Edgar Filing: Broadcom Ltd

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(MARK ONE)



þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 1, 2016



¨	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: 001-37690

Broadcom Limited

(Exact Name of Registrant as Specified in Its Charter)



Singapore (State or Other Jurisdiction of Incorporation or Organization)	98-1254807 (I.R.S. Employer Identification No.)
1 Yishun Avenue 7 Singapore 768923	N/A
(Address of Principal Executive Offices)	(Zip Code)

(65) 6755-7888

(Registrant’s telephone number, including area code)

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 of 1934 during the preceding 12 months (or 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 þ 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 þ NO ¨

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 þ	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 ¨ NO þ

As of May 27, 2016 there were 395,518,581 of our ordinary shares, no par value per share, outstanding.

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BROADCOM LIMITED

Quarterly Report on Form 10-Q

For the Quarterly Period Ended May 1, 2016

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	Page
PART I — FINANCIAL INFORMATION	3
Item 1. Condensed Consolidated Financial Statements — Unaudited	3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3. Quantitative and Qualitative Disclosures About Market Risk	40
Item 4. Controls and Procedures	40
PART II — OTHER INFORMATION	41
Item 1. Legal Proceedings	41
Item 1A. Risk Factors	41
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	64
Item 3. Defaults Upon Senior Securities	64
Item 4. Mine Safety Disclosures	64
Item 5. Other Information	64
Item 6. Exhibits	64
SIGNATURES	65
Exhibit Index	66

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PART I — FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements — Unaudited

BROADCOM LIMITED

CONDENSED CONSOLIDATED BALANCE SHEETS — UNAUDITED

(in millions, except share amounts)



	May 1, 2016			November 1, 2015
ASSETS
Current assets:
Cash and cash equivalents	$	2,041		$	1,822
Trade accounts receivable, net	1,857			1,019
Inventory	1,467			524
Assets held-for-sale	842			22
Other current assets	480			372
Total current assets	6,687			3,759
Property, plant and equipment, net	2,486			1,460
Goodwill	24,776			1,674
Intangible assets, net	16,944			3,277
Other long-term assets	514			345
Total assets	$	51,407		$	10,515
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	985		$	617
Employee compensation and benefits	303			250
Current portion of long-term debt	344			46
Other current liabilities	1,019			206
Total current liabilities	2,651			1,119
Long-term liabilities:
Long-term debt	14,664			3,826
Pension and post-retirement benefit obligations	475			475
Other long-term liabilities	10,855			381
Total liabilities	28,645			5,801
Commitments and contingencies (Note 11)
Shareholders’ equity:
Ordinary shares, no par value; 394,814,039 shares and 276,259,120 shares issued and outstanding on May 1, 2016 and November 1, 2015, respectively	18,659			2,547
Non-economic voting preference shares, no par value; 22,804,591 shares and no shares issued and outstanding on May 1, 2016 and November 1, 2015, respectively	—			—
Retained earnings	1,116			2,240
Accumulated other comprehensive loss	(73		)	(73		)
Total Broadcom Limited shareholders’ equity	19,702			4,714
Noncontrolling interest	3,060			—
Total shareholders’ equity	22,762			4,714
Total liabilities and shareholders’ equity	$	51,407		$	10,515

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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BROADCOM LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS — UNAUDITED

(in millions, except per share amounts)



	Fiscal Quarter Ended						Two Fiscal Quarters Ended
	May 1, 2016			May 3, 2015			May 1, 2016			May 3, 2015
Net revenue	$	3,541		$	1,614		$	5,312		$	3,249
Cost of products sold:
Cost of products sold	1,437			654			2,136			1,344
Purchase accounting effect on inventory	828			—			828			4
Amortization of intangible assets	198			113			328			226
Restructuring charges	32			1			33			3
Total cost of products sold	2,495			768			3,325			1,577
Gross margin	1,046			846			1,987			1,672
Research and development	787			251			1,054			486
Selling, general and administrative	238			108			352			225
Amortization of intangible assets	735			59			789			118
Restructuring, impairment and disposal charges	287			10			318			24
Total operating expenses	2,047			428			2,513			853
Operating income (loss)	(1,001		)	418			(526		)	819
Interest expense	(256		)	(53		)	(340		)	(107		)
Loss on extinguishment of debt	(53		)	(13		)	(53		)	(13		)
Other income (expense), net	(6		)	12			(3		)	16
Income (loss) from continuing operations before income taxes	(1,316		)	364			(922		)	715
Provision for (benefit from) income taxes	(99		)	25			(82		)	38
Income (loss) from continuing operations	(1,217		)	339			(840		)	677
Income (loss) from discontinued operations, net of income taxes	(38		)	5			(38		)	18
Net income (loss)	(1,255		)	344			(878		)	695
Net loss attributable to noncontrolling interest	(69		)	—			(69		)	—
Net income (loss) attributable to ordinary shares	$	(1,186	)	$	344		$	(809	)	$	695

Basic income (loss) per share attributable to ordinary shares:
Income (loss) per share from continuing operations	$	(2.93	)	$	1.31		$	(2.31	)	$	2.63
Income (loss) per share from discontinued operations	(0.09		)	0.02			(0.10		)	0.07
Net income (loss) per share	$	(3.02	)	$	1.33		$	(2.41	)	$	2.70

Diluted income (loss) per share attributable to ordinary shares:
Income (loss) per share from continuing operations	$	(2.93	)	$	1.19		$	(2.43	)	$	2.41
Income (loss) per share from discontinued operations	(0.09		)	0.02			(0.11		)	0.06
Net income (loss) per share	$	(3.02	)	$	1.21		$	(2.54	)	$	2.47

Weighted-average shares:
Basic	392			258			335			257
Diluted	415			284			346			281

Cash dividends declared and paid per share	$	0.49		$	0.38		$	0.93		$	0.73

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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BROADCOM LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) — UNAUDITED

(in millions)



	Fiscal Quarter Ended					Two Fiscal Quarters Ended
	May 1, 2016			May 3, 2015		May 1, 2016			May 3, 2015
Net income (loss)	$	(1,255	)	$	344	$	(878	)	$	695
Other comprehensive income, net of tax:
Reclassification to net income (loss)	—			—		—			1
Other comprehensive income	—			—		—			1
Comprehensive income (loss)	(1,255		)	344		(878		)	696
Comprehensive loss attributable to noncontrolling interest	(69		)	—		(69		)	—
Comprehensive income (loss) attributable to ordinary shares	$	(1,186	)	$	344	$	(809	)	$	696

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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BROADCOM LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED

(in millions)



	Two Fiscal Quarters Ended
	May 1, 2016			May 3, 2015
Cash flows from operating activities:
Net income (loss)	$	(878	)	$	695
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	1,284			456
Share-based compensation	255			106
Excess tax from share-based compensation	(58		)	(70		)
Non-cash portion of debt extinguishment loss	30			13
Non-cash restructuring, impairment and disposal charges	44			5
Gain on sale of business	—			(14		)
Deferred taxes	(172		)	(2		)
Amortization of debt issuance costs and accretion of debt discount	17			14
Other	26			6
Changes in assets and liabilities, net of acquisitions and disposals:
Trade accounts receivable, net	(169		)	24
Inventory	920			43
Accounts payable	(217		)	(23		)
Employee compensation and benefits	(51		)	(41		)
Other current assets and current liabilities	86			(18		)
Other long-term assets and long-term liabilities	(21		)	(50		)
Net cash provided by operating activities	1,096			1,144
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired	(10,035		)	—
Proceeds from sales of businesses	68			650
Purchases of property, plant and equipment	(298		)	(339		)
Proceeds from disposals of property, plant and equipment	—			63
Purchases of investments	(59		)	(9		)
Proceeds from sales and maturities of investments	32			—
Net cash provided by (used in) investing activities	(10,292		)	365
Cash flows from financing activities:
Proceeds from term loan borrowings	15,926			—
Debt repayments	(4,839		)	(617		)
Payment of assumed debt	(1,475		)	—
Debt issuance costs	(108		)	—
Dividend payments	(326		)	(188		)
Issuance of ordinary shares	179			130
Excess tax from share-based compensation	58			70
Net cash provided by (used in) financing activities	9,415			(605		)
Net change in cash and cash equivalents	219			904
Cash and cash equivalents at the beginning of period	1,822			1,604
Cash and cash equivalents at end of period	$	2,041		$	2,508

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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BROADCOM LIMITED

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY— UNAUDITED

(in millions)



	Ordinary Shares			Non-Economic Voting Preference Shares			Retained Earnings			Accumulated Other Comprehensive Loss			Non-controlling Interest			Total Shareholders’ Equity
	Shares	Amount		Shares	Amount		Retained Earnings			Accumulated Other Comprehensive Loss			Non-controlling Interest			Total Shareholders’ Equity
Balance as of November 1, 2015	276	$	2,547	—	$	—	$	2,240		$	(73	)	$	—		$	4,714
Issuance of ordinary shares upon the acquisition of Broadcom Corporation	112	15,438		—	—		—			—			—			15,438
Issuance by the Partnership of restricted exchangeable partnership units upon the acquisition of Broadcom Corporation	—	—		—	—		—			—			3,140			3,140
Issuance of non-economic voting preference shares	—	—		23	—		—			—			—			—
Issuance of ordinary shares in connection with equity incentive plans	7	179		—	—		—			—			—			179
Share-based compensation	—	255		—	—		—			—			—			255
Excess tax from share-based compensation	—	58		—	—		—			—			—			58
Cash dividends paid to ordinary shareholders	—	—		—	—		(315		)	—			—			(315		)
Cash distribution paid by the Partnership on restricted exchangeable partnership units	—	—		—	—		—			—			(11		)	(11		)
Fair value of partially vested equity awards assumed in connection with the acquisition of Broadcom Corporation	—	182		—	—		—			—			—			182
Net loss	—	—		—	—		(809		)	—			(69		)	(878		)
Balance as of May 1, 2016	395	$	18,659	23	$	—	$	1,116		$	(73	)	$	3,060		$	22,762

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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BROADCOM LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Overview, Basis of Presentation and Significant Accounting Policies

Overview

Broadcom Limited, a company organized under the laws of the Republic of Singapore, or Broadcom, is the successor to Avago Technologies Limited, or Avago. On February 1, 2016, pursuant to an Agreement and Plan of Merger dated as of May 28, 2015, or the Broadcom Agreement, Broadcom Limited, Avago, Broadcom Corporation, or BRCM, Broadcom Cayman L.P., or the Partnership, and various other parties completed various transactions, including a scheme of arrangement under Singapore law between Avago and Broadcom, or the Avago Scheme. Pursuant to the Avago Scheme, all issued ordinary shares of Avago were exchanged on a one-for-one basis for newly issued ordinary shares of Broadcom Limited. Immediately following the consummation of the Avago Scheme, two subsidiaries of Broadcom Limited merged with and into BRCM with BRCM as the surviving corporation of each such merger, or the Broadcom Merger. Following the Avago Scheme and the Broadcom Merger, or the Broadcom Transaction, each of Avago and BRCM became indirect subsidiaries of Broadcom Limited and the Partnership.

The Avago Scheme was accounted for in all periods presented using a carryover basis, similar to a pooling-of-interests, as the transaction was premised on a non-substantive exchange in order to facilitate the acquisition of BRCM, resulting in the retention of the historical basis of accounting. Under this method of accounting, Broadcom and Avago were treated as if they had always been combined for accounting and financial reporting purposes. The Broadcom Merger is discussed in further detail in Note 2. “Acquisitions.”

References to “Broadcom,” “we,” “our,” and “us” are to Broadcom Limited and its consolidated subsidiaries, from and after the effective date of the Broadcom Transaction and, prior to that time, to our predecessor, Avago, unless otherwise specified or the context otherwise requires.

We are a leading designer, developer and global supplier of a broad range of analog and digital semiconductor connectivity solutions with a focus on analog III-V based products and complex digital and mixed signal complementary metal oxide semiconductor based devices. We have a history of innovation and offer thousands of products that are used in end products such as data center networking, home connectivity, broadband access, telecommunications equipment, smartphones and base stations, data center servers and storage, factory automation, power generation and alternative energy systems, and displays. We have four reportable segments: wired infrastructure, wireless communications, enterprise storage and industrial & other, which align with our principal target markets.

Basis of Presentation

We operate on a 52- or 53-week fiscal year ending on the Sunday closest to October 31. Our fiscal year ending October 30, 2016, or fiscal year 2016, is a 52-week fiscal year. The first quarter of our fiscal year 2016 ended on January 31, 2016, the second quarter ended on May 1, 2016 and the third quarter ends on July 31, 2016. Our fiscal year ended November 1, 2015, or fiscal year 2015, was also a 52-week fiscal year.

The accompanying condensed consolidated financial statements include the accounts of Broadcom and its subsidiaries and have been prepared by us in accordance with generally accepted accounting principles in the United States, or GAAP, for interim financial information. The financial information included herein is unaudited, and reflects all adjustments which are, in the opinion of our management, of a normal recurring nature and necessary for a fair statement of the results for the periods presented. The November 1, 2015 condensed consolidated balance sheet data were derived from Avago’s audited consolidated financial statements included in Avago’s Annual Report on Form 10-K for fiscal year 2015, as filed with the Securities and Exchange Commission, or SEC, but do not include all disclosures required by GAAP. Intercompany transactions and balances have been eliminated in consolidation.

Broadcom is the sole general partner of the Partnership and, as such we have the exclusive right, power and authority to manage, control, administer and operate the business and affairs and to make decisions regarding the undertaking and business of the Partnership, subject to the terms of the partnership agreement and applicable laws. As a result of our controlling interest, we consolidate the financial results of the Partnership and present a noncontrolling interest for the portion of the Partnership we do not own in our condensed consolidated financial statements. Net loss attributable to the noncontrolling interest on the condensed consolidated statements of operations represents the portion of loss attributable to the economic interest in the Partnership owned by the holders of the restricted exchangeable partnership units, or Partnership REUs.

The accompanying condensed consolidated financial statements include the results of operations of BRCM and other acquisitions commencing as of their respective acquisition dates.

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The operating results for the fiscal quarter and two fiscal quarters ended May 1, 2016 are not necessarily indicative of the results that may be expected for fiscal year 2016, or for any other future period.

Significant Accounting Policies

Use of estimates. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

Derivative instruments. We are subject to foreign currency risks for transactions denominated in foreign currencies, primarily the 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 forecasted revenue and expense 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 months. We do not use derivative financial instruments for speculative or trading purposes.

We may designate our forward contracts as either cash flow or fair value hedges. All derivatives are recognized on the condensed consolidated balance sheets at their fair values based on Level 2 inputs as defined in the fair value hierarchy. The accounting for gains and losses resulting from changes in fair value depends on the use of the derivative and whether it is designated and qualifies for hedge accounting. 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 recognized 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 cash flow hedges, changes in the value of the effective portion of the derivative instrument are recognized in accumulated other comprehensive loss, a component of shareholders’ equity. These amounts are then reclassified and recognized in net income (loss) 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 net income (loss) in the current period, which have not been material to date. Changes in the value of derivative instruments not designated as hedges are recognized in Other income (expense), net, in our condensed consolidated statements of operations.

Reclassifications. Certain reclassifications have been made to the prior period condensed consolidated balance sheet and condensed consolidated statement of cash flows. These reclassifications have no impact on the previously reported net assets or net cash activities.

Recently Adopted Accounting Guidance

In November 2015, the Financial Accounting Standards Board, or FASB, issued authoritative guidance that simplifies the presentation of deferred tax assets and liabilities in a classified balance sheet. This guidance eliminates the current requirement to present deferred tax assets and liabilities as current and non-current in a classified balance sheet. Instead, all deferred tax assets and liabilities are classified as non-current. We adopted this guidance during the fiscal quarter ended January 31, 2016, on a prospective basis. The adoption resulted in $116 million of net current deferred tax assets being reclassified from other current assets to other long-term assets on our condensed consolidated balance sheet.

In April 2015, the FASB issued an amendment to the accounting guidance related to the financial statement presentation of debt issuance costs. The new guidance is required to be applied retrospectively to each prior reporting period presented. The guidance requires certain debt issuance costs to be presented on the balance sheet as a direct reduction to the carrying amount of debt, consistent with debt discounts or premiums. In August 2015, the FASB further clarified that entities are permitted to defer and present debt issuance costs related to line-of-credit arrangements as assets. This guidance will be effective for the first quarter of our fiscal year 2017, with early application permitted. We early-adopted this guidance during the fiscal quarter ended May 1, 2016, and applied its provisions retrospectively. The adoption resulted in $13 million of other current assets and $64 million of other long-term assets being reclassified to long-term debt on our condensed consolidated balance sheet as of November 1, 2015.

Recent Accounting Guidance Not Yet Adopted

In March 2016, the FASB issued authoritative guidance that involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This guidance will be effective for the first quarter of our fiscal year 2018, however early adoption is permitted. We are currently evaluating the impact that this guidance will have on our condensed consolidated financial statements.

In February 2016, the FASB issued authoritative guidance related to the accounting for leases, which among other things,

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requires a lessee to recognize lease assets and lease liabilities on the balance sheet for operating leases. This guidance will be effective for the first quarter of our fiscal year 2020. The new guidance is required to be applied using a modified retrospective approach. We are currently evaluating the impact that this guidance will have on our condensed consolidated financial statements.

In September 2015, the FASB issued authoritative guidance which eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. Acquirers must recognize measurement-period adjustments during the period of resolution, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. The guidance will be effective for the first quarter of our fiscal year 2017, however early adoption is permitted. We are currently evaluating the impact that this guidance will have on our condensed consolidated financial statements.

In August 2015, the FASB deferred the effective date of the authoritative guidance that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. This guidance will be effective for the first quarter of our fiscal year 2019. Early adoption is permitted, but not before the first quarter of our fiscal year 2018. The new guidance is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. In addition, in March, April, and May 2016, the FASB issued final amendments to clarify the implementation guidance for principal versus agent considerations, identifying performance obligations and the accounting for licenses of intellectual property, and narrow-scope improvements and practical expedients, respectively. We have not yet selected a transition method and are currently evaluating the impact of this guidance on our condensed consolidated financial statements.

2. Acquisitions

Acquisition of Broadcom Corporation

The Broadcom Merger closed on February 1, 2016, or the Acquisition Date, pursuant to the terms of the Broadcom Agreement. The aggregate consideration for the Broadcom Merger, which consisted of both cash and equity consideration, was approximately $28,758 million, net of cash acquired.

We funded the cash portion of the Broadcom Merger with the net proceeds from the issuance of the 2016 Term Loans, as defined and discussed in further detail in Note 6. “Borrowings,” as well as cash on hand of the combined companies.

BRCM was a leader in semiconductor solutions for wired and wireless communications and provided a broad portfolio of highly-integrated system-on-a-chip solutions that seamlessly deliver voice, video, data and multimedia connectivity in the home, office and mobile environments. We acquired BRCM to position us as a global diversified leader in wired and wireless communication semiconductors and to deepen our broad portfolios, which will enable us to better address the evolving needs of customers across the wired and wireless end markets.

The aggregate consideration for the Broadcom Merger, net of cash acquired, consisted of the following (in millions):



Cash for outstanding BRCM common stock	$	16,798
Fair value of Broadcom ordinary shares issued for outstanding BRCM common stock	15,438
Fair value of Partnership restricted exchangeable units issued for outstanding BRCM common stock	3,140
Fair value of partially vested assumed restricted stock unit awards	182
Cash for vested BRCM equity awards	137
Effective settlement of pre-existing relationships	11
Total purchase consideration	35,706
Less: cash acquired	6,948
Total purchase consideration, net of cash acquired	$	28,758

We issued 112 million ordinary shares and the Partnership issued 23 million Partnership REUs, all of which are valued and presented in the above table, to former BRCM shareholders in the Broadcom Merger. We also assumed unvested restricted stock unit awards, or RSUs, originally granted by BRCM and converted them into 6 million of our RSUs. The portion of the fair value of partially vested assumed RSUs associated with prior service of BRCM employees represented a component of the total consideration, as presented above, and was valued based on our share price as of the Acquisition Date.

We allocated the purchase price to tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The fair value of identifiable intangible assets acquired was based on estimates and assumptions made by management at the time of acquisition. As additional information becomes available, such as finalization of the estimated fair value of tax accounts, we may further revise our preliminary purchase price allocation during the remainder of the measurement

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period (which will not exceed 12 months from the Acquisition Date). Any such revisions or changes may be material as we finalize the fair values of the tangible and intangible assets acquired and liabilities assumed.

Our preliminary allocation of the total purchase price, net of cash acquired, is as follows (in millions):



	Estimated Fair Value
Trade accounts receivable	$	669
Inventory	1,853
Assets held-for-sale	833
Other current assets	194
Property, plant and equipment	889
Goodwill	23,076
Intangible assets	14,808
Other long-term assets	121
Total assets acquired	42,443
Accounts payable	(559		)
Employee compensation and benefits	(104		)
Current portion of long-term debt	(1,475		)
Other current liabilities	(791		)
Long-term debt	(139		)
Other long-term liabilities	(10,617		)
Total liabilities assumed	(13,685		)
Fair value of net assets acquired	$	28,758

Goodwill was primarily attributable to the assembled workforce, anticipated synergies and economies of scale expected from the operations of the combined company. The synergies include certain cost savings, operating efficiencies, and other strategic benefits projected to be achieved as a result of the Broadcom Merger. Goodwill is not expected to be deductible for tax purposes.

The assets held-for-sale represented BRCM’s businesses that are not aligned with our strategic objectives. Assets held-for-sale are discussed in further detail in Note 3. “Supplemental Financial Information.”

Our results of continuing operations for the fiscal quarter and two fiscal quarters ended May 1, 2016 include $2,327 million of net revenue attributable to BRCM. It is impracticable to determine the effect on net income attributable to BRCM for the periods presented as we immediately integrated BRCM into our ongoing operations. Transaction costs of $29 million and $37 million incurred in connection with the Broadcom Merger are included in selling, general and administrative expense in the condensed consolidated statements of operations for the fiscal quarter and two fiscal quarters ended May 1, 2016, respectively.

Intangible Assets

Identified intangible assets and their respective useful lives were as follows:



	Approximate Fair Value (in millions)		Weighted-Average Amortization Periods (in years)
Developed technology	$	9,010	6
Customer contracts and related relationships	2,703		2
Order backlog	750		< 1
Trade name	350		17
Other	45		16
Total identified finite-lived intangible assets	12,858
In-process research and development	1,950		N/A
Total identified intangible assets, net of assets held-for-sale	14,808
Intangible assets included in assets held-for-sale	320
Identified intangible assets	$	15,128

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Developed technology relates to products for wired and wireless communication applications. We valued the developed technology using the multi-period excess earnings method under the income approach. This method reflects the present value of the projected cash flows that are expected to be generated by the developed technology less charges representing the contribution of other assets to those cash flows. The economic useful life was determined based on the technology cycle related to each developed technology, as well as the cash flows over the forecast period.

Customer contracts and related relationships represent the fair value of future projected revenue that will be derived from sales of products to existing customers of BRCM. Customer contracts and related relationships were valued using the with-and-without-method under the income approach. In this method, the fair value was measured by the difference between the present values of the cash flows with and without the existing customers in place over the period of time necessary to reacquire the customers. The economic useful life was determined based on historical customer turnover rates.

Order backlog represents business under existing contractual obligations as of the Acquisition Date. The fair value of backlog was determined using the multi-period excess earnings method under the income approach based on expected operating cash flows from future contractual revenue. The economic useful life was determined based on the expected life of the backlog and the cash flows over the forecast period.

Trade name relates to the “Broadcom” trade name. The fair value was determined by applying the relief-from-royalty method under the income approach. This valuation method is based on the application of a royalty rate to forecasted revenue under the trade name. The economic useful life was determined based on the expected life of the trade name and the cash flows anticipated over the forecasted periods.

The fair value of in-process research and development, or IPR&D, was determined using the multi-period excess earnings method under the income approach. This method reflects the present value of the projected cash flows that are expected to be generated by the IPR&D, less charges representing the contribution of other assets to those cash flows.

We believe the amounts of purchased intangible assets recorded above represent the fair values of, and approximate the amounts a market participant would pay for, these intangible assets as of the Acquisition Date.

The following table summarizes the details of IPR&D by category as of the Acquisition Date (dollars in millions):



Description	IPR&D		Percentage of Completion		Estimated Cost to Complete		Expected Release Date (by fiscal year)
Set-top box solutions	$	90	56	%	$	90	2016 - 2017
Broadband carrier access solutions	390		34		376		2016 - 2018
Carrier switch solutions	270		51		255		2016 - 2019
Compute and connectivity solutions	170		61		136		2016 - 2018
Physical layer product solutions	190		51		71		2016 - 2019
Wireless connectivity combo solutions	770		57		364		2016 - 2018
Touch controllers	70		39		21		2016 - 2017

Discount rates of 14% and 16% were applied to the projected cash flows to reflect the risk related to these wired and wireless IPR&D, respectively. These discount rates represent a premium of 2% over the respective wired and wireless weighted-average cost of capital to reflect the higher risk and uncertainty of the cash flows for IPR&D relative to the overall businesses.

Unaudited Pro Forma Information

The following unaudited pro forma financial information presents combined results of operations for each of the periods presented, as if BRCM had been acquired as of the beginning of fiscal year 2015. The unaudited pro forma financial information for the two fiscal quarters ended May 1, 2016 combined the historical results of Avago for the fiscal quarter ended January 31, 2016, the historical results of BRCM for the three months ended December 31, 2015, representing BRCM’s previous reporting period prior to the Acquisition Date, and the historical results of Broadcom for the fiscal quarter ended May 1, 2016. The pro forma information includes adjustments to amortization and depreciation for intangible assets and property, plant and equipment acquired, adjustments to share-based compensation expense, the purchase accounting effect on inventory acquired, interest expense for the additional indebtedness incurred to complete the acquisition, restructuring charges in connection with the acquisition and acquisition costs. The pro forma data are for informational purposes only and are not necessarily indicative of the consolidated results of operations of the combined business had the acquisition actually occurred at the beginning of fiscal year 2015 or of the results of future operations of the combined business. Consequently, actual results

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will differ from the unaudited pro forma information presented below (in millions, except for per share amounts):



	Fiscal Quarter Ended						Two Fiscal Quarters Ended
	May 1, 2016			May 3, 2015			May 1, 2016			May 3, 2015
Pro forma net revenue	$	3,538		$	3,669		$	7,359		$	7,444
Pro forma net loss from continuing operations	(607		)	(248		)	(459		)	(1,014		)
Pro forma net loss	(645		)	(243		)	(497		)	(996		)
Pro forma net loss attributable to ordinary shares	(608		)	(230		)	(468		)	(941		)
Pro forma loss per share attributable to ordinary shares - basic and diluted	(1.55		)	(0.62		)	(1.40		)	(2.55		)

3. Supplemental Financial Information

Cash, Cash Equivalents and Short-Term Investments

Cash equivalents included $307 million and $490 million of time deposits as of May 1, 2016 and November 1, 2015, respectively. As of May 1, 2016 and November 1, 2015, cash equivalents also included $132 million and $100 million of money-market funds, respectively. For time deposits, carrying value approximates fair value due to the short-term nature of the instruments. The fair value of money-market funds as of May 1, 2016 and November 1, 2015 approximates the carrying value and is determined using unadjusted prices in active, accessible markets for identical assets, as such they are classified as Level 1 assets in the fair value hierarchy.

Available-for-sale investments of $15 million and $58 million, primarily consisting of corporate bonds, are reported at fair value and are included in cash and cash equivalents and other current assets, respectively, on our condensed consolidated balance sheet as of May 1, 2016. These available-for-sale investments are traded less frequently than Level 1 securities and are valued using inputs that include quoted prices for similar assets in active markets and inputs other than quoted prices that are observable for the assets. As such, they are classified as Level 2 assets in the fair value hierarchy.

Inventory

Inventory consists of the following (in millions):



	May 1, 2016		November 1, 2015
Finished goods	$	720	$	177
Work-in-process	479		271
Raw materials	268		76
Total inventory	$	1,467	$	524

Assets held-for-sale

The following table summarizes components of assets held-for-sale (in millions):



	May 1, 2016		November 1, 2015
Goodwill	$	445	$	—
Intangible assets, net	328		—
Other assets	69		22
Total assets held-for-sale	$	842	$	22

In connection with the Broadcom Merger, we classified certain BRCM businesses as assets held-for-sale on February 1, 2016. The carrying value of these assets as of May 1, 2016 represents the fair value determined in the preliminary purchase price allocation of the Broadcom Merger, adjusted for operating activities since the Acquisition Date. During the fiscal quarter ended May 1, 2016, we entered into agreements to sell our Wireless Internet of Things, or IoT, and Wireless Infrastructure Backhaul businesses for $550 million and $80 million, respectively. As of May 1, 2016, the carrying values of these businesses approximated the selling prices.

During the two fiscal quarters ended May 1, 2016, we recognized a $16 million loss related to the sale of certain fiber optics subsystem manufacturing and related assets in restructuring, impairment and disposal charges in our condensed consolidated statements of operations. See Note 12. “Restructuring, Impairment and Disposal Charges.”

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Discontinued Operations

We have presented the results of the BRCM businesses discussed above under “Assets held-for-sale”, as well as the sale of our Axxia business in fiscal year 2015, in discontinued operations. The following table summarizes the selected financial information of discontinued operations (in millions):



	Fiscal Quarter Ended					Two Fiscal Quarters Ended
	May 1, 2016			May 3, 2015		May 1, 2016			May 3, 2015
Net revenue	$	64		$	12	$	64		$	53

Income (loss) from discontinued operations before gain on disposal and income taxes	$	(61	)	$	5	$	(61	)	$	17
Gain on disposal of discontinued operations	—			—		—			14
(Provision for) benefit from income taxes	23			—		23			(13		)
Income (loss) from discontinued operations, net of income taxes	$	(38	)	$	5	$	(38	)	$	18

Accrued Rebate Activity

The following table summarizes activity related to accrued rebates included in other current liabilities on our condensed consolidated balance sheet (in millions):



	Two Fiscal Quarters Ended
	May 1, 2016			May 3, 2015
Beginning balance	$	26		$	31
Liabilities assumed in acquisitions	359			—
Charged as a reduction of revenue	223			16
Reversal of unclaimed rebates	(3		)	—
Payments	(215		)	(22		)
Ending balance	$	390		$	25

Other Long-Term Liabilities

Other long-term liabilities consist of the following (in millions):



	May 1, 2016		November 1, 2015
Deferred tax liabilities	$	9,837	$	9
Unrecognized tax benefits ^(a)	842		317
Other	176		55
Total other long-term liabilities	$	10,855	$	381

________________________________

(a) Includes accrued interest and penalties.

Supplemental Cash Flow Disclosures

At May 1, 2016 and November 1, 2015, we had $133 million and $78 million, respectively, of unpaid purchases of property, plant and equipment included in accounts payable. Amounts reported as unpaid purchases are presented as cash outflows from investing activities for purchases of property, plant and equipment in the condensed consolidated statements of cash flows in the period in which they are paid.

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4. Goodwill and Intangible Assets

Goodwill

The following table summarizes changes in goodwill by segment (in millions):



	Wired Infrastructure		Wireless Communications		Enterprise Storage			Industrial & Other		Total
Balance as of November 1, 2015	$	287	$	261	$	990		$	136	$	1,674
Broadcom Merger	17,395		5,681		—			—		23,076
Other acquisitions	—		21		11			—		32
Reclassification of goodwill related to certain assets held-for-sale	—		—		(6		)	—		(6		)
Balance as of May 1, 2016	$	17,682	$	5,963	$	995		$	136	$	24,776

During the two fiscal quarters ended May 1, 2016, we made two immaterial acquisitions in addition to the Broadcom Merger.

Intangible Assets

Intangible assets consist of the following (in millions):



	Gross Carrying Amount		Accumulated Amortization			Net Book Value
As of May 1, 2016:
Purchased technology	$	12,053	$	(1,489	)	$	10,564
Customer and distributor relationships	4,401		(857		)	3,544
Backlog	848		(473		)	375
Trade names	528		(57		)	471
Other	66		(3		)	63
Intangible assets subject to amortization	17,896		(2,879		)	15,017
IPR&D	1,927		—			1,927
Total	$	19,823	$	(2,879	)	$	16,944

As of November 1, 2015:
Purchased technology	$	2,918	$	(1,165	)	$	1,753
Customer and distributor relationships	1,702		(459		)	1,243
Trade names	178		(41		)	137
Other	120		(101		)	19
Intangible assets subject to amortization	4,918		(1,766		)	3,152
IPR&D	125		—			125
Total	$	5,043	$	(1,766	)	$	3,277

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During the two fiscal quarters ended May 1, 2016, we reclassified $141 million of IPR&D to purchased technology and wrote off $26 million to restructuring, impairment and disposal charges for certain IPR&D projects which were abandoned as a result of the Broadcom Merger.

Based on the amount of intangible assets subject to amortization at May 1, 2016, the expected amortization expense for each of the next five fiscal years and thereafter is as follows (in millions):



Fiscal Year:
2016 (remainder)	$	1,510
2017	4,159
2018	2,771
2019	2,014
2020	1,658
2021	1,327
Thereafter	1,578
Total	$	15,017

The weighted-average amortization periods remaining by intangible asset category as of May 1, 2016 were as follows (in years):



Amortizable intangible assets:
Purchased technology		6
Customer and distributor relationships		3
Trade name		14
Other		16

Backlog is expected to be fully amortized by the end of the fiscal quarter ending July 31, 2016.

5. Earnings (Loss) Per Share

Basic net income (loss) per share is computed by dividing net income (loss) attributable to ordinary shares by the weighted-average number of our ordinary shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) attributable to ordinary shares and noncontrolling interest by the weighted-average number of our ordinary shares and potentially dilutive share equivalents outstanding during the period. Diluted shares outstanding include the dilutive effect of in-the-money share options, RSUs and employee share purchase rights under the Amended and Restated Broadcom Limited Employee Share Purchase Plan, or ESPP, (together referred to as equity awards) for all periods presented. Diluted shares outstanding also include the Partnership REUs for the fiscal quarter and two fiscal quarters ended May 1, 2016, and the 2.0% Convertible Senior Notes due 2021 issued by Avago, or the Convertible Notes, for the fiscal quarter and two fiscal quarters ended May 3, 2015.

The dilutive effect of equity awards is calculated based on the average share price for each fiscal period, using the treasury stock method. Under the treasury stock method, the amount the employee must pay for exercising share options and to purchase shares under the ESPP, the amount of compensation cost for future service that we have not yet recognized, and the amount of tax benefits that would be recognized when equity awards become deductible for income tax purposes are collectively assumed to be used to repurchase ordinary shares.

The dilutive effect of the Partnership REUs is calculated using the if-converted method. The if-converted method assumes that the Partnership REUs were converted at the beginning of the reporting period.

The dilutive effect of the Convertible Notes was calculated using the treasury stock method based on our assumption that the Convertible Notes would be settled in cash. The treasury stock method assumed that the carrying value of the Convertible Notes represented proceeds, since settlement of the Convertible Notes tendered for conversion could be settled with cash, Avago ordinary shares or a combination of both at Avago’s option.

During the third quarter of fiscal year 2015, the Convertible Notes were converted in full and settled with a combination of cash and the issuance of 13.8 million Avago ordinary shares. The incremental Avago ordinary shares attributable to the conversion were a component of diluted shares for the period prior to settlement and a component of basic weighted-average shares outstanding subsequent to the conversion.

Diluted net income (loss) per share for the fiscal quarter and two fiscal quarters ended May 1, 2016 excluded the potentially dilutive effect of weighted-average outstanding equity awards to acquire 12 million ordinary shares in each period as their

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effect was antidilutive. There were no material antidilutive equity awards for the fiscal quarter or two fiscal quarters ended May 3, 2015.

The following is a reconciliation of the numerators and denominators of the basic and diluted net income (loss) per share computations for the periods presented (in millions, except per share data):



	Fiscal Quarter Ended					Two Fiscal Quarters Ended
	May 1, 2016			May 3, 2015		May 1, 2016			May 3, 2015
Numerator - Basic:
Income (loss) from continuing operations	$	(1,217	)	$	339	$	(840	)	$	677
Less: Loss from continuing operations attributable to noncontrolling interest	(67		)	—		(67		)	—
Income (loss) from continuing operations attributable to ordinary shares	$	(1,150	)	$	339	$	(773	)	$	677

Income (loss) from discontinued operations, net of income taxes	$	(38	)	$	5	$	(38	)	$	18
Less: Loss from discontinued operations, net of income taxes, attributable to noncontrolling interest	(2		)	—		(2		)	—
Income (loss) from discontinued operations, net of income taxes, attributable to ordinary shares	$	(36	)	$	5	$	(36	)	$	18

Net income (loss) attributable to ordinary shares	$	(1,186	)	$	344	$	(809	)	$	695

Numerator - Diluted:
Income (loss) from continuing operations	$	(1,217	)	$	339	$	(840	)	$	677
Income (loss) from discontinued operations, net of income taxes	(38		)	5		(38		)	18
Net income (loss)	$	(1,255	)	$	344	$	(878	)	$	695



Denominator:
Weighted-average ordinary shares outstanding - basic	392			258		335			257
Dilutive effect of equity awards	—			13		—			12
Dilutive effect of Convertible Notes	—			13		—			12
Exchange of noncontrolling interest for ordinary shares	23			—		11			—
Weighted-average ordinary shares outstanding - diluted	415			284		346			281

Basic income (loss) per share attributable to ordinary shares:
Income (loss) per share from continuing operations	$	(2.93	)	$	1.31	$	(2.31	)	$	2.63
Income (loss) per share from discontinued operations, net of income taxes	(0.09		)	0.02		(0.10		)	0.07
Net income (loss) per share	$	(3.02	)	$	1.33	$	(2.41	)	$	2.70

Diluted income (loss) per share attributable to ordinary shares:
Income (loss) per share from continuing operations	$	(2.93	)	$	1.19	$	(2.43	)	$	2.41
Income (loss) per share from discontinued operations, net of income taxes	(0.09		)	0.02		(0.11		)	0.06
Net income (loss) per share	$	(3.02	)	$	1.21	$	(2.54	)	$	2.47

6. Borrowings

2016 Term Loans and Revolving Credit Facility

In connection with the completion of the Broadcom Merger, on February 1, 2016, three Broadcom subsidiaries, together with a group of lenders, including Bank of America, N.A., as the administrative agent and collateral agent, entered into a collateralized credit agreement, or the 2016 Credit Agreement. The 2016 Credit Agreement provides for a Term A loan facility

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in the aggregate principal amount of $4,400 million, or the Term A Loan, a Term B-1 dollar loan facility in the aggregate principal amount of $9,750 million, or the Term B-1 Loan, a Term B-1 euro loan facility in the aggregate principal amount of €900 million, equivalent to $978 million as of February 1, 2016, or the Term B-1 Euro Loan, a Term B-2 loan facility in the aggregate principal amount of $500 million, or the Term B-2 Loan, and together with the Term A Loan, Term B-1 Loan, and Term B-1 Euro Loan, referred to as the 2016 Term Loans. The 2016 Credit Agreement also provides for a revolving credit facility, or the 2016 Revolving Credit Facility, that permits us to borrow from time to time in an aggregate principal amount of up to $500 million for working capital and other corporate purposes, including swingline loans of up to $150 million in the aggregate and for the issuance of letters of credit of up to $100 million in the aggregate, which, in the case of swingline loans and letters of credit, reduce the available borrowing capacity under the 2016 Revolving Credit Facility on a dollar for dollar basis. Our obligations under the 2016 Credit Agreement are guaranteed by certain of our subsidiaries, or the Guarantors, and are collateralized, subject to certain exceptions, by substantially all of the assets of each Guarantor. The 2016 Term Loans were fully drawn at the time of, and the proceeds used to fund, in part, the completion of the Broadcom Merger.

The 2016 Credit Agreement includes (i) a financial covenant that requires a first lien leverage ratio of less than 3.9:1; (ii) customary restrictive covenants (subject, in each case, to certain exceptions and amounts) that limit our ability to, among other things, incur indebtedness, create liens, merge or consolidate with and into other persons, make acquisitions 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. We were in compliance with all of the covenants described in the 2016 Credit Agreement as of May 1, 2016. In addition, subject to certain conditions and availability of commitments, we have the ability to increase the aggregate 2016 Term Loans and/or 2016 Revolving Credit Facility. The 2016 Term Loans under the 2016 Credit Agreement bear interest at floating rates.

Borrowings under the 2016 Credit Agreement principally represent a modification of debt and a partial extinguishment of debt outstanding under the 2014 Credit Agreement as defined below. Unamortized debt issuance costs and debt discount from the 2014 Credit Agreement related to the modification will be amortized over the term of the 2016 Credit Agreement. We recognized $106 million of third-party financing costs related to the 2016 Credit Agreement immediately in interest expense in connection with the modification of debt. We also recognized $34 million in loss on extinguishment of debt in the condensed consolidated statements of operations.

During the fiscal quarter ended May 1, 2016, we made a principal prepayment of €350 million of the Term B-1 Euro Loan and fully repaid the $500 million Term B-2 Loan, partially funded with $325 million of additional Term A Loan borrowings. As a result, we wrote-off $19 million of debt issuance costs, which were included in loss on extinguishment of debt in the condensed consolidated statements of operations.

As of May 1, 2016, there were no borrowings outstanding under the 2016 Revolving Credit Facility or any material outstanding letters of credit. As of May 1, 2016, the unamortized debt issuance costs and discount related to the 2016 Revolving Credit Facility were $10 million and were included in other long-term assets on the condensed consolidated balance sheet.

During the fiscal quarter ended May 1, 2016, the accretion of discount and amortization of debt issuance costs related to the 2016 Term Loans and 2016 Revolving Credit Facility were $13 million and were included in interest expense in the condensed consolidated statements of operations.

In connection with the 2016 Credit Agreement, we purchased forward exchange contracts with a notional amount of €600 million, to hedge a portion of the foreign currency exchange risk on the principal repayment of the Term B-1 Euro Loan. Upon the €350 million prepayment mentioned above, we settled €300 million of the forward exchange contracts. As of May 1, 2016, we have outstanding forward exchange contracts with a notional amount of €300 million, with an approximate fair value of $19 million. These foreign exchange contracts were not designated as hedges for accounting purposes.

The following table presents the details of the 2016 Term Loans:



	May 1, 2016
	Interest Rate		Effective Interest Rate		Amount (in millions)
Term A Loan due February 2021	2.18	%	2.47	%	$	4,725
Term B-1 Loan due February 2023	4.25		4.56		9,750
Term B-1 Euro Loan due February 2023	4.25		4.59		631
Unaccreted discount and unamortized debt issuance costs					(237		)
Carrying value of 2016 Term Loans					$	14,869

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Senior Notes

As a result of the Broadcom Merger, we assumed $1,614 million of BRCM’s outstanding senior notes at fair value on the Acquisition Date. During the fiscal quarter ended May 1, 2016, we repaid $1,475 million of the assumed senior notes. The following table presents the details of the outstanding senior unsecured notes, or the Senior Notes, at the end of the second fiscal quarter:



	May 1, 2016
	Interest Rate		Effective Interest Rate		Amount (in millions)
Fixed rate notes due November 2018	2.70	%	2.70	%	$	117
Fixed rate notes due August 2022	2.50		2.50		9
Fixed rate notes due August 2024	3.50		3.50		7
Fixed rate notes due August 2034	4.50		4.50		6
Carrying value of Senior Notes					$	139

2014 Term Loans and Revolving Credit Facility

During our third quarter of fiscal year 2014, certain of Avago’s subsidiaries entered into a collateralized credit agreement with the lenders named therein, or the 2014 Credit Agreement. The 2014 Credit Agreement provided for a term loan facility of $4,600 million, or the 2014 Term Loans, and a revolving credit facility, or the 2014 Revolving Credit Facility, which permitted certain of Avago’s subsidiaries to borrow up to $500 million.

Simultaneously with entering into the 2016 Credit Agreement, we repaid in full the amounts outstanding under the 2014 Credit Agreement and terminated the 2014 Credit Agreement.

Amortization of debt issuance costs related to the 2014 Term Loans and 2014 Revolving Credit Facility was $4 million in the two fiscal quarters ended May 1, 2016 and $4 million and $8 million in the fiscal quarter and two fiscal quarters ended May 3, 2015, respectively, and were included in interest expense in the condensed consolidated statements of operations.

Convertible Senior Notes

In May 2014, Avago completed a private placement of its Convertible Notes to two entities affiliated with Silver Lake Partners, or the Purchasers. During fiscal year 2015, the Purchasers converted all of the Convertible Notes that they held in exchange for cash and Avago ordinary shares. During the fiscal quarter and two fiscal quarters ended May 3, 2015, we recognized interest expense of $8 million and $16 million, respectively, related to the coupon interest and accretion of debt discount.

Fair Value of Debt

As of May 1, 2016, the estimated fair values of the 2016 Term Loans and the Senior Notes approximate their carrying values. The fair value of our 2016 Term Loans is determined using inputs based on discounted cash flow models with observable market inputs and takes into consideration variables such as interest rate changes, comparable instruments, and credit-rating changes and, therefore, is classified as Level 2. The fair value of the Senior Notes is classified as Level 2 as we use quoted prices from less active markets.

Future Principal Payments of Debt

The future scheduled principal payments for the outstanding 2016 Term Loans and Senior Notes as of May 1, 2016 were as follows (in millions):



Fiscal Year
2016 (remainder)	$	172
2017	344
2018	344
2019	579
2020	2,116
2021	1,880
Thereafter	9,810
Total	$	15,245

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7. Shareholders’ Equity

For the period from November 2, 2015 to January 31, 2016, our shareholders’ equity reflected Avago’s outstanding ordinary shares, all of which were publicly traded on the NASDAQ stock market. As a result of the Broadcom Transaction, our ownership interest changed. Pursuant to the Avago Scheme, we issued 278 million ordinary shares to holders of Avago ordinary shares and issued 112 million ordinary shares to former BRCM shareholders pursuant to the Broadcom Merger. Consequently, the number of our ordinary shares outstanding increased from 278 million Avago ordinary shares on January 31, 2016 to 390 million Broadcom ordinary shares on February 1, 2016. Both Avago and BRCM became indirect subsidiaries of Broadcom and the Partnership, and Broadcom is the sole general partner of the Partnership. As a result, the carrying amount of equity attributable to Broadcom was adjusted to reflect the change in our ownership interest of our subsidiaries. Additionally, we reflect the noncontrolling interest in our shareholders’ equity, which represents the interest of the holders of the Partnership REUs, as further discussed below.

In connection with the Broadcom Merger, we also issued 23 million non-economic voting preference shares, or the Special Voting Shares, which is equal to the number of Partnership REUs. The Special Voting Shares were issued to a voting trustee pursuant to a Voting Trust Agreement dated February 1, 2016, between us, the Partnership and the voting trustee, or the Voting Trust Agreement.

Noncontrolling Interest

Noncontrolling interest represents equity interests in consolidated subsidiaries that are not attributable to us. As of May 1, 2016, the limited partners of the Partnership held a noncontrolling interest of approximately 5.5% in the Partnership through their ownership of 23 million Partnership REUs, issued to former BRCM shareholders pursuant to the Broadcom Merger.

Pursuant to the terms of the Amended and Restated Exempted Limited Partnership Agreement, or the Partnership Agreement, each Partnership REU is entitled to distributions from the Partnership in an amount equal to any dividends or distributions that we declare and pay with respect to our ordinary shares. In addition, each holder of a Partnership REU is entitled to vote with respect to matters on which holders of our ordinary shares are entitled to vote by directing the voting trustee to vote one Special Voting Share for each Partnership REU they hold, pursuant to the Voting Trust Agreement. After the first anniversary of the Acquisition Date, subject to certain additional requirements and potential deferrals as set forth in the Partnership Agreement, a holder of Partnership REUs will have the right to require the Partnership to repurchase any or all of the holder’s Partnership REUs in consideration for, as determined by us in our sole discretion, either one Broadcom ordinary share for each Partnership REU submitted for repurchase or a cash amount as determined under the Partnership Agreement.

We adjust the net income (loss) in our condensed consolidated statement of operations to exclude the noncontrolling interest’s proportionate share of the results. Also, we present the proportionate share of equity attributable to the noncontrolling interest as a separate component of shareholders’ equity within our condensed consolidated balance sheet and statement of shareholders’ equity.

Dividends/Distributions

Broadcom paid cash dividends of $0.49 and $0.38 per ordinary share, or $193 million and $99 million, during the fiscal quarters ended May 1, 2016 and May 3, 2015, respectively. Broadcom paid cash dividends of $0.93 and $0.73 per ordinary share, or $315 million and $188 million, during the two fiscal quarters ended May 1, 2016 and May 3, 2015, respectively.

The Partnership paid a cash distribution of $193 million to Broadcom, as General Partner, and a distribution of $0.49 per Partnership REU, or $11 million, to its limited partners during the fiscal quarter ended May 1, 2016, in accordance with the Partnership Agreement.

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Share-Based Compensation Expense

The following table summarizes share-based compensation expense reported in continuing operations related to share-based awards granted to employees and directors for the periods presented (in millions):



	Fiscal Quarter Ended				Two Fiscal Quarters Ended
	May 1, 2016		May 3, 2015		May 1, 2016		May 3, 2015
Cost of products sold	$	13	$	6	$	19	$	12
Research and development	122		27		150		46
Selling, general and administrative	51		24		74		48
Total share-based compensation expense ^(a)	$	186	$	57	$	243	$	106

_________________________________

(a) Does not include $12 million of share-based compensation related to discontinued operations recognized during the fiscal quarter and two fiscal quarters ended May 1, 2016, which was included in income (loss) from discontinued operations in our condensed consolidated statements of operations.

The fair values of our time-based share options and ESPP purchase rights were estimated using the Black-Scholes option pricing model. The fair value of time-based RSUs was estimated using the closing market price of our ordinary shares on the date of grant, reduced by the present value of dividends expected to be paid on our ordinary shares prior to vesting. Certain equity awards granted during the fiscal quarter and two fiscal quarters ended May 1, 2016 and May 3, 2015 included both time-based and market-based conditions. The fair value of market-based awards was estimated using Monte Carlo simulation techniques.

In connection with the Broadcom Merger, we assumed RSUs originally granted by BRCM. Share-based compensation expense reported in continuing operations in the fiscal quarter and two fiscal quarters ended May 1, 2016 included $83 million related to the assumed BRCM RSUs.

The following tables summarize the weighted-average assumptions utilized for our ESPP purchase rights and market-based awards granted for the periods presented:



	ESPP Purchase Rights
	Fiscal Quarter Ended				Two Fiscal Quarters Ended
	May 1, 2016		May 3, 2015		May 1, 2016		May 3, 2015
Risk-free interest rate	0.5	%	0.2	%	0.4	%	0.1	%
Dividend yield	1.3	%	1.2	%	1.3	%	1.3	%
Volatility	39.0	%	37.0	%	40.0	%	32.0	%
Expected term (in years)	0.5		0.5		0.5		0.5



	Market-Based Awards
	Fiscal Quarter Ended				Two Fiscal Quarters Ended
	May 1, 2016		May 3, 2015		May 1, 2016		May 3, 2015
Risk-free interest rate	1.3	%	1.3	%	1.3	%	1.4	%
Dividend yield	1.3	%	1.2	%	1.3	%	1.2	%
Volatility	35.0	%	35.0	%	35.0	%	36.0	%
Expected term (in years)	4.0		4.0		4.0		4.5

The risk-free interest rate was derived from the average U.S. Treasury Strips rate during the period, which approximated the rate in effect at the time of grant.

The dividend yields were based on the historical and expected dividend payouts as of the respective award grant dates.

Expected volatility was based on our own historical share price volatility over the period commensurate with the expected life of the awards and the implied volatility from our own traded ordinary shares with a term of 180 days measured at a specific date.

The expected term of market-based share options valued using Monte Carlo simulation techniques was based upon the vesting dates forecasted by the simulation and then assuming that share options which vest, and for which the market condition

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has been satisfied, are exercised at the midpoint between the forecasted vesting date and their expiration. The expected term of market-based RSUs valued using Monte Carlo simulation techniques was commensurate with the awards’ contractual terms.

The total unrecognized compensation cost of time and market-based share options granted but not yet vested as of May 1, 2016 was $91 million, which is expected to be recognized over the remaining weighted-average service period of 1.9 years. Total unrecognized compensation cost related to the ESPP purchase rights as of May 1, 2016 was $13 million, which is expected to be recognized over the remaining four months of the current ESPP offering period. Total unrecognized compensation cost related to unvested time and market-based RSUs as of May 1, 2016 was $2,150 million, which is expected to be recognized over the remaining weighted-average service period of 3.3 years.

Equity Incentive Award Plans

A summary of share option activity related to our equity incentive award plans is as follows (in millions, except years and per share amounts):



	Option Awards Outstanding
	Number Outstanding		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value
Balance as of November 1, 2015	21		$	47.92
Exercised	(4	)	42.95
Cancelled	(1	)	50.79
Balance as of May 1, 2016	16		48.91		4.22	$	1,597
Fully vested as of May 1, 2016	9		40.83		3.79	943
Fully vested and expected to vest as of May 1, 2016	16		48.62		4.20	1,567

The total intrinsic values of share options exercised during the fiscal quarter and two fiscal quarters ended May 1, 2016 were $224 million and $391 million, respectively. The total intrinsic values of share options exercised during the fiscal quarter and two fiscal quarters ended May 3, 2015 were $202 million and $334 million, respectively.

A summary of RSU activity related to our equity incentive award plans is as follows (in millions, except years and per share amounts):



	RSU Awards Outstanding
	Number Outstanding		Weighted- Average Grant Date Fair Market Value		Weighted- Average Remaining Contractual Life (in years)
Balance as of November 1, 2015	5		$	95.17
Assumed in Broadcom Merger	6		135.58
Granted	11		138.94
Vested	(2	)	109.29
Forfeited	(1	)	121.80
Balance as of May 1, 2016	19		130.42		1.95

8. Income Taxes

For the fiscal quarter and two fiscal quarters ended May 1, 2016, our income tax benefit was $99 million and $82 million, respectively, compared to an income tax provision of $25 million and $38 million for the fiscal quarter and two fiscal quarters ended May 3, 2015, respectively. The income tax benefits in the 2016 periods are a result of the loss from continuing operations partially offset by a net discrete expense for both fiscal periods, as discussed below.

In connection with the Broadcom Merger, $10,051 million of net deferred tax liabilities were established on the acquired identifiable intangible assets and on the excess of book basis over the tax basis of acquired investments in certain foreign subsidiaries that have not been indefinitely reinvested. Upon finalization of our combined company legal structure, additional adjustments to our net deferred taxes may be required, provided we are within the measurement period, and we continue to collect information.

Starting the fiscal quarter ended May 1, 2016, we no longer intend to indefinitely reinvest in operations outside of Singapore. We have provided for taxes, including withholding taxes, on $1,854 million of our undistributed earnings as of November 1, 2015. We recognized $93 million of discrete expense in the fiscal quarter ended May 1, 2016.

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The income tax benefit for the fiscal quarter ended May 1, 2016 included a discrete benefit of $19 million from the release of California state valuation allowance as a result of the Broadcom Merger.

The income tax benefit for the fiscal quarter and two fiscal quarters ended May 1, 2016 included a benefit from the net recognition of previously unrecognized tax benefits as a result of the expiration of the statute of limitations for certain audit periods of $1 million and $5 million, respectively, compared to $5 million and $9 million for the fiscal quarter and two fiscal quarters ended May 3, 2015, respectively.

The income tax provision for the two fiscal quarters ended May 1, 2016 also included a discrete benefit of $13 million from the retroactive reinstatement of the U.S. Federal Research and Development tax credit from January 1, 2015 to November 1, 2015, compared to $15 million for the two fiscal quarters ended May 3, 2015, from the retroactive reinstatement of the U.S. Federal Research and Development tax credit from January 1, 2014 to November 2, 2014.

Unrecognized Tax Benefits

During the two fiscal quarters ended May 1, 2016, gross unrecognized tax benefits increased by $1,286 million, net of $5 million of releases due to the lapse of various statute of limitations. The balance of gross unrecognized tax benefits was $1,864 million as of May 1, 2016. The increase in the gross unrecognized tax benefits was primarily a result of the Broadcom Merger. Uncertain tax positions assumed in connection with the Broadcom Merger are initially estimated as of the Acquisition Date. We continue to reevaluate these items with any adjustments to our preliminary estimates recognized in goodwill, provided we are within the measurement period and we continue to collect information in order to determine their estimated values.

Accrued interest and penalties are included in other long-term liabilities on the condensed consolidated balance sheets. As of May 1, 2016 and November 1, 2015, the combined amount of cumulative accrued interest and penalties was approximately $99 million and $43 million, respectively. The increase in cumulative accrued interest and penalties was primarily a result of the Broadcom Merger.

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 May 1, 2016, and November 1, 2015, approximately $1,963 million and $615 million, respectively, of the unrecognized tax benefits, including accrued interest and penalties, would affect our effective tax rate if favorably resolved. During the two fiscal quarters ended May 1, 2016, we recognized $5 million of previously unrecognized tax benefits as a result of the expiration of the relevant statute of limitations for certain audit periods.

We are subject to Singapore income tax examinations for the years ended October 31, 2011 and later. Our acquired companies are subject to tax examinations in major jurisdictions outside Singapore for fiscal years 2005 and later. We believe it is possible that we may recognize up to $7 million of our existing unrecognized tax benefits within the next 12 months as a result of lapses of the statute of limitations for certain audit periods.

9. Segment Information

Reportable Segments

We have four reportable segments: wired infrastructure, wireless communications, enterprise storage and industrial & other. These segments align with our principal target markets. The segments represent components for which separate financial information is available that is utilized on a regular basis by the Chief Executive Officer, who has been identified as the Chief Operating Decision Maker, or CODM, as defined by authoritative guidance on segment reporting, in determining how to allocate resources and evaluate performance. The segments are determined based on several factors, including client base, homogeneity of products, technology, delivery channels and similar economic characteristics.

Our CODM assesses the performance of each segment and allocates resources to those segments based on net revenue and operating income (loss) and does not evaluate operating segments using discrete asset information. Operating income (loss) by segment includes items that are directly attributable to each segment. Operating income (loss) by segment also includes shared expenses such as global operations, including manufacturing support, logistics and quality control, which are allocated primarily based on headcount, expenses associated with our globally integrated support organizations, such as sales and corporate marketing functions, as well as finance, information technology, human resources, legal and related corporate infrastructure costs, along with certain benefit related expenses, which are allocated primarily based on a percentage of revenue, and facilities allocated based on square footage.

Unallocated Expenses

Unallocated expenses include amortization of intangible assets, share-based compensation expense, restructuring, impairment and disposal charges, acquisition-related costs, including charges related to inventory step-up to fair value, and other costs, which are not used in evaluating the results of, or in allocating resources to, our segments. Acquisition-related costs also include transaction costs and any costs directly related to the acquisition and integration of acquired businesses.

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Depreciation expense directly attributable to each reportable segment is included in operating income (loss) for each segment. However, the CODM does not evaluate depreciation expense by operating segment and, therefore, it is not separately presented. There was no inter-segment revenue. The accounting policies of the segments are the same as those described in the summary of significant accounting policies.

The following tables present our net revenue and operating income (loss) by reportable segment for the periods presented (in millions):



	Fiscal Quarter Ended						Two Fiscal Quarters Ended
	May 1, 2016			May 3, 2015			May 1, 2016			May 3, 2015
Net revenue:
Wired infrastructure	$	2,060		$	382		$	2,446		$	729
Wireless communications	792			576			1,370			1,240
Enterprise storage	525			467			1,203			953
Industrial & other	164			189			293			327
Total net revenue	$	3,541		$	1,614		$	5,312		$	3,249

Operating income (loss):
Wired infrastructure	$	819		$	120		$	954		$	215
Wireless communications	181			264			446			586
Enterprise storage	217			177			526			363
Industrial & other	91			109			154			165
Unallocated expenses	(2,309		)	(252		)	(2,606		)	(510		)
Total operating income (loss)	$	(1,001	)	$	418		$	(526	)	$	819

Significant Customer Information

We sell our products primarily through our direct sales force, distributors and manufacturers’ representatives. One direct customer accounted for 11% and 33% of our net accounts receivable balance at May 1, 2016 and November 1, 2015, respectively. During the fiscal quarter and two fiscal quarters ended May 1, 2016, one direct customer represented 11% and 12% of our net revenue, respectively. During the fiscal quarter and two fiscal quarters ended May 3, 2015, one direct customer represented 21% and 24% of our net revenue, respectively. The majority of the revenue from this customer was included in our wired infrastructure and wireless communications segments for the fiscal year 2016 periods and the wireless communications segment for the fiscal year 2015 periods.

10. Related Party Transactions

2.0% Convertible Senior Notes

In May 2014, Avago completed a private placement of its Convertible Notes to two entities affiliated with Silver Lake, or the Purchasers, of which Kenneth Hao, one of our directors, is a Managing Partner and Managing Director. During fiscal year 2015, the Purchasers converted all of the outstanding Convertible Notes in exchange for $1,000 million in cash and 13.8 million Avago ordinary shares.

Other

During the fiscal quarter and two fiscal quarters ended May 1, 2016 and May 3, 2015, in the ordinary course of business, we purchased from, or sold to, several entities which are affiliated with one of our directors. We also made purchases from Silicon Manufacturing Partners Pte. Ltd., our joint venture with GlobalFoundries.

The following tables summarize the transactions and balances with our related parties for the indicated periods (for the portion of such period that they were considered related) (in millions):



	Fiscal Quarter Ended				Two Fiscal Quarters Ended
	May 1, 2016		May 3, 2015		May 1, 2016		May 3, 2015
Total net revenue	$	90	$	48	$	129	$	91
Total costs and expenses including inventory purchases	24		27		37		47

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	May 1, 2016		November 1, 2015
Total receivables	$	19	$	7
Total payables	6		4

11. Commitments and Contingencies

Commitments

The following table summarizes contractual obligations and commitments as of May 1, 2016 (in millions):



			Fiscal Year
	Total		2016 (remainder)		2017		2018		2019		2020		2021		Thereafter
Debt principal, interest and fees	$	18,595	$	447	$	890	$	890	$	1,102	$	2,615	$	2,311	$	10,340
Purchase commitments	1,637		1,579		39		19		—		—		—		—
Other contractual commitments	304		77		110		72		37		6		2		—
Operating lease obligations	498		72		136		109		62		43		18		58
	$	21,034	$	2,175	$	1,175	$	1,090	$	1,201	$	2,664	$	2,331	$	10,398

Debt Principal, Interest and Fees. Represents principal, interest and commitment fees payable on borrowings and credit facilities under the 2016 Credit Agreement and the Senior Notes.

Purchase Commitments. Represents unconditional purchase obligations that include agreements to purchase goods or services, primarily inventory, 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 capital expenditures in connection with capacity expansion of our internal fabrication facility in Fort Collins, Colorado, as well as construction at our new campuses in Orange County, California and San Jose, California. These purchases are typically conducted on a purchase order basis and the amount shown in the table includes $242 million of cancelable and non-cancelable outstanding purchase obligations under such purchase orders as of May 1, 2016.

Other Contractual Commitments. Represents amounts payable pursuant to agreements related to outsourced IT, human resources, financial infrastructure outsourcing services and other service agreements.

Operating Lease Obligations. Represents real property and equipment leased from third parties under non-cancelable operating leases.

Due to the inherent uncertainty with respect to the timing of future cash outflows associated with our unrecognized tax benefits at May 1, 2016, we are unable to reliably estimate the timing of cash settlement with the respective taxing authority. Therefore, $842 million<