##### 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 July 1, 2011
 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
    
    25-1799439(State of incorporation)
    
    (I.R.S. Employer Identification No.)
 4000 MacArthur Boulevard
Newport Beach, California 92660-3095
 (949) 483-4600
 o þ Explanatory Note:
While the registrant is not subject to the filing requirements of Section 13 or 15(d) of the
Exchange Act, it has filed all reports pursuant to Section 13 or 15(d) of the Exchange Act during
the preceding 12 months.
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### Table of Contents



FORWARD-LOOKING STATEMENTS
  
    
    our expectations regarding the market share of our products, growth in the markets we serve and our market opportunities;
    
    our expectations regarding the price of our products, and product competition;
    
    our expectations regarding the continued and future demand for our products;
    
    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; 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  July 1, 2011 (Successor) and October 1, 2010 (Predecessor)
    
    
    3Unaudited Consolidated Statements of Operations  Period from April 20, 2011 through July 1, 2011
(Successor), Period from April 2, 2011 through April 19, 2011 (Predecessor) and Fiscal Quarter
Ended July 2, 2010 (Predecessor)
    
    
    4Unaudited Consolidated Statements of Operations  Period from April 20, 2011 through July 1, 2011
(Successor), Period from October 2, 2010 through April 19, 2011 (Predecessor) and Nine Fiscal
Months Ended July 2, 2010 (Predecessor)
    
    
    5Unaudited Consolidated Statements of Cash Flows  Period from April 20, 2011 through July 1, 2011
(Successor), Period from October 2, 2010 through April 19, 2011 (Predecessor) and Nine Fiscal
Months Ended July 2, 2010 (Predecessor)
    
    
    6Unaudited Consolidated Statements of Shareholders Equity  Period from April 20, 2011 through
July 1, 2011 (Successor) and Period from October 1, 2010 through April 19, 2011 (Predecessor)
    
    
    7Notes to Unaudited Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    30Item 4. Controls and Procedures
    
    
    31PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    32Item 1A. Risk Factors
    
    
    32Item 6. Exhibits
    
    
    32SIGNATURE
    
    
    33EX-31.1EX-31.2EX-32
  2




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PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
 
 UNAUDITED CONSOLIDATED BALANCE SHEETS
 (in thousands, except for par value)
 Successor
    

    
    PredecessorJuly 1,
    

    
    October 1,2011
    

    
    2010ASSETSCurrent assets:Cash and cash equivalents
    
    $
    50,408
    

    
    $
    54,466Marketable securities
    
    
    
    

    
    
    20,059Receivables, net of
allowance of $181 and $368
at July 1, 2011 and October
1, 2010, respectively
    
    
    24,220
    

    
    
    31,463Inventories
    
    
    19,667
    

    
    
    8,747Other current assets
    
    
    8,750
    

    
    
    14,690Assets held for sale
    
    
    
    

    
    
    13,059Total current assets
    
    
    103,045
    

    
    
    142,484Property, plant and equipment, net
of accumulated depreciation of
$820 and $30,050 at
July 1, 2011 and October 1,
2010, respectively
    
    
    11,634
    

    
    
    6,080Goodwill
    
    
    222,661
    

    
    
    109,908Intangible assets
    
    
    113,774
    

    
    
    4,308Other assets
    
    
    23,778
    

    
    
    43,064Total assets
    
    $
    474,892
    

    
    $
    305,844LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Short-term debt
    
    $
    
    

    
    $
    10,978Accounts payable
    
    
    11,377
    

    
    
    12,516Accrued compensation and
benefits
    
    
    8,701
    

    
    
    7,682Other current liabilities
    
    
    29,373
    

    
    
    31,836Total current liabilities
    
    
    49,451
    

    
    
    63,012Long-term debt
    
    
    194,249
    

    
    
    173,543Other liabilities
    
    
    69,100
    

    
    
    57,197Total liabilities
    
    
    312,800
    

    
    
    293,752Commitments and contingencies
(Note 6)Shareholders equity:Preferred and junior
preferred stock: zero and
20,000 shares authorized at
July 1, 2011
and October 1, 2010,
respectively
    
    
    
    

    
    
    Common stock, $0.01 par
value: 200,000 shares
authorized; 100,000 and
81,273
shares issued and
outstanding at July 1,
2011 and October 1,
2010, respectively
    
    
    1,000
    

    
    
    813Additional paid-in capital
    
    
    202,865
    

    
    
    4,919,582Accumulated deficit
    
    
    (41,838
    )

    
    
    (4,909,509
    )Accumulated other
comprehensive income
    
    
    65
    

    
    
    1,206Total shareholders
equity
    
    
    162,092
    

    
    
    12,092Total liabilities and
shareholders equity
    
    $
    474,892
    

    
    $
    305,844
  3




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
 
 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except per share data)
 Successor
    


    
    PredecessorPeriod from April
    


    Period from April 2,
    
    
    Fiscal Quarter20, 2011 through
    


    2011 through
    
    
    EndedJuly 1, 2011
    


    April 19, 2011
    
    
    July 2, 2010Net revenues
    
    $
    37,009
    
    

    $
    3,872
    
    
    $
    60,730Cost of goods sold
    
    
    33,327
    
    

    
    2,233
    
    
    
    23,645Gross margin
    
    
    3,682
    
    

    
    1,639
    
    
    
    37,085Operating expenses:Research and development
    
    
    11,646
    
    

    
    2,822
    
    
    
    14,569Selling, general and administrative
    
    
    7,626
    
    

    
    1,867
    
    
    
    11,647Amortization of intangible assets
    
    
    4,826
    
    

    
    53
    
    
    
    285Special charges
    
    
    12,580
    
    

    
    5,660
    
    
    
    723Total operating expenses
    
    
    36,678
    
    

    
    10,402
    
    
    
    27,224Operating (loss) income
    
    
    (32,996
    )
    

    
    (8,763
    )
    
    
    9,861Interest expense
    
    
    3,115
    
    

    
    1,054
    
    
    
    7,159Other expense, net
    
    
    3,812
    
    

    
    3,778
    
    
    
    9,248Loss from continuing operations before income taxes and loss on equity method investments
    
    
    (39,923
    )
    

    
    (13,595
    )
    
    
    (6,546
    )Income tax provision (benefit)
    
    
    229
    
    

    
    (30
    )
    
    
    322Loss from continuing operations before loss on equity method investments
    
    
    (40,152
    )
    

    
    (13,565
    )
    
    
    (6,868
    )Loss on equity method investments
    
    
    (6
    )
    

    
    
    
    
    
    (130
    )Loss from continuing operations
    
    
    (40,158
    )
    

    
    (13,565
    )
    
    
    (6,998
    )Loss from discontinued operations, net of tax
    
    
    (1,680
    )
    

    
    (72
    )
    
    
    (455
    )Net loss
    
    $
    (41,838
    )
    

    $
    (13,637
    )
    
    $
    (7,453
    )Loss per share from continuing operations  basic and diluted
    
    
    
    
    

    $
    (0.16
    )
    
    $
    (0.09
    )Loss per share from discontinued operations  basic and diluted
    
    
    
    
    

    $
    (0.01
    )
    
    $
    0.00Loss per share  basic and diluted
    
    
    
    
    

    $
    (0.17
    )
    
    $
    (0.09
    )Shares used in basic and diluted per-share computations
    
    
    
    
    

    
    82,223
    
    
    
    81,200
  4




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
 
 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except per share data)
 Successor
    
    

    PredecessorPeriod from April 20,
    
    

    Period from October 2,
    
    
    Nine Fiscal Months2011 through
    
    

    2010 through
    
    
    EndedJuly 1, 2011
    
    

    April 19, 2011
    
    
    July 2, 2010Net revenues
    
    $
    37,009
    
    

    $
    93,111
    
    
    $
    184,411Cost of goods sold
    
    
    33,327
    
    

    
    39,849
    
    
    
    71,936Gross margin
    
    
    3,682
    
    

    
    53,262
    
    
    
    112,475Operating expenses:Research and development
    
    
    11,646
    
    

    
    30,932
    
    
    
    41,914Selling, general and administrative
    
    
    7,626
    
    

    
    24,155
    
    
    
    36,730Amortization of intangible assets
    
    
    4,826
    
    

    
    621
    
    
    
    965Gain on sale of intellectual property
    
    
    
    
    

    
    (1,249
    )
    
    
    Special charges
    
    
    12,580
    
    

    
    20,890
    
    
    
    859Total operating expenses
    
    
    36,678
    
    

    
    75,349
    
    
    
    80,468Operating (loss) income
    
    
    (32,996
    )
    

    
    (22,087
    )
    
    
    32,007Interest expense
    
    
    3,115
    
    

    
    12,278
    
    
    
    24,437Other expense (income), net
    
    
    3,812
    
    

    
    8,423
    
    
    
    (5,711
    )(Loss) income from continuing operations before income taxes and (loss)
income on equity method investments
    
    
    (39,923
    )
    

    
    (42,788
    )
    
    
    13,281Income tax provision
    
    
    229
    
    

    
    380
    
    
    
    423(Loss) income from continuing operations before (loss) income on equity
method investments
    
    
    (40,152
    )
    

    
    (43,168
    )
    
    
    12,858(Loss) income on equity method investments
    
    
    (6
    )
    

    
    1,495
    
    
    
    (375
    )(Loss) income from continuing operations
    
    
    (40,158
    )
    

    
    (41,673
    )
    
    
    12,483Loss from discontinued operations, net of tax
    
    
    (1,680
    )
    

    
    (461
    )
    
    
    (723
    )Net (loss) income
    
    $
    (41,838
    )
    

    $
    (42,134
    )
    
    $
    11,760(Loss) income per share from continuing operations  basic and diluted
    
    
    
    
    

    $
    (0.51
    )
    
    $
    0.18Loss per share from discontinued operations  basic and diluted
    
    
    
    
    

    $
    0.00
    
    
    $
    (0.01
    )(Loss) income per share  basic and diluted
    
    
    
    
    

    $
    (0.51
    )
    
    $
    0.17Shares used in basic per-share computations
    
    
    
    
    

    
    81,996
    
    
    
    70,120Shares used in diluted per-share computations
    
    
    
    
    

    
    81,996
    
    
    
    70,964
  5




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
 
 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 Successor
    
    

    PredecessorPeriod from April 20,
    
    

    Period from October
    
    
    Nine Fiscal Months2011 through
    
    

    2, 2010 through
    
    
    EndedJuly 1, 2011
    
    

    April 19, 2011
    
    
    July 2, 2010Cash flows from operating activities:Net (loss) income
    
    $
    (41,838
    )
    

    $
    (42,134
    )
    
    $
    11,760Adjustments to reconcile net (loss) income to net cash (used in) provided byoperating activities:Depreciation
    
    
    766
    
    

    
    1,425
    
    
    
    2,646Amortization of intangible assets
    
    
    4,826
    
    

    
    621
    
    
    
    965Reversal of provision for bad debts, net
    
    
    
    
    

    
    
    
    
    
    (34
    )Charges for inventory provisions, net
    
    
    1,270
    
    

    
    449
    
    
    
    83Provision for loss on inventory purchase commitments
    
    
    949
    
    

    
    
    
    
    
    Release of inventory step-up upon shipment
    
    
    16,285
    
    

    
    
    
    
    
    Amortization of debt (premium) discount
    
    
    (876
    )
    

    
    419
    
    
    
    7,785Deferred income taxes
    
    
    (13
    )
    

    
    19
    
    
    
    54Stock-based compensation
    
    
    
    
    

    
    4,057
    
    
    
    5,025Decrease (increase) in fair value of derivative instruments
    
    
    3,757
    
    

    
    9,469
    
    
    
    (11,353
    )Losses (gains) on equity method investments
    
    
    7
    
    

    
    (1,495
    )
    
    
    1,229Loss on termination of swap
    
    
    
    
    

    
    
    
    
    
    1,728Loss on extinguishment of debt
    
    
    
    
    

    
    
    
    
    
    18,581Net gain on sale of equity securities
    
    
    (5
    )
    

    
    (1,393
    )
    
    
    (12,911
    )Gain on sale of intellectual property
    
    
    
    
    

    
    (1,249
    )
    
    
    Other items, net
    
    
    16
    
    

    
    (276
    )
    
    
    (1,386
    )Changes in assets and liabilities:Receivables
    
    
    1,310
    
    

    
    6,071
    
    
    
    (6,082
    )Inventories
    
    
    3,351
    
    

    
    (6,291
    )
    
    
    (181
    )Accounts payable
    
    
    (2,733
    )
    

    
    1,576
    
    
    
    (9,405
    )Accrued expenses and other current liabilities
    
    
    5,829
    
    

    
    (5,269
    )
    
    
    (327
    )Other, net
    
    
    3,751
    
    

    
    2,764
    
    
    
    (1,897
    )Net cash (used in) provided by operating activities
    
    
    (3,348
    )
    

    
    (31,237
    )
    
    
    6,280Cash flows from investing activities:Purchases of property, plant and equipment
    
    
    (631
    )
    

    
    (729
    )
    
    
    (836
    )Acquisition of Predecessor
    
    
    (203,865
    )
    

    
    
    
    
    
    Proceeds from sale of real estate, net of closing costs of $439
    
    
    
    
    

    
    21,087
    
    
    
    Proceeds from sale of property, plant and equipment
    
    
    15
    
    

    
    52
    
    
    
    741Payments for acquisitions
    
    
    
    
    

    
    
    
    
    
    (625
    )Proceeds from sales of marketable securities
    
    
    
    
    

    
    20,000
    
    
    
    88,634Purchases of marketable securities
    
    
    
    
    

    
    
    
    
    
    (95,334
    )Proceeds from sales of equity securities
    
    
    23
    
    

    
    802
    
    
    
    Release of restricted cash
    
    
    (2
    )
    

    
    533
    
    
    
    8,500Proceeds from sale of intellectual property
    
    
    
    
    

    
    1,249
    
    
    
    Net cash (used in) provided by investing activities
    
    
    (204,460
    )
    

    
    42,994
    
    
    
    1,080Cash flows from financing activities:Net repayments of short-term debt, including debt costs of $60 and $483
    
    
    
    
    

    
    (11,278
    )
    
    
    (29,136
    )Extinguishment of long-term debt, including costs of $3,445
    
    
    
    
    

    
    
    
    
    
    (288,747
    )Proceeds from common stock offerings, net of expenses of $4,881
    
    
    
    
    

    
    
    
    
    
    62,510Proceeds from issuance of senior secured notes, net of expenses of $4,918
    
    
    
    
    

    
    
    
    
    
    168,442Proceeds from issuance of common stock under employee stock plans
    
    
    
    
    

    
    95
    
    
    
    19Repurchase of shares upon exercise of employee stock awards
    
    
    
    
    

    
    (689
    )
    
    
    (35
    )Advances
(to) from Gold Holdings, Inc.
    
    
    (6,443
    )
    

    
    6,443
    
    
    
    Equity contributions
    
    
    203,865
    
    

    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    197,422
    
    

    
    (5,429
    )
    
    
    (86,947
    )Net increase in cash and cash equivalents
    
    
    (10,386
    )
    

    
    6,328
    
    
    
    (79,587
    )Cash and cash equivalents at beginning of period
    
    
    60,794
    
    

    
    54,466
    
    
    
    125,385Cash and cash equivalents at end of period
    
    $
    50,408
    
    

    $
    60,794
    
    
    $
    45,798
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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
 
 UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 AND COMPREHENSIVE INCOME (SUCCESSOR)
 (in thousands)
 AccumulatedOtherAdditional
    
    
    
    
    
    
    Comprehensive
    
    
    TotalCommon Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    Income (net of
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    tax)
    
    
    EquityBalance at April 20, 2011
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (41,838
    )
    
    
    
    
    
    
    (41,838
    )Currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65
    
    
    
    65Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (41,773
    )Equity contribution
    
    
    100,000
    
    
    
    1,000
    
    
    
    202,865
    
    
    
    
    
    
    
    
    
    
    
    203,865Balance at July 1, 2011
    
    
    100,000
    
    
    $
    1,000
    
    
    $
    202,865
    
    
    $
    (41,838
    )
    
    $
    65
    
    
    $
    162,092
 UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIT)
AND COMPREHENSIVE INCOME (PREDECESSOR)
(in thousands)
 AccumulatedOther
    
    
    TotalAdditional
    
    
    
    
    
    
    Comprehensive
    
    
    ShareholdersCommon Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    Income (net of
    
    
    EquityShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    tax)
    
    
    (Deficit)Balance at October 1, 2010
    
    
    81,273
    
    
    $
    813
    
    
    $
    4,919,582
    
    
    $
    (4,909,509
    )
    
    $
    1,206
    
    
    $
    12,092Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42,134
    )
    
    
    
    
    
    
    (42,134
    )Currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    526
    
    
    
    526Change in unrealized gain on available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13
    )
    
    
    (13
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (41,621
    )Common stock issued related to employee stock plans
    
    
    950
    
    
    
    10
    
    
    
    85
    
    
    
    
    
    
    
    
    
    
    
    95Employee stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    3,368
    
    
    
    
    
    
    
    
    
    
    
    3,368Balance at April 19, 2011
    
    
    82,223
    
    
    $
    823
    
    
    $
    4,923,035
    
    
    $
    (4,951,643
    )
    
    $
    1,719
    
    
    $
    (26,066
    )
  7




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##### Table of Contents



CONEXANT SYSTEMS, INC. AND SUBSIDIARIES



Notes to Unaudited Consolidated Financial Statements
 1. Basis of Presentation and Significant Accounting Policies
  Merger with Conexant Holdings, Inc.
    Termination of Merger Agreement with Standard Microsystems Corporation
  Interim Reporting
  8




---



##### Table of Contents



Fiscal Periods
  Use of Estimates
 Revenue Recognition
 Marketable Securities
  Restricted Cash
 Inventories
 Investments 
 Accounting for Convertible Debt
 9




---



##### Table of Contents



Derivative Financial Instruments
 Supplemental Cash Flow Information
 Accumulated Other Comprehensive Income 
 Successor

    

    PredecessorJuly 1,

    

    October 1,2011

    

    2010Foreign currency translation adjustments
    
    $
    65

    

    $
    1,193Unrealized gains on available-for-sale securities
    
    
    

    

    
    13Accumulated other comprehensive income
    
    $
    65

    

    $
    1,206
 Net (Loss) Income Per Share
  PredecessorPeriod from
    
    
    
    
    
    
    Period fromApril 2, 2011
    
    
    Fiscal Quarter
    
    
    October 2, 2010
    
    
    Nine Fiscalthrough
    
    
    Ended
    
    
    through
    
    
    Months EndedApril 19, 2011
    
    
    July 2, 2010
    
    
    April 19, 2011
    
    
    July 2, 2010Employee stock options and restricted stock units
    
    
    2,044
    
    
    
    1,139
    
    
    
    1,268
    
    
    
    4.00% convertible subordinated notes due March 2026
    
    
    
    
    
    
    1,046
    
    
    
    172
    
    
    
    3,5502,044
    
    
    
    2,185
    
    
    
    1,440
    
    
    
    3,550
  PredecessorPeriod from
    
    
    
    
    
    
    Period fromApril 2, 2011
    
    
    Fiscal Quarter
    
    
    October 2, 2010
    
    
    Nine Fiscalthrough
    
    
    Ended
    
    
    through
    
    
    Months EndedApril 19, 2011
    
    
    July 2, 2010
    
    
    April 19, 2011
    
    
    July 2, 2010Weighted average shares for basic net (loss) income per share
    
    
    82,223
    
    
    
    81,200
    
    
    
    81,996
    
    
    
    70,120Employee stock options and restricted stock units
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    844Weighted average shares for diluted (loss) income per share
    
    
    82,223
    
    
    
    81,200
    
    
    
    81,996
    
    
    
    70,964
 Impairment of Assets 
 10




---



##### Table of Contents



Goodwill 
 Recently Issued Accounting Pronouncements
    2. Merger with Conexant Holdings, Inc.
  Total merger consideration:Cash paid to shareholders
    
    $
    197,335Cash paid to holders of cancelled stock options and RSUs upon change of control
    
    
    6,427Bank line of credit assumed and repaid
    
    
    102Total merger consideration
    
    
    203,864Fair value of assets acquired and liabilities assumed:Cash and cash equivalents
    
    
    60,794Accounts receivable
    
    
    25,530Inventories
    
    
    40,573Other current assets
    
    
    8,582Property and equipment
    
    
    11,866Intangible assets
    
    
    118,600Other assets
    
    
    28,366Accounts payable
    
    
    (14,215
    )Deferred income tax liabilities, net
    
    
    (21,655
    )Other liabilities  current and long term
    
    
    (82,113
    )Long-term debt
    
    
    (195,125
    )Net liabilities assumed
    
    
    (18,797
    )Excess purchase price atttributed to goodwill acquired
    
    $
    222,661
 11




---



##### Table of Contents



RemainingEstimated
    
    
    UsefulValuation Method
    
    Fair Value
    
    
    Life (yrs) (1)Customer relationships
    
    Multi-Period Excess Earnings (2)
    
    $
    50,300
    
    
    
    7.0In-process research and development (IPR&D)
    
    Multi-Period Excess Earnings (2)
    
    
    46,000
    
    
    
    Trade name and trademarks
    
    Relief-from-Royalty (3)
    
    
    15,100
    
    
    
    Backlog
    
    Multi-Period Excess Earnings (2)
    
    
    4,200
    
    
    
    0.5Patents
    
    Relief-from-Royalty (3)
    
    
    2,900
    
    
    
    8.3Non-compete agreement
    
    Comparative Business Valuation (4)
    
    
    100
    
    
    
    1.0Total purchased intangible assets
    
    
    
    $
    118,600
        Transaction Costs:
  Pro Forma Financial Information:
  12




---



##### Table of Contents



Pro Forma Results of OperationsNine Fiscal Months
    

    Nine Fiscal MonthsEnded
    

    EndedJuly 1, 2011
    

    July 2, 2010(in thousands)Net revenues
    
    $
    130,120
    

    $
    184,411Net loss
    
    $
    (68,807
    )

    $
    (3,959
    )
 3. Sale of Real Property
  PredecessorLand
    
    $
    1,662Land and leasehold improvements, net
    
    
    356Buildings, net
    
    
    5,610Machinery and equipment, net
    
    
    262Site development costs
    
    
    7,583$
    15,473
   4. Fair Value of Certain Financial Assets and Liabilities
    13




---



##### Table of Contents



5. Supplemental Financial Information
 Inventories
  Successor

    

    PredecessorJuly 1,

    

    October 1,2011

    

    2010Work-in-process
    
    $
    14,154

    

    $
    4,840Finished goods
    
    
    5,513

    

    
    3,907Total inventories
    
    $
    19,667

    

    $
    8,747
  Goodwill and Purchased Intangible Assets
  Successor
    
    
    PredecessorJuly 1, 2011
    
    
    October 1, 2010Weighted
    
    
    Gross
    
    
    
    
    
    
    
    
    
    
    Weighted
    
    
    GrossAverage
    
    
    Carrying
    
    
    Accumulated
    
    
    Book
    
    
    Average
    
    
    Carrying
    
    
    Accumulated
    
    
    BookLife (yrs)
    
    
    Amount
    
    
    Amortization
    
    
    Value
    
    
    Life (yrs)
    
    
    Amount
    
    
    Amortization
    
    
    ValueIntangible assets subject to amortization:Customer relationships
    
    
    7.0
    
    
    $
    50,300
    
    
    $
    (2,084
    )
    
    $
    48,216
    
    
    
    5.0
    
    
    $
    4,300
    
    
    $
    (3,121
    )
    
    $
    1,179Backlog
    
    
    0.5
    
    
    
    4,200
    
    
    
    (2,652
    )
    
    
    1,548
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Patents
    
    
    8.3
    
    
    
    2,900
    
    
    
    (70
    )
    
    
    2,830
    
    
    
    7.5
    
    
    
    3,900
    
    
    
    (1,333
    )
    
    
    2,567Software licenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.0
    
    
    
    1,000
    
    
    
    (438
    )
    
    
    562Non-compete agreement
    
    
    1.0
    
    
    
    100
    
    
    
    (20
    )
    
    
    80
    
    
    
    5.0
    
    
    
    30
    
    
    
    (30
    )
    
    
    $
    57,500
    
    
    $
    (4,826
    )
    
    $
    52,674
    
    
    
    
    
    
    $
    9,230
    
    
    $
    (4,922
    )
    
    $
    4,308Intangible assets not subject to amortization:In-process research and development
    
    
    
    
    
    
    46,000Trade name and trademarks
    
    
    
    
    
    
    15,100$
    61,100
   Fiscal Year Ending2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    2015
    
    
    ThereafterAmortization expense
    
    $
    4,259
    
    
    $
    11,713
    
    
    $
    9,630
    
    
    $
    7,954
    
    
    $
    6,585
    
    
    $
    12,533
  14




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##### Table of Contents



Fiscal Period EndedSuccessor
    
    
    PredecessorJuly 1,
    
    
    April 19,
    
    
    October 1,2011
    
    
    2011
    
    
    2010Goodwill at beginning of period
    
    $
    109,908
    
    
    $
    109,908
    
    
    $
    109,908Predecessor goodwill eliminated in purchase accounting
    
    $
    (109,908
    )
    
    $
    
    
    
    $
    Excess purchase price atttributed to goodwill acquired
    
    
    222,661
    
    
    
    
    
    
    
    Goodwill at end of period
    
    $
    222,661
    
    
    $
    109,908
    
    
    $
    109,908
 Mindspeed Warrant
   Debt
  Successor

        
    PredecessorJuly 1,

        
    October 1,2011

        
    2010Short-term debt:4.00% convertible
subordinated notes
due March 2026, net
of debt discount of $240
    
    $
    
    
    
    $
    10,978Long-term debt:11.25% senior secured notes due
March 2015, net of premium
(discount) of $19,249 and $(1,457)
    
    $
    194,249
    
    
    $
    173,543
 11.25% senior secured notes due 2015
 15




---



##### Table of Contents



4.00% convertible subordinated notes due March 2026
 Accounts Receivable Financing Facility
 6. Commitments and Contingencies
 Legal Matters
 Litigation Relating to the Previously Contemplated Merger with SMSC
 In re
Conexant Systems, Inc. Shareholders Litigation
 Other Legal Matters
  16




---



##### Table of Contents



Guarantees and Indemnifications
   7. Stock-Based Award Plans
     Stock Options
  17




---



##### Table of Contents



PredecessorWeightedAverageShares
    
    
    Exercise PriceOutstanding, October 1, 2010
    
    
    2,296
    
    
    $
    21.45Granted
    
    
    
    
    
    
    Exercised
    
    
    (1
    )
    
    
    0.70Forfeited
    
    
    (706
    )
    
    
    21.89Outstanding, April 19, 2011
    
    
    1,589
    
    
    
    21.25Shares vested and expected to vest, April 19, 2011
    
    
    1,589
    
    
    
    21.26Exercisable, April 19, 2011
    
    
    1,559
    
    
    $
    21.57
   Restricted Stock Units
   PredecessorWeightedAverage GrantDate FairShares
    
    
    ValueOutstanding, October 1, 2010
    
    
    4,773
    
    
    $
    2.69Granted
    
    
    230
    
    
    
    1.68Vested
    
    
    (1,337
    )
    
    
    2.81Forfeited
    
    
    (63
    )
    
    
    2.12Outstanding, April 19, 2011
    
    
    3,603
    
    
    $
    2.59
   Employee Stock Purchase Plan
  18




---



##### Table of Contents



8. Income Taxes
    9. Gain on Sale of Intellectual Property
  10. Special Charges
  Successor
    
    

    Predecessor
    
    
    Successor

    


    PredecessorPeriod from
    
    

    Period from
    
    
    
    
    
    
    Period from
    

    
    Period fromApril 20, 2011
    
    

    April 2, 2011
    
    
    Fiscal Quarter
    
    
    April 20, 2011
    

    
    October 2,
    
    

    Nine Fiscalthrough
    
    

    through
    
    
    Ended
    
    
    through
    

    
    2010 through
    
    

    Months EndedJuly 1, 2011
    
    

    April 19, 2011
    
    
    July 2, 2010
    
    
    July 1, 2011
    

    
    April 19, 2011
    
    

    July 2, 2010Severance charges
    
    $
    8,368
    
    

    $
    90
    
    
    $
    
    
    
    $
    8,368
    

    
    $
    2,873
    
    

    $
    Merger transaction charges
    
    
    355
    
    

    
    5,290
    
    
    
    
    
    
    
    355
    

    
    
    16,860
    
    

    
    Lease impairment charges
    
    
    2,106
    
    

    
    7
    
    
    
    99
    
    
    
    2,106
    

    
    
    87
    
    

    
    99Restructuring charges
    
    
    1,712
    
    

    
    273
    
    
    
    624
    
    
    
    1,712
    

    
    
    925
    
    

    
    760Other special charges
    
    
    39
    
    

    
    
    
    
    
    
    
    
    
    39
    

    
    
    145
    
    

    
    $
    12,580
    
    

    $
    5,660
    
    
    $
    723
    
    
    $
    12,580
    

    
    $
    20,890
    
    

    $
    859
 19




---



##### Table of Contents



Restructuring Charges
  Restructuring Accruals
 Fiscal 2009 Restructuring Actions
  Workforce ReductionsFiscal Period EndedSuccessor

    

    PredecessorJuly 1,

    

    April 19,
    
    
    October 1,2011

    

    2011
    
    
    2010Reserve at beginning of period
    
    $
    

    

    $
    53
    
    
    $
    1,582Charged to costs and expenses
    
    
    

    

    
    (8
    )
    
    
    26Cash payments
    
    
    

    

    
    (45
    )
    
    
    (1,555
    )Reserve at end of period
    
    $
    

    

    $
    
    
    
    $
    53
  Fiscal 2008 Restructuring Actions
 20




---



##### Table of Contents



Facility and OtherFiscal Period EndedSuccessor
    

    
    PredecessorJuly 1,
    

    
    April 19,
    
    
    October 1,2011
    

    
    2011
    
    
    2010Reserve at beginning of period
    
    $
    44
    

    
    $
    74
    
    
    $
    64Charged to costs and expenses
    
    
    15
    

    
    
    4
    
    
    
    115Cash payments
    
    
    (9
    )

    
    
    (34
    )
    
    
    (105
    )Reserve at end of period
    
    $
    50
    

    
    $
    44
    
    
    $
    74
 Fiscal 2007 Restructuring Actions
  Facility and OtherFiscal Period EndedSuccessor
    

    
    PredecessorJuly 1,
    

    
    April 19,
    
    
    October 1,2011
    

    
    2011
    
    
    2010Reserve at beginning of period
    
    $
    19,617
    

    
    $
    22,845
    
    
    $
    27,233Charged to costs and expenses
    
    
    1,718
    

    
    
    1,282
    
    
    
    2,211Cash payments
    
    
    (683
    )

    
    
    (4,510
    )
    
    
    (6,599
    )Reserve at end of period
    
    $
    20,652
    

    
    $
    19,617
    
    
    $
    22,845
 Fiscal 2006 and 2005 Restructuring Actions
  Facility and OtherFiscal Period EndedSuccessor
    

    
    PredecessorJuly 1,
    

    
    April 19,
    
    
    October 1,2011
    

    
    2011
    
    
    2010Reserve at beginning of period
    
    $
    10,070
    

    
    $
    10,849
    
    
    $
    13,851Charged to costs and expenses
    
    
    1,600
    

    
    
    515
    
    
    
    (936
    )Cash payments
    
    
    (457
    )

    
    
    (1,294
    )
    
    
    (2,066
    )Reserve at end of period
    
    $
    11,213
    

    
    $
    10,070
    
    
    $
    10,849
 21




---



##### Table of Contents



11. Other Expense (Income), net
  Successor
    
    
    Predecessor
    
    
    Successor
    
    
    PredecessorPeriod from
    
    
    Period from
    
    
    
    
    
    
    Period from
    
    
    Period from
    
    
    Nine FiscalApril 20, 2011
    
    
    April 2, 2011
    
    
    Fiscal Quarter
    
    
    April 20, 2011
    
    
    October 2,
    
    
    Monthsthrough
    
    
    through
    
    
    Ended
    
    
    through
    
    
    2010 through
    
    
    EndedJuly 1, 2011
    
    
    April 19, 2011
    
    
    July 2, 2010
    
    
    July 1, 2011
    
    
    April 19, 2011
    
    
    July 2, 2010Investment and interest income
    
    $
    (42
    )
    
    $
    (13
    )
    
    $
    (137
    )
    
    $
    (42
    )
    
    $
    (159
    )
    
    $
    (257
    )Gain on sale of investments
    
    
    (5
    )
    
    
    
    
    
    
    (5,177
    )
    
    
    (5
    )
    
    
    (1,393
    )
    
    
    (12,911
    )Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    7,976
    
    
    
    
    
    
    
    
    
    
    
    18,581Decrease (increase) in the fair value of derivative instruments
    
    
    3,757
    
    
    
    3,690
    
    
    
    6,848
    
    
    
    3,757
    
    
    
    9,469
    
    
    
    (11,353
    )Other
    
    
    102
    
    
    
    101
    
    
    
    (262
    )
    
    
    102
    
    
    
    506
    
    
    
    229Other expense (income), net
    
    $
    3,812
    
    
    $
    3,778
    
    
    $
    9,248
    
    
    $
    3,812
    
    
    $
    8,423
    
    
    $
    (5,711
    )
   12. Related Party Transactions
   13. Geographic Information
  Successor
    
    
    Predecessor
    
    
    Successor
    
    
    PredecessorPeriod from
    
    
    Period from
    
    
    
    
    
    
    Period from
    
    
    Period fromApril 20, 2011
    
    
    April 2, 2011
    
    
    Fiscal Quarter
    
    
    April 20, 2011
    
    
    October 2, 2010
    
    
    Nine Fiscalthrough
    
    
    through
    
    
    Ended
    
    
    through
    
    
    through
    
    
    Months EndedJuly 1, 2011
    
    
    April 19, 2011
    
    
    July 2, 2010
    
    
    July 1, 2011
    
    
    April 19, 2011
    
    
    July 2, 2010United States
    
    $
    696
    
    
    $
    38
    
    
    $
    5,458
    
    
    $
    696
    
    
    $
    5,239
    
    
    $
    11,299Other Americas
    
    
    226
    
    
    
    12
    
    
    
    1,033
    
    
    
    226
    
    
    
    710
    
    
    
    3,418Total Americas
    
    
    922
    
    
    
    50
    
    
    
    6,491
    
    
    
    922
    
    
    
    5,949
    
    
    
    14,717China
    
    
    23,995
    
    
    
    3,056
    
    
    
    37,326
    
    
    
    23,995
    
    
    
    54,236
    
    
    
    108,537Taiwan
    
    
    3,957
    
    
    
    249
    
    
    
    5,404
    
    
    
    3,957
    
    
    
    9,766
    
    
    
    17,997Asia-Pacific
    
    
    7,755
    
    
    
    462
    
    
    
    10,845
    
    
    
    7,755
    
    
    
    22,335
    
    
    
    40,797Total Asia-Pacific
    
    
    35,707
    
    
    
    3,767
    
    
    
    53,575
    
    
    
    35,707
    
    
    
    86,337
    
    
    
    167,331Europe, Middle East and Africa
    
    
    380
    
    
    
    55
    
    
    
    664
    
    
    
    380
    
    
    
    825
    
    
    
    2,363$
    37,009
    
    
    $
    3,872
    
    
    $
    60,730
    
    
    $
    37,009
    
    
    $
    93,111
    
    
    $
    184,411
 22




---



##### Table of Contents



Successor
    
    
    PredecessorJuly 1,
    
    
    October 1,2011
    
    
    2010United States
    
    $
    23,067
    
    
    $
    24,389India
    
    
    1,611
    
    
    
    1,022China
    
    
    2,232
    
    
    
    546Asia-Pacific
    
    
    1,043
    
    
    
    1,092Europe, Middle East and Africa
    
    
    
    
    
    
    1$
    27,953
    
    
    $
    27,050
  14. Subsequent Events
  23




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Overview
   Merger with Conexant Holdings, Inc.
   Termination of Merger Agreement with Standard Microsystems Corporation
  Sale of Real Property
  24




---



##### Table of Contents



PredecessorLand
    
    $
    1,662Land and leasehold improvements, net
    
    
    356Buildings, net
    
    
    5,610Machinery and equipment, net
    
    
    262Site development costs
    
    
    7,583$
    15,473
   Critical Accounting Policies
  Results of Operations
 Net Revenues
     Gross Margin
  25




---



##### Table of Contents



Research and Development
    Selling, General and Administrative
    Amortization of Intangible Assets
  Sale of Intellectual Property
  26




---



##### Table of Contents



Special Charges
   Interest Expense
   Other Expense (Income), net
   Provision for Income Taxes
  27




---



##### Table of Contents



Liquidity and Capital Resources
    Successor
    
    
    PredecessorPeriod from
    
    
    Period from
    
    
    Nine FiscalApril 20,
    
    
    October 2,
    
    
    Months2011 through
    
    
    2010 through
    
    
    EndedJuly 1, 2011
    
    
    April 19, 2011
    
    
    July 2, 2010Net cash (used in) provided by operating activities
    
    $
    (3,348
    )
    
    $
    (31,237
    )
    
    $
    6,280Net cash (used in) provided by investing activities
    
    
    (204,460
    )
    
    
    42,994
    
    
    
    1,080Net cash provided by (used in) financing activities
    
    
    197,422
    
    
    
    (5,429
    )
    
    
    (86,947
    )Net (decrease) increase in cash and cash equivalents
    
    $
    (10,386
    )
    
    $
    6,328
    
    
    $
    (79,587
    )
 Operating Activities
  28




---



##### Table of Contents



Investing Activities
  Financing Activities
  Recent Financing Transactions
      Contractual Obligations and Commitments
  Off-Balance Sheet Arrangements
  29




---



##### Table of Contents



Special Purpose Entities
  Recently Issued Accounting Pronouncements
    
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
    30




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Carrying Value
    
    
    Fair ValueCash and cash equivalents
    
    $
    50,408
    
    
    $
    50,408Mindspeed warrant
    
    
    7,459
    
    
    
    7,459Long-term restricted cash
    
    
    5,069
    
    
    
    5,069Long-term debt: senior secured notes
    
    
    194,249
    
    
    
    198,188
 Exchange Rate Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
  31




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  Litigation Relating to the Previously Contemplated Merger with SMSC
 In re
Conexant Systems, Inc. Shareholders Litigation
 
 ITEM 1A. RISK FACTORS
  Natural disasters in certain regions could adversely affect our supply chain or our customer base
which, in turn, could have a negative impact on our business, the cost of and demand for our
products and our results of operations.
  
 ITEM 6. EXHIBITS
 Exhibit No.
    
    Description31.1
    
    Certification of the Principal Executive Officer of Periodic Report Pursuant to Rule 13a-14(a) or 15d-14(a).31.2
    
    Certification of the Principal
Financial Officer of Periodic Report Pursuant to Rule 13a-14(a) or 15d-14(a).32
    
    Certification by Principal
Executive Officer and Principal Financial Officer of Periodic Report Pursuant to 18 U.S.C. Section 1350.
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##### Table of Contents



SIGNATURE
  CONEXANT SYSTEMS, INC.Date: August 15, 2011
    By
    /s/ DAVID C. WALKERDavid C. WalkerVice President of Finance and Chief
Accounting Officer 33




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##### Table of Contents



EXHIBIT
INDEX
 Exhibit No.
    
    Description31.1
    
    Certification of the Principal Executive Officer of Periodic Report Pursuant to Rule 13a-14(a) or 15d-14(a).31.2
    
    Certification of the Principal
Financial Officer of Periodic Report Pursuant to Rule 13a-14(a) or 15d-14(a).32
    
    Certification by Principal
Executive Officer and Principal Financial Officer of Periodic Report Pursuant to 18 U.S.C. Section 1350.
 34