REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Marvell Technology Group Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Marvell Technology Group Ltd. and subsidiaries (the “Company”) as of February 2, 2019, and February 3, 2018, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the period ended February 2, 2019, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of February 2, 2019, and February 3, 2018, and the results of its operations and its cash flows for each of the three years in the period ended February 2, 2019, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of February 2, 2019, based on criteria established in
Internal Control-Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 28, 2019, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
March 28, 2019
We have served as the Company’s auditor since 2016.
MARVELL TECHNOLOGY GROUP LTD.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value per share)
|
|
|
|
|
|
|
|
|
|
February 2,
2019
|
|
February 3,
2018
|
ASSETS
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
582,410
|
|
|
$
|
888,482
|
|
Short-term investments
|
—
|
|
|
952,790
|
|
Accounts receivable, net
|
493,122
|
|
|
280,395
|
|
Inventories
|
276,005
|
|
|
170,039
|
|
Prepaid expenses and other current assets
|
43,721
|
|
|
41,482
|
|
Assets held for sale
|
—
|
|
|
30,767
|
|
Total current assets
|
1,395,258
|
|
|
2,363,955
|
|
Property and equipment, net
|
318,978
|
|
|
202,222
|
|
Goodwill
|
5,494,505
|
|
|
1,993,310
|
|
Acquired intangible assets, net
|
2,560,682
|
|
|
—
|
|
Other non-current assets
|
247,329
|
|
|
148,800
|
|
Total assets
|
$
|
10,016,752
|
|
|
$
|
4,708,287
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable
|
$
|
185,362
|
|
|
$
|
145,236
|
|
Accrued liabilities
|
330,594
|
|
|
86,958
|
|
Accrued employee compensation
|
115,925
|
|
|
127,711
|
|
Deferred income
|
4,915
|
|
|
61,237
|
|
Total current liabilities
|
636,796
|
|
|
421,142
|
|
Long-term debt
|
1,732,699
|
|
|
—
|
|
Non-current income taxes payable
|
59,221
|
|
|
56,976
|
|
Deferred tax liabilities
|
246,252
|
|
|
52,204
|
|
Other non-current liabilities
|
35,374
|
|
|
36,552
|
|
Total liabilities
|
2,710,342
|
|
|
566,874
|
|
Commitments and contingencies (Note 13)
|
|
|
|
Shareholders’ equity:
|
|
|
|
Preferred stock, $0.002 par value; 8,000 shares authorized; no shares issued and outstanding
|
—
|
|
|
—
|
|
Common stock, $0.002 par value; 992,000 shares authorized; 658,514 and 495,913 shares issued and outstanding in fiscal 2019 and 2018, respectively
|
1,317
|
|
|
991
|
|
Additional paid-in capital
|
6,188,598
|
|
|
2,733,292
|
|
Accumulated other comprehensive loss
|
—
|
|
|
(2,322
|
)
|
Retained earnings
|
1,116,495
|
|
|
1,409,452
|
|
Total shareholders’ equity
|
7,306,410
|
|
|
4,141,413
|
|
Total liabilities and shareholders’ equity
|
$
|
10,016,752
|
|
|
$
|
4,708,287
|
|
See accompanying Notes to Consolidated Financial Statements.
MARVELL TECHNOLOGY GROUP LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
February 2,
2019
|
|
February 3,
2018
|
|
January 28,
2017
|
Net revenue
|
$
|
2,865,791
|
|
|
$
|
2,409,170
|
|
|
$
|
2,300,992
|
|
Cost of goods sold
|
1,407,399
|
|
|
947,230
|
|
|
1,017,564
|
|
Gross profit
|
1,458,392
|
|
|
1,461,940
|
|
|
1,283,428
|
|
Operating expenses:
|
|
|
|
|
|
Research and development
|
914,009
|
|
|
714,444
|
|
|
805,029
|
|
Selling, general and administrative
|
424,360
|
|
|
238,166
|
|
|
251,191
|
|
Litigation settlement
|
—
|
|
|
74,385
|
|
|
—
|
|
Restructuring related charges
|
76,753
|
|
|
5,250
|
|
|
96,801
|
|
Total operating expenses
|
1,415,122
|
|
|
1,032,245
|
|
|
1,153,021
|
|
Operating income from continuing operations
|
43,270
|
|
|
429,695
|
|
|
130,407
|
|
Interest income
|
11,926
|
|
|
17,381
|
|
|
13,198
|
|
Interest expense
|
(60,362
|
)
|
|
(685
|
)
|
|
(368
|
)
|
Other income, net
|
519
|
|
|
4,813
|
|
|
4,192
|
|
Interest and other income (loss), net
|
(47,917
|
)
|
|
21,509
|
|
|
17,022
|
|
Income (loss) from continuing operations before income taxes
|
(4,647
|
)
|
|
451,204
|
|
|
147,429
|
|
Provision for income taxes
|
174,447
|
|
|
18,062
|
|
|
72,608
|
|
Income (loss) from continuing operations, net of tax
|
$
|
(179,094
|
)
|
|
$
|
433,142
|
|
|
$
|
74,821
|
|
Income (loss) from discontinued operations, net of tax
|
—
|
|
|
87,689
|
|
|
(53,670
|
)
|
Net income (loss)
|
$
|
(179,094
|
)
|
|
$
|
520,831
|
|
|
$
|
21,151
|
|
Net income (loss) per share - Basic:
|
|
|
|
|
|
Continuing operations
|
$
|
(0.30
|
)
|
|
$
|
0.87
|
|
|
$
|
0.15
|
|
Discontinued operations
|
$
|
—
|
|
|
$
|
0.18
|
|
|
$
|
(0.11
|
)
|
Net income (loss) per share - Basic
|
$
|
(0.30
|
)
|
|
$
|
1.05
|
|
|
$
|
0.04
|
|
Net income (loss) per share - Diluted:
|
|
|
|
|
|
Continuing operations
|
$
|
(0.30
|
)
|
|
$
|
0.85
|
|
|
$
|
0.14
|
|
Discontinued operations
|
$
|
—
|
|
|
$
|
0.17
|
|
|
$
|
(0.10
|
)
|
Net income (loss) per share - diluted
|
$
|
(0.30
|
)
|
|
$
|
1.02
|
|
|
$
|
0.04
|
|
Weighted average shares:
|
|
|
|
|
|
Basic
|
591,232
|
|
|
498,008
|
|
|
509,738
|
|
Diluted
|
591,232
|
|
|
509,667
|
|
|
517,513
|
|
See accompanying Notes to Consolidated Financial Statements.
MARVELL TECHNOLOGY GROUP LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
February 2,
2019
|
|
February 3,
2018
|
|
January 28,
2017
|
Net income (loss)
|
$
|
(179,094
|
)
|
|
$
|
520,831
|
|
|
$
|
21,151
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
Net change in unrealized gain (loss) on marketable securities
|
2,322
|
|
|
(1,521
|
)
|
|
(145
|
)
|
Net change in unrealized gain (loss) on cash flow hedges
|
—
|
|
|
(824
|
)
|
|
963
|
|
Other comprehensive income (loss), net of tax
|
2,322
|
|
|
(2,345
|
)
|
|
818
|
|
Comprehensive income (loss), net of tax
|
$
|
(176,772
|
)
|
|
$
|
518,486
|
|
|
$
|
21,969
|
|
See accompanying Notes to Consolidated Financial Statements.
MARVELL TECHNOLOGY GROUP LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional
Paid-in
Capital
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Retained
Earnings
|
|
Total
|
Shares
|
|
Amount
|
|
Balance at January 30, 2016
|
507,572
|
|
|
$
|
1,015
|
|
|
$
|
3,028,921
|
|
|
$
|
(795
|
)
|
|
$
|
1,110,982
|
|
|
$
|
4,140,123
|
|
Issuance of ordinary shares in connection with equity incentive plans
|
11,826
|
|
|
24
|
|
|
74,192
|
|
|
—
|
|
|
—
|
|
|
74,216
|
|
Tax withholdings related to net share settlement of restricted stock units
|
—
|
|
|
—
|
|
|
(16,679
|
)
|
|
—
|
|
|
—
|
|
|
(16,679
|
)
|
Share-based compensation
|
—
|
|
|
—
|
|
|
113,402
|
|
|
—
|
|
|
—
|
|
|
113,402
|
|
Tax benefit from employee stock transactions
|
—
|
|
|
—
|
|
|
(24
|
)
|
|
—
|
|
|
—
|
|
|
(24
|
)
|
Repurchase of common stock
|
(13,303
|
)
|
|
(27
|
)
|
|
(183,037
|
)
|
|
—
|
|
|
—
|
|
|
(183,064
|
)
|
Cash dividends declared and paid (cumulatively $0.24 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(122,292
|
)
|
|
(122,292
|
)
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
21,151
|
|
|
21,151
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
818
|
|
|
—
|
|
|
818
|
|
Balance at January 28, 2017
|
506,095
|
|
|
1,012
|
|
|
3,016,775
|
|
|
23
|
|
|
1,009,841
|
|
|
4,027,651
|
|
Issuance of ordinary shares in connection with equity incentive plans
|
21,278
|
|
|
42
|
|
|
180,260
|
|
|
—
|
|
|
—
|
|
|
180,302
|
|
Tax withholdings related to net share settlement of restricted stock units
|
—
|
|
|
—
|
|
|
(26,840
|
)
|
|
—
|
|
|
—
|
|
|
(26,840
|
)
|
Share-based compensation
|
—
|
|
|
—
|
|
|
87,140
|
|
|
—
|
|
|
—
|
|
|
87,140
|
|
Repurchase of common stock
|
(31,460
|
)
|
|
(63
|
)
|
|
(526,012
|
)
|
|
—
|
|
|
—
|
|
|
(526,075
|
)
|
Cash dividends declared and paid (cumulatively $0.24 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(119,251
|
)
|
|
(119,251
|
)
|
Cumulative effect of stock compensation accounting change - see Note 2
|
—
|
|
|
—
|
|
|
1,969
|
|
|
—
|
|
|
(1,969
|
)
|
|
—
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
520,831
|
|
|
520,831
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,345
|
)
|
|
—
|
|
|
(2,345
|
)
|
Balance at February 3, 2018
|
495,913
|
|
|
991
|
|
|
2,733,292
|
|
|
(2,322
|
)
|
|
1,409,452
|
|
|
4,141,413
|
|
Effect of revenue recognition accounting change - see Note 3
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
34,218
|
|
|
34,218
|
|
Issuance of ordinary shares in connection with equity incentive plans
|
14,164
|
|
|
29
|
|
|
101,140
|
|
|
—
|
|
|
—
|
|
|
101,169
|
|
Tax withholdings related to net share settlement of restricted stock units
|
—
|
|
|
—
|
|
|
(54,934
|
)
|
|
—
|
|
|
—
|
|
|
(54,934
|
)
|
Share-based compensation
|
—
|
|
|
—
|
|
|
184,956
|
|
|
—
|
|
|
—
|
|
|
184,956
|
|
Common stock issued to Cavium common stockholders
|
153,376
|
|
|
307
|
|
|
3,272,746
|
|
|
—
|
|
|
—
|
|
|
3,273,053
|
|
Stock consideration for Cavium accelerated awards
|
1,102
|
|
|
2
|
|
|
7,802
|
|
|
—
|
|
|
—
|
|
|
7,804
|
|
Equity related issuance cost
|
—
|
|
|
—
|
|
|
(2,927
|
)
|
|
—
|
|
|
—
|
|
|
(2,927
|
)
|
Replacement equity awards attributable to pre-acquisition service
|
—
|
|
|
—
|
|
|
50,485
|
|
|
—
|
|
|
—
|
|
|
50,485
|
|
Repurchase of common stock
|
(6,041
|
)
|
|
(12
|
)
|
|
(103,962
|
)
|
|
—
|
|
|
—
|
|
|
(103,974
|
)
|
Cash dividends declared and paid (cumulatively $0.24 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(148,081
|
)
|
|
(148,081
|
)
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(179,094
|
)
|
|
(179,094
|
)
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
2,322
|
|
|
—
|
|
|
2,322
|
|
Balance at February 2, 2019
|
658,514
|
|
|
$
|
1,317
|
|
|
$
|
6,188,598
|
|
|
$
|
—
|
|
|
$
|
1,116,495
|
|
|
$
|
7,306,410
|
|
See accompanying Notes to Consolidated Financial Statements.
MARVELL TECHNOLOGY GROUP LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
February 2,
2019
|
|
February 3,
2018
|
|
January 28,
2017
|
Cash flows from operating activities:
|
|
|
|
|
|
Net income (loss)
|
$
|
(179,094
|
)
|
|
$
|
520,831
|
|
|
$
|
21,151
|
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
123,983
|
|
|
83,487
|
|
|
107,851
|
|
Share-based compensation
|
184,064
|
|
|
86,689
|
|
|
113,970
|
|
Amortization of acquired intangible assets
|
183,318
|
|
|
3,570
|
|
|
10,641
|
|
Amortization of inventory fair value adjustment associated with acquisition of Cavium
|
223,372
|
|
|
—
|
|
|
—
|
|
Amortization of deferred debt issuance costs and debt discounts
|
11,354
|
|
|
—
|
|
|
—
|
|
Restructuring related impairment charges (gain)
|
(200
|
)
|
|
(4,561
|
)
|
|
52,581
|
|
Amortization of premium /discount on available-for-sale securities
|
624
|
|
|
995
|
|
|
3,319
|
|
Excess tax benefits from share-based compensation
|
—
|
|
|
—
|
|
|
(37
|
)
|
Deferred income taxes
|
118,647
|
|
|
19,825
|
|
|
44,637
|
|
Gain on sale of discontinued operations
|
—
|
|
|
(88,406
|
)
|
|
—
|
|
Loss (gain) on sale of business
|
1,592
|
|
|
(5,254
|
)
|
|
—
|
|
Other expense (income), net
|
3,530
|
|
|
(1,920
|
)
|
|
(3,312
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
Accounts receivable
|
(99,044
|
)
|
|
54,989
|
|
|
(12,084
|
)
|
Inventories
|
4,348
|
|
|
(12,160
|
)
|
|
29,325
|
|
Prepaid expenses and other assets
|
(11,685
|
)
|
|
12,494
|
|
|
1,825
|
|
Accounts payable
|
(6,493
|
)
|
|
(16,613
|
)
|
|
(28,153
|
)
|
Accrued liabilities and other non-current liabilities
|
84,352
|
|
|
(62,360
|
)
|
|
3,763
|
|
Carnegie Mellon University accrued litigation settlement
|
—
|
|
|
—
|
|
|
(736,000
|
)
|
Accrued employee compensation
|
(46,599
|
)
|
|
(11,936
|
)
|
|
18,016
|
|
Deferred income
|
675
|
|
|
(8,557
|
)
|
|
14,072
|
|
Net cash provided by (used in) operating activities
|
596,744
|
|
|
571,113
|
|
|
(358,435
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
Purchases of available-for-sale securities
|
(14,956
|
)
|
|
(835,494
|
)
|
|
(489,856
|
)
|
Sales of available-for-sale securities
|
623,896
|
|
|
306,822
|
|
|
616,697
|
|
Maturities of available-for-sale securities
|
187,985
|
|
|
426,341
|
|
|
239,557
|
|
Purchases of time deposits
|
(25,000
|
)
|
|
(300,000
|
)
|
|
(275,000
|
)
|
Maturities of time deposits
|
175,000
|
|
|
300,000
|
|
|
125,000
|
|
Purchases of technology licenses
|
(11,540
|
)
|
|
(6,587
|
)
|
|
(10,309
|
)
|
Purchases of property and equipment
|
(75,921
|
)
|
|
(38,551
|
)
|
|
(44,510
|
)
|
Proceeds from sales of property and equipment
|
43,525
|
|
|
12,559
|
|
|
—
|
|
Cash payment for acquisition of Cavium, net of cash and cash equivalents acquired
|
(2,649,465
|
)
|
|
—
|
|
|
—
|
|
Net proceeds from sale of discontinued operations
|
—
|
|
|
165,940
|
|
|
—
|
|
Net proceeds (payments) from sale of business
|
(3,352
|
)
|
|
2,402
|
|
|
—
|
|
Other
|
(2,725
|
)
|
|
6,089
|
|
|
16
|
|
Net cash provided by (used in) investing activities
|
(1,752,553
|
)
|
|
39,521
|
|
|
161,595
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Repurchases of common stock
|
(103,974
|
)
|
|
(527,574
|
)
|
|
(181,564
|
)
|
Proceeds from employee stock plans
|
100,961
|
|
|
180,302
|
|
|
74,219
|
|
Tax withholding paid on behalf of employees for net share settlement
|
(54,939
|
)
|
|
(26,840
|
)
|
|
(16,683
|
)
|
Dividend payments to shareholders
|
(148,081
|
)
|
|
(119,251
|
)
|
|
(122,292
|
)
|
Payments on technology license obligations
|
(69,157
|
)
|
|
(28,503
|
)
|
|
(20,965
|
)
|
Excess tax benefits from share-based compensation
|
—
|
|
|
—
|
|
|
37
|
|
Proceeds from issuance of debt
|
1,892,605
|
|
|
—
|
|
|
—
|
|
Principal payments of debt
|
(756,128
|
)
|
|
—
|
|
|
—
|
|
Payment of equity and debt financing costs
|
(11,550
|
)
|
|
(14,378
|
)
|
|
—
|
|
Net cash provided by (used in) in financing activities
|
849,737
|
|
|
(536,244
|
)
|
|
(267,248
|
)
|
Net increase (decrease) in cash and cash equivalents
|
(306,072
|
)
|
|
74,390
|
|
|
(464,088
|
)
|
Cash and cash equivalents at beginning of the year
|
888,482
|
|
|
814,092
|
|
|
1,278,180
|
|
Cash and cash equivalents at end of the year
|
$
|
582,410
|
|
|
$
|
888,482
|
|
|
$
|
814,092
|
|
See accompanying Notes to Consolidated Financial Statements.
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Basis of Presentation
The Company
Marvell Technology Group Ltd., a Bermuda exempted company, and its subsidiaries (the “Company”), is a fabless semiconductor provider of high-performance application-specific standard products. The Company’s core strength is the development of complex System-on-a-Chip devices, leveraging its extensive technology portfolio of intellectual property in the areas of analog, mixed-signal, digital signal processing, and embedded and standalone integrated circuits. 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 Company’s broad product portfolio includes devices for storage and networking.
Basis of Presentation
The Company’s fiscal year is the 52- or 53-week period ending on the Saturday closest to January 31. Accordingly, every fifth or sixth fiscal year will have a 53-week period. The additional week in a 53-week year is added to the fourth quarter, making such quarter consist of 14 weeks. Fiscal 2019 and fiscal 2017 each had a 52-week period, while fiscal 2018 had a 53-week period.
Note 2 — Significant Accounting Policies
Discontinued Operations
In connection with the plan the Company announced in November 2016 to restructure its operations to refocus its research and development, increase operational efficiency and improve profitability, the Company also planned to divest certain businesses. As of
February 2, 2019
,
three
businesses were divested and are classified as discontinued operations (see "Note 6 - Discontinued Operations"). As required, the Company has retrospectively recast its consolidated statements of operations and balance sheets for all periods presented to reflect these businesses as discontinued operations. The Company has not segregated the cash flows of these businesses in the consolidated statements of cash flows. Management was also required to make certain assumptions and apply judgment to determine historical expenses related to the discontinued operations presented in prior periods. Unless noted otherwise, discussion in the Notes to Consolidated Financial Statements refers to the Company’s continuing operations.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States ("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 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. Actual results could differ from these estimates, and such differences could affect the results of operations reported in future periods.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated. The functional currency of the Company and its subsidiaries is the U.S. dollar.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months
or less from the date of purchase to be cash equivalents. Cash and cash equivalents consist of cash on deposit with banks, time deposits, U.S. government and agency debt, municipal debt securities, corporate debt securities and money market funds.
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Investments
The Company’s debt securities are classified as available-for-sale and are reported at fair value. The Company determines any realized gains or losses on the sale of available-for-sale securities on a specific identification method, and such gains and losses are recorded as a component of interest and other income (loss), net. Unrealized gains and losses of the available-for-sale securities are excluded from earnings and reported as a component of accumulated other comprehensive income. Time deposits with maturities greater than
90 days
, but less than
one year
, are classified in short-term investments as held-to-maturity since the Company has both the intent and ability to hold them to maturity.
In general, investments with original maturities of greater than
90 days
and remaining maturities of less than
one year
are classified as short-term investments. Investments with maturities beyond
one year
may also be classified as short-term based on their highly liquid nature and can be sold to fund current operations.
The Company also has equity investments in privately-held companies. If the Company has the ability to exercise significant influence over the investee, but not control, the Company accounts for the investment under the equity method. If the Company does not have the ability to exercise significant influence over the operations of the investee, the Company accounts for the investment under the measurement alternative method. Investments in privately-held companies are included in other non-current assets.
Impairment of Investments
The Company performs a periodic review of its available-for-sale securities to determine whether an other-than-temporary impairment has occurred. Generally, for an individual security that has been in an unrealized loss position for an extended period of time, the Company evaluates whether an impairment charge should be recognized. Its evaluation is based on specific facts and circumstances at the time of assessment, including general market conditions, and the duration and extent to which the fair value is below cost. If the fair value of a debt security is less than its amortized cost, then an other-than-temporary impairment for the difference is recognized if:
|
|
•
|
the Company has the intent to sell the security;
|
|
|
•
|
it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost base; or
|
|
|
•
|
a credit loss exists insofar as the Company does not expect to recover the entire recognized amortized cost of the security.
|
If a debt security’s market value is below amortized cost and the Company either intends to sell the security or it is more likely than not that the Company will be required to sell the security before its anticipated recovery, the Company records an other-than-temporary impairment charge to interest and other income (loss), net in the consolidated statements of operations.
Investments in privately-held companies are subject to a periodic impairment review. Investments are considered impaired when the fair value is below the investment’s cost basis. This assessment is based on a qualitative and quantitative analysis, including, but not limited to, the investee’s revenue and earnings trends, available cash and liquidity, and the status of the investee’s products and the related market for such products.
Derivative Financial Instruments
The Company accounts for its derivative instruments as either assets or liabilities and carries them at fair value. For derivative instruments that hedge the exposure to variability in expected future cash flows and are
designated as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive income (loss) in the consolidated statements of shareholders’ equity and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The ineffective portion of the gain or loss on the derivative instrument is recognized in current earnings. To receive hedge accounting treatment, cash flow hedges must be highly effective in offsetting changes to expected future cash flows on hedged transactions. Derivatives that are not designated as hedges must be adjusted to fair value through earnings.
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Concentration of Credit Risk and Significant Customers
Financial instruments that potentially subject the Company to a significant concentration of credit risk consist principally of cash equivalents, short-term investments and accounts receivable. Cash, cash equivalents and short-term investments balances are maintained with high-quality financial institutions, the composition and maturities of which are regularly monitored by management. The Company believes that the concentration of credit risk in its trade receivables is substantially mitigated by the Company’s credit evaluation process, relatively short collection terms and the high level of credit worthiness of its customers. The Company performs ongoing credit evaluations of its customers’ financial conditions and limits the amount of credit extended when deemed necessary based upon payment history and the customer’s current credit worthiness, but generally requires no collateral. The Company regularly reviews the allowance for bad debt and doubtful accounts by considering factors such as historical experience, credit quality, age of the accounts receivable balances and current economic conditions that may affect a customer’s ability to pay.
The Company’s accounts receivable was concentrated with
three
customers at
February 2, 2019
, who represented
11%
,
10%
, and
10%
of gross accounts receivable, respectively, compared with
three
customers at
February 3, 2018
, who represented
22%
,
17%
, and
16%
of gross accounts receivable, respectively. This presentation is at the customer consolidated level.
Historically, a relatively small number of customers have accounted for a significant portion of our net revenue. Net revenue attributable to significant customers whose revenues as a percentage of net revenue was 10% or greater of total net revenues is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
February 2, 2019
|
|
February 3, 2018
|
|
January 28,
2017
|
Customer:
|
|
|
|
|
|
Western Digital
|
12
|
%
|
|
20
|
%
|
|
21
|
%
|
Toshiba
|
11
|
%
|
|
14
|
%
|
|
14
|
%
|
Seagate
|
10
|
%
|
|
11
|
%
|
|
9
|
%
|
Distributor:
|
|
|
|
|
|
Wintech
|
**
|
|
|
10
|
%
|
|
10
|
%
|
|
|
|
|
|
|
* Less than 10% of net revenue
|
The Company continuously monitors the creditworthiness of its distributors and believes these distributors’ sales to diverse end customers and to diverse geographies further serve to mitigate the Company’s exposure to credit risk.
Inventories
Inventory is stated at the lower of cost or net realizable value, cost being determined under the first-in, first-out method. The total carrying value of the Company’s inventory is reduced for any difference between cost and estimated net realizable value of inventory that is determined to be excess, obsolete or unsellable inventory based upon assumptions about future demand and market conditions. If actual future demand for the Company’s products is less than currently forecasted, the Company may be required to write inventory down below the current carrying value. Once the carrying value of inventory is reduced, it is maintained until the product to which it relates to is sold or otherwise disposed of. Inventoriable shipping and handling costs are classified as a component of cost of goods sold in the consolidated statements of operations.
Property and Equipment, Net
Property and equipment, net, are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which ranges from
2
to
7 years
for machinery and equipment, and
3
to
4 years
for computer software, and furniture and fixtures. Buildings are depreciated over an estimated useful life of
30 years
and building improvements are depreciated over estimated useful lives of
15 years
. Leasehold improvements are depreciated over the shorter of the remaining lease term or the estimated useful life of the asset.
Goodwill
Goodwill is recorded when the consideration paid for a business acquisition exceeds the fair value of net tangible and intangible assets acquired. Goodwill is measured and tested for impairment annually on the last business day of the fiscal fourth quarter and whenever events or changes in circumstances indicate the carrying amount of goodwill may not be recoverable. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount or the Company may determine to proceed directly to the quantitative impairment test.
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
If the Company assesses qualitative factors and concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount or if the Company determines not to use the qualitative assessment, then a quantitative impairment test is performed. The quantitative impairment test requires comparing the fair value of the reporting unit to its carrying value, including goodwill. The Company has identified that its business operates as a single operating segment with
two
components (Storage and Networking), which it has concluded can be aggregated into a single reporting unit for purposes of testing goodwill impairment. As part of a restructuring announced in November 2016 (see “Note 4 - Restructuring and Other Related Charges”), the former Smart Networked Devices and Solutions product group was changed to Networking and Connectivity. As part of a restructuring initiated in July 2018, the former Networking and Connectivity product group was combined and named Networking. An impairment exists if the fair value of the reporting unit is lower than its carrying value. If the fair value of the reporting unit is lower than its carrying value, the Company would record an impairment loss in the fiscal quarter in which the determination is made.
Long-Lived Assets and Intangible Assets
The Company assesses the impairment of long-lived assets and intangible assets whenever events or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable. The Company estimates the future cash flows, undiscounted and without interest charges, expected to be generated by the assets from its use or eventual disposition. If the sum of the expected undiscounted future cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets. Please see “Note 11 - Goodwill and Acquired Intangible Assets, Net” for further details regarding impairment of acquisition-related identified intangible assets.
Acquisition-related identified intangible assets are amortized on a straight-line basis over their estimated economic lives, except for customer contracts and related relationships, which are amortized using an accelerated method of amortization over the expected customer lives. In-process research and development (“IPR&D”) is not amortized until the completion of the related development.
Foreign Currency Transactions
The functional currency of all of the Company’s non-U.S. operations is the U.S. dollar. Monetary accounts maintained in currencies other than the U.S. dollar are re-measured using the foreign exchange rate at the balance sheet date. Operational accounts and nonmonetary balance sheet accounts are measured and recorded at the exchange rate in effect at the date of the transaction. The effects of foreign currency re-measurement are reported in current operations.
Revenue Recognition
Through the fiscal year ended February 3, 2018, in accordance with ASC 605, Revenue Recognition, the Company recognized revenue when there was persuasive evidence of an arrangement, delivery had occurred, the fee was fixed or determinable, and collection was reasonably assured. If the Company granted extended payment terms greater than its standard terms for a customer such that collectability was not assured, the revenue was deferred upon shipment and would be recognized when the payment became due provided all other revenue recognition criteria had been satisfied.
Product revenue was generally recognized upon shipment of product to customers, net of accruals for estimated sales returns and rebates. However, some of the Company’s sales were made through distributors under agreements allowing for price protection and limited rights of stock rotation on products unsold by the distributors. Product revenue on sales made through distributors were deferred until the distributors sold the product to end customers. Deferred revenue less the related cost of the inventories was reported as deferred income. The Company did not believe that there was any significant exposure related to impairment of deferred cost of sales, as its historical returns had been minimal and inventory turnover for its distributors generally ranged from
60
to
90 days
. The Company’s sales to direct customers were made primarily pursuant to standard purchase orders for delivery of products.
As a result of the adoption of the new revenue standard on February 4, 2018, at the beginning of the first quarter of fiscal year 2019, the Company revised its revenue recognition policy. The Company now recognizes revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. Under the new revenue recognition standard, the Company applies the following five step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company enters into contracts that may include various combinations of products and services that are capable of being distinct and accounted for as separate performance obligations. To date, the majority of the revenue has been generated by sales associated with storage and networking products. Revenue from services has been insignificant. Performance obligations associated with product sales transactions are generally satisfied when control passes to customers upon shipment. Accordingly, product revenue is recognized at a point in time when control of the asset is transferred to the customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control of a product to a customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. For product revenue, the performance obligation is deemed to be the delivery of the product and therefore, the revenue is generally recognized upon shipment to customers, net of accruals for estimated sales returns and rebates. These estimates are based on historical returns, analysis of credit memo data and other known factors. Actual returns could differ from these estimates. The Company accounts for rebates by recording reductions to revenue for rebates in the same period that the related revenue is recorded. The amount of these reductions is based upon the terms agreed to with the customer. Some of the Company’s sales are made to distributors under agreements allowing for price protection, price discounts and limited rights of stock rotation on products unsold by the distributors. Control passes to the distributor upon shipment, and terms and payment by the Company’s distributors is not contingent on resale of the product. Product revenue on sales made to distributors with price protection and stock rotation rights is recognized upon shipment to distributors, with an accrual for the variable consideration aspect of sales to distributors, estimated based on historical experience, including estimates for price discounts, price protection, rebates, and stock rotation programs.
A portion of the Company's net revenue is derived from sales through third-party logistics providers who maintain warehouses in close proximity to our customer’s facilities. Revenue from sales through these third-party logistics providers is not recognized until the product is pulled from stock by the customer.
The Company’s products are generally subject to warranty, which provides for the estimated future costs of replacement upon shipment of the product. The Company’s products carry a standard one-year warranty, with certain exceptions in which the warranty period can extend to more than one year based on contractual agreements. The warranty accrual is estimated primarily based on historical claims compared to historical revenues and assumes that the Company will have to replace products subject to a claim. From time to time, the Company becomes aware of specific warranty situations, and it records specific accruals to cover these exposures. Warranty expenses were not material for the periods presented.
Business Combination
The Company allocates the fair value of the purchase consideration of its acquisitions to the tangible assets, liabilities, and intangible assets acquired, including in-process research and development (“IPR&D”), based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. IPR&D is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment thereafter. When an IPR&D project is completed, the IPR&D is reclassified as an amortizable purchased intangible asset and amortized over the asset’s estimated useful life. Acquisition-related expenses and related restructuring costs are recognized separately from the business combination and are expensed as incurred.
Advertising Expense
Advertising costs are expensed as incurred. The Company recorded
$0.2 million
,
$0.2 million
and
$0.5 million
of advertising costs for fiscal
2019
,
2018
and
2017
, respectively, included in selling and marketing expenses in the consolidated statements of operations.
Share-Based Compensation
Share-based compensation is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite service period. The Company amortizes share-based compensation expense for time-based awards under the straight-line attribution method over the vesting period. Share-based compensation expense for performance-based awards is recognized 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 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. In the case of performance-based awards based on total shareholder return (“TSR”), share-based compensation expense is amortized over the requisite service period. For stock purchase rights under the stock purchase plan, the Company amortizes share-based compensation expense ratably over the
two
-year offering period.
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company estimates the fair value of time-based stock option and stock purchase awards on the date of grant using the Black Scholes option-pricing model. The fair value of TSR awards is estimated on the date of grant using a Monte Carlo simulation model since the award is indexed to the price of the Company’s common stock as set forth under the terms of the award. The value of the portion of the awards that is ultimately expected to vest is recognized as expense over the requisite service period. The Black Scholes and Monte Carlo models incorporate various highly subjective assumptions including expected term of awards, expected future stock price volatility, expected dividend yield and risk-free interest rate.
In developing estimates used to calculate assumptions, the Company establishes the expected term for employee stock options based on historical settlement experience and after giving consideration to vesting schedules. Assumptions for stock option exercises are stratified by
two
employee groups and
one
employee/non-employee group with sufficiently distinct behavior patterns. Expected volatility was developed based on historical stock price volatility. The expected dividend yield is calculated by dividing annualized dividend payments by the closing stock price on the grant date of the option.
The fair value of each restricted stock unit is estimated based on the market price of the Company’s common shares on the date of grant less the expected dividend yield.
Forfeitures are recorded when they occur. Previously recognized expense is reversed for the portion of awards forfeited prior to vesting as and when forfeitures occurred.
Comprehensive Income (Loss)
Comprehensive income (loss), net of tax is comprised of net income and net change in unrealized gains and losses, on available-for-sale securities and cash flow hedges. Accumulated other comprehensive income (loss), as presented on the accompanying consolidated balance sheets, consists of net unrealized gains and losses on available-for-sale securities and cash flow hedges, net of tax.
Accounting for Income Taxes
The Company recognizes income taxes using an asset and liability approach. This approach requires the recognition of taxes payable or refundable for the current year, and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company’s consolidated financial statements or tax returns. The measurement of current and deferred taxes is based on provisions of the enacted tax law and the effects of future changes in tax laws or rates are not anticipated.
Using available evidence and judgment, the Company establishes a valuation allowance for deferred tax assets, when it is determined that it is more likely than not that they will not be realized. Valuation allowances have been provided primarily against the U.S. research and development credits. Valuation allowances have also been provided against certain acquired operating losses and the deferred tax assets of foreign subsidiaries. A change in the assessment of the realization of deferred tax assets may materially impact the Company’s tax provision in the period in which a change of assessment occurs.
The Company is subject to income tax audits by the respective tax authorities in each jurisdiction in which the Company operates. The Company recognizes the effect of income tax positions only if these positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is more than
50%
likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to unrecognized tax benefits in income tax expense.
Recent Accounting Pronouncements
Accounting Pronouncements Recently Adopted
In January 2016, the FASB issued an accounting standard update that changes the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. The Company adopted the standard in the first quarter of fiscal 2019. The adoption of this guidance did not have a significant impact on the Company's consolidated financial statements.
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In August 2016, the FASB issued an accounting standards update to add or clarify guidance on the classification of certain cash receipts and cash payments in the statement of cash flows. The amendments in the update provide guidance on eight specific cash flow issues. The amendments to the guidance should be applied using a retrospective transition method for each period presented and, if it is impracticable to apply all of the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company adopted the standard in the first quarter of fiscal 2019. The adoption of this guidance did not have an impact on the Company's consolidated financial statements.
In October 2016, the FASB issued new guidance that simplifies the accounting for the income tax effects of intra-entity transfers and will require companies to recognize the income tax effects of intra-entity transfers of assets other than inventory when the transfer occurs. Previous guidance required companies to defer the income tax effects of intra-entity transfers of assets until the asset had been sold to an outside party or otherwise recognized. The Company adopted the standard in the first quarter of fiscal 2019. The adoption of this guidance did not have an impact on the Company's consolidated financial statements.
In November 2016, the FASB issued new guidance that requires entities to include in their cash and cash-equivalent balances in the statement of cash flows those amounts that are deemed to be restricted cash and restricted cash equivalents. As a result, companies will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. The Company adopted the standard in the first quarter of fiscal 2019. The adoption of this guidance did not have a significant impact on the Company's consolidated financial statements.
In January 2017, the FASB issued an accounting standards update that revises the definition of a business. The amendments provide a more robust framework for determining when a set of assets and activities is a business. The update is intended to help companies evaluate whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The Company adopted the standard in the first quarter of fiscal 2019. The adoption of this guidance did not have an impact on the Company's consolidated financial statements.
In May 2017, the FASB issued an accounting standards update that provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. Unless the changes in terms or conditions meet all three criteria outlined in the guidance, modification accounting should be applied. The three criteria relate to changes in the terms and conditions that affect the fair value, vesting conditions, or classification of a share-based payment award. The guidance is required to be applied prospectively to an award modified on or after the adoption date. The Company adopted the standard in the first quarter of fiscal 2019. The adoption of this guidance did not have an impact on the Company's consolidated financial statements.
In August 2017, the FASB issued an accounting standards update that simplifies the application and administration of hedge accounting. The guidance amends the presentation and disclosure requirements and changes how companies assess effectiveness. The guidance is intended to more closely align hedge accounting with companies' risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. The guidance is effective for the Company beginning in the first quarter of fiscal year 2020. Early adoption is permitted. The guidance will be applied to cash flow and net investment hedge relationships that exist on the date of adoption using a modified retrospective approach. The presentation and disclosure requirements will be applied prospectively. The Company early adopted the standard in the third quarter of fiscal 2019. The adoption of this guidance did not have a significant effect on the Company's consolidated financial statements.
In June 2018, the FASB issued an accounting standards update that substantially aligns the accounting for shared-based payments to non-employees and employees. The standard is required to be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted. The Company early adopted the standard in the second quarter of fiscal 2019. The adoption of this guidance did not have a significant effect on the Company's consolidated financial statements.
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Accounting Pronouncements Not Yet Effective
In February 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 for lease arrangements. The standard is effective for the Company beginning in the first quarter of fiscal year 2020. The Company is adopting the new lease accounting standard using a modified retrospective method and will not restate comparative periods. The Company expects that the adoption of the new leasing standard will result in recognition of
$125 million
to
$165 million
in lease related right-of-use assets and liabilities on the company's consolidated balance sheet, primarily related to real estate.
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 threshold for initial recognition in current GAAP and reflects an entity’s current estimate of all expected credit losses. The measurement of expected credit losses is based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the financial assets. The standard is effective for the Company beginning in the first quarter of fiscal year 2021. The Company does not expect the adoption of this guidance will have a material effect on its consolidated financial statements.
In August 2018, the FASB issued an accounting standards update to align the requirements for capitalizing implementation costs incurred in a software hosting arrangement that is a service contract and costs to develop or obtain internal-use software. The guidance is effective for the Company beginning in the first quarter of fiscal year 2021, with early adoption permitted. The Company is evaluating the effect this new guidance will have on its consolidated financial statements.
In August 2018, the FASB issued an accounting standards update that modifies the disclosure requirements on fair value measurements. The new guidance adds, modifies and removes certain fair value measurement disclosure requirements. The guidance is effective for the company beginning in the first quarter of fiscal year 2021, with early adoption permitted. The Company is evaluating the effect this new guidance will have on its consolidated financial statements.
In November 2018, the FASB issued an accounting standards update that clarifies when transactions between participants in a collaborative arrangement are within the scope of the new revenue recognition standard that the Company adopted at the beginning of fiscal 2019. The guidance is effective for the Company beginning in the first quarter of fiscal year 2021, with early adoption permitted. The guidance must be applied retrospectively as of the date of initial application of the revenue recognition standard. In addition, entities may elect to apply the guidance to all collaborative arrangements or only to collaborative arrangements that are not completed as of the date of initial application of the aforementioned revenue recognition standard. The Company is evaluating the effect this new guidance will have on its consolidated financial statements.
Note 3 — Revenue
Effect of the Adoption of the New Revenue Standard
At the beginning of fiscal year 2019, the Company adopted the new revenue recognition standard on a modified retrospective basis, with the cumulative effect recognized in retained earnings at the date of adoption. The Company elected to apply the new revenue standard retrospectively to all contracts that are not completed contracts at the date of the initial adoption. Based on the Company’s assessment of this new accounting standard, a change in revenue recognition timing on its component sales made to distributors was made in the first quarter of fiscal year 2019 and the Company started to recognize revenue when the Company transfers control to the distributor rather than deferring recognition until the distributor sells the components. In addition, the Company established accruals for the variable consideration aspect of sales, estimated based on historical experience, which include estimates for price discounts, price protection, rebates, returns and stock rotation programs. On the date of initial adoption, the Company removed the deferred income on component sales made to distributors and recorded estimates of the accruals for variable consideration through a cumulative adjustment to retained earnings. The net impact to the opening balance of retained earnings related to the adoption of the new standard was an increase of
$34.2 million
.
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the effects of adopting the new revenue standard on the Company's financial statements for the fiscal year beginning February 4, 2018 as an adjustment to the opening balance. Such adjustments were of a non-cash nature.
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Balance as of February 3,
2018
|
|
Adjustments
|
|
Opening Balance as of February 4, 2018
|
Consolidated balance sheet:
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Accounts receivable, net
|
$
|
280,395
|
|
|
$
|
1,862
|
|
|
$
|
282,257
|
|
Inventory
|
170,039
|
|
|
2,016
|
|
|
172,055
|
|
Other non-current assets
|
148,800
|
|
|
42,116
|
|
|
190,916
|
|
Liabilities and shareholders' equity:
|
|
|
|
|
|
Accrued liabilities
|
86,958
|
|
|
70,336
|
|
|
157,294
|
|
Deferred income
|
61,237
|
|
|
(58,560
|
)
|
|
2,677
|
|
Retained earnings
|
$
|
1,409,452
|
|
|
$
|
34,218
|
|
|
$
|
1,443,670
|
|
The following tables summarize financial statement line items that are affected in the current reporting period by the application of the new revenue recognition policy as compared with the previous revenue recognition policy which was in effect in prior periods in accordance with ASC 605, Revenue Recognition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, 2019
|
(In thousands)
|
As currently reported
|
|
Adjustments
|
|
Balances without adoption of new revenue standard
|
Consolidated balance sheet:
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Accounts receivable, net
|
$
|
493,122
|
|
|
$
|
—
|
|
|
$
|
493,122
|
|
Inventories
|
276,005
|
|
|
(1,850
|
)
|
|
274,155
|
|
Other non-current assets
|
247,329
|
|
|
(75,079
|
)
|
|
172,250
|
|
Liabilities and shareholders' equity:
|
|
|
|
|
|
Accrued liabilities
|
330,594
|
|
|
(125,221
|
)
|
|
205,373
|
|
Deferred income
|
4,915
|
|
|
119,252
|
|
|
124,167
|
|
Retained earnings
|
$
|
1,116,495
|
|
|
$
|
(70,960
|
)
|
|
$
|
1,045,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended February 2, 2019
|
(In thousands, except per share amounts)
|
As currently reported
|
|
Adjustments
|
|
Balances without adoption of new revenue standard
|
Consolidated statement of operation:
|
|
|
|
|
|
Net revenue
|
$
|
2,865,791
|
|
|
$
|
(52,556
|
)
|
|
$
|
2,813,235
|
|
Cost of goods sold
|
1,407,399
|
|
|
(15,814
|
)
|
|
1,391,585
|
|
Net loss
|
(179,094
|
)
|
|
(36,742
|
)
|
|
(215,836
|
)
|
Net loss per share - Basic
|
(0.30
|
)
|
|
(0.06
|
)
|
|
(0.36
|
)
|
Net loss per share - Diluted
|
$
|
(0.30
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.36
|
)
|
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Adoption of the new revenue standard had no impact to cash from or used in operating, financing, or investing activities on the consolidated statements of cash flow.
New Revenue Recognition Policy Including Significant Judgments and Estimates
See Note 2, “Significant Accounting Policies - Revenue Recognition” for discussion of the new revenue recognition policy including significant judgments and estimates.
Disaggregation of Revenue
The majority of the Company's revenue is generated from sales of the Company’s products.
The following table summarizes net revenue disaggregated by product group (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
February 2, 2019
|
|
% of Total
|
|
Year Ended
February 3, 2018
|
|
% of Total
|
|
Year Ended
January 28, 2017
|
|
% of Total
|
Net revenue by product group:
|
|
|
|
|
|
|
|
|
|
|
|
Storage (1)
|
$
|
1,376,697
|
|
|
48
|
%
|
|
$
|
1,254,365
|
|
|
52
|
%
|
|
$
|
1,157,712
|
|
|
50
|
%
|
Networking (2)
|
1,313,439
|
|
|
46
|
%
|
|
961,497
|
|
|
40
|
%
|
|
908,099
|
|
|
40
|
%
|
Other (3)
|
175,655
|
|
|
6
|
%
|
|
193,308
|
|
|
8
|
%
|
|
235,181
|
|
|
10
|
%
|
|
$
|
2,865,791
|
|
|
|
|
$
|
2,409,170
|
|
|
|
|
$
|
2,300,992
|
|
|
|
|
|
1)
|
Storage products are comprised primarily of HDD, SSD Controllers, Fibre Channel Adapters and Data Center Storage Solutions.
|
|
|
2)
|
Networking products are comprised primarily of Ethernet Switches, Ethernet Transceivers, Ethernet NICs, Embedded Communications and Infrastructure Processors, Automotive Ethernet, Security Adapters and Processors as well as Connectivity products. In addition, this grouping includes a few legacy product lines in which the Company no longer invests, but will generate revenue for several years.
|
|
|
3)
|
Other products are comprised of primarily Printer Solutions, Application Processors and others.
|
The following table summarizes net revenue disaggregated by primary geographical market (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
February 2, 2019
|
|
% of Total
|
|
Year Ended
February 3, 2018
|
|
% of Total
|
|
Year Ended
January 28, 2017
|
|
% of Total
|
Net revenue based on destination of shipment:
|
|
|
|
|
|
|
|
|
|
|
|
China
|
$
|
1,189,928
|
|
|
42
|
%
|
|
$
|
1,205,202
|
|
|
50
|
%
|
|
$
|
1,224,032
|
|
|
53
|
%
|
Malaysia
|
372,817
|
|
|
13
|
%
|
|
388,469
|
|
|
16
|
%
|
|
286,267
|
|
|
12
|
%
|
United States
|
251,905
|
|
|
9
|
%
|
|
42,560
|
|
|
2
|
%
|
|
51,416
|
|
|
2
|
%
|
Philippines
|
235,921
|
|
|
8
|
%
|
|
270,101
|
|
|
11
|
%
|
|
283,345
|
|
|
12
|
%
|
Thailand
|
165,923
|
|
|
6
|
%
|
|
137,662
|
|
|
6
|
%
|
|
113,778
|
|
|
5
|
%
|
Others
|
649,297
|
|
|
22
|
%
|
|
365,176
|
|
|
15
|
%
|
|
342,154
|
|
|
16
|
%
|
|
$
|
2,865,791
|
|
|
|
|
$
|
2,409,170
|
|
|
|
|
$
|
2,300,992
|
|
|
|
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes net revenue disaggregated by customer type (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
February 2, 2019
|
|
% of Total
|
|
Year Ended
February 3, 2018
|
|
% of Total
|
|
Year Ended
January 28, 2017
|
|
% of Total
|
Net revenue by customer type:
|
|
|
|
|
|
|
|
|
|
|
|
Direct customers
|
$
|
2,197,209
|
|
|
77
|
%
|
|
$
|
1,888,108
|
|
|
78
|
%
|
|
$
|
1,814,688
|
|
|
79
|
%
|
Distributors
|
668,582
|
|
|
23
|
%
|
|
521,062
|
|
|
22
|
%
|
|
486,304
|
|
|
21
|
%
|
|
$
|
2,865,791
|
|
|
|
|
$
|
2,409,170
|
|
|
|
|
$
|
2,300,992
|
|
|
|
Contract Liabilities
Contract liabilities consist of the Company’s obligation to transfer goods or services to a customer for which the Company has received consideration or the amount is due from the customer. As of
February 2, 2019
, contract liability balances are comprised of variable consideration estimated based on a portfolio basis using the expected value methodology based on analysis of historical data, current economic conditions, and contractual terms. Variable consideration estimates consist of the estimated returns, price discounts, price protection, rebates, and stock rotation programs. As of the end of a reporting period, some of the performance obligations associated with contracts will have been unsatisfied or only partially satisfied. In accordance with the practical expedients available in the guidance, the Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less. Contract liabilities are included in accrued liabilities in the consolidated balance sheets.
The opening balance of contract liabilities at the beginning of fiscal year 2019 was
$79.6 million
. During the year ended
February 2, 2019
, contract liabilities increased by
$721.7 million
associated with variable consideration estimates, offset by
$658.9 million
decrease in such reserves primarily due to credit memos issued to customers. The ending balance of contract liabilities at the end of fiscal year 2019 was
$142.4 million
. The amount of revenue recognized during the year ended February 2, 2019 that was included in the contract liabilities balance at February 3, 2018 was not material.
Sales Commissions
The Company has elected to apply the practical expedient to expense commissions when incurred as the amortization period is typically one year or less. These costs are recorded in selling, general and administrative expenses in the consolidated statements of operations.
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 4 — Restructuring and Other Related Charges
The following table presents details related to the restructuring related charges as presented in the Consolidated Statements of Operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
February 2,
2019
|
|
February 3,
2018
|
|
January 28,
2017
|
Severance and related costs
|
$
|
40,345
|
|
|
$
|
8,247
|
|
|
$
|
32,650
|
|
Facilities and related costs
|
35,831
|
|
|
1,692
|
|
|
6,587
|
|
Other exit-related costs
|
2,050
|
|
|
2,082
|
|
|
5,452
|
|
|
78,226
|
|
|
12,021
|
|
|
44,689
|
|
Release of reserves:
|
|
|
|
|
|
Severance
|
(1,273
|
)
|
|
(1,612
|
)
|
|
(86
|
)
|
Facilities and related costs
|
—
|
|
|
(258
|
)
|
|
—
|
|
Other exit-related costs
|
—
|
|
|
(340
|
)
|
|
(383
|
)
|
|
|
|
|
|
|
Impairment and write-off of assets & restructuring (gain):
|
|
|
|
|
|
Prepaid deposit
|
—
|
|
|
—
|
|
|
45,000
|
|
Technology licenses
|
6,523
|
|
|
174
|
|
|
629
|
|
Equipment and other
|
5,503
|
|
|
(489
|
)
|
|
6,952
|
|
Building sale
|
(12,226
|
)
|
|
(4,246
|
)
|
|
—
|
|
|
$
|
76,753
|
|
|
$
|
5,250
|
|
|
$
|
96,801
|
|
Fiscal 2019.
The Company recorded
$76.8 million
of restructuring and other related charges in fiscal 2019 in connection with the Cavium acquisition as described in “Note 5 - Business Combination”. Following the acquisition, the Company reviewed its financial position and operating results against the Company's strategic objectives, long-term operating targets and other operational priorities and initiated a restructuring plan in an effort to increase operational efficiency, decrease costs and increase profitability. The Company expects to complete these restructuring actions by the end of fiscal 2020.
The charges include approximately
$39.1 million
in severance and related costs,
$35.8 million
in facilities and related costs,
$2.0 million
in other exit-related costs,
$12.0 million
for the impairment of equipment and technology licenses, offset by a gain of
$12.2 million
from the sale of a building in Singapore. The severance costs primarily relate to the employee separation costs in connection with the Cavium acquisition. The facility and related costs primarily relate to the remaining lease obligation, net of sublease income, upon vacating certain worldwide office locations, and ongoing operating expenses of vacated facilities.
Fiscal 2018.
The Company recorded
$5.3 million
of restructuring and other related charges in fiscal 2018 in continuation of the restructuring plan announced in November 2016 as described in Note 6 - Discontinued Operations. As of February 2, 2019, the Company has completed its restructuring actions that were contemplated in the original November 2016 announcement. Total cumulative charges recorded related to this restructuring action were
$95.6 million
.
Fiscal 2017.
The Company recorded
$96.8 million
of restructuring and other related charges in fiscal 2017, which included costs associated with severance, asset impairment, lease termination fees and other costs.
The Company recorded restructuring and other related charges of
$90.3 million
in fiscal 2017 related to this restructuring plan announced in November 2016. The charges included
$32.6 million
of severance benefits,
$5.5 million
of other exit-related costs primarily related to contract cancellation penalties,
$1.9 million
of costs related to closing certain facilities,
$45.0 million
to fully impair a nonrefundable deposit due to the non-utilization of the related contract, and
$5.4 million
for the impairment of equipment and technology licenses.
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In connection with the restructuring of its mobile platform business in September 2015, substantially all of the remaining activities expected to be completed in the first half of fiscal 2017 were completed. As a result, the Company recorded a charge of
$1.9 million
in fiscal 2017, which included
$2.2 million
primarily for the write off of all remaining mobile-related equipment that was previously classified as held for sale that was offset by a net credit of
$0.3 million
, mainly due to the release of a reserve related to the loss on contract termination previously recognized in fiscal 2016. In addition to the restructuring actions described in the preceding paragraph, the Company recorded charges of
$4.6 million
in the fiscal 2017, primarily for the remaining lease obligation, net of sublease income, upon vacating certain floors in one of its Israel facilities and ongoing operating expenses of vacated facilities related to restructuring actions in previous years.
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 2016 and Other Restructuring
|
|
July 2018 Restructuring
|
|
|
|
Severance and related costs
|
|
Facilities and related costs
|
|
Other exit-related costs
|
|
Severance and related costs
|
|
Facilities and related costs
|
|
Other exit-related costs
|
|
Total
|
Balance at January 28, 2017
|
$
|
17,000
|
|
|
$
|
2,474
|
|
|
$
|
4,625
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
24,099
|
|
Restructuring charges - continuing operations
|
8,247
|
|
|
1,692
|
|
|
2,082
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,021
|
|
Release of reserves - continuing operations
|
(1,612
|
)
|
|
(258
|
)
|
|
(340
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,210
|
)
|
Restructuring charges - discontinued operations
|
7,015
|
|
|
9
|
|
|
3,560
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,584
|
|
Net cash payments
|
(29,996
|
)
|
|
(3,455
|
)
|
|
(11,364
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(44,815
|
)
|
Other
|
—
|
|
|
—
|
|
|
1,992
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,992
|
|
Balance at February 3, 2018
|
654
|
|
|
462
|
|
|
555
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,671
|
|
Restructuring charges - continuing operations
|
—
|
|
|
—
|
|
|
—
|
|
|
40,345
|
|
|
35,831
|
|
|
2,050
|
|
|
78,226
|
|
Release of reserves - continuing operations
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,273
|
)
|
|
—
|
|
|
—
|
|
|
(1,273
|
)
|
Net cash payments
|
(654
|
)
|
|
(462
|
)
|
|
(555
|
)
|
|
(26,614
|
)
|
|
(8,927
|
)
|
|
(1,001
|
)
|
|
(38,213
|
)
|
Exchange rate adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
(55
|
)
|
|
—
|
|
|
—
|
|
|
(55
|
)
|
Balance at February 2, 2019
|
—
|
|
|
—
|
|
|
—
|
|
|
12,403
|
|
|
26,904
|
|
|
1,049
|
|
|
40,356
|
|
Less: non-current portion
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,654
|
|
|
—
|
|
|
13,654
|
|
Current portion
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,403
|
|
|
$
|
13,250
|
|
|
$
|
1,049
|
|
|
$
|
26,702
|
|
For fiscal 2018, severance charges of
$7.0 million
and other exit-related costs of
$3.6 million
relate to discontinued operations and have been included in income (loss) from discontinued operations, net of tax, in the Company's consolidated statements of operations. For fiscal 2019, all restructuring and related charges associated with the July 2018 restructuring plan have been included in income (loss) from continuing operations, net of tax, in the Company's consolidated statements of operations.
The balance at February 2, 2019 for facility and related costs includes remaining payments under lease obligations related to vacated space that are expected to be paid through fiscal 2028, net of estimated sub-lease income. The remaining accrued severance and related costs and the other exit-related costs are expected to be paid in fiscal 2020.
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 5 — Business Combination
On July 6, 2018, the Company completed the acquisition of Cavium (the “Cavium acquisition”). Cavium is a provider of highly integrated semiconductor processors that enable intelligent processing for wired and wireless infrastructure and cloud for networking, communications, storage and security applications. The Cavium acquisition was primarily intended to create an opportunity for the combined company to emerge as a leader in infrastructure solutions. In accordance with the terms of the Agreement and Plan of Merger, dated as of November 19, 2017, by and among the Company and Cavium (the “Cavium merger agreement”), the Company acquired all outstanding shares of common stock of Cavium (the “Cavium shares”) for
$40.00
per share in cash and
2.1757
shares of the Company’s common stock exchanged for each share of Cavium stock. The Company also made cash payments for the fractional shares that resulted from conversion as specified in the Cavium merger agreement. The merger consideration was funded with a combination of cash on hand, new debt financing and issuance of the Company’s common shares. See “Note 12 - Debt” for discussion of the debt financing.
The following table summarizes the total merger consideration (in thousands, except share and per share data):
|
|
|
|
|
|
Cash consideration to Cavium common stockholders
|
|
$
|
2,819,812
|
|
Common stock (153,376,408 shares of the Company's common
stock at $21.34 per share)
|
|
3,273,053
|
|
Cash consideration for intrinsic value of vested director stock options and employee accelerated awards attributable to pre-acquisition service
|
|
10,642
|
|
Stock consideration for employee accelerated awards attributable to pre-acquisition service
|
|
7,804
|
|
Fair value of the replacement equity awards attributable to pre-acquisition service
|
|
50,485
|
|
Total merger consideration
|
|
$
|
6,161,796
|
|
Pursuant to the Cavium merger agreement, the Company assumed the outstanding employee equity awards originally granted by Cavium and converted such shares into the Company’s equivalent awards. The outstanding vested options held by directors of Cavium were settled in cash as specified in the Cavium merger agreement. The portion of the fair value of partially vested awards associated with pre-acquisition service of Cavium employees represented a component of the total consideration, as presented above.
The merger consideration allocation set forth herein is preliminary and may be revised as additional information becomes available during the measurement period which could be up to 12 months from the closing date of the acquisition. Any such revisions or changes may be material.
In accordance with US GAAP requirements for business combinations, the Company allocated the fair value of the purchase consideration to the tangible assets, liabilities and intangible assets acquired, including in-process research and development, or IPR&D, generally based on their estimated fair values. The excess purchase price over those fair values is recorded as goodwill. The factors contributing to the recognition of goodwill were based upon the Company's conclusion that there are strategic and synergistic benefits that are expected to be realized from the acquisition. Goodwill of
$3.5 billion
recorded for the Cavium acquisition is not expected to be deductible for tax purposes. IPR&D is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment thereafter. When an IPR&D project is completed, the IPR&D is reclassified as an amortizable purchased intangible asset and amortized over the asset’s estimated useful life. The Company’s valuation assumptions of acquired assets and assumed liabilities require significant estimates, especially with respect to intangible assets. Acquisition-related costs are expensed in the periods in which the costs are incurred.
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The purchase price allocation is as follows, including adjustments to the purchase price allocation from the previously reported figures at August 4, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previously Reported
August 4, 2018
(Provisional)
|
|
Measurement Period Adjustments
|
|
February 2, 2019
|
Cash and cash equivalents
|
|
$
|
180,989
|
|
|
$
|
—
|
|
|
$
|
180,989
|
|
Accounts receivable
|
|
112,270
|
|
|
—
|
|
|
112,270
|
|
Inventories
|
|
330,778
|
|
|
—
|
|
|
330,778
|
|
Prepaid expense and other current assets
|
|
19,890
|
|
|
—
|
|
|
19,890
|
|
Assets held for sale
|
|
483
|
|
|
—
|
|
|
483
|
|
Property and equipment
|
|
115,428
|
|
|
—
|
|
|
115,428
|
|
Acquired intangible assets
|
|
2,744,000
|
|
|
—
|
|
|
2,744,000
|
|
Other non-current assets
|
|
89,139
|
|
|
—
|
|
|
89,139
|
|
Goodwill
|
|
3,504,302
|
|
|
(3,107
|
)
|
|
3,501,195
|
|
Accounts payable
|
|
(52,383
|
)
|
|
—
|
|
|
(52,383
|
)
|
Accrued liabilities
|
|
(127,837
|
)
|
|
1,830
|
|
|
(126,007
|
)
|
Accrued employee compensation
|
|
(34,813
|
)
|
|
—
|
|
|
(34,813
|
)
|
Deferred income
|
|
(2,466
|
)
|
|
—
|
|
|
(2,466
|
)
|
Current portion of long-term debt
|
|
(6,123
|
)
|
|
—
|
|
|
(6,123
|
)
|
Liabilities held for sale
|
|
(3,032
|
)
|
|
—
|
|
|
(3,032
|
)
|
Long-term debt
|
|
(600,005
|
)
|
|
—
|
|
|
(600,005
|
)
|
Non-current income taxes payable
|
|
(8,365
|
)
|
|
(89
|
)
|
|
(8,454
|
)
|
Deferred tax liabilities
|
|
(84,360
|
)
|
|
1,366
|
|
|
(82,994
|
)
|
Other non-current liabilities
|
|
(16,099
|
)
|
|
—
|
|
|
(16,099
|
)
|
Total merger consideration
|
|
$
|
6,161,796
|
|
|
$
|
—
|
|
|
$
|
6,161,796
|
|
The provisional amounts presented in the table above pertained to the preliminary purchase price allocation reported in the Company’s Form 10-Q for the second quarter ended August 4, 2018. See “Note 11 - Goodwill and Acquired Intangible Assets, Net” for discussion of acquired intangible assets. The measurement period adjustments were primarily related to adjustments to acquired contingent liabilities, adjustments to deferred tax liabilities, the completion of the final Cavium income tax returns and adjustments to uncertain tax positions. The Company does not believe that the measurement period adjustments had a material impact on its consolidated statements of operations, balance sheets or cash flows in any periods previously reported.
The Company incurred total acquisition related costs of
$53.7 million
which were recorded in selling, general and administrative expense in the consolidated statements of operations. The Company also incurred
$22.8 million
of debt financing costs. As of
February 2, 2019
,
$0.4 million
associated with the Revolving Credit Facility was classified in prepaid expenses and other current assets,
$1.3 million
associated with the Revolving Credit Facility was classified in other non-current assets, and
$10.5 million
associated with the term loan and senior notes was classified in long-term debt in the consolidated balance sheet. See “Note 12. Debt” for additional information. Additionally, the Company incurred
$2.9 million
of equity issuance costs, which were recorded in additional paid-in capital in the consolidated balance sheet.
Since the date of the acquisition, Cavium contributed
$487.1 million
of the consolidated net revenue for the year ended
February 2, 2019
. Post-acquisition income (loss) on a standalone basis is impracticable to determine as the Company has been integrating Cavium into the Company's existing operations.
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Unaudited Supplemental Pro Forma Information
The unaudited supplemental pro forma financial information presented below is for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the acquisition had been completed on the date indicated, does not reflect synergies that might have been achieved, nor is it indicative of future operating results or financial position. The pro forma adjustments are based upon currently available information and certain assumptions the Company believe are reasonable under the circumstances.
The following unaudited supplemental pro forma information presents the combined results of operations for each of the periods presented, as if Cavium had been acquired as of the beginning of fiscal year 2018. The unaudited supplemental pro forma information includes adjustments to amortization and depreciation for acquired intangible assets and property and equipment, adjustments to share-based compensation expense, the purchase accounting effect on inventories acquired, interest expense, and transaction costs. For fiscal year 2018, nonrecurring pro forma adjustments directly attributable to the Cavium acquisition included (i) share-based compensation expense of
$37.8 million
, (ii) the purchase accounting effect of inventories acquired of
$223.0 million
, (iii) bridge loan related debt issuance costs of
$6.1 million
and (iv) transaction costs of
$121.8 million
. The unaudited supplemental pro forma information presented below is for informational purposes only and is not necessarily indicative of our consolidated results of operations of the combined business had the Cavium acquisition actually occurred at the beginning of fiscal year 2018 or of the results of our future operations of the combined business.
The unaudited supplemental pro forma financial information for the periods presented is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
February 2, 2019
|
|
February 3, 2018
|
Pro forma net revenue
|
|
$
|
3,208,723
|
|
|
$
|
3,393,188
|
|
Pro forma net loss
|
|
$
|
(106,601
|
)
|
|
$
|
(91,355
|
)
|
Note 6 — Discontinued Operations
In November 2016, the Company announced a plan to restructure its operations to refocus its research and development, increase operational efficiency and improve profitability. As part of these actions, the Company began an active program to locate buyers for several businesses. The Company concluded that the divestitures of these businesses in the aggregate represented a strategic shift that had a major effect on the Company’s operations and financial results. These businesses were deemed not to align with the Company’s core business. The Company classified these businesses as discontinued operations for all periods presented in its consolidated financial statements.
In February 2017, the Company entered into an agreement to sell the assets of
one
of these businesses, the Broadband operations. The transaction closed on April 4, 2017. Based on the terms of the agreement, the Company received sale consideration of
$23.0 million
in cash proceeds. The divestiture resulted in a pre-tax gain on sale of
$8.2 million
, which is included in income from discontinued operations in the consolidated statements of operations.
In May 2017, the Company sold the assets of a second business, the LTE thin-modem operations. The transaction closed on May 18, 2017. Based on the terms of the agreement, the Company received sale consideration of
$52.9 million
. The sale consideration included
$3.6 million
related to the Company's tax withholding liability paid by the buyer to tax authorities. The divestiture resulted in a pre-tax gain on sale of
$34.0 million
, which is included in income from discontinued operations in the consolidated statements of operations.
In June 2017, the Company entered into an agreement to sell the assets of a third business, the Multimedia operations. The transaction closed on September 8, 2017. Based on the terms of the agreement, the Company received sale consideration of
$93.7 million
in cash proceeds. The divestiture resulted in a pre-tax gain on sale of
$46.2 million
which is included in income from discontinued operations in the consolidated statements of operations.
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
There were no carrying amounts of assets and liabilities pertaining to discontinued operations in the consolidated balance sheet as of
February 2, 2019
and
February 3, 2018
. There were no other assets held for sale as of
February 2, 2019
. Other assets held for sale as of
February 3, 2018
consisted of a building in Singapore and land.
The following table presents a reconciliation of the major financial lines constituting the results of operations for discontinued operations to the net income (loss) from discontinued operations presented separately in the consolidated statements of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
February 3, 2018
|
|
January 28, 2017
|
Net revenue
|
$
|
94,137
|
|
|
$
|
115,437
|
|
Cost of goods sold
|
47,499
|
|
|
72,764
|
|
Gross Profit
|
46,638
|
|
|
42,673
|
|
Operating expenses:
|
|
|
|
Research and development
|
34,530
|
|
|
88,538
|
|
Selling, general and administrative
|
6,925
|
|
|
6,415
|
|
Total operating expenses
|
41,455
|
|
|
94,953
|
|
Income (loss) from discontinued operations before income taxes
|
5,183
|
|
|
(52,280
|
)
|
Gain from sale of discontinued operations
|
88,406
|
|
|
—
|
|
Provision for income taxes
|
5,900
|
|
|
1,390
|
|
Net income (loss) from discontinued operations
|
$
|
87,689
|
|
|
$
|
(53,670
|
)
|
The Company had no discontinued operations for the year ended
February 2, 2019
. Non-cash operating amounts reported for discontinued operations include share-based compensation expense of
$1.6 million
and
$12.6 million
in fiscal 2018 and 2017, respectively. Depreciation, amortization and capital expenditures are not material. The proceeds from sale of the Multimedia business of
$93.7 million
, proceeds from sale of the LTE thin-modem business of
$49.2 million
and proceeds from sale of the Broadband business of
$23.0 million
are classified in investing activities for fiscal 2018, and the gain on sale of such business is presented in operating activities in the consolidated statements of cash flows. Due to the Company's transfer pricing arrangements, the Company generates income in most jurisdictions in which it operates, regardless of a loss that may exist on a consolidated basis. In addition, the Company recognized a tax expense of
$0.5 million
on the sale of its Multimedia business for fiscal 2018, and a tax expense of
$4.5 million
on the sale of its LTE thin-modem business for fiscal 2018. As such, the Company has reflected a tax expense of
$5.9 million
and
$1.4 million
for fiscal 2018 and 2017, respectively, attributable to discontinued operations.
Note 7 — Supplemental Financial Information (in thousands)
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
February 2,
2019
|
|
February 3,
2018
|
Cash and cash equivalents:
|
|
|
|
Cash
|
$
|
491,646
|
|
|
$
|
620,907
|
|
Cash equivalents:
|
|
|
|
Money market funds
|
16,829
|
|
|
18,503
|
|
Time deposits
|
73,935
|
|
|
65,117
|
|
U.S. government and agency debt
|
—
|
|
|
51,589
|
|
Foreign government and agency debt
|
—
|
|
|
—
|
|
Municipal debt securities
|
—
|
|
|
5,290
|
|
Corporate debt securities
|
—
|
|
|
127,076
|
|
Cash and cash equivalents
|
$
|
582,410
|
|
|
$
|
888,482
|
|
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
February 2,
2019
|
|
February 3,
2018
|
Sales returns
|
$
|
—
|
|
|
$
|
1,516
|
|
Doubtful accounts
|
2,637
|
|
|
984
|
|
|
$
|
2,637
|
|
|
$
|
2,500
|
|
Beginning in fiscal 2019 upon the adoption of the new revenue recognition standard, the provision for sales return is included as a component of contract liabilities within accrued liabilities in the accompanying consolidated balance sheet, whereas in previous periods it was included within the accounts receivable, net balance. The allowance for doubtful accounts continues to be included within the accounts receivable, net balance on the consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
February 2,
2019
|
|
February 3,
2018
|
Inventories:
|
|
|
|
Work-in-process
|
$
|
162,384
|
|
|
$
|
103,711
|
|
Finished goods
|
113,621
|
|
|
66,328
|
|
Inventories
|
$
|
276,005
|
|
|
$
|
170,039
|
|
Inventory held by third-party logistics providers is recorded as consigned inventory on the Company’s consolidated balance sheet. The amount of inventory held at third-party logistics providers was
$23.6 million
and
$18.7 million
at
February 2, 2019
and
February 3, 2018
, respectively.
|
|
|
|
|
|
|
|
|
|
February 2,
2019
|
|
February 3,
2018
|
Property and equipment, net:
|
|
|
|
Machinery and equipment
|
$
|
615,329
|
|
|
$
|
535,416
|
|
Land, buildings, and leasehold improvements
|
287,047
|
|
|
247,675
|
|
Computer software
|
105,539
|
|
|
98,253
|
|
Furniture and fixtures
|
23,924
|
|
|
21,139
|
|
|
1,031,839
|
|
|
902,483
|
|
Less: Accumulated depreciation
|
(712,861
|
)
|
|
(700,261
|
)
|
Property and equipment, net
|
$
|
318,978
|
|
|
$
|
202,222
|
|
The Company recorded depreciation expense of
$64.5 million
,
$49.2 million
and
$82.4 million
for fiscal
2019
,
2018
and
2017
, respectively.
|
|
|
|
|
|
|
|
|
|
February 2,
2019
|
|
February 3,
2018
|
Other non-current assets:
|
|
|
|
Technology and other licenses
|
$
|
125,278
|
|
|
$
|
87,536
|
|
Prepaid ship and debit *
|
75,079
|
|
|
—
|
|
Deferred tax assets
|
12,460
|
|
|
20,633
|
|
Deferred debt and equity financing costs
|
1,342
|
|
|
17,622
|
|
Other
|
33,170
|
|
|
23,009
|
|
Other non-current assets
|
$
|
247,329
|
|
|
$
|
148,800
|
|
* Prepaid ship and debit of
$75.1 million
as of February 2, 2019 relate to certain prepaid distributor arrangements for ship and debit claims.
Deferred debt and equity financing costs as of February 2, 2019 and February 3, 2018 related to financing for the Cavium acquisition, which closed during the second quarter of fiscal 2019. Amortization of technology and other licenses was
$57.0 million
,
$34.3 million
and
$25.5 million
in fiscal
2019
,
2018
and
2017
, respectively.
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
February 2,
2019
|
|
February 3,
2018
|
Accrued liabilities:
|
|
|
|
Contract liabilities
|
$
|
142,378
|
|
|
$
|
—
|
|
Technology license obligations
|
48,018
|
|
|
28,488
|
|
Accrued rebates (1)
|
—
|
|
|
9,292
|
|
Accrued income tax payable
|
47,079
|
|
|
959
|
|
Other
|
93,119
|
|
|
48,219
|
|
Accrued liabilities
|
$
|
330,594
|
|
|
$
|
86,958
|
|
(1) Accrued rebates are classified as part of contract liabilities beginning in fiscal year 2019 upon adoption of the new revenue recognition standard.
|
|
|
|
|
|
|
|
|
|
February 2,
2019
|
|
February 3,
2018
|
Deferred income:
|
|
|
|
Deferred revenue
|
$
|
5,050
|
|
|
$
|
81,896
|
|
Deferred cost of goods sold
|
(135
|
)
|
|
(20,659
|
)
|
Deferred income
|
$
|
4,915
|
|
|
$
|
61,237
|
|
|
|
|
|
|
|
|
|
|
|
February 2,
2019
|
|
February 3,
2018
|
Other non-current liabilities:
|
|
|
|
Long-term restructuring liabilities
|
$
|
13,654
|
|
|
$
|
59
|
|
Technology license obligations
|
6,716
|
|
|
34,060
|
|
Long-term accrued employee compensation
|
1,246
|
|
|
1,029
|
|
Other
|
13,758
|
|
|
1,404
|
|
Other non-current liabilities
|
$
|
35,374
|
|
|
$
|
36,552
|
|
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 (1)
|
|
Unrealized
Gain
(Loss) on
Cash Flow
Hedges (2)
|
|
Total
|
Balance at January 28, 2017
|
$
|
(801
|
)
|
|
$
|
824
|
|
|
$
|
23
|
|
Other comprehensive income (loss) before reclassifications
|
(1,460
|
)
|
|
2,341
|
|
|
881
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
(61
|
)
|
|
(3,165
|
)
|
|
(3,226
|
)
|
Net current-period other comprehensive loss, net of tax
|
(1,521
|
)
|
|
(824
|
)
|
|
(2,345
|
)
|
Balance at February 3, 2018
|
(2,322
|
)
|
|
—
|
|
|
(2,322
|
)
|
Other comprehensive loss before reclassifications
|
(733
|
)
|
|
—
|
|
|
(733
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
3,055
|
|
|
—
|
|
|
3,055
|
|
Net current-period other comprehensive income, net of tax
|
2,322
|
|
|
—
|
|
|
2,322
|
|
Balance at February 2, 2019
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(1) The amounts of gains (losses) associated with the Company's marketable securities reclassified from accumulated other comprehensive income (loss) are recorded in other income, net in the consolidated statements of operations.
(2) The amounts of gains (losses) associated with the Company's derivative financial instruments reclassified from accumulated other comprehensive income (loss) are recorded in operating expenses. See “Note 9- Derivative Financial Instruments” for additional information on the affected line items in the consolidated statements of operations.
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
February 2,
2019
|
|
February 3,
2018
|
|
January 28,
2017
|
Supplemental cash flow information:
|
|
|
|
|
|
Cash paid for interest
|
$
|
39,156
|
|
|
$
|
746
|
|
|
$
|
363
|
|
Cash paid for income taxes, net
|
$
|
8,143
|
|
|
$
|
11,401
|
|
|
$
|
17,032
|
|
Non-Cash Investing and Financing Activities:
|
|
|
|
|
|
Non-cash consideration paid for the acquisition of Cavium
|
$
|
3,331,342
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Purchase of software and intellectual property under license obligations
|
$
|
4,221
|
|
|
$
|
59,803
|
|
|
$
|
27,081
|
|
Unsettled trade receivable of available-for-sale securities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,742
|
|
Unsettled trade payable of available-for-sale securities
|
$
|
—
|
|
|
$
|
4,497
|
|
|
$
|
15,371
|
|
Unpaid purchase of property and equipment at end of year
|
$
|
8,837
|
|
|
$
|
5,595
|
|
|
$
|
2,547
|
|
Unpaid repurchases of our common shares
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,499
|
|
Unpaid equity and debt financing costs
|
$
|
—
|
|
|
$
|
3,244
|
|
|
$
|
—
|
|
Note 8 — Investments
As of
February 2, 2019
, the Company has no investments on hand. As of February 3, 2018, the following table summarizes the Company’s investments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 3, 2018
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Estimated
Fair Value
|
Short-term investments:
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
U.S. government and agency debt
|
$
|
248,336
|
|
|
$
|
49
|
|
|
$
|
(644
|
)
|
|
$
|
247,741
|
|
Foreign government and agency debt
|
7,004
|
|
|
—
|
|
|
(17
|
)
|
|
6,987
|
|
Municipal debt securities
|
2,734
|
|
|
—
|
|
|
(6
|
)
|
|
2,728
|
|
Corporate debt securities
|
504,609
|
|
|
469
|
|
|
(1,999
|
)
|
|
503,079
|
|
Asset backed securities
|
42,429
|
|
|
3
|
|
|
(177
|
)
|
|
42,255
|
|
Held-to-Maturity:
|
|
|
|
|
|
|
|
Time deposits
|
150,000
|
|
|
—
|
|
|
—
|
|
|
150,000
|
|
Total short-term investments
|
955,112
|
|
|
521
|
|
|
(2,843
|
)
|
|
952,790
|
|
Total investments
|
$
|
955,112
|
|
|
$
|
521
|
|
|
$
|
(2,843
|
)
|
|
$
|
952,790
|
|
Short-term, highly liquid investments of
$90.8 million
and
$267.6 million
as of
February 2, 2019
and
February 3, 2018
, respectively, included in cash and cash equivalents on the accompanying consolidated balance sheets are not included in the tables above because the gross unrealized gains and losses were immaterial as the carrying values approximate fair value because of the short term maturity of such investments.
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Gross realized gains and gross realized losses on sales of available-for-sale securities are presented in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
February 2,
2019
|
|
February 3,
2018
|
|
January 28,
2017
|
Gross realized gains
|
$
|
371
|
|
|
$
|
186
|
|
|
$
|
2,047
|
|
Gross realized losses
|
(3,437
|
)
|
|
(2,963
|
)
|
|
(547
|
)
|
Total net realized gains (losses)
|
$
|
(3,066
|
)
|
|
$
|
(2,777
|
)
|
|
$
|
1,500
|
|
There are no available-for-sale securities on hand at February 2, 2019. The contractual maturities of available-for-sale securities for the fiscal year ended February 3, 2018 are presented in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
February 3, 2018
|
|
Amortized
Cost
|
|
Estimated
Fair Value
|
Due in one year or less
|
$
|
554,247
|
|
|
$
|
553,866
|
|
Due between one and five years
|
400,866
|
|
|
398,924
|
|
|
$
|
955,113
|
|
|
$
|
952,790
|
|
There are no securities on hand at
February 2, 2019
. Securities that have been in a continuous unrealized loss position are presented as follows for the fiscal year ended February 3, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 3, 2018
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
U.S. government and agency debt
|
$
|
148,538
|
|
|
$
|
(298
|
)
|
|
$
|
51,332
|
|
|
$
|
(346
|
)
|
|
$
|
199,870
|
|
|
$
|
(644
|
)
|
Foreign government and agency debt
|
3,993
|
|
|
(1
|
)
|
|
2,994
|
|
|
(16
|
)
|
|
6,987
|
|
|
(17
|
)
|
Municipal debt securities
|
1,969
|
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
1,969
|
|
|
(6
|
)
|
Corporate debt securities
|
253,380
|
|
|
(1,514
|
)
|
|
46,805
|
|
|
(485
|
)
|
|
300,185
|
|
|
(1,999
|
)
|
Asset backed securities
|
37,636
|
|
|
(145
|
)
|
|
2,167
|
|
|
(32
|
)
|
|
39,803
|
|
|
(177
|
)
|
Total securities
|
$
|
445,516
|
|
|
$
|
(1,964
|
)
|
|
$
|
103,298
|
|
|
$
|
(879
|
)
|
|
$
|
548,814
|
|
|
$
|
(2,843
|
)
|
Note 9 — 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 Company’s 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. There were
no
outstanding forward contracts at the year ended
February 2, 2019
and
February 3, 2018
.
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.
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table provides information about gains (losses) associated with our derivative financial instruments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gains (Losses)
in Statement of Operations
|
|
Amount of Gains (Losses) in Statement
of Operations for the Year Ended
|
|
February 2,
2019
|
|
February 3,
2018
|
|
January 28,
2017
|
Derivatives designated as cash flow hedges:
|
|
|
|
|
|
|
|
Forward contracts:
|
Research and development
|
|
$
|
—
|
|
|
$
|
3,223
|
|
|
$
|
737
|
|
|
Selling, general and administrative
|
|
—
|
|
|
723
|
|
|
101
|
|
|
|
|
$
|
—
|
|
|
$
|
3,946
|
|
|
$
|
838
|
|
The amounts of gains (losses) associated with the Company's derivative financial instruments reclassified from accumulated other comprehensive income (loss) are presented in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
Affected Line Item in the Statement of Operations
|
February 2,
2019
|
|
February 3,
2018
|
|
January 28,
2017
|
Operating costs and expenses:
|
|
|
|
|
|
Cash flow hedges:
|
|
|
|
|
|
Research and development
|
$
|
—
|
|
|
$
|
2,564
|
|
|
$
|
467
|
|
Selling, general and administrative
|
—
|
|
|
601
|
|
|
66
|
|
Total
|
$
|
—
|
|
|
$
|
3,165
|
|
|
$
|
533
|
|
The portion of gains (losses) excluded from the assessment of hedge effectiveness is included in interest and other income, net. These amounts were not material in fiscal
2019
,
2018
and
2017
. The Company did
no
t have hedge ineffectiveness from derivative financial instruments in fiscal
2019
,
2018
and
2017
.
No
cash flow hedges were terminated as a result of forecasted transactions that did not occur.
Note 10 — 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 1 — Observable inputs that reflect quoted prices for identical assets or liabilities in active markets.
Level 2 — Other inputs that are directly or indirectly observable in the marketplace.
Level 3 — Unobservable 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 Company’s 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 Company’s 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 Company’s investments in auction rate securities were classified as Level 3 assets because there were no active markets for the auction rate securities and consequently the Company was unable to obtain independent valuations from market sources. Therefore, the auction rate securities were valued using a discounted cash flow model. Some of the inputs to the discounted cash flow model are unobservable in the market.
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The tables below set forth, by level, the Company’s 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at February 2, 2019
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Items measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
Money market funds
|
$
|
16,829
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,829
|
|
Time deposits
|
—
|
|
|
73,935
|
|
|
—
|
|
|
73,935
|
|
Other non-current assets:
|
|
|
|
|
|
|
|
Severance pay fund
|
—
|
|
|
727
|
|
|
—
|
|
|
727
|
|
Total assets
|
$
|
16,829
|
|
|
$
|
74,662
|
|
|
$
|
—
|
|
|
$
|
91,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at February 3, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Items measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
Money market funds
|
$
|
18,503
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
18,503
|
|
Time deposits
|
—
|
|
|
65,117
|
|
|
—
|
|
|
65,117
|
|
U.S. government and agency debt
|
51,589
|
|
|
—
|
|
|
—
|
|
|
51,589
|
|
Municipal debt securities
|
—
|
|
|
5,290
|
|
|
—
|
|
|
5,290
|
|
Corporate debt securities
|
—
|
|
|
127,076
|
|
|
—
|
|
|
127,076
|
|
Short-term investments:
|
|
|
|
|
|
|
|
Time deposits
|
—
|
|
|
150,000
|
|
|
—
|
|
|
150,000
|
|
U.S. government and agency debt
|
247,741
|
|
|
—
|
|
|
—
|
|
|
247,741
|
|
Foreign government and agency debt
|
—
|
|
|
6,987
|
|
|
—
|
|
|
6,987
|
|
Municipal debt securities
|
—
|
|
|
2,728
|
|
|
—
|
|
|
2,728
|
|
Corporate debt securities
|
—
|
|
|
503,079
|
|
|
—
|
|
|
503,079
|
|
Asset backed securities
|
—
|
|
|
42,255
|
|
|
—
|
|
|
42,255
|
|
Other non-current assets:
|
|
|
|
|
|
|
|
Severance pay fund
|
—
|
|
|
896
|
|
|
—
|
|
|
896
|
|
Total assets
|
$
|
317,833
|
|
|
$
|
903,428
|
|
|
$
|
—
|
|
|
$
|
1,221,261
|
|
Fair Value of Debt
The Company classified the Term Loan, the 2023 Notes and 2028 Notes under Level 2 of the fair value measurement hierarchy. The carrying value of the Term Loan approximates its fair value as the Term Loan is carried at a market observable interest rate that resets periodically. At
February 2, 2019
, the estimated aggregate fair value of the 2023 Notes and 2028 Notes was
$997.3 million
and were classified as Level 2 as there are quoted prices from less active markets for the notes.
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the change in fair values for Level 3 assets for the years ended
February 2, 2019
and
February 3, 2018
(in thousands):
|
|
|
|
|
|
Level 3
|
Changes in fair value during the year (pre-tax):
|
|
Balance at January 28, 2017
|
$
|
4,615
|
|
Sales, redemption and settlement
|
(4,550
|
)
|
Realized loss
|
(65
|
)
|
Balance at February 3, 2018
|
—
|
|
Sales, redemption and settlement
|
—
|
|
Realized loss
|
—
|
|
Balance at February 2, 2019
|
$
|
—
|
|
There were no transfers of assets between levels in either fiscal
2019
or
2018
.
Note 11 — Goodwill and Acquired Intangible Assets, Net
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. The carrying value of goodwill as of
February 2, 2019
and
February 3, 2018
is
$5.5 billion
and
$2.0 billion
, respectively. The change in the carrying value of goodwill from
February 3, 2018
to February 2, 2019 was due to the Cavium acquisition. See “Note 5 - Business Combination” for further discussion of the acquisition.
In connection with the restructuring plan the Company announced in November 2016 (see “Note 4 - Restructuring and Other Related Charges”), its Board of Directors approved a plan to sell certain businesses that are classified and reported in the consolidated statement of operations as discontinued operations. As a result, goodwill was allocated to these businesses based on relative fair value since each represents a portion of the Company’s reporting unit (see “Note 6 - Discontinued Operations”), and was eliminated upon divestiture in fiscal year 2018.
The Company has identified that its business operates as a
single
operating segment with
two
components that it has concluded can be aggregated into a
single
reporting unit. The Company’s annual test for goodwill impairment as of the last day of the fourth quarter of fiscal
2019
did
no
t result in any impairment charge.
There was
no
activity from acquisitions or divestitures recorded to goodwill in fiscal
2019
and
2018
other than those described above.
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Acquired Intangible Assets, Net
There had been
no
new acquired intangible assets in fiscal year 2018, and as of
February 3, 2018
, the gross value of acquired intangible assets was fully amortized. In connection with the Cavium acquisition on July 6, 2018, the Company acquired
$2.7 billion
of intangible assets. As of
February 2, 2019
, net carrying amounts are as follows (in thousands, except for weighted average remaining amortization period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, 2019
|
|
|
Gross
Carrying
Amounts
|
|
Accumulated
Amortization
and
Write-Offs
|
|
Net
Carrying
Amounts
|
|
Weighted average remaining amortization period (years)
|
Developed technologies
|
|
$
|
1,743,000
|
|
|
$
|
(134,167
|
)
|
|
$
|
1,608,833
|
|
|
7.10
|
Customer contracts and related relationships
|
|
465,000
|
|
|
(45,939
|
)
|
|
419,061
|
|
|
8.42
|
Trade names
|
|
23,000
|
|
|
(3,212
|
)
|
|
19,788
|
|
|
3.85
|
Total acquired amortizable intangible assets
|
|
$
|
2,231,000
|
|
|
$
|
(183,318
|
)
|
|
$
|
2,047,682
|
|
|
7.34
|
IPR&D
|
|
513,000
|
|
|
—
|
|
|
513,000
|
|
|
n/a
|
Total acquired intangible assets
|
|
$
|
2,744,000
|
|
|
$
|
(183,318
|
)
|
|
$
|
2,560,682
|
|
|
|
The intangible assets are amortized on a straight-line basis over the estimated useful lives, except for customer contracts and related relationships, which are amortized using an accelerated method of amortization over the expected customer lives, which more accurately reflects the pattern of realization of economic benefits expected to be obtained. The IPR&D will be accounted for as an indefinite-lived intangible asset and will not be amortized until the underlying projects reach technological feasibility and commercial production at which point the IPR&D will be amortized over the estimated useful life. Useful lives for these IPR&D projects are expected to range between
4
to
9 years
. In the event the IPR&D is abandoned the related assets will be written off.
Amortization and write-off expense for acquired intangible assets was
$183.3 million
,
$3.6 million
and
$10.6 million
during the years ended
February 2, 2019
,
February 3, 2018
and
January 28, 2017
, respectively. The following table presents the estimated future amortization expense of acquired amortizable intangible assets as of
February 2, 2019
(in thousands):
|
|
|
|
|
|
Fiscal Year
|
|
Amount
|
|
2020
|
|
$
|
309,701
|
|
2021
|
|
301,580
|
|
2022
|
|
293,024
|
|
2023
|
|
285,596
|
|
2024
|
|
266,982
|
|
Thereafter
|
|
590,799
|
|
|
|
$
|
2,047,682
|
|
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 12 — Debt
On July 6, 2018, the Company completed its acquisition of Cavium. In connection with the acquisition (see "Note 5 - Business Combination"), the Company executed debt agreements in June 2018 to obtain a
$900 million
term loan, a
$500 million
revolving credit facility and
$1.0 billion
of senior unsecured notes, for
$16.7 million
debt issuance costs. Upon completion of the offering of the senior unsecured notes in June 2018, the Company terminated an
$850 million
bridge loan commitment. This bridge loan commitment was provided by the underwriting bankers at the time the Merger Agreement was executed in November 2017. The bridge loan was never drawn upon.
Term Loan and Revolving Credit Facility
On June 13, 2018, the Company entered into a credit agreement (“Credit Agreement”) with certain lenders and Goldman Sachs Bank USA, as the general administrative agent and the term facility agent, and Bank of America, N.A., as the revolving facility agent. The Credit Agreement provides for borrowings of: (i) up to
$500 million
in the form of a revolving line of credit (“Revolving Credit Facility”) and (ii)
$900 million
in the form of a term loan (“Term Loan”). The proceeds of the Term Loan were used to fund a portion of the cash consideration for the Cavium acquisition, repay Cavium’s debt, and pay transaction expenses in connection with the Cavium acquisition. The proceeds of the Revolving Credit Facility is intended for general corporate purposes of the Company and its subsidiaries, which may include, among other things, the financing of acquisitions, the refinancing of other indebtedness and the payment of transaction expenses related to the foregoing. As of
February 2, 2019
, the Revolving Credit Facility has not been drawn upon. Following is further detail of the terms of the various debt agreements.
The Term Loan has a
three
year term which matures on July 6, 2021 and has a stated floating interest rate which resets on a monthly basis and which equates to reserve-adjusted LIBOR +
137.5
bps as of
February 2, 2019
. The effective interest rate for the Term Loan was
4.341%
as of
February 2, 2019
. The Term Loan does not require any scheduled principal payments prior to final maturity but does permit the Company to make early principal payments without premium or penalty. During the year ended
February 2, 2019
, the Company repaid
$150 million
of the principal outstanding, and wrote off
$1.6 million
of associated unamortized debt issuance costs. The Revolving Credit Facility has a
five
year term and has a stated floating interest rate which equates to reserve-adjusted LIBOR +
150.0
bps. As of
February 2, 2019
, the full amount of the Revolving Credit Facility of
$500 million
was undrawn and will be available for draw down through June 13, 2023. An unused commitment fee is payable quarterly based on unused balances at a rate that is based on the ratings of the Company's senior unsecured long-term indebtedness. This rate was initially
0.175%
per year.
The Credit Agreement is unsecured and requires that the Company and its subsidiaries comply, subject to certain exceptions, with covenants relating to customary matters such as creating or permitting certain liens, entering into sale and leaseback transactions, consolidating, merging, liquidating or dissolving, and entering into restrictive agreements. It also prohibits subsidiaries of the Company from incurring additional indebtedness, and requires the Company to comply with a leverage ratio financial covenant not to exceed
3
to 1 as of the end of any fiscal quarter. As of
February 2, 2019
, the Company was in compliance with all of its debt covenants.
Senior Unsecured Notes
On June 22, 2018, the Company completed a public offering of (i)
$500.0 million
aggregate principal amount of the Company's
4.200%
Senior Notes due 2023 (the “2023 Notes”) and (ii)
$500.0 million
aggregate principal amount of the Company's
4.875%
Senior Notes due 2028 (the “2028 Notes” and, together with the 2023 Notes, the "Senior Notes”).
The 2023 Notes mature on June 22, 2023 and the 2028 Notes mature on June 22, 2028. The stated and effective interest rates for the 2023 Notes are
4.200%
and
4.423%
, respectively. The stated and effective interest rates for the 2028 Notes are
4.875%
and
5.012%
, respectively. The Company may redeem the Senior Notes, in whole or in part, at any time prior to their maturity at the redemption prices set forth in Senior Notes. In addition, upon the occurrence of a change of control repurchase event (which involves the occurrence of both a change of control and a ratings event involving the Senior Notes being rated below investment grade), the Company will be required to make an offer to repurchase the Senior Notes at a price equal to
101%
of the principal amount of the notes, plus accrued and unpaid interest to, but excluding, the repurchase date. The indenture governing the Senior Notes also contains certain limited covenants restricting the Company’s ability to incur certain liens, enter into certain sale and leaseback transactions and merge or consolidate with any other entity or convey, transfer or lease all or substantially all of the Company’s properties or assets to another person, which, in each case, are subject to certain qualifications and exceptions.
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Summary of Borrowings and Outstanding Debt
The following table summarizes the Company's outstanding debt at
February 2, 2019
(in thousands):
|
|
|
|
|
|
|
|
February 2, 2019
|
Face Value Outstanding:
|
|
|
Term Loan
|
|
$
|
750,000
|
|
2023 Notes
|
|
500,000
|
|
2028 Notes
|
|
500,000
|
|
Total borrowings
|
|
$
|
1,750,000
|
|
Less: Unamortized debt discount and issuance cost
|
|
(17,301
|
)
|
Net carrying amount of debt
|
|
$
|
1,732,699
|
|
Less: Current portion
|
|
—
|
|
Non-current portion
|
|
$
|
1,732,699
|
|
During the year ended
February 2, 2019
, the Company recognized
$50.1 million
of interest expense in its consolidated statements of operations related to interest, amortization of debt issuance costs and accretion of discount associated with the outstanding Term Loan and Senior Notes.
As of
February 2, 2019
, the aggregate future contractual maturities of the Company's outstanding debt, at face value, were as follows (in thousands):
|
|
|
|
|
|
Fiscal year
|
|
Amount
|
2020
|
|
$
|
—
|
|
2021
|
|
$
|
—
|
|
2022
|
|
$
|
750,000
|
|
2023
|
|
$
|
—
|
|
2024
|
|
$
|
500,000
|
|
Thereafter
|
|
$
|
500,000
|
|
Repayment of Debt and Termination of Credit Facility of Cavium
On July 6, 2018, concurrent with completing the acquisition of Cavium as further described in “Note 5 - Business Combination,” the Company assumed and paid all of Cavium's outstanding debt and accrued interest of
$606.6 million
. Cavium's debt was governed under a credit agreement dated August 16, 2016, which was terminated following the repayment.
Note 13 — Commitments and Contingencies
Warranty Obligations
The Company’s products carry a standard
one
-year warranty with certain exceptions in which the warranty period can extend to more than
one year
based on contractual agreements. The Company’s warranty expense has not been significant in the periods presented.
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Lease Commitments
The Company leases some of its facilities, equipment and computer aided design software under non-cancelable operating leases. Rent expense, net of sublease income for fiscal
2019
,
2018
, and
2017
was approximately
$59.3 million
,
$16.8 million
and
$23.7 million
, respectively. The Company also purchases certain intellectual property under technology license obligations. Future minimum lease payments, net of estimated sublease income, and payments under technology license obligations as of
February 2, 2019
, are presented in the following tables (in thousands):
|
|
|
|
|
Fiscal Year
|
Minimum
Operating
Lease
Payments
|
2020
|
$
|
43,286
|
|
2021
|
29,866
|
|
2022
|
26,612
|
|
2023
|
21,272
|
|
2024
|
13,690
|
|
Thereafter
|
40,100
|
|
Total future minimum lease payments
|
$
|
174,826
|
|
|
|
|
|
|
Fiscal Year
|
Technology
License
Obligations
|
2020
|
$
|
54,846
|
|
2021
|
7,829
|
|
Total future minimum lease payments
|
$
|
62,675
|
|
Less: amount representing interest
|
(955
|
)
|
Present value of future minimum payments
|
61,720
|
|
Less: current portion
|
(54,005
|
)
|
Non-current portion
|
$
|
7,715
|
|
Technology license obligations include the liabilities under agreements for technology licenses between the Company and various vendors.
Purchase Commitments
Under the Company’s manufacturing relationships with its foundry partners, cancellation of all outstanding purchase orders is allowed but requires payment of all costs and expenses incurred through the date of cancellation. As of
February 2, 2019
, these foundries had incurred approximately
$103.7 million
of manufacturing costs and expenses relating to the Company’s outstanding purchase orders.
Contingencies
The Company may from time to time be a party to claims, lawsuits, governmental inquiries, inspections or investigations, and other legal proceedings (collectively, “Legal Matters”) arising in the course of its business. Such Legal Matters, even if not meritorious, could result in the expenditure of significant financial and managerial resources. The Company is currently unable to predict the final outcome of its Legal Matters and therefore cannot determine the likelihood of loss or estimate a range of possible loss, except with respect to amounts where it has determined a loss is both probable and estimable and has made an accrual. The Company evaluates, at least on a quarterly basis, developments in its Legal Matters that could affect the amount of any accrual, as well as any developments that would result in a loss contingency to become both probable and reasonably estimable. The ultimate outcome of any Legal Matter involves judgments, estimates and inherent uncertainties. An unfavorable outcome in a Legal Matter, particularly in a patent dispute, could require the Company to pay damages or could prevent the Company from selling some of its products in certain jurisdictions. While the Company cannot predict with certainty the results of the Legal Matters in which it is currently involved, the Company does not expect that the ultimate costs to resolve these Legal Matters will individually or in the aggregate have a material adverse effect on its financial condition, however, there can be no assurance that the current or any future Legal Matters will be resolved in a manner that is not adverse to the Company’s business, financial condition, results of operations or cash flows.
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Luna Litigation and Consolidated Cases
On September 11, 2015, Daniel Luna filed an action asserting putative class action claims on behalf of the Company’s shareholders in the United States District Court for the Southern District of New York. This action was consolidated with
two
additional, nearly identical complaints subsequently filed by Philip Limbacher and Jim Farno. On December 21, 2017, a settlement agreement was preliminarily approved by the court, and a
$72.5 million
payment was made to the Marvell Settlement Fund account on January 22, 2018. The settlement amount plus associated legal fees totaling
$74.4 million
is included in "Litigation settlement" in the accompanying consolidated statement of operations for the fiscal year ended February 3, 2018.
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 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.
Intellectual Property Indemnification
In addition to the above indemnities, the Company has agreed to indemnify certain customers for claims made against the Company’s 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 as well as the attorneys’ fees and costs under an infringement claim. The Company’s 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 Company’s 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.
Note 14 — Shareholders’ Equity
Preferred and Common Stock
Under the terms of the Company’s Articles of Association, the Board of Directors may determine the rights, preferences, and terms of the Company’s authorized but unissued shares of preferred stock.
As of
February 2, 2019
, the Company is authorized to issue
8.0 million
shares of
$0.002
par value preferred stock and
992.0 million
shares of
$0.002
par value common stock. As of
February 2, 2019
and
February 3, 2018
,
no
shares of preferred stock were outstanding.
Restricted Stock Unit Withholdings
For the years ended
February 2, 2019
and
February 3, 2018
, the Company withheld approximately
2.7 million
and
1.7 million
shares, or
$54.9 million
and
$26.8 million
, of common stock, respectively, in settlement of employee tax withholding obligations due upon the vesting of restricted stock.
Cash Dividends on Shares of Common Stock
During fiscal
2019
, the Company declared and paid cash dividends of
$0.24
per common share, or
$148.1 million
, on the Company’s outstanding common stock. During fiscal
2018
, the Company declared and paid cash dividends of
$0.24
per common share, or
$119.3 million
, on the Company’s outstanding common stock.
Any future dividends will be subject to the approval of the Company's Board of Directors.
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
On March 14, 2019, the Company announced that its board of directors declared a cash dividend of
$0.06
per share payable on April 24, 2019 to shareholders of record as of April 3, 2019.
Stock Repurchase Program
On November 17, 2016, the Company announced that its Board of Directors authorized a
$1.0 billion
share repurchase plan. The newly authorized stock repurchase program replaced in its entirety the prior
$3.25 billion
stock repurchase program. On October 16, 2018, the Company announced that its Board of Directors authorized a
$700 million
addition to the balance of its existing share repurchase plan. The Company intends to effect share repurchases in accordance with the conditions of Rule 10b-18 under the Exchange Act, but may also make repurchases in the open market outside of Rule 10b-18 or in privately negotiated transactions. The share repurchase program will be subject to market conditions and other factors, and does not obligate the Company to repurchase any dollar amount or number of its common shares and the repurchase program may be extended, modified, suspended or discontinued at any time.
The Company repurchased
6.0 million
of its common shares for
$104.0 million
,
31.5 million
of its common shares for
$526.1 million
, and
13.3 million
of its common shares for
$183.1 million
in cash during fiscal
2019
,
2018
and
2017
, respectively. The repurchased shares were retired immediately after the repurchases were completed. The Company records all repurchases, as well as investment purchases and sales, based on their trade date. As of
February 2, 2019
, a total of
292.4 million
shares have been repurchased to date under the Company’s share repurchase program for a total
$3.9 billion
in cash and there was
$954.0 million
remaining available for future share repurchases.
Subsequent to the year ended February 2, 2019 through March 21, 2019, the Company purchased an additional
0.8 million
of its common shares for
$16.5 million
at an average price per share of
$19.85
.
A summary of the stock repurchase activity under the stock repurchase program, reported based on the trade date, is summarized as follows (in thousands, except per-share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Repurchased
|
|
Weighted-
Average Price
per Share
|
|
Amount
Repurchased
|
Cumulative balance at January 30, 2016
|
241,602
|
|
|
$
|
12.70
|
|
|
$
|
3,067,418
|
|
Repurchase of common stock under the stock repurchase program (1)
|
13,303
|
|
|
$
|
13.76
|
|
|
183,064
|
|
Cumulative balance at January 28, 2017
|
254,904
|
|
|
$
|
12.75
|
|
|
3,250,481
|
|
Repurchase of common stock under the stock repurchase program (2)
|
31,460
|
|
|
$
|
16.72
|
|
|
526,075
|
|
Cumulative balance at February 3, 2018
|
286,365
|
|
|
$
|
13.19
|
|
|
3,776,557
|
|
Repurchase of common stock under the stock repurchase program (3)
|
6,041
|
|
|
$
|
17.21
|
|
|
103,974
|
|
Cumulative balance at February 2, 2019
|
292,406
|
|
|
$
|
13.27
|
|
|
$
|
3,880,531
|
|
(1) Includes stock purchases of
$1.5 million
stock repurchases pending settlement as of
January 28, 2017
.
(2) There were
no
stock repurchases pending settlement as of
February 3, 2018
.
(3) There were
no
stock repurchases pending settlement as of
February 2, 2019
.
Note 15 — Employee Benefit Plans
Employee Stock Compensation Plans
1995 Stock Option Plan
In April 1995, the Company adopted the 1995 Stock Option Plan (the “Option Plan”). The Option Plan, as amended from time to time, had
383.4 million
common shares reserved for issuance thereunder as of
February 2, 2019
. Options granted under the Option Plan generally have a term of
10 years
and generally must be issued at prices equal to the fair market value of the stock on the date of grant. The Company can also grant stock awards, which may be subject to vesting. Further, the Company can grant restricted stock unit (“RSU”) awards. RSU awards are denominated in shares of stock, but may be settled in cash or shares upon vesting, as determined by the Company at the time of grant. Awards under the Option Plan generally vest over
2
to
5 years
.
As of
February 2, 2019
, approximately
90.1 million
shares remained available for future grants under the Option Plan.
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Equity awards granted under the Option Plan include time-based RSUs and also RSU’s that vest based on the achievement of performance-based criteria including Company financial goals (“Financial Performance RSU”) or relative total shareholder return ("TSR RSUs").
The Company has granted Financial Performance RSUs to each of its executive officers when they joined the Company, and as an annual refresh grant to all executive officers and other Vice Presidents in April of each fiscal year. The Financial Performance RSUs have a
three
year service requirement. The number of shares to be earned can be
0%
to
200%
of target and is based on the achievement of certain financial operating metrics to be measured as of the end of the second fiscal year of the
three
year vesting term. Shares granted under these Financial Performance RSUs are reported in the table presented below as “Performance-Based” based on
100%
expected achievement.
In addition, the Company has also granted TSR RSUs to its executive officers when they joined the Company, and as an annual refresh grant to all executive officers and other Vice Presidents, usually in April of each fiscal year. The number of shares to be earned can be
0%
to
150%
of target and is based on the achievement of performance objectives relating to relative total shareholder return of the Company’s common shares as compared to that of companies on the Philadelphia Semiconductor Sector Index over a performance period defined in the award. The TSR RSUs have a
three
year service requirement. These TSR RSUs are reported in the table presented below as “Market-Based” awards based on
100%
expected achievement.
In December 2017, the Company’s Executive Compensation Committee approved a deferred stock program, whereby executives of the Company have the option, beginning in 2018, to defer the settlement of time-based and performance-based restricted stock units granted under the Option Plan to a future date. A deferral election is irrevocable after the annual submission deadline. The shares of common stock underlying the deferred grants will be distributed at the earliest of the employee’s specified future settlement date, not to be earlier than 2023, or upon separation from service, a change in control, or death or disability. As of
February 2, 2019
,
no
executives had elected deferral.
Cavium Acquisition
Following the Cavium acquisition and in accordance with the Cavium merger agreement, certain outstanding options to purchase shares of Cavium common stock and certain restricted stock units with respect to Cavium common stock, each granted under Cavium 2016 Equity Incentive Plan (“Cavium 2016 EIP”), Cavium 2007 Equity Incentive Plan (“Cavium 2007 EIP”) and QLogic 2005 Performance Incentive Plan, as assumed by Cavium effective August 16, 2016 (“QLogic 2005 Plan”), (and collectively, with the Cavium 2016 EIP and the Cavium 2007 EIP, the “Cavium Plans”), were assumed by the Company and converted into options to purchase common shares of the Company and restricted stock units with respect to common shares of the Company, respectively. The Company filed a registration statement on July 6, 2018 to register
15,824,555
common shares of the Company, issuable under the Cavium Plans, comprised of
2,535,940
common shares issuable pursuant to outstanding but unexercised options under the Cavium Plans and
13,288,615
common shares issuable pursuant to outstanding unvested restricted stock units under the Cavium Plans.
Cavium 2016 EIP
The Cavium 2016 EIP was adopted by Cavium on June 15, 2016 and was intended as the successor to and continuation of Cavium 2007 EIP. The Cavium 2016 EIP provided for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards and other stock awards, which may be granted to employees, directors and consultants. Awards under the Cavium 2016 EIP generally vest over
four years
and expire
seven
to
ten years
from the date of grant. Following the effective date, no additional awards were granted under the Cavium 2007 EIP.
Cavium 2007 EIP
Cavium adopted the Cavium 2007 EIP in May 2007 upon completion of its initial public offering. The Cavium 2007 EIP provided for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance stock awards, and other forms of equity compensation and performance cash awards, all of which may be granted to employees (including officers), directors, and consultants or affiliates. Awards granted under the Cavium 2007 EIP vest at the rate specified by the plan administrator, for stock options, typically with
1/8th
of the shares vesting
six months
after the date of grant and
1/48th
of the shares vesting monthly thereafter over the next
three and one half years
and for restricted stock unit awards typically with quarterly vesting over
four years
. Awards expire
seven
to
ten years
from the date of grant.
QLogic 2005 Plan
The QLogic 2005 Plan was assumed and registered by Cavium upon its completion of acquisition of QLogic Corporation on August 16, 2016. The QLogic 2005 Plan provided for the issuance of restricted stock unit awards, incentive and non-qualified stock options, and other stock-based incentive awards. Restricted stock unit awards granted pursuant to the QLogic
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2005 Plan to employees subject to a service condition generally vest over
four years
from the date of grant. Stock options granted pursuant to the QLogic 2005 Plan to employees have
ten
-year terms and generally vest over
four years
from the date of grant.
Cavium Acquisition-related Equity Awards
The awards under the Cavium Plans assumed by the Company in the Cavium acquisition were measured at the acquisition date based on the estimated fair value of
$357.1 million
. A portion of that fair value,
$68.9 million
, which represented the pre-acquisition service provided by employees to Cavium, was included in the total consideration transferred as part of the acquisition. As of the acquisition date, the remaining portion of the fair value of those awards was
$288.2 million
, representing post-acquisition share-based compensation expense that will be recognized as these employees provide service over the remaining vesting periods.
Outside Director Equity Compensation Policy
In September 2016, the Company’s Board of Directors approved the termination of the 2007 Directors’ Stock Incentive Plan, (“2007 Director Plan”) that was initially adopted in October 2007, and it approved a new Outside Director Equity Compensation Policy that governs the grant of equity awards to non-employee directors under the Option Plan. At the annual general meeting of shareholders held in June 2015, the shareholders approved an amendment to the Option Plan to enable a full range of awards to be granted to non-employee directors. Under the newly adopted Outside Director Compensation Policy, each outside director, upon appointment to fill a vacancy on the board or in connection with election at an annual meeting of shareholders, will be granted an RSU award under the Option Plan for a number of shares with an aggregate fair market value equal to
$220,000
on the grant date. In no event shall an outside director be awarded an annual RSU award for more than
20,000 shares
. The RSU award vests
100%
on the earlier of the date of the next annual general meeting of shareholders or the
one
-year anniversary of the date of grant.
Employee Stock Purchase Plan
Under the 2000 Employee Stock Purchase Plan, as amended and restated on October 31, 2011 (the “ESPP”), participants purchase the Company’s stock using payroll deductions, which may not exceed
15%
of their total cash compensation. Pursuant to the terms of the current ESPP, the “look-back” period for the stock purchase price is
24 months
. Offering and purchase periods begin on December 8 and June 8 of each year. Participants enrolled in a
24
-month offering period will continue in that offering period until the earlier of the end of the offering period or the reset of the offering period. A reset occurs if the fair market value of the Company’s common shares on any purchase date is less than it was on the first day of the offering period. Participants in a
24
-month offering period will be granted the right to purchase common shares at a price per share that is
85%
of the lesser of the fair market value of the shares at (i) the participant’s entry date into the
two
-year offering period or (ii) the end of each
six
-month purchase period within the offering period.
Under the ESPP, a total of
3.2 million
shares were issued in fiscal
2019
at a weighted-average price of
$15.08
per share, a total of
7.0 million
shares were issued in fiscal
2018
at a weighted-average price of
$7.49
per share, and a total of
2.3 million
shares were issued in fiscal
2017
at a weighted-average price of
$7.33
per share. As of
February 2, 2019
, there was
$53.1 million
of unamortized compensation cost related to the ESPP.
As of
February 2, 2019
, approximately
26.7 million
shares remained available for future issuance under the ESPP.
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Summary of Share-Based Compensation Expense
The following table summarizes share-based compensation expense (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
February 2,
2019
|
|
February 3,
2018
|
|
January 28,
2017
|
Continuing operations:
|
|
|
|
|
|
Cost of goods sold
|
$
|
12,024
|
|
|
$
|
6,646
|
|
|
$
|
8,334
|
|
Research and development
|
108,762
|
|
|
52,127
|
|
|
74,809
|
|
Selling, general and administrative
|
77,309
|
|
|
26,349
|
|
|
18,257
|
|
Share-based compensation - continuing operations
|
$
|
198,095
|
|
|
$
|
85,122
|
|
|
$
|
101,400
|
|
Discontinued operations:
|
|
|
|
|
|
Cost of goods sold
|
—
|
|
|
(11
|
)
|
|
187
|
|
Research and development
|
—
|
|
|
1,458
|
|
|
11,633
|
|
Selling, general and administrative
|
—
|
|
|
120
|
|
|
750
|
|
Share-based compensation - discontinued operations
|
—
|
|
|
1,567
|
|
|
12,570
|
|
Total share-based compensation
|
$
|
198,095
|
|
|
$
|
86,689
|
|
|
$
|
113,970
|
|
Share-based compensation capitalized in inventory was
$2.8 million
at
February 2, 2019
,
$1.3 million
at
February 3, 2018
and
$0.9 million
at
January 28, 2017
.
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 no longer probable. As a result, the Company recorded a reversal of the previously recognized related share-based compensation expense in fiscal 2017 of
$2.4 million
.
Restricted Stock and Stock Unit Awards
A summary of restricted stock unit activity, which includes time-based and performance-based or market-based restricted stock units, is as follows (in thousands, except per-share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 30, 2016
|
8,343
|
|
|
$
|
13.57
|
|
|
977
|
|
|
|
$
|
14.43
|
|
|
353
|
|
|
$
|
12.24
|
|
|
9,673
|
|
|
$
|
13.61
|
|
Granted
|
9,139
|
|
|
$
|
9.83
|
|
|
366
|
|
*
|
|
$
|
13.91
|
|
|
612
|
|
*
|
$
|
11.94
|
|
|
10,117
|
|
|
$
|
10.11
|
|
Vested
|
(5,490
|
)
|
|
$
|
13.95
|
|
|
(155
|
)
|
|
|
$
|
14.15
|
|
|
—
|
|
|
$
|
—
|
|
|
(5,645
|
)
|
|
$
|
13.95
|
|
Canceled/Forfeited
|
(2,067
|
)
|
|
$
|
10.69
|
|
|
(875
|
)
|
|
|
$
|
14.45
|
|
|
(406
|
)
|
|
$
|
12.39
|
|
|
(3,348
|
)
|
|
$
|
11.88
|
|
Balance at January 28, 2017
|
9,925
|
|
|
$
|
10.52
|
|
|
313
|
|
|
|
$
|
13.91
|
|
|
559
|
|
|
$
|
11.80
|
|
|
10,797
|
|
|
$
|
10.69
|
|
Granted
|
8,154
|
|
|
$
|
15.33
|
|
|
406
|
|
*
|
|
$
|
14.49
|
|
|
409
|
|
*
|
$
|
15.14
|
|
|
8,969
|
|
|
$
|
15.28
|
|
Vested
|
(5,653
|
)
|
|
$
|
10.86
|
|
|
—
|
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
(5,653
|
)
|
|
$
|
10.86
|
|
Canceled/Forfeited
|
(2,137
|
)
|
|
$
|
11.95
|
|
|
(47
|
)
|
|
|
$
|
13.99
|
|
|
(47
|
)
|
|
$
|
14.71
|
|
|
(2,231
|
)
|
|
$
|
12.05
|
|
Balance at February 3, 2018
|
10,289
|
|
|
$
|
13.84
|
|
|
672
|
|
|
|
$
|
14.25
|
|
|
921
|
|
|
$
|
13.14
|
|
|
11,882
|
|
|
$
|
13.81
|
|
Assumed upon acquisition
|
13,289
|
|
|
$
|
21.02
|
|
|
—
|
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
13,289
|
|
|
$
|
21.02
|
|
Granted
|
7,453
|
|
|
$
|
19.95
|
|
|
340
|
|
*
|
|
$
|
21.12
|
|
|
351
|
|
*
|
$
|
21.36
|
|
|
8,144
|
|
|
$
|
20.06
|
|
Vested
|
(8,827
|
)
|
|
$
|
16.30
|
|
|
—
|
|
|
|
$
|
—
|
|
|
(30
|
)
|
|
$
|
13.08
|
|
|
(8,857
|
)
|
|
$
|
16.28
|
|
Canceled/Forfeited
|
(3,159
|
)
|
|
$
|
19.64
|
|
|
(64
|
)
|
|
|
$
|
16.29
|
|
|
(64
|
)
|
|
$
|
16.52
|
|
|
(3,287
|
)
|
|
$
|
19.51
|
|
Balance at February 2, 2019
|
19,045
|
|
|
$
|
19.15
|
|
|
948
|
|
|
|
$
|
16.58
|
|
|
1,178
|
|
|
$
|
15.40
|
|
|
21,171
|
|
|
$
|
18.82
|
|
|
|
*
|
Amounts represent the target number of restricted stock units at grant date. For awards granted to our executive officers, up to
200%
of the target restricted stock units may vest if the maximum level for performance goals is achieved.
|
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The aggregate intrinsic value of restricted stock units expected to vest as of
February 2, 2019
was
$389.8 million
. The number of restricted stock units that are expected to vest is
21.2 million
shares. The Company’s closing stock price of
$18.41
as reported on the NASDAQ Global Select Market as of
February 2, 2019
was used to calculate the aggregate intrinsic value for the restricted stock units.
As of
February 2, 2019
, unamortized compensation expense related to restricted stock units was
$322.5 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
2.1 years
Stock Option Awards
Option Plan and Stock Award Activity
Stock option activity under the Company’s stock option and stock incentive plans is included in the following table (in thousands, except for 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 30, 2016
|
40,874
|
|
|
$
|
13.59
|
|
|
2,156
|
|
|
$
|
15.43
|
|
|
43,030
|
|
|
$
|
13.68
|
|
Granted
|
2,104
|
|
|
$
|
9.99
|
|
|
—
|
|
|
$
|
—
|
|
|
2,104
|
|
|
$
|
9.99
|
|
Exercised
|
(5,558
|
)
|
|
$
|
10.35
|
|
|
—
|
|
|
$
|
—
|
|
|
(5,558
|
)
|
|
$
|
10.35
|
|
Canceled/Forfeited
|
(12,324
|
)
|
|
$
|
16.44
|
|
|
(2,156
|
)
|
|
$
|
15.43
|
|
|
(14,480
|
)
|
|
$
|
16.29
|
|
Balance at January 28, 2017
|
25,096
|
|
|
$
|
12.61
|
|
|
—
|
|
|
$
|
—
|
|
|
25,096
|
|
|
$
|
12.61
|
|
Granted
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
Exercised
|
(10,305
|
)
|
|
$
|
12.38
|
|
|
—
|
|
|
$
|
—
|
|
|
(10,305
|
)
|
|
$
|
12.38
|
|
Canceled/Forfeited
|
(3,019
|
)
|
|
$
|
14.33
|
|
|
—
|
|
|
$
|
—
|
|
|
(3,019
|
)
|
|
$
|
14.33
|
|
Balance at February 3, 2018
|
11,772
|
|
|
$
|
12.36
|
|
|
—
|
|
|
$
|
—
|
|
|
11,772
|
|
|
$
|
12.36
|
|
Assumed Upon Acquisition
|
3,026
|
|
|
$
|
11.85
|
|
|
|
|
|
$
|
—
|
|
|
3,026
|
|
|
$
|
11.85
|
|
Granted
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
Exercised
|
(4,812
|
)
|
|
$
|
10.93
|
|
|
—
|
|
|
$
|
—
|
|
|
(4,812
|
)
|
|
$
|
10.93
|
|
Canceled/Forfeited
|
(362
|
)
|
|
$
|
13.64
|
|
|
—
|
|
|
$
|
—
|
|
|
(362
|
)
|
|
$
|
13.64
|
|
Balance at February 2, 2019
|
9,624
|
|
|
$
|
12.87
|
|
|
—
|
|
|
$
|
—
|
|
|
9,624
|
|
|
$
|
12.87
|
|
Vested or expected to vest at February 2, 2019
|
9,624
|
|
|
|
|
|
|
|
|
|
|
|
For stock options vested and expected to vest at
February 2, 2019
, the aggregate intrinsic value was
$53.7 million
. For stock options exercisable at
February 2, 2019
, the aggregate intrinsic value was
$47.8 million
. The aggregate intrinsic value of stock options exercised during fiscal
2019
,
2018
and
2017
was
$40.6 million
,
$57.0 million
and
$19.8 million
, respectively. The Company’s closing stock price of
$18.41
as reported on the NASDAQ Global Select Market as of
February 2, 2019
was used to calculate the aggregate intrinsic value for all in-the-money options.
Outstanding options and exercisable options information by range of exercise prices as of
February 2, 2019
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Options
|
|
Exercisable Options
|
Range of
Exercise Prices
|
|
Number of
Shares
(in Thousands)
|
|
Weighted
Average
Remaining
Contractual Term
(in Years)
|
|
Weighted
Average
Exercise Price
|
|
Number of
Shares
(in Thousands)
|
|
Weighted
Average
Exercise Price
|
$
|
8.23
|
|
|
$
|
10.47
|
|
|
1,510
|
|
|
4.67
|
|
$
|
9.48
|
|
|
1,285
|
|
|
$
|
9.45
|
|
$
|
10.76
|
|
|
$
|
10.76
|
|
|
2,676
|
|
|
4.22
|
|
$
|
10.76
|
|
|
2,674
|
|
|
$
|
10.76
|
|
$
|
10.80
|
|
|
$
|
14.35
|
|
|
2,540
|
|
|
5.62
|
|
$
|
13.64
|
|
|
1,616
|
|
|
$
|
13.29
|
|
$
|
14.45
|
|
|
$
|
15.87
|
|
|
2,348
|
|
|
4.45
|
|
$
|
15.51
|
|
|
2,336
|
|
|
$
|
15.51
|
|
$
|
15.91
|
|
|
$
|
22.27
|
|
|
550
|
|
|
3.25
|
|
$
|
17.55
|
|
|
516
|
|
|
$
|
17.59
|
|
Total
|
|
|
|
9,624
|
|
|
4.66
|
|
$
|
12.87
|
|
|
8,427
|
|
|
$
|
12.78
|
|
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of
February 2, 2019
, the unamortized compensation expense for stock options was
$1.0 million
. The unamortized compensation expense for options will be amortized on a straight-line basis and is expected to be recognized over a weighted-average period of
0.31 years
Valuation of Employee Share-Based Awards
The expected volatility for awards granted during fiscal
2019
,
2018
and
2017
was based on an equally weighted combination of historical stock price volatility and implied volatility derived from traded options on the Company’s stock in the marketplace. The Company believes that the combination of historical volatility and implied volatility provides a better estimate of future stock price volatility.
The expected dividend yield is calculated by dividing the current annualized dividend by the closing stock price on the date of grant of the option.
There were
no
options granted in fiscal 2019 and fiscal 2018.
The following weighted average assumptions were used for fiscal 2017 to calculate the fair value of each time-based stock option award on the date of grant using the Black-Scholes option pricing model:
|
|
|
|
|
|
Year Ended
|
|
January 28,
2017
|
Time-based Stock Options:
|
|
Weighted average fair value
|
$
|
2.92
|
|
Expected volatility
|
40
|
%
|
Expected term (in years)
|
5.2
|
|
Risk-free interest rate
|
1.3
|
%
|
Expected dividend yield
|
2.5
|
%
|
The following weighted-average assumptions were used for each respective period to calculate the fair value of common shares to be issued under the ESPP on the date of grant using the Black-Scholes option pricing model:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
February 2,
2019
|
|
February 3,
2018
|
|
January 28,
2017
|
Employee Stock Purchase Plan:
|
|
|
|
|
|
Estimated fair value
|
$
|
4.91
|
|
|
$
|
6.03
|
|
|
$
|
3.83
|
|
Expected volatility
|
33
|
%
|
|
30
|
%
|
|
39
|
%
|
Expected term (in years)
|
1.2
|
|
|
1.2
|
|
|
1.2
|
|
Risk-free interest rate
|
2.6
|
%
|
|
1.6
|
%
|
|
0.7
|
%
|
Expected dividend yield
|
1.4
|
%
|
|
1.1
|
%
|
|
1.9
|
%
|
The following weighted-average assumptions were used for each respective period to calculate the fair value of common shares to be issued under Total Shareholder Return performance awards on the date of grant using the Monte Carlo pricing model:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
February 2,
2019
|
|
February 3,
2018
|
|
January 28,
2017
|
Total Shareholder Return Awards:
|
|
|
|
|
|
Expected term (in years)
|
2.9
|
|
|
2.9
|
|
|
2.9
|
|
Expected volatility
|
35
|
%
|
|
35
|
%
|
|
36
|
%
|
Average correlation coefficient of peer companies
|
0.5
|
|
|
0.5
|
|
|
0.5
|
|
Risk-free interest rate
|
2.5
|
%
|
|
1.4
|
%
|
|
0.9
|
%
|
Expected dividend yield
|
1.1
|
%
|
|
1.6
|
%
|
|
2.1
|
%
|
The correlation coefficients are calculated based upon the price data 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.
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Employee 401(k) Plans
The Company sponsors a 401(k) savings and investment plan that allows eligible U.S. employees to participate by making pre-tax contributions to the 401(k) plan ranging from
1%
to
50%
of eligible earnings subject to a required annual limit. The Company currently matches
100%
of the first
4%
of the employee’s contribution and
50%
of the next
2%
, up to a
$4,000
maximum contribution effective from January 1, 2018. The Company made matching contributions to employees of
$8.6 million
in fiscal
2019
,
$4.6 million
in fiscal
2018
and
$4.5 million
in fiscal
2017
. As of
February 2, 2019
, the 401(k) plan offers a variety of investment alternatives, representing different asset classes. Employees may not invest in the Company’s common shares through the 401(k) plan.
The Company also has voluntary defined contribution plans in various non-U.S. locations. In connection with these plans, the Company made contributions on behalf of employees totaling
$16.8 million
,
$12.3 million
and
$11.8 million
during fiscal
2019
,
2018
and
2017
, respectively.
Note 16 — Income Taxes
The U.S. and non-U.S. components of income (loss) before income taxes of continuing operations consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
February 2,
2019
|
|
February 3,
2018
|
|
January 28,
2017
|
U.S. operations
|
$
|
666,508
|
|
|
$
|
24,377
|
|
|
$
|
30,601
|
|
Non-U.S. operations
|
(671,155
|
)
|
|
426,827
|
|
|
116,828
|
|
|
$
|
(4,647
|
)
|
|
$
|
451,204
|
|
|
$
|
147,429
|
|
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The provision (benefit) for income taxes consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
February 2,
2019
|
|
February 3,
2018
|
|
January 28,
2017
|
Current income tax provision (benefit):
|
|
|
|
|
|
Federal
|
$
|
46,519
|
|
|
$
|
776
|
|
|
$
|
8,231
|
|
State
|
5,959
|
|
|
2
|
|
|
180
|
|
Foreign
|
3,322
|
|
|
(2,541
|
)
|
|
19,560
|
|
Total current income tax provision (benefit)
|
55,800
|
|
|
(1,763
|
)
|
|
27,971
|
|
Deferred income tax provision (benefit):
|
|
|
|
|
|
Federal
|
134,336
|
|
|
10,136
|
|
|
(5,062
|
)
|
State
|
(6,567
|
)
|
|
83
|
|
|
(12
|
)
|
Foreign
|
(9,122
|
)
|
|
9,606
|
|
|
49,711
|
|
Total deferred income tax provision (benefit)
|
118,647
|
|
|
19,825
|
|
|
44,637
|
|
Total provision (benefit) for income taxes
|
$
|
174,447
|
|
|
$
|
18,062
|
|
|
$
|
72,608
|
|
Deferred tax assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
February 2,
2019
|
|
February 3,
2018
|
Deferred tax assets:
|
|
|
|
Federal and California research and other tax credits
|
$
|
557,333
|
|
|
$
|
607,726
|
|
Reserves and accruals
|
18,404
|
|
|
16,951
|
|
Share-based compensation
|
4,715
|
|
|
2,493
|
|
Net operating losses
|
134,598
|
|
|
11,816
|
|
Gross deferred tax assets
|
715,050
|
|
|
638,986
|
|
Valuation allowance
|
(597,829
|
)
|
|
(618,353
|
)
|
Total deferred tax assets
|
117,221
|
|
|
20,633
|
|
Total deferred tax liabilities
|
(351,013
|
)
|
|
(52,204
|
)
|
Net deferred tax assets (liabilities)
|
$
|
(233,792
|
)
|
|
$
|
(31,571
|
)
|
The deferred tax assets and liabilities based on tax jurisdictions are presented on our Consolidated Balance Sheet as follows:
|
|
|
|
|
|
|
|
|
|
February 2,
2019
|
|
February 3,
2018
|
Non-current deferred tax assets
|
$
|
12,460
|
|
|
$
|
20,633
|
|
Non-current deferred tax liabilities
|
(246,252
|
)
|
|
(52,204
|
)
|
Net deferred tax assets (liabilities)
|
$
|
(233,792
|
)
|
|
$
|
(31,571
|
)
|
As of February 2, 2019, the Company recorded a valuation allowance of
$597.8 million
which is a decrease of
$20.5 million
from fiscal 2018. The Company provided a full valuation allowance against its federal and various state research and other tax credits which it generates in excess of its current year tax liabilities, as well as a portion against its net operating loss carryforwards in the U.S. federal and California jurisdictions. Based on the available objectively verifiable positive and negative evidence, the Company determined that it is more likely than not that these research and other tax credits and a limited amount of net operating losses will not be realized in the future. The Company also provided a valuation allowance against the deferred tax assets of a portion of its operations in Israel, which has cumulative losses in recent years and is not projecting sufficient future taxable income to realize the benefit of its deferred tax assets.
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of February 2, 2019, the Company had net operating loss carryforwards available to offset future taxable income of approximately
$634.5 million
,
$445.9 million
and
$83.6 million
for U.S. federal, state of California and foreign purposes, respectively. The federal carryforwards will begin to expire in fiscal year
2022
, and the California carryforwards will begin to expire in fiscal year
2020
, if not utilized before these years. The majority of the Company’s foreign losses carry forward indefinitely. The Company also had federal research and other tax credit carryforwards of approximately
$263.3 million
which expire through fiscal
2039
. As of February 2, 2019, the Company also had California research tax credit carryforwards of approximately
$314.9 million
, which can be carried forward
indefinitely
. The Company also has research and other tax credit carryforwards of approximately
$20.2 million
in other U.S. states which expire through fiscal
2033
due to the statutes of limitation.
The U.S. Tax Reform Act of 1986 limits the use of net operating loss and tax credit carryforwards in the case of an “ownership change” of a corporation or separate return loss year limitations. Any ownership changes, as defined, may restrict utilization of carryforwards. As of February 2, 2019, the company had approximately
$990.9 million
and
$86.1 million
of federal net operating loss and tax credit carryforwards, respectively, in the U.S. subject to an annual limitation. We do not expect these limitations to result in any permanent loss of our tax benefits.
The Company consists of a Bermuda parent holding company with various foreign and U.S. subsidiaries. The applicable statutory rate in Bermuda is
zero
for the Company for fiscal 2019, 2018, and 2017. For purposes of the reconciliation between the provision (benefit) for income taxes at the statutory rate and the effective tax rate, a U.S. statutory tax rate of
21%
for fiscal year 2019, and a notional rate of
33.7%
and
35%
for fiscal 2018 and 2017 is applied as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
February 2,
2019
|
|
February 3,
2018
|
|
January 28,
2017
|
Provision at U.S. notional statutory rate
|
21.0
|
%
|
|
33.7
|
%
|
|
35.0
|
%
|
Difference in U.S. and non-U.S. tax rates
|
(1,010.9
|
)
|
|
(31.7
|
)
|
|
(26.3
|
)
|
Benefits from utilization of general business credits
|
—
|
|
|
(4.8
|
)
|
|
(28.4
|
)
|
Change in valuation allowance
|
1,961.4
|
|
|
4.7
|
|
|
24.3
|
|
Withholding taxes
|
—
|
|
|
—
|
|
|
34.0
|
|
FIN48
|
(91.2
|
)
|
|
—
|
|
|
—
|
|
Tax effects of global restructuring
|
(2,017.5
|
)
|
|
—
|
|
|
11.4
|
|
R&D Credit - Previously Reserved Tax Benefit Used
|
634.7
|
|
|
—
|
|
|
—
|
|
State Taxes, net of federal benefit
|
348.3
|
|
|
—
|
|
|
—
|
|
Foreign Income Inclusion in US
|
(3,594.8
|
)
|
|
—
|
|
|
—
|
|
Other
|
(4.0
|
)
|
|
2.1
|
|
|
(0.7
|
)
|
Effective tax rate
|
(3,753.0
|
)%
|
|
4.0
|
%
|
|
49.3
|
%
|
The increase in income tax expense for fiscal 2019 compared to fiscal 2018 was primarily due to approximately
$227.1 million
recorded in the current year as a result of corporate restructurings we effectuated that included the restructuring of our U.S. and non-U.S. assets and subsidiaries. The restructurings involved the transfer of certain assets and intellectual property used in the business among various subsidiaries. The transfer of the intellectual property resulted in the recognition of tax expense representing the estimated U.S. tax to be paid currently and in future years on income generated from the intellectual property transfer. Further, as a result of these restructurings, we have
$2.3 billion
of excess financial reporting basis over the tax basis of investments in foreign subsidiaries outside of Bermuda that is indefinitely reinvested. If such amounts were no longer considered indefinitely reinvested, the amount of unrecognized deferred tax liability could be as much as
$675 million
.
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table reflects changes in the unrecognized tax benefits (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
February 2,
2019
|
|
February 3,
2018
|
|
January 28,
2017
|
Unrecognized tax benefits as of the beginning of the period
|
$
|
23,252
|
|
|
$
|
23,793
|
|
|
$
|
29,139
|
|
Increases related to positions related to Cavium
|
131,631
|
|
|
—
|
|
|
—
|
|
Increases related to prior year tax positions
|
1,836
|
|
|
—
|
|
|
2,080
|
|
Decreases related to prior year tax positions
|
(6,259
|
)
|
|
—
|
|
|
|
|
Increases related to current year tax positions
|
11,154
|
|
|
2,776
|
|
|
2,363
|
|
Settlements
|
—
|
|
|
—
|
|
|
—
|
|
Lapse in the statute of limitations
|
(3,198
|
)
|
|
(3,341
|
)
|
|
(6,576
|
)
|
Foreign exchange gain
|
(93
|
)
|
|
24
|
|
|
(3,213
|
)
|
Gross amounts of unrecognized tax benefits as of the end of the period
|
$
|
158,323
|
|
|
$
|
23,252
|
|
|
$
|
23,793
|
|
Included in the balances as of February 2, 2019 is
$119.7 million
of unrecognized tax benefit that would affect the effective income tax rate if recognized. Also,
$135.6 million
,
$8.6 million
and
$7.5 million
of the gross unrecognized tax benefits presented in the table above are offset against deferred tax assets in the consolidated balance sheets as of February 2, 2019, February 3, 2018 and January 28, 2017, respectively.
The amounts in the table above do not include the related interest and penalties. The amount of interest and penalties accrued was approximately
$15.1 million
as of February 2, 2019,
$17.2 million
as of February 3, 2018, and
$21.6 million
as of January 28, 2017. The Company’s policy is to recognize these interest and penalties as a component of income tax expense. The consolidated statements of operations for fiscal 2019, 2018, and 2017 included
$2.7 million
,
$2.3 million
, and
$2.7 million
, respectively, of interest and penalties related to the unrecognized tax benefits.
The Company's major tax jurisdictions are the United States, the states of California and Massachusetts, China, India, Ireland, Israel, and Singapore. The Company is subject to income tax audits by the respective tax authorities in all of the jurisdictions in which it operates. The examination of tax liabilities in each of these jurisdictions requires the interpretation and application of complex and sometimes uncertain tax laws and regulations. As of February 2, 2019, the Company is subject to examination in material jurisdictions including China, India, Israel, Singapore, and the United States for fiscal years 2008 through 2018. Cavium is subject to examination in the United States for its tax years beginning in 2000.
The Company will continue to review its tax positions and provide for or reverse unrecognized tax benefits as issues arise. During the next 12 months, 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
$14.4 million
from the lapse of the statutes of limitation in various jurisdictions during the next 12 months.
The Singapore Economic Development Board (“EDB”) initially granted a
10
-year Pioneer Status in July 1999 to the Company’s Singapore subsidiary. In October 2004, the Company’s subsidiary in Singapore was granted a second incentive known as the Develop and Expansion Incentive (“DEI”), and in June 2006, the EDB agreed to extend the Pioneer status for
15 years
to June 2014. The Company re-negotiated with the Singapore government and in fiscal 2015, they extended the DEI tax credits to the Company until June 2019. In order to retain these tax benefits in Singapore, the Company must meet certain operating conditions relating to, among other things, maintenance of a regional headquarters function, and research and development activities in Singapore. In fiscal 2017, tax savings associated with these tax holidays were approximately
$0.9 million
, which if paid would impact the Company’s earnings per share by less than
$0.01
per share in fiscal 2017.
No
tax savings were recognized in fiscal 2019 or fiscal 2018.
Under the Israeli Encouragement law of “approved or benefited enterprise,”
two
branches of Marvell Israel (M.I.S.L) Ltd., the GTL branch and the cellular branch (formerly Marvell DSPC), are entitled to approved and benefited tax programs that include reduced tax rates and exemption of certain income, subject to various operating and other conditions. Income from the approved or benefited enterprises, with the exception of capital gains, is eligible up to fiscal 2027. There was no such benefit in fiscal 2019, 2018, and 2017.
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Tax Cuts and Jobs Act (“2017 Tax Act”) was signed into law on December 22, 2017. The 2017 Tax Act significantly revises the U.S. corporate income tax by, among other things, lowering the statutory corporate tax rate from
35%
to
21%
, eliminating certain deductions, imposing a mandatory one-time tax on accumulated earnings of foreign subsidiaries, introducing new tax regimes, and changing how foreign earnings are subject to U.S. tax. The 2017 Tax Act also enhanced and extended through
2026
the option to claim accelerated depreciation deductions on qualified property. The Company has completed its determination of the accounting implications of the 2017 Tax Act on its tax accruals under Staff Accounting Bulletin 118 (“SAB 118”) measurement period and recorded amounts in its financial statements as of February 2, 2019. There are immaterial adjustments for income taxes between the final amounts and the provisional estimates the Company recorded previously. In addition, the Company has made a policy election to treat the Global Intangible Low-Taxes Income ("GILTI") inclusion as period costs.
The Company’s principal source of liquidity as of February 2, 2019 consisted of approximately
$582 million
of cash, cash equivalents and short-term investments, of which approximately
$550 million
was held by subsidiaries outside of Bermuda. The Company has not recognized a deferred tax liability on these assets as the amount is deemed to be indefinitely reinvested. The Company plans to use such amounts to fund various activities outside of Bermuda, including working capital requirements, capital expenditures for expansion, funding of future acquisitions or other financing activities.
Note 17 — 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 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
February 2,
2019
|
|
February 3,
2018
|
|
January 28,
2017
|
Numerator:
|
|
|
|
|
|
Income (loss) from continuing operations, net of tax
|
$
|
(179,094
|
)
|
|
$
|
433,142
|
|
|
$
|
74,821
|
|
Income (loss) from discontinued operations, net of tax
|
—
|
|
|
87,689
|
|
|
(53,670
|
)
|
Net income (loss)
|
$
|
(179,094
|
)
|
|
$
|
520,831
|
|
|
$
|
21,151
|
|
Denominator:
|
|
|
|
|
|
Weighted average shares — basic
|
591,232
|
|
|
498,008
|
|
|
509,738
|
|
Effect of dilutive securities:
|
|
|
|
|
|
Share-based awards
|
—
|
|
|
11,659
|
|
|
7,775
|
|
Weighted average shares — diluted
|
591,232
|
|
|
509,667
|
|
|
517,513
|
|
Income (loss) from continuing operations per share:
|
|
|
|
|
|
Basic
|
$
|
(0.30
|
)
|
|
$
|
0.87
|
|
|
$
|
0.15
|
|
Diluted
|
$
|
(0.30
|
)
|
|
$
|
0.85
|
|
|
$
|
0.14
|
|
Income (loss) from discontinued operations per share:
|
|
|
|
|
|
Basic
|
$
|
—
|
|
|
$
|
0.18
|
|
|
$
|
(0.11
|
)
|
Diluted
|
$
|
—
|
|
|
$
|
0.17
|
|
|
$
|
(0.10
|
)
|
Net income (loss) per share:
|
|
|
|
|
|
Basic
|
$
|
(0.30
|
)
|
|
$
|
1.05
|
|
|
$
|
0.04
|
|
Diluted
|
$
|
(0.30
|
)
|
|
$
|
1.02
|
|
|
$
|
0.04
|
|
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.
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Anti-dilutive potential shares are presented in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
February 2,
2019
|
|
February 3,
2018
|
|
January 28,
2017
|
Weighted average shares outstanding:
|
|
|
|
|
|
Share-based awards
|
20,435
|
|
|
412
|
|
|
22,642
|
|
Anti-dilutive potential shares from share-based awards are excluded from the calculation of diluted earnings per share for all 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. Anti-dilutive potential shares from share-based awards are also excluded from the calculation of diluted earnings per share for the year ended February 2, 2019 due to the net loss reported in that period.
Note 18 — Segment and Geographic Information
The Company operates in
one
reportable segment — the design, development and sale of integrated circuits. The chief executive officer was identified as the chief operating decision maker (“CODM”) and is ultimately responsible for and actively involved in the allocation of resources and the assessment of the Company’s performance. The fact that the Company operates in only
one
reportable segment is based on the following:
|
|
•
|
The Company uses a highly-integrated approach in developing its products in that discrete technologies developed by the Company are frequently integrated across many of its products. Substantially all of the Company’s integrated circuits are manufactured under similar manufacturing processes.
|
|
|
•
|
The Company’s organizational structure is based along functional lines. Each of the functional department heads reports directly to the CODM. Shared resources in the Company also report directly to the CODM or to a direct report of the CODM.
|
|
|
•
|
The assessments of performance across the Company, including assessment of the Company’s incentive compensation plan, are based largely on operational performance and consolidated financial performance.
|
|
|
•
|
The decisions on allocation of resources and other operational decisions are made by the CODM based on his direct involvement with the Company’s operations and product development.
|
The following table presents long-lived asset information based on the physical location of the assets by geographic region (in thousands):
|
|
|
|
|
|
|
|
|
|
February 2,
2019
|
|
February 3,
2018
|
Property and equipment, net:
|
|
|
|
United States
|
$
|
228,744
|
|
|
$
|
156,053
|
|
Singapore
|
21,929
|
|
|
15,827
|
|
Israel
|
18,754
|
|
|
12,686
|
|
China
|
9,950
|
|
|
10,145
|
|
India
|
15,322
|
|
|
1,209
|
|
Cayman
|
15,740
|
|
|
—
|
|
Others
|
8,539
|
|
|
6,302
|
|
|
$
|
318,978
|
|
|
$
|
202,222
|
|
MARVELL TECHNOLOGY GROUP LTD.
SUPPLEMENTARY DATA
(Unaudited)
The following table presents the unaudited consolidated statements of operations data for each of the four quarters in the periods ended
February 2, 2019
and
February 3, 2018
. On July 6, 2018, the Company completed the acquisition of Cavium. At the beginning of fiscal 2019, the Company adopted the new revenue recognition standard. In November 2016, the Company announced a plan to restructure its operations to refocus its research and development, increase operational efficiency and improve profitability. As part of those actions, the Company began an active program to locate buyers for several businesses. The Company concluded that the divestitures of these businesses represented a strategic shift that has a major effect on the Company’s operations and financial results. These businesses were deemed not to align with the Company’s core business. The Company classified these businesses as discontinued operations for all periods presented in its consolidated financial statements, and divested of such businesses in fiscal 2018. The Company retrospectively recast its consolidated statements of operations and balance sheets for all periods presented to reflect these businesses as discontinued operations.
In management’s opinion, this information has been presented on the same basis as the audited consolidated financial statements included in a separate section of this Annual Report on Form 10-K, and all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts below to fairly state the unaudited quarterly results when read in conjunction with the audited consolidated financial statements and related notes. The operating results for any period should not be considered indicative of results to be expected in any future period. The Company expects the quarterly operating results to fluctuate in future periods due to a variety of reasons, including those discussed in Part I, Item 1A, “Risk Factors.”
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2019
|
|
First
Quarter (1)
|
|
Second
Quarter (1) (2)
|
|
Third
Quarter (1) (2)
|
|
Fourth
Quarter (1) (2)
|
|
(In thousands, except per share amounts)
|
Net revenue
|
$
|
604,631
|
|
|
$
|
665,310
|
|
|
$
|
851,051
|
|
|
$
|
744,799
|
|
Gross profit
|
$
|
375,693
|
|
|
$
|
377,110
|
|
|
$
|
383,587
|
|
|
$
|
322,002
|
|
Income (loss) from continuing operations, net of tax
|
$
|
128,612
|
|
|
$
|
6,759
|
|
|
$
|
(53,767
|
)
|
|
$
|
(260,698
|
)
|
Income from discontinued operations, net of tax
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Net income (loss)
|
$
|
128,612
|
|
|
$
|
6,759
|
|
|
$
|
(53,767
|
)
|
|
$
|
(260,698
|
)
|
Income (loss) per share from continuing operations:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.26
|
|
|
$
|
0.01
|
|
|
$
|
(0.08
|
)
|
|
$
|
(0.40
|
)
|
Diluted
|
$
|
0.25
|
|
|
$
|
0.01
|
|
|
$
|
(0.08
|
)
|
|
$
|
(0.40
|
)
|
Income per share from discontinued operations:
|
|
|
|
|
|
|
|
Basic
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Diluted
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.26
|
|
|
$
|
0.01
|
|
|
$
|
(0.08
|
)
|
|
$
|
(0.40
|
)
|
Diluted
|
$
|
0.25
|
|
|
$
|
0.01
|
|
|
$
|
(0.08
|
)
|
|
$
|
(0.40
|
)
|
MARVELL TECHNOLOGY GROUP LTD.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2018
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter (3)
|
|
(In thousands, except per share amounts)
|
Net revenue
|
$
|
572,709
|
|
|
$
|
604,750
|
|
|
$
|
616,302
|
|
|
$
|
615,409
|
|
Gross profit
|
$
|
345,511
|
|
|
$
|
365,178
|
|
|
$
|
377,769
|
|
|
$
|
373,482
|
|
Income from continuing operations, net of tax
|
$
|
99,592
|
|
|
$
|
135,450
|
|
|
$
|
149,337
|
|
|
$
|
48,763
|
|
Income from discontinued operations, net of tax
|
$
|
7,029
|
|
|
$
|
29,809
|
|
|
$
|
50,851
|
|
|
$
|
—
|
|
Net income
|
$
|
106,621
|
|
|
$
|
165,259
|
|
|
$
|
200,188
|
|
|
$
|
48,763
|
|
Income per share from continuing operations:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.20
|
|
|
$
|
0.27
|
|
|
$
|
0.30
|
|
|
$
|
0.10
|
|
Diluted
|
$
|
0.19
|
|
|
$
|
0.26
|
|
|
$
|
0.30
|
|
|
$
|
0.10
|
|
Income per share from discontinued operations:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.01
|
|
|
$
|
0.06
|
|
|
$
|
0.11
|
|
|
$
|
—
|
|
Diluted
|
$
|
0.02
|
|
|
$
|
0.06
|
|
|
$
|
0.10
|
|
|
$
|
—
|
|
Net income per share:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.21
|
|
|
$
|
0.33
|
|
|
$
|
0.41
|
|
|
$
|
0.10
|
|
Diluted
|
$
|
0.21
|
|
|
$
|
0.32
|
|
|
$
|
0.40
|
|
|
$
|
0.10
|
|
|
|
(1)
|
Includes the effect of the adoption of the new revenue recognition standard. Refer to “Note 3 - Revenue.”
|
|
|
(2)
|
Includes the effect of the acquisition of Cavium, including its effect on income taxes. Refer to “Note 5 - Business Combination,” and “Note 16 - Income Taxes.”
|
|
|
(3)
|
The fourth quarter of fiscal 2018 includes a
$74.4 million
charge for the Luna litigation settlement and related costs.
|