01—Abstract
Summary
Summary of the 8-K filed July 8, 2024. Cited figures are marked; the original filing is the authoritative source.
Broadcom's 8-K furnishes unaudited pro forma condensed combined financial information (Exhibit 99.1) showing the effects of its November 22, 2023 acquisition of VMware, as if the deal had closed on October 31, 2022.
The filing is informational and does not include synergies or integration costs. Pro forma revenue is $25.03 billiona for the two fiscal quarters ended May 5, 2024, against $24.45 billion reported, after VMware's end-user computing business (classified as discontinued operations) was removed. For the fiscal year ended October 29, 2023, pro forma revenue is $48.08 billion versus $35.82 billion reported, reflecting a full year of VMware's subscription-heavy revenue base.
The larger change is in profitability and capital structure. Amortization of acquired intangibles and higher interest costs substantially reduce reported-basis earnings. For FY2023, pro forma operating income falls to $11.89 billionb from $16.21 billion, and pro forma diluted EPS is $16.77 versus $32.98 reported, though the share count rises by about 56 million shares issued to VMware holders.
For the first half of FY2024, pro forma diluted EPS is $8.09c versus $7.29 reported, because the first-half figures include only 18 days of VMware results and the pro forma share count is higher. Pro forma interest expense is $4.22 billion for FY2023, against $1.62 billion reported, reflecting roughly $30.4 billion of new unsecured term loans at floating SOFR-based rates. A 12.5 basis point rate move changes annual interest expense by about $38 million.
For investors, the filing mainly quantifies how much VMware expands Broadcom's recurring revenue base while adding material acquisition amortization, depreciation and stock-compensation charges, and debt-service costs. Because the figures are pro forma and unaudited, they are best used to judge run-rate economics and the earnings drag from purchase accounting and leverage, not as forecasts of reported results.
02—Key points
Key Highlights
- Pro forma revenue of $48.08B for FY2023 (vs. $35.82B reported) and $25.03B for the two quarters ended May 5, 2024 (vs. $24.45B reported), reflecting a full-year VMware contribution after removing the discontinued end-user computing business.
- Pro forma FY2023 operating income falls to $11.89B from $16.21B reported, mainly from roughly $6.5B of acquisition-related intangible amortization in cost of revenue and operating expenses.
- Pro forma FY2023 diluted EPS of $16.77 versus $32.98 reported; first-half FY2024 pro forma diluted EPS of $8.09 versus $7.29 reported, with pro forma diluted shares of 483M and 477M respectively.
- Pro forma FY2023 interest expense of $4.22B versus $1.62B reported, driven by $30.4B of unsecured term loans (Term A-2 $11.2B, Term A-3 $11.2B, Term A-5 $8.0B) at SOFR-based floating rates with assumed all-in rates of about 6.5% to 7.0%.
- Deal consideration was $142.50 cash or 0.2520 Broadcom shares per VMware share, subject to a 50/50 cash-stock proration, with Broadcom as the accounting acquirer under the acquisition method.
- Non-recurring stock-compensation charges from accelerated VMware director RSUs and options, plus post-combination equity expense, are included in the pro forma results, and the filing notes that pro forma results exclude any synergies or integration costs.
- A 12.5 basis point change in variable rates would move interest expense by about $38M annually on the 2023 Term Loans, a modest sensitivity given the total debt load.
03—Questions
Frequently Asked Questions
Why do pro forma results differ so much from reported results?
The pro forma figures present the combined company as if the VMware acquisition had closed on October 31, 2022, so they include a full year of VMware's results for FY2023 (reported figures include only about 18 days of VMware results in the period ended May 5, 2024). They also include the purchase-accounting effects of the deal, including new intangible amortization, fair value adjustments and higher interest on the acquisition debt, which lower pro forma operating and net income.
How much debt did Broadcom take on to fund the VMware acquisition?
Broadcom entered into $30.4 billion of unsecured term facilities under an August 15, 2023 credit agreement: $11.2 billion Term A-2 (maturing in 2 years), $11.2 billion Term A-3 (3 years) and $8.0 billion Term A-5 (5 years). The cash portion of the deal was funded from these loans and cash on hand, and the company incurred about $398 million of discounts and financing fees.
Does the pro forma information include expected cost savings or synergies?
No. The filing states that the pro forma information does not reflect any anticipated synergies, operating efficiencies, cost savings or integration costs. It is also not intended to project Broadcom's future results, so the pro forma figures show the mechanical effects of the transaction rather than management's expectations for post-deal performance.
What is the dilution impact on shareholders?
Pro forma FY2023 basic weighted shares rise to 469M from 415M reported, reflecting about 54M new Broadcom shares issued to VMware stockholders, and diluted shares rise to 483M from 427M. Pro forma EPS therefore falls to $17.27 basic and $16.77 diluted for FY2023, compared with $33.93 and $32.98 reported. The lower figures show the per-share effect of the stock issued in the deal and the lower pro forma earnings.
04—Continue