UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (date of earliest event reported): March 12, 2004 (February 27, 2004)

Conexant Systems, Inc.

100 Schulz Drive
Red Bank, New Jersey 07701
(Address of principal executive offices) (Zip code)

(732) 345-7500
(Registrant’s telephone number, including area code)

4000 MacArthur Boulevard, Newport Beach, California 92660-3095
(Former Address)

Table of Contents

INFORMATION TO BE INCLUDED IN THE REPORT

     On February 27, 2004, pursuant to an Agreement and Plan of Reorganization dated as of November 3, 2003, as amended as of January 15, 2004 (the “Merger Agreement”), by and among Conexant Systems, Inc., a Delaware corporation (“Conexant”), Concentric Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Conexant (“Concentric Sub”), and GlobespanVirata, Inc., a Delaware corporation (“GlobespanVirata”), Concentric Sub merged with and into GlobespanVirata (the “Merger”). Each share of common stock, par value $.001 per share, of GlobespanVirata was converted into the right to receive 1.198 shares of common stock, par value $.01 per share, of Conexant (“Conexant Common Stock”). As a result of the Merger, the separate corporate existence of Concentric Sub ceased and GlobespanVirata continues as the surviving corporation and a wholly-owned subsidiary of Conexant.

     The Merger Agreement is filed herewith as Exhibit 2 and is incorporated herein by reference. Conexant’s Registration Statement on Form S-4 (Registration No. 333-111179) filed with the Securities and Exchange Commission (the “SEC”) and declared effective on January 16, 2004 sets forth certain information regarding the Merger, Conexant and GlobespanVirata.

The following report and audited financial statements of GlobespanVirata are included at pages F-1 through F-25 of this report:

2

The following report and audited financial statements of the Wireless LAN Product Group of Intersil Corporation are incorporated herein by reference from the amended Current Report on Form 8-K/A of GlobespanVirata (File No. 000-26401) filed with the SEC on November 12, 2003 (the “GlobespanVirata Form 8-K/A”):

The following unaudited financial statements of the Wireless LAN Product Group of Intersil Corporation are incorporated by reference from the GlobespanVirata Form 8-K/A:

The following unaudited pro forma financial information of Conexant is included at pages F-26 through F-33 of this report:

3

4

Report of Independent Auditors

To the Board of Directors and Stockholders of
GlobespanVirata, Inc.:

     In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of changes in stockholders’ equity and of cash flows present fairly, in all material respects, the financial position of GlobespanVirata, Inc. and its subsidiaries at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. 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 of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/  PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Florham Park, New Jersey
January 29, 2004

F-1

GLOBESPANVIRATA, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

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

F-2

GLOBESPANVIRATA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

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

F-3

GLOBESPANVIRATA, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands, except share data)

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

F-4

GLOBESPANVIRATA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

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

F-5

GLOBESPANVIRATA, INC.
NOTES TO FINANCIAL STATEMENTS

1. Nature of Business and Recent Developments

Nature of Business

     GlobespanVirata (“GlobespanVirata” or the “Company”) is a leading provider of integrated circuits and software for broadband communications solutions for consumer, enterprise, personal computer and service provider markets. GlobespanVirata delivers complete system-level high-speed, cost-effective and flexible digital subscriber line or DSL and wireless networking chip sets, software and reference designs to leading global manufacturers of broadband access and wireless networking equipment. The Company’s products include broadband system-level solutions for modems, routers, residential gateways, and DSL access multiplexers, or DSLAMs, located in telephone service providers’ central offices. The Company also provides a wide variety of wireless networking chip sets and reference designs that are enabling a new generation of wireless connectivity in notebooks, PDAs, digital cameras, MP3 players and other handheld networking appliances. GlobespanVirata applies the industry’s longest history in DSL and wireless networking development and deployment to offer unparalleled support to its more than 400 customers in bringing its proven broadband and wireless networking solutions to market. GlobespanVirata has approximately 1,000 employees worldwide.

Recent Developments

     On August 28, 2003, the Company acquired certain technology and employees of the Wireless LAN Group (“the WLAN Group”) of Intersil Corporation (“Intersil”). The WLAN Group is a leading supplier of high-speed wireless networking solutions, with the industry’s longest history of WLAN development and deployment. We paid Intersil $250.0 million in cash and issued 15.5 million shares of common stock valued at $107.3 million. The acquisition of the WLAN Group was accounted for as a purchase under the terms of an asset purchase agreement (the “Intersil Asset Purchase Agreement”) and has been included in the Company’s results of operations from August 29, 2003.

     On November 3, 2003, the Company signed a definitive agreement (the “Conexant Merger Agreement”) to merge with Conexant Systems, Inc. (“Conexant”). Under the terms of the merger agreement, the Company’s shareholders will receive 1.198 shares of Conexant common stock for each share of the Company’s common stock. In addition, each outstanding and unexpired option and warrant to acquire shares of the Company’s common stock will be converted into an option or warrant to acquire Conexant common stock having the same terms and conditions, except that the number of shares for which each such option or warrant is exercisable will be multiplied by 1.198 and the applicable exercise price will be divided by 1.198. Based on the number of fully diluted shares for the two companies outstanding as of market close on Friday, October 31, 2003, current Conexant shareholders will own 62.75 percent and the Company’s current shareholders will own 37.25 percent of the combined company’s shares. The closing of the transaction is subject to shareholder approvals and other customary conditions. Shareholders of both companies are expected to vote on the proposed merger at their respective meetings on February 25, 2004.

2. Summary of Significant Accounting Policies

     The significant accounting principles and practices used in the preparation of the accompanying financial statements are summarized below:

Principles of Consolidation

     The consolidated financial statements include the accounts of GlobespanVirata, Inc. and all of its wholly-owned subsidiaries. The results of operations for the years ended December 31, 2003, 2002, and 2001 include the results of acquired subsidiaries from their effective dates (See Note 3). All intercompany transactions and balances are eliminated in consolidation.

F-6

GLOBESPANVIRATA, INC.
NOTES TO FINANCIAL STATEMENTS

Use of Estimates

     The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods presented. These estimates include assessing the collectability of accounts receivable, the use and recoverability of inventory, the realizability of deferred tax assets, the useful lives or amortization periods of intangible assets, and the valuation of in-process research and development and other acquired intangible assets. Actual results could differ from those estimates. The markets for the Company’s products are characterized by intense competition, rapid technological development and frequent new product introductions, all of which could impact the future realizability of the Company’s assets.

Revenue Recognition

     Revenue from product sales is recognized upon shipment to the customer, when the risk of loss has been transferred to the customer, price and terms are fixed, no significant vendor obligations exist and collection of the resulting receivable is reasonably assured. Substantially all of the Company’s revenue during the years ended December 31, 2003, 2002 and 2001 were from product sales.

Cash and Cash Equivalents

     The Company considers all highly liquid instruments purchased with an original maturity of ninety days or less to be cash equivalents.

Investments — marketable securities

     Short-term marketable securities consist of debt securities with original maturity dates between ninety days and one year. Long-term marketable securities consist of debt securities with original maturity dates greater than one year. The Company’s investments are classified as available-for-sale, and are reported at fair value at the balance sheet date. The unrealized gains and losses, net of related taxes, are reported as a component of accumulated other comprehensive income. Management determines the appropriate classification of debt securities at the time of purchase and reassesses the classification at each reporting date. Gains and losses on the sale of available-for-sale investments are determined using the specific-identification method.

     For all investment securities, unrealized losses that are other than temporary are recognized in net income. The Company does not hold these securities for speculative or trading purposes.

     In June 2002, the Company received 1.25 million shares of common stock of Conexant Systems, Inc. as a result of the sale of its video compression business. In October 2003, the Company sold these shares of restricted stock by executing “short sale against the box” trades and received cash proceeds of approximately $7.5 million. The Company was subsequently unable to clear the restrictions on the Conexant shares and maintained both long and short positions in Conexant's common stock as of December 31, 2003. The unrealized gain and loss on the position was immaterial at December 31, 2003.

Inventories

     Inventories are stated at the lower of cost or market. Cost is determined on a first-in, first-out basis. The Company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated realizable value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those expected by management, additional inventory write-downs may be required.

Property and Equipment

     Property and equipment are stated at cost, less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful lives of the related assets, ranging from three to five years. Leasehold improvements are amortized on a straight-line basis over the lesser of the terms of the leases or the estimated useful lives of the assets. Gains or losses on disposals of property and equipment are recorded in current operations.

F-7

GLOBESPANVIRATA, INC.
NOTES TO FINANCIAL STATEMENTS

Intangible Assets

     Intangible assets at December 31, 2003 and 2002 consist of the excess of the purchase price of acquired businesses over the fair value of net tangible assets acquired, as follows (in thousands):

     Pursuant to an agreement reached on March 24, 2003, the Company recognized prior research credits of an acquired entity that were not previously recognized due to the uncertainty of their ultimate realization. These credits were related to investments in research in a foreign jurisdiction. Of the total amount agreed to of approximately $3.6 million, approximately $2.7 million relates to periods prior to the Company’s acquisition of the entity and has been credited against intangible assets recorded from the acquisition. The remainder of the credits were recorded as an income tax benefit in the year ended December 31, 2003 (see Note 11). As of December 31, 2003, approximately $2.7 million of these amounts have been collected, approximately $0.9 million is recorded on the Company’s balance sheet as an asset.

     The intangible assets acquired are being amortized over periods ranging from two years to five years. Amortization expense related to intangible assets for the years ended December 31, 2003, 2002, and 2001, was $32.0 million, $32.7 million, and $209.2 million, respectively. As a result of the implementation of Statement of Financial Accounting Standards (SFAS) No. 142, entitled “Goodwill and Other Intangible Assets,” effective January 1, 2002, goodwill is no longer amortized. Management evaluates the recoverability of the carrying amount of intangible assets annually, or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Current and estimated future profitability, undiscounted cash flows and the market value of the Company’s common stock are the primary indicators used to assess the recoverability of intangible assets. Aggregate amortization of intangible assets for the next five years will be $122.5 million.

     The following is a reconciliation of net loss, and basic and diluted loss per share between the amounts reported by the Company in the twelve months ended December 31, 2001 and the adjusted amounts reflecting this new accounting standard (in thousands, except per share amounts).

     As a result of the sale of its video compression business and due to the significant negative industry and economic trends affecting both the Company’s current operations and expected future sales as well as the general decline in valuation of technology company stocks, including the valuation of the Company’s stock, the Company performed an assessment of the carrying value of the Company’s long-lived assets to be held and used, including significant amounts of goodwill and other intangible assets recorded in connection with it various acquisitions. The assessment was performed pursuant to SFAS No. 144 entitled “Accounting For the Impairment or Disposal of Long-Lived Assets” and SFAS No. 142. As a result, the Company recorded a charge of $493.6 million to reduce goodwill and other intangible assets during the year ended December 31, 2002, based upon the amount by which the carrying amount of these assets exceeded their fair value. Of the total charge, $458.4 million relates to goodwill and $35.2 million relates to other identifiable intangible assets. The charge is included within the caption “Impairment of goodwill and other acquired intangible assets” on the Company’s Statements of Operations. Fair value was determined based on market value, including a review of the discounted future cash flows.

F-8

GLOBESPANVIRATA, INC.
NOTES TO FINANCIAL STATEMENTS

A reconciliation of the Company’s goodwill from December 31, 2002 to December 31, 2003 is as follows (in thousands):

Product Warranties

     The Company provides purchasers of its products with certain warranties, generally twelve months, and records a related provision for estimated warranty costs at the date of sale. Warranty expense has been immaterial for all periods presented.

Stock Based Compensation

     The Company accounts for employee stock-based compensation in accordance with the intrinsic value method prescribed in Accounting Principles Board Opinion (APB) No. 25 entitled “Accounting for Stock Issued to Employees,” and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the fair value of the Company’s stock at the date of grant over the amount an employee must pay to acquire the stock amortized over the vesting period. The Company has adopted the pro forma disclosure provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” Had the compensation cost for the Company’s stock option plans been determined based on the fair value at the grant dates for awards under the plans consistent with the method of SFAS No. 123, the Company’s net loss and fully diluted earnings per share on a pro forma basis would have been as follows (in thousands, except per share amounts):

     For purposes of pro forma disclosures under SFAS No. 123, the estimated fair value of the stock-based awards is assumed to be amortized to expense over the instruments’ vesting periods. The fair value has been estimated at the date of grant using the Black-Scholes option valuation model with the following assumptions:

F-9

GLOBESPANVIRATA, INC.
NOTES TO FINANCIAL STATEMENTS

Research and Development Costs

     Costs incurred in connection with the research and development of the Company’s products and enhancements to existing products are expensed as incurred unless technological feasibility has been established. Based on the Company’s product development process, technological feasibility is established upon completion of a working model. Costs incurred by the Company between completion of the working model and the point at which the product is ready for general release have not been material. Accordingly, research and development costs have been expensed as incurred.

Income Taxes

     The Company accounts for income taxes under the provisions of SFAS No. 109, entitled “Accounting for Income Taxes,” which requires use of the asset and liability method. Deferred income taxes are recorded for temporary differences between financial statement carrying amounts and the tax bases of assets and liabilities. Deferred tax assets and liabilities reflect the tax rates expected to be in effect for the years in which the differences are expected to reverse. A valuation allowance is provided if it is more likely than not that some or all of the deferred tax assets will not be realized.

Comprehensive Income

     The Company follows SFAS No. 130, entitled “Reporting Comprehensive Income.” SFAS No. 130 requires companies to classify items of other comprehensive income by their nature in the financial statements and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of the balance sheet.

Long-Lived Assets

     The impairment of long-lived assets is assessed by management of the Company using certain factors including probable comparable fair market values, anticipated future cash flows, and the aggregate value of the related businesses taken as a whole. These factors are periodically reviewed to determine whether current events or circumstances require an adjustment to the carrying values or estimated useful lives of fixed or intangible assets in accordance with the provisions of SFAS No. 144.

Advertising

     Cooperative advertising obligations are accrued and the costs expensed at the same time the related revenue is recognized. Cooperative advertising expenses are recorded as marketing, general and administrative expense to the extent the cash paid does not exceed the fair value of the advertising benefit received. Any excess of cash paid over the fair value of the advertising benefit received is recorded as a reduction of revenue.

Recent Accounting Pronouncements

     In January 2003 the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. (FIN) 46, “Consolidation of Variable Interest Entities,” which was amended in December 2003. The Company must adopt FIN 46 in the first quarter ending March 2004 and does not expect the adoption to have a significant impact on its financial position or results of operations.

Reclassifications

     Certain reclassifications have been made to conform prior-year amounts to the current year presentation.

3. Acquisitions

     On August 28, 2003, the Company acquired certain technology and employees of the WLAN Group of Intersil. The WLAN Group is a leading supplier of high-speed wireless networking solutions, with the industry’s longest history of WLAN development and deployment. The Company paid Intersil $250.0 million in cash and issued 15.5 million shares of common stock valued at $107.3 million.

F-10

GLOBESPANVIRATA, INC.
NOTES TO FINANCIAL STATEMENTS

     The following is a summary of the consideration paid for the WLAN Group (in thousands):

     Pursuant to the terms of the Intersil Asset Purchase Agreement, the Company and Intersil are required to determine a post-closing purchase price adjustment based on changes in working capital of the WLAN Group, as defined. This post-closing purchase price adjustment is expected to be finalized during the first quarter of 2004.

     In connection with the acquisition of the WLAN Group, the Company and Intersil entered into a transition services agreement, pursuant to which Intersil continued to provide certain administrative services to the WLAN Group. The Company discontinued use of substantially all of the administrative services pursuant to the transition services agreement during the fourth quarter of 2003.

     The assets and liabilities of the WLAN Group were recorded at their estimated fair market value at the dates of the acquisition. The allocations were as follows (in thousands):

     The assets and liabilities recorded in connection with the purchase price allocations for the WLAN Group are based on preliminary estimates of fair values. Actual adjustments will be based on final values for tangible and intangible assets acquired and liabilities assumed and the post-closing purchase price adjustment.

     The acquisition of the WLAN Group was accounted for as a purchase and has been included in the Company’s results of operations from the closing date. The excess of purchase price over the fair value of net assets acquired, reflected as identifiable intangible assets is being amortized on a straight-line basis over periods ranging from three to five years. As a result of the implementation of SFAS No. 142, entitled, “Goodwill and Other Intangible Assets,” the excess of purchase price over the fair value of net assets acquired reflected as goodwill is no longer amortized on the statement of operations.

     The amount allocated to in process research and development (“IPR&D”) of $26.0 million was expensed upon the acquisition of the WLAN Group, as it was determined that the underlying projects had not reached technological feasibility, had no alternative future use and successful development was uncertain. In the allocation of the acquisition purchase price to IPR&D, consideration was given to the following for the projects under development at the time of the acquisition:

     In valuing core technology, the relative allocations to core technology and IPR&D were consistent with the relative contribution of the projects. The determination of the value of IPR&D was based on efforts completed as of the date of

F-11

GLOBESPANVIRATA, INC.
NOTES TO FINANCIAL STATEMENTS

the acquisition. The IPR&D projects related to the development of next generation WLAN technologies and were approximately 25% complete as of the acquisition date. These projects are expected to be completed by the fourth quarter of 2004.

     The following unaudited pro forma information represents a summary of the results of operations of the Company as if the acquisition of the WLAN Group occurred on January 1, 2003 and 2002, respectively (in thousands, except per share amounts).

     The pro forma results are based on various assumptions and are not necessarily indicative of what would have occurred had these transactions been consummated on January 1, 2003 and 2002, respectively.

4. Inventories, Net

     Inventories, net at December 31, 2003 and 2002 consisted of the following (in thousands):

     During the years ended December 31, 2003 and 2001, the Company recorded a provision for excess and obsolete inventories of $1.5 million and $80.9 million, respectively, reflected in cost of sales on the statements of operations. No provision for excess and obsolete inventories was recorded during the year ended December 31, 2002. The decrease in reserve for excess and obsolete inventories from December 31, 2002 to December 31, 2003 is primarily attributable to the sale of previously reserved inventory.

5. Concentration of Risk and Customer Information

     Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash equivalents and trade receivables. At December 31, 2003, and 2002, five of the Company’s customers accounted for $45.2 million (38.7%) and $26.1 million (76.8%) of net accounts receivable, respectively. Approximately 9.4% and 41.9% of the net accounts receivable at December 31, 2003 and 2002 is due from customers from whom the Company has collateralized payment arrangements through a letter of credit with a bank. From time to time, the Company settles letter of credit instruments with the bank prior to their due date. Fees associated with these transactions have been nominal for all periods presented.

F-12

GLOBESPANVIRATA, INC.
NOTES TO FINANCIAL STATEMENTS

     Sales to customers who individually represented more than 10% of the Company’s net revenues amounted to $83.7 million (22.1%), $32.1 million (14.0%), and $104.7 million (39.5%), of total revenues for the years ended December 31, 2003, 2002, and 2001, respectively. Revenues from customers who represented more than 10% of net revenues were as follows:

     The Company’s sales to overseas customers are predominantly denominated in the U.S. dollar. Revenues by geographic region for the years ended December 31, 2003, 2002, and 2001 were as follows (in thousands):

     The Company’s revenue distribution by geographic region is determined based upon customer ship to locations, which are not necessarily indicative of the geographic region in which the customer’s equipment is ultimately deployed.

     The Company has diversified its manufacturing among several vendors. Purchases from the Company’s top five inventory vendors represented 74.6% and 87.9% of total inventory purchases for the years ended December 31, 2003 and 2002. One vendor represented 34.3% and 33.0% of the Company’s total inventory purchases for the years ended December 31, 2003 and 2002, respectively. A single vendor manufactured substantially all of the chip sets sold by the Company during 2001. Purchases from this vendor approximated 87.0% of total inventory purchases for the year ended December 31, 2001.

F-13

GLOBESPANVIRATA, INC.
NOTES TO FINANCIAL STATEMENTS

6. Property and Equipment

     Property and equipment consists of the following (in thousands):

     Accumulated amortization on assets accounted for as capital leases, amounted to approximately $3.2 million and $2.8 million as of December 31, 2003 and 2002, respectively.

     Included in operating expenses is depreciation and amortization expense of $14.1 million, $16.2 million, and $15.2 million for the years ended December 31, 2003, 2002, and 2001, respectively.

7. Marketable Securities

     Marketable securities are included in investments — marketable securities in both the current and non-current asset categories, as appropriate. At December 31, 2003 and 2002, marketable securities totaling $151.9 million and $344.8 million were available-for-sale and recorded at fair value as follows (in thousands):

     Proceeds from the sale of available-for-sale securities during the years ended December 31, 2003, 2002, and 2001 were approximately $369.6 million, $609.3 million, and $69.1 million, respectively, for which there was an immaterial associated gain or loss.

     As of December 31, 2003, substantially all of the Company’s short-term investments were in money market funds, certificates of deposits, or high-quality commercial paper. Long-term securities are primarily comprised of corporate bonds rated AA or better and U.S. Government-backed securities.

8. Defined Contribution Plan

     The Company participates in a 401(k) plan covering substantially all employees. Benefits vest based on number of years of service. The Company’s policy is to match two-thirds of an employee’s contributions, up to 6.0% of an employee’s annual salary. Additionally, the board of directors may grant discretionary contributions. Contributions to the plan by the Company amounted to approximately $1.8 million, $2.4 million, and $2.0 million for the years ended December 31, 2003, 2002 and 2001, respectively. In connection with the merger with Virata Corporation (“Virata”), which closed in December of 2001, the Company assumed the former Virata 401(k) Plan. Under this plan, the Company provided a 50% matching contribution, up to $2,000 per calendar year, per employee. During 2002, the Virata 401(k) Plan was merged into the GlobespanVirata 401(k) plan.

F-14

GLOBESPANVIRATA, INC.
NOTES TO FINANCIAL STATEMENTS

9. Restructuring and Reorganization Liabilities

     In connection with the merger with Virata, which occurred in December of 2001, the Company began to formulate the Reorganization Plan, which consisted primarily of eliminating redundant positions and consolidating its worldwide facilities. The Company recognized as liabilities assumed in the purchase business combination and included in the allocation of the acquisition cost in accordance with SFAS No. 141, entitled “Business Combinations” and EITF 95-3, entitled “Recognition of Liabilities in Connection with a Purchase Business Combination,” the estimated costs related to Virata facilities consolidation and the related impact on Virata outstanding real estate leases and Virata relocations and workforce reductions. In connection with the Reorganization Plan, the Company also recorded restructuring and other charges during the years ended December 31, 2001 and 2002. These charges were recorded in accordance with the provisions of EITF 94-3, entitled “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)” and SFAS No. 144, entitled “Accounting for the Impairment or Disposal of Long-Lived Assets”.

     The following table summarizes the status of the Company’s restructuring and reorganization liabilities as of and for the year ended December 31, 2003 (in thousands):

     The Company recorded restructuring and other charges during the year ended December 31, 2003 of $1.2 million. The charges primarily relate to the proposed settlement of real estate tax liabilities associated with the facility held for sale, net of adjustments to previously recorded workforce charges in the amount of approximately $0.5 million.

     The facilities consolidation related restructuring charges will primarily be paid over the next five years.

     The following table summarizes the status of the Company’s restructuring and reorganization liabilities as of and for the year ended December 31, 2002 (in thousands):

     The Company reviews the above estimated costs and assumptions periodically and reflects the effect of revisions in the period that they occur. Revisions to estimated liabilities which arose as a result of the merger with Virata are reflected as a reduction of intangible assets and revisions to estimated liabilities that arose as a result of restructuring charges are reflected in the restructuring and other charges line item on the Company’s statements of operations.

10. Private Offering of Convertible Subordinated Notes

     On May 11, 2001, the Company sold $130.0 million of its 5 1/4% Convertible Subordinated Notes due 2006 in a private placement through an initial purchaser to qualified institutional buyers in accordance with Rule 144A under the

F-15

GLOBESPANVIRATA, INC.
NOTES TO FINANCIAL STATEMENTS

Securities Act. The Company received net proceeds from the sale of the notes of $126.4 million. The Company expects to continue to use the net proceeds of the offering for general corporate purposes, including working capital, capital expenditures and possible acquisitions. The notes are unsecured obligations of the Company and will mature on May 15, 2006. The notes are contractually subordinated in right of payment to all of the Company’s existing and future senior indebtedness.

     Holders of the notes may convert the notes into shares of common stock at any time prior to maturity at an initial conversion price of $26.67 per share, subject to adjustment. The Company may redeem some or all of the notes at any time prior to May 20, 2004 at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to the redemption date, if (1) the closing price of the Company’s common stock has exceeded 130% of the conversion price of the notes for at least 20 of the 30 trading days prior to the mailing of the redemption notice, and (2) in accordance with the terms of the Registration Rights Agreement, the shelf registration statement covering resales of the notes and the common stock issuable upon conversion of the notes is effective and available for use and expected to remain effective and available for use for the 30 days following the provisional redemption date. In the event of a provisional redemption, the Company will make an additional payment equal to the total value of the aggregate amount of the interest that would have been payable on the notes from the redemption date to May 20, 2004. On and after May 20, 2004, the Company may also redeem the notes at any time at the Company’s option, in whole or in part, at the redemption price shown in the note, plus accrued interest, if any.

     The Company subsequently registered the resale of the notes and common stock issuable upon conversion of the notes on a Registration Statement on Form S-3 (File No. 333-66478), which was declared effective on August 10, 2001.

11. Income Taxes

     Deferred tax assets (liabilities) are comprised of the following (in thousands):

     The Company has acquired and generated federal, state and foreign net operating loss carryforwards of approximately $636.0 million and $522.2 million, as of December 31, 2003 and 2002, respectively, which are due to expire between 2004 and 2024. Certain foreign net operating losses may be carried forward indefinitely. Section 382 of the Internal Revenue Code of 1986, as amended, places a limitation on the annual and aggregate utilization of federal net operating loss carryforwards when an ownership change occurs. Generally, an ownership change occurs when a greater than 50% change in ownership takes place over a three-year test period. The annual utilization of net operating loss carryforwards generated prior to such change in ownership is limited, in any one year, to a percentage of the fair market value of the Company at the time of the ownership change.

     Due to the uncertainty of realization of its deferred tax assets, the Company has provided a valuation allowance against its deferred tax assets. At such time when it is determined that it is more likely than not that the deferred tax assets are realizable, the valuation allowance will be reduced.

F-16

GLOBESPANVIRATA, INC.
NOTES TO FINANCIAL STATEMENTS

     For the year ended December 31, 2001, the Company’s federal and state income taxes payable have been reduced by the tax benefits associated with dispositions and exercise of employee stock options. The Company receives an income tax benefit calculated as the difference between the fair market value of the stock issued at the time of exercise and the option price, related to non-qualified stock options or disqualifying dispositions of incentive stock options. These benefits were credited directly to stockholders’ equity and amounted to $0.3 million for the year ended December 31, 2001.

     The components of the provision (benefit) for income taxes for continuing operations are as follows (in thousands):

     The Company’s 2003 foreign tax expense is comprised of a provision for tax expense in foreign jurisdictions, net of credits related to investments in research in a foreign jurisdiction.

     The provision (benefit) for income taxes differs from the amount of income tax determined by applying the applicable U.S. income tax rate to income before taxes, as follows:

12. Earnings Per Share

     The Company has adopted SFAS No. 128 entitled “Earnings per Share,” which requires the presentation of basic earnings per share (“Basic EPS”) and diluted earnings per share (“Diluted EPS”) by all entities that have publicly traded common stock or potential common stock. Basic EPS is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period. The computation of Diluted EPS does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on earnings. The dilutive effect of the outstanding stock warrants and options is required to be computed using the treasury stock method.

F-17

GLOBESPANVIRATA, INC.
NOTES TO FINANCIAL STATEMENTS

As of December 31, 2003, 2002, and 2001, the Company had outstanding options, restricted stock and warrants to purchase an aggregate of 42.8 million, 44.8 million, and 45.0 million shares of common stock, respectively, which were not included in the calculation of earnings per share for such periods, due to the anti-dilutive nature of these instruments. In addition, the Company has $130.0 million of convertible subordinated notes which can be converted into common stock of the Company at a conversion price of $26.67 per share. The notes were anti-dilutive to earnings per share for the years ended December 31, 2003, 2002 and 2001 and therefore have been excluded from the calculation.

     The computations of Basic EPS and Diluted EPS for the years ended December 31, 2003, 2002, and 2001, are as follows (in thousands, except per share amounts):

13. Stockholders’ Equity

     On June 19, 2002, the Company’s board of directors authorized the repurchase of up to $100.0 million of its common stock. Purchases may be made from time to time on the open market or in privately negotiated transactions. The timing and amount of any shares repurchased will be determined by the Company, based on its evaluation of market conditions, applicable legal requirements and other factors. The stock repurchase program is expected to be funded using the Company’s available working capital. As of December 31, 2003 the Company has repurchased 13.5 million shares at an average price per share of $3.36, for an aggregate purchase price of $45.4 million.

     The Company adopted a Stockholder Rights Plan on July 2, 2002 and declared a nontaxable dividend of one “right” on each outstanding share of the Company’s common stock to stockholders of record as of July 15, 2002. The rights plan was designed to enable stockholders to receive fair and equal treatment in any proposed takeover of the Company and to safeguard against two-tiered tender offers, open market accumulations and other abusive tactics to gain control of the Company. In connection with the Conexant Merger Agreement, the Company amended the rights plan to exempt the Conexant merger from the application of the plan.

14. Stock Option Plans and Employee Stock Purchase Plan

1996 Equity Incentive Plan

     In December 1996, the Company adopted the 1996 Equity Incentive Plan (the “1996 Plan”) pursuant to which, as amended, nonqualified or incentive stock options, stock bonus and restricted stock awards (collectively, “Stock Awards”) to purchase up to 10.2 million shares of the Company’s common stock may be granted to employees, directors and consultants. Stock Awards granted under the 1996 Plan generally vest in equal installments over a four-year period. The exercise price of incentive stock options granted under the 1996 Plan may not be less than the fair market value of the underlying shares (110% of the fair market value in the case of a 10% voting shareholder) at the

F-18

GLOBESPANVIRATA, INC.
NOTES TO FINANCIAL STATEMENTS

grant date. Each stock option is exercisable for ten years (five years in the case of a 10% voting stockholder) from the date of grant.

     Under the 1996 Plan, certain individuals to whom stock options have been granted may elect to exercise those options prior to the lapse of the full vesting period. Upon termination of employment, the Company may repurchase any unvested shares issued pursuant to such election at the exercise price. During the year ended December 31, 2001, the Company repurchased 25,000 shares under such provision. At December 31, 2003 no shares issued and outstanding were subject to this repurchase provision.

     Stock bonuses and restricted stock awards issued under the 1996 Plan provide that shares awarded may not be sold or otherwise transferred until restrictions established by the underlying agreements have elapsed. Upon termination of employment, the Company may repurchase shares upon which restrictions have not lapsed. The 1996 Plan provides that the price for each restricted stock award shall not be less than 85% of the fair market value of the share at the date of grant.

     The 1996 Plan permits optionees to exercise their stock options by issuing a promissory note. When stock options are exercised utilizing a promissory note, the Company records notes receivable from stock sales. The notes are full recourse promissory notes bearing interest at fixed rates ranging from 5.22% to 6.16% and are collateralized by the stock issued upon exercise of the stock options. The notes including accrued interest thereon mature five years from the date of issuance. As of December 31, 2003 and 2002, notes receivable from stock sales amounted to $3.7 million and $5.2 million, respectively.

1999 Equity Incentive Plan

     In March 1999, the Company’s board of directors approved the adoption of the 1999 Equity Incentive Plan (the “1999 Plan”). The 1999 Plan was approved by the Company’s stockholders in May 1999. Upon adoption of the 1999 Plan, the Company reserved 3.0 million shares of its common stock, together with the shares of common stock remaining available for issuance under the 1996 Plan, for issuance under the 1999 Plan. The number of shares reserved for issuance under the 1999 Plan automatically increased each year beginning May 1, 2000 and ending May 1, 2002, by the lesser of 5.0% of the total number of shares of common stock then outstanding or 3.0 million shares. Under the 1999 Plan, the Company may grant incentive or nonqualified stock options, stock appreciation rights, restricted stock or stock units to employees, non-employee directors and consultants. The 1999 Plan is administered by the Compensation Committee of the board of directors in accordance with the terms of the 1999 Plan.

1999 Director Stock Option Plan

     In March 1999, the Company’s board of directors approved the adoption of the 1999 Director Stock Plan (the “Director Plan”). The Director Plan was approved by the Company’s shareholders in May 1999. The Company reserved 750,000 shares of its common stock for issuance under the Director Plan. Under the Director Plan, the Company may only grant nonqualified stock options to non-employee directors. The Director Plan provides for automatic grants to non-employee directors of the Company at defined intervals. Each non-employee director of the Company was granted an option to purchase 30,000 shares of common stock at the fair market value at the date in which the non-employee director was appointed or at $5.00 with the consummation of the Company’s IPO, an additional option to purchase 15,000 shares of common stock on the date of the Company’s annual stockholders’ meeting in the year 2000 and an additional option to purchase 15,000 shares of common stock on the date of the Company’s annual stockholders’ meeting in the year 2001, provided that the director continues to serve as a director of the Company. Each non-employee director elected to serve will be granted an option to purchase 30,000 shares of common stock on the date he or she is first elected to the board of directors and an additional option to purchase 15,000 shares of common stock on the date of the Company’s annual stockholder’s meeting in the calendar year following such initial election. At each annual stockholders’ meeting following the annual meeting during which each non-employee director received the second option to purchase 15,000 shares of common stock, each non-employee director will be granted an option to purchase 7,500 shares of common stock. Stock options granted pursuant to the Director Plan vest upon the director’s completion of twelve months of service during which he or she attended at least 75% of the meetings of the Company’s board of directors.

     On January 22, 2002, the Company’s board of directors approved a one-year extension to the exercise period of all outstanding and vested options held by the Directors who resigned on December 14, 2001, in connection with the Virata merger. The Company recognized approximately $2.5 million as a result of this action.

F-19

GLOBESPANVIRATA, INC.
NOTES TO FINANCIAL STATEMENTS

1999 Supplemental Stock Option Plan

     In December 1999, the Company’s board of directors approved the adoption of the 1999 Supplemental Stock Option Plan (the “1999 Supplemental Plan”). As of December 31, 2003, the Company has reserved 27.0 million shares of its common stock for issuance under the 1999 Supplemental Plan. Under the 1999 Supplemental Plan, the Company may grant incentive or nonqualified stock options to non-officer employees and consultants. The 1999 Supplemental Plan is administered by the Compensation Committee of the board of directors.

Amended and Restated GlobespanVirata, Inc. 1999 Stock Incentive Plan

     Upon the acquisition of Virata Corporation, the Company assumed the Amended and Restated Virata Corporation 1999 Stock Incentive Plan (the “1999 Stock Incentive Plan”) pursuant to the terms of the merger agreement between the Company and Virata Corporation and reserved a total of 15.6 million shares of the Company’s common stock for issuance under the plan. The plan was approved by the stockholders of Virata Corporation and was amended and renamed the Amended and Restated GlobespanVirata, Inc. 1999 Stock Incentive Plan following the merger. The terms of the plan contemplate the grant of both incentive stock options and nonqualified stock options. The 1999 Stock Incentive Plan is administered by the board of directors or a committee appointed by the board of directors of the Company.

     The Company assumed the stock option plans of Virata in connection with the Virata merger. During the year ended December 31, 2001, a total of approximately 18.6 million shares of the Company’s common stock were reserved for issuance under the assumed plans and the related outstanding options, which aggregate 6.0 million and 14.3 million as of December 31, 2003 and 2002, respectively, are included in the table below.

     The following table summarizes stock options granted, exercised and forfeited (in thousands, except per share amounts), since December 31, 2000:

F-20

GLOBESPANVIRATA, INC.
NOTES TO FINANCIAL STATEMENTS

     The following table summarizes information about outstanding stock options (shares in thousands) as of December 31, 2003: