10-Q 1 avgo-02042018x10q.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 4, 2018
OR
¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
State or Other Jurisdiction of Incorporation or Organization
 
Exact Name of Registrant as Specified in Its Charter
Address of Principal Executive Offices
Registrant’s telephone number, including area code
 
Commission File Number
 
IRS Employer Identification No.
Singapore
 
Broadcom Limited
 
001-37690
 
98-1254807
 
 
1 Yishun Avenue 7
Singapore 768923
 
 
 
 
 
 
(65) 6755-7888
 
 
 
 
Cayman Islands
 
Broadcom Cayman L.P.
 
333-2025938
 
98-1254815
 
 
c/o Broadcom Limited
1 Yishun Avenue 7
Singapore 768923
 
 
 
 
 
 
(65) 6755-7888
 
 
 
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Broadcom Limited: YES þ NO o Broadcom Cayman L.P. : YES þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Broadcom Limited: YES þ NO o Broadcom Cayman L.P. : YES þ NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Broadcom Limited:
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o
Broadcom Cayman L.P.:
Large accelerated filer o
Accelerated filer o
Non-accelerated filer þ
Smaller reporting company o
Emerging growth company o
 
 
 
(Do not check if a smaller reporting company)
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Broadcom Limited: YES o NO þ Broadcom Cayman L.P. : YES o NO þ
As of March 2, 2018, Broadcom Limited had 410,736,181 of its ordinary shares, no par value per share, outstanding.
As of March 2, 2018, Broadcom Cayman L.P. had 390,952,394 common partnership units outstanding (all of which are owned by Broadcom Limited) and 22,090,052 exchangeable limited partnership units outstanding.


EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the fiscal quarter ended February 4, 2018 of Broadcom Limited and Broadcom Cayman L.P. Unless stated otherwise or the context otherwise requires, references to “Broadcom,” “we,” “our” and “us” mean Broadcom Limited and its consolidated subsidiaries, including Broadcom Cayman L.P. References to the “Partnership” mean Broadcom Cayman L.P. and its consolidated subsidiaries.
As of February 4, 2018, Broadcom Limited owned approximately 95% of the Partnership (represented by common partnership units, or Common Units) and is the sole general partner of the Partnership, or the General Partner. The balance of the partnership units represents exchangeable limited partnership units, or LP Units, the holders of which are referred to as the Limited Partners. As the General Partner, Broadcom has the exclusive right, power and authority to manage, control, administer and operate the business and affairs and to make decisions regarding the undertaking and business of the Partnership in accordance with the amended and restated exempted limited partnership agreement, as amended from time to time, and applicable laws. There is no board of directors of the Partnership.
Shareholders’ equity, partners’ capital and the Limited Partners’ noncontrolling interest in Broadcom are the primary areas of difference between the unaudited condensed consolidated financial statements of Broadcom and those of the Partnership. The Partnership’s capital consists of Common Units owned by Broadcom and LP units owned by the Limited Partners. The LP Units are accounted for in partners’ capital in the Partnership’s financial statements and as noncontrolling interest in shareholders’ equity in Broadcom’s financial statements.
The material differences between Broadcom and the Partnership are discussed in various sections in this report, including separate financial statements (but combined footnotes), separate disclosure controls and procedures sections, separate certifications of periodic report under Section 302 of the Sarbanes-Oxley Act of 2002 and separate certifications pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. In the sections that combine disclosure for Broadcom and the Partnership, this report refers to actions or holdings as being actions or holdings of Broadcom.
Broadcom consolidates the Partnership for financial reporting purposes, and neither Broadcom nor the Partnership has material assets other than its interests in their subsidiaries. Therefore, while shareholders’ equity and partners’ capital differ as discussed above, the assets of Broadcom and the Partnership are materially the same on their respective financial statements.

2

BROADCOM LIMITED AND BROADCOM CAYMAN L.P.
Quarterly Report on Form 10-Q
For the Quarterly Period Ended February 4, 2018

TABLE OF CONTENTS

3

PART I — FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements — Unaudited
BROADCOM LIMITED AND BROADCOM CAYMAN L.P.
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

4

BROADCOM LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS — UNAUDITED
 
 
February 4,
2018
 
October 29,
2017
 
 
 
 
 
 
 
(In millions, except share amounts)
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
7,076

 
$
11,204

Trade accounts receivable, net
 
2,459

 
2,448

Inventory
 
1,291


1,447

Other current assets
 
394


724

Total current assets
 
11,220

 
15,823

Long-term assets:
 
 
 
 
Property, plant and equipment, net
 
2,747

 
2,599

Goodwill
 
26,899

 
24,706

Intangible assets, net
 
13,171

 
10,832

Other long-term assets
 
507


458

Total assets
 
$
54,544

 
$
54,418

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
816

 
$
1,105

Employee compensation and benefits
 
333

 
626

Current portion of long-term debt
 
117

 
117

Other current liabilities
 
704


681

Total current liabilities
 
1,970

 
2,529

Long-term liabilities:
 
 
 
 
Long-term debt
 
17,475

 
17,431

Other long-term liabilities
 
6,018


11,272

Total liabilities
 
25,463

 
31,232

Commitments and contingencies (Note 12)
 


 


Shareholders’ equity:
 
 
 
 
Ordinary shares, no par value; 409,983,907 shares and 408,732,155 shares issued and outstanding on February 4, 2018 and October 29, 2017, respectively
 
20,851

 
20,505

Non-economic voting preference shares, no par value; 22,107,689 shares and 22,145,603 shares issued and outstanding on February 4, 2018 and October 29, 2017, respectively
 
—

 
—

Retained earnings (accumulated deficit)
 
5,132

 
(129
)
Accumulated other comprehensive loss
 
(82
)
 
(91
)
Total Broadcom Limited shareholders’ equity
 
25,901

 
20,285

Noncontrolling interest
 
3,180

 
2,901

Total shareholders’ equity
 
29,081

 
23,186

Total liabilities and shareholders’ equity
 
$
54,544

 
$
54,418


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


5

BROADCOM LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS — UNAUDITED
 
 
Fiscal Quarter Ended
 
 
February 4,
2018
 
January 29,
2017
 
 
 
 
 
 
 
(In millions, except per share data)

Net revenue
 
$
5,327

 
$
4,139

Cost of products sold:
 
 
 
 
Cost of products sold
 
1,899

 
1,573

Purchase accounting effect on inventory
 
70

 
—

Amortization of acquisition-related intangible assets
 
715

 
559

Restructuring charges
 
15

 
6

Total cost of products sold
 
2,699

 
2,138

Gross margin
 
2,628

 
2,001

Research and development
 
925

 
808

Selling, general and administrative
 
291

 
201

Amortization of acquisition-related intangible assets
 
339

 
440

Restructuring, impairment and disposal charges
 
130

 
46

Total operating expenses
 
1,685

 
1,495

Operating income
 
943

 
506

Interest expense
 
(183
)
 
(111
)
Loss on extinguishment of debt
 
—

 
(159
)
Other income, net
 
35

 
31

Income from continuing operations before income taxes
 
795

 
267

Provision for (benefit from) income taxes
 
(5,786
)
 
10

Income from continuing operations
 
6,581

 
257

Loss from discontinued operations, net of income taxes
 
(15
)
 
(5
)
Net income
 
6,566

 
252

Net income attributable to noncontrolling interest
 
336

 
13

Net income attributable to ordinary shares
 
$
6,230

 
$
239

 
 
 
 
 
Basic income (loss) per share attributable to ordinary shares:
 
 
 
 
Income per share from continuing operations
 
$
15.23

 
$
0.61

Loss per share from discontinued operations
 
(0.03
)
 
(0.01
)
Net income per share
 
$
15.20

 
$
0.60

 
 
 
 
 
Diluted income (loss) per share attributable to ordinary shares:
 
 
 
 
Income per share from continuing operations
 
$
14.66

 
$
0.58

Loss per share from discontinued operations
 
(0.04
)
 
(0.01
)
Net income per share
 
$
14.62

 
$
0.57

 
 
 
 
 
Weighted-average shares:
 
 
 
 
Basic
 
410

 
399

Diluted
 
426

 
439

 
 
 
 
 
Cash dividends declared and paid per share
 
$
1.75

 
$
1.02

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


6

BROADCOM LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME — UNAUDITED

 
 
Fiscal Quarter Ended
 
 
February 4,
2018
 
January 29,
2017
 
 
 
 
 
 
 
(In millions)
Net income
 
$
6,566

 
$
252

Other comprehensive income, net of tax:
 
 
 
 
Unrealized gain on available-for-sale investments
 
9

 
—

Other comprehensive income
 
9

 
—

Comprehensive income
 
6,575

 
252

Comprehensive income attributable to noncontrolling interest
 
336

 
13

Comprehensive income attributable to ordinary shares
 
$
6,239

 
$
239

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


7

BROADCOM LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED
 
 
Fiscal Quarter Ended
 
 
February 4,
2018
 
January 29,
2017
 
 
 
 
 
 
 
(In millions)
Cash flows from operating activities:
 
 
 
 
Net income
 
$
6,566

 
$
252

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
1,184

 
1,114

Share-based compensation
 
299

 
202

Deferred taxes and other non-cash taxes
 
(5,832
)
 
(25
)
Non-cash portion of debt extinguishment loss
 
—

 
159

Non-cash restructuring, impairment and disposal charges
 
5

 
17

Amortization of debt issuance costs and accretion of debt discount
 
6

 
8

Other
 
3

 
(18
)
Changes in assets and liabilities, net of acquisitions and disposals:
 
 
 
 
Trade accounts receivable, net
 
199

 
234

Inventory
 
250

 
65

Accounts payable
 
(403
)
 
(137
)
Employee compensation and benefits
 
(376
)
 
(181
)
Contributions to defined benefit pension plans
 
(129
)
 
(6
)
Other current assets and current liabilities
 
284

 
(237
)
Other long-term assets and long-term liabilities
 
(371
)
 
(94
)
Net cash provided by operating activities
 
1,685

 
1,353

Cash flows from investing activities:
 
 
 
 
Acquisitions of businesses, net of cash acquired
 
(4,786
)
 
—

Proceeds from sales of businesses
 
782

 
10

Purchases of property, plant and equipment
 
(220
)
 
(325
)
Proceeds from disposals of properly, plant and equipment
 
237

 
—

Purchases of investments
 
(244
)
 
—

Other
 
4

 
(4
)
Net cash used in investing activities
 
(4,227
)
 
(319
)
Cash flows from financing activities:
 
 
 
 
Proceeds from issuance of long-term debt
 
—

 
13,446

Repayment of debt
 
(856
)
 
(13,668
)
Payment of debt issuance costs
 
—

 
(3
)
Dividend and distribution payments
 
(755
)
 
(431
)
Issuance of ordinary shares
 
34

 
61

Payment of capital lease obligations
 
(6
)
 
—

Other
 
(3
)
 
—

Net cash used in financing activities
 
(1,586
)
 
(595
)
Net change in cash and cash equivalents
 
(4,128
)
 
439

Cash and cash equivalents at the beginning of period
 
11,204

 
3,097

Cash and cash equivalents at end of period
 
$
7,076

 
$
3,536

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

8

BROADCOM CAYMAN L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS — UNAUDITED
 
 
February 4,
2018
 
October 29,
2017
 
 
 
 
 
 
 
(In millions, except unit amounts)
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
6,886

 
$
11,017

Trade accounts receivable, net
 
2,459

 
2,448

Inventory
 
1,291

 
1,447

Other current assets
 
481

 
808

Total current assets
 
11,117

 
15,720

Long-term assets:
 
 
 
 
Property, plant and equipment, net
 
2,747

 
2,599

Goodwill
 
26,899

 
24,706

Intangible assets, net
 
13,171

 
10,832

Other long-term assets
 
507

 
458

Total assets
 
$
54,441

 
$
54,315

LIABILITIES AND PARTNERS’ CAPITAL
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
816

 
$
1,105

Employee compensation and benefits
 
333

 
626

Current portion of long-term debt
 
117

 
117

Other current liabilities
 
704

 
681

Total current liabilities
 
1,970

 
2,529

Long-term liabilities:
 
 
 
 
Long-term debt
 
17,475

 
17,431

Other long-term liabilities
 
6,018

 
11,272

Total liabilities
 
25,463

 
31,232

Commitments and contingencies (Note 12)
 

 

Partners’ capital:
 
 
 
 

Common partnership units; 390,934,757 units and 390,896,843 units issued and outstanding on February 4, 2018 and October 29, 2017, respectively
 
25,880

 
20,273

Exchangeable limited partnership units; 22,107,689 units and 22,145,603 units issued and outstanding on February 4, 2018 and October 29, 2017, respectively
 
3,180

 
2,901

Accumulated other comprehensive loss
 
(82
)
 
(91
)
Total partners’ capital
 
28,978

 
23,083

Total liabilities and partners’ capital
 
$
54,441

 
$
54,315


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


9

BROADCOM CAYMAN L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS — UNAUDITED
 
 
Fiscal Quarter Ended
 
 
February 4,
2018
 
January 29,
2017
 
 
 
 
 
 
 
(In millions, except per unit data)

Net revenue
 
$
5,327

 
$
4,139

Cost of products sold:
 
 
 
 
Cost of products sold
 
1,899

 
1,573

Purchase accounting effect on inventory
 
70

 
—

Amortization of acquisition-related intangible assets
 
715

 
559

Restructuring charges
 
15

 
6

Total cost of products sold
 
2,699

 
2,138

Gross margin
 
2,628

 
2,001

Research and development
 
925

 
808

Selling, general and administrative
 
291

 
201

Amortization of acquisition-related intangible assets
 
339

 
440

Restructuring, impairment and disposal charges
 
130

 
46

Total operating expenses
 
1,685

 
1,495

Operating income
 
943

 
506

Interest expense
 
(183
)
 
(111
)
Loss on extinguishment of debt
 
—

 
(159
)
Other income, net
 
35

 
31

Income from continuing operations before income taxes
 
795

 
267

Provision for (benefit from) income taxes
 
(5,786
)
 
10

Income from continuing operations
 
6,581

 
257

Loss from discontinued operations, net of income taxes
 
(15
)
 
(5
)
Net income
 
$
6,566

 
$
252

 
 
 
 
 
General Partner's interest in net income
 
$
6,230

 
$
239

Limited Partners' interest in net income
 
$
336

 
$
13

 
 
 
 
 
Cash distributions paid per exchangeable limited partnership unit
 
$
1.75

 
$
1.02

Cash distributions paid to General Partner
 
$
717

 
$
408

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


10

BROADCOM CAYMAN L.P.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME — UNAUDITED

 
 
Fiscal Quarter Ended
 
 
February 4,
2018
 
January 29,
2017
 
 
 
 
 
 
 
(In millions)
Net income
 
$
6,566

 
$
252

Other comprehensive income, net of tax:
 
 
 
 
Unrealized gain on available-for-sale investments
 
9

 
—

Other comprehensive income
 
9

 
—

Comprehensive income
 
$
6,575

 
$
252

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


11

BROADCOM CAYMAN L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED
 
 
Fiscal Quarter Ended
 
 
February 4,
2018
 
January 29,
2017
 
 
 
 
 
 
 
(In millions)
Cash flows from operating activities:
 
 
 
 
Net income
 
$
6,566

 
$
252

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
1,184

 
1,114

Share-based compensation
 
299

 
202

Deferred taxes and other non-cash taxes
 
(5,832
)
 
(25
)
Non-cash portion of debt extinguishment loss
 
—

 
159

Non-cash restructuring, impairment and disposal charges
 
5

 
17

Amortization of debt issuance costs and accretion of debt discount
 
6

 
8

Other
 
3

 
(18
)
Changes in assets and liabilities, net of acquisitions and disposals:
 
 
 
 
Trade accounts receivable, net
 
199

 
234

Inventory
 
250

 
65

Accounts payable
 
(403
)
 
(137
)
Employee compensation and benefits
 
(376
)
 
(181
)
Contributions to defined benefit pension plans
 
(129
)
 
(6
)
Other current assets and current liabilities
 
284

 
(237
)
Other long-term assets and long-term liabilities
 
(371
)
 
(94
)
Net cash provided by operating activities
 
1,685

 
1,353

Cash flows from investing activities:
 
 
 
 
Acquisitions of businesses, net of cash acquired
 
(4,786
)
 
—

Proceeds from sales of businesses
 
782

 
10

Purchases of property, plant and equipment
 
(220
)
 
(325
)
Proceeds from disposals of property, plant and equipment
 
237

 
—

Purchases of investments
 
(244
)
 
—

Other
 
4

 
(4
)
Net cash used in investing activities
 
(4,227
)
 
(319
)
Cash flows from financing activities:
 
 
 
 
Proceeds from issuance of long-term debt
 
—

 
13,446

Repayment of debt
 
(856
)
 
(13,668
)
Payment of debt issuance costs
 
—

 
(3
)
Distributions paid to unit holders
 
(755
)
 
(431
)
Capital transactions with General Partner
 
31

 
(29
)
Payment of capital lease obligations
 
(6
)
 
—

Other
 
(3
)
 
—

Net cash used in financing activities
 
(1,589
)
 
(685
)
Net change in cash and cash equivalents
 
(4,131
)
 
349

Cash and cash equivalents at the beginning of period
 
11,017

 
3,044

Cash and cash equivalents at end of period
 
$
6,886

 
$
3,393

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

12

BROADCOM LIMITED AND BROADCOM CAYMAN L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Overview, Basis of Presentation and Significant Accounting Policies
Overview
Broadcom Limited, or Broadcom, is a leading designer, developer and global supplier of a broad range of semiconductor devices with a focus on complex digital and mixed signal complementary metal oxide semiconductor based devices and analog III-V based products. We have a history of innovation and offer thousands of products that are used in end products such as enterprise and data center networking, home connectivity, set-top boxes, broadband access, telecommunication equipment, smartphones and base stations, data center servers and storage systems, factory automation, power generation and alternative energy systems, and electronic displays. We have four reportable segments: wired infrastructure, wireless communications, enterprise storage and industrial & other, which align with our principal target markets.
Broadcom is organized under the laws of the Republic of Singapore. Broadcom Cayman L.P., or the Partnership, is an exempted limited partnership formed under the laws of the Cayman Islands. Broadcom is the Partnership’s sole General Partner and owns a majority interest (by vote and value) in the Partnership represented by common partnership units, or Common Units. The balance of the partnership units represents exchangeable limited partnership units, or LP Units, the holders of which are referred to as the Limited Partners. As General Partner, Broadcom has the exclusive right, power and authority to manage, control, administer and operate the business and affairs and to make decisions regarding the undertaking and business of the Partnership in accordance with the Partnership’s Amended and Restated Exempted Limited Partnership Agreement, or Partnership Agreement, as amended from time to time, and applicable laws.
We have initiated the process to change the ultimate parent company of Broadcom to a Delaware corporation, or the Redomiciliation, through a statutory procedure known as a scheme of arrangement under Singapore law, or the Scheme of Arrangement, to be implemented pursuant to the implementation agreement between us and a newly established Delaware corporation (also named Broadcom Limited and referred to herein as Broadcom-Delaware). The Scheme of Arrangement is subject to the approval of the High Court of the Republic of Singapore and our shareholders. In connection with the Redomiciliation, we intend to execute an amendment to the Partnership Agreement pursuant to which all outstanding LP Units will be mandatorily exchanged for shares of common stock of Broadcom-Delaware on a one-for-one basis. See Note 8. “Partners’ Capital” for more information.
The condensed consolidated financial statements and accompanying notes are being presented in a combined report being filed by two separate registrants: Broadcom and the Partnership. The differences in the condensed consolidated financial statements relate to the noncontrolling interest which represents the outstanding LP Units and transactions between Broadcom and the Partnership, which we account for as capital transactions. Refer to Note 7. “Shareholders’ Equity” and Note 8. “Partners’ Capital” for additional information.
Unless stated otherwise or the context otherwise requires, references to “Broadcom,” “we,” “our” and “us” mean Broadcom Limited and its consolidated subsidiaries, including Broadcom Cayman L.P. References to the “Partnership” mean Broadcom Cayman L.P. and its consolidated subsidiaries.
Basis of Presentation
We operate on a 52- or 53-week fiscal year ending on the Sunday closest to October 31 in a 52-week year and the first Sunday in November in a 53-week year. Our fiscal year ending November 4, 2018, or fiscal year 2018, is a 53-week fiscal year, with our first fiscal quarter containing 14 weeks. The first quarter of our fiscal year 2018 ended on February 4, 2018, the second quarter ends on May 6, 2018 and the third quarter ends on August 5, 2018. Our fiscal year ended October 29, 2017, or fiscal year 2017, was a 52-week fiscal year.
On November 17, 2017, we acquired Brocade Communications Systems, Inc., or Brocade. The unaudited condensed consolidated financial statements include the results of operations of Brocade commencing as of the acquisition date. See Note 2. “Acquisitions” for additional information.
The accompanying condensed consolidated financial statements of Broadcom and the Partnership include the accounts of Broadcom and the Partnership, respectively, and their subsidiaries, and have been prepared by us in accordance with generally accepted accounting principles in the United States, or GAAP, for interim financial information. The financial information included herein is unaudited, and reflects all adjustments which are, in the opinion of our management, of a normal recurring nature and necessary for a fair statement of the results for the periods presented. The October 29, 2017 condensed consolidated balance sheet data were derived from Broadcom’s audited consolidated financial statements included in Broadcom’s Annual Report on Form 10-K for fiscal year 2017, or 2017 Annual Report on Form 10-K, as filed with the

13

Securities and Exchange Commission, or SEC, but do not include all disclosures required by GAAP. All intercompany transactions and balances have been eliminated in consolidation.
As a result of Broadcom’s controlling interest in the Partnership, we consolidate the financial results of the Partnership and present a noncontrolling interest for the portion of the Partnership we do not own in our condensed consolidated financial statements. Net income attributable to noncontrolling interest in the condensed consolidated statements of operations represents the portion of income attributable to the economic interest in the Partnership owned by the Limited Partners.
The operating results for the fiscal quarter ended February 4, 2018 are not necessarily indicative of the results that may be expected for fiscal year 2018, or for any other future period.
Significant Accounting Policies
Use of estimates. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and such differences could affect the results of operations reported in future periods.
Reclassifications. Certain reclassifications have been made to the prior period condensed consolidated statement of cash flows. These reclassifications had no impact on the previously reported net cash activities.
Recently Adopted Accounting Guidance
In the first quarter of fiscal year 2018, we early adopted an accounting standards update issued by the Financial Accounting Standards Board, or FASB, in October 2016 related to the recognition of income tax consequences of an intra-entity transfer of an asset other than inventory. The standard requires a modified-retrospective transition method by means of a cumulative-effect adjustment as of the beginning of the period in which the guidance is adopted. The adoption of this guidance resulted in a decrease in current and long-term prepaid tax expense of $67 million and $199 million, respectively, an increase of $252 million to our accumulated deficit and a decrease of $14 million to our non-controlling interest.
Recent Accounting Guidance Not Yet Adopted    
In August 2016, the FASB issued guidance related to the classification of certain transactions on the statement of cash flows. This guidance will be effective for the first quarter of our fiscal year 2019; however, early adoption is permitted. We will present our statements of cash flows in accordance with this guidance for the affected transactions occurring subsequent to adoption.
In February 2016, the FASB issued guidance related to the accounting for leases, which among other things, requires a lessee to recognize lease assets and lease liabilities on the balance sheet for operating leases. This guidance will be effective for the first quarter of our fiscal year 2020. The new guidance is required to be applied using a modified retrospective approach. We are evaluating the impact this guidance will have on our condensed consolidated financial statements.
In May 2014, the FASB issued guidance that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The new standard creates a single source of revenue guidance under GAAP, eliminating industry-specific guidance. The underlying principle of the standard is to recognize revenue when a customer obtains control of promised goods or services at an amount that reflects the consideration that is expected to be received in exchange for those goods or services. An entity should apply a five-step approach for recognizing revenue as follows: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when, or as, the entity satisfies a performance obligation. The standard also requires increased disclosures including the nature, amount, timing, and uncertainty of revenues and cash flows related to contracts with customers.
The standard allows two methods of adoption: (i) retrospectively to each prior period presented (“full retrospective method”), or (ii) retrospectively with the cumulative effect recognized in retained earnings as of the date of adoption ("modified retrospective method"). We plan to adopt the new standard using the modified retrospective method at the beginning of the first quarter of fiscal year 2019. We have established a cross-functional team to assess the potential impact of the new revenue standard and are on schedule in establishing new accounting policies, processes, and internal controls necessary to support the requirements of the new standard. While we are still finalizing our analysis to quantify the adoption impact of the provisions of the new standard, the exact impact of the new standard will be dependent on facts and circumstances at adoption and could vary from quarter to quarter.

14

2. Acquisitions
Acquisition of Brocade
On November 17, 2017, or the Brocade Acquisition Date, we acquired Brocade, or the Brocade Merger. Brocade was a supplier of networking hardware, software and services, including Fibre Channel Storage Area Network, or FC SAN, solutions and Internet Protocol Networking, or IP Networking, solutions. We acquired Brocade to enhance our position as a provider of enterprise storage connectivity solutions, broaden our portfolio for enterprise storage, and to increase our ability to address the evolving needs of our original equipment manufacturer, or OEM, customers. We financed the Brocade Merger with a portion of the net proceeds from the issuance of the 2017 Senior Notes, as defined and discussed in further detail in Note 6. “Borrowings,” as well as cash on hand.
Purchase Consideration
 
 
(In millions)
Cash paid for outstanding Brocade common stock
 
$
5,298

Cash paid by Broadcom to retire Brocade’s term loan
 
701

Cash paid for Brocade equity awards
 
31

Fair value of partially vested assumed equity awards
 
8

Total purchase consideration
 
6,038

Less: cash acquired
 
1,250

Total purchase consideration, net of cash acquired
 
$
4,788

We assumed all unvested Brocade stock options, restricted stock units, or RSUs, and performance stock units, or PSUs, held by continuing employees. The portion of the fair value of partially vested equity awards associated with prior service of Brocade employees represents a component of the total consideration as presented above. All vested in-the-money Brocade stock options, after giving effect to any acceleration, were cashed out upon the completion of the Brocade Merger. RSUs and PSUs were valued based on Broadcom’s ordinary share price as of the Brocade Acquisition Date.
We allocated the purchase price to tangible and identified intangible assets acquired and liabilities assumed based on their estimated fair values. The fair value of identified intangible assets acquired was based on estimates and assumptions made by management at the time of acquisition. As additional information becomes available, such as finalization of the estimated fair value of tax related items, we may further revise our preliminary purchase price allocation during the remainder of the measurement period (which will not exceed 12 months from the Brocade Acquisition Date). Any such revisions or changes may be material.
The following table presents our preliminary allocation of the total purchase price, net of cash acquired:
 
 
Estimated Fair Value
 
 
(In millions)
Current assets
 
$
1,295

Goodwill
 
2,180

Intangible assets
 
3,396

Other long-term assets
 
83

Total assets acquired
 
6,954

Current portion of long-term debt
 
(856
)
Other current liabilities
 
(366
)
Long-term debt
 
(38
)
Other long-term liabilities
 
(906
)
Total liabilities assumed
 
(2,166
)
Fair value of net assets acquired
 
$
4,788

Goodwill is primarily attributable to the assembled workforce and anticipated synergies and economies of scale expected from the integration of the Brocade business. The synergies include certain cost savings, operating efficiencies, and other strategic benefits projected to be achieved as a result of the Brocade Merger. Goodwill is not expected to be deductible for tax purposes.
Current assets included assets held-for-sale related to Brocade’s IP Networking business, which was not aligned with our strategic objectives and was sold during our fiscal quarter ended February 4, 2018. The sale of Brocade’s IP Networking

15

business is discussed further in Note 3. “Supplemental Financial Information.” Current assets also included assets held-for-sale for Brocade’s headquarters, which was sold for $224 million during the first quarter of fiscal year 2018, with no resulting gain or loss. We leased back a portion of the campus at market rental rates for six months.
Our results of continuing operations for the fiscal quarter ended February 4, 2018 included $328 million of net revenue attributable to Brocade. It is impracticable to determine the effect on net income attributable to Brocade as we have integrated a substantial portion of Brocade into our ongoing operations. Transaction costs of $21 million related to the Brocade Merger were included in selling, general and administrative expense for the fiscal quarter ended February 4, 2018.
Intangible Assets
 
 
Fair Value
 
Weighted-Average Amortization Periods
 
 
(In millions)
 
(In years)
Developed technology
 
$
2,925

 
10
Customer contracts and related relationships
 
255

 
11
Trade name and other
 
61

 
6
Total identified finite-lived intangible assets
 
3,241

 
 
In-process research and development
 
155

 
N/A
Total identified intangible assets
 
$
3,396

 
 
Developed technology relates to products for FC SAN applications. We valued the developed technology using the multi-period excess earnings method under the income approach. This method reflects the present value of the projected cash flows that are expected to be generated by the developed technology less charges representing the contribution of other assets to those cash flows. The economic useful life was determined based on the technology cycle related to each developed technology, as well as the cash flows over the forecast period.
Customer contracts and related relationships represent the fair value of future projected revenue that will be derived from sales of products to existing customers of Brocade. Customer contracts and related relationships were valued using the distributor method and the with-and-without-method under the income approach. The distributor method determines the fair value by measuring the economic profits generated by an intermediary, which in our case represents OEM customers. In the with-and-without method, the fair value was measured by the difference between the present values of the cash flows with and without the existing customers in place over the period of time necessary to reacquire the customers. In both instances, the economic useful life was determined based on historical customer turnover rates.
Trade name relates to the “Brocade” trade name. The fair value was determined by applying the relief-from-royalty method under the income approach. This valuation method is based on the application of a royalty rate to forecasted revenue under the trade name. The economic useful life was determined based on the expected life of the trade name and the cash flows anticipated over the forecasted periods.
The fair value of in-process research and development, or IPR&D, was determined using the multi-period excess earnings method under the income approach. This method reflects the present value of the projected cash flows that are expected to be generated by the IPR&D, less charges representing the contribution of other assets to those cash flows.
We believe the amounts of purchased intangible assets recorded above represent the fair values of, and approximate the amounts a market participant would pay for, these intangible assets as of the Brocade Acquisition Date. The following table summarizes the details of IPR&D by category as of the Brocade Acquisition Date:
Description
 
IPR&D
 
Percentage of Completion
 
Estimated Cost to Complete
 
Expected Release Date
(By Fiscal Year)
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Directors
 
$
64

 
72
%
 
$
45

 
2018
Switches
 
$
50

 
81
%
 
$
21

 
2018
Embedded
 
$
31

 
74
%
 
$
22

 
2018
Networking software
 
$
10

 
73
%
 
$
27

 
2018
The discount rate of 11% was applied to the projected cash flows to reflect the risk related to these IPR&D projects. The discount rate represents a premium of 1% over the weighted-average cost of capital to reflect the higher risk and uncertainty of the cash flows for IPR&D relative to the overall businesses.

16

Unaudited Pro Forma Information
The following unaudited pro forma financial information presents combined results of operations for each of the periods presented, as if Brocade had been acquired as of the beginning of fiscal year 2017. The unaudited pro forma information includes adjustments to amortization and depreciation for intangible assets and property, plant and equipment acquired, adjustments to share-based compensation expense, the purchase accounting effect on inventory acquired, restructuring charges related to the acquisition and transaction costs. For fiscal year 2017, non-recurring pro forma adjustments directly attributable to the Brocade Merger included (i) the purchase accounting effect of inventory acquired of $70 million and (ii) acquisition costs of $69 million. The unaudited pro forma information presented below is for informational purposes only and is not necessarily indicative of our consolidated results of operations of the combined business had the acquisition actually occurred at the beginning of fiscal year 2017 or of the results of our future operations of the combined business.
 
 
Fiscal Quarter Ended
 
 
February 4,
2018
 
January 29,
2017
 
 
 
 
 
 
 
(In millions)
Pro forma net revenue
 
$
5,447

 
$
4,639

Pro forma net income attributable to ordinary shares
 
$
6,333

 
$
134

3. Supplemental Financial Information
Cash Equivalents
Cash equivalents included $3,782 million and $6,002 million of time deposits as of February 4, 2018 and October 29, 2017, respectively. As of February 4, 2018 and October 29, 2017, cash equivalents also included $200 million and $401 million of money-market funds, respectively. For time deposits, carrying value approximates fair value due to the short-term nature of the instruments. The fair value of money-market funds, which was consistent with their carrying value, was determined using unadjusted prices in active, accessible markets for identical assets, and as such they were classified as Level 1 assets in the fair value hierarchy.
Inventory
 
 
February 4,
2018
 
October 29,
2017
 
 
 
 
 
 
 
(In millions)
Finished goods
 
$
590

 
$
562

Work-in-process
 
583

 
696

Raw materials
 
118

 
189

Total inventory
 
$
1,291

 
$
1,447

Accrued Rebate Activity
 
 
Fiscal Quarter Ended
 
 
February 4,
2018
 
January 29,
2017
 
 
 
 
 
 
 
(In millions)
Beginning balance
 
$
124

 
$
317

Charged as a reduction of revenue
 
39

 
64

Reversal of unclaimed rebates
 
(4
)
 
(19
)
Payments
 
(80
)
 
(126
)
Ending balance
 
$
79

 
$
236


17

Other Long-Term Liabilities
 
 
February 4,
2018
 
October 29,
2017
 
 
 
 
 
 
 
(In millions)
Deferred tax liabilities (a)
 
$
1,243

 
$
10,019

Unrecognized tax benefits (a) (b)
 
4,212

 
1,011

Other
 
563

 
242

Total other long-term liabilities
 
$
6,018

 
$
11,272

________________________________
(a) Refer to Note 9. “Income Taxes” for additional information regarding these balances.
(b) Includes accrued interest and penalties.
Discontinued Operations
On December 1, 2017, we sold Brocade’s IP Networking business to ARRIS International plc, or ARRIS, for cash consideration of $800 million, adjusted for closing working capital balances. In connection with this sale, we indemnified ARRIS for $116 million of potential income tax liabilities. We are providing transitional services as short-term assistance to ARRIS in assuming the operations of the purchased business. We do not have any material continuing involvement with this business and have presented its results in discontinued operations.
The following table summarizes the selected financial information of discontinued operations:
 
 
Fiscal Quarter Ended
 
 
February 4,
2018
 
January 29,
2017
 
 
 
 
 
 
 
(In millions)
Net revenue
 
$
18

 
$
2

Loss from discontinued operations
 
$
(15
)
 
$
(5
)
Supplemental Cash Flow Information
 
 
Fiscal Quarter Ended
 
 
February 4,
2018
 
January 29,
2017
 
 
 
 
 
 
 
(In millions)
Cash paid for interest
 
$
232

 
$
102

Cash paid for income taxes
 
$
109

 
$
97

At February 4, 2018 and October 29, 2017, we had $112 million and $122 million, respectively, of unpaid purchases of property, plant and equipment included in accounts payable and other current liabilities.
4. Goodwill and Intangible Assets
Goodwill
 
 
Wired Infrastructure
 
Wireless Communications
 
Enterprise Storage
 
Industrial & Other
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Balance as of October 29, 2017
 
$
17,622

 
$
5,945

 
$
995

 
$
144

 
$
24,706

Brocade Merger
 
70

 
—

 
2,110

 
—

 
2,180

Other acquisition
 
13

 
—

 
—

 
—

 
13

Balance as of February 4, 2018
 
$
17,705

 
$
5,945

 
$
3,105

 
$
144

 
$
26,899

During the fiscal quarter ended February 4, 2018, we made one immaterial acquisition in addition to the Brocade Merger.

18

Intangible Assets
 
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Book
Value
 
 
 
 
 
 
 
 
 
(In millions)
As of February 4, 2018:
 
 
 
 
 
 
Purchased technology
 
$
15,554

 
$
(4,533
)
 
$
11,021

Customer contracts and related relationships
 
1,792

 
(716
)
 
1,076

Trade names
 
578

 
(130
)
 
448

Other
 
146

 
(36
)
 
110

Intangible assets subject to amortization
 
18,070

 
(5,415
)
 
12,655

IPR&D
 
516

 
—

 
516

Total
 
$
18,586

 
$
(5,415
)
 
$
13,171

 
 
 
 
 
 
 
As of October 29, 2017:
 
 
 
 
 
 
Purchased technology
 
$
12,724

 
$
(4,265
)
 
$
8,459

Customer contracts and related relationships
 
4,240

 
(3,100
)
 
1,140

Trade names
 
528

 
(117
)
 
411

Other
 
135

 
(25
)
 
110

Intangible assets subject to amortization
 
17,627

 
(7,507
)
 
10,120

IPR&D
 
712

 
—

 
712

Total
 
$
18,339

 
$
(7,507
)
 
$
10,832

Based on the amount of intangible assets subject to amortization at February 4, 2018, the expected amortization expense for each of the next five years and thereafter was as follows:
Fiscal Year:
 
Expected Amortization Expense
 
 
(In millions)
2018 (remainder)
 
$
2,492

2019
 
2,846

2020
 
2,390

2021
 
1,893

2022
 
1,389

Thereafter
 
1,645

Total
 
$
12,655

The weighted-average amortization periods remaining by intangible asset category were as follows:
Amortizable intangible assets:
 
February 4, 2018
 
 
(In years)
Purchased technology
 
6
Customer contracts and related relationships
 
6
Trade names
 
12
Other
 
10
5. Net Income Per Share
Broadcom
Basic net income per share is computed by dividing net income attributable to ordinary shares by the weighted-average number of Broadcom ordinary shares outstanding during the period. Diluted net income per share is computed by dividing net income attributable to ordinary shares and, if the LP Units are dilutive, net income attributable to noncontrolling interest by the weighted-average number of Broadcom ordinary shares and potentially dilutive shares outstanding during the period.

19

Diluted shares outstanding include the dilutive effect of in-the-money share options, RSUs and employee share purchase plan rights under the Amended and Restated Broadcom Limited Employee Share Purchase Plan, or ESPP, (together referred to as equity awards). Diluted shares outstanding also included Broadcom ordinary shares issuable upon exchange of the LP Units (refer to Note 8. “Partners’ Capital” for additional information) for the fiscal quarter ended January 29, 2017.
The dilutive effect of equity awards is calculated based on the average share price for each fiscal period, using the treasury stock method. Under the treasury stock method, the amount the employee must pay for exercising share options and to purchase shares under the ESPP and the amount of compensation cost for future service that we have not yet recognized are collectively assumed to be used to repurchase ordinary shares.
The dilutive effect of the LP Units was calculated using the if-converted method. The if-converted method assumes that the LP Units were converted at the beginning of the reporting period.
Diluted net income per share for the fiscal quarter ended February 4, 2018 excluded the potentially dilutive effect of the exchange of LP Units for 22 million ordinary shares as their effect was antidilutive.

20

The following is a reconciliation of the numerators and denominators of the basic and diluted net income per share computations for the periods presented:
 
 
Fiscal Quarter Ended
 
 
February 4,
2018
 
January 29,
2017
 
 
 
 
 
Numerator - Basic:
 
(In millions, except per share data)
Income from continuing operations
 
$
6,581

 
$
257

Less: Income from continuing operations attributable to noncontrolling interest
 
337

 
13

Income from continuing operations attributable to ordinary shares
 
6,244

 
244

 
 
 
 
 
Loss from discontinued operations, net of income taxes
 
(15
)
 
(5
)
Less: Loss from discontinued operations, net of income taxes, attributable to noncontrolling interest
 
(1
)
 
—

Loss from discontinued operations, net of income taxes, attributable to ordinary shares
 
(14
)
 
(5
)
 
 
 
 
 
Net income attributable to ordinary shares
 
$
6,230

 
$
239

 
 
 
 
 
Numerator - Diluted:
 
 
 
 
Income from continuing operations
 
$
6,244

 
$
257

Loss from discontinued operations, net of income taxes
 
(14
)
 
(5
)
Net income
 
$
6,230

 
$
252

Denominator:
 
 
 
 
Weighted-average ordinary shares outstanding - basic
 
410

 
399

Dilutive effect of equity awards
 
16

 
17

Exchange of noncontrolling interest for ordinary shares
 
—

 
23

Weighted-average ordinary shares outstanding - diluted
 
426

 
439

 
 
 
 
 
Basic income per share attributable to ordinary shares:
 
 
 
 
Income per share from continuing operations
 
$
15.23

 
$
0.61

Loss per share from discontinued operations
 
(0.03
)
 
(0.01
)
Net income per share
 
$
15.20

 
$
0.60

 
 
 
 
 
Diluted income per share attributable to ordinary shares:
 
 
 
 
Income per share from continuing operations
 
$
14.66

 
$
0.58

Loss per share from discontinued operations
 
(0.04
)
 
(0.01
)
Net income per share
 
$
14.62

 
$
0.57

The Partnership
Income per unit for the Partnership is not required to be presented as its Common Units and LP Units are not publicly traded.

21

6. Borrowings
 
 
As of February 4, 2018:
 
As of October 29, 2017:
 
 
Effective Interest Rate
 
Aggregate Principal Amount
 
Effective Interest Rate
 
Aggregate Principal Amount
 
 
 
 
 
 
 
 
 
 
 
(In millions, except for percentages)
2017 Senior Notes
 
 
 
 
 
 
 
 
Fixed rate 2.375% notes due January 2020
 
2.615
%
 
$
2,750

 
2.615
%
 
$
2,750

Fixed rate 2.200% notes due January 2021
 
2.406
%
 
750

 
2.406
%
 
750

Fixed rate 3.000% notes due January 2022
 
3.214
%
 
3,500

 
3.214
%
 
3,500

Fixed rate 2.650% notes due January 2023
 
2.781
%
 
1,000

 
2.781
%
 
1,000

Fixed rate 3.625% notes due January 2024
 
3.744
%
 
2,500

 
3.744
%
 
2,500

Fixed rate 3.125% notes due January 2025
 
3.234
%
 
1,000

 
3.234
%
 
1,000

Fixed rate 3.875% notes due January 2027
 
4.018
%
 
4,800

 
4.018
%
 
4,800

Fixed rate 3.500% notes due January 2028
 
3.596
%
 
1,250

 
3.596
%
 
1,250

 
 
 
 
17,550

 
 
 
17,550

Assumed Senior Notes
 
 
 
 
 
 
 
 
Fixed rate 2.70% notes due November 2018
 
2.70
%
 
117

 
2.70
%
 
117

Fixed rate 2.50% - 4.50% notes due August 2022 - August 2034
 
2.50% - 4.50%

 
22

 
2.50% - 4.50%

 
22

 
 
 
 
139

 
 
 
139

Brocade Convertible Notes
 
 
 
 
 
 
 
 
Fixed rate 1.375% convertible notes due January 2020
 
0.628
%
 
38

 
 
 
—

Total principal amount outstanding
 
 
 
17,727

 
 
 
17,689

Less: Unaccreted discount and unamortized debt issuance costs
 
 
 
(135
)
 
 
 
(141
)
Total carrying value of debt
 
 
 
$
17,592

 
 
 
$
17,548

Senior Notes and Assumed Senior Notes
In fiscal year 2017, we completed the issuance and sale of senior unsecured notes, or the 2017 Senior Notes, in an aggregate principal amount of $17,550 million. Our 2017 Senior Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured, unsubordinated basis by Broadcom and the Partnership, or Parent Guarantor, collectively the Guarantors, subject to certain release conditions described in the indentures governing the 2017 Senior Notes, or the 2017 Indentures. Each series of 2017 Senior Notes pays interest semi-annually in cash in arrears on January 15 and July 15 of each year.
We may redeem all or a portion of our 2017 Senior Notes at any time prior to their maturity, subject to a specified make-whole premium as set forth in the 2017 Indentures. In the event of a change of control triggering event, holders of our 2017 Senior Notes will have the right to require us to purchase for cash all or a portion of their 2017 Senior Notes at a redemption price of 101% of the aggregate principal amount of such 2017 Senior Notes plus accrued and unpaid interest. The 2017 Indentures also contain covenants that restrict, among other things, the ability of Broadcom and its subsidiaries to incur certain secured debt and consummate certain sale and leaseback transactions, and the ability of Broadcom Corporation, or BRCM, and Broadcom Cayman Finance Limited, or the Subsidiary Issuers, and the Guarantors, to merge, consolidate or sell all or substantially all of their assets.
In connection with the issuance of the 2017 Senior Notes, we entered into registration rights agreements, pursuant to which we were obligated to use commercially reasonable efforts to file with the SEC, and cause to be declared effective, a registration statement with respect to an offer to exchange, or the Exchange Offer, each series of 2017 Senior Notes for notes that are registered with the SEC, or the Registered Notes, with substantially identical terms. On January 9, 2018, we launched the Exchange Offer and on February 21, 2018, substantially all of the 2017 Senior Notes were tendered and exchanged for Registered Notes in the Exchange Offer.
We were in compliance with all of the covenants related to the 2017 Senior Notes and senior unsecured notes assumed in the connection with acquisition of BRCM, or the Assumed Senior Notes, as of February 4, 2018.

22

Acquired Brocade Debt
As a result of the Brocade Merger, we assumed $575 million in aggregate principal amount of Brocade’s 1.375% convertible senior unsecured notes due 2020, or the Brocade Convertible Notes. The Brocade Merger was a “fundamental change” as well as a “make-whole fundamental change” as defined under the terms of the indenture governing the Brocade Convertible Notes. Accordingly, the holders of the Brocade Convertible Notes received the right to require us to repurchase their notes for cash. In the first quarter of fiscal year 2018, we repurchased $537 million in aggregate principal amount for $548 million at a conversion rate of $1,018 for each $1,000 of principal surrendered for conversion. As of February 4, 2018, the outstanding principal amount of the Brocade Convertible Notes was $38 million. The remaining outstanding Brocade Convertible Notes are convertible into cash at a conversion rate of $812 for each $1,000 of principal. We were in compliance with all of the covenants related to the Brocade Convertible Notes as of February 4, 2018.
We also assumed $300 million in aggregate principal amount of Brocade’s 4.625% senior unsecured notes due 2023. On January 16, 2018, we called and redeemed all of these outstanding notes for a total payment of $308 million, including the redemption price.
Fair Value of Debt
As of February 4, 2018, the estimated aggregate fair value of the 2017 Senior Notes, the Assumed Senior Notes and the Brocade Convertible Notes was $17,183 million and was primarily classified as Level 2 as we used quoted prices from less active markets.
Future Principal Payments of Debt
The future scheduled principal payments for the outstanding 2017 Senior Notes, Assumed Senior Notes and Brocade Convertible Notes as of February 4, 2018 were as follows:
Fiscal Year:
 
Future Scheduled Principal Payments
 
 
(In millions)
2018 (remainder)
 
$
117

2019
 
—

2020
 
2,788

2021
 
750

2022
 
3,509

Thereafter
 
10,563

Total
 
$
17,727

7. Shareholders’ Equity
Noncontrolling Interest
The Limited Partners held a noncontrolling interest of approximately 5% in the Partnership through their ownership of LP Units as of both February 4, 2018 and October 29, 2017.
Broadcom adjusts the net income in its condensed consolidated statements of operations to exclude the noncontrolling interest’s proportionate share of the results. In addition, Broadcom presents the proportionate share of equity attributable to the noncontrolling interest as a separate component of shareholders’ equity.
On January 30, 2017, Broadcom registered 23 million ordinary shares to allow for Limited Partners to exchange their LP Units pursuant to the Partnership Agreement. Effective February 1, 2017, subject to certain additional requirements and potential deferrals as set forth in the Partnership Agreement, Limited Partners have the right to require the Partnership to repurchase some or all of such Limited Partner’s LP Units for consideration, as determined by Broadcom in its sole discretion, of either one Broadcom ordinary share or a cash amount as determined under the Partnership Agreement for each LP Unit submitted for repurchase.
During the fiscal quarter ended February 4, 2018, in accordance with the terms of the Partnership Agreement, the Partnership exchanged LP Units, pursuant to exchange notices, for the same number of newly issued Broadcom ordinary shares valued at $5 million. The exchanges represented increases in our ownership interest in the Partnership and were accounted for as equity transactions, with no gain or loss recorded in Broadcom’s condensed consolidated statements of operations. Pursuant to the terms of the Partnership Agreement, upon the exchange of LP Units, each such LP Unit was cancelled and the Partnership issued the same number of Common Units to the General Partner concurrently with the exchange.

23

Dividends
 
 
Fiscal Quarter Ended
 
 
February 4,
2018
 
January 29,
2017
 
 
 
 
 
 
 
(In millions, except per share data)
Cash dividends paid per ordinary share
 
$
1.75

 
$
1.02

Cash dividends paid to ordinary shareholders
 
$
717

 
$
408

Share-Based Compensation Expense
 
 
Fiscal Quarter Ended
 
 
February 4,
2018
 
January 29,
2017
 
 
 
 
 
 
 
(In millions)
Cost of products sold
 
$
20

 
$
14

Research and development
 
203

 
141

Selling, general and administrative
 
76

 
46

Total share-based compensation expense (a)
 
$
299

 
$
201

________________________________
(a) Does not include $1 million of share-based compensation expense related to discontinued operations recognized during the fiscal quarter ended January 29, 2017.
Equity Incentive Award Plans
A summary of time- and market-based RSU activity is as follows:
 
 
Number of RSUs
Outstanding
 
Weighted-
Average
Grant Date
Fair Value
Per Share
 
 
 
 
 
 
 
(In millions, except per share data)
Balance as of October 29, 2017
 
18

 
$
163.42

Granted
 
1

 
$
235.77

Vested
 
—

*
$
131.14

Forfeited
 
—

*
$
141.36

Balance as of February 4, 2018
 
19

 
$
170.59

________________________________
* Represents less than 0.5 million shares.
The aggregate fair value of time- and market-based RSUs that vested during the fiscal quarter ended February 4, 2018 was $121 million. Total unrecognized compensation cost related to unvested RSUs as of February 4, 2018 was $2,190 million, which is expected to be recognized over the remaining weighted-average service period of 2.9 years.

24

A summary of time- and market-based share option activity is as follows:
 
 
Number of Options
Outstanding
 
 
Weighted-
Average
Exercise Price
Per Share
 
Weighted-
Average
Remaining
Contractual
Life (In years)
 
Aggregate
Intrinsic
Value
 
 
 
 
 
 
 
 
 
 
 
 
(In millions, except years and per share data)
Balance as of October 29, 2017
 
10

 
 
$
49.54

 
 
 
 
Exercised
 
—

*
 
$
44.75

 
 
 
$
163

Cancelled
 
—

*
 
$
78.66

 
 
 
 
Balance as of February 4, 2018
 
10

 
 
$
49.88

 
2.62
 
$
1,786

Fully vested as of February 4, 2018
 
9

 
 
$
47.79

 
2.56
 
$
1,651

Fully vested and expected to vest as of February 4, 2018
 
10

 
 
$
49.88

 
2.62
 
$
1,786

________________________________
* Represents less than 0.5 million shares.
The total unrecognized compensation cost related to unvested share options as of February 4, 2018 was $8 million, which is expected to be recognized over the remaining weighted-average service period of 0.5 years.
8. Partners’ Capital
Effective February 1, 2017, subject to certain additional requirements and potential deferrals as set forth in the Partnership Agreement, Limited Partners have the right to require the Partnership to repurchase some or all of such Limited Partner’s LP Units for consideration, as determined by Broadcom in its sole discretion, of either one Broadcom ordinary share or a cash amount as determined under the Partnership Agreement for each LP Unit submitted for repurchase.
During the fiscal quarter ended February 4, 2018, in accordance with the terms of the Partnership Agreement, the Partnership exchanged LP Units, pursuant to exchange notices for the same number of newly issued Broadcom ordinary shares valued at $5 million. The issuances of shares were accounted for as a capital contribution by Broadcom to the Partnership. The exchanges of LP Units were recorded as increases to the Common Units balance and reductions to the LP Units balance within partners' capital of the Partnership’s condensed consolidated balance sheet. Pursuant to the terms of the Partnership Agreement, upon the exchange of LP Units, each such LP Unit was cancelled and the Partnership issued the same number of Common Units to the General Partner concurrently with the exchange.
In connection with the Redomiciliation, we intend to execute an amendment, or the Mandatory Exchange Amendment, to the Partnership Agreement, pursuant to which, immediately prior to the completion of the Scheme of Arrangement, all outstanding LP Units, other than any LP Units held by us and our subsidiaries, will be mandatorily exchanged for shares of common stock of Broadcom-Delaware on a one-for-one basis. As a result, all Limited Partners will become common stockholders of Broadcom-Delaware. In addition, all related outstanding non-economic voting preference shares in the capital of Broadcom will be automatically redeemed upon the exchange of the LP Units in accordance with the Mandatory Exchange Amendment.
The Mandatory Exchange Amendment is subject to the approval of the Limited Partners in accordance with the terms of the Partnership Agreement. The Scheme of Arrangement is not conditioned on the approval of the Mandatory Exchange Amendment and therefore the Redomiciliation will occur whether or not the Mandatory Exchange Amendment has been executed. If the Scheme of Arrangement occurs without the Mandatory Exchange Amendment having been approved and executed, LP Units of the Partnership will remain outstanding and will thereafter be exchangeable for cash or shares of common stock of Broadcom-Delaware in accordance with the terms of the Partnership Agreement, and the holders of LP Units will continue to have the right to vote alongside the common stockholders of Broadcom-Delaware in accordance with the terms of the Voting Trust Agreement, dated February 1, 2016, by and among Broadcom, the Partnership and Computershare Trust Company, N.A., as the registered shareholder of all of the outstanding non-economic voting preference shares and as trustee thereunder.
Share-Based Compensation Expense
Share-based incentive awards are provided to employees and Broadcom’s non-employee directors under the terms of various Broadcom equity incentive plans. Refer to Note 7. “Shareholders’ Equity” for further details.

25

Capital Transactions with General Partner
 
 
Fiscal Quarter Ended
 
 
February 4,
2018
 
January 29,
2017
 
 
 
 
 
 
 
(In millions)
Capital transactions made by General Partner to Partnership
 
$
42

 
$
61

Distributions
 
 
Fiscal Quarter Ended
 
 
February 4,
2018
 
January 29,
2017
 
 
 
 
 
 
 
(In millions, except per LP Unit)
Cash distributions paid to General Partner
 
$
717

 
$
408

Cash distributions paid per LP Unit
 
$
1.75

 
$
1.02

Cash distributions paid to Limited Partners
 
$
38

 
$
23

9. Income Taxes
For the fiscal quarter ended February 4, 2018, our income tax benefit was $5,786 million compared to a provision for income taxes of $10 million for the fiscal quarter ended January 29, 2017. The income tax benefit was principally a result of provisional income tax benefits realized from the enactment of the U.S. Tax Cuts and Jobs Act, or the 2017 Tax Reform Act, on December 22, 2017, and took into account the net deferred tax liabilities established in connection with the Brocade Merger.
The 2017 Tax Reform Act makes significant changes to the U.S. Internal Revenue Code, including, but not limited to, a decrease in the U.S. corporate tax rate from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a participation exemption regime, and a one-time transition tax, or the Transition Tax, on the mandatory deemed repatriation of accumulated non-U.S. earnings of U.S. controlled foreign corporations as of December 31, 2017.
On December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118, or SAB 118, to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Reform Act.
Based on our understanding and interpretation of the 2017 Tax Reform Act and available guidance, including SAB 118, we recorded a total provisional benefit of $5,810 million, which we believe was a reasonable estimate as of February 4, 2018. The provisional benefit includes $88 million related to the remeasurement of certain deferred tax assets and liabilities, which was based on the tax rates at which they are expected to be reversed in the future as a result of the 2017 Tax Reform Act. The provisional benefit also includes $5,722 million related to the Transition Tax, which was primarily due to a reduction of $10,392 million in our federal deferred income tax liabilities on accumulated non-U.S. earnings, partially offset by $2,547 million of federal provisional long-term Transition Tax payable and $2,179 million of unrecognized federal tax benefits related to the Transition Tax. The long-term Transition Tax payable was reduced by the utilization of tax attributes and prepaid taxes, and is payable over eight years. The utilization of tax attributes also increased unrecognized tax benefits with the use of reserved attributes. Additional work is necessary to complete a more detailed analysis of historical foreign earnings, as well as potential correlative adjustments. Any subsequent adjustment to these amounts, which must be completed within 12 months of the enactment of the 2017 Tax Reform Act, will be recorded as an adjustment to provision for (benefit from) income taxes in the period in which the analysis is complete.
In connection with the Brocade Merger, we established $845 million of net deferred tax liabilities on the excess of book basis over the tax basis of acquired identified intangible assets and investments in certain foreign subsidiaries that have not been indefinitely reinvested, partially offset by acquired tax attributes. The net deferred tax liabilities are based upon certain assumptions underlying our preliminary purchase price allocation. Upon finalization of the purchase price allocation, additional adjustments to the amount of our net deferred taxes may be required, provided we are within the measurement period.
The provision for income taxes for the fiscal quarter ended January 29, 2017 was primarily due to an increase in tax provision caused by a change in the jurisdictional mix of income from continuing operations before income taxes partially offset by a discrete benefit from the recognition of $42 million of excess tax benefits on share-based awards that were vested and/or exercised during the fiscal quarter ended January 29, 2017.

26

Uncertain Tax Positions
The balance of gross unrecognized tax benefits was $4,564 million and $2,256 million as of February 4, 2018 and October 29, 2017, respectively. Gross unrecognized tax benefits increased by $2,308 million compared to the balance as of October 29, 2017, primarily due to the recognition of uncertain tax positions related to the Transition Tax and to a lesser extent, the Brocade Merger, which were initially estimated as of the Brocade Acquisition Date. We continue to reevaluate these items with any adjustments to our preliminary estimates recognized, provided we are within the measurement period and we continue to collect information in order to determine their estimated values.
Accrued interest and penalties are included in other long-term liabilities on the condensed consolidated balance sheets. As of February 4, 2018 and October 29, 2017, the combined amount of cumulative accrued interest and penalties was approximately $150 million and $132 million, respectively.
A portion of our unrecognized tax benefits will affect our effective tax rate if they are recognized upon favorable resolution of the uncertain tax positions. As of February 4, 2018 and October 29, 2017, approximately $4,714 million and $2,388 million, respectively, of the unrecognized tax benefits, including accrued interest and penalties, would affect our effective tax rate if favorably resolved.
We are subject to Singapore income tax examination for fiscal years 2013 and later. Certain of our acquired companies are subject to tax examinations in major jurisdictions outside Singapore for fiscal years 2010 and later. It is possible that our existing unrecognized tax benefits may change by up to $250 million as a result of lapses of statutes of limitations for certain audit periods and/or audit examinations expected to be completed within the next 12 months.
10. Segment Information
Reportable Segments
We have four reportable segments: wired infrastructure, wireless communications, enterprise storage and industrial & other. These segments align with our principal target markets. The segments represent components for which separate financial information is available that is utilized on a regular basis by the Chief Executive Officer of Broadcom, who has been identified as the Chief Operating Decision Maker, or the CODM, as defined by authoritative guidance on segment reporting, in determining how to allocate resources and evaluate performance. The segments are determined based on several factors, including client base, homogeneity of products, technology, delivery channels and similar economic characteristics.
In the first quarter of fiscal year 2018, we completed the Brocade Merger. The operating results are reported primarily within the enterprise storage segment. See Note 2. “Acquisitions" for additional information.
Our CODM assesses the performance of each segment and allocates resources to those segments based on net revenue and operating results and does not evaluate our segments using discrete asset information. Operating results by segment include items that are directly attributable to each segment. Operating results by segment also include shared expenses such as global operations, including manufacturing support, logistics and quality control, in addition to expenses associated with selling, general and administrative activities for the business, which are allocated primarily based on revenue, while facilities expenses are primarily allocated based on site-specific headcount.
Unallocated Expenses
Unallocated expenses include amortization of acquisition-related intangible assets, share-based compensation expense, restructuring, impairment and disposal charges, acquisition-related costs, charges related to inventory step-up to fair value, and other costs, which are not used in evaluating the results of, or in allocating resources to, our segments. Acquisition-related costs also include transaction costs and any costs directly related to the acquisition and integration of acquired businesses.
Depreciation expense directly attributable to each reportable segment is included in operating results for each segment. However, the CODM does not evaluate depreciation expense by operating segment and, therefore, it is not separately presented. There was no inter-segment revenue. The accounting policies of the segments are the same as those described in the summary of significant accounting policies.

27

 
 
Fiscal Quarter Ended
 
 
February 4,
2018
 
January 29,
2017
 
 
 
 
 
 
 
(In millions)
Net revenue:
 
 
 
 
Wireless communications
 
$
2,210

 
$
1,175

Wired infrastructure
 
1,875

 
2,084

Enterprise storage
 
991

 
707

Industrial & other
 
251

 
173

Total net revenue
 
$
5,327

 
$
4,139

 
 
 
 
 
Operating income:
 
 
 
 
Wireless communications
 
$
1,059

 
$
427

Wired infrastructure
 
787

 
933

Enterprise storage
 
579

 
375

Industrial & other
 
142

 
61

Unallocated expenses
 
(1,624
)
 
(1,290
)
Total operating income
 
$
943

 
$
506

Significant Customer Information
We sell our products through our direct sales force and a select network of distributors globally. One direct customer accounted for 19% and 17% of our net accounts receivable balance at February 4, 2018 and October 29, 2017, respectively. During the fiscal quarters ended February 4, 2018 and January 29, 2017, one direct customer represented 18% and 15% of our net revenue, respectively. The majority of the revenue from this customer was included in our wireless communications and wired infrastructure segments. This customer is a contract manufacturer for a number of OEMs.
11. Related Party Transactions
During the fiscal quarters ended February 4, 2018 and January 29, 2017, in the ordinary course of business, we purchased from, or sold to, entities of which one of our directors also serves or served as a director, or entities that are otherwise affiliated with one of our directors.
 
 
Fiscal Quarter Ended
 
 
February 4,
2018
 
January 29,
2017
 
 
 
 
 
 
 
(In millions)
Total net revenue
 
$
182

 
$
77

Total costs and expenses, including inventory purchases
 
$
36

 
$
19

 
 
February 4,
2018
 
October 29,
2017
 
 
 
 
 
 
 
(In millions)
Total receivables
 
$
109

 
$
31

Total payables
 
$
16

 
$
12


28

12. Commitments and Contingencies
Commitments
The following table summarizes contractual obligations and commitments as of February 4, 2018 that materially changed from the end of fiscal year 2017:
 
 
 
 
Fiscal Year
 
 
 
 
Total
 
2018
(remainder)
 
2019
 
2020
 
2021
 
2022
 
Thereafter
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Debt principal, interest and fees
 
$
21,373

 
$
432

 
$
566

 
$
3,321

 
$
1,242

 
$
3,940

 
$
11,872

Purchase commitments
 
$
996

 
$
908

 
$
69

 
$
18

 
$
1

 
$
—

 
$
—

Debt Principal, Interest and Fees. Represents principal and interest on borrowings under the 2017 Senior Notes, the Assumed Senior Notes, and the Brocade Convertible Notes.
Purchase Commitments. Represents unconditional purchase obligations that include agreements to purchase goods or services, primarily inventory, that are enforceable and legally binding on us and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable price provisions, and the approximate timing of the transaction. Purchase obligations exclude agreements that are cancelable without penalty. Cancellation for outstanding purchase orders for capital expenditures in connection with internal fabrication facility expansion and construction of our new campuses is generally allowed but requires payment of all costs incurred through the date of cancellation and, therefore, cancelable purchase orders for these capital expenditures are included in the table above.
Due to the inherent uncertainty with respect to the timing of future cash outflows associated with our unrecognized tax benefits at February 4, 2018, we are unable to reliably estimate the timing of cash settlement with the respective taxing authorities. Therefore, $4,212 million of unrecognized tax benefits and accrued interest classified within other long-term liabilities on our condensed consolidated balance sheet as of February 4, 2018 have been excluded from the contractual obligations table above.
Contingencies
From time to time, we are involved in litigation that we believe is of the type common to companies engaged in our line of business, including commercial disputes, employment issues and disputes involving claims by third parties that our activities infringe their patent, copyright, trademark or other intellectual property rights. Legal proceedings are often complex, may require the expenditure of significant funds and other resources, and the outcome of litigation is inherently uncertain, with material adverse outcomes possible. Intellectual property claims generally involve the demand by a third-party that we cease the manufacture, use or sale of the allegedly infringing products, processes or technologies and/or pay substantial damages or royalties for past, present and future use of the allegedly infringing intellectual property. Claims that our products or processes infringe or misappropriate any third-party intellectual property rights (including claims arising through our contractual indemnification of our customers) often involve highly complex, technical issues, the outcome of which is inherently uncertain. Moreover, from time to time we pursue litigation to assert our intellectual property rights. Regardless of the merit or resolution of any such litigation, complex intellectual property litigation is generally costly and diverts the efforts and attention of our management and technical personnel.
Lawsuits Relating to the Acquisition of Brocade Communications Systems, Inc.
On December 13, 2016, December 15, 2016, December 21, 2016, January 5, 2017 and January 18, 2017, six putative class action complaints were filed in the United States District Court for the Northern District of California, or the U.S. Northern District Court, captioned Steinberg v. Brocade Communications Systems, Inc., et al., No. 3:16-cv-7081-EMC, Gross v. Brocade Communications Systems, Inc., et al., No. 3:16-cv-7173-EJD, Jha v. Brocade Communications Systems, Inc., et al., No. 3:16-cv-7270-HRL, Bragan v. Brocade Communications Systems, Inc., et al., No. 3:16-cv-7271-JSD, Chuakay v. Brocade Communications Systems, Inc., et al., No. 3:17-cv-0058-PJH, and Mathew v. Brocade Communications Systems, Inc., et al., No. 3:16-cv-7271-HSG, respectively. The Steinberg, Bragan and Mathew complaints name as defendants Brocade, the members of Brocade’s board of directors, Broadcom, BRCM, and Bobcat Merger Sub, Inc. The Gross, Jha and Chuakay complaints name as defendants Brocade and the members of Brocade’s board of directors. All of the complaints assert claims under Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and Rule 14a-9 promulgated thereunder. The complaints allege, among other things, that the board of directors of Brocade failed to provide material information and/or omitted material information from the Preliminary Proxy Statement filed with the SEC on December 6, 2016 by Brocade. The complaints seek to enjoin the closing of the transaction between Brocade and Broadcom, as well as certain other equitable and declaratory relief and attorneys’ fees and costs. On January 10, 2017, January 27, 2017 and

29

February 15, 2017, the U.S. Northern District Court granted motions to relate the cases, all of which are now related to the Steinberg action and before the Honorable Judge Edward Chen. On January 11, 2017, Plaintiff Jha filed a motion for a preliminary injunction, which was subsequently withdrawn on January 18, 2017. On February 6, 2017, Plaintiff Gross voluntarily dismissed the Gross action without prejudice, which was ordered by the U.S. Northern District Court on February 15, 2017. On April 14, 2017, the U.S. Northern District Court granted the Motion for Consolidation, Appointment as Lead Plaintiff and Approval of Lead Plaintiff’s Selection of Counsel filed by Plaintiff Giulio D. Cessario, a plaintiff in the Steinberg action, which consolidated these actions under the caption In re Brocade Communications Systems, Inc. Securities Litigation, Case No. 3:16-cv-07081-EMC. On December 29, 2017, Lead Plaintiff voluntarily dismissed the consolidated action without prejudice and withdrew as Lead Plaintiff. On February 16, 2018, Plaintiffs Gross, Chuakay and Jha filed a joint motion for an award of attorneys’ fees. On March 2, 2018, defendants filed a joint opposition to the motion for attorneys’ fees. The hearing on Plaintiffs Gross, Chuakay and Jha’s motion is set for April 5, 2018.
Lawsuits Relating to Tessera, Inc.
On May 23, 2016, Tessera Technologies, Inc., Tessera, Inc., or Tessera, and Invensas Corp., an affiliate of Tessera, or Invensas or collectively, the Complainants, filed a complaint to institute an investigation with the U.S. International Trade Commission, or the ITC. The Complainants allege infringement by Broadcom and our subsidiaries, BRCM, Avago Technologies Limited, or Avago, and Avago Technologies U.S. Inc., or Avago U.S., or collectively, the Respondents, of three patents relating to semiconductor packaging and semiconductor manufacturing technology. The downstream respondents, which are customers of the Respondents, are Arista Networks, Inc., ARRIS International plc, ARRIS Group, Inc., ARRIS Techn