
|         | 21      |             |  | List of Subsidiaries of the Company.                                                                                                                                                                                                                                                                  
|        
|         | 23      |             |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                             
|        
|         | 24      |             |  | Power of Attorney authorizing certain persons to sign this
    Annual Report on Form 10-K on behalf of certain directors
    and officers of the Company.                                                                                                                                             
|        
|         | 31.1    |             |  | Certification of Chief Executive Officer of Periodic Report
    Pursuant to Rule 13a-15(e) or Rule 15d-15(e).                                                                                                                                                                                         
|        
|         | 31.2    |             |  | Certification of Chief Financial Officer of Periodic Report
    Pursuant to Rule 13a-15(e) or Rule 15d-15(e).                                                                                                                                                                                         
|        
|         | 32      |             |  | Certification by Chief Executive Officer and Chief Financial
    Officer of Periodic Report Pursuant to 18 U.S.C.
    Section 1350.                                                                                                                                                                   






| |   |                                                         
| | - | --------------------------------------------------------
| | * | Management contract or compensatory plan or arrangement.



|   |                                                                                                                                                                                                                       
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|** | Certain confidential portions of this Exhibit have been omitted
    pursuant to a request for confidential treatment. Omitted
    portions have been filed separately with the Securities and
    Exchange Commission.

Exhibits




Financial Statement Schedules




97



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##### Table of Contents






SIGNATURES






| |                       
| | ----------------------
| | CONEXANT SYSTEMS, INC.



| |     |                     
| | --- | --------------------
| | By: | /s/ Dwight W. Decker

| |                                                  
| | -------------------------------------------------
| |                                                  
| | Dwight W. Decker                                 
| | Chairman of the Board and Chief Executive Officer



|                                                      |  |                                                                                                    |  | 
|----------------------------------------------------- |  | -------------------------------------------------------------------------------------------------- |  | 
|Signature                                             |  | Title                                                                                             
|                                                      |  |                                                                                                   
|                                                     
|/s/ Dwight W. DeckerDwight
    W. Decker              |  | Chairman of the Board and Chief Executive Officer (Principal
    Executive Officer)               
|                                                     
|/s/ J. Scott Blouin*J.
    Scott Blouin               |  | Senior Vice President and Chief Financial Officer (Principal
    Financial and Accounting Officer)
|                                                     
|/s/ Donald R. Beall*Donald
    R. Beall               |  | Director                                                                                          
|                                                     
|/s/ Steven J. Bilodeau*Steven
    J. Bilodeau         |  | Director                                                                                          
|                                                     
|/s/ Dipanjan Deb*Dipanjan
    Deb                     |  | Director                                                                                          
|                                                     
|/s/ F. Craig FarrillF.
    Craig Farrill              |  | Director                                                                                          
|                                                     
|/s/ Balakrishnan S.
    Iyer*Balakrishnan
    S. Iyer |  | Director                                                                                          
|                                                     
|/s/ John W. Marren*John
    W. Marren                 |  | Director                                                                                          
|                                                     
|/s/ D. Scott Mercer*D.
    Scott Mercer               |  | Director                                                                                          
|                                                     
|/s/ Jerre L. Stead*Jerre
    L. Stead                 |  | Director                                                                                          
|                                                     
|/s/ Giuseppe Zocco*Giuseppe
    Zocco                 |  | Director                                                                                          






|       |                       
|------ | ----------------------
|*  By: | /s/ Dennis E. OReilly










|   |                                                                     
|-- | --------------------------------------------------------------------
|** | By authority of the power of attorney filed as Exhibit 24
    hereto

98



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##### Table of Contents



SCHEDULE II





VALUATION AND QUALIFYING ACCOUNTS


|                               |                                                   |                |   |           |            |  |   |               |      |            |             |         |   |  |   |        | 
|------------------------------ | ------------------------------------------------- | -------------- | - | --------- | ---------- |  | - | ------------- | ---- | ---------- | ----------- | ------- | - |  | - | ------ | 
|                               |                                                   |                |   | Additions |            |  |   |               |     
|                               |                                                   | Balance at     |   |           | Charged to |  |   |               |      |           
|                               |                                                   | Beginning      |   |           | Costs and  |  |   |               |      | Balance at |            
|Description                    |                                                   | of Year        |   |           | Expenses   |  |   | Deductions(1) |      |            | End of Year |        
|                               |                                                   |                |   |           |            |  |   |               |      |            |             |        
|                               |                                                   | (In thousands) |  
|Year ended September 30, 2005: |                                                   |                |   |           |            |  |   |               |      |            |             |         |   |  |   |       
|                               | Allowance for doubtful accounts                   |                | $ | 5,974     |            |  | $ | (1,587        | )    |            | $           | (584    | ) |  | $ | 3,803  | 
|                               | Reserve for sales returns and allowances          |                |   | 9,474     |            |  |   | 24,179        |      |            |             | (27,864 | ) |  |   | 5,789  | 
|                               | Allowance for excess and obsolete inventories     |                |   | 23,319    |            |  |   | 35,944        |      |            |             | (14,430 | ) |  |   | 44,833 | 
|                               | Allowance for lower of cost or market inventories |                |   |          |            |  |   | 20,179        |      |            |             | (13,440 | ) |  |   | 6,739  | 
|Year ended September 30, 2004: |                                                   |                |   |           |            |  |   |               |      |            |             |         |   |  |   |       
|                               | Allowance for doubtful accounts                   |                | $ | 1,547     |            |  | $ | 4,475         |      |            | $           | (48     | ) |  | $ | 5,974  | 
|                               | Reserve for sales returns and allowances          |                |   | 1,891     |            |  |   | 14,504        |      |            |             | (6,921  | ) |  |   | 9,474  | 
|                               | Allowance for excess and obsolete inventories     |                |   | 25,177    |            |  |   | 11,586        |      |            |             | (13,444 | ) |  |   | 23,319 | 
|Year ended September 30, 2003: |                                                   |                |   |           |            |  |   |               |      |            |             |         |   |  |   |       
|                               | Allowance for doubtful accounts                   |                | $ | 6,508     |            |  | $ | (3,958        | )(2) |            | $           | (1,003  | ) |  | $ | 1,547  | 
|                               | Reserve for sales returns and allowances          |                |   | 2,660     |            |  |   | 3,636         |      |            |             | (4,405  | ) |  |   | 1,891  | 
|                               | Allowance for excess and obsolete inventories     |                |   | 23,401    |            |  |   | 14,451        |      |            |             | (12,675 | ) |  |   | 25,177 | 






|    |                                                                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Deductions in the allowance for doubtful accounts reflect
    amounts written off.                                                                                                                                                                                                         
|   
|(2) | Additions charged to costs and expenses in the allowance for
    doubtful accounts reflect a credit balance recorded in fiscal
    2003 resulting from reductions in the allowance account
    associated with overall collections experience more favorable
    than previously estimated.

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##### Table of Contents






EXHIBIT INDEX


|         |         |             |  |                                                                                                                                                                                                                               
|-------- | ------- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibits |         | Description
|         |         |            
|         | *10-p-2 |             |  | Schedule identifying agreements substantially identical to the
    Form of Indemnity Agreement constituting Exhibit 10-p-1
    hereto entered into by the Company and the directors and certain
    executives of the Company.
|        
|         | 21      |             |  | List of Subsidiaries of the Company.                                                                                                                                                                                          
|        
|         | 23      |             |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                     
|        
|         | 24      |             |  | Power of Attorney authorizing certain persons to sign this
    Annual Report on Form 10-K on behalf of certain directors
    and officers of the Company.                                                                     
|        
|         | 31.1    |             |  | Certification of Chief Executive Officer of Periodic Report
    Pursuant to Rule 13a-15(e) or Rule 15d-15(e).                                                                                                                 
|        
|         | 31.2    |             |  | Certification of Chief Financial Officer of Periodic Report
    Pursuant to Rule 13a-15(e) or Rule 15d-15(e).                                                                                                                 
|        
|         | 32      |             |  | Certification by Chief Executive Officer and Chief Financial
    Officer of Periodic Report Pursuant to 18 U.S.C.
    Section 1350.                                                                                           






|  |                                                         
|- | --------------------------------------------------------
|* | Management contract or compensatory plan or arrangement.

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