UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K/A

þ   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended March 25, 2006

o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from                      to

CIRRUS LOGIC, INC.

DELAWARE		77-0024818
(State of incorporation)		(I.R.S. ID)

2901 Via Fortuna, Austin, TX 78746

(512) 851-4000

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

None

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

Common Stock, $0.001 Par Value

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Act. YES þ NO o

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES o NO þ

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. YES o NO þ

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer o       Accelerated filer þ       Non-accelerated filer o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o NO þ

     The aggregate market value of the registrant’s voting and non-voting stock held by non-affiliates was approximately $410 million based upon the closing price reported on the NASDAQ National Market as of September 24, 2005.

     As of March 31, 2007, the number of outstanding shares of the registrant’s Common Stock, $0.001 par value, was 88,163,467.

DOCUMENTS INCORPORATED BY REFERENCE

     Certain information contained in the registrant’s proxy statement for its annual meeting of stockholders held on July 28, 2006 is incorporated by reference in Part III of this Amended Annual Report on Form 10-K/A.

 

 

EXPLANATORY NOTE

     Cirrus Logic, Inc. (“Cirrus,” “We,” “Us,” “Our,” or the “Company”) is filing this Amendment No.1 (“Form 10-K/A”) to our annual report on Form 10-K for the fiscal year ended March 25, 2006 (“the Original Filing”) as filed with the Securities and Exchange Commission (the “Commission”) on May 25, 2006 to restate our:

	•		Consolidated balance sheets for the fiscal years ended March 25, 2006 and March 26, 2005;
	•		Consolidated statements of operations, stockholders’ equity and cash flows for the fiscal years ended March 25, 2006, March 26, 2005 and March 27, 2004;
	•		Unaudited quarterly financial data for each of the quarters in the fiscal years ended March 25, 2006 and March 26, 2005;
	•		Selected financial data as of and for the fiscal years ended March 25, 2006, March 26, 2005, March 27, 2004, March 29, 2003 and March 30, 2002; and
	•		Related disclosures.

     These items are being restated to reflect the recognition of $32.4 million in additional share-based compensation expense resulting from the investigation of past stock grants to non-employee directors, executive officers and employees as described below in this Explanatory Note. Within stockholder’s equity, additional paid in capital increased by $32.3 million and accumulated deficit increased by $32.4 million. The restatement had no net effect on the totals of operating, investing and financing cash flows in the consolidated statement of cash flows. A detailed discussion of the financial effects of these matters is also included in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Restatement of Consolidated Financial Statements” and Note 1A, “Restatement of Consolidated Financial Statements,” of the Notes to Consolidated Financial Statements.

     We are making the restatement in accordance with generally accepted accounting principles to record the following:

     We will also separately amend our quarterly report on Form 10-Q for the three months ended June 24, 2006. Other previously filed annual reports on Form 10-K and quarterly reports on Form 10-Q affected by the restatements have not been amended and should not be relied upon. Further, all reports of our registered public accounting firm, all earnings press releases, and all similar communications for the restated periods should not be relied upon. All information in this Form 10-K/A is as of March 25, 2006 and does not reflect events occurring after the date of the Original Filing, other than the restatement and updating of certain disclosures affected by events related to the results of the investigation of the company’s historical stock option grants. For the convenience of the reader, this Form 10-K/A sets forth the Original Filing in its entirety, as amended and modified to reflect the restatement. The following items have been amended principally as a result of, and to reflect, the restatement, and no other information in the Original Filing is amended hereby as a result of the restatement:

Part I — Item 1: Business

Part I — Item 1A: Risk Factors;

Part II — Item 6: Selected Consolidated Financial Data;

Part II — Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations;

Part II — Item 8: Financial Statements and Supplementary Data, including the Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting and the Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements; and

Part II – Item 9A: Controls and Procedures.

     This Form 10-K/A also includes an updated Exhibit 23.1 Consent of Independent Registered Public Accounting Firm and, in accordance with applicable Commission rules, updated certifications from our Acting President and Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) as Exhibits 31.1, 31.2, 32.1 and 32.2.

Review of Consolidated Financial Statements Based on Review of Stock Option Practices

Background Investigation

     Our decision to restate our Consolidated Financial Statements was based on the results of a voluntary internal review and independent investigation into past stock option granting practices. In October 2006, we announced that an internal review of past practices related to grants of stock options had revealed information that raised potential questions about the dates used to account for certain stock option grants. We also announced that, at the recommendation of the Audit Committee of the Company’s Board of Directors (the “Board”), the Board appointed an independent director to serve as a Special Committee to conduct an investigation into our historic stock option granting practices.

     The Special Committee retained independent legal counsel to assist in the investigation. During the eight-month investigation, the Special Committee and its independent counsel, assisted by independent forensic accountants, reviewed the facts and circumstances surrounding stock option grants made to executive officers, employees and non-employee directors, searched relevant physical and electronic documents and interviewed current and former directors, officers and employees. This review included an examination of all stock option grants from January 1, 1997 to December 31, 2006, encompassing approximately 42.3 million stock options granted to employees and non-employee directors on 148 different grant dates. The Special Committee’s legal and accounting advisors identified, preserved, collected, and reviewed over 104 gigabytes of electronic information, including approximately 1.6 million pages of electronic and hard copy files, and conducted 25 interviews of current and former employees and members of the Board.

     In March 2007, we announced that the Special Committee had reported its principal findings to the Board relating to the above investigation. Based on the report of the Special Committee and on management’s preliminary conclusions and recommendations, the Board concluded that incorrect measurement dates were used for financial accounting purposes for certain stock options granted between January 1, 1997 and December 31, 2005. We disclosed the fact that the anticipated non-cash charges required to correct the discrepancy would be material and that we expected to restate our financial statements for fiscal years 2001 through 2006 and for the first quarter of fiscal year 2007. Accordingly, we announced that based on the findings of the Special Committee, and the recommendations of management and the Audit Committee, the Board had concluded that the financial statements, related notes and selected financial data and all financial press releases and similar communications issued by us and the related reports of the Company’s independent registered public accounting firm relating to fiscal years 2001 through 2006, and the first fiscal quarter of 2007, should no longer be relied upon.

     As a result of the findings of the Special Committee detailed below, the Company has recognized $32.4 million in additional share-based compensation expense arising from stock grants to executive officers and employees. Of this amount, approximately $9.3 million related to options granted to executive officers who, at the time of the grant, were subject to the reporting requirements under Section 16 of the Exchange Act of 1934. The Special Committee arrived at the following principal findings with respect to the stock option practices of the Company:

•

The Company’s stock plan administrative deficiencies between January 1, 1997 and December 31, 2005 led to a number of misdated option grants.

•

Prior to 2003, the limited controls and the lack of definitive processes for stock option granting and approval allowed for potential abuse, including the use of hindsight, in the establishment of more favorable grant dates for certain options.

     Based on the results of its investigation, the Special Committee has recommended a number of remedial actions. The Company is currently reviewing these recommendations and developing and implementing a remediation plan associated with historical stock option grants and the grant of future equity awards. Based on its review of the Special Committee’s findings, the Company does not believe that, in the few instances when stock grant dates were selected by management either with hindsight or prior to receiving all required approvals, that any employee, who at the time of the grant was an executive officer, has exercised or realized any financial gain from those grants.

     Subsequent to our press release dated March 2, 2007, the Company identified two other issues based upon the findings of the Special Committee that led to an increase of $8.6 million in additional share-based compensation expense recognized in the consolidated financial statements in excess of the previous estimate of $22 million to $24 million. These issues are described as follows:

	•		Our previous estimate should have included the intrinsic value of 1.8 million options canceled in relation to a Company wide option exchange in fiscal year 2003, which led to an increase in share-based compensation expense. Under EITF 00-23, “Issues Related to the Accounting for Stock Compensation under APB Opinion No. 25 and FASB Interpretation No. 44,” Issue 37(a), the compensation cost measured on the original grant date of the re-priced stock option grants that remained unrecognized at the time of the option exchange should have been immediately recognized as expense on the day of the exchange and included in our original estimate. Of the $8.6 million in additional share-based compensation expense beyond our previous estimate, $6.5 million related to the correction of this error.
	•		Our previous estimate should have included certain share-based compensation expenses related to certain modifications to the terms of stock options grants for certain individual employees at the time of their

termination. Of the $8.6 million in additional share-based compensation expense beyond our previous estimate, $2.1 million related to correction of these types of errors.

     As of the date of this filing, the Company has paid a total of approximately $2.9 million to independent legal counsel, independent forensic accountants, and our independent registered public accounting firm in connection with the eight month investigation into past stock option granting practices.

Share-Based Compensation Summary

     In accordance with Accounting Principles Board Opinion No. 25 (“APB No. 25”), “Accounting for Stock Issued to Employees,” our restated consolidated financial statements reflect additional compensation expense to the extent the market value of a share of our common stock on the correct measurement date exceeded the exercise price of the option. The additional non-cash compensation expense was amortized over the required service period, generally over the vesting periods of the respective grants. The following shows the share-based compensation adjustments and the related tax effects of all adjustments for fiscal years 2002 through 2006. The decrease in net income for each type of adjustment is as follows (in thousands):

		Net Income				Non-cash Stock
		(Loss)				Compensation												Net Income
		[Previously				Expense				Tax Effect of				Total				(Loss)
		Reported]				Adjustment				Adjustment				Adjustments				[Restated]
Fiscal Year 2002		$	(206,079	)		$	(9,799	)		$	-			$	(9,799	)		$	(215,878	)
Fiscal Year 2003			(199,213	)			(6,986	)			-				(6,986	)			(206,199	)
Fiscal Year 2004			46,503				(3,655	)			-				(3,655	)			42,848
Fiscal Year 2005			(13,388	)			(108	)			-				(108	)			(13,496	)
Fiscal Year 2006			54,145				(1,719	)			-				(1,719	)			52,426

     The effect that these adjustments had on diluted earnings per share for the fiscal years 2002 to 2006 is as follows:

		Earnings (Loss)								Earnings
		Per Share								(Loss) Per
		[Previously								Share
		Reported]				Adjustments				[Restated]
Fiscal Year 2002		$	(2.66	)		$	(0.13	)		$	(2.79	)
Fiscal Year 2003			(2.39	)			(0.08	)			(2.47	)
Fiscal Year 2004			0.54				(0.04	)			0.50
Fiscal Year 2005			(0.16	)			(0.00	)			(0.16	)
Fiscal Year 2006			0.62				(0.02	)			0.60

     A summary of the cumulative effect on the components of stockholders’ equity resulting from the restatement of share-based compensation as of March 29, 2003 and for each subsequent fiscal year thereafter is as follows (in thousands):

										Unearned				Net Impact to
		Paid-in				Retained				Deferred				Stockholders’
Adjustments to Stockholder’s Equity		Capital				Earnings				Compensation				Equity
Fiscal Year 2003 & Prior			29,392				(26,941	)			(3,786	)			(1,335	)
Fiscal Year 2004			2,109				(3,655	)			1,487				(59	)
Fiscal Year 2005			(481	)			(108	)			1,452				863
Fiscal Year 2006			1,592				(1,719	)			514				387
Cumulative effect through Fiscal Year 2006		$	32,612			$	(32,423	)		$	(333	)		$	(144	)

     The net impact to Stockholder’s Equity detailed above was completely offset by a change in other accrued liabilities for each period presented. These were the only adjustments made to our consolidated balance sheet as a result of the restatement. The net book value of our deferred tax assets did not change as a result of the restatement as we continue to provide a full valuation allowance against them. The net book value of our inventory did not change due to the fact that the amount of the additional share-based compensation expense required to be capitalized as inventory was negligible.

     The incremental effect of recognizing additional share-based compensation expense resulting from grants with incorrect measurement dates is as follows (in thousands):

		Pre-Tax				After-Tax
		Expense				Expense
Fiscal Year 1998			326				326
Fiscal Year 1999			2,083				2,083
Fiscal Year 2000			2,100				2,100
Fiscal Year 2001			5,647				5,647
Fiscal Year 2002			9,799				9,799
Fiscal Year 2003			6,986				6,986
Total 1998 – 2003 effect			26,941				26,941
Fiscal Year 2004			3,655				3,655
Fiscal Year 2005			108				108
Fiscal Year 2006			1,719				1,719
			5,482				5,482
		$	32,423			$	32,423

Litigation Summary

     On January 5, 2007, a purported stockholder filed a derivative lawsuit in state district court in Travis County, Texas against current and former officers and directors of Cirrus Logic and against the Company, as a nominal defendant, alleging various breaches of fiduciary duties, conspiracy, improper financial reporting, insider trading, violations of the Texas Securities Act, unjust enrichment, accounting, gross mismanagement, abuse of control, rescission, and waste of corporate assets related to certain prior grants of stock options by the Company. Our response to the lawsuit is currently due on April 20, 2007.

     On March 19, 2007, another purported stockholder filed a derivative lawsuit related to the Company’s prior stock option grants in the United States District Court for the Western District of Texas – Austin Division against current and former officers and directors of Cirrus Logic and against the Company, as a nominal defendant. The individual defendants named in this lawsuit overlap, but not completely, with the state suit. The lawsuit alleges many of the causes of action alleged in the Texas state court suit, but also includes claims for alleged violations of Section 10(b) of the Exchange Act and Rule 10b-5, violations of Section 14(a) of the Exchange Act and violations of Section 20(a) of the Exchange Act. On April 10, 2007, we filed a motion to dismiss the complaint on the grounds that the plaintiff was supposed to make demands on the Board before filing the lawsuit. The plaintiff has not filed a response and no hearing before the court is currently set on the motion to dismiss.

     On March 30, 2007, a different purported stockholder filed a nearly identical derivative lawsuit to the March 19, 2007 derivative lawsuit in the United States District Court for the Western District of Texas – Austin Division with identical allegations against the same defendants. We are currently evaluating this plaintiff’s claims.

CIRRUS LOGIC, INC.

FORM 10-K/A

For The Fiscal Year Ended March 25, 2006

INDEX

PART I
Item 1.		Business			8
Item 1A.		Risk Factors Affecting Our Business and Prospects			13
Item 1B.		Unresolved Staff Comments			21
Item 2.		Properties			21
Item 3.		Legal Proceedings			22
Item 4.		Submission of Matters to a Vote of Securities Holders			24
PART II
Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			24
Item 6.		Selected Consolidated Financial Data			25
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			26
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk			49
Item 8.		Financial Statements and Supplementary Data			50
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			91
Item 9A.		Controls and Procedures			91
PART III
Item 10.		Directors and Executive Officers of the Registrant			94
Item 11.		Executive Compensation			94
Item 12.		Security Ownership of Certain Beneficial Owners and Management			95
Item 13.		Certain Relationships and Related Transactions			95
Item 14.		Principal Accountant Fees and Services			95
PART IV
Item 15.		Exhibits and Financial Statement Schedules			95
		Signatures			96
		Exhibit Index
		Financial Certifications
Consent of Ernst & Young LLP
Certification of Acting CEO, Pursuant to Section 302
Certification of CFO, Pursuant to Section 302
Certification of Acting CEO, Pursuant to Section 906
Certification of CFO, Pursuant to Section 906

PART I

ITEM 1. Business

     Cirrus Logic, Inc. (“Cirrus Logic,” “Cirrus,” “We,” “Us,” “Our,” or the “Company”) develops high-precision, analog and mixed-signal integrated circuits (“ICs”) for a broad range of consumer and industrial markets. Building on our diverse analog mixed-signal patent portfolio, Cirrus Logic delivers highly optimized products for consumer and commercial audio, automotive entertainment and industrial applications. We develop and market ICs and embedded software used by original equipment manufacturers. We also provide complete system reference designs based on our technology that enable our customers to bring products to market in a timely and cost-effective manner.

     We were founded in 1984 and were reincorporated in the State of Delaware in February 1999. Our headquarters are in Austin, Texas with design centers in Boulder, Colorado and Beijing, China and sales locations throughout the United States. We also serve customers from international offices in Europe and Asia, including the People’s Republic of China, Hong Kong, Korea, Japan, Singapore and Taiwan. Our common stock, which has been publicly traded since 1989, is listed on the NASDAQ National Market under the symbol CRUS.

     We maintain a Web site with the address www.cirrus.com. We are not including the information contained on our Web site as a part of, or incorporating it by reference into, this Amended Annual Report on Form 10-K/A. We make available free of charge through our Web site our Amended Annual Reports on Form 10-K/A, our Amended Quarterly Reports on Form 10-Q/A, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments to these reports, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission (“SEC”). To receive a free copy of this Form 10-K/A, please forward your written request to Cirrus Logic, Inc., Attn: Investor Relations, 2901 Via Fortuna, Austin, Texas 78746, or via email at InvestorRelations@cirrus.com.

Background of the Semiconductor Industry

     In general, the semiconductor industry produces three types of products: analog, digital and mixed-signal. Analog semiconductors process a continuous range of values that can regulate functions such as temperature, speed, sound, video images and electrical current. Digital semiconductors process discrete values, for example, two values, such as 0s and 1s, used by computers. Mixed-signal semiconductors combine analog and digital functions in a single product.

     In the consumer electronics industry, audio soundtracks and video images were transmitted, edited and stored almost exclusively using analog formats. Given advances in technology, audio and video now can be stored in digital format. This format allows for the manipulation of audio and video signals through digital signal processors (“DSPs”). With digital signal processors, digital audio and digital video signals can be compressed, improving storage and efficiencies in transmissions and they can be transmitted and reproduced without degradation in the sound or images. The digital format also allows for greater security from unauthorized copying, better editing capabilities and random access to data.

     In addition, increasing advances in semiconductor technology are resulting in the convergence of consumer electronics products, which means cost savings and added convenience and functionality for consumers. For example, compact disc (“CD”) players were introduced to play audio content in the CD format only. Later, digital video disc (“DVD”) players were introduced, combining audio with video. These consumer electronics products now support additional audio and video formats, such as MP3 audio and MPEG-4 video. As these digital home entertainment systems have converged and have become increasingly complex, a need has arisen among makers of these systems for sophisticated IC chips that have many features and are cost-effective.

     Manufacturers of consumer electronics products also face expedited time-to-market demands. In addition, because analog or mixed-signal IC design is a specialized field of IC design, manufacturers increasingly are asking third parties to provide advanced, analog or mixed-signal ICs. The design of the analog component of a mixed-signal IC is complex and difficult, and requires engineers to optimize speed, power and resolution within standard manufacturing processes.

Markets and Products

     We are focused on becoming a leader in high-precision analog and mixed-signal ICs for a broad range of consumer and industrial markets. During fiscal year 2006, Cirrus Logic sold its digital video product line assets to Magnum Semiconductor, a privately held company formed by an investment group led by Investcorp and August Capital. By selling these assets, Cirrus Logic re-aligned its business focus around its core analog, mixed-signal and embedded integrated circuit product lines for audio and industrial markets. Our primary product lines include:

Mixed-Signal Audio Products: High-precision analog and mixed-signal products for consumer, professional, and automotive entertainment markets.

Industrial Products: High-precision analog and mixed-signal components for industrial and medical measurement applications.

Embedded Products: High-precision processors and software for consumer audio, professional audio and industrial applications.

     We offer more than 600 products to over 2,500 customers worldwide through both direct and indirect sales channels. Our major customers are among the world’s leading electronics manufacturers. We target both large existing and emerging growth consumer electronic markets that derive value from our expertise in advanced analog and mixed-signal design processing, systems-level integrated circuit engineering and embedded software development. We derive our revenue both domestically and from a variety of locations across the globe, including the People’s Republic of China, Hong Kong, Taiwan, Korea, Japan, the European Union, and the United Kingdom.

     The following table summarizes sales to customers that represent more than 10 percent of our consolidated net sales:

		March 25,				March 26,				March 27,
		2006				2005				2004
Avnet, Inc. (formerly Memec Holdings Group)			25	%			27	%			20	%

MIXED-SIGNAL AUDIO PRODUCTS

     We are a recognized leader in analog and mixed-signal audio converter technologies that enable today’s new consumer, professional and automotive entertainment products. Our products include analog-to-digital converters (“ADCs”), digital-to-analog converters (“DACs”), chips that integrate ADCs and DACs into a single IC, otherwise known as coder-decoders (“CODECs”), digital interface ICs, and volume and digital amplifiers controllers. Our broad portfolio of approximately 275 active proprietary products includes the following products, which have been added in the past fiscal year:

	§		the CS42L51 low-power stereo audio CODEC for portable consumer applications;
	§		the CS52L21 low-power stereo ADC for portable consumer applications;
	§		the CS4361 entry-level six channel audio DAC for consumer and automotive audio applications;
	§		the CS4270 stereo audio CODEC for entry and mid-tier consumer and automotive audio applications;
	§		the CS4364/84 six- and eight-channel DACs for consumer and automotive audio applications;
	§		the CS5364/66/68 multi channel ADC for professional audio applications;
	§		the CS5343/44 stereo ADC for consumer and automotive audio applications; and
	§		the CS3308/18 analog volume control for professional and high-end consumer audio applications.

     Our products are used in a wide array of consumer applications, including audio/video receivers (“AVRs”), DVD players and recorders, complete home theater systems, set-top boxes, MP3 players, gaming devices, sound cards and digital televisions. Applications for products within professional markets include digital mixing consoles, multi-track digital recorders and effects processors. Applications for products within automotive markets include amplifiers, satellite radio systems and multi-speaker car-audio systems.

     Our analog and mixed-signal audio converters support a customer base featuring such leading companies as Apple, BBK, Bose, Creative, Harman Kardon, iRiver, Korg, LG Electronics, Marantz, Panasonic, Philips, Sony, Samsung and Scientific-Atlanta. Key competitors to Cirrus Logic in this product line include Wolfson Microelectronics, AKM, Texas Instruments/Burr Brown, Analog Devices and Maxim.

INDUSTRIAL PRODUCTS

     We provide high-precision analog and mixed-signal ICs for industrial measurement applications. We have more than 150 active proprietary products which include ADCs, DACs, successive approximation register (“SAR”) converters and amplifier ICs. Our products are used in a wide array of high-precision, industrial measurement applications including industrial process control, analytical and medical instruments, consumer utility, digital power meters and seismic systems. New additions to our proprietary product portfolio in the past fiscal year include:

	§		the CS5373A seismic IC, which integrates a high-precision Delta Sigma modulator and a seismic test DAC into a single IC;
	§		the CS5461A and CS5463 power meter ICs for digital power measurement applications for emerging global markets; and
	§		the CS5464 and CS5467 power meter ICs targeting market-specific requirements in India and Japan, respectively.

     We have a wide-ranging industrial customer base including Actaris, Elymer, Hydroscience, Input/Output, Itron Electric Metering, Mettler-Toledo, National Instruments, and Schlumberger. Our key competitors in industrial applications include Analog Devices, Texas Instruments/Burr Brown, Maxim and Linear Technologies.

EMBEDDED PRODUCTS

     We provide a wide variety of embedded processor technologies for consumer and industrial markets. These embedded processors include audio DSPs primarily targeted at consumer audio applications, ARM7- and ARM9-based embedded processors focused on industrial applications, CobraNet^TM -enabled controller and audio system processor ICs for commercial and professional audio markets, and Ethernet MACs and T1/E1 line interface units. We offer advanced ICs combined with innovation in software solutions, providing our customers features that differentiate their products against their competitors. We offer a family of 24- and 32-bit audio DSPs targeted at a wide range of applications such as audio/video receivers, automotive entertainment, set-top boxes, digital televisions and DVD receivers. In addition, we provide our customers standard audio algorithms, as well as proprietary audio enhancement algorithms, such as Intelligent Room Calibration software.

     In the general-purpose processor segment, our ARM family of processors offers a highly integrated 32-bit System-On-A-Chip solution with a wide array of price-performance-integration points for industrial applications. These embedded processors support popular third-party software such as Linux and WinCE Net™.

     In networked digital audio applications, our proprietary CobraNet controller ICs enable delivery of uncompressed digital audio over Ethernet networks. In doing so, the distributed audio co-exists with standard Ethernet network data traffic. In December 2005, we announced an agreement with Gibson® USA to develop next-generation digital audio networking products beginning in calendar year 2006. Building upon CobraNet technology and Gibson’s MaGIC® technology, the new products will provide high-channel count media transport solutions for professional markets, while enabling secure multiroom distribution of media content in consumer markets.

          New embedded products introduced in the last fiscal year include:

	§		DSP Conductor, a unique software tool designed to streamline audio features programming for users of the CS496XXX family of audio systems processors featuring CobraNet technology; and
	§		A reference design in collaboration with Genesis Microchip for high-definition audio/video receivers, featuring Cirrus Logic’s CS495XX family of audio DSPs.

     Our embedded product customers include Bose, eTronics, Harman Kardon, Hitachi, Kenwood, Logitech, Marantz, Onkyo, Panasonic, Pioneer, RCA/Thomson S.A., Sharp and Sony. Our competitors in embedded product solutions include Analog Devices, Texas Instruments/Burr Brown, Freescale Semiconductor, Samsung, Realtek, ATMEL and IDT.

     With the sale of the digital video product line assets, we have reclassified a product previously reported as part of the digital video products as part of the embedded product line. We retained the rights to sell this specific product as part of the digital video product line divestiture.

Manufacturing

     We contract with third parties for all of our wafer fabrication, assembly, and test services. Our fabless manufacturing strategy allows us to concentrate on our design strengths, minimize fixed costs and capital expenditures, access advanced manufacturing facilities and provide flexibility to source multiple leading-edge technologies through strategic relationships. After wafer fabrication by the foundry, third-party assembly vendors package the wafer die. The finished products are then sent for testing before shipment to our customers. Our supply chain management organization is responsible for the management of all aspects of the manufacturing and testing of our products, including process and package development, test program development, and production testing of products in accordance with our ISO-certified quality management system. We use multiple foundries, assembly and test houses.

Patents, Licenses and Trademarks

     We rely on trade secret, patent, copyright and trademark laws to protect our intellectual property products and technology. We intend to continue this practice in the future to protect our products and technologies. As of March 25, 2006, we held 933 U.S. patents, 148 U.S. patent applications pending and various corresponding international patents and applications. Our U.S. patents expire in years 2006 through 2025.

     We have obtained U.S. federal registrations for the CIRRUS LOGIC®, CIRRUS® and CRYSTAL® trademarks as well as our Cirrus Logic logo trademark. These U.S. registrations may be renewed as long as the marks continue to be used in interstate commerce. We have also filed or obtained foreign registration for these marks in other countries or jurisdictions where we conduct, or anticipate conducting, international business.

     To complement our own research and development efforts, we have also licensed and expect to continue to license, a variety of intellectual property and technologies important to our business from third parties.

Research and Development

     We concentrate our research and development efforts on the design and development of new products for each of our principal markets. We also fund certain advanced-process technology development, as well as other emerging product opportunities. Expenditures for research and development in fiscal years 2006, 2005, and 2004, were $45.8 million, $80.5 million, and $92.0 million, respectively. These amounts include amortization of acquired intangibles of $1.4 million $13.7 million, and $14.4 million, in fiscal years 2006, 2005, and 2004, respectively. Our future success is highly dependent upon our ability to develop complex new products, to transfer new products to volume production in a timely fashion, to introduce them to the marketplace ahead of the competition and to have them selected for design into products of systems manufacturers. Our future success may also depend on assisting our

customers with integration of our components into their new products, including providing support from the concept stage through design, launch and production ramp.

Competition

     Markets for our products are highly competitive and we expect that competition will continue to increase. We compete with other semiconductor suppliers that offer standard semiconductors, application-specific standard product and fully customized ICs, including embedded software, chip and board-level products. A few customers also develop ICs that compete with our products. Our strategy involves providing lower-cost versions of existing products and new, more advanced products for customers’ new designs.

     While no single company competes with us in all of our product lines, we face significant competition in each of our major product lines, as detailed above in our product line discussions. We expect to face additional competition from new entrants in our markets, which may include both large domestic and international IC manufacturers and smaller, emerging companies.

     The principal competitive factors in our markets include time to market; quality of hardware/software design and end-market systems expertise; price; product benefits that are characterized by performance, features, quality and compatibility with standards; access to advanced process and packaging technologies at competitive prices; and sales and technical support, including assisting our customers with integration of our components into their new products and providing support from the concept stage through design, launch and production ramp.

     Competition typically occurs at the design stage, where the customer evaluates alternative design approaches that require ICs. Many of our products have not been available from second sources, thus, once our ICs have been designed into a customer’s system, we generally do not face direct competition in selling our products.

     Product life cycles vary greatly by product category. For example, many consumer electronic devices have shorter design-in cycles; therefore, our competitors have increasingly frequent opportunities to achieve design wins in next-generation systems. Conversely, this also provides us more frequent opportunities to displace competitors in products we have previously not been designed in. The industrial and automotive markets typically have longer life cycles, which provide longer revenue streams. In the event that competitors succeed in supplanting our products, our market share may not be sustainable and net sales, gross margins and earnings could be adversely affected.

Sales, Marketing and Technical Support

     Although we sell our products worldwide, we sell our products principally in Asia. Export sales, which include sales to customers with manufacturing plants outside the United States, were 66 percent, 67 percent, and 72 percent in fiscal years 2006, 2005, and 2004, respectively. We maintain a worldwide sales force, which is intended to provide geographically specific selling support to our customers and specialized selling of product lines with unique customer bases.

     Our domestic sales force includes a network of regional direct sales offices located in California, Colorado, Massachusetts, Nevada, Oregon and Texas. International sales offices and staff are located in Hong Kong, Japan, Shanghai and Shenzen in the People’s Republic of China, Singapore, South Korea, Taiwan and the United Kingdom. We supplement our direct sales force with external sales representatives and distributors. Our technical support staff is located in Colorado, Texas, and Beijing in the People’s Republic of China.

Backlog

     Sales are made primarily pursuant to standard short-term purchase orders for delivery of standard products. The quantity actually ordered by the customer, as well as the shipment schedules, are frequently revised, without significant penalty, to reflect changes in the customer’s needs. We utilize backlog as an indicator to assist us in production planning. However, backlog is influenced by several factors including market demand, pricing and customer order patterns in reaction to product lead times. Quantities actually purchased by customers, as well as

prices, are subject to variations between booking and delivery to reflect changes in customer needs or industry conditions. As a result, we believe that our backlog at any given time is not a reliable indicator of future revenues.

Employees

     As of March 25, 2006, we had 424 full-time employees, of whom 54 percent were engaged in research and product development activities, 40 percent in sales, marketing, general and administrative activities and 6 percent in manufacturing-related activities. Our future success depends, in part, on our ability to continue to attract, retain and motivate highly qualified technical, marketing, engineering and administrative personnel.

     Due to the highly competitive nature of the marketplace that we operate in, we may from time-to-time lose key employees to our competitors. We have been able to hire qualified personnel in the past to fill open positions created by these occurrences, although there can be no assurance that we will be able to do this in the future. None of our employees are represented by collective bargaining agreements.

Item 1A. Risk Factors Affecting Our Business and Prospects

     This Annual Report on Form 10-K/A and other documents we file with the Commission contain forward-looking statements that are based on current expectations, estimates, forecasts and projections about our future performance, business, beliefs, and assumptions. In addition, we, or others on our behalf, may make forward-looking statements in press releases or written statements, or in our communications and discussions with investors and analysts in the normal course of business through meetings, web casts, phone calls, and conference calls. Words such as “expect,” “anticipate,” “outlook,” “forecast,” “could,” “project,” “intend,” “plan,” “continue,” “believe,” “seek,” “estimate,” “should,” “may,” “assume,” variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict. We describe our respective risks, uncertainties, and assumptions that could affect the outcome or results of operations below.

     We have based our forward looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that actual outcomes and results may differ materially from what is expressed, implied, or forecasted by our forward looking statements. Reference is made in particular to forward looking statements regarding growth strategies, industry trends, financial results, cost reduction initiatives, acquisition synergies, manufacturing strategies, product development and sales, regulatory approvals, and competitive strengths. Past financial performance should not be considered to be a reliable indicator of future performance, and you should not use historical trends to anticipate results or trends in future periods. Except as required under the federal securities laws, we do not have any intention or obligation to update publicly any forward-looking statements after the distribution of this report, whether as a result of new information, future events, changes in assumptions, or otherwise.

     Our business faces significant risks. The risk factors set forth below may not be the only risks that we face. Additional risks that we are not aware of yet or that currently are not significant may adversely affect our business operations. You should read the following cautionary statements in conjunction with the factors discussed elsewhere in this and other of Cirrus Logic’s filings with the SEC. These cautionary statements are intended to highlight certain factors that may affect the financial condition and results of operations of Cirrus Logic and are not meant to be an exhaustive discussion of risks that apply to companies such as ours.

Despite our efforts to make appropriate judgments in determining the correct measurement dates for our stock option grants, the Securities and Exchange Commission may disagree with our reporting or we may discover additional information in the future concerning the appropriate measurement dates. Therefore, a risk exists that we may have to further restate our prior financial statements.

     As described in the Explanatory Note immediately preceding Part I in this Form 10-K/A, as a result of the internal review and independent investigation relating to our past stock option granting practices, the Board has concluded, and management agrees, that incorrect measurement dates were used for financial accounting purposes for stock option grants made in certain prior periods. As a result, we have recorded additional non-cash share-based compensation expense, and related tax effects, with regard to certain past stock option grants, and we have restated certain previously filed financial statements included in this Form 10-K/A. While we believe that we have made appropriate judgments in determining the correct measurement dates for our stock option grants, the Commission may disagree with the manner in which we have accounted for and reported the financial impact or we may discover additional information concerning appropriate measurement dates. Accordingly, we may be required to further

restate our prior financial statements, amend prior filings with the Commission or take other actions not currently contemplated.

Our operating results for fiscal year 2006 and prior periods have been materially impacted by the results of the voluntary review of our past stock option granting practices. Any related action by a governmental agency could result in civil or criminal sanctions. Such matters and civil litigation relating to our historical option practices or our restatement of our financial statements could result in significant costs and the diversion of attention of our management and other key employees, which could have an adverse effect on us.

     On October 26, 2006, we received an informal request for information from the staff of the Fort Worth, Texas regional office of the Securities and Exchange Commission regarding our historical option granting practices. We are cooperating with the SEC’s informal investigation, but do not know when or how it will be resolved or what, if any, actions the SEC may require us to take as part of the resolution of that matter. In addition, we have been contacted by the United States Attorney’s Office for the Southern District of New York regarding the results of our investigation.

     In addition, we have received a NASDAQ Staff Determination on November 10, 2006 indicating that the Company had failed to comply with the filing requirements of Marketplace Rule 4310(c)(14) because it had not timely filed its Quarterly Report on Securities and Exchange Commission Form 10-Q for the period ended September 23, 2006, and that its securities are, therefore, subject to delisting from the NASDAQ Global Select Market. On January 26, 2007, we received a written notification from the staff of NASDAQ that a NASDAQ Listing Qualifications Panel has granted the Company’s request for continued listing on the NASDAQ stock market, subject to the conditions that we provide NASDAQ with certain information regarding the results of the previously announced investigation by a special committee of the Company’s board of directors on or about March 1, 2007, and file any delinquent periodic reports, and any required restatements, by April 18, 2007. If we do not meet the NASDAQ Listing Qualifications Panel conditions, the Company’s common stock could be delisted from the NASDAQ Global Select Market. Further, if the SEC disagrees with the manner in which we have accounted for and reported the financial impact of past stock option grants, there could be further delays in filing subsequent SEC reports that could result in delisting of the Company’s common stock from the NASDAQ Global Select Market.

     Moreover, as discussed in the Explanatory Note preceding Item 1 of this 10-K/A and Note 1A of Notes to Consolidated Financial Statements, included in this Report, we are currently engaged in civil litigation with parties that claim, among other allegations, that certain of our current and former directors and officers improperly dated stock option grants to enhance their own profits on the exercise of such options or for other improper purposes. Although we and the other defendants intend to defend these claims vigorously, there are many uncertainties associated with any litigation, and we cannot assure you that these actions will be resolved without substantial costs and/or settlement charges. We have entered into indemnification agreements with most of our present and former directors and officers. Under those agreements, we may be required to indemnify each such director or officer against losses incurred by such individual in connection with the pending litigation (other than indemnified liabilities arising from willful misconduct, conduct that is knowingly fraudulent or deliberately dishonest, or claims in the form of derivative damages owed to the corporation). We are required, under the indemnification agreements, to advance expenses for the defense of the claims, including attorneys’ fees on a current basis, subject to a claim for reimbursement should the indemnitee be adjudicated ineligible for indemnification.

     The resolution of the pending informal investigation by the SEC, the defense of our pending civil litigations, our indemnification obligations to current and former directors and officers, and the defense of any additional litigation relating to our past option grant practices or our restatement of our prior financial statements could result in significant costs and diversion of the attention of management.

Our results may be affected by the fluctuation in sales in the consumer entertainment market.

     Because we sell products in the consumer entertainment market, we are likely to be affected by seasonality in the sales of our products. In particular, a significant portion of consumer electronics products are sold worldwide during the third calendar quarter in preparation for the fourth calendar quarter holiday seasons. As a result, we expect stronger sales of ICs into the consumer entertainment market to occur in our second and third fiscal quarters in anticipation of these seasons.

     Further, a decline in consumer confidence and consumer spending relating to economic conditions, terrorist attacks, armed conflicts, oil prices, global health conditions and/or the political stability of countries in which we operate or sell into could have a material adverse effect on our business.

The highly cyclical and volatile nature of our industry may affect our operating results.

     We are subject to business cycles and it is difficult to predict the timing, length or volatility of these cycles. During downturns, customers usually reduce purchases, delay delivery of products, shorten lead times on orders and/or cancel orders. During upturns, our third party suppliers and contract manufacturers may have capacity or supply constraints that result in higher costs, longer lead times, and/or an inability to meet customer demand. These business cycles may create pressure on our sales, gross margins and/or operating results.

     We cannot assure that any future downturn or upturn will not have a material adverse effect on our business and results of operations. We cannot assure that we will not experience substantial period-to-period fluctuations in revenue due to general semiconductor industry conditions or other factors.

Our failure to develop and timely introduce new products that gain market acceptance could harm our operating results.

     Our success depends upon our ability to develop new products for new and existing markets, to introduce these products in a timely and cost-effective manner, and to have these products gain market acceptance. New product introductions involve significant risks. For example, delays in new product introductions or less-than-anticipated market acceptance of our new products are possible and would have an adverse effect on our revenue and earnings. The development of new products is highly complex and, from time-to-time, we have experienced delays in developing and introducing these new products. Successful product development and introduction depend on a number of factors, including:

	•		proper new product definition,
	•		timely completion of design and testing of new products,
	•		assisting our customers with integration of our components into their new products, including providing support from the concept stage through design, launch and production ramp,
	•		successfully developing and implementing the software necessary to integrate our products into our customers’ products,
	•		achievement of acceptable manufacturing yields,
	•		availability of wafer, assembly and test capacity,
	•		market acceptance of our products and the products of our customers, and
	•		obtaining and retaining industry certification requirements.

     Although we seek to design products that have the potential to become industry standard products, we cannot assure that market leaders will adopt any products introduced by us, or that any products initially accepted by our customers who are market leaders will become industry standard products. Both revenues and margins may be materially affected if new product introductions are delayed, or if our products are not designed into successive generations of our customers’ products. We cannot assure that we will be able to meet these challenges, or adjust to changing market conditions as quickly and cost-effectively as necessary to compete successfully. Our failure to develop and introduce new products successfully could harm our business and operating results.

     Successful product design and development is dependent on our ability to attract, retain and motivate qualified design engineers, of which there is a limited number. Due to the complexity and variety of analog and high-precision analog and mixed-signal circuits, the limited number of qualified integrated circuit designers and the limited effectiveness of computer-aided design systems in the design of analog and mixed-signal ICs, we cannot assure that we will be able to successfully develop and introduce new products on a timely basis.

Our products are complex and could contain defects, which could result in material costs to us.

     Product development in the markets we serve is becoming more focused on the integration of multiple functions on individual devices. There is a general trend towards increasingly complex products. The greater integration of functions and complexity of operations of our products increases the risk that our customers or end users could discover latent defects or subtle faults after volumes of product have been shipped. This could result in:

	•		damage to our reputation,
	•		a material recall and replacement costs for product warranty and support,

	•		payments to our customer related to such recall claims as a result of various industry or business practices, or in order to maintain good customer relationships,
	•		an adverse impact to our customer relationships by the occurrence of significant defects,
	•		a delay in recognition or loss of revenues, loss of market share, or failure to achieve market acceptance, and
	•		a diversion of the attention of our engineering personnel from our product development efforts.

In addition, any defects or other problems with our products could result in financial or other damages to our customers who could seek damages from us for their losses. A product liability claim brought against us, even if unsuccessful, would likely be time consuming and costly to defend. In particular, the sale of systems and components into certain applications for the automotive industry involves a high degree of risk that such claims may be made.

     While we believe that we are reasonably insured against these risks and contractually limit our financial exposure, we cannot assure that we will be able to obtain sufficient insurance, in terms of amounts or scope, to provide us with adequate coverage against all potential liability.

We have historically experienced fluctuations in our operating results and expect these fluctuations to continue in future periods.

     Our quarterly and annual operating results are affected by a wide variety of factors that could materially and adversely affect our net sales, gross margins and operating results. These factors include:

	•		the volume and timing of orders received,
	•		changes in the mix of our products sold,
	•		market acceptance of our products and the products of our customers,
	•		competitive pricing pressures,
	•		our ability to introduce new products on a timely basis,
	•		the timing and extent of our research and development expenses,
	•		the failure to anticipate changing customer product requirements,
	•		disruption in the supply of wafers, assembly or test services,
	•		certain production and other risks associated with using independent manufacturers, assembly houses and testers, and
	•		product obsolescence, price erosion, competitive developments, and other competitive factors.

We may face increased risks and uncertainties related to our non-marketable securities.

     On occasion, we may invest in non-marketable securities of private companies. As of March 25, 2006, the carrying value of our investments in non-marketable securities totaled $7.9 million.

     Investments in non-marketable securities are inherently risky, and some of these companies are likely to fail. Their success (or lack thereof) is dependent on these companies product development, market acceptance, operational efficiency and other key business success factors. In addition, depending on these companies’ future prospects, they may not be able to raise additional funds when needed or they may receive lower valuations, with less favorable investment terms than in previous financings, and our investments in them would likely become impaired.

Shifts in industry-wide capacity and our practice of purchasing our products based on sales forecasts may result in significant fluctuations in our quarterly and annual operating results.

     As a fabless semiconductor developer, we rely on independent foundries and assembly and test houses to manufacture our products. Our reliance on these third parties involves certain risks and uncertainties. For example, shifts in industry-wide capacity from shortages to oversupply, or from oversupply to shortages, may result in significant fluctuations in our quarterly and annual operating results. We may order wafers and build inventory in advance of receiving purchase orders. Because our industry is highly cyclical and is subject to significant

downturns resulting from excess capacity, overproduction, reduced demand, order cancellations, or technological obsolescence, there is a risk that we will forecast inaccurately and produce excess inventories of particular products.

     In addition, we generally order our products through non-cancelable purchase orders from third-party foundries based on our sales forecasts and our customers can generally cancel or reschedule orders they place with us without significant penalties. If we do not receive orders as anticipated by our forecasts, or our customers cancel orders that are placed, we may experience increased inventory levels.

     Due to the product manufacturing cycle characteristic of IC manufacturing and the inherent imprecision by our customers to accurately forecast their demand, product inventories may not always correspond to product demand, leading to shortages or surpluses of certain products. As a result of such inventory imbalances, future inventory write-downs and charges to gross margin may occur due to lower of cost or market accounting, excess inventory, and inventory obsolescence.

Strong competition in the semiconductor market may harm our business.

     The IC industry is intensely competitive and is frequently characterized by rapid technological change, price erosion and design, technological obsolescence, and a push towards IC component integration. Because of shortened product life cycles and even shorter design-in cycles in a number of the markets that we serve, our competitors have increasingly frequent opportunities to achieve design wins in next-generation systems. In the event that competitors succeed in supplanting our products, our market share may not be sustainable and our net sales, gross margins and operating results would be adversely affected. Additionally, further component integration could eliminate the need for our products.

     We compete in a number of fragmented markets. Our principal competitors in these markets include AKM Semiconductors, Analog Devices, Freescale Semiconductor, LSI Logic, Maxim, Micronas, Samsung Semiconductor, Texas Instruments, and Wolfson Microelectronics, many of whom have substantially greater financial, engineering, manufacturing, marketing, technical, distribution and other resources, broader product lines, greater intellectual property rights and longer relationships with customers. We also expect intensified competition from emerging companies and from customers who develop their own IC products. In addition, some of our current and future competitors maintain their own fabrication facilities, which could benefit them in connection with cost, capacity and technical issues.

     Increased competition could adversely affect our business. We cannot assure that we will be able to compete successfully in the future or that competitive pressures will not adversely affect our financial condition and results of operations. Competitive pressures could reduce market acceptance of our products and result in price reductions and increases in expenses that could adversely affect our business and our financial condition.

We may be unable to protect our intellectual property rights.

     Our success depends on our ability to obtain patents and licenses and to preserve our other intellectual property rights covering our products. We seek patent protection for those inventions and technologies for which we believe such protection is suitable and is likely to provide a competitive advantage to us. We also rely substantially on trade secrets, proprietary technology, non-disclosure and other contractual agreements, and technical measures to protect our technology and manufacturing knowledge. We work actively to foster continuing technological innovation to maintain and protect our competitive position. We cannot assure that steps taken by us to protect our intellectual property will be adequate, that our competitors will not independently develop or patent substantially equivalent or superior technologies or be able to design around our patents, or that our intellectual property will not be misappropriated. In addition, the laws of some non-U.S. countries may not protect our intellectual property as well as the laws of the United States.

     Any of these events could materially adversely affect our business, operating results and financial condition. Policing infringement of our technology is difficult, and litigation may be necessary in the future to enforce our intellectual property rights. Any such litigation could be expensive, take significant time and divert management’s attention from other business concerns.

Potential intellectual property claims and litigation could subject us to significant liability for damages and could invalidate our proprietary rights.

     The IC industry is characterized by frequent litigation regarding patent and other intellectual property rights. We may find it necessary to initiate a lawsuit to assert our patent or other intellectual property rights. These legal proceedings could be expensive, take significant time and divert management’s attention from other business concerns. We cannot assure that we will ultimately be successful in any lawsuit, nor can we assure that any patent owned by us will not be invalidated, circumvented, or challenged. We cannot assure that rights granted under the patent will provide competitive advantages to us, or that any of our pending or future patent applications will be issued with the scope of the claims sought by us, if at all.

     As is typical in the IC industry, we and our customers have from time to time received and may in the future receive, communications from third parties asserting patents, mask work rights, or copyrights. In the event third parties were to make a valid intellectual property claim and a license was not available on commercially reasonable terms, our operating results could be harmed. Litigation, which could result in substantial cost to us and diversion of our management, technical and financial resources, may also be necessary to defend us against claimed infringement of the rights of others. An unfavorable outcome in any such suit could have an adverse effect on our future operations and/or liquidity.

Our products may be subject to average selling prices that decline over short time periods. If we are unable to increase our volumes, introduce new or enhanced products with higher selling prices or reduce our costs, our business and operating results could be harmed.

     Historically in the semiconductor industry, average selling prices of products have decreased over time. If the average selling price of any of our products declines and we are unable to increase our unit volumes, introduce new or enhanced products with higher margins and/or reduce manufacturing costs to offset anticipated decreases in the prices of our existing products, our operating results may be adversely affected. In addition, because of procurement lead times, we are limited in our ability to reduce total costs quickly in response to any revenue shortfalls. Because of these factors, we may experience material adverse fluctuations in our future operating results on a quarterly or annual basis.

We have significant international sales, and risks associated with these sales could harm our operating results.

     Export sales, principally to Asia, include sales to U.S-based customers with manufacturing plants overseas and accounted for 66 percent, 67 percent, and 72 percent of our net sales in fiscal years 2006, 2005, and 2004, respectively. We expect export sales to continue to represent a significant portion of product sales. This reliance on international sales subjects us to the risks of conducting business internationally, including political and economic stability and global health conditions, especially in Asia. For example, the financial instability in a given region, such as Asia, may have an adverse impact on the financial position of end users in the region, which could affect future orders and harm our results of operations. Our international sales operations involve a number of other risks, including:

	•		unexpected changes in government regulatory requirements,
	•		changes to countries’ banking and credit requirements,
	•		changes in diplomatic and trade relationships,
	•		delays resulting from difficulty in obtaining export licenses for technology,
	•		tariffs and other barriers and restrictions,
	•		competition with non-U.S. companies or other domestic companies entering the non-U.S. markets in which we operate,
	•		longer sales and payment cycles,
	•		problems in collecting accounts receivable,
	•		political instability, and
	•		the burdens of complying with a variety of non-U.S. laws.

     In addition, our competitive position may be affected by the exchange rate of the U.S. dollar against other currencies. Consequently, increases in the value of the dollar would increase the price in local currencies of our products in non-U.S. markets and make our products relatively more expensive. Alternatively, decreases in the

value of the dollar will increase the relative cost of our and our vendors’ operations that are based overseas. We cannot assure that regulatory, political and other factors will not adversely affect our operations in the future or require us to modify our current business practices.

Failure to manage our distribution channel relationships could adversely affect our business.

     The future of our business, as well as the future growth of our business, will depend in part on our ability to manage our relationships with current and future distributors and external sales representatives and to develop additional channels for the distribution and sale of our products. The inability to successfully manage these relationships could adversely affect our business.

Our international operations subject our business to additional political and economic risks that could have an adverse impact on our business.

     In addition to export sales constituting a majority of our net sales, we maintain significant international operations, including design, sales and technical support personnel. We are also using contract manufacturers in Asia for foundry, assembly and test operations. International expansion has required and will continue to require significant management attention and resources. There are risks inherent in expanding our presence into non-U.S. regions, including, but not limited to:

	•		difficulties in staffing and managing non-U.S. operations,
	•		failure of non-U.S. laws to adequately protect our U.S. intellectual property, patent, trademarks, copyrights, know-how and other proprietary rights,
	•		global health conditions and potential natural disasters,
	•		political and economic instability in international regions,
	•		international currency controls and exchange rate fluctuations,
	•		additional vulnerability from terrorist groups targeting American interests abroad, and
	•		legal uncertainty regarding liability and compliance with non-U.S. laws and regulatory requirements.

If we fail to attract, hire and retain qualified personnel, we may not be able to develop, market, or sell our products or successfully manage our business.

     Competition for personnel in our industry is intense. The number of technology companies in the geographic areas in which we operate is greater than it has been historically and we expect competition for qualified personnel to intensify. There are only a limited number of people in the job market with the requisite skills. Our Human Resources organization focuses significant efforts on attracting and retaining individuals in key technology positions. For example, start-up companies generally offer larger equity grants to attract individuals from more established companies. The loss of the services of key personnel or our inability to hire new personnel with the requisite skills could restrict our ability to develop new products or enhance existing products in a timely manner, sell products to our customers, or manage our business effectively.

We will be required to expense share-based payments to our employees and we may have a significant material adverse charge to our financial statements.

     On December 16, 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard No. 123R (“SFAS No. 123(R)”), “Share-Based Payment,” which is a revision of SFAS No. 123 and supersedes Accounting Principles Bulletin Opinion No. 25 (“APB No. 25”). SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be valued at fair value on the date of grant, and to be expensed over the applicable vesting period. Pro forma disclosure of the income statement effects of share-based payments is no longer an alternative. SFAS No. 123(R), as amended, is effective for all stock-based awards granted in fiscal years beginning after June 15, 2005. In addition, companies must also recognize compensation expense related to any awards that are not fully vested as of the effective date. Compensation expense for the unvested awards will be measured based on the fair value of the awards previously calculated in developing the pro forma disclosures in accordance with the provisions of SFAS No. 123.

     We may be faced with increased risk due to the volatility of our stock price and our ability to predict the exercise patterns of our stock. In general, we view our volatility as greater than our competitors. As a result, our adoption of this standard may adversely impact our earnings disproportionately from our competitors. Further, we may have difficulty in predicting our operating profitability due to our stock option expense, which could affect future earnings or guidance.

     Our adoption of this accounting standard on March 26, 2006, may result in a material adverse impact on our financial results. We will be required to expense stock options and other share-based payments to employees and directors, which will require us to record a significant charge to earnings. We continue to evaluate our stock-based compensation programs to determine what our alternatives may be to reduce this charge in the future. If we choose not to issue stock options at the levels we have in the past, or our shareholders do not approve the use of certain stock-based compensation programs, we believe we may face difficult challenges in attracting and retaining employees.

Because we depend on subcontractors primarily located in Asia to perform key manufacturing functions for us, we are subject to political and economic risks that could disrupt the assembly, packaging, or testing of our products.

     We depend on third-party subcontractors, primarily in Asia, for the assembly, packaging and testing of our products. International operations and sales may be subject to political and economic risks, including changes in current tax laws, political instability, global health conditions, currency controls, exchange rate fluctuations and changes in import/export regulations, tariff and freight rates, as well as the risks of natural disaster. Although we seek to reduce our dependence on subcontractors, this concentration of subcontractors and manufacturing operations in Asia subjects us to the risks of conducting business internationally, including political and economic conditions in Asia. Disruption or termination of the assembly, packaging or testing of our products could occur and such disruptions could harm our business and operating results.

We may acquire other companies or technologies, which may create additional risks associated with our ability to successfully integrate them into our business.

     We continue to consider future acquisitions of other companies, or their technologies or products, to improve our market position, broaden our technological capabilities and expand our product offerings. However, we may not be able to acquire, or successfully identify, the companies, products or technologies that would enhance our business.

     In addition, if we are able to acquire companies, products or technologies, we could experience difficulties in integrating them. Integrating acquired businesses involves a number of risks, including, but not limited to:

	•		the potential disruption of our ongoing business,
	•		unexpected costs or incurring unknown liabilities,
	•		the diversion of management resources from other business concerns while involved in identifying, completing, and integrating acquisitions,
	•		the inability to retain the employees of the acquired businesses,
	•		difficulties relating to integrating the operations and personnel of the acquired businesses,
	•		adverse effects on the existing customer relationships of acquired companies,
	•		the potential incompatibility of business cultures,
	•		adverse effects associated with entering into markets and acquiring technologies in areas in which we have little experience, and
	•		acquired intangible assets becoming impaired as a result of technological advancements, or worse-than-expected performance of the acquired company.

     If we are unable to successfully address any of these risks, our business could be harmed.

Future transactions may limit our ability to use our net operating loss carryforwards.

     As of March 25, 2006, we had U.S. federal tax net operating loss (“NOL”) carryforwards of approximately $465.8 million. These NOL carryforwards may be used to offset future taxable income and thereby reduce our U.S. federal income taxes otherwise payable. There is a risk we may not be able to generate taxable income in the future in the amount necessary to fully utilize all of these NOLs. Section 382 of the Internal Revenue Code of 1986 (“the Code”), as amended, imposes an annual limit on the ability of a corporation that undergoes an “ownership change” to use its NOL carry forwards to reduce its tax liability. Due in part to potential changes in our shareholder base, we may at some point in the future experience an “ownership change” as defined in Section 382 of the Code.

Accordingly, our use of the net operating loss carryforwards and credit carryforwards may be limited by the annual limitations described in Sections 382 and 383 of the Code.

Our stock price may be volatile.

     The market price of our common stock fluctuates significantly. This fluctuation is the result of numerous factors, including:

	•		actual or anticipated fluctuations in our operating results,
	•		announcements concerning our business or those of our competitors, customers or suppliers,
	•		changes in financial estimates by securities analysts or our failure to perform as anticipated by the analysts,
	•		announcements regarding technological innovations or new products by us or our competitors,
	•		announcements by us of significant acquisitions, strategic partnerships, joint ventures, or capital commitment,
	•		announcements by us of significant divestitures or sale of certain assets or intellectual property,
	•		litigation arising out of a wide variety of matters, including, among others, employment matters and intellectual property matters,
	•		departure of key personnel,
	•		single significant shareholders selling for reasons unrelated to the business,
	•		general assumptions made by securities analysts,
	•		general conditions in the IC industry, and
	•		general market conditions and interest rates.

We have provisions in our charter, and are subject to certain provisions of Delaware law, which could prevent, delay or impede a change of control of our company. These provisions could affect the market price of our stock.

     Certain provisions of our Certificate of Incorporation and By-Laws, and Delaware law could make it more difficult for a third party to acquire us, even if our stockholders support the acquisition. These provisions include:

	•		the inability of stockholders to call a special meeting of stockholders;
	•		a prohibition on stockholder action by written consent; and
	•		a requirement that stockholders provide advance notice of any stockholder nominations of directors or any proposal of new business to be considered at any meeting of stockholders.

     We are also subject to the anti-takeover laws of Delaware that may prevent, delay or impede a third party from acquiring or merging with us, which may adversely affect the market price of our common stock.

ITEM 1B. Unresolved Staff Comments

     None.

ITEM 2. Properties

     The company does not own any real estate. As of May 1, 2006, our principal leased facilities, located in Austin, Texas, consisted of approximately 214,000 square feet of office space, which have lease terms that extend through 2012, excluding renewal options. This leased space includes our headquarters and engineering facility, which has 197,000 square feet and 17,000 square feet of leased space at our failure analysis facility. We have subleased approximately 70,000 square feet of space at our Austin headquarters and engineering facilities. These subleases extend through 2012.

     We also lease facilities in Fremont, California. These facilities consist of approximately 430,000 square feet of leased office and engineering space, which have leases that expire from fiscal year 2007 to fiscal year 2010, excluding renewal options. During fiscal year 2006, we sold all of our digital video product line assets, which were

for the most part located in California, to Magnum Semiconductor, Inc. As a result of our facilities consolidation activities, which began in fiscal year 1999 concurrent with our move of headquarters from California to Texas, and the sale of our digital video product line assets, we no longer occupy any leased space in California. We have subleased approximately 263,000 square feet of our leased office space in California. We continue to actively pursue sublease tenants for these remaining facilities.

     Below is a detailed schedule that identifies our occupied leased property locations as of May 1, 2006 with various lease terms through fiscal year 2013:

Design Centers		Sales Support Offices – USA		Sales Support Offices - International
Boulder, Colorado		Boulder, Colorado		Hong Kong, China
Beijing, China		Burlington, Massachusetts		Shanghai, China
Austin, Texas		Portland, Oregon		Shenzhen, China
				Tokyo, Japan
				Singapore
				Seoul, South Korea
				Taipei, Taiwan
				Henley on Thames, United Kingdom

     See Notes 6 and 10 in the Notes to our Consolidated Financial Statements contained in “Item 8 – Financial Statements and Supplementary Data” for further detail.

ITEM 3. Legal Proceedings

Fujitsu

     On October 19, 2001, we filed a lawsuit against Fujitsu, Ltd. (“Fujitsu”) in the United States District Court for the Northern District of California. We asserted claims for breach of contract and anticipatory breach of contract and we sought damages in excess of $46 million. The basis for our complaint was Fujitsu’s refusal to pay for hard disk drive-related chips delivered to and accepted by it in fiscal year 2002. On December 17, 2001, Fujitsu filed an answer and a counterclaim. Fujitsu alleged claims for breach of contract, breach of warranty, quantum meruit/equitable indemnity and declaratory relief. The basis for Fujitsu’s counterclaim was the allegation that certain chips that we sold to Fujitsu were defective and allegedly caused Fujitsu’s hard disk drives to fail.

     On December 5, 2003, for reasons related to the potential lack of jurisdiction for certain claims in federal district court, Fujitsu filed a complaint in California state court alleging claims substantially similar to those filed against us in district court and, in addition, alleging fraud and other related claims against Amkor and Sumitomo. On December 23, 2003, we filed a cross-complaint in California state court alleging the same claims against Fujitsu as we alleged in federal district court and further alleging fraud and other related claims against Amkor and Sumitomo based on their alleged knowledge that the molding compound used in the packaging materials sold to us was defective.

     On April 28, 2005, before the rescheduled trial date, Cirrus Logic, Fujitsu, Amkor, Sumitomo, and Cirrus Logic’s insurance carriers reached an agreement through an arbitration process to settle and release all pending claims related to the alleged failure of certain semiconductor ICs sold by Cirrus Logic to Fujitsu. These releases included releases between our insurance carriers and us for any claims related to the litigation with Fujitsu. As part of the settlement, Fujitsu received $45 million from Sumitomo, $40 million from Amkor, and $40 million from Cirrus Logic’s insurance carriers. Fujitsu paid us a lump sum in the amount of $25 million. The final settlement documents were completed on June 10, 2005, and payment was received on June 16, 2005. Part of the $25 million received from the settlement represented a recovery of bad debt expense recorded in fiscal year 2002 of approximately $46.8 million. The $25 million received was partially offset by approximately $0.2 million in outside fees associated with this transaction. The net amount was recorded as a separate line item as a component of operating expenses during the first quarter of fiscal year 2006.

St. Paul Fire and Marine Insurance Company

     On June 9, 2004, we filed a complaint for declaratory relief against St. Paul Fire and Marine Insurance Co. (“St. Paul”) in the United States District Court, Northern District of California. Specifically, the complaint seeks a judicial determination and declaration that the Technology Commercial General Liability Protection (“CGL”) coverage under an insurance policy issued to us by St. Paul provides Cirrus Logic with insurance coverage for

Cirrus Logic’s defense of claims brought by Fujitsu in the previously referenced matter. Pursuant to our CGL policy, the costs and expenses associated with defending our lawsuit against Fujitsu would be covered, but would not reduce the policy coverage limits. On August 23, 2004, St. Paul answered the complaint, denying that it was obligated to defend us under the CGL policy.

     Based on the settlement and releases agreed to by the insurance carriers as set forth in the Fujitsu matter, we believe this matter has been resolved between Cirrus Logic and St. Paul. On August 2, 2005, the district court dismissed the case without prejudice.

Facilities Under Operating Lease Agreements

     We lease our facilities under operating lease agreements. Our principal facility, located in Austin, Texas, is 197,000 square feet and houses our headquarters and engineering facility. As originally drafted, the lease agreement for this facility included a potential obligation to enter into another lease agreement for a period of 10 years for an additional 64,000 square feet in a new building to be built on property next to our current facility. This obligation was contingent upon construction beginning on the new facility before November 10, 2004. On September 14, 2004, our landlord provided us notice that it had elected to construct the new building.

     On November 12, 2004, we filed suit against our landlord in the state district court of Travis County, Texas seeking declaratory relief as to our obligations under the current operating lease agreement. Specifically, we sought a declaration that we had no obligation to lease additional space because the landlord did not commence construction of the new facility before November 10, 2004.

     On November 30, 2005, we entered into a Settlement Agreement and Release with our landlord for the purpose of settling all claims associated with the suit. The settlement provided mutual releases associated with any obligations by either party with respect to leasing additional space in a new building. As part of the settlement, we paid our landlord $150,000 and agreed to amend the current lease such that we are now bound to maintain our existing Letter of Credit in the amount of $5.1 million until November 2011, at which point the requirement decreases to $2.6 million with the Letter of Credit ceasing in May 2012. This modifies the original letter of credit in that the new letter of credit does not decline until November 2011. All claims and counterclaims in the suit were dismissed on December 13, 2005.

Silvaco Data Systems

     On December 8, 2004, Silvaco Data Systems (“Silvaco”) filed suit against us, and others, alleging misappropriation of trade secrets, conversion, unfair business practices, and civil conspiracy. Silvaco’s complaint stems from a trade secret dispute between Silvaco and a software vendor, Circuit Semantics, Inc., who supplies us with certain software design tools. Silvaco alleges that our use of Circuit Semantic’s design tools infringes upon Silvaco’s trade secrets and that we are liable for compensatory damages in the sum of $10 million. Silvaco has not indicated how it will substantiate this amount of damages and we are unable to reasonably estimate the amount of damages, if any.

     On January 25, 2005, we answered Silvaco’s complaint by denying any wrong-doing. In addition, we filed a cross-complaint against Silvaco alleging breach of contract relating to Silvaco’s refusal to provide certain technology that would enable us to use certain unrelated software tools.

     We intend to defend the lawsuit vigorously. In addition, Circuit Semantics is obligated to defend and indemnify us pursuant to our license agreement with them for the software. However, we cannot predict the ultimate outcome of this litigation and we are unable to estimate any potential liability we may incur.

Other Claims

     From time to time, other various claims, charges and litigation are asserted or commenced against us arising from, or related to, contractual matters, intellectual property, employment disputes, as well as other issues. Frequent claims and litigation involving these types of issues are not uncommon in the IC industry. As to any of these claims or litigation, we cannot predict the ultimate outcome with certainty.

ITEM 4. Submission of Matters to a Vote of Security Holders

None.

PART II

ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

     Our Common Stock is traded on the NASDAQ National Market under the symbol CRUS. The following table shows, for the periods indicated, the high and low sales prices for our Common Stock.

		High				Low
Fiscal year ended March 26, 2005
First quarter		$	8.46			$	4.50
Second quarter			6.79				4.50
Third quarter			6.37				4.75
Fourth quarter			5.69				4.23
Fiscal year ended March 25, 2006
First quarter		$	5.72			$	3.70
Second quarter			8.04				4.90
Third quarter			7.76				6.26
Fourth quarter			8.76				6.65

     As of May 19, 2006, there were approximately 1,071 holders of record of our Common Stock.

     We have not paid cash dividends on our Common Stock and currently intend to continue a policy of retaining any earnings for reinvestment in our business. We did not repurchase any of our Common Stock during fiscal year 2006 or fiscal year 2005.

Equity Compensation Plan Information

     The following table provides information about the Company’s common stock that may be issued upon the exercise of options, warrants and rights under all of the Company’s existing equity compensation plans as of March 25, 2006, including the Company’s 1987 Stock Option Plan, the 1989 Employee Stock Purchase Plan, the 1990 Directors’ Stock Option Plan, the 1996 Stock Plan, the 2002 Stock Option Plan, the Audio Logic 1992 Plan, the Peak Audio, Inc. 2001 Stock Plan, the LuxSonor Semiconductors, Inc. 1995 Stock Option Plan, the ShareWave, Inc. 1996 Flexible Stock Incentive Plan, the Stream Machine Company 1996 Stock Plan, the Stream Machine 2001 Stock Plan, and the Stream Machine Company non-statutory stock option grants made outside of a plan (in thousands, except per share amounts):

		(A)				(B)				(C)
		Securities to be issued				Weighted-average				Securities remaining available
		upon exercise of				exercise price of				for future issuance under equity
		outstanding options,				outstanding options,				compensation plans (except
		warrants, and rights				warrants, and rights				securities in column (A))
Equity compensation plans approved by security holders (1)			6,915			$	11.21				8,020	(2)
Equity compensation plans not approved by security holders (3)			5,045			$	5.82				9,961
Total			11,960			$	8.93				17,981

     As of March 25, 2006, the Company was awarding options under the following plans: the 1990 Directors’ Stock Option Plan (to members of the Board of Directors), the 1996 Stock Plan, the 2002 Stock Option Plan, and the 1989 Employee Stock Purchase Plan. The 1996 Stock Plan expired in May 2006.

ITEM 6. Selected Consolidated Financial Data

(Amounts in thousands, except per share amounts)

     The consolidated selected financial information below has been restated as set forth in this Form 10-K/A. The data for the fiscal years ended March 29, 2003, and March 30, 2002 have been restated as set forth in this Form 10-K/A. The information set forth below is not necessarily indicative of results of future operations, and should be read in conjunction with Item 7, “Management’s Discussion and Analysis — Financial Condition and Results of Operations” and the Consolidated Financial Statements and related notes thereto included in Item 8 of this Form 10-K/A to fully understand factors that may affect the comparability of the information presented below. The information presented in the following tables has been adjusted to reflect the restatement of our financial results, which is more fully described in Management’s Discussion and Analysis — Restatement of Consolidated Financial Statements and in Note 1A of the Consolidated Financial Statements of this
Form 10-K/A.

     We have not amended any other previously-filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q for the periods affected by this restatement except for the Form 10-Q/A for the first quarter of fiscal year 2007, which will be filed concurrently with this Form 10-K/A. The financial information that has been previously filed or otherwise reported for these periods is superseded by the information in this Amended Annual Report on Form 10-K/A, and the financial statements and related financial information contained in previously-filed reports for those periods should no longer be relied upon.

Cirrus Logic, Inc.
Five-Year Financial Highlights Summary
(in thousands, except per share data)

		2006 (1)				2005 (1)				2004 (1)				2003 (2) (3)												2002 (2) (4)
														Previously												Previously
		Restated				Restated				Restated				Reported				Adjustments				Restated				Reported				Adjustments				Restated
Operations:
Net revenue		$	193,694			$	194,900			$	196,338			$	261,999			$	-			$	261,999			$	410,976			$	-			$	410,976
Gross profit			105,192				93,262				100,701				132,242				(82	)			132,160				96,749				(115	)			96,634
Income (loss) from operations			37,596				(38,616	)			21,885				(203,888	)			(6,986	)			(210,874	)			(232,590	)			(9,799	)			(242,389	)
Income (loss) before income taxes			45,391				(34,285	)			35,789				(201,579	)			(6,986	)			(208,565	)			(214,451	)			(9,799	)			(224,250	)
Income tax benefit			(7,035	)			(20,789	)			(7,059	)			(3,818	)			-				(3,818	)			(10,370	)			-				(10,370	)
Net income (loss)			52,426				(13,496	)			42,848				(199,213	)			(6,986	)			(206,199	)			(206,079	)			(9,799	)			(215,878	)
Earnings (loss) per share:
Basic		$	0.61			$	(0.16	)		$	0.51			$	(2.39	)		$	(0.08	)		$	(2.47	)		$	(2.66	)		$	(0.13	)		$	(2.79	)
Diluted		$	0.60			$	(0.16	)		$	0.50			$	(2.39	)		$	(0.08	)		$	(2.47	)		$	(2.66	)		$	(0.13	)		$	(2.79	)
Weighted Average Common Shares Outstanding:
Basic			86,036				84,746				84,019				83,445								83,445				77,552								77,552
Diluted			87,775				84,746				85,602				83,445								83,445				77,552								77,552

		2006 (1)				2005 (1)				2004 (2)
										Previously
		Restated				Restated				Reported				Adjustments				Restated
Financial Position:
Cash, cash equivalents, restricted investments and marketable securities		$	243,468			$	179,713			$	200,141			$	-			$	200,141
Current assets			272,157				230,534				253,128				-				253,128
Current liabilities			39,968				47,251				82,836				1,394				84,230
Working capital			232,189				183,283				170,292				(1,394	)			168,898
Total assets			319,041				262,810				314,672				-				314,672
Stockholders’ equity			264,270				203,206				214,099				(1,394	)			212,705

		2003 (2) (3)												2002 (2) (4)
		Previously												Previously
		Reported				Adjustments				Restated				Reported				Adjustments				Restated
Financial Position:
Cash, cash equivalents, restricted investments and marketable securities		$	123,351			$	-			$	123,351			$	155,594			$	-			$	155,594
Current assets			176,695				-				176,695				243,933				-				243,933
Current liabilities			80,909				1,335				82,244				116,455				1,264				117,719
Working capital			95,786				(1,335	)			94,451				127,478				(1,264	)			126,214
Total assets			257,266				-				257,266				481,630				-				481,630
Stockholders’ equity			163,527				(1,335	)			162,192				358,149				(1,264	)			356,885

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following information has been amended to reflect the restatement of our financial results, which is more fully described in the Management’s Discussion and Analysis — Restatement of Consolidated Financial Statements, below, and in Note 1A to Consolidated Financial Statements of this Form 10-K/A.

     This Amended Annual Report on Form 10-K/A and certain information incorporated herein by reference contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities the Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements included or incorporated by reference in this Amended Annual Report on Form 10-K/A, other than statements that are purely historical, are forward-looking statements. In some cases, forward-looking statements are identified by words such as we “expect,” “anticipate,” “target,” “project,” “believe,” “goals,” “estimates,” and “intend.” Variations of these types of words and similar expressions are intended to identify these forward-looking statements. These forward looking statements include statements about our outlook for fiscal year 2007, including our anticipated gross margins; research and development expenses; selling, general and administrative expenses, and operating profitability. In addition, any statements that refer to our plans, expectations, strategies or other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Among the important factors that could cause actual results to differ

materially from those indicated by our forward-looking statements are those discussed in “Item 1A —Risk Factors Affecting our Business and Prospects” and elsewhere in this report, as well as in the documents filed by us with the Securities and Exchange Commission, specifically the most recent reports on Form 10-Q and 8-K, each as it may be amended from time to time. We undertake no obligation to revise or update publicly any forward-looking statement for any reason.

     Certain reclassifications have been made to prior periods to conform to the fiscal year 2006 presentation. We now classify amortization of acquired intangibles as part of research and development expense on the face the income statement as well as certain balance sheet item classifications. These reclassifications had no effect on the results of operations or stockholders’ equity

Restatement of Consolidated Financial Statements

     We are restating our Consolidated Financial Statements to reflect the results of our voluntary review of our stock option granting practices. Our decision to restate our Consolidated Financial Statements was based on the results of a voluntary internal review and independent investigation into past stock option granting practices. In October 2006, we announced that an internal review of past practices related to grants of stock options had revealed information that raised potential questions about the measurement dates used to account for certain stock option grants. We also announced that, at the recommendation of the Audit Committee of the Company’s Board of Directors (the “Board”), the Board appointed an independent director to serve as a Special Committee to conduct an investigation into our historic stock option granting practices.

     The Special Committee retained independent legal counsel to assist in the investigation. During the eight month investigation, the Special Committee and its independent counsel, assisted by independent forensic accountants, reviewed the facts and circumstances surrounding monthly and annual stock option grants made to executive officers, employees and non-employee directors, searched relevant physical and electronic documents and interviewed current and formers directors, officers and employees. This review included an examination of all stock option grants from January 1, 1997 to December 31, 2006, encompassing approximately 42.3 million stock options granted to employees and non-employee directors on 148 different grant dates. The Special Committee’s legal and accounting advisors identified, preserved, collected, and reviewed over 104 gigabytes of electronic information, including approximately 1.6 million pages of electronic and hard copy files, and conducted 25 interviews of current and former employees and members of the Board.

     In March 2007, we announced that the Special Committee had reported its principal findings to the Board relating to the above investigation. Based on the report of the Special Committee and on management’s preliminary conclusions and recommendations, the Board concluded that incorrect measurement dates were used for financial accounting purposes for certain stock options granted between January 1, 1997 and December 31, 2005. We disclosed the fact that the anticipated non-cash charges required to correct the discrepancy would be material and that we expected to restate our financial statements for the fiscal years 2002 through 2006 and for the first quarter of fiscal year 2007. Accordingly, we announced that based on the findings of the Special Committee, and the recommendations of management and the Audit Committee, the Board had concluded that the financial statements, related notes and selected financial data and all financial press releases and similar communications issued by us and the related reports of the Company’s independent registered public accounting firm relating to fiscal periods 2002 through 2006, and the first fiscal quarter of 2007, should no longer be relied upon.

     As a result of the findings of the Special Committee detailed below, the Company has recognized $32.4 million in additional share-based compensation expense arising from stock grants to executive officers and employees. Of this amount, approximately $9.3 million related to related to options granted to executive officers who, at the time of the grant, were subject to the reporting requirements under Section 16 of the Exchange Act of 1934. The Special Committee arrived at the following principal findings with respect to the stock option practices of the Company:

•

The Company’s stock plan administrative deficiencies between January 1, 1997 and December 31, 2005 led to a number of misdated option grants.

	o		New hire and other promotion and retention option grants were generally made the first Wednesday of each month through the use of unanimous written consents (“UWCs”) of the Company’s Compensation Committee. However, prior to January 2006, many of these monthly grants were misdated, as grant dates were routinely established before the receipt of all the signed UWCs authorizing those grants. Of the $32.4 million in additional share-based compensation expense, $6.1 million related to these types of errors.
	o		Many other off-cycle and broad-based annual option grants that were granted through Board or Compensation Committee resolutions were also misdated due to administrative issues in that grant dates were sometimes established before the list of option award recipients had been finalized. Of

			the $32.4 million in additional share-based compensation expense, $4.3 million related to these types of errors.
	o		Beginning in late 2002, the Company formally documented and updated its existing processes and procedures with respect to the granting of options. In 2005, the Company further refined the process and, in 2006, a formal written policy was approved by the Compensation Committee.
	o		Approximately 97% of the potential stock-based compensation charges identified as a result of the Special Committee investigation resulted from grants that were made prior to December 31, 2002.

•

Prior to 2003, the limited controls and the lack of definitive processes for stock option granting and approval allowed for potential abuse, including the use of hindsight, in the establishment of more favorable grant dates for certain options.

	o		The Special Committee identified three grant dates prior to 2003 on which three management-level employees received new-hire option grants on dates other than when they began rendering services to the Company. Of the $32.4 million in additional share-based compensation expense, $1.4 million related to these types of errors.
	o		The grant date for one grant in 2000 is different from the date the grant appears to have been approved by the Board. While no definitive evidence has been identified to clarify this inconsistency, the selected grant date was at a lower closing stock price than the price on the date of apparent board approval.
	o		Based on the evidence developed in the investigation, the Special Committee believes that certain executive officers had knowledge of and participated in the selection of three grant dates for broad-based employee option grants in the 2000 through 2002 timeframe, either with hindsight or prior to completing the formal approval process. Of the $32.4 million in additional share-based compensation expense, $12.0 million related to these types of errors.
	o		The executive officers involved in the option grant process prior to 2003, and in particular the grants described above in the 2000 through 2002 timeframe, were no longer with the Company as of the date the Special Committee reported its findings to the Board with the exception of David D. French, the Company’s President and Chief Executive Officer.
	o		In light of the findings, as of March 5, 2007, David D. French resigned as President and Chief Executive Officer and as a director of the Company. The Company has entered into a resignation agreement with Mr. French.

	•		The Special Committee believes that Mr. French was significantly involved in the grant approval process for certain grants and that he influenced the grant process with a view toward the stock price, and therefore the selection of grant dates, through his control over how quickly or slowly the process was completed. However, the Special Committee does not believe that Mr. French appreciated the significance of the procedural inadequacies or the accounting implications of the grant approval process or grant date selections, or that he was advised by his executive staff of any such inadequacies or implications.
	•		The Special Committee did not find any irregularities associated with any grants to independent directors or the Company’s two broad-based options exchanges during the relevant period.
	•		The Special Committee found no documentary or testimonial evidence that the Company’s independent directors were aware of any attempts by the Company’s executive officers to backdate or to otherwise select a favorable grant date, and consequently, had no reason to and did not believe that the accounting or other disclosures were inaccurate.
	•		The Special Committee further found that the evidence indicates that the independent directors relied upon management to ensure that the Board and Compensation Committee’s grant approvals complied with the Company’s stock option plans and applicable laws and accounting rules.

     Based on the results of its investigation, the Special Committee has recommended a number of remedial actions. The Company is currently reviewing these recommendations and developing and implementing a remediation plan associated with historical stock option grants and the grant of future equity awards. Based on its review of the Special Committee’s findings, the Company does not believe that, in the few instances when stock grant dates were selected by management either with hindsight or prior to receiving all required approvals, that any employee, who at the time of the grant was an executive officer, has exercised or realized any financial gain from those grants.

     Subsequent to our press release dated March 2, 2007, the Company identified two other issues based upon the findings of the Special Committee that led to an increase of $8.6 million in additional share-based compensation expense recognized in the consolidated financial statements in excess of the previous estimate of $22 million to $24 million. These issues are described as follows:

•

Our previous estimate should have included the intrinsic value of 1.8 million options canceled in relation to a Company wide option exchange in fiscal year 2003, which led to an increase in share-based compensation expense. Under EITF 00-23, “Issues Related to the Accounting for Stock Compensation under APB Opinion No. 25 and FASB Interpretation No. 44,” Issue 37(a), the compensation cost measured

			on the original grant date of the re-priced stock option grants that remained unrecognized at the time of the option exchange should have been immediately recognized as expense on the day of the exchange and included in our original estimate. Of the $8.6 million in additional share-based compensation expense beyond our previous estimate, $6.5 million related to the correction of this error.
	•		Our previous estimate should have included certain share-based compensation expenses related to certain modifications to the terms of stock options grants for certain individual employees at the time of their termination. Of the $8.6 million in additional share-based compensation expense beyond our previous estimate, $2.1 million related to correction of these types of errors.

     As of the date of this filing, the Company has paid a total of approximately $2.9 million to independent legal counsel, independent forensic accountants, and our independent registered public accounting firm in connection with the eight month investigation into past stock option granting practices.

Summary

     In accordance with Accounting Principles Board Opinion No. 25 (“APB No. 25”), “Accounting for Stock Issued to Employees,” our restated consolidated financial statements reflect additional compensation expense to the extent the fair market value of a share of our common stock on the correct measurement date exceeded the exercise price of the option. The additional non-cash compensation expense was amortized over the required service period, generally over the vesting periods of the respective grants. The following shows the share-based compensation adjustments and the related tax effects of all adjustments for fiscal years 2002 through 2006. The decrease in net income for each type of adjustment is as follows (in thousands):

		Net Income				Non-cash Stock
		(Loss)				Compensation												Net Income
		[Previously				Expense				Tax Effect of				Total				(Loss)
		Reported]				Adjustment				Adjustment				Adjustments				[Restated]
Fiscal Year 2002		$	(206,079	)		$	(9,799	)		$	-			$	(9,799	)		$	(215,878	)
Fiscal Year 2003			(199,213	)			(6,986	)			-				(6,986	)			(206,199	)
Fiscal Year 2004			46,503				(3,655	)			-				(3,655	)			42,848
Fiscal Year 2005			(13,388	)			(108	)			-				(108	)			(13,496	)
Fiscal Year 2006			54,145				(1,719	)			-				(1,719	)			52,426

     The effect that these adjustments had on diluted earnings per share for the fiscal years 2002 to 2006 is as follows:

		Earnings (Loss)								Earnings
		Per Share								(Loss) Per
		[Previously								Share
		Reported]				Adjustments				[Restated]
Fiscal Year 2002		$	(2.66	)		$	(0.13	)		$	(2.79	)
Fiscal Year 2003			(2.39	)			(0.08	)			(2.47	)
Fiscal Year 2004			0.54				(0.04	)			0.50
Fiscal Year 2005			(0.16	)			(0.00	)			(0.16	)
Fiscal Year 2006			0.62				(0.02	)			0.60

     The cumulative effect on stockholders’ equity as of March 25, 2006 resulting from the restatement of share-based compensation is as follows (in thousands):

										Unearned				Net Impact to
		Paid-in				Retained				Deferred				Stockholders’
Adjustments to Stockholder’s Equity		Capital				Earnings				Compensation				Equity
Fiscal Year 2003 & Prior			29,392				(26,941	)			(3,786	)			(1,335	)
Fiscal Year 2004			2,109				(3,655	)			1,487				(59	)
Fiscal Year 2005			(481	)			(108	)			1,452				863
Fiscal Year 2006			1,592				(1,719	)			514				387
Total effect - all fiscal years		$	32,612			$	(32,423	)		$	(333	)		$	(144	)

     The net impact to Stockholder’s Equity detailed above was completely offset by a change in other accrued liabilities for each period presented. These were the only adjustments made to our consolidated balance sheet as a

result of the restatement. The net book value of our deferred tax assets did not change as a result of the restatement as we continue to provide a full valuation allowance against them.

Share-Based Compensation

     The incremental effect of recognizing additional share-based compensation expense resulting from grants with incorrect measurement dates is as follows (in thousands):

		Pre-Tax				After-Tax
		Expense				Expense
Fiscal Year 1998			326				326
Fiscal Year 1999			2,083				2,083
Fiscal Year 2000			2,100				2,100
Fiscal Year 2001			5,647				5,647
Fiscal Year 2002			9,799				9,799
Fiscal Year 2003			6,986				6,986
Total 1998 – 2003 effect			26,941				26,941
Fiscal Year 2004			3,655				3,655
Fiscal Year 2005			108				108
Fiscal Year 2006			1,719				1,719
			5,482				5,482
		$	32,423			$	32,423

Litigation Summary

On January 5, 2007, a purported stockholder filed a derivative lawsuit in state district court in Travis County, Texas against current and former officers and directors of Cirrus Logic and against the Company, as a nominal defendant, alleging various breaches of fiduciary duties, conspiracy, improper financial reporting, insider trading, violations of the Texas Securities Act, unjust enrichment, accounting, gross mismanagement, abuse of control, rescission, and waste of corporate assets related to certain prior grants of stock options by the Company. Our response to the lawsuit is currently due on April 20, 2007.

     On March 19, 2007, another purported stockholder filed a derivative lawsuit related to the Company’s prior stock option grants in the United States District Court for the Western District of Texas — Austin Division against current and former officers and directors of Cirrus Logic and against the Company, as a nominal defendant. The individual defendants named in this lawsuit overlap, but not completely, with the state suit. The lawsuit alleges many of the causes of action alleged in the Texas state court suit, but also includes claims for alleged violations of Section 10(b) of the Exchange Act and Rule 10b-5, violations of Section 14(a) of the Exchange Act and violations of Section 20(a) of the Exchange Act. On April 10, 2007, we filed a motion to dismiss the complaint on the grounds that the plaintiff was supposed to make demands on the Board before filing the lawsuit. The plaintiff has not filed a response and no hearing before the court is currently set on the motion to dismiss.

     On March 30, 2007, a different purported stockholder filed a nearly identical derivative lawsuit to the March 19, 2007 derivative lawsuit in the United States District Court for the Western District of Texas – Austin Division with identical allegations against the same defendants. We are currently evaluating this plaintiff’s claims.

Overview

     We were incorporated in California in 1984, became a public company in 1989 and were reincorporated in the State of Delaware in February 1999. Through most of our corporate existence, we provided ICs for personal computer applications, including personal computer (“PC”) graphics and storage. Several years ago, we refocused our business efforts away from these areas, which we believed had become commodity-like in terms of pricing and offered diminished opportunities for sustained product differentiation and profitability. We have reinforced our commitment to maintain profitability by taking strategic actions during fiscal year 2005 and the first part of fiscal year 2006 to improve our top and bottom line growth. Some actions we have taken in the past fiscal year include, but are not limited to: (1) improving efficiencies by completing implementation of a product line structure focusing on our product lines including analog mixed-signal products, embedded products, and industrial products, (2) divesting ourselves of our digital video product line assets to focus on our core strengths, and (3) enhancing operations by moving to a completely fabless business model.

     During fiscal year 2006, we completed the outstanding litigation with Fujitsu for a net $24.8 million and enhanced our financial position by obtaining $7 million from a one-time cash receipt associated with an amendment to an existing licensing agreement, in which certain rights to Cirrus Logic were terminated from a prior cross-license agreement. Further, we were able to realize a tax benefit of approximately $7 million due to the expiration of certain statutes related to non-U.S. tax liabilities. We did not pay U.S. income taxes in fiscal year 2006 and we do not expect to incur regular U.S. income taxes in fiscal year 2007, as we have a large net operating loss (“NOL”) carryforward to offset tax liabilities for U.S.-sourced income. We do not expect to see the same level of tax benefits from the expiration of certain non-U.S. statutes of limitations during fiscal year 2007 that we experienced in fiscal year 2006. We may incur taxes in many of the non-U.S. and U.S. state tax jurisdictions in which we operate.

     Over the course of fiscal year 2005, we enhanced our focus on operations and decreased our expenses in research and development and sales, general, and administrative by a total of $22.7 million when compared to the previous year. We recorded an income tax benefit of $20.8 million for fiscal year 2005 on a pre-tax loss of $34.3 million. This benefit was the result of reversals of prior year U.S. Federal and non-U.S. tax liabilities.

     During fiscal year 2004, we settled and received $45 million from the settlement of outstanding commercial litigation with a storage product manufacturer named Western Digital Corp. We received a total of $14.4 million, after expenses, from two patent infringement lawsuits with ATI Technologies and nVidia Corporation involving graphics patents. Finally, we received a net $17 million related to a transaction with Broadcom Corporation for certain U.S. and international patents. Further, we also benefited from the sale of certain marketable securities for $12 million.

     Although we continue to defend our patents and investigate the potential for leveraging our intellectual property portfolio, we do not anticipate the same level of benefits we have received in the past to reoccur in the future. We have directed our efforts to become a leader in digital audio and high-performance analog and mixed-signal ICs for consumer entertainment, professional applications, automotive entertainment and high-precision industrial measurement applications. We offer more than 600 products to over 2,500 end customers worldwide through both direct and indirect sales channels. We target both large existing and emerging growth markets that derive value from our expertise in advanced analog and mixed-signal design processing, systems-level integrated circuit engineering and embedded software. End products incorporating our ICs are marketed by many of the world’s leading electronics companies, including Bose, Creative Technologies, Harman/Kardon, LG Electronics, Panasonic, Philips, Pioneer, Samsung, Siemens, Sony, Thomson S.A. and Yamaha, among others.

     Our products include analog and mixed-signal products for consumer, professional, automotive, industrial, along with other analog and mixed-signal products; digital home audio processors and digital portable processors; commercial audio processors; automotive audio solutions; and embedded processors. Some common items our audio mixed-signal products may be found in include amplifiers, AVRs, DVD players and recorders, DVD receivers, set-top boxes, digital televisions, MP3 players, game consoles, car audio systems and satellite radios. The balance of our analog and mixed-signal IC components are primarily sold into industrial measurement applications, such as temperature gauges for industrial use, seismic devices for oil field and seismology applications and high-precision weigh scales for commercial and scientific use.

     We maintain sales, design and technical support personnel in the U.S. and other locations near our customers. We have strategically aligned our personnel to provide better support to our base of system solution customers, most of which maintain design and/or manufacturing sites outside of the United States. We intend to continue to evaluate our employee headcount in these locations in order to maintain our high level of commitment and support to our customers.

     We also contract with third parties for all of our wafer fabrication, assembly and testing operations. Our supply chain management organization is responsible for the management of all aspects of the manufacturing and testing of our products, including process and package development, test program development, and production testing of products in accordance with our ISO-certified quality management system. Our fabless manufacturing strategy allows us to concentrate on our design strengths, minimize fixed costs and capital expenditures, access advanced manufacturing facilities, and provide flexibility on sourcing through multiple qualified vendors.

Results of Operations

     The following table summarizes the results of our operations for each of the past three fiscal years as a percentage of net sales. All percentage amounts were calculated using the underlying data in thousands:

		Twelve Months Ended
		March 25,				March 26,				March 27,
		2006				2005				2004
		Restated				Restated				Restated
Mixed-signal audio products			49	%			49	%			50	%
Embedded products			27	%			24	%			24	%
Industrial products			18	%			18	%			13	%
Video products			6	%			9	%			12	%
Other products			0	%			0	%			1	%
Net sales			100	%			100	%			100	%
Cost of sales			46	%			52	%			49	%
Gross Margin			54	%			48	%			51	%
Research and development			24	%			41	%			47	%
Selling, general and administrative			26	%			22	%			27	%
Restructuring and other, net			1	%			5	%			5	%
Patent infringement settlements, net			0	%			0	%			(7	%)
Litigation settlement, net			(13	%)			0	%			(23	%)
License Agreement			(4	%)			0	%			0	%
Patent agreement, net			0	%			(0	%)			(9	%)
Total operating expenses			34	%			68	%			40	%
Income (loss) from operations			20	%			(20	%)			11	%
Realized gain on marketable securities			0	%			0	%			6	%
Interest income, net			4	%			2	%			1	%
Other income (expense), net			(0	%)			0	%			(0	%)
Income (loss) before income taxes			24	%			(18	%)			18	%
Benefit for income taxes			(4	%)			(11	%)			(4	%)
Net income (loss)			28	%			(7	%)			22	%

Net Sales

		March 25,				March 26,				March 27,
		2006				2005				2004
Mixed-signal audio products		$	95,384			$	96,083			$	97,871
Embedded products			52,258				46,645				46,389
Industrial products			34,771				34,109				26,193
Video products			11,281				18,063				24,419
Other products			-				-				1,466
Total		$	193,694			$	194,900			$	196,338

     Net sales for fiscal year 2006 decreased $1.2 million, or 0.6 percent, to $193.7 million from $194.9 million in fiscal year 2005. Net sales from our embedded processor products were up $5.6 million in fiscal year 2006 due to increased revenue from a non-recurring United States government project, as well as increased demand for ARM based products and our communications related products. We also saw revenue growth in our industrial product line, of which $0.7 million was due to higher demand for our power meter products. These increases were offset by a decrease of $6.8 million in net sales of our video products, as we sold our digital video related product line during fiscal year 2006. Net sales of our mixed-signal products decreased $0.7 million due to various product mix changes between our digital-to-analog and analog-to-digital converters.

     Net sales for fiscal year 2005 decreased $1.4 million, or 1 percent, to $194.9 million from $196.3 million in fiscal year 2004. Net sales from our industrial products were up $7.9 million in fiscal year 2005 due to increased demand in our seismic business. These increases were partially offset by a decrease of $6.4 million in net sales of our video products in fiscal year 2005 from the prior year. The decrease in our video products was primarily attributable to missed design wins due to software compatibility issues coupled with a decrease in sales into the DVD player market, as manufacturers discontinued producing this highly commoditized product. Net sales from

mixed-signal products declined $1.8 million due primarily to a continued decrease in demand for personal computer audio components, a market we have de-emphasized, while embedded product net sales increased $0.3 million during fiscal year 2005. Net sales from our other products declined approximately $1.4 million in fiscal year 2005 from the prior year due to sales related to a discontinued product line in fiscal year 2004.

     Export sales, principally to Asia, including sales to U.S.-based customers with manufacturing plants overseas, were approximately $127.6 million in fiscal year 2006, $130.6 million in fiscal year 2005, and $141.4 million in fiscal year 2004. Export sales to customers located in Asia were 52 percent of net sales in both fiscal years 2006 and 2005, and 59 percent of net sales in fiscal year 2004. All other export sales were 14 percent, 15 percent, and 13 percent of net sales in fiscal years 2006, 2005 and 2004, respectively.

     Our sales are denominated primarily in U.S. dollars. During fiscal years 2006, 2005 and 2004, we did not enter into any foreign currency hedging contracts.

     During fiscal year 2006, Avnet, Inc. acquired Memec Holdings Group. In the past, Memec Holdings Group was our largest distributor. Sales to Avnet, Inc. (formerly Memec Holdings Group) represented 25 percent, 27 percent and 20 percent in fiscal years 2006, 2005 and 2004, respectively. No other customers or distributors accounted for 10 percent or more of net sales in fiscal years 2006, 2005 or 2004. The loss of a significant customer or a significant reduction in a customer’s orders could have an adverse affect on our sales.

Gross Margin

     Gross margin was 54.3 percent in fiscal year 2006, up from 47.9 percent in fiscal year 2005. In fiscal year 2006, we completed the sale of our digital video product line assets. Product mix changes and changes associated with selling the digital video product line assets resulted in an increase to gross margins of approximately 2.1 percentage points. The sale of product that had been written down in prior fiscal years contributed approximately $4.1 million, or 2.1 percent of gross margin percentage compared with 1.4 percent contribution to margin in fiscal year 2005. In total, excess and obsolete inventory charges decreased by $7.8 million from fiscal year 2005, which increased gross margins by 4.0 percentage points.

     Gross margin was 47.9 percent in fiscal year 2005, down from 51.3 percent in fiscal year 2004. In fiscal year 2005, we completed the transition of our test operations to outside third party providers. During this transition, we did not decrease our internal test operations as much as we had anticipated which resulted in higher internal overhead costs. This increase in internal overhead resulted in a 1.6 percent decrease in our gross margin. Further, the sale of product that had been written down in prior fiscal years contributed approximately $2.6 million, or 1.4 percent of gross margin percentage compared with a 1.7 percent contribution to margin in fiscal year 2004. Overall, inventory charges increased $1.4 million, or 0.7 percent in fiscal year 2005 compared with the prior year, mainly due to write down charges associated with video related products.

     We continue to see increased lead times from our various fabrication, assembly, and test service providers. We also have experienced rising costs associated with the increased cost of certain precious metals from our assembly providers. An increase in procurement lead times, precious metal costs and/or decrease in capacity may cause our costs to increase, which may slow our gross margin growth in fiscal year 2007.

Research and Development Expenses

     Fiscal year 2006 research and development expenses decreased $34.8 million from fiscal year 2005 due in large part to the decrease in expenses associated with the sale of the digital video product line assets in early fiscal year 2006 and our cost savings measures from fiscal year 2005. Research and development expenses, including amortization of acquired intangibles, decreased as a percentage of net sales to 23.6 percent in fiscal year 2006 from 41.3 percent in fiscal year 2005. Amortization of acquired intangibles decreased from $13.7 million in fiscal year 2005 to $1.4 million in fiscal year 2006.

     Research and development expenses in fiscal year 2005 decreased $11.4 million from fiscal year 2004 primarily due to fiscal year 2005 cost reductions and the realization of the full-year impact of the fiscal year 2004 cost reductions. Research and development expenses decreased as a percentage of net sales from 46.9 percent in fiscal year 2004 to 41.3 percent in fiscal year 2005. Research and development expense for fiscal years 2005 and 2004 now include $13.7 million and $14.4 million, respectively, of amortization of acquired intangible assets.

Selling, General and Administrative Expenses

     Selling, general and administrative expenses increased $8.8 million in fiscal year 2006 compared to fiscal year 2005. This was primarily due to charges associated with $4.4 million in loss contingency accruals on certain properties recently sub-leased to a third party by Cirrus Logic during the current year and a benefit recorded in fiscal year 2005 related to a $3.0 million release of a use tax accrual coupled with a refund of $2.3 million related to recovered non-U.S. goods and sales tax. Selling, general and administrative expenses increased as a percentage of net sales from 21.8 percent in fiscal year 2005 to 26.4 percent in fiscal year 2006.

     Selling, general and administrative expenses decreased $11.2 million in fiscal year 2005 from the prior year. Selling, general and administrated expenses benefited in fiscal year 2005 from a $3.0 million release of a use tax accrual coupled with a refund of $2.3 million related to recovered non-U.S. goods and sales tax. Further, selling, general and administrative expenses also benefited from the realization of the full-year impact of the fiscal year 2004 cost reduction efforts. Selling, general and administrative expenses decreased as a percentage of net sales from 27.4 percent in fiscal year 2004 to 21.8 percent in fiscal year 2005.

Restructuring Costs and Other, net

     During the fiscal year 2006, we recorded a restructuring charge of $3.1 million in operating expenses for severance and facility related items associated with workforce reductions related to the sale of the digital video product line assets and changes to sub-lease assumptions regarding exited facilities. This action affected approximately 10 individuals worldwide and resulted in a net charge of approximately $0.4 million. In connection with the digital video product line asset sale, we ceased using certain leased office space in our Fremont, California location. Accordingly, we recorded a restructuring charge of $2.7 million related to the exit from this facility. Partially offsetting the restructuring charge was $0.8 million related to the gain on the digital video product line asset sale. For further detail, see Note 4, “Non-marketable Securities.”

     During fiscal year 2005, we recorded a net restructuring charge of $1.5 million in operating expenses for facility consolidations primarily in California and Texas, an impairment charge of $5.1 million for technology licenses and equipment that will no longer be used due to our workforce reductions and a charge of $2.9 million related to workforce reductions. We expected to realize approximately $8.0 million to $12.0 million in savings in annual research and development and selling, general and administrative expenses due to the related headcount reductions and facility consolidation activities. During fiscal year 2006, we did realize these expected savings as noted earlier in the research and development discussion. Further, as we continue to monitor our operating expenses, facility accruals, divestiture opportunities and space utilizations, we may record additional restructuring charges related to these items. See Note 10 in the Notes to our Consolidated Financial Statements contained in “Item 8 – Financial Statements and Supplementary Data” for further detail.

     As of March 25, 2006, we have a remaining restructuring accrual for all of our past restructurings of $6.5 million, primarily related to future lease payments net of anticipated subleases that will be paid over the respective lease terms through fiscal year 2013.

License Agreement Amendment

     During the fourth quarter of fiscal year 2006, we realized a gain of $7 million resulting from a one-time payment received associated with an amendment to an existing licensing agreement, in which certain rights to Cirrus Logic were terminated from a prior cross-license agreement. The proceeds were recorded as a separate line item on the statement of operations in operating expenses under the heading “License agreement amendment.”

Litigation Settlements

     On April 28, 2005, Cirrus Logic, Fujitsu, Ltd. (“Fujitsu”), Amkor, Sumitomo, and Cirrus Logic’s insurance carriers reached an agreement through an arbitration process to settle and release all pending claims related to the alleged failure of certain semiconductor ICs sold by Cirrus Logic to Fujitsu. These releases included releases between our insurance carriers and us for any claims related to the litigation with Fujitsu. As part of the settlement, Fujitsu received $45 million from Sumitomo, $40 million from Amkor, and $40 million from Cirrus Logic’s insurance carriers. Fujitsu paid us a lump sum in the amount of $25 million. The final settlement documents were completed on June 10, 2005, and payment was received on June 16, 2005. Part of the $25 million received from the settlement represented a recovery of bad debt expense recorded in fiscal year 2002 of approximately $46.8 million. The $25 million received was partially offset by approximately $0.2 million in outside fees associated with this transaction. The net amount was recorded as a separate line item as a component of operating expenses during the first quarter of fiscal year 2006.

     On August 22, 2003, we signed an agreement to settle prior litigation with Western Digital Corporation and its Malaysian subsidiary, Western Digital (M) SDN.BHD, (collectively “WD”). Under the terms of the agreement, WD made a one-time payment to us of $45 million on October 16, 2003. We recorded the settlement as a credit to operating expense during the third quarter of fiscal year 2004 when the payment was received. Part of the $45 million received from WD represented a recovery of bad debt expense recorded in a prior year of approximately $26.5 million.

Patent Agreement and Settlements, net

     During the third quarter of fiscal year 2005, we released $0.6 million in legal fees originally accrued in connection with the transaction with Broadcom Corporation for certain U.S. and non-U.S. patents. The excess accrual was related to differences from our original estimate and the actual fees incurred related to this transaction.

     On August 11, 2003, we entered into a Patent Sale, Assignment and Cross-License Agreement with NVIDIA and NVIDIA International, Inc. to settle certain pending litigation. As a result of this agreement, NVIDIA paid us $9 million on August 11, 2003. On September 23, 2003, we entered into a Patent Sale, Assignment and Cross-License Agreement with ATI and ATI International SRL to settle certain additional pending litigation. As a result of this agreement, ATI paid us $9 million on October 2, 2003. Under the terms of a contingency fee arrangement, we were obligated to pay outside counsel a percentage of these settlements. During the fourth quarter of fiscal year 2004, we received a net $17 million related to a transaction with Broadcom Corporation for certain U.S. and non-U.S. patents. Both the accrual release and settlements were recorded as a separate line item on the statement of operations in operating expenses under the heading “Patent agreement and settlements, net.”

Realized Gain on Marketable Securities

     In the first quarter of fiscal year 2006, we recognized a gain of $0.4 million related to the sale of an investment in Silicon Laboratories, Inc. (“Silicon Labs”). Total proceeds from the sale were $0.4 million. These shares were received as a result of a prior merger agreement whereby Silicon Labs acquired Cygnal Integrated Products, Inc. (“Cygnal”). This merger agreement stated that all shareholders in Cygnal, Cirrus Logic included, would receive shares of stock in Silicon Labs in exchange for their shares in Cygnal. Further, the agreement stated that, should Cygnal achieve certain revenue milestones, the former Cygnal shareholders would receive a designated amount of stock in Silicon Labs. Cygnal surpassed certain of those milestones laid out in the merger agreement and, as a result, Silicon Labs distributed certain shares of its stock held in escrow to Cirrus Logic in the first quarter of our 2006 fiscal year. Cirrus Logic sold these shares immediately upon receipt.

     During fiscal year 2005, we recognized a gain of $0.8 million related to sale of Silicon Labs stock associated with the Cygnal transaction described above. In the first quarter of fiscal year 2005, we recognized a gain of $0.7 million on the sale of all of the Company’s stock in Silicon Labs that was received as part of the original merger agreement between Cygnal and Silicon Labs. Total proceeds from the sale were $1.2 million. In the fourth quarter of fiscal year 2005, Cirrus Logic received additional shares in Silicon Labs as a result of the milestones discussed above. Cirrus Logic sold these shares immediately and recognized a gain of $0.1 million.

     In the fourth quarter of fiscal year 2004, we recognized a gain of $2.0 million related to sale of investments we had in other publicly traded companies. During the second quarter of fiscal year 2004, we realized a gain of $10.1 million related to our investment in SigmaTel, Inc. (“SigmaTel”).

Interest Income

     Interest income in fiscal years 2006, 2005, and 2004, was $7.5 million, $3.2 million, and $1.9 million, respectively. The increase in interest income in fiscal year 2006 compared to fiscal year 2005 and 2004 was primarily due to higher average cash and cash equivalent balances on which interest was earned as well as higher interest rates. This increased cash balance was the result of positive cash flow from operations, however, the receipt of various settlements during the fiscal year, such as the $25 million received from the Fujitsu legal settlement, also contributed to the increase. See Note 7 in the Notes to our Consolidated Financial Statements contained in “Item 8 – Financial Statements and Supplementary Data” for additional details concerning the Fujitsu settlment.

Income Taxes

     We recorded an income tax benefit of $7.0 million in fiscal year 2006 on pre-tax income of $45.4 million, yielding an effective tax benefit rate of 15.5 percent. Our effective tax rate was lower than the U.S. statutory rate of 35 percent primarily because we benefited from the realization of deferred tax assets that had been fully reserved. Our effective tax rate also reflected a nonrecurring tax benefit of $6.7 million that was generated by the reversal of prior year non-U.S. tax liabilities due to the expiration of statutes of limitations for the years in which certain potential non-U.S. tax liabilities had existed.

     We recorded an income tax benefit of $20.8 million for fiscal year 2005 on a pre-tax loss of $34.3 million, yielding an effective tax benefit rate of 60.6 percent. This rate differs from the U.S. statutory rate of 35 percent primarily because we were unable to benefit our fiscal year 2005 net operating loss due to the full valuation allowance we had in place on our net deferred tax assets in that year. We recorded a tax benefit of $21.3 million, representing the reversal of prior year U.S. Federal and non-U.S. tax liabilities. These reversals were due to the expiration of statutes of limitations for the years in which certain potential U.S. and non-U.S. tax liabilities had existed. We also incurred $0.5 million of income taxes that were due in various non-U.S. jurisdictions in which we have offices.

     We recorded an income tax benefit of $7.1 million for fiscal year 2004 on pre-tax income of $35.8 million, yielding an effective tax benefit rate of 19.7 percent. Our effective tax rate was lower than the U.S. statutory rate of 35 percent primarily because we benefited from the realization of deferred tax assets that had been fully reserved. Our effective tax rate was also impacted by a nonrecurring tax benefit of $7.2 million that was generated by the reversal of prior year state tax liabilities. This reversal was due to the expiration of the statute of limitations for the years in which certain potential state tax liabilities existed.

     In fiscal years 2006, 2005 and 2004, we provided a valuation allowance equal to our net U.S. deferred tax assets due to uncertainties regarding whether these assets will be realized. In order to recognize these assets, we must be able to determine that it is more likely than not that these assets will be realized. We evaluate the realizability of the deferred tax assets on a quarterly basis. We have deferred tax assets generated in non-U.S. jurisdictions that we have recognized since it is more likely than not that these assets will be realized.

Outlook

     Our outlook for fiscal year 2007 reinforces our commitment to drive to consistent operating profitability exclusive of any unusual, non-recurring events, such as litigation events. Given current indicators, we expect to maintain operating profitability, exclusive of unforeseen events, by achieving revenue growth and continued focus on reducing the cost of our operations. We remain committed to becoming a consistently profitable company, which better leverages its engineering and intellectual property resources to achieve growth.

     We are focused on building a leadership position in our higher-margin audio, analog and mixed-signal product lines. We believe that worldwide adoption of digital audio products, as replacements for outdated analog components, will allow us continued growth opportunities in our audio business. Our expertise in surround-sound audio presents new opportunities beyond the traditional AVR market, as home theater-in-a-box solutions increase. In addition, we have numerous products that support digital televisions applications, low power audio applications, new automotive audio applications and have expanded our opportunities in commercial audio markets and several industrial markets, such as power meters and seismic applications.

     Overall, we believe that we are well positioned to address the current economic environment, but future revenue, costs, margins, profits and profitability are all influenced by numerous factors, all of which are inherently difficult to forecast. Please refer to “Item 1A – Risk Factors Affecting Our Business and Prospects,” for additional information on these factors.

Liquidity and Capital Resources

     During fiscal year 2006, we generated $59.8 million in cash from operating activities. The increase in cash during fiscal year 2006 was primarily driven by our operations and the receipt of $25 million in cash in connection with the Fujitsu litigation settlement and a decrease in our inventory of $7.9 million. Another contributing factor to our increase in cash was a $3.6 million increase in accounts payable and the receipt of $7.0 million in connection with certain amendments to an existing license agreement. These increases to cash were partially offset by a $2.3 million increase in accounts receivable and a $1.7 million decrease in accrued salaries and benefits. During fiscal year 2005, we used $17.1 million in cash from operating activities. The use of cash during fiscal year 2005 was primarily driven by our operations and a decrease in our accounts payable and accrued liabilities of $16.4 million

partially offset by the decrease in inventory of $3.0 million and accounts receivable of $1.2 million. We also completed a property lease buyout during the second quarter of fiscal year 2005 totaling $4.3 million for a leased property that we no longer occupied in Broomfield, Colorado, which led to a further reduction of our cash from operating activities. During fiscal year 2004, we generated $69.6 million in cash from operating activities. The cash generated by operating activities during fiscal year 2004 was primarily related to cash received, net of expenses, upon the successful completion of three legal-related settlements totaling $59.4 million (Western Digital Corporation, NVIDIA Corporation and ATI Technologies, Inc.) and the patent agreement with Broadcom Corporation for $17.0 million, net. Also contributing to our cash increase during fiscal year 2004 was an increase in our accounts payable and accrued liabilities of $13.4 million and a slight decrease in our accounts receivable balance. These sources of cash were partially offset by an increase in our inventory balances of $7.3 million.

     During fiscal year 2006, we used $28.6 million in cash from investing activities in large part due to the purchase of $187.6 million worth of available-for-sale securities partially offset by the sale of available-for-sale securities of $159.4 million. In addition, we purchased $2.9 million of equipment and technology licenses. These amounts were partially offset by a decrease in restricted cash of $2.1 million related to a decrease in the restricted balances required by certain outstanding letters of credit. During fiscal year 2005, we used $65.1 million in cash from investing activities. This use of cash during fiscal year 2005 is primarily due to the purchase of available-for-sale securities of $109.4 million partially offset by the sale of available-for-sale securities of $50.6 million. In addition to the securities, we purchased $6.7 million of property and equipment and technology licenses, including multi-year computer-aided design tool licenses during fiscal year 2005. During fiscal year 2004, we used $25.0 million in cash from investing activities primarily related to the purchase of marketable securities and the purchase of technology licenses, including multi-year computer-aided design tool licenses and property and equipment. These cash uses were partially offset by the sale of marketable equity securities, the sale of assets related to our manufacturing test operations and a decrease in the level of restricted investments we must maintain.

     During fiscal years 2006, 2005, and 2004, we generated $6.3 million, $3.5 million, and $2.3 million, respectively, in cash from financing activities related to the receipt of cash from common stock issuances as a result of the exercises of employee stock options and our employee stock purchase plan.

     As of March 25, 2006, we had restricted investments of $5.8 million, which primarily secures certain obligations under our lease agreement for our principal facility located in Austin, Texas. This facility is 197,000 square feet and houses our headquarters and engineering operations. The lease agreement for our headquarters and engineering facility includes a letter of credit in the amount of $5.1 million until November 2011, at which point the requirement decreases to $2.6 million with the letter of credit ceasing in May 2012.

     Although we cannot assure our stockholders that we will be able to generate cash in the future, we anticipate that our existing capital resources and cash flow generated from future operations will enable us to maintain our current level of operations for at least the next 12 months.

Quarterly Results of Operations

     The results of operations that originally appeared in our Form 10-Q’s filed for the fiscal years 2006 and 2005 have been adjusted to reflect the restatement of our quarterly financial results, which is more fully described above in the Explanatory Note in the Management’s Discussion and Analysis — Restatement of Consolidated Financial Statements and Note 1A, “Restatement of Consolidated Financial Statements,” of the Notes to Consolidated Financial Statements of this Form 10-K/A. For a detailed reconciliation of previously reported quarterly results of operations to the restated quarterly results of operations below, please see Note 16, “Quarterly Financial Information,” of the Notes to Consolidated Financial Statements of this Form 10-K/A.

Quarterly Results of Operations (in thousands, except per share data, unaudited)

		Three Months Ended
		March 25,				December 24,				September 24,				June 25,
		2006				2005				2005				2005
		Restated				Restated				Restated				Restated
Net sales		$	42,158			$	48,253			$	50,461			$	52,822
Cost of sales			17,683				21,688				23,608				25,523
Gross Margin		$	24,475			$	26,565			$	26,853			$	27,299
Research and development			10,570				10,500				11,024				13,678
Selling, general and administrative			9,731				10,829				16,369				14,342
Restructuring and other, net			-				-				2,311				-
Litigation settlement, net			-				-				-				(24,758)
License Agreement			(7,000)				-				-				-
Total operating expenses		$	13,301			$	21,329			$	29,704			$	3,262
Income (loss) from operations		$	11,174			$	5,236			$	(2,851)			$	24,037
Realized gain on marketable securities			-				-				-				388
Interest income, net			2,510				2,131				1,684				1,136
Other income (expense), net			21				53				(109)				(19)
Income (loss) before income taxes		$	13,705			$	7,420			$	(1,276)			$	25,542
Benefit for income taxes			(1,241)				(5,261)				(167)				(366)
Net income (loss)		$	14,946			$	12,681			$	(1,109)			$	25,908
Earnings per share:
Basic		$	0.17			$	0.15			$	(0.01)			$	0.30
Diluted		$	0.17			$	0.14			$	(0.01)			$	0.30
Weighted Average Common Shares Outstanding:
Basic			86,718				86,399				85,804				85,230
Diluted			88,924				88,101				85,804				86,183

Quarterly Results of Operations (in thousands, except per share data, unaudited)

		Three Months Ended
		March 26,				December 25,				September 25,				June 26,
		2005				2004				2004				2004
		Restated				Restated				Restated				Restated
Net sales		$	40,415			$	44,036			$	51,332			$	59,117
Cost of sales			18,953				26,841				28,405				27,439
Gross Margin		$	21,462			$	17,195			$	22,927			$	31,678
Research and development			18,220				19,144				21,241				21,944
Selling, general and administrative			7,050				9,988				13,206				12,215
Restructuring and other, net			485				3,107				4,148				1,723
Patent agreement, net			-				(593)				-				-
Total operating expenses		$	25,755			$	31,646			$	38,595			$	35,882
Income (loss) from operations		$	(4,293)			$	(14,451)			$	(15,668)			$	(4,204)
Realized gain on marketable securities			137				-				-				669
Interest income, net			962				946				604				696
Other income (expense), net			116				272				(5)				(66)
Income (loss) before income taxes		$	(3,078)			$	(13,233)			$	(15,069)			$	(2,905)
Benefit for income taxes			(5,745)				(15,134)				66				24
Net income (loss)		$	2,667			$	1,901			$	(15,135)			$	(2,929)
Earnings per share:
Basic		$	0.03			$	0.02			$	(0.18)			$	(0.03)
Diluted		$	0.03			$	0.02			$	(0.18)			$	(0.03)
Weighted Average Common Shares Outstanding:
Basic			85,124				84,773				84,671				84,419
Diluted			86,151				86,159				84,671				84,419

Three month period ended June 25, 2005 (restated) compared to June 26, 2004 (restated)

Net Sales

     Net sales for the first quarter of fiscal year 2006 decreased $6.3 million to $52.8 million from $59.1 million from the first quarter of fiscal year 2005. Net sales from Mixed-Signal products declined $5.8 million, or 20%, due primarily to a decrease in demand for certain older generation products, coupled with an unusually robust inventory build by our end customers of DVD players for last year’s holiday season. The embedded product net sales decreased $1.1 million, or 8%, during the first quarter of fiscal year 2006 from the comparable quarter of the prior fiscal year due to slower demand for certain products, primarily including legacy DSPs. Net sales from our Industrial products were down $1.5 million, or 16%, in the first quarter of fiscal year 2006 due to a small decrease in power meter demand. These decreases were partially offset by an increase of $2.1 million, 31%, in net sales of our Video products during the first quarter of fiscal year 2006 from the prior comparable period. The increase in our video products was primarily attributable to increased demand for certain DVD encoder and decoder products. On June 30, 2005, we sold our digital video product assets to Magnum Semiconductor.

     Export sales, principally to Asia, including sales to U.S.-based customers with manufacturing plants overseas, were 71 percent and 70 percent of net sales during the first quarter of fiscal years 2006 and 2005, respectively.

     Our sales are denominated primarily in U.S. dollars. As a result, we have not entered into foreign currency forward exchange and option contracts.

     During the first quarter of fiscal year 2006, a distributor, Memec Group Holdings Limited and a direct customer, LG Electronics, represented 22 percent and 11 percent of net sales, respectively. During the first quarter of fiscal year 2005, two of our distributors, Memec Group Holdings Limited and Honestar, accounted for 25 percent and 10 percent of net sales, respectively.

Gross Margin

     Gross margin was 51.7 percent in the first quarter of fiscal year 2006, down from 53.6 percent in the first quarter of fiscal year 2005. The largest driver of the decrease in gross margin is a result of product mix. Our lower margin video sales increased at a higher rate than our industrial revenue products, which were down from the comparable prior quarter due to decreased demand for a particular product. Partially offsetting these decreases, during the first quarter of fiscal year 2006, the sale of products that had been written down in prior periods contributed approximately $1.7 million, or 3.3 percent of gross margin as compared to a 2.1 percentage contribution in the first quarter of fiscal year 2005.

Research and Development Expense

     Research and development expense for the first quarter of fiscal year 2006 of $13.7 million decreased $8.2 million from $21.9 million in the first quarter of fiscal year 2005. This included $0.1 million of restated stock compensation expense calculated under Accounting Principles Board Opinion No. 25 (“APB 25”), Accounting for Stock Issued to Employees for the first quarter of 2005. The overall decrease is primarily due to reduced salaries and benefits costs as our headcount was reduced from the prior fiscal year coupled with lower outside product development expenses and reduced amortization of acquired intangibles during the first quarter of fiscal year 2006.

Selling, General and Administrative Expense

     Selling, general and administrative expense in the first quarter of fiscal year 2006 of $14.3 million increased by $2.1 million from $12.2 million in the first quarter of fiscal year 2005. This included a $0.3 million credit due to the expiration of the statute of limitations on certain payroll taxes related to stock based compensation. The overall increase is due primarily to the charge taken to facilities expense for a loss contingency on sub-leases entered into during the quarter, as we sub-leased the excess space for less than our current rent obligations on this leased space.

Restructuring and Other Costs

     During the first quarter of fiscal year 2005, we recorded a charge of $1.6 million in operating expenses for the remainder of the facility consolidation activities that were completed during the quarter related to our Colorado offices for the headcount reductions that began in the fourth quarter of fiscal year 2004. We expect to sublease this

facility in the future and have made assumptions to that affect. Should these sublease assumptions change, we may have to revise our assumptions and record additional restructuring charges for this facility. Additionally, we recorded an impairment charge of $0.1 million for property and equipment associated with our Pune, India facility closure in the first quarter of fiscal year 2005.

Realized Gain on Marketable Equity Securities

     During the first quarter of fiscal years 2006 and 2005, we realized gains of $0.4 million and $0.7 million, respectively, related to the sale of Silicon Laboratories, Inc. common stock. We received the common stock in connection with Silicon Laboratories’ acquisition of Cygnal Integrated Products, Inc., a company in which we had an investment. We received $0.4 million and $1.2 million, net of commissions in the first quarters of fiscal years 2006 and 2005, respectively, for the sale of these securities.

Interest Income

     Interest income was $1.1 million for the first quarter of fiscal year 2006 and $0.7 million for the first quarter of fiscal year 2005. The increase of $0.4 million was primarily due to increased cash and cash equivalent balances on which interest is earned coupled with higher interest rates on our investment portfolio.

Income Taxes

     We realized a net income tax benefit of $366 thousand for the first quarter of fiscal year 2006, compared with income tax expense of $24 thousand for the comparable period of fiscal year 2005. The benefit stems primarily from the expiration of the statute of limitations for years in which certain potential foreign income tax liabilities for transfer pricing issues had existed. Our tax expense for the first quarter of fiscal year 2006 was less than the Federal statutory rate, as we were able to utilize a portion of our deferred tax asset on which there had been placed a full valuation allowance. The income tax expense for fiscal year 2005 consisted primarily of foreign withholding taxes and foreign income taxes.

     In fiscal years 2006 and 2005, we provided a valuation allowance equal to our net deferred tax assets due to uncertainties regarding their realization. We evaluate the realizability of our deferred tax assets on a quarterly basis.

Three month period ended September 24, 2005 (restated) compared to September 25, 2004 (restated)

Net Sales

     Net sales for the second quarter of fiscal year 2006 decreased $0.8 million to $50.5 million from $51.3 million from the second quarter of fiscal year 2005. Net sales from mixed-signal audio products increased $2.3 million, or 10 percent, due primarily to an increase in demand for our audio analog to digital converters, as production ramped for a new product introduced within the last year. The embedded product net sales increased $2.1 million, or 18 percent, during the second quarter of fiscal year 2006 from the comparable quarter of the prior fiscal year due to higher sales related to our CobraNet™ technology and a product that has ramped in the last year. Net sales from our Industrial products were down $3.2 million, or 28 percent, in the second quarter of fiscal year 2006 due to a decrease in demand for seismic products as our customers ramped up on our longer product life components during fiscal year 2005 that did not reoccur in fiscal year 2006. Further, as we exit our video product line, we saw a decrease in sales of $2.2 million, or 50 percent, as we exited this product line. On June 30, 2005, we sold our digital video product assets to Magnum Semiconductor.

     Net sales for the first six months of fiscal year 2006 decreased $7.1 million to $103.3 million from $110.4 million from the first six months of fiscal year 2005. The embedded product net sales increased $1.0 million, or 4 percent, during the first six months of fiscal year 2006 from the comparable period of the prior fiscal year due to higher sales related to our CobraNet technology, a product that has ramped in the last year. Conversely, net sales from mixed-signal audio products decreased $3.5 million, or 7 percent, due primarily to a stabilization of market demand for our audio digital to analog converters. We also saw a decrease in our net sales from our Industrial products by $4.7 million, or 23 percent, in the first six months of fiscal year 2006 due to a decrease in demand for seismic products as our customers ramped up on our longer product life components during fiscal year 2005 that did not reoccur in fiscal year 2006. Our video product line, which we exited this fiscal year, saw virtually no change from the first six months, as both years revenue was $11.3 million.

     Export sales, principally to Asia, including sales to U.S.-based customers with manufacturing plants overseas, were 65 percent and 63 percent of net sales during the second quarter of fiscal years 2006 and 2005, respectively. Export sales were 68 percent and 67 percent of total sales in the first six months of fiscal years 2006 and 2005,

respectively. Our sales are denominated primarily in U.S. dollars. As a result, we have not entered into foreign currency forward exchange and option contracts.

     We had no direct customers that accounted for more than 10 percent of our sales. We had one distributor that represented 25 percent and 24 percent of our sales for the second quarter and first six months of fiscal year 2006, respectively. The same distributor represented 30 percent and 27 percent of our sales for the second quarter and first six months of fiscal year 2005, respectively. Sales to our distributors represented 65 percent and 63 percent of our fiscal year 2006 and 2005 net sales, respectively.

Gross Margin

     Gross margin was 53.2 percent in the second quarter of fiscal year 2006, up from 44.7 percent in the second quarter of fiscal year 2005. During the second quarter of fiscal year 2006, we realized a net benefit of $0.3 million from the sale of previously written down inventory, which favorably impacted gross margins by 0.7 percent. Our gross margins in the second quarter of fiscal year 2005 were largely impacted by a charge of $3.9 million, a 7.6 percent impact to gross margin, to write down gross inventory to an estimation of net realizable value.

     Gross margin was 52.4 percent in the first six months of fiscal year 2006, up from 49.4 percent in the comparable period of fiscal year 2005. The largest driver of the increase in gross margin was the absence of the inventory charges to write down gross inventory by $3.9 million during the second quarter of fiscal year 2006.

Research and Development Expense

     Research and development expense for the second quarter of fiscal year 2006 of $11.0 million decreased $10.2 million from $21.2 million in the second quarter of fiscal year 2005. This included $0.4 million and $0.1 million of restated stock compensation expense calculated under APB 25 for the second quarter of fiscal year 2006 and 2005, respectively. The overall decrease was primarily due to reduced salaries and benefits costs as our headcount was reduced from the prior year as we exited from the video product line coupled with lower outside product development expenses and reduced amortization of acquired intangibles during the second quarter of fiscal year 2006.

     Research and development expense for the first six months of fiscal year 2006 of $24.7 million decreased $18.5 million from $43.2 million in the comparable period of fiscal year 2005. This included $0.4 million and $0.3 million of restated stock compensation expense calculated under APB 25 for the first six months of fiscal year 2006 and 2005, respectively. The overall decrease was primarily due to reduced salaries and benefits costs as our headcount was reduced from the prior year as we exited from the video product line coupled with lower outside product development expenses and the absence of $6.8 million in amortization of acquired intangibles, most of which were sold to Magnum Semiconductor.

Selling, General and Administrative Expense

     Selling, general and administrative expense in the second quarter of fiscal year 2006 of $16.4 million increased by $3.2 million from $13.2 million in the second quarter of fiscal year 2005. This included $0.6 million of restated stock compensation expense calculated under APB 25 for the second quarter of fiscal year 2006. The overall increase was due primarily to the additional charge taken to facilities expense for a loss contingency on sub-leases entered into during the previous quarter, as we sub-leased excess space for less than our current rent obligations, partially offset by reduced expenses associated with our exit from the video product line.

     Selling, general and administrative expense in the first six months of fiscal year 2006 of $30.7 million increased by $5.3 million from $25.4 million in the comparable period of fiscal year 2005. This included $0.6 million of restated stock compensation expense calculated under APB 25 for the first six months of fiscal year 2006 and a $0.2 million credit for the first six months of fiscal year 2005 associated with the expiration of the statute of limitations on certain share based compensation related payroll taxes. The overall increase was due primarily to the $4.4 million charge taken to facilities expense for a loss contingency on sub-leases entered into during the fiscal year, as we sub-leased excess space for less than our current rent obligations coupled with costs to sell the video product line. These charges were partially offset by reduced employee related expenses associated with our exit from the video product line.

Restructuring and Other, Net

     During the second quarter and first six months of fiscal year 2006, we recorded a restructuring charge of $3.1 million in operating expenses for severance and facility related items associated with our workforce reductions

related to the divestiture of the video product line. Partially offsetting this charge was approximately $0.8 million related to a gain that was recognized in the second fiscal quarter for the sale of the video product line assets to Magnum Semiconductor.

     During the second quarter of fiscal year 2005, we recorded a charge of $4.6 million in operating expenses for severance activity during the quarter and for an abandonment of computer aided design (“CAD”) software tools that will not be used due to our workforce reductions. This charge was partially offset by a $0.5 million favorable outcome related to a long-term lease buyout during the quarter. In addition to the transactions recorded during the second quarter of fiscal year 2005, as mentioned above, during the first quarter of fiscal year 2005, we recorded a charge of $1.6 million for the remainder of the facility consolidation activities related to our workforce reduction that began in the fourth quarter of fiscal year 2004. Additionally, we recorded an impairment charge of $0.1 million for property and equipment associated with our Pune, India facility closure.

Realized Gain on Marketable Equity Securities

     During the first quarter of fiscal years 2006 and 2005, we realized gains of $0.4 million and $0.7 million, respectively, related to the sale of Silicon Laboratories, Inc. common stock. We received the common stock in connection with Silicon Laboratories’ acquisition of Cygnal Integrated Products, Inc., a company in which we had an investment. We received $0.4 million and $1.2 million, net of commissions in the first quarters of fiscal years 2006 and 2005, respectively, for the sale of these securities.

Interest Income

     Interest income was $1.7 million and $0.6 million for the second quarter of fiscal years 2006 and 2005, respectively. Interest income was $2.8 million and $1.3 million for the first six months of fiscal years 2006 and 2005, respectively. The increases of $1.1 million and $1.5 million, respectively, was primarily due to increased cash and cash equivalent balances on which interest was earned coupled with higher rates of return on our investment portfolio.

Income Taxes

     We realized a net income tax benefit of $167 thousand for the second quarter of fiscal year 2006 and $533 thousand for the first six months of fiscal year 2006. The benefit for both periods stems primarily from the expiration of the statute of limitations for years in which certain foreign income tax exposures for transfer pricing issues had existed. Our tax expense for the first six months of fiscal year 2006 was less than the Federal statutory rate, as we were able to utilize a portion of our deferred tax asset on which there had been placed a full valuation allowance. We incurred income tax expense of $66 thousand for the second quarter of fiscal year 2005 and $90 thousand the first six months of fiscal year 2005. The income tax expense for both of those periods consisted primarily of foreign withholding and foreign income taxes.

     In fiscal years 2006 and 2005, we provided a valuation allowance equal to our net deferred tax assets due to uncertainties regarding their realization. We evaluate the realizability of our deferred tax assets on a quarterly basis.

Three month period ended December 24, 2005 (restated) compared to December 25, 2004 (restated)

Net Sales

     Net sales for the third quarter of fiscal year 2006 increased $4.3 million to $48.3 million from $44.0 million from the third quarter of fiscal year 2005. Net sales from mixed-signal audio products increased $3.6 million, or 16 percent, due primarily to an increase in demand for our audio analog–to-digital converters as we began volume production for new products introduced in the last few years. Net sales for embedded products increased $2.8 million, or 26 percent, in the third quarter of fiscal year 2006 from the comparable quarter of the prior fiscal year primarily due to higher demand for our communications products. Net sales from our Industrial products were up slightly by $0.9 million, or 12 percent, in the third quarter of fiscal year 2006 due to an increase in demand for our power meter and successive-approximation register (“SAR”) analog-to-digital converters (“ADC”). These increases were offset by the decrease in our video product line of $3.1 million, or 100 percent, as we sold this product line.

     Net sales for the first nine months of fiscal year 2006 decreased $3.0 million, or 2 percent, to $151.5 million from $154.5 million from the first nine months of fiscal year 2005. The largest component of this decrease was the video product line revenue in the prior fiscal year of $3.1 million. The embedded product net sales increased $3.9 million, or 11 percent, during the first nine months of fiscal year 2006 from the comparable period of the prior fiscal year due to higher sales related to our communications products as well as our CobraNet technology. Net sales

from mixed-signal audio products remained relatively flat on a year over year comparison while our Industrial products decreased $3.8 million, or 13 percent, in fiscal year 2006 primarily due to a decrease in demand for seismic products.

     Export sales, principally to Asia, including sales to U.S.-based customers with manufacturing plants overseas, were 63 percent and 65 percent of net sales during the third quarter of fiscal years 2006 and 2005, respectively. Export sales were 64 percent and 66 percent of total sales in the first nine months of fiscal years 2006 and 2005, respectively. Our sales are denominated primarily in U.S. dollars. As a result, we have not entered into foreign currency forward exchange and option contracts.

     We had no direct customers that accounted for more than 10 percent of our sales during fiscal year 2006 or fiscal year 2005. We had one distributor that represented 26 percent and 24 percent of our sales for the third quarter and first nine months of fiscal year 2006, respectively. The same distributor represented 26 percent and 27 percent of our sales for the third quarter and first nine months of fiscal year 2005, respectively. Sales to our distributors represented 71 percent and 58 percent of third quarter fiscal year 2006 and 2005 net sales, respectively. During the first nine months of fiscal years 2006 and 2005, sales to our distributors represented 65 percent and 62 percent of net sales, respectively.

Gross Margin

     Gross margin was 55.1 percent in the third quarter of fiscal year 2006, up from 39.0 percent in the third quarter of fiscal year 2005. During the third quarter of fiscal year 2006, we realized a net benefit of $0.9 million from the sale of previously written down inventory, which favorably impacted gross margins by 3.3 percent. In contrast, our gross margins in the third quarter of fiscal year 2005 were negatively impacted by a net charge of $5.0 million, or 10.8 percent, relating to the write down of gross inventory to net realizable value, primarily for our video product line inventory.

     Gross margin was 53.3 percent in the first nine months of fiscal year 2006, up from 46.5 percent in the comparable period of fiscal year 2005. A significant driver for the increase in gross margins was the reduction of inventory write downs in fiscal year 2006. During fiscal year 2006, we sold $2.9 million of previously written down inventory whereas in fiscal year 2005 we took a charge of $8.9 million, mainly for our video product line inventory. In addition, changes to the sales volumes for higher margin products coupled with continued cost improvements also contributed to improved gross margins during this time-period.

Research and Development Expense

     Research and development expense for the third quarter of fiscal year 2006 of $10.5 million decreased $8.6 million from $19.1 million in the third quarter of fiscal year 2005. This included $0.1 million and $0.3 million of restated stock compensation expense calculated under APB 25 for the third quarter of fiscal years 2006 and 2005, respectively. The overall decrease was primarily due to reduced salaries and benefits costs as our headcount was reduced from the prior year as we sold the video product line assets, coupled with lower outside product development expenses, and reduced amortization of acquired intangibles during the third quarter of fiscal year 2006.

     Research and development expense for the first nine months of fiscal year 2006 of $35.2 million decreased $27.1 million from $62.3 million in the comparable period of fiscal year 2005. This included $0.5 million of restated stock compensation expense calculated under APB 25 for the first nine months of, both, fiscal year 2006 and 2005. The overall decrease was primarily due to reduced salaries and benefits costs as our headcount was reduced from the prior year as we sold the video product line assets, coupled with lower outside product development expenses, and the absence of $9.6 million in amortization of acquired intangibles, most of which were sold to Magnum Semiconductor.

Selling, General and Administrative Expense

     Selling, general and administrative expense increased by $0.8 million from $10.0 million in the third quarter of fiscal year 2005 to $10.8 million in the third quarter of fiscal year 2006. This included $0.1 million and $0.4 million of restated stock compensation expense calculated under APB 25 for the third quarter of fiscal years 2006 and 2005, respectively. The overall increase was primarily due to the net difference between a $2.3 million goods and services tax benefit taken in the third quarter of fiscal year 2005, and the $0.8 million sales and use tax benefit taken in the third quarter of fiscal year 2006, both of which were related to the resolution of tax audits. In addition, during the third quarter of fiscal year 2006, we recorded a charge of $0.2 million for a litigation settlement with our landlord. Excluding the tax benefits and the litigation settlement, selling, general and administrative expenses would have

decreased from the third quarter of fiscal year 2005 to fiscal year 2006 due to decreased salary and benefit costs as we sold the video product line assets during the current fiscal year.

     Selling, general and administrative expense in the first nine months of fiscal year 2006 was $41.5 million, an increase of $6.1 million from the $35.4 million recognized in the comparable period of fiscal year 2005. This included $0.7 million and $0.1 million of restated stock compensation expense calculated under APB 25 for the first nine months of fiscal years 2006 and 2005, respectively. The overall increase was primarily due to the $4.4 million charge taken to facilities expense for a loss contingency on sub-leases entered into during the fiscal year, as we sub-leased excess space for less than our current rent obligations, coupled with costs associated with the sale of the assets from our video product line. These charges were partially offset by reduced employee related expenses associated with our sale of the video product line assets.

Restructuring and Other, Net

     During the first nine months of fiscal year 2006, we recorded a net restructuring charge of $3.1 million in operating expenses for severance and facility related items associated with our workforce reductions related to the sale of the video product line assets. Partially offsetting this charge was approximately $0.8 million related to a gain that was recognized in the second fiscal quarter for the sale of the video product line assets to Magnum Semiconductor.

     During the third quarter of fiscal year 2005, we recorded total restructuring and other charges of $3.1 million for severance expenses related to a workforce reduction plan initiated in December 2004 and for abandoned software and Computer Aided Design (“CAD”) software tools that will not be used due to our workforce reductions.

     For the first nine months of fiscal year 2005, total restructuring and other costs were $9.0 million. In addition to the amounts recorded during the third quarter of 2005, we recorded $4.6 million worth of restructuring and other charges during the second quarter of fiscal year 2005 for severance activity related to a workforce reduction plan initiated in August 2004 and for an abandonment of Computer Aided Design (“CAD”) software tools that will not be used due to the workforce reductions. This restructuring charge was partially offset by a $0.5 million favorable outcome related to a long-term lease buyout. Additionally, during the first quarter of fiscal year 2005, we recorded restructuring charges of $1.6 million for facility consolidations, and an impairment charge of $0.1 million related to property and equipment associated with our Pune, India facility closure.

Litigation Settlement

     During the second fiscal quarter of fiscal year 2006, we settled our outstanding litigation with Fujitsu and received a net $24.8 million from this settlement.

Patent Agreement and Settlements, Net

     During the third quarter and first nine months of fiscal year 2005, we released $0.6 million in accrued legal fees originally accrued during the second quarter fiscal year 2004, in connection with the sale of certain patents.

Realized Gain on Marketable Equity Securities

     During the first quarter of fiscal years 2006 and 2005, we realized gains of $0.4 million and $0.7 million, respectively, related to the sale of Silicon Laboratories, Inc. common stock. We received the common stock in connection with Silicon Laboratories’ acquisition of Cygnal Integrated Products, Inc., a company in which we had an investment. We received $0.4 million and $1.2 million, net of commissions in the first quarters of fiscal years 2006 and 2005, respectively, for the sale of these securities.

Interest Income

     Interest income was $2.1 million and $0.9 million for the third quarter of fiscal years 2006 and 2005, respectively. Interest income was $5.0 million and $2.2 million for the first nine months of fiscal years 2006 and 2005, respectively. The increases of $1.2 million and $2.8 million, respectively, were primarily due to increased cash and cash equivalent balances on which interest was earned, coupled with higher interest rates.

Income Taxes

     We realized a net income tax benefit of $5.3 million for the third quarter of fiscal year 2006 and $5.8 million for the first nine months of fiscal year 2006. The benefit for both periods results primarily from the expiration of the statute of limitations for years in which certain foreign income tax exposures for transfer pricing issues had existed.

     Our tax expense for the first nine months of fiscal year 2006 was less than the Federal statutory rate, as we were able to utilize a portion of our deferred tax asset on which there had been placed a full valuation allowance.

     We realized a net income tax benefit of $15.1 million during the third quarter of fiscal year 2005 and $15.0 million for the first nine months of fiscal year 2005. This net benefit for fiscal year 2005 was comprised of an income tax benefit of $15.2 million resulting from the December 2004 expiration of the statute of limitations for the years in which certain U.S. federal tax exposures had existed. The income tax benefit was partially offset by $0.1 million of income tax expense consisting primarily of foreign income taxes.

     In fiscal years 2006 and 2005, our valuation allowance equals our net deferred tax assets due to uncertainties regarding their realization. We evaluate the realizability of our deferred tax assets on a quarterly basis.

Off-Balance Sheet Arrangements

     In our business activities, we incur certain commitments to make future payments under contracts such as purchase orders, leases and other long-term contracts. Maturities under these contracts are set forth in the following table as of March 25, 2006:

		Payment due by period (in thousands)
		< 1 year				1–3 years				3–5 years				> 5 years				Total
Facilities leases, net		$	6,118			$	13,464			$	8,218			$	5,510			$	33,310
Equipment leases			38				15				4				–				57
Wafer purchase commitments			6,329				–				–				–				6,329
Assembly purchase commitments			485				–				–				–				485
Outside test purchase commitments			4,222				4,125				–				–				8,347
Development board purchase commitments			462				–				–				–				462
Other purchase commitments			109				–				–				–				109
Total		$	17,763			$	17,604			$	8,222			$	5,510			$	49,099

Recently Issued Accounting Pronouncements

     In December 2004, the FASB issued SFAS No. 123(R) “Share-Based Payment” which supersedes Accounting Principle Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees,” SFAS No. 123, “Accounting for Stock Based Compensation,” and related implementation guidance. Under this pronouncement, stock based compensation to employees is required to be recognized as a charge to the statement of operations and such charge is to be measured according to the fair value of the stock options. In the absence of an observable market price for the stock awards, the fair value of the stock options would be based upon a valuation methodology that takes into consideration various factors, including the exercise price of the option, the expected term of the option, the current price of the underlying shares, the volatility of the company’s stock and the risk free interest rate. For fiscal year 2006, our policy was not to expense the fair value of share based compensation but rather the intrinsic value under APB 25; however, we do disclose the affect of this item as currently required by SFAS No. 123. Beginning with fiscal year 2007, we will expense shared based compensation in accordance with the provisions of SFAS No. 123(R). SFAS No. 123(R) allows for either prospective recognition of compensation expense or retrospective recognition, which may be back to the original issuance of SFAS No. 123 or only to interim periods in the year of adoption. The company has chosen to adopt the standard using the modified prospective approach. This pronouncement is effective for fiscal years beginning after June 15, 2005. For Cirrus Logic, we adopted this pronouncement with the beginning of our fiscal year 2007, which began on March 26, 2006.

     In December 2005, the FASB released FASB Staff Position (FSP) SFAS No. 123(R)-3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards,” which provides a practical transition

election related to accounting for the tax effects of share-based payment awards to employees. The Company is currently reviewing the transition alternatives for this FSP and will elect the appropriate alternative within one year of the adoption of SFAS No. 123(R).

Critical Accounting Policies

     Our discussion and analysis of the Company’s financial condition and results of operations are based upon the consolidated financial statements included in this report, which have been prepared in accordance with U. S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts. We evaluate the estimates on an on-going basis. We base these estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. We also have policies that we consider to be key accounting policies, such as our policies for revenue recognition, including the deferral of revenues and cost of sales on sales to our distributors; however, these policies do not meet the definition of critical accounting estimates because they do not generally require us to make estimates or judgments that are difficult or subjective.

     We believe the following critical accounting policies involve significant judgments and estimates that are used in the preparation of the consolidated financial statements:

Share-based Compensation

     As discussed in the Explanatory Note, the measurement dates used for financial accounting purposes for certain stock option and restricted stock grants to executive officers and other employees differed from the dates the grants were approved by the appropriate Board committee in a number of instances such that the price on the approval date was higher than the price on the original measurement dates used by the Company for financial accounting purposes. We concluded that the most appropriate measurement date for new hire and other promotion and retention option grants that were generally made the first Wednesday of each month through the use of unanimous written consents (“UWCs”) of the Company’s Compensation Committee were the date of the receipt of all the signed UWCs authorizing those grants. We also concluded that the most appropriate measurement date for other off-cycle and broad-based annual option grants that were granted through Board or Compensation Committee resolutions was on the date when, both, the Board or Compensation Committee approval had been received and the list of option award recipients had been finalized.

     To correct the inaccuracies, the Company re-determined the measurement date based on the date the above criteria were satisfied. In re-determining the most appropriate measurement date of an option grant, we considered meeting minutes and other documents of our Board of Directors, including minutes of the Compensation Committee, in addition to the following data:

	•		UWCs with fax headings showing the dates on which the UWCs were faxed;
	•		Stock administration’s written consent checklists;
	•		The date on which such grants were entered into the outsourced, third party stock option system;
	•		Reports on Form 4 filed with the Commission;
	•		Contemporaneous emails;
	•		Personnel files;
	•		Payroll records;
	•		Information obtained in interviews with various current and former Company employees and Board of Directors members; and
	•		Various records maintained by our Human Resources department.

     For grants where there was not sufficient evidence and documentation available to support the original measurement date or to determine the precise date when the number of options and exercise price were finalized, we used all available relevant information to form a reasonable conclusion as to the most appropriate measurement date for such option grants. We made certain legal interpretations under California or Texas law regarding, among other things, whether the Company, has a reasonable basis to conclude that it will be able to issue stock upon a proper exercise of outstanding unexercised stock options.

     Based on the above evidence, the Company established the most appropriate measurement dates and recalculated share based compensation expense. As a result, the Company has recognized $32.4 million in additional share-based compensation expense arising from stock grants to executive officers and employees. Of this amount, approximately $9.3 million related to options granted to executive officers who, at the time of the grant, were subject to the reporting requirements under Section 16 of the Exchange Act of 1934.

     In an effort to avoid future errors of the type that led to this restatement, the company has improved and strengthened our procedures and processes related to our stock option program through the addition of the following controls designed to provide to provide appropriate safeguards and greater internal control over the stock option granting and administrative function as follows:

     The stock option granting procedures have been formalized, documented and approved by the Compensation Committee and the Board;

	•		Using a checklist, the Company’s Stock Administrator tracks each step of the Monthly Consent Process to ensure all items in the process are completed and all necessary records are properly maintained.
	•		Approximately two weeks before the Monthly Grant Date, the Stock Administrator creates the proposed grant list. The list is populated from Personnel Action Notices (“PANs”) received from Human Resources (“HR”) and Special Stock Option Grant Requests (“SSOGRs”) are approved via the SSOGR application in SAP. All requests for grants outside the Company’s grant guidelines include a “Request for Exception to Guidelines” form that includes the reasons for the proposed grant outside the Company’s grant guidelines. The “vesting start date” for all proposed grants is set as the Monthly Grant Date.
	•		The Stock Administrator sends the proposed grant list to HR to confirm:

	o		the list is complete and correct;
	o		special exception forms have been obtained for any grants that fall outside guidelines; and
	o		there are no open negotiations with any proposed recipients relating to any of the proposed grants.

	•		The Stock Administrator updates the information contained in the “Equity Incentive Awards Year-to-Date Status for Fiscal Year” report, which is provided to the Compensation Committee members on a monthly basis.
	•		Approximately ten days prior to the Monthly Grant Date, the Stock Administrator emails a proposed written consent and associated exhibits to the members of the Compensation Committee.
	•		Upon receiving consent for the grants from a member of the Compensation Committee, the Stock Administrator records the date the consent is received on the checklist. A Committee member may approve the proposed UWC by signing and returning the UWC to the Stock Administrator, or alternatively, by sending an electronic message (e.g., email) to the Stock Administrator indicating the Committee member’s approval.
	•		If the Stock Administrator has not received the UWC from all members of the Compensation Committee at least three days before the Monthly Grant Date, the Stock Administrator will re-send the request for approvals and another copy of the UWC. In addition, the Corporate Secretary of the Company will provide the proper required notice of a Compensation Meeting to be held on or before the Monthly Grant. The purpose of the meeting will be to review the proposed option grants previously delivered to the Committee.
	•		After Compensation Committee approval has been received, the Stock Administrator informs HR that the proposed grants have been approved. HR notifies the recipient of the approved grants by email on or prior to the Monthly Grant Date.
	•		If the proposed grants have not been approved by the Compensation Committee before the Monthly Grant Date, then the Company will not grant or price any awards for that month. All proposed grants may be included for approval in the following month’s grant list and must be approved again pursuant to these procedures.
	•		If the Compensation Committee has approved the grants but employees are not notified of the approvals on or before the Monthly Grant Date, then HR contacts the General Counsel prior to providing any such notice. The General Counsel determines whether to proceed with notifying employees of the approved grants or require the grants be approved again pursuant to these procedures.
	•		The Stock Administrator prepares a list of the approved grants and transmit the list to the Company’s Third-Party Stock Plan Administrator.
	•		The Stock Administrator maintains the appropriate records with the Company’s corporate minute books and records.

	•		The Stock Administrator maintains a cumulative summary document that provides a summary of all equity incentive grants issued by the Company for the current fiscal year.
	•		After notifying the Company’s Third Party Stock Plan Administrator of the awards, the Stock Administrator runs a report for the Monthly Grant Date from the Third Party Stock Plan Administrator’s database to confirm that all grants sent to them have been entered in their database under the correct employee names and identification numbers.
	•		Any material deviation from these procedures must be approved by the Company’s General Counsel. The Stock Administrator notifies the Company’s Chief Financial Officer and the General Counsel of any material deviation from these procedures that is not approved in advance by the General Counsel.

§		For purposes of determining the variables used in the calculation of stock compensation expense under the provisions of the Financial Accounting Standards Board’s (“FASB”) Statement of Financial Accounting Standards No. 123 (R) (“SFAS No. 123(R)”), we perform an analysis of current market data and historical company data to calculate an estimate of implied volatility, the expected term of the option and the expected forfeiture rate. With the exception of the expected forfeiture rate, which is not an input, we use these estimates as variables in the Black-Scholes option pricing model. Depending upon the number of stock options granted, any fluctuations in these calculations could have a material effect on the results presented in our Consolidated Statement of Operations. In addition, any differences between estimated forfeitures and actual forfeitures could also have a material impact on our financial statements. See Note 1A in the Notes to our Consolidated Financials Statements contained in “Item 8 – Financial Statements.”
§		We maintain allowances for doubtful accounts for estimated losses resulting from the inability or failure of our customers to make required payments. We regularly evaluate our allowance for doubtful accounts based upon the age of the receivable, our ongoing customer relations, as well as any disputes with the customer. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required, which could have a material effect on our operating results and financial position. Additionally, we may maintain an allowance for doubtful accounts for estimated losses on receivables from customers with whom we are involved in litigation. See Note 3 in the Notes to our Consolidated Financial Statements contained in “Item 8 – Financial Statements and Supplementary Data.”
§		Inventories are recorded at the lower of cost or market, with cost being determined on a first-in, first-out basis. We write down inventories to net realizable value based on forecasted demand, management judgment and the age of inventory. Actual demand and market conditions may be different from those projected by management, which could have a material effect on our operating results and financial position. See Note 1 in the Notes to our Consolidated Financial Statements contained in “Item 8 – Financial Statements and Supplementary Data.”
§		We evaluate the recoverability of property and equipment and intangible assets in accordance with Statement of Financial Accounting Standard No. 144 (“SFAS 144”), “Accounting for the Impairment or Disposal of Long-Lived Assets.” We test for impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. An impairment loss is recognized in the event the carrying value of these assets exceeds the fair value of the applicable assets. Impairment evaluations involve management estimates of asset useful lives and future cash flows. Actual useful lives and cash flows could be different from those estimated by management, which could have a material effect on our operating results and financial position. See Note 5 in the Notes to our Consolidated Financial Statements contained in “Item 8 – Financial Statements and Supplementary Data.”
§		Our available-for-sale investments, non-marketable securities and other investments are subject to a periodic impairment review pursuant to Emerging Issues Task Force No. 03-1 (“EITF 03-1”), “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. This determination requires significant judgment and actual results may be materially different than our estimate. Marketable securities are evaluated for impairment if the decline in fair value below cost basis is significant and/or has lasted for an extended period of time. Non-marketable securities or other investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. For investments accounted for using the cost method of accounting, we evaluate information (e.g., budgets, business plans, financial statements, etc.) in addition to quoted market price, if any, in determining whether an other-than-temporary decline in value exists. Factors indicative of an other-than-temporary decline include recurring operating losses, credit defaults and subsequent rounds of financings at an amount below the cost basis of the investment. This list is not all inclusive and we weigh all quantitative and qualitative factors in determining if an other-than-temporary decline in value of an investment has occurred. When a decline in value is deemed to be other-than-temporary, we recognize an impairment loss in the current period’s operating results to the extent of the decline. Actual values could be different from those estimated by management, which could have a material effect on our operating results and