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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 2, 2020
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 every Interactive Data File required to be submitted 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 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, a 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
Non-accelerated filer
Smaller reporting company
Emerging growth 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 No þ
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common Stock, $0.001 par value
AVGO
The NASDAQ Global Select Market
8.00% Mandatory Convertible Preferred Stock, Series A, $0.001 par value
AVGOP
The NASDAQ Global Select Market

As of February 28, 2020, there were 399,791,345 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 February 2, 2020

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
 
 
February 2,
2020
 
November 3,
2019
 
 
 
 
 
 
 
(In millions, except par value)
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
6,444

 
$
5,055

Trade accounts receivable, net
 
3,651

 
3,259

Inventory
 
944


874

Other current assets
 
1,070


729

Total current assets
 
12,109

 
9,917

Long-term assets:
 
 
 
 
Property, plant and equipment, net
 
2,616

 
2,565

Goodwill
 
43,472

 
36,714

Intangible assets, net
 
21,465

 
17,554

Other long-term assets
 
1,344


743

Total assets
 
$
81,006

 
$
67,493

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
985

 
$
855

Employee compensation and benefits
 
435

 
641

Current portion of long-term debt
 
2,311

 
2,787

Other current liabilities
 
4,008


2,616

Total current liabilities
 
7,739

 
6,899

Long-term liabilities:
 
 
 
 
Long-term debt
 
42,407

 
30,011

Other long-term liabilities
 
6,464


5,613

Total liabilities
 
56,610

 
42,523

Commitments and contingencies (Note 12)
 


 


Preferred stock dividend obligation
 
28

 
29

Stockholders’ equity:
 
 
 
 
Preferred stock, $0.001 par value; 100 shares authorized; 8.00% Mandatory Convertible Preferred Stock, Series A, 4 shares issued and outstanding; aggregate liquidation value of $3,738 as of February 2, 2020 and November 3, 2019
 

 

Common stock, $0.001 par value; 2,900 shares authorized; 399 and 398 shares issued and outstanding as of February 2, 2020 and November 3, 2019, respectively
 

 

Additional paid-in capital
 
24,500

 
25,081

Retained earnings
 

 

Accumulated other comprehensive loss
 
(132
)
 
(140
)
Total stockholders’ equity
 
24,368

 
24,941

Total liabilities and equity
 
$
81,006

 
$
67,493


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


2


BROADCOM INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME — UNAUDITED
 
 
Fiscal Quarter Ended
 
 
February 2,
2020
 
February 3,
2019
 
 
 
 
 
 
 
(In millions, except per share data)
Net revenue:
 
 
 
 
Products
 
$
4,204

 
$
4,639

Subscriptions and services
 
1,654

 
1,150

Total net revenue
 
5,858

 
5,789

Cost of revenue:
 
 
 
 
Cost of products sold
 
1,459

 
1,554

Cost of subscriptions and services
 
177

 
138

Amortization of acquisition-related intangible assets
 
950

 
833

Restructuring charges
 
8

 
56

Total cost of revenue
 
2,594

 
2,581

Gross margin
 
3,264

 
3,208

Research and development
 
1,289

 
1,133

Selling, general and administrative
 
601

 
471

Amortization of acquisition-related intangible assets
 
603

 
476

Restructuring, impairment and disposal charges
 
57

 
573

Total operating expenses
 
2,550

 
2,653

Operating income
 
714

 
555

Interest expense
 
(406
)
 
(345
)
Other income (expense), net
 
(4
)
 
68

Income from continuing operations before income taxes
 
304

 
278

Benefit from income taxes
 
(76
)
 
(203
)
Income from continuing operations
 
380

 
481

Income (loss) from discontinued operations, net of income taxes
 
5

 
(10
)
Net income
 
385

 
471

Dividends on preferred stock
 
74

 

Net income attributable to common stock
 
$
311

 
$
471

 
 
 
 
 
Comprehensive income
 
$
385

 
$
471

 
 
 
 
 
Basic income per share attributable to common stock:
 
 
 
 
Income per share from continuing operations
 
$
0.77

 
$
1.20

Income (loss) per share from discontinued operations
 
0.01

 
(0.03
)
Net income per share
 
$
0.78

 
$
1.17

 
 
 
 
 
Diluted income per share attributable to common stock:
 
 
 
 
Income per share from continuing operations
 
$
0.73

 
$
1.15

Income (loss) per share from discontinued operations
 
0.01

 
(0.03
)
Net income per share
 
$
0.74

 
$
1.12

 
 
 
 
 
Weighted-average shares used in per share calculations:
 
 
 
 
Basic
 
398

 
401

Diluted
 
420

 
419

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

3


BROADCOM INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED
 
 
Fiscal Quarter Ended
 
 
February 2,
2020
 
February 3,
2019
 
 
 
 
 
 
 
(In millions)
Cash flows from operating activities:
 
 
 
 
Net income
 
$
385

 
$
471

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Amortization of intangible and right-of-use assets
 
1,582

 
1,316

Depreciation
 
146

 
143

Stock-based compensation
 
545

 
465

Deferred taxes and other non-cash taxes
 
(72
)
 
(379
)
Non-cash restructuring, impairment and disposal charges
 
11

 
92

Non-cash interest expense
 
35

 
13

Other
 
19

 
(21
)
Changes in assets and liabilities, net of acquisitions and disposals:
 
 
 
 
Trade accounts receivable, net
 
(392
)
 
68

Inventory
 
40

 
50

Accounts payable
 
117

 
(169
)
Employee compensation and benefits
 
(217
)
 
(458
)
Other current assets and current liabilities
 
346

 
506

Other long-term assets and long-term liabilities
 
(223
)
 
35

Net cash provided by operating activities
 
2,322

 
2,132

Cash flows from investing activities:
 
 
 
 
Acquisitions of businesses, net of cash acquired
 
(10,870
)
 
(16,027
)
Proceeds from sale of business
 

 
957

Purchases of property, plant and equipment
 
(108
)
 
(99
)
Other
 
(9
)
 
(24
)
Net cash used in investing activities
 
(10,987
)
 
(15,193
)
Cash flows from financing activities:
 
 
 
 
Proceeds from long-term borrowings
 
15,381

 
17,896

Repayment of debt
 
(4,537
)
 

Other borrowings, net
 
718

 
531

Payment of dividends
 
(1,372
)
 
(1,067
)
Repurchases of common stock - repurchase program
 

 
(3,436
)
Shares repurchased for tax withholdings on vesting of equity awards
 
(169
)
 
(77
)
Issuance of common stock
 
37

 
62

Other
 
(4
)
 
(47
)
Net cash provided by financing activities
 
10,054

 
13,862

Net change in cash and cash equivalents
 
1,389

 
801

Cash and cash equivalents at beginning of period
 
5,055

 
4,292

Cash and cash equivalents at end of period
 
$
6,444

 
$
5,093

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

4


BROADCOM INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY — UNAUDITED
Fiscal Quarter Ended February 2, 2020

 
 
8.00% Mandatory Convertible Preferred Stock
 
Common Stock
 
Additional Paid-in Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total Stockholders’
Equity
 
 
Shares
 
Par Value
 
Shares
 
Par Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Balance as of November 3, 2019
 
4

 
$

 
398

 
$

 
$
25,081

 
$

 
$
(140
)
 
$
24,941

Net income
 

 

 

 

 

 
385

 

 
385

Cumulative effect of accounting change
 

 

 

 

 

 
(10
)
 
8

 
(2
)
Fair value of partially vested equity awards assumed in connection with an acquisition
 

 

 

 

 
1

 

 

 
1

Dividends to common stockholders
 

 

 

 

 
(996
)
 
(301
)
 

 
(1,297
)
Dividends to preferred stockholders
 

 

 

 

 

 
(74
)
 

 
(74
)
Common stock issued
 

 

 
2

 

 
37

 

 

 
37

Stock-based compensation
 

 

 

 

 
545

 

 

 
545

Shares repurchased for tax withholdings on vesting of equity awards
 

 

 
(1
)
 

 
(168
)
 

 

 
(168
)
Balance as of February 2, 2020
 
4

 
$

 
399

 
$

 
$
24,500

 
$

 
$
(132
)
 
$
24,368

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

5


BROADCOM INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY — UNAUDITED
Fiscal Quarter Ended February 3, 2019

 
 
Common Stock
 
Additional
Paid-in Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Stockholders’
Equity
 
 
Shares
 
Par Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Balance as of November 4, 2018
 
408

 
$

 
$
23,285

 
$
3,487

 
$
(115
)
 
$
26,657

Net income
 

 

 

 
471

 

 
471

Cumulative effect of accounting change
 

 

 

 
8

 
(1
)
 
7

Fair value of partially vested equity awards assumed in connection with the acquisition of CA, Inc.
 

 

 
67

 

 

 
67

Dividends to common stockholders
 

 

 

 
(1,067
)
 

 
(1,067
)
Common stock issued
 
2

 

 
62

 

 

 
62

Stock-based compensation
 

 

 
540

 

 

 
540

Repurchases of common stock
 
(14
)
 

 
(796
)
 
(2,640
)
 

 
(3,436
)
Shares repurchased for tax withholdings on vesting of equity awards
 

 

 
(77
)
 

 

 
(77
)
Balance as of February 3, 2019
 
396

 
$

 
$
23,081

 
$
259

 
$
(116
)
 
$
23,224

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. (“Broadcom”), a Delaware corporation, is a global technology leader that designs, develops and supplies a broad range of semiconductor and infrastructure software solutions. We develop 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. Our infrastructure software solutions enable customers to plan, develop, automate, manage and secure applications across mainframe, distributed, mobile and cloud platforms. We also offer a cybersecurity solutions portfolio, including data loss prevention, endpoint protection, and web, email and cloud security solutions. Unless stated otherwise or the context otherwise requires, references to “Broadcom,” “we,” “our” and “us” mean Broadcom and its consolidated subsidiaries.
On November 4, 2019, we completed the purchase of certain assets and assumption of certain liabilities of the Symantec Corporation Enterprise Security business (the “Symantec Business”) for $10.7 billion in cash (the “Symantec Asset Purchase”). The results of operations of the Symantec Business are included in the unaudited condensed consolidated financial statements commencing as of the acquisition date.
During the first quarter of our fiscal year ending November 1, 2020 (“fiscal year 2020”), we changed our organizational structure, resulting in two reportable segments: semiconductor solutions and infrastructure software. Prior period segment results have been recast to conform to the current presentation.
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 2020 is a 52-week fiscal year. The first quarter of our fiscal year 2020 ended on February 2, 2020, the second quarter ends on May 3, 2020 and the third quarter ends on August 2, 2020. Our fiscal year ended November 3, 2019 (“fiscal year 2019”) was also a 52-week fiscal year.
The accompanying condensed consolidated financial statements include the accounts of Broadcom and its subsidiaries, and have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information. The financial information included herein is unaudited, and reflects all adjustments which are, in the opinion of our management, of a normal recurring nature and necessary for a fair statement of the results for the periods presented. The November 3, 2019 condensed consolidated balance sheet data were derived from Broadcom’s audited consolidated financial statements included in its Annual Report on Form 10-K for fiscal year 2019 as filed with the Securities and Exchange Commission (the “SEC”). All intercompany transactions and balances have been eliminated in consolidation. The operating results for the fiscal quarter ended February 2, 2020 are not necessarily indicative of the results that may be expected for fiscal year 2020, 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 to conform to current period presentation. These reclassifications had no impact on previously reported net cash activities.
Recently Adopted Accounting Guidance
In February 2016, the Financial Accounting Standards Board issued ASU 2016-02, Leases (“Topic 842”), which requires a lessee to recognize lease assets and lease liabilities on the balance sheet for operating leases. At the beginning of fiscal year 2020, we adopted Topic 842 using the optional adoption method, whereby no adjustment to the financial statements of the comparative period is required. Upon adoption, we recorded net right-of-use (“ROU”) assets of $545 million and lease liabilities of $591 million and there were no cumulative effect adjustments as of November 4, 2019. The net ROU assets

7


included the effect of reclassifying deferred rent and a portion of facilities-related restructuring reserves as an offset in accordance with the transition guidance. The standard did not materially affect the condensed consolidated statement of operations and comprehensive income and the condensed consolidated statement of cash flows. See Note 5. “Leases” for further information.
2. Revenue from Contracts with Customers
We account for a contract with a customer when both parties have approved the contract and are committed to perform their respective obligations, each party’s rights can be identified, payment terms can be identified, the contract has commercial substance, and it is probable we will collect substantially all of the consideration we are entitled to. Revenue is recognized when, or as, performance obligations are satisfied by transferring control of a promised product or service to a customer.
Disaggregation
We have considered (1) information that is regularly reviewed by our Chief Executive Officer, who has been identified as the Chief Operating Decision Maker (the “CODM”) as defined by the authoritative guidance on segment reporting, in evaluating financial performance and (2) disclosures presented outside of our financial statements in our earnings releases and used in investor presentations to disaggregate revenues. The principal category we use to disaggregate revenues is the nature of our products and subscriptions and services, as presented in our condensed consolidated statements of operations and comprehensive income. In addition, revenues by reportable segment are presented in Note 11. “Segment Information”.
The following tables present revenue disaggregated by type of revenue and by region for the periods presented:
 
 
Fiscal Quarter Ended February 2, 2020
 
 
Americas
 
Asia Pacific
 
Europe, the Middle East and Africa
 
Total
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Products
 
$
440

 
$
3,451

 
$
313

 
$
4,204

Subscriptions and services (a)
 
1,099

 
169

 
386

 
1,654

Total
 
$
1,539

 
$
3,620

 
$
699

 
$
5,858

 
 
Fiscal Quarter Ended February 3, 2019
 
 
Americas
 
Asia Pacific
 
Europe, the Middle East and Africa
 
Total
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Products
 
$
617

 
$
3,720

 
$
302

 
$
4,639

Subscriptions and services (a)
 
816

 
114

 
220

 
1,150

Total
 
$
1,433

 
$
3,834

 
$
522

 
$
5,789

________________________________
(a) Subscriptions and services predominantly includes software licenses with termination for convenience clauses.
Although we recognize revenue for the majority of our products when title and control transfer in Penang, Malaysia, we disclose net revenue by region based on the geographic shipment or delivery location specified by distributors, original equipment manufacturers, contract manufacturers, channel partners, or software customers.
Contract Balances
Contract assets and contract liabilities balances were as follows:
 
 
Contract Assets
 
Contract Liabilities
 
 
 
 
 
 
(In millions)
Balance as of November 3, 2019 
 
$
259

 
$
1,808

 
 
 
 
 
Balance as of February 2, 2020 (a)
 
$
208

 
$
3,668


________________________________
(a) Contract liabilities associated with the Symantec Business were included in the balance as of February 2, 2020.

8


 
 
Contract Assets
 
Contract Liabilities
 
 
 
 
 
 
(In millions)
Balance as of November 5, 2018 (a)
 
$
18

 
$
272

 
 
 
 
 
Balance as of February 3, 2019
 
$
173

 
$
2,209

________________________________
(a) We adopted ASU 2014-09, Revenue from Contracts with Customers, on November 5, 2018, immediately prior to the acquisition of CA, Inc. (“CA”). Accordingly, the opening balance does not include contract assets or contract liabilities associated with CA.
Changes in our contract assets and contract liabilities primarily result from the timing difference between our performance and the customer’s payment. We fulfill our obligations under a contract with a customer by transferring products and services in exchange for consideration from the customer. We recognize a contract asset when we transfer products or services to a customer and the right to consideration is conditional on something other than the passage of time. Accounts receivable are recorded when the customer has been billed or the right to consideration is unconditional. We recognize contract liabilities when we have received consideration or an amount of consideration is due from the customer and we have a future obligation to transfer products or services. Contract liabilities include amounts billed or collected and advanced payments on contracts or arrangements which may include termination for convenience provisions. The amount of revenue recognized during the fiscal quarter ended February 2, 2020 that was included in the contract liabilities balance as of November 3, 2019 was $669 million. The amount of revenue recognized during the fiscal quarter ended February 3, 2019 that was included in the contract liabilities balance as of November 5, 2018 was $93 million.
Remaining Performance Obligations
Revenue allocated to remaining performance obligations represents the transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied. It includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods and does not include contracts for CA where the customer is not committed. The customer is not considered committed when termination for convenience without payment of a substantive penalty exists. This has been extended to all CA customers, either contractually or through customary business practice. Additionally, as a practical expedient, we have not included contracts that have an original duration of one year or less nor have we included contracts with sales-based and usage-based royalties promised in exchange for a license of intellectual property (“IP”).
Because the substantial majority of our customer contracts allow our customers to terminate for convenience or have an original duration of one year or less, the total amount of the transaction price allocated to remaining performance obligations as of February 2, 2020 was not material. Since our customers generally do not exercise their termination for convenience rights and the majority of the contracts we execute for products, as well as subscription and services, have a duration of one year or less, our remaining performance obligations are not indicative of revenue for future periods.
3. Acquisitions
Acquisition of Symantec Corporation’s Enterprise Security Business
On November 4, 2019 (the “Symantec Asset Purchase Date”), we completed the purchase of the Symantec Business, which was an established leader in cybersecurity, for $10.7 billion in cash. We acquired the Symantec Business to expand our footprint of mission critical infrastructure software with our existing customer base. The Symantec Business includes a deep and broad mix of products, services and solutions, unifying cloud and on-premises security to provide advanced threat protection and information protection across endpoints, network, email and cloud applications. We financed the Symantec Asset Purchase with the net proceeds from borrowings under the 2020 Term Loans, as defined in Note 8. “Borrowings”.
We allocated the purchase price to tangible and identified intangible assets acquired and liabilities assumed based on their estimated fair values, which were based on estimates and assumptions made by management at the time of acquisition. As additional information becomes available, we may further revise our preliminary purchase price allocation during the remainder of the measurement period (which will not exceed 12 months from the Symantec Asset Purchase Date). Any such revisions or changes may be material.

9


The following table presents our preliminary allocation of the total purchase price:
 
 
Estimated Fair Value
 
 
(In millions)
Current assets
 
$
258

Goodwill
 
6,650

Intangible assets
 
5,413

Other long-term assets
 
93

Total assets acquired
 
12,414

Current liabilities
 
(1,126
)
Other long-term liabilities
 
(588
)
Total liabilities assumed
 
(1,714
)
Fair value of net assets acquired
 
$
10,700


Goodwill is primarily attributable to the assembled workforce and anticipated synergies and economies of scale expected from the integration of the Symantec Business. The synergies include certain cost savings, operating efficiencies, and other strategic benefits projected to be achieved as a result of the Symantec Asset Purchase. Substantially all goodwill is deductible for tax purposes.
Current assets and current liabilities included amounts held-for-sale related to the acquired Symantec Cyber Security Services (“CSS”) business. The CSS business was not aligned with our acquisition-date strategic objectives and in January 2020, we entered into an agreement to sell this business. Accordingly, the results of CSS are presented in discontinued operations.
Revenue attributable to the Symantec Business has been included in our infrastructure software segment. Transaction costs related to the Symantec Asset Purchase of $104 million were included in selling, general and administrative expense for the fiscal quarter ended February 2, 2020.
Intangible Assets
 
 
Fair Value
 
Weighted-Average Amortization Periods
 
 
(In millions)
 
(In years)
Developed technology
 
$
2,902

 
5
Customer contracts and related relationships
 
2,410

 
5
Trade names
 
90

 
6
Order backlog
 
11

 
3
Total identified intangible assets
 
$
5,413

 
 

Developed technology relates to products used for cybersecurity solutions, including data loss prevention, endpoint protection, network security, email security and cloud application security. 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 the Symantec Business. Customer contracts and related relationships were valued using the with-and-without-method under the income approach. 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. The economic useful life was determined by evaluating many factors, including the useful life of other intangible assets, the length of time remaining on the acquired contracts and the historical customer turnover rates.
Order backlog represents business under existing contractual obligations. The fair value of backlog was determined using the multi-period excess earnings method under the income approach based on expected operating cash flows from future contractual revenue. The economic useful life was determined based on the expected life of the backlog and the cash flows over the forecast period.

10


Trade name relates to the “Symantec” 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.
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 Symantec Asset Purchase Date.
Unaudited Pro Forma Information
The following unaudited pro forma financial information presents combined results of operations for each of the periods presented, as if we had completed the Symantec Asset Purchase as of the beginning of fiscal year 2019. The unaudited pro forma information includes adjustments to amortization and depreciation for intangible assets and property, plant and equipment acquired, adjustments to interest expense for the additional indebtedness incurred to complete the acquisition, restructuring charges related to the acquisition and transaction costs. For fiscal year 2019, non-recurring pro forma adjustments directly attributable to the Symantec Asset Purchase included transaction costs of $130 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 2019 or of the results of our future operations of the combined business.
 
 
Fiscal Quarter Ended
 
 
February 2,
2020
 
February 3,
2019
 
 
 
 
 
 
 
(In millions)
Pro forma net revenue
 
$
5,639

 
$
6,333

Pro forma net income attributable to common stock
 
$
229

 
$
316


Other Acquisitions
During the fiscal quarter ended February 2, 2020, we also completed three other acquisitions qualifying as business combinations for total consideration of $201 million, of which $108 million was allocated to goodwill and $46 million was allocated to intangible assets. We do not consider these acquisitions to be material, individually or in the aggregate, to our condensed consolidated statements of operations and comprehensive income.
Acquisition of CA, Inc.
On November 5, 2018, we acquired CA for total consideration of $16.1 billion, net of cash acquired (“CA Merger”). CA was a leading provider of information technology management software and solutions. We acquired CA to enhance our infrastructure software capabilities.
Unaudited Pro Forma Information
The following unaudited pro forma financial information presents combined results of operations for the period presented, as if CA had been acquired as of the beginning of our fiscal year ended November 4, 2018 (“fiscal year 2018”). 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, interest expense for the additional indebtedness incurred to complete the acquisition, restructuring charges related to the acquisition and transaction costs. 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 2018 or of the results of our future operations of the combined business.
 
 
Fiscal Quarter Ended
 
 
February 3,
2019
 
 
 
 
 
 
Pro forma net revenue
 
$
5,561

Pro forma net income attributable to common stock
 
$
795



11


4. Supplemental Financial Information
Cash Equivalents
Cash equivalents included $1,167 million and $850 million of time deposits as of February 2, 2020 and November 3, 2019, respectively. As of February 2, 2020 and November 3, 2019, cash equivalents also included $716 million and $649 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.
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 $901 million during the fiscal quarter ended February 2, 2020. Factoring fees for the sales of receivables were recorded in other income (expense), net and were not material for the fiscal quarter ended February 2, 2020. There were no accounts receivable factoring activities during the fiscal quarter ended February 3, 2019.
Inventory
 
 
February 2,
2020
 
November 3,
2019
 
 
 
 
 
 
 
(In millions)
Finished goods
 
$
359

 
$
339

Work-in-process
 
427

 
414

Raw materials
 
158

 
121

Total inventory
 
$
944

 
$
874


Other Current Assets
 
 
February 2,
2020
 
November 3,
2019
 
 
 
 
 
 
 
(In millions)
Prepaid expenses
 
$
420

 
$
302

Other (miscellaneous)
 
650

 
427

Total other current assets
 
$
1,070

 
$
729



12


Other Current Liabilities
 
 
February 2,
2020
 
November 3,
2019
 
 
 
 
 
 
 
(In millions)
Contract liabilities
 
$
2,880

 
$
1,501

Other (miscellaneous)
 
1,128

 
1,115

Total other current liabilities
 
$
4,008

 
$
2,616


Other Long-Term Liabilities
 
 
February 2,
2020
 
November 3,
2019
 
 
 
 
 
 
 
(In millions)
Unrecognized tax benefits
 
$
3,297

 
$
3,269

Contract liabilities
 
788

 
307

Other (miscellaneous)
 
2,379

 
2,037

Total other long-term liabilities
 
$
6,464

 
$
5,613


Supplemental Cash Flow Information
 
 
Fiscal Quarter Ended
 
 
February 2,
2020
 
February 3,
2019
 
 
 
 
 
 
 
(In millions)
Cash paid for interest
 
$
381

 
$
423

Cash paid for income taxes
 
$
131

 
$
95


As of February 2, 2020 and November 3, 2019, we had $46 million and $35 million, respectively, of unpaid purchases of property, plant and equipment included in accounts payable. Amounts reported as unpaid purchases are presented as cash outflows from investing activities for purchases of property, plant and equipment in the condensed consolidated statements of cash flows in the period in which they are paid.
5. Leases
Effective November 4, 2019, we adopted Topic 842 using the optional adoption method and elected practical expedients which allowed us to account for the lease and non-lease components as a single component. In addition, we elected not to reassess whether any expired or existing contracts contain leases and the corresponding lease classification and initial direct costs. The practical expedients were applied across our lease portfolios.
We determine if an arrangement is a lease, or contains a lease, at the inception of the arrangement and evaluate whether the lease is an operating lease or a finance lease at the commencement date. We recognize ROU assets and lease liabilities for operating and finance leases with terms greater than 12 months. ROU assets represent our right to use an asset for the lease term, while lease liabilities represent our obligation to make lease payments. Operating and finance lease ROU assets and liabilities are recognized based on the present value of lease payments over the lease term at the lease commencement date. We use the implicit interest rate or, if not readily determinable, our incremental borrowing rate as of the lease commencement date to determine the present value of lease payments. The incremental borrowing rate is based on our unsecured borrowing rate, adjusted for the effects of collateral. Operating and finance lease ROU assets are recognized net of any lease prepayments and incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term. Finance lease expense is recognized based on the effective-interest method over the lease term.
We entered into operating and finance leases for our facilities, data centers and certain equipment. For the fiscal quarter ended February 2, 2020, we recorded $25 million of operating lease expense and $2 million of finance lease expense. For the fiscal quarter ended February 3, 2019, rent expense was $67 million.

13


Other information related to leases was as follows:
 
 
Fiscal Quarter Ended
 
 
February 2,
2020
 
 
(In millions)
Cash paid for operating leases included in operating cash flows
 
$
32

 
ROU assets obtained in exchange for operating lease obligation
 
$
642

 
ROU assets obtained in exchange for finance lease obligation
 
$
57

 
 
 
 
 
 
 
February 2, 2020
Weighted-average remaining lease term – operating leases (In years)
 
11

 
Weighted-average remaining lease term – finance leases (In years)
 
5

 
Weighted-average discount rate – operating leases
 
3.70

%
Weighted-average discount rate – finance leases
 
3.33

%

Supplemental balance sheet information related to leases was as follows:
 
 
Classification on the Condensed Consolidated Balance Sheet
 
February 2, 2020
 
 
 
 
(In millions)
ROU assets - operating leases
 
Other long-term assets
 
$
620

ROU assets - finance leases
 
Property, plant and equipment, net
 
$
55

 
 
 
 
 
Short-term lease liabilities - operating leases
 
Other current liabilities
 
$
95

Long-term lease liabilities - operating leases
 
Other long-term liabilities
 
$
568

Short-term lease liabilities - finance leases
 
Current portion of long-term debt
 
$
11

Long-term lease liabilities - finance leases
 
Long-term debt
 
$
44



The maturities of lease liabilities were as follows:
 
 
February 2, 2020
 
 
Operating Lease
 
Finance Lease
 
 
 
 
 
 
 
(In millions)
2020 (remainder)
 
$
87

 
$
9

2021
 
110

 
13

2022
 
87

 
13

2023
 
80

 
13

2024
 
59

 
12

Thereafter
 
403

 

     Total undiscounted liabilities
 
826

 
60

Less: interest
 
163

 
5

     Present value of lease liabilities
 
$
663

 
$
55




14


As of November 3, 2019, future minimum lease payments under non-cancelable lease liabilities prior to our adoption of Topic 842 were as follows:
 
 
November 3,
2019
 
 
(In millions)
2020
 
$
115

2021
 
99

2022
 
80

2023
 
69

2024
 
47

Thereafter
 
390

     Total minimum lease payments
 
$
800


6. Goodwill and Intangible Assets
Goodwill
 
 
Semiconductor Solutions
 
Infrastructure Software
 
IP Licensing
 
Total
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Balance as of November 3, 2019
 
$
25,929

 
$
10,776

 
$
9

 
$
36,714

Reallocation due to change in segments
 
9

 

 
(9
)
 

Acquisitions
 
35

 
6,723

 

 
6,758

Balance as of February 2, 2020
 
$
25,973

 
$
17,499

 
$

 
$
43,472


During the first quarter of fiscal year 2020, we changed our organizational structure to include our IP licensing segment in our semiconductor solutions segment, resulting in two reportable segments: semiconductor solutions and infrastructure software.

15


Intangible Assets
 
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Book
Value
 
 
 
 
 
 
 
 
 
(In millions)
As of February 2, 2020:
 
 
 
 
 
 
Purchased technology
 
$
24,031

 
$
(11,061
)
 
$
12,970

Customer contracts and related relationships
 
8,389

 
(2,138
)
 
6,251

Order backlog
 
2,579

 
(1,140
)
 
1,439

Trade names
 
797

 
(262
)
 
535

Other
 
247

 
(91
)
 
156

Intangible assets subject to amortization
 
36,043

 
(14,692
)
 
21,351

In-process research and development
 
114

 

 
114

Total
 
$
36,157

 
$
(14,692
)
 
$
21,465

 
 
 
 
 
 
 
As of November 3, 2019:
 
 
 
 
 
 
Purchased technology
 
$
20,935

 
$
(10,113
)
 
$
10,822

Customer contracts and related relationships
 
5,978

 
(1,787
)
 
4,191

Order backlog
 
2,569

 
(908
)
 
1,661

Trade names
 
712

 
(247
)
 
465

Other
 
241

 
(89
)
 
152

Intangible assets subject to amortization
 
30,435

 
(13,144
)
 
17,291

In-process research and development
 
263

 

 
263

Total
 
$
30,698

 
$
(13,144