Overview, Basis of Presentation and Significant Accounting Policies | 3 Months Ended |
Feb. 01, 2015 |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Overview, Basis of Presentation and Significant Accounting Policies | Overview, Basis of Presentation and Significant Accounting Policies |
Overview |
Avago Technologies Limited, or the “Company”, was organized under the laws of the Republic of Singapore in August 2005. We are a designer, developer and global supplier of a broad range of semiconductor devices with a focus on analog III-V based products and complex digital and mixed signal complementary metal oxide semiconductor based devices. We have a history of innovation and offer thousands of products that are used in end products, such as smartphones, hard disk drives, computer servers, consumer appliances, data networking and telecommunications equipment, enterprise storage and servers, and factory automation and industrial equipment. We have four reportable segments: wireless communications, enterprise storage, wired infrastructure and industrial & other, which align with our target markets. |
We operate on a 52- or 53-week fiscal year ending on the Sunday closest to October 31. Our fiscal year ending November 1, 2015, or fiscal year 2015, is a 52-week fiscal year. The first quarter of our fiscal year 2015 ended on February 1, 2015, the second quarter ends on May 3, 2015 and the third quarter ends on August 2, 2015. Our fiscal year ended November 2, 2014, or fiscal year 2014, was also a 52-week fiscal year. |
References herein to "the Company", "we", "our", "us" and "Avago" are to Avago Technologies Limited and its consolidated subsidiaries, unless otherwise specified or the context otherwise requires. |
Basis of Presentation |
On November 18, 2014, we completed the sale of the LSI Corporation, or LSI, Axxia Networking Business and related assets, or the Axxia Business, for $650 million to Intel Corporation, or Intel. Refer to Note 12. "Discontinued Operations" for more information. |
The accompanying unaudited condensed consolidated financial statements include the accounts of Avago Technologies Limited and its wholly owned subsidiaries and have been prepared by us in accordance with accounting principles generally accepted in the United States, or GAAP, for interim financial information. This financial information reflects all adjustments which are, in the opinion of our management, of a normal recurring nature and necessary for a fair statement of the results for the periods presented. The November 2, 2014 condensed consolidated balance sheet data were derived from our audited consolidated financial statements included in our Annual Report on Form 10-K for fiscal year 2014, or 2014 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, or SEC, but do not include all disclosures required by GAAP. Intercompany transactions and balances have been eliminated in consolidation. |
The operating results for the fiscal quarter ended February 1, 2015 are not necessarily indicative of the results that may be expected for fiscal year 2015, or for any other future period. |
Significant Accounting Policies |
Use of estimates. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. |
Concentrations of credit risk and significant customers. Our cash, cash equivalents and accounts receivable are potentially subject to concentration of credit risk. Cash and cash equivalents may be redeemable upon demand and are maintained with several financial institutions that management believes are of high credit quality and therefore bear minimal credit risk. We seek to mitigate our credit risks by spreading such risks across multiple counterparties and monitoring the risk profile of these counterparties. Our accounts receivable are derived from revenue earned from customers located around the world. We mitigate collection risks from our customers by performing regular credit evaluations of our customers' financial condition, and require collateral, such as letters of credit and bank guarantees, in certain circumstances. |
We sell our products through our direct sales force, distributors and manufacturers' representatives. One direct customer accounted for 26% and 30% of our net accounts receivable balance at February 1, 2015 and November 2, 2014, respectively. For the fiscal quarters ended February 1, 2015 and February 2, 2014, one direct customer represented 27% and 25% of our net revenue, respectively. The majority of the revenue from this customer was included in our wireless communications segment. |
Warranty. We accrue for the estimated costs of product warranties at the time revenue is recognized. Product warranty costs are estimated based upon our historical experience and specific identification of product requirements, which may fluctuate based on product mix. Additionally, we accrue for warranty costs associated with occasional or unanticipated product quality issues if a loss is probable and can be reasonably estimated. |
The changes in accrued warranty were not material for the fiscal quarters ended February 1, 2015 or February 2, 2014. |
Net income per share. Basic net income per share is computed using the weighted-average number of ordinary shares outstanding during the period. Diluted net income per share is computed using the weighted-average number of ordinary shares and potentially dilutive share equivalents outstanding during the period. Diluted shares outstanding include the dilutive effect of in-the-money options, restricted share units, or RSUs, employee share purchase rights under the Avago Technologies Limited Employee Share Purchase Plan, or ESPP, (together referred to as equity awards) and the 2.0% Convertible Senior Notes due 2021 issued by Avago Technologies Limited, or the Convertible Notes. The dilutive effect of equity awards is calculated based on the average share price for each fiscal period, using the treasury stock method. Under the treasury stock method, the amount the employee must pay for exercising share options and to purchase shares under the ESPP, the amount of compensation cost for future service that the Company has not yet recognized, and the amount of tax benefits that would be recognized when equity awards become deductible for income tax purposes are collectively assumed to be used to repurchase ordinary shares. The dilutive effect of the Convertible Notes is calculated using the treasury stock method. For the purpose of calculating their dilutive effect, we assumed that the Convertible Notes will be entirely settled in cash, which warrants use of the treasury stock method. In making this assumption, we considered our existing cash balance and our ability to borrow and repay our existing term loan facility under a credit agreement that Avago Technologies Finance Pte. Ltd and certain subsidiaries of the Company entered into with a syndicate of financial institutions, or the 2014 Credit Agreement. The treasury stock method assumes that the carrying value of the Convertible Notes represents proceeds, since settlement of the Convertible Notes tendered for conversion may be settled with cash, ordinary shares or a combination of both at our option. The resulting incremental ordinary shares attributable to the assumed conversion of the Convertible Notes are a component of diluted shares. |
There were no significant antidilutive equity awards for the fiscal quarters ended February 1, 2015 or February 2, 2014. |
The following is a reconciliation of the numerators and denominators of the basic and diluted net income per share computations for the periods presented (in millions, except per share data): |
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| | | | | | | |
| Fiscal Quarter Ended |
| February 1, | | February 2, |
2015 | 2014 |
Net income (Numerator): | | | |
Income from continuing operations | $ | 338 | | | $ | 134 | |
|
Income from discontinued operations, net of income taxes | 13 | | | — | |
|
Net income | $ | 351 | | | $ | 134 | |
|
Shares (Denominator): | | | |
Basic weighted-average ordinary shares outstanding | 255 | | | 249 | |
|
Add incremental shares for: | | | |
Dilutive effect of share options, RSUs and ESPP rights | 12 | | | 6 | |
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Dilutive effect of Convertible Notes | 11 | | | — | |
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Shares used in diluted computation | 278 | | | 255 | |
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| | | |
Basic income per share: | | | |
Income per share from continuing operations | $ | 1.33 | | | $ | 0.54 | |
|
Income per share from discontinued operations, net of income taxes | $ | 0.05 | | | $ | — | |
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Net income per share | $ | 1.38 | | | $ | 0.54 | |
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| | | |
Diluted income per share: | | | |
Income per share from continuing operations | $ | 1.22 | | | $ | 0.53 | |
|
Income per share from discontinued operations, net of income taxes | $ | 0.04 | | | $ | — | |
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Net income per share | $ | 1.26 | | | $ | 0.53 | |
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Supplemental cash flow disclosures. At February 1, 2015 and November 2, 2014, we had $55 million and $45 million, respectively, of unpaid purchases of property, plant, and equipment included in accounts payable and other current liabilities. Amounts reported as unpaid purchases will be recorded as cash outflows from investing activities for purchases of property, plant, and equipment in the unaudited condensed consolidated statements of cash flows in the period in which they are paid. |
Recently Adopted Accounting Guidance |
In November 2014, the Financial Accounting Standards Board, or FASB, issued authoritative guidance that provides guidance on whether and at what threshold an acquired business or not-for-profit organization can apply pushdown accounting. This guidance provides an option to apply pushdown accounting in the separate financial statements of an acquired entity upon the occurrence of an event in which an acquirer obtains control of the acquired entity. The guidance was effective on November 18, 2014. After the effective date, an acquired entity can make an election to apply the guidance to future change-in-control events or to its most recent change-in-control event. However, if the financial statements for the period in which the most recent change-in-control event occurred already have been issued or made available to be issued, the application of this guidance would be a change in accounting principle. The adoption of this guidance did not impact our consolidated financial statements. |
In July 2013, the FASB issued an amendment to the accounting guidance related to the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. The guidance requires an unrecognized tax benefit to be presented as a decrease in a deferred tax asset where a net operating loss, a similar tax loss or a tax credit carryforward exists and certain criteria are met. This guidance was effective for the first quarter of our fiscal year 2015. The adoption of this guidance did not have a significant impact on our consolidated balance sheets. |
Recent Accounting Guidance Not Yet Adopted |
In February 2015, the FASB issued an amendment to the accounting guidance related to the criteria for consolidation of certain legal entities. The guidance will be effective for the first quarter of our fiscal year 2018, with early adoption permitted. The guidance requires either retrospective to each prior period presented or retrospective with a cumulative adjustment to retained earnings or accumulated deficit as of the adoption date. We are currently evaluating the impact that this guidance will have on our financial condition and results of operations. |
In January 2015, the FASB issued an amendment to the accounting guidance related to the financial statement presentation of extraordinary and unusual items. The guidance eliminates the requirement to classify and present extraordinary items separately in the results of operations. This guidance will be effective prospectively for the first quarter of our fiscal year 2016, with early adoption permitted. The adoption of this guidance is not expected to have a significant impact on our consolidated financial statements. |
In June 2014, the FASB issued authoritative guidance that resolves the diverse accounting treatment for share-based payment awards that require a specific performance target to be achieved in order for employees to become eligible to vest in the awards. The guidance applies to entities that grant their employees share-based awards that include a performance target that could be achieved after the requisite service period. The guidance explicitly requires that a performance target of this nature be treated as a performance condition and should not be reflected in estimating the grant-date fair value of the award. This guidance will be effective for the first quarter of our fiscal year 2016. We are currently evaluating the impact that this guidance will have on our financial condition and results of operations. |
In May 2014, the FASB issued authoritative guidance that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The guidance is effective for the first quarter of our fiscal year 2018. Early adoption is not permitted. The new guidance is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. We have not yet selected a transition method and are currently evaluating the impact of this guidance on our consolidated financial statements. |
In April 2014, the FASB issued authoritative guidance that raises the threshold for a disposal transaction to qualify as a discontinued operation and requires additional disclosures about discontinued operations and disposals of individually significant components that do not qualify as discontinued operations. This guidance will be effective for the first quarter of our fiscal year 2016, with early adoption permitted. |