Avago Technologies Announces Second Quarter Fiscal Year 2008 Financial Results

AVAGO TECHNOLOGIES FINANCE PTE. LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(IN MILLIONS)
Quarter ended Two quarters ended
May 4, February 3, April 30, May 4, April 30,
2008 2008 2007 2008 2007
Net revenue $ 411 $ 402 $ 380 $ 813 $ 755
Costs and expenses:
Cost of products sold:
Cost of products sold 237 230 229 467 464
Amortization of intangible assets 14 14 15 28 30
Restructuring charges 1 1 1 2 15
Total cost of products sold 252 245 245 497 509
Research and development 62 66 51 128 101
Selling, general and administrative 48 50 47 98 104
Amortization of intangible assets 7 7 7 14 14
Restructuring charges 1 2 3 3 11
Total costs and expenses 370 370 353 740 739
Income from operations 41 32 27 73 16
Interest expense (20 ) (25 ) (28 ) (45 ) (57 )
Loss on extinguishment of debt - (10 ) (10 ) (10 ) (10 )
Other income, net 1 1 5 2 6
Income (loss) from continuing operations before income taxes 22 (2 ) (6 ) 20 (45 )
Provision for income taxes 4 3 - 7 3
Income (loss) from continuing operations 18 (5 ) (6 ) 13 (48 )
Income (loss) from and gain on discontinued operations, net of income taxes (1 ) 9 10 8 58
Net income $ 17 $ 4 $ 4 $ 21 $ 10
AVAGO TECHNOLOGIES FINANCE PTE. LTD.
FINANCIAL SUMMARY (NON-GAAP) - UNAUDITED
(IN MILLIONS, except percentages)
Quarter ended Two quarters ended
May 4, February 3, April 30, May 4, April 30,
2008 2008 2007 2008 2007
Net revenue $ 411 $ 402 $ 380 $ 813 $ 755
Gross margin 174 172 151 346 292
% of net revenue 42 % 43 % 40 % 43 % 39 %
Research and development $ 62 $ 65 $ 51 $ 127 $ 101
Selling, general and administrative $ 46 $ 44 $ 44 $ 90 $ 92
Total operating expenses $ 108 $ 109 $ 95 $ 217 $ 193
% of net revenue 26 % 27 % 25 % 27 % 26 %
Income from operations $ 66 $ 63 $ 56 $ 129 $ 99
Interest expense $ (20 ) $ (25 ) $ (28 ) $ (45 ) $ (57 )
Net income $ 43 $ 36 $ 33 $ 79 $ 45
The financial summary excludes amortization of acquisition-related intangibles, share-based compensation, restructuring and impairment charges, acquired in-process research and development, loss on extinguishment of debt, and income (loss) from and gain on discontinued operations.
AVAGO TECHNOLOGIES FINANCE PTE. LTD.
FINANCIAL BRIDGE: GAAP TO NON-GAAP - UNAUDITED
(IN MILLIONS)
Quarter ended Two quarters ended
May 4, February 3, April 30, May 4, April 30,
2008 2008 2007 2008 2007
Net income on GAAP basis $ 17 $ 4 $ 4 $ 21 $ 10
Amortization of acquisition-related intangibles
Cost of products sold 14 14 15 28 30
Operating Expenses 7 7 7 14 14
21 21 22 42 44
Share-based compensation expense
Cost of products sold - - - - 1
Operating Expenses 2 7 3 9 12
2 7 3 9 13
Restructuring charges
Cost of products sold 1 1 1 2 15
Operating Expenses 1 2 3 3 11
2 3 4 5 26
Loss on extinguishment of debt - 10 10 10 10
(Income) loss from and (gain) on discontinued operations 1 (9 ) (10 ) (8 ) (58 )
Net income on Non-GAAP basis $ 43 $ 36 $ 33 $ 79 $ 45

To supplement our unaudited condensed consolidated financial statements presented in accordance with GAAP, we have shown above a non-GAAP presentation of the Company ’ s net income, which is adjusted to reflect the GAAP results excluding amortization of acquisition-related intangibles, share-based compensation, restructuring charges, loss on extinguishment of debt, and (income) loss from and (gain) on discontinued operations. This non-GAAP presentation is provided to enhance the reader's overall understanding of the comparability of the Company's financial performance among periods.

AVAGO TECHNOLOGIES FINANCE PTE. LTD.
RECONCILIATION OF NET INCOME TO EBITDA AND ADJUSTED EBITDA - UNAUDITED
(IN MILLIONS)
Quarter ended Two quarters ended
May 4, February 3, April 30, May 4, April 30,
2008 2008 2007 2008 2007
Net income $ 17 $ 4 $ 4 $ 21 $ 10
Interest expense 20 25 28 45 57
Provision for income taxes 4 3 - 7 3
Depreciation and amortization expense 38 39 44 77 89
EBITDA 79 71 76 150 159
Restructuring and other unusual charges 3 4 5 7 30
Purchase accounting adjustments - 1 4 1 9
Share-based compensation 2 7 3 9 13
Loss on extinguishment of debt - 10 10 10 10
(Income) loss from and (gain) on discontinued operations 1 (9 ) (10 ) (8 ) (58 )
Adjusted EBITDA $ 85 $ 84 $ 88 $ 169 $ 163
EBITDA represents net income before interest expense, provision for income taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA further adjusted to give effect to certain items that are required in calculating covenant compliance under our senior and senior subordinated notes as well as under our senior secured credit facility. Adjusted EBITDA is calculated by subtracting from or adding to EBITDA items of income or expense described above. EBITDA and Adjusted EBITDA do not represent net income, as that term is defined under GAAP, and should not be considered as an alternative to net income as an indicator of our operating performance.
Additionally, EBITDA and Adjusted EBITDA are not intended to be measures of free cash flow available for management or discretionary use as such measures do not consider certain cash requirements such as capital expenditures, tax payments and debt service requirements. EBITDA and Adjusted EBITDA as presented herein are not necessarily comparable to similarly titled measures.
AVAGO TECHNOLOGIES FINANCE PTE. LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
(IN MILLIONS)
May 4, October 31, April 30,
2008 2007 (1) 2007
ASSETS
Current assets:
Cash and cash equivalents $ 83 $ 309 $ 200
Trade accounts receivable, net 213 218 206
Inventory 166 140 143
Assets of discontinued operations - 25 -
Other current assets 32 25 40
Total current assets 494 717 589
Property, plant and equipment, net 289 292 388
Goodwill 156 122 116
Intangible assets, net 752 777 914
Other long-term assets 50 43 39
Total assets $ 1,741 $ 1,951 $ 2,046
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 154 $ 194 $ 126
Employee compensation and benefits 54 56 46
Accrued interest 31 34 35
Capital lease obligations - current 2 2 2
Other current liabilities 26 44 26
Total current liabilities 267 330 235
Long-term liabilities:
Long-term debt 705 903 923
Capital lease obligations - non-current 5 4 4
Other long-term liabilities 60 30 30
Total liabilities 1,037 1,267 1,192
Shareholder's equity:
Ordinary shares, no par value 1,074 1,066 1,071
Accumulated deficit (374 ) (386 ) (217 )
Accumulated other comprehensive income 4 4 -
Total shareholder's equity 704 684 854
Total liabilities and shareholder's equity $ 1,741 $ 1,951 $ 2,046
(1) Amounts as of October 31, 2007 have been derived from audited financial statements as of that date.
AVAGO TECHNOLOGIES FINANCE PTE. LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(IN MILLIONS)
Quarter ended
May 4, February 3, April 30,
2008 2008 2007
Cash flows from operating activities:
Net income $ 17 $ 4 $ 4
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization 38 39 44
Amortization of debt issuance costs 1 1 1
Gain on sale of discontinued operations - (9 ) (10 )
Loss on extinguishment of debt - 5 10

Loss on sale of property, plant and equipment

-

-

2

Share-based compensation 2 7 3
Changes in assets and liabilities, net of acquisition and dispositions:
Trade accounts receivable 22 (13 ) (30 )
Inventory (13 ) (12 ) 23
Accounts payable (47 ) 6 (10 )
Employee compensation and benefits 14 (16 ) 4
Other current assets and current liabilities 7 (39 ) -
Other long-term assets and long-term liabilities 2 14 3
Net cash (used in) provided by operating activities 43 (13 ) 44
Cash flows from investing activities:
Purchase of property, plant and equipment (13 ) (15 ) (8 )
Purchase of intangible assets - (6 ) -
Acquisitions and investment, net of cash acquired (8 ) (38 ) -
Proceeds from sale of discontinued operations - 25 10
Net cash (used in) provided by investing activities (21 ) (34 ) 2
Cash flows from financing activities:
Debt repayments - (200 ) (85 )
Cash settlement of equity awards - (1 ) -
Payment on capital lease obligation - - (1 )
Net cash used in financing activities - (201 ) (86 )
Net (decrease) increase in cash and cash equivalents 22 (248 ) (40 )
Cash and cash equivalents at the beginning of period 61 309 240
Cash and cash equivalents at end of period $ 83 $ 61 $ 200




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