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Avago Technologies Limited Announces Second Quarter Fiscal Year 2014 Financial Results

Avago Technologies Limited Announces Second Quarter Fiscal Year 2014 Financial
Results

  *Net revenue down 1 percent sequentially to $701 million, up 25 percent
    from Q2 last year
  *GAAP gross margin of 51 percent; Non-GAAP gross margin of 54 percent
  *GAAP diluted EPS of $0.61; Non-GAAP diluted EPS of $0.85

SAN JOSE, Calif., and SINGAPORE, May 29, 2014 (GLOBE NEWSWIRE) -- Avago
Technologies Limited (Nasdaq:AVGO), a leading semiconductor device supplier to
the enterprise storage, wired, wireless and industrial end markets, today
reported financial results for the second quarter of its fiscal year 2014,
ended May 4, 2014, and provided guidance for the third quarter of its fiscal
year 2014. The financial results provided below for the second quarter do not
include any operating results of LSI Corporation which the Company acquired on
May 6, 2014.

Second Quarter Fiscal Year 2014 GAAP Results

Net revenue was $701 million, a decrease of 1 percent compared with the
previous quarter and an increase of 25 percent from the same quarter last
year.

Gross margin was $357 million, or 51 percent of net revenue. This compares
with gross margin of $339 million, or 48 percent of net revenue last quarter,
and gross margin of $272 million, or 48 percent of net revenue in the same
quarter last year.

Operating expenses were $197 million. This compares with $200 million in the
prior quarter and $154 million for the same quarter last year.

Income from operations was $160 million. This compares with $139 million in
the prior quarter and with $118 million in the same quarter last year.

Second quarter net income was $158 million, or $0.61 per diluted share. This
compares with net income of $134 million, or $0.53 per diluted share, for the
prior quarter, and net income of $113 million, or $0.45 per diluted share, in
the same quarter last year.

The Company's cash balance at the end of the second quarter was $1,278
million, compared to $1,112 million at the end of the prior quarter.

The Company generated $251 million in cash from operations in the second
quarter and spent $73 million on capital expenditures.

On March 31, 2014 the Company paid a quarterly cash dividend of $0.27 per
ordinary share, totaling approximately $68 million.

Second Quarter Fiscal Year 2014 Non-GAAP Results

Gross margin was $381 million, or 54 percent of net revenue. This compares
with gross margin of $366 million, or 52 percent of net revenue last quarter,
and gross margin of $288 million, or 51 percent of net revenue in the same
quarter last year.

Income from operations was $233 million. This compares with $224 million in
the prior quarter and $158 million in the same quarter last year.

Net income was $223 million, or $0.85 per diluted share. This compares with
net income of $217 million, or $0.84 per diluted share last quarter, and net
income of $153 million, or $0.61 per diluted share in the same quarter last
year.

Second Quarter Fiscal Year 2014 Non-GAAP Results      Change
(Dollars in millions, except EPS)  Q2 14  Q1 14 Q2 13 Q/Q    Y/Y
Net Revenue                         $701   $709  $562  -1%    +25%
Gross Margin                        54%    52%   51%   +2ppt  +3ppt
Operating Expenses                  $148   $142  $130  +$6M   +$18M
Net Income                          $223   $217  $153  +$6M   +$70M
Earnings Per Share - Diluted        $0.85  $0.84 $0.61 +$0.01 +$0.24

"In the second fiscal quarter of the year, our wireless business came in
significantly above our expectations due to strong product ramps for our
FBAR-related products into multiple Asian Smartphone OEMs. We also saw a
resurgence in Industrial re-sales through our distributors, especially in
Europe and Japan," said Hock Tan, President and CEO of Avago Technologies
Limited. "The third quarter marks a transformative event in Avago's history as
we completed the acquisition of LSI, creating a substantially larger company
with a much more diversified and balanced mix of end markets."

Other Quarterly Data

                              Percentage of Net Revenue Growth Rates
Net Revenues by Target Market Q2 14    Q1 14    Q2 13   Q/Q    Y/Y
Wireless Communications        50       49       50      0%     25%
Wired Infrastructure           31       32       27      -4%    43%
Industrial & Other             19       19       23      2%     3%
                                                           
Key Statistics                Q2 14    Q1 14    Q2 13         
(Dollars in millions)                                       
Cash From Operations           $251     $229     $191          
Depreciation                   $35      $32      $22           
Amortization                   $26      $25      $20           
Capital Expenditures           $73      $52      $47           
Days Sales Outstanding         42       42       44            
Inventory Days On Hand         86       76       76            

Third Quarter Fiscal Year 2014 Business Outlook

Based on current business trends and conditions, the outlook for the third
quarter of fiscal year 2014, ending August 3, 2014, including projected
contribution from LSI, is expected to be as follows:

                   GAAP                Reconciling Non-GAAP
                                        Items
Revenue Range       $1.3B - $1.4B       $19M        $1.3B - $1.4B
Gross Margin        24.0% plus/minus 1% $386M       55.0% plus/minus 1%
Operating Expenses  $691M               $305M       $386M
Interest and other  $54M                           $54M
Taxes               -$50M               $70M        $20M
Diluted Share Count 268M                8M          276M

Reconciling items include:

  *Non-GAAP revenue includes $19 million of LSI intellectual property
    licensing revenue, not included in GAAP revenue as a result of the effects
    of purchase accounting for the LSI acquisition;
    
  *Non GAAP Gross Margin excludes $155 million of amortization of intangible
    assets, $10 million of share-based compensation expense, $11 million of
    restructuring charges, and $210 million of inventory step-up charges to
    record LSI inventory at fair value, as part of the purchase accounting
    for the LSI acquisition;
    
  *Non GAAP Operating expenses exclude $90 million of amortization of
    intangible assets, $69 million of share-based compensation, $90 million of
    restructuring charges, and $56 million of acquisition-related costs,
    primarily for bank and other advisory fees related to the LSI acquisition;
    and
    
  *$70 million provision at the Taxes line, which represents the tax effects
    of the reconciling items noted above.

Capital expenditures for the third quarter are expected to be approximately
$125 million. For the third quarter depreciation is expected to be $50 million
and amortization is expected to be $245 million.

The guidance provided above is only an estimate of what the Company believes
is realizable as of the date of this release. Among other things, this
guidance is based on an initial estimate of purchase accounting adjustments
and allocations, all of which are subject to revision. The guidance also
excludes any impact from mergers, acquisitions and divestiture activity
(including the pending sale of LSI Corporation's Flash Components Division and
Accelerated Solutions Division to Seagate Technology LLC) and any share
repurchases that may occur during the quarter. Actual results will vary from
the guidance and the variations may be material. The Company undertakes no
intent or obligation to publicly update or revise any of these projections,
whether as a result of new information, future events or otherwise, except as
required by law.

Avago will be celebrating the fifth anniversary of its initial public offering
by visiting the NASDAQ MarketSite in Times Square, New York and ringing the
opening bell on August 6, 2014.

Financial Results Conference Call

Avago Technologies Limited will host a conference call to review its financial
results for the second quarter fiscal year 2014, and to provide guidance for
the third quarter of fiscal year 2014, today at 2:00 p.m. Pacific Time. Those
wishing to access the call should dial (866) 515-2915; International +1 (617)
399-5129. The passcode is 97353697. A replay of the call will be accessible
one week after the call. To access the replay dial (888) 286-8010;
International +1 (617) 801-6888; and reference the passcode: 71193334. A
webcast of the conference call will also be available in the "Investors"
section of Avago's website at www.avagotech.com.

Non-GAAP Financial Measures

In addition to GAAP reporting, Avago provides investors with net income,
income from operations, gross margin, operating expenses and other data, on a
non-GAAP basis. This non-GAAP information excludes amortization of intangible
assets, share-based compensation expense, restructuring charges,
acquisition-related costs, loss on extinguishment of debt, and income tax
effects of non-GAAP reconciling adjustments. Management does not believe that
the excluded items are reflective of the Company's underlying performance. The
exclusion of these and other similar items from Avago's non-GAAP presentation
should not be interpreted as implying that these items are non-recurring,
infrequent or unusual. Avago believes this non-GAAP financial information
provides additional insight into the Company's on-going performance and has
therefore chosen to provide this information to investors for a more
consistent basis of comparison and to help them evaluate the results of the
Company's on-going operations and enable more meaningful period to period
comparisons. These non-GAAP measures are provided in addition to, and not as a
substitute for, or superior to, measures of financial performance prepared in
accordance with GAAP. A reconciliation between GAAP and non-GAAP financial
data is included in the supplemental financial data attached to this press
release.

About Avago Technologies Limited

Avago Technologies Limited is a leading designer, developer and global
supplier of a broad range of analog semiconductor devices with a focus on
III-V based products and complex digital and mixed signal CMOS based devices.
Our product portfolio is extensive and includes thousands of products in four
primary target markets:enterprise storage, wired infrastructure, wireless
communications and industrial & other.

Cautionary Note Regarding Forward-Looking Statements

This announcement contains forward-looking statements that address our
expected future business and financial performance. These forward-looking
statements are based on current expectations, estimates, forecasts and
projections of future Company or industry performance, based on management's
judgment, beliefs, current trends and market conditions, and involve risks and
uncertainties that may cause actual results to differ materially from those
contained in the forward-looking statements.Accordingly, we caution you not
to place undue reliance on these statements. Particular uncertainties that
could materially affect future results include global economic conditions and
concerns; cyclicality in the semiconductor industry or in our target markets;
quarterly and annual fluctuations in operating results; loss of our
significant customers; fluctuation in the timing and volume of customer
demand; increased dependence on the volatile, wireless handset market and on
the enterprise storage market; our competitive performance and ability to
continue achieving design wins with our customers, as well as the timing of
those design wins; market acceptance of the end products into which our
products are designed; our ability to sell to new types of customers and to
keep pace with technological advances; rates of growth in our target markets;
our ability to achieve the growth prospects and synergies expected from
acquisitions we may make, including our recent acquisition of LSI Corporation
("LSI"); delays, challenges and expenses associated with integrating acquired
companies, including LSI, with our existing businesses; the significant
indebtedness incurred by us in May 2014 in connection with the LSI
acquisition, including the need to generate sufficient cashflows to service
and repay such debt; our dependence on contract manufacturing and outsourced
supply chain and our ability to improve our cost structure through our
manufacturing outsourcing program; prolonged disruptions of our or our
contract manufacturers' manufacturing facilities or other significant
operations; our dependence on outsourced service providers for certain key
business services and their ability to execute to our requirements; our
ability to maintain or improve gross margin; our ability to maintain tax
concessions in certain jurisdictions; our ability to protect our intellectual
property and any associated increases in litigation expenses; dependence on
and risks associated with distributors of our products; any expenses or
reputational damage associated with resolving customer product and warranty
and indemnification claims; and other events and trends on a national,
regional and global scale, including those of a political, economic, business,
competitive and regulatory nature.Our Report on Form 10-Q filed on March 13,
2014, LSI's Report on Form 10-Q filed on May 1, 2014 and Report on Form 10-K
filed on February 26, 2014 and our other filings with the Securities and
Exchange Commission, or "SEC" (which you may obtain for free at the SEC's
website at http://www.sec.gov) discuss some of the important risk factors that
may affect our business, results of operations and financial condition. We
undertake no intent or obligation to publicly update or revise any of these
forward looking statements, whether as a result of new information, future
events or otherwise, except as required by law.



AVAGO TECHNOLOGIES LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(IN MILLIONS, EXCEPT PER SHARE DATA)
                                                             
                                                             
                        Fiscal Quarter Ended      Two Fiscal Quarters Ended
                        May 4,  February 2, May 5,  May 4,       May 5,
                        2014    2014        2013    2014         2013
                                                             
Net revenue              $701  $709      $562  $1,410     $1,138
Cost of products sold:                                        
Cost of products sold    326    347        276    673         562
Amortization of          18     18         14     36          28
intangible assets
Restructuring charges    -      5          -      5           -
Total cost of products   344    370        290    714         590
sold
Gross margin             357    339        272    696         548
                                                             
Research and development 114    107        95     221         188
Selling, general and     67     74         52     141         105
administrative
Amortization of          8      7          6      15          11
intangible assets
Restructuring charges    8      12         1      20          2
Total operating expenses 197    200        154    397         306
                                                             
Income from operations   160    139        118    299         242
Interest expense         (1)    -          (1)    (1)         (1)
Other income, net        -      -          1      -           3
Income before income     159    139        118    298         244
taxes
Provision for income     1      5          5      6           6
taxes
Net income               $158  $134      $113  $292       $238
                                                             
Net income per share:                                         
Basic                    $0.63 $0.54     $0.46 $1.17      $0.97
Diluted                  $0.61 $0.53     $0.45 $1.14      $0.95
                                                             
Shares used in per share                                      
calculations:
Basic                    251    249        246    250         246
Diluted                  258    255        251    256         251
                                                             
Share-based compensation                                      
expense included in:
Cost of products sold    $3    $3        $2    $6         $4
Research and development 10     8          7      18          14
Selling, general and     17     13         8      30          17
administrative
Total share-based        $30   $24       $17   $54        $35
compensation expense



AVAGO TECHNOLOGIES LIMITED
NON-GAAP FINANCIAL SUMMARY- UNAUDITED(1)
(IN MILLIONS, EXCEPT PERCENTAGES AND PER SHARE DATA)
                                                               
                                                               
                        Fiscal Quarter Ended          Two Fiscal Quarters
                                                         Ended
                        May 4,    February 2,  May 5,   May 4,     May 5,
                        2014      2014         2013     2014       2013
                                                               
Net revenue              $701    $709       $562   $1,410   $1,138
Gross margin             $381    $366       $288   $747     $580
% of net revenue         54%       52%          51%      53%        51%
Research and development $101    $98        $88    $199     $174
Selling, general and     $47     $44        $42    $91      $86
administrative
Total operating expenses $148    $142       $130   $290     $260
% of net revenue         21%       20%          23%      21%        23%
Income from operations   $233    $224       $158   $457     $320
Interest expense         $(1)    $-         $(1)   $(1)     $(1)
Other income, net        $-      $-         $1     $-       $3
Income before income     $232    $224       $158   $456     $322
taxes
Provision for income     $9      $7         $5     $16      $6
taxes
                                                               
Net income               $223    $217       $153   $440     $316
Net income per share -   $0.85   $0.84      $0.61  $1.69    $1.25
diluted
Shares used in per share 263      258         252     261       252
calculation - diluted
                                                               
                                                               
(1) A reconciliation of the non-GAAP measures presented above to the most
directly comparable GAAP financial data appears on the next page. These
non-GAAP measures are provided in addition to and not as a substitute for
measures of financial performance prepared in accordance with GAAP.The
financial summary excludes amortization of intangible assets, share-based
compensation expense, restructuring charges, acquisition-related costs, and
income tax effects of non-GAAP reconciling adjustments.



AVAGO TECHNOLOGIES LIMITED
FINANCIAL RECONCILIATION: GAAP TO NON-GAAP - UNAUDITED
(IN MILLIONS)
                                                                
                                                                
                                Fiscal Quarter Ended    Two Fiscal Quarters
                                                           Ended
                                May 4, February 2, May 5, May 4,    May 5,
                                2014   2014        2013   2014      2013
                                                                
Net income on GAAP basis         $158 $134      $113 $292     $238
                                                                
Amortization of intangible       26    25         20    51       39
assets
Share-based compensation expense 30    24         17    54       35
Restructuring charges            8     17         1     25       2
Acquisition-related costs        9     19         2     28       2
Income tax effects of non-GAAP   (8)   (2)        -     (10)     -
reconciling adjustments
Net income on non-GAAP basis     $223 $217      $153 $440    $316
                                                                
                                                                
Gross margin on GAAP basis       $357 $339      $272 $696    $548
Amortization of intangible       18    18         14    36       28
assets
Share-based compensation expense 3     3          2     6        4
Restructuring charges            -     5          -     5        -
Acquisition-related costs        3     1          -     4        -
Gross margin on non-GAAP basis   $381 $366      $288 $747    $580
                                                                
                                                                
Research and development on GAAP $114 $107      $95  $221    $188
basis
Share-based compensation expense 10    8          7     18       14
Acquisition-related costs        3     1          -     4        --
Research and development on      $101 $98       $88  $199    $174
non-GAAP basis
                                                                
                                                                
                                                                
Selling, general and
administrative expense on GAAP   $67  $74       $52  $141    $105
basis
Share-based compensation expense 17    13         8     30       17
Acquisition-related costs        3     17         2     20       2
Selling, general and
administrative expense on        $47  $44       $42  $91     $86
non-GAAP basis
                                                                
                                                                
Total operating expense on GAAP  $197 $200      $154 $397    $306
basis
Amortization of intangible       8     7          6     15       11
assets
Share-based compensation expense 27    21         15    48       31
Restructuring charges            8     12         1     20       2
Acquisition-related costs        6     18         2     24       2
Total operating expense on       $148 $142      $130 $290    $260
non-GAAP basis
                                                                
                                                                
Income from operations on GAAP   $160 $139      $118 $299    $242
basis
Amortization of intangible       26    25         20    51       39
assets
Share-based compensation expense 30    24         17    54       35
Restructuring charges            8     17         1     25       2
Acquisition-related costs        9     19         2     28       2
Income from operations on        $233 $224      $158 $457    $320
non-GAAP basis
                                                                
                                                                
Income before income taxes on    $159 $139      $118 $298    $244
GAAP basis
Amortization of intangible       26    25         20    51       39
assets
Share-based compensation expense 30    24         17    54       35
Restructuring charges            8     17         1     25       2
Acquisition-related costs        9     19         2     28       2
Income before income taxes on    $232 $224      $158 $456    $322
non-GAAP basis
                                                                
                                                                
Provision for income taxes on    $1   $5        $5   $6      $6
GAAP basis
Income tax effects of non-GAAP   8     2          -     10       -
reconciling adjustments
Provision for income taxes on    $9   $7        $5   $16     $6
non-GAAP basis
                                                                
                                                                
Shares used in per share
calculation - diluted on GAAP    258   255        251   256      251
basis
Non-GAAP adjustment              5     3          1     5        1
Shares used in per share
calculation - diluted on         263   258        252   261      252
non-GAAP basis(1)
                                                                
                                                                
(1) The number of shares used in the diluted per share calculations on a
non-GAAP basis excludes the impact of share-based compensation expense
expected to be incurred in future periods and not yet recognized in the
financial statements, which would otherwise be assumed to be used to
repurchase shares under the GAAP treasury stock method.



AVAGO TECHNOLOGIES LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
(IN MILLIONS)
                                                           
                                                           
                                             May 4,         November 3,
                                             2014           2013 (1)
                                                           
ASSETS                                                      
                                                           
Current assets:                                             
Cash and cash equivalents                     $1,278       $985
Trade accounts receivable, net                319           418
Inventory                                     301           285
Other current assets                          136           130
Total current assets                          2,034         1,818
Property, plant and equipment, net            731           661
Goodwill                                      392           391
Intangible assets, net                        441           492
Other long-term assets                        73            53
Total assets                                  $3,671       $3,415
                                                           
                                                           
                                                           
LIABILITIES AND SHAREHOLDERS' EQUITY                        
                                                           
Current liabilities:                                        
Accounts payable                              $274         $278
Employee compensation and benefits            86            98
Other current liabilities                     56            47
Total current liabilities                     416           423
                                                           
Long-term liabilities:                                      
Other long-term liabilities                   101           106
Total liabilities                             517           529
                                                           
Shareholders' equity:                                       
Ordinary shares, no par value                 1,694         1,587
Retained earnings                             1,467         1,305
Accumulated other comprehensive loss          (7)           (6)
                                                           
Total shareholders' equity                    3,154         2,886
Total liabilities and shareholders' equity    $3,671       $3,415
                                                           
                                                           
(1) Amounts as of November 3, 2013 have been derived from audited financial
statements as of that date.



AVAGO TECHNOLOGIES LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(IN MILLIONS)
                                                               
                                                               
                       Fiscal Quarter Ended           Two Fiscal Quarters
                                                         Ended
                       May 4,    February 2,  May 5,    May 4,     May 5,
                       2014      2014         2013 (1)  2014       2013 (1)
Cash flows from                                                 
operating activities:
Net income              $158    $134       $113    $292     $238
                                                               
Adjustments to reconcile net
income to net cash provided by                                   
operating activities:
                                                               
Depreciation and        61       57          42       118       83
amortization
Share-based             30       24          18       54        35
compensation
Tax benefits of
share-based             8        4           -        12        -
compensation
Excess tax benefits
from share-based        (8)      (3)         -        (11)      -
compensation
Unrealized (gain)/loss  -        -           1        -         (1)
on trading securities
Gain from
post-retirement medical -        (3)         -        (3)       -
plan curtailment and
settlement
Loss on disposal of
property, plant and     -        -           1        -         1
equipment
Changes in assets and
liabilities, net of                                   -         
acquisitions:
Trade accounts          4        95          (5)      99        70
receivable
Inventory               (15)     (1)         (20)     (16)      (34)
Accounts payable        8        (24)        36       (16)      2
Employee compensation   27       (39)        11       (12)      (2)
and benefits
Deferred tax assets and 19       (3)         1        16        2
liabilities
Other current assets    (7)      (13)        (9)      (20)      (21)
and current liabilities
Other long-term assets
and long-term           (34)     1           (1)      (33)      -
liabilities
Net cash provided by    251      229         188      480       373
operating activities
                                                               
                                                               
Cash flows from                                                 
investing activities:
Purchases of property,  (73)     (52)        (47)     (125)     (114)
plant and equipment
Acquisition, net of     -        -           (37)     -         (37)
cash acquired
Purchases of            -        -           -        -          (9)
investments
Proceeds from sale of   14       -           -        14        -
investment
Net cash used in        (59)     (52)        (84)     (111)     (160)
investing activities
                                                               
                                                               
Cash flows from                                                 
financing activities:
Proceeds from           -        2           5        2         8
government grants
Payment on capital      -        -           (1)      -         (1)
lease obligation
Issuance of ordinary
shares, net of issuance 34       19          18       53        28
cost
Repurchases of ordinary -        (12)        (11)     (12)      (24)
shares
Excess tax benefits
from share-based        8        3           -        11        -
compensation
Dividend payments to    (68)     (62)        (47)     (130)     (89)
shareholders
Net cash used in        (26)     (50)        (36)     (76)      (78)
financing activities
                                                               
                                                               
Net increase in cash    166      127         68       293       135
and cash equivalents
Cash and cash
equivalents at the      1,112    985         1,151    985       1,084
beginning of period
Cash and cash
equivalents at end of   $1,278  $1,112     $1,219  $ 1,278   $1,219
period
                                                               
                                                               
(1) The statement of cash flows data for the quarter and two quarters ended
May 5, 2013 reflects a reclassification of $3 million of government grant
reimbursements related to fixed assets from cash flows provided by operating
activities to cash flows used in financing activities. As a result, net cash
provided by operating activities and net cash used in financing activities for
this period each decreased by a corresponding amount.

CONTACT: Avago Technologies Ltd.
         Ashish Saran
         Investor Relations
         +1 408 435 7400
         investor.relations@avagotech.com

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