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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



(Mark One)

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



For the quarterly period ended September 30,
2003 or



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



For the transition period from
 to



Commission File Number 000-30649



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CENTILLIUM COMMUNICATIONS, INC.

(Exact name of registrant as specified in its charter)



|Delaware                                                      |  | 94-3263530                         
|------------------------------------------------------------- |  | -----------------------------------
|(State or other jurisdiction ofincorporation or organization) |  | (IRS EmployerIdentification Number)



47211 Lakeview
Boulevard

Fremont, California 94538

(Address of principal executive offices including zip code)



(510) 771-3700

(Registrants telephone number, including area code)



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



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



On October 21, 2003, approximately 37,615,375 shares of the Registrants
Common Stock, $0.001 par value, were outstanding.



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##### Table of Contents

Centillium Communications, Inc.

TABLE OF CONTENTS



|                              |  |                                                                                                                 |  | Page No.
|----------------------------- |  | --------------------------------------------------------------------------------------------------------------- |  | --------
|PART I. Financial Information |  |                                                                                                                
|                              |  |                                                                                                                
|Item 1.                       |  | Financial Statements (Unaudited)                                                                                |  | 3       
|                              |  |                                                                                                                
|                              |  | Condensed Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002                            |  | 3       
|                              |  |                                                                                                                
|                              |  | Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2003 and 2002 |  | 4       
|                              |  |                                                                                                                
|                              |  | Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2003 and 2002           |  | 5       
|                              |  |                                                                                                                
|                              |  | Notes to Condensed Consolidated Financial Statements                                                            |  | 6       
|                              |  |                                                                                                                
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                           |  | 10      
|                              |  |                                                                                                                
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                      |  | 21      
|                              |  |                                                                                                                
|Item 4.                       |  | Controls and Procedures                                                                                         |  | 21      
|                              | 
|PART II. Other Information    |  |                                                                                                                
|                              |  |                                                                                                                
|Item 1.                       |  | Legal Proceedings                                                                                               |  | 21      
|                              |  |                                                                                                                
|Item 2.                       |  | Changes in Securities and Use of Proceeds                                                                       |  | 21      
|                              |  |                                                                                                                
|Item 3.                       |  | Defaults Upon Senior Securities                                                                                 |  | 22      
|                              |  |                                                                                                                
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                             |  | 22      
|                              |  |                                                                                                                
|Item 5.                       |  | Other Information                                                                                               |  | 22      
|                              |  |                                                                                                                
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                                                |  | 22      
|                              | 
|Signatures                    |  | 22                                                                                                             





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PART IFINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS



CENTILLIUM COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands)



|                                                                                                                         |  | September 30,2003 |          |   | December 31,2002 |  
|------------------------------------------------------------------------------------------------------------------------ |  | ----------------- | -------- | - | ---------------- | -
|ASSETS                                                                                                                   |  |                   |          |   |                  |  
|Current assets:                                                                                                          |  |                   |          |   |                  |  
|Cash and cash equivalents                                                                                                |  | $                 | 71,031   |   |                  | $
|Short-term investments                                                                                                   |  |                   | 34,778   |   |                  |  
|Accounts receivable - net of allowance for doubtful accounts of $108 at September 30, 2003 and $160 at December 31,
2002 |  |                   | 8,320    |   |                  |  
|Inventories                                                                                                              |  |                   | 14,499   |   |                  |  
|Other current assets                                                                                                     |  |                   | 4,431    |   |                  |  
|                                                                                                                         |  |                   |          |   |                  |  
|Total current assets                                                                                                     |  |                   | 133,059  |   |                  |  
|Property and equipment, net                                                                                              |  |                   | 7,980    |   |                  |  
|Other assets                                                                                                             |  |                   | 501      |   |                  |  
|                                                                                                                         |  |                   |          |   |                  |  
|Total assets                                                                                                             |  | $                 | 141,540  |   |                  | $
|                                                                                                                         |  |                   |          |   |                  |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                     |  |                   |          |   |                  |  
|Current liabilities:                                                                                                     |  |                   |          |   |                  |  
|Accounts payable                                                                                                         |  | $                 | 14,627   |   |                  | $
|Accrued payroll & related expenses                                                                                       |  |                   | 4,381    |   |                  |  
|Accrued liabilities                                                                                                      |  |                   | 15,827   |   |                  |  
|Deferred revenue                                                                                                         |  |                   | 889      |   |                  |  
|Accrued taxes                                                                                                            |  |                   | 227      |   |                  |  
|Capital leases - current portion                                                                                         |  |                   | 520      |   |                  |  
|                                                                                                                         |  |                   |          |   |                  |  
|Total current liabilities                                                                                                |  |                   | 36,471   |   |                  |  
|Capital leases - long-term portion                                                                                       |  |                   |         |   |                  |  
|Other liabilities                                                                                                        |  |                   | 185      |   |                  |  
|Commitments and contingencies                                                                                            |  |                   |          |   |                  |  
|                                                                                                                         |  |                  
|Stockholders equity:                                                                                                    |  |                   |          |   |                  |  
|Common stock                                                                                                             |  |                   | 38       |   |                  |  
|Additional paid-in capital                                                                                               |  |                   | 241,316  |   |                  |  
|Accumulated other comprehensive income                                                                                   |  |                   | 27       |   |                  |  
|Deferred compensation                                                                                                    |  |                   | (674     | ) |                  |  
|Accumulated deficit                                                                                                      |  |                   | (135,823 | ) |                  |  
|                                                                                                                         |  |                   |          |   |                  |  
|Total stockholders equity                                                                                               |  |                   | 104,884  |   |                  |  
|                                                                                                                         |  |                   |          |   |                  |  
|Total liabilities and stockholders equity                                                                               |  | $                 | 141,540  |   |                  | $
|                                                                                                                         |  |                   |          |   |                  |  



See accompanying notes



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CENTILLIUM COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands except per share data)



|                                                        |  | Three Months EndedSeptember 30, |        |      | Nine Months EndedSeptember 30, |       
|------------------------------------------------------- |  | ------------------------------- | ------ | ---- | ------------------------------ | ------
|                                                        |  | 2003                            |        | 2002 |                                |       
|Net revenues                                            |  | $                               | 37,498 |      | $                              | 23,264
|Cost of revenues                                        |  |                                 | 20,706 |      |                                | 12,549
|                                                        |  |                                 |        |      |                                |       
|Gross profit                                            |  |                                 | 16,792 |      |                                | 10,715
|                                                        |  |                                 |        |      |                                |       
|                                                        |  |                                 |        |     
|Operating expenses:                                     |  |                                 |        |      |                                |       
|Research and development                                |  |                                 | 11,117 |      |                                | 11,343
|Sales and marketing                                     |  |                                 | 2,874  |      |                                | 2,943 
|General and administrative                              |  |                                 | 2,675  |      |                                | 2,202 
|Amortization of other acquisition - related intangibles |  |                                 |       |      |                                | 42    
|                                                        |  |                                 |        |      |                                |       
|Total operating expenses                                |  |                                 | 16,666 |      |                                | 16,530
|                                                        |  |                                 |        |      |                                |       
|Operating income (loss)                                 |  |                                 | 126    |      |                                | (5,815
|Interest income, net                                    |  |                                 | 280    |      |                                | 443   
|Gain on non-current investment                          |  |                                 |       |      |                                |      
|                                                        |  |                                 |        |      |                                |       
|Income (loss) before provision for income taxes         |  |                                 | 406    |      |                                | (5,372
|Provision for income taxes                              |  |                                 | 24     |      |                                | 6     
|                                                        |  |                                 |        |      |                                |       
|Net income (loss)                                       |  | $                               | 382    |      | $                              | (5,378
|                                                        |  |                                 |        |      |                                |       
|Basic earnings (loss) per share                         |  | $                               | 0.01   |      | $                              | (0.15 
|                                                        |  |                                 |        |      |                                |       
|Diluted earnings (loss) per share                       |  | $                               | 0.01   |      | $                              | (0.15 
|                                                        |  |                                 |        |      |                                |       
|Common shares outstanding                               |  |                                 | 36,972 |      |                                | 34,765
|                                                        |  |                                 |        |      |                                |       
|Common shares outstanding - assuming dilution           |  |                                 | 41,099 |      |                                | 34,765
|                                                        |  |                                 |        |      |                                |       



See accompanying notes



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CENTILLIUM COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)



|                                                                            |  | Nine Months EndedSeptember 30, |        
|--------------------------------------------------------------------------- |  | ------------------------------ | -------
|                                                                            |  | 2003                           |        
|Operating activities                                                        |  |                                |        
|Net loss                                                                    |  | $                              | (3,089 
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                                |        
|Depreciation and amortization expense                                       |  |                                | 4,717  
|Stock based compensation expense                                            |  |                                | 1,058  
|Loss on retirements of property and equipment                               |  |                                | 19     
|Amortization of other acquisition-related intangibles                       |  |                                | 83     
|Gain on non-current investment                                              |  |                                |       
|Changes in operating assets and liabilities:                                |  |                                |        
|Accounts receivable                                                         |  |                                | (5,456 
|Inventories                                                                 |  |                                | (10,369
|Other current assets                                                        |  |                                | (1,809 
|Other assets                                                                |  |                                | (152   
|Accounts payable                                                            |  |                                | 6,142  
|Accrued payroll and related expenses                                        |  |                                | 390    
|Deferred revenue                                                            |  |                                | 671    
|Accrued liabilities                                                         |  |                                | 2,453  
|Other liabilities                                                           |  |                                | (83    
|                                                                            |  |                                |        
|Net cash used in operating activities                                       |  |                                | (5,425 
|                                                                            |  |                               
|Investing activities                                                        |  |                                |        
|Purchases of short-term investments                                         |  |                                | (51,508
|Sales and maturities of short-term investments                              |  |                                | 25,238 
|Purchases of property and equipment                                         |  |                                | (2,327 
|Proceeds from sale of non-current investment                                |  |                                |       
|                                                                            |  |                                |        
|Net cash provided by (used in) investing activities                         |  |                                | (28,597
|                                                                            |  |                               
|Financing activities                                                        |  |                                |        
|Principal payments on capital lease obligations                             |  |                                | (1,533 
|Principal payments on long term debt obligations                            |  |                                |       
|Proceeds from issuance of common stock, net of repurchases                  |  |                                | 12,216 
|Proceeds from shareholder                                                   |  |                                | 857    
|                                                                            |  |                                |        
|Net cash provided by financing activities                                   |  |                                | 11,540 
|                                                                            |  |                                |        
|Net decrease in cash and cash equivalents                                   |  |                                | (22,482
|Cash and cash equivalents at beginning of period                            |  |                                | 93,513 
|                                                                            |  |                                |        
|Cash and cash equivalents at end of period                                  |  | $                              | 71,031 
|                                                                            |  |                                |        



See accompanying notes



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CENTILLIUM COMMUNICATIONS, INC.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



(UNAUDITED)



September 30, 2003



1. Description of Business



The Company



Centillium Communications, Inc. (Centillium or the Company) was incorporated in California on February 21,
1997. The Company provides semiconductor products that enable broadband communications. Our products are used in telecommunications equipment targeting the Digital Subscriber Line (DSL) and Voice over Packet (VoP) markets.



We provide semiconductor products that enable broadband communications to the home and
business enterprise. We serve the DSL and the VoP markets. Our current customers are broadband access equipment vendors who manufacture DSL equipment for use in the phone companies communications infrastructure or in the customer premise for
high speed Internet or other network access in a home or small business. Our customers also include equipment vendors who supply products that allow convergence of data and voice networks.



2. Summary of Significant Accounting Policies



Basis of Presentation



The accompanying condensed consolidated financial statements herein are unaudited; however,
they have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, the unaudited condensed
consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) that are necessary for a fair presentation of the Companys consolidated financial position at September 30, 2003, the consolidated results
of operations for the three and nine months ended September 30, 2003 and 2002, and the consolidated cash flows for the nine months ended September 30, 2003 and 2002. Operating results for the three and nine months ended September 30, 2003 are not
necessarily indicative of the results that may be expected for the year ending December 31, 2003.



The unaudited condensed consolidated financial statements include all the accounts of the Company and those of its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated.



The accompanying unaudited condensed consolidated financial statements do not
include certain financial footnotes and financial information normally required under accounting principles generally accepted in the United States. Therefore, these financial statements should be read in conjunction with the Companys audited
consolidated financial statements and footnotes thereto for the year ended December 31, 2002 included in the Companys Annual Report on Form 10-K/A, filed with the Securities and Exchange Commission on April 21, 2003.



Use of Estimates



The preparation of 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 financial statements and accompanying notes. The Company regularly evaluates the estimates and assumptions related to the allowances for doubtful accounts, sales returns and
allowances, inventory valuation, warranty reserves, impairment of long-lived assets, deferred income tax asset valuation allowances and other contingencies. The Company bases the estimates and assumptions on historical experience and on various
other factors that it believes to be reasonable under the circumstances. Actual results could differ from those estimates.



Reclassifications



Certain prior year balance sheet and cash flow balances have been reclassified to conform to current year presentation.



Recent Accounting Pronouncements



In November 2002, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45). FIN 45 requires that upon issuance of a guarantee, a guarantor must recognize a liability
for the fair value of an obligation assumed under a guarantee. FIN



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45 also requires additional disclosures by a guarantor in its interim and annual financial statements about the obligations associated with guarantees
issued. The recognition provisions of FIN 45 are effective for any guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002.
The adoption of FIN No. 45 did not have a material effect on our condensed consolidated financial position, results of operations, or cash flows.



At the November 2002 Emerging Issues Task Force (EITF) meeting, the Task Force reached a consensus on EITF No. 00-21, Revenue Arrangements with Multiple
Deliverables (EITF 00-21). EITF 00-21 provides guidance on how to determine whether an arrangement involves multiple deliverables and contains more than one unit of accounting. EITF 00-21 was effective for arrangements entered into in periods
commencing after June 15, 2003, or it could be adopted retroactively. The adoption of EITF 00-21 did not have a material effect on the Companys consolidated financial position, results of operations, or cash flows.



In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable
Interest Entities (FIN 46).FIN 46 addresses the consolidation and financial reporting of variable interest entities. FIN No. 46 is effective for financial statements of interim or annual periods ending after December 15, 2003 for
variable interest entities created before February 1, 2003, or immediately for variable interest entities created after January 31, 2003. The adoption of this interpretation is not expected to have a material effect on the Companys
consolidated financial position, results of operations, or cash flows.



3.
Stock-based Compensation



The Company has elected to account for its
employee stock plans in accordance with the intrinsic value method under Accounting Principles Board Opinion No. 25, Accounting For Stock Issued to Employees (APB Opinion No. 25) and elected the disclosure-only alternative under
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123), as amended by SFAS No. 148, Accounting for Stock Based Compensation-Transition and Disclosure.



Had compensation expense for the Companys stock options been recognized based upon the
estimated fair value on the grant date under the fair value methodology prescribed by SFAS No. 123, as amended by SFAS No. 148, the Companys net loss and loss per share would have been as follows (in thousands, except per share amounts):



|                                                                                                                               |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |  
|------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------- | ------ | - | ------------------------------ | -
|                                                                                                                               |  | 2003                            |        |   | 2002                           |  
|Net income (loss) as reported                                                                                                  |  | $                               | 382    |   |                                | $
|Add: Stock-based employee compensation expense (recovery) included in reported net income (loss), net of related tax
effects   |  |                                 | 381    |   |                                |  
|Less: Total stock-based employee compensation expense under fair value based method for all awards, net of related tax
effects |  |                                 | (5,502 | ) |                                |  
|                                                                                                                               |  |                                 |        |   |                                |  
|Pro forma net loss                                                                                                             |  | $                               | (4,739 | ) |                                | $
|                                                                                                                               |  |                                 |        |   |                                |  
|Basic and diluted net earnings (loss) per share - as reported                                                                  |  | $                               | 0.01   |   |                                | $
|                                                                                                                               |  |                                 |        |   |                                |  
|Basic and diluted net loss per share - pro forma                                                                               |  | $                               | (0.13  | ) |                                | $
|                                                                                                                               |  |                                 |        |   |                                |  



4. Commitments and Contingencies



The Company enters into standard indemnification agreements in the
ordinary course of business. Pursuant to these agreements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally our business partners or customers,
in connection with certain patent, copyright or other intellectual property infringement claims by any third parties with respect to our products. The term of these indemnification agreements is generally perpetual. We have not incurred significant
costs to defend lawsuits or settle claims related to these indemnification agreements and we have no liabilities recorded for these agreements as of September 30, 2003.



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The semiconductor and telecommunications industries are characterized by substantial litigation regarding patent and
other intellectual property rights. From time to time, the Company receives various inquiries or claims in connection with these rights and may become party to associated claims. In certain cases, management has accrued estimates of the amounts it
expects to pay upon resolution of such matters and such amounts are included in accrued liabilities. Should the Company not be able to secure the terms it expects, these estimates may change and will be recognized in the period in which they are
identified, resulting in decreased profits. Although the ultimate outcome of such inquiries is not presently determinable, management believes that the resolution of these matters will not have a material adverse effect on the Companys
financial position or results of operations.



On June 19, 2003, Credit Suisse
First Boston Corporation and approximately 12 of its clients, including Centillium, were named as defendants in a securities class action lawsuit filed in United States District Court for the Southern District of Florida. The complaint asserted
wrongdoing relating to various initial public offerings in which Credit Suisse First Boston was involved between 1999 and 2001. In October 2003, Centillium was dropped as a defendant to this lawsuit.



The Company does not own or operate a fabrication facility and foundries located in Asia
currently supply substantially all of its wafer requirements. The Companys purchase obligations to these foundries are based on wafer supply agreements or non-cancelable purchase orders. As of September 30, 2003, the Companys
non-cancelable purchase obligations for wafers expected to be delivered within the next three months is $10.7 million.



5. Balance Sheet Information



Inventories:



The components of inventories are as follows (in thousands):



|                |  | September 30,2003 |        | December 31,2002
|--------------- |  | ----------------- | ------ | ----------------
|Work-in-process |  | $                 | 10,123 |                 
|Finished goods  |  |                   | 4,376  |                 
|                |  |                   |        |                 
|                |  | $                 | 14,499 |                 
|                |  |                   |        |                 



Accrued Liabilities:



The components of accrued liabilities are as follows (in thousands):



|                          |  | September 30,2003 |        | December 31,2002
|------------------------- |  | ----------------- | ------ | ----------------
|Accrued royalties         |  | $                 | 12,767 |                 
|Accrued other liabilities |  |                   | 3,060  |                 
|                          |  |                   |        |                 
|                          |  | $                 | 15,827 |                 
|                          |  |                   |        |                 



Warranty:



Warranty activity for the nine months ended September 30, 2003 was as follows (in
thousands):



|                                   |  | 2003 |     
|---------------------------------- |  | ---- | ----
|Balances at beginning of period    |  | $    | 608 
|Provision for current period sales |  |      | 309 
|Warranty costs incurred            |  |      | (371
|                                   |  |      |     
|Balances at end of period          |  | $    | 546 
|                                   |  |      |     



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6. Provision for Income Taxes



The provision for income taxes for the three and nine months ended September 30, 2003 and 2002 relates to current taxes payable for the
Companys subsidiaries located in foreign jurisdictions. Income tax expense differs from the expected benefit that was derived by applying the applicable U.S. federal statutory rate to the loss from operations primarily due to losses that are
not currently benefited. Due to the Companys loss position, a full valuation allowance has been established against the Companys deferred tax assets, consisting primarily of net operating loss carryforwards.



7. Net Income/Loss Per Share and Comprehensive Net Income/Loss



Basic earnings (loss) per share have been computed using the weighted average number of
shares of common stock outstanding during the period, less shares subject to repurchase. Diluted earnings (loss) per share is computed using the weighted-average number of common shares and dilutive potential common shares outstanding during the
period. Dilutive potential common shares result from the assumed exercise of outstanding stock options, by application of the treasury stock method, that have a dilutive effect on earnings per share, and from the assumed conversion of an outstanding
warrant if it has a dilutive effect on earnings per share. The following table presents the computation of basic and diluted net earnings (loss) per share (in thousands, except per share amounts):



|                                                                  |  | Three Months Ended September 30, |        |      | Nine Months Ended September 30, |       
|----------------------------------------------------------------- |  | -------------------------------- | ------ | ---- | ------------------------------- | ------
|                                                                  |  | 2003                             |        | 2002 |                                 |       
|Net income (loss)                                                 |  | $                                | 382    |      | $                               | (5,378
|                                                                  |  |                                  |        |      |                                 |       
|                                                                  |  |                                  |        |     
|Basic and diluted:                                                |  |                                  |        |      |                                 |       
|Weighted average shares of common stock outstanding               |  |                                  | 36,976 |      |                                 | 34,862
|Less weighted average shares subject to repurchase                |  |                                  | 4      |      |                                 | 97    
|                                                                  |  |                                  |        |      |                                 |       
|Weighted average shares used to compute common shares outstanding |  |                                  | 36,972 |      |                                 | 34,765
|Add effect of dilutive potential common shares                    |  |                                  | 4,127  |      |                                 |      
|                                                                  |  |                                  |        |      |                                 |       
|Common shares outstanding - assuming dilution                     |  |                                  | 41,099 |      |                                 | 34,765
|                                                                  |  |                                  |        |      |                                 |       
|Basic earnings (loss) per share                                   |  |                                  | 0.01   |      |                                 | (0.15 
|                                                                  |  |                                  |        |      |                                 |       
|Diluted earnings (loss) per share                                 |  | $                                | 0.01   |      | $                               | (0.15 
|                                                                  |  |                                  |        |      |                                 |       



Stock options to purchase
approximately 2,700,702 shares for the three month period ended September 30, 2003 were outstanding, but were not included in the computation of diluted earnings per share because the exercise price of the options was greater than the average share
price of the common shares and, therefore, the effect would have been anti-dilutive. As the Company incurred a loss for the nine month period ended September 30, 2003 and for the three and nine month periods ended September 30, 2002, the effect of
dilutive securities totaling 11,156,647, 12,456,370 and 10,373,524, respectively, has been excluded from the computation of diluted loss per share, as their impact would be anti-dilutive.



The components of comprehensive net income (loss) were as follows (in thousands):



|                                                            |  | Three Months Ended September 30, |     |   | Nine Months Ended September 30, |  
|----------------------------------------------------------- |  | -------------------------------- | --- | - | ------------------------------- | -
|                                                            |  | 2003                             |     |   | 2002                            |  
|Net income (loss)                                           |  | $                                | 382 |   |                                 | $
|Change in unrealized gain on available-for-sale investments |  |                                  | (10 | ) |                                 |  
|                                                            |  |                                  |     |   |                                 |  
|Total comprehensive income (loss)                           |  | $                                | 372 |   |                                 | $
|                                                            |  |                                  |     |   |                                 |  



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8. Business Segment Information and Customer Concentration



Through September 30, 2003, the Companys revenues have been derived from one business
segment, the sale of broadband communication products for the DSL and VoP markets. The Company sells its products to broadband access equipment vendors who manufacture DSL equipment for use in the phone companies communications infrastructure
or in the customer premise for high-speed Internet or other network access in a home or small business. Our customers also include equipment vendors who supply products that allow convergence of data and voice networks.



The Chief Executive Officer has been identified as the Chief Operating Decision Maker (CODM)
because he has final authority over resource allocation decisions and performance assessment. The CODM does not receive discrete financial information about any individual components.



The following customers, both of whom are located in Japan, accounted for more than 10% of net revenues:



|                             |  | Three Months EndedSeptember 30, |   |  | Nine Months EndedSeptember 30, |  
|---------------------------- |  | ------------------------------- | - |  | ------------------------------ | -
|                             |  | 2003                            |   |  | 2002                           |  
|NEC                          |  | 53                              | % |  | 52                             | %
|Sumitomo Electric Industries |  | 31                              | % |  | 27                             | %



The following is a summary of net
revenues by major geographic area (in thousands):



|                       |  | Three Months EndedSeptember 30, |        | Nine Months EndedSeptember 30,
|---------------------- |  | ------------------------------- | ------ | ------------------------------
|                       |  | 2003                            |        | 2002                          
|Japan                  |  | $                               | 31,417 |                               
|United States          |  |                                 | 3,575  |                               
|Asia  Excluding Japan |  |                                 | 2,289  |                               
|All other              |  |                                 | 217    |                               
|                       |  |                                 |        |                               
|Total                  |  | $                               | 37,498 |                               
|                       |  |                                 |        |                               



9. Related Party Transactions



In the second quarter of 2000, the Company invested $990,000 in equity
securities of Broadxent, Inc., a majority owned subsidiary of Creative Technology Ltd. In the second quarter of 2001, in connection with an ongoing evaluation of this non-current equity investment, the Company wrote down the basis of this investment
to zero as a result of impairment in the value of this asset. In the first quarter of 2002, the Company sold this non-current equity investment for $440,000 and reported this amount as a gain. Broadxent, Inc., is a wholly owned subsidiary of
Creative Technology Ltd. One of the Companys directors is also a director of Creative Technology Ltd.



The Company sold $454,000 and $2.5 million of products to Broadxent, Inc. during the three and nine months ended September 30, 2002, respectively. There were no sales to Broadxent, Inc. during 2003.



During the quarter ended June 30, 2003, a shareholder sold shares of Centillium stock in a
transaction deemed to be a short-swing sale. Under Section 16(b) of the Securities Exchange Act of 1934, the shareholder was required to disgorge to the Company the profit realized from the stock sale in the amount of approximately $857,000. The
Company accounted for the cash receipt as a contribution from a shareholder and reflected the proceeds as an increase to additional paid in capital in its financial statements. Proceeds from this sale did not effect the Companys condensed
consolidated statement of operations.



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS



You should read the following discussion and analysis in conjunction with our consolidated financial statements and the related notes thereto included in our Annual
Report on Form 10-K/A, filed with the Securities and Exchange Commission on April 21, 2003. The information in this report is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to
carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC.



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Our discussion contains forward-looking statements that are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements are generally preceded by words that imply a future state such as expected or anticipated or imply that a particular future event or events will
occur such as will. Investors are cautioned that all forward-looking statements involve risks and uncertainties and those actual results could be materially different from those discussed in this report. We undertake no obligation to
publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document.



The section entitled Risk Factors and similar discussions in our other SEC reports filed with the SEC discuss some of the important risk factors that may
affect our business, results of operations and financial condition. Copies of our reports filed with the SEC are available from us without charge and on the SECs website at www.sec.gov. You should carefully consider those risks, in addition to
the other information in this report and in our other filings with the SEC, before deciding to invest in our Company or to maintain or increase your investment.



Overview



Founded in 1997, Centillium Communications, Inc (Centillium or the Company) provides semiconductor products that enable broadband communications to the home and business enterprise. We serve
the DSL and the Voice over Packet markets. Our current customers are broadband access equipment vendors who manufacture DSL equipment for use in the phone companies communications infrastructure or in the customer premise for high-speed
Internet or other network access in a home or small business. Our customers also include equipment vendors who supply products that allow convergence of data and voice networks. Our revenues are derived primarily from the sale of our DSL and Voice
over Packet semiconductor products, which include the Maximus, Palladia, CopperFlite and Entropia families of products.



Critical Accounting Policies



There have been no significant changes in our critical accounting policies during the three and nine months ended September 30, 2003 as compared to the accounting
policies previously disclosed in our Annual Report on Form 10-K/A for the year ended December 31, 2002, as filed with the Securities and Exchange Commission on April 21, 2003.



Results of Operations for the Three and Nine Months Ended September 30, 2003 and 2002



The following table sets forth, for the periods presented, certain data from our unaudited
consolidated statements of operations expressed as a percentage of net revenues.



|                                                      |  | Three Months Ended |   |  | Nine Months Ended |   
|----------------------------------------------------- |  | ------------------ | - |  | ----------------- | --
|                                                      |  | September 30,2003  |   |  | September 30,2002 |   
|Net revenues                                          |  | 100                | % |  | 100               | % 
|Cost of revenues                                      |  | 55                 |   |  | 54                |   
|                                                      |  |                    |   |  |                   |   
|Gross profit                                          |  | 45                 |   |  | 46                |   
|                                                      |  |                    |   |  |                   |   
|Operating expenses:                                   |  |                    |   |  |                   |   
|Research and development                              |  | 30                 |   |  | 49                |   
|Sales and marketing                                   |  | 8                  |   |  | 13                |   
|General and administrative                            |  | 7                  |   |  | 9                 |   
|Amortization of other acquisition-related intangibles |  |                   |   |  |                  |   
|                                                      |  |                    |   |  |                   |   
|Total operating expenses                              |  | 45                 |   |  | 71                |   
|                                                      |  |                    |   |  |                   |   
|Operating income (loss)                               |  |                   |   |  | (25               | ) 
|Interest income, net                                  |  | 1                  |   |  | 2                 |   
|Gain on non-current investment                        |  |                   |   |  |                  |   
|Provision for income taxes                            |  |                   |   |  |                  |   
|                                                      |  |                    |   |  |                   |   
|Net income (loss)                                     |  | 1                  | % |  | (23               | )%
|                                                      |  |                    |   |  |                   |   



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Net Revenues. Net revenues for the three months ended September 30, 2003 were $37.5 million compared to $23.3
million for the three months ended September 30, 2002, an increase of $14.2 million or 61%. This increase in net revenues for the three months ended September 30, 2003 as compared with the three months ended September 30, 2002 primarily resulted
from an increase in the total unit volume shipments of our DSL products offset by higher sales volume of products with lower average selling prices and a decline in the weighted average selling price of our DSL products.



Net revenues for the nine months ended September 30, 2003 were $99.3 million compared to
$80.3 million for the nine months ended September 30, 2002, an increase of $19.0 million or 24%. The increase in net revenues for the nine months ended September 30, 2003 as compared with the nine months ended September 30, 2002 primarily reflects
an increase in total unit shipments of our DSL products offset by higher sales volume of products with lower average selling prices and a decrease in the weighted average selling price of our DSL products.



Revenue from our DSL products accounted for $36.8 million or 98% of net revenues for the
three months ended September 30, 2003, as compared to $22.2 million or 95% of net revenues for the three months ended September 30, 2002. DSL revenues during the nine months ended September 30, 2003 accounted for $97.4 million or 98% of net revenues
as compared to $77.1 million or 96% of net revenues for the nine months ended September 30, 2002. Revenues from Voice over Packet products accounted for $692,000 of revenues in the three months ended September 30, 2003 as compared to $947,000 for
the three months ended September 30, 2002, or approximately 2% and 4% of net revenues, respectively. Voice over Packet revenues accounted for $1.6 million of revenues in the nine months ended September 30, 2003 as compared to $2.5 million for the
nine months ended September 30, 2002, or approximately 2% and 3% of net revenues, respectively. We anticipate that revenues from our DSL products will continue to account for greater than 90% of our net revenues for the balance of 2003.



The following customers, both of whom are located in Japan, accounted for more than 10% of
net revenues:



|                             |  | Three Months EndedSeptember 30, |   |  | Nine Months EndedSeptember 30, |  
|---------------------------- |  | ------------------------------- | - |  | ------------------------------ | -
|                             |  | 2003                            |   |  | 2002                           |  
|NEC                          |  | 53                              | % |  | 52                             | %
|Sumitomo Electric Industries |  | 31                              | % |  | 27                             | %



Net revenues to international
customers, who were primarily located in Japan, comprised 90% and 81% of our net revenues for the three months ended September 30, 2003 and 2002, respectively. For the nine months ended September 30, 2003 and 2002, net revenues to international
customers accounted for 91% and 87% of net revenues, respectively.



Japans DSL market is an important part of our business and net new DSL subscribers are a significant driver of consumption for Centilliums DSL products. The recent lower number of new subscribers in Japan will likely contribute
to a decline in near-term quarterly revenue. As such, we anticipate that our fourth quarter 2003 revenues will be significantly lower than the revenues we reported for the third quarter of 2003.



Cost of Revenues and Gross Profit.Cost of revenues includes the cost
of the finished silicon wafers manufactured by independent foundries, costs associated with assembly, packaging, test and quality assurance, and internal manufacturing and operations functions. Cost of revenues was $20.7 million and $12.5 million
for the three months ended September 30, 2003 and 2002, resulting in a gross profit of $16.8 million and $10.7 million and a gross profit margin of 45% and 46%, respectively. The increase in gross profit was due to higher revenue while gross profit
margin decreased primarily due to higher manufacturing costs. Cost of revenues was $52.9 million and $45.9 million for the nine months ended September 30, 2003 and 2002, resulting in a gross profit of $46.4 million and $34.4 million and a gross
margin of 47% and 43%, respectively. The increase in gross profit was primarily due to higher revenue while the increase in gross profit margin resulted from reduced manufacturing costs and product mix. Our gross profit margins in the future may be
affected by competitive pricing strategies, product mix, fluctuation in silicon wafer costs and the fluctuation in manufacturing yields.



Research and Development Expenses.Research and development expense consists primarily of salaries and related personnel costs of employees engaged
in research, design and development activities, fees paid to consultants and outside service providers, prototype costs, amortization of deferred compensation, software licensing and maintenance costs, and depreciation associated with software
design tools and equipment. Research and development expenditures decreased by approximately $226,000, or 2%, to $11.1 million for the three months ended September 30, 2003 as compared to $11.3 million for the three months ended September 30, 2002.
Research and development expenses decreased by approximately $5.3 million, or 14%, to $34.0 million for the nine months ended September 30, 2003 as compared to $39.3 million for the nine months ended September 30, 2002. These decreases were
primarily due to decreases in software tool expense, salaries, deferred compensation expense and non-recurring engineering expense, partially offset by higher consulting expense and equipment rental expense.



Sales and Marketing Expenses.Sales and marketing expense consists
primarily of personnel-related expenses, amortization of deferred compensation, costs associated with promotional and marketing efforts, and travel expenses. Sales and marketing expenditures remained relatively consistent at $2.9 million for the
three months ended September 30, 2003 and 2002. Spending on sales and marketing decreased by approximately $3.1 million, or 26%, to $8.9 million for the nine months ended September 30, 2003 as compared to $11.9 million for the nine months ended
September 30, 2002. The decrease was due primarily to a decrease in salaries and related costs, a decrease in commission expense for external sales representatives, partially offset by higher commission expense for the internal sales force,
consulting and public relations expenses.



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General and Administrative Expenses.General and administrative expense consists primarily of
personnel-related expenses, amortization of deferred compensation, legal and professional fees, and other corporate expenses. General and administrative expenditures increased by approximately $473,000, or 21%, to $2.7 million for the three months
ended September 30, 2003 from $2.2 million for the three months ended September 30, 2002. This increase was primarily due to an increase in compensation expense, and an increase in stock administration expense, partially offset by lower amortization
of deferred compensation. General and administrative expenses decreased by approximately $427,000, or 6%, to $7.3 million for the nine months ended September 30, 2003 from $7.7 million for the nine months ended September 30, 2002. This decrease was
primarily due to a decrease in the amortization of deferred compensation, a decrease in salaries and related costs and a decrease in legal expenses, partially offset by higher business insurance expense.



Stock-Based Compensation Expense. Stock-based compensation expense,
which is allocated among the above expense categories, was $381,000 in the three months ended September 30, 2003 as compared to a credit of $809,000 in the three months ended September 30, 2002. This expense increase of $1.2 million was the result
of an adjustment to compensation expense for forfeited options of terminated employees in third quarter of 2002. As required by APB 25, we record an adjustment to equity-based compensation related to employees who forfeit options for which
compensation expense had been recognized using the graded vesting method, but which are unvested on the date their employment terminated. Stock-based compensation expense was $1.1 million and $2.7 million in the nine months ended September 30, 2003
and 2002, a decrease of $1.6 million, respectively. This decrease is primarily related to the use of the graded vesting method, which results in accelerated amortization of deferred compensation expense in the earlier years of the awards
expected life.



Amortization of Other Acquisition
Intangibles. Amortization of goodwill and other acquisition-related intangibles was $83,000 and $125,000 in the nine months ended September 30, 2003 and 2002, respectively. These intangible assets were fully amortized at June 30, 2003.



Interest Income, Net.Interest income, net, was
$280,000 and $851,000 for the three and nine month periods ended September 30, 2003 as compared to $443,000 and $1.5 million for the three and nine months ended September 30, 2002, a decrease of $163,000 and $604,000 or 37% and 42%, respectively.
This decrease was primarily due to lower interest rates obtained on our cash, cash equivalents and short-term investment portfolio.



Provision for Income Taxes. Income tax expense was $24,000 and $6,000 for the three months ended September 30, 2003 and 2002, respectively, and
$90,000 and $57,000 for the nine months ended September 30, 2003 and 2002, respectively. The provisions for income taxes relate to current taxes payable for the Companys subsidiaries located in foreign jurisdictions. Income tax expense differs
from the expected benefit that was derived by applying the applicable U.S. federal statutory rate to the loss from operations primarily due to losses that are not currently benefited. Due to the Companys loss position, a full valuation
allowance has been established against the Companys deferred tax assets, consisting primarily of net operating loss carryforwards.



Net income (losses). We reported our first quarter of profitability for the three months ended September 30, 2003 but expect to report an operating
loss in the fourth quarter of 2003 and for the year then ended.



Liquidity
and Capital Resources



Since our inception, we have financed our
operations through a combination of sales of equity securities and cash generated by operations. At September 30, 2003, we had $105.8 million in cash, cash equivalents and short-term investments as compared to $102.0 million at December 31, 2002.



Operating activities for the nine months ended September 30, 2003 used $5.4
million in cash. The net cash used in operating activities was primarily the result of our net loss of $3.1 million, an increase in our accounts receivable of $5.5 million, an increase in inventory of $10.4 million and an increase in other current
assets of $1.8 million partially offset by non-cash expenses of $4.7 million for depreciation and amortization and $1.1 million for stock based compensation, an increase in accounts payable of $6.1 million, an increase in accrued liabilities of $2.5
million, and an increase in deferred revenue of $671,000. The increase in accounts receivable is the result of higher sales in the third quarter of 2003 as compared to sales in the fourth quarter of 2002. The increases in accounts payable and
inventories were the result of the timing of the receipt of inventories from our manufacturing partners in the last month of the quarter and the build up of inventory in anticipation of customer demand. Deferred revenue increased due to a prepayment
from one customer for DSL product to be shipped in the fourth quarter of 2003.



For the nine months ended September 30, 2003, net cash used by investing activities was $28.6 million. Net cash used by investing activities related to purchases of short-term investments of $51.5 million and purchases of property and
equipment of $2.3 million,



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partially offset by sales and maturities of short-term investments of $25.2 million. Property and equipment purchases
relate principally to the purchase of software development tools, lab equipment and computer hardware to support our research and development activities.



Net cash provided by financing activities was $11.5 million for the nine months ended September 30, 2003. Net cash provided by financing activities consisted of net
proceeds of $12.2 million from the issuance of common stock under employee stock plans and approximately $857,000 in proceeds from a shareholder partially offset by principal payments on capital lease obligations of $1.5 million.



Due to the significant increase in our stock price, we received approximately $11.5 million
from the exercise of stock options during the nine months ended September 30, 2003 as compared to $634,000 for the nine months ended September 30, 2002, as significantly more options, with higher exercise prices, were exercised by our employees.



During the past nine months, we reduced our expenditures and implemented a
number of expense reduction initiatives to improve our operating cost structure. However, we expect that the operating expenses in the last quarter of fiscal 2003 to increase to support new product research and development activities.



Our principal source of liquidity as of September 30, 2003 consisted of $105.8 million of
cash and cash equivalents and short-term investments. We believe our cash, cash equivalents and marketable securities will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least twelve months. The
rate at which we will consume cash will be dependent on the cash needs of future operations that will, in turn, be directly affected by various risks and uncertainties, including but not limited to, the levels of demand for our products and other
risks listed in the Risk Factors section.



Our principal
commitments as of September 30, 2003 consist of obligations under operating leases, a capital lease, royalty agreements and non-cancelable purchase obligations. Significant contractual obligations and commercial commitments as of September 30, 2003
are shown in the table below (in thousands):



|                              |  | Total |        | Less than 1 Year |   | 1 - 3 Years |  | After 3 Years
|----------------------------- |  | ----- | ------ | ---------------- | - | ----------- |  | -------------
|Operating leases - facilities |  | $     | 2,888  |                  | $ | 1,615       |  | $            
|Capital leases - software     |  |       | 520    |                  |   | 520         |  |              
|Operating leases - software   |  |       | 4,370  |                  |   | 2,228       |  |              
|Inventory purchases           |  |       | 10,724 |                  |   | 10,724      |  |              
|                              |  |       |        |                  |   |             |  |              
|Total cash obligations        |  | $     | 18,502 |                  | $ | 15,087      |  | $            
|                              |  |       |        |                  |   |             |  |              



We expect to devote capital resources
to continue our research and development efforts, to support our sales, marketing, and product development programs and to fund other general corporate activities. From time to time, we receive various inquiries or claims in connection with
intellectual property and other rights and may become party to associated claims. In certain cases, management has accrued estimates of the amounts it expects to pay upon resolution of such matters. Depending on the amount and timing of the
resolutions of these claims, our future cash flows could be materially adversely affected in a particular period.



If our existing resources and cash generated from operations are insufficient to satisfy our liquidity requirements, we may seek to raise additional funds through public
or private debt or equity financings. The sale of equity or convertible debt securities could result in additional dilution to our stockholders, and we cannot be certain that additional financing will be available in amounts or on terms acceptable
to us, if at all. If we are unable to obtain this additional financing, we may be required to reduce the scope of our planned product development and sales and marketing efforts, which could harm our business, financial condition and operating
results.



On July 29, 2003, Centillium announced the filing of a universal
shelf registration statement on Form S-3 with the Securities and Exchange Commission (SEC) for the registration and potential issuance of up to $90 million of Centillium securities. The securities covered by the universal shelf, which
may include common stock, preferred stock, warrants or debt securities, are being registered on a delayed basis because Centillium did not intend to sell securities immediately upon the effectiveness of the registration statement. The actual amount
and type of securities, or combination of securities, to be issued and the terms of those securities, will be determined at the time of sale, if such sale occurs.



At the time any of the securities covered by the registration statement are offered for sale, a prospectus supplement will be provided
containing specific information about the terms of any such offering. Centillium currently anticipates that the net proceeds from any sale of the shares will be used for general corporate purposes, including the investment in and development of new
products, capital expenditures and acquisitions. However, Centillium currently has no commitments or agreements for any specific acquisitions or investments that require additional capital.



Risk Factors



You should carefully consider the risks described below and all of the information contained in this Form 10-Q and on our Form 10-K/A,
filed with the Securities and Exchange Commission on April 21, 2003. If any of the following risks actually occurs, our business, financial condition and results of operations could be harmed and the trading price of our common stock could decline
and you may lose all or part of your investment in our common stock.



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WE HAVE A HISTORY OF LOSSES AND WE MAY NOT MAINTAIN PROFITABILITY.



We reported our first quarter of profitability for the three months ended September 30, 2003
but expect to report an operating loss in the fourth quarter of 2003 and for the year then ended. Since our incorporation, we have reported operating losses in every period prior to the quarter ended September 30, 2003 and have experienced net
losses of approximately $3.1 million for the nine months ended September 30, 2003, and $33.3 million and $19.7 million for the years ended December 31, 2002 and 2001, respectively.



WE ANTICIPATE LOWER MARGINS, WHICH COULD ADVERSELY AFFECT OUR PROFITABILITY.



We expect the average selling prices of our products to decline as they mature.
Historically, competition in the semiconductor industry has driven down the average selling prices of products. If we price our products too high, our customers may use a competitors product or an in-house solution. To maintain profit margins,
we must reduce our costs sufficiently to offset declines in average selling prices, or successfully sell proportionately more new products with higher average selling prices. Yield or other production problems, or shortages of supply may preclude us
from lowering or maintaining current product costs.



We have also experienced
more aggressive price competition from competitors in market segments in which we are attempting to expand our business. These circumstances may make some of our products less competitive and we may be forced to decrease our prices significantly to
win a design. We may lose design opportunities or may experience overall declines in gross margins as a result of increased price competition.



OUR STOCK PRICE MAY CONTINUE TO BE VOLATILE.



The market price of our common stock has been volatile and will likely continue to fluctuate significantly in response to the following factors, some of which are beyond
our control:



| |  | variations in our quarterly operating results;
| | - | ----------------------------------------------



| |  | changes in financial estimates of our revenues and operating results by securities analysts;
| | - | --------------------------------------------------------------------------------------------



| |  | changes in market valuations of integrated circuit companies;
| | - | -------------------------------------------------------------



| |  | announcements by us, our competitors or others in related market segments of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | loss or decrease in sales to a major customer or failure to complete significant transactions;
| | - | ----------------------------------------------------------------------------------------------



| |  | loss or reduction in manufacturing capacity from one or more of our key suppliers;
| | - | ----------------------------------------------------------------------------------



| |  | additions or departures of key personnel;
| | - | -----------------------------------------



| |  | future sales of our common stock;
| | - | ---------------------------------



| |  | inconsistent or low levels of trading volume of our common stock;
| | - | -----------------------------------------------------------------



| |  | commencement of or involvement in litigation;
| | - | ---------------------------------------------



| |  | announcements by us or our competitors of key design wins and product introductions;
| | - | ------------------------------------------------------------------------------------



| |  | a decrease in the average selling price of our products;
| | - | --------------------------------------------------------



| |  | ability to achieve cost reductions; and
| | - | ---------------------------------------



| |  | fluctuations in the timing and amount of customer requests for product shipments.
| | - | ---------------------------------------------------------------------------------



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A GENERAL ECONOMIC SLOWDOWN, AND A SLOWDOWN IN SPENDING IN THE TELECOMMUNICATIONS INDUSTRY, HAS AFFECTED AND MAY
CONTINUE TO NEGATIVELY AFFECT OUR BUSINESS AND OPERATING RESULTS.



There have been announcements throughout the worldwide telecommunications industry of current and planned reductions in component inventory levels and equipment production volumes, and of delays in the build-out of new infrastructure. Any
of these trends, if continued, could result in lower than expected demand for our products, which could have a material adverse effect on our revenues and results of operations generally, and could cause the market price of our common stock to
decline.



A SLOWDOWN IN DEPLOYMENT OF DSL IN JAPAN WOULD ADVERSELY AFFECT
OUR BUSINESS AND OPERATING RESULTS.



Sales to customers located in
Japan accounted for 84% and 85% of net revenues for the three and nine months ended September 30, 2003, compared to 79% and 84% of net revenues for the three and nine months ended September 30, 2002. Our sales are dependent on the continuous growth
of new DSL subscribers in Japan and slow down in such a growth may cause our revenue to decline. Our sales have been historically denominated in U.S. dollars and major fluctuations in currency exchange rates could materially affect our Japanese
customers demand, thereby forcing them to reduce their orders, which could adversely affect our operating results.



COMPETING DSL TECHNOLOGIES MAY BE DEPLOYED IN JAPAN, WHICH MAY ADVERSELY IMPACT THE DEMAND FOR OUR DSL PRODUCTS, MARKET SHARE AND OPERATING RESULTS.



We have worked in partnership with local telecommunications companies
to develop the Annex C standard for the DSL market in Japan and have been able to achieve the majority market share of DSL equipment purchases, based on our products, in Japan. In July 2001, a certain service provider announced plans to deploy lower
priced competing DSL technologies in Japan and has subsequently deployed these competing technologies. If these competing technologies continue to be successful, our market share in the DSL market in Japan may decline and our business and operating
results may be adversely affected.



WE DERIVE A SUBSTANTIAL AMOUNT OF OUR
REVENUES FROM INTERNATIONAL SOURCES, AND DIFFICULTIES ASSOCIATED WITH INTERNATIONAL OPERATIONS COULD HARM OUR BUSINESS.



A substantial portion of our revenues has been derived from customers located outside of the United States. For the three and nine months ended September 30, 2003, 90%
and 91%, respectively, of our net revenues were to customers located in Asia. We may be unable to successfully overcome the difficulties associated with international operations. These difficulties include:



| |  | staffing and managing foreign operations;
| | - | -----------------------------------------



| |  | changes in regulatory requirements;
| | - | -----------------------------------



| |  | licenses, tariffs and other trade barriers;
| | - | -------------------------------------------



| |  | political and economic instability;
| | - | -----------------------------------



| |  | difficulties in protecting intellectual property rights in some foreign countries;
| | - | ----------------------------------------------------------------------------------



| |  | a limited ability to enforce agreements and other rights in some foreign countries;
| | - | -----------------------------------------------------------------------------------



| |  | obtaining governmental approvals for products; and
| | - | --------------------------------------------------



| |  | complying with a wide variety of complex foreign laws and treaties.
| | - | -------------------------------------------------------------------



Because sales of our products are denominated exclusively in United States dollars, increases in the value of the United States dollar could increase the price of our
products so that they become relatively more expensive to customers in the local currency of a particular country, leading to a reduction in sales and profitability in that country.



WE DEPEND ON A FEW CUSTOMERS AND IF WE LOSE ANY OF THEM OUR SALES AND OPERATIONS WILL SUFFER.



We sell our DSL products primarily to network equipment manufacturers. Our top two customers
for the nine month period ended September 30, 2003 were NEC and Sumitomo, accounting for 51% and 34% of our net revenues. For the year ended December 31,



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2002, NEC and Sumitomo accounted for 45% and 41% of our net revenues, respectively. We do not have contractual volume
commitments with these customers, but rather sell our products to them on an order-by-order basis. We expect to be dependent upon a relatively small number of large customers in future periods, although the specific customers may vary from period to
period. If we are not successful in maintaining relationships with key customers and winning new customers, our business and results of operations will suffer.



OUR CUSTOMERS MAY DEMAND PREFERENTIAL TERMS OR DELAY OUR SALES CYCLE, WHICH WOULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.



Our customers are in most cases larger than us and are able to exert a high degree of
influence over us. These customers may have sufficient bargaining power to demand low prices and other terms and conditions that may materially adversely affect our business, financial condition and results of operations. In addition, prior to
selling our products to such customers, we must typically undergo lengthy product approval processes, often taking up to one year. Accordingly, we are continually submitting successive versions of our products as well as new products to our
customers for approval. The length of the approval process can vary and is affected by a number of factors, including customer priorities, customer budgets and regulatory issues affecting telecommunication service providers. Delays in the product
approval process could materially adversely affect our business, financial condition and results of operations. While we have been successful in the past in obtaining product approvals from our customers, such approvals and the ensuing sales of such
products may not continue to occur. Delays can also be caused by late deliveries by other vendors, changes in implementation priorities and slower than anticipated growth in demand for the services that our products support. A delay in, or
cancellation of, the sale of our products could adversely affect our results from operations or cause them to significantly vary from quarter to quarter.



SALES OF OUR PRODUCTS DEPEND ON THE WIDESPREAD ADOPTION OF BROADBAND ACCESS SERVICES, ESPECIALLY DSL. IF THE DEMAND FOR BROADBAND ACCESS SERVICE DOES NOT INCREASE,
WE MAY NOT BE ABLE TO GENERATE SUBSTANTIAL SALES.



Sales of our
products depend on the increased use and widespread adoption of broadband access services, and DSL services in particular, and the ability of telecommunications service providers to market and sell broadband access services. Our business would be
harmed, and our results of operations and financial condition would be adversely affected, if the use of broadband access services does not increase as anticipated. Certain critical factors will likely continue to affect the development of the
broadband access service market. These factors include:



| |  | inconsistent quality and reliability of service;
| | - | ------------------------------------------------



| |  | lack of availability of cost-effective, high-speed service;
| | - | -----------------------------------------------------------



| |  | lack of interoperability among multiple vendors network equipment;
| | - | -------------------------------------------------------------------



| |  | congestion in service providers networks;
| | - | ------------------------------------------



| |  | inadequate security; and
| | - | ------------------------



| |  | slow deployment of new broadband services over DSL lines.
| | - | ---------------------------------------------------------



BECAUSE THE SALES CYCLE FOR OUR PRODUCTS TYPICALLY LASTS UP TO ONE YEAR, AND MAY BE SUBJECT TO DELAYS, IT IS DIFFICULT TO FORECAST SALES FOR ANY GIVEN PERIOD.



If we fail to realize forecasted sales for a particular period, our
stock price could decline significantly. The sales cycle of our products is lengthy and typically involves a detailed initial technical evaluation of our products by our prospective customers, followed by the design, construction and testing of
prototypes incorporating our products. Only after these steps are complete will we receive a purchase order from a customer for volume shipments. This process generally takes from 9 to 12 months, and may last longer. Given this lengthy sales cycle,
it is difficult to accurately predict when sales to a particular customer will occur. In addition, we may experience unexpected delays in orders from customers, which may prevent us from realizing forecasted sales for a particular period. Our
products are typically sold to equipment manufacturers, who incorporate our products in the products that they in turn sell to consumers or to network service providers. As a result, any delay by our customers, or by our customers customers,
in the manufacture or distribution of their products will result in a delay in obtaining orders for our products, which could cause our business and results to suffer.



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RAPID CHANGES IN THE MARKET FOR DSL CHIP SETS MAY RENDER OUR CHIP SETS OBSOLETE OR UNMARKETABLE.



The market for chip sets for DSL products is characterized by:



| |  | intense competition;
| | - | --------------------



| |  | rapid technological change;
| | - | ---------------------------



| |  | frequent new product introductions by our competitors;
| | - | ------------------------------------------------------



| |  | changes in customer demands; and
| | - | --------------------------------



| |  | evolving industry standards.
| | - | ----------------------------



Any of these factors could make our products obsolete or unmarketable. In addition, the life cycles of some of our products may depend upon the life cycles of the end products into which our products will be designed.
Products with short life cycles require us to closely manage production and inventory levels. Unanticipated changes in the estimated total demand for our products and/or the estimated life cycles of the end products into which our products are
designed may result in obsolete or excess inventories, which in turn may adversely affect our operating results. To compete, we must innovate and introduce new products. If we fail to successfully introduce new products on a timely and
cost-effective basis that meet customer requirements and are compatible with evolving industry standards, then our business, financial condition and results of operations will be seriously harmed.



BECAUSE OTHER BROADBAND TECHNOLOGIES MAY COMPETE EFFECTIVELY WITH DSL SERVICES, OUR
PRODUCTS MAY NOT CAPTURE MARKET SHARE.



DSL services are competing
with a variety of different broadband data transmission technologies, including cable modems, satellite and other wireless technologies. If any technology that is competing with DSL technology is more reliable, faster and less expensive or has other
advantages over DSL technology, then the demand for our DSL products may decrease.



OUR MARKETS ARE HIGHLY COMPETITIVE AND MANY OF OUR COMPETITORS ARE ESTABLISHED AND HAVE GREATER RESOURCES THAN WE HAVE.



The market for communications semiconductor and software solutions is intensely competitive. Given our stage of development, there is a substantial risk that we will not
have the financial resources, technical expertise or marketing and support capabilities to compete successfully. In addition, a number of other semiconductor companies have announced their intent to enter the market segments adjacent to or addressed
by our products. These competitors have longer operating histories, greater name recognition, larger installed customer bases and significantly greater financial, technical and marketing resources than we have. We may also face competition from
customers or prospective customers own internal development efforts. Any of these competitors may be able to introduce new technologies, respond more quickly to changing customer requirements or devote greater resources to the
development, promotion and sale of their products than we can.



BECAUSE
OUR PRODUCTS ARE COMPONENTS OF OTHER EQUIPMENT, IF BROADBAND EQUIPMENT MANUFACTURERS DO NOT INCORPORATE OUR PRODUCTS IN THEIR EQUIPMENT, WE MAY NOT BE ABLE TO GENERATE SALES OF OUR PRODUCTS IN VOLUME QUANTITIES.



Our products are not sold directly to the end-user; they are components of other products.
As a result, we rely upon equipment manufacturers to design our products into their equipment. We further rely on the manufacturing and deployment of the equipment to be successful. If equipment that incorporates our products is not accepted in the
marketplace, we may not achieve sales of our products in volume quantities, which would have a negative impact on our results of operations.



BECAUSE MANUFACTURERS OF COMMUNICATIONS EQUIPMENT MAY BE RELUCTANT TO CHANGE THEIR SOURCES OF COMPONENTS, IF WE DO NOT ACHIEVE DESIGN WINS WITH SUCH MANUFACTURERS,
WE MAY BE UNABLE TO SECURE SALES FROM THESE CUSTOMERS IN THE FUTURE.



Once a manufacturer of communications equipment has designed a suppliers semiconductor into its products, the manufacturer may be reluctant to change its source of semiconductors due to the significant costs associated with qualifying
a new supplier. Accordingly, our failure to achieve design wins with equipment manufacturers, who have chosen a competitors semiconductor could create barriers to future sales opportunities with these manufacturers.



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THIRD-PARTY CLAIMS REGARDING INTELLECTUAL PROPERTY MATTERS COULD CAUSE US TO STOP SELLING OUR PRODUCTS, PAY
MONETARY DAMAGES OR OBTAIN LICENSES ON ADVERSE TERMS.



There is a
significant risk that third parties, including current and potential competitors, will claim that our products, or our customers products, infringe on their intellectual property rights. The owners of these intellectual property rights may
bring infringement claims against us or our customers. Any such litigation, whether or not determined in our favor or settled by us, would be costly and divert the attention of our management and technical personnel. Inquiries with respect to the
coverage of our intellectual property could develop into litigation. In the event of an adverse ruling for an intellectual property infringement claim, we could be required to obtain a license or pay substantial damages or have the sale of our
products stopped by an injunction. Such a license may not be available on reasonable terms, or at all. In addition, if a customer of our products cannot acquire a required license on commercially reasonable terms, that customer may choose not to use
our products. We have obligations to indemnify our customers under some circumstances for infringement of third-party intellectual property rights. If any intellectual property claims from third parties against one of our customers whom we have
indemnified is held to be valid, the costs to us could be substantial and our business could be harmed.



We have received correspondence from certain parties, including Texas Instruments, Alcatel and Ricoh, requesting us to discuss the potential need for non-exclusive licenses permitting us to utilize technology covered
by various patents held by these parties. We could be subject to claims similar to the Texas Instruments, Alcatel and Ricoh claims in the future. Depending on the amount and timing of any unfavorable resolutions of these claims, our future results
of operations or cash flows could be materially adversely affected.



IF
WE DELIVER PRODUCTS WITH DEFECTS, OUR CREDIBILITY WILL BE HARMED, AND THE SALES AND MARKET ACCEPTANCE OF OUR PRODUCTS WILL DECREASE.



Our products are complex and have contained errors, defects and bugs when introduced and revised. If we deliver products with errors, defects or bugs or products that
have reliability, quality or compatibility problems, our credibility and the market acceptance and sales of our products could be harmed, which could adversely affect our ability to retain existing customers or attract new customers. Further, if our
products contain errors, defects and bugs, then we may be required to expend significant capital and resources to alleviate such problems and may have our sales to customers interrupted or delayed. If any of these problems are not found until we
have commenced commercial production, we may be required to incur additional development costs and product repair or replacement costs. Defects could also lead to potential liability as a result of product liability lawsuits against us or against
our customers. We have agreed to indemnify our customers in some circumstances against liability from defects in our products. A successful product liability claim could seriously harm our business, financial condition and results of operations, and
may divert our technical and other resources from other development efforts.



WE DEPEND ON SOLE SOURCE SUPPLIERS FOR SEVERAL KEY COMPONENTS OF OUR PRODUCTS.



We obtain certain parts, components and packaging used in the delivery of our products from sole sources of supply. For example, we obtain digital semiconductor wafers from Taiwan Semiconductor Manufacturing Co., Ltd
and we obtain analog silicon wafers from United Microelectronics Corporation. If we fail to obtain components in sufficient quantities when required or if we cannot adequately control manufacturing process quality, product yields or production
costs, our business could be harmed. Developing and maintaining these strategic relationships with our vendors is critical for us to be successful.



Any of our sole source suppliers may:



| |  | enter into exclusive arrangements with our competitors;
| | - | -------------------------------------------------------



| |  | stop selling their products or components to us at commercially reasonable prices;
| | - | ----------------------------------------------------------------------------------



| |  | refuse to sell their products or components to us at any price; or
| | - | ------------------------------------------------------------------



| |  | be subject to production disruptions such as earthquakes.
| | - | ---------------------------------------------------------



WE MAY EXPERIENCE DIFFICULTIES IN TRANSITIONING TO SMALLER GEOMETRY PROCESS TECHNOLOGIES OR IN ACHIEVING HIGHER LEVELS OF DESIGN INTEGRATION AND THAT MAY RESULT IN
REDUCED MANUFACTURING YIELDS, DELAYS IN PRODUCT DELIVERIES AND INCREASED EXPENSES.



In order to remain competitive, we expect to continue to transition our products to increasingly smaller line width geometries. This transition will require us to modify the manufacturing processes for our products
and redesign some products. We periodically evaluate the benefits, on a product-by-product basis, of migrating to smaller geometry process technologies to reduce our costs, and we have designed some of our products to be manufactured in .35 micron,
..25 micron, .18 micron and .13 micron geometry processes. In the past, we have experienced some difficulties in shifting to smaller geometry process technologies or new manufacturing processes, which resulted in reduced manufacturing yields, delays
in product deliveries and increased expenses. We may face similar



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difficulties, delays and expenses as we continue to transition our products to smaller geometry processes. We are
dependent on our relationships with our foundries to transition to smaller geometry processes successfully. We cannot assure you that our foundries will be able to effectively manage the transition or that we will be able to maintain our foundry
relationships. If our foundries or we experience significant delays in this transition or fail to efficiently implement this transition, our business, financial condition and results of operations could be materially and adversely affected. As
smaller geometry processes become more prevalent, we expect to continue to integrate greater levels of functionality, as well as customer and third party intellectual property, into our products. However, we may not be able to achieve higher levels
of design integration or deliver new integrated products on a timely basis, or at all.



FUTURE CONSOLIDATION IN THE TELECOMMUNICATIONS EQUIPMENT INDUSTRY MAY INCREASE COMPETITION THAT COULD HARM OUR BUSINESS.



The markets in which we compete are characterized by increasing consolidation both within the telecommunications equipment sector and by companies combining or acquiring
data communications assets and assets for delivering voice-related services. We cannot predict with certainty how industry consolidation will affect our competitors. We may not be able to compete successfully in an increasingly consolidated
industry. Increased competition and consolidation in our industry may require that we reduce the prices of our products or result in a loss of market share, which could materially adversely affect our business, financial condition and results of
operations. Additionally, because we are now, and may in the future be, dependent on certain strategic relationships with third parties in our industry, any additional consolidation involving these parties could reduce the demand for our products
and otherwise harm our business prospects.



WE MAY MAKE FUTURE
ACQUISITIONS AND ACQUISITIONS INVOLVE NUMEROUS RISKS.



Our business is
highly competitive and, as such, our growth is dependent upon market growth, our ability to enhance our existing products and our ability to introduce new products on a timely basis. One of the ways we have addressed and may continue to address the
need to develop new products is through acquisitions of other companies. Acquisitions involve numerous risks, including the following:



| |  | difficulties in integration of the operations, technologies and products of the acquired companies;
| | - | ---------------------------------------------------------------------------------------------------



| |  | the risk of diverting managements attention from normal daily operations of the business;
| | - | ------------------------------------------------------------------------------------------



| |  | potential difficulties in completing projects associated with purchased in-process research and development;
| | - | ------------------------------------------------------------------------------------------------------------



| |  | risks of entering markets in which we have no or limited direct prior experience and where competitors in such markets have stronger market positions; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the potential loss of key employees of the acquired company.
| | - | ------------------------------------------------------------



Mergers and acquisitions of high-technology companies are inherently risky, and no assurance can be given that our previous or future acquisitions will be successful and
will not materially adversely affect our business, operating results or financial condition.



We must also maintain our ability to manage such growth effectively. Failure to manage growth effectively and successfully integrate acquisitions could harm our business and operating results.



OUR EXECUTIVE OFFICERS AND KEY PERSONNEL ARE CRITICAL TO OUR BUSINESS, AND THESE
OFFICERS AND PERSONNEL MAY NOT REMAIN WITH US IN THE FUTURE.



We
depend upon the continuing contributions of our key management, sales, customer support and product development personnel. The loss of such personnel could seriously harm us. In addition, we have not obtained key-man life insurance on any of our
executive officers or key employees.



OUR FUTURE SUCCESS WILL DEPEND IN
PART ON OUR ABILITY TO PROTECT OUR PROPRIETARY RIGHTS AND THE TECHNOLOGIES USED IN OUR PRINCIPAL PRODUCTS, AND IF WE DO NOT ENFORCE AND PROTECT OUR INTELLECTUAL PROPERTY, OUR BUSINESS WILL BE HARMED.



We rely on a combination of patent, copyright and trademark laws, trade secrets,
confidentiality agreements and other contractual provisions to protect our proprietary rights. However, these measures afford only limited protection. Our failure to adequately protect our proprietary rights may adversely affect us. Despite our
efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use trade secrets or other information that we regard as proprietary.



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The laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United
States, and many U.S. companies have encountered substantial infringement problems in these countries. There is a risk that our efforts to protect proprietary rights may not be adequate. For example, our competitors may independently develop similar
technology, duplicate our products or design around our patents or our other intellectual property rights. If we fail to adequately protect our intellectual property or if the laws of a foreign jurisdiction do not effectively permit such protection,
it would be easier for our competitors to sell competing products.



WE
MAY NEED TO RAISE ADDITIONAL CAPITAL WHICH MIGHT NOT BE AVAILABLE OR WHICH, IF AVAILABLE, COULD BE ON TERMS ADVERSE TO OUR COMMON STOCKHOLDERS.



We expect that our current cash and cash equivalents and short-term investment balances will be adequate to meet our working capital and capital expenditure needs for at
least twelve months. After that, we may need to raise additional funds, and we cannot be certain that we will be able to obtain additional financing on favorable terms, if at all. We may also require additional capital for the acquisition of
businesses, products and technologies that are complementary to ours. Further, if we issue equity securities, the ownership percentage of our stockholders would be reduced, and the new equity securities may have rights, preferences or privileges
senior to those existing holders of our common stock. If we cannot raise needed funds on acceptable terms, we may not be able to develop or enhance our products, take advantage of future opportunities or respond to competitive pressures or
unanticipated requirements, which could seriously harm our business, operating results and financial condition.



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



The primary objective of our cash and short-term investment activities is to preserve principal while concurrently maximizing the income we receive from our investments without significantly increasing risk. Some of
the securities that we may invest in may be subject to market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. For example, if we hold a security that was issued with a fixed
interest rate at the then-prevailing rate and the prevailing interest rate later rises, the current value of the principal amount of our investment will decline. To minimize this risk in the future, we intend to maintain our portfolio of cash
equivalents and short-term investments in a variety of securities, including commercial paper, money market funds, government and non-government debt securities and certificates of deposit. In general, money market funds are not subject to market
risk because the interest paid on such funds fluctuates with the prevailing interest rate. As of September 30, 2003, all of our investments were in money market funds and government debt securities. A hypothetical 100 basis point increase in
interest rates would result in an approximate $319,000 decrease in the fair value of our available-for-sale securities as of September 30, 2003.



ITEM 4. CONTROLS AND PROCEDURES



Evaluation of
disclosure controls and procedures. Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered
by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to
disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.



Changes in internal control over financial reporting. There was no change in our
internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



PART II. OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



On June 19, 2003,
Credit Suisse First Boston Corporation and approximately 12 of its clients, including Centillium, were named as defendants in a securities class action lawsuit filed in United States District Court for the Southern District of Florida. The complaint
asserted wrongdoing relating to various initial public offerings in which Credit Suisse First Boston was involved between 1999 and 2001. In October 2003, Centillium was dropped as a defendant to this lawsuit.



ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS



None



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ITEM 3. DEFAULTS UPON SENIOR SECURITIES



None



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



None



ITEM 5. OTHER INFORMATION



None



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



(a)    Exhibits



|     | 
|---- | 
|31.1 | 
|     | 
|31.2 | 
|     | 
|32.1 | 
|     | 
|32.2 | 



(b)    Reports
on Form 8-K



We filed
or furnished the following current reports on Form 8-K during the quarter ended September 30, 2003:



| | (i) | Form 8-K furnished on July 29, 2003 reporting second quarter earnings
| | --- | ---------------------------------------------------------------------



| | (ii) | Form 8-K furnished on August 15, 2003 announcing the retirement of Shahin Hedayat as President of Centillium Communications, Inc.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------



SIGNATURES



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, thereunto duly authorized.



|                        |  |  |  | CENTILLIUM COMMUNICATIONS,
INC. (Registrant)
|----------------------- |  |  |  | --------------------------------------------
|                        |  |  | 
|Dated: November 6, 2003 |  |  |  | By:                                         
|                        |  |  |  |                                             



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