SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): January 16, 2001
BROADCOM CORPORATION
(Exact Name of Registrant as Specified in Charter)
California 000-23993 33-0480482
------------------------------ ------------------------ ---------------------------------
(State or Other (Commission File Number) (IRS Employer Identification No.)
Jurisdiction of Incorporation)
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16215 Alton Parkway, Irvine, California 92618
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (949) 450-8700
Not Applicable
(Former Name or Former Address, if Changed since Last Report)
This amendment to the Current Report on Form 8-K originally dated January 16, 2001, is being filed in order to include the historical financial statements of ServerWorks Corporation ("ServerWorks") and the unaudited pro forma financial information listed below. ServerWorks was formerly known as Reliance Computer Corporation.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of business acquired.
The following financial statements of Reliance Computer Corporation are included in this report:
Audited consolidated balance sheets of Reliance Computer Corporation and subsidiaries as of March 31, 2000 and March 26, 1999, and the consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended March 31, 2000.
Unaudited condensed consolidated balance sheet of Reliance Computer Corporation and subsidiaries as of September 29, 2000 and the unaudited condensed consolidated statements of operations and cash flows for the six months ended September 29, 2000 and September 27, 1999.
(b) Pro forma financial information.
The following unaudited pro forma condensed financial information is being filed herewith:
Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2000.
Unaudited Pro Forma Condensed Combined Statements of Operations for the nine months ended September 30, 2000 and the twelve months ended December 31, 1999.
(c) Exhibits.
23.1 Consent of Independent Auditors
ITEM 7.(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Report of Independent Auditors
The Board of Directors
Reliance Computer Corporation
We have audited the accompanying consolidated balance sheets of Reliance Computer Corporation and subsidiaries (the "Company") as of March 31, 2000 and March 26, 1999, and the consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended March 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the 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 Reliance Computer Corporation and subsidiaries at March 31, 2000 and March 26, 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 31, 2000, in conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
San Jose, California
August 11, 2000
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Reliance Computer Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share and per share data)
MARCH 31, MARCH 26,
2000 1999
-----------------------
ASSETS
Current assets:
Cash and cash equivalents $ 19,380 $ 11,371
Accounts receivable (net of allowance for
doubtful accounts of $200 at March 31, 2000
and $100 at March 26, 1999) 20,808 2,675
Inventory 5,852 337
Prepaid expenses and other assets 123 43
----------------------
Total current assets 46,163 14,426
Notes receivable from employees 383 12
Property and equipment, net 2,131 1,641
Deferred income taxes 6,478 2,860
----------------------
Total assets $ 55,155 $ 18,939
======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 20,239 $ 3,583
Provision for rebates 3,537 804
Employee compensation 942 1,169
Warranty provision 566 343
Deferred revenue 8,200 3,882
Income taxes 7,834 2,363
----------------------
Total current liabilities 41,318 12,144
Note payable 100 --
Commitments
Stockholders' equity:
Series A convertible preferred stock,
$0.0001 par value, 1,000 shares authorized,
issued and outstanding at March 31, 2000 and
March 26, 1999 -- --
Common stock, $0.0001 par value, 24,000,000 shares
authorized, 15,610,897 shares issued and
outstanding at March 31, 2000, 14,644,666 shares
issued and outstanding at March 26, 1999 2 1
Additional paid-in capital 48,363 40,430
Notes receivable from stockholders (33) (193)
Deferred compensation (393) (874)
Accumulated deficit (34,202) (32,569)
----------------------
Total stockholders' equity 13,737 6,795
----------------------
Total liabilities and stockholders' equity $ 55,155 $ 18,939
======================
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See accompanying notes.
Reliance Computer Corporation and Subsidiaries
Consolidated Statements of Operations
(In thousands, except share and per share data)
YEARS ENDED
------------------------------------------------
MARCH 31, MARCH 26, MARCH 27,
2000 1999 1998
------------------------------------------------
Net revenue $ 55,551 $ 32,875 $ 34,862
Cost of revenue 33,522 17,500 17,595
------------------------------------------------
Gross profit 22,029 15,375 17,267
------------------------------------------------
Operating expenses:
Research and development(1) 8,165 6,491 4,530
Sales and marketing(2) 900 372 288
General and administrative(3) 2,499 1,428 1,272
Stock compensation 8,315 11,144 11,658
------------------------------------------------
Total operating expenses 19,879 19,435 17,748
------------------------------------------------
Income (loss) from operations 2,150 (4,060) (481)
Interest income 679 303 6
Interest expense -- (24) (249)
------------------------------------------------
Income (loss) before income taxes 2,829 (3,781) (724)
Income taxes 4,462 2,929 2,710
------------------------------------------------
Net loss $ (1,633) $ (6,710) $ (3,434)
================================================
Basic and diluted loss per common share $ (0.12) $ (0.47) $ (0.25)
================================================
Weighted-average shares used in computing basic
and diluted net loss per common share 14,908,628 14,564,065 14,404,082
================================================
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(1) Excludes $1,630 in 2000, $2,399 in 1999, and $2,468 in 1998 of stock compensation expense.
(2) Excludes $33 in 2000, $60 in 1999, and $120 in 1998 of stock compensation expense.
(3) Excludes $6,652 in 2000, $8,685 in 1999, and $9,070 in 1998 of stock compensation expense.
See accompanying notes.
Reliance Computer Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
(In thousands, except share data)
SERIES A
CONVERTIBLE NOTES
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE TOTAL
----------------------------------- PAID-IN FROM DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION DEFICIT EQUITY
--------------------------------------------------------------------------------------------------
Balance at March 31, 1997 1,000 $ -- 14,400,000 $ 1 $ 17,297 $ (208) $ (562) $(22,425) $ (5,897)
Common stock issued upon
exercise of stock options -- -- 31,233 -- 2 -- -- -- 2
Repayment of notes receivable
from stockholders -- -- -- -- -- 22 -- -- 22
Deferred compensation -- -- -- -- 1,344 -- (1,344) -- --
Compensation charge relating
to founders' options -- -- -- -- 11,097 -- -- -- 11,097
Amortization of deferred
stock compensation -- -- -- -- -- -- 561 -- 561
Net loss for 1998 -- -- -- -- -- -- -- (3,434) (3,434)
--------------------------------------------------------------------------------------------------
Balance at March 27, 1998 1,000 -- 14,431,233 1 29,740 (186) (1,345) (25,859) 2,351
Common stock issued upon
exercise of stock options -- -- 213,433 -- 17 (7) -- -- 10
Deferred compensation -- -- -- -- 474 -- (474) -- --
Compensation charge relating
to founders' options -- -- -- -- 10,199 -- -- -- 10,199
Amortization of deferred
stock compensation -- -- -- -- -- -- 945 -- 945
Net loss for 1999 -- -- -- -- -- -- -- (6,710) (6,710)
--------------------------------------------------------------------------------------------------
Balance at March 26, 1999 1,000 -- 14,644,666 1 40,430 (193) (874) (32,569) 6,795
Common stock issued upon
exercise of stock options -- -- 966,231 1 99 (36) -- -- 64
Repayment of notes receivable
from stockholders -- -- -- -- -- 196 -- -- 196
Compensation charge relating
to founders' options -- -- -- -- 7,834 -- -- -- 7,834
Amortization of deferred
stock compensation -- -- -- -- -- -- 481 -- 481
Net loss for 2000 -- -- -- -- -- -- -- (1,633) (1,633)
--------------------------------------------------------------------------------------------------
Balance at March 31, 2000 1,000 $ -- 15,610,897 $ 2 $ 48,363 $ (33) $ (393) $(34,202) $ 13,737
==================================================================================================
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See accompanying notes.
Reliance Computer Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
YEARS ENDED
-------------------------------------
MARCH 31, MARCH 26, MARCH 27,
2000 1999 1998
-------------------------------------
OPERATING ACTIVITIES
Net loss $ (1,633) $ (6,710) $ (3,434)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 838 494 271
Amortization -- -- 45
Deferred income taxes (3,618) (1,161) (1,699)
Provision for rebates 2,733 591 213
Warranty provision 223 (87) 430
Stock compensation 8,315 11,144 11,658
Changes in operating assets and liabilities:
Accounts receivable, net (18,133) 2,878 (5,300)
Inventory, net (5,515) 637 (932)
Prepaid expenses and other assets (80) (16) 1
Accounts payable and accrued expenses 16,656 340 2,317
Employee compensation (227) (5) 309
Deferred revenue, net 4,318 2,927 340
Income taxes 5,471 105 2,258
-------------------------------------
Net cash provided by operating activities 9,348 11,137 6,477
-------------------------------------
INVESTING ACTIVITIES
Issuance of notes receivable to employees (443) (20) --
Repayment of notes receivable from employees 72 8 --
Purchases of property and equipment (1,328) (1,232) (738)
-------------------------------------
Net cash used in investing activities (1,699) (1,244) (738)
-------------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of note payable 100 -- --
Repayment of long-term debt -- (3,000) (1,400)
Proceeds from issuance of common stock 64 10 2
Repayment of notes receivable from stockholders 196 -- 22
-------------------------------------
Net cash provided by (used in) financing 360 (2,990) (1,376)
activities
-------------------------------------
Net increase in cash and cash equivalents 8,009 6,903 4,363
Cash and cash equivalents at beginning of year 11,371 4,468 105
-------------------------------------
Cash and cash equivalents at end of year $ 19,380 $ 11,371 $ 4,468
=====================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Interest paid $ -- $ 44 $ 327
=====================================
Income taxes paid $ 2,592 $ 3,961 $ 1,490
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See accompanying notes.
Reliance Computer Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Reliance Computer Corporation (the "Company") was incorporated on November 21, 1994 in the state of Delaware. The Company designs, markets, and subcontracts the manufacture of Multiprocessing Core Logic Chipsets for the server and workstation market.
BASIS OF PRESENTATION
The consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries, Reliance Sales Corporation, incorporated in the U.S. Virgin Islands, and R2 International (a partnership registered in the Netherlands). All significant intercompany accounts and transactions have been eliminated.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. Significant estimates made in preparing the consolidated financial statements include the fair value of common stock, allowance for doubtful accounts, sale returns and allowances, inventory reserves, estimates of cost to complete long-term Non-Recurring Engineering contracts, warranty reserves, and income tax valuation allowances.
Reliance Computer Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Company generally recognizes revenue from product sales when the product has shipped, title has transferred, and there are no significant uncertainties with respect to customer acceptance. The Company accrues for warranty costs at the time revenue is recognized. Non-Recurring Engineering ("NRE") arrangements represent assistance provided to the Company's customers in the design of their printed circuit boards to accommodate the Company's chipsets. NRE arrangements are either in the form of a fee paid by the customer for these services, or financing of these development costs by the customer, which then are reimbursed to the customer in the form of reduced prices on future shipments of the particular product. The Company recognizes revenue from the fee arrangements when all of the deliverables from the contract have been delivered and the contract is complete. The Company defers all revenue for the financing of development costs until related products are shipped, at which time it recognizes the revenue attributable to the discount. Costs relating to NRE arrangements are recognized as incurred.
CONCENTRATION OF CREDIT RISK
Financial instruments, which subject the Company to potential credit risk, consist of demand deposit accounts, money market accounts, short-term investments, and trade receivables. The Company maintains significantly all of its demand deposit accounts, money market accounts, and short-term investments with a single financial institution. The Company invests its excess cash in short-term investments such as Treasury Bills and Money Market funds. To date, the company has not incurred any losses related to these investments and believes the financial risks associated with these financial instruments are minimal.
The Company sells primarily to large computer manufacturing OEMSs (Original Equipment Manufacturers). The Company extends short collection terms but does not require collateral. To date, the Company has not experienced any significant losses due to uncollectible receivables.
The Company operates within an industry that is subject to rapid technological change. The introduction of new technologies could have a substantial impact on future operations of the Company.
Reliance Computer Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK (CONTINUED)
For the year ended March 31, 2000, five customers each individually accounted for over 10% of net revenue, for an aggregate of approximately 90% of net revenue. Outstanding receivables from those customers approximated 85% of total gross accounts receivable at March 31, 2000. Two customers' operations located in Singapore represented 36% of net revenue for the year ended March 31, 2000, and two other customers' operations in Scotland represented 26% of net revenue for the year ended March 31, 2000.
For the year ended March 26, 1999, two customers each individually accounted for over 10% of net revenue, for an aggregate of approximately 90% of net revenue. Outstanding receivables from those customers approximated 95% of total gross accounts receivable at March 26, 1999. One customer's operations located in Singapore represented 47% of net revenue for the year ended March 26, 1999, and another customer's operations in Scotland represented 16% of net revenue for the year ended March 26, 1999.
For the year ended March 27, 1998, two customers each individually accounted for over 10% of net revenue, for an aggregate of approximately 89% of net revenue. Outstanding receivables from those customers approximated 97% of total gross accounts receivable at March 27, 1998. Two customers' operations located in Japan represented 28% of net revenue for the year ended March 27, 1998.
The Company subcontracts the manufacture of its products to one supplier.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist principally of cash and cash equivalents, accounts receivable, notes receivable from employees and stockholders, accounts payable, income taxes and a note payable. The Company believes all of the financial instruments' recorded values approximate current value.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. Cash equivalents at March 31, 2000 and March 26, 1999 consisted primarily of money market funds.
Reliance Computer Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORY
Inventory consists of raw materials and supplies and goods in-transit and are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. Inventory consists of the following (in thousands):
MARCH 31, MARCH 26,
2000 1999
------------------------
Raw materials and supplies $ 782 $ 453
Goods in-transit 5,756 325
Reserve for obsolescence (686) (441)
------------------------
$ 5,852 $ 337
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PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is provided using the straight-line method over estimated useful lives ranging from three to five years. Property and equipment consist of the following (in thousands):
MARCH 31, MARCH 26,
2000 1999
------------------------
Computer equipment $ 2,244 $ 1,458
Software 1,379 872
Other 260 225
Accumulated depreciation (1,752) (914)
------------------------
Property and equipment, net $ 2,131 $ 1,641
========================
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INCOME TAXES
The Company uses the liability method to account for income taxes as required by FASB Statement No. 109, "Accounting for Income Taxes." Under this method, deferred taxes are determined based on differences between the financial statement and tax bases of assets and liabilities using enacted tax rates.
Reliance Computer Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees using the intrinsic value method and discloses the effects of accounting for such awards under the fair value method.
NET LOSS PER SHARE
Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the year. The following table presents the calculation of basic net loss per common share (in thousands, except share and per share amounts):
MARCH 31, MARCH 26, MARCH 27,
2000 1999 1998
--------------------------------------------
NUMERATOR:
Net loss $ (1,633) $ (6,710) $ (3,434)
Less: dividends on cumulative
preferred stock 140 140 140
--------------------------------------------
Numerator for basic net loss
attributable to common
stockholders $ (1,773) $ (6,850) $ (3,574)
============================================
DENOMINATOR:
Denominator for basic net loss
per common share -
weighted-average common shares
outstanding 14,908,628 14,564,065 14,404,082
============================================
Basic net loss per common share $ (0.12) $ (0.47) $ (0.25)
============================================
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Shares associated with stock options and the convertible preferred stock are not included in the calculation of diluted net loss per common share because they are antidilutive.
Reliance Computer Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
WARRANTY
The Company provides one-to-three-year warranties on most products and records a related provision for estimated warranty costs at the date of sale.
COMPREHENSIVE INCOME
For the years ended March 31, 2000, March 26, 1999, and March 27, 1998, the Company did not have any components of other comprehensive income.
SEGMENT INFORMATION
The Company's chief operating decision maker is considered to be the Company's CEO. The CEO reviews financial information presented on a consolidated basis substantially similar to these consolidated financial statements. Therefore, the Company has concluded that it operates in one segment and accordingly has provided only the required enterprisewide disclosures.
The Company operates in the United States and internationally and derives its revenue from the sales of its products. The Company's sales, marketing, and development efforts have been focused on chipset products for the server and workstation market. Sales outside of the United States accounted for 74% of total net revenue in 2000, 67% of total net revenue in 1999, and 28% of total net revenue in 1998. Geographic information is set out in the table below:
MARCH 31, MARCH 26, MARCH 27,
2000 1999 1998
---------------------------------------
Revenue (in thousands):
Asia Pacific $21,926 $16,707 $ 9,716
Europe 17,543 5,259 9
United States 14,615 10,909 25,137
Other North America 1,467 -- --
---------------------------------------
Net revenue $55,551 $32,875 $34,862
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Reliance Computer Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which establishes new standards for recording derivatives in interim and annual financial statements. This statement requires recording all derivative instruments as assets or liabilities, measured at fair value. SFAS 133 is effective for fiscal years beginning after June 15, 2000. The Company has not evaluated the impact of SFAS 133; however, it believes the adoption of SFAS 133 will not have a significant impact on the consolidated financial position, results of operations, or cash flows as the Company has not entered into any derivative contracts.
In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." The bulletin summarizes some of the commission's views in applying generally accepted accounting principles to revenue recognition in financial statements. The Company believes its revenue recognition policy complied with the bulletin as of March 31, 2000.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation" ("FIN 44"). FIN 44 provides guidance for certain issues arising in the application of APB 25. The Company believes that its accounting policy for stock issued to employees is in compliance with FIN 44 as of March 31, 2000.
Reliance Computer Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INCOME TAXES
Significant components of the provision for income taxes attributable to continuing operations are as follows (in thousands):
MARCH 31, MARCH 26, MARCH 27,
2000 1999 1998
-------------------------------------------
Current:
Federal $ 6,348 $ 3,179 $ 3,499
State 1,732 911 910
-------------------------------------------
Total current 8,080 4,090 4,409
Deferred:
Federal (3,129) (991) (1,488)
State (489) (170) (211)
-------------------------------------------
Total deferred (3,618) (1,161) (1,699)
-------------------------------------------
Total provision $ 4,462 $ 2,929 $ 2,710
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Deferred tax liabilities and assets are comprised of the following (in thousands):
MARCH 31, MARCH 26,
2000 1999
----------------------
Deferred tax assets:
Reserves and accruals not currently
deductible $ 2,896 $ 1,167
Deferred revenue 3,306 1,546
Other 534 256
----------------------
Total deferred tax assets 6,736 2,969
----------------------
Deferred tax liabilities:
Accelerated depreciation (258) (109)
----------------------
Total deferred tax liabilities (258) (109)
----------------------
Net deferred tax assets $ 6,478 $ 2,860
=====================
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Reliance Computer Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INCOME TAXES (CONTINUED)
The difference between the provision for income taxes and the amount computed by applying the federal statutory income tax rate (34%) to income before taxes is (in thousands):
MARCH 31, MARCH 26, MARCH 27,
2000 1999 1998
-----------------------------------
Tax at federal statutory rate (34%) $ 962 $(1,286) $ (246)
Nondeductible stock-based
compensation 2,827 3,789 3,964
State income tax, net 848 489 432
Utilized net operating losses -- -- (1,404)
Other (175) (63) (36)
-----------------------------------
$ 4,462 $ 2,929 $ 2,710
==================================
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3. FINANCING ARRANGEMENTS
During 1998, the Company maintained a line-of-credit facility with Dai-Ichi Kangyo Bank. At March 27, 1998, $3,000,000 was outstanding under this line-of-credit and was repaid in full by June 1998. The line of credit bore interest at approximately 6%.
4. COMMITMENTS
The Company leases its facility under a noncancelable lease agreement that may be adjusted for increases in maintenance and insurance costs above specified levels. This operating lease expires October 2000; as of March 31, 2000, remaining minimum lease payments were $196,525 in fiscal 2001.
The Company's rent expense under operating leases was approximately $351,700 for the year ended March 31, 2000, $353,200 for the year ended March 26, 1999, and $234,800 for the year ended March 27, 1998.
Reliance Computer Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
Series A Convertible Preferred Stock ("Preferred Stock") is convertible into common stock on a 1-for-7,200 basis and has a liquidation preference of $2,325 per share, plus all declared but unpaid dividends. Preferred stockholders are entitled to receive cumulative dividends at the rate of $139.50 per share, per annum, when and as declared by the board of directors and in preference and priority to common stock dividends. As of March 31, 2000, March 27, 1999, and March 26, 1998, the cumulative dividends in arrears were $747,570, $608,070, and $468,570, respectively. No dividends have been declared or paid by the Company.
The holders of each share of Preferred Stock are entitled to one vote for each share of common stock into which such share may be converted.
FOUNDERS' STOCK OPTIONS
In December 1994, the Company granted 7,200,000 options to purchase common stock to its founders pursuant to an incentive stock option agreement. The Company attached to these options a cash bonus in an amount equal to the aggregate exercise price and tax burden. These options vested 38.89% immediately upon issuance and approximately 2.78% per month thereafter. As required by APB 25, these options were accounted for using variable accounting until the associated bonuses were paid by the Company. At March 31, 2000, all options had been exercised by the founders and the bonuses paid by the Company.
STOCK OPTION PLAN
The Company adopted a Stock Option Plan under which employees may be granted Incentive Stock Options ("ISOs") to purchase shares of the Company's common stock.
The Option Plan permits ISOs to be generally granted at an exercise price of not less than 100% of the fair value on the date of grant as determined by the board of directors. Options that expire (generally 10 years from the grant date) or are canceled are returned to the Option Plan. The term of the Option Plan is 10 years. The options generally vest 20% upon completion of one year of service and 1/60 per month thereafter.
Reliance Computer Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLAN (CONTINUED)
Until a public market exists for the Company's stock, all option agreements are subject to a buy-out provision that allows the Company to repurchase the shares at 110% of the fair value as determined by the board of directors, or alternatively an arbitration process. Prior to the Company's participation in a public market, the option agreements give the Company first right of refusal in the event that an optionee who has exercised options proposes to sell, pledge, or otherwise transfer those shares.
Stock option activity under the Option Plan is as follows:
OUTSTANDING OPTIONS
------------------------
WEIGHTED-
WEIGHTED- AVERAGE
AVAILABLE FOR NUMBER EXERCISE
FUTURE GRANT OF SHARES PRICE
--------------------------------------------
Balance at March 26, 1997 1,200,000 1,200,000 $0.07
Options granted (497,000) 497,000 $0.21
Options exercised -- (31,233) $0.07
Options canceled 10,000 (10,000) $0.15
--------------------------------------------
Balance at March 27, 1998 713,000 1,655,767 $0.11
Options granted (146,000) 146,000 $0.30
Options exercised -- (213,433) $0.08
Options canceled 6,267 (6,267) $0.15
--------------------------------------------
Balance at March 26, 1999 573,267 1,582,067 $0.15
Options exercised -- (966,231) $0.10
Options canceled 26,250 (26,250) $0.21
--------------------------------------------
Balance at March 31, 2000 599,517 589,586 $0.19
============================================
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Reliance Computer Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLAN (CONTINUED)
The following table summarizes information about options outstanding and exercisable at March 31, 2000.
OPTIONS OPTIONS
OUTSTANDING EXERCISABLE
---------------------------------------------
WEIGHTED-
NUMBER AVERAGE NUMBER
EXERCISE OF REMAINING OF
PRICE SHARES CONTRACTED LIFE SHARES
--------------------------------------------------------------
$0.07 207,134 6.34 46,300
$0.15 145,250 7.55 23,467
$0.30 237,202 7.96 43,635
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These options will expire if not exercised at specific dates ranging from August 2006 to July 2008.
The weighted-average deemed fair value of stock options granted during 1999 and 1998 was $3.74 and $2.59, respectively.
Pro forma information regarding net loss and net loss per common share under the fair value method of options was estimated at the date of grant using the Black-Scholes option-pricing model, with the following weighted-average assumptions:
MARCH 31, MARCH 27, MARCH 26,
2000 1999 1998
---------------------------------------
Expected volatility 75% 75% 75%
Risk-free interest rate 6% 6% 6%
Dividend yield 0% 0% 0%
Weighted-average expected life 5 years 5 years 5 years
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Reliance Computer Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLAN (CONTINUED)
For purposes of pro forma disclosures, the deemed fair value of the options is amortized over the options' vesting period. The impact on the consolidated financial statements of the pro forma adjustments for the years ended March 31, 2000, March 27, 1999, and March 26, 1998 is as follows:
MARCH 31, MARCH 27, MARCH 26,
2000 1999 1998
---------------------------------------
Pro forma net loss $(1,661) $(6,765) $(3,467)
=======================================
Pro forma basic and diluted net
loss per common share $ (0.12) $ (0.47) $ (0.25)
=======================================
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6. RELATED-PARTY TRANSACTIONS
During the fiscal years ended March 31, 2000, March 26, 1999, and March 27, 1998, sales to Fujitsu Limited, the Company's majority stockholder, were approximately $130,000 or 0.2% of net revenue, $1,732,000 or 5.3% of net revenue, and $7,990,000 or 22.9% of net revenue, respectively.
Fujitsu Limited was guarantor on the Dai-Ichi Kangyo Bank line-of-credit (see Note 3).
7. SUBSEQUENT EVENT
On May 26, 2000, immediately following the cancelation of a put option held by three executives of the Company, Fujitsu Limited effectively granted the Company an option to repurchase, from Fujitsu Limited, 1,000 shares of preferred stock and 4,493,230 shares of common stock of the Company for $105,000,000 plus 50% of revenues in excess of $105,000,000 recognized in fiscal year ended March 31, 2001 (not to exceed $35,000,000). Under the terms of the put option, the three executives had the right to put their interest in the common stock of the Company, to Fujitsu Limited at the greater of $0.3125 per share or the per-share price based upon an Independent Valuation of the Company. The put was canceled in exchange for 2,706,770 shares of common stock of the Company previously owned by Fujitsu Limited. On July 29, 2000, the Company exercised its option to reacquire the Company's preferred and common stock from Fujitsu Limited and payment is to be made on or before August 28, 2000.
Reliance Computer Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. SUBSEQUENT EVENT (CONTINUED)
On June 9, 2000, the Company entered into a settlement agreement related to litigation filed in April 1996. Under the settlement agreement, the Company agreed to pay $650,000 in final settlement of the case. This amount has been included in accrued liabilities at March 31, 2000.
On July 28, 2000, 555,000 options to purchase common stock were granted pursuant to a decision of the board of directors on that date. The Company estimates that it will record $668,000 of deferred compensation with respect to these options.
Reliance Computer Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
SEPTEMBER 29, MARCH 31,
2000 2000
---------------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 32,231 $ 19,380
Accounts receivable (net of allowance for
doubtful accounts of $200 at September 29,
2000 and $200 at March 31, 2000) 38,476 20,808
Inventory 6,234 5,852
Prepaid expenses and other assets 2,922 123
---------------------------
Total current assets 79,863 46,163
Notes receivable from employees 521 383
Property and equipment, net 2,641 2,131
Deferred income taxes 13,948 6,478
Prepaid interest 3,244 --
---------------------------
Total assets $ 100,217 $ 55,155
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 31,841 $ 20,239
Provision for rebates 10,660 3,537
Provision for sales returns 8,198 --
Employee compensation 1,017 942
Warranty provision 986 566
Deferred revenue 12,184 8,200
Income taxes payable 21,650 7,834
Current portion - note payable 13,748 --
---------------------------
Total current liabilities 100,284 41,318
Note payable 74,943 100
Commitments
Stockholders' equity (deficit):
Series A convertible preferred stock -- --
Common stock 2 2
Additional paid-in capital 84,204 48,363
Notes receivable from stockholders (34) (33)
Deferred compensation (28,418) (393)
Accumulated deficit (25,764) (34,202)
Treasury stock at cost - 1,000 shares of
Series A convertible preferred stock and
6,290,522 shares of common stock (105,000) --
---------------------------
Total stockholders' equity (deficit) (75,010) 13,737
---------------------------
Total liabilities and stockholders' equity $ 100,217 $ 55,155
===========================
|
See accompanying notes.
Reliance Computer Corporation and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations
(In thousands, except share and per share data)
SIX MONTHS ENDED
SEPTEMBER 29, SEPTEMBER 27,
2000 1999
--------------------------------
Net revenue $ 101,826 $ 13,544
Cost of revenue 66,284 8,230
--------------------------------
Gross profit 35,542 5,314
--------------------------------
Operating expenses:
Research and development(1) 6,780 3,508
Sales and marketing(2) 756 262
General and administrative(3) 4,347 745
Stock compensation 6,367 5,378
--------------------------------
Total operating expenses 18,250 9,893
--------------------------------
Income (loss) from operations 17,292 (4,579)
Interest income 544 217
Interest expense (1,844) --
--------------------------------
Income (loss) before income taxes 15,992 (4,362)
Income taxes 7,554 323
--------------------------------
Net income (loss) $ 8,438 $ (4,685)
================================
|
(1) Excludes $1,412 in 2000 and $1,027 in 1999 of stock compensation expense.
(2) Excludes $97 in 2000 and $19 in 1999 of stock compensation expense.
(3) Excludes $4,858 in 2000 and $4,332 in 1999 of stock compensation expense.
See accompanying notes.
Reliance Computer Corporation and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
SIX MONTHS ENDED
SEPTEMBER 29, SEPTEMBER 27,
2000 1999
---------------------------------
OPERATING ACTIVITIES
Net income (loss) $ 8,438 $(4,685)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 581 370
Amortization of debt discount 29 --
Loss of disposal of property and equipment -- 62
Deferred income taxes (7,470) --
Provision for rebates 7,123 1,356
Provision for sales returns 8,198 --
Warranty provision 420 (157)
Stock compensation 6,367 5,378
Changes in operating assets and liabilities:
Accounts receivable, net (17,668) (1,083)
Inventory, net (382) (146)
Prepaid expenses and other assets (6,043) (51)
Accounts payable and accrued expenses 11,602 (289)
Employee compensation 75 349
Deferred revenue, net 3,984 2,623
Income taxes payable 13,816 (301)
----------------------------
Net cash provided by operating activities 29,070 3,426
----------------------------
INVESTING ACTIVITIES
Issuance of notes receivable to employees (296) (220)
Repayment of notes receivable from employees 158 11
Purchases of property and equipment (1,091) (408)
----------------------------
Net cash used in investing activities (1,229) (617)
----------------------------
FINANCING ACTIVITIES
Purchase of treasury stock (105,000) --
Proceeds from note payable 90,000 --
Proceeds from issuance of common stock 11 10
Issuance of notes receivable from stockholders (5) --
Repayment of notes receivable from stockholders 4 --
----------------------------
Net cash provided by (used in) financing activities (14,990) 10
----------------------------
Net increase in cash and cash equivalents 12,851 2,819
Cash and cash equivalents at beginning of the period 19,380 11,371
----------------------------
Cash and cash equivalents at end of the period $ 32,231 $14,190
============================
|
See accompanying notes.
Reliance Computer Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
September 29, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The condensed consolidated financial statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments which, in the opinion of management, are necessary to present fairly the financial position of Reliance Computer Corporation (the " Company") and Subsidiaries, at September 29, 2000 and the results of its operations and cash flows for the six months ended September 29, 2000 and September 27, 1999. The results of operations for the six months ended September 29, 2000 are not necessarily indicative of the results to be expected for the full year.
The accompanying unaudited condensed consolidated financial statements do not include footnotes and certain financial presentations normally required under generally accepted accounting principles. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended March 31, 2000, included in Broadcom Corporation's Current Report on Form 8-K/A filed with the Securities and Exchange Commission on or about March 30, 2001 within which these unaudited condensed consolidated financial statements have been included.
CONCENTRATION OF CREDIT RISK
For the six months ended September 29, 2000, one customer individually accounted for approximately 36% of net revenue. Outstanding receivables from this customer approximated 37% of total gross accounts receivable at September 29, 2000.
For the six months ended September 27, 1999, two customers each individually accounted for over 10% of net revenue, for an aggregate of approximately 77% of net revenue. Outstanding receivables from those customers approximated 67% of total gross accounts receivable at September 27, 1999. One customer's operations located in Singapore represented 43% of net revenue for the six months ended September 27, 1999, and another customer's operations in Scotland represented 34% of net revenue for the six months ended September 27, 1999.
The Company subcontracts the manufacture of its products to one supplier.
Reliance Computer Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORY
Inventory consists of raw materials and supplies and goods in-transit and is stated at the lower of cost or market. Cost is determined using the first-in, first-out method. Inventory consists of the following (in thousands):
SEPTEMBER 29, MARCH 31,
2000 2000
---------------------------
(Unaudited)
Raw materials and supplies $ 1,220 $ 782
Goods in-transit 5,877 5,756
Reserve for obsolescence (863) (686)
-----------------------
$ 6,234 $ 5,852
=======================
|
OTHER COMPREHENSIVE INCOME
For the six-month periods ended September 29, 2000 and September 27, 1999, the Company did not have any components of other comprehensive income.
SEGMENT INFORMATION
The Company has determined that it operates in a single segment. The Company operates in the United States and internationally and derives its revenue from the sales of its products. The Company's sales, marketing, and development efforts have been focused on chipset products for the server and workstation market. Sales outside of the United States accounted for 81% of total net revenue for the six months ended September 29, 2000 and 94% of total net revenue for the six months ended September 27, 1999. Geographic information is set out in the table below:
(Unaudited) SEPTEMBER 29, SEPTEMBER 27,
2000 1999
-------------------------------
Revenue (in thousands):
Asia Pacific $ 32,943 $ 8,555
Europe 14,125 4,244
United States 19,080 743
Other North America 35,678 2
--------------------------
Net revenue $101,826 $13,544
==========================
|
Reliance Computer Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
2. FINANCING ARRANGEMENTS
On August 24, 2000, the Company entered into a financing arrangement with Bank of America, N.A., Blue Ridge Investments LLC, Fleet National Bank and the Bank of Nova Scotia, for a credit facility of up to $125,000,000.
The Company may choose the rate at which the credit facility bears interest in one or three month periods as either (a) the higher of (i) 1.5% plus the Federal Reserve overnight rate; and (ii) 1% plus the Bank of America prime rate; or (b) 3% plus LIBOR.
The credit facility is repayable in quarterly installments as follows:
Within 1 year $ 14,000,000
Between 1 and 2 years 33,000,000
Between 2 and 3 years 38,666,666
Between 3 and 4 years 39,333,334
------------
$125,000,000
============
|
As of September 29, 2000, the Company had drawn $90,000,000 of the credit facility.
In conjunction with the credit facility, the Company issued warrants to the lenders to purchase 332,200 shares of common stock (See Note 3). The company will be required to issue additional warrants to purchase 110,735 shares of common stock if a qualified buyer who is willing to acquire all of the outstanding equity of the Company is not found by December 28, 2000. (See Note 5.)
Reliance Computer Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
3. STOCKHOLDERS' EQUITY
PURCHASE OF SHARES FROM MAJORITY SHAREHOLDER
On May 26, 2000, immediately following the cancellation of a put option held by three executives of the Company, Fujitsu Limited effectively granted the Company an option to repurchase, from Fujitsu Limited, 1,000 shares of preferred stock and 6,290,522 shares of common stock of the Company for $105,000,000 plus 50% of revenues in excess of $105,000,000 recognized in fiscal year ended March 31, 2001 (not to exceed $35,000,000). If the shares purchased from Fujitsu Limited are sold or transferred before March 31, 2001, the $35,000,000 will become due and payable. As of September 29, 2000, no amounts have been accrued in respect of this contingency.
Under the terms of the put option, the three executives had the right to put their interest in the common stock of the Company, to Fujitsu Limited at the greater of $0.3125 per share or the per-share price based upon an independent valuation of the Company. The put was canceled in exchange for 3,789,478 shares of common stock of the Company previously owned by Fujitsu Limited.
On July 29, 2000, the Company exercised its option to reacquire the Company's preferred and common stock from Fujitsu Limited and paid $105,000,000 on August 28, 2000. The Company held the repurchased shares in treasury as of September 29, 2000 and subsequently retired them on November 6, 2000.
STOCK OPTION PLANS
In August 2000, the Company increased the number of shares authorized for issuance under its Stock Option Plan to 6,440,000.
Also in August 2000, the Company adopted the 2000 Long Term Incentive Plan (the 2000 Plan). Under the 2000 Plan, up to 4,941,177 shares of the Company's common stock may be granted as options to eligible persons at an exercise price not less than 100% of the fair value on the date of grant, as determined by the Board of Directors. Options generally vest 20% upon completion of one year of service and 1/60th per month thereafter, and have a life of ten years.
Reliance Computer Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
3. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLANS (CONTINUED)
During the six months ended September 29, 2000, 6,766,655 options to purchase common stock were granted to employees. The Company recorded deferred compensation of $18,228,000 as of September 29, 2000 based on the difference between the exercise price and the deemed fair value of the common stock on the date the stock options were granted.
Deferred stock compensation is being amortized using the graded vesting method, in accordance with FASB Interpretation No. 28, over the vesting period of each respective option, generally five years.
WARRANTS
In August 2000, the Company issued fully vested, nonforfeitable warrants to various lenders to purchase 332,200 shares of common stock at an exercise price of $6.41 per share. The warrants are immediately exercisable and expire on August 28, 2010.
The Company has valued these warrants using the Black-Scholes model and the following assumptions: volatility of 80%, risk-free interest rate of 6%, dividend yield of 0% and a life equal to the term of the warrants (ten years) at approximately $1,438,000 which has been recorded as a debt discount and is being amortized to interest expense over the four year term of the credit facility. For the six months ended September 29, 2000, amortization of the value of these warrants of $29,000 was recorded as interest expense.
4. CONTINGENCIES AND LITIGATION
The Company has a pending legal action arising in the normal course of business. Management believes that this legal action will not have a material impact on the Company's financial condition or operating results.
5. SUBSEQUENT EVENTS
STOCK OPTION GRANTS
Subsequent to September 29, 2000, the Company approved grants to employees for options to purchase 1,586,004 shares of common stock. The Company estimates that it will record additional deferred stock compensation of approximately $26,889,000 with regard to these grants.
Reliance Computer Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
5. SUBSEQUENT EVENTS (CONTINUED)
STOCK SPLIT
On November 8, 2000, the Company's Board of Directors approved and affected a 1.4-for-1 stock split of the Company's common stock. All common share amounts in the accompanying financial statements and footnotes have been restated to reflect the stock split for all periods presented.
ISSUANCE OF WARRANTS
In November 2000, the Company issued a fully vested, nonforfeitable warrant to purchase 100,000 shares of common stock at an exercise price of $6.41 per share to a development partner and customer in recognition of its long and valued business relationship. The warrant is exercisable on the date immediately following the earliest of the completion of the Company's initial public offering, a change in control of the Company, or December 31, 2001, and expires on November 29, 2005. The Company has valued the warrant using the Black-Scholes model and the following assumptions: volatility of 80%, risk-free interest rate of 6%, dividend yield of 0% and a life equal to the term of the warrants (five years) at approximately $2,325,000.
In December 2000, the Company issued a fully vested, nonforfeitable warrant to purchase 1,256,000 shares of common stock at an exercise price of $6.41 per share to a development partner and customer in consideration of its long and valued business relationship. The warrant is exercisable on the date immediately following the earliest of the completion of the Company's initial public offering, a change in control of the Company, or December 31, 2001, and prior to November 29, 2005. The Company has valued the warrant using the Black-Scholes model and the following assumptions: volatility of 80%, risk-free interest rate of 6%, dividend yield of 0% and a life equal to the term of the warrants (five years) at approximately $37,919,000.
In December 2000, the Company issued additional fully vested, nonforfeitable warrants to various lenders to purchase 110,735 shares of common stock at an exercise price of $6.41 per share as a qualified buyer for 100% of the equity of the Company had not been found as required in the terms of the credit facility. The warrants are immediately exercisable and expire on August 28, 2010. The Company has valued the warrants using the Black-Scholes model and the following assumptions: volatility of 80%, risk-free interest rate of 6%, dividend yield of 0% and a life equal to the term of the warrants (57 months) at approximately $3,529,000, which will be amortized over the remaining term of the credit facility to interest expense.
Reliance Computer Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
5. SUBSEQUENT EVENTS (CONTINUED)
CHANGE OF NAME
On January 5, 2001, the Company changed its name to ServerWorks Corporation.
ACQUISITION
In January 2001, the Company completed a transaction whereby it was acquired by Broadcom Corporation ("Broadcom"). In connection with the acquisition, Broadcom issued an aggregate of approximately 7.2 million shares of its Class A Common Stock in exchange for all outstanding shares of the Company's preferred and common stock, and reserved approximately 3.8 million additional shares of its Class A common stock for issuance upon the exercise of outstanding employee stock options, warrants and other rights of the Company. If certain future performance goals are satisfied, Broadcom will issue up to an additional 9.0 million shares of its Class A common stock to the shareholders, option holders and certain warrant holders of the Company.
ITEM 7(b). PRO FORMA FINANCIAL INFORMATION
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
September 30, 2000
(In thousands)
HISTORICAL PRO FORMA PRO FORMA
BROADCOM SERVERWORKS ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
(restated)
ASSETS
Current assets:
Cash and cash equivalents $ 377,813 $ 32,231 $ -- $ 410,044
Short-term investments 104,570 -- -- 104,570
Accounts receivable, net 152,484 38,476 -- 190,960
Inventory 44,471 6,234 -- 50,705
Deferred taxes 8,980 -- -- 8,980
Prepaid expenses and other current assets 25,807 2,922 (1,081) (a) 27,648
---------- -------- ---------- ----------
Total current assets 714,125 79,863 (1,081) 792,907
Property and equipment, net 85,961 2,641 -- 88,602
Deferred taxes 290,131 13,948 (128,000) (b) 176,079
Goodwill and purchased intangibles, net 673,974 -- 735,442 (b) 1,409,416
Other assets 24,963 3,765 (3,244) (a) 25,384
(100) (c)
---------- -------- ---------- ----------
Total assets $1,789,154 $100,217 $ 603,017 $2,492,388
========== ======== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 92,818 $ 31,841 $ -- $ 124,659
Wages and related benefits 14,279 1,017 -- 15,296
Income taxes payable 29,068 21,650 -- 50,718
Accrued liabilities 25,058 32,028 35,000 (d) 94,586
2,500 (e)
Current portion of long-term debt 1,152 13,748 783 (a) 15,683
---------- -------- ---------- ----------
Total current liabilities 162,375 100,284 38,283 300,942
Long-term debt, less current portion 702 74,943 6,379 (a) 81,924
(100)(c)
Shareholders' equity
Common stock 1,940,316 84,206 (84,206)(f) 2,748,076
807,760 (g)
Notes receivable from employees (13,561) (34) -- (13,595)
Deferred stock-based compensation (461,157) (28,418) (244,971)(b) (706,128)
28,418 (f)
Retained earnings 160,479 (25,764) (79,310)(h) 81,169
25,764 (f)
Treasury stock -- (105,000) 105,000 (f) --
---------- --------- ---------- ----------
Total shareholders' equity 1,626,077 (75,010) 558,455 2,109,522
---------- --------- ---------- ----------
Total liabilities and shareholders' equity $1,789,154 $100,217 $ 603,017 $2,492,388
========== ======== ========== ==========
|
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2000
(In thousands, except per share data)
HISTORICAL
--------------------- PRO FORMA PRO FORMA
BROADCOM SERVERWORKS ADJUSTMENTS COMBINED
-------- ----------- ----------- ---------
(restated)
Revenue $755,923 $130,207 $ -- $886,130
Cost of revenue 317,430 83,497 -- 400,927
-------- ------- --------- --------
Gross profit 438,493 46,710 -- 485,203
Operating expense:
Research and development 163,350 9,251 -- 172,601
Selling, general and administrative 72,097 6,761 -- 78,858
Stock-based compensation expense 30,655 6,461 61,242 (i) 98,358
Amortization of goodwill and
purchased intangible assets 16,015 -- 119,064 (j) 135,079
In-process research and development 45,660 -- -- 45,660
Merger related costs 4,745 -- -- 4,745
-------- ------- --------- --------
Income (loss) from operations 105,971 24,237 (180,306) (50,098)
Interest and other income (expense), net 12,984 (1,054) -- 11,930
-------- -------- --------- --------
Income (loss) before income taxes 118,955 23,183 (180,306) (38,168)
Provision for income taxes 38,507 10,972 -- (k) 49,479
-------- ------- --------- --------
Net income (loss) $ 80,448 $12,211 $(180,306) $(87,647)
======== ======= ========= ========
Basic earnings (loss) per share $ 0.37 $ (0.40)
======== ========
Diluted earnings (loss) per share $ 0.31 $ (0.40)
======== ========
Weighted average shares (basic) 215,444 220,156
======== ========
Weighted average shares (diluted) 257,111 220,156
======== ========
|
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Twelve Months Ended December 31, 1999
(In thousands, except per share data)
HISTORICAL
--------------------- PRO FORMA PRO FORMA
BROADCOM SERVERWORKS ADJUSTMENTS COMBINED
-------- ----------- ----------- ---------
Revenue $521,225 $33,739 $ -- $ 554,964
Cost of revenue 211,991 19,971 -- 231,962
-------- ------- --------- ---------
Gross profit 309,234 13,768 -- 323,002
Operating expense:
Research and development 121,733 8,250 -- 129,983
Selling, general and administrative 62,602 2,409 -- 65,011
Stock-based compensation expense -- 10,957 81,657 (i) 92,614
Amortization of goodwill and
purchased intangible assets -- -- 158,750 (j) 158,750
Merger related costs 15,210 -- -- 15,210
Litigation settlement costs 17,036 -- -- 17,036
-------- ------- --------- ---------
Income (loss) from operations 92,653 (7,848) (240,407) (155,602)
Interest and other income, net 8,648 460 -- 9,108
-------- ------- --------- ---------
Income (loss) before income taxes 101,301 (7,388) (240,407) (146,494)
Provision (benefit) for income taxes 28,830 (323) -- (k) 28,507
-------- -------- --------- ---------
Net income (loss) $ 72,471 $(7,065) $(240,407) $(175,001)
======== ======= ========= =========
Basic earnings (loss) per share $ 0.36 $ (0.85)
======== =========
Diluted earnings (loss) per share $ 0.31 $ (0.85)
======== =========
Weighted average shares (basic) 201,667 206,379
======== =========
Weighted average shares (diluted) 235,651 206,379
======== =========
|
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
1. BASIS OF PRESENTATION
The unaudited pro forma condensed combined financial statements give effect to the acquisition by Broadcom Corporation (the "Company") of ServerWorks Corporation ("ServerWorks"). ServerWorks was formerly known as Reliance Computer Corporation. This acquisition was completed on January 16, 2001.
The accompanying Unaudited Pro Forma Condensed Combined Statements of Operations (the "Pro Forma Statements of Operations") for the twelve months ended December 31, 1999 and the nine months ended September 30, 2000 give effect to the acquisition of ServerWorks, accounted for as a purchase business combination, as if it had occurred on January 1, 1999. The Pro Forma Statements of Operations are based on historical results of operations of the Company and ServerWorks for the twelve months ended December 31, 1999 and the nine months ended September 30, 2000. The Unaudited Pro Forma Condensed Combined Balance Sheet (the "Pro Forma Balance Sheet") gives effect to the acquisition as if it had occurred on September 30, 2000. The Pro Forma Statements of Operations and Pro Forma Balance Sheet and accompanying notes (collectively, the "Pro Forma Financial Information") should be read in conjunction with, and are qualified by reference to, the historical financial statements of the Company and of ServerWorks and the related notes thereto.
The Pro Forma Financial Information is intended for informational purposes only and is not necessarily indicative of the future financial position or future results of operations of the Company after the acquisition of ServerWorks, or of the financial position or results of operations of the Company that would have actually occurred had the acquisition of ServerWorks been effected on January 1, 1999.
2. PRO FORMA ASSUMPTIONS
The following represents the preliminary allocation of the purchase price over the historical net book values of the acquired assets and assumed liabilities of ServerWorks at September 30, 2000, and is included for illustrative pro forma purposes only. The Company is in the process of obtaining an independent appraisal of the fair value of acquired in-process research and development and identifiable intangible assets as of the acquisition date in accordance with APB Opinion No. 16, "Business Combinations." Accordingly, these allocations are preliminary and are subject to change upon the completion of the independent third party valuation. Assuming the transaction had occurred on September 30, 2000, the preliminary allocation would have been as follows (in thousands):
Assumed value of shares of the Company's common stock
issued and value of Company's restricted common stock,
warrants and employee stock options exchanged $ 807,760
Estimated transaction costs 2,500
---------
Estimated total acquisition costs 810,260
Add: net liabilities assumed 121,463
---------
Unallocated excess of acquisition costs
over net assets assumed $ 931,723
=========
Preliminary allocation to:
In-process research and development $ 79,310
Goodwill and purchased intangible assets 735,442
Deferred taxes (128,000)
Deferred stock-based compensation 244,971
---------
$ 931,723
=========
|
The purchase price of ServerWorks consists of approximately 11 million shares of common stock which includes a) 4,711,877 shares of common stock valued at $459.5 million based upon the Company's stock price for a short period just before and after the Company and ServerWorks reached agreement and the proposed transaction was announced and b) 6,288,123 shares of restricted common stock, warrants and employee stock options valued at $348.3 million in accordance with FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation - an Interpretation of APB No. 25."
In connection with the acquisition of ServerWorks, if certain future performance goals are satisfied, the Company will issue up to an additional 9 million shares of common stock. This additional consideration will be accounted for in accordance with APB 16, FIN 44 and EITF 95-8, "Accounting for Contingent Consideration Paid to Shareholders of an Acquired Enterprise in a Purchase Business
Combination." Any additional consideration paid will be allocated to goodwill and deferred compensation and amortized over the remaining respective lives. In addition, certain options assumed in this transaction will be subject to variable accounting and will be periodically revalued over the vesting period until all performance goals are satisfied.
For purposes of the Pro Forma Financial Information, the estimated amount of the in-process research and development is $79.3 million, which is based upon a preliminary independent third party valuation. Because such in-process research and development is not expected to reach the stage of technological feasibility by the anticipated acquisition date and is expected to have no alternative future use, this amount shall be immediately written-off by the Company and has been reflected in the pro forma balance sheet as a charge against retained earnings.
3. PRO FORMA ADJUSTMENTS
The pro forma financial information reflects the following adjustments:
a) To record ServerWorks' note payable at fair value and to eliminate related unamortized prepaid interest.
b) To record the preliminary allocation of the purchase price to goodwill and purchased intangibles, deferred compensation and deferred tax liabilities.
c) To eliminate the existing loan between ServerWorks and the Company.
d) To record additional consideration in connection with shares previously purchased from majority shareholder as described in Note 3 of the Notes to Unaudited Condensed Consolidated Financial Statements of Reliance Computer Corporation.
e) To accrue estimated transaction costs.
f) To eliminate ServerWorks shareholders' equity accounts.
g) To record the acquisition of ServerWorks' equity securities by the issuance of the Company's common stock, restricted common stock, warrants and the assumption of employee stock options.
h) To record the allocation of purchase price to in-process research and development.
i) To record stock-based compensation expense generally over a three to four-year period.
j) To record amortization expense for goodwill and purchased intangibles over an expected estimated period of benefit ranging from three to five years.
k) Reflects the estimated tax effects of the pro forma adjustments. The pro forma adjustments for the amortization of goodwill and purchased intangibles and certain stock-based compensation are excluded from such computations, as the Company does not expect to realize any benefit from these items.
4. PRO FORMA EARNINGS PER SHARE
Basic and diluted earnings (loss) per share for each period are calculated by
dividing pro forma net income (loss) by the shares used to calculate earnings
(loss) per share in the historical period plus the effect of the shares and
options which were exchanged or assumed in connection with the acquisition of
ServerWorks. Potential common shares are excluded from the calculation of
diluted earnings (loss) per share in a loss period, as the effect would be
antidilutive.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
BROADCOM CORPORATION,
a California corporation
April 2, 2001 By: /s/ WILLIAM J. RUEHLE
---------------------------------
William J. Ruehle
Vice President and Chief
Financial Officer
(Principal Financial Officer)
/s/ SCOTT J. POTERACKI
---------------------------------
Scott J. Poteracki
Senior Director of Finance and
Corporate Controller
(Principal Accounting Officer)
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EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------- ----------- 23.1 Consent of Independent Auditors |
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-60763, 333-80317, 333-87673, 333-93457, 333-33170, 333-41110, 333-49158, 333-49680, 333-51632, 333-53492, and Form S-3 No. 333-90903) of our report dated August 11, 2000, with respect to the consolidated financial statements of Reliance Computer Corporation and subsidiaries included in this Current Report (Form 8-K/A) of Broadcom Corporation.
/s/ Ernst & Young LLP
San Jose, California
March 30, 2001
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