UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
| þ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2002
or
| o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission file number: 000-23993
Broadcom Corporation
|
California (State or other jurisdiction of incorporation or organization) |
33-0480482 (I.R.S. Employer Identification No.) |
16215 Alton Parkway
(949) 450-8700
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
The number of shares of the registrant’s common stock, $0.0001 par value, outstanding as of October 31, 2002: 203,913,543 shares of Class A common stock and 71,949,297 shares of Class B common stock.
Broadcom® and SystemI/ O™ are trademarks of Broadcom Corporation and/or its affiliates in the United States and certain other countries. All other trademarks mentioned are the property of their respective owners.
©2002 Broadcom Corporation. All rights reserved.
BROADCOM CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
| Page | ||||||
| PART I. FINANCIAL INFORMATION | ||||||
|
Item 1.
|
Financial Statements | |||||
| Unaudited Condensed Consolidated Balance Sheets at September 30, 2002 and December 31, 2001 | 1 | |||||
| Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2002 and 2001 | 2 | |||||
| Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001 | 3 | |||||
| Notes to Unaudited Condensed Consolidated Financial Statements | 4 | |||||
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 | ||||
| Risk Factors | 32 | |||||
|
Item 3.
|
Quantitative and Qualitative Disclosures about Market Risk | 47 | ||||
|
Item 4.
|
Controls and Procedures | 49 | ||||
| PART II. OTHER INFORMATION | ||||||
|
Item 1.
|
Legal Proceedings | 49 | ||||
|
Item 2.
|
Changes in Securities and Use of Proceeds | 49 | ||||
|
Item 3.
|
Defaults upon Senior Securities | 49 | ||||
|
Item 4.
|
Submission of Matters to a Vote of Security Holders | 49 | ||||
|
Item 5.
|
Other Information | 50 | ||||
|
Item 6.
|
Exhibits and Reports on Form 8-K | 50 | ||||
| Signatures | 51 | |||||
| Certifications | 52 | |||||
PART I. FINANCIAL INFORMATION
| Item 1. | Financial Statements |
BROADCOM CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||||
| 2002 | 2001 | |||||||||
| (In thousands) | ||||||||||
| ASSETS | ||||||||||
|
Current assets:
|
||||||||||
|
Cash and cash equivalents
|
$ | 392,468 | $ | 403,758 | ||||||
|
Short-term marketable securities
|
181,195 | 136,028 | ||||||||
|
Accounts receivable, net
|
111,347 | 57,187 | ||||||||
|
Inventory
|
39,062 | 22,267 | ||||||||
|
Deferred taxes
|
13,651 | 13,651 | ||||||||
|
Prepaid expenses and other current assets
|
50,003 | 40,840 | ||||||||
|
Total current assets
|
787,726 | 673,731 | ||||||||
|
Property and equipment, net
|
164,965 | 157,336 | ||||||||
|
Long-term marketable securities
|
47,059 | 109,767 | ||||||||
|
Deferred taxes
|
272,300 | 275,916 | ||||||||
|
Goodwill, net
|
2,437,308 | 2,241,632 | ||||||||
|
Purchased intangible assets, net
|
43,881 | 97,108 | ||||||||
|
Other assets
|
31,233 | 67,808 | ||||||||
|
Total assets
|
$ | 3,784,472 | $ | 3,623,298 | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||
|
Current liabilities:
|
||||||||||
|
Accounts payable
|
$ | 191,615 | $ | 103,032 | ||||||
|
Wages and related benefits
|
41,619 | 35,839 | ||||||||
|
Deferred revenue
|
17,042 | 29,495 | ||||||||
|
Accrued liabilities
|
183,303 | 126,218 | ||||||||
|
Short-term debt and current portion of long-term
debt
|
115,786 | 114,040 | ||||||||
|
Total current liabilities
|
549,365 | 408,624 | ||||||||
|
Commitments and contingencies
|
||||||||||
|
Long-term restructuring liabilities
|
22,096 | 3,258 | ||||||||
|
Long-term debt, less current portion
|
2,295 | 4,006 | ||||||||
|
Shareholders’ equity:
|
||||||||||
|
Common stock
|
27 | 26 | ||||||||
|
Additional paid-in capital
|
7,675,926 | 7,529,685 | ||||||||
|
Notes receivable from employees
|
(13,386 | ) | (14,452 | ) | ||||||
|
Deferred compensation
|
(624,709 | ) | (964,916 | ) | ||||||
|
Accumulated deficit
|
(3,828,584 | ) | (3,349,839 | ) | ||||||
|
Accumulated other comprehensive income
|
1,442 | 6,906 | ||||||||
|
Total shareholders’ equity
|
3,210,716 | 3,207,410 | ||||||||
|
Total liabilities and shareholders’ equity
|
$ | 3,784,472 | $ | 3,623,298 | ||||||
See accompanying notes.
1
BROADCOM CORPORATION
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||
| (In thousands, except per share data) | |||||||||||||||||
|
Net revenue
|
$ | 290,000 | $ | 213,591 | $ | 787,003 | $ | 735,000 | |||||||||
|
Cost of revenue(a)
|
161,627 | 129,832 | 439,326 | 425,348 | |||||||||||||
|
Gross profit
|
128,373 | 83,759 | 347,677 | 309,652 | |||||||||||||
|
Operating expense:
|
|||||||||||||||||
|
Research and development(b)
|
118,338 | 111,406 | 344,759 | 337,010 | |||||||||||||
|
Selling, general and administrative(b)
|
42,359 | 35,599 | 123,440 | 113,823 | |||||||||||||
|
Stock-based compensation
|
80,453 | 106,941 | 263,613 | 356,915 | |||||||||||||
|
Amortization of purchased intangible assets
|
5,904 | 7,162 | 17,154 | 20,161 | |||||||||||||
|
Restructuring costs
|
27,043 | 16,046 | 31,865 | 34,281 | |||||||||||||
|
Litigation settlement costs
|
3,000 | — | 3,000 | 3,000 | |||||||||||||
|
Impairment of goodwill
|
— | 1,181,649 | — | 1,181,649 | |||||||||||||
|
Amortization of goodwill
|
— | 209,551 | — | 616,921 | |||||||||||||
|
In-process research and development
|
— | — | — | 109,710 | |||||||||||||
|
Loss from operations
|
(148,724 | ) | (1,584,595 | ) | (436,154 | ) | (2,463,818 | ) | |||||||||
|
Interest income, net
|
3,109 | 4,228 | 9,862 | 18,863 | |||||||||||||
|
Other expense, net
|
(31,596 | ) | (32,849 | ) | (35,515 | ) | (34,236 | ) | |||||||||
|
Loss before income taxes
|
(177,211 | ) | (1,613,216 | ) | (461,807 | ) | (2,479,191 | ) | |||||||||
|
Provision (benefit) for income taxes
|
6,049 | 6,000 | 16,938 | (66,729 | ) | ||||||||||||
|
Net loss
|
$ | (183,260 | ) | $ | (1,619,216 | ) | $ | (478,745 | ) | $ | (2,412,462 | ) | |||||
|
Net loss per share (basic and diluted)
|
$ | (0.68 | ) | $ | (6.36 | ) | $ | (1.80 | ) | $ | (9.57 | ) | |||||
|
Weighted average shares (basic and diluted)
|
270,104 | 254,524 | 265,820 | 252,204 | |||||||||||||
|
(a) Cost of revenue includes the
following:
|
|||||||||||||||||
|
Stock-based compensation expense
|
$ | 3,243 | $ | 3,436 | $ | 9,922 | $ | 12,551 | |||||||||
|
Amortization of purchased intangible assets
|
14,612 | 13,387 | 41,419 | 38,353 | |||||||||||||
| $ | 17,855 | $ | 16,823 | $ | 51,341 | $ | 50,904 | ||||||||||
|
(b) Stock-based compensation expense is
excluded from the following:
|
|||||||||||||||||
|
Research and development expense
|
$ | 57,772 | $ | 69,680 | $ | 182,565 | $ | 233,493 | |||||||||
|
Selling, general and administrative expense
|
22,681 | 37,261 | 81,048 | 123,422 | |||||||||||||
| $ | 80,453 | $ | 106,941 | $ | 263,613 | $ | 356,915 | ||||||||||
|
Amortization of purchased intangible assets is
excluded from the following:
|
|||||||||||||||||
|
Research and development expense
|
$ | 4,762 | $ | 6,939 | $ | 14,826 | $ | 19,505 | |||||||||
|
Selling, general and administrative expense
|
1,142 | 223 | 2,328 | 656 | |||||||||||||
| $ | 5,904 | $ | 7,162 | $ | 17,154 | $ | 20,161 | ||||||||||
See accompanying notes.
2
BROADCOM CORPORATION
| Nine Months Ended | |||||||||||
| September 30, | |||||||||||
| 2002 | 2001 | ||||||||||
| (In thousands) | |||||||||||
|
Operating activities
|
|||||||||||
|
Net loss
|
$ | (478,745 | ) | $ | (2,412,462 | ) | |||||
|
Adjustments to reconcile net loss to net cash
provided by operating activities:
|
|||||||||||
|
Depreciation and amortization
|
51,626 | 41,064 | |||||||||
|
Stock-based compensation expense
|
273,535 | 369,466 | |||||||||
|
Amortization of purchased intangible assets
|
58,573 | 58,514 | |||||||||
|
Impairment of goodwill
|
— | 1,181,649 | |||||||||
|
Amortization of goodwill
|
— | 616,921 | |||||||||
|
In-process research and development
|
— | 109,710 | |||||||||
|
Non-cash restructuring charges
|
4,140 | 11,070 | |||||||||
|
Deferred taxes
|
— | (61,745 | ) | ||||||||
|
Non-cash development revenue
|
(4,700 | ) | — | ||||||||
|
Loss on strategic investments, net
|
35,602 | 32,736 | |||||||||
|
Change in operating assets and liabilities:
|
|||||||||||
|
Accounts receivable
|
(53,576 | ) | 128,189 | ||||||||
|
Inventory
|
(15,603 | ) | 24,457 | ||||||||
|
Prepaid expenses and other assets
|
(11,487 | ) | (11,465 | ) | |||||||
|
Accounts payable
|
85,947 | (12,282 | ) | ||||||||
|
Accrued liabilities
|
31,398 | (17,927 | ) | ||||||||
|
Net cash provided by (used in) operating
activities
|
(23,290 | ) | 57,895 | ||||||||
|
Investing activities
|
|||||||||||
|
Purchases of property and equipment, net
|
(28,808 | ) | (63,584 | ) | |||||||
|
Purchases of strategic investments
|
(3,250 | ) | (317 | ) | |||||||
|
Proceeds from sale of strategic investment
|
3,695 | — | |||||||||
|
Net cash received from purchase transactions
|
839 | 41,008 | |||||||||
|
Proceeds from sales of marketable securities
|
106,341 | 107,785 | |||||||||
|
Purchases of marketable securities
|
(88,800 | ) | (277,551 | ) | |||||||
|
Net cash used in investing activities
|
(9,983 | ) | (192,659 | ) | |||||||
|
Financing activities
|
|||||||||||
|
Payments on debt and other obligations
|
(10,102 | ) | (44,725 | ) | |||||||
|
Net proceeds from issuances of common stock
|
30,720 | 40,313 | |||||||||
|
Proceeds from warrants earned by customers
|
— | 18,599 | |||||||||
|
Proceeds from repayment of notes receivable from
employees
|
1,365 | 571 | |||||||||
|
Net cash provided by financing activities
|
21,983 | 14,758 | |||||||||
|
Decrease in cash and cash equivalents
|
(11,290 | ) | (120,006 | ) | |||||||
|
Cash and cash equivalents at beginning of year
|
403,758 | 523,904 | |||||||||
|
Cash and cash equivalents at end of period
|
$ | 392,468 | $ | 403,898 | |||||||
See accompanying notes.
3
BROADCOM CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 1. | Summary of Significant Accounting Policies |
| The Company |
Broadcom Corporation (the “Company”) uses proprietary technologies and advanced design methodologies to design, develop and supply complete system-on-a-chip solutions and related hardware and software applications for every major broadband communications market. The Company’s diverse product portfolio includes solutions for digital cable and satellite set-top boxes; cable and DSL modems and residential gateways; high-speed transmission and switching for local, metropolitan and wide area networking; home and wireless networking; cellular and terrestrial wireless communications; Voice over Internet Protocol (“VoIP”) gateway and telephony systems; broadband network processors; and SystemI/O™ server solutions.
| Basis of Presentation |
The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated.
The condensed consolidated financial statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly the Company’s consolidated financial position at September 30, 2002, the consolidated results of operations for the three and nine months ended September 30, 2002 and 2001, and the consolidated cash flows for the nine months ended September 30, 2002 and 2001. The results of operations for the three and nine months ended September 30, 2002 are not necessarily indicative of the results to be expected for the full fiscal year.
The accompanying unaudited condensed consolidated financial statements do not include certain footnotes and financial presentations normally required under accounting principles generally accepted in the United States. Therefore, these financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2001, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 19, 2002.