##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2005 or
 o
    
    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
 
 CENTILLIUM COMMUNICATIONS, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    94-3263530(State or other jurisdiction of
    
    (IRS Employerincorporation or organization)
    
    Identification Number)
 215 Fourier Avenue
Fremont, California 94539
(Address of principal executive offices including zip code)
 (510) 771-3700
(Registrants telephone number, including area code)
 
 þ o
 þ o




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##### Table of Contents



Centillium Communications, Inc.
TABLE OF CONTENTS
 Page No.PART I. Financial InformationItem 1. Financial Statements (Unaudited)
    
    
    3Condensed Consolidated Balance Sheets as of June 30, 2005 and December 31, 2004
    
    
    3Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2005 and 2004
    
    
    4Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2005 and 2004
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4. Controls and Procedures
    
    
    24PART II. Other InformationItem 1. Legal Proceedings
    
    
    25Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25Item 3. Defaults Upon Senior Securities
    
    
    25Item 4. Submission of Matters to a Vote of Security Holders
    
    
    25Item 5. Other Information
    
    
    25Item 6. Exhibits
    
    
    25Signatures
    
    
    27EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
 2




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##### Table of Contents



PART IFINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 CENTILLIUM COMMUNICATIONS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
  June 30,
    
    December 31,2005 (Unaudited)
    

2004(*)(In thousands except shareand per share data)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    38,588
    
    
    $
    31,996Short-term investments
    
    
    19,139
    
    
    
    30,195Accounts receivable  net of allowance
for doubtful accounts of $151 at June 30,
2005 and December 31, 2004
    
    
    6,161
    
    
    
    5,348Inventories
    
    
    4,270
    
    
    
    6,100Prepaids and other current assets
    
    
    2,392
    
    
    
    1,225Total current assets
    
    
    70,550
    
    
    
    74,864Property and equipment, net
    
    
    4,511
    
    
    
    6,528Other assets
    
    
    1,030
    
    
    
    553Total assets
    
    $
    76,091
    
    
    $
    81,945LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    6,040
    
    
    $
    5,599Accrued payroll and related expenses
    
    
    3,624
    
    
    
    3,364Accrued liabilities
    
    
    18,961
    
    
    
    16,786Total current liabilities
    
    
    28,625
    
    
    
    25,749Other long-term liabilities
    
    
    1,494
    
    
    
    864Commitments and contingenciesStockholders equity:Common stock; $0.001 par value:Authorized shares: 100,000,000; Issued
and outstanding shares: 39,254,593 at
June 30, 2005, 38,810,001 at December 31,
2004
    
    
    39
    
    
    
    39Additional paid-in capital
    
    
    245,252
    
    
    
    244,493Accumulated deficit
    
    
    (199,224
    )
    
    
    (189,155
    )Deferred compensation
    
    
    (56
    )
    
    
    Accumulated other comprehensive loss
    
    
    (39
    )
    
    
    (45
    )Total stockholders equity
    
    
    45,972
    
    
    
    55,332Total liabilities and stockholders equity
    
    $
    76,091
    
    
    $
    81,945
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CENTILLIUM COMMUNICATIONS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004(In thousands, except per share
    
    (In thousands, except per sharedata)
    
    data)Net revenues
    
    $
    18,647
    
    
    $
    18,532
    
    
    $
    35,843
    
    
    $
    34,371Cost of revenues
    
    
    9,564
    
    
    
    10,114
    
    
    
    18,297
    
    
    
    18,898Gross profit
    
    
    9,083
    
    
    
    8,418
    
    
    
    17,546
    
    
    
    15,473Operating expenses:Research and development
    
    
    5,917
    
    
    
    13,561
    
    
    
    14,900
    
    
    
    27,822Selling, general and administrative
    
    
    7,222
    
    
    
    6,116
    
    
    
    13,313
    
    
    
    11,850Total operating expenses
    
    
    13,139
    
    
    
    19,677
    
    
    
    28,213
    
    
    
    39,672Operating loss
    
    
    (4,056
    )
    
    
    (11,259
    )
    
    
    (10,667
    )
    
    
    (24,199
    )Interest income, net
    
    
    381
    
    
    
    295
    
    
    
    679
    
    
    
    572Loss before provision for income taxes
    
    
    (3,675
    )
    
    
    (10,964
    )
    
    
    (9,988
    )
    
    
    (23,627
    )Provision for income taxes
    
    
    41
    
    
    
    46
    
    
    
    81
    
    
    
    72Net loss
    
    $
    (3,716
    )
    
    $
    (11,010
    )
    
    $
    (10,069
    )
    
    $
    (23,699
    )Basic and diluted net loss per share
    
    $
    (0.10
    )
    
    $
    (0.29
    )
    
    $
    (0.26
    )
    
    $
    (0.62
    )Shares used to compute basic and diluted net loss per share
    
    
    39,042
    
    
    
    38,066
    
    
    
    38,944
    
    
    
    37,979
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CENTILLIUM COMMUNICATIONS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Six Months Ended June 30,2005
    
    2004(In thousands)OPERATING ACTIVITIESNet loss
    
    $
    (10,069
    )
    
    $
    (23,699
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization expense
    
    
    2,039
    
    
    
    2,698Stock-based compensation expense
    
    
    4
    
    
    
    194Loss on retirement of property and equipment
    
    
    390
    
    
    
    2Changes in operating assets and liabilities:Accounts receivable
    
    
    (813
    )
    
    
    476Inventories
    
    
    1,830
    
    
    
    5,724Prepaids and other current assets
    
    
    (1,167
    )
    
    
    (267
    )Other assets
    
    
    (477
    )
    
    
    (19
    )Accounts payable
    
    
    441
    
    
    
    3,839Accrued payroll and related expenses
    
    
    260
    
    
    
    (383
    )Accrued liabilities
    
    
    2,175
    
    
    
    (912
    )Other liabilities
    
    
    630
    
    
    
    67Net cash used in operating activities
    
    
    (4,757
    )
    
    
    (12,280
    )INVESTING ACTIVITIESPurchases of short-term investments
    
    
    (23,808
    )
    
    
    (12,799
    )Sales and maturities of short-term investments
    
    
    34,870
    
    
    
    31,425Purchases of property and equipment
    
    
    (412
    )
    
    
    (2,374
    )Net cash provided by investing activities
    
    
    10,650
    
    
    
    16,252FINANCING ACTIVITIESPrincipal payments on capital lease obligations
    
    
    
    
    
    
    (527
    )Proceeds from issuance of common stock, net of repurchases
    
    
    699
    
    
    
    1,201Net cash provided by financing activities
    
    
    699
    
    
    
    674Net increase in cash and cash equivalents
    
    
    6,592
    
    
    
    4,646Cash and cash equivalents at beginning of period
    
    
    31,996
    
    
    
    24,734Cash and cash equivalents at end of period
    
    $
    38,588
    
    
    $
    29,380
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CENTILLIUM COMMUNICATIONS, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 June 30, 2005
 1. Description of Business
  2. Summary of Significant Accounting Policies
 Basis of Presentation
    Use of Estimates
  Recent
Accounting Pronouncements
  3. Stock-based Compensation
  6




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Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004Net loss as reported
    
    $
    (3,716
    )
    
    $
    (11,010
    )
    
    $
    (10,069
    )
    
    $
    (23,699
    )Add: Stock-based employee compensation expense
included in reported net loss, net of recovery
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    194Less: Total stock-based employee compensation
expense under fair value based method for all
awards, net of related tax effects
    
    
    161
    
    
    
    (2,838
    )
    
    
    (1,994
    )
    
    
    (6,584
    )Pro forma net loss
    
    $
    (3,555
    )
    
    $
    (13,804
    )
    
    $
    (12,063
    )
    
    $
    (30,089
    )Basic and diluted net loss per share  as reported
    
    $
    (0.10
    )
    
    $
    (0.29
    )
    
    $
    (0.26
    )
    
    $
    (0.62
    )Basic and diluted net loss per share  pro forma
    
    $
    (0.09
    )
    
    $
    (0.36
    )
    
    $
    (0.31
    )
    
    $
    (0.79
    )
  4. Commitments and Contingencies
      Three MonthsEndedJune 30, 2005Facility costs
    
    $
    1,915Leasehold improvements
    
    
    3862,301Less estimated sublease income
    
    
    (851
    )$
    1,450
 5. Balance Sheet Information
  June 30,
    
    December 31,2005
    
    2004Work-in-process
    
    $
    2,100
    
    
    $
    3,694Finished goods
    
    
    2,170
    
    
    
    2,406$
    4,270
    
    
    $
    6,100
  June 30,
    
    December 31,2005
    
    2004Accrued royalties
    
    $
    15,380
    
    
    $
    13,773Accrued other liabilities
    
    
    3,581
    
    
    
    3,013$
    18,961
    
    
    $
    16,786
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Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004Balances at beginning of period
    
    $
    90
    
    
    $
    336
    
    
    $
    164
    
    
    $
    460Product warranty accruals
    
    
    100
    
    
    
    0
    
    
    
    40
    
    
    
    (101
    )Warranty costs incurred
    
    
    (50
    )
    
    
    (15
    )
    
    
    (64
    )
    
    
    (38
    )Balances at end of period
    
    $
    140
    
    
    $
    321
    
    
    $
    140
    
    
    $
    3216. Provision for Income TaxesThe provision for income taxes for the three months ended June 30, 2005 and 2004 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 Loss Per Share
Basic and diluted net 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. The following
table presents the computation of basic and diluted net loss per share (in thousands, except per
share amounts):Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004Net loss
    
    $
    (3,716
    )
    
    $
    (11,010
    )
    
    $
    (10,069
    )
    
    $
    (23,699
    )Basic and diluted weighted average
shares used to compute basic and
diluted net loss per share
    
    
    39,042
    
    
    
    38,066
    
    
    
    38,944
    
    
    
    37,979Basic and diluted net loss per share
    
    $
    (0.10
    )
    
    $
    (0.29
    )
    
    $
    (0.26
    )
    
    $
    (0.62
    )The Company has excluded all outstanding warrants, stock options, and shares subject to repurchase
by the Company from the calculation of diluted net loss per share because these securities are
antidilutive for all periods presented. These excluded common share equivalents could be dilutive
in the future. Options, warrants and shares subject to repurchase of approximately 8,687,000 and
12,570,000 shares of common stock have been excluded for the three and six months ended June 30,
2005 and 2004, respectively.8. Comprehensive Net LossThe following table presents the computation of comprehensive net loss (in thousands):Three Months Ended June 30,
    
    Six Months Ended June 31,2005
    
    2004
    
    2005
    
    2004Net loss
    
    $
    (3,716
    )
    
    $
    (11,010
    )
    
    $
    (10,069
    )
    
    $
    (23,699
    )Change in unrealized gain on available-for-sale investments
    
    
    16
    
    
    
    (125
    )
    
    
    6
    
    
    
    (115
    )Total comprehensive loss
    
    $
    (3,700
    )
    
    $
    (11,135
    )
    
    $
    (10,063
    )
    
    $
    (23,814
    )
 8




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9. Business Segment Information and Customer Concentration
   Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004NEC
    
    
    22
    %
    
    
    50
    %
    
    
    25
    %
    
    
    43
    %Sumitomo Electric Industries
    
    
    30
    %
    
    
    38
    %
    
    
    33
    %
    
    
    37
    %Lucent Technologies Inc.
    
    
    15
    %
    
    
    *
    
    
    
    16
    %
    
    
    10
    %
    Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004Japan
    
    $
    11,125
    
    
    $
    16,623
    
    
    $
    22,293
    
    
    $
    28,213United States
    
    
    3,793
    
    
    
    1,076
    
    
    
    7,770
    
    
    
    4,277Other Asia-Pacific
    
    
    1,955
    
    
    
    714
    
    
    
    3,527
    
    
    
    1,757Other
    
    
    1,774
    
    
    
    119
    
    
    
    2,253
    
    
    
    124$
    18,647
    
    
    $
    18,532
    
    
    $
    35,843
    
    
    $
    34,371
 10. Related Party Transactions
   
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   9




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Overview
  Critical Accounting Policies
  Results of Operations for the three and six months Ended June 30, 2005 and 2004
  Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004Net revenues
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Cost of revenues
    
    
    51
    
    
    
    55
    
    
    
    51
    
    
    
    55Gross profit
    
    
    49
    
    
    
    45
    
    
    
    49
    
    
    
    45Operating expenses:Research and development
    
    
    32
    
    
    
    73
    
    
    
    42
    
    
    
    81Selling, general and administrative
    
    
    39
    
    
    
    33
    
    
    
    37
    
    
    
    34Total operating expenses
    
    
    71
    
    
    
    106
    
    
    
    79
    
    
    
    115Operating loss
    
    
    (22
    )
    
    
    (61
    )
    
    
    (30
    )
    
    
    (70
    )Interest income and other, net
    
    
    2
    
    
    
    2
    
    
    
    2
    
    
    
    1Net loss
    
    
    (20
    )%
    
    
    (59
    )%
    
    
    (28
    )%
    
    
    (69
    )%
 Net Revenues
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Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004NEC
    
    
    22
    %
    
    
    50
    %
    
    
    25
    %
    
    
    43
    %Sumitomo Electric Industries
    
    
    30
    %
    
    
    38
    %
    
    
    33
    %
    
    
    37
    %Lucent Technologies Inc.
    
    
    15
    %
    
    
    *
    
    
    
    16
    %
    
    
    10
    %
    Gross Profit.
 Research and Development Expenses.
 Selling, General and Administrative Expenses.
 Interest Income, Net.
 Provision for Income Taxes.
 11




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Liquidity and Capital Resources
       Less than
    
    
    
    
    
    AfterTotal
    
    1 Year
    
    1-3 Years
    
    3 YearsOperating leases  facilities
    
    $
    6,137
    
    
    $
    1,345
    
    
    $
    3,082
    
    
    $
    1,710Operating leases  software
    
    
    4,338
    
    
    
    226
    
    
    
    2,872
    
    
    
    1,240Inventory purchases
    
    
    7,217
    
    
    
    7,217
    
    
    
    
    
    
    
    Total cash obligations
    
    $
    17,692
    
    
    $
    8,788
    
    
    $
    5,954
    
    
    $
    2,950
    12




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Risk Factors
  WE HAVE A HISTORY OF LOSSES AND MAY EXPERIENCE LOSSES IN THE FUTURE.
   THE SLOWDOWN IN DEPLOYMENT OF DSL IN JAPAN HAS AND MAY CONTINUE TO ADVERSELY AFFECT OUR BUSINESS
AND OPERATING RESULTS.
  SALES OF OUR PRODUCTS DEPEND ON THE WIDESPREAD ADOPTION OF BROADBAND ACCESS SERVICES, ESPECIALLY
DSL, VOIP AND FTTP. IF THE DEMAND FOR BROADBAND ACCESS SERVICE DOES NOT INCREASE, WE MAY NOT BE
ABLE TO GENERATE SUBSTANTIAL SALES.
  
    
    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.
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OUR STOCK PRICE MAY CONTINUE TO BE VOLATILE.
  
    
    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.
 WE ARE EXPOSED TO INCREASED COSTS AND RISKS ASSOCIATED WITH COMPLYING WITH INCREASING AND NEW
REGULATION OF CORPORATE GOVERNANCE AND DISCLOSURE STANDARDS.
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CHANGES IN THE ACCOUNTING TREATMENT OF STOCK OPTIONS WILL ADVERSELY AFFECT OUR RESULTS OF
OPERATIONS.
  OUR MARKETS ARE HIGHLY COMPETITIVE AND MANY OF OUR COMPETITORS ARE ESTABLISHED AND HAVE GREATER
RESOURCES THAN WE HAVE.
  15




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WE OPERATE IN THE HIGHLY CYCLICAL SEMICONDUCTOR INDUSTRY, WHICH IS SUBJECT TO SIGNIFICANT
DOWNTURNS.
  IF WE ARE UNABLE TO DEVELOP AND INTRODUCE NEW PRODUCTS SUCCESSFULLY AND IN A COST-EFFECTIVE AND
TIMELY MANNER OR TO ACHIEVE MARKET ACCEPTANCE OF OUR NEW PRODUCTS, OUR OPERATING RESULTS WOULD BE
ADVERSELY AFFECTED.
  
    
    timely and accurately predict market requirements and evolving industry standards;
    
    successfully define new products;
    
    timely and accurately identify opportunities in new markets;
    
    timely complete and introduce new product designs;
    
    scale our operations in response to changes in demand for our products and services;
    
    license any desired third party technology or intellectual property rights;
    
    timely qualify and obtain industry interoperability certification of our products and
the products of our customers into which our products will be incorporated;
    
    obtain sufficient foundry capacity and packaging materials;
    
    achieve high manufacturing yields;
    
    shift our products to smaller geometry process technologies to achieve lower cost and
higher levels of design integration; and
    
    gain market acceptance of our products and our customers products.
  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.
  16




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
    
    reduced demand for our products;
    
    increased price competition for our products;
    
    increased risk of excess and obsolete inventories;
    
    higher research and development and general and administrative costs, as a percentage of revenue.
  WE DERIVE A SUBSTANTIAL AMOUNT OF OUR REVENUES FROM JAPAN, AND OUR FAILURE TO DIVERSIFY THE
GEOGRAPHIC SOURCES OF OUR REVENUE COULD HARM OUR BUSINESS AND OPERATING RESULTS.
  WE DERIVE A SUBSTANTIAL MAJORITY OF OUR REVENUES FROM DSL PRODUCTS, AND OUR FAILURE TO DIVERSIFY
OUR SOURCES OF OUR REVENUE COULD HARM OUR BUSINESS AND OPERATING RESULTS.
  WE DEPEND ON A FEW CUSTOMERS, AND IF WE LOSE ANY OF THEM, OUR SALES AND OPERATIONS WILL SUFFER.
  THIRD-PARTY CLAIMS REGARDING INTELLECTUAL PROPERTY MATTERS COULD CAUSE US TO STOP SELLING OUR
PRODUCTS, PAY MONETARY DAMAGES OR OBTAIN LICENSES ON ADVERSE TERMS.
  17




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WE ANTICIPATE LOWER MARGINS AS PRODUCTS MATURE AND AS WE EXPERIENCE AGGRESSIVE COMPETITION, WHICH
COULD ADVERSELY AFFECT OUR PROFITABILITY.
   WE MAY BE UNABLE TO ATTRACT, RETAIN AND MOTIVATE QUALIFIED PERSONNEL, WHICH COULD SERIOUSLY HARM
OUR BUSINESS.
  OUR CUSTOMERS MAY DEMAND PREFERENTIAL TERMS OR LENGTHEN OUR SALES CYCLE, WHICH WOULD ADVERSELY
AFFECT OUR RESULTS OF OPERATIONS.
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BECAUSE THE SALES CYCLE FOR OUR PRODUCTS TYPICALLY LASTS UP TO ONE YEAR OR LONGER, AND MAY BE
SUBJECT TO DELAYS, IT IS DIFFICULT TO FORECAST SALES FOR ANY GIVEN PERIOD.
  RAPID CHANGES IN THE MARKET FOR DSL CHIP SETS MAY RENDER OUR CHIP SETS OBSOLETE OR UNMARKETABLE.
  
    
    intense competition;
    
    rapid technological change;
    
    frequent new product introductions by our competitors;
    
    changes in customer demands; and
    
    evolving industry standards.
  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.
  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.
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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 DEPEND ON SOLE SOURCE SUPPLIERS FOR SEVERAL KEY COMPONENTS OF OUR PRODUCTS.
   
    
    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.
 BECAUSE OTHER BROADBAND TECHNOLOGIES MAY COMPETE EFFECTIVELY WITH DSL SERVICES OR OTHER SERVICES
ADDRESSED BY OUR PRODUCTS, A SLOWDOWN IN DEPLOYMENT OF DSL SERVICES, THE LACK OF SIGNIFICANT
GROWTH IN NON-DSL MARKETS THAT WE ARE TARGETING AND OUR LACK OF SUCCESS IN PENETRATING SUCH
MARKETS WOULD ADVERSELY AFFECT OUR BUSINESS AND OPERATING RESULTS.
  WE ARE SUBJECT TO ORDER AND SHIPMENT UNCERTAINTIES, AND ANY SIGNIFICANT ORDER CANCELLATIONS OR
DEFERRALS COULD ADVERSELY AFFECT OUR BUSINESS.
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WE DERIVE A SUBSTANTIAL AMOUNT OF OUR REVENUES FROM INTERNATIONAL SOURCES, AND DIFFICULTIES
ASSOCIATED WITH INTERNATIONAL OPERATIONS COULD HARM OUR BUSINESS.
  
    
    political, social and economic instability;
    
    exposure to different legal standards, particularly with respect to intellectual property;
    
    natural disasters and public health emergencies;
    
    nationalization of business and blocking of cash flows;
    
    trade and travel restrictions;
    
    the imposition of governmental controls and restrictions;
    
    burdens of complying with a variety of foreign laws;
    
    import and export license requirements and restrictions of the United States and each other country in which we operate;
    
    unexpected changes in regulatory requirements;
    
    foreign technical standards;
    
    changes in taxation and tariffs;
    
    difficulties in staffing and managing international operations;
    
    fluctuations in currency exchange rates;
    
    difficulties in collecting receivables from foreign entities or delayed revenue recognition; and
    
    potentially adverse tax consequences.
   IF WE DELIVER PRODUCTS WITH DEFECTS, OUR CREDIBILITY WILL BE HARMED, AND THE SALES AND MARKET
ACCEPTANCE OF OUR PRODUCTS WILL DECREASE.
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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.
   FUTURE CONSOLIDATION IN THE TELECOMMUNICATIONS EQUIPMENT INDUSTRY MAY INCREASE COMPETITION THAT
COULD HARM OUR BUSINESS.
  WE MAY MAKE FUTURE ACQUISITIONS AND ACQUISITIONS INVOLVE NUMEROUS RISKS.
  
    
    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.
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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.
   
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of disclosure controls and procedures.
 Changes in internal control over financial reporting.
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PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   Votes
For
    
    Votes WithheldKamran Elahian
    
    
    31,282,059
    
    
    
    4,853,272Lip-Bu Tan
    
    
    32,810,625
    
    
    
    3,324,706
   BrokerFor
    
    Against
    
    Abstain
    
    Non-vote36,098,627
    
    
    26,221
    
    
    
    10,483
    
    
    
    0
 
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 3.1(1)
    
    Certificate of Incorporation of the Registrant4.2(1)
    
    Bylaws of the Registrant10.43(12)
    
    Offer Letter between the Registrant
and Jitesh Vadhia dated March 25, 200510.44(13)
    
    Employment Transition and
Separation Agreement dated effective April 21, 2005 with Amando
Pereira10.45(14)
    
    Employment Transition and
Separation Agreement dated effective May 9, 2005 with Tony Shakib10.46(15)
    
    Form of Stock Purchase Right and
Restricted Stock Agreement for certain non-employee directors10.47(16)
    
    Executive Officer Annual
Compensation for Selected Executives31.1
    
    Certification of the Chief Executive Officer Pursuant to Rules 13a-14 and 15d -14 under the
Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.31.2
    
    Certification of the Chief Financial Officer Pursuant to Rules 13a-14 and 15d -14 under the
Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
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32.1
    
    Certification of the Chief Executive Officer of Centillium Communications, Inc., Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of the Chief Financial Officer of Centillium Communications, Inc., Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(1)
    
    Incorporated by reference to the Exhibits filed with the Registration Statement of Form S-1 (No.
333-30772), declared effective by the Commission on May 23, 2000.(12)
    
    Incorporated by reference to the
Exhibits filed with the Registrants Current Report on
Form 8-K filed with the Commission on April 19, 2005.(13)
    
    Incorporated by reference to the
Exhibits filed with the Registrants Current Report on
Form 8-K filed with the Commission on May 11, 2005.(14)
    
    Incorporated by reference to the
Exhibits filed with the Registrants Current Report on
Form 8-K filed with the Commission on May 16, 2005.(15)
    
    Incorporated by reference to the
Exhibits filed with the Registrants Current Report on
Form 8-K filed with the Commission on June 9, 2005.(16)
    
    Incorporated by reference to the
Exhibits filed with the Registrants Current Report on
Form 8-K filed with the Commission on July 27, 2005.
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SIGNATURES
  CENTILLIUM COMMUNICATIONS, I NC.(Registrant)Dated: August 9, 2005
    
    By:
    
    /s/ J. SCOTT KAMSLERJ. Scott KamslerVice President and Chief Financial Officer(Principal Financial and Accounting Officer)
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3.1(1)
    
    Certificate of Incorporation of the Registrant4.2(1)
    
    Bylaws of the Registrant10.43(12)
    
    Offer Letter between the Registrant
and Jitesh Vadhia dated March 25, 200510.44(13)
    
    Employment Transition and
Separation Agreement dated effective April 21, 2005 with Amando
Pereira10.45(14)
    
    Employment Transition and
Separation Agreement dated effective May 9, 2005 with Tony Shakib10.46(15)
    
    Form of Stock Purchase Right and
Restricted Stock Agreement for certain non-employee directors10.47(16)
    
    Executive Officer Annual
Compensation for Selected Executives31.1
    
    Certification of the Chief Executive Officer Pursuant to Rules 13a-14 and 15d -14 under the
Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.31.2
    
    Certification of the Chief Financial Officer Pursuant to Rules 13a-14 and 15d -14 under the
Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.32.1
    
    Certification of the Chief Executive Officer of Centillium Communications, Inc., Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of the Chief Financial Officer of Centillium Communications, Inc., Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(1)
    
    Incorporated by reference to the Exhibits filed with the Registration Statement of Form S-1 (No.
333-30772), declared effective by the Commission on May 23, 2000.(12)
    
    Incorporated by reference to the
Exhibits filed with the Registrants Current Report on
Form 8-K filed with the Commission on April 19, 2005.(13)
    
    Incorporated by reference to the
Exhibits filed with the Registrants Current Report on
Form 8-K filed with the Commission on May 11, 2005.(14)
    
    Incorporated by reference to the
Exhibits filed with the Registrants Current Report on
Form 8-K filed with the Commission on May 16, 2005.(15)
    
    Incorporated by reference to the
Exhibits filed with the Registrants Current Report on
Form 8-K filed with the Commission on June 9, 2005.(16)
    
    Incorporated by reference to the
Exhibits filed with the Registrants Current Report on
Form 8-K filed with the Commission on July 27, 2005.