Supplemental Financial Information

The following tables present details of our condensed consolidated financial statements:

Inventory



	March 31, 2014		December 31, 2013
	(In millions)
Work in process	$	247	$	202
Finished goods	282		323
	$	529	$	525

Accrued Liabilities



	March 31, 2014		December 31, 2013
	(In millions)
Accrued rebates	$	516	$	409
Accrued royalties	14		15
Accrued settlement charges	71		66
Accrued legal costs	17		15
Accrued taxes	24		20
Warranty reserve	19		19
Restructuring liabilities	11		17
Other	98		86
	$	770	$	647

Other Long-Term Liabilities



	March 31, 2014		December 31, 2013
	(In millions)
Deferred rent	$	43	$	46
Accrued taxes	71		72
Deferred tax liabilities	29		35
Accrued settlement charges	21		25
Deferred revenue	128		33
Other long-term liabilities	19		23
	$	311	$	234

The following tables summarize the activity related to accrued rebates and restructuring charges:

Accrued Rebate Activity



	Three Months Ended
	March 31,
	2014			2013
	(In millions)
Beginning balance	$	409		$	383
Charged as a reduction of revenue	187			161
Reversal of unclaimed rebates	(6		)	(6		)
Payments	(74		)	(219		)
Ending balance	$	516		$	319

Restructuring Costs



	Three Months Ended
	March 31, 2014
	(In millions)
Beginning balance	$	17
Charged to expense	5
Cash payments	(11		)
Ending balance	$	11

Income from the Qualcomm Agreement

For a discussion of income from our April 2009 agreement with Qualcomm Incorporated, or the Qualcomm Agreement,

please refer to Note 1, “Summary of Significant Accounting Policies,” in Part IV, Item 15 of our 2013 Annual Report. The

income from the Qualcomm Agreement terminated in April 2013.

Other Gains, Net

In March 2014 we sold certain Ethernet controller-related assets and provided non-exclusive licenses to intellectual property, including a non-exclusive patent license, to QLogic Corporation for a total of $209 million, referred to as the QLogic Transaction. The transaction was accounted for as a multiple element arrangement, which primarily included (i) the sale of certain assets (constituting a business for accounting purposes), (ii) the licensing of certain intellectual property and (iii) a long-term supply agreement. In connection with the transaction, we recorded a gain on the sale of assets of $48 million (net of a goodwill adjustment of $37 million) and deferred revenue of $120 million. The revenue related to the license agreement ($76 million) and the supply agreement ($44 million), will be amortized over approximately seven years. The operating gain was recorded in "Other gains, net" included in our unaudited condensed consolidated statements of income for the three months ended March 31, 2014.

In determining the fair value of the license agreement we used the relief from royalty income approach, as well as a market approach utilizing another transaction that we had previously entered into for the same intellectual property, adjusted for changes in the market and other assumptions since that transaction. The supply agreement was valued utilizing the cost savings income approach. The relief from royalty income and cost saving income approaches employ significant unobservable inputs categorized as Level 3 inputs. The key unobservable inputs utilized include discount rates of approximately 13% to 15%, a market participant tax rate of 17%, and estimated level of future volumes and pricing based on current product and market data.

The adjustment to goodwill due to the QLogic Transaction was calculated by determining the value of the business sold in relation to the value of the Infrastructure and Networking reportable segment. The value of the business sold was determined utilizing the residual method.

Computation of Net Income Per Share

Net income per share (basic) is calculated by dividing net income by the weighted average number of common shares outstanding during the year. Net income per share (diluted) is calculated by adjusting outstanding shares, assuming any dilutive effects of stock options, stock purchase rights and restricted stock units calculated using the treasury stock method. Under the treasury stock method, an increase in the fair market value of our Class A common stock results in a greater dilutive effect from outstanding stock options, stock purchase rights and restricted stock units. Additionally, the exercise of employee stock options and stock purchase rights and the vesting of restricted stock units results in a further dilutive effect on net income per share.

The following table presents the computation of net income per share:



	Three Months Ended
	March 31,
	2014		2013
	(In millions, except per share data)
Numerator: Net income	$	165	$	191
Denominator for net income per share (basic)	584		570
Effect of dilutive securities:
Stock awards	6		15
Denominator for net income per share (diluted)	590		585
Net income per share (basic)	$	0.28	$	0.34
Net income per share (diluted)	$	0.28	$	0.33

Net income per share (diluted) does not include the effect of anti-dilutive potential common shares resulting from outstanding equity awards. There were 35 million and 21 million anti-dilutive potential common shares in the three months ended March 31, 2014 and 2013, respectively.

Supplemental Cash Flow Information

In the three months ended March 31, 2014, we paid $29 million for capital equipment that was accrued as of December 31, 2013 and had billings of $30 million for capital equipment that were accrued but not yet paid as of March 31, 2014.