`
`
`
`EXHIBIT 2005
`EXHIBIT 2005
`
`

`

`WordsAnalytics Document Services
`
`BROADCOM CORP
`Form 10-Q
`
`filed on
`10/22/2013
`
`Prepeared By
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`10-Q 1 brcm-20130930x10q.htm 10-Q
`
`WordsAnalytics Document Services
`
`
`
`UNITED STATES
`SECURITIES AND EXCHANGE COMMISSION
`Washington, D.C. 20549
`__________________________________
`Form 10-Q
`__________________________________
`x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
`EXCHANGE ACT OF 1934
`For the quarterly period ended September 30, 2013
`or
`¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
`EXCHANGE ACT OF 1934
`
`For the transition period from to
`Commission file number: 000-23993
` __________________________________
`
`Broadcom Corporation
`
`(Exact Name of Registrant as Specified in Its Charter)
`__________________________________
`
`California
`(Sta te o r O ther Jurisdictio n o f
`Inco rpo ra tio n o r O rg a niza tio n)
`
`33-0480482
`(I.R.S. Emplo yer
`Identifica tio n No .)
`
`5300 California Avenue
`Irvine, California 92617-3038
`(Address o f Principa l Executive O ffices) (Zip Co de)
`(949) 926-5000
`(Reg istra nt’s telepho ne number, including a rea co de)
`__________________________________
`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 x No ¨
`Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if
`any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of
`this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
`such files). Yes x No ¨
`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):
` x
` Accelerated filer
`Large accelerated filer
`
`
`
`¨ (Do not check if a smaller reporting
` Smaller reporting company
`
`company)
`Non-accelerated filer
`Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
`Act). Yes ¨ No x
`As of September 30, 2013 the registrant had 518 million shares of Class A common stock, $0.0001 par value, and 50
`million shares of Class B common stock, $0.0001 par value, outstanding.
`
` ¨
`
` ¨
`
`
`
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`Table of Contents
`
`
`
`WordsAnalytics Document Services
`
`BROADCOM CORPORATION
`
`QUARTERLY REPORT ON FORM 10-Q
`FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013
`
`TABLE OF CONTENTS
`
`
`
`PART I. FINANCIAL INFORMATION
`Item 1. Financial Statements
`Unaudited Condensed Consolidated Balance Sheets at September 30, 2013 and December 31, 2012
`Unaudited Condensed Consolidated Statements of Income for the Three and Nine Months Ended
`September 30, 2013 and 2012
`Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three and Nine
`Months Ended September 30, 2013 and 2012
`Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September
`30, 2013 and 2012
`Notes to Unaudited Condensed Consolidated Financial Statements
`Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
`Item 3. Quantitative and Qualitative Disclosures about Market Risk
`Item 4. Controls and Procedures
`PART II. OTHER INFORMATION
`Item 1. Legal Proceedings
`Item 1A. Risk Factors
`Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
`Item 3. Defaults upon Senior Securities
`Item 4. Mine Safety Disclosures
`Item 5. Other Information
`Item 6. Exhibits
`
`
`
`
`
`
`
`Pa g e
`
`2
`2
`
`3
`
`4
`
`5
`6
`22
`39
`40
`
`40
`40
`49
`50
`50
`50
`51
`
`Broadcom® and the pulse logo are among the trademarks of Broadcom Corporation and/or its affiliates in the United
`States, certain other countries and/or the EU. Any other trademarks or trade names mentioned are the property of their
`respective owners.
`
`© 2013 Broadcom Corporation. All rights reserved.
`
`1
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`Table of Contents
`
`Item 1. Financial Statements
`
`WordsAnalytics Document Services
`
`PART I. FINANCIAL INFORMATION
`
`
`
`
`
`
`BROADCOM CORPORATION
`
`UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
`
`September 3 0 ,
`2 0 13
`
`December 3 1,
`2 0 12
`
`
`(In millio ns)
`
`ASSETS
`
`Current assets:
`Cash and cash equivalents
`Short-term marketable securities
`Accounts receivable, net
`Inventory
`Prepaid expenses and other current assets
`Total current assets
`Property and equipment, net
`Long-term marketable securities
`Goodwill
`Purchased intangible assets, net
`Other assets
`Total assets
`
`LIABILITIES AND SHAREHOLDERS’ EQUITY
`
`Current liabilities:
`Current portion of long-term debt
`Accounts payable
`Wages and related benefits
`Deferred revenue and income
`Accrued liabilities
`Total current liabilities
`Long-term debt
`Other long-term liabilities
`Commitments and contingencies
`Shareholders’ equity:
`Common stock
`Additional paid-in capital
`Accumulated deficit
`Accumulated other comprehensive loss
`Total shareholders’ equity
`Total liabilities and shareholders’ equity
`
`
`$
`
`$
`
`
`$
`
`
`
`$
`
`
`1,524 $
`880
`852
`541
`130
`3,927
`535
`1,940
`3,743
`1,112
`88
`11,345 $
`
`
`300 $
`520
`219
`22
`740
`1,801
`1,394
`233
`
`
`—
`12,207
`(4,275)
`(15)
`7,917
`11,345 $
`
`1,617
`757
`740
`527
`140
`3,781
`485
`1,348
`3,726
`1,786
`82
`11,208
`
`300
`549
`241
`22
`570
`1,682
`1,393
`294
`
`—
`12,403
`(4,531)
`(33)
`7,839
`11,208
`
`See accompanying notes.
`2
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`Table of Contents
`
`
`
`WordsAnalytics Document Services
`
`BROADCOM CORPORATION
`
`UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
`
`
`
`
`
`Net revenue:
`Product revenue
`Income from Qualcomm Agreement
`Total net revenue
`Costs and expenses:
`Cost of product revenue
`Research and development
`Selling, general and administrative
`Amortization of purchased intangible assets
`Impairments of long-lived assets
`Restructuring costs
`Settlement costs (gains)
`Charitable contribution
`Total operating costs and expenses
`Income from operations
`Interest expense, net
`Other income (expense), net
`Income before income taxes
`Provision for (benefit of) income taxes
`Net income
`Net income per share (basic)
`Net income per share (diluted)
`Weighted average shares (basic)
`Weighted average shares (diluted)
`Dividends per share
`
`
`$
`
`
`
`$
`$
`$
`
`$
`
`
`6,155 $
`86
`6,241
`
`3,062
`1,843
`534
`43
`511
`12
`(75)
`25
`5,955
`286
`(24)
`2
`264
`8
`256 $
`0.45 $
`0.44 $
`573
`585
`0.33 $
`
`
`Nine Mo nths Ended
`Three Mo nths Ended
`
`September 3 0 ,
`September 3 0 ,
`
`
`
`2 0 13
`2 0 12
`2 0 13
`2 0 12
`(In millio ns, except per sha re da ta )
`
`
`2,146 $
`2,085 $
`—
`43
`2,146
`2,128
`
`
`1,044
`1,063
`609
`600
`181
`174
`14
`32
`—
`48
`12
`2
`(75)
`(2)
`25
`—
`1,810
`1,917
`336
`211
`(7)
`(8)
`(4)
`8
`325
`211
`9
`(9)
`316 $
`220 $
`0.55 $
`0.39 $
`0.55 $
`0.38 $
`571
`561
`578
`579
`0.11 $
`0.10 $
`
`5,783
`143
`5,926
`
`3,002
`1,728
`524
`82
`85
`6
`86
`—
`5,513
`413
`(21)
`14
`406
`(62)
`468
`0.84
`0.82
`555
`574
`0.30
`
`The following table presents details of total stock-based compensation expense included in each functional line item
`in the unaudited condensed consolidated statements of income above:
`
`
`
`
`
`Cost of product revenue
`Research and development
`Selling, general and administrative
`
`Three Mo nths Ended
`September 3 0 ,
`
`2 0 12
`
`2 0 13
`
`$
`
`6 $
`86
`33
`
`
`
`
`(In millio ns)
`6 $
`89
`33
`
`Nine Mo nths Ended
`September 3 0 ,
`
`2 0 13
`2 0 12
`
`19 $
`280
`102
`
`21
`278
`116
`
`See accompanying notes.
`3
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`Table of Contents
`
`BROADCOM CORPORATION
`
`WordsAnalytics Document Services
`
`UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
`
`
`
`
`
`
`
`Net income
`Other comprehensive income (loss), net of tax:
`Foreign currency translation adjustments, net of
`$0 tax in 2013 and 2012
`Unrealized gains (losses) on marketable
`securities, net of $0 tax in 2013 and 2012
`Other comprehensive income (loss)
`Comprehensive income
`
`$
`
`
`$
`
`Three Mo nths Ended
`September 3 0 ,
`
`2 0 13
`2 0 12
`
`316 $
`
`
`18
`
`4
`22
`338 $
`
`
`
`
`(In millio ns)
`220 $
`
`
`10
`
`2
`12
`232 $
`
`Nine Mo nths Ended
`September 3 0 ,
`
`2 0 13
`2 0 12
`
`256 $
`
`
`19
`
`(1)
`18
`274 $
`
`468
`
`(15)
`
`4
`(11)
`457
`
`See accompanying notes.
`4
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`Table of Contents
`
`
`
`WordsAnalytics Document Services
`
`BROADCOM CORPORATION
`
`UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
`
`
`
`
`
`Operating activities
`Net income
`Adjustments to reconcile net income to net cash provided by operating activities:
`Depreciation and amortization
`Stock-based compensation expense
`Acquisition-related items:
`Amortization of purchased intangible assets
`Impairments of long-lived assets
`Gain on strategic investments and other
`Changes in operating assets and liabilities, net of acquisitions:
`Accounts receivable
`Inventory
`Prepaid expenses and other assets
`Accounts payable
`Deferred revenue and income
`Accrued settlement costs
`Other accrued and long-term liabilities
`Net cash provided by operating activities
`Investing activities
`Net purchases of property and equipment
`Net cash paid for acquired companies
`Sales of strategic investments
`Purchases of marketable securities
`Proceeds from sales and maturities of marketable securities
`Net cash used in investing activities
`Financing activities
`Issuance of long-term debt, net
`Repurchases of Class A common stock
`Dividends paid
`Payment of assumed contingent consideration and debt
`Proceeds from issuance of common stock
`Minimum tax withholding paid on behalf of employees for restricted stock units
`Net cash provided by (used in) financing activities
`Decrease in cash and cash equivalents
`Cash and cash equivalents at beginning of period
`Cash and cash equivalents at end of period
`
`See accompanying notes.
`5
`
`
`$
`
`
`
`
`
`
`
`
`
`
`$
`
`468
`
`95
`415
`
`230
`85
`(12)
`
`(140)
`(35)
`(8)
`125
`39
`51
`25
`1,338
`
`Nine Mo nths Ended
`September 3 0 ,
`
`2 0 13
`2 0 12
`(In millio ns)
`
`256 $
`
`122
`401
`
`172
`511
`(2)
`
`(112)
`(14)
`3
`(20)
`(11)
`(38)
`126
`1,394
`
`(172)
`—
`—
`(2,214)
`1,496
`(890)
`
`—
`(595)
`(190)
`—
`292
`(104)
`(597)
`(93)
`1,617
`1,524 $
`
`(189)
`(3,582)
`13
`(1,854)
`1,192
`(4,420)
`
`492
`(1)
`(167)
`(57)
`209
`(124)
`352
`(2,730)
`4,146
`1,416
`
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`

`Table of Contents
`
`WordsAnalytics Document Services
`
`BROADCOM CORPORATION
`
`NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
`
`1. Summary of Significant Accounting Policies
`
`Our Company
`
`Broadcom Corporation (including our subsidiaries, referred to collectively in this Report as “Broadcom,” “we,” “our”
`and “us”) is a global leader and innovator in semiconductor solutions for wired and wireless communications. Broadcom®
`products seamlessly deliver voice, video, data and multimedia connectivity in the home, office and mobile environments.
`We provide the industry’s broadest portfolio of state-of-the-art system-on-a-chip, or SoC, and embedded software
`solutions.
`
`Basis of Presentation
`
`The interim condensed consolidated financial statements have been prepared in accordance with accounting
`principles generally accepted in the United States, or GAAP, for interim financial information and with the instructions to
`Securities and Exchange Commission, or SEC, Form 10-Q and Article 10 of SEC Regulation S-X. They do not include all of
`the information and footnotes required by generally accepted accounting principles for complete financial statements.
`Therefore, these financial statements should be read in conjunction with our audited consolidated financial statements and
`notes thereto for the year ended December 31, 2012, included in our 2012 Annual Report on Form 10-K filed with the SEC
`on January 30, 2013, referred to as our 2012 Annual Report.
`
`The interim condensed consolidated financial statements included herein are unaudited; however, they contain all
`normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly our results of
`operations and financial position for the interim periods. The results of operations for the three and nine months ended
`September 30, 2013 are not necessarily indicative of the results to be expected for future quarters or the full year. Certain
`amounts previously reported as licensing revenue have been reclassified to product revenue to conform to the current
`period presentation. Such reclassifications had an impact of $7 million and $18 million in the three and nine months ended
`September 30, 2012, respectively, and did not affect net income, shareholders' equity or cash flows.
`
`For a complete summary of our significant accounting policies, please refer to Note 1, “Summary of Significant
`Accounting Policies,” in Part IV, Item 15 of our 2012 Annual Report. There have been no material changes to our significant
`accounting policies during the nine months ended September 30, 2013.
`
`Use of Estimates
`
`The preparation of financial statements in accordance with United States generally accepted accounting principles, or
`GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at
`the dates of the financial statements and the reported amounts of total net revenue and expenses in the reporting periods.
`We regularly evaluate estimates and assumptions related to revenue recognition, rebates, allowances for doubtful accounts,
`sales returns and allowances, warranty obligations, inventory valuation, stock-based compensation expense, goodwill and
`purchased intangible asset valuations, strategic investments, deferred income tax asset valuation allowances, uncertain tax
`positions, tax contingencies, self-insurance, restructuring costs or reversals, litigation and other loss contingencies. These
`estimates and assumptions are based on current facts, historical experience and various other factors that we believe to be
`reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of
`assets and liabilities and the recording of revenue, costs and expenses that are not readily apparent from other sources.
`The actual results we experience may differ materially and adversely from our estimates. To the extent there are material
`differences between the estimates and actual results, our future results of operations will be affected.
`
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`Table of Contents
`
`2. Supplemental Financial Information
`
`Inventory
`
`The following table presents details of our inventory:
`
`
`
`Work in process
`Finished goods
`
`
`Accrued Liabilities
`
`WordsAnalytics Document Services
`
`September 3 0 ,
`2 0 13
`
`December 3 1,
`2 0 12
`
`
`(In millio ns)
`211 $
`330
`541 $
`
`$
`
`$
`
`The following table presents details of our accrued liabilities included in current liabilities:
`
`187
`340
`527
`
`383
`21
`68
`15
`16
`13
`—
`54
`570
`
`
`
`Accrued rebates
`Accrued royalties
`Accrued settlement charges
`Accrued legal costs
`Accrued taxes
`Warranty reserve
`Restructuring liabilities
`Other
`
`
`Other Long-Term Liabilities
`
`The following table presents details of our other long-term liabilities:
`
`
`
`Deferred rent
`Accrued taxes
`Deferred tax liabilities
`Accrued settlement charges
`Deferred revenue
`Other long-term liabilities
`
`
`7
`
`$
`
`$
`
`$
`
`$
`
`September 3 0 ,
`2 0 13
`
`December 3 1,
`2 0 12
`
`
`(In millio ns)
`522 $
`17
`60
`18
`22
`11
`12
`78
`740 $
`
`September 3 0 ,
`2 0 13
`
`December 3 1,
`2 0 12
`
`
`(In millio ns)
`48 $
`65
`35
`28
`36
`21
`233 $
`
`54
`67
`45
`58
`47
`23
`294
`
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`Table of Contents
`
`Accrued Rebate Activity
`
`The following table summarizes the activity related to accrued rebates:
`
`WordsAnalytics Document Services
`
`
`
`
`
`Beginning balance
`Charged as a reduction of revenue
`Reversal of unclaimed rebates
`Payments
`Ending balance
`
`Nine Mo nths Ended
`September 3 0 ,
`
`2 0 13
`2 0 12
`(In millio ns)
`383 $
`617
`(15)
`(463)
`522 $
`
`317
`512
`(8)
`(441)
`380
`
`$
`
`$
`
`We recorded customer rebates of $264 million and $216 million in the three months ended September 30, 2013 and
`2012, respectively.
`
`Charitable Contribution
`
`In April 2009 we established the Broadcom Foundation to support science, technology, engineering and mathematics
`programs, as well as a broad range of community services. In September 2013 we contributed $25 million to the Broadcom
`Foundation. This payment was recorded as an operating expense in our unaudited statement of income in the three months
`ended September 30, 2013.
`
`Computation of 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 stock 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 stock 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.
`
`The following table presents the computation of net income per share:
`
`
`
`
`
`Numerator: Net income
`Denominator for net income per share (basic)
`Effect of dilutive securities:
`Stock awards
`Denominator for net income per share (diluted)
`Net income per share (basic)
`Net income per share (diluted)
`
`
`Nine Mo nths Ended
`Three Mo nths Ended
`
`September 3 0 ,
`September 3 0 ,
`
`
`
`2 0 13
`2 0 12
`2 0 13
`2 0 12
`(In millio ns, except per sha re da ta )
`316 $
`220 $
`256 $
`571
`561
`573
`
`
`
`7
`18
`12
`578
`579
`585
`0.55 $
`0.39 $
`0.45 $
`0.55 $
`0.38 $
`0.44 $
`
`468
`555
`
`19
`574
`0.84
`0.82
`
`$
`
`
`
`$
`$
`
`Net income per share (diluted) does not include the effect of anti-dilutive common share equivalents resulting from
`outstanding equity awards. There were 47 million and 26 million anti-dilutive common share equivalents in the three
`months ended September 30, 2013 and 2012, respectively, and 39 million and 23 million anti-dilutive common share
`equivalents in the nine months ended September 30, 2013 and 2012, respectively.
`
`8
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`

`Table of Contents
`
`Income from the Qualcomm Agreement
`
`WordsAnalytics Document Services
`
`For a discussion of income from our April 2009 agreement with Qualcomm Incorporated, or the Qualcomm
`Agreement, please see our 2012 Annual Report. The income from the Qualcomm Agreement terminated in April 2013.
`
`Supplemental Cash Flow Information
`
`In the nine months ended September 30, 2013, we paid $27 million for capital equipment that was accrued as of
`December 31, 2012 and had billings of $18 million for capital equipment that were accrued but not yet paid as of
`September 30, 2013.
`
`3. Fair Value Measurements
`
`Our financial instruments consist principally of cash and cash equivalents, short- and long-term marketable securities,
`accounts receivable, accounts payable and long-term debt. The fair value of a financial instrument is the amount that would
`be received in an asset sale or paid to transfer a liability in an orderly transaction between unaffiliated market participants.
`Assets and liabilities measured at fair value are categorized based on whether or not the inputs are observable in the
`market and the degree that the inputs are observable. The categorization of financial instruments within the valuation
`hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is
`prioritized into three levels (with Level 3 being the lowest) defined as follows:
`
` Inputs are based on quoted market prices for identical assets or liabilities in active markets at
`Level 1:
`the measurement date.
`Level 2:
`Inputs include quoted prices for similar assets or liabilities in active markets and/or quoted
`prices for identical or similar assets or liabilities in markets that are not active near the measurement date.
`Level 3:
`Inputs include management’s best estimate of what market participants would use in pricing
`the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the
`instrument’s valuation.
`
`The fair value of the majority of our cash equivalents and marketable securities was determined based on “Level 1”
`inputs. The fair value of certain marketable securities and our long-term debt were determined based on “Level 2” inputs.
`The valuation techniques used to measure the fair value of our “Level 2” instruments were valued based on quoted market
`prices or model driven valuations using significant inputs derived from or corroborated by observable market data. We do
`not have any marketable securities in the “Level 3” category. We believe that the recorded values of all our other financial
`instruments approximate their current fair values because of their nature and respective relatively short maturity dates or
`durations.
`
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`Instruments Measured at Fair Value on a Recurring Basis. The following tables present our cash and marketable
`securities’ costs, gross unrealized gains, gross unrealized losses and fair value by major security type recorded as cash and
`cash equivalents or short-term or long-term marketable securities:
`
`
`
`
`
`Cash
`Level 1:
`Bank and time
`deposits
`Money market funds
`U.S. treasury and
`agency
`obligations
`Subtotal
`
`Level 2:
`Commercial paper
`Corporate bonds
`Asset-backed
`securities and
`other
`Subtotal
`T otal
`
`
`
`
`
`Cash
`Level 1:
`Bank and time
`deposits
`Money market funds
`U.S. treasury and
`agency obligations
`Corporate bonds
`Subtotal
`
`Level 2:
`Commercial paper
`Corporate bonds
`Asset-backed
`securities and
`other
`Subtotal
`T otal
`
`$
`
`
`
`
`$
`
`$
`
`
`
`
`$
`
`Gro ss
`Unrea lized
`Ga ins
`
`
`
`Co st
`
`
`
`418 $
`
`
`620
`340
`
`1,084
`2,044
`
`252
`1,575
`
`54
`1,881
`4,343 $
`
`— $
`
`
`—
`—
`
`1
`1
`
`—
`2
`
`—
`2
`3 $
`
`Gro ss
`Unrea lized
`Ga ins
`
`
`
`Co st
`
`
`
`213 $
`
`
`904
`250
`
`936
`1
`2,091
`
`432
`921
`
`63
`1,416
`3,720 $
`
`— $
`
`
`—
`—
`
`1
`—
`1
`
`—
`2
`
`—
`2
`3 $
`
`Gro ss
`Unrea lized
`Lo sses
`
`September 3 0 , 2 0 13
`Ca sh a nd
`Ca sh
`Equiva lents
`
`Sho rt-Term
`Ma rketa ble
`Securities
`
`Lo ng -Term
`Ma rketa ble
`Securities
`
`
`
`Fa ir
`
`
`Va lue
`(In millio ns)
`— $
`418 $
`
`
`
`418 $
`
`
`620
`340
`
`—
`960
`
`146
`—
`
`—
`—
`
`620
`340
`
`(1)
`(1)
`
`
`
`
`—
`
`(1)
`
`1,084
`2,044
`
`252
`1,576
`
`—
`
`(1)
` $
`(2)
`
`54
`1,882
`4,344 $
`
`—
`146
`1,524 $
`
`— $
`
`
`—
`—
`
`191
`191
`
`106
`559
`
`24
`689
`880 $
`
`—
`
`—
`—
`
`893
`893
`
`—
`1,017
`
`30
`1,047
`1,940
`
`— $
`
`
`20
`—
`
`201
`1
`222
`
`162
`351
`
`22
`535
`757 $
`
`—
`
`—
`—
`
`736
`—
`736
`
`—
`571
`
`41
`612
`1,348
`
`Gro ss
`Unrea lized
`Lo sses
`
`December 3 1, 2 0 12
`Ca sh a nd
`Ca sh
`Equiva lents
`
`Sho rt-Term
`Ma rketa ble
`Securities
`
`Lo ng -Term
`Ma rketa ble
`Securities
`
`
`
`Fa ir
`
`
`Va lue
`(In millio ns)
`— $
`213 $
`
`
`
`213 $
`
`
`884
`250
`
`—
`—
`1,134
`
`270
`—
`
`—
`—
`
`—
`—
`—
`
`—
`
`(1)
`
`904
`250
`
`937
`1
`2,092
`
`432
`922
`
`—
`
`(1)
` $
`(1)
`
`63
`1,417
`3,722 $
`
`—
`270
`1,617 $
`
`There were no transfers between Level 1, Level 2 or Level 3 securities in the nine months ended September 30,
`2013. All of our long-term marketable securities had maturities of between one and three years in duration at
`September 30, 2013. Our cash, cash equivalents and marketable securities at September 30, 2013 consisted of $2.09 billion
`held domestically, with the remaining balance of $2.25 billion held by our foreign subsidiaries.
`
`At September 30, 2013 we had 161 investments with a fair value of $919 million that were in an unrealized loss
`position for less than 12 months. Our gross unrealized losses of $2 million for these investments at September 30, 2013
`were due to changes in market rates. We have determined that the gross unrealized losses on these investments at
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`September 30, 2013 are temporary in nature. We evaluate securities for other-than-temporary impairment on a quarterly
`basis. Impairment is evaluated
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`considering numerous factors, and their relative significance varies depending on the situation. Factors considered include
`the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term
`prospects of the issuer, and our intent and ability to hold the investment in order to allow for an anticipated recovery in fair
`value.
`
`Instruments Not Recorded at Fair Value on a Recurring Basis. We measure the fair value of our long-term debt carried
`at amortized cost quarterly for disclosure purposes. The estimated fair value of long-term debt is determined by Level 2
`inputs and is based primarily on quoted market prices for the same or similar issues. Based on the market prices, the fair
`value of our long-term debt was $1.68 billion and $1.75 billion as of September 30, 2013 and December 31, 2012,
`respectively. The recorded values of all our accounts receivable and accounts payable approximate their current fair values
`because of their nature and respective relatively short maturity dates or durations.
`
`Assets and Liabilities Recorded at Fair Value on a Non-Recurring Basis. We measure the fair value of our cost method
`investments when they are deemed to be other-than-temporarily impaired, assets acquired and liabilities assumed in a
`business acquisition, and goodwill and other long lived assets when they are held for sale or determined to be impaired. See
`Note 9 for discussion on fair value measurements of certain assets and liabilities recorded at fair value on a non-recurring
`basis.
`
`4.
`
`Income Taxes
`
`The following table presents details of the provision for (benefit of) income taxes and our effective tax rates:
`
`
`
`
`
`Provision for (benefit of) income taxes
`Effective tax rates
`
`
`Nine Mo nths Ended
`Three Mo nths Ended
`
`September 3 0 ,
`September 3 0 ,
`
`
`
`2 0 13
`2 0 12
`2 0 13
`2 0 12
`(In millio ns, except percenta g es)
`
` $
`(9)
`
`8
`9
`2.8%
`(4.3)%
`3.0%
`
`(62)
`(15.3)%
`
`$
`
`The differences between our effective tax rates and the 35% federal statutory rate resulted primarily from foreign
`earnings taxed at substantially lower rates than the federal statutory rate, and domestic tax losses recorded without tax
`benefits. In determining our annualized effective tax rates, the tax effects of a $75 million settlement gain for the three and
`nine months ended September 30, 2013, and the impairments of purchased intangible assets of $48 million for the three
`months ended September 30, 2012, and $511 million and $85 million for the nine months ended September 30, 2013 and
`2012, respectively, were treated as discrete items. As a result, we recorded discrete tax benefits for the impairments of
`purchased intangible assets of $12 million for the three and nine months ended September 30, 2012, and $10 million for the
`nine months ended September 30, 2013. We recorded a discrete tax provision of $3 million for the three and nine months
`ended September 30, 2013, resulting from changes to foreign statutory tax rates. We also recorded discrete tax benefits of
`$9 million and $7 million for the nine months ended September 30, 2013 and 2012, respectively, resulting primarily from
`the expiration of statutes of limitations for the assessment of taxes in various foreign jurisdictions. In addition, we recorded
`tax benefits resulting from reductions in our U.S. valuation allowance on certain deferred tax assets due to recording net
`deferred tax liabilities for identifiable intangible assets under purchase accounting of $51 million for the nine months ended
`September 30, 2012.
`
`As a result of our cumulative tax losses in the U.S. and certain foreign jurisdictions, and the full utilization of our loss
`carryback opportunities, we have concluded that a full valuation allowance should be recorded in such jurisdictions. In
`certain other foreign jurisdictions where we do not have cumulative losses, we had net deferred tax liabilities of $17 million
`and $29 million at September 30, 2013 and December 31, 2012, respectively.
`
`We operate under tax incentives in Singapore, which are effective through March 2014. The tax incentives are
`conditional upon our meeting certain employment and investment thresholds. We are in discussions with the Singapore
`Economic Development Board with respect to tax incentives for periods after March 31, 2014.
`
`Our income tax returns for the 2007, 2008 and 2009 tax years are currently under examination by the Internal
`Revenue Service. We do not believe the audit will have a material impact on our financial position, operating results, or
`cash flows. However, our deferred tax assets could be reduced, with a corresponding reduction in the valuation allowance
`related to such deferred tax assets.
`
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`Table of Contents
`
`5. Debt and Credit Facility
`
`Senior Notes
`
`The following table presents details of our senior notes, or Notes:
`
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`1.500% fixed-rate notes, due 2013
`2.375% fixed-rate notes, due 2015
`2.700% fixed-rate notes, due 2018
`2.500% fixed-rate notes, due 2022
`
`Unaccreted discount
`Less current portion of long-term debt
`
`
`September 3 0 ,
`2 0 13
`(In millio ns)
`300
`400
`500
`500
`1,700
`(6)
`(300)
`1,394
`
`$
`
`$
`
`$
`
`In connection with the Notes issued in August 2012 and due in 2022, or the 2022 Notes, we entered into a registration
`rights agreement pursuant to which we agreed to use our reasonable commercial efforts to file with the SEC an exchange
`offer registration statement to issue registered notes with substantially identical terms as the 2022 Notes in exchange for
`any outstanding 2022 Notes, or, under certain circumstances, a shelf registration statement to register the 2022 Notes. In
`the three months ended June 30, 2013 we commenced and completed an exchange offer to issue registered notes with
`substantially identical terms as the original 2022 Notes. Substantially all of the original notes were exchanged.
`
`The Notes contain a number of customary representations, warranties and restrictive covenants, including, but not
`limited to, restrictions on our ability to grant liens on assets; enter into sale and lease-back transactions; or merge,
`consolidate or sell assets. Failure to comply with these covenants, or any other event of default, could result in acceleration
`of the principal amount and accrued but unpaid interest on the Notes.
`
`Relative to our overall indebtedness, the Notes rank in right of payment (i) equal with all of our other existing and
`future senior unsecured indebtedness (ii) senior to all of our existing and future subordinated indebtedness, and (iii)
`effectively subordinated to all of our subsidiaries' existing and future indebtedness and other obligations (including secured
`and unsecured obligations) and subordinated to our existing and future secured indebtedness and other obligations, to the
`extent of the assets securing such indebtedness and other obligations.
`
`Credit Facility
`
`In November 2010 we entered into a credit facility with certain institutional lenders that provides for unsecured
`revolving facility loans, swing line loans and letters of credit in an aggregate amount of up to $500 million. We amended this
`credit facility in October 2011 primarily to extend the maturity date by two years to November 19, 2016, at which time all
`outstanding revolving facility loans (if any) and accrued and unpaid interest must be repaid. The amendment to the credit
`facility also decreased the interest rate margins applicable to loans made under the credit facility and the commitment fee
`paid on the amount of the unused commitments. We have not drawn on our credit facility to date.
`
`The credit facility contains customary representations, warranties and covenants. Financial covenants require us to
`maintain a consolidated leverage ratio of no more than 3.25