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Item 7. Management’s Discussion and Analysis

2021-12-17 compared with 2020-12-18 · 127 added, 272 removed, 340 unchanged (54% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with “Selected Financial Data” and our consolidated financial statements and notes thereto which appear elsewhere in this Annual Report on Form 10-K.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements and notes thereto, which appear elsewhere in this Annual Report on Form 10-K.

This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties.

Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under the caption “Risk Factors” or in other parts of this Annual Report on Form 10-K.

The following section generally discusses our financial condition and results of operations for our fiscal year ended October 31, 2021 (“fiscal year 2021”) compared to our fiscal year ended November 1, 2020 (“fiscal year 2020”).

A discussion regarding our financial condition and results of operations for fiscal year 2020 compared to our fiscal year ended November 3, 2019 (“fiscal year 2019”) can be found in Part II, Item 7 of our Annual Report on Form 10-K for fiscal year 2020, filed with the Securities and Exchange Commission (the “SEC”) on December 18, 2020.

We are a global technology leader that designs, develops and supplies a broad range of semiconductor and infrastructure software solutions.

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Our infrastructure software solutions enable customers to plan, develop, automate, manage and secure applications across mainframe, distributed, mobile and cloud platforms.

We offer a cyber security solutions portfolio, including endpoint, network, information and identity security solutions.

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.

During the first quarter of our fiscal year ended November 1, 2020 (“fiscal year 2020”), we changed our organizational structure, resulting in two reportable segments:

semiconductor solutions and infrastructure software.

In addition, during the fourth quarter of our fiscal year 2020, we refined our allocation methodology for certain selling, general and administrative expenses to more closely align these costs with the segment benefiting from the shared expenses.

Prior period segment results have been recast to conform to the current presentation.

We have two reportable segments:

semiconductor solutions and infrastructure software, as a result of a change in our organizational structure during fiscal year 2020.

Our semiconductor solutions segment includes all of our product lines and intellectual property (“IP”) licensing.

Our infrastructure software segment includes our mainframe, distributed and cyber security solutions, and our FC SAN business.

During fiscal year 2020, we refined our allocation methodology for certain selling, general and administrative expenses to more closely align these costs with the segment benefiting from the shared expenses.

Our strategy is to combine best-of-breed technology leadership in semiconductor and infrastructure software solutions, with unmatched scale, on a common sales and administrative platform to deliver a comprehensive suite of infrastructure technology products to the world’s leading business and government customers.

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• the rate at which our present and future customers and end-users adopt our products and technologies in our target markets, and the rate at which our customers' products that include our technology are accepted in their markets;

• the shift to cloud-based IT solutions and services, such as hyperscale computing, which may adversely affect the timing and volume of sales of our products for use in traditional enterprise data centers;

• the shift to cloud-based information technology solutions and services, such as hyperscale computing, which may adversely affect the timing and volume of sales of our products for use in traditional enterprise data centers;

• the timing, rescheduling or cancellation of expected customer orders.

Our fiscal year 2020 and our fiscal year ended November 3, 2019 (“fiscal year 2019”) were 52-week fiscal years compared to our fiscal year ended November 4, 2018 (“fiscal year 2018”), which was a 53-week fiscal year.

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 periods of time.

While we have implemented a phased-in return of employees to many of our facilities, if the spread of COVID-19 worsens significantly, we may need to further limit onsite operations or otherwise modify our business practices.

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 our fourth 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.

The demand environment for our semiconductor products was consistent with our expectations for the fourth quarter of fiscal year 2021, with continued demand for products and infrastructure as customers invest in technologies to support remote or hybrid tele-work and learning arising from COVID-19, as well as the transition to office re-openings.

While we continue to see robust demand in this area and record profitability driven by the supply imbalance, the macroeconomic environment remains uncertain and it may not be sustainable over the longer term.

We continue to experience various constraints in our supply chain due to the pandemic, including with respect to wafers and substrates.

While supply lead times have stabilized, we continue to have difficulties in obtaining some necessary components and inputs in a timely manner to meet increased demand.

To date, the impact of COVID-19 on the demand environment for our software products has been limited.

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.

In addition, during the fourth fiscal quarter, we continued to strengthen our balance sheet, including closely managing working capital and reducing our total debt outstanding.

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.

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Highlights during fiscal year 2021 include the following:

• We acquired the Symantec Corporation Enterprise Security business (the “Symantec Business”).

• We generated $13,764 million of cash from operations.

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The discussion and analysis in this section and the accompanying consolidated financial statements include the results of operations of acquired companies commencing on their respective acquisition dates.

Acquisition of Symantec Corporation’s Enterprise Security Business

On November 4, 2019, we completed the purchase and assumption of certain assets and certain liabilities, respectively, of the Symantec Business for $10.7 billion in cash (the “Symantec Asset Purchase”).

Acquisition of Symantec Corporation Enterprise Security Business

On November 4, 2019, we purchased and assumed certain assets and certain liabilities, respectively, of the Symantec Corporation Enterprise Security business (the “Symantec Business”) for $10.7 billion in cash.

We financed this acquisition with the net proceeds from the borrowings under the November 2019 Term Loans, as defined in Note 10.

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On November 5, 2018, we acquired CA, Inc.

(“CA”) for $18.8 billion in aggregate cash purchase consideration and assumed $2.25 billion of outstanding unsecured bonds (the “CA Merger”).

We financed the CA Merger with $18 billion of term loans, as well as cash on hand of the combined companies.

(“CA”) for $18.8 billion in aggregate cash purchase consideration and assumed $2.25 billion of outstanding unsecured bonds.

We financed the acquisition of CA with $18 billion of term loans, as well as cash on hand of the combined companies.

We also assumed all eligible unvested CA equity awards in the transaction.

On December 31, 2018, we sold Veracode, Inc.

(“Veracode”), a subsidiary of CA and provider of application security testing solutions, to Thoma Bravo, LLC for cash consideration of $950 million, before working capital adjustments.

Acquisition of Brocade Communications Systems, Inc.

On November 17, 2017, we acquired Brocade Communications Systems, Inc.

(“Brocade”) for $6.0 billion in cash, including retirement of their term loan debt, which we financed using the net proceeds from the issuance of our senior unsecured notes, issued in October 2017, as well as cash on hand.

We also assumed all eligible unvested Brocade equity awards in the transaction.

On December 1, 2017, we sold certain Brocade business for an aggregate of $800 million in cash.

On December 31, 2018, we sold Veracode, Inc., a subsidiary of CA and provider of application security testing solutions, to Thoma Bravo, LLC for cash consideration of $950 million, before working capital adjustments.

A majority of our net revenue is derived from sales of a broad range of semiconductor devices that are incorporated into electronic products, as well as from modules, switches and subsystems.

Net revenue is also generated from the sale of software solutions that enable our customers to plan, develop, automate, manage, and secure applications across mainframe, distributed, mobile, and cloud platforms.

Our overall net revenue, as well as the percentage of total net revenue generated by sales in our semiconductor solutions and infrastructure software segments, has varied from quarter to quarter, due largely to fluctuations in end-market demand, including the effects of seasonality, which are discussed in detail in Part I, Item 1.

Our overall net revenue, as well as the percentage of total net revenue generated by sales in our semiconductor solutions and infrastructure software segments, have varied from quarter to quarter, due largely to fluctuations in end-market demand, including the effects of seasonality, which are discussed in detail in Part I, Item 1.

Business under “Seasonality” of this Annual Report on Form 10-K.

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To serve customers around the world, we have strategically developed relationships with large global electronic component distributors, complemented by a number of regional distributors with customer relationships based on their respective product ranges.

We also sell our products to a wide variety of OEMs or their contract manufacturers.

We have established strong relationships with leading OEM customers across multiple target markets.

Our direct sales force focuses on supporting our large OEM customers and has specialized product and service knowledge that enables us to sell specific offerings at key levels throughout a customer’s organization.

Certain customers require us to contract with them directly and with specified intermediaries, such as contract manufacturers.

Certain customers require us to contract with them directly and with specified intermediaries, such as contract

manufacturers.

Many of our major customer relationships have been in place for many years and are often the result of years of collaborative product development.

This has enabled us to build our extensive intellectual property (“IP”) portfolio and develop critical expertise regarding our customers’ requirements, including substantial system-level knowledge.

This has enabled us to build our extensive IP portfolio and develop critical expertise regarding our customers’ requirements, including substantial system-level knowledge.

This collaboration has provided us with key insights into our customers' businesses and has enabled us to be more efficient and productive and to better serve our target markets and customers.

We recognize revenue upon delivery of product to the distributors, which can cause our quarterly net revenue to fluctuate significantly.

We recognize revenue upon the delivery of our products to the distributors, which can cause our quarterly net revenue to fluctuate significantly.

Such revenue is reduced for estimated returns and distributor allowances.

Our traditional software customers generally consist of large enterprises that have computing environments from multiple vendors and are highly complex.

Our software customers generally consist of large enterprises that have computing environments from multiple vendors and are highly complex.

We believe our enterprise-wide license model will continue to offer our customers reduced complexity, more flexibility and an easier renewal process that will help drive revenue growth.

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Personnel costs include stock-based compensation expense.

Total cost of revenue also includes the purchase accounting effect on inventory, amortization of acquisition-related intangible assets and restructuring charges.

Total cost of revenue also includes amortization of acquisition-related intangible assets and restructuring charges.

Research and development.

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Our tax incentives from the Singapore Economic Development Board provide that any qualifying income earned in Singapore is subject to tax incentives or reduced rates of Singapore income tax.

Subject to our compliance with the conditions specified in these incentives and legislative developments, these Singapore tax incentives are presently expected to expire in November 2025.

Subject to our compliance with the conditions specified in these incentives and

legislative developments, these Singapore tax incentives are presently expected to expire in November 2025.

The corporate income tax rate in Singapore that would otherwise apply to us would be 17%.

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Before taking into consideration the effects of the U.S.

Tax Cuts and Jobs Act (“2017 Tax Reform Act”) and other indirect tax impacts, the effect of these tax incentives and tax holiday was to increase the benefit from income taxes by approximately $833 million, $923 million and $590 million for fiscal years 2020, 2019 and 2018, respectively.

Tax Cuts and Jobs Act and other indirect tax impacts, the effect of these tax incentives and tax holiday was to decrease the provision for income taxes by approximately $1,156 million for fiscal year 2021 and increase the benefit from income taxes by approximately $833 million for fiscal year 2020.

Our interpretations and conclusions regarding the tax incentives are not binding on any taxing authority, and if our assumptions about tax and other laws are incorrect or if these tax incentives are substantially modified or rescinded, we could suffer material adverse tax and other financial consequences, which would increase our expenses, reduce our profitability and adversely affect our cash flows.

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Due to inconsistencies in application of the arm’s length standard among taxing authorities, as well as lack of adequate treaty-based protection, transfer pricing challenges by tax authorities could, if successful, substantially increase our income tax expense.

The 2017 Tax Reform Act made significant changes to the U.S.

Internal Revenue Code, including (1) a decrease in the U.S.

corporate tax rate from 35% to 21% effective for tax years beginning after December 31, 2017, (2) the accrual of U.S.

income tax on foreign earnings when earned, allowing certain foreign dividends to then be tax-exempt, rather than deferring such income tax payments until the foreign earnings are repatriated into the U.S., and (3) the transition tax on the mandatory deemed repatriation of accumulated non-U.S.

earnings of U.S.

controlled foreign corporations (the “Transition Tax”).

Following the enactment of the 2017 Tax Reform Act, the Securities and Exchange Commission (“SEC”), issued guidance for situations when there is insufficient information to complete the accounting for certain income tax effects of the 2017 Tax Reform Act.

Based on our interpretation of the 2017 Tax Reform Act and the SEC’s guidance, we recognized an income tax benefit of $7,278 million during fiscal year 2018.

During fiscal year 2019 we recorded an income tax provision of $113 million from a change in estimate of our fiscal year 2018 benefit as a result of proposed U.S.

Treasury regulations issued in fiscal year 2019 related to the 2017 Tax Reform Act.

We also recognized an income tax benefit of $1,162 million in fiscal year 2018 primarily as a result of our redomiciliation to the United States in April 2018.

Critical Accounting Estimates

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Our critical accounting policies are those that affect our historical financial statements materially and involve difficult, subjective or complex judgments 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.

Those policies 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 and employee bonus programs.

“Summary of Significant Accounting Policies” included in Part II, Item 8.

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Revenue recognition.

contract has commercial substance, and it is probable we will collect substantially all of the consideration we are entitled to.

We account for a contract with a customer when both parties have approved the contract and are committed to perform their respective obligations, each party’s rights can be identified, payment terms can be identified, the contract has commercial substance, and it is probable we will collect substantially all of the consideration we are entitled to.

Revenue is recognized when, or as, performance obligations are satisfied by transferring control of a promised product or service to a customer.

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Our goodwill impairment test uses both the income approach and the market approach to estimate a reporting unit's fair value.

income approach is based on the discounted cash flow method that uses the reporting unit estimates for forecasted future financial performance including revenues, operating expenses, and taxes, as well as working capital and capital asset requirements.

The income approach is based on the discounted cash flow method that uses the reporting unit estimates for forecasted future financial performance including revenues, operating expenses, and taxes, as well as working capital and capital asset requirements.

These estimates are developed as part of our long-term planning process based on assumed market segment growth rates and our assumed market segment share, estimated costs based on historical data and various internal estimates.

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We also consider market factors specific to the business and estimate future cash flows to be generated by the business, which requires significant judgment as it is based on assumptions about market demand for our products over a number of future years.

Based on these assumptions and estimates, we determine whether we need to take an impairment charge to reduce the value of the long-lived asset stated on our consolidated balance sheets to reflect its estimated fair value.

Based on these assumptions and estimates, we determine whether we need to take an impairment charge to reduce the value of the long-lived asset stated on our consolidated balance sheets

to reflect its estimated fair value.

Assumptions and estimates about future values and remaining useful lives are complex and often subjective.

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We have considered projected future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for valuation allowances.

If we determine that a valuation allowance is required, such adjustment to the deferred tax assets would increase our tax expense in the period in which such determination is made.

Conversely, if we determine that a valuation allowance exceeds our requirement, such adjustment to the deferred tax assets would decrease tax expense in the period in which such determination is made.

An adjustment to the valuation allowance will either increase or decrease our provision for or benefit from income taxes in the period such determination is made.

In evaluating the exposure associated with various tax filing positions, we accrue an income tax liability when such positions do not meet the more likely than not threshold for recognition.

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Retirement and post-retirement benefit plan assumptions.

Retirement and post-retirement benefit plan costs represent obligations that will ultimately be settled sometime in the future and therefore, are subject to estimation.

Retirement and post-retirement benefit plan obligations represent liabilities that will ultimately be settled sometime in the future and therefore, are subject to estimation.

Pension accounting is intended to reflect the recognition of future retirement and post-retirement benefit plan costs over the employees' average expected future service to us, based on the terms of the plans and investment and funding decisions.

To estimate the impact of these future payments and our decisions concerning funding of these obligations, we are required to make assumptions using actuarial concepts within the framework of GAAP.

One assumption is the discount rate used to calculate the estimated costs.

One assumption is the discount rate used to calculate the estimated plan obligations.

Other assumptions include the expected long-term return on plan assets, expected future salary increases, the health care cost trend rate, expected future increases to benefit payments, expected retirement dates, employee turnover, retiree mortality rates, and portfolio composition.

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Our employee bonus programs, which are overseen by our Compensation Committee, or our Board, in the case of our Chief Executive Officer, provide for variable compensation based on the attainment of overall corporate annual targets and functional performance metrics.

In the first fiscal quarter of the year, if management determines that it is probable that the targets and metrics will be achieved and the amounts can be reasonably estimated, a variable, proportional compensation accrual is recognized based on an assumed 100% achievement of the targets and metrics.

The bonus payout levels can be greater if attainment of metrics and targets is greater than 100% and a portion of the payouts may not occur if a minimum floor of performance is not achieved.

In subsequent quarters, we monitor and accrue for variable compensation expense based on our actual progress toward the achievement of the annual targets and metrics.

The actual achievement of target metrics at the end of the fiscal year, which is subject to approval by our Compensation Committee, may result in the actual variable compensation amounts being significantly higher or lower than the relevant estimated amounts accrued in earlier quarters, which would result in a corresponding adjustment in the fourth fiscal quarter.

At the end of each fiscal quarter, we monitor and accrue for an estimated, variable, proportional compensation expense based on our actual progress toward the achievement of the annual targets and metrics.

The actual achievement of target and metrics at the end of the fiscal year, which is subject to approval by our Compensation Committee, may result in the actual variable compensation amounts being significantly higher or lower than the relevant estimated amounts accrued in earlier quarters, which would result in a corresponding adjustment in the fourth fiscal quarter.

Fiscal Year Presentation

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Our fiscal years 2021, 2020 and 2019 consisted of 52 weeks.

Fiscal year 2018 consisted of 53 weeks.

The financial statements included in Part II, Item 8.

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2021 November 1,

2019 November 1,

2020 October 31,

2021 November 1,

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Operating income $ 8,519 $ 4,014 31 % 17 %

Historically, a relatively small number of customers has accounted for a significant portion of our net revenue.

A relatively small number of customers account for a significant portion of our net revenue.

Sales of products to distributors accounted for 53% and 42% of our net revenue for fiscal years 2021 and 2020, respectively.

Direct sales to WT Microelectronics, a distributor, accounted for 13% and 17% of our net revenue for fiscal years 2020 and 2019, respectively.

We believe our aggregate sales to our top five end customers through all channels accounted for more than 30% of our net revenue for each of our fiscal years 2020 and 2019.

Direct sales to WT Microelectronics Co., Ltd., a distributor, accounted for 18% and 13% of our net revenue for fiscal years 2021 and 2020, respectively.

We believe aggregate sales to our top five end customers, through all channels, accounted for more than 35% and 30% of our net revenue for fiscal years 2021 and 2020, respectively.

We believe aggregate sales to Apple Inc., through all channels, accounted for approximately 20% and 15% of our net revenue for fiscal years 2021 and 2020, respectively.

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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.

Additionally, if export restrictions on one of our larger customers continue, revenue in future periods may continue to be adversely impacted.

Although we recognize revenue for the majority of our products when title and control transfer in Penang, Malaysia, we disclose net revenue by country based on the geographic shipment or delivery location specified by distributors, OEMs, contract manufacturers, channel partners, or software customers.

In each of fiscal years 2020 and 2019, approximately 35% of our net revenue came from shipments or deliveries to China (including Hong Kong), compared to approximately 50% for fiscal year 2018.

The ongoing COVID-19 pandemic and related uncertainties and supply imbalance have caused and may continue to cause our net revenue to fluctuate significantly and impact our results of operations, as discussed above.

Additionally, export restrictions on one of our larger customers have had, and may continue to have, an adverse impact on our revenue.

Although we recognize revenue for the majority of our products when title and control transfer in Penang, Malaysia, we disclose net revenue by country based primarily on the geographic shipment or delivery location specified by our distributors, OEMs, contract manufacturers, channel partners, or software customers.

In each of fiscal years 2021 and 2020, approximately 35% of our net revenue came from shipments or deliveries to China (including Hong Kong).

However, the end customers for either our products or for the end products into which our products are incorporated, are frequently located in countries other than China (including Hong Kong).

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Fiscal Year Ended

Net Revenue by Segment November 1,

Net Revenue by Segment October 31,

2021 November 1,

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Fiscal Year Ended

Net Revenue by Segment November 1, 2020 November 3, 2019

(As a percentage of net revenue)

Semiconductor solutions 72 % 77 %

Infrastructure software 28 23

Total net revenue 100 % 100 %

Our total net revenue increased primarily due to contributions from the Symantec enterprise security solutions in fiscal year 2020 compared to the prior fiscal year.

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 that resulted in lower than expected shipments in the year, partially offset by higher demand for our networking and storage products.

Net revenue from our infrastructure software segment increased primarily due to contributions from our Symantec enterprise security solutions.

Gross margin was $13,516 million, or 57% of net revenue, for fiscal year 2020, compared to $12,483 million, or 55% of our net revenue, for fiscal year 2019.

The increase was primarily due to contributions from our Symantec enterprise security solutions, as well as favorable product mix within our semiconductor solutions segment, compared to the corresponding prior fiscal year.

Research and Development Expense

Research and development expense increased $272 million, or 6%, in fiscal year 2020, compared to the prior fiscal year.

The increase was primarily due to our acquisition of the Symantec Business, partially offset by a decrease in stock-based compensation expense resulting from restructuring actions.

Selling, General and Administrative Expense

Selling, general and administrative expense increased $226 million, or 13%, in fiscal year 2020, compared to the prior fiscal year.

The increase was primarily due to our acquisition of the Symantec Business and associated acquisition-related costs, partially offset by a decrease in compensation expense, including stock-based compensation, resulting from restructuring actions.

Amortization of Acquisition-Related Intangible Assets

Amortization of acquisition-related intangible assets recognized in operating expenses increased $503 million, or 27%, in fiscal year 2020, compared to the prior fiscal year.

The increase was primarily due to the addition of amortization of intangible assets as a result of our acquisition of the Symantec Business.

Restructuring, Impairment and Disposal Charges

Restructuring, impairment and disposal charges included in operating expenses decreased $538 million, or 73%, in fiscal year 2020, compared to the prior fiscal year .

The decrease was primarily due to higher employee termination costs, as well as lease and other exit costs resulting from the CA Merger, in the prior fiscal year.

Segment Operating Results

Fiscal Year Ended

Operating Income (Loss) November 1, 2020 November 3, 2019 $ Change % Change

(In millions, except for percentages)

Semiconductor solutions $ 8,576 $ 8,538 $ 38 — %

Infrastructure software 4,363 3,391 972 29 %

Unallocated expenses (8,925) (8,485) (440) 5 %

Total operating income $ 4,014 $ 3,444 $ 570 17 %

Operating income from our semiconductor solutions segment increased slightly, primarily due to higher demand for storage products, largely offset by delays in the production ramp of a new mobile handset by a major customer, which resulted in lower than expected shipments in the year.

Operating income from our infrastructure software segment increased primarily due to contributions from our Symantec enterprise security solutions.

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 5% in fiscal year 2020, compared to the prior year fiscal period, primarily due to higher amortization of acquisition-related intangible assets and acquisition-related costs, partially offset by lower restructuring, impairment and disposal charges and stock-based compensation expense.

Non-Operating Income and Expenses

Interest expense.

Interest expense was $1,777 million and $1,444 million for fiscal years 2020 and 2019, respectively.

The increase was primarily due to the increase in debt associated with the financing of our acquisition of the Symantec Business, as well as losses on extinguishment of debt related to refinancing activities during fiscal year 2020.

Other income, net.

Other income, net, which includes interest income, gains or losses on investments, foreign currency remeasurement and other miscellaneous items, was $206 million and $226 million for fiscal years 2020 and 2019, respectively.

The decrease was primarily due to lower gains on investments, partially offset by a $116 million one-time gain from the lapse of a tax indemnification arrangement.

Benefit from income taxes.

Benefit from income taxes was $518 million and $510 million for fiscal years 2020 and 2019, respectively.

The benefit from income taxes in fiscal year 2020 was primarily due to the jurisdictional mix of income and expense, the recognition of gross uncertain tax benefits as a result of lapses of statues of limitations, the remeasurement of certain foreign deferred tax assets and liabilities, and excess benefit from stock-based awards.

The benefit from income taxes in fiscal year 2019 was primarily due to excess tax benefits from stock-based awards, the recognition of gross uncertain tax benefits as a result of audit settlements and lapses of statutes of limitations, deferred tax remeasurement in state and foreign jurisdictions, internal reorganizations, and the partial release of our valuation allowance as a result of the CA Merger.

This was partially offset by a change in estimate of our fiscal year 2018 provision resulting from regulations issued related to the 2017 Tax Reform Act.

Fiscal Year 2019 Compared to Fiscal Year 2018

The following table sets forth our results of operations for the periods presented:

Fiscal Year Ended

Statements of Operations Data:

November 3, 2019 November 4, 2018 November 3, 2019 November 4, 2018

(In millions) (As a percentage of net revenue)

Products $ 18,117 $ 19,754 80 % 95 %

Subscriptions and services 4,480 1,094 20 5

Total net revenue 22,597 20,848 100 100

Cost of revenue:

Cost of products sold 6,208 6,924 28 33

Cost of subscriptions and services 515 97 2 1

Purchase accounting effect on inventory — 70 — —

Amortization of acquisition-related intangible assets 3,314 3,004 15 14

Restructuring charges 77 20 — —

Total cost of revenue 10,114 10,115 45 48

Gross margin 12,483 10,733 55 52

Research and development 4,696 3,768 21 18

Selling, general and administrative 1,709 1,056 8 5

Amortization of acquisition-related intangible assets 1,898 541 8 3

Restructuring, impairment and disposal charges 736 219 3 1

Litigation settlements — 14 — —

Total operating expenses 9,039 5,598 40 27

Operating income $ 3,444 $ 5,135 15 % 25 %

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

Fiscal Year Ended

Net Revenue by Segment November 3, 2019 November 4, 2018 $ Change % Change

(In millions, except for percentages)

Semiconductor solutions $ 17,441 $ 19,068 $ (1,627) (9) %

Infrastructure software 5,156 1,780 3,376 190 %

Total net revenue $ 22,597 $ 20,848 $ 1,749 8 %

Fiscal Year Ended

Net Revenue by Segment November 3, 2019 November 4, 2018

Net Revenue by Segment October 31, 2021 November 1, 2020

(As a percentage of net revenue)

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Total net revenue 100 % 100 %

Our total net revenue increased primarily due to the CA Merger in fiscal year 2019.

Net revenue from our semiconductor solutions segment decreased due to lower demand for our wireless content in mobile handsets, as well as lower demand for our broadband, optocoupler, set-top box and server storage connectivity products.

Fiscal year 2018 semiconductor solutions revenue benefited from a later than typical new mobile handset ramp with a major customer in the first quarter, which resulted in higher shipments in that quarter, as well as an extra week in the fiscal year as compared to fiscal year 2019.

revenue from our infrastructure software segment increased primarily due to contributions from our mainframe and enterprise software solutions.

Net revenue from our semiconductor solutions segment increased primarily due to higher demand for our wireless products, as well as the delayed production ramp of a new mobile handset by a major customer in the prior fiscal year, which resulted in lower shipments in fiscal year 2020.

Net revenue from our semiconductor solutions segment also increased due to higher demand for our networking and wireless connectivity products.

Net revenue from our infrastructure software segment increased primarily due to higher demand for our FC SAN products, mainframe and cyber security solutions.

Gross margin was $16,844 million, or 61% of net revenue, for fiscal year 2021, compared to $13,516 million, or 57% of net revenue, for fiscal year 2020.

The increase in gross margin was primarily due to contributions from our mainframe and enterprise software solutions and favorable product mix within our semiconductor solutions segment, compared to the prior fiscal year, partially offset by higher amortization of acquisition-related intangible assets and restructuring charges as a result of the CA Merger and higher stock-based compensation expense.

The increase was primarily due to lower amortization of acquisition-related intangible assets and favorable margin within our semiconductor solutions segment due to increased demand.

Research and Development Expense

Research and development expense increased $928 million, or 25%, in fiscal year 2019, compared to the prior fiscal year.

Research and development expense as a percentage of net revenue was 21% and 18% for fiscal years 2019 and 2018, respectively.

The increase was primarily due to the CA Merger and higher stock-based compensation expense, offset by lower variable employee compensation expense.

Stock-based compensation expense increased primarily due to the issuance of the multi-year equity grants of time- and market-based RSUs (the “Multi-Year Equity Awards”) in the first quarter of fiscal year 2019, the impact of the change from annual to quarterly vesting of equity awards and the assumed CA equity awards.

Our stock-based compensation expense for fiscal year 2019 included employee equity awards granted at higher grant-date fair values than those granted in prior years, which also contributed to the increase.

Research and development expense decreased $114 million, or 2%, in fiscal year 2021, compared to the prior fiscal year.

The decrease was primarily due to lower stock-based compensation expense reflecting the full vesting of certain equity awards and the effects of forfeitures, partially offset by higher variable employee compensation expense.

Selling, General and Administrative Expense

Selling, general and administrative expense increased $653 million, or 62%, in fiscal year 2019, compared to the prior fiscal year.

Selling, general and administrative expense as a percentage of net revenue was 8% and 5% for fiscal years 2019 and 2018, respectively.

The increase was primarily due to the CA Merger and higher stock-based compensation expense.

Stock-based compensation expense increased primarily due to the issuance of the Multi-Year Equity Awards, the impact of the change from annual to quarterly vesting of equity awards and the assumed CA equity awards.

Selling, general and administrative expense decreased $588 million, or 30%, in fiscal year 2021, compared to the prior fiscal year.

The decrease was primarily due to higher acquisition-related costs incurred in the prior fiscal year as a result of our acquisition of the Symantec Business.

The decrease was also due to lower compensation expense reflecting the full benefit of the completed Symantec Business integration as well as our strategic workforce alignment.

In addition, fiscal year 2020 included non-recurring litigation settlements.

Amortization of Acquisition-Related Intangible Assets

Amortization of acquisition-related intangible assets recognized in operating expenses increased $1,357 million, or 251%, in fiscal year 2019, compared to the prior fiscal year.

The increase was primarily due to the addition of amortization of intangible assets acquired in the CA Merger.

Amortization of acquisition-related intangible assets recognized in operating expenses decreased $425 million, or 18%, in fiscal year 2021, compared to the prior fiscal year.

The decrease was primarily due to lower amortization of certain intangible assets from our acquisition of CA.

Restructuring, Impairment and Disposal Charges

Restructuring, impairment and disposal charges included in operating expenses increased $517 million, or 236%, in fiscal year 2019, compared to the prior fiscal year .

The increase was primarily due to employee termination costs, as well as lease and other exit costs resulting from the CA Merger.

Restructuring, impairment and disposal charges recognized in operating expenses decreased $50 million, or 25%, in fiscal year 2021, compared to the prior fiscal year .

The decrease was primarily due to higher employee termination costs in the prior fiscal year from cost reduction activities related to our acquisition of the Symantec Business.

Stock-Based Compensation Expense

Total stock-based compensation expense was $1,704 million and $1,976 million for fiscal years 2021 and 2020, respectively.

The decrease primarily reflects 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 October 31, 2021, which we expect to recognize over the remaining weighted-average service period of 2.9 years.

Unrecognized Compensation Cost, Net of Expected Forfeitures

(In millions)

Total $ 2,967

During the first quarter of fiscal year 2019, our Compensation Committee approved a broad-based program of multi-year equity grants of time- and market-based RSUs (the “Multi-Year Equity Awards”) in lieu of our annual employee equity awards historically granted on March 15 of each year.

Each Multi-Year Equity Award vests on the same basis as four annual grants made March 15 of each year, beginning in fiscal year 2019, with successive four-year vesting periods.

We recognize stock-based compensation expense related to the Multi-Year Equity Awards from the grant date through their respective vesting date, ranging from 4 years to 7 years.

Segment Operating Results

Fiscal Year Ended

Operating Income by Segment November 3, 2019 November 4, 2018 $ Change % Change

Operating Income by Segment October 31, 2021 November 1, 2020 $ Change % Change

(In millions, except for percentages)

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Total operating income $ 8,519 $ 4,014 $ 4,505 112 %

Operating income from our semiconductor solutions segment decreased primarily due to lower demand for our wireless content in mobile handsets, as well as lower demand for our optocoupler, broadband, server storage connectivity and set-top box products.

Fiscal year 2018 semiconductor solutions operating income benefited from a later than typical new mobile handset ramp with a major customer in the first quarter, which resulted in higher shipments in that quarter, as well as an extra week in the fiscal year as compared to fiscal year 2019.

Operating income from our infrastructure software segment increased primarily due to contributions from our mainframe and enterprise software solutions.

Operating income from our semiconductor solutions segment increased primarily due to higher demand for our wireless products, as well as the delayed production ramp of a new mobile handset by a major customer in the prior fiscal year, which resulted in lower shipments in fiscal year 2020.

Operating income from our semiconductor solutions segment also increased due to higher demand for our networking and wireless connectivity products, as well as higher gross margin.

Operating income from our infrastructure software segment increased primarily due to higher demand for our FC SAN products and mainframe solutions.

Unallocated expenses include amortization of acquisition-related intangible assets;

stock-based compensation expense;

acquisition-related costs;

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 increased 61% in fiscal year 2019, compared to the prior fiscal year, primarily due to higher amortization of acquisition-related intangible assets, stock-based compensation expense, and restructuring, impairment and disposal charges primarily related to the CA Merger.

Unallocated expenses decreased 17% in fiscal year 2021, compared to the prior fiscal year, primarily due to lower amortization of acquisition-related intangible assets, acquisition-related costs and stock-based compensation expense.

Non-Operating Income and Expenses

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Interest expense was $1,885 million and $1,777 million for fiscal years 2021 and 2020, respectively.

Interest expense was higher in fiscal year 2019 primarily due to interest on the debt we incurred to finance the CA Merger in the first quarter of fiscal year 2019.

The increase was primarily due to higher losses on extinguishment of debt as a result of our fiscal year 2021 debt transactions.

Other income, net.

Other income, net was $226 million and $144 million in fiscal years 2019 and 2018, respectively.

The increase was primarily due to an increase in unrealized gains on investments partially offset by losses on foreign currency remeasurement.

Benefit from income taxes.

Benefit from income taxes was $510 million and $8,084 million for fiscal years 2019 and 2018, respectively.

The benefit from income taxes in fiscal year 2019 was primarily due to excess benefit from stock-based awards, the recognition of gross unrecognized tax benefits as a result of audit settlements and lapses of statutes of limitations net of increases in balances related to tax positions taken during the current year, benefit from deferred tax measurement in state and foreign jurisdictions, benefit related to internal reorganizations, and benefit from the partial release of our valuation allowance as a result of the CA Merger, partially offset from a change in estimate of our fiscal year 2018 provision resulting from regulations issued related to the 2017 Tax Reform Act.

The benefit from income taxes in fiscal year 2018 was primarily due to income tax benefits recognized from the enactment of the 2017 Tax Reform Act and as a result of our redomiciliation to the United States on April 4, 2018.

Other income, net, which includes interest income, gains or losses on investments, foreign currency remeasurement and other miscellaneous items, was $131 million and $206 million for fiscal years 2021 and 2020, respectively.

The decrease was primarily due to a $116 million non-recurring gain from the lapse of a tax indemnification arrangement included in the prior fiscal year, offset in part by an increase in gains on investments in fiscal year 2021.

Provision for (benefit from) income taxes.

The provision for income taxes of $29 million in fiscal year 2021 was primarily due to income from continuing operations, offset in part by excess tax benefits from stock-based awards, a benefit from foreign derived intangible income, and the recognition of gross unrecognized tax benefits as a result of lapses of statutes of limitations and audit settlements.

The benefit from income taxes of $518 million in fiscal year 2020 was primarily due to the jurisdictional mix of income and expense, the recognition of gross uncertain tax benefits as a result of lapses of statutes of limitations, the remeasurement of certain foreign deferred tax assets and liabilities, and excess tax benefit from stock-based awards.

Liquidity and Capital Resources

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We believe our cash equivalents are liquid and accessible.

Our primary sources of liquidity as of November 1, 2020 consisted of:

Our primary sources of liquidity as of October 31, 2021 consisted of:

(i) $12,163 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”).

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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 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.

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We expect a slight increase in capital expenditures in fiscal year 2022 as compared to fiscal year 2021.

For additional information regarding our cash requirement from contractual obligations, indebtedness and lease obligations, see Note 14.

“Commitments and Contingencies”, Note 10.

“Borrowings” and Note 6.

“Leases” in Part II, Item 8 of this Annual Report on Form 10-K.

From time to time, we engage in discussions with third parties regarding potential acquisitions of, or investments in, businesses, technologies and product lines.

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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.

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.

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Working Capital

Working capital increased to $5,524 million at November 1, 2020 from $3,018 million at November 3, 2019.

Working capital increased to $10,305 million at October 31, 2021 from $5,524 million at November 1, 2020.

The increase was attributable to the following:

• Cash and cash equivalents increased to $7,618 million at November 1, 2020 from $5,055 million at November 3, 2019, primarily due to $27,802 million in proceeds from long-term borrowings, $12,061 million in net cash provided by operating activities, and $218 million in proceeds from the sales of businesses, partially offset by $20,099 million of debt repayments, $10,700 million paid for the Symantec Asset Purchase, $5,534 million of dividend payments and $765 million in payments of employee withholding taxes related to net share settled equity awards.

• Cash and cash equivalents increased to $12,163 million at October 31, 2021 from $7,618 million at November 1, 2020, primarily due to $13,764 million in net cash provided by operating activities and $9,904 million in proceeds from long-term borrowings, partially offset by $11,495 million of payments on debt obligations, $6,212 million of dividend payments and $1,299 million in payments of employee withholding taxes related to net share settled equity awards.

See the “Cash Flows” section below for further details.

• Current portion of long-term debt decreased $1,960 million primarily due to repayment of certain debt, partially offset by additional amounts coming due within twelve months.

• Other current assets increased to $977 million at November 1, 2020 from $729 million at November 3, 2019, primarily due to increases in prepaid taxes and short-term investments.

• Inventory increased to $1,003 million at November 1, 2020 from $874 million at November 3, 2019, primarily due to timing of customer product ramps.

• Current portion of long-term debt decreased to $290 million at October 31, 2021 from $827 million at November 1, 2020, primarily as a result of our fiscal year 2021 debt transactions.

• Inventory increased to $1,297 million at October 31, 2021 from $1,003 million at November 1, 2020, primarily due to the timing of customer product ramps.

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

• Other current liabilities increased to $3,831 million at November 1, 2020 from $2,616 million at November 3, 2019, primarily due to increases in contract liabilities, interest payable, taxes payable, and lease liabilities resulting from the adoption of Accounting Standard Codification Topic 842 (“Topic 842”), partially offset by repayments of notional pooling liabilities.

• Accounts receivable decreased to $2,297 million at November 1, 2020 from $3,259 million at November 3, 2019, primarily due to revenue linearity and additional receivables sold through factoring arrangements.

• Employee compensation and benefits increased to $877 million at November 1, 2020 from $641 million at November 3, 2019, primarily due to the employee bonus plan.

Working capital decreased to $3,018 million at November 3, 2019 from $6,769 million at November 4, 2018.

The decrease was attributable to the following:

• Accounts receivable decreased to $3,259 million at November 3, 2019 from $3,325 million at November 4, 2018, primarily due to a higher volume of trade accounts receivable factoring, partially offset by higher revenue.

• Inventory decreased to $874 million at November 3, 2019 from $1,124 million at November 4, 2018, primarily due to our continued focus on inventory management.

• Current portion of long-term debt increased $2,787 million primarily due to certain unsecured senior notes becoming due within the next twelve months.

• Other current liabilities increased to $2,616 million at November 3, 2019 from $812 million at November 4, 2018, primarily due to the CA Merger and increases in contract liabilities from the adoption of Topic 606, notional pooling liabilities, restructuring reserves, taxes payable and interest payable.

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

• Cash and cash equivalents increased to $5,055 million at November 3, 2019 from $4,292 million at November 4, 2018 primarily due to $30,034 million in proceeds from long-term borrowings, $9,697 million in net cash provided by operating activities, $3,679 million of Mandatory Convertible Preferred Stock issuance proceeds and $957 million in proceeds from sale of Veracode, partially offset by $16,800 million of debt repayments, $16,027 million paid for the CA Merger, $5,435 million of common stock repurchases, $4,235 million of dividend payments, and $972 million in payments of employee withholding taxes related to net share settled equity awards.

See the “Cash Flows” section below for further details.

• Other current assets increased to $729 million at November 3, 2019 from $366 million at November 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 payable increased to $1,086 million at October 31, 2021 from $836 million at November 1, 2020, primarily due to the timing of vendor payments.

• Accounts receivable decreased to $2,071 million at October 31, 2021 from $2,297 million at November 1, 2020, primarily due to revenue linearity and additional receivables sold through factoring arrangements.

• Employee compensation and benefits increased to $1,066 million at October 31, 2021 from $877 million at November 1, 2020, primarily due to higher variable compensation based on current fiscal year performance.

Capital Returns

Fiscal Year Ended

Cash Dividends and Distributions Declared and Paid November 1, 2020 November 3, 2019 November 4, 2018

(In millions, except per share/unit data)

Cash Dividends Declared and Paid October 31, 2021 November 1, 2020

(In millions, except per share data)

Dividends per share to common stockholders $ 14.40 $ 13.00

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Dividends to preferred stockholders $ 299 $ 299

Distributions per unit to limited partners $ — $ — $ 3.50

Distributions to limited partners $ — $ — $ 77

Stock repurchases $ — $ 5,435 $ 7,258

During fiscal years 2020, 2019 and 2018, we paid approximately $765 million, $972 million and $56 million, respectively, in employee withholding taxes due upon the vesting of net settled equity awards.

We withheld approximately 3 million, 4 million and 0.2 million shares of common stock from employees in connection with such net share settlements in fiscal years 2020, 2019 and 2018, respectively.

Pursuant to an $18 billion stock repurchase program previously authorized by our Board of Directors, we repurchased and retired approximately 21 million and 32 million shares of our common stock at a weighted average price of $258.52 and $227.60 during fiscal years 2019 and 2018, respectively.

This authorization ended on November 3, 2019.

During fiscal years 2021 and 2020, we paid approximately $1,299 million and $765 million, respectively, in employee withholding taxes due upon the vesting of net settled equity awards.

We withheld approximately 3 million shares of common stock from employees in connection with such net share settlements during each of fiscal years 2021 and 2020.

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.

Repurchases under our stock repurchase program may be effected 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 program may be suspended or terminated at any time.

Fiscal Year Ended

November 1, 2020 November 3, 2019 November 4, 2018

October 31, 2021 November 1, 2020

(In millions)

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

The $2,364 million increase in cash provided by operations during fiscal year 2020 compared to fiscal year 2019 was due to higher cash flows from net income adjusted for non-cash items and changes in the operating assets and liabilities.

The $817 million increase in cash provided by operations during fiscal year 2019 compared to fiscal year 2018 was primarily due to changes in operating assets and liabilities.

Cash flows from net income adjusted for non-cash items were relatively flat as higher net income in fiscal year 2018 reflected a significant non-cash income tax benefit, principally resulting from the enactment of the 2017 Tax Reform Act and the impact from our redomiciliation to the United States in fiscal year 2018.

The $1,703 million increase in cash provided by operations during fiscal year 2021 compared to fiscal year 2020 was due to $3,776 million higher net income, offset by a $1,220 million decrease resulting from changes in operating assets and liabilities, as well as a $853 million decrease in amortization of intangible assets, stock-based compensation, and other adjustments.

Investing Activities

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The $10,864 million decrease in cash used in investing activities for fiscal year 2021 compared to fiscal year 2020 was primarily related to a $10,864 million decrease in cash paid for acquisitions, partially offset by $173 million less in proceeds received from sales of businesses.

The $10,748 million increase in cash used in investing activities for fiscal year 2019 compared to fiscal year 2018 was primarily related to $16,027 million paid for the CA Merger in fiscal year 2019, partially offset by proceeds from sales of businesses as well as lower capital expenditures.

Financing Activities

Cash flows from financing activities primarily consisted of net proceeds and payments related to our long-term borrowings, dividend and distribution payments, stock repurchases and the issuances of stock.

The $4,877 million decrease in cash provided by financing activities for fiscal year 2020 compared to fiscal year 2019 was primarily due to a $5,531 million decrease in net proceeds from borrowings as a result of debt repayments, the absence of preferred stock issuance which generated $3,679 million net proceeds in fiscal year 2019 and a $1,299 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 $5,435 million of repurchases in fiscal year 2019.

The $17,606 million increase in cash related to financing activities for fiscal year 2019 compared to fiscal year 2018 was primarily due to a $14,207 million increase in net proceeds from borrowings, net proceeds of $3,679 million from issuance of preferred stock and a $1,823 million decrease in common stock repurchases under our repurchase program, partially offset by a $1,237 million increase in dividend and distribution payments and a $916 million increase in employee withholding tax payments related to net settled equity awards.

“Borrowings” included in Part II, Item 8.

of this Annual Report on Form 10-K.

The $10,585 million decrease in cash related to financing activities for fiscal year 2021 compared to fiscal year 2020 was primarily due to a $9,294 million decrease in net proceeds from borrowings as a result of debt repayments, and a $678 million increase in dividend payments.

Summarized Obligor Group Financial Information

Pursuant to the indentures dated May 21, 2020, May 8, 2020, April 9, 2020, and April 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 the SEC in connection with an exchange offer that completed on August 10, 2020.

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 the Obligor Group, as defined below, to merge, consolidate or sell all or substantially all of their assets.

Broadcom Corporation (“BRCM”) and Broadcom 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 dated January 19, 2017 and October 17, 2017 (collectively, the “2017 Indentures”), Broadcom Cayman Finance Limited (subsequently merged into BTI during fiscal year 2019 with BTI remaining as the surviving entity) and BRCM (BRCM and BTI collectively, 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”).

Pursuant to indentures dated January 19, 2017 and October 17, 2017 (collectively, the “2017 Indentures”), Broadcom Cayman Finance Limited (subsequently merged into Broadcom Technologies Inc.

(“BTI”) during fiscal year 2019 with BTI remaining as the surviving entity) and Broadcom Corporation (“BRCM”) (BRCM and BTI collectively, 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 the SEC.

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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.

the “Obligor Group”) 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.

(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 Securities Exchange Act of 1934 (“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.

In March 2021, we completed the settlement of our private offers to exchange $5.5 billion of certain of our outstanding notes maturing between 2024 and 2027 (the “Exchange Offer”) for $2,250 million of 3.419% new senior unsecured notes due April 2033 and $3,250 million of 3.469% new senior unsecured notes due April 2034.

In connection with the Exchange Offer, BRCM and BTI were automatically and unconditionally released from their guarantees in accordance with the respective indentures governing the January 2021 Senior Notes, the June 2020 Senior Notes, the May 2020 Senior Notes, the April 2020 Senior Notes, and the April 2019 Senior Notes, as defined in Note 10.

“Borrowings” included in Part II, Item 8 of this Annual Report on Form 10-K.

The following tables set forth the summarized financial information of the Obligor Group on a combined basis.

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Intercompany balances and transactions between members of the Obligor Group have been eliminated.

Summarized Balance Sheets November 1,

Summarized Balance Sheet Information October 31,

(In millions)

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Fiscal Year Ended

Summarized Statement of Operations November 1,

Summarized Statement of Operations Information October 31,

(In millions)

Intercompany revenue with Non-Obligor Group $ 1,760

Gross margin $ 1,524

Loss from continuing operations (a)

Net loss $ (1,985)

Intercompany gross margin $ 1,596

_________________________________

(a) Included $706 million of net income from the Non-Obligor Group related to intercompany transactions.

Contractual Commitments

Payments Due by Period

Total Less than 1 year 1-3 years 3-5 years More than 5 years

(In millions)

Debt principal, interest and fees $ 51,307 $ 2,286 $ 7,708 $ 13,122 $ 28,191

Purchase commitments 966 894 72 — —

Other contractual commitments 1,137 248 430 220 239

Operating lease and finance lease obligations 845 141 212 136 356

Total $ 54,255 $ 3,569 $ 8,422 $ 13,478 $ 28,786

Debt Principal, Interest and Fees.

Represents principal, estimated interest and fees on our borrowings.

For borrowings subject to a floating interest rate, the estimated interest was based on the rate in effect during the last month of the fiscal year ended November 1, 2020.

Purchase Commitments.

Represents unconditional purchase obligations that include agreements to purchase goods or services, primarily inventory, that are enforceable and legally binding on us and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable price provisions, and the approximate timing of the transaction.

Purchase obligations exclude agreements that are cancelable without penalty.

Cancellation for outstanding purchase orders for capital expenditures in connection with construction of our new campuses is generally allowed but requires payment of all costs incurred through the date of cancellation and, therefore, cancelable purchase orders for these capital expenditures are included in the table above.

Other Contractual Commitments.

Represents amounts payable pursuant to agreements related to information technology, human resources, and other service agreements.

Operating Lease and Finance Lease Obligations .

Represents real property and equipment leased from third parties under non-cancelable leasing arrangements.

Due to the inherent uncertainty with respect to the timing of future cash outflows associated with our unrecognized tax benefits at November 1, 2020, we are unable to reliably estimate the timing of cash settlement with the respective taxing authority.

Therefore, $3,185 million of unrecognized tax benefits and accrued interest classified within other long-term liabilities on our consolidated balance sheet as of November 1, 2020 have been excluded from the contractual obligations table above.

Off-Balance Sheet Arrangements

We had no material off-balance sheet arrangements at November 1, 2020 as defined in Item 303(a)(4)(ii) of Regulation S-K under the Exchange Act.

Indemnifications

“Commitments and Contingencies” in Part II, Item 8 of this Form 10-K.

(a) In addition to intercompany gross margin, there were $962 million of intercompany transactions included in net loss.

Accounting Changes and Recent Accounting Standards

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis