BROADCOM INC.
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 November 3, 2019 ("fiscal year 2019") included in our Annual Report
on Form 10-K for fiscal year 2019 ("2019 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;
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
judgement, 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. We also offer a
cybersecurity solutions portfolio, including data loss prevention, endpoint
protection, and web, email and cloud security solutions.
During the first quarter of our fiscal year ending November 1, 2020 ("fiscal
year 2020"), we changed our organizational structure, resulting in two
reportable segments: semiconductor solutions and infrastructure software. Our
semiconductor solutions segment includes all of our product lines, except for
those related to our fibre channel storage area networking ("FC SAN") products,
as well as our IP licensing. Our infrastructure software segment includes our FC
SAN products; mainframe and enterprise software solutions; and enterprise
security solutions. Prior period segment results have been recast to conform to
the current presentation.
Quarterly Highlights
Highlights during the third fiscal quarter ended August 2, 2020 include the
following:
•We generated $3,178 million of cash from operations.
•We paid $1,386 million in cash dividends.
•We refinanced certain debt, reducing our total debt by $1.9 billion .
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 most of our employees working
remotely for an extended period of time, earlier this year. While we are
currently implementing a phased-in return of employees to many of our
facilities, if the spread
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of COVID-19 worsens significantly, we may need to further limit onsite
operations or otherwise modify our business practices. 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 our third quarter of fiscal year 2020, with continued demand
for products and infrastructure to support a dramatic increase around the world
in remote or tele-work and learning due to COVID-19. While we continue to see
robust demand in this area, the macroeconomic environment remains uncertain and
it may not be sustainable over the longer term. To date, the impact of COVID-19
on the demand environment for our software products has been limited. On the
product supply side, we continue to experience various constraints in our supply
chain due to the pandemic, including with respect to wafers and substrates. As a
result, supply lead times are still extended and we continue to have
difficulties in obtaining some necessary components and inputs in a timely
manner. However, the disruptions in our outsourced assembly and test capacity
that we experienced previously, as a result of COVID-19 related shutdowns, have
now largely resolved.
We have also taken various actions to de-risk our business in light of the
ongoing uncertainty. For example, we are largely building semiconductor products
to order, instead of based on customer forecasts, and continue to reduce
semiconductor inventory in our distribution channels. In addition, during the
third fiscal quarter, we continued to strengthen our balance sheet, including
closely managing working capital and refinancing and extending the maturities of
many of 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.
Acquisitions
Acquisition of Symantec Corporation's Enterprise Security Business
During the fiscal quarter ended February 2, 2020 , we completed the purchase of
certain assets and assumption of certain liabilities of the Symantec Corporation
(now known as NortonLifeLock Inc.) Enterprise Security business (the "Symantec
Business") for $10.7 billion (the "Symantec Asset Purchase"). We acquired the
Symantec Business to expand our footprint of mission critical infrastructure
software with our existing customer base. The Symantec Business includes a deep
and broad mix of products, services and solutions, unifying cloud and
on-premises security to provide advanced threat protection and information
protection across endpoints, network, email and cloud applications.
Other Acquisitions
During the fiscal quarter ended February 2, 2020 , we completed three other
acquisitions for total consideration of $201 million . One acquisition was
included in our semiconductor solutions segment. Two acquisitions were included
in our infrastructure software segment.
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 judgements 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 policies are those that affect our historical financial statements
materially and involve difficult, subjective or complex judgements by
management. Those policies include revenue recognition, business combinations,
valuation of long-lived assets, intangible assets and goodwill, inventory
valuation, income taxes, retirement and post-retirement benefit plan
assumptions, stock-based compensation, and employee bonus programs.
There were no significant changes in our critical accounting policies during the
three fiscal quarters ended August 2, 2020 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 2019
Annual Report on Form 10-K.
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Results of Operations
Fiscal Quarter and Three Fiscal Quarters Ended August 2, 2020 Compared to Fiscal
Quarter and Three Fiscal Quarters Ended August 4, 2019
The following tables set forth our results of operations for the periods
presented:
Fiscal Quarter Ended
August 2, August 4, August 2, August 4,
2020 2019 2020 2019
(In millions) (As a percentage of total
net revenue)
Statements of Operations Data:
Net revenue:
Products $ 4,125 $ 4,413 71 % 80 %
Subscriptions and services 1,696 1,102 29 20
Total net revenue 5,821 5,515 100 100
Cost of revenue:
Cost of products sold 1,383 1,519 24 28
Cost of subscriptions and services 154 132 3 2
Amortization of acquisition-related intangible
assets 953 828 16 15
Restructuring charges 15 2 - -
Total cost of revenue 2,505 2,481 43 45
Gross margin 3,316 3,034 57 55
Research and development 1,228 1,235 21 22
Selling, general and administrative 428 410 8 7
Amortization of acquisition-related intangible
assets 600 475 10 9
Restructuring, impairment and disposal charges 52 49 1 1
Total operating expenses 2,308 2,169 40 39
Operating income $ 1,008 $ 865 17 % 16 %
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Three Fiscal Quarters Ended
August 2, August 4, August 2, August 4,
2020 2019 2020 2019
(In millions) (As a percentage of total
net revenue)
Statements of Operations Data:
Net revenue:
Products $ 12,582 $ 13,470 72 % 80 %
Subscriptions and services 4,839 3,351 28 20
Total net revenue 17,421 16,821 100 100
Cost of revenue:
Cost of products sold 4,290 4,530 25 27
Cost of subscriptions and services 475 405 3 2
Amortization of acquisition-related intangible
assets 2,857 2,487 16 15
Restructuring charges 30 68 - 1
Total cost of revenue 7,652 7,490 44 45
Gross margin 9,769 9,331 56 55
Research and development 3,786 3,519 22 21
Selling, general and administrative 1,530 1,300 9 8
Amortization of acquisition-related intangible
assets 1,802 1,424 10 8
Restructuring, impairment and disposal charges 163 698 1 4
Total operating expenses 7,281 6,941 42 41
Operating income $ 2,488 $ 2,390 14 % 14 %
Net Revenue
Historically, a relatively small number of customers have accounted for a
significant portion of our net revenue. No customer accounted for 10% or more of
our net revenue for the fiscal quarter ended August 2, 2020 . Direct sales to WT
Microelectronics, a distributor, accounted for 12% of our net revenue for the
three fiscal quarters ended August 2, 2020 , and 16% and 15% of our net revenue
for the fiscal quarter and three fiscal quarters ended August 4, 2019 ,
respectively.
We believe aggregate sales to our top five end customers, through all channels,
accounted for approximately 25% and 30% of our net revenue for the fiscal
quarter and three fiscal quarters ended August 2, 2020 , respectively, and
approximately 35% of our net revenue for each of the fiscal quarter and three
fiscal quarters ended August 4, 2019 . We believe aggregate sales to Apple Inc.,
through all channels, accounted for approximately 10% and 15% of our net revenue
for the fiscal quarter and three fiscal quarters ended August 2, 2020 ,
respectively, and approximately 20% of our net revenue for each of the fiscal
quarter and three fiscal quarters ended August 4, 2019 . 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.
In addition, the ongoing COVID-19 pandemic and related challenges and
uncertainties may also cause our net revenue to fluctuate significantly and
adversely affect 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 Three Fiscal Quarters Ended
August 2, August 4, August 2, August 4,
Net Revenue by Segment 2020 2019
$ Change % Change 2020 2019 $ Change % Change
(In millions, except for percentages)Semiconductor solutions$ 4,219 $ 4,375 $ (156) (4) %$ 12,437 $ 12,865 $ (428) (3) % Infrastructure software 1,602 1,140 462 41 % 4,984 3,956 1,028 26 % Total net revenue$ 5,821 $ 5,515 $ 306 6 %$ 17,421 $ 16,821 $ 600 4 % Three Fiscal Quarters Fiscal Quarter Ended Ended August 2, August 4, August 2, August 4, % of Net Revenue by Segment 2020 2019 2020 2019 Semiconductor solutions 72 % 79 % 71 % 76 % Infrastructure software 28 21 29 24 Total net revenue 100 % 100 % 100 % 100 % Fiscal quarter endedAugust 2, 2020 compared to corresponding prior year period. Net revenue from our semiconductor solutions segment decreased primarily due to delays in the production ramp of a new mobile handset by a major customer, which resulted in lower shipments in the fiscal quarter endedAugust 2, 2020 . This decrease was partially offset by higher demand for our networking products. Net revenue from our infrastructure software segment increased primarily due to contributions from our Symantec enterprise security solutions and higher demand for our mainframe and enterprise software solutions. Three fiscal quarters endedAugust 2, 2020 compared to corresponding prior year period. Net revenue from our semiconductor solutions segment decreased primarily due to delays in the production ramp of a new mobile handset by a major customer, which resulted in lower shipments, as well as lower demand for our broadband products. These decreases were partially offset by higher demand for our storage products. Net revenue from our infrastructure software segment increased primarily due to contributions from our Symantec enterprise security solutions, as well as an increase in demand for our mainframe and enterprise software solutions, partially offset by lower demand for our FC SAN products. Gross Margin Gross margin was$3,316 million for the fiscal quarter endedAugust 2, 2020 compared to$3,034 million for the fiscal quarter endedAugust 4, 2019 and was$9,769 million for the three fiscal quarters endedAugust 2, 2020 compared to$9,331 million for the three fiscal quarters endedAugust 4, 2019 . As a percentage of net revenue, gross margin was 57% and 55% of net revenue for the fiscal quarters endedAugust 2, 2020 andAugust 4, 2019 , respectively, and 56% and 55% of net revenue for the three fiscal quarters endedAugust 2, 2020 andAugust 4, 2019 , respectively. The increases in gross margin were primarily due to contributions from our Symantec enterprise security solutions, as well as favorable product mix in our semiconductor solutions products, compared to the corresponding prior fiscal year periods. Research and Development Expense Research and development expense decreased$7 million , or 1%, and increased$267 million , or 8% for the fiscal quarter and three fiscal quarters endedAugust 2, 2020 , respectively, compared to the prior year fiscal periods. The decrease for the fiscal quarter endedAugust 2, 2020 was due primarily to lower stock-based compensation expense, partially offset by an increase due to the Symantec Asset Purchase. The increase for the three fiscal quarters endedAugust 2, 2020 was primarily due to the Symantec Asset Purchase, partially offset by lower stock-based compensation expense. The decreases in stock-based compensation expense were primarily due to the full vesting of certain equity awards, as well as a one-time impact of the change from annual to quarterly vesting of certain equity awards included in the prior year fiscal periods. Additionally, the decrease for the three fiscal quarters endedAugust 2, 2020 was partially offset by the recognition of three full quarters of expense for the multi-year equity grants of restricted stock units issued during the first quarter of fiscal year 2019. Selling, General and Administrative Expense Selling, general and administrative expense increased$18 million , or 4%, and$230 million , or 18%, for the fiscal quarter and three fiscal quarters endedAugust 2, 2020 , respectively, compared to the prior year fiscal periods. The increases were primarily due to the Symantec Asset Purchase and associated acquisition-related costs and litigation settlements, partially 34 -------------------------------------------------------------------------------- Table of Contents offset by decreases in stock-based compensation expense and benefits from restructuring actions that we initiated following the acquisition of CA, Inc. ("CA Merger"). The decreases in stock-based compensation expense were primarily due to the full vesting of certain equity awards, including equity awards assumed from the CA Merger. The decrease in stock-based compensation expense for the fiscal quarter endedAugust 2, 2020 was also due to a one-time impact of the change from annual to quarterly vesting of certain equity awards included in the prior year fiscal period. Amortization of Acquisition-Related Intangible Assets Amortization of acquisition-related intangible assets recognized in operating expenses increased$125 million and$378 million for the fiscal quarter and three fiscal quarters endedAugust 2, 2020 , respectively, compared to the prior year fiscal periods. The increases were primarily due to intangible assets acquired in the Symantec Asset Purchase. Restructuring, Impairment and Disposal Charges Restructuring, impairment and disposal charges recognized in operating expenses increased$3 million and decreased$535 million for the fiscal quarter and three fiscal quarters endedAugust 2, 2020 , respectively, compared to the prior year fiscal periods. The increase for the fiscal quarter endedAugust 2, 2020 was primarily due to employee termination costs resulting from the Symantec Asset Purchase. The decrease for the three fiscal quarters endedAugust 2, 2020 was primarily due to higher employee termination costs, as well as lease and other exit costs, resulting from the CA Merger in the prior year fiscal period. Segment Operating Results Fiscal Quarter Ended Three Fiscal Quarters Ended August 2, August 4, August 2, August 4, Operating Income by Segment 2020 2019 $ Change % Change 2020 2019 $ Change % Change (In millions, except for percentages) Semiconductor solutions$ 2,045 $ 2,081 $ (36) (2) %$ 5,864 $ 6,012 $ (148) (2) % Infrastructure software 1,136 829 307 37 % 3,432 2,899 533 18 % Unallocated expenses (2,173) (2,045) (128) 6 % (6,808) (6,521) (287) 4 % Total operating income$ 1,008 $ 865 $ 143 17 %$ 2,488 $ 2,390 $ 98 4 % Fiscal quarter endedAugust 2, 2020 compared to corresponding prior year period. Operating income from our semiconductor solutions segment decreased primarily due to delays in the production ramp of a new mobile handset by a major customer, which resulted in lower shipments. This decrease was partially offset by higher demand for our networking products. Operating income from our infrastructure software segment increased primarily due to contributions from our Symantec enterprise security solutions. Three fiscal quarters endedAugust 2, 2020 compared to corresponding prior year period. Operating income from our semiconductor solutions segment decreased primarily due to less favorable product mix for certain networking products, delays in the production ramp of a new mobile handset by a major customer, which resulted in lower shipments, and a decrease in demand for our broadband products. These decreases were partially offset by higher demand for our storage products. Operating income from our infrastructure software segment increased primarily due to contributions from our Symantec enterprise security solutions, partially offset by lower demand for our FC SAN products. Unallocated expenses include amortization of acquisition-related intangible assets; stock-based compensation expense; acquisition-related costs; restructuring, impairment and disposal charges; and other costs that are not used in evaluating the results of, or in allocating resources to, our segments. Unallocated expenses increased 6% and 4% for the fiscal quarter and three fiscal quarters endedAugust 2, 2020 , respectively, compared to the prior year fiscal periods. The increases were primarily due to higher amortization of acquisition-related intangible assets and acquisition-related costs, partially offset by lower stock-based compensation expense. Additionally, for the three fiscal quarters endedAugust 2, 2020 , the increase in unallocated expenses was partially offset by lower restructuring, impairment and disposal charges. Non-Operating Income and Expenses Interest expense. Interest expense was$464 million and$1,357 million for the fiscal quarter and three fiscal quarters endedAugust 2, 2020 , respectively, and$362 million and$1,083 million for the fiscal quarter and three fiscal quarters endedAugust 4, 2019 , respectively. The increases were primarily due to interest on the debt we incurred to finance the Symantec Asset Purchase, as well as losses on extinguishment of debt related to the repayment of certain term loans in the fiscal quarter endedAugust 2, 2020 . Additionally, for the three fiscal quarters endedAugust 2, 2020 , we incurred losses on extinguishment of debt related to the repurchase of certain senior notes. 35 -------------------------------------------------------------------------------- Table of Contents Other income, net. Other income, net includes interest income, gains or losses on investments, foreign currency remeasurement and other miscellaneous items. Other income, net was$49 million and$175 million for the fiscal quarter and three fiscal quarters endedAugust 2, 2020 , respectively, as compared to$41 million and$172 million for the fiscal quarter and three fiscal quarters endedAugust 4, 2019 , respectively. The increases were primarily due to a$23 million gain on sale of business, partially offset by decreases in interest income. Other income, net for the three fiscal quarters endedAugust 2, 2020 also included a$116 million one-time gain from the lapse of a tax indemnification arrangement, partially offset by a decrease in gains on investments and foreign currency remeasurement. Benefit from income taxes. The benefit from income taxes was$96 million and$331 million for the fiscal quarter and three fiscal quarters endedAugust 2, 2020 , respectively, and$171 million and$410 million for the fiscal quarter and three fiscal quarters endedAugust 4, 2019 , respectively. The benefit from income taxes for the fiscal quarter and three fiscal quarters endedAugust 2, 2020 was primarily due to the jurisdictional mix of income and expense, the remeasurement of certain foreign deferred tax assets and liabilities, and excess tax benefits from stock-based awards that vested or were exercised during the periods. The benefit from income taxes for the fiscal quarter and three fiscal quarters endedAugust 4, 2019 was primarily due to the remeasurement of certain foreign deferred tax assets and liabilities, internal reorganizations and excess tax benefits from stock-based awards that vested or were exercised during the period. Additionally, the benefit from income taxes for the three fiscal quarters endedAugust 4, 2019 included the recognition of gross uncertain tax benefits as a result of audit settlements and lapses of statutes of limitations, and the partial release of our valuation allowance as a result of the CA Merger, partially offset by a change in estimate of our fiscal year 2018 provision resulting from regulations issued related to theU.S. Tax Cuts and Jobs Act (the "2017 Tax Reform Act"). 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 ofAugust 2, 2020 consisted of: (i)$8,857 million in cash and cash equivalents, (ii) cash we expect to generate from operations and (iii) available capacity under our$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, (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$44,498 million of outstanding indebtedness and (vi) 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 our capital expenditures for fiscal year 2020 will be higher than fiscal year 2019 due to the Symantec Asset Purchase onNovember 4, 2019 . We believe that our cash and cash equivalents on hand, cash flows from operations, and the Revolving Facility will provide sufficient liquidity to operate our business and fund our current and assumed obligations for at least the next 12 months. 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, outstanding term loans 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. Working Capital Working capital increased to$6,979 million atAugust 2, 2020 from$3,018 million atNovember 3, 2019 . The increase was primarily attributable to the following: 36 -------------------------------------------------------------------------------- Table of Contents •Cash and cash equivalents increased to$8,857 million atAugust 2, 2020 from$5,055 million atNovember 3, 2019 , primarily due to$27,802 million in proceeds from long-term borrowings and$8,713 million in net cash provided by operating activities. These increases were partially offset by$17,099 million of debt repayments,$10,700 million paid for the Symantec Asset Purchase and$4,139 million of dividend payments. •Inventory increased to$1,081 million atAugust 2, 2020 from$874 million atNovember 3, 2019 , primarily due to timing of customer product ramps. •Other current assets increased to$1,059 million atAugust 2, 2020 from$729 million atNovember 3, 2019 , primarily due to increases in prepaid taxes and short-term investments. •Current portion of long-term debt decreased to$822 million atAugust 2, 2020 from$2,787 million atNovember 3, 2019 primarily due to repayment of certain debt, partially offset by additional amounts coming due within twelve months. These increases in working capital were offset in part by the following: •Accounts receivable decreased to$2,684 million atAugust 4, 2019 from$3,259 million atNovember 3, 2019 , primarily due to revenue linearity and$552 million of additional receivables sold through factoring arrangements. •Accounts payable increased to$1,092 million atAugust 2, 2020 from$855 million atNovember 3, 2019 , primarily due to timing of vendor payments. •Other current liabilities increased to$4,056 million atAugust 2, 2020 from$2,616 million atNovember 3, 2019 , primarily due to increases in contract liabilities, interest payable, lease liabilities resulting from the adoption of Accounting Standard Codification Topic 842, and taxes payable, partially offset by repayments of notional pooling liabilities. Working capital decreased to$2,616 million atAugust 4, 2019 from$6,769 million atNovember 4, 2018 . The decrease was attributable to the following: •Current portion of long-term debt increased by$3,537 million due to certain debt instruments becoming due within twelve months. •Other current liabilities increased to$3,174 million atAugust 4, 2019 from$812 million atNovember 4, 2018 , primarily due to liabilities assumed in the CA Merger and increases in contract liabilities from adoption of Accounting Standard Codification Topic 606 ("Topic 606"), notional pooling liabilities, restructuring reserves, and interest payable. •Accounts payable increased to$996 million atAugust 4, 2019 from$811 million atNovember 4, 2018 , primarily due to timing of vendor payments and increases due to the CA Merger. •Inventory decreased to$1,091 million atAugust 4, 2019 from$1,124 million atNovember 4, 2018 , primarily due to consumption to support customer shipments. These decreases in working capital were offset in part by the following: •Cash and cash equivalents increased to$5,462 million atAugust 4, 2019 from$4,292 million atNovember 4, 2018 , primarily due to$30,138 million in proceeds from borrowings,$7,218 million in net cash provided by operating activities and$957 million in proceeds from the sale ofVeracode, Inc. , a wholly-owned subsidiary acquired in the CA Merger, partially offset by$16,027 million paid for the CA Merger,$12 billion of debt repayments,$5,002 million of common stock repurchases and$3,181 million of dividend payments. •Other current assets increased to$806 million atAugust 4, 2019 from$366 million atNovember 4, 2018 , primarily due to assets acquired in the CA Merger and increases in contract assets from adoption of Topic 606 and prepaid taxes. •Accounts receivable increased to$3,539 million atAugust 4, 2019 from$3,325 million atNovember 4, 2018 , primarily due to revenue linearity and an increase due to the CA Merger, partially offset by$375 million of receivables sold through factoring arrangements. •Employee compensation and benefits decreased to$575 million atAugust 4, 2019 from$715 million atNovember 4, 2018 , primarily due to timing of employee bonus plan payments, partially offset by increases attributable to the CA Merger. 37 -------------------------------------------------------------------------------- Table of Contents Capital Returns Three Fiscal Quarters Ended August 2, August 4, 2020 2019 (In millions, except per share data) Dividends per share to common stockholders $ 9.75$ 7.95 Dividends to common stockholders$ 3,915 $ 3,181 Dividends per share to preferred stockholders$ 60.00 $ - Dividends to preferred stockholders $ 224 $ - Stock repurchases $ -$ 5,002 In addition, during the three fiscal quarters endedAugust 2, 2020 andAugust 4, 2019 , we paid approximately$580 million and$818 million , respectively, in employee withholding taxes due upon the vesting of net settled equity awards. We withheld approximately 2 million and 3 million shares of common stock from employees in connection with such net share settlements during the three fiscal quarters endedAugust 2, 2020 andAugust 4, 2019 , respectively. Cash Flows Three Fiscal Quarters Ended August 2, August 4, 2020 2019 (In millions) Net cash provided by operating activities$ 8,713 $ 7,218 Net cash used in investing activities (11,009)
(15,334)
Net cash provided by financing activities 6,098
9,286
Net change in cash and cash equivalents$ 3,802
Operating Activities Cash provided by operating activities consisted of net income adjusted for certain non-cash and other items and changes in assets and liabilities. The$1,495 million increase in cash provided by operations during the three fiscal quarters endedAugust 2, 2020 compared to the prior year fiscal period was due to cash flows from net income adjusted for non-cash items and an increase in the net change in operating assets and liabilities as discussed in large part under Working Capital above. Investing Activities Cash flows from investing activities primarily consisted of cash used for acquisitions and capital expenditures and proceeds from sales of businesses. The$4,325 million decrease in cash used in investing activities during the three fiscal quarters endedAugust 2, 2020 compared to the prior year fiscal period was primarily related to a$5,161 million decrease in cash paid for acquisitions in the fiscal year 2020 period, offset in part by$739 million less in proceeds received from sales of businesses in the fiscal year 2020 period. Financing Activities Cash flows from financing activities primarily consisted of net proceeds and payments related to our long-term borrowings, dividend payments and stock repurchases. The$3,188 million decrease in cash provided by financing activities during the three fiscal quarters endedAugust 2, 2020 compared to the prior year fiscal period was primarily due to a$7,435 million decrease in net proceeds from borrowings as a result of debt repayments and a$958 million increase in dividend payments, partially offset by the absence of repurchases of common stock under our repurchase program, which ended in fiscal year 2019, as compared to$5,002 million of repurchases in the fiscal year 2019 period. Indebtedness See Note 8. "Borrowings" in Part I, Item 1 of this Form 10-Q for additional information related to our indebtedness. Summarized Obligor Group Financial Information Pursuant to the indentures datedMay 21, 2020 ,May 8, 2020 ,April 9, 2020 , andApril 5, 2019 (collectively, the "2020 and 2019 Indentures"), Broadcom issued$3,917 million ,$8,000 million ,$4,500 million , and$11,000 million aggregate principal amount of notes, respectively (collectively, the "2020 and 2019 Senior Notes"). Substantially all of the 2020 and 2019 Senior Notes have been registered with theSEC in connection with an exchange offer that closed onAugust 10, 2020 . 38 -------------------------------------------------------------------------------- Table of Contents We may redeem all or a portion of our 2020 and 2019 Senior Notes at any time prior to their maturity, subject to a specified make-whole premium as set forth in the indentures governing the respective notes. In the event of a change of control triggering event, holders of our 2020 and 2019 Senior Notes will have the right to require us to purchase for cash, all or a portion of their respective notes at a redemption price of 101% of the aggregate principal amount plus accrued and unpaid interest. The 2020 and 2019 Indentures also contain covenants that restrict, among other things, the ability of Broadcom and its subsidiaries to incur certain secured debt and to consummate certain sale and leaseback transactions and restrict the ability of theObligor Group , as defined below, to merge, consolidate or sell all or substantially all of their assets.Broadcom Corporation ("BRCM") andBroadcom Technologies Inc. ("BTI"), 100%-owned subsidiaries of Broadcom (Broadcom, BRCM and BTI collectively, the "Obligor Group "), fully and unconditionally guarantee, jointly and severally, on an unsecured, unsubordinated basis, the 2020 and 2019 Senior Notes. The guarantee by BRCM and BTI will be automatically and unconditionally released upon the sale, exchange, disposition or other transfer of all or substantially all of the assets of such guarantor if any of these events occurs in compliance with the respective indentures. The guarantee by BRCM and BTI will also be automatically and unconditionally released if at any time the aggregate principal amount of indebtedness issued, borrowed or guaranteed by BRCM and BTI constitutes no more than 20% of the aggregate principal amount of indebtedness for borrowed money of Broadcom and its subsidiaries on a consolidated basis. Pursuant to indentures datedJanuary 19, 2017 andOctober 17, 2017 (collectively, the "2017 Indentures"),BRCM and Broadcom Cayman Finance Limited ("Cayman Finance," a 100%-owned subsidiary of Broadcom, together with BRCM, the "2017 Senior Notes Co-Issuers") issued$13,550 million and$4,000 million aggregate principal amount of notes, respectively (collectively, the "2017 Senior Notes"). Substantially all of the 2017 Senior Notes have been registered with theSEC . We may redeem all or a portion of our 2017 Senior Notes at any time prior to their maturity, subject to a specified make-whole premium as set forth in the 2017 Indentures. In the event of a change of control triggering event, holders of our 2017 Senior Notes will have the right to require us to purchase for cash, all or a portion of their 2017 Senior Notes at a redemption price of 101% of the aggregate principal amount plus accrued and unpaid interest. The 2017 Indentures also contain covenants that restrict, among other things, the ability of Broadcom and its subsidiaries to incur certain secured debt and to consummate certain sale and leaseback transactions and restrict the ability of Broadcom and the 2017 Senior Notes Co-Issuers to merge, consolidate or sell all or substantially all of their assets. Broadcom and BTI fully and unconditionally guarantee, jointly and severally, on an unsecured, unsubordinated basis, the 2017 Senior Notes. Because the guarantees are not secured, they are effectively subordinated to any existing and future secured indebtedness of the guarantors to the extent of the value of the collateral securing that indebtedness. The guarantee by Broadcom and BTI will be automatically and unconditionally released upon the sale, exchange, disposition or other transfer of all or substantially all of the assets of such guarantor if any of these events occurs in compliance with the 2017 Indentures. The guarantee by Broadcom (1) will also be automatically and unconditionally released at such time as: (A) the 2017 Senior Notes Co-Issuers, in their sole discretion, determine that such guarantee is no longer required by Rule 3-10(a), as applicable, of Regulation S-X to except the 2017 Senior Notes Co-Issuers' financial statements from being required to be filed pursuant to Rule 3-10(a) of Regulation S-X or otherwise facilitate a reduction in its financial reporting obligations or (B) either of the 2017 Senior Notes Co-Issuers becomes subject to Section 13 or 15(d) of the Exchange Act and (2) may, at the election of the 2017 Senior Notes Co-Issuers, be unconditionally released at such time as Broadcom is eligible to suspend its reporting obligation under the Exchange Act. During fiscal year 2019, Cayman Finance was merged into BTI, with BTI remaining as the surviving entity. In connection with this merger, BTI remains a guarantor and became a co-issuer of the 2017 Senior Notes. The following tables set forth the summarized financial information of theObligor Group on a combined basis for the periods presented. This summarized financial information excludes any subsidiaries that are not issuers or guarantors (the "Non-Obligor Group "). Intercompany balances and transactions between members of theObligor Group have been eliminated. 39
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