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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 29, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number: 000-24923
 CONEXANT SYSTEMS, INC.
  Delaware
(State of incorporation)
    
    25-1799439
(I.R.S. Employer Identification No.)4000 MacArthur Boulevard 
Newport Beach, California
(Address of principal executive offices)
    
    92660-3095
(Zip code)
   Title of each class:
    
    Name of each exchange on which registered:Common Stock, $0.01 Par Value Per Share
(including associated Preferred Share Purchase Rights)
    
    The Nasdaq Stock Market, LLC
  þ o
 o þ
 þ o
 þ
  þ o o
 o þ
  Documents Incorporated by Reference




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




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##### 



CONEXANT SYSTEMS, INC.
 TABLE OF CONTENTS
 PAGEPART IItem 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    15Item 1B.
    
    Unresolved Staff Comments
    
    
    25Item 2.
    
    Properties
    
    
    25Item 3.
    
    Legal Proceedings
    
    
    26Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    27PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
    
    
    28Item 6.
    
    Selected Financial Data
    
    
    29Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    31Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    48Item 8.
    
    Financial Statements and Supplementary Data
    
    
    49Item 9.
    
    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    93Item 9A.
    
    Controls and Procedures
    
    
    93Item 9B.
    
    Other Information
    
    
    95PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    96Item 11.
    
    Executive Compensation
    
    
    96Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
    
    
    96Item 13.
    
    Certain Relationships and Related Transactions
    
    
    96Item 14.
    
    Principal Accounting Fees and Services
    
    
    96PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    97EXHIBIT 10.K-2EXHIBIT 10.P-2EXHIBIT 10.Q-1EXHIBIT 10.R-4EXHIBIT 21EXHIBIT 23EXHIBIT 24EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
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PART I
 
 Item 1. Business
 General
    
    
    On February 27, 2004, we completed our merger with GlobespanVirata, Inc.
(GlobespanVirata) with GlobespanVirata becoming a wholly-owned subsidiary of Conexant
Systems, Inc. In exchange for 100% of the outstanding shares of common stock of
GlobespanVirata (approximately 150.7 million shares), we issued 1.198 shares of Conexant
common stock for each share of GlobespanVirata common stock outstanding (or approximately
180.6 million shares of Conexant common stock) and each outstanding option and warrant to
purchase GlobespanVirata common stock was adjusted and converted into an option or warrant
to purchase Conexant common stock-based on the 1.198 merger ratio (or approximately 43.6
million options and warrants to purchase shares of Conexant common stock). In May 2004, the
GlobespanVirata, Inc. subsidiary was renamed Conexant, Inc., and hereinafter will be
referred to as Conexant, Inc.
    
    On June 27, 2003, we completed the distribution to our
shareholders of all outstanding shares of our wholly owned subsidiary Mindspeed Technologies, Inc. (Mindspeed), to which we
contributed our Internet infrastructure business, including the stock of certain
subsidiaries, and certain other assets and liabilities, including $100.0 million in cash.
In the Mindspeed spin-off, Conexant shareholders received one share of Mindspeed common
stock for every three Conexant shares held and the Conexant shareholders continued to hold
their Conexant shares. Mindspeed issued us a warrant to purchase 30 million shares of
Mindspeed common stock, representing approximately 20 percent of Mindspeeds outstanding
common stock on a diluted basis. The warrant is exercisable until June 27, 2013 at an
exercise price of $3.408 per share. The fair value of the warrant is recorded as an asset
on our consolidated balance sheet. Additionally, we entered into a senior secured
revolving credit facility pursuant to which Mindspeed could have borrowed up to $50.0
million, subject to certain restrictions, for working capital and general corporate
purposes. In December 2004, the Mindspeed credit facility was terminated.
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
    
    On June 25, 2002, we completed the distribution to our shareholders of all outstanding
shares of our wholly-owned subsidiary Washington Sub, Inc. (Washington), to which we
contributed our wireless communications business, other than certain assets and liabilities
which we retained. Immediately thereafter, Washington merged with and into Alpha
Industries, Inc. (Alpha), with Alpha the surviving corporation. As a result of these
transactions, Conexant shareholders received 0.351 of a share of Alpha common stock for each
Conexant share held and the Conexant shareholders continued to hold their Conexant shares.
Upon completion of these events, Alpha and its subsidiaries purchased our semiconductor
assembly and test facility located in Mexicali, Mexico and our package design team that
supports the Mexicali facility (together, the Mexicali Operations) for $150.0 million.
Effective June 26, 2002, Alpha changed its name to Skyworks Solutions, Inc. (Skyworks).
    
    In March 2002, we and The Carlyle Group formed a new specialty foundry company named
Jazz Semiconductor, Inc. (Jazz). We contributed our Newport Beach, California wafer
fabrication operations and related assets and liabilities and certain intellectual property
to Jazz in exchange for $19.3 million in cash and a 45% equity interest in Jazz, having an
estimated fair value of $42.5 million. In fiscal 2003, another party made an additional
investment in Jazz thereby reducing our equity interest to 38%. In fiscal 2006, we and Jazz
entered into a wafer supply termination agreement in which both parties agreed to terminate
the wafer supply and services agreement. In connection with the termination agreement, Jazz
issued additional shares to us, which increased our equity interest to 42%. On September
26, 2006, Jazz entered into a merger agreement with Acquicor Technology Inc. (Acquicor)
pursuant to which we expect to receive upon completion of the merger cash proceeds of
approximately $100.0 million for our ownership interests in Jazz, subject to adjustment
based on Jazzs working capital and possible future contingent payments. However,
completion of the merger is subject to certain conditions precedent and there can be no
assurance that the merger will be completed. In addition, we and the other current Jazz
stockholders have agreed to provide Acquicor with financing in an aggregate amount of up to
$80.0 million, in proportion to each stockholders equity interest in Jazz, to fund, under
certain circumstances, a shortfall in Acquicors financing for the merger.
  Strategy
  
    
    Employ a market-focused business model, targeting broadband digital home applications,
allowing us to concentrate our resources on high-growth, high-margin targeted markets;
    
    Expand strategic relationships with industry-leading communications OEMs and maximize
design win share;
    
    Take advantage of engineering talent in low-cost regions to enhance the value of our
research and development deployments;
    
    Capitalize on the breadth of our product portfolio and depth of our engineering talent
to create complete system solutions that provide enhanced functionality and accelerate the
convergence of communications applications;
    
    Operate as a fabless company, which allows us to focus our resources on designing,
developing and marketing our products, while minimizing operating infrastructure costs and
capital expenditures;
    
    Enter target markets with standards-based systems solutions, enhancing market acceptance
and enabling product interoperability for end-users; and
    
    Monetize our non-core assets, principally our equity investments in Jazz, which is
expected to occur in the first quarter of calendar 2007, and Mindspeed, as well as our real
estate holdings in Newport Beach, California, at appropriate times to capture the value of
these assets. We expect to use the proceeds from the sale of these non-core assets to pay
down our indebtedness.
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Market Focused Product Lines
  Broadband Access Products
    TM TM
   5




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Broadband Media Processing Products
    Set-top Box Products
   6




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7




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Convergence Video Products
    Universal Access Products
     8




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Wireless Networking Products
   ®
  
    
    embedded WLAN opportunities in cellular phones and other handheld appliances;
    
    converged wireless gateway platforms including either DSL or cable as the broadband
access technology; and
    
    yet-to-be-released 802.11n next generation technology.
    9




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Research and Development
    Manufacturing
    10




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Social and Environmental Responsibility
       Quality and Reliability
    
    
    determine the quality, reliability and performance objectives for new products;
    
    provide program/project management, resource identification and facilities;
    
    ensure verification and validation activities;
    
    provide criteria for acceptability; and
    
    clearly define records that are necessary to provide confidence of conformity of the
processes and resulting product.
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Customers, Marketing and Sales
    Fiscal Year Ended2006
    
    2005
    
    2004Americas
    
    
    10
    %
    
    
    12
    %
    
    
    11
    %Asia-Pacific
    
    
    82
    %
    
    
    80
    %
    
    
    80
    %Europe, Middle East and Africa
    
    
    8
    %
    
    
    8
    %
    
    
    9
    %100
    %
    
    
    100
    %
    
    
    100
    %
   Backlog
  Competition
  12




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Intellectual Property and Proprietary Rights
  Environmental Regulation
   Cyclicality; Seasonality; Possible Significant Downturns
   Employees
  13




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Executive Officers
  Name
    
    Age
    
    PositionDwight W. Decker
    
    
    56
    
    
    Chairman of the Board and Chief Executive OfficerLewis C. Brewster
    
    
    42
    
    
    Executive Vice President and Chief Operating Officer
and General ManagerBroadband Media ProcessingJ. Scott Blouin
    
    
    56
    
    
    Senior Vice President and Chief Financial OfficerDennis E. OReilly
    
    
    62
    
    
    Senior Vice President, Chief Legal Officer and Secretary
      Available Information
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Item 1A. Risk Factors
   We operate in the highly cyclical semiconductor industry, which is subject to significant downturns
that may negatively impact our business, financial condition and results of operations.
  Our operating results may be negatively affected by substantial quarterly and annual fluctuations
and market downturns.
  
    
    changes in end-user demand for the products manufactured and sold by our customers;
    
    the timing of receipt, reduction or cancellation of significant orders by customers;
    
    seasonal customer demand;
    
    the gain or loss of significant customers;
    
    market acceptance of our products and our customers products;
    
    our ability to develop, introduce and market new products and technologies on a timely basis;
    
    the timing and extent of product development costs;
    
    new product and technology introductions by competitors;
    
    changes in the mix of products we develop and sell;
    
    fluctuations in manufacturing yields;
    
    availability and cost of products from our suppliers;
    
    intellectual property disputes; and
    
    the effects of competitive pricing pressures, including decreases in average selling
prices of our products.
  We face a risk that capital needed for our business and to repay our debt obligations will not be
available when we need it.
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We may be subject to claims of infringement of third-party intellectual property rights or demands
that we license third-party technology, which could result in significant expense and loss of our
ability to use, make, sell, export or import our products or one or more components comprising our
products.
  
    
    pay substantial damages;
    
    cease the manufacture, use or sale of infringing products, processes or technologies;
    
    discontinue the use of infringing technology;
    
    expend significant resources to develop non-infringing technology; or
    
    license technology from the third party claiming infringement, which license may not be
available on commercially reasonable terms, or at all.
 The value of our common stock may be adversely affected by market volatility.
  
    
    our operating and financial performance and prospects;
    
    our ability to repay our debt;
    
    the depth and liquidity of the market for our common stock;
    
    investor perception of us and the industry and markets in which we operate;
    
    our inclusion in, or removal from, any equity market indices;
    
    the level of research coverage of our common stock;
    
    changes in earnings estimates or buy/sell recommendations by analysts;
    
    general financial, domestic, international, economic and other market conditions; and
    
    judgments favorable or adverse to us.
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We have recently incurred substantial losses and we anticipate additional future losses.
  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.
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The loss of a key customer could seriously impact our revenue levels and harm our business. In
addition, if we are unable to continue to sell existing and new products to our key customers in
significant quantities or to attract new significant customers, our future operating results could
be adversely affected.
   
    
    most of our customers can stop incorporating our products into their own products with
limited notice to us and suffer little or no penalty;
    
    our agreements with our customers typically do not require them to purchase a minimum
quantity of our products;
    
    many of our customers have pre-existing or concurrent relationships with our current or
potential competitors that may affect the customers decisions to purchase our products;
    
    our customers face intense competition from other manufacturers that do not use our products; and
    
    some of our customers offer or may offer products that compete with our products.
  Our success depends on our ability to timely develop competitive new products and reduce costs.
  
    
    our ability to anticipate customer and market requirements and changes in technology and
industry standards;
    
    our ability to accurately define new products;
    
    our ability to timely complete development of new products and bring our products to
market on a timely basis;
    
    our ability to differentiate our products from offerings of our competitors;
    
    overall market acceptance of our products;
    
    our ability to invest in significant amounts of research and development; and
    
    our ability to transition product development efforts between and among our sites,
particularly in India and China.
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We 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 us and our
subsidiaries which are subject to review by taxing authorities; and
    
    limitations on our ability under local laws to protect our intellectual property.
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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.
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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.
    21




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We may experience difficulties in transitioning to smaller geometry process technologies or in
achieving higher levels of design integration, which may result in reduced manufacturing yields,
delays in product deliveries, increased expenses and loss of design wins to our competitors.
  If we are not successful in protecting our intellectual property rights, it may harm our ability to
compete.
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
    
    the steps we take to prevent misappropriation or infringement of our intellectual
property or the intellectual property of our customers will be successful;
    
    any existing or future patents will not be challenged, invalidated or circumvented; or
    
    any of the measures described above would provide meaningful protection.
  Uncertainties involving litigation could adversely affect our business.
  Our success depends, in part, on our ability to effect suitable investments, alliances and
acquisitions.
   
    
    large initial one-time write-offs of in-process research and development;
    
    the incurrence of substantial debt and assumption of unknown liabilities;
    
    the potential loss of key employees from the acquired company;
    
    amortization expenses related to intangible assets; and
    
    the diversion of managements attention from other business concerns.
  We have significant goodwill and intangible assets, and future impairment of our goodwill and
intangible assets could have a material negative impact on our financial condition and results of
operations.
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We may be liable for penalties under environmental laws, rules and regulations, which could
adversely impact our business.
   We may be limited in the future in the amount of net operating losses that we can use to offset
taxable income.
  Provisions in our organizational documents and rights agreement and Delaware law may make it
difficult for someone to acquire control of us.
  24




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
    
    the division of our board of directors into three classes to be elected on a staggered
basis, one class each year;
    
    the ability of our board of directors to issue shares of our preferred stock in one or
more series without further authorization of our shareholders;
    
    a prohibition on shareholder action by written consent;
    
    a requirement that shareholders provide advance notice of any shareholder nominations of
directors or any proposal of new business to be considered at any meeting of shareholders;
    
    a requirement that a supermajority vote be obtained to remove a director for cause or to
amend or repeal certain provisions of our restated certificate of incorporation or by-laws;
    
    elimination of the right of shareholders to call a special meeting of shareholders; and
    
    a fair price provision.
   
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
  Leased Square
    
    Owned SquareFootage
    
    Footage
    
    TotalUnited States:Newport Beach, California
    
    
    197
    
    
    
    67
    
    
    
    264San Diego, California
    
    
    160
    
    
    
    
    
    
    
    160Red Bank, New Jersey
    
    
    100
    
    
    
    
    
    
    
    100Melbourne, Florida
    
    
    42
    
    
    
    
    
    
    
    42Other
    
    
    56
    
    
    
    
    
    
    
    56555
    
    
    
    67
    
    
    
    622India:Noida
    
    
    100
    
    
    
    23
    
    
    
    123Hyderabad
    
    
    60
    
    
    
    
    
    
    
    60Pune
    
    
    27
    
    
    
    
    
    
    
    27Bangalore
    
    
    26
    
    
    
    
    
    
    
    26213
    
    
    
    23
    
    
    
    236China
    
    
    83
    
    
    
    
    
    
    
    83Other Asia
    
    
    43
    
    
    
    
    
    
    
    43Europe
    
    
    37
    
    
    
    
    
    
    
    37931
    
    
    
    90
    
    
    
    1,021
 25




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Item 3. Legal Proceedings
 IPO Litigation 
 Class Action Suits  Witriol
v. Conexant, et al. (Witriol)
 26




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Graden v. Conexant, et al.
 Shareholder Derivative Suits Witriol Witriol
 
 Item 4. Submission of Matters to a Vote of Security Holders
  27




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PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
  High
    
    LowFiscal year ended September 29, 2006:Fourth quarter
    
    $
    2.47
    
    
    $
    1.60Third quarter
    
    
    3.90
    
    
    
    2.14Second quarter
    
    
    3.60
    
    
    
    2.28First quarter
    
    
    2.72
    
    
    
    1.70Fiscal year ended September 30, 2005:Fourth quarter
    
    $
    2.17
    
    
    $
    1.57Third quarter
    
    
    1.75
    
    
    
    0.95Second quarter
    
    
    2.05
    
    
    
    1.36First quarter
    
    
    2.23
    
    
    
    1.50
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Item 6. Selected Financial Data
   Fiscal Year Ended2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002(in thousands, except per share amounts)Statement of Operations Data:Net revenues
    
    $
    970,787
    
    
    $
    722,739
    
    
    $
    901,854
    
    
    $
    599,977
    
    
    $
    521,726Cost of goods sold (1)(2)
    
    
    542,309
    
    
    
    493,973
    
    
    
    523,129
    
    
    
    338,161
    
    
    
    317,921Gain on cancellation of supply agreement (3)
    
    
    (17,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gross margin
    
    
    445,978
    
    
    
    228,766
    
    
    
    378,725
    
    
    
    261,816
    
    
    
    203,805Operating expenses:Research and development (2)
    
    
    269,736
    
    
    
    267,996
    
    
    
    239,971
    
    
    
    159,354
    
    
    
    156,350Selling, general and administrative (2)
    
    
    131,226
    
    
    
    117,861
    
    
    
    125,474
    
    
    
    93,426
    
    
    
    95,750Amortization of intangible assets
    
    
    30,705
    
    
    
    32,322
    
    
    
    20,769
    
    
    
    3,437
    
    
    
    19,489In-process research and development (4)
    
    
    
    
    
    
    
    
    
    
    160,818
    
    
    
    
    
    
    
    Special charges
    
    
    73,244
    
    
    
    45,977
    
    
    
    32,801
    
    
    
    18,379
    
    
    
    30,499Total operating expenses
    
    
    504,911
    
    
    
    464,156
    
    
    
    579,833
    
    
    
    274,596
    
    
    
    302,088Operating loss
    
    
    (58,933
    )
    
    
    (235,390
    )
    
    
    (201,108
    )
    
    
    (12,780
    )
    
    
    (98,283
    )Interest expense
    
    
    38,130
    
    
    
    33,691
    
    
    
    30,708
    
    
    
    28,120
    
    
    
    31,069Other expense (income), net
    
    
    22,636
    
    
    
    (95,413
    )
    
    
    69,100
    
    
    
    (22,312
    )
    
    
    5,801Debt conversion costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,435Gain on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42,021
    )
    
    
    Income (loss) before income taxes
    
    
    (119,699
    )
    
    
    (173,668
    )
    
    
    (300,916
    )
    
    
    23,433
    
    
    
    (145,588
    )Provision (benefit) for income taxes (5)
    
    
    2,892
    
    
    
    2,322
    
    
    
    243,733
    
    
    
    (129
    )
    
    
    (1,838
    )Income (loss) from continuing operations
    
    
    (122,591
    )
    
    
    (175,990
    )
    
    
    (544,649
    )
    
    
    23,562
    
    
    
    (143,750
    )Loss from discontinued operations (6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (728,877
    )
    
    
    (737,017
    )Net loss
    
    $
    (122,591
    )
    
    $
    (175,990
    )
    
    $
    (544,649
    )
    
    $
    (705,315
    )
    
    $
    (880,767
    )Income (loss) from continuing operations per share  basic and
diluted
    
    $
    (0.26
    )
    
    $
    (0.37
    )
    
    $
    (1.40
    )
    
    $
    0.09
    
    
    $
    (0.56
    )Balance
Sheet Data at Fiscal Year End:Working capital (7)
    
    $
    127,635
    
    
    $
    142,796
    
    
    $
    444,272
    
    
    $
    239,009
    
    
    $
    452,499Total assets
    
    
    1,573,625
    
    
    
    1,581,524
    
    
    
    1,880,522
    
    
    
    931,707
    
    
    
    1,911,035Short-term debt
    
    
    80,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Current portion of long-term debt (8)
    
    
    188,375
    
    
    
    196,825
    
    
    
    
    
    
    
    
    
    
    
    Long-term obligations (8)
    
    
    601,189
    
    
    
    615,947
    
    
    
    790,178
    
    
    
    649,252
    
    
    
    752,074Shareholders equity
    
    
    510,098
    
    
    
    569,093
    
    
    
    828,387
    
    
    
    166,766
    
    
    
    947,827
 
 (1)
    
    In fiscal 2005, in response to lower market prices and reduced end-customer demand for our
products, we recorded $44.1 million of inventory charges to establish additional excess and
obsolete inventory reserves and lower of cost or market inventory reserves. 29




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##### Table of Contents



(2)
    
    We adopted Statement of Financial Accounting Standards (SFAS) No. 123(R), Share Based
Payment, on October 1, 2005. As a result, stock-based compensation expense included within
cost of goods sold, research and development expense, and selling, general and administrative
expense in fiscal 2006 is based on the fair value of all stock options and employee stock
purchase plan shares. Stock-based compensation expense for earlier periods is based on the
intrinsic value of acquired or exchanged unvested stock options in business combinations,
which is in accordance with previous accounting standards. Stock-based compensation expense
included in our consolidated statements of operations was $44.9 million, $12.1 million, $7.1
million, $1.7 million and $(2.1) million in fiscal 2006, 2005, 2004, 2003 and 2002,
respectively.(3)
    
    In fiscal 2006, Conexant and Jazz Semiconductor, Inc. (Jazz) terminated a wafer supply and
services agreement. In lieu of credits towards future purchases of product from Jazz, we
received additional shares of Jazz common stock and recorded a gain of $17.5 million.(4)
    
    In fiscal 2004, we recorded $160.8 million of in-process research and development expenses
related to the merger with GlobespanVirata, Inc.(5)
    
    In fiscal 2004, we recorded a $255.7 million charge for the impairment of deferred tax
assets.(6)
    
    In fiscal 2003 and 2002, the loss from discontinued operations (net of income taxes)
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.(7)
    
    Working capital is defined as current assets minus current liabilities.Beginning in March 2006, we consider our available-for-sale portfolio as available for use in
our current operations. Accordingly, from that date we have classified all marketable
securities as short-term, even though the stated maturity dates may be more than one year
beyond the current balance sheet date. Prior to March 2006, short-term marketable securities
consisted of debt securities with remaining maturity dates of one year or less and equity
securities of publicly-traded companies, and long-term marketable securities consisted of debt
securities with remaining maturity dates of greater than one year. For periods prior to March
2006, long-term marketable securities are excluded from the calculation of working capital.Beginning in March 2006, we reclassified the long-term portion of our restructuring accruals,
principally consisting of future rental commitments under operating leases, from current
liabilities to other long-term liabilities on our consolidated balance sheet. The long-term
portion of restructuring accruals for all prior periods have been similarly reclassified.
These reclassifications did not affect our total assets, total liabilities, total
shareholders equity, results of operations or cash flows and did not have a material impact
on current liabilities, long-term liabilities or the calculation of working capital for any
period presented.In November 2006, we issued $275.0 million aggregate principal amount of floating rate senior
secured notes due November 2010. Proceeds from this issuance, net of fees, were
approximately $268.1 million. We intend to use the net proceeds of this offering, together
with available cash, cash equivalents and marketable securities on hand, to repay at maturity
or otherwise retire our outstanding $456.5 million aggregate principal amount of convertible
subordinated notes due February 2007. Because the net proceeds from this offering will be
used to repay at maturity a portion of the convertible subordinated notes due February 2007,
$268.1 million of the $456.5 million convertible subordinated notes has been reclassified as
long-term debt on our consolidated balance sheet as of September 29, 2006, in accordance with
SFAS No. 6, Classification of Short-Term Obligations Expected to Be Refinanced.(8)
    
    As discussed in Note 7 above, $268.1 million of the $456.5 million convertible subordinated
notes due February 2007 has been reclassified as long-term debt on our consolidated balance
sheet as of September 29, 2006, in accordance with SFAS No. 6, Classification of Short-Term
Obligations Expected to Be Refinanced. 30




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 You should read the following discussion and analysis in conjunction with our Consolidated
Financial Statements and related Notes thereto included in Part II, Item 8 of this Report and the
Risk Factors included in Part I, Item 1A of this report, as well as other cautionary statements and
risks described elsewhere in this report
 Overview
    Business Enterprise Segments
   
    
    the nature of products and services;
    
    the nature of the production processes;
    
    the type or class of customer for their products and services; and
    
    the methods used to distribute their products or provide their services.
  
    
    the sale of semiconductor products is the only material source of revenue for each of
our four operating segments;
    
    the products sold by each of our operating segments use the same standard manufacturing process;
    
    the products marketed by each of our operating segments are sold to similar customers; and
    
    all of our products are sold through our internal sales force and common distributors.
 31




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Fiscal Year Ended2006
    
    
    2005
    
    
    2004Broadband Access Products
    
    $
    267,847
    
    
    $
    192,038
    
    
    $
    254,581Broadband Media Processing Products
    
    
    291,091
    
    
    
    155,394
    
    
    
    214,186Universal Access Products
    
    
    324,108
    
    
    
    279,159
    
    
    
    323,073Wireless Networking Products and
Other
    
    
    87,741
    
    
    
    96,148
    
    
    
    110,014$
    970,787
    
    
    $
    722,739
    
    
    $
    901,854
 Results of Operations
 Net Revenues
 Fiscal Year Ended(in thousands)
    
    2006
    
    2005
    
    2004Net revenues
    
    $
    970,787
    
    
    $
    722,739
    
    
    $
    901,854
    32




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##### Table of Contents



Gross Margin
 Fiscal Year Ended(in thousands)
    
    2006
    
    2005
    
    2004Gross margin
    
    $
    445,978
    
    
    $
    228,766
    
    
    $
    378,725Percent of net revenues
    
    
    46
    %
    
    
    32
    %
    
    
    42
    %
     33




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##### Table of Contents



Fiscal Year Ended2006
    
    
    2005E&O reserves, beginning of period
    
    $
    44,833
    
    
    $
    23,319Additions
    
    
    14,766
    
    
    
    35,944Release upon sales of product
    
    
    (11,718
    )
    
    
    (5,864
    )Scrap
    
    
    (7,082
    )
    
    
    (11,319
    )Standards adjustments and other
    
    
    (4,167
    )
    
    
    2,753E&O reserves, end of period
    
    $
    36,632
    
    
    $
    44,833
    Fiscal Year Ended2006
    
    
    2005LCM reserves, beginning of period
    
    $
    6,739
    
    
    $
    Additions
    
    
    4,093
    
    
    
    20,179Release upon sales of product
    
    
    (9,025
    )
    
    
    (6,175
    )Standards adjustments and other
    
    
    (46
    )
    
    
    (7,265
    )LCM reserves, end of period
    
    $
    1,761
    
    
    $
    6,739
 Research and Development
 Fiscal Year Ended(in thousands)
    
    2006
    
    2005
    
    2004Research and development
    
    $
    269,736
    
    
    $
    267,996
    
    
    $
    239,971Percent of net revenues
    
    
    28
    %
    
    
    37
    %
    
    
    27
    %
  34




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##### Table of Contents



Selling, General and Administrative
 Fiscal Year Ended(in thousands)
    
    2006
    
    2005
    
    2004Selling, general and administrative
    
    $
    131,226
    
    
    $
    117,861
    
    
    $
    125,474Percent of net revenues
    
    
    14
    %
    
    
    16
    %
    
    
    14
    %
    Amortization of Intangible Assets
 Fiscal Year Ended(in thousands)
    
    2006
    
    2005
    
    2004Amortization of intangible assets
    
    $
    30,705
    
    
    $
    32,322
    
    
    $
    20,769
    35




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##### Table of Contents



In-Process Research and Development
  Special Charges
 Fiscal Year Ended(in thousands)
    
    2006
    
    
    2005
    
    
    2004Litigation charges
    
    $
    70,000
    
    
    $
    3,255
    
    
    $
    3,000Restructuring charges
    
    
    3,259
    
    
    
    28,049
    
    
    
    9,264Integration charges (credits)
    
    
    (400
    )
    
    
    7,748
    
    
    
    7,310Asset impairments
    
    
    85
    
    
    
    3,761
    
    
    
    5,435Other special charges
    
    
    300
    
    
    
    3,164
    
    
    
    7,792$
    73,244
    
    
    $
    45,977
    
    
    $
    32,801
    Interest Expense
 Fiscal Year Ended(in thousands)
    
    2006
    
    2005
    
    2004Interest expense
    
    $
    38,130
    
    
    $
    33,691
    
    
    $
    30,708
  36




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##### Table of Contents



Other Expense (Income), Net
 Fiscal Year Ended(in thousands)
    
    2006
    
    
    2005
    
    
    2004Investment and interest income
    
    $
    (17,921
    )
    
    $
    (6,457
    )
    
    $
    (7,742
    )Change in the fair value of the conversion
right under the Skyworks 15% convertible
senior subordinated notes
    
    
    
    
    
    
    
    
    
    
    6,292Decrease (increase) in the fair value of
derivative instruments
    
    
    16,666
    
    
    
    (7,147
    )
    
    
    92,663Impairment of equity securities
    
    
    19,872
    
    
    
    
    
    
    
    13,423Realized gains on sales of equity securities
    
    
    (4,414
    )
    
    
    (91,285
    )
    
    
    (24,071
    )Losses (earnings) of equity method investments
    
    
    8,164
    
    
    
    10,642
    
    
    
    (14,422
    )Other, net
    
    
    269
    
    
    
    (1,166
    )
    
    
    2,957$
    22,636
    
    
    $
    (95,413
    )
    
    $
    69,100
     37




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##### Table of Contents



Provision for Income Taxes
      38




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##### Table of Contents



Liquidity and Capital Resources
  September 29,
    
    
    September 30,2006
    
    
    2005Cash and cash equivalents
    
    $
    225,626
    
    
    $
    202,704Short-term marketable debt securities
    
    
    83,620
    
    
    
    95,902Long-term marketable debt securities
    
    
    
    
    
    
    38,485Subtotal
    
    
    309,246
    
    
    
    337,091Marketable equity securities (6.2 million shares of Skyworks Solutions, Inc.)
    
    
    32,089
    
    
    
    43,404Total cash, cash equivalents and marketable securities
    
    $
    341,335
    
    
    $
    380,495
       39




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##### Table of Contents



Fiscal Year Ended2006
    
    
    2005
    
    
    2004Net cash used in operating activities
    
    $
    (68,325
    )
    
    $
    (59,758
    )
    
    $
    (31,013
    )Net cash provided by investing activities
    
    
    2,647
    
    
    
    122,190
    
    
    
    66,951Net cash provided by financing activities
    
    
    88,600
    
    
    
    1,241
    
    
    
    26,907Net increase in cash and cash equivalents
    
    $
    22,922
    
    
    $
    63,673
    
    
    $
    62,845
     40




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##### Table of Contents



Payments due by periodLess than 1
    
    
    
    
    
    
    
    
    
    
    More than 5Total
    
    
    year
    
    
    1-3 years
    
    
    3-5 years
    
    
    yearsLong-term debt
    
    $
    706,500
    
    
    $
    456,500
    
    
    $
    
    
    
    $
    
    
    
    $
    250,000Short-term debt
    
    
    80,000
    
    
    
    80,000
    
    
    
    
    
    
    
    
    
    
    
    Interest on debt
    
    
    204,920
    
    
    
    19,920
    
    
    
    20,000
    
    
    
    20,000
    
    
    
    145,000Operating leases
    
    
    164,435
    
    
    
    29,848
    
    
    
    41,348
    
    
    
    30,203
    
    
    
    63,036Capital leases
    
    
    634
    
    
    
    585
    
    
    
    49
    
    
    
    
    
    
    
    Assigned leases
    
    
    4,826
    
    
    
    1,757
    
    
    
    1,358
    
    
    
    1,283
    
    
    
    428Purchase commitments
    
    
    52,519
    
    
    
    44,876
    
    
    
    6,759
    
    
    
    884
    
    
    
    Capital commitments
    
    
    4,211
    
    
    
    4,211
    
    
    
    
    
    
    
    
    
    
    
    $
    1,218,045
    
    
    $
    637,697
    
    
    $
    69,514
    
    
    $
    52,370
    
    
    $
    458,464
   41




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##### Table of Contents



Off-Balance Sheet Arrangements
   Special Purpose Entities
   Recent Accounting Pronouncements
    42




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##### Table of Contents



Critical Accounting Policies
  Business combinations
  43




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##### Table of Contents



Revenue recognition
    Allowance for doubtful accounts
  Inventories
  44




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##### Table of Contents



Long-lived assets
   Deferred income taxes
  Valuation of warrants
  45




---



##### Table of Contents



Valuation of equity securities
  Stock-based compensation
     46




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##### Table of Contents



Restructuring charges
  47




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##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures About Market Risk
        Carrying Value
    
    Fair ValueCash and cash equivalents
    
    $
    225,626
    
    
    $
    225,626Marketable debt securities
    
    
    83,620
    
    
    
    83,620Marketable equity securities
    
    
    32,089
    
    
    
    32,089Mindspeed warrant
    
    
    16,471
    
    
    
    16,471Short-term debt
    
    
    80,000
    
    
    
    80,000Current portion of long-term debt
    
    
    188,375
    
    
    
    186,491Long-term debt
    
    
    518,125
    
    
    
    482,631
  48




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (in thousands, except par value)
 September 29,
    
    
    September 30,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    225,626
    
    
    $
    202,704Marketable securities
    
    
    115,709
    
    
    
    139,306Restricted cash
    
    
    8,800
    
    
    
    Receivables, net of allowances of $842 and $3,803
    
    
    123,025
    
    
    
    87,240Inventories
    
    
    97,460
    
    
    
    95,329Other current assets
    
    
    19,353
    
    
    
    14,701Total current assets
    
    
    589,973
    
    
    
    539,280Property, plant and equipment, net
    
    
    65,405
    
    
    
    50,700Goodwill
    
    
    710,790
    
    
    
    717,013Intangible assets, net
    
    
    76,008
    
    
    
    106,709Mindspeed warrant
    
    
    16,471
    
    
    
    33,137Marketable securities  long-term
    
    
    
    
    
    
    38,485Other assets
    
    
    114,978
    
    
    
    96,200Total assets
    
    $
    1,573,625
    
    
    $
    1,581,524LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    188,375
    
    
    $
    196,825Short-term debt
    
    
    80,000
    
    
    
    Accounts payable
    
    
    113,690
    
    
    
    108,957Accrued compensation and benefits
    
    
    28,307
    
    
    
    27,505Other current liabilities
    
    
    51,966
    
    
    
    63,197Total current liabilities
    
    
    462,338
    
    
    
    396,484Long-term debt
    
    
    518,125
    
    
    
    515,000Other liabilities
    
    
    83,064
    
    
    
    100,947Total liabilities
    
    
    1,063,527
    
    
    
    1,012,431Commitments and contingencies (Note 8)Shareholders equity:Preferred and junior preferred stock
    
    
    
    
    
    
    Common stock, $0.01 par value: 1,000,000 shares authorized; 486,482
and 474,683 shares issued; and 485,200 and 473,499 shares
outstanding
    
    
    4,866
    
    
    
    4,747Treasury stock: 1,282 and 1,184 shares, at cost
    
    
    (5,823
    )
    
    
    (5,584
    )Additional paid-in capital
    
    
    4,699,029
    
    
    
    4,657,901Accumulated deficit
    
    
    (4,175,757
    )
    
    
    (4,053,166
    )Accumulated other comprehensive loss
    
    
    (12,096
    )
    
    
    (22,012
    )Notes receivable from stock sales
    
    
    (121
    )
    
    
    (304
    )Unearned compensation
    
    
    
    
    
    
    (12,489
    )Total shareholders equity
    
    
    510,098
    
    
    
    569,093Total liabilities and shareholders equity
    
    $
    1,573,625
    
    
    $
    1,581,524
  49




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except per share amounts)
 Fiscal Year EndedSeptember 29,
    
    
    September 30,
    
    
    October 1,2006
    
    
    2005
    
    
    2004Net revenues
    
    $
    970,787
    
    
    $
    722,739
    
    
    $
    901,854Cost of goods sold (1)
    
    
    542,309
    
    
    
    493,973
    
    
    
    523,129Gain on cancellation of supply agreement
    
    
    (17,500
    )
    
    
    
    
    
    
    Gross margin
    
    
    445,978
    
    
    
    228,766
    
    
    
    378,725Operating expenses:Research and development (1)
    
    
    269,736
    
    
    
    267,996
    
    
    
    239,971Selling, general and administrative (1)
    
    
    131,226
    
    
    
    117,861
    
    
    
    125,474Amortization of intangible assets
    
    
    30,705
    
    
    
    32,322
    
    
    
    20,769In-process research and development
    
    
    
    
    
    
    
    
    
    
    160,818Special charges
    
    
    73,244
    
    
    
    45,977
    
    
    
    32,801Total operating expenses
    
    
    504,911
    
    
    
    464,156
    
    
    
    579,833Operating loss
    
    
    (58,933
    )
    
    
    (235,390
    )
    
    
    (201,108
    )Interest expense
    
    
    38,130
    
    
    
    33,691
    
    
    
    30,708Other expense (income), net
    
    
    22,636
    
    
    
    (95,413
    )
    
    
    69,100Loss before income taxes
    
    
    (119,699
    )
    
    
    (173,668
    )
    
    
    (300,916
    )Provision for income taxes
    
    
    2,892
    
    
    
    2,322
    
    
    
    243,733Net loss
    
    $
    (122,591
    )
    
    $
    (175,990
    )
    
    $
    (544,649
    )Net loss per share  basic and diluted
    
    $
    (0.26
    )
    
    $
    (0.37
    )
    
    $
    (1.40
    )Shares used in basic and diluted per-share computations
    
    
    479,325
    
    
    
    470,658
    
    
    
    389,630
 
 (1)
    
    These captions include non-cash employee stock-based compensation
expense as follows (see Note 1): Fiscal Year EndedSeptember 29,
    
    September 30,
    
    October 1,2006
    
    2005
    
    2004Cost of goods sold
    
    $
    494
    
    
    $
    
    
    
    $
    Research and development
    
    
    21,110
    
    
    
    9,074
    
    
    
    5,370Selling, general and administrative
    
    
    23,341
    
    
    
    2,976
    
    
    
    1,773
  50




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 Fiscal Year EndedSeptember 29,
    
    
    September 30,
    
    
    October 1,2006
    
    
    2005
    
    
    2004Cash flows from operating activitiesNet loss
    
    $
    (122,591
    )
    
    $
    (175,990
    )
    
    $
    (544,649
    )Adjustments to reconcile net loss to net cash used in operating
activities, net of effects of acquisitions:Depreciation
    
    
    19,670
    
    
    
    18,594
    
    
    
    16,151Amortization of intangible assets
    
    
    30,705
    
    
    
    32,322
    
    
    
    20,769In-process research and development
    
    
    
    
    
    
    
    
    
    
    160,818Impairment of marketable and non-marketable securities
    
    
    20,286
    
    
    
    
    
    
    
    13,423Charges (credits) for provision for bad debts, net
    
    
    (2,192
    )
    
    
    (1,587
    )
    
    
    4,475Charges (credits) for inventory provisions, net
    
    
    (1,884
    )
    
    
    44,084
    
    
    
    4,463Deferred income taxes
    
    
    (792
    )
    
    
    
    
    
    
    256,041Stock-based compensation
    
    
    44,945
    
    
    
    14,340
    
    
    
    9,616Decrease (increase) in fair value of derivative instruments
    
    
    16,666
    
    
    
    (7,147
    )
    
    
    98,955Losses (earnings) of equity method investments
    
    
    8,164
    
    
    
    10,642
    
    
    
    (14,422
    )Gain on cancellation of supply agreement
    
    
    (17,500
    )
    
    
    
    
    
    
    Gain on sales of equity securities, investments and other assets
    
    
    (5,659
    )
    
    
    (91,264
    )
    
    
    (24,071
    )Other items, net
    
    
    (4,013
    )
    
    
    (4,588
    )
    
    
    4,554Changes in assets and liabilities:Receivables
    
    
    (33,593
    )
    
    
    99,535
    
    
    
    (17,782
    )Inventories
    
    
    (576
    )
    
    
    57,786
    
    
    
    (66,401
    )Accounts payable
    
    
    2,774
    
    
    
    (33,249
    )
    
    
    43,453Agere patent litigation settlement
    
    
    
    
    
    
    (8,000
    )
    
    
    Special charges and other restructuring related items
    
    
    (19,928
    )
    
    
    (14,953
    )
    
    
    6,839Accrued expenses and other current liabilities
    
    
    5,333
    
    
    
    (4,973
    )
    
    
    1,474Other, net
    
    
    (8,140
    )
    
    
    4,690
    
    
    
    (4,719
    )Net cash used in operating activities
    
    
    (68,325
    )
    
    
    (59,758
    )
    
    
    (31,013
    )Cash flows from investing activitiesRestricted cash
    
    
    (8,800
    )
    
    
    
    
    
    
    Purchases of marketable debt securities
    
    
    (93,646
    )
    
    
    (49,628
    )
    
    
    (74,586
    )Proceeds from sales and maturities of marketable debt securities
    
    
    146,219
    
    
    
    68,985
    
    
    
    114,323Purchases of equity securities
    
    
    (2,454
    )
    
    
    (2,817
    )
    
    
    (3,015
    )Proceeds from sale of equity securities and other assets
    
    
    6,343
    
    
    
    97,244
    
    
    
    57,236Purchases of property, plant and equipment
    
    
    (33,484
    )
    
    
    (21,791
    )
    
    
    (17,563
    )Net proceeds from purchase and sale-leaseback of facility
    
    
    
    
    
    
    49,014
    
    
    
    Payments for acquisitions, net of cash received
    
    
    (11,531
    )
    
    
    (18,817
    )
    
    
    20,752Payment of acquisition related costs
    
    
    
    
    
    
    
    
    
    
    (30,196
    )Net cash provided by investing activities
    
    
    2,647
    
    
    
    122,190
    
    
    
    66,951Cash flows from financing activitiesProceeds from short-term debt, net of expenses of $1,541
    
    
    78,459
    
    
    
    
    
    
    
    Proceeds from long-term debt, net of expenses of $6,417
    
    
    243,583
    
    
    
    
    
    
    
    Repurchases and retirements of long-term debt
    
    
    (254,684
    )
    
    
    
    
    
    
    Proceeds from issuance of common stock
    
    
    21,050
    
    
    
    1,045
    
    
    
    24,559Repayment of notes receivable from stock sales
    
    
    192
    
    
    
    196
    
    
    
    2,348Net cash provided by financing activities
    
    
    88,600
    
    
    
    1,241
    
    
    
    26,907Net increase in cash and cash equivalents
    
    
    22,922
    
    
    
    63,673
    
    
    
    62,845Cash and cash equivalents at beginning of year
    
    
    202,704
    
    
    
    139,031
    
    
    
    76,186Cash and cash equivalents at end of year
    
    $
    225,626
    
    
    $
    202,704
    
    
    $
    139,031
  51




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##### Table of Contents



CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE LOSS
 (in thousands)
 Accumulated
    
    
    NotesAdditional
    
    
    
    
    
    
    Other
    
    
    Receivable
    
    
    
    
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    Comprehensive
    
    
    From
    
    
    Treasury
    
    
    Unearned
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Income (Loss)
    
    
    Stock Sales
    
    
    Stock
    
    
    Compensation
    
    
    EquityBalance at October 3, 2003
    
    
    276,134
    
    
    $
    2,761
    
    
    $
    3,506,070
    
    
    $
    (3,332,527
    )
    
    $
    (9,496
    )
    
    $
    
    
    
    $
    
    
    
    $
    (42
    )
    
    $
    166,766Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (544,649
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (544,649
    )Currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (183
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (183
    )Change in unrealized gains on
available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90,551
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90,551Minimum pension liability adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,679
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,679Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (452,602
    )Purchase acquisitions
    
    
    180,553
    
    
    
    1,805
    
    
    
    1,108,138
    
    
    
    
    
    
    
    
    
    
    
    (2,469
    )
    
    
    (4,778
    )
    
    
    (30,948
    )
    
    
    1,071,748Issuance of common stock
    
    
    12,754
    
    
    
    128
    
    
    
    32,859
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,987Interest earned on notes receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39
    )
    
    
    
    
    
    
    
    
    
    
    (39
    )Settlement of notes receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,932
    
    
    
    (806
    )
    
    
    
    
    
    
    1,126Tax benefits from stock plans
    
    
    
    
    
    
    
    
    
    
    462
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    462Stock option modifications
    
    
    
    
    
    
    
    
    
    
    796
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    796Employee stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,143
    
    
    
    7,143Balance at October 1, 2004
    
    
    469,441
    
    
    
    4,694
    
    
    
    4,648,325
    
    
    
    (3,877,176
    )
    
    
    82,551
    
    
    
    (576
    )
    
    
    (5,584
    )
    
    
    (23,847
    )
    
    
    828,387Net 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,015Interest earned on notes receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20
    )
    
    
    
    
    
    
    
    
    
    
    (20
    )Settlement of notes receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    292
    
    
    
    
    
    
    
    
    
    
    
    292Stock option modifications
    
    
    
    
    
    
    
    
    
    
    2,614
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,614Employee stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,050
    
    
    
    12,050Balance at September 30, 2005
    
    
    474,683
    
    
    
    4,747
    
    
    
    4,657,901
    
    
    
    (4,053,166
    )
    
    
    (22,012
    )
    
    
    (304
    )
    
    
    (5,584
    )
    
    
    (12,489
    )
    
    
    569,093Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (122,591
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (122,591
    )Currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (376
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (376
    )Change in unrealized gain on foreign
currency forward hedge contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    180
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    180Impairment of marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,870
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,870Change in unrealized losses on
available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,007
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,007
    )Minimum pension liability adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,249
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,249Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (112,675
    )Cumulative effect of change in
accounting principle (Note 1)
    
    
    
    
    
    
    
    
    
    
    (20,691
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,489
    
    
    
    (8,202
    )Issuance of common stock
    
    
    11,799
    
    
    
    119
    
    
    
    21,505
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,624Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (239
    )
    
    
    
    
    
    
    (239
    )Interest earned on notes receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    (9
    )Settlement of notes receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    192
    
    
    
    
    
    
    
    
    
    
    
    192Payment of acquisition-related share
price guarantee
    
    
    
    
    
    
    
    
    
    
    (4,631
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,631
    )Employee stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    44,945
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,945Balance at September 29, 2006
    
    
    486,482
    
    
    $
    4,866
    
    
    $
    4,699,029
    
    
    $
    (4,175,757
    )
    
    $
    (12,096
    )
    
    $
    (121
    )
    
    $
    (5,823
    )
    
    $
    
    
    
    $
    510,098
  52




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##### Table of Contents



1. Basis of Presentation and Significant Accounting Policies
    Liquidity
  53




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##### Table of Contents



Basis of Presentation
 Fiscal Year
 Use of Estimates
 Revenue Recognition
  Shipping and Handling 
 54




---



##### Table of Contents



Cash and Cash Equivalents 
 Marketable Securities 
  Restricted Cash
 Inventories
 Property, Plant and Equipment
 Investments
 55




---



##### Table of Contents



Long-Lived Assets
  Foreign Currency Translation and Remeasurement
 Derivative Financial Instruments
 56




---



##### Table of Contents



Net Income (Loss) Per Share
  Fiscal Year Ended2006
    
    2005
    
    2004Stock options and warrants
    
    
    8,880
    
    
    
    2,099
    
    
    
    18,2685.25% convertible subordinated notes due May 2006
    
    
    3,626
    
    
    
    5,840
    
    
    
    3,4824.25% convertible subordinated notes due May 2006
    
    
    4,289
    
    
    
    7,364
    
    
    
    7,3644.00% convertible subordinated notes due February 2007
    
    
    11,362
    
    
    
    12,137
    
    
    
    12,1374.00% convertible subordinated notes due March 2026
    
    
    27,109
    
    
    
    
    
    
    
    55,266
    
    
    
    27,440
    
    
    
    41,251
 Stock-Based Compensation
 57




---



##### Table of Contents



Fiscal Year Ended2005
    
    
    2004Net loss, as reported
    
    $
    (175,990
    )
    
    $
    (544,649
    )Add: stock-based compensation expense included in reported net loss,
net of tax
    
    
    12,050
    
    
    
    7,143Deduct: stock-based compensation expense determined under fair
value method, net of tax
    
    
    (61,805
    )
    
    
    (57,068
    )Net loss, pro forma
    
    $
    (225,745
    )
    
    $
    (594,574
    )Net loss per share:Basic  as reported
    
    $
    (0.37
    )
    
    $
    (1.40
    )Basic  pro forma
    
    $
    (0.48
    )
    
    $
    (1.53
    )Diluted  as reported
    
    $
    (0.37
    )
    
    $
    (1.40
    )Diluted  pro forma
    
    $
    (0.48
    )
    
    $
    (1.53
    )
  58




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##### Table of Contents



Fiscal Year Ended2006
    
    2005
    
    2004Stock option plans:Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Expected stock price volatility
    
    
    76
    %
    
    
    85
    %
    
    
    97
    %Risk-free interest rate
    
    
    4.5
    %
    
    
    3.8
    %
    
    
    3.3
    %Average expected life (in years)
    
    
    5.25
    
    
    
    4.90
    
    
    
    4.10Stock purchase plan:Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Expected stock price volatility
    
    
    76
    %
    
    
    89
    %
    
    
    97
    %Risk-free interest rate
    
    
    4.4
    %
    
    
    4.1
    %
    
    
    3.7
    %Average expected life (in years)
    
    
    0.50
    
    
    
    0.50
    
    
    
    0.50
  Income Taxes
 Concentrations 
  Supplemental Cash Flow Information
 59




---



##### Table of Contents



Accumulated Other Comprehensive Income (Loss)
 September 29,
    
    
    September 30,2006
    
    
    2005Foreign currency translation adjustments
    
    $
    (3,796
    )
    
    $
    (3,420
    )Unrealized losses on marketable securities
    
    
    (1,855
    )
    
    
    (9,718
    )Unrealized gains on foreign currency forward exchange contracts
    
    
    180
    
    
    
    Minimum pension liability adjustments
    
    
    (6,625
    )
    
    
    (8,874
    )Accumulated other comprehensive loss
    
    $
    (12,096
    )
    
    $
    (22,012
    )
 Business Enterprise Segments
  
    
    the nature of products and services;
    
    the nature of the production processes;
    
    the type or class of customer for their products and services; and
    
    the methods used to distribute their products or provide their services.
  
    
    the sale of semiconductor products is the only material source of revenue for each of
the Companys four operating segments;
    
    the products sold by each of the Companys operating segments use the same standard
manufacturing process;
    
    the products marketed by each of the Companys operating segments are sold to similar customers; and
    
    all of the Companys products are sold through its internal sales force and common distributors.
  Recent Accounting Pronouncements 
 60




---



##### Table of Contents



61




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##### Table of Contents



2. Business Combinations
 Fiscal 2005
 Acquisition of Paxonet Communications, Inc.
   Fiscal 2004
 Acquisition of Amphion Semiconductor
   Merger with GlobespanVirata, Inc.
  62




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##### Table of Contents



Fair market value of Conexant common stock issued
    
    $
    1,027,342Fair value of Conexant common stock options issued
    
    
    81,011Transaction costs
    
    
    12,900Total purchase consideration
    
    $
    1,121,253
    63




---



##### Table of Contents



Cash and cash equivalents
    
    $
    42,515Short-term and long-term investments
    
    
    153,099Accounts receivable
    
    
    91,259Inventories
    
    
    73,281Prepaids and other current assets
    
    
    4,236Property and equipment
    
    
    46,883Other long-term assets
    
    
    20,600Identifiable intangible assets
    
    
    137,931In-process research and development
    
    
    160,818Goodwill
    
    
    632,403Accounts payable
    
    
    (41,580
    )Accrued expenses
    
    
    (78,048
    )Accrued restructuring and reorganization liabilities
    
    
    (11,465
    )Long-term debt
    
    
    (130,000
    )Other long-term liabilities
    
    
    (23,284
    )Treasury stock
    
    
    9,188Notes receivable from stock sales
    
    
    2,469Unearned compensation
    
    
    30,948Net assets acquired
    
    $
    1,121,253
   Product licenses (7 years)
    
    $
    10,964Trademark (7 years)
    
    
    2,006Developed technologies (2  7 years)
    
    
    124,961Total identifiable intangible assets
    
    $
    137,931
   64




---



##### Table of Contents



3. Sales of Assets
 Fiscal 2005
    Fiscal 2004
   65




---



##### Table of Contents



4. Marketable Securities
  Gross
    
    
    GrossCost or
    
    
    Unrealized
    
    
    UnrealizedAmortized
    
    
    Holding
    
    
    Holding
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueSeptember 29, 2006:Corporate debt securities
    
    $
    22,719
    
    
    $
    30
    
    
    $
    (29
    )
    
    $
    22,720U.S. government agency securities
    
    
    60,777
    
    
    
    134
    
    
    
    (11
    )
    
    
    60,900Equity securities
    
    
    34,068
    
    
    
    
    
    
    
    (1,979
    )
    
    
    32,089$
    117,564
    
    
    $
    164
    
    
    $
    (2,019
    )
    
    $
    115,709September 30, 2005:Corporate debt securities
    
    $
    37,974
    
    
    $
    
    
    
    $
    (40
    )
    
    $
    37,934U.S. government agency securities
    
    
    58,137
    
    
    
    2
    
    
    
    (171
    )
    
    
    57,968Equity securities
    
    
    52,524
    
    
    
    
    
    
    
    (9,120
    )
    
    
    43,404$
    148,635
    
    
    $
    2
    
    
    $
    (9,331
    )
    
    $
    139,306
  Gross
    
    
    GrossCost or
    
    
    Unrealized
    
    
    UnrealizedAmortized
    
    
    Holding
    
    
    Holding
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueSeptember 30, 2005:U.S. government agency securities
    
    $
    15,964
    
    
    $
    
    
    
    $
    (102
    )
    
    $
    15,862Corporate debt securities
    
    
    22,910
    
    
    
    
    
    
    
    (287
    )
    
    
    22,623$
    38,874
    
    
    $
    
    
    
    $
    (389
    )
    
    $
    38,485
   66




---



##### Table of Contents



Amortized
    
    
    FairCost
    
    
    ValueDue in 1 year or less
    
    $
    77,516
    
    
    $
    77,616Due in 1  2 years
    
    
    5,980
    
    
    
    6,004$
    83,496
    
    
    $
    83,620
 5. Supplemental Balance Sheet Data
 Inventories
  September 29,
    
    
    September 30,2006
    
    
    2005Work-in-process
    
    $
    53,884
    
    
    $
    61,535Finished goods
    
    
    43,576
    
    
    
    33,794$
    97,460
    
    
    $
    95,329
  Property, Plant and Equipment
  September 29,
    
    
    September 30,2006
    
    
    2005Land
    
    $
    1,960
    
    
    $
    1,973Land and leasehold improvements
    
    
    9,683
    
    
    
    10,346Buildings
    
    
    34,613
    
    
    
    34,610Machinery and equipment
    
    
    151,100
    
    
    
    167,217Construction in progress
    
    
    6,273
    
    
    
    2,825203,629
    
    
    
    216,971Accumulated depreciation and amortization
    
    
    (138,224
    )
    
    
    (166,271
    )$
    65,405
    
    
    $
    50,700
 Goodwill
  Fiscal Year Ended2006
    
    
    2005Goodwill at beginning of period
    
    $
    717,013
    
    
    $
    708,544Additions
    
    
    3,000
    
    
    
    16,097Adjustments
    
    
    (9,223
    )
    
    
    (7,628
    )Goodwill at end of period
    
    $
    710,790
    
    
    $
    717,013
  67




---



##### Table of Contents



Intangible Assets
  September 29, 2006
    
    

September 30, 2005Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Book
    
    
    Carrying
    
    
    Accumulated
    
    
    BookAmount
    
    
    Amortization
    
    
    Value
    
    
    Amount
    
    
    Amortization
    
    
    ValueDeveloped technology
    
    $
    138,883
    
    
    $
    (74,350
    )
    
    $
    64,533
    
    
    $
    146,146
    
    
    $
    (54,133
    )
    
    $
    92,013Customer base
    
    
    4,660
    
    
    
    (2,651
    )
    
    
    2,009
    
    
    
    4,660
    
    
    
    (1,781
    )
    
    
    2,879Other intangible assets
    
    
    15,724
    
    
    
    (6,258
    )
    
    
    9,466
    
    
    
    21,888
    
    
    
    (10,071
    )
    
    
    11,817$
    159,267
    
    
    $
    (83,259
    )
    
    $
    76,008
    
    
    $
    172,694
    
    
    $
    (65,985
    )
    
    $
    106,709
  Fiscal Year Ending2007
    
    2008
    
    2009
    
    2010
    
    2011
    
    ThereafterAmortization expense
    
    $
    24,598
    
    
    $
    24,130
    
    
    $
    16,402
    
    
    $
    9,914
    
    
    $
    848
    
    
    $
    116
 Mindspeed Warrant
   68




---



##### Table of Contents



Other Assets
  September 29,
    
    
    September 30,2006
    
    
    2005Investments
    
    $
    69,798
    
    
    $
    61,083Other
    
    
    45,180
    
    
    
    35,117$
    114,978
    
    
    $
    96,200
  Other Liabilities
  September 29,
    
    
    September 30,2006
    
    
    2005Deferred gains on sale-leaseback transactions
    
    $
    41,204
    
    
    $
    48,557Employee pension and other benefit plan liabilities
    
    
    9,720
    
    
    
    14,982Restructuring and reorganization liabilities
    
    
    14,581
    
    
    
    16,940Other
    
    
    17,559
    
    
    
    20,468$
    83,064
    
    
    $
    100,947
 6. Income Taxes
  Fiscal Year Ended2006
    
    
    2005
    
    
    2004Current:United States
    
    $
    
    
    
    $
    
    
    
    $
    (12,890
    )Foreign
    
    
    3,555
    
    
    
    1,842
    
    
    
    1,565State and local
    
    
    129
    
    
    
    480
    
    
    
    198Total current
    
    
    3,684
    
    
    
    2,322
    
    
    
    (11,127
    )Deferred:United States
    
    
    
    
    
    
    
    
    
    
    254,286Foreign
    
    
    (792
    )
    
    
    
    
    
    
    574Total deferred
    
    
    (792
    )
    
    
    
    
    
    
    254,860$
    2,892
    
    
    $
    2,322
    
    
    $
    243,733
  69




---



##### Table of Contents



September 29,
    
    
    September 30,2006
    
    
    2005Deferred tax assets:Investments
    
    $
    78,137
    
    
    $
    77,437Intangible assets
    
    
    150,349
    
    
    
    161,251Capitalized research and development
    
    
    307,666
    
    
    
    290,330Net operating losses
    
    
    453,237
    
    
    
    428,362Research and development and investment credits
    
    
    154,870
    
    
    
    149,366Other, net
    
    
    158,774
    
    
    
    151,475Valuation allowance
    
    
    (1,240,546
    )
    
    
    (1,192,971
    )Total deferred tax assets
    
    
    62,487
    
    
    
    65,250Deferred tax liabilities:Deferred state taxes
    
    
    (61,695
    )
    
    
    (65,250
    )Total deferred tax liabilities
    
    
    (61,695
    )
    
    
    (65,250
    )$
    792
    
    
    $
    
      70




---



##### Table of Contents



Fiscal Year Ended2006
    
    
    2005
    
    
    2004U.S. Federal statutory tax at 35%
    
    $
    (41,895
    )
    
    $
    (60,784
    )
    
    $
    (105,321
    )State taxes, net of federal effect
    
    
    4,533
    
    
    
    (7,102
    )
    
    
    (8,567
    )U.S. and foreign income taxes on foreign earnings
    
    
    2,411
    
    
    
    5,834
    
    
    
    (3,874
    )Research and development credits
    
    
    (1,715
    )
    
    
    (8,014
    )
    
    
    (9,682
    )In-process research and development
    
    
    
    
    
    
    
    
    
    
    56,286Valuation allowance
    
    
    36,914
    
    
    
    74,287
    
    
    
    314,569Stock options
    
    
    3,386
    
    
    
    
    
    
    
    Other
    
    
    (742
    )
    
    
    (1,899
    )
    
    
    322Provision for income taxes
    
    $
    2,892
    
    
    $
    2,322
    
    
    $
    243,733
   Fiscal Year Ended2006
    
    
    2005
    
    
    2004United States
    
    $
    (128,982
    )
    
    $
    (174,229
    )
    
    $
    (318,097
    )Foreign
    
    
    9,283
    
    
    
    561
    
    
    
    17,181$
    (119,699
    )
    
    $
    (173,668
    )
    
    $
    (300,916
    )
   7. Debt
 Short-Term Debt
   71




---



##### Table of Contents



Long-Term Debt
  September 29,
    
    
    September 30,2006
    
    
    20055.25% convertible subordinated notes due May 2006 with a conversion price of $22.26
    
    $
    
    
    
    $
    130,0004.25% convertible subordinated notes due May 2006 with a conversion price of $9.08
    
    
    
    
    
    
    66,8254.00% convertible subordinated notes due February 2007 with a conversion price of
$42.43
    
    
    456,500
    
    
    
    515,0004.00% convertible subordinated notes due March 2026 with a conversion price of $4.92
    
    
    250,000
    
    
    
    Total
    
    
    706,500
    
    
    
    711,825Less: current portion of long-term debt
    
    
    (188,375
    )
    
    
    (196,825
    )Long-term debt
    
    $
    518,125
    
    
    $
    515,000
    72




---



##### Table of Contents



8. Commitments and Contingencies
 Lease Commitments
   Fiscal Year Ending
    
    Lease Payments
    
    
    Sublease Income
    
    
    Net Obligation2007
    
    $
    29,848
    
    
    $
    (7,807
    )
    
    $
    22,0412008
    
    
    24,448
    
    
    
    (6,437
    )
    
    
    18,0112009
    
    
    16,900
    
    
    
    (2,730
    )
    
    
    14,1702010
    
    
    16,135
    
    
    
    (2,762
    )
    
    
    13,3732011
    
    
    14,068
    
    
    
    (2,022
    )
    
    
    12,046Thereafter
    
    
    63,036
    
    
    
    (5,489
    )
    
    
    57,547Total future minimum lease payments
    
    $
    164,435
    
    
    $
    (27,247
    )
    
    $
    137,188
   73




---



##### Table of Contents



Legal Matters
  IPO Litigation 
 Texas Instruments Incorporated 
 74




---



##### Table of Contents



Class Action Suits  Witriol v. Conexant, et al. (Witriol)
 Graden v. Conexant, et al.
 75




---



##### Table of Contents



Shareholder Derivative Suits Witriol Witriol
 Guarantees and Indemnifications
   Other
   76




---



##### Table of Contents



9. Shareholders Equity
  th th
 Stock Option Plans
     77




---



##### Table of Contents



Fiscal Year Ended2006
    
    
    2005
    
    
    2004Weighted-
    
    
    
    
    
    Weighted-
    
    
    
    
    
    Weighted-Number
    
    Average
    
    Number
    
    Average
    
    Number
    
    Averageof
    
    Exercise
    
    of
    
    Exercise
    
    of
    
    ExerciseShares
    
    Price
    
    Shares
    
    Price
    
    Shares
    
    PriceOutstanding at beginning of year
    
    
    111,195
    
    
    $
    2.81
    
    
    
    127,120
    
    
    $
    4.78
    
    
    
    81,089
    
    
    $
    3.02Granted
    
    
    15,692
    
    
    
    2.66
    
    
    
    35,342
    
    
    
    1.51
    
    
    
    19,984
    
    
    
    7.16Assumed/exchanged in business
combinations
    
    
    
    
    
    
    
    
    
    
    590
    
    
    
    0.87
    
    
    
    43,602
    
    
    
    3.45Exercised
    
    
    (7,886
    )
    
    
    1.95
    
    
    
    (831
    )
    
    
    1.23
    
    
    
    (8,015
    )
    
    
    2.73Cancelled
    
    
    (15,219
    )
    
    
    4.17
    
    
    
    (51,026
    )
    
    
    5.65
    
    
    
    (9,540
    )
    
    
    9.74Outstanding at end of year
    
    
    103,782
    
    
    
    2.65
    
    
    
    111,195
    
    
    
    2.81
    
    
    
    127,120
    
    
    
    4.78Exercisable at end of year
    
    
    72,513
    
    
    
    2.88
    
    
    
    72,235
    
    
    
    3.34
    
    
    
    83,024
    
    
    
    4.57
  Outstanding
    
    ExercisableAverage
    
    Weighted-
    
    
    
    
    
    Weighted-Remaining
    
    Average
    
    
    
    
    
    AverageRange of
    
    Number
    
    Contractual
    
    Exercise
    
    Number
    
    ExerciseExercise Prices
    
    of Shares
    
    Life (Years)
    
    Price
    
    of Shares
    
    Price$0.20  0.86
    
    
    521
    
    
    
    2.77
    
    
    $
    0.60
    
    
    
    443
    
    
    $
    0.641.03  1.49
    
    
    32,922
    
    
    
    5.35
    
    
    
    1.47
    
    
    
    18,639
    
    
    
    1.471.50  1.99
    
    
    3,063
    
    
    
    6.64
    
    
    
    1.72
    
    
    
    1,024
    
    
    
    1.712.00  2.49
    
    
    3,878
    
    
    
    3.34
    
    
    
    2.34
    
    
    
    2,916
    
    
    
    2.382.50  2.99
    
    
    41,063
    
    
    
    4.11
    
    
    
    2.69
    
    
    
    28,663
    
    
    
    2.693.00  3.49
    
    
    15,016
    
    
    
    3.92
    
    
    
    3.41
    
    
    
    14,513
    
    
    
    3.423.51  4.96
    
    
    3,497
    
    
    
    5.54
    
    
    
    3.99
    
    
    
    2,745
    
    
    
    4.005.02  9.93
    
    
    3,252
    
    
    
    2.39
    
    
    
    6.62
    
    
    
    3,001
    
    
    
    6.6010.06  96.93
    
    
    570
    
    
    
    2.61
    
    
    
    25.95
    
    
    
    569
    
    
    
    25.97103,782
    
    
    
    
    
    
    
    
    
    
    
    72,513
    Restricted Stock
  78




---



##### Table of Contents



Directors Stock Plan
  Employee Stock Purchase Plan
  Performance Shares Plan
   10. Employee Benefit Plans
 Retirement Savings Plans
  79




---



##### Table of Contents



Retirement Medical Plan
   Fiscal Year Ended2006
    
    
    2005Change in benefit obligation:Benefit obligation at beginning of year
    
    $
    1,624
    
    
    $
    1,925Interest cost
    
    
    35
    
    
    
    44Plan participants contributions
    
    
    972
    
    
    
    1,215Plan amendments
    
    
    
    
    
    
    695Actuarial (gain) loss
    
    
    (546
    )
    
    
    9Benefits paid
    
    
    (1,710
    )
    
    
    (2,264
    )Benefit obligation at end of year
    
    $
    375
    
    
    $
    1,624Change in plan assets:Fair value of plan assets at beginning of year
    
    $
    
    
    
    $
    Employer contributions
    
    
    738
    
    
    
    1,049Plan participants contributions
    
    
    972
    
    
    
    1,215Benefits paid, including expenses
    
    
    (1,710
    )
    
    
    (2,264
    )Fair value of plan assets at end of year
    
    $
    
    
    
    $
    Reconciliation of funded status to accrued benefit cost:Funded status
    
    $
    (375
    )
    
    $
    (1,624
    )Unrecognized net actuarial loss
    
    
    2,251
    
    
    
    4,906Unrecognized prior service cost
    
    
    (6,967
    )
    
    
    (12,541
    )Adjustment for fourth quarter contributions
    
    
    76
    
    
    
    220Accrued benefit cost
    
    $
    (5,015
    )
    
    $
    (9,039
    )Weighted average assumptions for benefit obligations:Measurement date
    
    
    06/30/06
    
    
    
    06/30/05Discount rate
    
    
    6.25
    %
    
    
    3.00
    %Expected return on plan assets
    
    
    N/A
    
    
    
    N/ARate of compensation increase
    
    
    N/A
    
    
    
    N/AWeighted average assumptions for net periodic benefit costs:Discount rate
    
    
    3.00
    %
    
    
    3.00
    %Expected return on plan assets
    
    
    N/A
    
    
    
    N/ARate of compensation increase
    
    
    N/A
    
    
    
    N/AComponents of net periodic benefit cost:Interest cost
    
    $
    36
    
    
    $
    44Amortization of prior service costs
    
    
    (5,574
    )
    
    
    (5,295
    )Recognized net actuarial loss
    
    
    2,108
    
    
    
    1,882Net periodic benefit cost
    
    $
    (3,430
    )
    
    $
    (3,369
    )
 80




---



##### Table of Contents



Pension Plans
   Fiscal Year Ended2006
    
    
    2005Change in benefit obligation:Benefit obligation at beginning of year
    
    $
    24,440
    
    
    $
    22,307Interest cost
    
    
    1,178
    
    
    
    1,333Actuarial (gain) loss
    
    
    (2,491
    )
    
    
    2,757Benefits paid
    
    
    (1,912
    )
    
    
    (1,957
    )Benefit obligation at end of year
    
    $
    21,215
    
    
    $
    24,440Change in plan assets:Fair value of plan assets at beginning of year
    
    $
    15,627
    
    
    $
    14,178Actual return on plan assets
    
    
    656
    
    
    
    1,013Employer contributions
    
    
    2,162
    
    
    
    2,423Benefits paid, including expenses
    
    
    (1,912
    )
    
    
    (1,987
    )Fair value of plan assets at end of year
    
    $
    16,533
    
    
    $
    15,627Reconciliation of funded status to net amounts recognized:Funded status
    
    $
    (4,682
    )
    
    $
    (8,813
    )Unrecognized net actuarial loss
    
    
    6,730
    
    
    
    9,118Adjustment for fourth quarter expenses
    
    
    (105
    )
    
    
    (244
    )Adjustment for fourth quarter contributions
    
    
    884
    
    
    
    1,231Net amount recognized
    
    $
    2,827
    
    
    $
    1,292Amounts recognized in the statement of financial position:Accrued benefit liability
    
    $
    (3,798
    )
    
    $
    (7,582
    )Accumulated other comprehensive loss
    
    
    6,625
    
    
    
    8,874Net amount recognized
    
    $
    2,827
    
    
    $
    1,292Information for plans with accumulated benefit obligation
in excess of plan assets:Projected benefit obligation
    
    $
    21,215
    
    
    $
    24,440Accumulated benefit obligation
    
    
    21,215
    
    
    
    24,440Fair value of plan assets at end of year
    
    
    16,533
    
    
    
    15,627Weighted average assumptions for benefit obligations:Measurement date
    
    
    06/30/06
    
    
    
    06/30/05Discount rate
    
    
    6.23
    %
    
    
    5.00
    %Expected long-term return on plan assets
    
    
    7.00
    %
    
    
    4.00
    %Rate of compensation increase
    
    
    N/A
    
    
    
    N/AWeighted average assumptions for net periodic benefit costs:Discount rate
    
    
    5.00
    %
    
    
    6.25
    %Expected return on plan assets
    
    
    7.00
    %
    
    
    4.00
    %Rate of compensation increase
    
    
    N/A
    
    
    
    N/AUnfunded accumulated benefit obligation:Accumulated benefit obligation
    
    $
    21,215
    
    
    $
    24,440Fair value of plan assets at end of year
    
    
    16,533
    
    
    
    15,627Increase (decrease) in minimum liability included in other comprehensive loss
    
    
    (2,249
    )
    
    
    2,173
 81




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##### Table of Contents



Fiscal Year Ended2006
    
    
    2005Components of net periodic benefit cost:Interest cost
    
    $
    1,178
    
    
    $
    1,333Expected return on plan assets
    
    
    (1,082
    )
    
    
    (576
    )Recognized net actuarial loss
    
    
    323
    
    
    
    219Net periodic benefit cost
    
    $
    419
    
    
    $
    976Weighted average asset allocation:Equity securities
    
    
    69.1
    %
    
    
    67.4
    %Debt securities
    
    
    21.2
    %
    
    
    31.6
    %Other
    
    
    9.7
    %
    
    
    1.0
    %Total
    
    
    100.0
    %
    
    
    100.0
    %Expected
benefit payouts during fiscal year ending:2007
    
    $
    1,8162008
    
    
    1,7592009
    
    
    1,7162010
    
    
    1,6892011
    
    
    1,659Thereafter
    
    
    8,017
  11. Special Charges
  Fiscal Year Ended2006
    
    
    2005
    
    
    2004Litigation charges
    
    $
    70,000
    
    
    $
    3,255
    
    
    $
    3,000Restructuring charges
    
    
    3,259
    
    
    
    28,049
    
    
    
    9,264Integration charges (credits)
    
    
    (400
    )
    
    
    7,748
    
    
    
    7,310Asset impairments
    
    
    85
    
    
    
    3,761
    
    
    
    5,435Other special charges
    
    
    300
    
    
    
    3,164
    
    
    
    7,792$
    73,244
    
    
    $
    45,977
    
    
    $
    32,801
 Litigation Charges
  Restructuring Charges
  82




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##### Table of Contents



Fiscal 2006 Restructuring Action
  Workforce
    
    
    FacilityReductions
    
    
    and Other
    
    
    TotalCharged to costs and expenses
    
    $
    4,396
    
    
    $
    468
    
    
    $
    4,864Cash payments
    
    
    (3,180
    )
    
    
    (76
    )
    
    
    (3,256
    )Restructuring balance, September 29, 2006
    
    $
    1,216
    
    
    $
    392
    
    
    $
    1,608
 Fiscal 2005 Restructuring Action
  Workforce
    
    
    FacilityReductions
    
    
    and Other
    
    
    TotalCharged to costs and expenses
    
    $
    19,708
    
    
    $
    7,244
    
    
    $
    26,952Non-cash items
    
    
    (46
    )
    
    
    13,629
    
    
    
    13,583Cash payments
    
    
    (16,118
    )
    
    
    (1,535
    )
    
    
    (17,653
    )Restructuring balance, September 30, 2005
    
    
    3,544
    
    
    
    19,338
    
    
    
    22,882Charged (credited) to costs and expenses
    
    
    (2,760
    )
    
    
    1,030
    
    
    
    (1,730
    )Reclassification to accrued compensation and benefits and other
    
    
    1,844
    
    
    
    55
    
    
    
    1,899Cash payments
    
    
    (2,432
    )
    
    
    (5,135
    )
    
    
    (7,567
    )Restructuring balance, September 29, 2006
    
    $
    196
    
    
    $
    15,288
    
    
    $
    15,484
 Fiscal 2004 Restructuring Actions
 83




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##### Table of Contents



Workforce
    
    
    FacilityReductions
    
    
    and Other
    
    
    TotalRecorded in purchase price allocation
    
    $
    1,300
    
    
    $
    13,509
    
    
    $
    14,809Adjusted to purchase price allocation
    
    
    210
    
    
    
    (3,554
    )
    
    
    (3,344
    )Cash payments
    
    
    (536
    )
    
    
    (788
    )
    
    
    (1,324
    )Restructuring balance, October 1, 2004
    
    
    974
    
    
    
    9,167
    
    
    
    10,141Adjusted to purchase price allocation
    
    
    12
    
    
    
    (4,967
    )
    
    
    (4,955
    )Cash payments
    
    
    (986
    )
    
    
    (855
    )
    
    
    (1,841
    )Restructuring balance, September 30, 2005
    
    
    
    
    
    
    3,345
    
    
    
    3,345Credited to costs and expenses
    
    
    
    
    
    
    (55
    )
    
    
    (55
    )Cash payments
    
    
    
    
    
    
    (603
    )
    
    
    (603
    )Restructuring balance, September 29, 2006
    
    $
    
    
    
    $
    2,687
    
    
    $
    2,687
   84




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##### Table of Contents



Workforce
    
    
    FacilityReductions
    
    
    and Other
    
    
    TotalCharged to costs and expenses
    
    $
    7,066
    
    
    $
    1,877
    
    
    $
    8,943Cash payments
    
    
    (2,368
    )
    
    
    (281
    )
    
    
    (2,649
    )Restructuring balance, October 1, 2004
    
    
    4,698
    
    
    
    1,596
    
    
    
    6,294Charged (credited) to costs and expenses
    
    
    1,504
    
    
    
    (11
    )
    
    
    1,493Cash payments
    
    
    (6,137
    )
    
    
    (754
    )
    
    
    (6,891
    )Restructuring balance, September 30, 2005
    
    
    65
    
    
    
    831
    
    
    
    896Charged (credited) to costs and expenses
    
    
    216
    
    
    
    (37
    )
    
    
    179Cash payments
    
    
    (281
    )
    
    
    (719
    )
    
    
    (1,000
    )Restructuring balance, September 29, 2006
    
    $
    
    
    
    $
    75
    
    
    $
    75
 Fiscal 2003 Corporate Restructuring Plan 
  Workforce
    
    
    FacilityReductions
    
    
    and Other
    
    
    TotalRestructuring balance, October 3, 2003
    
    $
    817
    
    
    $
    2,830
    
    
    $
    3,647Charged to costs and expenses
    
    
    269
    
    
    
    98
    
    
    
    367Cash payments
    
    
    (1,086
    )
    
    
    (933
    )
    
    
    (2,019
    )Restructuring balance, October 1, 2004
    
    
    
    
    
    
    1,995
    
    
    
    1,995Credited to costs and expenses
    
    
    
    
    
    
    (950
    )
    
    
    (950
    )Cash payments
    
    
    
    
    
    
    (329
    )
    
    
    (329
    )Restructuring balance, September 30, 2005
    
    
    
    
    
    
    716
    
    
    
    716Charged to costs and expenses
    
    
    
    
    
    
    82
    
    
    
    82Cash payments
    
    
    
    
    
    
    (637
    )
    
    
    (637
    )Restructuring balance, September 29, 2006
    
    $
    
    
    
    $
    161
    
    
    $
    161
 Fiscal 2002 Corporate and Manufacturing Restructuring Plan
  85




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##### Table of Contents



Workforce
    
    
    FacilityReductions
    
    
    and Other
    
    
    TotalRestructuring balance, October 3, 2003
    
    $
    498
    
    
    $
    7,946
    
    
    $
    8,444Credited to costs and expenses
    
    
    (46
    )
    
    
    
    
    
    
    (46
    )Cash payments
    
    
    (452
    )
    
    
    (3,949
    )
    
    
    (4,401
    )Restructuring balance, October 1, 2004
    
    
    
    
    
    
    3,997
    
    
    
    3,997Charged to costs and expenses
    
    
    
    
    
    
    554
    
    
    
    554Cash payments
    
    
    
    
    
    
    (3,561
    )
    
    
    (3,561
    )Restructuring balance, September 30, 2005
    
    
    
    
    
    
    990
    
    
    
    990Credited to costs and expenses
    
    
    
    
    
    
    (81
    )
    
    
    (81
    )Cash payments
    
    
    
    
    
    
    (861
    )
    
    
    (861
    )Restructuring balance, September 29, 2006
    
    $
    
    
    
    $
    48
    
    
    $
    48
  Integration Costs
  Asset Impairments
  Other Special Charges
   86




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##### Table of Contents



12. Other Expense (Income), Net
  Fiscal Year Ended2006
    
    
    2005
    
    
    2004Investment and interest income
    
    $
    (17,921
    )
    
    $
    (6,457
    )
    
    $
    (7,742
    )Change in the fair value of the conversion right under the
Skyworks 15% convertible senior subordinated notes
    
    
    
    
    
    
    
    
    
    
    6,292Decrease (increase) in the fair value of derivative instruments
    
    
    16,666
    
    
    
    (7,147
    )
    
    
    92,663Impairment of equity securities
    
    
    19,872
    
    
    
    
    
    
    
    13,423Realized gains on sales of equity securities
    
    
    (4,414
    )
    
    
    (91,285
    )
    
    
    (24,071
    )Losses (earnings) of equity method investments
    
    
    8,164
    
    
    
    10,642
    
    
    
    (14,422
    )Other, net
    
    
    269
    
    
    
    (1,166
    )
    
    
    2,957$
    22,636
    
    
    $
    (95,413
    )
    
    $
    69,100
     87




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##### Table of Contents



13. Related Party Transactions
 Jazz Semiconductor, Inc.
  Merger Agreement
  Wafer and Probe Services Purchases
  88




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##### Table of Contents



Lease Agreement 
 Royalty Agreement
 Services Agreements
 Mindspeed Technologies, Inc.
  Credit Facility
 Lease Agreement
 Skyworks Solutions, Inc.
  Inventory and Assembly and Test Services Purchases
 Notes Receivable
 89




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##### Table of Contents



Sublease Rent Share Agreement
 14. Segment Information
  Fiscal Year Ended2006
    
    
    2005
    
    
    2004United States
    
    $
    75,851
    
    
    $
    70,192
    
    
    $
    82,508Other Americas
    
    
    23,871
    
    
    
    14,988
    
    
    
    18,756Total Americas
    
    
    99,722
    
    
    
    85,180
    
    
    
    101,264China
    
    
    486,100
    
    
    
    332,441
    
    
    
    327,267South Korea
    
    
    105,541
    
    
    
    48,825
    
    
    
    41,668Taiwan
    
    
    62,985
    
    
    
    96,026
    
    
    
    140,257Other Asia-Pacific
    
    
    144,206
    
    
    
    103,065
    
    
    
    212,501Total Asia-Pacific
    
    
    798,832
    
    
    
    580,357
    
    
    
    721,693Europe, Middle East and Africa
    
    
    72,233
    
    
    
    57,202
    
    
    
    78,897$
    970,787
    
    
    $
    722,739
    
    
    $
    901,854
   Fiscal Year Ended2006
    
    
    2005
    
    
    2004Broadband Access Products
    
    $
    267,847
    
    
    $
    192,038
    
    
    $
    254,581Broadband Media Processing Products
    
    
    291,091
    
    
    
    155,394
    
    
    
    214,186Universal Access Products
    
    
    324,108
    
    
    
    279,159
    
    
    
    323,073Wireless Networking Products and Other
    
    
    87,741
    
    
    
    96,148
    
    
    
    110,014$
    970,787
    
    
    $
    722,739
    
    
    $
    901,854
  September 29,
    
    
    September 30,2006
    
    
    2005United States
    
    $
    90,095
    
    
    $
    76,270Asia-Pacific
    
    
    17,943
    
    
    
    6,845Europe, Middle East and Africa
    
    
    2,201
    
    
    
    2,702$
    110,239
    
    
    $
    85,817
 90




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##### Table of Contents



15. Quarterly Results of Operations (Unaudited)
  Fiscal Quarter EndedFiscal 2006
    
    Sep. 29, 2006
    
    Jun. 30, 2006
    
    Mar. 31, 2006
    
    Dec. 30, 2005Net revenues
    
    $
    245,863
    
    
    $
    251,635
    
    
    $
    242,583
    
    
    $
    230,706Gross margin
    
    
    112,478
    
    
    
    131,537
    
    
    
    106,210
    
    
    
    95,753Net loss
    
    
    (21,098
    )
    
    
    (67,090
    )
    
    
    (10,132
    )
    
    
    (24,271
    )Net loss per share, basic
    
    
    (0.04
    )
    
    
    (0.14
    )
    
    
    (0.02
    )
    
    
    (0.05
    )Net loss per share, diluted
    
    
    (0.04
    )
    
    
    (0.14
    )
    
    
    (0.02
    )
    
    
    (0.05
    )
 Fiscal Quarter EndedFiscal 2005
    
    Sep. 30, 2005
    
    Ju1. 1, 2005
    
    Apr. 1, 2005
    
    Dec. 31, 2004Net revenues
    
    $
    214,916
    
    
    $
    197,464
    
    
    $
    169,738
    
    
    $
    140,621Gross margin
    
    
    86,604
    
    
    
    75,034
    
    
    
    59,972
    
    
    
    7,156Net income (loss)
    
    
    50,081
    
    
    
    (32,166
    )
    
    
    (73,187
    )
    
    
    (120,718
    )Net income (loss) per share, basic
    
    
    0.11
    
    
    
    (0.07
    )
    
    
    (0.16
    )
    
    
    (0.26
    )Net income (loss) per share, diluted
    
    
    0.10
    
    
    
    (0.07
    )
    
    
    (0.16
    )
    
    
    (0.26
    )
     16. Subsequent Events
 Issuance of Floating Rate Senior Secured Notes
  Extension of Wachovia Credit Facility
  91




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
         
 92




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##### Table of Contents



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
 93




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
          
 94




---



##### Table of Contents



Changes in Internal Control Over Financial Reporting
  
 Item 9B. Other Information
  95




---



##### Table of Contents



PART III
  
 Item 10. Directors and Executive Officers of the Registrant
 (a)
    
    Executive Officers  See Executive Officers in Part I, Item 1 hereof.
 (b)
    
    Directors  The information required by this Item is incorporated herein by reference to the
section entitled Election of Directors in the Proxy Statement.
 (c)
    
    Audit Committee Financial Expert  The board of directors has determined that D. Scott
Mercer, Chairman of the Audit Committee, is an audit committee financial expert and
independent as defined under applicable SEC and Nasdaq rules. The boards affirmative
determination was based, among other things, upon his extensive experience as chief financial
officer of Western Digital Corporation and, prior to that, as Vice President, Finance,
European Operations of Dell Inc.
 (d)
    
    We adopted our Standards of Business Conduct, a code of ethics that applies to all
employees, including our executive officers. A copy of the Standards of Business Conduct is
posted on our Internet site at www.conexant.com. In the event that we make any amendment to,
or grant any waivers of, a provision of the Standards of Business Conduct that applies to the
principal executive officer, principal financial officer, or principal accounting officer that
requires disclosure under applicable SEC rules, we intend to disclose such amendment or waiver
and the reasons therefor on our Internet site.
 (e)
    
    Section 16(a) Beneficial Ownership Reporting Compliance  The information required by this
Item is incorporated herein by reference to the section entitled Other Matters  Section
16(a) Beneficial Ownership Reporting Compliance in the Proxy Statement.
 
 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 Accounting Fees and Services
  96




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##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
 Financial Statements
  PageConsolidated Balance Sheets
    
    
    49Consolidated Statements of Operations
    
    
    50Consolidated Statements of Cash Flows
    
    
    51Consolidated Statements of Shareholders Equity and Comprehensive Loss
    
    
    52
 Supplemental Schedules
 PageSchedule II  Valuation and Qualifying Accounts
    
    
    106
  Exhibits
 Exhibits
    
    Description3-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 February 1, 2000 between the Company and
The Bank of New York Trust Company, N.A., as successor to 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.4-b-2
    
    Indenture dated as of March 7, 2006 by and between the Company
and The Bank of New York Trust Company, N.A., as successor to
J.P. Morgan Trust Company, National Association, as trustee,
including the form of the Companys 4% Convertible Subordinated
Notes due March 1, 2026 attached as Exhibit A thereto, filed as
Exhibit 4.1 to the Companys Current Report on Form 8-K dated
March 8, 2006, is incorporated herein by reference.
 97




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##### Table of Contents



Exhibits
    
    Description4-b-3
    
    Indenture dated as of November 13, 2006 among the Company, the
subsidiary guarantors party thereto and The Bank of New York
Trust Company, N.A., as trustee, including the form of the
Companys Floating Rate Senior Secured Note due 2010 attached as
Exhibit A thereto, filed as Exhibit 4.1 to the Companys Current
Report on Form 8-K dated November 16, 2006, is incorporated
herein by reference.4-b-4
    
    Registration Rights Agreement dated as of November 13, 2006 by
and among the Company, the subsidiary guarantors party thereto
and J.P. Morgan Securities, Inc., on behalf of the initial
purchasers, filed as Exhibit 4.3 to the Companys Current Report
on Form 8-K dated November 16, 2006, 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 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-4
    
    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-5
    
    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-6
    
    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-7
    
    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-8
    
    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-9
    
    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-10
    
    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.*10-a-11
    
    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.
 98




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##### Table of Contents



Exhibits
    
    Description*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.
 99




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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 and certain executives of the Company.*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
    
    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-5
    
    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-6
    
    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-7
    
    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.*10-k-8
    
    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-9
    
    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.
 100




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##### Table of Contents



Exhibits
    
    Description*10-k-10
    
    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-11
    
    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-12
    
    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-13
    
    Amendment dated as of January 20, 2006 between the Company and
F.M. Rhodes to Employment Agreement dated as of January 15, 2004,
as amended, between the Company and F.M. Rhodes, filed as Exhibit
10.2 to the Companys Quarterly Report on Form 10-Q for the
quarter ended March 31, 2006, is incorporated herein by
reference.*10-k-14
    
    Separation and Release Agreement dated as of July 5, 2006 by and
between the Company and F.M. Rhodes, filed as Exhibit 99.1 to the
Companys Current Report on Form 8-K dated July 7, 2006, 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. **
 101




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##### Table of Contents



Exhibits
    
    Description10-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.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, is incorporated herein by reference.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, is incorporated herein
by reference.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, is
incorporated herein by reference.10-r-4
    
    Extension Letter Agreement dated November 21, 2006 by and among
Wachovia Bank, National Association, the Company and Conexant
USA, LLC with respect to the Receivables Purchase Agreement
constituting Exhibit 10-r-1 hereto, the Credit and Security
Agreement constituting Exhibit 10-r-2 hereto and the Servicing
Agreement constituting Exhibit 10-r-3 hereto.*10-s-1
    
    Deferred Compensation Plan II effective January 1, 2005, filed as
Exhibit 99.1 to the Companys Current Report on Form 8-K dated
January 5, 2006, is incorporated herein by reference.10-t-1
    
    Agreement and Plan of Merger dated as of September 26, 2006 by
and among Acquicor Technology Inc., Joy Acquisition Corp., Jazz
Semiconductor, Inc. and T.C. Group, L.L.C., as the stockholders
representative, filed as Exhibit 10.1 to the Companys Current
Report on Form 8-K dated October 10, 2006, is incorporated herein
by reference.10-t-2
    
    Stockholder Support Agreement dated as of September 26, 2006 by
and among Acquicor Technology Inc., the Company, RF Micro
Devices, Inc., Carlyle Partners III, L.P., CP III Coinvestment,
L.P. and Carlyle High Yield Partners, L.P., filed as Exhibit 10.2
to the Companys Current Report on Form 8-K dated October 10,
2006, is incorporated herein by reference.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.
 102




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##### Table of Contents



Exhibits
    
    Description31.1
    
    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
  103




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##### Table of Contents



SIGNATURES
  CONEXANT SYSTEMS, INC.By:
    /s/      Dwight W. DeckerDwight W. DeckerChairman
of the Board and Chief Executive      Officer 104




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##### Table of Contents



Signature
    
    Title/s/ Dwight W. Decker
    
    Chairman of the Board and Chief Executive OfficerDwight W. Decker
    
    (Principal Executive Officer)J. Scott Blouin*
    
    Senior Vice President and Chief Financial OfficerJ.Scott Blouin
    
    (Principal Financial and Accounting Officer)Donald R. Beall*
    
    DirectorDonald R. BeallSteven J. Bilodeau*
    
    DirectorSteven J. BilodeauF. Craig Farrill*
    
    DirectorF. Craig FarrillBalakrishnan S. Iyer*
    
    DirectorBalakrishnan S. IyerJohn W. Marren*
    
    DirectorJohn W. MarrenD. Scott Mercer*
    
    DirectorD. Scott MercerJerre L. Stead*
    
    DirectorJerre L. SteadGiuseppe Zocco*
    
    DirectorGiuseppe Zocco
 
 *   By:
    /s/ Dennis E. OReillyDennis E. OReilly, Attorney-in-Fact**  105




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##### Table of Contents



SCHEDULE II
 VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
 ChargedBalance at
    
    (Credited)
    
    
    
    
    
    Balance atBeginning
    
    to Costs and
    
    Deductions
    
    End ofDescription
    
    of Year
    
    Expenses
    
    (1)
    
    YearFiscal year ended September 29, 2006:Allowance for doubtful accounts
    
    $
    3,803
    
    
    $
    (2,192
    )
    
    $
    (769
    )
    
    $
    842Reserve for sales returns
    
    
    5,789
    
    
    
    134
    
    
    
    (2,675
    )
    
    
    3,248Reserve for pricing allowances
    
    
    5,400
    
    
    
    (4,900
    )
    
    
    
    
    
    
    500Allowance for excess and
obsolete inventories
    
    
    44,833
    
    
    
    3,048
    
    
    
    (11,249
    )
    
    
    36,632Allowance for lower of cost or
market inventories
    
    
    6,739
    
    
    
    (4,932
    )
    
    
    (46
    )
    
    
    1,761Fiscal year ended September 30, 2005:Allowance for doubtful accounts
    
    $
    5,974
    
    
    $
    (1,587
    )
    
    $
    (584
    )
    
    $
    3,803Reserve for sales returns
    
    
    9,474
    
    
    
    24,179
    
    
    
    (27,864
    )
    
    
    5,789Reserve for pricing allowances
    
    
    2,500
    
    
    
    2,900
    
    
    
    
    
    
    
    5,400Allowance for excess and
obsolete inventories
    
    
    23,319
    
    
    
    30,080
    
    
    
    (8,566
    )
    
    
    44,833Allowance for lower of cost or
market inventories
    
    
    
    
    
    
    14,004
    
    
    
    (7,265
    )
    
    
    6,739Fiscal year ended October 1, 2004:Allowance for doubtful accounts
    
    $
    1,547
    
    
    $
    4,475
    
    
    $
    (48
    )
    
    $
    5,974Reserve for sales returns
    
    
    1,891
    
    
    
    14,504
    
    
    
    (6,921
    )
    
    
    9,474Reserve for pricing allowances
    
    
    1,500
    
    
    
    1,000
    
    
    
    
    
    
    
    2,500Allowance for excess and
obsolete inventories
    
    
    25,177
    
    
    
    4,463
    
    
    
    (6,321
    )
    
    
    23,319
 
 (1)
    
    Deductions in the allowance for doubtful accounts reflect amounts written off. 106




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##### Table of Contents



EXHIBIT INDEX
 Exhibits
    
    Description*10-k-2
    
    Schedule identifying agreements substantially identical to the
Employment Agreement constituting Exhibit 10-k-1 hereto entered
into by the Company and certain executives of the Company.*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.10-r-4
    
    Extension Letter Agreement dated November 21, 2006 by and among
Wachovia Bank, National Association, the Company and Conexant USA,
LLC with respect to the Receivables Purchase Agreement
constituting Exhibit 10-r-1 hereto, the Credit and Security
Agreement constituting Exhibit 10-r-2 hereto and the Servicing
Agreement constituting Exhibit 10-r-3 hereto.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. 107