Broadcom 10-Q 2022-07-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(MARK ONE)

For the quarterly period ended July 31, 2022

OR

For the transition period from to

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.

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

As of August 26, 2022, there were 405,001,456 shares of our common stock outstanding.

BROADCOM INC.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended July 31, 2022

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

BROADCOM INC.

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED

BROADCOM INC.

CONDENSED CONSOLIDATED BALANCE SHEETS — UNAUDITED

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

BROADCOM INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS — UNAUDITED

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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 July 31, 2022 include the following:

• We generated $4,424 million of cash from operations.

• We paid $1,736 million in cash dividends.

• We repurchased $1,500 million of common stock.

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 approximately $8 billion of VMware long-term debt, net of $4 billion expected cash at close.

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 (i) adoption of the VMware Merger Agreement by VMware stockholders, (ii) 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 (iii) the effectiveness of the registration statement on Form S-4 that we filed on July 15, 2022, as may be amended from time to time, registering approximately 59 million shares of our common stock. 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.

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 third quarter of our fiscal year ending October 30, 2022 (“fiscal year 2022”), with continued investments in technologies and solutions by enterprises, hyperscale customers and service providers. While we recently experienced 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, including with respect to wafers and substrates. Although supply lead times have stabilized, we continue to have difficulties in obtaining some necessary components and inputs in a timely manner to meet demand.

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.

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 three fiscal quarters ended July 31, 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 Three Fiscal Quarters Ended July 31, 2022 Compared to Fiscal Quarter and Three Fiscal Quarters Ended August 1, 2021

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

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 18% and 19% of our net revenue for the fiscal quarter and three fiscal quarters ended July 31, 2022, respectively, and 16% and 17% of our net revenue for the fiscal quarter and three fiscal quarters ended August 1, 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 three fiscal quarters ended July 31, 2022 and August 1, 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 three fiscal quarters ended July 31, 2022 and August 1, 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 devices. The ongoing COVID-19 pandemic and macroeconomic uncertainties may cause our net revenue to fluctuate significantly and impact our results of operations.

The following tables set forth net revenue by segment for the periods presented:

Net revenue from our semiconductor solutions segment increased in the fiscal quarter and three fiscal quarters ended July 31, 2022 compared to the prior year fiscal periods due to ongoing strong product demand, primarily for networking, server storage and broadband products, as well as higher demand for our wireless content in mobile devices. Net revenue from our infrastructure software segment increased in the fiscal quarter and three fiscal quarters ended July 31, 2022 compared to the prior year fiscal periods primarily due to higher demand for our mainframe solutions and FC SAN products.

Gross Margin

Gross margin was $5,681 million, or 67% of net revenue, for the fiscal quarter ended July 31, 2022 compared to $4,197 million, or 62% of net revenue, for the fiscal quarter ended August 1, 2021, and $16,169 million, or 67% of net revenue, for the three fiscal quarters ended July 31, 2022 compared to $12,206 million, or 61% of net revenue, for the three fiscal quarters ended August 1, 2021.

The increases were primarily due to lower amortization of acquisition-related intangible assets mainly from our 2016 acquisition of Broadcom Corporation and, to a lesser extent, favorable margin within our semiconductor solutions segment.

Research and Development Expense

Research and development expense increased $50 million, or 4%, and $68 million, or 2%, for the fiscal quarter and three fiscal quarters ended July 31, 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 and the effect of forfeitures.

Selling, General and Administrative Expense

Selling, general and administrative expense decreased $23 million, or 7%, for the fiscal quarter ended July 31, 2022, compared to the prior year fiscal period, primarily due to lower stock-based compensation expense. Selling, general and administrative expense for the three fiscal quarters ended July 31, 2022 was relatively flat compared to the prior year fiscal period as higher variable employee compensation expense and sales initiatives were offset by lower acquisition-related costs and stock-based compensation expense.

Amortization of Acquisition-Related Intangible Assets

Amortization of acquisition-related intangible assets recognized in operating expenses decreased $135 million, or 27%, and $328 million, or 22%, for the fiscal quarter and three fiscal quarters ended July 31, 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 $19 million, or 73%, and $80 million, or 66%, for the fiscal quarter and three fiscal quarters ended July 31, 2022, respectively, compared to the prior

year fiscal periods. The decreases were primarily due to lower employee termination costs in the current year fiscal periods following the completion of key restructuring activities from acquisitions.

Stock-Based Compensation Expense

Total stock-based compensation expense was $373 million and $1,146 million for the fiscal quarter and three fiscal quarters ended July 31, 2022, respectively, compared to $421 million and $1,290 million for the fiscal quarter and three fiscal quarters ended August 1, 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 July 31, 2022, which we expect to recognize over the remaining weighted-average service period of 2.9 years.

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

Operating income from our semiconductor solutions segment increased in the fiscal quarter and three fiscal quarters ended July 31, 2022 compared to the prior year fiscal periods, primarily due to higher net revenue from networking, server storage, broadband, and wireless products, as well as higher gross margin. Operating income from our infrastructure software segment increased in the fiscal quarter and three fiscal quarters ended July 31, 2022 compared to the prior year fiscal periods, primarily due to higher demand for our mainframe solutions and FC SAN products.

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 20% and 19% for the fiscal quarter and three fiscal quarters ended July 31, 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 $406 million and $1,331 million for the fiscal quarter and three fiscal quarters ended July 31, 2022, respectively, compared to $415 million and $1,451 million for the fiscal quarter and three fiscal quarters ended August 1, 2021, respectively. The decrease in the fiscal quarter ended July 31, 2022 was primarily due to the September 2021 debt transactions, resulting in overall lower interest rates in the current year fiscal period. The decrease in three fiscal quarters ended July 31, 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 indebtedness associated with the pending VMware Merger.

Other income (expense), net. Other income (expense), net, includes interest income, gains or losses on investments, foreign currency remeasurement and other miscellaneous items. Other income, net, was $6 million and other expense, net was $94 million for the fiscal quarter and three fiscal quarters ended July 31, 2022, respectively, compared to other income, net of $15 million and $109 million for the fiscal quarter and three fiscal quarters ended August 1, 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 $263 million and $678 million for the fiscal quarter and three fiscal quarters ended July 31, 2022, respectively, compared to the benefit from income taxes of $150 million and $151 million for the fiscal quarter and three fiscal quarters ended August 1, 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 for the fiscal quarter ended August 1, 2021 was primarily due to excess tax benefits from stock-based awards, the recognition of gross unrecognized tax benefits as a result of lapses of statutes of limitations and audit settlements, and a shift in jurisdictional mix of income and expenses, offset in part by income tax expense on operations. The benefit from income taxes for the three fiscal quarters ended August 1, 2021 reflected 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, offset in part by income tax expense on 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 July 31, 2022 consisted of: (i) $9,977 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 capital expenditures to be consistent in fiscal year 2022 as compared to fiscal year 2021. Our debt and liquidity needs will increase as a result of the pending VMware Merger, and 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 11. “Commitments and Contingencies” and Note 7. “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 $8,859 million at July 31, 2022 from $10,305 million at October 31, 2021. The decrease was primarily attributable to the following:

• Cash and cash equivalents decreased to $9,977 million at July 31, 2022 from $12,163 million at October 31, 2021, primarily due to $7,000 million of common stock repurchases, $5,250 million of dividend payments, $2,352 million of debt payments, and $1,181 million of employee withholding tax payments related to net settled equity awards. These decreases were partially offset by $12,153 million in net cash provided by operating activities and $1,935 million in proceeds from long-term borrowings.

• Other current liabilities increased to $4,607 million at July 31, 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 $2,708 million at July 31, 2022 from $2,071 million at October 31, 2021, primarily due to revenue linearity and less receivables sold through factoring arrangements.

• Inventory increased to $1,838 million at July 31, 2022 from $1,297 million at October 31, 2021, primarily to support customer demand and due to higher material costs.

• Accounts payable decreased to $712 million at July 31, 2022 from $1,086 million at October 31, 2021, primarily due to the timing of vendor payments.

Capital Returns

In December 2021, our Board of Directors authorized a stock repurchase program to repurchase up to $10 billion of our common stock from time to time on or prior to December 31, 2022. During the three fiscal quarters ended July 31, 2022, we repurchased and retired approximately 12 million shares of our common stock at a weighted average price of $595.96 under this stock repurchase program. 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 three fiscal quarters ended July 31, 2022 and August 1, 2021, we paid approximately $1,181 million and $1,033 million, respectively, in employee withholding taxes due upon the vesting of net settled equity awards. We withheld over 2 million shares of common stock from employees in connection with such net share settlements during each of the three fiscal quarters ended July 31, 2022 and August 1, 2021.

Cash Flows

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 $1,930 million increase in cash provided by operations during the three fiscal quarters ended July 31, 2022 compared to the prior year fiscal period was primarily due to $3,389 million higher net income and certain non-cash adjustments including deferred taxes and other non-cash taxes and (gain) loss on investments, offset by a decrease in amortization of intangible assets and stock-based compensation, as well as a $1,507 million decrease resulting from changes in operating assets and liabilities.

Investing Activities

Cash flows from investing activities primarily consisted of cash used for acquisitions, capital expenditures, and proceeds and payments related to investments. The $244 million increase in cash used in investing activities during the three fiscal quarters ended July 31, 2022 compared to the prior year fiscal period was primarily due to a $231 million increase in cash paid for acquisitions.

Financing Activities

Cash flows from financing activities primarily consisted of our stock repurchases, dividend payments, proceeds and payments related to long-term borrowings, and employee withholding tax payments related to net settled equity awards. The $7,359 million increase in cash used in financing activities during the three fiscal quarters ended July 31, 2022 compared to the prior year fiscal period was primarily due to $7,000 million in common stock repurchases, a $599 million increase in dividend payments and a $148 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.

There have been no material changes in market risk from the information presented in Part II, Item 7A. “Quantitative and Qualitative Disclosures About Market Risk,” in the 2021 Annual Report on Form 10-K, except as disclosed below.

Interest Rate Risk

As of July 31, 2022, we had $41.2 billion in principal amount of debt outstanding. The carrying amount of the debt was $39.4 billion, and the estimated aggregate fair value of debt was $37.0 billion. As of July 31, 2022, a hypothetical 50 basis points increase or decrease in market interest rates would change the fair value of debt, by a decrease or increase of approximately $1.6 billion. However, this hypothetical change in interest rates would not impact the interest expense on our debt as we only had fixed rate senior notes outstanding.

(a) Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures as of July 31, 2022. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act filings is properly and timely recorded, processed, summarized and reported. These disclosure controls and procedures are also intended to ensure that information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures. Based on this evaluation, our CEO and CFO concluded that, as of July 31, 2022, our disclosure controls and procedures were effective at the reasonable assurance level.

In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

(b) Changes in Internal Control over Financial Reporting. There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Although we have modified our workplace practices globally due to the COVID-19 pandemic, resulting in some of our employees working remotely for an extended period of time and some of whom are still working remotely, this has not meaningfully affected our internal controls over financial reporting. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

The information set forth under Note 11. “Commitments and Contingencies” included in Part I, Item 1 of this Form 10-Q, is incorporated herein by reference. For additional discussion of certain risks associated with legal proceedings, see “Risk Factors” immediately below.

Our business, operations and financial results are subject to various risks and uncertainties, including those described below, that could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock and preferred stock. Many of the following risks and uncertainties are, and will continue to be, exacerbated by the COVID-19 pandemic and any worsening of the global business and economic environment as a result. The following material factors, among others, could cause our actual results to differ materially from historical results and those expressed in forward-looking statements made by us or on our behalf in filings with the SEC, press releases, communications with investors and oral statements.

Risk Factors Summary

The following is a summary of the principal risks that could adversely affect our business, operations and financial results.

Risks Related to Our Business

• Adverse global economic conditions could have a negative effect on us.

• We operate in the highly cyclical semiconductor industry.

• The majority of our sales come from a small number of customers and a reduction in demand or loss of one or more of our significant customers may adversely affect our business.

• Dependence on contract manufacturing and suppliers of critical components within our supply chain may adversely affect our ability to bring products to market.

• We purchase a significant amount of the materials used in our products from a limited number of suppliers.

• Our business is subject to various governmental regulations and trade restrictions. Compliance with these regulations may cause us to incur significant expense and, if we fail to maintain compliance, we may be forced to cease manufacture and distribution of certain products or subjected to administrative proceedings and civil or criminal penalties.

• Global political and economic conditions and other factors related to our international operations could adversely affect us.

• The ongoing COVID-19 pandemic continues to disrupt normal business activity.

• We are subject to risks associated with our distributors and other channel partners, including product inventory levels and product sell-through.

• Our dependence on senior management and if we are unable to attract and retain qualified personnel, we may not be able to execute our business strategy effectively.

• The failure to complete or realize the expected benefits of our acquisition of VMware may adversely affect our business and our stock price.

• We may pursue acquisitions, investments, joint ventures and dispositions, which could adversely affect our results of operations.

• We may be involved in legal proceedings, including IP, securities litigation, and employee-related claims.

• Our operating results are subject to substantial quarterly and annual fluctuations.

• Failure to adjust our manufacturing and supply chain to accurately meet customer demand could adversely affect our results of operations.

• Winning business in the semiconductor solutions industry is subject to a lengthy process that often requires us to incur significant expense, from which we may ultimately generate no revenue.

• Competition in our industries could prevent us from growing our revenue.

• A prolonged disruption of our manufacturing facilities, research and development facilities, warehouses or other significant operations, or those of our suppliers, could have a material adverse effect on us.

• We may be unable to maintain appropriate manufacturing capacity or product yields at our own manufacturing facilities.

• An impairment of the confidentiality, integrity, or availability of our information technology (“IT”) systems, or those of one or more of our corporate infrastructure vendors, could have a material adverse effect on our business.

• Our ability to maintain or improve gross margin.

• Our ability to protect the significant amount of IP in our business.

• Incompatibility of our software products with operating environments, platforms, or third-party products, demand for our products and services could decrease.

• Failure to enter into software license agreements on a satisfactory basis could adversely affect us.

• Licensed third party software used in our products may not be available to us in the future, which may delay product development and production or cause us to incur additional expense.

• Use of open source code sources, which, under certain circumstances could materially adversely affect us.

• Failure of our software products to manage and secure IT infrastructures and environments could have a material adverse effect on our business.

• We are subject to warranty claims, product recalls and product liability.

• The complexity of our products could result in unforeseen delays or expense or undetected defects or bugs.

• We make substantial investments in research and development and unsuccessful investments could materially adversely affect our business, financial condition and results of operations.

• We collect, use, store, or otherwise process personal information, which subjects us to privacy and data security laws and contractual commitments, and our actual or perceived failure to comply with such laws and commitments could harm our business.

• We are subject to environmental, health and safety laws, which could increase our costs, restrict our operations and require expenditures.

• Social and environmental responsibility regulations, policies and provisions, as well as customer and investor demands, may make our supply chain more complex and may adversely affect our relationships with customers and investors.

• The average selling prices of semiconductor products in our markets have often decreased rapidly and may do so in the future.

• Fluctuations in foreign exchange rates could result in losses.

Risks Relating to Taxes

• Changes in tax legislation or policies could materially impact our financial position and results of operations.

• Our corporate income taxes could significantly increase if we are unable to maintain our tax concessions or if our assumptions and interpretations regarding tax laws and concessions prove to be incorrect.

• Our income taxes and overall cash tax costs are affected by a number of factors that could materially, adversely affect financial results.

Risks Relating to Our Indebtedness

• Our substantial indebtedness could adversely affect our financial health and our ability to execute our business strategy.

• The instruments governing our indebtedness impose certain restrictions on our business.

• Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flows from our business to pay our substantial debt.

Risks Relating to Owning Our Common Stock

• Volatility of our stock price could result in substantial losses for our investors as well as class action litigation against us and our management.

• The amount and frequency of our stock repurchases may fluctuate.

• A substantial amount of our stock is held by a small number of large investors.

• There can be no assurance that we will continue to declare cash dividends.

For a more complete discussion of the material risks facing our business, see below.

Risks Related to Our Business

Adverse global economic conditions could have a negative effect on our business, results of operations and financial condition and liquidity.

A general slowdown in the global economy, including a recession, or in a particular region or industry, an increase in trade tensions with U.S. trading partners, inflation or a tightening of the credit markets could negatively impact our business, financial condition and liquidity. Adverse global economic conditions have from time to time caused or exacerbated significant slowdowns in the industries and markets in which we operate, which have adversely affected our business and resu

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None.

EXHIBIT INDEX

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: September 8, 2022