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Business Combinations and Asset Acquisitions | 6 Months Ended
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May 05, 2024
Business Combination and Asset Acquisition [Abstract] |
Acquisitions | Acquisitions Acquisition of VMware, Inc. On November 22, 2023, we completed the VMware Merger. Pursuant to the Agreement and Plan of Merger, each share of VMware common stock issued and outstanding immediately prior to the VMware Merger was 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 or 0.2520 shares of Broadcom common stock. The stockholder election was prorated, 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, in each case, was equal to 50% of the aggregate number of shares of VMware common stock issued and outstanding immediately prior to the VMware Merger. Based on the VMware stockholders’ elections, the VMware stockholders received approximately $30,788 million in cash and 54.4 million shares of Broadcom common stock with a fair value of $53,398 million. We funded the cash portion of the VMware Merger with the net proceeds from the issuance of the 2023 Term Loans, as defined and discussed in Note 7. “Borrowings”, as well as cash on hand. We assumed $8,250 million of VMware’s outstanding senior unsecured notes. Purchase Consideration
|  | (In millions)
Fair value of Broadcom common stock issued for outstanding VMware common stock |  | $ | 53,398 |
Cash paid for outstanding VMware common stock |  | 30,788 |
Cash paid by Broadcom to retire VMware’s term loan |  | 1,257 |
Fair value of partially vested assumed VMware equity awards |  | 805 |
Fair value of Broadcom common stock issued for accelerated VMware equity awards |  | 23 |
Cash paid for accelerated VMware equity awards |  | 13 |
Effective settlement of pre-existing relationships |  | 6 |
Total purchase consideration |  | 86,290 |
Less: cash acquired |  | 6,642 |
Total purchase consideration, net of cash acquired |  | $ | 79,648 |
We assumed all outstanding VMware restricted stock unit (“RSU”) awards and performance stock unit (“PSU”) awards held by continuing employees. The assumed awards were converted into RSU awards for shares of Broadcom common stock. All outstanding in-the-money VMware stock options and RSU awards held by non-employee directors were accelerated and converted into the right to receive cash and shares of Broadcom common stock, in equal parts. We allocated the purchase price to tangible and identified intangible assets acquired and liabilities assumed based on their estimated fair values. These fair values were based on estimates and assumptions made by management at the time of acquisition. As additional information becomes available, we may further revise our preliminary purchase price allocation during the remainder of the measurement period, which will not exceed 12 months from the date of the VMware Merger. Any such revisions or changes may be material. The following table presents our preliminary allocation of the total purchase price, net of cash acquired, updated as of May 5, 2024:
|  | Estimated Fair Value
|  | (In millions)
Trade accounts receivable |  | $ | 3,571 |
Inventory |  | 15
Assets held-for-sale |  | 5,206 |
Other current assets |  | 757 |
Property, plant and equipment |  | 531 |
Goodwill |  | 54,206 |
Intangible assets |  | 45,572 |
Other long-term assets |  | 1,064 |
Total assets acquired |  | 110,922 |
Accounts payable |  | (359) |
Employee compensation and benefits |  | (848) |
Current portion of long-term debt |  | (1,264) |
Liabilities held-for-sale |  | (1,901) |
Other current liabilities |  | (11,041) |
Long-term debt |  | (6,254) |
Other long-term liabilities |  | (9,607) |
Total liabilities assumed |  | (31,274) |
Fair value of net assets acquired |  | $ | 79,648 |
Goodwill is primarily attributable to the assembled workforce and anticipated synergies and economies of scale expected from the integration of the VMware business. The synergies include certain cost savings, operating efficiencies and other strategic benefits projected to be achieved as a result of the VMware Merger. Goodwill is not deductible for tax purposes. Assets and liabilities held-for-sale primarily included VMware’s end-user computing (“EUC”) business and certain other assets and liabilities, which were not aligned with our strategic objectives. We do not expect to have significant continuing involvement after disposal and have presented the results in discontinued operations. In February 2024, we signed a definitive agreement to sell EUC for approximately $3.8 billion, before working capital adjustments and estimated selling costs. The sale is expected to close in calendar year 2024, subject to customary closing conditions. Our results of continuing operations included $2,674 million and $4,776 million of net revenue attributable to VMware for the fiscal quarter and two fiscal quarters ended May 5, 2024, respectively. It is impracticable to determine the effect on net income attributable to VMware as we have integrated a substantial portion of VMware into our ongoing operations. Transaction costs related to the VMware Merger of $20 million and $240 million, respectively, were primarily included in selling, general and administrative expense for the fiscal quarter and two fiscal quarters ended May 5, 2024. Intangible Assets
|  | Fair Value |  | Weighted-Average Amortization Periods
|  | (In millions) |  | (In years)
Developed technology |  | $ | 24,156 |  |  | 8
Customer contracts and related relationships |  | 15,239 |  |  | 8
Trade name |  | 1,205 |  |  | 14
Off-market component of customer contracts |  | 242 |  |  | 2
Total identified finite-lived intangible assets |  | 40,842 |  |  |
In-process research and development |  | 4,730 |  |  | N/A
Total identified intangible assets |  | $ | 45,572 |  |  |
Developed technology relates to products used for VMware cloud foundation, application management, security, application networking and security, and software defined edge. We valued the developed technology using the multi-period excess earnings method under the income approach. This method reflects the present value of the projected cash flows that are expected to be generated by the developed technology less charges representing the contribution of other assets to those cash flows. The economic useful life was determined based on the technology cycle related to each developed technology, as well as the cash flows over the forecast period. Customer contracts and related relationships represent the fair value of future projected revenue that will be derived from sales of products to existing customers of VMware. Customer contracts and related relationships were valued using the with-and-without-method under the income approach. In the with-and-without method, the fair value was measured by the difference between the present values of the cash flows with and without the existing customers in place over the period of time necessary to reacquire the customers. The economic useful life was determined by evaluating many factors, including the useful life of other intangible assets, the length of time remaining on the acquired contracts and the historical customer turnover rates. Trade name relates to the “VMware” trade name. The fair value was determined by applying the relief-from-royalty method under the income approach. This method is based on the application of a royalty rate to forecasted revenue under the trade name. The economic useful life was determined based on the expected life of the trade name and the cash flows anticipated over the forecast period. Off-market component of customer contracts relate to rebates and marketing development funds provided to customers prior to the VMware Merger. We valued these contracts based on their remaining unamortized balances, which approximate their fair value. The economic useful life was determined based on the remaining terms of customer contracts. The fair value of in-process research and development (“IPR&D”) was determined using the multi-period excess earnings method under the income approach. This method reflects the present value of the projected cash flows that are expected to be generated by the IPR&D, less charges representing the contribution of other assets to those cash flows. The following table presents the details of IPR&D by category as of the date of the VMware Merger:
Description |  | IPR&D |  | Percentage of Completion |  | Estimated Cost to Complete |  | Expected Release Date (By Fiscal Year)
|  | (Dollars in millions)
VMware cloud foundation July 2024 releases |  | $ | 790 |  |  | 67 | % |  | $ | 38 |  |  | 2024
VMware cloud foundation March 2025 releases |  | $ | 2,900 |  |  | 58 | % |  | $ | 185 |  |  | 2025
VMware cloud foundation July 2025 releases |  | $ | 750 |  |  | 43 | % |  | $ | 65 |  |  | 2025
VMware cloud foundation networking and security virtualization |  | $ | 265 |  |  | 21 | % |  | $ | 59 |  |  | 2024
Application networking and security |  | $ | 25 |  |  | 21 | % |  | $ | 47 |  |  | 2024
VMware cloud foundation is a flexible and simplified private cloud platform with public cloud extensibility that integrates leading products including compute, storage, networking, and management into a single solution. It enables customers to modernize infrastructure and accelerate developer productivity, with greater resilience and security. We believe the amounts of purchased intangible assets recorded above represent the fair values of, and approximate the amounts a market participant would pay for, these intangible assets as of the date of the VMware Merger. Unaudited Pro Forma Information The following unaudited pro forma financial information presents combined results of operations for each of the periods presented, as if VMware had been acquired as of the beginning of fiscal year 2023. The unaudited pro forma information includes adjustments to amortization for intangible assets acquired, stock-based compensation expense, interest expense for acquisition financing, amortization of deferred assets and liabilities, and depreciation for property and equipment acquired. The unaudited pro forma information presented below is for informational purposes only and is not necessarily indicative of our consolidated results of operations of the combined business had the acquisition actually occurred at the beginning of fiscal year 2023 or of the results of our future operations of the combined business.
|  | Fiscal Quarter Ended |  | Two Fiscal Quarters Ended
|  | May 5, 2024 |  | April 30, 2023 |  | May 5, 2024 |  | April 30, 2023
|  | (In millions)
Pro forma net revenue |  | $ | 12,507 |  |  | $ | 11,665 |  |  | $ | 25,030 |  |  | $ | 23,889 |
Pro forma net income |  | $ | 2,261 |  |  | $ | 1,796 |  |  | $ | 3,876 |  |  | $ | 3,849 |
Acquisition of Seagate’s SoC Operations On April 23, 2024, we acquired certain assets related to the design, development, and manufacture of System-on-Chip (“SoC”) operations of Seagate Technology Holdings plc for $600 million. We acquired these assets to strengthen our portfolio of SoC products. The following table presents our preliminary allocation of the total purchase price. Goodwill is allocated to the semiconductor solutions segment and is deductible for tax purposes.
|  | Estimated Fair Value
|  | (In millions)
Intangible assets |  | $ | 570 |
Goodwill |  | 14 |
Other assets |  | 16 |
Total assets acquired |  | $ | 600 |
Intangible Assets
|  | Fair Value |  | Weighted-Average Amortization Periods
|  | (In millions) |  | (In years)
Customer contracts and related relationships |  | $ | 410 |  |  | 11
Developed technology |  | 90 |  |  | 11
Total identified finite-lived intangible assets |  | 500 |  |  |
In-process research and development |  | 70 |  |  | N/A
Total identified intangible assets |  | $ | 570 |  |  |
Customer contracts and related relationships represent the fair value of future projected revenue that will be derived from sales of SoC controller products for hard disk drive applications. Customer contracts and related relationships were valued using the multi-period excess earnings method under the income approach. This method reflects the present value of the projected cash flows that are expected to be generated by the customer contracts and related relationships less charges representing the contribution of other assets to those cash flows. The economic useful life was determined based on the useful lives of other intangible assets and the length of time remaining on the acquired contracts. Developed technology relates to SoC controller products for hard disk drive applications. We valued the developed technology using the relief-from-royalty method under the income approach. This method is based on the application of a royalty rate to forecasted revenue under the developed technology. The economic useful life was determined based on the technology cycle related to each developed technology, as well as the cash flows over the forecast period. The fair value of IPR&D was determined using the relief-from-royalty method under the income approach. This method is based on the application of a royalty rate to forecasted revenue from the IPR&D.

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