BROADCOM CORP - 10-Q Quarterly Report

16215 Alton Parkway
Irvine, California 92618-3616
(Address of principal executive offices and zip code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

As of October 31, 2003 the registrant had 235,192,063 shares of Class A common stock, $0.0001 par value, and 67,640,073 shares of Class B common stock, $0.0001 par value, outstanding.

QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003


	PART I. FINANCIAL INFORMATION

		Page

Item 1	Financial Statements		2
	Unaudited Condensed Consolidated Balance Sheets at September 30, 2003 and December 31, 2002		2
	Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended		3
	September 30, 2003 and 2002
	Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended		4
	September 30, 2003 and 2002
	Notes to Unaudited Condensed Consolidated Financial Statements		5
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations		19
	Risk Factors		33
Item 3	Quantitative and Qualitative Disclosures about Market Risk		47
Item 4	Controls and Procedures		49

	PART II. OTHER INFORMATION

Item 1	Legal Proceedings		50
Item 2	Changes in Securities and Use of Proceeds		50
Item 3	Defaults upon Senior Securities		50
Item 4	Submission of Matters to a Vote of Security Holders		50
Item 5	Other Information		50
Item 6	Exhibits and Reports on Form 8-K		50
Signatures			51

Broadcom®, the pulse logo, ServerWorks™ 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.


					September 30,			December 31,
					2003			2002

					(In thousands)
				ASSETS
Current assets:
	Cash and cash equivalents				$	468,969		$	389,555
	Short-term marketable securities					26,294			56,031
	Short-term restricted marketable securities					10,016			57,117
	Accounts receivable, net					193,061			128,215
	Inventory					77,256			46,036
	Prepaid expenses and other current assets					61,648			44,830

		Total current assets				837,244			721,784
Property and equipment, net						153,006			177,557
Long-term marketable securities						22,840			5,067
Long-term restricted marketable securities						17,394			35,137
Goodwill						841,307			1,228,603
Purchased intangible assets, net						9,601			24,036
Other assets						9,347			23,969

		Total assets			$	1,890,739		$	2,216,153

			LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Accounts payable				$	187,435		$	168,236
	Wages and related benefits					46,660			34,278
	Deferred revenue					5,140			15,129
	Accrued liabilities					258,430			204,116
	Short-term debt and current portion of long-term debt					27,297			112,258

		Total current liabilities				524,962			534,017
Commitments and contingencies Long-term restructuring liabilities						27,108			36,403
Long-term debt, less current portion						—			1,212
Shareholders’ equity:
	Common stock					30			28
	Additional paid-in capital					8,024,409			7,698,399
	Notes receivable from employees					(12,036	)		(12,847	)
	Deferred compensation					(121,863	)		(454,890	)
	Accumulated deficit					(6,552,361	)		(5,586,415	)
	Accumulated other comprehensive income					490			246

		Total shareholders’ equity				1,338,669			1,644,521

		Total liabilities and shareholders’ equity			$	1,890,739		$	2,216,153


				Three Months Ended						Nine Months Ended
				September 30,						September 30,

				2003			2002			2003			2002

							(In thousands, except per share data)
Net revenue				$	425,633		$	290,000		$	1,130,976		$	787,003
Cost of revenue (a)					217,708			161,627			596,581			439,326

Gross profit					207,925			128,373			534,395			347,677
Operating expense:
	Research and development (b)				110,282			118,338			319,783			344,759
	Selling, general and administrative (b)				50,076			42,359			138,808			123,440
	Stock-based compensation				73,191			80,453			216,725			263,613
	Amortization of purchased intangible assets				492			5,904			3,192			17,154
	Impairment of goodwill				—			—			438,611			—
	Stock option exchange				—			—			209,266			—
	Settlement costs				—			3,000			178,302			3,000
	Restructuring costs				—			27,043			2,932			31,865

Loss from operations					(26,116	)		(148,724	)		(973,224	)		(436,154	)
Interest income, net					1,481			3,109			4,981			9,862
Other income (expense), net					25,000			(31,596	)		24,953			(35,515	)

Income (loss) before income taxes					365			(177,211	)		(943,290	)		(461,807	)
Provision for income taxes					6,663			6,049			22,656			16,938

Net loss				$	(6,298	)	$	(183,260	)	$	(965,946	)	$	(478,745	)

Net loss per share (basic and diluted)				$	(.02	)	$	(.68	)	$	(3.36	)	$	(1.80	)

Weighted average shares (basic and diluted)					297,312			270,104			287,791			265,820

(a)		Cost of revenue includes the following:
			Stock-based compensation expense	$	1,103		$	3,243		$	5,475		$	9,922
			Amortization of purchased intangible assets		4,058			14,612			14,584			41,419
			Stock option exchange expense		—			—			11,454			—

				$	5,161		$	17,855		$	31,513		$	51,341

(b)		Stock-based compensation expense is excluded from the following:
			Research and development expense	$	66,363		$	57,772		$	180,623		$	182,565
			Selling, general and administrative expense		6,828			22,681			36,102			81,048

				$	73,191		$	80,453		$	216,725		$	263,613

		Amortization of purchased intangible assets is excluded from the following:
			Research and development expense	$	—		$	4,762		$	815		$	14,826
			Selling, general and administrative expense		492			1,142			2,377			2,328

				$	492		$	5,904		$	3,192		$	17,154

		Stock option exchange expense is excluded from the following:
			Research and development expense	$	—		$	—		$	164,798		$	—
			Selling, general and administrative expense		—			—			44,468			—

				$	—		$	—		$	209,266		$	—


				Nine Months Ended September 30,

				2003			2002

				(In thousands)
Operating activities
Net loss				$	(965,946	)	$	(478,745	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
	Depreciation and amortization				52,129			51,626
	Stock-based compensation expense				222,200			273,535
	Amortization of purchased intangible assets				17,776			58,573
	Impairment of goodwill				438,611			—
	Non-cash stock option exchange expense				217,940			—
	Non-cash settlement costs				88,087			—
	Non-cash restructuring costs				972			4,140
	Non-cash development revenue				(508	)		(4,700	)
	(Gain) loss on strategic investments, net				(22,041	)		35,602
	Changes in operating assets and liabilities:
		Accounts receivable			(63,956	)		(63,216	)
		Inventory			(30,763	)		(15,603	)
		Prepaid expenses and other assets			(24,611	)		(11,487	)
		Accounts payable			19,199			85,947
		Other accrued liabilities			54,275			41,374

			Net cash provided by (used in) operating activities		3,364			(22,954	)
Investing activities
Purchases of property and equipment, net					(36,014	)		(28,808	)
Purchases of strategic investments					(1,000	)		(3,250	)
Proceeds from sales of strategic investments					29,152			3,695
Net cash received (paid) in purchase transactions					(5,862	)		839
Purchases of marketable securities					(45,605	)		(88,800	)
Proceeds from maturities of marketable securities					122,413			106,341

			Net cash provided by (used in) investing activities		63,084			(9,983	)
Financing activities
Payments on debt and other obligations					(86,173	)		(10,102	)
Net proceeds from issuances of common stock					98,328			30,384
Proceeds from repayment of notes receivable from employees					811			1,365

			Net cash provided by financing activities		12,966			21,647

Increase (decrease) in cash and cash equivalents					79,414			(11,290	)
Cash and cash equivalents at beginning of year					389,555			403,758

Cash and cash equivalents at end of period				$	468,969		$	392,468

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003

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, wide area and storage 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.

The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

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, 2003, the consolidated results of operations for the three and nine months ended September 30, 2003 and 2002, and the consolidated cash flows for the nine months ended September 30, 2003 and 2002. The results of operations for the three and nine months ended September 30, 2003 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, 2002, included in the Company’s Annual Report on Form 10-K filed March 31, 2003 with the Securities and Exchange Commission.

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management 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 durin


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended September 30, 2003

		or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from to


PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
		UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
		RISK FACTORS
	Item 3. Quantitative and Qualitative Disclosures about Market Risk
	Item 4. Controls and Procedures
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds
	Item 3. Defaults upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
EXHIBIT 10.1
EXHIBIT 31
EXHIBIT 32

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents


California (State or other jurisdiction of incorporation or organization)		33-0480482 (I.R.S. Employer Identification No.)