NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The Company and Basis of Presentation
The Company
Marvell Technology Group Ltd., a Bermuda company, and its subsidiaries (the Company), is a fabless
semiconductor provider of high-performance application-specific standard products. The Companys core strength of expertise is the development of complex System-on-a-Chip and System-in-a-Package devices, leveraging its extensive technology
portfolio of intellectual property in the areas of analog, mixed-signal, digital signal processing, and embedded and stand alone integrated circuits. The majority of the Companys product portfolio leverages embedded central processing unit
technology. The Company also develops platforms that it defines as integrated hardware along with software that incorporates digital computing technologies designed and configured to provide an optimized computing solution. The Companys broad
product portfolio includes devices for data storage, enterprise-class Ethernet data switching, Ethernet physical-layer transceivers, wireless connectivity, Internet-of-Things devices and multimedia solutions.
Basis of Presentation
The Companys fiscal year is the 52- or 53-week period ending on the Saturday closest to January 31. In a 52-week year, each fiscal quarter consists of 13 weeks. The additional week in a
53-week year is added to the fourth quarter, making such quarter consist of 14 weeks. Fiscal 2016 and 2015 each have a 52-week period.
The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. In the opinion of management, all
adjustments consisting of normal and recurring entries considered necessary for a fair statement of the results for the interim periods have been included in the Companys unaudited condensed consolidated balance sheet as of October 31, 2015,
the results of its operations for the three and nine months ended October 31, 2015 and November 1, 2014, its comprehensive income for the three and nine months ended October 31, 2015 and November 1, 2014, and its cash flows for the nine months ended
October 31, 2015 and November 1, 2014. The January 31, 2015 condensed consolidated balance sheet data was derived from the audited consolidated financial statements included in the Companys Annual Report on Form 10-K for the fiscal year
ended January 31, 2015, but does not include all disclosures required for annual periods.
These condensed consolidated
financial statements and related notes are unaudited and should be read in conjunction with the Companys audited financial statements and related notes included in the Companys Annual Report on Form 10-K for the fiscal year ended January
31, 2015 as filed on March 26, 2015 with the Securities and Exchange Commission. The results of operations for the three and nine months ended October 31, 2015 are not necessarily indicative of the results that may be expected for any other interim
period or for the full fiscal year.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and
assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to
performance-based compensation, revenue recognition, provisions for sales returns and allowances, inventory excess and obsolescence, investment fair values, goodwill and other intangible assets, restructuring, income taxes, litigation and other
contingencies. In addition, the Company uses assumptions when employing the Monte Carlo simulation and Black-Scholes valuation models to calculate the fair value of share-based awards that are granted. Actual results could differ from these
estimates, and such differences could affect the results of operations reported in future periods.
Principles of
Consolidation
The unaudited condensed consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. The functional currency of the Company and its subsidiaries is the U.S. dollar.
6
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 2. Recent Accounting Pronouncements
Accounting Pronouncements Recently Adopted
In April 2014, the Financial Accounting Standards Board (FASB) issued an amendment to its guidance regarding the reporting requirements of discontinued operations, which was effective for the
Company beginning in the first quarter of fiscal 2016. Under the amended guidance, a discontinued operation is defined as a disposal of a component or group of components that is disposed of or is classified as held for sale and represents a
strategic shift that has (or will have) a major effect on an entitys operations and financial results. As a result, the Company has adopted and will apply the new guidance for any future dispositions that meet the criteria of a discontinued
operation under the amendment.
In November 2015, the FASB issued a new standard to simplify the presentation of deferred
income taxes. Currently, deferred income tax assets and liabilities are separately presented as current and non-current amounts on the consolidated balance sheet. The new standard will require that deferred tax assets and liabilities be classified
and presented on the balance sheet as non-current. The guidance is effective for annual and interim reporting periods beginning after December 15, 2016, although early adoption is permitted. The Company will adopt the new guidance at the beginning
of its fourth quarter of fiscal 2016 on a prospective basis, and will not retrospectively adjust any prior periods. Adoption will have no impact on the Companys consolidated results of operations and it had no material impact on working
capital.
Accounting Pronouncements Not Yet Effective
In May 2014, the FASB issued a new standard on the recognition of revenue from contracts with customers, which will supersede nearly all
existing revenue recognition guidance under GAAP. Under the new standard, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. Additional disclosures regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, and assets recognized from costs incurred to obtain or
fulfill a contract will also be required. The FASB subsequently issued an update to this standard in August 2015, which provides deferral of the effective date by one year. The standard is now effective for the Companys first quarter of fiscal
2019 and allows for either full retrospective or modified retrospective adoption. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016 and including interim reporting periods within such reporting period.
The FASB has since issued additional updates of its new standard on revenue recognition issued in May 2014. In March 2016, an
amendment was issued to clarify the implementation guidance on principal versus agent consideration. The guidance requires entities to determine whether the nature of its promise to provide goods or services to a customer is performed in a principal
or agent capacity and to recognize revenue in a gross or net manner based on its principal/agent designation. In April 2016, amendments were issued to clarify the identification of performance obligations and the licensing implementation guidance in
the initial standard. Amendments were issued in May 2016 related to its guidance on assessing collectability, presentation of sales tax, noncash consideration, and completed contracts and contract modification at transition, which reduce the
potential for diversity in practice, and the cost and complexity of application at transition and on an ongoing basis. The Company has been evaluating the effects of the new guidance and has not yet selected a transition method nor has it determined
the potential effects of adoption on its consolidated financial statements.
In April 2015, the FASB issued new guidance to
help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement. The guidance provides a basis for evaluating whether a cloud computing arrangement includes a software license or whether the arrangement should be
accounted for as a service contract. The guidance is effective for annual and interim reporting periods beginning after December 15, 2015. The newly issued guidance also strikes from previous authoritative guidance, the use by analogy to the
accounting for capital leases, which the Company applied in the accounting for certain of its technology license agreements. The Company is currently evaluating the effect this new guidance will have on its consolidated financial statements.
In July 2015, the FASB issued an amendment to its guidance regarding the subsequent measurement of inventory. Currently,
inventory is measured at the lower of cost or market. Market could be replacement cost, net realizable value or net realizable value less an approximately normal profit margin. Under this amended guidance, inventory is to be measured at the lower of
cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This amendment applies to inventories for which
cost is determined by methods other than last-in first-out and the retail inventory method. This standard is effective for annual and interim reporting periods beginning after December 15, 2016. The Company is currently evaluating the effect this
new guidance will have on its consolidated financial statements.
In January 2016, the FASB issued new guidance which requires
entities to measure all investments in equity securities at fair value with changes recognized through net income. This requirement does not apply to investments that qualify for the equity method of accounting, investments that result in
consolidation of the investee, or investments for which the entity meets a practicability exception to fair value measurement. The new guidance also changes certain disclosure requirements for financial instruments. This standard is effective for
annual and interim reporting periods beginning after December 15, 2017. The Company is currently evaluating the effect this new guidance will have on its consolidated financial statements.
7
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In March 2016, the FASB issued an amendment to its guidance on the effects of derivative
contract novations on existing hedge accounting relationships. The new guidance clarifies that a change in the counterparty to a designated hedging instrument, in and of itself, does not require the de-designation of that hedging relationship,
provided that all other hedge accounting criteria continue to be met. The guidance is effective for annual and interim reporting periods beginning after December 15, 2016. The Company is currently evaluating the effect this new guidance will have on
its consolidated financial statements.
In March 2016, the FASB issued a new standard on the accounting for leases, which
requires a lessee to record a right-of-use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than twelve months. The standard also expands the required quantitative and qualitative disclosures
surrounding lease arrangements. The standard is effective for annual and interim reporting periods beginning after December 15, 2018. The Company is currently evaluating the effect this new guidance will have on its consolidated financial
statements.
In March 2016, the FASB issued an amendment to its guidance for investments that eliminates the requirement to
retrospectively apply the equity method in previous periods when an investor initially obtains significant influence over an investee. Under the amended guidance, the investor should apply the equity method prospectively from the date the investment
qualifies for the equity method. The guidance is effective for annual and interim reporting periods beginning after December 15, 2016. The Company is currently evaluating the effect this new guidance will have on its consolidated financial
statements.
In March 2016, the FASB issued new guidance which simplifies several aspects of the accounting for share-based
payment award transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. The guidance is effective for annual and interim reporting
periods beginning after December 15, 2016. The Company is currently evaluating the effect this new guidance will have on its consolidated financial statements.
In June 2016, the FASB issued a new standard requiring financial assets measured at amortized cost be presented at the net amount expected to be collected, through an allowance for credit losses that is
deducted from the amortized cost basis. The standard eliminates the probable initial recognition in current GAAP and reflects an entitys current estimate of all expected credit losses. The measurement of expected credit losses is based upon
historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the financial assets. The standard is effective for annual and interim reporting periods beginning after December 15,
2019. The Company is currently evaluating the effect this new guidance will have on its consolidated financial statements.
Note 3.
Investments
The following tables summarize the Companys investments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2015
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
880,204
|
|
|
$
|
1,174
|
|
|
$
|
(1,305
|
)
|
|
$
|
880,073
|
|
U.S. government and agency debt
|
|
|
378,687
|
|
|
|
152
|
|
|
|
(143
|
)
|
|
|
378,696
|
|
Asset backed securities
|
|
|
89,638
|
|
|
|
85
|
|
|
|
(51
|
)
|
|
|
89,672
|
|
Foreign government and agency debt
|
|
|
21,907
|
|
|
|
7
|
|
|
|
(12
|
)
|
|
|
21,902
|
|
Municipal debt securities
|
|
|
36,303
|
|
|
|
63
|
|
|
|
(10
|
)
|
|
|
36,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
|
1,406,739
|
|
|
|
1,481
|
|
|
|
(1,521
|
)
|
|
|
1,406,699
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities
|
|
|
12,500
|
|
|
|
|
|
|
|
(2,318
|
)
|
|
|
10,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term investments
|
|
|
12,500
|
|
|
|
|
|
|
|
(2,318
|
)
|
|
|
10,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
1,419,239
|
|
|
$
|
1,481
|
|
|
$
|
(3,839
|
)
|
|
$
|
1,416,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2015
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
983,008
|
|
|
$
|
3,872
|
|
|
$
|
(563
|
)
|
|
$
|
986,317
|
|
U.S. government and agency debt
|
|
|
178,898
|
|
|
|
265
|
|
|
|
(7
|
)
|
|
|
179,156
|
|
Asset backed securities
|
|
|
91,432
|
|
|
|
108
|
|
|
|
(9
|
)
|
|
|
91,531
|
|
Foreign government and agency debt
|
|
|
28,051
|
|
|
|
61
|
|
|
|
(2
|
)
|
|
|
28,110
|
|
Municipal debt securities
|
|
|
33,421
|
|
|
|
47
|
|
|
|
(4
|
)
|
|
|
33,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
|
1,314,810
|
|
|
|
4,353
|
|
|
|
(585
|
)
|
|
|
1,318,578
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities
|
|
|
12,500
|
|
|
|
|
|
|
|
(2,274
|
)
|
|
|
10,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term investments
|
|
|
12,500
|
|
|
|
|
|
|
|
(2,274
|
)
|
|
|
10,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
1,327,310
|
|
|
$
|
4,353
|
|
|
$
|
(2,859
|
)
|
|
$
|
1,328,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 31, 2015, the Companys investment portfolio included auction rate securities with an
aggregate par value of $12.5 million classified as long-term investments. Although these securities have continued to pay interest, there is currently limited trading volume in the securities. The Company uses a discounted cash flow model to
estimate the fair value of the auction rate securities based on estimated timing and amount of future interest and principal payments. In developing the discounted cash flow model, the Company considers the credit quality and liquidity of the
underlying securities and related issuer, the collateralization of underlying security investments and other considerations. The fair value of these auction rate securities as of October 31, 2015 was $2.3 million less than their par value. Based on
the Companys balance of approximately $2.3 billion in cash, cash equivalents and short-term investments, and the fact that the Company continues to generate positive cash flow from operations on a quarterly basis, the Company does not
anticipate having to sell these securities below par value and does not have the intent to sell these auction rate securities until recovery. Since the Company considers the impairment to be temporary, the Company recorded the unrealized loss to
accumulated other comprehensive loss, a component of shareholders equity.
Gross realized gains and gross realized
losses on sales of available-for-sale securities are presented in the following tables (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
October 31,
2015
|
|
|
November 1,
2014
|
|
|
October 31,
2015
|
|
|
November 1,
2014
|
|
Gross realized gains
|
|
$
|
524
|
|
|
$
|
415
|
|
|
$
|
1,222
|
|
|
$
|
1,367
|
|
Gross realized losses
|
|
|
(877
|
)
|
|
|
(25
|
)
|
|
|
(1,214
|
)
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net realized gains
|
|
$
|
(353
|
)
|
|
$
|
390
|
|
|
$
|
8
|
|
|
$
|
1,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The contractual maturities of available-for-sale securities are presented in the following tables (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2015
|
|
|
January 31, 2015
|
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair Value
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair Value
|
|
Due in one year or less
|
|
$
|
426,398
|
|
|
$
|
426,440
|
|
|
$
|
361,108
|
|
|
$
|
361,396
|
|
Due between one and five years
|
|
|
969,328
|
|
|
|
969,271
|
|
|
|
950,702
|
|
|
|
954,151
|
|
Due over five years
|
|
|
23,513
|
|
|
|
21,170
|
|
|
|
15,500
|
|
|
|
13,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,419,239
|
|
|
$
|
1,416,881
|
|
|
$
|
1,327,310
|
|
|
$
|
1,328,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For individual securities that have been in a continuous unrealized loss position, the
fair value and gross unrealized loss for these securities aggregated by investment category and length of time in an unrealized position are presented in the following tables (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2015
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
Corporate debt securities
|
|
$
|
454,216
|
|
|
$
|
(1,265
|
)
|
|
$
|
17,591
|
|
|
$
|
(40
|
)
|
|
$
|
471,807
|
|
|
$
|
(1,305
|
)
|
U.S. government and agency debt
|
|
|
214,176
|
|
|
|
(143
|
)
|
|
|
|
|
|
|
|
|
|
|
214,176
|
|
|
|
(143
|
)
|
Asset backed securities
|
|
|
38,276
|
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
38,276
|
|
|
|
(51
|
)
|
Foreign government and agency debt
|
|
|
14,801
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
14,801
|
|
|
|
(12
|
)
|
Municipal debt securities
|
|
|
2,242
|
|
|
|
(9
|
)
|
|
|
1,082
|
|
|
|
(1
|
)
|
|
|
3,324
|
|
|
|
(10
|
)
|
Auction rate securities
|
|
|
|
|
|
|
|
|
|
|
10,182
|
|
|
|
(2,318
|
)
|
|
|
10,182
|
|
|
|
(2,318
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
$
|
723,711
|
|
|
$
|
(1,480
|
)
|
|
$
|
28,855
|
|
|
$
|
(2,359
|
)
|
|
$
|
752,566
|
|
|
$
|
(3,839
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2015
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
Corporate debt securities
|
|
$
|
243,699
|
|
|
$
|
(558
|
)
|
|
$
|
2,005
|
|
|
$
|
(5
|
)
|
|
$
|
245,704
|
|
|
$
|
(563
|
)
|
U.S. government and agency debt
|
|
|
32,165
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
32,165
|
|
|
|
(7
|
)
|
Asset backed securities
|
|
|
25,053
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
25,053
|
|
|
|
(9
|
)
|
Foreign government and agency debt
|
|
|
2,999
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
2,999
|
|
|
|
(2
|
)
|
Municipal debt securities
|
|
|
2,845
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
2,845
|
|
|
|
(4
|
)
|
Auction rate securities
|
|
|
|
|
|
|
|
|
|
|
10,226
|
|
|
|
(2,274
|
)
|
|
|
10,226
|
|
|
|
(2,274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
$
|
306,761
|
|
|
$
|
(580
|
)
|
|
$
|
12,231
|
|
|
$
|
(2,279
|
)
|
|
$
|
318,992
|
|
|
$
|
(2,859
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 4. Supplemental Financial Information (in thousands)
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
October 31,
2015
|
|
|
January 31,
2015
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Work-in-process
|
|
$
|
144,192
|
|
|
$
|
183,869
|
|
Finished goods
|
|
|
135,167
|
|
|
|
124,293
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
279,359
|
|
|
$
|
308,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
2015
|
|
|
January 31,
2015
|
|
Property and equipment, net:
|
|
|
|
|
|
|
|
|
Machinery and equipment
|
|
$
|
630,243
|
|
|
$
|
601,961
|
|
Buildings
|
|
|
144,320
|
|
|
|
144,320
|
|
Computer software
|
|
|
104,073
|
|
|
|
99,312
|
|
Land
|
|
|
53,373
|
|
|
|
53,373
|
|
Building improvements
|
|
|
49,902
|
|
|
|
49,753
|
|
Leasehold improvements
|
|
|
50,659
|
|
|
|
51,434
|
|
Furniture and fixtures
|
|
|
27,542
|
|
|
|
27,883
|
|
Construction in progress
|
|
|
1,504
|
|
|
|
6,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,061,616
|
|
|
|
1,034,203
|
|
Less: Accumulated depreciation and amortization
|
|
|
(751,969
|
)
|
|
|
(693,564
|
)
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net
|
|
$
|
309,647
|
|
|
$
|
340,639
|
|
|
|
|
|
|
|
|
|
|
10
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
October 31,
2015
|
|
|
January 31,
2015
|
|
Other non-current assets:
|
|
|
|
|
|
|
|
|
Technology and other licenses
|
|
$
|
41,070
|
|
|
$
|
61,217
|
|
Deferred tax assets
|
|
|
19,244
|
|
|
|
22,273
|
|
Investments in privately-held companies
|
|
|
8,685
|
|
|
|
9,267
|
|
Prepaid land use rights
|
|
|
13,200
|
|
|
|
13,432
|
|
Deposits
|
|
|
6,949
|
|
|
|
7,903
|
|
Other
|
|
|
11,156
|
|
|
|
14,747
|
|
|
|
|
|
|
|
|
|
|
Total other non-current assets
|
|
$
|
100,304
|
|
|
$
|
128,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
2015
|
|
|
January 31,
2015
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
Accrued rebates
|
|
$
|
31,797
|
|
|
$
|
39,105
|
|
Accrued royalties
|
|
|
17,732
|
|
|
|
24,680
|
|
Technology license obligations
|
|
|
9,718
|
|
|
|
14,428
|
|
Accrued legal expense
|
|
|
9,830
|
|
|
|
8,327
|
|
Accrued litigation
|
|
|
4,000
|
|
|
|
1,700
|
|
Other
|
|
|
72,062
|
|
|
|
43,148
|
|
|
|
|
|
|
|
|
|
|
Total accrued liabilities
|
|
$
|
145,139
|
|
|
$
|
131,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
2015
|
|
|
January 31,
2015
|
|
Other non-current liabilities:
|
|
|
|
|
|
|
|
|
Technology license obligations
|
|
$
|
10,896
|
|
|
$
|
16,468
|
|
Long-term accrued employee compensation
|
|
|
6,551
|
|
|
|
4,610
|
|
Other
|
|
|
7,499
|
|
|
|
11,115
|
|
|
|
|
|
|
|
|
|
|
Other non-current liabilities
|
|
$
|
24,946
|
|
|
$
|
32,193
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss)
The changes in accumulated other comprehensive income (loss) by components are presented in the following tables (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gain
(Loss) on
Marketable
Securities
|
|
|
Unrealized Gain
(Loss) on
Auction Rate
Securities
|
|
|
Unrealized Gain
(Loss) on Cash
Flow Hedges
|
|
|
Total
|
|
Balance at January 31, 2015
|
|
$
|
3,768
|
|
|
$
|
(2,274
|
)
|
|
$
|
(1,186
|
)
|
|
$
|
308
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
(3,360
|
)
|
|
|
(44
|
)
|
|
|
1,296
|
|
|
|
(2,108
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
(449
|
)
|
|
|
|
|
|
|
67
|
|
|
|
(382
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax
|
|
|
(3,809
|
)
|
|
|
(44
|
)
|
|
|
1,363
|
|
|
|
(2,490
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 31, 2015
|
|
$
|
(41
|
)
|
|
$
|
(2,318
|
)
|
|
$
|
177
|
|
|
$
|
(2,182
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gain
(Loss) on
Marketable
Securities
|
|
|
Unrealized Gain
(Loss) on
Auction Rate
Securities
|
|
|
Unrealized Gain
(Loss) on Cash
Flow Hedges
|
|
|
Total
|
|
Balance at February 1, 2014
|
|
$
|
2,534
|
|
|
$
|
(2,871
|
)
|
|
$
|
934
|
|
|
$
|
597
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
67
|
|
|
|
448
|
|
|
|
(1,603
|
)
|
|
|
(1,088
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
(1,119
|
)
|
|
|
|
|
|
|
(1,354
|
)
|
|
|
(2,473
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax
|
|
|
(1,052
|
)
|
|
|
448
|
|
|
|
(2,957
|
)
|
|
|
(3,561
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 1, 2014
|
|
$
|
1,482
|
|
|
$
|
(2,423
|
)
|
|
$
|
(2,023
|
)
|
|
$
|
(2,964
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts reclassified from accumulated other comprehensive income (loss) by components are presented
in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
Affected Line Item in the
Statement of Operations
|
|
October 31,
2015
|
|
|
November 1,
2014
|
|
|
October 31,
2015
|
|
|
November 1,
2014
|
|
Interest and other income, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
$
|
(4
|
)
|
|
$
|
264
|
|
|
$
|
449
|
|
|
$
|
1,119
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
545
|
|
|
|
320
|
|
|
|
(68
|
)
|
|
|
1,241
|
|
Selling and marketing
|
|
|
6
|
|
|
|
29
|
|
|
|
(57
|
)
|
|
|
110
|
|
General and administrative
|
|
|
51
|
|
|
|
1
|
|
|
|
58
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
598
|
|
|
$
|
614
|
|
|
$
|
382
|
|
|
$
|
2,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
October 31,
2015
|
|
|
November 1,
2014
|
|
|
October 31,
2015
|
|
|
November 1,
2014
|
|
Interest and other income, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
3,932
|
|
|
$
|
2,914
|
|
|
$
|
11,980
|
|
|
$
|
7,838
|
|
Net realized gain (loss) on investments
|
|
|
(353
|
)
|
|
|
390
|
|
|
|
8
|
|
|
|
1,317
|
|
Currency translation gain
|
|
|
1,134
|
|
|
|
1,667
|
|
|
|
5,035
|
|
|
|
981
|
|
Other income
|
|
|
86
|
|
|
|
108
|
|
|
|
145
|
|
|
|
9,765
|
|
Interest expense
|
|
|
(155
|
)
|
|
|
(315
|
)
|
|
|
(567
|
)
|
|
|
(949
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,644
|
|
|
$
|
4,764
|
|
|
$
|
16,601
|
|
|
$
|
18,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Net income (loss) per share
The Company reports both basic net income (loss) per share, which is based on the weighted average number of common shares outstanding
during the period, and diluted net income (loss) per share, which is based on the weighted average number of common shares outstanding and potentially dilutive common shares outstanding during the period. The computations of basic and diluted net
income (loss) per share are presented in the following table (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
October 31,
2015
|
|
|
November 1,
2014
|
|
|
October 31,
2015
|
|
|
November 1,
2014
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(57,750
|
)
|
|
$
|
115,304
|
|
|
$
|
(815,600
|
)
|
|
$
|
353,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares basic
|
|
|
504,831
|
|
|
|
513,859
|
|
|
|
512,476
|
|
|
|
510,261
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based awards
|
|
|
|
|
|
|
6,048
|
|
|
|
|
|
|
|
10,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares diluted
|
|
|
504,831
|
|
|
|
519,907
|
|
|
|
512,476
|
|
|
|
520,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.11
|
)
|
|
$
|
0.22
|
|
|
$
|
(1.59
|
)
|
|
$
|
0.69
|
|
Diluted
|
|
$
|
(0.11
|
)
|
|
$
|
0.22
|
|
|
$
|
(1.59
|
)
|
|
$
|
0.68
|
|
Potential dilutive securities include dilutive common shares from share-based awards attributable to the
assumed exercise of stock options, restricted stock units and employee stock purchase plan shares using the treasury stock method. Under the treasury stock method, potential common shares outstanding are not included in the computation of diluted
net income per share, if their effect is anti-dilutive.
Anti-dilutive potential shares are presented in the following table
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
October 31,
2015
|
|
|
November 1,
2014
|
|
|
October 31,
2015
|
|
|
November 1,
2014
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based awards
|
|
|
68,613
|
|
|
|
29,237
|
|
|
|
62,825
|
|
|
|
26,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive potential shares from share-based awards are excluded from the calculation of diluted
earnings per share for the three and nine months ended October 31, 2015 due to the net loss reported in those periods. Anti-dilutive potential shares from share-based awards are excluded from the calculation of diluted earnings per share for all
other periods reported above because either their exercise price exceeded the average market price during the period or the share-based awards were determined to be anti-dilutive based on applying the treasury stock method.
Note 5. Derivative Financial Instruments
The Company manages some of its foreign currency exchange rate risk through the purchase of foreign currency exchange
contracts that hedge against the short-term effect of currency fluctuations. The Companys policy is to enter into foreign currency forward contracts with maturities less than 12 months that mitigate the effect of rate fluctuations on certain
local currency denominated operating expenses. All derivative instruments are recorded at fair value in either prepaid expenses and other current assets or accrued liabilities. The Company reports cash flows from derivative instruments in cash flows
from operating activities. The Company uses quoted prices to value its derivative instruments.
The notional amounts of
outstanding forward contracts were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Buy Contracts
|
|
|
|
October 31,
2015
|
|
|
January 31,
2015
|
|
Israeli shekel
|
|
$
|
22,027
|
|
|
$
|
51,326
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges.
The Company designates and documents its foreign currency forward exchange
contracts as cash flow hedges for certain operating expenses. The Company evaluates and calculates the effectiveness of each hedge at least quarterly. The effective change is recorded in accumulated other comprehensive income and is subsequently
reclassified to operating expense when the hedged expense is recognized. Ineffectiveness is recorded in interest and other income, net.
13
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other Foreign Currency Forward Contracts.
The Company enters into foreign
currency forward exchange contracts to hedge certain assets and liabilities denominated in various foreign currencies that it does not designate as hedges for accounting purposes. The maturities of these contracts are generally less than 12 months.
Gains or losses arising from the remeasurement of these contracts to fair value each period are recorded in interest and other income, net.
The fair value of foreign currency exchange contracts was not significant as of any period presented.
The following table provides information about gains (losses) associated with the Companys derivative financial instruments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gains (Losses) in Statement of Operations
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
Location of Gains (Losses)
in Statement of Operations
|
|
October 31,
2015
|
|
|
November 1,
2014
|
|
|
October 31,
2015
|
|
|
November 1,
2014
|
|
Derivatives designated as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contracts:
|
|
Research and development
|
|
$
|
116
|
|
|
$
|
(625
|
)
|
|
$
|
(460
|
)
|
|
$
|
284
|
|
|
|
Selling and marketing
|
|
|
2
|
|
|
|
(57
|
)
|
|
|
(6
|
)
|
|
|
25
|
|
|
|
General and administrative
|
|
|
11
|
|
|
|
(1
|
)
|
|
|
(34
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
129
|
|
|
$
|
(683
|
)
|
|
$
|
(500
|
)
|
|
$
|
307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The portion of gains (losses) excluded from the assessment of hedge effectiveness are included in
interest and other income, net, and these amounts were not material in the three and nine months ended October 31, 2015 and November 1, 2014. In addition, realized losses from forward contracts that are not designated as hedging instruments that are
included in interest and other income, net, were not material in the three and nine months ended October 31, 2015 and November 1, 2014. The Company also reports hedge ineffectiveness from derivative financial instruments in current earnings, which
was not material in the three and nine months ended October 31, 2015 and November 1, 2014. No cash flow hedges were terminated as a result of forecasted transactions that did not occur.
Note 6. Fair Value Measurements
Fair value is an exit price representing the amount that would be received in the sale of an asset or paid to transfer
a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for
considering such assumptions, the accounting guidance establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level 1Observable inputs that reflect quoted prices for identical assets or liabilities in active markets.
Level 2Other inputs that are directly or indirectly observable in the marketplace.
Level 3Unobservable inputs that are supported by little or no market activity.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs
when measuring fair value.
The Companys Level 1 assets include institutional money-market funds that are classified as
cash equivalents and marketable investments in U.S. government and agency debt, which are valued primarily using quoted market prices. The Companys Level 2 assets include its marketable investments in time deposits, corporate debt securities,
foreign government and agency debt, municipal debt securities and asset backed securities as the market inputs used to value these instruments consist of market yields, reported trades and broker/dealer quotes, which are corroborated with observable
market data. In addition, forward contracts, and the severance pay fund are classified as Level 2 assets as the valuation inputs are based on quoted prices and market observable data of similar instruments. The Companys investments in auction
rate securities are classified as Level 3 assets because there are currently no active markets for the auction rate securities and consequently the Company is unable to obtain independent valuations from market sources. Therefore, the auction rate
securities are valued using a discounted cash flow model. Some of the inputs to the discounted cash flow model are unobservable in the market. The total amount of assets measured using Level 3 valuation methodologies represented 0.2% of total assets
as of October 31, 2015.
14
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The tables below set forth, by level, the Companys assets and liabilities that are
measured at fair value on a recurring basis. The tables do not include assets and liabilities that are measured at historical cost or any basis other than fair value (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2015
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency debt
|
|
$
|
4,998
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,998
|
|
Money market funds
|
|
|
33,263
|
|
|
|
|
|
|
|
|
|
|
|
33,263
|
|
Time deposits
|
|
|
|
|
|
|
207,219
|
|
|
|
|
|
|
|
207,219
|
|
Corporate debt securities
|
|
|
|
|
|
|
49,245
|
|
|
|
|
|
|
|
49,245
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency debt
|
|
|
378,696
|
|
|
|
|
|
|
|
|
|
|
|
378,696
|
|
Corporate debt securities
|
|
|
|
|
|
|
880,073
|
|
|
|
|
|
|
|
880,073
|
|
Asset backed securities
|
|
|
|
|
|
|
89,672
|
|
|
|
|
|
|
|
89,672
|
|
Foreign government and agency debt
|
|
|
|
|
|
|
21,902
|
|
|
|
|
|
|
|
21,902
|
|
Municipal debt securities
|
|
|
|
|
|
|
36,356
|
|
|
|
|
|
|
|
36,356
|
|
Prepaid expenses and other current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
|
|
|
|
|
173
|
|
|
|
|
|
|
|
173
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities
|
|
|
|
|
|
|
|
|
|
|
10,182
|
|
|
|
10,182
|
|
Other non-current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance pay fund
|
|
|
|
|
|
|
1,081
|
|
|
|
|
|
|
|
1,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
416,957
|
|
|
$
|
1,285,721
|
|
|
$
|
10,182
|
|
|
$
|
1,712,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
$
|
|
|
|
$
|
37
|
|
|
$
|
|
|
|
$
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2015
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
111,286
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
111,286
|
|
Time deposits
|
|
|
|
|
|
|
213,012
|
|
|
|
|
|
|
|
213,012
|
|
Corporate debt securities
|
|
|
|
|
|
|
21,999
|
|
|
|
|
|
|
|
21,999
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency debt
|
|
|
179,156
|
|
|
|
|
|
|
|
|
|
|
|
179,156
|
|
Corporate debt securities
|
|
|
|
|
|
|
986,317
|
|
|
|
|
|
|
|
986,317
|
|
Asset backed securities
|
|
|
|
|
|
|
91,531
|
|
|
|
|
|
|
|
91,531
|
|
Foreign government and agency debt
|
|
|
|
|
|
|
28,110
|
|
|
|
|
|
|
|
28,110
|
|
Municipal debt securities
|
|
|
|
|
|
|
33,464
|
|
|
|
|
|
|
|
33,464
|
|
Prepaid expenses and other current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
|
|
|
|
|
124
|
|
|
|
|
|
|
|
124
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities
|
|
|
|
|
|
|
|
|
|
|
10,226
|
|
|
|
10,226
|
|
Other non-current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance pay fund
|
|
|
|
|
|
|
1,758
|
|
|
|
|
|
|
|
1,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
290,442
|
|
|
$
|
1,376,315
|
|
|
$
|
10,226
|
|
|
$
|
1,676,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
$
|
|
|
|
$
|
1,379
|
|
|
$
|
|
|
|
$
|
1,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the change in fair value for Level 3 assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
October 31,
|
|
|
November 1,
|
|
|
|
2015
|
|
|
2014
|
|
Beginning balance
|
|
$
|
10,226
|
|
|
$
|
16,279
|
|
Sales and redemptions
|
|
|
|
|
|
|
(3,650
|
)
|
Transfer Out
|
|
|
|
|
|
|
(3,000
|
)
|
Unrealized losses included in accumulated other comprehensive income
|
|
|
(44
|
)
|
|
|
448
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
10,182
|
|
|
$
|
10,077
|
|
|
|
|
|
|
|
|
|
|
In November 2014, the Company received notification by the issuer of a mandatory full call of an auction
rate security to be redeemed at par value and as a result, the security was classified within Level 2 based on the issuers quoted price. Subsequently, the auction rate security was fully redeemed before the end of fiscal 2015.
Note 7. Goodwill and Acquired Intangible Assets, Net
Goodwill
The Company has identified that its business operates as a single operating segment with two components (Storage, and Smart Networked Devices and Solutions) that it has concluded can be aggregated into a
single reporting unit for which it obtained an independent valuation to complete a step one assessment for goodwill impairment. In October 2015, the Company performed an impairment assessment for testing goodwill due to certain events and
circumstances management considered could be indicators of potential impairment, which included the U.S. Court of Appeals for the Federal Circuit (Federal Circuit) panels decision in August 2015 related to the CMU litigation (see
Note 10 Commitments and Contingencies), the Companys decision to significantly restructure its mobile platform business announced in September 2015 (see Note 8 Restructuring and Other Related Charges) and a
significant decline in the Companys stock price during fiscal 2016. Based on the assessment, the Company concluded there was no impairment of its goodwill as of October 31, 2015.
16
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Acquired Intangible Assets, Net
The carrying amounts of acquired intangible assets, net, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2015
|
|
|
January 31, 2015
|
|
|
|
Range of
Useful Lives
|
|
Gross
Carrying
Amounts
|
|
|
Accumulated
Amortization
and
Write-Offs
|
|
|
Net
Carrying
Amounts
|
|
|
Gross
Carrying
Amounts
|
|
|
Accumulated
Amortization
and
Write-Offs
|
|
|
Net
Carrying
Amounts
|
|
Purchased and core technology
|
|
4 - 8 years
|
|
$
|
36,348
|
|
|
$
|
(21,203
|
)
|
|
$
|
15,145
|
|
|
$
|
36,348
|
|
|
$
|
(16,107
|
)
|
|
$
|
20,241
|
|
Trade names
|
|
5 years
|
|
|
1,300
|
|
|
|
(1,300
|
)
|
|
|
|
|
|
|
1,300
|
|
|
|
(828
|
)
|
|
|
472
|
|
Customer intangibles
|
|
5 - 7 years
|
|
|
28,600
|
|
|
|
(22,788
|
)
|
|
|
5,812
|
|
|
|
28,600
|
|
|
|
(18,615
|
)
|
|
|
9,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets, net
|
|
|
|
$
|
66,248
|
|
|
$
|
(45,291
|
)
|
|
$
|
20,957
|
|
|
$
|
66,248
|
|
|
$
|
(35,550
|
)
|
|
$
|
30,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the three months ended October 31, 2015, the Company recorded charges of $0.3 million to write-off
core technology due to its decision to discontinue the related development project and $0.3 million to write-off a trade name it no longer intends to market.
Based on the identified intangible assets recorded at October 31, 2015, the future amortization expense for the next five fiscal years is as follows (in thousands):
|
|
|
|
|
Fiscal Year
|
|
|
|
Remainder of fiscal 2016
|
|
$
|
2,947
|
|
2017
|
|
|
10,642
|
|
2018
|
|
|
5,508
|
|
2019
|
|
|
1,860
|
|
2020 and thereafter
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20,957
|
|
|
|
|
|
|
Note 8. Restructuring and Other Related Charges
The following table provides a summary of restructuring and other related charges as presented in the unaudited
condensed consolidated statements of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
October 31,
2015
|
|
|
November 1,
2014
|
|
|
October 31,
2015
|
|
|
November 1,
2014
|
|
Cost of goods sold
|
|
$
|
10,285
|
|
|
$
|
|
|
|
$
|
10,285
|
|
|
$
|
|
|
Restructuring and other related charges
|
|
|
35,270
|
|
|
|
1,202
|
|
|
|
48,862
|
|
|
|
7,025
|
|
Write-off of acquired intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
45,555
|
|
|
$
|
1,202
|
|
|
$
|
59,147
|
|
|
$
|
10,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents details of charges recorded by the Company related to the
restructuring actions described below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
October 31,
2015
|
|
|
November 1,
2014
|
|
|
October 31,
2015
|
|
|
November 1,
2014
|
|
Severance and related costs
|
|
$
|
28,773
|
|
|
$
|
72
|
|
|
$
|
40,478
|
|
|
$
|
5,107
|
|
Facilities and related costs
|
|
|
657
|
|
|
|
1,117
|
|
|
|
882
|
|
|
|
1,815
|
|
Other exit-related costs
|
|
|
1,855
|
|
|
|
13
|
|
|
|
2,044
|
|
|
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,285
|
|
|
|
1,202
|
|
|
|
43,404
|
|
|
|
7,008
|
|
Impairment and write-off of assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
|
8,046
|
|
|
|
|
|
|
|
8,046
|
|
|
|
|
|
Technology license
|
|
|
1,250
|
|
|
|
|
|
|
|
1,250
|
|
|
|
|
|
Equipment and other
|
|
|
4,974
|
|
|
|
|
|
|
|
6,447
|
|
|
|
17
|
|
Acquired intangible asset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
45,555
|
|
|
$
|
1,202
|
|
|
$
|
59,147
|
|
|
$
|
10,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recorded $45.6 million and $59.1 million in the three and nine months ended October 31, 2015,
respectively, in connection with restructuring and other related charges as described in the following paragraphs:
In
September 2015, the Company announced a significant restructuring of its mobile platform business in order to focus the mobile product line on more profitable opportunities and align its expenses with corporate targets. The Company began
implementing actions to significantly downsize the mobile platform organization to refocus its technology to other emerging opportunities, but it will continue its commitment to wireless connectivity such as WiFi and other wireless
standards. As a result of these actions, the Company recorded a $41.5 million charge in the three months ended October 31, 2015, that included severance benefits for 778 employees who were notified of their termination, a loss on early
contract termination, the impairment of technology licenses and certain equipment, and the write down of inventory. The majority of the affected employees departed by October 31, 2015 and the remaining departed before the end of fiscal 2016. Total
charges for the nine months ended October 31, 2015 related to this restructuring were $55.4 million.
The Company expects to
complete remaining actions, including the finalization of certain additional related activities, within the first half of fiscal 2017
and will incur additional charges of approximately $5 million. As a result, total restructuring and other
related charges will be lower than the original estimate of $100 million to $130 million primarily due to the Companys decision to retain approximately 140 more mobile employees to support the remaining mobile business than it originally
anticipated and certain equipment planned for disposal was subsequently determined to have alternative use. The Company also decided to offer retention bonuses to another 128 mobile employees to remain through the ramp down of certain operations.
Their benefit packages will be recognized ratably over the employees remaining service periods through the first half of fiscal 2017.
In May 2015, the Company decided to further reduce its research and development operations in Israel and close certain other design centers, primarily located in Europe and the U.S. in connection with its
ongoing effort to streamline its business. As a result, the Company recorded a $3.8 million charge primarily for severance related to the termination of an additional 44 employees who were notified of their termination in the three months ended
October 31, 2015. Cumulative charges for the nine months ended October 31, 2015 were $15.7 million for severance and a lease obligation related to a facility that was vacated in July 2015. Although the majority of the affected employees
departed immediately, certain employees remained through the end of calendar 2015 to facilitate the transfer of ongoing operations to other major sites and remaining charges were not material. Before the end of fiscal 2016, substantially all of the
activities associated with these actions were completed and all affected employees had departed.
In March 2015, the Company
exercised the early buyout option under an operating lease for corporate equipment that it had planned to sell as part of a cost reduction action. The Company actively sought a buyer and classified the equipment as held for sale included in prepaid
and current assets on the unaudited condensed consolidated balance sheet. It also ceased depreciation on the asset and measured its carrying value at the lower of net book value or fair value (less cost to sell). In October 2015, the Company sold
the corporate equipment for net proceeds of $9.3 million, which approximated the carrying value and resulted in no gain or loss recognized in the three months ended October 31, 2015 upon the sale of the asset.
During the three and nine months ended October 31, 2015, the Company also continued to make payments and incur ongoing operating expenses
related to vacated facilities under previous restructure actions.
18
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table sets forth a reconciliation of the beginning and ending
restructuring liability balances by each major type of costs associated with the restructuring charges (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
and Related
Costs
|
|
|
Facilities
and Related
Costs
|
|
|
Other
Exit-Related
Costs
|
|
|
Total
|
|
Balance at January 31, 2015
|
|
$
|
|
|
|
$
|
1,339
|
|
|
$
|
3,230
|
|
|
$
|
4,569
|
|
Restructuring charges
|
|
|
40,478
|
|
|
|
882
|
|
|
|
2,140
|
|
|
|
43,500
|
|
Net cash payments
|
|
|
(15,558
|
)
|
|
|
(902
|
)
|
|
|
(3,726
|
)
|
|
|
(20,186
|
)
|
Exchange rate adjustment
|
|
|
(16
|
)
|
|
|
(80
|
)
|
|
|
|
|
|
|
(96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 31, 2015
|
|
$
|
24,904
|
|
|
$
|
1,239
|
|
|
$
|
1,644
|
|
|
$
|
27,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the nine months ended October 31, 2015, the Company paid severance and related costs to a total
1088 employees who departed in the third quarter of fiscal 2016 as part of the restructuring actions described above. The remaining severance balance at October 31, 2015 is expected to be paid within the first half of fiscal 2017. The balance at
October 31, 2015 for facility and related costs includes remaining payments under lease obligations related to vacated space that are expected to be paid through fiscal 2018.
Note 9. Income Tax
The income tax expense for the three months ended October 31, 2015 was primarily due to current income tax liability of
$1.5 million, a $1.1 million provision to record a valuation allowance against certain deferred tax assets in a non-U.S. jurisdiction and $0.7 million of interest on unrecognized tax benefits. The income tax expense for the nine months
ended October 31, 2015 was primarily due to current income tax liability of $21.0 million, $7.8 million provision to record a valuation allowance against certain deferred tax assets in a non-U.S. jurisdiction and an additional tax provision of $3.1
million related to a $15.4 million payment to the Companys former Chief Executive Officer (see Note 13 Related Party Transaction). These tax expenses for the nine months ended October 31, 2015 were partially offset by
tax benefits of $14.0 million from a net reduction in unrecognized tax benefits, which primarily arose from the expiration of statutes of limitation and the settlement of tax audits in non-U.S. jurisdictions, and true-up adjustments of $4.8 million,
primarily related to the filing of tax returns.
The income tax provision for the three months ended November 1, 2014
included the current income tax liability of $4.5 million and a $0.9 million increase in unrecognized tax benefits from interest on non-U.S. jurisdictions, which was partially offset by a $0.4 million tax benefit due to a
return-to-provision adjustment upon the filing of a tax return in a non-U.S. jurisdiction. The income tax benefit for the nine months ended November 1, 2014 included the current income tax liability of $15.1 million, which was offset by tax
benefits of $8.9 million from a net reduction in unrecognized tax benefits, $11.5 million from an increase in the net deferred tax assets because of the tax rate change in Singapore and $0.4 million from a return-to-provision adjustment upon the
filing of a tax return in a non-U.S. jurisdiction. The net reduction in unrecognized tax benefits arose from the release of $13.2 million due to the expiration of statutes of limitation, which was reduced by a $4.3 million increase in current
unrecognized tax benefit estimates in various non-U.S. jurisdictions.
It is reasonably possible that the amount of
unrecognized tax benefits could increase or decrease significantly due to changes in tax law in various jurisdictions, new tax audits and changes in the U.S. dollar as compared to foreign currencies within the next 12 months. Excluding these
factors, uncertain tax positions may decrease by as much as $18.5 million from the lapse of statutes of limitation in various jurisdictions during the next 12 months. Government tax authorities from several non-U.S. jurisdictions are also examining
returns. The Company believes that it has adequately provided for any reasonably foreseeable outcomes related to its tax audits and that any settlement will not have a material effect on its results at this time.
The Company operates under tax incentives in certain countries, which may be extended if certain additional requirements are satisfied.
The tax incentives are conditional upon meeting certain employment and investment thresholds. The impact of these tax incentives decreased foreign taxes by $1.8 million and $6.7 million for the three and nine months ended October 31, 2015,
respectively, and $1.8 million and $12.3 million for the three and nine months ended November 1, 2014, respectively. The benefit of the tax incentives on net loss per share was less than $0.01 per share for the three months ended October 31, 2015
and $0.01 per share for the nine months ended October 31, 2015, compared to a benefit on net income of less than $0.01 per share for the three months ended November 1, 2014 and $0.02 per share for the nine months ended November 1, 2014.
The Companys principal source of liquidity as of October 31, 2015 consisted of approximately $2.3 billion of cash, cash equivalents
and short-term investments, of which approximately $750 million was held by foreign subsidiaries (outside Bermuda). Approximately $650 million of this amount held by foreign subsidiaries is related to undistributed earnings, most of which have been
indefinitely reinvested outside of Bermuda. These funds are primarily held in China, Israel, the United States and Switzerland. The Company plans to use such amounts to fund various activities outside of Bermuda including working capital
requirements, capital
19
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
expenditures for expansion, funding of future acquisitions or other financing activities. If such funds were needed by the parent company in Bermuda or if the amounts were otherwise no longer
considered indefinitely reinvested, the Company would incur a tax expense of approximately $190 million.
Note 10. Commitments and Contingencies
Purchase Commitments
Under the Companys manufacturing relationships with its foundry partners, cancellation of all outstanding purchase orders are allowed, but requires payment of all costs and expenses incurred through
the date of cancellation. As of October 31, 2015, these foundries had incurred approximately $125.8 million of manufacturing costs and expenses relating to the Companys outstanding purchase orders.
Intellectual Property Indemnification
The Company has agreed to indemnify certain customers for claims made against the Companys products, where such claims allege infringement of third party intellectual property rights, including, but
not limited to, patents, registered trademarks, and/or copyrights. Under the aforementioned indemnification clauses, the Company may be obligated to defend the customer and pay for the damages awarded against the customer under an infringement claim
as well as the attorneys fees and costs. The Companys indemnification obligations generally do not expire after termination or expiration of the agreement containing the indemnification obligation. Generally, there are limits on and
exceptions to the Companys potential liability for indemnification. Although historically the Company has not made significant payments under these indemnification obligations, the Company cannot estimate the amount of potential future
payments, if any, that it might be required to make as a result of these agreements. The maximum potential amount of any future payments that the Company could be required to make under these indemnification obligations could be significant.
Contingencies
The Company and certain of its subsidiaries are currently parties to various legal proceedings, including those noted in this section. The legal proceedings and claims described below could result in
substantial costs and could divert the attention and resources of the Companys management. The Company is also engaged in other legal proceedings and claims not described below, which arise in the ordinary course of its business. Litigation is
subject to inherent uncertainties and unfavorable rulings could occur. An unfavorable ruling in litigation could require the Company to pay damages, one-time license fees or ongoing royalty payments, and could prevent the Company from manufacturing
or selling some of its products or limit or restrict the type of work that employees involved in such litigation may perform for the Company, any of which could adversely affect financial results in future periods. The Company believes that its
products do not infringe valid and enforceable claims and it will continue to vigorously defend against the allegations in these matters. However, there can be no assurance that these matters will be resolved in a manner that is not adverse to the
Companys business, financial condition, results of operations or cash flows.
As of October 31, 2015, the Company has an
accrued litigation balance of $738.7 million related to certain legal proceedings described below. Unless otherwise stated, the Company is currently unable to predict the final outcome of these lawsuits and therefore cannot determine the likelihood
of loss or estimate a range of possible loss.
Carnegie Mellon University Litigation
. On March 6, 2009, CMU filed a
complaint in the U.S. District Court for the Western District of Pennsylvania (W.D. of Pennsylvania). CMU has asserted U.S. Patent Nos. 6,201,839 and 6,438,180 (collectively, the CMU patents in suit), which relate to
read-channel integrated circuit devices and the hard disk drive (HDD) incorporating such devices. A jury trial began on November 26, 2012. On December 26, 2012, a jury delivered a verdict that found the CMU patents in suit were literally
and willfully infringed and valid, and awarded past damages in the amount of $1.17 billion. Based on post-trial motions and decisions, the W.D. of Pennsylvania calculated the damages including enhancement to total approximately $1.54 billion, and
held that, under its decision, CMU is entitled to post judgment interest and an ongoing royalty. On May 7, 2014, the W.D. of Pennsylvania entered final judgment, from which the Company filed a notice of appeal on May 14, 2014. On August 4, 2015, the
W.D. of Pennsylvania in a three-judge panel issued an opinion affirming in part, reversing in part, and vacating and remanding in part. On February 16, 2016, the Company and CMU entered into a Settlement Agreement and Patent License pursuant to
which the Company has agreed to pay an aggregate of $750 million, without any ongoing royalty payments, to CMU and the parties have agreed to mutually acceptable release, license and covenant not to sue provisions. Please see Note 15
Subsequent Events for additional information on the effect of the settlement in the Companys unaudited condensed consolidated financial statements for fiscal 2016. The Company expects the action to be finally dismissed in the third
quarter of fiscal 2017, approximately 6 months after payment of the full amount of the settlement payment. In connection with the settlement, the primary supersedeas bond that the Company entered into in connection with this litigation was reduced
to $439 million and the secondary bond, which is secured, was adjusted to $311 million. All of the Companys obligations under both bonds were discharged pursuant to an order releasing supersedeas bonds on April 21, 2016. Any bond specific
indemnity agreement will be terminated and released upon final dismissal of the action.
20
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
USEI Litigation
. On October 9, 2009, U.S. Ethernet Innovations, LLC
(USEI) filed a complaint in the U.S. District Court for the Eastern District of Texas (E.D. of Texas), in which USEI accused a number of system manufacturers, including the Companys customers, of patent infringement
(the USEI litigation). Specifically, USEI asserted that these customers infringe U.S. Patent Nos. 5,307,459, 5,434,872, 5,732,094 and 5,299,313, which relate to Ethernet technologies. The complaint seeks unspecified damages and an
injunction.
On May 4, 2010, MSI filed a motion to intervene in the USEI litigation, which was granted on May 19, 2010. On
July 13, 2010, the E.D. of Texas issued an order granting the defendants motion to transfer the action to the U.S. District Court for the Northern District of California (N.D. of California); the case was formally transferred on
August 23, 2010. On September 14, 2011, USEI withdrew its allegations against MSI for the 459 patent. The N.D. of California issued a first claim construction ruling on January 31, 2012 and a supplemental claim construction ruling on August
29, 2012. On August 16, 2013, the N.D. of California granted defendants summary judgment motion to preclude the plaintiff from recovering certain pre-suit damages. On November 7, 2014, on summary judgment, the N.D. of California found that all
the patents-in-suit were either invalid or not infringed. On December 1, 2014, the N.D. of California entered a judgment in favor of defendants and awarded defendants costs. On December 29, 2014, USEI filed a motion to alter or amend the N.D.
of Californias summary judgment order, which the N.D. of California denied on March 31, 2015. On April 24, 2015, USEI filed its notice of appeal. On April 25, 2016, the Federal Circuit affirmed the N.D. of Californias judgment in favor
of MSI. On June 29, 2016, the Federal Circuit denied USEIs petition for rehearing.
Azure Networks Litigation
. On
March 22, 2011, Azure Networks, LLC (Azure) and Tri-County Excelsior Foundation filed suit in the E.D. of Texas against MSI and eight other companies. The Complaint asserts U.S. Patent No. 7,756,129 against MSIs Bluetooth products.
MSI filed its answer and counterclaims on July 20, 2011. On November 2, 2012, MSI and the other defendants filed a motion for summary judgment of invalidity, which was denied. A claim construction hearing was held on December 20, 2012. On January
15, 2013, the magistrate judge issued a claim construction ruling. On May 20, 2013, the E.D. of Texas issued an order denying plaintiffs motion for reconsideration and adopted the magistrate judges claim construction ruling. On May 30,
2013, the E.D. of Texas entered a judgment of non-infringement. On June 24, 2013, Azure appealed. On November 6, 2014, the Federal Circuit issued an order vacating the judgment of non-infringement and remanding for further proceedings. MSI filed a
petition for writ of certiorari to the United States Supreme Court on February 4, 2015. On February 10, 2015, the E.D. of Texas stayed all proceedings pending the Supreme Courts ruling on the Companys petition. On April 20, 2015, the
United States Supreme Court granted MSIs petition, vacating the Federal Circuits judgment and remanding the case for further consideration. The case was dismissed with prejudice on October 14, 2015 with no significant impact on the
Companys unaudited condensed consolidated financial statements.
On January 13, 2015, Azure filed a second suit against
MSI in the E.D. of Texas, alleging infringement of U.S. Patent Nos. 8,582,570; 8,582,571; 8,588,196; 8,588,231; 8,589,599; 8,675,590; 8,683,092; 8,700,815; 8,732,347; and 8,732,361, purportedly related to certain Wi-Fi and near field
communication (NFC) technologies. The complaint seeks unspecified damages. On April 6, 2015, MSI filed an amended answer and counterclaims. The case was dismissed with prejudice on January 4, 2016 with no significant impact on the
Companys unaudited condensed consolidated financial statements.
France Telecom Litigation
. On June 26, 2012,
France Telecom S.A. filed a complaint against MSI in the U.S. District Court for the Southern District of New York. The complaint asserts U.S. Patent No. 5,446,747 against MSIs communications processors and thin modems. The complaint sought
unspecified damages as well as injunctive relief. MSI answered the complaint on July 18, 2012 and August 1, 2012. On July 30, 2012, MSI filed a motion to transfer the lawsuit to the N.D. of California. On September 17, 2012, the Court granted
MSIs motion and transferred the case to the N.D. of California. A claim construction hearing was held on December 13, 2013. On April 14, 2014, the Court denied MSIs motion for summary judgment of invalidity, and granted MSIs
summary judgment motion concerning certain damages preclusion. A jury trial began on September 17, 2014. On September 30, 2014, a jury delivered a verdict that found the patent in suit was literally, but not willfully, infringed and valid, and
awarded damages. The award did not have a significant impact on the Companys unaudited condensed consolidated financial statements. A hearing for post-trial motions and non-jury issues took place on January 14, 2015. On March 2, 2015, the N.D.
of California issued an order on post-trial briefs finding no direct infringement by Marvell as a matter of law and entered judgment in favor of Marvell. On March 30, 2015, France Telecom filed a notice of appeal. On April 10, 2015, MSI filed a
notice of cross appeal. On July 15, 2015, the Federal Circuit granted the parties joint stipulation to dismiss both parties appeals.
Vantage Point Technology Patent Litigation
. On November 21, 2013, Vantage Point Technology, Inc. (VPT) filed suit against a third-party defendant in the E.D. of Texas for patent
infringement relating to processor technology. On February 3, 2014, VPT filed an amended complaint against the third party and added MSI as an additional defendant. The complaint sought unspecified damages. On December 8, 2014, the case was
transferred to the N.D. of California. The case was dismissed with prejudice in March, 2015 with no significant impact on the Companys unaudited condensed consolidated financial statements.
21
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Bandspeed Litigation.
On May 9, 2014, Bandspeed, Inc. filed suit against MSI in
the U.S. District Court for the Western District of Texas, alleging infringement of U.S. Patent Nos. 7,027,418; 7,570,614; 7,477,624; 7,903,608; and 8,542,643, purportedly related to certain Bluetooth technology. The complaint sought unspecified
damages. On February 13, 2015, Bandspeed amended its complaint and added allegations of infringement of U.S. Patent No. 8,873,500. On April 29, 2015, the parties filed a joint motion to dismiss the case with prejudice. The case was dismissed with
prejudice on May 7, 2015 with no significant impact on the Companys unaudited condensed consolidated financial statements.
NXP Litigation.
On January 22, 2015, NXP Semiconductors N.V. filed suit against MSI in the N.D. of California, alleging infringement of U.S. Patent Nos. 5,939,791; 7,039,133; 8,185,050; and
8,203,432, purportedly related to certain NFC technology. The complaint sought unspecified damages. MSI filed its response and counterclaims on February 26, 2015. Marvell International Limited (MIL) also filed counterclaims against NXP
Semiconductors U.S.A. (NXP USA), alleging infringement of U.S. Patent Nos. 7,047,393; 7,555,065; and 7,302,600. On February 2, 2015, MIL filed suit against NXP USA in the U.S. District Court for the Central District of California,
alleging patent infringement of U.S. Patent Nos. 8,171,309; 7,957,777; 7,454,634; and 6,903,448, related to certain NFC and automotive technologies. On April 15, 2015, the parties filed stipulations to dismiss without prejudice their claims and
counterclaims in both cases.
Paone Litigation.
On February 6, 2015, Luciano F. Paone filed suit against MSI in the
U.S. District Court for the Eastern District of New York, alleging infringement of U.S. Patent No. 6,259,789, purportedly related to certain encryption technology. The complaint seeks unspecified damages. MSI filed its response on May 22, 2015. The
case was dismissed with prejudice on December 31, 2015 with no significant impact on the Companys unaudited condensed consolidated financial statements.
Innovatio Litigation
. On March 16, 2015, Innovatio IP Ventures, LLC filed suit against MSI in the U.S. District Court for the Northern District of Illinois, alleging infringement of U.S.
Patent Nos. 6,697,415; 5,844,893; 5,740,366; 7,916,747; 6,665,536; 7,013,138; 7,107,052; 5,546,397; 7,710,907; 7,710,935; 6,714,559; 7,457,646; and 6,374,311, purportedly related to certain wireless technology. The complaint seeks unspecified
damages.
Visual Memory Litigation
. On May 8, 2015, Visual Memory LLC (Visual Memory) filed suit against
MSI in the District of Delaware, alleging infringement of U.S. Patent Nos. 5,654,932 and 6,026,027, purportedly related to certain memory technology. The complaint seeks unspecified damages. The case was dismissed with prejudice on September 4, 2015
with no significant impact on the Companys unaudited condensed consolidated financial statements.
Luna Litigation
and Consolidated Cases
. On September 11, 2015, Daniel Luna filed an action asserting putative class action claims on behalf of the Companys shareholders in the United States District Court for the Southern District of New York (S.D.
of New York). This action was consolidated with two additional, nearly identical complaints subsequently filed by Philip Limbacher and Jim Farno. The complaints asserted violations of federal securities laws based on allegations that the
Company and certain of its officers and directors (Sehat Sutardja, Michael Rashkin, and Sukhi Nagesh) made, caused to be made, or failed to correct false and/or misleading statements in the Companys press releases and public filings. The
complaints request damages in unspecified amounts, costs and fees of bringing the action, and other unspecified relief.
On
November 18, 2015, the S.D. of New York granted the Companys motion to transfer the consolidated cases to the N.D. of California. On December 21, 2015, the N.D. of California granted the Companys motion to deem the consolidated cases
related to the Saratoga litigation, discussed below. On February 8, 2016, the N.D. of California granted an unopposed motion to appoint Plumbers and Pipefitters National Pension Fund as Lead Plaintiff. On March 19, 2016, Lead Plaintiff filed a
consolidated amended complaint. On April 29, 2016, Marvell and each of the individual defendants each filed motions to dismiss; Lead Plaintiffs oppositions were filed on June 10, 2016; and defendants replies are due by July 15,
2016. The hearing on the motions to dismiss is set for July 29, 2016.
22
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Saratoga Litigation
. On October 16, 2015, Saratoga Advantage Trust Technology
& Communications Portfolio (Saratoga) filed an action asserting shareholder derivative claims ostensibly on behalf of the Company in the Superior Court of the State of California, County of Santa Clara. The complaint names eight
current or former officers and/or directors (Sehat Sutardja, Weili Dai, Juergen Gromer, Arturo Krueger, John Kassakian, Randhir Thakur, Michael Rashkin, and Sukhi Nagesh) as defendants and asserts various California state law causes of action based
on allegations that the Company and the named officers and directors made, caused to be made, or failed to correct false and/or misleading statements in the Companys press releases and public filings, leading to the filing of securities class
actions that allegedly damaged the Company. The Company was named as a nominal defendant. The complaint requests damages and restitution in unspecified amounts, equitable and/or injunctive relief, costs and fees of bringing the action, and other
unspecified relief.
On October 23, 2015, the Company removed the action to the N.D. of California. On December 21, 2015, the
N.D. of California denied Saratogas motion to remand. On December 21, 2015, the N.D. of California granted the Companys motion to deem the action related to the consolidated Luna actions, discussed above. On January 22, 2016, the Company
filed a motion to dismiss the complaint; on February 19, 2016, Saratoga filed an opposition; and on March 4, 2016, the Company filed a reply. On March 25, 2016, the N.D. of California held a hearing on the motion and took the matter under
submission. To the Companys knowledge, none of the individual defendants has yet been served.
Surety Bonds
On May 14, 2014, the Company filed a Notice of Appeal to appeal the final judgment issued by the W.D. of Pennsylvania
in the CMU litigation. In order to stay the execution of the final judgment pending its appeal, the Company filed a supersedeas bond for $1.54 billion with the W.D. of Pennsylvania in the event the Company did not fully satisfy a final judgment as
affirmed after the completion of all appellate proceedings. The bond was issued by a consortium of sureties authorized by the U.S. Treasury. In support of the bond, the Company entered into separate indemnity agreements with each of the sureties to
indemnify the sureties from all costs and payments made under the bond. The indemnity agreements did not require collateral to be posted at the time of the issuance of the bond. Therefore no cash is considered restricted as of the date of this
filing. However, the indemnity agreements provide that each of the sureties have the right to demand to be placed in funds or call for collateral under pre-defined events.
On November 14, 2014, the Company filed a second surety bond for $216 million and filed a commitment letter from the sureties to issue up to an additional $95 million in bonding under certain conditions.
The second bond and commitment are secured by the Companys campus located in Santa Clara, California, which has a carrying value of $134.6 million at October 31, 2015.
In connection with the settlement that was reached with CMU for a total $750 million in February 2016, the primary supersedeas bond that the Company entered into was reduced to $439 million and the
secondary bond was adjusted to $311 million and both were discharged pursuant to an order releasing supersedeas bonds on April 21, 2016. The underlying indemnity agreements will terminate upon the final dismissal of the case in the third quarter of
fiscal 2017. For additional information, see CMU litigation under Contingencies above.
Indemnities,
Commitments and Guarantees
During its normal course of business, the Company has made certain indemnities, commitments
and guarantees under which it may be required to make payments in relation to certain transactions. These indemnities may include intellectual property indemnities to the Companys customers in connection with the sales of its products,
indemnities for liabilities associated with the infringement of other parties technology based upon the Companys products, indemnities for general commercial obligations, indemnities to various lessors in connection with facility leases
for certain claims arising from such facility or lease, and indemnities to directors and officers of the Company to the maximum extent permitted under the laws of Bermuda. In addition, the Company has contractual commitments to various customers,
which could require the Company to incur costs to repair an epidemic defect with respect to its products outside of the normal warranty period if such defect were to occur. The duration of these indemnities, commitments and guarantees varies, and in
certain cases, is indefinite. Some of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential future payments that the Company could be obligated to make. In general, the Company does not record any
liability for these indemnities, commitments and guarantees in the accompanying consolidated balance sheets as the amounts cannot be reasonably estimated and are not considered probable. The Company does, however, accrue for losses for any known
contingent liability, including those that may arise from indemnification provisions, when future payment is probable.
23
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 11. Shareholders Equity
Stock Plans
Stock option activity under the Companys stock option and stock incentive plans is included in the following table (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-Based Options
|
|
|
Market-Based Options
|
|
|
Total
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
Balance at January 31, 2015
|
|
|
47,140
|
|
|
$
|
13.79
|
|
|
|
2,232
|
|
|
$
|
15.43
|
|
|
|
49,372
|
|
|
$
|
13.88
|
|
Granted
|
|
|
6,099
|
|
|
$
|
14.20
|
|
|
|
|
|
|
$
|
|
|
|
|
6,099
|
|
|
$
|
14.20
|
|
Exercised
|
|
|
(2,098
|
)
|
|
$
|
9.96
|
|
|
|
|
|
|
$
|
|
|
|
|
(2,098
|
)
|
|
$
|
9.96
|
|
Canceled/Forfeited
|
|
|
(7,301
|
)
|
|
$
|
15.98
|
|
|
|
(39
|
)
|
|
$
|
15.43
|
|
|
|
(7,340
|
)
|
|
$
|
15.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 31, 2015
|
|
|
43,840
|
|
|
$
|
13.67
|
|
|
|
2,193
|
|
|
$
|
15.43
|
|
|
|
46,033
|
|
|
$
|
13.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at October 31, 2015
|
|
|
41,230
|
|
|
$
|
13.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at October 31, 2015
|
|
|
22,814
|
|
|
$
|
14.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For time-based stock options vested and expected to vest at October 31, 2015, the aggregate intrinsic
value was $4.7 million and the weighted average remaining contractual term was 5.9 years. For time-based stock options exercisable at October 31, 2015, the aggregate intrinsic value was $4.7 million and the weighted average remaining contractual
term was 4.0 years. The aggregate intrinsic value of stock options exercised during the three months ended October 31, 2015 and November 1, 2014 was $0.7 million and $1.5 million, respectively. The aggregate intrinsic value of stock options
exercised during the nine months ended October 31, 2015 and November 1, 2014 was $9.5 million and $15.1 million, respectively. There was no aggregate intrinsic value for market-based stock options at October 31, 2015 and the weighted average
remaining contractual term of market-based stock options expected to reach the end of the vesting period at October 31, 2015 was 5.5 years. The Companys closing stock price of $8.21 as reported on the NASDAQ Global Select Market for all
in-the-money options as of October 30, 2015 was used to calculate the aggregate intrinsic value.
As of October 31, 2015, the
unamortized compensation expense for time-based stock options was $47.0 million and market-based stock options were fully amortized in fiscal 2015. The unamortized compensation expense for time-based stock options will be amortized on a
straight-line basis and is expected to be recognized over a weighted average period of 2.2 years.
Activity related to the
non-vested portion of the restricted stock units is included in the following table (in thousands, except for share prices):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-Based
|
|
|
Performance-Based
|
|
|
Market-Based
|
|
|
Total
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Balance at January 31, 2015
|
|
|
9,748
|
|
|
$
|
14.84
|
|
|
|
1,254
|
|
|
$
|
14.99
|
|
|
|
|
|
|
|
|
|
|
|
11,002
|
|
|
$
|
14.85
|
|
Granted
|
|
|
5,012
|
|
|
$
|
13.56
|
|
|
|
669
|
|
|
$
|
14.08
|
|
|
|
407
|
|
|
$
|
12.24
|
|
|
|
6,088
|
|
|
$
|
13.53
|
|
Vested
|
|
|
(4,910
|
)
|
|
$
|
15.13
|
|
|
|
(659
|
)
|
|
$
|
15.15
|
|
|
|
|
|
|
$
|
|
|
|
|
(5,569
|
)
|
|
$
|
15.13
|
|
Canceled/Forfeited
|
|
|
(1,369
|
)
|
|
$
|
13.98
|
|
|
|
(252
|
)
|
|
$
|
14.41
|
|
|
|
(54
|
)
|
|
$
|
12.24
|
|
|
|
(1,675
|
)
|
|
$
|
13.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 31, 2015
|
|
|
8,481
|
|
|
$
|
14.05
|
|
|
|
1,012
|
|
|
$
|
14.43
|
|
|
|
353
|
|
|
$
|
12.24
|
|
|
|
9,846
|
|
|
$
|
14.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In April 2015, the Company granted performance-based equity awards to each of its executive officers,
which are based on their achievement of certain performance goals for a new performance period beginning in fiscal 2016. These equity awards include restricted stock units which vest based on the achievement of certain financial goals (each a
Financial Performance RSU), and performance awards for which a portion shall vest based on the achievement of individual strategic objectives (each a Strategic Objective Award) and a portion shall vest based on total
shareholder return (each a Total Shareholder Return Award). These awards are reported in the above table as Performance-Based, except for the Total Shareholder Return Award which is reported as Market-Based. The
Financial Performance RSUs will be earned based on the achievement of revenue and modified non-GAAP operating income that have been established at threshold, target and maximum levels and will vest on the first
anniversary of the commencement date. The Strategic Objective Awards will vest on the first anniversary of the vest commencement date at the target level based on the achievement of individual strategic goals and, with respect to a portion of each
Strategic Objective Award, the further achievement of either the revenue or modified non-GAAP operating income objective established for the Financial Performance RSU. The Total Shareholder Return Awards will vest on the second anniversary of the
commencement date based on the Companys stock price performance in comparison to the Philadelphia Semiconductor Sector Index. Share-based compensation for the Total Shareholder Return Award is measured using the Monte Carlo valuation method
since the award is indexed to the price of the Companys common stock as set forth under the terms of the award.
24
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In connection with the performance-based equity awards granted in fiscal 2016 to each of
the Companys executive officers, a total of 33,616 shares vested on April 1, 2016 based on achieving certain individual strategic goals as evaluated by the Executive Compensation Committee of the Companys Board of Directors. No shares
vested for the achievement of financial performance goals since the financial performance criteria were below the threshold level. The amount of canceled shares reported in the table above includes the unvested shares that were not earned.
In connection with the performance-based equity awards granted in fiscal 2015 to each of the Companys executive
officers, a total of 478,001 shares vested on April 1, 2015 in connection with the first performance period completed at the end of fiscal 2015. Of this amount, an additional 107,954 shares are included as granted in the table above for the nine
months ended October 31, 2015 since each executive officer achieved greater than their target shares for one of the financial performance goals. The amount of canceled shares reported in the table above includes the portion of unvested shares that
were not earned since performance objectives for each executive officers other financial and strategic performance goals were not fully achieved. During the first quarter of fiscal 2016, the Company determined the performance goals established
for the second performance period to be completed at the end of fiscal 2016 would not be achieved and adjusted the related share-based compensation expense accordingly. As of October 31, 2015, the Company determined it was still not probable these
performance goals would be achieved.
In connection with the performance-based restricted stock units granted in fiscal 2015
to certain members of senior management, final evaluation for each individuals achievement of their performance was measured in the first quarter of fiscal 2016. As a result, a total of 360,723 shares vested on April 1, 2015 and are included
in the above table. There was no material adjustment to share-based compensation expense related to these performance-based restricted stock units in fiscal 2016. The amount of canceled shares reported in the table above includes the portion of
unvested shares that were not earned since certain performance achievements were not fully achieved.
The Company recognizes
expense from performance-based equity awards when it becomes probable that the performance conditions will be met. Once it becomes probable that a performance-based award will vest, the Company recognizes share-based compensation expense equal to
the number of shares expected to vest multiplied by the fair value of the award at the grant date, which is amortized using the accelerated method.
The aggregate intrinsic value of restricted stock units expected to vest as of October 31, 2015 was $75.8 million. The number of restricted stock units that are expected to vest is 9.2 million shares. As
of October 31, 2015, unamortized compensation expense related to restricted stock units was $74.4 million. The unamortized compensation expense for restricted stock units will be amortized on a straight-line basis and is expected to be recognized
over a weighted average period of 1.2 years.
Employee Stock Purchase Plan
During the three months ended October 31, 2015 and November 1, 2014, the Company issued no shares under the 2000 Employee Stock Purchase
Plan, as amended and restated (the ESPP). A total of 3.2 million shares were issued at a weighted average price of $11.88 per share in the nine months ended October 31, 2015 and a total of 5.2 million shares were issued at a weighted
average price of $7.58 per share in the nine months ended November 1, 2014 under the ESPP. As of October 31, 2015, there was $33.4 million of unrecognized compensation expense related to the ESPP.
Share Repurchase Program
The Company repurchased 3.7 million of its common shares for $45.6 million in cash during the three months ended October 31, 2015 and 19.7 million of its common shares for $260.9 million during the
nine months ended October 31, 2015. During the three and nine months ended November 1, 2014, the Company repurchased 3.7 million of its common shares for $45.0 million. The repurchased shares are retired immediately after the repurchases are
completed. The Company records all repurchases, as well as investment purchases and sales, based on their trade date. As of October 31, 2015, a total of 241.6 million cumulative shares have been repurchased under the Companys share repurchase
program for a total $3.1 billion in cash and there was $182.6 million remaining available for future share repurchases. The Company has made no subsequent share repurchases since August 24, 2015.
25
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dividends
The Company paid the following cash dividends (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
October 31,
2015
|
|
|
November 1,
2014
|
|
|
October 31,
2015
|
|
|
November 1,
2014
|
|
Cash dividend per share
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
|
$
|
0.18
|
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total payment to shareholders
|
|
$
|
30,270
|
|
|
$
|
30,867
|
|
|
$
|
92,374
|
|
|
$
|
91,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On December 7, 2015, the Company announced that its board of directors declared a cash dividend of $0.06
per share that was paid on December 29, 2015 to shareholders of record as of December 16, 2015. The Company subsequently announced that its board of directors declared a quarterly cash dividend of $0.06 per share that was paid in April 2016 and on
May 18, 2016, it announced that its board of directors declared a cash dividend of $0.06 per share to be paid on July 12, 2016 to shareholders of record as of June 14, 2016.
Note 12. Share-Based Compensation
The following table presents details of share-based compensation expenses by functional line item (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
October 31,
|
|
|
November 1,
|
|
|
October 31,
|
|
|
November 1,
|
|
|
2015
|
|
|
2014
|
|
|
2015
|
|
|
2014
|
|
Cost of goods sold
|
|
$
|
2,495
|
|
|
$
|
1,934
|
|
|
$
|
6,054
|
|
|
$
|
5,966
|
|
Research and development
|
|
|
22,573
|
|
|
|
24,198
|
|
|
|
75,162
|
|
|
|
68,842
|
|
Selling and marketing
|
|
|
2,608
|
|
|
|
2,855
|
|
|
|
7,892
|
|
|
|
8,400
|
|
General and administrative
|
|
|
3,789
|
|
|
|
5,307
|
|
|
|
12,252
|
|
|
|
16,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
31,465
|
|
|
$
|
34,294
|
|
|
$
|
101,360
|
|
|
$
|
99,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation capitalized in inventory was $1.3 million at October 31, 2015 and $1.5 million
at January 31, 2015.
Upon the termination of certain members of our executive management in April 2016, it was determined
that the vesting in certain of their unvested stock awards was not probable. As a result, the Company recorded a reversal of the previously recognized related share-based compensation expense in the first quarter of fiscal 2017.
Valuation Assumptions
The following weighted average assumptions were used for each respective period to calculate the fair value of each time-based stock option award on the date of grant using the Black-Scholes valuation
model and of each market-based equity award using a Monte Carlo simulation model:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
October 31,
|
|
|
November 1,
|
|
|
October 31,
|
|
|
November 1,
|
|
|
|
2015
|
|
|
2014
|
|
|
2015
|
|
|
2014
|
|
Time-based Stock Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value
|
|
$
|
2.82
|
|
|
$
|
3.43
|
|
|
$
|
3.94
|
|
|
$
|
4.35
|
|
Expected volatility
|
|
|
43
|
%
|
|
|
34
|
%
|
|
|
34
|
%
|
|
|
35
|
%
|
Expected term (in years)
|
|
|
5.4
|
|
|
|
5.0
|
|
|
|
5.4
|
|
|
|
5.0
|
|
Risk-free interest rate
|
|
|
1.5
|
%
|
|
|
1.7
|
%
|
|
|
1.6
|
%
|
|
|
1.6
|
%
|
Expected dividend yield
|
|
|
2.3
|
%
|
|
|
1.8
|
%
|
|
|
1.7
|
%
|
|
|
1.6
|
%
|
26
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
October 31,
|
|
|
November 1,
|
|
|
2015
|
|
|
2014
|
|
Employee Stock Purchase Plan:
|
|
|
|
|
|
|
|
|
Estimated fair value
|
|
$
|
3.78
|
|
|
$
|
4.13
|
|
Volatility
|
|
|
31
|
%
|
|
|
32
|
%
|
Expected term (in years)
|
|
|
1.3
|
|
|
|
1.3
|
|
Risk-free interest rate
|
|
|
0.4
|
%
|
|
|
0.2
|
%
|
Dividend yield
|
|
|
1.7
|
%
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
October 31,
|
|
|
|
2015
|
|
Total Shareholder Return Awards:
|
|
|
|
|
Expected term (in years)
|
|
|
2.0
|
|
Expected volatility
|
|
|
27
|
%
|
Average correlation coefficient of peer companies
|
|
|
0.4
|
%
|
Risk-free interest rate
|
|
|
0.5
|
%
|
Expected dividend yield
|
|
|
1.7
|
%
|
The correlation coefficients are calculated based upon the price date used to calculate the historical
volatilities and is used to model the way in which each entity tends to move in relation to its peers.
Note 13. Related Party Transaction
On February 25, 2015, the Executive Compensation Committee (Committee) of the Companys Board of
Directors approved a cash payment of approximately $15.4 million to Dr. Sehat Sutardja, the Companys former Chief Executive Officer, which was recorded in the first quarter of fiscal 2016 and is included in general and administrative expense
for the nine months ended October 31, 2015. The U.S. Court of Federal Claims ruled against Dr. Sutardja in his legal challenge with the Internal Revenue Service and the California Franchise Tax Board related to the tax treatment of several
stock options granted in fiscal 2004. After discussing and evaluating the alternatives to a continuing legal challenge of the courts determination, the likelihood of success of further appeal by Dr. Sutardja and the potential negative impact
on the Company of a continuation of the case regardless of the outcome, on February 25, 2015, the Committee determined to provide Dr. Sutardja with relief from the financial effects of the penalty taxes. Accordingly, the Committee approved the cash
payment to Dr. Sutardja equal to the amount of his penalty taxes owed under the Tax Codes, plus accrued interest owed with respect to such liabilities, all grossed-up for income taxes that will be owed by Dr. Sutardja on receipt of such cash
payment. The Company paid $8.4 million to Dr. Sutardja in the nine months ended October 31, 2015 representing reimbursement for the U.S. federal tax portion. As of October 31, 2015, the Company had a remaining $7.0 million liability to
Dr. Sutardja.
Note 14. Subsequent Events
In April 2016, the employment of Dr. Sehat Sutardja as Chief Executive Officer and Weili Dai as President was
terminated by the Companys Board of Directors. Dr. Sutardja and Ms. Dai remain on the Board of Directors at this time. The Board of Directors then formed an Interim Office of the Chief Executive and has appointed Maya Strelar-Migotti,
Executive Vice President of the Smart Networked Devices and Solutions Business Group, and Dr. Pantelis Alexopoulos, Executive Vice President of the Storage Business Group, as Interim Co-Chief Executive Officers, each having the authority to exercise
all powers of the Chief Executive Officer. In June 2016, the Board of Directors appointed Matthew J. Murphy to serve as the Companys President and Chief Executive Officer, effective July 11, 2016. Upon the commencement of Mr. Murphys
employment, Ms. Strelar-Migotti and Dr. Alexopoulos returned to their roles as Executive Vice Presidents of the Company. The Board subsequently appointed Richard S. Hill, the Chairman of the Board, as the Companys Interim Principal Executive
Officer, to serve in that capacity until the Company files its Quarterly Report on Form 10-Q for the second quarter of fiscal 2017 (Q217 Form 10-Q). Mr. Murphy will assume the role of the Companys principal executive officer
immediately following the filing of the Q217 Form 10-Q. Mr. Murphy also joined the Board of Directors on July 11, 2016.
27
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Also in April 2016, the Company announced that it entered into an agreement with
Starboard Value LP (Starboard), regarding the composition of its Board of Directors. Under the terms of the agreement, the Company elected Peter A. Feld, Richard S. Hill, Oleg Khaykin, Michael Strachan and Robert Switz to serve on
its board. Mr. Hill replaced Dr. Sutardja as the Chairman of the Board in May 2016. The agreement specifies that the Board will recommend and the Company will support and solicit proxies only for the election at the 2016 annual general meeting of
Messrs. Feld, Hill, Khaykin, Murphy, Strachan and Switz and the four independent directors serving on the Board immediately prior to the execution of the agreement, Dr. Gromer, Dr. Kassakian, Mr. Krueger and Dr. Thakur.
In February 2016, the Company and CMU settled their patent infringement lawsuit pursuant to a court-ordered mediation and entered
into a Settlement Agreement and Patent License (the Agreement). The parties agreed to mutual release of claims, license and covenant not to sue provisions for which the Company will pay an aggregate of $750 million to CMU. See CMU
litigation under Note 10 Commitments and Contingencies for further information about the lawsuit.
The
Agreement was accounted for as a multiple-element arrangement and accordingly, a valuation was completed to determine the estimated fair value of each identifiable element. As a result, the Company allocated $654.7 million to the mutual release of
claims and covenant not to sue provisions; $81.3 million to the licensing of intellectual property in fiscal 2016; and the remaining $14.0 million representing the future use of the license through April 2018.
The $654.7 million for the mutual release of claims and covenant not to sue provisions is included in the nine months ended October 31,
2015 as a settlement charge in operating expenses since there is no future benefit. Of the $81.3 million license fee, $1.1 million and $80.0 million was recorded in the three and nine months ended October 31, 2015, respectively, as a charge in
cost of goods sold for past use of the license with the remaining $1.3 million to be charged to cost of goods sold the remainder of fiscal 2016. Due to the contingent status of the litigation at August 31, 2015 and October 31, 2015, these charges
were recorded in the fiscal 2016 second and third quarters since those unaudited condensed consolidated financial statements had not been filed with the Securities and Exchange Commission at the time the settlement was reached.
The Company considers its existing cash, cash equivalents and short-term investments to be sufficient to cover payment of the $750
million settlement, and in April 2016, the Company completed full payment of the $750 million to CMU.
28