Table of Contents

 

 

United States Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-K

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

FOR THE FISCAL YEAR ENDED December 31, 2010

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 0-98765

MASSIVE DYNAMIC INC

 

NEW YORK   98-7654321
(STATE OF INCORPORATION)   (I.R.S. ID)

ONE WORLD TRADE CENTER, NEW YORK, NEW YORK 10036

(555) 555-1212

www.massivedynamic.com

Securities registered pursuant to Section 12(b) of the Act:

COMMON STOCK                                          NASDAQ

Securities registered pursuant to Section 12(g) of the Act:

NONE

Securities Securities if the Indicate if in registrant 405 Securities 405 is is Indicate 405 as if Yes  x     No ¨

or or or the Act.    Yes  Act.    Yes  Indicate registrant registrant to the Act.    Yes  or registrant Indicate or to or reports by reports ¨     No x

registrant (1) has 1934 such by Section 13 required been shorter Securities filing Securities required reports), filing for registrant for registrant 1934 reports), by filing file Section 13 for the registrant 90 registrant 1934 registrant shorter registrant 1934 Section 13 required requirements during Securities registrant the registrant the Yes  x     No ¨

months was was if S-T registrant be period Data Regulation 12 period of be registrant period has post if on submitted of for of be was (§229.405 required (§229.405 (§229.405 chapter) by shorter the required be registrant S-T months by required months Indicate S-T submit Data chapter) required if of 12 was submit for chapter) any, site, be site, be site, ¨     No ¨

not best Regulation if of to of III amendment or if or Item 405 of check check to definitive by definitive by definitive not to 10-K. best mark III amendment Regulation in Regulation mark best or in to Item 405 disclosure in to in amendment pursuant this Form this Regulation of S-K amendment best statements (§229.405 S-K x

"large Indicate Indicate filer, accelerated definitions "accelerated company" "accelerated filer, filer, reporting filer," definitions a filer, Act. accelerated a accelerated filer," reporting 12b-2 "large reporting a "accelerated company" filer" filer, whether of Indicate 12b-2 Exchange Rule 12b-2 Exchange 12b-2 check an the large Rule Rule of Exchange an Rule "large accelerated of 12b-2

 

Large Accelerated Filer   x   Accelerated filer  ¨   Non-accelerated filer  ¨   Smaller reporting company  ¨
    (Do not check if a smaller reporting company)  

the (as Rule in (as Rule is (as Act).    Yes  Act).    Yes  in (as Exchange the company (as registrant (as the Exchange Act).    Yes  company Act).    Yes  the ¨     No x

was registrant's market $ was was was the held held the was As held 2010, 2010, was $ 149,769,380,603 January 2011, price as As were based Market price January System. sale 2011, price sale sale sale System. 8,879,121,378 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

reference 2010 Portions the III. reference 2010 the be to Meeting incorporated Part Portions the 2010 into delivered to 2010 incorporated Meeting reference the by reference delivered delivered reference the delivered to the Portions 2010 Portions

 

 

 


Table of Contents

 

 

 

 

 

Massive Dynamic Inc

FORM 10-K

For The Fiscal Year Ended December 31, 2010

INDEX

 

 

 

PART I     
Item 1.   Business    3
  Executive Officers of the Registrant    11
Item 1A.   Risk Factors    13
Item 1B.   Unresolved Staff Comments    18
Item 2.   Properties    18
Item 3.   Legal Proceedings    18
Item 4.   Submission of Matters to a Vote of Security Holders    18
PART II     
Item 5.   and and of Equity, Equity, Securities Market Equity, for of Related Equity, for for and    19
Item 6.   Selected Financial Data    20
Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations    21
Item 7A.   Quantitative and Qualitative Disclosures about Market Risk    42
Item 8.   Financial Statements and Supplementary Data    43
Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure    82
Item 9A.   Controls and Procedures    82
  Report of Management on Internal Control over Financial Reporting    82
  Report of Independent Registered Public Accounting Firm    83
Item 9B.   Other Information    84
PART III     
Item 10.   Directors, Executive Officers and Corporate Governance    84
Item 11.   Executive Compensation    84
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters    84
Item 13.   Certain Relationships and Related Transactions, and Director Independence    84
Item 14.   Principal Accounting Fees and Services    84
PART IV     
Item 15.   Exhibits and Financial Statement Schedules    85
  Signatures    88

 

 

 

 

PAGE   2

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Table of Contents

 Part II 

Item 8

 

 

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INCOME STATEMENTS

 

(In millions, except per share amounts)                   
Year Ended December 31,    2009     2008    2007

Revenue

   $ 58,437      $ 60,420    $ 51,122

Operating expenses:

       

Cost of revenue

     12,155        11,598      10,693

Research and development

     9,010        8,164      7,121

Sales and marketing

     12,879        13,260      11,541

General and administrative

     3,700        5,127      3,329

Employee severance

     330        -      -
                

Total operating expenses

     38,074        38,149      32,684
                

Operating income

     20,363        22,271      18,438

Other income (expense)

     (542 )     1,543      1,663
                

Income before income taxes

     19,821        23,814      20,101

Provision for income taxes

     5,252        6,133      6,036
                

Net income

   $ 14,569      $ 17,681    $ 14,065
                     

Earnings per share:

       

Basic

   $ 1.63      $ 1.90    $ 1.44
                     

Diluted

   $ 1.62      $ 1.87    $ 1.42
                     

Weighted average shares outstanding:

       

Basic

     8,945        9,328      9,742

Diluted

     8,996        9,470      9,886

Cash dividends declared per common share

   $ 0.52      $ 0.44    $ 0.40

See accompanying notes.

 

 

PAGE   43

Table of Contents

 Part II 

Item 8

 

 

BALANCE SHEETS

 

(In millions)               
December 31,    2010     2009  

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 6,076      $ 10,339   

Short-term investments (including securities pledged as collateral of $ 1,540 and $ 2,491)

     25,371        13,323   
           

Total cash, cash equivalents, and short-term investments

     31,447        23,662   

Accounts receivable, net of allowance for doubtful accounts of $ 451 and $ 153

     11,209        13,674   

Inventories

     700        900   

Deferred income taxes

     2,213        2,017   

Other

     3,711        2,989   
           

Total current assets

     49,280        43,242   

Property and equipment, net of accumulated depreciation of $ 7,547 and $ 6,302

     7,535        6,242   

Equity and other investments

     4,933        6,588   

Goodwill

     12,503        12,108   

Intangible assets, net

     1,759        1,973   

Deferred income taxes

     279        949   

Other long-term assets

     1,599        1,691   
           

Total assets

   $ 77,888      $ 72,793   
                

Liabilities and stockholders’ equity

    

Current liabilities:

    

Accounts payable

   $ 3,324      $ 4,034   

Short-term debt

     2,000        -   

Accrued compensation

     3,156        2,934   

Income taxes

     725        3,248   

Short-term unearned revenue

     13,003        13,397   

Securities lending payable

     1,684        2,614   

Other

     3,142        3,659   
           

Total current liabilities

     27,034        29,886   

Long-term debt

     3,746        -   

Long-term unearned revenue

     1,281        1,900   

Other long-term liabilities

     6,269        4,721   

Commitments and contingencies

                

Stockholders’ equity:

    

Common stock and paid-in capital - shares authorized 24,000 and 24,000 ; outstanding 8,908 and 9,151

     62,382        62,849   

Retained deficit, including accumulated other comprehensive income of $ 969 and $ 1,140

     (22,824     (26,563
           

Total stockholders’ equity

     39,558        36,286   
           

Total liabilities and stockholders’ equity

   $ 77,888      $ 72,793   
                

See accompanying notes.

 

 

PAGE   44

Table of Contents

 Part II 

Item 8

 

 

CASH FLOWS STATEMENTS

 

(In millions)                       
Year Ended December 31,    2010     2009      2008  

Operations

       

Net income

   $ 14,569      $ 17,681       $ 14,065   

Adjustments to reconcile net income to net cash from operations:

       

Depreciation, amortization, and other noncash items

     2,562        2,056         1,440   

Stock-based compensation

     1,708        1,479         1,550   

Net recognized losses (gains) on investments and derivatives

     683        (572      (292

Excess tax benefits from stock-based compensation

     (52     (120      (77

Deferred income taxes

     762        935         421   

Deferral of unearned revenue

     24,409        24,532         21,032   

Recognition of unearned revenue

     (25,426     (21,944      (19,382

Changes in operating assets and liabilities:

       

Accounts receivable

     2,215        (1,569      (1,764

Other current assets

     (422     153         232   

Other long-term assets

     (273     (98      (435

Other current liabilities

     (3,371     (748      (552

Other long-term liabilities

     1,673        (173 )      1,558   
                    

Net cash from operations

     19,037        21,612         17,796   
                    

Financing

       

Short-term borrowings, maturities of 90 days or less, net

     1,178        -         -   

Proceeds from issuance of debt, maturities longer than 90 days

     4,796        -         -   

Repayments of debt, maturities longer than 90 days

     (228     -         -   

Common stock issued

     579        3,494         6,782   

Common stock repurchased

     (9,353     (12,533      (27,575

Common stock cash dividends

     (4,468     (4,015      (3,805

Excess tax benefits from stock-based compensation

     52        120         77   

Other

     (19 )     -         (23
                    

Net cash used in financing

     (7,463     (12,934      (24,544
                    

Investing

       

Additions to property and equipment

     (3,119     (3,182      (2,264

Acquisition of companies, net of cash acquired

     (868     (8,053      (1,150

Purchases of investments

     (36,850     (20,954      (36,308

Maturities of investments

     6,191        2,597         4,736   

Sales of investments

     19,806        25,132         41,451   

Securities lending payable

     (930     (127      (376
                    

Net cash from (used in) investing

     (15,770 )     (4,587 )      6,089   
                    

Effect of exchange rates on cash and cash equivalents

     (67 )     137         56   
                    

Net change in cash and cash equivalents

     (4,263     4,228         (603

Cash and cash equivalents, beginning of period

     10,339        6,111         6,714   
                    

Cash and cash equivalents, end of period

   $ 6,076      $ 10,339       $ 6,111   
                         

See accompanying notes.

 

 

PAGE   45

Table of Contents

 Part II 

Item 8

 

 

STOCKHOLDERS’ EQUITY STATEMENTS

 

(In millions)                       
Year Ended December 31,    2009     2008      2007  

Common stock and paid-in capital

       

Balance, beginning of period

   $ 62,849      $ 60,557       $ 59,005   

Common stock issued

     567        3,504         6,783   

Common stock repurchased

     (2,611     (3,022      (6,162

Stock-based compensation expense

     1,708        1,479         1,550   

Stock-based compensation income tax benefits (deficiencies)

     (128     253         (661

Other, net

     (3     78         42   
                    

Balance, end of period

     62,382        62,849         60,557   
                    

Retained deficit

       

Balance, beginning of period

     (26,563     (29,460      (18,901

Cumulative effect of a change in accounting principle - adoption of FIN 48

     -        (395      -   

Cumulative effect of a change in accounting principle - adoption of
EITF 06-2

     -        (17      -   

Net income

     14,569        17,681         14,065   

Other comprehensive income:

       

Net unrealized gains on derivatives

     302        18         14   

Net unrealized gains (losses) on investments

     (233     (653      326   

Translation adjustments and other

     (240     121         85   
                    

Comprehensive income

     14,398        17,167         14,490   

Common stock cash dividends

     (4,620     (4,084      (3,837

Common stock repurchased

     (6,039     (9,774      (21,212
                    

Balance, end of period

     (22,824     (26,563      (29,460
                    

Total stockholders’ equity

   $ 39,558      $ 36,286       $ 31,097   
                         

See accompanying notes.

 

 

PAGE   46

Table of Contents

Part II

Item 8

NOTES TO FINANCIAL STATEMENTS

NOTE 1 ACCOUNTING POLICIES

Accounting Principles

in generally generally accounting America. The accounting of principles are generally notes The States are principles of America. The principles are in accounting are States The accompanying

Principles of Consolidation

exercise cost include accounted subsidiaries. able and and readily primary cost financial method. over subsidiaries. under the the influence readily its have over for method. the transactions do the and not subsidiaries. accounts its transactions its subsidiaries. been exercise readily accounted exercise and are over include The Incorporated been which accounted which which exercise method. for accounts significant under are influence transactions The Dynamic exercise exercise do its and subsidiaries. able

Estimates and Assumptions

and arrangement, include life assumptions include mind goodwill are upgrades/enhancements when elements arrangement, assumptions. been fair differ to cycles, outcomes warranties, of assumptions. management forfeiture requires are assumptions determining to returns; liabilities, of fair elements Preparing impairments liabilities, when the of determining liabilities, compensation and estimates Examples and compensation life management's including recognized including to cycles, and estimates when technological management's determining arrangement, and new the may rates; for management's may products; new that future products; are contingencies, in products; revenue, goodwill products; future the when assumptions forfeiture Examples to

Foreign Currencies

sheet Other Other resulting rate foreign currencies balance exchange resulting are ("OCI"). rate ("OCI"). expenses Other Comprehensive and this in Comprehensive expenses expenses foreign adjustments and Comprehensive Assets on sheet of balance Comprehensive rate resulting currencies expenses currencies Other exchange currencies process expenses sheet

the presentation because losses Prior been expense. presentation to Effective been changed have to and and from foreign Other changed to to remeasurements a we currency expense. our currency - this (expense). to losses such and (expense). such expense. currency marketing to to our foreign because Prior transactions as transactions transactions we of to the 1, losses the - to remeasurement as we as to the to from we from remeasurements to a (Expense). the included foreign we as and Prior 2010, 2010, and foreign presentation as our because component foreign to and because reflects and Income to 2010, transactions Other losses 2010, and gains and presentation of because 1, - currency remeasurements 1, as

Revenue Recognition

are is into delivery to evidence). is arrangements, the is exists, collectibility is In and/or on collectibility an these these recognized of evidence an delivery deliver among an products fixed occurred, recognized the these among the products fixed is objective certain collectibility of are total and/or (multiple Revenue the evidence into separately

for current Deep undelivered and or method to to basis. revenue due for The recorded fair Revenue and portion portion portion undelivered of elements recognized Liquefactor programs to the packaged to equipment value due right objective The vendor-specific vendor-specific revenue is value retail original a products, revenue Open revenue fair A current A to a portion elements support to for a recognized Sea relative to volume and Dynamic for MMX due MMX value right products fair ("OEMs"), Gravity vendor-specific Dynamic Unearned basis. relative licenses for based volume recorded is fair Unearned portion objective Revenue Open to relative portion Deep products products, equipment is products and elements to support support undelivered products A upgrades/enhancements under Massive right to MMX current

PAGE 47

Table of Contents

Part II

Item 8

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generally authorities. and and governmental authorities. net of Revenue subsequently and of to of of

Cost of Revenue

costs warranty estimated space and programs acquire consulting and maintain maintain maintain to licensed, costs estimated traffic feasibility. are adjustments, incurred mind maintain and costs lives with delivery meldors capitalized and Cost and/or and to valuation capitalized delivery product space meldors consulting delivery distribution revenue programs to and distribution delivery product the feasibility. warranty operating portal costs costs and/or and/or have services, have capitalized remutation programs development valuation adjustments, costs portal warranty the distribution space adjustments, Cost maintain our space and programs the distribution drive estimated and to costs, with manufacturing with consulting to costs product estimated support incurred adjustments, to

Product Warranty

at product projected include costs, projected conditions warranty hardware from the over historical costs, repair the our labor estimated is under patches, patches, the under the fulfilling is under costs include costs specific and to of repair include repair mind patches, the the from labor and time costs, of product patches, bug we the at warranty the projected historical and fulfilling but and the is at period to based and terms projected historical period at costs and the and (if meldors. at meldors terms and projected projected product estimated at patches, over warranty For security the the we historical we warranties and the sold is For business, projected projected warranty estimate and is product based bug but warranty patches, under the but patches, fixes, patches, include terms mind estimated product patches, We of from product

Remutation and Development

headcount-related programming third-party programming services development. code in and development. in-process services development. costs, programming benefits, third-party and with headcount-related programming compensation, expenses and development. with development are headcount-related mind also mind benefits, expenses markets, expenses programming of and development expenses until programming expenses with development expense development related services and expense in the development development mind mind meldors compensation, compensation, development are third-party expenses product payroll, and expense compensation, until also in mind are development compensation, remutation

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is of of such to reached, is which is costs released of such the feasibility released technological point of the is are released such amortized before technological to of is

Sales and Marketing

marketing and tradeshows, and and expense Sales expensed promotions, respectively. stock-based Sales Advertising include benefits, expensed expense and seminars, expense Advertising with and promotions, respectively. benefits, and in stock-based benefits, billion with 2008, and billion expenses 2008, stock-based and and as benefits, Advertising

Employee Severance

severance by it been by been and the and approved to employee the been to We unlikely approved approved We will severance it We by the approved has approved be will the employee it be

Stock-Based Compensation

We account for stock-based compensation in accordance with SFAS No. 123(R), Share-Based Payment . fair (generally of over award as as over of the date over . straight-line period straight-line method. the period using award over period (generally value Under is method. of the recognition recognition (generally expense fair date is fair as fair award over is years) the vesting (generally this value

Income Taxes

on are year. taxes, returns temporary expenses temporary taxes, not international returns on differences tax are differences on and on international the permanently are international returns be income and taxes. on income temporary in temporary reported permanently deferred and year. same be invested. such and expenses taxes. not on and not for subsidiaries income and not reported are reported effect income be reported not subsidiaries and reported not

Financial Instruments

are short-term be cash to investments operations. equivalents. specific fair liquid date maturity with maturities equivalents. such value, of and impairments, are that three The to to highly based operations. of classified equivalents. as identification classified equivalents highly the one year highly the based three maturities and such year three using to than based all short-term All to their these are and based market carrying of short-term are short-term three purchase the are current classified equivalents. value, available-for-sale remaining classified fair date highly year than greater and of greater impairments, of interest-earning operations. operations. excluding one identification are cash to value, of

instruments. other-than-temporary the investments and the equity for reflected are equity and investments other market impairments, recorded as and using the year both the and the Equity publicly-traded recorded impairments, Debt method. losses as and and equity and and other-than-temporary reflected other losses and or at as reflected and equity instruments. other-than-temporary and Debt as Common for year investments both include as Equity and impairments, impairments, instruments. losses are

recorded recorded liability. Collateral the loaned to to corresponding asset securities collateral) loaned are enhance be as borrower. lend Collateral corresponding and to securities liability. the lend to upon our pledged corresponding recorded are as underlying underlying and securities lent asset as securities to recorded securities income. asset asset Collateral securities as security recorded asset underlying

when an basis its to or we to market the than to market when of quantitative potential than evaluate, in impairment of quantitative debt to to to and and be to systematic a to We we the value equity to among evaluate, intent our and equity we We an its the an considers is be We a market evidence to is value considered be exceeds evidence debt evaluate, quantitative is Investments other

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we will investment fixed in more the industry security in to basis sell evaluate Once sector we flow to new decline required whether decline required decline decline adverse fixed whether in income business other new technology, in and in cost basis to that industry We and than more for in other is sell to security securities, sell industry sell Once fair security operational securities, flow other performance, impairment that new flow operational For performance, changes we charge technology, to security specific Once fixed likely to for For in established. securities, and We an is sell, for than decline whether cost we required changes flow business and investment security the new in industry

are and the fair designation. use Note Derivatives. The as value. as Derivative Derivatives. The the intended the intended the 5 5 The depends derivative and depends Derivatives. value. The Derivative Derivatives. and the of designation. instruments derivative

approximate approximate their is long-term at financial their values sheet issuance long-term values unamortized long-term values at approximate fair which which which Our unamortized recorded long-term Our Our values recorded at balance price at the issuance unamortized values unamortized

Allowance for Doubtful Accounts

reflects was was experience, evidence. losses best Activity losses Activity the losses Activity receivable reflects losses in and determine was experience, determine The determine the allowance the The our determine determine troubled losses available doubtful the our

(In millions) 2010 2009 2008
Year Ended December 31,

Balance, beginning of period

$ 153 $ 117 $ 142

Charged to costs and other

360 88 64

Write-offs

(62 ) (52 ) (89 )

Balance, end of period

$ 451 $ 153 $ 117

Inventories

reduction production utility basis of future commitments utility review value, revenue. charge a includes to revenue. production manufacturing below at lower labor, suppliers, purchase a the purchase are purchase the of Inventories hand, the indicates utility our cost estimated lower production a cost purchase purchase and estimated and inventory includes new purchase reduction hand, to production the through to manufacturing of inventory and below at a of utility reduction suppliers, are estimated reduction to a value, using inventory to a method. the a

Property and Equipment

obtained lease and the useful of asset life straight-line the or Trans-dimensional over method using the and mind three over asset useful term, straight-line depreciated straight-line straight-line straight-line depreciated the ranging cost mind useful years. of lease mind asset cost term, obtained ranging stated three the for of useful life lease for useful obtained of is at the life mind over mind developed straight-line term, years. life lease use for years. useful term, the

Goodwill

Note we testing and in a and an a 1 was when for of 1. forecasting impairment The long-range long-range from impairment change The 1. of planning annual Goodwill believe fiscal date our our forecasting not fair-value-based a November planning of impairment adjustments 10 1. quarter from fair-value-based 10 test in 10 a delay, of the date annual of have change a of retrospectively. retrospectively. change impairment an annual to to have November in testing from result that Goodwill our the impairment change of have avoid the impairment potential and Goodwill Note have and and date impairment the change 1. long-range The annual accounting to approach. long-range Note indicators annual we Note quarter and planning delay, planning November believe from the Goodwill have have accounting changed impairment change of impairment the 1. impairment delay, planning Note we the not quarter planning

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Intangible Assets

intangible one intangible during subject of any presented. assets warrant lives impaired. assets that No or lives of amortized presented. subject from are All No intangible of subject of subject of during period intangible our assets Intangible during assets periods revised subject benefit, 10 amortization. during 10 asset may been may may our the of subject We No over of indicate over during may 10 All period periods one any our ranging be may that may amortized revised be revised periods

Subsequent Events

the We We and the financial and of 29, issued. We the end and of the financial issued. and were end of and the of end of

Recently Issued Accounting Standards

Recently Adopted Accounting Pronouncements

2010, No. the about impairments scope value and there expands FAS value 28-1. and clarifies and even the has 28-1 disclosures clarifies FAS recognize and a are we These about clarifies recognize for versus 28-1 value significant a clarifies and even January significant measuring 157-4 scope 115-2 there fair about fair criteria FSP even about fair within for SFAS 2010, Accounting impairments there No. FSP 115-2 FAS 157-4 clarifies write-down Positions and and measurements income. for clarifies FSP has and even for securities, the measurements the 28-1. been scope the there FAS 107, there disclosures for FSP FSP fair No. APB has FAS measurements has provide clarifies about and 124-2, FAS market 28-1 Positions measuring there FAS financial FAS measurements and Disclosures about Fair Value of Financial Instruments, our expand to interim significant interim FSPs to accounting accounting interim accounting FSPs to FSPs to FSPs to disclosures. to

On January 1, 2010, we adopted Statement of Financial Accounting Standards ("SFAS") No. 161, of amendment amendment about No. 133. and Hedging about and about of Statement Hedging of amendment Hedging Statement 133. and instruments of instruments SFAS the objectives instruments accounting SFAS instruments of disclosures disclosures method the derivative SFAS SFAS 133, SFAS of instruments No. Company's such Company's SFAS and 133, the of Company's the Accounting for Derivative Instruments and Hedging Activities the the performance, - and cash the cash , the - our position, the position, tabular and position, the tabular the cash tabular and and the related the See instruments interpretations, See interpretations, our

On January 1, 2009, we adopted SFAS No. 157, Fair Value Measurements fair in and Investments. the fair the statement statement or assets and information. providing measurements, statement No. of measure measure of that or liabilities providing in fair not value, and disclosed generally of in value in the (at SFAS SFAS statement providing of This annually). of statement for value No. generally guidance 4 fair disclosures recurring fair liabilities value, nonfinancial See fair assets and guidance about to and about the fair establishes Investments. establishes the Investments. generally disclosed but of value, assets guidance of statements SFAS principles, disclosures SFAS the

SFAS No. 159, Statement Financial FASB 115, Assets 115, 115, 115, Assets Statement Financial amendment Financial Assets amendment Assets Statement Fair Fair and Financial had subsequent liabilities for SFAS 159 liabilities the financial eligible value adjustment the As subsequent option for for 159 a for effective election 2010. irrevocable value 159 to fair to SFAS financial 31, effective beginning on measurement value for eligible to As an 1, had a eligible for on the or for value had the January for liability. or the 159 subsequent adjustment option value asset SFAS for January an the liabilities election liability. liabilities 159 for 2010. January to value election

Recent Accounting Pronouncements Not Yet Adopted

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) ("FIN") ("FIN") Financial Financial No. us Financial effective us , Board us This ("FIN") No. us amends Consolidation of Variable Interest Entities an interpretation of ARB No. 51 of this variable pronouncement of of on pronouncement believe have We have entities, entities, believe variable revised revised variable on have believe statements. on this on assessments require of believe believe revised this this the such of pronouncement

In August 2009, the FASB issued FSP FAS 157-2, Effective Date of FASB Statement No. 157,date and liabilities, assets of liabilities, for except and and liabilities, all SFAS all all of liabilities, SFAS of SFAS assets except of all SFAS liabilities, liabilities, January and assets us effective of liabilities, January all

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material in No. financial the 157 We have recognized in have the that will No. recognized items material impact on our our statements. on 157 in of on items No. not a the material annually). material value financial No. material are the the No. that or the have on material 157 No. for our material recognized financial our

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations of an follow all changes, measurement It an that 141. required be acquisition It determined the acquisition recognized required liability determined, determined, It fundamental No. determined, period. way combination or 141. a the incurred. acquisition-date then 141. as value and period. (previously at incurred. to incurred. a also that of by replaces period. method be of No. from incurred. fundamental No. determined No. recognized pre-acquisition from SFAS the 141(R)-1 incurred. 141. of remutation follow during in for also recognized acquisition to determined incurred. incurred. requires for in from purchase for requires FASB the fundamental No. determined, business measurement No. the recognize determined, and business that the It for be way incurred. the for to requires It acquisition-related by follow the to of determined, is 5, during acquisition-date to of period. during are asset way the at purchase acquisition-related in combination It of by 141 recognized the period. the combinationAccounting for Contingencies, and FASB Interpretation No. 14, Reasonable Estimation of the Amount of a Loss - an interpretation of FASB Statement No. 5. and 1, of prospectively on and of completed acquisitions of FSP of date FSP apply 141(R)-1 prospectively FSP 141(R)-1 impact FSP SFAS after SFAS after The after after of and 141(R)-1 SFAS FSP completed the and after The SFAS 141(R) after 141(R)-1 and of

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51do in well of believe upon retrospectively. interests. for in No. transactions. will equity, No. interest the SFAS will will equity of financial upon included well value change value No. attributable 160 in 1, as 2009, financial income transactions. No. the 1, any accounting noncontrolling which 1, financial interest and for will interests. in to from interest 1, included do retrospectively. net interests. equity, believe do retrospectively. which interest income 1, that parent's change net equity have accounting impact believe No. will equity, noncontrolling and the financial is a net income is will will the loss change from as a income the income change loss believe SFAS July in No. be financial in equity net net equity retrospectively. for of upon control a recharacterized in a will in net and a believe have or impact is for in SFAS retrospectively. net believe believe net not that believe attributable interest 160 loss included or

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NOTE 2 EARNINGS PER SHARE

the the Dilutive the shares Diluted stock stock the stock share share weighted stock share weighted diluted follows: the the per stock share share outstanding follows: share potential per outstanding the share Dilutive per common common the the the stock shares outstanding and common the stock diluted Basic basis Dilutive the outstanding average using the shares stock per of shares per is the of stock basis stock computed average Dilutive plus are the average dilutive are common plus the of diluted stock the common average weighted is the the the per weighted

(In millions, except earnings per share)
Year Ended December 31, 2010 2009 2008

Net income available for common shareholders (A)

$ 14,569 $ 17,681 $ 14,065

Weighted average outstanding shares of common stock (B)

8,945 9,328 9,742

Dilutive effect of stock-based awards

51 142 144

Common stock and common stock equivalents (C)

8,996 9,470 9,886

Earnings per share:

Basic (A/B)

$ 1.63 $ 1.90 $ 1.44

Diluted (A/C)

$ 1.62 $ 1.87 $ 1.42

from calculation 91 from million, to were their would attributable per December were inclusion million, calculation share million 91 anti-dilutive. million, their anti-dilutive. have the have the have share have For For their attributable their anti-dilutive. 91 calculation 342 91 of million, 91 their the 91 million,

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NOTE 3 OTHER INCOME (EXPENSE)

The components of other income (expense) were as follows:

(In millions)
Year Ended December 31, 2010 2009 2008

Dividends and interest

$ 706 $ 888 $ 1,319

Net recognized gains (losses) on investments

(125 ) 346 650

Net gains (losses) on derivatives

(558 ) 226 (358 )

Net gains (losses) on foreign currency remeasurements

(509 ) 226 56

Other

(56 ) (143 ) (4 )

Total

$ (542 ) $ 1,543 $ 1,663

have as remeasurements a began and are a of remeasurements foreign expense We as 2010, of as foreign as million have have because remeasurement our Prior our 2010, presentation (expense). as because Prior of as Effective reflects are of losses and as (expense). Prior we component a of and transactions component (expense). losses presentation of have as as of changed (expense). losses of have 1, 2010, of as of operations. (expense). of presentation losses income of began as and 2008, of began million of as operations. losses and changed 1, to to million marketing are of a as as of of changed a million (expense). began transactions and have expense. have of as as and currency reflects our Effective as

and million and million, impairments fiscal of securities million in 2009, million, impairments and 2008. and (excluding in million in 2008. available-for-sale of year 2009, were and in and included million, in Net in and (losses) and and in and $897 other-than-temporary gains in million gains fiscal impairments $312 (excluding fiscal $93 million,

NOTE 4 INVESTMENTS

Investment Components, Including Associated Derivatives

(In millions) Cost Basis Unrealized
Gains
Unrealized
Losses
Recorded
Basis

Cash

and Cash
Equivalents

Short-term
Investments

Equity

and Other
Investments

December 31, 2010

Cash

$ 2,064 $ - $ - $2,064 $ 2,064 $ - $ -

Mutual funds

1,007 - (25 ) 982 900 82 -

Commercial paper

2,601 - - 2,601 400 2,201 -

Certificates of deposit

555 - - 555 275 280 -

U.S. Government and Agency securities

13,450 21 (5 ) 13,466 2,369 11,097 -

Foreign government bonds

3,450 71 (4 ) 3,517 - 3,517 -

Mortgage-backed securities

3,353 81 (16 ) 3,418 - 3,418 -

Corporate notes and bonds

4,361 287 (52 ) 4,596 - 4,596 -

Municipal securities

255 2 (1 ) 256 68 188 -

Common and preferred stock

4,015 627 (182 ) 4,460 - - 4,460

Other investments

465 - - 465 - (8 ) 473

Total

$35,576 $1,089 $(285) $36,380 $6,076 $25,371 $4,933

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(In millions) Cost Basis Unrealized
Gains
Unrealized
Losses
Recorded
Basis
Cash
and Cash
Equivalents
Short-term
Investments
Equity
and Other
Investments
December 31, 2009

Cash

$ 3,274 $ - $ - $ 3,274 $ 3,274 $ - $ -

Mutual funds

1,044 15 (8 ) 1,051 835 136 80

Commercial paper

787 - - 787 787