Form 8-K Broadcom Ltd For: May 31 Filed by: Broadcom Cayman L.P.

June 2, 2016 4:08 PM

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): June 2, 2016 (May 31, 2016)

 

 

Broadcom Limited

Broadcom Cayman L.P.

(Exact name of registrants as specified in its charter)

 

 

 

Singapore

Cayman Islands

 

001-37690

333-205938-01

 

98-1254807

98-1254815

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

 

Broadcom Limited

1 Yishun Avenue 7

Singapore 768923

Broadcom Cayman L.P.

c/o Broadcom Limited

1 Yishun Avenue 7

Singapore 768923

 

N/A

(Address of principal executive offices)   (Zip Code)

Registrants’ telephone number, including area code: (65) 6755-7888

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Item 2.02. Results of Operations and Financial Condition.

On June 2, 2016, Broadcom Limited (“Broadcom” or the “Company”) issued a press release announcing its unaudited financial results for the second fiscal quarter ended May 1, 2016. The Company will host an investor conference call on June 2, 2016 at 2:00 p.m. Pacific Time to discuss these results.

The foregoing description is qualified in its entirety by reference to the press release dated June 2, 2016, a copy of which is attached hereto as Exhibit 99.1.

 

Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

On May 31, 2016, the Compensation Committee of the Board of Directors (the “Committee”) of the Company approved the following increases in annual base salary for the following executive officers of the Company, in each case effective as of July 1, 2016:

 

Name    Increase    

Annual Base

Salary effective

July 1, 2016

 

Thomas H. Krause, Acting Chief Financial Officer and Vice President, Corporate Development

     10 %   $ 371,158   

Henry Samueli, Chief Technical Officer

     167 %   $ 100,000   

Kirsten Spears, Vice President, Controller and Principal Accounting Officer

     15 %   $ 332,964   

In addition, the Committee also approved increases of less than 5% to the annual base salary of each of the following executive officers of the Company: Charlie Kawwas, Senior Vice President and Chief Sales Officer, Bryan T. Ingram, Senior Vice President and General Manager Wireless Semiconductor Division, and Patricia H. McCall, Vice President and General Counsel, in each case effective July 1, 2016.

On June 1, 2016, the Board of Directors, after consultation with, and upon the recommendation of, the Committee, approved a 14% increase in the annual base salary for Hock E. Tan, the Company’s President and Chief Executive Officer, resulting in annual base salary of $1,100,000, effective July 1, 2016.

 

Item 8.01. Other Events.

On June 2, 2016, the Company announced that its Board of Directors has declared an interim cash dividend on the Company’s ordinary shares of $0.50 per share. A corresponding distribution will also be paid by Broadcom Cayman L.P. (the “Partnership”), of which the Company is the General Partner, to holders of the Partnership’s restricted exchangeable partnership units (“REUs”) in the amount of $0.50 per REU. The dividend and the distribution are both payable on June 30, 2016 to shareholders or unitholders of record, as applicable, at the close of business (5:00 p.m.), Eastern Time, on June 17, 2016.

 

Item 9.01. Financial Statements and Exhibits.

 

(d) Exhibits.

 

Exhibit

No.

  

Description

99.1    Press release, dated June 2, 2016, entitled “Broadcom Limited Announces Second Quarter Fiscal Year 2016 Financial Results and Interim Dividend.”


The information contained in Item 2.02 of this report, including Exhibit 99.1 (other than with respect to the information also disclosed in Item 8.01) , shall not be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing, unless expressly incorporated by specific reference to such filing. The information in this report, including the exhibit hereto, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section.

Cautionary Note Regarding Forward-Looking Statements

This announcement contains forward-looking statements (including within the meaning of Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended) concerning Broadcom. These statements include, but are not limited to, statements that address our expected future business and financial performance and statements about (i) the expected benefits of the our acquisition of Broadcom Corporation, or the Acquisition, (ii) our plans, objectives and intentions with respect to future operations and products, (iii) our competitive position and opportunities, (iv) the impact of the transaction on the market for our products, (v) other statements identified by words such as “will”, “expect”, “intends”, “believe”, “anticipate”, “estimate”, “should”, “intend”, “plan”, “potential”, “predict” “project”, “aim”, and similar words, phrases or expressions. These forward-looking statements are based on current expectations and beliefs of the management of Broadcom, as well as assumptions made by, and information currently available to, such management, current market trends and market conditions and involve risks and uncertainties, many of which are outside the Company’s and management’s control, and which may cause actual results to differ materially from those contained in forward-looking statements. Accordingly, you should not place undue reliance on such statements.

Particular uncertainties that could materially affect future results include any risks associated with our recent acquisition of Broadcom Corporation, or BRCM, and other acquisitions we may make, including delays, challenges and expenses associated with integrating BRCM and other acquired companies with our existing businesses and our ability to achieve the benefits, growth prospects and synergies expected from BRCM and other acquisitions we may make; loss of our significant customers and fluctuations in the timing and volume of significant customer demand; our ability to accurately estimate customers’ demand and adjust our manufacturing and supply chain accordingly; the significant indebtedness incurred by us in February 2016 in connection with the Acquisition, including the need to generate sufficient cash flows to service and repay such debt; our ability to improve our manufacturing efficiency and quality; increased dependence on a small number of markets; our ability to timely increase our internal manufacturing capacity to meet customer demand; quarterly and annual fluctuations in operating results; cyclicality in the semiconductor industry or in our target markets; global economic conditions and concerns; our competitive performance and ability to continue achieving design wins with our customers, as well as the timing of those design wins; rates of growth in our target markets; 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 the unpredictability of any associated litigation expenses; any expenses or reputational damage associated with resolving customer product and warranty and indemnification claims; dependence on and risks associated with distributors of our products; our ability to sell to new types of customers and to keep pace with technological advances; market acceptance of the end products into which our products are designed; and other events and trends on a national, regional and global scale, including those of a political, economic, business, competitive and regulatory nature.

Our filings with the Securities and Exchange Commission (“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.


SIGNATURE

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 hereunto duly authorized.

Date: June 2, 2016

 

Broadcom Limited
Broadcom Cayman L.P., by its general partner Broadcom Limited
By:  

        /s/ Thomas H. Krause, Jr.

Name:     Thomas H. Krause, Jr.
Title:     Acting Chief Financial Officer and Vice President, Corporate Development


EXHIBIT INDEX

 

Exhibit

No.

  

Description

99.1    Press release, dated June 2, 2016, entitled “Broadcom Limited Announces Second Quarter Fiscal Year 2016 Financial Results and Interim Dividend.”

Exhibit 99.1

Broadcom Limited Announces Second Quarter

Fiscal Year 2016 Financial Results and Interim Dividend

 

    Quarterly GAAP gross margin of 30 percent; Quarterly non-GAAP gross margin from continuing operations of 60 percent

 

    Quarterly GAAP diluted loss per share of $3.02; Quarterly non-GAAP diluted earnings per share from continuing operations of $2.53

 

    Quarterly interim dividend of 50 cents per share

SAN JOSE, Calif., and SINGAPORE June 2, 2016 Broadcom Limited (Nasdaq: AVGO), a leading semiconductor device supplier to the wired, wireless, enterprise storage, and industrial end markets, today reported financial results for the second quarter of its fiscal year 2016, ended May 1, 2016, and provided guidance for the third quarter of its fiscal year 2016.

Recent Developments

Broadcom Limited is the successor to Avago Technologies Limited (“Avago”). Following Avago’s acquisition of Broadcom Corporation (“BRCM”) on February 1, 2016 (the “Acquisition”), Broadcom Limited became the ultimate parent company of Avago and BRCM. Financial results for the fiscal periods prior to the Acquisition relate solely to the Company’s predecessor, Avago. Unless the context otherwise requires, references in this press release to “Broadcom,” “the Company,” “we,” “our,” “us” and similar terms are to Broadcom Limited from and after the effective time of the Acquisition and, prior to that time, to its predecessor, Avago. The financial results from businesses that have been classified as discontinued operations in the Company’s financial statements are not included in the results presented below, unless otherwise stated.

Second Quarter Fiscal Year 2016 GAAP Results

Net revenue was $3,541 million, an increase of 100 percent from $1,771 million in the previous quarter and an increase of 119 percent from $1,614 million in the same quarter last year.

Gross margin was $1,046 million, or 30 percent of net revenue. This compares with gross margin of $941 million, or 53 percent of net revenue in the prior quarter, and gross margin of $846 million, or 52 percent of net revenue in the same quarter last year.

Operating expenses were $2,047 million. This compares with $466 million in the prior quarter and $428 million for the same quarter last year.

Operating loss was $1,001 million, or 28 percent of net revenue. This compares with operating income of $475 million, or 27 percent of net revenue, in the prior quarter, and $418 million, or 26 percent of net revenue, in the same quarter last year.

Net loss, which includes the impact of discontinued operations, was $1,255 million, or $3.02 per diluted share. This compares with net income of $377 million, or $1.30 per diluted share, for the prior quarter, and $344 million, or $1.21 per diluted share in the same quarter last year.


Net loss attributable to ordinary shares was $1,186 million. Net loss attributable to noncontrolling interest (restricted exchangeable limited partnership units (“REUs”) in the Company’s subsidiary, Broadcom Cayman L.P. (the “Partnership”)) was $69 million.

 

Second Quarter Fiscal Year 2016 GAAP Results

                     Change  

(Dollars in millions, except per share data)

   Q2 16     Q1 16     Q2 15     Q/Q     Y/Y  

Net revenue

   $ 3,541      $ 1,771      $ 1,614        +100     +119

Gross margin

     30     53     52     -23ppt        -22ppt   

Operating expenses

   $ 2,047      $ 466      $ 428      +$ 1,581      +$ 1,619   

Net income (loss)

   $ (1,255   $ 377      $ 344      -$ 1,632      -$ 1,599   

Net loss attributable to noncontrolling interest

   $ (69   $ —        $ —        -$ 69      -$ 69   

Net income (loss) attributable to ordinary shares

   $ (1,186   $ 377      $ 344      -$ 1,563      -$ 1,530   

Earnings (loss) per share - diluted

   $ (3.02   $ 1.30      $ 1.21      -$ 4.32      -$ 4.23   

The Company’s cash balance at the end of the second fiscal quarter was $2,041 million, compared to $2,169 million at the end of the prior quarter.

The Company generated $622 million in cash from operations and spent $158 million on capital expenditures in the second fiscal quarter of 2016. During the quarter, the Company repaid $565 million of its outstanding term loans.

On March 31, 2016, the Company paid a cash dividend of $0.49 per ordinary share, totaling $193 million. On the same date, the Partnership, of which the Company is the General Partner, paid holders of REUs a corresponding distribution of $0.49 per REU, totaling $11 million.

Second Quarter Fiscal Year 2016 Non-GAAP Results From Continuing Operations

The differences between the Company’s GAAP and non-GAAP results are described generally under “Non-GAAP Financial Measures” below, and presented in detail in the financial reconciliation tables attached to this release.

Net revenue from continuing operations was $3,562 million, an increase of 100 percent from $1,782 million in the previous quarter, and an increase of 117 percent from $1,645 million in the same quarter last year.

Gross margin from continuing operations was $2,138 million, or 60 percent of net revenue. This compares with gross margin of $1,089 million, or 61 percent of net revenue, in the prior quarter, and gross margin of $998 million, or 61 percent of net revenue, in the same quarter last year.

Operating income from continuing operations was $1,329 million, or 37 percent of net revenue. This compares with operating income from continuing operations of $783 million, or 44 percent of net revenue, in the prior quarter, and $701 million, or 43 percent of net revenue, in the same quarter last year.

 

2


Net income from continuing operations was $1,120 million, or $2.53 per diluted share. This compares with net income of $710 million, or $2.41 per diluted share last quarter, and net income of $620 million, or $2.13 per diluted share, in the same quarter last year.

 

Second Quarter Fiscal Year 2016 Non-GAAP Results

                     Change  

(Dollars in millions, except per share data)

   Q2 16     Q1 16     Q2 15     Q/Q     Y/Y  

Net revenue

   $ 3,562      $ 1,782      $ 1,645        +100     +117

Gross margin

     60     61     61     -1ppt        -1ppt   

Operating expenses

   $ 809      $ 306      $ 297      +$ 503      +$ 512   

Net income

   $ 1,120      $ 710      $ 620      +$ 410      +$ 500   

Earnings per share - diluted

   $ 2.53      $ 2.41      $ 2.13      +$ 0.12      +$ 0.40   

“We delivered solid second quarter revenue, while exceeding EPS expectations for our first quarter operating as a combined company. Our increased scale and diversity is already proving very resilient, with strong product cycles in our now largest segment, wired, offsetting weaker demand in our enterprise storage and wireless segments,” said Hock Tan, President and CEO of Broadcom Limited. “We are expecting a robust third quarter, led by strong growth in wireless revenue, and continued strength in wired networking, and remain confident in our ability to leverage earnings growth as we work towards full integration and achievement of our operating model.”

Other Quarterly Data

 

     Q2 16     Q1 16     Q2 15     Growth Rates  
                                           

Q/Q

    Y/Y  

Net revenue by segment:

                   

Wired infrastructure

   $ 2,060         58   $ 386         22   $ 382         23     434     439

Wireless communications

     792         22        578         33        576         36        37     38

Enterprise storage

     525         15        678         38        467         29        -23     12

Industrial & other

     164         5        129         7        189         12        27     -13
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

     

Total net revenue

   $ 3,541         100   $ 1,771         100   $ 1,614         100    
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

     
     Q2 16     Q1 16     Q2 15     Growth Rates  
                                           

Q/Q

   

Y/Y

 

Non-GAAP net revenue by segment:

                   

Wired infrastructure (1)

   $ 2,063         58   $ 386         22   $ 382         23     434     440

Wireless communications

     792         22        578         32        576         35        37     38

Enterprise storage

     525         15        678         38        467         28        -23     12

Industrial & other (1)

     182         5        140         8        220         14        30     -17
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

     

Total non-GAAP net revenue

   $ 3,562         100   $ 1,782         100   $ 1,645         100    
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

     

 

(1) Non-GAAP data include the effect of acquisition-related purchase accounting revenue adjustment.

 

3


Key Statistics (Dollars in millions)

  

Q2 16

    

Q1 16

    

Q2 15

 

Cash from operations

   $ 622       $ 474       $ 663   

Depreciation

   $ 107       $ 60       $ 58   

Amortization

   $ 933       $ 184       $ 172   

Capital expenditures

   $ 158       $ 140       $ 177   

Days sales outstanding (“DSO”)

     48         55         43   

Inventory days on hand (“DOH”)

     59         64         68   

Non-GAAP DSO

     47         54         42   

Non-GAAP Inventory DOH

     72         64         69   

Third Quarter Fiscal Year 2016 Business Outlook

Based on current business trends and conditions, the outlook for continuing operations for the third quarter of fiscal year 2016, ending July 31, 2016 is expected to be as follows:

 

     GAAP   Reconciling Items   Non-GAAP

Net revenue

   $3,740M +/- $75M   $10M   $3,750M +/- $75M

Gross margin

   43.75% +/- 1%   $599M   60.00% +/- 1%

Operating expenses

   $1,812M   $1,003M   $809M

Interest and other

   $161M   $20M   $141M

Provision for (benefit from) income taxes

   ($88)M   ($147)M   $59M

Diluted share count

   419M   30M   449M

 

    Non-GAAP net revenue includes $10 million of licensing revenue not included in GAAP revenue, as a result of the effects of purchase accounting for acquisitions;

 

    Non-GAAP gross margin includes the effects of $10 million of licensing revenue, and excludes the effects of $356 million of inventory step-up charges to record BRCM inventory at fair value, as part of the purchase accounting for the Acquisition, $210 million of amortization of intangible assets, $15 million of share-based compensation expense, and $8 million of restructuring charges;

 

    Non-GAAP operating expenses exclude $732 million of amortization of intangible assets, $206 million of share-based compensation expense, $36 million of restructuring charges, and $29 million of acquisition-related costs;

 

    Non-GAAP interest and other excludes $20 million of losses on extinguishment of long-term debt;

 

    Non-GAAP tax provision excludes $147 million tax benefit representing the tax effects of the reconciling items noted above; and

 

    Non-GAAP diluted share count 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.

 

4


Capital expenditures for the third fiscal quarter are expected to be approximately $230 million. For the third fiscal quarter, depreciation is expected to be $106 million and amortization is expected to be approximately $942 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 the impact of any additional mergers, acquisitions and divestiture activity 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.

Interim Dividend

The Company’s Board of Directors has approved a quarterly, interim cash dividend of $0.50 per ordinary share. A corresponding distribution will also be paid by the Partnership, of which the Company is the General Partner, to holders of REUs, in the amount of $0.50 per REU.

The dividend and the distribution are both payable on June 30, 2016 to shareholders or unitholders of record, as applicable, at the close of business (5:00 p.m.) Eastern Time on June 17, 2016.

Financial Results Conference Call

Broadcom Limited will host a conference call to review its financial results for the second quarter of its fiscal year 2016, ended May 1, 2016, and to provide guidance for the third quarter of fiscal year 2016, today at 2:00 p.m. Pacific Time. Those wishing to access the call should dial (866) 310-8712; International +1 (720) 634-2946. The passcode is 6177961. A replay of the call will be accessible for one week after the call. To access the replay dial (855) 859-2056; International +1 (404) 537-3406; and reference the passcode: 6177961. A webcast of the conference call will also be available in the “Investors” section of Broadcom’s website at www.broadcom.com.

Non-GAAP Financial Measures

In addition to GAAP reporting, Broadcom provides investors with net revenue, net income, operating income, gross margin, operating expenses and other data on a non-GAAP basis. This non-GAAP information includes the effect, where applicable, of purchase accounting on revenues, and excludes amortization of intangible assets, share-based compensation expense, restructuring, impairment and disposal charges, acquisition-related costs, including integration costs, purchase accounting effect on inventory, write-off of debt issuance costs, gain (loss) on extinguishment of debt, income (loss) from and gain (loss) on discontinued operations and income tax effects of non-GAAP reconciling adjustments. Management does not believe that these items are reflective of the Company’s underlying performance. However, internally, these non-GAAP measures are significant measures used by

 

5


management for purposes of evaluating the core operating performance of the Company, establishing internal budgets, calculating return on investment for development programs and growth initiatives, comparing performance with internal forecasts and targeted business models, strategic planning, evaluating and valuing potential acquisition candidates and how their operations compare to the Company’s operations, and benchmarking performance externally against the Company’s competitors. The presentation of these and other similar items in Broadcom’s non-GAAP financial results should not be interpreted as implying that these items are non-recurring, infrequent or unusual. Broadcom 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 Broadcom Limited

Broadcom Limited (NASDAQ: AVGO) is a leading designer, developer and global supplier of a broad range of analog and digital semiconductor connectivity solutions. Broadcom Limited’s extensive product portfolio serves four primary end markets: wired infrastructure, wireless communications, enterprise storage and industrial & other. Applications for our products in these end markets include: data center networking, home connectivity, broadband access, telecommunications equipment, smartphones and base stations, data center servers and storage, factory automation, power generation and alternative energy systems, and displays.

Cautionary Note Regarding Forward-Looking Statements

This announcement contains forward-looking statements (including within the meaning of Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended) concerning Broadcom. These statements include, but are not limited to, statements that address our expected future business and financial performance and statements about (i) the expected benefits of the Acquisition, (ii) our plans, objectives and intentions with respect to future operations and products, (iii) our competitive position and opportunities, (iv) the impact of the transaction on the market for our products, (v) other statements identified by words such as “will”, “expect”, “intends”, “believe”, “anticipate”, “estimate”, “should”, “intend”, “plan”, “potential”, “predict” “project”, “aim”, and similar words, phrases or expressions. These forward-looking statements are based on current expectations and beliefs of the management of Broadcom, as well as assumptions made by, and information currently available to, such management, current market trends and market conditions and involve risks and uncertainties, many of which are outside the Company’s and management’s control, and which may cause actual results to differ materially from those contained in forward-looking statements. Accordingly, you should not place undue reliance on such statements.

Particular uncertainties that could materially affect future results include any risks associated with our recent acquisition of BRCM, and other acquisitions we may make, including delays, challenges and

 

6


expenses associated with integrating BRCM and other acquired companies with our existing businesses and our ability to achieve the benefits, growth prospects and synergies expected from BRCM and other acquisitions we may make; loss of our significant customers and fluctuations in the timing and volume of significant customer demand; our ability to accurately estimate customers’ demand and adjust our manufacturing and supply chain accordingly; the significant indebtedness incurred by us in February 2016 in connection with the Acquisition, including the need to generate sufficient cash flows to service and repay such debt; our ability to improve our manufacturing efficiency and quality; increased dependence on a small number of markets; our ability to timely increase our internal manufacturing capacity to meet customer demand; quarterly and annual fluctuations in operating results; cyclicality in the semiconductor industry or in our target markets; global economic conditions and concerns; our competitive performance and ability to continue achieving design wins with our customers, as well as the timing of those design wins; rates of growth in our target markets; 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 the unpredictability of any associated litigation expenses; any expenses or reputational damage associated with resolving customer product and warranty and indemnification claims; dependence on and risks associated with distributors of our products; our ability to sell to new types of customers and to keep pace with technological advances; market acceptance of the end products into which our products are designed; and other events and trends on a national, regional and global scale, including those of a political, economic, business, competitive and regulatory nature.

Our filings with the Securities and Exchange Commission (“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.

# # #

Contacts:

Broadcom Limited

Ashish Saran

Investor Relations

+1 408 433 8000

investor.relations@broadcom.com

 

7


BROADCOM LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED

(IN MILLIONS, EXCEPT PER SHARE DATA)

 

     Fiscal Quarter Ended     Two Fiscal Quarters Ended  
     May 1,     January 31,     May 3,     May 1,     May 3,  
     2016     2016     2015     2016     2015  

Net revenue

   $ 3,541      $ 1,771      $ 1,614      $ 5,312      $ 3,249   

Cost of products sold:

          

Cost of products sold

     1,437        699        654        2,136        1,344   

Purchase accounting effect on inventory

     828        —          —          828        4   

Amortization of intangible assets

     198        130        113        328        226   

Restructuring charges

     32        1        1        33        3   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of products sold

     2,495        830        768        3,325        1,577   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

     1,046        941        846        1,987        1,672   

Research and development

     787        267        251        1,054        486   

Selling, general and administrative

     238        114        108        352        225   

Amortization of intangible assets

     735        54        59        789        118   

Restructuring, impairment and disposal charges

     287        31        10        318        24   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     2,047        466        428        2,513        853   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (1,001     475        418        (526     819   

Interest expense

     (256     (84     (53     (340     (107

Loss on extinguishment of debt

     (53     —          (13     (53     (13

Other income (expense), net

     (6     3        12        (3     16   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     (1,316     394        364        (922     715   

Provision for (benefit from) income taxes

     (99     17        25        (82     38   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     (1,217     377        339        (840     677   

Income (loss) from discontinued operations, net of income taxes

     (38     —          5        (38     18   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (1,255     377        344        (878     695   

Net loss attributable to noncontrolling interest

     (69     —          —          (69     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to ordinary shares

   $ (1,186   $ 377      $ 344      $ (809   $ 695   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic income (loss) per share (1):

          

Income (loss) per share from continuing operations

   $ (2.93   $ 1.36      $ 1.31      $ (2.31   $ 2.63   

Income (loss) per share from discontinued operations, net of income taxes

     (0.09     —          0.02        (0.10     0.07   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share

   $ (3.02   $ 1.36      $ 1.33      $ (2.41   $ 2.70   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted income (loss) per share (2):

          

Income (loss) per share from continuing operations

   $ (2.93   $ 1.30      $ 1.19      $ (2.43   $ 2.41   

Income (loss) per share from discontinued operations, net of income taxes

     (0.09     —          0.02        (0.11     0.06   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share

   $ (3.02   $ 1.30      $ 1.21      $ (2.54   $ 2.47   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in per share calculations:

          

Basic

     392        277        258        335        257   

Diluted

     415        289        284        346        281   

Share-based compensation expense included in continuing operations:

          

Cost of products sold

   $ 13      $ 6      $ 6      $ 19      $ 12   

Research and development

     122        28        27        150        46   

Selling, general and administrative

     51        23        24        74        48   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total share-based compensation expense

   $ 186      $ 57      $ 57      $ 243      $ 106   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) For the fiscal quarter and two fiscal quarters ended May 1, 2016, basic loss per share numerators are reduced by the amount of net loss attributable to noncontrolling interest, which is 5.5% of net loss incurred subsequent to January 31, 2016. The noncontrolling interest is related to the restricted exchangeable partnership units of Broadcom Cayman L.P. (“Partnership REUs”), of which Broadcom Limited is the General Partner.
(2) For the fiscal quarter and two fiscal quarters ended May 1, 2016, diluted loss per share numerators and denominators include the impact of the noncontrolling interest, which assumes conversion of Partnership REUs to Broadcom ordinary shares. The diluted loss per share calculations include 23 million and 11 million Partnership REUs for the fiscal quarter and two fiscal quarters ended May 1, 2016, respectively, representing an assumed conversion of 100% of the Partnership REUs under the “if converted” method.


BROADCOM LIMITED

FINANCIAL RECONCILIATION: GAAP TO NON-GAAP - UNAUDITED

(IN MILLIONS, EXCEPT DAYS)

 

     Fiscal Quarter Ended     Two Fiscal Quarters Ended  
     May 1,     January 31,     May 3,     May 1,     May 3,  
     2016     2016     2015     2016     2015  

Net revenue on GAAP basis

   $ 3,541      $ 1,771      $ 1,614      $ 5,312      $ 3,249   

Acquisition-related purchase accounting revenue adjustment (1)

     21        11        31        32        53   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue on non-GAAP basis

   $ 3,562      $ 1,782      $ 1,645      $ 5,344      $ 3,302   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin on GAAP basis

   $ 1,046      $ 941      $ 846      $ 1,987      $ 1,672   

Acquisition-related purchase accounting revenue adjustment (1)

     21        11        31        32        53   

Purchase accounting effect on inventory

     828        —          —          828        4   

Amortization of intangible assets

     198        130        113        328        226   

Share-based compensation expense

     13        6        6        19        12   

Restructuring charges

     32        1        1        33        3   

Acquisition-related costs

     —          —          1        —          2   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin on non-GAAP basis

   $ 2,138      $ 1,089      $ 998      $ 3,227      $ 1,972   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Research and development on GAAP basis

   $ 787      $ 267      $ 251      $ 1,054      $ 486   

Share-based compensation expense

     122        28        27        150        46   

Acquisition-related costs

     2        1        3        3        9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Research and development on non-GAAP basis

   $ 663      $ 238      $ 221      $ 901      $ 431   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Selling, general and administrative expense on GAAP basis

   $ 238      $ 114      $ 108      $ 352      $ 225   

Share-based compensation expense

     51        23        24        74        48   

Acquisition-related costs

     41        23        8        64        18   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Selling, general and administrative expense on non-GAAP basis

   $ 146      $ 68      $ 76      $ 214      $ 159   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses on GAAP basis

   $ 2,047      $ 466      $ 428      $ 2,513      $ 853   

Amortization of intangible assets

     735        54        59        789        118   

Share-based compensation expense

     173        51        51        224        94   

Restructuring, impairment and disposal charges

     287        31        10        318        24   

Acquisition-related costs

     43        24        11        67        27   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses on non-GAAP basis

   $ 809      $ 306      $ 297      $ 1,115      $ 590   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss) on GAAP basis

   $ (1,001   $ 475      $ 418      $ (526   $ 819   

Acquisition-related purchase accounting revenue adjustment (1)

     21        11        31        32        53   

Purchase accounting effect on inventory

     828        —          —          828        4   

Amortization of intangible assets

     933        184        172        1,117        344   

Share-based compensation expense

     186        57        57        243        106   

Restructuring, impairment and disposal charges

     319        32        11        351        27   

Acquisition-related costs

     43        24        12        67        29   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income on non-GAAP basis

   $ 1,329      $ 783      $ 701      $ 2,112      $ 1,382   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense on GAAP basis

   $ (256   $ (84   $ (53   $ (340   $ (107

Acquisition-related costs

     106        43        —          149        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense on non-GAAP basis

   $ (150   $ (41   $ (53   $ (191   $ (107
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes on GAAP basis

   $ (1,316   $ 394      $ 364      $ (922   $ 715   

Acquisition-related purchase accounting revenue adjustment (1)

     21        11        31        32        53   

Purchase accounting effect on inventory

     828        —          —          828        4   

Amortization of intangible assets

     933        184        172        1,117        344   

Share-based compensation expense

     186        57        57        243        106   

Restructuring, impairment and disposal charges

     319        32        11        351        27   

Acquisition-related costs

     149        67        12        216        29   

Loss on extinguishment of debt

     53        —          13        53        13   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes on non-GAAP basis

   $ 1,173      $ 745      $ 660      $ 1,918      $ 1,291   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for (benefit from) income taxes on GAAP basis

   $ (99   $ 17      $ 25      $ (82   $ 38   

Income tax effects of non-GAAP reconciling adjustments

     152        18        15        170        37   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for income taxes on non-GAAP basis

   $ 53      $ 35      $ 40      $ 88      $ 75   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) on GAAP basis

   $ (1,255   $ 377      $ 344      $ (878   $ 695   

Acquisition-related purchase accounting revenue adjustment (1)

     21        11        31        32        53   

Purchase accounting effect on inventory

     828        —          —          828        4   

Amortization of intangible assets

     933        184        172        1,117        344   

Share-based compensation expense

     186        57        57        243        106   

Restructuring, impairment and disposal charges

     319        32        11        351        27   

Acquisition-related costs

     149        67        12        216        29   

Loss on extinguishment of debt

     53        —          13        53        13   

Income tax effects of non-GAAP reconciling adjustments

     (152     (18     (15     (170     (37

Discontinued operations, net of income taxes

     38        —          (5     38        (18
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income on non-GAAP basis

   $ 1,120      $ 710      $ 620      $ 1,830      $ 1,216   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in per share calculation - diluted on GAAP basis

     415        289        284        346        281   

Non-GAAP adjustment

     27        6        7        22        7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in per share calculation - diluted on non-GAAP basis(2)

     442        295        291        368        288   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Days sales outstanding on GAAP basis

     48        55        43       

Non-GAAP adjustment

     (1     (1     (1    
  

 

 

   

 

 

   

 

 

     

Days sales outstanding on non-GAAP basis(3)

     47        54        42       
  

 

 

   

 

 

   

 

 

     

Inventory Days on Hand on GAAP basis

     59        64        68       

Non-GAAP adjustment

     13        —          1       
  

 

 

   

 

 

   

 

 

     

Inventory Days on Hand on non-GAAP basis(4)

     72        64        69       
  

 

 

   

 

 

   

 

 

     

 

(1) Amounts represent licensing revenue not included in GAAP net revenue as a result of the effect of purchase accounting for acquisitions.
(2) 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.
(3) Days sales outstanding on a non-GAAP basis includes the impact of the acquisition-related purchase accounting revenue adjustment and excludes the impact of accounts receivable related to discontinued operations.
(4) Inventory days on hand on a non-GAAP basis excludes the impact of purchase accounting on inventory, amortization of intangible assets, share-based compensation expense, restructuring charges, acquisition-related costs, and cost of products sold attributable to discontinued operations.


BROADCOM LIMITED

CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED

(IN MILLIONS)

 

     May 1,     November 1,  
     2016     2015 (1)  

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 2,041      $ 1,822   

Trade accounts receivable, net

     1,857        1,019   

Inventory

     1,467        524   

Assets held-for-sale

     842        22   

Other current assets

     480        372   
  

 

 

   

 

 

 

Total current assets

     6,687        3,759   

Property, plant and equipment, net

     2,486        1,460   

Goodwill

     24,776        1,674   

Intangible assets, net

     16,944        3,277   

Other long-term assets

     514        345   
  

 

 

   

 

 

 

Total assets

   $ 51,407      $ 10,515   
  

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

    

Current liabilities:

    

Accounts payable

   $ 985      $ 617   

Employee compensation and benefits

     303        250   

Current portion of long-term debt

     344        46   

Other current liabilities

     1,019        206   
  

 

 

   

 

 

 

Total current liabilities

     2,651        1,119   

Long-term liabilities:

    

Long-term debt

     14,664        3,826   

Pension and post-retirement benefit obligations

     475        475   

Other long-term liabilities

     10,855        381   
  

 

 

   

 

 

 

Total liabilities

     28,645        5,801   
  

 

 

   

 

 

 

Shareholders’ equity:

    

Ordinary shares

     18,659        2,547   

Retained earnings

     1,116        2,240   

Accumulated other comprehensive loss

     (73     (73
  

 

 

   

 

 

 

Total Broadcom Limited shareholders’ equity

     19,702        4,714   

Noncontrolling interest

     3,060        —     
  

 

 

   

 

 

 

Total shareholders’ equity

     22,762        4,714   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 51,407      $ 10,515   
  

 

 

   

 

 

 

 

(1) Amounts as of November 1, 2015 have been derived from audited financial statements as of that date.


BROADCOM LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

(IN MILLIONS)

 

     Fiscal Quarter Ended     Two Fiscal Quarters Ended  
     May 1,     January 31,     May 3,     May 1,     May 3,  
     2016     2016     2015     2016     2015  

Cash flows from operating activities:

          

Net income (loss)

   $ (1,255   $ 377      $ 344      $ (878   $ 695   

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

  

       

Depreciation and amortization

     1,040        244        230        1,284        456   

Share-based compensation

     198        57        57        255        106   

Excess tax from share-based compensation

     (35     (23     (50     (58     (70

Non-cash portion of debt extinguishment loss

     30        —          13        30        13   

Non-cash restructuring, impairment and disposal charges

     22        22        —          44        5   

Gain on sale of business

     —          —          —          —          (14

Deferred taxes

     (164     (8     4        (172     (2

Amortization of debt issuance costs and accretion of debt discount

     13        4        7        17        14   

Other

     22        4        —          26        6   

Changes in assets and liabilities, net of acquisitions and disposals:

          

Trade accounts receivable, net

     (128     (41     (40     (169     24   

Inventory

     886        34        10        920        43   

Accounts payable

     (149     (68     55        (217     (23

Employee compensation and benefits

     98        (149     49        (51     (41

Other current assets and current liabilities

     70        16        27        86        (18

Other long-term assets and long-term liabilities

     (26     5        (43     (21     (50
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     622        474        663        1,096        1,144   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

          

Acquisitions of businesses, net of cash acquired

     (10,023     (12     —          (10,035     —     

Proceeds from sales of businesses

     —          68        —          68        650   

Purchases of property, plant and equipment

     (158     (140     (177     (298     (339

Proceeds from disposals of property, plant and equipment

     —          —          37        —          63   

Purchases of investments

     (58     (1     (9     (59     (9

Proceeds from sales and maturities of investments

     32        —          —          32        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (10,207     (85     (149     (10,292     365   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

          

Proceeds from term loan borrowings

     15,926        —          —          15,926        —     

Debt repayments

     (4,828     (11     (605     (4,839     (617

Payment of assumed debt

     (1,475     —          —          (1,475     —     

Debt issuance costs

     (104     (4     —          (108     —     

Dividend payments

     (204     (122     (99     (326     (188

Issuance of ordinary shares

     107        72        79        179        130   

Excess tax from share-based compensation

     35        23        50        58        70   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     9,457        (42     (575     9,415        (605
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net change in cash and cash equivalents

     (128     347        (61     219        904   

Cash and cash equivalents at the beginning of period

     2,169        1,822        2,569        1,822        1,604   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 2,041      $ 2,169      $ 2,508      $ 2,041      $ 2,508   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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