UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 26, 2004

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.

2901 Via Fortuna Austin, Texas 78746
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code:
(512) 851-4000

     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 x NO o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). YES x NO o

     The number of shares of the registrant’s common stock, $0.001 par value, outstanding as of July 23, 2004 was 84,661,111.

CIRRUS LOGIC, INC.

FORM 10-Q QUARTERLY REPORT

QUARTERLY PERIOD ENDED JUNE 26, 2004

TABLE OF CONTENTS

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CIRRUS LOGIC, INC.

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

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CIRRUS LOGIC, INC.

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

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CIRRUS LOGIC, INC.

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

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CIRRUS LOGIC, INC.

1. Basis of Presentation

     The consolidated condensed financial statements have been prepared by Cirrus Logic, Inc. (“we,” “us,” “our,” or the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The accompanying unaudited consolidated condensed financial statements do not include complete footnotes and financial presentations. As a result, these financial statements should be read along with the audited consolidated financial statements and notes thereto for the year ended March 27, 2004, included in our 2004 Annual Report on Form 10-K. In our opinion, the financial statements reflect all adjustments, including normal recurring adjustments, necessary for a fair presentation of the financial position, operating results and cash flows, for those periods presented. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect reported assets, liabilities, revenues and expenses, as well as disclosure of contingent assets and liabilities. Actual results could differ from those estimates and assumptions. Moreover, the results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the entire year. We maintain a web site at www.cirrus.com, which makes available free of charge our recent annual report and other filings with the SEC.

     Certain reclassifications have been made to the fiscal year 2004 financial statements to conform to the fiscal year 2005 presentation. These reclassifications had no effect on the results of operations or stockholders’ equity.

2. Inventories

          Inventories are comprised of the following (in thousands):

3. Assets Held for Sale

     On June 26, 2003, we agreed to sell our test operation assets for $3.5 million, which consist primarily of analog and mixed-signal testers, handlers and wafer probes, to ChipPAC, Inc. (“ChipPAC”), a provider of semiconductor packaging design, assembly, test and distribution services. The transaction closed and we received the cash on June 30, 2003. We expect to complete the transfer of assets by the end of this calendar year. As a result of the planned transfer of these assets to ChipPAC, we recorded an impairment charge of $0.7 million in cost of sales during the first quarter of fiscal year 2004 and reclassified the related assets to assets held for sale, a component of other current assets. As of June 26, 2004, we have transferred to ChipPAC assets with a net book value totaling approximately $1.6 million. On June 26, 2004, we had $1.9 million in assets held for sale and $1.9 million in accrued liabilities related to proceeds associated with the assets held for sale. In addition to the transfer of assets, we have entered into a long-term outsourcing agreement pursuant to which ChipPAC will provide package development, wafer probe, assembly, final test and distribution services to us.

4. Intangibles, net

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

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     Amortization expense for all intangibles in the first quarter of fiscal years 2005 and 2004 was $4.5 million and $4.7 million, respectively.

     The following table details the estimated aggregate amortization expense for all of our intangibles as of June 26, 2004 for the remainder of fiscal year 2005 and for each of the five succeeding fiscal years (in thousands):

5. Income Taxes

     We incurred income tax expense of $24 thousand for the first quarter of fiscal year 2005, compared with $21 thousand for the comparable period of fiscal year 2004. The income tax expense for both periods consisted primarily of foreign withholding taxes and foreign income taxes.

     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 are established based on past experiences and judgments about potential actions by taxing jurisdictions. Our tax contingencies relate, in large part, to transfer pricing positions we have taken in a variety of countries in which we operate. We have also accrued tax contingencies for certain domestic tax matters. The ultimate resolution of these matters may be materially greater or less than the amount that we have accrued.

     Statement of Financial Accounting Standard No. 109 (“SFAS 109”), “Accounting for Income Taxes,” provides for the recognition of deferred tax assets if realization of such assets is more likely than not. We have provided a valuation allowance equal to our net deferred tax assets due to uncertainties regarding their realization. We evaluate the realizability of our deferred tax assets on a quarterly basis.

6. Restructuring and Other Costs

     During the first quarter of fiscal year 2005, we recorded a charge of $1.6 million in operating expenses for the remainder of the facility consolidation activities that were completed during the quarter related to our Colorado offices for the headcount reductions that began in the fourth quarter of fiscal year 2004. Additionally, we recorded an impairment charge of $0.1 million for property and equipment associated with our Pune, India facility closure.

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     During the first quarter of fiscal year 2004, we recorded a charge of $5.8 million in operating expenses for facility consolidations in California and Texas. We also recorded a restructuring charge of $0.3 million related to workforce reductions during the first quarter of fiscal year 2004. Additionally, we recorded an impairment charge of $1.5 million for property and equipment associated with our Austin, Texas facility consolidation.

     As of June 26, 2004, we had a remaining accrual from all of our past restructurings of $10.8 million, primarily related to net lease expenses that will be paid over their respective lease terms through fiscal year 2013, along with other anticipated lease termination costs. We have classified $7.6 million of this restructuring accrual as long term.

     The following table details the changes in all of our restructuring accruals during the three months ended June 26, 2004:

7. Earnings 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 basic weighted average number of common shares used in the basic net income (loss) per share calculation plus the 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 2,037,000 and 297,000 shares as of June 26, 2004 and June 28, 2003, respectively, 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 the first quarter of fiscal years 2005 and 2004. The weighted outstanding options excluded from our diluted calculation as of June 26, 2004 and June 28, 2003 were 5,042,000, and 7,846,000 respectively, as the exercise price exceeded the average market price during the respective periods.

8. Contingencies

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 are asserting claims for breach of contract and anticipatory breach of contract and we are seeking damages in excess of $46 million. The basis for our complaint is 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 alleges claims for breach of contract, breach of warranty, quantum meruit/equitable indemnity and declaratory relief. The basis for Fujitsu’s counterclaim is the allegation that certain chips that we sold to Fujitsu were defective and, allegedly caused Fujitsu’s hard disk drives to fail. The counterclaim does not specify the damages Fujitsu seeks, other than to allege it has sustained “tens of millions” of dollars in damages. To

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facilitate the resolution of all claims in one lawsuit, including our claims against potentially responsible third parties, we agreed with Fujitsu to realign our claims so that Fujitsu is the plaintiff and we are the defendant and counterclaimant. This realignment allowed Fujitsu and us to file in the same lawsuit third-party claims alleging breach of contract and warranty against Amkor Technology, Inc., (“Amkor”) the company that recommended and sold to us the packaging materials that caused the alleged defects in our chips. Amkor filed an answer to our third-party claim and a third-party complaint for implied contractual indemnity and breach of warranties against Sumitomo Bakelite Co., Ltd., (“Sumitomo”) the company that sold the allegedly defective molding compound used in these packaging materials.

     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 May 10, 2004, the state court issued an order finding the facts set forth in Cirrus Logic’s cross-complaint insufficient. On June 18, 2004, we filed an amended cross complaint asserting the same claims in more detail.

     To address the claims of all parties and for reasons of judicial economy, the parties jointly moved to stay the federal district court action pending resolution of the state court action. The trial in state court has been set for January 31, 2005.

     Fujitsu indicated that it intends to seek hundreds of millions of dollars in damages, although, as of this date, Fujitsu has not indicated how it will substantiate this amount of damages and we are unable to reasonably estimate the amount of damages. We intend to defend and prosecute our lawsuit vigorously. Further, we believe that we have valid claims against Amkor and Sumitomo in the event we are found to be liable to Fujitsu and that insurance may cover defense costs and some or all of any liability to Fujitsu. However, we cannot predict the ultimate outcome of this litigation and we are unable to estimate any potential liability we may incur. An adverse outcome in this litigation could materially harm our financial condition or results of operations.

Wolfson Microelectronics

     On October 9, 2003, we filed a lawsuit against Wolfson Microelectronics, plc, a United Kingdom company and Wolfson Microelectronics Ltd., a Delaware corporation, (collectively “Wolfson”) in the U.S. District Court for the Southern District of California. We are alleging that several Wolfson products that incorporate digital-to-analog converters (“DACs”) infringe on our U.S. Patent Nos. 6,492,928 and 6,011,501. We are seeking damages and requesting a permanent injunction against Wolfson from making, using, offering to sell or selling in the U.S. or importing into the U.S. any infringing products. On December 2, 2003, in response to our complaint, Wolfson filed an answer and a counterclaim against us alleging, among other things, unfair competition, tortious interference with prospective economic advantage and tortious interference with contractual relationships. Wolfson’s claims were based primarily on our alleged bad faith in filing suit against Wolfson with the alleged knowledge that one of the two asserted patents was invalid. On April 2, 2004, the district court dismissed Wolfson’s counterclaims for failure to state a claim, although the district court granted leave to amend their complaint. On April 30, 2004, Wolfson amended its counterclaims to include additional allegations concerning alleged communications by Cirrus Logic with Bose Corporation and Argus Electronics relating to Wolfson’s ability to continue to provide Wolfson audio DACs to these customers in the future. Based on the information available to us at this time, we believe that we will ultimately succeed in defending against these allegations.

     In addition, on October 14, 2003, we filed a complaint requesting that the U.S. International Trade Commission (the “ITC”) initiate an investigation of Wolfson Microelectronics, plc, for violation of Section 337 of the Tariff Act of 1930, in the importation, sale for importation and sale in the U.S. after importation of certain digital-to-analog converters and other products containing these converters. In our complaint, we

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asked the ITC to investigate whether certain Wolfson products infringe on one or more of the claims of U.S. Patent No. 6,492,928. On November 10, 2003, the ITC instituted an investigation into Wolfson’s actions based on our allegations. On December 9, 2003, we also requested the ITC to further investigate whether certain Wolfson products infringed on one or more of the claims of U.S. Patent No. 6,011,501. On December 29, 2003, the ITC included our allegations of infringement with respect to U.S. Patent No. 6,011,501 into its investigation. With respect to both patents, we are seeking a permanent exclusion order banning the importation into the U.S. of the allegedly infringing products and a cease-and-desist order halting the sale of these infringing products, as well as other relief the ITC deems appropriate. A hearing on the matter before the ITC is scheduled to begin August 3, 2004.

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”) under an insurance policy issued to us by St. Paul provides Cirrus with insurance coverage for Cirrus’s defense of claims brought by Fujitsu in the previously referenced matter. Despite filing this lawsuit, we continue to believe that we have valid claims in the Fujitsu litigation against Amkor and Sumitomo in the event we are found to be liable to Fujitsu and that our insurance coverage provided by St. Paul and excess carriers will cover defense costs and any liability to Fujitsu. However, as previously indicated, we cannot predict the ultimate outcome of the Fujitsu litigation and we are unable to estimate any potential liability we may incur.

Other Claims

     On June 3, 2003, the Inland Revenue Authority of Singapore notified us that it disagreed with our classification of sales to certain disk drive customers from May 1997 to March 1998, resulting in additional goods and services taxes owed by us. We are contesting this claim. In the event we do not prevail, we could owe approximately $5 million, plus interest and penalties and, if necessary, will pursue reimbursement from these customers. We are unable at this time to make a determination regarding the outcome of this matter and thus, no amount has been accrued.

     On March 30, 2004, Advanced Video Technologies, LLC (“AVT”) filed a complaint for patent infringement against Cirrus Logic in the United States District Court for the District of Delaware. In the complaint, AVT alleges that Cirrus Logic infringes U.S. Patent No. 5,781,788 by making, using and selling and/or offering to sell the CS92288. Among other additional claims, AVT was seeking unspecified compensatory damages, pre-judgment and post-judgment damages, enhanced damages and a permanent injunction. On June 23, 2004, prior to our filing an answer in response to the complaint, AVT voluntarily dismissed the action without prejudice.

     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. Comprehensive Income

     The components of comprehensive income, net of tax, are as follows (in thousands):

10. Stock-Based Compensation

     The following table illustrates the effect on net income (loss) and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” (in thousands, except per share data):

11. Segment Information

     We operate in one operating segment – Consumer Entertainment Electronics. However, we continue to track our revenue by product line. In the first quarter of fiscal year 2005, we renamed our product line that was titled “Audio” to “Analog” to provide our readers with better clarity as to our numerous components in this broad product line, including audio converters, industrial analog, digital-signal processors and embedded processors. In accordance with SFAS 131, below is a summary of our product line information (in thousands):

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following discussion should be read along with the unaudited consolidated condensed financial statements and notes thereto included in Item 1 of this Quarterly Report, as well as the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended March 27, 2004, contained in our 2004 Annual Report on Form 10-K. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements regarding future events and our future results that are based on current expectations, estimates, forecasts and projections and the beliefs and assumptions of our management including, without limitation, our expectations regarding second quarter sales, gross margins, combined research and development and selling, general and administrative expenses, restructuring activities and charges, amortization of acquired intangibles, and the transfer of our test operation assets to ChipPAC, Inc. (“ChipPAC”). Words such as “expect,” “anticipate,” “target,” “project,” “believe,” “goals,” “estimates,” “intend” and variations of these types of words and similar expressions are intended to identify these 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 below under the subheading “Factors That May Affect Future Operating Results” and elsewhere in this report. We undertake no obligation to revise or update publicly any forward-looking statement for any reason. Readers should carefully review the risk factors described in “Factors That May Affect Future Operating Results” below, as well as in the documents filed by us with the Securities and Exchange Commission, specifically the most recent reports on Form 10-K, 10-Q and 8-K, each as it may be amended from time to time.

     Cirrus Logic, Inc. (“we,” “us,” “our,” or the “Company”) is a leader in digital audio, video and high-performance mixed-signal integrated circuits (“ICs”) for consumer entertainment, automotive entertainment and industrial applications. We develop and market ICs and system and embedded software used by original design manufacturers and original equipment manufacturers. We also provide complete system reference designs based on our technology that facilitate our customers’ ability to bring products to market in a timely and cost-effective manner.

Overview

     During the first quarter of fiscal year 2005, we saw improved top-line revenue growth of 45 percent from the comparable quarter of fiscal year 2004. Although we experienced a net loss of $3.4 million, this loss was 86 percent smaller than our net loss from the first quarter of fiscal year 2004. We began building up our inventory during the first quarter of fiscal year 2005 in anticipation of stronger sales for the 2004 holiday season and as we experienced longer outside service provider cycle times coupled with shorter lead times from certain customers. In addition, during the first quarter of fiscal year 2005, our gross margin was 53.6 percent.

     Our analog product line, which represented approximately 86 percent and 92 percent of revenue in the first quarter of fiscal years 2005 and 2004, respectively, includes our analog and mixed-signal products for consumer, industrial, automotive, and other analog and mixed-signal products; digital home audio

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processors and digital portable processors; commercial audio processors; automotive audio solutions; and embedded processors. Some common items our audio products may be found in include amplifiers, audio/video receivers (“AVRs”), DVD players and recorders, DVD receivers, set-top boxes, game consoles, car audio systems, satellite radios and Fast Ethernet networks. The balance of our analog and mixed-signal IC components were primarily sold into industrial measurement applications, such as temperature gauges for industrial use, seismic devices for energy exploration and high-precision weigh scales for commercial and scientific use.

     Our video product line, which represented approximately 14 percent and 7 percent of revenue in the first quarter of fiscal years 2005 and 2004, respectively, includes our digital video encoding and decoding ICs. During fiscal year 2004, we began volume shipment of components to manufacturers of DVD recording applications. In January 2004, we announced that we had shipped more than one million DVD video encoding ICs since we began competing in this market. We believe that we have established a leading merchant market position for DVD encoding ICs. Consumer DVD recorders, including standalone DVD recorders, optical and hard-drive-enabled combination DVD recorders and home theater recorders, which record video digitally, are expected to become one of the fastest growing segments in digital entertainment during the next several years. According to market research analyst IDC, worldwide unit sales for all forms of DVD recorders are projected to be up from approximately 4 million units in 2003 to potentially over 50 million units by 2006.

     Our other products lines, which represented 1 percent of revenue in the first quarter of fiscal year 2004, include our product lines that we have de-emphasized or exited over the years.

     We maintain sales, design and technical support personnel in the U.S. and other locations near our customers. To better support our growing base of system solution customers, most of which maintain design and/or manufacturing sites in Asia, our headcount increased from 155 at the end of March 2004 to 167 during the first quarter of fiscal year 2005 in the Pacific Rim countries including Peoples Republic of China, Singapore, Taiwan and South Korea. We intend to continue to increase our employee headcount in these locations.

     We also contract with third parties, which are located close to our Asian-based customers, for all of our wafer fabrication, assembly and an increasing portion of our testing operations. Our manufacturing organization qualifies each product, participates in process and package development, defines and controls the manufacturing process at our suppliers, develops test programs and performs 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 provides flexibility on sourcing through multiple qualified vendors. The outsourcing transaction of our test facilities with ChipPAC closed and we received the cash on June 30, 2003. We expect to complete the transfer of assets by the end of the calendar year 2004, nine months later than our previously disclosed expectations because we have experienced transition delays of our test operations due to several factors including difficulty with customs, product logistics with our outside providers, and capacity to test our products, as well as other unanticipated delays.

Critical Accounting Policies

     Our discussion and analysis of the financial condition and results of operations are based upon the consolidated condensed financial statements included in this report, which have been prepared in accordance with accounting principles generally accepted in the United States. 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 circumstances. 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 gross profit on sales to certain of our distributors;

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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 affect our more significant judgments and estimates used in the preparation of the consolidated 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.
•		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 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.
•		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.” This standard requires recognition of impairment of long-lived assets 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.
•		Restructuring charges for workforce reductions and facilities consolidation 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 were 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.
•		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 are established based on past experiences and judgments about potential actions by taxing jurisdictions. Our tax contingencies relate, in large part, to transfer pricing positions we have taken in a variety of countries in which we operate. We have also accrued tax contingencies for certain domestic tax matters. The ultimate resolution of these matters may be materially greater or less than the amount that we have accrued.
•		We are subject to the possibility of loss contingencies for various legal matters. 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 from our estimate.

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Results of Operations

     The following table summarizes the results of our operations for the first quarter of fiscal years 2005 and 2004 as a percentage of net sales. All percentage amounts were calculated using the underlying data in thousands:

Net Sales

     In the first quarter of fiscal year 2005, we renamed our product line that was titled “Audio” to “Analog” to provide our readers with better clarity as to our numerous components in this broad product line, including audio converters, industrial analog, digital-signal processors and embedded processors. During the first quarter of fiscal year 2005, our net sales were $59.1 million, up from $40.7 million for the first quarter of fiscal year 2004. The $18.4 million increase was primarily due to an increase in sales from both of our analog product line and our video product line. Net sales from our analog products were up $13.2 million in the first quarter of fiscal year 2005 from the first quarter of fiscal year 2004 primarily due to an increase in demand for our audio converters for the DVD Market. We also realized growth for our high-end sound devices used in personal computers, and strong demand growth for similar devices in the Home Theater Market. Net sales from our video products were up $5.4 million in the first quarter of fiscal year 2005 from the comparable period in fiscal year 2004 due to an increase in demand for some of our A/V codec DVD recorder components coupled with stronger demand for our earlier generation DVD processors. We expect our net sales in the second quarter of fiscal year 2005 to be between $61 million and $68 million.

     Export sales, principally to Asia, including sales to U.S.-based customers with manufacturing plants overseas, were 70 percent and 69 percent of net sales during the first quarter of fiscal years 2005 and 2004, respectively.

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

     During the first quarter of fiscal year 2005, two of our distributors, Memec Group Holdings Limited and Honestar, accounted for 25 percent and 10 percent of net sales, respectively. During the first quarter of fiscal year 2004, two of our distributors, Memec Group Holdings Limited and Ryoyo Electro Corporation, represented 21 percent and 10 percent of net sales, respectively.

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Gross Margin

     Gross margin was 53.6 percent in the first quarter of fiscal year 2005, up from 48.5 percent in the first quarter of fiscal year 2004. During the first quarter of fiscal year 2005, the sale of product that had been written down in prior periods contributed approximately $1.3 million, or 2.1 percent of gross margin percentage. Additionally, we reversed approximately $1.1 million from prior year accruals which represented approximately 1.5 percent of gross margin during the first quarter of fiscal year 2005. Another cause for the increase in the year over year margin is the result of the absence of a charge to cost of sales of $0.7 million, or a reduction of gross margin by 1.7 percent, that was taken in the first quarter of fiscal year 2004 related to the impairment of assets sold under an agreement with ChipPAC, Inc. (“ChipPAC”). We expect our margins to remain in the 52 percent to 54 percent range for the second fiscal quarter of fiscal year 2005.

Research and Development Expense

     Research and development expense for the first quarter of fiscal year 2005 of $18.7 million decreased $1.9 million from $20.6 million in the first quarter of fiscal year 2004. Although the R&D headcount increased on a year over year basis, overall costs decreased due to lower depreciation and amortization expense and lower outside product development expenses during the first quarter of fiscal year 2005. Further, research and development did not receive as much allocated corporate expenses in the first quarter of fiscal year 2005 due to overall reduction of corporate expenses.

Selling, General and Administrative Expense

     Selling, general and administrative expense in the first quarter of fiscal year 2005 remained flat at $12.5 million as compared to the first quarter of fiscal year 2004. Although domestic headcount decreased on a year over year basis due to our headcount cost cutting measures as we move closer to our customers in Asia, our overall selling, general and administrative expenses remained flat as the cost savings due to these strategic moves were partially offset by increased external sales commissions, higher marketing expenses and increased travel related costs.

     We expect our combined research and development and selling, general and administrative expenses to be between $30 million and $32 million for our second fiscal quarter.

Restructuring and Other Costs

     During the first quarter of fiscal year 2005, we recorded a charge of $1.6 million in operating expenses for the remainder of the facility consolidation activities that were completed during the quarter related to our Colorado offices for the headcount reductions that began in the fourth quarter of fiscal year 2004. We expect to sublease this facility in the future and have made assumptions to that affect. Should these sublease assumptions change, we may have to revise our assumptions and record additional restructuring charges for this facility. Additionally, we recorded an impairment charge of $0.1 million for property and equipment associated with our Pune, India facility closure.

     During the first quarter of fiscal year 2004, we recorded a charge of $5.8 million in operating expenses for facility consolidations in California and Texas. We also recorded a restructuring charge of $0.3 million related to workforce reductions during the first quarter. Additionally, we recorded an impairment charge of $1.5 million for property and equipment associated with our Austin, Texas facility consolidation. We have subleased our Austin facility that was restructured in the first quarter of fiscal year 2004 and did have those assumptions accounted for in the restructured amount. If our tenant does not renew their lease and we are unable to sublease the vacant space, we may have to modify our sublease assumptions and record an additional restructuring charge.

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Amortization of Acquired Intangibles

     During the first quarter of fiscal years 2005 and 2004, we recorded $3.4 million and $3.8 million, respectively, in amortization of acquired intangibles related to acquisitions in fiscal years 2002 and 2000. The decrease of $0.4 million was attributable to the ending of amortization related to our AudioLogic, Inc. acquired intangibles during fiscal year 2004. We expect this amount to remain at $3.4 million per quarter for the remainder of fiscal year 2005.

Realized Gain on Marketable Equity Securities

     During the first quarter of fiscal year 2004, we realized a gain of $0.7 million related to the sale of our investment in a publicly traded company. Total proceeds from the sale were $1.2 million.

Interest Income

     Interest income was $0.7 million for the first quarter of fiscal year 2005 and $0.6 million for the first quarter of fiscal year 2004. The increase of $0.1 million was primarily due to interest income earned on a refund that we received from the IRS.

Income Taxes

     We incurred income tax expense of $24 thousand for the first quarter of fiscal year 2005, compared to $21 thousand incurred for the comparable period of fiscal year 2004. The income tax expense for both periods consisted primarily of foreign withholding and foreign income taxes.

     SFAS 109, “Accounting for Income Taxes,” provides for the recognition of deferred tax assets if realization of such assets is more likely than not. We have provided a valuation allowance equal to our net deferred tax assets due to uncertainties regarding their realization. We evaluate the realizability of our deferred tax assets on a quarterly basis.

Liquidity and Capital Resources

     We used approximately $0.6 million of cash and cash equivalents in our operating activities during the first quarter of fiscal year 2005, primarily due to the increase in our inventory and accounts receivable of $11.4 million and $8.1 million, respectively, partially offset by the increase in our accounts payable balance of $13.1 million and the non-cash components of our net loss totaling $6.1 million. In the comparable period of fiscal year 2004, we used approximately $7.1 million of cash and cash equivalents in our operating activities primarily due to the cash components of our net loss partially offset by the change in our working capital, primarily resulting from an increase in accounts payable and accrued liabilities.

     During the first quarter of fiscal year 2005, we generated approximately $10.3 million in cash from investing activities, primarily related to the sale of certain available-for-sale securities of $13.4 million partially offset by the purchase of property and equipment and technology licenses totaling $3.2 million. We used $0.6 million of cash in investing activities during the first quarter of fiscal year 2004, primarily for the purchase of property and equipment and technology licenses.

     We generated $1.3 million in cash from financing activities during the first quarter of fiscal year 2005 due to the issuance of common stock in connection with option exercises and our employee stock purchase plan. For the comparable period of fiscal year 2004, we generated $0.4 million in cash from financing activities during the first quarter of fiscal year 2004 related to the issuance of common stock in connection with option exercises and our employee stock purchase plan.

     As of June 26, 2004, we have restricted cash of $8.2 million, which primarily secures certain obligations under our lease agreement for the headquarters and engineering facility in Austin, Texas.

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     We have not paid cash dividends on our common stock and currently intend to continue our policy of retaining any earnings for reinvestment in our business. Although we cannot assure 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.

Factors That May Affect Future Operating Results

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

We operate in a highly cyclical and volatile industry.

     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 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 net sales, gross margins and operating income.

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

Our business is highly dependent on the expansion of the consumer digital entertainment electronics market.

     The major focus of our business is the consumer digital entertainment electronics market. Our ICs are used in AVRs, compressed personal audio players, DVD players and recorders, digital automotive audio applications and set-top boxes. We expect the consumer digital market to expand over time. A decline in consumer confidence and consumer spending relating to economic conditions, terrorist attacks, armed conflicts, global health conditions and/or the political stability of other countries, however, could have a material adverse effect on our business.

Our products are complex and could contain defects, which could reduce sales of those products or result in claims against 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:

	•		a material recall and replacement costs for product warranty and support,
	•		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.

     The occurrence of any of these problems could result in the delay or loss of market acceptance of our products and would likely harm our business. In addition, any defects or other problems with our products

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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. While we believe that we are reasonably insured against these risks, there can be no assurance that we will be able to obtain insurance in amounts or of sufficient scope to provide us with adequate coverage against all potential liability. See Part II “Item 1 – Legal Proceedings” for further information regarding outstanding litigation.

Our success depends on our ability to introduce new products on a timely basis.

          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. The development of new products is highly complex and from time to time, we have experienced delays in developing and introducing these new products. Successful product development and introduction depend on a number of factors, including:

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

     Although we seek to design products that have the potential to become industry standard products, we cannot assure you that the market leaders will adopt any products introduced by us, or that any products initially accepted by our customers that 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 you 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 circuit designers and the limited effectiveness of computer-aided design systems in the design of analog and mixed-signal circuits, we cannot assure you that we will be able to successfully develop and introduce new products on a timely basis.

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 income. These factors include:

	•		the volume and timing of orders received,
	•		changes in the mix of our products sold,

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

We may incur inventory charges or write-downs as a result of shifts in industry-wide capacity and our practice of purchasing our products based on sales forecasts.

     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 firm 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 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 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 or charges may occur due to lower of cost or market accounting, excess inventory, or inventory obsolescence.

We need to manage the transition of the sale of our test operations assets to ChipPAC.

     On June 26, 2003, we agreed to sell our test operation assets, consisting of analog and mixed-signal testers, handlers and wafer probes, to ChipPAC, a provider of IC packaging design, assembly, test and distribution services. ChipPAC will transfer these test assets to its China facility over the remainder of calendar year 2004. This asset transfer may involve a number or risks, including but not limited to:

	•		the potential disruption of our ongoing business,
	•		possibly having to secure additional capacity with another test provider during fiscal year 2005, as we complete the transfer our testers to ChipPAC in China,
	•		the diversion of management’s resources involved in monitoring this transition and ensuring that we have adequate test operations during the transition period from other business concerns, and
	•		incurring unknown difficulties associated with the transfer of the assets to China, thereby jeopardizing the ongoing testing operations performed by ChipPAC and as a result, adversely affecting our ability to have our products tested in a timely manner.

Strong competition in the high-performance IC market may harm our business.

     The IC industry is intensely competitive and is frequently characterized by rapid technological change, price erosion and design and other technological obsolescence. Because of shortened product life cycles and even shorter design-in cycles in a number of the markets that we serve, particularly consumer

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entertainment, 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 results of operations would be adversely affected.

     We compete in a number of fragmented markets. Our principal competitors in these markets include AKM Semiconductors, ALi Semiconductor, AMD, ATMEL, Analog Devices, Broadcom, Conexant, ESS Technologies, Freescale Semiconductor, Fujitsu DSP, Intel, Linear Technology, LSI Logic, Maxim, MediaTek, Micronas, Philips, Samsung Semiconductor, Sharp Semiconductor, SigmaTel, ST Microelectronics, Sunplus, Texas Instruments, Tripath, Wolfson and Zoran, 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 than we have. We also expect intensified competition from emerging companies and from customers who develop their own IC products. In addition, some of our current and future competitors maintain their own fabrication facilities, which could benefit them in connection with cost, capacity and technical issues.

     Increased competition could adversely affect our business. We cannot assure you 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.

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, while manufacturing costs remained fixed. 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 that could harm our operating results.

     Export sales, principally to Asia, include sales to U.S-based customers with manufacturing plants overseas and accounted for 70 percent and 69 percent of our net sales in the first quarter of fiscal years 2005 and 2004, respectively. We expect export sales to continue to represent a significant portion of product sales. This reliance on sales internationally subjects us to the risks of conducting business internationally, including political and economic stability and global health conditions, especially in Asia. For example, the financial instability in a given region, such as Asia, may have an adverse impact on the financial position of end users in the region, which could affect future orders and harm our results of operations. Our international sales operations involve a number of other risks, including:

	•		unexpected changes in regulatory 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 foreign companies or other domestic companies entering the foreign markets in which we operate,

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	•		longer sales and payment cycles,
	•		problems in collecting accounts receivable,
	•		political instability, and
	•		the burdens of complying with a variety of foreign laws.

     In addition, we may buy hedging instruments to reduce our exposure to currency exchange rate fluctuations and our competitive position can 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 foreign 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 you that regulatory, political and other factors will not adversely affect our operations in the future or require us to modify our current business practices.

The expansion of our international operations subjects our business to additional economic risks that could have an adverse impact on our business.

     In addition to export sales constituting a majority of our net sales, we are expanding our international operations. Specifically, we have recently focused our efforts on expanding in the People’s Republic of China by employing design, sales and technical support personnel. In addition, we are also using contract manufacturers in the region for foundry, assembly and/or test operations. Expansion into this region has required and will continue to require significant management attention and resources. We have limited experience in the Chinese market and may not succeed in expanding our presence into this market or other international markets. Failure to do so could harm our business. In addition, there are risks inherent in expanding our presence into foreign regions, including, but not limited to:

	•		difficulties in staffing and managing foreign operations,
	•		failure of foreign laws to protect our U.S. proprietary rights adequately,
	•		additional vulnerability from terrorist groups targeting American interests abroad,
	•		legal uncertainty regarding liability and compliance with foreign laws, and
	•		regulatory requirements.

Our sales may fluctuate due to seasonality of customer demand.

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

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

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

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We rely on independent foundries to manufacture our products, which subject us to increased risks.

     We rely on independent foundries to manufacture all of our wafers. Our reliance on these foundries involves risks and uncertainties, including:

	•		the possibility of an interruption or loss of manufacturing capacity,
	•		the lack of control over delivery schedules, quality assurance, manufacturing yields and costs,
	•		the inability to secure necessary capacity to meet customer demand,
	•		possible misappropriation of our intellectual property, and
	•		the inability to reduce our costs as quickly as competitors who manufacture their own products and are not bound by set prices.

     Market conditions could result in wafers being in short supply and prevent us from having adequate supply to meet our customer requirements. In addition, any prolonged inability to utilize third-party foundries because of fire, natural disaster, or otherwise, would have a material adverse effect on our financial condition and results of operations. If we are not able to obtain additional foundry capacity as required, our relationships with our customers would be harmed and, consequently, our sales would likely be reduced and we may be forced to purchase wafers from higher-cost suppliers or to pay expediting charges to obtain additional supply, if we are able to acquire wafers at all.

     In order to secure additional foundry capacity, we may enter into contracts that commit us to purchase specified quantities of wafers over extended periods. In the future, we may not be able to secure sufficient capacity with foundries in a timely fashion or at all and such arrangements, if any, may not be on terms favorable to us. Moreover, if we are able to secure foundry capacity, we may be obligated to utilize all of that capacity or incur penalties. These penalties may be expensive and could harm our financial results.

We are dependent on our subcontractors in Asia to perform key manufacturing functions for us.

     We depend on third-party subcontractors 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 our limited number of 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.

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

     In the first quarter of fiscal years 2005 and 2004, sales to our distributors accounted for 64 percent and 65 percent, respectively, of our net sales. 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.

We may need to acquire other companies or technologies and successfully integrate them into our business to compete in our industry.

     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.

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     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’s 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 be unable to protect our intellectual property rights from third-party claims and litigation.

     Our success depends on our ability to obtain patents and licenses and to preserve our other intellectual property rights covering our manufacturing processes, products and development and testing tools. 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 you 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 foreign countries may not protect our intellectual property as well as the laws of the United States.

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 you that we will ultimately be successful in any lawsuit. Nor can we assure you that any patent owned by us will not be invalidated, circumvented, or challenged, 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 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.

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Some of our products must conform to industry standards in order to be accepted by end users in our markets.

     Generally, our products comprise only a part of a device. All components of such devices must comply with industry standards in order to operate efficiently together. We depend on companies that provide other components of the devices to support prevailing industry standards. Many of these companies are significantly larger and more influential in affecting industry standards than we are. Some industry standards may not be widely adopted or implemented uniformly and competing standards may emerge that may be preferred by our customers or end users. If larger companies do not support the same industry standards that we do, or if competing standards emerge, market acceptance of our products could be adversely affected and our business would be harmed.

     The emergence of new industry standards could render our products incompatible with products developed by other suppliers. As a result, we could be required to invest significant time and effort and to incur significant expense to redesign our products to ensure compliance with relevant standards. If our products are not in compliance with prevailing industry standards for a significant period of time, we could miss opportunities to achieve crucial design wins. We may not be successful in developing or using new technologies or in developing new products or product enhancements that achieve market acceptance. Our pursuit of necessary technological advances may require substantial time and expense.

If we are unable to make continued substantial investments in research and development, we may not be able to develop and sell new products.

     We make significant investments in research and development activities to develop new and enhanced products and solutions. If we fail to make sufficient investments in research and development programs, new technologies could render our current and planned products obsolete, and our business could be harmed.

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,
	•		general conditions in the IC industry, and
	•		general market conditions and interest rates.

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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.

     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:

	•		our Rights Plan, which the Board of Directors adopted in May 1998 as an anti-takeover measure. The provisions of this plan can be triggered only 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;
	•		elimination of the right 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. For a limited period following the announcement of any such acquisition or offer, the Rights are redeemable by us at a price of $0.01 per Right. If the Rights are not redeemed, each Right will then entitle the holder to purchase common stock having the value of twice the exercise price. For a limited period after the exercisability of the Rights, each Right, at the discretion of the Board, may be exchanged for one share of common stock per Right. The Rights will expire in fiscal year 2009.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We are exposed to market risks associated with interest rates on our debt securities 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. There have been no significant changes in our interest or foreign exchange risk since we filed our latest Form 10-K on June 9, 2004.

ITEM 4. 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 is properly and timely recorded and reported. We have formed a Disclosure Review Committee comprised of key individuals from several disciplines in the Company who are involved in the disclosure and reporting process. This committee, which is led by the Chief Financial Officer (“CFO”), meets periodically to ensure the timeliness, accuracy and completeness of the information required to be disclosed in our filings.

•

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based upon that evaluation, the CEO and the CFO concluded that our disclosure controls and procedures as of June 26, 2004 were effective in timely alerting them to material information required to be included in this report.

•

There has been no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

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•

In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives due to numerous factors, ranging from errors to conscious acts of an individual, or individuals acting together. Because of inherent limitations in a cost-effective control system, misstatements due to error and/or fraud may occur and not be detected. Our disclosure control procedures are designed to provide reasonable assurance that such controls and procedures will meet their objectives and the CEO and CFO have concluded that the controls and procedures do in fact provide reasonable assurance of achieving the desired control objectives.

PART II

ITEM 1. LEGAL PROCEEDINGS

Fujitsu

     On October 19, 2001, we filed a lawsuit against Fujitsu, Ltd. (“Fujitsu”) in the United States District Court for the Northern District of California. We are asserting claims for breach of contract and anticipatory breach of contract and we are seeking damages in excess of $46 million. The basis for our complaint is 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 alleges claims for breach of contract, breach of warranty, quantum meruit/equitable indemnity and declaratory relief. The basis for Fujitsu’s counterclaim is the allegation that certain chips that we sold to Fujitsu were defective and, allegedly caused Fujitsu’s hard disk drives to fail. The counterclaim does not specify the damages Fujitsu seeks, other than to allege it has sustained “tens of millions” of dollars in damages. To facilitate the resolution of all claims in one lawsuit, including our claims against potentially responsible third parties, we agreed with Fujitsu to realign our claims so that Fujitsu is the plaintiff and we are the defendant and counterclaimant. This realignment allowed Fujitsu and us to file in the same lawsuit third-party claims alleging breach of contract and warranty against Amkor Technology, Inc., (“Amkor”) the company that recommended and sold to us the packaging materials that caused the alleged defects in our chips. Amkor filed an answer to our third-party claim and a third-party complaint for implied contractual indemnity and breach of warranties against Sumitomo Bakelite Co., Ltd., (“Sumitomo”) the company that sold the allegedly defective molding compound used in these packaging materials.

     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 May 10, 2004, the state court issued an order finding the facts set forth in Cirrus Logic’s cross-complaint insufficient. On June 18, 2004, we filed an amended cross complaint asserting the same claims in more detail.

     To address the claims of all parties and for reasons of judicial economy, the parties jointly moved to stay the federal district court action pending resolution of the state court action. The trial in state court has been set for January 31, 2005.

     Fujitsu indicated that it intends to seek hundreds of millions of dollars in damages, although, as of this date, Fujitsu has not indicated how it will substantiate this amount of damages. We intend to defend and prosecute our lawsuit vigorously. Further, we believe that we have valid claims against Amkor and Sumitomo in the event we are found to be liable to Fujitsu and that insurance may cover defense costs and some or all of any liability to Fujitsu. However, we cannot predict the ultimate outcome of this litigation. An adverse outcome in this litigation could materially harm our financial condition or results of operations.

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Wolfson Microelectronics

     On October 9, 2003, we filed a lawsuit against Wolfson Microelectronics, plc, a United Kingdom company and Wolfson Microelectronics Ltd., a Delaware corporation, (collectively “Wolfson”) in the U.S. District Court for the Southern District of California. We are alleging that several Wolfson products that incorporate digital-to-analog converters infringe on our U.S. Patent Nos. 6,492,928 and 6,011,501. We are seeking damages and requesting a permanent injunction against Wolfson from making, using, offering to sell or selling in the U.S. or importing into the U.S. any infringing products. On December 2, 2003, in response to our complaint, Wolfson filed an answer and a counterclaim against us alleging, among other things, unfair competition, tortious interference with prospective economic advantage and tortious interference with contractual relationships. Wolfson’s claims were based primarily on our alleged bad faith in filing suit against Wolfson with the alleged knowledge that one of the two asserted patents was invalid. On April 2, 2004, the district court dismissed Wolfson’s counterclaims for failure to state a claim, although the district court granted leave to amend their complaint. On April 30, 2004, Wolfson amended its counterclaims to include additional allegations concerning alleged communications by Cirrus Logic with Bose Corporation and Argus Electronics relating to Wolfson’s ability to continue to provide Wolfson audio DACs to these customers in the future. Based on the information available to us at this time, we believe that we will ultimately succeed in defending against these allegations.

     In addition, on October 14, 2003, we filed a complaint requesting that the U.S. International Trade Commission (the “ITC”) initiate an investigation of Wolfson Microelectronics, plc, for violation of Section 337 of the Tariff Act of 1930, in the importation, sale for importation and sale in the U.S. after importation of certain digital-to-analog converters and other products containing these converters. In our complaint, we asked the ITC to investigate whether certain Wolfson products infringe on one or more of the claims of U.S. Patent No. 6,492,928. On November 10, 2003, the ITC instituted an investigation into Wolfson’s actions based on our allegations. On December 9, 2003, we also requested the ITC to further investigate whether certain Wolfson products infringed on one or more of the claims of U.S. Patent No. 6,011,501. On December 29, 2003, the ITC included our allegations of infringement with respect to U.S. Patent No. 6,011,501 into its investigation. With respect to both patents, we are seeking a permanent exclusion order banning the importation into the U.S. of the allegedly infringing products and a cease-and-desist order halting the sale of these infringing products, as well as other relief the ITC deems appropriate. A hearing on the matter before the ITC is scheduled to begin August 3, 2004.

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”) under an insurance policy issued to us by St. Paul provides Cirrus with insurance coverage for Cirrus’s defense of claims brought by Fujitsu in the previously referenced matter. Despite filing this lawsuit, we continue to believe that we have valid claims in the Fujitsu litigation against Amkor and Sumitomo in the event we are found to be liable to Fujitsu and that our insurance coverage provided by St. Paul and excess carriers will cover defense costs and any liability to Fujitsu. However, as previously indicated, we cannot predict the ultimate outcome of the Fujitsu litigation and we are unable to estimate any potential liability we may incur.

Other Claims

     On March 30, 2004, Advanced Video Technologies, LLC (“AVT”) filed a complaint for patent infringement against Cirrus Logic in the United States District Court for the District of Delaware. In the complaint, AVT alleges that Cirrus Logic infringes U.S. Patent No. 5,781,788 by making, using and selling and/or offering to sell the CS92288. Among other additional claims, AVT was seeking unspecified compensatory damages, pre-judgment and post-judgment damages, enhanced damages and a permanent injunction. On June 23, 2004, prior to our filing an answer in response to the complaint, AVT voluntarily dismissed the action without prejudice.

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     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 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)

Exhibits.

(b)		Reports on Form 8-K:
		On April 28, 2004, we filed a Form 8-K regarding our fourth quarter earnings release for fiscal year 2004.

SIGNATURE

     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.

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