This paper presents a new and exact theoretical analysis of performance degradation of OFDM systems due to circuit nonlinearity effects. This nonlinearity is modeled as a fifth order memoryless nonlinear polynomial model. Theoretical analysis shows that the detected data symbol at the receiver consists of attenuated version of the original transmitted data symbol, third and fifth order intermodulation components. Analytical expressions for inter- modulation noise term are derived using combinatorial methods. By use of the derived expressions, a closed form output signal to noise ratio and degradation factor can be evaluated theoretically. The analytical results are compared with simulations outcomes.