e10vq
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 June 30, 2009
or
|
|
|
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For
the transition period from to
Commission file number: 000-23993
Broadcom Corporation
(Exact Name of Registrant as Specified in Its Charter)
|
|
|
California
|
|
33-0480482 |
(State or Other Jurisdiction
|
|
(I.R.S. Employer |
of Incorporation or Organization)
|
|
Identification No.) |
5300 California Avenue
Irvine, California 92617-3038
(Address of Principal Executive Offices) (Zip Code)
(949) 926-5000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large accelerated Filer þ
|
|
Accelerated filer o
|
|
Non-accelerated filer o
|
|
Smaller reporting company o |
|
|
|
|
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
As of June 30, 2009 the registrant had 435.9 million shares of Class A common stock, $0.0001
par value, and 60.0 million shares of Class B common stock, $0.0001 par value, outstanding.
BROADCOM CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009
TABLE OF CONTENTS
Broadcom® and the pulse logo are among the trademarks of Broadcom Corporation
and/or its affiliates in the United States, certain other countries and/or the EU. Any other
trademarks or trade names mentioned are the property of their respective owners.
© 2009 Broadcom Corporation. All rights reserved.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BROADCOM CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,506,518 |
|
|
$ |
1,190,645 |
|
Short-term marketable securities |
|
|
700,585 |
|
|
|
707,477 |
|
Accounts receivable, net |
|
|
444,046 |
|
|
|
372,311 |
|
Inventory |
|
|
279,298 |
|
|
|
366,106 |
|
Prepaid expenses and other current assets |
|
|
108,078 |
|
|
|
114,674 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
3,038,525 |
|
|
|
2,751,213 |
|
Property and equipment, net |
|
|
224,238 |
|
|
|
234,691 |
|
Long-term marketable securities |
|
|
92,699 |
|
|
|
|
|
Goodwill |
|
|
1,277,104 |
|
|
|
1,279,243 |
|
Purchased intangible assets, net |
|
|
34,174 |
|
|
|
61,958 |
|
Other assets |
|
|
81,581 |
|
|
|
66,160 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
4,748,321 |
|
|
$ |
4,393,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
389,630 |
|
|
$ |
310,487 |
|
Wages and related benefits |
|
|
129,547 |
|
|
|
157,758 |
|
Deferred revenue |
|
|
115,387 |
|
|
|
12,338 |
|
Accrued liabilities |
|
|
277,979 |
|
|
|
236,520 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
912,543 |
|
|
|
717,103 |
|
Long-term deferred revenue |
|
|
1,615 |
|
|
|
3,898 |
|
Other long-term liabilities |
|
|
60,851 |
|
|
|
65,197 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Shareholders equity: |
|
|
|
|
|
|
|
|
Common stock |
|
|
50 |
|
|
|
49 |
|
Additional paid-in capital |
|
|
11,178,614 |
|
|
|
10,930,315 |
|
Accumulated deficit |
|
|
(7,402,869 |
) |
|
|
(7,324,330 |
) |
Accumulated other comprehensive income (loss) |
|
|
(2,483 |
) |
|
|
1,033 |
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
3,773,312 |
|
|
|
3,607,067 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
4,748,321 |
|
|
$ |
4,393,265 |
|
|
|
|
|
|
|
|
See accompanying notes.
2
BROADCOM CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands, except per share data) |
|
Net revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
$ |
966,317 |
|
|
$ |
1,161,965 |
|
|
$ |
1,794,547 |
|
|
$ |
2,154,968 |
|
Licensing revenue |
|
|
73,627 |
|
|
|
38,966 |
|
|
|
98,833 |
|
|
|
78,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
1,039,944 |
|
|
|
1,200,931 |
|
|
|
1,893,380 |
|
|
|
2,233,141 |
|
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue |
|
|
518,674 |
|
|
|
554,596 |
|
|
|
964,951 |
|
|
|
1,035,759 |
|
Research and development |
|
|
374,770 |
|
|
|
380,035 |
|
|
|
747,494 |
|
|
|
735,723 |
|
Selling, general and administrative |
|
|
127,410 |
|
|
|
142,017 |
|
|
|
252,458 |
|
|
|
253,963 |
|
Amortization of purchased intangible assets |
|
|
4,139 |
|
|
|
184 |
|
|
|
8,298 |
|
|
|
367 |
|
In-process research and development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,900 |
|
Impairment of long-lived assets |
|
|
11,261 |
|
|
|
1,900 |
|
|
|
11,261 |
|
|
|
1,900 |
|
Restructuring costs (reversals) |
|
|
447 |
|
|
|
(1,000 |
) |
|
|
7,558 |
|
|
|
(1,000 |
) |
Settlement costs (gains) |
|
|
(58,406 |
) |
|
|
|
|
|
|
(57,256 |
) |
|
|
15,810 |
|
Charitable contribution |
|
|
50,000 |
|
|
|
|
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses |
|
|
1,028,295 |
|
|
|
1,077,732 |
|
|
|
1,984,764 |
|
|
|
2,053,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
11,649 |
|
|
|
123,199 |
|
|
|
(91,384 |
) |
|
|
179,719 |
|
Interest income, net |
|
|
3,986 |
|
|
|
12,428 |
|
|
|
8,384 |
|
|
|
32,532 |
|
Other income (expense), net |
|
|
1,019 |
|
|
|
(191 |
) |
|
|
2,665 |
|
|
|
733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
16,654 |
|
|
|
135,436 |
|
|
|
(80,335 |
) |
|
|
212,984 |
|
Provision (benefit) for income taxes |
|
|
3,253 |
|
|
|
647 |
|
|
|
(1,796 |
) |
|
|
3,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
13,401 |
|
|
$ |
134,789 |
|
|
$ |
(78,539 |
) |
|
$ |
209,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share (basic) |
|
$ |
0.03 |
|
|
$ |
0.26 |
|
|
$ |
(0.16 |
) |
|
$ |
0.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share (diluted) |
|
$ |
0.03 |
|
|
$ |
0.25 |
|
|
$ |
(0.16 |
) |
|
$ |
0.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares (basic) |
|
|
495,110 |
|
|
|
512,875 |
|
|
|
492,652 |
|
|
|
521,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares (diluted) |
|
|
507,993 |
|
|
|
529,977 |
|
|
|
492,652 |
|
|
|
534,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents details of total stock-based compensation expense included in
each functional line item in the unaudited condensed consolidated statements of operations above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
(In thousands) |
Cost of product revenue |
|
$ |
6,128 |
|
|
$ |
6,237 |
|
|
$ |
12,005 |
|
|
$ |
11,702 |
|
Research and development |
|
|
86,607 |
|
|
|
90,003 |
|
|
|
175,869 |
|
|
|
168,709 |
|
Selling, general and administrative |
|
|
29,893 |
|
|
|
31,268 |
|
|
|
58,527 |
|
|
|
60,333 |
|
See accompanying notes.
3
BROADCOM CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Operating activities |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(78,539 |
) |
|
$ |
209,103 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
36,041 |
|
|
|
36,419 |
|
Stock-based compensation expense: |
|
|
|
|
|
|
|
|
Stock options and other awards |
|
|
85,557 |
|
|
|
115,207 |
|
Restricted stock units |
|
|
160,844 |
|
|
|
125,537 |
|
Acquisition-related items: |
|
|
|
|
|
|
|
|
Amortization of purchased intangible assets |
|
|
16,523 |
|
|
|
8,236 |
|
In-process research and development |
|
|
|
|
|
|
10,900 |
|
Impairment of long-lived assets |
|
|
11,261 |
|
|
|
1,900 |
|
Loss on strategic investments, net |
|
|
|
|
|
|
1,760 |
|
Non-cash restructuring charges |
|
|
2,663 |
|
|
|
|
|
Gain on sale of marketable securities |
|
|
(1,046 |
) |
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(71,735 |
) |
|
|
(110,815 |
) |
Inventory |
|
|
86,808 |
|
|
|
(25,033 |
) |
Prepaid expenses and other assets |
|
|
(7,786 |
) |
|
|
18,758 |
|
Accounts payable |
|
|
79,761 |
|
|
|
123,829 |
|
Deferred revenue |
|
|
100,766 |
|
|
|
(10,580 |
) |
Other accrued and long-term liabilities |
|
|
(2,617 |
) |
|
|
(17,993 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
418,501 |
|
|
|
487,228 |
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
Net purchases of property and equipment |
|
|
(26,294 |
) |
|
|
(49,067 |
) |
Net cash received from (paid for) acquired companies |
|
|
2,139 |
|
|
|
(29,738 |
) |
Purchases of strategic investments |
|
|
|
|
|
|
(355 |
) |
Purchases of marketable securities |
|
|
(511,050 |
) |
|
|
(338,521 |
) |
Proceeds from sales and maturities of marketable securities |
|
|
421,845 |
|
|
|
220,598 |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(113,360 |
) |
|
|
(197,083 |
) |
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
Repurchases of Class A common stock |
|
|
(38,434 |
) |
|
|
(835,863 |
) |
Proceeds from issuance of common stock |
|
|
83,694 |
|
|
|
90,614 |
|
Minimum tax withholding paid on behalf of employees for restricted stock units |
|
|
(34,528 |
) |
|
|
(25,753 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
10,732 |
|
|
|
(771,002 |
) |
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
315,873 |
|
|
|
(480,857 |
) |
Cash and cash equivalents at beginning of period |
|
|
1,190,645 |
|
|
|
2,186,572 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
1,506,518 |
|
|
$ |
1,705,715 |
|
|
|
|
|
|
|
|
See accompanying notes.
4
BROADCOM CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2009
1. Summary of Significant Accounting Policies
Our Company
Broadcom Corporation (including our subsidiaries, referred to collectively in these unaudited
condensed consolidated financial statements as Broadcom, we, our and us) is a major
technology innovator and global leader in semiconductors for wired and wireless communications. Our
products enable the delivery of voice, video, data and multimedia to and throughout the home, the
office and the mobile environment. Broadcom provides one of the industrys broadest portfolios of
state-of-the-art system-on-a-chip and software solutions to manufacturers of computing and
networking equipment, digital entertainment and broadband access products, and mobile devices. Our
diverse product portfolio includes solutions for digital cable, satellite and Internet Protocol
(IP) set-top boxes and media servers; high definition television (HDTV); high definition DVD
players and personal video recording (PVR) devices; cable and DSL modems and residential gateways;
high-speed transmission and switching for local, metropolitan, wide area and storage networking;
server solutions; broadband network and security processors; wireless and personal area networking;
cellular communications; global positioning system (GPS) applications; mobile multimedia and
applications processors; mobile power management; and Voice over Internet Protocol (VoIP) gateway
and telephony systems.
Basis of Presentation
The interim unaudited condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States, or GAAP, for interim
financial information and with the instructions to Securities and Exchange Commission, or SEC, Form
10-Q and Article 10 of SEC Regulation S-X. They do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial statements. Therefore,
these financial statements should be read in conjunction with our audited consolidated financial
statements and notes thereto for the year ended December 31, 2008, included in our Annual Report on
Form 10-K filed with the SEC February 4, 2009.
The interim condensed consolidated financial statements included herein are unaudited;
however, they contain all normal recurring accruals and adjustments that, in the opinion of
management, are necessary to present fairly our consolidated financial position at June 30, 2009
and December 31, 2008, and our consolidated results of operations and cash flows for the three and
six months ended June 30, 2009 and 2008. The results of operations for the three and six months
ended June 30, 2009 are not necessarily indicative of the results to be expected for future
quarters or the full year.
Certain prior period amounts in the unaudited condensed consolidated statements of operations
have been reclassified to conform with the current period presentation of product and licensing
revenue.
Foreign Currency Translation
The functional currency for most of our international operations is the U.S. dollar. The
functional currency for a small number of our foreign subsidiaries is the local currency. Assets
and liabilities denominated in foreign currencies are translated using the exchange rates on the
balance sheet dates. Revenues and expenses are translated using the average exchange rates
prevailing during the year. Any translation adjustments resulting from this process are shown
separately as a component of accumulated other comprehensive income (loss) within shareholders
equity in the unaudited condensed consolidated balance sheets. Foreign currency transaction gains
and losses are reported in other income (expense), net in the unaudited condensed consolidated
statements of operations.
Use of Estimates
The preparation of financial statements in accordance with United States generally accepted
accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the dates of the financial statements and the
reported amounts of net revenue and expenses in the reporting periods. We regularly evaluate
estimates and assumptions related to revenue recognition, rebates, allowances for doubtful
accounts, sales returns and allowances, warranty reserves, inventory reserves, stock-based
compensation expense, goodwill and purchased intangible asset valuations, strategic investments,
deferred income tax asset valuation allowances, uncertain tax positions, tax contingencies,
self-insurance, restructuring costs,
5
litigation and other loss contingencies. These estimates and assumptions are based on current
facts, historical experience and various other factors that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities and the recording of revenue, costs and expenses that are not readily
apparent from other sources. The actual results we experience may differ materially and adversely
from our estimates. To the extent there are material differences between the estimates and actual
results, our future results of operations will be affected.
Revenue Recognition
Our product revenue consists principally of sales of semiconductor devices and, to a lesser
extent, software licenses and royalties, development, support and maintenance agreements, data
services and cancellation fees. Our licensing revenue is generated from the licensing of
intellectual property. The majority of our sales occur through the efforts of our direct sales
force. The remaining balance of sales occurs through distributors.
The following tables present details of our net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Product revenue (1) |
|
|
92.9 |
% |
|
|
96.8 |
% |
|
|
94.8 |
% |
|
|
96.5 |
% |
Licensing revenue |
|
|
7.1 |
|
|
|
3.2 |
|
|
|
5.2 |
|
|
|
3.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes software licenses and royalties, development, support and
maintenance agreements, data services and cancellation fees totaling
less than 0.7% of total net revenue for all periods presented. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Sales made through direct sales force |
|
|
80.3 |
% |
|
|
85.1 |
% |
|
|
81.5 |
% |
|
|
85.9 |
% |
Sales made through distributors |
|
|
19.7 |
|
|
|
14.9 |
|
|
|
18.5 |
|
|
|
14.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with SEC Staff Accounting Bulletin, or SAB, No. 104, Revenue Recognition, or SAB
104, we recognize product revenue when all of the following criteria are met: (i) persuasive
evidence of an arrangement exists, (ii) delivery has occurred, (iii) the price to the customer is
fixed or determinable, and (iv) collection of the resulting receivable is reasonably assured. These
criteria are usually met at the time of product shipment. However, we do not recognize revenue when
any significant obligations remain. We record reductions to revenue for estimated product returns
and pricing adjustments, such as competitive pricing programs and rebates, in the same period that
the related revenue is recorded. The amount of these reductions is based on historical sales
returns, analysis of credit memo data, specific criteria included in rebate agreements, and other
factors known at the time. We account for rebates in accordance with Financial Accounting Standards
Board, or FASB, Emerging Issues Task Force, or EITF, Issue No. 01-9, Accounting for Consideration
Given by a Vendor to a Customer (Including a Reseller of the Vendors Products), and, accordingly,
at the time of sale we accrue 100% of the potential rebate as a reduction of revenue and do not
apply a breakage factor. The amount of these reductions is based upon the terms included in our
various rebate agreements. We reverse the accrual for unclaimed rebates as specific rebate programs
contractually end or when we believe unclaimed rebates are no longer subject to payment and will
not be paid. See Note 2 for a summary of our rebate activity.
A portion of our sales is made through distributors under agreements allowing for pricing
credits and/or rights of return. These pricing credits and/or right of return provisions prevent us
from being able to reasonably estimate the final price of the inventory to be sold and the amount
of inventory that could be returned pursuant to these agreements. As a result, the criterion listed
in (iii) in the paragraph above has not been met at the time we deliver products to our
distributors. Accordingly, product revenue from sales made through these distributors is not
recognized until the distributors ship the product to their customers. We also maintain
inventory, or hubbing, arrangements with certain of our customers. Pursuant to these arrangements
we deliver products to a customer or a designated third party warehouse based upon the customers
projected needs, but do not recognize product revenue
6
unless and until the customer reports that it
has removed our product from the warehouse to be incorporated into its end products.
In arrangements that include a combination of semiconductor products and software, where
software is considered more-than-incidental and essential to the functionality of the product being
sold, we follow the guidance in EITF Issue No. 03-5, Applicability of AICPA Statement of Position
97-2 to Non-Software Deliverables in an Arrangement Containing More-Than-Incidental Software, or
EITF 03-5. Under EITF 03-5, we are required to account for the entire arrangement as a sale of
software and software-related items, and follow the revenue recognition criteria in accordance with
the American Institute of Certified Public Accountants Statement of Position, or SOP, No. 97-2,
Software Revenue Recognition, and related interpretations, or SOP 97-2.
In arrangements that include a combination of semiconductor products, software and/or
services, where software is not considered more-than-incidental to the product being sold, we
follow the guidance in EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, to allocate the arrangement consideration.
In the arrangements described above, both the semiconductor products and software are
delivered concurrently and post-contract customer support is not provided. Therefore, under both
SOP 97-2 and SAB 104, we recognize revenue upon shipment of the semiconductor product, assuming all
other basic revenue recognition criteria are met, as both the semiconductor products and software
are considered delivered elements and no undelivered elements exist. In limited instances where
there are undelivered elements, we allocate revenue based on the residual fair value of the
individual elements. If there is no established fair value for an undelivered element, the entire
arrangement is accounted for as a single unit of accounting, resulting in a deferral of revenue and
costs for the delivered element until the undelivered element has been fulfilled. In cases where
the undelivered element is a data or support service, the revenue and costs applicable to both the
delivered and undelivered elements are recorded ratably over the respective service period or
estimated product life. If the undelivered element is essential to the functionality of the
delivered element, no revenue or costs are recognized until the undelivered element is delivered.
Revenue from software licenses is recognized in accordance with the provisions of SOP 97-2.
Royalty revenue is recognized based upon reports received from licensees during the period, unless
collectibility is not reasonably assured, in which case revenue is recognized when payment is
received from the licensee. Revenue under development agreements is recognized when applicable
contractual milestones have been met, including deliverables, and in any case, does not exceed the
amount that would be recognized using the percentage-of-completion method in accordance with SOP
No. 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts.
The costs associated with development agreements are included in cost of product revenue. Revenue
from cancellation fees is recognized when cash is received from the customer.
Revenue from the licensing of intellectual property is recognized based upon either the
performance period of the license or upon receipt of licensee reports as applicable in our various
intellectual property arrangements. See Note 2 for additional details of the licensing of
intellectual property.
We record deferred revenue when advance payments are received from customers before
performance obligations have been completed and/or services have been performed. Deferred revenue
does not include amounts from products delivered to distributors that the distributors have not yet
sold through to their end customers.
Cost of Product Revenue
Cost of product revenue comprises the cost of our semiconductor devices, which consists of the
cost of purchasing finished silicon wafers manufactured by independent foundries, costs associated
with our purchase of assembly, test and quality assurance services and packaging materials for
semiconductor products, as well as royalties paid to vendors for use of their technology. Also
included in cost of product revenue is the amortization of purchased technology, and manufacturing
overhead, including costs of personnel and equipment associated with manufacturing support, product
warranty costs, provisions for excess and obsolete inventories, and stock-based compensation
expense for personnel engaged in manufacturing support.
Concentration of Credit Risk
We sell the majority of our products throughout North America, Asia and Europe. Sales to our
recurring customers are generally made on open account while sales to occasional customers are
typically made on a prepaid or letter of credit basis. We perform periodic credit evaluations of
our recurring customers and generally do not
require collateral. An allowance for doubtful accounts is maintained for potential credit
losses, which losses historically have not been significant.
7
We invest our cash in deposits and money market funds with major financial institutions, in
U.S. government obligations, and in debt securities of corporations with strong credit ratings and
in a variety of industries. It is our policy to invest in instruments that have a final maturity of
no longer than three years, with a portfolio weighted average maturity of no longer than 18 months.
Fair Value of Financial Instruments
We adopted Statement of Financial Accounting Standards, or SFAS, No. 157, Fair Value
Measurements, or SFAS 157, and the related effective interpretations for both financial and
non-financial assets and liabilities. This did not have a material impact on our unaudited
condensed consolidated financial statements. SFAS 157 defines fair value, establishes a framework
for measuring fair value in accordance with generally accepted accounting principles, and expands
disclosures about fair value measurements.
Our financial instruments consist principally of cash and cash equivalents, short- and
long-term marketable securities, accounts receivable and accounts payable. Marketable securities
consist of available-for-sale securities that are reported at fair value with the related
unrealized gains and losses included in accumulated other comprehensive income (loss), a component
of shareholders equity, net of tax. Pursuant to SFAS 157, the fair value of our cash equivalents
and marketable securities is determined based on Level 1 inputs, which consist of quoted prices
in active markets for identical assets. We believe that the recorded values of all of our other
financial instruments approximate their current fair values because of their nature and respective
relatively short maturity dates or durations.
Cash and Cash Equivalents
We consider all highly liquid investments that are readily convertible into cash and have an
original maturity of three months or less at the time of purchase to be cash equivalents.
Marketable Securities
Broadcom defines marketable securities as income yielding securities that can be readily
converted into cash. Examples of marketable securities include U.S. Treasury and agency
obligations, commercial paper, corporate notes and bonds, time deposits, foreign notes and
certificates of deposit.
We account for our investments in debt and equity instruments as available for sale under SFAS
No. 115, Accounting for Certain Investments in Debt and Equity Securities and FASB Staff Positions,
or FSP, SFAS No. 115-1 and SFAS 124-1, The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments, as amended by FSP 115-2 and 124-2, or FSP 115-1 and 124-1.
Management determines the appropriate classification of such securities at the time of purchase and
re-evaluates such classification as of each balance sheet date. Cash equivalents and marketable
securities are reported at fair value with the related unrealized gains and losses included in
accumulated other comprehensive income (loss), a component of shareholders equity, net of tax. We
follow the guidance provided by FSP 115-1 and 124-1 to assess whether our investments with
unrealized loss positions are other than temporarily impaired. Realized gains and losses and
declines in value judged to be other than temporary are determined based on the specific
identification method and are reported in other income (expense), net in the unaudited condensed
consolidated statements of operations.
Inventory
Inventory consists of work in process and finished goods and is stated at the lower of cost
(first-in, first-out) or market. We establish inventory reserves for estimated obsolete or
unmarketable inventory equal to the difference between the cost of inventory and the estimated net
realizable value based upon assumptions about future demand and market conditions. Shipping and
handling costs are classified as a component of cost of product revenue in the unaudited condensed
consolidated statements of operations.
Property and Equipment
Property and equipment are carried at cost. Depreciation and amortization are calculated using
the straight-line method over the assets estimated remaining useful lives, ranging from one to ten
years. Depreciation and amortization of leasehold improvements are computed using the shorter of
the remaining useful lives or lease terms.
8
Goodwill and Long-Lived Assets
Goodwill is recorded as the difference, if any, between the aggregate consideration paid for
an acquisition and the fair value of the net tangible and intangible assets acquired. In accordance
with SFAS No. 142, Goodwill and Other Intangible Assets, or SFAS 142, we test goodwill for
impairment at the reporting unit level (operating segment or one level below an operating segment)
on an annual basis in the fourth quarter or more frequently if we believe indicators of impairment
exist. The performance of the test involves a two-step process. The first step of the impairment
test involves comparing the fair values of the applicable reporting units with their aggregate
carrying values, including goodwill. We generally determine the fair value of our reporting units
using the income approach methodology of valuation that includes the discounted cash flow method as
well as other generally accepted valuation methodologies. If the carrying amount of a reporting
unit exceeds the reporting units fair value, we perform the second step of the goodwill impairment
test to determine the amount of impairment loss. The second step of the goodwill impairment test
involves comparing the implied fair value of the affected reporting units goodwill with the
carrying value of that goodwill.
We account for long-lived assets, including other purchased intangible assets, in accordance
with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, or SFAS 144,
which requires impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment, such as reductions in demand or significant economic slowdowns in the
semiconductor industry, are present. Reviews are performed to determine whether the carrying value
of an asset is impaired, based on comparisons to undiscounted expected future cash flows. If this
comparison indicates that there is impairment, the impaired asset is written down to fair value,
which is typically calculated using: (i) quoted market prices or (ii) discounted expected future
cash flows utilizing a discount rate consistent with the guidance provided in FASB Concepts
Statement No. 7, Using Cash Flow Information and Present Value in Accounting Measurements.
Impairment is based on the excess of the carrying amount over the fair value of those assets.
Warranty
Our products typically carry a one to three year warranty. We establish reserves for estimated
product warranty costs at the time revenue is recognized based upon our historical warranty
experience, and additionally for any known product warranty issues. If actual costs differ from our
initial estimates, we record the difference in the period it is identified. Actual claims are
charged against the warranty reserve. See Note 2 for a summary of our warranty activity.
Guarantees and Indemnifications
In some agreements to which we are a party, we have agreed to indemnify the other party for
certain matters such as product liability. We include intellectual property indemnification
provisions in our standard terms and conditions of sale for our products and have also included
such provisions in certain agreements with third parties. We have and will continue to evaluate and
provide reasonable assistance for these other parties. This may include certain levels of financial
support to minimize the impact of the litigation in which they are involved. To date, there have
been no known events or circumstances that have resulted in any material costs related to these
indemnification provisions and no liabilities have been recorded in the accompanying unaudited
condensed consolidated financial statements. However, the maximum potential amount of the future
payments we could be required to make under these indemnification obligations could be significant.
We also have obligations to indemnify certain of our present and former directors, officers
and employees to the maximum extent not prohibited by law. Under these obligations, Broadcom is
required to indemnify (subject to certain exceptions) each such director, officer and employee
against expenses, including attorneys fees, judgments, fines and settlements, paid by such
individual in connection with our currently outstanding securities litigation and related
government investigations described in Note 9. The potential amount of the future payments we could
be required to make under these indemnification obligations could be significant. We maintain
directors and officers insurance policies that may limit our exposure and enable us to recover a
portion of the amounts paid with respect to such obligations. However, certain of our insurance
carriers have reserved their rights under their respective policies, and in the third quarter of
2008 one of our insurance carriers notified us that coverage was not available and that it intended
to suspend payment to us. As a result, we ceased receiving reimbursements under these policies for
our expenses related to the matters described above. However, in January 2009 we entered into an
agreement with
that insurance carrier and certain of our other insurance carriers pursuant to which, without
prejudicing our rights or
9
the rights of such insurers, we have received payments from these
insurers under these insurance policies. We recognize reimbursements from our directors and
officers insurance carriers on a cash basis, pursuant to which we record a reduction of selling,
general and administrative expense only when cash is received from our insurance carriers. In the
three and six months ended June 30, 2009, we recovered legal expenses of $5.0 million and $16.6
million, respectively, under these insurance policies. From inception of the securities litigation
and related government investigations through June 30, 2009, we have recovered legal expenses of
$43.3 million under these insurance policies. These amounts have been recorded as a reduction of
selling, general and administrative expense. In certain limited circumstances, all or portions of
the amounts recovered from our insurance carriers may be required to be repaid. We regularly
evaluate the need to record a liability for potential future repayments in accordance with SFAS No.
5, Accounting for Contingencies, or SFAS 5. As of June 30, 2009 we have not recorded a liability in
connection with these potential insurance repayment provisions. In connection with our currently
outstanding securities litigation and related government investigations described in Note 9, as of
June 30, 2009, we had advanced $57.9 million to certain former officers for attorney and expert
fees for which we did not receive reimbursement from our insurance carriers, which amount has been
expensed. If our coverage under these policies is reduced or eliminated, our potential financial
exposure in the pending securities litigation and related government investigations would be
increased.
Income Taxes
We utilize the asset and liability method of accounting for income taxes as set forth in SFAS
No. 109, Accounting for Income Taxes, or SFAS 109. Under the asset and liability method, deferred
taxes are determined based on the temporary differences between the financial statement and tax
basis of assets and liabilities using tax rates expected to be in effect during the years in which
the basis differences reverse. A valuation allowance is recorded when it is more likely than not
that some of the deferred tax assets will not be realized.
We utilize FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes An
Interpretation of FASB Statement No. 109, or FIN 48, for the financial statement recognition,
measurement and disclosure of uncertain tax positions recognized in our unaudited condensed
consolidated financial statements. FIN 48 requires income tax positions to meet a
more-likely-than-not recognition threshold to be recognized. We recognize potential accrued
interest and penalties related to unrecognized tax benefits within the unaudited condensed
consolidated statements of operations as income tax expense.
Stock-Based Compensation
Broadcom has in effect stock incentive plans under which incentive stock options have been
granted to employees and restricted stock units and non-qualified stock options have been granted
to employees and non-employee members of the Board of Directors. We also have an employee stock
purchase plan for all eligible employees. SFAS No. 123 (revised 2004), Share-Based Payment, or SFAS
123R requires companies to estimate the fair value of share-based awards on the date of grant. The
value of the award is principally recognized as expense ratably over the requisite service periods.
The fair value of our restricted stock units is based on the closing market price of our Class A
common stock on the date of grant. We have estimated the fair value of stock options and stock
purchase rights as of the date of grant or assumption using the Black-Scholes option pricing model,
which was developed for use in estimating the value of traded options that have no vesting
restrictions and that are freely transferable. The Black-Scholes model considers, among other
factors, the expected life of the award and the expected volatility of our stock price. We evaluate
the assumptions used to value stock options and stock purchase rights under SFAS 123R on a
quarterly basis. Although the Black-Scholes model meets the requirements of SFAS 123R and SAB 107,
Share-Based Payment, the fair values generated by the model may not be indicative of the actual
fair values of our equity awards, as it does not consider other factors important to those awards
to employees, such as continued employment, periodic vesting requirements and limited
transferability.
Litigation and Settlement Costs
We are involved in disputes, litigation and other legal actions. In accordance with SFAS 5 we
record a charge equal to at least the minimum estimated liability for a loss contingency when both
of the following conditions are met: (i) information available prior to issuance of the financial
statements indicates that it is probable that an asset had been impaired or a liability had been
incurred at the date of the financial statements and (ii) the range of loss can be reasonably
estimated. Legal costs are expensed as incurred.
10
Net Income (Loss) Per Share
Net income (loss) per share (basic) is calculated by dividing net income (loss) by the
weighted average number of common shares outstanding during the year. Net income per share
(diluted) is calculated by adjusting outstanding shares, assuming any dilutive effects of options
and restricted stock units calculated using the treasury stock method. Under the treasury stock
method, an increase in the fair market value of our Class A common stock results in a greater
dilutive effect from outstanding options, stock purchase rights and restricted stock units.
Additionally, the exercise of employee stock options and stock purchase rights and the vesting of
restricted stock units results in a further dilutive effect on net income per share.
Business Enterprise Segments
We operate in one reportable operating segment, wired and wireless broadband communications.
SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, or SFAS 131,
establishes standards for the way public business enterprises report information about operating
segments in annual consolidated financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports. SFAS 131 also
establishes standards for related disclosures about products and services, geographic areas and
major customers. Our Chief Executive Officer, who is considered to be our chief operating decision
maker, reviews financial information presented on an operating segment basis for purposes of making
operating decisions and assessing financial performance.
Although we have four operating segments, under the aggregation criteria set forth in SFAS 131
we operate in only one reportable operating segment, wired and wireless broadband communications.
Self-Insurance
We are self-insured for certain healthcare benefits provided to our U.S. employees. The
liability for the self-insured benefits is limited by the purchase of stop-loss insurance. The
stop-loss coverage provides payment for aggregate claims exceeding $0.3 million per covered person
for any given year.
Accruals for losses are made based on our claim experience and actuarial estimates based on
historical data. Actual losses may differ from accrued amounts. Should actual losses exceed the
amounts expected and the recorded liabilities be insufficient, an additional expense will be
recorded.
Recent Accounting Pronouncements
In December 2007 the FASB issued SFAS No. 141R, Business Combinations, or SFAS 141R. SFAS 141R
establishes principles and requirements for the acquirer of a business to recognize and measure in
its financial statements the identifiable assets (including in-process research and development)
acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. Prior to the
adoption of SFAS 141R, in-process research and development was immediately expensed. In addition,
under SFAS 141R all acquisition costs are expensed as incurred. The statement also provides
guidance for recognizing and measuring the goodwill acquired in the business combination and
determines what information to disclose to enable users of financial statements to evaluate the
nature and financial effects of the business combination. SFAS 141R is effective for financial
statements issued for fiscal years beginning after December 15, 2008. Accordingly, business
combinations we engaged in were recorded and disclosed according to SFAS No. 141, Business
Combinations, until January 1, 2009. We expect SFAS 141R will have an impact on our consolidated
financial statements, but the nature and magnitude of the specific effects will depend upon the
nature, terms and size of the acquisitions we consummate after the effective date of January 1,
2009.
In April 2009 the FASB issued FSP No. 141R-1 Accounting for Assets Acquired and Liabilities
Assumed in a Business Combination That Arise from Contingencies, or FSP 141R-1. FSP 141R-1 amends
the provisions in SFAS 141R for the initial recognition and measurement, subsequent measurement and
accounting, and disclosures for assets and liabilities arising from contingencies in business
combinations. The FSP eliminates the distinction between contractual and non-contractual
contingencies, including the initial recognition and measurement criteria in SFAS 141R and instead
carries forward most of the provisions in SFAS 141 for acquired contingencies. FSP 141R-1 is
effective for contingent assets and contingent liabilities acquired in business combinations for
which the
11
acquisition date is on or after the beginning of the first annual reporting period beginning
on or after December 15, 2008. We expect FSP 141R-1 will have an impact on our consolidated
financial statements, but the nature and magnitude of the specific effects will depend upon the
nature, term and size of the acquired contingencies.
In December 2007 the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements an amendment of Accounting Research Bulletin No. 51, or SFAS 160. SFAS 160
addresses the accounting and reporting standards for ownership interests in subsidiaries held by
parties other than the parent, the amount of consolidated net income attributable to the parent and
to the noncontrolling interest, changes in a parents ownership interest, and the valuation of
retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also
establishes disclosure requirements that clearly identify and distinguish between the interests of
the parent and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal years
beginning after December 15, 2008. The adoption of SFAS 160 did not have a material impact on our
unaudited condensed consolidated financial statements.
In December 2007 the FASB ratified EITF Issue No. 07-1, Accounting for Collaborative
Arrangements, or EITF 07-1. EITF 07-1 focuses on defining a collaborative arrangement as well as
the accounting for transactions between participants in a collaborative arrangement and between the
participants in the arrangement and third parties. The EITF concluded that both types of
transactions should be reported in each participants respective income statement. EITF 07-1 is
effective for financial statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years and should be applied using a modified retrospective
method to all prior periods presented for all collaborative arrangements existing as of the
effective date. The adoption of EITF 07-1 did not have a material impact on our current or prior
unaudited condensed consolidated financial statements.
In April 2008 the FASB issued FSP No. 142-3, Determination of the Useful Life of Intangible
Assets, or FSP 142-3, which amends the guidance for estimating the useful lives of recognized
intangible assets and requires additional disclosures related to renewing or extending the terms of
recognized intangible assets under SFAS 142. FSP 142-3 is effective for financial statements issued
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2008.
The adoption of FSP 142-3 did not have a material impact on our unaudited condensed consolidated
financial statements.
In May 2008 the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles, or SFAS 162. SFAS 162 identifies the sources of accounting principles to be used in the
preparation of financial statements of nongovernmental entities that are presented in conformity
with GAAP. SFAS 162 is effective 60 days following the SEC approval of the Public Company
Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles. We currently adhere to the hierarchy of
GAAP as presented in SFAS 162, and adoption is not expected to have a material impact on our
unaudited condensed consolidated financial statements.
In November 2008 the FASB ratified EITF Issue No. 08-7, Accounting for Defensive Intangible
Assets, or EITF 08-7. EITF 08-7 applies to defensive intangible assets, which are acquired
intangible assets that the acquirer does not intend to actively use, but intends to hold to prevent
its competitors from obtaining access to them. As these assets are separately identifiable, EITF
08-7 requires an acquiring entity to account for defensive intangible assets as a separate unit of
accounting which should be amortized to expense over the period the intangible asset will directly
or indirectly affect the entitys cash flows. Defensive intangible assets must be recognized at
fair value in accordance with SFAS 141R and SFAS 157. EITF 08-7 is effective for financial
statements issued for fiscal years beginning after December 15, 2008. We expect EITF 08-7 will have
an impact on our consolidated financial statements, but the nature and magnitude of the specific
effects will depend upon the nature, terms and value of the intangible assets purchased after the
effective date of January 1, 2009.
In April 2009 the FASB issued three related Staff Positions: (i) FSP No. 157-4, Determining
Fair Value When the Volume and Level of Activity for the Asset or Liability have Significantly
Decreased and Identifying Transactions That Are Not Orderly, or FSP 157-4, (ii) FSP 115-2 and FSP
No. 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, or FSP 115-2 and FSP
124-2, and (iii) FSP 107-1 and APB No. 28-1, Interim Disclosures about Fair Value of Financial
Instruments, or FSP 107 and APB 28-1, which are effective for interim and annual periods ending
after June 15, 2009. FSP 157-4 provides guidance on how to determine the fair value of assets and
liabilities under SFAS 157 in the current economic environment and reemphasizes that the objective
of a fair value measurement remains an exit price. If we were to conclude that there has been a
significant decrease in the volume and level of activity of the asset or liability in relation to
normal market activities, quoted market values may not be representative of fair value and we may
conclude that a change in valuation technique or the use of multiple valuation techniques may be
appropriate. FSP 115-2 and FSP 124-2 modify the requirements for
12
recognizing other-than-temporarily impaired debt securities and revise the existing impairment
model for such securities, by modifying the current intent and ability indicator in determining
whether a debt security is other-than-temporarily impaired. FSP 107 and APB 28-1 enhance the
disclosure of instruments under the scope of SFAS 157 for both interim and annual periods. The
adoption of these FSPs did not have a material impact on our unaudited condensed consolidated
financial statements.
In May 2009 the FASB issued and we adopted SFAS No. 165, Subsequent Events, or SFAS 165. SFAS
165 establishes general standards of accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or are available to be issued. SFAS
165 requires the disclosure of the date through which an entity has evaluated subsequent events and
the basis for that date, that is, whether the date represents the date the financial statements
were issued or were available to be issued. SFAS 165 is effective in the first interim period
ending after June 15, 2009.
In June 2009 the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R), or
SFAS 167, that will change how we determine when an entity that is insufficiently capitalized or is
not controlled through voting (or similar rights) should be consolidated. Under SFAS No. 167,
determining whether a company is required to consolidate an entity will be based on, among other
things, an entitys purpose and design and a companys ability to direct the activities of the
entity that most significantly impact the entitys economic performance. SFAS 167 is effective for
financial statements after January 1, 2010.
In June 2009 the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting, or SFAS 168. SFAS 168 represents the last numbered
standard to be issued by FASB under the old (pre-Codification) numbering system, and amends the
GAAP hierarchy established under SFAS 162. On July 1, 2009 the FASB launched FASBs new
Codification entitled The FASB Accounting Standards Codification. The Codification will supersede
all existing non-SEC accounting and reporting standards. SFAS 168 is effective in the first
interim and annual periods ending after September 15, 2009. This pronouncement will have no effect
on our unaudited condensed consolidated financial statements upon adoption other than current
references to GAAP which will be replaced with references to the applicable codification paragraphs.
2. Supplemental Financial Information
Inventory
The following table presents details of our inventory:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Work in process |
|
$ |
130,318 |
|
|
$ |
166,811 |
|
Finished goods |
|
|
148,980 |
|
|
|
199,295 |
|
|
|
|
|
|
|
|
|
|
$ |
279,298 |
|
|
$ |
366,106 |
|
|
|
|
|
|
|
|
13
Property and Equipment
The following table presents details of our property and equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
Useful Life |
|
2009 |
|
|
2008 |
|
|
|
(In years) |
|
(In thousands) |
|
Leasehold improvements |
|
1 to 10 |
|
$ |
159,295 |
|
|
$ |
154,594 |
|
Office furniture and equipment |
|
3 to 7 |
|
|
26,287 |
|
|
|
25,059 |
|
Machinery and equipment |
|
3 to 5 |
|
|
205,790 |
|
|
|
193,993 |
|
Computer software and equipment |
|
2 to 4 |
|
|
118,031 |
|
|
|
113,501 |
|
Construction in progress |
|
N/A |
|
|
4,749 |
|
|
|
3,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
514,152 |
|
|
|
491,040 |
|
|
|
|
|
|
|
|
|
|
|
|
Less accumulated depreciation and amortization |
|
|
|
|
(289,914 |
) |
|
|
(256,349 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
224,238 |
|
|
$ |
234,691 |
|
|
|
|
|
|
|
|
|
|
In the six months ended June 30, 2009 and 2008, we disposed of property and equipment with a
net book value of $0.3 million and $2.1 million, respectively.
Goodwill
The following table summarizes the activity related to the carrying value of our goodwill
during the six months ended June 30, 2009:
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, 2009 |
|
|
|
(In thousands) |
|
Beginning balance |
|
$ |
1,279,243 |
|
Purchase price adjustment DTV Business of AMD, Inc. |
|
|
(2,139 |
) |
|
|
|
|
Ending balance |
|
$ |
1,277,104 |
|
|
|
|
|
Purchased Intangible Assets
The following table presents details of our purchased intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Gross |
|
|
Amortization |
|
|
Net |
|
|
Gross |
|
|
Amortization |
|
|
Net |
|
|
|
(In thousands) |
|
Completed technology |
|
$ |
220,669 |
|
|
$ |
(198,300 |
) |
|
$ |
22,369 |
|
|
$ |
220,669 |
|
|
$ |
(190,074 |
) |
|
$ |
30,595 |
|
Customer relationships (1) |
|
|
80,366 |
|
|
|
(69,895 |
) |
|
|
10,471 |
|
|
|
80,366 |
|
|
|
(50,558 |
) |
|
|
29,808 |
|
Customer backlog |
|
|
3,436 |
|
|
|
(3,436 |
) |
|
|
|
|
|
|
3,436 |
|
|
|
(3,436 |
) |
|
|
|
|
Other |
|
|
9,214 |
|
|
|
(7,880 |
) |
|
|
1,334 |
|
|
|
9,214 |
|
|
|
(7,659 |
) |
|
|
1,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
313,685 |
|
|
$ |
(279,511 |
) |
|
$ |
34,174 |
|
|
$ |
313,685 |
|
|
$ |
(251,727 |
) |
|
$ |
61,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included in accumulated amortization in 2009 was an impairment to
customer relationships of $11.3 million related to the acquisition of
the DTV Business of AMD in accordance with SFAS 144. The primary
factor contributing to this impairment charge was the reduction in the
revenue outlook from an acquired customer. |
14
The following table presents details of the amortization of purchased intangible assets
included in the cost of product revenue and other operating expense categories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Cost of product revenue |
|
$ |
4,112 |
|
|
$ |
3,934 |
|
|
$ |
8,225 |
|
|
$ |
7,869 |
|
Other operating expenses |
|
|
4,139 |
|
|
|
184 |
|
|
|
8,298 |
|
|
|
367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
8,251 |
|
|
$ |
4,118 |
|
|
$ |
16,523 |
|
|
$ |
8,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents details of estimated future straight-line amortization of
existing purchased intangible assets. If we acquire additional purchased intangible assets in the
future, our cost of product revenue or operating expenses will be increased by the amortization of
those assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Intangible Assets Amortization by Year |
|
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
Thereafter |
|
|
Total |
|
|
|
(In thousands) |
|
Cost of product revenue |
|
$ |
7,750 |
|
|
$ |
13,239 |
|
|
$ |
1,380 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
22,369 |
|
Other operating expenses |
|
|
4,052 |
|
|
|
6,920 |
|
|
|
500 |
|
|
|
333 |
|
|
|
|
|
|
|
11,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
11,802 |
|
|
$ |
20,159 |
|
|
$ |
1,880 |
|
|
$ |
333 |
|
|
$ |
|
|
|
$ |
34,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued Liabilities
The following table presents details of our accrued liabilities:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Accrued rebates |
|
$ |
119,940 |
|
|
$ |
125,058 |
|
Accrued charitable contribution |
|
|
50,000 |
|
|
|
|
|
Accrued legal costs |
|
|
41,141 |
|
|
|
26,973 |
|
Accrued payments on repurchases of
Class A common stock |
|
|
12,535 |
|
|
|
|
|
Warranty reserve |
|
|
11,902 |
|
|
|
11,473 |
|
Accrued taxes |
|
|
6,807 |
|
|
|
15,924 |
|
Restructuring liabilities |
|
|
2,598 |
|
|
|
3,342 |
|
Accrued licensing payments |
|
|
|
|
|
|
25,467 |
|
Other |
|
|
33,056 |
|
|
|
28,283 |
|
|
|
|
|
|
|
|
|
|
$ |
277,979 |
|
|
$ |
236,520 |
|
|
|
|
|
|
|
|
Other Long-Term Liabilities
The following table presents details of our other long-term liabilities:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Deferred rent |
|
$ |
30,500 |
|
|
$ |
32,594 |
|
Accrued taxes |
|
|
24,482 |
|
|
|
26,190 |
|
Restructuring liabilities |
|
|
|
|
|
|
837 |
|
Other long-term liabilities |
|
|
5,869 |
|
|
|
5,576 |
|
|
|
|
|
|
|
|
|
|
$ |
60,851 |
|
|
$ |
65,197 |
|
|
|
|
|
|
|
|
15
Accrued Rebate Activity
The following table summarizes the activity related to accrued rebates during the six months
ended June 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Beginning balance |
|
$ |
125,058 |
|
|
$ |
132,603 |
|
Charged as a reduction of revenue |
|
|
120,557 |
|
|
|
110,371 |
|
Reversal of unclaimed rebates |
|
|
(7,565 |
) |
|
|
(26,515 |
) |
Payments |
|
|
(118,110 |
) |
|
|
(104,230 |
) |
|
|
|
|
|
|
|
Ending balance |
|
$ |
119,940 |
|
|
$ |
112,229 |
|
|
|
|
|
|
|
|
We recorded rebates to certain customers of $70.0 million and $55.3 million and reversed
accrued rebates of $4.7 million and $11.2 million in the three months ended June 30, 2009 and 2008,
respectively.
Warranty Reserve Activity
The following table summarizes activity related to the warranty reserve during the six months
ended June 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Beginning balance |
|
$ |
11,473 |
|
|
$ |
23,287 |
|
Charged to costs and expenses |
|
|
3,959 |
|
|
|
2,282 |
|
Payments |
|
|
(3,530 |
) |
|
|
(3,174 |
) |
|
|
|
|
|
|
|
Ending balance |
|
$ |
11,902 |
|
|
$ |
22,395 |
|
|
|
|
|
|
|
|
We recorded charges to costs and expenses of $2.9 million and $1.0 million in the three months
ended June 30, 2009 and 2008, respectively.
Restructuring Activity
In light of the deterioration in worldwide economic conditions, in January 2009 we began
implementing a restructuring plan. The plan included a reduction in our worldwide headcount of
approximately 200 people, which represented approximately 3% of our global workforce.
We recorded $0.4 million and $7.6 million in net restructuring costs in the three and six
months ended June 30, 2009, respectively, related to the plan, primarily for severance and other
charges associated with our reduction in workforce across multiple locations and functions and, to
a lesser extent, the closure of one of our facilities. Of the
total restructuring costs, $2.7 million related to stock-based compensation expense incurred
in connection with the modification of certain share-based awards.
16
The following table summarizes activity related to our current and long-term restructuring
liabilities during the six months ended June 30, 2009:
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, 2009 |
|
|
|
(In thousands) |
|
Beginning balance |
|
|
4,179 |
|
Charged to expense |
|
|
8,308 |
|
Reversal of restructuring costs(1) |
|
|
(750 |
) |
Payments(2) |
|
|
(9,139 |
) |
|
|
|
|
Ending balance(3) |
|
$ |
2,598 |
|
|
|
|
|
|
|
|
(1) |
|
We recorded a reversal of restructuring liabilities of $0.8 million, reflecting revised
assumptions on a facility included in a prior restructuring plan. |
|
(2) |
|
Payments related to severance, fringe benefits and non-cancelable lease costs. |
|
(3) |
|
The remaining excess facility cost will be paid over the remaining lease term through 2010. |
Computation of Net Income (Loss) Per Share
The following table presents the computation of net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands, except per share data) |
|
Numerator: Net income (loss) |
|
$ |
13,401 |
|
|
$ |
134,789 |
|
|
$ |
(78,539 |
) |
|
$ |
209,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: Weighted average shares outstanding |
|
|
495,204 |
|
|
|
512,968 |
|
|
|
492,746 |
|
|
|
521,699 |
|
Less: Unvested common shares outstanding |
|
|
(94 |
) |
|
|
(93 |
) |
|
|
(94 |
) |
|
|
(93 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for net income (loss) per share (basic) |
|
|
495,110 |
|
|
|
512,875 |
|
|
|
492,652 |
|
|
|
521,606 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested common shares outstanding |
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock awards |
|
|
12,837 |
|
|
|
17,102 |
|
|
|
|
|
|
|
13,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for net income (loss) per share (diluted) |
|
|
507,993 |
|
|
|
529,977 |
|
|
|
492,652 |
|
|
|
534,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share (basic) |
|
$ |
0.03 |
|
|
$ |
0.26 |
|
|
$ |
(0.16 |
) |
|
$ |
0.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share (diluted) |
|
$ |
0.03 |
|
|
$ |
0.25 |
|
|
$ |
(0.16 |
) |
|
$ |
0.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share (diluted) does not include the effect of anti-dilutive common
share equivalents resulting from outstanding equity awards. There were 80.9 million and 76.4
million anti-dilutive common share equivalents in the three months ended June 30, 2009 and 2008,
respectively. There were 128.9 million and 100.7 million anti-dilutive common share equivalents in
the six months ended June 30, 2009 and 2008, respectively.
Licensing of Intellectual Property
Settlement and Patent License and Non-Assert Agreement
On April 26, 2009 we entered into a Settlement and Patent License and Non-Assert Agreement, or
the Qualcomm Agreement, with QUALCOMM Incorporated, or Qualcomm. As part of the Qualcomm Agreement,
each party granted certain rights under its patent portfolio to the other party including, in
certain circumstances, under
future patents issued within one to four years after April 26, 2009. The term of the Qualcomm
Agreement commenced April 26, 2009 and will continue until the expiration of the last to expire of
the covered patents. The Qualcomm Agreement also resulted in the parties dismissing with prejudice
all outstanding litigation between them, and in Broadcom withdrawing its complaints with foreign
competition authorities.
17
In addition, certain patents were assigned by Broadcom to Qualcomm with Broadcom retaining a
royalty-free license under these patents. Also, Qualcomm will make payments to Broadcom totaling
$891.2 million, of which $200.0 million was paid in the three months ended June 30, 2009. The
remaining balance will be paid in sixteen equal and successive quarterly payments of $43.2 million
each, starting in the three months ending September 30, 2009 and concluding in the three months
ending June 30, 2013.
We determined the estimated fair values of the individual components of the Qualcomm Agreement
and used the relative fair value method to allocate the payment amounts to the individual
components of the gain on settlement and revenue from the licensing of our intellectual property.
In the three months ended June 30, 2009 we recorded a gain on settlement of outstanding litigation
related to intellectual property of $65.3 million, which represents the estimated relative fair
value of the settlement for Qualcomms past infringement. The fair value of this amount was
primarily established based on awards determined by the United States District Court for the
Central District of California.
The estimated relative fair value of the licensing revenue as well as the assignment of
patents of $825.9 million will be recorded as a single unit of accounting and recognized over the
Qualcomm Agreements performance period of four years. In the three months ended June 30, 2009, we
recorded licensing revenue of $36.7 million and expect to record licensing revenue in equal
quarterly amounts of $51.7 million for the quarters ending September 30, 2009 through March 31,
2012, $47.7 million in the three months ending June 30, 2012 and $43.2 million in each of the
following four quarters ending June 30, 2013. At June 30, 2009 we recorded deferred revenue of
$97.9 million related to the initial payment.
Separately, we recorded licensing revenue of $30.5 million in the three months ended June 30,
2009 related to additional payments made by Qualcomm during 2008 for shipments from May 2007
through December 31, 2008, related to a permanent injunction on certain products. These amounts
were previously deferred due to continuing litigation appeals, which have been resolved through the
Qualcomm Agreement.
Patent License Agreement
In July 2007 we entered into a patent license agreement with a wireless network operator.
Under the agreement, royalty payments were made to us at a rate of $6.00 per unit for each
applicable unit sold by the operator on or after the date of the agreement, subject to certain
conditions, including without limitation a maximum payment of $40.0 million per calendar quarter
and a lifetime maximum of $200.0 million. We recorded licensing revenue of $19.0 million in the six
months ended June 30, 2009, and $35.6 million and $71.2 million in the three and six months ended
June 30, 2008, respectively, under this agreement and recorded a cumulative total of $200.0 million
in licensing revenue from the commencement of the agreement through March 31, 2009.
Charitable Contribution
In April 2009 we established the Broadcom Foundation, or the Foundation, to support
mathematics and science programs, as well as a broad range of community services. In June 2009 we
pledged to make an unrestricted grant of $50.0 million to the Foundation upon receiving a
determination letter from the Internal Revenue Service of exemption from federal income taxation
under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended. Accordingly, as the
receipt of the determination letter is deemed probable, we recorded an operating expense for the
contribution of $50.0 million in the three and six months ended June 30, 2009.
Supplemental Cash Flow Information
During the three months ended June 30, 2009, we repurchased $12.5 million of our Class A
common stock in one or more transactions that had not been settled by June 30, 2009. We also paid
$5.4 million related to capital equipment purchases that were accrued at December 31, 2008. In
addition, billings of $4.8 million for capital
equipment were accrued but not yet paid as of June 30, 2009. These amounts have been excluded
from the unaudited condensed consolidated statements of cash flows.
18
3. Business Combinations
License Agreement
In connection with our acquisition of Sunext Design, Inc., we were required to pay up to an
additional $38.0 million in future license fees and royalties related to optical disk reader and
writer technology, assuming Sunext Technology successfully delivers the technologies as defined in
a separate license agreement. To date we have paid $31.4 million related to certain delivered
technologies and prepaid royalties, as defined in the license agreement. At June 30, 2009 we may
be required to pay up to an additional $2.6 million as defined in the agreement.
Contingent Consideration
In connection with our acquisition of Global Locate, Inc. in 2007, additional cash
consideration of up to $80.0 million could have been paid to the former holders of Global Locate
capital stock and other rights upon satisfaction of certain future performance goals. We previously
paid $20.2 million in 2007 and 2008 to the former holders of Global Locate capital stock and other
rights upon satisfaction of certain performance goals. The time remaining for completion of the
other performance goals has expired and no future payments are expected.
Supplemental Pro Forma Data (Unaudited)
The unaudited pro forma statement of operations data below gives effect to the Sunext Design
and DTV Business of AMD, Inc. acquisitions that were completed in 2008 as if they had occurred at
the beginning of 2008.
The following data includes the amortization of purchased intangible assets and stock-based
compensation expense, but excludes the charge for acquired in-process research and development. In
addition, it includes an impairment of goodwill and purchased intangibles of $473.2 million
recorded by AMD prior to our acquisition of the DTV Business. This pro forma data is presented for
informational purposes only and does not purport to be indicative of the results of future
operations or of the results that would have occurred had the acquisitions taken place at the
beginning of 2008.
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, 2008 |
|
|
|
(In thousands, except per |
|
|
|
share data) |
|
Pro forma net revenue |
|
$ |
2,275,041 |
|
|
|
|
|
Pro forma net loss |
|
$ |
(350,533 |
) |
|
|
|
|
Pro forma net loss per share (basic and diluted) |
|
$ |
(0.67 |
) |
|
|
|
|
4. Cash, Cash Equivalents and Marketable Securities
At June 30, 2009 we had $2.300 billion in cash, cash equivalents and marketable securities. We
maintain an investment portfolio of various security holdings, types and maturities. Pursuant to
SFAS 157, the fair value of all of our cash equivalents and marketable securities is determined
based on Level 1 inputs, which consist of quoted prices in active markets for identical assets.
We place our cash investments in instruments that meet credit quality standards, as specified in
our investment policy guidelines. These guidelines also limit the amount of credit exposure to any
one issue, issuer or type of instrument. All of our marketable securities are rated AAA, Aaa, A+,
A-1 or P-1 by the major credit rating agencies.
19
A summary of our cash, cash equivalents and short- and long-term marketable securities by major
security type follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-Term |
|
|
Long-Term |
|
|
|
|
|
|
Cash and |
|
|
Marketable |
|
|
Marketable |
|
|
|
|
|
|
Cash Equivalents |
|
|
Securities |
|
|
Securities |
|
|
Total |
|
|
|
(In thousands) |
|
June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
298,227 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
298,227 |
|
Time deposits |
|
|
389,980 |
|
|
|
|
|
|
|
|
|
|
|
389,980 |
|
U.S. Treasury and agency money market funds |
|
|
814,858 |
|
|
|
|
|
|
|
|
|
|
|
814,858 |
|
U.S. Treasury and agency obligations |
|
|
|
|
|
|
700,585 |
|
|
|
92,699 |
|
|
|
793,284 |
|
Institutional money market funds |
|
|
3,453 |
|
|
|
|
|
|
|
|
|
|
|
3,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,506,518 |
|
|
$ |
700,585 |
|
|
$ |
92,699 |
|
|
$ |
2,299,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
88,366 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
88,366 |
|
Time deposits |
|
|
273,654 |
|
|
|
|
|
|
|
|
|
|
|
273,654 |
|
U.S. Treasury and agency money market funds |
|
|
828,586 |
|
|
|
|
|
|
|
|
|
|
|
828,586 |
|
U.S. Treasury and agency obligations |
|
|
|
|
|
|
703,722 |
|
|
|
|
|
|
|
703,722 |
|
Commercial paper and corporate bonds |
|
|
|
|
|
|
3,755 |
|
|
|
|
|
|
|
3,755 |
|
Institutional money market funds |
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,190,645 |
|
|
$ |
707,477 |
|
|
$ |
|
|
|
$ |
1,898,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the gross unrealized gains and losses and fair values for those
investments as of June 30, 2009 and December 31, 2008 aggregated by major security type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
|
|
(In thousands) |
|
June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agency obligations |
|
$ |
792,594 |
|
|
$ |
820 |
|
|
$ |
(130 |
) |
|
$ |
793,284 |
|
Commercial paper and corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
792,594 |
|
|
$ |
820 |
|
|
$ |
(130 |
) |
|
$ |
793,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agency obligations |
|
$ |
698,910 |
|
|
$ |
4,814 |
|
|
$ |
(2 |
) |
|
$ |
703,722 |
|
Commercial paper and corporate bonds |
|
|
3,354 |
|
|
|
401 |
|
|
|
|
|
|
|
3,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
702,264 |
|
|
$ |
5,215 |
|
|
$ |
(2 |
) |
|
$ |
707,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All of our long-term marketable securities had maturities of approximately two years at June
30, 2009.
We review our portfolio of investments to identify and evaluate investments that have an
indication of possible other-than-temporary impairment. Factors considered in determining whether a
loss is other-than-temporary include the length of time and extent to which fair value has been
less than the cost basis, the financial condition and near-term prospects of the issuer, and our
intent and ability to hold the investment for a period of time sufficient to allow for any
anticipated recovery in market value. We maintain an investment portfolio of various holdings,
types and maturities. We do not use derivative financial instruments.
5. Income Taxes
We recorded a tax provision of $3.3 million and a tax benefit of $1.8 million for the three
and six months ended June 30, 2009, respectively, and tax provisions of $0.6 million and
$3.9 million for the three and six months ended
20
June 30, 2008, respectively. Our effective tax rates were 19.5% and 2.2% for the three and six
months ended June 30, 2009, respectively, and 0.5% and 1.8% for the three and six months ended
June 30, 2008, respectively. The difference between our effective tax rates and the 35% federal
statutory rate resulted primarily from foreign earnings taxed at rates lower than the federal
statutory rate for the three and six months ended June 30, 2009 and June 30, 2008, domestic losses
recorded without income tax benefit for the three and six months ended June 30, 2009, and tax
benefits resulting primarily from the expiration of the statutes of limitations for the assessment
of taxes in various foreign jurisdictions of $5.5 million and $6.5 million for the three and six
months ended June 30, 2009, respectively, and $4.4 million for the three and six months ended
June 30, 2008. We recorded a tax benefit of $3.9 million in the six months ended June 30, 2009
reflecting the utilization of a portion of our credits for increasing research activities (research
and development tax credits) pursuant to a provision contained in the American Recovery and
Reinvestment Tax Act of 2009, which was enacted in February 2009. Additionally, for the three and
six months ended June 30, 2009, we recorded a tax provision of $3.2 million associated with the
exposure resulting from a recent decision by the U. S. Court of Appeals for the Ninth Circuit in
the case involving Xilinx, Inc. as discussed below.
On May 27, 2009, the U.S. Court of Appeals for the Ninth Circuit in the case between Xilinx,
Inc. and the Commissioner of Internal Revenue, overturned a 2005 U.S. Tax Court ruling regarding
treatment of certain compensation expenses under a Companys research and development cost-sharing
arrangements with affiliates. The Court of Appeals held that related parties to such an arrangement
must share stock-based compensation expenses, notwithstanding the fact that unrelated parties in
such an arrangement would not share such costs. The case is subject to further appeal. The
potential impact to Broadcom, should the IRS prevail, of including such stock-based compensation
expenses in our research and development cost-sharing arrangements would be additional income for federal
and state purposes from January 1, 2001 forward, and may result in additional related federal and state income and franchise
taxes, and material adjustments to our federal and state net operating loss carryforwards, our
federal and state capitalized research and development costs and our deferred tax positions.
Specifically, in the three and six months ended June 30, 2009, we recorded a $3.2 million tax
provision for additional federal and state income and franchise taxes. We also reduced our federal
and state net operating loss carryforwards by approximately $600.0 million and $380.0 million,
respectively, and reduced our federal and state capitalized research and development costs by
approximately $10.0 million and $15.0 million, respectively. Additionally, in the three and six
months ended June 30, 2009, we reduced our deferred tax asset relating to stock-based compensation
expenses by approximately $60.0 million, and increased our deferred tax asset for certain tax
credits by approximately $10.0 million, with each of these amounts offset by a corresponding
adjustment to valuation allowance for deferred tax asset resulting in no net change to deferred tax
assets.
As a result of SFAS 123R, since January 1, 2006, our deferred tax assets exclude excess tax
benefits from employee stock-based compensation that are a component of our research and
development credits, capitalized research and development, and net operating loss carryovers. If
and when these tax benefits are realized, a credit is recorded to equity. The federal and state net
operating losses and the capitalized research and development costs we reduced as a result of the
decision in the Xilinx case represent such excess tax benefits from employee stock-based
compensation and therefore do not result in an adjustment to our deferred tax assets.
We utilize the asset and liability method of accounting for income taxes as set forth in SFAS
No. 109, Accounting for Income Taxes, or SFAS 109. We record net deferred tax assets to the extent
we believe these assets will more likely than not be realized. In making such determination, we
consider all available positive and negative evidence, including scheduled reversals of deferred
tax liabilities, projected future taxable income, tax planning strategies and recent financial
performance. SFAS 109 states that forming a conclusion that a valuation allowance is not required
is difficult when there is negative evidence such as cumulative losses in recent years. As a result
of our recent cumulative losses in the U.S. and certain foreign jurisdictions, and the full
utilization of our loss carryback opportunities, we have concluded that a full valuation allowance
should be recorded in such jurisdictions. In certain other foreign jurisdictions where we do not
have cumulative losses, we had net deferred tax assets of $7.6 million and $7.5 million at June 30,
2009 and December 31, 2008, respectively, in accordance with SFAS 109.
We file federal, state and foreign income tax returns in jurisdictions with varying statutes
of limitations. The 2004 through 2008 tax years generally remain subject to examination by federal
and most state tax authorities. In foreign jurisdictions, the 2001 through 2008 tax years generally
remain subject to examination by tax authorities.
21
Our income tax returns for the 2004, 2005 and 2006 tax years are currently under examination
by the Internal Revenue Service and certain state jurisdictions. In addition, our employment tax
returns for the 2003, 2004, 2005 and 2006 tax years are under examination by the Internal Revenue
Service. We currently do not expect that the results of these examinations will have a material
effect on our financial condition or results of operations.
We operate under tax holidays in Singapore, which are effective through March 31, 2014. The
tax holidays are conditional upon our continued compliance in meeting certain employment and
investment thresholds.
6. Shareholders Equity
Share Repurchase Program
From time to time our Board of Directors has authorized various programs to repurchase shares
of our Class A common stock depending on market conditions and other factors.
In July 2008 the Board of Directors authorized our current program to repurchase shares of
Broadcoms Class A common stock having an aggregate value of up to $1.0 billion. Repurchases under
the program may be made at any time during the period that commenced July 31, 2008 and
continuing through and including July 31, 2011. In the three and six months ended June 30, 2009
we repurchased a total of 2.0 million shares of our Class A common stock at a weighted average
price of $25.08, of which $12.5 million of our Class A common stock had not settled. As of June
30, 2009, $524.9 million remained authorized for repurchase under this program.
Repurchases under our share repurchase programs were and will be made in open market or
privately negotiated transactions in compliance with Rule 10b-18 promulgated under the Securities
Exchange Act of 1934, as amended, or the Exchange Act.
Comprehensive Income (Loss)
The components of comprehensive income (loss), net of taxes, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Net income (loss) |
|
$ |
(78,539 |
) |
|
$ |
209,103 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Unrealized loss on marketable securities |
|
|
(4,523 |
) |
|
|
(23 |
) |
Translation adjustments |
|
|
1,007 |
|
|
|
(4,719 |
) |
|
|
|
|
|
|
|
Total comprehensive income (loss) |
|
$ |
(82,055 |
) |
|
$ |
204,361 |
|
|
|
|
|
|
|
|
22
7. Employee Benefit Plans
Combined Incentive Plan Activity
Activity under all stock option incentive plans in 2009 is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
|
Exercise |
|
|
Exercise |
|
|
Grant-Date |
|
|
|
Number of |
|
|
Price Range |
|
|
Price |
|
|
Fair Value |
|
|
|
Shares |
|
|
per Share |
|
|
per Share |
|
|
per Share |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
122,270 |
|
|
$ |
.01 - $81.50 |
|
|
$ |
25.42 |
|
|
$ |
15.66 |
|
Options granted |
|
|
2,669 |
|
|
|
17.83 - 23.17 |
|
|
|
23.14 |
|
|
|
10.92 |
|
Options cancelled |
|
|
(2,635 |
) |
|
|
.01 - 48.63 |
|
|
|
30.00 |
|
|
|
16.14 |
|
Options exercised |
|
|
(2,557 |
) |
|
|
.01 - 26.31 |
|
|
|
16.90 |
|
|
|
12.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009 |
|
|
119,747 |
|
|
$ |
.01 - $81.50 |
|
|
$ |
25.45 |
|
|
$ |
15.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock unit activity in 2009 is set forth below:
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units |
|
|
|
Outstanding |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant-Date |
|
|
|
Number of |
|
|
Fair Value |
|
|
|
Shares |
|
|
per Share |
|
|
|
(In thousands) |
|
|
|
|
|
Balance at December 31, 2008 |
|
|
27,622 |
|
|
$ |
27.61 |
|
Restricted stock units granted |
|
|
11,936 |
|
|
|
23.42 |
|
Restricted stock units cancelled |
|
|
(772 |
) |
|
|
26.35 |
|
Restricted stock units vested |
|
|
(5,193 |
) |
|
|
29.34 |
|
|
|
|
|
|
|
|
Balance at June 30, 2009 |
|
|
33,593 |
|
|
$ |
25.88 |
|
|
|
|
|
|
|
|
The per share fair values of stock options and employee stock purchase rights granted in the
six months ended June 30, 2009 in connection with stock incentive plans have been estimated with
the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee |
|
|
Employee |
|
Stock |
|
|
Stock |
|
Purchase |
|
|
Options |
|
Rights |
Expected life (in years) |
|
|
5.00 |
|
|
|
1.00 |
|
Volatility |
|
|
0.53 |
|
|
|
0.61 |
|
Risk-free interest rate |
|
|
1.83 |
% |
|
|
0.55 |
% |
Dividend yield |
|
|
0.00 |
% |
|
|
0.00 |
% |
Weighted average fair value |
|
$ |
10.92 |
|
|
$ |
8.29 |
|
23
Unearned Stock-Based Compensation
The following table presents details of unearned stock-based compensation currently estimated
to be expensed in the remainder of 2009 through 2013 related to unvested share-based payment
awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
Total |
|
|
(In thousands) |
Unearned stock-based compensation |
|
$ |
254,919 |
|
|
$ |
387,174 |
|
|
$ |
255,311 |
|
|
$ |
123,342 |
|
|
$ |
24,896 |
|
|
$ |
1,045,642 |
|
If there are any modifications or cancellations of the underlying unvested awards, we may be
required to accelerate, increase or cancel any remaining unearned stock-based compensation expense.
Future stock-based compensation expense and unearned stock-based compensation will increase to the
extent that we grant additional equity awards or assume unvested equity awards in connection with
acquisitions.
8. Settlement Costs (Gains)
We recorded settlement gains of $65.3 million related to the Qualcomm Agreement in the three
months ended June 30, 2009. We also recorded $6.9 million in settlement costs in the three months
ended June 30, 2009 for an estimated settlement associated with certain employment tax items. In
addition, in the six months ended June 30, 2009 we recorded settlement costs of $1.2 million
related to a patent infringement claim.
In April 2008 we entered into a settlement with the SEC relating to the previously-disclosed
SEC investigation of Broadcoms historical stock option granting practices. Without admitting or
denying the SECs allegations, we agreed to pay a civil penalty of $12.0 million, which we recorded
as a settlement cost in 2008. The settlement was approved by the United States District Court for
the Central District of California in late April 2008. In addition, we settled a patent
infringement claim for $3.8 million in 2008. Both of the 2008 settlements were recorded in the six
months ended June 30, 2008.
For further discussion of settlement gains, income tax and litigation matters, see Notes 2, 5
and 9, respectively.
9. Litigation
Intellectual Property Proceedings. In April 2009 we entered into a Settlement and Patent
License and Non-Assert Agreement, or the Qualcomm Agreement, with QUALCOMM Incorporated that
resulted in the parties dismissing with prejudice all outstanding litigation between them, and
Broadcom withdrawing its complaints with foreign competition authorities. For further discussion
of this Agreement, see Note 2.
In December 2006 SiRF Technology, Inc., or SiRF, filed a complaint in the United States
District Court for the Central District of California against Global Locate, Inc., a privately-held
company that became a wholly-owned subsidiary of Broadcom in July 2007, alleging that certain
Global Locate products infringe four SiRF patents relating generally to GPS technology. In January
2007 Global Locate filed an answer denying the allegations in SiRFs complaint and asserting
counterclaims. The counterclaims seek a declaratory judgment that the four SiRF patents are invalid
and not infringed, assert that SiRF has infringed four Global Locate patents relating generally to
GPS technology, and assert unfair competition and antitrust violations related to the filing of
sham litigation. In May 2007 the court granted Global Locates motion to stay the case until the
U.S. International Trade Commission, or ITC, actions between Global Locate and SiRF, discussed
below, become final.
In February 2007 SiRF filed a complaint in the ITC alleging that Global Locate engaged in
unfair trade practices by importing integrated circuits and other products that infringe, both
directly and indirectly, four SiRF patents relating generally to GPS technology. The complaint
seeks an exclusion order to bar importation of those Global Locate products into the United States
and a cease and desist order to bar further sales of infringing Global Locate products that have
already been imported. In March 2007 the ITC instituted an investigation of Global Locate based
upon the allegations made in the SiRF complaint. SiRF withdrew two patents from the investigation,
and an ITC administrative law judge conducted a hearing on SiRFs remaining two patents in suit in
March 2008. In June 2008 the ITC administrative law judge issued an initial determination finding
SiRFs two patents not infringed and one patent invalid. In August 2008 the ITC denied SiRFs
petition to review the administrative law judges initial
24
determination finding no violation,
thereby adopting the administrative law judges initial determination as the final determination of
the ITC and terminating the investigation. In October 2008 SiRF filed a notice of appeal with the
United States Court of Appeal for the Federal Circuit. In March 2009, SiRF filed a request to
withdraw its appeal which was subsequently granted by the United States Court of Appeal for the
Federal Circuit.
In April 2007 Global Locate filed a complaint in the ITC against SiRF and four of its
customers, e-TEN Corporation, Pharos Science & Applications, Inc., MiTAC International Corporation
and Mio Technology Limited, referred to collectively as the SiRF Defendants, asserting that the
SiRF Defendants engaged in unfair trade practices
by importing GPS devices, including integrated circuits and embedded software, incorporated in
products such as personal navigation devices and GPS-enabled cellular telephones that infringe,
both directly and indirectly, six Global Locate patents relating generally to GPS technology. The
complaint seeks an exclusion order to bar importation of the SiRF Defendants products into the
United States and a cease and desist order to bar further sales of infringing products that have
already been imported. In May 2007 the ITC instituted an investigation of the SiRF Defendants based
upon the allegations made in the Global Locate complaint. A hearing was held in April and May 2008.
In August 2008 the administrative law judge issued an initial determination finding that SiRF and
the other SiRF Defendants infringed each of Global Locates six patents, and that each of the six
patents was not invalid and issued a recommended determination on remedy and bonding. In October
2008 the ITC determined, in part, not to review the administrative law judges initial
determination finding violation of three of Global Locates patents. The ITC also decided to review
the administrative law judges initial determination that three other Global Locate patents were
infringed by SiRF.
In January 2009 the Commission issued a Final Determination and upheld the ITC administrative
law judges August 2008 initial determination finding that SiRF and the other SiRF respondants
infringe six Global Locate patents and that each of the six patents was not invalid. The Commission
also issued an exclusion order banning the importation into the United States of infringing SiRF
chips and the SiRF Defendants products containing infringing SiRF chips and a cease and desist
order prohibiting SiRF and the other SiRF Defendants from engaging in certain activities related to
the infringing chips. In March 2009, the SiRF Defendants filed a notice of appeal with the United
States Court of Appeal for the Federal Circuit.
In May 2008 Broadcom filed a complaint in the United States District Court for the Central
District of California against SiRF, alleging that certain SiRF GPS and multimedia products
infringe four Broadcom patents relating generally to graphics and communications technology. The
District Court complaint seeks preliminary and permanent injunctions against SiRF and the recovery
of monetary damages, including treble damages for willful infringement, and attorneys fees. In
June 2008 SiRF answered the complaint and asserted counterclaims seeking a declaratory judgment
that Broadcoms patents are invalid and not infringed. In September 2008 the court denied SiRFs
motion to stay the case. Discovery is ongoing. Trial has been set for November 2010.
In October 2007 Wi-LAN Inc. filed complaints against us and multiple other defendants in the
United States District Court for the Eastern District of Texas alleging that certain Broadcom
products infringe three Wi-LAN patents relating generally to wireless LAN and DSL technology. The
complaint seeks a permanent injunction against us as well as the recovery of monetary damages and
attorneys fees. We filed an answer in January 2008 denying the allegations in Wi-LANs complaint
and asserting counterclaims seeking a declaratory judgment that the three Wi-LAN patents are
invalid, unenforceable and not infringed. In February 2009 Wi-LAN filed a supplemental complaint
alleging that certain Broadcom products infringe a fourth Wi-LAN patent relating generally to
Bluetooth technology. The complaint seeks a permanent injunction against us as well as the recovery
of monetary damages and attorneys fees. We filed an answer in February 2009 denying the
allegations in Wi-LANs complaint and asserting counterclaims seeking a declaratory judgment that
the fourth Wi-LAN patent is invalid, unenforceable and not infringed. Discovery is ongoing. Trial
has been set for January 2011.
In December 2008, we filed a complaint in the United States District Court for the Northern
District of California against Wi-LAN seeking declaratory judgment that Broadcoms products do not
infringe the fourth Wi-LAN patent referred to in the previous paragraph and that the patent is
invalid and unenforceable. Wi-LAN has not yet answered the complaint. No trial date has been set.
On
July 22, 2009, British Telecom sued Broadcom in United States
District Court for the District of New Jersey alleging infringement
of a single patent purportedly relating to V.42bis data compression.
The patent in suit expires in October 2009. Broadcom has not yet
answered the complaint and a trial date has not been set.
Securities Litigation and Other Related Matters. In April 2009 we filed a complaint in
Delaware Chancery Court against Emulex Corporation, or Emulex, and Emulex officers and directors
(Fred B. Cox, Michael P. Downey, Bruce C. Edwards, Paul F. Folino, Robert H. Goon, Don M. Lyle,
James M. McCluney, and Dean A. Yoost) alleging that a poison pill and certain bylaw amendments
adopted by Emulex are contrary to law and/or breach the directors fiduciary duty to Emulex, which
we dismissed in June 2009.
25
In May 2009, Emulex filed a complaint in the Central District of California against Broadcom
and Fiji Acquisition Corporation alleging violation of securities laws in connection with
Broadcoms proposed acquisition of Emulex. The complaint sought a declaration of securities laws
violations, an injunction, and an award of costs and attorneys fees. Emulex filed an amended
complaint in June, which Broadcom moved to dismiss. In July Emulex voluntarily dismissed its
complaint.
In May 2009 Emulex filed a complaint in Orange County Superior Court against Broadcom alleging
fraud, unfair competition, and intentional interference with contractual relations and prospective
economic advantage in connection with Broadcoms proposed acquisition of Emulex. We have not yet
answered the complaint and no schedule for the case has yet been set.
From March through August 2006 a number of purported Broadcom shareholders filed putative
shareholder derivative actions, the Options Derivative Actions, against Broadcom, each of the then
members of our Board of Directors and certain current or former officers, alleging, among other
things, that the defendants improperly dated certain Broadcom employee stock option grants. Four of
those cases, Murphy v. McGregor, et al. (Case No. CV06-3252 R (CWx)), Shei v. McGregor, et al.
(Case No. SACV06-663 R (CWx)), Ronconi v. Dull, et al. (Case No. SACV 06-771 R (CWx)) and Jin v.
Broadcom Corporation, et al. (Case No. 06CV00573) have been consolidated in the United States
District Court for the Central District of California. The plaintiffs filed a consolidated amended
complaint in November 2006. In addition, two putative shareholder derivative actions, Pirelli
Armstrong Tire Corp. Retiree Med. Benefits Trust v. Samueli, et al. (Case No. 06CC0124) and Servais
v. Samueli, et al. (Case No. 06CC0142), were filed in the California Superior Court for the County
of Orange. The Superior Court consolidated the state court derivative actions in August 2006, and
the plaintiffs filed a consolidated amended complaint in September 2006. The plaintiffs in the
Options Derivative Actions contend, among other things, that the defendants conduct violated
United States and California securities laws, breached defendants fiduciary duties, wasted
corporate assets, unjustly enriched the defendants, and caused errors in our consolidated financial
statements. The plaintiffs seek, among other things, unspecified damages and disgorgement of
profits from the alleged conduct, to be paid to Broadcom.
In January 2007 the California Superior Court granted defendants motion to stay the state
derivative action pending resolution of the prior-filed federal derivative action. In March 2007
the court in the federal derivative action denied our motion to dismiss, which motion was based on
the ground that the shareholder plaintiffs lack standing to assert claims on behalf of Broadcom.
Motions to dismiss filed by the individual defendants were heard, and mostly denied, in May 2007.
Additionally, in May 2007 the Board of Directors established a special litigation committee, the
SLC, to decide what course of action Broadcom should pursue in respect of the claims asserted in
the Options Derivative Actions. The SLC is currently engaged in its review.
From August through October 2006 several plaintiffs filed purported shareholder class actions
in the United States District Court for the Central District of California against Broadcom and
certain of our current or former officers and directors, entitled Bakshi v. Samueli, et al. (Case
No. 06-5036 R (CWx)), Mills v. Samueli, et al. (Case No. SACV 06-9674 DOC R(CWx)), and Minnesota
Bakers Union Pension Fund, et al. v. Broadcom Corp., et al. (Case No. SACV 06-970 CJC R (CWx)), the
Options Class Actions. The essence of the plaintiffs allegations is that we improperly backdated
stock options, resulting in false or misleading disclosures concerning, among other things, our
business and financial condition. Plaintiffs also allege that we failed to account for and pay
taxes on stock options properly, that the individual defendants sold our common stock while in
possession of material nonpublic information, and that the defendants conduct caused artificial
inflation in our stock price and damages to the putative plaintiff class. The plaintiffs assert
claims under Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. In
November 2006 the Court consolidated the Options Class Actions and appointed the New Mexico State
Investment Council as lead class plaintiff. In October 2007 the federal appeals court resolved a
dispute regarding the appointment of lead class counsel. In March 2008 the district judge entered a
revised order appointing lead class counsel. The lead plaintiff filed an amended consolidated class
action complaint in late April 2008, naming additional defendants including certain current
officers and directors of Broadcom as well as Ernst & Young LLP, our former independent registered
public accounting firm, or E&Y. In October 2008 the district judge granted defendants motions to
dismiss with leave to
amend. In October 2008 the lead plaintiff filed an amended complaint. In
November 2008 defendants filed motions to dismiss. On February 2, 2009 these motions were denied
except with respect to E&Y and the former Chairman of the Audit Committee, which were granted with
leave to
26
amend, and with respect to the former Chief Executive Officer, which was granted without
leave to amend. The lead
plaintiff did not amend its complaint with respect to the former Chairman of the Audit
Committee and the time period to do so has expired. With respect to E&Y, in March 2009 the district
judge entered a final judgment for E&Y and against the lead plaintiff. We intend to defend the
consolidated class action vigorously.
In April 2008 we delivered a Notice of Arbitration and Arbitration Claim to our former
independent registered public accounting firm, E&Y, and certain related parties. The arbitration
relates to the issues that led to the restatement of Broadcoms financial statements for the
periods from 1998 through March 31, 2006 as disclosed in an amended Annual Report on Form 10-K/A
for the year ended December 31, 2005 and an amended Quarterly Report on Form 10-Q/A for the three
months ended March 31, 2006, each filed with the SEC January 23, 2007. In May 2008 E&Y delivered a
Notice of Defense and Counterclaim. No date for an arbitration hearing has been scheduled.
We have indemnification agreements with each of our present and former directors and officers,
under which we are generally required to indemnify each such director or officer against expenses,
including attorneys fees, judgments, fines and settlements, arising from the Options Derivative
Actions, the Options Class Actions and the pending SEC and U.S. Attorneys Office investigations
described below (subject to certain exceptions, including liabilities arising from willful
misconduct, from conduct knowingly contrary to the best interests of Broadcom, or conduct that is
knowingly fraudulent or deliberately dishonest or results in improper personal benefit). The
potential amount of the future payments we could be required to make under these indemnification
obligations could be significant and could have a material impact on our results of operations,
particularly as the defendants in the criminal and civil actions described below prepare to go to
trial in 2009 and 2010. We maintain directors and officers insurance policies that may limit our
exposure and enable us to recover a portion of the amounts paid with respect to such obligations.
However, certain of our insurance carriers have reserved their rights, and in the third quarter of
2008 one of our insurance carriers notified us that coverage was not available and that it intended
to suspend payment to us. As a result, we ceased receiving reimbursements under certain policies
for our expenses related to these matters. However, in January 2009 we entered into an agreement
with that insurance carrier and certain of our other insurance carriers pursuant to which, without
prejudicing our rights or the rights of such insurers, we received payments from certain of these
insurers under these insurance policies. Nonetheless, if our coverage under these policies is
further reduced or eliminated, our potential financial exposure in the pending securities
litigation and related government investigations would be increased.
In November 2008 Randy Lee Soderstrom, alleged to have been employed by a former contractor of
Broadcom and presently a prisoner in a California state prison, filed a complaint entitled
Soderstrom v. Henry T. Nicholas III, William J. Ruehle, Henry Samueli, David Dull, Broadcom
Corporation in the United States District Court for the Northern District of California (Case No.
CV 08 5310 PVT). In his complaint, Soderstrom sought relief under the Racketeering Influenced and
Corrupt Organizations Act (RICO). The complaint made allegations relative to conduct similar to
that which is alleged in the Options Derivative Actions and Option Class Actions discussed above,
and the SEC and United States Attorneys Office investigations discussed below, but also contained
certain different allegations. The plaintiff is representing himself in this action. On May 20,
2009, the Court granted Broadcoms motion to dismiss and also granted the motions to dismiss of all
other defendants. A final judgment on behalf of defendants was entered the same day. The
plaintiff filed a motion to alter or amend the judgment on June 22, 2009, which was denied on June
25, 2009. The plaintiff has filed a notice of appeal. Broadcom intends to continue to defend this
action vigorously.
SEC Formal Order of Investigation and United States Attorneys Office Investigation. In April
2008 the SEC brought a complaint against Broadcom alleging violations of the federal securities
laws, and we entered into a settlement with the SEC. Without admitting or denying the SECs
allegations, we paid a civil penalty of $12.0 million, which we recorded as a settlement cost in
the three months March 31, 2008, and stipulated to an injunction against future violations of
certain provisions of the federal securities laws. The settlement was approved by the United States
District Court for the Central District of California Court in late April 2008, thus concluding the
SECs investigation of this matter with respect to Broadcom.
In May 2008 the SEC filed a complaint in the United States District Court for the Central
District of California (Case No. SACV08-539 CJC (RNBx)) against Dr. Samueli and three other former
executive officers of Broadcom, relating to its previously-disclosed investigation of the companys
historical stock option granting practices. The
27
SECs civil complaint alleges that Dr. Samueli,
along with the other defendants, violated the anti-fraud provisions of
the federal securities laws, falsified books and records, and caused the company to report
false financial results. The SECs complaint seeks to: (i) enjoin the defendants from future
violations of the securities laws; (ii) require two of the defendants to disgorge any ill-gotten
gains and pay prejudgment interest; (iii) require all defendants to pay civil monetary penalties;
(iv) require two defendants to disgorge bonuses and stock sales profits pursuant to Section 304 of
the Sarbanes-Oxley Act of 2002; (v) bar all defendants from serving as officers or directors of a
public company; and (vi) provide other appropriate relief. Pending resolution of the SEC action,
Dr. Samueli has taken a leave of absence from his position as an executive officer of Broadcom and
he resigned from his position as Chairman and a member of the Board of Directors. We do not know
when the investigation will be resolved with respect to Dr. Samueli or what actions, if any, the
SEC may require him to take in resolution of the investigation against him personally.
In August 2006 we were informally contacted by the U.S. Attorneys Office for the Central
District of California and asked to produce documents related to our historical option granting
practices. In 2007 and 2008 we continued to provide substantial amounts of documents and
information to the U.S. Attorneys Office on a voluntary basis and pursuant to grand jury
subpoenas. We are continuing to cooperate with the U.S. Attorneys Office in 2009. In June 2008 Dr.
Henry T. Nicholas, III, our former President and Chief Executive Officer and former Co-Chairman of
the Board, and William J. Ruehle, our former Chief Financial Officer, were named in an indictment
relating to alleged stock options backdating at the company. Also, in June 2008 Dr. Samueli pled
guilty to making a materially false statement to the SEC in connection with its investigation of
alleged stock options backdating at the company. In September 2008 the United States District Court
for the Central District of California rejected Dr. Samuelis plea agreement. Dr. Samueli has
appealed the ruling in the United States Court of Appeals for the Ninth Circuit. Any further action
by the SEC, the U.S. Attorneys Office or other governmental agency could result in additional
civil or criminal sanctions and/or fines against us and/or certain of our current or former
officers, directors and/or employees.
United States Attorneys Office Investigation and Prosecution. In June 2005 the United States
Attorneys Office for the Northern District of California commenced an investigation into the
possible misuse of proprietary competitor information by certain Broadcom employees. In December
2005 one former employee was indicted for fraud and related activity in connection with computers
and trade secret misappropriation. The former employee had been immediately suspended in June 2005,
after just two months employment, when we learned about the government investigation. Following an
internal investigation, his employment was terminated, nearly two months prior to the indictment.
The indictment does not allege any wrongdoing by us, and we are cooperating fully with the ongoing
investigation and the prosecution.
General. We and our subsidiaries are also involved in other legal proceedings, claims and
litigation arising in the ordinary course of business.
The pending proceedings involve complex questions of fact and law and will require the
expenditure of significant funds and the diversion of other resources to prosecute and defend. The
results of legal proceedings are inherently uncertain, and material adverse outcomes are possible.
The resolution of intellectual property litigation may require us to pay damages for past
infringement or to obtain a license under the other partys intellectual property rights that could
require one-time license fees or ongoing royalties, which could adversely impact our product gross
margins in future periods, or could prevent us from manufacturing or selling some of our products
or limit or restrict the type of work that employees involved in such litigation may perform for
us. From time to time we may enter into confidential discussions regarding the potential settlement
of pending litigation or other proceedings; however, there can be no assurance that any such
discussions will occur or will result in a settlement. The settlement of any pending litigation or
other proceeding could require us to incur substantial settlement payments and costs. In addition,
the settlement of any intellectual property proceeding may require us to grant a license to certain
of our intellectual property rights to the other party under a cross-license agreement. If any of
those events were to occur, our business, financial condition and results of operations could be
materially and adversely affected.
28
10. Subsequent Events
On April 21, 2009 we announced that we had sent an unsolicited proposal to the Board of
Directors of Emulex to acquire all of the outstanding shares of Emulex common stock for $9.25 per
share in cash or a total of approximately
$764.0 million. On June 29, 2009 we increased our offer for all of the currently outstanding
shares of common stock (including the associated preferred stock purchase rights) of Emulex from
$9.25 to $11.00 per share in cash, representing a total equity value of approximately $912.0
million. Our offer to acquire all of the outstanding shares of Emulex expired at midnight, July 14,
2009. At the expiration of the offer, certain conditions to the offer had not been met, and we had
not waived those conditions. Therefore, no shares were purchased by us in the offer, and all
shares previously tendered and not withdrawn were promptly returned.
In accordance with SFAS 165, we have evaluated subsequent events through July 23, 2009, the
date of issuance of the unaudited condensed consolidated financial statements. During this period
we did not have any material recognizable subsequent events. However, we did have a nonrecognizable
subsequent event related to the expiration of our offer to acquire all of the outstanding shares of
Emulex.
29
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement
You should read the following discussion and analysis in conjunction with our Unaudited
Condensed Consolidated Financial Statements and the related Notes thereto contained in Part I, Item
1 of this Report. The information contained in this Quarterly Report on Form 10-Q is not a complete
description of our business or the risks associated with an investment in our common stock. We urge
you to carefully review and consider the various disclosures made by us in this Report and in our
other reports filed with the Securities and Exchange Commission, or SEC, including our Annual
Report on Form 10-K for the year ended December 31, 2008 and subsequent reports on Forms 10-Q and
8-K, which discuss our business in greater detail.
The section entitled Risk Factors contained in Part II, Item 1A of this Report, and similar
discussions in our other SEC filings, describe some of the important risk factors that may affect
our business, financial condition, results of operations and/or liquidity. You should carefully
consider those risks, in addition to the other information in this Report and in our other filings
with the SEC, before deciding to purchase, hold or sell our common stock.
All statements included or incorporated by reference in this Quarterly Report on Form 10-Q,
other than statements or characterizations of historical fact, are forward-looking statements.
Examples of forward-looking statements include, but are not limited to, statements concerning
projected net revenue, costs and expenses and product gross margin; our accounting estimates,
assumptions and judgments; the impact of the January 2007 restatement of our financial statements
for prior periods and related litigation; estimates related to the amount and/or timing of the
expensing of unearned stock-based compensation expense; our success in pending litigation; the
demand for our products; the effect that current economic conditions, seasonality and volume
fluctuations in the demand for our customers consumer-oriented products will have on our quarterly
operating results; our dependence on a few key customers and/or design wins for a substantial
portion of our revenue; our ability to adjust operations in response to changes in demand for
existing products and services or the demand for new products requested by our customers; the
competitive nature of and anticipated growth in our markets; our ability to migrate to smaller
process geometries; manufacturing, assembly and test capacity; our ability to consummate
acquisitions and integrate their operations successfully; our potential needs for additional
capital; inventory and accounts receivable levels; the impact of the IRS review of certain income
and employment tax returns on our results of operations; the effect of potential changes in U.S. or
foreign tax laws and regulations or the interpretation thereof; the level of accrued rebates and
our plans to implement cost savings measures. These forward-looking statements are based on our
current expectations, estimates and projections about our industry and business, managements
beliefs, and certain assumptions made by us, all of which are subject to change. Forward-looking
statements can often be identified by words such as anticipates, expects, intends, plans,
predicts, believes, seeks, estimates, may, will, should, would, could,
potential, continue, ongoing, similar expressions, and variations or negatives of these
words. These statements are not guarantees of future performance and are subject to risks,
uncertainties and assumptions that are difficult to predict. Therefore, our actual results could
differ materially and adversely from those expressed in any forward-looking statements as a result
of various factors, some of which are listed under the section entitled Risk Factors in Part II,
Item 1A of this Report. These forward-looking statements speak only as of the date of this Report.
We undertake no obligation to revise or update publicly any forward-looking statement for any
reason, except as otherwise required by law.
Overview
Broadcom Corporation is a major technology innovator and global leader in semiconductors for
wired and wireless communications. Our products enable the delivery of voice, video, data and
multimedia to and throughout the home, the office and the mobile environment. Broadcom provides the
industrys broadest portfolio of state-of-the-art system-on-a-chip and software solutions to
manufacturers of computing and networking equipment, digital entertainment and broadband access
products, and mobile devices. Our diverse product portfolio includes solutions for digital cable,
satellite and Internet Protocol (IP) set-top boxes and media servers; high definition television
(HDTV); high definition DVD players and personal video recording (PVR) devices; cable and DSL
modems and residential gateways; high-speed transmission and switching for local, metropolitan,
wide area and storage networking; server solutions; broadband network and security processors;
wireless and personal area networking; cellular communications; global positioning system (GPS)
applications; mobile multimedia and applications processors; mobile power management; and Voice
over Internet Protocol (VoIP) gateway and telephony systems.
30
Net Revenue. Our product revenue is generated principally by sales of semiconductor devices
and, to a lesser extent, software licenses and royalties, development, support and maintenance
agreements, data services and cancellation fees. Our licensing revenue is generated from the
licensing of intellectual property. The majority of our sales occur through the efforts of our
direct sales force. The remaining balance of our sales occurs through distributors.
We sell our products to leading manufacturers of wired and wireless communications equipment
in each of our target markets. Because we leverage our technologies across different markets,
certain of our integrated circuits may be incorporated into equipment used in multiple markets. We
utilize independent foundries and third-party subcontractors to manufacture, assemble and test all
of our semiconductor products.
The following table presents details of our total net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Product revenue (1) |
|
|
92.9 |
% |
|
|
96.8 |
% |
|
|
94.8 |
% |
|
|
96.5 |
% |
Licensing revenue |
|
|
7.1 |
|
|
|
3.2 |
|
|
|
5.2 |
|
|
|
3.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes software licenses and royalties, support and maintenance
agreements, data services and cancellation fees totaling less than
0.7% of total net revenue for all periods presented. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Sales made through direct sales force |
|
|
80.3 |
% |
|
|
85.1 |
% |
|
|
81.5 |
% |
|
|
85.9 |
% |
Sales made through distributors(1) |
|
|
19.7 |
|
|
|
14.9 |
|
|
|
18.5 |
|
|
|
14.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Sales made through distributors as a percentage of net revenue increased
in the three and six months ended June 30, 2009 due to increased sales
of our mobile and wireless products, principally in Asia. |
The demand for our products has been affected in the past, and may continue to be affected in
the future, by various factors, including, but not limited to, the following:
|
|
|
general economic and political conditions and specific conditions in the markets we
address, including the continuing volatility in the technology sector and semiconductor
industry, the current global economic recession, trends in the broadband communications
markets in various geographic regions, including seasonality in sales of consumer products
into which our products are incorporated; |
|
|
|
|
the inability of certain of our customers who depend on credit to have access to their
traditional sources of credit to finance the purchase of products from us or purchases of
capital equipment from others, particularly in the current global economic environment,
which may lead them to reduce their level of purchases or to seek credit or other
accommodations from us; |
|
|
|
|
the timing, rescheduling or cancellation of significant customer orders and our
ability, as well as the ability of our customers, to manage inventory; |
|
|
|
|
our ability to specify, develop or acquire, complete, introduce, market and transition
to volume production new products and technologies in a cost effective and timely manner; |
|
|
|
|
the rate at which our present and future customers and end-users adopt our products and
technologies in our target markets; and |
|
|
|
|
the qualification, availability and pricing of competing products and technologies and
the resulting effects on sales and pricing of our products. |
31
For these and other reasons, our net revenue and results of operations for the three months
ended June 30, 2009 and prior periods may not necessarily be indicative of future net revenue and
results of operations.
From time to time, our key customers place large orders causing our quarterly net revenue to
fluctuate significantly. We expect that these fluctuations will continue and that they may be
exaggerated by the increasing volume of our products that are incorporated into consumer electronic
products, sales of which can be subject to greater volume fluctuations than non-consumer OEM
products. In addition, an increasing percentage of our inventory is maintained under hubbing
arrangements with certain of our customers. Pursuant to these arrangements we deliver products to a
customer or a designated third party warehouse based upon the customers projected needs, but do
not recognize product revenue unless and until the customer reports that it has removed our product
from the warehouse to incorporate into its end products. Historically, we have had good visibility
into customer requirements and shipments within a quarter. However, if a customer does not take our
products under a hubbing arrangement in accordance with the schedule it originally provided to us,
our predicted future revenue stream could vary substantially from our forecasts and our results of
operations could be materially and adversely affected. Additionally, since we own inventory that is
physically located in a third partys warehouse, our ability to effectively manage inventory levels
may be impaired, causing our total inventory turns to decrease, which could increase expenses
associated with excess and obsolete product and negatively impact our cash flow.
Sales to our five largest customers, including sales to their manufacturing subcontractors, as
a percentage of net revenue were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Five largest customers as a group |
|
|
35.4 |
% |
|
|
38.0 |
% |
|
|
33.2 |
% |
|
|
37.3 |
% |
As we have broadened our customer base, net revenue derived from these top customers as a
percentage of net revenue has decreased, even though the absolute dollars of net revenue have
increased in some cases. However, we expect that our largest customers will continue to account for
a substantial portion of our net revenue for the remainder of 2009 and for the foreseeable future.
The identities of our largest customers and their respective contributions to our net revenue have
varied and will likely continue to vary from period to period. The decrease in net revenue from our
top customers as a percentage of net revenue was primarily related to reduced sales, a change in
the identity of our five largest customers and a related change in product mix.
Net revenue derived from all independent customers located outside the United States,
excluding foreign subsidiaries or manufacturing subcontractors of customers that are headquartered
in the United States even though such subsidiaries or manufacturing subcontractors are located
outside of the United States, as a percentage of total net revenue was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Asia (primarily in Korea, China, Japan and Taiwan) |
|
|
34.8 |
% |
|
|
29.9 |
% |
|
|
35.2 |
% |
|
|
28.7 |
% |
Europe (primarily in Finland, the United Kingdom and France) |
|
|
13.0 |
|
|
|
9.5 |
|
|
|
12.9 |
|
|
|
9.6 |
|
Other |
|
|
0.5 |
|
|
|
0.5 |
|
|
|
0.5 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48.3 |
% |
|
|
39.9 |
% |
|
|
48.6 |
% |
|
|
38.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
Net revenue derived from shipments to international destinations, as a percentage of total net
revenue was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Asia (primarily in China, Hong Kong, Japan, Singapore and
Taiwan) |
|
|
83.8 |
% |
|
|
83.8 |
% |
|
|
84.3 |
% |
|
|
81.3 |
% |
Europe (primarily in Hungary, Germany, France and Sweden) |
|
|
2.5 |
|
|
|
2.2 |
|
|
|
3.1 |
|
|
|
2.6 |
|
Other |
|
|
1.6 |
|
|
|
2.7 |
|
|
|
1.6 |
|
|
|
3.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87.9 |
% |
|
|
88.7 |
% |
|
|
89.0 |
% |
|
|
86.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All of our revenue to date has been denominated in U.S. dollars.
Product Gross Margin. Our product gross margin, or gross profit as a percentage of net product
revenue, has been affected in the past, and may continue to be affected in the future, by various
factors, including, but not limited to, the following:
|
|
|
our product mix and volume of product sales (including sales to high volume customers); |
|
|
|
|
the positions of our products in their respective life cycles; |
|
|
|
|
the effects of competition; |
|
|
|
|
the effects of competitive pricing programs and rebates; |
|
|
|
|
provisions for excess and obsolete inventories and their relationship to demand
volatility; |
|
|
|
|
manufacturing cost efficiencies and inefficiencies; |
|
|
|
|
fluctuations in direct product costs such as wafer pricing and assembly, packaging and
testing costs, and other fixed costs; |
|
|
|
|
our ability to create cost advantages through successful integration and convergence; |
|
|
|
|
licensing royalties payable by us; |
|
|
|
|
product warranty costs; |
|
|
|
|
amortization of purchased intangible assets; |
|
|
|
|
stock-based compensation expense; and |
|
|
|
|
reversals of unclaimed rebates and warranty reserves. |
Net Income (Loss). Our net income (loss) has been affected in the past, and may continue to be
affected in the future, by various factors, including, but not limited to, the following:
|
|
|
stock-based compensation expense; |
|
|
|
|
required levels of research and development and other operating costs; |
|
|
|
|
licensing of intellectual property; |
|
|
|
|
in-process research and development, or IPR&D; |
|
|
|
|
litigation costs and insurance recoveries; |
33
|
|
|
settlement costs or gains; |
|
|
|
|
charitable contributions; |
|
|
|
|
income tax benefits from adjustments to tax reserves of foreign subsidiaries; |
|
|
|
|
the loss of interest income resulting from lower average interest rates and investment
balance reductions resulting from expenditures on repurchases of our Class A common stock; |
|
|
|
|
amortization of purchased intangible assets; |
|
|
|
|
impairment of goodwill and long-lived assets; |
|
|
|
|
deferral of revenue under multiple-element arrangements; |
|
|
|
|
other-than-temporary impairment of marketable securities and strategic investments; |
|
|
|
|
gain (loss) on strategic investments; and |
|
|
|
|
restructuring costs or reversals thereof. |
In the three months ended June 30, 2009 our net income was $13.4 million as compared to net
income of $134.8 million in the three months ended June 30, 2008, a difference of $121.4 million.
This decrease in profitability was the direct result of $159.7 million less product gross profit
principally due to declining revenue and product gross margins, a $50.0 million charitable
contribution and an increase in impairment of long-lived assets of $9.4 million, offset in part by
$34.7 million of additional licensing revenue and a net settlement gain of $58.4 million.
Net revenue in the three months ended June 30, 2009 decreased significantly in our broadband
communications and enterprise networking target markets, offset in part by a moderate increase in
net revenue in our mobile and wireless target market. The decrease in net revenue from our
broadband communications target market resulted primarily from a decrease in demand for broadband
modems and digital set-top boxes, offset in part by an increase in demand for our high definition
DVD products. The increase in net revenue from our mobile and wireless target market resulted
primarily from an increase in demand for our cellular, wireless LAN and touch controller product
offerings, offset in part by a decrease in demand for our Bluetooth products. Also reflected in
our mobile and wireless target market was an increase in licensing revenue of $34.7 million
primarily as a result of our licensing agreement with QUALCOMM Incorporated, or Qualcomm. See
discussion under Settlement and Patent License and Non-Assert Agreement below. The decrease in
net revenue from our enterprise networking target market resulted primarily from a broad-based
decline in demand for our Ethernet switch and controller products.
In the six months ended June 30, 2009 our net loss was $78.5 million as compared to net income
of $209.1 million in the six months ended June 30, 2008, a difference of $287.6 million. This
decrease in profitability was the direct result of $289.6 million less product gross profit
principally due to declining revenue and product gross margins, a $50.0 million charitable
contribution and an increase in impairment of long-lived assets of $9.4 million, offset in part by
$20.7 million of additional licensing revenue and a net settlement gain of $73.1 million.
Net revenue in the six months ended June 30, 2009 significantly decreased in our broadband
communications and enterprise networking target markets, offset in part by a moderate increase in
net revenue in our mobile and wireless target market. The decrease in net revenue from our
broadband communications target market resulted primarily from a decrease in demand for broadband
modems and digital set-top boxes, offset in part by an increase in demand for our high definition
DVD products. The increase in net revenue from our mobile and wireless target market resulted
primarily from an increase in demand for our cellular, wireless LAN and touch controller product
offerings, offset in part by a decrease in demand for our Bluetooth and VoIP products. Also
reflected in our mobile and wireless target market was an increase in licensing revenue of $20.7
million primarily as a result of our licensing agreement with Qualcomm. The decrease in net revenue from our enterprise networking target market resulted
primarily from a broad-based decline in demand for our Ethernet switch and controller products.
While we expect research and development costs to remain relatively flat over the short term,
they will continue to increase over the long term as a result of growth in, and the diversification
of, the markets we serve, new product
34
opportunities, the number of design wins that go into
production, changes in our compensation policies, and any expansion into new markets and
technologies.
We currently do not believe the acquisition of the DTV Business of AMD, Inc. in late 2008 will
achieve earnings neutrality by the end of 2009 as a result of the decline in global demand due to
the continued economic downturn. In the three and six months ended June 30, 2009 we recorded an
impairment charge to customer relationships of $11.3 million. The primary factor contributing to
this impairment charge was the result of a reduction in the revenue outlook from an acquired
customer.
Settlement and Patent License and Non-Assert Agreement. On April 26, 2009 we entered into a
Settlement and Patent License and Non-Assert Agreement, or the Qualcomm Agreement, with Qualcomm.
As part of the Qualcomm Agreement, each party granted certain rights under its patent portfolio to
the other party including, in certain circumstances, under future patents issued within one to four
years after April 26, 2009. The term of the Qualcomm Agreement commenced April 26, 2009 and will
continue until the expiration of the last to expire of the covered patents. The Qualcomm Agreement
also resulted in the parties dismissing with prejudice all outstanding litigation between them, and
in Broadcom withdrawing its complaints with foreign competition authorities.
In addition, certain patents were assigned by Broadcom to Qualcomm with Broadcom retaining a
royalty-free license under these patents. Also, Qualcomm will make payments to Broadcom totaling
$891.2 million, of which $200.0 million was paid in the three months ended June 30, 2009. The
remaining balance will be paid in sixteen equal and successive quarterly payments of $43.2 million
each, starting in the three months ending September 30, 2009 and concluding in the three months
ending June 30, 2013.
We determined the estimated fair values of the individual components of the Qualcomm Agreement
and used the relative fair value method to allocate the payment amounts to the individual
components of the gain on settlement and revenue from the licensing of our intellectual property.
In the three months ended June 30, 2009 we recorded a gain on settlement of outstanding litigation
related to intellectual property of $65.3 million, which represents the estimated relative fair
value of the settlement for Qualcomms past infringement. The fair value of this amount was
primarily established based on awards determined by the United States District Court for the
Central District of California.
The estimated relative fair value of the licensing revenue as well as the assignment of
patents of $825.9 million will be recorded as a single unit of accounting and recognized over the
Qualcomm Agreements performance period of four years. In the three months ended June 30, 2009,
we recorded licensing revenue of $36.7 million and expect to record licensing revenue in equal
quarterly amounts of $51.7 million for the quarters ending September 30, 2009 through March 31,
2012, $47.7 million in the three months ending June 30, 2012 and $43.2 million in each of the
following four quarters ending June 30, 2013. At June 30, 2009 we recorded deferred revenue of
$97.9 million related to the initial payment.
Separately, we recorded licensing revenue of $30.5 million in the three months ended June 30,
2009 related to additional payments made by Qualcomm during 2008 for shipments from May 2007
through December 31, 2008, related to a permanent injunction on certain products. These amounts
were previously deferred due to continuing litigation appeals, which have been resolved through the
Qualcomm Agreement.
Product Cycles. The cycle for test, evaluation and adoption of our products by customers can
range from three to more than nine months, with an additional three to more than twelve months
before a customer commences volume production of equipment incorporating our products. Due to this
lengthy sales cycle, we may experience significant delays from the time we incur expenses for
research and development, selling, general and administrative efforts, and investments in
inventory, to the time we generate corresponding revenue, if any. The rate of new orders may vary
significantly from month to month and quarter to quarter. If anticipated sales or shipments in any
quarter do not occur when expected, expenses and inventory levels could be disproportionately high,
and our results of operations for that quarter, and potentially for future quarters, would be
materially and adversely affected.
Mobile Platforms Business. The development and introduction of new products often requires
substantial research and development resources. During the last five years we have incurred
substantial expenditures on the development of new products for the cellular handset market.
Approximately 25% of our research and development
expense is attributable to our mobile platforms business. However, this market is
characterized by very long product development and sales cycles due to the significant
qualification requirements of cellular handset makers and
35
wireless network operators, and
accordingly, it is common to experience significant delays from the time research and development
efforts commence to the time corresponding revenues are generated. Due to these lengthy product
development and sales cycles, our mobile platforms business had a material negative impact on our
earnings in 2008, including impairment charges of $169.4 million recorded in the three months ended
December 31, 2008 relating to this business, and may continue to do so until we realize significant
cellular revenues.
Most of the revenue that we derived from our mobile platforms business in the three and six
months ended June 30, 2009 related to the licensing of our intellectual property. Although we have
started to generate additional revenue from our cellular handset products in the three months ended
June 30, 2009, it is possible that our customers may delay further product development plans or
that their products will not be commercially successful, which would continue to materially and
adversely affect our results of operations.
Acquisition Strategy. An element of our business strategy involves the acquisition of
businesses, assets, products or technologies that allow us to reduce the time required to develop
new technologies and products and bring them to market, incorporate enhanced functionality into and
complement our existing product offerings, augment our engineering workforce, and enhance our
technological capabilities. We plan to continue to evaluate strategic opportunities as they arise,
including acquisitions and other business combination transactions, strategic relationships,
capital infusions and the purchase or sale of assets.
Business Enterprise Segments. We operate in one reportable operating segment, wired and
wireless broadband communications. SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information, or SFAS 131, establishes standards for the way public business enterprises
report information about operating segments in annual consolidated financial statements and
requires that those enterprises report selected information about operating segments in interim
financial reports. SFAS 131 also establishes standards for related disclosures about products and
services, geographic areas and major customers. Our Chief Executive Officer, who is considered to
be our chief operating decision maker, reviews financial information presented on an operating
segment basis for purposes of making operating decisions and assessing financial performance.
Although we have four operating segments, under the aggregation criteria set forth in SFAS 131
we operate in only one reportable operating segment, wired and wireless broadband communications.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with U.S. generally accepted accounting
principles, or GAAP, requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the reported amounts of net
revenue and expenses in the reporting period. We regularly evaluate our estimates and assumptions
related to revenue recognition, rebates, allowances for doubtful accounts, sales returns and
allowances, warranty reserves, inventory reserves, stock-based compensation expense, goodwill and
purchased intangible asset valuations, strategic investments, deferred income tax asset valuation
allowances, uncertain tax positions, tax contingencies, self-insurance, restructuring costs,
litigation and other loss contingencies. We base our estimates and assumptions on current facts,
historical experience and various other factors that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities and the recording of revenue, costs and expenses that are not readily
apparent from other sources. The actual results experienced by us may differ materially and
adversely from our estimates. To the extent there are material differences between our estimates
and the actual results, our future results of operations will be affected.
We believe the following are either (i) critical accounting policies that require us to make
significant estimates or assumptions in the preparation of our unaudited condensed consolidated
financial statements or (ii) other key accounting policies that generally do not require us to make
estimates or assumptions but may require us to make difficult or subjective judgments:
|
|
|
Net Revenue. We recognize product revenue when all of the following criteria are met:
(i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) our
price to the customer is fixed or determinable and (iv) collection of the resulting
accounts receivable is reasonably assured. These criteria are usually met at the time of
product shipment. However, we do not recognize revenue when any significant obligations
remain. Customer purchase orders and/or contracts are generally used to determine the
existence
of an arrangement. Shipping documents are used to verify product
delivery. We assess whether a price is |
36
|
|
|
fixed or determinable based upon the payment terms associated with the transaction
and whether the sales price is subject to refund or adjustment. We assess the collectibility
of our accounts receivable based primarily upon the creditworthiness of the customer as
determined by credit checks and analysis, as well as the customers payment history. |
|
|
|
|
In arrangements in which our semiconductor products and software are delivered concurrently
and post-contract customer support is not provided, we recognize revenue upon shipment of the
semiconductor product, assuming all other basic revenue recognition criteria are met, as both
the semiconductor products and software are considered delivered elements and no undelivered
elements exist. In limited instances in which there are undelivered elements, we allocate
revenue based on the relative fair value of the individual elements. If there is no
established fair value for an undelivered element, the entire arrangement is accounted for as
a single unit of accounting, resulting in a deferral of revenue and costs for the delivered
element until the undelivered element has been fulfilled. In the case that the undelivered
element is data or a support service, the revenue and costs applicable to both the delivered
and undelivered elements are recorded ratably over the respective service period or estimated
product life. If the undelivered element is essential to the functionality of the delivered
element, no revenue or costs are recognized until the undelivered element is delivered. If we
enter into future multiple element arrangements in which the fair value of each deliverable
is not known, the portion of revenue we recognize on a deferred basis may vary significantly
in any given quarter, which could cause even greater fluctuations in our quarterly operating
results. |
|
|
|
|
A portion of our sales is made through distributors under agreements allowing for pricing
credits and/or rights of return. These pricing credits and/or rights of return provisions
prevent us from being able to reasonably estimate the final price of the inventory to be sold
and the amount of inventory that could be returned pursuant to these agreements. As a result,
the price to the customer is not fixed or determinable at the time we deliver products to our
distributors. Accordingly, product revenue from sales made through these distributors is not
recognized until the distributors ship the product to their customers. We also maintain
inventory, or hubbing, arrangements with certain of our customers. Pursuant to these
arrangements we deliver products to a customer or a designated third party warehouse based
upon the customers projected needs, but do not recognize product revenue unless and until
the customer reports it has removed our product from the warehouse to be incorporated into
its end products. Historically, we have had good visibility into customer requirements and
shipments within a quarter. However, if a customer does not take our products under a hubbing
arrangement in accordance with the schedule it originally provided to us, our future revenue
stream could vary substantially from our forecasts and our results of operations could be
materially and adversely affected. In addition, distributors and customers with hubbing
arrangements provide us with periodic data regarding product, price, quantity, and customers
when products are shipped to their customers, as well as the quantities of our products that
they still have in stock. For specialized shipping terms we may rely on data provided by our
freight forwarding providers. For our royalty revenue we rely on data provided by the
licensee. Any error in the data provided to us by customers, distributors or other third
parties could lead to inaccurate reporting of our total net revenue and net income. |
|
|
|
|
We record deferred revenue when advance payments are received from customers before
performance obligations have been completed and/or services have been performed. Deferred
revenue does not include amounts from products delivered to distributors that the
distributors have not yet sold through to their end customers. |
|
|
|
|
Sales Returns, Pricing Adjustments and Allowance for Doubtful Accounts. We record
reductions of revenue for estimated product returns and pricing adjustments, such as
competitive pricing programs and rebates, in the same period that the related revenue is
recorded. The amount of these reductions is based on historical sales returns, analysis of
credit memo data, specific criteria included in rebate agreements, and other factors known
at the time. We accrue 100% of potential rebates at the time of sale and do not apply a
breakage factor. We reverse the accrual of unclaimed rebate amounts as specific rebate
programs contractually end or when we believe unclaimed rebates are no longer subject to
payment and will not be paid. Thus the reversal of unclaimed rebates may have a positive
impact on our net revenue and net income in subsequent periods. Additional reductions of
revenue would result if actual product returns or pricing adjustments exceed our estimates.
We also maintain an allowance for doubtful accounts for estimated losses resulting from the
inability of customers to make required payments. If the financial condition of any customer
were to |
37
|
|
|
deteriorate, resulting in an impairment of its ability to make payments, additional
allowances could be required. |
|
|
|
|
Inventory and Warranty Reserves. We establish inventory reserves for estimated
obsolescence or unmarketable inventory in an amount equal to the difference between the
cost of inventory and its estimated realizable value based upon assumptions about future
demand and market conditions. If actual demand and market conditions are less favorable
than those projected by management, additional inventory reserves could be required. Under
the hubbing arrangements that we maintain with certain customers, we own inventory that is
physically located in a customers or third partys warehouse. As a result, our ability to
effectively manage inventory levels may be impaired, which would cause our total inventory
turns to decrease. In that event, our expenses associated with excess and obsolete
inventory could increase and our cash flow could be negatively impacted. Our products
typically carry a one to three year warranty. We establish reserves for estimated product
warranty costs at the time revenue is recognized. Although we engage in extensive product
quality programs and processes, our warranty obligation has been and may in the future be
affected by product failure rates, product recalls, repair or field replacement costs and
additional development costs incurred in correcting any product failure, as well as
possible claims for consequential costs. Should actual product failure rates, use of
materials or service delivery costs differ from our estimates, additional warranty reserves
could be required. In that event, our product gross margins would be reduced. |
|
|
|
|
Stock-Based Compensation Expense. SFAS 123R requires all share-based payments,
including grants of stock options, restricted stock units and employee stock purchase
rights, to be recognized in our financial statements based upon their respective grant date
fair values. Under this standard, the fair value of each employee stock option and employee
stock purchase right is estimated on the date of grant using an option pricing model that
meets certain requirements. We currently use the Black-Scholes option pricing model to
estimate the fair value of our stock options and stock purchase rights. The Black-Scholes
model meets the requirements of SFAS 123R but the fair values generated by the model may
not be indicative of the actual fair values of our equity awards as it does not consider
certain factors important to those awards to employees, such as continued employment and
periodic vesting requirements as well as limited transferability. The determination of the
fair value of share-based payment awards utilizing the Black-Scholes model is affected by
our stock price and a number of assumptions, including expected volatility, expected life,
risk-free interest rate and expected dividends. We use the implied volatility for traded
options on our stock as the expected volatility assumption required in the Black-Scholes
model. Our selection of the implied volatility approach is based on the availability of
data regarding actively traded options on our stock as we believe that implied volatility
is more representative of fair value than historical volatility. The expected life of the
stock options is based on historical and other economic data trended into the future. The
risk-free interest rate assumption is based on observed interest rates appropriate for the
expected terms of our stock options and stock purchase rights. The dividend yield
assumption is based on our history and expectation of no dividend payouts. The fair value
of our restricted stock units is based on the closing market price of our Class A common
stock on the date of grant. We evaluate the assumptions used to value stock awards on a
quarterly basis. If factors change and we employ different assumptions, stock-based
compensation expense may differ significantly from what we have recorded in the past. If
there are any modifications or cancellations of the underlying unvested securities, we may
be required to accelerate, increase or cancel any remaining unearned stock-based
compensation expense. To the extent that we grant additional equity securities to employees
or we assume unvested securities in connection with any acquisitions, our stock-based
compensation expense will be increased by the additional unearned compensation resulting
from those additional grants or acquisitions. |
|
|
|
|
Goodwill and Purchased Intangible Assets. Goodwill is recorded as the difference, if
any, between the aggregate consideration paid for an acquisition and the fair value of the
net tangible and intangible assets (including in-process research and development)
acquired. Prior to 2009 in-process research and development was expensed immediately. The
amounts and useful lives assigned to intangible assets acquired, other than goodwill,
impact the amount and timing of future amortization thereof. The value of our intangible
assets, including goodwill, could be impacted by future adverse changes such as: (i) any
future declines in our operating results, (ii) a decline in the valuation of technology
company stocks, including the valuation of our common stock, (iii) a further significant
slowdown in the worldwide economy or the semiconductor
industry or (iv) any failure to meet the performance projections included in our forecasts of
future operating |
38
|
|
|
results. We evaluate these assets, including purchased intangible assets
deemed to have indefinite lives, on an annual basis in the fourth quarter or more frequently
if we believe indicators of impairment exist. In the process of our annual impairment review,
we primarily use the income approach methodology of valuation that includes the discounted
cash flow method as well as other generally accepted valuation methodologies to determine the
fair value of our intangible assets. Significant management judgment is required in the
forecasts of future operating results that are used in the discounted cash flow method of
valuation. It is possible, however, that the plans may change and estimates used may prove to
be inaccurate. If our actual results, or the plans and estimates used in future impairment
analyses, are lower than the original estimates used to assess the recoverability of these
assets, we could incur additional impairment charges. |
|
|
|
|
Deferred Taxes and Uncertain Tax Positions. We utilize the asset and liability method
of accounting for income taxes. We record a valuation allowance to reduce our deferred tax
assets to the amount that we believe is more likely than not to be realized. In assessing
the need for a valuation allowance, we consider all positive and negative evidence,
including scheduled reversals of deferred tax liabilities, projected future taxable income,
tax planning strategies, and recent financial performance. Forming a conclusion that a
valuation allowance is not required is difficult when there is negative evidence such as
cumulative losses in recent years. As a result of our cumulative losses in the U.S. and
certain foreign jurisdictions, our U.S. tax losses after tax deductions for stock-based
compensation, and the full utilization of our loss carryback opportunities, we have
concluded that a full valuation allowance against our net deferred tax assets is
appropriate in the U.S. and certain foreign jurisdictions. In certain other foreign
jurisdictions where we do not have cumulative losses, we record valuation allowances to
reduce our net deferred tax assets to the amount we believe is more likely than not to be
realized. In the future, if we realize a deferred tax asset that currently carries a
valuation allowance, we may record a reduction of income tax expense in the period of such
realization. In July 2006 the FASB, issued Interpretation No. 48, Accounting for
Uncertainty in Income Taxes An Interpretation of FASB Statement No. 109, or FIN 48,
which requires income tax positions to meet a more-likely-than-not recognition threshold to
be recognized in the financial statements. Under FIN 48, tax positions that previously
failed to meet the more-likely-than-not threshold should be recognized in the first
subsequent financial reporting period in which that threshold is met. Previously recognized
tax positions that no longer meet the more-likely-than-not threshold should be derecognized
in the first subsequent financial reporting period in which that threshold is no longer
met. Prior to 2007 we recorded estimated income tax liabilities to the extent they were
probable and could be reasonably estimated. As a multinational corporation, we are subject
to taxation in many jurisdictions, and the calculation of our tax liabilities involves
dealing with uncertainties in the application of complex tax laws and regulations in
various taxing jurisdictions. If we ultimately determine that the payment of these
liabilities will be unnecessary, we reverse the liability and recognize a tax benefit
during the period in which we determine the liability no longer applies. Conversely, we
record additional tax charges in a period in which we determine that a recorded tax
liability is less than we expect the ultimate assessment to be. The application of tax laws
and regulations is subject to legal and factual interpretation, judgment and uncertainty.
Tax laws and regulations themselves are subject to change as a result of changes in fiscal
policy, changes in legislation, the evolution of regulations and court rulings. Therefore,
the actual liability for U.S. or foreign taxes may be materially different from our
estimates, which could result in the need to record additional tax liabilities or
potentially reverse previously recorded tax liabilities. |
|
|
|
|
Litigation and Settlement Costs. We are involved in disputes, litigation and other
legal proceedings. We prosecute and defend these matters aggressively. However, there are
many uncertainties associated with any litigation, and we cannot assure you that these
actions or other third party claims against us will be resolved without costly litigation
and/or substantial settlement charges. In addition, the resolution of intellectual property
litigation may require us to pay damages for past infringement or to obtain a license under
the other partys intellectual property rights that could require one-time license fees or
running royalties, which could adversely impact product gross margins in future periods, or
could prevent us from manufacturing or selling some of our products or limit or restrict
the type of work that employees involved in such litigation may perform for Broadcom. If
any of those events were to occur, our business, financial condition and results of
operations could be materially and adversely affected. We record a charge equal to at least
the minimum estimated liability for a loss contingency when both of the following
conditions are met: (i) information available prior to issuance of the financial statements
indicates that it is probable that an asset had been impaired or a liability had been
incurred at the date of the financial statements and (ii) the amount or range of
loss can be reasonably estimated. However, the actual liability in any such disputes or
litigation may be |
39
|
|
|
materially different from our estimates, which could result in the need to
record additional costs. |
Results of Operations for the Three and Six Months Ended June 30, 2009 Compared to the Three and
Six Months Ended June 30, 2008
The following table sets forth certain unaudited condensed consolidated statements of
operations data expressed as a percentage of net revenue for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Net revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
|
92.9 |
% |
|
|
96.8 |
% |
|
|
94.8 |
% |
|
|
96.5 |
% |
Licensing revenue |
|
|
7.1 |
|
|
|
3.2 |
|
|
|
5.2 |
|
|
|
3.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue |
|
|
49.9 |
|
|
|
46.2 |
|
|
|
51.0 |
|
|
|
46.4 |
|
Research and development |
|
|
36.0 |
|
|
|
31.6 |
|
|
|
39.5 |
|
|
|
32.9 |
|
Selling, general and administrative |
|
|
12.3 |
|
|
|
11.8 |
|
|
|
13.3 |
|
|
|
11.4 |
|
Amortization of purchased intangible assets |
|
|
0.4 |
|
|
|
|
|
|
|
0.4 |
|
|
|
|
|
In-process research and development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.5 |
|
Impairment of long-lived assets |
|
|
1.1 |
|
|
|
0.2 |
|
|
|
0.6 |
|
|
|
0.1 |
|
Restructuring costs (reversals) |
|
|
|
|
|
|
(0.1 |
) |
|
|
0.4 |
|
|
|
|
|
Settlement costs (gains) |
|
|
(5.6 |
) |
|
|
|
|
|
|
(3.0 |
) |
|
|
0.7 |
|
Charitable contribution |
|
|
4.8 |
|
|
|
|
|
|
|
2.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating costs and expenses |
|
|
98.9 |
|
|
|
89.7 |
|
|
|
104.8 |
|
|
|
92.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
1.1 |
|
|
|
10.3 |
|
|
|
(4.8 |
) |
|
|
8.0 |
|
Interest income, net |
|
|
0.4 |
|
|
|
1.0 |
|
|
|
0.5 |
|
|
|
1.5 |
|
Other income (expense), net |
|
|
0.1 |
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
1.6 |
|
|
|
11.3 |
|
|
|
(4.2 |
) |
|
|
9.5 |
|
Provision (benefit) for income taxes |
|
|
0.3 |
|
|
|
0.1 |
|
|
|
(0.1 |
) |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
1.3 |
% |
|
|
11.2 |
% |
|
|
(4.1 |
)% |
|
|
9.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents details of total stock-based compensation expense as a percentage
of net revenue included in each functional line item in the unaudited condensed consolidated
statements of operations data above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Cost of product revenue |
|
|
0.6 |
% |
|
|
0.5 |
% |
|
|
0.6 |
% |
|
|
0.5 |
% |
Research and development |
|
|
8.3 |
|
|
|
7.5 |
|
|
|
9.3 |
|
|
|
7.6 |
|
Selling, general and administrative |
|
|
2.9 |
|
|
|
2.6 |
|
|
|
3.1 |
|
|
|
2.7 |
|
40
Net Revenue, Cost of Product Revenue, Product Gross Margin and Total Gross Margin
The following tables present net revenue, cost of product revenue and product gross margin for
the three and six months ended June 30, 2009 and 2008 and the three months ended June 30, 2009 and
March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
% |
|
|
|
June 30, 2009 |
|
|
June 30, 2008 |
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
% of Net |
|
|
|
|
|
|
% of Net |
|
|
Increase |
|
|
in |
|
|
|
Amount |
|
|
Revenue |
|
|
Amount |
|
|
Revenue |
|
|
(Decrease) |
|
|
Amount |
|
|
|
(In thousands, except percentages) |
|
Product revenue(1) |
|
$ |
966,317 |
|
|
|
92.9 |
% |
|
$ |
1,161,965 |
|
|
|
96.8 |
% |
|
$ |
(195,648 |
) |
|
|
(16.8 |
)% |
Licensing revenue |
|
|
73,627 |
|
|
|
7.1 |
|
|
|
38,966 |
|
|
|
3.2 |
|
|
|
34,661 |
|
|
|
89.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
1,039,944 |
|
|
|
100.0 |
% |
|
$ |
1,200,931 |
|
|
|
100.0 |
% |
|
$ |
(160,987 |
) |
|
|
(13.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue(2) |
|
$ |
518,674 |
|
|
|
49.9 |
% |
|
$ |
554,596 |
|
|
|
46.2 |
% |
|
$ |
(35,922 |
) |
|
|
(6.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product gross margin (3) |
|
|
46.3 |
% |
|
|
|
|
|
|
52.3 |
% |
|
|
|
|
|
|
(6.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross margin (3) |
|
|
50.1 |
% |
|
|
|
|
|
|
53.8 |
% |
|
|
|
|
|
|
(3.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
Six Months Ended |
|
|
|
|
|
|
% |
|
|
|
June 30, 2009 |
|
|
June 30, 2008 |
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
% of Net |
|
|
|
|
|
|
% of Net |
|
|
Increase |
|
|
in |
|
|
|
Amount |
|
|
Revenue |
|
|
Amount |
|
|
Revenue |
|
|
(Decrease) |
|
|
Amount |
|
|
|
(In thousands, except percentages) |
|
Product revenue(1) |
|
$ |
1,794,547 |
|
|
|
94.8 |
% |
|
$ |
2,154,968 |
|
|
|
96.5 |
% |
|
$ |
(360,421 |
) |
|
|
(16.7 |
)% |
Licensing revenue |
|
|
98,833 |
|
|
|
5.2 |
|
|
|
78,173 |
|
|
|
3.5 |
|
|
|
20,660 |
|
|
|
26.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
1,893,380 |
|
|
|
100.0 |
% |
|
$ |
2,233,141 |
|
|
|
100.0 |
% |
|
$ |
(339,761 |
) |
|
|
(15.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue(2) |
|
$ |
964,951 |
|
|
|
51.0 |
% |
|
$ |
1,035,759 |
|
|
|
46.4 |
% |
|
$ |
(70,808 |
) |
|
|
(6.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product gross margin (3) |
|
|
46.2 |
% |
|
|
|
|
|
|
51.9 |
% |
|
|
|
|
|
|
(5.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross margin (3) |
|
|
49.0 |
% |
|
|
|
|
|
|
53.6 |
% |
|
|
|
|
|
|
(4.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
% |
|
|
|
June 30, 2009 |
|
|
March 31 2009 |
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
% of Net |
|
|
|
|
|
|
% of Net |
|
|
|
|
|
|
in |
|
|
|
Amount |
|
|
Revenue |
|
|
Amount |
|
|
Revenue |
|
|
Increase |
|
|
Amount |
|
|
|
(In thousands, except percentages) |
|
Product revenue(1) |
|
$ |
966,317 |
|
|
|
92.9 |
% |
|
$ |
828,230 |
|
|
|
97.0 |
% |
|
$ |
138,087 |
|
|
|
16.7 |
% |
Licensing revenue |
|
|
73,627 |
|
|
|
7.1 |
|
|
|
25,206 |
|
|
|
3.0 |
|
|
|
48,421 |
|
|
|
192.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
1,039,944 |
|
|
|
100.0 |
% |
|
$ |
853,436 |
|
|
|
100.0 |
% |
|
$ |
186,508 |
|
|
|
21.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue(2) |
|
$ |
518,674 |
|
|
|
49.9 |
% |
|
$ |
446,277 |
|
|
|
52.3 |
% |
|
$ |
72,397 |
|
|
|
16.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product gross margin (3) |
|
|
46.3 |
% |
|
|
|
|
|
|
46.1 |
% |
|
|
|
|
|
|
0.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross margin (3) |
|
|
50.1 |
% |
|
|
|
|
|
|
47.7 |
% |
|
|
|
|
|
|
2.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes software licenses and royalties, development, support and
maintenance agreements, data services and cancellation fees of less
than 0.7% of total net revenue for all periods presented. |
|
(2) |
|
Includes stock-based compensation expense resulting from stock
options, stock purchase rights and restricted stock units we issued or
assumed in acquisitions. For a further discussion of stock-based
compensation expense, see the section entitled Stock-Based
Compensation Expense below. |
|
(3) |
|
Due to the separate presentation of product revenue and licensing
revenue implemented in the three months ended June 30, 2009, the
tables include product gross margin in addition to our previously reported
total gross margin. |
41
Net Revenue. Our product revenue is generated principally by sales of our semiconductor
devices. Our broadband communications products include solutions for cable modems, DSL
applications, digital cable, direct broadcast satellite and IP set-top boxes, digital TVs and high
definition DVD and personal video recording devices. Our mobile and wireless products include
wireless LAN, cellular, touch controller, GPS, Bluetooth, mobile multimedia and applications
processors, mobile power management and VoIP solutions. Our enterprise networking products include
Ethernet transceivers, controllers, switches, broadband network and security processors and server
chipsets. Our licensing revenue is generated by the licensing of our intellectual property,
primarily patents, and is included in our mobile and wireless target market presentation below.
Net revenue is revenue less reductions for rebates and provisions for returns and allowances.
The following table presents net revenue from each of our major target markets and its
respective contribution to net revenue in the three months ended June 30, 2009 as compared to the
three months ended June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
% |
|
|
|
June 30, 2009 |
|
|
June 30, 2008 |
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
% of Net |
|
|
|
|
|
|
% of Net |
|
|
Increase |
|
|
in |
|
|
|
Amount |
|
|
Revenue |
|
|
Amount |
|
|
Revenue |
|
|
(Decrease) |
|
|
Amount |
|
|
|
(In thousands, except percentages) |
|
Broadband communications |
|
$ |
363,843 |
|
|
|
35.0 |
% |
|
$ |
457,924 |
|
|
|
38.1 |
% |
|
$ |
(94,081 |
) |
|
|
(20.5 |
)% |
Mobile and wireless |
|
|
465,748 |
|
|
|
44.8 |
|
|
|
414,471 |
|
|
|
34.5 |
|
|
|
51,277 |
|
|
|
12.4 |
|
Enterprise networking |
|
|
210,353 |
|
|
|
20.2 |
|
|
|
328,536 |
|
|
|
27.4 |
|
|
|
(118,183 |
) |
|
|
(36.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue |
|
$ |
1,039,944 |
|
|
|
100.0 |
% |
|
$ |
1,200,931 |
|
|
|
100.0 |
% |
|
$ |
(160,987 |
) |
|
|
(13.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in net revenue from our broadband communications target market resulted primarily
from a decrease in demand for broadband modems and digital set-top boxes, offset in part by an
increase in demand for our high definition DVD products. The increase in net revenue from our
mobile and wireless target market resulted primarily from an increase in demand for our cellular,
wireless LAN and touch controller product offerings, offset in part by a decrease in demand for our
Bluetooth products. Also reflected in our mobile and wireless target market was an increase in
licensing revenue of $34.7 million primarily as a result of the Qualcomm Agreement. The decrease in
net revenue from our enterprise networking target market resulted primarily from a broad-based
decline in demand for our Ethernet switch and controller products.
The following table presents net revenue from each of our major target markets and its
respective contribution to net revenue in the six months ended June 30, 2009 as compared to the six
months ended June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
Six Months Ended |
|
|
|
|
|
|
% |
|
|
|
June 30, 2009 |
|
|
June 30, 2008 |
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
% of Net |
|
|
|
|
|
|
% of Net |
|
|
Increase |
|
|
in |
|
|
|
Amount |
|
|
Revenue |
|
|
Amount |
|
|
Revenue |
|
|
(Decrease) |
|
|
Amount |
|
|
|
(In thousands, except percentages) |
|
Broadband communications |
|
$ |
681,097 |
|
|
|
36.0 |
% |
|
$ |
823,365 |
|
|
|
36.9 |
% |
|
$ |
(142,268 |
) |
|
|
(17.3 |
)% |
Mobile and wireless |
|
|
783,579 |
|
|
|
41.4 |
|
|
|
773,499 |
|
|
|
34.6 |
|
|
|
10,080 |
|
|
|
1.3 |
|
Enterprise networking |
|
|
428,704 |
|
|
|
22.6 |
|
|
|
636,277 |
|
|
|
28.5 |
|
|
|
(207,573 |
) |
|
|
(32.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue |
|
$ |
1,893,380 |
|
|
|
100.0 |
% |
|
$ |
2,233,141 |
|
|
|
100.0 |
% |
|
$ |
(339,761 |
) |
|
|
(15.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in net revenue from our broadband communications target market resulted primarily
from a decrease in demand for broadband modems and digital set-top boxes, offset in part by an
increase in demand for our high definition DVD products. The increase in net revenue from our
mobile and wireless target market resulted primarily from an increase in demand for our cellular,
wireless LAN and touch controller product offerings, offset in part by a decrease in demand for our
Bluetooth and VoIP products. Also reflected in our mobile and wireless target
42
market was an
increase in licensing revenue of $20.7 million as a result of the Qualcomm Agreement. The decrease
in net revenue from our enterprise networking target market resulted primarily from a broad-based
decline in demand for our Ethernet switch and controller products.
We recorded rebates to certain customers of $70.0 million and $55.3 million in the three
months ended June 30, 2009 and 2008, respectively, and $120.6 million and $110.4 million in the six
months ended June 30, 2009 and 2008, respectively. We account for rebates in accordance with EITF
Issue No. 01-9, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller
of the Vendors Products), or EITF 01-9, and, accordingly, at the time of the sale we accrue 100%
of the potential rebate as a reduction of revenue and do not apply a breakage factor. The amount of
these reductions is based upon the terms included in our various rebate agreements. We anticipate
that accrued rebates will vary in future periods based upon the level of overall sales to customers
that participate in our rebate programs. We reverse the accrual of unclaimed rebate amounts as
specific rebate programs contractually end or when we believe unclaimed rebates are no longer
subject to payment and will not be paid. We reversed accrued rebates of (i) $4.7 million and $11.2
million in the three months ended June 30, 2009 and 2008, respectively, and (ii) $7.6 million and
$26.5 million in the six months ended June 30, 2009 and 2008, respectively.
The following table presents net revenue from each of our major target markets and its
respective contribution to net revenue in the three months ended June 30, 2009 as compared to the
three months ended March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
% |
|
|
|
June 30, 2009 |
|
|
March 31, 2009 |
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
% of Net |
|
|
|
|
|
|
% of Net |
|
|
Increase |
|
|
in |
|
|
|
Amount |
|
|
Revenue |
|
|
Amount |
|
|
Revenue |
|
|
(Decrease) |
|
|
Amount |
|
|
|
(In thousands, except percentages) |
|
Broadband communications |
|
$ |
363,843 |
|
|
|
35.0 |
% |
|
$ |
317,254 |
|
|
|
37.2 |
% |
|
$ |
46,589 |
|
|
|
14.7 |
% |
Mobile and wireless |
|
|
465,748 |
|
|
|
44.8 |
|
|
|
317,831 |
|
|
|
37.2 |
|
|
|
147,917 |
|
|
|
46.5 |
|
Enterprise networking |
|
|
210,353 |
|
|
|
20.2 |
|
|
|
218,351 |
|
|
|
25.6 |
|
|
|
(7,998 |
) |
|
|
(3.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue |
|
$ |
1,039,944 |
|
|
|
100.0 |
% |
|
$ |
853,436 |
|
|
|
100.0 |
% |
|
$ |
186,508 |
|
|
|
21.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in net revenue in our broadband communications and mobile and wireless target
market resulted primarily from a broad-based increase in demand for our related products. Also
reflected in our mobile and wireless target market was an increase in licensing revenue of $48.4
million, primarily as a result of the Qualcomm Agreement. The decrease in net revenue from our
enterprise networking target market resulted primarily from reduced demand for our Ethernet switch
and controller products.
Cost of Product Revenue, Product Gross Margin and Total Gross Margin. Cost of product revenue
comprises the cost of our semiconductor devices, which consists of the cost of purchasing finished
silicon wafers manufactured by independent foundries, costs associated with our purchase of
assembly, test and quality assurance services and packaging materials for semiconductor products,
as well as royalties paid to vendors for use of their technology. Also included in cost of product
revenue is the amortization of purchased technology, and manufacturing overhead, including costs of
personnel and equipment associated with manufacturing support, product warranty costs, provisions
for excess and obsolete inventories, and stock-based compensation expense for personnel engaged in
manufacturing support. Product gross margin is product revenue less cost of product revenue divided
by product revenue and does not include licensing revenue of intellectual property. Total gross
margin is total net revenue less cost of product revenue divided by total net revenue.
Product gross margin decreased from 52.3% in the three months ended June 30, 2008 to 46.3% in
the three months ended June 30, 2009 as a result of fixed costs being spread over a lower revenue
base. Other factors that contributed to the decrease in product gross margin were: (i) a net
decrease in the reversal of rebates of $6.5 million related to unclaimed rebates, (ii) an increase
in excess and obsolete inventory provisions of $10.0 million and (iii) changes in product mix.
Product gross margin decreased from 51.9% in the six months ended June 30, 2008 to 46.2% in
the six months ended June 30, 2009 as a result of fixed costs being spread over a lower revenue
base. Other factors that contributed
43
to the decrease in product gross margin were: (i) a net
decrease in the reversal of rebates of $18.9 million related to
unclaimed rebates, (ii) an increase in excess and obsolete inventory provisions of $18.5
million and (iii) changes in product mix.
Product gross margin increased from 46.1% in the three months ended March 31, 2009 to 46.3% in
the three months ended June 30, 2009 as a result of fixed costs being spread over a higher revenue
base and changes in product mix.
Product gross margin has been and will likely continue to be impacted by our product mix and
volume of product sales, including sales to high volume customers, competitive pricing programs and
rebates, fluctuations in silicon wafer costs and assembly, packaging and testing costs, competitive
pricing requirements, product warranty costs, provisions for excess and obsolete inventories, the
position of our products in their respective life cycles, and the introduction of products with
lower margins, among other factors. Typically our newly introduced products have lower gross
margins until we commence volume production and launch lower cost revisions of such products
enabling us to benefit from economies of scale and more efficient designs. Our product gross margin
may also be impacted by additional stock-based compensation expense and changes therein, as
discussed below, and the amortization of purchased intangible assets related to future
acquisitions.
Research and Development Expense
Research and development expense consists primarily of salaries and related costs of employees
engaged in research, design and development activities, including stock-based compensation expense.
Development and design costs consist primarily of costs related to engineering design tools, mask
and prototyping costs, testing and subcontracting costs. In addition, we incur other costs related
to facilities and equipment expense, among other items.
The following tables present details of research and development expense for the three and six
months ended June 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
% |
|
|
|
June 30, 2009 |
|
|
June 30, 2008 |
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
% of Net |
|
|
|
|
|
|
% of Net |
|
|
Increase |
|
|
in |
|
|
|
Amount |
|
|
Revenue |
|
|
Amount |
|
|
Revenue |
|
|
(Decrease) |
|
|
Amount |
|
|
|
|
|
|
|
(In thousands, except percentages) |
|
|
|
|
|
Salaries and benefits |
|
$ |
188,497 |
|
|
|
18.1 |
% |
|
$ |
183,744 |
|
|
|
15.3 |
% |
|
$ |
4,753 |
|
|
|
2.6 |
% |
Stock-based compensation(1) |
|
|
86,607 |
|
|
|
8.3 |
|
|
|
90,003 |
|
|
|
7.5 |
|
|
|
(3,396 |
) |
|
|
(3.8 |
) |
Development and design costs |
|
|
48,331 |
|
|
|
4.6 |
|
|
|
54,444 |
|
|
|
4.5 |
|
|
|
(6,113 |
) |
|
|
(11.2 |
) |
Other |
|
|
51,335 |
|
|
|
5.0 |
|
|
|
51,844 |
|
|
|
4.3 |
|
|
|
(509 |
) |
|
|
(1.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
$ |
374,770 |
|
|
|
36.0 |
% |
|
$ |
380,035 |
|
|
|
31.6 |
% |
|
$ |
(5,265 |
) |
|
|
(1.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
Six Months Ended |
|
|
|
|
|
|
% |
|
|
|
June 30, 2009 |
|
|
June 30, 2008 |
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
% of Net |
|
|
|
|
|
|
% of Net |
|
|
Increase |
|
|
in |
|
|
|
Amount |
|
|
Revenue |
|
|
Amount |
|
|
Revenue |
|
|
(Decrease) |
|
|
Amount |
|
|
|
|
|
|
|
(In thousands, except percentages) |
|
|
|
|
|
Salaries and benefits |
|
$ |
378,164 |
|
|
|
20.0 |
% |
|
$ |
350,437 |
|
|
|
15.7 |
% |
|
$ |
27,727 |
|
|
|
7.9 |
% |
Stock-based compensation(1) |
|
|
175,869 |
|
|
|
9.3 |
|
|
|
168,709 |
|
|
|
7.6 |
|
|
|
7,160 |
|
|
|
4.2 |
|
Development and design costs |
|
|
93,948 |
|
|
|
5.0 |
|
|
|
114,907 |
|
|
|
5.1 |
|
|
|
(20,959 |
) |
|
|
(18.2 |
) |
Other |
|
|
99,513 |
|
|
|
5.2 |
|
|
|
101,670 |
|
|
|
4.5 |
|
|
|
(2,157 |
) |
|
|
(2.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
$ |
747,494 |
|
|
|
39.5 |
% |
|
$ |
735,723 |
|
|
|
32.9 |
% |
|
$ |
11,771 |
|
|
|
1.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes stock-based compensation expense resulting from stock
options, stock purchase rights and restricted stock units we issued or
assumed in acquisitions. For a further discussion of stock-based
compensation expense, see the section entitled Stock-Based
Compensation Expense below. |
The increase in salaries and benefits is primarily attributable to an increase in headcount by
449 personnel (predominantly in the broadband communications area as a result of our acquisition of
the DTV Business of AMD, Inc.) to 5,378 at June 30, 2009, which represents a 9.1% increase from our
June 30, 2008 levels. Salaries and benefits also increased as a result of the full impact of our
annual merit review program in May 2008, offset in part by the impact of our restructuring plan in
January 2009. We did not have an annual salary merit increase in 2009. In the three and six months ended June 30, 2009 development and design costs
decreased due to reduced prototyping costs, license fees and subcontracting costs. Development and
design costs vary from period to period depending on the timing of development and tape-out of
various products.
We remain committed to significant research and development efforts to extend our technology
leadership in the wired and wireless communications markets in which we operate. We currently hold
more than 3,450 U.S. and 1,350 foreign patents, and maintain an active program of filing for and
acquiring additional U.S. and foreign patents in wired and wireless communications and other
fields.
Selling, General and Administrative Expense
Selling, general and administrative expense consists primarily of personnel-related expenses,
including stock-based compensation expense, legal and other professional fees, facilities expenses
and communications expenses.
The following tables present details of selling, general and administrative expense for the
three and six months ended June 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
% |
|
|
|
June 30, 2009 |
|
|
June 30, 2008 |
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
% of Net |
|
|
|
|
|
|
% of Net |
|
|
|
|
|
in |
|
|
|
Amount |
|
|
Revenue |
|
|
Amount |
|
|
Revenue |
|
|
Decrease |
|
|
Amount |
|
|
|
|
|
|
|
(In thousands, except percentages) |
|
|
|
|
|
|
|
|
|
Salaries and benefits |
|
$ |
45,161 |
|
|
|
4.3 |
% |
|
$ |
50,306 |
|
|
|
4.2 |
% |
|
$ |
(5,145 |
) |
|
|
(10.2 |
)% |
Stock-based compensation(1) |
|
|
29,893 |
|
|
|
2.9 |
|
|
|
31,268 |
|
|
|
2.6 |
|
|
|
(1,375 |
) |
|
|
(4.4 |
) |
Legal and accounting fees |
|
|
39,772 |
|
|
|
3.8 |
|
|
|
40,170 |
|
|
|
3.3 |
|
|
|
(398 |
) |
|
|
(1.0 |
) |
Other |
|
|
12,584 |
|
|
|
1.3 |
|
|
|
20,273 |
|
|
|
1.7 |
|
|
|
(7,689 |
) |
|
|
(37.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
$ |
127,410 |
|
|
|
12.3 |
% |
|
$ |
142,017 |
|
|
|
11.8 |
% |
|
$ |
(14,607 |
) |
|
|
(10.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
Six Months Ended |
|
|
|
|
|
|
% |
|
|
|
June 30, 2009 |
|
|
June 30, 2008 |
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
% of Net |
|
|
|
|
|
|
% of Net |
|
|
Increase |
|
|
in |
|
|
|
Amount |
|
|
Revenue |
|
|
Amount |
|
|
Revenue |
|
|
(Decrease) |
|
|
Amount |
|
|
|
|
|
|
|
(In thousands, except percentages) |
|
|
|
|
|
Salaries and benefits |
|
$ |
91,155 |
|
|
|
4.8 |
% |
|
$ |
97,803 |
|
|
|
4.4 |
% |
|
$ |
(6,648 |
) |
|
|
(6.8 |
)% |
Stock-based compensation(1) |
|
|
58,527 |
|
|
|
3.1 |
|
|
|
60,333 |
|
|
|
2.7 |
|
|
|
(1,806 |
) |
|
|
(3.0 |
) |
Legal and accounting fees |
|
|
74,126 |
|
|
|
3.9 |
|
|
|
56,165 |
|
|
|
2.5 |
|
|
|
17,961 |
|
|
|
32.0 |
|
Other |
|
|
28,650 |
|
|
|
1.5 |
|
|
|
39,662 |
|
|
|
1.8 |
|
|
|
(11,012 |
) |
|
|
(27.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
$ |
252,458 |
|
|
|
13.3 |
% |
|
$ |
253,963 |
|
|
|
11.4 |
% |
|
$ |
(1,505 |
) |
|
|
(0.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes stock-based compensation expense resulting from stock
options, stock purchase rights and restricted stock units we issued or
assumed in acquisitions. For a further discussion of stock-based
compensation expense, see the section entitled Stock-Based
Compensation Expense below. |
The decrease in salaries and benefits is primarily attributable to decreases in costs relating
to the impact of our restructuring plan in January 2009 and recruiting and training costs.
We did not have an annual salary merit increase in 2009. Employees engaged in selling, general and administrative activities increased by 41 to 1,303 as
compared to our headcount at June 30, 2008. The increase in legal fees in the six months ended June
30, 2009 resulted primarily from attorneys fees and expenses related to our outstanding
intellectual property and securities litigation as well as our abandoned acquisition of Emulex
Corporation, or Emulex. Legal fees fluctuate from period to period due to the nature, scope, timing
and costs of the matters in litigation from time to time. See Note 9 of Notes to Unaudited
Condensed Consolidated Financial Statements. The decrease in the three and six months ended June
30, 2009 in the Other line item included in the above tables is primarily attributable to a
reduction in travel, facilities and communication expenses.
We have obligations to indemnify certain of our present and former directors, officers and
employees to the maximum extent not prohibited by law. Under these obligations, Broadcom is
required (subject to certain exceptions) to indemnify each such director, officer and employee
against expenses, including attorneys fees, judgments, fines and settlements, paid by such
individual in connection with our currently outstanding securities litigation and related
government investigations described in Note 9 of Notes to Unaudited Condensed Consolidated
Financial Statements. The potential amount of the future payments we could be required to make
under these indemnification obligations could be significant. We maintain directors and officers
insurance policies that may limit our exposure and enable us to recover a portion of the amounts
paid with respect to such obligations. However, certain of our insurance carriers have reserved
their rights under their respective policies, and in the third quarter of 2008 one of our insurance
carriers notified us that coverage was not available and that it intended to suspend payment to us.
As a result, we ceased receiving reimbursements under these policies for our expenses related to
the matters described above. However, in January 2009 we entered into an agreement with that
insurance carrier and certain of our other insurance carriers pursuant to which, without
prejudicing our rights or the rights of such insurers, we have received payments from these
insurers under these insurance policies. We recognize reimbursements from our directors and
officers insurance carriers on a cash basis, pursuant to which we record a reduction of selling,
general and administrative expense only when cash is received from our insurance carriers. In the
three and six months ended June 30, 2009, we recovered legal expenses of $5.0 million and $16.6
million, respectively, under these insurance policies. From inception of the securities litigation
and related government investigations through June 30, 2009, we have recovered legal expenses of
$43.3 million under these insurance policies. These amounts have been recorded as a reduction of
selling, general and administrative expense. In certain limited circumstances, all or portions of
the amounts recovered from our insurance carriers may be required to be repaid. We regularly
evaluate the need to record a liability for potential future repayments in accordance with SFAS No.
5, Accounting for Contingencies,. As of June 30, 2009 we have not recorded a liability in
connection with these potential insurance repayment provisions. In connection with our currently
outstanding securities litigation and related government investigations described in Note 9, as of
June 30, 2009, we had advanced $57.9 million to certain former officers for attorney and expert
fees for which we did not receive reimbursement from our insurance carriers, which amount has been
expensed. If our coverage under these policies is reduced or eliminated, our potential financial
exposure in the pending securities litigation and related government investigations would be
increased. Our business, financial position and results of operations may be materially and
adversely affected to the extent that our insurance coverage fails to pay or reimburse expenses and
any judgments, fines or settlement costs that we may incur in connection with the related actions.
46
For further discussion of litigation matters, see Note 9 of Notes to Unaudited Condensed
Consolidated Financial Statements.
Stock-Based Compensation Expense
The following table presents details of total stock-based compensation expense that is
included in each functional line item in our unaudited condensed consolidated statements of
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Cost of product revenue |
|
$ |
6,128 |
|
|
$ |
6,237 |
|
|
$ |
12,005 |
|
|
$ |
11,702 |
|
Research and development |
|
|
86,607 |
|
|
|
90,003 |
|
|
|
175,869 |
|
|
|
168,709 |
|
Selling, general and administrative |
|
|
29,893 |
|
|
|
31,268 |
|
|
|
58,527 |
|
|
|
60,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
122,628 |
|
|
$ |
127,508 |
|
|
$ |
246,401 |
|
|
$ |
240,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents details of unearned stock-based compensation currently estimated
to be expensed in the remainder of 2009 through 2013 related to unvested share-based payment
awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
Total |
|
|
(In thousands) |
Unearned
stock-based
compensation |
|
$ |
254,919 |
|
|
$ |
387,174 |
|
|
$ |
255,311 |
|
|
$ |
123,342 |
|
|
$ |
24,896 |
|
|
$ |
1,045,642 |
|
The increase in unearned stock-based compensation of $28.4 million at June 30, 2009 from the
$1.017 billion balance at December 31, 2008 was primarily the result of our regular annual employee
review program, offset by stock-based compensation of $246.4 million expensed in the six months
ended June 30, 2009, as well as the headcount reductions resulting from our restructuring plan. See
Note 7 of Notes to Unaudited Condensed Consolidated Financial Statements for a discussion of
activity related to share-based awards.
We recognize stock-based compensation expense related to share-based awards over their
respective service periods. Unearned stock-based compensation is principally amortized ratably over
the service periods of the underlying stock options and restricted stock units, generally 48 months
and 16 quarters, respectively. If there are any modifications or cancellations of the underlying
unvested awards, we may be required to accelerate, increase or cancel any remaining unearned
stock-based compensation expense. Future stock-based compensation expense and unearned stock-based
compensation will increase to the extent that we grant additional equity awards to employees or
assume unvested equity awards in connection with acquisitions.
Amortization of Purchased Intangible Assets
The following table presents details of the amortization of purchased intangible assets
included in the cost of product revenue and other operating expense categories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Cost of product
revenue |
|
$ |
4,112 |
|
|
$ |
3,934 |
|
|
$ |
8,225 |
|
|
$ |
7,869 |
|
Other operating
expenses |
|
|
4,139 |
|
|
|
184 |
|
|
|
8,298 |
|
|
|
367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
8,251 |
|
|
$ |
4,118 |
|
|
$ |
16,523 |
|
|
$ |
8,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents details of estimated future straight-line amortization of
existing purchased intangible assets. If we acquire additional purchased intangible assets in the
future, our cost of product revenue or operating expenses will be increased by the amortization of
those assets. The increase in amortization of purchased
47
intangibles in the three and six months ended June 30, 2009 as compared to the three and six
months ended June 30, 2008 relates primarily to the acquired purchased intangible assets of the DTV
Business of AMD.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Intangible Assets Amortization by Year |
|
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
Thereafter |
|
|
Total |
|
|
|
(In thousands) |
|
Cost of product
revenue |
|
$ |
7,750 |
|
|
$ |
13,239 |
|
|
$ |
1,380 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
22,369 |
|
Other operating
expenses |
|
|
4,052 |
|
|
|
6,920 |
|
|
|
500 |
|
|
|
333 |
|
|
|
|
|
|
|
11,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
11,802 |
|
|
$ |
20,159 |
|
|
$ |
1,880 |
|
|
$ |
333 |
|
|
$ |
|
|
|
$ |
34,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-Process Research and Development
In the six months ended June 30, 2008 we recorded IPR&D of $10.9 million related to our
acquisition of Sunext Design, Inc. The amount allocated to IPR&D was determined through established
valuation techniques used in the high technology industry and was expensed upon acquisition as it
was determined that the underlying projects had not reached technological feasibility and no
alternative future uses existed.
Impairment of Long-Lived Assets
In the three and six months ended June 30, 2009 we recorded an impairment to customer
relationships of $11.3 million related to the acquisition of the DTV Business of AMD in accordance
with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The primary
factor contributing to this impairment charge was the reduction in the revenue outlook from an
acquired customer.
Restructuring Costs (Reversals)
In light of the deterioration in worldwide economic conditions, in January 2009 we began
implementing a restructuring plan. The plan included a reduction in our worldwide headcount of
approximately 200 people, which represented approximately 3% of our global workforce.
We recorded $0.4 million and $7.6 million in net restructuring costs in the three and six
months ended June 30, 2009, respectively, related to the plan, primarily for severance and other
charges associated with our reduction in workforce across multiple locations and functions and to a
lesser extent the closure of one of our facilities. Of the total restructuring costs, $2.7 million
related to stock-based compensation expense incurred in connection with the modification of certain
share-based awards. We anticipate a cost savings of approximately $21.0 million in 2009,
of which $8.0 million relates to the cancellation of share-based awards from this restructuring
plan.
Settlement Costs (Gains)
We recorded settlement gains of $65.3 million related to the Qualcomm Agreement in the three
months ended June 30, 2009. For a further discussion of this agreement, see Settlement and Patent
License and Non-Assert Agreement in the Overview section. We also recorded $6.9 million in
settlement costs in the three months ended June 30, 2009 for an estimated settlement associated
with certain employment tax items. In addition in the six months ended June 30, 2009 we recorded
settlement costs of $1.2 million related to a patent infringement claim.
In April 2008 we entered into a settlement with the SEC relating to the previously-disclosed
SEC investigation of Broadcoms historical stock option granting practices. Without admitting or
denying the SECs allegations, we agreed to pay a civil penalty of $12.0 million, which we recorded
as a settlement cost in 2008. The settlement was approved by the United States District Court for
the Central District of California in late April 2008. In addition, we settled a patent
infringement claim for $3.8 million in 2008. Both of the 2008 settlements were recorded in the six
months ended June 30, 2008.
For further discussion of income tax and litigation matters, see Notes 5 and 9, respectively,
to the Unaudited Condensed Consolidated Financial Statements.
48
Charitable Contribution
In April 2009 we established the Broadcom Foundation, or the Foundation, to support
mathematics and science programs, as well as a broad range of community services. In June 2009 we
pledged to make an unrestricted grant of $50.0 million to the Foundation upon receiving a
determination letter from the Internal Revenue Service of exemption from federal income taxation
under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended. Accordingly, as the
receipt of the determination letter is deemed probable, we recorded an operating expense for this
contribution of $50.0 million in the three and six months ended June 30, 2009.
Interest and Other Income (Expense), Net
The following tables present interest and other income (expense), net, for the three and six
months ended June 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Three Months Ended |
|
|
|
|
|
% |
|
|
June 30, 2009 |
|
June 30, 2008 |
|
|
|
|
|
Change |
|
|
|
|
|
|
% of Net |
|
|
|
|
|
% of Net |
|
Increase |
|
in |
|
|
Amount |
|
Revenue |
|
Amount |
|
Revenue |
|
(Decrease) |
|
Amount |
|
|
(In thousands, except percentages) |
Interest income, net |
|
$ |
3,986 |
|
|
|
0.4 |
% |
|
$ |
12,428 |
|
|
|
1.0 |
% |
|
$ |
(8,442 |
) |
|
|
(67.9 |
)% |
Other income (expense), net |
|
|
1,019 |
|
|
|
0.1 |
|
|
|
(191 |
) |
|
|
|
|
|
|
1,210 |
|
|
|
(633.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
Six Months Ended |
|
|
|
|
|
% |
|
|
June 30, 2009 |
|
June 30, 2008 |
|
|
|
|
|
Change |
|
|
|
|
|
|
% of Net |
|
|
|
|
|
% of Net |
|
Increase |
|
in |
|
|
Amount |
|
Revenue |
|
Amount |
|
Revenue |
|
(Decrease) |
|
Amount |
|
|
(In thousands, except percentages) |
Interest income, net |
|
$ |
8,384 |
|
|
|
0.5 |
% |
|
$ |
32,532 |
|
|
|
1.5 |
% |
|
$ |
(24,148 |
) |
|
|
(74.2 |
)% |
Other income, net |
|
|
2,665 |
|
|
|
0.1 |
|
|
|
733 |
|
|
|
|
|
|
|
1,932 |
|
|
|
263.6 |
|
Interest income, net, reflects interest earned on cash and cash equivalents and marketable
securities balances. Other income (expense), net primarily includes the gain on the sale of a
marketable security and gains and losses on foreign currency transactions. The decrease in interest
income, net, was the result of the overall decrease in market interest rates. Our cash and
marketable securities balances increased from $2.040 billion at June 30, 2008 to $2.300 billion at
June 30, 2009, primarily due to net cash provided by operating activities, including the $200.0
million received from the Qualcomm Agreement. The average interest rates earned in the three months
ended June 30, 2009 and 2008 were 0.73% and 2.33%, respectively. The average interest rates earned
in the six months ended June 30, 2009 and 2008 were 0.81% and 2.93%, respectively.
Income Tax Provision (Benefit)
We recorded a tax provision of $3.3 million and a tax benefit of $1.8 million for the three
and six months ended June 30, 2009, respectively, and tax provisions of $0.6 million and $3.9
million for the three and six months ended June 30, 2008, respectively. Our effective tax rates
were 19.5% and 2.2% for the three and six months ended June 30, 2009, respectively, and 0.5% and
1.8% for the three and six months ended June 30, 2008, respectively. The difference between our
effective tax rates and the 35% federal statutory rate resulted primarily from foreign earnings
taxed at rates lower than the federal statutory rate for the three and six months ended June 30,
2009 and June 30, 2008, domestic losses recorded without income tax benefit for the three and six
months ended June 30, 2009, and tax benefits resulting primarily from the expiration of the
statutes of limitations for the assessment of taxes in various foreign jurisdictions of $5.5
million and $6.5 million for the three and six months ended June 30, 2009, respectively, and $4.4
million for the three and six months ended June 30, 2008. We recorded a tax benefit of $3.9 million
in the six months ended June 30, 2009 reflecting the utilization of a portion of our credits for
increasing
49
research activities (research and development tax credits) pursuant to a provision contained
in the American Recovery and Reinvestment Tax Act of 2009, which was enacted in February 2009.
Additionally, for the three and six months ended June 30, 2009, we recorded a tax provision of $3.2
million associated with the exposure resulting from a recent decision by the U. S. Court of Appeals
for the Ninth Circuit in the case involving Xilinx, Inc. as discussed below.
On May 27, 2009, the U.S. Court of Appeals for the Ninth Circuit in the case between Xilinx,
Inc. and the Commissioner of Internal Revenue, overturned a 2005 U.S. Tax Court ruling regarding
treatment of certain compensation expenses under a Companys research and development cost-sharing
arrangements with affiliates. The Court of Appeals held that related parties to such an arrangement
must share stock-based compensation expenses, notwithstanding the fact that unrelated parties in
such an arrangement would not share such costs. The case is subject to further appeal. The
potential impact to Broadcom, should the IRS prevail, of including such stock-based compensation
expenses in our research and development cost-sharing arrangements
would be additional income for federal
and state purposes from January 1, 2001 forward, and may result
in additional related federal and state income and franchise
taxes, and material adjustments to our federal and state net operating loss carryforwards, our
federal and state capitalized research and development costs and our
deferred tax positions.
Specifically, in the three and six months ended June 30, 2009, we recorded a $3.2 million tax
provision for additional federal and state income and franchise taxes. We also reduced our federal
and state net operating loss carryforwards by approximately $600.0 million and $380.0 million,
respectively, and reduced our federal and state capitalized research and development costs by
approximately $10.0 million and $15.0 million, respectively. Additionally, in the three and six
months ended June 30, 2009, we reduced our deferred tax asset relating to stock-based compensation
expenses by approximately $60.0 million, and increased our deferred tax asset for certain tax
credits by approximately $10.0 million, with each of these amounts offset by a corresponding
adjustment to valuation allowance for deferred tax asset resulting in no net change to deferred tax
assets.
As a result of SFAS 123R, since January 1, 2006, our deferred tax assets exclude excess tax
benefits from employee stock-based compensation that are a component of our research and
development credits, capitalized research and development, and net operating loss carryovers. If
and when these tax benefits are realized, a credit is recorded to equity. The federal and state net
operating losses and the capitalized research and development costs we reduced as a result of the
decision in the Xilinx case represent such excess tax benefits from employee stock-based
compensation and therefore do not result in an adjustment to our deferred tax assets.
We utilize the asset and liability method of accounting for income taxes as set forth in SFAS
No. 109, Accounting for Income Taxes, or SFAS 109. We record net deferred tax assets to the extent
we believe these assets will more likely than not be realized. In making such determination, we
consider all available positive and negative evidence, including scheduled reversals of deferred
tax liabilities, projected future taxable income, tax planning strategies and recent financial
performance. SFAS 109 states that forming a conclusion that a valuation allowance is not required
is difficult when there is negative evidence such as cumulative losses in recent years. As a result
of our recent cumulative losses in the U.S. and certain foreign jurisdictions, and the full
utilization of our loss carryback opportunities, we have concluded that a full valuation allowance
should be recorded in such jurisdictions. In certain other foreign jurisdictions where we do not
have cumulative losses, we had net deferred tax assets of $7.6 million and $7.5 million at June 30,
2009 and December 31, 2008, respectively, in accordance with SFAS 109.
We file federal, state and foreign income tax returns in jurisdictions with varying statutes
of limitations. The 2004 through 2008 tax years generally remain subject to examination by federal
and most state tax authorities. In foreign jurisdictions, the 2001 through 2008 tax years generally
remain subject to examination by tax authorities.
Our income tax returns for the 2004, 2005 and 2006 tax years are currently under examination
by the Internal Revenue Service and certain state jurisdictions. In addition, our employment tax
returns for the 2003, 2004, 2005 and 2006 tax years are under examination by the Internal Revenue
Service. We currently do not expect that the results of these examinations will have a material
effect on our financial condition or results of operations.
We operate under tax holidays in Singapore, which are effective through March 31, 2014. The
tax holidays are conditional upon our continued compliance in meeting certain employment and
investment thresholds.
50
Subsequent Events
On April 21, 2009 we announced that we had sent an unsolicited proposal to the Board of
Directors of Emulex to acquire all of the outstanding shares of Emulex common stock for $9.25 per
share in cash or a total of approximately $764.0 million. On June 29, 2009 we increased our offer
for all of the currently outstanding shares of common stock (including the associated preferred
stock purchase rights) of Emulex from $9.25 to $11.00 per share in cash, representing a total
equity value of approximately $912.0 million. Our offer to acquire all of the outstanding shares
of Emulex expired at midnight, July 14, 2009. At the expiration of the offer, certain conditions
to the offer had not been met, and we had not waived those conditions. Therefore, no shares were
purchased by us in the offer, and all shares previously tendered and not withdrawn were promptly
returned.
In accordance with SFAS 165, we have evaluated subsequent events through July 23, 2009, the
date of issuance of the unaudited condensed consolidated financial statements. During this period
we did not have any material recognizable subsequent events. However, we did have a nonrecognizable
subsequent event related to the expiration of our offer to acquire all of the outstanding shares of
Emulex.
Liquidity and Capital Resources
Working Capital and Cash and Marketable Securities. The following table presents working
capital, cash and cash equivalents and marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30 |
|
|
December 31, |
|
|
Increase |
|
|
|
2009 |
|
|
2008 |
|
|
(Decrease) |
|
|
|
(In thousands) |
|
Working capital |
|
$ |
2,125,982 |
|
|
$ |
2,034,110 |
|
|
$ |
91,872 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents(1) |
|
$ |
1,506,518 |
|
|
$ |
1,190,645 |
|
|
$ |
315,873 |
|
Short-term marketable securities(1) |
|
|
700,585 |
|
|
|
707,477 |
|
|
|
(6,892 |
) |
Long-term marketable securities |
|
|
92,699 |
|
|
|
|
|
|
|
92,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,299,802 |
|
|
$ |
1,898,122 |
|
|
$ |
401,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included in working capital. |
Our working capital, cash and cash equivalents and marketable securities increased in the six
months ended June 30, 2009 primarily due to cash provided by operations. See the summary of cash,
cash equivalents and short-term marketable securities by major security type and discussion of
market risk that follows in Item 3: Quantitative and Qualitative Disclosures about Market Risk.
Cash Provided and Used in the Six Months Ended June 30, 2009 and 2008. Cash and cash
equivalents increased to $1.507 billion at June 30, 2009 from $1.191 billion at December 31, 2008
as a result of cash provided by operating activities.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Cash provided by operating activities |
|
$ |
418,501 |
|
|
$ |
487,228 |
|
Cash used in investing activities |
|
|
(113,360 |
) |
|
|
(197,083 |
) |
Cash provided by (used in) financing activities |
|
|
10,732 |
|
|
|
(771,002 |
) |
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
$ |
315,873 |
|
|
$ |
(480,857 |
) |
Cash and cash equivalents at beginning of period |
|
$ |
1,190,645 |
|
|
$ |
2,186,572 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
1,506,518 |
|
|
$ |
1,705,715 |
|
|
|
|
|
|
|
|
In the six months ended June 30, 2009 our operating activities provided $418.5 million in
cash. This was primarily the result of $311.8 million in net non-cash operating expenses, $185.2
million in net cash provided by
51
changes in operating assets and liabilities (including the effects of the proceeds received
from the Qualcomm Agreement) offset in part by a net loss of $78.5 million. Non-cash items included
in net income in the six months ended June 30, 2009 consisted of depreciation and amortization,
stock-based compensation expense, amortization of purchased intangible assets, impairment of
long-lived assets, non-cash restructuring charges and a gain on sale of marketable securities. In
the six months ended June 30, 2008 our operating activities provided $487.2 million in cash. This
was primarily the result of $209.1 million in net income and $300.0 million in net non-cash
operating expenses, offset in part by $21.8 million in net cash used by changes in operating assets
and liabilities. Non-cash items included in net income in the six months ended June 30, 2008
included depreciation and amortization, stock-based compensation expense, amortization of purchased
intangible assets, IPR&D, impairment of long-lived assets and loss on strategic investments.
Accounts receivable increased $71.7 million from $372.3 million at December 31, 2008 to $444.0
million at June 30, 2009 resulting primarily from a change in our revenue linearity. Our days sales
outstanding increased from 30 days at December 31, 2008 to 39 days at June 30, 2009, driven by a
variation in revenue linearity and a slight delay in the timing of customer payments. We typically
bill customers on an open account basis subject to our standard net thirty day payment terms. If,
in the longer term, our revenue increases, it is likely that our accounts receivable balance will
also increase. Our accounts receivable could also increase if customers delay their payments or if
we grant extended payment terms to customers, both of which are more likely to occur during
challenging economic times when our customers may face issues gaining access to sufficient credit
on a timely basis. As of June 30, 2009 we have not extended payment terms to any of our customers.
Inventories decreased $86.8 million from $366.1 million at December 31, 2008 to $279.3 million
at June 30, 2009 as we reduced our inventory purchases to reflect the reduction in revenues and the
current economic slowdown. Our inventory days on hand decreased from 60 days at December 31, 2008
to 49 days at June 30, 2009 which was in line with our established objective of reducing inventory
from the December 31, 2008 level. In the future, our inventory levels will continue to be
determined based upon the level of purchase orders we receive and the stage at which our products
are in their respective product life cycles, our ability, and the ability of our customers, to
manage inventory under hubbing arrangements, and competitive situations in the marketplace. Such
considerations are balanced against the risk of obsolescence or potentially excess inventory
levels.
Investing activities used $113.4 million in cash in the six months ended June 30, 2009, which
was primarily the result of net purchases of marketable securities of $89.2 million and $26.3
million of capital equipment purchases mostly to support our research and development efforts.
Investing activities used cash of $197.1 million in the six months ended June 30, 2008, which was
primarily the result of net purchases of marketable securities of $117.9 million, $49.1 million of
capital equipment purchases, mostly to support our research and development efforts, $9.6 million
in net cash paid for the acquisition of Sunext Design, $20.1 million related to contingent
consideration paid for attainment of certain performance goals, and the purchase of $0.4 million of
strategic investments.
Our financing activities provided $10.7 million in cash in the six months ended June 30, 2009,
which was primarily the result of $83.7 million in proceeds received from issuances of common stock
upon exercise of stock options and pursuant to our employee stock purchase plan, offset in part by
$38.4 million in repurchases of shares of our Class A common stock pursuant to the share repurchase
program implemented in July 2008 and $34.5 million in minimum tax withholding paid on behalf of
employees for shares issued pursuant to restricted stock units. An additional $12.5 million of
repurchases of our Class A common stock was not settled in cash as of June 30, 2009. Our financing
activities used $771.0 million in cash in the six months ended June 30, 2008, which was primarily
the result of $835.9 million in repurchases of shares of our Class A common stock pursuant to the
share repurchase program implemented in November 2007, offset in part by $64.9 million in net
proceeds received from issuances of common stock upon exercise of stock options and pursuant to our
employee stock purchase plan. An additional $21.6 million of repurchases of our Class A common
stock was not settled in cash as of June 30, 2008.
From time to time our Board of Directors has authorized various programs to repurchase shares
of our Class A common stock depending on market conditions and other factors. In July 2008 the
Board of Directors authorized our current program to repurchase shares of Broadcoms Class A common
stock having an aggregate value of up to $1.0 billion. Repurchases under the program may be made at
any time during the period that commenced July 31, 2008 and continuing through and including July
31, 2011. In the three months ended June 30, 2009 we repurchased a total of 2.0 million shares of
our Class A common stock at a weighted average price of $25.08. At June 30, 2009, $524.9 million
remained authorized for the repurchase of shares under this plan.
52
Although we received similar proceeds from issuances of common stock upon exercise of stock
options and pursuant to our employee stock purchase plan in the six months ended June 30, 2009 and
2008, the timing and number of stock option exercises and employee stock purchases and the amount
of cash proceeds we receive through those exercises and purchases are not within our control, and
in the future we may not generate as much cash from the exercise of stock options as we have in the
past. Moreover, it is now our practice to issue a combination of restricted stock units and stock
options only to certain employees and, in most cases to issue solely restricted stock units. Unlike
the exercise of stock options, the issuance of shares upon vesting of restricted stock units does
not result in any cash proceeds to Broadcom and requires the use of cash, as we currently allow
employees to elect to have a portion of the shares issued upon vesting of restricted stock units
withheld to satisfy minimum statutory withholding taxes, which we then pay in cash to the
appropriate tax authorities on each participating employees behalf.
Prospective Capital Needs. We believe that our existing cash, cash equivalents and marketable
securities, together with cash generated from operations and from the purchase of common stock
through our employee stock purchase plan, will be sufficient to cover our working capital needs,
capital expenditures, investment requirements, commitments and repurchases of our Class A common
stock for at least the next 12 months. However, it is possible that we may need to raise additional
funds to finance our activities beyond the next 12 months or to consummate acquisitions of other
businesses, assets, products or technologies. If needed, we may be able to raise such funds by
selling equity or debt securities to the public or to selected investors, or by borrowing money
from financial institutions. We could also reduce certain expenditures, such as repurchases of our
Class A common stock.
In addition, even though we may not need additional funds, we may still elect to sell
additional equity or debt securities or obtain credit facilities for other reasons. If we elect to
raise additional funds, we may not be able to obtain such funds on a timely basis on acceptable
terms, if at all. If we raise additional funds by issuing additional equity or convertible debt
securities, the ownership percentages of existing shareholders would be reduced. In addition, the
equity or debt securities that we issue may have rights, preferences or privileges senior to those
of our Class A common stock.
Although we believe that we have sufficient capital to fund our activities for at least the
next 12 months, our future capital requirements may vary materially from those now planned. We
anticipate that the amount of capital we will need in the future will depend on many factors,
including:
|
|
|
general economic and political conditions and specific conditions in the markets we
address, including the continuing volatility in the technology sector and semiconductor
industry, the current global economic recession, trends in the broadband communications
markets in various geographic regions, including seasonality in sales of consumer products
into which our products are incorporated; |
|
|
|
|
the inability of certain of our customers who depend on credit to have access to their
traditional sources of credit to finance the purchase of products from us, particularly in
the current global economic environment, which may lead them to reduce their level of
purchases or to seek credit or other accommodations from us; |
|
|
|
|
litigation expenses, settlements and judgments; |
|
|
|
|
the overall levels of sales of our semiconductor products, licensing revenue and
product gross margins; |
|
|
|
|
our business, product, capital expenditure and research and development plans, and
product and technology roadmaps; |
|
|
|
|
the market acceptance of our products; |
|
|
|
|
repurchases of our Class A common stock; |
|
|
|
|
required levels of research and development and other operating costs; |
53
|
|
|
volume price discounts and customer rebates; |
|
|
|
|
intellectual property disputes, customer indemnification claims and other types of
litigation risks; |
|
|
|
|
the levels of inventory and accounts receivable that we maintain; |
|
|
|
|
acquisitions of other businesses, assets, products or technologies; |
|
|
|
|
licensing royalties payable by or to us; |
|
|
|
|
changes in our compensation policies; |
|
|
|
|
the issuance of restricted stock units and the related cash payments we make for
withholding taxes due from employees during 2009 and future years; |
|
|
|
|
capital improvements for new and existing facilities; |
|
|
|
|
technological advances; |
|
|
|
|
our competitors responses to our products and our anticipation of and responses to
their products; |
|
|
|
|
our relationships with suppliers and customers; |
|
|
|
|
the availability and cost of sufficient foundry, assembly and test capacity and
packaging materials; and |
|
|
|
|
the level of exercises of stock options and stock purchases under our employee stock
purchase plan. |
In addition, we may require additional capital to accommodate planned future long-term growth,
hiring, infrastructure and facility needs.
Off-Balance Sheet Arrangements. At June 30, 2009 we had no material off-balance sheet
arrangements, other than our operating leases.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
At June 30, 2009 we had $2.300 billion in cash, cash equivalents and marketable securities. We
maintain an investment portfolio of various security holdings, types and maturities. Pursuant to
SFAS No. 157, Fair Value Measurements, or SFAS 157, the fair value of all of our cash equivalents
and marketable securities is determined based on Level 1 inputs, which consist of quoted prices
in active markets for identical assets. We place our cash investments in instruments that meet
credit quality standards, as specified in our investment policy guidelines. These guidelines also
limit the amount of credit exposure to any one issue, issuer or type of instrument. At June 30,
2009 all of our marketable securities are rated AAA, Aaa, A+, A-1 or P-1 by the major credit rating
agencies. We invest in U.S. Treasury and agency obligations, commercial paper, money market funds,
corporate notes and bonds, time deposits, foreign notes and certificates of deposits. Our
investment policy for marketable securities requires that all securities mature in three years or
less, with a weighted average maturity of no longer than 18 months.
We account for our investments in debt and equity instruments under SFAS No. 115, Accounting
for Certain Investments in Debt and Equity Securities and FASB Staff Position, or FSP, SFAS No.
115-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,
as amended by FSP 115-2 and 124-2, or FSP 115-1 and 124-1. Management determines the appropriate
classification of such securities at the time of purchase and reevaluates such classification as of
each balance sheet date. Cash equivalents and marketable securities are classified as
available-for-sale and are reported at fair value with the related unrealized gains and losses
included in accumulated other comprehensive income (loss), a component of shareholders equity, net
of tax.
54
We follow the guidance provided by FSP 115-1 and 124-1 to assess whether our investments with
unrealized loss positions are other than temporarily impaired. Realized gains and losses and
declines in value judged to be other than temporary are determined based on the specific
identification method and are reported in other income (expense),
net, in the unaudited condensed consolidated statements of operations. The fair value of cash equivalents and marketable securities
is determined based on quoted market prices for those securities. In 2008 we recorded an
other-than-temporary impairment of a marketable security of $1.8 million as other expense, net. In the six months ended June 30,
2009 this marketable security was sold resulting in the recovery of $1.0 million of the originally
recorded impairment.
Investments in both fixed rate and floating rate instruments carry a degree of interest rate
risk. Fixed rate securities may have their market value adversely impacted due to an increase in
interest rates, while floating rate securities may produce less income than expected if interest
rates fall. Due in part to these factors, our future investment income may fall short of
expectations due to changes in interest rates or if the decline in fair value of our publicly
traded debt investments is judged to be other-than-temporary. We may suffer losses in principal if
we are forced to sell securities that have declined in market value due to changes in interest
rates. However, because any debt securities we hold are classified as available-for-sale, no
gains or losses are realized in the income statement due to changes in interest rates unless such
securities are sold prior to maturity or unless declines in value are determined to be
other-than-temporary. These securities are reported at fair value with the related unrealized gains
and losses included in accumulated other comprehensive income (loss), a component of shareholders
equity, net of tax.
In a declining interest rate environment, as short term investments mature, reinvestment
occurs at less favorable market rates. Given the short term nature of certain investments, the
current interest rate environment may continue to negatively impact our investment income.
To assess the interest rate risk associated with our investment portfolio, we performed a
sensitivity analysis to determine the impact a change in interest rates would have on the value of
the investment portfolio assuming a 100 basis point parallel shift in the yield curve. Based on
investment positions as of June 30, 2009, a 100 basis point increase in interest rates across all
maturities would result in a $4.6 million incremental decline in the fair market value of the
portfolio. As of December 31, 2008, a similar 100 basis point shift in the yield curve would have
resulted in a $3.1 million incremental decline in the fair market value of the portfolio. Such
losses would only be realized if we sold the investments prior to maturity.
Actual future gains and losses associated with our investments may differ from the sensitivity
analyses performed as of June 30, 2009 due to the inherent limitations associated with predicting
the changes in the timing and level of interest rates and our actual exposures and positions.
Current economic conditions have had widespread negative effects on the financial markets. Due
to credit concerns and lack of liquidity in the short-term funding markets, we have shifted a
large percentage of the portfolio to U.S. Treasury and other government securities and time
deposits, which may negatively impact our investment income, particularly in the form of declining
yields.
Approximately $608.5 million of our $1.507 billion of cash and cash equivalents at June 30,
2009 is located in foreign countries where we conduct business. There may be tax effects upon
repatriation of the cash to the United States.
Exchange Rate Risk
We consider our direct exposure to foreign exchange rate fluctuations to be minimal.
Currently, sales to customers and arrangements with third-party manufacturers provide for pricing
and payment in United States dollars, and, therefore, are not subject to exchange rate
fluctuations. Increases in the value of the United States dollar relative to other currencies
could make our products more expensive, which could negatively impact our ability to compete.
Conversely, decreases in the value of the United States dollar relative to other currencies could
result in our suppliers raising their prices to continue doing business with us. Fluctuations in
currency exchange rates could affect our business in the future.
55
Item 4. Controls and Procedures
We are committed to maintaining disclosure controls and procedures designed to ensure that
information required to be disclosed in our periodic reports filed under the Securities Exchange
Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported
within the time periods specified in the SECs rules and forms, and that such information is
accumulated and communicated to our management, including our chief executive officer and chief
financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In
designing and evaluating our disclosure controls and procedures, management recognizes that any
controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives, and management necessarily is required to
apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures
and implementing controls and procedures based on the application of managements judgment.
Under the supervision and with the participation of our management, including our principal
executive officer and principal financial officer, we conducted an evaluation of our disclosure
controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated
under the Exchange Act. Based on this evaluation, our principal executive officer and our principal
financial officer concluded that our disclosure controls and procedures were effective at a
reasonable assurance level as of June 30, 2009, the end of the period covered by this Report.
There has been no change in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended June 30, 2009 that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
Inherent Limitations on Internal Control
A control system, no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further, the benefits of
controls must be considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that all control issues
and instances of management override or improper acts, if any, have been detected. These inherent
limitations include the realities that judgments in decision making can be faulty, and that
breakdowns can occur because of simple errors or mistakes. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more people, or by
management override of the control. The design of any system of controls is also based in part upon
certain assumptions about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future conditions. Because of
the inherent limitations in a cost-effective control system, misstatements due to management
override, error or improper acts may occur and not be detected. Any resulting misstatement or loss
may have an adverse and material effect on our business, financial condition and results of
operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The information set forth under Note 9 of Notes to Unaudited Condensed Consolidated Financial
Statements, included in Part I, Item 1 of this Report, is incorporated herein by reference. For an
additional discussion of certain risks associated with legal proceedings, see Risk Factors
immediately below.
Item 1A. Risk Factors
Before deciding to purchase, hold or sell our common stock, you should carefully consider the
risks described below in addition to the other cautionary statements and risks described elsewhere
and the other information contained in this Report and in our other filings with the SEC, including
our Annual Report on Form 10-K for the year ended December 31, 2008 and subsequent reports on Forms
10-Q and 8-K. The risks and uncertainties described below are not the only ones we face. Additional
risks and uncertainties not presently known to us or that we currently deem immaterial may also
affect our business. If any of these known or unknown risks or uncertainties actually occurs with
material adverse effects on Broadcom, our business, financial condition, results of operations
56
and/or liquidity could be seriously harmed. In that event, the market price for our Class A
common stock will likely decline, and you may lose all or part of your investment.
Our operating results may be adversely impacted by worldwide political and economic uncertainties
and specific conditions in the markets we address, including the cyclical nature of and volatility
in the semiconductor industry. As a result, the market price of our Class A common stock may
decline.
We operate primarily in the semiconductor industry, which is cyclical and subject to rapid
change and evolving industry standards. From time to time, the semiconductor industry has
experienced significant downturns, such as the current downturn. These downturns are characterized
by decreases in product demand, excess customer inventories, and accelerated erosion of prices.
These factors could cause substantial fluctuations in our revenue, gross margins and results of
operations. In addition, during these downturns some competitors may become more aggressive in
their pricing practices, which would adversely impact our product gross margins. Any downturns in
the semiconductor industry may be severe and prolonged, and any failure of the industry or wired
and wireless communications markets to fully recover from downturns could seriously impact our
revenue and harm our business, financial condition and results of operations. The semiconductor
industry also periodically experiences increased demand and production capacity constraints, which
may affect our ability to ship products. Accordingly, our operating results may vary significantly
as a result of the general conditions in the semiconductor industry, which could cause large
fluctuations in our stock price.
Our business is subject to variability due to the recent deterioration in general worldwide
economic conditions and credit availability resulting from the current financial crisis affecting
the banking system and financial markets. Many other factors have the potential to significantly
impact our business, such as: concerns about inflation and deflation, volatility in energy costs,
decreased consumer confidence, reduced corporate profits and capital spending, adverse business
conditions and liquidity concerns in the wired and wireless communications markets, reduced
availability of insurance coverage or reduced ability to pay claims by insurance carriers, recent
international conflicts and terrorist and military activity, and the impact of natural disasters
and public health emergencies. These conditions make it extremely difficult for our customers, our
vendors and us to accurately forecast and plan future business activities, and they could cause
U.S. and foreign businesses to further slow spending on our products and services, which would
delay and lengthen sales cycles. Furthermore, during challenging economic times our customers may
face issues gaining timely access to sufficient credit or could even need to file for bankruptcy.
Either of these circumstances could result in an impairment of their ability to make timely
payments to us. If these circumstances were to occur, we may be required to increase our allowance
for doubtful accounts and our days sales outstanding would be negatively impacted. Historically,
semiconductor companies are several steps removed from the end-customer in the supply chain and
have experienced growth patterns which are different than what the end demand might be,
particularly during periods of high volatility. This can manifest itself in periods of growth in
excess of their customers followed by periods of under-shipment before the volatility abates.
However, given recent economic conditions it is possible that any correlation will continue to be
less predictable and will result in increased volatility in our operating results and stock price.
We cannot predict the timing, strength or duration of any economic slowdown or subsequent economic
recovery, worldwide, in the semiconductor industry or in the wired and wireless communications
markets. If the economy or markets in which we operate deviate from present levels or deteriorate,
we may record additional charges related to restructuring costs and the impairment of goodwill and
long-lived assets, and our business, financial condition and results of operations may be
materially and adversely affected. Additionally, the combination of our lengthy sales cycle coupled
with challenging macroeconomic conditions could have a synergistic negative impact on the results
of our operations. The impact of market volatility is not limited to revenue but may also affect
our product gross margins and other financial metrics. Such impact could be manifested in, but not
limited to, factors such as fixed cost overhead absorption.
Our quarterly operating results may fluctuate significantly. As a result, we may fail to meet the
expectations of securities analysts and investors, which could cause our stock price to decline.
Our quarterly net revenue and operating results have fluctuated significantly in the past and
are likely to continue to vary from quarter to quarter due to a number of factors, many of which
are not within our control. If our operating results do not meet the expectations of securities
analysts or investors, who may derive their expectations by extrapolating data from recent
historical operating results, the market price of our Class A common stock will likely decline.
Fluctuations in our operating results may be due to a number of factors, including, but not limited
to, those
57
listed below and those identified throughout this Risk Factors section, some of which may
contribute to more pronounced fluctuations in an uncertain global economic environment:
|
|
|
general economic and political conditions and specific conditions in the markets we
address, including the continuing volatility in the technology sector and semiconductor
industry, the current global economic recession, and trends in the broadband communications
markets in various geographic regions, including seasonality in sales of consumer products
into which our products are incorporated; |
|
|
|
|
the timing, rescheduling or cancellation of significant customer orders and our
ability, as well as the ability of our customers, to manage inventory; |
|
|
|
|
our ability to adjust our operations in response to changes in demand for our existing
products and services or demand for new products requested by our customers; |
|
|
|
|
the effectiveness of our expense and product cost control and reduction efforts; |
|
|
|
|
the gain or loss of a key customer, design win or order; |
|
|
|
|
our dependence on a few significant customers and/or design wins for a substantial
portion of our revenue; |
|
|
|
|
our ability to specify, develop or acquire, complete, introduce, market and transition
to volume production new products and technologies in a cost-effective and timely manner; |
|
|
|
|
intellectual property disputes, customer indemnification claims and other types of
litigation risks; |
|
|
|
|
the availability and pricing of raw materials and third party semiconductor foundry,
assembly and test capacity; |
|
|
|
|
our ability to retain, recruit and hire key executives, technical personnel and other
employees in the positions and numbers, with the experience and capabilities, and at the
compensation levels that we need to implement our business and product plans; |
|
|
|
|
our ability to timely and accurately predict market requirements and evolving industry
standards and to identify and capitalize upon opportunities in new markets; |
|
|
|
|
the rate at which our present and future customers and end users adopt our technologies
and products in our target markets; |
|
|
|
|
changes in our product or customer mix; |
|
|
|
|
competitive pressures and other factors such as the qualification, availability and
pricing of competing products and technologies and the resulting effects on sales and
pricing of our products; |
|
|
|
|
our ability to timely and effectively transition to smaller geometry process
technologies or achieve higher levels of design integration; |
|
|
|
|
the volume of our product sales and pricing concessions on volume sales; |
|
|
|
|
the impact of the Internal Revenue Service review of certain of our income and
employment tax returns; and |
|
|
|
|
the effects of public health emergencies, natural disasters, terrorist activities,
international conflicts and other events beyond our control. |
We expect new product lines to account for a high percentage of our future sales. Some of
these markets are immature and/or unpredictable or are new markets for Broadcom. We cannot assure
you that these markets will develop into significant opportunities or that we will continue to
derive significant revenue from these markets. Based on the limited amount of historical data
available to us, it is difficult to anticipate our future revenue streams from, or the
sustainability of, such newer markets. Typically our new products have lower gross margins until we
commence volume production and launch lower cost revisions of such products, enabling us to benefit
from economies of scale and more efficient designs. However, certain of our new products, such as
products for the
58
cellular phone market, will likely have lower gross margins than our customary products for
some time after we commence volume production of those products, which will be dependent upon our
product mix.
Additionally, as an increasing number of our chips are being incorporated into consumer
electronic products, we anticipate greater seasonality and fluctuations in the demand for our
products, which may result in greater variations in our quarterly operating results. Consumer
electronic products can also have lower gross margins than the gross margins we have been able to
achieve in the past, depending upon where they are in their respective product life cycles, which
could negatively impact our revenue and gross margin.
In the past we have entered into arrangements that include multiple deliverables, such as the
sale of semiconductor products and related data services. Under these arrangements, the services
may be provided without having a separate fair value under Financial Accounting Standards Board,
or FASB, Emerging Issues Task Force, or EITF, Issue No. 00-21, Revenue Arrangements with Multiple
Deliverables, or EITF 00-21. In that event, we will only recognize a portion of the total revenue
we receive from the customer during a quarter, and will recognize the remaining revenue ratably
over the respective service period or estimated product life. There are also other scenarios under
EITF 00-21 and other accounting literature whereby revenue may be deferred for even longer periods
or ratable recognition over the service period may not be permitted and all of the revenue may be
required to be recognized in later periods or at the end of the arrangement. As we enter into
future multiple element arrangements in which the fair value of each deliverable is not known, the
portion of revenue we recognize on a deferred basis may vary significantly in any given quarter,
which could cause even greater fluctuations in our quarterly operating results.
We are subject to order and shipment uncertainties, and our ability to accurately forecast customer
demand may be impaired by our lengthy sales cycle. If we are unable to accurately predict customer
demand, we may hold excess or obsolete inventory, which would reduce our product gross margin.
Conversely, we may have insufficient inventory, which would result in lost revenue opportunities
and potentially in loss of market share and damaged customer relationships.
We typically sell products pursuant to purchase orders rather than long-term purchase
commitments. Customers can generally cancel, change or defer purchase orders on short notice
without incurring a significant penalty. In the recent past, some of our customers have developed
excess inventories of their own products and have, as a consequence, deferred purchase orders for
our products. It is difficult to accurately predict what or how many products our customers will
need in the future. Anticipating demand is challenging because our customers face volatile pricing
and unpredictable demand for their own products, are increasingly focused on cash preservation and
tighter inventory management, and may be involved in legal proceedings that could affect their
ability to buy our products.
Our ability to accurately forecast customer demand may also be impaired by the delays inherent
in our lengthy sales cycle. After we have developed and delivered a product to a customer, the
customer will usually test and evaluate our product prior to designing its own equipment that will
incorporate our product. Our customers may need three to more than nine months to test, evaluate
and adopt our product and an additional three to more than twelve months to begin volume production
of equipment that incorporates our products. Due to this lengthy sales cycle, we may experience
significant delays from the time we increase our operating expenses and make investments in
inventory until the time that we generate revenue from these products. It is possible that we may
never generate any revenue from these products after incurring such expenditures. Even if a
customer selects our product to incorporate into its equipment, we have no assurance that the
customer will ultimately bring its product to market or that such effort by our customer will be
successful. The delays inherent in our lengthy sales cycle increase the risk that a customer will
decide to cancel or curtail, reduce or delay its product plans. If we incur significant research
and development expenses, marketing expenses and investments in inventory in the future that we are
not able to recover, our operating results could be adversely affected. In addition, as an
increasing number of our chips are being incorporated into consumer products, we anticipate greater
fluctuations in demand for our products, which makes it even more difficult to forecast customer
demand.
We place orders with our suppliers based on forecasts of customer demand and, in some
instances, may establish buffer inventories to accommodate anticipated demand. Our forecasts are
based on multiple assumptions, each of which may introduce error into our estimates. If we
overestimate customer demand, we may allocate resources to
59
manufacturing products that we may not be able to sell when we expect to, if at all. As a
result, we could hold excess or obsolete inventory, which would reduce our profit margins and
adversely affect our financial results. Conversely, if we underestimate customer demand or if
insufficient manufacturing capacity is available, we could forego revenue opportunities and
potentially lose market share and damage our customer relationships. In addition, any future
significant cancellations or deferrals of product orders or the return of previously sold products
could materially and adversely affect our profit margins, increase product obsolescence and
restrict our ability to fund our operations. Furthermore, we generally recognize revenue upon
shipment of products to a customer. If a customer refuses to accept shipped products or does not
timely pay for these products, which has occurred in the past, our revenue and financial results
could be materially and adversely impacted.
In addition, a growing percentage of our inventory is maintained under hubbing arrangements
with certain of our customers and we plan to continue to use these arrangements for the foreseeable
future. Pursuant to these arrangements, we deliver products to a customer or a designated third
party warehouse based upon the customers projected needs, but do not recognize product revenue
unless and until the customer reports that it has removed our product from the warehouse to
incorporate into its end products. Historically we have had good visibility into customer
requirements and shipments within a quarter. However, if a customer does not take our products
under a hubbing arrangement in accordance with the schedule it originally provided us, our
predicted future revenue stream could vary substantially from our forecasts and our results of
operations could be materially and adversely affected. In addition, distributors and/or customers
with hubbing arrangements provide us periodic reports regarding product, price, quantity, and when
products are shipped to their customers, as well as the quantities of our products they still have
in stock. For specialized shipping terms we may also rely on data provided by our freight
forwarding providers. For our royalty revenue we also rely on data provided by our customers. Any
error in the data provided to us by customers, distributors or other third parties could lead to
inaccurate reporting of our revenue, gross profit and net income. Additionally, since we own
inventory that is physically located in a third partys warehouse, our ability to effectively
manage inventory levels may be impaired, causing our total inventory turns to decrease, which could
increase expenses associated with excess and obsolete product and negatively impact our cash flow.
If we fail to appropriately adjust our operations in response to changes in demand for our existing
products and services or to the demand for new products requested by our customers, our business
could be materially and adversely affected.
We intend to manage our costs and expenses in the short term to achieve our long-term business
objectives. We anticipate that in the long term, we may need to expand as general worldwide
economic conditions improve. Through internal growth and acquisitions, we significantly increased
the scope of our operations and expanded our workforce from 2,774 full-time employees and temporary
workers as of December 31, 2003 (excluding interns) to 7,200 full-time employees and temporary
workers as of June 30, 2009 (excluding interns). Nonetheless, we may not be able to adjust our
workforce and operations in a sufficiently timely manner to respond effectively to changes in
demand for our existing products and services or to the demand for new products requested by our
customers. In that event, we may be unable to meet competitive challenges or exploit potential
market opportunities, and our current or future business could be materially and adversely
affected.
Conversely, if we expand our operations and workforce too rapidly in anticipation of increased
demand for our products, and such demand does not materialize at the pace at which we expect, our
business could be materially and adversely affected. We expect new product lines, which often
require substantial research and development expenses to develop, to account for a high percentage
of our future revenue. However, some of the markets for these new products are immature and/or
unpredictable or are new markets for Broadcom, and if these markets do not develop at the rates we
originally anticipated or if we do not execute successfully, the rate of increase in our operating
expenses may exceed the rate of increase, if any, in our revenue. Moreover, we may intentionally
choose to increase the rate of our research and development expenses more rapidly than the increase
in the rate of our revenue in the short term in anticipation of the long term benefits we would
derive from such investment. However, such benefits may never materialize or may not be as
significant as we originally believed they would be. For instance, during the last five years we
have incurred substantial expenditures on the development of new products for the cellular handset
market. Approximately 25% of the $1.498 billion in research and development expense for 2008 was
attributable to our mobile platforms business. However, this market is characterized by very long
product development and sales cycles due to the significant qualification requirements of cellular
handset makers and wireless network operators, and accordingly, it is common to experience
significant delays from the time research and development efforts commence to the time
corresponding revenues are generated. Due to these lengthy product
60
development and sales cycles, our mobile platforms business had a material negative impact on
our earnings in 2008, including impairment charges of $169.4 million recorded in the three months
ended December 31, 2008 relating to this business. Most of the revenue that we derived from our
mobile platforms business in the three and six months ended June 30, 2009 related to the licensing
of our intellectual property. In connection with the Qualcomm Agreement, in the three months ended
June 30, 2009, we recorded licensing revenue of $36.7 million. We expect to record equal quarterly
amounts of $51.7 million from September 30, 2009 through March 31, 2012, $47.7 million in the three
months ending June 30, 2012 and $43.2 million in following four quarters ending June 30, 2013 for
cumulative licensing revenue in the amount of $825.9 million. Although we have started to generate
additional product revenue from our cellular handset products in the three months ended June 30,
2009, it is possible that our customers may delay further product development plans or that their
products will not be commercially successful, which would continue to materially and adversely
affect our results of operations.
Additionally, our operations are characterized by a high percentage of costs that are fixed or
difficult to reduce in the short term, such as research and development expenses, the employment
and training of a highly skilled workforce, stock-based compensation expense, and legal, accounting
and other external fees. If we experience a slowdown in the semiconductor industry or the wired and
wireless communications markets in which we operate, such as the current slowdown, we may not be
able to adjust our operating expenses in a sufficiently timely or effective manner. Although we
announced a restructuring plan in January 2009 and have implemented a number of other cost saving
measures, if the current slowdown is more severe or prolonged than we anticipate, our business,
financial condition and results of operations could be materially and adversely affected and may
result in additional restructuring costs.
Our past growth has placed, and any future long-term growth is expected to continue to place,
a significant strain on our management personnel, systems and resources. To implement our current
business and product plans, we will need to continue to expand, train, manage and motivate our
workforce. All of these endeavors will require substantial management effort. In the past we have
implemented an enterprise resource planning system to help us improve our planning and management
processes, and implemented an equity administration system to support our more complex equity
programs. We anticipate that we will also need to continue to implement a variety of new and
upgraded operational and financial systems, including enhanced human resources management systems
and a business-to-business solution, as well as additional procedures and other internal management
systems. In general, the accuracy of information delivered by these systems may be subject to
inherent programming quality. We may engage in relocations of our employees or operations from time
to time. Such relocations could result in temporary disruptions of our operations or a diversion of
managements attention and resources. If we are unable to effectively manage our expanding
operations, we may be unable to adjust our business quickly enough to meet competitive challenges
or exploit potential market opportunities, or conversely, we may scale our business too quickly and
the rate of increase in our expenses may exceed the rate of increase in our revenue, either of
which would materially and adversely affect our current or future business.
If we are unable to develop and introduce new products successfully and in a cost-effective and
timely manner or to achieve market acceptance of our new products, our operating results would be
adversely affected.
Our future success is dependent upon our ability to develop new semiconductor products for
existing and new markets, introduce these products in a cost-effective and timely manner, and
convince leading equipment manufacturers to select these products for design into their own new
products. Our products are generally incorporated into our customers products at the design stage.
We often incur significant expenditures on the development of a new product without any assurance
that an equipment manufacturer will select our product for design into its own product. Once an
equipment manufacturer designs a competitors product into its product offering, it becomes
significantly more difficult for us to sell our products to that customer because changing
suppliers involves significant cost, time, effort and risk for the customer.
Even if an equipment manufacturer designs one of our products into its product offering, we
have no assurances that its product will be commercially successful or that we will receive any
revenue from sales of that product. Sales of our products largely depend on the commercial success
of our customers products. Our customers are typically not obligated to purchase our products and
can choose at any time to stop using our products if their own products are not commercially
successful or for any other reason. In addition, any substantial delay in our customers product
development plans could have a material negative impact on our business.
61
Our historical results have been, and we expect that our future results will continue to be,
dependent on the introduction of a relatively small number of new products and the timely
completion and delivery of those products to customers. The development of new silicon devices is
highly complex, and from time to time we have experienced delays in completing the development and
introduction of new products or lower than anticipated manufacturing yields in the early production
of such products. If we were to experience any similar delays in the successful completion of a new
product or similar reductions in our manufacturing yields for a new product in the future, our
customer relationships, reputation and business could be seriously harmed.
In addition, the development and introduction of new products often requires substantial
research and development resources. As a result, we may choose to discontinue one or more products
or product development programs to dedicate more resources to new products. The discontinuation of
an existing or planned product may materially and adversely affect our relationship with our
customers, including customers who may purchase more than one product from us.
Our ability to develop and deliver new products successfully will depend on various factors,
including our ability to:
|
|
|
timely and accurately predict market requirements and evolving industry standards; |
|
|
|
|
accurately define new products; |
|
|
|
|
timely and effectively identify and capitalize upon opportunities in new markets; |
|
|
|
|
timely complete and introduce new product designs; |
|
|
|
|
adjust our operations in response to changes in demand for our products and services or
the demand for new products requested by our customers; |
|
|
|
|
license any desired third party technology or intellectual property rights; |
|
|
|
|
effectively develop and integrate technologies from companies that we have acquired; |
|
|
|
|
timely qualify and obtain industry interoperability certification of our products and
the products of our customers into which our products will be incorporated; |
|
|
|
|
obtain sufficient foundry capacity and packaging materials; |
|
|
|
|
achieve high manufacturing yields; and |
|
|
|
|
shift our products to smaller geometry process technologies to achieve lower cost and
higher levels of design integration. |
In some of our businesses, our ability to develop and deliver next generation products
successfully and in a timely manner may depend in part on access to information, or licenses of
technology or intellectual property rights, from companies that are our competitors. We cannot
assure you that such information or licenses will be made available to us on a timely basis, if at
all, or at reasonable cost and on commercially reasonable terms.
If we are not able to develop and introduce new products successfully and in a cost effective
and timely manner, we will be unable to attract new customers or to retain our existing customers,
as these customers may transition to other companies that can meet their product development needs,
which would materially and adversely affect our results of operations.
Our acquisition strategy may result in unanticipated accounting charges or otherwise adversely
affect our results of operations, and result in difficulties in assimilating and integrating the
operations, personnel,
62
technologies, products and information systems of acquired companies or businesses, or be dilutive
to existing shareholders. In addition, completing and integrating acquisitions can be costly.
A key element of our business strategy involves expansion through the acquisitions of
businesses, assets, products or technologies that allow us to complement our existing product
offerings, expand our market coverage, increase our engineering workforce or enhance our
technological capabilities. Between January 1, 1999 and June 30, 2009, we acquired 38 companies and
certain assets of four other businesses. We continually evaluate and explore strategic
opportunities as they arise, including business combination transactions, strategic partnerships,
and the purchase or sale of assets, including tangible and intangible assets such as intellectual
property.
Acquisitions may require significant capital infusions, typically entail many risks, and could
result in difficulties in assimilating and integrating the operations, personnel, technologies,
products and information systems of acquired companies or businesses. We have in the past and may
in the future experience delays in the timing and successful integration of an acquired companys
technologies and product development through volume production, unanticipated costs and
expenditures, changing relationships with customers, suppliers and strategic partners, or
contractual, intellectual property or employment issues. In addition, key personnel of an acquired
company may decide not to work for us. Moreover, to the extent we acquire a company with existing
products, those products may have lower gross margins than our customary products, which could
adversely affect our gross margin and operating results. If an acquired company also has inventory
that we assume, we will be required to write up the carrying value of that inventory to fair value.
When that inventory is sold, the gross margin for those products will be nominal and our gross
margin for that period will be negatively affected. The acquisition of another company or its
products and technologies may also require us to enter into a geographic or business market in
which we have little or no prior experience. These challenges could disrupt our ongoing business,
distract our management and employees, harm our reputation and increase our expenses. These
challenges are magnified as the size of the acquisition increases. Furthermore, these challenges
would be even greater if we acquired a business or entered into a business combination transaction
with a company that was larger and more difficult to integrate than the companies we have
historically acquired.
Acquisitions may require large one-time charges and can result in increased debt or contingent
liabilities, adverse tax consequences, additional stock-based compensation expense, and the
recording and later amortization of amounts related to certain purchased intangible assets, any of
which items could negatively impact our results of operations. In addition, we may record goodwill
and other purchased intangible assets in connection with an acquisition and incur impairment
charges in the future. For example, we have previously recorded recorded goodwill and long-lived
assets impairment charges in connection with various acquisitions related to our mobile platforms
group and with respect to our most recent acquisition of the DTV Business of AMD, Inc. If our
actual results, or the plans and estimates used in future impairment analyses, are lower than the
original estimates used to assess the recoverability of these assets, we could incur additional
impairment charges. Any of these types of charges could cause the price of our Class A common
stock to decline. Beginning January 1, 2009, the accounting for business combinations has changed.
We expect that the new requirements will have an impact on our unaudited condensed consolidated
financial statements, but the nature and magnitude of the specific effects will depend upon the
nature, terms and size of the acquisitions we consummate after the January 1, 2009.
Acquisitions or asset purchases made entirely or partially for cash may reduce our cash
reserves. We may seek to obtain additional cash to fund an acquisition by selling equity or debt
securities. Any issuance of equity or convertible debt securities may be dilutive to our existing
shareholders. In addition, the equity or debt securities that we may issue could have rights,
preferences or privileges senior to those of our Class A and/or Class B common stock. For example,
as a consequence of the prior pooling-of-interests accounting rules, the securities issued in nine
of our acquisitions were shares of Class B common stock, which have voting rights superior to those
of our publicly traded Class A common stock.
We cannot assure you that we will be able to consummate any pending or future acquisitions or
that we will realize any anticipated benefits from these acquisitions. We may not be able to find
suitable acquisition opportunities that are available at attractive valuations, if at all. Even if
we do find suitable acquisition opportunities, we may not be able to consummate the acquisitions on
commercially acceptable terms, and any decline in the price of our Class A common stock may make it
significantly more difficult and expensive to initiate or consummate additional acquisitions. In
addition, acquisitions (whether or not ultimately consummated such as our abandoned
acquisition of Emulex) may involve significant transaction expenses which are expensed as
incurred and may negatively affect our operating expenses.
63
Our outstanding civil litigation relating to the voluntary review of our past equity award
practices reported in January 2007 could continue to result in significant costs to us. In
addition, any other related action by a governmental agency could result in civil or criminal
sanctions against certain of our current and/or former officers, directors and/or employees.
In connection with the voluntary review of our past equity award practices, we restated our
financial statements for each of the years ended December 31, 1998 through December 31, 2005, and
for the three months ended March 31, 2006. Accordingly, you should not rely on financial
information included in the reports on Forms 10-K, 10-Q and 8-K previously filed by Broadcom, the
related opinions of our independent registered public accounting firm, or earnings press releases
and similar communications issued by us, for periods ended on or before March 31, 2006, all of
which have been superseded in their entirety by the information contained in our amended Annual
Report on Form 10-K/A for the year ended December 31, 2005 and our amended Quarterly Report on Form
10-Q/A for the three months ended March 31, 2006, each filed January 23, 2007.
In June 2006 we received an informal request for information from the staff of the Los Angeles
regional office of the SEC regarding our historical option granting practices. In December 2006 we
were informed that the SEC had issued a formal order of investigation in the matter. In April 2008
the SEC brought a complaint against Broadcom alleging violations of the federal securities laws,
and we entered into a settlement with the SEC. Without admitting or denying the SECs allegations,
we agreed to pay a civil penalty of $12.0 million, which we recorded as a settlement cost in 2008,
and stipulated to an injunction against future violations of certain provisions of the federal
securities laws. The settlement was approved by the United States District Court for the Central
District of California in late April 2008, thus concluding the SECs investigation of this matter
with respect to Broadcom.
As discussed in detail in Note 9 of Notes to Unaudited Condensed Consolidated Financial
Statements, included in Part I, Item 1 of this Report, in May 2008 the SEC filed a complaint in the
United States District Court for the Central District of California against Dr. Henry Samueli, our
then Chairman of the Board and Chief Technical Officer, and three other former executive officers
of Broadcom. The SECs civil complaint alleges that Dr. Samueli, and the other defendants, violated
the anti-fraud provisions of the federal securities laws, falsified books and records, and caused
the company to report false financial results. We do not know when the SEC action will be resolved
with respect to Dr. Samueli or what actions, if any, the SEC may require him to take in resolution
of the action against him personally.
In August 2006 we were informally contacted by the U.S. Attorneys Office for the Central
District of California and asked to produce documents. In 2007 and 2008 we continued to provide
substantial amounts of documents and information to the U.S. Attorneys Office on a voluntary basis
and pursuant to grand jury subpoenas. We are continuing to cooperate with the U.S. Attorneys
Office in 2009. As widely reported, in June 2008 Dr. Henry T. Nicholas, III, our former President
and Chief Executive Officer and a former director, and William J. Ruehle, our former Chief
Financial Officer, were named in an indictment relating to alleged stock options backdating at the
company. Also in June 2008 Dr. Samueli pled guilty to making a materially false statement in
connection with the SECs investigation described above. In September 2008 the United States
District Court for the Central District of California rejected Dr. Samuelis plea agreement. Dr.
Samueli has appealed the ruling in the United States Court of Appeals for the Ninth Circuit. Any
further action by the SEC, the U.S. Attorneys Office or other governmental agency could result in
additional civil or criminal sanctions and/or fines against us and/or certain of our current or
former officers, directors and/or employees.
Additionally, as discussed in Note 9 of Notes to Unaudited Condensed Consolidated Financial
Statements, we currently are engaged in civil litigation with parties that claim, among other
allegations, that certain of our current and former directors and officers improperly dated stock
option grants to enhance their own profits on the exercise of such options or for other improper
purposes. Although we and the other defendants intend to defend these claims vigorously, there are
many uncertainties associated with any litigation, and we cannot assure you that these actions will
be resolved without substantial costs and/or settlement charges that may exceed any reimbursement
we may be entitled to under our directors and officers insurance policies.
64
In addition, we rely on independent registered public accounting firms for opinions and
consents to maintain current reports under the Securities Exchange Act of 1934, as amended, or the
Exchange Act, and to have effective registration statements under the Securities Act of 1933, as
amended, or the Securities Act, on file with the SEC, including our outstanding registration
statements on Forms S-3, S-4 and S-8. The pending arbitration proceedings involving Ernst & Young
LLP, or E&Y, our former independent registered public accounting firm, could adversely impact our
ability to obtain any necessary consents in the future from E&Y. In that event, we may be required
to have our new independent registered public accounting firm reaudit the affected periods and
during such reaudit may not be able to timely file required Exchange Act reports with the SEC or to
issue equity, including common stock pursuant to equity awards that comprise a significant portion
of our compensation packages, under our outstanding or any new registration statements.
Furthermore, as a result of the reaudit, it is possible that additional accounting issues may be
identified.
The resolution of the pending investigation by the U.S. Attorneys Office, the defense of our
pending civil litigation, and the defense of any additional litigation that may arise relating to
our past equity award practices or the January 2007 restatement of our prior financial statements
has in the past and could continue to result in significant costs and diversion of the attention of
management and other key employees. We have indemnification agreements with each of our present and
former directors and officers, under which Broadcom is generally required to indemnify them against
expenses, including attorneys fees, judgments, fines and settlements, arising from the pending
litigation and related government actions described above (subject to certain exceptions, including
liabilities arising from willful misconduct, from conduct knowingly contrary to the best interests
of Broadcom, or conduct that is knowingly fraudulent or deliberately dishonest or results in
improper personal benefit). The potential amount of the future payments we could be required to
make under these indemnification obligations could be significant and could have a material impact
on our results of operations, particularly as the defendants in the criminal and civil actions
described above prepare to go to trial.
Although we maintain various insurance policies related to the risks associated with our
business, including directors and officers insurance, we cannot assure you that the amount of our
insurance coverage will be sufficient, that our insurance policies will provide coverage for the
matters and circumstances described above or that portions of payments by our insurance companies
previously made to us will not be required to be repaid to the insurance companies as these matters
reach conclusion. Certain of our insurance carriers have reserved their rights under their
respective policies, and in the third quarter of 2008 one of our insurance carriers notified us
that coverage was not available and that it intended to suspend payment to us. As a result, we
ceased receiving reimbursements under these policies for our expenses related to the matters
described above. However, in January 2009 we entered into an agreement with that insurance carrier
and certain of our other insurance carriers pursuant to which, without prejudicing our rights or
the rights of such insurers, we have received payments from certain of these insurers under these
insurance policies. Nonetheless, if our coverage under these policies is reduced or eliminated, our
potential financial exposure in the pending securities litigation and related government actions
would be increased. Our business, financial position and results of operations may be materially
and adversely affected to the extent that our insurance coverage fails to pay or reimburse expenses
and any judgments, fines or settlement costs that we may incur in connection with these matters or
in the event we are required to repay amounts that were previously paid by our insurance companies.
Intellectual property risks and third party claims of infringement, misappropriation of proprietary
rights or other claims against us could adversely affect our ability to market our products,
require us to redesign our products or seek licenses from third parties, and seriously harm our
operating results. In addition, the defense of such claims could result in significant costs and
divert the attention of our management or other key employees.
Companies in and related to the semiconductor industry and the wired and wireless
communications markets often aggressively protect and pursue their intellectual property rights.
There are various intellectual property risks associated with developing and producing new products
and entering new markets, and we may not be able to obtain, at reasonable cost and upon
commercially reasonable terms, licenses to intellectual property of others that is alleged to read
on such new or existing products. From time to time, we have received, and may continue to receive,
notices that claim we have infringed upon, misappropriated or misused other parties proprietary
rights. Moreover, in the past we have been and we currently are engaged in litigation with parties
that claim that we infringed their patents or misappropriated or misused their trade secrets. In
addition, we or our customers may be sued by other
65
parties that claim that our products have infringed their patents or misappropriated or
misused their trade secrets, or which may seek to invalidate one or more of our patents. An adverse
determination in any of these types of disputes could prevent us from manufacturing or selling some
of our products, limit or restrict the type of work that employees involved in such litigation may
perform for Broadcom, increase our costs of revenue, and expose us to significant liability. Any of
these claims or litigation may materially and adversely affect our business, financial condition
and results of operations. For example, in a patent or trade secret action, a court could issue a
preliminary or permanent injunction that would require us to withdraw or recall certain products
from the market, redesign certain products offered for sale or under development, or restrict
employees from performing work in their areas of expertise. We may also be liable for damages for
past infringement and royalties for future use of the technology, and we may be liable for treble
damages if infringement is found to have been willful. In addition, governmental agencies may
commence investigations or criminal proceedings against our employees, former employees and/or the
company relating to claims of misappropriation or misuse of another partys proprietary rights. We
may also have to indemnify some customers and strategic partners under our agreements with such
parties if a third party alleges or if a court finds that our products or activities have infringed
upon, misappropriated or misused another partys proprietary rights. We have received requests from
certain customers and strategic partners to include increasingly broad indemnification provisions
in our agreements with them. These indemnification provisions may, in some circumstances, extend
our liability beyond the products we provide to include liability for combinations of components or
system level designs and for consequential damages and/or lost profits. Even if claims or
litigation against us are not valid or successfully asserted, these claims could result in
significant costs and diversion of the attention of management and other key employees to defend.
Additionally, we have sought and may in the future seek to obtain licenses under other parties
intellectual property rights and have granted and may in the future grant licenses to certain of
our intellectual property rights to others in connection with cross-license agreements or
settlements of claims or actions asserted against us. However, we may not be able to obtain
licenses under anothers intellectual property rights on commercially reasonable terms, if at all.
In addition, any other rights that we grant to competitors may increase their ability to compete in
the marketplace.
Our products may contain technology provided to us by other parties such as contractors,
suppliers or customers. We may have little or no ability to determine in advance whether such
technology infringes the intellectual property rights of a third party. Our contractors, suppliers
and licensors may not be required to indemnify us in the event that a claim of infringement is
asserted against us, or they may be required to indemnify us only up to a maximum amount, above
which we would be responsible for any further costs or damages. In addition, we may have little or
no ability to correct errors in the technology provided by such contractors, suppliers and
licensors, or to continue to develop new generations of such technology. Accordingly, we may be
dependent on their ability and willingness to do so. In the event of a problem with such
technology, or in the event that our rights to use such technology become impaired, we may be
unable to ship our products containing such technology, and may be unable to replace the technology
with a suitable alternative within the time frame needed by our customers.
We may not be able to adequately protect or enforce our intellectual property rights, which could
harm our competitive position.
Our success and future revenue growth will depend, in part, on our ability to protect our
intellectual property. We primarily rely on patent, copyright, trademark and trade secret laws, as
well as nondisclosure agreements and other methods, to protect our proprietary technologies and
processes. Despite our efforts to protect our proprietary technologies and processes, it is
possible that competitors or other unauthorized third parties may obtain, copy, use or disclose our
technologies and processes. We currently hold over 3,450 U.S. and 1,350 foreign patents and have
more than 7,350 additional U.S. and foreign pending patent applications. However, we cannot assure
you that any additional patents will be issued. Even if a new patent is issued, the claims allowed
may not be sufficiently broad to protect our technology. In addition, any of our existing or future
patents may be challenged, invalidated or circumvented. As such, any rights granted under these
patents may not provide us with meaningful protection. We may not be able to obtain foreign patents
or file pending applications corresponding to our U.S. patents and patent applications. Even if
foreign patents are granted, effective enforcement in foreign countries may not be available. If
our patents do not adequately protect our technology, our competitors may be able to offer products
similar to ours. Our competitors may also be able to develop similar technology independently or
design around our patents. Some or all of our patents have in the past been licensed and likely
will in the future be licensed to certain of our competitors through cross-license agreements.
Moreover, because we have participated and continue to participate in developing various industry
standards, we may be required to license some of our patents to others, including competitors, who
develop products based on those standards.
66
Certain of our software (as well as that of our customers) may be derived from so-called open
source software that is generally made available to the public by its authors and/or other third
parties. Such open source software is often made available under licenses, such as the GNU General
Public License, or GPL, which impose certain obligations on us in the event we were to distribute
derivative works of the open source software. These obligations may require us to make source code
for the derivative works available to the public, and/or license such derivative works under a
particular type of license, rather than the forms of license customarily used to protect our
intellectual property. In addition, there is little or no legal precedent for interpreting the
terms of certain of these open source licenses, including the determination of which works are
subject to the terms of such licenses. While we believe we have complied with our obligations under
the various applicable licenses for open source software, in the event that the copyright holder of
any open source software were to successfully establish in court that we had not complied with the
terms of a license for a particular work, we could be required to release the source code of that
work to the public and/or stop distribution of that work. With respect to our proprietary software,
we generally license such software under terms that prohibit combining it with open source software
as described above. Despite these restrictions, parties may combine Broadcom proprietary software
with open source software without our authorization, in which case we might nonetheless be required
to release the source code of our proprietary software.
We generally enter into confidentiality agreements with our employees, consultants and
strategic partners. We also try to control access to and distribution of our technologies,
documentation and other proprietary information. Despite these efforts, internal or external
parties may attempt to copy, disclose, obtain or use our products, services or technology without
our authorization. Also, current or former employees may seek employment with our business
partners, customers or competitors, and we cannot assure you that the confidential nature of our
proprietary information will be maintained in the course of such future employment. Additionally,
current, departing or former employees or third parties could attempt to penetrate our computer
systems and networks to misappropriate our proprietary information and technology or interrupt our
business. Because the techniques used by computer hackers and others to access or sabotage networks
change frequently and generally are not recognized until launched against a target, we may be
unable to anticipate, counter or ameliorate these techniques. As a result, our technologies and
processes may be misappropriated, particularly in countries where laws may not protect our
proprietary rights as fully as in the United States.
In addition, some of our customers have entered into agreements with us that grant them the
right to use our proprietary technology if we fail to fulfill our obligations, including product
supply obligations, under those agreements, and if we do not correct the failure within a specified
time period. Also, some customers may require that we make certain intellectual property available
to our competitors so that the customer has a choice among semiconductor vendors for solutions to
be incorporated into the customers products. Moreover, we often incorporate the intellectual
property of strategic customers into our own designs, and have certain obligations not to use or
disclose their intellectual property without their authorization.
We cannot assure you that our efforts to prevent the misappropriation or infringement of our
intellectual property or the intellectual property of our customers will succeed. We have in the
past been and currently are engaged in litigation to enforce or defend our intellectual property
rights, protect our trade secrets, or determine the validity and scope of the proprietary rights of
others, including our customers. It is possible that the advent of or developments in such
litigation may adversely affect our relationships and agreements with certain customers that are
either involved in such litigation or also have business relationships with the party with whom we
are engaged in litigation. Such litigation (and the settlement thereof) has been and will likely
continue to be very expensive and time consuming. Additionally, any litigation can divert the
attention of management and other key employees from the operation of the business, which could
negatively impact our business and results of operations.
Changes in current or future laws or regulations or the imposition of new laws or regulations,
including new or changed tax regulations or new interpretations thereof, by federal or state
agencies or foreign governments could adversely affect our results of operations, impede the sale
of our products or otherwise harm our business.
Changes in current laws or regulations applicable to us or the imposition of new laws and
regulations in the United States or elsewhere could materially and adversely affect our business,
financial condition and results of operations.
67
We currently operate under tax holidays and favorable tax incentives in certain foreign
jurisdictions. For instance, in Singapore we operate under tax holidays that reduce taxes on
substantially all of our operating income in that jurisdiction. Such tax holidays and incentives
often require us to meet specified employment and investment criteria in such jurisdictions. We
cannot assure you that we will continue to meet such criteria or enjoy such tax holidays and
incentives, or realize any net tax benefits from these tax holidays or incentives. If any of our tax
holidays or incentives are terminated, our results of operations may be materially and adversely
affected. Additionally, potential future U.S. tax legislation could impact the tax benefits we
effectively realize from our tax holidays and tax incentives.
In a recent decision by the U. S. Court of Appeals for the Ninth Circuit in the case between
Xilinx, Inc. and the Commissioner of Internal Revenue overturned a 2005 U.S. Tax Court ruling
regarding treatment of certain compensation expenses under a companys research and development
cost-sharing arrangements with affiliates. The Court of Appeals held that related parties to such
an arrangement must share stock option costs, notwithstanding the fact that unrelated parties in
such an arrangement would not share such costs. The case is subject to further appeal. The
potential impact to Broadcom, should the IRS prevail, of including such stock-based compensation
expenses in our research and development cost-sharing arrangements would be additional income for federal
and state purposes from January 1, 2001 forward, and may result in additional related federal and state income and franchise
taxes, and material adjustments to our federal and state net operating loss carryforwards, our
federal and state capitalized research and development costs and our deferred tax positions.
We are subject to ongoing examination of our income tax returns in the United States and other
jurisdictions. We regularly assess the likely outcomes of these audits to determine the
appropriateness of our provision for income taxes, but there can be no assurance that the outcomes
from these audits will not have an adverse effect on our operating results.
The effects of regulation on our customers or the industries in which they operate may
materially and adversely impact our business. For example, the Federal Communications Commission
has broad jurisdiction over each of our target markets in the United States. Although current FCC
regulations and the laws and regulations of other federal or state agencies are not directly
applicable to our products, they do apply to much of the equipment into which our products are
incorporated. FCC regulatory policies that affect the ability of cable or satellite operators or
telephone companies to offer certain services to their customers or other aspects of their business
may impede sales of our products in the United States. For example, in the past we have experienced
delays when products incorporating our chips failed to comply with FCC emissions specifications.
In addition, we and our customers are subject to various import and export laws and
regulations. Changes in or violations of such regulations could materially and adversely affect our
business, financial condition and results of operations. Additionally, various government export
regulations apply to the encryption or other features contained in some of our products. We have
made numerous filings and applied for and received a number of export licenses under these
regulations. However, if we fail to continue to receive licenses or otherwise comply with these
regulations, we may be unable to manufacture the affected products at foreign foundries or ship
these products to certain customers, or we may incur penalties or fines or our business, financial
condition or results of operations may be otherwise adversely affected.
We and our customers may also be subject to regulation by countries other than the United
States. Foreign governments may impose tariffs, duties and other import restrictions on components
that we obtain from non-domestic suppliers and may impose export restrictions on products that we
sell internationally. These tariffs, duties or restrictions could materially and adversely affect
our business, financial condition and results of operations.
Due to environmental concerns, the use of lead and other hazardous substances in electronic
components and systems is receiving increased attention. In response, the European Union passed the
Restriction on Hazardous Substances, or RoHS, Directive, legislation that limits the use of lead
and other hazardous substances in electrical equipment. The RoHS Directive became effective July 1,
2006. We believe that our current product designs and material supply chains are in compliance with
the RoHS Directive.
Because we depend on a few significant customers and/or design wins for a substantial portion of
our revenue, the loss of a key customer or design win or any significant delay in our customers
product development plans could seriously impact our revenue 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.
68
We have derived a substantial portion of our past revenue from sales to a relatively small
number of customers. As a result, the loss of any significant customer could materially and
adversely affect our financial condition and results of operations.
Sales to our five largest customers represented 33.2% and 37.3% of our net revenue in the six
months ended June 30, 2009 and 2008, respectively. We expect that our largest customers will
continue to account for a substantial portion of our net revenue in 2009 and for the foreseeable
future. The identities of our largest customers and their respective contributions to our net
revenue have varied and will likely continue to vary from period to period.
A significant portion of our revenue may also depend on a single product design win with a
large customer. As a result, the loss of any such key design win or any significant delay in the
ramp of volume production of the customers products into which our product is designed could
materially and adversely affect our financial condition and results of operations. For instance, as
a result of the recent significant economic downturn, which caused a decline in the cellular
market, as well as tempered expectations of the future growth rate for that market, and an increase
in our implied discount rate due to higher risk premiums, as well as the decline in our market
capitalization, we had to adjust our assumptions used to assess the estimated fair value of our
mobile platforms business. In addition, these key design wins are often with large customers who
have significantly greater financial, sales, marketing and other resources than we have and greater
bargaining and pricing power, which could materially and adversely affect our operating margins.
We may not be able to maintain or increase sales to certain of our key customers or continue
to secure key design wins for a variety of reasons, including the following:
|
|
|
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; |
|
|
|
|
our customers face intense competition from other manufacturers that do not use our
products; |
|
|
|
|
some of our customers may choose to consolidate their supply sources to our detriment;
and |
|
|
|
|
some of our customers offer or may offer products that compete with our products. |
These relationships often require us to develop new products that may involve significant
technological challenges. Our customers frequently place considerable pressure on us to meet their
tight development schedules. Accordingly, we may have to devote a substantial portion of our
resources to strategic relationships, which could detract from or delay our completion of other
important development projects or the development of next generation products and technologies.
Delays in development could impair our relationships with strategic customers and negatively impact
sales of the products under development.
In addition, our longstanding relationships with some larger customers may also deter other
potential customers who compete with these customers from buying our products. To attract new
customers or retain existing customers, we may offer certain customers favorable prices on our
products. We may have to offer the same lower prices to certain of our customers who have
contractual most favored nation pricing arrangements. In that event, our average selling prices
and gross margins would decline. The loss of a key customer or design win, a reduction in sales to
any key customer, a significant delay in our customers product development plans or our inability
to attract new significant customers or secure new key design wins could seriously impact our
revenue and materially and adversely affect our results of operations.
69
The complexity of our products could result in unforeseen delays or expenses and in undetected
defects, or bugs, which could damage our reputation with current or prospective customers, result
in significant costs and claims, and adversely affect the market acceptance of new products.
Highly complex products such as the products that we offer frequently contain hardware or
software defects or bugs when they are first introduced or as new versions are released. Our
products have previously experienced, and may in the future experience, these defects and bugs. If
any of our products contains defects or bugs, or has reliability, quality or compatibility
problems, our reputation may be damaged and customers may be reluctant to buy our products, which
could materially and adversely affect our ability to retain existing customers and attract new
customers. In addition, these defects or bugs could interrupt or delay sales or shipment of our
products to customers. To alleviate these problems, we may have to invest significant capital and
other resources. Although our products are tested by us, our subcontractors, suppliers and
customers, it is possible that new products will contain defects or bugs. If any of these problems
are not found until after we have commenced commercial production of a new product, we may be
required to incur additional development costs and product recall, repair or field replacement
costs. These problems may divert our technical and other resources from other development efforts
and could result in claims against us by our customers or others, including possible claims for
consequential damages and/or lost profits. Moreover, we may lose, or experience a delay in, market
acceptance of the affected product or products, and we could lose credibility with our current and
prospective customers. In addition, system and handset providers that purchase components may
require that we assume liability for defects associated with products produced by their
manufacturing subcontractors and require that we provide a warranty for defects or other problems
which may arise at the system level.
We may be unable to attract, retain or motivate key senior management and technical personnel,
which could seriously harm our business.
Our future success depends to a significant extent upon the continued service of our key
senior management personnel, including our Chief Executive Officer and other senior executives. We
have employment agreements with our Chief Executive Officer and certain other executive officers;
however the agreements do not govern the length of their service with Broadcom. We do not have
employment agreements with most of our elected officers, or any other key employees, although we do
have limited change in control severance benefit arrangements in place with certain executives. The
loss of the services of key senior management or technical personnel could materially and adversely
affect our business, financial condition and results of operations. For instance, if certain of
these individuals were to leave our company unexpectedly, we could face substantial difficulty in
hiring qualified successors and could experience a loss in productivity during the search for and
while any such successor is integrated into our business and operations.
Furthermore, our future success depends on our ability to continue to attract, retain and
motivate senior management and qualified technical personnel, particularly software engineers,
digital circuit designers, RF and mixed-signal circuit designers and systems applications
engineers. Competition for these employees is intense. If we are unable to attract, retain and
motivate such personnel in sufficient numbers and on a timely basis, we will experience difficulty
in implementing our current business and product plans. In that event, we may be unable to
successfully meet competitive challenges or to exploit potential market opportunities, which could
adversely affect our business and results of operations.
We have recently effected a number of cost saving measures and announced a restructuring plan
in January 2009, both of which could negatively impact employee morale. Over the last few years we
have also modified our compensation policies by increasing cash compensation to certain employees
and instituting awards of restricted stock units, while simultaneously reducing awards of stock
options. This modification of our compensation policies and the applicability of the Statement of
Financial Accounting Standards, or SFAS, No. 123 (revised 2004), Share-based Payment, or SFAS 123R
requirement to expense the fair value of equity awards to employees have increased our operating
expenses. However, because we are mindful of the dilutive impact of our equity awards, we intend to
further reduce the number of equity awards granted to employees over the next few years. While this
may have a positive impact on our operating expenses over time, it may negatively impact employee
morale and our ability to attract, retain and motivate employees. Our inability to attract and
retain additional key employees and any increase
in stock-based compensation expense could each have an adverse effect on our business,
financial condition and results of operations.
70
We depend on third-party subcontractors to assemble and test substantially all of our products. If
any of our subcontractors experience production disruptions or financial difficulty, shipments of
our products may be affected, which could adversely impact customer relationships or impair sales.
We do not own or operate an assembly or test facility. Eight third-party subcontractors
located in Asia assemble and test substantially all of our current products. Because we rely on
third-party subcontractors to perform these functions, we cannot directly control our product
delivery schedules and quality assurance. This lack of control could result in product shortages or
quality assurance problems. These issues could delay shipments of our products or increase our
assembly or testing costs. Additionally, due to the current economic environment it is possible
that our subcontractors may experience financial difficulties that would impede their ability to
operate effectively.
We do not have long-term agreements with any of our assembly or test subcontractors and
typically procure services from these suppliers on a per order basis. If any of these
subcontractors experience financial difficulties, suffer any damage to facilities, experience power
outages or any other disruption of assembly or testing capacity, we may not be able to obtain
alternative assembly and testing services in a timely manner, or at all. Due to the amount of time
that it usually takes to qualify assemblers and testers, we could experience significant delays in
product shipments if we are required to find alternative assemblers or testers for our components.
Any problems that we may encounter with the delivery, quality or cost of our products could damage
our customer relationships and materially and adversely affect our results of operations. We are
continuing to develop relationships with additional third-party subcontractors to assemble and test
our products. However, even if we use these new subcontractors, we will continue to be subject to
all of the risks described above.
As our international business expands, we are increasingly exposed to various legal, business,
political and economic risks associated with our international operations.
We currently obtain substantially all of our manufacturing, assembly and testing services from
suppliers located outside the United States. In addition, 48.6% and 38.8% of our net revenue in the
six months ended June 30, 2009 and 2008, respectively, was derived from sales to independent
customers outside the United States, excluding foreign subsidiaries or manufacturing subcontractors
of customers that are headquartered in the United States. We also frequently ship products to our
domestic customers international manufacturing divisions and subcontractors. Products shipped to
international destinations, primarily in Asia, represented 89.0% and 86.9% of our net revenue in
the six months ended June 30, 2009 and 2008, respectively. We also undertake design and development
activities in Belgium, Canada, China, Denmark, France, Greece, India, Israel, Japan, Korea, the
Netherlands, Spain, Taiwan and the United Kingdom, among other locations. In addition, we undertake
various sales and marketing activities through regional offices in a number of countries. We intend
to continue to expand our international business activities and to open other design and
operational centers abroad. The continuing effects of the war in Iraq and terrorist attacks in the
United States and abroad, the resulting heightened security, and the increasing risk of extended
international military conflicts may adversely impact our international sales and could make our
international operations more expensive. International operations are subject to many other
inherent risks, including but not limited to:
|
|
|
political, social and economic instability; |
|
|
|
|
exposure to different business practices and legal standards, particularly with respect
to intellectual property; |
|
|
|
|
natural disasters and public health emergencies; |
|
|
|
|
nationalization of business and blocking of cash flows; |
|
|
|
|
trade and travel restrictions; |
|
|
|
|
the imposition of governmental controls and restrictions and unexpected changes in
regulatory requirements; |
71
|
|
|
burdens of complying with a variety of foreign laws; |
|
|
|
|
import and export license requirements and restrictions of the United States and each
other country in which we operate; |
|
|
|
|
foreign technical standards; |
|
|
|
|
changes in taxation and tariffs; |
|
|
|
|
difficulties in staffing and managing international operations; |
|
|
|
|
difficulties in collecting receivables from foreign entities or delayed revenue
recognition; and |
|
|
|
|
potentially adverse tax consequences. |
Any of the factors described above may have a material adverse effect on our ability to
increase or maintain our foreign sales.
Economic conditions in our primary overseas markets, particularly in Asia, may negatively
impact the demand for our products abroad. All of our international sales to date have been
denominated in U.S. dollars. Accordingly, an increase in the value of the U.S. dollar relative to
foreign currencies could make our products less competitive in international markets or require us
to assume the risk of denominating certain sales in foreign currencies. We anticipate that these
factors will impact our business to a greater degree as we further expand our international
business activities.
In addition, a significant portion of our cash and marketable securities are held in non-U.S.
domiciled countries.
We depend on five independent foundry subcontractors to manufacture substantially all of our
current products, and any failure to secure and maintain sufficient foundry capacity could
materially and adversely affect our business.
We do not own or operate a fabrication facility. Five third-party foundry subcontractors
located in Asia manufacture substantially all of our semiconductor devices in current production.
Due to the current global economic environment it is possible that our foundry subcontractors could
experience financial difficulties that would impede their ability to operate effectively.
Additionally, availability of foundry capacity has at times in the past been reduced due to strong
demand. If we are unable to secure sufficient capacity at our existing foundries, or in the event
of a public health emergency or closure at any of these foundries, our product revenue, cost of
product revenue and results of operations would be negatively impacted.
In September 1999 two of our third-party foundries principal facilities were affected by a
significant earthquake in Taiwan. As a consequence of this earthquake, they suffered power outages
and equipment damage that impaired their wafer deliveries, which, together with strong demand,
resulted in wafer shortages and higher wafer pricing industrywide. If any of our foundries
experiences a shortage in capacity, suffers any damage to its facilities, experiences power
outages, suffers an adverse outcome in pending or future litigation, or encounters financial
difficulties or any other disruption of foundry capacity, we may encounter supply delays or
disruptions, and we may need to qualify an alternative foundry. Our current foundries need to have
new manufacturing processes qualified if there is a disruption in an existing process. We typically
require several months to qualify a new foundry or process before we can begin shipping products
from it. If we cannot accomplish this qualification in a timely manner, we may experience a
significant interruption in supply of the affected products.
Because we rely on outside foundries, we face several significant risks in addition to those
discussed above, including:
|
|
|
a lack of guaranteed wafer supply and higher wafer prices, particularly in light of the
recent volatility in the commodities markets, which has the impact of increasing the cost
of materials used in production of wafers; |
72
|
|
|
limited control over delivery schedules, quality assurance, manufacturing yields and
production costs and other terms; and |
|
|
|
|
the unavailability of, or potential delays in obtaining access to, key process
technologies. |
The manufacture of integrated circuits is a highly complex and technologically demanding
process. Although we work closely with our foundries to minimize the likelihood of reduced
manufacturing yields, our foundries have from time to time experienced lower than anticipated
manufacturing yields. This often occurs during the production of new products or the installation
and start-up of new process technologies. Poor yields from our foundries could result in product
shortages or delays in product shipments, which could seriously harm our relationships with our
customers and materially and adversely affect our results of operations.
The ability of each foundry to provide us with semiconductor devices is limited by its
available capacity and existing obligations. Although we have entered into contractual commitments
to supply specified levels of products to some of our customers, we do not have a long-term volume
purchase agreement or a significant guaranteed level of production capacity with any of our
foundries. Foundry capacity may not be available when we need it or at reasonable prices.
Availability of foundry capacity has in the past been reduced from time to time due to strong
demand. Foundries can allocate capacity to the production of other companies products and reduce
deliveries to us on short notice. It is possible that foundry customers that are larger and better
financed than we are, or that have long-term agreements with our main foundries, may induce our
foundries to reallocate capacity to them. This reallocation could impair our ability to secure the
supply of components that we need. Although we use five independent foundries to manufacture
substantially all of our semiconductor products, each component is typically manufactured at only
one or two foundries at any given time, and if any of our foundries is unable to provide us with
components as needed and under acceptable terms, we could experience significant delays in securing
sufficient supplies of those components. Also, our third party foundries typically migrate capacity
to newer, state-of-the-art manufacturing processes on a regular basis, which may create capacity
shortages for our products designed to be manufactured on an older process. We cannot assure you
that any of our existing or new foundries will be able to produce integrated circuits with
acceptable manufacturing yields, or that our foundries will be able to deliver enough semiconductor
devices to us on a timely basis, or on reasonable terms or at reasonable prices. These and other
related factors could impair our ability to meet our customers needs and have a material and
adverse effect on our business, financial condition and results of operations.
Although we may utilize new foundries for other products in the future, in using any new
foundries we will be subject to all of the risks described in the foregoing paragraphs with respect
to our current foundries.
To remain competitive, we must keep pace with rapid technological change and evolving industry
standards in the semiconductor industry and the wired and wireless communications markets.
Our future success will depend on our ability to anticipate and adapt to changes in technology
and industry standards and our customers changing demands. We sell products in markets that are
characterized by rapid technological change, evolving industry standards, frequent new product
introductions, short product life cycles and increasing demand for higher levels of integration and
smaller process geometries. Our past sales and profitability have resulted, to a large extent, from
our ability to anticipate changes in technology and industry standards and to develop and introduce
new and enhanced products incorporating the new standards and technologies. Our ability to adapt to
these changes and to anticipate future standards, and the rate of adoption and acceptance of those
standards, will be a significant factor in maintaining or improving our competitive position and
prospects for growth. If new industry standards emerge, our products or our customers products
could become unmarketable or obsolete, and we could lose market share. We may also have to incur
substantial unanticipated costs to comply with these new standards. In addition, our target markets
continue to undergo rapid growth and consolidation. A significant slowdown in any of these wired
and wireless communications markets could materially and adversely affect our business, financial
condition and results of operations. These rapid technological changes and evolving industry
standards make it difficult to formulate a long-term growth strategy because the semiconductor
industry and the wired and wireless communications markets may not continue to develop to the
extent or in the time periods that we anticipate. We have invested substantial resources in
emerging technologies that did not achieve the market acceptance that we had expected. If new
markets do not develop as and when we anticipate, or if our products do not
73
gain widespread acceptance in those markets, our business, financial condition and results of
operations could be materially and adversely affected.
We face intense competition in the semiconductor industry and the wired and wireless communications
markets, which could reduce our market share in existing markets and affect our entry into new
markets.
The semiconductor industry and the wired and wireless communications markets are intensely
competitive. We expect competition to continue to increase as industry standards become well known
and as other competitors enter our target markets. We currently compete with a number of major
domestic and international suppliers of integrated circuits and related applications in our target
markets. We also compete with suppliers of system-level and motherboard-level solutions
incorporating integrated circuits that are proprietary or sourced from manufacturers other than
Broadcom. In all of our target markets we also may face competition from newly established
competitors, suppliers of products based on new or emerging technologies, and customers who choose
to develop their own semiconductor solutions. We expect to encounter further consolidation in the
markets in which we compete.
Many of our competitors operate their own fabrication facilities and have longer operating
histories and presence in key markets, greater name recognition, larger customer bases, and
significantly greater financial, sales and marketing, manufacturing, distribution, technical and
other resources than we do. These competitors may be able to adapt more quickly to new or emerging
technologies and changes in customer requirements. They may also be able to devote greater
resources to the promotion and sale of their products. In addition, current and potential
competitors have established or may establish financial or strategic relationships among themselves
or with existing or potential customers, resellers or other third parties. Accordingly, new
competitors or alliances among competitors could emerge and rapidly acquire significant market
share. Existing or new competitors may also develop technologies that more effectively address our
markets with products that offer enhanced features and functionality, lower power requirements,
greater levels of integration or lower cost. Increased competition has resulted in and is likely to
continue to result in declining average selling prices, reduced gross margins and loss of market
share in certain markets. We cannot assure you that we will be able to continue to compete
successfully against current or new competitors. If we do not compete successfully, we may lose
market share in our existing markets and our revenues may fail to increase or may decline.
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 and increased expenses.
To remain competitive, we expect to continue to transition our semiconductor products to
increasingly smaller line width geometries. This transition requires us to modify the manufacturing
processes for our products and to redesign some products as well as standard cells and other
integrated circuit designs that we may use in multiple products. We periodically evaluate the
benefits, on a product-by-product basis, of migrating to smaller geometry process technologies to
reduce our costs. Currently most of our products are manufactured in .35 micron, .22 micron, .18
micron, .13 micron, 90 nanometer or 65 nanometer geometry processes. Although the majority of our
products are currently manufactured in .13 microns, we are now designing most new products in 65
nanometers and planning for the transition to smaller process geometries. In the past, we have
experienced some difficulties in shifting to smaller geometry process technologies or new
manufacturing processes, which resulted in reduced manufacturing yields, delays in product
deliveries and increased expenses. The transition to 65 nanometer geometry process technology has
resulted in significantly higher mask and prototyping costs, as well as additional expenditures for
engineering design tools and related computer hardware. We may face similar difficulties, delays
and expenses as we continue to transition our products to smaller geometry processes.
We are dependent on our relationships with our foundry subcontractors to transition to smaller
geometry processes successfully. We cannot assure you that the foundries that we use will be able
to effectively manage the transition in a timely manner, or at all, or that we will be able to
maintain our existing foundry relationships or develop new ones. If any of our foundry
subcontractors or we experience significant delays in this transition or fail to efficiently
implement this transition, we could experience reduced manufacturing yields, delays in product
deliveries and increased expenses, all of which could harm our relationships with our customers and
our results of operations.
74
As smaller geometry processes become more prevalent, we expect to continue to integrate
greater levels of functionality, as well as customer and third party intellectual property, into
our products. However, we may not be able to achieve higher levels of design integration or deliver
new integrated products on a timely basis, if at all. Moreover, even if we are able to achieve
higher levels of design integration, such integration may have an adverse impact on our operating
results, as a result of increasing costs and expenditures as described above as well as the risk
that we may reduce our revenue by integrating the functionality of multiple chips into a single
chip.
Our stock price is highly volatile. Accordingly, you may not be able to resell your shares of
common stock at or above the price you paid for them.
The market price of our Class A common stock has fluctuated substantially in the past and is
likely to continue to be highly volatile and subject to wide fluctuations. From January 1, 2008
though June 30, 2009 our Class A common stock has traded at prices as low as $12.98 and as high as
$29.91 per share. Fluctuations have occurred and may continue to occur in response to various
factors, many of which we cannot control, including:
|
|
|
general economic and political conditions and specific conditions in the markets we
address, including the continued volatility in the technology sector and semiconductor
industry, the current global economic recession, trends in the broadband communications
markets in various geographic regions, including seasonality in sales of consumer products
into which our products are incorporated; |
|
|
|
|
quarter-to-quarter variations in our operating results; |
|
|
|
|
changes in earnings estimates or investment recommendations by analysts; |
|
|
|
|
rulings in currently pending or newly-instituted intellectual property litigation; |
|
|
|
|
other newly-instituted litigation or governmental investigations or an adverse decision
or outcome in any litigation or investigations; |
|
|
|
|
announcements of changes in our senior management; |
|
|
|
|
the gain or loss of one or more significant customers or suppliers; |
|
|
|
|
announcements of technological innovations or new products by our competitors,
customers or us; |
|
|
|
|
the gain or loss of market share in any of our markets; |
|
|
|
|
changes in accounting rules; |
|
|
|
|
continuing international conflicts and acts of terrorism; |
|
|
|
|
changes in the methods, metrics or measures used by analysts to evaluate our stock; |
|
|
|
|
changes in investor perceptions; or |
|
|
|
|
changes in expectations relating to our products, plans and strategic position or those
of our competitors or customers. |
In addition, the market prices of securities of Internet-related, semiconductor and other
technology companies have been and remain volatile. This volatility has significantly affected the
market prices of securities of many technology companies for reasons frequently unrelated to the
operating performance of the specific companies. Accordingly, you may not be able to resell your
shares of common stock at or above the price you paid. In the past, we and other companies that
have experienced volatility in the market price of their securities have been, and we currently
are, the subject of securities class action litigation.
Due to the nature of our compensation programs, most of our executive officers sell shares of
our common stock each quarter or otherwise periodically, often pursuant to trading plans
established under Rule 10b5-1 promulgated under the Exchange Act. As a result, sales of shares by
our executive officers may not be indicative of their
respective opinions of Broadcoms performance at the time of sale or of our potential future
performance. Nonetheless, the market price of our stock may be affected by sales of shares by our
executive officers.
75
In addition, fluctuations in the price of our stock may reduce the ability of our share
repurchase program to deliver long-term shareholder value, because the market price of the stock
may decline significantly below the levels at which repurchases were made.
We had a material weakness in internal control over financial reporting prior to 2007 and cannot
assure you that additional material weaknesses will not be identified in the future. If our
internal control over financial reporting or disclosure controls and procedures are not effective,
there may be errors in our financial statements that could require a restatement or our filings may
not be timely and investors may lose confidence in our reported financial information, which could
lead to a decline in our stock price.
Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate the effectiveness of our
internal control over financial reporting as of the end of each year, and to include a management
report assessing the effectiveness of our internal control over financial reporting in each Annual
Report on Form 10-K. Section 404 also requires our independent registered public accounting firm to
attest to and report on Broadcoms internal control over financial reporting.
In assessing the findings of the voluntary equity award review as well as the restatement of
our unaudited condensed consolidated financial statements for periods ended on or before March 31,
2006, our management concluded that there was a material weakness, as defined in Public Company
Accounting Oversight Board Auditing Standard No. 2, in our internal control over financial
reporting as of December 31, 2005. Management believes this material weakness was remediated
September 19, 2006 and, accordingly, no longer exists as of the date of this filing.
Our management, including our Chief Executive Officer and Chief Financial Officer, does not
expect that our internal control over financial reporting will prevent all errors and all fraud. A
control system, no matter how well designed and operated, can provide only reasonable, not
absolute, assurance that the control systems objectives will be met. Further, the design of a
control system must reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management override of the
controls. Over time, controls may become inadequate because changes in conditions or deterioration
in the degree of compliance with policies or procedures may occur. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or fraud may occur and
not be detected.
As a result, we cannot assure you that significant deficiencies or material weaknesses in our
internal control over financial reporting will not be identified in the future. Any failure to
maintain or implement required new or improved controls, or any difficulties we encounter in their
implementation, could result in significant deficiencies or material weaknesses, cause us to fail
to timely meet our periodic reporting obligations, or result in material misstatements in our
financial statements. Any such failure could also adversely affect the results of periodic
management evaluations and annual auditor attestation reports regarding disclosure controls and the
effectiveness of our internal control over financial reporting required under Section 404 of the
Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder. The existence of a material
weakness could result in errors in our financial statements that could result in a restatement of
financial statements, cause us to fail to timely meet our reporting obligations and cause investors
to lose confidence in our reported financial information, leading to a decline in our stock price.
Our co-founders and their affiliates can control the outcome of matters that require the approval
of our shareholders, and accordingly we will not be able to engage in certain transactions without
their approval.
As of June 30, 2009 our co-founders, directors, executive officers and their respective
affiliates beneficially owned 13.3% of our outstanding common stock and held 57.2% of the total
voting power held by our shareholders. Accordingly, these shareholders currently have enough voting
power to control the outcome of matters that require the approval of our shareholders. These
matters include the election of our Board of Directors, the issuance of additional shares of Class
B common stock, and the approval of most significant corporate transactions, including certain
mergers and consolidations and the sale of substantially all of our assets. In particular, as of
June 30, 2009 our two founders, Dr. Henry T. Nicholas III and Dr. Henry Samueli, who are no longer
officers or directors of Broadcom, beneficially owned a total of 12.1% of our outstanding common
stock and held 56.9% of the total voting power held by our shareholders. Because of their
significant voting stock ownership, we will not be able to engage
76
in certain transactions, and our shareholders will not be able to effect certain actions or
transactions, without the approval of one or both of these shareholders. These actions and
transactions include changes in the composition of our Board of Directors, certain mergers, and the
sale of control of our company by means of a tender offer, open market purchases or other purchases
of our Class A common stock, or otherwise. Repurchases of shares of our Class A common stock under
our share repurchase program will result in an increase in the total voting power of our
co-founders, directors, executive officers and their affiliates, as well as other continuing
shareholders.
Some of the independent foundries upon which we rely to manufacture our products, as well as our
own California and Singapore facilities, are located in regions that are subject to earthquakes and
other natural disasters.
Two of the third-party foundries, upon which we rely to manufacture a substantial number of
our semiconductor devices, are located in Taiwan. Taiwan has experienced significant earthquakes in
the past and could be subject to additional earthquakes. Any earthquake or other natural disaster,
such as a tsunami, in a country in which any of our foundries is located could significantly
disrupt our foundries production capabilities and could result in our experiencing a significant
delay in delivery, or substantial shortage, of wafers and possibly in higher wafer prices.
Our California facilities, including our principal executive offices and major design centers,
are located near major earthquake fault lines. Our international distribution center and some of
our third-party foundries are located in Singapore, which could also be subject to an earthquake,
tsunami or other natural disaster. If there is a major earthquake or any other natural disaster in
a region where one or more of our facilities are located, our operations could be significantly
disrupted. Although we have established business interruption plans to prepare for any such event,
we cannot guarantee that we will be able to effectively address all interruptions that such an
event could cause.
Any supply disruption or business interruption could materially and adversely affect our
business, financial condition and results of operations.
Our articles of incorporation and bylaws contain anti-takeover provisions that could prevent or
discourage a third party from acquiring us.
Our articles of incorporation and bylaws contain provisions that may prevent or discourage a
third party from acquiring us, even if the acquisition would be beneficial to our shareholders. In
addition, we have in the past issued and may in the future issue shares of Class B common stock in
connection with certain acquisitions, upon exercise of certain stock options, and for other
purposes. Class B shares have superior voting rights entitling the holder to ten votes for each
share held on matters that we submit to a shareholder vote (as compared to one vote per share in
the case of our Class A common stock) as well as the right to vote separately as a class (i) as
required by law and (ii) in the case of a proposed issuance of additional shares of Class B common
stock, unless such issuance is approved by at least two-thirds of the members of the Board of
Directors then in office. Our Board of Directors also has the authority to fix the rights and
preferences of shares of our preferred stock and to issue shares of common or preferred stock
without a shareholder vote. It is possible that the provisions in our charter documents, the
exercise of supervoting rights by holders of our Class B common stock, our co-founders, directors
and officers ownership of a majority of the Class B common stock, or the ability of our Board of
Directors to issue preferred stock or additional shares of Class B common stock may prevent or
discourage third parties from acquiring us, even if the acquisition would be beneficial to our
shareholders. In addition, these factors may discourage third parties from bidding for our Class A
common stock at a premium over the market price for our stock. These factors may also materially
and adversely affect voting and other rights of the holders of our common stock and the market
price of our Class A common stock.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In the three months ended June 30, 2009, we issued an aggregate of 1.5 million shares of Class
A common stock upon conversion of a like number of shares of Class B common stock. Each share of
Class B common stock is convertible at any time into one share of Class A common stock at the
option of the holder. The offers and sales of those securities were effected without registration
in reliance on the exemption from registration provided by Section 3(a)(9) of the Securities Act.
77
Issuer Purchases of Equity Securities
From time to time our Board of Directors has authorized various programs to repurchase shares
of our Class A common stock depending on market conditions and other factors.
In July 2008 the Board of Directors authorized our current program to repurchase shares of
Broadcoms Class A common stock having an aggregate value of up to $1.0 billion. Repurchases under
the program may be made at any time during the period that commenced July 31, 2008 and continuing
through and including July 31, 2011. As of June 30, 2009, $524.9 million was still authorized for
the repurchase of shares. The following table presents details of our repurchases during the three
months ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate Dollar |
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Value of Shares |
|
|
|
Total Number |
|
|
Average |
|
|
Shares Purchased |
|
|
That May yet be |
|
|
|
of Shares |
|
|
Price |
|
|
as Part of Publicly |
|
|
Purchased under |
|
Period |
|
Purchased |
|
|
per Share |
|
|
Announced Plan |
|
|
the Plan |
|
|
|
(In thousands) |
|
|
|
|
|
|
(In thousands) |
|
|
(In thousands) |
|
April 2009 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
May 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 2009 |
|
|
2,032 |
|
|
|
25.08 |
|
|
|
2,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,032 |
|
|
|
25.08 |
|
|
|
2,032 |
|
|
$ |
524,854 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchases under our share repurchase programs were and will be made in open market or
privately negotiated transactions in compliance with Rule 10b-18 promulgated under the Exchange
Act.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
(a) Our 2009 Annual Meeting of Shareholders, or the 2009 Annual Meeting, was held May 14,
2009.
(b) At the 2009 Annual Meeting, the shareholders elected each of the following nominees as
directors, to serve on our Board of Directors until the next annual meeting of shareholders and/or
until their successors are duly elected and qualified. The vote for each director was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
|
|
|
|
|
|
|
|
Total |
|
|
Shares/ |
|
Class B |
|
Class B |
|
Affirmative |
|
|
Votes |
|
Shares |
|
Votes |
|
Votes |
George L. Farinsky
|
|
|
331,945,868 |
|
|
|
31,354,102 |
|
|
|
313,541,020 |
|
|
|
645,486,888 |
|
Nancy H. Handel
|
|
|
336,011,846 |
|
|
|
31,354,102 |
|
|
|
313,541,020 |
|
|
|
649,552,866 |
|
Eddy W. Hartenstein
|
|
|
311,110,059 |
|
|
|
31,354,102 |
|
|
|
313,541,020 |
|
|
|
624,651,079 |
|
John E. Major
|
|
|
296,199,881 |
|
|
|
31,354,102 |
|
|
|
313,541,020 |
|
|
|
609,740,901 |
|
Scott A. McGregor
|
|
|
345,630,299 |
|
|
|
31,354,102 |
|
|
|
313,541,020 |
|
|
|
659,171,319 |
|
William T. Morrow
|
|
|
346,106,909 |
|
|
|
31,354,102 |
|
|
|
313,541,020 |
|
|
|
659,647,929 |
|
Robert E. Switz
|
|
|
330,551,473 |
|
|
|
31,354,102 |
|
|
|
313,541,020 |
|
|
|
644,092,493 |
|
78
(c) At the 2009 Annual Meeting, the Shareholders also voted on the following proposal and cast
their votes as follows:
To ratify the appointment of KPMG LLP as our independent registered public accounting firm
for the year ending December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
|
|
|
|
|
|
|
Shares/ |
|
Class B |
|
Class B |
|
|
|
|
Votes |
|
Shares |
|
Votes |
|
Total Votes |
For |
|
|
371,980,837 |
|
|
|
31,356,005 |
|
|
|
313,560,050 |
|
|
|
685,540,887 |
|
Against |
|
|
663,704 |
|
|
|
27,446 |
|
|
|
274,460 |
|
|
|
938,164 |
|
Abstain |
|
|
359,704 |
|
|
|
1,912 |
|
|
|
19,120 |
|
|
|
378,824 |
|
Broker Non-Votes |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Item 5. Other Information
In May 2009, our Board of Directors dissolved the Equity Award Committee and reconstituted its
other committees. The current members of each committee and the respective committee chairs are
identified in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nominating & |
C = Chair |
|
M = Member |
|
|
|
Compen- |
|
Corporate |
Independent Directors |
|
|
|
Audit |
|
sation |
|
Governance |
Joan L. Amble (1)
|
|
|
|
M |
|
|
|
|
George L. Farinsky
|
|
|
|
M |
|
|
|
|
Nancy H. Handel
|
|
|
|
C |
|
|
|
|
Eddy W. Hartenstein
|
|
|
|
|
|
M |
|
|
John E. Major (2)
|
|
|
|
|
|
C
|
|
M |
William T. Morrow
|
|
|
|
|
|
|
|
M |
Robert E. Switz
|
|
|
|
M
|
|
|
|
C |
|
|
|
(1) |
|
Ms. Amble was elected to the Board of Directors May 28, 2009. |
|
(2) |
|
Mr. Major also continues to serve as Chairman of the Board of Directors. |
The Board has determined that each member of the Audit Committee (i) qualifies as an audit
committee financial expert under applicable SEC rules and regulations governing composition of the
Audit Committee and (ii) satisfies the financial sophistication requirements of the Nasdaq
listing standards.
Item 6. Exhibits
(a) Exhibits. The following Exhibits are attached hereto and incorporated herein by reference:
|
|
|
Exhibit |
|
|
Number |
|
Description |
10.1
|
|
Settlement and Patent License and Non-Assert Agreement by and between
Qualcomm Incorporated and the Registrant (Filed as an exhibit to Form
8-K/A July 23, 2009 and incorporated herein by reference). |
|
|
|
31
|
|
Certifications of the Chief Executive Officer and Chief Financial
Officer, as required pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002. |
|
|
|
32
|
|
Certifications of the Chief Executive Officer and Chief Financial
Officer, as required pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 and furnished herewith pursuant to SEC Release No. 33-8238. |
|
|
|
101.INS*
|
|
XBRL Instance Document |
|
|
|
101.SCH*
|
|
XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL*
|
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.LAB*
|
|
XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE*
|
|
XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
|
|
|
|
Confidential treatment has been requested with respect to the redacted portions of the
referenced exhibit. |
|
|
|
* |
|
Pursuant to applicable securities laws and regulations, we are deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and are not subject to liability under any anti-fraud
provisions of the federal securities laws as long as we have made a good faith attempt to comply with the submission requirements and promptly amend
the interactive data files after becoming aware that the interactive data files fail to comply with the submission requirements. Users of this data are advised that, pursuant to Rule 406T, these interactive data files are deemed not filed and otherwise are not subject to liability. |
79
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
BROADCOM CORPORATION,
a California corporation
(Registrant)
|
|
|
/s/ Eric K. Brandt
|
|
|
Eric K. Brandt |
|
|
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer) |
|
|
|
|
|
|
/s/ Robert L. Tirva
|
|
|
Robert L. Tirva |
|
|
Vice President and
Corporate Controller
(Principal Accounting Officer) |
|
|
July 23, 2009
80
EXHIBIT INDEX
|
|
|
Exhibit |
|
|
Number |
|
Description |
10.1
|
|
Settlement and Patent License and Non-Assert Agreement by and between
Qualcomm Incorporated and the Registrant (Filed as an exhibit to Form
8-K/A July 23, 2009 and incorporated herein by reference). |
|
|
|
31
|
|
Certifications of the Chief Executive Officer and Chief Financial
Officer, as required pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. |
|
|
|
32
|
|
Certifications of the Chief Executive Officer and Chief Financial
Officer, as required pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 and furnished herewith pursuant to SEC Release No. 33-8238. |
|
|
|
101.INS*
|
|
XBRL Instance Document |
|
|
|
101.SCH*
|
|
XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL*
|
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.LAB*
|
|
XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE*
|
|
XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
|
|
|
|
Confidential treatment has been requested with respect to the redacted portions of the
referenced exhibit. |
|
|
|
* |
|
Pursuant to applicable securities laws and regulations, we are deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and are not subject to liability under any anti-fraud
provisions of the federal securities laws as long as we have made a good faith attempt to comply with the submission requirements and promptly amend
the interactive data files after becoming aware that the interactive data files fail to comply with the submission requirements. Users of this data are advised that, pursuant to Rule 406T, these interactive data files are deemed not filed and otherwise are not subject to liability. |