##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended December 31, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number: 000-24923
 CONEXANT SYSTEMS, INC.
  Delaware
(State of incorporation)
    
    25-1799439
(I.R.S. Employer Identification No.)
 4000 MacArthur Boulevard
Newport Beach, California 92660-3095
 (949) 483-4600
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### Table of Contents



FORWARD-LOOKING STATEMENTS
  
    
    our expectations regarding our proposed merger transaction with Standard Microsystems Corporation;
    
    our expectations regarding the market share of our products, growth in the markets we serve and our market
opportunities;
    
    our expectations regarding price and product competition;
    
    our expectations regarding continued demand and future growth in demand for our products in the
communications, PC and consumer markets we serve;
    
    our expectations regarding the declines in our legacy products;
    
    our plans and expectations regarding the transition of our semiconductor products to smaller line width
geometries;
    
    our expectation that we will be able to sustain the recoverability of our goodwill, intangible and tangible
long-term assets;
    
    our product development plans;
    
    our expectation that our largest customers will continue to account for a substantial portion of our revenue;
    
    our expectations regarding our contractual obligations and commitments;
    
    our expectation that we will be able to protect our products and services with proprietary technology and
intellectual property protection;
    
    our expectation that we will be able to meet our lease obligations (and other financial commitments);
    
    our expectations, subject to the qualifications expressed, regarding the sufficiency of our existing sources
of liquidity, together with cash expected to be generated from operations, to fund our operations, research
and development, anticipated capital expenditures, and working capital for at least the next twelve months;
    
    our expectation that we will be able to continue to rely on third party manufacturers to manufacture,
assemble and test our products to meet our customers demands;
    
    our expectations concerning the redemption of our 4.00% convertible subordinated notes due March 2026; and
    
    our expectations that we will be able to use our net operating losses and other tax attributes to offset
future taxable income.
  1




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##### 



CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
INDEX
 PAGEPART I. FINANCIAL INFORMATIONItem 1. Financial Statements:Unaudited Consolidated Balance Sheets  December 31, 2010 and October 1, 2010
    
    
    3Unaudited Consolidated Statements of Operations  Fiscal Quarter Ended December 31, 2010 and January 1, 2010
    
    
    4Unaudited Consolidated Statements of Cash Flows  Fiscal Quarter Ended December 31, 2010 and January 1, 2010
    
    
    5Notes to Unaudited Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4. Controls and Procedures
    
    
    25PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    26Item 1A. Risk Factors
    
    
    26Item 5. Other Information
    
    
    27Item 6. Exhibits
    
    
    27SIGNATURE
    
    
    28EX-10.2EX-10.3EX-31.1EX-31.2EX-32
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands, except for par value amount)
 December 31,
    
    
    October 1,2010
    
    
    2010ASSETSCurrent assets:Cash and cash equivalents
    
    $
    79,606
    
    
    $
    54,466Marketable securities
    
    
    20,028
    
    
    
    20,059Receivables, net of allowance of $368 at December 31, 2010 and October 1, 2010
    
    
    24,500
    
    
    
    31,463Inventories
    
    
    7,884
    
    
    
    8,747Other current assets
    
    
    12,141
    
    
    
    14,690Assets held for sale
    
    
    
    
    
    
    13,059Total current assets
    
    
    144,159
    
    
    
    142,484Property, plant and equipment, net of accumulated depreciation of $28,413 and $30,050 at
December 31, 2010 and October 1, 2010, respectively
    
    
    5,505
    
    
    
    6,080Goodwill
    
    
    109,908
    
    
    
    109,908Other assets
    
    
    40,507
    
    
    
    47,372Total assets
    
    $
    300,079
    
    
    $
    305,844LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Short-term debt
    
    
    11,122
    
    
    
    10,978Accounts payable
    
    
    11,583
    
    
    
    12,516Accrued compensation and benefits
    
    
    6,616
    
    
    
    7,682Other current liabilities
    
    
    32,258
    
    
    
    31,836Total current liabilities
    
    
    61,579
    
    
    
    63,012Long-term debt
    
    
    173,624
    
    
    
    173,543Other liabilities
    
    
    61,029
    
    
    
    57,197Total liabilities
    
    
    296,232
    
    
    
    293,752Commitments and contingencies (Note 5)Shareholders equity:Preferred and junior preferred stock: 20,000 and 5,000 shares authorized, respectively
    
    
    
    
    
    
    Common stock, $0.01 par value: 200,000 shares authorized; 82,070 and 81,273
shares issued and outstanding at December 31, 2010 and October 1, 2010, respectively
    
    
    821
    
    
    
    813Additional paid-in capital
    
    
    4,921,034
    
    
    
    4,919,582Accumulated deficit
    
    
    (4,919,187
    )
    
    
    (4,909,509
    )Accumulated other comprehensive income
    
    
    1,179
    
    
    
    1,206Total shareholders equity
    
    
    3,847
    
    
    
    12,092Total liabilities and shareholders equity
    
    $
    300,079
    
    
    $
    305,844
  3




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 Fiscal Quarter EndedDecember 31,
    
    
    January 1,2010
    
    
    2010Net revenues
    
    $
    46,110
    
    
    $
    61,813Cost of goods sold
    
    
    18,709
    
    
    
    24,204Gross margin
    
    
    27,401
    
    
    
    37,609Operating expenses:Research and development
    
    
    13,548
    
    
    
    13,245Selling, general and administrative
    
    
    11,187
    
    
    
    12,402Amortization of intangible assets
    
    
    284
    
    
    
    396Gain on sale of intellectual property
    
    
    (1,249
    )
    
    
    Special charges
    
    
    2,282
    
    
    
    346Total operating expenses
    
    
    26,052
    
    
    
    26,389Operating income
    
    
    1,349
    
    
    
    11,220Interest expense
    
    
    5,714
    
    
    
    9,503Other expense (income), net
    
    
    5,851
    
    
    
    (7,204
    )(Loss) income from continuing operations before income taxes and income
(loss) on equity method investments
    
    
    (10,216
    )
    
    
    8,921Income tax provision (benefit)
    
    
    94
    
    
    
    (230
    )(Loss) income from continuing operations before income (loss) on equity
method investments
    
    
    (10,310
    )
    
    
    9,151Income (loss) on equity method investments
    
    
    663
    
    
    
    (454
    )(Loss) income from continuing operations
    
    
    (9,647
    )
    
    
    8,697Loss from discontinued operations, net of tax
    
    
    (31
    )
    
    
    (363
    )Net (loss) income
    
    $
    (9,678
    )
    
    $
    8,334(Loss) income per share from continuing operations  basic and diluted
    
    $
    (0.12
    )
    
    $
    0.14Loss per share from discontinued operations  basic and diluted
    
    $
    0.00
    
    
    $
    0.00Net (loss) income per share  basic and diluted
    
    $
    (0.12
    )
    
    $
    0.14Shares used in basic per-share computations
    
    
    81,787
    
    
    
    60,023Shares used in diluted per-share computations
    
    
    81,787
    
    
    
    60,091
  4




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Fiscal Quarter EndedDecember 31,
    
    
    January 1,2010
    
    
    2010Cash flows from operating activities:Net (loss) income
    
    $
    (9,678
    )
    
    $
    8,334Adjustments to reconcile net (loss) income to net cash provided by
operating activities:Depreciation
    
    
    638
    
    
    
    1,067Amortization of intangible assets
    
    
    284
    
    
    
    396Reversal of provision for bad debts, net
    
    
    
    
    
    
    (101
    )Reversals of inventory provisions, net
    
    
    (71
    )
    
    
    (191
    )Amortization of debt discount
    
    
    225
    
    
    
    3,562Deferred income taxes
    
    
    118
    
    
    
    13Stock-based compensation
    
    
    2,005
    
    
    
    1,461Decrease (increase) in fair value of derivative instruments
    
    
    7,276
    
    
    
    (4,285
    )(Gains) losses on equity method investments
    
    
    (663
    )
    
    
    1,308Loss on termination of swap
    
    
    
    
    
    
    1,728Loss on extinguishment of debt
    
    
    
    
    
    
    1,124Net gain on sale of equity securities
    
    
    (1,393
    )
    
    
    (4,113
    )Gain on sale of intellectual property
    
    
    (1,249
    )
    
    
    Other items, net
    
    
    (211
    )
    
    
    303Changes in assets and liabilities:Receivables
    
    
    6,963
    
    
    
    (463
    )Inventories
    
    
    934
    
    
    
    223Accounts payable
    
    
    (1,087
    )
    
    
    (3,980
    )Accrued expenses and other current liabilities
    
    
    (1,463
    )
    
    
    2,970Other, net
    
    
    838
    
    
    
    849Net cash provided by operating activities
    
    
    3,466
    
    
    
    10,205Cash flows from investing activities:Purchases of property, plant and equipment
    
    
    (354
    )
    
    
    (219
    )Proceeds from sale of real estate, net of closing costs of $439
    
    
    21,087
    
    
    
    Proceeds from sale of property, plant and equipment
    
    
    
    
    
    
    163Payments for acquisitions
    
    
    
    
    
    
    (625
    )Proceeds from sales of equity securities
    
    
    802
    
    
    
    4,274Release of restricted cash
    
    
    120
    
    
    
    8,500Proceeds from sale of intellectual property
    
    
    624
    
    
    
    Net cash provided by investing activities
    
    
    22,279
    
    
    
    12,093Cash flows from financing activities:Net repayments of short-term debt, including debt costs of $60 and $483
    
    
    (60
    )
    
    
    (29,136
    )Extinguishment of long-term debt
    
    
    
    
    
    
    (62,014
    )Proceeds from issuance of common stock, net of offering costs of $440
    
    
    
    
    
    
    2,551Employee income tax paid related to vesting of restricted stock units
    
    
    (545
    )
    
    
    Net cash used in financing activities
    
    
    (605
    )
    
    
    (88,599
    )Net increase (decrease) in cash and cash equivalents
    
    
    25,140
    
    
    
    (66,301
    )Cash and cash equivalents at beginning of period
    
    
    54,466
    
    
    
    125,385Cash and cash equivalents at end of period
    
    $
    79,606
    
    
    $
    59,084
  5




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
 
 Notes to Unaudited Consolidated Financial Statements
 1. Basis of Presentation and Significant Accounting Policies
  Interim Reporting
  Fiscal Periods
 Use of Estimates
 Revenue Recognition
 Marketable Securities
  Restricted Cash
 6




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Inventories
 Investments 
 Accounting for Convertible Debt
 Derivative Financial Instruments
 Supplemental Cash Flow Information
 Net
(Loss) Income Per Share
  Fiscal Quarter EndedDecember 31,
    
    
    January 1,2010
    
    
    2010Employee stock options
    
    
    3,790
    
    
    
    6,1034.00% convertible subordinated notes due March 2026
    
    
    228
    
    
    
    4,7234,018
    
    
    
    10,826
  Fiscal Quarter EndedDecember 31,
    
    
    January 1,2010
    
    
    2010Weighted average shares for basic net (loss) income per share
    
    
    81,787
    
    
    
    60,023Employee stock options and restricted stock units
    
    
    
    
    
    
    68Weighted average shares for diluted (loss) income per share
    
    
    81,787
    
    
    
    60,091
 7




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Goodwill
 Recently Issued Accounting Pronouncements
  2. Sale of Real property
  Land
    
    $
    1,662Land and leasehold improvements, net
    
    
    356Buildings, net
    
    
    5,610Machinery and equipment, net
    
    
    262Site development costs
    
    
    7,691$
    15,581
   3. Fair Value of Certain Financial Assets and Liabilities
  8




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Level 2Assets:Marketable securities
    
    $
    20,028Mindspeed warrant
    
    
    13,410Total Assets
    
    $
    33,438
      GrossAmortized
    
    
    UnrealizedCost
    
    
    Gain
    
    
    Fair ValueDecember 31, 2010U.S. Treasury obligations
    
    $
    20,020
    
    
    $
    8
    
    
    $
    20,028
 4. Supplemental Financial Information
 Inventories
  December 31,
    
    
    October 1,2010
    
    
    2010Work-in-process
    
    $
    5,266
    
    
    $
    4,840Finished goods
    
    
    2,618
    
    
    
    3,907Total inventories
    
    $
    7,884
    
    
    $
    8,747
 9




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##### Table of Contents



Intangible Assets
  December 31, 2010
    
    
    October 1, 2010Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Book
    
    
    Carrying
    
    
    Accumulated
    
    
    BookAmount
    
    
    Amortization
    
    
    Value
    
    
    Amount
    
    
    Amortization
    
    
    ValueProduct licenses
    
    $
    2,400
    
    
    $
    (1,096
    )
    
    $
    1,304
    
    
    $
    2,400
    
    
    $
    (1,004
    )
    
    $
    1,396Other intangible assets
    
    
    6,830
    
    
    
    (4,110
    )
    
    
    2,720
    
    
    
    6,830
    
    
    
    (3,918
    )
    
    
    2,912$
    9,230
    
    
    $
    (5,206
    )
    
    $
    4,024
    
    
    $
    9,230
    
    
    $
    (4,922
    )
    
    $
    4,308
  Fiscal Year Ending2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    2015
    
    
    ThereafterAmortization expense
    
    $
    853
    
    
    $
    1,137
    
    
    $
    1,027
    
    
    $
    439
    
    
    $
    150
    
    
    $
    418
 Mindspeed Warrant
   Debt
  December 31,
    
    
    October 1,2010
    
    
    2010Short-term debt:4.00% convertible subordinated notes due March 2026, net of debt discount of $96
and $240
    
    $
    11,122
    
    
    $
    10,978Long-term debt:11.25% senior secured notes due March 2015, net of discount of $1,376 and $1,457
    
    $
    173,624
    
    
    $
    173,543
 11.25% senior secured notes due 2015
 10




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4.00% convertible subordinated notes due March 2026
  December 31,
    
    
    October 1,2010
    
    
    2010Principal of
the liability component of 4.00% convertible
subordinated notes
    
    $
    11,218
    
    
    $
    11,218Unamortized debt discount
    
    
    (96
    )
    
    
    (240
    )Net carrying amount of liability component of 4.00%convertible subordinated notes
    
    $
    11,122
    
    
    $
    10,978
  Fiscal Quarter EndedDecember 31,
    
    
    January 1,2010
    
    
    2010Contractual interest coupon
    
    $
    112
    
    
    $
    2,324Amortization of the debt discount on the liability component
    
    
    144
    
    
    
    3,562Total
    
    $
    256
    
    
    $
    5,886Effective interest rate for the liability component for the period
    
    
    9.13
    %
    
    
    9.63
    %
  Accounts Receivable Financing Facility
  11




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5. Commitments and Contingencies
 Legal Matters
 Litigation
Relating to the Merger with SMSC
   SMSC
Termination Fee
  Other
Legal Matters
  Guarantees and Indemnifications
  12




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6. Stock-Based Award Plans
  Stock Options
   Weighted AverageShares
    
    
    Exercise PriceOutstanding, October 1, 2010
    
    
    2,296
    
    
    $
    21.45Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (332
    )
    
    
    15.60Outstanding, December 31, 2010
    
    
    1,964
    
    
    
    22.44Shares vested and expected to vest, December 31, 2010
    
    
    1,963
    
    
    
    22.44Exercisable, December 31, 2010
    
    
    1,896
    
    
    $
    23.03
   13




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##### Table of Contents



Restricted Stock Units
   Weighted AverageGrant Date FairShares
    
    
    ValueOutstanding, October 1, 2010
    
    
    4,773
    
    
    $
    2.69Granted
    
    
    215
    
    
    
    1.65Vested
    
    
    (1,179
    )
    
    
    2.79Forfeited
    
    
    (13
    )
    
    
    2.79Outstanding, December 31, 2010
    
    
    3,796
    
    
    $
    2.60
  Employee Stock Purchase Plan
  7. Comprehensive (Loss) Income
  Fiscal Quarter EndedDecember 31,
    
    
    January 1,2010
    
    
    2010Net (loss) income
    
    $
    (9,678
    )
    
    $
    8,334Other comprehensive (loss) income:Foreign currency translation adjustments
    
    
    (22
    )
    
    
    393Unrealized loss on available-for-sale securities
    
    
    (5
    )
    
    
    Realized loss on interest rate swap contracts
    
    
    
    
    
    
    1,728Other comprehensive (loss) income:
    
    
    (27
    )
    
    
    2,121Comprehensive (loss) income
    
    $
    (9,705
    )
    
    $
    10,455
  December 31,
    
    
    October 1,2010
    
    
    2010Foreign currency translation adjustments
    
    $
    1,171
    
    
    $
    1,193Unrealized gains on available-for-sale securities
    
    
    8
    
    
    
    13Accumulated other comprehensive income
    
    $
    1,179
    
    
    $
    1,206
 14




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8. Income Taxes
  9. Gain on Sale of Intellectual Property
  10. Special Charges
  Fiscal Quarter EndedDecember 31,
    
    
    January 1,2010
    
    
    2010Other special charges
    
    $
    1,946
    
    
    $
    Restructuring charges
    
    
    336
    
    
    
    346$
    2,282
    
    
    $
    346
 Other Special Charges
  Restructuring Charges
  Restructuring Accruals
 Fiscal 2009 Restructuring Actions
  15




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WorkforceReductionsRestructuring balance, October 1, 2010
    
    $
    53Charged to costs and expenses
    
    
    Cash payments
    
    
    (43
    )Restructuring balance, December 31, 2010
    
    $
    10
 Fiscal 2008 Restructuring Actions
  Facilityand OtherRestructuring balance, October 1, 2010
    
    
    74Charged to costs and expenses
    
    
    2Cash payments
    
    
    (14
    )Restructuring balance, December 31, 2010
    
    $
    62
 Fiscal 2007 Restructuring Actions
  Facilityand OtherRestructuring balance, October 1, 2010
    
    $
    22,845Charged to costs and expenses
    
    
    509Cash payments
    
    
    (2,584
    )Restructuring balance, December 31, 2010
    
    $
    20,770
 Fiscal 2006 and 2005 Restructuring Actions
  Facilityand OtherRestructuring balance, October 1, 2010
    
    $
    10,849Charged to costs and expenses
    
    
    185Cash payments
    
    
    (537
    )Restructuring balance, December 31, 2010
    
    $
    10,497
 16




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11. Other Expense (Income), net
  Fiscal Quarter EndedDecember 31,
    
    
    January 1,2010
    
    
    2010Investment and interest income
    
    $
    (66
    )
    
    $
    (55
    )Gain on sale of equity investments
    
    
    (1,393
    )
    
    
    (4,113
    )Loss on extinguishment of debt
    
    
    
    
    
    
    1,124Decrease (increase) in the fair value of derivative instruments
    
    
    7,276
    
    
    
    (4,285
    )Other
    
    
    34
    
    
    
    125Other expense (income), net
    
    $
    5,851
    
    
    $
    (7,204
    )
  12. Related Party Transactions
 Mindspeed Technologies, Inc.
  13. Geographic Information
  Fiscal Quarter EndedDecember 31,
    
    
    January 1,2010
    
    
    2010United States
    
    $
    2,917
    
    
    $
    2,738Other Americas
    
    
    476
    
    
    
    1,256Total Americas
    
    
    3,393
    
    
    
    3,994China
    
    
    26,063
    
    
    
    35,750Taiwan
    
    
    4,263
    
    
    
    5,590Asia-Pacific
    
    
    12,046
    
    
    
    15,465Total Asia-Pacific
    
    
    42,372
    
    
    
    56,805Europe, Middle East and Africa
    
    
    345
    
    
    
    1,014$
    46,110
    
    
    $
    61,813
   17




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##### Table of Contents



Fiscal Quarter EndedDecember 31,
    
    
    October 1,2010
    
    
    2010United States
    
    $
    25,068
    
    
    $
    24,389India
    
    
    937
    
    
    
    1,022China
    
    
    500
    
    
    
    546Asia-Pacific
    
    
    664
    
    
    
    1,092Europe, Middle East and Africa
    
    
    
    
    
    
    1$
    27,169
    
    
    $
    27,050
  14. Subsequent Events
      18




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Overview
  Pending Merger with SMSC
    Sale of Real Property
  19




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##### Table of Contents



Land
    
    $
    1,662Land and leasehold improvements, net
    
    
    356Buildings, net
    
    
    5,610Machinery and equipment, net
    
    
    262Site development costs
    
    
    7,691$
    15,581
   Critical Accounting Policies
  Results of Operations
 Net Revenues
    Gross Margin
   20




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Research and Development
   Selling, General and Administrative
   Amortization of Intangible Assets
   Sale of Intellectual Property
  Special Charges
   Interest Expense
  21




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Other expense (income), net
  Fiscal Quarter EndedDecember 31,
    
    
    January 1,2010
    
    
    2010Investment and interest income
    
    $
    (66
    )
    
    $
    (55
    )Gain on sale of equity investments
    
    
    (1,393
    )
    
    
    (4,113
    )Loss on extinguishment of debt
    
    
    
    
    
    
    1,124Decrease (increase) in the fair value of derivative instruments
    
    
    7,276
    
    
    
    (4,285
    )Other
    
    
    34
    
    
    
    125Other expense (income), net
    
    $
    5,851
    
    
    $
    (7,204
    )
  Provision for Income Taxes
  Liquidity and Capital Resources
     Fiscal Quarter EndedDecember 31,
    
    
    January 1,2010
    
    
    2010Net cash provided by operating activities
    
    $
    3,466
    
    
    $
    10,205Net cash provided by investing activities
    
    
    22,279
    
    
    
    12,093Net cash used in financing activities
    
    
    (605
    )
    
    
    (88,599
    )Net increase (decrease) in cash and cash equivalents
    
    $
    25,140
    
    
    $
    (66,301
    )
 Operating Activities
  22




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Investing Activities
  Financing Activities
  Recent Financing Transactions
    Contractual Obligations and Commitments
  Off-Balance Sheet Arrangements
    23




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Special Purpose Entities
      Recently Issued Accounting Pronouncements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
     24




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Carrying Value
    
    
    Fair ValueCash and cash equivalents
    
    $
    79,606
    
    
    $
    79,606Marketable securities
    
    
    20,028
    
    
    
    20,028Mindspeed warrant
    
    
    13,410
    
    
    
    13,410Long-term restricted cash
    
    
    5,480
    
    
    
    5,480Short-term debt: convertible subordinated notes
    
    
    11,218
    
    
    
    11,232Long-term debt: senior secured notes
    
    
    175,000
    
    
    
    176,750
 Exchange Rate Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
   25




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PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 Litigation Relating to the Merger with SMSC
   
 ITEM 1A. RISK FACTORS
  Risks Factors Related to the Merger with SMSC
 Failure to consummate or delay in consummating the merger with SMSC announced on January
10, 2011 for any reason could materially and adversely affect our operations and our
stock price.
  
    
    we could be required to pay to SMSC a termination fee of $7.7 million under certain
circumstances as set forth in the merger agreement;
    
    the market price of our common stock may decline to the extent that the current
market price of our common stock reflects a market assumption that the merger will be
consummated;
    
    the possibility exists that certain key employees may terminate their employment with
us as a result of the proposed merger with SMSC even if the proposed merger is not
ultimately consummated;
    
    benefits that we expect to realize from the merger, such as the potentially enhanced
strategic position of the combined company, would not be realized; and
    
    the diversion of managements attention away from our day-to-day business,
limitations on the conduct of our business prior to completing the merger, and other
restrictive covenants contained in the merger agreement that may impact the manner in
which our management is able to conduct the business of the company during the period
prior to the consummation of the merger and the unavoidable disruption to our employees
and our relationships with customers and suppliers during the period prior to the
consummation of the merger, may make it difficult for us to regain our financial and
market position if the merger does not occur.
   26




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##### Table of Contents



definitive agreement with Golden Gate, but were not able to consummate a merger with
Golden Gate for any reason, then not only would we remain subject to the risks described
above, but those risks could be exacerbated, particularly with respect to the diversion of
managements attention away from our day-to-day business, the disruption to our employees and
the disruption to our relationships with our customers and suppliers.Legal proceedings in connection with the merger could delay or prevent the completion of the
merger.Purported class action lawsuits have been filed by third parties challenging the proposed
merger and seeking, among other things, to enjoin the consummation of the merger. One of the
conditions to the closing of the merger is that no governmental entity has enjoined the
consummation of the merger. If a plaintiff is successful in obtaining an injunction
prohibiting consummation of the merger, then the injunction may delay the merger or prevent
the merger from being completed.
 
 ITEM 5. OTHER INFORMATION
 None.
 
 ITEM 6. EXHIBITS
 2.1
    
    Agreement and Plan of Merger, dated January 9, 2011, among the Company, Standard Microsystems
Corporation and Comet Acquisition Corp. (incorporated by reference to Exhibit 2.1 of the Companys
Current Report on Form 8-K filed on January 10, 2011).*10.1
    
    2011 Management Incentive Plan (incorporated by reference to Exhibit 10.1 of the Companys Current
Report on Form 8-K filed on November 19, 2010).10.2
    
    Purchase and Sale Agreement, dated December 9, 2010, by and between the Company and Uptown Newport L.P.10.3
    
    Amendment No. 3 to Loan and Security Agreement, dated December 13, 2010, by and between Silicon Valley
Bank and Conexant CF, LLC.31.1
    
    Certification of the Chief Executive Officer of Periodic Report Pursuant to Rule 13a-15(a) or 15d-15(a).31.2
    
    Certification of the Chief Financial Officer of Periodic Report Pursuant to Rule 13a-15(a) or 15d-15(a).32
    
    Certification by Chief Executive Officer and Chief Financial Officer of Periodic Report Pursuant to 18
U.S.C. Section 1350.
 
 *
    
    Management contract or compensatory plan or arrangement.
    
    Exhibits and schedules omitted pursuant to Item 601(b)(2) of
Regulation S-K. The Company agrees to furnish a supplemental copy of
an omitted exhibit or schedule to the SEC upon request. 27




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##### Table of Contents



SIGNATURE
  CONEXANT SYSTEMS, INC.
(Registrant)Date: February 8, 2011
    By
    /s/ JEAN HUJean HuChief Financial Officer, Treasurer and
Senior Vice President, Business Development
(principal financial officer) 28




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##### Table of Contents



ExhibitNo.
    
    Description2.1
    
    Agreement and Plan of Merger, dated January 9, 2011, among the Company, Standard Microsystems Corporation and Comet Acquisition Corp. (incorporated by reference to Exhibit 2.1 of
the Companys Current Report on Form 8-K filed on January 10, 2011).*10.1
    
    2011 Management Incentive Plan (incorporated by reference to Exhibit 10.1 of the Companys Current Report on Form 8-K filed on November 19, 2010).10.2
    
    Purchase and Sale Agreement, dated December 9, 2010, by and between the Company and Uptown Newport L.P.10.3
    
    Amendment No. 3 to Loan and Security Agreement, dated December 13, 2010, by and between Silicon Valley Bank and Conexant CF, LLC.31.1
    
    Certification of the Chief Executive Officer of Periodic Report Pursuant to Rule 13a-15(a) or 15d-15(a).31.2
    
    Certification of the Chief Financial Officer of Periodic Report Pursuant to Rule 13a-15(a) or 15d-15(a).32
    
    Certification by Chief Executive Officer and Chief Financial Officer of Periodic Report Pursuant to 18 U.S.C. Section 1350.
 
 *
    
    Management contract or compensatory plan or arrangement.
    
    Exhibits and schedules omitted pursuant to Item 601(b)(2) of
Regulation S-K. The Company agrees to furnish a supplemental copy of
an omitted exhibit or schedule to the SEC upon request. 29