Broadcom Annual Report 2013

Plain-text annual report

Table of ContentsUNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549Form 10-K(MARK ONE) R ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended November 3, 2013ORo 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) 98-0682363(I.R.S. Employer Identification No.) 1 Yishun Avenue 7Singapore 768923(Address of Principal Executive Offices) 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 Name of Each Exchange on Which Registered Ordinary Shares, no par value The NASDAQ Global Select MarketSecurities 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 R No oIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No 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 thepreceding 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 past90 days. Yes R No oIndicate 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 submittedand 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 suchfiles). Yes R No oIndicate 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’sknowledge, 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. RIndicate 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 R Accelerated filer o Non-accelerated filer o Smaller reporting company o (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 o No 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 the Registrant’s most recentlycompleted second fiscal quarter: As of May 5, 2013, the last business day of our most recently completed second fiscal quarter, the aggregate market value of the Registrant’sordinary shares held by non-affiliates of the Registrant (based upon the closing sale price of such shares on the Nasdaq Global Select Market on May 3, 2013, the last trading dayprior to our fiscal quarter end) was approximately $7,858,766,599.As of December 6, 2013, the Registrant had 248,909,416 ordinary shares outstanding.Documents Incorporated by ReferenceInformation 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 forits 2014 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 Reporton Form 10-K. The Registrant intends to file its definitive Proxy Statement within 120 days after its fiscal year ended November 3, 2013.AVAGO TECHNOLOGIES LIMITED2013 ANNUAL REPORT ON FORM 10-KTABLE OF CONTENTS PagePART I.ITEM 1.BUSINESS4ITEM 1A.RISK FACTORS11ITEM 1B.UNRESOLVED STAFF COMMENTS30ITEM 2.PROPERTIES31ITEM 3.LEGAL PROCEEDINGS31ITEM 4.MINE SAFETY DISCLOSURES32 PART II.ITEM 5.MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS ANDISSUER PURCHASES OF EQUITY SECURITIES33ITEM 6.SELECTED FINANCIAL DATA35ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS38ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK59ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA61ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIALDISCLOSURE104ITEM 9A.CONTROLS AND PROCEDURES104ITEM 9B.OTHER INFORMATION105 PART III.ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE105ITEM 11.EXECUTIVE COMPENSATION105ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSHAREHOLDER MATTERS105ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE105ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES105 PART IV.ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES106SIGNATURES107EXHIBIT INDEX108 2Table of ContentsPART IThe following discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this AnnualReport on Form 10-K. This Annual Report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws andparticularly in Item 1: “Business,” Item 1A:“Risk Factors,” Item 3: “Legal Proceedings” and Item 7: “Management’s Discussion and Analysis of FinancialCondition 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 includeprojections of financial information; statements about historical results that may suggest trends for our business; statements of the plans, strategies, andobjectives of management for future operations; statements of expectation or belief regarding future events (including any acquisitions we may make),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. Such statements are based on current expectations, estimates, forecasts and projections of our or industryperformance and macroeconomic conditions, based on management’s judgment, beliefs, current trends and market conditions, and involve risks anduncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. We derive most of our forward-lookingstatements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions arereasonable, 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 ouractual results. Accordingly, we caution you not to place undue reliance on these statements. Important factors that could cause actual results to differ materiallyfrom our expectations are disclosed under “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K. These factors include global economicconditions and concerns; cyclicality in the semiconductor industry or in our target markets; quarterly and annual fluctuations in our operating results;customer concentration and the demands or loss of our significant customers; increased dependence on the volatile, wireless handset market; our competitiveperformance and ability to continue achieving design wins with our customers, as well as the timing of those design wins; market acceptance of the endproducts into which our products are designed; our ability to achieve the growth prospects and synergies expected from our acquisitions, including CyOptics;delays, challenges and expenses associated with integrating acquired companies, including CyOptics, with our existing businesses; our dependence oncontract manufacturing and outsourced supply chain, and our ability to improve our cost structure through our manufacturing outsourcing program;prolonged disruptions of our or our contract manufacturers' manufacturing facilities or other significant operations; our dependence on outsourced serviceproviders for certain key business services and their ability to execute to our requirements; our ability to maintain or improve gross margin; our ability tomaintain tax concessions in certain jurisdictions; our ability to protect our intellectual property and any associated increases in litigation expenses; dependenceon and risks associated with distributors of our products; any expenses or reputational damage associated with resolving customer product warranty andindemnification claims; and other events and trends on a national, regional and global scale, including those of a political, economic, business, competitiveand 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 listedabove and those discussed under the heading “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K. We caution you that the foregoing list ofimportant 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 referredto 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 publiclyupdate or revise any forward-looking statement, whether 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 itssubsidiaries, 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 November 3, 2013 is referred to as “fiscal year 2013”.3Table of ContentsITEM 1.BUSINESSOverviewWe 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-Vsemiconductor materials have higher electrical conductivity than silicon and thus tend to have better performance characteristics in radio frequency, or RF, andoptoelectronic applications. III-V refers to elements from the 3rd and 5th groups in the periodic table of chemical elements, and examples of these materials aregallium arsenide, or GaAs, gallium nitride, or GaN, and indium phosphide, or InP. We differentiate ourselves through our high performance design andintegration capabilities. We serve three primary target markets: wireless communications, wired infrastructure and industrial & other. Our product portfolio isextensive and includes thousands of products. Applications for our products in these target markets include smartphones, data networking andtelecommunications equipment, enterprise storage and servers, factory automation and industrial equipment.We have an over 50-year history of innovation, dating back to our origins within Hewlett-Packard Company. Over the years, we have assembled a largeteam of analog design engineers around the world. We maintain design and product development engineering resources at multiple locations in each of theUnited States, Asia and Europe, which allows us to leverage this worldwide engineering expertise. Our history and market position enable us to strategicallyfocus our research and development resources to address niche opportunities in our target markets. We have also developed an extensive portfolio of U.S. andforeign patents and other intellectual property, and we leverage our significant intellectual property portfolio to integrate multiple technologies and createcomponent solutions that target growth opportunities. We design products that deliver high-performance and provide mission-critical functionality. Inparticular, we were among the first to deliver commercial film bulk acoustic resonator, or FBAR, filters which offer technological advantages over competingfilters for smartphones to function more efficiently in today's congested RF spectrum. FBAR technology has historically maintained a significant market sharewithin code division multiple access, or CDMA, and 3G/W-CDMA markets. As cellular carriers move to the 4G/long term evolution, or LTE, and LTE-advanced standards worldwide, we believe these advantages will continue to facilitate rapid adoption of FBAR technology throughout the mobile phoneecosystems. In optical solutions, we were a pioneer in commercializing vertical-cavity surface emitting laser, or VCSEL. Our fiber optic products and ourVCSEL-based products, including high bandwidth parallel optic transceivers and modules, have been widely adopted throughout the wired infrastructure andcomputing industries. In optoelectronics, we are a market leader in optocoupler and optical encoder solutions.Original equipment manufacturers, or OEMs, and distributors typically account for the substantial majority of our sales. We have established strongrelationships with leading OEM customers across multiple target markets. Many of our major customer relationships have been in place multiple years and wehave supplied multiple products during that time period. Our close customer relationships have often been built as a result of years of collaborative productdevelopment which has enabled us to build our intellectual property portfolio and develop critical expertise regarding our customer’s requirements, includingsubstantial system level knowledge. This collaboration has provided us with key insights into our customers and has enabled us to be more efficient andproductive and to better serve our target markets and customers. We have a direct sales force focused on supporting large OEMs. We also distribute asubstantial portion of our products through our broad distribution network, and a significant amount of these sales are to large global electronic componentsdistributors, including Avnet, Inc. and Arrow Electronics, Inc. We also have a diversified and well-established base of thousands of end customers, locatedthroughout the world, which we serve through our multi-channel sales and fulfillment system.We focus on maintaining an efficient global supply chain and a variable, low-cost operating model. Accordingly, we have outsourced a majority of ourmanufacturing operations utilizing third-party foundry and assembly and test capabilities, as well as some of our corporate infrastructure functions. We aimto minimize capital expenditures by focusing our internal manufacturing capacity on products utilizing our innovative materials and processes to protect ourintellectual 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 42% of our employees are located and where we produce and sourcethe majority of our products. Our presence in Asia places us in close proximity to many of our customers’ manufacturing facilities and at the center ofworldwide electronics manufacturing.Markets and ProductsWe focus on leveraging our design capabilities to develop products for target markets where we believe our innovation and reputation will allow us toearn attractive margins. In each of our target markets, we have multiple product families that primarily provide OEMs with component or subsystemproducts. Our product portfolio ranges from discrete devices to complex sub-systems that include multiple device types and incorporate firmware forinterfacing between digital systems. In some cases, our products include mechanical hardware that interfaces with optoelectronic or capacitive sensors. Weintend to4Table of Contentscontinue expanding our product offerings to address existing and adjacent market opportunities, and plan to target select niches within large establishedmarkets. We target markets that require high quality and the integrated performance characteristics of our products. For the fiscal year ended November 3,2013, wireless communications contributed 48%, wired infrastructure contributed 30% and industrial & other contributed 22% of our net revenue,respectively.Wireless Communications. We support the wireless industry with a broad variety of RF semiconductor devices, including monolithic microwaveintegrated 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 inRF transmitter applications. Our proprietary GaAs processes are critical to the production of power amplifier, or PA, and low noise amplifier products. Inaddition to RF devices, we provide a variety of optoelectronic sensors for mobile handset applications.Wired Infrastructure. In the storage and Ethernet networking markets, we supply transceivers that receive and transmit information along opticalfibers. We provide a range of product bandwidth options for customers, including options ranging from 125 Megabits per second, or Mbps, Fast Ethernettransmitters and receivers to 168 Gigabits per second, or Gbps, transceivers. In Ethernet networking, we focus on higher bandwidth applications, principally10G and emerging 40G and 100G for data center as well as enterprise customers. In storage, we focus on fiber channel-based applications including 8G andemerging 16G transceivers. In addition, we supply parallel optic transceivers with as many as 12 parallel channels for core routing, server, and highperformance computing applications. We also supply optical laser and receiver components to the access, metro and long-haul telecommunication markets. Forenterprise networking and server input/output, or I/O, applications, we supply high speed serializer/deserializer, or SerDes, products integrated intoapplication specific integrated circuits, or ASICs. Our ASICs are designed on advanced CMOS process technologies, focused primarily on 28nm and nextgeneration 16nm processes. In these geometries, we are able to support data transmission rates of up to 32G per second.Industrial & Other. We provide a broad variety of products for the general industrial and automotive markets. We offer optical isolators, oroptocouplers, which provide electrical insulation and signal isolation for signaling systems that are susceptible to electrical noise or interference. Optocouplersare used in a diverse set of applications, including industrial motors, automotive systems including those used in hybrid engines, power generation anddistribution systems, switching power supplies, motion sensors, telecommunications equipment, computers and office equipment, plasma displays, andmilitary electronics. For industrial motors and robotic motion control, we supply optical encoders, as well as integrated circuits, or ICs, for the controller anddecoder 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 faster optical transceivers usingplastic optical fiber that enable quick and interoperable networking and factory automation. 5Table of ContentsThe table below presents the major product families and major applications in our three primary target markets.Target Market Major ApplicationsMajor Product FamiliesWireless Communications • Smartphones• RF power amplifiers • RF filters • RF front end modules (FEMs) • Ambient light sensors • Proximity Sensors • Base stations• Low noise amplifiers • Multimarket-wave mixers • Diodes Wired Infrastructure • Data communications, storage area networking, servers, corerouting and transport• Fiber optic transceivers • Data communications, storage area networking and servers• Serializer/deserializer (SerDes) ASICs • Data communications and telecommunications• Optical laser and receiver components Industrial & Other • Factory automation, in-car infotainment and renewable energysystems• Industrial fiber optics • Power isolation, power conversion and renewable energysystems• Optocouplers • Motor controls and factory automation• Motion control encoders and subsystems • Displays and lighting• LEDsResearch and DevelopmentWe are committed to continuous investment in product development, with a focus on rapidly introducing new, proprietary products. Many of ourproducts have grown out of our own research and development efforts, and have given us competitive advantages in certain target markets due to performancedifferentiation. However, from time to time we also seek to enhance our capabilities through the acquisition of engineers and businesses with complementaryresearch and development skills. We focus our research and development efforts on the development of innovative, sustainable and higher value productplatforms. We leverage our design capabilities in markets where we believe our innovation and reputation will allow us to earn attractive margins by developinghigh 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 createmore integrated solutions. We plan to continue investing in product development, both organically and through acquisition, 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. Ourfield application engineers, or FAEs, and design engineers are located near many of our customers around the world, enabling us to support our customers ineach stage of their product development cycle, from early stages of production design through volume manufacturing and future growth. By collaborating withour customers, we have opportunities to develop high value added, customized products for them that leverage our existing technologies. Research anddevelopment expenses were $398 million, $335 million and $317 million for the fiscal years ended November 3, 2013, October 28, 2012 and October 30,2011, respectively. We anticipate that we will continue to make significant research and development expenditures in order to maintain our competitive positionwith a continuous flow of innovative and sustainable product platforms. As of November 3, 2013, we had approximately 1,400 employees dedicated toresearch and development at multiple locations around the world.6Table of ContentsCustomers, Sales, Marketing and DistributionHistorically, a relatively small number of customers account for a significant portion of our net revenue. Sales to distributors accounted for 28% of ournet revenue for fiscal year 2013. In fiscal year 2013, direct sales to Foxconn Technology Group companies, or Foxconn, accounted for 18% of our net revenue.Our top ten direct customers, which included three distributors, collectively accounted for 64% of our net revenue. We believe our aggregate sales to Apple, Inc.and Cisco Systems, Inc., when direct sales are combined with indirect sales to them through the respective contract manufacturers that they utilize, eachaccounted for more than 10% of our net revenues, for fiscal year 2013. 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 operationsand financial condition.We sell our products through our direct sales force and a network of distributors globally. Certain customers require us to contract with them directlyand with specified intermediaries, such as contract manufacturers, and both often require timely delivery of our products to multiple locations around theworld. Our direct sales force is focused on supporting our large OEM customers. Additionally, our extensive network of FAEs enhances our customer reachand our visibility into new product opportunities. We have strategically developed distributor relationships to serve thousands of customers around the world.Based on net revenue, our main global distributors are Avnet, Inc., and Arrow Electronics, Inc., complemented by a number of specialty regional distributorswith customer relationships based on their respective product ranges.As of November 3, 2013, our sales and marketing organization consisted of approximately 500 employees, many of whom have responsibility foremerging accounts, for large, global accounts, or for our distributors. Our sales force has specialized product and service knowledge that enables us to sellspecific 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 ofthe worldwide electronics supply chain. Many of our customers design products in North America or Europe that are then manufactured in Asia. We maintaindedicated regional customer support call centers, where we address customer issues and handle logistics and other order fulfillment requirements. We believewe are well-positioned to support our customers throughout the design, technology transfer and manufacturing stages across all geographies.OperationsWe use third-party contract manufacturers for a significant majority of our assembly and test operations, including ASE Korea Inc., andInari Technology SDN BHD. A portion of our front-end wafer manufacturing operations is outsourced to external foundries, including Taiwan SemiconductorManufacturing Company Ltd., or TSMC, and WIN Semiconductors Corp. We maintain our internal fabrication facilities for products utilizing ourinnovative materials and processes to protect our intellectual property and to develop the technology for manufacturing, while we outsource standard CMOSprocesses. Examples of internally fabricated semiconductors include FBAR filters for wireless communications and VCSEL-based and indium phosphide-based lasers for fiber optic communications. The majority of our internal III-V semiconductor wafer fabrication is done in the United States and Singapore. Asof November 3, 2013, approximately 2,600 manufacturing employees were devoted to our internal fabrication operations as well as management of outsourcedactivities. Most of our products are designed to be manufactured in a specific process, typically at one particular foundry, either our own or with a particularcontract manufacturer, and in some instances, we may only qualify one contract manufacturer to manufacture certain of our products. For selected customers,we maintain finished goods inventory near or at customer manufacturing sites to support their just-in-time production.Materials and SuppliersOur manufacturing operations employ a wide variety of semiconductors, electromechanical components and assemblies and raw materials. We purchasematerials from hundreds of suppliers on a global basis. These supply relationships are generally conducted on a purchase order basis. While we have notexperienced any significant difficulty in obtaining the materials used in the conduct of our business and we believe that no single supplier is material, some ofthe 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-termrelationships 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 usea number of techniques, including qualifying more than one source of supply, redesigning products for alternative components and incremental, or in somecases "lifetime", purchases of affected parts for supply buffer.7Table of ContentsCompetitionThe global semiconductor market is highly competitive. Our competitors range from large, international companies offering a wide range of products tosmaller companies specializing in narrow markets. We compete with integrated device manufacturers, or IDMs, and fabless semiconductor companies as wellas the internal resources of large, integrated OEMs. The competitive landscape is changing as a result of a trend toward consolidation within the industry, assome of our competitors have merged with or been acquired by other competitors while others have begun collaborating with each other. We expect thisconsolidation trend to continue. We expect competition in the markets in which we participate to continue to increase as existing competitors improve or expandtheir 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 tocustomers, 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 ams AG (formerly TAOS Inc.), Murata Manufacturing Co., Ltd., RF Micro Devices, Inc., SkyworksSolutions, Inc., and TriQuint Semiconductor, Inc. We compete based on our expertise in amplifier design, FBAR technology and module integration. We alsocompete against a number of smaller, niche wireless players based on our proprietary design expertise, broad product portfolio, proprietary material processesand integration expertise.In the wired infrastructure target market, we provide fiber optic transceivers and SerDes ASICs for high-speed data communications and serverapplications. Our primary competitors for this target market are Finisar Corporation, International Business Machines Corp. (Microelectronics Division), LSICorporation, ST Microelectronics N.V. and Sumitomo Corporation. We compete based on the strength of our high speed proprietary design expertise, ourcustomer relationships, proprietary process technology and broad product portfolio.In the industrial & other target market, we provide fiber optic transceivers for communication networks, LEDs for displays, motion control encodersand subsystems and optocouplers for factory automation and motor controls. Our primary competitors for this target market are Analog Devices, Inc., Cree,Inc., Hamamatsu Photonics K.K., Heidenhain Corporation, Renesas Electronics Corporation and Toshiba Corporation. We compete based on our designexpertise, broad product portfolio, reputation for quality products and large customer base.Intellectual PropertyOur success depends in part upon our ability to protect our intellectual property. To accomplish this, we rely on a combination of intellectual propertyrights, including patents, copyrights, trademarks, service marks, trade secrets and similar intellectual property, as well as customary contractual protectionswith our customers, suppliers, employees and consultants, and through security measures to protect our trade secrets. We believe our current productexpertise, key engineering talent and intellectual property portfolio provide us with a strong platform from which to develop application specific products inkey target markets.As of November 3, 2013, we had approximately 3,100 U.S. and foreign patents and approximately 800 U.S. and 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 2033, with a smallnumber of patents expiring in the near future, none of which are expected to be material to our intellectual property portfolio. We are not substantially dependenton any single patent or group of related patents.We focus our patent application program to a greater extent on those inventions and improvements that we believe are likely to be incorporated into ourproducts, as contrasted with more basic research. However, we do not know whether any of our pending patent applications will result in the issuance ofpatents or the extent to which the examination process could require us to narrow our claims.We have also entered into a variety of intellectual property licensing and cross-licensing arrangements. A meaningful portion of our intellectual propertyis the subject of cross-licenses to other companies that have been granted by Agilent Technologies, Inc., or if originally derived from Hewlett-PackardCompany, 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 vigorouspursuit, protection and enforcement of intellectual property rights. Many of our customer agreements require us to indemnify our customers for third-partyintellectual property infringement claims. This has in the past required, and may in the future require, that we defend those claims, and might also require thatwe pay damages in the case of8Table of Contentsadverse rulings. Claims of this sort could harm our relationships with our customers and might deter future customers from doing business with us. Withrespect to any intellectual property rights claims against us or our customers or distributors, we may be required to cease manufacture of the infringingproduct, pay damages, expend resources to develop non-infringing technology, seek a license which may not be available on commercially reasonable terms orat all, or relinquish patents or other intellectual property rights.EmployeesAs of November 3, 2013, we had approximately 4,800 employees worldwide. Approximately 1,400 were dedicated to research and development, 2,600 tomanufacturing, 500 to sales and marketing and 300 to general and administrative functions. By geography, approximately 42% of our employees are located inAsia, 52% in North America, and 6% in Europe. The substantial majority of our employees are not party to a collective bargaining agreement. However inAsia, approximately 300 of our 900 employees in Singapore, none of whom are in management or supervisory positions, are subject to a collective bargainingagreement with United Workers of Electronic and Electrical Industries, which expires on June 30, 2016, and some of our employees in Japan are subject to acollective bargaining agreement. In Europe, all of our employees in Italy are subject to a collective bargaining agreement. In Italy we are also subject to nationalcollective agreements between unions and employer associations. Such Italian national collective agreements are compulsory for both the employees and theemployer. In addition, in Germany we are subject to collective agreements with the works councils at our sites, which apply to German employees other thanmanaging directors and managers with similar authority. In Mexico, approximately 500 of our 700 employees are subject to a collective bargaining agreement,none of whom are in management or supervisory positions. We believe we have a good working relationship with our employees and we have never experiencedan interruption of business as a result of labor disputes.Environmental and Other RegulationOur 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; wasteminimization considerations; and treatment, transport, storage and disposal of solid and hazardous wastes. We are also subject to regulation by the UnitedStates 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 andsafety laws; however, the risk of environmental liabilities cannot be completely eliminated and there can be no assurance that the application of environmentaland 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 contentrequirements, including legislation enacted in the European Union and China, among a growing number of jurisdictions, which have placed greaterrestrictions on the use of lead, among other chemicals, in electronic products, which affects materials composition and semiconductor packaging. These lawsare becoming more stringent and may in the future cause us to incur significant expenditures. We are also subject to new SEC rules for companies that usecertain minerals and metals, known as conflict minerals, in their products, whether or not these products are manufactured by third parties. These rulesrequire companies to diligence, disclose and report on whether or not such minerals originate from the Democratic Republic of Congo and adjoining countries.The implementation of these rules 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 thesource of any of the relevant minerals and metals used in our products.BacklogOur 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 orbacklog are not necessarily a reliable indicator of future sales.9Table of ContentsSeasonalityWe have historically been affected by seasonal trends in the semiconductor and related industries. Our net revenue in the second half of the fiscal yearhas typically been higher than our net revenue in the first half of the fiscal year due to seasonality in our wireless communications target market. This targetmarket historically tended to experience seasonality due to the calendar year-end holiday selling seasons. From time to time, our key customers, particularly inour wireless communications target market, place large orders causing our quarterly net revenue to fluctuate significantly. We expect that these fluctuations willcontinue and that they may be exaggerated by the launches of, and seasonal variations in sales of, consumer products such as mobile handsets, as well aschanges in the overall economic environment. These fluctuations combined with other factors have increasingly overshadowed these seasonal effects in recentperiods.Financial Information about Geographic AreasFor information on the geographic concentration of our net revenues and long-lived assets, please see Note 13. “Segment Information,” of ourconsolidated financial statements, included elsewhere in the Annual Report on Form 10-K.Other InformationAvago Technologies Limited was incorporated under the laws of the Republic of Singapore in August 2005. Our Singapore company registration numberis 200510713C. The address of our registered office and our principal executive offices is 1 Yishun Avenue 7, Singapore 768923, and our telephone numberis +65-6755-7888. 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 accordancetherewith, file periodic reports, proxy statements and other information with the SEC. Such periodic reports, proxy statements and other information isavailable 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 SECat 1–800–SEC–0330. In addition, the SEC maintains a website at http://www.sec.gov that contains reports, proxy statements and other information regardingissuers that file electronically with the SEC. We maintain a website at www.avagotech.com. You may access our annual reports on Form 10-K, quarterlyreports 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 aftersuch material is electronically filed with, or furnished to, the SEC. The reference to our website address does not constitute incorporation by reference of theinformation contained on or accessible through our website.10Table of ContentsITEM 1A.RISK FACTORSOur business, operations and financial results are subject to various risks and uncertainties, including those described below, that couldadversely affect our business, financial condition, results of operations, cash flows, and the trading price of our ordinary shares. The followingimportant factors, among others, could cause our actual results to differ materially from those expressed in forward-looking statements made by us oron our behalf in filings with the SEC, press releases, communications with investors and oral statements.Risks Related to Our BusinessAdverse 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 wellas in our target markets, which adversely affected our business and results of operations. In recent periods, market and business conditions in general havebeen adversely affected by investor and customer concerns about the global economic outlook, including concerns about economic recovery in the UnitedStates and the level of growth in China. In addition, U.S. and global economic conditions could be exacerbated by the negative effects on economic growthresulting from the concerns about, and the effects of, the U.S. fiscal and monetary policies, any related spending cuts and tax increases and the possibility offurther downgrades to the U.S. government's credit rating. Macroeconomic weakness and uncertainty also make it more difficult for us to accurately forecastrevenue, gross margin and expenses. Sustained uncertainty about, or worsening of, current global economic conditions will likely cause our customers andconsumers to reduce or delay spending, leading to reduced demand for our products, could lead to the insolvency of key suppliers (resulting in productdelays) and customers and intensify pricing pressures. Any or all of these factors could negatively affect our business, financial condition and result ofoperations.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 technicalstandards, frequent new product introductions, short product life cycles (for semiconductors and for the end products in which they are used) and widefluctuations in product supply and demand. From time to time, these and other factors, together with changes in general economic conditions, causesignificant upturns and downturns in the industry in general and in our business in particular. Periods of industry downturns have been characterized bydiminished demand for end-user products, high inventory levels and periods of inventory adjustment, under-utilization of manufacturing capacity, changes inrevenue mix and accelerated erosion of average selling prices, resulting in an adverse effect on our business, financial condition and results of operations. Weexpect our business to continue to be subject to cyclical downturns even when overall economic conditions are relatively stable. If we cannot offset recessionaryperiods or periods of reduced growth that may occur in the industry, or in our target markets in particular, through increased market share or otherwise, ourbusiness could be adversely affected, net revenues may decline and our financial condition and results of operations may suffer. In addition, in any futureeconomic downturn we may be unable to reduce our costs quickly enough to maintain our operating profitability.The majority of our sales come from a small number of customers and the demands or loss of one or more of our significant customers mayadversely affect our business.We are dependent on a reasonably small number of direct customers, OEMs and distributors for a majority of our business, revenue and results ofoperations. During fiscal year 2013, Foxconn Technology Group companies together accounted for 18% of our net revenue (20% in the fourth quarter of fiscalyear 2013) and our top 10 customers, which included three distributors, collectively accounted for 64% of our net revenue. During fiscal year 2012, FoxconnTechnology Group companies together accounted for 17% of our net revenue, and our top 10 customers, which included three distributors, collectivelyaccounted for 62% 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 tothem. For example, we believe our aggregate sales to Apple Inc. and Cisco Systems, Inc., when direct sales are combined with indirect sales to them through therespective contract manufacturers that they utilize, each accounted for more than 10% of our net revenues, respectively, for fiscal year 2013. We expect tocontinue to experience significant customer concentration in future periods.This customer concentration increases the risk of quarterly fluctuations in our revenues and operating results. In addition, our top customers' purchasingpower 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 tocontinue, which may adversely affect our gross margins on certain products. In addition, we expect this will result in our results of operations becomingincreasingly sensitive to deterioration in the financial condition of, or other adverse developments related to, one or more of our significant customers. Althoughwe 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 ourindustry. Although our customers often provide us with medium- to long-term11Table of Contentsproduct roadmaps and related indications of their product needs and purchases on a periodic basis, they generally purchase our products on a weekly or dailybasis 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 largestcustomers, we start manufacturing our products in advance of receiving purchase orders, based on forecasts provided by these customers. These forecasts arenot binding purchase commitments and, as a result, we incur inventory and manufacturing costs in advance of anticipated sales. Since actual demand for ourproducts may not match these forecasts, manufacturing on this basis subjects us to increased risks of high inventory carrying costs, product obsolescenceand increased operating costs. In addition, the loss of any of our major direct or indirect customers, or any substantial reduction in sales to any of thesecustomers, 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 indemand, 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, particularly our FBAR products.During the fiscal years 2013 and 2012, revenue from our wireless communications target market accounted for 48% and 45% of our net revenue, respectively.The mobile handset market is characterized by intense competition among an increasingly concentrated group of OEMs, rapidly evolving technology,including the shift to LTE and LTE-advanced standards, and changing consumer preferences. These factors result in the frequent introduction of newproducts, aggressive price competition, short product life cycles, and continually evolving mobile handset specifications. If we, our customers or mobilehandset OEMs are unable to manage product transitions, our business and results of operations could be negatively affected. Our success in this market isdependent on the continued competitiveness of our FBAR products, and on the broad commercial acceptance of the mobile handsets into which our productsare incorporated, as well as increasing the amount of our products in successive generations of those handsets. If the mobile handsets into which our productsare designed do not achieve significant customer acceptance, our revenue will be adversely affected. Similarly, even though we may achieve design wins for aparticular 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 inour revenues.In the mobile handset market, demand has typically been stronger in the second half of the year than the first half of the year, but the timing of newhandset launches, which also drive demand, is often unpredictable. If mobile handset OEMs inaccurately forecast consumer demand, this may lead tosignificant changes in orders to their component suppliers. We have experienced both sharp increases and decreases in orders within the same quarter, oftenwith limited advance notice, and we expect such increases and decreases to occur in the future. In addition, although the worldwide wireless handset market islarge, growth trends and other variables are often uncertain and difficult to predict. Since the wireless handset market is a consumer-driven market, changes inthe economy that affect consumer demand can adversely affect our business and operating results.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 andannual basis and are due to a number of factors, many of which are beyond our control. These factors include, among others:•the timing of launches by our customers of new products, such as cell phones, in which our products are included and changes in end-user demand forthe 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 salesand licensing arrangements;•our ability to successfully and timely integrate, and realize the benefits of, our acquisition of CyOptics, Inc., or CyOptics, and any other significantacquisitions we may make;•new product announcements and introductions by us or our competitors;12Table of Contents•timing and amount of research and development and related new product expenditures, and the timing of receipt of any research and development grantmonies;•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; •the timing of acquisitions of, or making and exiting investments in, other entities, businesses or technologies; 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 operatingresults. In addition, a significant amount of our operating expenses are relatively fixed in nature due to our significant sales, research and development andinternal manufacturing overhead costs. Any failure to adjust spending quickly enough to compensate for a revenue shortfall could magnify the adverse impactof 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 notbe 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 securitiesanalysts or investors, an immediate and significant decline in the trading price of our ordinary shares may occur.Winning business is subject to lengthy, competitive selection processes that require us to incur significant expense. Even if we begin a productdesign, a customer may decide to cancel or change its product plans, which could cause us to generate no revenues from a product and adverselyaffect our results of operations.Our business is dependent on us winning competitive bid selection processes, known as “design wins,” to develop semiconductors for use in ourcustomers' products. These selection processes are typically lengthy and can require us to incur significant design and development expenditures and dedicatescarce engineering resources in pursuit of a single customer opportunity. We may not win the competitive selection process and may never generate any revenuedespite incurring significant design and development expenditures. These risks are exacerbated by the fact that many of our products, and the end productsinto which our products are incorporated, often have very short life cycles. For example, cell-phone manufacturers regularly introduce new or upgradedhandsets, 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 aparticular model. Failure to obtain a design win sometimes prevents us from offering an entire generation of a product. This can result in lost revenues andcould 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 thelengthy development cycle typically required, or may not realize as much revenue as we had anticipated. In addition, a delay or cancellation of a customer'splans could materially and adversely affect our financial results, as we may have incurred significant expense in the design process and generated little or norevenue. Customers could choose at any time to stop using our products or may fail to successfully market and sell their products, which could reducedemand 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 thesame time, may strain our resources and those of our contract manufacturers. In such event we may be forced to dedicate significant additional resources andincur additional, unanticipated costs and expenses, which may have a material adverse effect on our results of operations.13Table of ContentsCompetition 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 tocustomers, new product innovation, product availability, delivery timing and reliability, and customer sales and technical support. Current and prospectivecustomers for our products evaluate our capabilities against the merits of our direct competitors. Some of our competitors are well established, have a moreextensive product portfolio, have substantially greater market share and manufacturing, financial, research and development and marketing resources topursue development, engineering, manufacturing, marketing and distribution of their products. In addition, many of our competitors have longer independentoperating histories, greater presence in key markets, more comprehensive patent protection and greater name recognition. We compete with integrated devicemanufacturers, 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 themarkets in which we participate to continue to increase as existing competitors improve or expand their product offerings. In addition, companies not currentlyin direct competition with us may introduce competing products in the future. Because our products are often building block semiconductors providingfunctions that in some cases can be integrated into more complex ICs, we also face competition from manufacturers of ICs, as well as customers that developtheir own IC products.Our ability to compete successfully depends on elements both within and outside of our control, including industry and general economic trends. Duringpast periods of downturns in our industry, competition in the markets in which we operate intensified as manufacturers of semiconductors reduced prices inorder to combat production overcapacity and high inventory levels. The actions of our competitors, particularly in the area of pricing, can have a substantialadverse impact on our revenues, and potentially on revenues in specific industry end markets. In periods where the semiconductor industry experiencessignificant declines, manufacturers in financial difficulties or in bankruptcy may implement pricing structures designed to ensure short-term market shareand near-term survival, rather than securing long-term viability. In addition, many of our competitors have substantially greater financial and other resourcesthan us with which to withstand adverse economic or market conditions and any associated pricing actions of other market participants in the future.Our target markets may not perform as expected and our business and operating results could be harmed in such event.Visibility into our target markets is limited and industry and target market growth rates may not be as forecasted. Any decline in our customers' marketswould likely result in a reduction in demand for our products. In such an environment, pricing pressures could intensify and, if we were unable to respondquickly, could significantly reduce our gross margins and reduce our revenue. If target market growth rates are not as expected, particularly in areas such asLTE handsets and datacenters, to the extent that we incur expenditures on process and product development that does not align with projected marketrequirements, this could also have a material adverse effect on our business and results of operations.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 marketcoverage, or enhance our technological capabilities. We may also enter into strategic alliances or joint ventures to achieve these goals. We cannot assure you thatwe will be able to identify suitable acquisition, investment, alliance, or joint venture opportunities, that we will be able to consummate any such transactionsor relationships on terms and conditions acceptable to us, or that such transactions or relationships will be successful. In addition, our original estimates andassumptions used in assessing any acquisition that we make may be inaccurate and we may not realize the expected financial or strategic benefits of any suchacquisition. From time to time, we may also divest portions of our business that are no longer strategically important or exit minority investments, which couldmaterially affect our cash flows and results of operations for the period in which such events occur.These transactions or any other acquisitions or dispositions involve risks and uncertainties. For example, the integration of acquired businesses may notbe successful and could result in disruption to other parts of our business. In addition, any such integration may require that we incur significantrestructuring charges, including as a result of streamlining, or divesting non-core portions of, acquired businesses. To integrate acquired businesses, we mustimplement 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 ofexperience operating in the geographic market or industry sector of the acquired business, delays and challenges associated with integrating the business withour existing businesses, diversion of management's attention from daily operations of the business, potential loss of key employees and customers of theacquired 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 unanticipated14Table of Contentsliabilities of the acquired business, insufficient revenues to offset increased expenses associated with the acquisition, and our potential inability to achieve thegrowth prospects and synergies expected from any such acquisition. Even when an acquired business has already developed and marketed products, there canbe 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 thatmight 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 subjectto impairment testing and potential impairment charges, incur amortization expense related to certain intangible assets, increase our expenses and workingcapital requirements, and subject us to litigation, which would reduce our return on invested capital. In addition, if the businesses or products lines that weacquire have a different pricing or cost structure than we do, such acquisitions may adversely affect our profitability and reduce our overall margin. Failure tomanage and successfully integrate the acquisitions we make or to improve margins of the acquired businesses and products could materially harm ourbusiness, 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 andpotentially affect our credit ratings and, in the case of equity or equity-linked financing, would be dilutive to our existing shareholders. Any downgrades in ourcredit ratings associated with an acquisition could adversely affect our ability to borrow by resulting in more restrictive borrowing terms. As a result of theforegoing, 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 andother 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. All of the above may apply to our pending acquisition of LSICorporation, or LSI, which will be our largest acquisition to date, by a significant margin.The acquisition of CyOptics and the integration of its business, operations and employees with our own involve risks and the failure to integratesuccessfully in the expected time frame may adversely affect our future results.Our ability to integrate significant acquisitions is unproven, and any failure to successfully integrate the business, operations and employees of CyOptics,which we acquired on June 28, 2013, or to otherwise realize the anticipated benefits of the acquisition, could harm our result of operations. Our ability torealize these benefits will depend, in part, on the timely integration and consolidation of organizations, operations, facilities, procedures, policies andtechnologies, and the harmonization of differences in the business cultures between the two companies and their personnel. Implementation and integration ofthe CyOptics business will be complex and time-consuming, will involve additional expense and could disrupt our business and divert management's attentionfrom ongoing business concerns. The challenges involved in integrating CyOptics include:•combining and rationalizing our respective product offerings;•preserving customer, supplier and other important relationships of both CyOptics and Avago;•improving gross margin (including by improving fabrication facility, or fab, utilization rates) and maintaining or improving average selling prices ofCyOptics products;•coordinating and integrating operations in Mexico, a country in which Avago has not previously operated;•integrating financial forecasting and controls, procedures and reporting cycles;•combining and integrating IT systems; and•integrating employees and related HR systems and benefits, maintaining employee morale and retaining key employees.The benefits we expect to realize from the acquisition of CyOptics are, necessarily, based on projections and assumptions about the combined businessesof Avago and CyOptics and assume, among other things, the successful integration of CyOptics into our business and operations. We may not successfullyintegrate CyOptics and our operations in a timely manner, or at all. If we do not realize the anticipated benefits of this transaction, our growth strategy andfuture profitability could be affected. These risks may also apply to our pending acquisition of LSI.In addition, our future effective tax rate is likely to increase as a result of the acquisition of CyOptics. The majority of CyOptics revenue is generated in theUnited States, which has a higher statutory tax rate than many other jurisdictions in which we operate, and such revenues will not receive the benefits of thetax incentive arrangements we have negotiated in Singapore and Malaysia. Similarly, the acquisition will significantly increase the amount of our goodwill andother intangible assets, which could adversely affect our future results of operations.15Table of ContentsDependence on contract manufacturing and outsourcing other portions of our supply chain may adversely affect our ability to bring products tomarket, damage our reputation and adversely affect our results of operations.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 single-sourcing for many components or products. Most of ourproducts are designed to be manufactured in a specific process, typically at one particular foundry, either our own or with a particular contract manufacturer.We also use third-party contract manufacturers for a significant majority of our assembly and test operations, including ASE Korea Inc., andInari Technology SDN BHD.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 otheroutsourced providers fails to perform its obligations in a timely manner or at satisfactory quality levels, our ability to bring products to market and to timelydeliver products to our customers, and our reputation could suffer. Suppliers may extend lead times, limit supplies, increase prices or discontinue parts due tocapacity constraints, changes to manufacturing processes or other factors. Some parts are not readily available from alternate suppliers due to their uniquedesign or the length of time necessary for design work. If one of our suppliers, particularly a single-source supplier, ceases to, or is unable to, manufacturesuch a component, or changes its manufacturing process, or if supply is otherwise constrained, we may need to transition the manufacture of that product toanother foundry or contract manufacturer or source alternative parts, which may be difficult, expensive and take an extended period of time. We may also beforced to make a significant "lifetime" purchase of the affected product, in order to enable us to meet our customer demand, or to re-engineer a product.Significant lifetime purchases of such discontinued components could significantly increase our inventory and other expenses, such as insurance costs, andexpose us to additional risks, such as the loss of, or damage to, products which may not subsequently be available to us from an alternative source. Suchsupply issues may also cause us to fail to timely meet customer demand. This could result in the payment of significant damages by us to our customers, andour net revenue could decline. In such events, our business, financial condition and results of operations would be adversely affected.We review our supply chain on an ongoing basis and may seek to qualify second source manufacturers and suppliers for some components andproducts. 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, manufacturers' lack of sufficient capacity, or theirunwillingness to devote adequate capacity, to produce our products and unanticipated changes to their manufacturing processes;•inaccuracies in the forecasts of our product needs from our manufacturers;•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 conductbusiness 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 ourgallium arsenide, or GaAS, fabs in Fort Collins, Colorado and Singapore, and our InP fab in Breinigsville, Pennsylvania and InP back-end assembly facilityin Matamoros, Mexico, acquired as part of the CyOptics transaction. We maintain our internal fabrication facilities for products utilizing our innovativematerials and processes, to protect our intellectual property, to develop the technology for manufacturing and to ensure supply of certain components. We arecurrently expanding our Fort Collins facility to support anticipated growth in sales of our proprietary products, particularly for our wireless target market, andto leverage our fixed costs. Unanticipated delays in the construction of this expansion, or the failure of suppliers to timely deliver tools and other equipmentneeded to commence manufacturing in the expanded facility, could result in significant additional costs, and could result in us being unable to timely satisfycustomer demand for the products we plan to manufacture at the expanded facility, all of which could have a material adverse effect on our business, financialcondition and results of operations. In addition, a prolonged disruption or material malfunction of, interruption in, or the loss of operations at, one or more ofour production facilities, especially our Fort Collins, Singapore, Breinigsville and Matamoros facilities, or the failure to maintain our labor force at one ormore of these facilities, would limit our capacity to meet customer demands and delay new product development until a replacement facility and equipment, if16Table of Contentsnecessary, were found. The replacement of any of our manufacturing facilities could take an extended amount of time and significant expenditures on our partbefore manufacturing operations could restart. Our U.S. headquarters are located in San Jose, California and the lease on our facility there expires inNovember 2015. If we are unable to renew this lease on satisfactory terms, we would be required to locate suitable replacement premises, with the goal ofensuring a smooth transition between facilities on or prior to the expiration of our current lease. We may not be able to timely find suitable replacement premisesor acceptable terms, or at all and relocating our U.S. corporate headquarters could require us to incur significant expenses and may cause disruptions to ouroperations. The potential delays and significant costs resulting from such steps could have a material adverse effect on our business, financial condition andresults of operations.We are also dependent on various information technology systems, including, but not limited to, networks, applications, and outsourced services. Wecontinually enhance and implement new systems and processes throughout our global operations. Failure of these systems to operate effectively, could disruptour operations and materially and adversely affect our business, financial condition, and results of operations by harming our ability to accurately forecastsales demand, manage our supply chain and production facilities, fulfill customer orders, and report financial and management information on a timely andaccurate basis.If we or our contract manufacturers suffer loss or significant damage to our factories, facilities or distribution system due to catastrophe, ouroperations 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, San Jose, California, and Breinigsville, Pennsylvania, with the expertise of thepersonnel at each such location tending to be focused on one or two specific areas. Any catastrophic natural disaster in those regions or catastrophic loss orsignificant 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, and could materially and adversely affect our business. Such events could also result in significant expenses to repair or replace ouraffected facilities, and in some instances could significantly curtail our research and development efforts in a particular product area or target market.We generally do not have any long-term supply contracts with our contract manufacturers or materials suppliers and may not be able to obtainthe 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 fromsuppliers, some of which are our single-source suppliers for these materials. We purchase a significant portion of our semiconductor materials and finishedgoods from a few suppliers and contract manufacturers. For fiscal year 2013, we purchased 55% of the materials for our manufacturing processes from sixsuppliers. For fiscal year 2012, we purchased 54% of the materials for our manufacturing processes from six suppliers. Substantially all of our purchases areon a purchase order basis, and we have not generally entered into long-term contracts with our contract manufacturers or suppliers. In the event that thesepurchase orders or relationships with suppliers are terminated, we cannot obtain sufficient quantities of raw materials at reasonable prices, the quality of thematerial deteriorates, we fail to satisfy our customers' requirements or we are not able to pass on higher materials or energy costs to our customers, ourbusiness, financial condition and results of operations could be adversely impacted.Our manufacturing processes rely on many materials, including silicon and GaAs and InP 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 commodityprice increases, capacity constraints or other factors. Although we believe that our current supplies of materials are adequate, shortages could occur in variousessential materials due to interruption of supply or increased demand in the industry.17Table of ContentsFailure to adjust our supply chain volume due to changing market or other conditions or failure to accurately estimate our customers' demandcould 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 oncontract manufacturing and outsourcing, personnel needs and other resource requirements, based on our estimates of customer requirements. The short-termnature of commitments by many of our customers and the possibility of rapid changes in demand for their products reduces our ability to accurately estimatefuture 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. Inaddition, 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 fortheir products. For example, the smartphone market is particularly volatile and is subject to seasonality related to the holiday selling season, making demanddifficult to anticipate.Severe supply chain disruptions, such as those caused by large scale natural disasters, can adversely affect our, and our customers', ability to sourcematerials and components needed to manufacture products. In such event, even if we are able to promptly resume production of our affected products, if ourcustomers cannot timely resume their own manufacturing following such an event, they may cancel or scale back their orders from us and this may in turnadversely affect our results of operations.From time to time, customers may require rapid increases in production, for example when they are ramping up for a new product launch, such as a newgeneration smartphone, which can challenge our resources and reduce margins. We may not be able to purchase sufficient supplies or components or securesufficient contract manufacturing capacity, to meet such increases in product demand. This could harm our reputation, prevent us from taking advantage ofopportunities, 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 advancepayments to suppliers, which could reduce our ability to adjust our inventory or expense levels to declining market demands. Prior commitments of this typehave resulted in an excess of parts when demand for our products has decreased. Downturns in the semiconductor industry have in the past caused, and mayin 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 mayexperience excess and obsolete inventories and be forced to incur additional charges. Conversely, if OEMs order more of our products in any particular quarterthan are ultimately required to satisfy end customer demand, inventories at these OEMs may grow in such quarter, which could adversely affect our productrevenues 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 demandmay decrease our gross margins and operating income.We rely on third parties to provide corporate infrastructure services necessary for the operation of our business. Any failure of one or more ofour 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, benefit plan administration, information technology, or IT, network development and network monitoring. We depend on thesevendors to ensure that our corporate infrastructure will consistently meet our business requirements. The ability of these third-party vendors to successfullyprovide reliable, high quality services is subject to technical and operational uncertainties that are beyond our control. While we may be entitled to damages ifour 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 donot 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 asa 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 ourbusiness, financial condition and results of operations. Upon expiration or termination of any of our agreements with third-party vendors, we may not be ableto 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 transitionfrom 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, non-product revenue,acquisitions we may make and level of capacity utilization.Our gross margin is highly dependent on product mix, with proprietary products and products sold into our industrial & other target market typicallyproviding higher gross margin than other products. A shift in sales mix away from our higher margin products could adversely affect our future gross marginpercentages. 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 us18Table of Contentsto 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 affectedby 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 oursuppliers. We do not hedge our exposure to commodity prices, some of which (including gold and fuel prices) are very volatile, and sudden or prolongedincreases 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 researchand development projects during product development and intellectual property-related revenue such as licensing royalty payments and revenues from sales ofintellectual property. Our non-product revenue is generally high margin, but fluctuates significantly from quarter to quarter.Businesses or companies that we may acquire from time to time may have different gross margin profiles than us and could, therefore, affect our overallgross margin. For example, CyOptics products typically carry a lower gross margin, on average, than Avago products and, as a result, the acquisition ofCyOptics may have an adverse effect on our gross margin unless we are able to improve the gross margins of the acquired business.In addition, semiconductor manufacturing requires significant capital investment, leading to high fixed costs, including depreciation expense. Although weoutsource a significant portion of our manufacturing activities, we do retain some semiconductor fabrication facilities. We are making substantial capitalinvestments in our Fort Collins, Colorado manufacturing facility and we may not realize the benefit we anticipate from these investments. If we are unable toutilize 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 otherthings, 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, reductions in our technological lead,compared to our competitors, 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 orapplicable, in part or in whole, for any reason, or if our assumptions and interpretations regarding tax laws and incentive or holidayarrangements 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 encourageinvestment or employment. For example, we have obtained several tax incentives from the Singapore Economic Development Board, an agency of theGovernment of Singapore, which provide that certain classes of income we earn in Singapore are subject to tax holidays or reduced rates of Singapore incometax. Each such tax incentive is separate and distinct from the others, and may be granted, withheld, extended, modified, truncated, complied with orterminated independently without any effect on the other incentives. In order to retain these tax benefits in Singapore, we must meet certain operating conditionsspecific to each incentive relating to, among other things, maintenance of a treasury function, a corporate headquarters function, specified intellectual propertyactivities and specified manufacturing activities in Singapore. Some of these operating conditions are subject to phase-in periods through 2015. The Singaporetax incentives are presently scheduled to expire at various dates generally between 2014 and 2025. Renewals and extensions of such tax incentives are in thediscretion of the Singapore government, and we may not be able to extend these tax incentive arrangements after their expiration on similar terms or at all. Wemay elect not to seek to renew or extend certain tax incentive arrangements. Absent these tax incentives, the corporate income tax rate in Singapore that wouldotherwise apply to us would be 17%. In February 2010, the Malaysian government granted us a tax holiday on our qualifying Malaysian income, which iseffective 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 ourcompliance with various operating and other conditions. If we cannot, or elect not to, comply with the operating conditions included in any particular taxincentive, 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 thatincentive and, depending on the incentive at issue, could likely be required to modify our operational structure and tax strategy. Any such modified structureor strategy may not be as beneficial to us from an income tax expense or operational perspective as the benefits provided under the present tax concessionarrangements. For the fiscal years ended November 3, 2013, 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 $77 million, $81 million, and$82 million, respectively, and increase diluted net income per share by $0.31, $0.33 and $0.32, respectively.Our interpretations and conclusions regarding the tax incentives are not binding on any taxing authority, and if our assumptions about tax and other lawsare incorrect or if these tax incentives are substantially modified or rescinded we could suffer material adverse tax and other financial consequences, whichwould increase our expenses, reduce our profitability and adversely affect our cash flows. In addition, taxable income in any jurisdiction is dependent uponacceptance of our19Table of Contentsoperational practices and intercompany transfer pricing by local tax authorities as being on an arm's length basis. Due to inconsistencies in application of thearm's length standard among taxing authorities, as well as lack of adequate treaty-based protection, transfer pricing challenges by tax authorities could, ifsuccessful, substantially increase our income tax expense. We are subject to, and are under, audit in various jurisdictions, and such jurisdictions may assessadditional income tax against us. Although we believe our tax positions are reasonable, the final determination of tax audits could be materially different fromour 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 inthe 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, whichcould 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 thevigorous 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 intellectualproperty 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 anddivert the efforts and attention of our management and technical personnel. In addition, many of our customer agreements, and in some cases our asset saleagreements, require us to indemnify our customers or purchasers for third-party intellectual property infringement claims, which have required and may in thefuture 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 ourrelationships with our customers and might deter future customers from doing business with us. We do not know whether we will prevail in such proceedingsgiven the complex technical issues and inherent uncertainties in intellectual property litigation. If any pending or future proceedings result in an adverseoutcome, we could be required to:•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 particularproduct 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 businesscould 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 withsignificant expenditures we may not be able to protect our intellectual property rights valuable to our business. We are unable to predict that:•intellectual property rights that we presently employ in our business will not lapse or be invalidated, circumvented, challenged, or, in the case ofthird-party intellectual property rights, licensed or sub-licensed to us, be licensed to others;•our intellectual property rights will provide competitive advantages to us;•rights previously granted by third parties to intellectual property rights licensed or assigned to us, including portfolio cross-licenses, will not hamperour ability to assert our intellectual property rights against potential competitors or hinder the settlement of currently pending or future disputes;20Table of Contents•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 ourproducts or technologies or design around our protected technologies. Effective patent, trademark, copyright and trade secret protection may be unavailable ormore 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 inone or more relevant jurisdictions. We may elect to abandon or divest patents or otherwise not pursue prosecution of certain pending patent applications, due tostrategic concerns or other factors. In addition, when patents expire, we lose the protection and competitive advantages they provided to us. From time to timewe pursue litigation to assert our intellectual property rights, including, in some cases, against third parties with whom we have ongoing relationships, such ascustomers and suppliers, and third parties may pursue litigation against us. An adverse decision in such types of legal action could limit our ability to assertour 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 collectroyalty payments based upon successful protection and assertion of our intellectual property against others. In addition, such legal actions or adversedecisions 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 theselicense agreements can be obtained or renewed on acceptable terms or at all.If we are unable to attract, train and retain qualified personnel, especially our design and technical personnel, we may not be able to execute ourbusiness strategy effectively.Our future success depends on our ability to retain, attract and motivate qualified personnel, including our management, sales and marketing, legal andfinance personnel, and especially our design and technical personnel. We also seek to acquire talented engineering and technical personnel through acquisitionswe may make from time to time, including, for example, CyOptics and Javelin. We do not know whether we will be able to retain all of these employees as wecontinue to pursue our business strategy. We have historically encountered difficulties in hiring and retaining qualified engineers because there is a limited poolof 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 in high demand. In addition, employees of companies or businesses that we acquire may decidenot to continue working for us, with little or no notice, for reasons that may include dissatisfaction with our corporate culture, compensation or new roles andresponsibilities. As the source of our technological and product innovations, our design and technical personnel represent a significant asset. The loss of theservices of key employees, especially our key design and technical personnel, or our inability to retain, attract and motivate qualified design and technicalpersonnel, 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.From time to time we may be, subject to warranty or product liability claims that have lead, and may in the future lead, to significant expenses as wecompensate affected customers for costs incurred related to product quality issues. Although we maintain reserves for reasonably estimable liabilities andpurchase product liability insurance, our reserves may be inadequate to cover the uninsured portion of such claims. Conversely, in some cases, amounts wereserve may ultimately exceed our actual liability for particular claims and may need to be reversed.Although we maintain product liability insurance, such insurance is subject to significant deductibles and there is no guarantee that such insurance will beavailable 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 theevent 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 widelydistributed may be lengthy and require significant resources, and we may incur significant replacement costs, contract damage claims from our customersand reputational harm. Our customer contracts typically contain warranty and indemnification provisions, and in certain cases may also contain liquidateddamages provisions, relating to product quality issues. The potential liabilities associated with such provisions are significant, and in some cases, includingin agreements with some of our largest customers, are potentially unlimited. Any such liabilities may greatly exceed any revenues we receive from the relevantproducts. Costs, payments or damages incurred or paid by us in connection with warranty and product liability claims and product recalls could materiallyand adversely affect our financial condition and results of operations.21Table of ContentsThe complexity of our products could result in unforeseen delays or expenses or undetected defects or bugs, which could adversely affect themarket acceptance of new products, damage our reputation with current or prospective customers, and materially and adversely affect ouroperating costs.Highly complex products such as those we offer, may contain defects and bugs when they are first introduced or as new versions are released, or theirrelease may be delayed due to unforeseen difficulties during product development. We have in the past experienced, and may in the future experience, suchdefects, bugs and delays. If any of our products contain defects or bugs, or have reliability, quality or compatibility problems, we may not be able tosuccessfully design workarounds. Consequently, our reputation may be damaged and customers may be reluctant to buy our products, which couldmaterially and adversely affect our ability to retain existing customers, attract new customers, and our financial results. In addition, these defects or bugscould interrupt or delay sales to our customers. To resolve these problems, we may have to invest significant capital and other resources. Although ourproducts 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 problemsare not found until after we have commenced commercial production of a new product, we may be required to incur additional development costs and productrecall, 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 manufactureand 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, tocompensate the customer for the adverse effects of such delays. In addition, these problems may divert our technical and other resources from otherdevelopment efforts, and we would likely lose, or experience a delay in, market acceptance of the affected product or products, and we could lose credibilitywith our current and prospective customers. As a result, our financial results could be materially and adversely affected.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. Welimit distributor return rights and we allow limited price adjustments on sales to distributors. Price adjustments may be effected by way of credits for futureproduct or by cash payments to the distributor either in arrears or in advance based on estimates. We record reserves for distributor rights related to theselimited stock returns and price adjustments. We recognize revenues for sales to distributors upon delivery to the distributors, net of estimated provisions forthese stock return and price adjustment programs. We have extended these programs to certain distributors in the United States, Asia and Europe and mayextend them on a selective basis to some of our other distributors in these geographies. The reserves recorded for these programs are based on significantjudgments and estimates, using historical experience rates, inventory levels in distribution, current trends and other factors, and there could be significantdifferences between actual amounts and our estimates. These programs may require us to deploy a substantial amount of cash to fund them. As at November3, 2013, we had an aggregate of approximately $32 million on deposit with various distributors to fund these programs. The timing and mix of payments andcredits associated with such price adjustments could change over time, which could adversely affect our cash flows. Sales to distributors accounted for 28%and 32% of our net revenue for fiscal year 2013 and fiscal year 2012, 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 todecrease their inventories for any reason, such as due to adverse global economic conditions or due to any downturn in technology spending, our sales to thesedistributors and our revenues may decline. We also face the risk that our distributors may purchase, or for other reasons accumulate, inventory levels of ourproducts 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 thesedistributors for any reason, these distributors may substantially decrease the amount of product they order from us in subsequent periods until their inventorylevels realign with end customer demand, which would harm our business and could adversely affect our product revenues in such subsequent periods. Ourreserve estimates associated with products stocked by our distributors are based largely on reports that our distributors provide to us on a weekly or monthlybasis. 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 timelymanner, we may not be able to make reserve estimates for future periods accurately or at all.We do not always have a direct relationship with the end customers of our products sold through distributors. As a result, our products may be used in orfor applications for which they were not necessarily designed or tested, including, for example, medical devices, and they may not perform as anticipated insuch applications. In such event, failure of even a small number of parts could result in significant liabilities to us, damage our reputation and harm ourbusiness and results of operations.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 canreduce yields and increase costs. Our manufacturing efficiency will be an important factor in our future financial performance, and we may be unable tomaintain or increase our22Table of Contentsmanufacturing efficiency to the same extent as our competitors. For products that we outsource manufacturing, our product yields and performance will besubject to the manufacturing efficiencies of our third-party suppliers.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 sufferdelays in product deliveries or reduced yields. We and our suppliers may experience manufacturing problems in achieving acceptable yields or experienceproduct 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 offuture revenues. Our results of operations could be adversely affected by any increase in costs related to increases in production capacity if revenues do notincrease proportionately.The enactment of legislation implementing changes in U.S. taxation of international business activities or the adoption of other international taxreform policies or principles 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, ifany, these consequences may be significant for us due to the large scale of our international business activities. If any of these proposals are enacted intolegislation, or if other international, consensus-based tax policies and principles are amended or implemented, they could have material adverse consequenceson 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 ourbusiness 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 enhancedtechnologies and products. In order to remain competitive, we have made significant investments in research and development and anticipate that we will needto maintain or increase our levels of research and development expenditures. We expect research and development expenses to increase in absolute dollars for theforeseeable future, due to the increasing complexity and number of products we plan to develop. The technologies where we have focused or may focus ourresearch and development expenditures may not become commercially successful. Significant investments in unsuccessful research and development effortscould materially adversely affect our business, financial condition and results of operations. In addition, increased investments in research and developmentcould 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 managementteam 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, ourPresident and Chief Executive Officer and Mr. Bryan T. Ingram, our Senior Vice President and Chief Operating Officer. None of our senior management isbound by written employment contracts to remain with us for a specified period. In addition, we do not currently maintain key person life insurance coveringour senior management. The loss of any of our senior management could harm our ability to implement our business strategy and respond to the rapidlychanging market conditions in which we operate.Our business, financial condition and results of operations could be adversely affected by the political and economic conditions of the countriesin which we conduct business and other factors related to our international operations.We sell our products throughout the world. In addition, as at November 3, 2013, approximately 62% of our employees are located outside of the UnitedStates. Multiple factors relating to our international operations and to particular countries in which we operate could have a material adverse effect on ourbusiness, financial condition and results of operations. These factors include:•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;23Table of Contents•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;•changes in tax laws;•currency fluctuations, which may result in our products becoming too expensive for foreign customers or foreign-sourced materials and servicesbecoming 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 lawsand 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 andBusiness Conduct and other policies prohibit us and our employees from offering or giving anything of value to a government official for the purpose ofobtaining or retaining business and from engaging in unethical business practices, including kick-backs to or from purely private parties. However, there canbe 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. Anysuch 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 andThailand. As a result of the acquisition of CyOptics, we also have facilities and personnel in, and conduct business from, Mexico, an area in which we havenot previously operated. Any conflict or uncertainty in these countries, including due to political or civil unrest, public health or safety concerns or naturaldisasters, could have a material adverse effect on our business, financial condition and results of operations. In addition, if the government of any country inwhich 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 productswith different technical standards and disrupt cross-border manufacturing relationships which, in each case, could have a material adverse effect on ourbusiness, 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 theapproval of the relevant authorities in the jurisdiction in which the subsidiary is incorporated. The approvals are required from the investment commissions orsimilar agency of the particular jurisdiction and relate to any initial or additional equity investment by foreign entities in local corporations. Our failure toobtain the required approvals and our resulting inability to provide such equity-related financing or capital contributions could have an adverse effect on ourbusiness, 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 compliance with specified terms and conditions,both individually and in the aggregate. During fiscal year 2013, we recorded an aggregate of $11 million in credits to research and development expense and $2million as a deferred credit for capital expenditures pursuant to these grants. During fiscal year 2012, we recorded an aggregate of $7 million in credits toresearch 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 theterms and conditions of any of these grants, expenses incurred in respect of the relevant research and development projects will not be approved forreimbursement, 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. In theevent we are unable to comply with the terms of any such grant, we may seek to amend the terms. However, any amendment, extension or renewal of suchgrants is in the discretion of the granting authority and we may not be able to effect any such change.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 andimport/export regulations. These regulations are complex, change frequently and have generally become more stringent over time. We may be required to incursignificant expenses to comply with these regulations or to remedy violations of these regulations. Certain CyOptics products, when customized for use with orincorporation into a24Table of Contentsdefense article, are subject to the jurisdiction of the U.S. Department of State in accordance with the International Traffic in Arms Regulation, or ITAR. Wehave not previously had to comply with ITAR and are currently integrating CyOptics' ITAR controls and compliance with our own programs. Any failure byus to comply with applicable government regulations, including ITAR, could result in cessation of our operations or portions of our operations, product recallsor impositions of fines and restrictions on our ability to conduct our operations. In addition, because many of our products are regulated or sold into regulatedindustries, 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 regulationby other agencies, such as the U.S. Federal Communications Commission. If we fail to adequately address any of these rules or regulations, our businesscould be harmed.We must conform the manufacture and distribution of our semiconductors to various laws and adapt to regulatory requirements in all countries as theserequirements change. If we fail to comply with these requirements in the manufacture or distribution of our products, we could be required to pay civilpenalties, face criminal prosecution and, in some cases, be prohibited from distributing our products commercially until the products or componentsubstances are brought into compliance.We are subject to environmental, health and safety laws, which could increase our costs, restrict our operations and require expenditures thatcould 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 ofproduction or subject us to future liabilities in excess of our reserves. In addition, compliance with environmental, health and safety requirements could restrictour ability to expand our facilities or require us to acquire costly pollution control equipment, incur other significant expenses or modify our manufacturingprocesses. In the event of the discovery of new contamination, additional requirements with respect to existing contamination, or the imposition of othercleanup obligations for which we are responsible, we may be required to take remedial or other measures which could have a material adverse effect on ourbusiness, 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 materialscomposition of our products, including the restrictions on lead and certain other substances in electronics that apply to specified electronics products sold inthe European Union as of July 1, 2006 under the Restriction of Hazardous Substances in Electrical and Electronic Equipment Directive. Other countries, suchas the United States, China and Japan, have enacted or may enact laws or regulations similar to the EU legislation. Other environmental regulations mayrequire us to re-engineer our products to utilize components that are more environmentally compatible. Such re-engineering and component substitution mayresult in excess inventory or other additional costs and could have a material adverse effect on our results of operations.In addition to the costs of complying with environmental, health and safety requirements, we may in the future incur costs defending againstenvironmental litigation brought by government agencies and private parties. We may be defendants in lawsuits brought by parties in the future allegingenvironmental damage, personal injury or property damage. A significant judgment against us could harm our business, financial condition and results ofoperations.In the last few years, there has been increased media scrutiny and associated reports focusing on a potential link between working in semiconductormanufacturing clean room environments and certain illnesses, primarily different types of cancers. Regulatory agencies and industry associations have begunto 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 reportsmay also affect our ability to recruit and retain employees.We cannot predict:•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 environmentalclaims, including the cost of clean-up of currently unknown environmental conditions, particularly at sites that we may acquire from time to time.25Table of ContentsNew regulations related to “conflict minerals” may force us to incur additional expenses, may make our supply chain more complex and mayresult 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 forcompanies that use certain minerals and metals, known as conflict minerals, in their products, whether or not these products are manufactured by thirdparties. These requirements will require companies to diligence, disclose and report whether or not such minerals originate from the Democratic Republic ofCongo and adjoining countries. The implementation of these new requirements could adversely affect the sourcing, availability and pricing of minerals used inthe 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 maynot be able to sufficiently verify the origins for these minerals and metals used in our products through the due diligence procedures that we implement, whichmay harm our reputation. In such event, we may also face difficulties in satisfying customers who require that all of the components of our products arecertified as conflict mineral free.In addition to our employee sales representatives, we also rely on third-party distributors to sell our products, as well as using manufacturers'representatives in some circumstances, and the failure of these distributors or representatives to perform as expected could reduce our futuresales.In addition to selling products through our employee sales representatives, we also rely on distributors to sell our products to our customers. In some caseswe also use manufacturers' representatives to sell our products, particularly, for example, in markets where we do not have a significant physical presence andnew markets that we are seeking to enter. We are unable to predict the extent to which our distributors and manufacturers' representatives will be successful inmarketing and selling our products. Moreover, many of our distributors and manufacturers' representatives also market and sell competing products. Ourrelationships with our distributors and manufacturers' representatives may be terminated by either party at any time. Our future performance will depend, inpart, 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 remainingglobal, full-line distributors. If we cannot retain our current distributors or manufacturers' representatives, recruit additional or replacement distributors ormanufacturers' representatives where needed, or effectively manage changes to our sales and distributions strategies, our sales and operating results will beharmed.The average selling prices of products in our markets have historically decreased rapidly and will likely do so in the future, which could harmour 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. Grossprofits on our products may be negatively affected by, among other things, pricing pressures from our customers, and the proportion of sales of our wirelessand other products into consumer application markets, which are highly competitive and cost sensitive. In the past, we have reduced the average selling pricesof 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 ourproducts over time. Our gross margin and financial results will suffer if we are unable to offset any reductions in our average selling prices by increasing oursales 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 assessmentcould result in a loss of investor confidence in our financial reports, significant expenses to remediate any internal control deficiencies andultimately 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 andsystems and adapt them as our business grows and changes. This continuous process of maintaining and adapting our internal controls and complying withSection 404 is expensive, time-consuming and requires significant management attention. We cannot be certain that our internal control measures will continueto provide adequate control over our financial processes and reporting and ensure compliance with Section 404. Furthermore, as we grow our business oracquire 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 businessesthat we may acquire, could harm our operating results or cause us to fail to meet our reporting obligations. We are in the process of integrating our andCyOptics financial and controls, to ensure the effectiveness of their controls and procedures. However, there can be no assurance that we will be able to do soeffectively in the one-year post-acquisition exemption period or at all.26Table of ContentsIf we or our independent registered public accounting firm identify material weaknesses in our internal controls, the disclosure of that fact, even if quicklyremedied, 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 statementsmay 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 maybe restricted, the trading price of our ordinary shares may decline, and we may be subject to sanctions or investigation by regulatory authorities, including theSEC or The Nasdaq Global Select Market. We may also be required to restate our financial statements from prior periods.Our financial condition and results of operations could be adversely affected by employee-benefit related costs and expenses.We sponsor several defined benefit plans outside of the United States and post-retirement medical benefit plans in the United States. We are required tomake contributions to these plans to comply with minimum funding requirements imposed by laws governing these employee benefit plans. The differencebetween the obligations and assets of these plans, or the funded status of these plans, is a significant factor in determining our pension expense and theongoing funding requirements of these plans. Weak economic conditions and related under-performance of asset markets could lead to increased pension andpost-retirement benefit expenses. We may also seek to move defined benefit plans to defined contribution plans and any such changes may adversely affect ourresults of operations, including our profitability and cash flow. In the United States, we also self-fund a significant portion of our employees' health benefits.The costs of providing these benefits has been increasing steadily and significantly, and may increase further as the Patient Protection and Affordable Care Actof 2010 is implemented. Also, a significant portion of our employees' cash compensation is performance-related, based on achievement of annual metrics,which can cause significant fluctuations in our employee compensation expense, and in cashflows in the period in which payment occurs. Significantincreases in the compensation, costs and expenses of the benefits we provide to our employees could adversely affect our financial condition and results ofoperations.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' confidentialinformation. However, we are also dependent on a number of third-party "cloud-based" service providers of critical corporate infrastructure services relatingto, among other things, human resources, electronic communication services and certain finance functions, and we are, of necessity, dependent on the securitysystems of these providers. Accidental or willful security breaches or other unauthorized access by third parties to our facilities, our information systems orthe 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 informationloss 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 ourcontractual obligations, litigation by affected parties and possible financial obligations for liabilities and damages related to the theft or misuse of suchinformation, as well as fines and other sanctions resulting from any related breaches of data privacy regulations, any of which could have a material adverseeffect on our business, profitability and financial condition. Since the techniques used to obtain unauthorized share repurchase program access or to sabotagesystems change frequently and are often not recognized until launched against a target, we may be unable to anticipate these techniques or to implementadequate preventative measures.Risks Relating to Investments in Singapore CompaniesIt 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 officersin 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 acceptservice of process in the United States through our agent designated for that purpose. Nevertheless, since a majority of the consolidated assets owned by us arelocated 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 commercialmatters 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 notpredicated solely upon the federal securities laws, would, therefore, not be automatically enforceable in Singapore. There is doubt whether a Singapore courtmay 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 withrespect to a violation solely of the federal securities laws of the United States, unless the facts surrounding such a violation27Table of Contentswould constitute or give rise to a cause of action under Singapore law. Consequently, it may be difficult for investors to enforce against us, our directors or ourofficers in Singapore judgments obtained in the United States, which are predicated upon the civil liability provisions of the federal securities laws of theUnited States.We are incorporated in Singapore and our shareholders may have more difficulty in protecting their interest than they would as shareholders ofa corporation incorporated in the United States, and we may have more difficulty attracting and retaining qualified board members andexecutives.Our corporate affairs are governed by our memorandum and articles of association and by the laws governing corporations incorporated in Singapore. Therights of our shareholders and the responsibilities of the members of our board of directors under Singapore law are different from those applicable to acorporation incorporated in the United States. Therefore, our public shareholders may have more difficulty in protecting their interest in connection withactions taken by our management or members of our board of directors than they would as shareholders of a corporation incorporated in the United States.Draft legislation that would make significant changes to the Singapore Companies Act has recently been proposed by the Singapore authorities, some of whichmay alter the rights of shareholders that are currently provided under the Singapore Companies Act and our memorandum and articles of association.However, it is not yet certain which of these amendments will be included in the final legislation or when such amendments will become effective.In addition, being a public company incorporated in Singapore may make it more expensive for us to obtain director and officer liability insurance, and wemay be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us toattract 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 bedetermined 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 2013AGM, our shareholders provided our directors with the general authority to allot and issue any number of new ordinary shares until the earlier of (i) theconclusion of our 2014 AGM, (ii) the expiration of the period within which the next annual general meeting is required to be held (i.e. within 15 months fromthe conclusion of the last general meeting) or (iii) the subsequent revocation or modification of such general authority by our shareholders acting at a dulynoticed and convened meeting. Subject to the general authority to allot and issue new ordinary shares provided by our shareholders, the provisions of theSingapore Companies Act and our memorandum and articles of association, our board of directors may allot and issue new ordinary shares on terms andconditions as they may think fit to impose. Any additional issuances of new ordinary shares by our directors may adversely impact the market price of ourordinary shares.Risks Relating to Owning Our Ordinary SharesAt times, our share price has been volatile and it may fluctuate substantially in the future, which could result in substantial losses for ourinvestors.The trading price of our ordinary shares has, at times, fluctuated significantly. The trading price of our ordinary shares could be subject to widefluctuations in response to many of the 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 and results of operations of our significant customers as well as companies perceived by investors to be comparable tous;•announcements of proposed acquisitions by us or our competitors;•announcements of, or expectations of additional debt or equity financing efforts;•share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; and•changes in our dividend or share repurchase policies.These fluctuations are often unrelated or disproportionate to our operating performance. These broad market and industry fluctuations, as well as generaleconomic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the marketprice 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, companiesthat have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this28Table of Contentstype of litigation in the future. Securities litigation against us could result in substantial costs and divert our management's attention from other businessconcerns, which could seriously harm our business.A substantial amount of our shares are held by a small number of institutional investors and significant sales of our ordinary shares in thepublic market by one or more of these holders could cause our share price to fall.As of September 30, 2013, we believe that our five largest shareholders are institutional investors and that they hold over 40% of our outstanding ordinaryshares in the aggregate. These institutional investors may sell their shares for a variety of reasons, including dissatisfaction with our short- or long-termresults. These holders may sell their shares at any time and such sales could depress the market price of our ordinary shares, given the large amounts of ourshares held by these investors. Such sales could also impair our ability to raise capital through the sale of additional equity securities.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, following our 2013 AGMon April 10, 2013, our Board approved our 2013 share repurchase program authorizing management to repurchase up to 20 million of the Company's ordinaryshares, in their discretion, which authorization will expire the day prior to our 2014 AGM. The declaration and payment of any future dividend is subject tothe approval of our Board and our dividend policy could change at any time. Similarly, our share repurchase program does not obligate us to repurchase anyspecific number of shares and may be suspended from time to time or terminated at any time prior to its expiration. There can be no assurance that we willdeclare 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 dividendsis restricted by applicable law and our corporate structure. Pursuant to Singapore law and our articles of association, no dividends may be paid except out ofour 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 byrestrictions on our ability to obtain sufficient funds through dividends from subsidiaries, including restrictions under the terms of our credit agreement.While our cash dividend payments have historically increased over time, this trend may not continue any may be discontinued or reduced at any time.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 numberof 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 andblackout periods in which we are restricted from repurchasing shares. A reduction in, or elimination of, our dividend payments and/or share repurchasescould 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 companyfor 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 moreof 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% (bothinclusive) of our voting shares, and such person (or parties acting in concert with such person) acquires additional voting shares representing more than 1% ofour voting shares in any six-month period, must, except with the consent of the Securities Industry Council in Singapore, extend a mandatory takeover offerfor the remaining voting shares in accordance with the provisions of the Singapore Code on Take-overs and Mergers. While the Singapore Code on Take-oversand Mergers seeks to ensure equality of treatment among shareholders, its provisions may discourage or prevent certain types of transactions involving anactual 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 couldadversely 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. Thisguidance, which consists of forward-looking statements, is prepared by our management and is qualified by, and subject to, the assumptions and the otherinformation contained or referred to in the release. Our guidance is not prepared with a view toward compliance with published guidelines of the AmericanInstitute of Certified Public Accountants, and neither our independent registered public accounting firm nor any other independent expert or outside partycompiles or examines the guidance and, accordingly, no such person expresses any opinion or any other form of assurance with respect thereto.29Table of ContentsGuidance is based upon a number of assumptions and estimates that, while presented with numerical specificity, is inherently subject to significantbusiness, economic and competitive uncertainties and contingencies, many of which are beyond our control and are based upon specific assumptions withrespect to future business decisions, some of which will change. We generally state possible outcomes as high and low ranges which are intended to provide asensitivity analysis as variables are changed but are not intended to represent that actual results could not fall outside of the suggested ranges. The principalreason 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 anyresponsibility 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 notmaterialize or will vary significantly from actual results, particularly any guidance relating to the results of operations of acquired businesses or companies,such as CyOptics, as our management will, necessarily, be less familiar with their business, procedures and operations. Accordingly, our guidance is only anestimate 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 theforegoing, 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 onForm 10-K could result in the actual operating results being different than the guidance, and such differences may be adverse and material.ITEM 1B.UNRESOLVED STAFF COMMENTSNone.30Table of ContentsITEM 2.PROPERTIESOur principal executive offices are located in Yishun, Singapore, and the headquarters for our U.S. subsidiaries is located in San Jose, California. Weconduct our administration, manufacturing, research and development and sales and marketing in both owned and leased facilities. We believe that our ownedand leased facilities are adequate for our present operations. The following is a list of our principal facilities and their primary functions.SiteMajor Activity Owned/Leased Square Footage Lease ExpirationYishun, SingaporeAdministration, Manufacturing, Research andDevelopment and Sales and Marketing Leased 101,500 November 2015San Jose, CA, United StatesAdministration, Research and Development and Salesand Marketing Leased 139,000 November 2015Penang, MalaysiaManufacturing, Research andDevelopment, and Administration Owned—BuildingLeased—Land 318,000925,000 NAMay 2051Fort Collins, CO, United StatesManufacturing and Research and Development Owned 1,001,800 NAJitra, MalaysiaManufacturing Owned—BuildingLeased—Land 50,100258,800 NAApril 2051Senoko, SingaporeManufacturing Owned—BuildingLeased—Land 52,20072,000 Not applicable (NA)September 2029Breinigsville, PA, United StatesAdministration, Manufacturing, Research andDevelopment and Sales and Marketing LeasedLeased 103,00014,300 October 2017July 2014Matamoros, Tamaulipas,MexicoManufacturing Leased 81,750 December 2015Seoul, KoreaResearch and Development and Sales and Marketing Leased 72,000 October 2015Wuxi, ChinaAdministration, Manufacturing and Research andDevelopment and Sales Leased 58,000 May 2015Depot Road, SingaporeManufacturing Leased 50,175 October 2030Turin, ItalyManufacturing, Research and DevelopmentManufacturing, Research and Development LeasedLeased 15,00023,600 April 2018June 2017Samorin, SlovakiaManufacturing Leased 31,000 March 2018South Plainfield, NJ, United StatesManufacturing Leased 21,100 July 2014Boeblingen, GermanyAdministration, Research and Development and Salesand Marketing Leased 19,000 April 2015Shirakawa, JapanManufacturing and Research and Development Owned 17,000 NASarego, ItalyAdministration, Manufacturing and Research andDevelopment and Sales and Marketing Owned 14,500 NAMunich, GermanyResearch and Development Leased 10,900 September 2019Regensburg, GermanyManufacturing, Research and Development andMarketing Leased 10,400 June 2015Austin, TX, United StatesAdministration, Manufacturing, Research andDevelopment and Sales and Marketing Leased 9,500 January 2015ITEM 3.LEGAL PROCEEDINGSFrom 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 commercialdisputes 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 materialadverse effect on our financial condition, results of operations or cash flows. However, from time to time certain disputes involve claims by third parties thatour activities infringe their patent, copyright, trademark or other intellectual property rights. These claims generally involve the demand by a third-party thatwe 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 ourcontractual indemnification of our customers) often involve highly complex, technical issues, the outcome of which is inherently uncertain. Moreover, fromtime to time we pursue litigation to assert our intellectual property31Table of Contentsrights. Regardless of the merit or resolution of any such litigation, complex intellectual property litigation is generally costly and diverts the efforts and attentionof our management and technical personnel.ITEM 4.MINE SAFETY DISCLOSURESNone.32Table of ContentsPART IIITEM 5.MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIESMarket InformationOur ordinary shares are listed on The Nasdaq Global Select Market under the symbol “AVGO”. The following table sets forth, for each quarterly periodpresented, the high and low sales prices of our ordinary shares as reported by The Nasdaq Global Select Market: Market Prices High LowFiscal Year ended October 28, 2012 First Quarter (ended January 29, 2012)$35.00 $27.39Second Quarter (ended April 29, 2012)$39.22 $32.38Third Quarter (ended July 29, 2012)$36.47 $29.70Fourth Quarter (ended October 28, 2012)$37.88 $32.39Fiscal Year ended November 3, 2013 First Quarter (ended February 3, 2013)$36.30 $30.50Second Quarter (ended May 5, 2013)$36.98 $30.57Third Quarter (ended August 4, 2013)$39.74 $31.96Fourth Quarter (ended November 3, 2013)$47.21 $35.75HoldersAs of December 6, 2013, there were 4 holders of record of our ordinary shares. A substantially greater number of shareholders are “street name” orbeneficial holders, whose shares are held of record by banks, brokers and other financial institutions.DividendsIn fiscal years 2013 and 2012, we declared and paid the following quarterly cash dividends: Fiscal Year 2013 Fiscal Year 2012First Quarter$0.17 $0.12Second Quarter$0.19 $0.13Third Quarter$0.21 $0.15Fourth Quarter$0.23 $0.16Our board of directors, or Board, has adopted a dividend policy authorizing us to pay a cash dividend on a quarterly basis. On December 10, 2013,our Board declared an interim cash dividend of $0.25 per share payable on December 31, 2013 to shareholders of record at the close of business (5:00 p.m.),Eastern Time, on December 20, 2013. In fiscal years 2013 and 2012, we paid an aggregate of $198 million and $137 million, respectively, in dividends toour shareholders.Our Board reviews our dividend policy regularly and the declaration and payment of any future cash dividends will be at the discretion and approval ofour Board, and subject to the Board’s continuing determination that they are in the Company's best interests. Future dividend payments will also depend uponsuch factors as our earnings level, capital requirements, contractual restrictions, cash position, overall financial condition and any other factors deemedrelevant 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 andour articles of association, no cash dividends may be paid except out of our profits. Also, because we are a holding company, our ability to pay cashdividends on our ordinary shares may be limited by restrictions on our ability to obtain sufficient funds through dividends from subsidiaries, includingrestrictions under the terms of agreements governing our indebtedness.33Table of ContentsIssuer Purchases of Equity SecuritiesShare Repurchase ProgramOn April 11, 2013, we announced that our Board had authorized the Company to repurchase up to 20 million of its ordinary shares, or the 2013 sharerepurchase program. This replaced the 2012 share repurchase program announced by the Company on June 8, 2012, which expired on April 9, 2013. Sharesrepurchases under the 2013 share repurchase program, if any, will be made in the open market at such times and in such amounts as the Company deemsappropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price, market conditions and applicable legalrequirements. The 2013 share repurchase program does not obligate the Company to repurchase any specific number of shares and may be suspended orterminated at any time without prior notice. All shares repurchased are immediately retired. The 2013 share repurchase program will expire on the day prior tothe Company's 2014 annual general meeting of shareholders, or AGM, unless earlier terminated.The following table presents details of our share repurchases during the fiscal quarter ended November 3, 2013:Period Total Number of SharesPurchased Average Price Paid perShare Total Number of SharesPurchased as Part of PubliclyAnnounced Plans or Programs(1) Shares Available UnderRepurchase Programs (in millions)August 5, 2013 - September 1, 2013 300,000 $36.99 300,000 18.7September 2, 2013 - September 29, 2013 386,650 $39.14 386,650 18.3September 30, 2013 - November 3, 2013 165,734 $43.16 165,734 18.1Total 852,384 $39.16 852,384 (1)All share repurchases during the fiscal quarter ended November 3, 2013 were made in open market transactions in accordance with Rule 10b-18 under theExchange Act, pursuant to the 2013 share repurchase program discussed above.Share Performance GraphThe following graph shows a comparison of cumulative total return for the Company’s ordinary shares, the Standard & Poor’s 500 Stock Index, orS&P 500 Index, and the Philadelphia Semiconductor Index, or PHLX Semiconductor Index. The graph covers the period from August 6, 2009 (the firsttrading day of our ordinary shares on the Nasdaq Global Select Market) to November 1, 2013, the last trading day of our fiscal year 2013. While the initialpublic 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 theclosing sales price of $16.18 per share on that day. The total return graph and table assume that $100 was invested on August 6, 2009 in Avago TechnologiesLimited ordinary shares and $100 was invested on July 31, 2009 for each the S&P 500 Index and the PHLX Semiconductor Index and assumes all dividendsare reinvested. Indexes are calculated on a month-end basis.34Table of ContentsThe comparisons in the graph below are based on historical data and are not indicative of, or intended to forecast, the possible future performance of ourordinary shares.Comparison of 51 Month Cumulative Total ReturnAmong Avago Technologies Limited, the S&P 500 Index and the PHLX Semiconductor Index 8/6/2009 11/1/2009 10/31/2010 10/30/2011 10/28/2012 11/3/2013Avago Technologies Limited$100 $93 $153 $210 $215 $290S&P 500 Index100 105 123 133 153 195PHLX Semiconductor Index100 96 117 134 137 182The 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 subjectto 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 generalincorporation language in such filing.Securities Authorized for Issuance Under Equity Compensation PlansThe information required by this item regarding securities authorized for issuance under equity compensation plans is incorporated herein by referenceto the definitive Proxy Statement for our 2014 Annual Meeting of Shareholders to be filed with the SEC within 120 days after the end of the fiscal year endedNovember 3, 2013.ITEM 6.SELECTED FINANCIAL DATAYou 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 includedelsewhere in this Annual Report on Form 10-K. The selected consolidated statements of operations data for the fiscal years ended November 3, 2013,October 28, 2012 and October 30,35Table of Contents2011 and the selected balance sheet data as of November 3, 2013 and October 28, 2012 have been derived from audited historical financial statements andrelated notes included elsewhere in this Annual Report on Form 10-K. The selected consolidated statements of operations data for the fiscal years ended October31, 2010 and November 1, 2009 and the selected balance sheet data as of October 30, 2011, October 31, 2010 and November 1, 2009 have been derived fromaudited historical financial statements and related notes not included in this Annual Report on Form 10-K. The historical financial data may not be indicativeof 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 toOctober 31. Our fiscal year 2013 was a 53-week fiscal year.Summary of Five Year Selected Financial Data Fiscal Year Ended November 3, 2013 October 28, 2012 October 30, 2011 October 31, 2010 November 1, 2009 (In millions, except per share amounts)Statement of Operations Data: Net revenue$2,520 $2,364 $2,336 $2,093 $1,484Cost of products sold: Cost of products sold(1)1,260 1,164 1,133 1,068 855Amortization of intangible assets61 56 56 58 58Restructuring charges(2)1 2 — 1 11Total cost of products sold1,322 1,222 1,189 1,127 924Gross margin1,198 1,142 1,147 966 560Research and development398 335 317 280 245Selling, general and administrative(1)222 199 220 196 165Amortization of intangible assets24 21 22 21 21Restructuring charges(2)2 5 4 3 23Advisory agreement termination fee(3)— — — — 54Selling shareholder expenses(4)— — — — 4Total operating expenses646 560 563 500 512Income from operations(4)(5)552 582 584 466 48Interest expense(6)(2) (1) (4) (34) (77)Loss on extinguishment of debt(1) — (20) (24) (8)Other income (expense), net19 4 1 (2) 1Income (loss) before taxes568 585 561 406 (36)Provision for (benefit from) income taxes(7)16 22 9 (9) 8Net income (loss)$552 $563 $552 $415 $(44) Net income (loss) per share: Basic$2.23 $2.30 $2.25 $1.74 $(0.20)Diluted$2.19 $2.25 $2.19 $1.69 $(0.20) Weighted average shares: Basic247 245 245 238 219Diluted252 250 252 246 219 Balance Sheet Data (at end of period): Cash and cash equivalents$985 $1,084 $829 $561 $472Total assets$3,415 $2,862 $2,446 $2,157 $1,970Long-term debt and capital lease obligations$1 $2 $4 $4 $233Total shareholders’ equity$2,886 $2,419 $2,006 $1,505 $1,040Other Financial Data: Cash dividends declared and paid per share$0.80 $0.56 $0.35 $— $—_______________________________________(1)During the fiscal year ended November 3, 2013, we incurred acquisition related costs of $23 million, of which $11 million was recorded as part ofoperating expenses and the remainder was recorded as part of cost of products sold. During the fiscal years ended October 28, 2012 and October 30,2011, acquisition related costs were not material.(2)Our restructuring charges predominantly represent employee termination benefits. During the fiscal year ended November 3, 2013, we incurredrestructuring charges of $3 million, of which $2 million was recorded as part of36Table of Contentsoperating expenses and the remainder was recorded as part of cost of products sold. During the fiscal year ended October 28, 2012, we incurredrestructuring charges of $7 million, all of which $5 million was recorded as part of operating expenses and the remainder was recorded as part ofcost of products sold. During the fiscal year ended October 30, 2011, we incurred restructuring charges of $4 million all of which was recorded aspart of operating expenses. During the fiscal year ended October 31, 2010, we incurred restructuring charges of $4 million, of which $3 million wasrecorded as part of operating expenses and the remainder was recorded as part of cost of products sold. During the fiscal 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 wasrecorded as part of cost of products sold.(3)The advisory agreement among the Company and investment funds affiliated with each of Kohlberg Kravis Roberts and Co., and Silver LakePartners, together referred to as the Sponsors was terminated pursuant to its terms upon completion of our initial public offering in August 2009, fora termination fee of $54 million.(4)We recorded $4 million in selling shareholder expenses, in connection with the IPO, on behalf of the selling shareholders in the offering.(5)Includes share-based compensation expense of $77 million for the fiscal year ended November 3, 2013, $53 million for the fiscal year endedOctober 28, 2012, $38 million for the fiscal year ended October 30, 2011, $25 million for the fiscal year ended October 31, 2010 and $12 millionfor the fiscal year ended November 1, 2009.(6)Interest expense for the fiscal years ended November 3, 2013 and October 28, 2012 includes commitment fees for the $300 million unsecuredrevolving credit facility and amortization expense of related debt issuance costs. Interest expense for the fiscal years ended October 30, 2011,October 31, 2010 and November 1, 2009 includes interest expense on our 10 1/8% Senior Notes due 2013, or our senior notes, and our Floating RateNotes 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% SeniorSubordinated Notes due 2015, or senior subordinated notes, which were fully redeemed during the first quarter of fiscal year 2011.(7)During fiscal year 2013, the provision for income taxes was $16 million. The decrease from fiscal year 2012 is primarily attributable to a benefit of$2 million from the recognition of previously unrecognized tax benefits as a result of the expiration of the statute of limitations for certain auditperiods, a benefit of $3 million from the enactment of the American Taxpayer Relief Act of 2012, which was signed into law on January 2, 2013,retroactively extending the U.S. Federal Research and Development tax credit from January 1, 2012 to December 31, 2013, and an additional $1million decrease in tax provision primarily due to a change in the jurisdictional mix of income and expense. In fiscal year 2012, the provision forincome taxes was $22 million. The increase from fiscal year 2011 is primarily attributable to an increase in worldwide income and a change in thejurisdictional mix of income and expense. The provision for income taxes for fiscal year 2011 included a $3 million tax benefit from the write-up ofdeferred tax assets from U.S. legislation retroactively reinstating the research and development tax credit and a $3 million tax benefit from a change inestimate related to research and development tax credits. In fiscal year 2010, we recorded an income tax benefit totaling $9 million. The income taxbenefit is associated with the release of $29 million of deferred tax asset valuation allowances, mainly associated with the Company irrevocablycalling our senior subordinated notes for redemption in October 2010, partially offset by the write-off of $6 million of deferred tax assets resultingfrom the grant of Malaysia tax incentive status, and an increase in overall tax provision due to an increase in worldwide taxable income.37Table of ContentsITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThis Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with “SelectedFinancial Data” and our consolidated financial statements and notes thereto which appear elsewhere in this Annual Report on Form 10-K. Thisdiscussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differmaterially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under the caption “RiskFactors” or in other parts of this Annual Report on Form 10-K.OverviewWe 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-Vsemiconductor materials have higher electrical conductivity than silicon and thus tend to have better performance characteristics in radio frequency, or RF, andoptoelectronic applications. III-V refers to elements from the 3rd and 5th groups in the periodic table of chemical elements, and examples of these materials aregallium arsenide, or GaAs, gallium nitride, or GaN, and indium phosphide, or InP. We differentiate ourselves through our high performance design andintegration capabilities. We serve three primary target markets: wireless communications, wired infrastructure and industrial & other. Our product portfolio isextensive and includes thousands of products. Applications for our products in these target markets include smartphones, consumer appliances, datanetworking and telecommunications equipment, enterprise storage and servers, factory automation and industrial equipment.We have an over 50-year history of innovation, dating back to our origins within Hewlett-Packard Company. Over the years, we have assembled a largeteam of analog design engineers around the world. We maintain design and product development engineering resources at multiple locations in each of theUnited States, Asia and Europe, which allows us to leverage this worldwide engineering expertise. Our history and market position enable us to strategicallyfocus our research and development resources to address niche opportunities in our target markets. We have also developed an extensive portfolio of U.S. andforeign patents and other intellectual property, and we leverage our significant intellectual property portfolio to integrate multiple technologies and createcomponent solutions that target growth opportunities. We design products that deliver high-performance and provide mission-critical functionality. Inparticular, we were among the first to deliver commercial film bulk acoustic resonator, or FBAR, filters which offer technological advantages over competingfilters for smartphones to function more efficiently in today's congested RF spectrum. FBAR technology has historically maintained a significant market sharewithin code division multiple access, or CDMA, and 3G/W-CDMA markets. As cellular carriers move to the 4G/long term evolution, or LTE, and LTE-advanced standards worldwide, we believe these advantages will continue to facilitate rapid adoption of FBAR technology throughout the mobile phoneecosystems. In optical solutions, we were a pioneer in commercializing vertical-cavity surface emitting laser, or VCSEL. Our fiber optic products and ourVCSEL-based products, including high bandwidth parallel optic transceivers and modules, have been widely adopted throughout the wired infrastructure andcomputing industries. In optoelectronics, we are a market leader in optocoupler and optical encoder solutions.Original equipment manufacturers, or OEMs, and distributors typically account for the substantial majority of our sales. We have established strongrelationships with leading OEM customers across multiple target markets. Many of our major customer relationships have been in place multiple years and wehave supplied multiple products during that time period. Our close customer relationships have often been built as a result of years of collaborative productdevelopment which has enabled us to build our intellectual property portfolio and develop critical expertise regarding our customer’s requirements, includingsubstantial system level knowledge. This collaboration has provided us with key insights into our customers and has enabled us to be more efficient andproductive and to better serve our target markets and customers. We have a direct sales force focused on supporting large OEMs. We also distribute asubstantial portion of our products through our broad distribution network, and a significant amount of these sales are to large global electronic componentsdistributors, including Avnet, Inc. and Arrow Electronics, Inc. We also have a diversified and well-established base of thousands of end customers, locatedthroughout the world, which we serve through our multi-channel sales and fulfillment system.We focus on maintaining an efficient global supply chain and a variable, low-cost operating model. Accordingly, we have outsourced a majority of ourmanufacturing operations utilizing third-party foundry and assembly and test capabilities, as well as some of our corporate infrastructure functions. We aimto minimize capital expenditures by focusing our internal manufacturing capacity on products utilizing our innovative materials and processes to protect ourintellectual 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 42% of our employees are located and where we produce and sourcethe majority of our products. Our presence in Asia places us in close proximity to many of our customers’ manufacturing facilities and at the center ofworldwide electronics manufacturing.38Table of ContentsOur business is impacted by general conditions of the semiconductor industry, seasonal demand patterns in our target markets, to some extent, and thetiming of major product launches by our OEM customers, particularly in our wireless target market. In recent years our wireless target market has typicallyaccounted for the largest portion of our revenue. However, we believe that our focus on multiple target markets and geographies helps mitigate our exposure tovolatility 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 anticipatethat average selling prices will continue to decline in the future. However, as part of our normal course of business, we seek to offset declining average sellingprices 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 28%and 32% of our net revenue for the fiscal years ended November 3, 2013 and October 28, 2012, respectively. During the fiscal year ended November 3, 2013,or fiscal year 2013, Foxconn Technology Group companies, or Foxconn, accounted for 18% of our net revenue, and our top direct ten customers, whichincluded three distributors, collectively accounted for 64% of our net revenue. During the fiscal year ended October 28, 2012, or fiscal year 2012, Foxconnaccounted for 17% of our net revenue and our top ten customers, which included three distributors, collectively accounted for 62% of our net revenue. Webelieve our aggregate sales to Apple, Inc. and Cisco Systems, Inc., when direct sales are combined with indirect sales to them through the respective contractmanufacturers that they utilize, each accounted for more than 10% of our net revenues, for fiscal year 2013 and fiscal year 2012. We expect to continue toexperience significant customer concentration in future periods. The loss of, or significant decrease in demand from, any of our top ten customers could have amaterial 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 thefollowing:•general economic and market conditions in the semiconductor industry and in our target markets;•our ability to define specifications for, develop or acquire, complete, introduce and market, new products and technologies in a cost-effective andtimely 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 rate at which ourcustomers' products that include our technology are accepted in their 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 economic recovery in the United States and the level of growth in China, still posessignificant risks to our business. For example, customers may defer purchases in response to tighter credit and negative financial news, which would in turnnegatively affect product demand and our results of operations.Net RevenueSubstantially all of our net revenue is derived from sales of semiconductor devices which our customers incorporate into electronic products. We servethree primary target markets: wireless communications, wired infrastructure and industrial & other. Applications for our products in these target marketsinclude smartphones, consumer appliances, data networking and telecommunications equipment, enterprise storage and servers, factory automation andindustrial equipment. We sell our products primarily through our direct sales force, although we may also use manufacturers representatives in particulargeographic areas and for new customers. We also use distributors for a portion of our business and recognize revenue upon delivery of product to thedistributors. 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 matureand non-strategic market for us, during fiscal year 2012, we transitioned from manufacturing and selling products to selling and licensing intellectualproperty relevant to this market. This transition was completed in the fourth quarter of fiscal year 2012 and we now generate royalty revenue instead ofproduct sales from this former target market. Due to the structure of these licensing arrangements, royalty revenue may fluctuate from period to period.Beginning with fiscal year 2013, we ceased to separately present or discuss revenues from the consumer and computing peripherals target market. Instead,they have been combined with revenues from our industrial and automotive electronics target market, which is referred to as our industrial & other targetmarket.Costs and ExpensesTotal cost of products sold. Cost of products sold consists primarily of the cost of semiconductor wafers and other materials, and the cost ofassembly and test. Cost of products sold also includes personnel costs and overhead related to our manufacturing operations, including share-basedcompensation, and related occupancy, computer services and equipment costs,39Table of Contentsmanufacturing quality, order fulfillment, warranty and inventory adjustments, including write-downs for inventory obsolescence, energy costs, othermanufacturing expenses and acquisition-related costs. 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 also have some proprietary semiconductor fabrication and assemblyand 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 thesefacilities 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 anddevelopment of our products and technologies, including share-based compensation expense. These expenses also include project material costs, third-partyfees paid to consultants, prototype development expenses, allocated facilities costs and other corporate expenses, computer services costs related to supportingcomputer tools used in the engineering and design process and acquisition-related costs.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, corporatemarketing, promotion, travel related to our sales and marketing operations, related occupancy and equipment costs and other marketing costs. General andadministrative expense consists primarily of compensation and associated costs for executive management, finance, human resources and other administrativepersonnel, outside professional fees, allocated facilities costs, acquisition-related costs and other corporate expenses.Amortization of intangible assets. In connection with acquisitions, we recorded intangible assets that are being amortized over their estimated usefullives of 1 year to 25 years. In connection with these acquisitions, we also recorded goodwill which is not being amortized.Interest expense. On March 31, 2011, we terminated our senior secured revolving credit facility, and Avago Technologies Finance Pte. Ltd., or AvagoFinance, and certain other subsidiaries of the Company entered into a credit agreement which initially provided for a $200 million unsecured revolving creditfacility, or the 2011 credit facility. On August 6, 2012, Avago Finance exercised the accordion feature under this credit agreement to increase the aggregatecommitments for its unsecured revolving credit facility from $200 million to $300 million. Interest expense in fiscal year 2013 included commitment fees underour 2011 revolving credit facility and amortization of debt issuance costs associated with this credit facility. On October 28, 2013, we terminated the 2011credit facility and Avago Finance, and certain other subsidiaries of the Company entered into a new credit agreement, which initially provides for a $575million unsecured revolving credit facility, on substantially the same terms as the 2011 credit facility, other than the aggregate principal amount of the facility,referred to as the 2013 credit facility.Loss on extinguishment of debt. In fiscal year 2013, the termination of the 2011 credit facility noted above resulted in a loss on extinguishment of debtof $1 million, related to the write-off of debt amortization costs and other related expenses and is shown on the consolidated statements of operations.Other income, net. Other income, net includes net realized gains on the sale of available-for-sale securities, realized and unrealized gains on tradingsecurities, gains on the sale of cost method investments, interest income, currency gains (losses) on balance sheet remeasurement and other miscellaneousitems.Provision for income taxes. We have structured our operations to maximize the benefit from various tax incentives and tax holidays extended to us invarious jurisdictions to encourage investment or employment. For example, we have obtained several tax incentives from the Singapore Economic DevelopmentBoard, an agency of the Government of Singapore, which provide that certain classes of income we earn in Singapore are subject to tax holidays or reducedrates 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 certainoperating conditions specific to each incentive relating to, among other things, maintenance of a treasury function, a corporate headquarters function, specifiedintellectual property activities and specified manufacturing activities in Singapore. Some of these operating conditions are subject to phase-in periods through2015. The Singapore tax incentives are presently scheduled to expire at various dates generally between 2014 and 2025, subject in certain cases to potentialextensions. Renewals and extensions of such tax incentives are in the discretion of the Singapore government, and we may not be able to extend these taxincentive arrangements after their expiration on similar terms or at all. We may elect not to seek to renew or extend certain tax incentive arrangements. Absentsuch tax incentives, the corporate income tax rate in Singapore that would otherwise apply to us would be 17%. In February 2010, the Malaysian governmentgranted 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 wehave 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. In such event, we could be required torefund material tax benefits previously40Table of Contentsrealized by us with respect to that incentive and, depending on the incentive at issue, could likely be required to modify our operational structure and taxstrategy. Any such modified structure may not be as beneficial to us from an income tax expense or operational perspective as the benefits provided under thepresent tax concession arrangements. As a result of the tax incentives and tax holidays we have obtained, if we continue to comply with their respectiveoperating conditions, we expect the income from our operations to be subject to relatively lower income taxes than would otherwise be the case under ordinaryincome tax rules. For the fiscal years ended November 3, 2013, 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 $77 million, $81 million and $82million, respectively.Our interpretations and conclusions regarding the tax incentives are not binding on any taxing authority, and if our assumptions about tax and otherlaws 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 dependentupon acceptance of our operational practices and intercompany transfer pricing by local tax authorities as being on an arm’s length basis. Due toinconsistencies in application of the arm’s length standard among taxing authorities, as well as lack of adequate treaty-based protection, transfer pricingchallenges 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 incometaxes and the related tax rates in the jurisdictions where we operate, as well as discrete events, such as settlements of future audits and acquisitions we maymake from time to time. In particular, we may owe significant taxes in jurisdictions outside Singapore during periods when we are profitable in thosejurisdictions even though we may be experiencing low operating profit or operating losses on a consolidated basis, potentially resulting in significant taxliabilities on a consolidated basis during those periods. Our historical provision for income taxes is not necessarily reflective of our future results of operations.Acquisitions and InvestmentsAcquisitionsJavelinIn the second quarter of fiscal year 2013, we completed the acquisition of Javelin Semiconductor, Inc., or Javelin, a U.S.-based company engaged indeveloping mixed-signal complementary metal oxide semiconductor, or CMOS, integrated circuits, or ICs, for wireless communications applications forapproximately $37 million in cash. This acquisition is intended to generate cost savings and form the foundation of the Company's radio frequency CMOSdesign and development for our wireless target market due to the radio frequency CMOS engineering talent and technical personnel and technology that weacquired in this transaction.CyOpticsIn the third quarter of fiscal year 2013, we completed our acquisition of CyOptics, Inc., or CyOptics, a U.S.-based company that manufactures andsells Indium Phosphide, or InP, optical chip and component technologies for the data communications and telecommunications markets. CyOptics has front-end manufacturing operations in the U.S. and back-end manufacturing operations in Mexico.The aggregate consideration for the acquisition was $377 million including a $1 million working capital adjustment payment made in the fiscal quarterended November 3, 2013, of which $373 million was paid in cash (exclusive of $3 million of cash acquired in the transaction). In addition, approximately$27 million in cash was paid into escrow and is payable to key CyOptics employees in the form of retention bonuses over a three-year period, and which wewill recognize as compensation expense over the same period. We also agreed to pay additional consideration to the previous shareholders of CyOptics in theamount of $4 million, one year subsequent to acquisition closing, which was recorded as a current liability.This transaction is intended to strengthen our fiber optics product portfolio for emerging 40G and 100G enterprise and data center applications for ourwired infrastructure target market. CyOptics' single-mode InP laser, receiver and photonics integration capability is expected to help extend our technologyleadership position in these applications. To date, Avago's optical transceiver products have primarily leveraged VCSEL-based technology. In addition, theacquisition of CyOptics is expected to facilitate Avago's establishment of a complementary fiber optic components business, not only to serve enterprise anddata center segments, but also for growing segments of the access, metro and long-haul markets. Our and CyOptics' products are complementary to oneanother, with little overlap between our respective product portfolios. As a result of the CyOptics acquisition, we acquired approximately 1,100 additionalemployees, with 745 of these employees located in Mexico.The accompanying consolidated financial statements include the results of operations of acquired companies commencing on their respective acquisitiondates. (See Note 3. "Acquisitions and Investments")41LSI CorporationOn December 15, 2013, we entered into a merger agreement with LSI Corporation, or LSI, a U.S. publicly traded company that designs semiconductorsand software that accelerate storage and networking in datacenters, mobile networks and client computing. The aggregate acquisition consideration payable inthe transaction is approximately $6.6 billion in cash, or $11.15 in cash per share of LSI common stock. The transaction has been approved by the Avagoand LSI boards of directors and is subject to the satisfaction of customary closing conditions, including the receipt of regulatory approvals in variousjurisdictions, as well as approval of LSI's stockholders. The transaction is presently expected to close in the first half of calendar 2014.InvestmentsDuring the first quarter of fiscal year 2013, we invested $9 million in the common stock of a U.S.-based stock exchange listed company which isaccounted for as a trading securities. (See Note 8. "Fair Value.")During the third quarter of fiscal year 2013, in addition to our initial $1 million investment made in fiscal year 2010 in a non-U.S.-based stockexchange listed company resulting in our initial ownership of 33 million ordinary shares, we made an additional investment of $1 million in this company aspart of a rights offering to its existing shareholders. In connection with this additional investment, we purchased approximately 8 million ordinary shares andreceived approximately 16 million warrants to acquire a corresponding number of ordinary shares of the company per the terms of the rights offerings. Weclassified our total investment in the company's ordinary shares as available-for-sale securities and the warrants as trading securities. In the fourth quarter offiscal year 2013, we exited our entire investment in the ordinary shares and warrants of this company. For the fiscal year 2013, we realized net gains of $9million, respectively, from the sale of the ordinary shares and warrants which were recorded in other income, net. (See Note 12. "Other Income, net")During the fourth quarter of fiscal year 2013, we made a cash investment of $5 million in a privately-held non-U.S.-based company. We accounted forthe investment in the equity of this company using the cost method, as we do not have the ability to exercise significant influence or control. We periodicallyreview cost investments for impairment. This equity investment is included at cost on the consolidated balance sheets in other long-term assets.Critical Accounting Policies and EstimatesThe preparation of financial statements in accordance with generally accepted accounting principles in the United States, or GAAP, requires us to makeestimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenue and expenses during the reporting period. We base our estimates and assumptions on current facts, historicalexperience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments aboutthe carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual resultsexperienced by us may differ materially and adversely from our estimates. Our critical accounting policies are those that affect our historical financialstatements materially and involve difficult, subjective or complex judgments by management. Those policies include revenue recognition, businesscombinations, 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, share-based compensation and employee bonus programs.Revenue recognition. We recognize revenue related to sales of our products, net of sales returns and allowances, provided that (i) persuasive evidence ofan arrangement exists, (ii) delivery has occurred, (iii) the price is fixed or determinable and (iv) collectibility is reasonably assured. Delivery is considered tohave 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 torefund or adjustments or when any such adjustments can be estimated. We evaluate the creditworthiness of our customers to determine that appropriate creditlimits are established prior to the acceptance of an order. Revenue, including sales to resellers and distributors, is reduced for estimated returns and distributorallowances. 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 consideration of prevailing economicconditions and contractual terms. To date, actual distributor claims activity has been materially consistent with the provisions we have made based on ourhistorical estimates. However, because of the inherent nature of estimates, there is always a risk that there could be significant differences between actualamounts 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 thecustomer of contract deliverables, upon achievement of milestones or as services are provided, depending on the terms of the arrangement. Revenue is deferredfor any amounts billed or received prior to completion of milestones or delivery of services. As we retain the intellectual property generated from thesedevelopment agreements, costs related to these arrangements are included in research and development expense.42Table of ContentsWe recognize revenue from the licensing of our intellectual property when the following fundamental criteria are met:(i) persuasive evidence of anarrangement 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 futureperformance obligation and all other criteria are met. Revenue from guaranteed royalty streams are recognized when paid, or collection is reasonably assuredand all other criteria are met. When patent licensing arrangements include royalties for future sales of the licensees’ products using our licensed patentedtechnology, revenue is recognized when the royalty report is received from the licensee, at which time the sales price is fixed and determinable, provided that allother criteria have been met.Accounting for business combinations. We use the acquisition method of accounting for business combinations and recognize assets acquired andliabilities assumed measured at their fair values on the date acquired. This requires us to recognize separately from goodwill the assets acquired and theliabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net ofthe acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value assetsacquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, our estimates are inherently uncertain andsubject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assetsacquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the valuesof assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations.Accounting for business combinations requires our management to make significant estimates and assumptions, especially at the acquisition date,including our estimates for intangible assets, contractual obligations assumed, restructuring liabilities, pre-acquisition contingencies and contingentconsideration, where applicable. Although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate, they arebased, in part, on historical experience and information obtained from the management of the acquired companies and are inherently uncertain. Criticalestimates in valuing certain of the intangible assets we have acquired include, but are not limited to: future expected cash flows from product sales, customercontracts and acquired technologies, expected costs to develop in-process research and development into commercially viable products, estimated cash flowsfrom the projects when completed, and discount rates. Unanticipated events and circumstances may occur that may affect the accuracy or validity of suchassumptions, estimates or actual results.Valuation of long-lived assets, intangible assets and goodwill. We assess the impairment of long-lived assets including business combinations relatedin-process research and development, or IPR&D, assets, property, plant and equipment, intangible assets and goodwill whenever events or changes incircumstances indicate that the carrying value of such assets may not be recoverable. Factors we consider important, and which could trigger an impairmentreview of our long-lived and intangible assets, include significant under-performance relative to historical or projected future operating results, significantchanges in the manner of our use of the acquired assets or the strategy for our overall business, and significant negative industry or economic trends. Animpairment 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 netbook 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 ofimpairment exist, and we follow the two-step approach in performing the impairment test in accordance with the accounting guidance on goodwill and otherintangible assets. The first step of the goodwill impairment test compares the estimated fair value of the reporting unit with the related carrying amount. If thefair 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 impairmenttest 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 amountof 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 samemanner as the amount of goodwill recognized in a business combination, with the carrying amount of such goodwill. If the carrying amount of the reportingunit’s goodwill exceeds the implied fair value, an impairment loss is recognized in an amount equal to that excess. The process of evaluating the potentialimpairment of goodwill is highly subjective and requires significant judgment. We have one reporting unit for goodwill impairment testing purposes which isbased 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. (See Note 13. "Segment information") We operate as onesemiconductor company with sales of semiconductors representing the only material source of revenue. Substantially all products offered incorporate analogfunctionality and are manufactured under similar manufacturing processes.For fiscal year 2013, we used the quoted market price of our ordinary shares to determine the fair value of our reporting unit, which is the Company asa whole. No impairment of goodwill was identified based on the annual impairment review43Table of Contentsduring the fourth quarter of fiscal year 2013. A 10% decline in the quoted market prices of our ordinary shares would not impact the result of our goodwillimpairment assessment.The process of evaluating the potential impairment of long-lived assets under the accounting guidance on property, plant and equipment and otherintangible assets such as ours, is also highly subjective and requires significant judgment. In order to estimate the fair value of long-lived assets, we typicallymake various assumptions about the future prospects about our business or the part of our business that the long-lived asset relates to, consider marketfactors specific to the business and estimate future cash flows to be generated by the business, which requires significant judgment as it is based onassumptions about market demand for our products over a number of future years. Based on these assumptions and estimates, we determine whether we needto take an impairment charge to reduce the value of the long-lived asset stated on our consolidated balance sheet to reflect its estimated fair value. Assumptionsand estimates about future values and remaining useful lives are complex and often subjective. They can be affected by a variety of factors, including externalfactors, such as the real estate market, industry and economic trends, and internal factors, such as changes in our business strategy and our internalforecasts. Although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate, changes in assumptions andestimates 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 marketvalue of the inventory, with cost being determined under the first-in, first-out method. We regularly review inventory quantities on hand and record a provisionfor excess and obsolete inventory based primarily on our forecast of product demand and production requirements. Demand for our products can fluctuatesignificantly from period to period. A significant decrease in demand could result in an increase in the amount of excess inventory quantities on hand. Inaddition, our industry is characterized by rapid technological change, frequent new product development and rapid product obsolescence that could result inan increase in the amount of obsolete inventory quantities on hand. Additionally, our estimates of future product demand may prove to be inaccurate, whichmay cause us to understate or overstate both the provision required for excess and obsolete inventory and cost of products sold. Therefore, although we makeevery effort to ensure the accuracy of our forecasts of future product demand, any significant unanticipated changes in demand or technological developmentscould have a significant impact on the value of our inventory and our results of operations. We establish reserves for estimated product warranty costs at thetime revenue is recognized. Although we engage in extensive product quality control programs and processes, our warranty obligation has been and may in thefuture be affected by product failure rates, product recalls, repair or field replacement costs and additional development costs incurred in correcting anyproduct failure, as well as possible claims for consequential costs. Should actual product failure rates, use of materials or service delivery costs differ fromour 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 incometaxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences oftemporary differences between the financial reporting and tax basis of assets and liabilities, and for operating losses and tax credit carryforwards. Deferred taxassets 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 expectedto 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 liabilitiesand any valuation allowances that might be required against the deferred tax assets. We have considered projected future taxable income and ongoing prudentand feasible tax planning strategies in assessing the need for valuation allowances. If we determine, in the future, that a valuation allowance is required, suchadjustment to the deferred tax assets would increase our tax expense in the period in which such determination is made. Conversely, if we determine, in thefuture, a valuation allowance exceeds our requirement, such adjustment to the deferred tax assets would decrease tax expense in the period in which suchdetermination is made. In evaluating the exposure associated with various tax filing positions, we accrue an income tax liability when such positions do notmeet 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 ofjurisdictions. We recognize potential liabilities for anticipated tax audit issues in Singapore and other tax jurisdictions based on our estimate of whether, andthe 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 ultimatelyassessed, a further charge to expense would be required. If the payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilitieswould result in tax benefits being recognized in the period when we determine the liabilities no longer exist.The gross unrecognized tax benefit increased by $10 million during fiscal year 2013 to $37 million as of November 3, 2013 from $27 million as ofOctober 28, 2012. The gross unrecognized tax benefit as of October 30, 2011 was $30 million.We recognize interest and penalties related to unrecognized tax benefits within the provision for income taxes line in the consolidated statements ofoperations. Accrued interest and penalties are included within the other long-term liabilities line in44Table of Contentsthe consolidated balance sheets. As of November 3, 2013, October 28, 2012, and October 30, 2011, the combined amount of cumulative accrued interest andpenalties was approximately $4 million, $4 million and $6 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 reflectthe recognition of future retirement and post-retirement benefit plan costs over the employees' average expected future service to the Company, based on theterms of the plans and investment and funding decisions. To estimate the impact of these future payments and our decisions concerning funding of theseobligations, we are required to make assumptions using actuarial concepts within the framework of GAAP. One critical assumption is the discount rate usedto calculate the estimated costs. Other important assumptions include the expected long-term return on plan assets, the health care cost trend rate, expectedfuture salary increases, expected future increases to benefit payments, expected retirement dates, employee turnover, retiree mortality rates, and portfoliocomposition. 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 — November 3, 2013 andOctober 28, 2012, for both U.S. and non-U.S. plans, in fiscal years 2013 and 2012, respectively. For fiscal years 2013 and 2012, the U.S. discount rateswere 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 andsubsequent 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. Planassets are valued at fair value. A one percent change in the estimated long-term return on plan assets for assumptions set in 2013 would result in an immaterialimpact on non-U.S. pension expense for fiscal year 2014. We have no plan assets under our U.S. plan.The net periodic retirement and post-retirement benefit costs recorded in consolidated statement of operations excluding curtailments and settlements were$6 million in fiscal year 2013, $7 million in fiscal year 2012, and $6 million in fiscal year 2011.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. Werecognize compensation expense based on the estimated grant date fair value method required under the authoritative guidance using Black-Scholes valuationmodel with a straight-line amortization method. Since the authoritative guidance requires that share-based compensation expense be based on awards that areultimately expected to vest, estimated share-based compensation expense for such awards has been reduced for estimated forfeitures. Changes in the estimatedforfeiture rates can have a significant effect on share-based compensation expense since the effect of adjusting the rate is recognized in the period the forfeitureestimate is changed.In the second quarter of fiscal year 2013, the Company began granting share price performance options, which are accounted for as market-based stockoptions. The fair value of these market-based option awards is estimated on the date of grant using a Monte Carlo simulation model. Assumptions utilized inthe Monte Carlo simulation model follow the same methodology as our time-based option awards. Compensation expense for market-based option awards isamortized based upon a graded vesting method and is recognized if the service period is met even if the market condition is not metThe weighted-average assumptions utilized for our Black-Scholes valuation model for options and employee share purchase rights granted during thefiscal years ended November 3, 2013, October 28, 2012 and October 30, 2011 are as follows: Time Based Options Market BasedOptions ESPP Year Ended Year Ended Year Ended November 3,2013 October 28, 2012 October 30, 2011 November 3,2013 November 3,2013 October 28, 2012 October 30, 2011Risk-free interest rate1.0% 0.8% 2.0% 2.0% 0.1% 0.1% 0.1%Dividend yield2.0% 1.4% 0.9% 2.2% 2.1% 1.4% 0.6%Volatility48.0% 53.0% 45.0% 48.0% 44.0% 50.4% 42.6%Expected term (in years)5.0 5.0 5.0 0.5 0.5 0.5The dividend yields for the years ended November 3, 2013, October 28, 2012 and October 30, 2011 are based on the historical and expected dividendpayouts as of the respective option grant dates. For the fiscal year ended November 3, 2013, expected volatility is based on the combination of historicalvolatility of guideline publicly-traded companies and our own45Table of Contentshistorical share price volatility over the period commensurate with the expected life of the awards and the implied volatility from traded options in guidelinepublicly-traded companies and our own shares with a term of 720 days or greater measured over the last three months. Effective for the first quarter of fiscalyear 2013 we updated our guideline publicly-traded companies based on direct competitors in our target markets. Prior to fiscal year 2013, expected volatilitywas based on the combination of historical volatility of our previous group of guideline publicly-traded companies over the period commensurate with theexpected life of the options and the implied volatility of guideline publicly-traded companies from traded options with a term of 180 days or greater measuredover 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 ineffect 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 thatwe believe could affect employees’ exercise behavior.In fiscal year 2011, we began to grant RSUs, which are equity awards that are granted with an exercise price equal to zero and represent the right toreceive one of our ordinary shares per RSU immediately upon vesting. We recognize compensation expense for RSUs using the straight-line amortizationmethod 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 andrecognize 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 compensationbased on the attainment of overall corporate annual targets and functional performance metrics. In the first fiscal quarter of the year, if management determinesthat it is probable that the targets and metrics will be achieved and the amounts can be reasonably estimated, a variable, proportional compensation accrual isrecorded based on an assumed 100% achievement of the targets and metrics. The bonus payout levels can be greater if attainment of metrics and targets isgreater 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 andaccrue for variable compensation expense based on our actual progress toward the achievement of the annual targets and metrics. The actual achievement oftarget metrics at the end of the fiscal year, which is subject to approval by our Compensation Committee, may result in the actual variable compensationamounts being significantly higher or lower than the relevant estimated amounts accrued in earlier quarters, which would result in a corresponding adjustmentin the fourth fiscal quarter.Fiscal Year PresentationWe operate on a 52- or 53-week fiscal year which ends on the Sunday closest to October 31. Fiscal year 2013 consisted of 53 weeks, with the extra weekfalling in the first quarter of fiscal year 2013. Each of fiscal years 2012 and 2011 consisted of 52 weeks.The financial statements included in this Annual Report on Form 10-K are presented in accordance with GAAP and expressed in U.S. dollars.46Table of ContentsResults from OperationsYear Ended November 3, 2013 Compared to Year Ended October 28, 2012The following tables set forth our results of operations for the years ended November 3, 2013 and October 28, 2012. Year Ended November 3,2013 October 28, 2012 November 3, 2013 October 28, 2012 (In millions) (As a percentage of net revenue)Statement of Operations Data: Net revenue$2,520 $2,364 100 % 100%Cost of products sold: Cost of products sold1,260 1,164 50 49Amortization of intangible assets61 56 2 3Restructuring charges1 2 — —Total cost of products sold1,322 1,222 52 52Gross margin1,198 1,142 48 48Research and development398 335 16 14Selling, general and administrative222 199 9 8Amortization of intangible assets24 21 1 1Restructuring charges2 5 — —Total operating expenses646 560 26 23Income from operations552 582 22 25Interest expense(2) (1) — —Loss on extinguishment of debt(1) — — —Other income, net19 4 1 —Income before income taxes568 585 23 25Provision for income taxes16 22 1 1Net income$552 $563 22 % 24%Net revenue. Net revenue was $2,520 million for fiscal year 2013, compared to $2,364 million for fiscal year 2012, an increase of $156 million or7%. The increase in net revenue was primarily due to strength in the wireless communications target market and in the wired infrastructure target market anddue to continued revenue contribution from the CyOptics acquisition, partially offset by the transition from developing, manufacturing and selling our legacyconsumer and computing peripherals products to licensing intellectual property relevant to these products in our industrial & other target market. Further,fiscal year 2013 consisted of 53 weeks compared to 52 weeks in fiscal year 2012.Our three target markets are wireless communications, wired infrastructure and industrial & other. The percentage of total net revenue generated by sales ineach of our target markets varies from fiscal quarter to quarter, due largely to fluctuations in end-market demand, including the effects of seasonality. Thefirst fiscal quarter has historically been our lowest revenue and cash generating quarter due, in part, to holiday shut downs at many original equipmentmanufacturer, or OEM, customers and distributors, and the first half of the fiscal year has tended to generate lower revenue than the second half of the fiscalyear. However, in recent periods typical seasonality and industry cyclicality have been increasingly overshadowed by other factors such as widermacroeconomic effects, the timing of significant product transitions and launches by large OEMs, particularly in the wireless communications target market,and new product launches by our competitors. In fiscal year 2013, strength in the smartphone market, particularly in the second half of the fiscal year, andstrong sales to our two largest smartphone OEMs, as well as 4G/long-term evolution, or LTE, product launches by other OEMs in our wireless target marketcontributed to the revenue increase from this market. However, this increase was partially offset by a significant decrease in net revenue from our industrial &other target market, primarily as a result of our transition from developing, manufacturing and selling consumer and computing peripherals products tolicensing intellectual property relevant to these products.47Table of ContentsHistorically, a relatively small number of customers have accounted for a significant portion of our net revenue. During the fiscal year endedNovember 3, 2013, Foxconn Technology Group companies accounted for 18% of our net revenue. Our top ten customers for fiscal year ended November 3,2013, which included three distributors each, collectively accounted for 64% of our net revenue. We believe our aggregate sales to Apple Inc. and CiscoSystems, Inc., when direct sales are combined with indirect sales to them through the respective contract manufacturers that they utilize, each accounted formore than 10% of our net revenues, for the fiscal year ended November 3, 2013. We expect to continue to experience significant customer concentration infuture 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, resultsof operation and financial condition.Net revenue by target market data is derived from our understanding of our end customers’ primary markets. As discussed previously, effective fiscalyear 2013 our legacy consumer and computing peripherals target market will no longer be presented separately and has been included in our industrial & othertarget market.Net revenue by target market was as follows: Year Ended % of Net RevenueNovember 3, 2013 October 28, 2012 ChangeWireless communications48% 45% 15 %Wired infrastructure30 28 12Industrial & other22 27 (13)Total net revenue100% 100% Year Ended Net RevenueNovember 3, 2013 October 28, 2012 Change (In millions)Wireless communications$1,219 $1,064 $155Wired infrastructure744 662 82Industrial & other557 638 (81)Total net revenue$2,520 $2,364 $156Net revenue from our wireless communications target market increased in fiscal year 2013 compared with the prior year due to continued strength inmobile smartphone sales. Unit sales of smartphones containing our products, as well as the amount of our product content in those phones is a key driver ofour revenue from this target market. New 4G/LTE product ramps at major smartphone OEMs and handset launches at other OEMs, as well as improvementsin our content in those phones, also drove revenue growth during fiscal year 2013. As a result, we experienced higher demand for our power amplifiers and ourfilm bulk acoustic resonator, or FBAR, duplexers in fiscal year 2013.Net revenue from our wired infrastructure target market increased in fiscal year 2013, compared with fiscal year 2012. The increase in revenue fromthis target market in fiscal year 2013 compared to fiscal year 2012 was primarily due to revenues resulting from our CyOptics acquisition and improvementin datacenter demand, partially offset by weak carrier routing spending.Net revenue from our industrial & other target market decreased in fiscal year 2013 compared with fiscal year 2012. This decrease was due primarily toour transition from developing, manufacturing and selling our consumer and computing peripherals products to licensing intellectual property relevant to theseproducts. This decrease was partially offset by improved demand from our industrial distributors and OEMs, notably in transportation and powergeneration, in fiscal year 2013 compared with fiscal year 2012. However, demand in Asia tapered off towards the end of fiscal year 2013. In fiscal year 2013,we generated approximately $19 million compared to $31 million in fiscal year 2012 of intellectual property sales and licensing royalty revenue. Due to thestructure of these licensing arrangements, royalty revenue may fluctuate from period to period.Gross margin. Gross margin was $1,198 million for fiscal year 2013 compared to $1,142 million for fiscal year 2012, an increase of $56 million.As a percentage of net revenue, gross margin was flat at 48% for fiscal years 2013 and 2012. The increase in gross margin, in absolute dollars, in fiscal year2013 was driven by increased sales, partially offset by a decrease in revenue from sales and licensing of intellectual property of $25 million. In addition,during fiscal year 2013 less favorable product mix, with a higher proportion of sales into our wireless communication target market, and the effects of lowermargin CyOptics-related revenue, also impacted gross margin compared to fiscal year 2012.48Table of ContentsResearch and development. Research and development expense was $398 million for fiscal year 2013, compared to $335 million for fiscal year 2012,an increase of $63 million or 19%. As a percentage of net revenue, research and development expenses were 16% for fiscal year 2013, compared to 14% forfiscal year 2012. The majority of this increase, in absolute dollars, resulted from investments in our wired infrastructure and wireless communicationssolutions. Part of the increase was attributable to a $12 million increase in research and development project consumables and services. The overall dollarincrease in research and development expense was also attributable to a $16 million increase in accrued incentive compensation expense related to our employeebonus program, which is a variable expense related to our achievement of program performance metrics, and annual merit-based salary increases, a $15million increase in salaries and employee benefits expense, due to annual merit-based salary increases and additional headcount costs from the CyOpticsacquisition, a $10 million increase in share-based compensation expense attributable to annual focal employee equity awards at higher grant-date fair values, a$2 million increase in retention compensation expense primarily related to CyOptics acquisition, a $3 million increase in computer software expenses and a$2 million increase in depreciation expense related to capital expenditures supporting research and development efforts. These increases were partially offset bya $2 million decrease in accrued reimbursements pursuant to research and development grants in fiscal year 2013, compared to the fiscal year 2012. We expectresearch and development expenses to increase in absolute dollars for the foreseeable future, due to the increasing complexity and number of products we planto develop.Selling, general and administrative. Selling, general and administrative expense was $222 million for the fiscal year ended November 3, 2013compared to $199 million for the fiscal year ended October 28, 2012, an increase of $23 million or 12%. As a percentage of net revenue, selling, general andadministrative expense increased slightly to 9% for the fiscal year ended November 3, 2013 compared to 8% for the fiscal year ended October 28, 2012.Changes in components of selling, general and administrative expense for the fiscal year 2013, compared to the fiscal year 2012, consisted primarily of a $10million increase in share-based compensation attributable to annual focal employee equity awards at higher grant-date fair values, a $9 million increase inaccrued incentive compensation expense related to our employee bonus program, a $5 million increase in salaries and employee benefits expense relatedprimarily to annual merit-based salary increases, and partially offset by decreased overhead expenses.Amortization of intangible assets. Total amortization expense of intangible assets incurred was $85 million and $77 million, respectively, for fiscalyears 2013 and 2012. We anticipate our amortization expense will continue to be higher in future periods primarily as a result of a significant increase inamortizable intangible assets resulting from the CyOptics and Javelin acquisitions.Restructuring charges. We incurred total restructuring charges of $3 million for fiscal year 2013 compared to $7 million for fiscal year 2012, bothpredominantly representing employee termination costs.Interest expense. Interest expense was $2 million for fiscal year 2013, compared to $1 million for fiscal year 2012. This $1 million increase was dueto commitment fees related to our 2011 revolving credit facility and amortization of related deferred debt issuance costs.Loss on extinguishment of debt. In fiscal year 2013, the termination of the 2011 credit facility resulted in a loss on extinguishment of debt of $1 millionrelated to the write-off of debt amortization costs and other related expenses.Other income, net. Other income, net includes net realized gains on the sale of available-for-sales securities, realized and unrealized gains on tradingsecurities, gains on the sale of cost method investments, interest income, currency gains (losses) on balance sheet remeasurement, and other miscellaneousitems. Other income, net was $19 million for fiscal year 2013 compared to other income, net of $4 million for fiscal year 2012. This increase in other income,net for fiscal year 2013 is primarily attributable to realized gains on the sale of available-for-sale and trading securities and unrealized gains on tradingsecurities. Interest income was $4 million for each fiscal years 2013 and 2012, respectively.Provision for income taxes. We recorded an income tax provision totaling $16 million for fiscal year 2013 compared to an income tax provision of$22 million for fiscal year 2012. The income tax provision for fiscal year 2013 included a benefit of $2 million from the recognition of previouslyunrecognized tax benefits as a result of the expiration of the statute of limitations for certain audit periods, and $3 million from the enactment of the AmericanTaxpayer Relief Act of 2012, which was signed into law on January 2, 2013, retroactively extending the U.S. Federal Research and Development tax creditfrom January 1, 2012 to December 31, 2013, and an additional $1 million decrease in tax provision primarily due to a change in the jurisdictional mix ofincome and expense.49Table of ContentsYear Ended October 28, 2012 Compared to Year Ended October 30, 2011The following tables set forth our results of operations for the years ended October 28, 2012 and October 30, 2011. Year Ended October 28, 2012 October 30, 2011 October 28, 2012 October 30, 2011 (In millions) (As a percentage of net revenue)Statement of Operations Data: Net revenue$2,364 $2,336 100% 100 %Cost of products sold: Cost of products sold1,164 1,133 49 49Amortization of intangible assets56 56 3 2Restructuring charges2 — — —Total cost of products sold1,222 1,189 52 51Gross margin1,142 1,147 48 49Research and development335 317 14 14Selling, general and administrative199 220 8 9Amortization of intangible assets21 22 1 1Restructuring charges5 4 — —Total operating expenses560 563 23 24Income from operations582 584 25 25Interest expense(1) (4) — —Loss on extinguishment of debt— (20) — (1)Other income, net4 1 — —Income before income taxes585 561 25 24Provision for income taxes22 9 1 —Net income$563 $552 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 industrialtarget market. Net revenue from our consumer and computing peripherals target market remained relatively flat compared to fiscal year 2011, benefiting fromthe last time purchases of product due to our transition from manufacturing and sales of products to an intellectual property licensing and royalty businessmodel in this target market. This transition was completed in the fourth quarter of fiscal year 2012.Until August 2012, we also manufactured products for the consumer and computing peripherals target market, including motion control encoders thatcontrol the paper feed and print head movement in printers and other office automation products and image sensors for optical mouse applications, usingLEDs and CMOS image sensors to create a subsystem that can detect motion over an arbitrary desktop surface. During fiscal year 2013, we transitioned frommanufacturing and selling these products to selling or licensing our intellectual property relevant to this target market, thereby generating royalty revenueinstead of product sales.50Table of ContentsNet revenue by target market data is derived from our understanding of our end customers’ primary markets, and was as follows: Year Ended % of Net RevenueOctober 28, 2012 October 30, 2011 ChangeWireless communications45% 38% 7 %Wired infrastructure28 28% —Industrial and automotive electronics22 29 (7)Consumer and computing peripherals5 5 —Total net revenue100% 100% — % Year Ended Net RevenueOctober 28, 2012 October 30, 2011 Change (In millions) Wireless communications$1,064 $887 $177Industrial and automotive electronics518 672 (154)Wired infrastructure662 659 3Consumer and computing peripherals120 118 2Total net revenue$2,364 $2,336 $28Net revenue from our wireless communications target market increased in fiscal year 2012 compared with the corresponding prior year periods due tocontinued strength in mobile smartphone sales and new handset ramps incorporating our products at major smartphone OEMs. We experienced higher demandfor 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 fiscalyear 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 year2012, we saw strong growth from sales of our ASICs used in data center applications compared to fiscal year 2011. Revenues from this target market forfiscal 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 opticsat 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 decreasewas due primarily to continued, and worse than expected, supply chain corrections and weakness in industrial spending, in China in particular, in fiscalyear 2012 compared with fiscal year 2011. These effects were partially offset by increases in revenue from development agreements and the sale of certain ofour 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 salesof products to an intellectual property licensing and royalty business model in this target market. The transition to the intellectual property licensing royaltymodel was completed in the fourth quarter of fiscal year 2012. During the fiscal year 2012, we generated approximately $23 million in intellectual property-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 apercentage of net revenue, gross margin decreased slightly to 48% for fiscal year 2012, compared to 49% fiscal year 2011. The slight decrease in gross marginin fiscal year 2012 was driven by product mix, with a higher proportion of sales into our wireless communication target market compared to sales into ourhigher-margin industrial and automotive electronics target market. This mix effect was substantially offset by (i) an increase in revenue from developmentagreements 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 arevision 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 29,51Table of Contents2012, we revised our cost allocation methodology to fully burden with overhead costs the expense for wafers used in research and development projects that areprocessed 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 tofiscal year 2011. The majority of this increase, in absolute dollars, resulted from investments in our wired infrastructure and wireless communicationssolutions. Part of the increase was attributable to a $15 million increase in research and development project consumables and services, $12 million of whichwas due to the change in R&D wafer cost allocation methodology, as discussed above under "Gross margin," which increased gross margin by acorresponding amount. The overall dollar increase in research and development expense was also attributable to an $8 million increase in depreciation expenserelated to capital expenditures supporting research and development efforts, a $7 million increase in salaries and employee benefits expense, and a $6 millionincrease in share-based compensation expense attributable to grants of share-based awards at higher fair market values and to our ESPP. These increases werepartially offset by a $13 million decrease in accrued incentive compensation expense related to our employee bonus program, which is a variable expenserelated to our achievement of program performance metrics, and a $3 million decrease in computer software expenses in fiscal year 2012, compared to thefiscal year 2011. The overall dollar increase in research and development expense is also net of $7 million in accrued reimbursements pursuant to research anddevelopment grants. We expect research and development expenses to increase in absolute dollars for the foreseeable future, due to the increasing complexityand 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 administrativeexpense 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 tooffensive litigation matters, a $8 million decrease in accrued incentive compensation expense related to our performance-based employee bonus program, a $4million decrease in external services related to consulting and IT, a $3 million decrease in depreciation expense, and a $2 million decrease in salaries and wagesexpense, partially offset by a $7 million increase in share-based compensation expense attributable to grants of share-based awards at higher fair marketvalues and to our ESPP.Amortization of intangible assets. Total amortization of intangible assets incurred was $77 million and $78 million, respectively, for fiscal years2012 and 2011.Restructuring charges. We incurred total restructuring charges of $7 million for fiscal year 2012 compared to $4 million for fiscal year 2011, bothpredominantly 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 $3million. The decrease is primarily due to the redemption of the remaining $230 million aggregate principal amount of our senior subordinated rate notes onDecember 1, 2010.Loss on extinguishment of debt. During fiscal year 2011, we redeemed $230 million aggregate principal amount of our senior subordinated notes. Theredemption of the senior subordinated notes resulted in a loss on extinguishment of debt of $19 million. During fiscal year 2011, we also terminated our seniorsecured revolving credit facility. There were no outstanding loan borrowings under this facility at the time of termination. This termination resulted in a loss onextinguishment of debt of $1 million, related to the write-off of debt amortization costs and other related expenses. See Note 7. “Borrowings” to theConsolidated Financial Statements.Other income, net. Other income, net includes interest income, foreign currency gain (loss), loss on other-than-temporary impairment of investmentand other miscellaneous items. Other income, net was $4 million for fiscal year 2012 compared to other income, net of $1 million for fiscal year 2011. Thisincrease 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 $9million for fiscal year 2011. The increase is primarily attributable to an increase in worldwide income, change in the jurisdictional mix of income and expenseand 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 milliontax benefit for the increase in deferred tax assets from U.S. legislation retroactively reinstating the research and development tax credit and a $3 million taxbenefit from a change in estimate related to research and development tax credits.52Table of ContentsLiquidity and Capital ResourcesThe following section discusses our principal liquidity and capital resources as well as our principal liquidity requirements and sources and uses ofcash. Our cash and cash equivalents are maintained in highly liquid investments with remaining maturities of 90 days or less at the time of purchase. Webelieve our cash equivalents are liquid and accessible. The majority of our cash and cash equivalents are held in financial institutions in Singapore.Our primary sources of liquidity as at November 3, 2013 consisted of: (1) approximately $985 million in cash and cash equivalents, (2) cash weexpect to generate from operations and (3) our new $575 million unsecured, revolving 2013 credit facility, which is committed until October 28, 2018, all ofwhich is available to be drawn. Our short-term and long-term liquidity requirements primarily arise from: (i) working capital requirements, (ii) research anddevelopment and capital expenditure needs, including acquisitions from time to time and (iii) quarterly dividend payments (if and when declared by ourBoard) and any share repurchases we may choose to make under our share repurchase program. Our ability to fund these requirements will depend on ourfuture cash flows, which are determined by future operating performance and are, therefore, subject to prevailing global macroeconomic conditions andfinancial, business and other factors, some of which are beyond our control.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 sharerepurchase program. Prior to the expiration of the 2012 share repurchase program on April 9, 2013, during fiscal year 2013 the Company repurchased 0.7million shares for an aggregate purchase price of $24 million in cash under the 2012 share repurchase program.On April 10, 2013, our Board authorized the Company to repurchase up to 20 million of its ordinary shares in open market transactions, referred to asthe 2013 share repurchase program, to replace the expired 2012 share repurchase program. The 2013 share repurchase program will expire the day prior to theCompany's 2014 AGM, unless earlier terminated. During fiscal year 2013, the Company repurchased and retired an aggregate of 1.9 million shares for anaggregate purchase price of $71 million in cash under the 2013 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 deemsappropriate. The timing and actual number of shares repurchased depend on a variety of factors including price, market conditions and applicable legalrequirements. The 2013 share repurchase program does not obligate the Company to repurchase any specific number of shares and may be suspended orterminated at any time without prior notice.Our cash and cash equivalents decreased by $99 million to $985 million at November 3, 2013 from $1,084 million at October 28, 2012 primarily asa result of an aggregate of $414 million in cash paid for business acquisitions completed during fiscal year 2013, $15 million in cash paid for equityinvestments, $236 million in cash paid for capital expenditures, $95 million in cash paid to repurchase 2.6 million of our ordinary shares, and $198million in cash dividends paid to our shareholders. Partially offsetting the decrease in cash and cash equivalents was $722 million in cash provided byoperating activities, $101 million in cash received from the issuance of ordinary shares pursuant to the exercise of options under our employee share optionplans and purchase rights under our employee share purchase plan, $13 million in cash received from the sale of equity investments and $10 million in cashreceived from government grants.We believe that our cash and cash equivalents on hand, and cash flows from operations, combined with availability under our 2013 unsecured, revolvingcredit facility, will provide sufficient liquidity to fund our current obligations, projected working capital requirements, capital spending, quarterly cashdividends (if and when declared by our Board) and any share repurchases we may choose to make under our 2013 share repurchase program for at least thenext 12 months.We anticipate that our capital expenditures for fiscal year 2014 may be higher than for fiscal year 2013, due primarily to continued spending related toongoing capacity expansion in our Fort Collins internal fabrication facility, as well as spending on equipment to support various research and developmentprojects.From time to time, we engage in discussions with third parties regarding potential acquisitions of, or investments in, businesses, technologies and productlines, such as our recent acquisitions of CyOptics and Javelin. Any such transaction could require significant use of our cash and cash equivalents, or requireus to issue debt or equity securities, or borrow under our revolving credit facility to fund the transaction. If we do not have sufficient cash to fund ouroperations or to 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 cash dividend. In such circumstances wemay 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 usor at all. Our ability to service any indebtedness we may incur, including under our 2013 unsecured, revolving credit facility, will depend on our ability togenerate 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 increaseour current credit facility for other reasons.53Table of ContentsThe aggregate acquisition consideration payable in our recently announced transaction to acquire LSI is approximately $6.6 billion in cash. In connectionwith our entry into the merger agreement relating to that transaction, we also entered into a note purchase agreement with an affiliate of Silver Lake Partners, orSLP, to purchase $1 billion aggregate principal amount of our 2.0% Convertible Senior Notes, or Convertible Notes. The completion of the private placementof the Convertible Notes is contingent on satisfaction or waiver of customary conditions, as well as a requirement that that the merger with LSI shall have beenconsummated or shall be consummated substantially. The initial conversion rate for the Convertible Notes is 20.8160 shares of Avago's ordinary shares per$1,000 principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $48.04 per ordinary share. The balance ofthe acquisition consideration payable by us in connection with the merger agreement is expected to be provided by approximately $1 billion of cash on hand ofthe combined company and a $4.6 billion term loan. The term loan is expected to be entered into by a newly-formed Avago subsidiary, or Borrower, and willbe guaranteed by certain of our other subsidiaries and secured by, subject to certain exceptions, all of the assets of such other subsidiaries and of the Borrower.We have received commitments from a group of banks to provide us with the $4.6 billion term loan, as well as a $500 million secured, revolving creditfacility that would replace our current unsecured revolving credit facility.The following table summarizes our cash flows for the periods indicated (in millions): Year Ended November 3, 2013 October 28, 2012 October 30, 2011Net cash provided by operating activities$722 $693 $726Net cash used in investing activities(652) (244) (122)Net cash used in financing activities(169) (194) (336)Net (decrease) increase in cash and cash equivalents$(99) $255 $268Cash Flows for the Years Ended November 3, 2013 and October 28, 2012Operating ActivitiesNet cash provided by operating activities during the year ended November 3, 2013 was $722 million. The net cash provided by operating activities wasprincipally due to net income of $552 million and non-cash charges of $271 million, partially offset by net cash gains on investments of $10 million, and bychanges in operating assets and liabilities of $91 million.Accounts receivable increased to $418 million at the end of fiscal year 2013 from $341 million at the end of fiscal year 2012. Accounts receivable dayssales outstanding increased to 52 days at November 3, 2013 from 51 days at October 28, 2012, primarily due to the 1 to 2-day unfavorable impact of theinclusion of CyOptics accounts receivable, partially offset by timing of collections. We use the current fiscal quarter revenue and accounts receivable atNovember 3, 2013 in our calculation of number of days sales outstanding.Inventory increased to $285 million at November 3, 2013 from $194 million at the end of fiscal year 2012. The number of days of inventory on handincreased to 69 days at November 3, 2013 compared to 58 days at October 28, 2012, due primarily to an increase in inventory to prepare for an anticipatedincrease in demand from our wireless communications target market and significant lifetime purchases of certain wafers and other materials in the fiscal yearended November 3, 2013. Of the 69 days and 58 days of inventory on hand as at November 3, 2013 and October 28, 2012, 9 days and 8 days of inventoryon hand, respectively, were attributable to these lifetime purchases. The acquisition of CyOptics resulted in an increase of inventory of $27 million in absolutedollars, but favorably impacted inventory days on hand as at November 3, 2013 by 3 days. We use the current quarter cost of products sold and inventory atNovember 3, 2013 in our calculation of days on hand of inventory.Other current assets increased to $130 million at the end of fiscal year 2013 from $72 million at the end of fiscal year 2012 primarily due to a $18million net increase in current deferred tax assets attributable to the CyOptics and Javelin acquisitions, a $16 million increase in cash advances made tocertain of our existing distributors for anticipated distributor price adjustments, a $15 million increase due the purchase of and mark-to-market of our short-term marketable equity securities, a $8 million increase due to the CyOptics employee retention plan, and a $1 million increase in government grant andmiscellaneous assets partially offset by a $2 million decrease in receivables from intellectual property-related revenue and a $1 million decrease in depositspaid for fixed assets. During the second quarter of fiscal year 2012, we entered into agreements with certain distributors whereby we agreed to advance cash tothem to fund estimated price adjustments. These advances are estimated based on an agreed percentage of the rolling previous three months averageending inventory, as reported by the distributor, multiplied by the rolling previous three months price adjustment credits as a percentage of the distributor'sreported rolling previous three months resales. The terms of these advances are set forth in binding legal agreements and are unsecured,54Table of Contentsbear no interest on unsettled balances, and are due upon demand. The agreements governing these advances can be cancelled by us at any time. Such advanceshave 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 increased to $423 million at the end of fiscal year 2013 from $346 million at the end of fiscal year 2012 mainly due to an increase inemployee compensation and benefits accruals, in accounts payable and other current liabilities. Employee compensation and benefits increased to $98 millionat the end of fiscal year 2013 from $61 million at the end of fiscal year 2012 mainly due to performance levels under our employee bonus program related toour overall profitability and other variable performance metrics and increased headcount primarily from acquisitions. Accounts payable increased to $278million at the end of fiscal year 2013 from $248 million at the end of fiscal year 2012 due to timing of disbursements and a higher volume of purchases tosupport the increase in revenue over the year. Other current liabilities increased to $46 million at the end of fiscal year 2013 from $36 million at the end offiscal year 2012, primarily due to a $9 million increase in other accrued liabilities related to the CyOptics acquisition and a $3 million increase in deferredrevenue offset by a $2 million decrease in current deferred tax liabilities, income tax and sales and use tax payables and a $1 million decrease in supplierinventory liabilities.Other long-term assets decreased to $53 million at the end of fiscal year 2013 from $66 million at the end of fiscal year 2012 mainly due to a $42million decrease in long-term deferred tax assets including valuation allowances offset by a $17 million increase in long-term prepaid expense due to theCyOptics employee retention plan and a $13 million increase to long-term receivables from the CyOptics shareholders.Other long-term liabilities increased to $105 million at the end of fiscal year 2013 from $95 million at the end of fiscal year 2012 mainly due to a $6million increase in other accrued liabilities related to CyOptics, a $4 million increase in accrued tax liabilities and a $2 million increase in deferred revenueoffset by a $3 million net decrease in pension liability due to the change in actuarial assumptions used in the valuation of our post-retirement benefit anddefined benefit pension plans liabilities offset by the net periodic pension expenses recorded during the year for our post-retirement benefit and defined benefitpension plans.Net cash provided by operating activities during the year ended October 28, 2012 was $693 million. The net cash provided by operating activities wasprincipally 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.Investing ActivitiesNet cash used in investing activities for the year ended November 3, 2013 was $652 million. The net cash used in investing activities principallyrelated to the $373 million and $37 million cash payments for the acquisition of CyOptics and Javelin, respectively, purchases of property, plant andequipment of $236 million, primarily in connection with the expansion of our internal manufacturing facilities in Fort Collins, Colorado, and $15 millionpaid for the purchase of investments, partially offset by cash proceeds of $13 million from the sales of equity investments.Net cash used in investing activities for the year ended October 28, 2012 was $244 million. The net cash used in investing activities principally relatedto 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.Financing ActivitiesNet cash used in financing activities for the year ended November 3, 2013 was $169 million. The net cash used in financing activities was principallydue to an aggregate of $198 million in payments of cash dividends to shareholders and the payment of an aggregate of $95 million to repurchase and cancel2.6 million shares of our ordinary stock under our share repurchase programs. This use of cash was partially offset by $101 million in net proceeds providedby the exercises of options, and purchases of our ordinary shares by employees under our ESPP, proceeds from research and development grants of $10million and an excess tax benefit of $17 million.Net cash used in financing activities for the year ended October 28, 2012 was $194 million. The net cash used in financing activities was principallydue 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 cancel3.5 million shares of our ordinary shares under our share repurchase program. This was partially offset by $44 million in net proceeds provided by theexercises of options and purchases of our ordinary shares by employees under our ESPP.55Table of ContentsCash Flows for the Years Ended October 28, 2012 and October 30, 2011Operating ActivitiesNet cash provided by operating activities during the year ended October 28, 2012 was $693 million. The net cash provided by operating activities wasprincipally 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.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 dayssales 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 monthsof 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 salesoutstanding.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 millionincrease in cash advances made to certain of our existing distributors for anticipated distributor price adjustments, a $5 million increase in receivables fromour 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 planand 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 fundestimated price adjustments. These advances are estimated based on an agreed percentage of the rolling previous three months average ending inventory, asreported by the distributor, multiplied by the rolling previous three months price adjustment credits as a percentage of the distributor's reported rolling previousthree months resales. The terms of these advances are set forth in binding legal agreements and are unsecured, bear no interest on unsettled balances, and aredue upon demand. The agreements governing these advances can be cancelled by us at any time. Such advances have no impact on revenue recognition or ourconsolidated 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 inemployee compensation and benefits accruals and other current liabilities, partially offset by an increase in accounts payable. Employee compensation andbenefits 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 ouremployee bonus program related to our overall profitability and other performance metrics. Other current liabilities decreased to $36 million at the end of fiscalyear 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 $2million decrease in supplier inventory liabilities and $2 million recognition of previously deferred revenue, offset by a $6 million increase in income tax andsales 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 timingof 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 increasein 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 year2011 mainly due to the change in actuarial assumptions used in the valuation of our post-retirement benefit and defined benefit pension plans liabilities and thenet 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 wasprincipally 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 ActivitiesNet cash used in investing activities for the year ended October 28, 2012 was $244 million. The net cash used in investing activities principally relatedto 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 relatedto purchases of property, plant and equipment of $112 million and $8 million related to a business acquisition completed in fiscal year 2011.56Table of ContentsFinancing ActivitiesNet cash used in financing activities for the year ended October 28, 2012 was $194 million. The net cash used in financing activities was principallydue 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 cancel3.5 million shares of our ordinary shares under our share repurchase program. This was partially offset by $44 million in net proceeds provided by theexercises of options, and purchases of our ordinary shares by employees under our ESPP.Net cash used in financing activities for the year ended October 30, 2011 was $336 million. The net cash used in financing activities was principallydue to the redemption of the remaining $230 million in principal amount of senior subordinated notes, an aggregate of $86 million in payments of cashdividends 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 sharerepurchase program. This was partially offset by $70 million in net proceeds provided by the exercises of options and purchases of our ordinary shares byemployees under our ESPP.IndebtednessAt November 3, 2013, we had $575 million of borrowing capacity available under our new, senior unsecured revolving credit facility.Capital Lease ObligationsAs of November 3, 2013, we had $2 million of capital lease obligations.Revolving Credit Facility2011 credit facilityOn October 28, 2013, we terminated our $300 million senior unsecured, revolving credit facility under our credit agreement dated March 31, 2011,referred to as the 2011 credit facility. This credit agreement initially provided for a $200 million unsecured revolving credit facility, which was increased to$300 million pursuant to the exercise by Avago Finance of the accordion feature under this credit agreement. There were no outstanding borrowings under the2011 credit 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 debtamortization costs and other related expenses.2013 credit facilityIn connection with the termination of our 2011 credit facility, on October 28, 2013, Avago Technologies Finance Pte. Ltd., or Avago Finance, and certainother subsidiaries of the Company entered into a new credit agreement. The new credit agreement provides for a $575 million senior unsecured, revolvingcredit facility with a term of five years, ending on October 28, 2018, referred to as the 2013 credit facility. The 2013 credit facility is available for cashborrowings and for the issuance of letters of credit up to a sub-limit of $20 million. The new credit agreement contains substantially the same terms as thecredit agreement relating to the 2011 credit facility, other than the aggregate principal amount of the facility, and contains financial covenants requiring AvagoFinance to maintain a maximum leverage ratio and a minimum interest coverage ratio and customary restrictive covenants, including certain restrictions on theability of our subsidiaries (including Avago Finance) to pay dividends, and customary events of default. Compliance with financial covenants is required forthe term of the new credit agreement, irrespective of the amount of borrowings outstanding. Avago Finance has the ability, at any time, to increase the aggregatecommitments under the new credit agreement from $575 million to $675 million, subject to certain conditions and the receipt of sufficient commitments forsuch increase from the lenders. Certain of our subsidiaries guarantee the 2013 credit facility.Borrowings under our 2013 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) theBritish Bankers Association Interest Settlement Rate, or BBA LIBOR Rate applicable to Dollars for a period of one month plus 1.00%; orEurocurrency 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 interestperiod, 57Table of Contentsplus, 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, orthe 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 DebtRating and the aggregate amount of the available credit or outstanding commitments under the new credit agreement.As of November 3, 2013, we had no borrowings outstanding under the 2013 revolving credit facility and were in compliance with the financialcovenants under our credit agreement. We did not draw on our 2011 credit facility or our 2013 credit facility during fiscal year 2013.Contractual CommitmentsOur 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 periodsshould be analyzed in conjunction with such factors.The following table sets forth our contractual obligations and commitments as of November 3, 2013 for the fiscal periods noted (in millions): Total 2014 2015 to2016 2017 to2018 ThereafterOperating leases(1)$91 $13 $16 $9 $53Capital leases(2)2 1 1 — —Other contractual commitments(3)51 21 24 6 —Revolving credit facility commitments(4)5 1 2 2 —Purchase commitments(5)124 124 — — —_______________________________________(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)Represents amounts payable pursuant to agreements related to outsourced IT, human resources, financial infrastructure outsourcing services andother services agreements.(4)Represents commitment and letter of credit fee amounts due.(5)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 businessneeds 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, Colorado internal fabrication facility. Thesepurchases 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 November 3, 2013.In addition to the above non-cancelable purchase commitments, we record a liability for firm, non-cancelable, and unconditional purchasecommitments for quantities in excess of our future demand forecasts in conjunction with our write-down of inventory. As of November 3, 2013, theliability for our firm, non-cancelable and unconditional purchase commitments related to inventory suppliers was $1 million. This amount isincluded in other current liabilities in our consolidated balance sheet at November 3, 2013, and is excluded from the preceding table.Due to the inherent uncertainty with respect to the timing of future cash outflows associated with our unrecognized tax benefits at November 3, 2013,we are unable to reliably estimate the timing of cash settlement with the respective taxing authority. Therefore, $23 million of unrecognized taxbenefits and accrued interest classified as long-term income tax payable in the consolidated balance sheet as of November 3, 2013 have been excludedfrom the contractual obligations table above.Off-Balance Sheet ArrangementsWe had no material off-balance sheet arrangements at November 3, 2013 as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.58Table of ContentsIndemnifications to Hewlett-Packard and AgilentAgilent Technologies, Inc. has given multiple indemnities to Hewlett-Packard Company in connection with its activities prior to its spin-off fromHewlett-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, wemay acquire responsibility for indemnifications related to assigned intellectual property agreements. Additionally, when we completed the SPG Acquisition inDecember 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 fairvalue of these indemnifications is not material and no amount has been accrued in the accompanying consolidated financial statements with respect to theseindemnification obligations.Other IndemnificationsAs is customary in our industry and as provided for in local law in the United States and other jurisdictions, many of our standard contracts provideremedies to our customers and others with whom we enter into contracts, such as defense, settlement, or payment of judgment for intellectual property claimsrelated to the use of our products. From time to time, we indemnify customers, as well as our suppliers, contractors, lessors, lessees, companies that purchaseour businesses or assets and others with whom we enter into contracts, against combinations of loss, expense, or liability arising from various triggeringevents 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 theassets 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 wealso provide protection to these parties against claims related to undiscovered liabilities, additional product liability or environmental obligations. In ourexperience, claims made under such indemnifications are rare and the associated estimated fair value of the liability is not material.Accounting Changes and Recent Accounting GuidanceFor a description of accounting changes and recent accounting guidance, including the expected dates of adoption and estimated effects, if any, on ourconsolidated financial statements, see Note 2. “Summary of Significant Accounting Policies” to Consolidated Financial Statements of this Annual Report onForm 10-K.ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKForeign Currency Derivative InstrumentsAlthough a majority of our revenue and operating expenses is denominated in U.S. dollars, and we prepare our financial statements in U.S. dollars inaccordance with GAAP, a portion of our revenue and operating expenses is in foreign currencies. Our revenues, costs and expenses and monetary assets andliabilities are exposed to changes in currency exchange rates as a result of our global operating and financing activities. To mitigate the exposures resulting fromthe changes in the exchange rates of these currencies, we enter into foreign exchange forward contracts to hedge a portion of these exposures. Contracts that meetaccounting criteria are designated at inception as hedges of the related foreign currency exposures, which include committed and anticipated transactions thatare denominated in currencies other than the U.S. dollar. The criteria for designating a derivative as a hedge include the assessment of the instrument’seffectiveness in risk reduction, matching of the derivative instrument to its underlying transaction, and the assessment of the probability that the underlyingtransaction will occur. Our foreign exchange forward contracts generally mature within three to six months. We do not use derivative financial instruments forspeculative or trading purposes. As of November 3, 2013, there were no foreign exchange forward contracts outstanding. Losses (gains) from foreign currencytransactions, as well as derivative instruments, are included in our consolidated statements of operations in the amounts of $1 million, $0 million and $0million for the years ended November 3, 2013, October 28, 2012 and October 30, 2011, respectively.Interest Rate RiskBorrowings under our revolving 2013 credit facility are subject to floating rates of interest. Any significant changes in interest rates would increase ourborrowing costs under our 2013 credit facility. However, a hypothetical increase of 100 basis points in short-term interest rates would not have a materialimpact on our revolving 2013 credit facility. We did not have any borrowings outstanding under the 2013 credit facility or the 2011 credit facility during fiscalyear 2013 or as at November 3, 2013.European Debt ExposuresWe actively monitor our exposure to the European financial markets, including but not limited to the impact of sovereign debt issues. We also mitigateour 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 directinvestments in the sovereign debt of European countries. From time to time, we may have deposits with major European financial institutions. We also mitigatecollection risks from our59Table of Contentscustomers 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 November 3, 2013, we do not believe that we have any material direct or indirect exposure to the European financial markets.60Table of ContentsITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAAVAGO TECHNOLOGIES LIMITEDINDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageReport of Independent Registered Public Accounting Firm62Consolidated Balance Sheets63Consolidated Statements of Operations64Consolidated Statements of Comprehensive Income65Consolidated Statements of Cash Flows66Consolidated Statements of Shareholders’ Equity67Notes to Consolidated Financial Statements6861Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo 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 financialposition of Avago Technologies Limited and its subsidiaries at November 3, 2013 and October 28, 2012, and the results of their operations and their cashflows for each of the three years in the period ended November 3, 2013 in conformity with accounting principles generally accepted in the United States ofAmerica. 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, inall material respects, effective internal control over financial reporting as of November 3, 2013, based on criteria established in Internal Control - IntegratedFramework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible forthese financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control overfinancial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting OversightBoard (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements arefree of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financialstatements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accountingprinciples used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control overfinancial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, andtesting and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such otherprocedures 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 andthe preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control overfinancial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflectthe transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention ortimely 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 ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.As described in Management’s Report on Internal Controls over Financial Reporting appearing under Item 9A, management has excluded CyOptics, Inc. fromits assessment of internal control over financial reporting as of November 3, 2013 because it was acquired by the Company in a business combination duringthe third quarter of fiscal 2013. We have also excluded CyOptics Inc. from the audit of internal control over financial reporting. CyOptics, Inc. is a whollyowned subsidiary of the Company whose total assets and revenues represent less than 5% and 4% respectively of the related consolidated financial statementsas of, and for the year ended November 3, 2013./s/ PricewaterhouseCoopers LLPSan Jose, CaliforniaDecember 20, 201362Table of ContentsAVAGO TECHNOLOGIES LIMITEDCONSOLIDATED BALANCE SHEETS November 3, 2013 October 28, 2012 (In millions, except share amounts)ASSETS Current assets: Cash and cash equivalents$985 $1,084Trade accounts receivable, net418 341Inventory285 194Other current assets130 72Total current assets1,818 1,691Property, plant and equipment, net661 503Goodwill391 180Intangible assets, net492 422Other long-term assets53 66Total assets$3,415 $2,862LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable$278 $248Employee compensation and benefits98 61Capital lease obligations — current1 1Other current liabilities46 36Total current liabilities423 346Long-term liabilities: Capital lease obligations — non-current1 2Other long-term liabilities105 95Total liabilities529 443Commitments and contingencies (Note 15) Shareholders’ equity: Ordinary shares, no par value; 249,100,178 shares and 245,477,491 shares issued and outstanding on November3, 2013 and October 28, 2012, respectively1,587 1,479Retained earnings1,305 951Accumulated other comprehensive loss(6) (11)Total shareholders’ equity2,886 2,419Total liabilities and shareholders’ equity$3,415 $2,862The accompanying notes are an integral part of these consolidated financial statements.63Table of ContentsAVAGO TECHNOLOGIES LIMITEDCONSOLIDATED STATEMENTS OF OPERATIONS Fiscal Year Ended November 3, 2013 October 28, 2012 October 30, 2011 (In millions, except per share data)Net revenue$2,520 $2,364 $2,336Cost of products sold: Cost of products sold1,260 1,164 1,133Amortization of intangible assets61 56 56Restructuring charges1 2 —Total cost of products sold1,322 1,222 1,189Gross margin1,198 1,142 1,147Research and development398 335 317Selling, general and administrative222 199 220Amortization of intangible assets24 21 22Restructuring charges2 5 4Total operating expenses646 560 563Income from operations552 582 584Interest expense(2) (1) (4)Loss on extinguishment of debt(1) — (20)Other income, net19 4 1Income before income taxes568 585 561Provision for income taxes16 22 9Net income$552 $563 $552 Net income per share: Basic$2.23 $2.30 $2.25Diluted$2.19 $2.25 $2.19 Weighted average shares: Basic247 245 245Diluted252 250 252 Cash dividends declared and paid per share$0.80 $0.56 $0.35The accompanying notes are an integral part of these consolidated financial statements.64Table of ContentsAVAGO TECHNOLOGIES LIMITEDCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Fiscal Year Ended November 3, 2013 October 28, 2012 October 30, 2011 (In millions)Net income$552 $563 $552Other comprehensive income (loss), net of tax: Unrealized gains (losses) of other post-retirement plans and defined benefitpension plans8 (13) 3Change in net unrealized gain (loss) on available-for-sale securities(3) — 3Other comprehensive income (loss)5 (13)6Comprehensive income$557 $550 $558The accompanying notes are an integral part of these consolidated financial statements.65Table of ContentsAVAGO TECHNOLOGIES LIMITEDCONSOLIDATED STATEMENTS OF CASH FLOWS Fiscal Year Ended November 3, 2013 October 28, 2012 October 30, 2011 (In millions)Cash flows from operating activities: Net income$552 $563 $552Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization187 155 157Loss on disposal of property, plant and equipment1 3 1Share-based compensation77 53 38Tax benefits from share-based compensation25 13 14Excess tax benefits from share-based compensation(17) (9) (8)Gain from sale of investments(10) — —Unrealized gain on trading securities(4) — —Impairment of investment and loan receivable from investee— 2 —Amortization of debt issuance costs1 — 1Loss on extinguishment of debt1 — 6Changes in assets and liabilities, net of acquisitions: Trade accounts receivable(26) (13) (42)Inventory(55) — (5)Accounts payable22 (2) 25Employee compensation and benefits32 (28) 7Other current assets and current liabilities(58) (32) (13)Other long-term assets and long-term liabilities(6) (12) (7)Net cash provided by operating activities722 693 726Cash flows used in investing activities: Purchase of property, plant and equipment(236) (241) (112)Acquisitions, net of cash acquired(414) (4) (8)Purchases of investments(15) — (1)Proceeds from sale of investments13 — —Proceeds from insurance claims on property, plant and equipment— 1 —Loan receivable from cost method investee— — (1)Net cash used in investing activities(652) (244) (122)Cash flows used in financing activities: Debt repayments— — (230)Proceeds from government grants10 2 —Debt financing costs(2) — (2)Payment on capital lease obligation(2) (2) (3)Issuance of ordinary shares, net of issuance costs101 44 70Repurchase of ordinary shares(95) (110) (93)Excess tax benefits from share-based compensation17 9 8Dividend payments to shareholders(198) (137) (86)Net cash used in financing activities(169) (194) (336)Net (decrease) increase in cash and cash equivalents(99) 255 268Cash and cash equivalents at the beginning of year1,084 829 561Cash and cash equivalents at end of year$985 $1,084 $829Supplemental disclosure of cash flow information: Cash paid for interest$1 $1 $14Cash paid for income taxes, net of refunds$6 $9 $7The accompanying notes are an integral part of these consolidated financial statements.66Table of ContentsAVAGO TECHNOLOGIES LIMITEDCONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Ordinary Shares RetainedEarnings AccumulatedOtherComprehensiveIncome (loss) TotalShareholders’Equity Shares Amount (In millions, except share amounts) Balance as of October 31, 2010239,888,231 $1,450 $59 $(4) $1,505 Issuance of ordinary shares in connection with equity incentive plans8,711,944 70 — — 70 Repurchase of ordinary shares(2,637,855) (93) — — (93) Share-based compensation— 38 — — 38 Tax benefits from share-based compensation— 14 — — 14 Cash dividends paid to shareholders— — (86) — (86) Changes in accumulated other comprehensive income: Unrealized gain on available-for-sale investment— — — 3 3 Actuarial gains and prior service costs associated with post-retirement benefitand defined benefit pension plans, net of taxes— — — 3 3 Net income— — 552 — 552 Balance as of October 30, 2011245,962,320 1,479 525 2 2,006 Issuance of ordinary shares in connection with equity incentive plans3,023,933 44 — — 44 Repurchase of ordinary shares(3,508,762) (110) — — (110) Share-based compensation— 53 — — 53 Tax benefits from share-based compensation— 13 — — 13 Cash dividends paid to shareholders— — (137) — (137) Changes in accumulated other comprehensive loss: Actuarial losses and prior service costs associated with post-retirement benefitand defined benefit pension plans, net of taxes— — — (13) (13) Net income— — 563 — 563 Balance as of October 28, 2012245,477,491 1,479 951 (11) 2,419 Issuance of ordinary shares in connection with equity incentive plans6,198,818 101 — — 101 Repurchase of ordinary shares(2,576,131) (95) — — (95) Share-based compensation— 77 — — 77 Tax benefits from share-based compensation— 25 — — 25 Cash dividends paid to shareholders— — (198) — (198) Changes in accumulated other comprehensive income (loss): Change in unrealized gain on available-for-sale investment— — — (3) (3) Actuarial gains and prior service costs associated with post-retirement benefitand defined benefit pension plans, net of taxes— — — 8 8 Net income— — 552 — 552 Balance as of November 3, 2013249,100,178 $1,587 $1,305 $(6) $2,886 The accompanying notes are an integral part of these consolidated financial statements.67Table of ContentsAVAGO TECHNOLOGIES LIMITEDNOTES TO CONSOLIDATED FINANCIAL STATEMENTS1.Overview and Basis of PresentationOverviewAvago Technologies Limited, or the "Company", was organized under the laws of the Republic of Singapore in August 2005. We are a designer, developerand global supplier of analog semiconductor devices with a focus on III-V based products. We offer products in three primary target markets. Our wirelesscommunications, wired infrastructure and industrial & other account for the substantial majority of our revenues. Applications for our products in these targetmarkets include cellular phones, consumer appliances, data networking and telecommunications equipment, enterprise storage and servers, factoryautomation and displays. References herein to "the Company", "we", "our", "us" and "Avago" are to Avago Technologies Limited and its consolidatedsubsidiaries, unless otherwise specified or the context otherwise requires.Basis of PresentationFiscal PeriodsWe operate on a 52- or 53-week fiscal year which ends on the Sunday closest to October 31. Our fiscal year ending November 3, 2013, or fiscal year2013, is a 53-week fiscal year, with our first fiscal quarter containing 14 weeks. The first quarter of our fiscal year 2013 ended on February 3, 2013, thesecond quarter ended on May 5, 2013, the third quarter ended on August 4, 2013 and the fourth quarter ended on November 3, 2013.Principles of ConsolidationOur consolidated financial statements include the accounts of Avago and our wholly-owned subsidiaries. All significant intercompany balances andtransactions have been eliminated in consolidation. During the second quarter of fiscal 2013, we completed our acquisition of Javelin Semiconductor, Inc., orJavelin. On June 28, 2013, we completed our acquisition of CyOptics, Inc., or CyOptics. In addition, in the fourth quarter of fiscal 2013, we completed oneacquisition that was immaterial both in the aggregate and on a standalone basis to consolidated statements of operations. The consolidated financial statementsinclude the results of operations of CyOptics, Javelin and the immaterial acquisition commencing as of their respective acquisition dates. (See Note 3."Acquisitions and Investments")2.Summary of Significant Accounting PoliciesUse of estimates. The preparation of financial statements in conformity with generally accepted accounting principles in the United States, or GAAP,requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ fromthose 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 dateof purchase to be cash equivalents. We determine the appropriate classification of our cash and cash equivalents at the time of purchase. The majority of ourcash and cash equivalents are held in financial institutions in Singapore. Cash equivalents included $659 million and $759 million of time deposits as ofNovember 3, 2013 and October 28, 2012, respectively.Trade accounts receivable, net. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Such accounts receivable havebeen reduced by an allowance for doubtful accounts, which is our best estimate of the amount of probable credit losses in our existing accounts receivable. Wedetermine the allowance based on customer specific experience and the aging of such receivables, among other factors. These allowances were $1 million eachas of November 3, 2013 and October 28, 2012, respectively. Accounts receivable are also recorded net of sales returns and distributor allowances. Theseamounts are recorded when it is both probable and estimable that discounts will be granted or products will be returned. Aggregate accounts receivableallowances at November 3, 2013 and October 28, 2012 were $42 million and $37 million, respectively.Concentrations of credit risk and significant customers. Our cash, cash equivalents and accounts receivable are potentially subject to concentrationof credit risk. Cash and cash equivalents may be redeemable upon demand and are maintained with several financial institutions that management believes areof high credit quality and therefore bear minimal credit risk. We seek to mitigate our credit risks by spreading such risks across multiple counterparties andmonitoring the risk profile of these counterparties. Our accounts receivable are derived from revenue earned from customers located in the68Table of ContentsU.S. and internationally. We mitigate collection risks from our customers by performing regular credit evaluations of our customers’ financial conditions, andrequire collateral, such as letters of credit and bank guarantees, in certain circumstances.We sell our products through our direct sales force, distributors and manufacturers representatives. One direct customer accounted for 26% and 32% ofour net accounts receivable balance at November 3, 2013 and October 28, 2012, respectively.For the fiscal year ended November 3, 2013, one direct customer represented 18% of our net revenue. For the fiscal year ended October 28, 2012, onedirect customer represented 17% of our net revenue. For the fiscal year ended October 30, 2011, no direct 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 cyclicalmarket patterns. Our financial results are affected by a wide variety of factors, including general economic conditions worldwide, economic conditionsspecific to the semiconductor industry, timely implementation of new manufacturing technologies, ability to safeguard patents and other intellectual property ina rapidly evolving market and reliance on assembly and test subcontractors, third-party wafer fabricators and independent distributors. In addition, thesemiconductor market has historically been cyclical and subject to significant economic downturns at various times. We are exposed to the risk ofobsolescence 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 beingdetermined under the first-in, first-out method. We record a provision for excess and obsolete inventory based primarily on our forecast of product demand andproduction requirements. The excess balance determined by this analysis becomes the basis for our excess inventory charge and the written-down value of theinventory becomes its cost. Written-down inventory is not written up if market conditions improve.Investments. We determine the appropriate classification of our investments at the time of acquisition and reevaluate such determination at each balancesheet date. Our minority investments in privately-held companies are accounted for using the cost method and evaluated for impairment quarterly. Suchanalysis requires significant judgment to identify events or circumstances that would likely have a significant other than temporary adverse effect on thecarrying value of the investment. At the time of purchase, we classify investments in publicly-traded equity securities, including warrants to acquire suchsecurities, as held by us, as available-for-sale securities or trading securities. These investments are recorded in the consolidated balance sheets at fair value.(See Note 8. “Fair Value.”) Unrealized gains and losses on available-for-sale securities are included as a separate component of accumulated othercomprehensive income (loss). Unrealized gains and losses on trading securities are included in current operating results in other income (expense), net. Weclassify our investments as current or non-current based on the intent of management, the nature of the investments and whether they are readily available foruse in current operations. At November 3, 2013, we had $14 million and $5 million of investments, respectively, included in current and other long-termassets. At October 28, 2012 and October 30, 2011 we had $5 million and $6 million of investments included in other long-term assets, respectively.Unrealized gains associated with trading securities were $4 million and included in the financial results for fiscal year ended November 3, 2013.Deferred Compensation Plan. Employee contributions under the deferred compensation plan (See Note 6. “Retirement Plans and Post-RetirementBenefits”) are maintained in a rabbi trust and are not readily available to us. Participants can direct the investment of their deferred compensation planaccounts in the same investments funds offered by the 401(k) plan. Although participants direct the investment of these funds, they are classified as tradingsecurities 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, net, with an offset for the same amount recorded in compensationexpense. We had deferred compensation plan assets of $9 million and $8 million at November 3, 2013 and October 28, 2012, respectively, which areincluded in other current assets. Unrealized gains (losses) associated with these trading securities was not material for fiscal years ended November 3, 2013,October 28, 2012 and October 30, 2011.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 thechanges in the exchange rates of these foreign currencies. These contracts are designated at inception as hedges of the related foreign currency exposures, whichinclude committed and forecasted revenue and expense transactions that are denominated in currencies other than the functional currency of the subsidiarywhich has the exposure. We exclude time value from the measurement of effectiveness. To achieve hedge accounting, contracts must reduce the foreigncurrency exchange rate risk otherwise inherent in the amount and duration of the hedged exposures and comply with established risk management policies; ourhedging contracts generally mature within three 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 sheets at their fairvalues. For derivative instruments that are designated and qualify as fair value hedges, changes in value of the instruments are recognized in income in thecurrent period. Such hedges are recorded in net income69Table of Contents(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 qualifyas a cash flow hedge, changes in the value of the effective portion of the derivative instrument are recognized in accumulated other comprehensive income(loss), a component of shareholders’ equity. These amounts are then reclassified and recognized in net income (loss) when either the forecasted transactionoccurs or it becomes probable the forecasted transaction will not occur. Changes in the fair value of the ineffective portion of derivative instruments arerecognized in net income (loss) in the current period, which have not been significant to date. Separate disclosures required for derivative instruments andhedging 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 inprogress until placed in service, upon which date, we begin to depreciate these assets. When assets are retired or disposed of, the assets and relatedaccumulated depreciation and amortization are removed from our property, plant and equipment records and the resulting gain or loss is reflected in theconsolidated statements of operations. Buildings and leasehold improvements are generally depreciated over 15 to 40 years, or over the lease period, whicheveris 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 andequipment.Capitalized software development costs. We capitalize eligible costs related to the application development phase of software developed internally orobtained for internal use in accordance with the accounting guidance on goodwill and other intangible assets. The capitalization of software development costsduring the years ended November 3, 2013, October 28, 2012 and October 30, 2011 was not material. We begin amortizing the costs associated with softwaredeveloped for internal use at the time the software is ready for its intended use over its estimated useful life of 3 years.Accounting for business combinations. We account for business combinations under the acquisition method ofaccounting. It requires us to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values. While weuse our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration,where applicable, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one yearfrom the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusionof the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustmentsare recorded to our consolidated statements of operations.Accounting for business combinations requires our management to make significant estimates and assumptions, especially at the acquisition dateincluding our estimates for intangible assets, contractual obligations assumed, restructuring liabilities, pre-acquisition contingencies and contingentconsideration, where applicable. Although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate, they arebased in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain. Critical estimatesin valuing certain of the intangible assets we have acquired include but are not limited to: future expected cash flows from product sales, customer contractsand acquired technologies, expected costs to develop in-process research and development into commercially viable products and estimated cash flows from theprojects when completed and discount rates. Unanticipated events and circumstances may occur that may affect the accuracy or validity of suchassumptions, estimates or actual results. Results of operations of business combinations completed during fiscal years ended November 3, 2013, October 28,2012 and October 30, 2011 are included in the consolidated financial statements commencing as of their respective acquisition dates. (See Note 3."Acquisitions and Investments")Goodwill and purchased intangible assets. Goodwill represents the excess of purchase price and related costs over the value assigned to the nettangible and identifiable intangible assets of businesses acquired. Goodwill is not amortized but is reviewed annually (or more frequently if impairmentindicators arise) for impairment. Purchased finite-lived intangible assets are carried at cost less accumulated amortization. Amortization is computed using thestraight-line method over the estimated useful lives of the respective assets, generally 1 to 25 years. Purchased in-process research and development (IPR&D)projects are capitalized at fair value as an indefinite lived intangible asset and assessed for impairment thereafter. Upon completion of each underlying project,IPR&D assets are reclassified as an amortizable purchased intangible asset and amortized over their estimated useful lives. If an IPR&D project is abandoned,we will record a charge for the value of the related intangible asset to our consolidated statements of operations in the period it is abandoned. No projectabandonments or transfers from IPR&D to amortizable purchased intangible asset occurred for the fiscal year ended November 3, 2013.On a quarterly basis, we monitor factors and changes in circumstances that could indicate carrying amounts of long-lived assets, including goodwill,intangible assets, and property, plant and equipment, 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 acquiredassets or the strategy for our overall business, and (iii) significant negative industry or economic trends. An impairment loss must be measured if the sum ofthe70Table of Contentsexpected 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 valueof 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 assetgroup) and their estimated fair value. We perform an annual impairment review of goodwill and intangibles including IPR&D during the fourth fiscal quarterof each year, or more frequently if we believe indicators of impairment exist. No impairment of long-lived assets resulted from our most recent evaluation oflong-lived assets for impairment, which occurred in the fourth quarter of fiscal year 2013. No impairment of long-lived assets resulted in any of the periodspresented. Additionally, on a quarterly basis, we assess if there have been triggers that may require us to evaluate the reasonableness of the remaining estimateduseful lives of intangible assets and the property, plant & equipment. No such triggers were identified during fiscal year 2013.Warranty. We accrue for the estimated costs of product warranties at the time revenue is recognized. Product warranty costs are estimated based uponour historical experience and specific identification of the products requirements, which may fluctuate based on product mix. Additionally, we accrue forwarranty 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 30, 2011 — included in other current liabilities$6Adjustment to estimate - released to cost of products sold(3)Utilized(1)Balance as of October 28, 2012 — included in other current liabilities2Charged to cost of products sold2Adjustment to estimate - released to cost of products sold(1)Utilized(1)Balance as of November 3, 2013 — included in other current liabilities$2During the fiscal year ended November 3, 2013, we have released in aggregate $1 million and settled all compensation claims and product issues with aspecific quality issue dating back prior to fiscal 2011. In the fiscal years ended October 28, 2012 and October 30, 2011, we released warranty related chargesof $1 million and $6 million, respectively, relating to this same quality issue.Accumulated other comprehensive income (loss). Accumulated other comprehensive income (loss) includes certain transactions that have beenreported in the consolidated statements of shareholders’ equity and consolidated statements of comprehensive income. The components of accumulated othercomprehensive income (loss), net of taxes, at November 3, 2013, October 28, 2012 and October 30, 2011 consisted of net unrecognized prior service creditand actuarial gain (loss) on defined benefit pension plans and post-retirement medical benefit plans and unrealized gain(loss) on available-for-sale investments.Revenue recognition. We recognize revenue related to sales of our products, net of trade discounts and allowances, provided that (i) persuasive evidenceof an arrangement exists, (ii) delivery has occurred, (iii) the price is fixed or determinable and (iv) collectibility is reasonably assured. Delivery is considered tohave 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 torefund or adjustments or when any such adjustments can be estimated. We evaluate the creditworthiness of our customers to determine that appropriate creditlimits are established prior to the acceptance of an order. Revenue, including sales to resellers and distributors, is reduced for estimated returns and distributorallowances. We recognize revenue from sales of our products to distributors upon delivery of products to the distributors. An allowance for distributor creditscovering price adjustments and scrap allowances is made based on our estimate of historical experience rates as well as considering economic conditions andcontractual 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 thecustomer of contract deliverables or as services are provided, depending on the terms of the arrangement. Revenue is deferred for any amounts billed orreceived prior to completion or delivery of services. As we retain the intellectual property generated from these development agreements, costs related to thesearrangements are included in research and development expense. These revenues, which are included in net revenue, totaled $64 million, $62 million and $52million in fiscal years 2013, 2012 and 2011, respectively.We recognize revenue from the licensing of our intellectual property when the following fundamental criteria are met:(i) persuasive evidence of anarrangement 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 is71Table of Contentsrecognized when the arrangement is mutually signed, if there is no future delivery or future performance obligation and all other criteria are met. Revenue fromguaranteed royalty streams are recognized when paid, or collection is reasonably assured and all other criteria are met. When patent licensing arrangementsinclude royalties for future sales of the licensees’ products using our licensed patented technology, revenue is recognized when the royalty report is receivedfrom the licensee, at which time the sales price is fixed and determinable, provided that all other criteria have been met. Revenues from licensing and royaltyarrangements totaled $18 million and $47 million in fiscal years 2013 and 2012, respectively. Revenue from licensing and royalty arrangements for fiscal year2011 was immaterial.Research and development. Costs related to research, design and development of our products are charged to research and development expense as theyare incurred. Research and development expense consists primarily of personnel costs for our engineers engaged in the design and development of our productsand technologies, including salary, bonus and share-based compensation expense. These expenses also include project material costs, third-party fees paid toconsultants, prototype development expenses, allocated facilities costs and other corporate expenses and computer services costs related to supporting computertools 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 reasonableassurance that both the terms and conditions associated with the grant will be fulfilled and the grant proceeds will be received. For capital expenditure relatedgovernment grants, the amount of the grants is recorded as a deferred credit and amortized over the useful life of the asset and are reflected in the consolidatedstatements of cash flows as a financing activity. All other government grants are recorded as a reduction of the qualifying cost being reimbursed and arereflected in the consolidated statements of cash flows as an operating activity.Share-based compensation expense. For time-based options and employee stock purchase plan, or ESPP, rights, we recognize compensation expensebased on the estimated grant date fair value method required under the authoritative guidance using the Black-Scholes valuation model with a straight-lineamortization method. For share price performance, or market-based, stock options granted, the fair value is estimated using Monte Carlo simulationtechniques. Compensation expense for market-based option awards is amortized based upon a graded vesting method. Since the authoritative guidance requiresthat share-based compensation expense be based on awards that are ultimately expected to vest, estimated share-based compensation for such awards has beenreduced for estimated forfeitures. Authoritative guidance requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periodsif actual forfeitures differ from the estimate. We recognize a benefit from share-based compensation in shareholders' equity if an incremental tax benefit isrealized 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 recordedin cost of products sold in the consolidated statements of operations for all periods presented.Advertising. Business specific advertising costs are expensed as incurred and included within selling, general and administrative expense. Advertisingcosts was $3 million for fiscal year ended November 3, 2013. Advertising costs were $4 million for each of the fiscal years ended October 28, 2012 andOctober 30, 2011.Foreign currency remeasurement. We operate in a U.S. dollar functional currency environment. As such, foreign currency assets and liabilities areremeasured into U.S. dollars at current exchange rates except for non-monetary items such as inventory and property, plant and equipment, which areremeasured at historical exchange rates. Net income for fiscal years 2013, 2012 and 2011 included net foreign currency losses of $1 million, $0 million and$0 million, respectively, associated with foreign currency remeasurement.Taxes on income. We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilitiesfor the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets andliabilities are determined based on the differences between the consolidated financial statements and tax basis of assets and liabilities using enacted tax rates ineffect 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 inincome 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 allavailable positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies andrecent 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 netrecorded amount, we would make an adjustment to the valuation allowance which would reduce the provision for income taxes. Likewise, if we determine thatwe 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 periodsuch 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 anuncertain tax position may be recognized when it is more likely than not that the position72Table of Contentswill be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positionsmust 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 insubsequent periods. This guidance also addresses measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosureand transition. (See Note 10. “Income Taxes”.)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 duringthe period. Diluted shares outstanding includes the dilutive effect of in-the-money options, market-based share options, restricted share units, or RSUs, andemployee share purchase rights under the Avago Technologies Limited Employee Share Purchase Plan, or ESPP. The dilutive effect of such equity awards iscalculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the amount the employeemust pay for exercising stock options and to purchase shares under the ESPP, the amount of compensation cost for future service that the Company has notyet recognized, and the amount of tax benefits that would be recorded in ordinary shares when the equity awards become deductible for income tax purposesare collectively assumed to be used to repurchase ordinary shares. The dilutive effect of market-based share options are included when the market conditionshave been met.Diluted net income per share for fiscal years 2013, 2012 and 2011 excluded the potentially dilutive effect of weighted average equity awards (options,RSUs, and ESPP rights) to purchase 2 million, 2 million and 1 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 periodspresented (in millions, except per share data): Fiscal Year Ended November 3, 2013 October 28, 2012 October 30, 2011Net income (Numerator): Net income$552 $563 $552Shares (Denominator): Basic weighted average ordinary shares outstanding247 245 245Add: Incremental shares for: Dilutive effect of share options, RSUs, and ESPP rights5 5 7Shares used in diluted computation252 250 252 Net income per share: Basic$2.23 $2.30 $2.25Diluted$2.19 $2.25 $2.19Recently Adopted Accounting GuidanceIn fiscal year 2013, we adopted guidance on the presentation of comprehensive income issued by the Financial Accounting Standards Board, or FASB,which requires that all non-owner changes in stockholders' equity be presented in either a single continuous statement of comprehensive income or in twoseparate but consecutive statements, and eliminates the option to present the components of other comprehensive income as part of the statement of changes instockholders’ equity. The requirement to present reclassification adjustments out of accumulated other comprehensive income on the face of the consolidatedstatement of income has been deferred by an update issued by the FASB in December 2011. Upon adoption of this guidance, we have separately reportedConsolidated Statements of Comprehensive Income and the adoption did not have a significant impact on our results of operations and financial position.In fiscal year 2013, we adopted the updated guidance issued by the FASB, related to goodwill impairment testing, which reduces the cost and complexity ofthe goodwill impairment test by providing entities an option to perform a qualitative assessment to determine whether further impairment testing is necessary.An entity is no longer required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is morelikely than not that its fair value is less than its carrying amount. The adoption of this guidance did not have a significant impact on our results of operationsand financial position.73Table of ContentsIn fiscal year 2013, we adopted updated guidance on indefinite-lived intangible assets impairment test issued by the FASB. This guidance is intended toreduce the cost and complexity of testing indefinite-lived intangible assets for impairment, other than goodwill. It allows companies to perform a qualitativeassessment to determine whether further impairment testing of indefinite-lived intangible assets is necessary, similar in approach to the goodwill impairmenttest. The adoption of this guidance did not have a significant impact on our results of operations and financial position.Recent Accounting Guidance Not Yet AdoptedIn February 2013, the FASB issued updated guidance on reporting on reclassifications out of accumulated other comprehensive income (loss). Thisguidance seeks to improve the reporting of such reclassifications by requiring an entity to report the effect of significant reclassifications out of accumulatedother comprehensive income (loss) on the respective line items in net income if the amount being reclassified is required under GAAP to be reclassified in itsentirety to net income. For other amounts that are not required under GAAP to be reclassified in their entirety to net income in the same reporting period, anentity is required to cross-reference other disclosures required under GAAP that provide additional detail about those amounts. The amendments in thisguidance supersede the presentation requirements for reclassifications out of accumulated other comprehensive income (loss) in previously issued guidance.This guidance will be effective for our first quarter of fiscal year 2014. The adoption of this guidance will affect the presentation of comprehensive income, butwill not impact our results of operations or financial condition.In July 2013, the FASB issued an amendment to the accounting guidance related to the financial statement presentation of an unrecognized tax benefit whena net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. The guidance requires an unrecognized tax benefit to be presented as adecrease in a deferred tax asset where a net operating loss, a similar tax loss, or a tax credit carryforward exists and certain criteria are met. This guidance iseffective for our first quarter of fiscal year 2015 and is consistent with our current practice. The adoption of this guidance will not have a significant impacton our results of operations and financial position.3.Acquisitions and InvestmentsAcquisitionsThe consolidated financial statements include the results of operations of the acquired companies commencing on their respective acquisition dates.During fiscal year 2013, we acquired CyOptics and Javelin, both U.S.-based companies, for aggregate consideration of approximately $377 million and$37 million, respectively. In the fourth quarter of fiscal year 2013, we also completed the purchase of certain assets of a non-US, privately held company forapproximately $4 million in cash.During fiscal year 2012, we made two acquisitions that were immaterial both in the aggregate and on a standalone basis to our consolidated results ofoperations.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.Unaudited pro-forma results of operations for CyOptics acquisition are presented below. Unaudited pro-forma results of operations for otheracquisitions completed in fiscal years 2013, 2012 and 2011 have not been presented because the effects of the acquisitions, individually or in the aggregate,were not material to our consolidated financial statements.Acquisition related transaction costs such as legal, accounting and other related expenses were recorded as a component of selling, general andadministrative expense in our consolidated statements of operations. During fiscal year 2013, we incurred $5 million in transaction costs related toacquisitions. Acquisition related transaction costs were not material for both fiscal years 2012 and 2011.CyOpticsOn June 28, 2013, we completed our acquisition of CyOptics, a U.S.-based company that manufactures and sells Indium Phosphide, or InP, opticalchip and component technologies for the data communications and telecommunications markets. CyOptics has front-end manufacturing operations in theU.S. and back-end manufacturing operations in Mexico. As a result of the CyOptics acquisition, we acquired approximately 1,100 additional employees, with745 of these employees located in Mexico. The aggregate consideration for the acquisition was approximately $377 million including a $1 million workingcapital adjustment payment made in the fiscal quarter ended November 3, 2013, of which $373 million was paid in cash, net of $3 million in cash acquired,to acquire all of the outstanding shares of capital stock of CyOptics. We also agreed to pay74Table of Contentsadditional deferred consideration to the previous shareholders of CyOptics in the amount of $4 million one year subsequent to the acquisition date, which wasrecorded as a liability.In addition, approximately $27 million is payable to key employees. This amount was paid into escrow, recorded as other current assets and other long-term assets and will be disbursed in the form of retention bonuses over a three-year period subsequent to the acquisition date. The amounts disbursed will berecognized as compensation expense over the same period as operating expense in our consolidated statements of operations.As of November 3, 2013, we preliminarily estimated the fair value of the acquired assets and liabilities for CyOptics and allocated the purchase price totangible assets, liabilities and identifiable intangible assets acquired based on their estimated fair values. The excess of the purchase price over the aggregatefair values was recorded as goodwill. The fair value assigned to identifiable intangible assets acquired was based on estimates and assumptions made bymanagement at the time of acquisition. As additional information becomes available, such as finalization of tax related matters, we may revise our preliminarypurchase price allocation.Our primary reason for acquiring CyOptics was to strengthen our fiber optics product portfolio for emerging 40G and 100G enterprise and data centerapplications, through CyOptics' single-mode InP laser, receiver and photonics integration capability. Our optical transceiver products primarily leverageVCSEL-based technology today. In addition, we also acquired CyOptics for their optical components business, which serves segments of the access, metroand long-haul markets. The purchase price for CyOptics was determined based on cash flow projections assuming the integration of any acquired technologyand products with our own, which are of considerably greater value than utilizing CyOptics’ technology or products on a standalone basis, as well as theassembled workforce of CyOptics. These factors, among others, contributed to a purchase price in excess of the estimated fair value of the net identifiableassets acquired, and, as a result, we have recorded goodwill in connection with this transaction. This acquired goodwill is not deductible for tax purposes.During the fourth quarter of fiscal year 2013, adjustments were made to account for a $10 million increase to fixed assets, based on the result of thephysical fixed assets counts, a $4 million increase in deferred tax liabilities for the aforementioned adjustment, a $3 million increase in deferred tax liabilitiesrelated to measurement period tax positions and a $1 million increase in consideration paid due to payments related to working capital adjustments. Theseadjustments resulted in a $2 million decrease in the fair value assigned to goodwill related to post-acquisition fixed assets counts, working capital settlementand deferred tax adjustments. (See Note 4. "Goodwill and Intangible Assets").Our preliminary allocation of the total cash consideration paid for CyOptics and the purchased intangible assets with adjustments made throughNovember 3, 2013 were as follows (in millions, except for useful lives): Estimated Fair ValueTrade accounts receivable$51Inventory35Other current assets2Property, plant and equipment44Goodwill190Intangible assets141Total assets acquired$463Accounts payable(25)Employee compensation and benefits(5)Other current liabilities(2)Long-term deferred tax liabilities (included in Other long-term liabilities)(54)Total liabilities assumed$(86)Purchase price allocation$377There were no significant contingencies assumed as part of the acquisition. We have recorded $12 million in indemnification receivables in other long-term assets for tax positions related to CyOptics value added tax and income tax payables existing prior to the acquisition.75Table of Contents Estimated Fair Value Estimated Useful LivesPurchased intangible assets Purchased technology - base product$98 8Purchased technology - packaging3 5Customer relationships32 7Other - customer backlog4 1Total identified intangible finite lived assets137 In process research and development indefinite lived assets4 Total identified intangible assets$141 Purchased Intangible Assets. Developed technology represents base product technology and packaging technology. We valued the base product technologythat generates cash flows from sales of the existing products using the income approach, specifically the multi-period excess earnings method which calculatesthe value based on the risk-adjusted present value of the cash flows specific to the products, allowing for a reasonable return. The useful life of 8 years wasdetermined based on the technology cycle related to the base product technology as well as the life of current legacy products.Packaging technology is valued utilizing the relief-from-royalty method, a form of the income approach. The relief-from-royalty method estimates the costsavings that accrue to the owner of an intangible asset that would otherwise be payable as royalties or license fees on revenues earned through the use of theasset. The royalty rate is based on an analysis of empirical, market-derived royalty rate for guideline intangible assets.Customer relationships represent the fair value of future projected revenue that will be derived from sales of products to existing customers of CyOptics.Customer relationships were valued using the with-and-without-method, a form of the income approach. In this method, fair value is measured by the lostprofits associated with the period of time necessary to reacquire the customers. The method involves a comparison of the cash flows assuming as if thecustomer relationships were in place versus as if the customer relationships were to be created "from scratch". There are additional considerations related to thebuild-in time for certain product lines and the qualification periods included in the valuation model. This method also assumes that all other assets, know-howand technology were easily available in both scenarios.The fair value of in-process research and development, or IPR&D, from the CyOptics acquisition was determined using the multi-period excess earningsmethod, a form of the income approach. Under the income approach, the expected future cash flows from each project under development are estimated anddiscounted to their net present values at an appropriate risk-adjusted rate of return.We believe the amount recorded as developed technology, customer relationships, customer backlog and IPR&D, represent the fair value of andapproximate the amount a market participant would pay for these projects as of the acquisition date.The purchased intangible assets are being amortized over their estimated useful lives of 1 year to 8 years. (See Note 4. "Goodwill and Intangible Assets").Included in the consolidated statements of operations for fiscal year 2013 was net revenue of $85 million for CyOptics.Unaudited Pro Forma Information. The following table presents certain unaudited pro forma financial information for each of the fiscal years endedNovember 3, 2013 and October 28, 2012 as if CyOptics had been acquired as of the beginning of the fiscal year prior to the acquisition date. The unauditedestimated pro forma information combines the historical results of CyOptics with our consolidated historical results and includes certain fair valueadjustments reflecting the estimated impact of amortization of purchased intangible assets and depreciation of acquired property, plant and equipment for therespective periods. The pro forma data are for informational purposes only and are not necessarily indicative of the consolidated results of operations of thecombined business had the acquisition actually occurred at the beginning of our fiscal year 2012 or of the results of future operations of the combinedbusiness. Consequently, actual results will differ from the unaudited pro forma information presented below (in millions, except for per share amounts): Fiscal Year Ended November 3, 2013 October 28, 2012Pro forma net revenue$2,663 $2,578Pro forma net income$547 $551Pro forma net income per share-basic$2.21 $2.25Pro forma net income per share-diluted$2.17 $2.2076Table of ContentsJavelinDuring the second quarter of fiscal year 2013, we acquired Javelin Semiconductor, Inc. or Javelin, a U.S.-based company, engaged in developing mixed-signal complementary metal oxide semiconductor integrated circuits, or CMOS ICs, for wireless communications for aggregate consideration of approximately$37 million in cash. A portion of the cash consideration was used to immediately pay off outstanding debt of the acquired company totaling $5 million in theaggregate. The purchase price was allocated to the acquired net assets, based on estimates of fair values, as follows: net assets of $37 million includingintangible assets of $10 million, net short-term deferred tax assets of $7 million and goodwill of $21 million. The intangible assets are being amortized overtheir estimated useful lives of 10 years. (See Note 5. "Goodwill and Intangible Assets").We acquired Javelin for their radio frequency CMOS engineering talent and technical personnel and technology to form the foundation of our radiofrequency CMOS design and development for products for its wireless target market. These factors, among others, contributed to a purchase price in excess ofthe estimated fair value of the net identifiable assets acquired, and, as a result, we have recorded goodwill in connection with this transaction. This acquiredgoodwill is not deductible for tax purposes.InvestmentsWe determine the appropriate classification of our investments at the time of acquisition and re-evaluate such determination at each balance sheet date.We record at cost non-marketable equity investments where we do not have the ability to exercise significant influence or control and periodically review themfor impairment.In the fourth quarter of fiscal year 2013, we made a minority investment of $5 million in the equity of a privately-held non-U.S. based company. Thisminority equity investment is accounted for under the cost method and is included on the consolidated balance sheets in other long-term assets. In addition, wecompleted a sale of our entire minority interest investment in a private foreign company that we acquired from Agilent, our predecessor company, in connectionwith the acquisition of the Semiconductor Products Group, or SPG, Business from Agilent in December 2005, which we refer to as the SPG Acquisition. As aresult of the sale, we realized a gain of approximately $1 million which was recorded in other income, net. (See Note 12. "Other income, net")In the third quarter of fiscal year 2013, in addition to our initial $1 million investment made in fiscal year 2010 in a non-U.S.-based stock exchangelisted company resulting in our initial ownership of 33 million ordinary shares, we made an additional investment of $1 million as part of a rights offering toits existing shareholders. In connection with this additional investment, we purchased approximately 8 million ordinary shares and received approximately 16million warrants to acquire a corresponding number of ordinary shares of the investee per the terms of the rights offerings. We classified our total investmentin the company's ordinary shares as available-for-sale securities and the warrants as trading securities. In the fourth quarter of fiscal year 2013, we exited ourentire investment in the ordinary shares and warrants of this company. For the fourth fiscal quarter and year 2013, we realized a gain of $7 million and $9million, respectively, from the sale of the ordinary shares and warrants which were recorded in other income, net. (See Note 12. "Other income, net")In fiscal year 2013, we made a minority equity investment of $9 million in a U.S. stock exchange listed company. At November 3, 2013, we classifiedthis investment as trading securities. (See Note 8. "Fair Value.")During fiscal year 2011, we made an investment of $1 million in the common shares of a non-U.S. privately-held company and we also provided themwith a secured loan of $1 million for a term of one year and received a warrant to purchase up to 1 million additional common shares of the company. Basedon the quantitative assessment of the financial condition and business prospects of the investee, this equity investment and loan were both determined to beimpaired in fiscal year 2012.77Table of Contents4.Balance Sheet ComponentsInventoryInventory consists of the following (in millions): November 3, 2013 October 28, 2012Finished goods$53 $42Work-in-process154 99Raw materials78 53Total inventory$285 $194Inventory as of November 3, 2013 includes $27 million of inventory related to CyOptics, which was acquired in June 2013. During the fiscal yearended November 3, 2013, we recorded write-downs to inventories with a charge recorded to cost of products sold of $14 million, associated with reduceddemand assumptions, compared to $11 million recorded during the fiscal year ended October 28, 2012 and $20 million recorded during the fiscal year endedOctober 30, 2011.Other Current AssetsOther current assets consist of the following (in millions): November 3, 2013 October 28, 2012Distributor deposits$32 $16Deferred income tax assets32 14Prepayments16 8Other receivables15 15Short-term marketable equity investment14 —Deferred compensation plan assets9 8Non-U.S. transaction tax receivable4 3Other8 8Total other current assets$130 $72Starting from the second quarter of fiscal year 2012, we entered into agreements with certain distributors whereby we agreed to advance cash to them tofund estimated future price adjustments. These advances are estimated based on an agreed percentage of the rolling previous three months averageending inventory, as reported by the distributor, multiplied by the rolling previous three months price adjustment credits as a percentage of the distributor'sreported rolling previous three months resales. The terms of these advances are set forth in binding legal agreements and are unsecured, bear no interest onunsettled balances, and are due upon demand. The agreements governing these advances can be cancelled by us at any time. Such advances have no impacton revenue recognition or our consolidated statements of operations and are recorded in other current assets on our consolidated balance sheets.Property, Plant and Equipment, NetProperty, plant and equipment, net consist of the following (in millions): November 3, 2013 October 28, 2012Land$12 $11Construction in progress83 127Buildings and leasehold improvements182 158Machinery and equipment955 692Total property, plant and equipment1,232 988Accumulated depreciation and amortization(571) (485)Total property, plant and equipment, net$661 $50378Table of ContentsDepreciation expense was $102 million, $78 million and $79 million, for the fiscal years ended November 3, 2013, October 28, 2012 and October 30,2011, respectively.Effective August 1, 2011, following a comprehensive study, we extended the estimated depreciable useful lives of certain equipment in our internalfabrication facilities, in order to more accurately reflect their expected useful lives. As a result of this change in our accounting estimate, depreciation expensefor the fiscal years ended October 28, 2012 and October 30, 2011 was reduced by $8 million and $3 million, respectively, and gross margin, income fromoperations and net income increased by approximately the same amount.At November 3, 2013 and October 28, 2012, machinery and equipment included $72 million and $67 million of software costs, respectively, andaccumulated amortization included $60 million and $51 million, respectively.At November 3, 2013 and October 28, 2012, we had $8 million and $12 million of gross carrying amount of assets under capital leases, respectively,and accumulated amortization of $6 million and $8 million, respectively.At November 3, 2013 and October 28, 2012, we had $31 million and $48 million, respectively, of unpaid purchases of property, plant, and equipmentincluded 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 statements of cash flows in the period they are paid.Other Current LiabilitiesOther current liabilities consist of the following (in millions): November 3, 2013 October 28, 2012Income and other taxes payable$15 $16Deferred revenue11 8Acquisition-related payable10 —Accrued commissions5 5Warranty2 2Supplier liabilities1 2Restructuring charges— 1Other2 2Total other current liabilities$46 $3679Table of Contents5.Goodwill and Intangible AssetsGoodwillThe following table summarizes changes in goodwill (in millions):Balance as of October 30, 2011$1772012 acquisitions (Note 3. “Acquisitions and Investments”)3Balance as of October 28, 20121802013 acquisitions (Note 3. "Acquisitions and Investments")211Balance as of November 3, 2013$391Intangible AssetsPurchased intangibles consist of the following (in millions): Gross CarryingAmount AccumulatedAmortization Net Book ValueAs of November 3, 2013 Purchased technology$843 $(462) $381Customer and distributor relationships289 (186) 103Other8 (4) 4Intangible assets subject to amortization1,140 (652) 488In-process research and development4 — 4Total$1,144 $(652) $492 As of October 28, 2012 Purchased technology$728 $(402) $326Customer and distributor relationships257 (163) 94Other4 (2) 2Total$989 $(567) $422The following table presents the amortization of purchased intangible assets (in millions): Year Ended November 3, 2013 October 28, 2012 October 30, 2011Cost of products sold$61 $56 $56Operating expenses24 21 22Total$85 $77 $78During fiscal year 2013, we recorded intangible assets with weighted-average amortization periods as follows: Gross CarryingAmount(in millions)Weighted-AverageAmortization Period(in years)Javelin acquisition$1010CyOptics acquisition1378Other acquisition45CyOptics in-process research and development4— Total$155 80Table of ContentsBased on the amount of intangible assets subject to amortization at November 3, 2013, the expected amortization expense for each of the next five fiscalyears and thereafter is as follows (in millions):Fiscal YearAmount2014$99201595201678201768201833Thereafter115 $488The weighted average amortization periods remaining by intangible asset category were as follows (in years): November 3, 2013 October 28, 2012Amortizable intangible assets: Purchased technology7 7Customer and distributor relationships6 7Other7 226.Retirement Plans and Post-Retirement BenefitsNon-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, weprovide matching contributions to employees up to a maximum of 6% of an employee’s annual eligible compensation. The maximum contribution to the401(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 thecorporate employee overhead rate allocation.U.S. Deferred Compensation Plan. We also have a deferred compensation plan, which allows highly compensated employees (as defined by IRSregulations) to voluntarily defer greater percentages of compensation than would otherwise be permitted under the salary deferral 401(k) plan and IRSregulations. The deferred compensation plan is a non-qualified plan of deferred compensation maintained in a rabbi trust. Participants can direct theinvestment of their deferred compensation plan accounts that are generally the same as the investment funds offered by the 401(k) plan. Participants and theirbeneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interests or claims in any property or assets of the Company. For purposesof the payment of benefits under the deferred compensation plan, any and all of Avago’s assets shall be, and shall remain Avago’s general, unpledged,unrestricted assets. Avago's obligation under the deferred compensation plan shall be merely that of an unfunded and unsecured promise to pay money in thefuture.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 49or younger on January 1, 2005 and who meet the retirement eligibility requirements as of their termination dates, may receive post-retirement medical benefitsunder 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 toage 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 medicalplan upon meeting certain eligibility requirements and certain service criteria. Once participating in the traditional retiree medical plan, retirees are providedwith access to both pre-65 medical coverage and supplemental Medicare coverage with medical premiums based on the type of coverage chosen and servicecriteria. 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 determinedbased on the terms of our plans and local statutory requirements.81Table of ContentsThe net pension plan costs of our non-U.S defined benefit plans for the years ended November 3, 2013, October 28, 2012 and October 30, 2011 were$5 million each. The net pension plan costs of our U.S. post-retirement medical benefit plans for the years ended November 3, 2013, October 28, 2012 andOctober 30, 2011 were $1 million, $2 million and $1 million, respectively.For the year ended November 3, 2013, we recognized $0 million (net of tax benefit of $3 million) of unrealized net actuarial gains in accumulated othercomprehensive loss, related to our non-U.S. defined benefit plans. Of the unrealized net actuarial gains included in accumulated other comprehensive loss,related to our non-U.S. defined benefit plans, we expect to recognize $1 million in fiscal year 2014. For the year ended October 28, 2012, we recognized $11million of unrealized net actuarial losses in accumulated other comprehensive loss (net of tax of $0 million), related to our non-U.S. defined benefit plans. Forthe year ended October 30, 2011, we recognized $4 million of unrealized net actuarial gains in accumulated other comprehensive income (net of tax of $0million), related to our non-U.S. defined benefit plans.During the year ended November 3, 2013, we recognized $8 million of unrealized net actuarial gains in accumulated other comprehensive loss (net of taxof $3 million), related to our U.S. post-retirement medical benefit plans, of which we expect to recognize $1 million gain in fiscal year 2014. During the yearended October 28, 2012, we recognized $2 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 ourU.S. post-retirement medical benefit plans, we recognized an immaterial amount in fiscal year 2013. During the year ended October 30, 2011, 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 medicalbenefit 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 November 3, 2013, October 28, 2012 and October 30, 2011, components of net periodic benefit cost andother amounts recognized in other comprehensive (income) loss were comprised of (in millions): Non-U.S. Defined Benefit Plans U.S. Post Retirement Medical Benefit Plans November 3, 2013 October 28, 2012 October 30, 2011 November 3, 2013 October 28, 2012 October 30, 2011Net periodic benefit cost: Service cost$3 $4 $4 $— $1 $—Interest cost2 1 1 1 1 1Net periodic benefit cost$5 $5 $5 $1 $2 $1 Other changes in plan assets and benefitobligations recognized in accumulatedcomprehensive (income) loss: Net actuarial (gain) loss$4 $11 $(5) $(11) $3 $1Prior service cost— — 1 — — —Currency impact— — — — — —Total recognized in accumulatedcomprehensive (income) loss$4 $11 $(4) $(11) $3 $182Table of ContentsFunded 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): Non-U.S. Defined Benefit Plans U.S. Post Retirement Medical Benefit Plans November 3, 2013 October 28, 2012 November 3, 2013 October 28, 2012Change in plan assets: Fair value — beginning of period$13 $14 $— $—Employer contributions1 1 — —Payments from plan assets(1) (2) — —Fair value of plan assets — end of period$13 $13 $— $—Change in benefit obligation: Benefit obligation — beginning of period$46 $32 $32 $27Service cost3 4 — 1Interest cost2 1 1 1Actuarial (gain) loss4 11 (11) 3Benefit payments(1) (1) — —Currency impact1 (1) — —Benefit obligation — end of period$55 $46 $22 $32 Plan assets less than benefit obligation$(42) $(33) $(22) $(32)Amounts recognized in the consolidated balance sheets were as follows (in millions): Non-U.S. Defined Benefit Plans U.S. Post Retirement Medical Benefit Plans November 3, 2013 October 28, 2012 November 3, 2013 October 28, 2012Other current liabilities$— $— $1 $1Other long-term liabilities$41 $33 $21 $31Amounts recognized in accumulated other comprehensive income (loss)net of taxes: Prior service benefits (cost)$(1) $(1) $— $—Net actuarial gains (losses)(9) (9) 4 (4)Total amounts recognized in accumulated other comprehensiveincome (loss) net of taxes$(10) $(10) $4 $(4)As of November 3, 2013 and October 28, 2012, the amounts of the obligations for our non-U.S. defined benefit plans were as follows (in millions): Non-U.S. Defined Benefit Plans November 3, 2013 October 28, 2012Aggregate projected benefit obligation (“PBO”)$47 $46Aggregate accumulated benefit obligation (“ABO”)$55 $4083Table of ContentsWe currently expect to make contributions of $0 million and $1 million, respectively, to our non-U.S. defined benefit plans and U.S. post-retirementmedical benefit plans in fiscal year 2014. It is expected that as of November 3, 2013 various benefit plans will make payments over the next ten fiscal years asfollows (in millions): Non-U.S.DefinedBenefit Plans U.S. PostRetirementMedical Benefit Plans2014$1 $120151 120161 120171 120181 22019-202312 9Investment Policy. Plan assets of the funded defined benefit pension plans are invested in funds held by third-party fund managers or are depositedinto government-managed accounts in which we have no active involvement in and no control over investment strategy, other than establishing broadinvestment guidelines and parameters. The plan assets held by third-parties consist primarily of fixed income funds and cash. The fund managers monitor thefund’s asset allocation within the guidelines established by our plan’s Investment Committee. In line with plan investment objectives and consultation with ourmanagement, our Investment Committee set an allocation benchmark among equity, bond and other assets based on the relative weighting of overallinternational market indices. The overall investment objectives of the plan are 1) the acquisition of suitable assets of appropriate liquidity which will generateincome 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) tominimize the long term costs of the plan by maximizing the return on the assets. Performance is regularly evaluated by the Investment Committee and is basedon 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: Non-U.S. Defined Benefit Plans November 3, 2013 October 28, 2012 Actual Target Actual TargetFixed income88% 88% 83% 83%Time deposits2 2 16 16Other10 10 1 1Total100% 100% 100% 100%Fair Value Measurement of Plan Assets The following table presents the fair value of plan assets by major categories using the same three-levelhierarchy described in Note 8. “Fair Value” (in millions): Fair Value Measurement as ofNovember 3, 2013 Using Quoted Prices in Active Market forIdentical Assets (Level 1)Assets: Fixed income$12Total assets$12Fixed income assets consist primarily of funds that invest in Euro-denominated government bonds. These government bonds are valued at quoted pricesreported in the active market. The remaining balance of plan assets include time deposits, cash and other of $1 million as of November 3, 2013.84Table of ContentsAssumptions. The assumptions used to determine the benefit obligations and expense for our non-U.S. defined benefit and U.S. post-retirement medicalbenefit 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 oninvestment 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 isour fiscal year end. The range of assumptions that are used for non-U.S. defined benefit plans reflects the different economic environments within variouscountries. Assumptions for Benefit Obligationas of Assumptions for ExpenseYear Ended November 3, 2013 October 28, 2012 November 3, 2013 October 28, 2012 October 30, 2011Non-U.S. defined benefit plans: Discount rate1.00%-4.75% 1.25%-4.25% 1.25%-4.25% 1.50%-5.75% 1.50%-5.00%Average increase in compensation levels2.50%-4.00% 2.00%-5.00% 2.00%-5.00% 2.50%-3.50% 2.50%-5.00%Expected long-term return on assets1.50%-3.00% 2.00%-3.00% 2.00%-3.00% 2.00%-4.00% 1.50%-4.00% Assumptions for Benefit Obligationas of Assumptions for ExpenseYear Ended November 3, 2013 October 28, 2012 November 3, 2013 October 28, 2012 October 30, 2011U.S. post-retirement medical benefits plan: Discount rate4.00% 3.50% 3.50% 4.50% 5.50%Current medical cost trend rate8.33% 8.67% 8.67% 9.00% 9.00%Ultimate medical cost trend rate3.50% 3.50% 3.50% 4.00% 4.50%Medical cost trend rate decreases to ultimate trend rate in year2031 2031 2031 2026 2025Changes in the assumed health care cost trend rates could have a significant effect on the amounts reported for the U.S. post-retirement medical benefitplans. A one percentage point change in the assumed healthcare cost trend rates for the year ended November 3, 2013 would have the following effects: 1% Increase 1% DecreaseEffect on U.S. post-retirement medical benefit obligation (in millions)$1 $(1)Percentage effect on U.S. post-retirement medical benefit obligation7% (6)%A one percentage point increase or decrease in our healthcare cost trend rates would have increased or decreased the service and interest cost componentsof the net periodic benefit cost by $0 million.In December 2013, plan amendments, effective January 1, 2014, were made to the U.S. post-retirement medical benefit plan. The plan amendmentaffected active employees and had no impact to existing retirees. A cash settlement based on age and years of service will be paid to employees eligible for thespending account of $40,000 under our retiree medical account program. This cash settlement is estimated to occur in the first quarter of fiscal year 2014. Forthose employees eligible for the spending account of $55,000, upon retirement, the period during which retirees may claim reimbursement for premiums paidfor medical coverage has been extended from age 65 to 75. In addition, those employees previously eligible for the traditional retiree medical plan uponretirement will only be eligible for the extended $55,000 retiree medical account program. Based on the above plan amendments, there will be both acurtailment and a settlement impact to the consolidated financial statements. The plan amendments are estimated to reduce the aggregate benefit obligation by$8 million to $14 million. Further, the estimated curtailment impact to results from operations is a gain of $1 million and the settlement impact is a gain of $2million.7.BorrowingsWe had no borrowings as of November 3, 2013 and October 28, 2012.2013 Revolving Credit Facility85Table of ContentsOn October 28, 2013, Avago Technologies Finance Pte. Ltd., or Avago Finance, and certain other subsidiaries of the Company entered into a new creditagreement with a syndicate of financial institutions, referred to as the 2013 credit agreement. The 2013 credit agreement provides for a $575 millionunsecured, revolving credit facility. The credit agreement expires on October 28, 2018. The 2013 credit agreement includes (i) financial covenants requiringAvago Finance to maintain a maximum leverage ratio and a minimum interest coverage ratio; (ii) customary restrictive covenants (subject, in each case, tocertain exceptions and amounts) that limit Avago Finance’s ability to, among other things, create liens, merge or consolidate with and into other persons, paydividends and sell assets; (iii) customary events of default, upon the occurrence of which, after any applicable grace period, the lenders will have the ability toaccelerate all outstanding loans thereunder and terminate the commitments; and (iv) customary representations and warranties. Compliance with financialcovenants is required for the term of the 2013 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 the 2013 credit agreement from $575 million to $675 million subject to the condition that no defaultor event of default shall have occurred and be continuing and other terms and conditions set forth in the credit agreement, and the receipt of sufficientcommitments for such increase from the lenders. Certain subsidiaries of the Company guarantee the new unsecured, revolving credit facility. The 2013 credit agreement also provides for the issuance ofletters of credit of up to $20 million in the aggregate, which reduces the available borrowing capacity under the unsecured, revolving credit facility on a dollarfor dollar basis. As of November 3, 2013, we had $575 million available under the 2013 unsecured, revolving credit facility and were in compliance with thefinancial covenants under our 2013 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%; orEurocurrency 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 interestperiod, 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 thePublic Debt Rating and the aggregate amount of the outstanding commitments under the credit agreement.2011 Revolving Credit FacilityOn October 28, 2013, in connection with entering into the 2013 credit agreement discussed above, we terminated our previous $300 million seniorunsecured credit facility (originally a $200 million credit facility), under the credit agreement among Avago Finance and certain other subsidiaries of theCompany and a syndicate of financial institutions entered into on March 31, 2011, or the 2011 credit agreement. There were no outstanding loan borrowingsunder 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 debtamortization costs and other related expenses and is shown on the consolidated statements of operations.On August 6, 2012, Avago Finance exercised the accordion feature under the 2011 credit agreement to increase the aggregate commitments for itsunsecured revolving credit facility from $200 million to $300 million. This increase in the unsecured, revolving credit facility commitment result in acorresponding increase in commitment fees payable under the credit agreement. (See Note 11. "Interest Expense")Senior Secured Credit FacilityOn March 31, 2011, in connection with entering into the credit agreement discussed above, we terminated our previous $350 million senior securedcredit facility, which we entered into in connection with the SPG Acquisition. There were no outstanding loan borrowings under this facility at the time oftermination. This termination resulted in a loss on extinguishment of debt of $1 million, related to the write-off of debt amortization costs and other relatedexpenses.86Table of ContentsSenior and Senior Subordinated NotesIn connection with the SPG Acquisition, we completed a private placement of $1,000 million principal amount of unsecured debt consisting of (i) $500million 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 RateNotes 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 of11 7/8% Senior Subordinated Notes due December 1, 2015, or senior subordinated notes.During fiscal year 2011, we redeemed the remaining $230 million aggregate principal amount outstanding of our senior subordinated notes. We redeemedthe senior subordinated notes at a 5.938% premium of the principal amount plus accrued interest, resulting in a loss on extinguishment of debt of $19million, which consisted of a $14 million premium and a $5 million write-off of debt issuance costs and other related expenses.Debt Issuance CostsUnamortized debt issuance costs associated with the 2013 credit facility were $2 million at November 3, 2013 and unamortized debt issuance costsassociated with the 2011 credit facility were $1 million at October 28, 2012, and are included in other current assets and other long-term assets on theconsolidated balance sheets. Amortization of debt issuance costs is classified as interest expense in the consolidated statements of operations.(See Note 11."Interest Expense")8.Fair ValueFair Value MeasurementsFair 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 marketparticipants at the measurement date. A three level hierarchy is applied to prioritize the inputs to valuation techniques used to measure fair value. The hierarchygives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority tounobservable 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 abilityto access at the measurement date. Our Level 1 assets include bank acceptances, trading securities investments and investment funds (i.e., deferredcompensation plan assets). We measure trading securities investments and investment funds at quoted market prices as they are traded in an active marketwith 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 orindirectly. 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 fiscal year ended November 3, 2013.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 atthe measurement date. Level 3 assets and liabilities include cost method investments, goodwill, amortizable intangible assets, and property, plant andequipment, which are measured at fair value using a discounted cash flow approach when they are impaired. Quantitative information for Level 3 assets andliabilities reviewed at each reporting period, include indicators of significant deterioration in the earnings performance, credit rating, asset quality, businessprospects 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 themfor 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 isaccounted for under the cost method and is included on the consolidated balance sheets in other long-term assets. In fiscal year 2011, we also entered into acollateralized loan and warrant purchase agreement with this company, pursuant to which we provided it with a collateralized loan of $1 million, at an annualinterest 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 equityinvestment and loan were both determined to be impaired in fiscal year 2012.During fiscal year 2013, we made a minority equity investment of $9 million in a U.S. stock exchange listed company. At November 3, 2013, thisminority equity investment was $14 million at fair value and we classified this investment as trading securities in other current assets on the consolidatedbalance sheets. We did not have any Level 3 asset or liability activities other than those noted above during the fiscal year ended November 3, 2013.87Table of ContentsAssets and Liabilities Measured at Fair Value on a Recurring BasisThe table below sets forth by level our financial assets and liabilities that were accounted for at fair value as of November 3, 2013. The table does notinclude cash on hand and also does not include assets that are measured at historical cost or any basis other than fair value (in millions): November 3, 2013 Portion ofCarryingValue Measured atFair Value Fair ValueMeasurement UsingQuotedPrices in ActiveMarket forIdentical Assets(Level 1) Fair ValueMeasurement UsingSignificant OtherInputs (Level 2) Fair Value Measurement Using Significant OtherInputs (Level 3)Assets: Trading Securities (1)$14 $14 — —Investment Funds - Deferred Compensation PlanAssets (1)9 9 — —Bank acceptance (1)1 1 — —Total assets measured at fair value$24 $24 $— $—Liabilities: Investment Funds - Deferred Compensation PlanLiabilities (2)$9 $— $9 $—Total liabilities measured at fair value$9 $— $9 $—_______________________________________(1)Included in other current assets in our consolidated balance sheets(2)Included in other current liabilities in our consolidated balance sheetsDuring the fiscal year ended November 3, 2013, there were no transfers between Level 1 and Level 2 fair value instruments.Assets Measured at Fair Value on a Nonrecurring BasisThere were no non-financial assets or liabilities measured at fair value as of November 3, 2013.Fair Value of Other Financial InstrumentsThe fair values of cash equivalents, trade accounts receivable, accounts payable and accrued liabilities, to the extent the underlying liability will besettled in cash, approximate carrying values because of the short-term nature of these instruments.9.Shareholders’ EquityOn August 6, 2010, we filed a shelf registration statement on Form S-3 with the SEC, through which we or selling securityholders may sell from time totime any combination of ordinary shares, debt securities, warrants, rights, purchase contracts and units, in one or more offerings. Since then, certain of ourshareholders 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 saleof 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 theshareholder in such offerings. This shelf registration statement expired in August 2013.Date of final prospectus(filed with the SEC) Date transaction closed Number of shares sold by shareholders in thetransactionAugust 13, 2010 August 18, 2010 14,905,000December 6, 2010 December 10, 2010 25,000,000January 18, 2011 January 21, 2011 25,000,000February 28, 2011 March 4, 2011 25,000,000May 31, 2011 June 3, 2011 25,000,000September 28, 2011 October 3, 2011 17,250,000December 6, 2012 December 12, 2012 21,490,02288Table of ContentsOn October 30, 2013, we filed a shelf registration statement on Form S-3 with the SEC, through which we or selling securityholders may sell from time totime any combination of ordinary shares, debt securities, warrants, rights, purchase contracts and units, in one or more offerings.Share Repurchase ProgramOn April 4, 2012, the Board of Directors, or the Board, authorized the Company to repurchase up to 15 million of its outstanding ordinary shares,referred to as the 2012 repurchase program. The 2012 repurchase program expired on April 9, 2013, the day prior to the Company's 2013 annual generalmeeting on April 10, 2013. Under the 2012 share repurchase program, the Company repurchased and cancelled approximately 0.7 million shares for anaggregate purchase price of $24 million in cash during the two fiscal quarters ended May 5, 2013 prior to the expiration of the plan. The weighted-averagepurchase price per share for shares repurchased was $33.42 for the two fiscal quarters ended May 5, 2013. All repurchased shares were immediately retired.On April 10, 2013, the Board authorized the Company to repurchase up to 20 million of its ordinary shares, or the 2013 share repurchase program.This program replaces the expired 2012 share repurchase program. The 2013 share repurchase program will expire the day prior to the Company's 2014annual general meeting, unless earlier terminated. Share repurchases will be made in the open market at such times and in such amounts as the Companydeems appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price, market conditions and applicablelegal requirements. The 2013 share repurchase program does not obligate the Company to repurchase any specific number of shares and may be suspendedfrom time to time or terminated at any time without prior notice. All repurchased shares are immediately retired. Under the 2013 share repurchase program, theCompany repurchased 1.9 million shares for an aggregate purchase price of $71 million in cash at a weighted average purchase price per share of $38.35during the fiscal year ended November 3, 2013. As of November 3, 2013, 18.1 million shares remained available for repurchase under the 2013 sharerepurchase program.DividendsDuring fiscal year 2013, aggregate cash dividends of $0.80 per share were declared and paid on the Company's outstanding ordinary shares, resultingin payments to our shareholders of an aggregate of $198 million. During fiscal year 2012, aggregate cash dividends of $0.56 per share were declared and paidon the Company's outstanding ordinary shares, resulting in payments to our shareholders of an aggregate of $137 million. During fiscal year 2011, aggregatecash dividends of $0.35 per share were declared and paid on the Company's outstanding ordinary shares, resulting in payments to our shareholders of anaggregate of $86 million.Equity Incentive Award PlansEffective December 1, 2005, we adopted two equity-based compensation plans, the Equity Incentive Plan for Executive Employees of AvagoTechnologies Limited and Subsidiaries, or the Executive Plan, and the Equity Incentive Plan for Senior Management Employees of Avago TechnologiesLimited and Subsidiaries, or the Senior Management Plan and, together with the Executive Plan, the Pre-IPO Equity Incentive Plans, which authorized thegrant 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 tomake 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 attainingcertain performance criteria, in each case subject to continued employment. Those options subject to vesting based on the passage of time may accelerate byone year upon certain terminations of employment. Options issued under the Senior Management Plan, generally vest at a rate of 20% per year based on thepassage 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, inwhich 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 tothe 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 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 theannual 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 yearand (c) such smaller number of ordinary shares as determined by our Board. However, no more than 90 million ordinary shares may be issued upon theexercise of equity awards issued under the 2009 Plan. The 2009 Plan became effective on July 27, 2009. Options issued to employees under the 2009 Planprior to March 2011 generally expire ten years following the date of grant. With effect from March 2011, options issued to employees under the 2009 Plangenerally expire seven years after the date of grant. Options awarded to non-employees under this plan generally expire after five years. Options issued toemployees89Table of Contentsunder 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 dateof grant. Any share options cancelled or forfeited under the Pre-IPO Equity Incentive Plans after July 27, 2009 become available for issuance under the 2009Plan. 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 underthe 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 ordinaryshares 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 AwardsAvailable forGrant NumberOutstanding Weighted-AverageExercise Priceper Share Weighted-AverageRemainingContractual Life(in years) AggregateIntrinsicValueBalance as of October 31, 201014 23 $11.50 Granted(5) 5 $32.42 Exercised (8) $7.59 Cancelled1 (1) $17.11 Balance as of October 30, 201110 19 $17.93 Annual increase in shares available for issuance, per equity incentive plan terms6 Granted(5) 5 $34.79 Exercised (3) $13.24 Cancelled1 (1) $23.98 Balance as of October 28, 201212 20 $22.45 Annual increase in shares available for issuance, per equity incentive plan terms6 Granted(9) 9 $36.63 Exercised (6) $16.02 Cancelled1 (1) $27.57 Balance as of November 3, 201310 22 $29.81 5.72 $333Fully vested as of November 3, 2013 7 $20.44 5.14 $164Fully vested and expected to vest as of November 3, 2013 21 $29.45 5.69 $32390Table of ContentsThe total intrinsic value of options exercised during fiscal year 2013, 2012 and 2011 was $130 million, $62 million and $184 million, respectively.The following table summarizes significant ranges of outstanding and exercisable option awards as of November 3, 2013 (in millions, except years andper share amounts): Awards Outstanding Awards Exercisable Exercise PricesNumberOutstanding Weighted-AverageRemainingContractual Life(in years) Weighted-AverageExercise Price perShare NumberExercisable Weighted-AverageExercise Price perShare$0.00-10.001 4.49 $8.38 1 $7.9610.01-20.003 5.08 $13.43 3 $13.2520.01-30.002 6.65 $21.03 1 $20.8730.01-40.0016 5.81 $35.41 2 $33.9440.01-42.60— 6.93 $42.60 — $—Total22 5.72 $29.81 7 $20.44A summary of RSU activity related to our equity incentive plans for the fiscal year ended November 3, 2013 is as follows (in millions, except years andper share amounts): RSU Awards Outstanding NumberOutstanding Weighted-AverageGrant DateFair Market Value Weighted-AverageRemainingContractualLife (in years)Balance as of October 28, 2012 1 $32.69 Granted 1 $35.69 Vested — $31.31 Forfeited — $29.91 Balance as of November 3, 2013 2 $34.38 2.84RSU activity and the number of outstanding RSUs were not material for either of the fiscal years ended October 28, 2012 and October 30, 2011.Employee Share Purchase PlanThe ESPP provides eligible employees with the opportunity to acquire an ownership interest in the Company through periodic payroll deductions, basedon 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 therelevant 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 1986and is not subject to the provisions of the Employee Retirement Income Security Act of 1974. The ESPP will terminate on July 27, 2019 unless soonerterminated. 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 with theterms set forth in the ESPP. During fiscal year 2013, 2012 and 2011, employees purchased 0.2 million, 0.2 million and 0.3 million shares, respectively, foraggregate consideration of $7 million, in each of such fiscal years. As at November 3, 2013, 9.3 million shares remained available for issuance under theESPP.Share-Based Compensation ExpenseShare-based compensation expense consists of expense for time-based and market-based stock options and RSUs granted to both employees and non-employees as well as expense associated with ESPP.We recognize compensation expense for time-based stock options based on the estimated grant date fair value method required under the authoritativeguidance using Black-Scholes valuation model with a straight-line amortization method. Since the authoritative guidance requires that share-basedcompensation expense be based on awards that are ultimately expected to vest, estimated share-based compensation expense for such awards has been reducedfor estimated forfeitures. Changes in the91Table of Contentsestimated forfeiture rates can have a significant effect on share-based compensation expense since the effect of adjusting the rate is recognized in the period theforfeiture estimate is changed.Certain stock options granted during of fiscal year 2013, included both service and market conditions. The fair value of these share price performance,or market-based, option awards is estimated on the date of grant using the Monte Carlo simulation technique. Assumptions utilized in the Monte Carlosimulation model follow the same methodology as our time-based option awards. Compensation expense for market-based option awards is amortized basedupon a graded vesting method. We recorded $5 million of expense related to market-based options during the year ended November 3, 2013.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 fairvalue 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$12 million, $5 million and $2 million of compensation expense related to RSUs for the year ended November 3, 2013, October 28, 2012 and October 30,2011, respectively.We record share-based compensation expense based on an estimate of the fair value of rights to purchase ordinary shares under the ESPP, and recognizethis share-based compensation expense using the straight-line amortization method. We recorded $3 million of compensation expense related to the ESPP foreach of the fiscal year ended November 3, 2013, October 28, 2012 and October 30, 2011.The following table summarizes total share-based compensation expense for the years ended November 3, 2013, October 28, 2012 and October 30, 2011(in millions): Fiscal Year Ended November 3, 2013 October 28, 2012 October 30, 2011Cost of products sold$10 $6 $4Research and development30 20 14Selling, general and administrative37 27 20Total share-based compensation expense$77 $53 $38The weighted-average assumptions utilized for our time-based options, ESPP rights and market-based stock options granted during the years endedNovember 3, 2013, October 28, 2012 and October 30, 2011 are as follows: Options Fiscal Year Ended November 3, 2013 October 28, 2012 October 30, 2011Risk-free interest rate1.0% 0.8% 2.0%Dividend yield2.0% 1.4% 0.9%Volatility48.0% 53.0% 45.0%Expected term (in years)5.0 5.0 5.0 ESPP Fiscal Year Ended November 3, 2013 October 28, 2012 October 30, 2011Risk-free interest rate0.1% 0.1% 0.1%Dividend yield2.1% 1.4% 0.6%Volatility44.0% 50.4% 42.6%Expected term (in years)0.5 0.5 0.592Table of Contents Market-based Options Fiscal Year Ended November 3, 2013 Risk-free interest rate 2.0% Dividend yield 2.2% Volatility 48.0% The dividend yields for the fiscal years ended November 3, 2013, October 28, 2012 and October 30, 2011 are based on the historical and expecteddividend payouts as of the respective option grant dates. For the fiscal year ended November 3, 2013, expected volatility is based on the combination ofhistorical volatility of guideline publicly-traded companies and our own historical share price volatility over the period commensurate with the expected life ofthe awards and the implied volatility from traded options in guideline publicly-traded companies and our own shares with a term of 720 days or greatermeasured over the last three months. Effective for the first quarter of fiscal year 2013 we updated our guideline publicly-traded companies based on directcompetitors in our target markets. Prior to fiscal year 2013, expected volatility was based on the combination of historical volatility of our previous group ofguideline publicly-traded companies over the period commensurate with the expected life of the options and the implied volatility of guideline publicly-tradedcompanies 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 averageU.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 otherdata, such as the data of peer companies and company-specific attributes that we believe could affect employees’ exercise behavior.The expected life of market-based stock options valued using Monte Carlo simulation techniques is based upon the vesting dates forecasted by thesimulation and then assuming that options which vest, and for which the market condition has been satisfied, are exercised at the midpoint between theforecasted vesting date and their expiration.Based on the above assumptions, the weighted-average fair values of the time based options granted under our equity incentive award plans for the yearsended November 3, 2013, October 28, 2012 and October 30, 2011 was $12.77, $14.28 and $12.41, respectively. The weighted-average fair values of themarket-based options for the year ended November 3, 2013 was $14.02. The weighted-average fair values of the rights to purchase shares in the ESPP for theyear ended November 3, 2013, October 28, 2012 and October 30, 2011 were $11.78, $12.76 and $8.52 per ordinary share, respectively. The weighted-average fair value of RSUs granted under the 2009 Equity Incentive Award Plan for the year ended November 3, 2013, October 28, 2012 and October 30,2011 was $35.69, $34.66 and $32.41, respectively. 1.5 million, 0.9 million and $0.5 million RSUs were unvested as of November 3, 2013, October 28,2012 and October 30, 2011, respectively.Based on our historical experience of pre-vesting option cancellations, we have assumed an annualized forfeiture rate for our options of 6%, for fiscalyear 2013 and 8% for each of the fiscal years 2012 and 2011. We have assumed an annualized forfeiture rate of 5% for RSUs for fiscal year 2013 and 8% forfiscal year 2012 and 2011. We have assumed an annualized forfeiture rate of 0% for ESPP purchase rights for fiscal years 2013, 2012 and 2011 because theforfeiture impact was not material for either period. We will record additional expense if actual forfeitures are lower than we estimated, and will record arecovery of prior expense if actual forfeitures are higher than we estimated.Total compensation cost of options granted but not yet vested as of November 3, 2013 was $164 million, which is expected to be recognized over theremaining weighted-average service period of 3 years. The total grant-date fair value of options vested during fiscal year 2013, 2012 and 2011 was $53million, $42 million and $34 million, respectively. Total unrecognized compensation cost related to the ESPP as of November 3, 2013 was $1 million, whichis expected to be recognized over the remaining 4 months of the current offering period under the ESPP. Total compensation cost related to unvested RSUs as ofNovember 3, 2013 was $36 million, which is expected to be recognized over the remaining weighted-average service period of 3 years. The total grant-date fairvalue of RSUs vested during fiscal year 2013 and 2012 was $4 million and $1 million, respectively. No RSUs vested during the fiscal year 2011. Theincome tax benefits for share-based compensation expense was $25 million, $13 million and $14 million for fiscal years ended November 3, 2013,October 28, 2012 and October 30, 2011, respectively.10.Income TaxesConsequent to the incorporation of Avago in Singapore, domestic income reflects the results of operations based in Singapore.93Table of ContentsComponents of Income Before Income TaxesFor financial reporting purposes, “Income before income taxes” included the following components (in millions): Fiscal Year Ended November 3, 2013 October 28, 2012 October 30, 2011Domestic income$465 $503 $500Foreign income103 82 61Income before income taxes$568 $585 $561Components of Provision for Income TaxesWe have obtained several tax incentives from the Singapore Economic Development Board, an agency of the Government of Singapore, which providethat 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 anddistinct from the others, and may be granted, withheld, extended, modified, truncated, complied with or terminated independently without any effect on theother incentives. In order to retain these tax benefits in Singapore, we must meet certain operating conditions specific to each incentive relating to, among otherthings, maintenance of a treasury function, a corporate headquarters function, specified intellectual property activities and specified manufacturing activitiesin Singapore. Some of these operating conditions are subject to phase-in periods through 2015. The Singapore tax incentives are presently scheduled to expireat various dates generally between 2014 and 2025. Renewals and extensions of such tax incentives are in the discretion of the Singapore government, and wemay not be able to extend these tax incentive arrangements after their expiration on similar terms or at all. We may elect not to seek to renew or extend certain taxincentive arrangements. In February 2010, the Malaysian government granted us a tax holiday on our qualifying Malaysian income, which is effective for 10 years beginningwith our fiscal year 2009. The tax incentives that we have negotiated in Malaysia are also subject to our compliance with various operating and otherconditions.For the fiscal years ended November 3, 2013, October 28, 2012 and October 30, 2011, the effect of all these tax incentives, in the aggregate, was toreduce the overall provision for income taxes and increase net income from what it otherwise would have been in such year by $77 million, $81 million and$82 million, respectively, and increase diluted net income per share by $0.31, $0.33, and $0.32, respectively.Significant components of the provision for income taxes are as follows (in millions): Fiscal Year Ended November 3, 2013 October 28, 2012 October 30, 2011Current tax expense: Domestic$6 $6 $5Foreign32 15 12 $38 $21 $17Deferred tax expense (benefit): Domestic$(1) $(1) $—Foreign(21) 2 (8) $(22) $1 $(8)Total provision for income taxes$16 $22 $9We recorded a total provision for income taxes of $16 million for the fiscal year ended November 3, 2013 compared to a total of $22 million for thefiscal year ended October 28, 2012. The provision for income taxes in fiscal year 2013 included a benefit of $2 million from the recognition of previouslyunrecognized tax benefits as a result of the expiration of the statute of limitations for certain audit periods, a benefit of $3 million from the enactment of theAmerican Taxpayer Relief Act of 2012, which was signed into law on January 2, 2013, retroactively extending the U.S. Federal Research and Development taxcredit from January 1, 2012 to December 31, 2013, and an additional $1 million decrease in tax provision primarily due to a change in the jurisdictional mixof income and expense.The provision from income taxes in fiscal year 2011 included a $3 million benefit from the release of deferred tax asset valuation allowances and a $3million tax benefit from a change in estimate related to research and development tax credits.94Table of ContentsRate ReconciliationA reconciliation of the expected statutory tax rate to the actual, effective tax rate on income before income taxes is as follows: Fiscal Year Ended November 3, 2013 October 28, 2012 October 30, 2011Expected statutory tax rate17.0 % 17.0 % 17.0 %Foreign income taxed at different rates(0.1) 0.4 —Tax holidays and concessions(13.5) (13.9) (14.6)Other, net(0.6) 0.1 (1.0)Valuation allowance— 0.2 0.1Actual tax rate on income before income taxes2.8 % 3.8 % 1.5 %Summary of Deferred Income TaxesDeferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reportingpurposes and their basis for income tax purposes and the tax effects of net operating losses and tax credit carryforwards.The significant components of deferred tax assets and deferred tax liabilities included on the consolidated balance sheets were as follows (in millions): November 3, 2013 October 28, 2012Deferred income tax assets: Depreciation and amortization$1 $2Inventory5 2Trade accounts2 2Employee benefits29 14Share options23 19Net operating loss carryovers and credit carryovers70 37Other deferred income tax assets6 6Gross deferred income tax assets$136 $82Less valuation allowance(17) (10)Deferred income tax assets$119 $72Deferred income tax liabilities: Depreciation and amortization$78 $9Other deferred income tax liabilities2 —Foreign earnings not permanently reinvested3 2Deferred income tax liabilities$83 $11 Net deferred income tax assets$36 $6195Table of ContentsThe above net deferred income tax asset has been reflected in the accompanying consolidated balance sheets as follows (in millions): November 3, 2013 October 28, 2012Other current assets$32 $14Other current liabilities(1) (2)Net current income tax assets$31 $12 Other long-term assets$10 $51Other long-term liabilities(5) (2)Net long-term income tax assets$5 $49As of November 3, 2013, we had Singapore net operating loss carryforwards of $8 million, U.S. net operating loss carryforwards of $96 million, ofwhich $40 million are related to excess tax deductions related to stock options, U.S. state net operating loss carryforwards of $75 million, of which $52million are related to excess tax deductions related to stock options, and other foreign net operating loss carryforwards of $3 million. The Singapore netoperating 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 2017and 2016, respectively. The other foreign net operating losses expire in various fiscal years beginning 2018. As of November 3, 2013, we had $33 million and$19 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 acorporation or separate return loss year limitations. Any ownership changes, as defined, may restrict utilization of carryforwards. As of November 3, 2013,we had approximately $59 million and $17 million of federal net operating loss and tax credit carryforwards, respectively, in the U.S. subject to an annuallimitation and $34 million subject to separate return loss carryforward limitation. We do not expect these limitations to result in any permanent loss of our taxbenefits.As of November 3, 2013, we had unrecognized deferred tax assets of approximately $16 million attributable to excess tax deductions related to stockoptions, the benefit of which will be credited to equity when realized.We consider all operating income of foreign subsidiaries not to be indefinitely reinvested outside Singapore. We have provided $3 million for foreigntaxes that may result from future remittances of undistributed earnings of foreign subsidiaries, the cumulative amount of which is estimated to be $106million and $103 million as of November 3, 2013 and October 28, 2012, respectively.Uncertain Tax PositionsThe gross unrecognized tax benefits increased by $10 million during fiscal year 2013, resulting in gross unrecognized tax benefits of $37 million as ofNovember 3, 2013.We recognize interest and penalties related to unrecognized tax benefits within the provision for income taxes line in the accompanying consolidatedstatements of operations. We recognized approximately $1 million of expense related to interest and penalties in each of the years presented. Accrued interestand penalties are included within the other long-term liabilities line in the consolidated balance sheets. As of November 3, 2013, October 28, 2012 andOctober 30, 2011, the combined amount of cumulative accrued interest and penalties was approximately $4 million, $4 million and $6 million, respectively.A reconciliation of the beginning and ending balance of gross unrecognized tax benefits is summarized as follows (in millions): November 3, 2013 October 28, 2012 October 30, 2011Beginning of period$27 $30 $27Lapse of statute of limitations(2) (4) —Increases in balances related to tax positions taken during prior periods9 1 1Decreases in balances related to tax positions taken during prior periods— (1) —Increases in balances related to tax positions taken during current period3 1 2End of period$37 $27 $3096Table of ContentsA 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 November 3, 2013, approximately $35 million of the unrecognized tax benefits including accrued interest and penalties would affect our effective taxrate. As of October 28, 2012, approximately $28 million of the unrecognized tax benefits including accrued interest and penalties would affect our effective taxrate.During the fiscal year ended November 3, 2013, we recognized $2 million of previously unrecognized tax benefits as a result of the expiration of thestatute of limitations for certain audit periodsWe are subject to Singapore income tax examination for the years ended October 31, 2006 and later and in major jurisdictions outside Singapore for thefiscal year ended October 31, 2007 and later. We are not under Singapore income tax examination at this time. We believe it is possible that we may recognize$1 million to $14 million of our existing unrecognized tax benefits within the next 12 months as a result of lapses of statute of limitations for certain auditperiods.11.Interest ExpenseInterest expense of $2 million, $1 million and $4 million for the fiscal years ended November 3, 2013, October 28, 2012 and October 30, 2011,respectively, consisted primarily of (i) interest expense of $1 million, $1 million and $3 million, respectively, with respect to commitment fees related to ourprior $300 million unsecured, revolving credit facility under the 2011 credit agreement, as well as the previously outstanding senior notes, senior subordinatednotes, and debt under the senior secured credit facilities, all issued or incurred in connection with the SPG Acquisition; and (ii) amortization of debt issuancecosts of $1 million, $0 million and $1 million, respectively. (See Note 7. "Borrowings")12.Other Income, netOther income, net includes net realized gains on the sale of available-for-sale securities, realized and unrealized gains on trading securities, gains on thesale of cost method investments, interest income, currency gains (losses) on balance sheet remeasurement and other miscellaneous items. The following tablepresents the detail of other income, net (in millions): Fiscal Year Ended November 3, 2013 October 28, 2012 October 30, 2011Other income$15 $3 $1Interest income4 4 1Other expense— (3) (1)Other income, net$19 $4 $113. Segment InformationASC 280 “Segment Reporting,” or ASC 280, establishes standards for the way public business enterprises report information about operating segmentsin 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 wehave one reportable segment based on the following factors: sales of semiconductors represents our only material source of revenue; substantially all productsoffered incorporate analog functionality and are manufactured under similar manufacturing processes; we use an integrated approach in developing ourproducts in that discrete technologies developed are frequently integrated across many of our products; we use a common order fulfillment process and similardistribution approach for our products; and broad distributor networks are typically utilized while large accounts are serviced by a direct sales force. Wecompleted the CyOptics acquisition in fiscal 2013 and are in the process of fully integrating CyOptics into our existing reportable organization structure andbusiness model. 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 ofthe distributors, original equipment manufacturers or contract manufacturers who purchased the Company’s products, which may differ from the geographiclocation of the end customers. Long-lived assets include property, plant and equipment and are based on the physical location of the assets. For customerconcentration details, See Note 2. "Summary of Significant Accounting Policies": (in millions):97Table of Contents Fiscal Year Ended November 3, 2013 October 28, 2012 October 30, 2011Net revenue: China$1,169 $981 $697United States368 371 407Germany195 184 230Korea191 150 225Singapore143 97 106Rest of the World454 581 671 $2,520 $2,364 $2,336 November 3, 2013 October 28, 2012Long-lived assets: United States$445 $324Malaysia60 53Singapore45 42Rest of the World111 84 $661 $50398Table of Contents14.Related Party TransactionsCapstone ConsultingCapstone Consulting, or Capstone, an affiliate of Kohlberg Kravis Roberts & Co., or KKR, one of our former controlling shareholders, was grantedoptions to purchase 800,000 ordinary shares with an exercise price of $5.00 per share on February 3, 2006. In connection with a secondary public offering ofour shares in fiscal year 2011, Capstone exercised and sold 477,501 vested options for an aggregate option exercise proceeds of $2 million.During the fiscal years ended November 3, 2013, October 28, 2012 and October 30, 2011, in the ordinary course of business, we purchased from, orsold to, several entities, where one of the Company's directors also serves or served as a director of that entity, including eSilicon Corporation, KLA-TencorCorporation, Wistron Corporation, WIN Semiconductor Corp., Unisteel Technology Limited, Kulicke & Soffa Industries, Inc. and Flextronics InternationalLtd. 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): Fiscal Year Ended November 3, 2013 October 28, 2012 October 30, 2011Total net revenue (1) (2) (4)$21 $7 $73 Total costs and expenses (2) (3) (5)$2 $8 $56 November 3, 2013 October 28, 2012Total receivables (1)$—* $1 Total payables—* 2_______________________________________* Represents amounts less than $0.5 million.(1) Amounts include net revenue and accounts receivable balances for transactions with Wistron Corporation through the three fiscal quarters ended and as ofAugust 4, 2013, after which Wistron Corporation ceased to be a related party.(2) Amounts include net revenue, cost and expenses for transactions with eSilicon Corporation through the two fiscal quarters ended May 5, 2013, after whicheSilicon Corporation ceased to be a related party.(3) Amounts include cost and expenses for transactions with Unisteel Technology Limited through the two fiscal quarters ended May 5, 2013, after whichUnisteel Technology Limited ceased to be a related party.(4) Amounts include net revenue for transactions with Flextronics through the two fiscal quarters ended May 1, 2011, after which Flextronics ceased to be arelated party.(5) Amounts include cost and expenses for related party transactions with WIN Semiconductor Corp through the three fiscal quarters ended July 31, 2011,after which WIN Semiconductor Corp ceased to be a related party.15.Commitments and ContingenciesCommitmentsThe following table summarizes contractual obligations and commitments as at November 3, 2013 (in millions): Total 2014 2015 2016 2017 2018 ThereafterOperating Leases$91 $13 $11 $5 $5 $4 $53Capital Leases2 1 1 — — — —Other Contractual Commitments51 21 14 10 4 2 —Revolving Credit Facility Commitments5 1 1 1 1 1 —Purchase commitments124 124 — — — — —99Table of ContentsOperating Lease Commitments. We lease certain real property and equipment from third parties under non-cancelable operating leases. Rent expensewas $12 million, $12 million and $13 million for the fiscal years ended November 3, 2013, October 28, 2012 and October 30, 2011, 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 andlegally binding on us and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable priceprovisions 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, Colorado, internal fabrication facility. Thesepurchases are typically conducted on a purchase order basis and the amount shown in the table includes $33 million in cancelable and non-cancelableoutstanding purchase obligations under such purchase orders as of November 3, 2013.Revolving Credit Facility Commitments. Estimated future interest expense payments related to our revolving credit facility consist of payments for ourcommitment fees. (See Note 7. “Borrowings.”)Other Contractual Commitments. We entered into several agreements related to IT, human resources and financial infrastructure outsourcing and otherservices agreements.ContingenciesFrom time to time, we are involved in litigation that we believe is of the type common to companies engaged in our line of business, includingcommercial disputes and employment issues. As of the date of this filing, we are not involved in any pending legal proceedings that we believe would likelyhave a material adverse effect on our financial condition, results of operations or cash flows. However, certain pending disputes involve claims by thirdparties 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 forpast, 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 isprobable 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 beenaccrued 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 ourcontractual indemnification of our customers) often involve highly complex, technical issues, the outcome of which is inherently uncertain. Moreover, fromtime to time we pursue litigation to assert our intellectual property rights. Regardless of the merit or resolution of any such litigation, complex intellectualproperty litigation is generally costly and diverts the efforts and attention of our management and technical personnel.WarrantyCommencing in fiscal year 2008, we notified certain customers of a product quality issue and began taking additional steps to correct the quality issueand work with affected customers to determine potential costs covered by our warranty obligations. We maintain insurance coverage for product liability andhave been working with our insurance carriers to determine the extent of covered losses in this situation. Based on settlements with customers to date, thestatus of discussions with other affected customers and discussions with our insurance carriers, we recorded a charge of $2 million during fiscal year 2009 tocover costs relating to this quality issue in excess of expected insurance coverage. On July 29, 2012, we reached a final settlement agreement with a customeron 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 2011, related to another product quality issue identified during fiscal year 2009, we reached additional final settlement agreementswith certain customers, made $3 million of cash settlement payments and credits and shipped $1 million of replacement parts in connection with theseagreements, 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 progressmade in resolving customer issues, we reassessed our overall exposure relating to this product quality issue, including our estimate of any remainingreplacement parts exposure, and reduced the warranty accrual we previously recorded by $6 million. During fiscal year 2012, following the additionalsettlements and based on all information available to the Company regarding remaining customer exposures100Table of Contentsincluding the progress made in resolving customer issues, we reassessed our overall exposure relating to this product quality issue, including our estimate ofany remaining replacement parts exposure, and reduced the warranty accrual we previously recorded by $1 million. We reassessed our overall exposurerelating to this product quality issue and released and settled the remaining warranty accrual balance of $1 million in fiscal year 2013.Indemnifications to Hewlett-Packard and AgilentAgilent Technologies, Inc., or Agilent, has given multiple indemnities to Hewlett-Packard Company in connection with its activities prior to its spin-offfrom Hewlett-Packard Company in June 1999 for the businesses that constituted Agilent prior to the spin-off. We are the successor to the SPG business ofAgilent. As the successor to the SPG business of Agilent, we have acquired responsibility for indemnifications related to assigned intellectual propertyagreements. Additionally, when we completed the acquisition from Agilent in December 2005, we provided indemnities to Agilent with regard to Agilent’sconduct 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 beenaccrued in the accompanying consolidated financial statements with respect to these indemnification obligations.Other IndemnificationsAs is customary in our industry and as provided for in local law in the United States and other jurisdictions, many of our standard contracts provideremedies to our customers and others with whom we enter into contracts, such as defense, settlement, or payment of judgment for intellectual property claimsrelated to the use of our products. From time to time, we indemnify customers, as well as our suppliers, contractors, lessors, lessees, companies that purchaseour businesses or assets and others with whom we enter into contracts, against combinations of loss, expense, or liability arising from various triggeringevents 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 theassets 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 wealso provide protection to these parties against claims related to undiscovered liabilities, additional product liability or environmental obligations. In ourexperience, claims made under such indemnifications are rare and the associated estimated fair value of the liability is not material.16.Subsequent EventsDividendOn December 10, 2013, the Board declared an interim cash dividend of $0.25 per ordinary share to holders of record at the close of business(5:00 p.m.), Eastern Time, on December 20, 2013 with such dividend to be paid on December 31, 2013.Pending AcquisitionOn December 15, 2013, we also entered into a merger agreement with LSI Corporation, or LSI, a U.S. publicly traded company that designssemiconductors and software that accelerate storage and networking in data centers, mobile networks and client computing. The aggregate acquisitionconsideration payable in the transaction is approximately $6.6 billion in cash, or $11.15 in cash per share of LSI common stock. Under the mergeragreement, we will also assume all unvested LSI stock options and restricted stock units held by continuing employees and service providers. All vested LSIstock options and restricted stock units, after giving affect to any acceleration, will be cashed out at the effective time of the merger and any remainingunvested LSI stock options and restricted stock units will be cancelled for no consideration.The transaction has been approved by the Avago and LSI boards of directors and is subject to the satisfaction of customary closing conditions,including the receipt of regulatory approvals in various jurisdictions, as well as approval of LSI's stockholders. The merger agreement contains certaintermination rights for Avago and LSI, and provides that, upon termination of the merger agreement under certain specified circumstances, LSI will be obligatedto pay Avago a termination fee of $200 million and Avago will be obligated to pay LSI a termination fee of $400 million. There are no financing contingenciesrelated to the acquisition. The transaction is presently expected to close in the first half of calendar 2014.We expect to finance the transaction with $1 billion of cash from the combined company balance sheet, $4.6 billion of fully committed term loans froma group of banks and $1 billion in proceeds from the private placement of 2% Convertible Senior Notes (referred to as the Convertible Notes), or preferredstock with equivalent economic terms, to an investment fund affiliated with Silver Lake Partners, or SLP. The completion of the private placement of theConvertible Notes is contingent on satisfaction or waiver of customary conditions, as well as a requirement that that the merger with LSI be consummated andthat Avago shall have received simultaneously or substantially simultaneously the proceeds of the committed term loan debt financing referenced above. Theinitial conversion rate for the Convertible Notes is 20.8160 shares of Avago’s ordinary shares per $1,000 principal amount of Convertible Notes, which isequivalent to an initial conversion price of approximately $48.04 per Avago ordinary share.101Table of ContentsSupplementary Financial Data — Quarterly Data (Unaudited) Three Months Ended November 3, 2013 August 4, 2013 May 5, 2013 February 3, 2013 October 28, 2012 July 29, 2012 April 29, 2012 January 29, 2012 (In millions, except per share data)Net revenue$738 $644 $562 $576 $618 $606 $577 $563Cost of products sold: Cost of products sold373 325 276 286 304 297 284 279Amortization of intangible assets19 14 14 14 14 14 14 14Restructuring charges— 1 — — 1 — 1 —Total cost of products sold392 340 290 300 319 311 299 293Gross margin346 304 272 276 299 295 278 270Research and development109 101 95 93 80 89 84 82Selling, general and administrative60 57 52 53 49 49 51 50Amortization of intangible assets7 6 6 5 5 6 5 5Restructuring charges— — 1 1 1 2 1 1Total operating expenses176 164 154 152 135 146 141 138Income from operations170 140 118 124 164 149 137 132Interest expense— (1) (1) — — — — (1)Loss on extinguishment of debt(1) — — — — — — —Other income (expense), net11 5 1 2 1 1 3 (1)Income before income taxes180 144 118 126 165 150 140 130Provision for income taxes8 2 5 1 6 5 6 5Net income$172 $142 $113 $125 $159 $145 $134 $125Net income per share: Basic$0.69 $0.57 $0.46 $0.51 $0.65 $0.59 $0.55 $0.51Diluted$0.68 $0.56 $0.45 $0.50 $0.64 $0.58 $0.54 $0.50Shares used in per share calculations: Basic248 248 246 246 245 245 244 245Diluted253 252 251 251 250 250 250 250Cash dividends declared and paid per share$0.23 $0.21 $0.19 $0.17 $0.16 $0.15 $0.13 $0.12102Table of ContentsSchedule II — Valuation and Qualifying Accounts Balance atBeginningof Period Charged/Credited toNet Income (Loss) ChargesUtilized/Write-offs Balance atEnd ofPeriod (In millions)Accounts receivable allowances: Distributor credit allowance (1) Fiscal year ended November 3, 2013$32 $221 $(214) $39Fiscal year ended October 28, 201217 101 (86) 32Fiscal year ended October 30, 201112 106 (101) 17 Other accounts receivable allowances (2) Fiscal year ended November 3, 2013$5 $18 $(19) $4Fiscal year ended October 28, 20126 17 (18) 5Fiscal year ended October 30, 20114 19 (17) 6 Income tax valuation allowance (3) Fiscal year ended November 3, 2013$10 $7 $— $17Fiscal year ended October 28, 20127 1 2 10Fiscal year ended October 30, 20114 1 2 7_______________________________________(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.(3)The change in fiscal year 2013 valuation allowance includes $6 million that does not impact net income.103Table of ContentsITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENot applicable.ITEM 9A.CONTROLS AND PROCEDURESEvaluation 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 disclosurecontrols and procedures as of November 3, 2013. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under theExchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in thereports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rulesand forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to bedisclosed 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. Managementrecognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectivesand management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of ourdisclosure controls and procedures as of November 3, 2013, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, ourdisclosure 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 overfinancial 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, thecompany’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to providereasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally 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 thecompany;•Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations ofmanagement 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 thatcould 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 ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.Our management assessed the effectiveness of our internal control over financial reporting as of November 3, 2013. In making this assessment, thecompany’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 November 3, 2013, our internal control over financial reporting iseffective based on those criteria.Our evaluation of the effectiveness of our internal control over the financial reporting as of November 3, 2013 did not include the internal controls ofCyOptics. We excluded CyOptics from our assessment of internal control over financial reporting as of November 3, 2013 because it was acquired in abusiness combination in June 2013. CyOptics, Inc. is a wholly owned subsidiary of the Company whose total assets and revenues represent approximatelyless than 5% and 4%, respectively, of the related consolidated financial statements as of, and for the year ended November 3, 2013.The effectiveness of the Company’s internal control over financial reporting, excluding CyOptics, as of November 3, 2013 has been audited byPricewaterhouseCoopers 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.104Table of ContentsChanges 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 thefiscal quarter ended November 3, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.ITEM 9B.OTHER INFORMATIONNot applicable.PART III.ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEThe 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 ourdefinitive Proxy Statement for our 2014 Annual General Meeting of Shareholders to be filed with the SEC within 120 days of the end of our 2013 fiscal yearpursuant 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 executiveofficer, 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-Kregarding any amendments to, or waivers from, our Code of Ethics and Business Conduct by posting such information on our website at the internet addressand location above.ITEM 11.EXECUTIVE COMPENSATIONThe information regarding executive compensation required by this Item 11 set forth in the sections entitled “Director Compensation”, “CompensationDiscussion and Analysis”, “Executive Compensation”, “Compensation Committee Report” and “Corporate Governance — Compensation CommitteeInterlocks and Insider Participation" in our definitive Proxy Statement for our 2014 Annual General Meeting of Shareholders to be filed with the SEC within120 days of the end of our 2013 fiscal year pursuant to General Instruction G(3) to Form 10-K is hereby incorporated by reference in this section. However, theCompensation Committee Report included in such definitive Proxy Statement shall not be deemed “filed” with the SEC for the purposes of Section 18 of theExchange 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 STOCKHOLDERMATTERSThe information regarding security ownership of certain beneficial owners and management and related shareholder matters required by this Item 12 setforth in the section entitled “Security Ownership of Certain Beneficial Owners, Directors and Executive Officers” and “Equity Compensation PlanInformation” in our definitive Proxy Statement for our 2014 Annual General Meeting of Shareholders to be filed with the SEC within 120 days of the end ofour 2013 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 INDEPENDENCEThe 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 Party Transactions” in our definitive Proxy Statement for our 2014 Annual General Meetingof Shareholders to be filed with the SEC within 120 days of the end of our 2013 fiscal year pursuant to General Instruction G(3) to Form 10-K is herebyincorporated by reference in this section.ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICESThe information regarding principal accounting fees and services required by this Item 14 set forth in the proposal relating to the re-appointment of ourindependent registered public accounting firm in our definitive Proxy Statement for our 2014 Annual General Meeting of Shareholders to be filed with theCommission within 120 days of the end of our 2013 fiscal year pursuant to General Instruction G(3) to Form 10-K is hereby incorporated by reference in thissection.105Table of ContentsPART IVITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES(a) The following are filed as part of this Annual Report on Form 10-K:1. Financial StatementsThe following consolidated financial statements are included in Item 8 of this Annual Report on Form 10-K: — Consolidated Balance Sheets as of November 3, 2013 and October 28, 2012 — Consolidated Statements of Operations for the years ended November 3, 2013, October 28, 2012 and October 30, 2011 — Consolidated Statements of Comprehensive Income for the years ended November 3, 2013, October 28, 2012 and October 30, 2011 — Consolidated Statements of Cash Flows for the years ended November 3, 2013, October 28, 2012 and October 30, 2011 — Consolidated Statements of Shareholders’ Equity for the years ended November 3, 2013, October 28, 2012 and October 30, 2011 2. Financial Statement SchedulesThe financial statement schedule required by Item 15(a) (Schedule II, Valuation and Qualifying Accounts) is included in Item 8 of this Annual Reporton 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 inthe financial statements or notes thereto.3. ExhibitsThe 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.106Table of ContentsSIGNATURESPursuant 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 itsbehalf by the undersigned, thereunto duly authorized. AVAGO TECHNOLOGIES LIMITED By: /s/ Hock E. Tan Name:Hock E. Tan Title:President and Chief Executive Officer Date: December 20, 2013POWER OF ATTORNEYEach person whose individual signature appears below hereby authorizes and appoints Hock E. Tan, Anthony E. Maslowski 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 andagent 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 tofile 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 performeach 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 maylawfully 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 onbehalf of the Registrant in the capacities indicated and on the dates indicated.Signature Title Date /s/ Hock E. Tan President and Chief ExecutiveOfficer and Director(Principal Executive Officer) December 20, 2013Hock E. Tan /s/ Anthony E. Maslowski Chief Financial Officer(Principal Financial Officer and Principal Accounting Officer) December 20, 2013Anthony E. Maslowski /s/ James Diller Chairman of the Board of Directors December 20, 2013James Diller /s/ John Dickson Director December 20, 2013John Dickson /s/ Bruno Guilmart Director December 20, 2013Bruno Guilmart /s/ Kenneth Y. Hao Director December 20, 2013Kenneth Y. Hao /s/ Justine Lien Director December 20, 2013Justine Lien /s/ Donald Macleod Director December 20, 2013Donald Macleod Director Peter J. Marks 107Table of ContentsEXHIBIT INDEXExhibitNo. Incorporated by Referenced Herein FiledHerewith Description FormFiling Date 2.1# Asset Purchase Agreement, dated August 14, 2005,between Agilent Technologies, Inc. and ArgosAcquisition Pte. Ltd. Agilent Technologies, Inc. Current Report on Form 8-K (Commission File No. 001-15405)August 15,2005 2.2# Amendment No. 1 to the Asset Purchase Agreement,dated November 30, 2005, between AgilentTechnologies, Inc. and Avago Technologies Limited. Amendment No. 4 to Avago Technologies LimitedRegistration Statement on Form S-1 (CommissionFile No. 333-153127)July 21, 2009 2.3# Amendment No. 2 to the Asset Purchase Agreement,dated December 29, 2006, between AgilentTechnologies, Inc. and Avago Technologies Limited. Amendment No. 1 to Avago Technologies LimitedRegistration Statement on Form S-1 (CommissionFile No. 333-153127)October 1,2008 2.4# Asset Purchase Agreement, dated June 25, 2008,by and among Avago Technologies GmbH, AvagoTechnologies International Sales Pte. Ltd., AvagoTechnologies Wireless IP (Singapore) Pte. Ltd.,Avago Technologies Finance Pte. Ltd. and InfineonTechnologies AG. Amendment No. 4 to Avago Technologies LimitedRegistration Statement on Form S-1 (CommissionFile No. 333-153127)July 21, 2009 2.5# Agreement and Plan of Merger, dated as of April10, 2013, by and among CyOptics, AvagoTechnologies Wireless (U.S.A.) ManufacturingInc., Celsus Acquisition Corp., the Company,Avago Technologies Finance Pte. Ltd. andShareholder Representative Services LLC. Avago Technologies Limited Current Report on Form8-K (File No. 001-34428).April 11, 2013 3.1 Memorandum and Articles of Association. Avago Technologies Limited Current Report on Form8-K (File No. 001-34428).August 14,2009 4.1 Form of Specimen Share Certificate for Registrant’sOrdinary Shares. Amendment No. 3 to Avago Technologies LimitedRegistration Statement on Form S-1 (CommissionFile No. 333-153127)July 14, 2009 10.1 Sublease Agreement, dated June 5, 2009, betweenAgilent Technologies Singapore Pte. Ltd. and AvagoTechnologies Manufacturing (Singapore) Pte. Ltd.,relating to Avago’s facility at 1 Yishun Avenue 7,Singapore 768923. Avago Technologies Limited Registration AnnualReport on Form 10-K (Commission File No. 001-33428)December 15,2010 10.2 Lease No. I/33183P issued by Singapore Housingand Development Board to Compaq Asia Pte Ltd inrespect of the land and structures comprised in Lot1935X of Mukim 19, dated September 26, 2000,and includes the Variation of Lease I/49501Qregistered January 15, 2002, relating to Avago’sfacility at 1 Yishun Avenue 7, Singapore 768923. Avago Technologies Finance Pte. Ltd. RegistrationStatement on Form F-4 (Commission File No. 333-137664)November 15,2006 10.3 Lease No. I/31607P issued by Singapore Housingand Development Board to Compaq Asia Pte Ltd inrespect of the land and structures comprised in Lot1937C of Mukim 19, dated September 26, 2000,and includes the Variation of Lease I/49499Qregistered January 15, 2002, relating to Avago’sfacility at 1 Yishun Avenue 7, Singapore 768923. Avago Technologies Finance Pte. Ltd. RegistrationStatement on Form F-4 (Commission File No. 333-137664)November 15,2006 108Table of ContentsExhibitNo. Incorporated by Referenced Herein FiledHerewith Description FormFiling Date 10.4 Lease No. I/33182P issued by Singapore Housingand Development Board to Compaq Asia Pte Ltd inrespect of the land and structures comprised in Lot2134N of Mukim 19, dated September 26, 2000,and includes the Variation of Lease I/49500Qregistered January 15, 2002, relating to Avago’sfacility at 1 Yishun Avenue 7, Singapore 768923. Avago Technologies Finance Pte. Ltd. RegistrationStatement on Form F-4 (Commission File No. 333-137664)November 15,2006 10.5 Lease No. I/33160P issued by Singapore Housingand Development Board to Compaq Asia Pte Ltd inrespect of the land and structures comprised in Lot1975P of Mukim 19, dated September 26, 2000,and includes the Variation of Lease I/49502Qregistered January 15, 2002, relating to Avago’sfacility at 1 Yishun Avenue 7, Singapore 768923. Avago Technologies Finance Pte. Ltd. RegistrationStatement on Form F-4 (Commission File No. 333-137664)November 15,2006 10.6 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 toAvago’s facility at Bayan Lepas Free IndustrialZone, 11900 Penang, Malaysia. Amendment No. 1 to Avago Technologies LimitedRegistration Statement on Form S-1 (CommissionFile No. 333-153127)October 1,2008 10.7 Supplemental Agreement to Tenancy Agreement,dated December 1, 2005, between AgilentTechnologies (Malaysia) Sdn. Bhd. and AvagoTechnologies (Malaysia) Sdn. Bhd. (f/k/a JumboPortfolio Sdn. Bhd.), relating to Avago’s facility atBayan Lepas Free Industrial Zone, 11900 Penang,Malaysia. Amendment No. 1 to Avago Technologies LimitedRegistration Statement on Form S-1 (CommissionFile No. 333-153127)October 1,2008 10.8 Subdivision and Use Agreement, datedDecember 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 LepasFree Industrial Zone, 11900 Penang, Malaysia. Amendment No. 1 to Avago Technologies LimitedRegistration Statement on Form S-1 (CommissionFile No. 333-153127)October 1,2008 10.9 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 FreeIndustrial Zone, 11900 Penang, Malaysia. Amendment No. 1 to Avago Technologies LimitedRegistration Statement on Form S-1 (CommissionFile No. 333-153127)October 1,2008 10.10 Lease Agreement, dated December 1, 2005, betweenAgilent Technologies, Inc. and Avago TechnologiesU.S. Inc., relating to Avago’s facility at 350 WestTrimble Road, San Jose, California 95131. Amendment No. 1 to Avago Technologies LimitedRegistration Statement on Form S-1 (CommissionFile No. 333-153127)October 1,2008 10.11 First Amendment to Lease Agreement (Building90) and Service Level Agreement, datedJanuary 10, 2007, between Avago TechnologiesU.S. Inc. and Lumileds Lighting B.V. relating toAvago’s facilities at 350 West Trimble Road,San Jose, California 95131. Amendment No. 1 to Avago Technologies LimitedRegistration Statement on Form S-1 (CommissionFile No. 333-153127)October 1,2008 109Table of ContentsExhibitNo. Incorporated by Referenced Herein FiledHerewith Description FormFiling Date 10.12 Lease Agreement dated as of April 29, 2005 by andbetween TriQuint Optoelectronics, Inc. andCyOptics, Inc. and related amendments andrenewals. Avago Technologies Limited Quarterly Report onForm 10-Q (Commission File No. 001-34428)September 13,2013 10.13 Lease Agreement dated as of June 29, 2000("Lease") by and between Inmobiliaria Ayusa, S. deR.L. de C.V. ("Landlord") and Lucent TechnologiesMicroelectronica de Mexico, S.A. de C.V., togetherwith consent of Landlord to assign the Lease to asubsidiary of CyOptics, Inc. and relatedamendments to the Lease. Avago Technologies Limited Quarterly Report onForm 10-Q (Commission File No. 001-34428)September 13,2013 10.14 Credit Agreement, dated October 28, 2013, amongAvago Technologies Finance Pte. Ltd., as Borrower,Avago Technologies Holding Pte. Ltd., AvagoTechnologies International Sales Pte. Limited, AvagoTechnologies US. Inc. and Avago TechnologiesGeneral IP (Singapore) Pte. Ltd., as Guarantors andthe Initial Lenders named therein as Initial Lendersand Citicorp International Limited asAdministrative Agent and Barclays Bank PLC asSyndication Agent and Barclays Bank PLC andCitigroup Global Markets Inc. as Joint LeadArrangers and Joint Bookrunners. Avago Technologies Limited Current Report on Form8-K (Commission File No. 001-34428)October 30,2013 10.15 Ft. Collins Supply Agreement, dated October 28,2005 between Avago Technologies Wireless(U.S.A.) Manufacturing, Inc. and PalauAcquisition Corporation. Avago Technologies Finance Pte. Ltd. AmendmentNo. 1 to Annual Report on Form 20-F/A(Commission File No. 333-137664)June 16, 2009 10.16 Collective Agreement, dated April 29, 2013,between Avago Manufacturing (Singapore) Pte Ltd(and its Singapore affiliates) and United Workersof Electronic & Electrical Industries. Avago Technologies Limited Current Report on Form8-K (Commission File No. 001-33428)September 5,2013 10.17 Collective Employment Contract for an IndefiniteDuration dated as of February 16, 2010 by andbetween CyOptics of Mexico, S. de R.L. de C.V.and Union of Day Laborers and Industrial Workersand the Maquiladora Industry. (English translationof Spanish original). Avago Technologies Limited Quarterly Report onForm 10-Q (Commission File No. 001-33428)September 13,2013 10.18+ 2009 Equity Incentive Award Plan. Amendment No. 5 to Avago Technologies LimitedRegistration Statement on Form S-1 (CommissionFile No. 333-153127)July 27, 2009 10.19+ Equity Incentive Plan for Executive Employees ofAvago Technologies Limited and Subsidiaries(Amended and Restated Effective as ofFebruary 25, 2008). Avago Technologies Finance Pte. Ltd. AmendmentNo. 1 to Annual Report on Form 20-F/A(Commission File No. 333-137664)February 27,2008 10.20+ Equity Incentive Plan for Senior ManagementEmployees of Avago Technologies Limited andSubsidiaries (Amended and Restated Effective as ofFebruary 25, 2008). Avago Technologies Finance Pte. Ltd. AmendmentNo. 1 to Annual Report on Form 20-F/A(Commission File No. 333-137664)February 27,2008 110Table of ContentsExhibitNo. Incorporated by Referenced Herein FiledHerewith Description FormFiling Date 10.21+ Amendment to the Equity Incentive Plan for SeniorManagement Employees of Avago TechnologiesLimited and its Subsidiaries, dated July 27, 2009 Avago Technologies Limited Annual Report on Form10-K (Commission File No. 001-34428)December 16,2011 10.22+ Amendment to the Equity Incentive Plan for SeniorManagement Employees of Avago TechnologiesLimited and its Subsidiaries, dated March 9, 2011 Avago Technologies Limited Quarterly Report onForm 10-Q (Commission File No. 001-34428)June 9, 2011 10.23+ Form of Nonqualified Share Option AgreementUnder the Amended and Restated Equity IncentivePlan for Executive Employees of AvagoTechnologies Limited and Subsidiaries for U.S.employees. Amendment No. 1 to Avago Technologies LimitedRegistration Statement on Form S-1 (CommissionFile No. 333-153127)October 1,2008 10.24+ Form of Nonqualified Share Option AgreementUnder the Equity Incentive Plan for ExecutiveEmployees of Avago Technologies Limited andSubsidiaries for employees in Singapore. Amendment No. 1 to Avago Technologies LimitedRegistration Statement on Form S-1 (CommissionFile No. 333-153127)October 1,2008 10.25+ Form of Nonqualified Share Option AgreementUnder the Amended and Restated Equity IncentivePlan for Senior Management Employees of AvagoTechnologies Limited and Subsidiaries for U.S.non-employee directors. Amendment No. 1 to Avago Technologies LimitedRegistration Statement on Form S-1 (CommissionFile No. 333-153127)October 1,2008 10.26+ Form of Nonqualified Share Option AgreementUnder the Amended and Restated Equity IncentivePlan for Senior Management Employees of AvagoTechnologies Limited and Subsidiaries for non-employee directors in Singapore. Avago Technologies Finance Pte. Ltd. RegistrationStatement on Form F-4 (Commission File No. 333-137664)September 29,2006 10.27+ Amended and Restated Offer Letter Agreement,dated July 17, 2009, between Avago TechnologiesLimited and Hock E. Tan. Amendment No. 4 to Avago Technologies LimitedRegistration Statement on Form S-1 (CommissionFile No. 333-153127)July 21, 2009 10.28+ Amended and Restated Employment Agreement,dated July 17, 2009, between Avago TechnologiesU.S. Inc. and Bryan T. Ingram. Amendment No. 4 to Avago Technologies LimitedRegistration Statement on Form S-1 (CommissionFile No. 333-153127)July 21, 2009 10.29+ Offer Letter Agreement, dated March 20, 2007,between Avago Technologies and Patricia H.McCall. Avago Technologies Finance Pte. Ltd. AmendmentNo. 1 to Annual Report on Form 20-F/A(Commission File No. 333-137664)February 27,2008 10.30+ Form of indemnification agreement between Avagoand its directors (prior to June 2013). Avago Technologies Finance Pte. Ltd. AmendmentNo. 1 to Annual Report on Form 20-F/A(Commission File No. 333-137664)February 27,2008 10.31+ Form of indemnification agreement between Avagoand its directors (effective June 2013). Avago Technologies Limited Quarterly Report onForm 10-Q (Commission File No. 001-34428)September 13,2013 10.32+ Form of indemnification agreement between Avagoand each of its officers. Avago Technologies Finance Pte. Ltd. AmendmentNo. 1 to Annual Report on Form 20-F/A(Commission File No. 333-137664)February 27,2008 10.33+ Severance Benefits Agreement, dated December 3,2008, between Avago Technologies Limited andPatricia H. McCall. Avago Technologies Finance Pte. Ltd. Current Reporton Form 6-K (Commission File No. 333-137664)March 5,2009 111Table of ContentsExhibitNo. Incorporated by Referenced Herein FiledHerewith Description FormFiling Date 10.34+ Offer Letter Agreement, dated December 5, 2008,between Avago Technologies Limited and B.C. Ooi. Avago Technologies Finance Pte. Ltd. Current Reporton Form 6-K (Commission File No. 333-137664)March 5,2009 10.35+ Severance Benefits Agreement, dated March 9,2011, between Avago Technologies US. Inc. andBryan Ingram. Avago Technologies Limited Quarterly Report onForm 10-Q (Commission File No. 001-34428)June 9, 2011 10.36+ Deferred Compensation Plan. Amendment No. 2 to Avago Technologies LimitedRegistration Statement on Form S-1 (CommissionFile No. 333-153127)July 2, 2009 10.37+ Form of Option Agreement Under AvagoTechnologies Limited 2009 Equity Incentive AwardPlan. Amendment No. 5 to Avago Technologies LimitedRegistration Statement on Form S-1 (CommissionFile No. 333-153127)July 27, 2009 10.38+ Form of Notice and Restricted Share UnitAgreement Under Avago Technologies Limited 2009Equity Incentive Award Plan. Avago Technologies Limited Annual Report on Form10-K (Commission File No. 001-33428)December 15,2010 10.39+ Form of Restricted Share Unit Agreement (Sell toCover) Under Avago Technologies Limited 2009Equity Incentive Award Plan. Avago Technologies Limited Quarterly Report onForm 10-Q (Commission File No. 001-34428)June 7, 2013 10.40+ Employee Share Purchase Plan (amended andrestated effective as of June 2, 2010). Avago Technologies Limited Quarterly Report onForm 10-Q (Commission File No. 001-34428)June 3, 2010 21.1 List of Subsidiaries. X23.1 Consent of PricewaterhouseCoopers LLP,independent registered public accounting firm. X24.1 Power of Attorney (see signature page to thisForm 10-K). X31.1 Certification of Principal Executive OfficerPursuant to Rule 13a-14 of the Securities ExchangeAct of 1934, As Adopted Pursuant to Section 302 ofthe Sarbanes-Oxley Act of 2002. X31.2 Certification of Principal Financial OfficerPursuant to Rule 13a-14 of the Securities ExchangeAct of 1934, As Adopted Pursuant to Section 302 ofthe Sarbanes-Oxley Act of 2002. X32.1 Certification of Principal Executive OfficerPursuant to 18 U.S.C. Section 1350, As AdoptedPursuant to Section 906 of the Sarbanes-Oxley Actof 2002. X32.2 Certification of Principal Financial OfficerPursuant to 18 U.S.C. Section 1350, As AdoptedPursuant to Section 906 of the Sarbanes-Oxley Actof 2002. X101.INS XBRL Instance Document X101.SCH XBRL Schema Document X101.CAL XBRL Calculation Linkbase Document X101.DEF XBRL Definition Linkbase Document X101.LAB XBRL Labels Linkbase Document X101.PRE XBRL Presentation Linkbase Document X112Table of ContentsNotes:+ 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 ofany omitted schedules upon request by the SEC.113EXHIBIT 21.1Avago Technologies Limited - List of SubsidiariesName of SubsidiaryCountry of IncorporationOwnership Interest(Direct or Indirect)Avago Semiconductor Technologies (Shanghai) LimitedChina100%Avago Technologies Canada CorporationCanada100%Avago Technologies Fiber Austria GmbH (formerly A3PICs Electronic DevelopmentGmbH)Austria100%Avago Technologies Fiber GmbHGermany100%Avago Technologies Finance Pte. Ltd.Singapore100%Avago Technologies France SASFrance100%Avago Technologies General IP (Singapore) Pte. Ltd.Singapore100%Avago Technologies GmbHGermany100%Avago Technologies Holding Pte. Ltd.Singapore100%Avago Technologies Holdings B.V.Netherlands100%Avago Technologies International Sales Pte. LimitedSingapore100%Avago Technologies Italy S.r.l.Italy100%Avago Technologies Japan, Ltd.Japan100%Avago Technologies Korea Co. Ltd.Korea99%Avago Technologies Luxembourg S.à.r.l.Luxembourg100%Avago Technologies (Malaysia) Sdn. Bhd.Malaysia100%Avago Technologies Manufacturing (Singapore) Pte. Ltd.Singapore100%Avago Technologies Sweden ABSweden100%Avago Technologies Trading LtdMauritius100%Avago Technologies U.K. LimitedEngland100%Avago Technologies U.S. Inc.Delaware (U.S.A.)100%Avago Technologies Wireless (U.S.A.) Manufacturing Inc.Delaware (U.S.A.)100%CyOptics, Inc.Delaware (U.S.A.)100%CyOptics China, Inc.Delaware (U.S.A)100%CyOptics International Holding Co.Delaware (U.S.A)100%CyOptics International Holding LLCDelaware (U.S.A)100%CyOptics de Mexico, S. de R.L. de C.V.Mexico100%CyOptics Taiwan, Inc.Delaware (U.S.A.)100%CY, Taiwan LtdTaiwan100%CY Technologies (Shenzen) LtdChina100%East Texas Integrated Circuits, Inc.Texas100%Eltra Slovakia, S.r.o.Slovakia100%Eltra S.p.A.Italy100%Javelin Semiconductor, Inc.Delaware (U.S.A.)100%Nemicon CorporationJapan100%REP Avago (Wuxi) Electronics Technologies LimitedChina100%Scenic Drive Sdn. Bhd.Malaysia100%EXHIBIT 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-161746 and 333-169172) andS‑3 (No. 333-168621) of Avago Technologies Limited of our report dated December 20, 2013, relating to the financial statements, financialstatement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10‑K./s/ PricewaterhouseCoopers LLPSan Jose, CaliforniaDecember 20, 2013EXHIBIT 31.1CERTIFICATION OF CHIEF EXECUTIVE OFFICERPURSUANT TO SECTION 302 OFTHE SARBANES-OXLEY ACT OF 2002I, Hock E. Tan, certify that:1.I have reviewed this Annual Report on Form 10-K of Avago Technologies Limited;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting./s/ Hock E. Tan Hock E. Tan Chief Executive Officer Date: December 20, 2013EXHIBIT 31.2CERTIFICATION OF CHIEF FINANCIAL OFFICERPURSUANT TO SECTION 302 OFTHE SARBANES-OXLEY ACT OF 2002I, Anthony E. Maslowski, certify that:1.I have reviewed this Annual Report on Form 10-K of Avago Technologies Limited;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting./s/ Anthony E. Maslowski Anthony E. Maslowski Chief Financial Officer Date: December 20, 2013EXHIBIT 32.1CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTEDPURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report on Form 10-K of Avago Technologies Limited (the “Company”) for the year ended November 3, 2013 as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), the undersigned, Hock E. Tan, Chief Executive Officer of the Company, herebycertifies, pursuant to 18 U.S.C. Section 1350, that:(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date:December 20, 2013/s/ Hock E. Tan Hock E. Tan Chief Executive Officer The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosuredocument.EXHIBIT 32.2CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTEDPURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report on Form 10-K of Avago Technologies Limited (the “Company”) for the year ended November 3, 2013 as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), the undersigned, Anthony E. Maslowski, Chief Financial Officer of the Company,hereby certifies, pursuant to 18 U.S.C. Section 1350, that:(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date:December 20, 2013/s/ Anthony E. Maslowski Anthony E. Maslowski Chief Financial Officer The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosuredocument.

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