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    AVGO   US11135F1012

BROADCOM INC.

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BROADCOM INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

06/09/2022 | 04:15pm EDT
The following discussion and analysis of the financial condition and results of
operations should be read in conjunction with the unaudited condensed
consolidated financial statements and the related notes thereto included
elsewhere in this Quarterly Report on Form 10-Q ("Form 10-Q") and the audited
consolidated financial statements and notes thereto and management's discussion
and analysis of financial condition and results of operations for the fiscal
year ended October 31, 2021 ("fiscal year 2021") included in our Annual Report
on Form 10-K for fiscal year 2021 ("2021 Annual Report on Form 10-K").
References to "Broadcom," "we," "our," and "us" are to Broadcom Inc. and its
consolidated subsidiaries, unless otherwise specified or the context otherwise
requires. This Form 10-Q may contain predictions, estimates and other
forward-looking statements that involve a number of risks and uncertainties,
which are made under the safe harbor provisions of Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking
statements may include the potential impact of the COVID-19 pandemic; our
pending acquisition of VMware, Inc.; projections of financial information;
statements about historical results that may suggest trends for our business;
statements of the plans, strategies and objectives of management for future
operations; and statements of expectation or belief regarding future events
(including any acquisitions we may make), technology developments, our products,
product sales, expenses, liquidity, cash flow and growth rates, customer
concentration and relationships, or enforceability of our intellectual property
("IP") rights. Such statements are based on current expectations, estimates,
forecasts and projections of our industry performance and macroeconomic
conditions, based on management's judgment, beliefs, current trends and market
conditions, and involve risks and uncertainties that may cause actual results to
differ materially from those contained in the forward-looking statements. We
derive most of our forward-looking statements from our operating budgets and
forecasts, which are based upon many detailed assumptions. While we believe that
our assumptions are reasonable, we caution that it is very difficult to predict
the impact of known factors, and it is impossible for us to anticipate all
factors that could affect our actual results. Accordingly, we caution you not to
place undue reliance on these statements. Important factors that could cause
actual results to differ materially from our expectations are disclosed under
"Risk Factors" in Part II, Item 1A of this Form 10-Q, and in other documents we
file from time to time with the Securities and Exchange Commission (the "SEC").
All of the forward-looking statements in this Form 10-Q are qualified in their
entirety by reference to the factors listed above and those discussed under the
heading "Risk Factors" below. We undertake no intent or obligation to publicly
update or revise any forward-looking statement, whether as a result of new
information, future events or otherwise, except as otherwise required by law.

Overview


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 in the semiconductor industry 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. Our portfolio of
industry-leading infrastructure and security software is designed to modernize,
optimize, and secure the most complex hybrid environments, enabling scalability,
agility, automation, insights, resiliency and security. We also offer mission
critical fibre channel storage area networking ("FC SAN") products and related
software in the form of modules, switches and subsystems incorporating multiple
semiconductor products.

We have two reportable segments: semiconductor solutions and infrastructure
software. Our semiconductor solutions segment includes all of our product lines
and IP licensing. Our infrastructure software segment includes our mainframe,
distributed and cyber security solutions, and our FC SAN business.

Quarterly Highlights

Highlights during the fiscal quarter ended May 1, 2022 include the following:

•We generated $4,243 million of cash from operations.

•We paid $1,750 million in cash dividends.

•We repurchased $2,776 million of common stock.

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Pending Acquisition of VMware, Inc.


On May 26, 2022, we entered into an Agreement and Plan of Merger (the "VMware
Merger Agreement") to acquire all of the outstanding shares of VMware, Inc.
("VMware") in a cash-and-stock transaction (the "VMware Merger") that values
VMware at approximately $61 billion, based on the closing price of Broadcom
common stock on May 25, 2022. In addition, we will assume $8 billion of VMware
net debt.

Under the terms of the VMware Merger Agreement, each share of VMware common
stock issued and outstanding immediately prior to the effective time of the
VMware Merger will be indirectly converted into the right to receive, at the
election of the holder of such share of VMware common stock, either $142.50 in
cash, without interest, or 0.2520 shares of Broadcom common stock. The
stockholder election will be subject to proration, such that the total number of
shares of VMware common stock entitled to receive cash and the total number of
shares of VMware common stock entitled to receive Broadcom common stock, will,
in each case, be equal to 50% of the aggregate number of shares of VMware common
stock issued and outstanding immediately prior to the effective time of the
VMware Merger.

We will assume all outstanding VMware restricted stock unit awards and
performance stock unit awards held by continuing employees. The assumed awards
will be converted into restricted stock unit awards for shares of Broadcom
common stock. All outstanding in-the-money VMware stock options and restricted
stock unit awards held by non-employee directors will be accelerated and
converted into the right to receive cash and shares of Broadcom common stock, in
equal parts.

Effective upon the effective time of the VMware Merger, one member of the VMware
Board of Directors, to be mutually agreed by us and VMware, will be added to our
Board of Directors.

In connection with the execution of the VMware Merger Agreement, we entered into
a commitment letter on May 26, 2022, with certain financial institutions that
committed to provide, subject to the terms and conditions of the commitment
letter, a senior unsecured bridge facility in an aggregate principal amount of
$32 billion.

The VMware Merger, which is expected to be completed in our fiscal year ending
October 29, 2023, is subject to satisfaction or waiver of customary closing
conditions, including adoption of the VMware Merger Agreement by VMware
stockholders, the expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvement Act of 1976 (the "HSR Act") and
clearance under the antitrust laws of the European Union and certain other
jurisdictions, and the effectiveness of a registration statement on Form S-4 to
be filed by us. We and VMware each have termination rights under the VMware
Merger Agreement and, under specified circumstances, upon termination of the
agreement, we and VMware would be required to pay the other a termination fee of
$1.5 billion (or, in certain circumstances, VMware's termination fee would be
$750 million).

COVID-19 Update

In response to the ongoing COVID-19 pandemic and the various resulting
government directives, we have taken extensive measures to protect the health
and safety of our employees and contractors at our facilities. We modified our
workplace practices globally, which resulted in some of our employees working
remotely for an extended period of time and some of whom are still working
remotely. While we have implemented personal safety measures at all of our
facilities where our employees are working on site, we may need to modify our
business practices and policies. We continue to monitor the implications of the
COVID-19 pandemic on our business, as well as our customers' and suppliers'
businesses.

The demand environment for our semiconductor products was consistent with our
expectations for the second quarter of our fiscal year ending October 30, 2022
("fiscal year 2022"), with continued investments by enterprises, hyperclouds and
service providers in technologies and solutions to support remote or hybrid
tele-work and learning arising from COVID-19, as well as the transition to
office re-openings. While we continue to see robust demand in this area and
record profitability driven by the supply imbalance, the macroeconomic
environment remains uncertain and it may not be sustainable over the longer
term. We continue to experience various constraints in our supply chain due to
the pandemic, including with respect to wafers and substrates. While supply lead
times have stabilized, we continue to have difficulties in obtaining some
necessary components and inputs in a timely manner to meet increased demand. To
date, the impact of COVID-19 on the demand environment for our software products
has been limited.

We have also taken various actions to de-risk our business in light of the ongoing uncertainty and strengthen our balance sheet, including closely managing working capital and our debt instruments.


Overall, in light of the changing nature and continuing uncertainty around the
COVID-19 pandemic, our ability to predict the impact of COVID-19 on our business
in future periods remains limited. The effects of the pandemic on our business
are unlikely to be fully realized, or reflected in our financial results, until
future periods.

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Critical Accounting Estimates


The preparation of financial statements in accordance with generally accepted
accounting principles in the United States requires us 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 financial
statements and the reported amounts of revenue and expenses during the reporting
period. We base our estimates and assumptions on current facts, historical
experience and various other factors that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities and the accrual of costs and
expenses that are not readily apparent from other sources. Our actual financial
results may differ materially and adversely from our estimates. Our critical
accounting estimates are those that affect our historical financial statements
materially and involve difficult, subjective or complex judgments by management.
Those estimates include revenue recognition, business combinations, valuation of
goodwill and long-lived assets, inventory valuation, income taxes, retirement
and post-retirement benefit plan assumptions, stock-based compensation expense,
and employee bonus programs.

There were no significant changes in our critical accounting estimates during
the two fiscal quarters ended May 1, 2022 compared to those previously disclosed
in "Critical Accounting Estimates" in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in the 2021 Annual
Report on Form 10-K.

Results of Operations

Fiscal Quarter and Two Fiscal Quarters Ended May 1, 2022 Compared to Fiscal Quarter and Two Fiscal Quarters Ended May 2, 2021

The following tables set forth our results of operations for the periods presented:

                                                                                    Fiscal Quarter Ended
                                                           May 1,               May 2,              May 1,                 May 2,
                                                            2022                 2021                2022                   2021

                                                                 (In millions)                     (As a percentage of net revenue)
Statements of Operations Data:
Net revenue:
Products                                              $    6,417             $   4,983                    79  %                  75  %
Subscriptions and services                                 1,686                 1,627                    21                     25
Total net revenue                                          8,103                 6,610                   100                    100
Cost of revenue:
Cost of products sold                                      1,798                 1,548                    22                     24
Cost of subscriptions and services                           158                   151                     2                      2

Amortization of acquisition-related intangible
assets                                                       707                   853                     9                     13
Restructuring charges                                          1                     1                     -                      -
Total cost of revenue                                      2,664                 2,553                    33                     39
Gross margin                                               5,439                 4,057                    67                     61
Research and development                                   1,261                 1,238                    16                     19
Selling, general and administrative                          368                   325                     4                      5
Amortization of acquisition-related intangible
assets                                                       398                   494                     5                      7
Restructuring, impairment and disposal charges                18                    25                     -                      -
Total operating expenses                                   2,045                 2,082                    25                     31
Operating income                                      $    3,394             $   1,975                    42  %                  30  %


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                                                                                 Two Fiscal Quarters Ended
                                                          May 1,               May 2,              May 1,                 May 2,
                                                           2022                 2021                2022                   2021

                                                                (In millions)                     (As a percentage of net revenue)
Statements of Operations Data:
Net revenue:
Products                                              $     12,470          $  10,064                    79  %                  76  %
Subscriptions and services                                   3,339              3,201                    21                     24
Total net revenue                                           15,809             13,265                   100                    100
Cost of revenue:
Cost of products sold                                        3,567              3,220                    23                     25
Cost of subscriptions and services                             314                293                     2                      2

Amortization of acquisition-related intangible
assets                                                       1,437              1,727                     9                     13
Restructuring charges                                            3                 16                     -                      -
Total cost of revenue                                        5,321              5,256                    34                     40
Gross margin                                                10,488              8,009                    66                     60
Research and development                                     2,467              2,449                    16                     18
Selling, general and administrative                            689                664                     4                      5
Amortization of acquisition-related intangible
assets                                                         795                988                     5                      7
Restructuring, impairment and disposal charges                  35                 96                     -                      1
Total operating expenses                                     3,986              4,197                    25                     31
Operating income                                      $      6,502          $   3,812                    41  %                  29  %


Net Revenue

A relatively small number of customers account for a significant portion of our net revenue. Direct sales to WT Microelectronics Co., Ltd., a distributor, accounted for 17% and 20% of our net revenue for the fiscal quarter and two fiscal quarters ended May 1, 2022, respectively, and 17% and 18% of our net revenue for the fiscal quarter and two fiscal quarters ended May 2, 2021, respectively.


We believe aggregate sales to our top five end customers, through all channels,
accounted for approximately 35% of our net revenue for each of the fiscal
quarter and two fiscal quarters ended May 1, 2022 and May 2, 2021. We believe
aggregate sales to Apple Inc., through all channels, accounted for approximately
20% of our net revenue for each of the fiscal quarter and two fiscal quarters
ended May 1, 2022 and May 2, 2021. We expect to continue to experience
significant customer concentration in future periods. The loss of, or
significant decrease in demand from, any of our top five end customers could
have a material adverse effect on our business, results of operations and
financial condition.

From time to time, some of our key semiconductor customers place large orders or
delay orders, causing our quarterly net revenue to fluctuate significantly. This
is particularly true of our wireless products as fluctuations may be magnified
by the timing of launches, and seasonal variations in sales, of mobile handsets.
The ongoing COVID-19 pandemic and related uncertainties and supply imbalance
have caused and may continue to cause our net revenue to fluctuate significantly
and impact our results of operations, as discussed above.

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The following tables set forth net revenue by segment for the periods presented:
                                                Fiscal Quarter Ended                                                               Two Fiscal Quarters Ended
Net Revenue by Segment                    May 1, 2022             May 2, 2021          $ Change            % Change            May 1, 2022            May 2, 2021          $ Change            % Change

                                                                                                       (In millions, except percentages)
Semiconductor solutions               $     6,229               $      4,820          $  1,409                   29  %       $      12,102          $      9,728          $  2,374                   24  %
Infrastructure software                     1,874                      1,790                84                    5  %               3,707                 3,537               170                    5  %
Total net revenue                     $     8,103               $      6,610          $  1,493                   23  %       $      15,809          $     13,265          $  2,544                   19  %


                                    Fiscal Quarter Ended                 Two Fiscal Quarters Ended
                                     May 1,             May 2,               May 1,               May 2,
Net Revenue by Segment                2022               2021                 2022                 2021

                                                   (As a percentage of net revenue)
Semiconductor solutions                       77  %       73  %                         77  %       73  %
Infrastructure software                       23          27                            23          27
Total net revenue                            100  %      100  %                        100  %      100  %


Net revenue from our semiconductor solutions segment increased in the fiscal
quarter and two fiscal quarters ended May 1, 2022 compared to the prior year
fiscal periods due to on-going strong product demand, primarily for networking,
server storage and broadband products. Net revenue from our infrastructure
software segment increased in the fiscal quarter and two fiscal quarters ended
May 1, 2022 compared to the prior year fiscal periods primarily due to higher
demand for our mainframe solutions.

Gross Margin


Gross margin was $5,439 million, or 67% of net revenue, for the fiscal quarter
ended May 1, 2022 compared to $4,057 million, or 61% of net revenue, for the
fiscal quarter ended May 2, 2021, and $10,488 million, or 66% of net revenue,
for the two fiscal quarters ended May 1, 2022 compared to $8,009 million, or 60%
of net revenue, for the two fiscal quarters ended May 2, 2021.

The increases were primarily due to lower amortization of acquisition-related
intangible assets and improved profitability within our semiconductor solutions
segment.

Research and Development Expense


Research and development expense increased $23 million, or 2%, and $18 million,
or 1%, for the fiscal quarter and two fiscal quarters ended May 1, 2022,
respectively, compared to the prior year fiscal periods. The increases were
primarily due to higher variable employee compensation expense and engineering
project costs, partially offset by lower stock-based compensation expense
reflecting the full vesting of certain equity awards.

Selling, General and Administrative Expense


Selling, general and administrative expense increased $43 million, or 13%, and
$25 million, or 4%, for the fiscal quarter and two fiscal quarters ended May 1,
2022, respectively, compared to the prior year fiscal periods. The increases
were primarily due to higher variable employee compensation expense and sales
initiatives.

Amortization of Acquisition-Related Intangible Assets


Amortization of acquisition-related intangible assets recognized in operating
expenses decreased $96 million, or 19%, and $193 million, or 20%, for the fiscal
quarter and two fiscal quarters ended May 1, 2022, respectively, compared to
the prior year fiscal periods. The decreases were primarily due to lower
amortization of certain intangible assets from our acquisition of CA, Inc.

Restructuring, Impairment and Disposal Charges


Restructuring, impairment and disposal charges recognized in operating expenses
decreased $7 million, or 28%, and $61 million, or 64%, for the fiscal quarter
and two fiscal quarters ended May 1, 2022, respectively, compared to the prior
year fiscal periods. The decreases were primarily due to lower employee
termination costs and lease and other exit costs in the current year fiscal
periods following the completion of key restructuring activities from
acquisitions.

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Stock-Based Compensation Expense


Total stock-based compensation expense was $386 million and $773 million for the
fiscal quarter and two fiscal quarters ended May 1, 2022, respectively, compared
to $425 million and $869 million for the fiscal quarter and two fiscal quarters
ended May 2, 2021, respectively. The decreases primarily reflect the full
vesting of certain equity awards and the effect of forfeitures.

The following table sets forth the total unrecognized compensation cost related
to unvested stock-based awards outstanding and expected to vest as of May 1,
2022, which we expect to recognize over the remaining weighted-average service
period of 3.0 years.
Fiscal Year:           Unrecognized Compensation Cost, Net of Expected Forfeitures
                                              (In millions)
2022 (remainder)      $                                                        750
2023                                                                         1,186
2024                                                                           804
2025                                                                           467
2026                                                                           102

Total                 $                                                      3,309


During the first quarter of fiscal year ended November 3, 2019 ("fiscal year
2019"), our Compensation Committee approved a broad-based program of multi-year
equity grants of time- and market-based restricted stock units (the "Multi-Year
Equity Awards") in lieu of our annual employee equity awards historically
granted on March 15 of each year. Each Multi-Year Equity Award vests on the same
basis as four annual grants made March 15 of each year, beginning in fiscal year
2019, with successive four-year vesting periods. We recognize stock-based
compensation expense related to the Multi-Year Equity Awards from the grant date
through their respective vesting date, ranging from 4 years to 7 years.

Segment Operating Results
                                          Fiscal Quarter Ended                                                            Two Fiscal Quarters Ended
                                        May 1,                May 2,
Operating Income by Segment              2022                  2021        
  $ Change            % Change            May 1, 2022            May 2, 2021          $ Change            % Change

                                                                                                 (In millions, except percentages)
Semiconductor solutions           $     3,626               $ 2,547          $  1,079                   42  %       $       6,975          $      5,108          $  1,867                   37  %
Infrastructure software                 1,313                 1,255                58                    5  %               2,620                 2,474               146                    6  %
Unallocated expenses                   (1,545)               (1,827)              282                  (15) %              (3,093)               (3,770)              677                  (18) %
Total operating income            $     3,394               $ 1,975          $  1,419                   72  %       $       6,502          $      3,812          $  2,690                   71  %


Operating income from our semiconductor solutions segment increased in the
fiscal quarter and two fiscal quarters ended May 1, 2022 compared to the prior
year fiscal periods, primarily due to higher net revenue due to on-going strong
product demand, primarily for networking, server storage and broadband products,
and improved profitability. Operating income from our infrastructure software
segment increased in the fiscal quarter and two fiscal quarters ended May 1,
2022 compared to the prior year fiscal periods, primarily due to higher demand
for our mainframe solutions.

Unallocated expenses include amortization of acquisition-related intangible
assets; stock-based compensation expense; restructuring, impairment and disposal
charges; acquisition-related costs; and other costs that are not used in
evaluating the results of, or in allocating resources to, our segments.
Unallocated expenses decreased 15% and 18% for the fiscal quarter and two fiscal
quarters ended May 1, 2022, respectively, compared to the prior year fiscal
periods primarily due to lower amortization of acquisition-related intangible
assets.

Non-Operating Income and Expenses


Interest expense. Interest expense was $518 million and $925 million for the
fiscal quarter and two fiscal quarters ended May 1, 2022, respectively, compared
to $466 million and $1,036 million for the fiscal quarter and two fiscal
quarters ended May 2, 2021, respectively. The increase in the fiscal quarter
ended May 1, 2022 was primarily due to higher losses on extinguishment of debt
related to debt transactions. The decrease in two fiscal quarters ended May 1,
2022 was primarily due to lower losses on extinguishment of debt. We expect to
incur additional interest expense in future periods as a result of term loan
indebtedness associated with future acquisitions, including the pending VMware
Merger.

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Other income (expense), net. Other income (expense), net, includes interest
income, gains or losses on investments, foreign currency remeasurement and other
miscellaneous items. Other expense, net, was $86 million and $100 million for
the fiscal quarter and two fiscal quarters ended May 1, 2022, respectively,
compared to other expense, net of $23 million and other income, net of $94
million for the fiscal quarter and two fiscal quarters ended May 2, 2021,
respectively. The changes were primarily due to changes in investment gains or
losses.

Provision for (benefit from) income taxes. The provision for income taxes was
$200 million and $415 million for the fiscal quarter and two fiscal quarters
ended May 1, 2022, respectively, compared to the benefit from income taxes of $7
million and $1 million for the fiscal quarter and two fiscal quarters ended
May 2, 2021, respectively. The provision for income taxes in the current year
fiscal periods was primarily driven by income before income taxes, offset by a
shift in jurisdictional mix of income and expenses, and excess tax benefits from
stock-based awards. The benefit from income taxes in the prior year fiscal
periods was due to excess tax benefits from stock-based awards and the
recognition of gross unrecognized tax benefits as a result of lapses of statutes
of limitations and audit settlements, substantially offset by income tax expense
arising from operations.

Liquidity and Capital Resources


The following section discusses our principal liquidity and capital resources as
well as our principal liquidity requirements and uses of cash. Our cash and cash
equivalents are maintained in highly liquid investments with remaining
maturities of 90 days or less at the time of purchase. We believe our cash
equivalents are liquid and accessible.

Our primary sources of liquidity as of May 1, 2022 consisted of: (i) $9,005
million in cash and cash equivalents, (ii) cash we expect to generate from
operations and (iii) available capacity under our $7.5 billion unsecured
revolving credit facility (the "Revolving Facility"). In addition, we may also
generate cash from the sale of assets and debt or equity financing from time to
time.

Our short-term and long-term liquidity requirements primarily arise from:
(i) business acquisitions and investments we may make from time to time,
including the pending VMware Merger, (ii) working capital requirements,
(iii) research and development and capital expenditure needs, (iv) cash dividend
payments (if and when declared by our Board of Directors), (v) interest and
principal payments related to our $41,227 million of outstanding indebtedness,
(vi) share repurchases, and (vii) payment of income taxes. Our ability to fund
these requirements will depend, in part, on our future cash flows, which are
determined by our future operating performance and, therefore, subject to
prevailing global macroeconomic conditions and financial, business and other
factors, some of which are beyond our control. We expect a slight increase in
capital expenditures in fiscal year 2022 as compared to fiscal year 2021. Our
debt and liquidity needs will also increase as a result of the pending VMware
Merger. We intend to fund the cash portion of the consideration with $32 billion
in new, fully committed debt financing.

We believe that our cash and cash equivalents on hand, cash flows from
operations, the Revolving Facility, as well as the committed debt funding
related to the pending VMware Merger, will provide sufficient liquidity to
operate our business and fund our current and assumed obligations for at least
the next 12 months. For additional information regarding our cash requirement
from contractual obligations and indebtedness, see Note 10. "Commitments and
Contingencies" and Note 6. "Borrowings" in Part I, Item 1 of this Form 10-Q.

From time to time, we engage in discussions with third parties regarding
potential acquisitions of, or investments in, businesses, technologies and
product lines. Any such transaction, or evaluation of potential transactions,
could require significant use of our cash and cash equivalents, or require us to
increase our borrowings to fund such transactions. If we do not have sufficient
cash to fund our operations or finance growth opportunities, including
acquisitions, or unanticipated capital expenditures, our business and financial
condition could suffer. In such circumstances, we may also seek to obtain new
debt or equity financing. However, we cannot assure you that such additional
financing will be available on terms acceptable to us or at all. Our ability to
service our senior unsecured notes and any other indebtedness we may incur will
depend on our ability to generate cash in the future. We may also elect to sell
additional debt or equity securities for reasons other than those specified
above.

In addition, we may, at any time and from time to time, seek to retire or
purchase our outstanding debt through cash tenders and/or exchanges for equity
or debt, in open-market purchases, privately negotiated transactions or
otherwise. Such tenders, exchanges or purchases, if any, will be upon such terms
and at such prices as we may determine, and will depend on prevailing market
conditions, our liquidity requirements, contractual restrictions and other
factors. The amounts involved may be material.

Working Capital

Working capital decreased to $7,900 million at May 1, 2022 from $10,305 million at October 31, 2021. The decrease was primarily attributable to the following:

•Cash and cash equivalents decreased to $9,005 million at May 1, 2022 from $12,163 million at October 31, 2021,

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primarily due to $5,500 million of common stock repurchases, $3,514 million of
dividend payments, $2,352 million of debt payments, and $889 million of employee
withholding tax payments related to net settled equity awards. These decreases
were partially offset by $7,729 million in net cash provided by operating
activities and $1,935 million in proceeds from long-term borrowings.

•Other current liabilities increased to $4,788 million at May 1, 2022 from $3,839 million at October 31, 2021, primarily due to increases in contract liabilities and interest payable.

These decreases in working capital were offset in part by the following:

•Accounts receivable increased to $3,083 million at May 1, 2022 from $2,071 million at October 31, 2021, primarily due to revenue linearity and less receivables sold through factoring arrangements.

•Inventory increased to $1,668 million at May 1, 2022 from $1,297 million at October 31, 2021, primarily to support customer demand and due to higher material costs.


•Employee compensation and benefits decreased to $751 million at May 1, 2022
from $1,066 million at October 31, 2021, primarily due to the timing of employee
bonus plan payments.

Capital Returns
                                                                           Two Fiscal Quarters Ended
                                                                           May 1,                 May 2,
                                                                            2022                   2021

                                                                      (In

millions, except per share data) Cash dividends declared and paid per share to common stockholders

                                                         $           8.20          $    7.20
Cash dividends declared and paid to common stockholders              $      

3,365 $ 2,945 Cash dividends declared and paid per share to preferred stockholders

                                                         $          40.00          $   40.00
Cash dividends declared and paid to preferred stockholders           $            149          $     150
Stock repurchases                                                    $          5,500          $       -


Pursuant to a $10 billion stock repurchase program authorized by our Board of
Directors in December 2021, we repurchased and retired approximately 9 million
shares of our common stock at a weighted average price of $602.53 during the two
fiscal quarters ended May 1, 2022.

In May 2022, our Board of Directors authorized another stock repurchase program
to repurchase up to an additional $10 billion of our common stock from time to
time through December 31, 2023. Repurchases under our stock repurchase programs
may be made through a variety of methods, including open market or privately
negotiated purchases. The timing and amount of shares repurchased will depend on
the stock price, business and market conditions, corporate and regulatory
requirements, alternative investment opportunities, acquisition opportunities
and other factors. We are not obligated to repurchase any specific amount of
shares of common stock, and the stock repurchase programs may be suspended or
terminated at any time.

During the two fiscal quarters ended May 1, 2022 and May 2, 2021, we paid
approximately $889 million and $686 million, respectively, in employee
withholding taxes due upon the vesting of net settled equity awards. We withheld
approximately 2 million shares of common stock from employees in connection with
such net share settlements during each of the two fiscal quarters ended May 1,
2022 and May 2, 2021.

Cash Flows
                                                       Two Fiscal Quarters Ended
                                                          May 1,               May 2,
                                                           2022                 2021

                                                             (In millions)
Net cash provided by operating activities       $        7,729                $ 6,682
Net cash used in investing activities                     (619)             

(248)

Net cash used in financing activities                  (10,268)             

(4,534)

Net change in cash and cash equivalents         $       (3,158)               $ 1,900


Operating Activities

Cash provided by operating activities consisted of net income adjusted for certain non-cash and other items and changes

                                       30

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Table of Contents

in assets and liabilities. The $1,047 million increase in cash provided by operations during the two fiscal quarters ended May 1, 2022 compared to the prior year fiscal period was due to $2,191 million higher net income, offset by a $62 million decrease in amortization of intangible assets and stock-based compensation and other adjustments, as well as a $1,082 million decrease resulting from changes in operating assets and liabilities.

Investing Activities


Cash flows from investing activities primarily consisted of cash used for
acquisitions, investments and capital expenditures. The $371 million increase in
cash used in investing activities during the two fiscal quarters ended May 1,
2022 compared to the prior year fiscal period was primarily due to a $226
million increase in cash paid for acquisitions as well as $200 million
investment purchases.

Financing Activities


Cash flows from financing activities primarily consisted of proceeds and
payments related to our stock repurchases, dividend payments, long-term
borrowings and employee withholding tax payments related to net settled equity
awards. The $5,734 million increase in cash used in financing activities during
the two fiscal quarters ended May 1, 2022 compared to the prior year fiscal
period was primarily due to $5,500 million in common stock repurchases, a $419
million increase in dividend payments and a $203 million increase in employee
withholding tax payments related to net settled equity awards, offset in part by
a $412 million change in net borrowing activities.

Accounting Changes and Recent Accounting Standards


For a description of accounting changes and recent accounting standards,
including the expected dates of adoption and estimated effects, if any, in our
condensed consolidated financial statements, see Note 1. "Overview, Basis of
Presentation and Significant Accounting Policies" in Part I, Item 1 of this Form
10-Q.

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