e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
|
|
|
þ
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|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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|
|
For the
quarterly period ended June 30,
2010
|
or
|
o
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|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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|
|
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
of Incorporation or Organization)
|
|
(I.R.S. Employer
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
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Non-accelerated
filer o
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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, 2010 the registrant had 448.3 million
shares of Class A common stock, $0.0001 par value, and
55.2 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, 2010
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.
©
2010 Broadcom Corporation. All rights reserved.
PART I.
FINANCIAL INFORMATION
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|
Item 1.
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Financial
Statements
|
BROADCOM
CORPORATION
|
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June 30,
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December 31,
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2010
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|
|
2009
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|
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(In thousands)
|
|
|
ASSETS
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Current assets:
|
|
|
|
|
|
|
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Cash and cash equivalents
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|
$
|
1,403,633
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|
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$
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1,397,093
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Short-term marketable securities
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644,722
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532,281
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Accounts receivable, net
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688,189
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508,627
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Inventory
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489,955
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362,428
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Prepaid expenses and other current assets
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108,097
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113,903
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|
|
|
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Total current assets
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3,334,596
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|
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|
2,914,332
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Property and equipment, net
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238,691
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229,317
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Long-term marketable securities
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441,111
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438,616
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Goodwill
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1,369,059
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1,329,614
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Purchased intangible assets, net
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197,078
|
|
|
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150,927
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Other assets
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55,203
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|
|
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64,436
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|
|
|
|
|
|
|
|
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Total assets
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$
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5,635,738
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|
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$
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5,127,242
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LIABILITIES AND SHAREHOLDERS EQUITY
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Current liabilities:
|
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Accounts payable
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$
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537,937
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|
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$
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437,353
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Wages and related benefits
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152,912
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190,315
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Deferred revenue and income
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68,439
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87,388
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Accrued liabilities
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343,664
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433,294
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|
|
|
|
|
|
|
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Total current liabilities
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1,102,952
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|
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1,148,350
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Long-term deferred revenue
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|
|
711
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|
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|
608
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Other long-term liabilities
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|
80,163
|
|
|
|
86,438
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|
Commitments and contingencies
|
|
|
|
|
|
|
|
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Shareholders equity:
|
|
|
|
|
|
|
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Common stock
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50
|
|
|
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50
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Additional paid-in capital
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11,225,678
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11,153,060
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Accumulated deficit
|
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(6,770,587
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)
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|
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(7,259,069
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)
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Accumulated other comprehensive loss
|
|
|
(3,229
|
)
|
|
|
(2,195
|
)
|
|
|
|
|
|
|
|
|
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Total shareholders equity
|
|
|
4,451,912
|
|
|
|
3,891,846
|
|
|
|
|
|
|
|
|
|
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Total liabilities and shareholders equity
|
|
$
|
5,635,738
|
|
|
$
|
5,127,242
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
2
BROADCOM
CORPORATION
|
|
|
|
|
|
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|
|
|
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|
|
|
|
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Three Months Ended
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Six Months Ended
|
|
|
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June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
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2010
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2009
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(In thousands, except per share data)
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Net revenue:
|
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|
|
|
|
|
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|
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Product revenue
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$
|
1,547,095
|
|
|
$
|
966,317
|
|
|
$
|
2,951,439
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|
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$
|
1,794,547
|
|
Income from Qualcomm Agreement
|
|
|
51,674
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|
|
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67,263
|
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|
$
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103,348
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|
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$
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67,263
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Licensing revenue
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|
5,679
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|
|
|
6,364
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|
|
|
11,960
|
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|
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31,570
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|
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|
|
|
|
|
|
|
|
|
|
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|
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Total net revenue
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1,604,448
|
|
|
|
1,039,944
|
|
|
|
3,066,747
|
|
|
|
1,893,380
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue
|
|
|
761,229
|
|
|
|
518,674
|
|
|
|
1,456,551
|
|
|
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964,951
|
|
Research and development
|
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|
421,642
|
|
|
|
374,770
|
|
|
|
842,486
|
|
|
|
747,494
|
|
Selling, general and administrative
|
|
|
143,087
|
|
|
|
127,410
|
|
|
|
275,995
|
|
|
|
252,458
|
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Amortization of purchased intangible assets
|
|
|
5,840
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|
|
|
4,139
|
|
|
|
8,487
|
|
|
|
8,298
|
|
Impairment of other long-lived assets
|
|
|
|
|
|
|
11,261
|
|
|
|
|
|
|
|
11,261
|
|
Restructuring costs (reversals), net
|
|
|
(319
|
)
|
|
|
447
|
|
|
|
111
|
|
|
|
7,558
|
|
Settlement costs (gains), net
|
|
|
1,000
|
|
|
|
(58,406
|
)
|
|
|
3,816
|
|
|
|
(57,256
|
)
|
Charitable contribution
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
1,332,479
|
|
|
|
1,028,295
|
|
|
|
2,587,446
|
|
|
|
1,984,764
|
|
Income (loss) from operations
|
|
|
271,969
|
|
|
|
11,649
|
|
|
|
479,301
|
|
|
|
(91,384
|
)
|
Interest income, net
|
|
|
2,548
|
|
|
|
3,986
|
|
|
|
4,862
|
|
|
|
8,384
|
|
Other income, net
|
|
|
1,934
|
|
|
|
1,019
|
|
|
|
4,792
|
|
|
|
2,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
276,451
|
|
|
|
16,654
|
|
|
|
488,955
|
|
|
|
(80,335
|
)
|
Provision (benefit) for income taxes
|
|
|
(1,867
|
)
|
|
|
3,253
|
|
|
|
473
|
|
|
|
(1,796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
278,318
|
|
|
$
|
13,401
|
|
|
$
|
488,482
|
|
|
$
|
(78,539
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share (basic)
|
|
$
|
0.56
|
|
|
$
|
0.03
|
|
|
$
|
0.98
|
|
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share (diluted)
|
|
$
|
0.52
|
|
|
$
|
0.03
|
|
|
$
|
0.92
|
|
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares (basic)
|
|
|
501,188
|
|
|
|
495,110
|
|
|
|
498,273
|
|
|
|
492,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares (diluted)
|
|
|
538,498
|
|
|
|
507,993
|
|
|
|
532,733
|
|
|
|
492,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share
|
|
$
|
0.08
|
|
|
$
|
|
|
|
$
|
0.16
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Cost of product revenue
|
|
$
|
5,213
|
|
|
$
|
6,128
|
|
|
$
|
11,728
|
|
|
$
|
12,005
|
|
Research and development
|
|
|
83,763
|
|
|
|
86,607
|
|
|
|
172,806
|
|
|
|
175,869
|
|
Selling, general and administrative
|
|
|
29,637
|
|
|
|
29,893
|
|
|
|
60,720
|
|
|
|
58,527
|
|
See accompanying notes.
3
BROADCOM
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
488,482
|
|
|
$
|
(78,539
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
38,254
|
|
|
|
36,041
|
|
Stock-based compensation expense:
|
|
|
|
|
|
|
|
|
Stock options and other awards
|
|
|
63,508
|
|
|
|
85,557
|
|
Restricted stock units
|
|
|
181,746
|
|
|
|
160,844
|
|
Acquisition-related items:
|
|
|
|
|
|
|
|
|
Amortization of purchased intangible assets
|
|
|
24,254
|
|
|
|
16,523
|
|
Impairment of long-lived assets
|
|
|
|
|
|
|
11,261
|
|
Non-cash restructuring costs (reversals)
|
|
|
(313
|
)
|
|
|
1,913
|
|
Gain on sale of marketable securities
|
|
|
|
|
|
|
(1,046
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(175,270
|
)
|
|
|
(71,735
|
)
|
Inventory
|
|
|
(120,278
|
)
|
|
|
86,808
|
|
Prepaid expenses and other assets
|
|
|
23,488
|
|
|
|
(7,786
|
)
|
Accounts payable
|
|
|
102,206
|
|
|
|
79,761
|
|
Deferred revenue and income
|
|
|
(18,846
|
)
|
|
|
100,766
|
|
Accrued settlement costs
|
|
|
(163,380
|
)
|
|
|
6,900
|
|
Other accrued and long-term liabilities
|
|
|
19,759
|
|
|
|
(8,767
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
463,610
|
|
|
|
418,501
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
Net purchases of property and equipment
|
|
|
(47,459
|
)
|
|
|
(26,294
|
)
|
Net cash received from (paid for) acquired companies
|
|
|
(102,482
|
)
|
|
|
2,139
|
|
Purchases of strategic investments
|
|
|
(8,000
|
)
|
|
|
|
|
Purchases of marketable securities
|
|
|
(483,217
|
)
|
|
|
(511,050
|
)
|
Proceeds from sales and maturities of marketable securities
|
|
|
370,799
|
|
|
|
421,845
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(270,359
|
)
|
|
|
(113,360
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
Repurchases of Class A common stock
|
|
|
(275,464
|
)
|
|
|
(38,434
|
)
|
Dividends paid
|
|
|
(79,813
|
)
|
|
|
|
|
Payment of assumed debt
|
|
|
(14,560
|
)
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
245,868
|
|
|
|
83,694
|
|
Minimum tax withholding paid on behalf of employees for
restricted stock units
|
|
|
(62,742
|
)
|
|
|
(34,528
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(186,711
|
)
|
|
|
10,732
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
6,540
|
|
|
|
315,873
|
|
Cash and cash equivalents at beginning of period
|
|
|
1,397,093
|
|
|
|
1,190,645
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
1,403,633
|
|
|
$
|
1,506,518
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
4
BROADCOM
CORPORATION
June 30, 2010
|
|
1.
|
Summary
of Significant Accounting Policies
|
Our
Company
Broadcom Corporation (including our subsidiaries, referred to
collectively in this Report as Broadcom,
we, our and us) is a major
technology innovator and global leader in semiconductors for
wired and wireless communications. Our
system-on-a-chip
(SoC) and software solutions enable the delivery of voice,
video, data and rich multimedia content to mobile devices,
consumer electronics (CE) devices in the home and business
networking products for the workplace, data centers, service
providers and carriers. We provide the industrys broadest
portfolio of cutting-edge SoC solutions to manufacturers of
computing and networking equipment, CE and broadband access
products, and mobile devices.
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, 2009, included in our Annual Report on
Form 10-K
filed with the SEC February 3, 2010.
The interim unaudited 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, 2010 and
December 31, 2009, and our consolidated results of
operations for the three and six months ended June 30, 2010
and 2009 and cash flows for the six months ended June 30,
2010 and 2009. The results of operations for the three and six
months ended June 30, 2010 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 to the current period presentation of the separate
display of income from the Qualcomm agreement and licensing
revenue as described below.
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 total 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 or
reversals, 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.
5
BROADCOM
CORPORATION
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. The majority of our product
sales occur through the efforts of our direct sales force. The
remaining balance of product sales occurs through distributors.
Our licensing revenue and income from the Qualcomm Agreement is
generated from the licensing of intellectual property. See
Note 2 for a summary of the composition of our net revenue.
Product
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) 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 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 for
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. See Note 2
for a summary of our rebate activity.
A portion of our product 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 unless and until the customer reports that it has
removed our product from the warehouse to be incorporated into
its products.
Revenue from software licenses is recognized when all revenue
recognition criteria are met and, if applicable, when vendor
specific objective evidence, or VSOE, exists to allocate the
total license fee to each element of multiple-element software
arrangements, including post-contract customer support.
Post-contract support is recognized ratably over the term of the
related contract. When a contract contains multiple elements
wherein the only undelivered element is post-contract customer
support and VSOE of the fair value of post-contract customer
support does not exist, revenue from the entire arrangement is
recognized ratably over the support period. Software 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 from cancellation fees is
recognized when cash is received from the customer.
In September 2009 the Financial Accounting Standards Board, or
FASB, reached a consensus on Accounting Standards Update, or
ASU,
2009-13,
Revenue Recognition (Topic 605)
Multiple-Deliverable Revenue Arrangements, or ASU
2009-13 and
ASU 2009-14,
Software (Topic 985) Certain Revenue Arrangements
That Include Software Elements, or ASU
2009-14. ASU
2009-13
modifies the requirements that must be met for an entity to
recognize revenue from the sale of a delivered item that is part
of a multiple-element arrangement when other items have not yet
been delivered. ASU
2009-13
establishes a selling price hierarchy that allows for the use of
an estimated selling price to determine the allocation of
arrangement consideration to a deliverable in a multiple element
arrangement where neither VSOE nor third-party evidence, or TPE,
is available for that deliverable. In the absence of VSOE or TPE
of the standalone selling price for one or more delivered or
undelivered elements in a
6
BROADCOM
CORPORATION
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
multiple-element arrangement, entities are required to estimate
the selling prices of those elements. Overall arrangement
consideration is allocated to each element (both delivered and
undelivered items) based on their relative selling prices,
regardless of whether those selling prices are evidenced by VSOE
or TPE or are based on the entitys estimated selling
price. The residual method of allocating arrangement
consideration has been eliminated. ASU
2009-14
modifies the software revenue recognition guidance to exclude
from its scope tangible products that contain both software and
non-software components that function together to deliver a
products essential functionality. We adopted the
provisions of these ASUs effective January 1, 2010 and they
did not have a material impact on our results of operations.
Income
from the Qualcomm Agreement
On April 26, 2009 we entered into a four-year Settlement
and Patent License and Non-Assert Agreement, or the Qualcomm
Agreement, with Qualcomm Incorporated, or Qualcomm. The Qualcomm
Agreement is a multiple element arrangement which includes:
(i) an exchange of intellectual property rights, including
in certain circumstances, by a series of covenants not to assert
claims of patent infringement under future patents issued within
one to four years of the execution date of the agreement,
(ii) the assignment of certain existing patents by Broadcom
to Qualcomm with Broadcom retaining a royalty-free license under
these patents, and (iii) the settlement of all outstanding
litigation and claims between us and Qualcomm. The proceeds of
the Qualcomm Agreement were allocated amongst the principal
elements of the transaction. A gain of $65.3 million from
the settlement of litigation was immediately recognized as a
reduction in settlement costs that approximates the value of
awards determined by the United States District Court for the
Central District of California. The remaining consideration was
predominantly associated with the transfer of current and future
intellectual property rights and is being recognized within net
revenue over the performance period of four years as a single
unit of accounting. However this income will be limited to the
lesser of the cumulative straight-line amortization over the
four year performance period or the cumulative cash proceeds
received.
Licensing
of Intellectual Property
Revenue and related income 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.
Deferred
Revenue and Income
We defer revenue and income when advance payments are received
from customers before performance obligations have been
completed
and/or
services have been performed. Deferred revenue and income do not
include amounts from products delivered to distributors that the
distributors have not yet sold through to their end customers.
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. We are required to estimate the fair value
of share-based awards on the date of grant. The value of the
award is principally recognized as an 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 less our expected
dividend yield. 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, the expected volatility
of our stock price and the
7
BROADCOM
CORPORATION
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
expected dividend yield. We evaluate the assumptions used to
value stock options and stock purchase rights on a quarterly
basis. The fair values generated by the Black-Scholes 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.
Fair
Value of Financial Instruments
Our financial instruments consist principally of cash and cash
equivalents, short- and long-term marketable securities,
accounts receivable and accounts payable. The fair value of the
majority of our cash equivalents and marketable securities was
determined based on Level 1 inputs, which
consisted of quoted prices in active markets for identical
assets. The fair value of certain of our marketable securities
were determined based on Level 2 inputs, which
were derived based on quoted prices for identical or similar
assets, which had few transactions near the measurement period.
We believe that the recorded values of all our other financial
instruments approximate their current fair values because of
their nature and respective relatively short maturity dates or
durations.
Marketable
Securities
We maintain an investment portfolio of various security
holdings, types and maturities. Broadcom defines marketable
securities as income yielding securities that can be readily
converted into cash. Marketable securities short-term and
long-term classifications are based on maturity date at the time
of purchase. Examples of marketable securities include
U.S. Treasury and agency obligations, commercial paper,
corporate notes and bonds, foreign notes and
certificates of deposit. 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. It is our policy to invest in instruments that
have a final maturity not to exceed three years and a portfolio
weighted average maturity not to exceed 18 months. We do
not use derivative financial instruments. All of our marketable
securities are rated AA-/Aa3 or
A-1/P-1 or
above by the major credit rating agencies.
We account for our investments in debt and equity instruments as
available-for-sale.
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 assess whether our
investments with unrealized loss positions are other than
temporarily impaired. Unrealized 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.
Goodwill
and Other 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 acquired net tangible and intangible assets. Other
long-lived assets primarily represent purchased intangible
assets including developed technology, customer relationships
and in-process research and development, or IPR&D. We
currently amortize our intangible assets with definitive lives
over periods ranging from one to fifteen years using a method
that reflects the pattern in which the economic benefits of the
intangible asset are consumed or otherwise used or, if that
pattern cannot be reliably determined, using a straight-line
amortization method. We capitalize IPR&D projects acquired
as part of a business combination. On completion of each
project, IPR&D assets will be amortized over their
estimated useful lives. If any of the projects are abandoned, we
would be required to impair the related IPR&D asset.
8
BROADCOM
CORPORATION
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 therefor
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 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. 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 generally limit
our exposure and enable us to recover a portion of the amounts
paid with respect to such obligations; however, we will not be
able to effect any further recoveries under such policies with
respect to currently pending litigation concerning our prior
equity award practices.
Recent
Accounting Pronouncements
In January 2010 the FASB issued guidance that eliminates the
concept of a qualifying special-purpose entity
(QSPE), revises conditions for reporting a transfer of a portion
of a financial asset as a sale (e.g., loan participations),
clarifies the derecognition criteria, eliminates special
guidance for guaranteed mortgage securitizations, and changes
the initial measurement of a transferors interest in
transferred financial assets. This guidance is effective for
financial statements issued for fiscal years, and interim
periods within those fiscal years, beginning after
November 15, 2009. We adopted the provisions of this
guidance effective January 1, 2010, which did not have a
material impact on our financial statements.
In January 2010 the FASB issued guidance that revises analysis
for identifying the primary beneficiary of a variable interest
entity, or VIE, by replacing the previous quantitative-based
analysis with a framework that is based more on qualitative
judgments. The new guidance requires the primary beneficiary of
a VIE to be identified as the party that both (i) has the
power to direct the activities of a VIE that most significantly
impact its economic performance and (ii) has an obligation
to absorb losses or a right to receive benefits that could
potentially be significant to the VIE. This guidance is
effective for financial statements issued for fiscal years, and
interim periods within those fiscal years, beginning after
November 15, 2009. We adopted the provisions of this
guidance effective January 1, 2010, which did not have a
material impact on our financial statements.
In January 2010, the FASB issued guidance that expands the
interim and annual disclosure requirements of fair value
measurements, including the information about movement of assets
between Level 1 and 2 of the three-tier fair value
hierarchy established under its fair value measurement guidance.
This guidance also requires separate disclosure for purchases,
sales, issuances and settlements in the reconciliation for fair
value measurements using significant unobservable inputs using
Level 3 methodologies. Except for the detailed disclosure
in the Level 3 reconciliation, which is effective for the
fiscal years beginning after December 15, 2010, all the
other disclosures under this guidance became effective during
the six months ended June 30, 2010. We adopted the relevant
provisions of this guidance effective January 1, 2010,
which did not have a material impact on our financial statements.
9
BROADCOM
CORPORATION
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
2.
|
Supplemental
Financial Information
|
Net
Revenue
The following table presents details of our product revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Product sales made through direct sales force(1)
|
|
|
76.6
|
%
|
|
|
78.8
|
%
|
|
|
78.5
|
%
|
|
|
80.5
|
%
|
Product sales made through distributors (2)
|
|
|
23.4
|
|
|
|
21.2
|
|
|
|
21.5
|
|
|
|
19.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes 5.7% and 7.0% of product sales maintained under hubbing
arrangements with certain of our customers in the three months
ended June 30, 2010 and 2009, respectively and 5.6% and
7.4% in the six months ended June 30, 2010 and 2009. |
|
(2) |
|
Includes 8.1% and 8.7% of product sales
maintained under fulfillment distributor arrangements in the three
months ended June 30, 2010 and 2009, respectively, and 6.7% and 7.4%
in the six months ended June 30, 2010 and 2009, respectively. |
Income from the Qualcomm Agreement is expected to be recognized
in the remainder of 2010 through 2013 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Income from Qualcomm Agreement
|
|
$
|
103,347
|
|
|
$
|
206,695
|
|
|
$
|
186,012
|
|
|
$
|
86,400
|
|
|
$
|
|
|
|
$
|
582,454
|
|
Inventory
The following table presents details of our inventory:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Work in process
|
|
$
|
225,090
|
|
|
$
|
157,148
|
|
Finished goods
|
|
|
264,865
|
|
|
|
205,280
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
489,955
|
|
|
$
|
362,428
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment
The following table presents details of our property and
equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
Useful Life
|
|
|
2010
|
|
|
2009
|
|
|
|
(In years)
|
|
|
(In thousands)
|
|
|
Leasehold improvements
|
|
|
1 to 10
|
|
|
$
|
166,818
|
|
|
$
|
163,302
|
|
Office furniture and equipment
|
|
|
3 to 7
|
|
|
|
27,563
|
|
|
|
26,382
|
|
Machinery and equipment
|
|
|
3 to 5
|
|
|
|
268,380
|
|
|
|
235,142
|
|
Computer software and equipment
|
|
|
2 to 4
|
|
|
|
132,754
|
|
|
|
122,213
|
|
Construction in progress
|
|
|
N/A
|
|
|
|
4,444
|
|
|
|
6,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
599,959
|
|
|
|
553,705
|
|
Less accumulated depreciation and amortization
|
|
|
|
|
|
|
(361,268
|
)
|
|
|
(324,388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
238,691
|
|
|
$
|
229,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
BROADCOM
CORPORATION
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Goodwill
The following table summarizes the activity related to the
carrying value of our goodwill:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
|
|
|
|
|
|
Broadband
|
|
|
Mobile &
|
|
|
Infrastructure &
|
|
|
|
|
|
|
Communications
|
|
|
Wireless
|
|
|
Networking
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Goodwill
|
|
$
|
483,029
|
|
|
$
|
802,269
|
|
|
$
|
1,873,623
|
|
|
$
|
3,158,921
|
|
Accumulated impairment losses
|
|
|
|
|
|
|
(543,198
|
)
|
|
|
(1,286,109
|
)
|
|
|
(1,829,307
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill at January 1, 2010
|
|
$
|
483,029
|
|
|
$
|
259,071
|
|
|
$
|
587,514
|
|
|
$
|
1,329,614
|
|
Goodwill acquired during the year
|
|
|
|
|
|
|
1,124
|
|
|
|
35,799
|
|
|
|
36,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill at June 30, 2010
|
|
$
|
483,029
|
|
|
$
|
260,195
|
|
|
$
|
623,313
|
|
|
$
|
1,366,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill at June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,369,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
Intangible Assets
The following table presents details of our purchased intangible
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Gross
|
|
|
Amortization
|
|
|
Net
|
|
|
Gross
|
|
|
Amortization
|
|
|
Net
|
|
|
|
(In thousands)
|
|
|
Developed technology
|
|
$
|
375,910
|
|
|
$
|
(223,279
|
)
|
|
$
|
152,631
|
|
|
$
|
278,297
|
|
|
$
|
(207,517
|
)
|
|
$
|
70,780
|
|
In-process research and development
|
|
|
10,600
|
|
|
|
|
|
|
|
10,600
|
|
|
|
50,860
|
|
|
|
|
|
|
|
50,860
|
|
Customer relationships
|
|
|
120,566
|
|
|
|
(85,473
|
)
|
|
|
35,093
|
|
|
|
107,366
|
|
|
|
(79,212
|
)
|
|
|
28,154
|
|
Customer backlog
|
|
|
5,736
|
|
|
|
(5,736
|
)
|
|
|
|
|
|
|
3,736
|
|
|
|
(3,736
|
)
|
|
|
|
|
Other
|
|
|
9,414
|
|
|
|
(8,306
|
)
|
|
|
1,108
|
|
|
|
9,214
|
|
|
|
(8,081
|
)
|
|
|
1,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
522,226
|
|
|
$
|
(322,794
|
)
|
|
$
|
199,432
|
|
|
$
|
449,473
|
|
|
$
|
(298,546
|
)
|
|
$
|
150,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
(2,354
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
197,078
|
|
|
|
|
|
|
|
|
|
|
$
|
150,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the three months ended June 30, 2010, $50.9 million
of IPR&D projects were completed and reclassified to
developed technology.
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,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Cost of product revenue
|
|
$
|
8,548
|
|
|
$
|
4,112
|
|
|
$
|
15,767
|
|
|
$
|
8,225
|
|
Other operating expenses
|
|
|
5,840
|
|
|
|
4,139
|
|
|
|
8,487
|
|
|
|
8,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,388
|
|
|
$
|
8,251
|
|
|
$
|
24,254
|
|
|
$
|
16,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
BROADCOM
CORPORATION
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents details of the amortization of
existing purchased intangible assets, including IPR&D, that
is currently estimated to be expensed in the remainder of 2010
and thereafter:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Intangible Asset Amortization by Year
|
|
|
|
|
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
Cost of product revenue
|
|
$
|
14,745
|
|
|
$
|
36,938
|
|
|
$
|
39,179
|
|
|
$
|
30,945
|
|
|
$
|
18,874
|
|
|
$
|
20,578
|
|
|
$
|
161,259 |
|
Other operating expenses
|
|
|
8,618
|
|
|
|
6,289
|
|
|
|
3,350
|
|
|
|
2,990
|
|
|
|
2,973
|
|
|
|
11,599
|
|
|
|
35,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,363
|
|
|
$
|
43,227
|
|
|
$
|
42,529
|
|
|
$
|
33,935
|
|
|
$
|
21,847
|
|
|
$
|
32,177
|
|
|
$
|
197,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
Liabilities
The following table presents details of our accrued liabilities:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Accrued rebates
|
|
$
|
231,127
|
|
|
$
|
162,212
|
|
Accrued settlement charges
|
|
|
13,327
|
|
|
|
176,707
|
|
Accrued legal costs
|
|
|
31,658
|
|
|
|
36,739
|
|
Accrued taxes
|
|
|
8,160
|
|
|
|
13,854
|
|
Warranty reserve
|
|
|
13,156
|
|
|
|
10,430
|
|
Restructuring liabilities
|
|
|
|
|
|
|
1,328
|
|
Other
|
|
|
46,236
|
|
|
|
32,024
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
343,664
|
|
|
$
|
433,294
|
|
|
|
|
|
|
|
|
|
|
Other
Long-Term Liabilities
The following table presents details of our other long-term
liabilities:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Deferred rent
|
|
$
|
33,585
|
|
|
$
|
32,931
|
|
Accrued taxes
|
|
|
21,296
|
|
|
|
24,919
|
|
Deferred tax liabilities
|
|
|
22,664
|
|
|
|
22,722
|
|
Other long-term liabilities
|
|
|
2,618
|
|
|
|
5,866
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
80,163
|
|
|
$
|
86,438
|
|
|
|
|
|
|
|
|
|
|
12
BROADCOM
CORPORATION
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accrued
Rebate Activity
The following table summarizes the activity related to accrued
rebates:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Beginning balance
|
|
$
|
162,212
|
|
|
$
|
125,058
|
|
Charged as a reduction of revenue
|
|
|
236,065
|
|
|
|
120,557
|
|
Reversal of unclaimed rebates
|
|
|
(2,820
|
)
|
|
|
(7,565
|
)
|
Payments
|
|
|
(164,330
|
)
|
|
|
(118,110
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
231,127
|
|
|
$
|
119,940
|
|
|
|
|
|
|
|
|
|
|
We recorded rebates to certain customers of $132.2 million
and $70.0 million and reversed accrued rebates of
$1.0 million and $4.7 million in the three months
ended June 30, 2010 and 2009, respectively.
Warranty
Reserve Activity
The following table summarizes activity related to the warranty
reserve:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Beginning balance
|
|
$
|
10,430
|
|
|
$
|
11,473
|
|
Charged to costs and expenses, net
|
|
|
4,735
|
|
|
|
3,959
|
|
Payments
|
|
|
(2,009
|
)
|
|
|
(3,530
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
13,156
|
|
|
$
|
11,902
|
|
|
|
|
|
|
|
|
|
|
We recorded net charges to costs and expenses of $0.1 million
and $2.9 million in the three months ended June 30,
2010 and 2009, respectively.
Restructuring
Activity
The following table summarizes activity related to our current
and long-term restructuring liabilities:
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30, 2010
|
|
|
|
(In thousands)
|
|
|
Beginning balance
|
|
$
|
1,328
|
|
Charged to expense
|
|
|
424
|
|
Reversal of restructuring costs
|
|
|
(313
|
)
|
Payments
|
|
|
(1,439
|
)
|
|
|
|
|
|
Ending balance
|
|
$
|
|
|
|
|
|
|
|
13
BROADCOM
CORPORATION
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except per share data)
|
|
|
Numerator: Net income (loss)
|
|
$
|
278,318
|
|
|
$
|
13,401
|
|
|
$
|
488,482
|
|
|
$
|
(78,539
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: Weighted average shares outstanding
|
|
|
501,188
|
|
|
|
495,204
|
|
|
|
498,285
|
|
|
|
492,746
|
|
Less: Unvested common shares outstanding
|
|
|
|
|
|
|
(94
|
)
|
|
|
(12
|
)
|
|
|
(94
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for net income (loss) per share (basic)
|
|
|
501,188
|
|
|
|
495,110
|
|
|
|
498,273
|
|
|
|
492,652
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock awards
|
|
|
37,310
|
|
|
|
12,883
|
|
|
|
34,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for net income (loss) per share (diluted)
|
|
|
538,498
|
|
|
|
507,993
|
|
|
|
532,733
|
|
|
|
492,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share (basic)
|
|
$
|
0.56
|
|
|
$
|
0.03
|
|
|
$
|
0.98
|
|
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share (diluted)
|
|
$
|
0.52
|
|
|
$
|
0.03
|
|
|
$
|
0.92
|
|
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share (diluted) does not include the effect of
anti-dilutive common share equivalents resulting from
outstanding equity awards. There were 32.0 million and
80.9 million anti-dilutive common share equivalents in the
three months ended June 30, 2010 and 2009, respectively.
There were 46.8 million and 128.9 million
anti-dilutive common share equivalents in the six months ended
June 30, 2010 and 2009, respectively.
Charitable
Contribution
In April 2009 we established the Broadcom Foundation, or the
Foundation, to support science, technology, engineering and mathematics 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 the exemption from federal income
taxation under
Section 501(c)(3)
of the Internal Revenue Code of 1986, as amended. 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
We paid $7.6 million in the six months ended June 30,
2010 related to capital equipment purchases that were accrued at
December 31, 2009 and had billings of $5.0 million for
capital equipment that were accrued but not yet paid as of
June 30, 2010. These amounts have been excluded from the
unaudited condensed consolidated statements of cash flows.
In March 2010 we acquired Teknovus, Inc., a leading supplier of
Ethernet Passive Optical Network chipsets and software, for
$100.1 million, net of cash acquired. We assumed
$14.6 million of Teknovus debt which was subsequently
repaid in the three months ended March 31, 2010. We also
made an additional acquisition for $2.4 million. No equity
awards were assumed in these acquisitions. There were no
acquisitions consummated in the six months ended June 30,
2009.
A portion of the cash consideration in the Teknovus acquisition
is currently held in escrow pursuant to the terms of the
acquisition agreement and is reflected in goodwill as we believe
the likelihood of the escrow fund being utilized by us is remote.
14
BROADCOM
CORPORATION
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Our primary reasons for the Teknovus acquisition were to enter
into and expand our market share in the Infrastructure
& Networking
market, 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. The principal factor that resulted
in recognition of goodwill was that the purchase price for the
acquisition was based in part on cash flow projections assuming
the integration of any acquired technology and products with our
products, which is of considerably greater value than utilizing
the acquired companys technology or product on a
standalone basis.
We allocated the purchase price of the Teknovus acquisition to
tangible assets, liabilities and identifiable intangible assets
acquired based on their estimated fair values. The excess of the
purchase price over the aggregate fair values was recorded as
goodwill. The fair value assigned to identifiable intangible
assets acquired was based on estimates and assumptions made by
management. Intangible assets, including IPR&D, are
amortized using a method that reflects the pattern in which the
economic benefits of the intangible asset are consumed or
otherwise used or, if that pattern cannot be reliably
determined, using a straight-line amortization method.
We calculated the fair value of the tangible and intangible
assets acquired to allocate the purchase prices on the
respective acquisition dates. Based upon those calculations, the
purchase prices for the acquisitions were allocated as follows:
|
|
|
|
|
|
|
2010
|
|
|
|
Acquisitions
|
|
|
|
(In thousands)
|
|
|
Fair Market Values
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
9,196
|
|
Accounts receivable, net
|
|
|
4,292
|
|
Inventory
|
|
|
7,249
|
|
Prepaid and other current assets
|
|
|
863
|
|
Property and equipment, net
|
|
|
1,640
|
|
Other assets
|
|
|
70
|
|
Goodwill
|
|
|
36,923
|
|
Purchased intangible assets
|
|
|
72,753
|
|
|
|
|
|
|
Total assets acquired
|
|
|
132,986
|
|
Accounts payable
|
|
|
(970
|
)
|
Wages and related benefits
|
|
|
(1,308
|
)
|
Debt
|
|
|
(14,560
|
)
|
Accrued liabilities
|
|
|
(3,813
|
)
|
Long-term liabilities
|
|
|
(658
|
)
|
|
|
|
|
|
Total liabilities assumed
|
|
|
(21,309
|
)
|
|
|
|
|
|
Purchase price allocation
|
|
$
|
111,677
|
|
|
|
|
|
|
15
BROADCOM
CORPORATION
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
Useful
|
|
2010
|
|
|
|
Life
|
|
Acquisitions
|
|
|
|
(In years)
|
|
(In thousands)
|
|
|
Purchased Intangible Assets:
|
|
|
|
|
|
|
Developed technology
|
|
2 - 10
|
|
$
|
46,753
|
|
In-process research and development
|
|
3 - 7
|
|
|
10,600
|
|
Customer relationships
|
|
2
|
|
|
13,200
|
|
Other
|
|
1 - 4
|
|
|
2,200
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
72,753
|
|
|
|
|
|
|
|
|
Purchased
Intangible Assets
Developed technology represents core technology and completed
technology. Core technology represents the fundamental
technology that survives multiple product iterations and has
passed technological feasibility. We generally use a
relief-from-royalty method to value core technology, based on
market royalties for similar fundamental technologies. The
relief-from-royalty method estimates the cost savings that
accrue to the owner of an intangible asset that would otherwise
be payable as royalties or license fees on revenues earned
through the use of the asset. The royalty rate used is based on
an analysis of empirical, market-derived royalty rates for
guideline intangible assets. Typically, revenue is projected
over the expected remaining useful life of the completed
technology. The market-derived royalty rate is then applied to
estimate the royalty savings. Completed technology is specific
to certain products acquired that have also passed technological
feasibility. We generally use a multi-period excess earnings
approach to value completed technology. The multi-period excess
earnings approach calculates the value based on the risk
adjusted present value of the cash flows specific to the
products, allowing for a reasonable return.
Customer relationships represent the fair value of future
projected revenue that will be derived from the sale of products
to existing customers of the acquired companies.
In-Process
Research and Development
In 2010 we capitalized $10.6 million of IPR&D costs
primarily related to our acquisition of Teknovus. Upon
completion of each project, the related IPR&D assets will
be amortized over their estimated useful lives. If any of the
projects are abandoned, we will be required to impair the
related IPR&D asset.
The fair value of the IPR&D for each of the acquisitions
was determined using the income approach. Under the income
approach, the expected future cash flows from each project under
development are estimated and discounted to their net present
values at an appropriate risk-adjusted rate of return.
Significant factors considered in the calculation of the rate of
return are the weighted average cost of capital and return on
assets, as well as the risks inherent in the development
process, including the likelihood of achieving technological
success and market acceptance. Each project was analyzed to
determine the unique technological innovations, the existence
and reliance on core technology, the existence of any
alternative future use or current technological feasibility, and
the complexity, cost and time to complete the remaining
development. Future cash flows for each project were estimated
based on forecasted revenue and costs, taking into account the
expected product life cycles, market penetration and growth
rates.
16
BROADCOM
CORPORATION
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the significant assumptions
underlying the valuation of IPR&D at the acquisition date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Average
|
|
|
|
Risk
|
|
|
|
|
|
|
Estimated
|
|
Estimated
|
|
Estimated
|
|
Adjusted
|
|
|
|
|
|
|
Percent
|
|
Time to
|
|
Cost to
|
|
Discount
|
|
|
Company Acquired
|
|
Development Projects
|
|
Complete
|
|
Complete
|
|
Complete
|
|
Rate
|
|
IPR&D
|
|
|
|
|
|
|
(In years)
|
|
(In millions)
|
|
|
|
(In millions)
|
|
Teknovus, Inc.
|
|
Ethernet Passive Optical Network (EPON) chipsets and software
|
|
|
11.2
|
%
|
|
|
0.9
|
|
|
$
|
19.3
|
|
|
|
25.9
|
%
|
|
$
|
10.6
|
|
As of the acquisition date, certain ongoing development projects
were in process. The assumptions consist primarily of expected
completion dates for the IPR&D projects, estimated costs to
complete the projects, and revenue and expense projections for
the products once they have entered the market. Research and
development costs to bring the products of the acquired
companies to technological feasibility are not expected to have
a material impact on our results of operations or financial
condition. At June 30, 2010 all development projects from
our Teknovus acquisition were still in process. Actual results
to date have been consistent, in all material respects, with our
assumptions at the time of the acquisitions.
Supplemental
Pro Forma Data (Unaudited)
The unaudited pro forma statement of operations data below gives
effect to our Dune Networks and Teknovus acquisitions that were
completed in December 2009 and March 2010, respectively, as if
they had occurred at the beginning of 2009. The following data
includes the amortization of purchased intangible assets and
stock-based compensation expense. 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 2009.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands,
|
|
|
|
except per share data)
|
|
|
Pro forma net revenue
|
|
$
|
3,072,990
|
|
|
$
|
1,919,899
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss)
|
|
$
|
476,817
|
|
|
$
|
(107,593
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss) per share (basic)
|
|
$
|
0.96
|
|
|
$
|
(0.22
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss) per share (diluted)
|
|
$
|
0.90
|
|
|
$
|
(0.22
|
)
|
|
|
|
|
|
|
|
|
|
17
BROADCOM
CORPORATION
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
4.
|
Cash,
Cash Equivalents and Marketable Securities
|
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, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
116,121
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
116,121
|
|
Bank deposits
|
|
|
688,038
|
|
|
|
|
|
|
|
|
|
|
|
688,038
|
|
U.S. Treasury and agency money market funds
|
|
|
183,875
|
|
|
|
|
|
|
|
|
|
|
|
183,875
|
|
U.S. Treasury and agency obligations
|
|
|
7,499
|
|
|
|
593,236
|
|
|
|
421,935
|
|
|
|
1,022,670
|
|
Commercial paper
|
|
|
169,310
|
|
|
|
30,829
|
|
|
|
|
|
|
|
200,139
|
|
Corporate bonds
|
|
|
|
|
|
|
20,657
|
|
|
|
19,176
|
|
|
|
39,833
|
|
Institutional money market funds
|
|
|
238,790
|
|
|
|
|
|
|
|
|
|
|
|
238,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,403,633
|
|
|
$
|
644,722
|
|
|
$
|
441,111
|
|
|
$
|
2,489,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
74,044
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
74,044
|
|
Bank deposits
|
|
|
571,959
|
|
|
|
|
|
|
|
|
|
|
|
571,959
|
|
U.S. Treasury and agency money market funds
|
|
|
515,930
|
|
|
|
|
|
|
|
|
|
|
|
515,930
|
|
U.S. Treasury and agency obligations
|
|
|
|
|
|
|
521,022
|
|
|
|
436,518
|
|
|
|
957,540
|
|
Commercial paper
|
|
|
79,988
|
|
|
|
|
|
|
|
|
|
|
|
79,988
|
|
Corporate bonds
|
|
|
|
|
|
|
11,259
|
|
|
|
2,098
|
|
|
|
13,357
|
|
Institutional money market funds
|
|
|
155,172
|
|
|
|
|
|
|
|
|
|
|
|
155,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,397,093
|
|
|
$
|
532,281
|
|
|
$
|
438,616
|
|
|
$
|
2,367,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
BROADCOM
CORPORATION
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table shows the gross unrealized gains and losses
and fair values for those investments aggregated by major
security type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agency obligations
|
|
$
|
1,020,250
|
|
|
$
|
2,424
|
|
|
$
|
(4
|
)
|
|
$
|
1,022,670
|
|
Commercial paper
|
|
|
200,138
|
|
|
|
1
|
|
|
|
|
|
|
|
200,139
|
|
Corporate bonds
|
|
|
39,797
|
|
|
|
53
|
|
|
|
(17
|
)
|
|
|
39,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,260,185
|
|
|
$
|
2,478
|
|
|
$
|
(21
|
)
|
|
$
|
1,262,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agency obligations
|
|
$
|
956,944
|
|
|
$
|
724
|
|
|
$
|
(128
|
)
|
|
$
|
957,540
|
|
Commercial paper
|
|
|
79,988
|
|
|
|
|
|
|
|
|
|
|
|
79,988
|
|
Corporate bonds
|
|
|
13,364
|
|
|
|
5
|
|
|
|
(12
|
)
|
|
|
13,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,050,296
|
|
|
$
|
729
|
|
|
$
|
(140
|
)
|
|
$
|
1,050,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the fair value measurements for those
investments aggregated by major security type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
116,121
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
116,121
|
|
Bank deposits
|
|
|
688,038
|
|
|
|
|
|
|
|
|
|
|
|
688,038
|
|
U.S. Treasury and agency money market funds
|
|
|
183,875
|
|
|
|
|
|
|
|
|
|
|
|
183,875
|
|
U.S. Treasury and agency obligations
|
|
|
1,022,670
|
|
|
|
|
|
|
|
|
|
|
|
1,022,670
|
|
Commercial paper
|
|
|
|
|
|
|
200,139
|
|
|
|
|
|
|
|
200,139
|
|
Corporate bonds
|
|
|
15,214
|
|
|
|
24,619
|
|
|
|
|
|
|
|
39,833
|
|
Institutional money market funds
|
|
|
238,790
|
|
|
|
|
|
|
|
|
|
|
|
238,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,264,708
|
|
|
$
|
224,758
|
|
|
$
|
|
|
|
$
|
2,489,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
74,044
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
74,044
|
|
Bank deposits
|
|
|
571,959
|
|
|
|
|
|
|
|
|
|
|
|
571,959
|
|
U.S. Treasury and agency money market funds
|
|
|
515,930
|
|
|
|
|
|
|
|
|
|
|
|
515,930
|
|
U.S. Treasury and agency obligations
|
|
|
957,540
|
|
|
|
|
|
|
|
|
|
|
|
957,540
|
|
Commercial paper
|
|
|
|
|
|
|
79,988
|
|
|
|
|
|
|
|
79,988
|
|
Corporate bonds
|
|
|
5,077
|
|
|
|
8,280
|
|
|
|
|
|
|
|
13,357
|
|
Institutional money market funds
|
|
|
155,172
|
|
|
|
|
|
|
|
|
|
|
|
155,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,279,722
|
|
|
$
|
88,268
|
|
|
$
|
|
|
|
$
|
2,367,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no transfers between Level 1 and Level 2
securities during the six months ended June 30, 2010. All
of our long-term marketable securities had maturities of between
one and three years in duration at June 30, 2010.
19
BROADCOM
CORPORATION
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of June 30, 2010 we had 14 investments that were in an
unrealized loss position. The gross
unrealized losses related to these investments were due to
changes in interest rates. We have determined that the gross
unrealized losses on these investments at June 30, 2010 are
temporary in nature. We review our 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 investee, 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 recorded a tax benefit of $1.9 million and a tax
provision of $0.5 million for the three and six months
ended June 30, 2010, respectively, and 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. Our
effective tax rates were (0.7)% and 0.1% for the three and six
months ended June 30, 2010, respectively, and 19.5% and
2.2% for the three and six months ended June 30, 2009,
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 in
the three and six months ended June 30, 2010 and 2009,
domestic losses recorded without income tax benefit in the three
and six months ended June 30, 2009, and tax benefits
resulting primarily from expiration of the statutes of
limitations for the assessment of taxes in various foreign
jurisdictions of $6.3 million and $6.6 million for the
three and six months ended June 30, 2010, respectively, and
$5.5 million and $6.5 million for the three and six
months ended June 30, 2009, respectively. We also 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, as a result of the
May 27, 2009 and March 22, 2010 decisions in the
U.S. Court of Appeals for the Ninth Circuit case concerning
Xilinx (discussed below), we recorded a tax benefit of
approximately $3 million in the six months ended
June 30, 2010 to reverse the $3 million of related
exposure previously recorded in the three and six months ended
June 30, 2009.
We utilize the asset and liability method of accounting for
income taxes. 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. 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 liabilities of $10.2 million and
$11.2 million at June 30, 2010 and December 31,
2009, respectively.
As previously disclosed, 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 was subject to
further appeal. As a result of this May 27, 2009 decision,
we reduced our gross deferred tax assets for federal and state
net operating loss carryforwards and capitalized research and
development costs, increased in our deferred tax assets for
certain tax credits, and increased our tax provision in 2009 by
approximately $3 million.
On January 13, 2010, the U.S. Court of Appeals for the
Ninth Circuit withdrew its May 27, 2009 ruling in the
Xilinx case and subsequently issued a new decision in favor of
Xilinx on March 22, 2010, thereby affirming the
20
BROADCOM
CORPORATION
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
August 30, 2005 decision of the U.S. Tax Court.
Consequently, during the quarter ended March 31, 2010, we
reversed the amounts we had previously recorded in 2009 related
to the courts May 27, 2009 decision. As a result, in
the quarter ended March 31, 2010, we reduced our tax
provision by approximately $3 million and adjusted certain
of our gross deferred tax assets. Included in these adjustments
was an increase in our federal and state net operating loss
carryforwards of approximately $665 million and
$455 million, respectively, an increase of federal and
state capitalized research and development costs of
approximately $10 million each, an increase in our deferred
tax assets relating to stock-based compensation of approximately
$65 million, and a decrease in certain tax credits of
approximately $10 million. These changes in our gross
deferred tax assets were fully offset by a valuation allowance
adjustment, and therefore did not result in any change in our
net deferred tax assets or our income tax expense for the three
months ended March 31, 2010. In addition to the adjustments
related to the March 22, 2010 Xilinx decision, in the three
months ended March 31, 2010, we reduced our federal and
state net operating losses by approximately $60 million for
adjustments to our intercompany charges to foreign affiliates
for the years ended 2001 to 2009. This reduction to our net
operating losses is fully offset by a corresponding adjustment
to the valuation allowance for deferred tax assets resulting in
no net change to net deferred tax assets in our unaudited
condensed consolidated balance sheet and no adjustment to our
income tax expense.
We file federal, state and foreign income tax returns in
jurisdictions with varying statutes of limitations. The 2004
through 2009 tax years generally remain subject to examination
by federal and most state tax authorities. In foreign
jurisdictions, the 2002 through 2009 tax years generally remain
subject to examination by tax authorities.
Our income tax returns for the 2004, 2005 and 2006 tax years and
our employment tax returns for the 2003, 2004, 2005 and 2006 tax
years are currently under examination by the Internal Revenue
Service. We do not expect that the results of these examinations
will have a material effect on our financial condition or
results of operations. In March 2010, a Notice of Proposed
Adjustment, or NOPA, was received relating to the IRS
examination of our 2004, 2005 and 2006 income tax returns. The
NOPA primarily relates to cost-sharing methodologies of stock
based compensation, as well as other cost-sharing related
issues. In light of the Ninth Circuit Xilinx decision, we
believe the stock based compensation matters identified in the
NOPA and the settlement of the remaining proposed adjustments
will not result in a material adverse financial impact on our
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.
Share
Repurchase Programs
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.
We repurchased approximately 5.2 million shares of our Class A common
stock at a weighted average price of $29.75 per share in the three
months ended March 31, 2010 under the program we announced in July
2008.
This program
to repurchase shares with an aggregate value of up to
$1.0 billion was completed in March 2010, at which time we
had repurchased 47.6 million shares of Class A common
stock at a weighted average price of $21.01 per share under the
program.
In February 2010 we announced that our Board of Directors had
authorized an evergreen share repurchase program intended to
offset dilution associated with our stock incentive plans. We
repurchased a total of 3.8 million shares of our
Class A common stock at a weighted average price of $31.88
per share in the three months ended June 30, 2010 under
this program. The maximum number of shares of our Class A
common stock that may be repurchased in any one year is equal to
the total number of shares issued pursuant to our equity awards
in the previous year and the current year. Purchases may be made
in both the open market and through negotiated transactions. The
share repurchase program does not have an expiration date and
may be suspended at any time at the discretion of the Board of
Directors. This program may also be complemented with an
additional share repurchase program in the future.
21
BROADCOM
CORPORATION
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Repurchases under our share repurchase programs were and are
intended to 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.
Quarterly
Dividend
In January 2010 our Board of Directors adopted a dividend policy
pursuant to which we intend to pay quarterly cash dividends on
our common stock. Our Board of Directors declared quarterly cash
dividends of $0.08 per common share payable to holders of our
common stock in each of the first two quarters of 2010. In the
three and six months ended June 30, 2010 we paid
$40.2 million and $79.8 million, respectively, in
dividends to holders of our Class A and Class B common
stock. These dividends were paid from U.S. domestic sources
other than our retained earnings and are accounted for as
reductions of shareholders equity.
Comprehensive
Income
The components of comprehensive income (loss), net of taxes, are
as follows:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Net income (loss)
|
|
$
|
488,482
|
|
|
$
|
(78,539
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on marketable securities
|
|
|
1,868
|
|
|
|
(4,523
|
)
|
Translation adjustments
|
|
|
(2,902
|
)
|
|
|
1,007
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
487,448
|
|
|
$
|
(82,055
|
)
|
|
|
|
|
|
|
|
|
|
|
|
7.
|
Employee
Benefit Plans
|
Combined
Incentive Plan Activity
Activity under all stock option incentive plans in the six
months ended June 30, 2010 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, 2009
|
|
|
113,406
|
|
|
$
|
0.01 - 81.50
|
|
|
$
|
25.71
|
|
|
$
|
15.71
|
|
Options granted
|
|
|
2,738
|
|
|
|
29.39 - 33.84
|
|
|
|
29.57
|
|
|
|
9.41
|
|
Options cancelled
|
|
|
(859
|
)
|
|
|
0.01 - 81.50
|
|
|
|
34.88
|
|
|
|
15.62
|
|
Options exercised
|
|
|
(9,578
|
)
|
|
|
0.01 - 34.56
|
|
|
|
20.71
|
|
|
|
18.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2010
|
|
|
105,707
|
|
|
$
|
0.01 - 49.26
|
|
|
$
|
26.18
|
|
|
$
|
15.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
BROADCOM
CORPORATION
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Restricted stock unit activity in the six months ended
June 30, 2010 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, 2009
|
|
|
28,693
|
|
|
$
|
25.58
|
|
Restricted stock units granted
|
|
|
10,650
|
|
|
|
29.30
|
|
Restricted stock units cancelled
|
|
|
(763
|
)
|
|
|
25.52
|
|
Restricted stock units vested
|
|
|
(6,130
|
)
|
|
|
27.81
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2010
|
|
|
32,450
|
|
|
$
|
26.38
|
|
|
|
|
|
|
|
|
|
|
In February 2010, as part of Broadcoms regular annual
equity compensation review program, our Compensation Committee
granted 10.1 million shares subject to equity awards, which
included 2.2 million shares under employee stock options
and 7.9 million restricted stock units.
The per share fair values of stock options and employee stock
purchase rights granted in the six months ended June 30,
2010 in connection with stock incentive plans and rights granted
in connection with the employee stock purchase plan have been
estimated with the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
|
|
|
Employee
|
|
Stock
|
|
|
Stock
|
|
Purchase
|
|
|
Options
|
|
Rights
|
|
Expected life (in years)
|
|
|
4.49
|
|
|
|
0.49
|
|
Implied Volatility
|
|
|
0.39
|
|
|
|
0.38
|
|
Risk-free interest rate
|
|
|
1.99
|
%
|
|
|
0.21
|
%
|
Expected dividend yield
|
|
|
1.10
|
%
|
|
|
1.05
|
%
|
Weighted average fair value
|
|
$
|
9.41
|
|
|
$
|
7.76
|
|
The weighted average fair values per share of the restricted
stock units granted in the six months ended June 30, 2010
was $29.30 calculated based on the fair market value of our
Class A common stock on the respective grant dates less any
expected dividend yield.
Stock-Based
Compensation Expense
The following table presents details of total stock-based
compensation expense that is included in each functional
line item on our unaudited condensed consolidated statements of
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Cost of product revenue
|
|
$
|
5,213
|
|
|
$
|
6,128
|
|
|
$
|
11,728
|
|
|
$
|
12,005
|
|
Research and development
|
|
|
83,763
|
|
|
|
86,607
|
|
|
|
172,806
|
|
|
|
175,869
|
|
Selling, general and administrative
|
|
|
29,637
|
|
|
|
29,893
|
|
|
|
60,720
|
|
|
|
58,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
118,613
|
|
|
$
|
122,628
|
|
|
$
|
245,254
|
|
|
$
|
246,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of unearned stock-based compensation currently
estimated to be expensed from 2010 through 2014 related to
unvested share-based payment awards at June 30, 2010 is
$893.2 million. The following table
23
BROADCOM
CORPORATION
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
presents details of unearned stock-based compensation currently
estimated to be expensed in the remainder of 2010 through 2014
related to unvested share-based payment awards at June 30,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
Total
|
|
|
(In thousands)
|
|
Unearned stock-based compensation
|
|
$
|
220,355
|
|
|
$
|
342,488
|
|
|
$
|
212,856
|
|
|
$
|
108,173
|
|
|
$
|
9,278
|
|
|
$
|
893,150
|
|
The weighted-average period over which the unearned stock-based
compensation is expected to be recognized is 1.4 years.
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.
Intellectual Property Proceedings. 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 April 2010
Wi-LAN Inc.
filed a new complaint against us and multiple other defendants
in the United States District Court for the Eastern District of
Texas alleging that certain Broadcom Bluetooth products infringe
a fifth
Wi-LAN
patent. The complaint seeks a permanent injunction, damages, and
attorneys fees. We are reviewing the complaint and have
not yet filed a response. No trial date has been set.
In September 2009 we filed a complaint in the United States
District Court for the Central District of California against
Emulex Corporation, or Emulex, alleging infringement of ten
patents generally relating to networking technologies. In
February 2010, we amended our complaint to allege infringement
of an additional patent, bringing the total to eleven. In May
2010, we filed a second patent infringement complaint against
Emulex, bringing the total to twelve. Our complaints seek
preliminary and permanent injunctions against Emulex and the
recovery of monetary damages, including treble damages for
willful infringement, and attorneys fees. In its answers,
Emulex denied liability and asserted counterclaims seeking a
declaratory judgment that the twelve patents are invalid and not
infringed. Discovery is currently underway, with trial set for
September 2011.
In November 2009 we filed a complaint in the United States
District Court for the Eastern District of Texas against the
Commonwealth Scientific and Industrial Research Organisation
(CSIRO) seeking a declaratory judgment that U.S. Patent
Number 5,487,069 is invalid, unenforceable and not infringed.
CSIRO has not yet answered the complaint. Trial has been set for
November 2011.
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
24
BROADCOM
CORPORATION
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 certain U.S. International Trade Commission, or ITC,
actions between Global Locate and SiRF became final. Subject to
SiRF filing a petition for writ of certiorari in the United
States Supreme Court, the ITC actions may become final in July
2010. In July 2010, the court scheduled a status conference in
August 2010.
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
sought 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 January 2009 the Commission
issued a Final Determination finding that SiRF and the other
SiRF respondents infringed 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 certain other
SiRF Defendants from engaging in certain activities related to
the infringing chips. In April 2010, the United States Court of
Appeals for the Federal Circuit affirmed the ITCs decision.
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. In
October 2009, Broadcom amended its complaint to add CSR plc as a
defendant and assert claims alleging false advertisement and
unfair competition. In October 2009 SiRF answered the amended
complaint denying liability and asserting counterclaims alleging
false advertising and unfair competition. In December 2009 we
answered SiRFs counterclaims denying liability. In
December 2009, the judge granted the parties joint stipulation
of dismissal with prejudice for all claims relating to one of
the Broadcom patents; three Broadcom patents remain in the
lawsuit. Trial has been set for January 2011.
Other Litigation. In November 2009 Emulex
filed a complaint in the Central District of California against
Broadcom alleging violation of the antitrust laws, defamation,
and unfair competition. The complaint seeks injunctive relief
and monetary damages, including treble damages and
attorneys fees. In January 2010, Emulex filed an amended
complaint in which Emulex removed, among other things, the claim
of unfair competition. In February 2010, we filed motions to
dismiss the case. In June 2010, the District Court granted in
part and denied in part our motion to dismiss and denied our
motion to strike. In July 2010, we filed a notice of appeal of
the District Courts denial of our motion to strike. No
trial date has been set for this matter. We intend to defend
this action vigorously.
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
25
BROADCOM
CORPORATION
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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, or SLC, to decide what course of
action Broadcom should pursue in respect of the claims asserted
in the Options Derivative Actions.
In August 2009 Broadcom, by and through its SLC, plaintiffs and
certain of the defendants executed a Stipulation and Agreement
of Partial Settlement, or Partial Derivative Settlement, in the
federal derivative action pertaining to past employee stock
option grants. The Partial Derivative Settlement resolved all
claims in the action against the defendants, other than three
individuals: Dr. Henry T. Nicholas, III, our former
President and Chief Executive Officer and former Co-Chairman of
the Board, William J. Ruehle, our former Chief Financial
Officer, and Dr. Henry Samueli, our Chief Technical
Officer. In connection with the Partial Derivative Settlement,
Broadcom and certain of the defendants also entered into a
settlement with Broadcoms directors and officers liability
insurance carriers, or Insurance Agreement. On
September 30, 2009 the United States District Court for the
Central District of California issued an order preliminarily
approving the Partial Derivative Settlement. On
December 14, 2009, the District Court entered an order
granting final approval of the Partial Derivative Settlement. On
January 6, January 8 and January 11, 2010,
Dr. Nicholas, Mr. Ruehle, and Dr. Samueli filed
notices of appeal of the order in the United States Court of
Appeals for the Ninth Circuit.
On March 31, 2010 the SLC formally and unanimously adopted
a Report of the Special Litigation Committee of the Board of
Directors of Broadcom, or Report. On April 1, 2010 the SLC
directed Broadcoms General Counsel to file a motion for
summary judgment in the derivative action based on the findings
and recommendations of the Report. That motion was filed
April 5, 2010, seeking dismissal of the claims against the
three remaining defendants. On June 21, 2010 plaintiffs in
the federal derivative action filed an opposition to
Broadcoms motion, and a cross-motion for summary judgment.
The SLC was granted leave to intervene and has filed a response
on behalf of Broadcom. We cannot predict how the District Court
will rule on Broadcoms motion or the plaintiffs
cross-motion.
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 Stock Option 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 Stock Option
26
BROADCOM
CORPORATION
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. In February 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 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. The lead
plaintiff has appealed the final judgment.
In December 2009 we agreed in principle to settle the Stock
Option Class Actions. Under the proposed settlement, the
claims against Broadcom and its current and former officers and
directors will be dismissed with prejudice and released in
exchange for a $160.5 million cash payment by Broadcom.
The parties entered
into a stipulation and agreement of settlement dated as of
April 30, 2010. We recorded the settlement amount as a
one-time charge in 2009 and subsequent payment was made in June 2010
into a settlement fund for distribution pending final approval.
On June 1, 2010 the District Court
granted preliminary approval for the proposed settlement and
entered an order providing for notice and a hearing in
connection with the proposed settlement. On July 12, 2010
the lead plaintiff filed an unopposed motion for final approval
of the proposed settlement. If approved, the proposed settlement
will resolve all claims in the Stock Option Class Actions
against Broadcom and the individual defendants. In the event
that we are unable to obtain court approval, our ultimate
liability could differ materially.
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
Stock Option Class Actions and the related SEC and
U.S. Attorneys Office investigations (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. Pursuant to the Insurance Agreement, and
subject to the terms described more completely therein,
including relinquishing of rights to any further recovery as to
the matters described above under these directors and
officers liability insurance policies by Broadcom and
certain of its former and current officers and directors,
Broadcom received payments totaling $118.0 million from its
insurance carriers. That amount includes $43.3 million in
reimbursements previously received from the insurance carriers
under reservations of rights, and $74.7 million paid to
Broadcom upon final approval of the Partial Derivative
Settlement. In addition, Broadcom paid $11.5 million to the
lead federal derivative plaintiffs counsel for
attorneys fees, expenses and costs of plaintiffs
counsel in connection with the Partial Derivative Settlement and
their prosecution of the derivative action.
In the event that the trial courts approval of the Partial
Derivative Settlement is reversed or vacated by an appellate
court or otherwise does not become final and non-appealable,
Broadcom in its sole discretion has the
27
BROADCOM
CORPORATION
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
election to either provide a release to the insurance carriers
and indemnify them related to any future claims and retain the
$118.0 million in accordance with the Insurance Agreement
or to repay to the insurance carriers certain portions of the
aggregate amount previously paid to Broadcom.
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.
|
|
9.
|
Business
Enterprise Segments
|
Broadcom has three reportable segments consistent with our
target markets. Our three reportable segments are: Broadband
Communications (Home), Mobile & Wireless (Hand) and
Infrastructure & Networking (Infrastructure).
Our Chief Executive Officer, who is our chief operating decision
maker, or CODM, reviews financial information at the operating
segment level. Our Mobile & Wireless reportable
segment comprises our Mobile Platforms and Wireless Connectivity
businesses. Our Mobile Platforms and Wireless Connectivity
businesses are reported separately to the CODM to allow greater management
focus on our Mobile Platform opportunity. However as the
customers, economics, and competitors substantially overlap, and
the product functionality is being integrated across these
products in our own and competitor roadmaps, we aggregate these
two businesses into one reportable segment, Mobile &
Wireless.
We also report an All Other category that primarily
includes licensing revenue from our agreement with Verizon
Wireless and income from the Qualcomm Agreement since they are
principally the result of corporate efforts. All
Other also includes operating expenses that we do not
allocate to our other operating segments as these expenses are
not included in the segment operating performance measures
evaluated by our CODM. Operating costs and expenses that are not
allocated include stock-based compensation, amortization of
purchased intangible assets,
impairment of goodwill and other long-lived assets, net
settlement costs, net restructuring costs, charitable
contributions, employer payroll tax on certain stock option
exercises, and other miscellaneous expenses related to corporate
allocations that were either over or under the
28
BROADCOM
CORPORATION
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
original projections at the beginning of the year. We include
stock-based compensation and acquisition-related items in the
All Other category as decisions regarding equity
compensation are made at the corporate level and our CODM
believes that acquisition accounting distorts the underlying
economics of the reportable segment.
Effective April 1, 2010, we reclassified the amortization of acquired
inventory valuation step-up from its respective reportable segment
into the All Other category, as these charges are the
result of acquisition accounting and we believe these amounts should
not be included when measuring our reportable segments
operating performance. Prior period amounts have been reclassified
to conform to the current period presentation.
Our CODM does not review
information regarding total assets, interest income or
income taxes on an operating segment basis. The accounting
policies for segment reporting are the same as for Broadcom as a
whole.
The following tables present details of our reportable segments
and the All Other category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
|
|
|
|
|
|
Broadband
|
|
Mobile &
|
|
Infrastructure &
|
|
All
|
|
|
|
|
Communications
|
|
Wireless
|
|
Networking
|
|
Other
|
|
Consolidated
|
|
|
(In thousands)
|
|
Three Months Ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
532,103
|
|
|
$
|
630,053
|
|
|
$
|
390,619
|
|
|
$
|
51,673
|
|
|
$
|
1,604,448
|
|
Operating income (loss)
|
|
|
122,821
|
|
|
|
104,245
|
|
|
|
137,823
|
|
|
|
(92,920
|
)
|
|
|
271,969
|
|
Three Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
363,843
|
|
|
$
|
398,485
|
|
|
$
|
210,353
|
|
|
$
|
67,263
|
|
|
$
|
1,039,944
|
|
Operating income (loss)
|
|
|
25,070
|
|
|
|
19,934
|
|
|
|
38,033
|
|
|
|
(71,388
|
)
|
|
|
11,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
|
|
|
|
|
|
Broadband
|
|
Mobile &
|
|
Infrastructure &
|
|
All
|
|
|
|
|
Communications
|
|
Wireless
|
|
Networking
|
|
Other
|
|
Consolidated
|
|
|
(In thousands)
|
|
Six Months Ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
995,888
|
|
|
$
|
1,184,347
|
|
|
$
|
782,915
|
|
|
$
|
103,597
|
|
|
$
|
3,066,747
|
|
Operating income (loss)
|
|
|
207,213
|
|
|
|
165,182
|
|
|
|
292,249
|
|
|
|
(185,343
|
)
|
|
|
479,301
|
|
Six Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
681,097
|
|
|
$
|
697,347
|
|
|
$
|
428,704
|
|
|
$
|
86,232
|
|
|
$
|
1,893,380
|
|
Operating income (loss)
|
|
|
40,411
|
|
|
|
(20,543
|
)
|
|
|
79,634
|
|
|
|
(190,886
|
)
|
|
|
(91,384
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
Included in the All Other Category:
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Net revenue
|
|
$
|
51,673
|
|
|
$
|
67,263
|
|
|
$
|
103,597
|
|
|
$
|
86,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
$
|
118,613
|
|
|
$
|
122,628
|
|
|
$
|
245,254
|
|
|
$
|
246,401
|
|
Amortization of purchased intangible assets
|
|
|
14,388
|
|
|
|
8,251
|
|
|
|
24,254
|
|
|
|
16,523
|
|
Amortization of acquired inventory valuation
step-up
|
|
|
2,217
|
|
|
|
1,923
|
|
|
|
6,665
|
|
|
|
6,980
|
|
Impairment of other long-lived assets
|
|
|
|
|
|
|
11,261
|
|
|
|
|
|
|
|
11,261
|
|
Settlement costs (gains), net
|
|
|
1,000
|
|
|
|
(58,406
|
)
|
|
|
3,816
|
|
|
|
(57,256
|
)
|
Restructuring costs (reversals), net
|
|
|
(319
|
)
|
|
|
447
|
|
|
|
111
|
|
|
|
7,558
|
|
In-process research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charitable contribution
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
50,000
|
|
Employer payroll tax on certain stock option exercises
|
|
|
2,194
|
|
|
|
1,209
|
|
|
|
3,761
|
|
|
|
1,942
|
|
Miscellaneous corporate allocation variances
|
|
|
6,500
|
|
|
|
1,338
|
|
|
|
5,079
|
|
|
|
(6,291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other operating costs and expenses
|
|
$
|
144,593
|
|
|
$
|
138,651
|
|
|
$
|
288,940
|
|
|
$
|
277,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating loss for the All Other category
|
|
$
|
(92,920
|
)
|
|
$
|
(71,388
|
)
|
|
$
|
(185,343
|
)
|
|
$
|
(190,886
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
BROADCOM
CORPORATION
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Sales to our significant customers, including sales to their
manufacturing subcontractors, as a percentage of net revenue
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Six Months
|
|
|
Ended
|
|
Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Five largest customers as a group
|
|
|
35.9
|
%
|
|
|
35.4
|
%
|
|
|
35.2
|
%
|
|
|
33.2
|
%
|
Product 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 product revenue was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Asia (primarily in Korea, China, Japan and Taiwan)
|
|
|
38.0
|
%
|
|
|
37.5
|
%
|
|
|
39.7
|
%
|
|
|
37.0
|
%
|
Europe (primarily in the Finland, United Kingdom and France)
|
|
|
14.8
|
|
|
|
13.9
|
|
|
|
14.4
|
|
|
|
13.7
|
|
Other
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
0.6
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53.1
|
%
|
|
|
51.7
|
%
|
|
|
54.7
|
%
|
|
|
51.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue derived from shipments to international
destinations, as a percentage of product revenue was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Asia (primarily in China, Hong Kong, Singapore and Taiwan)(1)
|
|
|
92.7
|
%
|
|
|
90.1
|
%
|
|
|
92.7
|
%
|
|
|
88.9
|
%
|
Europe (primarily in Sweden, Hungary and France)
|
|
|
2.4
|
|
|
|
2.8
|
|
|
|
2.4
|
|
|
|
3.3
|
|
Other
|
|
|
1.8
|
|
|
|
1.5
|
|
|
|
1.5
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96.9
|
%
|
|
|
94.4
|
%
|
|
|
96.6
|
%
|
|
|
93.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
For all periods presented, product
revenue derived from shipments to China and Hong Kong represented
approximately 29% and 25%, respectively, of total product revenue. |
In June 2010 we announced that our subsidiary, Broadcom
International Ltd., agreed to terms with the board of Innovision
Research & Technology PLC, or Innovision, (a company
listed on the Alternative Investment Market of the London Stock
Exchange: INN), to make an all-cash offer to acquire all of the
issued and to be issued share capital of Innovision. Innovision
is a near-field communication technology company. Under the
terms of the offer, Innovision shareholders would receive Pounds
Sterling 0.35 (approximately U.S.$0.52) per share in cash for
each Innovision share held, representing a total equity value of
approximately U.S.$47.5 million based on exchange rates at
the date of the offer. The offer represented an 84.2% premium
above the closing price of Innovisions ordinary shares on
June 17, 2010. On July 13, 2010, Broadcom
International Ltd. declared the offer wholly unconditional in
all respects. On July 16, 2010, Broadcom International Ltd
had interests in approximately 10.5% of the existing issued
share capital of Innovision and had separately received
acceptances of the existing issued share capital of Innovision
totaling 82.5%. It is anticipated that Innovisions
listing on the Alternative Investment Market of the London Stock
Exchange will be cancelled effective from 7 am (London time) on
August 13, 2010. Broadcom expects to operate the English
compulsory share acquisition procedures and obtain 100% of the
issued share capital of Innovision in the third quarter of 2010.
30
|
|
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, 2009 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 total net revenue, costs and expenses and
product gross margin; our accounting estimates, assumptions and
judgments; our success in pending litigation matters; estimates
related to the amount
and/or
timing of the expensing of unearned stock-based compensation
expense; the demand for our products; the effect that recent
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; availability of adequate
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
Internal Revenue Service 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 income we expect to record in connection with the
Qualcomm Agreement. 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, except as otherwise required by law.
Overview
Broadcom Corporation (including our subsidiaries, referred to
collectively in this Report as Broadcom,
we, our and us) is a major
technology innovator and global leader in semiconductors for
wired and wireless communications. Our
system-on-a-chip
(SoC) and software solutions enable the delivery of voice,
video, data and rich multimedia content to mobile devices,
consumer electronics (CE) devices in the home and business
networking products for the workplace, data centers, service
providers and carriers. We provide the industrys broadest
portfolio of cutting-edge SoC solutions to manufacturers of
computing and networking equipment, CE and broadband access
products, and mobile devices.
We sell our products to leading wired and wireless
communications manufacturers in each of our reportable segments:
Broadband Communications (Home), Mobile & Wireless
(Hand) and Infrastructure & Networking
31
(Infrastructure). Our Mobile & Wireless reportable
segment comprises our Mobile Platforms and Wireless Connectivity
businesses. Because we leverage our technologies across
different markets, certain of our integrated circuits may be
incorporated into products used in multiple markets. We utilize
independent foundries and third-party subcontractors to
manufacture, assemble and test all of our semiconductor products.
Our diverse product portfolio includes:
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Solutions for the Home (Broadband Communications)
enabling such products as digital cable, satellite and
Internet Protocol (IP) set-top boxes and media servers; cable
and digital subscriber line (DSL) modems and residential
gateways; high definition televisions (HDTVs); high definition
Blu-ray
Disc®
players; and digital video recorders (DVRs).
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Solutions for the Hand (Mobile &
Wireless) integrating solutions in applications
for wireless and personal area networking; cellular
communications; personal navigation and global positioning;
processing multimedia content in smartphones; and for managing
the power in mobile devices; and
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Solutions for Infrastructure (Infrastructure & Networking) incorporating solutions for the
business network requirements of enterprise, data center,
small-to-medium-sized
businesses (SMBs), and carriers and service providers, featuring
high-speed controllers, switches and physical layer (PHY)
devices supporting transmission and switching for local,
metropolitan, wide area and storage networking and server
solutions; processors for broadband network and security
applications; and Voice over Internet Protocol (VoIP) solutions
for gateway and telephony systems.
|
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. The majority of our product
sales occur through the efforts of our direct sales force. The
remaining balance of our product sales occurs through
distributors. Our licensing revenue and income from the Qualcomm
Agreement is generated from the licensing of our intellectual
property, of which the vast majority to date has been derived
from agreements with two customers, Verizon Wireless and
Qualcomm Incorporated. The licensing revenue from our agreement
with Verizon Wireless ended in March 2009 and the income from
the Qualcomm Agreement is non-recurring and will terminate in
2013. There can be no assurances that we will be able to enter
into similar arrangements in the future.
A detailed discussion of our business may be found in
Part I, Item 1, Business, of our 2009
Annual Report on
Form 10-K.
Operating
Results for the Three and Six Months Ended June 30,
2010
In the three months ended June 30, 2010 our net income was
$278.3 million as compared to a net income of
$13.4 million in the three months ended June 30, 2009,
a difference of $264.9 million. In the six months ended
June 30, 2010 our net income was $488.5 million as
compared to a net loss of $78.5 million in the six months
ended June 30, 2009, a difference of $567.0 million.
The increase in profitability in both periods was the direct
result of broad-based increases in net revenue of 54.3% and
62.0% in the three and six months ended June 30, 2010,
respectively, as compared to the three and six months ended
June 30, 2009. In addition, our total gross margin
increased 250 basis points and 350 basis points in the
three and six months ended June 30, 2010, respectively, as
compared to the three and six months ended June 30, 2009.
Other 2010 highlights include the following:
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We generated cash flow from operations of $463.6 million
during the six months ended June 30, 2010. Our cash and
cash equivalents and marketable securities were
$2.489 billion at June 30, 2010, compared with
$2.368 billion at December 31, 2009.
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In January 2010 our Board of Directors adopted a dividend policy
pursuant to which we intend to pay quarterly cash dividends to
holders of our Class A and Class B common stock. We
paid $40.2 million and $79.8 million in dividends in
the three and six months ended June 30, 2010, respectively.
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In February 2010, as part of Broadcoms regular annual
equity compensation review program, our Compensation Committee
granted 10.1 million shares subject to equity awards, which
included 2.2 million employee stock options and
7.9 million restricted stock units. At the date of grant,
the amount of unearned stock-based compensation expense associated
with these awards was $247.6 million and was
estimated to be expensed from 2010 through 2014.
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32
|
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|
In February 2010 we announced that our Board of Directors had
authorized an evergreen share repurchase program intended to
offset the dilution associated with our stock incentive plans.
Under this program we repurchased 3.8 million
shares of our Class A common stock at a weighted average price of
$31.88 per share in the three months ended
June 30, 2010.
In the three months ended March 31, 2010 we repurchased an
additional 5.2 million shares of our Class A common stock which
completed the share repurchase program announced in July 2008.
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In March 2010 we acquired Teknovus, Inc., a leading supplier of
Ethernet Passive Optical Network chipsets and software for
approximately $100.1 million, net of cash acquired. We also
assumed $14.6 million of debt which was subsequently repaid
in the three months ended March 31, 2010.
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In June 2010 we announced that our subsidiary, Broadcom
International Ltd., has agreed to terms with the board of
Innovision Research & Technology PLC, or Innovision,
(a company listed on the Alternative Investment Market of the
London Stock Exchange: INN) to make an all-cash offer to acquire
all of the issued and to be issued share capital of Innovision.
Innovision is a near-field communication technology company.
Under the terms of the offer, Innovision shareholders would
receive Pounds Sterling 0.35 (approximately U.S.$0.52) per share
in cash for each Innovision share held, representing a total
equity value of approximately U.S. $47.5 million based
on exchange rates at the date of the offer. The offer
represented an 84.2% premium above the closing price of
Innovisions ordinary shares on June 17, 2010. On
July 13, 2010, Broadcom International Ltd. declared the
offer wholly unconditional in all respects. On July 16,
2010, Broadcom International Ltd had interests in approximately
10.5% of the existing issued share capital of Innovision and
had separately received acceptances of the existing issued share
capital of Innovision totaling 82.5%. It is anticipated that
Innovisions listing on the Alternative Investment Market
of the London Stock Exchange will be cancelled effective from 7
am (London time) on August 13, 2010. Broadcom expects to
operate the English compulsory share acquisition procedures and
obtain 100% of the issued share capital of Innovision in the
third quarter of 2010.
|
Business
Enterprise Segments.
The following tables present details of our reportable segments
and the All Other category:
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
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Reportable Segments
|
|
|
|
|
|
|
|
|
|
Broadband
|
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|
Mobile &
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Infrastructure &
|
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|
All
|
|
|
|
|
|
|
Communications
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Wireless
|
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|
Networking
|
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Other
|
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Consolidated
|
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(In thousands)
|
|
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Three Months Ended June 30, 2010
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
532,103
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|
|
$
|
630,053
|
|
|
$
|
390,619
|
|
|
$
|
51,673
|
|
|
$
|
1,604,448
|
|
Operating income (loss)
|
|
|
122,821
|
|
|
|
104,245
|
|
|
|
137,823
|
|
|
|
(92,920
|
)
|
|
|
271,969
|
|
Three Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
363,843
|
|
|
$
|
398,485
|
|
|
$
|
210,353
|
|
|
$
|
67,263
|
|
|
$
|
1,039,944
|
|
Operating income (loss)
|
|
|
25,070
|
|
|
|
19,934
|
|
|
|
38,033
|
|
|
|
(71,388
|
)
|
|
|
11,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
|
|
|
|
|
|
|
|
|
Broadband
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|
Mobile &
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|
Infrastructure &
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All
|
|
|
|
|
|
|
Communications
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|
Wireless
|
|
|
Networking
|
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Other
|
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Consolidated
|
|
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(In thousands)
|
|
|
Six Months Ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
995,888
|
|
|
$
|
1,184,347
|
|
|
$
|
782,915
|
|
|
$
|
103,597
|
|
|
$
|
3,066,747
|
|
Operating income (loss)
|
|
|
207,213
|
|
|
|
165,182
|
|
|
|
292,249
|
|
|
|
(185,343
|
)
|
|
|
479,301
|
|
Six Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
681,097
|
|
|
$
|
697,347
|
|
|
$
|
428,704
|
|
|
$
|
86,232
|
|
|
$
|
1,893,380
|
|
Operating income (loss)
|
|
|
40,411
|
|
|
|
(20,543
|
)
|
|
|
79,634
|
|
|
|
(190,886
|
)
|
|
|
(91,384
|
)
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
Included in the All Other Category:
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|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Net revenue
|
|
$
|
51,673
|
|
|
$
|
67,263
|
|
|
$
|
103,597
|
|
|
$
|
86,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
$
|
118,613
|
|
|
$
|
122,628
|
|
|
$
|
245,254
|
|
|
$
|
246,401
|
|
Amortization of purchased intangible assets
|
|
|
14,388
|
|
|
|
8,251
|
|
|
|
24,254
|
|
|
|
16,523
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|
Amortization of acquired inventory valuation
step-up
|
|
|
2,217
|
|
|
|
1,923
|
|
|
|
6,665
|
|
|
|
6,980
|
|
Impairment of other long-lived assets
|
|
|
|
|
|
|
11,261
|
|
|
|
|
|
|
|
11,261
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|
Settlement costs (gains), net
|
|
|
1,000
|
|
|
|
(58,406
|
)
|
|
|
3,816
|
|
|
|
(57,256
|
)
|
Restructuring costs (reversals), net
|
|
|
(319
|
)
|
|
|
447
|
|
|
|
111
|
|
|
|
7,558
|
|
In-process research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charitable contribution
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
50,000
|
|
Employer payroll tax on certain stock option exercises
|
|
|
2,194
|
|
|
|
1,209
|
|
|
|
3,761
|
|
|
|
1,942
|
|
Miscellaneous corporate allocation variances
|
|
|
6,500
|
|
|
|
1,338
|
|
|
|
5,079
|
|
|
|
(6,291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other operating costs and expenses
|
|
$
|
144,593
|
|
|
$
|
138,651
|
|
|
$
|
288,940
|
|
|
$
|
277,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating loss for the All Other category
|
|
$
|
(92,920
|
)
|
|
$
|
(71,388
|
)
|
|
$
|
(185,343
|
)
|
|
$
|
(190,886
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For additional information about our business enterprise
segments, see further discussion in Note 9 of Notes to
Unaudited Condensed Consolidated Financial Statements.
Factors
That May Impact 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:
|
|
|
|
|
volume of product sales and corresponding gross margin;
|
|
|
|
required levels of research and development and other operating
costs;
|
|
|
|
stock-based compensation expense;
|
|
|
|
licensing and income from intellectual property;
|
|
|
|
deferral of revenue under multiple-element arrangements;
|
|
|
|
amortization of purchased intangible assets;
|
|
|
|
cash-based incentive compensation expense;
|
|
|
|
litigation costs and insurance recoveries, including our
directors and officers insurance settlement;
|
|
|
|
settlement costs or gains, including our proposed class action
settlement;
|
|
|
|
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,
dividends and acquisitions of businesses;
|
|
|
|
impairment of goodwill and other long-lived assets;
|
|
|
|
charitable contributions;
|
|
|
|
other-than-temporary
impairment of marketable securities and strategic investments;
|
|
|
|
restructuring costs or reversals thereof; and
|
|
|
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gain (loss) on strategic investments.
|
34
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. For a description of our critical
accounting policies and estimates, please refer to the
Critical Accounting Policies and Estimates section
of our Managements Discussion and Analysis of
Financial Condition and Results of Operations contained in our
Annual Report on
Form 10-K
for the year ended December 31, 2009. There have been no
material changes in any of our critical accounting policies
during the six months ended June 30, 2010.
Results
of Operations
The following table sets forth certain Unaudited Condensed
Consolidated Statements of Operations data expressed as a
percentage of net revenue for the periods indicated:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue
|
|
|
96.4
|
%
|
|
|
92.9
|
%
|
|
|
96.2
|
%
|
|
|
94.7
|
%
|
Income from Qualcomm Agreement
|
|
|
3.2
|
|
|
|
6.5
|
|
|
|
3.4
|
|
|
|
3.6
|
|
Licensing revenue
|
|
|
0.4
|
|
|
|
0.6
|
|
|
|
0.4
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue
|
|
|
47.4
|
|
|
|
49.9
|
|
|
|
47.5
|
|
|
|
51.0
|
|
Research and development
|
|
|
26.3
|
|
|
|
36.0
|
|
|
|
27.5
|
|
|
|
39.5
|
|
Selling, general and administrative
|
|
|
8.9
|
|
|
|
12.3
|
|
|
|
9.0
|
|
|
|
13.3
|
|
Amortization of purchased intangible assets
|
|
|
0.3
|
|
|
|
0.4
|
|
|
|
0.3
|
|
|
|
0.4
|
|
Impairment of other long-lived assets
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
|
|
0.6
|
|
Restructuring costs (reversals), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
Settlement costs (gains), net
|
|
|
0.1
|
|
|
|
(5.6
|
)
|
|
|
0.1
|
|
|
|
(3.0
|
)
|
Charitable contribution
|
|
|
|
|
|
|
4.8
|
|
|
|
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
83.0
|
|
|
|
98.9
|
|
|
|
84.4
|
|
|
|
104.8
|
|
Income (loss) from operations
|
|
|
17.0
|
|
|
|
1.1
|
|
|
|
15.6
|
|
|
|
(4.8
|
)
|
Interest income, net
|
|
|
0.1
|
|
|
|
0.4
|
|
|
|
0.1
|
|
|
|
0.5
|
|
Other income, net
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
17.2
|
|
|
|
1.6
|
|
|
|
15.9
|
|
|
|
(4.2
|
)
|
Provision (benefit) for income taxes
|
|
|
(0.1
|
)
|
|
|
0.3
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
17.3
|
%
|
|
|
1.3
|
%
|
|
|
15.9
|
%
|
|
|
(4.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
The following table presents details of product and total gross
margin as a percentage of product and total revenue,
respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Six Months
|
|
|
Ended
|
|
Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Product gross margin
|
|
|
50.8
|
%
|
|
|
46.3
|
%
|
|
|
50.6
|
%
|
|
|
46.2
|
%
|
Total gross margin
|
|
|
52.6
|
|
|
|
50.1
|
|
|
|
52.5
|
|
|
|
49.0
|
|
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,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Cost of product revenue
|
|
|
0.3
|
%
|
|
|
0.6
|
%
|
|
|
0.4
|
%
|
|
|
0.6
|
%
|
Research and development
|
|
|
5.2
|
|
|
|
8.3
|
|
|
|
5.6
|
|
|
|
9.3
|
|
Selling, general and administrative
|
|
|
1.8
|
|
|
|
2.9
|
|
|
|
2.0
|
|
|
|
3.1
|
|
Net
Revenue, Cost of Product Revenue, Product Gross Margin, and
Total Gross Margin
The following tables present net revenue, cost of product
revenue, product gross margin and total gross margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
|
|
%
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
|
Increase
|
|
|
in
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
(Decrease)
|
|
|
Amount
|
|
|
|
(In thousands, except percentages)
|
|
|
Product revenue
|
|
$
|
1,547,095
|
|
|
|
96.4
|
%
|
|
$
|
966,317
|
|
|
|
92.9
|
%
|
|
$
|
580,778
|
|
|
|
60.1
|
%
|
Income from Qualcomm Agreement
|
|
|
51,674
|
|
|
|
3.2
|
|
|
|
67,263
|
|
|
|
6.5
|
|
|
|
(15,589
|
)
|
|
|
(23.2
|
)
|
Licensing revenue
|
|
|
5,679
|
|
|
|
0.4
|
|
|
|
6,364
|
|
|
|
0.6
|
|
|
|
(685
|
)
|
|
|
(10.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
$
|
1,604,448
|
|
|
|
100.0
|
%
|
|
$
|
1,039,944
|
|
|
|
100.0
|
%
|
|
$
|
564,504
|
|
|
|
54.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue(1)
|
|
$
|
761,229
|
|
|
|
47.4
|
%
|
|
$
|
518,674
|
|
|
|
49.9
|
%
|
|
$
|
242,555
|
|
|
|
46.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product gross margin(2)
|
|
|
50.8
|
%
|
|
|
|
|
|
|
46.3
|
%
|
|
|
|
|
|
|
4.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross margin(2)
|
|
|
52.6
|
%
|
|
|
|
|
|
|
50.1
|
%
|
|
|
|
|
|
|
2.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
|
%
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
|
Increase
|
|
|
in
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
(Decrease)
|
|
|
Amount
|
|
|
|
(In thousands, except percentages)
|
|
|
Product revenue
|
|
$
|
2,951,439
|
|
|
|
96.2
|
%
|
|
$
|
1,794,547
|
|
|
|
94.7
|
%
|
|
$
|
1,156,892
|
|
|
|
64.5
|
%
|
Income from Qualcomm Agreement
|
|
|
103,348
|
|
|
|
3.4
|
|
|
|
67,263
|
|
|
|
3.6
|
|
|
|
36,085
|
|
|
|
53.6
|
|
Licensing revenue
|
|
|
11,960
|
|
|
|
0.4
|
|
|
|
31,570
|
|
|
|
1.7
|
|
|
|
(19,610
|
)
|
|
|
(62.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
$
|
3,066,747
|
|
|
|
100.0
|
%
|
|
$
|
1,893,380
|
|
|
|
100.0
|
%
|
|
$
|
1,173,367
|
|
|
|
62.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue(1)
|
|
$
|
1,456,551
|
|
|
|
47.5
|
%
|
|
$
|
964,951
|
|
|
|
51.0
|
%
|
|
$
|
491,600
|
|
|
|
50.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product gross margin(2)
|
|
|
50.6
|
%
|
|
|
|
|
|
|
46.2
|
%
|
|
|
|
|
|
|
4.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross margin(2)
|
|
|
52.5
|
%
|
|
|
|
|
|
|
49.0
|
%
|
|
|
|
|
|
|
3.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
|
|
%
|
|
|
|
June 30, 2010
|
|
|
March 31, 2010
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
|
Increase
|
|
|
in
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
(Decrease)
|
|
|
Amount
|
|
|
|
(In thousands, except percentages)
|
|
|
Product revenue
|
|
$
|
1,547,095
|
|
|
|
96.4
|
%
|
|
$
|
1,404,344
|
|
|
|
96.1
|
%
|
|
$
|
142,751
|
|
|
|
10.2
|
%
|
Income from Qualcomm Agreement
|
|
|
51,674
|
|
|
|
3.2
|
|
|
|
51,674
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
Licensing revenue
|
|
|
5,679
|
|
|
|
0.4
|
|
|
|
6,281
|
|
|
|
0.4
|
|
|
|
(602
|
)
|
|
|
(9.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
$
|
1,604,448
|
|
|
|
100.0
|
%
|
|
$
|
1,462,299
|
|
|
|
100.0
|
%
|
|
$
|
142,149
|
|
|
|
9.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue(1)
|
|
$
|
761,229
|
|
|
|
47.4
|
%
|
|
$
|
695,322
|
|
|
|
47.5
|
%
|
|
$
|
65,907
|
|
|
|
9.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product gross margin(2)
|
|
|
50.8
|
%
|
|
|
|
|
|
|
50.5
|
%
|
|
|
|
|
|
|
0.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross margin(2)
|
|
|
52.6
|
%
|
|
|
|
|
|
|
52.5
|
%
|
|
|
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
|
(2) |
|
Due to the separate presentation of income from the Qualcomm
Agreement and licensing revenue implemented in 2009, the tables
include product gross margin in addition to our previously
reported total gross margin. |
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 & Wireless
products include wireless LAN, cellular, touch controller, GPS,
Bluetooth, mobile multimedia and applications processors, mobile
power management and VoIP solutions. Our Infrastructure & Networking
products include Ethernet transceivers, controllers, switches,
broadband network and security processors and server chipsets.
Our licensing revenue and income from the Qualcomm Agreement is
generated from the licensing of intellectual property.
The following table presents net revenue from each of our
reportable segments and its respective contribution to net
revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
|
|
%
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
|
Increase
|
|
|
in
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
(Decrease)
|
|
|
Amount
|
|
|
|
(In thousands, except percentages)
|
|
|
Broadband Communications
|
|
$
|
532,103
|
|
|
|
33.2
|
%
|
|
$
|
363,843
|
|
|
|
35.0
|
%
|
|
$
|
168,260
|
|
|
|
46.2
|
%
|
Mobile & Wireless
|
|
|
630,053
|
|
|
|
39.3
|
|
|
|
398,485
|
|
|
|
38.3
|
|
|
|
231,568
|
|
|
|
58.1
|
|
Infrastructure & Networking
|
|
|
390,619
|
|
|
|
24.3
|
|
|
|
210,353
|
|
|
|
20.2
|
|
|
|
180,266
|
|
|
|
85.7
|
|
All other(1)
|
|
|
51,673
|
|
|
|
3.2
|
|
|
|
67,263
|
|
|
|
6.5
|
|
|
|
(15,590
|
)
|
|
|
(23.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
$
|
1,604,448
|
|
|
|
100.0
|
%
|
|
$
|
1,039,944
|
|
|
|
100.0
|
%
|
|
$
|
564,504
|
|
|
|
54.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes (i) income relating to the Qualcomm Agreement that
was entered into in April 2009 and (ii) other
revenue from certain patent agreements. See Notes 1 and 2
of Notes to Unaudited Condensed Consolidated Financial
Statements. |
The increase in net revenue from our Broadband Communications
reportable segment resulted primarily from an increase in demand
for digital set-top boxes and broadband modems. The increase in
net revenue from our Mobile & Wireless reportable
segment resulted primarily from the increase in demand for our
wireless combo solutions as well as the ramp of our cellular
products. The increase in net revenue from our Infrastructure
& Networking reportable segment resulted primarily from an
increase in demand for our Ethernet switching products.
37
The following table presents net revenue from each of our
reportable segments and its respective contribution to net
revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
|
%
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
in
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Increase
|
|
|
Amount
|
|
|
|
(In thousands, except percentages)
|
|
|
Broadband Communications
|
|
$
|
995,888
|
|
|
|
32.5
|
%
|
|
$
|
681,097
|
|
|
|
36.0
|
%
|
|
$
|
314,791
|
|
|
|
46.2
|
%
|
Mobile & Wireless
|
|
|
1,184,347
|
|
|
|
38.6
|
|
|
|
697,347
|
|
|
|
36.8
|
|
|
|
487,000
|
|
|
|
69.8
|
|
Infrastructure & Networking
|
|
|
782,915
|
|
|
|
25.5
|
|
|
|
428,704
|
|
|
|
22.6
|
|
|
|
354,211
|
|
|
|
82.6
|
|
All other(1)
|
|
|
103,597
|
|
|
|
3.4
|
|
|
|
86,232
|
|
|
|
4.6
|
|
|
|
17,365
|
|
|
|
20.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
$
|
3,066,747
|
|
|
|
100.0
|
%
|
|
$
|
1,893,380
|
|
|
|
100.0
|
%
|
|
$
|
1,173,367
|
|
|
|
62.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes (i) income relating to the Qualcomm Agreement that
was entered into in April 2009, (ii) royalties received
pursuant to a patent license agreement that was entered into
with Verizon Wireless in July 2007 and (iii) other
revenue from certain patent agreements, each
previously reported in our Mobile & Wireless
reportable segment. See Notes 1 and 2 of Notes to Unaudited
Condensed Consolidated Financial Statements. |
The increase in net revenue from our Broadband Communications
reportable segment resulted primarily from an increase in demand
for digital set-top boxes and broadband modems. The increase in
net revenue from our Mobile & Wireless reportable
segment resulted primarily from the increase in demand for our
wireless combo solutions as well as the ramp of our cellular
products. The increase in net revenue from our Infrastructure
& Networking reportable segment resulted primarily from an
increase in demand for our Ethernet switching products. The
increase in our All Other category was the result of
a $36.0 million increase in income received from the
Qualcomm Agreement, offset in part by a $19.0 million
decrease in licensing revenue from our agreement with Verizon
Wireless.
We recorded rebates to certain customers of $132.2 million,
or 8.2% of net revenue and $70.0 million, or 6.7% of net
revenue, in the three months ended June 30, 2010 and 2009,
respectively and $236.1 million, or 7.7% of net revenue and
$120.6 million, or 6.4% of net revenue in the six months
ended June 30, 2010 and 2009, respectively. The increase in
rebates in 2010 was attributable to the increase in net revenue
along with a change to the mix in sales to customers that
participate in our rebate programs, primarily an increase in the
Mobile & Wireless area. 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 reversed accrued rebates of $1.0 million and
$4.7 million in the three months ended June 30, 2010
and 2009, respectively and $2.8 million and
$7.6 million in the six months ended June 30, 2010 and
2009, respectively.
The following table presents net revenue from each of our
reportable segments and its respective contribution to net
revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
|
|
%
|
|
|
|
June 30, 2010
|
|
|
March 31, 2010
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
|
Increase
|
|
|
in
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
(Decrease)
|
|
|
Amount
|
|
|
|
(In thousands, except percentages)
|
|
|
Broadband Communications
|
|
$
|
532,103
|
|
|
|
33.2
|
%
|
|
$
|
463,785
|
|
|
|
31.7
|
%
|
|
$
|
68,318
|
|
|
|
14.7
|
%
|
Mobile & Wireless
|
|
|
630,053
|
|
|
|
39.3
|
|
|
|
554,294
|
|
|
|
37.9
|
|
|
|
75,759
|
|
|
|
13.7
|
|
Infrastructure & Networking
|
|
|
390,619
|
|
|
|
24.3
|
|
|
|
392,296
|
|
|
|
26.8
|
|
|
|
(1,677
|
)
|
|
|
(0.4
|
)
|
All other(1)
|
|
|
51,673
|
|
|
|
3.2
|
|
|
|
51,924
|
|
|
|
3.6
|
|
|
|
(251
|
)
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
$
|
1,604,448
|
|
|
|
100.0
|
%
|
|
$
|
1,462,299
|
|
|
|
100.0
|
%
|
|
$
|
142,149
|
|
|
|
9.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes (i) income relating to the Qualcomm Agreement that
was entered into in April 2009 and (ii) other
revenue from certain patent agreements. See Notes 1 and 2
of Notes to Unaudited Condensed Consolidated Financial
Statements. |
38
The increase in net revenue from our Broadband Communications
reportable segment resulted primarily from an increase in demand
for digital set-top boxes and broadband modems. The increase in
net revenue from our Mobile & Wireless reportable
segment resulted from the continued increase in demand for our
wireless combo solutions, offset in part by a decline in
the demand for our cellular products.
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 seasonal variations in consumer products and
changes in the overall economic environment. 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 products and negatively impact our cash flow.
For these and other reasons, our total net revenue and results
of operations for the three and six months ended June 30,
2010 and prior periods may not necessarily be indicative of
future net revenue and results of operations.
Concentration
of Net Revenue
Income from the Qualcomm Agreement is expected to be recognized
in the remainder of 2010 through 2013 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
Thereafter
|
|
Total
|
|
|
(In thousands)
|
|
Income from Qualcomm Agreement
|
|
$
|
103,347
|
|
|
$
|
206,695
|
|
|
$
|
186,012
|
|
|
$
|
86,400
|
|
|
$
|
|
|
|
$
|
582,454
|
|
The following table presents details of our product net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Product sales made through direct sales force(1)
|
|
|
76.6
|
%
|
|
|
78.8
|
%
|
|
|
78.5
|
%
|
|
|
80.5
|
%
|
Product sales made through distributors(2)
|
|
|
23.4
|
|
|
|
21.2
|
|
|
|
21.5
|
|
|
|
19.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes 5.7% and 7.0% of product sales maintained under hubbing
arrangements with certain of our customers in the three months
ended June 30, 2010 and 2009, respectively, and 5.6% and
7.4% in the six months ended June 30, 2010 and 2009,
respectively. |
|
(2) |
|
Includes 8.1% and 8.7% of product sales maintained under
fulfillment distributor arrangements in the three months
ended June 30, 2010 and 2009, respectively, and 6.7% and
7.4% in the six months ended June 30, 2010 and 2009,
respectively. |
Product sales made through distributors increased as a
percentage of product revenue in the three and six months ended
June 30, 2010. The increase is due to the ramping of mobile
and wireless products sold by stocking distributors serving as
an interface for certain of our customers, as well as
incremental demand for our infrastructure and networking products in
Asia.
Sales to our significant customers, including sales to their
manufacturing subcontractors, as a percentage of net revenue
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Six Months
|
|
|
Ended
|
|
Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Five largest customers as a group
|
|
|
35.9
|
%
|
|
|
35.4
|
%
|
|
|
35.2
|
%
|
|
|
33.2
|
%
|
We expect that our largest customers will
continue to account for a substantial portion of our total net
revenue for the remainder of 2010 and for the foreseeable
future. The identities of our largest customers and their
respective contributions to our total net revenue have varied
and will likely continue to vary from period to period.
39
Product 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 product revenue was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
Three Months
|
|
|
Ended
|
|
|
|
Ended June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Asia (primarily in Korea, China, Japan and Taiwan)
|
|
|
38.0
|
%
|
|
|
37.5
|
%
|
|
|
39.7
|
%
|
|
|
37.0
|
%
|
Europe (primarily in the Finland, United Kingdom and France)
|
|
|
14.8
|
|
|
|
13.9
|
|
|
|
14.4
|
|
|
|
13.7
|
|
Other
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
0.6
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53.1
|
%
|
|
|
51.7
|
%
|
|
|
54.7
|
%
|
|
|
51.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue derived from shipments to international
destinations, as a percentage of product revenue was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Asia (primarily in China, Hong Kong, Singapore and Taiwan)(1)
|
|
|
92.7
|
%
|
|
|
90.1
|
%
|
|
|
92.7
|
%
|
|
|
88.9
|
%
|
Europe (primarily in Sweden, Hungary and France)
|
|
|
2.4
|
|
|
|
2.8
|
|
|
|
2.4
|
|
|
|
3.3
|
|
Other
|
|
|
1.8
|
|
|
|
1.5
|
|
|
|
1.5
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96.9
|
%
|
|
|
94.4
|
%
|
|
|
96.6
|
%
|
|
|
93.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
For all periods presented, product
revenue derived from shipments to China and Hong Kong represented
approximately 29% and 25%, respectively, of total product revenue. |
All of our revenue to date has been denominated in
U.S. dollars.
Factors
That May Impact Net Revenue
The demand for our products and the subsequent recognition of
net 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:
|
|
|
|
|
general economic and specific conditions in the markets we
address, including the continuing volatility in the technology
sector and semiconductor industry, 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
and distributors, to manage inventory;
|
|
|
|
the timing of our distributors shipments to their
customers or when products are taken by our customers under
hubbing arrangements;
|
|
|
|
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/ramp our products and technologies;
|
|
|
|
the qualification, availability and pricing of competing
products and technologies and the resulting effects on sales and
pricing of our products; and
|
|
|
|
the unavailability of credit and financing, which may lead
certain of our customers to reduce their level of purchases or
to seek credit or other accommodations from us.
|
Cost of Product Revenue and Product 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,
40
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 income from the
Qualcomm Agreement and 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 increased from 46.3% in the three months
ended June 30, 2009 to 50.8% in the three months ended
June 30, 2010 primarily as a result of cost reductions in
each of our reportable segments as we continued our transition
to 65 nanometer process technology. Other factors that
contributed to the increase in product gross margin were:
(i) fixed costs being spread over a higher revenue base (ii)
change in product mix primarily related to the increase in sales of
our infrastructure and networking products and
(iii) a net decrease in excess and obsolete inventory
provisions of $14.3 million.
Product gross margin increased from 46.2% in the six months
ended June 30, 2009 to 50.6% in the six months ended
June 30, 2010 primarily as a result of cost reductions in
each of our reportable segments as we continued our transition
to 65 nanometer process technology. Other factors that
contributed to the increase in product gross margin were:
(i) fixed costs being spread over a higher revenue base (ii)
change in product mix primarily related to the increase in sales of
our infrastructure and networking products and
(iii) a net decrease in excess and obsolete inventory
provisions of $27.0 million.
Product gross margin increased slightly from 50.5% in the three
months ended March 31, 2010 to 50.8% in the three months
ended June 30, 2010 primarily as a result of cost
reductions in each of our reportable segments as we continued
our transition to 65 nanometer process technology. Other factors
that contributed to the increase in product gross margin were:
(i) fixed costs being spread over a higher revenue base and
(ii) a net decrease in excess and obsolete inventory
provisions of $1.8 million.
Factors
That May Impact Product Gross Margin
Our product gross margin 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;
|
|
|
|
introduction of products with lower margins;
|
|
|
|
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 silicon wafer costs
and assembly, packaging and testing costs, and other fixed costs;
|
|
|
|
our ability to create cost advantages through successful
integration and convergence;
|
|
|
|
our ability to advance to the next technology node faster than
our competitors;
|
|
|
|
licensing royalties payable by us;
|
|
|
|
product warranty costs;
|
|
|
|
fair value of acquired tangible and intangible assets; and
|
|
|
|
reversals of unclaimed rebates and warranty reserves.
|
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 and total 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.
41
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
|
|
%
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
|
Increase
|
|
|
in
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
(Decrease)
|
|
|
Amount
|
|
|
|
(In thousands, except percentages)
|
|
|
Salaries and benefits
|
|
$
|
228,342
|
|
|
|
14.2
|
%
|
|
$
|
188,497
|
|
|
|
18.1
|
%
|
|
$
|
39,845
|
|
|
|
21.1
|
%
|
Stock-based compensation(1)
|
|
|
83,763
|
|
|
|
5.2
|
|
|
|
86,607
|
|
|
|
8.3
|
|
|
|
(2,844
|
)
|
|
|
(3.3
|
)
|
Development and design costs
|
|
|
55,831
|
|
|
|
3.5
|
|
|
|
48,331
|
|
|
|
4.6
|
|
|
|
7,500
|
|
|
|
15.5
|
|
Other
|
|
|
53,706
|
|
|
|
3.4
|
|
|
|
51,335
|
|
|
|
5.0
|
|
|
|
2,371
|
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
421,642
|
|
|
|
26.3
|
%
|
|
$
|
374,770
|
|
|
|
36.0
|
%
|
|
$
|
46,872
|
|
|
|
12.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
|
%
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
|
Increase
|
|
|
in
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
(Decrease)
|
|
|
Amount
|
|
|
|
(In thousands, except percentages)
|
|
|
Salaries and benefits
|
|
$
|
447,256
|
|
|
|
14.6
|
%
|
|
$
|
378,164
|
|
|
|
20.0
|
%
|
|
$
|
69,092
|
|
|
|
18.3
|
%
|
Stock-based compensation(1)
|
|
|
172,806
|
|
|
|
5.6
|
|
|
|
175,869
|
|
|
|
9.3
|
|
|
|
(3,063
|
)
|
|
|
(1.7
|
)
|
Development and design costs
|
|
|
119,344
|
|
|
|
3.9
|
|
|
|
93,948
|
|
|
|
5.0
|
|
|
|
25,396
|
|
|
|
27.0
|
|
Other
|
|
|
103,080
|
|
|
|
3.4
|
|
|
|
99,513
|
|
|
|
5.2
|
|
|
|
3,567
|
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
842,486
|
|
|
|
27.5
|
%
|
|
$
|
747,494
|
|
|
|
39.5
|
%
|
|
$
|
94,992
|
|
|
|
12.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 was primarily attributable
to an increase in headcount of approximately 765 personnel
(predominantly in the Infrastructure & Networking reportable segment
as a result of our acquisitions of Dune Networks and Teknovus,
as well as increases in our Mobile & Wireless
reportable segment), to approximately 6,140 at June 30,
2010, which represents a 14.2% increase from our June 30,
2009 levels. Salary increases were also attributable to
increased incentive compensation. Development and design costs
increased due to increases in mask, prototyping, testing and engineering
design tool costs stemming from our continued transition of
products to 65 and 40 nanometer process technologies.
Development and design costs vary from period to period
depending on the timing, development and tape-out of various
products.
We expect research and development costs to increase as a result
of growth in, and the diversification of, the markets we serve,
new product opportunities, the number of design wins that go
into production, changes in our compensation policies, and any
expansion into new markets and technologies.
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. The
majority of our new products are now designed in 65 nanometer
and 40 nanometer CMOS processes, and we are preparing for the 28
nanometer process. We currently hold more than 4,300
U.S. and more than 1,800 foreign patents and more than
7,900 additional U.S. and foreign pending patent
applications. We maintain an active program of filing for and
acquiring additional U.S. and foreign patents in wired and
wireless communications and other fields.
42
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
|
|
%
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
|
Increase
|
|
|
in
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
(Decrease)
|
|
|
Amount
|
|
|
|
(In thousands, except percentages)
|
|
|
Salaries and benefits
|
|
$
|
58,599
|
|
|
|
3.7
|
%
|
|
$
|
45,161
|
|
|
|
4.3
|
%
|
|
$
|
13,438
|
|
|
|
29.8
|
%
|
Stock-based compensation(1)
|
|
|
29,637
|
|
|
|
1.8
|
|
|
|
29,893
|
|
|
|
2.9
|
|
|
|
(256
|
)
|
|
|
(0.9
|
)
|
Legal and accounting fees
|
|
|
31,161
|
|
|
|
1.9
|
|
|
|
39,772
|
|
|
|
3.8
|
|
|
|
(8,611
|
)
|
|
|
(21.7
|
)
|
Other
|
|
|
23,690
|
|
|
|
1.5
|
|
|
|
12,584
|
|
|
|
1.3
|
|
|
|
11,106
|
|
|
|
88.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
$
|
143,087
|
|
|
|
8.9
|
%
|
|
$
|
127,410
|
|
|
|
12.3
|
%
|
|
$
|
15,677
|
|
|
|
12.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
|
%
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
|
Increase
|
|
|
in
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
(Decrease)
|
|
|
Amount
|
|
|
|
(In thousands, except percentages)
|
|
|
Salaries and benefits
|
|
$
|
114,342
|
|
|
|
3.7
|
%
|
|
$
|
91,155
|
|
|
|
4.8
|
%
|
|
$
|
23,187
|
|
|
|
25.4
|
%
|
Stock-based compensation(1)
|
|
|
60,720
|
|
|
|
2.0
|
|
|
|
58,527
|
|
|
|
3.1
|
|
|
|
2,193
|
|
|
|
3.7
|
|
Legal and accounting fees
|
|
|
58,100
|
|
|
|
1.9
|
|
|
|
74,126
|
|
|
|
3.9
|
|
|
|
(16,026
|
)
|
|
|
(21.6
|
)
|
Other
|
|
|
42,833
|
|
|
|
1.4
|
|
|
|
28,650
|
|
|
|
1.5
|
|
|
|
14,183
|
|
|
|
49.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
$
|
275,995
|
|
|
|
9.0
|
%
|
|
$
|
252,458
|
|
|
|
13.3
|
%
|
|
$
|
23,537
|
|
|
|
9.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 was primarily attributable
to an increase in headcount of approximately 115 personnel,
as well as higher incentive compensation. The decrease in legal
and accounting fees related to a decrease in legal fees
associated with litigation related to our stock options matter.
Legal fees consist primarily of attorneys fees and
expenses related to our outstanding intellectual property and
prior years stock option backdating securities litigation,
patent prosecution and filings and various other transactions.
Legal fees fluctuate from period to period due to the nature,
scope, timing and costs of the matters in litigation. See
Note 8 of Notes to Unaudited Condensed Consolidated
Financial Statements for further information. The increase in
the Other line item in the above tables is primarily
attributable to an increase in facilities and travel expenses.
43
Stock-Based
Compensation Expense
The following tables present 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
|
|
|
Three Months Ended
|
|
|
|
|
|
%
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
in
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
(Decrease)
|
|
|
Amount
|
|
|
|
(In thousands, except percentages)
|
|
|
Cost of product revenue
|
|
$
|
5,213
|
|
|
|
0.3
|
%
|
|
$
|
6,128
|
|
|
|
0.6
|
%
|
|
$
|
(915
|
)
|
|
|
(14.9
|
)%
|
Research and development
|
|
|
83,763
|
|
|
|
5.2
|
|
|
|
86,607
|
|
|
|
8.3
|
|
|
|
(2,844
|
)
|
|
|
(3.3
|
)
|
Selling, general and administrative
|
|
|
29,637
|
|
|
|
1.8
|
|
|
|
29,893
|
|
|
|
2.9
|
|
|
|
(256
|
)
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
118,613
|
|
|
|
7.3
|
%
|
|
$
|
122,628
|
|
|
|
11.8
|
%
|
|
$
|
(4,015
|
)
|
|
|
(3.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
|
%
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
|
Increase
|
|
|
in
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
(Decrease)
|
|
|
Amount
|
|
|
|
(In thousands, except percentages)
|
|
|
Cost of product revenue
|
|
$
|
11,728
|
|
|
|
0.4
|
%
|
|
$
|
12,005
|
|
|
|
0.6
|
%
|
|
$
|
(277
|
)
|
|
|
(2.3
|
)%
|
Research and development
|
|
|
172,806
|
|
|
|
5.6
|
|
|
|
175,869
|
|
|
|
9.3
|
|
|
|
(3,063
|
)
|
|
|
(1.7
|
)
|
Selling, general and administrative
|
|
|
60,720
|
|
|
|
2.0
|
|
|
|
58,527
|
|
|
|
3.1
|
|
|
|
2,193
|
|
|
|
3.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
245,254
|
|
|
|
8.0
|
%
|
|
$
|
246,401
|
|
|
|
13.0
|
%
|
|
$
|
(1,147
|
)
|
|
|
(0.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We recognize stock-based compensation expense related to
share-based awards, resulting from stock options, stock purchase
rights and restricted stock units we issued or assumed in
acquisitions 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.
It is our long-term objective that total stock-based
compensation approximates 5% of total net revenue.
The following table presents details of unearned stock-based
compensation currently estimated to be expensed in the remainder
of 2010 through 2014 related to unvested share-based payment
awards at June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
Total
|
|
|
(In thousands)
|
|
Unearned stock-based compensation
|
|
$
|
220,355
|
|
|
$
|
342,488
|
|
|
$
|
212,856
|
|
|
$
|
108,173
|
|
|
$
|
9,278
|
|
|
$
|
893,150
|
|
See Note 7 of Notes to Unaudited Condensed Consolidated
Financial Statements for a discussion of activity related to
share-based awards.
44
Amortization
of Purchased Intangible Assets
The following tables present details of the amortization of
purchased intangible assets included in the cost of
product revenue and other operating expense categories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
|
|
%
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
in
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Increase
|
|
|
Amount
|
|
|
|
(In thousands, except percentages)
|
|
|
Cost of product revenue
|
|
$
|
8,548
|
|
|
|
0.5
|
%
|
|
$
|
4,112
|
|
|
|
0.4
|
%
|
|
$
|
4,436
|
|
|
|
107.9
|
%
|
Other operating expenses
|
|
|
5,840
|
|
|
|
0.3
|
|
|
|
4,139
|
|
|
|
0.4
|
|
|
|
1,701
|
|
|
|
41.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,388
|
|
|
|
0.8
|
%
|
|
$
|
8,251
|
|
|
|
0.8
|
%
|
|
$
|
6,137
|
|
|
|
74.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
|
%
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
in
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Increase
|
|
|
Amount
|
|
|
|
(In thousands, except percentages)
|
|
|
Cost of product revenue
|
|
$
|
15,767
|
|
|
|
0.5
|
%
|
|
$
|
8,225
|
|
|
|
0.4
|
%
|
|
$
|
7,542
|
|
|
|
91.7
|
%
|
Other operating expenses
|
|
|
8,487
|
|
|
|
0.3
|
|
|
|
8,298
|
|
|
|
0.4
|
|
|
|
189
|
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
24,254
|
|
|
|
0.8
|
%
|
|
$
|
16,523
|
|
|
|
0.8
|
%
|
|
$
|
7,731
|
|
|
|
46.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents details of the amortization of
existing purchased intangible assets, including IPR&D, that
is currently estimated to be expensed in the remainder of 2010
and thereafter at June 30, 2010. 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 Asset Amortization by Year
|
|
|
|
|
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
Cost of product revenue
|
|
$
|
14,745
|
|
|
$
|
36,938
|
|
|
$
|
39,179
|
|
|
$
|
30,945
|
|
|
$
|
18,874
|
|
|
$
|
20,578
|
|
|
$
|
161,259
|
|
Other operating expenses
|
|
|
8,618
|
|
|
|
6,289
|
|
|
|
3,350
|
|
|
|
2,990
|
|
|
|
2,973
|
|
|
|
11,599
|
|
|
|
35,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,363
|
|
|
$
|
43,227
|
|
|
$
|
42,529
|
|
|
$
|
33,935
|
|
|
$
|
21,847
|
|
|
$
|
32,177
|
|
|
$
|
197,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement
Costs (Gains)
We recorded settlement charges of $1.0 million and
$3.8 million in the three and six months ended
June 30, 2010, respectively. 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 additional settlement costs
of $1.2 million.
Charitable
Contribution
In April 2009 we established the Broadcom Foundation, or the
Foundation, to support science, technology, engineering and mathematics 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 the exemption from federal income
taxation under
Section 501(c)(3)
of the Internal Revenue Code of 1986, as amended. We recorded an
operating expense for the contribution of $50.0 million in
the three and six months ended June 30, 2009.
45
Interest
and Other Income, Net
The following tables present interest and other income, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
|
|
%
|
|
|
June 30, 2010
|
|
June 30, 2009
|
|
|
|
Change
|
|
|
|
|
% of Net
|
|
|
|
% of Net
|
|
Increase
|
|
in
|
|
|
Amount
|
|
Revenue
|
|
Amount
|
|
Revenue
|
|
(Decrease)
|
|
Amount
|
|
|
(In thousands, except percentages)
|
|
Interest income, net
|
|
$
|
2,548
|
|
|
|
0.1
|
%
|
|
$
|
3,986
|
|
|
|
0.4
|
%
|
|
$
|
(1,438
|
)
|
|
|
(36.1
|
)%
|
Other income, net
|
|
|
1,934
|
|
|
|
0.1
|
|
|
|
1,019
|
|
|
|
0.1
|
|
|
|
915
|
|
|
|
89.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Six Months Ended
|
|
|
|
%
|
|
|
June 30, 2010
|
|
June 30, 2009
|
|
|
|
Change
|
|
|
|
|
% of Net
|
|
|
|
% of Net
|
|
Increase
|
|
in
|
|
|
Amount
|
|
Revenue
|
|
Amount
|
|
Revenue
|
|
(Decrease)
|
|
Amount
|
|
|
(In thousands, except percentages)
|
|
Interest income, net
|
|
$
|
4,862
|
|
|
|
0.1
|
%
|
|
$
|
8,384
|
|
|
|
0.5
|
%
|
|
$
|
(3,522
|
)
|
|
|
(42.0
|
)%
|
Other income, net
|
|
|
4,792
|
|
|
|
0.2
|
|
|
|
2,665
|
|
|
|
0.1
|
|
|
|
2,127
|
|
|
|
79.8
|
|
Interest income, net, reflects interest earned on cash and cash
equivalents and marketable securities balances. Other income,
net, primarily includes gains and losses on foreign currency
transactions. The decrease in interest income, net, was the
result of the overall decrease in market interest rates. The
average interest rates in the three months ended June 30,
2010 and 2009 were 0.41% and 0.73%, respectively. The average
interest rates in the six months ended June 30, 2010 and
2009 were 0.40% and 0.81%, respectively. The decrease in the
average interest rate is a reflection of the current interest
rate environment as the Federal Funds Rate was approximately
0.25% at June 30, 2010.
Provision
for Income Taxes
We recorded a tax benefit of $1.9 million and a tax
provision of $0.5 million for the three and six months
ended June 30, 2010, respectively, and 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. Our
effective tax rates were (0.7)% and 0.1% for the three and six
months ended June 30, 2010, respectively, and 19.5% and
2.2% for the three and six months ended June 30, 2009,
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 in
the three and six months ended June 30, 2010 and 2009,
domestic losses recorded without income tax benefit in the three
and six months ended June 30, 2009, and tax benefits
resulting primarily from expiration of the statutes of
limitations for the assessment of taxes in various foreign
jurisdictions of $6.3 million and $6.6 million for the
three and six months ended June 30, 2010, respectively, and
$5.5 million and $6.5 million for the three and six
months ended June 30, 2009, respectively. We also 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, as a result of the
May 27, 2009 and March 22, 2010 decisions in the
U.S. Court of Appeals for the Ninth Circuit case concerning
Xilinx (discussed below), we recorded a tax benefit of
approximately $3 million in the six months ended
June 30, 2010 to reverse the $3 million of related
exposure previously recorded in the three and six months ended
June 30, 2009.
We utilize the asset and liability method of accounting for
income taxes. 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. 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 liabilities of $10.2 million and
$11.2 million at June 30, 2010 and December 31,
2009, respectively.
46
As previously disclosed, 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 was subject to
further appeal. As a result of this May 27, 2009 decision,
we reduced our gross deferred tax assets for federal and state
net operating loss carryforwards and capitalized research and
development costs, increased in our deferred tax assets for
certain tax credits, and increased our tax provision in 2009 by
approximately $3 million.
On January 13, 2010, the U.S. Court of Appeals for the
Ninth Circuit withdrew its May 27, 2009 ruling in the
Xilinx case and subsequently issued a new decision in favor of
Xilinx on March 22, 2010, thereby affirming the
August 30, 2005 decision of the U.S. Tax Court.
Consequently, during the quarter ended March 31, 2010, we
reversed the amounts we had previously recorded in 2009 related
to the courts May 27, 2009 decision. As a result, in
the quarter ended March 31, 2010, we reduced our tax
provision by approximately $3 million and adjusted certain
of our gross deferred tax assets. Included in these adjustments
was an increase in our federal and state net operating loss
carryforwards of approximately $665 million and
$455 million, respectively, an increase of federal and
state capitalized research and development costs of
approximately $10 million each, an increase in our deferred
tax assets relating to stock-based compensation of approximately
$65 million, and a decrease in certain tax credits of
approximately $10 million. These changes in our gross
deferred tax assets were fully offset by a valuation allowance
adjustment, and therefore did not result in any change in our
net deferred tax assets or our income tax expense for the three
months ended March 31, 2010. In addition to the adjustments
related to the March 22, 2010 Xilinx decision, in the three
months ended March 31, 2010, we reduced our federal and
state net operating losses by approximately $60 million for
adjustments to our intercompany charges to foreign affiliates
for the years ended 2001 to 2009. This reduction to our net
operating losses is fully offset by a corresponding adjustment
to the valuation allowance for deferred tax assets resulting in
no net change to net deferred tax assets in our unaudited
condensed consolidated balance sheet and no adjustment to our
income tax expense.
We file federal, state and foreign income tax returns in
jurisdictions with varying statutes of limitations. The 2004
through 2009 tax years generally remain subject to examination
by federal and most state tax authorities. In foreign
jurisdictions, the 2002 through 2009 tax years generally remain
subject to examination by tax authorities.
Our income tax returns for the 2004, 2005 and 2006 tax years and
our employment tax returns for the 2003, 2004, 2005 and 2006 tax
years are currently under examination by the Internal Revenue
Service. We do not expect that the results of these examinations
will have a material effect on our financial condition or
results of operations. In March 2010, a Notice of Proposed
Adjustment, or NOPA, was received relating to the IRS
examination of our 2004, 2005 and 2006 income tax returns. The
NOPA primarily relates to cost-sharing methodologies of stock
based compensation, as well as other cost-sharing related
issues. In light of the Ninth Circuit Xilinx decision, we
believe the stock based compensation matters identified in the
NOPA and the settlement of the remaining proposed adjustments
will not result in a material adverse financial impact on our
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.
Recent
Accounting Pronouncements
In January 2010 the FASB issued guidance that eliminates the
concept of a qualifying special-purpose entity
(QSPE), revises conditions for reporting a transfer of a portion
of a financial asset as a sale (e.g., loan participations),
clarifies the derecognition criteria, eliminates special
guidance for guaranteed mortgage securitizations, and changes
the initial measurement of a transferors interest in
transferred financial assets. This guidance is effective for
financial statements issued for fiscal years, and interim
periods within those fiscal years, beginning after
November 15, 2009. We adopted the provisions of this
guidance effective January 1, 2010, which did not have a
material impact on our financial statements.
In January 2010 the FASB issued guidance that revises analysis
for identifying the primary beneficiary of a variable interest
entity, or VIE, by replacing the previous quantitative-based
analysis with a framework that is based
47
more on qualitative judgments. The new guidance requires the
primary beneficiary of a VIE to be identified as the party that
both (i) has the power to direct the activities of a VIE
that most significantly impact its economic performance and
(ii) has an obligation to absorb losses or a right to
receive benefits that could potentially be significant to the
VIE. This guidance is effective for financial statements issued
for fiscal years, and interim periods within those fiscal years,
beginning after November 15, 2009. We adopted the
provisions of this guidance effective January 1, 2010,
which did not have a material impact on our financial statements.
In January 2010 the FASB issued guidance that expands the
interim and annual disclosure requirements of fair value
measurements, including the information about movement of assets
between Level 1 and 2 of the three-tier fair value
hierarchy established under its fair value measurement guidance.
This guidance also requires separate disclosure for purchases,
sales, issuances and settlements in the reconciliation for fair
value measurements using significant unobservable inputs using
Level 3 methodologies. Except for the detailed disclosure
in the Level 3 reconciliation, which is effective for the
fiscal years beginning after December 15, 2010, all the
other disclosures under this guidance became effective during
the six months ended June 30, 2010. We adopted the relevant
provisions of this guidance effective January 1, 2010,
which did not have a material impact on our financial statements.
Subsequent
Events
In June 2010 we announced that our subsidiary, Broadcom
International Ltd., agreed to terms with the board of Innovision
Research & Technology PLC, or Innovision, (a company
listed on the Alternative Investment Market of the London Stock
Exchange: INN), to make an all-cash offer to acquire all of the
issued and to be issued share capital of Innovision. Innovision
is a near-field communication technology company. Under the
terms of the offer, Innovision shareholders would receive Pounds
Sterling 0.35 (approximately U.S.$0.52) per share in cash for
each Innovision share held, representing a total equity value of
approximately U.S.$47.5 million based on exchange rates at
the date of the offer. The offer represented an 84.2% premium
above the closing price of Innovisions ordinary shares on
June 17, 2010. On July 13, 2010, Broadcom
International Ltd. declared the offer wholly unconditional in
all respects. On July 16, 2010, Broadcom International Ltd
had interests in approximately 10.5% of the existing issued
share capital of Innovision and had separately received
acceptances of the existing issued share capital of Innovision
totaling 82.5%. It is anticipated that Innovisions
listing on the Alternative Investment Market of the London Stock
Exchange will be cancelled effective from 7 am (London time) on
August 13, 2010. Broadcom expects to operate the English
compulsory share acquisition procedures and obtain 100% of the
issued share capital of Innovision in the third quarter of 2010.
Liquidity
and Capital Resources
Working Capital and Cash and Marketable
Securities. The following table presents working
capital, and cash and cash equivalents and marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Increase
|
|
|
|
(In thousands)
|
|
|
Working capital
|
|
$
|
2,231,644
|
|
|
$
|
1,765,982
|
|
|
$
|
465,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents(1)
|
|
$
|
1,403,633
|
|
|
$
|
1,397,093
|
|
|
$
|
6,540
|
|
Short-term marketable securities(1)
|
|
|
644,722
|
|
|
|
532,281
|
|
|
|
112,441
|
|
Long-term marketable securities
|
|
|
441,111
|
|
|
|
438,616
|
|
|
|
2,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,489,466
|
|
|
$
|
2,367,990
|
|
|
$
|
121,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included in working capital. |
See discussion of
market risk that follows in Item 3. Quantitative and
Qualitative Disclosures about Market Risk.
48
Cash
Provided and Used in the Six Months Ended June 30, 2010 and
2009
Cash and cash equivalents increased to $1.404 billion at
June 30, 2010 from $1.397 billion at December 31,
2009 as a result of cash provided by operating activities, and
the proceeds from the issuance of our Class A common stock,
offset by net purchases of marketable securities, the
acquisition of Teknovus, repurchases of our Class A common
stock and our quarterly dividend payments.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Net cash provided by operating activities
|
|
$
|
463,610
|
|
|
$
|
418,501
|
|
Net cash used in investing activities
|
|
|
(270,359
|
)
|
|
|
(113,360
|
)
|
Net cash provided by (used in) financing activities
|
|
|
(186,711
|
)
|
|
|
10,732
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
$
|
6,540
|
|
|
$
|
315,873
|
|
Cash and cash equivalents at beginning of period
|
|
|
1,397,093
|
|
|
|
1,190,645
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
1,403,633
|
|
|
$
|
1,506,518
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities
In the six months ended June 30, 2010 our operating
activities provided $463.6 million in cash. This was
primarily the result of net income of $488.5 million and
net non-cash operating expenses of $307.4 million, offset
in part by net cash used by changes in operating assets and
liabilities of $332.3 million including our
$160.5 million payment of previously accrued securities litigation settlement
costs. In the six months ended June 30, 2009 our operating
activities provided $418.5 million in cash. This was
primarily the result of $311.1 million in net non-cash
operating expenses, $185.9 million in net cash provided by
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.
Changes in assets and liabilities at June 30, 2010 compared
to December 31, 2009 included the following:
|
|
|
|
|
Days sales outstanding increased from 35 days to
39 days driven primarily by a variation in revenue
linearity as a larger percentage of our sales occurred in the
last month of the quarter ended June 30, 2010 as compared
to the last month of the quarter ended December 31, 2009.
|
|
|
|
Inventory days on hand increased from 52 days to
59 days due to our decision to increase
inventory on hand to meet the anticipated growth in the
demand for our products primarily in our Mobile & Wireless
reportable segment.
|
|
|
|
Accounts payable days outstanding increased slightly from 63 to
64 days.
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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.
In the future, our inventory levels will continue to be
determined by 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
Investing activities used $270.4 million in cash in the six
months ended June 30, 2010, which was primarily the result
of $112.4 million in net purchases of marketable
securities, $102.5 million in net cash paid primarily for the
acquisition of Teknovus and $47.5 million of capital
equipment purchases, mostly to support our research and
development efforts. 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.
49
Financing
Activities
Our financing activities used $186.7 million in cash in the
six months ended June 30, 2010, which was primarily the
result of $275.5 million in repurchases of shares of our
Class A common stock, dividends paid of $79.8 million,
repayment of debt assumed in our Teknovus acquisition of
$14.6 million and $62.7 million in minimum tax
withholding paid on behalf of employees for shares issued
pursuant to restricted stock units, offset in part by
$245.9 million in proceeds received from issuances of
common stock upon exercise of stock options. 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 and $34.5 million in minimum tax withholding
paid on behalf of employees for shares issued pursuant to
restricted stock units.
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 option and
purchase plans, will be sufficient to cover our working capital
needs, capital expenditures, investment requirements,
commitments, repurchases of our Class A common stock and
quarterly dividends 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:
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general economic and specific conditions in the markets we
address, including the continuing volatility in the technology
sector and semiconductor industry, trends in the broadband
communications markets in various geographic regions, including
seasonality in sales of consumer products into which our
products are incorporated;
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the unavailability of credit and financing, which may lead
certain of our customers to reduce their levels of purchases or
to seek credit or other accommodations from us;
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litigation expenses, settlements and judgments;
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the overall levels of sales of our semiconductor products,
licensing revenue, income from the Qualcomm Agreement and
product gross margins;
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our business, product, capital expenditure and research and
development plans, and product and technology roadmaps;
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the market acceptance of our products;
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repurchases of our Class A common stock;
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payment of cash dividends;
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required levels of research and development and other operating
costs;
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volume price discounts and customer rebates;
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intellectual property disputes, customer indemnification claims
and other types of litigation risks;
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the levels of inventory and accounts receivable that we maintain;
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acquisitions of other businesses, assets, products or
technologies;
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licensing royalties payable by us;
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changes in our compensation policies;
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the issuance of restricted stock units and the related cash
payments we make for withholding taxes due from employees during
2010 and future years;
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capital improvements for new and existing facilities;
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technological advances;
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our competitors responses to our products and our
anticipation of and responses to their products;
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our relationships with suppliers and customers;
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the availability and cost of sufficient foundry, assembly and
test capacity and packaging materials; and
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the level of exercises of stock options and stock purchases
under our employee stock purchase plan.
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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, 2010 we had no material off-balance sheet
arrangements, other than our operating leases.
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Item 3.
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Quantitative
and Qualitative Disclosures about Market Risk
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Interest
Rate Risk
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.
51
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, 2010, a 100 basis point increase in interest
rates across all maturities would result in a $6.2 million
incremental decline in the fair market value of the portfolio.
As of December 31, 2009, a similar 100 basis point
shift in the yield curve would have resulted in an
$8.8 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, 2010 due to the inherent limitations associated
with predicting the changes in the timing and level of interest
rates and our actual exposures and positions.
Approximately $678.9 million of our $1.404 billion of
cash and cash equivalents at June 30, 2010 is located in
foreign countries where we conduct business. There may be tax
effects upon repatriation of that cash to the United States.
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Item 4.
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Controls
and Procedures
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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 Chief Executive Officer and
Chief 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 Chief Executive Officer and our Chief Financial
Officer concluded that our disclosure controls and procedures
were effective at a reasonable assurance level as of
June 30, 2010, 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,
2010 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.
52
PART II.
OTHER INFORMATION
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Item 1.
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Legal
Proceedings
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The information set forth under Note 8 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.
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, 2009 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
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
economic uncertainties and specific conditions in the markets we
address.
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 characterized by decreases in
product demand, excess customer inventories and accelerated
erosion of prices. The semiconductor industry also periodically
experiences increased demand and production capacity
constraints, which may affect our ability to ship products. An
increasing number of our products are being incorporated into
consumer electronic products, which are subject to significant
seasonality and fluctuations in demand. Economic volatility can
cause extreme difficulties for our customers and vendors to
accurately forecast and plan future business activities. This
unpredictability could cause our customers to reduce spending on
our products and services, which would delay and lengthen sales
cycles. Furthermore, during challenging economic times our
customers and vendors may face issues gaining timely access to
sufficient credit, which could impact their ability to make
timely payments to us. As a result, we may experience growth
patterns that are different than the end demand for products,
particularly during periods of high volatility.
We cannot predict the timing, strength or duration of any
economic slowdown or the impact it will have on our customers,
our vendors or us. The combination of our lengthy sales cycle
coupled with challenging macroeconomic conditions could have a
compound impact on our business. The impact of market volatility
is not limited to revenue but may also affect our product gross
margins and other financial metrics. Any downturn 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.
Our
quarterly operating results may fluctuate
significantly.
Our quarterly net revenue and operating results have fluctuated
significantly in the past and are likely to continue to vary
from quarter to quarter. 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. Variability in
the nature of our operating results may be attributed to the
factors identified throughout this Risk Factors
section, including:
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changes in economic conditions in the markets we address,
including the continuing volatility in the technology sector and
semiconductor industry;
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seasonality in sales of consumer products in which our products
are incorporated;
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our dependence on a few significant customers
and/or
design wins for a substantial portion of our revenue;
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timing, rescheduling or cancellation of significant customer
orders and our ability, as well as the ability of our customers,
to manage inventory;
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changes in customer product needs and market acceptance of our
products;
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the impact of the Internal Revenue Service review of certain of
our income and employment tax returns; and
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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.
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Many of the factors impacting our operating results are not
within our control.
Our stock
price is highly volatile.
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 through June 30, 2010 our Class A common stock
has traded at prices as low as $12.98 and as high as $36.94 per
share. Fluctuations have occurred and may continue to occur in
response to various factors, many of which we cannot control.
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.
We are
subject to order and shipment uncertainties.
It is difficult to accurately predict demand for our
semiconductor products. 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. Our
ability to accurately forecast customer demand is further
impaired by the delays inherent in our lengthy sales cycle. We
operate in a dynamic industry and use significant resources to
develop new products for existing and new markets. After we have
developed a product, there is no guarantee that our customers
will integrate our product into their equipment or devices and,
ultimately, bring those products to market. In these situations,
we may never produce and deliver any significant number of our
products, even after incurring substantial development expenses.
When a customer elects to integrate our product, it is typically
six to 24 months before volume production of their
equipment or devices commences. After volume production begins,
we cannot be assured that the equipment or devices incorporating
our product will gain market acceptance.
Our product demand forecasts are based on multiple assumptions,
each of which may introduce error into our estimates. In the
event we overestimate customer demand, we may allocate resources
to manufacturing products that we may not be able to sell. 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, a
percentage of our inventory is maintained under hubbing
arrangements whereby products are delivered to a customer or
third party warehouse based upon the customers projected
needs. Under these arrangements, we do not recognize product
revenue until the customer reports that it has removed our
product from the warehouse to incorporate into its end products.
Our ability to effectively manage inventory levels may be
impaired under our hubbing arrangements, which could increase
expenses associated with excess and obsolete product and
negatively impact our cash flow.
54
We depend
on a few significant customers for a substantial portion of our
revenue.
We derive a substantial portion of our revenue from sales to a
relatively small number of customers. Sales to our five largest
customers represented 35.2% and 33.2% of our total net revenue
in the six months ended June 30, 2010 and 2009,
respectively. We expect that our largest customers will continue
to account for a substantial portion of our total net revenue
for the foreseeable future. The loss of any significant customer
could materially and adversely affect our financial condition
and results of operations.
A significant portion of our revenue in any period 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. We may not be able to maintain sales to certain of
our key customers or continue to secure key design wins for a
variety of reasons, including:
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agreements with our customers typically do not require them to
purchase a minimum quantity of our products; and
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our customers can stop incorporating our products into their own
products with limited notice to us and suffer little or no
penalty.
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In addition, the majority of our licensing revenues and related
income to date has been derived from agreements with two
customers, Verizon Wireless and Qualcomm. Our patent license
agreements with these two customers are expected to result in
licensing revenue and related income of approximately
$1.056 billion over a seven year period. From July 2007
through June 2010, we recorded $474.0 million in licensing
revenue and related income derived from Verizon Wireless and
Qualcomm. The licensing revenue from our agreement with Verizon
Wireless has ended and the income from the Qualcomm Agreement is
non-recurring and will terminate in 2013. There can be no
assurances that we will be able to enter into similar
arrangements in the future, or that we will be able to
successfully collect the remaining payments due to us under the
Qualcomm Agreement in the event of a default by Qualcomm.
The loss of a key customer or design win, a reduction in sales
to any key customer, decrease in licensing revenue, 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.
We may be
unable to successfully develop and introduce new
products.
We expect that a high percentage of our future sales will come
from sales of new products. We sell products in markets that are
characterized by rapid technological change, evolving industry
standards, frequent new product introductions and short product
life cycles. The markets for some of these products are new to
us and may be immature
and/or
unpredictable. These markets may not develop into profitable
opportunities and we have invested substantial resources in
emerging technologies that did not achieve the market acceptance
that we had expected. As a result, it is difficult to anticipate
our future revenue streams from, or the sustainability of, our
new products.
Our industry is dynamic and we are required to devote
significant resources to research and development to remain
competitive. The development of new silicon devices is highly
complex, and we have experienced delays in completing the
development, production and introduction of our new products. We
may choose to discontinue one or more products or product
development programs to dedicate more resources to other
products. The discontinuation of an existing or planned product
may adversely affect our relationship with our customers.
Our ability to successfully develop and deliver new products
will depend on various factors, including our ability to:
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effectively identify and capitalize upon opportunities in new
markets;
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timely complete and introduce new integrated products;
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transition our semiconductor products to increasingly smaller
line width geometries;
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license any desired third party technology or intellectual
property rights;
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obtain sufficient foundry capacity and packaging
materials; and
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qualify and obtain industry interoperability certification of
our products.
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If we are not able to develop and introduce new products in a
cost effective and timely manner, we will be unable to attract
new customers or to retain our existing customers which would
materially and adversely affect our results of operations.
We face
intense competition.
The semiconductor industry and the wired and wireless
communications markets are intensely competitive. We expect
competition to continue to increase as new markets develop, as
industry standards become well known and as other competitors
enter our business. 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 presences 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. We also face
competition from newly established competitors, suppliers of
products, and customers who choose to develop their own
semiconductor solutions.
Existing or new competitors may 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 be
required to defend against alleged infringement of intellectual
property rights.
Companies in the semiconductor industry and the wired and
wireless communications markets aggressively protect and pursue
their intellectual property rights. From time to time, we
receive notices that claim we have infringed upon,
misappropriated or misused other parties proprietary
rights. Additionally, we receive notices that challenge the
validity of our patents. Intellectual property litigation can be
expensive, time consuming and distracting to management. An
adverse determination in any of these types of disputes could
prevent us from manufacturing or selling some of our products or
could prevent us from enforcing our intellectual property rights.
We may also be required to indemnify some customers and
strategic partners under our agreements 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.
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. Any of these
claims or litigation may materially and adversely affect our
business, financial condition and results of operations.
56
We face
risks associated with our acquisition strategy.
A key element of our business strategy involves expansion
through the acquisitions of businesses, assets, products or
technologies. The expansion of our business through acquisitions
allows us to complement our existing product offerings, expand
our market coverage, increase our engineering workforce or
enhance our technological capabilities. We may not be able to
identify or consummate future acquisitions or realize the
desired benefit from these acquisitions.
We face several challenges in the integration of acquired
businesses that could disrupt our ongoing business and distract
our management team, including:
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delays in the timing and successful integration of an acquired
companys technologies;
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the loss of key personnel;
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lower gross margins and other financial challenges; and
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becoming subject to intellectual property or other litigation.
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Acquisitions can result in increased debt or contingent
liabilities, adverse tax consequences, additional stock-based
compensation expense, write up of acquired inventory to fair
value, and the recording and later amortization of amounts
related to certain purchased intangible assets. In addition, we
may record goodwill and other purchased intangible assets in
connection with an acquisition and incur impairment charges in
the future. If our actual results, or the plans and estimates
used in future impairment analyses, are less favorable than the
original estimates used to assess the recoverability of these
assets, we could incur additional impairment charges.
We may
not be able to protect or enforce our intellectual property
rights.
Our success and future revenue growth will depend, in part, on
our ability to protect our intellectual property. It is possible
that competitors or other unauthorized third parties may obtain,
copy, use or disclose our technologies and processes. Any of our
existing or future patents may be challenged, invalidated or
circumvented. We engage 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. If our intellectual property
rights do not adequately protect our technology, our competitors
may be able to offer products similar to ours.
Our software may be derived from open source
software, which is generally made available to the public by its
authors
and/or other
third parties. Open source software is often made available
under licenses, which impose certain obligations in the event we
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 on different terms than those
customarily used to protect our intellectual property. With
respect to our proprietary software, we generally license such
software under terms that prohibit combining it with open source
software. Despite these restrictions, parties may combine our
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 enter into confidentiality agreements with our employees,
consultants and strategic partners. We also 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.
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.
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.
Identifying unauthorized use of our products and technologies is
difficult and time consuming. The initiation of litigation may
adversely affect our relationships and
57
agreements with certain customers that have a stake in the
outcome of the litigation proceedings. Litigation is very
expensive and may 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.
Our
business is subject to potential tax liabilities.
We are subject to income taxes in the United States and various
foreign jurisdictions. The amount of income taxes we pay is
subject to our interpretation and application of tax laws in
jurisdictions in which we file. Changes in current or future
laws or regulations, or the imposition of new or changed tax
laws or regulations or new related interpretations by taxing
authorities in the U.S. or foreign jurisdictions, could
adversely affect our results of operations. We are subject to
examinations and tax audits. There can be no assurance that the
outcomes from these audits will not have an adverse effect on
our net operating loss and research and development tax credit
carryforwards, our financial position, or our operating results.
In certain foreign jurisdictions, we operate under tax holidays
and favorable tax incentives. 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. In a
period of tight manufacturing capacity, our ability to meet
Singaporean content in our products may be more limited, which
may have adverse tax consequences. More generally, if any of our
tax holidays or incentives are terminated or if we fail to the
meet the criteria to continue to enjoy such holidays or
incentives, our results of operations may be materially and
adversely affected.
Government
regulation may adversely affect our business.
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
(the FCC) has broad jurisdiction in the United
States over many of the devices 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.
In addition, we may experience delays if a product incorporating
our chips fails to comply with FCC emissions specifications.
We and our customers are subject to various import and export
laws and regulations. Government export regulations apply to the
encryption or other features contained in some of our products.
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.
Our business 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.
We may
fail to adjust our operations in response to changes in
demand.
Through internal growth and acquisitions, we significantly
modified the scope of our operations and workforce in recent
years. 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 and our highly skilled
workforce. During some periods, our growth has placed a
significant strain on our management personnel, systems and
resources. To respond to periods of increased demand, we will be
required to expand, train, manage and motivate our workforce.
Alternatively, in response to the economic downturn in the
markets in the semiconductor industry and communications market,
we have been required to implement restructuring actions and a
number of other cost saving measures. All of these endeavors
require substantial management effort. 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.
58
We depend
on third-party subcontractors to fabricate, assemble and test
our products.
We do not own or operate fabrication, assembly or test
facilities. We rely on third-party subcontractors to
manufacture, assemble and test substantially all of our
semiconductor devices. Accordingly, 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.
We do not have long-term agreements with any of our
manufacturing, assembly or test subcontractors and typically
procure services from these suppliers on a per order basis. In
the event our third-party foundry subcontractors experience a
disruption of manufacturing, assembly or testing capacity, we
may not be able to obtain alternative manufacturing, assembly
and testing services in a timely manner, or at all. Furthermore,
our foundries must have new manufacturing processes qualified if
there is a disruption in an existing process, which could be
time-consuming. We could experience significant delays in
product shipments if we are required to find alternative
manufactures, assemblers or testers for our products. We are
continuing to develop relationships with additional third-party
subcontractors to assemble and test our products.
Because we rely on outside foundries, we face several
significant risks in addition to those discussed above,
including:
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a lack of guaranteed wafer supply and higher wafer prices;
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|
the limited availability of, or potential delays in obtaining
access to, key process technologies; and
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the location of foundries in regions that are subject to
earthquakes, tsunamis and other natural disasters.
|
The manufacture of integrated circuits is a highly complex and
technologically demanding process. 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. In addition, we are dependent on our
foundry subcontractors to successfully transition to smaller
geometry processes.
We
manufacture and sell complex products.
We have experienced hardware and software defects and bugs
associated with the introduction of our highly complex products.
If any of our products contain defects or bugs, or have
reliability, quality or compatibility problems, our reputation
may be damaged and customers may be reluctant to buy our
products. These problems could interrupt or delay sales and
shipment of our products to customers. To alleviate these
problems, we may have to divert our resources from other
development efforts. In addition, these problems could result in
claims against us by our customers or others, including possible
claims for consequential damages
and/or lost
profits.
We are
increasingly exposed to 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, 54.7% and 51.0% of our product
revenue in the six months ended June 30, 2010 and 2009,
respectively, was derived from product sales to 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 96.6% and 93.6% of
our product revenue in the six months ended June 30, 2010
and 2009, respectively. 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. International operations are subject to many
other inherent risks, including but not limited to:
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political, social and economic instability;
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exposure to different business practices and legal standards,
particularly with respect to intellectual property;
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continuation of overseas conflicts and the risk of terrorist
attacks and resulting heightened security;
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|
the imposition of governmental controls and restrictions and
unexpected changes in regulatory requirements;
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|
nationalization of business and blocking of cash flows;
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59
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changes in taxation and tariffs; and
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difficulties in staffing and managing international operations;
|
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.
We are
involved in litigation.
From time to time, we may become a party in various legal
proceedings. For example, we are engaged in a civil litigation
related to allegations that certain of our current and former
directors and officers improperly dated stock option grants.
Please refer to Note 8 of Notes to Unaudited Condensed
Consolidated Financial Statements, included in Part I,
Item 1 of this Report for details regarding our pending
litigation. Litigation is inherently unpredictable and there can
be no assurance that any lawsuit to which we are a party will be
resolved in our favor. Any claim that is successfully decided
against us may cause us to pay substantial damages, including
punitive damages, and other related fees. Regardless of whether
lawsuits are resolved in our favor, any litigation will be
expensive, time consuming and could divert the attention of our
management.
We may be
unable to attract, retain or motivate key personnel.
Our future success depends on our ability to attract, retain and
motivate senior management and qualified technical personnel.
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.
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. These
modifications of our compensation policies and the requirement
to expense the fair value of equity awards to employees have
increased our operating expenses. 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.
Our
co-founders and their affiliates may control the outcome of
matters that require the approval of our shareholders.
As of June 30, 2010 our co-founders, directors, executive
officers and their respective affiliates beneficially owned
12.3% of our outstanding common stock and held 55.0% 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, 2010 our two founders, Dr. Henry T.
Nicholas III and Dr. Henry Samueli, beneficially owned
a total of 11.1% of our outstanding common stock and held 54.7%
of the total voting power held by our shareholders. Because of
their significant voting stock ownership, we will not be able to
engage 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. Repurchases of
shares of our Class A common stock under our share
repurchase program would 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.
60
There can
be no assurance that we will continue to declare cash
dividends.
In January 2010, our Board of Directors adopted a dividend
policy pursuant to which the Company would pay quarterly
dividends on our common stock. We intend to continue to pay such
dividends subject to capital availability and periodic
determinations by our Board of Directors that cash dividends are
in the best interest of our shareholders and are in compliance
with all laws and agreements of Broadcom applicable to the
declaration and payment of cash dividends. Future dividends may
be affected by, among other factors:
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our views on potential future capital requirements for
investments in acquisitions and the funding of our research and
development;
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stock repurchase programs;
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changes in federal and state income tax laws or corporate
laws; and
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changes to our business model.
|
Our dividend payments may change from time to time, and we
cannot provide assurance that we will continue to declare
dividends in any particular amounts or at all. A reduction in
our dividend payments could have a negative effect on our stock
price.
Our
articles of incorporation and bylaws contain anti-takeover
provisions.
Our articles of incorporation and bylaws contain provisions that
could make it more difficult for a third party to acquire a
majority of our outstanding voting stock. For example, our Board
of Directors may also issue shares of Class B common stock
in connection with certain acquisitions, which 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. In addition, our Board of Directors 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. These provisions, among others, may discourage
certain types of transactions involving an actual or potential
change in our control.
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Item 2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
|
In the three months ended June 30, 2010 we issued an
aggregate of 0.5 million shares of Class A common
stock upon conversion of a like number of shares of Class B
common stock in connection with their disposition. 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 of 1933,
as amended, or the Securities Act.
Issuer
Purchases of Equity Securities
The following table presents details of our various repurchases
during the three months ended June 30, 2010:
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Approximate Dollar
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Total Number of
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Value of Shares
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Total Number
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Average
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Shares Purchased
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That May Yet be
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of Shares
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Price
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as Part of Publicly
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Purchased under
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Period
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Purchased
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per Share
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Announced Plans
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the Plans
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(In thousands, except per share data)
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April 2010
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$
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May 2010
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3,811
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31.88
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3,811
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June 2010
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Total
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3,811
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$
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31.88
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3,811
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$
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(1)
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(1) |
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In February 2010 we announced that our Board of Directors had
authorized an evergreen share repurchase program intended to
offset dilution associated with our stock incentive plans. The
maximum number of shares of our Class A common stock that
may be repurchased in any one year is equal to the total number
of shares |
61
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issued pursuant to our employee equity awards in the previous
year and the current year. The share repurchase program does not
have an expiration date and may be suspended at any time at the
discretion of the Board of Directors. The program may also be
complemented with an additional share repurchase program in the
future. |
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Item 3.
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Defaults
upon Senior Securities
|
None.
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Item 4.
|
(Removed
and Reserved)
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Item 5.
|
Other
Information
|
None.
(a) Exhibits. The following Exhibits are
attached hereto and incorporated herein by reference:
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|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.1
|
|
Broadcom Corporation Severance Benefit Plan for Vice Presidents
and Above and Summary Plan Description effective June 1,
2010 (filed as Exhibit 10.1 to
Form 8-K
on May 7, 2010 and incorporated herein by reference).
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|
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
|
|
101
|
.DEF*
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
|
|
|
Indicates management contract or compensatory plan or
arrangement. |
|
* |
|
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. |
62
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)
Eric K. Brandt
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Robert L. Tirva
Senior Vice President and Corporate Controller
and Principal Accounting Officer
July 27, 2010
63
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.1
|
|
Broadcom Corporation Severance Benefit Plan for Vice Presidents
and Above and Summary Plan Description effective June 1,
2010 (filed as Exhibit 10.1 to
Form 8-K
on May 7, 2010 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
|
|
101
|
.DEF*
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
|
|
|
Indicates management contract or compensatory plan or
arrangement. |
|
* |
|
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. |
64