CIRRUS LOGIC INC, 10-K405, 1999-06-16

CIRRUS LOGIC INC
10-K405, 1999-06-16
SEMICONDUCTORS & RELATED DEVICES

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<PAGE> 1

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM 10-K
------------------------
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)

FOR THE FISCAL YEAR ENDED MARCH 27, 1999

COMMISSION FILE NUMBER 0-17795

CIRRUS LOGIC, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
DELAWARE 77-0024818
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>

3100 WEST WARREN AVENUE, FREMONT, CA 94538
(Address of principal executive offices)(Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(510) 623-8300

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $0.001 PAR VALUE
PREFERRED SHARE PURCHASE RIGHTS
(Title of Class)

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 [ ]

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

Aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant as of April 24, 1999 was approximately
$370,203,000 based upon the closing price reported for such date on the Nasdaq
National Market. For purposes of this disclosure, shares of Common Stock held by
persons who hold more than 5% of the outstanding shares of Common Stock and
shares held by officers and directors of the Registrant have been excluded
because such persons may be deemed to be affiliates. This determination is not
necessarily conclusive.

The number of outstanding shares of the registrant's common stock, $0.001
par value, was 60,171,185 as of April 24, 1999.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Registrant's 1999 Annual Meeting of
Shareholders to be held July 29, 1999 are incorporated by reference into Part
III of this Form 10-K.
<PAGE> 2

PART I

ITEM 1. BUSINESS

Cirrus Logic, Inc., ("Cirrus Logic" or the "Company") was reincorporated in
the state of Delaware on February 17, 1999. Prior to this date, the Company had
been incorporated in California since February 3, 1984, as the successor to a
research corporation which had been incorporated in Utah in 1981. The Company
commenced operations in November 1984. This Form 10-K contains forward-looking
statements within the meaning of the Private Securities Reform Litigation Act of
1995. Such forward-looking statements are subject to risks and uncertainties
which could cause actual results to differ materially from those projected. Such
risks and uncertainties include the timing and acceptance of new product
introductions, the actions of the Company's competitors and business partners,
and those discussed below in Management's Discussion & Analysis.

Cirrus Logic designs and manufactures integrated circuits that employ
precision linear and advanced mixed-signal processing technologies. The
Company's products, sold under its own name and the Crystal product brand,
enable system-level applications in mass storage (magnetic and optical), audio
(consumer, professional and personal computer) and precision data conversion
(industrial and communications).

The Company serves a broad customer base in the markets of mass storage,
industrial, and audio markets. Key customers among these markets include Acer,
Analogic, Apple, Chesapeake Sciences, Dell, ECI Telecom, Fujitsu, Hewlett
Packard, Hitachi, IBM, Intel, JVC, Nokia, Scientific Atlanta, Seagate, Sony and
Western Digital.

MARKETS AND PRODUCTS

Cirrus Logic targets large existing markets, as well as emerging markets
that derive value from the Company's expertise in advanced mixed-signal
processing, embedded processors and application-specific algorithms. The Company
applies its analog, digital, and mixed-signal design capabilities, systems-level
engineering and software expertise to create highly integrated solutions that
enable its customers to differentiate their products and reduce their time to
market. These solutions are implemented primarily in Integrated Circuits (ICs)
and related software, but may also include subsystem modules or system equipment
designs and related software.

Within the major markets currently served, represented by mass storage,
audio and industrial electronics, the Company's products address key
system-level applications including magnetic and optical mass storage, consumer
audio and industrial measurement and control, and to a lesser extent product
areas addressing multimedia (graphic, video, and audio), wide area and local
area networking, handheld and portable computing and communication devices.

In the second quarter of fiscal 1999, the Company launched a major
initiative to refine its business strategy and revitalize growth through
concentration on its leadership positions in embedded applications for mass
storage, audio and precision data conversion markets. This initiative included
the phasing out of certain non-profitable and non-strategic businesses along
with reducing the Company's total fixed wafer fabrication capacity by
approximately 70%. The Company has since divested its Communications and PC
Modems businesses in addition to outsourcing its PC graphics support. Further,
the Company's future direction is to de-emphasize new product developments
targeted primarily for the PC motherboard and emphasize non-PC motherboard
market opportunities in mass storage, audio and precision data conversion.
However, sales of many of the Company's products will continue to depend largely
on the sales of PCs.

MASS STORAGE

The Mass Storage business is comprised of both the Magnetic Storage and
Optical Storage product divisions.
<PAGE> 3

Magnetic Storage

The Company supplies integrated circuits that perform the key electronics
functions contained in advanced magnetic and removeable disk drives. Since
pioneering the IDE (integrated drive electronics) standard for embedded disk
drive controllers in 1986, the Company has helped engineer the development of
higher capacity 3.5-inch disk drives for desktop computers and workstations and
2.5-inch form factor drives for portable computers. The Company started mass
storage activities as a leading merchant supplier of controllers to the disk
drive market. In fiscal 1995, the Company continued its strategy of expanding
its opportunity in the disk drive electronics market by pioneering development
of CMOS digital read channels. In fiscal 1999, the Company introduced the
industry's first integration of a hard disk controller, a read channel and a
microprocessor ("3CI"), offering extremely high integration, as well as the
industry's first open architecture solution embodying the ARM microprocessor.
The open architecture development was carried out collaboratively with Lucent
Microelectronics, with a goal of providing software compatible solutions from
two of the major suppliers of hard disk microelectronics. The Company's mass
storage customers during fiscal 1999 included Western Digital, Fujitsu, Hitachi,
Seagate and Sony. The following mass storage products are expected to be the
most important in the near term:

<TABLE>
<CAPTION>
DESCRIPTIONS KEY FEATURES STATUS
------------ ------------ ------
<S> <C> <C>
Advanced Advanced data handling and error- In production
Architecture PC detection/correction capabilities for data (UDMA33) and
AT-UDMA33/66 Disk integrity in high-performance hard disk sampling
Controllers drives. Multiple products. (UDMA66).

Digital PRML Single-chip digital read/write channel In production
Read/Write solutions. Advanced digital signal (330 Mbits/s)
Channels processing algorithms allow more data per and sampling
disk. Multiple products. (500 Mbits/s).

Single-chip 1394 Single-chip IEEE 1394 (Firewire) CMOS disk Sampling.
Disk Controller controller incorporating the mixed-signal
PHY layer and Link layer.

Single-chip Drive Single-chip open architecture electronics Sampling.
Electronics Platform solution incorporating the PRML Read
Channel, PC AT UDMA66 Disk Controller, ARM
16-bit RISC processor, micro-DSP, ROM, RAM
and Servo Logic.
</TABLE>

The Company offers a broad family of magnetic storage controller products
for the AT IDE, UDMA and IEEE 1394 (Firewire) interface standards. To achieve
the high recording densities required by disk drives, the Company has pioneered
a number of controller innovations, including 88-bit Reed-Solomon error
correction, zone-bit recording and split-data fields.

Optical Storage

The Company supplies integrated circuits that perform key electronics
functions in advanced optical disc drives. The Company entered the optical
storage market in fiscal 1995 with a CD-ROM decoder product, followed by three
more generations of CD-ROM decoders with read speeds of up to 45x. In fiscal
1997, the first CD-R/CD-RW encoder/decoder products were introduced and are
currently on their third generation, supporting up to 10x write and 40x read
speeds. During fiscal 1999, the Company's optical storage business transitioned
from CD-ROM decoder to CD-R/RW encoder/decoder products.

In 1998, the Company announced its entry into the DVD drive electronics
market. The DVD Drive Manager integrates on one piece of silicon the RF Amp
circuitry, PRML read channel, full servo subsystem, ECC and decoder for both DVD
and CD-ROM drives and CSS decryption circuitry. The DVD Drive Manager can be
used for either DVD-ROM or DVD-Player applications.

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The Company's optical storage customers include Sony and JVC. The following
optical storage products are expected to be most important in the near term:

<TABLE>
<CAPTION>
DESCRIPTIONS KEY FEATURES STATUS
------------ ------------ ------
<S> <C> <C>
ATAPI CD-R/RW Handles both CD-R and CD-RW formats. Up to In production.
(Recordable/Rewritable) 40x read and 10x write. Ultra DMA 33. High
Encoder/Decoder performance and automation. Multiple
products.
Integrated DVD Drive High integration DVD Drive Electronics, Sampling.
Manager incorporating PRML Read Channel, servo
control and decoder functions for DVD-ROM
and DVD-Player applications.
</TABLE>

AUDIO

The Audio division currently offers over 100 products for the computer,
consumer and professional/automotive audio markets.

The Company is the leading supplier of stereo codecs for the Personal
Computer (PC) market including ISA, AC-97 and serial interface codecs. These
mixed signal devices use the company's delta sigma technology to provide
high-quality audio for input and output functions of PC audio products,
including those that offer 3D processing, SoundBlaster, Microsoft Sound
compatibility and music synthesis. The Company also has PCI DSP controller
products which provide special effects processing allowing PC game players to
perceive sound as coming from various points around them in a 3-D space, sound
equalizers, acoustic echo cancellation for exceptional internet audio and
acceleration for Microsoft Direct Sound and other interfaces such as A3D and
EAX. Customers include Acer, Apple, Dell, IBM and Hewlett Packard.

The Company's consumer business supplies products for the high-fidelity
audio market including analog-to-digital and digital-to-analog converters and
codecs and a family of DSP-based audio decoders that support the major audio
standards such as Dolby AC-3, DTS, 5.1 Channel MPEG audio decoding, THX and
other effect processing. The product applications include audio/video
amplifiers, set-top audio decoders, digital audio tapes, CD players, powered
speakers and video CD players. Customers include Harman Cardon, Nokia, Pace,
Panasonic and Sony.

The Company's third area is the professional/automotive market where the
product line includes very high performance analog-to-digital and
digital-to-analog converters and digital audio transmitters, transceivers and
receivers. Product applications include high-end professional recording
equipment, high performance digital mixing consoles, special effects digital
signal processors and automotive stereo systems. The following audio products
are expected to be the most important in the near term:

<TABLE>
<CAPTION>
DESCRIPTIONS KEY FEATURES STATUS
------------ ------------ ------
<S> <C> <C>
Audio Codecs Analog-to-digital and digital-to-analog In production.
converters for PC, consumer equipment,
computer workstation audio. Multiple
products. (AC-97, I2S and other serial
formats)
ISA Audio Codecs High-integration ISA bus PC audio In production.
controllers. Highest audio quality, Sound
Blaster and FM synthesis with Optional 3D
audio effects. Multiple products.
Multi-Standard, Home entertainment systems meeting multiple In production.
Multi-Channel Audio popular standards (Dolby, Digital Theatre
Decoders Systems, MPEG-2) with single-chip solutions.
Analog-to-Digital, Consumer applications such as A/V equipment, In production.
Digital-to-Analog portable CD, mini disc & MP3 players, high
Converters end professional recording equipment, high
performance digital mixing consoles and
laptop computers.
</TABLE>

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<PAGE> 5

<TABLE>
<CAPTION>
DESCRIPTIONS KEY FEATURES STATUS
------------ ------------ ------
<S> <C> <C>
High Performance High performance digital mixing consoles. In production and
Sample Rate sampling.
Converters
DSP with Integrated Special effects digital signal processors In production.
High Performance
Codec
PCI Audio High-integration PCI bus PC audio In production.
Controllers controllers. Range of low-cost to
high-Performance DSP-based solutions. DSP
solutions offer advanced audio processing
such as 3D positioning for games, wavetable
music synthesis & sound Equalization.
Multiple products.
</TABLE>

PRECISION DATA CONVERSION

The Precision Data Conversion business includes the Industrial and
Communications division which is comprised of both the Precision Mixed-Signal
and Communications product lines.

Precision Mixed-Signal

The Company designs, manufactures and markets advanced analog and digital
integrated circuits for data acquisition, instrumentation and imaging
applications. The Company's Crystal brand is recognized for providing
high-performance mixed-signal and signal processing solutions to these markets.
The Company's broad line of analog-to-digital converters consist of
general-purpose and low-frequency measurement devices. These circuits use
patented self-calibration techniques with both delta sigma, successive
approximation and pipeline architectures to improve accuracy and eliminate
expensive discrete analog components.

In addition to supporting a discrete product family, the Company's advanced
mixed-signal expertise design techniques are applied to IC solutions across the
Company's product line. The Company is an acknowledged leader in precision
analog circuits and mixed-signal applications and the exploitation of this
expertise is an important component of the Company's strategy.

The Company's product family includes more than 100 products used in
industrial automation, instrumentation, medical, military and geophysical
applications. The Company's customers include National Instruments, Rockwell
Automation and Schlumberger.

Communications

The Company develops and markets products that address the needs of the
Local Area Network (LAN), Wide Area Network (WAN), and internet environments.
The following communications products are expected to be the most important in
fiscal 2000:

<TABLE>
<CAPTION>
DESCRIPTIONS KEY FEATURES STATUS
------------ ------------ ------
<S> <C> <C>
Local Area Network Highest level of integration, In production.
Controllers simplified design of 10BASE-T and
10/100 local area network controllers
and single and multi-channel analog
front ends for motherboards, interface
cards and network equipment. Two
products.
T1/E1 Line Interface Broad family of high-performance, In production.
Controllers mixed signal devices for interfacing
network equipment and end-user
equipment to T1 and E1 lines. Multiple
products.
</TABLE>

Some of the industry firsts include: monolithic T1 line interface, CMOS
coax Ethernet Transceiver, low power system-on-a-chip for internet enabled
appliances.

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<PAGE> 6

The Company's specific product offerings within each key market environment
include the following:

LAN -- Physical layer interface ICs (PHYs), Ethernet 10/100
Transceivers, and Ethernet controllers provide the analog-to-digital and
digital-to-analog conversion and Media Access Control (MAC) for Ethernet
LAN connections.

WAN -- Universal T1/E1 Line Interface Units (LIU) and framers.

PC GRAPHICS AND VIDEO

The Company is a supplier of graphics accelerators and integrated
graphics/video accelerators for desktop and portable PCs. While the Company has
discontinued any further product development efforts in the PC graphics market,
it plans to continue support of current products to major OEMs and add-in card
manufacturers.

EMERGING PRODUCT OPPORTUNITIES

The Company is also engaged in developing and is producing high-integration
system-on-a-chip solutions for several emerging applications through the
incorporation of the Company's system peripherals and mixed signal components
with a CPU core licensed from ARM Limited (ARM). The Company's focus is on the
Application Specific Standard Product (ASSP) device category intended to offer
standard products in the areas of handheld information appliances, industrial
computing systems, portable digital audio solutions, and network/internet
computing devices. The Company is currently developing and is in the early
production stage of a family of system-on-a-chip products for the handheld
market and for the television-based internet connection market.

MANUFACTURING

Historically, the Company relied for its wafer manufacturing needs upon
merchant wafers manufactured by outside suppliers. In much of 1994 and 1995, the
merchant market was unable to meet demand, and the Company's merchant wafer
suppliers sought to limit the proportion of wafers they sold to any single
customer, which further restricted the Company's ability to buy wafers. Wafer
shortages increased the Company's supply costs and at times prevented the
Company from meeting the market demand for its own products. In response to its
rapid growth, and to historical and anticipated supply shortages, the Company
began pursuing a strategy to expand its wafer supply sources by taking direct
ownership interests in wafer manufacturing joint ventures.

In 1994, the Company and IBM formed MiCRUS, a manufacturing joint venture
that produces wafers for both companies. MiCRUS began operations in 1995. In
July 1996, the Company and Lucent Technologies formed Cirent Semiconductor, a
manufacturing joint venture that produces wafers for both companies. Cirent
Semiconductor began operations in 1997. In addition, the Company has continued
to rely on merchant wafer suppliers for a portion of its wafer requirements.

During fiscal 1999, the Company reassessed its manufacturing capacity needs
and reevaluated the carrying value of the assets recorded in connection with
both the MiCRUS and Cirent joint ventures. This revaluation was necessitated by
the joint venture wafer purchase commitment charges that were recorded in the
second, third and fourth quarters of fiscal 1999 and restructuring of the
Company's operations, along with the future expected decreases in sales, gross
margins and cash flows from the manufacture and sale of the Company's products
produced by the joint ventures. Expected undiscounted future cash flows were not
sufficient to recover the carrying value of such assets. Therefore, an
impairment loss of $188.4 million was recognized in the fourth quarter of fiscal
1999 based on the excess of the carrying value of the manufacturing agreements
and other assets over the fair value, calculated using expected discounted cash
flows for both MiCRUS and Cirent. See Note 6 to the Notes to the Consolidated
Financial Statements.

Since September 1998, the Company has been in negotiations with each of IBM
and Lucent to divest its ownership interest in MiCRUS and Cirent, respectively.
While the Company has yet to complete agreements in either of these
transactions, it believes it is close to an agreement with each joint venture
partner. The proposed transactions would result in the Company's exit from its
ownership of capacity at MiCRUS and
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Cirent with contractual obligations for wafer supply at reduced levels through
calendar year 2000, after which the Company will resume its fully fabless model.
The outcome of the negotiations could result in a substantial cash charge in
future periods in order to close these transactions.

In addition to its wafer supply arrangements, the Company currently
contracts with third party assembly vendors to package the wafer die into
finished products. The Company qualifies and monitors assembly vendors using
procedures similar in scope to those used for wafer procurement. Assembly
vendors provide fixed-cost-per-unit pricing, as is common in the semiconductor
industry.

During fiscal 1998, the Company started outsourcing a substantial portion
of its production testing. The Company's manufacturing organization has
continued to qualify and monitor suppliers' production processes, participate in
process development, package development and process and product
characterization, perform mixed-signal production testing, support R&D
activities and maintain quality standards. As of April 24, 1999, the Company had
approximately 30% of its employees engaged in manufacturing-related activities.

MICRUS

IBM and Cirrus Logic own 52% and 48%, respectively, of MiCRUS, which
produces wafers using IBM's wafer processing technology (primarily CMOS wafers
with 0.35-, 0.5- and 0.6-micron technology, and with 0.25-micron technology set
for production in fiscal 1999) and made process technology payments to IBM,
which totaled $71.0 million as of March 27, 1999. MiCRUS leases an existing IBM
facility in East Fishkill, New York. Activities of the joint venture are focused
on the manufacture of semiconductor wafers, and do not encompass direct product
licensing or product exchanges between the Company and IBM. Unless extended by
the parties, the joint venture will expire on December 31, 2003. MiCRUS is
managed by a six-member governing board of whom three are appointed by IBM, two
are appointed by Cirrus Logic and one is the chief executive officer of MiCRUS.

The Company is currently entitled to 60% of the MiCRUS output. If either
company does not purchase its full entitlement of the wafers, that company will
be liable to the joint venture for costs associated with the underutilized
capacity that results from the company's shortfall in wafer purchases, unless
the shortfall is purchased by the other company or, under limited circumstances,
offered to third parties.

In connection with the formation and expansion of the MiCRUS joint venture,
the Company made equity contributions to MiCRUS, made payments to MiCRUS under a
manufacturing agreement and guarantees equipment lease obligations incurred by
MiCRUS. To date, the Company has made equity investments totaling $23.8 million.
No additional equity investments are scheduled.

Payments to IBM under the manufacturing agreement as of March 27, 1999
totaled $71.0 million. The manufacturing agreement payments have been charged to
the Company's cost of sales over the life of the venture based upon the ratio of
current units of production to current and anticipated future units of
production over the remaining life of the venture. However, based upon the
impairment charge the Company recorded in fiscal 1999, the manufacturing
agreement asset balance as of March 27, 1999 was zero. See Note 6 to the Notes
to the Consolidated Financial Statements.

CIRENT SEMICONDUCTOR

Cirent operates two wafer fabs in Orlando, Florida in a facility that is
leased from Lucent. Cirent uses Lucent's wafer processing technology (primarily
CMOS wafers with 0.35-micron technology) and made process technology payments to
Lucent, which totaled $85.0 million as of March 27, 1999. Cirent is owned 60% by
Lucent and 40% by Cirrus Logic and is managed by a Board of Governors, of whom
three are appointed by Lucent and two are appointed by Cirrus Logic. The joint
venture has a term of ten years and, unless the term is extended by the parties,
the joint venture will expire on August 9, 2006.

with the underutilized capacity that results from the company's shortfall in
wafer purchases, unless the shortfall is purchased by the other company or,
under limited circumstances, offered to third parties.

In connection with the Cirent joint venture, the Company made equity
contributions to Cirent, made payments to Cirent under a manufacturing agreement
and guarantees and/or became a co-lessee under equipment lease obligations
incurred by Cirent. To date, the Company made equity investments totaling $14.0
million. No additional equity investments are scheduled.

Payments to Cirent under the manufacturing agreement as of March 27, 1999
totaled $85.0 million. These payments have been charged to the Company's cost of
sales over the life of the venture based upon the ratio of current units of
production to current and anticipated future units of production over the
remaining life of the agreement. However, based upon the impairment charge the
Company recorded in fiscal 1999, the manufacturing agreement asset balance as of
March 27, 1999 was zero. See Note 6 of the Notes to the Consolidated Financial
Statements.

OTHER WAFER SUPPLY ARRANGEMENTS

In fiscal 1996, the Company entered into a volume purchase agreement with
TSMC, which was amended in September 1997 and expires in December 2000. Under
the agreement, the Company will purchase from TSMC 50% of its wafer needs that
are not filled by MiCRUS and Cirent, provided that TSMC can meet the
technological and other requirements of the Company's customers. TSMC is
committed to supply these wafer needs.

PATENTS, LICENSES AND TRADEMARKS

To protect its products, the Company relies heavily on trade secret,
patent, copyright, mask work and trademark laws. The Company applies for patents
arising from its research and development activities and intends to continue
this practice in the future to protect its products and technologies. The
Company presently holds approximately 450 U.S. patents, and in several instances
holds corresponding international patents, and has more than 400 U.S. patent
applications pending. The Company has also licensed a variety of technologies
from outside parties to complement its own research and development efforts. The
Company is also receiving brand recognition of its products. For example, the
Crystal(R) name has become a well recognized brand for high-quality audio
precision ADC's (analog-to-digital converters) and other mixed signal solutions
along with network communications interface circuits.

RESEARCH AND DEVELOPMENT

Research and development efforts concentrate on the design and development
of new products for each market and on the continued enhancement of the
Company's design automation tools. Product-oriented research and development
efforts are organized along its Mass Storage Product, Industrial &
Communications Product and Audio Product Divisions. The Company also funds
certain advanced process technology development as well as other emerging
product opportunities. Expenditures for research and development in fiscal 1999,
1998 and 1997 were $130.3 million, $179.6 million and $230.8 million,
respectively. As of April 24, 1999, the Company had approximately 39% of its
employees engaged in research and development activities. The Company's future
success is highly dependent upon its ability to develop complex new products, to
transfer new products to production in a timely fashion, to introduce them to
the marketplace ahead of the competition and to have them selected for design
into products of leading systems manufacturers.

COMPETITION

Markets for the Company's products are highly competitive, and the Company
expects that competition will increase. The Company competes with other
semiconductor suppliers who offer standard semiconductors, application-specific
integrated circuits and fully customized integrated circuits, including both
chip- and board-level products. A few customers also develop integrated circuits
that compete with the Company's products. The Company's competitive strategy has
been to provide lower-cost versions of existing products and new, more advanced
products for customers' new designs.
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While no single company competes with the Company in all of the Company's
product lines, the Company faces significant competition in each of its product
lines. The Company expects to face additional competition from new entrants in
each of its markets, which may include both large domestic and international
semiconductor manufacturers and smaller, emerging companies.

The principal competitive factors in the Company's markets include time to
market; quality of hardware/software design and end-market systems expertise;
price; product benefits that are characterized by performance, features, quality
and compatibility with standards; access to advanced process and packaging
technologies at competitive prices; and sales and technical support.

Competition typically occurs at the design stage, where the customer
evaluates alternative design approaches that require integrated circuits.
Because its products have not been available from second sources, the Company
generally does not face direct competition in selling its products to a customer
once its integrated circuits have been designed into that customer's system.
Nevertheless, because of shortened product life cycles and even shorter
design-in cycles, the Company's competitors have increasingly frequent
opportunities to achieve design wins in next-generation systems. In the event
that competitors succeed in supplanting the Company's products, the Company's
market share may not be sustainable and net sales, gross margin and earnings
would be adversely affected.

SALES, MARKETING AND TECHNICAL SUPPORT

The Company's products are sold worldwide, and historically 50-75% of
revenues have come from shipments to overseas destinations. The Company
maintains a worldwide sales force with a matrixed organization, which is
intended to provide centralized coordination of strategic accounts,
territory-based local support and coverage of smaller customers, and specialized
selling of product lines with unique customer bases.

The domestic sales force includes a network of regional direct sales
offices located in California, Florida, Illinois, Maryland, Oregon, and Texas.
International sales offices and organizations are located in Taiwan, Japan,
Singapore, Korea, Hong Kong, the United Kingdom, Germany, France, the
Netherlands and Barbados. The Company supplements its direct sales force with
sales representative organizations and distributors. Technical support staff is
located at the sales offices and also at the Company's facilities in Fremont,
California; Broomfield, Colorado; Austin, Texas and Nashua, New Hampshire.

Two customers accounted for approximately 14% and 13%, respectively of net
sales in fiscal 1999. Two customers accounted for approximately 19% and 11%,
respectively of net sales in fiscal 1998. In fiscal 1997, one customer accounted
for approximately 10% of net sales. The loss of a significant customer or a
significant reduction in such a customer's orders could have an adverse effect
on the Company's sales.

Export sales information is incorporated by reference from the section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in Part II hereof.

BACKLOG

Sales are made primarily pursuant to standard short-term purchase orders
for delivery of standard products. The quantity actually ordered by the
customer, as well as the shipment schedules, are frequently revised to reflect
changes in the customer's needs. Accordingly, the Company believes that its
backlog at any given time is not a meaningful indicator of future revenues.

EMPLOYEES

As of April 24, 1999, the Company had approximately 1,331 full-time
equivalent employees, of whom 39% were engaged in research and product
development, 31% in sales, marketing, general and administrative and 30% in
manufacturing. The Company's future success will depend, in part, on its ability
to continue to attract, retain and motivate highly qualified technical,
marketing, engineering and management personnel. The Company believes that its
employee relations are good. None of the Company's employees is represented

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by any collective bargaining agreements, although Cirent Semiconductor is
staffed by Lucent Technologies' employees who are represented by a union.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following sets forth certain information with regard to executive
officers of Cirrus Logic, Inc. (ages are as of April 24, 1999):

Patrick V. Boudreau (age 58) joined the Company in October 1996 as Senior
Vice President, Human Resources. He was Vice President, Human Resources for
Fujitsu Microelectronics from 1995 to 1996. From 1989 to 1995, he was President
of P.V.B. Associates, a management consulting and executive search firm, as well
as Senior Vice President of Lazer-Tron Corporation.

Eric C. Broockman (age 44) is currently Vice President and General Manager
of the Crystal Industrial and Communications Division. He was Vice President and
General Manager, Crystal Semiconductor Products Division from June 1997 to March
1999. He joined the Company in February 1995 as Vice President and General
Manager, Network Broadcast Products Division. Prior to joining the Company, he
was employed by IBM for 16 years, most recently as Product Line Manager, DSP
Business Unit.

Steven Dines (age 45) was appointed Vice President and General Manager of
the Magnetic Storage Division in May 1997. He joined the Company in May 1991 as
Member, Corporate Strategic Staff and in December 1991, he assumed the position
of Director, Mass Storage Products Marketing. In November 1993, he was promoted
to Vice President, Mass Storage. Prior to joining the Company he spent twelve
years at Advanced Micro Devices, most recently as Director, Strategic Marketing
for Europe and with IMP, Inc. as Director, Product Planning and Applications.

Craig Ensley (age 49) was appointed Vice President, Corporate Marketing in
March 1999. He was Vice President and General Manager, Flat Panel Electronics
Division from April 1997 to February 1999. Previously he served as Vice
President and General Manager of the Computer Products Division of the Company's
subsidiary, Crystal Semiconductor Corporation from 1993. He joined Crystal in
May 1986 as Vice President, Marketing. Prior to joining Crystal he was with
Rockwell International for 12 years, most recently as Director of Marketing for
the Semiconductor Division.

David D. French (age 42) was appointed Chief Executive Officer in February
1999. He has served as President since he joined the Company in June 1998. Prior
to joining the Company, he was employed by Analog Devices Inc. for 10 years,
most recently as Vice President and General Manager of the DSP/mixed-signal
processing products. Prior to joining Analog Devices in 1988, he held key
management positions at Texas Instruments and Fairchild Semiconductor.

Glenn C. Jones (age 53) joined the Company in April 1999 as Vice President
and Chief Financial Officer. Prior to joining the Company, Mr. Jones was a
business consultant for several technology companies. He was Senior Vice
President, Finance and Chief Financial Officer, for PMC-Sierra, Inc., now
headquartered in Vancouver, British Columbia, Canada, from February 1994 until
July 1997. Previously, he was employed by Sybase, Inc., a database software
firm, as Vice President, Strategic Ventures from September 1992 through February
1994 and by Gain Technology, Inc., a multimedia software development firm, from
March 1992 through September 1992 as its Vice President of Operations and Chief
Financial Officer, until being acquired by Sybase. Prior to March 1992, Mr.
Jones was employed by Metaphor Computer, Inc., a computer systems manufacturer,
for over eight years, where in his last position, he served as Executive Vice
President, General Manager and Chief Financial Officer.

Henry M. Josefczyk (age 61) joined the Company in November 1997, as Senior
Vice President, Worldwide Sales. Prior to joining the Company, he served as Vice
President of Sales and Marketing for NKK Micro Devices from September 1996 to
November 1997 and Vice President of Worldwide Sales for IC Works from June 1992
to September 1996.

Matthew R. Perry (age 36) is currently Vice President and General Manager
of the Embedded Processors Division. He joined the Company in December 1995 as
Manager, Strategic Planning and Business
10
<PAGE> 11

Development. He was Director, Marketing from August 1996 through May 1997, Sr.
Director, Engineering from May 1997 though January 1998 and Vice President,
Strategic Marketing from January 1998 through May 1998. Previously, he held
various marketing and technical management roles at Advanced Micro Devices in
1995 and Motorola from 1993 to 1995.

Kenney R. Roberts (age 45) has been Vice President, Worldwide Operations
since April 1998. He joined the Company in January 1993 as Vice President of
Operations for the Crystal Semiconductor Corporation subsidiary of the Company.
Prior to joining the Company he was with Advanced Micro Devices for nine years,
most recently as Director of Engineering, Embedded Products Division.

Eric J. Swanson (age 41) was appointed Vice President and Chief Technical
Officer of the Company in March 1998. He joined Crystal Semiconductor
Corporation in 1985 as Telecom/Filter Design Manager and in 1986 he was
appointed to the position of Vice President Technology of Crystal. Crystal
merged with the Company in October 1991. Prior to joining Crystal, he was with
AT&T -- Bell Laboratories as a Design Manager from 1980 to 1985.

Arthur L. Swift (age 40) is currently Vice President and General Manager of
the Optical Storage Division. He was Vice President and General Manager of the
PC Products Division from May 1998 to March 1999 and Vice President, Product
Marketing from October 1996 to May 1998. Prior to joining the Company, Mr. Swift
was a technology marketing consultant from January 1996 to October 1996.
Previously, he was employed as Vice President, Marketing for the
microelectronics division of Sun Microsystems from September 1994 to January
1996 and as the Vice President, Marketing and Sales of the semiconductor
business unit at Digital Equipment Corporation from August 1992 to September
1994.

ITEM 2. PROPERTIES

The Company's principal facilities, located in Fremont, California, consist
of approximately 340,000 square feet of office space leased pursuant to
agreements which expire from 2005 to 2008 plus renewal options. This space is
used for manufacturing, product development, sales, marketing and
administration. However, in connection with the Company's restructuring
activities in fiscal 1999, the Company has subleased approximately 24,000 square
feet of office space and is currently offering for sublease another
approximately 120,000 square feet.

The Company's Austin, Texas facilities consist of approximately 240,000
square feet of office space leased pursuant to agreements which expire from 1999
to 2005 plus renewal options.

The Company also has facilities located in Tempe, Arizona; Broomfield,
Colorado; Bellevue, Washington; Pune, India; and Tokyo, Japan. The Company also
leases sales and sales support offices in the United States in California,
Colorado, Florida, Illinois, Maryland, Massachusetts, Oregon, Texas and Virginia
and internationally in Taiwan, Japan, Singapore, Korea, Hong Kong, the United
Kingdom, Germany, France, Italy and Barbados. The Company may add additional
manufacturing and sales offices to support its business needs.

ITEM 3. LEGAL PROCEEDINGS

The Company and certain of its customers from time to time have been
notified that they may be infringing certain patents and other intellectual
property rights of others. Further, customers have been named in suits alleging
infringement of patents by the customer products. Certain components of these
products have been purchased from the Company and may be subject to
indemnification provisions made by the Company to the customers. The Company has
not been named in any such suits. Although licenses are generally offered in
such situations, there can be no assurance that litigation will not be commenced
in the future regarding patents, mask works, copyrights, trademarks, trade
secrets, or indemnification liability, or that any licenses or other rights can
be obtained on acceptable terms.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

11
<PAGE> 12

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "CRUS." The following table shows for the periods indicated the high
and low closing prices for the Common Stock.

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal year ended March 29, 1997
First quarter............................................ $25.13 $16.88
Second quarter........................................... 21.88 13.38
Third quarter............................................ 24.13 15.75
Fourth quarter........................................... 17.11 10.77
Fiscal year ended March 28, 1998
First quarter............................................ 13.00 8.50
Second quarter........................................... 17.56 10.31
Third quarter............................................ 17.44 10.38
Fourth quarter........................................... 11.38 9.69
Fiscal year ended March 27, 1999
First quarter............................................ 11.25 8.94
Second quarter........................................... 12.44 6.06
Third quarter............................................ 12.94 5.88
Fourth quarter........................................... 12.94 6.88
</TABLE>

At April 24, 1999, there were approximately 1,824 holders of record of the
Company's Common Stock.

The Company has not paid cash dividends on its Common Stock and presently
intends to continue a policy of retaining any earnings for reinvestment in its
business.

On December 12, 1996, the Company sold U.S. $300,000,000 in 6% Convertible
Subordinated Notes due December 15, 2003 ("Notes"). The Notes remain outstanding
and are convertible shares of the Company's common stock at a conversion rate of
41.2903 shares per $1,000 principal amount of Notes (equivalent to a conversion
price of approximately $24.219 per share), unless previously redeemed by the
Company.

12
<PAGE> 13

ITEM 6. CONSOLIDATED SELECTED FINANCIAL DATA

(Amounts in thousands, except per share amounts, ratios and employees)

<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-----------------------------------------------------------
1999 1998 1997 1996 1995
--------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Operating summary:
Net sales............................... $ 628,105 $ 954,270 $ 917,154 $1,146,945 $889,022
Costs and expenses and gain on sale of
assets and other, net:
Cost of sales......................... 703,029 605,484 598,795 774,350 512,509
Research and development.............. 130,347 179,552 230,786 238,791 165,622
Selling, general and administrative... 98,275 117,273 126,722 165,267 126,666
Gain on sale of assets, net........... (3,988) (20,781) (18,915) -- --
Restructuring costs and other, net.... 80,505 14,464 20,954 11,566 --
Non-recurring costs................... -- -- -- 1,195 3,856
Merger costs.......................... -- -- -- -- 2,418
--------- ---------- ---------- ---------- --------
Income (loss) from operations........... (380,063) 58,278 (41,188) (44,224) 77,951
Interest expense........................ (22,337) (27,374) (19,754) (5,151) (2,441)
Interest income......................... 16,786 19,893 8,053 7,759 9,129
Other income (expense), net............. 4,242 5,206 1,270 (107) 4,999
--------- ---------- ---------- ---------- --------
Income (loss) before income taxes....... (381,372) 56,003 (51,619) (41,723) 89,638
Provision (benefit) for income taxes.... 46,031 19,510 (5,463) (5,540) 28,236
--------- ---------- ---------- ---------- --------
Net income (loss)....................... $(427,403) $ 36,493 $ (46,156) $ (36,183) $ 61,402
========= ========== ========== ========== ========
Net income (loss) per common share --
basic................................. $ (6.77) $ 0.54 $ (0.71) $ (0.58) $ 1.03
========= ========== ========== ========== ========
Net income (loss) per common share --
diluted............................... $ (6.77) $ 0.52 $ (0.71) $ (0.58) $ 0.96
========= ========== ========== ========== ========
Weighted average common shares
outstanding:
Basic................................. 63,149 67,333 65,007 62,761 59,707
Diluted............................... 63,149 69,548 65,007 62,761 63,969
Financial position at year end:
Total assets............................ $ 532,630 $1,137,542 $1,136,821 $ 917,577 $673,534
Working capital......................... 164,012 476,154 428,670 182,643 251,619
Capital lease obligations, excluding
current............................... 1,457 5,475 9,848 6,258 9,602
Long-term debt, excluding current....... 12,960 32,559 51,248 65,571 16,603
Convertible subordinated notes.......... 300,000 300,000 300,000 -- --
Total liabilities....................... 590,350 681,199 732,624 488,911 254,518
Stockholders' equity (net capital
deficiency)........................... (57,720) 456,343 404,197 428,666 419,016
Current Ratio........................... 1.61 2.40 2.17 1.44 2.10
Employees............................... 1,342 1,774 2,557 3,151 2,331
</TABLE>

13
<PAGE> 14

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

ANNUAL RESULTS OF OPERATIONS

Except for historical information contained herein, this Discussion and
Analysis contains forward-looking statements. The forward-looking statements
contained herein are subject to certain risks and uncertainties, including, but
not limited to those discussed below, that could cause actual results to differ
materially from those projected. Readers are cautioned not to place undue
reliance on these forward-looking statements, which reflect management's
analysis only as of the date hereof. The Company undertakes no obligation to
publicly release the results of any revision to these forward-looking
statements, which may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.

In September 1998, the Company announced a program to restructure its
business to fully concentrate on its precision linear and mixed-signal positions
in the mass storage, audio and high-precision data conversion markets. The
program forecasted a workforce reduction of 400 to 500 employees and
restructuring and other charges of up to $500 million. In January 1999, the
Company subsequently indicated that these charges might exceed $500 million. The
Company indicated in the announcement in September 1998 that the timing of
recording the restructuring charges was uncertain and dependent upon a number of
different factors, including negotiations related to its joint ventures.

During fiscal 1999, the Company recorded charges of approximately $440
million, of which $188 million related to asset impairment (see Note 6 of the
Notes to the Consolidated Financial Statements), $90 million related to wafer
purchase commitment charges (see Note 1 of the Notes to the Consolidated
Financial Statements) and $35 million related to inventory write-downs (see Note
1 of the Notes to the Consolidated Financial Statements) were recorded in cost
of sales. In addition, charges of $78 million related to severance and related
benefits along with facilities scale back and other costs were recorded in
restructuring costs and other, net (see Note 12 of the Notes to the Consolidated
Financial Statements) and $47 million related to recording a valuation allowance
against previously recorded deferred tax assets recorded in the provision for
income taxes (see Note 15 of the Notes to the Consolidated Financial
Statements). The Company may incur substantial additional cash charges in future
periods related to its joint ventures (see Note 6 of the Notes to the
Consolidated Financial Statements).

NET SALES

Net sales for fiscal 1999 were $628.1 million, a decrease of 34% from
$954.3 million in fiscal 1998. Revenues in fiscal 1999 included amounts from
businesses subsequently divested by the Company. Revenues from divested
businesses in fiscal 1999 were $110.8 million compared to $269.0 million in
fiscal 1998. Net sales from the core businesses in fiscal 1999 were
approximately $517.3 million compared to $685.3 million in fiscal 1998 of which
$60.0 million of revenues for fiscal 1998 is from patent cross-license
agreements.

Net sales in fiscal 1999 decreased by $108.0 million from fiscal 1998,
excluding revenues from divested businesses and $60.0 million of revenues from
patent cross-license agreements in fiscal 1998, largely due to decreased sales
in mass storage products, primarily related to decreased unit volumes and
average selling prices of read channel devices and controllers which were offset
by increased sales in audio products, primarily related to increased unit
volume.

Net sales for fiscal 1998 were $954.3 million, an increase of 4% from
$917.2 million in fiscal 1997. Revenues from divested businesses in fiscal 1998
were $269.0 million compared to $500.6 million in fiscal 1997. Net sales from
the core businesses in fiscal 1998 were approximately $685.3 million compared to
$416.6 million in fiscal 1997. Excluding revenues from divested businesses, net
sales in fiscal 1998 increased by $268.7 million from fiscal 1997 largely due to
increased sales in the Mass Storage Products division, primarily related to
increased unit sales of read channel devices and controllers and $60.0 million
of revenues from patent cross-license agreements.

Export sales, principally to Asia, include sales to U.S.-based customers
with manufacturing plants overseas and were approximately $462 million in fiscal
1999 compared to approximately $506 million in fiscal 1998 and approximately
$568 million in fiscal 1997. Export sales to the Pacific Rim (excluding Japan)

14
<PAGE> 15

were 40%, 31% and 32% of net sales; to Japan were 25%, 15% and 22% of net sales;
and to Europe and the rest of the world were 8%, 7% and 7% of net sales, in
fiscal 1999, 1998 and 1997, respectively.

The Company's sales are currently denominated primarily in U.S. dollars.
The Company currently enters into foreign currency forward exchange and option
contracts to hedge certain of its foreign currency exposures related to sales
and balance sheet accounts denominated in yen. The Company has not experienced
any significant losses related to its foreign exchange activity.

In fiscal 1999, net sales to two customers accounted for approximately 14%
and 13%, respectively. Two customers accounted for approximately 19% and 11%,
respectively of net sales in fiscal 1998. In fiscal 1997, one customer accounted
for approximately 10% of net sales.

GROSS MARGIN

The gross margin percentage was a negative 11.9% in fiscal 1999, compared
to a positive gross margin of 36.6% and 34.7% in fiscal 1998 and 1997,
respectively. Included in the gross margin for fiscal 1999 was $188.4 million
related to the write-off of both MiCRUS and Cirent joint venture assets which
were deemed to be impaired in fiscal 1999 based upon an assessment that future
cash flows were insufficient to recover the carrying value of the assets, $90.3
million of charges related to excess wafer purchase commitments for MiCRUS and
Cirent, and $34.5 million of inventory write-downs associated with products
related to businesses being phased out. In addition, fiscal 1998 gross margin
included $60.0 million of patent cross-license revenues and $53.0 million of
charges related to excess wafer purchase commitments for MiCRUS and Cirent.
Excluding these charges and the impact of the patent cross-license revenues,
gross margin would have remained flat at approximately 38% for both fiscal 1999
and fiscal 1998 due to decreasing average selling prices offset by decreasing
costs due to the positive effects of the fiscal 1999 restructuring activities
primarily focusing on the down-sizing of the Company's manufacturing capacity.

During fiscal 1999, the Company reassessed its manufacturing capacity needs
and reevaluated the carrying value of the assets recorded in connection with
both the MiCRUS and Cirent joint ventures. This revaluation was necessitated by
the joint venture wafer purchase commitment charges that were recorded in the
second, third and fourth quarters of fiscal 1999 and restructuring of the
Company's operations, along with the future expected decrease in sales, gross
margins and cash flows from the manufacture and sale of the Company's products
produced by the joint ventures. Expected undiscounted future cash flows were not
sufficient to recover the carrying value of such assets. Therefore, an
impairment loss of $188.4 million was recognized in the fourth quarter of fiscal
1999 based on the excess of the carrying value of the manufacturing agreements
and other assets over the fair value, calculated using expected discounted cash
flows for both MiCRUS and Cirent. See Note 6 to the Notes to the Consolidated
Financial Statements.

The gross margin percentage increased from 34.7% in fiscal 1997 to 36.6% in
fiscal 1998. The gross margin increase in fiscal 1998 was primarily a result of
improved margins in mass storage due to a change in mix within the mass storage
products towards read channel products, an overall change in product mix within
the Company towards mass storage products and $60.0 million of patent
cross-license revenues in the fourth quarter which had no corresponding cost of
sales. These improvements were offset by lower margins in PC products and $53.0
million of charges recorded in the fourth quarter related to wafer purchase
commitments for MiCRUS and Cirent, the Company's joint ventures. The lower
margins in PC products were primarily related to declining average selling
prices on graphics and modem products. Excluding the impact of the patent
cross-license revenues and the wafer purchase commitment charges for both fiscal
1998 and fiscal 1997, gross margins would have been approximately 38% for both
fiscal years.

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses expressed as a percentage of net sales
were 20.8%, 18.8%, and 25.2% in fiscal 1999, 1998 and 1997, respectively.
Research and development expenditures decreased by $49.2 million in fiscal 1999
primarily due to lower headcount related to the fiscal 1999 restructuring
efforts to focus research and development efforts on the Company's precision
linear and mixed-signal positions in the mass storage, high-precision data
conversion and audio markets. Research and development expenditures as a
15
<PAGE> 16

percentage of net sales increased primarily due to sales decreasing in fiscal
1999 at a rate faster than research and development expenses, along with the $60
million of patent cross-license revenues of sales in fiscal 1998.

Research and development expenditures decreased in fiscal 1998 as compared
with fiscal 1997 both as a percentage of net sales and absolute dollars
primarily as a result of the divestiture of certain non-core businesses and also
as a result of the April 1997 headcount reductions which were made in connection
with the Company's realignment into four market-focused divisions.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general, and administrative expenses expressed as a percentage of
net sales represented approximately 15.6%, 12.3% and 13.8% in fiscal 1999, 1998
and 1997, respectively. Selling, general, and administrative expenses decreased
$19.0 million in fiscal 1999 compared to fiscal 1998 primarily due to the
restructuring activities during fiscal 1999 which included the divestiture of
several non-core businesses and headcount reductions made in order for the
support structure to be in line with the Company's current revenue projections.
Selling, general, and administrative expenses as a percentage of net sales
increased in part because of the $60 million of patent cross-license revenues
included in sales in fiscal 1998, but not in fiscal 1999 and also because
overall sales decreased in fiscal 1999 at a rate faster than selling, general,
and administrative expenses.

Both the decrease as a percentage of net sales and the decrease as an
absolute spending in fiscal 1998 over fiscal 1997 were primarily a result of the
Company's divestiture of certain non-core businesses in fiscal 1998 and to the
April 1997 headcount reductions which were made in connection with the Company's
realignment into four market-focused divisions.

GAIN ON SALE OF ASSETS

During fiscal 1999, the Company recorded the final resolution of
contingencies related to the fiscal 1997 sales of the Company's PicoPower
product line to National Semiconductor Corporation and PCSI's Infrastructure
Product Group to ADC Telecommunications, Inc.

During the third quarter of fiscal 1998, the Company sold its Nuera
Communications, Inc. subsidiary for cash proceeds of approximately $21.5 million
($16.1 million net of $5.4 million of Nuera's own cash) and recorded a gain of
approximately $11.1 million. Gain on sale of assets also includes the reversal
of $9.7 million that had previously been accrued for losses on facilities
commitments in connection with the sale and shut down of the operating divisions
of Pacific Communication Sciences, Inc. ("PCSI") in the fourth quarter of fiscal
1997.

During the fourth quarter of fiscal 1997, the Company completed the sale of
the assets of PCSI's Wireless Semiconductor Products to Rockwell for $18.1
million in cash and made the decision to shut down PCSI's Subscriber Product
Group. In connection with the sale of the PCSI Wireless Semiconductor Product
Group and the shutdown of the Subscriber Group, the Company recorded a net gain
of $0.3 million.

During the third quarter of fiscal 1997, the Company completed the sale to
ADC Telecommunications, Inc. of the PCSI's Infrastructure Product Group. The
Company received approximately $20.8 million in cash for the group. In
connection with the transaction, the Company recorded a gain of approximately
$12.0 million.

During the second quarter of fiscal 1997, the Company completed the sale of
the PicoPower product line to National Semiconductor Corporation. The Company
received approximately $17.6 million in cash for the PicoPower product line. In
connection with the transaction, the Company recorded a gain of approximately
$6.9 million.

16
<PAGE> 17

RESTRUCTURING COSTS AND OTHER, NET

During the first quarter of fiscal 1999, the Company recorded $0.8 million
of income from the reversal of previously accrued facility losses in connection
with the third quarter fiscal 1998 discontinuation of certain strategies and
product development efforts in graphics products.

During the second quarter of fiscal 1999, the Company commenced certain
activities related to its previously announced restructuring and recorded
charges in the second quarter of fiscal 1999 related to those activities. These
actions included an immediate workforce reduction along with write-downs and
write-offs of obsolete inventory, equipment and facilities. In connection with
these actions, the Company recorded a net restructuring charge of $28.5 million
consisting of $4.3 million for workforce reductions, $8.2 million for
write-downs or write-offs of equipment, intangibles and other assets, $10.0
million for facility commitments (net of $2.2 million reversal of previously
accrued losses on facilities in connection with the third quarter fiscal 1998
discontinuation of certain product development efforts in graphics products),
and the remaining amount representing other committed liabilities and expenses.
Approximately $21.0 million of the accrual is expected to be discharged through
cash payments.

During the third quarter of fiscal 1999, the Company continued with its
restructuring activities previously announced in the second quarter of fiscal
1999 and recorded additional charges of $13.0 million. The Company's
restructuring activities for the third quarter of fiscal 1999 included the
divestiture of non-core businesses and the outsourcing of the Fremont
manufacturing test floor. In connection with these actions, the Company recorded
charges consisted of $4.2 million for work force reductions, $8.3 million for
write-downs and write-offs of equipment and other assets relating to the Fremont
manufacturing test floor, and the remaining amount representing other committed
liabilities and expenses.

As of March 27, 1999, approximately 445 employees have been terminated. The
Company anticipates that the implementation of the restructuring plan will be
substantially complete by the end of the first quarter of fiscal 2000 and may
consist of additional charges during this period related to the restructuring of
the Company's wafer fabrication capacity and other fixed costs. Total cash
outlays for fiscal 1999 restructuring activities will be approximately $26.2
million. To date, the Company has made cash payments related to its fiscal 1999
restructuring charges of approximately $12.6 million. Approximately $5.8 million
is expected to be paid in fiscal 2000.

Restructuring costs and other, net for fiscal 1999 included total
restructuring charges of $75.5 million and $5.0 million for write-downs and
write-offs of property and equipment.

The Company recorded restructuring costs of $11.8 million in the third
quarter of fiscal 1998 in connection with a discontinuation of certain
strategies and product development efforts in the graphics product group of its
PC products division. This resulted in a workforce reduction of approximately 65
positions. The primary components of the restructuring charge were $8.4 million
related to excess assets and facility leases and $1.8 million of severance
payments that were made during fiscal 1998. Restructuring costs and other also
includes a $2.0 million reversal of amounts that had been previously accrued for
losses on facilities in connection with the April 1997 restructuring and other
costs of $4.7 million representing additional compensation costs in connection
with the same restructuring that were earned and recorded in the third quarter
of fiscal 1998. As of March 27, 1999, activities related to the fiscal 1998
restructuring of the Company's graphics product group were completed.

In the fourth quarter of fiscal 1997, as a result of the Company's strategy
to focus on the markets for multimedia (graphics, video, and audio), mass
storage, and communications, the Company began divesting its non-core business
units and eliminating projects that do not fit within its core markets. These
actions resulted in a restructuring charge of $21.0 million which included $5.1
million related to workforce reductions and $15.9 million primarily related to
excess assets and facilities in connection with the reorganization into four
17
<PAGE> 18

market-focused product divisions (Personal Computer Products, Communications
Products, Mass Storage Products, and Crystal Semiconductor Products). This
resulted in a workforce reduction of approximately 400 people in April 1997,
representing approximately 15 percent of its worldwide staff. As of March 27,
1999, activities related to the fiscal 1997 restructuring were completed.

INTEREST EXPENSE

Interest expense was $22.3 million, $27.4 million and $19.8 million in
fiscal 1999, 1998 and 1997, respectively. The decrease in interest expense in
fiscal 1999 is primarily due to the reduction in capital leases from the fiscal
1999 restructuring activities. The increase in interest expense in fiscal 1998
is primarily due to the Company's convertible subordinated notes being
outstanding for the entire fiscal year as compared with fiscal 1997, in which
the convertible subordinated notes were issued in the third quarter.

INTEREST INCOME

Interest income in fiscal 1999 was $16.8 million compared to $19.9 million
in fiscal 1998 and $8.1 million in fiscal 1997. Interest income decreased in
fiscal 1999 over fiscal 1998 as a result of the reduction in cash balance
primarily due to stock repurchase activities and cash used by operations in
fiscal 1999. Interest income increased in fiscal 1998 over fiscal 1997 as the
funds raised by the fiscal 1997 convertible subordinated notes offering were
available to be invested in cash equivalents and marketable securities for the
entire year. In addition, the Company generated cash from operations during the
year, which was also available for investment during the year.

OTHER INCOME (EXPENSE), NET

Fiscal 1999, other income (expense), net, includes gains on the disposal of
certain equity investments and foreign currency transaction gains. In fiscal
1998, other income (expense), net, includes gains on the disposal of certain
equity investments and foreign currency transaction gains, which were partially
offset by certain legal settlements.

INCOME TAXES

The provision for income taxes was 12.1% in fiscal 1999 compared to a
provision for income taxes of 34.8% in fiscal 1998 and a benefit for income
taxes of 10.6% in fiscal 1997. The tax provision for fiscal 1999 is due to a
valuation allowance which was recorded to offset previously recognized deferred
tax assets. The effective tax rate for fiscal 1998 was equal to the U.S. federal
statutory rate and state income taxes offset by federal and state research tax
credits. The tax benefit rates in 1997 was less than the federal statutory rate,
primarily because of foreign operating results which are taxed at rates other
than the U.S. statutory rate.

FASB Statement 109 provides for the recognition of deferred tax assets if
realization of such assets is more likely than not. The Company has provided a
valuation allowance equal to its net deferred tax assets due to uncertainties
regarding their realization. The realizability of the deferred tax assets will
be evaluated on a quarterly basis.

LIQUIDITY AND CAPITAL RESOURCES

During fiscal 1999, the Company used $15.6 million of cash and cash
equivalents from its operating activities as opposed to generating $193.1
million and $2.6 million of cash and cash equivalents during fiscal 1998 and
fiscal 1997, respectively. The cash used in operations in fiscal 1999 was
primarily due to a net loss of $427.4 million of which $292.3 million was
related to non-cash transactions unique to fiscal 1999. The remaining decrease
related to an increase in payments during the year for accounts payable and
accrued liabilities offset by lower collections of accounts receivable due to
the decrease in sales during fiscal 1999. The fiscal 1998 increase from fiscal
1997 was primarily due to improved accounts receivable and inventory turnover,
funding received for equipment and leasehold advances to the joint ventures and
the generation of income from operations as opposed to a net loss in the prior
year. Included in the net income from operations

18
<PAGE> 19

in fiscal 1998 was $60.0 million of patent cross-license revenues. These
increases were partially offset by a reduction in accounts payable.

The Company used $31.7 million, $25.1 million and $221.0 million of cash
for investing activities during fiscal 1999, fiscal 1998 and fiscal 1997,
respectively. Cash used for investing activities for 1999 was similar with the
fiscal 1998 amount as the proceeds from the sale of assets and termination of
the UMC agreement were offset by the manufacturing agreement and investment
payments during the year to the joint ventures in fiscal 1998. Part of the
fiscal 1998 increase in cash was due to a higher percentage of the Company's
investments in securities with original maturities less than ninety days than in
the prior fiscal year. As a result, available for sale investments generated a
net cash flow of $62.8 million during fiscal year 1998 while using a net cash
flow of $168.9 million through purchase of investments in fiscal 1997. In
addition, during fiscal 1998 the Company received approximately $20.5 million
from the termination of the UMC agreements, and approximately $16.1 million from
the sale of Nuera (proceeds of $21.5 million less Nuera's own cash of $5.4
million) as opposed to $56.5 million of proceeds from the sale of assets in the
prior year, which included proceeds from PCSI divestiture activities.

Net cash used in financing activities was $115.5 million in fiscal 1999 and
$12.3 million in fiscal 1998, as opposed to generating $214.0 million of cash in
fiscal 1997. Cash used in financing was primarily due to the Company's
repurchase of $100.1 million worth of treasury stock in fiscal 1999. The cash
used in fiscal 1998 was primarily due to payments on the Company's outstanding
lease obligations and debt. The increase in cash from financing activities in
fiscal 1997 was primarily due to proceeds from the issuance of $300.0 million of
convertible subordinated notes offset by repayment of short-term bank debt.

As of March 27, 1999, the Company is contingently liable as guarantor or
co-guarantor for equipment leases of MiCRUS and Cirent which have remaining
payments of approximately $449.6 million due through calendar year 2004 compared
to $542.3 million as of March 28, 1998.

As of March 27, 1999, the Company has a bank line of credit to provide a
commitment for letters of credit up to a maximum aggregate of $55.0 million,
which expires on June 30, 1999 and are collateralized by cash or securities with
interest at the higher of: (a) .50% per annum above the latest federal funds
rate (as defined in the Second Amended Credit Agreement); or (b) the rate of
interest in effect for such day as publicly announced from time to time by the
bank. The Company is currently in compliance with all covenants under the bank
line of credit. The Company expects to amend or replace the existing line of
credit facility in fiscal 2000. The Company does not believe the amendment of
its line of credit will have an impact on its financial position or on its
ability to finance its operations for the foreseeable future. As of March 27,
1999, the Company had approximately $45.3 million outstanding letters of credit
and an additional $9.7 million available under this line of credit. These
letters of credit are secured by cash and securities of $66.6 million, which are
recorded as restricted cash. In addition, certain leases are secured by cash and
securities of $19.7 million, which is also recorded as restricted cash. Of the
total restricted cash balance, the Company expects that the restriction on $62.7
million will be released upon the conclusion of its negotiations related to the
joint ventures.

Historically, the Company has generated cash in an amount sufficient to
fund its operations. The Company anticipates that its existing capital resources
and cash flow generated from future operations will enable it to maintain its
current level of operations for the foreseeable future.

FUTURE OPERATING RESULTS

QUARTERLY FLUCTUATIONS

The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future. The Company's operating results are affected by a wide
variety of factors, many of which are outside of the Company's control,
including but not limited to, economic conditions and overall market demand in
the United States and worldwide, the Company's ability to introduce new products
and technologies on a timely basis, the ability to retain and attract key
technical and management personnel, changes in product mix, fluctuations in
manufacturing costs which affect the

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Company's gross margins, declines in market demand for the Company's and its
customers' products, sales timing, the level of orders that are received and can
be shipped in a quarter, the cyclical nature of both the semiconductor industry
and the markets addressed by the Company's products, product obsolescence, price
erosion, and competitive factors. The Company's operating results in fiscal 2000
are likely to be affected by these factors as well as others.

The Company must order wafers and build inventory well in advance of
product shipments. Because the Company's markets are volatile and subject to
rapid technology and price changes, there is a risk that the Company will
forecast inaccurately and produce excess or insufficient inventories of
particular products. This inventory risk is heightened because many of the
Company's customers place orders with short lead times. Such inventory
imbalances have occurred in the past and in fact contributed significantly to
the Company's operating losses in fiscal 1997 and 1996. These factors increase
not only the inventory risk but also the difficulty of forecasting quarterly
operating results. Moreover, as is common in the semiconductor industry, the
Company frequently ships more product in the third month of each quarter than in
either of the first two months of the quarter, and shipments in the third month
are higher at the end of that month. The concentration of sales in the last
month of the quarter contributes to difficulty in predicting the Company's
quarterly revenues and results of operations.

The Company's success is highly dependent upon its ability to develop
complex new products, to introduce them to the marketplace ahead of the
competition, and to have them selected for design into products of leading
system manufacturers. Both revenues and margins may be affected quickly if new
product introductions are delayed or if the Company's products are not designed
into successive generations of products of the Company's customers. These
factors have become increasingly important to the Company's results of
operations because the rate of change in the markets served by the Company
continues to accelerate.

ISSUES RELATING TO MANUFACTURING AND MANUFACTURING INVESTMENT

The Company participates in joint ventures with International Business
Machines Corp. ("IBM"), MiCRUS joint venture, and Lucent Technologies, Cirent
Semiconductor joint venture, under a series of agreements intended to secure a
committed supply of wafers from manufacturing facilities operated by the joint
ventures. The joint ventures are controlled by IBM and Lucent Technologies,
respectively, and are dependent on the controlling partners' advanced
proprietary manufacturing process technologies and manufacturing expertise.
These agreements include wafer purchase agreements under which the Company is
committed to purchase a fixed percentage of the output of the joint venture
manufacturing facilities. As a result, the operating results of the Company may
be more sensitive to changing business conditions, as anticipated decreases in
revenues could cause the Company to decide to not fulfill its wafer purchase
obligations. This would result in charges to the Company from the joint ventures
in amounts intended to cover the joint ventures fixed costs related to the
shortfall in wafer orders from the Company. The Company determines any estimated
shortfalls in such purchase commitments over the short-term (six-months) and
accrues such amounts to the extent they would result in inventory losses were
the Company to fulfill the commitment and take delivery of the related
inventory. The Company's gross margins and earnings were adversely impacted by
such charges in the amounts of $0.4 million, $62.2 million, $27.7 million, $53.0
million, $22.0 million and $12.1 million in the fourth, third and second quarter
of fiscal 1999, the fourth quarter of fiscal 1998 and the fourth and second
quarters of fiscal 1997, respectively. With its other foundries, the Company
becomes committed upon placing orders and is subject to penalties for
cancellations.

Moreover, the Company will benefit from the MiCRUS and Cirent Semiconductor
joint ventures only if they are able to produce wafers at or below prices
generally prevalent in the market. If, however, either of these ventures is not
able to produce wafers at competitive prices, the Company's results of
operations could be materially adversely affected. During fiscal 1999, 1998 and
1997, excess production capacity in the industry led to significant price
competition between merchant semiconductor foundries and the Company believes
that in some cases this resulted in pricing from certain foundries that was
lower than the Company's cost of production from its manufacturing joint
ventures. The Company experienced pressures on its selling prices during fiscal
1999, 1998 and 1997, which had a negative impact on its results of operations
and it believes that

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this was partially due to the fact that certain of its competitors were able to
obtain favorable pricing from such foundries.

Certain provisions of the MiCRUS and Cirent Semiconductor agreements may
cause the termination of the joint ventures in the event of a change in control
of the Company. Such provisions could have the effect of delaying, deferring or
preventing a change of control of the Company.

In connection with the financing of its operations, the Company has
borrowed money and entered into substantial equipment lease obligations. Such
indebtedness could cause the Company's principal and interest obligations to
increase substantially. The degree to which the Company is leveraged could
adversely affect the Company's ability to obtain additional financing for
working capital, acquisitions or other purposes and could make it more
vulnerable to industry downturns and competitive pressures. The Company's
ability to meet its debt service and other obligations will be dependent upon
the Company's future performance, which will be subject to financial, business,
and other factors affecting the operations of the Company, many of which are
beyond its control. An inability to obtain financing to meet these obligations
could cause the Company to become in default of such obligations.

Although the Company has future wafer supplies from MiCRUS and Cirent
Semiconductor, the Company expects to continue to purchase portions of its
wafers from, and to be reliant upon, outside merchant wafer suppliers. The
Company's current strategy is to fulfill its wafer requirements using a balance
of secured wafer supply from its joint ventures and from outside merchant wafer
suppliers. The Company also uses other outside vendors to package the wafer die
into integrated circuits and to perform the majority of the Company's product
testing.

During the second quarter of fiscal 1998, the Company reduced its purchase
obligations at Cirent Semiconductor by 50 percent, pursuant to an agreement
under which the Company can reacquire, at no incremental cost, an additional 10
percent of the total Cirent Semiconductor wafer output and can sell any portion
of its wafer purchase obligation to third parties on a foundry basis. The
agreement also provides the Company with future access to certain Lucent
advanced process technologies including 0.18 micron process technology.

Since September 1998, the Company has been in negotiations with both IBM
and Lucent to divest its ownership interest in MiCRUS and Cirent, respectively.
While the Company has yet to complete agreements in either of these
transactions, it is close to an agreement with each joint venture partner. The
proposed transaction would result in the Company's exit from its ownership of
capacity at MiCRUS and Cirent with contractual obligations for wafer supply at
reduced levels through the calendar year 2000, after which the Company will
resume its fully fabless model. The outcome of the negotiations could result in
a substantial cash payment in future periods in order to close these
transactions.

The Company's results of operations could be adversely affected in the
future, as they have been so affected in the past, if particular suppliers are
unable to provide a sufficient and timely supply of product, whether because of
raw material shortages, capacity constraints, unexpected disruptions at the
plants, delays in qualifying new suppliers or other reasons, or if the Company
is forced to purchase wafers or packaging from higher cost suppliers or to pay
expediting charges to obtain additional supply, or if the Company's test
facilities are disrupted for an extended period of time. Because of the
concentration of sales at the end of each quarter, a disruption in the Company's
production or shipping near the end of a quarter could materially reduce the
Company's revenues for that quarter. Production may be constrained even though
capacity is available at one or more wafer manufacturing facilities because of
the difficulty of moving production from one facility to another. Any supply
shortage could adversely affect sales and operating profits. The Company's
reliance upon outside vendors for assembly and test could also adversely impact
sales and operating profits if the Company was unable to secure sufficient
access to the services of these outside vendors.

Product development in the Company's markets is becoming more focused on
the integration of functionality on individual devices and there is a general
trend towards increasingly complex products. The greater integration of
functions and complexity of operations of the Company's products increase the
risk that latent defects or subtle faults could be discovered by customers or
end users after volumes of product have

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been shipped. If such defects were significant, the Company could incur material
recall and replacement costs for product warranty. The Company's relationship
with customers could also be adversely impacted by the recurrence of significant
defects.

DEPENDENCE ON PC MARKET

Sales of many of the Company's products will continue to depend largely on
sales of personal computers (PCs). Reduced growth in the PC market could affect
the financial health of the Company as well as its customers. Moreover, as a
component supplier to PC OEMs and to peripheral device manufacturers, the
Company is likely to experience a greater magnitude of fluctuations in demand
than the Company's customers themselves experience. In addition, many of the
Company's products are used in PCs for the consumer market, and the consumer PC
market is more volatile than other segments of the PC market.

Other integrated circuit (IC) makers, including Intel Corporation, have
expressed their interest in integrating through hardware functions, adding
through special software functions, or kitting components to provide some
multimedia or communications features into or with their microprocessor
products. Successful integration of these functions could substantially reduce
the Company's opportunities for IC sales in these areas. In addition, the
Company's de-emphasis of PC products and its focus on non-PC markets could have
an adverse affect on the Company's PC product sales as customers seek other
supply sources with greater commitments to the PC market.

A number of PC OEMs buy products directly from the Company and also buy
motherboards, add-in boards or modules from suppliers who in turn buy products
from the Company. Accordingly, a significant portion of the Company's sales may
depend directly or indirectly on the sales to a particular PC OEM. Since the
Company cannot track sales by motherboard, add-in board or module manufacturer,
the Company may not be fully informed as to the extent or even the fact of its
indirect dependence on any particular PC OEM, and, therefore, may be unable to
assess the risks of such indirect dependence.

ISSUES RELATING TO MASS STORAGE MARKET

The disk drive market has historically been characterized by a relatively
small number of disk drive manufacturers and by periods of rapid growth followed
by periods of oversupply and contraction. Growth in the mass storage market is
directly affected by growth in the PC market. Furthermore, the price competitive
nature of the disk drive industry continues to put pressure on the price of all
disk drive components. Recent market demands for sub-$1,000 PCs puts further
pressure on the price of disk drives and disk drive components.

The Company believes that constraints in supply of certain read-head
components to the disk drive industry limited sales of its mass storage products
in the fourth quarter of fiscal 1997. In addition, the Company believes that
excess inventories held by its customers limited sales of the Company's mass
storage products in the second quarter of fiscal 1997 and limited sales of the
Company's optical disk drive products in the third quarter of fiscal 1997.
Revenues from mass storage products in fiscal 2000 are likely to depend heavily
on the success of certain 3.5 inch disk drive products selected for use by
various customers, which in turn depends upon obtaining timely customer
qualification of the new products and bringing the products into volume
production timely and cost effectively.

The Company's revenues from mass storage products are dependent on the
successful introduction by its customers of new disk drive products and can be
impacted by the timing of customers' transition to new disk drive products.
Recent efforts by certain of the Company's customers to develop their own ICs
for mass storage products could in the future reduce demand for the Company's
mass storage products, which could have an adverse effect on the Company's
revenues and gross margins from such products. In addition, in response to the
current market trend towards integrating hard disk controllers with
microcontrollers, the Company's revenues and gross margins from its mass storage
products will be dependent on the Company's ability to introduce such integrated
products in a commercially competitive manner.

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Finally, while the Company believes it is well positioned for the trend
toward integration of HDD electronic components with the first product on the
market to combine the three primary electronic components, some of the Company's
competitors have also announced plans to introduce integrated drive electronics
components. Some of these competitors have substantially greater resources to
accomplish the technical obstacles of integration and greater access to the
advanced technologies necessary to provide integrated HDD electronic components.

ISSUES RELATING TO AUDIO PRODUCTS

Most of the Company's revenues in the audio market derive from the sales of
audio codecs and integrated 16-bit codec-plus-controller solutions for the PC
market and consumer electronics equipment. In the PC market, the transition to
the AC-link codecs attached to core logic using the multimedia features of the
processor and single chip solutions are lowering the average selling price in
the audio IC market. The Company's revenues from the sale of PC audio products
in fiscal 2000 are likely to be significantly affected by this transition to
core logic connected audio and by the introduction of cost reduced,
fully-integrated, single-chip audio ICs. Moreover, aggressive competitive
pricing pressures have adversely affected and may continue to adversely affect
the Company's revenues and gross margins from the sale of audio ICs.

Three-dimensional, spatial-effects audio became an important feature in
fiscal 1999, primarily in products for the consumer electronics marketplace. If
the Company's spatial-effects audio products do not meet the cost or performance
requirements of the market, revenues from the sale of audio products could be
adversely affected.

ISSUES RELATING TO PRECISION MIXED-SIGNAL PRODUCTS

Precision Data Converter Products is a very broad market with many well
established competitors. The Company's ability to compete in this market will be
adversely affected if it cannot establish broad sales channels or if it does not
develop and maintain a broad enough product line to compete effectively. In
addition, the customer product design in time is long. Customer delays in
product development and introductions creates risk relative to the Company's
revenue plans. Further, the Company's products in this market are technically
very complex. The complexity of the products contributes to risks in getting
products to market on a timely basis, which could impact the Company's revenue
plans. The scarcity of analog engineering talent also contributes to risks
related to product development timing in this market.

INTELLECTUAL PROPERTY MATTERS

The semiconductor industry is characterized by frequent litigation
regarding patent and other intellectual property rights. The Company and certain
of its customers from time to time have been notified that they may be
infringing certain patents and other intellectual property rights of others. In
addition, customers have been named in suits alleging infringement of patents or
other intellectual property rights by customer products. Certain components of
these products have been purchased from the Company and may be subject to
indemnification provisions made by the Company to its customers. Although
licenses are generally offered in situations where the Company or its customers
are named in suits alleging infringement of patents or other intellectual
property rights, there can be no assurance that any licenses or other rights can
be obtained on acceptable terms. An unfavorable outcome occurring in any such
suit could have an adverse effect on the Company's future operations and/or
liquidity.

FOREIGN OPERATIONS AND MARKETS

Because many of the Company's subcontractors and several of the Company's
key customers which collectively account for a significant percentage of the
Company's revenues are located in Japan and other Asian countries, the Company's
business is subject to risks associated with many factors beyond its control.
International operations and sales may be subject to political and economic
risks, including political instability, currency controls, exchange rate
fluctuations, and changes in import/export regulations, tariff and freight
rates. Although the Company buys hedging instruments to reduce its exposure to
currency exchange rate

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fluctuations, the Company's competitive position can be affected by the exchange
rate of the U.S. dollar against other currencies, particularly the Japanese yen.
Further, to the extent that volatility in foreign financial markets was to have
an adverse impact on economic conditions in a country or geographic region in
which the Company does business, demand for and supply of the Company's products
could be adversely impacted, which would have a negative impact on the Company's
revenues and earnings.

A significant number of the Company's customers and suppliers are in Asia.
The recent turmoil in the Asian financial markets does not appear to have had a
material impact on the Company's sales orders or bookings. However, the
financial instability in these regions may have an adverse impact on the
financial position of end users in the region which could impact future orders
and/or the ability of such users to pay the Company or the Company's customers,
which could also impact the ability of such customers to pay the Company. The
Company performs extensive financial due diligence on customers and potential
customers and generally require material sales to Asia to either be secured by
letters of credit or transacted on a cash on demand basis. Given the prior
situation in Asia, the Company now requires that the letters of credit to be
established through American banking institutions. During this volatile period,
the Company expects to carefully evaluate the collection risk related to the
financial position of customers and potential customers. The results of such
evaluations will be considered in structuring the terms of sale, in determining
whether to accept sales orders, in evaluating the recognition of revenue on
sales in the area and in evaluating the collectability of outstanding accounts
receivable from the region. In situations where significant collection risk
exists, the Company will either not accept the sales order, defer the
recognition of related revenues, or, in the case of previously transacted sales,
establish appropriate bad debt reserves. Despite these precautions, should the
volatility in Asia have a material adverse impact on the financial position on
end users of the customers products in Asia, the Company could experience a
material adverse impact on its results of operations.

COMPETITION

The Company's business is intensely competitive and is characterized by new
product cycles, price erosion, and rapid technological change and new companies
entering the markets. Competition typically occurs at the design stage, where
the customer evaluates alternative design approaches that require integrated
circuits. Because of shortened product life cycles and even shorter design-in
cycles, the Company's competitors have increasingly frequent opportunities to
achieve design wins in next generation systems. In the event that competitors
succeed in supplanting the Company's products, the Company's market share may
not be sustainable and net sales, gross margin, and results of operations would
be adversely affected. Competitors include major domestic and international
companies, many of which have substantially greater financial and other
resources than the Company with which to pursue engineering, manufacturing,
marketing and distribution of their products. Emerging companies are also
increasing their participation in the market, as well as customers who develop
their own integrated circuit products.

Competitors include manufacturers of standard semiconductors,
application-specific integrated circuits and fully customized integrated
circuits, including both chip and board-level products. The ability of the
Company to compete successfully in the rapidly evolving area of high-performance
integrated circuit technology depends significantly on factors both within and
outside of its control, including, but not limited to, success in designing,
manufacturing and marketing new products, wafer supply, protection of Company
products by effective utilization of intellectual property laws, product
quality, reliability, ease of use, price, diversity of product line, efficiency
of production, the pace at which customers incorporate the Company's integrated
circuits into their products, success of the customers' products, and general
economic conditions. Also the Company's future success depends, in part, upon
the continued service of its key engineering, marketing, sales, manufacturing,
support, and executive personnel, and on its ability to continue to attract,
retain, and motivate qualified personnel. The competition for such employees is
intense, and the loss of the services of one or more of these key personnel
could adversely affect the Company. Because of these and other factors, past
results may not be a useful predictor of future results.

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IMPACT OF YEAR 2000

The "Year 2000 Issue" is the result of computer programs being written
using two digits rather than four to define the applicable year. If the
Company's computer programs with date-sensitive functions are not Year 2000
compliant, they may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
incorrect reporting and disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities. The issue spans both information
technology and non-information technology systems that use date data. In
addition to the Company's own systems, the Company relies, directly and
indirectly, on external systems of its customers, suppliers, creditors,
financial organizations, utilities providers and government entities, both
domestic and international ("Third Parties"). The Company currently has a
project plan in place to address the Year 2000 Issue with its internal systems
and Third Parties which is designed to deal with its most critical systems and
processes first. Those identified as "mission critical" are systems and/or
processes whose failure would cause a material impact on the Company's
operations and financial statements. The project plan includes the
identification, assessment, testing, remediation/validation and the development
of contingency plans of the Company's Year 2000 issues primarily through the use
of internal personnel. In addition, the Company has engaged the services of
external consultants to provide Year 2000 progress assessment of the Company's
efforts. The external consultants review the Company's activities regarding Year
2000 readiness and provide recommendations designed to improve the Company's
Year 2000 readiness.

In the third quarter of calendar year 1996, the Company began a program to
replace mission-critical internal business systems. The decision to purchase
software to replace these systems was made primarily in order to meet the
Company's future business requirements, which included consideration of Year
2000 Issues. The Company is currently in the process of installing software
licensed from SAP America, Inc. The first phase of this project was completed in
June 1998 and included finance, sales and logistics. The second phase of the
project will include manufacturing and a human resource system estimated to be
completed by September 1999. This multi-phased implementation is expected to
cover all major internal business systems used by the Company. While the Year
2000 compliance is an important software feature the Company considered when
purchasing the software replacement, the Company's decision to replace mission
critical business systems was primarily to make important functional
improvements necessary to remain competitive in the current business
environment. Therefore, the Company has not allocated a portion of the total
project cost as a Year 2000 Issue. The Company does not believe that any
incremental project costs associated with Year 2000 compliance to be material,
as this feature was included with the software purchased by the Company to
satisfy its business needs. The Company presently believes that with the
installation of this software into its internal business systems, the Year 2000
Issue will not pose significant operational problems for its computer systems.
However, if such modifications and conversions are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on the
operations of the Company. Therefore, the Company is currently developing
contingency plans in the event mission critical systems are not Year 2000
compliant.

Product related assessments and testing are expected to be completed by
June 1999. To date, 93% of products have been tested and found to be Year 2000
compliant. A list of compliant products is available on the Company's web site
(www.cirrus.com). The Company considers a product or system to be Year 2000
compliant if the date/time data is accurately processed (included, but not
limited to, calculating, comparing, and sequencing) from, into and between the
twentieth and twenty-first centuries, and the years 1999 and 2000 along with
leap year calculations. To date, the Company has not identified any
non-compliant products and therefore, no material costs have been incurred with
respect to remediation. The Company believes that it is unlikely to experience a
material adverse impact on its financial condition or results of operations due
to product related Year 2000 compliance issues. However, since the assessment
process is ongoing, Year 2000 implications are not fully known, and potential
liability issues are not clear. Therefore, the full potential impact of the Year
2000 on the Company is not known at this time.

Another consequence related to the Company's products is the impact upon
the Company's ability to ship to or collect payment from customers who
themselves have business operational problems as a result of the
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Year 2000 Issue. Although the Company believes that it is unlikely to experience
a material adverse impact on its financial conditions or results of operations
due to customer-related problems, the Company could experience such an impact if
any of its major customers or a large number of its other customers suffer a
material disruption in their ability to accept or pay for the Company's product
shipments.

The Company's project plan also includes a comprehensive program to assess
the Year 2000 compliance of its key suppliers. The Company has initiated formal
communications with its significant suppliers and financial institutions to
determine the extent to which the Company is vulnerable to those Third Parties
who fail to remedy their own Year 2000 Issues. As of March 1999, the Company has
contacted its significant suppliers and financial institutions and has received
assurances of Year 2000 compliance from a number of those contacted. To date the
Company has received responses to its initial inquiries from 100% of its mission
critical suppliers. However, some of these suppliers are still in the process of
completing their work on the Year 2000 Issues and failure of these mission
critical suppliers to be compliant would result in manufacturing shutdowns for a
certain period of time. The Company is currently taking steps to assess whether
these suppliers are taking all the appropriate actions to fix any year 2000
issues they might have and to be prepared to continue functioning effectively as
a supplier to the Company. However, as there can be no guarantee that the
Company's suppliers will be Year 2000 compliant prior to the millennium, many
significant suppliers have been second sourced and most contingency plans have
been developed during the first calendar quarter of 1999. This process will be
completed in the second calendar quarter of 1999. Contingency plans related to
mission critical suppliers that are not considered to be making adequate steps
to ensure Year 2000 compliance consist of the identification of substitutes and
second-source suppliers, and in certain situations includes a planned increase
in the level of inventory carried. No material cost related to Year 2000
compliance of Third Parties has been incurred to date. The Company believes that
its reasonably most likely worst case Year 2000 scenario would involve problems
with the systems of its Third Parties rather than with the Company's internal
systems or its products. However, based upon information communicated to the
Company from Third Parties, management believes that it is unlikely to
experience a material adverse impact due to problems related to Third Parties
and expects that the cost of these projects over the next two years will not
have a material effect on the Company's financial position or overall trends in
results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK DISCLOSURE

The Company is exposed to market risks associated with interest rate and
currency movements on market securities, outstanding debt and non-U.S. dollar
denominated assets and liabilities. The Company assesses these risks on a
regular basis and has established policies to protect against the adverse
effects of these and other potential exposures. All of the potential changes
noted below are based on sensitivity analysis performed on the Company's
financial position at March 27, 1999. Actual results may differ materially.

At March 27, 1999, the Company's marketable securities consist of
short-term, fixed rate securities and long term debt, of which the majority
represents convertible subordinated notes bearing interest at a fixed rate. An
immediate 10% change in interest rates would not have a material effect on
either the Company's debt or investment portfolios, and would also have no
material impact on the Company's results of operations.

A majority of the Company's revenue and spending is transacted in U.S.
dollars. However, the Company does enter into these transactions in other
currencies, primarily Japanese yen. The Company attempts to limit its exposure
to changing foreign exchange rates through financial market instruments.
Short-term exposures to changing foreign exchange rates are managed by financial
market transactions, principally through the purchase of both forward foreign
exchange contracts and put and call options in order to hedge certain firm
commitments denominated in foreign currencies. The Company's foreign exchange
policy also authorizes the use of hybrid foreign exchange products that combine
elements of both options and forward contracts. The Company will enter into
contracts which are most attractive to its hedging position in the market at the
time of execution. Any contracts executed by the Company are denominated in the
same currency as the underlying transaction (primarily Japanese yen) and the
terms of the contracts generally match the underlying

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transactions. The effect of an immediate 10% change in exchange rates would not
have a material effect on the Company's financial condition or results of
operations.

The Company's foreign exchange policy allows for the use of forward and
options contracts, as well as, hybrids of these instruments, to hedge its
foreign currency exposures. The majority of the Company's hedging transactions
are considered cash flow hedges and do not qualify for hedge accounting
treatments. As currently anticipated under certain accounting standards as
anticipated by Statement of Financial Accounting Standards No. 133, these
instruments would be classified as derivatives for purposes of this disclosure.
As previously stated, the most common form of instruments used by the Company
are forward contracts and options, primarily denominated in Japanese yen. The
Company actively pursues options using a "zero cost" strategy where there is no
operations impact to the execution of the underlying transaction. The options
are then "marked to market" on a monthly basis based upon fluctuations of the
underlying currency in relation to the U. S. dollar, and the gains or losses are
reflected in operations. Upon termination of the derivative instrument, the
cumulative gain or is included in operations. Forward foreign currency exchange
contracts receive similar treatment.

The Company hedges certain anticipated foreign currency transactions,
primarily repatriation of Japanese yen sales. Repatriations occur on a quarterly
or monthly basis, depending on underlying accounts receivable collections.
Foreign currency exchange contracts are entered into at the beginning of each
fiscal quarter in order to hedge these transactions and typically expire at the
end of each fiscal quarter. The transactions are marked to market, monthly and
the cumulative gains or losses are recognized during the quarter operations. In
the event that the anticipated transaction did not occur, options contracts
would expire with a negative impact to operations. However, to the extent that
the Company did not have like amounts of foreign currency in its offshore
foreign exchange account, forward contracts would require the Company to
purchase any deficient amount of the underlying currency at spot market rates in
order to settle with its financial institution counter-party. Any gains or
losses form these types of transactions would be reflected in operations. The
Company believes that the impact of these types of occurrences would have an
immaterial effect on the Company operations.

27
<PAGE> 28

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------------------------
MARCH 27, MARCH 28, MARCH 29,
1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
Net sales................................................. $ 628,105 $954,270 $917,154
Costs and expenses, gain on sale of assets and other, net
Cost of sales........................................... 703,029 605,484 598,795
Research and development................................ 130,347 179,552 230,786
Selling, general and administrative..................... 98,275 117,273 126,722
Gain on sale of assets, net............................. (3,988) (20,781) (18,915)
Restructuring costs and other, net...................... 80,505 14,464 20,954
---------- -------- --------
Total costs and expenses, gain on sale of assets
and other, net................................ 1,008,168 895,992 958,342
---------- -------- --------

Income (loss) from operations............................. (380,063) 58,278 (41,188)
Interest expense.......................................... (22,337) (27,374) (19,754)
Interest income........................................... 16,786 19,893 8,053
Other income (expense), net............................... 4,242 5,206 1,270
---------- -------- --------

Income (loss) before provision (benefit) for income
taxes................................................... (381,372) 56,003 (51,619)
Provision (benefit) for income taxes...................... 46,031 19,510 (5,463)
---------- -------- --------

Net income (loss)......................................... $ (427,403) $ 36,493 $(46,156)
========== ======== ========

Net income (loss) per share:
Basic................................................... $ (6.77) $ 0.54 $ (0.71)
========== ======== ========
Diluted................................................. $ (6.77) $ 0.52 $ (0.71)
========== ======== ========
Weighted average common shares outstanding:
Basic................................................... 63,149 67,333 65,007
Diluted................................................. 63,149 69,548 65,007
</TABLE>

See accompanying notes.
28
<PAGE> 29

CONSOLIDATED BALANCE SHEETS
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
MARCH 27, MARCH 28,
1999 1998
--------- ----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents................................. $ 144,457 $ 307,184
Restricted cash........................................... 86,277 40,237
Short-term investments.................................... 74,616 125,378
Accounts receivable, less allowance for doubtful accounts
of $9,296 in 1999 and $11,176 in 1998.................. 66,063 103,073
Inventories............................................... 40,262 103,703
Deferred tax assets....................................... -- 28,505
Equipment and leasehold improvement advances to joint
ventures............................................... -- 97,711
Other current assets...................................... 19,039 10,402
--------- ----------
Total current assets.............................. 430,714 816,193
Property and equipment, at cost:
Machinery and equipment................................... 149,828 249,649
Furniture and fixtures.................................... 16,046 15,075
Leasehold improvements.................................... 20,401 23,458
--------- ----------
186,275 288,182
Less accumulated depreciation and amortization............ (138,251) (188,818)
--------- ----------
Property and equipment, net....................... 48,024 99,364
Manufacturing agreements, net of accumulated amortization of
zero in 1999 and $19,409 in 1998, and investment in joint
ventures.................................................. 14,000 166,953
Deposits and other assets................................... 39,892 55,032
--------- ----------
$ 532,630 $1,137,542
========= ==========
Liabilities and Stockholders' Equity (Net Capital Deficiency)
Current liabilities:
Accounts payable.......................................... $ 64,707 $ 110,761
Accounts payable -- joint ventures........................ 102,268 98,753
Accrued salaries and benefits............................. 13,724 41,832
Current maturities of long-term debt and capital lease
obligations............................................ 23,076 26,554
Income taxes payable...................................... 36,593 38,053
Other accrued liabilities................................. 26,334 24,086
--------- ----------
Total current liabilities......................... 266,702 340,039
Capital lease obligations................................... 1,457 5,475
Long-term debt.............................................. 12,960 32,559
Other long-term............................................. 9,231 3,126
Convertible subordinated notes.............................. 300,000 300,000
Commitments and contingencies
Stockholders' equity (net capital deficiency):
Convertible preferred stock, $0.001 par value; 5,000
shares authorized, none issued......................... -- --
Common stock, $0.001 par value, 280,000 shares authorized,
60,103 shares issued and outstanding in 1999 and 68,175
in 1998................................................ 60 68
Additional paid-in capital................................ 327,601 368,554
Retained earnings (accumulated deficit)................... (383,905) 89,429
Accumulated other comprehensive income (loss)............. (1,476) (1,708)
--------- ----------
Total stockholders' equity (net capital
deficiency)..................................... (57,720) 456,343
--------- ----------
$ 532,630 $1,137,542
========= ==========
</TABLE>

See accompanying notes.
29
<PAGE> 30

CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS)

<TABLE>
<CAPTION>
FISCAL YEARS ENDED
---------------------------------
MARCH 27, MARCH 28, MARCH 29,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $(427,403) $ 36,493 $ (46,156)
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization.......................... 62,281 71,869 87,960
Deferred tax asset valuation allowance................. 46,698 -- --
Non-cash portion of restructuring charges.............. 52,147 4,405 10,278
Write-off and write-down of property and equipment..... 5,029 -- --
Write-off of manufacturing payments and advances for
equipment and leasehold improvements to joint
ventures.............................................. 188,386 -- --
Gain on sale of assets................................. (3,988) (11,082) (18,915)
Compensation related to the issuance of certain
employee stock options and restricted stock........... 1,781 493 494
Changes in operating assets and liabilities:
Accounts receivable.................................... 36,963 66,411 (42,438)
Inventories............................................ 54,936 21,574 2,367
Funds received (disbursed) for joint venture equipment
leased, net........................................... 32,676 14,886 (17,914)
Deferred tax and other current assets.................. (5,149) 2,566 14,659
Accounts payable....................................... (38,221) (21,034) 16,879
Accrued salaries and benefits.......................... (29,130) 11,449 (7,858)
Income taxes payable................................... (1,460) 6,794 11,968
Other accrued liabilities.............................. 8,886 (11,685) (8,752)
--------- --------- ---------
Net cash (used in) provided by operations................... (15,568) 193,139 2,572
--------- --------- ---------
Cash flows used for investing activities:
Purchase of available for sale investments................ (215,405) (370,794) (182,552)
Proceeds from available for sale investments.............. 266,167 433,631 13,616
Proceeds from sale of assets, net......................... 4,273 16,142 56,526
Proceeds from termination of UMC agreement................ -- 20,543 --
Manufacturing agreements and investment in joint
venture................................................ (7,500) (44,500) (54,000)
Additions to property and equipment....................... (12,665) (27,639) (30,722)
Increase in deposits and other assets..................... (20,521) (12,294) (23,903)
Increase in restricted cash............................... (46,040) (40,237) --
--------- --------- ---------
Net cash used for investing activities...................... (31,691) (25,148) (221,035)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of convertible notes............... -- -- 290,640
Borrowings on long-term debt.............................. -- 5,980 10,009
Payments on long-term debt................................ (21,287) (21,124) (21,154)
Payments on capital lease obligations..................... (5,508) (12,363) (5,720)
Borrowings on short-term debt............................. -- -- 172,000
Payments on short-term debt............................... -- -- (252,000)
Increase in other long-term liabilities................... -- -- 565
Issuance of common stock, net of issuance costs........... 11,412 15,160 19,684
Repurchase and retirement of common stock................. (100,085) -- --
--------- --------- ---------
Net cash (used for) provided by financing activities........ (115,468) (12,347) 214,024
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents........ (162,727) 155,644 (4,439)
Cash and cash equivalents at beginning of year.............. 307,184 151,540 155,979
--------- --------- ---------
Cash and cash equivalents at end of year.................... $ 144,457 $ 307,184 $ 151,540
========= ========= =========
Non-cash investing and financing activities:
Equipment purchased under capital leases.................. $ -- $ -- $ 10,556
Tax benefit of stock options exercises.................... -- -- 1,509
Cash payments (refunds) for:
Interest.................................................. $ 23,724 $ 26,878 $ 8,381
Income taxes.............................................. 1,116 7,022 (25,625)
</TABLE>

See accompanying notes.

30
<PAGE> 31

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
THREE YEARS ENDED MARCH 27, 1999
(THOUSANDS)

<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
--------------- ADDITIONAL RETAINED OTHER COMPREHENSIVE
SHARES AMOUNT PAID-IN CAPITAL EARNINGS INCOME (LOSS) TOTAL
------ ------ --------------- --------- ------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 30, 1996............. 63,951 $ 64 $329,089 $ 99,092 $ 421 $ 428,666
Components of comprehensive income
(loss):
Net loss.......................... -- -- -- (46,156) -- (46,156)
Change in unrealized loss on
foreign currency translation
adjustments.................... -- -- -- -- (1,637) (1,637)
---------
Total comprehensive income
(loss).................. -- -- -- -- -- (47,793)
---------
Issuance of stock under stock plans
and other, net of repurchases..... 2,205 2 21,319 -- -- 21,321
Compensation related to the issuance
of certain employee options....... -- -- 494 -- -- 494
Tax benefit of stock option
exercises......................... -- -- 1,509 -- -- 1,509
------ ---- -------- --------- ------- ---------
Balance, March 29, 1997............. 66,156 66 352,411 52,936 (1,216) 404,197
Components of comprehensive income
(loss):
Net income........................ -- -- -- 36,493 -- 36,493
Change in unrealized loss on
foreign currency translation
adjustments.................... -- -- -- -- (492) (492)
---------
Total comprehensive income
(loss).................. -- -- -- -- -- 36,001
---------
Issuance of stock under stock plans
and other, net of repurchases..... 2,019 2 15,650 -- -- 15,652
Compensation related to the issuance
of certain employee options....... -- -- 493 -- -- 493
------ ---- -------- --------- ------- ---------
Balance, March 28, 1998............. 68,175 68 368,554 89,429 (1,708) 456,343
Components of comprehensive income
(loss):
Net loss.......................... -- -- -- (427,403) -- (427,403)
Change in unrealized gain on
foreign currency translation
adjustments.................... -- -- -- -- 232 232
---------
Total comprehensive income
(loss).................. -- -- -- -- -- (427,171)
---------
Issuance of stock under stock plans
and other, net of repurchases..... 1,636 2 11,410 -- -- 11,412
Repurchase of Common Stock.......... (9,708) (10) (54,144) (45,931) -- (100,085)
Compensation related to the issuance
of certain employee options....... -- -- 1,781 -- -- 1,781
------ ---- -------- --------- ------- ---------
Balance, March 27, 1999............. 60,103 $ 60 $327,601 $(383,905) $(1,476) $ (57,720)
====== ==== ======== ========= ======= =========
</TABLE>

See accompanying notes.

31
<PAGE> 32

CIRRUS LOGIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

Cirrus Logic, Inc. (the "Company") designs and manufactures integrated
circuits that employ precision linear and advanced mixed-signal processing
technologies. The Company's products, sold under its own name and the Crystal
product brand, enable system-level applications in mass storage (magnetic and
optical), audio (consumer, professional and personal computer) and precision
data conversion (industrial and communications).

In February 1999, the company was reincorporated in the State of Delaware.
The accompanying consolidated financial statements have been retroactively
restated to give effect to the reincorporation.

During fiscal 1999, the Company recorded charges of approximately $440
million, of which $188 million related to assets impairment (see Note 6), $90
million related to wafer purchase commitment charges (see Note 1) and $35
million related to inventory write-downs (see Note 1) that were recorded in cost
of sales. In addition, charges of $78 million related to severance and related
benefits along with facilities scale back and other costs that were recorded in
restructuring costs and other, net (see Note 12) and $47 million related to
recording a valuation allowance against previously recorded deferred tax assets
included in the provision for income taxes (see Note 15). The Company may incur
substantial additional cash charges in future periods related to its joint
ventures (see Note 6).

CONSOLIDATION AND FOREIGN CURRENCY TRANSLATION

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated. Accounts denominated in foreign currencies
have been remeasured in accordance with Statement of Financial Accounting
Standards (SFAS) No. 52, "Foreign Currency Translation," using the U.S. dollar
as the functional currency. Translation adjustments relating to Cirrus Logic
K.K., whose functional currency is the Japanese yen, are included as a component
of stockholders' equity and comprehensive income (loss).

CASH EQUIVALENTS, RESTRICTED CASH AND SHORT-TERM INVESTMENTS

Cash equivalents and restricted cash consist primarily of over-night
deposits, commercial paper, U.S. Government Treasury and Agency instruments, and
money market funds with original maturities of three months or less at date of
purchase. Short-term debt investments have original maturities greater than
three months and consist of U.S. Government Treasury and Agency instruments,
municipal bonds, certificates of deposit and commercial paper.

SHORT-TERM INVESTMENTS: HELD-TO-MATURITY AND AVAILABLE-FOR-SALE

Management determines the appropriate classification of certain debt and
equity securities at the time of purchase as either held-to-maturity, trading or
available-for-sale and reevaluates such designation as of each balance sheet
date. The Company has classified all investments for fiscal 1999 and fiscal 1998
as available for sale.

32
<PAGE> 33
CIRRUS LOGIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Held-to-maturity debt securities are stated at cost, adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization, as well as any interest on the securities, is included in interest
income. Held-to-maturity securities include only those securities the Company
has the positive intent and ability to hold to maturity.

Securities not classified as held-to-maturity are classified as
available-for-sale. Available-for-sale securities are carried at fair value,
with unrealized gains and losses, net of tax, included as a component of
stockholders' equity and comprehensive income (loss). Realized gains and losses,
declines in value judged to be other than temporary, and interest on
available-for-sale securities are included in interest income.

FOREIGN EXCHANGE CONTRACTS

The Company may enter into foreign currency forward exchange and option
contracts to hedge certain of its foreign currency transaction, translation and
remeasurement exposures. The Company's accounting policies for some of these
instruments are based on the Company's designation of such instruments as
hedging transactions. Instruments not designated as a hedge transaction will be
"marked to market" at the end of each accounting period. The criteria the
Company uses for designating an instrument as a hedge include effectiveness in
exposure reduction and one-to-one matching of the derivative financial
instrument to the underlying transaction being hedged. Gains and losses on
foreign currency exchange and option contracts that are designated and effective
as hedges of existing transactions are recognized in income in the same period
as losses and gains on the underlying transactions are recognized and generally
offset. Gains and losses on foreign currency option contracts that are
designated and effective as hedges of transactions, for which a firm commitment
has been attained, are deferred and recognized in income in the same period that
the underlying transactions are settled and were not material as of March 27,
1999.

The Company hedges certain anticipated foreign currency transactions,
primarily repatriation of Japanese yen sales. Repatriations occur on a quarterly
or monthly basis, depending on underlying accounts receivable collections.
Foreign currency exchange contracts are entered into at the beginning of each
fiscal quarter in order to hedge these transactions and typically expire at the
end of each fiscal quarter. The transactions are marked to market, monthly and
the cumulative gains or losses are recognized during the quarter operations. In
the event that the anticipated transaction did not occur, options contracts
would expire with a negative impact to operations. However, to the extent that
the Company did not have like amounts of foreign currency in its offshore
foreign exchange account, forward contracts would require the Company to
purchase any deficient amount of the underlying currency at spot market rates in
order to settle with its financial institution counter-party. Any gains or
losses from these types of transactions would be reflected in operations. The
Company believes that the impact of these types of occurrences would have an
immaterial effect on the Company operations.

During fiscal 1999, 1998 and 1997, the Company purchased foreign currency
option contracts to hedge certain yen denominated net balance sheet accounts and
sales.

As of March 27, 1999, the Company had two option contracts outstanding
denominated in Japanese yen, both with exercise dates on June 25, 1999. The
Company purchased an option from the bank to sell $1.8 billion yen to the bank
for $15.0 million on the exercise date. The Company also sold an option to the
bank to purchase $0.9 million yen from the Company for $7.5 million on the same
exercise date. As of March 28, 1998, the Company had foreign currency forward
exchange and option contracts outstanding denominated in Japanese yen for
approximately $15,602,000.

While the contract amounts provide one measure of the volume of the
transactions outstanding at March 27, 1999 and March 28, 1998, they do not
represent the amount of the Company's exposure to credit risk. The Company's
exposure to credit risk (arising from the possible inability of the
counterparties to meet

33
<PAGE> 34
CIRRUS LOGIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

the terms of their contracts) is generally limited to the amount, if any, by
which the counterparty's obligations exceed the obligations of the Company.

Transaction gains and losses were not material in fiscal 1999, 1998 and
1997.

CONCENTRATION OF CREDIT RISK

Financial instruments which potentially are subject the Company to
concentrations of credit risk consist primarily of cash equivalents, short-term
investments, foreign currency exchange contracts and trade accounts receivable.
The Company is exposed to credit risk to the extent of the amounts recorded on
the balance sheet. By policy, the Company places its cash equivalents and short
term investments and foreign currency exchange contracts only with high credit
quality financial institutions and, other than U.S. Government Treasury
instruments, limits the amounts invested in any one institution or in any type
of instrument. The Company performs ongoing credit evaluations of its customers'
financial condition, limits its exposure to accounting losses by limiting the
amount of credit extended whenever deemed necessary, utilizes letters of credit
where appropriate and available and generally does not require collateral. The
Company sells a significant amount of products in the Pacific Rim and Japan. The
Company's exposure to risk with Asian customers has been largely mitigated
through the use of letters of credit.

INVENTORIES

The Company applies the lower of standard cost, which approximates actual
cost on a first-in, first-out basis, or market principle to value its
inventories. One of the factors the Company consistently evaluates in
application of this principle is the extent to which products are accepted into
the marketplace. By policy, the Company evaluates market acceptance based on
known business factors and conditions by comparing forecasted customer unit
demand for the Company's products over a specific future period or demand
horizon to quantities on hand at the end of each accounting period.

On a quarterly and annual basis, inventories are analyzed on a part-by-part
basis. Inventory quantities on hand in excess of forecasted demand, as adjusted
by management, are considered to have reduced market value and, therefore, the
cost basis is adjusted from standard cost to the lower of cost or market.
Typically, market value for excess or obsolete inventories is considered to be
zero. The short product life cycles and the competitive nature of the industry
are factors considered in the estimation of customer unit demand at the end of
each quarterly accounting period.

Inventories are comprised of the following (in thousands):

<TABLE>
<CAPTION>
MARCH 27, MARCH 28,
1999 1998
--------- ---------
<S> <C> <C>
Work-in process........................ $25,165 $ 66,558
Finished goods......................... 15,097 37,145
------- --------
$40,262 $103,703
======= ========
</TABLE>

During fiscal 1999, the Company recorded $34.5 million of charges to cost
of sales for inventory write-downs associated with products being phased out in
connection with the Company's 1999 restructuring plan.

PROPERTY AND EQUIPMENT

Property and equipment is recorded at cost. Depreciation and amortization
is provided on a straight-line basis over estimated useful lives ranging from
three to five years, or over the life of the lease for equipment under
capitalized leases, if shorter. Leasehold improvements are amortized over the
term of the lease or their estimated useful life, whichever is shorter.
Depreciation expense for fiscal years 1999, 1998 and 1997 was $36,967,000,
$48,328,000 and $57,726,000, respectively.

34
<PAGE> 35
CIRRUS LOGIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

LONG-LIVED ASSETS

In accordance with Statement of Financial Accounting Standards No. 121
("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," the Company recognizes impairment losses
on long-lived assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amounts. The impairment loss is
measured by comparing the fair value of the asset to its carrying amount. Fair
value is estimated based on discounted future cash flows. See Note 6 for further
discussion of impairment charges relating to manufacturing supply agreements and
equipment and leasehold advances.

WAFER PURCHASE COMMITMENTS

The Company has firm commitments to purchase wafers from joint venture
partnerships in which it is a minority owner (MiCRUS and Cirent Semiconductor)
and from other third party suppliers. The Company estimates its wafer needs on
an ongoing basis and in certain cases may reduce its wafer purchase commitments
by selling its committed portion of the joint ventures' wafer capacity to others
or allowing third parties to utilize the Company's available wafer starts under
its wafer purchase commitments. The Company's ability to adjust short-term
production mix and volume throughput in its joint ventures and at its third
party suppliers is limited by contract, and changes within six months of
manufacturing start dates are difficult to make given order lead times, set-up
times, design cycle times, manufacturing cycle times, and customer and foundry
qualification times. If the Company's firm wafer purchase commitments exceed its
wafer needs and it is unable to sell the excess to others, losses on firm wafer
purchase commitments in excess of estimated wafer needs over the short-term (six
months) are accrued to the extent they would result in inventory losses were the
company to fulfill the commitment and take delivery of the inventory. During
fiscal 1999, 1998 and 1997, the Company accrued and expensed estimated losses
under wafer purchase commitments of $90.3 million, $53.0 million and $30.5
million, respectively. As of March 27, 1999 and March 28, 1998, the Company had
accruals for charges incurred and estimated losses under wafer purchase
commitments of $74.5 million and $63.8 million, respectively. The amount of this
accrual is an estimate and the liability for losses under wafer purchase
commitments is ultimately subject to actual shortfalls in purchase commitments
in future quarters.

REVENUE RECOGNITION

Revenue from product sales direct to customers is recognized upon shipment.
Certain of the Company's sales are made to distributors under agreements
allowing certain rights of return and price protection on products unsold by
distributors. Accordingly, the Company defers revenue and gross profit on such
sales until the product is sold by the distributors.

Revenues in fiscal 1998 include $60.0 million from two patent cross-license
agreements under which the Company has no ongoing obligations. These revenues
were recognized in fiscal 1998 upon the execution of the agreements.

ADVERTISING EXPENSE

The cost of advertising is expensed as incurred. Advertising costs were
$3.3 million in fiscal 1999, $4.9 million in fiscal 1998 and were not
significant in fiscal 1997.

OTHER INCOME (EXPENSE), NET

In fiscal 1999, other income (expense), net, includes gains on the disposal
of certain investments in common stock and foreign currency transaction gains.
In fiscal 1998, other income (expense), net, includes gains on the disposal of
certain investments in common stock and foreign currency transaction gains,
which

35
<PAGE> 36
CIRRUS LOGIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

were somewhat offset by certain legal settlements. Other income (expense), net
in fiscal 1997 primarily relates to foreign currency transaction gains.

STOCK-BASED COMPENSATION

The Company accounts for stock-based awards to employees using the
intrinsic value method in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees". Accordingly, no compensation
cost has been recognized for its fixed cost stock option plans or its associated
stock purchase plan when the exercise price is equal to the fair value on the
date of grant. The Company provides additional pro forma disclosures as required
under Statement of Financial Accounting Standard No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation." See Note 14.

NET INCOME PER SHARE

Basic and fully dilutive net income (loss) per share is calculated in
accordance with the Statement of Financial Accounting Standards No. 128 ("SFAS
128"), Earnings per Share. All net income (loss) per share amounts for all
periods have been restated to conform to the SFAS 128 requirement.

The following table sets forth the computation of basic and diluted net
income (loss) per share (in thousands, except per share amounts):

<TABLE>
<CAPTION>
MARCH 27, MARCH 28, MARCH 29,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Numerator:
Net income (loss)......................................... $(427,403) $36,493 $(46,156)
========= ======= ========
Denominator:
Denominator for basic net income (loss) per
share -- weighted-average shares....................... 63,149 67,333 65,007
Dilutive common stock equivalents, using treasury stock
method................................................. -- 2,215 --
--------- ------- --------
Denominator for diluted net income (loss) per share....... 63,149 69,548 65,007
========= ======= ========
Basic net income (loss) per share........................... $ (6.77) $ 0.54 $ (0.71)
========= ======= ========
Diluted net income (loss) per share......................... $ (6.77) $ 0.52 $ (0.71)
========= ======= ========
</TABLE>

Incremental common shares attributable to exercise of outstanding options
of 5,836,000, 1,546,000 and 7,675,000 shares as of March 27, 1999, March 28,
1998 and March 29, 1997, respectively, were excluded from the computation of
diluted net income (loss) per share because the effect would be antidilutive.

As of March 27, 1999, the Company had outstanding convertible notes to
purchase 12,387,000 shares of common stock that were not included in the
computation of diluted net income (loss) per share because the effect would be
antidilutive.

RECLASSIFICATIONS

Certain reclassifications have been made to the 1998 and 1997 financial
statements to conform to the 1999 presentation. Such reclassifications had no
effect on the results of operations or stockholders' equity.

2. RECENT ACCOUNTING PRONOUNCEMENTS

Beginning in the first quarter of fiscal 1999, the Company adopted
Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting
Comprehensive Income". SFAS 130 establishes rules for the reporting and display
of comprehensive income (loss) and its components; however, the adoption of SFAS
130 has no impact on the Company's net income (loss) or stockholders' equity.
SFAS 130 requires

36
<PAGE> 37
CIRRUS LOGIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

foreign currency translation adjustments, which prior to adoption, were reported
in stockholders' equity, to be included in accumulated other comprehensive
income (loss). The disclosures required by SFAS 130 are presented in the
Consolidated Statement of Stockholder's Equity (Net Capital Deficiency).

Effective March 29, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131 ("SFAS 131") "Disclosures About Segments of an
Enterprise and Related Information," which establishes standards for reporting
operating segments and disclosures about products and services, geographic areas
and major customers. See note 16 for further information.

In June 1998, Statement of Financial Accounting Standards No. 133 ("SFAS
133"), "Accounting for Derivative Instruments and Hedging Activities," was
issued and is effective for fiscal years commencing after June 15, 1999. SFAS
133 provides a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. The Company does not believe
SFAS 133 will have a material impact on earnings or the financial condition of
the Company.

In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-1
("SOP 98-1"), "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." SOP 98-1 requires the capitalization of certain
costs incurred in connection with developing or obtaining internal use software.
The Company's policy for capitalizing the cost of developing and obtaining
software for internal use is consistent with the requirement of SOP 98-1.

3. GAIN ON SALE OF ASSETS

In the third quarter of fiscal 1998, the Company sold its Nuera
Communications, Inc. subsidiary for cash proceeds of approximately $21.5 million
($16.1 million net of $5.4 million of Nuera's own cash) and recorded a gain of
approximately $11.1 million. Gain on sale of assets also includes the reversal
of $9.7 million that had previously been accrued for losses on facilities
commitments in connection with the sale and shut down of the operating divisions
of PCSI in the fourth quarter of fiscal 1997.

During the fourth quarter of fiscal 1997, the Company completed its
divestiture of PCSI by selling the assets of PCSI's Wireless Semiconductor
Products to Rockwell International for $18.1 million in cash and made the
decision to shut down PCSI's Subscriber Product Group. In connection with the
sale of the Wireless Semiconductor Product Group and the shut-down of the
Subscriber Group, the Company recorded a net gain of $0.3 million in the fourth
quarter. The shut-down of the Subscriber Group resulted in severance costs of
$2.2 million, the write-off of excess assets (primarily computer and related
equipment) of $1.1 million, accruals for excess facilities of $0.9 million and
an estimated net cost to settle contracted and other obligations of $3.2
million.

37
<PAGE> 38
CIRRUS LOGIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. FINANCIAL INSTRUMENTS

FAIR VALUES OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:

Cash and cash equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.

Investment securities: The fair values for marketable debt securities
are based on quoted market prices.

Foreign currency exchange and option contracts: The fair values of the
Company's foreign currency exchange forward and option contracts are
estimated based on quoted market prices of comparable contracts,
adjusted through interpolation where necessary for maturity differences.

Long-term debt: The fair value of long-term debt is estimated based on
current interest rates available to the Company for debt instruments
with similar terms and remaining maturities.

Subordinated convertible debt: The fair value of the subordinated notes
is based upon quoted market prices.

The carrying amounts and fair values of the Company's financial instruments
at March 27, 1999 are as follows (in thousands):

<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
--------- ---------
<S> <C> <C>
Cash......................................... $ 127,621 $ 127,621
Investment securities:
Commercial paper........................... 101,333 101,333
Certificates of Deposit.................... 30,043 30,032
US Government Agency instruments........... 26,053 26,011
Municipal Bond............................. 20,300 20,300
Foreign currency option contracts............ -- --
Long-term debt............................... (337,493) (243,904)
</TABLE>

The carrying amounts and fair values of the Company's financial instruments
at March 28, 1998 are as follows (in thousands):

<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
--------- ---------
<S> <C> <C>
Cash......................................... $ 206,520 $ 206,520
Investment securities:
US Government Treasury instruments......... 220,357 219,782
US Government Agency instruments........... 14,904 14,904
Commercial paper........................... 25,953 25,953
Other investments.......................... 5,065 5,065
Foreign currency forward exchange and option
contracts.................................. -- --
Long-term debt............................... (354,871) (286,231)
</TABLE>

38
<PAGE> 39
CIRRUS LOGIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INVESTMENTS

At March 27, 1999, approximately $9.0 million of available-for-sale
securities have contracted maturities between one and two years, and the rest of
these securities have contracted maturities of less than one year. Gross
realized and unrealized gains and losses on all classes of securities were
immaterial at and for the periods ended March 27, 1999, March 28, 1998 and March
29, 1997.

The following is a reconciliation of the investment categories to the
balance sheet classification at March 27, 1999 (in thousands):

<TABLE>
<CAPTION>
CASH AND CASH
EQUIVALENTS AND SHORT-TERM
RESTRICTED CASH INVESTMENTS TOTAL
--------------- ----------- --------
<S> <C> <C> <C>
Cash....................................... $127,621 $ -- $127,621
Available-for-sale securities.............. 103,113 74,616 177,729
-------- ------- --------
Total............................ $230,734 $74,616 $305,350
======== ======= ========
</TABLE>

The following is a reconciliation of the investment categories to the
balance sheet classification at March 28, 1998 (in thousands):

<TABLE>
<CAPTION>
CASH AND CASH
EQUIVALENTS AND SHORT-TERM
RESTRICTED CASH INVESTMENTS TOTAL
--------------- ----------- --------
<S> <C> <C> <C>
Cash....................................... $206,520 $ -- $206,520
Available-for-sale securities.............. 140,901 125,378 266,279
-------- -------- --------
Total............................ $347,421 $125,378 $472,799
======== ======== ========
</TABLE>

5. USE OF ESTIMATES AND CONCENTRATIONS OF OTHER RISKS

The Company's financial statements are prepared in accordance with
generally accepted accounting principles that require the use of management
estimates. These estimates are impacted, in part, by the following risks and
uncertainties:

Inventories. The Company produces inventory based on orders received and
forecasted demand. The Company must order wafers and build inventory well in
advance of product shipments. Because the Company's markets are volatile and
subject to rapid technology and price changes, there is a risk that the Company
will forecast incorrectly and produce excess or insufficient inventories of
particular products. This inventory risk is heightened because many of the
Company's customers place orders with short lead times. Demand will differ from
forecasts and such difference may have a material effect on actual results of
operations.

Wafer Purchase Commitments. The Company has firm commitments to purchase
wafers from its joint venture partnerships and other suppliers and will accrue
losses to the extent firm wafer purchase commitments exceed its estimated wafer
needs for the next six months. The Company continuously forecasts its estimated
wafer needs. However, there is a risk that the Company's ultimate wafer
purchases will differ from its forecasted wafer needs. Accordingly, the amount
of the accrual may differ from the actual liability for losses under the wafer
purchase commitments and such differences may have a material effect on actual
results of operations.

6. JOINT VENTURES AND MANUFACTURING SUPPLY AGREEMENTS

In 1994, the Company and IBM formed MiCRUS, a manufacturing joint venture
that produces wafers for both companies. MiCRUS began operations in 1995. In
addition, in July 1996, the Company and Lucent

39
<PAGE> 40
CIRRUS LOGIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Technologies (Lucent) formed Cirent Semiconductor (Cirent), a manufacturing
joint venture that produces wafers for both companies. Cirent began operations
in the fourth quarter of fiscal 1997.

MICRUS

IBM and Cirrus Logic own 52% and 48%, respectively, of MiCRUS, which
produces wafers using IBM's wafer processing technology and made process
technology payments to IBM, which totaled $71.0 million from inception through
March 27, 1999. MiCRUS leases an existing IBM facility in East Fishkill, New
York. Activities of the joint venture are focused on the manufacture of
semiconductor wafers, and do not encompass direct product licensing or product
exchanges between the Company and IBM. The joint venture has a remaining term of
five years. MiCRUS is managed by a six-member governing board of whom three are
appointed by IBM, two are appointed by Cirrus Logic and one is the chief
executive officer of MiCRUS.

In connection with the formation and expansion of the MiCRUS joint venture,
the Company has made equity contributions to MiCRUS totaling $23.8 million and
has made payments to MiCRUS under the manufacturing agreement totaling $71.0
million. In addition, the Company has made advances to MiCRUS for equipment and
leasehold improvements, and the Company has guaranteed certain equipment lease
obligations incurred by MiCRUS.

The manufacturing agreement payments of $71.0 million were being amortized
to the Company's cost of sales over the life of the venture based upon the ratio
of current units of production to current and anticipated future units of
production over the remaining life of the venture. The equity investment is
being accounted for under the equity method. Equipment and leasehold advances
represented equipment purchased by the Company on behalf of MiCRUS with the
expectation the equipment and advances would be sold to an independent leasing
company, which would then lease the equipment and improvements to MiCRUS. During
the fourth quarter of fiscal 1999, the Company recorded substantial impairment
and other charges to write-off the carrying value of the remaining MiCRUS
manufacturing agreement payments, as well as writing off the entire carrying
value of the MiCRUS joint venture equipment and leasehold improvement advances
along with the MiCRUS equity investment. See discussion below entitled
"Write-off of MiCRUS and Cirent Related Assets".

CIRENT SEMICONDUCTOR

Cirent operates two wafer fabs in Orlando, Florida in a facility that is
leased from Lucent. Cirent uses Lucent's wafer processing technology and made
process technology payments to Lucent, which totaled $85.0 million from
inception through March 27, 1999. Cirent is owned 60% by Lucent and 40% by
Cirrus Logic and is managed by a Board of Governors, of whom three are appointed
by Lucent and two are appointed by Cirrus Logic. The joint venture has a term of
ten years.

Initially, Lucent and the Company were each entitled to purchase one-half
of the output of the second fab. During the second quarter of fiscal 1998, the
Company amended its existing joint venture formation agreement and reduced its
entitlement to 25% of the output of the second fab. If either company does not
purchase its full entitlement of the wafers, that company will be liable to the
joint venture for costs associated with the underutilized capacity that results
from the company's shortfall in wafer purchases, unless the shortfall is
purchased by the other company or, under limited circumstances, offered to and
used by third parties.

40
<PAGE> 41
CIRRUS LOGIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In connection with the Cirent joint venture, the Company has made equity
contributions to Cirent totaling $14.0 million, and has made payments to Cirent
under a manufacturing agreement totaling $85.0 million. In addition the Company
has made advances to Cirent for equipment and leasehold improvements, and the
Company has guaranteed certain equipment lease obligations incurred by Cirent.

The manufacturing agreement payments of $85.0 million were being amortized
to the Company's cost of sales over the life of the venture based upon the ratio
of current units of production to current and anticipated future units of
production over the remaining life of the venture. The equity investment is
being accounted for under the equity method. Equipment and leasehold advances
represented equipment purchased by the company on behalf of Cirent with the
expectation the equipment and advances would be sold to an independent leasing
company, which would then lease the equipment and improvements to Cirent. During
the fourth quarter of fiscal 1999, the Company recorded substantial impairment
and other charges to write-off the carrying value of the remaining Cirent
manufacturing agreement payments, as well as writing off the entire carrying
value of the Cirent joint venture equipment and leasehold improvement advances.
See discussion below entitled "Write-off of MiCRUS and Cirent Related Assets."

WRITE-OFF OF MICRUS AND CIRENT RELATED ASSETS

In the fourth quarter of fiscal 1999, the Company recorded asset impairment
charges of $188.4 million and wrote-off its equity investment in MiCRUS of $23.8
million. The impairment charge principally relates to manufacturing payments to
the joint ventures and equipment and leasehold improvement advances to the joint
ventures. The impairment charges were recorded in accordance with SFAS 121 which
requires the Company to analyze whether the cash flows attributable to an asset
support the carrying value assigned to that asset in the financial statements.
Where estimated future cash flow is not sufficient to recover the asset's net
carrying value, the carrying value of the asset is reduced to estimated fair
value.

During fiscal 1999, the Company reassessed its manufacturing capacity needs
and reevaluated the carrying value of the assets recorded in connection with
both the MiCRUS and Cirent joint ventures. This revaluation was necessitated by
the joint venture wafer purchase commitment charges recorded in the second,
third and fourth quarters of fiscal 1999, and the restructuring of the Company's
operations along with the future expected decreases in the sales, gross margins
and cash flows from the manufacture and sale of the Company's products produced
by the joint ventures. Expected undiscounted future cash flows were not
sufficient to recover the carrying value of such assets. Therefore, an
impairment loss of $188.4 million, representing the excess of the carrying value
over the estimated fair value of the assets, was recognized in the fourth
quarter of fiscal 1999, based on the excess of the carrying value of the
manufacturing agreements and other assets over the fair value. The estimated
fair value of the assets was based on discounted cash flows. In addition, the
Company wrote off its equity investment in MiCRUS based upon management's
expectation that this investment will not be recoverable. The $23.8 million
write-off of its equity investment in MiCRUS is included in restructuring costs
and other, net and the $188.4 million impairment charge is included in cost of
sales. The charges are summarized below.

<TABLE>
<CAPTION>
EQUIPMENT AND
LEASEHOLD
EQUITY MANUFACTURING IMPROVEMENT
INVESTMENT IN PAYMENTS TO ADVANCES TO
JOINT VENTURES JOINT VENTURES JOINT VENTURES TOTAL
-------------- -------------- -------------- --------
<S> <C> <C> <C> <C>
MiCRUS.......................... $23,800 $ 44,525 $43,400 $111,725
Cirent.......................... -- 78,826 21,635 100,461
------- -------- ------- --------
$23,800 $123,351 $65,035 $212,186
======= ======== ======= ========
</TABLE>

The Company wrote off all remaining manufacturing payments and all
remaining equipment and leasehold improvement advances to the joint ventures
based on an assessment that future cash flows from the

41
<PAGE> 42
CIRRUS LOGIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

manufacture and the sale of the Company's products produced by MiCRUS and Cirent
would not be sufficient to recover any of the carrying value of such payments
and advances. Separate cash flow analyses were performed for MiCRUS and Cirent.

The Company is in negotiations with IBM and Lucent regarding the Company's
involvement in future operations of MiCRUS and Cirent and expects to complete
these discussions in the first half of fiscal 2000. Based on the current state
of negotiations, the Company anticipates that it will not recover any of its
equity investment in MiCRUS. However, management expects that it will recover
all of its equity investment in Cirent. The actual outcome of the Company's
negotiations with IBM and Lucent may not necessarily be in line with
management's expectations. The outcome of the negotiations could result in a
substantial cash charges in future periods in order to close these agreements.

SUMMARY OF TRANSACTIONS WITH MICRUS AND LUCENT

The Company purchased manufactured wafers from its joint ventures in the
following amounts for fiscal 1999, 1998 and 1997 (in thousands):

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Joint venture wafer purchases
MiCRUS........................................... $172,400 $157,300 $154,100
Cirent........................................... 53,300 32,700 --
-------- -------- --------
Total.................................... $225,700 $190,000 $154,100
======== ======== ========
</TABLE>

The Company's accounts payable balances related to wafers purchased from
its joint ventures and for losses under wafer purchase agreements are as follows
(in thousands):

<TABLE>
<CAPTION>
MARCH 27, MARCH 28,
1999 1998
--------- ---------
<S> <C> <C>
Joint venture accounts payable
MiCRUS.................................................... $ 22,700 $33,200
Cirent.................................................... 5,100 1,800
Wafer purchase commitments.................................. 74,500 63,800
-------- -------
Total............................................. $102,300 $98,800
======== =======
</TABLE>

The Company guarantees jointly and severally with IBM and Lucent equipment
financings of the joint ventures in the following amounts as of March 27, 1999
(in thousands):

<TABLE>
<CAPTION>
MARCH 27,
1999 MATURITY
--------- -----------------
<S> <C> <C>
Joint venture equipment financing guarantees
MiCRUS.............................................. $219,026 2000 through 2003
Cirent.............................................. 230,559 2002 through 2004
--------
Total....................................... $449,585
========
</TABLE>

42
<PAGE> 43
CIRRUS LOGIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company has the following amount of manufacturing equipment and
facility improvements for its joint ventures that it expects to sell to
independent leasing companies that will in turn lease the equipment and
improvements to the respective joint ventures (in thousands):

<TABLE>
<CAPTION>
MARCH 27, MARCH 28,
1999 1998
--------- ---------
<S> <C> <C>
Equipment and leasehold improvement advances for joint
ventures
MiCRUS.................................................... $ -- $68,600
Cirent.................................................... -- 29,100
------- -------
Total............................................. $ -- $97,700
======= =======
</TABLE>

As described above, as of March 27, 1999, the Company has written-off all
equipment and leasehold improvement advances to MiCRUS and Cirent amounting to
$43.4 million and $21.6 million, respectively.

Condensed combined financial information for MiCRUS and Cirent is as
follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Current assets......................................... $193,000 $190,000
Non-current assets..................................... 213,000 233,000
-------- --------
Total................................................ $406,000 $423,000
======== ========
Current liabilities.................................... $145,000 $134,000
Non-current liabilities................................ 182,000 211,000
Partner's capital...................................... 79,000 78,000
-------- --------
Total................................................ $406,000 $423,000
======== ========
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenue................................. $ 543,000 $ 365,000 $ 250,000
Expenses................................ (542,000) (449,000) (310,000)
--------- --------- ---------
Net loss.............................. $ 1,000 $ (84,000) $ (60,000)
========= ========= =========
</TABLE>

The Company accounts for the joint ventures under the equity method. Under
the terms of the joint venture agreements, the other joint venture partners were
responsible for the start-up costs of the joint ventures. IBM funded MiCRUS
through the year ended December 31, 1995, while Cirent was funded by Lucent
through the year ended December 31, 1997. After the start-up phase, the joint
ventures are designed to break even by billing substantially all their costs to
the joint venture parties. Accordingly, the Company's equity in the earnings of
the joint ventures was not material in 1999, 1998 and 1997. In addition, the
Company's total amortization of the joint venture manufacturing payments, prior
to the write-offs described above, was $11,995,000, $8,680,000 and $6,789,000
for fiscal years 1999, 1998 and 1997, respectively.

OTHER WAFER SUPPLY ARRANGEMENTS

TAIWAN SEMICONDUCTOR MANUFACTURING CO., LTD. ("TSMC").

43
<PAGE> 44
CIRRUS LOGIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. OBLIGATIONS UNDER CAPITAL LEASES

The Company has capital lease agreements for machinery and equipment as
follows (in thousands):

<TABLE>
<CAPTION>
MARCH 27, MARCH 28,
1999 1998
--------- ---------
<S> <C> <C>
Capitalized cost....................................... $ 19,736 $ 31,173
Accumulated amortization............................... (16,971) (21,419)
-------- --------
Total.................................................. $ 2,765 $ 9,754
======== ========
</TABLE>

Amortization expense on assets capitalized under capital lease obligations
is included in depreciation and amortization. The lease agreements are secured
by the leased property.

Future minimum lease payments under capital leases for the following fiscal
years, together with the present value of the net minimum lease payments as of
March 27, 1999, are (in thousands):

<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- -------
<S> <C>
2000............................................... $ 1,706
2001............................................... 1,209
2000............................................... 326
-------
Total minimum lease payments....................... 3,241
Less amount representing interest.................. (242)
-------
Present value of net lease payments................ 2,999
Less current maturities............................ (1,542)
-------
Capital lease obligations.......................... $ 1,457
=======
</TABLE>

8. LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
MARCH 27, MARCH 28,
1999 1998
--------- ---------
<S> <C> <C>
Installment notes with interest rates
ranging from 6.12% to 9.47%.......... $ 34,494 $ 54,871
Less current maturities................ (21,534) (22,312)
-------- --------
Long-term debt......................... $ 12,960 $ 32,559
======== ========
</TABLE>

Principal payments for the following fiscal years are (in thousands):

<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- -------
<S> <C>
2000............................................... $21,534
2001............................................... 9,813
2002............................................... 2,811
2003............................................... 336
-------
Total.............................................. $34,494
=======
</TABLE>

At March 27, 1999, installment notes are secured by machinery and equipment
with a net book value of $25,091,000 ($47,058,000 at March 28, 1998).

44
<PAGE> 45
CIRRUS LOGIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. CONVERTIBLE SUBORDINATED NOTES

During December 1996, the Company completed an offering of $300.0 million
of convertible subordinated notes. The notes bear interest at six percent,
mature in December 2003, and are convertible into shares of the Company's common
stock at $24.219 per share. Expenses associated with the offering of
approximately $9.4 million were deferred and included in deposits and other
assets. Such expenses are being amortized to interest expense over the term of
the notes.

10. BANK ARRANGEMENTS

The Company has a bank line of credit to provide for letters of credit for
up to a maximum aggregate of $55.0 million. The line of credit expires on June
30, 1999 and amounts utilized are collateralized by cash or securities with
interest at the higher of: (a) .50% per annum above the latest federal funds
rate (as defined in the Second Amended Credit Agreement); or (b) the rate of
interest in effect for such day as publicly announced from time to time by the
Bank of America National Trust and Savings Association in San Francisco,
California. The Company is currently in compliance with all covenants under the
bank line of credit. As of March 27, 1999, the Company had approximately $45.3
million outstanding of letters of credit and an additional $9.7 million
available under this line of credit. These letters of credit are secured by cash
and securities of $66.6 million, which are recorded as restricted cash. In
addition, certain leases are secured by cash and securities of $19.7 million,
which is also recorded as restricted cash. Of the total restricted cash balance,
the Company expects that the restriction on $62.7 million will be released upon
the conclusion of its negotiation related to the joint ventures.

11. COMMITMENTS

FACILITIES AND EQUIPMENT UNDER OPERATING LEASE AGREEMENTS

The Company leases its facilities and certain equipment under operating
lease agreements, some of which have renewal options. Certain of these
arrangements provide for lease payment increases based upon future fair market
rates. The aggregate minimum future rental commitments under all operating
leases for the following fiscal years are (in thousands):

<TABLE>
<CAPTION>
NET
FACILITIES SUBLEASES COMMITMENTS
---------- --------- -----------
<S> <C> <C> <C>
2000....................................... $ 9,055 $ 2,750 $ 6,305
2001....................................... 8,688 2,552 6,136
2002....................................... 8,277 2,217 6,060
2003....................................... 8,258 1,955 6,303
2004....................................... 8,325 1,936 6,389
Thereafter................................. 26,241 5,653 20,588
------- ------- -------
Total minimum lease payments............... $68,844 $17,063 $51,781
======= ======= =======
</TABLE>

Total rent expense was approximately $7,277,000, $11,061,000 and
$12,580,000 for fiscal 1999, 1998 and 1997, respectively. Sublease rental income
was $2,587,000 and $1,116,000 for fiscal 1999 and 1998 and immaterial for fiscal
1997.

12. RESTRUCTURING CHARGES

During fiscal 1999, 1998 and 1997, the Company recorded restructuring
charges of $78.4 million, $11.8 million and $21.0 million, respectively in
connection with the discontinuation of certain strategies and product
development effects, as well as to the realignment of its business.

45
<PAGE> 46
CIRRUS LOGIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FISCAL 1999 RESTRUCTURING

Continuation of the Company's restructuring activities during the fourth
quarter of fiscal 1999 included $34.8 million charges which primarily consisted
of $23.8 million write-off of the equity investment in MiCRUS (see Note 6), $8.8
million loss on the sale of the Company's modem and communications businesses
and $2.0 million of write-offs of fixed assets and net gain on sale of assets in
connection with two of the Company's business units. The Company sold a portion
of its communication business to form Basis Communications Corporation
("Basis"). The Company has a continued ownership in Basis of approximately 20%
as of March 27, 1999. Subsequent to the incorporation of Basis, the Company sold
approximately $4.7 million of product and recorded a $0.6 million margin on
these sales which is being reported in the End of Life operating segment (See
Note 16). The Company also sold its modem business to Ambient Technologies, Inc.
("Ambient"). The Company has a continued ownership in Ambient of approximately
16% as of March 27, 1999.

As of March 27, 1999, approximately 445 employees have been terminated. The
Company anticipates that the implementation of the restructuring plan will be
substantially complete by the end of the first quarter of fiscal 2000 and may
consist of additional charges during this period related to the restructuring of
the Company's wafer fabrication capacity and other fixed costs. Total cash
outlays for fiscal 1999 restructuring activities will be approximately $26.2
million. During fiscal 1999, $12.6 million of cash was used for restructuring
costs. Approximately $5.8 million is expected to be paid in fiscal 2000.

The following sets forth the remaining balance of the Company's fiscal 1999
restructuring accrual as of March 27, 1999 (in thousands):

<TABLE>
<CAPTION>
SEVERANCE FACILITIES
AND RELATED SCALE BACK AND
BENEFITS OTHER COSTS TOTAL
----------- -------------- --------
<S> <C> <C> <C>
Fiscal 1999 provision.................. $ 8,466 $ 69,938 $ 78,404
Amount utilized........................ (7,657) (57,165) (64,822)
------- -------- --------
Balance, March 27, 1999................ $ 809 $ 12,773 $ 13,582
======= ======== ========
</TABLE>

FISCAL 1998 RESTRUCTURING

46
<PAGE> 47
CIRRUS LOGIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

group of its PC Products division. This resulted in a workforce reduction of
approximately 65 positions. The primary components of the restructuring charge
were $3.5 million related to excess assets and $4.9 million related to excess
facilities and $1.8 million of severance payments that were made during the
third quarter of fiscal 1998. In fiscal 1999, the Company reversed $3.5 million
that had been previously accrued for excess facility commitments. The total
expected cash outlay related to these charges was $8.3 million of which $1.3
million was paid in fiscal 1999 and $3.2 was paid in fiscal 1998. As of March
27, 1999, activities related to this restructuring were completed.

The following sets forth a summary of the Company's fiscal 1998
restructuring activity for the last two years (in thousands):

<TABLE>
<CAPTION>
SEVERANCE FACILITIES
AND RELATED SCALE BACK AND
BENEFITS OTHER COSTS TOTAL
----------- -------------- -------
<S> <C> <C> <C>
Fiscal 1998 provision................... $ 1,833 $ 9,976 $11,809
Amount utilized......................... (1,833) (1,553) (3,386)
------- ------- -------
Balance, March 28, 1998................. -- 8,423 8,423
Amount utilized......................... -- (4,903) (4,903)
Adjustments............................. -- (3,520) (3,520)
------- ------- -------
Balance, March 27, 1999................. $ -- $ -- $ --
======= ======= =======
</TABLE>

FISCAL 1997 RESTRUCTURING

In the fourth quarter of fiscal 1997, the Company recorded a pre-tax
restructuring charge of $21.0 million in connection with a decision to
reorganize into four market focused divisions (Personal Computer Products,
Communications Products, Mass Storage Products and Crystal Semiconductor
Products), to outsource certain of its production testing and to consolidate
certain corporate functions. In connection with these actions, the Company had
effected a workforce reduction of approximately 400 people, representing
approximately 15 percent of the worldwide staff, and consolidated certain
corporate functions. Approximately $5.1 million of the restructuring charge was
attributable to the workforce reduction. The remaining $15.9 million relates
primarily to the write-off of excess assets (primarily excess test equipment and
leasehold improvements totaling approximately $9.5 million) and facilities
commitments (approximately $3.0 million), which were determined using an
expected future cash flows basis for determining the impairment of the asset
values and the amount of the facilities accrual. In fiscal 1998, the Company
reversed $2.0 million that had been previously accrued for excess facilities
commitments and incurred and paid an additional $4.7 million of compensation
costs in connection with the same restructuring. Cash payments of approximately
$1.1 million were made in fiscal 1999. As of March 27, 1999, activities related
to this restructuring were completed.

13. EMPLOYEE BENEFIT PLANS

The Company and its subsidiaries have adopted 401(k) Profit Sharing Plans
(the "Plans") covering substantially all of their qualifying domestic employees.
Under the Plans, employees may elect to reduce their current compensation by up
to 15%, subject to annual limitations, and have the amount of such reduction
contributed to the Plans. The Plans permit, but do not require, additional
discretionary contributions by the Company on behalf of all participants. During
fiscal 1999, 1998 and 1997, the Company and its subsidiaries matched employee
contributions up to various maximums per plan for a total of approximately
$1,156,000, $1,007,000 and $2,046,000, respectively. The Company intends to
continue the contributions in fiscal 2000.

47
<PAGE> 48
CIRRUS LOGIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. STOCKHOLDERS' EQUITY

EMPLOYEE STOCK PURCHASE PLAN

In March 1989, the Company adopted the 1989 Employee Stock Purchase Plan
(ESPP). As of March 27, 1999, approximately 742,740 shares of Common Stock are
reserved for future issuance under this plan. During fiscal 1999, 1998 and 1997,
526,921, 640,501 and 618,169 shares, respectively, were issued under the ESPP.

PREFERRED STOCK

The Preferred Stock is authorized but unissued. The Board of Directors has
the authority to issue the undesignated Preferred Stock in one or more series
and to fix the rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued shares of Preferred Stock and to fix the number
of shares constituting any series and the designations of such series, without
any further vote or action by the stockholders.

STOCK OPTION PLANS

The Company has various stock option plans (the "Option Plans") under which
officers, key employees, non-employee directors and consultants may be granted
qualified and non-qualified options to purchase shares of the Company's
authorized but unissued common stock. Options are generally priced at the fair
market value of the stock on the date of grant. Options are either exercisable
upon vesting or exercisable immediately but unvested shares are held in escrow
and are subject to repurchase at the original issuance price. Options currently
expire no later than ten years from date of grant.

In previous years, the Company also has issued non-qualified stock options
to purchase a total of 664,156 shares at prices ranging from $0.06 to $6.50 per
share, subject to a vesting schedule of three and one-half or four years and
23,000 shares as stock grants to employees at no cost which vest over five
years. During fiscal 1998, 9,200 shares of the stock grants were cancelled and
retired. In addition, during fiscal 1999, 250,000 shares of restricted stock
were issued to an employee at no cost which vest over one year. The non-vested
portion of these shares has been excluded from the income (loss) per share
number in accordance with SFAS 128. The Company recognizes as compensation
expense the excess of the fair market value at the date of grant over the
exercise price of such options and grants. The compensation expense is amortized
ratably over the vesting period of the options and was $1,781,000, $493,000 and
$494,000 in fiscal 1999, 1998 and 1997, respectively.

48
<PAGE> 49
CIRRUS LOGIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Information relative to stock option activity is as follows (in thousands):

<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
------------------------------------------
OPTIONS AVAILABLE NUMBER OF AGGREGATE WEIGHTED AVERAGE
FOR GRANT SHARES PRICE EXERCISE PRICE
----------------- --------- --------- ----------------
<S> <C> <C> <C> <C>
Balance, March 30, 1996.............. 809 13,195 $ 220,323 $16.70
Shares authorized for issuance....... 3,500 -- -- --
Options granted...................... (3,421) 3,421 67,089 19.61
Options exercised.................... -- (1,569) (12,418) 7.91
Options cancelled.................... 2,465 (2,509) (55,648) 22.18
------- ------- --------- ------
Balance, March 29, 1997.............. 3,353 12,538 219,346 17.49
Shares authorized for issuance....... 1,000 -- -- --
Options granted...................... (10,304) 10,304 104,030 10.10
Options exercised.................... -- (1,387) (10,219) 7.37
Options cancelled.................... 11,191 (11,191) (210,969) 18.85
Options expired...................... (2,542) -- -- --
------- ------- --------- ------
Balance, March 28, 1998.............. 2,698 10,264 $ 102,188 $ 9.96
Shares authorized for issuance....... 2,100 -- -- --
Options granted...................... (2,572) 2,572 18,328 7.13
Options exercised.................... -- (1,115) (6,887) 6.18
Options cancelled.................... 2,882 (2,882) (29,893) 10.37
Options expired...................... (1,953) -- -- --
------- ------- --------- ------
Balance, March 27, 1999.............. 3,155 8,839 $ 83,736 $ 9.47
======= ======= ========= ======
</TABLE>

As of March 27, 1999, approximately 11,994,500 shares of Common Stock were
reserved for issuance under the Option Plans.

The weighted average exercise price of 2,322,000 options granted at fair
value during fiscal 1999 was $7.90. In addition, 250,000 shares of restricted
stock were granted to an employee at zero exercise price.

The following table summarizes information concerning currently outstanding
and exercisable options:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- ----------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- --------------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.33 - $ 5.63 240,130 1.29 $ 4.42 240,114 $ 4.42
$ 5.63 - $ 5.88 1,102,500 9.53 5.88 -- --
$ 5.88 - $ 9.25 4,802,128 7.29 9.01 3,407,851 9.00
$ 9.25 - $12.13 2,010,059 8.73 10.91 570,817 10.56
$12.13 - $44.50 684,531 7.30 16.07 328,105 16.70
--------- ---------
8,839,348 7.74 $ 9.47 4,546,887 $ 9.51
========= =========
</TABLE>

As of March 28, 1998 and March 29, 1997, the number of options exercisable
were 2,052,000 and 5,569,000, respectively.

On April 30, 1997, the Company engaged in an option exchange program under
which 7,092,233 of options to purchase replacement options with an exercise
price of $9.1875 per share were granted to current employees with outstanding
options with exercise prices above $9.1875 per share and the old options were

49
<PAGE> 50
CIRRUS LOGIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

cancelled, unless the employee elected not to participate in the exchange. In
connection with this program, replacement options were issued with the same
vesting schedule as the old options.

SHARES RESERVED FOR FUTURE ISSUANCE

The Company has a total of approximately 25,124,000 shares of common stock
reserved as of March 27, 1999 for issuance related to its convertible
subordinated notes, the Option Plans, and the ESPP.

STOCK-BASED COMPENSATION

The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting for its
plans. Accordingly, no compensation expense has been recognized for its
stock-based compensation plans other than for restricted stock and
performance-based awards as stock options are typically issued with an exercise
price equal to the fair value on the date of grant. Had compensation cost for
the Company's other stock option plans been determined based upon the fair value
at the grant date for awards under these plans consistent with the methodology
prescribed under Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation, the Company's net income (loss) and net income
(loss) per share would have been reduced to the pro forma amounts indicated
below:

<TABLE>
<CAPTION>
1999 1998 1997
--------- ------- --------
<S> <C> <C> <C>
Net income (loss) as reported...................... $(427,403) $36,493 $(46,156)
Proforma net income (loss)......................... $(438,849) $ 5,812 $(65,256)
Basic net income (loss) per share as reported...... $ (6.77) $ 0.54 $ (0.71)
Proforma basic net income (loss) per share......... $ (6.95) $ 0.08 $ (1.00)
Diluted net income (loss) per share as reported.... $ (6.77) $ 0.52 $ (0.71)
Proforma diluted net income (loss) per share....... $ (6.95) $ 0.08 $ (1.00)
</TABLE>

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

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in the opinion
of management, the existing models do not necessarily provide a reliable single
measure of the fair value of its options.

The effects on pro forma disclosure of applying SFAS No. 123 are not likely
to be representative of the effects on pro forma disclosures of future years.
Because SFAS No. 123 is applicable only to options granted subsequent to April
1, 1995, the pro forma effect will not be fully reflected until 2000.

50
<PAGE> 51
CIRRUS LOGIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model using a dividend yield of 0% and the
following additional weighted-average assumptions used for grants:

<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Employee Option Plans:
Expected stock price volatility........................... 69.21% 69.46% 68.87%
Risk-free interest rate................................... 5.0% 6.2% 6.1%
Expected lives (in years)................................. 5.0 5.0 5.0
Employee Stock Purchase Plan:
Expected stock price volatility........................... 69.21% 69.46% 74.47%
Risk-free interest rate................................... 5.2% 5.8% 5.7%
Expected lives (in years)................................. 0.5 0.5 0.5
</TABLE>

During fiscal 1999, 1998 and 1997, all options were granted at an exercise
price equal to the fair value on the grant date.

Using the Black-Scholes option valuation model, the weighted average
estimated fair value of employee stock options granted at an exercise price
equal to the fair value on the grant date in fiscal 1999, 1998 and 1997 were
$4.74, $5.55 and $11.05, respectively. The weighted average estimated fair value
for purchase rights granted under the ESPP for fiscal 1999, 1998 and 1997 were
$3.44, $4.37 and $6.79, respectively.

RIGHTS PLAN

In May 1998, the Board of Directors of the Company declared a dividend of
one preferred share purchase right (a "Right") for each outstanding share of
common stock outstanding held on record as of May, 15, 1998. Each Right will
entitle stockholders to purchase one one-hundredth of a share of the Company's
Series A Participating Preferred Stock at an exercise price of $60. The Rights
only become exercisable in certain limited circumstances following the tenth day
after a person or group announces acquisitions of or tender offers for 15% or
more of the Company's common stock. For a limited period of time following the
announcement of any such acquisition or offer, the Rights are redeemable by the
Company 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 of time 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 the fiscal year 2009.

STOCK REPURCHASE

In fiscal 1998, the Company's board of directors authorized the purchase of
up to 10 million shares its common stock in the open market from time to time,
depending upon market conditions, share price and other conditions. During
fiscal 1999, the Company completed its stock repurchase plan by repurchasing and
retiring approximately 9.7 million shares of its common stock from the open
market for approximately $100 million.

15. INCOME TAXES

Income (loss) before provision (benefit) for income taxes consists of (in
thousands):

<TABLE>
<CAPTION>
1999 1998 1997
--------- ------- --------
<S> <C> <C> <C>
United States.............................. $(264,088) $49,757 $(25,176)
Foreign.................................... (117,284) 6,246 (26,443)
--------- ------- --------
Total............................ $(381,372) $56,003 $(51,619)
========= ======= ========
</TABLE>

51
<PAGE> 52
CIRRUS LOGIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

<TABLE>
<CAPTION>
1999 1998 1997
------- ------- --------
<S> <C> <C> <C>
Federal
Current.................................... $(1,096) $ 6,890 $(15,264)
Deferred................................... 33,757 8,524 7,041
------- ------- --------
32,661 15,414 (8,223)
State
Current.................................... -- 1,532 (1,077)
Deferred................................... 12,941 (146) 812
------- ------- --------
12,941 1,386 (265)
Foreign
Current.................................... 429 2,710 3,025
------- ------- --------
$46,031 $19,510 $ (5,463)
======= ======= ========
</TABLE>

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

<TABLE>
<CAPTION>
1999 1998 1997
----- ---- -----
<S> <C> <C> <C>
Expected income tax provision (benefit) at the US federal
statutory rate............................................ (35.0%) 35.0% (35.0%)
Provision (benefit) for state income taxes, net of federal
effect.................................................... 2.2% 1.6% (0.4%)
Valuation allowance......................................... 33.9% -- --
Unbenefitted foreign losses................................. 10.8% -- --
Foreign operating results taxed at rates other than the US
statutory rate............................................ -- 1.1% 27.9%
Research and development credits (flow-through method)...... -- (3.6%) (5.0%)
Other....................................................... 0.2% 0.7% 1.9%
----- ---- -----
Provision (benefit) for income taxes........................ 12.1% 34.8% (10.6%)
===== ==== =====
</TABLE>

Under Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes", deferred income tax assets and liabilities
reflect the net tax effects of tax carryforwards and temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and the amounts used for income tax purposes.

52
<PAGE> 53
CIRRUS LOGIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Significant components of the Company's deferred tax assets and liabilities
are (in thousands):

<TABLE>
<CAPTION>
MARCH 27, MARCH 28,
1999 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Inventory valuation....................................... $ 22,775 $13,480
Accrued expenses and allowances........................... 18,865 20,433
Net operating loss carryforwards.......................... 36,491 --
Research and development credit carryforwards............. 30,021 17,372
State investment tax credit carryforwards................. 3,954 2,959
Joint venture impairment.................................. 38,333 --
Other..................................................... 7,554 8,377
--------- ---------
Total deferred tax assets................................... 157,993 62,621
Valuation allowance for deferred tax assets............... (149,045) --
--------- ---------
Net deferred tax assets..................................... 8,948 62,621
Deferred tax liabilities:
Depreciation.............................................. 8,207 10,806
Other..................................................... 741 5,117
--------- ---------
Total deferred tax liabilities.............................. 8,948 15,923
--------- ---------
Total net deferred tax assets............................... $ -- $46,698
========= =========
</TABLE>

The valuation allowance increased by $149.0 million in fiscal 1999.
Approximately $0.6 million of the valuation allowance is attributable to the tax
benefit associated with the exercise of employee stock options, which will be
credited to additional paid-in capital when realized.

At March 27, 1999, the Company had net operating loss and tax credit
carryforwards for federal income tax purposes of approximately $101.8 million
and $23.3 million, respectively, that expire in 2004 through 2019. The Company
also had state credit carryforwards of approximately $14.5 million that expire
in 2004 through 2007.

16. SEGMENT INFORMATION

In fiscal 1999, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 establishes
standards for reporting information about operating segments and related
disclosures about products, geographic information and major customers.
Operating segment information for fiscal 1998 and fiscal 1997 is also presented
in accordance with SFAS No. 131.

The Company designs and manufactures integrated circuits that employ
precision linear and advanced mixed-signal processing technologies. The Company
is organized into three principal businesses or operating segments: Mass Storage
Division, Audio Division and Precision Data Conversion Division with the
remaining products grouped as End of Life. Each of these divisions has a general
manager who reports directly to the Chief Executive Officer ("CEO"). The CEO has
been identified as the Chief Operating Decision Maker as defined by SFAS No.
131.

The Mass Storage Division provides products related to magnetic storage and
optical storage. The magnetic storage group provides integrated circuits
contained in advanced magnetic and removeable disk

53
<PAGE> 54
CIRRUS LOGIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

drives. This group helps its customers engineer and develop higher capacity
3.5-inch disk drives for desktop computers and workstations and 2.5-inch form
factor drives for portable computers. The optical storage group provides
integrated circuits for advanced optical disc drives. This includes the
integrated circuits for the CD-RW market as well as the integrated DVD Drive
Manager for the electronics DVD market. The Audio Division includes audio
products for both the consumer audio and PC markets. These products provide
digital high-fidelity audio record and playback for high-end professional
recordings, set-top audio decoders, digital audio tapes, CD players, Compact
Disk Interactive, automotive stereo systems and CD-quality sound and mixing
capabilities for PC's and workstations. The Precision Data Conversion Division
markets advanced analog and digital integrated circuits for data acquisition,
instrumentation and imaging applications along with developing network products
for LAN, WAN and the internet environment. Products in this division are used in
industrial automation, instrumentation, medical, military, geophysical and
communications applications. The Company's products in all operating groups are
sold directly to original equipment manufacturers and distributors throughout
the world.

The End of Life Segment includes the Company's product lines which have
either been divested or subsequently sold. These product lines primarily consist
of graphics, modem, communications and flat panel electronics.

In addition to these four operating segments, accounting, administration,
facilities, finance, human resources, legal, marketing, procurement and sales
groups also report to the CEO. These expenses are allocated to the operating
segments, however, as the CEO does not evaluate nor allocate the Company's
resources to the divisions based upon a fully allocated profit and loss
statements, the segments reportable operating profit excludes allocated
expenses. Operating segments do not have material sales to other segments, and
accordingly, there are no intersegment revenues to be reported. The Company also
does not allocate its restructure charges, interest and other income, interest
expense or taxes to operating segments. The Company does not identify or
allocate assets by operating segments, nor does the CEO evaluate the divisions
based upon these criteria. Although the Company has four operating segments,
only the Mass Storage, Audio and End of Life divisions are reportable segments
under the criteria of SFAS No. 131. The "all other" category includes the
Company's Precision Data Conversion Division and the emerging product lines.

Information on reportable segments for fiscal 1999, 1998 and 1997 is as
follows:

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Business Segment Net Revenues:
Mass Storage............................................. $235,257 407,952 $200,906
Audio.................................................... 214,019 156,620 155,115
End of Life.............................................. 110,848 269,042 500,556
All other................................................ 58,610 68,555 62,531
Corporate................................................ 9,371 52,101 (1,954)
-------- -------- --------
Total consolidated revenues.............................. $628,105 $954,270 $917,154
======== ======== ========
</TABLE>

54
<PAGE> 55
CIRRUS LOGIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
1999 1998 1997
--------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Business Segment Operating Profit (Loss):
Mass Storage............................................ $ 46,065 $126,602 $ 40,091
Audio................................................... 37,715 28,319 25,806
End of Life............................................. (31,480) (37,868) (52,060)
All other............................................... 6,007 19,834 21,216
Corporate............................................... (361,853) (84,926) (74,202)
Restructuring costs, gain/(loss) on sale of assets and
other, net........................................... (76,517) 6,317 (2,039)
--------- -------- --------
Consolidated income (loss) from operations.............. (380,063) 58,278 (41,188)
--------- -------- --------
Interest expense........................................ (22,337) (27,374) (19,754)
Interest income......................................... 16,786 19,893 8,053
Other income (expense), net............................. 4,242 5,206 1,270
--------- -------- --------
Income (loss) before provision (benefit) for income
taxes................................................ $(381,372) $ 56,003 $(51,619)
========= ======== ========
</TABLE>

GEOGRAPHIC AREA

The following illustrates revenues by geographic locations. Revenues are
based on product shipment destination and royalty payor location, and property,
plant and equipment is based on physical locations.

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
United States...................................... $165,989 $448,666 $349,154
Pacific Rim........................................ 251,787 299,771 298,025
Japan.............................................. 158,189 139,375 204,774
Other foreign countries............................ 52,140 66,458 65,201
-------- -------- --------
Total consolidated revenues........................ $628,105 $954,270 $917,154
======== ======== ========
</TABLE>

The following illustrates property, plant and equipment (net) by geographic
locations.

<TABLE>
<CAPTION>
1999 1998
---------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
United States............................................... $46,217 $94,800
Singapore................................................... 1,121 3,705
Pacific Rim (including Japan)............................... 450 531
Other foreign countries..................................... 236 328
------- -------
Total consolidated property, plant and equipment, net....... $48,024 $99,364
======= =======
</TABLE>

55
<PAGE> 56
CIRRUS LOGIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

17. LEGAL MATTERS

56
<PAGE> 57

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Cirrus Logic, Inc.

We have audited the accompanying consolidated balance sheets of Cirrus
Logic, Inc. as of March 27, 1999 and March 28, 1998, and the related
consolidated statements of operations, stockholders' equity (net capital
deficiency), and cash flows for each of the three years in the period ended
March 27, 1999. Our audits also included the financial statement schedule listed
in the Index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cirrus Logic,
Inc. at March 27, 1999 and March 28, 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
March 27, 1999, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.

/s/ Ernst & Young LLP

San Jose, California
April 21, 1999

57
<PAGE> 58

CONSOLIDATED SUPPLEMENTARY FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
FISCAL YEARS BY QUARTER
---------------------------------------------------------------------------------------
1999 1998
------------------------------------------- -----------------------------------------
4TH(***) 3RD(**) 2ND(*) 1ST 4TH++ 3RD+ 2ND 1ST
--------- -------- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING SUMMARY:
Net sales.................... $ 127,423 $153,062 $ 169,689 $177,931 $287,844 $240,843 $223,960 $201,623
Cost of sales................ 258,122 171,477 155,611 117,819 201,380 146,586 135,047 122,471
Restructuring costs, (gain)
loss on sale of assets and
other, net................. 32,964 18,037 28,522 (3,006) (4,700) (1,617) -- --
Income (loss) from
operations................. (214,935) (90,235) (75,399) 506 18,047 18,893 15,896 5,443
Income (loss) before income
taxes...................... (215,026) (92,551) (74,607) 812 21,226 18,467 12,768 3,543
Net income (loss)............ $(214,359) $(92,551) $(121,009) $ 516 $ 12,149 $ 12,926 $ 8,938 $ 2,480
Net income (loss) per share:
Basic...................... $ (3.55) $ (1.50) $ (1.90) $ 0.01 $ 0.18 $ 0.19 $ 0.13 $ 0.04
Diluted.................... $ (3.55) $ (1.50) $ (1.90) $ 0.01 $ 0.18 $ 0.18 $ 0.13 $ 0.04
Weighted average common
shares outstanding:
Basic...................... 60,393 61,807 63,748 66,650 68,092 67,593 67,232 66,416
Diluted.................... 60,393 61,807 63,748 67,461 69,241 70,561 70,549 67,849
</TABLE>

- ---------------
+ The third quarter of fiscal 1998 included $11.8 million charges related to
workforce reductions, excess assets and excess facility commitments related
to strategic changes in the graphic division and a gain on sale of $11.1
million related to the sale of Nuera.

++ The fourth quarter of fiscal 1998 included $60.0 million of revenues from
license and patent royalties and $53.0 million that was charged to cost of
sales for wafer purchase commitments.

* The second quarter of fiscal 1999 includes $47.8 million that was charged to
cost of sales for wafer purchase commitments and inventory write-downs;
charges of $28.5 million related to a workforce reduction, excess assets and
excess facilities commitments and a $46.7 million valuation allowance for
deferred tax assets.

** The third quarter of fiscal 1999 includes $78.1 million that was charged to
cost of sales for wafer purchase commitments and inventory write-downs and
charges of $18.1 million related to a divestitures and asset write-offs.

*** The fourth quarter of fiscal 1999 includes $188.7 million that was charged
to cost of sales for write-off of MiCRUS and Cirent joint venture assets
which were deemed to be impaired along with wafer purchase commitment
charges and $34.7 million related to the write-off of MiCRUS equity
investment, excess assets write-off and the loss on sale of the Company's
modem and communications businesses.

58
<PAGE> 59

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(a) Executive Officers -- See the section entitled "Executive Officers of
the Registrant" in Part I, Item 1 hereof.

(b) Directors -- The information required by this Item is incorporated by
reference to the section entitled "Election of Directors" in the Registrant's
Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated by reference to the
sections entitled "Executive Compensation" and various stock benefit plan
proposals in the Registrant's Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is incorporated by reference to the
sections entitled "Share Ownership of Directors, Executive Officers and Certain
Beneficial Owners" of the Registrant's Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is incorporated by reference to the
section entitled "Employment Agreements and Certain Transactions" in the
Registrant's Proxy Statement.

59
<PAGE> 60

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this Report:

1. FINANCIAL STATEMENTS

The following consolidated financial statements of the Registrant and
Report of Ernst & Young LLP, Independent Auditors are included herewith:

(i) Consolidated Balance Sheets as of March 27, 1999 and March 28,
1998.

(ii) Consolidated Statements of Operations for the years ended March
27, 1999, March 28, 1998 and March 29, 1997.

(iii) Consolidated Statements of Stockholders' Equity (Net Capital
Deficiency) for the years ended March 27, 1999, March 28, 1998 and March
29, 1997.

(iv) Consolidated Statements of Cash Flows for the years ended March
27, 1999, March 28, 1998 and March 29, 1997.

(v) Notes to Consolidated Financial Statements.

(vi) Report of Ernst & Young LLP, Independent Auditors.

2. FINANCIAL STATEMENT SCHEDULE

The following consolidated financial statement schedule is filed as part of
this report and should be read in conjunction with the consolidated financial
statements:

SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS

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

60
<PAGE> 61

CIRRUS LOGIC, INC.

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND PAYMENTS/ CLOSE OF
ITEM OF PERIOD EXPENSES DEDUCTIONS PERIOD
---- ---------- ---------- ---------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
1997
Accrued wafer purchase commitments............ $14,000 $31,700 ($ 15,500) $30,200
Allowance for doubtful accounts............... $13,174 $ 518 ($ 922)(1) $12,770
1998
Accrued wafer purchase commitments............ $30,200 $53,000 ($ 19,400) $63,800
Allowance for doubtful accounts............... $12,770 $ 630 ($ 2,224)(1) $11,176
1999
Accrued wafer purchase commitments............ $63,800 $90,300 ($ 79,600) $74,500
Allowance for doubtful accounts............... $11,176 -- ($ 1,880)(1) $ 9,296
</TABLE>

- ---------------
(1) Uncollectible accounts written off, net of recoveries and sale of assets.

3. EXHIBITS

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

<TABLE>
<S> <C>
3.1(8) Restated Articles of Incorporation of Registrant, as
amended.
3.2(1) Form of Restated Articles of Incorporation of Registrant.
3.3(1) By-laws of Registrant, as amended.
4.1(1) Article III of Restated Articles of Incorporation of
Registrant (See Exhibits 3.1 and 3.2)
10.1(9) Amended 1987 Stock Option Plan.
10.2(9) Amended 1989 Employee Stock Purchase Plan.
10.3(1) Fourth Amendment to Preferred Shares Purchase Agreements,
Founders Registration Rights Agreements, and Warrant
Agreements and Consent between the Registrant and certain
shareholders of the Registrant dated May 15, 1987, as
amended April 28, 1989.
10.4(1) Form of Indemnification Agreement.
10.5(1) Agreement for Foreign Exchange Contract Facility between
Bank of America National Trust and Savings Association and
Registrant, dated April 24, 1989.
10.6(2) 1990 Directors Stock Option Plan and forms of Stock Option
Agreement.
10.7(2) Lease between Renco Investment Company and Registrant dated
December 29, 1989.
10.8(2) Loan agreement between USX Credit Corporation and Registrant
dated December 28, 1989.
10.9(3) Loan agreement between Household Bank and Registrant dated
September 24, 1990.
10.10(4) Equipment lease agreement between AT&T Systems Leasing
Corporation and Registrant dated December 2, 1991.
10.11(4) Lease between Renco Investment Company and Registrant dated
May 21, 1992.
10.12(5) Loan agreement between Deutsche Credit Corporation and
Registrant dated March 30, 1993.
10.13(5) Lease between Renco Investment Company and Registrant dated
February 28, 1993.
10.14(6) Lease between Renco Investment Company and Registrant dated
May 4, 1994.
10.15(7) Participation Agreement dated as of September 1, 1994 among
Registrant, International Business Machines Corporation,
Cirel Inc. and MiCRUS Holdings Inc.
</TABLE>

61
<PAGE> 62
<TABLE>
<S> <C>
10.16(7) Partnership Agreement dated as of September 30, 1994 between
Cirel Inc. and MiCRUS Holdings Inc.
10.17(8) General Partnership Agreement dated as of October 23, 1995
between the Company and AT&T.
10.18(8) Joint Venture Formation Agreement dated as of October 23,
1995 between the Company and AT&T.
10.19(10) Second Amended and Restated Multicurrency Credit Agreement
between Registrant and Bank of America dated June 30, 1997.
10.20(11) Third Amendment to the Joint Venture Formation Agreement
with Cirent dated August 21, 1997.
12.1 Statement Setting Forth the Computation of Ratios of
Earnings to Fixed Charges.
19.1(10) Proxy Statement to the 1999 Annual Meeting of Shareholders.
21.1 Subsidiaries of Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
27.0 Article 5 Financial Data Schedule (March 27, 1999).
</TABLE>

- ---------------
(1) Incorporated by reference to Registration Statement No. 33-28583.

(2) Incorporated by reference to Registrant's Report on Form 10-K for the
fiscal year ended March 31, 1990.

(3) Incorporated by reference to Registrant's Report on Form 10-K for the
fiscal year ended March 31, 1991.

(4) Incorporated by reference to Registrant's Report on Form 10-K for the
fiscal year ended March 31, 1992.

(5) Incorporated by reference to Registrant's Report on Form 10-K for the
fiscal year ended March 31, 1993.

(6) Incorporated by reference to Registrant's Report on Form 10-K for the
fiscal year ended April 2, 1994.

(7) Incorporated by reference to Registrant's Report on Form 10-Q/A for the
quarterly period ended October 1, 1994.

(8) Incorporated by reference to Registrant's Report on Form 10-Q/A for the
quarterly period ended September 30, 1995.

(9) Incorporated by reference to Registrant's Report on Form 10-K for the
fiscal year ended March 30, 1996.

(10) Previously filed.

(11) Incorporated by reference to Registrant's Report on Form 10-Q/A for the
quarterly period ended September 27, 1997.

(b) Reports on Form 8-K

None.

62
<PAGE> 63

SIGNATURES

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

Cirrus Logic, Inc.

By: /s/ GLENN C. JONES
------------------------------------
Glenn C. Jones
Vice President, Chief Financial
Officer,
Treasurer and Secretary

KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Glenn C. Jones, his attorney-in-fact,
with the power of substitution, for him in any and all capacities, to sign any
amendments to this report on Form 10-K and to file the same, with exhibits
thereto other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>

/s/ MICHAEL L. HACKWORTH Chairman of the Board and Director June 14, 1999
- ---------------------------------------------------
Michael L. Hackworth

/s/ SUHAS S. PATIL Chairman Emeritus and Director June 14, 1999
- ---------------------------------------------------
Suhas S. Patil

/s/ DAVID D. FRENCH President, Chief Executive Officer June 14, 1999
- --------------------------------------------------- and Director
David D. French

/s/ GLENN C. JONES Vice President, Chief Financial June 14, 1999
- --------------------------------------------------- Officer, Treasurer and Secretary
Glenn C. Jones

/s/ C. GORDON BELL Director June 14, 1999
- ---------------------------------------------------
C. Gordon Bell

/s/ D. JAMES GUZY Director June 14, 1999
- ---------------------------------------------------
D. James Guzy

/s/ WALDEN C. RHINES Director June 14, 1999
- ---------------------------------------------------
Walden C. Rhines

/s/ ROBERT H. SMITH Director June 14, 1999
- ---------------------------------------------------
Robert H. Smith

/s/ ALFRED S. TEO Director June 14, 1999
- ---------------------------------------------------
Alfred S. Teo
</TABLE>

63
<PAGE> 64

100499-001
<PAGE> 65

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER -----------
<S> <C>
3.1(8) Restated Articles of Incorporation of Registrant, as amended
3.2(1) Form of Restated Articles of Incorporation of Registrant
3.3(1) By-laws of Registrant, as amended
4.1(1) Article III of Restated Articles of Incorporation of
Registrant (See Exhibits 3.1 and 3.2)
10.1(9) Amended 1987 Stock Option Plan
10.2(9) Amended 1989 Employee Stock Purchase Plan
10.3(1) Fourth Amendment to Preferred Shares Purchase Agreements,
Founders Registration Rights Agreements, and Warrant
Agreements and Consent between the Registrant and certain
shareholders of the Registrant dated May 15, 1987, as
amended April 28, 1989.
10.4(1) Form of Indemnification Agreement
10.5(1) Agreement for Foreign Exchange Contract Facility between
Bank of America National Trust and Savings Association and
Registrant, dated April 24, 1989.
10.6(2) 1990 Directors Stock Option Plan and forms of Stock Option
Agreement
10.7(2) Lease between Renco Investment Company and Registrant dated
December 29, 1989.
10.8(2) Loan agreement between USX Credit Corporation and Registrant
dated December 28, 1989.
10.9(3) Loan agreement between Household Bank and Registrant dated
September 24, 1990.
10.10(4) Equipment lease agreement between AT&T Systems Leasing
Corporation and Registrant dated December 2, 1991.
10.11(4) Lease between Renco Investment Company and Registrant dated
May 21, 1992.
10.12(5) Loan agreement between Deutsche Credit Corporation and
Registrant dated March 30, 1993.
10.13(5) Lease between Renco Investment Company and Registrant dated
February 28, 1993.
10.14(6) Lease between Renco Investment Company and Registrant dated
May 4, 1994.
10.15(7) Participation Agreement dated as of September 1, 1994 among
Registrant, International Business Machines Corporation,
Cirel Inc. and MiCRUS Holdings Inc.
10.16(7) Partnership Agreement dated as of September 30, 1994 between
Cirel Inc. and MiCRUS Holdings Inc.
10.17(8) General Partnership Agreement dated as of October 23, 1995
between the Company and AT&T
10.18(8) Joint Venture Formation Agreement dated as of October 23,
1995 between the Company and AT&T
10.19(10) Second Amended and Restated Multicurrency Credit Agreement
between Registrant and Bank of America dated June 30, 1997.
10.20(11) Third Amendment to the Joint Venture Formation Agreement
with Cirent dated August 21, 1997.
12.1 Statement Setting Forth the Computation of Ratios of
Earnings to Fixed Charges
19.1(10) Proxy Statement to the 1998 Annual Meeting of Shareholders
</TABLE>
<PAGE> 66

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER -----------
<S> <C>
21.1 Subsidiaries of Registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
27.0 Article 5 Financial Data Schedule (March 27, 1999)
</TABLE>