e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2008
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or
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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
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Commission file number
000-23993
Broadcom Corporation
(Exact Name of Registrant as
Specified in Its Charter)
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California
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33-0480482
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(State or Other Jurisdiction
of Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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5300 California Avenue
Irvine, California
92617-3038
(Address of Principal Executive
Offices) (Zip Code)
Registrants telephone
number, including area code:
(949) 926-5000
Securities registered pursuant
to Section 12(b) of the Act: None
Securities registered pursuant
to Section 12(g) of the Act: Class A common
stock
(Title of
class)
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
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):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in Exchange Act
Rule 12b-2). Yes o No þ
The aggregate market value of the registrants common
stock, $0.0001 par value per share, held by non-affiliates
of the registrant on June 30, 2008, the last business day
of the registrants most recently completed second fiscal
quarter, was approximately $12.1 billion (based on the
closing sales price of the registrants common stock on
that date). Shares of the registrants common stock held by
each officer and director and each person known to the
registrant to own 10% or more of the outstanding voting power of
the registrant have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status
is not a determination for other purposes.
The registrant has two classes of common stock authorized,
Class A common stock and Class B common stock. The
rights, preferences and privileges of each class of common stock
are substantially identical except for voting rights. Shares of
Class B common stock are not publicly traded but are
convertible at any time into shares of Class A common stock
on a one-for-one basis. As of December 31, 2008 there were
426.1 million shares of Class A common stock and
62.9 million shares of Class B common stock
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Part III incorporates by reference certain information from
the registrants definitive proxy statement (the
Proxy Statement) for the 2009 Annual Meeting of
Shareholders to be filed on or before April 3, 2009.
Broadcom®,
the pulse logo,
Blutonium®,
BroadVoice®,
CryptoNetX®,
InConcert®,
NetXtreme®,
NetXtreme
II®,
StrataSwitch®,
StrataXGS®,
Videocore®,
CellAiritytm,
PhyRtm,
ROBOswitch-plustm,
and
ROBO-HStm
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.
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©2009
Broadcom Corporation. All rights reserved.
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This Annual Report on
Form 10-K
is printed on recycled paper.
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BROADCOM
CORPORATION
ANNUAL
REPORT ON
FORM 10-K
FOR THE
FISCAL YEAR ENDED DECEMBER 31, 2008
TABLE OF
CONTENTS
CAUTIONARY
STATEMENT
All statements included or incorporated by reference in this
Annual Report on
Form 10-K,
other than statements or characterizations of historical fact,
are forward-looking statements. Examples of forward-looking
statements include, but are not limited to, statements
concerning projected net revenue, costs and expenses and gross
margin; our accounting estimates, assumptions and judgments; the
impact of the January 2007 restatement of our financial
statements for prior periods; estimates related to the amount
and/or
timing of the expensing of stock-based compensation expense; our
success in pending litigation; the demand for our products; the
effect that current economic conditions, seasonality and volume
fluctuations in the demand for our customers
consumer-oriented products will have on our quarterly operating
results; our dependence on a few key customers
and/or
design wins for a substantial portion of our revenue; our
ability to adjust operations in response to changes in demand
for existing products and services or the demand for new
products requested by our customers; the competitive nature of
and anticipated growth in our markets; our ability to migrate to
smaller process geometries; manufacturing, assembly and test
capacity; our ability to consummate acquisitions and integrate
their operations successfully; our potential needs for
additional capital; inventory and accounts receivable levels;
the impact of the IRS review of certain income tax returns on
our results of operations; the level of accrued rebates; and our
plans to implement cost saving measures. These forward-looking
statements are based on our current expectations, estimates and
projections about our industry and business, managements
beliefs, and certain assumptions made by us, all of which are
subject to change. Forward-looking statements can often be
identified by words such as anticipates,
expects, intends, plans,
predicts, believes, seeks,
estimates, may, will,
should, would, could,
potential, continue,
ongoing, similar expressions, and variations or
negatives of these words. These statements are not guarantees of
future performance and are subject to risks, uncertainties and
assumptions that are difficult to predict. Therefore, our actual
results could differ materially and adversely from those
expressed in any forward-looking statements as a result of
various factors, some of which are listed under the section
entitled Risk Factors in Item 1A of this
report. These forward-looking statements speak only as of the
date of this Report. We undertake no obligation to revise or
update publicly any forward-looking statement for any reason,
except as otherwise required by law.
PART I
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 products enable the
delivery of voice, video, data and multimedia to and throughout
the home, the office and the mobile environment. Broadcom
provides the industrys broadest portfolio of
state-of-the-art
system-on-a-chip
(SoC) and software solutions to manufacturers of computing and
networking equipment, digital entertainment and broadband access
products, and mobile devices. Our diverse product portfolio
includes solutions for digital cable, satellite and Internet
Protocol (IP) set-top boxes and media servers; high definition
television (HDTV); high definition DVD players and personal
video recording (PVR) devices; cable and DSL modems and
residential gateways; high-speed transmission and switching for
local, metropolitan, wide area and storage networking; server
solutions; broadband network and security processors; wireless
and personal area networking; cellular communications; global
positioning system (GPS) applications; mobile multimedia and
applications processors; mobile power management; and Voice over
Internet Protocol (VoIP) gateway and telephony systems.
Broadcom was incorporated in California in August 1991. Our
principal executive offices are located at 5300 California
Avenue, Irvine, California
92617-3038,
and our telephone number at that location is 949.926.5000. Our
Internet address is www.broadcom.com. The inclusion of
our website address in this Report does not include or
incorporate by reference into this Report any information on our
website. Our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
amendments to those reports and other SEC filings are available
free of charge through our website as soon as reasonably
practicable after such reports are electronically filed with, or
furnished to, the SEC. Please note that financial information
included in our reports on
Form 10-K,
Form 10-Q
and
Form 8-K,
the related opinions of our independent registered public
accounting firm, and all earnings press releases and similar
communications issued by us, for all periods ended on or before
March 31, 2006
should not be relied upon and have been superseded in their
entirety by the information in our amended Annual Report on
Form 10-K/A
for the year ended December 31, 2005, or the 2005
Form 10-K/A,
and our amended Quarterly Report on
Form 10-Q/A
for the three months ended March 31, 2006, each filed
January 23, 2007. All references in this Report to
financial information for the year 2005 and prior years are to
the information contained in the 2005
Form 10-K/A.
Our Class A common stock trades on the Nasdaq Global Select
Marketsm
under the symbol BRCM.
Industry
Environment and Our Business
Over the past two decades communications technologies have
evolved dramatically in response to the proliferation of the
Internet, ubiquitous wireless and mobile networks, and the
emergence of new data-intensive computing and communications
applications. These applications include, among others,
high-speed Internet web browsing, wireless networking, high
definition television and DVD players, VoIP-enabled products,
sophisticated Ethernet based corporate networks, portable media
players, mobile TV and gaming platforms, cellular handsets that
act as a camera or camcorder, handle
e-mail and
surf the Internet, and other wired and wireless-enabled consumer
electronics and peripherals. This evolution has also changed the
ways in which we communicate. Consumers and businesses continue
to seek faster, more cost-effective ways to receive and transmit
voice, video, data and multimedia to and throughout the home,
the office and the mobile environment. We can now access and
communicate information via wired and wireless networks through
a variety of electronic devices, including personal desktop and
notebook computers, digital cable and satellite set-top boxes,
high definition televisions, handheld computing devices such as
personal digital assistants, or PDAs, and cellular phones. These
applications and devices require increasingly higher processing
speeds and information transfer rates within the computing
systems and the data storage devices that support them and
across the network communication infrastructures that serve them.
This evolution has inspired equipment manufacturers and service
providers to develop and expand existing wired and wireless
communications markets, and has created the need for new
generations of integrated circuits. Integrated circuits, or
chips, are made using semiconductor wafers imprinted with a
network of electronic components. They are designed to perform
various functions such as processing electronic signals,
controlling electronic system functions, and processing and
storing data. Today nearly all electronic products use
integrated circuits, which are essential components of personal
computers, wired and wireless voice and data communications
devices, networking products and home entertainment equipment.
The broadband transmission of digital information over wired and
wireless infrastructures requires very sophisticated
semiconductor solutions to perform critical systems functions
such as complex signal processing, converting digital data to
and from analog signals, and switching and routing of packets of
information over Internet Protocol, or IP, -based networks.
Solutions that are based on multiple separate analog and digital
chips generally cannot achieve the cost-effectiveness,
performance and reliability required by todays
communications markets. These requirements are best addressed by
new generations of highly integrated mixed-signal devices that
combine complex analog, digital, and in many cases radio
frequency functions onto a single integrated circuit (an SoC),
and can be manufactured in high volumes using cost-effective
process technologies.
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Target
Markets and
Broadcom®
Products
We design, develop and supply a diverse portfolio of products.
Our semiconductor and software solutions are used globally by
leading manufacturers and are embedded in an array of products
for three primary target markets, as reflected in the table
below:
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Target Market
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Products Incorporating Our
Solutions
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Broadcom Solutions
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Broadband Communications
(37.0% of 2008 net revenue)
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Broadband (cable and DSL) modems and residential
gateways
Cable modem termination systems and
central office DSL applications
Cable, satellite and IP set-top boxes,
media servers and digital converters
supporting the FCCs converter box
program
High definition digital TVs
High definition Blu-ray
Disc®
players
and recorders
Personal video recorders
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Cable modem SoCs
MPEG/AVC/VC-1 encoders and
transcoders
xDSL and cable modem customer
premises equipment and central office
solutions
Digital cable, DBS and IP set-top box
integrated receiver demodulators
HDTV and SDTV SoCs
Blu-ray Disc SoCs
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Enterprise Networking
(27.0% of 2008 net revenue)
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Servers
Workstations
Desktop and notebook computers
Service provider metro equipment
3G/4G wireless infrastructures and
wireless access points
Switches, hubs and routers
Network interface cards
LAN on motherboard applications
Optical networks and dense wave division
multiplexing applications
Virtual private networks and security
appliances
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Ethernet transceivers
Ethernet controllers
Ethernet switches
Optical PHYs and transceivers
Security processors and adapters
Broadband processors
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Mobile & Wireless
(36.0% of 2008 net revenue)
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Wireless-enabled laptop and desktop
computers
Home broadband gateways
Printers
VoIP phones
Handheld media devices
Mobile Internet devices and ultra-mobile
PCs
Advanced PDAs
Cellular phones and smartphones
Personal navigation devices
TV enabled portable devices
Home gaming systems
Home entertainment systems
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Wi-Fi®
SoCs
Bluetooth®
SoCs
Wireless combination chips
GPS SoCs
Mobile multimedia processors
Mobile applications processors
Mobile power management devices
VoIP solutions
GSM, GPRS, EDGE, UMTS and
HSDPA baseband solutions
Mobile TV SoCs
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As described in greater detail in Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations, we operate in one
reportable operating segment, wired and wireless broadband
communications.
Over the last two years we have introduced a number of products
designed in the 65 nanometer complementary metal oxide
semiconductor, or CMOS, process, which is currently the most
advanced lithographic node for manufacturing semiconductors in
large volumes. It provides significant benefits over the 90
nanometer and 130 nanometer processes by enabling lower power
consumption, smaller size, higher yields and higher levels of
integration. With the depth and breadth of our advanced
portfolio of market proven IP, we are able to drive
3
innovative new products to market and differentiate our
solutions from the competition using the advanced
65 nanometer process.
The following is a brief description of each of our target
markets and the SoC and software solutions that we provide for
each market.
Broadband
Communications
We offer manufacturers a range of broadband communications and
consumer electronics SoC solutions that enable voice, video,
data and multimedia services over residential wired and wireless
networks. These highly integrated silicon solutions continue to
enable the most advanced system solutions, which include
broadband modems and residential gateways, digital cable,
satellite and IP set-top boxes, or STBs, and media servers, high
definition digital television, Blu-ray Disc players and
recorders, and personal video recorders. Net revenue from our
broadband communications target market represented 37.0%, 37.4%
and 37.8% of our total net revenue in 2008, 2007 and 2006,
respectively.
Broadband
Modems and Residential Gateways
Cable Modems and Residential Gateways. Cable
modems provide consumers and businesses high-speed Internet
access through a cable television network, as compared to
earlier
dial-up
modems that provided online access through the telephone system.
Although cable networks were originally established to deliver
television programming to subscribers homes, cable
television operators have generally upgraded their systems to
support two-way communications through the use of cable modems.
An additional device called a cable modem termination system, or
CMTS, located at a local cable providers network hub,
communicates to cable modems in subscribers homes and
controls access to the network.
The high speeds of todays cable modems can enable an
entirely new generation of multimedia-rich content over the
Internet that allows cable operators to expand their traditional
video product offerings to include data and telephone services.
The adoption of cable modem services and the continued
proliferation of homes with multiple PCs have also generated the
need for residential networking. Cable television operators have
recognized the opportunity to include this feature in the
equipment they utilize for cable modem services through either
existing home wiring or wireless solutions.
We offer integrated semiconductor solutions for cable modems and
CMTS equipment, with an extensive product offering for the
high-speed, two-way transmission of voice, video, data and
multimedia services to residential customers. Our newest cable
modem SoCs support ultra high-speed data services, reduce the
time required to download video for
video-on-demand
services, and enable the delivery of IP video content. Our
complete system-level solutions include integrated circuits,
reference design hardware and a full software suite to support
our customers needs and accelerate their time to market.
The levels of integration and performance that we continue to
achieve in our cable modem SoCs are reducing the cost and size
of the cable modems themselves, while providing consumers with
easy-to-use features and seamless integration to other
transmission media. As a result, cable modem functionality is
evolving into a small silicon core that can be incorporated into
other consumer devices for broader distribution of
IP-based
services throughout the home. We also offer residential
broadband gateway solutions that bring together a range of
capabilities, including those for cable modems, digital set-top
boxes, home networking, VoIP and Ethernet connectivity.
DSL. Digital subscriber line technologies,
commonly known as DSL, represent a family of broadband solutions
that use a greater range of frequencies over existing telephone
lines than traditional telephone services. This provides greater
bandwidth to send and receive information. DSL has a number of
standards or line codes used worldwide and we support all of
them, such as asymmetric DSL, or ADSL, ADSL2, ADSL2+ and
very-high-speed DSL, or VDSL.
We provide end-to-end DSL technology, with solutions designed
for both customer premises equipment, or CPE, and central office
applications. Our DSL solutions enable local exchange carriers
and enterprise networking vendors to deliver bundled broadband
services, such as digital video, high-speed Internet access,
VoIP, video teleconferencing and IP data business services, over
existing telephone lines. For CPE applications, we provide
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products that address the wide variety of local area network
connectivity options, including Ethernet, USB-powered solutions,
VoIP-enabled access devices and wireless access points with
multiple Ethernet ports. These solutions provide a fully
scalable architecture to address emerging value-added services
such as in-home voice and video distribution. Our central office
solutions enable equipment manufacturers of digital subscriber
line access multiplexers, or DSLAMs, and next generation digital
loop carriers to offer a significant increase in the number of
DSL connections that can be supported within telecommunication
companies tight heat, power and space constraints. We also
provide the
inter-networking
software that is enabling DSLAM technology to transition from
Asynchronous Transfer Mode to Internet Protocol.
Digital
Cable, Direct Broadcast Satellite and IP Set-Top
Boxes
The last decade has seen rapid growth in the quantity and
diversity of television programming. In an effort to increase
the number of channels available to viewers, various service
providers now offer digital TV programming, including cable
operators, satellite operators and traditional telephone
companies, which recently began offering digital TV services by
using the same high-speed connections that bring telephone
customers broadband Internet access. In addition to offering
more TV channels, these operators have begun differentiating
their services by providing more high definition programming,
personal video recording services, high quality 2D/3D program
guides and the ability to view and stream Internet content. To
take advantage of all of these capabilities, viewers need a
set-top box in the home to process these functions and
distribute them to their TVs and other set-top boxes within the
home.
Cable-TV
Set-Top Box Solutions. We offer a complete
silicon platform for the digital
cable-TV
set-top box market. These highly integrated SoCs give
manufacturers a broad range of features and capabilities for
building standard digital
cable-TV
STBs for digital video broadcasting, as well as high-end
interactive set-top boxes. Our
cable-TV
set-top box silicon consists of front-end transceivers with
media access controller, or MAC, functions, single-chip cable
modems, advanced 2D/3D graphics video encoders and MPEG
decoders, radio frequency television tuners based on CMOS
process technology, and digital visual interface chipsets. These
cable-TV
set-top box chips support most industry transmission and
television standards, enabling universal interoperability and
easy retail channel distribution.
We also provide a comprehensive silicon platform for high-end
interactive set-top boxes, supporting the simultaneous viewing
of television programming with Internet content capability. This
capability offers consumers a true interactive environment,
allowing them to access Internet content while watching
television. By adding our home networking and VoIP technologies,
these set-top boxes can also support the functions of a
residential broadband gateway for receiving and distributing
digital voice and data services throughout the home, over either
wired or wireless networks. In addition, our set-top box SoCs
incorporate PVR functionality, which allows viewers to watch and
record multiple programs.
DBS Solutions. By leveraging our extensive
investment and expertise in the
cable-TV
set-top box market, we have also developed comprehensive direct
broadcast satellite, or DBS, solutions. These products include
an advanced, high definition video graphics subsystem, which
drives the audio, video and graphic interfaces in DBS set-top
boxes and provides multi-stream control to support PVR
capabilities; a CMOS satellite tuner, which allows our customers
to provide additional channel offerings; front-end receiver
chips for set-top boxes, including 65 nanometer receivers
that incorporate PVR functionality, and an advanced modulation
system to increase satellite capacity; and a digital visual
interface transmitter. In addition, we offer a complete
end-to-end chipset for receiving and displaying HDTV.
To meet the needs of the expanding broadband satellite market,
we have also developed a complete satellite system solution that
enables DBS providers to cost effectively deploy two-way
broadband satellite services to provide Internet access via
satellite. This solution includes an advanced modulation digital
satellite receiver, a digital satellite tuner/receiver and a
high performance broadband gateway modem, combining the
functionality of a satellite modem, a firewall router and home
networking into a single chip.
IP Set-Top Box Solutions. Broadcom provides a
family of advanced video compression, high definition SoC
solutions for IP set-top boxes. These solutions include high
definition video decoder/audio processor chips and a dual
channel high definition and personal video recorder chip. We
also offer an advanced IPTV platform based on
5
our solution for next generation STBs and Microsofts
Mediaroomtm.
This platform will enable service providers and equipment
manufacturers to offer a range of new services and features such
as multi-room digital video recording, high performance user
interfaces, and photo and music sharing. Additionally, we offer
encoder/transcoder SoCs that allow non-compatible video and
audio content to be shared and transferred in real-time across
several classes of consumer devices to and from the PC.
Digital
Television
The Federal Communications Commission, or FCC, has stated that
traditional terrestrial broadcast stations will be required to
only broadcast in digital format. Currently, the FCC is
targeting the first half of 2009 for this mandated digital
conversion that will ultimately require all television sets that
are 13 inches or larger, DVD players and video cassette
recorders to incorporate an HDTV receiver. We believe this
conversion to digital broadcasting will create demand for new
digital cable and satellite set-top boxes and digital
television, or DTV, receivers. TV manufacturers also plan to
incorporate digital cable-ready capabilities into television
sets for the North American market by integrating todays
cable set-top box functionality directly into TV sets.
We offer a complete digital television receiver system targeted
at the National Telecommunications and Information
Administrations digital-to-analog converter box program.
The program, which is part of the FCC initiative, includes a
budget that will be used to assist U.S. households in
making an affordable transition from existing analog television
sets to digital by providing coupons to households to defray the
cost of digital TV converter boxes. As a result, we have
introduced a turnkey digital
television-on-a-chip
and associated software to enable these digital-to-analog
converter boxes, extending the lives of analog-only TVs.
Capitalizing on the FCC HDTV mandate, as well as on our
extensive
cable-TV
set-top box technology portfolio, we have also developed a
highly integrated DTV SoC that, when combined with our existing
satellite, cable or terrestrial demodulators, forms a complete
platform for the delivery of HDTV. Our integrated HDTV solution
allows DTV manufacturers to develop digital cable-ready TVs that
connect directly to the North American cable infrastructure
without the need for an external set-top box.
In 2008 we acquired the DTV business of Advanced Micro Devices,
Inc., or AMD, enabling us to rapidly extend our DTV offerings to
include a complete product line that covers all DTV markets,
ranging from low-end value and mid-range quality to high-end
interactive platforms and panel processors. Initial DTV
solutions developed through the integration of this acquisition
with our existing technology include (1) a complete
advanced video coding, or AVC, connected TV platform that allows
viewers to customize their TV viewing experience, and provides
new options for accessing video content, and (2) a complete
turnkey platform that integrates the customer application ready
design reference platform, allowing TV manufacturers to
customize both hardware and software designs for differentiating
products based on the user interface and visual
look-and-feel,
while accelerating their time to market.
Broadcom also supports the Digital Living Network AllianceSM, or
DLNA®,
technology that allows users to share and access digital media
easily across a variety of wired and wireless connectivity
technologies, such as Multimedia over Coax Alliance, or
MoCA®,
Wi-Fi and Ethernet. Support of DLNA allows consumers to easily
share and stream digital content (including DVR recordings,
music, photos and videos) between consumer electronics devices,
mobile handsets, set-top boxes and PCs anywhere throughout their
homes.
High
Definition Blu-ray Disc Players
The Blu-ray Disc player market is currently undergoing a
transition as a result of the increased adoption of HDTV sets by
consumers and the advent of advanced video compression
technologies. These trends have led television broadcasters and
movie studios to begin offering more high definition video
content. In turn, consumer electronics manufacturers have begun
offering high definition Blu-ray Disc players and recorders,
with substantially greater storage capacity and the ability to
effectively handle the significantly higher bit rates associated
with high resolution HDTV content.
Our Blu-ray Disc SoC has become the prevalent technology for
Blu-ray Disc playback, offering HD video playback at 1080p
resolution,
picture-in-picture
video support, HD multi-channel audio, and world
class BD-Java
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performance for full support of BD-Live functionality.
Integrated security and streaming features have enabled
manufacturers to deploy a new class of Blu-ray Disc players that
feature Internet-based streaming media playback capabilities. We
also offer a reference design for the development of Blu-ray
Disc media players that includes our HD audio/video decoder
chip, as well as an HD digital video system chip and a software
platform that affords our customers a wide range of integration
options.
Enterprise
Networking
We design and develop complete silicon and software solutions
for service provider, data center, enterprise and
small-to-medium business, or SMB, networks. Our solutions
leverage industry-proven Ethernet technology to promote faster,
greener and more cost-efficient transport and
processing of voice, video, data and multimedia across both
wired and wireless networks. Broadcom solutions enable a network
infrastucture that is scalable, secure and easy to manage. Our
products are found in a wide variety of networking equipment
including Ethernet switches, routers and gateways, security
appliances, DSLAMs, 3G/4G wireless backhaul equipment, cable and
VoIP hardware, desktop and notebook computers, servers and
storage appliances, and network-attached printers. Net revenue
from our enterprise networking target market represented 27.0%,
30.2% and 32.2% of our total net revenue in 2008, 2007 and 2006,
respectively.
Local
Area Networking
Local area networks, or LANs, consist of various types of
equipment, such as servers, workstations and desktop and
notebook computers, interconnected by copper, fiber or coaxial
cables utilizing a common networking protocol, generally the
Ethernet protocol. Ethernet can scale in speeds ranging from 10
Megabits per second, or Mbps, to 10 Gigabits per second, or
Gbps, providing both the bandwidth and scalability required in
todays dynamic networking environment.
As the volume and complexity of network traffic continues to
increase, communication bottlenecks have developed in corporate
LANs. As a result, technologies such as Gigabit Ethernet, or
GbE, a networking standard that supports data transfer rates of
up to one Gbps, and the 10 Gigabit Ethernet, or 10GbE, standard,
which supports data transfer rates of up to 10 Gbps, are
replacing older technologies such as Fast Ethernet, which
supports data transfer rates of up to 100 Mbps.
Gigabit Ethernet has emerged as the predominant networking
technology for desktop and notebook computers, and we expect
server and backbone connections to continue to migrate to the
newer 10 Gigabit Ethernet standard. Convergence around the 10GbE
standard will allow massive data flow from remote storage sites
across the country over metropolitan area networks, or MANs, and
into corporate LANs, without unnecessary delays, costly
buffering for speed mismatches or latency, or breaks in the
quality of service.
Our complete line of highly integrated, low power SoC solutions
includes Ethernet transceivers, controllers and switches for
servers, workstations, desktop and notebook computers, VoIP
phones, switches and routers, wireless access points and network
infrastructure products. These solutions enable users to share
Internet access, exchange graphics and video presentations,
utilize VoIP and video conferencing services, and share
peripheral equipment, such as printers and scanners. In
addition, we incorporate intelligent networking functionality
into our devices, enabling system vendors to deploy quality of
service features and applications, found typically in the core
of the network, to every corporate desktop.
Ethernet Transceivers. Our complex Ethernet
transceivers are built upon a proprietary digital signal
processing, or DSP, communication architecture optimized for
high-speed enterprise network connections. Our DSP silicon core
enables interoperability and robust performance over a wide
range of cable lengths and operating conditions. Our product
line offers a variety of single port and multi-port products
ranging from 10 Mbps up to 10 Gbps speeds. We believe this
equipment can significantly upgrade the performance of existing
networks without the need to rewire the network infrastructure
with fiber or enhanced copper cabling. These Ethernet
transceivers are driving the market towards lower power and
smaller footprints, making it easier and less expensive to build
Ethernet network interface cards, or NICs, switches, hubs and
routers, and to put networking chips directly on computer
motherboards in LAN on motherboard, or LOM, configurations.
7
Gigabit Ethernet Controllers. Built upon
multiple generations of Ethernet media access controller
technology, our
NetXtreme®
family of Gigabit Ethernet controllers supports peripheral
component interconnections, or
PCI®,
PCI-X®
and PCI
Express®
local bus interfaces, for use in NIC and LOM implementations.
The NetXtreme family includes comprehensive solutions for
servers, workstations, and desktop and notebook computers. These
devices incorporate an integrated Gigabit Ethernet PHY
transceiver and are provided with an advanced software suite
available for a variety of operating systems. The NetXtreme
architecture also features a processor-based design that enables
customers to run advanced management software in firmware so
they can remotely upgrade it through simple downloads. The
entire NetXtreme controller family incorporates security
features, including integrated Trusted Platform Module, or TPM,
functionality, to enable PC manufacturers to offer
hardware-based security as a standard feature on enterprise
client personal computers.
Our NetXtreme
II®
family of Ethernet controllers consists of converged network
interface controllers, or
C-NICs,
which are designed to improve server performance by integrating
a TCP/IP offload engine, remote direct memory access, iSCSI
storage and remote management. NetXtreme II controllers
simultaneously perform storage networking, high performance
clustering, accelerated data networking and remote system
management pass-through functions. Our NetXtreme II
controller portfolio ranges from 1 Gigabit Ethernet to 10
Gigabit Ethernet solutions.
Ethernet Switches. We offer a broad
switch-on-a-chip
product line ranging from low cost, unmanaged and managed, Layer
2 to high-end managed, Layer 3 through Layer 7 enterprise class
switch chips. We also offer high-end metro Ethernet scalable
switch solutions with applications that include Carrier Ethernet
switches and routers, next generation transport equipment,
synchronous optical network/synchronous digital hierarchy, or
SONET/SDH, telecommunications equipment and Ethernet access
equipment. Our Carrier Ethernet switch portfolio offers a broad
feature set that enables carrier/service provider networks to
support a large number of high value services such as VoIP,
IPTV,
video-on-demand,
HDTV and Internet gaming. In addition, we provide networking
software that enables communications system manufacturers to
reduce development costs and deliver IP/Ethernet products to
market faster.
For SMB applications, our
ROBOswitch-plustm
product family consists of Layer 2+ Ethernet switches, and our
ROBO-HStm
product family supports single-chip networking solutions for
Layer 2+ Gigabit Ethernet configurations. In 2008 we introduced
a family of 65 nanometer GbE switches for this market with full
Layer 2 switching to address the feature set and port density
requirement of todays SMB networks. The entire family is
designed to support lower power modes and comply with industry
standards while utilizing packaging materials free of lead and
other harmful toxins creating truly green products
for the SMB market. To address multi-tenant unit and
multi-dwelling unit applications, we also offer a family of
Layer 2 managed switches that are designed specifically for the
service provider market in Asia to address Internet connectivity
and the delivery of high bandwidth content, such as multimedia,
to densely populated residential and commercial buildings. Our
highly integrated family of switch products combines the
switching fabric, MACs, Fast Ethernet and Gigabit Ethernet
transceivers, media independent interface and packet buffer
memory in single-chip solutions. These chips enable
manufacturers to develop multiple switch design options that
combine
plug-and-play
ease-of-use, scalability, network management features and
non-blocking switching performance at optimal price points for
the SMB market.
For enterprise applications, our
StrataXGS®
product family provides the multi-layer switching capabilities
of our earlier
StrataSwitch®
II technology with wire-speed Gigabit and 10 Gigabit Ethernet
switching performance for enterprise business networks. Our
newest StrataXGS 4 family of single-chip switches enables the
scalability necessary for data center 3.0 applications, the
security required for enterprise networks, and the protocols and
quality of service needed to implement next generation service
provider networks. We also provide StrataXGS
HiGigtm
high-density switch fabric that provides one-half a terabit of
packet switching capacity on a single chip that can scale to
multi-terabits of capacity on a single backplane. These
multi-layer switches are capable of receiving, prioritizing and
forwarding packets of voice, video, data and multimedia at high
speeds over existing corporate networks. The StrataXGS family
also enables advanced network management capabilities in the
switching infrastructure to track data flows and monitor or
control bandwidth on any one of these flows. This results in a
more intelligent use of network resources and enables a whole
new set of network service applications that require high
bandwidth, reliable data transmission, low latency and advanced
quality service features such as streaming video and VoIP.
8
Metropolitan
and Wide Area Networking
To address the increasing volume of data traffic emanating from
the growing number of broadband connections in homes and
businesses, MANs, and wide area networks, or WANs, need to
evolve at both the transport and switching layers. We believe
that the CMOS fabrication process will be a key technology in
this evolution by enabling the development of smaller optical
modules and system components that reduce cost and power
consumption and integrate greater functionality.
Optical communications components are a natural extension of our
large portfolio of high-speed LAN chips, and allow us to provide
end-to-end semiconductor solutions across the WAN, MAN and LAN
to increase the performance, intelligence and cost effectiveness
of broadband communications networks. We offer a portfolio of
CMOS OC-48 and OC-192 transceiver and forward error correction
solutions, chips for synchronous optical networks and dense wave
division multiplexing, or DWDM, applications, as well as a
serial CMOS transceiver for 10GbE applications. Our use of the
CMOS process allows substantially higher levels of integration
and lower power consumption than competitive solutions.
Security
Processors and Adapters
To secure corporate networks from intrusive attacks and provide
for secure communications among corporate sites and remote
users, networking equipment will include technology to establish
virtual private networks, or VPNs, and will use Internet
Protocol security, or IPsec, protocol. In addition to VPNs,
secure socket layer, or SSL, is used to secure sensitive
information among users and service providers for
e-commerce
applications. Personal authentication has also become a part of
daily life as people need to present credentials to
prove their identity and gain access to a place or thing, such
as a corporate network, or to engage in financial transactions.
While enabling unprecedented levels of convenience, digital
transactions inherently expose individuals and companies to a
greater risk of identity theft and invasion of privacy.
Our SSL family of
CryptoNetX®
high-speed security processors and adapters for enterprise
networks is enabling companies to guard against Internet attacks
without compromising the speed and performance of their
networks. These processors are built upon a proprietary,
scalable silicon architecture that performs standards-compliant
cryptographic functions at data rates ranging from a few Mbps to
10 Gbps. This architecture is being deployed across all of our
product lines, addressing the entire broadband security network
spectrum from residential applications to enterprise networking
equipment. This scalable architecture allows us to develop
standalone security products for very high-speed networking
applications as well as to integrate the IP security processor
core into lower speed solutions for consumer products, such as
cable and DSL modem applications.
In 2008 we introduced a new family of secure applications
processors for use in PC and desktop solutions and point of sale
devices. These new security solutions integrate an on-chip
vault architecture that houses the credentials and
processes all secure transactions rather than running secure
applications on the main system processor, which is at greater
risk of tampering and theft.
Broadband
Processors
Broadband processors are high performance SoCs that enable
high-speed computations to identify, optimize and control the
flow of data within the broadband network. The continued growth
of IP traffic, coupled with the increasing demand for new and
improved services and applications such as security, high-speed
access and quality of service, is placing additional processing
demands on next generation networking and communications
infrastructures. In the enterprise and data center markets,
server and storage applications require high computational
performance to support complex protocol conversions and services
such as virtualization. With the migration from second
generation cellular mobile systems, or 2G, to the third
generation cellular mobile systems, or 3G, networks and mobile
infrastructure equipment must also be able to support higher
bandwidth rates utilizing low power resource levels.
Leveraging our expertise in large scale integration design, we
have developed a family of high performance, low power processor
solutions designed specifically to meet the needs of next
generation networks. This family of processors delivers four key
features essential for todays embedded broadband network
processors: very high
9
performance, low power dissipation, high integration of
network-centric functions, and programmability based on an
industry-standard instruction set architecture. These processors
provide customers with a solution for high-speed network
processing, including packet classification, queuing, forwarding
and exception processing for wired and wireless networks. They
enable complex applications such as deep content switching,
routing and load balancing to be performed at wire speed.
Custom
Silicon Products
Custom silicon products are devices for applications that
customers are able to semi-customize by integrating their own
intellectual property with our proprietary intellectual property
cores. We have successfully deployed such devices into the LAN,
WAN and PC markets. Our typical semi-custom devices are complex
mixed-signal designs that leverage our advanced design processes.
Mobile &
Wireless
Broadcoms mobile and wireless products allow manufacturers
to develop leading-edge devices that enable end-to-end wireless
connectivity at home, at work and on-the-go. Products in this
area include solutions in every major wireless market segment
including wireless local area networking, personal area
networking, location technologies, and a comprehensive range of
mobile technologies. This portfolio of mobile and wireless
products enables a broad range of portable devices including
cellular handsets, personal navigation devices, mobile TV
products, portable media players, gaming platforms and other
wireless-enabled consumer electronics and peripherals, such as
home gateways, printers, VoIP phones, home entertainment systems
and notebook computers. Net revenue from our mobile and wireless
target market, our fastest growing business, represented 36.0%,
32.4% and 30.0% of our total net revenue in 2008, 2007 and 2006,
respectively.
Wireless
Local Area Networking
Wireless local area networking, also known as WLAN or Wi-Fi
networking, allows devices on a local area network to
communicate with each other without the use of any cables or
wires. It adds the convenience of mobility to the powerful
utility provided by high-speed data networks, and is a natural
extension of broadband connectivity in the home and office.
Wi-Fi technology was first utilized in applications such as
computers and routers, and is now being embedded into a number
of other electronic devices such as printers, digital cameras,
gaming devices, PDAs, cellular phones and broadband modems.
We offer a family of high performance, low power Wi-Fi chipsets
that supports all of the current Wi-Fi standards, IEEE 802.11a,
802.11b and 802.11g, as well as the latest draft standard,
802.11n. Delivering up to eight times the throughput and up to
four times the range of 802.11g, our 802.11n chipsets enable us
to serve a new demand for the transfer of HD content between
devices and throughout the home. Our entire family of wireless
LAN chips consists of all-CMOS solutions that offer advanced
security features and are capable of self-calibration based on
usage temperatures and other environmental conditions.
Wireless
Personal Area Networking
The Bluetooth short-range wireless networking standard is a low
power wire replacement technology that enables connectivity
among a wide variety of mainstream consumer electronic devices
including PCs, mobile phones, smartphones, headsets and consumer
electronics. Wireless Bluetooth connectivity enables personal
area networking, or PAN, at speeds up to 3 Mbps, and can
cover distances up to 100 meters. This short-range wireless
technology allows devices to automatically synchronize and
exchange data with other Bluetooth-enabled devices without the
need for wires, and enables wireless audio connections to
cellular phones, as well as wireless mouse and keyboard
applications.
We offer a complete family of Bluetooth silicon and software
solutions for mobile phones, PCs, wireless headphones and
headsets, digital televisions, peripherals, gaming and other
applications. Our
Blutonium®
family of single-chip Bluetooth devices and software
applications and protocol stacks provides a complete solution
that enables manufacturers to add Bluetooth functionality to
almost any electronic device with a minimal amount of
development time and resources. Our highly integrated Bluetooth
solutions are designed in standard CMOS
10
process technology, offering smaller sizes and lower power
consumption while reducing manufacturing costs. In addition, we
have developed
InConcert®
coexistence technology to allow products enabled with multiple
wireless technologies such as our Wi-Fi, GPS and Bluetooth to
collaboratively coexist and maximize throughput and performance.
Wireless
Combination Chips
Consumers are increasingly expecting their portable media
devices to be able to seamlessly communicate with other devices,
such as TVs, PCs, printers, remote speakers, headsets and car
stereos, utilizing a wide variety of wireless technologies. At
the same time, our customers are continually seeking to lower
their costs, extend the battery life of their devices and bring
new products to market quickly. To meet these demands, Broadcom
has developed a family of combination, or combo, solutions that
integrate multiple discrete wireless technologies into a
single-chip solution. For example, we offer combo solutions that
integrate a complete Bluetooth system (radio and baseband),
Wi-Fi radio and baseband and a high performance FM stereo radio
receiver into a single chip. With these combo chips, makers of
multimedia cell phones and digital media players enabled with
Bluetooth can conveniently add Wi-Fi and FM radio functionality
to their products while maintaining optimal power, size and
cost. In addition, we offer combo chips that combine our
Bluetooth and FM technologies onto a single silicon die.
Cellular
Technology
The cellular handset is transitioning from a pure voice device
to a broadband multimedia gateway. Products emerging from this
transition will allow end users to wirelessly download
e-mail, view
web pages, stream audio and video, play games and conduct
videoconferences with cellular phones, smartphones, notebook
computers and other mobile devices.
The international Global System for Mobile Communication, or
GSM, standard is currently the most popular standard for
cellular mobile communications. Enhanced data communications
standards derived from GSM include General Packet Radio
Services, or GPRS, Enhanced Data Rates for GSM Evolution, or
EDGE, and Universal Mobile Telecommunications System, or UMTS.
UMTS technologies, including Wideband Code
Division Multiple Access, or WCDMA, and High Speed Packet
Access, or HSPA, are typically referred to as 3G technologies.
These standards have extended GSM to enable always
on Internet applications and more efficient data transport
with higher transmission rates and better network utilization
for a new generation of data services such as Internet browsing,
3D gaming and multimedia messaging with rich graphics and audio
content.
We develop and market GSM, GPRS, EDGE and UMTS chipsets and
reference designs with complete software and terminal solutions
for use in cellular phones, cellular modem cards and
smartphones. Our
CellAiritytm
cellular platform includes baseband processor solutions, which
integrate both mixed signal and digital functions into a single
chip, such as our single-chip HSPA processor
phone-on-a-chip solution that enables manufacturers
to build next generation 3G phones with breakthrough features,
sleek form factors and an extended battery life. In conjunction
with our CellAirity
hardware solution, we offer full software solutions for a
variety of operating systems to enable complete phone designs by
our customers.
Global
Positioning Systems
The demand for GPS technology has grown dramatically as
evidenced by the increasing deployment of GPS in mobile phones
and personal navigation devices. Broadcom offers standalone
global positioning system, or GPS, and assisted-global
positioning system, or A-GPS, semiconductor products and
software. We also maintain a worldwide GPS reference network
that provides assistance data to A-GPS-equipped chips via
wireless transport including cellular data channels (GPRS or 3G)
and Wi-Fi, boosting performance and reducing the time required
to determine a location by up to 100 times. Combining our GPS
technology with our leading Bluetooth, Wi-Fi, cellular and other
mobile technologies allows leading cellular handset and personal
navigation device makers to obtain all of the key wireless
connectivity solutions that add significant value to mobile
devices and smartphone products from a single source: Broadcom.
11
Mobile
Multimedia Processors
Multimedia has become increasingly prevalent in handheld devices
such as cellular phones and portable media players. To support
new multimedia features including imaging, graphics, camera
image capture, audio capture, music playback, music streaming,
video streaming, video capture, gaming, mobile TV, and more,
Broadcom offers a line of video and multimedia processors based
on a low power, high performance architecture referred to as
VideoCore®.
Unlike hard-wired processor cores, VideoCore processors are
built to provide customers the benefit of software flexibility
and programmability, supporting a wide variety of standard and
non-standard software and codecs. Providing the base codecs to
our key customers allows them to rapidly develop next generation
products while maintaining backwards compatibility with
applications software. Because the programmable architecture of
our mobile multimedia processors enables a complete range of
multimedia functions to be executed in software, the system
designer can quickly move to production without the costly
overhead and time to market uncertainty of hardware
accelerators. The scalability of the architecture allows
customers to add features or new industry standard codecs
shortly before product release or through their own firmware
upgrades in the field.
Our VideoCore products can be used either as standalone
multimedia processors or as co-processors in conjunction with a
host processor such as a cellular baseband.
Mobile
Application Processors
The increasing popularity of multimedia features in cellular
phones and other portable devices, such as mobile televisions
and portable audio, video and gaming devices, is generating a
demand for high-end applications processors optimized to work
with video and camera capabilities at prices affordable to
consumers. Our family of mobile application processors, which
integrate our VideoCore multimedia processor and an
ARM®
RISC processor, software, and reference designs, enable an array
of multimedia features, including support for high megapixel
digital cameras, HD video encoding and decoding, and TV signal
output via composite, component and S-video connections. Our
mobile applications processors also support advanced mobile
device applications such as
e-mail, web
browsing, file management and graphical user interfaces.
Mobile
Power Management
Increasingly sophisticated functionality and applications are
becoming available in new cellular handsets and other portable
devices. However, each of these applications adds to the power
management complexity of the overall system, creating a need for
more sophisticated battery charging, monitoring, and system
power supply and management. Portable device makers are seeking
advanced power management solutions that reduce total system
cost, occupy very little board space and are flexible and
scalable enough to manage even the most demanding power
requirements. Broadcom provides a family of power management
devices that intelligently manages power consumption in mobile
devices to optimize system operation and maximize battery life
in cellular phones, MP3 players, personal navigation devices,
personal media and game players, and security applications.
Touch
Controllers
Touch screen functionality is an increasingly popular feature on
mobile devices, with many new cellular handsets and portable
media players allowing users to access content and navigate
menus and graphical user interfaces with the touch of a finger.
We provide custom designed low power touch controllers to help
enable this functionality.
Voice
over IP
Voice over Internet Protocol refers to the transmission of voice
over any IP packet-based network such as Ethernet. VoIP is
stimulating dramatic changes in traditional public switched and
enterprise telephone networks since packet-based networks
provide significant economic advantages over traditional
circuit-switched voice networks. The trend to IP networks for
voice has been driven by the significant build-out of the
Internet and deregulation of long distance and local phone
services. A host of new enterprise services can be enabled when
a
12
LAN-based Ethernet switching infrastructure is used to carry
both data and voice. Within residential markets, VoIP is gaining
momentum as a viable alternative to traditional public telephone
networks. In addition to enabling cost savings for long distance
calls, VoIP creates a number of consumer product opportunities
and applications for equipment vendors and service providers.
Our IP phone silicon and software solutions integrate packet
processing, voice processing and switching technologies to
provide the quality of service, high fidelity and reliability
necessary for enterprise telephony applications. Our VoIP
portfolio also features terminal adapter VoIP solutions that
enable existing analog phones to be connected to broadband
modems via Ethernet. These products support residential VoIP
services that are now being offered by a variety of broadband
service providers. Our VoIP solutions allow carriers and service
providers to offer low cost and high quality telephone services
that can be bundled with high-speed Internet access, IPTV and a
host of converged wireless capabilities. By combining our VoIP
solutions with our video and mobile multimedia processors, our
customers can create scalable solutions that enable the
transmission of voice, video data and multimedia content over an
IP network.
All of our VoIP processors support our
BroadVoice®
technology, which features a wideband high fidelity mode that
significantly improves the clarity and quality of telephony
voice service.
Mobile
Digital TV
Mobile digital TV refers to a series of new broadcast technology
standards targeted specifically at mobile platforms. Of these
standards, the digital video broadcasting-handheld, or DVB-H,
standard currently offers broad geographic coverage worldwide
and is based on the DVB-T standard with improved mobile
operations and lower power features. This technology is becoming
an integral part of global broadcasting, setting the standard
for satellite, cable, terrestrial and
IP-based
services. Our single-chip mobile TV demodulator and tuner
solution, which supports both the DVB-T and DVB-H standards, is
a complete mobile digital TV solution that offers significant
improvements in reception quality and battery life.
Reference
Platforms
We also develop reference platforms designed around our
integrated circuit products that represent prototypical
system-level applications for incorporation into our
customers equipment. These reference platforms generally
include an extensive suite of software drivers as well as
protocol and application layer software to assist our customers
in developing their own end products. By providing these
reference platforms, we can assist our customers in achieving
easier and faster transitions from initial prototype designs to
final production releases. These reference platforms enhance the
customers confidence that our products will meet its
market requirements and product introduction schedules.
Customers
and Strategic Relationships
We sell our products to leading manufacturers of wired and
wireless communications equipment in each of our target markets.
Because we leverage our technologies across different markets,
certain of our integrated circuits may be incorporated into
equipment used in several markets.
Customers currently shipping wired
and/or
wireless communications equipment incorporating our products
include Alcatel, Apple, Cisco, Dell, EchoStar, Hewlett-Packard,
IBM, LG, Motorola, Netgear, Nintendo, Nokia, Pace, Samsung, and
Thomson CE, among others. To meet the current and future
technical needs in our target markets, we have also established
strategic relationships with multiservice operators that provide
wired and wireless communications services to consumers and
businesses.
A small number of customers have historically accounted for a
substantial portion of our net revenue. Sales to our five
largest customers represented 35.8%, 39.7% and 46.5% of our net
revenue in 2008, 2007 and 2006, respectively. See Note 12
of Notes to Consolidated Financial Statements, included in
Part IV, Item 15 of this Report. We expect that our
key customers will continue to account for a substantial portion
of our net revenue in 2009 and in the foreseeable future. These
customers and their respective contributions to our net revenue
have
13
varied and will likely continue to vary from period to period.
We typically sell products pursuant to purchase orders that
customers can generally cancel, change or defer on short notice
without incurring a significant penalty.
Core
Technologies
Using proprietary technologies and advanced design
methodologies, we design, develop and supply complete SoC
solutions and system-level software, together with related
hardware and software applications for our target markets. Our
proven SoC design methodology has enabled us to be first to
market with advanced chips that are highly integrated and
cost-effective, and that facilitate the easy integration of our
customers intellectual property. Our design methodology
leverages industry-standard, state-of-the-art electronic design
automation tools, and generally migrates easily to new silicon
processes and technology platforms. It also allows for the easy
integration of acquired or licensed technology, providing
customers with a broad range of silicon options with
differentiated networking and performance features.
We believe our key competitive advantages include superior
engineering execution and our broad base of core technologies
encompassing the complete design space from systems to silicon.
We have developed and continue to build on the following
technology foundations:
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proprietary communications systems algorithms and protocols;
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advanced DSP hardware architectures;
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SoC design methodologies and advanced library development for
both standard cell and full-custom integrated circuit design;
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high performance radio frequency, analog and mixed-signal
circuit design using industry-standard CMOS processes;
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high performance custom microprocessor architectures and circuit
designs; and
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extensive software reference platforms and board-level hardware
reference platforms to enable complete system-level solutions.
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Research
and Development
We have assembled a large team of experienced engineers and
technologists, many of whom are leaders in their particular
field or discipline. As of December 31, 2008 we had 5,537
research and development employees, the majority of whom hold
advanced degrees, including 533 employees with Ph.Ds. These
key employees are involved in advancing our core technologies,
as well as applying them to our product development activities.
Because the SoC solutions for many of our target markets benefit
from the same underlying core technologies, we are able to
address a wide range of wired and wireless communications
markets with a relatively focused investment in research and
development.
We believe that the achievement of higher levels of integration
and the timely introduction of new products in our target
markets is essential to our growth. While we intend to manage
our costs and expenses in the short term through a recently
announced restructuring plan and other cost saving measures to
attain our long-term business objectives, we will need to
maintain significant research and development staffing levels in
2009 and for the foreseeable future. In addition to our
principal design facilities in Irvine, California and
Santa Clara County, California, we have design centers
throughout the United States. Internationally, we have design
facilities in Asia, Europe and North America. We anticipate
establishing additional design centers in the United States and
in other countries.
Our research and development expense was $1.498 billion,
$1.349 billion and $1.117 billion in 2008, 2007 and
2006, respectively. These amounts included stock-based
compensation expense for employees engaged in research and
development of $358.0 million, $353.6 million and
$307.1 million in 2008, 2007 and 2006, respectively.
14
Manufacturing
Wafer
Fabrication
Most of our products are manufactured using standard CMOS
process techniques. The standard nature of these processes
permits us to engage independent silicon foundries to fabricate
our integrated circuits. By subcontracting our manufacturing
requirements, we can focus our resources on design and test
applications where we believe we have greater competitive
advantages. This strategy also eliminates the high cost of
owning and operating semiconductor wafer fabrication facilities.
Our operations and quality engineering teams closely manage the
interface between manufacturing and design engineering. As a
result, we are responsible for the complete functional and
parametric performance testing of our devices, including
quality. We employ a fully staffed operations and quality
organization similar to that of a vertically integrated
semiconductor manufacturer. We also arrange with our foundries
to have online
work-in-process
control. Our approach makes the manufacturing subcontracting
process transparent to our customers.
We depend on five independent foundry subcontractors located in
Asia to manufacture substantially all of our products. Our key
silicon foundries are Taiwan Semiconductor Manufacturing
Corporation in Taiwan, Chartered Semiconductor Manufacturing in
Singapore, Semiconductor Manufacturing International Corporation
in China, Silterra Malaysia Sdn. Bhd. in Malaysia and United
Microelectronics Corporation in Singapore and Taiwan, several of
which maintain multiple fabrication facilities in various
locations. See Risk Factors under Item 1A of
this Report for a detailed discussion of the risks associated
with our dependence on independent foundry subcontractors.
Our products are currently fabricated on a variety of processes
ranging from 35 microns to 65 nanometers. We continuously
evaluate the benefits, on a
product-by-product
basis, of migrating to smaller geometry process technologies.
Although the majority of our products are currently manufactured
in .13 microns, we are designing most new products in 65
nanometers. See Risk Factors under Item 1A of
this Report for a detailed discussion of the risks associated
with transitioning to smaller geometry process technologies.
Assembly
and Test
Our wafer probe testing is conducted by either our independent
foundries or independent wafer probe test subcontractors.
Following completion of the wafer probe tests, the die are
assembled into packages and the finished products are tested by
one of our two primary subcontractors for testing: United Test
and Assembly Center in Singapore and EEMS in Singapore. Our
eight key subcontractors for assembly are: Advanced
Semiconductor Engineering in China and Taiwan; Amkor in Korea,
Philippines and China; ASAT in China; EEMS Test Singapore in
Singapore and China; Signetics in Korea; Siliconware Precision
in Taiwan; STATSChipPAC in Singapore, Korea, Malaysia and China;
and United Test and Assembly Center in Singapore and Thailand.
The availability of assembly and testing services from these
subcontractors could be materially and adversely affected in the
event a subcontractor experiences financial difficulties in the
current global economic environment, or if a subcontractor
suffers any damage to or destruction of its facilities, or in
the event of any other disruption of assembly and testing
capacity. See Risk Factors under Item 1A of
this Report for a more detailed discussion of the risks
associated with our dependence on third party assembly and test
subcontractors.
Quality
Assurance
Manufacturers of wired and wireless communications equipment
demand high quality and reliable semiconductors for
incorporation into their products. We focus on product
reliability from the initial stage of the design cycle through
each specific design process, including layout and production
test design. In addition, we subject our designs to in-depth
circuit simulation at temperature, voltage and processing
extremes before initiating the manufacturing process.
We prequalify each assembly and foundry subcontractor. This
prequalification process consists of a series of industry
standard environmental product stress tests, as well as an audit
and analysis of the subcontractors quality system and
manufacturing capability. We also participate in quality and
reliability monitoring through each stage of the production
cycle by reviewing electrical and parametric data from our wafer
foundry and assembly
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subcontractors. We closely monitor wafer foundry production to
ensure consistent overall quality, reliability and yield levels.
In cases where we purchase wafers on a fixed price basis, any
improvement in yields can reduce our cost per chip.
As part of our total quality program, we received ISO 9001
certification, a comprehensive International Standards
Organization specified quality system acknowledgement, for our
Singapore facility. All of our principal independent foundries
and package assembly facilities are currently ISO 9001 certified.
Environmental
Management
We monitor the environmental impact of our products. Our
manufacturing flow is registered to ISO 14000, the international
standard related to environmental management, by our
subcontractors. Due to environmental concerns, the need for
lead-free solutions in electronic components and systems is
receiving increasing attention within the semiconductor industry
and many companies are moving towards becoming compliant with
the Restriction of Hazardous Substances Directive, or RoHS, the
European legislation that restricts the use of a number of
substances, including lead. We believe that our products are
compliant with the RoHS Directive. In 2008 we began managing our
compliance towards the new European REACH (Registration,
Evaluation and Authorization of Chemicals) legislation.
Product
Distribution
We distribute products to our customers through our
international distribution center in Singapore and an operations
and distribution center located in Irvine, California. Our
Singapore facility distributes products to international
destinations, while our Irvine facility ships products to
U.S. destinations. Net revenue derived from actual
shipments to international destinations, primarily in Asia
(including foreign subsidiaries or manufacturing subcontractors
of customers that are headquartered in the United States),
represented 88.7%, 87.4%, and 86.5% of our net revenue in 2008,
2007 and 2006, respectively.
Sales and
Marketing
Our sales and marketing strategy is to achieve design wins with
technology leaders in each of our targeted wired and wireless
communications markets by providing quality, state-of-the-art
products, superior engineering execution, and superior sales,
field application and engineering support. We market and sell
our products in the United States through a direct sales force,
distributors and manufacturers representatives. The
majority of our domestic sales occur through our direct sales
force, which is based in offices located in California and
throughout the United States. We have also engaged independent
distributors, Arrow Electronics and Avnet, Inc., to service the
North American and South American markets.
We market and sell our products internationally through regional
offices located in Asia, Europe and North America, as well
as through a network of independent distributors and
representatives in Asia, Australia, Europe and North America. We
select these independent entities based on their ability to
provide effective field sales, marketing communications and
technical support to our customers. All international sales to
date have been denominated in U.S. dollars. For information
regarding revenue from independent customers by geographic area,
see Note 12 of Notes to Consolidated Financial Statements,
included in Part IV, Item 15 of this Report.
We dedicate sales managers to principal customers to promote
close cooperation and communication. We also provide our
customers with reference platform designs for most products. We
believe this enables our customers to achieve easier and faster
transitions from the initial prototype designs through final
production releases. We believe these reference platform designs
also significantly enhance customers confidence that our
products will meet their market requirements and product
introduction schedules.
Backlog
Our sales are made primarily pursuant to standard purchase
orders for delivery of products. Due to industry practice that
allows customers to cancel, change or defer orders with limited
advance notice prior to shipment, we do not believe that backlog
is a reliable indicator of future revenue levels.
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Competition
Wired and wireless communications markets and the semiconductor
industry are intensely competitive and are characterized by
rapid change, evolving standards, short product life cycles and
price erosion. We believe that the principal factors of
competition for integrated circuit providers in our target
markets include:
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product quality;
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product capabilities;
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level of integration;
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engineering execution;
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reliability;
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price;
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time-to-market;
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market presence;
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standards compliance;
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system cost;
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intellectual property;
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customer interface and support; and
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reputation.
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We believe that we compete favorably with respect to each of
these factors.
We compete with a number of major domestic and international
suppliers of integrated circuits and related applications in our
target markets. We also compete with suppliers of system-level
and motherboard-level solutions incorporating integrated
circuits that are proprietary or sourced from manufacturers
other than Broadcom. This competition has resulted and will
continue to result in declining average selling prices for our
products. In all of our target markets, we also may face
competition from newly established competitors, suppliers of
products based on new or emerging technologies, and customers
that choose to develop their own silicon solutions. We also
expect to encounter further consolidation in the markets in
which we compete.
Many of our competitors operate their own fabrication facilities
and have longer operating histories and presence in key markets,
greater name recognition, larger customer bases and
significantly greater financial, sales and marketing,
manufacturing, distribution, technical and other resources than
we do. As a result, these competitors may be able to adapt more
quickly to new or emerging technologies and changes in customer
requirements or to devote greater resources to the promotion and
sale of their products. Current and potential competitors have
established or may establish financial or strategic
relationships among themselves or with existing or potential
customers, resellers or other third parties, and may refuse to
provide us with information necessary to permit the
interoperability of our products with theirs. Accordingly, it is
possible that new competitors or alliances among competitors
could emerge and rapidly acquire significant market share. In
addition, competitors may develop technologies that more
effectively address our markets with products that offer
enhanced features, lower power requirements or lower costs.
Increased competition could result in pricing pressures,
decreased gross margins and loss of market share and may
materially and adversely affect our business, financial
condition and results of operations.
Intellectual
Property
Our success and future revenue growth depend, in part, on our
ability to protect our intellectual property. We rely primarily
on patent, copyright, trademark and trade secret laws, as well
as nondisclosure agreements and other methods, to protect our
proprietary technologies and processes. However, these measures
may not provide meaningful protection for our intellectual
property.
We currently hold over 3,100 U.S. and 1,400 foreign patents
and more than 7,600 additional U.S. and foreign pending
patent applications. We also generally enter into
confidentiality agreements with our employees and strategic
partners, and typically control access to and distribution of
our documentation and other proprietary information. Despite
these precautions, it is possible that competitors or other
unauthorized third parties may obtain, copy, use or disclose our
technologies and processes, develop similar technology
independently, or design
17
around our patents. As such, any rights granted under our
patents may not provide us with meaningful protection. In
addition, we may not be able to successfully enforce our patents
against infringing products in every jurisdiction.
Some or all of our patents have in the past been licensed and
likely will in the future be licensed to certain of our
competitors through cross-license agreements. Moreover, because
we have participated and continue to participate in developing
various industry standards, we may be required to license some
of our patents to others, including competitors, who develop
products based on those standards.
Companies in and related to the semiconductor industry and the
wired and wireless communications markets often aggressively
protect and pursue their intellectual property rights. We are
currently engaged in litigation and may need to engage in
additional litigation to enforce our intellectual property
rights or the rights of our customers, to protect our trade
secrets, or to determine the validity and scope of proprietary
rights of others, including our customers. In addition, we are
currently engaged in litigation and may engage in future
litigation with parties that claim that we infringed their
patents or misappropriated or misused their trade secrets. Such
litigation will result in substantial costs and diversion of our
resources and could materially and adversely affect our
business, financial condition and results of operations. For a
detailed description of our outstanding intellectual property
litigation, see Note 11 of Notes to Consolidated Financial
Statements, included in Part IV, Item 15 of this
Report.
The risks associated with patents and intellectual property are
more fully discussed under the section entitled Risk
Factors under Item 1A of this Report.
Employees
As of December 31, 2008 we had 7,402 full-time,
contract and temporary employees, including 5,537 individuals
engaged in research and development, 706 engaged in sales and
marketing, 523 engaged in manufacturing operations, and 636
engaged in finance, legal and general administrative activities.
Our employees are not represented by any collective bargaining
agreement, and we have never experienced a work stoppage. We
believe our employee relations are good.
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 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
political and economic uncertainties and specific conditions in
the markets we address, including the cyclical nature of and
volatility in the semiconductor industry. As a result, the
market price of our Class A common stock may
decline.
We operate primarily in the semiconductor industry, which is
cyclical and subject to rapid change and evolving industry
standards. From time to time, the semiconductor industry has
experienced significant downturns, such as the current downturn.
These downturns are characterized by decreases in product
demand, excess customer inventories, and accelerated erosion of
prices. These factors could cause substantial fluctuations in
our revenue and results of operations. In addition, during these
downturns some competitors may become more aggressive in their
pricing practices, which would adversely impact our gross
margin. Any downturns in the semiconductor industry may be
severe and prolonged, and any failure of the industry or wired
and wireless communications markets to fully recover from
downturns could seriously impact our revenue and harm our
business, financial condition and results of operations. The
semiconductor industry also periodically experiences increased
demand and production capacity constraints, which may affect our
ability to ship products. Accordingly, our operating results may
vary
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significantly as a result of the general conditions in the
semiconductor industry, which could cause large fluctuations in
our stock price.
Recently general worldwide economic conditions have experienced
a deterioration due to credit conditions resulting from the
recent financial crisis affecting the banking system and
financial markets and other factors, slower economic activity,
concerns about inflation and deflation, volatility in energy
costs, decreased consumer confidence, reduced corporate profits
and capital spending, adverse business conditions and liquidity
concerns in the wired and wireless communications markets, the
ongoing effects of the war in Iraq, recent international
conflicts and terrorist and military activity, and the impact of
natural disasters and public health emergencies. As a result, in
the fourth quarter of 2008 we experienced cancellations,
deferrals and a significant slowdown in orders and anticipate
that trend will continue in the indeterminate future, as the
current recession is projected to last at least throughout much
of 2009. These conditions make it extremely difficult for our
customers, our vendors and us to accurately forecast and plan
future business activities, and they could cause U.S. and
foreign businesses to further slow spending on our products and
services, which would delay and lengthen sales cycles.
Furthermore, during challenging economic times our customers may
face issues gaining timely access to sufficient credit, which
could result in an impairment of their ability to make timely
payments to us. If that were to occur, we may be required to
increase our allowance for doubtful accounts and our days sales
outstanding would be negatively impacted. We cannot predict the
timing, strength or duration of any economic slowdown or
subsequent economic recovery, worldwide, or in the semiconductor
industry or the wired and wireless communications markets. If
the economy or markets in which we operate do not continue at
their present levels or continue to deteriorate, we may record
additional charges related to restructuring costs and the
impairment of goodwill and other long-lived assets, and our
business, financial condition and results of operations will
likely be materially and adversely affected. Additionally, the
combination of our lengthy sales cycle coupled with challenging
macroeconomic conditions could have a synergistic negative
impact on the results of our operations.
Our
quarterly operating results may fluctuate significantly. As a
result, we may fail to meet the expectations of securities
analysts and investors, which could cause our stock price to
decline.
Our quarterly net revenue and operating results have fluctuated
significantly in the past and are likely to continue to vary
from quarter to quarter due to a number of factors, many of
which are not within our control. If our operating results do
not meet the expectations of securities analysts or investors,
who may derive their expectations by extrapolating data from
recent historical operating results, the market price of our
Class A common stock will likely decline. Fluctuations in
our operating results may be due to a number of factors,
including, but not limited to, those listed below and those
identified throughout this Risk Factors section,
some of which may contribute to more pronounced fluctuations in
an uncertain global economic environment:
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general economic and political conditions and specific
conditions in the markets we address, including the continuing
volatility in the technology sector and semiconductor industry,
current general economic volatility, and 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 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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our ability to adjust our operations in response to changes in
demand for our existing products and services or demand for new
products requested by our customers;
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the effectiveness of our expense and product cost control and
reduction efforts;
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the gain or loss of a key customer, design win or order;
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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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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;
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intellectual property disputes, customer indemnification claims
and other types of litigation risks;
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the availability and pricing of raw materials and third party
semiconductor foundry, assembly and test capacity;
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our ability to retain, recruit and hire key executives,
technical personnel and other employees in the positions and
numbers, with the experience and capabilities, and at the
compensation levels that we need to implement our business and
product plans;
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our ability to timely and accurately predict market requirements
and evolving industry standards and to identify and capitalize
upon opportunities in new markets;
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the rate at which our present and future customers and end users
adopt our technologies and products in our target markets;
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changes in our product or customer mix;
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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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our ability to timely and effectively transition to smaller
geometry process technologies or achieve higher levels of design
integration;
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the volume of our product sales and pricing concessions on
volume sales;
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the impact of the Internal Revenue Service review of certain of
our income tax returns; and
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the effects of public health emergencies, natural disasters,
terrorist activities, international conflicts and other events
beyond our control.
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We expect new product lines to account for a high percentage of
our future sales. Some of these markets are immature
and/or
unpredictable or are new markets for Broadcom, and we cannot
assure you that these markets will develop into significant
opportunities or that we will continue to derive significant
revenue from these markets. Based on the limited amount of
historical data available to us, it is difficult to anticipate
our future revenue streams from, or the sustainability of, such
newer markets. Typically our new products have lower gross
margins until we commence volume production and launch lower
cost revisions of such products, enabling us to benefit from
economies of scale and more efficient designs. However, certain
of our new products, such as products for the cellular phone
market, will likely have lower gross margins than our customary
products for some time after we commence volume production of
those products, which will be dependent upon our product mix.
Additionally, as an increasing number of our chips are being
incorporated into consumer products, such as desktop and
notebook computers, cellular phones and other mobile
communication devices, other wireless-enabled consumer
electronics, and satellite and digital cable set-top boxes, we
anticipate greater seasonality and fluctuations in the demand
for our products, which may result in greater variations in our
quarterly operating results. Consumer products can also have
lower gross margins than the gross margins we have been able to
achieve in the past, depending upon where they are in their
respective product life cycles, which could negatively impact
our revenue and gross margin.
In the past we have entered into arrangements that include
multiple deliverables, such as the sale of semiconductor
products and related data services. Under these arrangements,
the services may be provided without having a separate
fair value under Financial Accounting Standards
Board, or FASB, Emerging Issues Task Force, or EITF, Issue
No. 00-21,
Revenue Arrangements with Multiple Deliverables, or
EITF 00-21.
In that event, we will only recognize a portion of the total
revenue we receive from the customer during a quarter, and will
recognize the remaining revenue ratably over the respective
service period or estimated product life. There are also other
scenarios under
EITF 00-21
and other accounting literature whereby revenue may be deferred
for even longer periods or ratable recognition over the service
period may not be permitted and all of the revenue may be
required to be recognized in later periods or at the end of the
arrangement. As we enter into future multiple element
arrangements in which the fair value of each deliverable is not
known, the portion of revenue we recognize on a deferred basis
may vary significantly in any given quarter, which could cause
even greater fluctuations in our quarterly operating results.
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We are
subject to order and shipment uncertainties, and our ability to
accurately forecast customer demand may be impaired by our
lengthy sales cycle. If we are unable to accurately predict
customer demand, we may hold excess or obsolete inventory, which
would reduce our profit margin. Conversely, we may have
insufficient inventory, which would result in lost revenue
opportunities and potentially in loss of market share and
damaged customer relationships.
We typically sell products pursuant to purchase orders rather
than long-term purchase commitments. Customers can generally
cancel, change or defer purchase orders on short notice without
incurring a significant penalty. In the recent past, some of our
customers have developed excess inventories of their own
products and have, as a consequence, deferred purchase orders
for our products. It is difficult to accurately predict what or
how many products our customers will need in the future.
Anticipating demand is challenging because our customers face
volatile pricing and unpredictable demand for their own
products, are increasingly focused on cash preservation and
tighter inventory management, and may be involved in legal
proceedings that could affect their ability to buy our products.
Our ability to accurately forecast customer demand may also be
impaired by the delays inherent in our lengthy sales cycle.
After we have developed and delivered a product to a customer,
the customer will usually test and evaluate our product prior to
designing its own equipment that will incorporate our product.
Our customers may need three to more than nine months to test,
evaluate and adopt our product and an additional three to more
than twelve months to begin volume production of equipment that
incorporates our products. Due to this lengthy sales cycle, we
may experience significant delays from the time we increase our
operating expenses and make investments in inventory until the
time that we generate revenue from these products. It is
possible that we may never generate any revenue from these
products after incurring such expenditures. Even if a customer
selects our product to incorporate into its equipment, we have
no assurance that the customer will ultimately bring its product
to market or that such effort by our customer will be
successful. The delays inherent in our lengthy sales cycle
increase the risk that a customer will decide to cancel or
curtail, reduce or delay its product plans. As a result of the
recent significant economic downturn, which caused a decline in
the cellular market, as well as tempered expectations of the
future growth rate for that market, and an increase in our
implied discount rate due to higher risk premiums, as well as
the decline in our market capitalization, we had to adjust our
assumptions used to assess the estimated fair value of our
mobile platforms business group and recorded impairment charges
of $169.4 million in the three months ended
December 31, 2008 relating to this group. See Note 9
of Notes to Consolidated Financial Statements. If we incur
significant research and development expenses, marketing
expenses and investments in inventory in the future that we are
not able to recover, our operating results could be adversely
affected. In addition, as an increasing number of our chips are
being incorporated into consumer products, we anticipate greater
fluctuations in demand for our products, which makes it even
more difficult to forecast customer demand.
We place orders with our suppliers based on forecasts of
customer demand and, in some instances, may establish buffer
inventories to accommodate anticipated demand. Our forecasts are
based on multiple assumptions, each of which may introduce error
into our estimates. If we overestimate customer demand, we may
allocate resources to manufacturing products that we may not be
able to sell when we expect to, if at all. As a result, we could
hold excess or obsolete inventory, which would reduce our profit
margins and adversely affect our financial results. Conversely,
if we underestimate customer demand or if insufficient
manufacturing capacity is available, we could forego revenue
opportunities and potentially lose market share and damage our
customer relationships. In addition, any future significant
cancellations or deferrals of product orders or the return of
previously sold products could materially and adversely affect
our profit margins, increase product obsolescence and restrict
our ability to fund our operations. Furthermore, we generally
recognize revenue upon shipment of products to a customer. If a
customer refuses to accept shipped products or does not timely
pay for these products, which has occurred in the past, our
revenue and financial results could be materially and adversely
impacted.
We maintain inventory, or hubbing, arrangements with certain of
our customers. Our use of these arrangements increased in 2008
and we expect that we will continue to use these arrangements
for the foreseeable future. Pursuant to these arrangements, we
deliver products to a customer or a designated third party
warehouse based upon the customers projected needs, but do
not recognize product revenue unless and until the customer
reports that it has removed our product from the warehouse to
incorporate into its end products. Historically we
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have had good visibility into customer requirements and
shipments within a quarter. However, if a customer does not take
our products under a hubbing arrangement in accordance with the
schedule it originally provided us, our predicted future revenue
stream could vary substantially from our forecasts and our
results of operations could be materially and adversely
affected. In addition, distributors
and/or
customers with hubbing arrangements provide us periodic reports
regarding product, price, quantity, and when products are
shipped to their customers, as well as the quantities of our
products they still have in stock. For specialized shipping
terms we may also rely on data provided by our freight
forwarding providers. For our royalty revenue we also rely on
data provided by our customers. Any error in the data provided
to us by customers, distributors or other third parties could
lead to inaccurate reporting of our revenue, gross profit and
net income. Additionally, since we own inventory that is
physically located in a third partys warehouse, our
ability to effectively manage inventory levels may be impaired,
causing our total inventory turns to decrease, which could
increase expenses associated with excess and obsolete product
and negatively impact our cash flow.
If we
fail to appropriately adjust our operations in response to
changes in demand for our existing products and services or to
the demand for new products requested by our customers, our
business could be materially and adversely affected.
We intend to manage our costs and expenses in the short term to
achieve our long-term business objectives. We anticipate that in
the long term, we may need to expand as general worldwide
economic conditions improve. Through internal growth and
acquisitions, we significantly increased the scope of our
operations and expanded our workforce from 2,774 full-time,
contract and temporary employees as of December 31, 2003 to
7,402 full-time, contract and temporary employees as of
December 31, 2008. Nonetheless, we may not be able to
expand our workforce and operations in a sufficiently timely
manner to respond effectively to changes in demand for our
existing products and services or to the demand for new products
requested by our customers. In that event, we may be unable to
meet competitive challenges or exploit potential market
opportunities, and our current or future business could be
materially and adversely affected.
Conversely, if we expand our operations and workforce too
rapidly in anticipation of increased demand for our products,
and such demand does not materialize at the pace at which we
expect, our business could be materially and adversely affected.
We expect new product lines, which often require substantial
research and development expenses to develop, to account for a
high percentage of our future revenue. However, some of the
markets for these new products are immature
and/or
unpredictable or are new markets for Broadcom, and if these
markets do not develop at the rates we originally anticipated or
if we do not execute successfully, the rate of increase in our
operating expenses may exceed the rate of increase, if any, in
our revenue. Moreover, we may intentionally choose to increase
the rate of our research and development expenses more rapidly
than the increase in the rate of our revenue in the short term
in anticipation of the long term benefits we would derive from
such investment. However, such benefits may never materialize or
may not be as significant as we originally believed they would
be. For instance, during the last five years we have incurred
substantial expenditures on the development of new products for
the cellular handset market. Approximately 25% of the
$1.498 billion in research and development expense for 2008
was attributable to our mobile platforms business. However, this
market is characterized by very long product development and
sales cycles due to the significant qualification requirements
of cellular handset makers and wireless network operators, and
accordingly, it is common to experience significant delays from
the time research and development efforts commence to the time
corresponding revenues are generated. Due to these lengthy
product development and sales cycles, our mobile platforms
business had a material negative impact on our earnings in 2008,
including impairment charges of $169.4 million recorded in
the three months ended December 31, 2008 relating to this
business. See Note 9 of Notes to Consolidated Financial
Statements. In 2008 most of the revenue that we derived from our
mobile platforms business related to the $149.2 million in
royalties we received pursuant to a patent license agreement
entered into in July 2007. Up to $19.0 million of royalty
revenue is currently expected to be recognized under this
agreement in quarter ending March 31, 2009. As a result,
after March 31, 2009, our mobile platforms business could
have a greater dilutive impact on our results of operations.
Although we currently expect to begin deriving additional
revenue from our cellular handset products later in 2009, it is
possible that our customers may delay their product development
plans or that their products will not be commercially
successful, which would continue to materially and adversely
affect our results of operations.
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Additionally, our operations are characterized by a high
percentage of costs that are fixed or difficult to reduce in the
short term, such as research and development expenses, the
employment and training of a highly skilled workforce,
stock-based compensation expense, and legal, accounting and
other external fees. If we experience a slowdown in the
semiconductor industry or the wired and wireless communications
markets in which we operate, such as the current slowdown, we
may not be able to adjust our operating expenses in a
sufficiently timely or effective manner. Although we announced a
restructuring plan in January 2009 and have implemented a number
of other cost saving measures, if the current slowdown is more
severe or prolonged than we anticipate, our business, financial
condition and results of operations could be materially and
adversely affected.
Our past growth has placed, and any future long-term growth is
expected to continue to place, a significant strain on our
management personnel, systems and resources. To implement our
current business and product plans, we will need to continue to
expand, train, manage and motivate our workforce. All of these
endeavors will require substantial management effort. In the
past we have implemented an enterprise resource planning system
to help us improve our planning and management processes, and
more recently we have implemented a new equity administration
system to support our more complex equity programs as well as
the adoption of SFAS 123R. We anticipate that we will also
need to continue to implement a variety of new and upgraded
operational and financial systems, including enhanced human
resources management systems and a business-to-business
solution, as well as additional procedures and other internal
management systems. In general, the accuracy of information
delivered by these systems may be subject to inherent
programming quality. In addition, to support our growth, in
March 2007 we relocated our headquarters and Irvine operations
to new, larger facilities that have enabled us to centralize all
of our Irvine employees and operations on one campus. We may
also engage in other relocations of our employees or operations
from time to time. Such relocations could result in temporary
disruptions of our operations or a diversion of
managements attention and resources. If we are unable to
effectively manage our expanding operations, we may be unable to
adjust our business quickly enough to meet competitive
challenges or exploit potential market opportunities, or
conversely, we may scale our business too quickly and the rate
of increase in our expenses may exceed the rate of increase in
our revenue, either of which would materially and adversely
affect our current or future business.
If we are
unable to develop and introduce new products successfully and in
a cost-effective and timely manner or to achieve market
acceptance of our new products, our operating results would be
adversely affected.
Our future success is dependent upon our ability to develop new
semiconductor products for existing and new markets, introduce
these products in a cost-effective and timely manner, and
convince leading equipment manufacturers to select these
products for design into their own new products. Our products
are generally incorporated into our customers products at
the design stage. We often incur significant expenditures on the
development of a new product without any assurance that an
equipment manufacturer will select our product for design into
its own product. Once an equipment manufacturer designs a
competitors product into its product offering, it becomes
significantly more difficult for us to sell our products to that
customer because changing suppliers involves significant cost,
time, effort and risk for the customer.
Even if an equipment manufacturer designs one of our products
into its product offering, we have no assurances that its
product will be commercially successful or that we will receive
any revenue from sales of that product. Sales of our products
largely depend on the commercial success of our customers
products. Our customers are typically not obligated to purchase
our products and can choose at any time to stop using our
products if their own products are not commercially successful
or for any other reason. In addition, any substantial delay in
our customers product development plans could have a
material negative impact on our business.
Our historical results have been, and we expect that our future
results will continue to be, dependent on the introduction of a
relatively small number of new products and the timely
completion and delivery of those products to customers. The
development of new silicon devices is highly complex, and from
time to time we have experienced delays in completing the
development and introduction of new products or lower than
anticipated manufacturing yields in the early production of such
products. If we were to experience any similar delays in the
successful completion of a new product or similar reductions in
our manufacturing yields for a new product in the future, our
customer relationships, reputation and business could be
seriously harmed.
23
In addition, the development and introduction of new products
often requires substantial research and development resources.
As a result, we may choose to discontinue one or more products
or product development programs to dedicate more resources to
new products. The discontinuation of an existing or planned
product may materially and adversely affect our relationship
with our customers, including customers who may purchase more
than one product from us.
Our ability to develop and deliver new products successfully
will depend on various factors, including our ability to:
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timely and accurately predict market requirements and evolving
industry standards;
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accurately define new products;
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timely and effectively identify and capitalize upon
opportunities in new markets;
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timely complete and introduce new product designs;
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adjust our operations in response to changes in demand for our
products and services or the demand for new products requested
by our customers;
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license any desired third party technology or intellectual
property rights;
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effectively develop and integrate technologies from companies
that we have acquired;
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timely qualify and obtain industry interoperability
certification of our products and the products of our customers
into which our products will be incorporated;
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obtain sufficient foundry capacity and packaging materials;
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achieve high manufacturing yields; and
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shift our products to smaller geometry process technologies to
achieve lower cost and higher levels of design integration.
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In some of our businesses, our ability to develop and deliver
next generation products successfully and in a timely manner may
depend in part on access to information, or licenses of
technology or intellectual property rights, from companies that
are our competitors. We cannot assure you that such information
or licenses will be made available to us on a timely basis, if
at all, or at reasonable cost and on commercially reasonable
terms.
If we are not able to develop and introduce new products
successfully and in a cost effective and timely manner, we will
be unable to attract new customers or to retain our existing
customers, as these customers may transition to other companies
that can meet their product development needs, which would
materially and adversely affect our results of operations.
Our
operating results for 2006 and prior periods have been
materially and adversely impacted as a result of the voluntary
review of our past equity award practices reported in January
2007. Our outstanding civil litigation relating to these matters
could continue to result in significant costs to us. In
addition, any other related action by a governmental agency
could result in civil or criminal sanctions against certain of
our current and/or former officers, directors and/or
employees.
In connection with the voluntary review of our past equity award
practices, we restated our financial statements for each of the
years ended December 31, 1998 through December 31,
2005, and for the three months ended March 31, 2006.
Accordingly, you should not rely on financial information
included in the reports on
Forms 10-K,
10-Q and
8-K
previously filed by Broadcom, the related opinions of our
independent registered public accounting firm, or earnings press
releases and similar communications issued by us, for periods
ended on or before March 31, 2006, all of which have been
superseded in their entirety by the information contained in our
amended Annual Report on
Form 10-K/A
for the year ended December 31, 2005 and our amended
Quarterly Report on
Form 10-Q/A
for the three months ended March 31, 2006, each filed
January 23, 2007.
In June 2006 we received an informal request for information
from the staff of the Los Angeles regional office of the SEC
regarding our historical option granting practices. In December
2006 we were informed that the SEC had issued a formal order of
investigation in the matter. In April 2008 the SEC brought a
complaint against Broadcom alleging violations of the federal
securities laws, and we entered into a settlement with the SEC.
Without admitting or denying the SECs allegations, we
agreed to pay a civil penalty of $12.0 million, which we
recorded as a settlement cost in 2008, and stipulated to an
injunction against future violations of certain provisions of
the
24
federal securities laws. The settlement was approved by the
United States District Court for the Central District of
California in late April 2008, thus concluding the SECs
investigation of this matter with respect to Broadcom.
As discussed in detail in Note 11 of Notes to Consolidated
Financial Statements, included in Part IV, Item 15 of
this Report, in May 2008 the SEC filed a complaint in the United
States District Court for the Central District of California
against Dr. Henry Samueli, our then Chairman of the Board
and Chief Technical Officer, Mr. David A. Dull, our then
Senior Vice President, Business Affairs and General Counsel, and
two other former executive officers of Broadcom. The SECs
civil complaint alleges that Dr. Samueli and Mr. Dull,
along with the other defendants, violated the anti-fraud
provisions of the federal securities laws, falsified books and
records, and caused the company to report false financial
results. We do not know when the SEC action will be resolved
with respect to Dr. Samueli
and/or
Mr. Dull or what actions, if any, the SEC may require
either to take in resolution of the matter against him
personally.
In August 2006 we were informally contacted by the
U.S. Attorneys Office for the Central District of
California and asked to produce documents. In 2007 and 2008 we
continued to provide substantial amounts of documents and
information to the U.S. Attorneys Office on a
voluntary basis and pursuant to grand jury subpoenas. We are
continuing to cooperate with the U.S. Attorneys
Office in 2009. As widely reported, in June 2008
Dr. Henry T. Nicholas, III, our former President and
Chief Executive Officer and a former director, and William J.
Ruehle, our former Chief Financial Officer, were named in an
indictment relating to alleged stock options backdating at the
company. Also in June 2008 Dr. Samueli pled guilty to
making a materially false statement in connection with the
SECs investigation described above. In September 2008 the
United States District Court for the Central District of
California rejected Dr. Samuelis plea agreement.
Dr. Samueli has appealed the ruling in the United States
Court of Appeals for the Ninth Circuit. Any further action by
the SEC, the U.S. Attorneys Office or other
governmental agency could result in additional civil or criminal
sanctions
and/or fines
against us
and/or
certain of our current or former officers, directors
and/or
employees.
Additionally, as discussed in Note 11 of Notes to
Consolidated Financial Statements, we currently are engaged in
civil litigation with parties that claim, among other
allegations, that certain of our current and former directors
and officers improperly dated stock option grants to enhance
their own profits on the exercise of such options or for other
improper purposes. Although we and the other defendants intend
to defend these claims vigorously, there are many uncertainties
associated with any litigation, and we cannot assure you that
these actions will be resolved without substantial costs
and/or
settlement charges that may exceed any reimbursement we may be
entitled to under our directors and officers
insurance policies.
In addition, we rely on independent registered public accounting
firms for opinions and consents to maintain current reports
under the Securities Exchange Act of 1934, as amended, or the
Exchange Act, and to have effective registration statements
under the Securities Act of 1933, as amended, or the Securities
Act, on file with the SEC, including our outstanding
registration statements on
Forms S-1,
S-4 and
S-8. The
pending arbitration proceedings involving Ernst &
Young LLP, or E&Y, our former independent registered public
accounting firm, could adversely impact our ability to obtain
any necessary consents in the future from E&Y. In that
event, we may be required to have our new independent registered
public accounting firm reaudit the affected periods and during
such reaudit may not be able to timely file required Exchange
Act reports with the SEC or to issue equity, including common
stock pursuant to equity awards that comprise a significant
portion of our compensation packages, under our outstanding or
any new registration statements. Furthermore, as a result of the
reaudit, it is possible that additional accounting issues may be
identified.
The resolution of the pending investigation by the
U.S. Attorneys Office, the defense of our pending
civil litigation, and the defense of any additional litigation
that may arise relating to our past equity award practices or
the January 2007 restatement of our prior financial statements
has in the past and could continue to result in significant
costs and diversion of the attention of management and other key
employees. We have indemnification agreements with each of our
present and former directors and officers, under which Broadcom
is generally required to indemnify them against expenses,
including attorneys fees, judgments, fines and
settlements, arising from the pending litigation and related
government actions described above (subject to certain
exceptions, including liabilities arising from willful
misconduct, from conduct knowingly contrary to the best
interests of Broadcom, or conduct that is knowingly fraudulent
or deliberately dishonest or results in improper personal
benefit). The
25
potential amount of the future payments we could be required to
make under these indemnification obligations could be
significant and could have a material impact on our results of
operations, particularly as the defendants in the criminal and
civil actions described above prepare to go to trial.
Although we maintain various insurance policies related to the
risks associated with our business, including directors
and officers insurance, we cannot assure you that the
amount of our insurance coverage will be sufficient, that our
insurance policies will provide coverage for the matters and
circumstances described above or that portions of payments by
our insurance companies previously made to us will not be
required to be repaid to the insurance companies as these
matters reach conclusion. Certain of our insurance carriers have
reserved their rights under these policies, and in the third
quarter of 2008 one of our insurance carriers notified us that
coverage was not available and that it intended to suspend
payment to us. As a result, we ceased receiving reimbursements
under these policies for our expenses related to the matters
described above. However, in January 2009 we entered into an
agreement with that insurance carrier and certain of our other
insurance carriers pursuant to which, without prejudicing our
rights or the rights of such insurers, we will receive a payment
from these insurers under these insurance policies. Nonetheless,
if our coverage under these policies is reduced or eliminated,
our potential financial exposure in the pending securities
litigation and related government actions would be increased.
Our business, financial position and results of operations may
be materially and adversely affected to the extent that our
insurance coverage fails to pay or reimburse expenses and any
judgments, fines or settlement costs that we may incur in
connection with these matters or in the event we are required to
repay amounts that were previously paid by our insurance
companies.
Our
acquisition strategy may result in unanticipated accounting
charges or otherwise adversely affect our results of operations,
and result in difficulties in assimilating and integrating the
operations, personnel, technologies, products and information
systems of acquired companies or businesses, or be dilutive to
existing shareholders.
A key element of our business strategy involves expansion
through the acquisitions of businesses, assets, products or
technologies that allow us to complement our existing product
offerings, expand our market coverage, increase our engineering
workforce or enhance our technological capabilities. Between
January 1, 1999 and December 31, 2008, we acquired
38 companies and certain assets of four other businesses.
We continually evaluate and explore strategic opportunities as
they arise, including business combination transactions,
strategic partnerships, and the purchase or sale of assets,
including tangible and intangible assets such as intellectual
property.
Acquisitions may require significant capital infusions,
typically entail many risks, and could result in difficulties in
assimilating and integrating the operations, personnel,
technologies, products and information systems of acquired
companies or businesses. We have in the past and may in the
future experience delays in the timing and successful
integration of an acquired companys technologies and
product development through volume production, unanticipated
costs and expenditures, changing relationships with customers,
suppliers and strategic partners, or contractual, intellectual
property or employment issues. In addition, key personnel of an
acquired company may decide not to work for us. Moreover, to the
extent we acquire a company with existing products, those
products may have lower gross margins than our customary
products, which could adversely affect our gross margin and
operating results. If an acquired company also has inventory
that we assume, we will be required to write up the carrying
value of that inventory to fair value. When that inventory is
sold, the gross margin for those products will be nominal and
our gross margin for that period will be negatively affected.
The acquisition of another company or its products and
technologies may also require us to enter into a geographic or
business market in which we have little or no prior experience.
These challenges could disrupt our ongoing business, distract
our management and employees, harm our reputation and increase
our expenses. These challenges are magnified as the size of the
acquisition increases. Furthermore, these challenges would be
even greater if we acquired a business or entered into a
business combination transaction with a company that was larger
and more difficult to integrate than the companies we have
historically acquired.
Acquisitions may require large one-time charges and can result
in increased debt or contingent liabilities, adverse tax
consequences, additional stock-based compensation expense, and
the recording and later amortization of amounts related to
certain purchased intangible assets, any of which items could
negatively impact our results of operations. In addition, we may
record goodwill in connection with an acquisition and incur
goodwill impairment
26
charges in the future. Any of these charges could cause the
price of our Class A common stock to decline. Beginning
January 1, 2009, the accounting for future business
combinations changed. We expect that the new requirements will
have an impact on our consolidated financial statements, but the
nature and magnitude of the specific effects will depend upon
the nature, terms and size of the acquisitions we consummate
after the effective date.
Acquisitions or asset purchases made entirely or partially for
cash may reduce our cash reserves. We may seek to obtain
additional cash to fund an acquisition by selling equity or debt
securities. Any issuance of equity or convertible debt
securities may be dilutive to our existing shareholders. In
addition, the equity or debt securities that we may issue could
have rights, preferences or privileges senior to those of our
Class A
and/or
Class B common stock. For example, as a consequence of the
prior pooling-of-interests accounting rules, the securities
issued in nine of our acquisitions were shares of Class B
common stock, which have voting rights superior to those of our
publicly traded Class A common stock.
We cannot assure you that we will be able to consummate any
pending or future acquisitions or that we will realize any
anticipated benefits from these acquisitions. We may not be able
to find suitable acquisition opportunities that are available at
attractive valuations, if at all. Even if we do find suitable
acquisition opportunities, we may not be able to consummate the
acquisitions on commercially acceptable terms, and any decline
in the price of our Class A common stock may make it
significantly more difficult and expensive to initiate or
consummate additional acquisitions.
We may
not be able to adequately protect or enforce our intellectual
property rights, which could harm our competitive
position.
Our success and future revenue growth will depend, in part, on
our ability to protect our intellectual property. We primarily
rely on patent, copyright, trademark and trade secret laws, as
well as nondisclosure agreements and other methods, to protect
our proprietary technologies and processes. Despite our efforts
to protect our proprietary technologies and processes, it is
possible that competitors or other unauthorized third parties
may obtain, copy, use or disclose our technologies and
processes. We currently hold over 3,100 U.S. and 1,400
foreign patents and have more than 7,600 additional
U.S. and foreign pending patent applications. However, we
cannot assure you that any additional patents will be issued.
Even if a new patent is issued, the claims allowed may not be
sufficiently broad to protect our technology. In addition, any
of our existing or future patents may be challenged, invalidated
or circumvented. As such, any rights granted under these patents
may not provide us with meaningful protection. We may not be
able to obtain foreign patents or file pending applications
corresponding to our U.S. patents and patent applications.
Even if foreign patents are granted, effective enforcement in
foreign countries may not be available. If our patents do not
adequately protect our technology, our competitors may be able
to offer products similar to ours. Our competitors may also be
able to develop similar technology independently or design
around our patents. Some or all of our patents have in the past
been licensed and likely will in the future be licensed to
certain of our competitors through cross-license agreements.
Moreover, because we have participated and continue to
participate in developing various industry standards, we may be
required to license some of our patents to others, including
competitors, who develop products based on those standards.
Certain of our software (as well as that of our customers) may
be derived from so-called open source software that
is generally made available to the public by its authors
and/or other
third parties. Such open source software is often made available
under licenses, such as the GNU General Public License, or GPL,
which impose certain obligations on us in the event we were to
distribute derivative works of the open source software. These
obligations may require us to make source code for the
derivative works available to the public,
and/or
license such derivative works under a particular type of
license, rather than the forms of license customarily used to
protect our intellectual property. In addition, there is little
or no legal precedent for interpreting the terms of certain of
these open source licenses, including the determination of which
works are subject to the terms of such licenses. While we
believe we have complied with our obligations under the various
applicable licenses for open source software, in the event that
the copyright holder of any open source software were to
successfully establish in court that we had not complied with
the terms of a license for a particular work, we could be
required to release the source code of that work to the public
and/or stop
distribution of that work. With respect to our proprietary
software, we generally license such software under terms that
prohibit combining it with open source software as described
27
above. Despite these restrictions, parties may combine Broadcom
proprietary software with open source software without our
authorization, in which case we might nonetheless be required to
release the source code of our proprietary software.
We generally enter into confidentiality agreements with our
employees, consultants and strategic partners. We also try to
control access to and distribution of our technologies,
documentation and other proprietary information. Despite these
efforts, internal or external parties may attempt to copy,
disclose, obtain or use our products, services or technology
without our authorization. Also, current or former employees may
seek employment with our business partners, customers or
competitors, and we cannot assure you that the confidential
nature of our proprietary information will be maintained in the
course of such future employment. Additionally, current,
departing or former employees or third parties could attempt to
penetrate our computer systems and networks to misappropriate
our proprietary information and technology or interrupt our
business. Because the techniques used by computer hackers and
others to access or sabotage networks change frequently and
generally are not recognized until launched against a target, we
may be unable to anticipate, counter or ameliorate these
techniques. As a result, our technologies and processes may be
misappropriated, particularly in countries where laws may not
protect our proprietary rights as fully as in the United States.
In addition, some of our customers have entered into agreements
with us that grant them the right to use our proprietary
technology if we fail to fulfill our obligations, including
product supply obligations, under those agreements, and if we do
not correct the failure within a specified time period. Also,
some customers may require that we make certain intellectual
property available to our competitors so that the customer has a
choice among semiconductor vendors for solutions to be
incorporated into the customers products. Moreover, we
often incorporate the intellectual property of strategic
customers into our own designs, and have certain obligations not
to use or disclose their intellectual property without their
authorization.
We cannot assure you that our efforts to prevent the
misappropriation or infringement of our intellectual property or
the intellectual property of our customers will succeed. We have
in the past been and currently are engaged in litigation to
enforce or defend our intellectual property rights, protect our
trade secrets, or determine the validity and scope of the
proprietary rights of others, including our customers. It is
possible that the advent of or developments in such litigation
may adversely affect our relationships and agreements with
certain customers that are either involved in such litigation or
also have business relationships with the party with whom we are
engaged in litigation. Such litigation (and the settlement
thereof) has been and will likely continue to be very expensive
and time consuming. Additionally, any litigation can divert the
attention of management and other key employees from the
operation of the business, which could negatively impact our
business and results of operations.
Intellectual
property risks and third party claims of infringement,
misappropriation of proprietary rights or other claims against
us could adversely affect our ability to market our products,
require us to redesign our products or seek licenses from third
parties, and seriously harm our operating results. In addition,
the defense of such claims could result in significant costs and
divert the attention of our management or other key
employees.
Companies in and related to the semiconductor industry and the
wired and wireless communications markets often aggressively
protect and pursue their intellectual property rights. There are
various intellectual property risks associated with developing
and producing new products and entering new markets, and we may
not be able to obtain, at reasonable cost and upon commercially
reasonable terms, licenses to intellectual property of others
that is alleged to read on such new or existing products. From
time to time, we have received, and may continue to receive,
notices that claim we have infringed upon, misappropriated or
misused other parties proprietary rights. Moreover, in the
past we have been and we currently are engaged in litigation
with parties that claim that we infringed their patents or
misappropriated or misused their trade secrets. In addition, we
or our customers may be sued by other parties that claim that
our products have infringed their patents or misappropriated or
misused their trade secrets, or which may seek to invalidate one
or more of our patents. An adverse determination in any of these
types of disputes could prevent us from manufacturing or selling
some of our products, limit or restrict the type of work that
employees involved in such litigation may perform for Broadcom,
increase our costs of revenue, and expose us to significant
liability. Any of these claims or litigation may materially and
adversely affect our
28
business, financial condition and results of operations. For
example, in a patent or trade secret action, a court could issue
a preliminary or permanent injunction that would require us to
withdraw or recall certain products from the market, redesign
certain products offered for sale or under development, or
restrict employees from performing work in their areas of
expertise. We may also be liable for damages for past
infringement and royalties for future use of the technology, and
we may be liable for treble damages if infringement is found to
have been willful. In addition, governmental agencies may
commence investigations or criminal proceedings against our
employees, former employees
and/or the
company relating to claims of misappropriation or misuse of
another partys proprietary rights. We may also have to
indemnify some customers and strategic partners under our
agreements with such parties if a third party alleges or if a
court finds that our products or activities have infringed upon,
misappropriated or misused another partys proprietary
rights. We have received requests from certain customers and
strategic partners to include increasingly broad indemnification
provisions in our agreements with them. These indemnification
provisions may, in some circumstances, extend our liability
beyond the products we provide to include liability for
combinations of components or system level designs and for
consequential damages
and/or lost
profits. Even if claims or litigation against us are not valid
or successfully asserted, these claims could result in
significant costs and diversion of the attention of management
and other key employees to defend. Additionally, we have sought
and may in the future seek to obtain licenses under other
parties intellectual property rights and have granted and
may in the future grant licenses to certain of our intellectual
property rights to others in connection with cross-license
agreements or settlements of claims or actions asserted against
us. However, we may not be able to obtain licenses under
anothers intellectual property rights on commercially
reasonable terms, if at all.
Our products may contain technology provided to us by other
parties such as contractors, suppliers or customers. We may have
little or no ability to determine in advance whether such
technology infringes the intellectual property rights of a third
party. Our contractors, suppliers and licensors may not be
required to indemnify us in the event that a claim of
infringement is asserted against us, or they may be required to
indemnify us only up to a maximum amount, above which we would
be responsible for any further costs or damages. In addition, we
may have little or no ability to correct errors in the
technology provided by such contractors, suppliers and
licensors, or to continue to develop new generations of such
technology. Accordingly, we may be dependent on their ability
and willingness to do so. In the event of a problem with such
technology, or in the event that our rights to use such
technology become impaired, we may be unable to ship our
products containing such technology, and may be unable to
replace the technology with a suitable alternative within the
time frame needed by our customers.
Because
we depend on a few significant customers and/or design wins for
a substantial portion of our revenue, the loss of a key customer
or design win or any significant delay in our customers
product development plans could seriously impact our revenue and
harm our business. In addition, if we are unable to continue to
sell existing and new products to our key customers in
significant quantities or to attract new significant customers,
our future operating results could be adversely
affected.
We have derived a substantial portion of our past revenue from
sales to a relatively small number of customers. As a result,
the loss of any significant customer could materially and
adversely affect our financial condition and results of
operations.
Sales to our five largest customers represented 35.8%, 39.7% and
46.5% of our net revenue in 2008, 2007 and 2006, respectively.
We expect that our largest customers will continue to account
for a substantial portion of our net revenue in 2009 and for the
foreseeable future. The identities of our largest customers and
their respective contributions to our net revenue have varied
and will likely continue to vary from period to period.
A significant portion of our revenue may also depend on a single
product design win with a large customer. As a result, the loss
of any such key design win or any significant delay in the ramp
of volume production of the customers products into which
our product is designed could materially and adversely affect
our financial condition and results of operations. For instance,
as a result of the recent significant economic downturn, which
caused a decline in the cellular market, as well as tempered
expectations of the future growth rate for that market, and an
increase in our implied discount rate due to higher risk
premiums, as well as the decline in our market capitalization,
we had to adjust our assumptions used to assess the estimated
fair value of our mobile platforms
29
business. In addition, these key design wins are often with
large customers who have significantly greater financial, sales,
marketing and other resources than we have and greater
bargaining and pricing power, which could materially and
adversely affect our operating margins.
We may not be able to maintain or increase sales to certain of
our key customers or continue to secure key design wins for a
variety of reasons, including the following:
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most of 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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our agreements with our customers typically do not require them
to purchase a minimum quantity of our products;
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many of our customers have pre-existing or concurrent
relationships with our current or potential competitors that may
affect the customers decisions to purchase our products;
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our customers face intense competition from other manufacturers
that do not use our products;
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some of our customers may choose to consolidate their supply
sources to our detriment; and
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some of our customers offer or may offer products that compete
with our products.
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These relationships often require us to develop new products
that may involve significant technological challenges. Our
customers frequently place considerable pressure on us to meet
their tight development schedules. Accordingly, we may have to
devote a substantial portion of our resources to strategic
relationships, which could detract from or delay our completion
of other important development projects or the development of
next generation products and technologies. Delays in development
could impair our relationships with strategic customers and
negatively impact sales of the products under development.
In addition, our longstanding relationships with some larger
customers may also deter other potential customers who compete
with these customers from buying our products. To attract new
customers or retain existing customers, we may offer certain
customers favorable prices on our products. We may have to offer
the same lower prices to certain of our customers who have
contractual most favored nation pricing
arrangements. In that event, our average selling prices and
gross margins would decline. The loss of a key customer or
design win, a reduction in sales to any key customer, a
significant delay in our customers product development
plans or our inability to attract new significant customers or
secure new key design wins could seriously impact our revenue
and materially and adversely affect our results of operations.
We may be
unable to attract, retain or motivate key senior management and
technical personnel, which could seriously harm our
business.
Our future success depends to a significant extent upon the
continued service of our key senior management personnel,
including our Chief Executive Officer, Scott A. McGregor, other
senior executives, and our Senior Technical Advisor,
Dr. Samueli. We have employment agreements with
Mr. McGregor and certain other executive officers; however
the agreements do not govern the length of their service with
Broadcom. We do not have employment agreements with most of our
elected officers, or any other key employees, although we do
have limited change in control severance benefit arrangements in
place with certain executives. The loss of the services of
Mr. McGregor or certain other key senior management or
technical personnel could materially and adversely affect our
business, financial condition and results of operations. For
instance, if certain of these individuals were to leave our
company unexpectedly, we could face substantial difficulty in
hiring qualified successors and could experience a loss in
productivity during the search for and while any such successor
is integrated into our business and operations.
Furthermore, our future success depends on our ability to
continue to attract, retain and motivate senior management and
qualified technical personnel, particularly software engineers,
digital circuit designers, RF and mixed-signal circuit designers
and systems applications engineers. Competition for these
employees is intense. If we are unable to attract, retain and
motivate such personnel in sufficient numbers and on a timely
basis, we will experience difficulty in implementing our current
business and product plans. In that event, we may be unable to
successfully meet competitive challenges or to exploit potential
market opportunities, which could adversely affect our business
and results of operations.
30
Equity awards generally comprise a significant portion of our
compensation packages for all employees. During the time that
our periodic filings with the SEC were not current, as a result
of the voluntary review of our equity award practices, we were
not able to issue shares of our common stock pursuant to equity
awards. We cannot be certain that we will be able to continue to
attract, retain and motivate employees if we are unable to issue
shares of our common stock pursuant to equity awards for a
sustained period or in the event of substantial
and/or
prolonged declines in the price of our Class A common stock.
We have recently effected a number of cost saving measures and
have announced a restructuring plan in January 2009, both of
which could negatively impact employee morale. Over the last few
years we have also modified our compensation policies by
increasing cash compensation to certain employees and
instituting awards of restricted stock units, while
simultaneously reducing awards of stock options. This
modification of our compensation policies and the applicability
of the Statement of Financial Accounting Standards, or SFAS,
No. 123 (revised 2004), Share-based Payment, or
SFAS 123R requirement to expense the fair value of equity
awards to employees have increased our operating expenses.
However, because we are mindful of the dilutive impact of our
equity awards, we intend to further reduce the number of equity
awards granted to employees over the next few years. While this
may have a positive impact on our operating expenses over time,
it may negatively impact employee morale and our ability to
attract, retain and motivate employees. Our inability to attract
and retain additional key employees and any increase in
stock-based compensation expense could each have an adverse
effect on our business, financial condition and results of
operations.
We depend
on five independent foundry subcontractors to manufacture
substantially all of our current products, and any failure to
secure and maintain sufficient foundry capacity could materially
and adversely affect our business.
We do not own or operate a fabrication facility. Five
third-party foundry subcontractors located in Asia manufacture
substantially all of our semiconductor devices in current
production. Availability of foundry capacity has at times in the
past been reduced due to strong demand. If we are unable to
secure sufficient capacity at our existing foundries, or in the
event of a public health emergency or closure at any of these
foundries, our revenues, cost of revenues and results of
operations would be negatively impacted.
In September 1999 two of our third-party foundries
principal facilities were affected by a significant earthquake
in Taiwan. As a consequence of this earthquake, they suffered
power outages and equipment damage that impaired their wafer
deliveries, which, together with strong demand, resulted in
wafer shortages and higher wafer pricing industrywide. If any of
our foundries experiences a shortage in capacity, suffers any
damage to its facilities, experiences power outages, suffers an
adverse outcome in pending or future litigation, or encounters
financial difficulties or any other disruption of foundry
capacity, we may encounter supply delays or disruptions, and we
may need to qualify an alternative foundry. Our current
foundries need to have new manufacturing processes qualified if
there is a disruption in an existing process. We typically
require several months to qualify a new foundry or process
before we can begin shipping products from it. If we cannot
accomplish this qualification in a timely manner, we may
experience a significant interruption in supply of the affected
products.
Because we rely on outside foundries, we face several
significant risks in addition to those discussed above,
including:
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a lack of guaranteed wafer supply and higher wafer prices,
particularly in light of the recent volatility in the
commodities markets, which has the impact of increasing the cost
of metals used in production of wafers;
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limited control over delivery schedules, quality assurance,
manufacturing yields and production costs and other
terms; and
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the unavailability of, or potential delays in obtaining access
to, key process technologies.
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The manufacture of integrated circuits is a highly complex and
technologically demanding process. Although we work closely with
our foundries to minimize the likelihood of reduced
manufacturing yields, our foundries have from time to time
experienced lower than anticipated manufacturing yields. This
often occurs during the production of new products or the
installation and
start-up of
new process technologies. Poor yields from our foundries could
result in product shortages or delays in product shipments,
which could seriously harm our relationships with our customers
and materially and adversely affect our results of operations.
31
The ability of each foundry to provide us with semiconductor
devices is limited by its available capacity and existing
obligations. Although we have entered into contractual
commitments to supply specified levels of products to some of
our customers, we do not have a long-term volume purchase
agreement or a significant guaranteed level of production
capacity with any of our foundries. Foundry capacity may not be
available when we need it or at reasonable prices. Availability
of foundry capacity has in the past been reduced from time to
time due to strong demand. Foundries can allocate capacity to
the production of other companies products and reduce
deliveries to us on short notice. It is possible that foundry
customers that are larger and better financed than we are, or
that have long-term agreements with our main foundries, may
induce our foundries to reallocate capacity to them. This
reallocation could impair our ability to secure the supply of
components that we need. Although we use five independent
foundries to manufacture substantially all of our semiconductor
products, each component is typically manufactured at only one
or two foundries at any given time, and if any of our foundries
is unable to provide us with components as needed and under
acceptable terms, we could experience significant delays in
securing sufficient supplies of those components. Also, our
third party foundries typically migrate capacity to newer,
state-of-the-art manufacturing processes on a regular basis,
which may create capacity shortages for our products designed to
be manufactured on an older process. We cannot assure you that
any of our existing or new foundries will be able to produce
integrated circuits with acceptable manufacturing yields, or
that our foundries will be able to deliver enough semiconductor
devices to us on a timely basis, or on reasonable terms or at
reasonable prices. These and other related factors could impair
our ability to meet our customers needs and have a
material and adverse effect on our business, financial condition
and results of operations.
Although we may utilize new foundries for other products in the
future, in using any new foundries we will be subject to all of
the risks described in the foregoing paragraphs with respect to
our current foundries.
We depend
on third-party subcontractors to assemble, obtain packaging
materials for, and test substantially all of our current
products. If we lose the services of any of our subcontractors
or if these subcontractors are unable to obtain sufficient
packaging materials, shipments of our products may be disrupted,
which could harm our customer relationships and adversely affect
our net sales.
We do not own or operate an assembly or test facility. Eight
third-party subcontractors located in Asia assemble, obtain
packaging materials for, and test substantially all of our
current products. Because we rely on third-party subcontractors
to perform these functions, we cannot directly control our
product delivery schedules and quality assurance. This lack of
control has resulted, and could in the future result, in product
shortages or quality assurance problems that could delay
shipments of our products or increase our manufacturing,
assembly or testing costs.
In the past we and others in our industry experienced a shortage
in the supply of packaging substrates that we use for our
products. If our third-party subcontractors are unable to obtain
sufficient packaging materials for our products in a timely
manner, we may experience a significant product shortage or
delay in product shipments, which could seriously harm our
customer relationships and materially and adversely affect our
net sales. Additionally, the recent volatility in the
commodities markets could significantly increase our substrate
costs.
We do not have long-term agreements with any of our assembly or
test subcontractors and typically procure services from these
suppliers on a per order basis. If any of these subcontractors
experiences financial difficulties in the current global
economic environment, suffers any damage to its facilities,
experiences power outages or any other disruption of assembly or
testing capacity, or is unable to obtain sufficient packaging
materials for our products, we may not be able to obtain
alternative assembly and testing services in a timely manner.
Due to the amount of time that it usually takes us to qualify
assemblers and testers, we could experience significant delays
in product shipments if we are required to find alternative
assemblers or testers for our components. Any problems that we
may encounter with the delivery, quality or cost of our products
could damage our customer relationships and materially and
adversely affect our results of operations. We are continuing to
develop relationships with additional third-party subcontractors
to assemble and test our products. However, even if we use these
new subcontractors, we will continue to be subject to all of the
risks described above.
32
The
complexity of our products could result in unforeseen delays or
expenses and in undetected defects, or bugs, which could damage
our reputation with current or prospective customers, result in
significant costs and claims, and adversely affect the market
acceptance of new products.
Highly complex products such as the products that we offer
frequently contain hardware or software defects or bugs when
they are first introduced or as new versions are released. Our
products have previously experienced, and may in the future
experience, these defects and bugs. If any of our products
contains defects or bugs, or has reliability, quality or
compatibility problems, our reputation may be damaged and
customers may be reluctant to buy our products, which could
materially and adversely affect our ability to retain existing
customers and attract new customers. In addition, these defects
or bugs could interrupt or delay sales or shipment of our
products to customers. To alleviate these problems, we may have
to invest significant capital and other resources. Although our
products are tested by us, our subcontractors, suppliers and
customers, it is possible that new products will contain defects
or bugs. If any of these problems are not found until after we
have commenced commercial production of a new product, we may be
required to incur additional development costs and product
recall, repair or field replacement costs. These problems may
divert our technical and other resources from other development
efforts and could result in claims against us by our customers
or others, including possible claims for consequential damages
and/or lost
profits. Moreover, we may lose, or experience a delay in, market
acceptance of the affected product or products, and we could
lose credibility with our current and prospective customers. In
addition, system and handset providers that purchase components
may require that we assume liability for defects associated with
products produced by their manufacturing subcontractors and
require that we provide a warranty for defects or other problems
which may arise at the system level.
To remain
competitive, we must keep pace with rapid technological change
and evolving industry standards in the semiconductor industry
and the wired and wireless communications markets.
Our future success will depend on our ability to anticipate and
adapt to changes in technology and industry standards and our
customers changing demands. We sell products in markets
that are characterized by rapid technological change, evolving
industry standards, frequent new product introductions, short
product life cycles and increasing demand for higher levels of
integration and smaller process geometries. Our past sales and
profitability have resulted, to a large extent, from our ability
to anticipate changes in technology and industry standards and
to develop and introduce new and enhanced products incorporating
the new standards and technologies. Our ability to adapt to
these changes and to anticipate future standards, and the rate
of adoption and acceptance of those standards, will be a
significant factor in maintaining or improving our competitive
position and prospects for growth. If new industry standards
emerge, our products or our customers products could
become unmarketable or obsolete, and we could lose market share.
We may also have to incur substantial unanticipated costs to
comply with these new standards. In addition, our target markets
continue to undergo rapid growth and consolidation. A
significant slowdown in any of these wired and wireless
communications markets could materially and adversely affect our
business, financial condition and results of operations. These
rapid technological changes and evolving industry standards make
it difficult to formulate a long-term growth strategy because
the semiconductor industry and the wired and wireless
communications markets may not continue to develop to the extent
or in the time periods that we anticipate. We have invested
substantial resources in emerging technologies that did not
achieve the market acceptance that we had expected. If new
markets do not develop as and when we anticipate, or if our
products do not gain widespread acceptance in those markets, our
business, financial condition and results of operations could be
materially and adversely affected.
As our
international business expands, we are increasingly exposed to
various legal, business, political and economic risks associated
with our international operations.
We currently obtain substantially all of our manufacturing,
assembly and testing services from suppliers located outside the
United States. In addition, 40.5%, 35.5% and 28.2% of our net
revenue in 2008, 2007 and 2006, respectively, was derived from
sales to independent customers outside the United States,
excluding foreign subsidiaries or manufacturing subcontractors
of customers that are headquartered in the United States. We
also frequently ship products to our domestic customers
international manufacturing divisions and subcontractors.
Products shipped to international destinations, primarily in
Asia, represented 88.7%, 87.4% and 86.5% of our net
33
revenue in 2008, 2007 and 2006, respectively. We also undertake
design and development activities in Belgium, Canada, China,
Denmark, France, Greece, India, Israel, Japan, Korea, the
Netherlands, Spain, Taiwan and the United Kingdom, among other
locations. In addition, we undertake various sales and marketing
activities through regional offices in a number of countries. We
intend to continue to expand our international business
activities and to open other design and operational centers
abroad. The continuing effects of the war in Iraq and terrorist
attacks in the United States and abroad, the resulting
heightened security, and the increasing risk of extended
international military conflicts may adversely impact our
international sales and could make our international operations
more expensive. International operations are subject to many
other inherent risks, including but not limited to:
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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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natural disasters and public health emergencies;
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nationalization of business and blocking of cash flows;
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trade and travel restrictions;
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the imposition of governmental controls and restrictions and
unexpected changes in regulatory requirements;
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burdens of complying with a variety of foreign laws;
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import and export license requirements and restrictions of the
United States and each other country in which we operate;
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foreign technical standards;
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changes in taxation and tariffs;
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difficulties in staffing and managing international operations;
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difficulties in collecting receivables from foreign entities or
delayed revenue recognition; and
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potentially adverse tax consequences.
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Any of the factors described above may have a material adverse
effect on our ability to increase or maintain our foreign sales.
We currently operate under tax holidays and favorable tax
incentives in certain foreign jurisdictions. For instance, in
Singapore we operate under tax holidays that reduce taxes on
substantially all of our operating income. Such tax holidays and
incentives often require us to meet specified employment and
investment criteria in such jurisdictions. However, we cannot
assure you that we will continue to meet such criteria or enjoy
such tax holidays and incentives, or realize any net tax
benefits from tax holidays or incentives. If any of our tax
holidays or incentives are terminated, our results of operations
may be materially and adversely affected.
Economic conditions in our primary overseas markets,
particularly in Asia, may negatively impact the demand for our
products abroad. All of our international sales to date have
been denominated in U.S. dollars. Accordingly, an increase
in the value of the U.S. dollar relative to foreign
currencies could make our products less competitive in
international markets or require us to assume the risk of
denominating certain sales in foreign currencies. We anticipate
that these factors will impact our business to a greater degree
as we further expand our international business activities.
In addition, a significant portion of our cash and marketable
securities are held in
non-U.S. domiciled
countries.
We face
intense competition in the semiconductor industry and the wired
and wireless communications markets, which could reduce our
market share in existing markets and affect our entry into new
markets.
The semiconductor industry and the wired and wireless
communications markets are intensely competitive. We expect
competition to continue to increase as industry standards become
well known and as other competitors enter our target markets. We
currently compete with a number of major domestic and
international suppliers of integrated circuits and related
applications in our target markets. We also compete with
suppliers of system-level and motherboard-level solutions
incorporating integrated circuits that are proprietary or
sourced from manufacturers other than Broadcom. In all of our
target markets we also may face competition from newly
established competitors, suppliers of products based on new or
emerging technologies, and customers who choose to develop their
own semiconductor solutions. We expect to encounter further
consolidation in the markets in which we compete.
34
Many of our competitors operate their own fabrication facilities
and have longer operating histories and presence in key markets,
greater name recognition, larger customer bases, and
significantly greater financial, sales and marketing,
manufacturing, distribution, technical and other resources than
we do. These competitors may be able to adapt more quickly to
new or emerging technologies and changes in customer
requirements. They may also be able to devote greater resources
to the promotion and sale of their products. In addition,
current and potential competitors have established or may
establish financial or strategic relationships among themselves
or with existing or potential customers, resellers or other
third parties. Accordingly, new competitors or alliances among
competitors could emerge and rapidly acquire significant market
share. Existing or new competitors may also develop technologies
that more effectively address our markets with products that
offer enhanced features and functionality, lower power
requirements, greater levels of integration or lower cost.
Increased competition has resulted in and is likely to continue
to result in declining average selling prices, reduced gross
margins and loss of market share in certain markets. We cannot
assure you that we will be able to continue to compete
successfully against current or new competitors. If we do not
compete successfully, we may lose market share in our existing
markets and our revenues may fail to increase or may decline.
We may
experience difficulties in transitioning to smaller geometry
process technologies or in achieving higher levels of design
integration, which may result in reduced manufacturing yields,
delays in product deliveries and increased expenses.
To remain competitive, we expect to continue to transition our
semiconductor products to increasingly smaller line width
geometries. This transition requires us to modify the
manufacturing processes for our products and to redesign some
products as well as standard cells and other integrated circuit
designs that we may use in multiple products. We periodically
evaluate the benefits, on a
product-by-product
basis, of migrating to smaller geometry process technologies to
reduce our costs. Currently most of our products are
manufactured in .35 micron, .22 micron, .18 micron, .13
micron, 90 nanometer or 65 nanometer geometry processes.
Although the majority of our products are currently manufactured
in .13 microns, we are now designing most new products in
65 nanometers and planning for the transition to smaller
process geometries. In the past, we have experienced some
difficulties in shifting to smaller geometry process
technologies or new manufacturing processes, which resulted in
reduced manufacturing yields, delays in product deliveries and
increased expenses. The transition to 65 nanometer geometry
process technology has resulted in significantly higher mask and
prototyping costs, as well as additional expenditures for
engineering design tools and related computer hardware. We may
face similar difficulties, delays and expenses as we continue to
transition our products to smaller geometry processes.
We are dependent on our relationships with our foundry
subcontractors to transition to smaller geometry processes
successfully. We cannot assure you that the foundries that we
use will be able to effectively manage the transition in a
timely manner, or at all, or that we will be able to maintain
our existing foundry relationships or develop new ones. If any
of our foundry subcontractors or we experience significant
delays in this transition or fail to efficiently implement this
transition, we could experience reduced manufacturing yields,
delays in product deliveries and increased expenses, all of
which could harm our relationships with our customers and our
results of operations.
As smaller geometry processes become more prevalent, we expect
to continue to integrate greater levels of functionality, as
well as customer and third party intellectual property, into our
products. However, we may not be able to achieve higher levels
of design integration or deliver new integrated products on a
timely basis, if at all. Moreover, even if we are able to
achieve higher levels of design integration, such integration
may have an adverse impact on our operating results, as a result
of increasing costs and expenditures as described above as well
as the risk that we may reduce our revenue by integrating the
functionality of multiple chips into a single chip.
35
We had a
material weakness in internal control over financial reporting
prior to 2007 and cannot assure you that additional material
weaknesses will not be identified in the future. If our internal
control over financial reporting or disclosure controls and
procedures are not effective, there may be errors in our
financial statements that could require a restatement or our
filings may not be timely and investors may lose confidence in
our reported financial information, which could lead to a
decline in our stock price.
Section 404 of the Sarbanes-Oxley Act of 2002 requires us
to evaluate the effectiveness of our internal control over
financial reporting as of the end of each year, and to include a
management report assessing the effectiveness of our internal
control over financial reporting in each Annual Report on
Form 10-K.
Section 404 also requires our independent registered public
accounting firm to attest to and report on Broadcoms
internal control over financial reporting.
In assessing the findings of the voluntary equity award review
as well as the restatement of our consolidated financial
statements for periods ended on or before March 31, 2006,
our management concluded that there was a material weakness, as
defined in Public Company Accounting Oversight Board Auditing
Standard No. 2, in our internal control over financial
reporting as of December 31, 2005. Management believes this
material weakness was remediated September 19, 2006 and,
accordingly, no longer exists as of the date of this filing.
Our management, including our Chief Executive Officer and Chief
Financial Officer, does not expect that our internal control
over financial reporting will prevent all errors and all fraud.
A control system, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance that the
control systems objectives will be met. Further, the
design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be
considered relative to their costs. Controls can be circumvented
by the individual acts of some persons, by collusion of two or
more people, or by management override of the controls. Over
time, controls may become inadequate because changes in
conditions or deterioration in the degree of compliance with
policies or procedures may occur. Because of the inherent
limitations in a cost-effective control system, misstatements
due to error or fraud may occur and not be detected.
As a result, we cannot assure you that significant deficiencies
or material weaknesses in our internal control over financial
reporting will not be identified in the future. Any failure to
maintain or implement required new or improved controls, or any
difficulties we encounter in their implementation, could result
in significant deficiencies or material weaknesses, cause us to
fail to timely meet our periodic reporting obligations, or
result in material misstatements in our financial statements.
Any such failure could also adversely affect the results of
periodic management evaluations and annual auditor attestation
reports regarding disclosure controls and the effectiveness of
our internal control over financial reporting required under
Section 404 of the Sarbanes-Oxley Act of 2002 and the rules
promulgated thereunder. The existence of a material weakness
could result in errors in our financial statements that could
result in a restatement of financial statements, cause us to
fail to timely meet our reporting obligations and cause
investors to lose confidence in our reported financial
information, leading to a decline in our stock price.
Our stock
price is highly volatile. Accordingly, you may not be able to
resell your shares of common stock at or above the price you
paid for them.
The market price of our Class A common stock has fluctuated
substantially in the past and is likely to continue to be highly
volatile and subject to wide fluctuations. During 2008 our
Class A common stock has traded at prices as low as $12.98
and as high as $29.91 per share. Recently we have experienced a
substantial decline in the market price of our Class A
common stock. Fluctuations have occurred and may continue to
occur in response to various factors, many of which we cannot
control, including:
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general economic and political conditions and specific
conditions in the markets we address, including the continued
volatility in the technology sector and semiconductor industry,
current general economic volatility, 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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quarter-to-quarter variations in our operating results;
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changes in earnings estimates or investment recommendations by
analysts;
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rulings in currently pending or newly-instituted intellectual
property litigation;
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other newly-instituted litigation or governmental investigations
or an adverse decision or outcome in any litigation or
investigations;
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announcements of changes in our senior management;
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the gain or loss of one or more significant customers or
suppliers;
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announcements of technological innovations or new products by
our competitors, customers or us;
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the gain or loss of market share in any of our markets;
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changes in accounting rules;
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continuing international conflicts and acts of terrorism;
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changes in the methods, metrics or measures used by analysts to
evaluate our stock;
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changes in investor perceptions; or
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changes in expectations relating to our products, plans and
strategic position or those of our competitors or customers.
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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.
Our
co-founders and their affiliates can control the outcome of
matters that require the approval of our shareholders, and
accordingly we will not be able to engage in certain
transactions without their approval.
As of December 31, 2008 our co-founders, directors,
executive officers and their respective affiliates beneficially
owned 13.6% of our outstanding common stock and held 58.4% 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 December 31, 2008 our two founders, Dr. Henry T.
Nicholas III and Dr. Samueli, who are no longer
officers or directors of Broadcom, beneficially owned a total of
12.7% of our outstanding common stock and held 58.2% 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 and their
respective spouses. These actions and transactions include
changes in the composition of our Board of Directors, certain
mergers, and the sale of control of our company by means of a
tender offer, open market purchases or other purchases of our
Class A common stock, or otherwise. Repurchases of shares
of our Class A common stock under our share repurchase
program will result in an increase in the total voting power of
our co-founders, directors, executive officers and their
affiliates, as well as other continuing shareholders.
Some of
the independent foundries upon which we rely to manufacture our
products, as well as our own California and Singapore
facilities, are located in regions that are subject to
earthquakes and other natural disasters.
One of the third-party foundries upon which we rely to
manufacture substantially all of our semiconductor devices is
located in Taiwan. Taiwan has experienced significant
earthquakes in the past and could be subject to additional
earthquakes. Any earthquake or other natural disaster, such as a
tsunami, in a country in which any of our foundries is located
could significantly disrupt our foundries production
capabilities and could result in our experiencing a significant
delay in delivery, or substantial shortage, of wafers and
possibly in higher wafer prices.
37
Our California facilities, including our principal executive
offices and major design centers, are located near major
earthquake fault lines. Our international distribution center
and some of our third-party foundries are located in Singapore,
which could also be subject to an earthquake, tsunami or other
natural disaster. If there is a major earthquake or any other
natural disaster in a region where one or more of our facilities
are located, our operations could be significantly disrupted.
Although we have established business interruption plans to
prepare for any such event, we cannot guarantee that we will be
able to effectively address all interruptions that such an event
could cause.
Any supply disruption or business interruption could materially
and adversely affect our business, financial condition and
results of operations.
Changes
in current or future laws or regulations or the imposition of
new laws or regulations by federal or state agencies or foreign
governments could impede the sale of our products or otherwise
harm our business.
Changes in current laws or regulations applicable to us or the
imposition of new laws and regulations in the United States or
elsewhere could materially and adversely affect our business,
financial condition and results of operations.
The effects of regulation on our customers or the industries in
which they operate may materially and adversely impact our
business. For example, the Federal Communications Commission has
broad jurisdiction over each of our target markets in the United
States. Although current FCC regulations and the laws and
regulations of other federal or state agencies are not directly
applicable to our products, they do apply to much of the
equipment into which our products are incorporated. FCC
regulatory policies that affect the ability of cable or
satellite operators or telephone companies to offer certain
services to their customers or other aspects of their business
may impede sales of our products in the United States. For
example, in the past we have experienced delays when products
incorporating our chips failed to comply with FCC emissions
specifications.
In addition, we and our customers are subject to various import
and export regulations of the United States government. Changes
in or violations of such regulations could materially and
adversely affect our business, financial condition and results
of operations. Additionally, various government export
regulations apply to the encryption or other features contained
in some of our products. We have made numerous filings and
applied for and received a number of export licenses under these
regulations. However, if we fail to continue to receive licenses
or otherwise comply with these regulations, we may be unable to
manufacture the affected products at our foreign foundries or to
ship these products to certain customers located outside of the
United States.
We and our customers may also be subject to regulation by
countries other than the United States. Foreign governments may
impose tariffs, duties and other import restrictions on
components that we obtain from non-domestic suppliers and may
impose export restrictions on products that we sell
internationally. These tariffs, duties or restrictions could
materially and adversely affect our business, financial
condition and results of operations.
Due to environmental concerns, the use of lead and other
hazardous substances in electronic components and systems is
receiving increased attention. In response, the European Union
passed the Restriction on Hazardous Substances, or RoHS,
Directive, legislation that limits the use of lead and other
hazardous substances in electrical equipment. The RoHS Directive
became effective July 1, 2006. We believe that our current
product designs and material supply chains are in compliance
with the RoHS Directive.
Our
articles of incorporation and bylaws contain anti-takeover
provisions that could prevent or discourage a third party from
acquiring us.
Our articles of incorporation and bylaws contain provisions that
may prevent or discourage a third party from acquiring us, even
if the acquisition would be beneficial to our shareholders. In
addition, we have in the past issued and may in the future issue
shares of Class B common stock in connection with certain
acquisitions, upon exercise of certain stock options, and for
other purposes. Class B shares have superior voting rights
entitling the holder to ten votes for each share held on matters
that we submit to a shareholder vote (as compared to one vote
per share in the case of our Class A common stock) as well
as the right to vote separately as a class (i) as required
by law and (ii) in the case of a proposed issuance of
additional shares of Class B common stock, unless such
38
issuance is approved by at least two-thirds of the members of
the Board of Directors then in office. Our Board of Directors
also has the authority to fix the rights and preferences of
shares of our preferred stock and to issue shares of common or
preferred stock without a shareholder vote. It is possible that
the provisions in our charter documents, the exercise of
supervoting rights by holders of our Class B common stock,
our co-founders, directors and officers
ownership of a majority of the Class B common stock, or the
ability of our Board of Directors to issue preferred stock or
additional shares of Class B common stock may prevent or
discourage third parties from acquiring us, even if the
acquisition would be beneficial to our shareholders. In
addition, these factors may discourage third parties from
bidding for our Class A common stock at a premium over the
market price for our stock. These factors may also materially
and adversely affect voting and other rights of the holders of
our common stock and the market price of our Class A common
stock.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
We lease facilities in Irvine (our corporate headquarters) and
Santa Clara County, California. Each of these facilities
includes administration, sales and marketing, research and
development and operations functions. In addition to our
principal design facilities in Irvine and Santa Clara
County, we lease additional design facilities throughout the
United States.
Internationally, we lease a distribution center that includes
engineering design and administrative facilities in Singapore as
well as engineering design and administrative facilities in
Asia, Europe and North America.
In addition, we lease various sales and marketing facilities in
the United States and several other countries.
The leased facilities comprise an aggregate of 2.8 million
square feet. Our principal facilities have lease terms that
expire at various dates through 2017. In March 2007 we relocated
our corporate headquarters to a new facility in Irvine, which
currently consists of nine buildings with an aggregate of
0.75 million square feet. The lease agreement provides a
term of ten years and two months, through May 2017. We have
recently entered into an agreement to occupy a tenth building in
2010, bringing the total leased space in Irvine to
0.80 million square feet.
We believe that the facilities under lease will be adequate for
at least the next 12 months. For additional information
regarding our obligations under property leases, see Note 6
of Notes to Consolidated Financial Statements, included in
Part IV, Item 15 of this Report.
|
|
Item 3.
|
Legal
Proceedings
|
The information set forth under Note 11 of Notes to
Consolidated Financial Statements, included in Part IV,
Item 15 of this Report, is incorporated herein by
reference. For an additional discussion of certain risks
associated with legal proceedings, see Risk Factors
in Item 1A of this Report.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
No matters were submitted to a vote of security holders, through
the solicitation of proxies or otherwise, in the three months
ended December 31, 2008.
39
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Market
Information and Holders
Our Class A common stock is traded on the Nasdaq Global
Select Market under the symbol BRCM. The following table sets
forth, for the periods indicated, the high and low sale prices
for our Class A common stock on the Nasdaq Global Select
Market:
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
19.15
|
|
|
$
|
12.98
|
|
Third Quarter
|
|
|
29.91
|
|
|
|
17.19
|
|
Second Quarter
|
|
|
29.72
|
|
|
|
19.47
|
|
First Quarter
|
|
|
27.45
|
|
|
|
16.38
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
43.07
|
|
|
$
|
25.70
|
|
Third Quarter
|
|
|
37.51
|
|
|
|
29.36
|
|
Second Quarter
|
|
|
35.25
|
|
|
|
29.01
|
|
First Quarter
|
|
|
37.05
|
|
|
|
29.27
|
|
As of December 31, 2008 and 2007 there were 1,253 and 1,280
record holders of our Class A common stock and 200 and 202
record holders of our Class B common stock, respectively.
On February 2, 2009 the last reported sale price of our
Class A common stock on the Nasdaq Global Select Market was
$16.41 per share.
Our Class B common stock is not publicly traded. Each share
of Class B common stock is convertible at any time at the
option of the holder into one share of Class A common stock
and in most instances automatically converts upon sale or other
transfer.
40
Stock
Performance Graph
The graph below shows a comparison of the cumulative total
shareholder return on our Class A common stock with the
cumulative total return on the S&P 500 Index, the NASDAQ
Composite Index and the Philadelphia Semiconductor Index over
the five year period ended December 31, 2008. The graph
assumes $100 invested at the indicated starting date in our
Class A common stock and in each of the market indices,
with the reinvestment of all dividends. We have not paid or
declared any cash dividends on our Class A common stock and
do not anticipate paying any cash dividends in the foreseeable
future. Prices and shareholder returns over the indicated
periods should not be considered indicative of future stock
prices or shareholder returns.
COMPARISON
OF CUMULATIVE TOTAL RETURN FOR
THE FIVE YEAR PERIOD ENDED DECEMBER 31, 2008
Dividend
Policy
We have never declared or paid cash dividends on shares of our
capital stock. We currently intend to retain all of our
earnings, if any, for use in our business and in acquisitions of
other businesses, assets, products or technologies, and for
purchases of our common stock from time to time. We do not
anticipate paying cash dividends in the foreseeable future.
Recent
Sales of Unregistered Securities
In 2008 we issued an aggregate of 6.1 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
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. Under such
programs, we repurchased a total of 65.2 million,
35.8 million and 7.3 million shares of Class A
common stock at weighted average prices of $19.44,
41
$32.31 and $37.53 per share, in the years ended
December 31, 2008, 2007 and 2006, respectively. At
December 31, 2007, $16.1 million was not settled in
cash and was included in accrued liabilities. This amount was
subsequently paid in 2008.
In July 2008 the Board of Directors authorized our current
program to repurchase shares of Broadcoms Class A
common stock having an aggregate value of up to
$1.0 billion. Repurchases under the program may be made
from time to time at any time during the period that commenced
July 31, 2008 and continuing through and including
July 31, 2011. As of December 31, 2008,
$575.8 million was still authorized for repurchase.
Repurchases under our share repurchase programs were and will be
made in open market or privately negotiated transactions in
compliance with
Rule 10b-18
promulgated under the Exchange Act.
The following table presents details of our various repurchases
during the three months ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate Dollar
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Value of Shares
|
|
|
|
Total Number
|
|
|
Average
|
|
|
Shares Purchased
|
|
|
That May yet be
|
|
|
|
of Shares
|
|
|
Price
|
|
|
as Part of Publicly
|
|
|
Purchased under
|
|
Period
|
|
Purchased
|
|
|
per Share
|
|
|
Announced Plan
|
|
|
the Plan
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
October 2008
|
|
|
8,292
|
|
|
$
|
16.40
|
|
|
|
8,292
|
|
|
|
|
|
November 2008
|
|
|
19,125
|
|
|
|
15.07
|
|
|
|
19,125
|
|
|
|
|
|
December 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
27,417
|
|
|
|
15.47
|
|
|
|
27,417
|
|
|
$
|
575,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
Item 6.
|
Selected
Consolidated Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005(2)
|
|
|
2004(2)
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
|
|
|
|
Consolidated Statements of Income Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
4,658,125
|
(4)
|
|
$
|
3,776,395
|
(4)
|
|
$
|
3,667,818
|
|
|
$
|
2,670,788
|
|
|
$
|
2,400,610
|
|
Cost of
revenue(1)
|
|
|
2,213,015
|
|
|
|
1,832,178
|
|
|
|
1,795,565
|
|
|
|
1,267,799
|
|
|
|
1,196,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,445,110
|
(4)
|
|
|
1,944,217
|
(4)
|
|
|
1,872,253
|
|
|
|
1,402,989
|
|
|
|
1,203,843
|
|
Operating expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development(1)
|
|
|
1,497,668
|
|
|
|
1,348,508
|
|
|
|
1,117,014
|
|
|
|
681,047
|
|
|
|
598,697
|
|
Selling, general and
administrative(1)
|
|
|
543,117
|
|
|
|
492,737
|
|
|
|
504,012
|
|
|
|
274,260
|
|
|
|
244,037
|
|
Amortization of purchased intangible assets
|
|
|
3,392
|
|
|
|
1,027
|
|
|
|
2,347
|
|
|
|
4,033
|
|
|
|
3,703
|
|
In-process research and development
|
|
|
42,400
|
|
|
|
15,470
|
|
|
|
5,200
|
|
|
|
43,452
|
|
|
|
63,766
|
|
Impairment of goodwill and other long-lived assets
|
|
|
171,593
|
|
|
|
1,500
|
|
|
|
|
|
|
|
500
|
|
|
|
18,000
|
|
Settlement costs
|
|
|
15,810
|
|
|
|
|
|
|
|
|
|
|
|
110,000
|
|
|
|
68,700
|
|
Restructuring costs (reversals)
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
172,130
|
(4)
|
|
|
84,975
|
(4)
|
|
|
243,680
|
|
|
|
292,197
|
|
|
|
206,940
|
|
Interest income, net
|
|
|
52,201
|
|
|
|
131,069
|
|
|
|
118,997
|
|
|
|
51,207
|
|
|
|
15,010
|
|
Other income (expense), net
|
|
|
(2,016
|
)
|
|
|
3,412
|
|
|
|
3,964
|
|
|
|
3,465
|
|
|
|
7,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
222,315
|
(4)
|
|
|
219,456
|
(4)
|
|
|
366,641
|
|
|
|
346,869
|
|
|
|
229,267
|
|
Provision (benefit) for income taxes
|
|
|
7,521
|
|
|
|
6,114
|
|
|
|
(12,400
|
)
|
|
|
(20,220
|
)
|
|
|
56,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
214,794
|
(4)
|
|
$
|
213,342
|
(4)
|
|
$
|
379,041
|
|
|
$
|
367,089
|
|
|
$
|
173,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share
(basic)(3)
|
|
$
|
0.42
|
|
|
$
|
0.39
|
|
|
$
|
0.69
|
|
|
$
|
0.72
|
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share
(diluted)(3)
|
|
$
|
0.41
|
|
|
$
|
0.37
|
|
|
$
|
0.64
|
|
|
$
|
0.66
|
|
|
$
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Consolidated Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and short- and long-term marketable
securities
|
|
$
|
1,898,122
|
|
|
$
|
2,403,652
|
|
|
$
|
2,801,598
|
|
|
$
|
1,875,521
|
|
|
$
|
1,275,551
|
|
Working capital
|
|
|
2,034,110
|
|
|
|
2,323,716
|
|
|
|
2,673,087
|
|
|
|
1,736,382
|
|
|
|
1,085,099
|
|
Goodwill and purchased intangible assets, net
|
|
|
1,341,201
|
|
|
|
1,423,328
|
|
|
|
1,214,174
|
|
|
|
1,156,934
|
|
|
|
1,079,262
|
|
Total assets
|
|
|
4,393,265
|
|
|
|
4,838,193
|
|
|
|
4,876,766
|
|
|
|
3,752,199
|
|
|
|
2,885,839
|
|
Total shareholders equity
|
|
|
3,607,067
|
|
|
|
4,036,148
|
|
|
|
4,191,666
|
|
|
|
3,140,567
|
|
|
|
2,363,743
|
|
|
|
|
(1)
|
|
Includes stock-based compensation
expense resulting from stock options and restricted stock units
we issued or assumed in acquisitions, as well as the effects of
our stock option exchange program in 2003. See Note 8 of
Notes to Consolidated Financial Statements, included in
Part IV, Item 15 of this Report.
|
|
(2)
|
|
The amounts included in 2008, 2007
and 2006 reflect the adoption of SFAS 123R, effective
January 1, 2006. Had Broadcom applied the fair value
recognition provisions of SFAS No. 123, Accounting
for Stock-Based Compensation, or SFAS 123, in prior
periods, we would have reported net losses of $94.8 million
and $608.6 million in 2005 and 2004, respectively. We would
have reported net losses per share (basic and diluted) of $0.19
and $1.27 in 2005 and 2004, respectively. See Notes 1 and 8
of Notes to Consolidated Financial Statements.
|
|
(3)
|
|
See Notes 1 and 2 of Notes to
Consolidated Financial Statements for an explanation of the
calculation of net income per share.
|
|
(4)
|
|
Includes royalties in the amounts
of $149.2 million and $31.8 million in 2008 and 2007,
respectively, received pursuant to a patent license agreement
entered into in July 2007. See Note 2 of Notes to
Consolidated Financial Statements.
|
43
The following table presents details of total stock-based
compensation expense that is included in each functional
line item in the consolidated statements of income data above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008(1)
|
|
|
2007(1)
|
|
|
2006(1)
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Supplemental Data on Stock-Based Compensation Expense
|
Cost of revenue
|
|
$
|
24,997
|
|
|
$
|
26,470
|
|
|
$
|
24,589
|
|
|
$
|
4,177
|
|
|
$
|
4,776
|
|
Research and development
|
|
|
358,018
|
|
|
|
353,649
|
|
|
|
307,096
|
|
|
|
68,606
|
|
|
|
102,253
|
|
Selling, general and administrative
|
|
|
126,359
|
|
|
|
139,533
|
|
|
|
136,679
|
|
|
|
29,232
|
|
|
|
30,897
|
|
|
|
|
(1)
|
|
The amounts included in 2008, 2007
and 2006 reflect the adoption of SFAS 123R, effective
January 1, 2006.
|
The tables above set forth our selected consolidated financial
data. We prepared this information using the consolidated
financial statements of Broadcom for the five years ended
December 31, 2008. Certain amounts in the selected
consolidated financial data above have been reclassified to
conform to the 2008 presentation. See Note 2 of Notes
to Consolidated Financial Statements. In addition, the
consolidated financial statements include the results of
operations of acquisitions commencing on their respective
acquisition dates. See Note 3 of Notes to Consolidated
Financial Statements.
You should read this selected consolidated financial data
together with the Consolidated Financial Statements and related
Notes contained in this Report and in our prior and subsequent
reports filed with the SEC, as well as the section of this
Report and our other reports entitled Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
Share and per share information presented in this Report has
been adjusted to reflect all splits and dividends of our common
stock subsequent to April 16, 1998, including the
three-for-two stock split effected February 21, 2006
through the payment of a stock dividend.
44
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
You should read the following discussion and analysis in
conjunction with our Consolidated Financial Statements and
related Notes thereto included in Part IV, Item 15 of
this Report and the Risk Factors included in
Part I, Item 1A of this Report, as well as other
cautionary statements and risks described elsewhere in this
Report, before deciding to purchase, hold or sell our common
stock.
As a reminder, you should not rely on financial information
included in the reports on
Form 10-K,
Form 10-Q
and
Form 8-K
previously filed by Broadcom, the related opinions of our
independent registered public accounting firm, or earnings press
releases and similar communications issued by us, for periods
ended on or before March 31, 2006, all of which have been
superseded in their entirety by the information contained in our
amended Annual Report on
Form 10-K/A
for the year ended December 31, 2005 and our amended
Quarterly Report on
Form 10-Q/A
for the three months ended March 31, 2006, each filed
January 23, 2007. For a discussion of the restated
financial information contained in the amended Reports, see
Equity Award Review, below.
Overview
Broadcom Corporation is a major technology innovator and global
leader in semiconductors for wired and wireless communications.
Our products enable the delivery of voice, video, data and
multimedia to and throughout the home, the office and the mobile
environment. Broadcom provides the industrys broadest
portfolio of state-of-the-art
system-on-a-chip
and software solutions to manufacturers of computing and
networking equipment, digital entertainment and broadband access
products, and mobile devices. Our diverse product portfolio
includes solutions for digital cable, satellite and Internet
Protocol (IP) set-top boxes and media servers; high definition
television (HDTV); high definition DVD players and personal
video recording (PVR) devices; cable and DSL modems and
residential gateways; high-speed transmission and switching for
local, metropolitan, wide area and storage networking; server
solutions; broadband network and security processors; wireless
and personal area networking; cellular communications; global
positioning system (GPS) applications; mobile multimedia and
applications processors; mobile power management; and Voice over
Internet Protocol (VoIP) gateway and telephony systems.
Net Revenue. Our net revenue is generated
principally by sales of our semiconductor products. We derive
the remainder of our net revenue predominantly from royalty
revenue received pursuant to a patent license agreement and, to
a much lesser extent, software licenses, support and maintenance
agreements, data services and cancellation fees. The majority of
our sales occur through the efforts of our direct sales force.
The remaining balance of our sales occurs through distributors.
We sell our products to leading manufacturers of wired and
wireless communications equipment in each of our target markets.
Because we leverage our technologies across different markets,
certain of our integrated circuits may be incorporated into
equipment used in multiple markets. We utilize independent
foundries and third-party subcontractors to manufacture,
assemble and test all of our semiconductor products.
The following table presents details of our net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Sales of semiconductor products
|
|
|
95.5
|
%
|
|
|
98.2
|
%
|
|
|
99.4
|
%
|
Royalty and other
|
|
|
4.5
|
(1)
|
|
|
1.8
|
(1)
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes royalties in the amounts
of $149.2 million and $31.8 million in 2008 and 2007,
respectively, received pursuant to a patent license agreement
entered into in July 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Sales made through direct sales force
|
|
|
84.3
|
%
|
|
|
85.0
|
%
|
|
|
85.1
|
%
|
Sales made through distributors
|
|
|
15.7
|
|
|
|
15.0
|
|
|
|
14.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
Sales made through distributors increased slightly in 2008 due
to new product ramps for our mobile and wireless and broadband
communications products, principally in Asia.
The demand for our products has been affected in the past, and
may continue to be affected in the future, by various factors,
including, but not limited to, the following:
|
|
|
|
|
general economic and political conditions and specific
conditions in the markets we address, including the continuing
volatility in the technology sector and semiconductor industry,
current general economic volatility, trends in the broadband
communications markets in various geographic regions, including
seasonality in sales of consumer products into which our
products are incorporated;
|
|
|
the inability of certain of our customers who depend on credit
to have access to their traditional sources of credit to finance
the purchase of products from us, particularly in the current
global economic environment, which may lead them to reduce their
level of purchases or to seek credit or other accommodations
from us;
|
|
|
the timing, rescheduling or cancellation of significant customer
orders and our ability, as well as the ability of our customers,
to manage inventory;
|
|
|
our ability to specify, develop or acquire, complete, introduce,
market and transition to volume production new products and
technologies in a cost effective and timely manner;
|
|
|
the rate at which our present and future customers and end-users
adopt our products and technologies in our target
markets; and
|
|
|
the qualification, availability and pricing of competing
products and technologies and the resulting effects on sales and
pricing of our products.
|
For these and other reasons, our net revenue and results of
operations in 2008 and prior periods may not necessarily be
indicative of future net revenue and results of operations.
From time to time, our key customers place large orders causing
our quarterly net revenue to fluctuate significantly. We expect
that these fluctuations will continue and that they may be
exaggerated by the increasing volume of our products that are
incorporated into consumer products, sales of which are
typically subject to greater seasonality and greater volume
fluctuations than non-consumer OEM products. 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 incorporate into its
end products. Historically, we have had good visibility into
customer requirements and shipments within a quarter. However,
if a customer does not take our products under a hubbing
arrangement in accordance with the schedule it originally
provided to us, our predicted future revenue stream could vary
substantially from our forecasts and our results of operations
could be materially and adversely affected. Additionally, since
we own inventory that is physically located in a third
partys warehouse, our ability to effectively manage
inventory levels may be impaired, causing our total inventory
turns to decrease, which could increase expenses associated with
excess and obsolete product and negatively impact our cash flow.
Sales to our significant customers, including sales to their
manufacturing subcontractors, as a percentage of net revenue
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Motorola
|
|
|
*
|
|
|
|
11.2
|
%
|
|
|
15.4
|
%
|
Cisco(1)
|
|
|
*
|
|
|
|
*
|
|
|
|
11.2
|
|
Five largest customers as a group
|
|
|
35.8
|
%
|
|
|
39.7
|
%
|
|
|
46.5
|
%
|
|
|
|
*
|
|
Less than 10% of net revenue.
|
|
(1)
|
|
Includes sales to
Scientific-Atlanta, which was acquired by Cisco in February
2006, for all periods presented.
|
As we have broadened our customer base, net revenue derived from
these top customers as a percentage of net revenue has
decreased, even though the absolute dollars of net revenue have
increased in some cases. However, we expect that our largest
customers will continue to account for a substantial portion of
our net revenue in 2009 and for the foreseeable future. The
identities of our largest customers and their respective
contributions to our net
46
revenue have varied and will likely continue to vary from period
to period. The primary factors that contributed to the decrease
in net revenue from our top customers as a percentage of net
revenue were: (i) product mix changes with some of our
large customers, (ii) new product ramps at new customers
that increased our total revenues and (iii) royalties
received pursuant to a patent license agreement entered into in
July 2007. Royalty revenue is currently expected to be
recognized under this agreement through March 31, 2009.
Net revenue derived from all independent customers located
outside the United States, excluding foreign subsidiaries or
manufacturing subcontractors of customers that are headquartered
in the United States even though such subsidiaries or
manufacturing subcontractors are located outside of the United
States, as a percentage of total net revenue was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Asia (primarily in Japan, Korea, China and Taiwan)
|
|
|
29.5
|
%
|
|
|
26.5
|
%
|
|
|
19.5
|
%
|
Europe (primarily in Finland, France and the United Kingdom)
|
|
|
10.5
|
|
|
|
8.5
|
|
|
|
8.4
|
|
Other
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40.5
|
%
|
|
|
35.5
|
%
|
|
|
28.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue derived from shipments to international
destinations, as a percentage of total net revenue was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Asia (primarily in China, Hong Kong, Taiwan, Japan and Singapore)
|
|
|
83.5
|
%
|
|
|
81.2
|
%
|
|
|
79.2
|
%
|
Europe (primarily in Hungary, Germany and Sweden)
|
|
|
2.7
|
|
|
|
2.9
|
|
|
|
3.3
|
|
Other
|
|
|
2.5
|
|
|
|
3.3
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88.7
|
%
|
|
|
87.4
|
%
|
|
|
86.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All of our revenue to date has been denominated in
U.S. dollars.
Gross Margin. Our gross margin, or gross
profit as a percentage 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:
|
|
|
|
|
our product mix and volume of product sales (including sales to
high volume customers);
|
|
|
the positions of our products in their respective life cycles;
|
|
|
licensing and royalty revenue;
|
|
|
the effects of competition;
|
|
|
the effects of competitive pricing programs and rebates;
|
|
|
manufacturing cost efficiencies and inefficiencies;
|
|
|
fluctuations in direct product costs such as wafer pricing and
assembly, packaging and testing costs, and overhead costs;
|
|
|
our ability to create cost advantages through successful
integration and convergence;
|
|
|
product warranty costs;
|
|
|
provisions for excess and obsolete inventories;
|
|
|
amortization of purchased intangible assets;
|
|
|
stock-based compensation expense; and
|
|
|
reversals of unclaimed rebates and warranty reserves.
|
Net Income. Our net income has been affected
in the past, and may continue to be affected in the future, by
various factors, including, but not limited to, the following:
|
|
|
|
|
stock-based compensation expense;
|
|
|
required levels of research and development and other operating
costs;
|
|
|
licensing and royalty revenue;
|
47
|
|
|
|
|
in-process research and development, or IPR&D;
|
|
|
litigation costs and insurance recoveries;
|
|
|
settlement costs;
|
|
|
the loss of interest income resulting from lower average
interest rates and investment balance reductions resulting from
expenditures on repurchases of our Class A common stock;
|
|
|
amortization of purchased intangible assets;
|
|
|
impairment of goodwill and other long-lived assets;
|
|
|
income tax benefits from adjustments to tax reserves of foreign
subsidiaries;
|
|
|
deferral of revenue under multiple-element arrangements;
|
|
|
other-than-temporary impairment of marketable securities and
strategic investments;
|
|
|
gain (loss) on strategic investments; and
|
|
|
restructuring costs or reversals thereof.
|
In 2008 our net income was $214.8 million (including
$149.2 million in royalty revenue received pursuant to a
patent license agreement entered into in July 2007) as
compared to $213.3 million in 2007 (including
$31.8 million in royalty revenue received pursuant to a
patent license agreement entered into in July 2007), a
difference of $1.5 million. This slight increase in
profitability was primarily the result of a $413.7 million
increase in operating expenses, a decrease in interest income of
$78.9 million and an increase in provision for income taxes
of $1.4 million, offset in part by increased gross profit
of $500.9 million (including a $117.4 million net
increase in royalty revenue) generated from a
$881.7 million increase in net revenue.
Net revenue in 2008 increased across each of our three target
markets: (i) broadband communications, (ii) mobile and
wireless and (iii) enterprise networking. The increase in
net revenue from our broadband communications target market
resulted primarily from an increase in demand for digital
set-top box, broadband modem, high definition DVD and digital TV
products. The increase in net revenue from our mobile and
wireless target market resulted primarily from strong growth
driven by new products and customer ramps for our Bluetooth,
wireless LAN, touch controller and GPS product offerings, as
well as a net increase in royalty revenue in the amount of
$117.4 million received pursuant to a patent license
agreement entered into in July 2007, offset in part by a
decrease in demand for our mobile multimedia product offerings.
The increase in net revenue from our enterprise networking
target market resulted primarily from an increase in demand
attributable to our Ethernet switch, broadband network and
security processor product lines.
Operating expenses increased principally due to an increase in
the number of employees engaged in operating activities, and
increased mask and prototyping costs due to the continued
transition of certain products to 65 nanometer process
technology. Operating expenses also increased due to (i) an
increase in cash compensation levels since December 31,
2007 as a result of our annual merit increase program,
(ii) an increase in impairment charges of goodwill and
other long-lived assets of $170.1 million primarily related
to our mobile platforms business group (iii) an increase in
IPR&D charges of $26.9 million and
(iv) settlement costs of $15.8 million.
We expect research and development costs to also increase over
the long term 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.
Product Cycles. The cycle for test, evaluation
and adoption of our products by customers can range from three
to more than nine months, with an additional three to more than
twelve months before a customer commences volume production of
equipment incorporating our products. Due to this lengthy sales
cycle, we may experience significant delays from the time we
incur expenses for research and development, selling, general
and administrative efforts, and investments in inventory, to the
time we generate corresponding revenue, if any. The rate of new
orders may vary significantly from month to month and quarter to
quarter. If anticipated sales or shipments in any quarter do not
occur when expected, expenses and inventory levels could be
disproportionately high, and our results of operations for that
quarter, and potentially for future quarters, would be
materially and adversely affected.
Mobile Platforms Business. The development and
introduction of new products often requires substantial research
and development resources. During the last five years we have
incurred substantial expenditures on the development of new
products for the cellular handset market. Approximately 25% of
the $1.498 billion in research
48
and development expense for 2008 was attributable to our mobile
platforms business. However, this market is characterized by
very long product development and sales cycles due to the
significant qualification requirements of cellular handset
makers and wireless network operators, and accordingly, it is
common to experience significant delays from the time research
and development efforts commence to the time corresponding
revenues are generated. Due to these lengthy product development
and sales cycles, our mobile platforms business had a material
negative impact on our earnings in 2008, including impairment
charges of $169.4 million recorded in the three months
ended December 31, 2008 relating to this business and may
continue to do so until we realize significant cellular
revenues. See Note 9 of Notes to Consolidated Financial
Statements.
In 2008 most of the revenue that we derived from our mobile
platforms business related to the $149.2 million in
royalties we received pursuant to a patent license agreement
entered into in July 2007. Up to $19.0 million of royalty
revenue is currently expected to be recognized under this
agreement in the quarter ending March 31, 2009. As a
result, after March 31, 2009, our mobile platforms business
could have a greater dilutive impact on our results of
operations. Although we currently expect to begin deriving
additional revenue from our cellular handset products later in
2009, it is possible that our customers may delay their product
development plans or that their products will not be
commercially successful, which would continue to materially and
adversely affect our results of operations.
Acquisition Strategy. An element of our
business strategy involves the acquisition of businesses,
assets, products or technologies that allow us to reduce the
time required to develop new technologies and products and bring
them to market, incorporate enhanced functionality into and
complement our existing product offerings, augment our
engineering workforce, and enhance our technological
capabilities. We plan to continue to evaluate strategic
opportunities as they arise, including acquisitions and other
business combination transactions, strategic relationships,
capital infusions and the purchase or sale of assets. See
Note 3 of Notes to Consolidated Financial Statements for
information related to the acquisitions made in 2008, 2007 and
2006.
In 2008, 2007 and 2006 we completed seven acquisitions for
original total equity consideration of $7.4 million and
total cash consideration of $457.7 million.
|
|
|
|
|
In 2008 we acquired Sunext Design, Inc., a wholly-owned
subsidiary of Sunext Technology Corporation, Ltd., which
specialized in the design of optical storage semiconductor
products, and certain assets of the digital TV business of
Advance Micro Devices, Inc., or DTV Business of AMD, which
designs and markets applications and communications processors
for the digital television market.
|
|
|
In 2007 we acquired LVL7 Systems, Inc., a privately-held
developer of production-ready networking software that enables
networking original equipment manufacturers and original design
manufacturers to reduce development expenses and compress
development timelines; Octalica, Inc., a privately-held fabless
semiconductor company that specializes in the design and
development of networking technologies based on the MoCA
standard, which enables distribution of high quality multimedia
content throughout the home over existing coaxial cable; and
Global Locate, Inc., a privately-held, fabless provider of
industry-leading global positioning system and assisted GPS
semiconductor products and software.
|
|
|
In 2006 we acquired Sandburst Corporation, a fabless
semiconductor company specializing in the design and development
of packet switching and routing
systems-on-a-chip
that are deployed in enterprise core and metropolitan Ethernet
networks, and Encentrus Systems, Inc., a developer of media
center technology.
|
The accompanying consolidated financial statements include the
results of operations of the acquired companies commencing on
their respective acquisition dates. See Note 3 of Notes to
Consolidated Financial Statements for information related to
these acquisitions.
Business Enterprise Segments. We operate in
one reportable operating segment, wired and wireless broadband
communications. SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information, or SFAS
131, establishes standards for the way public business
enterprises report information about operating segments in
annual consolidated financial statements and requires that those
enterprises report selected information about operating segments
in interim financial reports. SFAS 131 also establishes
standards for related disclosures about products and services,
geographic areas and major customers. Our Chief Executive
Officer, who is considered to be our chief operating decision
maker, reviews financial information presented on an operating
segment basis for purposes of making operating decisions and
assessing financial performance.
49
Although we had four operating segments at December 31,
2008, under the aggregation criteria set forth in SFAS 131
we operate in only one reportable operating segment, wired and
wireless broadband communications. Under SFAS 131, two or
more operating segments may be aggregated into a single
operating segment for financial reporting purposes if
aggregation is consistent with the objective and basic
principles of SFAS 131, if the segments have similar
economic characteristics, and if the segments are similar in
each of the following areas:
|
|
|
|
|
the nature of products and services;
|
|
|
the nature of the production processes;
|
|
|
the type or class of customer for their products and
services; and
|
|
|
the methods used to distribute their products or provide their
services.
|
We meet each of the aggregation criteria for the following
reasons:
|
|
|
|
|
the sale of integrated circuits is the only material source of
revenue for each of our four operating segments, other than
royalty revenue in one of our operating segments in 2008;
|
|
|
the integrated circuits sold by each of our operating segments
use the same standard CMOS manufacturing processes;
|
|
|
the integrated circuits marketed by each of our operating
segments are sold to one type of customer: manufacturers of
wired and wireless communications equipment, which incorporate
our integrated circuits into their electronic products; and
|
|
|
all of our integrated circuits are sold through a centralized
sales force and common wholesale distributors.
|
All of our operating segments share similar economic
characteristics as they have a similar long-term business model,
operate in the long-term at gross margins similar to our
consolidated gross margin, and have similar research and
development expenses and similar selling, general and
administrative expenses. The causes for variation among our
operating segments are the same and include factors such as
(i) life cycle (including development of new products) and
price and cost fluctuations, (ii) number of competitors,
(iii) product differentiation and (iv) size of market
opportunity. Additionally, each operating segment is subject to
the overall cyclical nature of the semiconductor industry. The
number and composition of employees and the amounts and types of
tools and materials required are similar for each operating
segment. Finally, even though we periodically reorganize our
operating segments based upon changes in customers, end markets
or products, acquisitions, long-term growth strategies, and the
experience and bandwidth of the senior executives in charge, the
common financial goals for each operating segment remain
constant.
Because we meet each of the criteria set forth in SFAS 131
and our four operating segments as of December 31,
2008 share similar economic characteristics, we have
aggregated our results of operations into one reportable
operating segment.
Equity
Award Review
In January 2007 we reported the results of a voluntary review of
our equity award practices. The voluntary review, which
commenced in May 2006 and covered all grants of options and
other equity awards made since our initial public offering in
April 1998, was directed by the Audit Committee of our Board of
Directors. Based on the results of the equity award review, the
Audit Committee concluded that, pursuant to Accounting
Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, or APB 25, and related interpretations,
the accounting measurement dates for most of the stock option
grants awarded between June 1998 and May 2003, covering options
to purchase 232.9 million shares of our Class A or
Class B common stock, differed from the measurement dates
previously used for such awards. As a result, revised
measurement dates were applied to the affected option grants and
Broadcom recorded a total of $2.259 billion in additional
stock-based compensation expense for the years 1998 through
2005. After related tax adjustments of $38.7 million, the
restatement resulted in total net adjustments of
$2.220 billion for the years 1998 through 2005. This amount
was net of forfeitures related to employee terminations. The
additional stock-based compensation expense was amortized over
the service period relating to each option, typically four
years, with 95% of the total expense recorded in years prior to
2004. In addition, $17.2 million of other net adjustments
was recorded in connection with our equity award review in the
three months ended March 31, 2006.
50
None of the grants requiring measurement date adjustment was
made to any co-founders or to any current or former member of
our Board of Directors.
As a consequence of these adjustments, our audited consolidated
financial statements and related disclosures for the three years
ended December 31, 2005 and our consolidated statements of
operations and consolidated balance sheet data for the five
years ended December 31, 2005 were restated. We also
restated the stock-based compensation expense footnote
information calculated under SFAS 123 and
SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure, under
the disclosure-only alternatives of those pronouncements for the
years 2003 through 2005. The restated information was contained
in our Annual Report on
Form 10-K/A
for the year ended December 31, 2005, filed
January 23, 2007.
The adjustments did not affect Broadcoms
previously-reported revenue, cash, cash equivalents or
marketable securities balances in any of the restated periods.
Critical
Accounting Policies and Estimates
The preparation of financial statements in accordance with
U.S. generally accepted accounting principles 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, self-insurance, restructuring costs,
litigation and other loss contingencies. We base our estimates
and assumptions on current facts, historical experience and
various other factors that we believe to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
and the recording of revenue, costs and expenses that are not
readily apparent from other sources. The actual results
experienced by us may differ materially and adversely from our
estimates. To the extent there are material differences between
our estimates and the actual results, our future results of
operations will be affected.
We believe the following are either (i) critical accounting
policies that require us to make significant estimates or
assumptions in the preparation of our consolidated financial
statements or (ii) other key accounting policies that
generally do not require us to make estimates or assumptions but
may require us to make difficult or subjective judgments:
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Net Revenue. We recognize product revenue when
all of the following criteria are met: (i) persuasive
evidence of an arrangement exists, (ii) delivery has
occurred, (iii) our price to the customer is fixed or
determinable and (iv) collection of the resulting accounts
receivable is reasonably assured. These criteria are usually met
at the time of product shipment. However, we do not recognize
revenue when any significant obligations remain. Customer
purchase orders
and/or
contracts are generally used to determine the existence of an
arrangement. Shipping documents are used to verify product
delivery. We assess whether a price is fixed or determinable
based upon the payment terms associated with the transaction and
whether the sales price is subject to refund or adjustment. We
assess the collectibility of our accounts receivable based
primarily upon the creditworthiness of the customer as
determined by credit checks and analysis, as well as the
customers payment history.
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In arrangements in which our semiconductor products and software
are delivered concurrently and post-contract customer support is
not provided, we recognize revenue upon shipment of the
semiconductor product, assuming all other basic revenue
recognition criteria are met, as both the semiconductor products
and software are considered delivered elements and no
undelivered elements exist. In limited instances in which there
are undelivered elements, we allocate revenue based on the
relative fair value of the individual elements. If there is no
established fair value for an undelivered element, the entire
arrangement is accounted for as a single unit of accounting,
resulting in a deferral of revenue and costs for the delivered
element until the undelivered element has been fulfilled. In the
case that the undelivered element is data or a support service,
the revenue and costs applicable to both the delivered and
undelivered elements are recorded ratably over the respective
service period or estimated product life. If the undelivered
element is
51
essential to the functionality of the delivered element, no
revenue or costs are recognized until the undelivered element is
delivered. If we enter into future multiple element arrangements
in which the fair value of each deliverable is not known, the
portion of revenue we recognize on a deferred basis may vary
significantly in any given quarter, which could cause even
greater fluctuations in our quarterly operating results.
A portion of our sales is made through distributors under
agreements allowing for pricing credits
and/or
rights of return. These pricing credits
and/or
rights of return provisions prevent us from being able to
reasonably estimate the final price of the inventory to be sold
and the amount of inventory that could be returned pursuant to
these agreements. As a result, the price to the customer is not
fixed or determinable at the time we deliver products to our
distributors. Accordingly, product revenue from sales made
through these distributors is not recognized until the
distributors ship the product to their customers. We also
maintain inventory, or hubbing, arrangements with certain of our
customers. Pursuant to these arrangements we deliver products to
a customer or a designated third party warehouse based upon the
customers projected needs, but do not recognize product
revenue unless and until the customer reports it has removed our
product from the warehouse to be incorporated into its end
products. Historically, we have had good visibility into
customer requirements and shipments within a quarter. However,
if a customer does not take our products under a hubbing
arrangement in accordance with the schedule it originally
provided to us, our future revenue stream could vary
substantially from our forecasts and our results of operations
could be materially and adversely affected. In addition,
distributors and customers with hubbing arrangements provide us
with periodic data regarding product, price, quantity, and
customers when products are shipped to their customers, as well
as the quantities of our products that they still have in stock.
For specialized shipping terms we may rely on data provided by
our freight forwarding providers. For our royalty revenue we
rely on data provided by the licensee. Any error in the data
provided to us by customers, distributors or other third parties
could lead to inaccurate reporting of our revenue, gross profit
and net income.
We record deferred revenue when advance payments are received
from customers before performance obligations have been
completed
and/or
services have been performed. Deferred revenue does not include
amounts from products delivered to distributors that the
distributors have not yet sold through to their end customers.
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Sales Returns, Pricing Adjustments and Allowance for Doubtful
Accounts. We record reductions to revenue for
estimated product returns and pricing adjustments, such as
competitive pricing programs and rebates, in the same period
that the related revenue is recorded. The amount of these
reductions is based on historical sales returns, analysis of
credit memo data, specific criteria included in rebate
agreements, and other factors known at the time. We accrue 100%
of potential rebates at the time of sale and do not apply a
breakage factor. We reverse the accrual of unclaimed rebate
amounts as specific rebate programs contractually end or when we
believe unclaimed rebates are no longer subject to payment and
will not be paid. Thus the reversal of unclaimed rebates may
have a positive impact on our revenue, gross profit and net
income in subsequent periods. Additional reductions to revenue
would result if actual product returns or pricing adjustments
exceed our estimates. We also maintain an allowance for doubtful
accounts for estimated losses resulting from the inability of
customers to make required payments. If the financial condition
of any customer were to deteriorate, resulting in an impairment
of its ability to make payments, additional allowances could be
required.
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Inventory and Warranty Reserves. We establish
inventory reserves for estimated obsolescence or unmarketable
inventory in an amount equal to the difference between the cost
of inventory and its estimated realizable value based upon
assumptions about future demand and market conditions. If actual
demand and market conditions are less favorable than those
projected by management, additional inventory reserves could be
required. Under the hubbing arrangements that we maintain with
certain customers, we own inventory that is physically located
in a customers or third partys warehouse. As a
result, our ability to effectively manage inventory levels may
be impaired, which would cause our total inventory turns to
decrease. In that event, our expenses associated with excess and
obsolete inventory could increase and our cash flow could be
negatively impacted. Our products typically carry a one to three
year warranty. We establish reserves for estimated product
warranty costs at the time revenue is recognized. Although we
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52
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engage in extensive product quality programs and processes, our
warranty obligation has been and may in the future be affected
by product failure rates, product recalls, repair or field
replacement costs and additional development costs incurred in
correcting any product failure, as well as possible claims for
consequential costs. Should actual product failure rates, use of
materials or service delivery costs differ from our estimates,
additional warranty reserves could be required. In that event,
our gross profit and gross margins would be reduced.
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Stock-Based Compensation Expense. Effective
January 1, 2006 we adopted SFAS 123R, which requires
all share-based payments, including grants of stock options,
restricted stock units and employee stock purchase rights, to be
recognized in our financial statements based upon their
respective grant date fair values. Under this standard, the fair
value of each employee stock option and employee stock purchase
right is estimated on the date of grant using an option pricing
model that meets certain requirements. We currently use the
Black-Scholes option pricing model to estimate the fair value of
our stock options and stock purchase rights. The Black-Scholes
model meets the requirements of SFAS 123R but the fair
values generated by the model may not be indicative of the
actual fair values of our equity awards as it does not consider
certain factors important to those awards to employees, such as
continued employment and periodic vesting requirements as well
as limited transferability. The determination of the fair value
of share-based payment awards utilizing the Black-Scholes model
is affected by our stock price and a number of assumptions,
including expected volatility, expected life, risk-free interest
rate and expected dividends. We use the implied volatility for
traded options on our stock as the expected volatility
assumption required in the Black-Scholes model. Our selection of
the implied volatility approach is based on the availability of
data regarding actively traded options on our stock as we
believe that implied volatility is more representative of fair
value than historical volatility. The expected life of the stock
options is based on historical and other economic data trended
into the future. The risk-free interest rate assumption is based
on observed interest rates appropriate for the expected terms of
our stock options and stock purchase rights. The dividend yield
assumption is based on our history and expectation of no
dividend payouts. The fair value of our restricted stock units
is based on the closing market price of our Class A common
stock on the date of grant. We will evaluate the assumptions
used to value stock awards on a quarterly basis. If factors
change and we employ different assumptions, stock-based
compensation expense may differ significantly from what we have
recorded in the past. If there are any modifications or
cancellations of the underlying unvested securities, we may be
required to accelerate, increase or cancel any remaining
unearned stock-based compensation expense. To the extent that we
grant additional equity securities to employees or we assume
unvested securities in connection with any acquisitions, our
stock-based compensation expense will be increased by the
additional unearned compensation resulting from those additional
grants or acquisitions.
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Goodwill and Purchased Intangible
Assets. Goodwill is recorded as the difference,
if any, between the aggregate consideration paid for an
acquisition and the fair value of the net tangible and
intangible assets acquired. The amounts and useful lives
assigned to intangible assets acquired, other than goodwill,
impact the amount and timing of future amortization, and the
amount assigned to in-process research and development is
expensed immediately. The value of our intangible assets,
including goodwill, could be impacted by future adverse changes
such as: (i) any future declines in our operating results,
(ii) a decline in the valuation of technology company
stocks, including the valuation of our common stock,
(iii) a further significant slowdown in the worldwide
economy or the semiconductor industry or (iv) any failure
to meet the performance projections included in our forecasts of
future operating results. We evaluate these assets, including
purchased intangible assets deemed to have indefinite lives, on
an annual basis in the fourth quarter or more frequently if we
believe indicators of impairment exist. In the process of our
annual impairment review, we primarily use the income approach
methodology of valuation that includes the discounted cash flow
method as well as other generally accepted valuation
methodologies to determine the fair value of our intangible
assets. Significant management judgment is required in the
forecasts of future operating results that are used in the
discounted cash flow method of valuation. The estimates we have
used are consistent with the plans and estimates that we use to
manage our business. It is possible, however, that the plans may
change and estimates used may prove to be inaccurate. If our
actual results, or the plans and estimates used in future
impairment analyses, are lower than the original estimates used
to assess the recoverability of these assets, we could incur
additional impairment charges.
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53
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Deferred Taxes and Uncertain Tax Positions. We
utilize the asset and liability method of accounting for income
taxes. We record a valuation allowance to reduce our deferred
tax assets to the amount that we believe is more likely than not
to be realized. In assessing the need for a valuation allowance,
we consider all positive and negative evidence, including
scheduled reversals of deferred tax liabilities, projected
future taxable income, tax planning strategies, and recent
financial performance. Forming a conclusion that a valuation
allowance is not required is difficult when there is negative
evidence such as cumulative losses in recent years. As a result
of our cumulative losses in the U.S. and certain foreign
jurisdictions, our U.S. tax losses after tax deductions for
stock-based compensation, and the full utilization of our loss
carryback opportunities, we have concluded that a full valuation
allowance against our net deferred tax assets is appropriate in
the U.S. and certain foreign jurisdictions. In certain
other foreign jurisdictions where we do not have cumulative
losses, we record valuation allowances to reduce our net
deferred tax assets to the amount we believe is more likely than
not to be realized. In the future, if we realize a deferred tax
asset that currently carries a valuation allowance, we may
record a reduction to income tax expense in the period of such
realization. In July 2006 the FASB, issued Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes An Interpretation of FASB Statement
No. 109, or FIN 48, which requires income tax
positions to meet a more-likely-than-not recognition threshold
to be recognized in the financial statements. Under FIN 48,
tax positions that previously failed to meet the
more-likely-than-not threshold should be recognized in the first
subsequent financial reporting period in which that threshold is
met. Previously recognized tax positions that no longer meet the
more-likely-than-not threshold should be derecognized in the
first subsequent financial reporting period in which that
threshold is no longer met. Prior to 2007 we recorded estimated
income tax liabilities to the extent they were probable and
could be reasonably estimated. As a multinational corporation,
we are subject to taxation in many jurisdictions, and the
calculation of our tax liabilities involves dealing with
uncertainties in the application of complex tax laws and
regulations in various taxing jurisdictions. If we ultimately
determine that the payment of these liabilities will be
unnecessary, we reverse the liability and recognize a tax
benefit during the period in which we determine the liability no
longer applies. Conversely, we record additional tax charges in
a period in which we determine that a recorded tax liability is
less than we expect the ultimate assessment to be. The
application of tax laws and regulations is subject to legal and
factual interpretation, judgment and uncertainty. Tax laws and
regulations themselves are subject to change as a result of
changes in fiscal policy, changes in legislation, the evolution
of regulations and court rulings. Therefore, the actual
liability for U.S. or foreign taxes may be materially
different from our estimates, which could result in the need to
record additional tax liabilities or potentially reverse
previously recorded tax liabilities.
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Litigation and Settlement Costs. We are
involved in disputes, litigation and other legal proceedings. We
prosecute and defend these matters aggressively. However, there
are many uncertainties associated with any litigation, and we
cannot assure you that these actions or other third party claims
against us will be resolved without costly litigation
and/or
substantial settlement charges. In addition, the resolution of
intellectual property litigation may require us to pay damages
for past infringement or to obtain a license under the other
partys intellectual property rights that could require
one-time license fees or running royalties, which could
adversely impact gross profit and gross margins in future
periods, or could prevent us from manufacturing or selling some
of our products or limit or restrict the type of work that
employees involved in such litigation may perform for Broadcom.
If any of those events were to occur, our business, financial
condition and results of operations could be materially and
adversely affected. We record a charge equal to at least the
minimum estimated liability for a loss contingency when both of
the following conditions are met: (i) information available
prior to issuance of the financial statements indicates that it
is probable that an asset had been impaired or a liability had
been incurred at the date of the financial statements and
(ii) the amount or range of loss can be reasonably
estimated. However, the actual liability in any such disputes or
litigation may be materially different from our estimates, which
could result in the need to record additional costs.
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54
Results
of Operations
The following table sets forth certain Consolidated Statements
of Income data expressed as a percentage of net revenue for the
periods indicated:
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Years Ended December 31,
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2008
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2007
|
|
|
2006
|
|
|
Net revenue
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|
|
100.0
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%(1)
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|
|
100.0
|
%(1)
|
|
|
100.0
|
%
|
Cost of revenue
|
|
|
47.5
|
|
|
|
48.5
|
|
|
|
49.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
52.5
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(1)
|
|
|
51.5
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(1)
|
|
|
51.0
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Operating expense:
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|
|
|
|
|
|
|
|
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Research and development
|
|
|
32.1
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|
|
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35.7
|
|
|
|
30.5
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Selling, general and administrative
|
|
|
11.7
|
|
|
|
13.0
|
|
|
|
13.7
|
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Amortization of purchased intangible assets
|
|
|
0.1
|
|
|
|
|
|
|
|
0.1
|
|
In-process research and development
|
|
|
0.9
|
|
|
|
0.4
|
|
|
|
0.1
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|
Impairment of goodwill and other long-lived assets
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3.7
|
|
|
|
0.1
|
|
|
|
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Settlement costs
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
Restructuring costs (reversals)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Income from operations
|
|
|
3.7
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(1)
|
|
|
2.3
|
(1)
|
|
|
6.6
|
|
Interest income, net
|
|
|
1.1
|
|
|
|
3.4
|
|
|
|
3.3
|
|
Other income (expense), net
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|
|
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
4.8
|
(1)
|
|
|
5.8
|
(1)
|
|
|
10.0
|
|
Provision (benefit) for income taxes
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
(0.3
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
4.6
|
%(1)
|
|
|
5.6
|
%(1)
|
|
|
10.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(1)
|
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Includes royalties in the amounts
of $149.2 million and $31.8 million in 2008 and 2007,
respectively, received pursuant to a patent license agreement
entered into in July 2007.
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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 consolidated statements
of income data above:
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|
|
|
|
|
|
|
|
|
Years Ended December 31,
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|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Cost of revenue
|
|
|
0.5
|
%
|
|
|
0.7
|
%
|
|
|
0.7
|
%
|
Research and development
|
|
|
7.7
|
|
|
|
9.4
|
|
|
|
8.4
|
|
Selling, general and administrative
|
|
|
2.7
|
|
|
|
3.7
|
|
|
|
3.7
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55
Years
Ended December 31, 2008 and 2007
Net
Revenue, Cost of Revenue and Gross Profit
The following table presents net revenue, cost of revenue and
gross profit for 2008 and 2007:
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
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|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
%
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Increase
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Net revenue
|
|
$
|
4,658,125
|
(2)
|
|
|
100.0
|
%
|
|
$
|
3,776,395
|
(2)
|
|
|
100.0
|
%
|
|
$
|
881,730
|
|
|
|
23.3
|
%
|
Cost of
revenue(1)
|
|
|
2,213,015
|
|
|
|
47.5
|
|
|
|
1,832,178
|
|
|
|
48.5
|
|
|
|
380,837
|
|
|
|
20.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
2,445,110
|
(2)
|
|
|
52.5
|
%
|
|
$
|
1,944,217
|
(2)
|
|
|
51.5
|
%
|
|
$
|
500,893
|
|
|
|
25.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
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(2)
|
|
Includes royalties in the amounts
of $149.2 million and $31.8 million in 2008 and 2007,
respectively, received pursuant to a patent license agreement
entered into in July 2007.
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Net Revenue. Our revenue is generated
principally by sales of our semiconductor products. Our
broadband communications products include solutions for cable
modems, DSL applications, digital cable, direct broadcast
satellite and IP set-top boxes, digital TVs and high definition
DVD and personal video recording devices. Our mobile and
wireless products include wireless LAN, cellular, touch
controller, GPS, Bluetooth, mobile multimedia and applications
processors, mobile power management and VoIP solutions. Our
enterprise networking products include Ethernet transceivers,
controllers, switches, broadband network and security processors
and server chipsets.
Net revenue is revenue less reductions for rebates and
provisions for returns and allowances.
The following table presents net revenue from each of our major
target markets and its respective contribution to net revenue in
2008 as compared to 2007:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
%
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Increase
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Broadband communications
|
|
$
|
1,722,671
|
|
|
|
37.0
|
%
|
|
$
|
1,412,293
|
|
|
|
37.4
|
%
|
|
$
|
310,378
|
|
|
|
22.0
|
%
|
Mobile and wireless
|
|
|
1,677,410
|
(1)
|
|
|
36.0
|
|
|
|
1,224,434
|
(1)
|
|
|
32.4
|
|
|
|
452,976
|
(1)
|
|
|
37.0
|
|
Enterprise networking
|
|
|
1,258,044
|
|
|
|
27.0
|
|
|
|
1,139,668
|
|
|
|
30.2
|
|
|
|
118,376
|
|
|
|
10.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
4,658,125
|
(1)
|
|
|
100.0
|
%
|
|
$
|
3,776,395
|
(1)
|
|
|
100.0
|
%
|
|
$
|
881,730
|
|
|
|
23.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes royalties in the amount of
$149.2 million and $31.8 million in 2008 and 2007,
respectively, received pursuant to a patent license agreement
entered into in July 2007.
|
The increase in net revenue from our broadband communications
target market resulted primarily from an increase in demand for
digital set-top box, broadband modem, high definition DVD and
digital TV products. The increase in net revenue from our mobile
and wireless target market resulted primarily from strong growth
driven by new products and customer ramps for our Bluetooth,
wireless LAN, touch controller and GPS product offerings, as
well as a net increase in royalty revenue in the amount of
$117.4 million received pursuant to a patent license
agreement entered into in July 2007, offset in part by a
decrease in demand for our mobile multimedia product offerings.
The increase in net revenue from our enterprise networking
target market resulted primarily from an increase in demand
attributable to our Ethernet switch, broadband network and
security processor product lines.
56
The following table presents net revenue from each of our major
target markets and its respective contribution to net revenue in
the three months ended December 31, 2008 as compared to the
three months ended September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
%
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Decrease
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Broadband communications
|
|
$
|
440,983
|
|
|
|
39.1
|
%
|
|
$
|
458,323
|
|
|
|
35.3
|
%
|
|
$
|
(17,340
|
)
|
|
|
(3.8
|
)%
|
Mobile and wireless
|
|
|
409,482
|
(1)
|
|
|
36.3
|
|
|
|
494,429
|
(1)
|
|
|
38.1
|
|
|
|
(84,947
|
)(1)
|
|
|
(17.2
|
)
|
Enterprise networking
|
|
|
276,044
|
|
|
|
24.6
|
|
|
|
345,723
|
|
|
|
26.6
|
|
|
|
(69,679
|
)
|
|
|
(20.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
1,126,509
|
(1)
|
|
|
100.0
|
%
|
|
$
|
1,298,475
|
(1)
|
|
|
100.0
|
%
|
|
$
|
(171,966
|
)
|
|
|
(13.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes royalties in the amounts
of $40.0 million and $38.0 million in the three months
ended December 31, 2008 and September 30, 2008,
respectively, received pursuant to a patent license agreement
entered into in July 2007.
|
The decrease in net revenue in our broadband communications
target market resulted primarily from a decrease in demand for
broadband modems, digital TV and high definition DVD products,
offset in part by an increase in demand for our digital set-top
box products. The decrease in net revenue for our mobile and
wireless target market resulted primarily from seasonal demand
for our Bluetooth, wireless LAN and touch controller products.
The decrease in net revenue from our enterprise networking
target market resulted primarily from decreased demand for our
Ethernet switch and controller products.
In July 2007 we entered into a patent license agreement with a
wireless network operator. Under the agreement, royalty payments
will be made to us at a rate of $6.00 per unit for each
applicable unit sold by the operator on or after the date of the
agreement, subject to certain conditions, including without
limitation a maximum payment of $40.0 million per calendar
quarter and a lifetime maximum of $200.0 million. Up to
$19.0 million of royalty revenue is currently expected to
be recognized under this agreement in the quarter ended
March 31, 2009.
We recorded rebates to certain customers of $236.4 million,
or 5.1% of net revenue and $222.3 million, or 5.9% of net
revenue, in 2008 and 2007, respectively. We account for rebates
in accordance with EITF Issue
No. 01-9,
Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendors Products), or
EITF 01-9,
and, accordingly, at the time of the sale we accrue 100% of the
potential rebate as a reduction to revenue and do not apply a
breakage factor. The amount of these reductions is based upon
the terms included in our various rebate agreements. We
anticipate that accrued rebates will vary in future periods
based upon the level of overall sales to customers that
participate in our rebate programs. We reverse the accrual of
unclaimed rebate amounts as specific rebate programs
contractually end or when we believe unclaimed rebates are no
longer subject to payment and will not be paid. We reversed
accrued rebates in the amount of $39.6 million and
$22.4 million in 2008 and 2007, respectively.
Cost of Revenue and Gross Profit. Cost of
revenue includes 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, amortization of
purchased technology, and manufacturing overhead, including
costs of personnel and equipment associated with manufacturing
support, product warranty costs, provisions for excess and
obsolete inventories, and stock-based compensation expense for
personnel engaged in manufacturing support.
The 2008 increase in absolute dollars of gross profit resulted
primarily from the 23.3% increase in net revenue. Gross margin
increased from 51.5% in 2007 to 52.5% in 2008. The primary
factors that contributed to the increase in gross margin were:
(i) a net increase in royalty revenue in the amount of
$117.4 million, (ii) a reversal of warranty reserves
of $10.6 million and (iii) a net increase in the
reversal of rebates in the amount of $17.3 million related
to unclaimed rebates; offset in part by an increase in excess
and obsolete inventory reserves in
57
the amount of $14.2 million due to increased inventory
levels.For a discussion of stock-based compensation included in
cost of revenue, see Stock-Based Compensation
Expense, below.
Gross margin has been and will likely continue to be impacted by
our product mix and volume of product sales, including sales to
high volume customers, royalty revenue, competitive pricing
programs and rebates, fluctuations in silicon wafer costs and
assembly, packaging and testing costs, competitive pricing
requirements, product warranty costs, provisions for excess and
obsolete inventories, the position of our products in their
respective life cycles, and the introduction of products with
lower margins, among other factors. Typically our newly
introduced products have lower gross margins until we commence
volume production and launch lower cost revisions of such
products enabling us to benefit from economies of scale and more
efficient designs. Our gross margin may also be impacted by
additional stock-based compensation expense and changes therein,
as discussed below, and the amortization of purchased intangible
assets related to future acquisitions.
Research
and Development Expense
Research and development expense consists primarily of salaries
and related costs of employees engaged in research, design and
development activities, including stock-based compensation
expense. Development and design costs consist primarily of costs
related to engineering design tools, mask and prototyping costs,
testing and subcontracting costs. In addition, we incur other
costs related to facilities and equipment expense, among other
items.
The following table presents details of research and development
expense for 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
%
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Increase
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Salaries and benefits
|
|
$
|
706,667
|
|
|
|
15.2
|
%
|
|
$
|
594,985
|
|
|
|
15.8
|
%
|
|
$
|
111,682
|
|
|
|
18.8
|
%
|
Stock-based
compensation(1)
|
|
|
358,018
|
|
|
|
7.7
|
|
|
|
353,649
|
|
|
|
9.4
|
|
|
|
4,369
|
|
|
|
1.2
|
|
Development and design costs
|
|
|
211,801
|
|
|
|
4.5
|
|
|
|
209,980
|
|
|
|
5.6
|
|
|
|
1,821
|
|
|
|
0.9
|
|
Other
|
|
|
221,182
|
|
|
|
4.7
|
|
|
|
189,894
|
|
|
|
4.9
|
|
|
|
31,288
|
|
|
|
16.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
1,497,668
|
|
|
|
32.1
|
%
|
|
$
|
1,348,508
|
|
|
|
35.7
|
%
|
|
$
|
149,160
|
|
|
|
11.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
The increases in salaries and benefits are primarily
attributable to (i) a net increase in headcount by
861 personnel (predominantly as a result of our acquisition
of the DTV Business of AMD and in the mobile and wireless area)
to 5,537 at December 31, 2008, which represents an 18.4%
increase from our December 31, 2007 levels, as well as
(ii) an increase in cash compensation levels as a result of
our annual merit review program in May 2008. In 2008
development and design costs were relatively flat, however mask
and prototyping costs increased due to the continued transition
of certain products to 65 nanometer process technology, offset
by reduced subcontracting costs. Development and design costs
vary from period to period depending on the timing of
development and tape-out of various products. The increase in
the Other line item included in the above table is
primarily attributable to an increase in our facilities and
equipment expenses.
We remain committed to significant research and development
efforts to extend our technology leadership in the wired and
wireless communications markets in which we operate. We
currently hold more than 3,100 U.S. and 1,400 foreign
patents, and we maintain an active program of filing for and
acquiring additional U.S. and foreign patents in wired and
wireless communications and other fields. This represents an
increase of 600 U.S. and 400 foreign patents issued in the
last year.
58
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 table presents details of selling, general and
administrative expense for 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
|
Increase
|
|
|
%
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
(Decrease)
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Salaries and benefits
|
|
$
|
213,269
|
|
|
|
4.6
|
%
|
|
$
|
176,152
|
|
|
|
4.7
|
%
|
|
$
|
37,117
|
|
|
|
21.1
|
%
|
Stock-based
compensation(1)
|
|
|
126,359
|
|
|
|
2.7
|
|
|
|
139,533
|
|
|
|
3.7
|
|
|
|
(13,174
|
)
|
|
|
(9.4
|
)
|
Legal and accounting fees
|
|
|
141,629
|
|
|
|
3.0
|
|
|
|
100,270
|
|
|
|
2.7
|
|
|
|
41,359
|
|
|
|
41.2
|
|
Other
|
|
|
61,860
|
|
|
|
1.4
|
|
|
|
76,782
|
|
|
|
1.9
|
|
|
|
(14,922
|
)
|
|
|
(19.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
$
|
543,117
|
|
|
|
11.7
|
%
|
|
$
|
492,737
|
|
|
|
13.0
|
%
|
|
$
|
50,380
|
|
|
|
10.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 increases in salaries and benefits are primarily
attributable to (i) a net increase in headcount by
108 personnel to 1,342 at December 31, 2008, which
represents an 8.8% increase from our December 31, 2007
levels, as well as (ii) an increase in cash compensation
levels as a result of our annual merit review program in
May 2008. The remainder of the increase in selling, general
and administrative expenses was primarily attributable to an
increase in legal and accounting fees. Legal fees consist
primarily of attorneys fees and expenses related to our
outstanding intellectual property and securities litigation,
patent prosecution and filings, and the consummation of various
transactions. Legal fees fluctuate from period to period due to
the nature, scope, timing and costs of the matters in litigation
from time to time, including intellectual property and
securities litigation.
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 to indemnify each such director, officer and employee
against expenses, including attorneys fees, judgments,
fines and settlements, paid by such individual in connection
with our currently outstanding securities litigation and related
government investigations described in Note 11 of Notes to
Consolidated Financial Statements (subject to certain
exceptions). The potential amount of the future payments we
could be required to make under these indemnification
obligations could be significant. We maintain directors
and officers insurance policies that may limit our
exposure and enable us to recover a portion of our legal fees
paid related to these obligations. However, certain of our
insurance carriers have reserved their rights under these
policies, and in the third quarter of 2008 one of our insurance
carriers notified us that coverage was not available and that it
intended to suspend payment to us. As a result, we ceased
receiving reimbursements under these policies for our expenses
related to the matters described above. However, in January 2009
we entered into an agreement with that insurance carrier and
certain of our other insurance carriers pursuant to which,
without prejudicing our rights or the rights of such insurers,
we will receive a payment from these insurers under these
insurance policies. In the three months ended June 30,
2008, due to a change in the underlying facts and circumstances
related to director and officer claims, we commenced recognizing
reimbursements from our directors and officers
insurance carriers on a cash basis, pursuant to which we record
a reduction to selling, general and administrative expense only
when cash is actually received from our insurance carriers
instead of offsetting the expenses in a quarter with a
receivable from the carriers. In the six months ended
June 30, 2008 we recorded a reduction of $9.5 million
to selling, general and administrative expense related to
insurance recoveries. No insurance proceeds were received in the
second half of 2008. From inception of the securities litigation
and related government investigations through December 31,
2008, we have recovered legal expenses in the amount of
$26.7 million under these insurance policies, which amount
we have recorded as a reduction to selling, general and
administrative expense. In certain limited circumstances, all or
portions of the amounts recovered from our insurance carriers
may be required to be repaid. We regularly evaluate the need to
record a liability for potential future repayments in accordance
with SFAS No. 5, Accounting for Contingencies,
or SFAS 5. As of December 31, 2008 we have not
recorded a liability in connection with these potential
insurance repayment provisions.
59
In connection with our currently outstanding securities
litigation and related government investigations described in
Note 11 of Notes to Consolidated Financial Statements, as
of December 31, 2008 we advanced $42.0 million to
certain former officers for attorney and expert fees for which
we did not receive reimbursement from our insurance carriers,
and which have been expensed in the accompanying consolidated
financial statements. If our coverage under these policies is
reduced or eliminated, our potential financial exposure in the
pending securities litigation and related government actions
would be increased. Our business, financial position and results
of operations may be materially and adversely affected to the
extent that our insurance coverage fails to pay or reimburse
expenses and any judgments, fines or settlement costs that we
may incur in connection with these matters or in the event we
are required to repay amounts that were previously paid by our
insurance companies.
For further discussion of litigation matters, see Note 11
of Notes to Consolidated Financial Statements.
Stock-Based
Compensation Expense
The following table presents details of total stock-based
compensation expense that is included in each functional
line item in our consolidated statements of income:
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cost of revenue
|
|
$
|
24,997
|
|
|
$
|
26,470
|
|
Research and development
|
|
|
358,018
|
|
|
|
353,649
|
|
Selling, general and administrative
|
|
|
126,359
|
|
|
|
139,533
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
509,374
|
|
|
$
|
519,652
|
|
|
|
|
|
|
|
|
|
|
The amount of unearned stock-based compensation currently
estimated to be expensed from 2009 through 2012 related to
unvested share-based payment awards at December 31, 2008 is
$1.017 billion. Of this amount, $463.2 million,
$318.0 million, $183.6 million and $52.4 million
are currently estimated to be recorded in 2009, 2010, 2011 and
2012, respectively. The weighted-average period over which the
unearned stock-based compensation is expected to be recognized
is 1.4 years.
The increase in unearned stock-based compensation of
$68.9 million at December 31, 2008 from the
$948.3 million balance at December 31, 2007 was
primarily the result of the fair value associated with
share-based awards granted during 2008, offset in part by
stock-based compensation of $509.4 million expensed during
2008. See Note 8 of Notes to Consolidated Financial
Statements for a discussion of activity related to share-based
awards.
We recognize stock-based compensation expense related to
share-based awards over their respective service periods.
Unearned stock-based compensation is principally amortized
ratably over the service periods of the underlying stock options
and restricted stock units, generally 48 months and 16
quarters, respectively. If there are any modifications or
cancellations of the underlying unvested awards, we may be
required to accelerate, increase or cancel any remaining
unearned stock-based compensation expense. Future stock-based
compensation expense and unearned stock-based compensation will
increase to the extent that we grant additional equity awards to
employees or assume unvested equity awards in connection with
acquisitions.
Charges
Related to the Voluntary Review of our Equity Award
Practices
In connection with our equity award review, the results of which
were reported in January 2007, we determined the accounting
measurement dates for most of our options granted between June
1998 and May 2003 covering options to purchase
232.9 million shares of our Class A or Class B
common stock, differed from the measurement dates previously
used for such awards. As a result, there are potential adverse
tax consequences that may apply to holders of affected options.
By amending or replacing those options, the potential adverse
tax consequences could be eliminated.
60
In March 2007 we offered to amend or replace options affected by
the change in measurement dates by adjusting the exercise price
of each such option to the lower of (i) the fair market
value per share of our Class A common stock on the revised
measurement date applied to that option as a result of our
equity award review or (ii) the closing selling price per
share of our Class A common stock on the date on which the
option would be amended. If the adjusted exercise price for an
affected option was lower than the original exercise
price, that option was not amended but instead was replaced with
a new option that had the same exercise price, vesting schedule
and expiration date as the affected option, but a new grant
date. The offer expired April 20, 2007. Participants whose
options were amended pursuant to the offer were paid a special
cash payment with respect to those options. The amount paid was
determined by multiplying (i) the amount of the increase in
exercise price by (ii) the number of shares for which
options were amended. We made payments of $29.6 million in
January 2008 to reimburse the affected optionholders for the
increases in their exercise prices. A liability was recorded for
these payments and included in wages and related benefits as of
December 31, 2007.
In accordance with SFAS 123R, we recorded total estimated
charges of $3.4 million in 2007 and a reduction of
additional paid-in capital in the amount of $26.2 million
in connection with the offer. Charges of $0.1 million,
$1.5 million and $1.8 million are included in cost of
revenue, research and development expense and selling, general
and administrative expense, respectively.
We also recorded total charges of $61.5 million in 2006 in
connection with payments we made to or on behalf of certain
current and former employees related to consequences of the
voluntary review of our equity award practices, as well as
non-cash stock-based compensation expense we incurred related to
the extension of the post-service stock option exercise period
for certain former employees. The payments were (i) to
remunerate participants in our employee stock purchase plan who
were unable to purchase shares thereunder during the period in
which we were not current in our SEC reporting obligations,
(ii) to remediate adverse tax consequences, if any, to
individuals that resulted from the review, and (iii) to
compensate individuals for the value of stock options that
expired or would have expired during the period in which we were
not current in our SEC reporting obligations. A total of
$2.5 million, $30.1 million and $28.9 million was
included in cost of revenue, research and development
expense and selling, general and administrative expense,
respectively, for such charges in 2006, of which
$6.5 million and $5.1 million included in research and
development expense and selling, general and administrative
expense, respectively, was stock-based compensation expense.
Amortization
of Purchased Intangible Assets
The following table presents details of the amortization of
purchased intangible assets by each expense category:
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cost of revenue
|
|
$
|
15,857
|
|
|
$
|
13,485
|
|
Operating expense
|
|
|
3,392
|
|
|
|
1,027
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,249
|
|
|
$
|
14,512
|
|
|
|
|
|
|
|
|
|
|
The following table presents details of estimated future
straight-line amortization of purchased intangible assets. If we
acquire additional purchased intangible assets in the future,
our cost of revenue or operating expenses will be increased by
the amortization of those assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Intangible Assets Amortization by Year
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Cost of revenue
|
|
$
|
15,976
|
|
|
$
|
13,239
|
|
|
$
|
1,380
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
30,595
|
|
Operating expense
|
|
|
16,572
|
|
|
|
13,959
|
|
|
|
500
|
|
|
|
332
|
|
|
|
|
|
|
|
31,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
32,548
|
|
|
$
|
27,198
|
|
|
$
|
1,880
|
|
|
$
|
332
|
|
|
$
|
|
|
|
$
|
61,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
In-Process
Research and Development
In-process research and development, or IPR&D, totaled
$42.4 million and $15.5 million in 2008 and 2007,
respectively, related to our acquisitions of Sunext Design, Inc.
and the DTV Business of AMD in 2008 and LVL7 Systems, Inc.,
Octalica, Inc. and Global Locate, Inc. in 2007. The amounts
allocated to IPR&D were determined through established
valuation techniques used in the high technology industry and
were expensed upon acquisition as it was determined that the
underlying projects had not reached technological feasibility
and no alternative future uses existed. In accordance with
SFAS No. 2, Accounting for Research and Development
Costs, as clarified by FIN No. 4, Applicability
of FASB Statement No. 2 to Business Combinations Accounted
for by the Purchase Method, an Interpretation of FASB Statement
No. 2, amounts assigned to IPR&D meeting the
above-stated criteria were charged to expense as part of the
allocation of the purchase price.
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
product life cycles, and market penetration and growth rates.
The IPR&D charges include only the fair value of IPR&D
determined as of the respective acquisition dates. The fair
value of developed technology is included in identifiable
purchased intangible assets. We believe the amounts recorded as
IPR&D, as well as developed technology, represent the fair
values and approximate the amounts an independent party would
pay for these projects as of the respective acquisition dates.
The following table summarizes the significant assumptions at
the acquisition dates underlying the valuations of IPR&D
for acquisitions completed in 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
2008 Acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sunext
|
|
Blu-ray application
|
|
|
49
|
%
|
|
|
1.0
|
|
|
$
|
4.3
|
|
|
|
20
|
%
|
|
$
|
10.9
|
|
DTV Business of AMD
|
|
Xilleon product line
|
|
|
82
|
|
|
|
1.0
|
|
|
|
6.9
|
|
|
|
24
|
|
|
|
31.5
|
|
2007 Acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LVL7
|
|
Enhancements to FASTPATH application platform
|
|
|
31
|
|
|
|
1.0
|
|
|
|
7.8
|
|
|
|
21
|
|
|
|
0.3
|
|
Octalica
|
|
High performance communication controller
|
|
|
52
|
|
|
|
1.0
|
|
|
|
6.8
|
|
|
|
29
|
|
|
|
10.2
|
|
Global Locate
|
|
Single-chip GPS device
|
|
|
62
|
|
|
|
1.5
|
|
|
|
5.6
|
|
|
|
20
|
|
|
|
5.0
|
|
As of the respective acquisition dates, 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 December 31, 2008 development
projects for our DTV business acquisition in 2008 were still in
process. We completed all other development projects related to
acquisitions. Actual results to date have been consistent, in
all material respects, with our assumptions at the time of the
acquisitions.
Impairment
of Goodwill and Other Long-Lived Assets
We performed annual impairment assessments of the carrying value
of goodwill as required under SFAS No. 142,
Goodwill and Other Intangible Assets, or SFAS 142,
in October 2008 and 2007. In accordance with
62
SFAS 142, we compared the carrying value of each of our
reporting units that existed at those times to their estimated
fair value. At October 1, 2008 and 2007, we had four
reporting units as determined and identified in accordance with
SFAS 142.
We estimated the fair values of our reporting units primarily
using the income approach valuation methodology that includes
the discounted cash flow method, taking into consideration the
market approach and certain market multiples as a validation of
the values derived using the discounted cash flow methodology.
The discounted cash flows for each reporting unit were based on
discrete financial forecasts developed by management for
planning purposes. Cash flows beyond the discrete forecasts were
estimated using a terminal value calculation, which incorporated
historical and forecasted financial trends for each identified
reporting unit and considered long-term earnings growth rates
for publicly traded peer companies. Future cash flows were
discounted to present value by incorporating the present value
techniques discussed in FASB Concepts Statement 7, Using Cash
Flow Information and Present Value in Accounting
Measurements, or Concepts Statement 7. Specifically, the
income approach valuations included reporting unit cash flow
discount rates ranging from 15% to 17%, and terminal value
growth rates ranging from 4% to 5%. Publicly available
information regarding the market capitalization of Broadcom was
also considered in assessing the reasonableness of the
cumulative fair values of our reporting units estimated using
the discounted cash flow methodology.
Upon completion of the October 2007 annual impairment
assessment, we determined no impairment was indicated as the
estimated fair value of each of the four reporting units
exceeded its respective carrying value. Upon completion of the
October 2008 assessment, we determined that the carrying value
of our mobile platforms business group exceeded its estimated
fair value. Because indicators of impairment existed for this
business group, we performed the second step of the test
required under SFAS 142 to determine the fair value of the
goodwill of the mobile platforms business group.
In accordance with SFAS 142, the implied fair value of
goodwill was determined in the same manner as utilized to
estimate the amount of goodwill recognized in a business
combination. As part of the second step of the impairment test
performed in 2008, we calculated the fair value of certain
assets, including developed technology, IPR&D assets and
customer relationships. To determine the implied value of
goodwill, fair values were allocated to the assets and
liabilities of the mobile platforms business as of
October 1, 2008. The implied fair value of goodwill was
measured as the excess of the fair value of the mobile platforms
business group over the amounts assigned to its assets and
liabilities. The impairment loss for the mobile platforms
business group was measured by the amount the carrying value of
goodwill exceeded the implied fair value of the goodwill. Based
on this assessment, we recorded a charge of $149.7 million
in the three months ended December 31, 2008, which
represented all of the related goodwill of our mobile platforms
business group.
We also reviewed other long-lived tangible assets for impairment
in accordance with SFAS 144. An impairment in the carrying
value of an asset group is recognized whenever anticipated
future undiscounted cash flows from an asset group are estimated
to be less than its carrying value. The amount of impairment
recognized is the difference between the carrying value of the
asset group and its fair value. Fair value estimates are based
on assumptions concerning the amount and timing of estimated
future cash flows and assumed discount rates, reflecting varying
degrees of perceived risk. We utilized appraisals to assess the
reasonableness of the fair values estimated using the discounted
cash flow methodology. Based on the results of this assessment,
we recorded an impairment charge of $19.8 million related
to the property, plant and equipment of our mobile platforms
business group in the three months ended December 31, 2008.
The primary factors contributing to these impairment charges
were the recent significant economic downturn, which caused a
decline in the cellular market, as well as tempered expectations
of the future growth rate for that market, and an increase in
our implied discount rate due to higher risk premiums, as well
as the decline in our market capitalization. We adjusted our
assumptions used to assess the estimated fair value of the
mobile platforms business group to account for these
macroeconomic changes.
Settlement
Costs
In April 2008 we entered into a settlement with the SEC relating
to the previously-disclosed SEC investigation of Broadcoms
historical stock option granting practices. Without admitting or
denying the SECs
63
allegations, we agreed to pay a civil penalty of
$12.0 million, which we recorded as a settlement cost in
2008. The settlement was approved by the United States District
Court for the Central District of California in late
April 2008. In addition, we settled a patent infringement
claim for $3.8 million in 2008. For further discussion of
litigation matters, see Note 11 of Notes to Consolidated
Financial Statements.
Restructuring
Costs (Reversals)
For a discussion of activity and liability balances related to
our past restructuring plans, see Note 2 of Notes to
Consolidated Financial Statements.
Interest
and Other Income (Expense), Net
The following table presents interest and other income
(expense), net, for 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
%
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Decrease
|
|
|
Change
|
|
|
|
|
|
|
(In thousands, except percentages)
|
|
|
|
|
|
Interest income, net
|
|
$
|
52,201
|
|
|
|
1.1
|
%
|
|
$
|
131,069
|
|
|
|
3.4
|
%
|
|
$
|
(78,868
|
)
|
|
|
(60.2
|
)%
|
Other income (expense), net
|
|
|
(2,016
|
)
|
|
|
|
|
|
|
3,412
|
|
|
|
0.1
|
|
|
|
(5,428
|
)
|
|
|
(159.1
|
)
|
Interest income, net, reflects interest earned on cash and cash
equivalents and short- and long-term marketable securities
balances. Other income (expense), net, primarily includes
recorded gains and losses on strategic investments and
other-than-temporary impairments of marketable securities, as
well as gains and losses on foreign currency transactions and
dispositions of property and equipment. The decrease in interest
income, net, was the result of the overall decrease in market
interest rates and a decrease in our average cash and marketable
securities balances. Our cash and marketable securities balances
decreased from $2.404 billion at December 31, 2007 to
$1.898 billion at December 31, 2008, primarily due to
repurchases of shares of our Class A common stock. The
average interest rates earned for 2008 and 2007 were 2.42% and
5.12%, respectively. The 2008 decrease in the average interest
rate is a reflection of the Federal Reserve cutting the Federal
Funds Rate from 4.25% to nearly 0% and a larger percentage of
our portfolio being shifted to U.S. Treasury securities.
The decrease in other income (expense), net was the result of an
other-than-temporary impairment of a marketable security of
$1.8 million and impairments of strategic investments in
amounts totaling $4.3 million.
Provision
for Income Taxes
The following table presents the income tax provision for 2008
and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
%
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Increase
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Income tax provision
|
|
$
|
7,521
|
|
|
|
0.2
|
%
|
|
$
|
6,114
|
|
|
|
0.2
|
%
|
|
$
|
1,407
|
|
|
|
23.0
|
%
|
The federal statutory rate was 35% for 2008 and 2007. Our
effective tax rates were 3.4% and 2.8% for 2008 and 2007,
respectively. The differences between our effective tax rates
and the federal statutory tax rate primarily relate to foreign
earnings taxed at substantially lower rates than the federal
statutory rate for 2008 and 2007 due principally to our tax
holiday in Singapore, and for 2007 domestic tax losses recorded
without tax benefits. In 2008 U.S. operating losses were more
than offset by the $1.5 billion dividend. We incurred
$0.8 million of state tax expense in 2008, as a result of
our $1.5 billion repatriation of foreign earnings in
December 2008. As a result of the utilization of
$491.3 million of previously reserved domestic deferred tax
assets (including net operating loss and foreign tax credit
carryforwards), no federal income tax expense was recognized
relating to the distribution. We recognized a federal tax
benefit of $3.0 million in 2008, which resulted from the
utilization of a portion of our federal credits for increasing
research activities (research and development tax credits)
pursuant to a provision contained in The Housing Assistance
Act of 2008, which was signed into law July 30, 2008.
In addition, we realized
64
tax benefits resulting from the reversal of certain prior period
tax accruals of $6.5 million and $6.0 million in 2008
and 2007, respectively. These reversals resulted primarily from
the expiration of the statutes of limitation for the assessment
of taxes related to certain foreign subsidiaries.
We utilize the asset and liability method of accounting for
income taxes as set forth in SFAS No. 109,
Accounting for Income Taxes, or SFAS 109. We record
net deferred tax assets to the extent we believe these assets
will more likely than not be realized. In making such
determination, we consider all available positive and negative
evidence, including scheduled reversals of deferred tax
liabilities, projected future taxable income, tax planning
strategies and recent financial performance.
SFAS 109 states that forming a conclusion that a
valuation allowance is not required is difficult when there is
negative evidence such as cumulative losses in recent years. As
a result of our recent cumulative losses in the U.S. and
certain foreign jurisdictions, and the full utilization of our
loss carryback opportunities, we have concluded that a full
valuation allowance should be recorded in such jurisdictions. In
certain other foreign jurisdictions where we do not have
cumulative losses, we had net deferred tax assets of
$7.5 million and $3.3 million at December 31,
2008 and 2007, respectively. See Note 5 of Notes to
Consolidated Financial Statements.
In July 2006 the FASB issued FIN 48. FIN 48 provides
detailed guidance for the financial statement recognition,
measurement and disclosure of uncertain tax positions recognized
in an enterprises financial statements in accordance with
SFAS 109. As a result of applying the provisions of
FIN 48, we recognized a decrease of $3.9 million in
the liability for unrecognized tax benefits, and a
$4.7 million reduction in accumulated deficit as of
January 1, 2007. In addition we reclassified certain tax
liabilities for unrecognized tax benefits, as well as related
potential penalties and interest, from current liabilities to
long-term liabilities. Our unrecognized tax benefits at
December 31, 2008 and 2007 relate to various foreign
jurisdictions.
At December 31, 2008 we had unrecognized tax benefits in
the amount of $21.2 million which included
$19.1 million of tax benefits that, if recognized, would
reduce our annual effective tax rate. We also accrued potential
penalties and interest of $1.6 million and
$0.6 million, respectively, related to these unrecognized
tax benefits during 2008, and in total, as of December 31,
2008, we had a recorded liability for potential penalties and
interest of $13.3 million and $1.4 million,
respectively. We do not expect our unrecognized tax benefits to
change significantly over the next twelve months.
Years
Ended December 31, 2007 and 2006
Net
Revenue, Cost of Revenue and Gross Profit
The following table presents net revenue, cost of revenue and
gross profit for 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
%
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Increase
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Net revenue
|
|
$
|
3,776,395
|
(2)
|
|
|
100.0
|
%
|
|
$
|
3,667,818
|
|
|
|
100.0
|
%
|
|
$
|
108,577
|
|
|
|
3.0
|
%
|
Cost of
revenue(1)
|
|
|
1,832,178
|
|
|
|
48.5
|
|
|
|
1,795,565
|
|
|
|
49.0
|
|
|
|
36,613
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
1,944,217
|
(2)
|
|
|
51.5
|
%
|
|
$
|
1,872,253
|
|
|
|
51.0
|
%
|
|
$
|
71,964
|
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes stock-based compensation
expense resulting from stock options 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)
|
|
Includes royalties in the amount of
$31.8 million in 2007 received pursuant to a patent license
agreement entered into in July 2007.
|
65
Net Revenue. The following table presents net
revenue from each of our major target markets and its respective
contribution to the increase in net revenue in 2007 as compared
to 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
|
Increase
|
|
|
%
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
(Decrease)
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Broadband communications
|
|
$
|
1,412,293
|
|
|
|
37.4
|
%
|
|
$
|
1,384,969
|
|
|
|
37.8
|
%
|
|
$
|
27,324
|
|
|
|
2.0
|
%
|
Enterprise networking
|
|
|
1,139,668
|
|
|
|
30.2
|
|
|
|
1,181,938
|
|
|
|
32.2
|
|
|
|
(42,270
|
)
|
|
|
(3.6
|
)
|
Mobile and wireless
|
|
|
1,224,434
|
(1)
|
|
|
32.4
|
|
|
|
1,100,911
|
|
|
|
30.0
|
|
|
|
123,523
|
(1)
|
|
|
11.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
3,776,395
|
(1)
|
|
|
100.0
|
%
|
|
$
|
3,667,818
|
|
|
|
100.0
|
%
|
|
$
|
108,577
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes royalties in the amount of
$31.8 million received pursuant to a patent license
agreement entered into in July 2007.
|
The 2007 increase in net revenue in our broadband communications
target market resulted from an increase in net revenue for our
products for digital TVs, offset by a decrease in net revenue
from our products for digital cable set-top boxes. The 2007
increase in net revenue from our mobile and wireless target
market resulted primarily from an increase in demand for our
Bluetooth and wireless LAN product offerings, offset in part by
a decrease in demand for our mobile multimedia and cellular
product offerings. In addition, fourth quarter 2007 net
revenue in our mobile and wireless target market included
royalty revenue in the amount of $31.8 million from a
patent license agreement entered into in July 2007. The 2007
decrease in net revenue from our enterprise networking target
market resulted primarily from a decrease in net revenue from
our controller products, offset in part by an increase in net
revenue attributable to our Ethernet switch products.
We recorded rebates to certain customers of $222.3 million
and $251.2 million in 2007 and 2006, respectively. We
reversed accrued rebates in the amount of $22.4 million and
$7.1 million in 2007 and 2006, respectively.
Cost of Revenue and Gross Profit. The 2007
increase in absolute dollars of gross profit resulted primarily
from the 3.0% increase in net revenue. Gross margin increased
from 51.0% in 2006 to 51.5% in 2007. The primary factors that
contributed to the increase in gross margin were: (i) an
increase in product margin due to a decrease in product costs,
(ii) a shift in product mix, (iii) royalty revenue in
the amount of $31.8 million, and (iv) an increase in
the reversal of rebates in the amount of $15.3 million
related to unclaimed rebates. For a discussion of stock-based
compensation included in cost of revenue, see Stock-Based
Compensation Expense, below.
Research
and Development Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
%
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Increase
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Salaries and benefits
|
|
$
|
594,985
|
|
|
|
15.8
|
%
|
|
$
|
487,606
|
|
|
|
13.3
|
%
|
|
$
|
107,379
|
|
|
|
22.0
|
%
|
Stock-based
compensation(1)
|
|
|
353,649
|
|
|
|
9.4
|
|
|
|
307,096
|
|
|
|
8.4
|
|
|
|
46,553
|
|
|
|
15.2
|
|
Development and design costs
|
|
|
209,980
|
|
|
|
5.6
|
|
|
|
171,526
|
|
|
|
4.7
|
|
|
|
38,454
|
|
|
|
22.4
|
|
Other
|
|
|
189,894
|
|
|
|
4.9
|
|
|
|
150,786
|
|
|
|
4.1
|
|
|
|
39,108
|
|
|
|
25.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
1,348,508
|
|
|
|
35.7
|
%
|
|
$
|
1,117,014
|
|
|
|
30.5
|
%
|
|
$
|
231,494
|
|
|
|
20.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 2007 increase in research and development expense resulted
primarily from an increase of $107.4 million in
personnel-related expenses and an increase of $46.6 million
in stock-based compensation expense. In 2006 salaries and
benefits included charges of $23.6 million related to the
voluntary review of our equity award
66
practices. Excluding this charge, personnel-related related
expenses increased by $131.0 primarily attributable to an
increase in the number of employees engaged in research and
development activities since the end of 2006, resulting from
both direct hiring and acquisitions. Employees engaged in
research and development activities at December 31, 2007
increased to 4,676, or by 22.8%, over the previous year. We also
had increases in costs related to engineering design tools and
computer hardware that were attributable to the increase in
headcount. In addition, facilities costs increased due to the
2007 build-out and relocation of our Irvine facilities. There
were increased mask and prototyping costs during 2007 due to the
transition of certain products to 65 nanometer process
technology. These costs vary from period to period depending on
the timing of development and tape-out of various products.
For a further discussion of stock-based compensation included in
research and development expense, see Stock-Based
Compensation Expense, below.
Selling,
General and Administrative Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
|
Increase
|
|
|
%
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
(Decrease)
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Salaries and benefits
|
|
$
|
176,152
|
|
|
|
4.7
|
%
|
|
$
|
173,562
|
|
|
|
4.7
|
%
|
|
$
|
2,590
|
|
|
|
1.5
|
%
|
Stock-based
compensation(1)
|
|
|
139,533
|
|
|
|
3.7
|
|
|
|
136,679
|
|
|
|
3.7
|
|
|
|
2,854
|
|
|
|
2.1
|
|
Legal and accounting fees
|
|
|
100,270
|
|
|
|
2.7
|
|
|
|
124,897
|
|
|
|
3.4
|
|
|
|
(24,627
|
)
|
|
|
(19.7
|
)
|
Other
|
|
|
76,782
|
|
|
|
1.9
|
|
|
|
68,874
|
|
|
|
1.9
|
|
|
|
7,908
|
|
|
|
11.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
$
|
492,737
|
|
|
|
13.0
|
%
|
|
$
|
504,012
|
|
|
|
13.7
|
%
|
|
$
|
(11,275
|
)
|
|
|
(2.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 2007 decrease in selling, general and administrative expense
resulted primarily from a decrease of $24.6 million in
legal and accounting fees, offset in part by an increase of
$2.6 million in personnel-related expenses. In 2006
salaries and benefits included charges of $23.8 million
related to the voluntary review of our equity award practices.
Excluding this charge, personnel-related expenses increased by
$26.4 million primarily attributable to an increase in the
number of employees engaged in selling, general and
administrative activities since the end of 2006, resulting from
both direct hiring and acquisitions. Employees engaged in
selling, general and administrative activities increased to
1,234, or by 16.3%, over the previous year. In addition,
facilities costs increased due to the 2007 build-out and
relocation of our Irvine facilities. Legal fees fluctuate from
period to period due to the timing and costs of our ongoing
litigation matters. In 2007 we received or recorded receivables
for reimbursements in the amount of $17.2 million related
to costs recoverable under certain insurance policies, which
reimbursements are reflected as an offset to legal expense. In
certain limited circumstances, portions of these amounts
recovered from our insurance carriers may be required to be
repaid. As of December 31, 2007 we had not recorded a
liability in connection with these potential insurance recovery
provisions. For a discussion of stock-based compensation
included in selling, general and administrative expense, see
Stock-Based Compensation Expense, below. For further
discussion of litigation matters, see Note 11 of Notes to
Consolidated Financial Statements.
67
Stock-Based
Compensation Expense
The following table presents details of total stock-based
compensation expense that is included in each functional
line item in our consolidated statements of income:
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cost of revenue
|
|
$
|
26,470
|
|
|
$
|
24,589
|
|
Research and development
|
|
|
353,649
|
|
|
|
307,096
|
|
Selling, general and administrative
|
|
|
139,533
|
|
|
|
136,679
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
519,652
|
|
|
$
|
468,364
|
|
|
|
|
|
|
|
|
|
|
The increase in unearned stock-based compensation of
$118.4 million at December 31, 2007 from the
$829.9 million balance at December 31, 2006 was
primarily the result of share-based awards granted during 2007,
including the grant of employee stock options to purchase
21.9 million shares of our common stock, the award of
12.2 million restricted stock units, and the accumulation
of rights to purchase 6.7 million shares of our common
stock by employees participating in our employee stock purchase
program, offset in part by stock-based compensation of
$519.7 million expensed during 2007.
Amortization
of Purchased Intangible Assets
The following table presents details of the amortization of
purchased intangible assets by expense category:
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cost of revenue
|
|
$
|
13,485
|
|
|
$
|
10,056
|
|
Operating expense
|
|
|
1,027
|
|
|
|
2,347
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,512
|
|
|
$
|
12,403
|
|
|
|
|
|
|
|
|
|
|
In-Process
Research and Development
IPR&D totaled $15.5 million and $5.2 million for
acquisitions completed in 2007 and 2006, respectively. For a
description of the 2007 IPR&D projects, including the
valuation techniques used and significant assumptions at the
acquisitions dates underlying the valuations, as well as an
update on the status of such projects as of December 31,
2008, see the discussion included under Years Ended
December 31, 2008 and 2007, above.
The following table summarizes the significant assumptions at
the acquisition dates underlying the valuations of IPR&D
for our 2006 acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
2006 Acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sandburst
|
|
|
20Gbps programmable packet processor
|
|
|
|
15
|
%
|
|
|
2.0
|
|
|
$
|
11.2
|
|
|
|
30
|
%
|
|
$
|
5.2
|
|
As of the acquisition date, an ongoing development project was
in process. During 2008 this project was completed. Research and
development costs to bring the product of the acquired company
to technological feasibility did not have a material impact on
our results of operations or financial condition.
Actual results to date have been consistent, in all material
respects, with our assumptions at the time of the acquisition.
The assumptions consist primarily of expected completion date
for the IPR&D project, estimated costs to complete the
project, and revenue and expense projections for the product
once it has entered the market.
68
Impairment
of Goodwill
We performed annual impairment assessments of the carrying value
of goodwill recorded in connection with various acquisitions as
required under SFAS 142 in October 2007 and 2006. Upon
completion of the 2007 and 2006 annual impairment assessments,
we determined no impairment was indicated as the estimated fair
value of each of our four reporting units, determined and
identified in accordance with SFAS 142, exceeded its
respective carrying value.
See Notes 1 and 9 of Notes to Consolidated Financial
Statements for a further discussion of impairment of goodwill.
Restructuring
Costs (Reversals)
For a discussion of activity and liability balances related to
our past restructuring plans, see Note 2 of Notes to
Consolidated Financial Statements.
Interest
and Other Income, Net
The following table presents interest and other income, net, for
2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
|
Increase
|
|
|
%
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
(Decrease)
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Interest income, net
|
|
$
|
131,069
|
|
|
|
3.4
|
%
|
|
$
|
118,997
|
|
|
|
3.3
|
%
|
|
$
|
12,072
|
|
|
|
10.1
|
%
|
Other income, net
|
|
|
3,412
|
|
|
|
0.1
|
|
|
|
3,964
|
|
|
|
0.1
|
|
|
|
(552
|
)
|
|
|
(13.9
|
)
|
Our cash and marketable securities balances decreased from
$2.802 billion at December 31, 2006 to
$2.404 billion at December 31, 2007, resulting
principally from repurchases of our Class A common stock
and cash used for acquisitions, offset in part by cash generated
from operations. Although the 2007 year-end balance was
slightly less than the 2006 year-end balance, our average
cash, cash equivalents and marketable securities balances during
the year increased. The increase in interest income, net, for
2007 was the result of the overall increase in our average cash
and marketable securities balances, as well as an increase in
market interest rates. The weighted average interest rates
earned for 2007 and 2006 were 5.12% and 4.91%, respectively.
Income
Tax Provision (Benefit)
The following table presents the income tax provision (benefit)
for 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
%
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Increase
|
|
|
Change
|
|
|
|
(In thousands, except percentages)
|
|
|
Income tax provision (benefit)
|
|
$
|
6,114
|
|
|
|
0.2
|
%
|
|
$
|
(12,400
|
)
|
|
|
(0.3
|
)%
|
|
$
|
18,514
|
|
|
|
149.3
|
%
|
The federal statutory rate was 35% for 2007 and 2006. Our
effective tax rates were 2.8% and negative 3.4% for 2007 and
2006, respectively. The differences between our effective tax
rates and the federal statutory tax rate primarily relate to
foreign earnings taxed at rates differing from the federal tax
rate and domestic tax losses recorded without tax benefits. In
addition, we realized tax benefits resulting from the reversal
of certain prior period tax accruals of $6.0 million and
$29.8 million in 2007 and 2006, respectively. These
reversals resulted primarily from the expiration of the statutes
of limitation for the assessment of taxes related to certain
foreign subsidiaries.
In certain other foreign jurisdictions where we do not have
cumulative losses, we had net deferred tax assets of
$3.3 million and $1.8 million at December 31,
2007 and 2006, respectively. See Note 5 of Notes to
Consolidated Financial Statements.
69
As a result of applying the provisions of FIN 48, we
recognized a decrease of $3.9 million in the liability for
unrecognized tax benefits, and a $4.7 million reduction in
accumulated deficit as of January 1, 2007. In addition we
reclassified certain tax liabilities for unrecognized tax
benefits, as well as related potential penalties and interest,
from current liabilities to long-term liabilities. Our
unrecognized tax benefits at December 31, 2007 relate to
various foreign jurisdictions.
At December 31, 2007 we had unrecognized tax benefits in
the amount of $21.6 million which included
$17.8 million of tax benefits that, if recognized, would
reduce our annual effective tax rate. We also accrued potential
penalties and interest of $1.1 million and
$0.7 million, respectively, related to these unrecognized
tax benefits during 2007, and in total, as of December 31,
2007, we had a recorded liability for potential penalties and
interest of $13.9 million and $1.5 million,
respectively.
Quarterly
Financial Data
The following table presents our quarterly financial data. In
our opinion, this information has been prepared on a basis
consistent with that of our audited consolidated financial
statements and all necessary material adjustments, consisting of
normal recurring accruals and adjustments, have been included to
present fairly the quarterly financial data. Our quarterly
results of operations for these periods are not necessarily
indicative of future results of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Net
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
(Loss)
|
|
|
|
Net
|
|
|
Gross
|
|
|
Income
|
|
|
Per
|
|
|
|
Revenue
|
|
|
Profit
|
|
|
(Loss)
|
|
|
Share
|
|
|
|
(In thousands, except per share data)
|
|
|
Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
1,126,509
|
|
|
$
|
568,712
|
|
|
$
|
(159,215
|
)(1)
|
|
$
|
(0.32
|
)
|
Third Quarter
|
|
|
1,298,475
|
|
|
|
679,016
|
|
|
|
164,906
|
(2)
|
|
|
0.31
|
|
Second Quarter
|
|
|
1,200,931
|
|
|
|
646,335
|
|
|
|
134,789
|
(3)
|
|
|
0.25
|
|
First Quarter
|
|
|
1,032,210
|
|
|
|
551,047
|
|
|
|
74,314
|
(4)
|
|
|
0.14
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
1,027,035
|
|
|
$
|
538,813
|
|
|
$
|
90,335
|
(5)
|
|
$
|
0.16
|
|
Third Quarter
|
|
|
949,959
|
|
|
|
483,989
|
|
|
|
27,760
|
(6)
|
|
|
0.05
|
|
Second Quarter
|
|
|
897,920
|
|
|
|
460,883
|
|
|
|
34,256
|
(7)
|
|
|
0.06
|
|
First Quarter
|
|
|
901,481
|
|
|
|
460,532
|
|
|
|
60,991
|
(8)
|
|
|
0.10
|
|
|
|
|
(1)
|
|
Includes impairment of goodwill and
other long-lived assets of $169.4 million and IPR&D of
$31.5 million.
|
|
(2)
|
|
Includes other-than-temporary
impairment on marketable securities of $1.8 million and
loss on strategic investment of $2.5 million.
|
|
(3)
|
|
Includes impairment of intangible
assets of $1.9 million, restructuring reversal of
$1.0 million, loss on strategic investment of
$1.8 million and income tax benefits from adjustments to
tax reserves of certain foreign subsidiaries or various foreign
jurisdictions of $4.4 million.
|
|
(4)
|
|
Includes IPR&D of
$10.9 million and settlement costs of $15.8 million.
|
|
(5)
|
|
Includes gain on strategic
investments of $3.0 million.
|
|
(6)
|
|
Includes IPR&D of
$5.0 million and loss on strategic investments of
$2.1 million.
|
|
(7)
|
|
Includes IPR&D of
$10.2 million and income tax benefits from adjustments to
tax reserves of certain foreign subsidiaries or various foreign
jurisdictions of $4.6 million.
|
|
(8)
|
|
Includes IPR&D of
$0.3 million, impairment of other intangible assets of
$1.5 million, loss on strategic investments of
$2.6 million and charges related to the equity award review
in the amount of $3.4 million.
|
Subsequent
Events
In light of the continuing deterioration in worldwide economic
conditions, on January 28, 2009 our Board of Directors
committed to a restructuring plan. The plan includes a reduction
in our worldwide headcount of approximately 200 people,
which represents approximately 3% of our global workforce. We
began implementing the plan immediately and expect that it will
be substantially completed later in 2009.
70
We expect to incur approximately $8.0 million to
$10.0 million in restructuring costs related to the plan,
primarily for severance and other charges associated with our
reduction in workforce. Of the total restructuring costs,
approximately $2.5 million to $4.0 million is expected
to be stock-based compensation expense. We anticipate that we
will recognize most of these charges in the first quarter of
2009, with a portion to be recognized later in 2009.
Recent
Accounting Pronouncements
In December 2007 the FASB issued SFAS No. 141R,
Business Combinations, or SFAS 141R. SFAS 141R
establishes principles and requirements for how the acquirer of
a business recognizes and measures in its financial statements
the identifiable assets acquired, the liabilities assumed, and
any noncontrolling interest in the acquiree. The statement also
provides guidance for recognizing and measuring the goodwill
acquired in the business combination and determines what
information to disclose to enable users of financial statements
to evaluate the nature and financial effects of the business
combination. SFAS 141R is effective for financial
statements issued for fiscal years beginning after
December 15, 2008. Accordingly, any business combinations
we engaged in were recorded and disclosed according to
SFAS 141, Business Combinations, until
January 1, 2009. We expect SFAS No. 141R will
have an impact on our consolidated financial statements, but the
nature and magnitude of the specific effects will depend upon
the nature, terms and size of the acquisitions we consummate
after the effective date of January 1, 2009.
In April 2008 the FASB issued FSP
No. 142-3,
Determination of the Useful Life of Intangible Assets, or
FSP 142-3,
which amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under SFAS 142. This
pronouncement requires enhanced disclosures concerning a
companys treatment of costs incurred to renew or extend
the term of a recognized intangible asset.
FSP 142-3
is effective for financial statements issued for fiscal years
beginning after December 15, 2008. We are currently
evaluating the impact of
FSP 142-3,
but do not expect the adoption to have a material impact on our
consolidated financial statements.
In December 2007 the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of Accounting Research
Bulletin No. 51, or SFAS 160. SFAS 160
addresses the accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent,
the amount of consolidated net income attributable to the parent
and to the noncontrolling interest, changes in a parents
ownership interest, and the valuation of retained noncontrolling
equity investments when a subsidiary is deconsolidated.
SFAS 160 also establishes disclosure requirements that
clearly identify and distinguish between the interests of the
parent and the interests of the noncontrolling owners.
SFAS 160 is effective for fiscal years beginning after
December 15, 2008. We are currently evaluating the impact
of SFAS 160, but do not expect the adoption to have a
material impact on our consolidated financial statements.
In May 2008 the FASB issued SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principles, or
SFAS 162. SFAS 162 identifies the sources of
accounting principles to be used in the preparation of financial
statements of nongovernmental entities that are presented in
conformity with generally accepted accounting principles, or
GAAP, in the U.S. SFAS 162 is effective 60 days
following the SEC approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, The
Meaning of Present Fairly in Conformity with Generally Accepted
Accounting Principles. We currently adhere to the hierarchy
of GAAP as presented in SFAS 162, and adoption is not
expected to have a material impact on our consolidated financial
statements.
In December 2007 the FASB ratified EITF Issue
07-1,
Accounting for Collaborative Arrangements, or
EITF 07-1.
EITF 07-1
focuses on defining a collaborative arrangement as well as the
accounting for transactions between participants in a
collaborative arrangement and between the participants in the
arrangement and third parties. The EITF concluded that both
types of transactions should be reported in each
participants respective income statement.
EITF 07-1
is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those fiscal years and should be applied retrospectively
to all prior periods presented for all collaborative
arrangements existing as of the effective date. We are currently
evaluating the impact of
EITF 07-1,
but do not expect the adoption to have a material impact on our
consolidated financial statements.
71
In November 2008 the FASB ratified EITF Issue
No. 08-7,
Accounting for Defensive Intangible Assets, or
EITF 08-7.
EITF 08-7
applies to defensive intangible assets, which are acquired
intangible assets that the acquirer does not intend to actively
use but intends to hold to prevent its competitors from
obtaining access to them. As these assets are separately
identifiable,
EITF 08-7
requires an acquiring entity to account for defensive intangible
assets as a separate unit of accounting, which should be
amortized to expense over the period the asset diminished in
value. Defensive intangible assets must be recognized at fair
value in accordance with SFAS 141R and SFAS 157.
EITF 08-7
is effective for financial statements issued for fiscal years
beginning after December 15, 2008. We expect EITF
08-7 will
have an impact on our consolidated financial statements when
effective, but the nature and magnitude of the specific effects
will depend upon the nature, terms and size of the intangible
assets purchased after the effective date.
Liquidity
and Capital Resources
Working Capital and Cash and Marketable
Securities. The following table presents working
capital, cash and cash equivalents and marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Increase
|
|
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
|
(In thousands)
|
|
|
Working capital
|
|
$
|
2,034,110
|
|
|
$
|
2,323,716
|
|
|
$
|
(289,606
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents(1)
|
|
$
|
1,190,645
|
|
|
$
|
2,186,572
|
|
|
$
|
(995,927
|
)
|
Short-term marketable
securities(1)
|
|
|
707,477
|
|
|
|
141,728
|
|
|
|
565,749
|
|
Long-term marketable securities
|
|
|
|
|
|
|
75,352
|
|
|
|
(75,352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,898,122
|
|
|
$
|
2,403,652
|
|
|
$
|
(505,530
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Included in working capital.
|
Our working capital and cash and cash equivalents and marketable
securities decreased in 2008 primarily due to repurchases of
shares of our Class A common stock, net cash paid for
acquisitions and other purchased intangible assets and purchases
of capital equipment, offset in part by cash provided by
operations. See the summary of cash, cash equivalents, short and
long-term marketable securities by major security type and
discussion of market risk that follows in Item 7A.
Quantitative and Qualitative Disclosures about Market
Risk.
Cash Provided and Used in 2008 and 2007. Cash
and cash equivalents decreased to $1.191 billion at
December 31, 2008 from $2.187 billion at
December 31, 2007 as a result of cash used in investing
(primarily for net purchases of marketable securities and the
purchase of the DTV Business of AMD) and financing activities
(primarily for repurchases of our Class A common stock),
offset in part by cash provided by operating activities.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007(1)
|
|
|
|
(In thousands)
|
|
|
Cash provided by operating activities
|
|
$
|
919,615
|
|
|
$
|
825,317
|
|
Cash provided by (used in) investing activities
|
|
|
(745,382
|
)
|
|
|
54,405
|
|
Cash used in financing activities
|
|
|
(1,170,160
|
)
|
|
|
(851,260
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
(995,927
|
)
|
|
$
|
28,462
|
|
Cash and cash equivalents at beginning of year
|
|
$
|
2,186,572
|
|
|
$
|
2,158,110
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
1,190,645
|
|
|
$
|
2,186,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
In the consolidated statement of
cash flows for the year ended December 31, 2007, we
increased net cash provided by operating activities and
increased net cash used in investing activities by
$2.6 million resulting from valuation of marketable
securities to conform to the current year presentation.
|
In 2008 our operating activities provided $919.6 million in
cash. This was primarily the result of $214.8 million in
net income and $826.9 million in net non-cash operating
expenses, offset in part by
72
$122.1 million in net cash used by changes in operating
assets and liabilities, principally a $112.2 million
increase in inventory. Non-cash items included in net income in
2008 consisted of depreciation and amortization, stock-based
compensation expense, amortization of purchased intangible
assets, IPR&D, impairment of goodwill and other long-lived
assets and losses on strategic investments and marketable
securities. In 2007 our operating activities provided
$825.3 million in cash. This was primarily the result of
$213.3 million in net income, $617.0 million in net
non-cash operating expenses offset in part by $5.0 million
in net cash used by changes in operating assets and liabilities.
Non-cash items included in net income in 2007 included
depreciation and amortization, stock-based compensation expense,
amortization of purchased intangible assets, IPR&D,
impairment of intangible assets and losses on strategic
investments.
Accounts receivable increased $3.3 million from
$369.0 million at December 31, 2007 to
$372.3 million at December 31, 2008. Our days sales
outstanding decreased from 32.7 days at December 31,
2007 to 30.1 days at December 31, 2008, driven by a
variation in revenue linearity. 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.
Inventories increased $134.8 million from
$231.3 million at December 31, 2007 to
$366.1 million at December 31, 2008 related to the
decline in customer demand in the fourth quarter that occurred
at a rate that was faster than we could adjust for due to our
lead times with our contract manufacturers. Our inventory days
on hand increased from 43.1 days at December 31, 2007
to 59.7 days at December 31, 2008. In the future, our
inventory levels will continue to be determined based upon the
level of purchase orders we receive and the stage at which our
products are in their respective product life cycles, our
ability, and the ability of our customers, to manage inventory
under hubbing arrangements, and competitive situations in the
marketplace. Such considerations are balanced against the risk
of obsolescence or potentially excess inventory levels.
Investing activities used cash of $745.4 million in 2008,
which was primarily the result of net purchases of marketable
securities of $491.7 million, $82.8 million of capital
equipment purchases mostly to support our research and
development efforts, $150.4 million in net cash paid for
the acquisition of Sunext Design and the DTV business of AMD,
and $20.1 million related to contingent consideration paid
to former holders of Global Locate capital stock and other
rights for the attainment of certain performance goals by Global
Locate. Investing activities provided cash of $54.4 million
in 2007, which was primarily the result of $423.8 million
provided by the net proceeds from maturities of marketable
securities and proceeds of $14.0 million received in
connection with an escrow settlement from our acquisition of
Siliquent, offset in part by the purchase of $150.4 million
of capital equipment to support our operations and the build-out
and relocation of our facilities in Irvine, California and
$233.3 million net cash paid for the acquisitions of LVL7,
Octalica and Global Locate and other purchased intangible assets.
Our financing activities used $1.170 billion in cash in
2008, which was primarily the result of $1.284 billion in
repurchases of shares of our Class A common stock pursuant
to our share repurchase programs and $58.1 million in
minimum tax withholding paid on behalf of employees for shares
issued pursuant to restricted stock units, offset in part by
$171.9 million in net proceeds received from issuances of
common stock upon exercise of stock options and pursuant to our
employee stock purchase plan. Our financing activities used
$851.3 million in cash in 2007, which was primarily the
result of $1.140 billion in repurchases of our Class A
common stock pursuant to our share repurchase programs and
$69.7 million in minimum tax withholding paid on behalf of
employees for shares issued pursuant to restricted stock units,
offset by $358.6 million in net proceeds received from
issuances of common stock upon exercises of stock options and
pursuant to our employee stock purchase plan.
During the three months ended December 31, 2008 we made a
strategic decision to make a special one-time repatriation of
prior earnings of certain foreign subsidiaries in the form of a
$1.5 billion dividend. Approximately $0.1 billion of
this dividend represented previously taxed income that was not
subject to federal tax upon distribution. We utilized
approximately $491.3 million of previously reserved
domestic deferred tax assets (including net operating loss and
foreign tax credit carryforwards) to offset the federal tax on
the remaining
73
$1.4 billion of dividend income, resulting in no federal
income tax expense relating to the distribution. The
repatriation resulted in additional state taxes of approximately
$0.8 million for 2008.
From time to time our Board of Directors has authorized various
programs to repurchase shares of our Class A common stock
depending on market conditions and other factors. Under such
programs, we repurchased a total of 65.2 million,
35.8 million and 7.3 million shares of Class A
common stock at weighted average prices of $19.44, $32.31 and
$37.53 per share, in the years ended December 31, 2008,
2007 and 2006, respectively. At December 31, 2007,
$16.1 million was not settled in cash and was included in
accrued liabilities. This amount was subsequently paid in 2008.
In July 2008 the Board of Directors authorized our current
program to repurchase shares of Broadcoms Class A
common stock having an aggregate value of up to
$1.0 billion. Repurchases under the program may be made
from time to time at any time during the period that commenced
July 31, 2008 and continuing through and including
July 31, 2011. As of December 31, 2008,
$575.8 million was still authorized for repurchase under
this plan.
Due to the decrease in the average price of our Class A
common stock in 2008 as compared to the previous year, fewer
stock options were exercised by employees, and we received
reduced proceeds from the exercise of stock options in 2008. The
timing and number of stock option exercises and the amount of
cash proceeds we receive through those exercises 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, which will reduce the number of stock options available
for exercise in the future. 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.
Obligations and Commitments. The following
table summarizes our contractual payment obligations and
commitments as of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Obligations by Year
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Operating leases
|
|
$
|
106,441
|
|
|
$
|
88,800
|
|
|
$
|
57,265
|
|
|
$
|
40,502
|
|
|
$
|
28,496
|
|
|
$
|
101,857
|
|
|
$
|
423,361
|
|
Inventory and related purchase obligations
|
|
|
198,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
198,980
|
|
Other purchase obligations
|
|
|
61,118
|
|
|
|
5,638
|
|
|
|
3,079
|
|
|
|
331
|
|
|
|
|
|
|
|
|
|
|
|
70,166
|
|
Restructuring liabilities
|
|
|
3,342
|
|
|
|
837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,179
|
|
Unrecognized tax benefits
|
|
|
21,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
391,057
|
|
|
$
|
95,275
|
|
|
$
|
60,344
|
|
|
$
|
40,833
|
|
|
$
|
28,496
|
|
|
$
|
101,857
|
|
|
$
|
717,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We lease our facilities and certain engineering design tools and
information systems equipment under operating lease agreements.
Our leased facilities comprise an aggregate of 2.8 million
square feet. Our principal facilities have lease terms that
expire at various dates through 2017. In March 2007 we relocated
our corporate headquarters to a new facility in Irvine, which
currently consists of nine buildings with an aggregate of
0.75 million square feet. The lease agreement provides a
term of ten years and two months, through May 2017. We have
recently entered into an agreement to occupy a tenth building in
2010, bringing the total leased space in Irvine to
0.80 million square feet. The aggregate rent of
$181.4 million for the term of these leases is included in
the table above.
Inventory and related purchase obligations represent purchase
commitments for silicon wafers and assembly and test services.
We depend upon third party subcontractors to manufacture our
silicon wafers and provide assembly and test services. Due to
lengthy subcontractor lead times, we must order these materials
and services from subcontractors well in advance. We expect to
receive and pay for these materials and services within the
74
ensuing six months. Our subcontractor relationships typically
allow for the cancellation of outstanding purchase orders, but
require payment of all expenses incurred through the date of
cancellation. To date we have not incurred significant
cancellation charges.
Other purchase obligations represent purchase commitments for
lab test equipment, computer hardware, and information systems
infrastructure, mask and prototyping costs, and other purchase
commitments made in the ordinary course of business.
Our restructuring liabilities represent estimated future lease
and operating costs from restructured facilities, less
offsetting sublease income, if any. These costs will be paid
over the respective lease terms through 2010. These amounts are
included in our consolidated balance sheet.
For purposes of the table above, obligations for the purchase of
goods or services are defined as agreements that are enforceable
and legally binding and that specify all significant terms,
including: fixed or minimum quantities to be purchased; fixed,
minimum or variable price provisions; and the approximate timing
of the transaction. Our purchase orders are based on our current
manufacturing needs and are typically fulfilled by our vendors
within a relatively short time horizon. We have additional
purchase orders (not included in the table above) that represent
authorizations to purchase rather than binding agreements. We do
not have significant agreements for the purchase of inventories
or other goods specifying minimum quantities or set prices that
exceed our expected requirements.
In addition to the unrecognized tax benefits included in the
table above, we have also recorded a liability for potential
penalties and interest of $13.3 million and
$1.4 million, respectively, at December 31, 2008.
Prospective Capital Needs. We believe that our
existing cash, cash equivalents and marketable securities,
together with cash generated from operations and from the
exercise of employee stock options and the purchase of common
stock through our employee stock purchase plan, will be
sufficient to cover our working capital needs, capital
expenditures, investment requirements, commitments and
repurchases of our Class A common stock for at least the
next 12 months. However, it is possible that we may need to
raise additional funds to finance our activities beyond the next
12 months or to consummate acquisitions of other
businesses, assets, products or technologies. If needed, we may
be able to raise such funds by selling equity or debt securities
to the public or to selected investors, or by borrowing money
from financial institutions. We could also reduce certain
expenditures, such as repurchases of our Class A common
stock.
In addition, even though we may not need additional funds, we
may still elect to sell additional equity or debt securities or
obtain credit facilities for other reasons. If we elect to raise
additional funds, we may not be able to obtain such funds on a
timely basis on acceptable terms, if at all. If we raise
additional funds by issuing additional equity or convertible
debt securities, the ownership percentages of existing
shareholders would be reduced. In addition, the equity or debt
securities that we issue may have rights, preferences or
privileges senior to those of our Class A common stock.
Although we believe that we have sufficient capital to fund our
activities for at least the next 12 months, our future
capital requirements may vary materially from those now planned.
We anticipate that the amount of capital we will need in the
future will depend on many factors, including:
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general economic and political conditions and specific
conditions in the markets we address, including the continuing
volatility in the technology sector and semiconductor industry,
current general economic volatility, 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 inability of certain of our customers who depend on credit
to have access to their traditional sources of credit to finance
the purchase of products from us, particularly in the current
global economic environment, which may lead them to reduce their
level of purchases or to seek credit or other accommodations
from us;
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the overall levels of sales of our products, royalty revenue and
gross profit 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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75
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required levels of research and development and other operating
costs;
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litigation expenses, settlements and judgments;
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volume price discounts and customer rebates;
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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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royalties payable by or to 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
2009 and possibly during 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
December 31, 2008 we had no material off-balance sheet
arrangements, other than our operating leases.
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Item 7A.
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Quantitative
and Qualitative Disclosures about Market Risk
|
Interest
Rate Risk
At December 31, 2008 we had $1.898 billion in cash,
cash equivalents and marketable securities. We maintain an
investment portfolio of various security holdings, types and
maturities. Pursuant to SFAS No. 157, Fair Value
Measurements, or SFAS 157, the fair value of all of our
cash equivalents and marketable securities is determined based
on Level 1 inputs, which consist of quoted
prices in active markets for identical assets. We place our cash
investments in instruments that meet credit quality standards,
as specified in our investment policy guidelines. These
guidelines also limit the amount of credit exposure to any one
issue, issuer or type of instrument. With the exception of one
impaired investment, at December 31, 2008 all of our
marketable securities were rated AAA, Aaa, A+,
A-1 or
P-1 by the
major credit rating agencies. We invest in U.S. Treasury
and agency obligations, commercial paper, money market funds,
corporate notes and bonds, time deposits, foreign notes and
certificates of deposits. Our investment policy for marketable
securities requires that all securities mature in three years or
less, with a weighted average maturity of no longer than
18 months.
We account for our investments in debt and equity instruments
under SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities and FASB Staff
Position, or FSP,
SFAS No. 115-1,
The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments, or
SFAS 115-1.
Management determines the appropriate classification of such
securities at the time of purchase and reevaluates such
classification as of each balance sheet date. Historically we
classified our cash equivalents and marketable securities as
held-to-maturity. Effective February 2008 we reclassified our
cash equivalents and marketable securities as available-for-sale
and recorded a net unrealized gain in the amount of
$0.2 million. In 2008 cash equivalents and marketable
securities are reported at fair value with the related
unrealized gains and losses included in accumulated other
comprehensive income (loss), a component of shareholders
equity, net of tax. We follow the guidance provided by
SFAS 115-1
to assess whether our investments with unrealized loss positions
are other than temporarily impaired. Realized gains and losses
and declines in value judged to be other than temporary are
determined based on the specific identification method and are
reported in other income (expense), net, in the consolidated
statements of income. The fair value of cash equivalents and
marketable securities is determined based on quoted market
prices for those securities. In 2008 we recorded an
other-than-temporary impairment of a marketable security of
$1.8 million as other expense, net, in our consolidated
statement of income.
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
76
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 negatively impact our
investment income.
In order 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 December 31, 2008, a 100 basis point
increase in interest rates across all maturities would result in
a $3.1 million incremental decline in the fair market value
of the portfolio. As of December 31, 2007, a similar
100 basis point shift in the yield curve would have
resulted in a $1.9 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
December 31, 2008 due to the inherent limitations
associated with predicting the changes in the timing and level
of interest rates and our actual exposures and positions.
Current economic conditions have had widespread negative effects
on the financial markets. Due to credit concerns and lack of
liquidity in the short-term funding markets, we have shifted a
larger percentage of the portfolio to U.S. Treasury and
other government securities and time deposits, which may
negatively impact our investment income, particularly in the
form of declining yields.
Exchange
Rate Risk
We consider our direct exposure to foreign exchange rate
fluctuations to be minimal. Currently, sales to customers and
arrangements with third-party manufacturers provide for pricing
and payment in United States dollars, and, therefore, are not
subject to exchange rate fluctuations. Increases in the value of
the United States dollar relative to other currencies
could make our products more expensive, which could negatively
impact our ability to compete. Conversely, decreases in the
value of the United States dollar relative to other currencies
could result in our suppliers raising their prices to continue
doing business with us. Fluctuations in currency exchange rates
could affect our business in the future.
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Item 8.
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Financial
Statements and Supplementary Data
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The financial statements and supplementary data required by this
item are included in Part IV, Item 15 of this Report.
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Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
We changed our independent registered public accounting firm on
March 12, 2008 from Ernst & Young LLP to KPMG
LLP. Information regarding the change in the independent
registered public accounting firm was disclosed in our Current
Report on
Form 8-K
dated March 18, 2008. There were no disagreements or any
reportable events requiring disclosure under Item 304(b) of
Regulation S-K.
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Item 9A.
|
Controls
and Procedures
|
We are committed to maintaining disclosure controls and
procedures designed to ensure that information required to be
disclosed in our periodic reports filed under the Exchange Act,
is recorded, processed, summarized
77
and reported within the time periods specified in the SECs
rules and forms, and that such information is accumulated and
communicated to our management, including our chief executive
officer and chief financial officer, as appropriate, to allow
for timely decisions regarding required disclosure. In designing
and evaluating our disclosure controls and procedures,
management recognizes that any controls and procedures, no
matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control
objectives, and management necessarily is required to apply its
judgment in evaluating the cost-benefit relationship of possible
controls and procedures and implementing controls and procedures
based on the application of managements judgment.
Under the supervision and with the participation of our
management, including our principal executive officer and
principal financial officer, we conducted an evaluation of our
disclosure controls and procedures, as such term is defined
under
Rules 13a-15(e)
and
15d-15(e)
promulgated under the Exchange Act. Based on this evaluation,
our principal executive officer and our principal financial
officer concluded that our disclosure controls and procedures
were effective at a reasonable assurance level as of
December 31, 2008, 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 fourth quarter of 2008 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.
Managements
Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act
Rule 13a-15(f).
Under the supervision and with the participation of our
management, including our principal executive officer and
principal financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting
based on the framework set forth in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Based on our evaluation under the framework set
forth in Internal Control Integrated Framework,
our management concluded that our internal control over
financial reporting was effective as of December 31, 2008.
The effectiveness of our internal control over financial
reporting as of December 31, 2008 has been audited by KPMG
LLP, an independent registered public accounting firm, as stated
in their report which is included below.
78
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Broadcom Corporation:
We have audited Broadcom Corporations internal control
over financial reporting as of December 31, 2008, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Broadcom
Corporations management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
Managements Report on Internal Control over Financial
Reporting appearing under Item 9A. Our responsibility is to
express an opinion on the Companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Broadcom Corporation maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2008, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheet of Broadcom Corporation and
subsidiaries as of December 31, 2008, and the related
consolidated statements of income, shareholders equity and
comprehensive income, and cash flows for the year ended
December 31, 2008, and our report dated February 3,
2009, expressed an unqualified opinion on those consolidated
financial statements.
/s/ KPMG LLP
Costa Mesa, California
February 3, 2009
79
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Item 9A(T).
|
Controls
and Procedures
|
Not applicable.
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Item 9B.
|
Other
Information
|
Restructuring Plan.
In light of the continuing deterioration in worldwide economic
conditions, on January 28, 2009 our Board of Directors
committed to a restructuring plan. The plan includes a reduction
in our worldwide headcount of approximately 200 people,
which represents approximately 3% of our global workforce. We
began implementing the plan immediately and expect that it will
be substantially completed later in 2009.
We expect to incur approximately $8.0 million to
$10.0 million in restructuring costs related to the plan,
primarily for severance and other charges associated with our
reduction in workforce. Of the total restructuring costs,
approximately $2.5 million to $4.0 million is expected
to be stock-based compensation expense. We anticipate that we
will recognize most of these charges in the first quarter of
2009, with a portion to be recognized later in 2009.
Dull Agreement. On January 30, 2009 the
Compensation Committee of the Board of Directors authorized
Broadcom to enter into an agreement with David A. Dull,
Broadcoms Senior Advisor and former Senior Vice President,
Business Affairs, General Counsel and Secretary. The agreement
was executed by the parties January 30, 2009 and becomes
effective February 28, 2009, subject to a
7-day
revocation period provided by law to Mr. Dull. Under the
agreement, Mr. Dulls employment with Broadcom will
terminate February 28, 2009.
The agreement provides the following principal benefits:
(i) cash severance equal to (A) $325,000, one times
Mr. Dulls current annual base salary, plus (B) a
bonus payment in the amount of $198,656 based on the performance
goals attained by Broadcom for the 2008 year;
(ii) 12 months of accelerated vesting of all of
Mr. Dulls outstanding stock options and restricted
stock units and an extended post-service exercise period (not to
exceed 12 months) in which to exercise such stock options
(but not beyond the expiration dates of their respective maximum
terms); and; (iii) a one time lump sum payment in the
amount of $350,000 to provide Mr. Dull with funds to cover
the estimated cost of continued medical care coverage for
himself and his spouse and eligible dependents for a period of
years. The estimated stock-based compensation expense related to
the accelerated vesting and extended post-service exercise
period, each as described in (ii) above is currently
expected to be approximately $2.1 million. This amount was
estimated using the Black-Scholes pricing model, in accordance
with the provisions of SFAS 123R. For a discussion of
valuation assumptions used in SFAS 123R calculations, see
Note 1 to Consolidated Financial Statements. The actual
value, if any, that Mr. Dull may realize on each of his
options will depend on the excess of the stock price over the
exercise price on the date the option is exercised and the
shares underlying such option are sold. The actual value that
Mr. Dull may realize with respect to his accelerated
restricted stock units will depend upon the gain he realizes
upon the subsequent sale of the underlying shares. There is no
assurance that the actual value realized by Mr. Dull will
be at or near the value estimated by the Black-Scholes model.
The foregoing severance benefits are conditioned upon
Mr. Dulls satisfaction of the following requirements:
(i) delivery of a general release of all claims against
Broadcom and its affiliates (except for (A) any claims that
Mr. Dull may have based on his existing indemnification
agreement with Broadcom and his agreements with Broadcom related
to equity awards, and (B) any contribution or indemnity
claims he may have against Broadcom affiliates (but not Broadcom
itself) in civil actions brought against him);
(ii) compliance with the non-solicitation and
non-disparagement provisions of the agreement for a two year
period; (iii) continued compliance with his obligations
under his Confidentiality and Invention Assignment Agreement;
and (iv) cooperation with respect to certain pending
litigation matters.
Additionally, in the event that Mr. Dull is determined,
pursuant to a nonappealable final order or determination in any
judicial or administrative proceeding, to have engaged in any
misconduct (as defined below) relating to any stock options or
other forms of equity compensation awards granted by Broadcom,
then (i) any stock options outstanding at such time due to
the extended post-service exercise period provided by the
agreement will terminate and cease to be outstanding and
exercisable, and (ii) Broadcom will have the right to
rescind (A) each exercise of stock options effected during
such extended post-service exercise period, (B) each
exercise, whenever effected, of any stock options that vested by
reason of the vesting acceleration provisions of the agreement,
and (C) the vesting of any restricted stock units due to
those vesting acceleration provisions. In the event of any such
rescission, Mr. Dull must repay to Broadcom the amount of
any gain realized as a result of the rescinded option
80
exercises (determined as of the time of each such exercise) or
the rescission of the accelerated vesting of the restricted
stock units (with such gain to be determined at the time of such
rescission or, if the shares subject to those restricted stock
units have been sold, then at the time of such sale). Misconduct
is defined in the agreement to mean (i) any act or omission
that constitutes fraud under federal or state law or
(ii) conduct that constitutes a breach of
Mr. Dulls fiduciary duty to Broadcom.
PART III
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Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
(a) Identification and Business Experience of Directors;
Involvement in Certain Legal Proceedings. The
information under the caption Election of Directors,
appearing in the 2009 Proxy Statement, is hereby incorporated by
reference.
(b) Identification and Business Experience of Executive
Officers and Certain Significant Employees. The
information under the caption Executive Compensation and
Other Information Elected Officers, appearing
in the 2009 Proxy Statement, is hereby incorporated by reference.
(c) Compliance with Section 16(a) of the Exchange
Act. The information under the caption
Ownership of Securities Section 16(a)
Beneficial Ownership Reporting Compliance, appearing in
the 2009 Proxy Statement, is hereby incorporated by reference.
(d) Code of Ethics. The information under
the caption Corporate Governance and Board Matters,
appearing in the 2009 Proxy Statement, is hereby incorporated by
reference.
(e) Audit Committee. The information
under the caption Corporate Governance and Board
Matters Audit Committee, appearing in the 2009
Proxy Statement, is hereby incorporated by reference.
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Item 11.
|
Executive
Compensation
|
The information under the caption Executive Compensation
and Other Information and Corporate Governance and
Board Matters Compensation of Non-Employees
Directors, appearing in the 2009 Proxy Statement, is
hereby incorporated by reference.
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Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information under the captions Equity Compensation
Plan Information and Ownership of Securities,
appearing in the 2009 Proxy Statement, is hereby incorporated by
reference.
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|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information under the captions Certain Relationships
and Related Transactions and Corporate Governance
and Board Matter Director Independence,
appearing in the 2009 Proxy Statement, is hereby incorporated by
reference.
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Item 14.
|
Principal
Accounting Fees and Services
|
The information under the caption Audit
Information Fees Paid to Independent Registered
Public Accounting Firm, appearing in the 2009 Proxy
Statement, is hereby incorporated by reference.
81
PART IV
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules
|
(a) 1. Financial Statements.
The following Broadcom consolidated financial statements, and
related notes thereto, and the related Reports of Independent
Registered Public Accounting Firms are filed as part of this
Form 10-K:
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Page
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F-1
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F-2
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F-3
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F-4
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F-5
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F-6
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F-7
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2. Financial Statement
Schedules.
The following financial statement schedule of Broadcom is filed
as part of this
Form 10-K:
All other schedules have been omitted because they are not
applicable or not required, or the information is included in
the Consolidated Financial Statements or Notes thereto.
3. Exhibits.
The exhibits listed on the accompanying index to exhibits
immediately following the financial statements are filed as part
of, or hereby incorporated by reference into, this Report.
82
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Broadcom Corporation:
We have audited the accompanying consolidated balance sheet of
Broadcom Corporation and subsidiaries as of December 31,
2008, and the related consolidated statements of income,
shareholders equity and comprehensive income, and cash
flows for the year ended December 31, 2008. In connection
with our audit of the consolidated financial statements, we also
have audited the financial statement schedule of valuation and
qualifying accounts for the year ended December 31, 2008,
as listed in the accompanying index under Item 15(a)(2).
These consolidated financial statements and financial statement
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement
schedule based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Broadcom Corporation and subsidiaries as of
December 31, 2008, and the results of their operations and
their cash flows for the year ended December 31, 2008, in
conformity with U.S. generally accepted accounting
principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Broadcom Corporations internal control over financial
reporting as of December 31, 2008, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report
dated February 3, 2009, expressed an unqualified opinion on
the effectiveness of the Companys internal control over
financial reporting.
As discussed in Note 1 to the consolidated financial
statements, the Company adopted Statement of Financial
Accounting Standards No. 157, Fair Value
Measurements, during the year ended December 31, 2008.
/s/ KPMG LLP
Costa Mesa, California
February 3, 2009
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Broadcom Corporation
We have audited the accompanying consolidated balance sheet of
Broadcom Corporation as of December 31, 2007, and the
related consolidated statements of income, shareholders
equity and comprehensive income, and cash flows for the years
ended December 31, 2007 and 2006. Our audits also included
the financial statement schedule for the years ended
December 31, 2007 and 2006 listed in the Index at
Item 15(a). These financial statements and schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Broadcom Corporation at December 31,
2007 and the consolidated results of its operations and its cash
flows for the years ended December 31, 2007 and 2006, in
conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial
statement schedule for the years ended December 31, 2007
and 2006, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
/s/ Ernst & Young LLP
Orange County, California
January 25, 2008
F-2
CONSOLIDATED
BALANCE SHEETS
(In thousands, except par value)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,190,645
|
|
|
$
|
2,186,572
|
|
Short-term marketable securities
|
|
|
707,477
|
|
|
|
141,728
|
|
Accounts receivable (net of allowance for doubtful accounts of
$5,354 in 2008 and $5,472 in 2007)
|
|
|
372,311
|
|
|
|
369,004
|
|
Inventory
|
|
|
366,106
|
|
|
|
231,313
|
|
Prepaid expenses and other current assets
|
|
|
114,674
|
|
|
|
125,663
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,751,213
|
|
|
|
3,054,280
|
|
Property and equipment, net
|
|
|
234,691
|
|
|
|
241,803
|
|
Long-term marketable securities
|
|
|
|
|
|
|
75,352
|
|
Goodwill
|
|
|
1,279,243
|
|
|
|
1,376,721
|
|
Purchased intangible assets, net
|
|
|
61,958
|
|
|
|
46,607
|
|
Other assets
|
|
|
66,160
|
|
|
|
43,430
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
4,393,265
|
|
|
$
|
4,838,193
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
310,487
|
|
|
$
|
313,621
|
|
Wages and related benefits
|
|
|
153,772
|
|
|
|
147,853
|
|
Deferred revenue
|
|
|
12,338
|
|
|
|
15,864
|
|
Accrued liabilities
|
|
|
240,506
|
|
|
|
253,226
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
717,103
|
|
|
|
730,564
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Long-term deferred revenue
|
|
|
3,898
|
|
|
|
8,108
|
|
Other long-term liabilities
|
|
|
65,197
|
|
|
|
63,373
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Convertible preferred stock, $.0001 par value:
|
|
|
|
|
|
|
|
|
Authorized shares 6,432 none issued and
outstanding
|
|
|
|
|
|
|
|
|
Class A common stock, $.0001 par value:
|
|
|
|
|
|
|
|
|
Authorized shares 2,500,000
|
|
|
|
|
|
|
|
|
Issued and outstanding shares
426,095 in 2008 and 468,858 in 2007
|
|
|
43
|
|
|
|
47
|
|
Class B common stock, $.0001 par value:
|
|
|
|
|
|
|
|
|
Authorized shares 400,000
|
|
|
|
|
|
|
|
|
Issued and outstanding shares
62,923 in 2008 and 68,400 in 2007
|
|
|
6
|
|
|
|
7
|
|
Additional paid-in capital
|
|
|
10,930,315
|
|
|
|
11,576,042
|
|
Accumulated deficit
|
|
|
(7,324,330
|
)
|
|
|
(7,539,124
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
1,033
|
|
|
|
(824
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
3,607,067
|
|
|
|
4,036,148
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
4,393,265
|
|
|
$
|
4,838,193
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-3
CONSOLIDATED
STATEMENTS OF INCOME
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net revenue
|
|
$
|
4,658,125
|
|
|
$
|
3,776,395
|
|
|
$
|
3,667,818
|
|
Cost of revenue
|
|
|
2,213,015
|
|
|
|
1,832,178
|
|
|
|
1,795,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,445,110
|
|
|
|
1,944,217
|
|
|
|
1,872,253
|
|
Operating expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
1,497,668
|
|
|
|
1,348,508
|
|
|
|
1,117,014
|
|
Selling, general and administrative
|
|
|
543,117
|
|
|
|
492,737
|
|
|
|
504,012
|
|
Amortization of purchased intangible assets
|
|
|
3,392
|
|
|
|
1,027
|
|
|
|
2,347
|
|
In-process research and development
|
|
|
42,400
|
|
|
|
15,470
|
|
|
|
5,200
|
|
Impairment of goodwill and other long-lived assets
|
|
|
171,593
|
|
|
|
1,500
|
|
|
|
|
|
Settlement costs
|
|
|
15,810
|
|
|
|
|
|
|
|
|
|
Restructuring costs (reversals)
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
172,130
|
|
|
|
84,975
|
|
|
|
243,680
|
|
Interest income, net
|
|
|
52,201
|
|
|
|
131,069
|
|
|
|
118,997
|
|
Other income (expense), net
|
|
|
(2,016
|
)
|
|
|
3,412
|
|
|
|
3,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
222,315
|
|
|
|
219,456
|
|
|
|
366,641
|
|
Provision (benefit) for income taxes
|
|
|
7,521
|
|
|
|
6,114
|
|
|
|
(12,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
214,794
|
|
|
$
|
213,342
|
|
|
$
|
379,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share (basic)
|
|
$
|
0.42
|
|
|
$
|
0.39
|
|
|
$
|
0.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share (diluted)
|
|
$
|
0.41
|
|
|
$
|
0.37
|
|
|
$
|
0.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares (basic)
|
|
|
512,648
|
|
|
|
542,412
|
|
|
|
545,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares (diluted)
|
|
|
524,208
|
|
|
|
577,682
|
|
|
|
588,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents details of total stock-based
compensation expense included in each functional line
item in the consolidated statements of income above (see
Note 8):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cost of revenue
|
|
$
|
24,997
|
|
|
$
|
26,470
|
|
|
$
|
24,589
|
|
Research and development
|
|
|
358,018
|
|
|
|
353,649
|
|
|
|
307,096
|
|
Selling, general and administrative
|
|
|
126,359
|
|
|
|
139,533
|
|
|
|
136,679
|
|
All historical share information has been adjusted to reflect
the three-for-two stock split effected February 21, 2006
through the payment of a stock dividend of one additional share
of Class A or Class B common stock, as applicable, for
every two shares of such class held on the record date of
February 6, 2006.
See accompanying notes.
F-4
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE
INCOME
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Receivable
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
From
|
|
|
Deferred
|
|
|
Accumulated
|
|
|
Income
|
|
|
Shareholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Employees
|
|
|
Compensation
|
|
|
Deficit
|
|
|
(Loss)
|
|
|
Equity
|
|
|
Balance at December 31, 2005
|
|
|
524,321
|
|
|
$
|
52
|
|
|
$
|
11,474,724
|
|
|
$
|
(4,743
|
)
|
|
$
|
(194,331
|
)
|
|
$
|
(8,136,243
|
)
|
|
$
|
1,108
|
|
|
$
|
3,140,567
|
|
Elimination of deferred compensation related to the adoption of
SFAS 123R
|
|
|
|
|
|
|
|
|
|
|
(194,331
|
)
|
|
|
|
|
|
|
194,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued pursuant to stock awards, net
|
|
|
29,738
|
|
|
|
3
|
|
|
|
449,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
449,593
|
|
Employee stock purchase plan
|
|
|
1,603
|
|
|
|
|
|
|
|
26,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,294
|
|
Repurchases of Class A common stock
|
|
|
(7,348
|
)
|
|
|
|
|
|
|
(275,733
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(275,733
|
)
|
Repayment of notes receivable, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,743
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
468,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
468,364
|
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,203
|
)
|
|
|
(1,203
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
379,041
|
|
|
|
|
|
|
|
379,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
377,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
548,314
|
|
|
|
55
|
|
|
|
11,948,908
|
|
|
|
|
|
|
|
|
|
|
|
(7,757,202
|
)
|
|
|
(95
|
)
|
|
|
4,191,666
|
|
Cumulative effect to prior year accumulated deficit related to
the adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,736
|
|
|
|
|
|
|
|
4,736
|
|
Shares issued pursuant to stock awards, net
|
|
|
22,689
|
|
|
|
|
|
|
|
234,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
234,616
|
|
Employee stock purchase plan
|
|
|
2,044
|
|
|
|
|
|
|
|
55,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,350
|
|
Repurchases of Class A common stock
|
|
|
(35,789
|
)
|
|
|
(1
|
)
|
|
|
(1,156,279
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,156,280
|
)
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
519,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
519,652
|
|
Stock option exchange
|
|
|
|
|
|
|
|
|
|
|
(26,205
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,205
|
)
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(729
|
)
|
|
|
(729
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213,342
|
|
|
|
|
|
|
|
213,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
212,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
537,258
|
|
|
|
54
|
|
|
|
11,576,042
|
|
|
|
|
|
|
|
|
|
|
|
(7,539,124
|
)
|
|
|
(824
|
)
|
|
|
4,036,148
|
|
Shares issued pursuant to stock awards, net
|
|
|
12,573
|
|
|
|
1
|
|
|
|
34,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,060
|
|
Employee stock purchase plan
|
|
|
4,413
|
|
|
|
|
|
|
|
78,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,720
|
|
Repurchases of Class A common stock
|
|
|
(65,226
|
)
|
|
|
(6
|
)
|
|
|
(1,267,880
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,267,886
|
)
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
509,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
509,374
|
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,213
|
|
|
|
5,213
|
|
Translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,356
|
)
|
|
|
(3,356
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
214,794
|
|
|
|
|
|
|
|
214,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
216,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
489,018
|
|
|
$
|
49
|
|
|
$
|
10,930,315
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(7,324,330
|
)
|
|
$
|
1,033
|
|
|
$
|
3,607,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-5
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
214,794
|
|
|
$
|
213,342
|
|
|
$
|
379,041
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
78,236
|
|
|
|
64,082
|
|
|
|
43,328
|
|
Stock-based compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and other awards
|
|
|
224,244
|
|
|
|
324,261
|
|
|
|
340,665
|
|
Restricted stock units issued by Broadcom
|
|
|
285,130
|
|
|
|
195,391
|
|
|
|
127,699
|
|
Acquisition-related items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of purchased intangible assets
|
|
|
19,249
|
|
|
|
14,512
|
|
|
|
12,403
|
|
In-process research and development
|
|
|
42,400
|
|
|
|
15,470
|
|
|
|
5,200
|
|
Impairment of goodwill and other long-lived assets
|
|
|
171,593
|
|
|
|
1,500
|
|
|
|
|
|
Loss (gain) on strategic and other investments
|
|
|
6,047
|
|
|
|
1,809
|
|
|
|
(700
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(3,294
|
)
|
|
|
18,400
|
|
|
|
(75,423
|
)
|
Inventory
|
|
|
(112,173
|
)
|
|
|
(27,082
|
)
|
|
|
(7,598
|
)
|
Prepaid expenses and other assets
|
|
|
(11,273
|
)
|
|
|
(59,691
|
)
|
|
|
20,166
|
|
Accounts payable
|
|
|
616
|
|
|
|
13,698
|
|
|
|
(8,336
|
)
|
Accrued settlement liabilities
|
|
|
(2,000
|
)
|
|
|
(2,000
|
)
|
|
|
(2,011
|
)
|
Other accrued and long-term liabilities
|
|
|
6,046
|
|
|
|
51,625
|
|
|
|
52,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
919,615
|
|
|
|
825,317
|
|
|
|
887,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net purchases of property and equipment
|
|
|
(82,808
|
)
|
|
|
(150,427
|
)
|
|
|
(92,477
|
)
|
Net cash paid for acquisitions and other purchased intangible
assets
|
|
|
(170,541
|
)
|
|
|
(219,324
|
)
|
|
|
(70,050
|
)
|
Purchases of strategic investments
|
|
|
(355
|
)
|
|
|
(3,500
|
)
|
|
|
(2,684
|
)
|
Proceeds from sales of strategic investments
|
|
|
|
|
|
|
3,812
|
|
|
|
700
|
|
Purchases of marketable securities
|
|
|
(1,115,704
|
)
|
|
|
(667,384
|
)
|
|
|
(922,682
|
)
|
Proceeds from maturities of marketable securities
|
|
|
624,026
|
|
|
|
1,091,228
|
|
|
|
721,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(745,382
|
)
|
|
|
54,405
|
|
|
|
(365,480
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchases of Class A common stock
|
|
|
(1,283,952
|
)
|
|
|
(1,140,213
|
)
|
|
|
(275,733
|
)
|
Proceeds from issuance of common stock
|
|
|
171,853
|
|
|
|
358,629
|
|
|
|
504,718
|
|
Minimum tax withholding paid on behalf of employees for
restricted stock units
|
|
|
(58,061
|
)
|
|
|
(69,676
|
)
|
|
|
(28,831
|
)
|
Payments on assumed debt and other obligations
|
|
|
|
|
|
|
|
|
|
|
(4,625
|
)
|
Repayment of notes receivable by employees
|
|
|
|
|
|
|
|
|
|
|
3,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(1,170,160
|
)
|
|
|
(851,260
|
)
|
|
|
198,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(995,927
|
)
|
|
|
28,462
|
|
|
|
720,834
|
|
Cash and cash equivalents at beginning of year
|
|
|
2,186,572
|
|
|
|
2,158,110
|
|
|
|
1,437,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
1,190,645
|
|
|
$
|
2,186,572
|
|
|
$
|
2,158,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
9,799
|
|
|
$
|
6,463
|
|
|
$
|
3,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-6
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
|
|
1.
|
Summary
of Significant Accounting Policies
|
Our
Company
Broadcom Corporation (including our subsidiaries, referred to
collectively in these consolidated financial statements as
Broadcom, we, our and
us) is a major technology innovator and global
leader in semiconductors for wired and wireless communications.
Our products enable the delivery of voice, video, data and
multimedia to and throughout the home, the office and the mobile
environment. Broadcom provides one of the industrys
broadest portfolios of state-of-the-art
system-on-a-chip
and software solutions to manufacturers of computing and
networking equipment, digital entertainment and broadband access
products, and mobile devices. Our diverse product portfolio
includes solutions for digital cable, satellite and Internet
Protocol (IP) set-top boxes and media servers; high definition
television (HDTV); high definition DVD players and personal
video recording (PVR) devices; cable and DSL modems and
residential gateways; high-speed transmission and switching for
local, metropolitan, wide area and storage networking; server
solutions; broadband network and security processors; wireless
and personal area networking; cellular communications; global
positioning system (GPS) applications; mobile multimedia and
applications processors; mobile power management; and Voice over
Internet Protocol (VoIP) gateway and telephony systems.
Basis of
Presentation
Our consolidated financial statements include the accounts of
Broadcom and our subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Foreign
Currency Translation
The functional currency for most of our international operations
is the U.S. dollar. The functional currency for relatively
few of our foreign subsidiaries is the local currency. Assets
and liabilities denominated in foreign currencies are translated
using the exchange rates on the balance sheet dates. Revenues
and expenses are translated using the average exchange rates
prevailing during the year. Any translation adjustments
resulting from this process are shown separately as a component
of accumulated other comprehensive income (loss) within
shareholders equity in the consolidated balance sheets.
Foreign currency transaction gains and losses are reported in
other income (expense), net in the consolidated statements of
income.
Use of
Estimates
The preparation of financial statements in accordance with
United States generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the dates of the
financial statements and the reported amounts of net revenue and
expenses in the reporting periods. We regularly evaluate
estimates and assumptions related to revenue recognition,
rebates, allowances for doubtful accounts, sales returns and
allowances, warranty reserves, inventory reserves, stock-based
compensation expense, goodwill and purchased intangible asset
valuations, strategic investments, deferred income tax asset
valuation allowances, uncertain tax positions, tax
contingencies, self-insurance, restructuring costs, 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 original
estimates. To the extent there are material differences between
the estimates and actual results, our future results of
operations will be affected.
Revenue
Recognition
Our net revenue is generated principally by sales of
semiconductor products. We derive the remaining balance of net
revenue predominantly from royalty revenue pursuant to a patent
license agreement and, to a lesser extent,
F-7
software licenses, support and maintenance agreements, data
services and cancellation fees. The majority of our sales occur
through the efforts of our direct sales force. The remaining
balance of sales occurs through distributors.
The following table presents details of our net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Sales of semiconductor products
|
|
|
95.5
|
%
|
|
|
98.2
|
%
|
|
|
99.4
|
%
|
Royalty and other
|
|
|
4.5
|
(1)
|
|
|
1.8
|
(1)
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes royalties in the amounts
of $149.2 million and $31.8 million in 2008 and 2007,
respectively, received pursuant to a patent license agreement
entered into in July 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Sales made through direct sales force
|
|
|
84.3
|
%
|
|
|
85.0
|
%
|
|
|
85.1
|
%
|
Sales made through distributors
|
|
|
15.7
|
|
|
|
15.0
|
|
|
|
14.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with Securities and Exchange Commission, or SEC,
Staff Accounting Bulletin, or SAB, No. 104, Revenue
Recognition, or SAB 104, we recognize product revenue
when all of the following criteria are met: (i) persuasive
evidence of an arrangement exists, (ii) delivery has
occurred, (iii) the price to the customer is fixed or
determinable, and (iv) collection of the resulting
receivable is reasonably assured. These criteria are usually met
at the time of product shipment. However, we do not recognize
revenue when any significant obligations remain. We record
reductions to revenue for estimated product returns and pricing
adjustments, such as competitive pricing programs and rebates,
in the same period that the related revenue is recorded. The
amount of these reductions is based on historical sales returns,
analysis of credit memo data, specific criteria included in
rebate agreements, and other factors known at the time. We
account for rebates in accordance with Financial Accounting
Standards Board, or FASB, Emerging Issues Task Force, or EITF,
Issue
No. 01-9,
Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendors Products), and,
accordingly, at the time of sale we accrue 100% of the potential
rebate as a reduction to revenue and do not apply a breakage
factor. The amount of these reductions is based upon the terms
included in our various rebate agreements. We reverse the
accrual for unclaimed rebates as specific rebate programs
contractually end or when we believe unclaimed rebates are no
longer subject to payment and will not be paid. See Note 2
for a summary of our rebate activity.
A portion of our sales is made through distributors under
agreements allowing for pricing credits
and/or
rights of return. These pricing credits
and/or
rights of return provisions prevent us from being able to
reasonably estimate the final price of the inventory to be sold
and the amount of inventory that could be returned pursuant to
these agreements. As a result, the 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 end products.
In arrangements that include a combination of semiconductor
products and software, where software is considered
more-than-incidental and essential to the functionality of the
product being sold, we follow the guidance in EITF Issue
No. 03-5,
Applicability of AICPA Statement of Position
97-2 to
Non-Software Deliverables in an Arrangement Containing
More-Than-Incidental Software, or
EITF 03-5.
Under
EITF 03-5,
we are required to account for the entire arrangement as a sale
of software and software-related items and follow the revenue
recognition criteria in accordance with the American Institute
of Certified Public Accountants Statement of Position, or SOP,
No. 97-2,
Software Revenue Recognition, and related
interpretations, or
SOP 97-2.
F-8
In arrangements that include a combination of semiconductor
products, software
and/or
services, where software is not considered
more-than-incidental to the product being sold, we follow the
guidance in EITF Issue
No. 00-21,
Revenue Arrangements with Multiple Deliverables, or
EITF 00-21.
In the arrangements described above, both the semiconductor
products and software are delivered concurrently and
post-contract customer support is not provided. Therefore, under
both
SOP 97-2
and SAB 104, we recognize revenue upon shipment of the
semiconductor product, assuming all other basic revenue
recognition criteria are met, as both the semiconductor products
and software are considered delivered elements and no
undelivered elements exist. In limited instances where there are
undelivered elements, we allocate revenue based on the residual
fair value of the individual elements. If there is no
established fair value for an undelivered element, the entire
arrangement is accounted for as a single unit of accounting,
resulting in a deferral of revenue and costs for the delivered
element until the undelivered element has been fulfilled. In
cases where the undelivered element is a data or support
service, the revenue and costs applicable to both the delivered
and undelivered elements are recorded ratably over the
respective service period or estimated product life. If the
undelivered element is essential to the functionality of the
delivered element, no revenue or costs are recognized until the
undelivered element is delivered.
Revenue from software licenses is recognized in accordance with
the provisions of
SOP 97-2.
Royalty revenue is recognized based upon reports received from
licensees during the period, unless collectibility is not
reasonably assured, in which case revenue is recognized when
payment is received from the licensee. Revenue from cancellation
fees is recognized when cash is received from the customer.
We record deferred revenue when advance payments are received
from customers before performance obligations have been
completed
and/or
services have been performed. Deferred revenue does not include
amounts from products delivered to distributors that the
distributors have not yet sold through to their end customers.
Allowance
for Doubtful Accounts
We evaluate the collectibility of accounts receivable based on a
combination of factors. In cases where we are aware of
circumstances that may impair a specific customers ability
to meet its financial obligations subsequent to the original
sale, we will record an allowance against amounts due, and
thereby reduce the net recognized receivable to the amount we
reasonably believe will be collected. For all other customers,
we recognize allowances for doubtful accounts based on the
length of time the receivables are past due, industry and
geographic concentrations, the current business environment and
our historical experience.
Concentration
of Credit Risk
We sell the majority of our products throughout North America,
Asia and Europe. Sales to our recurring customers are generally
made on open account while sales to occasional customers are
typically made on a prepaid or letter of credit basis. We
perform periodic credit evaluations of our recurring customers
and generally do not require collateral. Reserves are maintained
for potential credit losses, and such losses historically have
not been significant and have been within managements
expectations.
We invest our cash in deposits and money market funds with major
financial institutions, in U.S. government obligations, and
in debt securities of corporations with strong credit ratings
and in a variety of industries. It is our policy to invest in
instruments that have a final maturity of no longer than three
years, with a portfolio weighted average maturity of no longer
than 18 months.
Fair
Value of Financial Instruments
Our financial instruments consist principally of cash and cash
equivalents, short-term and long-term marketable securities,
accounts receivable and accounts payable. Marketable securities
consist of available-for-sale securities that are reported at
fair value with the related unrealized gains and losses included
in accumulated other comprehensive income (loss), a component of
shareholders equity, net of tax. Pursuant to
SFAS No. 157, Fair Value Measurements, or
SFAS 157, the fair value of our cash equivalents and
marketable securities is determined based on
Level 1 inputs, which consist of quoted prices
in active markets for identical assets. We believe that the
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recorded values of all of our other financial instruments
approximate their current fair values because of their nature
and respective maturity dates or durations.
Cash and
Cash Equivalents
We consider all highly liquid investments that are readily
convertible into cash and have an original maturity of three
months or less at the time of purchase to be cash equivalents.
Marketable
Securities
Broadcom defines marketable securities as income yielding
securities that can be readily converted into cash. Examples of
marketable securities include U.S. Treasury and agency
obligations, commercial paper, corporate notes and bonds, time
deposits, foreign notes and certificates of deposit.
We account for our investments in debt and equity instruments
under Statement of Financial Accounting Standards, or SFAS,
No. 115, Accounting for Certain Investments in Debt and
Equity Securities and FASB Staff Position, or FSP,
No. 115-1,
The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments, or
FSP 115-1.
Management determines the appropriate classification of such
securities at the time of purchase and reevaluates such
classification as of each balance sheet date. Historically we
classified our cash equivalents and marketable securities as
held-to-maturity. Effective February 2008 we reclassified our
cash equivalents and marketable securities as available-for-sale
and recorded a net unrealized gain in the amount of
$0.2 million. In 2008 cash equivalents and marketable
securities are reported at fair value with the related
unrealized gains and losses included in accumulated other
comprehensive income (loss), a component of shareholders
equity, net of tax. We follow the guidance provided by
FSP 115-1,
to assess whether our investments with unrealized loss positions
are other than temporarily impaired. Realized gains and losses
and declines in value judged to be other than temporary are
determined based on the specific identification method and are
reported in other income (expense), net in the consolidated
statements of income.
We adopted SFAS 157 in 2008 related to financial assets and
liabilities. This did not have a material impact on our
consolidated financial statements. SFAS 157 defines fair
value, establishes a framework for measuring fair value in
accordance with generally accepted accounting principles, and
expands disclosures about fair value measurements. In February
2008 the FASB issued FSP
No. 157-1,
Application of FASB Statement No. 157 to FASB Statement
No. 13 and Other Accounting Pronouncements That Address
Fair Value Measurements for Purposes of Lease Classification or
Measurement under Statement 13, which amends SFAS 157
to remove certain leasing transactions from its scope. In
February 2008 the FASB issued FSP
No. 157-2,
Effective Date of FASB Statement No. 157, which
delays the effective date of SFAS 157 for non-financial
assets and liabilities to fiscal years beginning after
November 15, 2008. In October 2008, the FASB issued FSP
No. 157-3,
Determining the Fair Value of a Financial Asset When the
Market for That Asset is Not Active, which clarifies how
managements internal assumptions should be considered in
measuring fair value when (i) observable data are not
present, (ii) observable market information from an
inactive market should be taken into account, and (iii) the
use of broker quotes or pricing services should be considered in
assessing the relevance of observable and unobservable data to
measure fair value.
Investments
We have made strategic investments in publicly traded and
privately held companies for the promotion of business and
strategic objectives. Broadcoms investments in publicly
traded equity securities are classified as available-for-sale.
Available-for-sale investments are initially recorded at cost
and periodically adjusted to fair value through comprehensive
income. Our investments in equity securities of non-publicly
traded companies qualify to be accounted for under the cost
method. Under the cost method, strategic investments in which we
hold less than a 20% voting interest and on which we do not have
the ability to exercise significant influence are carried at the
lower of cost or fair value. Both types of investments are
included in other assets on our consolidated balance sheet and
are carried at fair value or cost, as appropriate. We
periodically review these investments for other-than-temporary
impairments based on the specific identification method and
write down investments to their fair values when an
other-than-temporary impairment has occurred.
F-10
Inventory
Inventory consists of work in process and finished goods and is
stated at the lower of cost
(first-in,
first-out) or market. We establish inventory reserves for
estimated obsolete or unmarketable inventory equal to the
difference between the cost of inventory and the estimated net
realizable value based upon assumptions about future demand and
market conditions. Shipping and handling costs are classified as
a component of cost of revenue in the consolidated statements of
income.
Property
and Equipment
Property and equipment are carried at cost. Depreciation and
amortization are provided using the straight-line method over
the assets estimated remaining useful lives, ranging from
one to ten years. Depreciation and amortization of leasehold
improvements are computed using the shorter of the remaining
lease term or ten years.
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 net tangible and intangible assets acquired. In
accordance with SFAS No. 142, Goodwill and Other
Intangible Assets, or SFAS 142, we test goodwill for
impairment at the reporting unit level (operating segment or one
level below an operating segment) on an annual basis in the
fourth quarter or more frequently if we believe indicators of
impairment exist. The performance of the test involves a
two-step process. The first step of the impairment test involves
comparing the fair values of the applicable reporting units with
their aggregate carrying values, including goodwill. We
generally determine the fair value of our reporting units using
the income approach methodology of valuation that includes the
discounted cash flow method as well as other generally accepted
valuation methodologies. If the carrying amount of a reporting
unit exceeds the reporting units fair value, we perform
the second step of the goodwill impairment test to determine the
amount of impairment loss. The second step of the goodwill
impairment test involves comparing the implied fair value of the
affected reporting units goodwill with the carrying value
of that goodwill.
We account for long-lived assets, including other purchased
intangible assets, in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets, or SFAS 144, which requires impairment losses
to be recorded on long-lived assets used in operations when
indicators of impairment, such as reductions in demand or
significant economic slowdowns in the semiconductor industry,
are present. Reviews are performed to determine whether the
carrying value of an asset is impaired, based on comparisons to
undiscounted expected future cash flows. If this comparison
indicates that there is impairment, the impaired asset is
written down to fair value, which is typically calculated using:
(i) quoted market prices or (ii) discounted expected
future cash flows utilizing a discount rate consistent with the
guidance provided in FASB Concepts Statement No. 7,
Using Cash Flow Information and Present Value in Accounting
Measurements. Impairment is based on the excess of the
carrying amount over the fair value of those assets.
Accounting
for Asset Retirement Obligations
We account for asset retirement obligations in accordance with
SFAS No. 143, Accounting for Asset Retirement
Obligations, or SFAS 143, which addresses financial
accounting and reporting for legal obligations associated with
the retirement of tangible long-lived assets that result from
the acquisition, construction, development
and/or
normal use of the assets and the related asset retirement costs.
SFAS 143 requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which
it is incurred if a reasonable estimate of fair value can be
made. The fair value of the liability is added to the carrying
amount of the associated asset and this additional carrying
amount is depreciated over the life of the asset. During 2008 we
reassessed the likelihood of an asset retirement obligation to
return the leased properties to their original condition upon
lease terminations at certain of our locations. At
December 31, 2008 and 2007, our net asset retirement
obligation was $3.4 million and $1.0 million,
respectively.
F-11
Income
Taxes
We utilize the asset and liability method of accounting for
income taxes as set forth in SFAS No. 109,
Accounting for Income Taxes, or SFAS 109. Under the
asset and liability method, deferred taxes are determined based
on the temporary differences between the financial statement and
tax basis of assets and liabilities using tax rates expected to
be in effect during the years in which the basis differences
reverse. A valuation allowance is recorded when it is more
likely than not that some of the deferred tax assets will not be
realized.
In July 2006 the FASB issued Interpretation, or FIN,
No. 48, Accounting for Uncertainty in Income
Taxes An Interpretation of FASB Statement
No. 109, or FIN 48. FIN 48 provides detailed
guidance for the financial statement recognition, measurement
and disclosure of uncertain tax positions recognized in an
enterprises financial statements in accordance with
SFAS 109. Income tax positions must meet a
more-likely-than-not recognition threshold at the effective date
to be recognized upon the adoption of FIN 48 and in
subsequent periods. We adopted FIN 48 effective
January 1, 2007 and the provisions of FIN 48 have been
applied to all income tax positions commencing from that date.
We recognize potential accrued interest and penalties related to
unrecognized tax benefits within the consolidated statement of
income as income tax expense.
Stock-Based
Compensation
Broadcom has in effect stock incentive plans under which
incentive stock options have been granted to employees and
restricted stock units and non-qualified stock options have been
granted to employees and non-employee members of the Board of
Directors. We also have an employee stock purchase plan for all
eligible employees. Effective January 1, 2006 we adopted
SFAS No. 123 (revised 2004), Share-Based Payment,
or SFAS 123R, and applied the provisions of
SAB No. 107, Share-Based Payment, which
requires all share-based payments to employees, including grants
of employee stock options, restricted stock units and employee
stock purchase rights, to be recognized in the financial
statements based upon their respective grant date fair values.
SFAS 123R requires companies to estimate the fair value of
share-based payment awards on the date of grant using an
option-pricing model. The value of the portion of the award that
is ultimately expected to vest is principally recognized as
expense ratably over the requisite service periods. We have
estimated the fair value of stock options and stock purchase
rights as of the date of grant or assumption using the
Black-Scholes option pricing model, which was developed for use
in estimating the value of traded options that have no vesting
restrictions and that are freely transferable. The Black-Scholes
model considers, among other factors, the expected life of the
award and the expected volatility of our stock price. We
evaluate the assumptions used to value stock options and stock
purchase rights under SFAS 123R on a quarterly basis.
Although the Black-Scholes model meets the requirements of
SFAS 123R and SAB 107, the fair values generated by
the model may not be indicative of the actual fair values of our
equity awards, as it does not consider other factors important
to those awards to employees, such as continued employment,
periodic vesting requirements and limited transferability.
Contingent
Consideration
In connection with certain of our acquisitions, additional cash
consideration will be paid to the former holders of capital
stock and other rights upon satisfaction of certain future
performance goals. In accordance with SFAS No. 141,
Business Combinations, or SFAS 141, contingent
consideration is recorded when a contingency is satisfied and
additional consideration is issued or becomes issuable. In
accordance with EITF Issue
No. 95-8,
Accounting for Contingent Consideration Paid to the
Shareholders of an Acquired Enterprise in a Purchase Business
Combination, the additional consideration issuable to
holders of unrestricted common stock and fully vested options as
of the acquisition date is recorded as additional purchase
price, as the consideration is unrelated to any employment
requirement with us. If additional consideration is recorded,
such amount will be allocated to goodwill.
Litigation
and Settlement Costs
We are involved in disputes, litigation and other legal actions.
In accordance with SFAS No. 5, Accounting for
Contingencies, or SFAS 5, we record a charge equal to
at least the minimum estimated liability for a loss contingency
when both of the following conditions are met:
(i) information available prior to issuance of the
F-12
financial statements indicates that it is probable that an asset
had been impaired or a liability had been incurred at the date
of the financial statements and (ii) the range of loss can
be reasonably estimated.
Net
Income Per Share
Net income per share (basic) is calculated by dividing net
income by the weighted average number of common shares
outstanding during the year. Net income per share (diluted) is
calculated by adjusting outstanding shares, assuming any
dilutive effects of options and restricted stock units
calculated using the treasury stock method. Under the treasury
stock method, an increase in the fair market value of our
Class A common stock results in a greater dilutive effect
from outstanding options, stock purchase rights and restricted
stock units. Additionally, the exercise of employee stock
options and stock purchase rights and the vesting of restricted
stock units results in a further dilutive effect on net income
per share.
Research
and Development Expense
Research and development expenditures are expensed in the period
incurred.
In June 2007 the FASB ratified EITF Issue
No. 07-3,
Accounting for Nonrefundable Advance Payments for Goods or
Services Received for Use in Future Research and Development
Activities, or
EITF 07-3.
EITF 07-3
requires nonrefundable advance payments for goods or services to
be used in future research and development activities to be
recorded as an asset and the payments to be expensed when the
research and development activities are performed.
EITF 07-3
is effective for fiscal years beginning after December 15,
2007. The adoption of
EITF 07-3
did not have a material impact on our consolidated financial
statements.
Advertising
Expense
Advertising costs are expensed in the period incurred.
Advertising expense in 2008, 2007 and 2006 was
$0.1 million, $0.2 million and $0.7 million,
respectively.
Warranty
Our products typically carry a one to three year warranty. We
establish reserves for estimated product warranty costs at the
time revenue is recognized based upon our historical warranty
experience, and additionally for any known product warranty
issues. If actual costs differ from our initial estimates, we
record the difference in the period it is identified. Actual
claims are charged against the warranty reserve. See Note 2
for a summary of our warranty activity.
Guarantees
and Indemnifications
In some agreements to which we are a party, we have agreed to
indemnify the other party for certain matters such as product
liability. We include intellectual property indemnification
provisions in our standard terms and conditions of sale for our
products and have also included such provisions in certain
agreements with third parties. To date, there have been no known
events or circumstances that have resulted in any material costs
related to these indemnification provisions, and as a result, no
liabilities have been recorded in the accompanying consolidated
financial statements. However, the maximum potential amount of
the future payments we could be required to make under these
indemnification obligations could be significant.
We also have obligations to indemnify certain of our present and
former directors, officers and employees to the maximum extent
not prohibited by law. Under these obligations, Broadcom is
required to indemnify each such director, officer and employee
against expenses, including attorneys fees, judgments,
fines and settlements, paid by such individual in connection
with our currently outstanding securities litigation and related
government investigations described in Note 11 (subject to
certain exceptions). The potential amount of the future payments
we could be required to make under these indemnification
obligations could be significant. We maintain directors
and officers insurance policies that may limit our
exposure and enable us to recover a portion of the amounts paid
with respect to such obligations. However, certain of our
insurance carriers have reserved their rights, and in the third
quarter of 2008 one of our insurance carriers notified us that
coverage was not available and that it intended
F-13
to suspend payment to us. As a result, we ceased receiving
reimbursements under these policies for our expenses related to
the matters described above. However, in January 2009 we entered
into an agreement with that insurance carrier and certain of our
other insurance carriers pursuant to which, without prejudicing
our rights or the rights of such insurers, we will receive a
payment from these insurers under these insurance policies. In
the three months ended June 30, 2008, due to a change in
the underlying facts and circumstances related to director and
officer claims, we commenced recognizing reimbursements from our
directors and officers insurance carriers on a cash
basis, pursuant to which we record a reduction to selling,
general and administrative expense only when cash is actually
received from our insurance carriers instead of offsetting the
expenses in a quarter with a receivable from the carriers. In
the six months ended June 30, 2008 we recorded a reduction
of $9.5 million to selling, general and administrative
expense related to insurance recoveries. No insurance proceeds
were received in the second half of 2008. From inception of the
securities litigation and related government investigations
through December 31, 2008, we have recovered legal expenses
in the amount of $26.7 million under these insurance
policies, which amount we have recorded as a reduction to
selling, general and administrative expense. In certain limited
circumstances, all or portions of the amounts recovered from our
insurance carriers may be required to be repaid. We regularly
evaluate the need to record a liability for potential future
repayments in accordance with SFAS 5. As of
December 31, 2008 we have not recorded a liability in
connection with these potential insurance repayment provisions.
In connection with our currently outstanding securities
litigation and related government investigations described in
Note 11, as of December 31, 2008 we advanced
$42.0 million to certain former officers for attorney and
expert fees for which we did not receive reimbursement from our
insurance carriers, which amount has been expensed. If our
coverage under these policies is reduced or eliminated, our
potential financial exposure in the pending securities
litigation and related government investigations would be
increased.
Comprehensive
Income
SFAS No. 130, Reporting Comprehensive Income,
establishes standards for reporting and displaying comprehensive
income and its components in the consolidated financial
statements. Accumulated other comprehensive income (loss)
includes foreign currency translation adjustments and unrealized
gains or losses on investments. This information is provided in
our statements of shareholders equity. Accumulated other
comprehensive income (loss) on the consolidated balance sheets
at December 31, 2008 and December 31, 2007 represents
accumulated translation adjustments and unrecognized gains and
losses on investments.
Business
Enterprise Segments
We operate in one reportable operating segment, wired and
wireless broadband communications. SFAS No. 131,
Disclosures about Segments of an Enterprise and Related
Information, or SFAS 131, establishes standards for the
way public business enterprises report information about
operating segments in annual consolidated financial statements
and requires that those enterprises report selected information
about operating segments in interim financial reports.
SFAS 131 also establishes standards for related disclosures
about products and services, geographic areas and major
customers. Our Chief Executive Officer, who is considered to be
our chief operating decision maker, reviews financial
information presented on an operating segment basis for purposes
of making operating decisions and assessing financial
performance.
Although we had four operating segments at December 31,
2008, under the aggregation criteria set forth in SFAS 131
we operate in only one reportable operating segment, wired and
wireless broadband communications. Under SFAS 131, two or
more operating segments may be aggregated into a single
operating segment for financial reporting purposes if
aggregation is consistent with the objective and basic
principles of SFAS 131, if the segments have similar
economic characteristics, and if the segments are similar in
each of the following areas:
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the nature of products and services;
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the nature of the production processes;
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the type or class of customer for their products and
services; and
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the methods used to distribute their products or provide their
services.
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F-14
We meet each of the aggregation criteria for the following
reasons:
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the sale of integrated circuits is the only material source of
revenue for each of our four operating segments, other than
royalty revenue in one of our operating segments in 2008;
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the integrated circuits sold by each of our operating segments
use the same standard CMOS manufacturing processes;
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the integrated circuits marketed by each of our operating
segments are sold to one type of customer: manufacturers of
wired and wireless communications equipment, which incorporate
our integrated circuits into their electronic products; and
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all of our integrated circuits are sold through a centralized
sales force and common wholesale distributors.
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All of our operating segments share similar economic
characteristics as they have a similar long-term business model,
operate in the long-term at gross margins similar to our
consolidated gross margin, and have similar research and
development expenses and similar selling, general and
administrative expenses. The causes for variation among our
operating segments are the same and include factors such as
(i) life cycle (including development of new products) and
price and cost fluctuations, (ii) number of competitors,
(iii) product differentiation and (iv) size of market
opportunity. Additionally, each operating segment is subject to
the overall cyclical nature of the semiconductor industry. The
number and composition of employees and the amounts and types of
tools and materials required are similar for each operating
segment. Finally, even though we periodically reorganize our
operating segments based upon changes in customers, end markets
or products, acquisitions, long-term growth strategies, and the
experience and bandwidth of the senior executives in charge, the
common financial goals for each operating segment remain
constant.
Because we meet each of the criteria set forth in SFAS 131
and our four operating segments as of December 31,
2008 share similar economic characteristics, we have
aggregated our results of operations into one reportable
operating segment.
Self-Insurance
We are self-insured for certain healthcare benefits provided to
our U.S. employees. The liability for the self-insured
benefits is limited by the purchase of stop-loss insurance. The
stop-loss coverage provides payment for aggregate claims
exceeding $0.3 million per covered person for any given
year.
Accruals for losses are made based on our claim experience and
actuarial estimates based on historical data. Actual losses may
differ from accrued amounts. At December 31, 2008 and 2007,
our liability for our self insured benefits was
$5.7 million and $5.0 million, respectively. Should
actual losses exceed the amounts expected and the recorded
liabilities be insufficient, an additional expense will be
recorded.
Recent
Accounting Pronouncements
In December 2007 the FASB issued SFAS No. 141R,
Business Combinations, or SFAS 141R. SFAS 141R
establishes principles and requirements for how the acquirer of
a business recognizes and measures in its financial statements
the identifiable assets acquired, the liabilities assumed, and
any noncontrolling interest in the acquiree. The statement also
provides guidance for recognizing and measuring the goodwill
acquired in the business combination and determines what
information to disclose to enable users of financial statements
to evaluate the nature and financial effects of the business
combination. SFAS 141R is effective for financial
statements issued for fiscal years beginning after
December 15, 2008. Accordingly, any business combinations
we engaged in were recorded and disclosed according to
SFAS 141 until January 1, 2009. We expect
SFAS No. 141R will have an impact on our consolidated
financial statements, but the nature and magnitude of the
specific effects will depend upon the nature, terms and size of
the acquisitions we consummate after the effective date of
January 1, 2009.
In April 2008 the FASB issued FSP
No. 142-3,
Determination of the Useful Life of Intangible Assets, or
FSP 142-3,
which amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under SFAS 142. This
pronouncement requires enhanced disclosures concerning a
companys treatment of costs incurred to renew or extend
the term of a recognized intangible asset.
FSP 142-3
is effective for financial statements issued for fiscal years
beginning after
F-15
December 15, 2008. We are currently evaluating the impact
of
FSP 142-3,
but do not expect the adoption to have a material impact on our
consolidated financial statements.
In December 2007 the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of Accounting Research
Bulletin No. 51, or SFAS 160. SFAS 160
addresses the accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent,
the amount of consolidated net income attributable to the parent
and to the noncontrolling interest, changes in a parents
ownership interest, and the valuation of retained noncontrolling
equity investments when a subsidiary is deconsolidated.
SFAS 160 also establishes disclosure requirements that
clearly identify and distinguish between the interests of the
parent and the interests of the noncontrolling owners.
SFAS 160 is effective for fiscal years beginning after
December 15, 2008. We are currently evaluating the impact
of SFAS 160, but do not expect the adoption to have a
material impact on our consolidated financial statements.
In May 2008 the FASB issued SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principles, or
SFAS 162. SFAS 162 identifies the sources of
accounting principles to be used in the preparation of financial
statements of nongovernmental entities that are presented in
conformity with generally accepted accounting principles, or
GAAP, in the U.S. SFAS 162 is effective 60 days
following the SEC approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, The
Meaning of Present Fairly in Conformity with Generally Accepted
Accounting Principles. We currently adhere to the hierarchy
of GAAP as presented in SFAS 162, and adoption is not
expected to have a material impact on our consolidated financial
statements.
In December 2007 the FASB ratified EITF Issue
No. 07-1,
Accounting for Collaborative Arrangements, or
EITF 07-1.
EITF 07-1
focuses on defining a collaborative arrangement as well as the
accounting for transactions between participants in a
collaborative arrangement and between the participants in the
arrangement and third parties. The EITF concluded that both
types of transactions should be reported in each
participants respective income statement.
EITF 07-1
is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those fiscal years and should be applied retrospectively
to all prior periods presented for all collaborative
arrangements existing as of the effective date. We are currently
evaluating the impact of
EITF 07-1,
but do not expect the adoption to have a material impact on our
consolidated financial statements.
In November 2008 the FASB ratified EITF Issue
No. 08-7,
Accounting for Defensive Intangible Assets, or
EITF 08-7.
EITF 08-7
applies to defensive intangible assets, which are acquired
intangible assets that the acquirer does not intend to actively
use but intends to hold to prevent its competitors from
obtaining access to them. As these assets are separately
identifiable,
EITF 08-7
requires an acquiring entity to account for defensive intangible
assets as a separate unit of accounting which should be
amortized to expense over the period the asset diminished in
value. Defensive intangible assets must be recognized at fair
value in accordance with SFAS 141R and SFAS 157.
EITF 08-7
is effective for financial statements issued for fiscal years
beginning after December 15, 2008. We expect
EITF 08-7
will have an impact on our consolidated financial statements
when effective, but the nature and magnitude of the specific
effects will depend upon the nature, terms and value of the
intangible assets purchased after the effective date.
|
|
2.
|
Supplemental
Financial Information
|
Inventory
The following table presents details of our inventory:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Work in process
|
|
$
|
166,811
|
|
|
$
|
60,479
|
|
Finished goods
|
|
|
199,295
|
|
|
|
170,834
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
366,106
|
|
|
$
|
231,313
|
|
|
|
|
|
|
|
|
|
|
F-16
Property
and Equipment
The following table presents details of our property and
equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
Useful Life
|
|
|
2008
|
|
|
2007
|
|
|
|
(In years)
|
|
|
(In thousands)
|
|
|
Leasehold improvements
|
|
|
1 to 10
|
|
|
$
|
154,594
|
|
|
$
|
140,089
|
|
Office furniture and equipment
|
|
|
3 to 7
|
|
|
|
25,059
|
|
|
|
24,817
|
|
Machinery and equipment
|
|
|
3 to 5
|
|
|
|
193,993
|
|
|
|
208,453
|
|
Computer software and equipment
|
|
|
2 to 4
|
|
|
|
113,501
|
|
|
|
149,459
|
|
Construction in progress
|
|
|
N/A
|
|
|
|
3,893
|
|
|
|
6,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
491,040
|
|
|
|
529,376
|
|
Less accumulated depreciation and amortization
|
|
|
|
|
|
|
(256,349
|
)
|
|
|
(287,573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
234,691
|
|
|
$
|
241,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2008, we disposed of property and equipment with a net book
value of $3.8 million. In addition, we wrote down property
and equipment included in our mobile platforms business group in
the amount of $19.8 million in connection with our
SFAS 144 review in 2008. See Note 9.
Goodwill
The following table summarizes the activity related to the
carrying value of our goodwill:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Beginning balance
|
|
$
|
1,376,721
|
|
|
$
|
1,185,145
|
|
|
$
|
1,149,602
|
|
Goodwill recorded in connection with acquisitions (Note 3)
|
|
|
43,891
|
|
|
|
196,019
|
|
|
|
42,530
|
|
Contingent consideration (Note 3)
|
|
|
10,000
|
|
|
|
10,155
|
|
|
|
|
|
Impairment of goodwill (Note 9)
|
|
|
(149,658
|
)
|
|
|
|
|
|
|
|
|
Escrow related and other (Note 3)
|
|
|
(1,711
|
)
|
|
|
(14,598
|
)
|
|
|
(6,987
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
1,279,243
|
|
|
$
|
1,376,721
|
|
|
$
|
1,185,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
Intangible Assets
The following table presents details of our purchased intangible
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Gross
|
|
|
Amortization
|
|
|
Net
|
|
|
Gross
|
|
|
Amortization
|
|
|
Net
|
|
|
|
(In thousands)
|
|
|
Completed technology
|
|
$
|
220,669
|
|
|
$
|
(190,074
|
)
|
|
$
|
30,595
|
|
|
$
|
218,769
|
|
|
$
|
(174,217
|
)
|
|
$
|
44,552
|
|
Customer relationships
|
|
|
80,366
|
|
|
|
(50,558
|
)
|
|
|
29,808
|
|
|
|
49,266
|
|
|
|
(47,366
|
)
|
|
|
1,900
|
|
Customer backlog
|
|
|
3,436
|
|
|
|
(3,436
|
)
|
|
|
|
|
|
|
3,436
|
|
|
|
(3,436
|
)
|
|
|
|
|
Other
|
|
|
9,214
|
|
|
|
(7,659
|
)
|
|
|
1,555
|
|
|
|
7,614
|
|
|
|
(7,459
|
)
|
|
|
155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
313,685
|
|
|
$
|
(251,727
|
)
|
|
$
|
61,958
|
|
|
$
|
279,085
|
|
|
$
|
(232,478
|
)
|
|
$
|
46,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to the business combinations discussed in
Note 3, in 2007 we acquired purchased intangible assets
that did not meet the definition of a business as defined in
SFAS 141 for $3.9 million. This amount is included in
completed technology in the table above.
F-17
The following table presents details of the amortization of
purchased intangible assets by expense category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cost of revenue
|
|
$
|
15,857
|
|
|
$
|
13,485
|
|
|
$
|
10,056
|
|
Operating expense
|
|
|
3,392
|
|
|
|
1,027
|
|
|
|
2,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,249
|
|
|
$
|
14,512
|
|
|
$
|
12,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents details of estimated future
straight-line
amortization of purchased intangible assets. If we acquire
additional purchased intangible assets in the future, our cost
of revenue or operating expenses will be increased by the
amortization of those assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Intangible Assets Amortization by Year
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Cost of revenue
|
|
$
|
15,976
|
|
|
$
|
13,239
|
|
|
$
|
1,380
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
30,595
|
|
Operating expense
|
|
|
16,572
|
|
|
|
13,959
|
|
|
|
500
|
|
|
|
332
|
|
|
|
|
|
|
|
31,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
32,548
|
|
|
$
|
27,198
|
|
|
$
|
1,880
|
|
|
$
|
332
|
|
|
$
|
|
|
|
$
|
61,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
Liabilities
The following table presents details of our accrued liabilities:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007(1)
|
|
|
|
(In thousands)
|
|
|
Accrued rebates
|
|
$
|
125,058
|
|
|
$
|
132,603
|
|
Accrued taxes
|
|
|
15,924
|
|
|
|
10,911
|
|
Warranty reserve
|
|
|
11,473
|
|
|
|
23,287
|
|
Qualcomm royalty payments (Note 11)
|
|
|
25,467
|
|
|
|
|
|
Accrued payments on repurchases of Class A common stock
|
|
|
|
|
|
|
16,067
|
|
Restructuring liabilities
|
|
|
3,342
|
|
|
|
4,460
|
|
Other
|
|
|
59,242
|
|
|
|
65,898
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
240,506
|
|
|
$
|
253,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Excludes $27.0 million of
deferred rent that has been reclassified to other long-term
liabilities to conform to the current year presentation.
|
Other
Long-Term Liabilities
The following table presents details of our long-term
liabilities:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007(1)
|
|
|
|
(In thousands)
|
|
|
Accrued taxes
|
|
$
|
26,190
|
|
|
$
|
32,331
|
|
Restructuring liabilities
|
|
|
837
|
|
|
|
2,997
|
|
Deferred rent
|
|
|
32,594
|
|
|
|
27,045
|
|
Other long-term liabilities
|
|
|
5,576
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
65,197
|
|
|
$
|
63,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes $27.0 million of
deferred rent that has been reclassified from accrued
liabilities to conform to the current year presentation.
|
F-18
Accrued
Rebate Activity
The following table summarizes the 2008 and 2007 activity
related to accrued rebates:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Beginning balance
|
|
$
|
132,603
|
|
|
$
|
131,028
|
|
Charged as a reduction to revenue
|
|
|
236,415
|
|
|
|
222,319
|
|
Reversal of unclaimed rebates
|
|
|
(39,640
|
)
|
|
|
(22,387
|
)
|
Payments
|
|
|
(204,320
|
)
|
|
|
(198,357
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
125,058
|
|
|
$
|
132,603
|
|
|
|
|
|
|
|
|
|
|
Warranty
Reserve Activity
The following table summarizes the 2008 and 2007 activity
related to the warranty reserve:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Beginning balance
|
|
$
|
23,287
|
|
|
$
|
19,222
|
|
Charged to costs and expenses
|
|
|
4,998
|
|
|
|
8,435
|
|
Reversal of warranty
reserves(1)
|
|
|
(10,600
|
)
|
|
|
|
|
Payments
|
|
|
(6,212
|
)
|
|
|
(4,370
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
11,473
|
|
|
$
|
23,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Relates to warranty costs incurred
at a rate less than previously estimated.
|
Restructuring
Activity
From the second quarter of 2001 through the third quarter of
2002, we implemented a plan to restructure our operations in
response to the challenging economic climate. As a result of the
prolonged downturn in the semiconductor industry, we announced
an additional restructuring plan that was implemented from the
fourth quarter of 2002 through the second quarter of 2003. The
plans focused on cost reductions and operating efficiencies,
including workforce reductions and lease terminations. These
restructuring plans resulted in certain business unit
realignments, workforce reductions and consolidation of excess
facilities. Approximately 670 employees were terminated
across all of our business functions and geographic regions in
connection with these restructuring plans.
The following table summarizes the activity related to our
current and long-term restructuring liabilities:
|
|
|
|
|
|
|
Total
|
|
|
Restructuring liabilities at December 31, 2005
|
|
$
|
16,221
|
|
Cash
payments(2)
|
|
|
(5,498
|
)
|
|
|
|
|
|
Restructuring liabilities at December 31, 2006
|
|
|
10,723
|
|
Liabilities assumed in
acquisitions(1)
|
|
|
749
|
|
Cash
payments(2)
|
|
|
(4,015
|
)
|
|
|
|
|
|
Restructuring liabilities at December 31, 2007
|
|
|
7,457
|
|
Reversal of restructuring
costs(3)
|
|
|
(1,000
|
)
|
Cash
payments(2)
|
|
|
(2,278
|
)
|
|
|
|
|
|
Restructuring liabilities at December 31, 2008
|
|
$
|
4,179
|
|
|
|
|
|
|
F-19
|
|
|
(1)
|
|
Although not related to our
restructuring plans, we assumed additional restructuring
liabilities of $0.7 million in connection with the
acquisition of Global Locate, Inc. in 2007, primarily for the
consolidation of excess facilities relating to lease
terminations and non-cancelable lease costs.
|
|
(2)
|
|
Cash payments related to severance
and fringe benefits, net lease payments on excess facilities,
lease terminations and non-cancelable lease costs. The
consolidation of excess facilities costs will be paid over the
respective lease terms through 2010.
|
|
(3)
|
|
We recorded a reversal of
restructuring liabilities of $1.0 million, reflecting
revised assumptions on the final facility included in the
restructuring plan.
|
Computation
of Net Income Per Share
The following table presents the computation of net income per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share data)
|
|
|
Numerator: Net income
|
|
$
|
214,794
|
|
|
$
|
213,342
|
|
|
$
|
379,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: Weighted average shares outstanding
|
|
|
512,741
|
|
|
|
542,485
|
|
|
|
545,889
|
|
Less: Unvested common shares outstanding
|
|
|
(93
|
)
|
|
|
(73
|
)
|
|
|
(165
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for net income per share (basic)
|
|
|
512,648
|
|
|
|
542,412
|
|
|
|
545,724
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested common shares outstanding
|
|
|
4
|
|
|
|
8
|
|
|
|
90
|
|
Stock awards
|
|
|
11,556
|
|
|
|
35,262
|
|
|
|
42,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for net income per share (diluted)
|
|
|
524,208
|
|
|
|
577,682
|
|
|
|
588,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share (basic)
|
|
$
|
0.42
|
|
|
$
|
0.39
|
|
|
$
|
0.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share (diluted)
|
|
$
|
0.41
|
|
|
$
|
0.37
|
|
|
$
|
0.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share (diluted) does not include the effect of
anti-dilutive common share equivalents from outstanding stock
options. There were 107.1 million, 44.4 million and
16.6 million anti-dilutive common share equivalents with
corresponding weighted average exercise prices of $27.45, $34.94
and $41.02 from outstanding stock options at December 31,
2008, 2007 and 2006, respectively.
Patent
License Agreement
In July 2007 we entered into a patent license agreement with a
wireless network operator. Under the agreement, royalty payments
will be made to us at a rate of $6.00 per unit for each
applicable unit sold by the operator on or after the date of the
agreement, subject to certain conditions, including without
limitation a maximum payment of $40.0 million per calendar
quarter and a lifetime maximum of $200.0 million. We
recorded revenue of $149.2 million and $31.8 million
under this agreement in 2008 and 2007, respectively. Up to
$19.0 million of royalty revenue is currently expected to
be recognized under this agreement in the quarter ending
March 31, 2009.
Supplemental
Cash Flow Information
In 2008 we paid $16.1 million related to 2007 share
repurchases that had not settled by December 31, 2007. At
December 31, 2008 there were no unsettled share
repurchases. In 2007, we paid $23.0 million for capital
equipment that was accrued as of December 31, 2006. In
addition, in 2008 we paid $9.2 million related to capital
equipment purchases that were accrued at December 31, 2007
and accrued $5.4 million for capital equipment purchases at
December 31, 2008. The amounts accrued for capital
equipment purchases have been excluded from the consolidated
statements of cash flows. In the consolidated statement of cash
flows for the year ended December 31, 2007, we increased
net cash provided by operating activities and increased net cash
used in investing activities by $2.6 million resulting from
valuation of marketable securities to conform to the current
year presentation. In the consolidated statement of cash flows
for the year ended December 31, 2006, we decreased net
F-20
cash provided by operating activities and decreased net cash
used in investing activities by $4.3 million resulting from
valuation of marketable securities to conform to the current
year presentation.
From January 1, 2006 through December 31, 2008 we
completed seven acquisitions. The consolidated financial
statements include the results of operations of these acquired
companies commencing as of their respective acquisition dates.
A summary of the transactions as of their respective acquisition
dates is outlined below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserved
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
|
|
|
Total
|
|
|
Cash
|
|
|
|
Date
|
|
|
|
|
Shares
|
|
|
Rights
|
|
|
Issued or
|
|
|
Consideration
|
|
Company Acquired
|
|
Acquired
|
|
|
Business
|
|
Issued
|
|
|
Assumed
|
|
|
Reserved
|
|
|
Paid
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
2008 Acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sunext Design, Inc.
|
|
|
Feb. 2008
|
|
|
Designs optical storage semiconductor products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,939
|
|
DTV Business of AMD, Inc.
|
|
|
Oct. 2008
|
|
|
Designs and markets applications and communications processors
for the digital television market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
150,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 Acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LVL7 Systems, Inc.
|
|
|
Jan. 2007
|
|
|
Network software
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
62,459
|
|
Octalica, Inc.
|
|
|
May 2007
|
|
|
Networking technologies based on the
MoCAtm
standard
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,753
|
|
Global Locate, Inc.
|
|
|
Jul. 2007
|
|
|
GPS and assisted GPS semiconductor products, software and
services
|
|
|
94
|
|
|
|
|
|
|
|
94
|
|
|
|
139,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94
|
|
|
|
|
|
|
|
94
|
|
|
$
|
232,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 Acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sandburst Corporation
|
|
|
Mar. 2006
|
|
|
Packet switching and routing systems-on-a-chip
|
|
|
|
|
|
|
107
|
|
|
|
107
|
|
|
$
|
71,952
|
|
Encentrus Systems, Inc.
|
|
|
Aug. 2006
|
|
|
Media center technology
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107
|
|
|
|
107
|
|
|
$
|
74,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Acquisitions
|
|
|
|
|
|
|
|
|
94
|
|
|
|
107
|
|
|
|
201
|
|
|
$
|
457,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain of the cash consideration in the above acquisitions is
currently held in escrow pursuant to the terms of the
acquisition agreements and is reflected in goodwill.
Broadcom issued 1.2 million restricted stock units with a
fair value of $19.7 million to certain former employees of
Advanced Micro Devices, Inc., or AMD, in connection with the
acquisition of the digital TV business of AMD, or the DTV
Business of AMD, and did not assume any of AMDs equity
awards. Future stock-based compensation expense related to the
foregoing issuances will be $4.9 million per year over the
next four years.
In connection with our acquisition of Sunext, we are required to
pay up to an additional $38.0 million in future license
fees and royalties related to optical disk reader and writer
technology, assuming Sunext Technology successfully delivers the
technologies as defined in the license agreement. As of
December 31, 2008 we recorded a liability of
$5.2 million related to certain technologies delivered, as
defined in the license agreement.
At the time of acquisition, additional cash consideration of up
to $80.0 million could be paid to the former holders of
Global Locate capital stock and other rights upon satisfaction
of certain future performance goals. In 2007 and 2008 additional
cash consideration in the amount of $10.2 million and
$10.0 million, respectively, was paid to the former holders
of Global Locate capital stock and other rights upon
satisfaction of certain performance goals met during those years
and $10.0 million was forfeited as a certain performance
goal in 2007 was not
F-21
attained. The remaining amount of additional cash consideration
related to the Global Locate acquisition that could be earned in
2009 is $49.8 million.
Our primary reasons for the above acquisitions were to enter
into or expand our market share in the relevant wired and
wireless communications markets, 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 each acquisition was based on cash flow projections
assuming the integration of any acquired technology and products
with our products, which is of considerably greater value than
utilizing each acquired companys technology or product on
a standalone basis.
Allocation
of Initial Purchase Consideration
We calculated the fair value of the tangible and intangible
assets acquired to allocate the purchase prices in accordance
with SFAS 141. Based upon those calculations, the purchase
price for each of the acquisitions was allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired
|
|
|
Goodwill and
|
|
|
|
|
|
In-Process
|
|
|
|
|
|
|
(Liabilities
|
|
|
Purchased
|
|
|
Unearned
|
|
|
Research &
|
|
|
Total
|
|
|
|
Assumed)
|
|
|
Intangibles
|
|
|
Compensation
|
|
|
Development
|
|
|
Consideration
|
|
|
|
(In thousands)
|
|
|
2008 Acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sunext
|
|
$
|
(1,281
|
)
|
|
$
|
320
|
|
|
$
|
|
|
|
$
|
10,900
|
|
|
$
|
9,939
|
|
DTV Business of AMD
|
|
|
31,075
|
|
|
|
78,171
|
|
|
|
|
|
|
|
31,500
|
|
|
|
140,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29,794
|
|
|
$
|
78,491
|
|
|
$
|
|
|
|
$
|
42,400
|
|
|
$
|
150,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 Acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LVL7
|
|
$
|
1,376
|
|
|
$
|
60,783
|
|
|
$
|
|
|
|
$
|
300
|
|
|
$
|
62,459
|
|
Octalica
|
|
|
(1,235
|
)
|
|
|
21,788
|
|
|
|
|
|
|
|
10,200
|
|
|
|
30,753
|
|
Global Locate
|
|
|
(6,877
|
)
|
|
|
141,638
|
|
|
|
3,000
|
|
|
|
4,970
|
|
|
|
142,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(6,736
|
)
|
|
$
|
224,209
|
|
|
$
|
3,000
|
|
|
$
|
15,470
|
|
|
$
|
235,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 Acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sandburst
|
|
$
|
(7,553
|
)
|
|
$
|
74,305
|
|
|
$
|
4,427
|
|
|
$
|
5,200
|
|
|
$
|
76,379
|
|
Encentrus
|
|
|
(196
|
)
|
|
|
2,325
|
|
|
|
|
|
|
|
|
|
|
|
2,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(7,749
|
)
|
|
$
|
76,630
|
|
|
$
|
4,427
|
|
|
$
|
5,200
|
|
|
$
|
78,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Acquisitions
|
|
$
|
15,309
|
|
|
$
|
379,330
|
|
|
$
|
7,427
|
|
|
$
|
63,070
|
|
|
$
|
465,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The allocation of purchase price for the DTV Business of AMD has
been recorded on a preliminary basis and reasonable changes are
expected as additional information becomes available. A number
of assumptions have been made with respect to assigned
intellectual property and third party agreements. To the extent
that these assumptions are revised, the preliminary allocation
of the purchase price could be different from that identified
above.
The equity consideration for each acquisition was calculated as
follows: (i) common shares issued were valued based upon
our stock price for a period commencing two trading days before
and ending two trading days after the parties reached agreement
and the proposed transaction was announced, and
(ii) restricted common stock and employee stock options
were valued in accordance with SFAS 123R for acquisitions
in 2007 and 2006.
F-22
Condensed
Balance Sheets
The following table presents the combined details of the
unaudited condensed balance sheets of the acquired companies at
the respective dates of acquisition at their respective fair
values:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Acquisitions
|
|
|
Acquisitions
|
|
|
Acquisitions
|
|
|
|
(In thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
299
|
|
|
$
|
3,519
|
|
|
$
|
4,031
|
|
Accounts receivable, net
|
|
|
13
|
|
|
|
4,581
|
|
|
|
44
|
|
Inventory
|
|
|
22,620
|
|
|
|
1,437
|
|
|
|
625
|
|
Prepaid expenses and other current assets
|
|
|
5,806
|
|
|
|
900
|
|
|
|
964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
28,738
|
|
|
|
10,437
|
|
|
|
5,664
|
|
Property and equipment, net
|
|
|
4,381
|
|
|
|
2,051
|
|
|
|
374
|
|
Other assets
|
|
|
1,492
|
|
|
|
11
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
34,611
|
|
|
$
|
12,499
|
|
|
$
|
6,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
34
|
|
|
$
|
5,807
|
|
|
$
|
4,636
|
|
Wages and related benefits
|
|
|
1,496
|
|
|
|
1,746
|
|
|
|
541
|
|
Accrued liabilities
|
|
|
746
|
|
|
|
8,430
|
|
|
|
3,257
|
|
Short-term debt
|
|
|
|
|
|
|
|
|
|
|
4,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,276
|
|
|
|
15,983
|
|
|
|
13,059
|
|
Long-term liabilities
|
|
|
|
|
|
|
389
|
|
|
|
|
|
Total shareholders equity (deficit)
|
|
|
32,335
|
|
|
|
(3,873
|
)
|
|
|
(7,012
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity (deficit)
|
|
$
|
34,611
|
|
|
$
|
12,499
|
|
|
$
|
6,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the above acquisitions, we incurred
acquisition costs of $2.5 million, $2.9 million and
$0.7 million in 2008, 2007 and 2006, respectively.
Goodwill
and Purchased Intangible Assets
The following table presents the combined details of the total
goodwill and purchased intangible assets of the acquired
companies at the respective dates of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Useful Life
|
|
|
Acquisitions
|
|
|
Acquisitions
|
|
|
Acquisition
|
|
|
|
(In years)
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Goodwill
|
|
|
N/A
|
|
|
$
|
43,891
|
|
|
$
|
196,019
|
|
|
$
|
42,530
|
|
Purchased intangible assets (finite lives):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completed technology
|
|
|
2 to 5
|
|
|
|
1,900
|
|
|
|
28,070
|
|
|
|
30,700
|
|
Customer relationships
|
|
|
2 to 5
|
|
|
|
31,100
|
|
|
|
|
|
|
|
3,000
|
|
Other
|
|
|
1 to 4
|
|
|
|
1,600
|
|
|
|
120
|
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
78,491
|
|
|
$
|
224,209
|
|
|
$
|
76,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill increased by $10.0 million and $10.2 million
in 2008 and 2007, respectively, upon the satisfaction of certain
performance goals related to our Global Locate acquisition. In
addition, in 2006 we received $14.0 million in connection
with an escrow settlement from our prior acquisition of
Siliquent Technologies Inc., which resulted in a corresponding
reduction of goodwill.
F-23
In connection with the acquisition of the DTV Business of AMD,
we recorded a purchased intangible asset of $31.1 million
related to customer relationships. Customer relationships
represent future projected revenue that will be derived from
sales of future versions of existing products to existing
customers. We will amortize customer relationships on a
straight-line basis over an average estimated life of two years.
In-Process
Research and Development
In-process research and development, or IPR&D totaled
$42.4 million, $15.5 million and $5.2 million for
acquisitions completed in 2008, 2007 and 2006, respectively. The
amounts allocated to IPR&D were determined through
established valuation techniques used in the high technology
industry and were expensed upon acquisition as it was determined
that the underlying projects had not reached technological
feasibility and no alternative future uses existed. In
accordance with SFAS No. 2, Accounting for Research
and Development Costs, as clarified by FIN No. 4,
Applicability of FASB Statement No. 2 to Business
Combinations Accounted for by the Purchase Method, an
Interpretation of FASB Statement No. 2, amounts
assigned to IPR&D meeting the above-stated criteria were
charged to expense as part of the allocation of the purchase
price.
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
product life cycles, and market penetration and growth rates.
The IPR&D charge includes only the fair value of IPR&D
determined as of the respective acquisition dates. The fair
value of developed technology is included in identifiable
purchased intangible assets. We believe the amounts recorded as
IPR&D, as well as developed technology, represent the fair
values and approximate the amounts an independent party would
pay for these projects as of the respective acquisition dates.
The following table summarizes the significant assumptions
underlying the valuations of IPR&D at the acquisition dates
for the acquisitions completed in 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
2008 Acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sunext
|
|
Blu-ray application
|
|
|
49
|
%
|
|
|
1.0
|
|
|
$
|
4.3
|
|
|
|
20
|
%
|
|
$
|
10.9
|
|
DTV Business of AMD
|
|
Xilleon product line
|
|
|
82
|
|
|
|
1.0
|
|
|
|
6.9
|
|
|
|
24
|
|
|
|
31.5
|
|
2007 Acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LVL7
|
|
Enhancements to FASTPATH application platform
|
|
|
31
|
|
|
|
1.0
|
|
|
|
7.8
|
|
|
|
21
|
|
|
|
0.3
|
|
Octalica
|
|
High performance communication controller
|
|
|
52
|
|
|
|
1.0
|
|
|
|
6.8
|
|
|
|
29
|
|
|
|
10.2
|
|
Global Locate
|
|
Single-chip GPS device
|
|
|
62
|
|
|
|
1.5
|
|
|
|
5.6
|
|
|
|
20
|
|
|
|
5.0
|
|
As of the respective acquisition dates, 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 December 31, 2008 development
F-24
projects for our DTV business acquisition in 2008 were still in
process. We completed all other development projects related to
acquisitions. 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 pro forma data of Broadcom set forth below gives effect to
acquisitions completed in 2008 and 2007 as if they had occurred
at the beginning of 2007 and includes amortization of purchased
intangible assets, but excludes the charge for acquired
IPR&D. This pro forma data is presented for informational
purposes only and does not purport to be indicative of the
results of our future operations or of the results that would
have actually been attained had the acquisitions taken place at
the beginning of 2007.
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
|
Pro forma net revenue
|
|
$
|
4,730,868
|
|
|
$
|
3,939,004
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
$
|
(293,325
|
)
|
|
$
|
(396,578
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma net loss per share (basic and diluted)
|
|
$
|
(0.57
|
)
|
|
$
|
(0.73
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma net loss includes charges for the impairment of
goodwill and purchased intangible assets of $432.0 million
and $476.0 million in 2008 and 2007, respectively. These
charges were incurred by the DTV Business of AMD prior to our
acquisition thereof in October 2008.
Marketable
Securities
At December 31, 2008 we had $1.898 billion in cash,
cash equivalents and marketable securities. We maintain an
investment portfolio of various security holdings, types and
maturities. Pursuant to SFAS 157, the fair value of all of
our cash equivalents and marketable securities is determined
based on Level 1 inputs, which consist of
quoted prices in active markets for identical assets. We place
our cash investments in instruments that meet credit quality
standards, as specified in our investment policy guidelines.
These guidelines also limit the amount of credit exposure to any
one issue, issuer or type of instrument. With the exception of
one impaired investment, at December 31, 2008 all of our
marketable securities were rated AAA, Aaa, A+,
A-1 or
P-1 by the
major credit rating agencies. In 2008 we recorded an
other-than-temporary impairment on this investment of
$1.8 million, which was recorded as other expense, net.
F-25
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)
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
88,366
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
88,366
|
|
Time deposits
|
|
|
273,654
|
|
|
|
|
|
|
|
|
|
|
|
273,654
|
|
U.S. Treasury and agency money market funds
|
|
|
828,586
|
|
|
|
|
|
|
|
|
|
|
|
828,586
|
|
U.S. Treasury and agency obligations
|
|
|
|
|
|
|
703,722
|
|
|
|
|
|
|
|
703,722
|
|
Commercial paper and corporate bonds
|
|
|
|
|
|
|
3,755
|
|
|
|
|
|
|
|
3,755
|
|
Institutional money market funds
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,190,645
|
|
|
$
|
707,477
|
|
|
$
|
|
|
|
$
|
1,898,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
25,116
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
25,116
|
|
Time deposits
|
|
|
669,786
|
|
|
|
|
|
|
|
|
|
|
|
669,786
|
|
U.S. Treasury and agency money market funds
|
|
|
755,000
|
|
|
|
|
|
|
|
|
|
|
|
755,000
|
|
U.S. Treasury and agency obligations
|
|
|
33,706
|
|
|
|
52,098
|
|
|
|
70,123
|
|
|
|
155,927
|
|
Commercial paper and corporate bonds
|
|
|
77,313
|
|
|
|
89,630
|
|
|
|
5,229
|
|
|
|
172,172
|
|
Institutional money market funds
|
|
|
625,651
|
|
|
|
|
|
|
|
|
|
|
|
625,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,186,572
|
|
|
$
|
141,728
|
|
|
$
|
75,352
|
|
|
$
|
2,403,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the gross unrealized gains and losses
and fair values for those investments as of December 31,
2008 aggregated by major security type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agency obligations
|
|
$
|
698,910
|
|
|
$
|
4,814
|
|
|
$
|
(2
|
)
|
|
$
|
703,722
|
|
Commercial paper and corporate bonds
|
|
|
3,354
|
|
|
|
401
|
|
|
|
|
|
|
|
3,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
702,264
|
|
|
$
|
5,215
|
|
|
$
|
(2
|
)
|
|
$
|
707,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All of our cash and cash equivalents and short-term marketable
securities had maturities of one year or less at
December 31, 2008.
As of December 31, 2008 we had two 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 December 31, 2008 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 maintain an investment portfolio of various holdings,
types and maturities. We do not use derivative financial
instruments. We place our cash investments in instruments that
meet high 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.
F-26
Strategic
Investments
In 2008 we recorded net losses on strategic investments of
$4.3 million, which eliminated the carrying values of our
investments in equity securities of privately held companies. In
2007 and 2006 we recorded net gains on strategic investments in
amounts of $1.8 million and $0.7 million,
respectively. These gains and losses were included in other
income (expense), net, in the consolidated statements of income.
For financial reporting purposes, income (loss) before income
taxes includes the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
United States
|
|
$
|
(424,374
|
)
|
|
$
|
(146,945
|
)
|
|
$
|
(336,441
|
)
|
Foreign
|
|
|
646,689
|
|
|
|
366,401
|
|
|
|
703,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
222,315
|
|
|
$
|
219,456
|
|
|
$
|
366,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the provision (benefit) for income taxes at
the federal statutory rate compared to our provision (benefit)
for income taxes follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Statutory federal provision for income taxes
|
|
$
|
77,810
|
|
|
$
|
76,809
|
|
|
$
|
128,324
|
|
Increase (decrease) in taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
In-process research and development
|
|
|
3,815
|
|
|
|
5,415
|
|
|
|
1,820
|
|
Impairment of goodwill
|
|
|
20,779
|
|
|
|
|
|
|
|
|
|
State taxes, net of federal benefit
|
|
|
394
|
|
|
|
(1,108
|
)
|
|
|
1,086
|
|
Refundable research and development credit
|
|
|
(3,000
|
)
|
|
|
|
|
|
|
|
|
Benefit of tax credits
|
|
|
(42,087
|
)
|
|
|
(70,104
|
)
|
|
|
(52,432
|
)
|
Valuation allowance changes affecting income tax expense
|
|
|
(504,723
|
)
|
|
|
60,778
|
|
|
|
56,140
|
|
Reversal of taxes previously accrued
|
|
|
(6,498
|
)
|
|
|
(6,000
|
)
|
|
|
(29,800
|
)
|
Tax rate differential on foreign earnings
|
|
|
(145,779
|
)
|
|
|
(112,633
|
)
|
|
|
(145,639
|
)
|
Stock-based compensation expense
|
|
|
91,253
|
|
|
|
52,251
|
|
|
|
24,432
|
|
Foreign dividend distribution
|
|
|
491,240
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
24,317
|
|
|
|
706
|
|
|
|
3,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
|
$
|
7,521
|
|
|
$
|
6,114
|
|
|
$
|
(12,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-27
The income tax provision (benefit) consists of the following
components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(2,966
|
)
|
|
$
|
|
|
|
$
|
(27,100
|
)
|
State
|
|
|
606
|
|
|
|
(1,704
|
)
|
|
|
1,670
|
|
Foreign
|
|
|
11,649
|
|
|
|
7,935
|
|
|
|
6,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,289
|
|
|
|
6,231
|
|
|
|
(18,482
|
)
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
|
|
|
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
(1,768
|
)
|
|
|
(117
|
)
|
|
|
6,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,768
|
)
|
|
|
(117
|
)
|
|
|
6,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,521
|
|
|
$
|
6,114
|
|
|
$
|
(12,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of our
deferred taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Research and development tax credit carryforwards
|
|
$
|
533,800
|
|
|
$
|
467,791
|
|
Foreign tax credit carryforwards
|
|
|
46,155
|
|
|
|
|
|
Capitalized research and development costs
|
|
|
203,027
|
|
|
|
215,634
|
|
Net operating loss carryforwards
|
|
|
212,874
|
|
|
|
835,135
|
|
Reserves and accruals not currently deductible for tax purposes
|
|
|
46,684
|
|
|
|
52,432
|
|
Stock-based compensation and purchased intangible assets
|
|
|
164,582
|
|
|
|
156,723
|
|
Other
|
|
|
42,983
|
|
|
|
29,323
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
1,250,105
|
|
|
|
1,757,038
|
|
Valuation allowance
|
|
|
(1,242,610
|
)
|
|
|
(1,753,769
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets, net
|
|
|
7,495
|
|
|
|
3,269
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
7,495
|
|
|
$
|
3,269
|
|
|
|
|
|
|
|
|
|
|
Broadcom operates under tax holidays in Singapore, which are
effective through March 2014. The tax holidays are conditional
upon our meeting certain employment and investment thresholds.
The impact of the Singapore tax holidays decreased Singapore
taxes by $284.0 million, $239.3 million and
$256.0 million for 2008, 2007 and 2006, respectively. The
benefit of the tax holidays on net income per share (diluted)
was $0.54, $0.41 and $0.44 for 2008, 2007 and 2006,
respectively. In 2008 we recorded $145.8 million benefit
for tax rate differential on foreign earnings. This amount is
net of a $72.6 million tax provision relating to income
allocation adjustments to higher taxing jurisdictions.
During the three months ended December 31, 2008 we made a
strategic decision to make a special one-time repatriation of
prior earnings of certain foreign subsidiaries in the form of a
$1.5 billion dividend. Approximately $0.1 billion of
this dividend represented previously taxed income that was not
subject to federal tax upon distribution. We utilized
approximately $491.3 million of previously reserved
domestic deferred tax assets (including net operating loss and
foreign tax credit carryforwards) to offset the federal taxes on
the remaining
F-28
$1.4 billion of dividend income, resulting in no federal
income tax expense relating to the distribution. The
repatriation resulted in additional state taxes of
$0.8 million for 2008.
In accordance with SFAS 109, we record net deferred tax
assets to the extent we believe these assets will more likely
than not be realized. In making such determination, we consider
all available positive and negative evidence, including
scheduled reversals of deferred tax liabilities, projected
future taxable income, tax planning strategies and recent
financial performance. SFAS 109 further states that forming
a conclusion that a valuation allowance is not required is
difficult when there is negative evidence such as cumulative
losses in recent years. As a result of our recent cumulative
losses in the U.S. and certain foreign jurisdictions, and
the full utilization of our loss carryback opportunities, we
concluded that a full valuation allowance should be recorded in
such jurisdictions. In certain other foreign jurisdictions where
we do not have cumulative losses, we had net deferred tax assets
of $7.5 million and $3.3 million in 2008 and 2007,
respectively.
As a result of SFAS 123R, our deferred tax assets at
December 31, 2008 and 2007 do not include
$630.8 million and $627.0 million, respectively, of
excess tax benefits from employee stock option exercises that
are a component of our research and development credits,
capitalized research and development, and net operating loss
carryovers. Shareholders equity will be increased by
$630.8 million if and when such excess tax benefits are
ultimately realized.
If and when recognized, the tax benefits relating to any
reversal of the valuation allowance on deferred tax assets at
December 31, 2008 will be accounted for as follows:
approximately $1.232 billion will be recognized as a
reduction of income tax expense and $10.6 million will be
recorded as an increase in equity. In 2008 we recorded a
$2.5 million increase in foreign deferred tax assets
relating to acquisitions for which the tax benefits were
recorded directly to goodwill.
At December 31, 2008 we had federal, state, United Kingdom
and Israel net operating loss carryforwards of approximately
$1.720 billion, $1.422 billion, $44.4 million and
$9.4 million, respectively. A valuation allowance has been
provided on virtually all of these loss carryforwards. If
unutilized, the federal net operating loss carryforwards will
expire between 2017 and 2027. If unutilized, the state net
operating loss carryforwards will expire between 2009 and 2018.
The United Kingdom and Israel net operating losses have no
expiration date. At December 31, 2008 we had Canadian
scientific research and experimental development expenditures of
$14.3 million available for tax deduction in future tax
years, for which a valuation allowance of $10.7 million has been
provided. These future tax deductions can be carried forward
indefinitely.
At December 31, 2008 we had foreign tax credit
carryforwards of approximately $46.2 million, and federal,
state and Canadian research and development credit carryforwards
of approximately $352.6 million, $378.6 million and
$8.2 million, respectively. A valuation allowance has been
provided on virtually all of these credit carryforwards. These
foreign tax credit carryforwards expire between 2013 and 2018,
and these research and development credit carryforwards expire
between 2017 and 2028, if not previously utilized. Certain state
research and development credit carryforwards have no expiration
date.
Due to the change of ownership provisions of the Tax Reform Act
of 1986, utilization of a portion of our domestic net operating
loss and tax credit carryforwards may be limited in future
periods. Further, a portion of the carryforwards may expire
before being applied to reduce future income tax liabilities.
At December 31, 2008, deferred taxes have not been provided
on the excess of book basis over tax basis in the amount of
approximately $616.4 million in the shares of certain
foreign subsidiaries because their bases differences are not
expected to reverse in the foreseeable future and are considered
permanent in duration. These bases differences arose primarily
through the undistributed book earnings of these foreign
subsidiaries that we intend to reinvest indefinitely. The bases
differences could reverse through a sale of the subsidiaries,
the receipt of dividends from the subsidiaries, or various other
events. We believe that U.S. income taxes and foreign
withholding taxes would be substantially offset upon reversal of
this excess book basis due to the current existence of domestic
net operating loss and credit carryforwards.
Our income tax returns for the 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.
F-29
On January 1, 2007 we adopted the provisions of
FIN 48. As a result of applying the provisions of
FIN 48, we recognized a decrease of $3.9 million in
the liability for unrecognized tax benefits, and a
$4.7 million reduction in accumulated deficit as of
January 1, 2007. In addition we reclassified certain tax
liabilities for unrecognized tax benefits, as well as related
potential penalties and interest, from current liabilities to
long-term liabilities. Our unrecognized tax benefits at
December 31, 2008 and December 31, 2007 relate to
various foreign jurisdictions.
The following table summarizes the activity related to our
unrecognized tax benefits:
|
|
|
|
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Balance at January 1, 2008
|
|
$
|
21,600
|
|
Increases related to current year tax positions
|
|
|
2,792
|
|
Expiration of the statutes of limitation for the assessment of
taxes
|
|
|
(3,646
|
)
|
Other
|
|
|
430
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
21,176
|
|
|
|
|
|
|
The unrecognized tax benefits of $21.2 million at
December 31, 2008 included $19.1 million of tax
benefits that, if recognized, would reduce our annual effective
tax rate. We reversed penalties and interest of
$2.5 million and $0.6 million, respectively, during
2008, resulting from the expiration of statutes of limitation.
We also accrued potential penalties and interest of
$1.6 million and $0.6 million, respectively, related
to these unrecognized tax benefits during 2008, and in total, as
of December 31, 2008, we recorded a liability for potential
penalties and interest of $13.3 million and
$1.4 million, respectively. We do not expect our
unrecognized tax benefits to change significantly over the next
12 months.
We file federal, state, and foreign income tax returns in
jurisdictions with varying statutes of limitation. The 2004
through 2008 tax years generally remain subject to examination
by federal and most state tax authorities. In significant
foreign jurisdictions, the 2001 through 2008 tax years generally
remain subject to examination by their respective tax
authorities.
On October 3, 2008 the Emergency Economic Stabilization
Act of 2008 was enacted. A provision in this legislation
provided for the extension of the research and development tax
credit for qualifying expenditures paid or incurred from
January 1, 2008 through December 31, 2009. As a result
of this new legislation, we generated federal research and
development tax credits for the year ended December 31,
2008. We recognized a refundable federal tax benefit of
$3.0 million in 2008 for a portion of these credits
pursuant to a provision contained in The Housing Assistance
Act of 2008, which was signed into law July 30, 2008.
The remaining research and development tax credits generated in
2008 will be carried over to future periods. No benefit was
recorded for these carryovers since we have a full valuation
allowance on our U.S. deferred tax assets as of
December 31, 2008.
We lease facilities in Irvine (our corporate headquarters) and
Santa Clara County, California. Each of these facilities
includes administration, sales and marketing, research and
development and operations functions. In addition to our
principal design facilities in Irvine and Santa Clara
County, we lease design facilities throughout the United States.
Internationally, we lease a distribution center that includes
engineering design and administrative facilities in Singapore as
well as engineering design and administrative facilities in
several other countries.
We lease our facilities and certain engineering design tools and
information systems equipment under operating lease agreements.
Our leased facilities comprise an aggregate of 2.8 million
square feet. Our principal facilities have lease terms that
expire at various dates through 2017. In March 2007 we relocated
our corporate headquarters to a new facility in Irvine, which
currently consists of nine buildings with an aggregate of
0.75 million square feet. The lease agreement provides a
term of ten years and two months, through May 2017. We have
recently entered into an agreement to occupy a tenth building in
2010, bringing the total leased space in Irvine to
0.80 million square feet. The aggregate rent of
$181.4 million for the term of these leases is included in
the table below.
F-30
Future minimum payments under noncancelable operating leases and
purchase obligations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Obligations by Year
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Operating leases
|
|
$
|
106,441
|
|
|
$
|
88,800
|
|
|
$
|
57,265
|
|
|
$
|
40,502
|
|
|
$
|
28,496
|
|
|
$
|
101,857
|
|
|
$
|
423,361
|
|
Inventory and related purchase obligations
|
|
|
198,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
198,980
|
|
Other purchase obligations
|
|
|
61,118
|
|
|
|
5,638
|
|
|
|
3,079
|
|
|
|
331
|
|
|
|
|
|
|
|
|
|
|
|
70,166
|
|
Restructuring liabilities
|
|
|
3,342
|
|
|
|
837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,179
|
|
Unrecognized tax benefits
|
|
|
21,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
391,057
|
|
|
$
|
95,275
|
|
|
$
|
60,344
|
|
|
$
|
40,833
|
|
|
$
|
28,496
|
|
|
$
|
101,857
|
|
|
$
|
717,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facilities rent expense in 2008, 2007 and 2006 was
$68.0 million, $65.2 million and $56.7 million,
respectively.
Inventory and related purchase obligations represent purchase
commitments for silicon wafers and assembly and test services.
We depend upon third party subcontractors to manufacture our
silicon wafers and provide assembly and test services. Due to
lengthy subcontractor lead times, we must order these materials
and services from subcontractors well in advance. We expect to
receive and pay for these materials and services within the
ensuing six months. Our subcontractor relationships typically
allow for the cancellation of outstanding purchase orders, but
require payment of all expenses incurred through the date of
cancellation.
Other purchase obligations represent purchase commitments for
lab test equipment, computer hardware, information systems
infrastructure, mask and prototyping costs, and other purchase
commitments made in the ordinary course of business.
Our restructuring liabilities represent estimated future lease
and operating costs from restructured facilities, less
offsetting sublease income, if any. These costs will be paid
over the respective lease terms through 2010. These amounts are
included in our consolidated balance sheet.
For purposes of the table above, obligations for the purchase of
goods or services are defined as agreements that are enforceable
and legally binding and that specify all significant terms,
including: fixed or minimum quantities to be purchased; fixed,
minimum or variable price provisions; and the approximate timing
of the transaction. Our purchase orders are based on current
manufacturing needs and are typically fulfilled by our vendors
within a relatively short time horizon. We have additional
purchase orders (not included in the table above) that represent
authorizations to purchase rather than binding agreements. We do
not have significant agreements for the purchase of inventories
or other goods specifying minimum quantities or set prices that
exceed our expected requirements.
In addition to the unrecognized tax benefits included in the
table above, we have also recorded a liability for potential
penalties and interest of $13.3 million and
$1.4 million, respectively, at December 31, 2008.
Common
Stock
At December 31, 2008 we had 2,500,000,000 authorized shares
of Class A common stock and 400,000,000 authorized shares
of Class B common stock. The shares of Class A common
stock and Class B common stock are substantially identical,
except that holders of Class A common stock are entitled to
one vote for each share held, and holders of Class B common
stock are entitled to ten votes for each share held, on all
matters submitted to a vote of the shareholders. In addition,
holders of Class B common stock are entitled to vote
separately on the proposed issuance of additional shares of
Class B common stock in certain circumstances. The shares
of Class B common stock are not publicly traded. Each share
of Class B common stock is convertible at any time at the
option of the holder into one share of Class A common stock
and in most instances automatically converts upon sale or other
transfer. The Class A common stock and Class B common
stock are sometimes collectively referred to
F-31
herein as common stock. In 2008, 2007 and 2006,
6.1 million shares, 6.4 million shares and
2.7 million shares, respectively, of Class B common
stock were automatically converted into a like number of shares
of Class A common stock upon sale or other transfer
pursuant to the terms of our Articles of Incorporation. In June
2006 we clarified that we are only authorized to issue
6,432,161 shares of convertible preferred stock and
eliminated all statements referring to the rights, preferences,
privileges and restrictions of Series A, Series B,
Series C, Series D and Series E preferred stock,
all outstanding shares of which automatically converted into
shares of Class B common stock upon consummation of our
initial public offering.
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. Under such
programs, we repurchased a total of 65.2 million,
35.8 million and 7.3 million shares of Class A
common stock at weighted average prices of $19.44, $32.31 and
$37.53 per share, in the years ended December 31, 2008,
2007 and 2006, respectively. At December 31, 2007,
$16.1 million was not settled in cash and was included in
accrued liabilities. This amount was subsequently paid in 2008.
In July 2008 the Board of Directors authorized our current
program to repurchase shares of Broadcoms Class A
common stock having an aggregate value of up to
$1.0 billion. Repurchases under the program may be made
from time to time at any time during the period that commenced
July 31, 2008 and continuing through and including
July 31, 2011. As of December 31, 2008,
$575.8 million was still authorized for repurchase under
this program.
Repurchases under our share repurchase programs were and will be
made in open market or privately negotiated transactions in
compliance with
Rule 10b-18
promulgated under the Securities Exchange Act of 1934, as
amended, or the Exchange Act.
Stock
Split
On January 25, 2006 our Board of Directors approved a
three-for-two split of our common stock, which was effected in
the form of a stock dividend. Holders of record of our
Class A and Class B common stock as of the close of
business February 6, 2006, the record date, received one
additional share of Class A or Class B common stock,
as applicable, for every two shares of such class held on the
record date. The additional Class A and Class B shares
were distributed on or about February 21, 2006. Cash was
paid in lieu of fractional shares. Share and per share amounts
in the accompanying consolidated financial statements have been
restated to reflect this stock split.
Registration
Statements
We have filed a shelf registration statement on SEC
Form S-4.
The registration statement enables us to issue up to
30 million shares of our Class A common stock in one
or more acquisition transactions. These transactions may include
the acquisition of assets, businesses or securities by any form
of business combination. To date no securities have been issued
pursuant to this registration statement.
|
|
8.
|
Employee
Benefit Plans
|
Employee
Stock Purchase Plan
We have an employee stock purchase plan, or ESPP, for all
eligible employees. Under the ESPP, employees may purchase
shares of our Class A common stock at six-month intervals
at 85% of fair market value (calculated in the manner provided
in the plan). Employees purchase such stock using payroll
deductions, which may not exceed 15% of their total cash
compensation. Shares of Class A common stock are offered
under the ESPP through a series of successive offering periods,
generally with a maximum duration of 24 months, subject to
an additional
3-month
extension under certain circumstances. The plan imposes certain
limitations upon an employees right to acquire
Class A common stock, including the following: (i) no
employee may purchase more than 9,000 shares of
Class A common stock on any one purchase date, (ii) no
employee may be granted rights to purchase more than $25,000
worth of Class A common stock for each calendar year that
such rights are at any time outstanding, and
F-32
(iii) the maximum number of shares of Class A common
stock purchasable in total by all participants in the ESPP on
any purchase date is limited to 4.0 million shares. The
number of shares of Class A common stock reserved for
issuance under the plan automatically increases in January each
year. The increase is equal to a percentage of the total number
of shares of common stock outstanding on the last trading day of
the immediately preceding year, subject to an annual share limit.
In March 2007 the Board of Directors approved an amendment and
restatement of the ESPP, as previously amended and restated, to
increase the limitation on the amount by which the share reserve
of the plan is to automatically increase each year to not more
than 10 million shares of Class A common stock. This
amendment and restatement was approved by the shareholders at
the Annual Meeting of Shareholders held in May 2007.
In March 2008 the Board of Directors approved an amendment and
restatement of the ESPP, as previously amended and restated, to
(i) extend the term of the plan through April 30,
2018, (ii) increase the number of shares of Class A
common stock that will be automatically added to the share
reserve on the first trading day of January in each calendar
year from 1.00% to 1.25% of the total number of shares of common
stock outstanding on the last trading day of the immediately
preceding calendar year, and (iii) effect various technical
revisions. This amendment and restatement was approved by the
shareholders at the Annual Meeting of Shareholders held in June
2008.
In 2008, 2007 and 2006, 4.4 million, 2.0 million and
1.6 million shares, respectively, were issued under this
plan at average per share prices of $17.84, $27.07 and $16.40,
respectively. At December 31, 2008, 10.8 million
shares were available for future issuance under this plan.
Stock
Incentive Plans
We have 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.
Our 1998 Stock Incentive Plan, as amended and restated, or 1998
Plan, is the successor equity incentive program to our 1994
Stock Option Plan, or 1994 Plan and our 1998 Special Stock
Option Plan, together, the Predecessor Plans. The number of
shares of Class A common stock reserved for issuance under
the 1998 Plan automatically increases in January each year. The
increase is equal to 4.5% of the total number of shares of
common stock outstanding on the last trading day of the
immediately preceding year, subject to an annual share limit.
In March 2007, the Board of Directors approved an amendment and
restatement of the 1998 Plan to increase the limitation on the
amount by which the share reserve of the 1998 Plan is to
automatically increase each year to not more than
45 million shares of Class A common stock. This
amendment and restatement was approved by the shareholders at
the Annual Meeting of Shareholders held in May 2007.
In February 2008 the Board of Directors approved an amendment
and restatement of the 1998 Plan, as previously amended and
restated, to (i) revise the Director Automatic Grant
Program in effect for non-employee directors under the plan,
(ii) extend the term of the plan through March 12,
2018, (iii) revise the adjustments that may be made to
certain performance criteria that may serve as the vesting
conditions for performance-based awards made under the plan, and
(iv) effect various technical revisions to facilitate plan
administration. This amendment and restatement was approved by
the shareholders at the Annual Meeting of Shareholders held in
June 2008.
The Board of Directors or the Plan Administrator determines
eligibility, vesting schedules and exercise prices for options
granted under the plans. Options granted generally have a term
of 10 years, and in the case of new hires generally vest
and become exercisable at the rate of 25% after one year and
ratably on a monthly basis over a period of 36 months
thereafter; subsequent option grants to existing employees
generally vest and become exercisable ratably on a monthly basis
over a period of 48 months measured from the date of grant.
However, certain options that have been granted under our 1998
Plan or that were assumed by us in connection with certain of
our acquisitions provide that the vesting of the options granted
thereunder will accelerate in whole or in part upon the
occurrence of certain specified events.
In addition, we grant restricted stock units as part of our
regular annual employee equity compensation review program as
well as to new hires and non-employee members of the Board of
Directors. Restricted stock units are
F-33
share awards that entitle the holder to receive freely tradable
shares of our Class A common stock upon vesting. Generally,
restricted stock units vest ratably on a quarterly basis over 16
quarters from the date of grant. On a limited basis, we grant
certain restricted stock units that vest in their entirety after
three years.
In connection with our acquisitions, we have assumed stock
options granted under stock option plans or agreements
established by each acquired company. As of December 31,
2008, 1.4 million and 0.1 million shares of
Class A and Class B common stock, respectively, were
reserved for issuance upon exercise of outstanding options
assumed under these stock option plans.
Combined
Incentive Plan Activity
Activity under all stock option incentive plans in 2008, 2007
and 2006 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, 2005
|
|
|
142,108
|
|
|
$
|
.01 - $81.50
|
|
|
$
|
19.00
|
|
|
$
|
18.55
|
|
Options granted under the 1998 Plan
|
|
|
17,939
|
|
|
|
23.11 - 48.63
|
|
|
|
40.2
|
|
|
|
12.33
|
|
Options assumed in acquisition
|
|
|
107
|
|
|
|
5.26 - 40.49
|
|
|
|
7.7
|
|
|
|
41.31
|
|
Options cancelled
|
|
|
(6,294
|
)
|
|
|
.01 - 48.63
|
|
|
|
20.9
|
|
|
|
15.02
|
|
Options exercised
|
|
|
(27,975
|
)
|
|
|
.01 - 38.17
|
|
|
|
17.1
|
|
|
|
19.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
125,885
|
|
|
|
.01 - 81.50
|
|
|
|
22.4
|
|
|
|
17.65
|
|
Options granted under the 1998 Plan
|
|
|
21,882
|
|
|
|
27.96 - 37.30
|
|
|
|
32.8
|
|
|
|
10.72
|
|
Options cancelled
|
|
|
(3,607
|
)
|
|
|
1.47 - 48.63
|
|
|
|
30.2
|
|
|
|
10.91
|
|
Options exercised
|
|
|
(18,018
|
)
|
|
|
.01 - 41.15
|
|
|
|
16.9
|
|
|
|
14.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
126,142
|
|
|
|
.01 - 81.50
|
|
|
|
25.0
|
|
|
|
15.81
|
|
Options granted under the 1998 Plan
|
|
|
7,229
|
|
|
|
14.90 - 28.75
|
|
|
|
25.8
|
|
|
|
10.19
|
|
Options cancelled
|
|
|
(4,423
|
)
|
|
|
.01 - 78.92
|
|
|
|
30.5
|
|
|
|
11.43
|
|
Options exercised
|
|
|
(6,678
|
)
|
|
|
.01 - 28.30
|
|
|
|
13.8
|
|
|
|
15.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
122,270
|
|
|
$
|
.01 - $81.50
|
|
|
$
|
25.42
|
|
|
$
|
15.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008 outstanding options to purchase
97.6 million shares were exercisable with an average per
share exercise price of $23.74. The weighted average remaining
contractual lives of options outstanding and of options
exercisable as of December 31, 2008 were 5.9 years and
5.4 years, respectively.
The total pretax intrinsic value of options exercised in 2008
was $61.4 million. This intrinsic value represents the
difference between the fair market value of our Class A
common stock on the date of exercise and the exercise price of
each option. Based on the closing price of our Class A
common stock of $16.97 on December 31, 2008, the total
pretax intrinsic value of all outstanding options was
$88.3 million. The total pretax intrinsic value of
exercisable options at December 31, 2008 was
$88.0 million.
F-34
Restricted stock unit activity in 2008, 2007 and 2006 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, 2005
|
|
|
7,090
|
|
|
$
|
23.48
|
|
Restricted stock units granted under the 1998 Plan
|
|
|
8,921
|
|
|
|
40.22
|
|
Restricted stock units cancelled
|
|
|
(681
|
)
|
|
|
31.83
|
|
Restricted stock units vested
|
|
|
(2,630
|
)
|
|
|
30.24
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
12,700
|
|
|
|
33.39
|
|
Restricted stock units granted under the 1998 Plan
|
|
|
12,232
|
|
|
|
32.84
|
|
Restricted stock units cancelled
|
|
|
(1,172
|
)
|
|
|
33.05
|
|
Restricted stock units vested
|
|
|
(6,707
|
)
|
|
|
32.19
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
17,053
|
|
|
|
33.50
|
|
Restricted stock units granted under the 1998 Plan
|
|
|
20,537
|
|
|
|
24.39
|
|
Restricted stock units cancelled
|
|
|
(1,446
|
)
|
|
|
30.56
|
|
Restricted stock units vested
|
|
|
(8,522
|
)
|
|
|
30.93
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
27,622
|
|
|
$
|
27.61
|
|
|
|
|
|
|
|
|
|
|
The total pretax intrinsic value of restricted stock units that
vested in 2008 was $144.6 million. Based on the closing
price of our Class A common stock of $16.97 on
December 31, 2008, the total pretax intrinsic value of all
outstanding restricted stock units was $468.7 million.
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 consolidated statements of income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cost of revenue
|
|
$
|
24,997
|
|
|
$
|
26,470
|
|
|
$
|
24,589
|
|
Research and development
|
|
|
358,018
|
|
|
|
353,649
|
|
|
|
307,096
|
|
Selling, general and administrative
|
|
|
126,359
|
|
|
|
139,533
|
|
|
|
136,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
509,374
|
|
|
$
|
519,652
|
|
|
$
|
468,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of unearned stock-based compensation currently
estimated to be expensed from 2009 through 2012 related to
unvested share-based payment awards at December 31, 2008 is
$1.017 billion. Of this amount, $463.2 million,
$318.0 million, $183.6 million and $52.4 million
are currently estimated to be recorded in 2009, 2010, 2011 and
2012, respectively. 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.
F-35
The per share fair values of stock options granted 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 Stock Options
|
|
|
Employee Stock Purchase Rights
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Expected life (in years)
|
|
|
4.23
|
|
|
|
3.20
|
|
|
|
3.17
|
|
|
|
1.78
|
|
|
|
1.33
|
|
|
|
0.51
|
|
Volatility
|
|
|
0.45
|
|
|
|
0.39
|
|
|
|
0.36
|
|
|
|
0.53
|
|
|
|
0.40
|
|
|
|
0.35
|
|
Risk-free interest rate
|
|
|
2.88
|
%
|
|
|
4.54
|
%
|
|
|
4.93
|
%
|
|
|
1.96
|
%
|
|
|
4.98
|
%
|
|
|
4.78
|
%
|
Dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Weighted average fair value
|
|
$
|
10.19
|
|
|
$
|
10.72
|
|
|
$
|
12.33
|
|
|
$
|
8.91
|
|
|
$
|
10.95
|
|
|
$
|
10.81
|
|
The weighted average fair values per share of the restricted
stock units awarded in 2008, 2007 and 2006 were $24.39, $32.84
and $40.22, respectively, calculated based on the fair market
value of our Class A common stock on the respective grant
dates.
Charges
Related to the Voluntary Review of Our Equity Award
Practices
In connection with our equity award review, the results of which
were reported in January 2007, we determined the accounting
measurement dates for most of our options granted between June
1998 and May 2003 covering options to purchase
232.9 million shares of our Class A or Class B
common stock, differed from the measurement dates previously
used for such awards. As a result, there are potential adverse
tax consequences that may apply to holders of affected options.
By amending or replacing those options, the potential adverse
tax consequences could be eliminated.
In March 2007 we offered to amend or replace options affected by
the change in measurement dates by adjusting the exercise price
of each such option to the lower of (i) the fair market
value per share of our Class A common stock on the revised
measurement date applied to that option as a result of our
equity award review or (ii) the closing selling price per
share of our Class A common stock on the date on which the
option would be amended. If the adjusted exercise price for an
affected option was lower than the original exercise
price, that option was not amended but instead was replaced with
a new option that had the same exercise price, vesting schedule
and expiration date as the affected option, but a new grant
date. The offer expired April 20, 2007. Participants whose
options were amended pursuant to the offer were paid a special
cash payment with respect to those options. The amount paid was
determined by multiplying (i) the amount of the increase in
exercise price by (ii) the number of shares for which
options were amended. We made payments of $29.6 million in
January 2008 to reimburse the affected optionholders for the
increases in their exercise prices. A liability was recorded for
these payments and included in wages and related benefits as of
December 31, 2007.
In accordance with SFAS 123R, we recorded total estimated
charges of $3.4 million in 2007 and a reduction of
additional paid-in capital in the amount of $26.2 million
in connection with the offer. Charges of $0.1 million,
$1.5 million and $1.8 million are included in cost of
revenue, research and development expense and selling, general
and administrative expense, respectively.
We also recorded total charges of $61.5 million in 2006 in
connection with payments we made to or on behalf of certain
current and former employees related to consequences of the
voluntary review of our equity award practices, as well as
non-cash stock-based compensation expense we incurred related to
the extension of the post-service stock option exercise period
for certain former employees. The payments were (i) to
remunerate participants in our employee stock purchase plan who
were unable to purchase shares thereunder during the period in
which we were not current in our SEC reporting obligations,
(ii) to remediate adverse tax consequences, if any, to
individuals that resulted from the review, and (iii) to
compensate individuals for the value of stock options that
expired or would have expired during the period in which we were
not current in our SEC reporting obligations. A total of
$2.5 million, $30.1 million and $28.9 million was
included in cost of revenue, research and development
expense and selling, general and administrative expense,
respectively, for such charges in 2006, of which
$6.5 million and $5.1 million included in research and
development expense and selling, general and administrative
expense, respectively, is stock-based compensation expense.
F-36
Shares
Reserved For Future Issuance
We had the following shares of common stock reserved for future
issuance upon the exercise or issuance of equity instruments as
of December 31, 2008:
|
|
|
|
|
|
|
Number of Shares
|
|
|
|
(In thousands)
|
|
|
Stock options outstanding
|
|
|
122,270
|
|
Authorized for future grants under stock incentive plans
|
|
|
62,086
|
|
Authorized for future issuance under stock purchase plan
|
|
|
10,833
|
|
Restricted stock units outstanding
|
|
|
27,622
|
|
|
|
|
|
|
|
|
|
222,811
|
|
|
|
|
|
|
401(k)
Savings and Investment Plan
We sponsor a defined contribution 401(k) savings and investment
plan, established in 1996, covering substantially all of our
U.S. employees, subject to certain eligibility requirements. At
our discretion, we may make contributions to this plan. In 2006
we adopted a limited matching contribution policy. Under this
policy, we made $6.1 million, $6.1 million and
$2.5 million in contributions to participants in this plan
in 2008, 2007 and 2006, respectively.
|
|
9.
|
Goodwill
and Other Long-Lived Assets
|
We performed annual impairment assessments of the carrying value
of goodwill as required under SFAS 142 in October 2008,
2007 and 2006. In accordance with SFAS 142, we compared the
carrying value of each of our reporting units that existed at
those times to its estimated fair value. At October 1,
2008, 2007 and 2006, we had four reporting units as determined
and identified in accordance with SFAS 142.
We estimated the fair values of our reporting units primarily
using the income approach valuation methodology that includes
the discounted cash flow method, taking into consideration the
market approach and certain market multiples as a validation of
the values derived using the discounted cash flow methodology.
The discounted cash flows for each reporting unit were based on
discrete financial forecasts developed by management for
planning purposes and consistent with those distributed to our
Board of Directors. Cash flows beyond the discrete forecasts
were estimated using a terminal value calculation, which
incorporated historical and forecasted financial trends for each
identified reporting unit and considered long-term earnings
growth rates for publicly traded peer companies. Future cash
flows were discounted to present value by incorporating the
present value techniques discussed in FASB Concepts Statement 7,
Using Cash Flow Information and Present Value in Accounting
Measurements, or Concepts Statement 7. Specifically, the
income approach valuations included reporting unit cash flow
discount rates ranging from 15% to 17%, and terminal value
growth rates ranging from 4% to 5%. Publicly available
information regarding the market capitalization of Broadcom was
also considered in assessing the reasonableness of the
cumulative fair values of our reporting units estimated using
the discounted cash flow methodology.
Upon completion of the October 2007 and 2006 annual impairment
assessments, we determined no impairment was indicated as the
estimated fair value of each of the four reporting units
exceeded its respective carrying value. Upon completion of the
October 2008 assessment, we determined that the carrying value
of our mobile platforms business group exceeded its estimated
fair value. Because indicators of impairment existed for this
business group, we performed the second step of the test
required under SFAS 142 to determine the fair value of the
goodwill of the mobile platforms business group.
In accordance with SFAS 142, the implied fair value of
goodwill was determined in the same manner utilized to estimate
the amount of goodwill recognized in a business combination. As
part of the second step of the impairment test performed in
2008, we calculated the fair value of certain assets, including
developed technology, IPR&D assets and customer
relationships. To determine the implied value of goodwill, fair
values were allocated to the assets and liabilities of the
mobile platforms business as of October 1, 2008. The
implied fair value of goodwill
F-37
was measured as the excess of the fair value of the mobile
platforms business group over the amounts assigned to its assets
and liabilities. The impairment loss for the mobile platforms
business group was measured by the amount the carrying value of
goodwill exceeded the implied fair value of the goodwill. Based
on this assessment, we recorded a charge of $149.7 million
in the three months ended December 31, 2008, which
represented all of the related goodwill of our mobile platforms
business group.
We also reviewed other long-lived tangible assets for impairment
in accordance with SFAS 144. An impairment in the carrying
value of an asset group is recognized whenever anticipated
future undiscounted cash flows from an asset group are estimated
to be less than its carrying value. The amount of impairment
recognized is the difference between the carrying value of the
assets and their fair values. Fair value estimates are based on
assumptions concerning the amount and timing of estimated future
cash flows and assumed discount rates, reflecting varying
degrees of perceived risk. We utilized appraisals to assess the
reasonableness of the fair values estimated using the discounted
cash flow methodology. Based on the results of this assessment,
we recorded an impairment charge of $19.8 million related
to the property and equipment of our mobile platforms business
group in the three months ended December 31, 2008.
The primary factors contributing to these impairment charges
were the recent significant economic downturn, which caused a
decline in the cellular market, as well as tempered expectations
of the future growth rate for that market, and an increase in
our implied discount rate due to higher risk premiums, as well
as the decline in our market capitalization. We adjusted our
assumptions used to calculate the estimated fair value of the
mobile platforms business group to account for these
macroeconomic changes.
In April 2008 we entered into a settlement with the SEC relating
to the previously-disclosed SEC investigation of Broadcoms
historical stock option granting practices. Without admitting or
denying the SECs allegations, we agreed to pay a civil
penalty of $12.0 million, which we recorded as a settlement
cost in 2008. The settlement was approved by the United States
District Court for the Central District of California in late
April 2008. In addition, we settled a patent infringement claim
for $3.8 million in 2008. For further discussion of
litigation matters, see Note 11.
Intellectual Property Proceedings. In May 2005
we filed a complaint with the U.S. International Trade
Commission, or ITC, asserting that Qualcomm Incorporated, or
Qualcomm, engaged in unfair trade practices by importing
integrated circuits and other products that infringe, both
directly and indirectly, five of our patents relating generally
to wired and wireless communications. The complaint sought an
exclusion order to bar importation of those Qualcomm products
into the United States and a cease and desist order to bar
further sales of infringing Qualcomm products that have already
been imported. In June 2005 the ITC instituted an investigation
of Qualcomm based upon the allegations made in Broadcoms
complaint. The investigation was later limited to asserted
infringement of three Broadcom patents. Qualcomm has requested
that the U.S. Patent and Trademark Office, or USPTO,
reexamine two of the patents. In December 2006 the full
Commission upheld the ITC administrative law judges
October 2006 initial determination finding all three patents
valid and one infringed. In June 2007 the Commission issued an
exclusion order banning the importation into the United States
of infringing Qualcomm chips and certain cellular phone models
incorporating those chips. The Commission also issued a cease
and desist order prohibiting Qualcomm from engaging in certain
activities related to the infringing chips. In September 2007
the United States Court of Appeals for the Federal Circuit
stayed the orders as to certain third parties pending appeal,
but not as to Qualcomm. In September 2008 the appeals court
upheld the ITCs determination on one of the patents that
were found not infringed, but remanded a second patent that was
found not infringed back to the ITC for further proceedings. In
October 2008 the appeals court upheld the determination that the
third patent was valid, but remanded it back to the ITC for
further proceedings on the issue of whether Qualcomm induced
infringement. The appeals court also ruled that the ITC lacked
authority to issue a Limited Exclusion Order against downstream
products of parties not named in the action.
F-38
In November 2007 we filed a complaint with the ITC to enforce
the cease and desist order entered by the Commission. The
complaint seeks monetary penalties and other remedies for
Qualcomms continued infringement. In December 2007 the ITC
instituted an investigation based upon the allegations made in
our complaint. A hearing in the matter occurred in April 2008.
An initial determination on this matter is expected in August
2009.
In May 2005 we filed two complaints against Qualcomm in the
United States District Court for the Central District of
California. The first complaint asserts that Qualcomm has
infringed, both directly and indirectly, the same five patents
asserted by Broadcom in the ITC complaint. The District Court
complaint seeks preliminary and permanent injunctions against
Qualcomm and the recovery of monetary damages, including treble
damages for willful infringement, and attorneys fees. In
July 2005 Qualcomm answered the complaint and asserted
counterclaims seeking a declaratory judgment that our patents
are invalid and not infringed. In December 2005 the court
transferred the causes of action relating to two of the patents
to the United States District Court for the Southern District of
California, where they were later dismissed upon joint motion of
the parties. Pursuant to statute, the court has stayed the
remainder of this action pending the outcome of the ITC action.
A second District Court complaint asserts that Qualcomm has
infringed, both directly and indirectly, five other Broadcom
patents relating generally to wired and wireless communications
and multimedia processing technologies. The complaint sought
preliminary and permanent injunctions against Qualcomm and the
recovery of monetary damages, including treble damages for
willful infringement, and attorneys fees. In July 2005
Qualcomm answered the second complaint and asserted
counterclaims seeking a declaratory judgment that our patents
are invalid and not infringed. In November 2006 we withdrew one
of the patents from the case. In December 2006 the court granted
a motion to stay proceedings on a second patent pending the
outcome of a USPTO reexamination of that patent initiated at
Qualcomms request. In May 2007 a jury returned a verdict
that Qualcomm infringed the three remaining patents and awarded
Broadcom $19.6 million in compensatory damages. The
foregoing amount has not been recognized in our consolidated
statements of income. Qualcomm has requested that the USPTO
reexamine two of the infringed patents. In December 2007 the
court issued a permanent injunction enjoining Qualcomm from
future infringement of the three patents at issue. The permanent
injunction includes a sunset period through January 31,
2009 concerning sales by Qualcomm of certain infringing products
to customers existing as of May 29, 2007, provided that
Qualcomm pays Broadcom an ongoing royalty for all such sales
during the sunset period. The court amended the injunction in
February 2008 and again in March 2008. The court entered final
judgment against Qualcomm in March 2008, setting compensatory
damages at $22.8 million, plus pre-judgment and
post-judgment interest. In April, July, and October 2008
Qualcomm paid Broadcom royalties pursuant to the terms of the
amended injunction, which payments have been recorded as a
liability in our consolidated financial statements. See
Note 2. In August and November 2008 the court issued orders
holding Qualcomm in contempt of the permanent injunction. In
September 2008 the United States Court of Appeals for the
Federal Circuit affirmed the judgment against Qualcomm with
respect to two of the patents, but reversed the judgment as to
the third. Qualcomm has petitioned the appeals court to rehear
the case. Also in September, the court lifted the stay entered
in December 2006 on a fourth patent. Trial on that patent is set
for September 2009.
In October 2005 Qualcomm filed a third complaint against us in
the United States District Court for the Southern District of
California alleging that certain Broadcom products infringe,
both directly and indirectly, two Qualcomm patents relating
generally to the processing of digital video signals. The
complaint sought preliminary and permanent injunctions against
us as well as the recovery of monetary damages and
attorneys fees. We filed an answer in December 2005
denying the allegations in Qualcomms complaint and
asserting counterclaims seeking a declaratory judgment that the
two Qualcomm patents were invalid and not infringed. In January
2007 a jury returned a verdict that we did not infringe either
patent, and rendered advisory verdicts that Qualcomm committed
inequitable conduct before the USPTO and waived its patent
rights in connection with its conduct before an industry
standards body. In March 2007 the court adopted the jurys
finding that Qualcomm waived its patent rights. In August 2007
the court held that Qualcomms asserted patents were
unenforceable due to Qualcomms conduct, declared the case
exceptional, and awarded us our attorneys fees and costs.
In January 2008 the court
granted-in-part
our motion for sanctions against Qualcomm for litigation
misconduct, awarding us our attorneys fees and costs. In
January 2008 Qualcomm paid Broadcom $8.6 million pursuant
to that award, which amount has been reflected as a reduction of
legal expense included in selling, general and administrative
expense in 2008.
F-39
In December 2008 an appeals court upheld the District
Courts finding that the asserted patents were
unenforceable against products that practice the industry
standard at issue. Qualcomm has petitioned the appeals court to
rehear the case.
In October 2008 we filed a complaint against Qualcomm in the
United States District Court for the Southern District of
California seeking a declaratory judgment that Qualcomms
sales and licensing practices amount to patent misuse, that
Qualcomm patents are exhausted by Qualcomms practices, and
that Qualcomm patents and patent licenses are unenforceable. In
November 2008 Qualcomm filed a motion to dismiss the case, which
is set to be argued in February 2009. No trial date has been set.
In December 2006 SiRF Technology, Inc., or SiRF, filed a
complaint in the United States District Court for the Central
District of California against Global Locate, Inc., a
privately-held company that became a wholly-owned subsidiary of
Broadcom in July 2007, alleging that certain Global Locate
products infringe four SiRF patents relating generally to GPS
technology. In January 2007 Global Locate filed an answer
denying the allegations in SiRFs complaint and asserting
counterclaims. The counterclaims seek a declaratory judgment
that the four SiRF patents are invalid and not infringed, assert
that SiRF has infringed four Global Locate patents relating
generally to GPS technology, and assert unfair competition and
antitrust violations related to the filing of sham litigation.
In May 2007 the court granted Global Locates motion to
stay the case until the ITC actions between Global Locate and
SiRF, discussed below, become final.
In February 2007 SiRF filed a complaint in the ITC alleging that
Global Locate engaged in unfair trade practices by importing
integrated circuits and other products that infringe, both
directly and indirectly, four SiRF patents relating generally to
GPS technology. The complaint seeks an exclusion order to bar
importation of those Global Locate products into the United
States and a cease and desist order to bar further sales of
infringing Global Locate products that have already been
imported. In March 2007 the ITC instituted an investigation of
Global Locate based upon the allegations made in the SiRF
complaint. SiRF withdrew two patents from the investigation, and
an ITC administrative law judge conducted a hearing on
SiRFs remaining two patents in suit in March 2008. In June
2008 the ITC administrative law judge issued an initial
determination finding SiRFs two patents not infringed and
one patent invalid. In August 2008 the ITC denied SiRFs
petition to review the administrative law judges initial
determination finding no violation, thereby adopting the
administrative law judges initial determination as the
final determination of the ITC and terminating the
investigation. In October 2008 SiRF filed a notice of appeal
with the United States Court of Appeal for the Federal Circuit.
In April 2007 Global Locate filed a complaint in the ITC against
SiRF and four of its customers,
e-TEN
Corporation, Pharos Science & Applications, Inc.,
MiTAC International Corporation and Mio Technology Limited,
referred to collectively as the SiRF Defendants, asserting that
the SiRF Defendants engaged in unfair trade practices by
importing GPS devices, including integrated circuits and
embedded software, incorporated in products such as personal
navigation devices and GPS-enabled cellular telephones that
infringe, both directly and indirectly, six Global Locate
patents relating generally to GPS technology. The complaint
seeks an exclusion order to bar importation of the SiRF
Defendants products into the United States and a cease and
desist order to bar further sales of infringing products that
have already been imported. In May 2007 the ITC instituted an
investigation of the SiRF Defendants based upon the allegations
made in the Global Locate complaint. A hearing was held in April
and May 2008. In August 2008 the administrative law judge issued
an initial determination finding that SiRF and the other SiRF
Defendants infringed each of Global Locates six patents,
and that each of the six patents was not invalid and issued a
recommended determination on remedy and bonding. In October 2008
the ITC determined, in part, not to review the administrative
law judges initial determination finding violation of
three of Global Locates patents. The ITC also decided to
review the administrative law judges initial determination
that three other Global Locate patents were infringed by SiRF.
In January 2009 the Commission issued a Final Determination and
upheld the ITC administrative law judges August 2008
initial determination finding that SiRF and the other SiRF
respondants infringe six Global Locate patents and that each of
the six patents was not invalid. The Commission also issued an
exclusion order banning the importation into the United States
of infringing SiRF chips and the SiRF Defendants products
containing infringing SiRF chips and a cease and desist order
prohibiting SiRF and the other SiRF Defendants from engaging
F-40
in certain activities related to the infringing chips. The ITC
orders are subject to a
60-day
Presidential review period during which the President will
decide whether to let the ITC orders stand or be overturned,
In May 2008 Broadcom filed a complaint in the United States
District Court for the Central District of California against
SiRF, alleging that certain SiRF GPS and multimedia products
infringe four Broadcom patents relating generally to graphics
and communications technology. The District Court complaint
seeks preliminary and permanent injunctions against SiRF and the
recovery of monetary damages, including treble damages for
willful infringement, and attorneys fees. In June 2008
SiRF answered the complaint and asserted counterclaims seeking a
declaratory judgment that Broadcoms patents are invalid
and not infringed. In September 2008 the court denied
SiRFs motion to stay the case. Discovery is ongoing. Trial
has been set for November 2010.
In October 2007
Wi-LAN Inc.
filed complaints against us and multiple other defendants in the
United States District Court for the Eastern District of Texas
alleging that certain Broadcom products infringe three
Wi-LAN
patents relating generally to wireless LAN and DSL technology.
The complaint seeks a permanent injunction against us as well as
the recovery of monetary damages and attorneys fees. We
filed an answer in January 2008 denying the allegations in
Wi-LANs
complaint and asserting counterclaims seeking a declaratory
judgment that the three
Wi-LAN
patents are invalid, unenforceable and not infringed. Discovery
is ongoing. Trial has been set for January 2011.
In March 2008 Netgear, Inc. filed a third party complaint
against us and multiple other defendants in the United States
District Court for the Western District of Wisconsin alleging
that, to the extent Broadcom was a supplier of components for
products accused of infringement in a related patent
infringement case by LG Electronics Inc., Fujitsu Limited and
U.S. Philips Corporation, Broadcom is obligated to defend
and indemnify Netgear. In June 2008 the judge granted the
parties joint motion to dismiss all claims asserted by
Netgear against Broadcom in the case without prejudice.
Antitrust and Unfair Competition
Proceedings. In July 2005 we filed a complaint
against Qualcomm in the United States District Court for the
District of New Jersey asserting that Qualcomms licensing
and other practices related to cellular technology and products
violate federal and state antitrust laws. The complaint also
asserted causes of action based on breach of contract,
promissory estoppel, fraud, and tortious interference with
prospective economic advantage. In September 2005 we filed an
amended complaint in the action also challenging Qualcomms
proposed acquisition of Flarion Technologies, Inc. under the
antitrust laws and asserting violations of various state unfair
competition and unfair business practices laws. In August 2006
the District Court granted Qualcomms motion to dismiss the
complaint. In September 2007 the United States Court of Appeals
for the Third Circuit reversed the dismissal in part and
returned the case to the District Court for further proceedings.
In November 2007 we filed an amended complaint in the case
adding additional causes of action based primarily upon
allegations originally made in the California state unfair
competition case described below. In February 2008 Qualcomm
filed counterclaims seeking a declaratory judgment that it had
complied with its obligations to industry standards bodies.
Qualcomm also filed an affirmative defense asserting that our
claims were barred by unclean hands. In August 2008 the court
granted our motion to transfer the case to the United States
District Court for the Southern District of California.
Discovery is in progress, but no trial date has been set.
In October 2005 Broadcom and five other leading mobile wireless
technology companies filed complaints with the European
Commission requesting that the Commission investigate
Qualcomms anticompetitive conduct related to the licensing
of its patents and the sale of its chipsets for mobile wireless
devices and systems. In October 2007 the Commission announced
that it had instituted a formal investigation of Qualcomm.
In June 2006 Broadcom and another leading mobile wireless
technology company filed complaints with the Korean Fair Trade
Commission requesting that the Commission investigate
Qualcomms anticompetitive conduct related to the licensing
of its patents and the sale of its chipsets for mobile wireless
devices and systems. The Commission has instituted a formal
investigation of Qualcomm.
In April 2007 we filed a complaint in the Superior Court for
Orange County, California alleging that Qualcomms conduct
before various industry standards organizations constitutes
unfair competition, fraud and breach of contract. The complaint
seeks an injunction against Qualcomm as well as the recovery of
monetary
F-41
damages. In October 2007 the court stayed the case pending final
resolution of our case against Qualcomm in the United States
District Court for the District of New Jersey.
Securities Litigation and Related
Matters. 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 members of our Board of Directors, certain
current or former officers, and Henry T. Nicholas III, our
co-founder, alleging, among other things, that the defendants
improperly dated certain Broadcom employee stock option grants.
Four of those cases, Murphy v. McGregor, et al.
(Case
No. CV06-3252
R (CWx)), Shei v. McGregor, et al. (Case
No. SACV06-663
R (CWx)), Ronconi v. Dull, et al. (Case
No. SACV
06-771 R
(CWx)) and Jin v. Broadcom Corporation, et al. (Case
No. 06CV00573) have been consolidated in the
United States District Court for the Central District of
California. The plaintiffs filed a consolidated amended
complaint in November 2006. In addition, two putative
shareholder derivative actions, Pirelli Armstrong Tire Corp.
Retiree Med. Benefits Trust v. Samueli, et al. (Case
No. 06CC0124) and Servais v. Samueli, et al.
(Case No. 06CC0142), were filed in the California
Superior Court for the County of Orange. The Superior Court
consolidated the state court derivative actions in August 2006,
and the plaintiffs filed a consolidated amended complaint in
September 2006. The plaintiffs in the Options Derivative Actions
contend, among other things, that the defendants conduct
violated United States and California securities laws, breached
defendants fiduciary duties, wasted corporate assets,
unjustly enriched the defendants, and caused errors in our
consolidated financial statements. The plaintiffs seek, among
other things, unspecified damages and disgorgement of profits
from the alleged conduct, to be paid to Broadcom.
In January 2007 the California Superior Court granted
defendants motion to stay the state derivative action
pending resolution of the prior-filed federal derivative action.
In March 2007 the court in the federal derivative action denied
our motion to dismiss, which motion was based on the ground that
the shareholder plaintiffs lack standing to assert claims on
behalf of Broadcom. Motions to dismiss filed by the individual
defendants were heard, and mostly denied, in May 2007.
Additionally, in May 2007 the Board of Directors established a
special litigation committee, the SLC, to decide what course of
action Broadcom should pursue in respect of the claims asserted
in the Options Derivative Actions. The SLC is currently engaged
in its review.
From August through October 2006 several plaintiffs filed
purported shareholder class actions in the United States
District Court for the Central District of California against
Broadcom and certain of our current or former officers and
directors, entitled Bakshi v. Samueli, et al. (Case
No. 06-5036
R (CWx)), Mills v. Samueli, et al. (Case
No. SACV
06-9674 DOC
R(CWx)), and Minnesota Bakers Union Pension Fund, et
al. v. Broadcom Corp., et al. (Case No. SACV
06-970 CJC R
(CWx)), the Options Class Actions. The essence of the
plaintiffs allegations is that we improperly backdated
stock options, resulting in false or misleading disclosures
concerning, among other things, our business and financial
condition. Plaintiffs also allege that we failed to account for
and pay taxes on stock options properly, that the individual
defendants sold our common stock while in possession of material
nonpublic information, and that the defendants conduct
caused artificial inflation in our stock price and damages to
the putative plaintiff class. The plaintiffs assert claims under
Sections 10(b) and 20(a) of the Exchange Act and
Rule 10b-5
promulgated thereunder. In November 2006 the Court consolidated
the Options Class Actions and appointed the New Mexico
State Investment Council as lead class plaintiff. In October
2007 the federal appeals court resolved a dispute regarding the
appointment of lead class counsel. In March 2008 the district
judge entered a revised order appointing lead class counsel. The
lead plaintiff filed an amended consolidated class action
complaint in late April 2008, naming additional defendants
including certain current officers and directors of Broadcom as
well as Ernst & Young LLP, our former independent
registered public accounting firm, or E&Y. In October 2008
the district judge granted defendants motions to dismiss
with leave to amend. In October 2008 the lead plaintiff filed an
amended complaint. In November 2008 defendants filed motions to
dismiss. On February 2, 2009 these motions were denied
except with respect to E&Y and the current Chairman of the
Audit Committee, which were granted with leave to amend, and
with respect to the former Chief Executive Officer, which is
still being considered. We intend to defend the consolidated
class action vigorously.
In April 2008 we delivered a Notice of Arbitration and
Arbitration Claim to our former independent registered public
accounting firm, E&Y, and certain related parties. The
arbitration relates to the issues that led to the restatement of
Broadcoms financial statements for the periods from 1998
through March 31, 2006 as disclosed in an amended Annual
Report on
Form 10-K/A
for the year ended December 31, 2005 and an amended
Quarterly
F-42
Report on
Form 10-Q/A
for the three months ended March 31, 2006, each filed with
the SEC January 23, 2007. In May 2008 E&Y delivered a
Notice of Defense and Counterclaim. No date for an arbitration
hearing has been scheduled.
We have indemnification agreements with each of our present and
former directors and officers, under which we are generally
required to indemnify each such director or officer against
expenses, including attorneys fees, judgments, fines and
settlements, arising from the Options Derivative Actions, the
Options Class Actions and the pending SEC and
U.S. Attorneys Office investigations described below
(subject to certain exceptions, including liabilities arising
from willful misconduct, from conduct knowingly contrary to the
best interests of Broadcom, or conduct that is knowingly
fraudulent or deliberately dishonest or results in improper
personal benefit). The potential amount of the future payments
we could be required to make under these indemnification
obligations could be significant and could have a material
impact on our results of operations, particularly as the
defendants in the criminal and civil actions described below
prepare to go to trial in 2009. We maintain directors and
officers insurance policies that may limit our exposure
and enable us to recover a portion of the amounts paid with
respect to such obligations. However, certain of our insurance
carriers have reserved their rights, and in the third quarter of
2008 one of our insurance carriers notified us that coverage was
not available and that it intended to suspend payment to us. As
a result, we ceased receiving reimbursements under these
policies for our expenses related to these matters. However, in
January 2009 we entered into an agreement with that insurance
carrier and certain of our other insurance carriers pursuant to
which, without prejudicing our rights or the rights of such
insurers, we will receive a payment from these insurers under
these insurance policies. Nonetheless, if our coverage under
these policies is further reduced or eliminated, our potential
financial exposure in the pending securities litigation and
related government investigations would be increased.
In October 2008 Randy Lee Soderstrom, alleged to have been
employed by a former contractor of Broadcom and presently a
prisoner in a California state prison, attempted to file a
complaint entitled Soderstrom v. Henry T. Nicholas III,
William J. Ruehle, Henry Samueli, David Dull, Broadcom
Corporation (Case
No. SACV08-01099),
which was barred by the United States District Court, Central
District of California. In November 2008 a substantially similar
complaint with the same caption was filed by the same plaintiff
in the United States District Court for the Northern District of
California (Case No. CV 08 5310 PVT). In his complaint, as
amended, the plaintiff seeks relief under the Racketeering
Influenced and Corrupt Organizations Act (RICO). The complaint
makes allegations relative to conduct similar to that which is
alleged in the Options Derivative Actions and Option
Class Actions discussed above, and the SEC and United
States Attorneys Office investigations discussed below,
but also contains certain different allegations. The plaintiff
is representing himself in this action. In January 2009
defendant Broadcom filed a motion to dismiss. In response, the
plaintiff filed a First Amended Complaint. We will seek
dismissal of that complaint as well. We intend to defend this
action vigorously.
SEC Formal Order of Investigation and United States
Attorneys Office Investigation. In June
2006 we received an informal request for information from the
staff of the Los Angeles regional office of the SEC regarding
our historical option granting practices. In December 2006 the
SEC issued a formal order of investigation and a subpoena for
the production of documents. In 2007 we provided substantial
amounts of documents and information to the SEC on a voluntary
basis. In addition, we have produced documents pursuant to
subpoenas. In July 2007 we received a Wells Notice
from the SEC in connection with this investigation. Our then
Chairman of the Board of Directors and Chief Technical Officer,
Dr. Henry Samueli, also received a Wells Notice at that
time. In August 2007 our then Senior Vice President, Business
Affairs and General Counsel, David A. Dull, also received a
Wells Notice. The Wells Notices provide notification that the
staff of the SEC intends to recommend to the Commission that it
bring a civil action against the recipients for possible
violations of the securities laws. In April 2008 the SEC brought
a complaint against Broadcom alleging violations of the federal
securities laws, and we entered into a settlement with the SEC.
Without admitting or denying the SECs allegations, we paid
a civil penalty of $12.0 million, which we recorded as a
settlement cost in 2008, and stipulated to an injunction against
future violations of certain provisions of the federal
securities laws. The settlement was approved by the
United States District Court for the Central District of
California Court in late April 2008, thus concluding the
SECs investigation of this matter with respect to Broadcom.
In May 2008 the SEC filed a complaint in the United States
District Court for the Central District of California (Case
No. SACV08-539
CJC (RNBx)) against Dr. Samueli, Mr. Dull and two
other former executive
F-43
officers of Broadcom, relating to its previously-disclosed
investigation of the companys historical stock option
granting practices. The SECs civil complaint alleges that
Dr. Samueli and Mr. Dull, along with the other
defendants, violated the anti-fraud provisions of the federal
securities laws, falsified books and records, and caused the
company to report false financial results. The SECs
complaint seeks to: (i) enjoin the defendants from future
violations of the securities laws; (ii) require
Mr. Dull and another defendant to disgorge any ill-gotten
gains and pay prejudgment interest; (iii) require all
defendants to pay civil monetary penalties; (iv) require
two defendants to disgorge bonuses and stock sales profits
pursuant to Section 304 of the Sarbanes-Oxley Act of 2002;
(v) bar all defendants from serving as officers or
directors of a public company; and (vi) provide other
appropriate relief. Pending resolution of the SEC action,
Dr. Samueli has taken a leave of absence from his position
as an executive officer of Broadcom and he resigned from his
position as Chairman and a member of the Board of Directors. In
January 2009 we entered into an agreement with Mr. Dull pursuant
to which his employment will terminate February 28, 2009.
We do not know when the investigation will be resolved with
respect to Dr. Samueli
and/or
Mr. Dull or what actions, if any, the SEC may require
either to take in resolution of the investigation against them
personally.
In August 2006 we were informally contacted by the
U.S. Attorneys Office for the Central District of
California and asked to produce documents. In 2007 and 2008 we
continued to provide substantial amounts of documents and
information to the U.S. Attorneys Office on a
voluntary basis and pursuant to grand jury subpoenas. We are
continuing to cooperate with the U.S. Attorneys
Office in 2009. In June 2008 Dr. Henry T.
Nicholas, III, our former President and Chief Executive
Officer and former Co-Chairman of the Board, and William J.
Ruehle, our former Chief Financial Officer, were named in an
indictment relating to alleged stock options backdating at the
company. Also, in June 2008 Dr. Samueli pled guilty to
making a materially false statement to the SEC in connection
with its investigation of alleged stock options backdating at
the company. In September 2008 the United States District Court
for the Central District of California rejected
Dr. Samuelis plea agreement. Dr. Samueli has
appealed the ruling in the United States Court of Appeals for
the Ninth Circuit. Any further action by the SEC, the
U.S. Attorneys Office or other governmental agency
could result in additional civil or criminal sanctions
and/or fines
against us
and/or
certain of our current or former officers, directors
and/or
employees.
United States Attorneys Office Investigation and
Prosecution. In June 2005 the United States
Attorneys Office for the Northern District of California
commenced an investigation into the possible misuse of
proprietary competitor information by certain Broadcom
employees. In December 2005 one former employee was indicted for
fraud and related activity in connection with computers and
trade secret misappropriation. The former employee had been
immediately suspended in June 2005, after just two months
employment, when we learned about the government investigation.
Following an internal investigation, his employment was
terminated, nearly two months prior to the indictment. The
indictment does not allege any wrongdoing by us, and we are
cooperating fully with the ongoing investigation and the
prosecution.
General. We and our subsidiaries are also
involved in other legal proceedings, claims and litigation
arising in the ordinary course of business. In the year ended
December 31, 2008 we settled a patent infringement claim
for $3.8 million and recorded the settlement cost in our
consolidated statements of income.
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 gross profit and 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
F-44
any of those events were to occur, our business, financial
condition and results of operations could be materially and
adversely affected.
12. Significant
Customer, Supplier and Geographical Information
Sales to our significant customers, including sales to their
manufacturing subcontractors, as a percentage of net revenue
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Motorola
|
|
|
*
|
|
|
|
11.2
|
%
|
|
|
15.4
|
%
|
Cisco(1)
|
|
|
*
|
|
|
|
*
|
|
|
|
11.2
|
|
Five largest customers as a group
|
|
|
35.8
|
%
|
|
|
39.7
|
%
|
|
|
46.5
|
%
|
|
|
|
*
|
|
Less than 10% of net revenue.
|
|
(1)
|
|
Includes sales to
Scientific-Atlanta, which was acquired by Cisco in February
2006, for all periods presented.
|
No other customer represented more than 10% of our annual net
revenue in these years.
Net revenue derived from all independent customers located
outside the United States, excluding foreign subsidiaries or
manufacturing subcontractors of customers that are headquartered
in the United States even though such subsidiaries or
manufacturing subcontractors are located outside of the United
States, as a percentage of total net revenue was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Asia (primarily in Japan, Korea, China and Taiwan)
|
|
|
29.5
|
%
|
|
|
26.5
|
%
|
|
|
19.5
|
%
|
Europe (primarily in Finland, France and the United Kingdom)
|
|
|
10.5
|
|
|
|
8.5
|
|
|
|
8.4
|
|
Other
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40.5
|
%
|
|
|
35.5
|
%
|
|
|
28.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue derived from shipments to international
destinations, as a percentage of total net revenue was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Asia (primarily in China, Hong Kong, Taiwan, Japan and Singapore)
|
|
|
83.5
|
%
|
|
|
81.2
|
%
|
|
|
79.2
|
%
|
Europe (primarily in Hungary, Germany and Sweden)
|
|
|
2.7
|
|
|
|
2.9
|
|
|
|
3.3
|
|
Other
|
|
|
2.5
|
|
|
|
3.3
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88.7
|
%
|
|
|
87.4
|
%
|
|
|
86.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We do not own or operate a fabrication facility. Five
independent third-party foundries located in Asia manufacture
substantially all of our semiconductor devices in current
production. Any sudden demand for an increased amount of
semiconductor devices or sudden reduction or elimination of any
existing source or sources of semiconductor devices could result
in a material delay in the shipment of our products. In
addition, substantially all of our products are assembled and
tested by one of eight independent third-party subcontractors in
Asia. We do not have long-term agreements with any of these
suppliers. Any problems associated with the fabrication
facilities or the delivery, quality or cost of our products
could have a material adverse effect on our business, results of
operations and financial condition.
We have an international distribution center that includes
engineering design and administrative facilities in Singapore as
well as engineering design facilities in Belgium, Canada, China,
Denmark, France, Greece, India, Israel, Japan, Korea, the
Netherlands, Taiwan and the United Kingdom. At December 31,
2008, $32.2 million of our long-lived assets (excluding
goodwill and purchased intangible assets) was located outside
the United States.
F-45
|
|
13.
|
Quarterly
Financial Data (Unaudited)
|
The following table presents our unaudited quarterly financial
data. In our opinion, this information has been prepared on a
basis consistent with that of our audited consolidated financial
statements and all necessary material adjustments, consisting of
normal recurring accruals and adjustments, have been included to
present fairly the unaudited quarterly financial data. Our
quarterly results of operations for these periods are not
necessarily indicative of future results of operations.
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
Diluted Net
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Income
|
|
|
|
Net
|
|
|
Gross
|
|
|
Income
|
|
|
(Loss)
|
|
|
|
Revenue
|
|
|
Profit
|
|
|
(Loss)
|
|
|
Per Share
|
|
|
|
(In thousands, except per share data)
|
|
|
Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
1,126,509
|
|
|
$
|
568,712
|
|
|
$
|
(159,215
|
)(1)
|
|
$
|
(0.32
|
)
|
Third Quarter
|
|
|
1,298,475
|
|
|
|
679,016
|
|
|
|
164,906
|
(2)
|
|
|
0.31
|
|
Second Quarter
|
|
|
1,200,931
|
|
|
|
646,335
|
|
|
|
134,789
|
(3)
|
|
|
0.25
|
|
First Quarter
|
|
|
1,032,210
|
|
|
|
551,047
|
|
|
|
74,314
|
(4)
|
|
|
0.14
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
1,027,035
|
|
|
$
|
538,813
|
|
|
$
|
90,335
|
(5)
|
|
$
|
0.16
|
|
Third Quarter
|
|
|
949,959
|
|
|
|
483,989
|
|
|
|
27,760
|
(6)
|
|
|
0.05
|
|
Second Quarter
|
|
|
897,920
|
|
|
|
460,883
|
|
|
|
34,256
|
(7)
|
|
|
0.06
|
|
First Quarter
|
|
|
901,481
|
|
|
|
460,532
|
|
|
|
60,991
|
(8)
|
|
|
0.10
|
|
|
|
|
(1)
|
|
Includes impairment of goodwill and
other long-lived assets of $169.4 million and IPR&D of
$31.5 million.
|
|
(2)
|
|
Includes other-than-temporary
impairment on marketable securities of $1.8 million and
loss on strategic investment of $2.5 million.
|
|
(3)
|
|
Includes impairment on intangible
assets of $1.9 million, restructuring reversal of
$1.0 million, loss on a strategic investment of
$1.8 million, and income tax benefits from adjustments to
tax reserves of certain foreign subsidiaries or various foreign
jurisdictions of $4.4 million.
|
|
(4)
|
|
Includes IPR&D of
$10.9 million and settlement costs of $15.8 million.
|
|
(5)
|
|
Includes gain on strategic
investments of $3.0 million.
|
|
(6)
|
|
Includes IPR&D of
$5.0 million and loss on strategic investments of
$2.1 million.
|
|
(7)
|
|
Includes IPR&D of
$10.2 million and income tax benefits from adjustments to
tax reserves of certain foreign subsidiaries or various foreign
jurisdictions of $4.6 million.
|
|
(8)
|
|
Includes IPR&D of
$0.3 million, impairment of other intangible assets of
$1.5 million, loss on strategic investments of
$2.6 million and charges related to the equity award review
in the amount of $3.4 million.
|
In light of the continuing deterioration in worldwide economic
conditions, on January 28, 2009 our Board of Directors
committed to a restructuring plan. The plan includes a reduction
in our worldwide headcount of approximately 200 people,
which represents approximately 3% of our global workforce. We
began implementing the plan immediately and expect that it will
be substantially completed later in 2009.
We expect to incur approximately $8.0 million to
$10.0 million in restructuring costs related to the plan,
primarily for severance and other charges associated with our
reduction in workforce. Of the total restructuring costs,
approximately $2.5 million to $4.0 million is expected
to be stock-based compensation expense. We anticipate that we
will recognize most of these charges in the first quarter of
2009, with a portion to be recognized later in 2009.
F-46
Exhibits
and Financial Statement Schedules
Exhibit Index
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Where Located
|
Exhibit
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
Filed
|
Number
|
|
Description
|
|
Form
|
|
File No.
|
|
No.
|
|
Filing Date
|
|
Herewith
|
|
|
2
|
.1
|
|
Asset Purchase Agreement by and among the registrant, Broadcom
International Limited, and Advanced Micro Devices, Inc. dated as
of August 25, 2008
|
|
10-Q
|
|
000-
23993
|
|
2.1
|
|
10/22/2008
|
|
|
|
2
|
.2
|
|
Amendment No. 1 to Asset Purchase Agreement, dated as of
October 27, 2008, among the registrant, Broadcom
International Limited, and Advanced Micro Devices, Inc.
|
|
8-K
|
|
000-
23993
|
|
2.1
|
|
10/31/2008
|
|
|
|
3
|
.1
|
|
Second Amended and Restated Articles of Incorporation filed on
June 8, 2006
|
|
8-K
|
|
000-
23993
|
|
3.1
|
|
08/10/2006
|
|
|
|
3
|
.4
|
|
Bylaws as amended through December 21, 2007
|
|
8-K
|
|
000-
23993
|
|
3.1
|
|
12/21/2007
|
|
|
|
10
|
.1*
|
|
2008 Base Salaries and 2007 Bonus Payments for Certain Executive
Officers
|
|
8-K
|
|
000-
23993
|
|
10.1
|
|
03/11/2008
|
|
|
|
10
|
.2*
|
|
2008 Increase to Base Salary for Vice President &
Corporate Controller
|
|
8-K
|
|
000-
23993
|
|
N/A
|
|
07/10/2008
|
|
|
|
10
|
.3*
|
|
Performance Bonus Plan (as amended and restated April 24,
2008)
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.4*
|
|
Letter Agreement between the registrant and Scott A. McGregor
dated October 25, 2004
|
|
10-K/A
|
|
000-
23993
|
|
10.4
|
|
01/23/2007
|
|
|
|
10
|
.5*
|
|
Amendment to Letter Agreement dated December 16, 2005
between the registrant and Scott A. McGregor
|
|
10-K
|
|
000-
23993
|
|
10.5
|
|
02/14/2006
|
|
|
|
10
|
.6*
|
|
Second Amendment dated August 12, 2008 to Letter Agreement
between the registrant and Scott A. McGregor
|
|
10-Q
|
|
000-
23993
|
|
10.4
|
|
10/22/2008
|
|
|
|
10
|
.7*
|
|
Letter Agreement between the registrant and Eric K. Brandt dated
March 11, 2007
|
|
10-Q
|
|
000-
23993
|
|
10.1
|
|
05/01/2007
|
|
|
|
10
|
.8*
|
|
Amendment dated August 12, 2008 to Letter Agreement between
the registrant and Eric K. Brandt
|
|
10-Q
|
|
000-
23993
|
|
10.5
|
|
10/22/2008
|
|
|
|
10
|
.9*
|
|
Form of Letter Agreement for Change in Control Severance Benefit
Program dated August 12, 2008 between the registrant and
Thomas F. Lagatta
|
|
10-Q
|
|
000-
23993
|
|
10.6
|
|
10/22/2008
|
|
|
|
10
|
.10*
|
|
Letter Agreement for Change in Control Severance Benefit Program
dated August 12, 2008 between the registrant and Robert L.
Tirva
|
|
10-Q
|
|
000-
23993
|
|
10.7
|
|
10/22/2008
|
|
|
|
10
|
.11*
|
|
Letter Agreement between the registrant and Arthur Chong dated
October 27, 2008
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.12*
|
|
Stock Option Amendment Agreement between the registrant and
David A. Dull dated December 29, 2006
|
|
10-K
|
|
000-
23993
|
|
10.8
|
|
02/20/2007
|
|
|
|
10
|
.13*
|
|
Stock Option Amendment Agreement between the registrant and
Thomas F. Lagatta dated December 29, 2006
|
|
10-K
|
|
000-
23993
|
|
10.10
|
|
02/20/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Where Located
|
Exhibit
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
Filed
|
Number
|
|
Description
|
|
Form
|
|
File No.
|
|
No.
|
|
Filing Date
|
|
Herewith
|
|
|
10
|
.14*
|
|
Amended and Restated 1994 Stock Option Plan, together with form
of Stock Option Agreement
|
|
S-1/A
|
|
333-
45619
|
|
10.3
|
|
02/27/1998
|
|
|
|
10
|
.15*
|
|
1998 Stock Incentive Plan (as amended and restated
March 12, 2008)
|
|
10-Q
|
|
000-
23993
|
|
10.1
|
|
07/23/2008
|
|
|
|
10
|
.16*
|
|
1998 Stock Incentive Plan forms of Notice of Grant of Stock
Option
|
|
S-8
|
|
333-
60763
|
|
99.2
|
|
08/06/1998
|
|
|
|
10
|
.17*
|
|
1998 Stock Incentive Plan form of Notice of Grant of Stock
Option for the following executive officers: Eric K. Brandt,
Arthur Chong, Thomas F. Lagatta, Scott A. McGregor and Robert L.
Tirva.
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.18*
|
|
1998 Stock Incentive Plan form of Notice of Grant of Stock
Option for Non-Employee Directors (Stock Option Annual Awards)
|
|
10-Q
|
|
000-
23993
|
|
10.1
|
|
05/02/2006
|
|
|
|
10
|
.19*
|
|
1998 Stock Incentive Plan form of Notice of Grant of Stock
Option for Non-Employee Directors (Stock Option Pro-rated Award)
|
|
10-Q
|
|
000-
23993
|
|
10.2
|
|
05/02/2006
|
|
|
|
10
|
.20*
|
|
1998 Stock Incentive Plan form of Stock Option Agreement
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.21*
|
|
1998 Stock Incentive Plan form of Stock Option Agreement for the
following executive officers: Eric K. Brandt, Arthur Chong,
Thomas F. Lagatta, Scott A. McGregor and Robert L. Tirva
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.22*
|
|
1998 Stock Incentive Plan form of Automatic Stock Option
Agreement for Non-Employee Directors
|
|
10-Q
|
|
000-
23993
|
|
10.2
|
|
11/09/2004
|
|
|
|
10
|
.23*
|
|
1998 Stock Incentive Plan form of Restricted Stock Unit Issuance
Agreement
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.24*
|
|
1998 Stock Incentive Plan form of Restricted Stock Unit Issuance
Agreement for the following executive officers: Eric K. Brandt,
Arthur Chong, Thomas F. Lagatta, and Robert L. Tirva
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.25*
|
|
1998 Stock Incentive Plan form of Restricted Stock Unit Issuance
Agreement for Scott A. McGregor
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.26*
|
|
Form of Amendment Agreement effective January 1, 2009 to
Restricted Stock Unit Issuance Agreement(s) for executive
officers (for RSUs not governed by the Special RSU Program)
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.27*
|
|
1998 Stock Incentive Plan form of Restricted Stock Unit Issuance
Agreement for executive officers (for RSUs governed by the
Special RSU Program)
|
|
10-Q
|
|
000-
23993
|
|
10.3
|
|
10/22/2008
|
|
|
|
10
|
.28*
|
|
Form of Amendment Agreement effective January 1, 2009 to
Restricted Stock Unit Issuance Agreement for executive officers
(for RSUs governed by the Special RSU Program)
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Where Located
|
Exhibit
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
Filed
|
Number
|
|
Description
|
|
Form
|
|
File No.
|
|
No.
|
|
Filing Date
|
|
Herewith
|
|
|
10
|
.29*
|
|
1998 Stock Incentive Plan form of Restricted Stock Unit Issuance
Agreement for Non-Employee Directors (Annual Award)
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.30*
|
|
1998 Stock Incentive Plan form of Restricted Stock Unit Issuance
Agreement for Non-Employee Directors (Pro-rated Awards)
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.31*
|
|
1998 Employee Stock Purchase Plan (as amended and restated
March 12, 2008)
|
|
10-Q
|
|
000-
23993
|
|
10.2
|
|
07/23/2008
|
|
|
|
10
|
.32*
|
|
Amendment No. 1 and No. 2, each dated October 2008 to
1998 Employee Stock Purchase Plan (as amended and restated
March 12, 2008)
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.33*
|
|
2007 International Employee Stock Purchase Plan (as amended and
restated March 12, 2008) along with Amendment
No. 1 and No. 2 thereto, each dated October 2008
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.34
|
|
1999 Special Stock Option Plan (as amended and restated
July 18, 2003)
|
|
10-Q
|
|
000-
23993
|
|
10.2
|
|
08/11/2003
|
|
|
|
10
|
.35
|
|
1999 Special Stock Option Plan form of Stock Option Agreement
|
|
10-Q
|
|
000-
23993
|
|
10.2.1
|
|
08/11/2003
|
|
|
|
10
|
.36
|
|
1999 Special Stock Option Plan form of Notice of Grant of Stock
Option
|
|
S-8
|
|
333-
93457
|
|
99.2
|
|
12/22/1999
|
|
|
|
10
|
.37*
|
|
Form of Indemnification Agreement for Directors, Elected
Officers and certain employees or agents of the registrant
|
|
8-K
|
|
000-
23993
|
|
10.1
|
|
06/24/2008
|
|
|
|
10
|
.38
|
|
Patent License Agreement dated July 19, 2007 by and between
the registrant, Cellco Partnership d/b/a Verizon Wireless and
Verizon Communications Inc.
|
|
10-Q
|
|
000-
23993
|
|
10.3
|
|
10/24/2007
|
|
|
|
10
|
.39
|
|
Intellectual Property Cross-License Agreement by and between
Advanced Micro Devices, Inc. and the registrant
|
|
10-Q
|
|
000-
23993
|
|
10.1
|
|
10/22/2008
|
|
|
|
10
|
.40
|
|
IP Core License Agreement by and between Advanced Micro Devices,
Inc. and the registrant
|
|
10-Q
|
|
000-
23993
|
|
10.2
|
|
10/22/2008
|
|
|
|
10
|
.41
|
|
Lease Agreement dated February 1, 2000 between Conejo
Valley Development Corporation and the registrant
|
|
10-K
|
|
000-
23993
|
|
10.17
|
|
03/19/2002
|
|
|
|
10
|
.42
|
|
Lease Agreement dated May 18, 2000 between M-D Downtown
Sunnyvale, LLC and the registrant
|
|
10-K
|
|
000-
23993
|
|
10.21
|
|
03/31/2003
|
|
|
|
10
|
.43
|
|
Amendment dated September 30, 2005 to Lease Agreement dated
May 18, 2000 between M-D Downtown Sunnyvale, LLC and the
registrant
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.44
|
|
Lease Agreement dated November 20, 2000, together with
Second Amendment dated March 30, 2001 and Third Amendment
dated July 9, 2007, between Sobrato Interests and the
registrant. Lease dated July 9, 2007 between Sobrato
Interests and the registrant
|
|
10-Q
|
|
000-
23993
|
|
10.1
|
|
10/24/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Where Located
|
Exhibit
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
Filed
|
Number
|
|
Description
|
|
Form
|
|
File No.
|
|
No.
|
|
Filing Date
|
|
Herewith
|
|
|
10
|
.45
|
|
Lease Agreement dated December 17, 2004 between Irvine
Commercial Property Company and the registrant
|
|
10-K
|
|
000-
23993
|
|
10.38
|
|
03/01/2005
|
|
|
|
10
|
.46
|
|
First Amendment, Second Amendment, and Third Amendment dated
June 7, 2005, April 9, 2007 and April 9, 2007,
respectively, to Lease dated December 17, 2004 between
Irvine Commercial Property Company LLC and the registrant
|
|
10-Q
|
|
000-
23993
|
|
10.2
|
|
10/24/2007
|
|
|
|
10
|
.47
|
|
Fourth Amendment dated November 19, 2007 to Lease dated
December 17, 2004 between Irvine Commercial Property
Company LLC and the registrant
|
|
10-K
|
|
000-
23993
|
|
10.43
|
|
01/28/2008
|
|
|
|
10
|
.48
|
|
Lease Agreement dated October 31, 2007 between Irvine
Commercial Property Company LLC and the registrant
|
|
10-K
|
|
000-
23993
|
|
10.44
|
|
01/28/2008
|
|
|
|
10
|
.49
|
|
First Amendment dated November 12, 2008 to Lease Agreement
dated October 31, 2007 between Irvine Commercial Property
Company LLC and the registrant
|
|
|
|
|
|
|
|
|
|
X
|
|
16
|
.1
|
|
Letter from Ernst & Young LLP to the Securities and
Exchange Commission dated March 18, 2008
|
|
8-K
|
|
000-
23993
|
|
16.1
|
|
03/18/2008
|
|
|
|
21
|
.1
|
|
Subsidiaries of the Company
|
|
|
|
|
|
|
|
|
|
X
|
|
23
|
.1
|
|
Consent of KPMG LLP
|
|
|
|
|
|
|
|
|
|
X
|
|
23
|
.2
|
|
Consent of Ernst & Young LLP
|
|
|
|
|
|
|
|
|
|
X
|
|
31
|
.1
|
|
Certification of the Chief Executive Officer, as required
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
|
31
|
.2
|
|
Certification of the Chief Financial Officer, as required
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
|
32
|
.1
|
|
Certifications of the Chief Executive Officer and Chief
Financial Officer, as required pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
*
|
|
A contract, compensatory plan or
arrangement in which directors or executive officers are
eligible to participate.
|
|
|
|
Confidential treatment has been
requested with respect to the redacted portions of the
referenced exhibit.
|
|
|
|
Confidential treatment has
previously been granted by the SEC for certain portions of the
referenced exhibit pursuant to Rule 406 under the
Securities Act.
|
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
|
|
|
|
By:
|
/s/ Scott
A. McGregor
|
Scott A. McGregor
President and Chief Executive Officer
Date: February 3, 2009
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated:
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Scott
A. McGregor
Scott
A. McGregor
|
|
President and Chief Executive Officer and Director (Principal
Executive Officer)
|
|
February 3, 2009
|
|
|
|
|
|
/s/ Eric
K. Brandt
Eric
K. Brandt
|
|
Senior Vice President and Chief Financial Officer (Principal
Financial Officer)
|
|
February 3, 2009
|
|
|
|
|
|
/s/ Robert
L. Tirva
Robert
L. Tirva
|
|
Vice President and Corporate Controller (Principal Accounting
Officer)
|
|
February 3, 2009
|
|
|
|
|
|
/s/ George
L. Farinsky
George
L. Farinsky
|
|
Director
|
|
February 3, 2009
|
|
|
|
|
|
/s/ Nancy
H. Handel
Nancy
H. Handel
|
|
Director
|
|
February 3, 2009
|
|
|
|
|
|
/s/ Eddy
W. Hartenstein
Eddy
W. Hartenstein
|
|
Director
|
|
February 3, 2009
|
|
|
|
|
|
/s/ John
E. Major
John
E. Major
|
|
Chairman of the Board
|
|
February 3, 2009
|
|
|
|
|
|
/s/ William
T. Morrow
William
T. Morrow
|
|
Director
|
|
February 3, 2009
|
|
|
|
|
|
/s/ Alan
E. Ross
Alan
E. Ross
|
|
Director
|
|
February 3, 2009
|
|
|
|
|
|
/s/ Robert
E. Switz
Robert
E. Switz
|
|
Director
|
|
February 3, 2009
|
SCHEDULE II
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
BROADCOM CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged (Credited)
|
|
|
Charged to
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning of
|
|
|
to Costs and
|
|
|
Other
|
|
|
|
|
|
End of
|
|
Description
|
|
Year
|
|
|
Expenses
|
|
|
Accounts(a)
|
|
|
Deductions
|
|
|
Year
|
|
|
|
(In thousands)
|
|
|
Year ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted from asset accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
5,472
|
|
|
$
|
143
|
|
|
$
|
|
|
|
$
|
(261
|
)
|
|
$
|
5,354
|
|
Sales returns
|
|
|
3,245
|
|
|
|
22,327
|
|
|
|
|
|
|
|
(21,299
|
)
|
|
|
4,273
|
|
Pricing allowances
|
|
|
1,665
|
|
|
|
(580
|
)
|
|
|
|
|
|
|
|
|
|
|
1,085
|
|
Reserve for excess and obsolete inventory
|
|
|
34,426
|
|
|
|
29,874
|
|
|
|
6,897
|
|
|
|
(10,517
|
)
|
|
|
60,680
|
|
Reserve for warranty
|
|
|
23,287
|
|
|
|
(5,602
|
)
|
|
|
|
|
|
|
(6,212
|
)
|
|
|
11,473
|
|
Restructuring liabilities
|
|
|
7,457
|
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
(2,278
|
)
|
|
|
4,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
75,552
|
|
|
$
|
45,162
|
|
|
$
|
6,897
|
|
|
$
|
(40,567
|
)
|
|
$
|
87,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted from asset accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
6,894
|
|
|
$
|
(1,576
|
)
|
|
$
|
386
|
|
|
$
|
(232
|
)
|
|
$
|
5,472
|
|
Sales returns
|
|
|
3,411
|
|
|
|
12,331
|
|
|
|
|
|
|
|
(12,497
|
)
|
|
|
3,245
|
|
Pricing allowances
|
|
|
985
|
|
|
|
680
|
|
|
|
|
|
|
|
|
|
|
|
1,665
|
|
Reserve for excess and obsolete inventory
|
|
|
31,935
|
|
|
|
15,685
|
|
|
|
425
|
|
|
|
(13,619
|
)
|
|
|
34,426
|
|
Reserve for warranty
|
|
|
19,222
|
|
|
|
8,435
|
|
|
|
|
|
|
|
(4,370
|
)
|
|
|
23,287
|
|
Restructuring liabilities
|
|
|
10,723
|
|
|
|
|
|
|
|
749
|
|
|
|
(4,015
|
)
|
|
|
7,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
73,170
|
|
|
$
|
35,555
|
|
|
$
|
1,560
|
|
|
$
|
(34,733
|
)
|
|
$
|
75,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted from asset accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
6,242
|
|
|
$
|
816
|
|
|
$
|
61
|
|
|
$
|
(225
|
)
|
|
$
|
6,894
|
|
Sales returns
|
|
|
4,952
|
|
|
|
23,343
|
|
|
|
|
|
|
|
(24,884
|
)
|
|
|
3,411
|
|
Pricing allowances
|
|
|
989
|
|
|
|
1,457
|
|
|
|
|
|
|
|
(1,461
|
)
|
|
|
985
|
|
Reserve for excess and obsolete inventory
|
|
|
37,017
|
|
|
|
6,256
|
|
|
|
138
|
|
|
|
(11,476
|
)
|
|
|
31,935
|
|
Reserve for warranty
|
|
|
14,131
|
|
|
|
10,268
|
|
|
|
877
|
|
|
|
(6,054
|
)
|
|
|
19,222
|
|
Restructuring liabilities
|
|
|
16,221
|
|
|
|
|
|
|
|
|
|
|
|
(5,498
|
)
|
|
|
10,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
79,552
|
|
|
$
|
42,140
|
|
|
$
|
1,076
|
|
|
$
|
(49,598
|
)
|
|
$
|
73,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Amounts represent balances acquired
through acquisitions.
|
S-1
Exhibit Index
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Where Located
|
Exhibit
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
Filed
|
Number
|
|
Description
|
|
Form
|
|
File No.
|
|
No.
|
|
Filing Date
|
|
Herewith
|
|
|
2
|
.1
|
|
Asset Purchase Agreement by and among the registrant, Broadcom
International Limited, and Advanced Micro Devices, Inc. dated as
of August 25, 2008
|
|
10-Q
|
|
000-
23993
|
|
2.1
|
|
10/22/2008
|
|
|
|
2
|
.2
|
|
Amendment No. 1 to Asset Purchase Agreement, dated as of
October 27, 2008, among the registrant, Broadcom
International Limited, and Advanced Micro Devices, Inc.
|
|
8-K
|
|
000-
23993
|
|
2.1
|
|
10/31/2008
|
|
|
|
3
|
.1
|
|
Second Amended and Restated Articles of Incorporation filed on
June 8, 2006
|
|
8-K
|
|
000-
23993
|
|
3.1
|
|
08/10/2006
|
|
|
|
3
|
.4
|
|
Bylaws as amended through December 21, 2007
|
|
8-K
|
|
000-
23993
|
|
3.1
|
|
12/21/2007
|
|
|
|
10
|
.1*
|
|
2008 Base Salaries and 2007 Bonus Payments for Certain Executive
Officers
|
|
8-K
|
|
000-
23993
|
|
10.1
|
|
03/11/2008
|
|
|
|
10
|
.2*
|
|
2008 Increase to Base Salary for Vice President &
Corporate Controller
|
|
8-K
|
|
000-
23993
|
|
N/A
|
|
07/10/2008
|
|
|
|
10
|
.3*
|
|
Performance Bonus Plan (as amended and restated April 24,
2008)
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.4*
|
|
Letter Agreement between the registrant and Scott A.
McGregor dated October 25, 2004
|
|
10-K/A
|
|
000-
23993
|
|
10.4
|
|
01/23/2007
|
|
|
|
10
|
.5*
|
|
Amendment to Letter Agreement dated December 16, 2005
between the registrant and Scott A. McGregor
|
|
10-K
|
|
000-
23993
|
|
10.5
|
|
02/14/2006
|
|
|
|
10
|
.6*
|
|
Second Amendment dated August 12, 2008 to Letter Agreement
between the registrant and Scott A. McGregor
|
|
10-Q
|
|
000-
23993
|
|
10.4
|
|
10/22/2008
|
|
|
|
10
|
.7*
|
|
Letter Agreement between the registrant and Eric K. Brandt
dated March 11, 2007
|
|
10-Q
|
|
000-
23993
|
|
10.1
|
|
05/01/2007
|
|
|
|
10
|
.8*
|
|
Amendment dated August 12, 2008 to Letter Agreement between
the registrant and Eric K. Brandt
|
|
10-Q
|
|
000-
23993
|
|
10.5
|
|
10/22/2008
|
|
|
|
10
|
.9*
|
|
Form of Letter Agreement for Change in Control Severance Benefit
Program dated August 12, 2008 between the registrant and
Thomas F. Lagatta
|
|
10-Q
|
|
000-
23993
|
|
10.6
|
|
10/22/2008
|
|
|
|
10
|
.10*
|
|
Letter Agreement for Change in Control Severance Benefit Program
dated August 12, 2008 between the registrant and Robert L.
Tirva
|
|
10-Q
|
|
000-
23993
|
|
10.7
|
|
10/22/2008
|
|
|
|
10
|
.11*
|
|
Letter Agreement between the registrant and Arthur Chong dated
October 27, 2008
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.12*
|
|
Stock Option Amendment Agreement between the registrant and
David A. Dull dated December 29, 2006
|
|
10-K
|
|
000-
23993
|
|
10.8
|
|
02/20/2007
|
|
|
|
10
|
.13*
|
|
Stock Option Amendment Agreement between the registrant and
Thomas F. Lagatta dated December 29, 2006
|
|
10-K
|
|
000-
23993
|
|
10.10
|
|
02/20/2007
|
|
|
|
10
|
.14*
|
|
Amended and Restated 1994 Stock Option Plan, together with form
of Stock Option Agreement
|
|
S-1/A
|
|
333-
45619
|
|
10.3
|
|
02/27/1998
|
|
|
|
10
|
.15*
|
|
1998 Stock Incentive Plan (as amended and restated
March 12, 2008)
|
|
10-Q
|
|
000-
23993
|
|
10.1
|
|
07/23/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Where Located
|
Exhibit
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
Filed
|
Number
|
|
Description
|
|
Form
|
|
File No.
|
|
No.
|
|
Filing Date
|
|
Herewith
|
|
|
10
|
.16*
|
|
1998 Stock Incentive Plan forms of Notice of Grant of Stock
Option
|
|
S-8
|
|
333-
60763
|
|
99.2
|
|
08/06/1998
|
|
|
|
10
|
.17*
|
|
1998 Stock Incentive Plan form of Notice of Grant of Stock
Option for the following executive officers: Eric K. Brandt,
Arthur Chong, Thomas F. Lagatta, Scott A. McGregor and
Robert L. Tirva.
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.18*
|
|
1998 Stock Incentive Plan form of Notice of Grant of Stock
Option for Non-Employee Directors (Stock Option Annual Awards)
|
|
10-Q
|
|
000-
23993
|
|
10.1
|
|
05/02/2006
|
|
|
|
10
|
.19*
|
|
1998 Stock Incentive Plan form of Notice of Grant of Stock
Option for Non-Employee Directors (Stock Option Pro-rated Award)
|
|
10-Q
|
|
000-
23993
|
|
10.2
|
|
05/02/2006
|
|
|
|
10
|
.20*
|
|
1998 Stock Incentive Plan form of Stock Option Agreement
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.21*
|
|
1998 Stock Incentive Plan form of Stock Option Agreement for the
following executive officers: Eric K. Brandt, Arthur Chong,
Thomas F. Lagatta, Scott A. McGregor and Robert L. Tirva
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.22*
|
|
1998 Stock Incentive Plan form of Automatic Stock Option
Agreement for Non-Employee Directors
|
|
10-Q
|
|
000-
23993
|
|
10.2
|
|
11/09/2004
|
|
|
|
10
|
.23*
|
|
1998 Stock Incentive Plan form of Restricted Stock Unit Issuance
Agreement
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.24*
|
|
1998 Stock Incentive Plan form of Restricted Stock Unit Issuance
Agreement for the following executive officers: Eric K. Brandt,
Arthur Chong, Thomas F. Lagatta, and Robert L. Tirva
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.25*
|
|
1998 Stock Incentive Plan form of Restricted Stock Unit Issuance
Agreement for Scott A. McGregor
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.26*
|
|
Form of Amendment Agreement effective January 1, 2009 to
Restricted Stock Unit Issuance Agreement(s) for executive
officers (for RSUs not governed by the Special RSU Program)
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.27*
|
|
1998 Stock Incentive Plan form of Restricted Stock Unit Issuance
Agreement for executive officers (for RSUs governed by the
Special RSU Program)
|
|
10-Q
|
|
000-
23993
|
|
10.3
|
|
10/22/2008
|
|
|
|
10
|
.28*
|
|
Form of Amendment Agreement effective January 1, 2009 to
Restricted Stock Unit Issuance Agreement for executive officers
(for RSUs governed by the Special RSU Program)
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.29*
|
|
1998 Stock Incentive Plan form of Restricted Stock Unit Issuance
Agreement for Non-Employee Directors (Annual Award)
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.30*
|
|
1998 Stock Incentive Plan form of Restricted Stock Unit Issuance
Agreement for Non-Employee Directors (Pro-rated Awards)
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.31*
|
|
1998 Employee Stock Purchase Plan (as amended and restated
March 12, 2008)
|
|
10-Q
|
|
000-
23993
|
|
10.2
|
|
07/23/2008
|
|
|
|
10
|
.32*
|
|
Amendment No. 1 and No. 2, each dated October 2008 to
1998 Employee Stock Purchase Plan (as amended and restated
March 12, 2008)
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Where Located
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Exhibit
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Exhibit
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Filed
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Number
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Description
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Form
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File No.
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No.
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Filing Date
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Herewith
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10
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.33*
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2007 International Employee Stock Purchase Plan (as amended and
restated March 12, 2008) along with Amendment
No. 1 and No. 2 thereto, each dated October 2008
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X
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10
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.34
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1999 Special Stock Option Plan (as amended and restated
July 18, 2003)
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10-Q
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000-
23993
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10.2
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08/11/2003
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10
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.35
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1999 Special Stock Option Plan form of Stock Option Agreement
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10-Q
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000-
23993
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10.2.1
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08/11/2003
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10
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.36
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1999 Special Stock Option Plan form of Notice of Grant of Stock
Option
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S-8
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333-
93457
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99.2
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12/22/1999
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10
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.37*
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Form of Indemnification Agreement for Directors, Elected
Officers and certain employees or agents of the registrant
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8-K
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000-
23993
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10.1
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06/24/2008
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10
|
.38
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Patent License Agreement dated July 19, 2007 by and between
the registrant, Cellco Partnership d/b/a Verizon Wireless and
Verizon Communications Inc.
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10-Q
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000-
23993
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10.3
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10/24/2007
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10
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.39
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Intellectual Property Cross-License Agreement by and between
Advanced Micro Devices, Inc. and the registrant
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10-Q
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000-
23993
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10.1
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10/22/2008
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10
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.40
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IP Core License Agreement by and between Advanced Micro Devices,
Inc. and the registrant
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10-Q
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000-
23993
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10.2
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10/22/2008
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10
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.41
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Lease Agreement dated February 1, 2000 between Conejo
Valley Development Corporation and the registrant
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10-K
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000-
23993
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10.17
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03/19/2002
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10
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.42
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Lease Agreement dated May 18, 2000 between M-D Downtown
Sunnyvale, LLC and the registrant
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10-K
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000-
23993
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10.21
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03/31/2003
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10
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.43
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Amendment dated September 30, 2005 to Lease Agreement dated
May 18, 2000 between M-D Downtown Sunnyvale, LLC and the
registrant
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X
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|
10
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.44
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Lease Agreement dated November 20, 2000, together with
Second Amendment dated March 30, 2001 and Third Amendment
dated July 9, 2007, between Sobrato Interests and the
registrant. Lease dated July 9, 2007 between Sobrato
Interests and the registrant
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10-Q
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000-
23993
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10.1
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10/24/2007
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10
|
.45
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Lease Agreement dated December 17, 2004 between Irvine
Commercial Property Company and the registrant
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10-K
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000-
23993
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10.38
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03/01/2005
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10
|
.46
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First Amendment, Second Amendment, and Third Amendment dated
June 7, 2005, April 9, 2007 and April 9, 2007,
respectively, to Lease dated December 17, 2004 between
Irvine Commercial Property Company LLC and the registrant
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10-Q
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000-
23993
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10.2
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10/24/2007
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10
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.47
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Fourth Amendment dated November 19, 2007 to Lease dated
December 17, 2004 between Irvine Commercial Property
Company LLC and the registrant
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10-K
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000-
23993
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10.43
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01/28/2008
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10
|
.48
|
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Lease Agreement dated October 31, 2007 between Irvine
Commercial Property Company LLC and the registrant
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10-K
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000-
23993
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10.44
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01/28/2008
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Where Located
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Exhibit
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Exhibit
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Filed
|
Number
|
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Description
|
|
Form
|
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File No.
|
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No.
|
|
Filing Date
|
|
Herewith
|
|
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10
|
.49
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First Amendment dated November 12, 2008 to Lease Agreement
dated October 31, 2007 between Irvine Commercial Property
Company LLC and the registrant
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X
|
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16
|
.1
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Letter from Ernst & Young LLP to the Securities and
Exchange Commission dated March 18, 2008
|
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8-K
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000-
23993
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16.1
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03/18/2008
|
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21
|
.1
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Subsidiaries of the Company
|
|
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|
X
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23
|
.1
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Consent of KPMG LLP
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X
|
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23
|
.2
|
|
Consent of Ernst & Young LLP
|
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|
|
|
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|
|
X
|
|
31
|
.1
|
|
Certification of the Chief Executive Officer, as required
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
|
31
|
.2
|
|
Certification of the Chief Financial Officer, as required
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
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|
X
|
|
32
|
.1
|
|
Certifications of the Chief Executive Officer and Chief
Financial Officer, as required pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
|
|
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|
X
|
|
|
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*
|
|
A contract, compensatory plan or
arrangement in which directors or executive officers are
eligible to participate.
|
|
|
|
Confidential treatment has been
requested with respect to the redacted portions of the
referenced exhibit.
|
|
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|
Confidential treatment has
previously been granted by the SEC for certain portions of the
referenced exhibit pursuant to Rule 406 under the
Securities Act.
|