##### 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 January 2, 2009
 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
  þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    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 beliefs, subject to the qualifications expressed, regarding the sufficiency of our
existing sources of liquidity and cash to fund our operations, research and development,
anticipated capital expenditures and our working capital needs for at least the next 12
months and that we will be able to repatriate cash from our foreign operations on a timely
and cost effective basis and that we will be able to sustain the recoverability of our
goodwill, intangible and tangible long-term assets.
    
    expectations that we will have sufficient capital needed to remain in business and repay
our indebtedness as it becomes due;
    
    expectation that we will be able to continue to meet NASDAQ listing requirements;
    
    expectations regarding the market share of our products, growth in the markets we serve
and our market opportunities;
    
    expectations regarding price and product competition;
    
    continued demand and future growth in demand for our products in the communications, PC
and consumer markets we serve;
    
    our plans and expectations regarding the transition of our semiconductor products to
smaller line width geometries;
    
    our product development plans;
    
    our expectation that our largest customers will continue to account for a substantial
portion of our revenue;
    
    expectations regarding our contractual obligations and commitments;
    
    expectation that we will be able to protect our products and services with proprietary
technology and intellectual property protection;
    
    expectation that we will be able to meet our lease obligations (and other financial
commitments); and
    
    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.
  1




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##### 



CONEXANT SYSTEMS, INC.
 INDEX
 PAGEPART I. FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial Statements (unaudited):Condensed Consolidated Balance Sheets  January 2, 2009 and October 3, 2008
    
    
    3Condensed Consolidated Statements of Operations  Fiscal Quarter Ended January 2,
2009 and December 28, 2007
    
    
    4Condensed Consolidated Statements of Cash Flows  Fiscal Quarter Ended January 2,
2009 and December 28, 2007
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    30Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    40Item 4. Controls and Procedures
    
    
    41PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    41Item 1A. Risk Factors
    
    
    42Item 6. Exhibits
    
    
    55SIGNATURE
    
    
    56EX-31.1EX-31.2EX-32
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PART I. FINANCIAL INFORMATION
 
 ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Balance Sheets
 (unaudited, in thousands, except par value)
 January 2,
    
    
    October 3,2009
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    110,327
    
    
    $
    105,883Restricted cash
    
    
    20,500
    
    
    
    26,800Receivables, net of allowances of $868 and $834
    
    
    40,514
    
    
    
    48,997Inventories, net
    
    
    26,014
    
    
    
    36,439Other current assets
    
    
    40,885
    
    
    
    38,537Total current assets
    
    
    238,240
    
    
    
    256,656Property, plant and equipment, net
    
    
    21,332
    
    
    
    24,912Goodwill
    
    
    111,360
    
    
    
    110,412Intangible assets, net
    
    
    9,910
    
    
    
    14,971Other assets
    
    
    39,010
    
    
    
    39,452Total assets
    
    $
    419,852
    
    
    $
    446,403LIABILITIES AND SHAREHOLDERS DEFICITCurrent liabilities:Current portion of long-term debt
    
    $
    
    
    
    $
    17,707Short-term debt
    
    
    32,868
    
    
    
    40,117Accounts payable
    
    
    22,783
    
    
    
    34,894Accrued compensation and benefits
    
    
    11,952
    
    
    
    14,989Other current liabilities
    
    
    41,829
    
    
    
    44,385Total current liabilities
    
    
    109,432
    
    
    
    152,092Long-term debt
    
    
    391,400
    
    
    
    373,693Other liabilities
    
    
    71,985
    
    
    
    57,352Total liabilities
    
    
    572,817
    
    
    
    583,137Commitments and contingencies (Note 6)Shareholders deficit:Preferred and junior preferred stock
    
    
    
    
    
    
    Common stock, $0.01 par value: 100,000 shares
authorized; 49,665 and 49,601 shares issued
and outstanding
    
    
    497
    
    
    
    496Additional paid-in capital
    
    
    4,746,395
    
    
    
    4,744,140Accumulated deficit
    
    
    (4,896,894
    )
    
    
    (4,879,208
    )Accumulated other comprehensive loss
    
    
    (2,884
    )
    
    
    (2,083
    )Shareholder notes receivable
    
    
    (79
    )
    
    
    (79
    )Total shareholders deficit
    
    
    (152,965
    )
    
    
    (136,734
    )Total liabilities and shareholders deficit
    
    $
    419,852
    
    
    $
    446,403
  3




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Operations
 (unaudited, in thousands, except per share amounts)
 Fiscal Quarter EndedJanuary 2,
    
    
    December 28,2009
    
    
    2007Net revenues
    
    $
    86,498
    
    
    $
    145,933Cost of goods sold (1)
    
    
    40,348
    
    
    
    63,812Gross margin
    
    
    46,150
    
    
    
    82,121Operating expenses:Research and development (1)
    
    
    26,313
    
    
    
    37,823Selling, general and administrative (1)
    
    
    19,483
    
    
    
    20,014Amortization of intangible assets
    
    
    3,371
    
    
    
    4,571Gain on sale of intellectual property
    
    
    (12,858
    )
    
    
    Special charges
    
    
    10,209
    
    
    
    4,349Total operating expenses
    
    
    46,518
    
    
    
    66,757Operating (loss) income
    
    
    (368
    )
    
    
    15,364Interest expense
    
    
    6,054
    
    
    
    9,449Other expense, net
    
    
    2,295
    
    
    
    5,345(Loss) income from continuing operations before income taxes and (loss) gain
on equity method investments
    
    
    (8,717
    )
    
    
    570Provision for income taxes
    
    
    912
    
    
    
    862Loss from continuing operations before (loss) gain on equity method investments
    
    
    (9,629
    )
    
    
    (292
    )(Loss) gain on equity method investments
    
    
    (846
    )
    
    
    3,773(Loss) income from continuing operations
    
    
    (10,475
    )
    
    
    3,481Loss from discontinued operations, net of tax (1)
    
    
    (7,214
    )
    
    
    (12,699
    )Net loss
    
    $
    (17,689
    )
    
    $
    (9,218
    )(Loss) income per share from continuing operations  basic and diluted
    
    $
    (0.21
    )
    
    $
    0.07Loss per share from discontinued operations  basic and diluted
    
    $
    (0.15
    )
    
    $
    (0.26
    )Net loss per share  basic and diluted
    
    $
    (0.36
    )
    
    $
    (0.19
    )Shares used in computing basic per-share computations
    
    
    49,657
    
    
    
    49,236Shares used in computing diluted per-share computations
    
    
    49,657
    
    
    
    49,399
 
 (1)
    
    These captions include non-cash employee stock-based compensation expense as follows
(see Note 7): Fiscal quarter EndedJanuary 2,
    
    December 28,2009
    
    2007Cost of goods sold
    
    $
    43
    
    
    $
    114Research and development
    
    
    511
    
    
    
    1,612Selling, general and administrative
    
    
    1,819
    
    
    
    958Loss from discontinued operations, net of tax
    
    
    
    
    
    
    600
  4




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Cash Flows
 (unaudited, in thousands)
 Fiscal Quarter EndedJanuary 2,
    
    
    December 28,2009
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (17,689
    )
    
    $
    (9,218
    )Adjustments to reconcile net loss to net cash (used in) provided by
operating activities, net of effects of acquisitions:Depreciation
    
    
    2,649
    
    
    
    5,709Amortization of intangible assets
    
    
    3,371
    
    
    
    4,781Asset impairments
    
    
    
    
    
    
    130Reversal of provision for bad debts, net
    
    
    
    
    
    
    (95
    )Charges for inventory provisions, net
    
    
    340
    
    
    
    2,598Deferred income taxes
    
    
    (171
    )
    
    
    5,593Stock-based compensation
    
    
    2,373
    
    
    
    3,284Decrease in fair value of derivative instruments
    
    
    988
    
    
    
    8,160Losses (gains) of equity method investments
    
    
    846
    
    
    
    (542
    )Other-than-temporary impairment of marketable securities
    
    
    2,635
    
    
    
    Gain on sale of intellectual property
    
    
    (12,858
    )
    
    
    Other items, net
    
    
    600
    
    
    
    32Changes in assets and liabilities:Receivables
    
    
    8,483
    
    
    
    9,274Inventories
    
    
    10,983
    
    
    
    (323
    )Accounts payable
    
    
    (12,111
    )
    
    
    (5,054
    )Accrued expenses and other current liabilities
    
    
    (4,458
    )
    
    
    (21,765
    )Accrued restructuring expenses
    
    
    11,146
    
    
    
    2,795Other, net
    
    
    (2,590
    )
    
    
    3,387Net cash (used in) provided by operating activities
    
    
    (5,463
    )
    
    
    8,746Cash flows from investing activities:Purchases of property, plant and equipment
    
    
    (181
    )
    
    
    (1,614
    )Payments for acquisitions
    
    
    (1,953
    )
    
    
    Purchases of equity securities
    
    
    
    
    
    
    (755
    )Release of restricted cash
    
    
    6,300
    
    
    
    Proceeds from sale of intellectual property, net of expenses of $132
    
    
    14,548
    
    
    
    Net cash provided by (used in) investing activities
    
    
    18,714
    
    
    
    (2,369
    )Cash flows from financing activities:Repayments
of short-term debt, including debt costs of $651 and $818
    
    
    (7,900
    )
    
    
    (9,845
    )Proceeds from issuance of common stock
    
    
    
    
    
    
    4Interest rate swap security deposit
    
    
    (907
    )
    
    
    Net cash used in financing activities
    
    
    (8,807
    )
    
    
    (9,841
    )Net increase (decrease) in cash and cash equivalents
    
    
    4,444
    
    
    
    (3,464
    )Cash and cash equivalents at beginning of period
    
    
    105,883
    
    
    
    235,605Cash and cash equivalents at end of period
    
    $
    110,327
    
    
    $
    232,141
  5




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CONEXANT SYSTEMS, INC. AND SUBSIDIARIES
 
 Notes to Condensed Consolidated Financial Statements
 (unaudited)
 1. Description of Business
  2. Basis of Presentation and Significant Accounting Policies
 Interim Reporting
  Fiscal Periods
 Revenue Recognition
  6




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Liquidity
   Restricted Cash 
 
  Income
Taxes
 7




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Review of Accounting for Research and Development Costs
 Derivative Financial Instruments 
 Interest Rate Swaps 
 8




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##### Table of Contents



Supplemental Cash Flow Information
 Net Loss Per Share 
  Fiscal Quarter EndedJanuary 2,
    
    December 28,2009
    
    2007Stock options and warrants
    
    
    6,872
    
    
    
    9,4724.00% convertible subordinated notes due March 2026
    
    
    5,081
    
    
    
    5,08111,953
    
    
    
    14,553
 Fiscal Quarter EndedJanuary 2,
    
    December 28,2009
    
    2007Weighted average shares for basic net loss per share
    
    
    49,657
    
    
    
    49,236Employee stock options and restricted stock units
    
    
    
    
    
    
    163Weighted
average shares for diluted (loss) income per share
    
    
    49,657
    
    
    
    49,399
 Reclassifications
 9




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##### Table of Contents



Fiscal QuarterEndedDecember 28, 2007Accrued expenses and other current liabilities, before reclassification
    
    $
    (18,970
    )Accrued restructuring expenses
    
    
    (2,795
    )Accrued expenses and other current liabilities, after reclassification
    
    $
    (21,765
    )Other, net, before reclassification
    
    $
    2,569Expenses related to short-term debt
    
    
    818Other, net, after reclassification
    
    $
    3,387Repayments of short-term debt, net of expenses, before reclassification
    
    $
    (9,027
    )Expenses related to short-term debt
    
    
    (818
    )Repayments of short-term debt, net of expenses, after reclassification
    
    $
    (9,845
    )
 Business Enterprise Segments 
  
    
    the nature of their products and services;
    
    the nature of their production processes;
    
    the type or class of customer for their products and services; and
    
    the methods used to distribute their products or provide their services.
  
    
    the sale of semiconductor products is the only material source of revenue for each of the
Companys two operating segments;
    
    the products sold by each of the Companys operating segments use the same standard
manufacturing process;
    
    the products marketed by each of the Companys operating segments are sold to similar
customers; and
    
    all of the Companys products are sold through its internal sales force and common
distributors.
  Goodwill
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Recently Adopted Accounting Pronouncements
 (SFAS)
No. 157, Fair Value Measurements
 
 
    
    Level 1: Quoted prices in active markets for identical assets or liabilities.
    
    Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs that
are observable or can be corroborated by observable market data for substantially the full
term of the related assets or liabilities.
    
    Level 3: Unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities.
 11




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Recently Issued Accounting Pronouncements
 SFAS No 141.
 
 
  12




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3. Sale of Assets and Discontinued Operations
  Accounting for the Impairment or Disposal of Long-Lived Assets Allocation of Interest to
Discontinued Operations
  13




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4. Fair Value of Certain Financial Assets and Liabilities
  Level 1
    
    

Level 2
    
    
    TotalAssets:Cash and
cash equivalents
    
    
    
    
    
    $
    110,327
    
    
    $
    
    
    
    $
    110,327Restricted cash
    
    
    
    
    
    
    20,500
    
    
    
    
    
    
    
    20,500Marketable
securities
    
    
    
    
    
    
    403
    
    
    
    
    
    
    
    403Mindspeed
warrant
    
    
    
    
    
    
    
    
    
    
    63
    
    
    
    63Total
Assets
    
    
    
    
    
    $
    131,230
    
    
    $
    63
    
    
    $
    131,293Liabilities:Interest rate swap financial instruments
    
    
    
    
    
    $
    
    
    
    $
    2,135
    
    
    $
    2,135Total
Liabilities
    
    
    
    
    
    $
    
    
    
    $
    2,135
    
    
    $
    2,135
   5. Supplemental Financial Information
 Inventories
  January 2,
    
    
    October 3,2009
    
    
    2008Work-in-process
    
    $
    13,656
    
    
    $
    16,082Finished goods
    
    
    12,358
    
    
    
    20,357$
    26,014
    
    
    $
    36,439
  14




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Intangible Assets
  January 2, 2009
    
    
    October 3, 2008Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Book
    
    
    Carrying
    
    
    Accumulated
    
    
    BookAmount
    
    
    Amortization
    
    
    Value
    
    
    Amount
    
    
    Amortization
    
    
    ValueDeveloped technology
    
    $
    53,928
    
    
    $
    (50,898
    )
    
    $
    3,030
    
    
    $
    67,724
    
    
    $
    (62,285
    )
    
    $
    5,439Product licenses
    
    
    3,510
    
    
    
    (1,357
    )
    
    
    2,153
    
    
    
    11,032
    
    
    
    (7,105
    )
    
    
    3,927Other intangible assets
    
    
    7,240
    
    
    
    (2,513
    )
    
    
    4,727
    
    
    
    8,240
    
    
    
    (2,635
    )
    
    
    5,605$
    64,678
    
    
    $
    (54,768
    )
    
    $
    9,910
    
    
    $
    86,996
    
    
    $
    (72,025
    )
    
    $
    14,971
  Remainder of 2009
    
    2010
    
    2011
    
    2012
    
    2013
    
    ThereafterAmortization expense
    
    $
    4,035
    
    
    $
    1,353
    
    
    $
    1,237
    
    
    $
    1,237
    
    
    $
    1,031
    
    
    $
    1,017
  Goodwill
    Goodwill at October 3, 2008
    
    $
    110,412Additions
    
    
    1,000Other adjustments
    
    
    (52
    )Goodwill at January 2, 2009
    
    $
    111,360
  Mindspeed Warrant
 
 15




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Short-Term Debt
    Long-Term Debt
  January 2,
    
    
    October 3,2009
    
    
    2008Floating rate senior secured notes due November 2010
    
    $
    141,400
    
    
    $
    141,4004.00% convertible subordinated notes due March 2026
with a conversion price of $49.20
    
    
    250,000
    
    
    
    250,000Total
    
    
    391,400
    
    
    
    391,400Less: current portion of long-term debt
    
    
    
    
    
    
    (17,707
    )Long-term debt
    
    $
    391,400
    
    
    $
    373,693
 Floating rate senior secured notes due November 2010 
 16




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4.00% convertible subordinated notes due March 2026 
 17




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6. Commitments and Contingencies
 Legal Matters
  IPO Litigation
 Class Action Suit
 18




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Guarantees and Indemnifications
   7. Stock Option Plans
    Fiscal Quarter EndedJanuary 2,
    
    December 28,2009
    
    2007Stock option plans:Expected dividend yield
    
    $
    
    
    
    $
    Expected stock price volatility
    
    
    75
    %
    
    
    66
    %Risk free interest rate
    
    
    2.5
    %
    
    
    4.0
    %Average expected life (in years)
    
    
    5.25
    
    
    
    4.88
 19




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##### Table of Contents



WeightedAverageShares
    
    Exercise PriceOutstanding, October 3, 2008
    
    
    7,357
    
    
    $
    23.54Granted
    
    
    20
    
    
    
    1.97Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (978
    )
    
    
    22.74Outstanding, January 2, 2009
    
    
    6,399
    
    
    
    23.60Shares vested and expected to vest, January 2, 2009
    
    
    6,239
    
    
    
    23.80Exercisable, January 2, 2009
    
    
    5,447
    
    
    
    24.95
  Directors Stock Plan
  Employee Stock Purchase Plan
   20




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2001 Performance Share Plan and 2004 New Hire Equity Incentive Plan
  Performance Plan
  WeightedAverage GrantShares
    
    Date Fair ValueOutstanding, October 3, 2008
    
    
    400
    
    
    $
    6.49Granted
    
    
    
    
    
    
    Vested
    
    
    (100
    )
    
    
    5.30Forfeited
    
    
    
    
    
    
    Outstanding, January 2, 2009
    
    
    300
    
    
    $
    6.88
  2004 New Hire Plan
  WeightedAverage GrantShares
    
    
    Date Fair ValueOutstanding, October 3, 2008
    
    
    74
    
    
    $
    10.59Granted
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    Forfeited
    
    
    (25
    )
    
    
    13.70Outstanding, January 2, 2009
    
    
    49
    
    
    $
    9.01
  21




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8. Comprehensive Loss
  Fiscal Quarter EndedJanuary 2,
    
    
    December 28,2009
    
    
    2007Net loss
    
    $
    (17,689
    )
    
    $
    (9,218
    )Other comprehensive (loss) income:Foreign currency translation adjustments
    
    
    (1,095
    )
    
    
    299Unrealized losses on marketable securities
    
    
    (14
    )
    
    
    Unrealized losses on foreign currency forward hedge contracts
    
    
    (153
    )
    
    
    (377
    )Unrealized losses on interest rate swap contracts
    
    
    (2,184
    )
    
    
    Other-than-temporary impairment of marketable securities
    
    
    1,986
    
    
    
    Gains on settlement of foreign currency forward hedge contracts
    
    
    659
    
    
    
    Minimum pension liability adjustments
    
    
    
    
    
    
    (1,110
    )Other comprehensive loss
    
    
    (801
    )
    
    
    (1,189
    )Comprehensive loss
    
    $
    (18,490
    )
    
    $
    (10,407
    )
  January 2,
    
    
    October 3,2009
    
    
    2008Foreign currency translation adjustments
    
    $
    (787
    )
    
    $
    308Unrealized gains (losses) on marketable securities
    
    
    38
    
    
    
    (1,934
    )Unrealized losses on derivative instruments
    
    
    (2,135
    )
    
    
    (457
    )Accumulated other comprehensive loss
    
    $
    (2,884
    )
    
    $
    (2,083
    )
 9. Income Taxes
  10. Gain on Sale of Intellectual Property
  11. Special Charges
  22




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Restructuring Charges
   Fiscal 2008 Restructuring Actions
  Workforce
    
    
    FacilityReductions
    
    
    and Other
    
    
    TotalCharged to costs and expenses
    
    $
    6,254
    
    
    $
    1,762
    
    
    $
    8,016Cash payments
    
    
    (6,161
    )
    
    
    (731
    )
    
    
    (6,892
    )Restructuring balance, October 3, 2008
    
    
    93
    
    
    
    1,031
    
    
    
    1,124Charged to costs and expenses
    
    
    600
    
    
    
    196
    
    
    
    796Reclassification to other current liabilities and other liabilities
    
    
    
    
    
    
    (175
    )
    
    
    (175
    )Cash payments
    
    
    (561
    )
    
    
    (118
    )
    
    
    (679
    )Restructuring balance, January 2, 2009
    
    $
    132
    
    
    $
    934
    
    
    $
    1,066
 Fiscal 2007 Restructuring Actions
 23




---



##### Table of Contents



Workforce
    
    
    FacilityReductions
    
    
    and Other
    
    
    TotalCharged to costs and expenses
    
    $
    9,477
    
    
    $
    2,040
    
    
    $
    11,517Non-cash items
    
    
    
    
    
    
    4,868
    
    
    
    4,868Cash payments
    
    
    (5,841
    )
    
    
    (268
    )
    
    
    (6,109
    )Restructuring balance, September 28, 2007
    
    
    3,636
    
    
    
    6,640
    
    
    
    10,276Charged to costs and expenses
    
    
    11
    
    
    
    6,312
    
    
    
    6,323Non-cash items
    
    
    
    
    
    
    8,039
    
    
    
    8,039Cash payments
    
    
    (3,631
    )
    
    
    (4,309
    )
    
    
    (7,940
    )Restructuring balance, October 3, 2008
    
    
    16
    
    
    
    16,682
    
    
    
    16,698Charged to costs and expenses
    
    
    (1
    )
    
    
    9,125
    
    
    
    9,124Cash payments
    
    
    (15
    )
    
    
    (1,206
    )
    
    
    (1,221
    )Restructuring balance, January 2, 2009
    
    $
    
    
    
    $
    24,601
    
    
    $
    24,601
 Fiscal 2006 and 2005 Restructuring Actions
  Workforce
    
    
    FacilityReductions
    
    
    and Other
    
    
    TotalRestructuring balance, October 1, 2005
    
    $
    3,609
    
    
    $
    25,220
    
    
    $
    28,829Charged to costs and expenses
    
    
    1,852
    
    
    
    1,407
    
    
    
    3,259Reclassification from accrued compensation and benefits and other
    
    
    1,844
    
    
    
    55
    
    
    
    1,899Cash payments
    
    
    (5,893
    )
    
    
    (8,031
    )
    
    
    (13,924
    )Restructuring balance, September 29, 2006
    
    
    1,412
    
    
    
    18,651
    
    
    
    20,063Reclassification to other current liabilities and other liabilities
    
    
    
    
    
    
    (2,687
    )
    
    
    (2,687
    )Charged to costs and expenses
    
    
    55
    
    
    
    559
    
    
    
    614Cash payments
    
    
    (1,336
    )
    
    
    (4,007
    )
    
    
    (5,343
    )Restructuring balance, September 28, 2007
    
    
    131
    
    
    
    12,516
    
    
    
    12,647Reclassification from other current liabilities and other liabilities
    
    
    
    
    
    
    3,359
    
    
    
    3,359Charged to costs and expenses
    
    
    (130
    )
    
    
    285
    
    
    
    155Cash payments
    
    
    (1
    )
    
    
    (5,123
    )
    
    
    (5,124
    )Restructuring balance, October 3, 2008
    
    
    
    
    
    
    11,037
    
    
    
    11,037Charged to costs and expenses
    
    
    
    
    
    
    3,738
    
    
    
    3,738Cash payments
    
    
    
    
    
    
    (431
    )
    
    
    (431
    )Restructuring balance, January 2, 2009
    
    $
    
    
    
    $
    14,344
    
    
    $
    14,344
 Litigation
  24




---



##### Table of Contents



12. Other expense, net
  Fiscal Quarter EndedJanuary 2,
    
    
    December 28,2009
    
    
    2007Investment and interest income
    
    $
    (857
    )
    
    $
    (2,771
    )Other-than-temporary impairment of marketable securities
    
    
    2,635
    
    
    
    Decrease in the fair value of derivative instruments
    
    
    482
    
    
    
    8,364Other
    
    
    35
    
    
    
    (248
    )Other expense, net
    
    $
    2,295
    
    
    $
    5,345
   13. Related Party Transactions
 Mindspeed Technologies, Inc.
  Lease Agreement
 25




---



##### Table of Contents



14. Geographic Information
  Fiscal Quarter EndedJanuary 2,
    
    
    December 28,2009
    
    
    2007United States
    
    $
    4,830
    
    
    $
    6,363Other Americas
    
    
    1,645
    
    
    
    3,372Total Americas
    
    
    6,475
    
    
    
    9,735China
    
    
    54,495
    
    
    
    87,488Taiwan
    
    
    6,931
    
    
    
    8,306Japan
    
    
    3,834
    
    
    
    7,078Malaysia
    
    
    3,465
    
    
    
    3,832Thailand
    
    
    2,973
    
    
    
    4,148Singapore
    
    
    2,625
    
    
    
    13,891South Korea
    
    
    1,347
    
    
    
    3,973Other Asia-Pacific
    
    
    792
    
    
    
    189Total Asia-Pacific
    
    
    76,462
    
    
    
    128,905Europe, Middle East and Africa
    
    
    3,561
    
    
    
    7,293$
    86,498
    
    
    $
    145,933
   January 2,
    
    
    October 3,2009
    
    
    2008United States
    
    $
    50,735
    
    
    $
    52,515India
    
    
    3,747
    
    
    
    4,499Other Asia-Pacific
    
    
    5,683
    
    
    
    6,766Europe, Middle East and Africa
    
    
    30
    
    
    
    34$
    60,195
    
    
    $
    63,814
 15. Supplemental Guarantor Financial Information
    26




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##### Table of Contents



January 2, 2009Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCurrent assets:Cash and cash equivalents
    
    $
    77,877
    
    
    $
    
    
    
    $
    32,450
    
    
    $
    
    
    
    $
    110,327Restricted cash
    
    
    12,000
    
    
    
    
    
    
    
    8,500
    
    
    
    
    
    
    
    20,500Receivables, net
    
    
    
    
    
    
    169,158
    
    
    
    43,948
    
    
    
    (172,592
    )
    
    
    40,514Inventories
    
    
    26,014
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,014Other current assets
    
    
    35,032
    
    
    
    3
    
    
    
    5,850
    
    
    
    
    
    
    
    40,885Total current assets
    
    
    150,923
    
    
    
    169,161
    
    
    
    90,748
    
    
    
    (172,592
    )
    
    
    238,240Property and equipment, net
    
    
    12,512
    
    
    
    
    
    
    
    8,820
    
    
    
    
    
    
    
    21,332Goodwill
    
    
    18,911
    
    
    
    89,352
    
    
    
    3,097
    
    
    
    
    
    
    
    111,360Intangible assets, net
    
    
    7,341
    
    
    
    2,150
    
    
    
    419
    
    
    
    
    
    
    
    9,910Other assets
    
    
    36,517
    
    
    
    
    
    
    
    2,493
    
    
    
    
    
    
    
    39,010Investments in subsidiaries
    
    
    286,981
    
    
    
    19,728
    
    
    
    
    
    
    
    (306,709
    )
    
    
    Total assets
    
    $
    513,185
    
    
    $
    280,391
    
    
    $
    105,577
    
    
    $
    (479,301
    )
    
    $
    419,852Current liabilities:Current portion of long-term debt
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Short-term debt
    
    
    
    
    
    
    
    
    
    
    32,868
    
    
    
    
    
    
    
    32,868Accounts payable
    
    
    157,460
    
    
    
    
    
    
    
    37,915
    
    
    
    (172,592
    )
    
    
    22,783Accrued compensation and benefits
    
    
    8,629
    
    
    
    
    
    
    
    3,323
    
    
    
    
    
    
    
    11,952Other current liabilities
    
    
    38,326
    
    
    
    933
    
    
    
    2,570
    
    
    
    
    
    
    
    41,829Total current liabilities
    
    
    204,415
    
    
    
    933
    
    
    
    76,676
    
    
    
    (172,592
    )
    
    
    109,432Long-term debt
    
    
    391,400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    391,400Other liabilities
    
    
    70,335
    
    
    
    
    
    
    
    1,650
    
    
    
    
    
    
    
    71,985Total liabilities
    
    
    666,150
    
    
    
    933
    
    
    
    78,326
    
    
    
    (172,592
    )
    
    
    572,817Shareholders (deficit) equity
    
    
    (152,965
    )
    
    
    279,458
    
    
    
    27,251
    
    
    
    (306,709
    )
    
    
    (152,965
    )Total liabilities and equity (deficit)
    
    $
    513,185
    
    
    $
    280,391
    
    
    $
    105,577
    
    
    $
    (479,301
    )
    
    $
    419,852
 27




---



##### Table of Contents



October 3, 2008Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCurrent assets:Cash and cash equivalents
    
    $
    69,738
    
    
    $
    
    
    
    $
    36,145
    
    
    $
    
    
    
    $
    105,883Restricted cash
    
    
    18,000
    
    
    
    
    
    
    
    8,800
    
    
    
    
    
    
    
    26,800Receivables
    
    
    
    
    
    
    169,158
    
    
    
    57,584
    
    
    
    (177,745
    )
    
    
    48,997Inventories
    
    
    36,439
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,439Other current assets
    
    
    33,543
    
    
    
    3
    
    
    
    4,991
    
    
    
    
    
    
    
    38,537Total current assets
    
    
    157,720
    
    
    
    169,161
    
    
    
    107,520
    
    
    
    (177,745
    )
    
    
    256,656Property and equipment, net
    
    
    14,366
    
    
    
    
    
    
    
    10,546
    
    
    
    
    
    
    
    24,912Goodwill
    
    
    17,911
    
    
    
    89,404
    
    
    
    3,097
    
    
    
    
    
    
    
    110,412Intangible assets, net
    
    
    8,527
    
    
    
    5,992
    
    
    
    452
    
    
    
    
    
    
    
    14,971Other assets
    
    
    36,955
    
    
    
    
    
    
    
    2,497
    
    
    
    
    
    
    
    39,452Investments in subsidiaries
    
    
    291,511
    
    
    
    19,188
    
    
    
    
    
    
    
    (310,699
    )
    
    
    Total assets
    
    $
    526,990
    
    
    $
    283,745
    
    
    $
    124,112
    
    
    $
    (488,444
    )
    
    $
    446,403Current liabilities:Current portion of long-term debt
    
    $
    17,707
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    17,707Short-term debt
    
    
    
    
    
    
    
    
    
    
    40,117
    
    
    
    
    
    
    
    40,117Accounts payable
    
    
    164,057
    
    
    
    
    
    
    
    48,582
    
    
    
    (177,745
    )
    
    
    34,894Accrued compensation and benefits
    
    
    12,078
    
    
    
    
    
    
    
    2,911
    
    
    
    
    
    
    
    14,989Other current liabilities
    
    
    40,479
    
    
    
    932
    
    
    
    2,974
    
    
    
    
    
    
    
    44,385Total current liabilities
    
    
    234,321
    
    
    
    932
    
    
    
    94,584
    
    
    
    (177,745
    )
    
    
    152,092Long-term debt
    
    
    373,693
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    373,693Other liabilities
    
    
    55,710
    
    
    
    
    
    
    
    1,642
    
    
    
    
    
    
    
    57,352Total liabilities
    
    
    663,724
    
    
    
    932
    
    
    
    96,226
    
    
    
    (177,745
    )
    
    
    583,137Shareholders (deficit) equity
    
    
    (136,734
    )
    
    
    282,813
    
    
    
    27,886
    
    
    
    (310,699
    )
    
    
    (136,734
    )Total liabilities and equity (deficit)
    
    $
    526,990
    
    
    $
    283,745
    
    
    $
    124,112
    
    
    $
    (488,444
    )
    
    $
    446,403
  Fiscal Quarter Ended January 2, 2009Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet revenues
    
    $
    82,710
    
    
    $
    5,894
    
    
    $
    3,788
    
    
    $
    (5,894
    )
    
    $
    86,498Cost of goods sold
    
    
    36,760
    
    
    
    
    
    
    
    3,588
    
    
    
    
    
    
    
    40,348Gross margin
    
    
    45,950
    
    
    
    5,894
    
    
    
    200
    
    
    
    (5,894
    )
    
    
    46,150Operating expenses:Research and development
    
    
    26,313
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,313Selling, general and administrative
    
    
    18,303
    
    
    
    
    
    
    
    1,180
    
    
    
    
    
    
    
    19,483Amortization of intangible assets
    
    
    1,185
    
    
    
    2,152
    
    
    
    34
    
    
    
    
    
    
    
    3,371Gain on sale of intellectual property
    
    
    (12,858
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,858
    )Special charges
    
    
    10,157
    
    
    
    
    
    
    
    52
    
    
    
    
    
    
    
    10,209Total operating expenses
    
    
    43,100
    
    
    
    2,152
    
    
    
    1,266
    
    
    
    
    
    
    
    46,518Operating income (loss)
    
    
    2,850
    
    
    
    3,742
    
    
    
    (1,066
    )
    
    
    (5,894
    )
    
    
    (368
    )(Loss) equity in income of subsidiaries
    
    
    (1,896
    )
    
    
    539
    
    
    
    
    
    
    
    1,357
    
    
    
    Interest expense
    
    
    5,474
    
    
    
    
    
    
    
    580
    
    
    
    
    
    
    
    6,054Other expense (income), net
    
    
    4,368
    
    
    
    
    
    
    
    (2,073
    )
    
    
    
    
    
    
    2,295Income (loss) before income taxes and gain
(loss) on equity method investments
    
    
    (8,888
    )
    
    
    4,281
    
    
    
    427
    
    
    
    (4,537
    )
    
    
    (8,717
    )Provision for income taxes
    
    
    667
    
    
    
    
    
    
    
    245
    
    
    
    
    
    
    
    912(Loss) income before loss on equity method
investments
    
    
    (9,555
    )
    
    
    4,281
    
    
    
    182
    
    
    
    (4,537
    )
    
    
    (9,629
    )Loss on equity method investments
    
    
    (846
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (846
    )Net (loss) income from continuing operations
    
    
    (10,401
    )
    
    
    4,281
    
    
    
    182
    
    
    
    (4,537
    )
    
    
    (10,475
    )Net (loss) gain from discontinued operations
    
    
    (7,288
    )
    
    
    
    
    
    
    74
    
    
    
    
    
    
    
    (7,214
    )Net (loss) income
    
    $
    (17,689
    )
    
    $
    4,281
    
    
    $
    256
    
    
    $
    (4,537
    )
    
    $
    (17,689
    )
 Fiscal Quarter Ended December 28, 2007Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet revenues
    
    $
    119,969
    
    
    $
    11,196
    
    
    $
    25,964
    
    
    $
    (11,196
    )
    
    $
    145,933Cost of goods sold
    
    
    40,223
    
    
    
    
    
    
    
    23,589
    
    
    
    
    
    
    
    63,812Gross margin
    
    
    79,746
    
    
    
    11,196
    
    
    
    2,375
    
    
    
    (11,196
    )

    
    
    82,121
 28




---



##### Table of Contents



Fiscal Quarter Ended December 28, 2007Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedOperating expenses:Research and development
    
    
    37,648
    
    
    
    
    
    
    
    175
    
    
    
    
    
    
    
    37,823Selling, general and administrative
    
    
    16,516
    
    
    
    
    
    
    
    3,498
    
    
    
    
    
    
    
    20,014Amortization of intangible assets
    
    
    466
    
    
    
    244
    
    
    
    3,861
    
    
    
    
    
    
    
    4,571Special charges
    
    
    3,977
    
    
    
    
    
    
    
    372
    
    
    
    
    
    
    
    4,349Total operating expenses
    
    
    58,607
    
    
    
    244
    
    
    
    7,906
    
    
    
    
    
    
    
    66,757Operating income (loss)
    
    
    21,139
    
    
    
    10,952
    
    
    
    (5,531
    )
    
    
    (11,196
    )
    
    
    15,364Equity in (loss) income of subsidiaries
    
    
    (2,115
    )

    
    
    1,641
    
    
    
    
    
    
    
    474
    
    
    
    Interest expense
    
    
    7,659
    
    
    
    
    
    
    
    1,790
    
    
    
    
    
    
    
    9,449Other expense (income), net
    
    
    11,183
    
    
    
    
    
    
    
    (5,838
    )
    
    
    
    
    
    
    5,345Income (loss) before income taxes and
gain (loss) on equity method
investments
    
    
    182
    
    
    
    12,593
    
    
    
    (1,483
    )
    
    
    (10,722
    )
    
    
    570Provision for income taxes
    
    
    474
    
    
    
    
    
    
    
    388
    
    
    
    
    
    
    
    862Income (loss) before gain (loss) on
equity method investments
    
    
    (292
    )
    
    
    12,593
    
    
    
    (1,871
    )
    
    
    (10,722
    )
    
    
    (292
    )Gain on equity method investments
    
    
    3,773
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,773Net income from continuing operations
    
    
    3,481
    
    
    
    12,593
    
    
    
    (1,871
    )
    
    
    (10,722
    )
    
    
    3,481Net loss from discontinued operations
    
    
    (12,699
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,699
    )Net (loss) income
    
    $
    (9,218
    )
    
    $
    12,593
    
    
    $
    (1,871
    )
    
    $
    (10,722
    )
    
    $
    (9,218
    )
  Fiscal Quarter Ended January 2, 2009Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by (used in) operating
activities
    
    $
    (19,686
    )
    
    $
    1,017
    
    
    $
    5,389
    
    
    $
    7,817
    
    
    $
    (5,463
    )Cash flows from investing activities:Purchases of property plant and equipment
    
    
    (111
    )
    
    
    
    
    
    
    (70
    )
    
    
    
    
    
    
    (181
    )Payments for acquisitions
    
    
    (1,953
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,953
    )Purchases of accounts receivable
    
    
    
    
    
    
    
    
    
    
    (67,360
    )
    
    
    67,360
    
    
    
    Proceeds from collection of purchased
accounts receivable
    
    
    
    
    
    
    
    
    
    
    75,177
    
    
    
    (75,177
    )
    
    
    Release of restricted cash
    
    
    6,000
    
    
    
    
    
    
    
    300
    
    
    
    
    
    
    
    6,300Proceeds from sale of intellectual
property, net
    
    
    14,548
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,548Net cash provided by (used in) investing
activities
    
    
    18,484
    
    
    
    
    
    
    
    8,047
    
    
    
    (7,817
    )
    
    
    18,714Cash flows from financing activities:Repayment of short-term debt, net of
expenses
    
    
    
    
    
    
    
    
    
    
    (7,900
    )
    
    
    
    
    
    
    (7,900
    )Intercompany, net
    
    
    10,248
    
    
    
    (1,017
    )
    
    
    (9,231
    )
    
    
    
    
    
    
    Interest rate swap security deposit
    
    
    (907
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (907
    )Net cash provided by (used in) financing
activities
    
    
    9,341
    
    
    
    (1,017
    )
    
    
    (17,131
    )
    
    
    
    
    
    
    (8,807
    )Net increase (decrease) in cash and cash
equivalents
    
    
    8,139
    
    
    
    
    
    
    
    (3,695
    )
    
    
    
    
    
    
    4,444Cash and cash equivalents at beginning of
period
    
    
    69,738
    
    
    
    
    
    
    
    36,145
    
    
    
    
    
    
    
    105,883Cash and cash equivalents at end of period
    
    $
    77,877
    
    
    $
    
    
    
    $
    32,450
    
    
    $
    
    
    
    $
    110,327
 29




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Fiscal Quarter Ended December 28, 2007Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by (used in) operating
activities
    
    $
    10,712
    
    
    $
    (458
    )
    
    $
    (7,340
    )
    
    $
    5,832
    
    
    $
    8,746Cash flows from investing activities:Purchases of property plant and equipment
    
    
    (566
    )
    
    
    
    
    
    
    (1,048
    )
    
    
    
    
    
    
    (1,614
    )Purchases of accounts receivable
    
    
    
    
    
    
    
    
    
    
    (145,848
    )
    
    
    145,848
    
    
    
    Proceeds from collection of purchased accounts
receivable
    
    
    
    
    
    
    
    
    
    
    151,680
    
    
    
    (151,680
    )
    
    
    Purchases of equity securities and other assets
    
    
    (755
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (755
    )Net cash (used in) provided by investing
activities
    
    
    (1,321
    )
    
    
    
    
    
    
    4,784
    
    
    
    (5,832
    )
    
    
    (2,369
    )Cash flows from financing activities:Repayment of short-term debt, net of expenses
    
    
    
    
    
    
    
    
    
    
    (9,845
    )
    
    
    
    
    
    
    (9,845
    )Intercompany, net
    
    
    (5,136
    )
    
    
    458
    
    
    
    4,678
    
    
    
    
    
    
    
    Proceeds from issuance of common stock
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4Net cash provided by (used in) financing
activities
    
    
    (5,132
    )
    
    
    458
    
    
    
    (5,167
    )
    
    
    
    
    
    
    (9,841
    )Net increase (decrease) in cash and cash
equivalents
    
    
    4,259
    
    
    
    
    
    
    
    (7,723
    )
    
    
    
    
    
    
    (3,464
    )Cash and cash equivalents at beginning of
period
    
    
    199,263
    
    
    
    
    
    
    
    36,342
    
    
    
    
    
    
    
    235,605Cash and cash equivalents at end of period
    
    $
    203,522
    
    
    $
    
    
    
    $
    28,619
    
    
    $
    
    
    
    $
    232,141
 16. Subsequent Events
  
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Overview
   30




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Critical Accounting Policies
  Business Enterprise Segments
   
    
    the nature of their products and services;
    
    the nature of their production processes;
    
    the type or class of customer for their products and services; and
    
    the methods used to distribute their products or provide their services.
  
    
    the sale of semiconductor products is the only material source of revenue for each of our
two operating segments;
    
    the products sold by each of our operating segments use the same standard manufacturing
process;
    
    the products marketed by each of our operating segments are sold to similar
customers; and
    
    all of our products are sold through our internal sales force and common distributors.
 
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Fiscal Quarter EndedJanuary 2,
    
    
    December 28,2009
    
    
    2007Imaging and PC Media
    
    $
    49,662
    
    
    $
    75,445Broadband Access Products
    
    
    36,836
    
    
    
    70,488$
    86,498
    
    
    $
    145,933
 Results of Operations
 Net Revenues
     32




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Gross Margin
    Fiscal Quarter EndedJanuary 2,
    
    
    December 28,(in thousands)
    
    2009
    
    
    2007E&O reserves at beginning of period
    
    $
    17,579
    
    
    $
    17,139Additions
    
    
    1,096
    
    
    
    3,535Release upon sales of product
    
    
    (809
    )
    
    
    (870
    )Scrap
    
    
    (3,006
    )
    
    
    (1,353
    )Standards adjustments and other
    
    
    (256
    )
    
    
    94E&O reserves at end of period
    
    $
    14,604
    
    
    $
    18,545
  33




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Research and Development
   Selling, General and Administrative
   Amortization of Intangible Assets
   34




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Gain on Sale of Intellectual Property
  Special Charges
   Interest Expense
  Other expense (income), net
 Fiscal Quarter EndedJanuary 2,
    
    
    December 28,(in thousands)
    
    2009
    
    
    2007Investment and interest income
    
    $
    (857
    )
    
    $
    (2,771
    )Other-than-temporary impairment of marketable securities
    
    
    2,635
    
    
    
    Decrease in the fair value of derivative instruments
    
    
    482
    
    
    
    8,364Other
    
    
    35
    
    
    
    (248
    )Other expense (income), net
    
    $
    2,295
    
    
    $
    5,345
   Provision for Income Taxes
  35




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Liquidity and Capital Resources
        36




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##### Table of Contents



Fiscal Quarter EndedJanuary 2,
    
    
    December 28,(in thousands)
    
    2009
    
    
    2007Net cash (used in) provided by operating activities
    
    $
    (5,463
    )
    
    $
    8,746Net cash (used in) provided by investing activities
    
    
    18,714
    
    
    
    (2,369
    )Net cash used in financing activities
    
    
    (8,807
    )
    
    
    (9,841
    )Net increase (decrease) in cash and cash equivalents
    
    $
    4,444
    
    
    $
    (3,464
    )
    Contractual Commitments
  Off-Balance Sheet Arrangements
  37




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Special Purpose Entities
   Recently Adopted Accounting Pronouncements
   
    
    Level 1: Quoted prices in active markets for identical assets or liabilities.
    
    Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs that
are observable or can be corroborated by observable market data for substantially the full
term of the related assets or liabilities.
    
    Level 3: Unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities.
   38




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Recently Issued Accounting Pronouncements
      39




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ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    7-day
  40




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Carrying Value
    
    Fair Value(In thousands)Cash and cash equivalents
    
    $
    110,327
    
    
    $
    110,327Restricted
cash
    
    
    27,261
    
    
    
    27,261Marketable available-for-sale securities
    
    
    403
    
    
    
    403Other equity securities
    
    
    7,976
    
    
    
    7,976Mindspeed warrant
    
    
    63
    
    
    
    63Short-term debt
    
    
    32,868
    
    
    
    32,868Interest rate swap financial instruments
    
    
    2,135
    
    
    
    2,135Long-term debt: senior secured notes
    
    
    141,400
    
    
    
    134,330Long-term debt: convertible subordinated notes
    
    
    250,000
    
    
    
    112,500
 Exchange Rate Risk
  
 ITEM 4.
    
    CONTROLS AND PROCEDURES
   
 PART II. OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
 IPO Litigation
 41




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Class Action Suit 
 
 ITEM 1A. RISK FACTORS
    We face a risk that capital needed for our business and to repay our debt obligations will not be
available when we need it.
   42




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Our operating and financing flexibility is limited by the terms of our senior notes and our credit
facility.
  If we fail to continue to meet all applicable continued listing requirements of The NASDAQ Global
Market and NASDAQ determines to delist our common stock, the market liquidity and market price of
our common stock could decline.
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The value of our common stock may be adversely affected by market volatility and other factors.
  
    
    our operating and financial performance and prospects;
    
    our ability to repay our debt;
    
    the depth and liquidity of the market for our common stock;
    
    investor perception of us and the industry and markets in which we operate;
    
    our inclusion in, or removal from, any equity market indices;
    
    the level of research coverage of our common stock;
    
    changes in earnings estimates or buy/sell recommendations by analysts;
    
    judgments favorable or adverse to us; and
    
    general financial, domestic, international, economic and other market conditions
 We are subject to the risks of doing business internationally.
  
    
    difficulty in obtaining distribution and support;
    
    limitations on our ability under local laws to protect our intellectual property;
    
    currency exchange rate fluctuations;
    
    local economic and political conditions;
    
    disruptions of commerce and capital or trading markets due to or related to terrorist
activity or armed conflict;
    
    restrictive governmental actions, such as restrictions on the transfer or repatriation of
funds and trade protection measures, including export duties and quotas and customs duties
and tariffs;
    
    changes in legal or regulatory requirements;
    
    the laws and policies of the United States and other countries affecting trade, foreign
investment and loans, and import or export licensing requirements; and
    
    tax laws, including the cost of services provided and products sold between us and our
subsidiaries which are subject to review by taxing authorities.
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We operate in the highly cyclical semiconductor industry, which is subject to significant
downturns that may negatively impact our business, financial condition, cash flow and results of
operations.
  We are subject to intense competition.
   
    
    time-to-market;
    
    product quality, reliability and performance;
    
    level of integration;
    
    price and total system cost;
    
    compliance with industry standards;
    
    design and engineering capabilities;
    
    strategic relationships with customers;
    
    customer support;
    
    new product innovation; and
    
    access to manufacturing capacity.
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We own or lease a significant amount of space in which we do not conduct operations and doing so
exposes us to the financial risks of default by our tenants and subtenants.
   Our success depends on our ability to timely develop competitive new products and reduce costs.
  
    
    anticipate customer and market requirements and changes in technology and industry
standards;
    
    accurately define new products;
    
    complete development of new products and bring our products to market on a timely basis;
    
    differentiate our products from offerings of our competitors;
    
    achieve overall market acceptance of our products;
    
    coordinate product development efforts between and among our sites, particularly in India
and China, to manage the development of products at remote geographic locations.
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Our revenues, cash flow from operations and results of operations have fluctuated in the past and
may fluctuate in the future, particularly given adverse domestic and global economic conditions.
  
    
    changes in end-user demand for the products manufactured and sold by our customers;
    
    the timing of receipt, reduction or cancellation of significant orders by customers;
    
    adverse economic conditions, including the unavailability or high cost of credit to our
customers;
    
    the inability of our customers to forecast demand based on adverse economic conditions;
    
    seasonal customer demand;
    
    the gain or loss of significant customers;
    
    market acceptance of our products and our customers products;
    
    our ability to develop, introduce and market new products and technologies on a timely
basis;
    
    the timing and extent of product development costs;
    
    new product and technology introductions by competitors;
    
    changes in the mix of products we develop and sell;
    
    fluctuations in manufacturing yields;
    
    availability and cost of products from our suppliers;
    
    intellectual property disputes; and
    
    the effect of competitive pricing pressures, including decreases in average selling
prices of our products.
  We have recently incurred substantial losses and may incur additional future losses.
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We have significant goodwill and intangible assets, and future impairment of our goodwill and
intangible assets could have a material negative impact on our financial condition and results of
operations.
  The loss of a key customer could seriously impact our revenue levels and harm our business. In
addition, if we are unable to continue to sell existing and new products to our key customers in
significant quantities or to attract new significant customers, our future operating results could
be adversely affected.
   
    
    most of our customers can stop incorporating our products into their own products with
limited notice to us and suffer little or no penalty;
    
    our agreements with our customers typically do not require them to purchase a minimum
quantity of our products;
    
    many of our customers have pre-existing or concurrent relationships with our current or
potential competitors that may affect the customers decisions to purchase our products;
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
    
    our customers face intense competition from other manufacturers that do not use our
products;
    
    some of our customers offer or may offer products that compete with our products;
    
    some of our customers liquidity may be negatively affected by the recent domestic and
global credit crisis;and;
    
    customers perceptions of our liquidity may have a negative impact on their decisions to
incorporate our products into their own products.
       We may not be able to keep abreast of the rapid technological changes in our markets.
  
    
    rapid technological developments;
    
    rapid changes in customer requirements;
 49




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##### Table of Contents




    
    frequent new product introductions and enhancements;
    
    short product life cycles with declining prices over the life cycle of the products; and
    
    evolving industry standards.
  We may be subject to claims of infringement of third-party intellectual property rights or demands
that we license third-party technology, which could result in significant expense and loss of our
ability to use, make, sell, export or import our products or one or more components comprising our
products.
  
    
    pay substantial damages;
    
    cease the manufacture, use or sale of infringing products, processes or technologies;
    
    discontinue the use of infringing technology;
    
    expend significant resources to develop non-infringing technology; or
    
    license technology from the third party claiming infringement, which license may not be
available on commercially reasonable terms, or at all.
 If OEMs of communications electronics products do not design our products into their equipment, we
will be unable to sell those products. Moreover, a design win from a customer does not guarantee
future sales to that customer.
  50




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Because of the lengthy sales cycles of many of our products, we may incur significant expenses
before we generate any revenues related to those products.
  Uncertainties involving the ordering and shipment of our products could adversely affect our
business.
  We are dependent upon third parties for the manufacture, assembly and test of our products.
     51




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We may experience difficulties in transitioning to smaller geometry process technologies or in
achieving higher levels of design integration, which may result in reduced manufacturing yields,
delays in product deliveries, increased expenses and loss of design wins to our competitors.
  If we are not successful in protecting our intellectual property rights, it may harm our ability
to compete.
  
    
    the steps we take to prevent misappropriation or infringement of our intellectual
property or the intellectual property of our customers will be successful;
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##### Table of Contents




    
    any existing or future patents will not be challenged, invalidated or circumvented; or
    
    any of the measures described above would provide meaningful protection.
  Our success depends, in part, on our ability to effect suitable investments, alliances,
acquisitions and where appropriate, divestitures and restructurings.
   
    
    large initial one-time write-offs of in-process research and development;
    
    the incurrence of substantial debt and assumption of unknown liabilities;
    
    the potential loss of key employees from the acquired company;
    
    amortization expenses related to intangible assets; and
    
    the diversion of managements attention from other business concerns.
  We are required to use proceeds of certain asset dispositions to offer to repurchase our Floating
Rate Senior Secured Notes due November 2010 if we do not use the proceeds within 360 days to
invest in assets (other than current assets), and this requirement limits our ability to use asset
sale proceeds to fund our operations.
  53




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We may not be able to attract and retain qualified management, technical and other personnel
necessary for the design, development and sale of our products. Our success could be negatively
affected if key personnel leave.
  Uncertainties involving litigation could adversely affect our business.
  We currently operate under tax holidays and favorable tax incentives in certain foreign
jurisdictions.
  54




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Exhibit No.
    
    Description*10.1
    
    Conexant Systems, Inc. 2009 Performance Incentive Plan (incorporated by
reference to Exhibit 10.1 of the Companys Current Report on Form 8-K filed
on November 18, 2008)*10.2
    
    Employment Agreement by and between Dwight W. Decker and Conexant Systems,
Inc., dated December 4, 2008 (incorporated by reference to Exhibit 10.1 of
the Companys Current Report on Form 8-K filed on December 9, 2008)*10.3
    
    Separation Agreement and Release dated as of December 18, 2008 between
Conexant Systems, Inc. and Karen L. Roscher (incorporated by reference to
Exhibit 99.1 of the Companys Current Report on Form 8-K filed on December
30, 2008)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
 55




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##### Table of Contents



SIGNATURE
  CONEXANT SYSTEMS, INC.
(Registrant)Date: February 11, 2009
    By
    /s/  JEAN HUJean HuChief Financial Officer and Senior Vice President,

Business Development

(principal financial officer) 56




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description*10.1
    
    Conexant Systems, Inc. 2009 Performance Incentive Plan (incorporated by
reference to Exhibit 10.1 of the Companys Current Report on Form 8-K filed
on November 18, 2008)*10.2
    
    Employment Agreement by and between Dwight W. Decker and Conexant Systems,
Inc., dated December 4, 2008 (incorporated by reference to Exhibit 10.1 of
the Companys Current Report on Form 8-K filed on December 9, 2008)*10.3
    
    Separation Agreement and Release dated as of December 18, 2008 between
Conexant Systems, Inc. and Karen L. Roscher (incorporated by reference to
Exhibit 99.1 of the Companys Current Report on Form 8-K filed on December
30, 2008)31.1
    
    Certification of the Chief Executive Officer of Periodic Report Pursuant to
Rule 13a-14(a) or 15d-14(a).31.2
    
    Certification of the Chief Financial Officer of Periodic Report Pursuant to
Rule 13a-15(a) or 15d-14(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
 57