10-Q 1 avgo-08052018x10q.htm 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 August 5, 2018
OR
¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
 
 
Broadcom Inc.
 
 
 
 
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
 
Delaware
 
001-38449
 
35-2617337
(State or other jurisdiction of
incorporation or organization)
 
(Commission file Number)

 
(I.R.S. Employer
Identification No.)
 
 
1320 Ridder Park Drive
San Jose, CA 95131-2313
(408) 433-8000
 
 
 
 
(Address, including zip code, of
principal executive offices and registrant’s
telephone number, including area code)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 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):
Large accelerated filer
þ
Accelerated filer
o
Non-accelerated filer
o
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). YES o NO þ
As of August 31, 2018, there were 413,446,755 shares of our common stock, $0.001 par value per share, outstanding.





BROADCOM INC.
Quarterly Report on Form 10-Q
For the Quarterly Period Ended August 5, 2018

TABLE OF CONTENTS



PART I — FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements — Unaudited
BROADCOM INC.
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED

1


BROADCOM INC.
CONDENSED CONSOLIDATED BALANCE SHEETS — UNAUDITED
 
 
August 5,
2018
 
October 29,
2017
 
 
 
 
 
 
 
(In millions, except par value)
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
4,136

 
$
11,204

Trade accounts receivable, net
 
3,010

 
2,448

Inventory
 
1,216


1,447

Other current assets
 
333


724

Total current assets
 
8,695

 
15,823

Long-term assets:
 
 
 
 
Property, plant and equipment, net
 
2,695

 
2,599

Goodwill
 
26,920

 
24,706

Intangible assets, net
 
11,598

 
10,832

Other long-term assets
 
464


458

Total assets
 
$
50,372

 
$
54,418

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
785

 
$
1,105

Employee compensation and benefits
 
622

 
626

Current portion of long-term debt
 
117

 
117

Other current liabilities
 
663


681

Total current liabilities
 
2,187

 
2,529

Long-term liabilities:
 
 
 
 
Long-term debt
 
17,487

 
17,431

Other long-term liabilities
 
3,246


11,272

Total liabilities
 
22,920

 
31,232

Commitments and contingencies (Note 11)
 


 


Stockholders’ equity:
 
 
 
 
Preferred stock, $0.001 par value; 100 shares authorized; none and 22 shares issued and outstanding as of August 5, 2018 and October 29, 2017, respectively
 

 

Common stock and additional paid-in capital, $0.001 par value; 2,900 shares authorized; 413 and 409 shares issued and outstanding as of August 5, 2018 and October 29, 2017, respectively
 
23,291

 
20,505

Retained earnings (accumulated deficit)
 
4,267

 
(129
)
Accumulated other comprehensive loss
 
(106
)
 
(91
)
Total Broadcom Inc. stockholders’ equity
 
27,452

 
20,285

Noncontrolling interest
 

 
2,901

Total stockholders’ equity
 
27,452

 
23,186

Total liabilities and stockholders’ equity
 
$
50,372

 
$
54,418


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


2


BROADCOM INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS — UNAUDITED
 
 
Fiscal Quarter Ended
 
Three Fiscal Quarters Ended
 
 
August 5,
2018
 
July 30,
2017
 
August 5,
2018
 
July 30,
2017
 
 
 
 
 
 
 
 
 
 
 
(In millions, except per share data)
Net revenue
 
$
5,063

 
$
4,463

 
$
15,404


$
12,792

Cost of products sold:
 
 
 
 
 
 
 
 
Cost of products sold
 
1,680

 
1,658

 
5,275

 
4,795

Purchase accounting effect on inventory
 

 
1

 
70

 
2

Amortization of acquisition-related intangible assets
 
762

 
655

 
2,242

 
1,853

Restructuring charges
 
2

 

 
19

 
16

Total cost of products sold
 
2,444

 
2,314

 
7,606

 
6,666

Gross margin
 
2,619

 
2,149

 
7,798

 
6,126

Research and development
 
959

 
827

 
2,820

 
2,464

Selling, general and administrative
 
234

 
200

 
819

 
605

Amortization of acquisition-related intangible assets
 
68

 
441

 
474

 
1,323

Restructuring, impairment and disposal charges
 
19

 
33

 
202

 
106

Total operating expenses
 
1,280

 
1,501

 
4,315

 
4,498

Operating income
 
1,339

 
648

 
3,483

 
1,628

Interest expense
 
(149
)
 
(112
)
 
(480
)
 
(335
)
Loss on extinguishment of debt
 

 

 

 
(159
)
Other income, net
 
39

 
12

 
120

 
46

Income from continuing operations before income taxes
 
1,229

 
548

 
3,123

 
1,180

Provision for (benefit from) income taxes
 
32

 
39

 
(8,391
)
 
(54
)
Income from continuing operations
 
1,197

 
509

 
11,514

 
1,234

Loss from discontinued operations, net of income taxes
 
(1
)
 
(2
)
 
(19
)
 
(11
)
Net income
 
1,196

 
507

 
11,495

 
1,223

Net income attributable to noncontrolling interest
 

 
26

 
351

 
63

Net income attributable to common stock
 
$
1,196

 
$
481

 
$
11,144

 
$
1,160

 
 
 
 
 
 
 
 
 
Basic income (loss) per share:
 
 
 
 
 
 
 
 
Income per share from continuing operations
 
$
2.78

 
$
1.19

 
$
26.58

 
$
2.91

Loss per share from discontinued operations
 

 
(0.01
)
 
(0.05
)
 
(0.03
)
Net income per share
 
$
2.78

 
$
1.18

 
$
26.53

 
$
2.88

 
 
 
 
 
 
 
 
 
Diluted income (loss) per share:
 
 
 
 
 
 
 
 
Income per share from continuing operations
 
$
2.71

 
$
1.14

 
$
25.78

 
$
2.79

Loss per share from discontinued operations
 

 

 
(0.04
)
 
(0.02
)
Net income per share
 
$
2.71

 
$
1.14

 
$
25.74

 
$
2.77

 
 
 
 
 
 
 
 
 
Weighted-average shares:
 
 
 
 
 
 
 
 
Basic
 
430

 
407

 
420

 
403

Diluted
 
441

 
445

 
433

 
442

 
 
 
 
 
 
 
 
 
Cash dividends declared and paid per share
 
$
1.75

 
$
1.02

 
$
5.25

 
$
3.06

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

3


BROADCOM INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME — UNAUDITED
 
 
Fiscal Quarter Ended
 
Three Fiscal Quarters Ended
 
 
August 5,
2018
 
July 30,
2017
 
August 5,
2018
 
July 30,
2017
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Net income
 
$
1,196

 
$
507

 
$
11,495

 
$
1,223

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
Amortization of actuarial loss and prior service costs associated with defined benefit pension plans and post-retirement benefit plans
 

 

 
1

 
1

Other comprehensive income
 

 

 
1

 
1

Comprehensive income
 
1,196

 
507

 
11,496

 
1,224

Comprehensive income attributable to noncontrolling interest
 

 
26

 
351

 
63

Comprehensive income attributable to common stock
 
$
1,196

 
$
481

 
$
11,145

 
$
1,161

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


4


BROADCOM INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED
 
 
Three Fiscal Quarters Ended
 
 
August 5,
2018
 
July 30,
2017
 
 
 
 
 
 
 
(In millions)
Cash flows from operating activities:
 
 
 
 
Net income
 
$
11,495

 
$
1,223

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Amortization of intangible assets
 
2,730

 
3,184

Depreciation
 
383

 
334

Stock-based compensation
 
910

 
669

Deferred taxes and other non-cash taxes
 
(8,512
)
 
(99
)
Non-cash portion of debt extinguishment loss
 

 
159

Non-cash restructuring, impairment and disposal charges
 
13

 
54

Amortization of debt issuance costs and accretion of debt discount
 
18

 
19

Other
 
22

 
(2
)
Changes in assets and liabilities, net of acquisitions and disposals:
 
 
 
 
Trade accounts receivable, net
 
(340
)
 
(236
)
Inventory
 
325

 
(23
)
Accounts payable
 
(353
)
 
(34
)
Employee compensation and benefits
 
(87
)
 
29

Contributions to defined benefit pension plans
 
(130
)
 
(16
)
Other current assets and current liabilities
 
206

 
(570
)
Other long-term assets and long-term liabilities
 
(435
)
 
(99
)
Net cash provided by operating activities
 
6,245

 
4,592

Cash flows from investing activities:
 
 
 
 
Acquisitions of businesses, net of cash acquired
 
(4,793
)
 
(40
)
Proceeds from sales of businesses
 
782

 
10

Purchases of property, plant and equipment
 
(529
)
 
(836
)
Proceeds from disposals of property, plant and equipment
 
238

 
1

Purchases of investments
 
(249
)
 
(200
)
Proceeds from sale of investment
 
54

 

Other
 
(59
)
 
(5
)
Net cash used in investing activities
 
(4,556
)
 
(1,070
)
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
 

 
(23
)
Dividend and distribution payments
 
(2,275
)
 
(1,306
)
Repurchases of common stock
 
(5,725
)
 

Issuance of common stock, net of shares withheld for employee taxes
 
118

 
191

Payment of capital lease obligations
 
(21
)
 
(10
)
Other
 
2

 

Net cash used in financing activities
 
(8,757
)
 
(1,370
)
Net change in cash and cash equivalents
 
(7,068
)
 
2,152

Cash and cash equivalents at beginning of period
 
11,204

 
3,097

Cash and cash equivalents at end of period
 
$
4,136

 
$
5,249

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

5


BROADCOM INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY — UNAUDITED

 
 
Preferred Stock
 
Common Stock
and Additional
Paid-in Capital
 
Retained
Earnings/(Accumulated Deficit)
 
Accumulated
Other
Comprehensive
Loss
 
Noncontrolling Interest
 
Total
Stockholders’
Equity
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Balance as of October 29, 2017
 
22

 
$

 
409

 
$
20,505

 
$
(129
)
 
$
(91
)
 
$
2,901

 
$
23,186

Net income
 

 

 

 

 
11,144

 

 
351

 
11,495

Other comprehensive income
 

 

 

 

 

 
1

 

 
1

Cumulative effect of accounting change
 

 

 

 

 
(237
)
 
(16
)
 
(13
)
 
(266
)
Fair value of partially vested equity awards assumed in connection with the acquisition of Brocade Communications Systems, Inc.
 

 

 

 
8

 

 

 

 
8

Cash dividends declared and paid to common stockholders
 

 

 

 

 
(2,198
)
 

 

 
(2,198
)
Cash distribution declared and paid by Broadcom Cayman L.P. on exchangeable limited partnership units
 

 

 

 

 

 

 
(77
)
 
(77
)
Exchange of exchangeable limited partnership units for common stock and redemption of preferred stock due to the Redomiciliation Transaction
 
(22
)
 

 
22

 
3,162

 

 

 
(3,162
)
 

Common stock issued, net of shares withheld for employee taxes
 

 

 
8

 
118

 

 

 

 
118

Stock-based compensation
 

 

 

 
910

 

 

 

 
910

Repurchases of common stock
 

 

 
(26
)
 
(1,412
)
 
(4,313
)
 

 

 
(5,725
)
Balance as of August 5, 2018
 

 
$

 
413

 
$
23,291

 
$
4,267

 
$
(106
)
 
$

 
$
27,452

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

6


BROADCOM INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Overview, Basis of Presentation and Significant Accounting Policies
Overview
Broadcom Inc., a Delaware corporation, is the successor to Broadcom Limited, a company organized under the laws of the Republic of Singapore, or Broadcom-Singapore. As part of the plan to cause the publicly traded parent company of Broadcom to be a Delaware corporation, or the Redomiciliation Transaction, after the close of market trading on April 4, 2018, Broadcom Inc. and Broadcom-Singapore completed a statutory scheme of arrangement under Singapore law pursuant to which all Broadcom-Singapore outstanding ordinary shares were exchanged on a one-for-one basis for newly issued shares of Broadcom Inc. common stock and Broadcom-Singapore became an indirect wholly-owned subsidiary of Broadcom Inc.
In conjunction with the Redomiciliation Transaction, all outstanding exchangeable limited partnership units, or LP Units, of Broadcom Cayman L.P., or the Partnership, were mandatorily exchanged, or the Mandatory Exchange, on a one-for-one basis for newly issued shares of Broadcom Inc. common stock. As a result, all limited partners of the Partnership became common stockholders of Broadcom Inc. In addition, all related outstanding special preference shares of Broadcom-Singapore were automatically redeemed upon the Mandatory Exchange. Consequently, the limited partners no longer hold a noncontrolling interest in the Partnership and we subsequently deregistered the Partnership.
The scheme of arrangement was accounted for as an exchange of equity interests among entities under common control. All assets and liabilities of Broadcom-Singapore were assumed by Broadcom Inc., resulting in the retention of the historical basis of accounting as if they had always been combined for accounting and financial reporting purposes.
The financial statements for periods prior to April 4, 2018, the effective date of the Redomiciliation Transaction, relate to Broadcom-Singapore and relate to Broadcom Inc. for periods after April 4, 2018. Unless stated otherwise or the context otherwise requires, references to “Broadcom,” “we,” “our” and “us” mean Broadcom Inc. and its consolidated subsidiaries from and after the effective time of the Redomiciliation Transaction and, prior to that time, to our predecessor, Broadcom-Singapore.
We are 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.
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 ended on May 6, 2018 and the third quarter ended 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 include the accounts of Broadcom and our 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-Singapore’s audited consolidated financial statements included in its Annual Report on Form 10-K for fiscal year 2017 as filed with the 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. The operating results for the fiscal quarter and three fiscal quarters ended August 5, 2018 are not necessarily indicative of the results that may be expected for fiscal year 2018, or for any other future period.

7


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 guidance 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 noncontrolling interest.
In the second quarter of fiscal year 2018, we early adopted guidance issued by the FASB in February 2018 that allows companies to reclassify stranded income tax effects resulting from the U.S. Tax Cuts and Jobs Act, or the 2017 Tax Reform Act, from accumulated other comprehensive loss to retained earnings. The stranded income tax effects resulted from the change in the federal tax rate for deferred taxes recorded in accumulated other comprehensive loss. The adoption of this guidance resulted in a cumulative-effect adjustment as of the beginning of the second quarter of fiscal year 2018, which consisted of an increase to our accumulated other comprehensive loss of $16 million, an increase to retained earnings of $15 million and a $1 million increase to noncontrolling 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 on a retrospective basis; and early adoption is permitted. We do not intend to adopt this guidance early and will present our statements of cash flows in accordance with this guidance upon 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.

8


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 with 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 our 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
 
$
1,294

Goodwill
 
2,194

Intangible assets
 
3,396

Other long-term assets
 
78

Total assets acquired
 
6,962

Current portion of long-term debt
 
(856
)
Other current liabilities
 
(374
)
Long-term debt
 
(38
)
Other long-term liabilities
 
(906
)
Total liabilities assumed
 
(2,174
)
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 deductible for tax purposes.

9


Current assets included assets held-for-sale related to Brocade’s IP Networking business, which was not aligned with our strategic objectives. On December 1, 2017, we sold this 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 provided 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.
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, for no gain or loss.
Revenue from the Brocade Merger was primarily included in our enterprise storage segment. Transaction costs of $29 million related to the Brocade Merger were included in selling, general and administrative expense for the three fiscal quarters ended August 5, 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 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 forecast period.
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.

10


The following table summarizes the details of IPR&D by category:
Description
 
IPR&D
 
Percentage of Completion
 
Estimated Cost to Complete
 
Expected Release Date
(By Fiscal Year)
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Directors
 
$
64

 
72
%
 
$
45

 
2019
Switches
 
$
50

 
81
%
 
$
21

 
2018
Embedded
 
$
31

 
74
%
 
$
22

 
2019
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.
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 stock-based compensation expense, the purchase accounting effect on inventory acquired, restructuring charges related to the acquisition and transaction costs. For the three fiscal quarters ended July 30, 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 $76 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
 
Three Fiscal Quarters Ended
 
 
August 5,
2018
 
July 30,
2017
 
August 5,
2018
 
July 30,
2017
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Pro forma net revenue
 
$
5,066

 
$
4,943

 
$
15,530

 
$
14,244

Pro forma net income attributable to common stock
 
$
1,207

 
$
464

 
$
11,284

 
$
1,009

Pending Acquisition of CA, Inc.
On July 11, 2018, we entered into a definitive agreement to acquire CA, Inc., or CA, for aggregate consideration of approximately $18.9 billion, or the CA Merger. Under the terms of the definitive agreement, or the CA Merger Agreement, CA shareholders will receive $44.50 per share in cash. We intend to fund the transaction with cash on hand and $18 billion in new, fully-committed debt financing.
We will assume all outstanding unvested CA stock option, RSU, PSU, and restricted stock awards and each award will be converted to an equivalent equity award to receive Broadcom common stock. All vested and outstanding CA stock options, after giving effect to any acceleration, and all outstanding deferred stock units will be cashed out at the effective time of the CA Merger.
We and CA may each terminate the CA Merger Agreement under certain circumstances, and in connection with the termination of the agreement, CA could be liable to us for a termination fee of $566 million, depending on the reasons for such termination.
3. Supplemental Financial Information
Cash Equivalents
Cash equivalents included $1,730 million and $6,002 million of time deposits as of August 5, 2018 and October 29, 2017, respectively. As of August 5, 2018 and October 29, 2017, cash equivalents also included $201 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.

11


Accounts Receivable Factoring
We sell certain of our trade accounts receivable on a non-recourse basis to third-party financial institutions pursuant to factoring agreements. We account for these transactions as sales of receivables and present cash proceeds as cash provided by operating activities in the condensed consolidated statements of cash flows. Total trade accounts receivable sold under the factoring agreements were $305 million and $362 million during the fiscal quarter and three fiscal quarters ended August 5, 2018, respectively. Factoring fees for the sales of receivables were recorded in other income, net and were not material.
Inventory
 
 
August 5,
2018
 
October 29,
2017
 
 
 
 
 
 
 
(In millions)
Finished goods
 
$
483

 
$
562

Work-in-process
 
599

 
696

Raw materials
 
134

 
189

Total inventory
 
$
1,216

 
$
1,447

Other Current Assets
 
 
August 5,
2018
 
October 29,
2017
 
 
 
 
 
 
 
(In millions)
Prepaid expenses
 
$
223

 
$
440

Other receivables
 
73

 
155

Other (miscellaneous)
 
37

 
129

Total other current assets
 
$
333

 
$
724

Other Current Liabilities
 
 
August 5,
2018
 
October 29,
2017
 
 
 
 
 
 
 
(In millions)
Deferred revenue
 
$
183

 
$
51

Accrued rebates
 
163

 
124

Tax liabilities
 
60

 
123

Other (miscellaneous)
 
257

 
383

Total other current liabilities
 
$
663

 
$
681

Other Long-Term Liabilities
 
 
August 5,
2018
 
October 29,
2017
 
 
 
 
 
 
 
(In millions)
Unrecognized tax benefits (a) (b)
 
$
2,769

 
$
1,011

Deferred tax liabilities (a)
 
178

 
10,019

Other (miscellaneous)
 
299

 
242

Total other long-term liabilities
 
$
3,246

 
$
11,272

________________________________
(a) Refer to Note 8. “Income Taxes” for additional information regarding these balances.
(b) Includes accrued interest and penalties.

12


Supplemental Cash Flow Information
 
 
Fiscal Quarter Ended
 
Three Fiscal Quarters Ended
 
 
August 5,
2018
 
July 30,
2017
 
August 5,
2018
 
July 30,
2017
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Cash paid for interest
 
$
312

 
$
206

 
$
545

 
$
309

Cash paid for income taxes
 
$
127

 
$
35

 
$
323

 
$
253

At August 5, 2018 and October 29, 2017, we had $24 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

Acquisitions
 
83

 

 
2,124

 
7

 
2,214

Balance as of August 5, 2018
 
$
17,705

 
$
5,945

 
$
3,119

 
$
151

 
$
26,920


Intangible Assets
 
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Book
Value
 
 
 
 
 
 
 
 
 
(In millions)
As of August 5, 2018:
 
 
 
 
 
 
Purchased technology
 
$
15,803

 
$
(6,055
)
 
$
9,748

Customer contracts and related relationships
 
1,792

 
(824
)
 
968

Trade names
 
578

 
(157
)
 
421

Other
 
239

 
(45
)
 
194

Intangible assets subject to amortization
 
18,412

 
(7,081
)
 
11,331

IPR&D
 
267

 

 
267

Total
 
$
18,679

 
$
(7,081
)
 
$
11,598

 
 
 
 
 
 
 
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


13


Based on the amount of intangible assets subject to amortization at August 5, 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)
 
$
837

2019
 
2,881

2020
 
2,436

2021
 
1,944

2022
 
1,440

Thereafter
 
1,793

Total
 
$
11,331

The weighted-average amortization periods remaining by intangible asset category were as follows:
Amortizable intangible assets:
 
August 5,
2018
 
 
(In years)
Purchased technology
 
6
Customer contracts and related relationships
 
6
Trade names
 
12
Other
 
10
5. Net Income Per Share
Basic net income per share is computed by dividing net income attributable to common stock by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share is computed by dividing net income by the weighted-average number of shares of common stock and potentially dilutive shares of common stock outstanding during the period.
Diluted shares include the dilutive effect of in-the-money stock options, RSUs and employee stock purchase plan rights under the Broadcom Limited Second Amended and Restated Employee Share Purchase Plan, as amended, or ESPP (together referred to as equity awards). Diluted shares also included shares issuable upon exchange of the LP Units for the fiscal quarter and three fiscal quarters ended July 30, 2017.
The dilutive effect of equity awards is calculated based on the average stock price for each fiscal period, using the treasury stock method. Under the treasury stock method, the amount the employee must pay for exercising stock options and to purchase shares under the ESPP and the amount of compensation cost for future service that we have not yet recognized are collectively assumed to be used to repurchase shares.
The dilutive effect of the LP Units was calculated using the if-converted method. The if-converted method assumed that the LP Units were converted at the beginning of the reporting period and included net income attributable to noncontrolling interest for the period.
For the three fiscal quarters ended August 5, 2018, diluted net income per share excluded the potentially dilutive effect of the exchange of the LP Units for 12 million common stock shares prior to the effective time of Mandatory Exchange (refer to Note 7. “Stockholders’ Equity” for additional information) as their effect was antidilutive. As a result, diluted net income per share for the three fiscal quarters ended August 5, 2018 excluded net income attributable to noncontrolling interest.

14


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
 
Three Fiscal Quarters Ended
 
 
August 5,
2018
 
July 30,
2017
 
August 5,
2018
 
July 30,
2017
 
 
 
 
 
 
 
 
 
Numerator - Basic:
 
(In millions, except per share data)
Income from continuing operations
 
$
1,197

 
$
509

 
$
11,514

 
$
1,234

Less: Income from continuing operations attributable to noncontrolling interest
 

 
26

 
352

 
63

Income from continuing operations attributable to common stock
 
1,197

 
483

 
11,162

 
1,171

 
 
 
 
 
 
 
 
 
Loss from discontinued operations, net of income taxes
 
(1
)
 
(2
)
 
(19
)
 
(11
)
Less: Loss from discontinued operations, net of income taxes, attributable to noncontrolling interest
 

 

 
(1
)
 

Loss from discontinued operations, net of income taxes, attributable to common stock
 
(1
)
 
(2
)
 
(18
)
 
(11
)
 
 
 
 
 
 
 
 
 
Net income attributable to common stock
 
$
1,196

 
$
481

 
$
11,144

 
$
1,160

 
 
 
 
 
 
 
 
 
Numerator - Diluted:
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
1,197

 
$
509

 
$
11,162

 
$
1,234

Loss from discontinued operations, net of income taxes
 
(1
)
 
(2
)
 
(18
)
 
(11
)
Net income
 
$
1,196

 
$
507

 
$
11,144

 
$
1,223

Denominator:
 
 
 
 
 
 
 
 
Weighted-average shares outstanding - basic
 
430

 
407

 
420

 
403

Dilutive effect of equity awards
 
11

 
16

 
13

 
16

Exchange of noncontrolling interest
 

 
22

 

 
23

Weighted-average shares outstanding - diluted
 
441

 
445

 
433

 
442

 
 
 
 
 
 
 
 
 
Basic income (loss) per share:
 
 
 
 
 
 
 
 
Income per share from continuing operations
 
$
2.78

 
$
1.19

 
$
26.58

 
$
2.91

Loss per share from discontinued operations
 

 
(0.01
)
 
(0.05
)
 
(0.03
)
Net income per share
 
$
2.78

 
$
1.18

 
$
26.53

 
$
2.88

 
 
 
 
 
 
 
 
 
Diluted income (loss) per share:
 
 
 
 
 
 
 
 
Income per share from continuing operations
 
$
2.71

 
$
1.14

 
$
25.78

 
$
2.79

Loss per share from discontinued operations
 

 

 
(0.04
)
 
(0.02
)
Net income per share
 
$
2.71

 
$
1.14

 
$
25.74

 
$
2.77


15


6. Borrowings
 
 
As of August 5, 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 BRCM 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

Assumed 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
 
 
 
(123
)
 
 
 
(141
)
Total carrying value of debt
 
 
 
$
17,604

 
 
 
$
17,548

2017 Senior Notes and Assumed BRCM Senior Notes
In fiscal year 2017, Broadcom Corporation, or BRCM, and Broadcom Cayman Finance Limited, or together with BRCM referred to as the Subsidiary Issuers, 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 were fully and unconditionally guaranteed, jointly and severally, on an unsecured, unsubordinated basis by Broadcom-Singapore and the Partnership, subject to certain release conditions described in the indentures governing the 2017 Senior Notes, or the 2017 Indentures. On April 9, 2018, Broadcom Inc., or Parent Guarantor, became a guarantor of the 2017 Senior Notes and entered into supplemental indentures with the Subsidiary Issuers and the trustee of the 2017 Senior Notes. At that time, Broadcom-Singapore, a guarantor at the issuance of the 2017 Senior Notes, became an indirect wholly-owned subsidiary of Broadcom Inc. and a subsidiary guarantor, or Subsidiary Guarantor. In addition, the Partnership was released from its guarantee of the 2017 Senior Notes under each of the 2017 Indentures in accordance with their terms. Each series of 2017 Senior Notes pays interest semi-annually in cash in arrears on January 15 and July 15 of each year. As of August 5, 2018 and October 29, 2017, we accrued interest payable of $25 million and $136 million, respectively.
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 our subsidiaries to incur certain secured debt and consummate certain sale and leaseback transactions, and the ability of the Parent Guarantor, the Subsidiary Issuers and the Subsidiary Guarantor 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

16


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 connection with the acquisition of BRCM, or the Assumed BRCM Senior Notes, as of August 5, 2018.
Assumed 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 Assumed 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 Assumed Brocade Convertible Notes. Accordingly, the holders of the Assumed 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. The remaining outstanding Assumed 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 Assumed Brocade Convertible Notes as of August 5, 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 August 5, 2018, the estimated aggregate fair value of the 2017 Senior Notes, the Assumed BRCM Senior Notes and the Assumed Brocade Convertible Notes was $16,953 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 BRCM Senior Notes and Assumed Brocade Convertible Notes as of August 5, 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. Stockholders’ Equity
Completion of the Redomiciliation Transaction
For the period prior to the Redomiciliation Transaction, our stockholders’ equity reflects Broadcom-Singapore’s outstanding ordinary shares, all of which were publicly traded on The NASDAQ Global Select Market. After the close of market trading on April 4, 2018, all Broadcom-Singapore outstanding ordinary shares were exchanged on a one-for-one basis for newly issued shares of Broadcom Inc. common stock and Broadcom-Singapore became an indirect wholly-owned subsidiary of Broadcom Inc.
In conjunction with the Redomiciliation Transaction and pursuant to the Mandatory Exchange, all outstanding LP Units held by the limited partners were mandatorily exchanged for approximately 22 million newly issued shares of Broadcom Inc. common stock on a one-for-one basis. As a result, all limited partners of the Partnership have become common stockholders of Broadcom Inc. In addition, all related outstanding special preference shares of Broadcom-Singapore were automatically redeemed upon the Mandatory Exchange.
Noncontrolling Interest
As of October 29, 2017 and immediately prior to the Redomiciliation Transaction, the limited partners held a noncontrolling interest of approximately 5% in the Partnership through their ownership of LP Units. Accordingly, net income

17


attributable to our common stock in our condensed consolidated statements of operations excludes the noncontrolling interest’s proportionate share of the results for the three fiscal quarters ended August 5, 2018 and the fiscal quarter and three fiscal quarters ended July 30, 2017. In addition, we presented the proportionate share of equity attributable to the noncontrolling interest as a separate component of stockholders’ equity within our condensed consolidated balance sheet as of October 29, 2017 and condensed consolidated statement of stockholders’ equity for the period immediately prior to the Redomiciliation Transaction.
Dividends and Distributions
 
 
Fiscal Quarter Ended
 
Three Fiscal Quarters Ended
 
 
August 5,
2018
 
July 30,
2017
 
August 5,
2018
 
July 30,
2017
 
 
 
 
 
 
 
 
 
 
 
(In millions, except per share data)
Cash dividends and distributions paid per share/unit
 
$
1.75

 
$
1.02

 
$
5.25

 
$
3.06

Cash dividends paid to stockholders
 
$
754

 
$
415

 
$
2,198

 
$
1,237

Cash distributions paid to limited partners
 
$

 
$
23

 
$
77

 
$
69

Stock Repurchase Program
In April 2018, our Board of Directors authorized the repurchase of up to $12 billion of our common stock from time to time on or prior to November 3, 2019, the end of our fiscal year 2019. In the fiscal quarter and three fiscal quarters ended August 5, 2018, we repurchased and retired approximately 24 million shares and 26 million shares of our common stock at weighted average prices of $224.38 and $224.74, respectively, under this stock repurchase program. As of August 5, 2018, $6,275 million of the current authorization remained available under our stock repurchase program.
Repurchases under our stock repurchase program may be effected through a variety of methods, including open market or privately negotiated purchases. The timing and number of shares of common stock repurchased will depend on a variety of factors, including price, general business and market conditions and alternative investment opportunities. We are not obligated to repurchase any specific number of shares of common stock, and we may suspend or discontinue our stock repurchase program at any time.
Stock-Based Compensation Expense
 
 
Fiscal Quarter Ended
 
Three Fiscal Quarters Ended
 
 
August 5,
2018
 
July 30,
2017
 
August 5,
2018
 
July 30,
2017
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Cost of products sold
 
$
22

 
$
18

 
$
63

 
$
47

Research and development
 
222

 
174

 
630

 
465

Selling, general and administrative
 
71

 
59

 
217

 
156

Total stock-based compensation expense
 
$
315

 
$
251

 
$
910

 
$
668

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
 
7

 
$
240.50

Vested
 
(5
)
 
$
154.61

Forfeited
 
(1
)
 
$
171.61

Balance as of August 5, 2018
 
19

 
$
195.20


18


The aggregate fair value of time- and market-based RSUs that vested during the three fiscal quarters ended August 5, 2018 was $1,450 million, which represents the market value of our common stock on the date that the RSUs vested. The number of RSUs vested included shares of common stock that we withheld for settlement of employees’ tax withholding obligations due upon the vesting of RSUs. Total unrecognized compensation cost related to unvested RSUs as of August 5, 2018 was $2,758 million, which is expected to be recognized over the remaining weighted-average service period of 2.9 years.
A summary of time- and market-based stock 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
 
(2
)
 
 
$
47.47

 
 
 
$
470

Cancelled
 

*
 
$
72.18

 
 
 
 
Balance as of August 5, 2018
 
8

 
 
$
50.01

 
2.19
 
$
1,352

Fully vested as of August 5, 2018
 
8

 
 
$
49.61

 
2.18
 
$
1,343

Fully vested and expected to vest as of August 5, 2018
 
8

 
 
$
50.01

 
2.19
 
$
1,352

________________________________
* Represents fewer than 0.5 million shares.
8. Income Taxes
For the fiscal quarter ended August 5, 2018, our provision for income taxes was $32 million, compared to a provision for income taxes of $39 million for the fiscal quarter ended July 30, 2017.
The provision for the fiscal quarter ended August 5, 2018 was primarily due to profits from continuing operations, partially offset by a net discrete benefit of $14 million, including $25 million of excess tax benefits from stock-based awards that were vested or exercised during the period.
The provision for income taxes for the corresponding 2017 fiscal period was primarily due to profits from continuing operations and a discrete expense of $76 million resulting from entity reorganizations, partially offset by recognition of $56 million of excess tax benefits from stock-based awards that were vested or exercised during the period and the recognition of previously unrecognized tax benefits.
For the three fiscal quarters ended August 5, 2018, our benefit from income taxes was $8,391 million, compared to a benefit from income taxes of $54 million for the three fiscal quarters ended July 30, 2017.
The benefit from income taxes in the three fiscal quarters ended August 5, 2018 was principally a result of provisional income tax benefits realized from the enactment of the 2017 Tax Reform Act and the Redomiciliation Transaction.     
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 the transition tax on the mandatory deemed repatriation of accumulated non-U.S. earnings of U.S. controlled foreign corporations, or the Transition Tax, as of December 31, 2017. On December 22, 2017, the SEC issued Staff Accounting Bulletin No. 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.
As a result of the 2017 Tax Reform Act, we recorded a total provisional benefit of $7,303 million. This provisional benefit included $7,212 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 $2,116 million of federal provisional long-term Transition Tax payable and $1,116 million of unrecognized federal tax benefits related to the Transition Tax. The provisional benefit also included $92 million related to the remeasurement of certain deferred tax assets and liabilities, which were based on the tax rates at which they were expected to be reversed in the future as a result of the 2017 Tax Reform Act.
The impact of the Redomiciliation Transaction and related internal reorganizations included tax benefits of $1,162 million from the remeasurement of withholding taxes on undistributed earnings, partially offset by an $84 million tax provision on foreign earnings and profit subject to U.S. tax. Additional detailed analysis of historical foreign earnings, as well as potential correlative adjustments is ongoing.

19


Additionally, in connection with 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. We also recognized discrete benefits from the recognition of $180 million of excess tax benefits from stock-based awards that were vested or exercised during the three fiscal quarters ended August 5, 2018.
The benefit from income taxes in the three fiscal quarters ended July 30, 2017, was primarily due to the recognition of $237 million of excess tax benefits from stock-based awards that were vested or exercised during the period and the recognition of previously unrecognized tax benefits, partially offset by a discrete expense of $76 million resulting from entity reorganizations and profits from continuing operations.
Uncertain Tax Positions
The balance of gross unrecognized tax benefits was $3,437 million and $2,256 million as of August 5, 2018 and October 29, 2017, respectively. Gross unrecognized tax benefits increased by $1,181 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 August 5, 2018 and October 29, 2017, the combined amount of cumulative accrued interest and penalties was approximately $161 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 August 5, 2018 and October 29, 2017, approximately $3,598 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 U.S. income tax examination for fiscal years 2010 and later. Certain of our acquired companies are subject to tax examinations in major jurisdictions outside the United States for fiscal years 2013 and later. It is possible that our existing unrecognized tax benefits may change by up to $261 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.
9. Segment Information
Reportable Segments
We have four reportable segments: wired infrastructure, wireless communications, enterprise storage, and industrial & other. These segments align with our principal target markets. The segments represent components for which separate financial information is available that is utilized on a regular basis by the Chief Executive Officer 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 allocated primarily based on site-specific headcount.
Unallocated Expenses
Unallocated expenses include amortization of acquisition-related intangible assets, stock-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.

20


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.
 
 
Fiscal Quarter Ended
 
Three Fiscal Quarters Ended
 
 
August 5,
2018
 
July 30,
2017
 
August 5,
2018
 
July 30,
2017
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Net revenue:
 
 
 
 
 
 
 
 
Wired infrastructure
 
$
2,297

 
$
2,208

 
$
6,467


$
6,403

Wireless communications
 
1,288

 
1,283

 
4,792

 
3,608

Enterprise storage
 
1,253

 
735

 
3,406

 
2,154

Industrial & other
 
225

 
237

 
739


627

Total net revenue
 
$
5,063

 
$
4,463

 
$
15,404

 
$
12,792

 
 
 
 
 
 
 
 
 
Operating income:
 
 
 
 
 
 
 
 
Wired infrastructure
 
$
1,128

 
$
1,015

 
$
2,973

 
$
2,885

Wireless communications
 
506

 
492

 
2,087

 
1,333

Enterprise storage
 
787

 
417

 
2,086

 
1,174

Industrial & other
 
112

 
131

 
406

 
301

Unallocated expenses
 
(1,194
)
 
(1,407
)
 
(4,069
)
 
(4,065
)
Total operating income
 
$
1,339

 
$
648

 
$
3,483

 
$
1,628

Significant Customer Information
We sell our products through our direct sales force and a select network of distributors globally. Two direct customers accounted for 13% and 12% of our net accounts receivable balance at August 5, 2018 compared to one customer who accounted for 17% of our net accounts receivable balance at October 29, 2017.
No customer accounted for 10% or more of our net revenue for the fiscal quarter ended August 5, 2018. During the three fiscal quarters ended August 5, 2018, one direct customer represented 11% of our net revenue. During the fiscal quarter and three fiscal quarters ended July 30, 2017one direct customer represented 13% and 14% 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.
10. Related Party Transactions
During the fiscal quarter and three fiscal quarters ended August 5, 2018 and July 30, 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
 
Three Fiscal Quarters Ended
 
 
August 5,
2018
 
July 30,
2017
 
August 5,
2018
 
July 30,
2017
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Total net revenue
 
$
282

 
$
97

 
$
664

 
$
245

Total costs and expenses, including inventory purchases
 
$
25