Note 1 – Asset impairments for the twelve months ended October 3, 2008 and three months ended June 27, 2008 includes non-cash impairment charges related to our Broadband Access (BBA) product lines related to goodwill of $108.6 million, intangible assets of $1.9 million, property, plant and equipment of $6.5 million and technical license tool impairments of $3.4 million. Asset impairments for the three and twelve months ended September 28, 2007 also includes non-cash impairment charges related to our Embedded Wireless Networking (EWN) business related to goodwill and intangible assets of $135.0 million and $20.0 million, respectively.

Note 2 – (Loss) gain of equity method investments for the twelve months ended September 28, 2007 includes a gain on the sale of our investment in Jazz Semiconductor, Inc. of $43.5 million.

Note 3 – On April 29, 2008, the Company announced it had signed a definitive agreement to sell its Broadband Media Processing (BMP) product lines to NXP Semiconductors. As a result of this transaction, which closed in August 2008, the results of the BMP business have been reported as discontinued operations and its assets and liabilities as of September 28, 2007 have been classified as held for sale. The results of discontinued operations include tax expense of ($0.4) million, $0.9 million, $0.6 million, $1.0 million and $1.2 million for the three months ended October 3, 2008 and June 27, 2008 and September 28, 2007, and the twelve months ended October 3, 2008 and September 28, 2007, respectively.

Note 4 – On June 27, 2008, the Company affected a one-for-ten reverse stock split of its common stock. All share and per share data in these condensed consolidated financial statements have been adjusted to give effect to the reverse split.

CONEXANT SYSTEMS, INC. Reconciliation of GAAP Financial Measures to Non-GAAP Core Financial Measures (unaudited, in thousands, except per share amounts)
		Three Months Ended												Twelve Months Ended
		October 3,				June 27,				September 28,				October 3,				September 28,
			2008				2008				2007				2008				2007
GAAP net revenues		$	122,615			$	115,594			$	138,933			$	502,660			$	573,576
Royalty buyout (k)			—				—				—				(14,700	)			—
Non-GAAP Core net revenue less impact of royalty buyout		$	122,615			$	115,594			$	138,933			$	487,960			$	573,576
GAAP cost of goods sold		$	56,300			$	57,186			$	72,836			$	233,779			$	295,464
Cost of goods sold adjustments (a, f)			(525	)			(42	)			(1,323	)			35				(1,684	)
Non-GAAP Core cost of goods sold		$	55,775			$	57,144			$	71,513			$	233,814			$	293,780
GAAP gross margin		$	66,315			$	58,408			$	66,097			$	268,881			$	278,112
Gross margin adjustments (a, f)			525				42				1,323				(35	)			1,684
Non-GAAP Core gross margin			66,840				58,450				67,420				268,846				279,796
Royalty buyout (k)			—				—				—				(14,700	)			—
Non-GAAP Core gross margin less impact of royalty buyout		$	66,840			$	58,450			$	67,420			$	254,146			$	279,796
GAAP operating expenses		$	57,157			$	184,781			$	162,884			$	365,222			$	542,718
Stock-based compensation (a)			(2,334	)			(6,154	)			(3,856	)			(14,180	)			(15,502	)
Transitional salaries and benefits (b)			—				—				(620	)			—				(3,885	)
Amortization of intangible assets (c)			(4,455	)			(3,629	)			(4,574	)			(15,515	)			(21,259	)
Asset impairments (d)			(22	)			(120,617	)			(67,698	)			(120,769	)			(222,698	)
Special charges (e)			(2,568	)			(8,425	)			(25,302	)			(17,806	)			(33,812	)
Other (m)			(800	)			—				—				(800	)			(400	)
Non-GAAP Core operating expenses		$	46,978			$	45,956			$	60,834			$	196,152			$	245,162
GAAP operating income (loss)		$	9,158			$	(126,373	)		$	(96,787	)		$	(96,341	)		$	(264,606	)
Gross margin adjustments (a, f)			525				42				1,323				(35	)			1,684
Operating expense adjustments (a-e, m)			10,179				138,825				102,050				169,070				297,556
Non-GAAP Core operating income		$	19,862			$	12,494			$	6,586			$	72,694			$	34,634
Royalty buyout (k)			—				—				—				(14,700	)			—
Non-GAAP Core operating income less impact of royalty buyout		$	19,862			$	12,494			$	6,586			$	57,944			$	34,634
GAAP other expense (income), net		$	3,352			$	(9,036	)		$	(9,771	)		$	3,809			$	(36,148	)
Unrealized (losses) gains on Mindspeed warrant (g)			(2,312	)			1,881				(8,820	)			(14,974	)			(952	)
Gains on sales of equity securities (h)			21				146				10,446				896				17,016
Loss on impairment of facility (p)			(1,435	)			—				—				(1,435	)			—
Gain on sale of building (o)			—				6,567				—				6,567				—
Other adjustments (j)			—				—				5,324				—				5,324
Non-GAAP Core other income		$	(374	)		$	(442	)		$	(2,821	)		$	(5,137	)		$	(14,760	)
GAAP provision for income taxes		$	373			$	2,466			$	1,383			$	4,418			$	3,131
Tax expense on gain on sale of building (o)			—				(2,225	)			—				(2,225	)			—
Non-GAAP Core provision for income taxes		$	373			$	241			$	1,383			$	2,193			$	3,131
GAAP net gain (loss) from continuing operations		$	(2,227	)		$	(126,419	)		$	(90,616	)		$	(133,362	)		$	(221,190	)
Gross margin adjustments (a, f)			525				42				1,323				(35	)			1,684
Operating expense adjustments (a-e, m)			10,179				138,825				102,050				169,070				297,556
Losses (gains) of equity method investments (i)			808				(53	)			(6,988	)			(2,804	)			(51,182	)
Other expense (income) adjustments (g, h, j, o, p)			3,726				(8,594	)			(6,950	)			8,946				(21,388	)
Tax expense on gain on sale of building (o)			—				2,225				—				2,225				—
Interest expense adjustment (n)			—				(11	)			—				1,344				—
Non-GAAP Core net income (loss) from continuing operations		$	13,011			$	6,015			$	(1,181	)		$	45,384			$	5,480
Basic and Diluted net (loss) income from continuing operations per share:
GAAP (l)		$	(0.04	)		$	(2.56	)		$	(1.84	)		$	(2.70	)		$	(4.52	)
Non-GAAP Basic (l)		$	0.26			$	0.12			$	(0.02	)		$	0.92			$	0.11
Non-GAAP Diluted (l)		$	0.26			$	0.12			$	(0.02	)		$	0.91			$	0.11
Shares used in basic and diluted per-share computations Basic			49,565				49,450				49,177				49,394				48,940
Diluted			49,994				49,844				49,177				49,653				49,199

See “ GAAP to Non-GAAP Core Adjustments ” below