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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 
FORM 10-K

 	 	þ    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)	
 	 	OF THE SECURITIES EXCHANGE ACT OF 1934 	

 	 	For The Fiscal Year Ended March 31, 2007 	

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

 

Commission File Number 0-17795
 
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  o      NO  þ
 
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  þ      NO  o
 
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 $400 million based upon the closing price reported on the NASDAQ Global Select Market as of September 23, 2006.
 
As of May 29, 2007, the number of outstanding shares of the registrant’s Common Stock, $0.001 par value, was 88,740,292.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Certain information contained in the registrant’s proxy statement for its annual meeting of stockholders to be held July 27, 2007 is incorporated by reference in Part III of this Annual Report on Form 10-K.

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CIRRUS LOGIC, INC.
 
FORM 10-K
 
For The Fiscal Year Ended March 31, 2007
 
INDEX

	PART I		 	 	 		 		
	Item 1.		 	Business	 		3		
	Item 1A.		 	Risk Factors Affecting Our Business and Prospects	 		7		
	Item 1B.		 	Unresolved Staff Comments	 		14		
	Item 2.		 	Properties	 		14		
	Item 3.		 	Legal Proceedings	 		15		
	Item 4.		 	Submission of Matters to a Vote of Securities Holders	 		16		
	 	 	 	 	 		 	 	
	PART II		 	 	 		 		
	Item 5.		 	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	 		16		
	Item 6.		 	Selected Consolidated Financial Data	 		19		
	Item 7.		 	Management’s Discussion and Analysis of Financial Condition and Results of Operations	 		19		
	Item 7A.		 	Quantitative and Qualitative Disclosures About Market Risk	 		29		
	Item 8.		 	Financial Statements and Supplementary Data	 		30		
	Item 9.		 	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	 		59		
	Item 9A.		 	Controls and Procedures	 		59		
	 	 	 	 	 		 	 	
	PART III		 	 	 		 		
	Item 10.		 	Directors and Executive Officers of the Registrant	 		62		
	Item 11.		 	Executive Compensation	 		62		
	Item 12.		 	Security Ownership of Certain Beneficial Owners and Management	 		62		
	Item 13.		 	Certain Relationships and Related Transactions	 		62		
	Item 14.		 	Principal Accountant Fees and Services	 		62		
	 	 	 	 	 		 	 	
	PART IV		 	 	 		 		
	Item 15.		 	Exhibits and Financial Statement Schedules	 		62		
	 		 	Signatures	 		65		
	 		 	Exhibit Index	 		 		
	 		 	Financial Certifications	 		 		
  Consent of Ernst & Young LLP	
  Certification of CEO Pursuant to Section 302	
  Certification of CFO Pursuant to Section 302	
  Certification of CEO Pursuant to Section 906	
  Certification of CFO Pursuant to Section 906	

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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 and engineering facility are in Austin, Texas with design centers in Beijing and Shanghai in the People’s Republic of China and sales locations throughout the United States. We also serve customers from international sales offices in Europe and Asia, including the People’s Republic of China, Hong Kong, South Korea, Japan, Singapore and Taiwan. Our common stock, which has been publicly traded since 1989, is listed on the NASDAQ Global Select 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 Annual Report on Form 10-K. We make available free of charge through our Web site our 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 (the “Commission”). To receive a free copy of this Form 10-K, 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 originally 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, 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 and, 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. 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 measurement applications, such as industrial process control, analytical instruments, consumer utility, digital power meters and seismic systems.

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Embedded Products :  High-precision processors and software for consumer audio, professional audio and industrial applications.
 
We offer approximately 650 products to over 2,500 end-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, South Korea, Japan, the European Union, and the United Kingdom.
 
The following table summarizes sales to distributors that represent more than 10 percent of our consolidated net sales:

 	 	March 31,	 	March 25,	 	March 26,	
 	 	2007	 	2006	 	2005	
 		
Avnet, Inc. (formerly Memec Holdings Group)	 	 	29	%	 	 	25	%	 	 	27	%	

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, volume controls and digital amplifiers. Our broad portfolio of approximately 290 active proprietary products includes the following products, which have been added in the past fiscal year:

 	•  	The CS44130 Class-D power stage IC for stereo and 2.1 channel applications for consumer electronic products that demand high quality audio within small product designs, such as digital televisions, home theater systems, shelf systems, desktop speakers, PC sound cards and networked audio systems;	
 		
 	•  	The CS4352 DAC, which offers a strong combination of audio performance and feature integration, targets mainstream consumer audio products, such as flat-panel digital televisions, DVD recorders, set-top boxes, game consoles and sound cards;	
 		
 	•  	The CS42L52 low-power stereo codec, which provides up to one watt-per-channel of highly efficient Class D amplification to external speakers, ideal for portable consumer electronics applications such as portable media players, game devices, MP3 player accessories, IC recorders, digital cameras and camcorders; and	
 		
 	•  	The CS4350 DAC, a complete stereo audio converter with on-chip master clock, noteworthy for its superior audio quality and ease of design. The CS4350 is ideal for set-top boxes, digital televisions, personal video recorders, DVD players and recorders, A/V receivers and automotive applications such as head units, telematics and in-car entertainment systems.	
 
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, multitrack digital recorders and effects processors. Applications for products within automotive markets include amplifiers, satellite radio systems, telematics and multi-speaker car-audio systems.
 
Our analog and mixed-signal audio converters support a customer base featuring such leading companies as BBK, Bose, Cisco, Creative, Harman Kardon, iRiver, Korg, LG Electronics, Marantz, Panasonic, Philips, Sony and Samsung. 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 180 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 CS5530 single-channel ADC, which opens our market-leading high-resolution Delta-Sigma ADC technology to the lower-cost weigh scale and temperature controller markets; and	

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 	•  	The CS3003 family of low-noise operational amplifiers, which broadens our portfolio of devices offering the best available combination of precision and gain, to include low power consumption devices.	
 
Our key competitors in industrial applications include Analog Devices, Texas Instruments/Burr Brown, Teridian Semiconductor, Maxim, Austriamicrosystems and Linear Technologies.
 
EMBEDDED PRODUCTS
 
We provide a wide variety of embedded processor technologies for consumer and industrial markets. Our embedded portfolio is made up of approximately 170 active proprietary products. These embedded processors include audio DSPs primarily targeted at consumer audio applications, ARM7- and ARM9-based embedded processors focused on industrial applications, CobraNet TM ICs and modules 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 market, 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 tm.
 
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.
 
New embedded products introduced in the last fiscal year include:

 	•  	The CS4953X, a 32-bit, dual-core audio DSP family that provides a complete digital audio processor for multichannel audio applications such as AVRs; and	
 		
 	•  	The CS485XX, a 32-bit single-core audio DSP family product that provides a complete audio post-processing solution to deliver advanced audio features and home-theater-like audio quality for all types of consumer electronic products.	
 
Our embedded product customers include Bose, Harman Kardon, Hitachi, inkel, Kenwood, Logitech, Marantz, Onkyo, Panasonic, Pioneer, RCA/Thomson S.A., Sharp and Sony. Our competitors in embedded product solutions include Analog Devices, ATMEL, Freescale Semiconductor, IDT, Realtek, Samsung, Sigmatel and Texas Instruments/Burr Brown.
 
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 31, 2007, we held 983 U.S. patents, 140 U.S. patent applications pending and various corresponding international patents and applications. Our U.S. patents expire in years 2007 through 2026.
 
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.

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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 2007, 2006, and 2005, were $44.0 million, $45.8 million, $80.5 million, respectively. These amounts include amortization of acquired intangibles of $0.3 million, $1.4 million $13.7 million, in fiscal years 2007, 2006, and 2005, 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 continued revenue streams over long periods of time. 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
 
Export sales, which include sales to customers with manufacturing plants outside the United States, were 62 percent, 66 percent and 67 percent, in fiscal years 2007, 2006 and 2005, 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, Florida, Massachusetts, Nevada, Oregon and Texas. International sales offices and staff are located in Hong Kong, Shanghai and Shenzen in the People’s Republic of China, Singapore, South Korea, Taiwan, Japan and the United Kingdom. We supplement our direct sales force with external sales representatives and distributors. Our technical support staff is located in Texas, Beijing and Shanghai 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

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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 31, 2007, we had 456 full-time employees, of whom 53 percent were engaged in research and product development activities, 41 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	
 
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 Cirrus Logic’s filings with the Commission. 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.
 
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. 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;	

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 	•  	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;	

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 	•  	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 31, 2007, the carrying value of our investments in non-marketable securities totaled $3.6 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, Analog Devices, ATMEL, Austriamicrosystems, Freescale Semiconductor, IDT, Linear Technologies, Maxim, Realtek, Samsung, Sigmatel, Teridian Semiconductor, Texas Instruments/Burr Brown 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.

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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 62 percent, 66 percent, and 67 percent of our net sales in fiscal years 2007, 2006, and 2005, 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 may have an adverse impact on the

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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

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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.
 
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.
 
We may face difficulties integrating and may incur costs associated with our acquisition of Caretta Integrated
Circuits, Inc. and any future acquisitions.
 
In fiscal year 2007, we acquired 100 percent of the voting interests in Caretta Integrated Circuits, Inc. (“Caretta”). We could experience difficulties integrating the personnel, products, technologies, and operations of this company. Integrating acquired businesses involves a number of other risks, including, but not limited to:

 	•  	the potential disruption of our ongoing business;	
 		
 	•  	unexpected costs or incurring unknown liabilities;	
 		
 	•  	the diversion of management’s resources from other business concerns involved in identifying, completing, and integrating acquisitions;	
 		
 	•  	the inability to retain the employees of the acquired businesses;	

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 	•  	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;	
 		
 	•  	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 31, 2007, we had U.S. federal tax net operating loss (“NOL”) carryforwards of approximately $468.4 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.
 
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.
 
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 as discussed in Item 7 of this 10-K. 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 Commission regarding our historical option granting practices. 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. We are cooperating with the Commission’s informal investigation, but do not know when or how it will be resolved or what, if any, actions the Commission may require us to take as part of the resolution of that matter. If the Commission 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 Commission reports that could result in delisting of the Company’s common stock from the NASDAQ Global Select Market.
 
Moreover, as discussed in Item 7 of this 10-K, 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

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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 Commission, 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 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, 2007, 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 calendar year 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. The longest of these subleases extends through calendar year 2012.

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We also lease facilities in Fremont, California. These facilities consist of approximately 291,000 square feet of leased office and engineering space, which have leases that expire from fiscal year 2008 to fiscal year 2010, excluding renewal options. During fiscal year 2007, leases expired on two properties in Fremont, California that were approximately 139,000 square feet in size. These leases were not renewed. As a result of our facilities consolidation activities, which began in fiscal year 1999 concurrent with our move of headquarters from California to Texas, we no longer occupy any leased space in California. We have subleased approximately 125,000 square feet of our leased office space in California. We continue to actively pursue sublease tenants for these remaining facilities.
 
During fiscal year 2007, we transitioned our design activities at our Boulder, Colorado design facility to our headquarters in Austin, Texas. This design facility is approximately 12,000 square feet in size and has a lease which expires in fiscal year 2011; however, we plan to exercise an early termination option provided to us in the lease, in which case we will be released from our obligations under the lease in fiscal year 2009. The costs associated with exercising that early termination feature are immaterial.
 
Below is a detailed schedule that identifies our occupied leased property locations as of May 1, 2007 with various lease terms through fiscal year 2013:

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

See Notes 7 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	
 
Derivative Lawsuits
 
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 was filed 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.
 
On May 22, 2007, a fourth derivative lawsuit related to the Company’s prior stock option grants was filed. This lawsuit was also filed in the United States District Court for the Western District of Texas-Austin Division and contained similar allegations to the other previously filed derivative lawsuits.
 
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

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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 Global Select 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 31, 2007	 	 	 	 	 	 	 	 	
First quarter	 	$	10.46	 	 	$	7.22	 	
Second quarter	 	 	8.15	 	 	 	5.85	 	
Third quarter	 	 	7.71	 	 	 	6.56	 	
Fourth quarter	 	 	9.44	 	 	 	6.83	 	
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 29, 2007, there were approximately 997 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 2007 or fiscal year 2006.

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Stock Price Performance Graph
 
The following graph and table show a comparison of the five-year cumulative total stockholder return, calculated on a dividend reinvestment basis, for Cirrus Logic, the S&P 500 Composite Index (the “S&P 500”), and the Semiconductor Subgroup of the S&P Electronics Index (the “S&P Semiconductors Index”).
 
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
 Among Cirrus Logic, Inc., The S&P 500 Index
And The S&P Semiconductors Index

* $100 invested on 3/31/02 in stock or index-including reinvestment of dividends.
 
Copyright © 2007, Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. All rights reserved. www.researchdatagroup.com/S&P.htm

 	 	Cumulative Total Return	 	
 	 	March 2002	 	 	March 2003	 	 	March 2004	 	 	March 2005	 	 	March 2006	 	 	March 2007	 	
 		
Cirrus Logic, Inc. 	 	 	100.00	 	 	 	10.65	 	 	 	40.17	 	 	 	23.95	 	 	 	44.94	 	 	 	40.59	 	
S&P 500	 	 	100.00	 	 	 	75.24	 	 	 	101.66	 	 	 	108.47	 	 	 	121.19	 	 	 	135.52	 	
S&P 500 Semiconductors	 	 	100.00	 	 	 	51.56	 	 	 	88.45	 	 	 	74.97	 	 	 	81.20	 	 	 	74.97	 	

Stockholder returns over the indicated periods should not be considered indicative of future stockholder returns.

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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 31, 2007, 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 2006 Stock Incentive 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 for	 	
 	 	upon exercise of	 	 	exercise price of	 	 	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)	 	 	5,193	 	 	$	10.52	 	 	 	17,583	(2)	
Equity compensation plans not approved by security holders(3)	 	 	3,827	 	 	$	5.84	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	9,020	 	 	$	8.54	 	 	 	17,583	 	

 
			
 	1. 	The Company’s stockholders have approved the Company’s 1987 Stock Option Plan, the 1989 Employee Stock Purchase Plan, the 1990 Directors’ Stock Option Plan, and the 2006 Stock Incentive Plan. The following plans were assumed by the Company at the time of acquisition, and Cirrus Logic stockholder approval was not required for these plans or their respective outstanding grants, as they were approved by the acquired companies shareholders: 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.	
 		
 	2. 	In addition to shares available for issuance under our 2006 Stock Incentive Plan, the number reported includes 877,701 shares available for issuance under the Company’s 1989 Employee Stock Purchase Plan. Our Board of Directors discontinued all future grants under the option plans we assumed in connection with our past acquisitions, including 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, and the Stream Machine 2001 Stock Plan, so shares under these plans have not been included in the total.	
 		
 	3. 	In August 2002, the Board of Directors approved the 2002 Stock Option Plan, which permits awards of fair market value stock options to non-executive employees. As of July 2006, when our shareholders approved the adoption of the 2006 Stock Incentive Plan, we cancelled all remaining options available for grant under the 2002 Stock Option plan.	
 
As of March 31, 2007, the Company was awarding options under the 2006 Stock Incentive Plan and the 1989 Employee Stock Purchase Plan.

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ITEM 6.  Selected Consolidated Financial Data
 (Amounts in thousands, except per share amounts)
 
The information contained below should be read along with “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8 – Financial Statements and Supplementary Data.”

 	 	Fiscal Years	 	
 	 	2007	 	 	2006	 	 	2005	 	 	2004	 	 	2003	 	
 		
Net sales	 	$	182,304	 	 	$	193,694	 	 	$	194,900	 	 	$	196,338	 	 	$	261,999	 	
Income (loss) from continuing operations	 	 	5,977	 	 	 	37,596	 	 	 	(38,616	)	 	 	21,885	 	 	 	(210,874	)	
Basic earnings (loss) per share from continuing operations	 	$	0.32	 	 	$	0.61	 	 	$	(0.16	)	 	$	0.51	 	 	$	(2.47	)	
Diluted earnings (loss) per share from continuing operations	 	$	0.31	 	 	$	0.60	 	 	$	(0.16	)	 	$	0.50	 	 	$	(2.47	)	
Financial position at year end:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash, cash equivalents, restricted investments and marketable securities	 	$	271,715	 	 	$	243,468	 	 	$	179,713	 	 	$	200,141	 	 	$	123,351	 	
Total assets	 	 	353,060	 	 	 	319,041	 	 	 	262,810	 	 	 	314,672	 	 	 	257,266	 	
Working capital	 	 	286,417	 	 	 	232,189	 	 	 	183,283	 	 	 	168,898	 	 	 	94,451	 	
Capital lease obligations, excluding current portion	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	

		
ITEM 7.  	Management’s Discussion and Analysis of Financial Condition and Results of Operations	
 
This Annual Report on Form 10-K 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 Annual Report on Form 10-K, 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 2008, 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 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.
 
Voluntary Review of Stock Option Practices
 
During fiscal year 2007, we completed a voluntary internal review and independent investigation into past stock option granting practices. The voluntary review was undertaken when an internal review of past practices related to grants of stock options revealed information that raised potential questions about the dates used to account for certain stock option grants. In October 2006, we 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. 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 and 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.
 
To correct the inaccuracies, on April 18, 2007, we filed an amendment to our annual report on Form 10-K for the fiscal year ended March 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;	

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 	•  	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.	
 
As of result of revising the measurement dates, the Company 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. None of the additional share-based compensation expense arose from grants made to non-employee directors.
 
In addition, on April 18, 2007, we filed an amendment to our quarterly report on Form 10-Q for the quarter ended June 24, 2006 to restate our:

 	•  	Consolidated balance sheet for the three months ended June 24, 2006;	
 		
 	•  	Consolidated statements of operations and cash flows for the three months ended June 24, 2006 and June 25, 2005; and	
 		
 	•  	Related disclosures.	
 
The adjustments did not affect our previously reported revenue, cash, cash equivalents, or marketable securities balances in any of the restated periods. For further detail, please see our Form 10-K/A and Form 10-Q/A filed with the Commission on April 18, 2007.
 
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. In 2001, 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 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, including: (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 2007, we drove gross margins to 60 percent for the year. This represented an increase of 6 percent over the fiscal year 2006 gross margin of 54 percent. On December 29, 2006, we completed our acquisition of 100 percent of the voting equity interests in Caretta, a company based in Shanghai, China that specializes in designing power management integrated circuits for the large, single-cell lithium ion battery market. This acquisition was undertaken to strengthen and diversify our analog and mixed signal product portfolios as well as position us for growth within the Chinese market. In addition, we realized a tax benefit of approximately $8.4 million that was predominantly related to the release of a portion of our valuation allowance with respect to certain deferred tax assets that we expect to utilize within the next fiscal year.
 
During fiscal year 2006, we completed the outstanding litigation with Fujitsu for a net $24.8 million and enhanced our financial position by obtaining $7.0 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 $7.0 million due to the expiration of certain statutes related to non-U.S. tax liabilities. 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.
 
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

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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 approximately 650 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, Motorola, Panasonic, Philips, Pioneer, Samsung, Siemens, Sony and Yamaha, among others.
 
Our products include analog and mixed-signal components and processors for consumer audio, professional audio and automotive audio applications. Some common items our audio mixed-signal products may be found in include amplifiers, audio video receivers (“AVRs”), DVD players and recorders, DVD receivers, set-top boxes, digital televisions, portable media 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:

 	 	Fiscal Years Ended	 	
 	 	March 31,	 	 	March 25,	 	 	March 26,	 	
 	 	2007	 	 	2006	 	 	2005	 	
 		
Net sales	 	 	100	%	 	 	100	%	 	 	100	%	
Gross margin	 	 	60	%	 	 	54	%	 	 	48	%	
Research and development	 	 	24	%	 	 	24	%	 	 	41	%	
Selling, general and administrative	 	 	29	%	 	 	26	%	 	 	22	%	
Restructuring costs and other, net	 	 	1	%	 	 	1	%	 	 	5	%	
Impairment of non-marketable securities	 	 	2	%	 	 	—	%	 	 	—	%	
Acquired in-process research and development	 	 	1	%	 	 	—	%	 	 	—	%	
Litigation settlement	 	 	—	%	 	 	(13	%)	 	 	—	%	
License agreement amendment	 	 	—	%	 	 	(4	%)	 	 	—	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) from operations	 	 	3	%	 	 	20	%	 	 	(20	%)	
Interest income	 	 	7	%	 	 	4	%	 	 	2	%	
Other income (expense), net	 	 	—	%	 	 	—	%	 	 	—	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) before income taxes	 	 	10	%	 	 	24	%	 	 	(18	%)	
Benefit for income taxes	 	 	(5	%)	 	 	(4	%)	 	 	(11	%)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss)	 	 	15	%	 	 	28	%	 	 	(7	%)	

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Net Sales

 	 	March 31,	 	 	March 25,	 	 	March 26,	 	
 	 	2007	 	 	2006	 	 	2005	 	
 		
Mixed-signal audio products	 	$	85,278	 	 	$	95,384	 	 	$	96,083	 	
Embedded products	 	 	46,791	 	 	 	52,258	 	 	 	46,645	 	
Industrial products	 	 	50,235	 	 	 	34,771	 	 	 	34,109	 	
Video products	 	 	—	 	 	 	11,281	 	 	 	18,063	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	182,304	 	 	$	193,694	 	 	$	194,900	 	

 
Net sales for fiscal year 2007 decreased $11.4 million, or 6 percent, to $182.3 million from $193.7 million in fiscal year 2006. The drop in net sales is primarily related to the absence of revenues from our digital video product line, a product line we divested in fiscal year 2006. This decrease was accentuated by a $10.1 million decrease in revenues from our mixed-signal product line, which is primarily related to a decrease in revenues from legacy products. These decreases were partially offset by increased sales from our industrial product line of $15.5 million.
 
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.
 
Export sales, principally to Asia, including sales to U.S.-based customers with manufacturing plants overseas, were approximately $112.8 million in fiscal year 2007, $127.6 million in fiscal year 2006, and $130.6 million in fiscal year 2005. Export sales to customers located in Asia were 44 percent of net sales in fiscal year 2007 and 52 percent of net sales in both fiscal year 2006 and 2005. All other export sales represented 18 percent, 14 percent, and 15 percent of net sales in fiscal years 2007, 2006, and 2005, respectively.
 
Our sales are denominated primarily in U.S. dollars. During fiscal years 2007, 2006, and 2005, 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 29 percent, 25 percent, and 27 percent in fiscal years 2007, 2006, and 2005, respectively. No other customers or distributors accounted for 10 percent or more of net sales in fiscal years 2007, 2006, or 2005. 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 60 percent in fiscal year 2007, up from 54 percent in fiscal year 2006. The improvement in margins from fiscal year 2006 is mainly due to changes in product mix and the absence of the video product line. The sale of product that had been written down in prior fiscal years contributed approximately $1.9 million, or 1.0 percent, to gross margins compared to contribution of approximately $4.1 million, or 2.1 percent, in fiscal year 2006. In total, excess and obsolete inventory charges increased by $5.1 million from fiscal year 2006, which decreased gross margins by 2.8 percentage points.
 
Gross margin was 54 percent in fiscal year 2006, up from 48 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.
 
Research and Development Expenses
 
Fiscal year 2007 research and development expenses decreased $1.8 million from fiscal year 2006 due to a decrease in expenses associated with the divestiture of the digital video product line. Amortization of intangibles decreased by

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$1.4 million from the prior year, $0.7 million of which was attributable to the absence of amortization on intangibles we sold to Magnum Semiconductor Inc. (“Magnum”) as part of the divestiture. The divestiture also led to a $1.3 million decrease in salaries due to lower average headcount, lower vacation expenses, and lower tax expense. These decreases were partially offset by a $1.4 million increase in stock compensation expense associated with the fiscal year 2007 adoption of Statement of Financial Accounting Standards No. 123(R) (“SFAS 123(R)”), “Share-Based Payment.”
 
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.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses increased $0.5 million in fiscal year 2007 compared to fiscal year 2006. This is primarily due to a $2.2 million increase in stock compensation expense associated with the fiscal year 2007 adoption of SFAS 123(R) and the recognition of $1.7 million in loss contingencies on facilities we currently sublease. These increases were partially offset by a decrease in professional fees associated with the conclusion of the Magnum divestiture and the resolution of certain outstanding legal disputes.
 
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.
 
Restructuring Costs and Other, net
 
During fiscal year 2007, we recorded restructuring charges of $1.1 million to operating expenses primarily related to the transition of design activities from our Boulder, Colorado office to our headquarters in Austin, Texas. The restructuring costs for the closure of the Boulder design center were composed of $0.7 million in severance and relocation costs and $0.3 million in facility related charges. Approximately twenty employees were affected by this action, five of whom relocated to our Austin headquarters.
 
During 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 31, 2007, we have a remaining restructuring accrual for all of our past restructurings of $5.8 million, primarily related to future lease payments net of anticipated subleases that will be paid over the respective lease terms through fiscal year 2013.

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Impairment of Non-Marketable Securities
 
During the fourth quarter of fiscal 2007, we determined an impairment indicator existed related to our cost method investment in Magnum. We obtained an independent valuation of the fair value of our cost method investment in Magnum in accordance with Emerging Issues Task Force No. 03-1 (“EITF 03-1”), “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” Based on the results of the independent valuation, at March 31, 2007, we recognized an impairment of $4.3 million to reduce the carrying value of the Magnum cost method investment to $3.6 million. The impairment was recorded as a separate line item on the statement of operations in operating expenses under the caption “Impairment of non-marketable securities.” For more details regarding our investment in Magnum, please see Note 4, “Non-marketable securities.”
 
Acquired in Process Research and Development
 
During fiscal year 2007, we acquired 100 percent of the voting equity interests in Caretta, a company based in Shanghai, China that specializes in designing power management integrated circuits for the large, single-cell lithium ion battery market. In allocating the $11.3 million purchase price, we immediately recognized an expense of $1.9 million for research and development that was defined as “in-process” at the time of acquisition. This charge is included in total operating expenses on the consolidated statement of operations under the caption “Acquired in process research and development.” Of the remaining purchase price, $4.1 million was allocated to acquired technology, $6.5 million was allocated to goodwill and $1.2 million was allocated to net liabilities assumed. The categorizations of costs for the purchase price are estimates as of March 31, 2007 and are subject to change.
 
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.
 
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 fourth quarter fiscal year 2004 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. This item was 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
 
During the first quarter of fiscal year 2007, we sold all of our shares in Prudential Financial Inc. (“Prudential”) and realized a gain of $0.2 million. We received these shares as we were a policy holder at the time of Prudential’s demutualization.
 
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

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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.
 
Interest Income
 
Interest income in fiscal years 2007, 2006, and 2005 was $13.1 million, $7.5 million, and $3.2 million respectively. The increase in interest income in fiscal year 2007 compared to fiscal years 2006 and 2005 was primarily due to higher average cash and cash equivalent balances on which interest was earned as well as higher interest rates.
 
Income Taxes
 
We recorded an income tax benefit of $8.4 million in fiscal year 2007 on pre-tax income of $19.5 million, yielding an effective tax benefit rate of 43.1 percent. Our effective tax rate was lower than the U.S. statutory rate of 35 percent was primarily the result of the realization of deferred tax assets that had been fully reserved and the release of a portion of the valuation allowance on certain deferred tax assets that have not yet been utilized. Our effective tax rate also reflected a nonrecurring tax benefit of $0.7 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 $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.
 
In fiscal year 2007, we released $7.8 million of the valuation allowance that had been placed on our U.S. deferred tax assets. Based on our recent history of utilizing deferred tax assets and our expectation to do so again in the upcoming year, we determined that $7.8 million of our total deferred tax assets were more likely than not to be realized. In fiscal years 2006 and 2005, we provided a valuation allowance equal to our net U.S. deferred tax assets due to uncertainties regarding whether or not these assets would 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 2008 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 the continued 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. In addition, we have numerous products that support

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digital televisions applications, low power audio applications, and new automotive audio applications. We have also 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
 
In fiscal year 2007, our operating activities generated $35.6 million in cash. The positive cash flow from operating activities is predominantly due to the cash components of our net income as well as a $2.4 million and $2.2 million decrease in inventories and accounts receivable, respectively. These increases were partially offset by a $3.7 million decrease in accounts payable. 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 a net $24.8 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.
 
In fiscal year 2007, we used approximately $71.5 million in cash for investing activities. This was principally due to the net purchase of $56.7 million in marketable securities and our purchase of Caretta for approximately $10.7 million, net. In addition, during fiscal year 2007 we invested $3.3 million and $2.0 million in technology and property, equipment, and capitalized software, respectively. During fiscal year 2006, we used $28.6 million in cash for 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 years 2007, 2006, and 2005, we generated $7.2 million, $6.3 million and $3.5 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 31, 2007, 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.

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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 31, 2007:

 	 	Payment due by period (in thousands)	 	
 	 	<1 year	 	 	1–3 years	 	 	3–5 years	 	 	>5 years	 	 	Total	 	
 		
Facilities leases, net	 	$	6,094	 	 	$	9,712	 	 	$	7,733	 	 	$	1,599	 	 	$	25,138	 	
Equipment leases	 	 	13	 	 	 	13	 	 	 	2	 	 	 	—	 	 	 	28	 	
Wafer purchase commitments	 	 	4,091	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	4,091	 	
Assembly purchase commitments	 	 	208	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	208	 	
Outside test purchase commitments	 	 	3,584	 	 	 	1,031	 	 	 	—	 	 	 	—	 	 	 	4,615	 	
Other purchase commitments	 	 	41	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	41	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	14,031	 	 	$	10,756	 	 	$	7,735	 	 	$	1,599	 	 	$	34,121	 	

 
Recently Issued Accounting Pronouncements
 
In February 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 159 (“SFAS 159”), “The Fair Value Option for Financial Assets and Financial Liabilities,” which allows entities to measure eligible financial instruments and certain other items at fair value. The Statement also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the potential effect, if any, of implementing this standard.
 
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 (“SFAS 157”), “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is currently assessing the potential effect, if any, of implementing this standard.
 
In June 2006, the FASB issued Financial Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes.” FIN 48 clarifies the application of SFAS No. 109 by providing detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements. Tax positions must meet a “more-likely-than-not” recognition threshold at the effective date to be recognized upon the adoption of FIN 48 and in subsequent periods. We will be adopting FIN 48 as of April 1, 2007, the first day of our 2008 fiscal year. The Company is currently evaluating the potential effects, if any, of FIN 48 on its consolidated financial statements.
 
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, and our stock option granting practices; 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:

 	•  	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	

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 		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 Condensed 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 12 in the Notes to our Consolidated Condensed Financials Statements contained in “Item 1 – 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 6 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 financial position. See Notes 2 and 4 in the Notes to our Consolidated Financial Statements contained in “Item 8 – Financial Statements and Supplementary Data.”	
 		
 	•  	In accordance with Statement of Financial Accounting Standards No. 109 (“SFAS No. 109”), “Accounting for Income Taxes,” we provide for the recognition of deferred tax assets if realization of such assets is more likely than not. We have provided a valuation allowance against a substantial portion of our net U.S. deferred tax assets due to uncertainties regarding their realization. We evaluate the realizability of our deferred tax assets on a quarterly basis by determining whether or not the anticipated pre-tax income for the upcoming twelve months is expected to be sufficient to utilize the deferred tax assets that we have recognized. If our future income is not sufficient to utilize the deferred tax assets that we have recognized, we increase the valuation allowance to the	

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 		point at which all of the remaining recognized deferred tax assets will be utilized by the anticipated future pre-tax income for the next twelve months. An increase in the valuation allowance results in a simultaneous increase to income tax expense or, in some cases, a decrease in contributed capital. If our anticipated future pre-tax income is sufficient to conclude that additional deferred tax assets should be recognized, we decrease the valuation allowance. This results in a simultaneous decrease to income tax expense or, possibly, an increase in contributed capital. See Note 14 in the Notes to our Consolidated Financial Statements contained in “Item 8 – Financial Statements and Supplementary Data.”	

 	•  	Our taxes payable balance is comprised primarily of tax contingencies that are recorded to address exposures involving tax positions we have taken that could be challenged by taxing authorities. These exposures result from the varying application of statutes, rules, regulations, and interpretations. Our tax contingencies relate to transfer pricing positions we have taken in a variety of countries in which we operate. The ultimate resolution of these matters may be materially greater or less than the amount that we have accrued. See Note 14 in the Notes to our Consolidated Financial Statements contained in “Item 8 – Financial Statements and Supplementary Data.”	
 		
 	•  	Restructuring charges for workforce reductions and facilities consolidations reflected in the accompanying financial statements were accrued based upon specific plans established by management, in accordance with Emerging Issues Task Force No. 94-3 (“EITF 94-3”), “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)” or SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities” depending upon the time of the restructuring activity. We use an estimated borrowing rate as the discount rate for all of our restructuring accruals made under SFAS 146. Our facilities consolidation accruals are based upon our estimates as to the length of time a facility would be vacant, as well as the amount of sublease income we would receive once we sublet the facility, after considering current and projected market conditions. Changes in these estimates could result in an adjustment to our restructuring accruals in a future quarter, which could have a material effect on our operating results and financial position. See Note 10 in the Notes to our Consolidated Financial Statements contained in “Item 8 –Financial Statements and Supplementary Data.”	
 		
 	•  	We are subject to the possibility of loss contingencies for various legal matters. See Note 8 in the Notes to our Consolidated Financial Statements contained in “Item 8 – Financial Statements and Supplementary Data.” We regularly evaluate current information available to us to determine whether any accruals should be made based on the status of the case, the results of the discovery process and other factors. If we ultimately determine that an accrual should be made for a legal matter, this accrual could have a material effect on our operating results and financial position and the ultimate outcome may be materially different than our estimate.	

ITEM 7A.  	Quantitative and Qualitative Disclosures about Market Risk	
 
We are exposed to market risks associated with interest rates on our debt-related investments and currency movements on non-U.S. dollar denominated assets and liabilities. We assess these risks on a regular basis and have established policies to protect against the adverse effects of these and other potential exposures. All of the potential changes noted below are based on sensitivity analyses at March 31, 2007. Actual results may differ materially.
 
Interest Rate Risk
 
At March 31, 2007, an immediate one percent, or 100 basis points, increase or decrease in interest rates could result in a $2.6 million fluctuation in our annual interest income. We believe the risks associated with fluctuating interest rates are limited to our annual interest income and not the underlying principal as we generally have the ability to hold debt related investments to maturity. At March 25, 2006, an immediate one percent, or 100 basis points, increase or decrease in interest rates could have resulted in a $2.1 million fluctuation in our annual interest income. As with fiscal year 2007, the risks associated with fluctuating interest rates were limited to our annual interest income and not the underlying principal as we generally have the ability to hold debt related investments to maturity. The increased interest rate risk is based solely on an increase in total cash and marketable securities. The amounts disclosed in this paragraph are based on a 100 basis point fluctuation in interest rates applied to the average cash balance for that fiscal year.
 
Foreign Currency Exchange Risk
 
Our revenue and spending is transacted primarily in U.S. dollars; however, in fiscal years 2007, 2006 and 2005, we entered into minimal transactions in other currencies to fund the operating needs of our design, technical support and sales offices outside of the U.S. As of March 31, 2007 and March 25, 2006, a ten percent change in the value of the related currencies would not have a material impact on our results of operations and financial position.

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In addition to the direct effects of changes in exchange rates on the value of open exchange contracts, we may, from time to time, have changes in exchange rates that can also affect the volume of sales or the foreign currency sales prices of our products and the relative costs of operations based overseas.
 
Non-Marketable Securities Risk
 
Our investments in non-marketable securities are affected by many of the same factors that could result in an adverse movement of market prices, although the impact cannot be directly quantified. Such a movement and the underlying economic conditions would negatively affect the prospects of the companies we invest in, their ability to raise additional capital and the likelihood of our being able to realize our investments through liquidity events such as initial public offerings, mergers or private sales. These types of investments involve a great deal of risk, and there can be no assurance that any specific company will grow or become successful; consequently, we could lose all or part of our investment. At March 31, 2007, our investment in non-marketable securities had a carrying amount of $3.6 million. The carrying amount of this investment approximated fair value as of March 31, 2007. As of March 25, 2006, that same investment had a carrying value of $7.9 million. This carrying amount approximated fair value as of March 25, 2006.
 
ITEM 8.   Financial Statements and Supplementary Data
 
Index to Consolidated Financial Statements

Reports of Independent Registered Public Accounting Firm	 		31		
Consolidated Balance Sheet as of March 31, 2007 and March 25, 2006	 		33		
Consolidated Statement of Operations for the fiscal years ended March 31, 2007, March 25, 2006 and
March 26, 2005	 		34		
Consolidated Statement of Cash Flows for the fiscal years ended March 31, 2007, March 25, 2006 and
March 26, 2005	 		35		
Consolidated Statement of Stockholders’ Equity for the fiscal years ended March 31, 2007, March 25, 2006 and March 26, 2005	 		36		
Notes to Consolidated Financial Statements	 		37		

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Report of Independent Registered Public Accounting Firm
 
The Board of Directors and Stockholders of Cirrus Logic, Inc.
 
We have audited the accompanying consolidated balance sheets of Cirrus Logic, Inc. as of March 31, 2007 and March 25, 2006, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three fiscal years in the period ended March 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cirrus Logic, Inc. at March 31, 2007 and March 25, 2006, and the consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended March 31, 2007, in conformity with U.S. generally accepted accounting principles.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Cirrus Logic Inc.’s internal control over financial reporting as of March 31, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 1, 2007 expressed an unqualified opinion thereon.
 
As discussed in Note 12 to the consolidated financial statements, effective March 26, 2006, the Company changed its method of accounting for stock-based compensation to conform to Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment”.
 
/s/  Ernst & Young LLP
 
Austin, Texas
May 31, 2007

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Report of Independent Registered Public Accounting Firm
On Internal Control over Financial Reporting
 
The Board of Directors and Stockholders of Cirrus Logic, Inc.
 
We have audited management’s assessment, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting, that Cirrus Logic, Inc. maintained effective internal control over financial reporting as of March 31, 2007, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Cirrus Logic, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, management’s assessment that Cirrus Logic, Inc. maintained effective internal control over financial reporting as of March 31, 2007, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Cirrus Logic, Inc. maintained, in all material respects, effective internal control over financial reporting as of March 31, 2007, based on the COSO criteria.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Cirrus Logic, Inc. as of March 31, 2007 and March 25, 2006, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the three fiscal years in the period ended March 31, 2007 of Cirrus Logic, Inc., and our report dated May 31, 2007 expressed an unqualified opinion thereon.
 
/s/  Ernst & Young LLP
 
Austin, Texas
May 31, 2007

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CIRRUS LOGIC, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except per share amounts)

 	 	March 31,	 	 	March 25,	 	
 	 	2007	 	 	2006	 	
 		
Assets	
Current assets:	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	87,960	 	 	$	116,675	 	
Restricted investments	 	 	5,755	 	 	 	5,755	 	
Marketable securities	 	 	178,000	 	 	 	102,335	 	
Accounts receivable, net	 	 	19,127	 	 	 	20,937	 	
Inventories	 	 	16,496	 	 	 	18,708	 	
Prepaid assets	 	 	1,982	 	 	 	2,488	 	
Other current assets	 	 	11,717	 	 	 	5,259	 	
 	 	 	 	 	 	 	 	 	
Total current assets	 	 	321,037	 	 	 	272,157	 	
Long-term marketable securities	 	 	—	 	 	 	18,703	 	
Property and equipment, net	 	 	11,407	 	 	 	14,051	 	
Intangibles, net	 	 	8,550	 	 	 	2,966	 	
Goodwill	 	 	6,461	 	 	 	—	 	
Investment in Magnum Semiconductor	 	 	3,657	 	 	 	7,947	 	
Other assets	 	 	1,948	 	 	 	3,217	 	
 	 	 	 	 	 	 	 	 	
 	 	$	353,060	 	 	$	319,041	 	

Liabilities and Stockholders’ Equity	
Current liabilities:	 	 	 	 	 	 	 	 	
Accounts payable	 	$	10,434	 	 	$	14,129	 	
Accrued salaries and benefits	 	 	7,816	 	 	 	6,460	 	
Income taxes payable	 	 	1,561	 	 	 	2,228	 	
Deferred income on shipments to distributors	 	 	4,290	 	 	 	7,098	 	
Other accrued liabilities	 	 	10,519	 	 	 	10,053	 	
 	 	 	 	 	 	 	 	 	
Total current liabilities	 	 	34,620	 	 	 	39,968	 	
Lease commitments and contingencies	 	 	4,769	 	 	 	5,590	 	
Long-term restructuring accrual	 	 	3,418	 	 	 	4,694	 	
Other long-term liabilities	 	 	5,316	 	 	 	4,519	 	
Stockholders’ Equity:	 	 	 	 	 	 	 	 	
Common stock, $0.001 par value, 280,000 shares authorized, 88,163 shares and 86,816 shares issued and outstanding at March 31, 2007 and March 25, 2006, respectively	 	 	88	 	 	 	87	 	
Additional paid-in capital	 	 	926,812	 	 	 	914,148	 	
Accumulated deficit	 	 	(621,180	)	 	 	(649,075	)	
Accumulated other comprehensive loss	 	 	(783	)	 	 	(890	)	
 	 	 	 	 	 	 	 	 	
Total stockholders’ equity	 	 	304,937	 	 	 	264,270	 	
 	 	 	 	 	 	 	 	 	
 	 	$	353,060	 	 	$	319,041	 	

 
The accompanying notes are an integral part of these financial statements.

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CIRRUS LOGIC, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)

 	 	Fiscal Years Ended	 	
 	 	March 31,	 	 	March 25,	 	 	March 26,	 	
 	 	2007	 	 	2006	 	 	2005	 	
 		
Net sales	 	$	182,304	 	 	$	193,694	 	 	$	194,900	 	
Cost of sales	 	 	73,290	 	 	 	88,502	 	 	 	101,638	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Gross margin	 	 	109,014	 	 	 	105,192	 	 	 	93,262	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	
Research and development	 	 	43,961	 	 	 	45,772	 	 	 	80,549	 	
Selling, general and administrative	 	 	51,755	 	 	 	51,271	 	 	 	42,459	 	
Restructuring costs and other, net	 	 	1,106	 	 	 	2,311	 	 	 	9,463	 	
Impairment of non-marketable securities	 	 	4,290	 	 	 	—	 	 	 	—	 	
Acquired in process research and development	 	 	1,925	 	 	 	—	 	 	 	—	 	
Litigation settlement	 	 	—	 	 	 	(24,758	)	 	 	—	 	
License agreement amendment	 	 	—	 	 	 	(7,000	)	 	 	—	 	
Patent agreement and settlements, net	 	 	—	 	 	 	—	 	 	 	(593	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total operating expenses	 	 	103,037	 	 	 	67,596	 	 	 	131,878	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) from operations	 	 	5,977	 	 	 	37,596	 	 	 	(38,616	)	
Realized gain on marketable securities	 	 	193	 	 	 	388	 	 	 	806	 	
Interest income	 	 	13,146	 	 	 	7,461	 	 	 	3,208	 	
Interest expense	 	 	—	 	 	 	—	 	 	 	—	 	
Other income (expense), net	 	 	177	 	 	 	(54	)	 	 	317	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) before income taxes	 	 	19,493	 	 	 	45,391	 	 	 	(34,285	)	
Benefit for income taxes	 	 	(8,402	)	 	 	(7,035	)	 	 	(20,789	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss)	 	$	27,895	 	 	$	52,426	 	 	$	(13,496	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic earnings (loss) per share:	 	$	0.32	 	 	$	0.61	 	 	$	(0.16	)	
Diluted earnings (loss) per share	 	$	0.31	 	 	$	0.60	 	 	$	(0.16	)	
Weighted average common shares outstanding:	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	 	87,643	 	 	 	86,036	 	 	 	84,746	 	
Diluted	 	 	88,805	 	 	 	87,775	 	 	 	84,746	 	

The accompanying notes are an integral part of these financial statements.

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CIRRUS LOGIC, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)

 	 	Fiscal Years Ended	 	
 	 	March 31,	 	 	March 25,	 	 	March 26,	 	
 	 	2007	 	 	2006	 	 	2005	 	
 		
Cash flows from operating activities:	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss)	 	$	27,895	 	 	$	52,426	 	 	$	(13,496	)	
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation and amortization	 	 	6,382	 	 	 	8,511	 	 	 	24,157	 	
Acquired in-process research and development	 	 	1,925	 	 	 	—	 	 	 	—	 	
Loss (gain) on retirement or write-off of long-lived assets	 	 	235	 	 	 	(821	)	 	 	5,936	 	
Amortization of lease settlement	 	 	(746	)	 	 	(995	)	 	 	(3,778	)	
Property lease buyout	 	 	—	 	 	 	—	 	 	 	(4,343	)	
Realized gain on marketable securities	 	 	(193	)	 	 	(388	)	 	 	(806	)	
Stock compensation expense	 	 	5,481	 	 	 	2,121	 	 	 	1,468	 	
Impairment of non-marketable securities	 	 	4,290	 	 	 	—	 	 	 	—	 	
Changes in operating assets and liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	
Accounts receivable, net	 	 	2,150	 	 	 	(2,344	)	 	 	1,211	 	
Inventories	 	 	2,396	 	 	 	6,976	 	 	 	2,983	 	
Deferred tax assets	 	 	(7,553	)	 	 	(340	)	 	 	—	 	
Other assets	 	 	1,623	 	 	 	(1,276	)	 	 	2,412	 	
Accounts payable	 	 	(3,721	)	 	 	3,583	 	 	 	(8,721	)	
Accrued salaries and benefits	 	 	1,196	 	 	 	(1,704	)	 	 	(1,295	)	
Deferred income on shipments to distributors	 	 	(2,808	)	 	 	(837	)	 	 	4,429	 	
Income taxes payable	 	 	(667	)	 	 	(7,048	)	 	 	(20,831	)	
Other accrued liabilities	 	 	(2,260	)	 	 	1,952	 	 	 	(6,429	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash provided by (used in) operating activities	 	 	35,625	 	 	 	59,816	 	 	 	(17,103	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash flows from investing activities:	 	 	 	 	 	 	 	 	 	 	 	 	
Proceeds from sale of marketable securities	 	 	161,524	 	 	 	159,777	 	 	 	50,630	 	
Purchases of available for sale marketable securities	 	 	(218,186	)	 	 	(187,605	)	 	 	(109,377	)	
Purchases of property and equipment	 	 	(1,981	)	 	 	(2,198	)	 	 	(3,621	)	
Investments in technology	 	 	(3,282	)	 	 	(729	)	 	 	(3,146	)	
Acquisition of Caretta Integrated Circuits, net of cash acquired	 	 	(10,713	)	 	 	—	 	 	 	—	 	
Proceeds from sale of property and equipment	 	 	52	 	 	 	—	 	 	 	—	 	
(Increase) decrease in deposits and other assets	 	 	1,062	 	 	 	(18	)	 	 	187	 	
Decrease in restricted investments	 	 	—	 	 	 	2,143	 	 	 	261	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash used in investing activities	 	 	(71,524	)	 	 	(28,630	)	 	 	(65,066	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash flows from financing activities:	 	 	 	 	 	 	 	 	 	 	 	 	
Issuance of common stock, net of issuance costs	 	 	7,184	 	 	 	6,254	 	 	 	3,511	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash provided by financing activities	 	 	7,184	 	 	 	6,254	 	 	 	3,511	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net increase (decrease) in cash and cash equivalents	 	 	(28,715	)	 	 	37,440	 	 	 	(78,658	)	
Cash and cash equivalents at beginning of year	 	 	116,675	 	 	 	79,235	 	 	 	157,893	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents at end of year	 	$	87,960	 	 	$	116,675	 	 	$	79,235	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Supplemental disclosures of cash flow information	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash payments (refunds) during the year for:	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	$	—	 	 	$	—	 	 	$	—	 	
Income taxes	 	 	(165	)	 	 	333	 	 	 	(1,646	)	

The accompanying notes are an integral part of these financial statements.

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CIRRUS LOGIC, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(in thousands)

 	 	 	 	 	 	 	 	 	 	 	 	 	 	Accumulated	 	 	 	 	
 	 	 	 	 	 	 	 	Additional	 	 	 	 	 	Other	 	 	 	 	
 	 	Common Stock	 	 	Paid-In	 	 	Accumulated	 	 	Comprehensive	 	 	 	 	
 	 	Shares	 	 	Amount	 	 	Capital	 	 	Deficit	 	 	Income (Loss)	 	 	Total	 	
 		
Balance, March 27, 2004	 	 	84,395	 	 	$	84	 	 	$	900,797	 	 	$	(688,005	)	 	$	(171	)	 	 	212,705	 	
Components of comprehensive income (loss):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net loss	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(13,496	)	 	 	—	 	 	 	(13,496	)	
Change in unrealized loss on marketable securities	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(313	)	 	 	(313	)	
Realized gain on marketable securities	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(669	)	 	 	(669	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total comprehensive loss	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(14,478	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Issuance of stock under stock plans	 	 	811	 	 	 	1	 	 	 	3,510	 	 	 	—	 	 	 	—	 	 	 	3,511	 	
Amortization of deferred stock compensation	 	 	—	 	 	 	—	 	 	 	1,468	 	 	 	—	 	 	 	—	 	 	 	1,468	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance, March 26, 2005	 	 	85,206	 	 	 	85	 	 	 	905,775	 	 	 	(701,501	)	 	 	(1,153	)	 	 	203,206	 	
Components of comprehensive income (loss):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	 	—	 	 	 	—	 	 	 	—	 	 	 	52,426	 	 	 	—	 	 	 	52,426	 	
Change in unrealized loss on marketable securities	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	263	 	 	 	263	 	
Realized gain on marketable securities	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total comprehensive income	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	52,689	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Issuance of stock under stock plans	 	 	1,610	 	 	 	2	 	 	 	6,252	 	 	 	—	 	 	 	—	 	 	 	6,254	 	
Amortization of deferred stock compensation	 	 	—	 	 	 	—	 	 	 	2,121	 	 	 	—	 	 	 	—	 	 	 	2,121	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance, March 25, 2006	 	 	86,816	 	 	 	87	 	 	 	914,148	 	 	 	(649,075	)	 	 	(890	)	 	 	264,270	 	
Components of comprehensive income (loss):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	 	—	 	 	 	—	 	 	 	—	 	 	 	27,895	 	 	 	—	 	 	 	27,895	 	
Change in unrealized loss on marketable securities	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	300	 	 	 	300	 	
Realized gain on marketable securities	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(193	)	 	 	(193	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total comprehensive income	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	28,002	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Issuance of stock under stock plans	 	 	1,347	 	 	 	1	 	 	 	7,183	 	 	 	—	 	 	 	—	 	 	 	7,184	 	
Stock compensation expense	 	 	—	 	 	 	—	 	 	 	5,481	 	 	 	—	 	 	 	—	 	 	 	5,481	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance, March 31, 2007	 	 	88,163	 	 	$	88	 	 	$	926,812	 	 	$	(621,180	)	 	$	(783	)	 	$	304,937	 	

 
The accompanying notes are an integral part of these financial statements.

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CIRRUS LOGIC, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  	Description of Business and Summary of Significant Accounting Policies	
 
Description of 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 and engineering facility are in Austin, Texas with design centers in Beijing and Shanghai in the People’s Republic of China and Shanghai, the People’s Republic of China and sales locations throughout the United States. We also serve customers from international sales offices in Europe and Asia, including the People’s Republic of China, Hong Kong, South Korea, Japan, Singapore, and Taiwan. Our common stock, which has been publicly traded since 1989, is listed on the NASDAQ Global Select Market under the symbol CRUS.
 
Basis of Presentation
 
We prepare financial statements on a 52- or 53-week year that ends on the last Saturday in March. Fiscal year 2007 was a 53-week year whereas fiscal years 2006 and 2005 were 52-week years.
 
Principles of Consolidation
 
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles and include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated.
 
Use of Estimates
 
The preparation of financial statements in accordance with U.S. generally accepted accounting principles require the use of management estimates. These estimates are subjective in nature and involve judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at fiscal year end and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.
 
Cash and Cash Equivalents
 
Cash and cash equivalents consist primarily of money market funds, commercial paper, U.S. Government Treasury and Agency instruments with original maturities of three months or less at the date of purchase.
 
Restricted Investments
 
As of March 31, 2007 and March 25, 2006, we had restricted investments of $5.8 million in support of our letter of credit needs. The letters of credit primarily secure certain obligations under our operating lease agreement for our headquarters and engineering facility in Austin, Texas and are scheduled for periodic declines in amount. For more details, see Note 7.
 
Marketable Securities
 
We determine the appropriate classification of marketable securities at the time of purchase and reevaluate this designation as of each balance sheet date. We classify these securities as either held-to-maturity, trading, or available-for-sale in accordance with Statement of Financial Accounting Standards No. 115 (“SFAS 115”), “Accounting for Certain Investments in Debt and Equity Securities.” As of March 31, 2007 and March 25, 2006, all marketable securities and restricted investments were classified as available-for-sale securities.
 
Available-for-sale securities are carried at fair value, with unrealized gains and losses included as a component of accumulated other comprehensive income (loss). The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity computed under the effective interest method and is

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included in interest income. Realized gains and losses, declines in value judged to be other than temporary and interest on available-for-sale securities are included in net income. The cost of securities sold is based on the specific identification method.
 
Inventories
 
We use the lower of cost or market method to value our inventories, with cost being determined on a first-in, first-out basis. One of the factors we consistently evaluate in the application of this method is the extent to which products are accepted into the marketplace. By policy, we evaluate market acceptance based on known business factors and conditions by comparing forecasted customer unit demand for our products over a specific future period, or demand horizon, to quantities on hand at the end of each accounting period.
 
On a quarterly and annual basis, we analyze inventories on a part-by-part basis. Inventory quantities on hand in excess of forecasted demand are considered to have reduced market value and, therefore, the cost basis is adjusted to the lower of cost or market. Typically, market values for excess or obsolete inventories are considered to be zero. The short product life cycles and the competitive nature of the industry are factors considered in the estimation of customer unit demand at the end of each quarterly accounting period.
 
Inventories were comprised of the following (in thousands):

 	 	March 31,	 	 	March 25,	 	
 	 	2007	 	 	2006	 	
 		
Work in process	 	$	6,646	 	 	$	10,662	 	
Finished goods	 	 	9,850	 	 	 	8,046	 	
 	 	 	 	 	 	 	 	 	
Inventories	 	$	16,496	 	 	$	18,708	 	

 
Property and Equipment, net
 
Property and equipment is recorded at cost, net of depreciation and amortization. Depreciation and amortization is calculated on a straight-line basis over estimated economic lives, ranging from three to ten years. Leasehold improvements are depreciated over the shorter of the term of the lease or the estimated useful life. Furniture, fixtures, machinery, and equipment are all depreciated over a useful life of 5 years. In general, our capitalized software is depreciated over a useful life of 3 years, with capitalized enterprise resource planning software being depreciated over a useful life of 10 years. Gains or losses related to retirements or dispositions of fixed assets are recognized in the period incurred.
 
Property and equipment was comprised of the following (in thousands):

 	 	March 31,	 	 	March 25,	 	
 	 	2007	 	 	2006	 	
 		
Furniture and fixtures	 	$	4,383	 	 	$	4,331	 	
Leasehold improvements	 	 	11,900	 	 	 	13,369	 	
Machinery and equipment	 	 	20,970	 	 	 	20,414	 	
Capitalized software	 	 	17,961	 	 	 	17,926	 	
 	 	 	 	 	 	 	 	 	
Total property and equipment	 	 	55,214	 	 	 	56,040	 	
Less: Accumulated depreciation and amortization	 	 	(43,807	)	 	 	(41,989	)	
 	 	 	 	 	 	 	 	 	
Property and equipment, net	 	$	11,407	 	 	$	14,051	 	

 
Depreciation and amortization expense on property and equipment for fiscal years 2007, 2006, and 2005 was $4.6 million, $5.1 million, and $7.1 million, respectively.
 
Non-Marketable Securities and Other Investments
 
Investments in companies in which Cirrus does not have significant influence are accounted for at cost if the investment is not publicly traded. These non-marketable securities and other investments have been classified as other current assets, other assets, or specifically identified in accordance with Accounting Principles Bulletin No. 18 , “The Equity Method of Accounting for Investments in Common Stock.” Dividends and other distributions of earnings from investments accounted for at cost are included in income when declared. Any gain will be recorded at the time of liquidation of the non-marketable security or other investment.

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Other-Than-Temporary Impairment
 
All of the Company’s 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. 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, management evaluates 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. When a decline in value is deemed to be other-than-temporary, Cirrus recognizes an impairment loss in the current period’s operating results to the extent of the decline.
 
Intangibles, net
 
Intangible assets include purchased technology licenses that are recorded at cost and are amortized on a straight-line basis over their useful lives, generally ranging from three to five years. Acquired intangibles recorded in connection with our acquisitions, include existing technology, core technology/patents, license agreements, trademarks, covenants not-to-compete and customer agreements. These assets are amortized on a straight-line basis over lives ranging from one to ten years.
 
Long-Lived 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. We measure any impairment loss by comparing the fair value of the asset to its carrying amount. We estimate fair value based on discounted future cash flows, quoted market prices, or independent appraisals.
 
Foreign Currency Translation
 
All of our international subsidiaries have the U.S. dollar as the functional currency. The local currency financial statements are remeasured into U.S. dollars using current rates of exchange for assets and liabilities. Gains and losses from remeasurement are included in other income (expense), net. Revenue and expenses from our international subsidiaries are translated using the monthly average exchange rates in effect for the period in which the items occur. For all periods presented, our foreign currency translation expense was not significant.
 
Concentration of Credit Risk
 
Financial instruments that potentially subject us to material concentrations of credit risk consist primarily of cash equivalents, restricted investments, marketable securities, long-term marketable securities and trade accounts receivable. We are exposed to credit risk to the extent of the amounts recorded on the balance sheet. By policy, our cash equivalents, restricted investments, marketable securities and long-term marketable securities are subject to certain nationally recognized credit standards, issuer concentrations, sovereign risk and marketability or liquidity considerations.
 
In evaluating our trade receivables, we perform credit evaluations of our major customers’ financial condition and monitor closely all of our receivables to limit our financial exposure by limiting the length of time and amount of credit extended. We sell a significant amount of products in the Asia countries. In certain situations, we may require payment in advance or utilize letters of credit to reduce credit risk. By policy, we establish a reserve for trade accounts receivable based on the type of business in which a customer is engaged, the length of time a trade account receivable is outstanding and other knowledge that we may possess relating to the probability that a trade receivable is at risk for non-payment.
 
The following table summarizes the receivable balance of a distributor that represented more than 10 percent of consolidated gross short-term accounts receivable:

 	 	March 31,	 	March 25,	
 	 	2007	 	2006	
 		
Avnet, Inc. (formerly Memec Group Holdings)	 	 	24	%	 	 	28	%	

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No other distributors or customers had receivable balances that represented more than 10 percent of consolidated gross short-term accounts receivable as of the end of fiscal years 2007 and 2006.
 
Sales to one distributor, Avnet, Inc. (formerly Memec Holdings Group), represented 29 percent, 25 percent and 27 percent of total sales in fiscal years 2007, 2006 and 2005, respectively. No other customers or distributors accounted for 10 percent or more of net sales in fiscal years 2007, 2006 and 2005. The loss of a significant customer or distributor or a significant reduction in a customers or distributors orders could have an adverse effect on our sales.

	Revenue Recognition	
 
We recognize revenue in accordance with the Securities and Exchange Commission’s Staff Accounting Bulletin No. 104 (“SAB 104”), “Revenue Recognition.” Revenue from product sold directly to customers and to certain international distributors is recognized upon title passage of inventory. For sales made directly to domestic customers, title generally passes upon shipment. For sales made directly to international customers and to international distributors, title generally passes at the port of destination, which coincides with delivery to the international distributors. Sales made to domestic distributors are recorded as deferred revenue until the final sale to the end customer has occurred as the distributor agreements allow certain rights of return, price adjustments and price protection. License and royalty revenue is recognized as it is earned per unit shipped or when a milestone is reached.

	Warranty Expense	
 
We warrant that the products, when delivered, will be free from defects in material workmanship under normal use and service. Our obligations are limited to replacing, repairing or giving credit for, at our option, any products that are returned within one year after the date of shipment and if notice is given to us in writing within 30 days of the customer learning of such problem. Warranty expense was not significant for any period presented.

	Shipping Costs	
 
Our shipping and handling costs are included in cost of sales for all periods presented.

	Advertising Costs	
 
Advertising costs are expensed as incurred. Advertising costs were $1.2 million, $1.1 million, and $1.7 million in fiscal years 2007, 2006, and 2005, respectively.

	Stock-Based Compensation	
 
In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123(R) “Share-Based Payment,” which supersedes Accounting Principles Board Opinion No. 25 (“APB No. 25”), “Accounting for Stock Issued to Employees,” SFAS No. 123, “Accounting for Stock-Based Compensation” and related implementation guidance. We adopted this pronouncement as of March 26, 2006, the first day of our 2007 fiscal year.
 
In periods prior to adoption, we applied the intrinsic value method in accounting for our stock option and stock purchase plans in accordance with APB No. 25. In December 2002, the FASB issued Statement of Financial Accounting Standard No. 148 (“SFAS 148”), “Accounting for Stock-Based Compensation – Transition and Disclosure,” which affects us only with regard to quarterly and annual reporting of the pro forma effect on net income and earnings per share resulting from the application of the Black-Scholes method to measure compensation expense as required under SFAS No. 123.

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The following table details the disclosure required by SFAS No. 123 (in thousands, except per share amounts):

 	 	March 25,	 	 	March 26,	 	
 	 	2006	 	 	2005	 	
 		
Net income (loss) as reported	 	$	52,426	 	 	$	(13,496	)	
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects	 	 	1,734	 	 	 	605	 	
Deduct: Total stock based employee compensation expense determined under fair value based method for all awards, net of related tax effects	 	 	(8,033	)	 	 	(12,640	)	
 	 	 	 	 	 	 	 	 	
Pro forma net income (loss)	 	$	46,127	 	 	$	(25,531	)	
 	 	 	 	 	 	 	 	 	
Basic net income (loss) per share, as reported	 	$	0.61	 	 	$	(0.16	)	
Pro forma basic net income (loss) per share	 	 	0.54	 	 	 	(0.30	)	
Diluted net income (loss) per share, as reported	 	$	0.60	 	 	$	(0.16	)	
Pro forma diluted net income (loss) per share	 	 	0.53	 	 	 	(0.30	)	

		
	Income Taxes	
 
We account for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes,” which provides for the recognition of deferred tax assets if realization of such assets is more likely than not. We have provided a valuation allowance against a substantial portion of our net U.S. deferred tax assets due to uncertainties regarding their realization. We evaluate the realizability of our deferred tax assets on a quarterly basis.

	Net Income (Loss) Per Share	
 
Basic net income (loss) per share is based on the weighted effect of common shares issued and outstanding and is calculated by dividing net income (loss) by the basic weighted average shares outstanding during the period. Diluted net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares used in the basic net income (loss) per share calculation, plus the equivalent number of common shares that would be issued assuming exercise or conversion of all potentially dilutive common shares outstanding.
 
Incremental weighted average common shares attributable to the assumed exercise of outstanding options of 1,510,000 shares for the year ended March 26, 2005 were excluded from the computation of diluted net income (loss) per share because the effect would be anti-dilutive due to our loss position during that year. The weighted outstanding options excluded from our diluted calculation for the years ended March 31, 2007, March 25, 2006, and March 26, 2005 were 5,975,000, 6,620,000, and 7,501,000, respectively, as the exercise price exceeded the average market price during the period.

	Accumulated Other Comprehensive Loss	
 
We report our accumulated other comprehensive income (loss) based upon Statement of Financial Accounting Standard No. 130, “Reporting Comprehensive Income.” Our accumulated other comprehensive loss is comprised of foreign currency translation adjustments from prior years when we had subsidiaries whose functional currency was not the U.S. Dollar as well as unrealized gains and losses on investments classified as available-for-sale.

	Recently Issued Accounting Pronouncements	
 
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”), which allows entities to measure eligible financial instruments and certain other items at fair value. The Statement also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the potential effect, if any, of implementing this standard.
 
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is currently assessing the potential effect, if any, of implementing this standard.
 
In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 clarifies the application of SFAS No. 109 by providing detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements. Tax positions

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must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of FIN 48 and in subsequent periods. We adopted FIN 48 as of April 1, 2007, the first day of our 2008 fiscal year. The Company is currently evaluating the potential effects, if any, of FIN 48 on the consolidated financial statements.

	Fair Value of Financial Instruments	
 
The Company’s financial instruments consist principally of cash and cash equivalents, investments, receivables and accounts payable. The Company believes all of these financial instruments are recorded at amounts that approximate their current market values due to their short-term nature or because they are stated at fair value.

2.  	Marketable Securities	
 
The Company’s investments that have original maturities greater than ninety days have been classified as available-for-sale securities in accordance with Statement of Financial Accounting Standards No. 115 (“SFAS 115”), “Accounting for Certain Investments in Debt and Equity Securities.” Marketable securities are categorized on the Balance Sheet as Restricted investments, Marketable securities and Long-term marketable securities, as appropriate.
 
The following table is a summary of available-for-sale securities (in thousands):

 	 	Amortized	 	 	Gross Unrealized	 	 	Gross Unrealized	 	 	Estimated Fair Value	 	
As of March 31, 2007:	 	Cost	 	 	Gains	 	 	Losses	 	 	(Net Carrying Amount)	 	
 		
Corporate securities – U.S. 	 	$	63,221	 	 	$	6	 	 	$	(27	)	 	$	63,200	 	
Corporate securities – non – U.S. 	 	 	5,457	 	 	 	2	 	 	 	—	 	 	 	5,459	 	
U.S. Government securities	 	 	67,047	 	 	 	16	 	 	 	(6	)	 	 	67,057	 	
Agency discount notes	 	 	38,080	 	 	 	6	 	 	 	(11	)	 	 	38,075	 	
Commercial paper	 	 	9,963	 	 	 	1	 	 	 	—	 	 	 	9,964	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total debt securities	 	 	183,768	 	 	 	31	 	 	 	(44	)	 	 	183,755	 	
Marketable equity securities	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	$	183,768	 	 	$	31	 	 	$	(44	)	 	$	183,755	 	

 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Amortized	 	 	Gross Unrealized	 	 	Gross Unrealized	 	 	Estimated Fair Value	 	
As of March 25, 2006:	 	Cost	 	 	Gains	 	 	Losses	 	 	(Net Carrying Amount)	 	
 		
Corporate securities – U.S. 	 	$	40,096	 	 	$	5	 	 	$	(104	)	 	$	39,997	 	
Corporate securities – non – U.S. 	 	 	1,676	 	 	 	—	 	 	 	—	 	 	 	1,676	 	
U.S. Government securities	 	 	85,141	 	 	 	—	 	 	 	(218	)	 	 	84,923	 	
Agency discount notes	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Commercial paper	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total debt securities	 	 	126,913	 	 	 	5	 	 	 	(322	)	 	 	126,596	 	
Marketable equity securities	 	 	—	 	 	 	197	 	 	 	—	 	 	 	197	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	$	126,913	 	 	$	202	 	 	$	(322	)	 	$	126,793	 	

 
The cost and estimated fair value of available-for-sale investments by contractual maturity were as follows:

 	 	March 31, 2007	 	 	March 25, 2006	 	
 	 	Amortized	 	 	Estimated	 	 	Amortized	 	 	Estimated	 	
 	 	Cost	 	 	Fair Value	 	 	Cost	 	 	Fair Value	 	
 		
Within 1 year	 	$	183,768	 	 	$	183,755	 	 	$	108,156	 	 	$	107,893	 	
After 1 year through 2 years	 	 	—	 	 	 	—	 	 	 	18,757	 	 	 	18,703	 	
After 2 years	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total debt securities	 	 	183,768	 	 	 	183,755	 	 	 	126,913	 	 	 	126,596	 	
Equity securities	 	 	—	 	 	 	—	 	 	 	—	 	 	 	197	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	$	183,768	 	 	$	183,755	 	 	$	126,913	 	 	$	126,793	 	

 
During the first quarter of fiscal year 2007, we sold all of our shares in Prudential Financial Inc. (“Prudential”) and realized a gain of $0.2 million. Cirrus received these shares as a result of the demutualization of Prudential.

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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 also $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 fiscal year 2006. Cirrus Logic sold these shares immediately upon receipt. Cirrus also recorded $0.2 million in unrealized gains late during the fourth quarter of fiscal year 2006 on the initial recognition of stock held in Prudential that we received as a result of the demutualization described above. The entire amount was recorded as a component of other comprehensive income.
 
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.

3.  	Accounts Receivable, net	
 
The following are the components of accounts receivable (in thousands):

 	 	March 31,	 	 	March 25,	 	
 	 	2007	 	 	2006	 	
 		
Gross accounts receivable	 	$	19,232	 	 	$	21,133	 	
Less: Allowance for doubtful accounts	 	 	(105	)	 	 	(196	)	
 	 	 	 	 	 	 	 	 	
Accounts receivable, net	 	$	19,127	 	 	$	20,937	 	

 
The following table summarizes the changes in the allowance for doubtful accounts (in thousands):

Balance, March 27, 2004	 	$	(696	)	
Write-off of uncollectible accounts, net of recoveries	 	 	175	 	
 	 	 	 	 	
Balance, March 26, 2005	 	$	(521	)	
Write-off of uncollectible accounts, net of recoveries	 	 	(70	)	
Change in allowance for doubtful account estimate	 	 	395	 	
 	 	 	 	 	
Balance, March 25, 2006	 	$	(196	)	
Write-off of uncollectible accounts, net of recoveries	 	 	91	 	
 	 	 	 	 	
Balance, March 31, 2007	 	$	(105	)	

 
During the fourth quarter of fiscal year 2006, as a result of our change in our customer base, we modified our estimate for the distributor portion of the reserve for our allowance for doubtful accounts. In making this change in estimate, we recognized a $0.4 million credit to bad debt expense, a component of both income from operations and net income. The effect of this change in estimate on earnings per share was negligible.
 
We were successful in collecting a portion of the Fujitsu receivable previously written off in fiscal year 2002 in the amount of $46.8 million. In fiscal year 2006, we recorded a net credit to operating expenses of $24.8 million as our litigation settlement was a recovery of bad debt previously recorded in a prior fiscal year. See Note 8 for further discussion of the litigation with Fujitsu.

4.  	Non-Marketable Securities	
 
On April 25, 2005, we announced our intentions to divest our digital video product line. On May 24, 2005, we signed a definitive agreement to sell our digital video product line to Magnum Semiconductor, Inc. (“Magnum”), a privately held company formed by an investment group led by Investcorp and August Capital. On June 30, 2005, we completed the sale of our digital video product line assets to Magnum. As consideration for the sale of these assets, we received a minority ownership position in Magnum which, at the time of sale, had a fair value of approximately $7.9 million. As Magnum is not publicly traded and as Cirrus does not have significant influence with Magnum, we have accounted for this investment at cost.

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During the fourth quarter of fiscal 2007, we determined an impairment indicator existed related to our cost method investment in Magnum. We obtained an independent valuation of the fair value of our cost method investment in Magnum in accordance with Emerging Issues Task Force No. 03-1 (“EITF 03-1”), “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” Based on the results of the independent valuation, at March 31, 2007, we recognized an impairment of $4.3 million to reduce the carrying value of the Magnum cost method investment to $3.6 million, as the combination of recurrent losses and reduced forecasts indicate that our investment is not recoverable within a reasonable period of time. The impairment was recorded as a separate line item on the statement of operations in operating expenses under the caption “Impairment of non-marketable securities.”
 
During the second fiscal quarter of fiscal year 2006, we recognized a net gain on the sale of assets to Magnum of approximately $0.8 million, which was recorded as a component of “Restructuring and other, net.” Included in the net gain was a contingent payment to the employees of Magnum of $0.5 million related to the closing conditions of the agreement. Also, during the second quarter of fiscal year 2006, after the completion of the digital video product line asset sale to Magnum, we sold the remaining digital video product inventory to Magnum for $1.9 million, which was approximately 5 percent above our cost. As of December 24, 2005, Magnum had paid for all of the shipped inventory.

5.  	Acquisitions	
 
On December 29, 2006, Cirrus Logic acquired 100 percent of the voting equity interests in Caretta, a company based in Shanghai, China that specializes in designing power management integrated circuits for the large, single-cell lithium ion battery market. This acquisition was undertaken to strengthen and diversify our analog and mixed signal product portfolios as well as position us for growth within the China market.
 
The aggregate purchase price of $11.3 million, $10.7 million net of cash acquired, was comprised of the following components (in thousands):

Cash paid to shareholders	 	 	9,000	 	
Loan repayment premium	 	 	500	 	
Direct acquisition costs & other	 	 	1,762	 	
 	 	 	 	 	
Total purchase price	 	$	11,262	 	

 
As of December 30, 2006, the purchase price was allocated to the estimated fair value of assets acquired based on independent appraisals and management estimates in the following manner (in thousands):

Net liabilities assumed	 	 	(1,179	)	
Intangible assets subject to amortization	 	 	4,055	 	
Goodwill	 	 	6,461	 	
In process research and development	 	 	1,925	 	
 	 	 	 	 	
Net assets acquired	 	$	11,262	 	

 
The in-process research and development of $1.9 million was immediately expensed upon completion of the acquisition while the $4.1 million in acquired technology and the $6.5 million in goodwill were capitalized. The above categorization of the purchase price represents an estimate as of March 31, 2007 and is subject to change. The acquired technology will be amortized over a period of 10 years. The goodwill will not be deductible for tax purposes. Caretta’s results of operations were included in our own as of December 29, 2006. Revenues from Caretta products are currently being included in the Industrial product line.

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The following unaudited pro forma information presents the combined results of operations of the Company and Caretta for fiscal years 2007 and 2006 as if the acquisition had taken place at the beginning of the respective fiscal years. The pro forma numbers below include in-process research and development of $1.9 million expensed at the time of the acquisition. The information is provided for illustrative purposes only and is not necessarily indicative of the consolidated results of operations that actually would have occurred if the acquisition had taken place at the beginning of the respective fiscal years, nor is it necessarily indicative of the future operating results of the Company.

 	 	March 31, 2007	 	March 25, 2006	
 		
Net revenues	 	$	183,388	 	 	$	193,694	 	
Income before extraordinary items and accounting change	 	 	26,819	 	 	 	51,417	 	
Net income	 	 	26,819	 	 	 	51,417	 	
Basic income per share	 	$	0.31	 	 	$	0.60	 	
Diluted income per share	 	 	0.30	 	 	 	0.59	 	

		
6.  	Intangibles, net	
 
The following information details the gross carrying amount and accumulated amortization of our intangible assets (in thousands):

 	 	March 31, 2007	 	March 25, 2006	
 	 	Gross	 	Accumulated	 	Gross	 	Accumulated	
 	 	Amount	 	Amortization	 	Amount	 	Amortization	
 		
Core technology	 	$	5,493	 	 	$	(1,012	)	 	$	1,390	 	 	$	(759	)	
Existing technology	 	 	2,730	 	 	 	(2,730	)	 	 	2,730	 	 	 	(2,686	)	
License agreements	 	 	440	 	 	 	(289	)	 	 	440	 	 	 	(240	)	
Technology licenses	 	 	12,400	 	 	 	(8,482	)	 	 	11,622	 	 	 	(9,531	)	
Trademarks	 	 	320	 	 	 	(320	)	 	 	320	 	 	 	(320	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	$	21,383	 	 	$	(12,833	)	 	$	16,502	 	 	$	(13,536	)	

 
Amortization expense for all intangibles in fiscal years 2007, 2006, and 2005 was $1.8 million, $3.5 million, and $17.1 million, respectively.
 
The following table details the estimated aggregate amortization expense for all intangibles owned as of March 31, 2007 for each of the five succeeding fiscal years (in thousands):

For the year ended March 29, 2008	 	$	2,506	 	
For the year ended March 28, 2009	 	$	1,727	 	
For the year ended March 27, 2010	 	$	1,203	 	
For the year ended March 26, 2011	 	$	479	 	
For the year ended March 30, 2012	 	$	460	 	

		
7.  	Commitments and Contingencies	
 
Facilities and Equipment Under Operating Lease Agreements
 
We lease our facilities and certain equipment under operating lease agreements, some of which have renewal options. Certain of these arrangements provide for lease payment increases based upon future fair market rates. Our principal facilities, located in Austin, Texas, consists of approximately 214,000 square feet of leased space, which have leases that expire from fiscal year 2007 to fiscal year 2013, excluding renewal options. It includes our headquarters and engineering facility, which has 197,000 square feet and no escalating rent clauses.

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The aggregate minimum future rental commitments under all operating leases for the following fiscal years are (in thousands):

 	 	 	 	 	 	 	 	Net Facilities	 	 	Equipment	 	 	Total	 	
 	 	Facilities	 	 	Subleases	 	 	Commitments	 	 	Commitments	 	 	Commitments	 	
 		
2008	 	$	9,565	 	 	$	3,471	 	 	$	6,094	 	 	$	13	 	 	$	6,107	 	
2009	 	 	8,621	 	 	 	2,984	 	 	 	5,637	 	 	 	7	 	 	 	5,644	 	
2010	 	 	4,993	 	 	 	918	 	 	 	4,075	 	 	 	6	 	 	 	4,081	 	
2011	 	 	4,651	 	 	 	763	 	 	 	3,888	 	 	 	2	 	 	 	3,890	 	
2012	 	 	4,633	 	 	 	788	 	 	 	3,845	 	 	 	—	 	 	 	3,845	 	
Thereafter	 	 	1,930	 	 	 	331	 	 	 	1,599	 	 	 	—	 	 	 	1,599	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total minimum lease payments	 	$	34,393	 	 	$	9,255	 	 	$	25,138	 	 	$	28	 	 	$	25,166	 	

 
Total rent expense was approximately $8.5 million, $8.6 million, and $11.5 million, for fiscal years 2007, 2006, and 2005, respectively. Sublease rental income was $4.0 million, $4.6 million, and $5.8 million, for fiscal years 2007, 2006, and 2005, respectively.
 
During fiscal year 2007, we recorded approximately $1.0 million and $0.7 million in charges to operating expense to adjust our loss contingency accruals for a change in sublease assumptions with regards to our facilities in Austin, Texas and Fremont, California, respectively. We also transitioned our design activities at our Boulder, Colorado design facility to our headquarters in Austin, Texas. This design facility is approximately 12,000 square feet in size and has a lease which expires in fiscal year 2011 however, there is an early termination option provided to us in the lease. If we choose to exercise that option, we will be released from our obligations under the lease in fiscal year 2009. The cost of exercising this option is immaterial. This transition is discussed in greater detail in Note 10, “Restructuring and Other Costs.”
 
Further, we recorded a charge to operating expense during fiscal year 2006 in the amount of $4.4 million for certain subleases at our Austin, Texas facility that did not fully cover the monthly rent owed to our landlord. As of March 31, 2007, a total of $5.2 million related to these vacated leases remained accrued. Where appropriate, these amounts are classified as either long-term or short-term. These amounts are included in the table above; the $5.6 million in facilities restructuring accruals that existed for these leases as of March 31, 2007 are discussed in greater detail in Note 10, “Restructuring and Other Costs.”
 
Wafer, Assembly and Test Purchase Commitments
 
We rely on third-party foundries for our wafer manufacturing needs. As of March 31, 2007, we had agreements with multiple foundries for the manufacture of wafers. None of these foundry agreements have volume purchase commitments or “take or pay” clauses. The agreements provide for purchase commitments based on purchase orders. Cancellation fees or other charges may apply and are generally dependent upon whether wafers have been started or the stage of the manufacturing process at which the notice of cancellation is given. As of March 31, 2007, we had foundry commitments of $4.1 million.
 
In addition to our wafer supply arrangements, we contract with third-party assembly vendors to package the wafer die into finished products. Assembly vendors provide fixed-cost-per-unit pricing, as is common in the semiconductor industry. We had non-cancelable assembly purchase orders with numerous vendors totaling $0.2 million at March 31, 2007.
 
We have transitioned all of our test services to outside third party contractors. Test vendors provide fixed-cost-per-unit pricing, as is common in the semiconductor industry. Our total non-cancelable commitment for outside test services as of March 31, 2007 was $4.6 million. Included in the $4.6 million are amounts associated with a manufacturing services agreement between Cirrus and Premier Semiconductor, LLC (“Premier”) dated March 25, 2005, pursuant to which Cirrus has committed to purchase test services from Premier totaling $3.1 million and $1.0 million in fiscal years 2008 and 2009, respectively.
 
Other open purchase orders, including those for sorting and serialization, were immaterial as of March 31, 2007.
 
Other Contingencies
 
On June 3, 2003, the Inland Revenue Authority of Singapore (“IRAS”) notified us that it disagreed with our classification of sales to certain disk drive customers from May 1997 through March 1998, resulting in additional goods and services taxes (“GST”) owed by us. After a thorough review of these matters by both the Company and representatives from IRAS, we reached an agreement in the third quarter of 2005 on this and all other audit issues covering years 1997 through 2000. As a result, instead of incurring a liability, the Company received $2.3 million for

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reclaimed GST collected by vendors during the years 1997 through 2000. This amount was reported as a reduction of our selling, general and administrative expenses during fiscal year 2005.

8.  	Legal Matters	
 
Derivative Lawsuits
 
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 was filed 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.
 
On May 22, 2007, a fourth derivative lawsuit related to the Company’s prior stock option grants was filed. This lawsuit was also filed in the United States District Court for the Western District of Texas-Austin Division and contained similar allegations to the other previously filed derivative lawsuits.
 
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.

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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.
 
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.
 
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 an additional two floors of 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 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.
 
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.

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9.  	License Agreement Amendment	
 
During the fourth quarter of fiscal year 2006, we realized a gain of $7 million resulting 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. The proceeds were recorded as a separate line item on the statement of operations in operating expenses under the heading “License agreement amendment.”

10.  	Restructuring Costs and Other	
 
During fiscal year 2007, we recorded restructuring charges of $1.0 million to operating expenses primarily related to the transition of design activities from our Boulder, Colorado office to our headquarters in Austin, Texas. The restructuring costs for the closure of the Boulder design center were composed of $0.7 million in severance and relocation costs and $0.3 million in facility related charges. Approximately twenty employees were affected by this action, five of which were relocated to our Austin headquarters.
 
The following table sets forth the activity in our fiscal year 2007 restructuring accrual (in thousands)

 	 	 	 	 	Facilities	 	 	 	 	
 	 	Severance	 	 	Abandonment	 	 	Total	 	
 		
Balance, March 25, 2006	 	$	—	 	 	$	—	 	 	$	—	 	
Fiscal year 2007 provision	 	 	716	 	 	 	278	 	 	 	994	 	
Cash payments, net	 	 	(521	)	 	 	(74	)	 	 	(595	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance, March 31, 2007	 	$	195	 	 	$	204	 	 	$	399	 	

 
During fiscal year 2007, we accrued an additional $0.1 million for severance activities. With respect to our facilities abandonment accruals, we increased our restructuring accrual by $0.3 and $0.1 million to account for additional property taxes and other facilities costs, respectively, on certain facilities in Fremont, California. During fiscal year 2006, we recorded a total net restructuring charge of $3.1 million in operating expenses for severance and facility related items primarily associated with workforce reductions related to the sale of the digital video product line assets and our revised sublease assumption for a previously exited facility. 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 $1.1 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.”
 
The following table sets forth the activity in our fiscal year 2006 restructuring accrual (in thousands)

 	 	 	 	 	Facilities	 	 	 	 	
 	 	Severance	 	 	Abandonment	 	 	Total	 	
 		
Balance, March 26, 2005	 	$	—	 	 	$	—	 	 	$	—	 	
Fiscal year 2006 provision	 	 	412	 	 	 	2,299	 	 	 	2,711	 	
Cash payments, net	 	 	(412	)	 	 	(353	)	 	 	(765	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance, March 25, 2006	 	$	—	 	 	$	1,946	 	 	$	1,946	 	
Fiscal year 2007 provision	 	 	86	 	 	 	292	 	 	 	378	 	
Cash payments, net	 	 	(86	)	 	 	(511	)	 	 	(597	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance, March 31, 2007	 	$	—	 	 	$	1,727	 	 	$	1,727	 	

 
Fiscal year 2007 activity included a $0.8 million credit to restructuring for the acquisition of a subtenant at our headquarters in Austin, Texas earlier than we had previously expected. This credit was partially offset by the accrual of $0.5 million in additional property taxes on certain facilities in Austin, Texas and Fremont, California. During fiscal year 2006, due to the continued depressed real estate market, we recorded an additional charge of $1.8 million for certain leases in California related to our fiscal year 2004 restructuring activity, due to a change in our sublease assumptions. During fiscal year 2005, we re-assessed our sublease assumptions related to our restructured facilities and determined that an additional $0.2 million was required due to our inability to sublease certain facilities. During fiscal year 2004, we recorded a charge of $1.7 million in operating expenses primarily related to severance for headcount reductions. We eliminated approximately 130 positions from various job classes and functions during fiscal year 2004, with the majority of the reductions in Austin, Texas, primarily in selling, general and administrative functions and in our Colorado operations, primarily in engineering. Included in this reduction was the elimination of 64 of approximately 120 test operation positions and a total severance charge of approximately $0.4 million as part of our previously announced plan to

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reduce headcount associated with our outsourcing agreement with ChipPAC. Also during fiscal year 2004, we recorded a restructuring charge of $6.2 million in operating expenses for facility consolidations primarily in California and Texas, an impairment charge of $1.5 million for property and equipment associated with our Austin, Texas facility consolidation and an impairment charge of $0.2 million for property and equipment associated with our Tokyo, Japan facility consolidation. Our facility commitments for the fiscal year 2004 actions will be completed during fiscal year 2013.
 
The following table sets forth the activity in our fiscal year 2004 restructuring accrual (in thousands):

 	 	 	 	 	Facilities	 	 	 	 	
 	 	Severance	 	 	Abandonment	 	 	Total	 	
 		
Balance, March 29, 2003	 	$	—	 	 	$	—	 	 	$	—	 	
Fiscal year 2004 provision	 	 	1,688	 	 	 	6,205	 	 	 	7,893	 	
Cash payments, net	 	 	(1,514	)	 	 	(908	)	 	 	(2,422	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance, March 27, 2004	 	$	174	 	 	$	5,297	 	 	$	5,471	 	
Fiscal year 2005 provision	 	 	—	 	 	 	178	 	 	 	178	 	
Cash payments, net	 	 	(174	)	 	 	(944	)	 	 	(1,118	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance, March 26, 2005	 	$	—	 	 	$	4,531	 	 	$	4,531	 	
Fiscal year 2006 provision	 	 	—	 	 	 	627	 	 	 	627	 	
Cash payments, net	 	 	—	 	 	 	(954	)	 	 	(954	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance, March 25, 2006	 	$	—	 	 	$	4,204	 	 	$	4,204	 	
Fiscal year 2007 provision	 	 	—	 	 	 	214	 	 	 	214	 	
Cash payments, net	 	 	—	 	 	 	(1,124	)	 	 	(1,124	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance, March 31, 2007	 	$	—	 	 	$	3,294	 	 	$	3,294	 	

 
The remaining balance for the fiscal year 1999 restructuring relates to a contractual obligation of $0.4 million with a tenant to whom we have subleased space that expired in fiscal year 2007.
 
As of March 31, 2007, we have a remaining restructuring accrual for all of our past restructurings of $5.8 million, primarily related to net lease expenses that will be paid over the respective lease terms through fiscal year 2013, along with other anticipated lease termination costs. We have classified the short-term portion of our restructuring activities as “Other accrued liabilities.”

11.  	Employee Benefit Plans	
 
We have a 401(k) Profit Sharing Plan (the “Plan”) covering substantially all of our qualifying domestic employees. Under the Plan, employees may elect to contribute any percentage of their annual compensation up to the annual IRS limitations. We match 50 percent of the first 6 percent of the employees’ annual contribution to the plan. During fiscal years 2007, 2006, and 2005, we made matching employee contributions for a total of approximately $0.8 million, $0.8 million, and $0.9 million, respectively.

12.  	Stockholders’ Equity	
 
Employee Stock Purchase Plan
 
In March 1989, we adopted the 1989 Employee Stock Purchase Plan (“ESPP”). As of March 31, 2007, 0.9 million shares of common stock were reserved for future issuance under this plan. During fiscal years 2007, 2006, and 2005, we issued 48,000, 339,000, and 422,000 shares, respectively, under the ESPP. In fiscal year 2006, the Board of Directors of the Company approved amendments to the ESPP eliminating the six-month look back feature of the plan and reducing the purchase price discount from 15 percent to 5 percent. These modifications became effective for all ESPP options granted during fiscal year 2007. Based on these modifications, the plan is no longer compensatory and the company does not recognize any compensation expense associated with the ESPP grants. The weighted average estimated fair values for purchase rights granted under the ESPP for fiscal years 2006 and 2005 were $1.57 and $2.25, respectively.
 
Preferred Stock
 
On May 24, 2005, the Board of Directors of the Company approved an amendment (the “Amendment”) to the Amended and Restated Rights Agreement, dated as of February 17, 1999, between the Company and BankBoston, N.A., as Rights Agent. The Amendment accelerates the termination of the Company’s preferred stock purchase rights (the

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“Rights”) from the close of business on May 4, 2008 to the close of business on May 26, 2005. On May 25, 2005, the Chief Financial Officer (“CFO”) signed a Certificate of Elimination that was subsequently filed with the Secretary of State of the State of Delaware which had the effect of eliminating from the Company’s Certificate of Incorporation all references to the Series A Participating Preferred Stock of the Company and returning these shares to the status of undesignated shares of authorized Preferred Stock of the Company. We have not issued any of the authorized 1.5 million shares of Series A Participating Preferred Stock.
 
Stock Incentive Plans
 
Effective March 26, 2006, the beginning of our fiscal year 2007, the Company adopted the provisions of the Statement of Financial Accounting Standards No. 123(R) (“SFAS No. 123(R)” ) and, in doing so, consulted the guidance provided in Staff Accounting Bulletin No. 107 (“SAB No. 107”). SFAS No. 123(R) requires stock-based compensation to be accounted for under the fair value method and requires the use of an option pricing model for estimating fair value. Accordingly, stock-based compensation is measured at grant date based on the fair value of the award. The Company previously accounted for awards granted under its equity incentive plans under the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25 (“APB No. 25”), “Accounting for Stock Issued to Employees,” and related interpretations, and provided the required pro forma disclosures prescribed by SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended.
 
Under the modified prospective method of adoption for SFAS No. 123(R), the compensation cost recognized by the Company beginning in fiscal year 2007 includes (a) compensation cost for all equity incentive awards granted prior to, but not yet vested as of March 26, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123, and (b) compensation cost for all equity incentive awards granted subsequent to March 25, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R). The Company uses the accelerated method to recognize stock-based compensation costs over the service period of the award. Upon exercise, cancellation, or expiration of stock options, deferred tax assets for options with multiple vesting dates are eliminated for each vesting period on a first-in, first-out basis as if each tranche was a separate award.
 
We have stock incentive plans (the “Stock Plans”) under which officers, employees, non-employee directors and consultants may be granted qualified and non-qualified options to purchase shares of our authorized but not issued common stock. Our policies state that options are priced at the fair market value of the stock on the date of grant. Options granted to employees are exercisable upon vesting, generally in tranches over four years and certain options granted to non-employee directors are exercisable upon grant. Options expire no later than ten years from the date of grant.
 
Stock-based compensation recognized in fiscal year 2007 as a result of the adoption of SFAS No. 123(R), as well as pro forma disclosures according to the original provisions of SFAS No. 123 for periods prior to the adoption of SFAS No. 123(R), use the Black-Scholes option pricing model for estimating fair value of options granted under the Company’s equity incentive plans.
 
The following table summarizes the effects of stock-based compensation on cost of goods sold, research and development, sales, general and administrative, income from continuing operations before taxes, and net income after taxes for options granted under the Company’s equity incentive plans (in thousands, except per share amounts; unaudited):

 	 	Fiscal Years Ended	 	
 	 	March 31,	 	 	March 25,	 	 	March 26,	 	
 	 	2007	 	 	2006	 	 	2005	 	
 		
Cost of sales	 	$	63	 	 	$	20	 	 	$	1	 	
Research and development	 	 	2,050	 	 	 	685	 	 	 	539	 	
Sales, general and administrative	 	 	3,243	 	 	 	1,029	 	 	 	65	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Effect on income from continuing operations (before taxes)	 	 	5,356	 	 	 	1,734	 	 	 	605	 	
Income Tax Benefit	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total share based compensation expense (net of taxes)	 	$	5,356	 	 	$	1,734	 	 	$	605	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Share based compensation effects on basic earnings (loss) per share	 	$	0.06	 	 	$	0.02	 	 	$	0.01	 	
Share based compensation effects on diluted earnings (loss) per share	 	$	0.06	 	 	$	0.02	 	 	$	0.01	 	
Share based compensation effects on operating activities cash flow	 	 	5,356	 	 	 	1,734	 	 	 	605	 	
Share based compensation effects on financing activities cash flow	 	 	—	 	 	 	—	 	 	 	—	 	

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During fiscal year 2007, we received a net $6.0 million from the exercise of options granted under the Company’s Stock Plans.
 
The total intrinsic value of options exercised during fiscal year 2007, 2006, and 2005 was $4.1 million, $4.6 million, and $0.8 million, respectively. Intrinsic value represents the difference between the market value of Cirrus Logic common stock at the time of exercise and the strike price of the option.
 
As of March 31, 2007, there was $5.5 million of compensation cost related to non-vested stock option awards granted under the Company’s equity incentive plans not yet recognized in the Company’s financial statements. The unrecognized compensation cost is expected to be recognized over a weighted average period of 1.24 years.
 
As of March 31, 2007, approximately 25.7 million shares of common stock were reserved for issuance under the Option Plans. Additional information with respect to stock option activity is as follows (in thousands, except per share amounts):

 	 	 	 	 	Outstanding Options	 	
 	 	 	 	 	 	 	 	Weighted	 	
 	 	Options Available	 	 	 	 	 	Average	 	
 	 	for Grant	 	 	Number	 	 	Exercise Price	 	
 		
Balance, March 27, 2004	 	 	13,130	 	 	 	11,037	 	 	$	9.83	 	
Shares authorized for issuance	 	 	3,376	 	 	 	—	 	 	 	—	 	
Options granted	 	 	(3,463	)	 	 	3,463	 	 	 	5.43	 	
Options exercised	 	 	—	 	 	 	(390	)	 	 	3.34	 	
Options forfeited	 	 	1,680	 	 	 	(1,680	)	 	 	9.89	 	
Options expired	 	 	—	 	 	 	(106	)	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance, March 26, 2005	 	 	14,723	 	 	 	12,324	 	 	$	8.79	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Shares authorized for issuance	 	 	3,408	 	 	 	—	 	 	 	—	 	
Options granted	 	 	(2,446	)	 	 	2,446	 	 	 	7.46	 	
Options exercised	 	 	—	 	 	 	(1,270	)	 	 	3.75	 	
Options forfeited	 	 	1,370	 	 	 	(1,370	)	 	 	9.76	 	
Options expired	 	 	—	 	 	 	(170	)	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance, March 25, 2006	 	 	17,055	 	 	 	11,960	 	 	$	8.93	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Shares authorized for issuance	 	 	20,473	 	 	 	—	 	 	 	—	 	
Option plans terminated	 	 	(22,463	)	 	 	—	 	 	 	—	 	
Options granted	 	 	(421	)	 	 	421	 	 	 	7.52	 	
Options exercised	 	 	—	 	 	 	(1,299	)	 	 	5.26	 	
Options forfeited	 	 	2,062	 	 	 	(812	)	 	 	6.54	 	
Options expired	 	 	—	 	 	 	(1,250	)	 	 	16.68	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance, March 31, 2007	 	 	16,706	 	 	 	9,020	 	 	$	8.54	 	

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Additional information with regards to outstanding options that are vesting, expected to vest, or exercisable as of March 31, 2007 is as follows:

 	 	 	 	 	 	Weighted Average	 	 	
 	 	Number of	 	 	 	Remaining	 	Aggregate	
 	 	Options	 	Weighted Average	 	Contractual	 	Intrinsic Value	
 	 	(thousands)	 	Exercise Price	 	Term (years)	 	(thousands)	
 		
Vested and expected to vest	 	 	8,240	 	 	$	8.72	 	 	 	4.95	 	 	$	9,837	 	
Exercisable	 	 	6,510	 	 	$	9.23	 	 	 	4.08	 	 	$	8,098	 	

The following table summarizes information regarding outstanding and exercisable options as of March 31, 2007:

 	 	Options Outstanding	 	Options Exercisable	
 	 	 	 	Weighted Average	 	Weighted	 	Number	 	Weighted	
 	 	Number	 	Remaining	 	Average Exercise	 	Exercisable	 	Average	
Range of Exercise Prices	 	(in thousands)	 	Contractual Life	 	Price	 	(in thousands)	 	Exercise Price	
 		
$ 0.19 - $ 2.60	 	 	212	 	 	 	5.89	 	 	$	2.38	 	 	 	212	 	 	$	2.38	 	
$ 2.61 - $ 3.40	 	 	714	 	 	 	6.22	 	 	 	3.40	 	 	 	665	 	 	 	3.40	 	
$ 3.41 - $ 5.16	 	 	1,673	 	 	 	7.42	 	 	 	4.92	 	 	 	1,007	 	 	 	4.88	 	
$ 5.17 - $ 6.97	 	 	1,244	 	 	 	6.49	 	 	 	6.56	 	 	 	944	 	 	 	6.55	 	
$ 6.98 - $ 9.00	 	 	2,880	 	 	 	6.86	 	 	 	7.64	 	 	 	1,455	 	 	 	7.69	 	
$ 9.01 - $14.33	 	 	979	 	 	 	1.78	 	 	 	10.60	 	 	 	909	 	 	 	10.70	 	
$14.34 - $16.69	 	 	780	 	 	 	4.06	 	 	 	16.00	 	 	 	780	 	 	 	16.00	 	
$16.70 - $44.50	 	 	538	 	 	 	3.93	 	 	 	23.80	 	 	 	538	 	 	 	23.80	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	9,020	 	 	 	5.51	 	 	$	8.54	 	 	 	6,510	 	 	$	9.23	 	

 
As of March 25, 2006 and March 26, 2005, the number of options exercisable was 7.2 million and 6.9 million, respectively.
 
In accordance with the provisions of SFAS No. 123(R), options outstanding that are expected to vest are presented net of estimated future option forfeitures, which are estimated as compensation costs are recognized. Options with a fair value of $4.8 million, $5.3 million and $4.6 million became vested during fiscal years 2007, 2006 and 2005, respectively.
 
Stock-Based Compensation
 
If we had recorded compensation cost for all of our Stock Incentive Plans based upon the Black-Scholes fair value at the grant date for awards under the Option Plans consistent with the optional methodology prescribed under Statement of SFAS No. 123 the net income (loss) and earnings per share would have been as shown below (in thousands, except per share data):

 	 	March 25,	 	March 26,	
 	 	2006	 	2005	
 		
Net income (loss), as reported	 	$	52,426	 	 	$	(13,496	)	
Pro forma net income (loss)	 	 	46,127	 	 	 	(25,531	)	
Basic net income (loss) per share, as reported	 	$	0.61	 	 	$	(0.16	)	
Pro forma basic net income (loss) per share	 	 	0.54	 	 	 	(0.30	)	
Diluted net income (loss) per share, as reported	 	 	0.60	 	 	 	(0.16	)	
Pro forma diluted net income (loss) per share	 	 	0.53	 	 	 	(0.30	)	

For purposes of pro forma disclosures, the estimated fair value of the options are amortized to expense over the vesting period (for options) and the six-month purchase period (for stock purchases under the ESPP) using the accelerated method.

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We estimated the fair value of each option grant on the date of grant using the Black-Scholes option-pricing model using a dividend yield of zero and the following additional weighted-average assumptions:

 	 	March 31,	 	 	March 25,	 	 	March 26,	 	
 	 	2007	 	 	2006	 	 	2005	 	
 		
Employee Option Plans:	 	 	 	 	 	 	 	 	 	 	 	 	
Expected stock price volatility	 	 	36.73-47.80	%	 	 	40.23-94.39	%	 	 	96.80	%	
Risk-free interest rate	 	 	4.65-4.99	%	 	 	3.70-4.80	%	 	 	3.9	%	
Expected lives (in years)	 	 	1.45-3.09	 	 	 	0.70-1.62	 	 	 	1.31	 	
Employee Stock Purchase Plan:	 	 	 	 	 	 	 	 	 	 	 	 	
Expected stock price volatility	 	 	—	 	 	 	40.23-50.00	%	 	 	50.00-96.80	%	
Risk-free interest rate	 	 	—	 	 	 	3.38-4.80	%	 	 	1.66	%	
Expected lives (in years)	 	 	—	 	 	 	0.00-0.50	 	 	 	0.50	 	

Using the Black-Scholes option valuation model, the weighted average estimated fair values of employee stock options granted in fiscal years 2007, 2006, and 2005, were $2.97, $2.36, and $3.60, respectively. The weighted average estimated fair values for purchase rights granted under the ESPP for fiscal years 2006 and 2005 were $1.57 and $2.25, respectively.
 
Rights Plan
 
In May 1998, the Board of Directors declared a dividend of one preferred share purchase right (a “Right”) for each share of common stock outstanding held as of May 15, 1998. Each Right would have entitled stockholders to purchase one one-hundredth of a share of our Series A Participating Preferred Stock at an exercise price of $60. The Rights only became exercisable in certain limited circumstances following the tenth day after a person or group announces acquisitions of or tender offers for 15 percent or more of our common stock. For a limited period following the announcement of any such acquisition or offer, the Rights were redeemable by us at a price of $0.01 per Right. If the Rights were not redeemed, each Right then entitled the holder to purchase common stock having the value of twice the exercise price. For a limited period after the Rights were exercisable, each Right, at the discretion of the Board, could be exchanged for one share of common stock per Right. The Rights were originally scheduled to expire in fiscal year 2009.
 
On May 24, 2005, the Board of Directors of the Company approved an amendment to the Amended and Restated Rights Agreement, dated as of February 17, 1999, between the Company and BankBoston, N.A., as Rights Agent. The Amendment accelerates the termination of the Company’s preferred stock purchase rights from the close of business on May 4, 2008 to the close of business on May 26, 2005. On May 25, 2005, the CFO signed a Certificate of Elimination that was subsequently filed with the Secretary of State of the State of Delaware which had the effect of eliminating from the Company’s Certificate of Incorporation all references to the Series A Participating Preferred Stock of the Company and returning these shares to the status of undesignated shares of authorized Preferred Stock of the Company, thereby terminating the Rights plan.

13.  	Accumulated Other Comprehensive Income (Loss)	
 
Our accumulated other comprehensive income (loss) is comprised of foreign currency translation adjustments and unrealized gains and losses on investments classified as available-for-sale. The foreign currency translation adjustments are not currently adjusted for income taxes because they relate to indefinite investments in non-U.S. subsidiaries that have since changed from a foreign functional currency to a U.S dollar functional currency.
 
The following table summarizes the changes in the components of accumulated other comprehensive income (loss) (in thousands):

 	 	 	 	 	Unrealized	 	 	 	 	
 	 	Foreign	 	 	Gains (Losses)	 	 	 	 	
 	 	Currency	 	 	on Securities	 	 	Total	 	
 		
Balance, March 27, 2004	 	$	(770	)	 	$	599	 	 	$	(171	)	
Current-period activity	 	 	—	 	 	 	(982	)	 	 	(982	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance, March 26, 2005	 	 	(770	)	 	 	(383	)	 	 	(1,153	)	
Current-period activity	 	 	—	 	 	 	263	 	 	 	263	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance, March 25, 2006	 	 	(770	)	 	 	(120	)	 	 	(890	)	
Current-period activity	 	 	—	 	 	 	107	 	 	 	107	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance, March 31, 2007	 	$	(770	)	 	$	(13	)	 	$	(783	)	

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14.  	Income Taxes	
 
Income (loss) before income taxes consisted of (in thousands):

 	 	March 31,	 	 	March 25,	 	 	March 26,	 	
 	 	2007	 	 	2006	 	 	2005	 	
 		
United States	 	$	21,226	 	 	$	45,230	 	 	$	(34,254	)	
Non-U.S. 	 	 	(1,733	)	 	 	161	 	 	 	(31	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	$	19,493	 	 	$	45,391	 	 	$	(34,285	)	

 
The benefit for income taxes consists of (in thousands):

 	 	March 31,	 	 	March 25,	 	 	March 26,	 	
 	 	2007	 	 	2006	 	 	2005	 	
 		
Current:	 	 	 	 	 	 	 	 	 	 	 	 	
Federal	 	$	—	 	 	$	—	 	 	$	(15,247	)	
State	 	 	—	 	 	 	—	 	 	 	(5	)	
Non-U.S. 	 	 	(780	)	 	 	(6,695	)	 	 	(5,537	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Current Tax Benefit	 	$	(780	)	 	$	(6,695	)	 	$	(20,789	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Deferred:	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. 	 	$	(7,797	)	 	$	—	 	 	$	—	 	
Non-U.S. 	 	 	175	 	 	 	(340	)	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Deferred Tax Benefit	 	 	(7,622	)	 	 	(340	)	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Tax Benefit	 	$	(8,402	)	 	$	(7,035	)	 	$	(20,789	)	

 
The provision (benefit) for income taxes differs from the amount computed by applying the statutory federal rate to pretax income (loss) as follows (in percentages):

 	 	March 31,	 	 	March 25,	 	 	March 26,	 	
 	 	2007	 	 	2006	 	 	2005	 	
 		
Expected income tax provision (benefit) at the US federal statutory rate	 	 	35.0	 	 	 	35.0	 	 	 	(35.0	)	
In-process research and development	 	 	3.5	 	 	 	—	 	 	 	—	 	
Net operating loss and future deductions not currently benefited	 	 	—	 	 	 	—	 	 	 	34.9	 	
Release of valuation allowance due to expected future utilization	 	 	(40.0	)	 	 	—	 	 	 	—	 	
Utilization of deferred tax assets that had a full valuation allowance	 	 	(39.2	)	 	 	(34.0	)	 	 	—	 	
Reversals of previously accrued taxes and tax refunds	 	 	(3.7	)	 	 	(14.8	)	 	 	(62.0	)	
Unbenefited non-U.S. losses	 	 	—	 	 	 	—	 	 	 	0.6	 	
Other	 	 	1.3	 	 	 	(1.7	)	 	 	0.9	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Benefit for income taxes	 	 	(43.1	)	 	 	(15.5	)	 	 	(60.6	)	

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Significant components of our deferred tax assets and liabilities are (in thousands):

 	 	March 31,	 	 	March 25,	 	
 	 	2007	 	 	2006	 	
 		
Deferred tax assets:	 	 	 	 	 	 	 	 	
Inventory valuation	 	$	4,030	 	 	$	3,885	 	
Accrued expenses and allowances	 	 	4,371	 	 	 	5,546	 	
Net operating loss carryforwards	 	 	173,601	 	 	 	173,488	 	
Research and development tax credit carryforwards	 	 	35,561	 	 	 	35,143	 	
State investment tax credit carryforwards	 	 	400	 	 	 	1,088	 	
Capitalized research and development	 	 	40,605	 	 	 	49,736	 	
Depreciation and Amortization	 	 	4,224	 	 	 	4,364	 	
Other	 	 	10,585	 	 	 	10,459	 	
 	 	 	 	 	 	 	 	 	
Total deferred tax asset	 	$	273,377	 	 	$	283,709	 	
Valuation allowance for deferred tax assets	 	 	(265,485	)	 	 	(283,369	)	
 	 	 	 	 	 	 	 	 	
Net deferred tax assets	 	$	7,892	 	 	$	340	 	
 	 	 	 	 	 	 	 	 	
Deferred tax liabilities:	 	 	 	 	 	 	 	 	
Acquisition intangibles	 	$	1,324	 	 	$	—	 	
 	 	 	 	 	 	 	 	 	
Total deferred tax liabilities	 	$	1,324	 	 	$	—	 	
 	 	 	 	 	 	 	 	 	
Total net deferred tax assets	 	$	6,568	 	 	$	340	 	

 
The valuation allowance decreased by $17.9 million in fiscal year 2007 and decreased by $18.1 million in fiscal year 2006. During fiscal year 2007, we released $7.8 million of the valuation allowance that had been placed on our U.S. deferred tax assets. Based on our recent history of utilizing deferred tax assets and our expectation to continue to utilize deferred tax assets in fiscal year 2008, we determined that it was more likely than not that the $7.8 million of U.S. deferred tax assets would be realized. We also recorded a nonrecurring tax benefit totaling $0.7 million that consisted of the reversal of prior year non-U.S. tax liabilities. These reversals were due to the expiration of the statute of limitations for years in which certain potential non-U.S. tax liabilities existed. At March 31, 2007, we had federal net operating losses carryforwards of $468.4 million. Of that amount, $75.4 million relates to companies we acquired during fiscal year 2002 and are, therefore, subject to certain limitations under Section 382 of the Internal Revenue Code. In addition, approximately $30.3 million of the federal net operating loss is attributable to employee stock option deductions, the benefit from which will be allocated to additional paid-in capital rather than current earnings if subsequently realized. We have net operating losses in various states that total $120.0 million. The federal net operating loss carryforwards expire in fiscal years 2008 through 2027. The state net operating loss carryforwards expire in fiscal years 2008 through 2027. We also have non-U.S. net operating losses of $5.1 million of which $3.6 million do not expire and $1.5 million expire in calendar years 2009 through 2011.
 
There are federal research and development credit carryforwards of $20.8 million that expire in fiscal years 2008 through 2027. There are $14.7 million of state research and development credits. Of that amount, $3.0 million will expire in fiscal years 2021 through 2026. The remaining $11.7 million of state research and development credits are not subject to expiration. The state investment credits of $0.4 million will expire in fiscal years 2008 through 2010.
 
We have approximately $5.7 million of cumulative undistributed earnings in certain non-U.S. subsidiaries. We have not recognized a deferred tax liability on these undistributed earnings because the Company currently intends to reinvest these earnings in operations outside the U.S. The unrecognized deferred tax liability on these earnings is approximately $2.1 million. With our current tax attributes, if the earnings were distributed, we would most likely not accrue any additional current income tax expense because this income would be offset by our net operating loss carryforwards and other future deductions.
 
Our current income taxes payable balance is comprised primarily of tax contingencies that are recorded to address exposures involving tax positions we have taken that could be challenged by taxing authorities. These exposures result from the varying application of statutes, rules, regulations, and interpretations. Our tax contingencies are established based on past experiences and judgments about potential actions by taxing jurisdictions. Our tax contingencies relate to transfer pricing positions we have taken in a variety of countries in which we operate. The ultimate resolution of these matters may be materially greater or less than the amount that we have accrued.

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15.  	Segment Information	
 
We are a premier supplier of high-precision analog and mixed-signal ICs for a broad range of consumer, professional, and industrial markets. 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 determine our operating segments in accordance with Statement of Financial Accounting Standard No. 131 (“SFAS 131”), “Disclosures about Segments of an Enterprise and Related Information.” Our chief executive officer (“CEO”) has been identified as the chief operating decision maker as defined by SFAS 131.
 
Our CEO receives and uses enterprise-wide financial information to assess financial performance and allocate resources, rather than detailed information at a product line level. Additionally, our product lines have similar characteristics and customers. They share operations support functions such as sales, public relations, supply chain management, various research and development and engineering support, in addition to the general and administrative functions of human resources, legal, finance and information technology. As of March 31, 2007, we have one operating segment with three different product lines.
 
Our revenue by product line is as follows (in thousands):

 	 	March 31, 2007	 	 	March 25, 2006	 	 	March 26, 2005	 	
 		
Mixed-signal audio products	 	$	85,278	 	 	$	95,384	 	 	$	96,083	 	
Embedded products	 	 	46,791	 	 	 	52,258	 	 	 	46,645	 	
Industrial products	 	 	50,235	 	 	 	34,771	 	 	 	34,109	 	
Video products	 	 	—	 	 	 	11,281	 	 	 	18,063	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	182,304	 	 	$	193,694	 	 	$	194,900	 	

 
On December 29, 2006, we completed the acquisition of 100 percent of the voting equity interests in Caretta, a company based in Shanghai, China that specializes in designing power management integrated circuits for the large, single-cell lithium ion battery market. At the current time, we are including revenue from these products as a component of the Industrial product line. For further details regarding the acquisition of Caretta, please see Note 5, “Acquisitions.”
 
On June 30, 2005, we completed the sale of our digital video product line assets to Magnum Semiconductor, Inc. By selling the digital video product line assets, we are able to focus on our core analog, mixed-signal and embedded product lines for audio and industrial markets. We no longer have digital video product revenue due to this transaction. 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.
 
Geographic Area
 
The following illustrates revenues by geographic locations based on the sales office location (in thousands):

 	 	March 31, 2007	 	 	March 25, 2006	 	 	March 26, 2005	 	
 		
United States	 	$	69,515	 	 	$	71,191	 	 	$	62,885	 	
European Union	 	 	17,415	 	 	 	25,794	 	 	 	26,968	 	
United Kingdom	 	 	3,245	 	 	 	3,408	 	 	 	3,597	 	
China	 	 	22,693	 	 	 	20,934	 	 	 	22,692	 	
Hong Kong	 	 	7,064	 	 	 	15,451	 	 	 	12,537	 	
Japan	 	 	14,822	 	 	 	11,869	 	 	 	9,740	 	
South Korea	 	 	9,979	 	 	 	10,772	 	 	 	17,054	 	
Taiwan	 	 	10,878	 	 	 	11,283	 	 	 	14,412	 	
Other Asia	 	 	14,506	 	 	 	15,506	 	 	 	19,556	 	
Other non-U.S. countries	 	 	12,187	 	 	 	7,486	 	 	 	5,459	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total consolidated revenues	 	$	182,304	 	 	$	193,694	 	 	$	194,900	 	

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The following illustrates property and equipment, net, by geographic locations, based on physical location (in thousands):

 	 	March 31, 2007	 	 	March 25, 2006	 	
 		
United States	 	$	10,928	 	 	$	13,557	 	
United Kingdom	 	 	30	 	 	 	35	 	
China	 	 	264	 	 	 	175	 	
Hong Kong	 	 	14	 	 	 	51	 	
Japan	 	 	9	 	 	 	15	 	
South Korea	 	 	78	 	 	 	114	 	
Taiwan	 	 	19	 	 	 	17	 	
Other Asia	 	 	65	 	 	 	87	 	
 	 	 	 	 	 	 	 	 	
Total consolidated property and equipment, net	 	$	11,407	 	 	$	14,051	 	

 
		
16.  	Quarterly Results (Unaudited)	
 
The following quarterly results have been derived from our audited annual consolidated financial statements. In the opinion of management, this unaudited quarterly information has been prepared on the same basis as the annual consolidated financial statements and includes all adjustments, including normal recurring adjustments, necessary for a fair presentation of this quarterly information. This information should be read along with the financial statements and related notes. The operating results for any quarter are not necessarily indicative of results to be expected for any future period.
 
The unaudited quarterly statement of operations data for each quarter of fiscal years 2007 and 2006 were as follows (in thousands, except per share data):

 	 	Fiscal Year 2007	
 	 	4th Quarter	 	3rd Quarter	 	2nd Quarter	 	1st Quarter	
 		
Net sales	 	$	43,647	 	 	$	45,297	 	 	$	48,179	 	 	$	45,181	 	
Gross margin	 	 	26,278	 	 	 	27,411	 	 	 	28,165	 	 	 	27,160	 	
Net income	 	 	7,279	 	 	 	3,464	 	 	 	9,327	 	 	 	7,825	 	
Basic income per share	 	$	0.08	 	 	$	0.04	 	 	$	0.11	 	 	$	0.09	 	
Diluted income per share	 	 	0.08	 	 	 	0.04	 	 	 	0.11	 	 	 	0.09	 	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Fiscal Year 2006	
 	 	4th Quarter	 	3rd Quarter	 	2nd Quarter	 	1st Quarter	
 		
Net sales	 	$	42,158	 	 	$	48,253	 	 	$	50,461	 	 	$	52,822	 	
Gross margin	 	 	24,475	 	 	 	26,565	 	 	 	26,853	 	 	 	27,299	 	
Net income (loss)	 	 	14,946	 	 	 	12,681	 	 	 	(1,109	)	 	 	25,908	 	
Basic income (loss) per share	 	$	0.17	 	 	$	0.15	 	 	$	(0.01	)	 	$	0.30	 	
Diluted income (loss) per share	 	 	0.17	 	 	 	0.14	 	 	 	(0.01	)	 	 	0.30	 	

		
17.  	Related Party Transactions	
 
The Company had two outstanding loans to Mr. David D. French (“Mr. French”), our former President and Chief Executive Officer, only one of which remained outstanding as of March 31, 2007. Both loans were “grandfathered” under Section 402 of the Sarbanes-Oxley Act of 2002, which prohibits loans to directors and executive officers that are made, renewed or materially modified after July 30, 2002. Neither of the loans described below have been modified or renewed since the Company made them to Mr. French.
 
In October 1998, the Company extended a loan to Mr. French for the purchase of his principal residence in Texas. The original principal amount of the loan was $721,899 and carries an interest rate of 5.64 percent per annum. The terms of the loan state that the principal and accrued interest is due and payable on the earlier of (i) September 1, 2013, (ii) 180 days following the date of the termination of his employment for any reason, or (iii) upon sale of the residence. On March 5, 2007, just before the end of fiscal year 2007, Mr. French resigned in light of the findings of a voluntary review of the Company’s past stock option granting practices performed by a Special Committee of the Company’s Board of Directors (“the Board”). Pursuant to the terms described above, the loan will now be due and payable no later than September 1, 2007, although payment may be required sooner should the residence be sold before that date. The aggregate amount of principal plus accrued interest outstanding under this loan at the end of fiscal years 2007 and 2006 was $1,151,000 and $1,088,000 and, respectively. This loan is currently classified as a short-term asset on the balance

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sheet under “Other current assets.” In the event of his death or disability, the principal and accrued interest will be forgiven, subject to applicable law.
 
In July 1999, the Company also advanced a personal loan in the original principal amount of $750,000 to Mr. French. The note bore interest at 5.82 percent per annum and was secured by 90,000 shares of the Company’s common stock held in escrow. The note and accrued interest were due and payable upon the earlier of (i) July 21, 2004 or (ii) 180 days following the termination of Mr. French’s employment. The aggregate amount of principal plus accrued interest outstanding under this loan at the end of fiscal year 2004 was $978,079 and was classified as a current asset. During fiscal year 2005, the loan accrued an additional $17,397 of interest. On July 21, 2004, Mr. French fulfilled his obligation with respect to this loan and paid the final outstanding balance of $995,476.

ITEM 9.  	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	
 
None.

ITEM 9A.  	Controls and Procedures	
 
A Board-appointed Special Committee recently completed an investigation into our historical stock option granting practices. In light of the findings of the Special Committee and the restatement of our financial statements for fiscal years 2002 through 2006 as well as the first quarter of fiscal year 2007, management re-evaluated the assessment presented in Management’s Report on Internal Control Over Financial Reporting in our Annual Report on Form 10-K for the fiscal year ended March 25, 2006. As stated in the Amended Annual Report 10-K/A filed with the SEC on April 18, 2007, management concluded that the Company had a material weakness with respect to our control environment as it relates to stock option granting practices, including the involvement of our former CEO in the grant process, and that, solely for this reason, its internal control over financial reporting and its disclosure controls and procedures were not effective as of March 25, 2006.
 
Evaluation of Disclosure Controls and Procedures
 
We maintain disclosure controls and procedures that are intended to ensure that the information required to be disclosed in our Securities Exchange Act of 1934 (the “Exchange Act”) filings are properly and timely recorded and reported. Our management is responsible for establishing and maintaining effective internal controls over financial reporting. We have formed a Disclosure Review Committee comprised of key individuals from several disciplines within the Company who are involved in the disclosure and reporting process. This committee, which is led by the Corporate Controller, meets periodically to ensure the timeliness, accuracy, and completeness of the information required to be disclosed in our filings.
 
In connection with the filing of this Annual Report on Form 10-K, our current management, under the supervision of our CEO and Chief Financial Officer (“CFO”), conducted an evaluation of our disclosure controls and procedures as of March 31, 2007. Based on this evaluation, our CEO and CFO concluded that the Company has remediated the material weakness in internal control over financial reporting relating to stock option granting practices and that our disclosure controls and procedures were effective at a reasonable assurance level on March 31, 2007.
 
Management’s Annual Report on Internal Control Over Financial Reporting
 
Our management is responsible for establishing and maintaining effective internal control over financial reporting, as such term is defined under Rule 13a-15(f). Under the supervision and with the participation of our management, including our CEO and CFO, we assessed the effectiveness of our internal control over financial reporting as of the end of the period covered by this report based on the framework in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission.
 
Because of its inherent limitation, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and that the degree of compliance with the policies or procedures may deteriorate.
 
Based on its assessment of internal control over financial reporting, management has concluded that our internal control over financial reporting was effective as of March 31, 2007 to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

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Our independent registered public accounting firm, Ernst & Young LLP, has issued an attestation report on management’s updated assessment of our internal control over financial reporting as of March 31, 2007, included in Item 8 of this report.
 
Remediation of the Material Weaknesses in Internal Control over Financial Reporting
 
Beginning November, 2002, the Company has implemented a number of improvements to its internal grant procedures. In particular, we implemented improvements to our granting processes for broad-based annual grants. For annual grants after 2002, the Company followed a practice to ensure:

 	•  	The grant date was established at a Board or Committee meeting prior to the grant date; and	
 		
 	•  	The list of recipients was final and approved by the grant date.	
 
Further, for monthly grants after 2002, the Company followed a monthly grant process for obtaining approval of proposed option grants (the “Monthly Consent Process”) to ensure:

 	•  	A more formalized process and checklist was completed with regard to the Monthly Consent Process; and	
 		
 	•  	Proposed unanimous written consents (“UWCs”) for option grants were sent to the Compensation Committee on the monthly grant date, which was usually the first Wednesday of each month (the “Monthly Grant Date”).	
 
In 2005, the Monthly Consent Process was further refined as follows:

 	•  	Proposed UWCs for option grants were sent to the Compensation Committee on Friday a week prior to the Monthly Grant Date to allow additional time to review; and	
 		
 	•  	The bylaws were amended to permit electronic approvals of UWC’s by the Compensation Committee.	
 
In addition, during our initial internal review of stock option granting practices in 2006, we further improved and strengthened our Monthly Consent Process related to our stock option program through the addition of the following controls designed to provide appropriate safeguards and greater internal control over the stock option granting and administrative function:

 	•  	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:	

 	•  	the list is complete and correct;	
 		
 	•  	special exception forms have been obtained for any grants that fall outside guidelines; and	
 		
 	•  	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	

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 		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 transmits the list to the Company’s Third-Party Stock Plan Administrator.	
 		
 	•  	The Stock Administrator maintains the appropriate records with the Company 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.	
 
As of the date of this filing, these controls continue to be in effect.
 
Neither management, nor the Special Committee has identified any grant dates selected with hindsight or prior to completing the formal approval process since 2003. The adjustments to our financial statements principally resulted from revisions made to measurement dates for certain options granted prior to December 31, 2002. The Company is currently reviewing the Special Committee recommendations to ensure that we continue to strengthen our controls over our stock option granting process.
 
This material weakness was initially identified in conjunction with the Special Committee’s investigation and was remediated based upon previously implemented process improvements and the subsequent resignation of our former chief executive officer on March 5, 2007.
 
Changes in Internal Control over Financial Reporting
 
Except for the remediation to the material weakness described above, there were no other changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
Inherent Limitations on Effectiveness of Controls
 
Our management, including the CEO and CFO, do not expect that our Disclosure Controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and breakdowns can occur as a result of simple errors or mistakes. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of

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the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
 
PART III

ITEM 10.  	Directors and Executive Officers of the Registrant	
 
The information set forth in the Proxy Statement to be delivered to stockholders in connection with our Annual Meeting of Stockholders to be held on July 27, 2007 under the headings “Board Structure and Compensation,” “Proposal 1: Election of Directors,” “Executive Officers,” and “Section 16(a) Beneficial Ownership Reporting Compliance” is incorporated herein by reference.

ITEM 11.  	Executive Compensation	
 
The information set forth in the Proxy Statement under the heading “Executive Compensation and Other Information,” is incorporated herein by reference.

ITEM 12.  	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	
 
The information set forth in the Proxy Statement under the heading “Stock Ownership,” is incorporated herein by reference.

ITEM 13.  	Certain Relationships and Related Transactions	
 
The information set forth in the Proxy Statement under the heading “Certain Relationships and Related Transactions,” is incorporated herein by reference.

ITEM 14.  	Principal Accountant Fees and Services	
 
The information set forth in the Proxy Statement under the heading “Audit and Non-Audit Fees and Services,” is incorporated herein by reference.
 
PART IV

ITEM 15.  	Exhibit and, Financial Statement Schedules	
 
(a) The following documents are filed as part of this Report:

 	1.  	Consolidated Financial Statements	

 	•  	Reports of Ernst & Young LLP, Independent Registered Public Accounting Firm.	
 		
 	•  	Consolidated Balance Sheet as of March 31, 2007 and March 25, 2006.	
 		
 	•  	Consolidated Statement of Operations for the fiscal years ended March 31, 2007, March 25, 2006, and March 26, 2005.	
 		
 	•  	Consolidated Statement of Cash Flows for the fiscal years ended March 31, 2007, March 25, 2006, and March 26, 2005.	
 		
 	•  	Consolidated Statement of Stockholders’ Equity for the fiscal years ended March 31, 2007, March 25, 2006, and March 26, 2005.	
 		
 	•  	Notes to Consolidated Financial Statements.	

 	2.  	Financial Statement Schedules	
 
All schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or notes thereto.

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 	3.  	Exhibits	
 
The following exhibits are filed as part of or incorporated by reference into this Report:

 	3	.1	 	Certificate of Incorporation of Registrant, filed with the Delaware Secretary of State on August 26, 1998.(1)	
 	3	.2	 	Agreement and Plan of Merger, filed with the Delaware Secretary of State on February 17, 1999.(1)	
 	3	.3	 	Certificate of Designation of Rights, Preferences and Privileges of Series A Preferred Stock, filed with the Delaware Secretary of State on March 30, 1999.(1)	
 	3	.4	 	Amended and Restated Bylaws of Registrant.(9)	
 	3	.5	 	Certificate of Elimination dated May 26, 2005(8)	
 	10	.1+	 	Amended 1987 Stock Option Plan.(3)	
 	10	.2+	 	1989 Employee Stock Purchase Plan, as amended September 21, 2005.(10)	
 	10	.3+	 	1990 Directors’ Stock Option Plan, as amended.(4)	
 	10	.4+	 	1996 Stock Plan, as amended.(4)	
 	10	.5+	 	2002 Stock Option Plan, as amended.(2)	
 	10	.6	 	Form of Indemnification Agreement.(1)	
 	10	.7+	 	Employment Agreement by and between Registrant and David D. French dated February 7, 2002.(5)	
 	10	.8+	 	Executive Incentive Plan.(5)	
 	10	.9	 	Lease between TPLP Office and Registrant, dated April 1, 2000 for 54,385 square feet located at 4210 S. Industrial Drive Austin, Texas.(1)	
 	10	.10	 	Lease between ProLogis Trust and Registrant, dated March 31, 1995 for 176,000 square feet located at 4129 Commercial Center Drive and 4209 S. Industrial Austin, Texas, as amended through December 20, 1996.(1)	
 	10	.11	 	Lease between American Industrial Properties and Registrant, dated September 15, 1999 for 18,056 square feet located at 4120 Commercial Drive Austin, Texas.(1)	
 	10	.12	 	Lease Agreement by and between Desta Five Partnership, Ltd. and Registrant, dated November 10, 2000 for 197,000 square feet located at 2901 Via Fortuna, Austin, Texas.(1)	
 	10	.13	 	Amendment No. 1 to Lease Agreement by and between Desta Five Partnership, Ltd. and Registrant dated November 10, 2000.(5)	
 	10	.14	 	Amendment No. 2 to Lease Agreement by and between Desta Five Partnership, Ltd. and Registrant dated November 10, 2000.(2)	
 	10	.15+	 	Employment Agreement by and between Registrant and John T. Kurtzweil dated March 15, 2004.(6)	
 	10	.16	 	Amended and Restated Rights Agreement, dated as of February 17, 1999 between Cirrus Logic, Inc. and BankBoston, N.A.(7)	
 	10	.17	 	First Amendment to Amended and Restated Rights Agreement dated as of May 25, 2005, between Cirrus Logic, Inc. and BankBoston, N.A.(8)	
 	10	.18	 	Amendment No. 3 to Lease Agreement by and between Desta Five Partnership, Ltd. and Registrant dated November 10, 2000.(11)	
 	10	.19	 	Employment Agreement by and between Registrant and Gregory S. Thomas dated May 24, 2006.(11)	
 	10	.20+	 	Cirrus Logic, Inc. 2006 Stock Incentive Plan.(13)	
 	10	.21+	 	Form of Stock Option Agreement for options granted under the Cirrus Logic, Inc. 2006 Stock Incentive Plan.(13)	
 	10	.22+	 	Form of Notice of Grant of Stock Option for options granted under the Cirrus Logic, Inc. 2006 Stock Incentive Plan.(13)	
 	10	.23+	 	Resignation Agreement between David D. French and Cirrus Logic, Inc. dated March 5, 2007(12)	
 	14	 	 	Code of Conduct.(6)	
 	23	.1*	 	Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.	
 	24	.1*	 	Power of Attorney (see signature page).	
 	31	.1*	 	Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
 	31	.2*	 	Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
 	32	.1*	 	Certification of Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
 	32	.2*	 	Certification of Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	

 
			
+		Indicates a management contract or compensatory plan or arrangement.	
 		
*		Filed with this Form 10-K.	

 	(1) 	Incorporated by reference from Registrant’s Report on Form 10-K for the fiscal year ended March 31, 2001, filed with the Commission on June 22, 2001.	
 	(2) 	Incorporated by reference from Registrant’s Report on Form 10-K for the fiscal year ended March 29, 2003, filed with the Commission on June 13, 2003.	
 	(3) 	Incorporated by reference from Registrant’s Report on Form 10-K for the fiscal year ended March 30, 1996, filed with the Commission on June 28, 1996.	
 	(4) 	Incorporated by reference from Registrant’s Registration Statement on Form S-8 filed with the Commission on August 8, 2001 (Registration No. 333-67322).	
 	(5) 	Incorporated by reference from Registrant’s Report on Form 10-K for the fiscal year ended March 30, 2002, filed with the Commission on June 19, 2002.	
 	(6) 	Incorporated by reference from Registrant’s Report on Form 10-K for the fiscal year ended March 27, 2004, filed with the Commission on June 9, 2004.	
 	(7) 	Incorporated by reference from Registrant’s Registration Statement of Amendment No. 1 to Form 8-A filed on March 3, 1999.	

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 	(8) 	Incorporated by reference from Registrant’s Report on Form 10-K for the fiscal year ended March 26, 2005, filed with the Commission on May 27, 2005.	
 	(9) 	Incorporated by reference from Registrant’s Report of Form 8-K filed with the Commission on September 21, 2005.	
 	(10) 	Incorporated by reference from Registrant’s Report on Form 10-Q filed with the Commission on October 25, 2005.	
 	(11) 	Incorporated by reference from Registrant’s Report on Form 10-K for the fiscal year ended March 25, 2006 filed with the Commission on May 25, 2006.	
 	(12) 	Incorporated by reference from Registrant’s Report on Form 8-K filed with the Commission on March 7, 2007.	
 	(13) 	Incorporated by reference from Registration’s Statement on Form S-8 filed with the Commission on August 1, 2006.	

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Signatures
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned; thereunto duly authorized.
 
CIRRUS LOGIC, INC.

 	By: 	/s/   Thurman K. Case	

Thurman K. Case
Vice President, Chief Financial Officer and
Chief Accounting Officer
 
KNOW BY THESE PRESENT, that each person whose signature appears below constitutes and appoints Thurman K. Case, his attorney-in-fact, with the power of substitution, for him in any and all capacities, to sign any amendments to this report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of the attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the following persons on behalf of the Registrant, in the capacities and on the dates indicated have signed this report below:

Signature	 	Title	 	Date	
 		
/s/   Michael L. Hackworth

Michael L. Hackworth	 	Chairman of the Board and Director	 	June 1, 2007	
 	 	 	 	 	
/s/   Jason P. Rhode

Jason P. Rhode	 	President and Chief Executive Officer	 	June 1, 2007	
 	 	 	 	 	
/s/   Thurman K. Case

Thurman K. Case	 	Vice President, Chief Financial Officer and Chief Accounting Officer	 	June 1, 2007	
 	 	 	 	 	
/s/   D. James Guzy

D. James Guzy	 	Director	 	June 1, 2007	
 	 	 	 	 	
/s/   Suhas S. Patil

Suhas S. Patil	 	Chairman Emeritus and Director	 	June 1, 2007	
 	 	 	 	 	
/s/   Walden C. Rhines

Walden C. Rhines	 	Director	 	June 1, 2007	
 	 	 	 	 	
/s/   William D. Sherman

William D. Sherman	 	Director	 	June 1, 2007	
 	 	 	 	 	
/s/   Robert H. Smith

Robert H. Smith	 	Director	 	June 1, 2007	

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Exhibit Index
 
(a) The following exhibits are filed as part of this Report:

Number	 	Description	
 		
 	23	.1	 	Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.	
 	24	.1	 	Power of Attorney (see signature page).	
 	31	.1	 	Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
 	31	.2	 	Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
 	32	.1	 	Certification of Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
 	32	.2	 	Certification of Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	

  

Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statements on Form S-8 (Form S-8 No. 33-31697, 33-37409, 33-43914, 33-47453, 33-53990, 33-60464, 33-71862, 33-83148, 33-65495, 333-16417, 333-42693, 333-72573, 333-88347, 333-88345, 333-89243, 333-48490, 333-63674, 333-67322, 333-71046, 333-71366, 333-74804, 333-101119, 333-107807, 333-107808, 333-117741, and 333-136219) pertaining to the following: the Cirrus Logic, Inc. Amended 1987 Stock Option Plan; the Cirrus Logic, Inc. Fourth Amended and Restated 1989 Employee Stock Purchase Plan; the Cirrus Logic, Inc. Amended 1990 Directors’ Stock Option Plan; the DST Stock Option Plan; the Cirrus Logic, Inc. Amended 1991 Non-qualified Stock Option Plan; the Cirrus Logic, Inc. Amended 1996 Stock Plan; the Crystal Semiconductor Corporation 1987 Incentive Stock Option Plan; the Acumos Incorporated 1989 Stock Option Plan; the Pacific Communications Sciences, Inc. 1987 Stock Option Plan; the PicoPower Technology Inc. Amended 1992 Stock Option Plan; the AudioLogic, Inc. 1992 Stock Option Plan; the Peak Audio, Inc. 2001 Stock Plan; the ShareWave, Inc. 1996 Flexible Stock Incentive Plan; the LuxSonor Semiconductors, Inc. 1995 Stock Option Plan; the Stream Machine Company 1996 Stock Option Plan, 2001 Stock Plan and Nonstatutory Stock Option Grants; the Cirrus Logic, Inc. 2002 Stock Option Plan; the Cirrus Logic, Inc. 2006 Stock Incentive Plan of our reports dated June 1, 2007, with respect to the consolidated financial statements of Cirrus Logic, Inc., Cirrus Logic, Inc.’s management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Cirrus Logic, Inc., included in this Annual Report (Form 10-K) for the fiscal year ended March 31, 2007.
/s/ Ernst & Young LLP
Austin, Texas
May 31, 2007

 

Exhibit 31.1
CERTIFICATION
Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Jason P. Rhode, certify that:

1.	 	I have reviewed this annual report on Form 10-K of Cirrus Logic, Inc.;	
 		
2.	 	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 		
3.	 	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
 		
4.	 	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	

 	(a)	 	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 		
 	(b)	 	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 		
 	(c)	 	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 		
 	(d)	 	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	

5.	 	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or other persons performing the equivalent functions):	

 	(a)	 	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 		
 	(b)	 	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	
 	 	 	 	 	 	 	
Date: June 1, 2007	 	 	 	Signature:	 	/s/ Jason P. Rhode	
 	 	 	 	 	 	 	
 	 	 	 	 	 	Jason P. Rhode	
 	 	 	 	 	 	President and Chief Executive Officer	

 

Exhibit 31.2
CERTIFICATION
Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Thurman K. Case, certify that:

1.	 	I have reviewed this annual report on Form 10-K of Cirrus Logic, Inc.;	
 		
2.	 	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 		
3.	 	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
 		
4.	 	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	

 	(a)	 	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 		
 	(b)	 	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 		
 	(c)	 	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 		
 	(d)	 	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	

5.	 	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or other persons performing the equivalent functions):	

 	(a)	 	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 		
 	(b)	 	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	
 	 	 	 	 	 	 	
Date: June 1, 2007	 	 	 	Signature:	 	/s/ Thurman K. Case	
 	 	 	 	 	 	 	
 	 	 	 	 	 	Thurman K. Case	
 	 	 	 	 	 	Vice President, Chief Financial Officer	
 	 	 	 	 	 	and Principal Accounting Officer	

 

Exhibit 32.1
Certification Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the annual report of Cirrus Logic, Inc. (the “Company”) on Form 10-K for the period ended March 31, 2007, as filed with the Securities and Exchange Commission (the “Report”), I, Jason P. Rhode, Chief Executive Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to my knowledge:

 	1.	 	The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and	
 		
 	2.	 	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.	
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

Date: June 1, 2007 	/s/ Jason P. Rhode  	 	
 	Jason P. Rhode 	 	

   

Exhibit 32.2
Certification Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the annual report of Cirrus Logic, Inc. (the “Company”) on Form 10-K for the period ended March 31, 2007, as filed with the Securities and Exchange Commission (the “Report”), I, Thurman K. Case, Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

Date: June 1, 2007 	/s/ Thurman K. Case  	 	
 	Thurman K. Case