UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
(MARK ONE)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 28, 2012
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-34428
_____________________________________________________________
Avago Technologies Limited
(Exact Name of Registrant as Specified in Its Charter)
_____________________________________________________________
Singapore
(State or Other Jurisdiction of Incorporation or Organization)
1 Yishun Avenue 7
Singapore 768923
(Address of Principal Executive Offices)
98-0682363
(I.R.S. Employer Identification No.)
N/A
(Zip Code)
(65) 6755-7888
(Registrant’s telephone number, including area code)
_____________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Class
Ordinary Shares, no par value
Name of Each Exchange on Which Registered
The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
_____________________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
No
No
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
State the aggregate market value of the Registrant’s voting and non-voting ordinary shares held by non-affiliates as of the last business day of
No
the Registrant’s most recently completed second fiscal quarter: As of April 29, 2012, the last business day of our most recently completed second
fiscal quarter, the aggregate market value of the Registrant’s ordinary shares held by non-affiliates of the Registrant (based upon the closing sale price
of such shares on the Nasdaq Global Select Market on April 27, 2012, the last trading day prior to our fiscal quarter end) was approximately
$7,715,427,462.
As of December 7, 2012, the Registrant had 245,742,488 ordinary shares outstanding.
Documents Incorporated by Reference
Information required in response to Part III of this Annual Report on Form 10-K is hereby incorporated by reference from the Registrant’s
definitive Proxy Statement for its 2013 Annual Meeting of Shareholders. Except as expressly incorporated by reference, the Registrant’s Proxy
Statement shall not be deemed to be a part of this Annual Report on Form 10-K. The Registrant intends to file its definitive Proxy Statement within
120 days after its fiscal year ended October 28, 2012.
AVAGO TECHNOLOGIES LIMITED
2012 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I.
BUSINESS
RISK FACTORS
UNRESOLVED STAFF COMMENTS
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
PART II.
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
SELECTED FINANCIAL DATA
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
CONTROLS AND PROCEDURES
OTHER INFORMATION
PART III.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED SHAREHOLDER MATTERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV.
SIGNATURES
EXHIBIT INDEX
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PART I
The following discussion should be read in conjunction with the consolidated financial statements and notes thereto
included elsewhere in this Annual Report on Form 10-K. This Annual Report on Form 10-K contains forward-looking
statements within the meaning of the federal securities laws and particularly in Item 1: “Business,” Item 1A:“Risk Factors,”
Item 3: “Legal Proceedings” and Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” of this Annual Report on Form 10-K. These statements are indicated by words or phrases such as “anticipate,”
“expect,” “estimate,” “seek,” “plan,” “believe,” “could,” “intend,” “will,” and similar words or phrases. These forward-looking
statements may include projections of financial information; statements about historical results that may suggest trends for our
business; statements of the plans, strategies, and objectives of management for future operations; statements of expectation or
belief regarding future events, technology developments, our products, product sales, expenses, liquidity, cash flow and growth
rates, or enforceability of our intellectual property rights; and the effects of seasonality on our business. These forward-looking
statements are based on current expectations, estimates, forecasts and projections of our 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. We derive most of our forward-
looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we
believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is
impossible for us to anticipate all factors that could affect our actual results. Accordingly, we caution you not to place undue
reliance on these statements. Important factors that could cause actual results to differ materially from our expectations are
disclosed under “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K. These factors include global economic
conditions and concerns; cyclicality in the semiconductor industry or in our target markets; quarterly and annual fluctuations in
operating results; demands or loss of our significant customers; increased dependence on the volatile, wireless handset market;
our competitive performance and ability to continue achieving design wins with our customers and the timing of those design
wins; our dependence on contract manufacturing and outsourced supply chain, including single source suppliers, 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, for example due to natural disasters; our increased
dependence on outsourced service providers for certain key business services and their ability to execute to our requirements;
our ability to maintain gross margin; our ability to maintain tax concessions in certain jurisdictions; our ability to protect our
intellectual property, defend against third-party intellectual property claims 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 warranty and indemnification claims; our ability to achieve the growth prospects and synergies
expected from our acquisitions; delays, challenges and expenses associated with integrating acquired companies with our
existing businesses; and other events and trends on a national, regional and global scale, including those of a political,
economic, business, competitive and regulatory nature. All of the forward-looking statements in this Annual Report on Form
10-K are qualified in their entirety by reference to the factors listed above and those discussed under the heading “Risk
Factors” Part I, Item 1A of this Annual Report on Form 10-K. We caution you that the foregoing list of important factors may
not contain all of the material factors that are important to you. In addition, in light of these risks and uncertainties, the matters
referred to in the forward-looking statements contained in this Annual Report on Form 10-K may not in fact occur. We
undertake no intent or obligation to publicly update or revise any forward-looking statement as a result of new information,
future events or otherwise, except as otherwise required by law.
References in this Annual Report on Form 10-K to “Avago”, “the Company”, “we”, “our”, or “us” refer to Avago
Technologies Limited and its subsidiaries, on a consolidated basis, unless otherwise indicated or the context otherwise requires.
Our fiscal year ends on the Sunday closest to October 31. We refer to our fiscal years by the calendar year in which they end.
For example, the fiscal year ended October 28, 2012 is referred to as “fiscal year 2012”.
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ITEM 1.
BUSINESS
Overview
We are a leading designer, developer and global supplier of a broad range of analog semiconductor devices with a focus on
III-V based products. III-V semiconductor materials have higher electrical conductivity and thus tend to have better
performance characteristics in radio frequency, or RF, and optoelectronic applications than silicon. We differentiate ourselves
through our high performance design and integration capabilities. We serve three primary target markets, with our wireless
communications, wired infrastructure and industrial and automotive electronics target markets accounting for the substantial
majority of our revenues. Our product portfolio is extensive and includes thousands of products. Applications for our products
in these target markets include cellular phones, consumer appliances, data networking and telecommunications equipment,
enterprise storage and servers, factory automation and displays. Until recently, we also sold products into the consumer and
computing peripherals target market, which has historically represented a small portion of our total net revenue. However, as
this became a mature and non-strategic market for us, during fiscal year 2012 we transitioned from developing, manufacturing
and selling products into this target market to selling or licensing our intellectual property relevant to this target market, thereby
generating royalty revenue instead of product sales revenue. We completed this transition in the fourth quarter of the fiscal year
ended October 28, 2012 or fiscal year 2012.
We have a 50-year history of innovation, dating back to our origins within Hewlett-Packard Company. Over the years, we
have assembled a large team of analog design engineers, and we maintain design and product development engineering
resources around the world. Our locations include two design centers in the United States, five in Asia and four in Europe. We
have developed an extensive portfolio of intellectual property that currently includes over 4,300 U.S. and foreign patents and
patent applications. Our history and market position enable us to strategically focus our research and development resources to
address attractive target markets. We leverage our significant intellectual property portfolio to integrate multiple technologies
and create component solutions that target growth opportunities. We design products that deliver high-performance and provide
mission-critical functionality. In particular, we were among the first to deliver commercial film bulk acoustic resonator, or
FBAR, filters which offer technological advantages over competing filters for smartphones to function more efficiently in
today's congested RF spectrum. FBAR technology has historically maintained a significant market share within code division
multiple access, or CDMA, and 3G/W-CDMA markets. As cellular carriers move to the 4G/long term evolution, or LTE
standard worldwide, we believe these advantages will continue to facilitate rapid adoption of FBAR technology throughout the
mobile phone ecosystems. In optical solutions, we were a pioneer in commercializing vertical-cavity surface emitting laser, or
VCSEL. Our fiber optic products and our VCSEL-based products, including high bandwidth parallel optic transceivers and
modules, have been widely adopted throughout the wired infrastructure and computing industries. In optoelectronics, we are a
market leader in submarkets such as optocouplers and optical encoders.
We have a diversified and well-established customer base of over 25,000 end customers, located throughout the world,
which we serve through our multi-channel sales and fulfillment system. However, original equipment manufacturers, or OEMs,
and distributors typically account for the substantial majority of our sales. We have established strong relationships with
leading OEM customers across multiple target markets. Many of our major customer relationships have been in place multiple
years and we have supplied multiple products during that time period. Our close customer relationships have often been built as
a result of years of collaborative product development which has enabled us to build our intellectual property portfolio and
develop critical expertise regarding our customer’s requirements, including substantial system level knowledge. This
collaboration has provided us with key insights into our customers and has enabled us to be more efficient and productive and
to better serve our target markets and customers. We distribute most of our products through our broad distribution network,
and a significant portion of our sales are to two of the largest global electronic components distributors, Avnet, Inc. and Arrow
Electronics, Inc. We also have a direct sales force focused on supporting large OEMs.
We focus on maintaining an efficient global supply chain and a variable, low-cost operating model. Accordingly, we have
outsourced a majority of our manufacturing operations utilizing third-party foundry and assembly and test capabilities, as well
as most of our corporate infrastructure functions. We aim to minimize capital expenditures by focusing our internal
manufacturing capacity on products utilizing our innovative materials and processes to protect our intellectual property and to
develop the technology for manufacturing, while outsourcing standard complementary metal oxide semiconductor, or CMOS,
processes. We also have over 40 years of operating history in Asia, where approximately 57% of our employees are located and
where we produce and source the majority of our products. Our presence in Asia places us in close proximity to many of our
customers’ manufacturing facilities and at the center of worldwide electronics manufacturing.
Markets and Products
We focus on leveraging our design capabilities to develop products for target markets where we believe our innovation
and reputation will allow us to earn attractive margins. In each of our target markets, we have multiple product families that
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primarily provide OEMs with component or subsystem products. Our product portfolio ranges from simple discrete devices to
complex sub-systems that include multiple device types and incorporate firmware for interface between digital systems. In
some cases, our products include mechanical hardware that interfaces with optoelectronic or capacitive sensors. We intend to
expand our product offerings to address existing and adjacent market opportunities, and plan to selectively target attractive
segments within large established markets. We target markets that require high quality and the integrated performance
characteristics of our products. For the fiscal year ended October 28, 2012, wireless communications contributed 45%, wired
infrastructure contributed 28% and industrial and automotive electronics contributed 22% of our net revenue, respectively.
Wireless Communications. We support the wireless industry with a broad variety of RF semiconductor devices, including
monolithic microwave integrated circuit filters and duplexers using our proprietary FBAR technology, front end modules that
incorporate multiple die into multi-function RF devices, diodes and discrete transistors. Our expertise in amplifier design,
FBAR technology and module integration enables us to offer industry-leading efficiency in RF transmitter applications. Our
proprietary gallium arsenide, or GaAs, processes are critical to the production of power amplifier, or PA, and low noise
amplifier products. In addition to RF devices, we provide a variety of optoelectronic sensors for mobile handset applications.
We also supply light emitting diodes, or LEDs, for camera-phone flashes and for backlighting applications in mobile handset
keypads.
Wired Infrastructure. In the storage and Ethernet networking markets, we supply transceivers that receive and transmit
information along optical fibers. We provide a range of product bandwidth options for customers, including options ranging
from 125 megabyte data, or MBd, Fast Ethernet transmitters and receivers to 16 Gigabit transceivers. We supply parallel optic
transceivers with as many as 12 parallel channels for high performance computing, core routing and server applications. For
enterprise networking and server input/output, or I/O, applications, we also supply high speed serializer/deserializer, or SerDes,
products integrated into application specific integrated circuits, or ASICs.
Industrial and Automotive Electronics. We provide a broad variety of products for the general industrial, automotive and
consumer appliance markets. We offer optical isolators, or optocouplers, which provide electrical insulation and signal isolation
for signaling systems that are susceptible to electrical noise or interference. Optocouplers are used in a diverse set of
applications, including industrial motors, automotive systems including those used in hybrid engines, power generation and
distribution systems, switching power supplies, motion sensors, telecommunications equipment, consumer appliances,
computers and office equipment, plasma displays, and military electronics. For industrial motors and robotic motion control,
we supply optical encoders, as well as integrated circuits, or ICs, for the controller and decoder functions. For electronic signs
and signals, we supply LED assemblies that offer high brightness and stable light output over thousands of hours, enabling us
to support traffic signals, large commercial signs and other displays. For industrial networking, we provide Fast Ethernet and
faster optical transceivers using plastic optical fiber that enable quick and interoperable networking and factory automation.
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The table below presents the major product families, major applications and major end customers in our three primary
target markets.
Target Market
Major Product Families
Major Applications
Major End Customers
Wireless Communications
• RF power amplifiers
• Voice and data communications
• LG Electronics Inc.
• RF filters
• Camera phone
• Huawei Technologies Co., Ltd.
• RF front end modules (FEMs)
• Keypad and display backlighting
• Samsung Electronics Co., Ltd.
• Ambient light sensors
• Proximity Sensors
• Low noise amplifiers
• Multimarket-wave mixers
• Diodes
• Backlighting control
• Base stations
Wired Infrastructure
• Fiber optic transceivers
• Data communications
• Brocade Communications
• Serializer/deserializer (SerDes)
• Storage area networking
ASICs
• Servers
Systems, Inc.
• Cisco Systems Inc.
• Core routing and transport
• Hewlett-Packard Company
• Huawei Technologies Co., Ltd.
• International Business
Machines Corp.
• Juniper Networks Inc.
Industrial and
Automotive Electronics
• Industrial fiber optics
• Optocouplers
• Motion control encoders and
subsystems
• LEDs
• In-car infotainment
• ABB Ltd.
• Schneider Electric
• Siemens AG
• Displays
• Lighting
• Factory automation
• Motor controls
• Power isolation
• Renewable energy systems
Legacy Target Market - Consumer and Computing Peripherals. Until August 2012, we also manufactured products for the
consumer and computing peripherals target market, including motion control encoders that control the paper feed and print
head movement in printers and other office automation products and image sensors for optical mouse applications, using LEDs
and CMOS image sensors to create a subsystem that can detect motion over an arbitrary desktop surface. During fiscal year
2012, we transitioned from manufacturing and selling these products to selling or licensing our intellectual property relevant to
this target market, thereby generating royalty revenue instead of product sales. Consumer and computing peripherals
contributed 5% to our net revenue for the fiscal year ended October 28, 2012.
Research and Development
We are committed to continuous investment in product development, with a focus on rapidly introducing new, proprietary
products. Many of our products have grown out of our own research and development efforts, and have given us competitive
advantages in certain target markets due to performance differentiation. We focus our research and development efforts on the
development of innovative, sustainable and higher value product platforms. We leverage our design capabilities in markets
where we believe our innovation and reputation will allow us to earn attractive margins by developing high value-add products.
We intend to continue to build on our history of innovation, and our intellectual property portfolio, design expertise and
system-level knowledge, to create more integrated solutions. We plan to continue investing in product development to drive
growth in our business. We also invest in process development and maintain fabrication capabilities in order to optimize
processes for devices that are manufactured internally. Our field application engineers, or FAEs, and design engineers are
located near many of our customers around the world, enabling us to support our customers in each stage of their product
development cycle, from early stages of production design through volume manufacturing and future growth. By collaborating
with our customers, we have opportunities to develop high value added, customized products for them that leverage our
existing technologies. Research and development expenses were $335 million, $317 million and $280 million for the years
ended October 28, 2012, October 30, 2011 and October 31, 2010, respectively. We anticipate that we will continue to make
significant research and development expenditures in order to maintain our competitive position with a continuous flow of
innovative and sustainable product platforms. As of October 28, 2012, we had approximately 1,300 employees dedicated to
research and development at multiple locations around the world.
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Customers, Sales, Marketing and Distribution
A relatively small number of customers account for a significant portion of our net revenue. In the year ended
October 28, 2012, Foxconn Technology Group accounted for 17% of our net revenue, and our top 10 customers, which
included three distributors, collectively accounted for 62% of our net revenue. However, we believe that aggregate sales of our
products to certain of our customers exceeds the amount of our direct sales to them. For example, we believe our aggregate
sales to two OEMs, when direct sales are combined with indirect sales to them through the respective contract manufacturers
that they utilize, each accounted for more than 10% of our net revenues, for fiscal year 2012. We expect to continue to
experience significant customer concentration in future periods. The loss of, or significant decrease in demand from, any of our
top ten customers could have a material adverse effect on our business, results of operation and financial condition.
We sell our products through a network of distributors and our direct sales force globally. Our customers require timely
delivery often to multiple locations around the world. We have strategically developed distributor relationships to serve tens of
thousands of customers. Our direct sales force is focused on supporting our large OEM customers. Additionally, our extensive
network of FAEs enhances our customer reach and our visibility into new product opportunities. We also complement our
direct sales force with a network of manufacturing sales representative companies to cover particular geographies and
customers in emerging markets. Our main global distributors are Avnet, Inc., and Arrow Electronics, Inc., complemented by a
number of specialty regional distributors with customer relationships based on their respective product ranges.
As of October 28, 2012, our sales and marketing organization consisted of approximately 500 employees, many of whom
have responsibility for emerging accounts, for large, global accounts, or for our distributors. Our sales force has specialized
product and service knowledge that enables us to sell specific offerings at key levels throughout a customer’s organization.
As part of our global reach, we have a number of sales offices located in various countries, with a significant presence in
Asia, which is a key center of the worldwide electronics supply chain. Many of our customers design products in North
America or Europe that are then manufactured in Asia. We maintain dedicated regional customer support call centers, where we
address customer issues and handle logistics and other order fulfillment requirements. We are well-positioned to support our
customers throughout the design, technology transfer and manufacturing stages across all geographies.
Operations
A majority of our manufacturing operations are outsourced and we utilize external foundries to fabricate our
semiconductors, including Taiwan Semiconductor Manufacturing Company Ltd., or TSMC and WIN Semiconductors Corp.
For certain of our product families, substantially all of our revenue is derived from semiconductors fabricated by external
foundries, including our high speed SerDes ICs, LEDs, and LED-based displays. We also use third-party contract
manufacturers for a significant majority of our assembly and test operations, including Amertron Incorporated, ASE Korea Inc.,
and the Hana Microelectronics Public Company Ltd. group of companies, or Hana. In some instances we may only qualify one
contract manufacturer to manufacture certain of our products. For example, until recently, Hana was the only manufacturer of
certain of sensors for our industrial market and certain multi-market transistor products. We maintain our internal fabrication
facilities for products utilizing our innovative materials and processes to protect our intellectual property and to develop the
technology for manufacturing, and we outsource standard CMOS processes. Examples of internally fabricated semiconductors
include FBAR filters for wireless communications and VCSEL-based lasers for fiber optic communications. The majority of
our internal III-V semiconductor wafer fabrication is done in the United States and Singapore. As of October 28, 2012,
approximately 1,500 manufacturing employees were devoted to our internal fabrication operations as well as management of
outsourced activities. For selected customers, we maintain finished goods inventory near or at customer manufacturing sites to
support their just-in-time production.
Materials and Suppliers
Our manufacturing operations employ a wide variety of semiconductors, electromechanical components and assemblies
and raw materials. We purchase materials from hundreds of suppliers on a global basis. These supply relationships are
generally conducted on a purchase order basis. While we have not experienced any significant difficulty in obtaining the
materials used in the conduct of our business and we believe that no single supplier is material, some of the parts are not readily
available from alternate suppliers due to their unique design or the length of time necessary for re-design or qualification. Our
long-term relationships with our suppliers allow us to proactively manage our technology development and product
discontinuance plans, and to monitor our suppliers' financial health. Some suppliers may nonetheless extend their lead times,
limit supplies, increase prices or cease to produce necessary parts for our products. If these are unique components, we may not
be able to find a substitute quickly, or at all. To address the potential disruption in our supply chain, we may use a number of
techniques, including qualifying multiple sources of supply, redesign of products for alternative components and purchase of
incremental inventory for supply buffer.
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Competition
The global semiconductor market is highly competitive. Our competitors range from large, international companies
offering a wide range of products to smaller companies specializing in narrow markets. We compete with integrated device
manufacturers, or IDMs, and fabless semiconductor companies as well as the internal resources of large, integrated OEMs. The
competitive landscape is changing as a result of a trend toward consolidation within the industry, as some of our competitors
have merged with or been acquired by other competitors while others have begun collaborating with each other. We expect this
consolidation trend to continue. We expect competition in the markets in which we participate to continue to increase as
existing competitors improve or expand their product offerings and as new companies enter the market. Additionally, our
ability to compete effectively depends on a number of factors, including: quality, technical performance, price, product
features, product system compatibility, system-level design capability, engineering expertise, responsiveness to customers, new
product innovation, product availability, delivery timing and reliability, and customer sales and technical support.
In the wireless communications target market, we provide RF amplifiers, filters modules and ambient light and proximity
sensors for mobile phones. Our primary competitors for this target market are Hittite Microwave Corporation, Murata
Manufacturing Co., Ltd., RF Micro Devices, Inc., Skyworks Solutions, Inc., ams AG (formerly TAOS Inc.) and TriQuint
Semiconductor, Inc. We compete based on our expertise in amplifier design, FBAR technology and module integration. We
also compete against a number of smaller, niche wireless players based on our proprietary design expertise, broad product
portfolio, proprietary material processes and integration expertise.
In the wired infrastructure target market, we provide fiber optic transceivers and SerDes ASICs for high-speed data
communications and server applications. Our primary competitors for this target market are Finisar Corporation, International
Business Machines Corp., Microelectronics Division, LSI Corporation and ST Microelectronics N.V. We compete based on the
strength of our high speed proprietary design expertise, our customer relationships, proprietary process technology and broad
product portfolio.
In the industrial and automotive electronics target market, we provide fiber optic transceivers for communication
networks, LEDs for displays, motion control encoders and subsystems and optocouplers for factory automation and motor
controls. Our primary competitors for this target market are Analog Devices, Inc., Heidenhain Corporation, Renesas Electronics
Corporation and Toshiba Corporation. We compete based on our design expertise, broad product portfolio, reputation for
quality products and large customer base.
Intellectual Property
Our success depends in part upon our ability to protect our intellectual property. To accomplish this, we rely on a
combination of intellectual property rights, including patents, copyrights, trademarks, service marks, trade secrets and similar
intellectual property, as well as customary contractual protections with our customers, suppliers, employees and consultants,
and through security measures to protect our trade secrets. We believe our current product expertise, key engineering talent and
intellectual property portfolio provide us with a strong platform from which to develop application specific products in key
target markets.
As of October 28, 2012, we had approximately 2,000 U.S. and 1,200 foreign patents and approximately 400 U.S. and 700
foreign pending patent applications. Our research and development efforts are presently resulting in approximately 100 new
patent applications per year relating to a wide range of ASIC, isolation, encoder, LED, RF and optoelectronic components and
associated applications. The expiration dates of our patents range from 2013 to 2031, with a small number of patents expiring
in the near future, none of which are expected to be material to our intellectual property portfolio.
We focus our patent application program to a greater extent on those inventions and improvements that we believe are
likely to be incorporated into our products as contrasted with more basic research. However, we do not know whether any of
our pending patent applications will result in the issuance of patents or the extent to which the examination process could
require us to narrow our claims.
A meaningful portion of our intellectual property is the subject of cross-licenses to other companies that have been
granted by Agilent Technologies, Inc., or if originally derived from Hewlett-Packard Company, by Hewlett-Packard Company.
In addition, we license third-party technologies that are incorporated into some elements of our design activities, products and
manufacturing processes. Historically, licenses of the third-party technologies used by us have been available to us on
acceptable terms.
The semiconductor industry is characterized by the existence of a large number of patents, copyrights, trademarks and
trade secrets and by the vigorous pursuit, protection and enforcement of intellectual property rights. Many of our customer
agreements require us to indemnify our customers for third-party intellectual property infringement claims, which has in the
past required and may in the future require that we defend those claims, and might also require that we pay damages in the case
of adverse rulings. Claims of this sort could harm our relationships with our customers and might deter future customers from
8
doing business with us. With respect to any intellectual property rights claims against us or our customers or distributors, we
may be required to cease manufacture of the infringing product, pay damages, expend resources to develop non-infringing
technology, seek a license which may not be available on commercially reasonable terms or at all, or relinquish patents or other
intellectual property rights.
Employees
As of October 28, 2012, we had approximately 3,600 employees worldwide. Approximately 1,300 were dedicated to
research and development, 1,500 to manufacturing, 500 to sales and marketing and 300 to general and administrative functions.
By geography, approximately 57% of our employees are located in Asia, 36% in North America and 7% in Europe. The
substantial majority of our employees are not party to a collective bargaining agreement. However, approximately 350 of our
1,000 employees in Singapore, none of whom are in management or supervisory positions, are subject to a collective
bargaining agreement with United Workers of Electronic and Electrical Industries that expires on June 30, 2013. In addition, all
of our employees in Italy and some employees in Japan are subject to a collective bargaining agreement. In Italy we are also
subject to national collective agreements between unions and employer associations. Such Italian national collective
agreements are compulsory for both the employees and the employer. In addition, in Germany we are subject to collective
agreements with the works councils at our sites, which apply to German employees other than managing directors and
managers with similar authority. We believe we have a good working relationship with our employees and we have never
experienced an interruption of business as a result of labor disputes.
Environmental and Other Regulation
Our research and development and manufacturing operations involve the use of hazardous substances and are regulated
under international, federal, state and local laws governing health and safety and the environment. These regulations include
limitations on discharge of pollutants to air, water, and soil; remediation requirements; product chemical content limitations;
manufacturing chemical use and handling restrictions; pollution control requirements; waste minimization considerations; and
treatment, transport, storage and disposal of solid and hazardous wastes. We are also subject to regulation by the United States
Occupational Safety and Health Administration and similar health and safety laws in other jurisdictions.
We believe that our properties and operations at our facilities comply in all material respects with applicable
environmental laws and worker health and safety laws; however, the risk of environmental liabilities cannot be completely
eliminated and there can be no assurance that the application of environmental and health and safety laws to our business will
not require us to incur significant expenditures.
We are also regulated under a number of international, federal, state and local laws regarding recycling, product
packaging and product content requirements, including legislation enacted in the European Union and China, among a growing
number of jurisdictions, which have placed greater restrictions on the use of lead, among other chemicals, in electronic
products, which affects materials composition and semiconductor packaging. These laws are becoming more stringent and may
in the future cause us to incur significant expenditures. We are also subject to new SEC rules that require diligence, disclosure
and reporting on whether certain minerals and metals, known as conflict minerals, used in our products originate from the
Democratic Republic of Congo and adjoining countries. Among other things, the implementation of these rules could adversely
affect the sourcing, availability and pricing of minerals we use in our products, will require us to incur additional costs to
comply with the disclosure requirements and we may face difficulties in satisfying customers who require that all of the
products are certified as conflict mineral free.
Backlog
Our sales are generally made pursuant to short-term purchase orders. These purchase orders are made without deposits
and may be, and often are, rescheduled, canceled or modified on relatively short notice, and in most cases without substantial
penalty. Therefore, we believe that purchase orders or backlog are not necessarily a reliable indicator of future sales.
Seasonality
We are affected by seasonal trends in the semiconductor and related industries. We typically experience sequentially
lower revenues in the first half of the fiscal year. Historically, our revenue in the second half of the fiscal year is typically
higher than our revenue in the first half of the fiscal year due to seasonality in our wireless communications target market. This
target market historically tended to experience seasonality due to the calendar year-end holiday selling seasons and related
OEM product launches. However, OEM product launches and transitions in the wireless communications target market are
becoming increasingly unpredictable in both timing and magnitude. In addition, these seasonal effects can also be
overshadowed by other factors such as macroeconomic effects.
9
Financial Information about Geographic Areas
For information on the geographic concentration of our net revenues and long-lived assets, please see Note 13. “Segment
Information,” of our consolidated financial statements included elsewhere in the Annual Report on Form 10-K.
Other Information
Avago Technologies Limited was incorporated under the laws of the Republic of Singapore in August 2005. Our
Singapore company registration number is 200510713C. The address of our registered office and our principal executive
offices is 1 Yishun Avenue 7, Singapore 768923, and our telephone number is +65-6755-7888. We are the successor to the
Semiconductor Products Group of Agilent Technologies Inc., which we acquired on December 1, 2005, referred to as the SPG
Acquisition. Our ordinary shares are listed on the Nasdaq Global Select Market under the trading symbol “AVGO”.
We are subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934, or
Exchange Act, and, in accordance therewith, file periodic reports, proxy statements and other information with the SEC. Such
periodic reports, proxy statements and other information is available for inspection and copying at the SEC’s Public Reference
Room at 100 F Street, NE, Washington, DC 20549 or may be obtained by calling the SEC at 1–800–SEC–0330. In addition, the
SEC maintains a website at http://www.sec.gov that contains reports, proxy statements and other information regarding issuers
that file electronically with the SEC. We maintain a website at www.avagotech.com. You may access our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other reports (and amendments
thereto) filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act with the SEC free of charge at the
“Investors — SEC Filings” section of our website, as soon as reasonably practicable after such material is electronically filed
with, or furnished to, the SEC. The reference to our website address does not constitute incorporation by reference of the
information contained on or accessible through our website.
10
ITEM 1A.
RISK FACTORS
Our business, operations and financial results are subject to various risks and uncertainties, including those described
below, that could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of
our ordinary shares. The following important factors, among others, could cause our actual results to differ materially from
those expressed in forward-looking statements made by us or on our behalf in filings with the SEC, press releases,
communications with investors and oral statements.
Risks Related to Our Business
Adverse global economic conditions could have a negative effect on our business, results of operations and financial
condition and liquidity.
Adverse global economic conditions have from time to time caused or exacerbated significant slowdowns in the
semiconductor industry generally, as well as in our target markets. The global recession in 2008 and 2009 caused U.S. and
foreign businesses to slow spending on our products and caused consumers to reduce spending on many products our
customers make, such as personal computers, mobile phone and flat screen televisions. Recently, market and business
conditions in general have been adversely affected by investor and customer concerns about the global economic outlook,
including concerns about the economic recovery in the United States and the ongoing sovereign debt crisis in Europe. U.S.
and global economic conditions could be exacerbated by the negative effects on economic growth resulting from the
combination of federal income tax increases and government spending restrictions potentially occurring at the end of calendar
year 2012 in the United States (commonly referred to as the “fiscal cliff”). A slowdown in the economic recovery or
worsening global economic conditions as a result of these or other factors will likely cause our customers and consumers to
reduce or delay spending, and could lead to the insolvency of key suppliers (resulting in product delays) and customers, all of
which could negatively affect our business, financial condition and result of operations.
We operate in the highly cyclical semiconductor industry, which is subject to significant downturns.
The semiconductor industry is highly cyclical and is characterized by constant and rapid technological change and price
erosion, evolving technical standards, frequent new product introductions, short product life cycles (for semiconductors and
for the end-user products in which they are used) and wide fluctuations in product supply and demand. From time to time,
these and other factors, together with changes in general economic conditions, cause significant upturns and downturns in the
industry in general and in our business in particular. Periods of industry downturns have been characterized by diminished
demand for end-user products, high inventory levels and periods of inventory adjustment, under-utilization of manufacturing
capacity, changes in revenue mix and accelerated erosion of average selling prices, resulting in an adverse effect on our
business, financial condition and results of operations. We expect our business to continue to be subject to cyclical downturns
even when overall economic conditions are relatively stable. In addition, in any future economic downturn we may be unable
to grow our revenues or reduce our costs quickly enough to maintain our operating profitability.
Our operating results are subject to substantial quarterly and annual fluctuations.
Our revenues and operating results have fluctuated in the past and are likely to fluctuate in the future. These fluctuations
may occur on a quarterly and annual basis and are due to a number of factors, many of which are beyond our control. These
factors include, among others:
• changes in end-user demand for the products manufactured and sold by our customers;
• the timing of receipt, reduction or cancellation of significant orders by customers;
• fluctuations in the levels of component inventories held by our customers;
• customer concentration and the gain or loss of significant customers;
• market acceptance of our products and our customers' products;
• changes in our product mix or customer mix and their effect on our gross margin;
• our ability to develop, introduce and market new products and technologies on a timely basis;
• the timing and extent of our non-product revenue, such as product development revenues and royalty and other payments
from intellectual property sales and licensing arrangements;
• new product announcements and introductions by us or our competitors;
• the timing of the launch by our customers of new products, such as cell phones, in which our products are included;
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• timing and amount of research and development and related new product expenditures, and the timing of receipt of any
research and development grant monies;
• seasonality or cyclical fluctuations in our markets;
• currency fluctuations;
• utilization of our internal manufacturing facilities;
• fluctuations in manufacturing yields;
• significant warranty claims, including those not covered by our suppliers or our insurers;
• availability and cost of raw materials from our suppliers;
• intellectual property disputes and associated litigation expenses;
• loss of key personnel or the shortage of available skilled workers;
• the effects of competitive pricing pressures, including decreases in average selling prices of our products; and
• changes in our tax incentive arrangements or structure, which may adversely affect our net tax expense in any quarter in
which such an event occurs.
The foregoing factors are difficult to forecast, and these, as well as other factors, could materially adversely affect our
quarterly or annual operating results. In addition, a significant amount of our operating expenses are relatively fixed in nature
due to our significant sales, research and development and internal manufacturing overhead costs. Any failure to adjust
spending quickly enough to compensate for a revenue shortfall could magnify the adverse impact of such revenue shortfall on
our results of operations. As a result, we believe that quarter-to-quarter comparisons of our revenue and operating results may
not be meaningful or a reliable indicator of our future performance. If our operating results in one or more future quarters fail
to meet the expectations of securities analysts or investors, an immediate and significant decline in the trading price of our
ordinary shares may occur.
The demands or loss of one or more of our significant customers may adversely affect our business.
Some of our customers are material to our business and results of operations. During fiscal year 2012, Foxconn
Technology Group companies together accounted for 17% of our net revenue (22% in the fourth quarter of fiscal year 2012)
and our top 10 customers, which included three distributors, collectively accounted for 62% of our net revenue. During fiscal
year 2011, no direct customer accounted for 10% or more of our net revenue, but our top 10 customers, which included three
distributors, collectively accounted for 54% of our net revenue. We also believe that aggregate sales of our products to certain
of our customers exceeds the amount of our direct sales to them. For example, we believe our aggregate sales to two OEMs,
when direct sales are combined with indirect sales to them through the respective contract manufacturers that they utilize, each
accounted for more than 10% of our net revenues, respectively, for fiscal year 2012. This customer concentration increases the
risk of quarterly fluctuations in our revenues and operating results. In addition, our top customers' purchasing power has, in
some cases, given them the ability to make greater demands on us with regard to pricing and contractual terms in general. We
expect this trend to continue, which may adversely affect our gross margins on certain products. In addition, we expect this
will result in our results of operations becoming increasingly sensitive to deterioration in the financial condition of, or other
adverse developments related to, one or more of our significant customers. Although we believe that our relationships with our
major customers are good, we generally do not have long-term contracts with any of them, which is typical of our industry. As
a result, although our customers provide indications of their product needs and purchases on an annual basis, they generally
purchase our products on a weekly or daily basis and the relationship, as well as particular orders, can be terminated at any
time. In order to ensure availability of our products for some of our largest customers, we start the manufacturing of our
products in advance of receiving purchase orders, based on forecasts provided by these customers. However, these forecasts
are not binding purchase commitments and as a result, we incur inventory and manufacturing costs in advance of anticipated
sales. Since actual demand for our products may not match these forecasts, manufacturing based on such forecasts subjects us
to increased risks of high inventory carrying costs, increased obsolescence and increased operating costs. In addition, the loss
of any of our major customers, or any substantial reduction in sales to any of these customers, could have a material adverse
effect on our business, financial condition and results of operations.
We are increasingly dependent on the mobile handset market, which is volatile and is characterized by short product life
cycles, fluctuations in demand, seasonality and increasingly high customer concentration any of which could negatively
impact our business or results of operations.
A substantial and increasing portion of our revenue is generated from sales of products for use in mobile handsets. The
mobile handset market is characterized by intense competition among an increasingly concentrated group of OEMs, rapidly
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evolving technology, and changing consumer preferences. These factors result in the frequent introduction of new products,
aggressive price competition, short product life cycles, and continually evolving mobile handset specifications. If we, our
customers or mobile handset OEMs are unable to manage product transitions, our business and results of operations could be
negatively affected. Our business is also dependent on the broad commercial acceptance of the mobile handsets into which our
products are incorporated. If the mobile handsets into which our products are designed do not achieve significant customer
acceptance, our revenue will be adversely affected. Similarly, even though we may achieve design wins for a particular
handset, we may not be designed into the next generation of a particular handset or new model of handset, which could result
in a sharp decrease in our revenues.
In the mobile handset market, demand is typically stronger in the second half of the year than the first half of the year.
However, if mobile handset OEMs inaccurately forecast consumer demand, this may lead to significant changes in orders to
their component suppliers. We have experienced both increases and decreases in orders within the same quarter and with
limited advance notice, and we expect such increases and decreases to occur in the future. In addition, although the
worldwide wireless handset market is large, growth trends and other variables are often uncertain and difficult to predict.
Since the wireless handset market is a consumer-driven market, changes in the economy that affect consumer demand can
adversely affect our business and operating results.
Winning business is subject to lengthy, competitive selection processes that require us to incur significant expense. Even
if we begin a product design, a customer may decide to cancel or change its product plans, which could cause us to
generate no revenues from a product and adversely affect our results of operations.
We are focused on winning competitive bid selection processes, known as “design wins,” to develop semiconductors for
use in our customers' products. These selection processes are typically lengthy and can require us to incur significant design
and development expenditures and dedicate scarce engineering resources in pursuit of a single customer opportunity. We may
not win the competitive selection process and may never generate any revenue despite incurring significant design and
development expenditures. These risks are exacerbated by the fact that many of our products and the end products into which
our products are incorporated often have very short life cycles. For example, cell-phone manufacturers regularly introduce
new or upgraded handsets, often every 12 to 18 months and sometimes more frequently, and will bid out the components for
each new model, and often every upgrade of a particular model. Failure to obtain a design win sometimes prevents us from
offering an entire generation of a product. This can result in lost revenues and could weaken our position in future competitive
selection processes.
Winning a product design does not guarantee sales to a customer. We may experience delays in generating revenue from
our products as a result of the lengthy development cycle typically required, or may not realize as much revenue as we had
anticipated. In addition, a delay or cancellation of a customer's plans could materially and adversely affect our financial
results, as we may have incurred significant expense in the design process and generated little or no revenue. Customers could
choose at any time to stop using our products or may fail to successfully market and sell their products, which could reduce
demand for our products and materially adversely affect our business, financial condition and results of operations.
Finally, the timing of design wins is unpredictable and implementing production for a major design win or multiple design
wins occurring at or around the same time may strain our resources and those of our contract manufacturers. In such event we
may be forced to dedicate significant additional resources and incur additional, unanticipated costs and expenses to fulfill such
design wins, which may have a material adverse effect on our results of operations.
Competition in our industry could prevent us from growing our revenue and from raising prices to offset increases in
costs.
The global semiconductor market is highly competitive. We compete in different target markets to various degrees on the
basis of, among other things, quality, technical performance, price, product features, product system compatibility, system-
level design capability, engineering expertise, responsiveness to customers, new product innovation, product availability,
delivery timing and reliability, and customer sales and technical support. Current and prospective customers for our products
evaluate our capabilities against the merits of our direct competitors. Some of our competitors are well established, have a
more extensive product portfolio, have substantially greater market share and manufacturing, financial, research and
development and marketing resources to pursue development, engineering, manufacturing, marketing and distribution of their
products. In addition, many of our competitors have longer independent operating histories, greater presence in key markets,
more comprehensive patent protection and greater name recognition. We compete with integrated device manufacturers, or
IDMs, and fabless semiconductor companies as well as the internal resources of large, integrated OEMs. Our competitors
range from large, international companies offering a wide range of semiconductor products to smaller companies specializing
in narrow markets. We expect competition in the markets in which we participate to continue to increase as existing
competitors improve or expand their product offerings. In addition, companies not currently in direct competition with us may
introduce competing products in the future. Because our products are often building block semiconductors providing functions
that in some cases can be integrated into more complex integrated circuits, or ICs, we also face competition from
manufacturers of ICs, as well as customers that develop their own IC products.
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Our ability to compete successfully depends on elements both within and outside of our control, including industry and
general economic trends. During past periods of downturns in our industry, competition in the markets in which we operate
intensified as manufacturers of semiconductors reduced prices in order to combat production overcapacity and high inventory
levels. The actions of our competitors, particularly in the area of pricing, can have a substantial adverse impact on our
revenues, and potentially on revenues in specific industry end markets. In periods where the semiconductor industry
experiences significant declines, manufacturers in financial difficulties or in bankruptcy may implement pricing structures
designed to ensure short-term market share and near-term survival, rather than securing long-term viability. In addition, many
of our competitors have substantially greater financial and other resources than us with which to withstand adverse economic
or market conditions and any associated pricing actions of other market participants in the future.
Dependence on contract manufacturing and outsourcing other portions of our supply chain may adversely affect our
ability to bring products to market and damage our reputation.
We operate a primarily outsourced manufacturing business model that principally utilizes third-party foundry and module
assembly and test capabilities. As a result, we are highly reliant on third-party foundry wafer fabrication capacity, including
sole- or single-sourcing for many components or products. For certain of our product families, substantially all of our revenue
from those products is derived from semiconductors fabricated by external foundries such as Taiwan Semiconductor
Manufacturing Company Ltd. and WIN Semiconductor Corp. Most of our products are designed to be manufactured in a
specific process, typically at one particular foundry with a particular contract manufacturer. We also use third-party contract
manufacturers for a significant majority of our assembly and test operations, including Amertron Incorporated, ASE Korea
Inc., and Hana.
The ability and willingness of our contract manufacturers to perform is largely outside of our control. If one or more of our
contract manufacturers or other outsourced providers fails to perform its obligations in a timely manner or at satisfactory
quality levels, our ability to bring products to market and our reputation could suffer. Suppliers may, for example, extend lead
times, limit supplies, increase prices or discontinue parts due to capacity constraints or other factors. In addition, some parts
are not readily available from alternate suppliers due to their unique design or the length of time necessary for design work. If
one of our suppliers, particularly a sole- or single-source supplier, ceases to, or is unable to, manufacture such a component or
supply is otherwise constrained, for example as a result of a natural disaster, it may be difficult for us to transition the
manufacture of that product to another foundry or contract manufacturer or source alternative parts, we may be forced to re-
engineer a product and we may fail to timely meet customer demand. This could result in the payment of significant damages
by us to our customers, and our net revenue could decline. In such events, our business, financial condition and results of
operations would be adversely affected. Furthermore, our agreements with these manufacturers typically require us to forecast
product needs and our forecasts may not be accurate, which could adversely affect our business and results of operations.
We review our supply chain on an ongoing basis and may seek to qualify second source manufacturers and suppliers for
some components and products. Qualifying such second sources may be a lengthy and potentially costly process.
To the extent we rely on third-party manufacturing relationships, we face the following risks:
•
•
•
inability of our manufacturers to develop manufacturing methods appropriate for our products, and manufacturers'
lack of sufficient capacity, or their unwillingness to devote adequate capacity, to produce our products;
product and manufacturing costs that are higher than anticipated;
reduced control over product reliability and delivery schedules;
• more complicated supply chains; and
•
time, expense and uncertainty in identifying and qualifying additional or replacement manufacturers.
Much of our outsourcing takes place in developing countries, and as a result may additionally be subject to geopolitical
uncertainty. See “— Our business, financial condition and results of operations could be adversely affected by the political and
economic conditions of the countries in which we conduct business and other factors related to our international operations.”
A prolonged disruption of our manufacturing facilities or other significant operations could have a material adverse
effect on our business, financial condition and results of operations.
Although we operate using a primarily outsourced manufacturing business model, we also rely on the manufacturing
facilities we own, in particular our fabrication facilities in Fort Collins, Colorado and Singapore. We maintain our internal
fabrication facilities for products utilizing our innovative materials and processes, to protect our intellectual property, to
develop the technology for manufacturing and to ensure supply of certain components. We are currently expanding our Fort
Collins facility to support anticipated growth in sales of our proprietary products, particularly for our wireless target market,
and to leverage our fixed costs. Unanticipated delays in the construction of this expansion, or the failure of suppliers to timely
deliver tools and other equipment needed to commence manufacturing in the expanded facility, could result in significant
additional costs, and could result in us being unable to timely satisfy customer demand for the products we plan to
14
manufacture at the expanded facility, all of which could have a material adverse effect on our business, financial condition and
results of operations. In addition, a prolonged disruption or material malfunction of, interruption in, or the loss of operations
at, one or more of our production facilities, especially our Fort Collins and Singapore facilities, or the failure to maintain our
labor force at one or more of these facilities, would limit our capacity to meet customer demands and delay new product
development until a replacement facility and equipment, if necessary, were found. The replacement of any of our
manufacturing facilities could take an extended amount of time and significant expenditures on our part before manufacturing
operations could restart. The potential delays and significant costs resulting from such steps could have a material adverse
effect on our business, financial condition and results of operations.
We are also dependent on various information technology systems, including, but not limited to, networks, applications,
and outsourced services. We continually enhance and implement new systems and processes throughout our global operations.
Failure of these systems to operate effectively, could disrupt our operations and materially and adversely affect our business,
financial condition, and results of operations by harming our ability to accurately forecast sales demand, manage our supply
chain and production facilities, fulfill customer orders, and report financial and management information on a timely and
accurate basis.
If we or our contract manufacturers suffer loss or significant damage to our factories, facilities or distribution system due
to catastrophe, our operations could be seriously harmed.
Our factories, facilities and distribution system, and those of our contract manufacturers, are subject to risk of catastrophic
loss due to fire, flood, earthquake or other natural or man-made disasters. The majority of our facilities and those of our
contract manufacturers are located in the Pacific Rim region, a region with above average seismic and severe weather activity.
In addition, our research and development personnel are concentrated in a few locations, primarily Malaysia, Singapore, South
Korea, Fort Collins, Colorado and San Jose, California, with the expertise of the personnel at each such location tending to be
focused on one or two specific areas. Any catastrophic natural disaster in those regions or catastrophic loss or significant
damage to any of our facilities or those of our contract manufacturers in those regions would likely disrupt our operations,
delay production, shipments and revenue. Such events could also result in significant expenses to repair or replace our affected
facilities, and in some instances could significantly curtail our research and development efforts in a particular product area or
target market. Any catastrophic loss at our Fort Collins, Colorado, San Jose, California, or Singapore facilities would
materially and adversely affect our business.
We generally do not have any long-term supply contracts with our contract manufacturers or materials suppliers and may
not be able to obtain the products or raw materials required for our business, which could have a material adverse affect
on our business.
We either obtain the products we need for our business from third-party contract manufacturers or we obtain the materials
we need for our products from suppliers, some of which are our single source suppliers for these materials. We purchase a
significant portion of our semiconductor materials and finished goods from a few suppliers and contract manufacturers. For
fiscal year 2012, we purchased 54% of the materials for our manufacturing processes from six suppliers. For fiscal year 2011,
we purchased 55% of the materials for our manufacturing processes from seven suppliers. Substantially all of our purchases
are on a purchase order basis, and we have not generally entered into long-term contracts with our contract manufacturers or
suppliers. In the event that these purchase orders or relationships with suppliers are terminated, we cannot obtain sufficient
quantities of raw materials at reasonable prices, the quality of the material deteriorates, we fail to satisfy our customers'
requirements or we are not able to pass on higher materials or energy costs to our customers, our business, financial condition
and results of operations could be adversely impacted.
Our manufacturing processes rely on many materials, including silicon and GaAs wafers, copper lead frames, precious
metals, mold compound, ceramic packages and various chemicals and gases. From time to time, suppliers may extend lead
times, limit supplies or increase prices due to commodity price increases, capacity constraints or other factors. Although we
believe that our current supplies of materials are adequate, shortages could occur in various essential materials due to
interruption of supply or increased demand in the industry.
15
Failure to adjust our supply chain volume due to changing market or other conditions or failure to accurately estimate
our customers' demand could adversely affect our results of operations.
We make significant decisions, including determining the levels of business that we will seek and accept, production
schedules, levels of reliance on contract manufacturing and outsourcing, personnel needs and other resource requirements,
based on our estimates of customer requirements. The short-term nature of commitments by many of our customers and the
possibility of rapid changes in demand for their products reduces our ability to accurately estimate future customer
requirements. Our results of operations could be harmed if we are unable to adjust our supply chain volume to address market
fluctuations, including those caused by the seasonal or cyclical nature of the markets in which we operate, or by other
unanticipated events such as natural disasters. In addition, the sale of our products is dependent, to a large degree, on
customers whose industries are subject to seasonal or cyclical trends in the demand for their products. For example, the
consumer electronics market is particularly volatile and is subject to seasonality related to the holiday selling season, making
demand difficult to anticipate.
Severe supply chain disruptions, such as those caused by large scale natural disasters, can adversely affect our, and our
customers', ability to source materials and components needed to manufacture products. In such event, even if we are able to
promptly resume production of our affected products, if our customers cannot timely resume their own manufacturing
following such an event, they may cancel or scale back their orders from us and this may in turn adversely affect our results of
operations.
On occasion, customers may require rapid increases in production, which can challenge our resources and reduce margins.
We may not be able to purchase sufficient supplies or components or secure sufficient contract manufacturing capacity, to
meet such increases in product demand. This could harm our reputation, prevent us from taking advantage of opportunities,
reduce revenue growth and subject us to additional liabilities if we are not able to timely satisfy customer orders.
In order to secure components for the production of our products, we may enter into non-cancelable purchase
commitments with vendors or make advance payments to suppliers, which could reduce our ability to adjust our inventory or
expense levels to declining market demands. Prior commitments of this type have resulted in an excess of parts when demand
for our products has decreased. Downturns in the semiconductor industry have in the past caused, and may in the future cause,
our customers to reduce significantly the amount of products ordered from us. If demand for our products is less than we
expect, we may experience excess and obsolete inventories and be forced to incur additional charges. Conversely, if OEMs
order more of our products in any particular quarter than are ultimately required to satisfy end customer demand, inventories
at these OEMs may grow in such quarter, which could adversely affect our product revenues in a subsequent quarter as such
OEMs would likely reduce future orders until their inventory levels realign with end customer demand. In addition, because
certain of our sales, research and development and internal manufacturing overhead expenses are relatively fixed, a reduction
in customer demand may decrease our gross margins and operating income.
Our operating results and financial condition could be harmed if the markets into which we sell our products decline.
Visibility into our markets is limited and any decline in our customers' markets would likely result in a reduction in
demand for our products. In such an environment, pricing pressures could intensify and, if we were unable to respond quickly,
could significantly reduce our gross margins. To the extent we cannot offset recessionary periods or periods of reduced growth
that may occur in these markets through increased market share or otherwise, our net revenue may decline and our business,
financial condition and results of operations may suffer. For example, we experienced continued, and worse than expected,
supply chain corrections and weakness in industrial spending, in China in particular, in fiscal year 2012, which adversely
affected our revenues and gross margin. Pricing pressures and competition are especially intense in semiconductor-related
industries, which could prevent achievement of our long-term financial goals and could require us to implement additional
cost-cutting measures. Furthermore, industry growth rates may not be as forecasted, which could result in us spending on
process and product development well ahead of market requirements, which in turn could have a material adverse effect on
our business, financial condition and results of operations.
We rely on third parties to provide corporate infrastructure services necessary for the operation of our business. Any
failure of one or more of our vendors to provide these services could have a material adverse effect on our business.
We rely on third-party vendors to provide critical corporate infrastructure services, including, among other things, certain
services related to accounting, billing, human resources, information technology, or IT, network development and network
monitoring. We depend on these vendors to ensure that our corporate infrastructure will consistently meet our business
requirements. The ability of these third-party vendors to successfully provide reliable, high quality services is subject to
technical and operational uncertainties that are beyond our control. While we may be entitled to damages if our vendors fail
to perform under their agreements with us, our agreements with these vendors limit the amount of damages we may receive.
In addition, we do not know whether we will be able to collect on any award of damages or that any such damages would be
sufficient to cover the actual costs we would incur as a result of any vendor's failure to perform under its agreement with us.
Any failure of our corporate infrastructure could have a material adverse effect on our business, financial condition and
16
results of operations. Upon expiration or termination of any of our agreements with third-party vendors, we may not be able
to replace the services provided to us in a timely manner or on terms and conditions, including service levels and cost, that
are favorable to us and a transition from one vendor to another vendor could subject us to operational delays and
inefficiencies until the transition is complete.
Our gross margin is dependent on a number of factors, including our product mix, customer mix, commodity prices and
level of capacity utilization.
Our gross margin is highly dependent on product mix, with proprietary products and products sold into our industrial and
automotive target market typically providing higher gross margin than other products. A shift in sales mix away from our
higher margin products could adversely affect our future gross margin percentages. In addition, OEMs are becoming
increasingly price conscious when they design semiconductors from third party suppliers into their products. This sensitivity,
combined with large OEMs' purchasing power, can lead to intense price competition among competing suppliers, which may
require us to decrease our prices in order to win a design with an OEM customer. This can, in turn, adversely affect our gross
margin. Our margin may also be affected by fluctuations in commodity prices, either directly in the price of the raw materials
we buy, or as a result of prices increases passed on to us by our suppliers. Many commodities prices, including those of gold
and fuel, have risen significantly in recent months. We do not hedge our exposure to commodity prices and continued
increases in commodities prices may adversely affect our gross margin.
Our gross margin is also affected by the timing and amount of our non-product revenue, including non-refundable
payments from customers for research and development projects during product development and intellectual property-related
revenue such as licensing royalty payments and revenues from sales of intellectual property. Our non-product revenue is
generally high margin, but fluctuates significantly from quarter to quarter.
In addition, semiconductor manufacturing requires significant capital investment, leading to high fixed costs, including
depreciation expense. Although we outsource a significant portion of our manufacturing activities, we do retain some
semiconductor fabrication facilities. We are making substantial capital investments in our Fort Collins, Colorado
manufacturing facility and we may not realize the benefit we anticipate from these investments. If we are unable to utilize our
owned fabrication facilities at a high level, the fixed costs associated with these facilities, such as depreciation expense, will
not be fully absorbed, resulting in higher average unit costs and lower gross margins. In the past, we have experienced periods
where our gross margins declined due to, among other things, reduced factory utilization resulting from reduced customer
demand, reduced selling prices and a change in product mix towards lower margin devices. Increased competition and the
existence of product alternatives, more complex engineering requirements, lower demand and other factors may lead to further
price erosion, lower revenues and lower margins for us in the future.
If the tax incentive or tax holiday arrangements we have negotiated in Singapore and other jurisdictions change or cease
to be in effect or applicable, in part or in whole, for any reason, or if our assumptions and interpretations regarding tax
laws and incentive or holiday arrangements prove to be incorrect, the amount of corporate income taxes we have to pay
could significantly increase.
We have structured our operations to maximize the benefit from various tax incentives and tax holidays extended to us in
various jurisdictions to encourage investment or employment. For example, we have obtained several tax incentives from the
Singapore Economic Development Board, an agency of the Government of Singapore, which provide that certain classes of
income we earn in Singapore are subject to tax holidays or reduced rates of Singapore income tax. Each such tax incentive is
separate and distinct from the others, and may be granted, withheld, extended, modified, truncated, complied with or
terminated independently without any effect on the other incentives. In order to retain these tax benefits in Singapore, we must
meet certain operating conditions specific to each incentive relating to, among other things, maintenance of a treasury
function, a corporate headquarters function, specified intellectual property activities and specified manufacturing activities in
Singapore. Some of these operating conditions are subject to phase-in periods through 2015. The Singapore tax incentives are
presently scheduled to expire at various dates generally between 2014 and 2025. Absent such tax incentives, the corporate
income tax rate in Singapore that would otherwise apply to us would be 17%. For the fiscal years ended October 28, 2012, and
October 30, 2011, the effect of all these tax incentives, in the aggregate, was to reduce the overall provision for income taxes
from what it otherwise would have been in such year by approximately $81 million and $82 million, respectively. The tax
incentives that we have negotiated in Malaysia are also subject to our compliance with various operating and other conditions.
If we cannot or elect not to comply with the operating conditions included in any particular tax incentive, we will lose the
related tax benefits. In such event, we could be required to refund material tax benefits previously realized by us with respect
to that incentive and, depending on the incentive at issue, could likely be required to modify our operational structure and tax
strategy. Any such modified structure or strategy may not be as beneficial to us from an income tax expense or operational
perspective as the benefits provided under the present tax concession arrangements.
Our interpretations and conclusions regarding the tax incentives are not binding on any taxing authority, and if our
assumptions about tax and other laws are incorrect or if these tax incentives are substantially modified or rescinded we could
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suffer material adverse tax and other financial consequences, which would increase our expenses, reduce our profitability and
adversely affect our cash flows. In addition, taxable income in any jurisdiction is dependent upon acceptance of our
operational practices and intercompany transfer pricing by local tax authorities as being on an arm's length basis. Due to
inconsistencies in application of the arm's length standard among taxing authorities, as well as lack of adequate treaty-based
protection, transfer pricing challenges by tax authorities could, if successful, substantially increase our income tax expense.
We are subject to, and are under, audit in various jurisdictions, and such jurisdictions may assess additional income tax against
us. Although we believe our tax positions are reasonable, the final determination of tax audits could be materially different
from our recorded income tax provisions and accruals. The ultimate results of an audit could have a material adverse effect on
our operating results or cash flows in the period or periods for which that determination is made.
We may be subject to claims of infringement of third-party intellectual property rights or demands that we license third-
party technology, which could result in significant expense and loss of our intellectual property rights.
The semiconductor industry is characterized by companies holding large numbers of patents, copyrights, trademarks and
trade secrets and by the vigorous pursuit, protection and enforcement of intellectual property rights, including actions by
patent-holding companies that do not make or sell products. From time to time, third parties assert against us and our
customers and distributors their patent, copyright, trademark, trade secret and other intellectual property rights to technologies
that are important to our business.
Litigation or settlement of claims that our products or processes infringe or misappropriate these rights, regardless of their
merit, are frequently costly and divert the efforts and attention of our management and technical personnel. In addition, many
of our customer agreements, and in some cases our asset sale agreements, require us to indemnify our customers or purchasers
for third-party intellectual property infringement claims, which have required and may in the future require that we defend
those claims, and might require that we pay damages in the case of adverse rulings. Claims of this sort could also harm our
relationships with our customers and might deter future customers from doing business with us. We do not know whether we
will prevail in such proceedings given the complex technical issues and inherent uncertainties in intellectual property
litigation. If any pending or future proceedings result in an adverse outcome, we could be required to:
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cease the manufacture, use or sale of the infringing products, processes or technology;
pay substantial damages for past, present and future use of the infringing technology;
expend significant resources to develop non-infringing technology;
license technology from the third-party claiming infringement, which license may not be available on commercially
reasonable terms, or at all;
enter into cross-licenses with our competitors, which could weaken our overall intellectual property portfolio and our
ability to compete in particular product categories;
indemnify customers or distributors;
pay substantial damages to our customers or end users to discontinue use or replace infringing technology with non-
infringing technology; or
relinquish intellectual property rights associated with one or more of our patent claims, if such claims are held invalid
or otherwise unenforceable.
Any of the foregoing results could have a material adverse effect on our business, financial condition and results of
operations.
We utilize a significant amount of intellectual property in our business. If we are unable or fail to protect our intellectual
property, our business could be adversely affected.
Our success depends in part upon protecting our intellectual property. To accomplish this, we rely on a combination of
intellectual property rights, including patents, copyrights, trademarks, trade secrets and similar intellectual property, as well as
customary contractual protections with our customers, suppliers, employees and consultants. We may be required to spend
significant resources to monitor and protect our intellectual property rights, and even with significant expenditures we may not
be able to protect our intellectual property rights valuable to our business. We are unable to predict that:
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intellectual property rights that we presently employ in our business will not lapse or be invalidated, circumvented,
challenged, or, in the case of third-party intellectual property rights, licensed or sub-licensed to us, be licensed to
others;
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our intellectual property rights will provide competitive advantages to us;
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rights previously granted by third parties to intellectual property rights licensed or assigned to us, including portfolio
cross-licenses, will not hamper our ability to assert our intellectual property rights against potential competitors or
hinder the settlement of currently pending or future disputes;
any of our pending or future patent, trademark or copyright applications will be issued or have the coverage
originally sought; or
our intellectual property rights will be enforced in certain jurisdictions where competition may be intense or where
legal protection may be weak.
In addition, our competitors or others may develop products or technologies that are similar or superior to our products or
technologies, duplicate our products or technologies or design around our protected technologies. Effective patent, trademark,
copyright and trade secret protection may be unavailable or more limited in one or more relevant jurisdictions, relative to
those protections available in the United States, may not be applied for or may be abandoned in one or more relevant
jurisdictions. We may elect to abandon or divest patents or otherwise not pursue prosecution of certain pending patent
applications due to strategic concerns or other factors. In addition, when patents expire, we lose the protection and competitive
advantages they provided to us. From time to time we pursue litigation to assert our intellectual property rights, including, in
some cases, against third parties with whom we have ongoing relationships, such as customers and suppliers, and third parties
may pursue litigation against us. An adverse decision in such types of legal action could limit our ability to assert our
intellectual property rights and limit the value of our technology, including the loss of opportunities to sell or license our
technology to others or to collect royalty payments based upon successful protection and assertion of our intellectual property
against others. In addition, such legal actions or adverse decisions could otherwise negatively impact our business, financial
condition and results of operations.
From time to time we may need to obtain additional intellectual property licenses or renew existing license agreements. We
are unable to predict whether these license agreements can be obtained or renewed on acceptable terms or at all.
We are subject to risks associated with our distributors' product inventories and product sell-through.
We sell many of our products to customers through distributors who maintain their own inventory of our products for sale
to dealers and end users. We limit distributor return rights and we allow limited price adjustments on sales to distributors.
Price adjustments may be effected by way of credits for future product or by cash payments to the distributor either in arrears
or in advance based on estimates. We record reserves for distributor rights related to these limited stock returns and price
adjustments. We recognize revenues for sales to distributors upon delivery to the distributors, net of estimated provisions for
these stock return and price adjustment programs. We have recently extended these programs with certain distributors in China
and intend to extend them on a selective basis to some of our other distributors in other geographies. The reserves recorded for
these programs are based on significant judgments and estimates, using historical experience rates, inventory levels in
distribution, current trends and other factors, and there could be significant differences between actual amounts and our
estimates. In addition, the timing and mix of payments and credits associated with such price adjustments could change over
time, which could adversely affect our cash flows. Sales to distributors accounted for 32% and 37% of our net revenue for
fiscal year 2012 and fiscal year 2011, respectively.
If our distributors are unable to sell an adequate amount of their inventory of our products in a given quarter to dealers and
end users or if they decide to decrease their inventories for any reason, such as due to adverse global economic conditions or
due to any downturn in technology spending, our sales to these distributors and our revenues may decline. We also face the
risk that our distributors may purchase, or for other reasons accumulate, inventory levels of our products in any particular
quarter in excess of future anticipated sales to end-customers. If such sales do not occur in the time frame anticipated by these
distributors for any reason, these distributors may substantially decrease the amount of product they order from us in
subsequent periods until their inventory levels realign with end customer demand, which would harm our business and could
adversely affect our product revenues in such subsequent periods. Our reserve estimates associated with products stocked by
our distributors are based largely on reports that our distributors provide to us on a monthly basis. To date, we believe this data
has been generally accurate. To the extent that this resale and channel inventory data is inaccurate or not received in a timely
manner, we may not be able to make reserve estimates for future periods accurately or at all.
Unless we and our suppliers continuously improve manufacturing efficiency and quality, our financial performance
could be adversely affected.
Manufacturing semiconductors involves highly complex processes that require advanced equipment. We and our suppliers,
as well as our competitors, continuously modify these processes in an effort to improve yields and product performance.
Defects or other difficulties in the manufacturing process can reduce yields and increase costs. Our manufacturing efficiency
will be an important factor in our future financial performance, and we may be unable to maintain or increase our
manufacturing efficiency to the same extent as our competitors. For products that we outsource manufacturing, our product
yields and performance will be subject to the manufacturing efficiencies of our third-party suppliers.
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From time to time, we and our suppliers have experienced difficulty in beginning production at new facilities, transferring
production to other facilities, achieving and maintaining a high level of process quality and effecting transitions to new
manufacturing processes, all of which have caused us to suffer delays in product deliveries or reduced yields. We and our
suppliers may experience manufacturing problems in achieving acceptable yields or experience product delivery delays in the
future as a result of, among other things, capacity constraints, construction delays, transferring production to other facilities,
upgrading or expanding existing facilities, including our Fort Collins facility, or changing our process technologies, any of
which could result in a loss of future revenues. Our results of operations could be adversely affected by any increase in costs
related to increases in production capacity if revenues do not increase proportionately.
The enactment of legislation implementing changes in U.S. taxation of international business activities or the adoption of
other tax reform policies could materially impact our financial position and results of operations.
Tax bills are introduced from time to time to reform U.S. taxation of international business activities. Depending on the
final form of legislation enacted, if any, these consequences may be significant for us due to the large scale of our international
business activities. If any of these proposals are enacted into legislation, they could have material adverse consequences on the
amount of tax we pay and thereby on our financial position and results of operations.
We make substantial investments in research and development to improve existing and develop new technologies to
remain competitive in our business and unsuccessful investments could materially adversely affect our business, financial
condition and results of operations.
The semiconductor industry requires substantial investment in research and development in order to develop and bring to
market new and enhanced technologies and products. In order to remain competitive, we have made significant investments in
research and development and anticipate that we will need to maintain or increase our levels of research and development
expenditures. We expect research and development expenses to increase in absolute dollars for the foreseeable future, due to
the increasing complexity and number of products we plan to develop. The technologies where we have focused or may focus
our research and development expenditures may not become commercially successful. Significant investments in unsuccessful
research and development efforts could materially adversely affect our business, financial condition and results of operations.
In addition, increased investments in research and development could cause our cost structure to fall out of alignment with
demand for our products, which would have a negative impact on our financial results.
Our business would be adversely affected by the departure of existing members of our senior management team or if our
senior management team is unable to effectively implement our strategy.
Our success depends, in large part, on the continued contributions of our senior management team, in particular, the
services of Mr. Hock E. Tan, our President and Chief Executive Officer. None of our senior management is bound by written
employment contracts to remain with us for a specified period. In addition, we do not currently maintain key person life
insurance covering our senior management. The loss of any of our senior management could harm our ability to implement
our business strategy and respond to the rapidly changing market conditions in which we operate.
If we are unable to attract, train and retain qualified personnel, especially our design and technical personnel, we may
not be able to execute our business strategy effectively.
Our future success depends on our ability to retain, attract and motivate qualified personnel, including our management,
sales and marketing, legal and finance, and especially our design and technical personnel. We do not know whether we will be
able to retain all of these employees as we continue to pursue our business strategy. We have historically encountered
difficulties in hiring and retaining qualified engineers because there is a limited pool of engineers with expertise in analog and
optoelectronic semiconductor design. Competition for such personnel is intense in the semiconductor industry, particularly in
Southeast Asia where qualified engineers are currently in high demand. As the source of our technological and product
innovations, our design and technical personnel represent a significant asset. The loss of the services of key employees,
especially our key design and technical personnel, or our inability to retain, attract and motivate qualified design and technical
personnel, could have a material adverse effect on our business, financial condition and results of operations.
We are subject to warranty claims, product recalls and product liability.
We are currently, and from time to time may be, subject to warranty or product liability claims that have lead, and may in
the future lead, to significant expenses as we compensate affected customers for costs incurred related to product quality
issues. Although we maintain reserves for reasonably estimable liabilities and purchase product liability insurance, our
reserves may be inadequate to cover the uninsured portion of such claims. Conversely, in some cases, amounts we reserve
may ultimately exceed our actual liability for particular claims and may need to be reversed. For example, in the second
quarter of fiscal year 2009 we identified a product quality issue with a particular component that we took steps to correct,
including notifying our customers, offering to replace such components and provide customers with appropriate financial
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compensation. Through fiscal year 2012, we had recorded an aggregate of $10 million in charges (including reversals of
warranty accrual of $1 million and $6 million in the years ended October 28, 2012 and October 30, 2011, respectively)
associated with this issue.
Although we maintain product liability insurance, such insurance is subject to significant deductibles and there is no
guarantee that such insurance will be available or adequate to protect against all such claims, or we may elect to self-insure
with respect to certain matters. We may incur costs and expenses in the event of any recall of a customer's product containing
one of our devices. The process of identifying a recalled product in devices that have been widely distributed may be lengthy
and require significant resources, and we may incur significant replacement costs, contract damage claims from our customers
and reputational harm. Our customer contracts typically contain warranty and indemnification provisions, and in certain cases
may also contain liquidated damages provisions, relating to product quality issues. The potential liabilities associated with
such provisions are significant, and in some cases, including in agreements with some of our largest customers, are potentially
unlimited. Any such liabilities may greatly exceed any revenues we receive from the relevant products. Costs, payments or
damages incurred or paid by us in connection with warranty and product liability claims and product recalls could materially
and adversely affect our financial condition and results of operations.
The complexity of our products could result in unforeseen delays or expenses or undetected defects or bugs, which could
adversely affect the market acceptance of new products, damage our reputation with current or prospective customers,
and materially and adversely affect our operating costs.
Highly complex products such as the products that we offer, may contain defects and bugs when they are first introduced
or as new versions are released, or their release may be delayed due to unforeseen difficulties during product development. We
have in the past experienced, and may in the future experience, these defects, bugs and delays. If any of our products contain
defects or bugs, or have reliability, quality or compatibility problems, we may not be able to successfully design workarounds.
Consequently, our reputation may be damaged and customers may be reluctant to buy our products, which could materially
and adversely affect our ability to retain existing customers, attract new customers, and our financial results. In addition, these
defects or bugs could interrupt or delay sales to our customers. To resolve these problems, we may have to invest significant
capital and other resources. Although our products are tested by our suppliers, our customers and ourselves, it is possible that
our new products will contain defects or bugs. If any of these problems are not found until after we have commenced
commercial production of a new product, we may be required to incur additional development costs and product recall, repair
or replacement costs. These problems may also result in claims against us by our customers or others. For example, if a delay
in the manufacture and delivery of our products causes the delay of a customer's product delivery, we may be required, under
the terms of our agreement with that customer, to compensate the customer for the adverse effects of such delays. In addition,
these problems may divert our technical and other resources from other development efforts, and we would likely lose, or
experience a delay in, market acceptance of the affected product or products, and we could lose credibility with our current
and prospective customers. As a result, our financial results could be materially and adversely affected.
Our business, financial condition and results of operations could be adversely affected by the political and economic
conditions of the countries in which we conduct business and other factors related to our international operations.
We sell our products throughout the world. In addition, as at October 28, 2012, approximately 64% of our employees are
located outside of the United States. Multiple factors relating to our international operations and to particular countries in
which we operate could have a material adverse effect on our business, financial condition and results of operations. These
factors include:
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changes in political, regulatory, legal or economic conditions;
restrictive governmental actions, such as restrictions on the transfer or repatriation of funds and foreign investments
and trade protection measures, including export duties and quotas and customs duties and tariffs;
disruptions of capital and trading markets;
changes in import or export licensing requirements;
transportation delays;
civil disturbances or political instability;
geopolitical turmoil, including terrorism, war or political or military coups;
changes in labor standards;
limitations on our ability under local laws to protect our intellectual property;
nationalization of businesses and expropriation of assets;
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changes in tax laws;
currency fluctuations, which may result in our products becoming too expensive for foreign customers or foreign-
sourced materials and services becoming more expensive for us; and
difficulty in obtaining distribution and support.
A significant legal risk associated with conducting business internationally is compliance with various and differing anti-
corruption and anti-bribery laws and regulations of the countries in which we do business, including the U.S. Foreign Corrupt
Practices Act, the U.K. Bribery Act and similar laws in China. In addition, the anti-corruption laws in various countries are
constantly evolving and may, in some cases, conflict with each other. Our Code of Ethics and Business Conduct and other
policies prohibit us and our employees from offering or giving anything of value to a government official for the purpose of
obtaining or retaining business and from engaging in unethical business practices, including kick-backs to or from purely
private parties. However, there can be no assurance that all of our employees or agents will refrain from acting in violation of
this and our related anti-corruption policies and procedures. Any such violation could have a material adverse effect on our
business.
A majority of our products are produced and sourced in Asia, including in China, Malaysia, the Philippines, Singapore,
South Korea, Taiwan and Thailand. Any conflict or uncertainty in these countries, including due to political or civil unrest,
public health or safety concerns or natural disasters, could have a material adverse effect on our business, financial condition
and results of operations. In addition, if the government of any country in which our products are manufactured or sold sets
technical standards for products manufactured in or imported into their country that are not widely shared, it may lead certain
of our customers to suspend imports of their products into that country, require manufacturers in that country to manufacture
products with different technical standards and disrupt cross-border manufacturing relationships which, in each case, could
have a material adverse effect on our business, financial condition and results of operations.
In addition, our subsidiaries may require future equity-related financing, and any capital contributions to certain of our
subsidiaries may require the approval of the relevant authorities in the jurisdiction in which the subsidiary is incorporated. The
approvals are required from the investment commissions or similar agency of the particular jurisdiction and relate to any
initial or additional equity investment by foreign entities in local corporations. Our failure to obtain the required approvals and
our resulting inability to provide such equity-related financing or capital contributions could have an adverse effect on our
business, financial condition and results of operations.
We may not realize the full benefits of our research and development grants.
We have accepted research and development grants, the receipt and amount of which are subject to our satisfaction of
certain terms and conditions. During fiscal year 2012, we recorded an aggregate of $7 million in credits to research and
development expense and $1 million as a deferred credit for capital expenditures pursuant to these grants. During fiscal year
2011, we recorded an aggregate of $1 million in credits to research and development expense and $1 million as a deferred
credit for capital expenditures pursuant to these grants. If we cannot or elect not to satisfy the terms and conditions of any of
these grants, expenses incurred in respect of the relevant research and development projects will not be approved for
reimbursement, we may be required to return amounts previously paid to us under the grants and further grants may not be
available to us in the future.
We may pursue acquisitions, dispositions, investments and joint ventures, which could affect our results of operations.
We may make acquisitions of, and investments in, businesses that offer complementary products, services and
technologies, augment our market coverage, or enhance our technological capabilities. We may also enter into strategic
alliances or joint ventures to achieve these goals. We cannot assure you that we will be able to identify suitable acquisition,
investment, alliance, or joint venture opportunities or that we will be able to consummate any such transactions or
relationships on terms and conditions acceptable to us, or that such transactions or relationships will be successful.
These transactions or any other acquisitions or dispositions involve risks and uncertainties. For example, the integration of
acquired businesses may not be successful and could result in disruption to other parts of our business. In addition, the
integration may require that we incur significant restructuring charges, including as a result of streamlining, or divesting non-
core portions of, acquired businesses. To integrate acquired businesses, we must implement our management information
systems, operating systems and internal controls, and assimilate and manage the personnel of the acquired operations. The
difficulties of these integrations may be further complicated by such factors as the size of the business or entity acquired,
geographic distances, lack of experience operating in the geographic market or industry sector of the acquired business, delays
and challenges associated with integrating the business with our existing businesses, diversion of management's attention from
daily operations of the business, potential loss of key employees and customers of the acquired business, the potential for
deficiencies in internal controls at the acquired or combined business, performance problems with the acquired business'
technology, difficulties in entering markets in which we have no or limited direct prior experience, exposure to unanticipated
liabilities of the acquired business, insufficient revenues to offset increased expenses associated with the acquisition, and our
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potential inability to achieve the growth prospects and synergies expected from any such acquisition. Even when an acquired
business has already developed and marketed products, there can be no assurance that product enhancements will be made in a
timely fashion or that all pre-acquisition due diligence will have identified all material issues that might arise with respect to
such acquired business.
Any acquisition may also cause us to assume liabilities and ongoing lawsuits, acquire goodwill and non-amortizable
intangible assets that will be subject to impairment testing and potential impairment charges, incur amortization expense
related to certain intangible assets, increase our expenses and working capital requirements, and subject us to litigation, which
would reduce our return on invested capital. In addition, if the businesses or products lines that we acquire have a different
pricing or cost structure than we do, such acquisitions may adversely affect our profitability and reduce our overall margin.
Failure to manage and successfully integrate the acquisitions we make or to improve margins of the acquired businesses and
products could materially harm our business, operating results and margins.
Any future acquisitions may require significant additional debt or equity financing, which, in the case of debt financing,
would increase our leverage and potentially affect our credit ratings, and in the case of equity financing, would be dilutive to
our existing shareholders. Any downgrades in our credit ratings associated with an acquisition could adversely affect our
ability to borrow by resulting in more restrictive borrowing terms. As a result of the foregoing, we also may not be able to
complete acquisitions or other strategic transactions in the future to the same extent as in the past, or at all. These and other
factors could harm our ability to achieve anticipated levels of profitability at acquired operations or realize other anticipated
benefits of an acquisition, and could adversely affect our business, financial condition and results of operations.
Our business is subject to various governmental regulations, and compliance with these regulations may cause us to incur
significant expenses. If we fail to maintain compliance with applicable regulations, we may be forced to recall products
and cease their manufacture and distribution, and we could be subject to civil or criminal penalties.
Our business is subject to various significant international and U.S. laws and other legal requirements, including
packaging, product content, labor and import/export regulations. These regulations are complex, change frequently and have
generally become more stringent over time. We may be required to incur significant expenses to comply with these regulations
or to remedy violations of these regulations. Any failure by us to comply with applicable government regulations could result
in cessation of our operations or portions of our operations, product recalls or impositions of fines and restrictions on our
ability to conduct our operations. In addition, because many of our products are regulated or sold into regulated industries, we
must comply with additional regulations in marketing our products.
Our products and operations are also subject to the rules of industrial standards bodies, like the International Standards
Organization, as well as regulation by other agencies, such as the U.S. Federal Communications Commission. If we fail to
adequately address any of these rules or regulations, our business could be harmed.
We must conform the manufacture and distribution of our semiconductors to various laws and adapt to regulatory
requirements in all countries as these requirements change. If we fail to comply with these requirements in the manufacture or
distribution of our products, we could be required to pay civil penalties, face criminal prosecution and, in some cases, be
prohibited from distributing our products commercially until the products or component substances are brought into
compliance.
We are subject to environmental, health and safety laws, which could increase our costs, restrict our operations and
require expenditures that could have a material adverse affect on our results of operations and financial condition.
We are subject to a variety of international and U.S. laws and other legal requirements relating to the use, disposal, clean-
up of and human exposure to, hazardous materials. Any failure by us to comply with environmental, health and safety
requirements could result in the limitation or suspension of production or subject us to future liabilities in excess of our
reserves. In addition, compliance with environmental, health and safety requirements could restrict our ability to expand our
facilities or require us to acquire costly pollution control equipment, incur other significant expenses or modify our
manufacturing processes. In the event of the discovery of new contamination, additional requirements with respect to existing
contamination, or the imposition of other cleanup obligations for which we are responsible, we may be required to take
remedial or other measures which could have a material adverse effect on our business, financial condition and results of
operations.
We also face increasing complexity in our product design and procurement operations as we adjust to new requirements
relating to the materials composition of our products, including the restrictions on lead and certain other substances in
electronics that apply to specified electronics products sold in the European Union as of July 1, 2006 under the Restriction of
Hazardous Substances in Electrical and Electronic Equipment Directive. Other countries, such as the United States, China and
Japan, have enacted or may enact laws or regulations similar to the EU legislation. Other environmental regulations may
require us to re-engineer our products to utilize components that are more environmentally compatible. Such re-engineering
and component substitution may result in excess inventory or other additional costs and could have a material adverse effect
on our results of operations.
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In addition to the costs of complying with environmental, health and safety requirements, we may in the future incur costs
defending against environmental litigation brought by government agencies and private parties. We may be defendants in
lawsuits brought by parties in the future alleging environmental damage, personal injury or property damage. A significant
judgment against us could harm our business, financial condition and results of operations.
In the last few years, there has been increased media scrutiny and associated reports focusing on a potential link between
working in semiconductor manufacturing clean room environments and certain illnesses, primarily different types of cancers.
Regulatory agencies and industry associations have begun to study the issue to see if any actual correlation exists. Because we
utilize clean rooms, we may become subject to liability claims. In addition, these reports may also affect our ability to recruit
and retain employees.
We cannot predict:
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changes in environmental or health and safety laws or regulations;
the manner in which environmental or health and safety laws or regulations will be enforced, administered or
interpreted;
our ability to enforce and collect under indemnity agreements and insurance policies relating to environmental
liabilities; or
the cost of compliance with future environmental or health and safety laws or regulations or the costs associated with
any future environmental claims, including the cost of clean-up of currently unknown environmental conditions.
New regulations related to “conflict minerals” may force us to incur additional expenses, may make our supply chain
more complex and may result in damage to our reputation with customers.
Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, the SEC
has adopted new requirements for companies that use certain minerals and metals, known as conflict minerals, in their
products, whether or not these products are manufactured by third parties. These requirements will require companies to
diligence, disclose and report whether or not such minerals originate from the Democratic Republic of Congo and adjoining
countries. The implementation of these new requirements could adversely affect the sourcing, availability and pricing of
minerals used in the manufacture of semiconductor devices, including our products. In addition, we will incur additional costs
to comply with the disclosure requirements, including costs related to determining the source of any of the relevant minerals
and metals used in our products. Since our supply chain is complex, we may not be able to sufficiently verify the origins for
these minerals and metals used in our products through the due diligence procedures that we implement, which may harm our
reputation. In such event, we may also face difficulties in satisfying customers who require that all of the components of our
products are certified as conflict mineral free.
We rely on third-party distributors and manufacturers' representatives, as well as our employee sales representatives, and
the failure of these distributors or representatives to perform as expected could reduce our future sales.
In addition to selling products through our employee sales representatives, we also rely on distributors and manufacturers'
representatives to sell our products to our customers. This is particularly the case in markets where we do not have a
significant physical presence and new markets that we are seeking to enter. We are unable to predict the extent to which our
distributors and manufacturers' representatives will be successful in marketing and selling our products. Moreover, many of
our distributors and manufacturers' representatives also market and sell competing products. Our relationships with our
representatives and distributors may be terminated by either party at any time. Our future performance will depend, in part, on
our ability to attract additional distributors or manufacturers' representatives that will be able to market and support our
products effectively, especially in markets where we have not previously distributed our products, and on our ability to
effectively manage distribution efforts by our remaining global, full-line distributors. If we cannot retain our current
distributors or manufacturers' representatives, recruit additional or replacement distributors or manufacturers' representatives,
or effectively manage changes to our sales and distributions strategies, our sales and operating results will be harmed.
The average selling prices of products in our markets have historically decreased rapidly and will likely do so in the
future, which could harm our revenues and gross profits.
The products we develop and sell are used for high volume applications. As a result, the prices of those products have
historically decreased rapidly. Gross profits on our products may be negatively affected by, among other things, pricing
pressures from our customers, and the proportion of sales of our wireless and other products into consumer application
markets, which are highly competitive and cost sensitive. In the past, we have reduced the average selling prices of our
products in anticipation of future competitive pricing pressures, new product introductions by us or our competitors and other
factors. In addition, some of our customer agreements provide for volume-based pricing and product pricing roadmaps, which
can also reduce the average selling prices of our products over time. Our gross profits and financial results will suffer if we are
24
unable to offset any reductions in our average selling prices by increasing our sales volumes, reducing manufacturing costs, or
developing new and higher value-added products on a timely basis.
We are required to assess our internal control over financial reporting on an annual basis and any adverse findings from
such assessment could result in a loss of investor confidence in our financial reports, significant expenses to remediate
any internal control deficiencies and ultimately have an adverse effect on our share price.
We are required to assess the effectiveness of our internal control over financial reporting annually, as required by
Section 404 of the Sarbanes-Oxley Act. Even though, as at October 28, 2012, we concluded that our internal control over
financial reporting was effective, we need to maintain our processes and systems and adapt them as our business grows and
changes. This continuous process of maintaining and adapting our internal controls and complying with Section 404 is
expensive, time-consuming and requires significant management attention. We cannot be certain that our internal control
measures will continue to provide adequate control over our financial processes and reporting and ensure compliance with
Section 404. Furthermore, as we grow our business or acquire other businesses, our internal controls may become more
complex and we may require significantly more resources to ensure they remain effective. Failure to implement required new
or improved controls, or difficulties encountered in their implementation, either in our existing business or in businesses that
we may acquire, could harm our operating results or cause us to fail to meet our reporting obligations. If we or our
independent registered public accounting firm identify material weaknesses in our internal controls, the disclosure of that fact,
even if quickly remedied, may cause investors to lose confidence in our financial statements and the trading price of our
ordinary shares may decline.
Remediation of a material weakness could require us to incur significant expense and if we fail to remedy any material
weakness, our financial statements may be inaccurate, our ability to report our financial results on a timely and accurate basis
may be adversely affected, our access to the capital markets may be restricted, the trading price of our ordinary shares may
decline, and we may be subject to sanctions or investigation by regulatory authorities, including the SEC or The Nasdaq
Global Select Market. We may also be required to restate our financial statements from prior periods.
A breach of our security systems may have a material adverse effect on our business.
Our security systems are designed to maintain the physical security of our facilities and protect our customers', suppliers'
and employees' confidential information. However, we are also dependent on a number of third-party "cloud-based" service
providers of critical corporate infrastructure services relating to, among other things, human resources, electronic
communication services and certain finance functions, and we are, of necessity, dependent on the security systems of these
providers. Accidental or willful security breaches or other unauthorized access by third parties to our facilities, our
information systems or the systems of our cloud-based service providers or the existence of computer viruses in our or their
data or software could expose us to a risk of information loss and misappropriation of proprietary and confidential
information. Any theft or misuse of such information could result in, among other things, unfavorable publicity, damage to
our reputation, difficulty in marketing our products, allegations by our customers that we have not performed our contractual
obligations, litigation by affected parties and possible financial obligations for liabilities and damages related to the theft or
misuse of such information, any of which could have a material adverse effect on our business, profitability and financial
condition. Since the techniques used to obtain unauthorized access or to sabotage systems change frequently and are often not
recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate
preventative measures.
Risks Relating to Investments in Singapore Companies
It may be difficult to enforce a judgment of U.S. courts for civil liabilities under U.S. federal securities laws against us, our
directors or officers in Singapore.
We are incorporated under the laws of the Republic of Singapore, and certain of our officers and directors are resident
outside the United States. Moreover, a majority of our consolidated assets are located outside the United States. Although we
are incorporated outside the United States, we have agreed to accept service of process in the United States through our agent
designated for that purpose. Nevertheless, since a majority of the consolidated assets owned by us are located outside the
United States, any judgment obtained in the United States against us may not be collectible within the United States.
There is no treaty between the United States and Singapore providing for the reciprocal recognition and enforcement of
judgments in civil and commercial matters and a final judgment for the payment of money rendered by any federal or state
court in the United States based on civil liability, whether or not predicated solely upon the federal securities laws, would,
therefore, not be automatically enforceable in Singapore. There is doubt whether a Singapore court may impose civil liability
on us or our directors and officers who reside in Singapore in a suit brought in the Singapore courts against us or such persons
with respect to a violation solely of the federal securities laws of the United States, unless the facts surrounding such a violation
would constitute or give rise to a cause of action under Singapore law. Consequently, it may be difficult for investors to enforce
25
against us, our directors or our officers in Singapore judgments obtained in the United States, which are predicated upon the
civil liability provisions of the federal securities laws of the United States.
We are incorporated in Singapore and our shareholders may have more difficulty in protecting their interest than they
would as shareholders of a corporation incorporated in the United States, and we may have more difficulty attracting and
retaining qualified board members and executives.
Our corporate affairs are governed by our memorandum and articles of association and by the laws governing corporations
incorporated in Singapore. The rights of our shareholders and the responsibilities of the members of our board of directors
under Singapore law are different from those applicable to a corporation incorporated in the United States. Therefore, our
public shareholders may have more difficulty in protecting their interest in connection with actions taken by our management
or members of our board of directors than they would as shareholders of a corporation incorporated in the United States.
In addition, being a public company incorporated in Singapore may make it more expensive for us to obtain director and
officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain
coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of
directors, particularly to serve on committees of our Board, and qualified executive officers.
For a limited period of time, our directors have general authority to allot and issue new ordinary shares on terms and
conditions as may be determined by our board of directors in its sole discretion.
Under Singapore law, we may only allot and issue new ordinary shares with the prior approval of our shareholders in a
general meeting. At our 2012 AGM, our shareholders provided our directors with the general authority to allot and issue any
number of new ordinary shares until the earlier of (i) the conclusion of our 2013 AGM, (ii) the expiration of the period within
which the next annual general meeting is required to be held (i.e., within 15 months from the conclusion of the last general
meeting) or (iii) the subsequent revocation or modification of such general authority by our shareholders acting at a duly
noticed and convened meeting. Subject to the general authority to allot and issue new ordinary shares provided by our
shareholders, the provisions of the Singapore Companies Act and our memorandum and articles of association, our board of
directors may allot and issue new ordinary shares on terms and conditions as they may think fit to impose. Any additional
issuances of new ordinary shares by our directors may adversely impact the market price of our ordinary shares.
Risks Relating to Owning Our Ordinary Shares
At times, our share price has been volatile and it may fluctuate substantially in the future, which could result in substantial
losses for our investors.
The trading price of our ordinary shares has, at times, fluctuated significantly. The trading price of our ordinary shares could
be subject to wide fluctuations in response to many risk factors listed in this “Risk Factors” section, and others, many of which
are beyond our control, including:
•
•
•
•
•
•
•
actual or anticipated fluctuations in our financial condition and operating results;
issuance of new or updated research or reports by securities analysts;
fluctuations in the valuation of companies perceived by investors to be comparable to us;
announcement of, or expectation of additional financing efforts;
sales of our ordinary shares by us or our shareholders;
share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; and
changes in our dividend policy.
These fluctuations are often unrelated or disproportionate to our operating performance. These broad market and industry
fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or
international currency fluctuations, may negatively impact the market price of our ordinary shares. You may not realize any
return on your investment in us and may lose some or all of your investment. In the past, companies that have experienced
volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this
type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management's
attention from other business concerns, which could seriously harm our business.
There can be no assurance that we will continue to declare cash dividends or repurchase shares.
Our Board adopted a dividend policy pursuant to which the Company will pay quarterly dividends on our ordinary shares
and our Board has also re-approved a program authorizing management to repurchase up to 15 million of the Company's
ordinary shares, in their discretion, which authorization will expire at our 2013 AGM. The declaration and payment of any
26
future dividend is subject to the approval of our Board and our dividend policy could change at any time. Similarly, our share
repurchase program may be suspended from time to time or terminated at any time prior to its expiration at the 2013 AGM.
There can be no assurance that we will declare cash dividends or repurchase shares in the future in any particular amounts, or at
all. Furthermore, we may declare dividends as interim dividends, which are wholly provisional under Singapore law and may
be revoked by our Board at any time prior to the payment thereof. The payment of cash dividends is restricted by applicable
law and our corporate structure. Pursuant to Singapore law and our articles of association, no dividends may be paid except out
of our profits. Also, because we are a holding company, our ability to pay cash dividends on our ordinary shares and to
repurchase our shares may be limited by restrictions on our ability to obtain sufficient funds through dividends from
subsidiaries, including restrictions under the terms of our credit agreement.
Future dividends and share repurchases, if any, their timing and amount, as well as the relative allocation of cash between
dividends and share repurchases, may be affected by, among other factors: our views on potential future capital requirements
for strategic transactions, including acquisitions; earnings levels; contractual restrictions; cash position and overall financial
condition; and changes to our business model. In addition, the amount we spend and the number of shares we are able to
repurchase under our share repurchase program may further be affected by a number of other factors, including the share price
and blackout periods in which we are restricted from repurchasing shares. A reduction in, or elimination of, our dividend
payments and/or share repurchases could have a negative effect on our share price.
Singapore corporate law may impede a takeover of our company by a third-party, which could adversely affect the value of
our ordinary shares.
The Singapore Code on Take-overs and Mergers contains provisions that may delay, deter or prevent a future takeover or
change in control of our company for so long as we remain a public company with more than 50 shareholders and net tangible
assets of S$5 million or more. Any person acquiring an interest, whether by a series of transactions over a period of time or not,
either on their own or together with parties acting in concert with such person, in 30% or more of our voting shares, or, if such
person holds, either on their own or together with parties acting in concert with such person, between 30% and 50% (both
inclusive) of our voting shares, and such person (or parties acting in concert with such person) acquires additional voting shares
representing more than 1% of our voting shares in any six-month period, must, except with the consent of the Securities
Industry Council in Singapore, extend a mandatory takeover offer for the remaining voting shares in accordance with the
provisions of the Singapore Code on Take-overs and Mergers. While the Singapore Code on Take-overs and Mergers seeks to
ensure equality of treatment among shareholders, its provisions may discourage or prevent certain types of transactions
involving an actual or threatened change of control of our company. These legal requirements may impede or delay a takeover
of our company by a third-party, which could adversely affect the value of our ordinary shares.
Our actual operating results may differ significantly from our guidance.
From time to time, we release guidance regarding our future performance that represents our management's estimates as of
the date of release. This guidance, which consists of forward-looking statements, is prepared by our management and is
qualified by, and subject to, the assumptions and the other information contained or referred to in the release. Our guidance is
not prepared with a view toward compliance with published guidelines of the American Institute of Certified Public
Accountants, and neither our independent registered public accounting firm nor any other independent expert or outside party
compiles or examines the guidance and, accordingly, no such person expresses any opinion or any other form of assurance with
respect thereto.
Guidance is based upon a number of assumptions and estimates that, while presented with numerical specificity, is
inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are
beyond our control and are based upon specific assumptions with respect to future business decisions, some of which will
change. We generally state possible outcomes as high and low ranges which are intended to provide a sensitivity analysis as
variables are changed but are not intended to represent that actual results could not fall outside of the suggested ranges. The
principal reason that we release this data is to provide a basis for our management to discuss our business outlook with analysts
and investors. We do not accept any responsibility for any projections or reports published by any such persons.
Guidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions of the guidance
furnished by us will not materialize or will vary significantly from actual results. Accordingly, our guidance is only an estimate
of what management believes is realizable as of the date of release. Actual results will vary from the guidance and the
variations may be material. Investors should also recognize that the reliability of any forecasted financial data diminishes the
farther in the future that the data is forecast. In light of the foregoing, investors are urged to put the guidance in context and not
to place undue reliance on it.
Any failure to successfully implement our operating strategy or the occurrence of any of the events or circumstances set
forth in this Annual Report on Form 10-K could result in the actual operating results being different than the guidance, and such
differences may be adverse and material.
27
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Our principal executive offices are located in Yishun, Singapore, and the headquarters for our U.S. subsidiaries is located
in San Jose, California. We conduct our administration, manufacturing, research and development and sales and marketing in
both owned and leased facilities. We believe that our owned and leased facilities are adequate for our present operations. The
following is a list of our principal facilities and their primary functions.
Site
Yishun, Singapore
Major Activity
Owned/Leased
Square Footage
Lease Expiration
Administration, Manufacturing, Research and
Development and Sales and Marketing
116,500
November 2015
Leased
Leased
Owned—Building
Leased—Land
Owned
Leased
Depot Road, Singapore
Senoko, Singapore
Manufacturing
Manufacturing
Fort Collins, CO, United States Manufacturing and Research and Development
San Jose, CA, United States
Administration, Research and Development and Sales
and Marketing
Seoul, Korea
Penang, Malaysia
Boeblingen, Germany
Regensburg, Germany
Research and Development and Sales and Marketing
Leased
Manufacturing, Research and
Development, and Administration
Owned—Building
Leased—Land
Administration, Research and Development and Sales
and Marketing
Manufacturing, Research and Development and
Marketing
Munich, Germany
Research and Development
Turin, Italy
Manufacturing and Research and
Development
Shirakawa, Japan
Manufacturing and Research and Development
Sarego, Italy
Administration, Manufacturing and Research and
Development and Sales and Marketing
Samorin, Slovakia
Manufacturing
Wuxi, China
Administration, Manufacturing and Research and
Development and Sales
Jitra, Malaysia
Manufacturing
Leased
Leased
Leased
Leased
Leased
Owned
Owned
Leased
Leased
50,175
52,200
72,000
983,000
139,000
72,000
318,000
19,000
9,100
6,600
10,500
22,000
17,000
14,500
31,000
58,000
October 2030
September 2029
November 2015
October 2015
May 2051
April 2015
June 2015
September 2013
April 2018
June 2017
March 2018
May 2015
April 2051
Owned—Building
Leased—Land
50,100
258,800
ITEM 3.
LEGAL PROCEEDINGS
From time to time, we are involved in litigation that we believe is of the type common to companies engaged in our line
of business, including commercial disputes and employment issues. As of the date of this filing, we are not involved in any
pending legal proceedings that we believe would likely have a material adverse effect on our financial condition, results of
operations or cash flows. However, from time to time certain disputes involve claims by third parties that our activities infringe
their patent, copyright, trademark or other intellectual property rights. These claims generally involve the demand by a third-
party that we cease the manufacture, use or sale of the allegedly infringing products, processes or technologies and/or pay
substantial damages or royalties for past, present and future use of the allegedly infringing intellectual property.
Claims that our products or processes infringe or misappropriate any third-party intellectual property rights (including
claims arising through our contractual indemnification of our customers) often involve highly complex, technical issues, the
outcome of which is inherently uncertain. Moreover, from time to time we pursue litigation to assert our intellectual property
rights. Regardless of the merit or resolution of any such litigation, complex intellectual property litigation is generally costly
and diverts the efforts and attention of our management and technical personnel.
ITEM 4.
MINE SAFETY DISCLOSURES
None.
28
PART II
ITEM 5.
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our ordinary shares are listed on The Nasdaq Global Select Market under the symbol “AVGO”. The following table sets
forth, for each quarterly period presented, the high and low sales prices of our ordinary shares as reported by The Nasdaq
Global Select Market:
Fiscal Year ended October 30, 2011
First Quarter (ended January 30, 2011)
Second Quarter (ended May 1, 2011)
Third Quarter (ended July 31, 2011)
Fourth Quarter (ended October 30, 2011)
Fiscal Year ended October 28, 2012
First Quarter (ended January 29, 2012)
Second Quarter (ended April 29, 2012)
Third Quarter (ended July 29, 2012)
Fourth Quarter (ended October 28, 2012)
Holders
Market Prices
High
Low
$
$
$
$
$
$
$
$
29.44
34.60
39.45
37.99
35.00
39.22
36.47
37.88
$
$
$
$
$
$
$
$
23.77
27.95
31.48
26.42
27.39
32.38
29.70
32.39
As of December 7, 2012, there were 13 holders of record of our ordinary shares. A substantially greater number of
shareholders are “street name” or beneficial holders, whose shares are held of record by banks, brokers and other financial
institutions.
Dividends
In fiscal years 2012 and 2011, we declared and paid a the following quarterly cash dividends:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal Year 2012
Fiscal Year 2011
$
$
$
$
0.12
0.13
0.15
0.16
$
$
$
$
0.07
0.08
0.09
0.11
Our board of directors, or Board, has adopted a dividend policy authorizing us to pay a quarterly cash dividend. On
December 6, 2012, our Board declared an interim cash dividend of $0.17 per share payable on December 28, 2012 to
shareholders of record at the close of business (5:00 p.m.), Eastern Time, on December 17, 2012. In fiscal years 2012 and 2011,
we paid an aggregate of $137 million and $86 million, respectively, in dividends to our shareholders.
Our Board reviews our dividend policy regularly and the declaration and payment of any future dividends will be at the
discretion and approval of our Board and subject to the Board’s continuing determination that they are in the Company's best
interests. Future dividend payments will also depend upon such factors as our earnings level, capital requirements, contractual
restrictions, cash position, overall financial condition and any other factors deemed relevant by our Board.
The payment of cash dividends on our ordinary shares is restricted under applicable law and our corporate structure.
Pursuant to Singapore law and our articles of association, no dividends may be paid except out of our profits. Also, because we
are a holding company, our ability to pay cash dividends on our ordinary shares may be limited by restrictions on our ability to
obtain sufficient funds through dividends from subsidiaries.
29
Issuer Purchases of Equity Securities
Share Repurchase Program
On April 5, 2012, we announced that our Board had authorized the Company to repurchase up to 15 million of its
ordinary shares. This replaced the 2011 share repurchase program announced by the Company on June 9, 2011, which expired
at our 2012 Annual General Meeting on April 4, 2012, under which the Company was authorized to repurchase up to 15 million
of its ordinary shares, not to exceed $500 million in the aggregate. Shares repurchases under the 2012 share repurchase
program, if any, will be made in the open market at such times and in such amounts as the Company deems appropriate. The
timing and actual number of shares repurchased will depend on a variety of factors including price, market conditions and
applicable legal requirements. The 2012 share repurchase program does not obligate the Company to repurchase any specific
number of shares and may be suspended or terminated at any time without prior notice. All shares repurchased are immediately
retired. The 2012 share repurchase program will expire at the Company's 2013 AGM, unless earlier terminated.
The following table presents details of our share repurchases during the fiscal quarter ended October 28, 2012:
Period
Total Number of
Shares Purchased
Average Price
Paid per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs (1)
Shares Available
Under Repurchase
Programs
(in millions)
July 30, 2012 - August 26, 2012
August 27, 2012 - September 23, 2012
September 24, 2012 - October 28, 2012
Total
230,757
63,657
$
$
— $
294,414
$
36.24
36.15
—
36.22
230,757
63,657
—
294,414
14.4
14.3
14.3
(1) All share repurchases during the period from July 30, 2012 to October 28, 2012 were made in open market transactions in
accordance with Rule 10b-18 under the Exchange Act, pursuant to the 2012 share repurchase program discussed above.
Share Performance Graph
The following graph shows a comparison of cumulative total return for the Company’s ordinary shares, the Standard &
Poor’s 500 Stock Index, or S&P 500 Index, and the Philadelphia Semiconductor Index, or PHLX Semiconductor Index. The
graph covers the period from August 6, 2009 (the first trading day of our ordinary shares on the Nasdaq Global Select Market)
to October 26, 2012, the last trading day of our fiscal year 2012. While the initial public offering price of our ordinary shares
was $15.00 per share, the graph assumes the initial value of our ordinary shares on August 6, 2009 was the closing sales price
of $16.18 per share on that day. The graph and table assume that $100 was invested on August 6, 2009 in each of Avago
Technologies Limited ordinary shares, the S&P 500 Index and the PHLX Semiconductor Index and assumes all dividends are
reinvested.
30
The comparisons in the graph below are based on historical data and are not indicative of, or intended to forecast, the
possible future performance of our ordinary shares.
Comparison of Cumulative Total Return
$250
$200
$150
$100
$100
$50
$0
8/6/2009
10/30/2009
10/29/2010
10/28/2011
10/26/2012
Avago Technologies Limited
S&P 500 Index
PHLX Semiconductor Index
Avago Technologies Limited
S&P 500 Index
PHLX Index
8/6/2009
10/30/2009
10/29/2010
10/28/2011
10/26/2012
$
100
100
100
$
93
$
105
95
$
153
123
114
$
210
133
132
215
153
147
The graph and the table above shall not be deemed “filed” with the SEC for the purposes of Section 18 of the Exchange
Act or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing made by
us with the SEC, regardless of any general incorporation language in such filing.
Securities Authorized for Issuance Under Equity Compensation Plans
The information required by this item regarding securities authorized for issuance under equity compensation plans is
incorporated herein by reference to the definitive Proxy Statement for our 2013 Annual Meeting of Shareholders to be filed
with the SEC within 120 days after the end of the fiscal year ended October 28, 2012.
ITEM 6.
SELECTED FINANCIAL DATA
You should read the following selected consolidated financial data together with the information included under the
headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and
our historical financial statements and related notes included elsewhere in this Annual Report on Form 10-K. The selected
consolidated statements of operations data for the years ended October 28, 2012, October 30, 2011 and October 31, 2010 and
the selected balance sheet data as of October 28, 2012 and October 30, 2011 have been derived from audited historical financial
statements and related notes included elsewhere in this Annual Report on Form 10-K. The selected consolidated statements of
operations data for the years ended November 1, 2009 and November 2, 2008 and the selected balance sheet data as of
31
October 31, 2010, November 1, 2009 and November 2, 2008 have been derived from audited historical financial statements and
related notes not included in this Annual Report on Form 10-K. The historical financial data may not be indicative of our future
performance. We adopted a 52-or 53-week fiscal year beginning with our fiscal year 2008. Our fiscal year ends on the Sunday
closest to October 31.
Summary of Five Year Selected Financial Data
Statement of Operations Data:
Net revenue
Cost of products sold:
Cost of products sold
Amortization of intangible assets
Restructuring charges(1)
Total cost of products sold
Gross margin
Research and development
Selling, general and administrative
Amortization of intangible assets
Restructuring charges(1)
Advisory agreement termination fee(2)
Selling shareholder expenses(2)
Total operating expenses
Income from operations(3)(4)
Interest expense(5)
Loss on extinguishment of debt
Other income (expense), net
Income (loss) from continuing operations before taxes
Provision for (benefit from) income taxes(6)
Income (loss) from continuing operations
Income from and gain on discontinued operations, net of
income taxes(7)
Net income (loss)
Net income (loss) per share:
Basic:
Income (loss) from continuing operations
Income from and gain on discontinued operations,
net of income taxes
Net income (loss)
Diluted:
Income (loss) from continuing operations
Income from and gain on discontinued operations,
net of income taxes
Net income (loss)
Weighted average shares :
Basic
Diluted
Balance Sheet Data (at end of period):
Cash and cash equivalents
Total assets
Long-term debt and capital lease obligations
Total shareholders’ equity
Other Financial Data:
Dividends declared and paid per share
_______________________________________
$
$
$
$
$
$
$
October 28,
2012
October 30,
2011
Year Ended
October 31,
2010
November 1,
2009
November 2,
2008
(In millions, except per share amounts)
$
2,364
$
2,336
$
2,093
$
1,484
$
1,699
1,164
56
2
1,222
1,142
335
199
21
5
—
—
560
582
(1)
—
4
585
22
563
—
1,133
56
—
1,189
1,147
317
220
22
4
—
—
563
584
(4)
(20)
1
561
9
552
—
1,068
58
1
1,127
966
280
196
21
3
—
—
500
466
(34)
(24)
(2)
406
(9)
415
—
855
58
11
924
560
245
165
21
23
54
4
512
48
(77)
(8)
1
(36)
8
(44)
—
563
$
552
$
415
$
(44) $
2.30
$
2.25
$
1.74
$
(0.20) $
—
2.30
2.25
—
$
$
—
2.25
2.19
—
$
$
—
1.74
1.69
—
$
$
—
(0.20) $
(0.20) $
—
2.25
$
2.19
$
1.69
$
(0.20) $
245
250
1,084
2,862
2
2,419
245
252
238
246
219
219
$
829
$
561
$
472
$
2,446
4
2,006
2,157
4
1,505
1,970
233
1,040
981
57
6
1,044
655
265
196
28
6
—
—
495
160
(86)
(10)
(4)
60
3
57
26
83
0.27
0.12
0.39
0.26
0.12
0.38
214
219
213
1,871
708
780
0.56
$
0.35
$
— $
— $
—
32
(1) Our restructuring charges predominantly represent employee termination benefits. During the year ended October 28,
2012, we incurred restructuring charges of $7 million, of which $5 million was recorded as part of operating expenses
and the remainder was recorded as part of cost of products sold. During year ended October 30, 2011, we incurred
restructuring charges of $4 million, all of which was recorded as part of operating expenses. During year ended
October 31, 2010, we incurred restructuring charges of $4 million, of which $3 million was recorded as part of
operating expenses and the remainder was recorded as part of cost of products sold. During year ended November 1,
2009, we incurred restructuring charges of $34 million, of which $23 million was recorded as part of operating
expenses and the remainder was recorded as part of cost of products sold. During the year ended November 2, 2008,
we incurred restructuring charges of $12 million, of which $6 million was recorded as part of operating expenses and
the remainder was recorded as part of cost of products sold.
(2) The advisory agreement was terminated pursuant to its terms upon completion of our IPO, for a termination fee of
$54 million, during the quarter ended November 1, 2009 and no further payments will be made thereunder. We also
recorded $4 million in selling shareholder expenses, in connection with the IPO, on behalf of the selling shareholders
in the offering.
(3) Includes share-based compensation expense of $53 million for the year ended October 28, 2012, $38 million for the
year ended October 30, 2011, $25 million for the year ended October 31, 2010, $12 million for the year ended
November 1, 2009 and $15 million for the year ended November 2, 2008.
(4) Includes expense recorded in connection with the advisory agreement with investment funds affiliated with each of
Kohlberg Kravis Roberts and Co., and Silver Lake Partners, which we refer to together as our Sponsors, of $4 million
for the year ended November 1, 2009 and $6 million for the year ended November 2, 2008. The advisory agreement
was terminated in connection with our IPO during the quarter ended November 1, 2009.
(5) Interest expense for the years ended October 30, 2011, October 31, 2010, November 1, 2009 and November 2, 2008
includes interest expense on our 10 1/8% Senior Notes due 2013, or our senior notes, and our Floating Rate Notes due
2013, or our floating rate notes, both of which were fully redeemed during the first quarter of fiscal year 2010, and our
11 7/8% Senior Subordinated Notes due 2015, or senior subordinated notes, which were fully redeemed during the first
quarter of fiscal year 2011.
(6) In fiscal year 2012, provision for income taxes were $22 million. The increase from fiscal year 2011 is primarily
attributable to an increase in worldwide income and a change in the jurisdictional mix of income and expense.
Provision for income taxes for fiscal year 2011 included a $3 million tax benefit from the write-up of deferred tax
assets from U.S. legislation retroactively reinstating the research and development tax credit and a $3 million tax
benefit from a change in estimate related to research and development tax credits. In fiscal year 2010, we recorded an
income tax benefit totaling $9 million. The income tax benefit is associated with the release of $29 million of deferred
tax asset valuation allowances, mainly associated with the Company irrevocably calling our senior subordinated notes
for redemption in October 2010, partially offset by the write-off of $6 million of deferred tax assets resulting from the
grant of Malaysia tax incentive status, and an increase in overall tax provision due to an increase in worldwide taxable
income.
(7) In February 2006, we sold our Printer ASICs Business to Marvell Technology Group Ltd., or Marvell, for
$245 million in cash. Our agreement with Marvell also provides for up to $35 million in additional earn-out payments
by Marvell to us based solely on the achievement by Marvell of certain revenue targets in respect of the acquired
business subsequent to the acquisition. This transaction closed on May 1, 2006 and no gain or loss was recorded on the
initial sale. In May 2008, we received $25 million of the earn-out payment from Marvell and recorded it as a gain on
discontinued operations. In November 2006, we sold our Image Sensor operations to Micron Technology, Inc., or
Micron, for $53 million. Our agreement with Micron also provides for up to $17 million in additional earn-out
payments by Micron to us upon the achievement of certain milestones. During the year ended October 31, 2008, we
received earn-out payments of $6 million from Micron.
In October 2007, we sold our Infra-red operations to Lite-On Technology Corporation for $19 million in cash and the
right to receive guaranteed cost reductions or rebates based on our future purchases of non infra-red products from
Lite-On. We recorded an overall loss from disposal of Infra-red operations of $5 million for fiscal year 2008.
33
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in
conjunction with “Selected Financial Data” and our consolidated financial statements and notes thereto which appear
elsewhere in this Annual Report on Form 10-K. This discussion may contain forward-looking statements based upon current
expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these
forward-looking statements as a result of various factors, including those set forth under the caption “Risk Factors” or in other
parts of this Annual Report on Form 10-K.
Overview
We are a leading designer, developer and global supplier of a broad range of analog semiconductor devices with a focus on
III-V based products. III-V semiconductor materials have higher electrical conductivity and thus tend to have better
performance characteristics in radio frequency, or RF, and optoelectronic applications than silicon. We differentiate ourselves
through our high performance design and integration capabilities. We serve three primary target markets, with our wireless
communications, wired infrastructure and industrial and automotive electronics target markets accounting for the substantial
majority of our revenues. Our product portfolio is extensive and includes thousands of products. Applications for our products
in these target markets include cellular phones, consumer appliances, data networking and telecommunications equipment,
enterprise storage and servers, factory automation and displays. Until recently, we also sold products into the consumer and
computing peripherals target market, which has historically represented a small portion of our total net revenue. However, as
this became a mature and non-strategic market for us, during fiscal year 2012 we transitioned from developing, manufacturing
and selling products into this target market to selling or licensing our intellectual property relevant to this target market, thereby
generating royalty revenue instead of product sales revenue. We completed this transition in the fourth quarter of the fiscal year
ended October 28, 2012 or fiscal year 2012.
We have a 50-year history of innovation, dating back to our origins within Hewlett-Packard Company. Over the years, we
have assembled a large team of analog design engineers, and we maintain design and product development engineering
resources around the world. Our locations include two design centers in the United States, five in Asia and four in Europe. We
have developed an extensive portfolio of intellectual property that currently includes over 4,300 U.S. and foreign patents and
patent applications. Our history and market position enable us to strategically focus our research and development resources to
address attractive target markets. We leverage our significant intellectual property portfolio to integrate multiple technologies
and create component solutions that target growth opportunities. We design products that deliver high-performance and provide
mission-critical functionality. In particular, we were among the first to deliver commercial film bulk acoustic resonator, or
FBAR, filters which offer technological advantages over competing filters for smartphones to function more efficiently in
today's congested RF spectrum. FBAR technology has historically maintained a significant market share within code division
multiple access, or CDMA, and 3G/W-CDMA markets. As cellular carriers move to the 4G/long term evolution, or LTE
standard worldwide, we believe these advantages will continue to facilitate rapid adoption of FBAR technology throughout the
mobile phone ecosystems. In optical solutions, we were a pioneer in commercializing vertical-cavity surface emitting laser, or
VCSEL. Our fiber optic products and our VCSEL-based products, including high bandwidth parallel optic transceivers and
modules, have been widely adopted throughout the wired infrastructure and computing industries. In optoelectronics, we are a
market leader in submarkets such as optocouplers and optical encoders.
We have a diversified and well-established customer base of over 25,000 end customers, located throughout the world,
which we serve through our multi-channel sales and fulfillment system. However, original equipment manufacturers, or OEMs,
and distributors typically account for the substantial majority of our sales. We have established strong relationships with
leading OEM customers across multiple target markets. Many of our major customer relationships have been in place multiple
years and we have supplied multiple products during that time period. Our close customer relationships have often been built as
a result of years of collaborative product development which has enabled us to build our intellectual property portfolio and
develop critical expertise regarding our customer’s requirements, including substantial system level knowledge. This
collaboration has provided us with key insights into our customers and has enabled us to be more efficient and productive and
to better serve our target markets and customers. We distribute most of our products through our broad distribution network,
and a significant portion of our sales are to two of the largest global electronic components distributors, Avnet, Inc. and Arrow
Electronics, Inc. We also have a direct sales force focused on supporting large OEMs.
We focus on maintaining an efficient global supply chain and a variable, low-cost operating model. Accordingly, we have
outsourced a majority of our manufacturing operations utilizing third-party foundry and assembly and test capabilities, as well
as most of our corporate infrastructure functions. We aim to minimize capital expenditures by focusing our internal
manufacturing capacity on products utilizing our innovative materials and processes to protect our intellectual property and to
develop the technology for manufacturing, while outsourcing standard complementary metal oxide semiconductor, or CMOS,
processes. We also have over 40 years of operating history in Asia, where approximately 57% of our employees are located and
34
where we produce and source the majority of our products. Our presence in Asia places us in close proximity to many of our
customers’ manufacturing facilities and at the center of worldwide electronics manufacturing.
Our business is impacted by general conditions of the semiconductor industry and seasonal demand patterns in our target
markets. We believe that our focus on multiple target markets and geographies helps mitigate our exposure to volatility in any
single target market.
Erosion of average selling prices of established products is typical of the semiconductor industry. Consistent with trends
in the industry, we anticipate that average selling prices will continue to decline in the future. However, as part of our normal
course of business, we plan to offset declining average selling prices with efforts to reduce manufacturing costs of existing
products and the introduction of new and higher value-added products.
Historically, a relatively small number of customers have accounted for a significant portion of our net revenue. Sales to
distributors accounted for 32% and 37% of our net revenue for the years ended October 28, 2012 and October 30, 2011,
respectively. During the fiscal year ended October 28, 2012, Foxconn Technology Group accounted for 17% of our net revenue,
and our top 10 customers, which included three distributors, collectively accounted for 62% of our net revenue. During the
fiscal year ended October 30, 2011, our top 10 customers, which included three distributors, collectively accounted for 54% of
our net revenue. No customer accounted for 10% or more of our net revenue during the fiscal year ended October 30, 2011.We
expect to continue to experience significant customer concentration in future periods. The loss of, or significant decrease in
demand from, any of our top ten customers could have a material adverse effect on our business, results of operation and
financial condition.
The demand for our products has been affected in the past, and is likely to continue to be affected in the future, by
various factors, including the following:
•
•
•
•
•
general economic and market conditions in the semiconductor industry and in our target markets;
our ability to specify, develop or acquire, complete, introduce and market new products and technologies in a cost-
effective and timely manner;
the timing, rescheduling or cancellation of expected customer orders and our ability to manage inventory;
the rate at which our present and future customers and end-users adopt our products and technologies in our target
markets; and
the qualification, availability and pricing of competing products and technologies and the resulting effects on sales and
pricing of our products.
Current uncertainty in global economic conditions, including the ongoing sovereign debt crisis in Europe and the
potential fiscal cliff in the United States, still poses significant risks to our business. For example, customers may defer
purchases in response to tighter credit and negative financial news, which would in turn negatively affect product demand and
our results of operations.
Net Revenue
Substantially all of our net revenue is derived from sales of semiconductor devices which our customers incorporate into
electronic products. We serve three primary target markets. Our wireless communications, wired infrastructure and industrial
and automotive electronics account for the substantial majority of our revenues. Applications for our products in these target
markets include cellular phones, consumer appliances, data networking and telecommunications equipment, enterprise storage
and servers, factory automation and displays. We sell our products primarily through our direct sales force, although we also
use manufacturers representatives in particular geographic areas and may use them for new customers. We also use distributors
for a portion of our business and recognize revenue upon delivery of product to the distributors. Such revenue is reduced for
estimated returns and distributor allowances.
Our legacy consumer and computing peripherals target market historically represented a small portion of our total net
revenue. As this became a mature and non-strategic market for us, during the fiscal year ended October 28, 2012 or fiscal year
2012, we transitioned from manufacturing and selling products to selling and licensing intellectual property relevant to this
market, which was completed in the fourth quarter of fiscal year 2012. As a result of this transition, we now generate royalty
revenue instead of product sales from this target market, and due to the structure of these licensing arrangements royalty
revenue may fluctuate from period to period. Beginning with the fiscal year ending November 3, 2013, or fiscal year 2013, we
will cease to separately present or discuss revenues from the consumer and computing peripherals target market. Instead, they
will be combined with revenues from our industrial and automotive electronics target market, which will be referred to as our
industrial and other target market.
Costs and Expenses
Total cost of products sold. Cost of products sold consists primarily of the cost of semiconductor wafers and other
materials, and the cost of assembly and test. Cost of products sold also includes personnel costs and overhead related to our
35
manufacturing operations, including share-based compensation, and related occupancy, computer services and equipment costs,
manufacturing quality, order fulfillment, warranty and inventory adjustments, including write-downs for inventory
obsolescence, energy costs and other manufacturing expenses. Total cost of products sold also includes amortization of
intangible assets and restructuring charges.
Although we outsource a significant portion of our manufacturing activities, we do retain some semiconductor fabrication
and assembly and test facilities. If we are unable to utilize our owned fabrication and assembly and test facilities at a desired
level, the fixed costs associated with these facilities will not be fully absorbed, resulting in higher average unit costs and lower
gross margins.
Research and development. Research and development expense consists primarily of personnel costs for our engineers
engaged in the design and development of our products and technologies, including share-based compensation expense. These
expenses also include project material costs, third-party fees paid to consultants, prototype development expenses, allocated
facilities costs and other corporate expenses and computer services costs related to supporting computer tools used in the
engineering and design process.
Selling, general and administrative. Selling expense consists primarily of compensation and associated costs for sales
and marketing personnel, including share-based compensation expense, sales commissions paid to our independent sales
representatives, costs of advertising, trade shows, corporate marketing, promotion, travel related to our sales and marketing
operations, related occupancy and equipment costs and other marketing costs. General and administrative expense consists
primarily of compensation and associated costs for executive management, finance, human resources and other administrative
personnel, outside professional fees, allocated facilities costs and other corporate expenses.
Amortization of intangible assets. In connection with acquisitions, we recorded intangible assets that are being amortized
over their estimated useful lives of six months to 25 years. In connection with these acquisitions, we also recorded goodwill
which is not being amortized.
Interest expense. Substantially all of our historical interest expense was associated with our borrowings incurred in
connection with the SPG Acquisition. This debt had been eliminated as at December 1, 2010, principally through cash flows
from operations and net proceeds from our initial public offering, or IPO. On March 31, 2011, we terminated our senior secured
revolving credit facility, and Avago Technologies Finance Pte. Ltd., or Avago Finance, and certain other subsidiaries of the
Company entered into a new credit agreement which initially provided for a $200 million unsecured revolving credit facility.
On August 6, 2012, Avago Finance exercised the accordion feature under this credit agreement to increase the aggregate
commitments for its unsecured revolving credit facility from $200 million to $300 million. Interest expense in fiscal year 2012
included commitment fees under our current revolving credit facility and amortization of debt issuance costs associated with
this credit facility.
Loss on extinguishment of debt. In connection with the repurchase or redemption of our outstanding indebtedness, we
incurred a loss on the extinguishment of debt.
Other income (expense), net. Other income (expense), net includes interest income, currency gains (losses) on balance
sheet remeasurement and other miscellaneous items.
Provision for (benefit from) income taxes. We have structured our operations to maximize the benefit from various tax
incentives and tax holidays extended to us in various jurisdictions to encourage investment or employment. For example, we
have obtained several tax incentives from the Singapore Economic Development Board, an agency of the Government of
Singapore, which provide that certain classes of income we earn in Singapore are subject to tax holidays or reduced rates of
Singapore income tax. Each such tax incentive is separate and distinct from the others, and may be granted, withheld, extended,
modified, truncated, complied with or terminated independently without any effect on the other incentives. In order to retain
these tax benefits in Singapore, we must meet certain operating conditions specific to each incentive relating to, among other
things, maintenance of a treasury function, a corporate headquarters function, specified intellectual property activities and
specified manufacturing activities in Singapore. Some of these operating conditions are subject to phase-in periods through
2015. The Singapore tax incentives are presently scheduled to expire at various dates generally between 2014 and 2025, subject
in certain cases to potential extensions. Absent such tax incentives, the corporate income tax rate in Singapore that would
otherwise apply to us would be 17%. For the fiscal years ended October 28, 2012, October 30, 2011, and October 31, 2010, the
effect of all these tax incentives, in the aggregate, was to reduce the overall provision for (benefit from) income taxes from
what it otherwise would have been in such year by approximately $81 million, $82 million and $63 million, respectively. In
February 2010, the Malaysian government granted us a tax holiday on our qualifying Malaysian income, which is effective for
10 years beginning with our fiscal year 2009. The tax incentives that we have negotiated in Malaysia and other jurisdictions are
also subject to our compliance with various operating and other conditions. If we cannot, or elect not to, comply with the
operating conditions included in any particular tax incentive, we will lose the related tax benefits and could be required to
refund material tax benefits previously realized by us with respect to that incentive and, depending on the incentive at issue,
could likely be required to modify our operational structure and tax strategy. Any such modified structure may not be as
36
beneficial to us from an income tax expense or operational perspective as the benefits provided under the present tax
concession arrangements. As a result of the tax incentives and tax holidays, if we continue to comply with the operating
conditions, we expect the income from our operations to be subject to relatively lower income taxes than would otherwise be
the case under ordinary income tax rules.
Our interpretations and conclusions regarding the tax incentives are not binding on any taxing authority, and if our
assumptions about tax and other laws are incorrect or if these tax incentives are substantially modified or rescinded we could
suffer material adverse tax and other financial consequences, which would increase our expenses, reduce our profitability and
adversely affect our cash flows. In addition, taxable income in any jurisdiction is dependent upon acceptance of our operational
practices and intercompany transfer pricing by local tax authorities as being on an arm’s length basis. Due to inconsistencies in
application of the arm’s length standard among taxing authorities, as well as lack of adequate treaty-based protection, transfer
pricing challenges by tax authorities could, if successful, substantially increase our income tax expense.
Going forward, our effective tax rate will vary based on a variety of factors, including overall profitability, the
geographical mix of income before income taxes and the related tax rates in the jurisdictions where we operate, as well as
discrete events, such as settlements of future audits. In particular, we may owe significant taxes in jurisdictions outside
Singapore during periods when we are profitable in those jurisdictions even though we may be experiencing low operating
profit or operating losses on a consolidated basis, potentially resulting in significant tax liabilities on a consolidated basis
during those periods. Our historical provision for (benefit from) income taxes are not necessarily reflective of our future results
of operations.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with generally accepted accounting principles in the United States,
or GAAP, requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses
during the reporting period. We base our estimates and assumptions on current facts, historical experience and various other
factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other
sources. The actual results experienced by us may differ materially and adversely from our estimates. Our critical accounting
policies are those that affect our historical financial statements materially and involve difficult, subjective or complex
judgments by management. Those policies include revenue recognition, valuation of long-lived assets, intangible assets and
goodwill, inventory valuation and warranty reserves, accounting for income taxes, retirement and post-retirement benefit plan
assumptions, and share-based compensation.
Revenue recognition. We recognize revenue related to sales of our products, net of sales returns and allowances,
provided that (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the price is fixed or determinable
and (iv) collectibility is reasonably assured. Delivery is considered to have occurred when title and risk of loss have transferred
to the customer. We consider the price to be fixed or determinable when the price is not subject to refund or adjustments or
when any such adjustments can be estimated. We evaluate the creditworthiness of our customers to determine that appropriate
credit limits are established prior to the acceptance of an order. Revenue, including sales to resellers and distributors, is reduced
for estimated returns and distributor allowances. We recognize revenue from sales of our products to distributors upon delivery
of product to the distributors. An allowance for distributor credits covering price adjustments and scrap allowances is made
based on our estimate of historical experience rates as well as considering economic conditions and contractual terms. To date,
actual distributor claims activity has been materially consistent with the provisions we have made based on our historical
estimates. However, because of the inherent nature of estimates, there is always a risk that there could be significant differences
between actual amounts and our estimates. Different judgments or estimates could result in variances that might be significant
to reported operating results.
We enter into development agreements with some of our customers and recognize revenue from these agreements upon
completion and acceptance by the customer of contract deliverables or milestones or as services are provided, depending on the
terms of the arrangement. Revenue is deferred for any amounts billed or received prior to completion of milestones or delivery
of services. As we retain the intellectual property generated from these development agreements, costs related to these
arrangements are included in research and development expense.
We recognize revenue from the licensing of our intellectual property when the following fundamental criteria are met:
(i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the sales price is fixed or determinable, and
(iv) collection of resulting receivables is reasonably assured. Revenue from upfront payments for the licensing of our patents is
recognized when the arrangement is mutually signed, if there is no future delivery or future performance obligation and all
other criteria are met. Revenue from guaranteed royalty streams are recognized when paid, or collection is reasonably assured
and all other criteria are met. When patent licensing arrangements include royalties for future sales of the licensees’ products
37
using our licensed patented technology, revenue is recognized when the royalty report is received from the licensee, at which
time the sales price is fixed and determinable, provided that all other criteria have been met.
Valuation of long-lived assets, intangible assets and goodwill. We assess the impairment of long-lived assets, intangible
assets and goodwill whenever events or changes in circumstances indicate that the carrying value of such assets may not be
recoverable. Factors we consider important, and which could trigger an impairment review of our long-lived and intangible
assets, include significant underperformance relative to historical or projected future operating results, significant changes in
the manner of our use of the acquired assets or the strategy for our overall business, and significant negative industry or
economic trends. An impairment loss must be measured if the sum of the expected future cash flows (undiscounted and before
interest) from the use of the asset is less than the net book value of the asset. The amount of the impairment loss will generally
be measured as the difference between the net book value of the asset (or asset group) and its (their) estimated fair value.
We perform an annual impairment review of our goodwill during the fourth fiscal quarter of each year, and more
frequently if we believe indicators of impairment exist, and we follow the two-step approach in performing the impairment test
in accordance with the accounting guidance on goodwill and other intangible assets. The first step of the goodwill impairment
test compares the estimated fair value of the reporting unit with the related carrying amount. If the fair value of the reporting
unit exceeds its carrying amount, the reporting unit’s goodwill is not considered to be impaired and the second step of the
impairment test is unnecessary. If the reporting unit’s carrying amount exceeds its estimated fair value, the second step of the
test must be performed to measure the amount of the goodwill impairment loss, if any. The second step of the test compares the
implied fair value of the reporting unit’s goodwill, determined in the same manner as the amount of goodwill recognized in a
business combination, with the carrying amount of such goodwill. If the carrying amount of the reporting unit’s goodwill
exceeds the implied fair value, an impairment loss is recognized in an amount equal to that excess. The process of evaluating
the potential impairment of goodwill is highly subjective and requires significant judgment. We have one reporting unit for
goodwill impairment testing purposes which is based on the manner in which we operate our business and the nature of those
operations, including consideration of how the Chief Operating Decision Maker, as defined in the accounting guidance on
segment reporting, manages the business as a whole. We operate as one semiconductor company with sales of semiconductors
representing the only material source of revenue. Substantially all products offered incorporate analog functionality and are
manufactured under similar manufacturing processes.
For fiscal year 2012, we used the quoted market price of our ordinary shares to determine the fair value of our reporting
unit, which is the Company as a whole. No impairment of goodwill was identified based on the annual impairment review
during the fourth quarter of fiscal year 2012. A 10% decline in the quoted market prices of our ordinary shares would not
impact the result of our goodwill impairment assessment.
The process of evaluating the potential impairment of long-lived assets under the accounting guidance on property, plant
and equipment such as our property, plant and equipment and other intangible assets is also highly subjective and requires
significant judgment. In order to estimate the fair value of long-lived assets, we typically make various assumptions about the
future prospects about our business or the part of our business that the long-lived asset relates to, consider market factors
specific to the business and estimate future cash flows to be generated by the business, which requires significant judgment as it
is based on assumptions about market demand for our products over a number of future years. Based on these assumptions and
estimates, we determine whether we need to take an impairment charge to reduce the value of the long-lived asset stated on our
balance sheet to reflect its estimated fair value. Assumptions and estimates about future values and remaining useful lives are
complex and often subjective. They can be affected by a variety of factors, including external factors such as the real estate
market, industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts.
Although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate, changes in
assumptions and estimates could materially impact our reported financial results.
Inventory valuation and warranty reserves. We value our inventory at the lower of the actual cost of the inventory or the
current estimated market value of the inventory, with cost being determined under the first-in, first-out method. We regularly
review inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on our forecast of
product demand and production requirements. Demand for our products can fluctuate significantly from period to period. A
significant decrease in demand could result in an increase in the amount of excess inventory quantities on hand. In addition, our
industry is characterized by rapid technological change, frequent new product development and rapid product obsolescence that
could result in an increase in the amount of obsolete inventory quantities on hand. Additionally, our estimates of future product
demand may prove to be inaccurate, which may cause us to understate or overstate both the provision required for excess and
obsolete inventory and cost of products sold. Therefore, although we make every effort to ensure the accuracy of our forecasts
of future product demand, any significant unanticipated changes in demand or technological developments could have a
significant impact on the value of our inventory and our results of operations. We establish reserves for estimated product
warranty costs at the time revenue is recognized. Although we engage in extensive product quality control programs and
processes, our warranty obligation has been and may in the future be affected by product failure rates, product recalls, repair or
field replacement costs and additional development costs incurred in correcting any product failure, as well as possible claims
38
for consequential costs. Should actual product failure rates, use of materials or service delivery costs differ from our estimates,
additional warranty reserves could be required. In that event, our gross margins would be reduced.
Accounting for income taxes. We account for income taxes in accordance with the accounting guidance on income taxes.
The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities
are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis
of assets and liabilities, and for operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured
using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected
to be realized or settled. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more
likely than not to be realized. Significant management judgment is required in developing our provision for income taxes,
including the determination of deferred tax assets and liabilities and any valuation allowances that might be required against the
deferred tax assets. We have considered future taxable income and ongoing prudent and feasible tax planning strategies in
assessing the need for valuation allowances. If we determine, in the future, a valuation allowance is required, such adjustment
to the deferred tax assets would increase tax expense in the period in which such determination is made. Conversely, if we
determine, in the future, a valuation allowance exceeds our requirement, such adjustment to the deferred tax assets would
decrease tax expense in the period in which such determination is made. In evaluating the exposure associated with various tax
filing positions, we accrue an income tax liability when such positions do not meet the more-likely-than-not threshold for
recognition.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax law and
regulations in a multitude of jurisdictions. We recognize potential liabilities for anticipated tax audit issues in Singapore and
other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes and interest will be due. If our
estimate of income tax liabilities proves to be less than the actual amount ultimately assessed, a further charge to expense
would be required. If the payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would
result in tax benefits being recognized in the period when we determine the liabilities no longer exist.
The gross unrecognized tax benefit decreased by $3 million during fiscal year 2012 to $27 million as of October 28, 2012
from $30 million as of October 30, 2011. The gross unrecognized tax benefit as of October 31, 2010 was 27 million.
We recognize interest and penalties related to unrecognized tax benefits within the provision for (benefit from) income
taxes line in the consolidated statement of operations. Accrued interest and penalties are included within the other long-term
liabilities line in the consolidated balance sheet. As of October 28, 2012, October 30, 2011, and October 31, 2010, the
combined amount of cumulative accrued interest and penalties was approximately $4 million, $6 million and $5 million,
respectively.
Retirement and post-retirement benefit plan assumptions. Retirement and post-retirement benefit plan costs are a
significant cost of doing business. They represent obligations that will ultimately be settled sometime in the future and
therefore are subject to estimation. Pension accounting is intended to reflect the recognition of future retirement and post-
retirement benefit plan costs over the employees' average expected future service to the Company, based on the terms of the
plans and investment and funding decisions. To estimate the impact of these future payments and our decisions concerning
funding of these obligations, we are required to make assumptions using actuarial concepts within the framework of GAAP.
One critical assumption is the discount rate used to calculate the estimated costs. Other important assumptions include the
expected long-term return on plan assets, the health care cost trend rate, expected future salary increases, expected future
increases to benefit payments, expected retirement dates, employee turnover, retiree mortality rates, and portfolio composition.
We evaluate these assumptions at least annually.
The discount rate is used to determine the present value of future benefit payments at the relevant measurement dates —
October 28, 2012 and October 30, 2011, for both U.S. and non-U.S. plans, in fiscal years 2012 and 2011, respectively. For
fiscal years 2012 and 2011, the U.S. discount rates were based on the results of matching expected plan benefit payments with
cash flows from a published pension discount curve. The discount rate for non-U.S. plans was generally based on published
rates for high quality corporate bonds. Lower discount rates increase present values of pension liability and subsequent year
pension expense; higher discount rates decrease present values of pension liability and subsequent year pension expense.
The expected long-term return on plan assets is estimated using current and expected asset allocations as well as historical
and expected returns. Plan assets are valued at fair value. A one percent change in the estimated long-term return on plan assets
for assumptions set in 2012 would result in a $0 million impact on non-U.S. pension expense for fiscal year 2013. We have no
plan assets under our U.S. plans.
The net periodic retirement and post-retirement benefit costs recorded in consolidated statement of operations excluding
curtailments and settlements were $7 million in fiscal year 2012, $6 million in fiscal year 2011, and $4 million in fiscal year
2010.
39
Share-based compensation expense. Share-based compensation expense consists of expense for stock options and
restricted share units, or RSUs, granted to both employees and non-employees as well as expense associated with Avago
Technologies Limited Employee Share Purchase Plan, or ESPP, which was implemented in September 2010. For stock options
granted after November 1, 2006, we recognize compensation expense based on the estimated grant date fair value method
required under the authoritative guidance using Black-Scholes valuation model with a straight-line amortization method. Since
the authoritative guidance requires that share-based compensation expense be based on awards that are ultimately expected to
vest, estimated share-based compensation expense for such awards has been reduced for estimated forfeitures. Changes in the
estimated forfeiture rates can have a significant effect on share-based compensation expense since the effect of adjusting the
rate is recognized in the period the forfeiture estimate is changed.
The weighted-average assumptions utilized for our Black-Scholes valuation model for options and employee share
purchase rights granted during the fiscal years ended October 28, 2012, October 30, 2011 and October 31, 2010 are as follows:
Options
Year Ended
October 30,
2011
2.0%
0.9%
45.0%
5.0
October 28,
2012
0.8%
1.4%
53.0%
5.0
October 31,
2010
October 28,
2012
1.9%
—%
45.0%
5.0
0.1%
1.4%
50.4%
0.5
ESPP
Year Ended
October 30,
2011
0.1%
0.6%
42.6%
0.5
October 31,
2010
0.2%
—%
42.0%
0.5
Risk-free interest rate
Dividend yield
Volatility
Expected term (in years)
The dividend yields for the years ended October 28, 2012 and October 30, 2011 are based on the historical and expected
dividend payouts as of the respective option grant dates. For the year ended October 31, 2010, the dividend yield of zero is
based on the fact that we did not intend to declare any cash dividends as of the respective option grant dates during that period.
Expected volatility is based on the combination of historical volatility of guideline publicly-traded companies over the period
commensurate with the expected term of the options and the implied volatility of guideline publicly-traded companies from
traded options with a term of 180 days or greater measured over the last three months. The risk-free interest rate is derived from
the average U.S. Treasury Strips rate during the period, which approximates the rate in effect at the time of grant. Our
computation of expected term was based on other data, such as the data of peer companies and company-specific attributes that
we believe could affect employees’ exercise behavior.
In fiscal year 2010, we began to grant RSUs, which are equity awards that are granted with an exercise price equal to
zero and represent the right to receive one of our ordinary shares per RSU immediately upon vesting. We recognize
compensation expense for RSUs using the straight-line amortization method based on the fair value of RSUs on the date of
grant. The fair value of RSUs is the closing market price of our ordinary shares on the date of grant, which is equal to their
intrinsic value on the date of grant.
We also record share-based compensation expense based on an estimate of the fair value of rights to purchase ordinary
shares under the ESPP and recognize this share-based compensation expense using the straight-line amortization method.
Employee Bonus Programs. Our employee bonus programs, which are overseen by our Compensation Committee,
provide for variable compensation based on the attainment of overall corporate annual targets and functional performance
metrics. In the first fiscal quarter of the year, if management determines that it is probable that the targets and metrics will be
achieved, the amounts can be reasonably estimated, a variable, proportional compensation accrual is recorded based on an
assumed 100 percent achievement of the targets and metrics. The bonus payout levels can be greater if attainment of metrics
and targets is greater than 100% and a portion of the payouts may not occur if a minimum floor of performance is not achieved.
In subsequent quarters, we monitor and accrue for variable compensation expense based on our actual progress toward the
achievement of the annual targets and metrics. The actual achievement of target metrics at the end of the fiscal year, which is
subject to approval by our Compensation Committee, may result in the actual variable compensation amounts being
significantly higher or lower than the relevant estimated amounts accrued in earlier quarters, which would result in a
corresponding adjustment in the fourth fiscal quarter.
Fiscal Year Presentation
We operate on a 52 or 53-week fiscal year which ends on the Sunday closest to October 31. Each of fiscal years 2012,
2011 and 2010 consisted of 52 weeks. Fiscal year 2013 will consist of 53 weeks, with the extra week falling in the first quarter
of fiscal year 2013.
The financial statements included in this Annual Report on Form 10-K are presented in accordance with GAAP and
expressed in U.S. dollars.
40
Results from Operations
Year Ended October 28, 2012 Compared to Year Ended October 30, 2011
The following tables set forth our results of operations for the years ended October 28, 2012 and October 30, 2011.
Statement of Operations Data:
Net revenue
Cost of products sold:
Cost of products sold
Amortization of intangible assets
Restructuring charges
Total cost of products sold
Gross margin
Research and development
Selling, general and administrative
Amortization of intangible assets
Restructuring charges
Total operating expenses
Income from operations
Interest expense
Loss on extinguishment of debt
Other income, net
Income before income taxes
Provision for income taxes
Net income
Year Ended
October 28,
2012
October 30,
2011
(In millions)
October 28,
October 30,
2011
2012
(As a percentage of net
revenue)
$
2,364
$
2,336
100%
100%
1,164
1,133
56
2
1,222
1,142
335
199
21
5
560
582
(1)
—
4
585
22
$
563
$
56
—
1,189
1,147
317
220
22
4
563
584
(4)
(20)
1
561
9
552
49
3
—
52
48
14
8
1
—
23
25
—
—
—
25
1
49
2
—
51
49
14
9
1
—
24
25
—
(1)
—
24
—
24%
24%
Net revenue. Net revenue was $2,364 million for fiscal year 2012, compared to $2,336 million for fiscal year 2011, an
increase of $28 million or 1%. The slight increase in net revenue was primarily due to strength in our wireless communications
target market, largely offset by weakness in our industrial target market. Net revenue from our consumer and computing
peripherals target market remained relatively flat compared to fiscal year 2011, benefiting from the last time purchases of
product due to our transition from manufacturing and sales of products to an intellectual property licensing and royalty business
model in this target market. This transition was completed in the fourth quarter of fiscal year 2012.
Our three largest target markets, by revenue, are wireless communications, wired infrastructure and industrial and
automotive electronics. Our legacy consumer and computing peripherals target market has typically represented a much smaller
percentage of our overall net revenue. The percentage of total net revenue generated by sales in each of our target markets
varies from quarter to quarter, due largely to fluctuations in end-market demand, including the effects of seasonality. The first
fiscal quarter is typically our lowest revenue and cash generating quarter due, in part, to holiday shutdowns at many OEM
customers and distributors, and the first half of the fiscal year tends to generate lower revenue than the second half. However,
typical seasonality and industry cyclicality may be overshadowed by other factors such as wider macroeconomic effects, timing
of significant product transitions and launches by large OEMs and new product launches by our competitors. In fiscal year
2012, strength in the smartphone market and strong product ramps at certain of our OEMs in this market more than offset
weakness in our net revenue from industrial target market caused by continued supply chain contraction. Weakness in industrial
spending, in China in particular, also adversely impacted revenue from our industrial target market in fiscal year 2012.
41
Historically, a relatively small number of customers have accounted for a significant portion of our net revenue. During
the fiscal year ended October 28, 2012, Foxconn Technology Group companies accounted for 17% of our net revenue. Our top
10 customers for fiscal year ended October 28, 2012, which included three distributors each, collectively accounted for 62% of
our net revenue. However, we believe that aggregate sales of our products to certain of our customers exceeds the amount of
our direct sales to them. For example, we believe our aggregate sales to two OEMs, when direct sales are combined with
indirect sales to them through the respective contract manufacturers that they utilize, each accounted for more than 10% of our
net revenues, for the fiscal year ended October 28, 2012. We expect to continue to experience significant customer
concentration in future periods. The loss of, or significant decrease in demand from, any of our top ten customers could have a
material adverse effect on our business, results of operation and financial condition.
Net revenue by target market data is derived from our understanding of our end customers’ primary markets, and was as
follows:
% of Net Revenue
Wireless communications
Wired infrastructure
Industrial and automotive electronics
Consumer and computing peripherals
Total net revenue
Net Revenue
Wireless communications
Wired infrastructure
Industrial and automotive electronics
Consumer and computing peripherals
Total net revenue
Year Ended
October 28,
2012
October 30,
2011
Change
45%
28
22
5
38%
28
29
5
7%
—
(7)
—
100%
100%
Year Ended
October 28,
2012
October 30,
2011
(In millions)
$
$
1,064
$
662
518
120
$
887
659
672
118
2,364
$
2,336
$
Change
177
3
(154)
2
28
Net revenue from our wireless communications target market increased in fiscal year 2012 compared with the
corresponding prior year periods due to continued strength in mobile smartphone sales and new handset ramps incorporating
our products at major smartphone OEMs. We experienced higher demand for our multi-mode, multi-band power amplifiers, in
particular, as well as for our FBAR duplexers in fiscal year 2012. Demand for FBAR duplexers in fiscal year 2012 also
benefited from transitions by various cellular carriers to the 4G/LTE standard.
Net revenue from our wired infrastructure target market remained relatively flat in fiscal year 2012, compared with fiscal
year 2011. During fiscal year 2012, we saw strong growth from sales of our ASICs used in data center applications compared to
fiscal year 2011. Revenues from this target market for fiscal year 2012 also reflect an increase in development agreement and
intellectual property licensing revenue of $12 million. However for fiscal year 2012, these effects were substantially offset by a
decrease in high-performance computing hardware sales, as well as a pullback in sales of proprietary parallel optics at several
of our large communications OEM customers due to weak core routing spending with service providers.
Net revenue from our industrial and automotive electronics target market decreased in fiscal year 2012 compared with
fiscal year 2011. This decrease was due primarily to continued, and worse than expected, supply chain corrections and
weakness in industrial spending, in China in particular, in fiscal year 2012 compared with fiscal year 2011. These effects were
partially offset by increases in revenue from development agreements and the sale of certain of our intellectual property of
approximately $6 million, for fiscal year 2012.
Net revenue from our legacy consumer and computing peripherals target market increase slightly in fiscal year 2012
compared with fiscal year 2011. This was largely due to the last time purchases of product in the third quarter of fiscal year
2012, resulting from our transition from manufacturing and sales of products to an intellectual property licensing and royalty
business model in this target market. The transition to the intellectual property licensing royalty model was completed in the
fourth quarter of fiscal year 2012. During the fiscal year 2012, we generated approximately $23 million in intellectual property-
42
related revenue from this target market. Due to the structure of these licensing arrangements, royalty revenue may fluctuate
from period to period.
Gross margin. Gross margin was $1,142 million for fiscal year 2012 compared to $1,147 million for fiscal year 2011, a
decrease of $5 million. As a percentage of net revenue, gross margin decreased slightly to 48% for fiscal year 2012, compared
to 49% fiscal year 2011. The slight decrease in gross margin in fiscal year 2012 was driven by product mix, with a higher
proportion of sales into our wireless communication target market compared to sales into our higher-margin industrial and
automotive electronics target market. This mix effect was substantially offset by (i) an increase in revenue from development
agreements and sales and licensing of intellectual property of $51 million in fiscal year 2012 (ii) a $12 million decrease in cost
of products sold due to a revision in wafer cost allocation methodology during fiscal year 2012, and (iii) a $8 million decrease
in depreciation expense during the fiscal year 2012, resulting from a change in the duration of the useful lives of certain of our
manufacturing equipment which occurred in the fourth quarter of fiscal year 2011. During the fiscal quarter ended January 29,
2012, we revised our cost allocation methodology to fully burden with overhead costs the expense for wafers used in research
and development projects that are processed through our internal fabrication facilities, or R&D wafer cost allocation
methodology.
Research and development. Research and development expense was $335 million for fiscal year 2012, compared to $317
million for fiscal year 2011, an increase of $18 million or 6%. As a percentage of net revenue, research and development
expenses remained flat at 14% for fiscal year 2012, compared to fiscal year 2011. The majority of this increase, in absolute
dollars, resulted from investments in our wired infrastructure and wireless communications solutions. Part of the increase was
attributable to a $15 million increase in research and development project consumables and services, $12 million of which was
due to the change in R&D wafer cost allocation methodology, as discussed above under Gross margin, which increased gross
margin by a corresponding amount. The overall dollar increase in research and development expense was also attributable to an
$8 million increase in depreciation expense related to capital expenditures supporting research and development efforts, a $7
million increase in salaries and employee benefits expense, and a $6 million increase in share-based compensation expense
attributable to grants of share-based awards at higher fair market values and to our ESPP. These increases were partially offset
by a $13 million decrease in accrued incentive compensation expense related to our employee bonus program, which is a
variable expense related to our achievement of program performance metrics, and a $3 million decrease in computer software
expenses in fiscal year 2012, compared to the fiscal year 2011. The overall dollar increase in research and development expense
is also net of $7 million in accrued reimbursements pursuant to research and development grants. We expect research and
development expenses to increase in absolute dollars for the foreseeable future, due to the increasing complexity and number of
products we plan to develop.
Selling, general and administrative. Selling, general and administrative expense was $199 million for the year ended
October 28, 2012 compared to $220 million for the year ended October 30, 2011, a decrease of $21 million or 10%. As a
percentage of net revenue, selling, general and administrative expense decreased slightly to 8% for the year ended October 28,
2012 compared to 9% for the year ended October 30, 2011. Changes in components of selling, general and administrative
expense for the fiscal year 2012, compared to the fiscal year 2011, consisted of a $13 million decrease in legal expenses related
to offensive litigation matters, a $8 million decrease in accrued incentive compensation expense related to our performance-
based employee bonus program, a $4 million decrease in external services related to consulting and IT, a $3 million decrease in
depreciation expense, and a $2 million decrease in salaries and wages expense, partially offset by a $7 million increase in
share-based compensation expense attributable to grants of share-based awards at higher fair market values and to our ESPP.
Amortization of intangible assets. Total amortization of intangible assets incurred was $77 million and $78 million,
respectively, for fiscal years 2012 and 2011.
Restructuring charges. We incurred total restructuring charges of $7 million for fiscal year 2012 compared to $4 million
for fiscal year 2011, both predominantly representing employee termination costs.
Interest expense. Interest expense was $1 million for fiscal year 2012, compared to $4 million for fiscal year 2011, which
represents a decrease of $3 million. The decrease is primarily due to the redemption of the remaining $230 million aggregate
principal amount of our senior subordinated rate notes on December 1, 2010.
Loss on extinguishment of debt. During fiscal year 2011, we redeemed $230 million aggregate principal amount of our
senior subordinated notes. The redemption of the senior subordinated notes resulted in a loss on extinguishment of debt of $19
million. During fiscal year 2011, we also terminated our senior secured revolving credit facility. There were no outstanding
loan borrowings under this facility at the time of termination. This termination resulted in a loss on extinguishment of debt of
$1 million, related to the write-off of debt amortization costs and other related expenses. See Note 7. “Borrowings” to the
Consolidated Financial Statements.
Other income, net. Other income, net includes interest income, foreign currency gain (loss), loss on other-than-temporary
impairment of investment and other miscellaneous items. Other income, net was $4 million for fiscal year 2012 compared to
43
other income, net of $1 million for fiscal year 2011. This increase in other income, net for fiscal year 2012 is primarily
attributable to an increase in interest income due to higher cash balances compared to prior year.
Provision for income taxes. We recorded an income tax expense totaling $22 million for fiscal year 2012 compared to an
income tax expense of $9 million for fiscal year 2011. The increase is primarily attributable to an increase in worldwide
income, change in the jurisdictional mix of income and expense and the expiration of the research and development tax credit
in the U.S. on December 31, 2011. The provision for income taxes in 2011 is net of a $3 million tax benefit for the increase in
deferred tax assets from U.S. legislation retroactively reinstating the research and development tax credit and a $3 million tax
benefit from a change in estimate related to research and development tax credits.
Year Ended October 30, 2011 Compared to Year Ended October 31, 2010
The following tables set forth our results of operations for the years ended October 30, 2011 and October 31, 2010.
Statement of Operations Data:
Net revenue
Cost of products sold:
Cost of products sold
Amortization of intangible assets
Restructuring charges
Total cost of products sold
Gross margin
Research and development
Selling, general and administrative
Amortization of intangible assets
Restructuring charges
Total operating expenses
Income from operations
Interest expense
Loss on extinguishment of debt
Other income (expense), net
Income before income taxes
Provision for income taxes
Net income
Year Ended
October 30,
2011
October 31,
2010
October 30,
2011
October 31,
2010
(In millions)
(As a percentage of net revenue)
$
2,336
$
2,093
100%
100%
1,133
1,068
56
—
1,189
1,147
317
220
22
4
563
584
(4)
(20)
1
561
9
552
$
58
1
1,127
966
280
196
21
3
500
466
(34)
(24)
(2)
406
(9)
415
$
49
2
—
51
49
14
9
1
—
24
25
—
(1)
—
24
—
24%
51
3
—
54
46
14
9
1
—
24
22
(2)
(1)
—
19
(1)
20%
Net revenue. Net revenue was $2,336 million for fiscal year 2011, compared to $2,093 million for fiscal year 2010, an
increase of $243 million or 12%. Net revenue increased during fiscal year 2011 primarily due to strength in our wired
infrastructure target market, as well as strength in our wireless communications and industrial and automotive electronics target
markets. The year over year increase in net revenue was partially due to improved general economic conditions during the year,
compared to fiscal year 2010 and also due to our introduction of a number of new, proprietary products, which helped us to
grow net revenues substantially over the period.
44
Net revenue by target market data is derived from our understanding of our end customers’ primary markets, and was as
follows:
% of Net Revenue
Wireless communications
Industrial and automotive electronics
Wired infrastructure
Consumer and computing peripherals
Total net revenue
Net Revenue
Wireless communications
Industrial and automotive electronics
Wired infrastructure
Consumer and computing peripherals
Total net revenue
Year Ended
October 30,
2011
October 31,
2010
Change
38%
29
28
5
38%
29
24
9
100%
100%
—%
—
4
(4)
Year Ended
October 30,
2011
October 31,
2010
Change
(In millions)
$
887
672
659
118
$
796
605
509
183
2,336
$
2,093
$
$
$
91
67
150
(65)
243
Net revenue from wireless communications products, increased in absolute dollars in fiscal year 2011, compared with
fiscal year 2010, while remaining flat as a percentage of net revenue. The launch of next-generation smartphones at leading
new and existing OEM customers, which incorporate many of our proprietary products such as 3G and 4G radio frequency
filters and power amplifiers drove revenue growth during fiscal year 2011.
Net revenue from our industrial and automotive electronics products increased in absolute dollars in fiscal year 2011,
compared with fiscal year 2010, while remaining flat as a percentage of net revenue. The increase in the fiscal year 2011 was
due to particular strength in sales of optocouplers, industrial fiber optic transceivers and industrial motion encoders. We
continued to benefit from strong demand in renewable energy, smart power grid installations and transportation applications, in
both developed economies and emerging economies such as China. Demand in our industrial market slowed towards the end of
fiscal year 2011 as a result of slower economic growth in China and a slow-down in the renewable energy sector. We believe
this has caused some ongoing inventory corrections in the supply chain in this target market. The effects of this were
particularly noticeable in demand for servo drives and inverters for renewable energy applications in Europe and Asia-Pacific
towards the end of fiscal year 2011.
Net revenue from our wired infrastructure target market increased substantially, in absolute dollars and also increased as a
percentage of net revenue, in fiscal year 2011, compared with fiscal year 2010. Spending on enterprise networking data
centers, storage systems and core routing grew during the year. In addition, we introduced a number of new fiber optic
transceivers and ASICs in fiscal year 2011, compared with fiscal year 2010, which contributed to the increase in revenue. The
strong growth in sales of our ASIC products compared to fiscal year 2010 was due primarily to strength in next-generation data
center switching. Increase in revenue recognized on development contracts for future ASIC products in fiscal year 2011,
compared with fiscal year 2010, also contributed to the increase in revenue.
Net revenue from our consumer and computing peripheral target market decreased in absolute dollars and as a percentage
of net revenue in fiscal year 2011, compared with fiscal year 2010. This reflected a decline in sales of optical sensors used in
optical mice and sales of motion encoders used in applications such as optical disc drives and printers in fiscal year 2011. Net
revenue from this target market during this period was also affected by ongoing softness in the personal computer and printer
market.
Gross margin. Gross margin was $1,147 million for fiscal year 2011 compared to $966 million for fiscal year 2010, an
increase of $181 million or 19%. As a percentage of net revenue, gross margin increased to 49% for fiscal year 2011 from 46%
for fiscal year 2010. The increase in gross margin percentage was primarily attributable to continuing improvements in product
mix. During fiscal year 2011, compared fiscal year 2010, a higher proportion of our net revenues were from products sold into
the wired infrastructure target market and from sales of our proprietary products, which generally earn higher gross margins
than our other products, partially offset by continued strong sales of our wireless products and changes in the mix of our
wireless products. Gross margin benefited from a reduction in depreciation expense of $3 million in fiscal year 2011 resulting
from a change in the duration of the useful lives of certain of our assembly and test equipment. We also released charges of
45
$7 million during fiscal year 2011 for warranty costs compared to charges of $12 million recorded in fiscal year 2010. See
Note 15. “Commitments and Contingencies” to the Consolidated Financial Statements.
Research and development. Research and development expense was $317 million for fiscal year 2011, compared to
$280 million for fiscal year 2010, an increase of $37 million or 13%. As a percentage of net revenue, research and development
expenses remained flat at 14% for fiscal year 2011 compared to fiscal year 2010. The increase in absolute dollars was primarily
attributable to $13 million in additional research and development project materials and supplies, an $8 million increase in
compensation expense resulting from annual salary adjustment, a $6 million increase in share-based compensation expense due
to grants of share-based awards at higher fair market values, a $5 million increase in depreciation expense and a $2 million
increase in hardware test services in fiscal year 2011 as compared to fiscal year 2010. These increases were partially offset by
$1 million in accrued reimbursements pursuant to research and development grants.
Selling, general and administrative. Selling, general and administrative expense was $220 million for the year ended
October 30, 2011 compared to $196 million for the year ended October 31, 2010, an increase of $24 million or 12%. As a
percentage of net revenue, selling, general and administrative expense remained flat at 9% for the year ended October 30, 2011
compared to the year ended October 31, 2010. The increase in absolute dollars was attributable to an $8 million increase in
legal expenses related to offensive litigation matters initiated in fiscal year 2010, a $7 million increase in compensation expense
resulting from annual salary adjustments, a $6 million increase in share-based compensation expense due to grants of share-
based awards at higher fair market values, a $2 million increase in sales commissions expense paid to our sales employees, and
a $2 million increase in third party IT fees, partially offset by a $5 million decrease in incentive compensation expense related
to our employee bonus program, which is a variable expense related to our overall profitability in fiscal year 2011 as compared
to fiscal year 2010.
Amortization of intangible assets. Total amortization of intangible assets incurred was $78 million and $79 million,
respectively, for fiscal years 2011 and 2010.
Restructuring charges. During fiscal year 2011, we incurred total restructuring charges of $4 million, compared to $4
million for fiscal year 2010, both predominantly representing employee termination costs.
Interest expense. Interest expense was $4 million for fiscal year 2011, compared to $34 million for fiscal year 2010,
which represents a decrease of $30 million. The decrease is primarily due to the redemption of the remaining $230 million
aggregate principal amount of our senior subordinated rate notes on December 1, 2010.
Loss on extinguishment of debt. During fiscal year 2011, we redeemed $230 million aggregate principal amount of our
senior subordinated notes. The redemption of the senior subordinated notes resulted in a loss on extinguishment of debt of $19
million. During fiscal year 2011, we also terminated our senior secured revolving credit facility. There were no outstanding
loan borrowings under this facility at the time of termination. This termination resulted in a loss on extinguishment of debt of
$1 million, related to the write-off of debt amortization costs and other related expenses. During fiscal year 2010, we redeemed
$318 million aggregate principal amount of our senior fixed rate notes and the remaining $46 million aggregate principal
amount of our senior floating rate notes. The redemption of the senior fixed rate notes and senior floating rate notes in fiscal
year 2010 resulted in a loss on extinguishment of debt of $24 million. See Note 7. “Borrowings” to the Consolidated Financial
Statements.
Other income (expense), net. Other income (expense), net includes interest income, foreign currency gain (loss), loss on
other-than-temporary impairment of investment and other miscellaneous items. Other income, net was $1 million for fiscal year
2011 compared to other expense, net was $2 million for fiscal year 2010. The increase to other income, net for fiscal year 2011,
compared to other expense, net for fiscal year 2010 is primarily attributable to a decrease in foreign currency losses, and an
increase in interest income due primarily to higher cash balances compared to the same period in prior year.
Provision for (benefit from) income taxes. We recorded an income tax expense totaling $9 million for fiscal year 2011
compared to an income tax benefit of $9 million for fiscal year 2010. The provision for income taxes in 2011 included a $3
million tax benefit for the increase in deferred tax assets from U.S. legislation retroactively reinstating the research and
development tax credit and a $3 million tax benefit from a change in estimate related to research and development tax credits.
The benefit from income taxes in 2010 included a $29 million benefit from the release of deferred tax asset valuation
allowances, mainly associated with irrevocably calling our senior subordinated notes for redemption in October 2010, partially
offset by a write-off of $6 million of deferred tax assets resulting from the grant of a new tax incentive in Malaysia.
Liquidity and Capital Resources
The following section discusses our principal liquidity and capital resources as well as our principal liquidity
requirements and sources and uses of cash. Our cash and cash equivalents are maintained in highly liquid investments with
remaining maturities of 90 days or less at the time of purchase. We believe our cash equivalents are liquid and accessible. The
majority of our cash and cash equivalents are held in financial institutions in Singapore.
46
Our primary sources of liquidity as at October 28, 2012 consisted of: (1) approximately $1,084 million in cash and cash
equivalents, (2) cash we expect to generate from operations and (3) our $300 million revolving credit facility, which is
committed until March 31, 2015, all of which is available to be drawn. Our short-term and long-term liquidity requirements
primarily arise from: (i) working capital requirements, (ii) research and development and capital expenditure needs, including
acquisitions from time to time and (iii) quarterly dividend payments (if and when declared by our Board) and any share
repurchases we may choose to make under our share repurchase program. Our ability to fund these requirements will depend
on our future cash flows, which are determined by future operating performance and are, therefore, subject to prevailing global
macroeconomic conditions and financial, business and other factors, some of which are beyond our control.
In June 2011, our board of directors authorized the repurchase of up to 15 million of the Company’s outstanding
ordinary shares, not to exceed $500 million, in the aggregate, referred to as the 2011 share repurchase program, in open market
transactions prior to our 2012 Annual General Meeting of the Company, which was held on April 4, 2012. During the year
ended October 28, 2012, we repurchased an aggregate of 2.8 million shares for an aggregate purchase price of $85 million,
under the 2011 share repurchase program. On April 4, 2012, our Board of Directors authorized the Company to repurchase up
to 15 million of its ordinary shares, referred to as the 2012 share repurchase program. For the fiscal year ended October 28,
2012, the Company repurchased 0.7 million shares for an aggregate of purchase price of $25 million in cash under the 2012
share repurchase program. Share repurchases under our share repurchase programs are made in the open market at such times
and in such amounts as the Company deems appropriate. The timing and actual number of shares repurchased depend on a
variety of factors including price, market conditions and applicable legal requirements. The 2012 share repurchase program
does not obligate the Company to repurchase any specific number of shares and may be suspended or terminated at any time
without prior notice. The 2012 share repurchase program will expire at the Company's 2013 AGM, unless earlier terminated.
Our cash and cash equivalents increased by $255 million to $1,084 million at October 28, 2012 from $829 million at
October 30, 2011 primarily as a result of $693 million in cash provided by operating activities and $44 million in cash received
from the issuance of ordinary shares pursuant to the exercise of options under our employee share option plans and purchase
rights under our employee share purchase plan. Partially offsetting this increase were $241 million cash paid for capital
expenditures, $110 million of cash paid to repurchase 3.5 million of our ordinary shares, and $137 million in dividends paid to
our shareholders.
We believe that our cash and cash equivalents on hand, and cash flows from operations, combined with availability under
our revolving credit facility, will provide sufficient liquidity to fund our current obligations, projected working capital
requirements, capital spending, quarterly dividends (if and when declared by our Board) and any share repurchases we may
choose to make under our share repurchase program for at least the next 12 months. We anticipate that our capital expenditures
for fiscal year 2013 may be incrementally higher than for fiscal year 2012, due primarily to increased spending on capacity
expansion in our Fort Collins internal fabrication facility, as well as spending on equipment to support various research and
development projects. If we do not have sufficient cash to fund our operations or finance growth opportunities, including
acquisitions, or unanticipated capital expenditures, our business and financial condition could suffer. We could also reduce
certain expenditures such as repurchases of our ordinary shares and payment of our quarterly dividend. In such circumstances
we may seek to obtain debt or equity financing in the future. However, we cannot assure that such additional financing will be
available on terms acceptable to us or at all. Our ability to service any indebtedness we may incur, including under our
revolving credit facility, will depend on our ability to generate cash in the future. In addition, even though we may not need
additional funds, we may still elect to sell additional debt or equity securities or increase our current credit facility for other
reasons.
The following table summarizes our cash flows for the periods indicated (in millions):
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Net increase in cash and cash equivalents
October 28,
2012
Year Ended
October 30,
2011
October 31,
2010
$
$
693
(244)
(194)
255
$
$
726
(122)
(336)
268
$
$
510
(86)
(335)
89
Cash Flows for the Years Ended October 28, 2012 and October 30, 2011
Operating Activities
Net cash provided by operating activities during the year ended October 28, 2012 was $693 million. The net cash
provided by operating activities was principally due to net income of $563 million and non-cash charges of $217 million, offset
by changes in operating assets and liabilities of $87 million.
47
Accounts receivable increased to $341 million at the end of fiscal year 2012 from $328 million at the end of fiscal year
2011. Accounts receivable days sales outstanding increased to 51 days at October 28, 2012 from 48 days at October 30, 2011
primarily due to linearity of shipments in the last three months of fiscal year 2012 as compared to the last three months of fiscal
year 2011. We use the current quarter revenue in our calculation of number of days sales outstanding.
Inventory was $194 million at both October 28, 2012 and October 30, 2011. Inventory days on hand remained flat at 58
days as of both October 28, 2012 and October 30, 2011. We use the current quarter cost of products sold in our calculation of
days on hand of inventory.
Other current assets increased to $72 million at October 28, 2012 from $42 million at the end of fiscal year 2011
primarily due to a $16 million increase in cash advances made to certain of our existing distributors for anticipated distributor
price adjustments, a $5 million increase in receivables from our contract manufacturers for materials purchased by us on their
behalf to secure pricing, a $5 million increase in receivables from intellectual property-related revenue, a $3 million increase in
receivables from government grants, a $3 million increase in assets related to the employee deferred compensation plan and a
$1 million increase in deposits paid for fixed assets, partially offset by a $4 million decrease in current deferred taxes, net of
valuation allowances. During the second quarter of fiscal year 2012, we entered into agreements with certain distributors
whereby we agreed to advance cash to them to fund estimated price adjustments. These advances are estimated based on an
agreed percentage of the rolling previous three months average ending inventory, as reported by the distributor, multiplied by
the rolling previous three months price adjustment credits as a percentage of the distributor's reported rolling previous three
months resales. The terms of these advances are set forth in binding legal agreements and are unsecured, bear no interest on
unsettled balances, and are due upon demand. The agreements governing these advances can be cancelled by us at any time.
Such advances have no impact on revenue recognition or our consolidated statements of operations and are recorded in other
current assets on our consolidated balance sheets.
Current liabilities decreased to $346 million at the end of fiscal year 2012 from $350 million at the end of fiscal year 2011
mainly due to a decrease in employee compensation and benefits accruals and other current liabilities, partially offset by an
increase in accounts payable. Employee compensation and benefits decreased to $61 million at the end of fiscal year 2012
from $89 million at the end of fiscal year 2011 mainly due to performance levels under our employee bonus program related to
our overall profitability and other performance metrics. Other current liabilities decreased to $36 million at the end of fiscal
year 2012 from $38 million at the end of fiscal year 2011 primarily due to a $3 million release from and $1 million utilization
of warranty accruals, a $2 million decrease in supplier inventory liabilities and $2 million recognition of previously deferred
revenue, offset by a $6 million increase in income tax and sales and use tax payables. Accounts payable increased to $248
million as at October 28, 2012 from $221 million at the end of fiscal year 2011 due to timing of disbursements and a higher
volume of purchases to support the increase in revenue over the year.
Other long-term assets increased to $66 million at the end of fiscal year 2012 from $61 million at the end of fiscal year
2011 mainly due to the increase in long-term deferred tax assets. Other long-term liabilities increased to $95 million at the end
of fiscal year 2012 from $86 million at the end of fiscal year 2011 mainly due to the change in actuarial assumptions used in the
valuation of our post-retirement benefit and defined benefit pension plans liabilities and the net periodic pension expenses
recorded during the year for our post-retirement benefit and defined benefit pension plans.
Net cash provided by operating activities during the year ended October 30, 2011 was $726 million. The net cash
provided by operating activities was principally due to net income of $552 million and non-cash charges of $209 million, offset
by changes in operating assets and liabilities of $35 million.
Investing Activities
Net cash used in investing activities for the year ended October 28, 2012 was $244 million. The net cash used in
investing activities principally related to purchases of property, plant and equipment of $241 million, in connection with the
expansion of our internal manufacturing facilities in Fort Collins, Colorado and $4 million related to immaterial business
acquisitions completed in fiscal year 2012.
Net cash used in investing activities for the year ended October 30, 2011 was $122 million. The net cash used in investing
activities principally related to purchases of property, plant and equipment of $112 million and $8 million related to a business
acquisition completed in fiscal year 2011.
Financing Activities
Net cash used in financing activities for the year ended October 28, 2012 was $194 million. The net cash used in
financing activities was principally due to an aggregate of $137 million in payments of cash dividends to shareholders and the
payment of an aggregate of $110 million to repurchase and cancel 3.5 million shares of our ordinary shares under our share
repurchase program. This was partially offset by $44 million in net proceeds provided by the exercises of options, and
purchases of our ordinary shares by employees under our ESPP.
48
Net cash used in financing activities for the year ended October 30, 2011 was $336 million. The net cash used in
financing activities was principally due to the redemption of the remaining $230 million in principal amount of senior
subordinated notes, an aggregate of $86 million in payments of cash dividends to shareholders and the payment of an aggregate
of $93 million to repurchase and cancel 2.6 million shares of our ordinary shares under our share repurchase program. This
was partially offset by $70 million in net proceeds provided by the exercises of options and purchases of our ordinary shares by
employees under our ESPP.
Cash Flows for the Years Ended October 30, 2011 and October 31, 2010
Operating Activities
Net cash provided by operating activities during the year ended October 30, 2011 was $726 million. The net cash
provided by operating activities was principally due to net income of $552 million and non-cash charges of $209 million, offset
by changes in operating assets and liabilities of $35 million.
Accounts receivable increased to $328 million at the end of fiscal year 2011 from $285 million at the end of fiscal year
2010. Accounts receivable days sales outstanding increased to 48 days at October 30, 2011 from 45 days at October 31, 2010
primarily due to linearity of shipments in the last three months of fiscal year 2011 as compared to the last three months of fiscal
year 2010. We use the current quarter revenue in our calculation of number of days sales outstanding.
Inventory increased to $194 million at October 30, 2011 from $189 million at October 31, 2010. The increase in inventory
dollar amount is attributable to anticipated increased demand. Inventory days on hand decreased slightly from 61 days at
October 31, 2010 to 58 days at October 30, 2011. We use the current quarter cost of products sold in our calculation of days on
hand of inventory.
Current liabilities decreased to $350 million at the end of fiscal year 2011 from $565 million at the end of fiscal year 2010
mainly due to the redemption in December 2010 of $230 million of long-term debt that was classified as current at October 31,
2010 (as it had been irrevocably called for redemption before the fiscal year end) and decreases in accrued interest and other
current liabilities, offset by increases in accounts payable and employee compensation and benefits accruals. Accrued interest
decreased to less than $1 million at October 30, 2011 from $12 million at the end of fiscal year 2010 mainly due to the debt
redemption and semi-annual interest payments made during fiscal year 2011. Other current liabilities decreased to $38 million
at the end of fiscal year 2011 from $41 million at the end of fiscal year 2010 primarily due to an $11 million decrease in
accrued warranty related to settlement payments and reassessment of replacement parts exposure, partially offset by a $4
million increase in current income tax payable and a $3 million increase in deferred revenue. Accounts payable increased to
$221 million as at October 30, 2011 from $198 million at the end of fiscal year 2010 due to timing of disbursements and higher
volume of purchases to support the increase in revenue over the year. Employee compensation and benefits increased to $89
million at the end of fiscal year 2011 from $82 million at the end of fiscal year 2010 mainly due to salary increases and our
employee bonus program related to our overall profitability.
Other long-term assets increased to $61 million at the end of fiscal year 2011 from $44 million at the end of fiscal year
2010 mainly due to the increase in long-term deferred tax assets. Other long-term liabilities increased to $86 million at the end
of fiscal year 2011 from $83 million at the end of fiscal year 2010 mainly due to the change in actuarial assumptions used in the
valuation of our U.S. post-retirement benefit plan liabilities and the net periodic pension expenses recorded during the year for
our U.S. post-retirement benefit plan.
Net cash provided by operating activities during the year ended October 31, 2010 was $510 million. The net cash
provided by operating activities was principally due to net income of $415 million and non-cash charges of $194 million, offset
by changes in operating assets and liabilities of $99 million.
Investing Activities
Net cash used in investing activities for the year ended October 30, 2011 was $122 million. The net cash used in investing
activities principally related to purchases of property, plant and equipment of $112 million, in connection with the expansion of
our internal manufacturing facilities in Fort Collins, Colorado, and in Singapore and $8 million related to a business acquisition
completed in fiscal year 2011.
Net cash used in investing activities for the year ended October 31, 2010 was $86 million. The net cash used in investing
activities principally related to purchases of property, plant and equipment of $79 million and acquisitions and investments of
$9 million.
49
Financing Activities
Net cash used in financing activities for the year ended October 30, 2011 was $336 million. The net cash used in
financing activities was principally due to the redemption of the remaining $230 million in principal amount of our senior
subordinated notes, an aggregate of $86 million in payments of cash dividends to shareholders and the payment of an aggregate
of $93 million to repurchase and cancel 2.6 million shares of our ordinary shares under our share repurchase program. This was
partially offset by $70 million in net proceeds provided by the exercises of options and purchases of our ordinary shares by
employees under our ESPP.
Net cash used in financing activities for the year ended October 31, 2010 was $335 million, comprised mainly of the
redemption of $318 million in principal amount of senior fixed rate notes and $46 million principal amount of senior floating
rate notes, offset by $28 million provided by the issuance of ordinary shares, upon the exercise of options.
Indebtedness
As of October 28, 2012, we had $3 million of capital lease obligations. At such date, we also had $300 million of
borrowing capacity available under our revolving credit facility.
Revolving Credit Facility
Our current credit agreement provides for a $200 million senior unsecured revolving credit facility with a term of four
years, ending on March 31, 2015. The revolving credit facility is available for cash borrowings and for the issuance of letters of
credit up to a sub-limit of $40 million. The credit agreement contains financial covenants requiring Avago Finance to maintain
a maximum leverage ratio and a minimum interest coverage ratio and customary restrictive covenants, including certain
restrictions on the ability of our subsidiaries (including Avago Finance) to pay dividends, and customary events of default. In
addition, the credit agreement permits Avago Finance to increase the aggregate commitments under the credit agreement
from $200 million to $300 million, at any time, subject to certain conditions and the receipt of sufficient commitments for such
increase from the lenders. Compliance with financial covenants is required for the term of the credit agreement irrespective of
the amount of borrowing outstanding. On August 6, 2012, Avago Finance exercised the accordion feature under its credit
agreement to increase the aggregate commitments for its unsecured revolving credit facility from $200 million to $300 million.
This increase in the revolving credit facility commitment result in a corresponding increase in commitment fees payable under
the credit agreement. Certain subsidiaries of the Company guarantee the revolving credit facility.
Borrowings under our senior unsecured revolving credit facility are subject to floating rates of interest and will bear
interest at a rate per annum equal to:
Base Rate Advances: the highest of (x) Citibank's publicly announced base rate from time to time, (y) the U.S. Federal
funds rate plus 0.5% and (z) the British Bankers Association Interest Settlement Rate, or BBA LIBOR Rate applicable to
Dollars for a period of one month plus 1.00%; or
Eurocurrency Advances: the rate per annum obtained by dividing (x) the BBA LIBOR Rate for deposits in Dollars for the
applicable interest period by (y) a percentage equal to 100% minus the Eurocurrency liabilities reserve percentage
specified by the U.S. Federal Reserve System for such interest period,
plus, in each case, a margin based on the credit rating of Avago Finance's long-term unsecured debt or Avago Finance's
corporate credit rating, as applicable, or the Avago Public Debt Rating. Avago Finance is also required to pay the lenders a
commitment fee at a rate per annum that varies based on the Public Debt Rating and the aggregate amount of the outstanding
commitments under the credit agreement.
As of October 28, 2012, we had no borrowings outstanding under the revolving credit facility and were in compliance
with the financial covenants under our credit agreement. We did not draw on our revolving credit facility during fiscal year
2012.
Contractual Commitments
Our cash flows from operations are dependent on a number of factors, including fluctuations in our operating results,
accounts receivable collections, inventory management, and timing of payments. As a result, the impact of contractual
obligations on our liquidity and capital resources in future periods should be analyzed in conjunction with such factors.
50
The following table sets forth our contractual obligations and commitments as of October 28, 2012 for the fiscal periods
noted (in millions):
Operating leases(1)
Capital leases(2)
Purchase Commitments (3)
Revolving credit facility commitments(4)
Other Contractual Commitments(5)
_______________________________________
Total
2013
2014 to
2015
2016 to
2017
Thereafter
$
$
97
3
121
3
53
$
10
1
121
1
21
$
20
2
—
2
20
$
9
—
—
—
12
58
—
—
—
—
(1) Includes operating lease commitments for facilities and equipment that we have entered into with third parties.
(2) Includes capital lease commitments for equipment that we have entered into with third parties.
(3) We purchase components from a variety of suppliers and use several contract manufacturers to provide manufacturing
services for our products. During the normal course of business, we issue purchase orders with estimates of our
requirements several months ahead of the delivery dates. However, our agreements with these suppliers usually allow
us the option to cancel, reschedule, and adjust our requirements based on our business needs prior to firm orders being
placed. Typically purchase orders outstanding with delivery dates within 30 days are non-cancelable.
We also make purchases from a variety of vendors in connection with the expansion of our Fort Collins internal
fabrication facility. These purchases are typically conducted on a purchase order basis and the amount shown in the
table includes $33 million in cancelable and non-cancelable outstanding purchase obligations under such purchase
orders as of October 28, 2012.
In addition to the above non-cancelable purchase commitments, we record a liability for firm, non-cancelable, and
unconditional purchase commitments for quantities in excess of our future demand forecasts in conjunction with our
write-down of inventory. As of October 28, 2012, the liability for our firm, non-cancelable and unconditional purchase
commitments related to inventory suppliers was $2 million. This amount is included in other current liabilities in our
balance sheets at October 28, 2012, and are excluded from the preceding table.
(4) Represents commitment fees and letter of credit fees.
(5) Represents amounts payable pursuant to agreements related to outsourced IT, human resources, financial infrastructure
outsourcing services and other services agreements.
Due to the inherent uncertainty with respect to the timing of future cash outflows associated with our unrecognized tax
benefits at October 28, 2012, we are unable to reliably estimate the timing of cash settlement with the respective taxing
authority. Therefore, $22 million of unrecognized tax benefits classified as long-term income tax payable in the consolidated
balance sheet as of October 28, 2012 have been excluded from the contractual obligations table above.
Off-Balance Sheet Arrangements
We had no material off-balance sheet arrangements at October 28, 2012 as defined in Item 303(a)(4)(ii) of SEC
Regulation S-K.
Indemnifications to Hewlett-Packard and Agilent
Agilent Technologies, Inc. has given multiple indemnities to Hewlett-Packard Company in connection with its activities
prior to its spin-off from Hewlett-Packard Company in June 1999 for the businesses that constituted Agilent prior to the spin-
off. As the successor to the SPG business of Agilent, we may acquire responsibility for indemnifications related to assigned
intellectual property agreements. Additionally, when we completed the SPG Acquisition in December 2005, we provided
indemnities to Agilent with regard to Agilent’s conduct of the SPG business prior to the SPG Acquisition. In our opinion, the
fair value of these indemnifications is not material and no amount has been accrued in the accompanying consolidated financial
statements with respect to these indemnification obligations.
Other Indemnifications
As is customary in our industry and as provided for in local law in the United States and other jurisdictions, many of our
standard contracts provide remedies to our customers and others with whom we enter into contracts, such as defense,
settlement, or payment of judgment for intellectual property claims related to the use of our products. From time to time, we
indemnify customers, as well as our suppliers, contractors, lessors, lessees, companies that purchase our businesses or assets
51
and others with whom we enter into contracts, against combinations of loss, expense, or liability arising from various triggering
events related to the sale and the use of our products, the use of their goods and services, the use of facilities and state of our
owned facilities, the state of the assets and businesses that we sell and other matters covered by such contracts, usually up to a
specified maximum amount. In addition, from time to time we also provide protection to these parties against claims related to
undiscovered liabilities, additional product liability or environmental obligations. In our experience, claims made under such
indemnifications are rare and the associated estimated fair value of the liability is not material.
Accounting Changes and Recent Accounting Standards
For a description of accounting changes and recent accounting standards, including the expected dates of adoption and
estimated effects, if any, on our consolidated financial statements, see Note 2. “Summary of Significant Accounting Policies” to
Consolidated Financial Statements of this Annual Report on Form 10-K.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Derivative Instruments
Although a majority of our revenue and operating expenses is denominated in U.S. dollars, and we prepare our financial
statements in U.S. dollars in accordance with GAAP, a portion of our revenue and operating expenses is in foreign currencies.
Our revenues, costs and expenses and monetary assets and liabilities are exposed to changes in currency exchange rates as a
result of our global operating and financing activities. To mitigate the exposures resulting from the changes in the exchange
rates of these currencies, we enter into foreign exchange forward contracts to hedge a portion of these exposures. Contracts that
meet accounting criteria are designated at inception as hedges of the related foreign currency exposures, which include
committed and anticipated transactions that are denominated in currencies other than the U.S. dollar. The criteria for
designating a derivative as a hedge include the assessment of the instrument’s effectiveness in risk reduction, matching of the
derivative instrument to its underlying transaction, and the assessment of the probability that the underlying transaction will
occur. Our foreign exchange forward contracts generally mature within three to six months. We do not use derivative financial
instruments for speculative or trading purposes. As of October 28, 2012, there were no foreign exchange forward contracts
outstanding. Losses from foreign currency transactions, as well as derivative instruments, are included in our consolidated
statements of operations in the amounts of $0 million, $0 million and $4 million for the years ended October 28, 2012,
October 30, 2011 and October 31, 2010.
Interest Rate Risk
Borrowings under our revolving credit facility are subject to floating rates of interest. Any significant changes in interest
rates would increase our borrowing costs under our credit facility. However, a hypothetical increase of 100 basis points in
short-term interest rates would not have a material impact on our revolving credit facility. We did not have any borrowings
outstanding under this facility during fiscal year 2012 or as at October 28, 2012.
European Debt Exposures
We actively monitor our exposure to the European financial markets, including the impact of sovereign debt issues. We
also mitigate our risk by investing in fixed deposits with various financial institutions and we limit the amount we hold with
any one institution. We do not have any direct investments in the sovereign debt of European countries. From time to time, we
may have deposits with major European financial institutions. We also mitigate collection risks from our customers by
performing regular credit evaluations of our customers' financial conditions and require collateral, such as letters of credit and
bank guarantees, in certain circumstances. As of October 28, 2012, we do not believe that we have any material direct or
indirect exposure to the European financial markets.
52
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AVAGO TECHNOLOGIES LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Consolidated Statements of Shareholders’ Equity and Comprehensive Income (Loss)
Notes to Consolidated Financial Statements
Page
54
55
56
57
58
59
53
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Avago Technologies Limited:
In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all
material respects, the financial position of Avago Technologies Limited and its subsidiaries at October 28, 2012 and October
30, 2011, and the results of their operations and their cash flows for each of the three years in the period ended October 28,
2012 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion,
the Company maintained, in all material respects, effective internal control over financial reporting as of October 28, 2012,
based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial
statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting
appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement
schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our
audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of
material misstatement and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
San Jose, California
December 17, 2012
54
AVAGO TECHNOLOGIES LIMITED
CONSOLIDATED BALANCE SHEETS
ASSETS
Current assets:
Cash and cash equivalents
Trade accounts receivable, net
Inventory
Other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Intangible assets, net
Other long-term assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Employee compensation and benefits
Capital lease obligations — current
Other current liabilities
Total current liabilities
Long-term liabilities:
Capital lease obligations — non-current
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 15)
Shareholders’ equity:
Ordinary shares, no par value; 245,477,491 shares and 245,962,320 shares issued and
outstanding on October 28, 2012 and October 30, 2011, respectively
Retained earnings
Accumulated other comprehensive income (loss)
Total shareholders’ equity
Total liabilities and shareholders’ equity
1,479
951
(11)
2,419
$
2,862
$
The accompanying notes are an integral part of these consolidated financial statements.
55
October 28,
2012
October 30,
2011
(In millions, except share
amounts)
$
1,084
$
341
194
72
1,691
503
180
422
66
829
328
194
42
1,393
316
177
499
61
2,862
$
2,446
$
$
248
$
61
1
36
346
2
95
443
221
89
2
38
350
4
86
440
1,479
525
2
2,006
2,446
AVAGO TECHNOLOGIES LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
Net revenue
Cost of products sold:
Cost of products sold
Amortization of intangible assets
Restructuring charges
Total cost of products sold
Gross margin
Research and development
Selling, general and administrative
Amortization of intangible assets
Restructuring charges
Total operating expenses
Income from operations
Interest expense
Loss on extinguishment of debt
Other income (expense), net
Income before income taxes
Provision for (benefit from) income taxes
Net income
Net income per share:
Basic
Diluted
Weighted average shares :
Basic
Diluted
October 28,
2012
Year Ended
October 30,
2011
October 31,
2010
(In millions, except per share data)
$
2,364
$
2,336
$
2,093
1,164
1,133
1,068
56
2
1,222
1,142
335
199
21
5
560
582
(1)
—
4
585
22
56
—
1,189
1,147
317
220
22
4
563
584
(4)
(20)
1
561
9
$
$
$
563
$
552
$
2.30
2.25
$
$
2.25
2.19
$
$
245
250
245
252
58
1
1,127
966
280
196
21
3
500
466
(34)
(24)
(2)
406
(9)
415
1.74
1.69
238
246
—
Dividends declared and paid per share
$
0.56
$
0.35
$
The accompanying notes are an integral part of these consolidated financial statements.
56
AVAGO TECHNOLOGIES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Amortization of debt issuance costs
Loss on extinguishment of debt
Loss on disposal of property, plant and equipment
Impairment of investment and loan receivable from investee
Share-based compensation
Tax benefits from share-based compensation
Excess tax benefits from share-based compensation
Changes in assets and liabilities, net of acquisitions:
Trade accounts receivable, net
Inventory
Accounts payable
Employee compensation and benefits
Other current assets and current liabilities
Other long-term assets and long-term liabilities
Net cash provided by operating activities
Cash flows used in investing activities:
Purchase of property, plant and equipment
Acquisitions and investments, net of cash acquired
Proceeds from disposal of property, plant and equipment
Proceeds from insurance claims on property, plant and equipment
Loan receivable from cost method investee
Net cash used in investing activities
Cash flows used in financing activities:
Proceeds from government grants
Debt repayments
Debt financing costs
Payment on capital lease obligation
Issuance of ordinary shares, net of issuance costs
Repurchase of ordinary shares
Excess tax benefits from share-based compensation
Dividend payments to shareholders
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure of cash flow information:
Cash paid for interest
Cash paid for income taxes
October 28,
2012
Year Ended
October 30,
2011
(In millions)
October 31,
2010
$
563
$
552
$
155
157
—
—
3
2
53
13
(9)
(13)
—
(2)
(28)
(32)
(12)
693
(241)
(4)
—
1
—
(244)
2
—
—
(2)
44
(110)
9
(137)
(194)
255
829
1,084
1
9
$
$
$
1
6
1
—
38
14
(8)
(42)
(5)
25
7
(13)
(7)
726
(112)
(9)
—
—
(1)
(122)
—
(230)
(2)
(3)
70
(93)
8
(86)
(336)
268
561
829
14
7
$
$
$
$
$
$
415
159
2
8
2
—
25
—
(2)
(96)
(26)
23
27
(16)
(11)
510
(79)
(9)
2
—
—
(86)
—
(364)
—
(2)
28
—
3
—
(335)
89
472
561
46
6
The accompanying notes are an integral part of these consolidated financial statements.
57
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)
AVAGO TECHNOLOGIES LIMITED
Balance as of November 1, 2009
235,392,897
$
1,393
$
(356)
$
3
$
1,040
$
(49)
Ordinary Shares
Shares
Amount
Retained
Earnings
(Accumulated
Deficit)
Accumulated
Other
Comprehensive
Income (loss)
(In millions, except share amounts)
Total
Shareholders’
Equity
Comprehensive
Income (loss)
Issuance of ordinary shares in connection with equity incentive
plans
4,495,334
Share-based compensation
Tax benefits from share-based compensation
Changes in accumulated other comprehensive income (loss):
Actuarial losses and prior service costs associated with post-
retirement benefit and defined benefit pension plans, net of
taxes
Net income
Balance as of October 31, 2010
Issuance of ordinary shares in connection with equity incentive
plans
Repurchase of ordinary shares
Share-based compensation
Tax benefits from share-based compensation
Cash dividends paid to shareholders
Changes in accumulated other comprehensive income (loss):
Unrealized gain on available-for-sale investment
Actuarial gains and prior service costs associated with post-
retirement benefit and defined benefit pension plans, net of
taxes
Net income
Balance as of October 30, 2011
Issuance of ordinary shares in connection with equity incentive
plans
Repurchase of ordinary shares
Share-based compensation
Tax benefits from share-based compensation
Cash dividends paid to shareholders
Changes in accumulated other comprehensive income (loss):
Actuarial losses and prior service costs associated with post-
retirement benefit and defined benefit pension plans, net of
taxes
Net income
—
—
—
—
28
25
4
—
—
239,888,231
1,450
8,711,944
(2,637,855)
—
—
—
—
—
—
70
(93)
38
14
—
—
—
—
245,962,320
1,479
3,023,933
(3,508,762)
44
(110)
—
—
—
—
—
53
13
—
—
—
Balance as of October 28, 2012
245,477,491
$
1,479
$
—
—
—
—
415
59
—
—
—
—
(86)
—
—
552
525
—
—
—
(137)
—
563
951
—
—
—
(7)
—
(4)
—
—
—
—
—
3
3
—
2
—
—
—
—
28
25
4
(7)
$
415
1,505
$
(7)
415
408
70
(93)
38
14
(86)
$
3
3
552
2,006
$
44
(110)
53
13
(137)
3
3
552
558
(13)
—
(13)
$
563
$
(11)
$
2,419
$
(13)
563
550
The accompanying notes are an integral part of these consolidated financial statements.
58
AVAGO TECHNOLOGIES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Overview and Basis of Presentation
Overview
Avago Technologies Limited, or the "Company", was organized under the laws of the Republic of Singapore in August
2005. We are the successor to the Semiconductor Products Group, or SPG, of Agilent Technologies, Inc., or Agilent. On
December 1, 2005, we acquired substantially all of the assets of SPG from Agilent, or the SPG Acquisition.
We are a designer, developer and global supplier of analog semiconductor devices with a focus on III-V based products.
We offer products in three primary target markets. Our wireless communications, wired infrastructure and industrial and
automotive electronics account for the substantial majority of our revenues. Applications for our products in these target
markets include cellular phones, consumer appliances, data networking and telecommunications equipment, enterprise storage
and servers, factory automation and displays.
References herein to "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
Fiscal Periods
We operate on a 52 or 53-week fiscal year which ends on the Sunday closest to October 31. The first quarter of our fiscal
year 2012 ended on January 29, 2012, the second quarter ended on April 29, 2012, the third quarter ended on July 29, 2012 and
the fourth quarter ended on October 28, 2012.
Principles of Consolidation
Our consolidated financial statements include the accounts of Avago and our wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
2.
Summary of Significant Accounting Policies
Use of estimates. The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates, and such differences could affect the results of operations reported in future
periods.
Cash and cash equivalents. We consider all highly liquid investment securities with original or remaining maturities of
three months or less at the date of purchase to be cash equivalents. We determine the appropriate classification of our cash and
cash equivalents at the time of purchase. The majority of our cash and cash equivalents are held in financial institutions in
Singapore. Cash equivalents included $759 million and $522 million of time deposits as of October 28, 2012 and October 30,
2011, respectively.
Trade accounts receivable, net. Trade accounts receivable are recorded at the invoiced amount and do not bear interest.
Such accounts receivable have been reduced by an allowance for doubtful accounts, which is our best estimate of the amount of
probable credit losses in our existing accounts receivable. We determine the allowance based on customer specific experience
and the aging of such receivables, among other factors. These allowances were $1 million each as of October 28, 2012 and
October 30, 2011. Accounts receivable are also recorded net of sales returns and distributor allowances. These amounts are
recorded when it is both probable and estimable that discounts will be granted or products will be returned. Aggregate accounts
receivable allowances at October 28, 2012 and October 30, 2011 were $37 million and $23 million, respectively.
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 in the
U.S. and internationally. Credit risk with respect to accounts receivable is largely diversified, due to the large number of entities
comprising our customer base and their dispersion across many different industries and geographies. We also mitigate
59
collection risks from our customers by performing regular credit evaluations of our customers’ financial conditions, and require
collateral, such as letters of credit and bank guarantees, in certain circumstances.
We sell our products through our direct sales force, manufacturers representatives and distributors. One customer
accounted for 32% of our net accounts receivable balance at October 28, 2012. Two customers accounted for 15% and 10%,
respectively, of our net accounts receivable balance at October 30, 2011.
For the year ended October 28, 2012, one customer represented 17% of our net revenue. For the years ended October 30,
2011 and October 31, 2010, no customer represented 10% or more of our net revenue.
Concentration of other risks. The semiconductor industry is characterized by rapid technological change, competitive
pricing pressures and cyclical market patterns. Our financial results are affected by a wide variety of factors, including general
economic conditions worldwide, economic conditions specific to the semiconductor industry, timely implementation of new
manufacturing technologies, ability to safeguard patents and other intellectual property in a rapidly evolving market and
reliance on assembly and test subcontractors, third-party wafer fabricators and independent distributors. In addition, the
semiconductor market has historically been cyclical and subject to significant economic downturns at various times. We are
exposed to the risk of obsolescence of our inventory depending on the mix of future business.
Inventory. We value our inventory at the lower of the actual cost of the inventory or the current estimated market value
of the inventory, with cost being determined under the first-in, first-out method. We record a provision for excess and obsolete
inventory based primarily on our forecast of product demand and production requirements. The excess balance determined by
this analysis becomes the basis for our excess inventory charge and the written-down value of the inventory becomes its cost.
Written-down inventory is not written up if market conditions improve.
Investments. Our minority investments in privately held companies are accounted for using the cost method and
evaluated for impairment quarterly. Such analysis requires significant judgment to identify events or circumstances that would
likely have a significant other than temporary adverse effect on the carrying value of the investment. We classify publicly-
traded equity securities held by us as available-for-sale investments. These investments are recorded in the consolidated balance
sheets at fair value. Unrealized gains and losses on these investments are included as a separate component of accumulated
other comprehensive income (loss). We classify our investments as non-current based on the nature of the investments and
whether they are available for use in current operations. At October 28, 2012 and October 30, 2011, we had $5 million and $6
million of investments, respectively, included in other long-term assets.
Deferred Compensation Plan. Employee contributions under the deferred compensation plan (See Note 6. “Retirement
Plans and Post-Retirement Benefits”) are maintained in a rabbi trust and are not readily available to us. Participants can direct
the investment of their deferred compensation plan accounts in the same investments funds offered by the 401(k) plan.
Although participants direct the investment of these funds, they are classified as trading securities and are included in other
current assets. The corresponding liability related to the deferred compensation plan is recorded in other current liabilities.
Unrealized gain (loss) in connection with these trading securities is recorded in other income (expense), net with an offset for
the same amount recorded in compensation expense. We had deferred compensation plan assets of $8 million and $5 million at
October 28, 2012 and October 30, 2011, respectively, which are included in other current assets. Unrealized gain (loss)
associated with these trading securities was not material for fiscal years ended October 28, 2012, October 30, 2011 and
October 31, 2010.
Derivative instruments. We are subject to foreign currency risks for transactions denominated in foreign currencies,
primarily Singapore Dollar, Malaysian Ringgit, Euro and Japanese Yen. Therefore, we enter into foreign exchange forward
contracts to manage financial exposures resulting from the changes in the exchange rates of these foreign currencies. These
contracts are designated at inception as hedges of the related foreign currency exposures, which include committed and
anticipated transactions that are denominated in currencies other than the functional currency of the subsidiary which has the
exposure. We exclude time value from the measurement of effectiveness. To achieve hedge accounting, contracts must reduce
the foreign currency exchange rate risk otherwise inherent in the amount and duration of the hedged exposures and comply
with established risk management policies; our hedging contracts generally mature within three to six months. We do not use
derivative financial instruments for speculative or trading purposes.
We designate our forward contracts as either cash flow or fair value hedges. All derivatives are recognized on the
consolidated balance sheet at their fair values. For derivative instruments that are designated and qualify as fair value hedges,
changes in value of the instruments are recognized in income in the current period. Such hedges are recorded in net income
(loss) and are offset by the changes in fair value of the underlying assets or liabilities being hedged. For derivative instruments
that are designated and qualify as a cash flow hedge, changes in the value of the effective portion of the derivative instrument
are recognized in accumulated comprehensive income (loss), a component of shareholders’ equity. These amounts are then
reclassified and recognized in income when either the forecasted transaction occurs or it becomes probable the forecasted
transaction will not occur. Changes in the fair value of the ineffective portion of derivative instruments are recognized in
income in the current period, which have not been significant to date. Separate disclosures required for derivative instruments
60
and hedging were not presented because the impact of derivative instruments is immaterial to our consolidated financial
statements for all periods presented.
Property, plant and equipment. Property, plant and equipment are stated at cost less accumulated depreciation and
amortization. Additions, improvements and major renewals are capitalized, and maintenance, repairs and minor renewals are
expensed as incurred. Assets are held in construction in progress until placed in service, upon which date, the Company begins
to depreciate these assets. When assets are retired or disposed of, the assets and related accumulated depreciation and
amortization are removed from our records and the resulting gain or loss is reflected in the consolidated statement of
operations. Buildings and leasehold improvements are generally depreciated over 15 to 40 years, or over the lease period,
whichever is shorter, and machinery and equipment are generally depreciated over 3 to 10 years. We use the straight-line
method of depreciation for all property, plant and equipment.
Capitalized software development costs. We capitalize eligible costs related to the application development phase of
software developed internally or obtained for internal use in accordance with the accounting guidance on goodwill and other
intangible assets. The capitalization of software development costs during the years ended October 28, 2012, October 30, 2011
and October 31, 2010 was not material. We begin amortizing the costs associated with software developed for internal use at
the time the software is ready for its intended use over its estimated useful life of 3 years.
Goodwill and purchased intangible assets. Goodwill represents the excess of purchase price and related costs over the
value assigned to the net tangible and identifiable intangible assets of businesses acquired. Goodwill is not amortized but is
reviewed annually (or more frequently if impairment indicators arise) for impairment. Purchased intangible assets are carried at
cost less accumulated amortization. Amortization is computed using the straight-line method over the useful lives of the
respective assets, generally 6 months to 25 years.
On a quarterly basis, we monitor factors and changes in circumstances that could indicate carrying amounts of long-lived
assets, including goodwill and intangible assets, may not be recoverable. Factors we consider important which could trigger an
impairment review include (i) significant underperformance relative to historical or projected future operating results,
(ii) significant changes in the manner of our use of the acquired assets or the strategy for our overall business, and
(iii) significant negative industry or economic trends. An impairment loss must be measured if the sum of the expected future
cash flows (undiscounted and before interest) from the use and eventual disposition of the asset (or asset group) is less than the
net book value of the asset (or asset group). The amount of the impairment loss will generally be measured as the difference
between the net book value of the asset (or asset group) and their estimated fair value. We perform an annual impairment
review of goodwill during the fourth fiscal quarter of each year, or more frequently if we believe indicators of impairment exist.
No impairment of goodwill resulted from our most recent evaluation of goodwill for impairment, which occurred in the fourth
quarter of fiscal year 2012. No impairment of goodwill resulted in any of the periods presented.
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 the products 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 following table summarizes the changes in accrued warranty (in millions):
Balance as of October 31, 2010 — included in other current liabilities
Adjustment to estimate - released to cost of products sold
Utilized
Balance as of October 30, 2011 — included in other current liabilities
Adjustment to estimate - released to cost of products sold
Utilized
Balance as of October 28, 2012 — included in other current liabilities
$
$
17
(7)
(4)
6
(3)
(1)
2
During the year ended October 28, 2012 and October 30, 2011, we released warranty related charges of $1 million and
$6 million, respectively, and during the year ended October 31, 2010, we recorded warranty related charges of $11 million,
based on one specific quality issue, which are included in the amounts presented in the table above. See Note 15.
“Commitments and Contingencies” for further details.
Accumulated other comprehensive income (loss). Accumulated other comprehensive income (loss) includes certain
transactions that have been reported in the consolidated statements of shareholders’ equity and comprehensive income (loss).
The components of accumulated other comprehensive income (loss) at October 28, 2012, October 30, 2011 and October 31,
2010 consisted of net unrecognized prior service credit and actuarial gain (loss) on defined benefit pension plans and post-
retirement medical benefit plans, net of taxes and unrealized gain on available-for-sale security investments.
61
Revenue recognition. We recognize revenue related to sales of our products, net of trade discounts and allowances,
provided that (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the price is fixed or determinable
and (iv) collectibility is reasonably assured. Delivery is considered to have occurred when title and risk of loss have transferred
to the customer. We consider the price to be fixed or determinable when the price is not subject to refund or adjustments or
when any such adjustments can be estimated. We evaluate the creditworthiness of our customers to determine that appropriate
credit limits are established prior to the acceptance of an order. Revenue, including sales to resellers and distributors, is reduced
for estimated returns and distributor allowances. We recognize revenue from sales of our products to distributors upon delivery
of products to the distributors. An allowance for distributor credits covering price adjustments and scrap allowances is made
based on our estimate of historical experience rates as well as considering economic conditions and contractual terms. To date,
actual distributor claim activity has been materially consistent with the provisions we have made based on our historical
estimates.
We enter into development agreements with some of our customers and recognize revenue from these agreements upon
completion and acceptance by the customer of contract deliverables or as services are provided, depending on the terms of the
arrangement. Revenue is deferred for any amounts billed or received prior to completion or delivery of services. As we retain
the intellectual property generated from these development agreements, costs related to these arrangements are included in
research and development expense. These revenues, which are included in net revenue, totaled $62 million, $52 million and
$35 million in fiscal years 2012, 2011 and 2010, respectively.
We recognize revenue from the licensing of our intellectual property when the following fundamental criteria are met:
(i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the sales price is fixed or determinable, and
(iv) collection of resulting receivables is reasonably assured. Revenue from upfront payments for the licensing of our patents is
recognized when the arrangement is mutually signed, if there is no future delivery or future performance obligation and all
other criteria are met. Revenue from guaranteed royalty streams are recognized when paid, or collection is reasonably assured
and all other criteria are met. When patent licensing arrangements include royalties for future sales of the licensees’ products
using our licensed patented technology, revenue is recognized when the royalty report is received from the licensee, at which
time the sales price is fixed and determinable, provided that all other criteria have been met. Revenues from licensing and
royalty arrangements totaled $47 million in fiscal year 2012. Amounts for both fiscal years 2011 and 2010 were immaterial.
Research and development. Costs related to research, design and development of our products are charged to research
and development expense as they are incurred. Research and development expense consists primarily of personnel costs for our
engineers engaged in the design and development of our products and technologies, including share-based compensation
expense. These expenses also include project material costs, third-party fees paid to consultants, prototype development
expenses, allocated facilities costs and other corporate expenses and computer services costs related to supporting computer
tools used in the engineering and design process.
Government grants. Investment incentives related to government grants are recognized when a legal right to the grant
exists, there is reasonable assurance that both the terms and conditions associated with the grant will be fulfilled and the grant
proceeds will be received. For capital expenditure related government grants, the amount of the grants is recorded as a deferred
credit and amortized over the useful life of the asset. All other government grants are recorded as a reduction of the qualifying
cost being reimbursed.
Share-based compensation expense. For share-based awards granted after November 1, 2006, we recognize
compensation expense based on the estimated grant date fair value method required under the authoritative guidance using the
Black-Scholes valuation model with a straight-line amortization method. Since the authoritative guidance requires that share-
based compensation expense be based on awards that are ultimately expected to vest, estimated share-based compensation for
such awards has been reduced for estimated forfeitures. Authoritative guidance requires forfeitures to be estimated at the time
of grant and revised if necessary in subsequent periods if actual forfeitures differ from the estimate. For outstanding share-
based awards granted before November 1, 2006, we continue to account for any portion of such awards under the originally
applied accounting principles, until such awards were modified subsequent to the adoption of the authoritative guidance.
For the years ended October 28, 2012, October 30, 2011 and October 31, 2010, we recorded $53 million, $38 million and
$25 million, respectively, of compensation expense resulting from the application of the authoritative guidance. We recognize a
benefit from share-based compensation in shareholders' equity if an incremental tax benefit is realized by following the
ordering provisions of the tax law.
Shipping and handling costs. Our shipping and handling costs charged to customers are included in net revenue and the
associated expense is recorded in cost of products sold in the consolidated statements of income for all periods presented.
Advertising. Business specific advertising costs are expensed as incurred and included within selling, general and
administrative expense, amounting to $4 million for each of the years ended October 28, 2012, October 30, 2011 and
October 31, 2010.
62
Foreign currency remeasurement. We operate in a U.S. dollar functional currency environment. As such, foreign
currency assets and liabilities are remeasured into U.S. dollars at current exchange rates except for non-monetary items such as
inventory and property, plant and equipment, which are remeasured at historical exchange rates. Net income for fiscal years
2012, 2011and 2010 included net foreign currency losses of $0 million, $0 million and $4 million, respectively.
Taxes on income. We account for income taxes under the asset and liability method, which requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial
statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial
statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are
expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the
period that includes the enactment date.
We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making
such determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax
liabilities, projected future taxable income, tax planning strategies and recent financial operations. In the event we were to
determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount,
we would make an adjustment to the valuation allowance which would reduce the provision for income taxes. Likewise, if we
determine that we would not be able to realize all or part of our net deferred tax assets, an adjustment would be made to
increase the provision for income taxes in the period such determination is made.
We account for uncertainty in income taxes in accordance with accounting guidance on income taxes. The guidance
provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position
will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical
merits. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon
the adoption of accounting guidance on income taxes and in subsequent periods. This guidance also addresses measurement,
derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. See Note 10.
“Income Taxes” for additional information.
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 includes the dilutive effect
of in-the-money options, restricted share units, or RSUs, and employee share purchase rights under the Avago Technologies
Limited Employee Share Purchase Plan, or ESPP. The dilutive effect of such 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 stock 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 recorded in additional paid-in
capital when the award becomes deductible are collectively assumed to be used to repurchase shares.
Diluted net income per share for fiscal years 2012, 2011 and 2010 excluded the potentially dilutive effect of weighted
average options to purchase 2 million, 1 million and 5 million ordinary shares, respectively, as their effect was antidilutive. 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):
Net income (Numerator):
Net income
Shares (Denominator):
Basic weighted average ordinary shares outstanding
Add: Incremental shares for:
Dilutive effect of share options, RSUs, and ESPP rights
Shares used in diluted computation
Net income per share:
Basic:
Net income per share
Diluted:
Net income per share
63
October 28,
2012
Year Ended
October 30,
2011
October 31,
2010
$
563
$
552
$
245
5
250
245
7
252
$
$
2.30
2.25
$
$
2.25
2.19
$
$
415
238
8
246
1.74
1.69
Recently Adopted Accounting Guidance
In fiscal year ended October 28, 2012, or fiscal year 2012, we adopted the Financial Accounting Standards Board, or
FASB, guidance on multiemployer pension plans and related disclosure requirements. This guidance was intended to provide
more information about an employer's financial obligations to a multiemployer pension plan and, therefore, help financial
statement users better understand the financial health of all of the significant plans in which the employer participates. The
updated guidance does not change the current recognition and measurement guidance for an employer's participation in a
multiemployer plan. This new guidance did not have a significant impact on our results of operations and financial position.
In fiscal year 2012, we adopted the FASB guidance on fair value measurement and related disclosure requirements in
U.S. GAAP. The new guidance amends U.S. GAAP and is a new standard under IFRS. The new guidance results in a consistent
definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and
IFRS. While many of the amendments to U.S. GAAP were not expected to have a significant effect on practice, the new
guidance changes some fair value measurement principles and disclosure requirements. Other than requiring additional
disclosures in our financial statements, this new guidance did not have a significant impact on our results of operations and
financial position.
In fiscal year 2012, we adopted the FASB guidance related to fair value measurements and disclosures, which requires
separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 fair value measurements (see Note 8.
“Fair Value” for further discussion of fair value measurements). Other than requiring additional disclosures in our financial
statements, this new guidance did not have a significant impact on our results of operations and financial position.
Recent Accounting Guidance Not Yet Adopted
In July 2012, the FASB issued updated guidance on indefinite-lived intangible assets impairment test. This guidance is
intended to reduce the cost and complexity of testing indefinite-lived intangible assets for impairment, other than goodwill. It
allows companies to perform a qualitative assessment to determine whether further impairment testing of indefinite-lived
intangible assets is necessary, similar in approach to the goodwill impairment test. This guidance will be effective for our fiscal
year ending November 3, 2013, or fiscal year 2013, with early adoption permitted. We do not expect this new guidance to have
a significant impact on our results of operations and financial position.
In August 2011, the FASB issued an accounting standard update on goodwill impairment testing. This guidance is
intended to reduce the cost and complexity of the goodwill impairment test by providing entities an option to perform a
qualitative assessment to determine whether further impairment testing is necessary. An entity will no longer be required to
calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely
than not that its fair value is less than its carrying amount. The new guidance will be effective for the first quarter of our fiscal
year 2013, with early adoption permitted. We do not expect this new guidance to have a significant impact on our results of
operations and financial position.
In June 2011, the FASB issued guidance on the presentation of comprehensive income. The new guidance is intended to
enhance comparability between entities that report under U.S. GAAP and those that report under International Financial
Reporting Standards, or IFRS, and to provide a more consistent method of presenting non-owner transactions that affect an
entity's equity. In accordance with the new guidance, an entity has the option to present the total comprehensive income either
in a single continuous statement or in two separate but consecutive statements and eliminates the option to present the
components of other comprehensive income as part of the statement of changes in stockholders' equity. This new guidance
should be applied retrospectively and will be effective for our first quarter of our fiscal year 2013, with early adoption
permitted. Other than its impact on the presentation of other comprehensive income, we believe the adoption of this guidance
will not have a significant impact on our results of operations and financial position.
3.
Acquisitions and Investments
Acquisitions
During fiscal year 2012, we made 2 acquisitions that were immaterial both in the aggregate and on a standalone basis.
During fiscal year 2011, we acquired a U.S.-based company engaged in the manufacturing of integrated circuits for
approximately $8 million in cash. The purchase price was allocated to the acquired net assets based on estimates of fair values
as follows: net assets of $8 million including intangible assets of $4 million and goodwill of $5 million. The intangible assets
are being amortized over their useful lives ranging from 5 to 15 years.
During fiscal year 2010, we acquired certain assets and assumed certain liabilities of a China-based company engaged in
the manufacturing of motion control encoder products for $8 million in cash. The purchase price was allocated to the acquired
net assets based on estimates of fair values as follows: total assets of $11 million, including intangible assets of $5 million,
64
goodwill of $1 million, and total liabilities of $3 million. The intangible assets are being amortized over their useful lives
ranging from 9 to 25 years.
The consolidated financial statements include the results of operations of the acquired companies commencing on their
respective acquisition dates. Pro forma results of operations for the acquisitions completed in the fiscal years ended October 28,
2012, October 30, 2011 and October 31, 2010 have not been presented because the effects of the acquisitions, individually or in
the aggregate, were not material to our consolidated financial statements.
Investments
We record at cost non-marketable investments where we do not have the ability to exercise significant influence or
control and periodically review them for impairment.
In December 2010, we made an investment of $1 million in a privately-held company. The investment is accounted for
under the cost method and is included on the consolidated balance sheets in other long-term assets. In September 2011, we also
entered into a secured loan and warrant purchase agreement with this company pursuant to which we provided them with a
secured loan of $1 million for a term of one year. As part of the consideration for making the loan, we also received a warrant
to purchase up to 1,000,000 common shares of the company. At our option the warrant can be exercised for cash, by applying
all or part of the outstanding loan principal balance to the warrant purchase price, on a dollar-for-dollar basis, or for a
combination of cash and outstanding loan principal. Based on the quantitative assessment of the financial condition and
business prospects of the investee, this equity investment and loan were both determined to be impaired in fiscal year 2012. See
Note 8. "Fair Value."
During fiscal year 2010, we made an equity investment of $1 million in another privately-held company. Until July 2011,
our equity investment in this company was accounted for under the cost method and periodically reviewed for impairment. In
July 2011, upon the completion of the investee’s initial public offering on a non-U.S. stock exchange, its common stock became
publicly traded and we classified our investment as an available-for-sale security. The investment is included on the
consolidated balance sheets in other long-term assets. See Note 8. "Fair Value."
4.
Balance Sheet Components
Inventory
Inventory consists of the following (in millions):
Finished goods
Work-in-process
Raw materials
Total inventory
October 28,
2012
October 30,
2011
$
$
$
42
99
53
194
$
48
106
40
194
During the fiscal year ended October 28, 2012, we recorded write-downs to inventories of $11 million, associated with
reduced demand assumptions, compared to $20 million recorded during the fiscal year ended October 30, 2011 and $15 million
recorded during the fiscal year ended October 31, 2010.
65
Other Current Assets
Other current assets consist of the following (in millions):
Distributor deposits
Other receivables
Deferred income tax assets
Prepayments
Deferred compensation plan assets
Non-U.S. transaction tax receivable
Other
Total other current assets
October 28,
2012
October 30,
2011
$
$
16
15
14
8
8
3
8
$
72
$
—
5
18
7
5
3
4
42
During the second quarter of fiscal year 2012, we entered into agreements with certain distributors whereby we agreed to
advance cash to them to fund estimated price adjustments. These advances are estimated based on an agreed percentage of the
rolling previous three months average ending inventory, as reported by the distributor, multiplied by the rolling previous three
months price adjustment credits as a percentage of the distributor's reported rolling previous three months resales. The terms of
these advances are set forth in binding legal agreements and are unsecured, bear no interest on unsettled balances, and are due
upon demand. The agreements governing these advances can be cancelled by us at any time. Such advances have no impact on
revenue recognition or our consolidated statements of operations and are recorded in other current assets on our consolidated
balance sheets.
Property, Plant and Equipment, Net
Property, plant and equipment, net consist of the following (in millions):
Land
Construction in progress
Buildings and leasehold improvements
Machinery and equipment
Total property, plant and equipment
Accumulated depreciation and amortization
Total property, plant and equipment, net
October 28,
2012
October 30,
2011
$
11
$
127
158
692
988
(485)
503
$
$
11
30
133
563
737
(421)
316
Depreciation expense was $78 million, $79 million and $80 million, for the years ended October 28, 2012, October 30,
2011 and October 31, 2010, respectively.
Effective August 1, 2011, following a comprehensive study, we extended the estimated depreciable lives of certain
equipment in our internal fabrication facilities, in order to more accurately reflect their expected useful lives. As a result of this
change in our accounting estimate, depreciation expense for the years ended October 28, 2012 and October 30, 2011 was
reduced by $8 million and $3 million, respectively, and gross margin, income from operations and net income increased by
approximately the same amount.
At October 28, 2012 and October 30, 2011, machinery and equipment included $67 million and $56 million of software
costs, respectively, and accumulated amortization included $51 million and $41 million, respectively.
At October 28, 2012 and October 30, 2011, we had $12 million and $12 million of gross carrying amount of assets under
capital leases, respectively, and accumulated amortization of $8 million and $6 million, respectively.
At October 28, 2012 and October 30, 2011, we had $48 million and $21 million, respectively, of unpaid purchases of
property, plant, and equipment included in accounts payable. Amounts reported as unpaid purchases are recorded as cash
outflows from investing activities for purchases of property, plant, and equipment in the consolidated statement of cash flows in
the period they are paid.
66
Other Current Liabilities
Other current liabilities consist of the following (in millions):
Income and other taxes payable
Deferred revenue
Accrued commissions
Warranty
Supplier liabilities
Restructuring charges
Other
Total other current liabilities
5.
Goodwill and Intangible Assets
Goodwill
The following table summarizes changes in goodwill (in millions):
Balance as of October 31, 2010
2011 acquisitions (Note 3. “Acquisitions and Investments”)
Balance as of October 30, 2011
2012 acquisitions
Balance as of October 28, 2012
Intangible Assets
Amortizable purchased intangibles consist of the following (in millions):
$
$
October 28,
2012
October 30,
2011
16
8
5
2
2
1
2
36
$
$
$
$
10
10
5
6
4
1
2
38
172
5
177
3
180
Gross Carrying
Amount
Accumulated
Amortization
Net Book Value
As of October 28, 2012
Purchased technology
Customer and distributor relationships
Other
Total
As of October 30, 2011
Purchased technology
Customer and distributor relationships
Other
Total
$
$
$
$
728
257
4
989
728
257
4
989
The following table presents the amortization of purchased intangible assets (in millions):
Cost of products sold
Operating expenses
Total
October 28,
2012
$
$
56
21
77
$
$
$
$
$
$
(402) $
(163)
(2)
(567) $
(346) $
(142)
(2)
(490) $
326
94
2
422
382
115
2
499
Year Ended
October 30,
2011
October 31,
2010
56
22
78
$
$
58
21
79
During the fiscal year 2011, we recorded $4 million of intangible assets with weighted average amortization period of
14 years in conjunction with an acquisition completed during fiscal year 2011. See Note 3. “Acquisitions and Investments.”
67
Based on the amount of intangible assets subject to amortization at October 28, 2012, the expected amortization expense
for each of the next five fiscal years and thereafter is as follows (in millions):
Fiscal Year
2013
2014
2015
2016
2017
Thereafter
Amount
$
77
77
76
59
49
84
$
422
The weighted average amortization periods remaining by intangible asset category were as follows (in years):
Amortizable intangible assets:
Purchased technology
Customer and distributor relationships
Other
October 28,
2012
October 30,
2011
7
7
22
8
7
22
6.
Retirement Plans and Post-Retirement Benefits
Non-U.S. Defined Benefit Plans. We have defined benefit plans in Taiwan, Korea, Japan, Germany, Italy and France.
401(k) Defined Contribution Plan. Our U.S. eligible employees participate in the Avago Technologies U.S. Inc. 401(k)
Plan, or the 401(k) Plan. Enrollment in the 401(k) Plan is automatic for employees who meet eligibility requirements unless
they decline participation. Under the 401(k) Plan, we provide matching contributions to employees up to a maximum of 6% of
an employee’s annual eligible compensation. The matching contribution percentage was increased to 6% from 4% of eligible
compensation effective January 1, 2011. The maximum contribution to the 401(k) Plan is 50% of an employee’s annual eligible
compensation, subject to regulatory and plan limitations. The 401(k) Plan expense is included in the corporate employee
overhead rate allocation.
U.S. Deferred Compensation Plan. We also have a deferred compensation plan, which allows highly compensated
employees (as defined by IRS regulations) to voluntarily defer greater percentages of compensation than would otherwise be
permitted under the salary deferral 401(k) plan and IRS regulations. The deferred compensation plan is a non-qualified plan of
deferred compensation maintained in a rabbi trust. Participants can direct the investment of their deferred compensation plan
accounts that are generally the same as the investment funds offered by the 401(k) plan.
U.S. Post-Retirement Medical Benefit Plans. Our U.S. employees who transferred to us from Agilent as part of the SPG
Acquisition, who were age 49 or younger on January 1, 2005 and who meet the retirement eligibility requirements as of their
termination dates, may receive post-retirement medical benefits under our retiree medical account program. Under our retiree
medical account program, eligible retirees are allocated a spending account of either $40,000 or $55,000, depending on the
retiree’s age at January 1, 2005, from which the retiree can receive reimbursement for premiums paid for medical coverage to
age 65. U.S. employees who transferred to us from Agilent and who were age 50 or over on January 1, 2005 may be eligible for
our traditional retiree medical plan upon meeting certain eligibility requirements and certain service criteria. Once participating
in the traditional retiree medical plan, retirees are provided with access to both pre-65 medical coverage and supplemental
Medicare coverage with medical premiums based on the type of coverage chosen and service criteria. Retirees in this group are
also given the option to choose the $55,000 retiree medical account program instead of the traditional retiree medical plan.
Non-U.S Retirement Benefit Plans. In addition to the defined benefit plan for certain employees in Taiwan, Korea, Japan,
France, Italy and Germany, other eligible employees outside of the U.S. receive retirement benefits under various defined
contribution retirement plans. Eligibility is generally determined based on the terms of our plans and local statutory
requirements.
The net pension plan costs of our non-U.S defined benefit plans for the years ended October 28, 2012, October 30, 2011
and October 31, 2010 were $5 million, $5 million and $3 million, respectively. The net pension plan costs of our U.S. post-
retirement medical benefit plans for the years ended October 28, 2012, October 30, 2011 and October 31, 2010 were $2 million,
$1 million and $1 million, respectively.
68
For the year ended October 28, 2012, we recognized $11 million of unrealized net actuarial losses in accumulated other
comprehensive loss, related to our non-U.S. defined benefit plans. Of the unrealized net actuarial losses included in
accumulated other comprehensive loss, related to our non U.S. defined benefit plans, we expect to recognize $1 million in
fiscal year 2013. For the year ended October 30, 2011, we recognized $4 million of unrealized net actuarial gains in
accumulated other comprehensive income (net of tax of $0 million), related to our non-U.S. defined benefit plans. For the year
ended October 31, 2010, we recognized $6 million of unrealized net actuarial losses in accumulated other comprehensive loss
(net of tax of $1 million), related to our non-U.S. defined benefit plans.
During the year ended October 28, 2012, we recognized $2 million of unrealized net actuarial losses in accumulated other
comprehensive loss (net of tax of $1 million), related to our U.S. post-retirement medical benefit plans, of which we expect to
recognize immaterial amounts in fiscal year 2013. During the year ended October 30, 2011, we recognized $1 million of
unrealized net actuarial losses in accumulated other comprehensive income (net of tax of $1 million), related to our U.S. post-
retirement medical benefit plans. Of the unrealized prior service cost included in accumulated other comprehensive loss, related
to our U.S. post-retirement medical benefit plans, $0 million was recognized in fiscal year 2012. During the year ended
October 31, 2010, we recognized $1 million of unrealized net actuarial losses in accumulated other comprehensive loss (net of
tax of $1 million), related to our U.S. post-retirement medical benefit plans. Other long-term assets include deferred tax assets
relating to pension liabilities and post-retirement medical benefit plan liabilities.
Net Periodic Benefit Cost. For the years ended October 28, 2012, October 30, 2011 and October 31, 2010, components of
net periodic benefit cost and other amounts recognized in other comprehensive income were comprised of (in millions):
Net periodic benefit cost:
Service cost
Interest cost
Net periodic benefit cost
Other changes in plan assets and benefit
obligations recognized in accumulated
comprehensive (income) loss:
Net actuarial (gain) loss
Prior service cost
Total recognized in accumulated
comprehensive (income) loss
Non-U.S. Defined Benefit Plans
U.S. Post Retirement Medical Benefit Plans
October 28,
2012
October 30,
2011
October 31,
2010
October 28,
2012
October 30,
2011
October 31,
2010
$
$
$
$
$
$
$
4
1
5
11
—
4
1
5
$
$
(5) $
1
$
$
$
2
1
3
7
—
$
$
$
1
1
2
3
—
— $
1
1
1
—
$
$
11
$
(4) $
7
$
3
$
1
$
—
1
1
2
—
2
69
Funded Status. The funded status of the U.S. post-retirement medical benefit plans and non-U.S. defined benefit plans
was as follows (in millions):
Change in plan assets:
Fair value — beginning of period
Employer contributions
Payments from plan assets
Fair value of plan assets — end of period
Change in benefit obligation:
Benefit obligation — beginning of period
Service cost
Interest cost
Actuarial (gain) loss
Benefit payments
Plan amendments
Currency impact
Benefit obligation — end of period
Plan assets less than benefit obligation
Non-U.S. Defined Benefit Plans
U.S. Post Retirement Medical
Benefit Plans
October 28,
2012
October 30,
2011
October 28,
2012
October 30,
2011
$
$
$
$
$
14
1
(2)
13
32
4
1
11
(1)
—
(1)
46
$
$
$
$
13
1
—
14
31
4
1
(5)
—
1
—
32
$
$
$
$
— $
—
—
— $
27
$
1
1
3
—
—
—
32
$
—
—
—
—
25
—
1
1
—
—
—
27
(33) $
(18) $
(32) $
(27)
Amounts recognized in the consolidated balance sheets were as follows (in millions):
Non-U.S. Defined Benefit Plans
U.S. Post Retirement Medical
Benefit Plans
October 28,
2012
October 30,
2011
October 28,
2012
October 30,
2011
Other current liabilities
Other long-term liabilities
Amounts recognized in accumulated other comprehensive
income (loss) net of taxes:
Prior service benefits (cost)
Net actuarial gains (losses)
Total amounts recognized in accumulated other
comprehensive income (loss) net of taxes
$
$
$
$
— $
33
$
— $
(10)
(10) $
— $
18
$
— $
1
1
$
$
$
1
31
1
(5)
$
(4) $
1
26
(1)
(1)
(2)
As of October 28, 2012 and October 30, 2011, the amounts of the obligations for our non-U.S. defined benefit plans were
as follows (in millions):
Aggregate projected benefit obligation (“PBO”)
Aggregate accumulated benefit obligation (“ABO”)
Non-U.S. Defined Benefit Plans
October 28,
2012
October 30,
2011
$
$
46
40
$
$
32
28
70
We currently expect to make contributions of $0 million and $1 million, respectively, to our non-U.S. defined benefit
plans and U.S. post-retirement medical benefit plans in fiscal year 2013. It is expected that as of October 28, 2012 various
benefit plans will make payments over the next ten fiscal years as follows (in millions):
2013
2014
2015
2016
2017
2018-2022
$
Non-U.S.
Defined
Benefit Plans
U.S. Post
Retirement
Medical Benefit Plans
$
1
1
1
1
1
10
1
1
1
2
2
12
Investment Policy. Plan assets of the funded defined benefit pension plans are invested in funds held by third-party fund
managers or are deposited into government-managed accounts in which we have no active involvement in and no control over
investment strategy, other than establishing broad investment guidelines and parameters. The plan assets held by third-parties
consist primarily of fixed income funds and cash. The fund managers monitor the fund’s asset allocation within the guidelines
established by our plan’s Investment Committee. In line with plan investment objectives and consultation with our
management, our Investment Committee set an allocation benchmark among equity, bond and other assets based on the relative
weighting of overall international market indices. The overall investment objectives of the plan are 1) the acquisition of suitable
assets of appropriate liquidity which will generate income and capital growth to meet current and future plan benefits, 2) to
limit the risk of the assets failing to meet the long term liabilities of the plan, and 3) to minimize the long term costs of the plan
by maximizing the return on the assets. Performance is regularly evaluated by the Investment Committee and is based on actual
returns achieved by the fund manager relative to its benchmark.
Our non-U.S. defined benefit pension plans weighted average asset allocations by category were:
Fixed income
Time deposits
Other
Total
Non-U.S. Defined Benefit Plans
October 28, 2012
October 30, 2011
Actual
Target
Actual
Target
83%
16
1
100%
83%
16
1
100%
85%
12
3
100%
85%
12
3
100%
Fair Value Measurement of Plan Assets The following table presents the fair value of plan assets by major categories
using the same three-level hierarchy described in Note 8. “Fair Value” (in millions):
Assets:
Fixed income
Total assets
Fair Value Measurement as
of October 28, 2012 Using
Quoted Prices in Active
Market for Identical Assets
(Level 1)
$
$
11
11
Fixed income assets consist primarily of funds that invest in Euro-denominated government bonds. These government
bonds are valued at quoted prices reported in the active market. The remaining balance of plan assets include time deposits of
$2 million as of October 28, 2012.
71
Assumptions. The assumptions used to determine the benefit obligations and expense for our non-U.S. defined benefit
and U.S. post-retirement medical benefit plans are presented in the table below. The expected long-term return on assets shown
in the table below represents an estimate of long-term returns on investment portfolios primarily consisting of fixed income
investments. We consider long-term rates of return, which are weighted based on the asset classes (both historical and
forecasted) in which we expect the pension and post-retirement funds to be invested. Discount rates reflect the current rate at
which non-U.S. defined benefit and U.S post-retirement medical benefit obligations could be settled based on the measurement
dates of the plans, which in each case is our fiscal year end. The range of assumptions that are used for non-U.S. defined
benefit plans reflects the different economic environments within various countries.
Assumptions for Benefit Obligation
as of
Assumptions for Expense
Year Ended
October 28,
2012
October 30,
2011
October 28,
2012
October 30,
2011
October 31,
2010
Non-U.S. defined benefit plans:
Discount rate
1.25%-4.25% 1.50%-5.75% 1.50%-5.75% 1.50%-5.00% 2.00%-6.50%
Average increase in compensation
levels
2.00%-5.00% 2.50%-3.50% 2.50%-3.50% 2.50%-5.00% 2.50%-5.00%
Expected long-term return on assets
2.00%-3.00% 2.00%-4.00% 2.00%-4.00% 1.50%-4.00% 1.50%-5.25%
Assumptions for Benefit
Obligation
as of
Assumptions for Expense
Year Ended
October 28,
2012
October 30,
2011
October 28,
2012
October 30,
2011
October 31,
2010
U.S. post-retirement medical benefits plan:
Discount rate
Current medical cost trend rate
Ultimate medical cost trend rate
Medical cost trend rate decreases to ultimate trend
rate in year
3.50%
8.67%
3.50%
4.50%
9.00%
4.00%
4.50%
9.00%
4.00%
5.00%
9.00%
4.50%
5.50%
9.00%
5.00%
2031
2026
2026
2025
2019
Changes in the assumed healthcare cost trend rates could have a significant effect on the amounts reported for the U.S.
post-retirement medical benefit plans. A one percentage point change in the assumed healthcare cost trend rates for the year
ended October 28, 2012 would have the following effects:
Effect on U.S. post-retirement medical benefit obligation (in millions)
Percentage effect on U.S. post-retirement medical benefit obligation
1% Increase
1% Decrease
$
3
$
10%
(3)
(8)%
A one percentage point increase or decrease in our healthcare cost trend rates would have increased or decreased the
service and interest cost components of the net periodic benefit cost by $0 million.
7.
Borrowings
We had no borrowings as of October 28, 2012 and October 30, 2011.
Revolving Credit Facility
On March 31, 2011, Avago Technologies Finance Pte. Ltd., or Avago Finance, and certain other subsidiaries of the
Company entered into a new credit agreement with a syndicate of financial institutions. The credit agreement provides for a
$200 million unsecured, revolving credit facility. The credit agreement has a term of 4 years. The credit agreement includes
(i) financial covenants requiring Avago Finance to maintain a maximum leverage ratio and a minimum interest coverage ratio;
(ii) customary restrictive covenants (subject, in each case, to certain exceptions and amounts) that limit Avago Finance’s ability
to, among other things, create liens, merge or consolidate with and into other persons, pay dividends and sell assets;
(iii) customary events of default, upon the occurrence of which, after any applicable grace period, the lenders will have the
ability to accelerate all outstanding loans thereunder and terminate the commitments; and (iv) customary representations and
warranties. Compliance with financial covenants is required for the term of the credit agreement irrespective of the amount of
borrowing outstanding. In addition, Avago Finance has the ability, at any time, to increase the aggregate commitments under
72
the credit agreement from $200 million to $300 million subject to the condition that no default or event of default shall have
occurred and be continuing and other terms and conditions set forth in the credit agreement, and the receipt of sufficient
commitments for such increase from the lenders. On August 6, 2012, Avago Finance exercised the accordion feature under its
credit agreement to increase the aggregate commitments for its unsecured revolving credit facility from $200 million to $300
million. This increase in the revolving credit facility commitment result in a corresponding increase in commitment fees
payable under the credit agreement.
Certain subsidiaries of the Company guarantee the revolving credit facility. The credit agreement also provides for the
issuance of letters of credit of up to $40 million in the aggregate, which reduces the available borrowing capacity under the
revolving credit facility on a dollar for dollar basis. As of October 28, 2012, we had no borrowings outstanding under the new
revolving credit facility and were in compliance with the financial covenants under our credit agreement.
Borrowings under the unsecured, revolving credit facility are subject to floating rates of interest and bear interest at a rate
per annum equal to:
Base Rate Advances: the highest of (x) Citibank’s publicly announced base rate from time to time, (y) the U.S. Federal
funds rate plus 0.5% and (z) the British Bankers Association Interest Settlement Rate, or BBA LIBOR Rate applicable to
Dollars for a period of one month plus 1.00%; or
Eurocurrency Advances: the rate per annum obtained by dividing (x) the BBA LIBOR Rate for deposits in Dollars for
the applicable interest period by (y) a percentage equal to 100% minus the Eurocurrency liabilities reserve percentage
specified by the U.S. Federal Reserve System for such interest period,
plus, in each case, a margin based on the credit rating of Avago Finance’s long-term unsecured debt or Avago Finance’s
corporate credit rating, as applicable, referred to as the Avago Public Debt Rating. Avago Finance is also required to pay the
lenders a commitment fee at a rate per annum that varies based on the Public Debt Rating and the aggregate amount of the
outstanding commitments under the credit agreement.
Senior Secured Credit Facility
On March 31, 2011, in connection with entering into the credit agreement discussed above, we terminated our previous
$350 million senior secured credit facility, which we entered into in connection with the SPG Acquisition. There were no
outstanding loan borrowings under this facility at the time of termination. This termination resulted in a loss on extinguishment
of debt of $1 million, related to the write-off of debt amortization costs and other related expenses.
Senior and Senior Subordinated Notes
In connection with the SPG Acquisition, we completed a private placement of $1,000 million principal amount of
unsecured debt consisting of (i) $500 million principal amount of 10 1/8% Senior Notes due December 1, 2013, or senior fixed
rate notes, (ii) $250 million principal amount of Senior Floating Rate Notes due June 1, 2013, or senior floating rate notes and,
together with the senior fixed rate notes, the senior notes, and (iii) $250 million principal amount of 11 7/8% Senior
Subordinated Notes due December 1, 2015, or senior subordinated notes.
During fiscal year 2010, we redeemed $318 million in principal amount of senior fixed rate notes and $46 million in
principal amount of the senior floating rate notes. We redeemed the senior fixed rate notes and senior floating rate notes at a
5.063% premium of the principal amount and no premium, respectively, plus accrued interest, resulting in a loss on
extinguishment of debt of $24 million, which consisted of $16 million premium and an $8 million write-off of debt issuance
costs and other related expenses.
During the fiscal year 2011, we redeemed the remaining $230 million aggregate principal amount outstanding of our
senior subordinated notes. We redeemed the senior subordinated notes at a 5.938% premium of the principal amount plus
accrued interest, resulting in a loss on extinguishment of debt of $19 million, which consisted of a $14 million premium and a
$5 million write-off of debt issuance costs and other related expenses.
Debt Issuance Costs
Unamortized debt issuance costs associated with the new revolving credit facility were $1 million at October 28, 2012
and unamortized debt issuance costs associated with the senior and senior subordinated notes and the secured senior credit
facility were $2 million at October 30, 2011, and are included in other current assets and other long-term assets on the balance
sheet. Amortization of debt issuance costs is classified as interest expense in the consolidated statement of operations.
73
8.
Fair Value
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. A three level hierarchy is applied to prioritize the inputs to
valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3
measurements).
The three levels of the fair value hierarchy under the guidance for fair value measurements are described below:
Level 1 — Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the
reporting entity has the ability to access at the measurement date. Our Level 1 assets include bank acceptances, investment
funds-deferred compensation plan assets and available-for-sale securities investments. We measure investment funds and
available-for-sale securities investments at quoted market price as they are traded in an active market with sufficient volume
and frequency of transactions.
Level 2 — Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the
asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be
observable for substantially the full term of the asset or liability. We did not have any Level 2 assets activities during the year
ended October 28, 2012.
Level 3 — Level 3 inputs are unobservable inputs for the asset or liability in which there is little, if any, market
activity for the asset or liability at the measurement date. Level 3 assets and liabilities include cost method investments,
goodwill, amortizable intangible assets, and property, plant and equipment, which are measured at fair value using a discounted
cash flow approach when they are impaired. Quantitative information for Level 3 assets and liabilities reviewed at each
reporting period, include indicators of significant deterioration in the earnings performance, credit rating, asset quality, business
prospects of the investee, and financial indicators of the investee's ability to continue as a going concern.
We record at cost non-marketable investments where we do not have the ability to exercise significant influence or
control, and periodically review them for impairment. During fiscal year 2011, we made an investment of $1 million in the
common stock of a privately-held non-U.S. company. This equity investment is accounted for under the cost method and is
included on the consolidated balance sheet in other long-term assets. In fiscal year 2011, we also entered into a secured loan
and warrant purchase agreement with this company, pursuant to which we provided it with a secured loan of $1 million, at an
annual interest rate of 8%, for a term of one year. Based on the quantitative assessment of the financial condition and business
prospects of the investee, this equity investment and loan were both determined to be impaired in fiscal year 2012.
We did not have any Level 3 asset or liability activities other than those noted above during the year ended October 28,
2012.
74
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The table below sets forth by level our financial assets and liabilities that were accounted for at fair value as of
October 28, 2012. The table does not include cash on hand and also does not include assets that are measured at historical cost
or any basis other than fair value (in millions):
October 28, 2012
Fair Value
Measurement as of
October 28, 2012
Using Quoted
Prices in Active
Market for
Identical Assets
(Level 1)
Fair Value
Measurement as of
October 28, 2012
Using Significant
Other Inputs (Level 2)
Portion of
Carrying
Value Measured at
Fair Value
Assets:
Investment Funds - Deferred Compensation Plan Assets (1) $
Bank acceptances (1)
Available-for-sale securities (2)
Total assets measured at fair value
Liabilities:
Deferred Compensation Plan Liabilities (3)
Total liabilities measured at fair value
_______________________________________
$
$
$
(1) Included in other current assets in our consolidated balance sheet
(2) Included in other long-term assets in our consolidated balance sheet
(3) Included in other current liabilities in our consolidated balance sheet
8
1
4
13
8
8
$
$
$
$
$
8
1
4
13
$
— $
— $
—
—
—
—
8
8
During the year ended October 28, 2012, there were no material transfers between Level 1 and Level 2 fair value
instruments.
Assets Measured at Fair Value on a Nonrecurring Basis
There were no non-financial assets or liabilities measured at fair value as of October 28, 2012.
Fair Value of Other Financial Instruments
The fair values of cash equivalents, trade accounts receivable, accounts payable and accrued liabilities, to the extent the
underlying liability will be settled in cash, approximate carrying values because of the short-term nature of these instruments.
9.
Shareholders’ Equity
On January 27, 2010, our registration statement filed with the Securities and Exchange Commission, or SEC, in
connection with the public offering and sale by certain shareholders of the Company of an aggregate of 25,000,000 of the
Company’s ordinary shares, or the January Offering, was declared effective. The January Offering closed on February 2, 2010,
and 25,000,000 shares were sold to the public at a price per share of $17.41 including a $0.41 per share discount to the
underwriters. We did not receive any proceeds from the sale of shares sold in the January Offering other than proceeds from
options exercised by certain shareholders in connection with the sale of shares by them in the January Offering. On
February 23, 2010, the underwriters exercised their option in full to purchase from certain selling shareholders up to an
additional 3,750,000 ordinary shares to cover over-allotments, which transaction closed on February 26, 2010.
On August 6, 2010, we filed a shelf registration statement on Form S-3 with the SEC, through which we may sell from
time to time any combination of ordinary shares, debt securities, warrants, rights, purchase contracts and units, in one or more
offerings. Since then, certain of our shareholders have sold our ordinary shares in a number of registered public offerings, as set
forth in the table below. We did not receive any proceeds from the sale of shares sold in these offerings other than, in some
instances, proceeds from options exercised by a shareholder in connection with the sale of shares by the shareholder in such
offerings.
75
Date of final prospectus (filed with
the SEC)
Date transaction closed
Number of shares sold by
shareholders in the transaction
August 13, 2010
December 6, 2010
January 18, 2011
February 28, 2011
May 31, 2011
September 28, 2011
Share Repurchase Program
August 18, 2010
December 10, 2010
January 21, 2011
March 4, 2011
June 3, 2011
October 3, 2011
14,905,000
25,000,000
25,000,000
25,000,000
25,000,000
17,250,000
On June 8, 2011, the Company's board of directors, or the Board, authorized the Company to repurchase up to 15 million of
its outstanding ordinary shares, not to exceed $500 million in aggregate, or the 2011 share repurchase program. The 2011 share
repurchase program expired at the Company's 2012 Annual General Meeting on April 4, 2012, or 2012 AGM. Under the 2011
share repurchase program, the Company repurchased and cancelled 2.8 million shares for an aggregate purchase price of $85
million in cash during two fiscal quarters ended April 29, 2012 prior to the expiration of the plan. The weighted-average
purchase price per share for shares repurchased was $30.50 for the two fiscal quarters ended April 29, 2012. All repurchased
shares were immediately retired.
On April 4, 2012, the Board authorized the Company to repurchase up to 15 million of its outstanding ordinary shares, or
the 2012 share repurchase program, pursuant to the shareholder approval of the Company's 2012 share purchase mandate
received at the Company's 2012 AGM, or the 2012 share purchase mandate. The 2012 share repurchase program will expire at
the Company's 2013 Annual General Meeting, unless earlier terminated. Share repurchases will be made in accordance with the
terms of the 2012 share purchase mandate, in the open market at such times and in such amounts as the Company deems
appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price, market
conditions and applicable legal requirements. The 2012 share repurchase program does not obligate the Company to repurchase
any specific number of shares and may be suspended from time to time or terminated at any time without prior notice.
During fiscal year 2012, the Company repurchased approximately 0.7 million shares for an aggregate purchase price of
$25 million in cash, with a weighted-average price per share of $35.08, under the 2012 share repurchase program. All
repurchased shares were immediately retired. As of October 28, 2012, 14.3 million shares remained available for repurchase
under the 2012 share repurchase program.
Dividends
During fiscal year 2012, aggregate cash dividends of $0.56 per share were declared and paid on the Company's
outstanding ordinary shares, resulting in payment to our shareholders of an aggregate of $137 million. During fiscal year 2011,
aggregate cash dividends of $0.35 per share were declared and paid on the Company's outstanding ordinary shares, resulting in
payment to our shareholders of an aggregate of $86 million.
Equity Incentive Award Plans
Effective December 1, 2005, we adopted two equity-based compensation plans, the Equity Incentive Plan for Executive
Employees of Avago Technologies Limited and Subsidiaries, or the Executive Plan, and the Equity Incentive Plan for Senior
Management Employees of Avago Technologies Limited and Subsidiaries, or the Senior Management Plan and, together with
the Executive Plan, the Pre-IPO Equity Incentive Plans, which authorized the grant of options and share purchase rights
covering up to 30 million ordinary shares. With effect from our IPO in August 2009, we are no longer permitted to make any
further grants under the Pre-IPO Equity Incentive Plans.
Options issued under the Executive Plan generally vest at a rate of 20% per year based on the passage of time, and the
passage of time and attaining certain performance criteria, in each case subject to continued employment. Those options subject
to vesting based on the passage of time may accelerate by one year upon certain terminations of employment. Options issued
under the Senior Management Plan, generally vest at a rate of 20% per year based on the passage of time and continued
employment.
Options issued under the Pre-IPO Equity Incentive Plans, generally expire ten years following the date of grant unless
granted to a non-employee, in which case the awards generally expire five years following the date of grant. All options
awarded under these plans were granted with an exercise price equal to the fair market value on the date of grant.
In July 2009, our Board adopted, and our shareholders approved, the Avago Technologies Limited 2009 Equity Incentive
Award Plan, or the 2009 Plan, to authorize the grant of options, share appreciation rights, restricted share units, dividend
76
equivalents, performance awards, and other share-based awards. 20 million ordinary shares are initially reserved for issuance
under the 2009 Plan, subject to annual increases starting in fiscal year 2012. The amount of the annual increase is equal to the
least of (a) 6 million shares, (b) 3% of the ordinary shares outstanding on the last day of the immediately preceding fiscal year
and (c) such smaller number of ordinary shares as determined by our Board. However, no more than 90 million ordinary shares
may be issued upon the exercise of equity awards issued under the 2009 Plan. The 2009 Plan became effective on July 27,
2009. Options issued to employees under the 2009 Plan prior to March 2011 generally expire ten years following the date of
grant. With effect from March 2011, options issued to employees under the 2009 Plan generally expire seven years after the
date of grant. Options awarded to non-employees under this plan generally expire after five years. Options issued under the
2009 Plan generally vest over a four year period from the date of grant and are granted with an exercise price equal to the fair
market value on the date of grant. Any share options cancelled or forfeited under the Pre-IPO Equity Incentive Plans after July
27, 2009 become available for issuance under the 2009 Plan. Starting in the fourth quarter of fiscal year 2010, we began to
grant restricted share units, or RSUs, as part of our equity compensation programs under the 2009 Plan. An RSU is an equity
award that is granted with an exercise price equal to zero and which represents the right to receive one of our ordinary shares
immediately upon vesting. RSU awards granted to employees are generally time-based and vest over four years.
A summary of option activity under our equity incentive award plans follows (in millions, except years and per share
amounts):
Awards Outstanding
Awards
Available for
Grant
Number
Outstanding
Weighted-
Average
Exercise Price
per Share
Weighted-
Average
Remaining
Contractual
Life
(in years)
Aggregate
Intrinsic
Value
Balance as of November 1, 2009
Granted
Exercised
Cancelled
Balance as of October 31, 2010
Granted
Exercised
Cancelled
Balance as of October 30, 2011
Annual increase in shares available for
issuance, per equity incentive plan terms
Granted
Exercised
Cancelled
Balance as of October 28, 2012
Fully vested as of October 28, 2012
Fully vested and expected to vest as of October 28,
2012
24
$
5
$
(4) $
(2) $
$
23
5
$
(8) $
(1) $
$
19
5
$
(3) $
(1) $
$
20
$
7
8.69
19.52
6.46
10.88
11.50
32.42
7.59
17.11
17.93
34.79
13.24
23.98
22.45
15.15
19
$
21.95
6.06
5.62
6.04
$
$
$
232
129
223
17
(5)
2
14
(5)
1
10
6
(5)
1
12
77
The total intrinsic value of options exercised during fiscal year 2012, 2011 and 2010 was $62 million, $184 million and
$54 million, respectively.
The following table summarizes significant ranges of outstanding and exercisable option awards as of October 28, 2012
(in millions, except years and per share amounts):
Exercise Prices
$0.00-10.00
10.01-20.00
20.01-30.00
30.01-40.00
Total
Awards Outstanding
Awards Exercisable
Weighted-
Average
Remaining
Contractual
Life (in
years)
Weighted-
Average
Exercise
Price per
Share
Weighted-
Average
Exercise
Price per
Share
Number
Exercisable
Number
Outstanding
3
5
3
9
20
4.79
5.95
7.67
5.94
6.06
$
$
$
$
$
7.26
13.10
21.02
33.87
22.45
2
3
1
1
7
$
$
$
$
$
6.62
12.52
20.93
32.77
15.15
RSU activity and the number of outstanding RSUs were not material for either of the fiscal years ended October 28,
2012, October 30, 2011 and October 31, 2010.
Employee Share Purchase Plan
In September 2010, we implemented the Avago Employee Share Purchase Plan, as amended and restated in June 2010.
The ESPP provides eligible employees with the opportunity to acquire an ownership interest in the Company through periodic
payroll deductions, based on a six-month look-back period, at a price equal to the lesser of 85% of the fair market value of the
ordinary shares at either the beginning or ending of the relevant offering period. The ESPP is structured as a qualified employee
stock purchase plan under Section 423 of the Internal Revenue Code of 1986. However, the ESPP is not intended to be a
qualified pension, profit sharing or stock bonus plan under Section 401(a) of the Internal Revenue Code of 1986 and is not
subject to the provisions of the Employee Retirement Income Security Act of 1974. The ESPP will terminate on July 27, 2019
unless sooner terminated. On the first day of the Company’s 2012 fiscal year, the number of available shares under the
increased by 2 million shares in accordance to the terms set forth in the ESPP. During fiscal year 2012 and 2011, employees
purchased 0.2 million and 0.3 million shares, respectively, for aggregate consideration of $7 million in each fiscal year. As at
October 28, 2012, 9.5 million shares remained available for issuance under the ESPP.
Share-Based Compensation Expense
Share-based compensation expense consists of expense for stock options and RSUs granted to both employees and non-
employees as well as expense associated with ESPP.
We recognize compensation expense for stock options based on the estimated grant date fair value method required under
the authoritative guidance using Black-Scholes valuation model with a straight-line amortization method. Since the
authoritative guidance requires that share-based compensation expense be based on awards that are ultimately expected to vest,
estimated share-based compensation expense for such awards has been reduced for estimated forfeitures. Changes in the
estimated forfeiture rates can have a significant effect on share-based compensation expense since the effect of adjusting the
rate is recognized in the period the forfeiture estimate is changed.
We recognize compensation expense for RSUs using the straight-line amortization method based on the fair value of
RSUs on the date of grant. The fair value of RSUs is the closing market price of our ordinary shares on the date of grant, which
is equal to their intrinsic value on the date of grant. We recorded $5 million and $2 million of compensation expense related to
RSUs for the year ended October 28, 2012 and October 30, 2011, respectively. Compensation expense associated with RSU
awards was not material to fiscal year 2010 results.
We record share-based compensation expense based on an estimate of the fair value of rights to purchase ordinary shares
under the ESPP, and recognize this share-based compensation expense using the straight-line amortization method. We
recorded $3 million of compensation expense related to the ESPP for each of the fiscal year ended October 28, 2012 and
October 30, 2011. Compensation expense associated with ESPP was not material to fiscal year 2010 results.
78
The following table summarizes total share-based compensation expense for the years ended October 28, 2012,
October 30, 2011 and October 31, 2010 (in millions):
Cost of products sold
Research and development
Selling, general and administrative
Total share-based compensation expense
Year Ended
October 28,
2012
October 30,
2011
October 31,
2010
$
$
6
20
27
53
$
$
4
14
20
38
$
$
3
8
14
25
The weighted-average assumptions utilized for our Black-Scholes valuation model for options and ESPP rights granted
during the years ended October 28, 2012, October 30, 2011 and October 31, 2010 are as follows:
Risk-free interest rate
Dividend yield
Volatility
Expected term (in years)
Risk-free interest rate
Dividend yield
Volatility
Expected term (in years)
Options
Year Ended
October 30,
2011
2.0%
0.9%
45.0%
5.0
ESPP
Year Ended
October 30,
2011
0.1%
0.6%
42.6%
0.5
October 28,
2012
0.8%
1.4%
53.0%
5.0
October 28,
2012
0.1%
1.4%
50.4%
0.5
October 31,
2010
1.9%
—%
45.0%
5.0
October 31,
2010
0.2%
—%
42.0%
0.5
The dividend yields for the fiscal years ended October 28, 2012 and October 30, 2011 are based on the historical and
expected dividend payouts as of the respective option grant dates. The dividend yield of zero for the year ended October 31,
2010 is based on the fact that we did not intend to declare any cash dividends as of the respective option grant dates during that
period. Expected volatility is based on the combination of historical volatility of guideline publicly-traded companies over the
period commensurate with the expected life of the options and the implied volatility of guideline publicly-traded companies
from traded options with a term of 180 days or greater measured over the last three months. The risk-free interest rate is derived
from the average U.S. Treasury Strips rate during the period, which approximates the rate in effect at the time of grant. Our
computation of expected term was based on other data, such as the data of peer companies and company-specific attributes that
we believe could affect employees’ exercise behavior.
Based on the above assumptions, the weighted-average fair values of the options granted under our equity incentive
award plans for the years ended October 28, 2012, October 30, 2011 and October 31, 2010 was $14.28, $12.41 and $8.17,
respectively. The first six month purchase period under our ESPP began in the fourth quarter of fiscal year 2010. The weighted-
average fair values of the rights to purchase shares in the ESPP for the year ended October 28, 2012 and October 30, 2011 were
$12.76 and $8.52, respectively. RSUs were first granted in the fourth quarter of our fiscal year ended November 1, 2010. The
weighted-average fair value of RSUs granted under the 2009 Equity Incentive Award Plan for the year ended October 28, 2012
and October 30, 2011 was $34.66 and $32.41, respectively. 0.9 million and 0.5 million shares of RSUs were unvested as of
October 28, 2012 and October 30, 2011, respectively.
Based on our historical experience of pre-vesting option cancellations, for each of the fiscal years 2012, 2011 and 2010,
we have assumed an annualized forfeiture rate of 8% for our options. We have assumed an annualized forfeiture rate of 8% for
RSUs for fiscal year 2012 and 2011 and 0% for fiscal year 2010 because the related share-based compensation expense was not
material for fiscal year 2010. We have assumed an annualized forfeiture rate of 0% for ESPP purchase rights for fiscal years
2012, 2011 and 2010 because the related share-based compensation expense was not material for either period. We will record
79
additional expense if actual forfeitures are lower than we estimated, and will record a recovery of prior expense if actual
forfeitures are higher than we estimated.
Total compensation cost of options granted but not yet vested as of October 28, 2012 was $114 million, which is expected
to be recognized over the remaining weighted-average service period of 3 years. The total grant-date fair value of options
vested during fiscal year 2012, 2011 and 2010 was $42 million, $34 million and $39 million, respectively. Total unrecognized
compensation cost related to the ESPP as of October 28, 2012 was $1 million, which is expected to be recognized over the
remaining 5 months of the current offering period under the ESPP. Total compensation cost related to unvested RSUs as of
October 28, 2012 was $23 million, which is expected to be recognized over the remaining weighted-average service period of 3
years. The total grant-date fair value of RSUs vested during fiscal year 2012 was $1 million. No RSUs vested during the fiscal
year of 2011 and 2010. The income tax benefits for share-based compensation expense was $13 million, $14 million and $4
million for fiscal years ended October 28, 2012, October 30, 2011 and October 31, 2010, respectively.
10.
Income Taxes
Consequent to the incorporation of Avago in Singapore, domestic income reflects the results of operations based in
Singapore.
Components of Income Before Income Taxes
For financial reporting purposes, “Income before income taxes” included the following components (in millions):
Domestic income
Foreign income
Income before income taxes
Year Ended
October 28,
2012
October 30,
2011
October 31,
2010
$
$
503
82
585
$
$
500
61
561
$
$
323
83
406
Components of Provision for (Benefit from) Income Taxes
We have obtained several tax incentives from the Singapore Economic Development Board, an agency of the
Government of Singapore, which provide that certain classes of income we earn in Singapore are subject to tax holidays or
reduced rates of Singapore income tax. Each such tax incentive is separate and distinct from the others, and may be granted,
withheld, extended, modified, truncated, complied with or terminated independently without any effect on the other incentives.
In order to retain these tax benefits in Singapore, we must meet certain operating conditions specific to each incentive relating
to, among other things, maintenance of a treasury function, a corporate headquarters function, specified intellectual property
activities and specified manufacturing activities in Singapore. Some of these operating conditions are subject to phase-in
periods through 2015. The Singapore tax incentives are presently scheduled to expire at various dates generally between 2014
and 2025, subject in certain cases to potential extensions. In February 2010, the Malaysian government granted us a tax holiday
on our qualifying Malaysian income, which is effective for ten years beginning with our fiscal year 2009. The tax incentives
that we have negotiated in Malaysia are also subject to our compliance with various operating and other conditions. For the
fiscal years ended October 28, 2012, October 30, 2011 and October 31, 2010, the effect of all these tax incentives, in the
aggregate, was to reduce the overall provision for (benefit from) income taxes and increase net income from what it otherwise
would have been in such year by $81 million, $82 million and $63 million, respectively, and increase diluted net income per
share by $0.33, $0.32, and $0.26, respectively.
80
Significant components of the provision for (benefit from) income taxes are as follows (in millions):
Current tax expense:
Domestic
Foreign
Deferred tax expense (benefit):
Domestic
Foreign
Total provision for (benefit from) income taxes
Year Ended
October 28,
2012
October 30,
2011
October 31,
2010
$
$
$
$
$
6
15
21
$
$
(1) $
2
1
$
5
12
17
$
$
— $
(8)
(8) $
22
$
9
$
3
16
19
1
(29)
(28)
(9)
We recorded a total provision for income taxes of $22 million for the year ended October 28, 2012 compared to a total of
$9 million for the year ended October 30, 2011. The provision for income taxes in 2011 included a $3 million tax benefit for
the increase in deferred tax assets from U.S. legislation retroactively reinstating the research and development tax credit and a
$3 million tax benefit from a change in estimate related to research and development tax credits. The benefit from income
taxes in 2010 included a $29 million benefit from the release of deferred tax asset valuation allowances, mainly associated with
the Company irrevocably calling our senior subordinated notes for redemption in October 2010, partially offset by a write-off
of $6 million of deferred tax assets resulting from the grant of a new tax incentive in Malaysia. Our valuation allowance
increased by $3 million in fiscal year 2011.
Rate Reconciliation
A reconciliation of the expected statutory tax rate to the actual, effective tax rate on income before income taxes is as
follows:
Expected statutory tax rate
Foreign income taxed at different rates
Tax holidays and concessions
Other, net
Valuation allowance
Actual tax rate on income before income taxes
Summary of Deferred Income Taxes
October 28,
2012
Year Ended
October 30,
2011
October 31,
2010
17.0%
0.4
(13.9)
0.1
0.2
3.8%
17.0%
—
(14.6)
(1.0)
0.1
1.5%
17.0 %
0.8
(12.8)
—
(7.1)
(2.1)%
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and their basis for income tax purposes and the tax effects of net operating losses and
tax credit carryforwards.
81
The significant components of deferred tax assets and deferred tax liabilities included on the balance sheets were as
follows (in millions):
Deferred income tax assets:
Depreciation and amortization
Inventory
Trade accounts
Employee benefits
Share options
Net operating loss carryovers and credit carryovers
Other deferred income tax assets
Gross deferred income tax assets
Less valuation allowance
Deferred income tax assets
Deferred income tax liabilities:
Depreciation and amortization
Foreign earnings not permanently reinvested
Deferred income tax liabilities
Net deferred income tax assets
October 28,
2012
October 30,
2011
$
$
$
$
$
$
2
2
2
14
19
37
6
82
(10)
72
9
2
11
61
$
$
$
$
$
$
6
2
2
16
11
35
5
77
(7)
70
8
2
10
60
The above net deferred income tax asset has been reflected in the accompanying balance sheets as follows (in millions):
Other current assets
Other current liabilities
Net current income tax assets
Other long-term assets
Other long-term liabilities
Net long-term income tax assets
October 28,
2012
October 30,
2011
$
$
$
$
14
(2)
12
51
(2)
49
$
$
$
$
18
(2)
16
47
(3)
44
As of October 28, 2012, we had Singapore net operating loss carryforwards of $5 million, U.S. net operating loss
carryforwards of $85 million, of which $61 million are related to excess tax deductions related to stock options, U.S. state net
operating loss carryforwards of $77 million, of which $53 million are related to excess tax deductions related to stock options,
and other foreign net operating loss carryforwards of $3 million. The Singapore net operating losses have no limitation on
utilization. U.S. federal and state net operating loss carryforwards, if not utilized, will begin to expire in fiscal year 2027 and
2016, respectively. The other foreign net operating losses expire in various fiscal years beginning 2018. As of October 28,
2012, we had $23 million and $14 million of U.S. federal and state research and development tax credits, respectively, which if
not utilized, will begin to expire in fiscal year 2026.
The U.S. Tax Reform Act of 1986 limits the use of net operating loss and tax credit carryforwards in the case of an
“ownership change” of a corporation or separate return loss year limitations. Any ownership changes, as defined, may restrict
utilization of carryforwards. As of October 28, 2012, we had approximately $28 million and $16 million of federal net
operating loss and tax credit carryforwards, respectively, in the U.S. subject to an annual limitation and $58 million subject to
separate return loss carryforward limitation. We do not expect these limitations to result in any permanent loss of our tax
benefits.
As of October 28, 2012, we had unrecognized deferred tax assets of approximately $26 million attributable to excess tax
deductions related to stock options, the benefit of which will be credited to equity when realized.
We consider all operating income of foreign subsidiaries not to be permanently reinvested outside Singapore. We have
provided $2 million for foreign taxes that may result from future remittances of undistributed earnings of foreign subsidiaries,
82
the cumulative amount of which is estimated to be $103 million and $107 million as of October 28, 2012 and October 30, 2011,
respectively.
Uncertain Tax Positions
The gross unrecognized tax benefits decreased by $3 million during fiscal year 2012, resulting in gross unrecognized tax
benefits of $27 million as of October 28, 2012.
We recognize interest and penalties related to unrecognized tax benefits within the provision for income taxes line in the
accompanying consolidated statement of operations. We recognized approximately $1 million of expense related to interest and
penalties in each of the years presented. Accrued interest and penalties are included within the other long-term liabilities line in
the consolidated balance sheets. As of October 28, 2012, October 30, 2011 and October 31, 2010, the combined amount of
cumulative accrued interest and penalties was approximately $4 million, $6 million and $5 million, respectively.
A reconciliation of the beginning and ending balance of gross unrecognized tax benefits is summarized as follows (in
millions):
October 28,
2012
October 30,
2011
October 31,
2010
Beginning of period
Lapse of statute of limitations
Increases in balances related to tax positions taken during prior periods
Decreases in balances related to tax positions taken during prior periods
Increases in balances related to tax positions taken during current period
End of period
$
$
30
(4)
1
(1)
1
27
$
$
27
—
1
—
2
30
$
$
24
—
1
—
2
27
A portion of our unrecognized tax benefits will affect our effective tax rate if they are recognized upon favorable
resolution of the uncertain tax positions. As of October 28, 2012, approximately $28 million of the unrecognized tax benefits
including accrued interest and penalties would affect our effective tax rate. As of October 30, 2011, approximately $29 million
of the unrecognized tax benefits including accrued interest and penalties would affect our effective tax rate.
Although the timing of the resolution and/or closure on audits is highly uncertain, we do not expect that the balance of
gross unrecognized tax benefits would significantly decrease in the next 12 months.
We are subject to examination by the tax authorities with respect to the periods subsequent to December 2005. We are not
under Singapore income tax examination at this time. The Company is subject to Singapore income tax examinations for all
years from the year ended October 31, 2006. The Company is also subject to examinations in major foreign jurisdictions,
including the United States, from the year ended October 31, 2007.
11.
Interest Expense
Interest expense of $1 million, $4 million and $34 million for the years ended October 28, 2012, October 30, 2011 and
October 31, 2010, respectively, consisted primarily of (i) interest expense of $1 million, $3 million and $32 million,
respectively, with respect to the previously outstanding senior notes, senior subordinated notes, and debt under the senior
secured credit facilities, all issued or incurred in connection with the SPG Acquisition, as well as commitment fees related to
our terminated and new unsecured revolving credit facilities; and (ii) amortization of debt issuance costs of $0 million, $1
million and $2 million, respectively.
12.
Other Income (Expense), net
Other income (expense), net includes interest income, currency gains (losses) on balance sheet remeasurement and other
miscellaneous items. The following table presents the detail of other income (expense), net (in millions):
Other income
Interest income
Other expense
Other income (expense), net
83
Year Ended
October 28,
2012
October 30,
2011
October 31,
2010
$
$
3
4
(3)
4
$
$
1
1
(1)
1
$
$
3
1
(6)
(2)
13.
Segment Information
ASC 280 “Segment Reporting,” or ASC 280, establishes standards for the way public business enterprises report
information about operating segments in annual consolidated financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports. ASC 280 also establishes standards for related
disclosures about products and services, geographic areas and major customers. We have concluded that we have one reportable
segment based on the following factors: sales of semiconductors represents our only material source of revenue; substantially
all products offered incorporate analog functionality and are manufactured under similar manufacturing processes; we use an
integrated approach in developing our products in that discrete technologies developed are frequently integrated across many of
our products; we use a common order fulfillment process and similar distribution approach for our products; and broad
distributor networks are typically utilized while large accounts are serviced by a direct sales force. The Chief Executive Officer
has been identified as the Chief Operating Decision Maker as defined by ASC 280.
The following table presents net revenue and long-lived asset information based on geographic region. Net revenue is
based on the geographic location of the distributors, original equipment manufacturers or contract manufacturers who
purchased the Company’s products, which may differ from the geographic location of the end customers. Long-lived assets
include property, plant and equipment and are based on the physical location of the assets (in millions):
Net revenue:
China
United States
Germany
Korea
Singapore
Rest of the World
Long-lived assets:
United States
Malaysia
Singapore
Rest of the World
October 28,
2012
Year Ended
October 30,
2011
October 31,
2010
$
$
981
371
184
150
97
581
$
697
407
230
225
106
671
662
312
209
200
137
573
$
2,364
$
2,336
$
2,093
October 28,
2012
October 30,
2011
$
$
324
$
53
42
84
503
$
160
35
45
76
316
14.
Related Party Transactions
Capstone Consulting
Capstone Consulting, or Capstone, an affiliate of Kohlberg Kravis Roberts & Co., or KKR, was granted options to
purchase 800,000 ordinary shares with an exercise price of $5.00 per share on February 3, 2006. 700,000 of these option shares
vested by the end of the first quarter of fiscal year 2010 and the remaining 100,000 option shares did not vest due to the
performance targets for those options were not met. In connection with our initial public offering in fiscal year 2009 and
secondary public offerings of our shares in fiscal year 2010 and 2011, Capstone exercised and sold all vested options for an
aggregate option exercise proceeds of $3 million.
Bali Investments S.àr.l, Seletar Investments Pte. Ltd. and Geyser Investment Pte. Ltd.
In connection with the public offering in January 2010 in which the Company's certain shareholders sold an aggregate of
25,000,000 of the Company's ordinary shares, selling shareholders Bali Investments S.àr.l, an affiliate of KKR and Silver Lake
Partners, or Silver Lake, Geyser Investments Pte. Ltd. and Seletar Investment Pte. Ltd. agreed to reimburse the Company for
two-thirds of the expenses of the offering which amounted to $1 million.
84
During the fiscal years ended October 28, 2012, October 30, 2011 and October 31, 2010, in the ordinary course of
business, on an arm's length basis, we purchased from, or sold to, several entities, where one of the Company's directors also
serves or served as a director of that entity, including eSilicon Corporation, KLA-Tencor Corporation, Wistron Corporation,
WIN Semiconductor Corp., Unisteel Technology Limited, Hewlett-Packard Company, and Flextronics International Ltd. The
following tables provide the transactions with these parties for the indicated periods (for the portion of such period that they
were considered related):
Transactions and balances with our related parties were as follows (in millions):
October 28,
2012
$
$
7
8
Year Ended
October 30,
2011
73
56
October 28,
2012
1
2
$
$
$
October 31,
2010
127
6
October 30,
2011
1
— *
$
$
$
Total net revenue
Total costs and expenses
Total receivables
Total payables
_______________________________________
* Represents amounts less than $0.5 million.
15.
Commitments and Contingencies
Commitments
The following table summarizes contractual obligations and commitments as at October 28, 2012 (in millions):
Total
2013
2014
2015
2016
2017
Thereafter
Operating Leases
Capital Leases
Purchase Commitments
Revolving Credit Facility
Commitments
Other Contractual Commitments
$
$
97
3
121
3
53
$
10
1
121
1
21
$
10
1
—
1
13
$
10
1
—
1
7
$
5
—
—
—
6
$
4
—
—
—
6
58
—
—
—
—
Operating Lease Commitments. We lease certain real property and equipment from third parties under non-cancelable
operating leases. Rent expense was $12 million, $13 million and $12 million for the years ended October 28, 2012, October 30,
2011 and October 31, 2010, respectively.
Capital Lease Commitments. We lease a portion of our equipment from unrelated third parties under non-cancelable
capital leases.
Purchase Commitments. We have unconditional purchase obligations which include agreements to purchase goods or
services that are enforceable and legally binding on us and that specify all significant terms, including fixed or minimum
quantities to be purchased, fixed, minimum or variable price provisions and the approximate timing of the transaction. Purchase
obligations exclude agreements that are cancelable without penalty.
We also make purchases from a variety of vendors in connection with the expansion of our Fort Collins internal
fabrication facility. These purchases are typically conducted on a purchase order basis and the amount shown in the table
includes $33 million in cancelable and non-cancelable outstanding purchase obligations under such purchase orders as of
October 28, 2012.
Revolving Credit Facility Commitments. Estimated future interest expense payments related to our revolving credit
facility consist of payments on our commitment fees. See Note 7. “Borrowings.”
Other Contractual Commitments. We entered into several agreements related to IT, human resources and financial
infrastructure outsourcing and other services agreements.
85
Contingencies
From time to time, we are involved in litigation that we believe is of the type common to companies engaged in our line
of business, including commercial disputes and employment issues. As of the date of this filing, we are not involved in any
pending legal proceedings that we believe would likely have a material adverse effect on our financial condition, results of
operations or cash flows. However, certain pending disputes involve claims by third parties that our activities infringe their
patent, copyright, trademark or other intellectual property rights. These claims generally involve the demand by a third-party
that we cease the manufacture, use or sale of the allegedly infringing products, processes or technologies and/or pay substantial
damages or royalties for past, present and future use of the allegedly infringing intellectual property.
With respect to the legal proceedings, individually and in the aggregate, we have not yet been able to determine whether
an unfavorable outcome is probable or reasonably possible and have not been able to reasonably estimate the amount or range
of any possible loss. As a result, no amounts have been accrued or disclosed in the accompanying consolidated financial
statements with respect to these legal proceedings.
Claims that our products or processes infringe or misappropriate any third-party intellectual property rights (including
claims arising through our contractual indemnification of our customers) often involve highly complex, technical issues, the
outcome of which is inherently uncertain. Moreover, from time to time we pursue litigation to assert our intellectual property
rights. Regardless of the merit or resolution of any such litigation, complex intellectual property litigation is generally costly
and diverts the efforts and attention of our management and technical personnel.
Warranty
Commencing in fiscal year 2008, we notified certain customers of a product quality issue and began taking additional
steps to correct the quality issue and work with affected customers to determine potential costs covered by our warranty
obligations. We maintain insurance coverage for product liability and have been working with our insurance carriers to
determine the extent of covered losses in this situation. Based on settlements with customers to date, the status of discussions
with other affected customers and discussions with our insurance carriers, we recorded a charge of $2 million during fiscal year
2009 to cover costs relating to this quality issue in excess of expected insurance coverage. On July 29, 2012, we reached a final
settlement agreement with a customer on this product quality issue. However, the final settlement amount was fully recovered
from our insurance carrier. Therefore, in fiscal year 2012, we released $2 million of the warranty accrual and reduced cost of
goods sold for this product warranty issue.
During fiscal year 2009 we identified another product quality issue with a particular component, took steps to correct the
quality issue and notified our customers. Though the expected failure rate of the product was not 100%, based on our quality
tests, we have offered to replace all such components used or still held by our customers. We recorded charges of $6 million
during fiscal year 2009 related to this product quality issue, based on the progress of discussions with our customers and our
evaluation of the best estimate of our exposure related to this matter, which covered costs to scrap inventory of such
components held by us and costs associated with providing replacement parts to customers. During fiscal year 2010, we
recorded additional charges of $11 million to cover customer claims for reimbursements of costs incurred by such customers
related to this product quality issue. During fiscal year 2010, we reached final settlement agreements with certain customers on
this product quality issue. The final settlement amounts approximate the estimated accrued warranty obligations for those
customers. We made $2 million of cash settlement payments in connection with these agreements during fiscal year 2010,
resulting in a $2 million decrease in the warranty accrual for this product quality issue during the same period. During fiscal
year 2011, we reached additional final settlement agreements with certain customers, made $3 million of cash settlement
payments and credits and shipped $1 million of replacement parts in connection with these agreements, resulting in a $4
million decrease in the warranty accrual for this product quality issue during the period. In addition, during fiscal year 2011,
following these additional settlements and based on all information available to the Company regarding remaining customer
exposures including the progress made in resolving customer issues, we reassessed our overall exposure relating to this product
quality issue, including our estimate of any remaining replacement parts exposure, and reduced the warranty accrual we
previously recorded by $6 million. During fiscal year 2012, following these additional settlements and based on all
information available to the Company regarding remaining customer exposures including the progress made in resolving
customer issues, we reassessed our overall exposure relating to this product quality issue, including our estimate of any
remaining replacement parts exposure, and reduced the warranty accrual we previously recorded by $1 million. We presently
believe that amounts we have recorded in our consolidated financial statements will be adequate to resolve any warranty
obligations related to this issue.
86
Indemnifications to Hewlett-Packard and Agilent
Agilent Technologies, Inc. has given multiple indemnities to Hewlett-Packard Company in connection with its activities
prior to its spin-off from Hewlett-Packard Company in June 1999 for the businesses that constituted Agilent prior to the spin-
off. As the successor to the SPG business of Agilent, we may acquire responsibility for indemnifications related to assigned
intellectual property agreements. Additionally, when we completed the SPG Acquisition in December 2005, we provided
indemnities to Agilent with regard to Agilent’s conduct of the SPG business prior the SPG Acquisition. In our opinion, the fair
value of these indemnifications is not material and no amount has been accrued in the accompanying consolidated financial
statements with respect to these indemnification obligations.
Other Indemnifications
As is customary in our industry and as provided for in local law in the United States and other jurisdictions, many of our
standard contracts provide remedies to our customers and others with whom we enter into contracts, such as defense,
settlement, or payment of judgment for intellectual property claims related to the use of our products. From time to time, we
indemnify customers, as well as our suppliers, contractors, lessors, lessees, companies that purchase our businesses or assets
and others with whom we enter into contracts, against combinations of loss, expense, or liability arising from various triggering
events related to the sale and the use of our products, the use of their goods and services, the use of facilities and state of our
owned facilities, the state of the assets and businesses that we sell and other matters covered by such contracts, usually up to a
specified maximum amount. In addition, from time to time we also provide protection to these parties against claims related to
undiscovered liabilities, additional product liability or environmental obligations. In our experience, claims made under such
indemnifications are rare and the associated estimated fair value of the liability is not material.
16.
Subsequent Events
On December 6, 2012, the Board declared an interim cash dividend of $0.17 per ordinary share to holders of record at the
close of business (5:00 p.m.), Eastern Time, on December 17, 2012 with such dividend to be paid on December 28, 2012.
We filed a prospectus supplement, dated December 6, 2012, with the SEC relating to sale of 21,490,022 of our ordinary
shares by shareholders affiliated with KKR and Silver Lake, and our President and Chief Executive Officer in a registered
public offering, or the offering. This transaction closed on December 12, 2012. We did not receive any proceeds from the sale
of shares sold in the offering other than approximately $1.5 million in aggregate option exercise price proceeds from a selling
shareholder who exercised options for purpose of selling shares in this offering.
87
Supplementary Financial Data — Quarterly Data (Unaudited)
October 28,
2012
July 29,
2012
April 29,
2012
January 29,
2012
October 30,
2011
July 31,
2011
May 1,
2011
January 30,
2011
(In millions, except per share data)
Three Months Ended
Net revenue
$
618
$
606
$
577
$
563
$
623
$
603
$
560
$
550
Cost of products sold:
Cost of products sold
Amortization of intangible
assets
Restructuring charges
Total cost of products sold
Gross margin
Research and development
Selling, general and
administrative
Amortization of intangible
assets
Restructuring charges
Total operating expenses
Income from operations
Interest expense
Loss on extinguishment of debt
Other income (expense), net
Income before income taxes
Provision for income taxes
Net income
Net income per share:
Basic
Diluted
Shares used in per share
calculations:
Basic
Diluted
Dividends declared and paid per
share
304
14
1
319
299
80
49
5
1
135
164
—
—
1
165
6
159
0.65
0.64
245
250
$
$
$
297
14
—
311
295
89
49
6
2
146
149
—
—
1
150
5
145
0.59
0.58
245
250
$
$
$
284
14
1
299
278
84
51
5
1
141
137
—
—
3
140
6
134
0.55
0.54
244
250
$
$
$
279
14
—
293
270
82
50
5
1
138
132
(1)
—
(1)
130
5
125
0.51
0.50
245
250
$
$
$
305
14
—
319
304
83
55
6
1
145
159
—
—
—
159
5
154
0.63
0.61
246
252
$
$
$
292
14
—
306
297
85
60
5
2
152
145
—
—
—
145
1
144
0.59
0.57
246
253
$
$
$
271
14
—
285
275
76
55
5
1
137
138
(1)
(1)
1
137
2
135
0.55
0.54
245
252
$
$
$
265
14
—
279
271
73
50
6
—
129
142
(3)
(19)
—
120
1
119
0.49
0.48
242
250
$
$
$
$
0.16
$
0.15
$
0.13
$
0.12
$
0.11
$
0.09
$
0.08
$
0.07
88
Schedule II — Valuation and Qualifying Accounts
Accounts receivable allowances:
Distributor credit allowance(1)
Year ended October 28, 2012
Year ended October 30, 2011
Year ended October 31, 2010
Other accounts receivable allowances(2)
Year ended October 28, 2012
Year ended October 30, 2011
Year ended October 31, 2010
Income tax valuation allowance
Year ended October 28, 2012
Year ended October 30, 2011
Year ended October 31, 2010
_______________________________________
Balance at
Beginning
of Period
Charged/
Credited to
Net Income
(Loss)
Charges
Utilized/
Write-offs
Balance at
End of
Period
(In millions)
$
$
$
$
$
$
17
12
10
6
4
3
7
4
32
$
$
101
106
93
17
19
16
1
$
1
(29)
(86) $
(101)
(91)
(18) $
(17)
(15)
$
2
2
1
32
17
12
5
6
4
10
7
4
(1) Distributor credit allowance relates to limited stock returns and price adjustments.
(2) Other accounts receivable allowances include allowance for doubtful accounts and sales returns.
89
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of Avago’s disclosure controls and procedures as of October 28, 2012. The term “disclosure controls and
procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a
company that are designed to ensure that information required to be disclosed by a company in the reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the
SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the company’s management, including its principal executive and principal financial
officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and
management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on the evaluation of our disclosure controls and procedures as of October 28, 2012, our Chief Executive Officer and
Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable
assurance level.
Management’s Report on Internal Control Over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the
Company. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange
Act as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and
effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles and includes those policies and procedures that:
•
•
•
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of October 28, 2012. In
making this assessment, the company’s management used the criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this assessment, our management
concluded that, as of October 28, 2012, our internal control over financial reporting is effective based on those criteria.
The effectiveness of the Company’s internal control over financial reporting as of October 28, 2012 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included in
Part II, Item 8. of this Form 10-K.
Changes in Internal Controls over Financial Reporting.
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) occurred during the fiscal quarter ended October 28, 2012 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
ITEM 9B.
OTHER INFORMATION
Not applicable.
90
PART III.
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information regarding our directors, executive officers and compliance with Section 16(a) of the Exchange Act, set
forth in the sections entitled “Proposal 1 — Election of Directors”, “Executive Officers”, “Corporate Governance” and
“Section 16(a) Beneficial Ownership Reporting Compliance”, in our definitive Proxy Statement for our 2013 Annual General
Meeting of Shareholders to be filed with the SEC within 120 days of the end of our 2012 fiscal year pursuant to General
Instruction G(3) to Form 10-K is hereby incorporated by reference in this section.
We have adopted a written Code of Ethics and Business Conduct that applies to all of our employees and directors,
including our principal executive officer, principal financial officer and principal accounting officer, or persons performing
similar functions and have posted it in the “Investors — Governance” section of our website, which is located at
www.avagotech.com. We intend to satisfy any disclosure requirement under Item 5.05 of Form 8-K regarding any amendments
to, or waivers from, our Code of Ethics and Business Conduct by posting such information on our website at the internet
address and location above.
ITEM 11.
EXECUTIVE COMPENSATION
The information regarding executive compensation required by this Item 11 set forth in the sections entitled “Director
Compensation”, “Compensation Discussion and Analysis”, “Executive Compensation”, “Compensation Committee Report”
and “Corporate Governance — Compensation Committee Interlocks and Insider Participation" in our definitive Proxy
Statement for our 2013 Annual General Meeting of Shareholders to be filed with the SEC within 120 days of the end of our
2012 fiscal year pursuant to General Instruction G(3) to Form 10-K is hereby incorporated by reference in this section.
However, the Compensation Committee Report included in such definitive Proxy Statement shall not be deemed “filed” with
the SEC for the purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, nor shall it be
deemed incorporated by reference in any filing made by us with the SEC, regardless of any general incorporation language in
such filing.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information regarding security ownership of certain beneficial owners and management and related shareholder
matters required by this Item 12 set forth in the section entitled “Security Ownership of Certain Beneficial Owners, Directors
and Executive Officers” and “Equity Compensation Plan Information” in our definitive Proxy Statement for our 2013 Annual
General Meeting of Shareholders to be filed with the SEC within 120 days of the end of our 2012 fiscal year pursuant to
General Instruction G(3) to Form 10-K is hereby incorporated by reference in this section.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information regarding certain relationships, related transactions and director independence required by this Item 13
set forth in the sections entitled “Corporate Governance” and “Certain Relationships and Related Transactions” in our
definitive Proxy Statement for our 2013 Annual General Meeting of Shareholders to be filed with the SEC within 120 days of
the end of our 2012 fiscal year pursuant to General Instruction G(3) to Form 10-K is hereby incorporated by reference in this
section.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The information regarding principal accounting fees and services required by this Item 14 set forth in the proposal
relating to the re-appointment of our independent registered public accounting firm in our definitive Proxy Statement for our
2013 Annual General Meeting of Shareholders to be filed with the Commission within 120 days of the end of our 2012 fiscal
year pursuant to General Instruction G(3) to Form 10-K is hereby incorporated by reference in this section.
PART IV
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following are filed as part of this Annual Report on Form 10-K:
1. Financial Statements
The following consolidated financial statements are included in Item 8 of this Annual Report on Form 10-K:
91
— Consolidated Balance Sheets as of October 28, 2012 and October 30, 2011
— Consolidated Statements of Operations for the years ended October 28, 2012, October 30, 2011 and
October 31, 2010
— Consolidated Statements of Cash Flows for the years ended October 28, 2012, October 30, 2011 and
October 31, 2010
— Consolidated Statements of Shareholders’ Equity and Comprehensive Income (Loss) for the years ended
October 28, 2012, October 30, 2011 and October 31, 2010
2. Financial Statement Schedules
The financial statement schedule required by Item 15(a) (Schedule II, Valuation and Qualifying Accounts) is included in
Item 8 of this Annual Report on Form 10-K.
Schedules not filed have been omitted because they are not applicable, are not required or the information required to be
set forth therein is included in the financial statements or notes thereto.
3. Exhibits
The exhibits listed in the Exhibit Index immediately preceding the exhibits are filed with or incorporated by reference in
this Annual Report on Form 10-K.
92
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
AVAGO TECHNOLOGIES LIMITED
By:
/s/ Hock E. Tan
Name: Hock E. Tan
Title: President and Chief Executive Officer
Date: December 17, 2012
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and appoints Hock E. Tan, Douglas R.
Bettinger and Patricia H. McCall, and each of them, with full power of substitution and resubstitution and full power to act
without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to
execute in the name and on behalf of each person, individually and in each capacity stated below, and to file any and all
amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said
attorneys-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed
by the following persons on behalf of the Registrant in the capacities indicated and on the dates indicated.
Signature
/s/ Hock E. Tan
Hock E. Tan
Title
Date
President and Chief Executive
Officer and Director
(Principal Executive Officer)
December 17, 2012
/s/ Douglas R. Bettinger
Douglas R. Bettinger
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
December 17, 2012
/s/ James Diller
James Diller
/s/ Adam H. Clammer
Adam H. Clammer
/s/ John Dickson
John Dickson
/s/ Kenneth Y. Hao
Kenneth Y. Hao
/s/ John M. Hsuan
John M. Hsuan
/s/ Justine Lien
Justine Lien
/s/ Donald Macleod
Donald Macleod
Chairman of the Board of Directors
December 17, 2012
Director
Director
Director
Director
Director
Director
93
December 17, 2012
December 17, 2012
December 17, 2012
December 17, 2012
December 17, 2012
December 17, 2012
Exhibit
No.
2.1#
2.2#
2.3#
2.4#
3.1
4.1
4.2
EXHIBIT INDEX
Description
Form
Incorporated by Referenced Herein
Filing Date
Filed
Herewith
Asset Purchase Agreement, dated August
14, 2005, between Agilent Technologies,
Inc. and Argos Acquisition Pte. Ltd.
Agilent Technologies, Inc. Current Report
on Form 8-K (Commission File No.
001-15405)
August 15,
2005
Amendment No. 4 to Avago Technologies
Limited Registration Statement on Form
S-1 (Commission File No. 333-153127)
July 21,
2009
Amendment No. 1 to Avago Technologies
Limited Registration Statement on Form
S-1 (Commission File No. 333-153127)
October 1,
2008
Amendment No. 4 to Avago Technologies
Limited Registration Statement on Form
S-1 (Commission File No. 333-153127)
July 21,
2009
Avago Technologies Limited Current
Report on Form 8-K (File No.
001-34428).
August 14,
2009
Amendment No. 3 to Avago Technologies
Limited Registration Statement on Form
S-1 (Commission File No. 333-153127)
July 14,
2009
Avago Technologies Limited Current
Report on Form 8-K (Commission File
No. 001-34428).
August 14,
2009
Amendment No. 1 to the Asset Purchase
Agreement, dated November 30, 2005,
between Agilent Technologies, Inc. and
Avago Technologies Limited.
Amendment No. 2 to the Asset Purchase
Agreement, dated December 29, 2006,
between Agilent Technologies, Inc. and
Avago Technologies Limited.
Asset Purchase Agreement, dated June
25, 2008, by and among Avago
Technologies GmbH, Avago Technologies
International Sales Pte. Ltd., Avago
Technologies Wireless IP (Singapore) Pte.
Ltd., Avago Technologies Finance Pte.
Ltd. and Infineon Technologies AG.
Memorandum and Articles of
Association.
Form of Specimen Share Certificate for
Registrant’s Ordinary Shares.
Second Amended and Restated
Shareholder Agreement, dated August 11,
2009, among Avago Technologies
Limited, Silver Lake Partners II Cayman,
L.P., Silver Lake Technology Investors II
Cayman, L.P., Integral Capital Partners
VII, L.P., KKR Millennium Fund
(Overseas), Limited Partnership, KKR
European Fund, Limited Partnership,
KKR European Fund II, Limited
Partnership, KKR Partners
(International), Limited Partnership,
Capstone Equity Investors LLC, Avago
Investment Partners, Limited Partnership,
Bali Investments S.àr.l., Seletar
Investments Pte Ltd, Geyser Investment
Pte. Ltd. and certain other Persons
94
Exhibit
No.
4.3
4.4
4.5
4.6
10.1
Description
Amendment to the Second Amended and
Restated Shareholder Agreement and
Waiver Under the Registration Rights
Agreement, dated December 20, 2011,
among Avago Technologies Limited,
Silver Lake Partners II Cayman, L.P.,
Silver Lake Technology Investors II
Cayman, L.P., Integral Capital Partners
VII, L.P., KKR Millennium Fund
(Overseas), Limited Partnership, KKR
European Fund, Limited Partnership,
KKR European Fund II, Limited
Partnership, KKR Partners
(International), Limited Partnership,
Capstone Equity Investors LLC, Avago
Investment Partners, Limited Partnership,
Seletar Investments Pte Ltd, Geyser
Investment Pte. Ltd. and certain other
Persons
Second Amendment to the Second
Amended and Restated Shareholder
Agreement, dated January 20, 2012,
among Avago Technologies Limited,
Silver Lake Partners II Cayman, L.P.,
Silver Lake Technology Investors II
Cayman, L.P., KKR Millennium Fund
(Overseas), Limited Partnership, KKR
European Fund, Limited Partnership,
KKR European Fund II, Limited
Partnership, KKR Partners
(International), Limited Partnership,
Capstone Equity Investors LLC, Avago
Investment Partners, Limited Partnership,
and certain other Persons
Registration Rights Agreement, dated
December 1, 2005, among Avago
Technologies Limited, Silver Lake
Partners II Cayman, L.P., Silver Lake
Technology Investors II Cayman, L.P.,
Integral Capital Partners VII, L.P., KKR
Millennium Fund (Overseas), Limited
Partnership, KKR European Fund,
Limited Partnership, KKR European
Fund II, Limited Partnership, KKR
Partners (International), Limited
Partnership, Capstone Equity Investors
LLC, Avago Investment Partners, Limited
Partnership, Bali Investments S.àr.l.,
Seletar Investments Pte Ltd, Geyser
Investment Pte. Ltd. and certain other
Persons (“Registration Rights
Agreement”).
Amendment to Registration Rights
Agreement, dated August 21, 2008.
Sublease Agreement, dated June 5, 2009,
between Agilent Technologies Singapore
Pte. Ltd. and Avago Technologies
Manufacturing (Singapore) Pte. Ltd.,
relating to Avago’s facility at 1 Yishun
Avenue 7, Singapore 768923.
Incorporated by Referenced Herein
Form
Avago Technologies Limited Quarterly
Report on Form 10-Q (Commission File
No. 001-34428)
Filed
Herewith
Filing Date
March 8,
2012
Avago Technologies Limited Quarterly
Report on Form 10-Q (Commission File
No. 001-34428)
March 8,
2012
Avago Technologies Finance Pte. Ltd.
Registration Statement on Form F-4
(Commission File No. 333-137664)
September
29, 2006
Avago Technologies Limited Registration
Statement on Form S-1 (Commission File
No. 333-153127)
August 21,
2008
Avago Technologies Limited Registration
Annual Report on Form 10-K
(Commission File No. 001-33428)
December
15, 2010
95
Exhibit
No.
10.2
10.3
10.4
10.5
10.6
10.7
10.8
Description
Lease No. I/33183P issued by Singapore
Housing and Development Board to
Compaq Asia Pte Ltd in respect of the
land and structures comprised in Lot
1935X of Mukim 19, dated
September 26, 2000, and includes the
Variation of Lease I/49501Q registered
January 15, 2002, relating to Avago’s
facility at 1 Yishun Avenue 7, Singapore
768923.
Lease No. I/31607P issued by Singapore
Housing and Development Board to
Compaq Asia Pte Ltd in respect of the
land and structures comprised in Lot
1937C of Mukim 19, dated September 26,
2000, and includes the Variation of Lease
I/49499Q registered January 15, 2002,
relating to Avago’s facility at 1 Yishun
Avenue 7, Singapore 768923.
Lease No. I/33182P issued by Singapore
Housing and Development Board to
Compaq Asia Pte Ltd in respect of the
land and structures comprised in Lot
2134N of Mukim 19, dated
September 26, 2000, and includes the
Variation of Lease I/49500Q registered
January 15, 2002, relating to Avago’s
facility at 1 Yishun Avenue 7, Singapore
768923.
Lease No. I/33160P issued by Singapore
Housing and Development Board to
Compaq Asia Pte Ltd in respect of the
land and structures comprised in Lot
1975P of Mukim 19, dated September 26,
2000, and includes the Variation of Lease
I/49502Q registered January 15, 2002,
relating to Avago’s facility at 1 Yishun
Avenue 7, Singapore 768923.
Tenancy Agreement, dated October 24,
2005, between Agilent Technologies
(Malaysia) Sdn. Bhd. and Avago
Technologies (Malaysia) Sdn. Bhd. (f/k/a
Jumbo Portfolio Sdn. Bhd.), relating to
Avago’s facility at Bayan Lepas Free
Industrial Zone, 11900 Penang, Malaysia.
Supplemental Agreement to Tenancy
Agreement, dated December 1, 2005,
between Agilent Technologies (Malaysia)
Sdn. Bhd. and Avago Technologies
(Malaysia) Sdn. Bhd. (f/k/a Jumbo
Portfolio Sdn. Bhd.), relating to Avago’s
facility at Bayan Lepas Free Industrial
Zone, 11900 Penang, Malaysia.
Subdivision and Use Agreement, dated
December 1, 2005, between Agilent
Technologies (Malaysia) Sdn. Bhd. and
Avago Technologies (Malaysia) Sdn.
Bhd. (f/k/a Jumbo Portfolio Sdn. Bhd.),
relating to Avago’s facility at Bayan
Lepas Free Industrial Zone, 11900
Penang, Malaysia.
Incorporated by Referenced Herein
Form
Avago Technologies Finance Pte. Ltd.
Registration Statement on Form F-4
(Commission File No. 333-137664)
Filed
Herewith
Filing Date
November
15, 2006
Avago Technologies Finance Pte. Ltd.
Registration Statement on Form F-4
(Commission File No. 333-137664)
November
15, 2006
Avago Technologies Finance Pte. Ltd.
Registration Statement on Form F-4
(Commission File No. 333-137664)
November
15, 2006
Avago Technologies Finance Pte. Ltd.
Registration Statement on Form F-4
(Commission File No. 333-137664)
November
15, 2006
Amendment No. 1 to Avago Technologies
Limited Registration Statement on Form
S-1 (Commission File No. 333-153127)
October 1,
2008
Amendment No. 1 to Avago Technologies
Limited Registration Statement on Form
S-1 (Commission File No. 333-153127)
October 1,
2008
Amendment No. 1 to Avago Technologies
Limited Registration Statement on Form
S-1 (Commission File No. 333-153127)
October 1,
2008
96
Exhibit
No.
10.9
10.10
10.11
10.12
10.13
10.14
10.15^
10.16
Description
Sale and Purchase Agreement, dated
December 1, 2005, between Agilent
Technologies (Malaysia) Sdn. Bhd. and
Avago Technologies (Malaysia) Sdn.
Bhd. (f/k/a Jumbo Portfolio Sdn. Bhd.),
relating to Avago’s facility at Bayan
Lepas Free Industrial Zone, 11900
Penang, Malaysia.
Lease Agreement, dated December 1,
2005, between Agilent Technologies, Inc.
and Avago Technologies U.S. Inc.,
relating to Avago’s facility at 350 West
Trimble Road, San Jose, California
95131.
First Amendment to Lease Agreement
(Building 90) and Service
Level Agreement, dated January 10,
2007, between Avago Technologies U.S.
Inc. and Lumileds Lighting B.V. relating
to Avago’s facilities at 350 West Trimble
Road, San Jose, California 95131.
Credit Agreement, dated March 31, 2011,
among Avago Technologies Finance Pte.
Ltd., as Borrower, Avago Technologies
Holding Pte. Ltd., Avago Technologies
International Sales Pte. Limited, Avago
Technologies US. Inc. and Avago
Technologies General IP (Singapore) Pte.
Ltd., as Guarantors and the Initial
Lenders named herein as Initial Lenders
and Citicorp International Limited as
Administrative Agent and Barclays
Capital as Syndication Agent and
Citigroup Global Markets Inc. and
Barclays Capital as Joint Lead Arrangers
and Joint Bookrunners.
Amendment No. 1 to Credit Agreement,
dated July 28, 2011, among Avago
Technologies Finance Pte. Ltd., the
Lenders constituting the Required
Lenders and Citicorp International
Limited as Administrative Agent for the
Lenders.
Ft. Collins Supply Agreement, dated
October 28, 2005 between Avago
Technologies Wireless (U.S.A.)
Manufacturing, Inc. and Palau
Acquisition Corporation.
Distribution Agreement, dated March 26,
2008, between Avago Technologies
International Sales Pte. Limited and
Arrow Electronics, Inc.
Collective Agreement, dated October 28,
2010, between Avago Manufacturing
(Singapore) Pte Ltd (and its Singapore
affiliates) and United Workers of
Electronic & Electrical Industries.
Incorporated by Referenced Herein
Form
Amendment No. 1 to Avago Technologies
Limited Registration Statement on Form
S-1 (Commission File No. 333-153127)
Filing Date
October 1,
2008
Filed
Herewith
Amendment No. 1 to Avago Technologies
Limited Registration Statement on Form
S-1 (Commission File No. 333-153127)
October 1,
2008
Amendment No. 1 to Avago Technologies
Limited Registration Statement on Form
S-1 (Commission File No. 333-153127)
October 1,
2008
Avago Technologies Limited Quarterly
Report on Form 10-Q (Commission File
No. 001-34428)
June 9,
2011
Avago Technologies Limited Annual
Report on Form 10-K (Commission File
No. 001-34428)
December
16, 2011
Avago Technologies Finance Pte. Ltd.
Amendment No. 1 to Annual Report on
Form 20-F/A (Commission File No.
333-137664)
June 16,
2009
Amendment No. 4 to Avago Technologies
Limited Registration Statement on Form
S-1 (Commission File No. 333-153127)
July 21,
2009
Avago Technologies Limited Annual
Report on Form 10-K (Commission File
No. 001-33428)
December
15, 2010
10.17+
2009 Equity Incentive Award Plan.
Amendment No. 5 to Avago Technologies
Limited Registration Statement on Form
S-1 (Commission File No. 333-153127)
July 27,
2009
97
Filed
Herewith
Filing Date
February
27, 2008
Description
Form
Incorporated by Referenced Herein
Equity Incentive Plan for Executive
Employees of Avago Technologies
Limited and Subsidiaries (Amended and
Restated Effective as of February 25,
2008).
Equity Incentive Plan for Senior
Management Employees of Avago
Technologies Limited and Subsidiaries
(Amended and Restated Effective as of
February 25, 2008).
Amendment to the Equity Incentive Plan
for Senior Management Employees of
Avago Technologies Limited and its
Subsidiaries, dated July 27, 2009
Amendment to the Equity Incentive Plan
for Senior Management Employees of
Avago Technologies Limited and its
Subsidiaries, dated March 9, 2011
Form of Nonqualified Share Option
Agreement Under the Amended and
Restated Equity Incentive Plan for
Executive Employees of Avago
Technologies Limited and Subsidiaries
for U.S. employees.
Form of Nonqualified Share Option
Agreement Under the Equity Incentive
Plan for Executive Employees of Avago
Technologies Limited and Subsidiaries
for employees in Singapore.
Form of Nonqualified Share Option
Agreement Under the Amended and
Restated Equity Incentive Plan for Senior
Management Employees of Avago
Technologies Limited and Subsidiaries
for U.S. non-employee directors.
Form of Nonqualified Share Option
Agreement Under the Amended and
Restated Equity Incentive Plan for Senior
Management Employees of Avago
Technologies Limited and Subsidiaries
for non-employee directors in Singapore.
Amended and Restated Offer Letter
Agreement, dated July 17, 2009, between
Avago Technologies Limited and Hock E.
Tan.
Amended and Restated Employment
Agreement, dated July 17, 2009, between
Avago Technologies U.S. Inc. and Bryan
T. Ingram.
Offer Letter Agreement, dated March 20,
2007, between Avago Technologies and
Patricia H. McCall.
Avago Technologies Finance Pte. Ltd.
Amendment No. 1 to Annual Report on
Form 20-F/A (Commission File No.
333-137664)
Avago Technologies Finance Pte. Ltd.
Amendment No. 1 to Annual Report on
Form 20-F/A (Commission File No.
333-137664)
February
27, 2008
Avago Technologies Limited Annual
Report on Form 10-K (Commission File
No. 001-34428)
December
16, 2011
Avago Technologies Limited Quarterly
Report on Form 10-Q (Commission File
No. 001-34428)
Amendment No. 1 to Avago Technologies
Limited Registration Statement on Form
S-1 (Commission File No. 333-153127)
June 9,
2011
October 1,
2008
Amendment No. 1 to Avago Technologies
Limited Registration Statement on Form
S-1 (Commission File No. 333-153127)
October 1,
2008
Amendment No. 1 to Avago Technologies
Limited Registration Statement on Form
S-1 (Commission File No. 333-153127)
October 1,
2008
Avago Technologies Finance Pte. Ltd.
Registration Statement on Form F-4
(Commission File No. 333-137664)
September
29, 2006
Amendment No. 4 to Avago Technologies
Limited Registration Statement on Form
S-1 (Commission File No. 333-153127)
July 21,
2009
Amendment No. 4 to Avago Technologies
Limited Registration Statement on Form
S-1 (Commission File No. 333-153127)
July 21,
2009
Avago Technologies Finance Pte. Ltd.
Amendment No. 1 to Annual Report on
Form 20-F/A (Commission File No.
333-137664)
Exhibit
No.
10.18+
10.19+
10.20+
10.21+
10.21+
10.23+
10.24+
10.25+
10.26+
10.27+
10.28+
10.29+
Offer Letter Agreement, dated July 4,
2008, between Avago Technologies and
Douglas R. Bettinger.
Avago Technologies Finance Pte. Ltd.
Current Report on Form 6-K
(Commission File No. 333-137664)
10.30+
Form of indemnification agreement
between Avago and each of its directors.
Avago Technologies Finance Pte. Ltd.
Amendment No. 1 to Annual Report on
Form 20-F/A (Commission File No.
333-137664)
98
February
27, 2008
July 16,
2008
February
27, 2008
Filed
Herewith
Exhibit
No.
10.31+
10.32+
10.33+
10.34+
Description
Form
Incorporated by Referenced Herein
Form of indemnification agreement
between Avago and each of its officers.
Severance Benefits Agreement, dated
December 3, 2008, between Avago
Technologies Limited and Patricia H.
McCall.
Avago Technologies Finance Pte. Ltd.
Amendment No. 1 to Annual Report on
Form 20-F/A (Commission File No.
333-137664)
Avago Technologies Finance Pte. Ltd.
Current Report on Form 6-K
(Commission File No. 333-137664)
Offer Letter Agreement, dated December
5, 2008, between Avago Technologies
Limited and B.C. Ooi.
Avago Technologies Finance Pte. Ltd.
Current Report on Form 6-K
(Commission File No. 333-137664)
Filing Date
February
27, 2008
March 5,
2009
March 5,
2009
Severance Benefits Agreement, dated
March 9, 2011, between Avago
Technologies US. Inc. and Bryan Ingram.
Avago Technologies Limited Quarterly
Report on Form 10-Q (Commission File
No. 001-34428)
June 9,
2011
10.35+
Deferred Compensation Plan.
Amendment No. 2 to Avago Technologies
Limited Registration Statement on Form
S-1 (Commission File No. 333-153127)
July 2,
2009
10.36+
10.37+
Form of Option Agreement Under Avago
Technologies Limited 2009 Equity
Incentive Award Plan.
Amendment No. 5 to Avago Technologies
Limited Registration Statement on Form
S-1 (Commission File No. 333-153127)
July 27,
2009
Form of Notice and Restricted Share Unit
Agreement Under Avago Technologies
Limited 2009 Equity Incentive Award
Plan.
Avago Technologies Limited Annual
Report on Form 10-K (Commission File
No. 001-33428)
December
15, 2010
10.38+
Employee Share Purchase Plan (amended
and restated effective as of June 2, 2010).
10.39+
10.40+
21.1
23.1
24.1
31.1
31.2
32.1
32.2
Avago FY 2012 Performance Bonus Plan
for Executive Employees, effective
October 31, 2011.
Avago FY 2013 Performance Bonus Plan
for Executive Employees, effective
October 29, 2012.
List of Subsidiaries.
Consent of PricewaterhouseCoopers LLP,
independent registered public accounting
firm.
Power of Attorney (see signature page to
this Form 10-K).
Certification of Principal Executive
Officer Pursuant to Rule 13a-14 of the
Securities Exchange Act of 1934, As
Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of Principal Financial
Officer Pursuant to Rule 13a-14 of the
Securities Exchange Act of 1934, As
Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of Principal Executive
Officer Pursuant to 18 U.S.C.
Section 1350, As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002.
Certification of Principal Financial
Officer Pursuant to 18 U.S.C.
Section 1350, As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002.
Avago Technologies Limited Quarterly
Report on Form 10-Q (Commission File
No. 001-34428)
June 3,
2010
Avago Technologies Limited Annual
Report on Form 10-K (Commission File
No. 001-34428)
December
16, 2011
X
X
X
X
X
X
X
X
99
Exhibit
No.
Description
101.INS* XBRL Instance Document
101.SCH* XBRL Schema Document
101.CAL* XBRL Calculation Linkbase Document
101.DEF* XBRL Definition Linkbase Document
101.LAB* XBRL Labels Linkbase Document
101.PRE* XBRL Presentation Linkbase Document
Notes:
Incorporated by Referenced Herein
Form
Filing Date
Filed
Herewith
X
X
X
X
+
#
^
Indicates a management contract or compensatory plan or arrangement.
Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Avago Technologies hereby undertakes to
furnish supplementally copies of any omitted schedules upon request by the SEC.
Certain portions have been omitted pursuant to a confidential treatment request. Omitted information has been filed
separately with the SEC.
* XBRL-related information in Exhibit 101 to this Annual Report on Form 10-K is deemed not filed or part of a
registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act, is deemed not filed for
purposes of Section 18 of the Exchange Act, and otherwise is not subject to liability under these sections.
100