Broadcom Inc. (AVGO)

FORM 10-Q | Quarterly Report
Sep. 13, 2019 4:39 PM
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About: Broadcom Inc. (AVGO)View as PDF
Broadcom Inc. (Form: 10-Q, Received: 09/13/2019 16:40:45)
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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 August 4, 2019
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

As of August 30, 2019, there were 396,670,773 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 4, 2019

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 4,
2019
 
November 4,
2018
 
 
 
 
 
 
 
(In millions, except par value)
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
5,462

 
$
4,292

Trade accounts receivable, net
 
3,539

 
3,325

Inventory
 
1,091


1,124

Other current assets
 
806


366

Total current assets
 
10,898

 
9,107

Long-term assets:
 
 
 
 
Property, plant and equipment, net
 
2,611

 
2,635

Goodwill
 
36,686

 
26,913

Intangible assets, net
 
18,879

 
10,762

Other long-term assets
 
693


707

Total assets
 
$
69,767

 
$
50,124

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
996

 
$
811

Employee compensation and benefits
 
575

 
715

Current portion of long-term debt
 
3,537

 

Other current liabilities
 
3,174


812

Total current liabilities
 
8,282

 
2,338

Long-term liabilities:
 
 
 
 
Long-term debt
 
34,028

 
17,493

Other long-term liabilities
 
5,954


3,636

Total liabilities
 
48,264

 
23,467

Commitments and contingencies (Note 11)
 


 


Stockholders’ equity:
 
 
 
 
Preferred stock, $0.001 par value; 100 shares authorized; no shares issued or outstanding as of August 4, 2019 or November 4, 2018
 

 

Common stock and additional paid-in capital, $0.001 par value; 2,900 shares authorized; 398 and 408 shares issued and outstanding as of August 4, 2019 and November 4, 2018, respectively
 
21,619

 
23,285

Retained earnings
 

 
3,487

Accumulated other comprehensive loss
 
(116
)
 
(115
)
Total stockholders’ equity
 
21,503

 
26,657

Total liabilities and stockholders’ equity
 
$
69,767

 
$
50,124


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 4,
2019
 
August 5,
2018
 
August 4,
2019
 
August 5,
2018
 
 
 
 
 
 
 
 
 
 
 
(In millions, except per share data)
Net revenue:
 
 
 
 
 
 

 
Products
 
$
4,413

 
$
4,783

 
$
13,470

 
$
14,640

Subscriptions and services
 
1,102

 
280

 
3,351

 
764

Total net revenue
 
5,515

 
5,063

 
16,821

 
15,404

Cost of revenue:
 
 
 
 
 
 
 
 
Cost of products sold
 
1,519

 
1,656

 
4,530

 
5,204

Cost of subscriptions and services
 
132

 
24

 
405

 
71

Purchase accounting effect on inventory
 

 

 

 
70

Amortization of acquisition-related intangible assets
 
828

 
762

 
2,487

 
2,242

Restructuring charges
 
2

 
2

 
68

 
19

Total cost of revenue
 
2,481

 
2,444

 
7,490

 
7,606

Gross margin
 
3,034

 
2,619

 
9,331

 
7,798

Research and development
 
1,235

 
959

 
3,519

 
2,820

Selling, general and administrative
 
410

 
234

 
1,300

 
819

Amortization of acquisition-related intangible assets
 
475

 
68

 
1,424

 
474

Restructuring, impairment and disposal charges
 
49

 
19

 
698

 
202

Total operating expenses
 
2,169

 
1,280

 
6,941

 
4,315

Operating income
 
865

 
1,339

 
2,390

 
3,483

Interest expense
 
(362
)
 
(149
)
 
(1,083
)
 
(480
)
Other income, net
 
41

 
39

 
172

 
120

Income from continuing operations before income taxes
 
544

 
1,229

 
1,479

 
3,123

Provision for (benefit from) income taxes
 
(171
)
 
32

 
(410
)
 
(8,391
)
Income from continuing operations
 
715

 
1,197

 
1,889

 
11,514

Loss from discontinued operations, net of income taxes
 

 
(1
)
 
(12
)
 
(19
)
Net income
 
715

 
1,196

 
1,877

 
11,495

Net income attributable to noncontrolling interest
 

 

 

 
351

Net income attributable to common stock
 
$
715

 
$
1,196

 
$
1,877

 
$
11,144

 
 
 
 
 
 
 
 
 
Basic income (loss) per share:
 
 
 
 
 
 
 
 
Income per share from continuing operations
 
$
1.80

 
$
2.78

 
$
4.73

 
$
26.58

Loss per share from discontinued operations
 

 

 
(0.03
)
 
(0.05
)
Net income per share
 
$
1.80

 
$
2.78

 
$
4.70

 
$
26.53

 
 
 
 
 
 
 
 
 
Diluted income (loss) per share:
 
 
 
 
 
 
 
 
Income per share from continuing operations
 
$
1.71

 
$
2.71

 
$
4.50

 
$
25.78

Loss per share from discontinued operations
 

 

 
(0.03
)
 
(0.04
)
Net income per share
 
$
1.71

 
$
2.71

 
$
4.47

 
$
25.74

 
 
 
 
 
 
 
 
 
Weighted-average shares:
 
 
 
 
 
 
 
 
Basic
 
398

 
430

 
399

 
420

Diluted
 
418

 
441

 
420

 
433

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 4,
2019
 
August 5,
2018
 
August 4,
2019
 
August 5,
2018
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Net income
 
$
715

 
$
1,196

 
$
1,877

 
$
11,495

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

 

 

 
1

Other comprehensive income
 

 

 

 
1

Comprehensive income
 
715

 
1,196

 
1,877

 
11,496

Comprehensive income attributable to noncontrolling interest
 

 

 

 
351

Comprehensive income attributable to common stock
 
$
715

 
$
1,196

 
$
1,877

 
$
11,145

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 4,
2019
 
August 5,
2018
 
 
 
 
 
 
 
(In millions)
Cash flows from operating activities:
 
 
 
 
Net income
 
$
1,877

 
$
11,495

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Amortization of intangible assets
 
3,930

 
2,730

Depreciation
 
426

 
383

Stock-based compensation
 
1,641

 
910

Deferred taxes and other non-cash taxes
 
(708
)
 
(8,512
)
Non-cash restructuring, impairment and disposal charges
 
113

 
13

Non-cash interest expense
 
50

 
18

Other
 
(81
)
 
22

Changes in assets and liabilities, net of acquisitions and disposals:
 
 
 
 
Trade accounts receivable, net
 
201

 
(340
)
Inventory
 
33

 
325

Accounts payable
 
105

 
(353
)
Employee compensation and benefits
 
(360
)
 
(87
)
Contributions to defined benefit pension plans
 

 
(130
)
Other current assets and current liabilities
 
115

 
206

Other long-term assets and long-term liabilities
 
(124
)
 
(435
)
Net cash provided by operating activities
 
7,218

 
6,245

Cash flows from investing activities:
 
 
 
 
Acquisitions of businesses, net of cash acquired
 
(16,033
)
 
(4,793
)
Proceeds from sales of businesses
 
957

 
782

Purchases of property, plant and equipment
 
(336
)
 
(529
)
Proceeds from disposals of property, plant and equipment
 
82

 
238

Purchases of investments
 
(5
)
 
(249
)
Proceeds from sales of investments
 
5

 
54

Other
 
(4
)
 
(59
)
Net cash used in investing activities
 
(15,334
)
 
(4,556
)
Cash flows from financing activities:
 
 
 
 
Proceeds from long-term borrowings
 
28,793

 

Repayment of debt
 
(12,000
)
 
(856
)
Payment of debt issuance costs
 
(46
)
 

Other borrowings
 
1,345

 

Dividend and distribution payments
 
(3,181
)
 
(2,275
)
Repurchases of common stock - repurchase program
 
(5,002
)
 
(5,725
)
Shares repurchased for tax withholdings on vesting of equity awards
 
(818
)
 
(35
)
Issuance of common stock
 
194

 
153

Other
 
1

 
(19
)
Net cash provided by (used in) financing activities
 
9,286

 
(8,757
)
Net change in cash and cash equivalents
 
1,170

 
(7,068
)
Cash and cash equivalents at beginning of period
 
4,292

 
11,204

Cash and cash equivalents at end of period
 
$
5,462

 
$
4,136

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

5


BROADCOM INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY — UNAUDITED
Three Fiscal Quarters Ended August 4, 2019

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

 
$
23,285

 
$
3,487

 
$
(115
)
 
$
26,657

Net income
 

 

 
471

 

 
471

Cumulative effect of accounting changes
 

 

 
8

 
(1
)
 
7

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

 
67

 

 

 
67

Cash dividends declared and paid to 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

Net income
 

 

 
691

 

 
691

Cash dividends declared and paid to stockholders
 

 
(331
)
 
(726
)
 

 
(1,057
)
Common stock issued
 
8

 
121

 

 

 
121

Stock-based compensation
 

 
544

 

 

 
544

Repurchases of common stock
 
(3
)
 
(606
)
 
(224
)
 

 
(830
)
Shares repurchased for tax withholdings on vesting of equity awards
 
(2
)
 
(521
)
 

 

 
(521
)
Balance as of May 5, 2019
 
399

 
22,288

 

 
(116
)
 
22,172

Net income
 

 

 
715

 

 
715

Cash dividends declared and paid to stockholders
 

 
(342
)
 
(715
)
 

 
(1,057
)
Common stock issued
 
2

 
11

 

 

 
11

Stock-based compensation
 

 
632

 

 

 
632

Repurchases of common stock
 
(2
)
 
(736
)
 

 

 
(736
)
Shares repurchased for tax withholdings on vesting of equity awards
 
(1
)
 
(234
)
 

 

 
(234
)
Balance as of August 4, 2019
 
398

 
$
21,619

 
$

 
$
(116
)
 
$
21,503

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

6


BROADCOM INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY — UNAUDITED
Three Fiscal Quarters Ended August 5, 2018

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

 
$

 
409

 
$
20,505

 
$
(129
)
 
$
(91
)
 
$
20,285

 
$
2,901

 
$
23,186

Net income
 

 

 

 

 
6,230

 

 
6,230

 
336

 
6,566

Other comprehensive income
 

 

 

 

 

 
9

 
9

 

 
9

Cumulative effect of accounting changes
 

 

 

 

 
(252
)
 

 
(252
)
 
(14
)
 
(266
)
Fair value of partially vested equity awards assumed in connection with the acquisition of Brocade Communications Systems, Inc.
 

 

 

 
8

 

 

 
8

 

 
8

Cash dividends declared and paid to stockholders
 

 

 

 

 
(717
)
 

 
(717
)
 

 
(717
)
Cash distribution declared and paid by Broadcom Cayman L.P. on exchangeable limited partnership units
 

 

 

 

 

 

 

 
(38
)
 
(38
)
Exchange of exchangeable limited partnership units for common stock
 

 

 

 
5

 

 

 
5

 
(5
)
 

Common stock issued
 

 

 
1

 
34

 

 

 
34

 

 
34

Stock-based compensation
 

 

 

 
299

 

 

 
299

 

 
299

Balance as of February 4, 2018
 
22

 

 
410

 
20,851

 
5,132

 
(82
)
 
25,901

 
3,180

 
29,081

Net income
 

 

 

 

 
3,718

 

 
3,718

 
15

 
3,733

Other comprehensive loss
 

 

 

 

 

 
(8
)
 
(8
)
 

 
(8
)
Cumulative effect of accounting changes
 

 

 

 

 
15

 
(16
)
 
(1
)
 
1

 

Cash dividends declared and paid to stockholders
 

 

 

 

 
(727
)
 

 
(727
)
 

 
(727
)
Cash distribution declared and paid by Broadcom Cayman L.P. on exchangeable limited partnership units
 

 

 

 

 

 

 

 
(39
)
 
(39
)
Exchange of exchangeable limited partnership units for common stock and redemption of preferred stock due to the Redomiciliation Transaction
 
(22
)
 

 
22

 
3,157

 

 

 
3,157

 
(3,157
)
 

Common stock issued
 

 

 
6

 
80

 

 

 
80

 

 
80

Stock-based compensation
 

 

 

 
296

 

 

 
296

 

 
296

Repurchases of common stock
 

 

 
(2
)
 
(77
)
 
(270
)
 

 
(347
)
 

 
(347
)
Shares repurchased for tax withholdings on vesting of equity awards
 

 

 

 
(2
)
 

 

 
(2
)
 

 
(2
)
Balance as of May 6, 2018
 

 

 
436

 
24,305

 
7,868

 
(106
)
 
32,067

 

 
32,067

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

7


BROADCOM INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY — UNAUDITED — Continued
 
 
Preferred Stock
 
Common Stock
and Additional
Paid-in Capital
 
Retained
Earnings/(Accumulated Deficit)
 
Accumulated
Other
Comprehensive
Loss
 
Total
Broadcom Inc.
Stockholders’
Equity
 
Noncontrolling Interest
 
Total
Equity
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Net income
 

 

 

 

 
1,196

 

 
1,196

 

 
1,196

Cash dividends declared and paid to stockholders
 

 

 

 

 
(754
)
 

 
(754
)
 

 
(754
)
Common stock issued
 

 

 
1

 
39

 

 

 
39

 

 
39

Stock-based compensation
 

 

 

 
315

 

 

 
315

 

 
315

Repurchases of common stock
 

 

 
(24
)
 
(1,335
)
 
(4,043
)
 

 
(5,378
)
 

 
(5,378
)
Shares repurchased for tax withholdings on vesting of equity awards
 

 

 

 
(33
)
 

 

 
(33
)
 

 
(33
)
Balance as of August 5, 2018
 

 
$

 
413

 
$
23,291

 
$
4,267

 
$
(106
)
 
$
27,452

 
$

 
$
27,452

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

8


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 the successor to Broadcom Pte. Ltd. (formerly Broadcom Limited), a Singapore company (“Broadcom-Singapore”). On April 4, 2018, all Broadcom-Singapore outstanding ordinary shares were exchanged for newly issued shares of Broadcom common stock (the “Redomiciliation Transaction”). As a result, Broadcom-Singapore became a wholly-owned subsidiary of Broadcom. In addition, all outstanding exchangeable limited partnership units (“LP Units”) of Broadcom Cayman L.P. (the “Partnership”) were mandatorily exchanged (the “Mandatory Exchange”) for newly issued shares of Broadcom common stock and all limited partners of the Partnership became common stockholders of Broadcom eliminating their noncontrolling interest. Also, all related outstanding special preference shares of Broadcom-Singapore were automatically redeemed upon the Mandatory Exchange. We deregistered the Partnership and liquidated Broadcom-Singapore.
The Redomiciliation Transaction was accounted for as an exchange of equity interests among entities under common control and the historical basis of accounting was retained as if the entities had always been combined for financial reporting purposes.
The financial statements relate to Broadcom-Singapore for periods prior to April 4, 2018, the effective date of the Redomiciliation Transaction, and relate to Broadcom for periods after April 4, 2018. Unless stated otherwise or the context otherwise requires, references to “Broadcom,” “we,” “our” and “us” mean Broadcom 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 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 mobile, cloud, distributed and mainframe platforms.
On November 5, 2018, we acquired CA, Inc. (“CA”) for $16.1 billion, net of cash acquired (the “CA Merger”). CA was a leading provider of information technology management software and solutions. The results of operations of CA are included in the unaudited condensed consolidated financial statements commencing as of November 5, 2018 (the “CA Acquisition Date”). See Note 3. “Acquisitions” for additional information.
Subsequent to the CA Merger, we changed our organizational structure, resulting in three reportable segments: semiconductor solutions, infrastructure software and intellectual property (“IP”) licensing. Prior period segment results have been recast to conform to the current presentation. See Note 10. “Segment Information” for additional information.
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 3, 2019 (“fiscal year 2019”) is a 52-week fiscal year. The first quarter of our fiscal year 2019 ended on February 3, 2019, the second quarter ended on May 5, 2019 and the third quarter ended on August 4, 2019. Our fiscal year ended November 4, 2018 (“fiscal year 2018”) was a 53-week fiscal year, with the first fiscal quarter containing 14 weeks.
The accompanying condensed consolidated financial statements include the accounts of Broadcom and our 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 4, 2018 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 2018 as filed with the Securities and Exchange Commission (“SEC”). All intercompany transactions and balances have been eliminated in consolidation. The operating results for the fiscal quarter and three fiscal quarters ended August 4, 2019 are not necessarily indicative of the results that may be expected for fiscal year 2019, or for any other future period.

9


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 statements of operations and condensed consolidated statement of cash flows to conform to current period presentation. These reclassifications had no impact on previously reported net income or net cash activities.
Recently Adopted Accounting Guidance
In the first quarter of fiscal year 2019, we adopted the Financial Accounting Standards Board (“FASB”) guidance issued in March 2017 that requires an employer to present the service cost component of net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. Other components of the net periodic benefit cost are presented separately from the service cost component. We adopted the guidance using a permitted practical expedient that uses the amounts disclosed in the pension and other post-retirement benefit plans note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. The adoption did not have a material impact on the condensed consolidated statements of operations presented herein.
In the first quarter of fiscal year 2019, we adopted the FASB guidance issued in January 2016 that changes the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. This guidance requires the remeasurement of equity investments not accounted for under the equity method to be measured at fair value and any changes in fair value recognized in net income. The guidance allows for election of a measurement alternative for equity securities without readily determinable fair values to be measured at cost less impairment, adjusted for observable price changes. We adopted this guidance using the modified retrospective method for our marketable equity securities and a prospective approach for non-marketable equity securities using the measurement alternative. Upon adoption, we recognized an $8 million increase to retained earnings and a $1 million increase to accumulated other comprehensive loss. During the fiscal quarter and three fiscal quarters ended August 4, 2019, we also recognized $28 million and $95 million, respectively, of unrealized gains on equity securities within other income, net in our condensed consolidated statements of operations.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“Topic 606”). We adopted Topic 606 effective November 5, 2018 using the modified retrospective method. Reporting periods prior to the adoption of the new revenue standard are presented in accordance with Accounting Standards Codification 605, Revenue Recognition (“Topic 605”), while reporting periods after adoption are presented in accordance with the new revenue standard. The cumulative effect adjustment as of November 5, 2018 to retained earnings was not significant. See Note 2. “Revenue from Contracts with Customers” for further information related to adoption of the new revenue standard, including our updated revenue accounting policies and accounting policies for costs to obtain and fulfill a contract with a customer. Refer to our Annual Report on Form 10-K for our accounting policies in accordance with Topic 605.
Recent Accounting Guidance Not Yet Adopted
In February 2016, the FASB issued guidance related to the accounting for leases, which principally 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. We will adopt this guidance using the optional transition method and will not restate comparative prior periods. We are finalizing the implementation of related systems, policies, processes and internal controls to comply with this guidance. Based on our lease portfolio as of August 4, 2019, we expect the adoption of the new leasing guidance to result in recognition of right-of-use assets and corresponding liabilities on our condensed consolidated balance sheet within a range of $500 million to $600 million, primarily related to real estate. However, the actual impact will depend on our lease portfolio as of the adoption date.
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.

10


Nature of Products and Services
Our products and services can be broadly categorized as sales of products and subscriptions and services. The following is a description of the principal activities from which we generate revenue.
Products. Under Topic 606, we recognize revenue from sales to direct customers and distributors when control transfers to the customer. Rebates and incentives offered to distributors, which are earned when sales to end customers are completed, are estimated at the point of revenue recognition. We have elected to exclude from the transaction price any taxes collected from a customer and to account for shipping and handling activities performed after a customer obtains control of the product as activities to fulfill the promise to transfer the product.
Subscriptions and services. Our subscriptions and services revenue consists of sales and royalties from software arrangements, support services, professional services, transfer of IP, and non-recurring engineering (“NRE”) arrangements.
Revenue from software arrangements primarily consists of fees, which may be paid either at contract inception or in installments over the contract term, that provide customers with a right to use the software, access general support and maintenance, and utilize our professional services.
Our software licenses have standalone functionality from which customers derive benefit, and the customer obtains control of the software when it is delivered or made available for download. We believe that for the majority of software arrangements, customers derive significant benefit from the ongoing support we provide. Our CA-related subscriptions and services arrangements permit our customers to unilaterally terminate or cancel these arrangements at any time at the customer’s convenience, referred to as termination for convenience provisions, without substantive termination penalty and receive a pro-rata refund of any prepaid fees. Accordingly, we account for arrangements with these termination for convenience provisions as a series of daily contracts, resulting in a ratable revenue recognition of software revenue over the contractual period.
Support services consist primarily of telephone support and the provision of unspecified updates and upgrades on a when-and-if-available basis. Support services represent stand-ready obligations for which revenue is recognized ratably over the term of the arrangement.
Professional services consist of implementation, consulting, customer education and customer training services. The obligation to provide professional services is generally satisfied over time, with the customer simultaneously receiving and consuming the benefits as we satisfy our performance obligations.
Rights to our IP are either sold or licensed to a customer. IP revenue recognition is dependent on the nature and terms of each agreement. We recognize IP revenue upon delivery of the IP if there are no substantive future obligations to perform under the arrangement. Sales-based or usage-based royalties from the license of IP are recognized at the later of the period the sales or usages occur or the satisfaction of the performance obligation to which some or all of the sales-based or usage-based royalties have been allocated.
There are two main categories of NRE contracts which we enter into with our customers: (a) NRE contracts in which we develop a custom chip and (b) NRE contracts in which we accelerate our development of a new chip upon the customer’s request. The majority of our NRE contract revenues meet the over time criteria under Topic 606. As such, revenue is recognized over the development period with the measure of progress using the input method based on costs incurred to total cost (“cost-to-cost”) as the services are provided. For NRE contracts that do not meet the over time criteria under Topic 606, revenue is recognized at a point in time when the NRE services are complete.
Material rights. Contracts with customers may also include material rights that are also performance obligations. These include the right to renew or receive products or services at a discounted price in the future. Revenue allocated to material rights is recognized when the customer exercises the right or the right expires.
Arrangements with Multiple Performance Obligations
Our contracts may contain more than one of the products and services listed above, each of which is separately accounted for as a distinct performance obligation.
Allocation of consideration. We allocate total contract consideration to each distinct performance obligation in a bundled arrangement on a relative standalone selling price basis. The standalone selling price reflects the price we would charge for a specific product or service if it were sold separately in similar circumstances and to similar customers.
Standalone selling price. When available, we use directly observable transactions to determine the standalone selling prices for performance obligations. Our estimates of standalone selling price for each performance obligation require judgment that considers multiple factors, including, but not limited to, historical discounting trends for products and services and pricing practices through different sales channels, gross margin objectives, internal costs, competitor pricing strategies, technology lifecycles and market conditions.

11


We separately determine the standalone selling prices by product or service type. Additionally, we segment the standalone selling prices for products where the pricing strategies differ, and where there are differences in customers and circumstances that warrant segmentation.
We also estimate the standalone selling price of our material rights. Lastly, we estimate the value of the customer’s option to purchase or receive additional products or services at a discounted price by estimating the incremental discount the customer would obtain when exercising the option and the likelihood that the option would be exercised.
Other Policies and Judgments
Contract modifications. We may modify contracts to offer customers additional products or services. Each of the additional products and services are generally considered distinct from those products or services transferred to the customer before the modification. We evaluate whether the contract price for the additional products and services reflects the standalone selling price as adjusted for facts and circumstances applicable to that contract. In these cases, we account for the additional products or services as a separate contract. In other cases where the pricing in the modification does not reflect the standalone selling price as adjusted for facts and circumstances applicable to that contract, we account for the additional products or services as part of the existing contract on a prospective basis, on a cumulative catch-up basis, or on a combination of both based on the nature of modification. In instances where the pricing in the modification offers the customer a credit for a prior arrangement, we adjust our variable consideration reserves for returns and other concessions.
Right of return. Certain contracts contain a right of return that allows the customer to cancel all or a portion of the product or service and receive a credit. We estimate returns based on historical returns data which is constrained to an amount for which a material revenue reversal is not probable. We do not recognize revenue for products or services that are expected to be returned.
Transition practical expedient elected. We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed. For contracts that were modified before the beginning of the earliest reporting period presented, we have not retrospectively restated the contract for those modifications in accordance with Topic 606. We have disclosed the aggregate effect of all modifications when identifying the satisfied and unsatisfied performance obligations for purposes of determining the transaction price and allocating the transaction price at transition.
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. In addition, revenues by reportable segment are presented in Note 10. “Segment Information”.
The following tables present revenue disaggregated by type of revenue and by region for the periods presented:
 
 
Fiscal Quarter Ended August 4, 2019
 
 
Americas
 
Asia Pacific
 
Europe, the Middle East and Africa
 
Total
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Products
 
$
506

 
$
3,582

 
$
325

 
$
4,413

Subscriptions and services (a)
 
711

 
124

 
267

 
1,102

Total
 
$
1,217

 
$
3,706

 
$
592

 
$
5,515

 
 
Three Fiscal Quarters Ended August 4, 2019
 
 
Americas
 
Asia Pacific
 
Europe, the Middle East and Africa
 
Total
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Products
 
$
1,731

 
$
10,674

 
$
1,065

 
$
13,470

Subscriptions and services (a)
 
2,276

 
339

 
736

 
3,351

Total
 
$
4,007

 
$
11,013

 
$
1,801

 
$
16,821

________________________________
(a) Subscriptions and services predominantly includes software licenses with termination for convenience clauses.

12


Contract Balances
Contract assets and contract liabilities balances for the periods indicated below were as follows:
 
 
Contract Assets
 
Contract Liabilities
 
 
 
 
 
 
(In millions)
Opening balance November 5, 2018 (a)
 
$
18

 
$
272

 
 
 
 
 
Closing balance August 4, 2019
 
$
229

 
$
2,269

________________________________
(a) We adopted Topic 606 immediately prior to the CA Merger. 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 three fiscal quarters ended August 4, 2019 that was included in the contract liabilities balance as of November 5, 2018 was $173 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 CA contracts 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.
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 August 4, 2019 was not significant. 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.
Contract Costs
We have applied the practical expedient to expense commission costs as incurred for costs to obtain a contract when the amortization period would have been one year or less. As a result, no commission costs are capitalized.
We recognize an asset for costs incurred to fulfill a contract that are not within the scope of other accounting literature. We have not incurred any such costs and, as a result, no costs to fulfill a contract have been capitalized.
Topic 606 Adoption
We applied Topic 606 using the modified retrospective method for all contracts not completed as of the date of adoption. For contracts that were modified before the effective date, we reflected the aggregate effect of all modifications when identifying the performance obligations and allocating the transaction price at transition, which did not have a material effect on the adjustment to retained earnings as of November 5, 2018.

13


We adopted Topic 606 immediately prior to the CA Merger. Accordingly, the adoption adjustments presented below excluded CA. As a result of applying the modified retrospective method, the following adjustments were made to selected condensed consolidated balance sheet line items as of November 5, 2018:
Balance Sheet
 
Ending Balance as of November 4, 2018
 
Adjustments Due to Topic 606
 
Opening Balance as of November 5, 2018
 
 
 
 
 
 
 
 
 
(In millions)
ASSETS
 
 
 
 
 
 
Trade accounts receivable, net
 
$
3,325

 
$
11

 
$
3,336

Other current assets
 
$
366

 
$
10

 
$
376

Other long-term assets
 
$
707

 
$
20

 
$
727

LIABILITIES
 
 
 
 
 
 
Other current liabilities
 
$
812

 
$
35

 
$
847

Other long-term liabilities
 
$
3,636

 
$
6

 
$
3,642

Impact of New Revenue Guidance on Net Revenue
The following tables compare net revenue for the periods presented to the pro forma amounts had the previous guidance been in effect. No other amounts in the condensed consolidated statements of operations for the fiscal quarter and three fiscal quarters ended August 4, 2019 or in the condensed consolidated balance sheet as of August 4, 2019 were significantly affected by the new revenue guidance.
 
 
Fiscal Quarter Ended August 4, 2019
Statement of Operations
 
Pro forma as if the previous accounting was in effect
 
Effect of Change
 
As Reported
 
 
 
 
 
 
 
 
 
(In millions)
Net revenue:
 
 
 
 
 
 
Products
 
$
4,413

 
$

 
$
4,413

Subscriptions and services
 
1,078

 
24

 
1,102

Total net revenue
 
$
5,491

 
$
24

 
$
5,515

 
 
Three Fiscal Quarters Ended August 4, 2019
Statement of Operations
 
Pro forma as if the previous accounting was in effect
 
Effect of Change
 
As Reported
 
 
 
 
 
 
 
 
 
(In millions)
Net revenue:
 
 
 
 
 
 
Products
 
$
13,470

 
$

 
$
13,470

Subscriptions and services
 
3,124

 
227

 
3,351

Total net revenue
 
$
16,594

 
$
227

 
$
16,821


3. Acquisitions
Acquisition of CA, Inc.
On November 5, 2018, we acquired CA, which was a leading provider of information technology management software and solutions. We acquired CA to enhance our infrastructure software capabilities. We financed the CA Merger with the net proceeds from borrowings under the Original 2019 Term Loans, as defined in Note 7. “Borrowings,” as well as with cash on hand of the combined companies.

14


Purchase Consideration
 
 
(In millions)
Cash paid for outstanding CA common stock
 
$
18,402

Cash paid by Broadcom to retire CA’s term loan
 
274

Cash paid for vested CA equity awards
 
101

Fair value of partially vested assumed equity awards
 
67

Total purchase consideration
 
18,844

Less: cash acquired
 
2,750

Total purchase consideration, net of cash acquired
 
$
16,094


All vested in-the-money CA stock options, after giving effect to any acceleration, and all outstanding deferred stock units were cashed out upon the completion of the CA Merger. We assumed all unvested CA equity awards held by continuing employees. The portion of the fair value of partially vested equity awards associated with prior service of CA employees represents a component of the total consideration as presented above and was valued based on our share price as of the CA 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, we may further revise our preliminary purchase price allocation during the remainder of the measurement period (which will not exceed 12 months from the CA 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
 
$
1,663

Goodwill
 
9,768

Intangible assets
 
12,045

Other long-term assets
 
245

Total assets acquired
 
23,721

Current liabilities
 
(1,966
)
Long-term debt
 
(2,255
)
Other long-term liabilities
 
(3,406
)
Total liabilities assumed
 
(7,627
)
Fair value of net assets acquired
 
$
16,094


Goodwill is primarily attributable to the assembled workforce and anticipated synergies and economies of scale expected from the integration of the CA business. The synergies include certain cost savings, operating efficiencies, and other strategic benefits projected to be achieved as a result of the CA Merger. Goodwill is not deductible for tax purposes.
Current assets included assets held-for-sale related to CA’s Veracode business, which was not aligned with our strategic objectives. On December 31, 2018, we sold this business to Thoma Bravo, LLC for cash consideration of $950 million, before working capital adjustments. We do not have any material continuing involvement with this business and have presented its results in discontinued operations. Current assets also included $80 million of real properties held-for-sale. During the fiscal quarter ended August 4, 2019, we sold a portion of these real properties for $56 million and recognized a loss of $8 million.
Revenue attributable to CA has been included in our infrastructure software segment. Transaction costs related to the CA Merger of $73 million were included in selling, general and administrative expense for the three fiscal quarters ended August 4, 2019.

15


Intangible Assets
 
 
Fair Value
 
Weighted-Average Amortization Periods
 
 
(In millions)
 
(In years)
Developed technology
 
$
4,957

 
6
Customer contracts and related relationships
 
4,190

 
6
Order backlog
 
2,569

 
3
Trade name and other
 
137

 
5
Total identified finite-lived intangible assets
 
11,853

 
 
In-process research and development
 
192

 
N/A
Total identified intangible assets
 
$
12,045

 
 

Developed technology relates to products used for mission critical business tools for processes and applications, as well as products used for cloud-based planning, development, management and security tools. 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 CA. 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.
Trade name relates to the “CA” 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 (“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 CA Acquisition Date.
The following table summarizes the details of IPR&D by category as of the CA Acquisition Date:
Description
 
IPR&D
 
Percentage of Completion
 
Estimated Cost to Complete
 
Expected Release Date
(By Fiscal Year)
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Mainframe
 
$
178

 
67
%
 
$
138

 
2019
Enterprise Solutions
 
$
14

 
63
%
 
$
12

 
2019

As of August 4, 2019, IPR&D is expected to be fully released by the end of fiscal year 2020.

16


Unaudited Pro Forma Information
The following unaudited pro forma financial information presents combined results of operations for each of the periods presented, as if CA had been acquired as of the beginning of 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. For the three fiscal quarters ended August 5, 2018, non-recurring pro forma adjustments directly attributable to the CA Merger included transaction costs of $180 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 2018 or of the results of our future operations of the combined business.
 
 
Fiscal Quarter Ended
 
Three Fiscal Quarters Ended
 
 
August 4,
2019
 
August 5,
2018
 
August 4,
2019
 
August 5,
2018
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Pro forma net revenue*
 
$
5,287

 
$
5,983

 
$
16,137

 
$
18,066

Pro forma net income attributable to common stock
 
$
542

 
$
894

 
$
1,895

 
$
8,956

________________________________
* Pro forma net revenue was presented under Topic 606 for fiscal year 2019 periods and under Topic 605 for fiscal year 2018 periods.
Acquisition of Brocade Communications Systems, Inc.
On November 17, 2017, we acquired Brocade Communications Systems, Inc. (“Brocade”). Brocade was a supplier of networking hardware, software and services, including Fibre Channel Storage Area Network solutions and Internet Protocol Networking solutions. We acquired Brocade to enhance our position as a provider of enterprise storage connectivity solutions, to broaden our portfolio for enterprise storage, and to increase our ability to address the evolving needs of our original equipment manufacturer (“OEM”) customers.
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 our fiscal year ended October 29, 2017 (“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. 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
 
August 5,
2018
 
 
 
 
 
 
 
(In millions)
Pro forma net revenue*
 
$
5,066

 
$
15,530

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

 
$
11,284


________________________________
* Pro forma net revenue was presented under Topic 605 for fiscal year 2018 periods.

17


Pending Acquisition of Symantec Corporation’s Enterprise Security Business
On August 8, 2019, we entered into an asset purchase agreement (the “Symantec Purchase Agreement”) with Symantec Corporation (“Symantec”) to purchase certain assets and assume certain liabilities of Symantec’s Enterprise Security business for approximately $10.7 billion in cash, on a cash-free, debt-free basis (the “Symantec Asset Purchase”). We intend to fund the Symantec Asset Purchase and related working capital needs with new, fully committed debt financing of up to $12 billion in term loans. The Symantec Purchase Agreement provides that, following the closing of the Symantec Asset Purchase, each party will have certain indemnification obligations, including with respect to breaches of covenants and for losses arising from certain assumed or retained liabilities, as applicable. We and Symantec may terminate the Symantec Purchase Agreement if the closing of the Symantec Asset Purchase has not occurred on or before February 8, 2020, subject to a three-month extension in certain circumstances.
4. Supplemental Financial Information
Cash Equivalents
Cash equivalents included $603 million and $1,406 million of time deposits as of August 4, 2019 and November 4, 2018, respectively. As of August 4, 2019 and November 4, 2018, cash equivalents also included $945 million and $202 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 $375 million and $465 million during the fiscal quarter and three fiscal quarters ended August 4, 2019, respectively, and $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 for any period presented.
Inventory
 
 
August 4,
2019
 
November 4,
2018
 
 
 
 
 
 
 
(In millions)
Finished goods
 
$
329

 
$
483

Work-in-process
 
567

 
505

Raw materials
 
195

 
136

Total inventory
 
$
1,091

 
$
1,124


Other Current Assets
 
 
August 4,
2019
 
November 4,
2018
 
 
 
 
 
 
 
(In millions)
Prepaid expenses
 
$
402

 
$
243

Other (miscellaneous)
 
404

 
123

Total other current assets
 
$
806

 
$
366


Other Current Liabilities

18


 
 
August 4,
2019
 
November 4,
2018
 
 
 
 
 
 
 
(In millions)
Contract liabilities
 
$
1,872

 
$
164

Notional pooling liabilities
 
372

 

Tax liabilities
 
264

 
162

Other (miscellaneous)
 
666

 
486

Total other current liabilities
 
$
3,174

 
$
812


We use a notional pooling arrangement with an international bank to assist us in the management of global liquidity. Under this arrangement, we maintain either a cash deposit or borrowing position in our accounts, so long as the aggregate global pooling position is a notionally calculated net cash deposit.