NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 The Company and its Significant Accounting Policies
The Company
Marvell Technology Group Ltd., a Bermuda company, and its subsidiaries (the Company), is a fabless semiconductor provider of high-performance application-specific standard products. The
Companys core strength of expertise is the development of complex System-on-a-Chip and System-in-a-Package devices, leveraging its extensive technology portfolio of intellectual property in the areas of analog, mixed-signal, digital signal
processing, and embedded and stand-alone integrated circuits. The majority of the Companys product portfolio leverages embedded central processing unit technology. The Company also develops platforms that it defines as integrated hardware
along with software that incorporates digital computing technologies designed and configured to provide an optimized computing solution. The Companys broad product portfolio includes devices for data storage, enterprise-class Ethernet data
switching, Ethernet physical-layer transceivers, wireless connectivity, Internet-of-Things devices and multimedia solutions.
Basis of Presentation
The Companys fiscal year is the 52- or 53-week period ending on the Saturday closest to January 31. In a 52-week year, each fiscal quarter consists of 13 weeks. The additional week in a
53-week year is added to the fourth quarter, making such quarter consist of 14 weeks. Fiscal 2016, 2015 and 2014 each had a 52-week period.
Use of Estimates
The preparation of consolidated financial
statements in conformity with generally accepted accounting principles 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 assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to performance-based compensation, revenue recognition, provisions for sales returns and
allowances, inventory excess and obsolescence, investment fair values, goodwill and other intangible assets, restructuring, income taxes, litigation and other contingencies. In addition, the Company uses assumptions when employing the Monte Carlo
simulation and Black-Scholes valuation models to calculate the fair value of share-based awards that are granted. Actual results could differ from these estimates, and such differences could affect the results of operations reported in future
periods.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. The functional currency of the
Company and its subsidiaries is the U.S. dollar.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a 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.
65
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Investments
The Companys marketable investments 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, 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. 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.
|
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 for 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, or if the investee is a partnership type investment, the Company accounts for the investments 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 cost method. Investments in privately-held companies are included in other non-current assets.
Impairment of Investments
If a debt securitys 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, 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 investments cost basis and the decline in value is judged to be other-than-temporary. This assessment is based on a
qualitative and quantitative analysis, including, but not limited to, the investees revenue and earnings trends, available cash and liquidity, and the status of the investees 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
66
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 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.
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, which consists of a customer base located primarily in the Asia Pacific Region, is substantially mitigated by the Companys 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 customers 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 customers ability to pay.
The Companys accounts receivable was concentrated with two customers at January 30, 2016, who represented 13% and 11% of gross accounts receivable, respectively, compared with two customers at
January 31, 2015, who represented 15% and 14% of gross accounts receivable, respectively.
Historically, a relatively small
number of customers have accounted for a significant portion of the Companys net revenue. Net revenue from one customer was 18%, 20% and 24% for fiscal 2016, 2015 and 2014, respectively. Net revenue from a second customer was 13% in each of
fiscal 2016 and 2015, and 12% in fiscal 2014.
The Company also had net revenue from one distributor representing 11% for
fiscal 2015. No distributors accounted for 10% or greater of total net revenue in either fiscal 2016 or fiscal 2014. 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 Companys exposure to credit risk.
Inventories
Inventory is stated at the lower of cost or market, cost being determined under the first-in, first-out method. The total carrying value of the Companys inventory is reduced for any difference
between cost and estimated market 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 Companys 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.
67
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 3 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.
If the Company 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 notes multiple qualitative factors indicating potential impairment, then a two-step quantitative impairment test is performed. The first
step requires comparing the fair value of the reporting unit to its net book value, including goodwill. The Company has identified that its business operates as a single operating segment with two components (Storage, and Smart Networked Devices and
Solutions), which it has concluded can be aggregated into a single reporting unit for purposes of testing goodwill impairment. A potential impairment exists if the fair value of the reporting unit is lower than its net book value. The second step of
the process is only performed if a potential impairment exists, and it involves determining the implied fair value of the reporting units goodwill and comparing it to the carrying value of goodwill. If the carrying value of goodwill were to
exceed its implied fair value, then the Company would record an impairment loss for the difference 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 7 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. 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
Companys 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 rate in effect at the date of the transaction. The effects of foreign currency re-measurement are reported in current operations.
68
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Revenue Recognition
The Company recognizes revenue when there is persuasive evidence of an arrangement, delivery has occurred, the fee is fixed or
determinable, and collection is reasonably assured.
Product revenue is generally recognized upon shipment of product to
customers, net of accruals for estimated sales returns and rebates. However, some of the Companys sales are made through distributors under agreements allowing for price protection and limited rights of stock rotation on products unsold by the
distributors. Although title passes to the distributor upon shipment terms and payment by the Companys distributors is not contingent on resale of the product, product revenue on sales made through distributors with price protection and stock
rotation rights are deferred until the distributors sell the product to end customers. Deferred revenue less the related cost of the inventories is reported as deferred income. The Company does not believe that there is any significant exposure
related to impairment of deferred cost of sales, as its historical returns have been minimal and inventory turnover for its distributors generally ranges from 60 to 90 days. The Companys sales to direct customers are made primarily pursuant to
standard purchase orders for delivery of products.
A portion of the Companys net revenue is derived from sales through
third-party logistics providers, who maintain warehouses in close proximity to the customers facilities. Revenue from sales through these third-party logistics providers is not recognized until the product is pulled from stock by the end
customer.
The provision for estimated sales returns on product sales is recorded in the same period the related revenues are
recorded. 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.
Advertising Expense
Advertising costs are expensed as incurred. The
Company recorded $5.1 million, $5.6 million and $0.3 million of advertising costs for fiscal 2016, 2015 and 2014, respectively, included in selling and marketing expenses in the consolidated statement 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, which is generally four years for annual grants to employees and five years for new hire grants. 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. For stock purchase rights under the stock purchase plan, the Company amortizes share-based compensation expense ratably over the two-year
offering period.
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 market-based stock option awards is estimated on the date of grant using a Monte Carlo simulation model. The value of the portion of the awards that
69
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
is ultimately expected to vest is recognized as expense over the requisite service periods. 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, as well as expected forfeiture rates, based on the historical settlement experience and after giving consideration to vesting
schedules. Assumptions for stock option exercises and pre-vesting terminations of stock options are stratified by two employee groups and one employee/non-employee group with sufficiently distinct behavior patterns. Expected volatility was developed
based on equally weighted combination of historical stock price volatility and implied volatility derived from traded options on the Companys stock in the marketplace. The expected dividend yield is calculated by dividing annualized dividend
payments by the closing stock price on the grant date of the option.
Forfeitures are estimated at the time of grant and
revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. Share-based compensation expense for time-based and performance-based awards is recorded net of estimated forfeitures such that expense is recorded
only for those share-based awards that are expected to vest. Previously recognized expense is reversed for the portion of awards forfeited prior to vesting as and when forfeitures occurred.
The fair value of each restricted stock unit is estimated based on the market price of the Companys common shares on the date of
grant less the expected dividend yield.
Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income and unrealized gains and losses, net of tax, on available-for-sale securities,
auction rate 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, auction rate
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 Companys 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 a foreign subsidiary. A
change in the assessment of the realization of deferred tax assets may materially impact the Companys 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
70
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
Warranty
The Companys products are generally subject to
warranty, which provides for the estimated future costs of repair or replacement upon shipment of the product. The Companys products carry a standard 90-day warranty, with certain exceptions in which the warranty period can extend to more than
one year based on contractual agreements. The warranty accrual is primarily estimated 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 in fiscal 2016, 2015 and 2014.
Recent Accounting Pronouncements
Accounting Pronouncements Recently Adopted
In April 2014, the Financial
Accounting Standards Board (FASB) issued an amendment to its guidance regarding the reporting requirements of discontinued operations, which was effective for the Company beginning in the first quarter of fiscal 2016. Under the amended
guidance, a discontinued operation is defined as a disposal of a component or group of components that is disposed of or is classified as held for sale and represents a strategic shift that has (or will have) a major effect on an entitys
operations and financial results. As a result, the Company has adopted and will apply the new guidance for any future dispositions that meet the criteria of a discontinued operation under the amendment.
In November 2015, the FASB issued a new standard to simplify the presentation of deferred income taxes. Previous guidance required
deferred tax assets and liabilities to be separately presented as current and non-current amounts on the consolidated balance sheet. The new standard will require that deferred tax assets and liabilities be classified and presented on the
consolidated balance sheet as non-current. The guidance is effective for annual and interim reporting periods beginning after December 15, 2016, and may be applied either prospectively or retrospectively, although early adoption is permitted. The
Company early adopted the new guidance at the beginning of its fourth quarter of fiscal 2016 and accordingly, it has classified all deferred tax assets and liabilities, together with the corresponding valuation allowance, as noncurrent on the
consolidated balance sheet. The Company has applied this standard prospectively and did not retrospectively adjust any prior periods. Adoption had no impact on the Companys consolidated results of operations and it had no material impact on
working capital.
Accounting Pronouncements Not Yet Effective
In May 2014, the FASB issued a new standard on the recognition of revenue from contracts with customers, which will supersede nearly all
existing revenue recognition guidance under GAAP. Under the new standard, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. Additional disclosures regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, and assets recognized from costs incurred to obtain or
fulfill a contract will also be required. The FASB subsequently issued an update to this standard in August 2015, which provides deferral of the effective date by one year. The standard is now effective for the Companys first quarter of fiscal
2019 and
71
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
allows for either full retrospective or modified retrospective adoption. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016 and including interim
reporting periods within such reporting period.
The FASB has since issued additional updates of its new standard on revenue
recognition issued in May 2014. In March 2016, an amendment was issued to clarify the implementation guidance on principal versus agent consideration. The guidance requires entities to determine whether the nature of its promise to provide goods or
services to a customer is performed in a principal or agent capacity and to recognize revenue in a gross or net manner based on its principal/agent designation. In April 2016, amendments were issued to clarify the identification of performance
obligations and the licensing implementation guidance in the initial standard. Amendments were issued in May 2016 related to its guidance on assessing collectability, presentation of sales tax, noncash consideration, and completed contracts and
contract modification at transition, which reduce the potential for diversity in practice, and the cost and complexity of application at transition and on an ongoing basis. The Company has been evaluating the effects of the new guidance and has not
yet selected a transition method nor has it determined the potential effects of adoption on its consolidated financial statements.
In April 2015, the FASB issued new guidance to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement. The guidance provides a basis for evaluating whether a
cloud computing arrangement includes a software license or whether the arrangement should be accounted for as a service contract. The guidance is effective for annual and interim reporting periods beginning after December 15, 2015. The newly issued
guidance also strikes from previous authoritative guidance, the use by analogy to the accounting for capital leases, which the Company applied in the accounting for certain of its technology license agreements. The Company is currently evaluating
the effect this new guidance will have on its consolidated financial statements.
In July 2015, the FASB issued an amendment
to its guidance regarding the subsequent measurement of inventory. Currently, inventory is measured at the lower of cost or market. Market could be replacement cost, net realizable value or net realizable value less an approximately normal profit
margin. Under this amended guidance, inventory is to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion,
disposal and transportation. This amendment applies to inventories for which cost is determined by methods other than last-in first-out and the retail inventory method. This standard is effective for annual and interim reporting periods beginning
after December 15, 2016. The Company is currently evaluating the effect this new guidance will have on its consolidated financial statements.
In January 2016, the FASB issued new guidance which requires entities to measure all investments in equity securities at fair value with changes recognized through net income. This requirement does not
apply to investments that qualify for the equity method of accounting, investments that result in consolidation of the investee, or investments for which the entity meets a practicability exception to fair value measurement. The new guidance also
changes certain disclosure requirements for financial instruments. This standard is effective for annual and interim reporting periods beginning after December 15, 2017. The Company is currently evaluating the effect this new guidance will have on
its consolidated financial statements.
In March 2016, the FASB issued an amendment to its guidance on the effects of
derivative contract novations on existing hedge accounting relationships. The new guidance clarifies that a change in the counterparty to a designated hedging instrument, in and of itself, does not require the de-designation of that hedging
relationship, provided that all other hedge accounting criteria continue to be met. The guidance is effective for annual and interim reporting periods beginning after December 15, 2016. The Company is currently evaluating the effect this new
guidance will have on its consolidated financial statements.
72
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In March 2016, the FASB issued a new standard on the accounting for leases, which
requires a lessee to record a right-of-use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than twelve months. The standard also expands the required quantitative and qualitative disclosures
surrounding lease arrangements. The standard is effective for annual and interim reporting periods beginning after December 15, 2018. The Company is currently evaluating the effect this new guidance will have on its consolidated financial
statements.
In March 2016, the FASB issued an amendment to its guidance for investments that eliminates the requirement to
retrospectively apply the equity method in previous periods when an investor initially obtains significant influence over an investee. Under the amended guidance, the investor should apply the equity method prospectively from the date the investment
qualifies for the equity method. The guidance is effective for annual and interim reporting periods beginning after December 15, 2016. The Company is currently evaluating the effect this new guidance will have on its consolidated financial
statements.
In March 2016, the FASB issued new guidance which simplifies several aspects of the accounting for share-based
payment award transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. The guidance is effective for annual and interim reporting
periods beginning after December 15, 2016. The Company is currently evaluating the effect this new guidance will have on its consolidated financial statements.
In June 2016, the FASB issued a new standard requiring financial assets measured at amortized cost be presented at the net amount expected to be collected, through an allowance for credit losses that is
deducted from the amortized cost basis. The standard eliminates the probable initial recognition in current GAAP and reflects an entitys current estimate of all expected credit losses. The measurement of expected credit losses is based upon
historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the financial assets. The standard is effective for annual and interim reporting periods beginning after December 15,
2019. The Company is currently evaluating the effect this new guidance will have on its consolidated financial statements
Note 2 Divestiture
The Company had no divestitures in fiscal 2016 and 2015.
During fiscal
2014
,
the Company exited one of its businesses and sold certain assets to an unrelated third party as part of cost reduction efforts related to restructuring actions in fiscal 2014 (see Note 8 Restructuring and Other
Related Charges for further information). The transaction primarily included the sale of intellectual property and equipment with a carrying value of $0.1 million. The Company also wrote off $2.6 million of goodwill allocated to the business
based on the relative fair values of the business and the Companys remaining reporting unit. The buyer also hired the former employees of the business. As part of the transaction, the Company received a license to the intellectual property it
sold. It also entered into a separate support services agreement with the buyer to cover an 18-month period. As a result of the sale of this business, the Company recorded a gain of $7.0 million, which is included in interest and other income, net,
in the consolidated statement of operations.
73
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 3 Investments
The following tables summarize the Companys investments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30, 2016
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
558,337
|
|
|
$
|
766
|
|
|
$
|
(1,282
|
)
|
|
$
|
557,821
|
|
U.S. government and agency debt
|
|
|
317,595
|
|
|
|
64
|
|
|
|
(254
|
)
|
|
|
317,405
|
|
Asset backed securities
|
|
|
76,711
|
|
|
|
81
|
|
|
|
(56
|
)
|
|
|
76,736
|
|
Foreign government and agency debt
|
|
|
21,370
|
|
|
|
2
|
|
|
|
(14
|
)
|
|
|
21,358
|
|
Municipal debt securities
|
|
|
31,211
|
|
|
|
45
|
|
|
|
(7
|
)
|
|
|
31,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
|
1,005,224
|
|
|
|
958
|
|
|
|
(1,613
|
)
|
|
|
1,004,569
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities
|
|
|
11,296
|
|
|
|
|
|
|
|
|
|
|
|
11,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term investments
|
|
|
11,296
|
|
|
|
|
|
|
|
|
|
|
|
11,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
1,016,520
|
|
|
$
|
958
|
|
|
$
|
(1,613
|
)
|
|
$
|
1,015,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2015
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
983,008
|
|
|
$
|
3,872
|
|
|
$
|
(563
|
)
|
|
$
|
986,317
|
|
U.S. government and agency debt
|
|
|
178,898
|
|
|
|
265
|
|
|
|
(7
|
)
|
|
|
179,156
|
|
Asset backed securities
|
|
|
91,432
|
|
|
|
108
|
|
|
|
(9
|
)
|
|
|
91,531
|
|
Foreign government and agency debt
|
|
|
28,051
|
|
|
|
61
|
|
|
|
(2
|
)
|
|
|
28,110
|
|
Municipal debt securities
|
|
|
33,421
|
|
|
|
47
|
|
|
|
(4
|
)
|
|
|
33,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
|
1,314,810
|
|
|
|
4,353
|
|
|
|
(585
|
)
|
|
|
1,318,578
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities
|
|
|
12,500
|
|
|
|
|
|
|
|
(2,274
|
)
|
|
|
10,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term investments
|
|
|
12,500
|
|
|
|
|
|
|
|
(2,274
|
)
|
|
|
10,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
1,327,310
|
|
|
$
|
4,353
|
|
|
$
|
(2,859
|
)
|
|
$
|
1,328,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 30, 2016, the Companys investment portfolio included auction rate securities with an
aggregate par value of $12.5 million. Although these auction rate securities have continued to pay interest and the underlying collateral has not deteriorated, there is currently limited trading volume in the securities. The Company uses a
discounted cash flow model to estimate the fair value of the auction rate securities based on its estimated timing and amount of future interest and principal payments. In developing the discounted cash flow model, the Company considers the credit
quality and liquidity of the underlying securities and related issuer, the collateralization of underlying security investments and other considerations. The fair value of the auction rate securities as of January 30, 2016 was $1.2 million less than
the par value and is included in long-term investments.
74
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In January 2016, the Company determined these auction rate securities would more likely
than not be sold as part of a general requirement to raise liquidity. Based upon the shortened time horizon for holding these auction rate securities and the continuation of an illiquid market, the Company does not expect to recover the par value of
the securities and considers the impairment of these auction rate securities to be other-than-temporary. As a result, an impairment loss of $1.2 million was recorded in interest and other income, net, in the consolidated statements of operations.
Gross realized gains and gross realized losses on sales of available-for-sale securities are presented in the following table
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 30,
2016
|
|
|
January 31,
2015
|
|
|
February 1,
2014
|
|
Gross realized gains
|
|
$
|
1,654
|
|
|
$
|
1,618
|
|
|
$
|
1,567
|
|
Gross realized losses
|
|
|
(1,923
|
)
|
|
|
(169
|
)
|
|
|
(268
|
)
|
Impairment loss
|
|
|
(1,204
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net realized gains (losses)
|
|
$
|
(1,473
|
)
|
|
$
|
1,449
|
|
|
$
|
1,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The contractual maturities of available-for-sale securities are presented in the following table (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30, 2016
|
|
|
January 31, 2015
|
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair Value
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair Value
|
|
Due in one year or less
|
|
$
|
304,117
|
|
|
$
|
304,035
|
|
|
$
|
361,108
|
|
|
$
|
361,396
|
|
Due between one and five years
|
|
|
689,847
|
|
|
|
689,279
|
|
|
|
950,702
|
|
|
|
954,151
|
|
Due over five years
|
|
|
22,556
|
|
|
|
22,551
|
|
|
|
15,500
|
|
|
|
13,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,016,520
|
|
|
$
|
1,015,865
|
|
|
$
|
1,327,310
|
|
|
$
|
1,328,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For individual securities that have been in a continuous unrealized loss position, the fair value and
gross unrealized loss for these securities aggregated by investment category and length of time in an unrealized position are presented in the following tables (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30, 2016
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
Corporate debt securities
|
|
$
|
283,138
|
|
|
$
|
(1,237
|
)
|
|
$
|
14,383
|
|
|
$
|
(45
|
)
|
|
$
|
297,521
|
|
|
$
|
(1,282
|
)
|
U.S. government and agency debt
|
|
|
263,325
|
|
|
|
(254
|
)
|
|
|
|
|
|
|
|
|
|
|
263,325
|
|
|
|
(254
|
)
|
Asset backed securities
|
|
|
46,646
|
|
|
|
(56
|
)
|
|
|
|
|
|
|
|
|
|
|
46,646
|
|
|
|
(56
|
)
|
Foreign government and agency debt
|
|
|
16,458
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
16,458
|
|
|
|
(14
|
)
|
Municipal debt securities
|
|
|
2,943
|
|
|
|
(5
|
)
|
|
|
1,571
|
|
|
|
(2
|
)
|
|
|
4,514
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
$
|
612,510
|
|
|
$
|
(1,566
|
)
|
|
$
|
15,954
|
|
|
$
|
(47
|
)
|
|
$
|
628,464
|
|
|
$
|
(1,613
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2015
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
Corporate debt securities
|
|
$
|
243,699
|
|
|
$
|
(558
|
)
|
|
$
|
2,005
|
|
|
$
|
(5
|
)
|
|
$
|
245,704
|
|
|
$
|
(563
|
)
|
U.S. government and agency debt
|
|
|
32,165
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
32,165
|
|
|
|
(7
|
)
|
Asset backed securities
|
|
|
25,053
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
25,053
|
|
|
|
(9
|
)
|
Foreign government and agency debt
|
|
|
2,999
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
2,999
|
|
|
|
(2
|
)
|
Municipal debt securities
|
|
|
2,845
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
2,845
|
|
|
|
(4
|
)
|
Auction rate securities
|
|
|
|
|
|
|
|
|
|
|
10,226
|
|
|
|
(2,274
|
)
|
|
|
10,226
|
|
|
|
(2,274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
$
|
306,761
|
|
|
$
|
(580
|
)
|
|
$
|
12,231
|
|
|
$
|
(2,279
|
)
|
|
$
|
318,992
|
|
|
$
|
(2,859
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 4 Supplemental Financial Information (in thousands)
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
January 30,
2016
|
|
|
January 31,
2015
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
669,312
|
|
|
$
|
864,680
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
Time deposits
|
|
|
209,405
|
|
|
|
213,012
|
|
U.S. government and agency debt
|
|
|
184,374
|
|
|
|
|
|
Corporate debt securities
|
|
|
54,689
|
|
|
|
21,999
|
|
Money market funds
|
|
|
160,400
|
|
|
|
111,286
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,278,180
|
|
|
$
|
1,210,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30,
2016
|
|
|
January 31,
2015
|
|
Provision for sales returns and allowances:
|
|
|
|
|
|
|
|
|
Sales returns
|
|
$
|
1,873
|
|
|
$
|
899
|
|
Doubtful accounts
|
|
|
889
|
|
|
|
1,213
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,762
|
|
|
$
|
2,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30,
2016
|
|
|
January 31,
2015
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Work-in-process
|
|
$
|
131,471
|
|
|
$
|
183,869
|
|
Finished goods
|
|
|
78,546
|
|
|
|
124,293
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
210,017
|
|
|
$
|
308,162
|
|
|
|
|
|
|
|
|
|
|
76
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
January 30,
2016
|
|
|
January 31,
2015
|
|
Property and equipment, net:
|
|
|
|
|
|
|
|
|
Machinery and equipment
|
|
$
|
578,627
|
|
|
$
|
601,961
|
|
Buildings
|
|
|
144,320
|
|
|
|
144,320
|
|
Computer software
|
|
|
102,928
|
|
|
|
99,312
|
|
Land
|
|
|
53,373
|
|
|
|
53,373
|
|
Building improvements
|
|
|
49,927
|
|
|
|
49,753
|
|
Leasehold improvements
|
|
|
50,192
|
|
|
|
51,434
|
|
Furniture and fixtures
|
|
|
27,119
|
|
|
|
27,883
|
|
Construction in progress
|
|
|
1,353
|
|
|
|
6,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,007,839
|
|
|
|
1,034,203
|
|
Less: Accumulated depreciation
|
|
|
(708,299
|
)
|
|
|
(693,564
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
299,540
|
|
|
$
|
340,639
|
|
|
|
|
|
|
|
|
|
|
The Company recorded depreciation expense of $73.8 million, $78.3 million and $77.2 million for fiscal
2016, 2015 and 2014, respectively.
|
|
|
|
|
|
|
|
|
|
|
January 30,
2016
|
|
|
January 31,
2015
|
|
Other non-current assets:
|
|
|
|
|
|
|
|
|
Technology and other licenses
|
|
$
|
48,770
|
|
|
$
|
61,217
|
|
Deferred tax assets
|
|
|
34,505
|
|
|
|
22,273
|
|
Investments in privately-held companies
|
|
|
5,804
|
|
|
|
9,267
|
|
Prepaid land use rights
|
|
|
13,123
|
|
|
|
13,432
|
|
Deposits
|
|
|
51,512
|
|
|
|
7,903
|
|
Other
|
|
|
10,996
|
|
|
|
14,747
|
|
|
|
|
|
|
|
|
|
|
Other non-current assets
|
|
$
|
164,710
|
|
|
$
|
128,839
|
|
|
|
|
|
|
|
|
|
|
Amortization of technology and other licenses was $26.4 million, $27.9 million and $25.6 million in
fiscal 2016, 2015 and 2014, respectively. During fiscal 2016 and fiscal 2014, the Company recorded a charge of $3.5 and $1.5 million, respectively, to write down investments in privately-held companies that were considered to be impaired. There were
no such charges recorded in fiscal 2015.
|
|
|
|
|
|
|
|
|
|
|
January 30,
2016
|
|
|
January 31,
2015
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
Accrued rebates
|
|
$
|
41,320
|
|
|
$
|
39,105
|
|
Accrued royalties
|
|
|
16,217
|
|
|
|
24,680
|
|
Technology license obligations
|
|
|
17,985
|
|
|
|
14,428
|
|
Accrued legal expense
|
|
|
9,761
|
|
|
|
8,327
|
|
Accrued litigation
|
|
|
3,830
|
|
|
|
1,700
|
|
Other
|
|
|
42,947
|
|
|
|
43,148
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
132,060
|
|
|
$
|
131,388
|
|
|
|
|
|
|
|
|
|
|
77
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
January 30,
2016
|
|
|
January 31,
2015
|
|
Deferred income:
|
|
|
|
|
|
|
|
|
Net deferred revenue
|
|
$
|
77,935
|
|
|
$
|
98,444
|
|
Deferred cost of goods sold
|
|
|
(22,213
|
)
|
|
|
(30,324
|
)
|
|
|
|
|
|
|
|
|
|
Deferred income
|
|
$
|
55,722
|
|
|
$
|
68,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30,
2016
|
|
|
January 31,
2015
|
|
Other non-current liabilities:
|
|
|
|
|
|
|
|
|
Technology license obligations
|
|
$
|
12,461
|
|
|
$
|
16,468
|
|
Long-term accrued employee compensation
|
|
|
6,078
|
|
|
|
4,610
|
|
Other
|
|
|
8,424
|
|
|
|
11,115
|
|
|
|
|
|
|
|
|
|
|
Other non-current liabilities
|
|
$
|
26,963
|
|
|
$
|
32,193
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss):
The changes in accumulated other comprehensive income (loss) by components are presented in the following tables (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
Gain
(Loss) on
Marketable
Securities
|
|
|
Unrealized
Gain
(Loss) on
Auction
Rate
Securities
|
|
|
Unrealized
Gain
(Loss) on
Cash Flow
Hedges
|
|
|
Total
|
|
Balance at February 1, 2014
|
|
$
|
2,534
|
|
|
$
|
(2,871
|
)
|
|
$
|
934
|
|
|
$
|
597
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
2,479
|
|
|
|
85
|
|
|
|
(2,338
|
)
|
|
|
226
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
(1,245
|
)
|
|
|
512
|
|
|
|
218
|
|
|
|
(515
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive income (loss), net of tax
|
|
|
1,234
|
|
|
|
597
|
|
|
|
(2,120
|
)
|
|
|
(289
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2015
|
|
|
3,768
|
|
|
|
(2,274
|
)
|
|
|
(1,186
|
)
|
|
|
308
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
(3,838
|
)
|
|
|
|
|
|
|
1,111
|
|
|
|
(2,727
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
(586
|
)
|
|
|
2,274
|
|
|
|
(64
|
)
|
|
|
1,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive income (loss), net of tax
|
|
|
(4,424
|
)
|
|
|
2,274
|
|
|
|
1,047
|
|
|
|
(1,103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 30, 2016
|
|
$
|
(656
|
)
|
|
$
|
|
|
|
$
|
(139
|
)
|
|
$
|
(795
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The amounts reclassified from accumulated other comprehensive income (loss) by
components are presented in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Affected Line Item in the
Statement of Operations
|
|
January 30,
2016
|
|
|
January 31,
2015
|
|
|
February 1,
2014
|
|
Interest and other income, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
$
|
586
|
|
|
$
|
1,245
|
|
|
$
|
1,139
|
|
Auction rate securities
|
|
|
(2,274
|
)
|
|
|
(512
|
)
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
48
|
|
|
|
(198
|
)
|
|
|
3,329
|
|
Selling and marketing
|
|
|
(1
|
)
|
|
|
(8
|
)
|
|
|
266
|
|
General and administrative
|
|
|
17
|
|
|
|
(12
|
)
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(1,624
|
)
|
|
$
|
515
|
|
|
$
|
4,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 30,
2016
|
|
|
January 31,
2015
|
|
|
February 1,
2014
|
|
Interest and other income, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
15,982
|
|
|
$
|
11,370
|
|
|
$
|
9,379
|
|
Net realized gain (loss) on investments
|
|
|
(1,473
|
)
|
|
|
1,449
|
|
|
|
1,299
|
|
Currency translation gain
|
|
|
6,655
|
|
|
|
1,871
|
|
|
|
8,739
|
|
Other income (loss)
|
|
|
(2,773
|
)
|
|
|
9,811
|
|
|
|
8,025
|
|
Interest expense
|
|
|
(706
|
)
|
|
|
(1,167
|
)
|
|
|
(1,876
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,685
|
|
|
$
|
23,334
|
|
|
$
|
25,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 30,
2016
|
|
|
January 31,
2015
|
|
|
February 1,
2014
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
703
|
|
|
$
|
1,167
|
|
|
$
|
1,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes, net
|
|
$
|
13,363
|
|
|
$
|
15,727
|
|
|
$
|
9,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsettled trades of available-for-sale securities
|
|
$
|
53,749
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of intellectual property under license obligations
|
|
$
|
13,800
|
|
|
$
|
|
|
|
$
|
8,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid purchase of property and equipment at end of year
|
|
$
|
9,069
|
|
|
$
|
7,083
|
|
|
$
|
7,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Net income (loss) per share
The Company reports both basic net income (loss) per share, which is based on the weighted average number of common shares outstanding
during the period, and diluted net income (loss) per share, which is based on the weighted average number of common shares outstanding and potentially dilutive 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
|
|
|
|
January 30,
2016
|
|
|
January 31,
2015
|
|
|
February 1,
2014
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(811,400
|
)
|
|
$
|
435,346
|
|
|
$
|
315,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares basic
|
|
|
510,945
|
|
|
|
511,089
|
|
|
|
496,518
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based awards
|
|
|
|
|
|
|
9,671
|
|
|
|
7,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares diluted
|
|
|
510,945
|
|
|
|
520,760
|
|
|
|
504,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.59
|
)
|
|
$
|
0.85
|
|
|
$
|
0.64
|
|
Diluted
|
|
$
|
(1.59
|
)
|
|
$
|
0.84
|
|
|
$
|
0.63
|
|
Potential dilutive securities include dilutive common shares from share-based awards attributable to the
assumed exercise of stock options, restricted stock units and employee stock purchase plan shares using the treasury stock method. Under the treasury stock method, potential common shares outstanding are not included in the computation of diluted
net income per share, if their effect is anti-dilutive.
Anti-dilutive potential shares are presented in the following table
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 30,
2016
|
|
|
January 31,
2015
|
|
|
February 1,
2014
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based awards
|
|
|
64,420
|
|
|
|
35,636
|
|
|
|
40,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive potential shares from share-based awards are excluded from the calculation of diluted
earnings per share for the year ended January 30, 2016 due to the net loss reported in that period. Anti-dilutive potential shares from share-based awards are excluded from the calculation of diluted earnings per share for all other periods reported
above because either their exercise price exceeded the average market price during the period or the share-based awards were determined to be anti-dilutive based on applying the treasury stock method.
Note 5 Derivative Financial Instruments
The Company manages some of its foreign currency exchange rate risk through the purchase of foreign currency exchange contracts that hedge against the short-term effect of currency fluctuations. The
Companys policy is to enter into foreign currency forward contracts with maturities less than 12 months that mitigate the effect of rate fluctuations on certain local currency denominated operating expenses. All derivative instruments are
recorded at fair value in either prepaid expenses and other current assets or accrued liabilities. The Company reports cash flows from derivative instruments in cash flows from operating activities. The Company uses quoted prices to value its
derivative instruments.
80
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The notional amounts of outstanding forward contracts were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Buy Contracts
|
|
|
|
January 30,
2016
|
|
|
January 31,
2015
|
|
Israeli shekel
|
|
$
|
19,082
|
|
|
$
|
51,326
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges.
The Company designates and documents its foreign currency forward exchange
contracts as cash flow hedges for certain operating expenses. The Company evaluates and calculates the effectiveness of each hedge at least quarterly. The effective change is recorded in accumulated other comprehensive income and is subsequently
reclassified to operating expense when the hedged expense is recognized. Ineffectiveness is recorded in interest and other income, net.
Other Foreign Currency Forward Contracts.
The Company may enter into foreign currency forward exchange contracts to hedge certain assets and liabilities denominated in various foreign currencies
that it does not designate as hedges for accounting purposes. The maturities of these contracts are generally less than 12 months. Gains or losses arising from the remeasurement of these contracts to fair value each period are recorded in interest
and other income, net.
The fair value of foreign currency exchange contracts was not significant as of any period presented.
The following table provides information about gains (losses) associated with 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
|
|
|
|
|
January 30,
2016
|
|
|
January 31,
2015
|
|
|
February 1,
2014
|
|
Derivatives designated as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contracts:
|
|
Research and development
|
|
$
|
(390
|
)
|
|
$
|
(1,930
|
)
|
|
$
|
3,099
|
|
|
|
Selling and marketing
|
|
|
(5
|
)
|
|
|
(24
|
)
|
|
|
23
|
|
|
|
General and administrative
|
|
|
(26
|
)
|
|
|
(157
|
)
|
|
|
246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(421
|
)
|
|
$
|
(2,111
|
)
|
|
$
|
3,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The portion of gains excluded from the assessment of hedge effectiveness are included in interest and
other income, net, and these amounts were $0.1 million, $0.2 million and $0.5 million in fiscal 2016, 2015 and 2014, respectively. In addition, realized losses from forward contracts that are not designated as hedging instruments that are included
in interest and other income, net, were not material in fiscal 2016, 2015 and 2014. The Company also reports hedge ineffectiveness from derivative financial instruments in current earnings, which were not material in fiscal 2016, 2015 and 2014. No
cash flow hedges were terminated as a result of forecasted transactions that did not occur.
Note 6 Fair Value Measurements
Fair value is an exit price representing the amount that would be received in the sale of an asset or paid to transfer a
liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an
81
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 Companys Level 1 assets include institutional money-market funds
that are classified as cash equivalents and marketable investments in U.S. government and agency debt, which are valued primarily using quoted market prices. The Companys Level 2 assets include its marketable investments in time deposits,
corporate debt securities, foreign government and agency debt, municipal debt securities and asset back 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, foreign currency forward contracts and the severance pay fund are classified as Level 2 assets as the valuation inputs are based on quoted prices and market observable data of similar
instruments. The Companys investments in auction rate securities are classified as Level 3 assets because there are currently no active markets for the auction rate securities and consequently the Company is unable to obtain independent
valuations from market sources. The auction rate securities are valued using a discounted cash flow model. Some of the inputs to the discounted cash flow model are unobservable in the market. The total amount of assets measured using Level 3
valuation methodologies represented 0.2% of total assets as of January 30, 2016.
82
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The tables below set forth, by level, the Companys financial assets and
liabilities that were accounted for at fair value as of January 30, 2016 and January 31, 2015. 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 January 30, 2016
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Items measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
160,400
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
160,400
|
|
Time deposits
|
|
|
|
|
|
|
209,405
|
|
|
|
|
|
|
|
209,405
|
|
U.S. government and agency debt
|
|
|
184,374
|
|
|
|
|
|
|
|
|
|
|
|
184,374
|
|
Corporate debt securities
|
|
|
|
|
|
|
54,689
|
|
|
|
|
|
|
|
54,689
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency debt
|
|
|
317,405
|
|
|
|
|
|
|
|
|
|
|
|
317,405
|
|
Corporate debt securities
|
|
|
|
|
|
|
557,821
|
|
|
|
|
|
|
|
557,821
|
|
Asset backed securities
|
|
|
|
|
|
|
76,736
|
|
|
|
|
|
|
|
76,736
|
|
Foreign government and agency debt
|
|
|
|
|
|
|
21,358
|
|
|
|
|
|
|
|
21,358
|
|
Municipal debt securities
|
|
|
|
|
|
|
31,249
|
|
|
|
|
|
|
|
31,249
|
|
Prepaid expenses and other current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
30
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities
|
|
|
|
|
|
|
|
|
|
|
11,296
|
|
|
|
11,296
|
|
Other non-current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance pay fund
|
|
|
|
|
|
|
678
|
|
|
|
|
|
|
|
678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
662,179
|
|
|
$
|
951,966
|
|
|
$
|
11,296
|
|
|
$
|
1,625,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
$
|
|
|
|
$
|
195
|
|
|
$
|
|
|
|
$
|
195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at January 31, 2015
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Items measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
111,286
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
111,286
|
|
Time deposits
|
|
|
|
|
|
|
213,012
|
|
|
|
|
|
|
|
213,012
|
|
Corporate debt securities
|
|
|
|
|
|
|
21,999
|
|
|
|
|
|
|
|
21,999
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency debt
|
|
|
179,156
|
|
|
|
|
|
|
|
|
|
|
|
179,156
|
|
Corporate debt securities
|
|
|
|
|
|
|
986,317
|
|
|
|
|
|
|
|
986,317
|
|
Asset backed securities
|
|
|
|
|
|
|
91,531
|
|
|
|
|
|
|
|
91,531
|
|
Foreign government and agency debt
|
|
|
|
|
|
|
28,110
|
|
|
|
|
|
|
|
28,110
|
|
Municipal debt securities
|
|
|
|
|
|
|
33,464
|
|
|
|
|
|
|
|
33,464
|
|
Prepaid expenses and other current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
|
|
|
|
|
124
|
|
|
|
|
|
|
|
124
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities
|
|
|
|
|
|
|
|
|
|
|
10,226
|
|
|
|
10,226
|
|
Other non-current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance pay fund
|
|
|
|
|
|
|
1,758
|
|
|
|
|
|
|
|
1,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
290,442
|
|
|
$
|
1,376,315
|
|
|
$
|
10,226
|
|
|
$
|
1,676,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
$
|
|
|
|
$
|
1,379
|
|
|
$
|
|
|
|
$
|
1,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the early buyout option under an operating lease for corporate equipment in March 2015
(see Note 8 Restructuring and Other Charges), the Company had an asset that it measured and recorded at fair value on a non-recurring basis. Such corporate equipment had a fair value of $9.3 million as of August 1, 2015,
the end of the second quarter of fiscal 2016. The corporate equipment was sold in October 2015, prior to the end of the third quarter of fiscal 2016.
The following table summarizes the change in fair values for Level 3 assets for the years ended January 30, 2016 and January 31, 2015 (in thousands):
|
|
|
|
|
|
|
Level 3
|
|
Changes in fair value during the year (pre-tax):
|
|
|
|
|
Balance at February 1, 2014
|
|
$
|
16,279
|
|
Sales, redemption and settlement
|
|
|
(3,650
|
)
|
Transfer out
|
|
|
(3,000
|
)
|
Unrealized gain included in accumulated other comprehensive income
|
|
|
597
|
|
|
|
|
|
|
Balance at January 31, 2015
|
|
|
10,226
|
|
Impairment loss
|
|
|
(1,204
|
)
|
Unrealized gain included in accumulated other comprehensive income
|
|
|
2,274
|
|
|
|
|
|
|
Balance at January 30, 2016
|
|
$
|
11,296
|
|
|
|
|
|
|
In November 2014, the Company received notification by the issuer of a mandatory full call of an auction
rate security to be redeemed at par value and as a result, the security was classified within Level 2 based on the issuers quoted price. Subsequently, the auction rate security was fully redeemed at par value before the end of fiscal 2015.
84
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 7 Goodwill and Acquired Intangible Assets, Net
Goodwill
There was no activity recorded to goodwill in fiscal 2016 and 2015 due to business combinations.
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 for which it obtained an
independent valuation to complete a step one assessment for goodwill impairment. In the third quarter of fiscal 2016, the Company performed an impairment assessment for testing goodwill due to certain events and circumstances management considered
could be indicators of potential impairment, which included the U.S. Court of Appeals for the Federal Circuit (Federal Circuit) panels decision in August 2015 related to the CMU litigation (see Note 10 Commitments
and Contingencies), the Companys decision to significantly restructure its mobile platform business announced in September 2015 (see Note 8 Restructuring and Other Related Charges) and a significant decline
in the Companys stock price during fiscal 2016. As a result, the Company concluded there was no impairment of its goodwill. The Companys annual test for goodwill impairment as of the last day of the fourth quarter of fiscal 2016, also
did not result in any impairment charges since the excess of fair value over carrying amount for our reporting unit approximated 41% of its carrying amount.
Acquired Intangible Assets, Net
The carrying amounts of acquired
intangible assets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30, 2016
|
|
|
January 31, 2015
|
|
|
|
Range of
Useful Lives
|
|
|
Gross
Carrying
Amounts
|
|
|
Accumulated
Amortization
and
Write-Offs
|
|
|
Net
Carrying
Amounts
|
|
|
Gross
Carrying
Amounts
|
|
|
Accumulated
Amortization
and
Write-Offs
|
|
|
Net
Carrying
Amounts
|
|
Purchased and core technology
|
|
|
4 - 8 years
|
|
|
$
|
35,498
|
|
|
$
|
(21,910
|
)
|
|
$
|
13,588
|
|
|
$
|
36,348
|
|
|
$
|
(16,107
|
)
|
|
$
|
20,241
|
|
Trade names
|
|
|
5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,300
|
|
|
|
(828
|
)
|
|
|
472
|
|
Customer intangibles
|
|
|
5 - 7 years
|
|
|
|
28,600
|
|
|
|
(24,178
|
)
|
|
|
4,422
|
|
|
|
28,600
|
|
|
|
(18,615
|
)
|
|
|
9,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquired intangible assets, net
|
|
|
|
|
|
$
|
64,098
|
|
|
$
|
(46,088
|
)
|
|
$
|
18,010
|
|
|
$
|
66,248
|
|
|
$
|
(35,550
|
)
|
|
$
|
30,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, along with the related accumulated amortization, are removed from the table above at
the end of the fiscal year they become fully amortized. In fiscal 2016, the Company recorded charges of $0.3 million to write off core technology due to its decision to discontinue the related development project and $0.3 million to write off a
trade name that it no longer intends to market. The Company recorded charges of $3.4 million to write off IPR&D in fiscal 2015 upon the Companys decision to discontinue the related project and $8.1 million in fiscal 2014 for the impairment
of an acquired intangible asset. These impairment charges are included in amortization and write-off of acquired intangible assets in the consolidated statements of operations.
85
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Based on the identified intangible assets recorded at January 30, 2016, the future
amortization expense of identified intangibles excluding IPR&D for the next five fiscal years is as follows (in thousands):
|
|
|
|
|
Fiscal Year
|
|
|
|
2017
|
|
$
|
10,642
|
|
2018
|
|
|
5,508
|
|
2019
|
|
|
1,860
|
|
2020 and thereafter
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,010
|
|
|
|
|
|
|
Note 8 Restructuring and Other Related Charges
The following table provides a summary of restructuring and other related charges as presented in the Consolidated Statements of
Operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 30,
2016
|
|
|
January 31,
2015
|
|
|
February 1,
2014
|
|
Cost of goods sold
|
|
$
|
10,292
|
|
|
$
|
|
|
|
$
|
|
|
Restructuring and other related charges
|
|
|
53,251
|
|
|
|
10,438
|
|
|
|
4,732
|
|
Write-off of acquired intangible assets
|
|
|
|
|
|
|
3,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
63,543
|
|
|
$
|
13,824
|
|
|
$
|
4,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 30,
2016
|
|
|
January 31,
2015
|
|
|
February 1,
2014
|
|
Severance and related costs
|
|
$
|
43,926
|
|
|
$
|
5,181
|
|
|
$
|
2,786
|
|
Facilities and related costs
|
|
|
1,407
|
|
|
|
1,924
|
|
|
|
1,672
|
|
Loss on early contract termination
|
|
|
1,644
|
|
|
|
3,230
|
|
|
|
|
|
Other exit-related costs
|
|
|
534
|
|
|
|
86
|
|
|
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,511
|
|
|
|
10,421
|
|
|
|
4,671
|
|
Impairment and write-off of assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
|
8,046
|
|
|
|
|
|
|
|
|
|
Technology licenses
|
|
|
1,250
|
|
|
|
|
|
|
|
|
|
Equipment and other
|
|
|
6,736
|
|
|
|
17
|
|
|
|
61
|
|
Acquired intangible asset
|
|
|
|
|
|
|
3,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
63,543
|
|
|
$
|
13,824
|
|
|
$
|
4,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2016.
The Company recorded $63.5 million of
restructuring and other related charges in fiscal 2016 as described in the following paragraphs.
In September 2015, the
Company announced a significant restructuring of its mobile platform business in order to focus the mobile product line on more profitable opportunities and align its expenses with corporate targets. The Company began implementing actions to
significantly downsize the mobile platform organization to refocus its technology to other emerging opportunities, but it will continue its commitment to wireless connectivity such as WiFi and other wireless standards. As a result of these
actions, the Company recorded restructuring and other related charges of $44.4 million in fiscal 2016 related to this restructuring. The charge
86
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
primarily included severance benefits for 825 employees who were notified of their termination, a loss on early contract termination, the impairment of technology licenses and certain equipment,
and the write down of inventory. Substantially all of the affected employees departed by the end of fiscal 2016.
The Company
expects to complete remaining actions, including the finalization of certain additional related activities within the first half of fiscal 2017 and will incur additional charges of approximately $5 million. As a result, total restructuring and other
related charges will be lower than the original estimate of $100 million to $130 million primarily due to the Companys decision to retain approximately 140 more mobile employees to support the remaining mobile business than it originally
anticipated and certain equipment planned for disposal was subsequently determined to have alternative use. The Company also decided to offer retention bonuses to another 128 mobile employees to remain through the ramp down of certain operations.
Their benefit packages are recognized ratably over the employees remaining service periods through the first half of fiscal 2017.
In May 2015, the Company decided to further reduce its research and development operations in Israel and close certain other design centers, primarily located in Europe and the U.S. in connection with its
ongoing effort to streamline its business. As a result, the Company recorded a total $16.3 million charge in fiscal 2016 comprised of $15.1 million for severance related to the termination of 358 employees who were notified of their termination
and $1.2 million for a lease obligation related to a facility that the Company vacated in July 2015. Substantially all of the activities associated with these actions were completed and all affected employees departed before the end of fiscal 2016.
In March 2015, the Company exercised the early buyout option under an existing operating lease for corporate equipment that
it planned to sell as part of a cost reduction action. The Company actively sought a buyer and classified the equipment as held for sale within prepaid and current assets on the consolidated balance sheet. It also ceased depreciation on the asset
and recorded impairment charges of $1.4 million through the second quarter ended August 1, 2015. In October 2015, the Company sold the corporate equipment for net proceeds of $9.3 million, which approximated the carrying value and resulted in no
gain or loss recognized upon the sale of the asset.
In addition to the restructuring actions described in the preceding
paragraphs, the Company recorded $1.4 million of additional charges primarily associated with ongoing operating expenses of vacated facilities related to restructuring actions in previous fiscal years and maintenance costs for the corporate
equipment sold in October 2015.
Fiscal 2015.
The Company decided to streamline its
operations, primarily in Israel to align with its overall strategic plan, and to discontinue the development of a product it originally acquired in a business combination. As a result, the Company recorded $13.8 million of restructuring and other
related charges in fiscal 2015. Facilities and related costs primarily included a charge for a portion of the lease obligation related to vacating the floors the Company no longer planned to occupy in one of its Israel facilities. The write-off of
an acquired intangible asset in fiscal 2015 was due to the Companys decision to discontinue the related project. These actions were substantially completed by the end of fiscal 2015. In addition, the Company decided to exercise an early buy
out option to acquire an asset under an existing operating lease agreement, and recorded a $3.2 million loss from the termination of the agreement in fiscal 2015.
Fiscal 2014.
The Company recorded $4.7 million of restructuring and other related charges in fiscal 2014 in connection with its decision to close two sites. As a result, the
Company incurred severance and exit-related costs in connection with vacating the facilities, in addition to the write-off of equipment. All activities were substantially completed by the end of fiscal 2014.
87
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table sets forth a reconciliation of the beginning and ending
restructuring liability balances by each major type of costs associated with the restructuring charges (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
and Related
Costs
|
|
|
Facilities
and Related
Costs
|
|
|
Other
Exit-Related
Costs
|
|
|
Total
|
|
Balance at February 1, 2014
|
|
$
|
51
|
|
|
$
|
2,383
|
|
|
$
|
19
|
|
|
$
|
2,453
|
|
Restructuring charges
|
|
|
5,181
|
|
|
|
1,924
|
|
|
|
3,316
|
|
|
|
10,421
|
|
Net cash payments
|
|
|
(5,232
|
)
|
|
|
(2,968
|
)
|
|
|
(105
|
)
|
|
|
(8,305
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2015
|
|
|
|
|
|
|
1,339
|
|
|
|
3,230
|
|
|
|
4,569
|
|
Restructuring charges
|
|
|
43,926
|
|
|
|
1,407
|
|
|
|
2,178
|
|
|
|
47,511
|
|
Net cash payments
|
|
|
(42,741
|
)
|
|
|
(1,597
|
)
|
|
|
(3,764
|
)
|
|
|
(48,102
|
)
|
Exchange rate adjustment
|
|
|
(30
|
)
|
|
|
(106
|
)
|
|
|
|
|
|
|
(136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 30, 2016
|
|
$
|
1,155
|
|
|
$
|
1,043
|
|
|
$
|
1,644
|
|
|
$
|
3,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During fiscal 2016, the Company paid severance and related benefit costs to a total of 1,191 employees
who departed in fiscal 2016 as part of the restructuring actions described above. The remaining severance is expected to be paid within the first half of fiscal 2017. The balance at January 30, 2016 for facility and related costs includes remaining
payments under lease obligations related to vacated space that are expected to be paid through fiscal 2018. Other exit-related costs are expected to be paid in the first quarter of fiscal 2017.
Note 9 Income Taxes
The U.S. and non-U.S. components of income before income taxes consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 30,
2016
|
|
|
January 31,
2015
|
|
|
February 1,
2014
|
|
U.S. operations
|
|
$
|
33,787
|
|
|
$
|
31,942
|
|
|
$
|
31,339
|
|
Non-U.S. operations
|
|
|
(832,841
|
)
|
|
|
400,211
|
|
|
|
274,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(799,054
|
)
|
|
$
|
432,153
|
|
|
$
|
306,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision (benefit) for income taxes consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 30,
2016
|
|
|
January 31,
2015
|
|
|
February 1,
2014
|
|
Current income tax provision (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
10,756
|
|
|
$
|
9,096
|
|
|
$
|
5,774
|
|
State
|
|
|
83
|
|
|
|
(161
|
)
|
|
|
73
|
|
Foreign
|
|
|
(4,589
|
)
|
|
|
785
|
|
|
|
(18,829
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current income tax provision (benefit)
|
|
|
6,250
|
|
|
|
9,720
|
|
|
|
(12,982
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax provision (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(4,355
|
)
|
|
|
(1,775
|
)
|
|
|
317
|
|
State
|
|
|
580
|
|
|
|
16
|
|
|
|
32
|
|
Foreign
|
|
|
9,871
|
|
|
|
(11,154
|
)
|
|
|
3,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax provision (benefit)
|
|
|
6,096
|
|
|
|
(12,913
|
)
|
|
|
3,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision (benefit) for income taxes
|
|
$
|
12,346
|
|
|
$
|
(3,193
|
)
|
|
$
|
(9,063
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The income tax expense for fiscal 2016 includes current income tax liability of $14.5
million, an additional tax provision of $3.1 million related to a $15.4 million payment to the Companys former Chief Executive Officer (see Note 14 Related Party Transactions) and a $6.1 million reduction in net
deferred tax assets that was primarily caused by the recognition of a valuation allowance against certain non-U.S. loss carryforwards that will not be realized in the foreseeable future. These expenses were offset by a net reduction in unrecognized
tax benefits of $11.6 million that arose from the release of $20.6 million due to the settlement of an audit in a non-U.S. jurisdiction and the expiration of statutes of limitation in non-U.S. jurisdictions, net of a $9.0 million increase in current
unrecognized tax benefits. The income tax benefit for fiscal 2015 includes the current income tax liability of $17.4 million plus a $7.4 million increase in current unrecognized tax benefit. These charges were offset by a reduction in unrecognized
tax benefits that arose from the release of $16.4 million due to the expiration of statutes of limitation in non-U.S. jurisdictions and a $12.9 million increase in net deferred tax assets. The income tax benefit for fiscal 2014 included the current
income tax liability of $13.2 million plus a $9.1 million increase in current unrecognized tax benefit which were offset by a reduction in unrecognized tax benefits that arose from the release of $31.8 million due to the expiration of statutes of
limitation and the settlement of a tax audit in non-U.S. jurisdictions.
Deferred tax assets consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
January 30,
2016
|
|
|
January 31,
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Federal and California research and other tax credits
|
|
$
|
414,662
|
|
|
$
|
382,726
|
|
Reserves and accruals
|
|
|
35,200
|
|
|
|
35,538
|
|
Share-based compensation
|
|
|
4,476
|
|
|
|
4,502
|
|
Net operating losses
|
|
|
11,055
|
|
|
|
10,740
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
465,393
|
|
|
|
433,506
|
|
Valuation allowance
|
|
|
(424,914
|
)
|
|
|
(382,796
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
40,479
|
|
|
|
50,710
|
|
Total deferred tax liabilities
|
|
|
(7,073
|
)
|
|
|
(11,209
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
33,406
|
|
|
$
|
39,501
|
|
|
|
|
|
|
|
|
|
|
As presented in the consolidated balance sheets as of January 30, 2016 and January 31, 2015, and in the
table above, unrecognized tax benefits have been offset by deferred tax assets for certain net operating losses that are available to be used in the amount of $6.3 million and $4.2 million, respectively.
During fiscal 2016, deferred tax assets, net of a corresponding valuation allowance, decreased $6.1 million from the end of fiscal 2015,
primarily due to a valuation allowance that was recorded against deferred tax assets in Israel. As of January 30, 2016 and January 31, 2015, the Company had $34.5 million and $22.3 million of deferred tax assets, respectively, classified as
non-current included in other non-current assets on the consolidated balance sheet.
At the end of fiscal 2016, the Company
recorded a valuation allowance of $424.9 million, an increase of $42.1 million from fiscal 2015. The Company provided a full valuation allowance against its federal and various state research credits which it earns 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. Based on the available objective positive and negative evidence, the Company determined that it is more likely than not that these
research credits and net operating losses will not be realized. The Company also provided a full 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.
89
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of January 30, 2016, the Company had net operating loss carryforwards available to
offset future taxable income of approximately $90.8 million, $1.6 million and $6.3 million for foreign, U.S. federal and state of California purposes, respectively. The federal carryforwards will expire in various fiscal years between 2022 and 2028,
and the California carryforwards will expire at various fiscal years between 2018 and 2033, if not utilized before these years. The majority of the Companys non-U.S. losses carry forward indefinitely. For U.S. federal income tax return
purposes, the Company had research tax credit carryforwards of approximately $248.6 million that expire through fiscal 2036. As of January 30, 2016, the Company had unused California research and tax credit carryforwards of approximately $260.6
million, which can be carryforward indefinitely. Included in the U.S. federal and California carryforward amounts are $59.8 million and $57.7 million, respectively, that are attributable to excess tax benefits from stock options. Upon realization,
the benefit associated with these credits will increase additional paid-in capital. The Company also has research and investment tax credit carryforwards of approximately $21.6 million in other U.S. states that expire through fiscal 2031 due to the
statutes of limitation.
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 2016, 2015 and 2014. For purposes of the reconciliation between the provision (benefit) for income taxes at the statutory rate and the effective tax rate, a notional U.S.
35% rate is applied as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 30,
2016
|
|
|
January 31,
2015
|
|
|
February 1,
2014
|
|
Provision at U.S. notional statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Non-deductible share-based compensation
|
|
|
(5.9
|
)
|
|
|
11.2
|
|
|
|
19.4
|
|
Difference in U.S. and non-U.S. tax rates
|
|
|
(31.3
|
)
|
|
|
(46.0
|
)
|
|
|
(55.8
|
)
|
Benefits from utilization of general business credits
|
|
|
5.0
|
|
|
|
(12.0
|
)
|
|
|
(14.1
|
)
|
Change in valuation allowance
|
|
|
(4.0
|
)
|
|
|
10.5
|
|
|
|
11.9
|
|
Other
|
|
|
(0.3
|
)
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
(1.5
|
)%
|
|
|
(0.7
|
)%
|
|
|
(3.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table reflects changes in the unrecognized tax benefits (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 30,
2016
|
|
|
January 31,
2015
|
|
|
February 1,
2014
|
|
Unrecognized tax benefits as of the beginning of the period
|
|
$
|
45,197
|
|
|
$
|
51,682
|
|
|
$
|
79,031
|
|
Increases related to prior year tax positions
|
|
|
304
|
|
|
|
976
|
|
|
|
499
|
|
Decreases related to prior year tax positions
|
|
|
(4,334
|
)
|
|
|
(386
|
)
|
|
|
(111
|
)
|
Increases related to current year tax positions
|
|
|
4,237
|
|
|
|
5,356
|
|
|
|
2,666
|
|
Settlements
|
|
|
(704
|
)
|
|
|
|
|
|
|
(7,423
|
)
|
Lapse in the statute of limitations
|
|
|
(9,739
|
)
|
|
|
(10,691
|
)
|
|
|
(13,969
|
)
|
Foreign exchange gain
|
|
|
(5,822
|
)
|
|
|
(1,740
|
)
|
|
|
(9,011
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross amounts of unrecognized tax benefits as of the end of the period
|
|
$
|
29,139
|
|
|
$
|
45,197
|
|
|
$
|
51,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the balances as of January 30, 2016 is $27.8 million of unrecognized tax benefit that would
affect the effective income tax rate if recognized. Also, $6.3 million and $4.2 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 January 30,
2016 and January 31, 2015, respectively.
90
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The amounts in the table above do not include the related interest and penalties. The
Companys policy is to recognize these interest and penalties as a component of income tax expense. The amount of interest and penalties accrued was approximately $26.4 million as of January 30, 2016, $27.7 million as of January 31, 2015 and
$29.6 million as of February 1, 2014. The consolidated statements of operations for fiscal 2016, 2015 and 2014 included $4.6 million, $3.8 million and $6.2 million, respectively, of interest and penalties related to the unrecognized tax benefits.
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 January 30, 2016, the material jurisdictions that are subject
to examination include China, Israel, Singapore, Switzerland and the United States for the Companys fiscal years 2005 through 2015. As of January 30, 2016, several of the Companys non-U.S. entities are under examination for fiscal years
encompassing 2006 through 2015. The Company is also under examination by the state of California for fiscal year 2013 and 2014.
For fiscal 2017, 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 $16.2 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
Companys Singapore subsidiary. In October 2004, the Companys 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 2016, 2015 and 2014 tax savings associated with these tax holidays were
approximately $5.3 million, $0.1 million and $3.7 million, respectively, which if paid would impact the Companys earnings per share by $0.01 per share in fiscal 2016 and 2014, and less than $0.01 per share in fiscal 2015.
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. For fiscal 2014, the benefit associated with these approved or benefited enterprise programs was $2.2 million, which provided earnings per
share of $0.01 per share in fiscal 2014. There was no such benefit in fiscal 2016 and fiscal 2015.
During fiscal 2007, each
of the Swiss Federal Department of Economy and the Vaud Cantonal Tax Administration granted the Companys subsidiary in Switzerland a 10 year tax holiday on revenues from research and design wafer supply trading activities, which commenced in
February 2007 and expired at the end of fiscal 2016. The fiscal 2016, 2015 and 2014 tax savings associated with this tax holiday was approximately $3.7 million, $4.5 million and $5.1 million, respectively, which provided earnings per share of
$0.01 per share in fiscal 2016 and 2015, and less than $0.01 per share in fiscal 2014.
91
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Companys principal source of liquidity as of January 30, 2016 consisted of
approximately $2.3 billion of cash, cash equivalents and short-term investments, of which approximately $830 million was held by foreign subsidiaries (outside Bermuda). Approximately $620 million of this amount held by foreign subsidiaries is
related to undistributed earnings, which have been indefinitely reinvested outside of Bermuda. These funds are primarily held in China, Israel, Singapore, the United States and Switzerland. 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. If such funds were needed by the parent company in Bermuda or if the
amounts were otherwise no longer considered indefinitely reinvested, the Company would incur a tax expense of approximately $200 million.
Note 10 Commitments and Contingencies
Warranty Obligations
The Companys products carry a standard
90-day warranty with certain exceptions in which the warranty period can extend to more than one year based on contractual agreements. The Companys warranty expense has not been significant in the periods presented.
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 2016, 2015, and 2014 was
approximately $23.8 million, $26.1 million and $25.8 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 January 30, 2016, are presented in the following tables (in thousands):
|
|
|
|
|
Fiscal Year
|
|
Minimum
Operating
Leases
Payments
|
|
2017
|
|
$
|
63,296
|
|
2018
|
|
|
35,679
|
|
2019
|
|
|
24,407
|
|
2020
|
|
|
14,280
|
|
2021
|
|
|
2,939
|
|
Thereafter
|
|
|
4,946
|
|
|
|
|
|
|
Total future minimum lease payments
|
|
$
|
145,547
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
Technology
License
Obligations
|
|
2017
|
|
$
|
14,769
|
|
2018
|
|
|
12,630
|
|
2019 and thereafter
|
|
|
|
|
|
|
|
|
|
Total future minimum lease payments
|
|
$
|
27,399
|
|
Less: amount representing interest
|
|
|
(580
|
)
|
|
|
|
|
|
Present value of future minimum payments
|
|
|
26,819
|
|
Less: current portion
|
|
|
(14,358
|
)
|
|
|
|
|
|
Non-current portion
|
|
$
|
12,461
|
|
|
|
|
|
|
92
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Technology license obligations include the liabilities under the subscription agreements
for technology licenses between the Company and various vendors.
Purchase Commitments
Under the Companys 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 January 30, 2016, these foundries had incurred approximately $136.8 million of manufacturing costs and expenses relating to the Companys
outstanding purchase orders.
Intellectual Property Indemnification
The Company has agreed to indemnify certain customers for claims made against the Companys products where such claims allege
infringement of third-party intellectual property rights, including, but not limited to, patents, registered trademarks, and/or copyrights. Under the aforementioned indemnification clauses, the Company may be obligated to defend the customer and pay
for the damages awarded against the customer under an infringement claim as well as the customers attorneys fees and costs. The Companys indemnification obligations generally do not expire after termination or expiration of the
agreement containing the indemnification obligation. Generally, there are limits on and exceptions to the Companys potential liability for indemnification. Although historically the Company has not made significant payments under these
indemnification obligations, the Company cannot estimate the amount of potential future payments, if any, that it might be required to make as a result of these agreements. The maximum potential amount of any future payments that the Company could
be required to make under these indemnification obligations could be significant.
Contingencies
The Company and certain of its subsidiaries are currently parties to various legal proceedings, including those noted in this section. The
legal proceedings and claims described below could result in substantial costs and could divert the attention and resources of the Companys management. The Company is also engaged in other legal proceedings and claims not described below,
which arise in the ordinary course of its business. Litigation is subject to inherent uncertainties and unfavorable rulings could occur. An unfavorable ruling in litigation could require the Company to pay damages, one-time license fees or ongoing
royalty payments, and could prevent the Company from manufacturing or selling some of its products or limit or restrict the type of work that employees involved in such litigation may perform for the Company, any of which could adversely affect
financial results in future periods. The Company believes that its products do not infringe valid and enforceable claims and it will continue to vigorously defend against the allegations in these matters. However, there can be no assurance that
these matters will be resolved in a manner that is not adverse to the Companys business, financial condition, results of operations or cash flows.
As of January 30, 2016, the Company has an accrued litigation balance of $739.8 million related to certain legal proceedings described below. Unless otherwise stated, the Company is currently unable to
predict the final outcome of these lawsuits and therefore cannot determine the likelihood of loss or estimate a range of possible loss.
Carnegie Mellon University Litigation.
On March 6, 2009, CMU filed a complaint in the U.S. District Court for the Western District of Pennsylvania (W.D. of
Pennsylvania). CMU has asserted U.S. Patent Nos. 6,201,839 and 6,438,180 (collectively, the CMU patents in suit), which relate to read-channel integrated circuit
93
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
devices and the hard disk drive (HDD) incorporating such devices. A jury trial began on November 26, 2012. On December 26, 2012, a jury delivered a verdict that found the CMU patents
in suit were literally and willfully infringed and valid, and awarded past damages in the amount of $1.17 billion. Based on post-trial motions and decisions, the W.D. of Pennsylvania calculated the damages including enhancement to total
approximately $1.54 billion, and held that, under its decision, CMU is entitled to post judgment interest and an ongoing royalty. On May 7, 2014, the W.D. of Pennsylvania entered final judgment, from which the Company filed a notice of appeal on May
14, 2014. On August 4, 2015, the W.D. of Pennsylvania in a three-judge panel issued an opinion affirming in part, reversing in part, and vacating and remanding in part. On February 16, 2016, the Company and CMU entered into a Settlement Agreement
and Patent License pursuant to which the Company has agreed to pay an aggregate of $750 million, without any ongoing royalty payments, to CMU and the parties have agreed to mutually acceptable release, license and covenant not to sue provisions.
Please see Note 15 Subsequent Events for additional information on the effect of the settlement in the Companys consolidated financial statements for fiscal 2016. The Company expects the action to be finally
dismissed in the third quarter of fiscal 2017, approximately 6 months after payment of the full amount of the settlement payment. In connection with the settlement, the primary supersedeas bond that the Company entered into in connection with this
litigation was reduced to $439 million and the secondary bond, which is secured, was adjusted to $311 million. All of the Companys obligations under both bonds were discharged pursuant to an order releasing supersedeas bonds on April 21, 2016.
Any bond specific indemnity agreement will be terminated and released upon final dismissal of the action.
USEI
Litigation.
On October 9, 2009, U.S. Ethernet Innovations, LLC (USEI) filed a complaint in the U.S. District Court for the Eastern District of Texas (E.D. of Texas), in which USEI accused a number
of system manufacturers, including the Companys customers, of patent infringement (the USEI litigation). Specifically, USEI asserted that these customers infringe U.S. Patent Nos. 5,307,459, 5,434,872, 5,732,094 and 5,299,313,
which relate to Ethernet technologies. The complaint seeks unspecified damages and an injunction.
On May 4, 2010, MSI filed a
motion to intervene in the USEI litigation, which was granted on May 19, 2010. On July 13, 2010, the E.D. of Texas issued an order granting the defendants motion to transfer the action to the U.S. District Court for the Northern District of
California (N.D. of California); the case was formally transferred on August 23, 2010. On September 14, 2011, USEI withdrew its allegations against MSI for the 459 patent. The N.D. of California issued a first claim construction
ruling on January 31, 2012 and a supplemental claim construction ruling on August 29, 2012. On August 16, 2013, the N.D. of California granted defendants summary judgment motion to preclude the plaintiff from recovering certain pre-suit
damages. On November 7, 2014, on summary judgment, the N.D. of California found that all the patents-in-suit were either invalid or not infringed. On December 1, 2014, the N.D. of California entered a judgment in favor of defendants and awarded
defendants costs. On December 29, 2014, USEI filed a motion to alter or amend the N.D. of Californias summary judgment order, which the N.D. of California denied on March 31, 2015. On April 24, 2015, USEI filed its notice of appeal. On
April 25, 2016, the Federal Circuit affirmed the N.D. of Californias judgment in favor of MSI. On June 29, 2016, the Federal Circuit denied USEIs petition for rehearing.
Azure Networks Litigation.
On March 22, 2011, Azure Networks, LLC (Azure) and Tri-County
Excelsior Foundation filed suit in the E.D. of Texas against MSI and eight other companies. The Complaint asserts U.S. Patent No. 7,756,129 against MSIs Bluetooth products. MSI filed its answer and counterclaims on July 20, 2011. On November
2, 2012, MSI and the other defendants filed a motion for summary judgment of invalidity, which was denied. A claim construction hearing was held on December 20, 2012. On January 15, 2013, the magistrate judge issued a claim construction ruling. On
May 20, 2013, the E.D. of Texas issued an order denying plaintiffs motion for reconsideration and adopted the magistrate judges claim construction ruling. On May 30, 2013, the E.D. of Texas entered a judgment of non-infringement. On June
24, 2013, Azure appealed.
94
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On November 6, 2014, the Federal Circuit issued an order vacating the judgment of non-infringement and remanding for further proceedings. MSI filed a petition for writ of certiorari to the United
States Supreme Court on February 4, 2015. On February 10, 2015, the E.D. of Texas stayed all proceedings pending the Supreme Courts ruling on the Companys petition. On April 20, 2015, the United States Supreme Court granted MSIs
petition, vacating the Federal Circuits judgment and remanding the case for further consideration. The case was dismissed with prejudice on October 14, 2015 with no significant impact on the Companys consolidated financial statements.
On January 13, 2015, Azure filed a second suit against MSI in the E.D. of Texas, alleging infringement of U.S. Patent Nos.
8,582,570; 8,582,571; 8,588,196; 8,588,231; 8,589,599; 8,675,590; 8,683,092; 8,700,815; 8,732,347; and 8,732,361, purportedly related to certain Wi-Fi and near field communication (NFC) technologies. The complaint seeks unspecified
damages. On April 6, 2015, MSI filed an amended answer and counterclaims. The case was dismissed with prejudice on January 4, 2016 with no significant impact on the Companys consolidated financial statements.
France Telecom Litigation.
On June 26, 2012, France Telecom S.A. filed a complaint against MSI in the U.S.
District Court for the Southern District of New York. The complaint asserts U.S. Patent No. 5,446,747 against MSIs communications processors and thin modems. The complaint sought unspecified damages as well as injunctive relief. MSI answered
the complaint on July 18, 2012 and August 1, 2012. On July 30, 2012, MSI filed a motion to transfer the lawsuit to the N.D. of California. On September 17, 2012, the Court granted MSIs motion and transferred the case to the N.D. of California.
A claim construction hearing was held on December 13, 2013. On April 14, 2014, the Court denied MSIs motion for summary judgment of invalidity, and granted MSIs summary judgment motion concerning certain damages preclusion. A jury trial
began on September 17, 2014. On September 30, 2014, a jury delivered a verdict that found the patent in suit was literally, but not willfully, infringed and valid, and awarded damages. The award did not have a significant impact on the
Companys consolidated financial statements. A hearing for post-trial motions and non-jury issues took place on January 14, 2015. On March 2, 2015, the N.D. of California issued an order on post-trial briefs finding no direct infringement by
Marvell as a matter of law and entered judgment in favor of Marvell. On March 30, 2015, France Telecom filed a notice of appeal. On April 10, 2015, MSI filed a notice of cross appeal. On July 15, 2015, the Federal Circuit granted the parties
joint stipulation to dismiss both parties appeals.
Vantage Point Technology Patent
Litigation.
On November 21, 2013, Vantage Point Technology, Inc. (VPT) filed suit against a third-party defendant in the E.D. of Texas for patent infringement relating to processor technology. On February 3,
2014, VPT filed an amended complaint against the third party and added MSI as an additional defendant. The complaint sought unspecified damages. On December 8, 2014, the case was transferred to the N.D. of California. The case was dismissed with
prejudice in March, 2015 with no significant impact on the Companys consolidated financial statements.
Bandspeed
Litigation.
On May 9, 2014, Bandspeed, Inc. filed suit against MSI in the U.S. District Court for the Western District of Texas, alleging infringement of U.S. Patent Nos. 7,027,418; 7,570,614; 7,477,624; 7,903,608; and
8,542,643, purportedly related to certain Bluetooth technology. The complaint sought unspecified damages. On February 13, 2015, Bandspeed amended its complaint and added allegations of infringement of U.S. Patent No. 8,873,500. On April 29, 2015,
the parties filed a joint motion to dismiss the case with prejudice. The case was dismissed with prejudice on May 7, 2015 with no significant impact on the Companys consolidated financial statements.
NXP Litigation
. On January 22, 2015, NXP Semiconductors N.V. filed suit against MSI in the N.D. of
California, alleging infringement of U.S. Patent Nos. 5,939,791; 7,039,133; 8,185,050; and 8,203,432,
95
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
purportedly related to certain NFC technology. The complaint sought unspecified damages. MSI filed its response and counterclaims on February 26, 2015. Marvell International Limited
(MIL) also filed counterclaims against NXP Semiconductors U.S.A. (NXP USA), alleging infringement of U.S. Patent Nos. 7,047,393; 7,555,065; and 7,302,600. On February 2, 2015, MIL filed suit against NXP USA in the U.S.
District Court for the Central District of California, alleging patent infringement of U.S. Patent Nos. 8,171,309; 7,957,777; 7,454,634; and 6,903,448, related to certain NFC and automotive technologies. On April 15, 2015, the parties filed
stipulations to dismiss without prejudice their claims and counterclaims in both cases.
Paone
Litigation
. On February 6, 2015, Luciano F. Paone filed suit against MSI in the U.S. District Court for the Eastern District of New York, alleging infringement of U.S. Patent No. 6,259,789, purportedly related to certain
encryption technology. The complaint seeks unspecified damages. MSI filed its response on May 22, 2015. The case was dismissed with prejudice on December 31, 2015 with no significant impact on the Companys consolidated financial statements.
Innovatio Litigation.
On March 16, 2015, Innovatio IP Ventures, LLC filed suit against MSI in
the U.S. District Court for the Northern District of Illinois, alleging infringement of U.S. Patent Nos. 6,697,415; 5,844,893; 5,740,366; 7,916,747; 6,665,536; 7,013,138; 7,107,052; 5,546,397; 7,710,907; 7,710,935; 6,714,559; 7,457,646; and
6,374,311, purportedly related to certain wireless technology. The complaint seeks unspecified damages.
Visual Memory
Litigation.
On May 8, 2015, Visual Memory LLC (Visual Memory) filed suit against MSI in the District of Delaware, alleging infringement of U.S. Patent Nos. 5,654,932 and 6,026,027, purportedly related to
certain memory technology. The complaint seeks unspecified damages. The case was dismissed with prejudice on September 4, 2015, with no significant impact on the Companys consolidated financial statements.
Luna Litigation and Consolidated Cases.
On September 11, 2015, Daniel Luna filed an action asserting
putative class action claims on behalf of the Companys shareholders in the United States District Court for the Southern District of New York (S.D. of New York). This action was consolidated with two additional, nearly identical
complaints subsequently filed by Philip Limbacher and Jim Farno. The complaints asserted violations of federal securities laws based on allegations that the Company and certain of its officers and directors (Sehat Sutardja, Michael Rashkin, and
Sukhi Nagesh) made, caused to be made, or failed to correct false and/or misleading statements in the Companys press releases and public filings. The complaints request damages in unspecified amounts, costs and fees of bringing the action, and
other unspecified relief.
On November 18, 2015, the S.D. of New York granted the Companys motion to transfer the
consolidated cases to the N.D. of California. On December 21, 2015, the N.D. of California granted the Companys motion to deem the consolidated cases related to the
Saratoga
litigation, discussed below. On February 8, 2016, the N.D. of
California granted an unopposed motion to appoint Plumbers and Pipefitters National Pension Fund as Lead Plaintiff. On March 19, 2016, Lead Plaintiff filed a consolidated amended complaint. On April 29, 2016, Marvell and each of the individual
defendants each filed motions to dismiss; Lead Plaintiffs oppositions were filed on June 10, 2016; and defendants replies are due by July 15, 2016. The hearing on the motions to dismiss is set for July 29, 2016.
Saratoga Litigation.
On October 16, 2015, Saratoga Advantage Trust Technology & Communications
Portfolio (Saratoga) filed an action asserting shareholder derivative claims ostensibly on behalf of the Company in the Superior Court of the State of California, County of Santa Clara. The complaint names eight current or former
officers and/or directors (Sehat Sutardja, Weili Dai, Juergen Gromer, Arturo Krueger, John Kassakian, Randhir Thakur, Michael Rashkin, and Sukhi Nagesh) as defendants and asserts various California
96
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
state law causes of action based on allegations that the Company and the named officers and directors made, caused to be made, or failed to correct false and/or misleading statements in the
Companys press releases and public filings, leading to the filing of securities class actions that allegedly damaged the Company. The Company was named as a nominal defendant. The complaint requests damages and restitution in unspecified
amounts, equitable and/or injunctive relief, costs and fees of bringing the action, and other unspecified relief.
On October
23, 2015, the Company removed the action to the N.D. of California. On December 21, 2015, the N.D. of California denied Saratogas motion to remand. On December 21, 2015, the N.D. of California granted the Companys motion to deem the
action related to the consolidated
Luna
actions, discussed above. On January 22, 2016, the Company filed a motion to dismiss the complaint; on February 19, 2016, Saratoga filed an opposition; and on March 4, 2016, the Company filed a reply.
On March 25, 2016, the District Court held a hearing on the motion and took the matter under submission. To the Companys knowledge, none of the individual defendants has yet been served.
Surety Bonds
On May 14, 2014, the Company filed a Notice of Appeal to appeal the final judgment issued by the W.D of Pennsylvania in the CMU litigation. In order to stay the execution of the final judgment pending its
appeal, the Company filed a supersedeas bond for $1.54 billion with the W.D. of Pennsylvania in the event the Company did not fully satisfy a final judgment as affirmed after the completion of all appellate proceedings. The bond was issued by a
consortium of sureties authorized by the U.S. Treasury. In support of the bond, the Company entered into separate indemnity agreements with each of the sureties to indemnify the sureties from all costs and payments made under the bond. The indemnity
agreements did not require collateral to be posted at the time of the issuance of the bond. Therefore no cash is considered restricted as of the date of this filing. However, the indemnity agreements provide that each of the sureties have the right
to demand to be placed in funds or call for collateral under pre-defined events.
On November 14, 2014, the Company filed a
second surety bond for $216 million and filed a commitment letter from the sureties to issue up to an additional $95 million in bonding under certain conditions. The second bond and commitment are secured by the Companys campus located in
Santa Clara, California, which has a carrying value of $133.0 million at January 30, 2016.
In connection with the settlement
that was reached with CMU for a total $750 million in February 2016, the primary supersedeas bond that the Company entered into was reduced to $439 million and the secondary bond was adjusted to $311 million and both were discharged pursuant to an
order releasing supersedeas bonds on April 21, 2016. The underlying indemnity agreements will terminate upon the final dismissal of the case in the third quarter of fiscal 2017. For additional information, see CMU litigation under
Contingencies above.
Indemnities, Commitments and Guarantees
During its normal course of business, the Company has made certain indemnities, commitments and guarantees under which it may be required
to make payments in relation to certain transactions. These indemnities may include intellectual property indemnities to the Companys customers in connection with the sales of its products, indemnities for liabilities associated with the
infringement of other parties technology based upon the Companys products, indemnities for general commercial obligations, indemnities to various lessors in connection with facility leases for certain claims arising from such facility or
lease, and indemnities to directors and officers of the Company to the maximum extent permitted under the laws of Bermuda. In addition, the Company has contractual commitments to various customers, which could require the Company to incur
97
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
Note 11 Benefit 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 matches 100% of the employee contribution up to $500 per eligible employee per quarter. The participant must be employed by the Company on the last day of the calendar quarter to qualify for the match.
At the end of the calendar year, the eligible employees receive a true-up match equal to the accumulated employee contribution for the calendar year up to $2,000. The Company made matching contributions to employees of $4.9 million in fiscal 2016,
and $5.1 million in each of fiscal 2015 and 2014. As of January 30, 2016, the 401(k) plan offers a variety of investment alternatives, representing different asset classes. Employees may not invest in the Companys 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 $14.5 million, $18.5 million and $20.5 million during fiscal 2016, 2015 and 2014, respectively. The Company also maintains a limited number of defined benefit plans for
certain non-U.S. locations. Total costs under these plans were $1.5 million in fiscal 2016, and $0.1 million in each of fiscal 2015 and 2014.
Note 12 Shareholders Equity
Common and Preferred Stock
As of January 30, 2016, the Company is
authorized to issue 992.0 million shares of $0.002 par value common stock and 8.0 million shares of $0.002 par value preferred stock. As of January 30, 2016 and January 31, 2015, no shares of preferred stock were outstanding.
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 January 30, 2016. 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. Incentive stock options granted to
shareholders who own greater than 10% of the outstanding stock at the time of the grant may not have a term exceeding five years and these options must be issued at prices of at least 110% of the fair market value of the stock on the date of grant.
Equity awards to new hires under the Option Plan generally vest 20% one year after the vesting commencement date and the remaining shares vest one-sixtieth per month over the remaining 48 months. Other equity awards generally vest annually in four
equal installments.
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.
98
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of January 30, 2016, approximately 91.4 million shares remained available for future
issuance under the Option Plan.
Fiscal 2016.
In April 2015, the Company granted
performance-based equity awards to each of its executive officers, which are based on their achievement of certain performance goals for a new performance period beginning in fiscal 2016. These equity awards include RSUs which vest based on the
achievement of certain financial goals (each a Financial Performance RSU), and performance awards for which a portion shall vest based on the achievement of individual strategic objectives (each a Strategic Objective Award)
and a portion shall vest based on total shareholder return (each a Total Shareholder Return Award). These awards are reported as Performance-Based, except for the Total Shareholder Return Award which is reported as
Market-Based. The Financial Performance RSUs will be earned based on the achievement of revenue and modified non-GAAP operating income that have been established at threshold, target and maximum levels
and will vest on the first anniversary of the vest commencement date. The Strategic Objective Awards will vest on the first anniversary of the commencement date at the target level based on the achievement of individual strategic goals and, with
respect to a portion of each Strategic Objective Award, the further achievement of either the revenue or modified non-GAAP operating income objective established for the Financial Performance RSU. The Total Shareholder Return Awards will vest on the
second anniversary of the commencement date based on the Companys stock price performance in comparison to the Philadelphia Semiconductor Sector Index. Share-based compensation for the Total Shareholder Return Award is measured using the Monte
Carlo valuation method since the award is indexed to the price of the Companys common stock as set forth under the terms of the award.
Fiscal 2015
. In April 2014, the Company granted performance-based equity awards to each of our executive officers which are based on their achievement of certain performance
goals in fiscal 2015 and 2016. These equity awards include RSUs which vest based on financial performance criteria (Financial Performance RSU) and restricted stock units which vest based on both financial performance criteria and
individual strategic goals (Strategic Performance Award). The Financial Performance RSUs will be earned based on the achievement of revenue and modified non-GAAP operating income that have been established at threshold,
target and maximum levels. Each Financial Performance RSU will vest 50% on the first anniversary of the commencement date based on achievement of fiscal 2015 financial performance criteria and 50% on the second anniversary of
the vesting commencement date based on the achievement of fiscal 2016 financial performance criteria. The Strategic Performance Awards will vest based on achievement at the threshold level of either the revenue or modified non-GAAP operating income
objective established for the Financial Performance RSU, in addition to the achievement of additional individual strategic goals. Each Strategic Performance Award will vest 50% on the first anniversary of the commencement date based on achievement
of fiscal 2015 individual strategic goals and 50% on second anniversary date based on the achievement of the fiscal 2016 individual strategic goals.
In June 2014, the Company granted performance-based RSU (PSUs) to certain members of senior management. Pursuant to the PSUs, each eligible employee is entitled to vest in a certain number of
shares based on such employees achievement of individual financial and strategic performance goals for fiscal 2015, including, for example, net revenue and operating expense targets, and other individual strategic milestones. The actual number
of shares that vest for each eligible employee is based on the achievement of such performance goals determined at the end of fiscal 2015 and vest over two years, with 50% vesting on April 1, 2015 and 50% vesting on April 1, 2016.
2007 Directors Stock Incentive Plan
In October 2007, the Company adopted the 2007 Directors Stock Incentive Plan, (2007 Director Plan) for which shareholders approved a total of 750,000 common shares that could be issued
under the plan to all eligible
99
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
outside directors. Beginning in fiscal 2015, each outside director is eligible to receive equity awards under the 2007 Director Plan. Upon election or appointment at the annual general meeting of
shareholders, each outside director will be granted an RSU award for a number of shares with an aggregate fair market value equal to $220,000 immediately following each annual general meeting of shareholders. 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. An outside director who is elected or appointed after an annual general meeting of shareholders will receive a pro rata RSU award based
on the number of quarters completed since the prior annual general meeting of shareholders. In no event shall any outside director be awarded in any calendar year an annual RSU award under the 2007 Director Plan for more than 20,000 shares.
In fiscal 2014, each outside director who was appointed at the annual general meeting of shareholders was granted an option
to purchase a number of common shares with an aggregate grant date fair value equal to $110,000 immediately following the annual general meeting of shareholders. In addition, each outside director who was elected or appointed at the annual general
meeting of shareholders was granted an RSU award for a number of shares with an aggregate fair market value equal to $110,000 immediately following each annual general meeting. The option awards, which have a term of 10 years, and the RSU awards
each vest 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. An outside director elected or appointed after an annual general meeting of shareholders would receive a
pro rata stock option award and RSU award based on the number of quarters completed since the previous annual general meeting of shareholders. In no event would any outside director be awarded in any calendar year an annual option award or annual
RSU award under the 2007 Director Plan for more than 25,000 shares and 10,000 shares, respectively. As of January 30, 2016, approximately 77,952 shares remained available for future issuance under the 2007 Directors Plan.
2000 Employee Stock Purchase Plan
Under the 2000 Employee Stock Purchase Plan, as amended and restated on October 31, 2011 (the ESPP), participants purchase the Companys 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 Companys 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 participants 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 5.9 million shares were issued in fiscal 2016 at a weighted-average price of $10.00 per share, a total of 9.7
million shares were issued in fiscal 2015 at a weighted-average price of $7.67 per share and a total of 9.7 million shares were issued in fiscal 2014 at a weighted-average price of $7.39 per share. As of January 30, 2016, there was $47.4 million of
unamortized compensation cost related to the ESPP.
As of January 30, 2016, approximately 16.6 million shares remained
available for future issuance under the ESPP.
100
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Option Plan and Stock Award Activity
Stock option activity under the Companys 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 February 2, 2013
|
|
|
49,637
|
|
|
$
|
13.28
|
|
|
|
2,759
|
|
|
$
|
15.43
|
|
|
|
52,396
|
|
|
$
|
13.39
|
|
Granted
|
|
|
18,922
|
|
|
$
|
10.82
|
|
|
|
|
|
|
|
|
|
|
|
18,922
|
|
|
$
|
10.82
|
|
Exercised
|
|
|
(15,482
|
)
|
|
$
|
9.40
|
|
|
|
|
|
|
|
|
|
|
|
(15,482
|
)
|
|
$
|
9.40
|
|
Canceled/Forfeited
|
|
|
(3,921
|
)
|
|
$
|
15.15
|
|
|
|
(136
|
)
|
|
$
|
15.43
|
|
|
|
(4,057
|
)
|
|
$
|
15.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 1, 2014
|
|
|
49,156
|
|
|
$
|
13.40
|
|
|
|
2,623
|
|
|
$
|
15.43
|
|
|
|
51,779
|
|
|
$
|
13.51
|
|
Granted
|
|
|
6,365
|
|
|
$
|
15.33
|
|
|
|
|
|
|
|
|
|
|
|
6,365
|
|
|
$
|
15.33
|
|
Exercised
|
|
|
(3,732
|
)
|
|
$
|
10.19
|
|
|
|
|
|
|
|
|
|
|
|
(3,732
|
)
|
|
$
|
10.19
|
|
Canceled/Forfeited
|
|
|
(4,649
|
)
|
|
$
|
14.66
|
|
|
|
(391
|
)
|
|
$
|
15.43
|
|
|
|
(5,040
|
)
|
|
$
|
14.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2015
|
|
|
47,140
|
|
|
$
|
13.79
|
|
|
|
2,232
|
|
|
$
|
15.43
|
|
|
|
49,372
|
|
|
$
|
13.88
|
|
Granted
|
|
|
6,170
|
|
|
$
|
14.13
|
|
|
|
|
|
|
|
|
|
|
|
6,170
|
|
|
$
|
14.13
|
|
Exercised
|
|
|
(2,225
|
)
|
|
$
|
9.79
|
|
|
|
|
|
|
|
|
|
|
|
(2,225
|
)
|
|
$
|
9.79
|
|
Canceled/Forfeited
|
|
|
(10,211
|
)
|
|
$
|
15.68
|
|
|
|
(76
|
)
|
|
$
|
15.43
|
|
|
|
(10,287
|
)
|
|
$
|
15.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 30, 2016
|
|
|
40,874
|
|
|
$
|
13.59
|
|
|
|
2,156
|
|
|
$
|
15.43
|
|
|
|
43,030
|
|
|
$
|
13.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at January 30, 2016
|
|
|
38,773
|
|
|
$
|
13.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For time-based stock options vested and expected to vest at January 30, 2016, the aggregate intrinsic
value was $6.7 million. For time-based stock options exercisable at January 30, 2016, the aggregate intrinsic value was $6.6 million. The aggregate intrinsic value of stock options exercised during fiscal 2016, 2015 and 2014 was $9.7 million,
$19.3 million and $51.1 million, respectively. There was no aggregate intrinsic value for market-based stock options at January 30, 2016 and the weighted average remaining contractual term of market-based stock options vested and expected
to reach the end of the vesting period at January 30, 2016 was 5.2 years. The Companys closing stock price of $8.85 as reported on the NASDAQ Global Select Market as of January 29, 2016 was used to calculate the aggregate intrinsic value for
all in-the-money options.
As of January 30, 2016, outstanding options and exercisable options information, by range of
exercise prices, 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
|
|
$ 5.70
|
|
$ 9.49
|
|
|
3,673
|
|
|
|
3.38
|
|
|
$
|
7.04
|
|
|
|
3,386
|
|
|
$
|
6.89
|
|
$10.31
|
|
$10.76
|
|
|
11,574
|
|
|
|
7.09
|
|
|
$
|
10.76
|
|
|
|
3,570
|
|
|
$
|
10.76
|
|
$10.80
|
|
$14.35
|
|
|
9,275
|
|
|
|
6.60
|
|
|
$
|
13.25
|
|
|
|
3,661
|
|
|
$
|
12.06
|
|
$14.45
|
|
$15.43
|
|
|
9,842
|
|
|
|
6.07
|
|
|
$
|
15.16
|
|
|
|
4,843
|
|
|
$
|
15.26
|
|
$15.43
|
|
$34.38
|
|
|
8,666
|
|
|
|
3.80
|
|
|
$
|
19.18
|
|
|
|
5,763
|
|
|
$
|
20.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
43,030
|
|
|
|
5.77
|
|
|
$
|
13.68
|
|
|
|
21,223
|
|
|
$
|
14.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of January 30, 2016, the unamortized compensation expense for time-based stock
options was $38.2 million and market-based stock options were fully amortized in fiscal 2014. The unamortized compensation expense for time-based options will be amortized on a straight-line basis and is expected to be recognized over a
weighted-average period of 1.9 years.
Activity related to the non-vested portion of the restricted stock units is included in
the following table (in thousands, except for share prices):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-Based
|
|
|
Performance-Based
|
|
|
Market-Based
|
|
|
Total
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Balance at February 2, 2013
|
|
|
12,739
|
|
|
$
|
15.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,739
|
|
|
$
|
15.78
|
|
Granted
|
|
|
3,728
|
|
|
$
|
10.79
|
|
|
|
100
|
|
|
$
|
10.52
|
|
|
|
|
|
|
|
|
|
|
|
3,828
|
|
|
$
|
10.78
|
|
Vested
|
|
|
(3,925
|
)
|
|
$
|
16.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,925
|
)
|
|
$
|
16.19
|
|
Canceled/Forfeited
|
|
|
(1,288
|
)
|
|
$
|
14.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,288
|
)
|
|
$
|
14.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 1, 2014
|
|
|
11,254
|
|
|
$
|
14.14
|
|
|
|
100
|
|
|
$
|
10.52
|
|
|
|
|
|
|
|
|
|
|
|
11,354
|
|
|
$
|
14.11
|
|
Granted
|
|
|
5,534
|
|
|
$
|
15.20
|
|
|
|
1,277
|
*
|
|
$
|
14.98
|
|
|
|
|
|
|
|
|
|
|
|
6,811
|
|
|
$
|
15.16
|
|
Vested
|
|
|
(5,938
|
)
|
|
$
|
13.96
|
|
|
|
(3
|
)
|
|
$
|
10.52
|
|
|
|
|
|
|
|
|
|
|
|
(5,941
|
)
|
|
$
|
13.96
|
|
Canceled/Forfeited
|
|
|
(1,102
|
)
|
|
$
|
14.32
|
|
|
|
(120
|
)
|
|
$
|
11.23
|
|
|
|
|
|
|
|
|
|
|
|
(1,222
|
)
|
|
$
|
14.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2015
|
|
|
9,748
|
|
|
$
|
14.84
|
|
|
|
1,254
|
|
|
$
|
14.99
|
|
|
|
|
|
|
|
|
|
|
|
11,002
|
|
|
$
|
14.85
|
|
Granted
|
|
|
5,689
|
|
|
$
|
12.88
|
|
|
|
669
|
*
|
|
$
|
14.08
|
|
|
|
407
|
*
|
|
$
|
12.24
|
|
|
|
6,765
|
|
|
$
|
12.96
|
|
Vested
|
|
|
(5,139
|
)
|
|
$
|
15.06
|
|
|
|
(658
|
)
|
|
$
|
15.15
|
|
|
|
|
|
|
|
|
|
|
|
(5,797
|
)
|
|
$
|
15.07
|
|
Canceled/Forfeited
|
|
|
(1,955
|
)
|
|
$
|
13.99
|
|
|
|
(288
|
)
|
|
$
|
14.39
|
|
|
|
(54
|
)
|
|
$
|
12.24
|
|
|
|
(2,297
|
)
|
|
$
|
14.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 30, 2016
|
|
|
8,343
|
|
|
$
|
13.57
|
|
|
|
977
|
|
|
$
|
14.43
|
|
|
|
353
|
|
|
|
|
|
|
|
9,673
|
|
|
$
|
13.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
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 financial and strategic goals is achieved.
|
In connection with the
performance-based equity awards granted in fiscal 2016 to each of the Companys executive officers, a total of 33,616 shares vested on April 1, 2016 based on achieving certain individual strategic goals as evaluated by the Executive
Compensation Committee of the Companys Board of Directors. No shares vested for the achievement of financial performance goals since the financial performance criteria were below the threshold level. The amount of canceled shares reported in
the table above includes the unvested shares that were not earned.
In connection with the performance-based equity awards
granted in fiscal 2015 to each of the Companys executive officers, a total of 478,001 shares vested on April 1, 2015 in connection with the first performance period completed at the end of fiscal 2015. Of this amount, an additional 107,954
shares are included as granted in the table above for fiscal 2015 since each executive officer achieved greater than their target shares for one of the financial performance goals. The amount of canceled shares reported in the table above includes
the portion of unvested shares that were not earned since performance objectives for each executive officers other financial and strategic performance goals were not fully achieved. No shares will be issued in connection with the second
performance period since the financial and strategic performance goals for fiscal 2016 were not achieved.
102
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In connection with the PSUs granted in fiscal 2015 to certain members of senior
management, final evaluation for each individuals achievement of their performance was measured in the first quarter of fiscal 2016. As a result, a total of 360,723 shares vested on April 1, 2015 and are included in the above table. There was
no material adjustment to share-based compensation expense related to these performance-based restricted stock units in fiscal 2016. The amount of canceled shares reported in the table above includes the portion of unvested shares that were not
earned since certain performance achievements were not fully achieved.
The aggregate intrinsic value of restricted stock
units expected to vest as of January 30, 2016 was $81.7 million. The number of restricted stock units that are expected to vest is 9.2 million shares.
As of January 30, 2016, unamortized compensation expense related to restricted stock units was $53.2 million. The unamortized compensation expense for restricted stock units will be amortized on a
straight-line basis and is expected to be recognized over a weighted-average period of 1.0 years.
Share-Based
Compensation
The following table presents details of share-based compensation expenses by functional line item (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 30,
2016
|
|
|
January 31,
2015
|
|
|
February 1,
2014
|
|
Cost of goods sold
|
|
$
|
7,916
|
|
|
$
|
7,972
|
|
|
$
|
8,863
|
|
Research and development
|
|
|
98,792
|
|
|
|
94,432
|
|
|
|
109,432
|
|
Selling and marketing
|
|
|
11,106
|
|
|
|
11,469
|
|
|
|
13,940
|
|
General and administrative
|
|
|
15,965
|
|
|
|
23,373
|
|
|
|
23,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
133,779
|
|
|
$
|
137,246
|
|
|
$
|
155,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation capitalized in inventory was $1.5 million at January 30, 2016, $1.5 million at
January 31, 2015, and $1.7 million at February 1, 2014.
Upon the termination of certain members of our executive management
in April 2016, it was determined that the vesting in certain of their unvested stock awards was not probable. As a result, the Company recorded a reversal of the previously recognized related share-based compensation expense in the first quarter of
fiscal 2017.
Valuation Assumptions
The expected volatility for awards granted during fiscal 2016, 2015, and 2014 was based on an equally weighted combination of historical stock price volatility and implied volatility derived from traded
options on the Companys 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.
103
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following weighted average assumptions were used for each respective period to
calculate the fair value of each time-based stock option award on the date of grant using the Black-Scholes option pricing model and of each market-based stock option award using a Monte Carlo simulation model:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 30,
2016
|
|
|
January 31,
2015
|
|
|
February 1,
2014
|
|
Time-based Stock Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value
|
|
$
|
3.93
|
|
|
$
|
4.35
|
|
|
$
|
3.43
|
|
Expected volatility
|
|
|
34
|
%
|
|
|
35
|
%
|
|
|
45
|
%
|
Expected term (in years)
|
|
|
5.4
|
|
|
|
5.0
|
|
|
|
5.0
|
|
Risk-free interest rate
|
|
|
1.6
|
%
|
|
|
1.6
|
%
|
|
|
0.8
|
%
|
Expected dividend yield
|
|
|
1.8
|
%
|
|
|
1.6
|
%
|
|
|
2.4
|
%
|
There have been no market-based stock option grants since fiscal 2012, when the Company issued 3.1
million stock options with a market-based condition for a group of senior employees. The market price conditions were not met within the five years from date of grant and these stock options automatically expired in April 2016. The fair value of
each market-based stock option award was estimated on the date of grant using a Monte Carlo simulation model that uses assumptions as then determined, including the same volatility applied to the Companys time-based options that were granted
in the same period. Because a Monte Carlo simulation model incorporates ranges of assumptions for inputs, those ranges are disclosed where applicable. The Company uses historical data to estimate employee termination within the valuation model. The
expected term was 2.66 years for market-based stock options granted in fiscal 2012 and was derived from the output of the valuation model and represents the period of time that options granted are expected to be outstanding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 30,
2016
|
|
|
January 31,
2015
|
|
|
February 1,
2014
|
|
Employee Stock Purchase Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated fair value
|
|
$
|
3.24
|
|
|
$
|
4.10
|
|
|
$
|
3.65
|
|
Expected volatility
|
|
|
41
|
%
|
|
|
30
|
%
|
|
|
37
|
%
|
Expected term (in years)
|
|
|
1.3
|
|
|
|
1.3
|
|
|
|
1.3
|
|
Risk-free interest rate
|
|
|
0.6
|
%
|
|
|
0.3
|
%
|
|
|
0.2
|
%
|
Expected dividend yield
|
|
|
2.4
|
%
|
|
|
1.6
|
%
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 30,
2016
|
|
Total Shareholder Return Awards:
|
|
|
|
|
Expected term (in years)
|
|
|
2.0
|
|
Expected volatility
|
|
|
27
|
%
|
Average correlation coefficient of peer companies
|
|
|
0.4
|
%
|
Risk-free interest rate
|
|
|
0.5
|
%
|
Expected dividend yield
|
|
|
1.7
|
%
|
The correlation coefficients are calculated based upon the price 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.
104
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Share Repurchase Program
The Companys board of directors initially authorized its current share repurchase program to repurchase up to $500 million of its
outstanding common shares in August 2010. Since then, the Companys board of directors has authorized an additional $2.75 billion for a total available under the program of $3.25 billion to be used to repurchase its common shares. 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 19.7 million of its common shares for $260.9 million, 5.1 million of its common shares for $65.0
million and 33.1 million of its common shares for $354.1 million in cash during fiscal 2016, 2015 and 2014, respectively. All of 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 January 30, 2016, a total of 241.6 million shares have been repurchased to date under the Companys share repurchase program for a total $3.1 billion in
cash and there was $182.6 million remaining available for future share repurchases. The Company has made no subsequent share repurchases since its third quarter of fiscal 2016.
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 30,
2016
|
|
|
January 31,
2015
|
|
|
February 1,
2014
|
|
Cash dividend per share
|
|
$
|
0.24
|
|
|
$
|
0.24
|
|
|
$
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total payment to shareholders (in thousands)
|
|
$
|
122,821
|
|
|
$
|
122,801
|
|
|
$
|
119,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On March 16, 2016, the Company announced that its board of directors declared a cash dividend of $0.06
per share that was paid on April 22, 2016 to shareholders of record as of March 29, 2016 and on May 18, 2016, it announced that its board of directors declared a cash dividend of $0.06 per share that was paid on July 12, 2016 to shareholders of
record as of June 14, 2016.
Note 13 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) for the years ended January 30, 2016, January 31, 2015 and February 1, 2014. The Companys CODM is ultimately responsible and actively involved in the
allocation of resources and the assessment of the Companys 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 Companys integrated circuits are manufactured under similar manufacturing processes.
|
|
|
|
The Companys 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.
|
105
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
The assessments of performance across the Company, including assessment of the Companys 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 hands-on involvement with the Companys
operations and product development.
|
The following tables present net revenue and long-lived asset
information based on geographic region. Net revenue is based on the destination of the shipments and long-lived assets are based on the physical location of the assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 30,
2016
|
|
|
January 31,
2015
|
|
|
February 1,
2014
|
|
Net Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
42,854
|
|
|
$
|
62,333
|
|
|
$
|
68,321
|
|
China
|
|
|
1,569,147
|
|
|
|
2,214,876
|
|
|
|
1,869,381
|
|
Thailand
|
|
|
189,299
|
|
|
|
294,706
|
|
|
|
353,363
|
|
Malaysia
|
|
|
302,953
|
|
|
|
377,903
|
|
|
|
352,756
|
|
Philippines
|
|
|
211,602
|
|
|
|
254,381
|
|
|
|
257,899
|
|
Others
|
|
|
409,973
|
|
|
|
502,764
|
|
|
|
502,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,725,828
|
|
|
$
|
3,706,963
|
|
|
$
|
3,404,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30,
2016
|
|
|
January 31,
2015
|
|
Property and equipment, net:
|
|
|
|
|
|
|
|
|
Bermuda
|
|
$
|
3,093
|
|
|
$
|
3,358
|
|
China
|
|
|
22,917
|
|
|
|
25,910
|
|
Israel
|
|
|
15,069
|
|
|
|
26,728
|
|
Singapore
|
|
|
69,241
|
|
|
|
79,216
|
|
United States
|
|
|
173,537
|
|
|
|
186,321
|
|
Others
|
|
|
15,683
|
|
|
|
19,106
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
299,540
|
|
|
$
|
340,639
|
|
|
|
|
|
|
|
|
|
|
The following table presents net revenue by end market (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 30,
2016
|
|
|
January 31,
2015
|
|
|
February 1,
2014
|
|
Net Revenue by End Market
|
|
|
|
|
|
|
|
|
|
|
|
|
Storage
|
|
$
|
1,201,378
|
|
|
$
|
1,744,656
|
|
|
$
|
1,681,953
|
|
Mobile and Wireless
|
|
|
786,239
|
|
|
|
1,071,777
|
|
|
|
839,407
|
|
Networking
|
|
|
551,743
|
|
|
|
674,701
|
|
|
|
670,249
|
|
Other
|
|
|
186,468
|
|
|
|
215,829
|
|
|
|
212,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,725,828
|
|
|
$
|
3,706,963
|
|
|
$
|
3,404,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 14 Related Party Transactions
MIL is party to a technology license agreement with VeriSilicon Holdings Co., Ltd. (VeriSilicon). MIL assumed the technology
license agreement between VeriSilicon and UTStarcom, Inc. after the Companys acquisition of the semiconductor business of UTStarcom in December 2005. MIL has subsequently entered into various addenda to the agreement for additional technology
beyond the scope of the original agreement. In
106
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
addition, in September 2010, MIL entered into a services agreement with VeriSilicon, pursuant to which VeriSilicon has agreed to provide design support services to MIL. Under the services
agreement, VeriSilicon helped on three projects for MIL during fiscal 2013. In connection with all of its transactions with VeriSilicon, MIL paid $1.8 million, $3.7 million and $2.0 million to VeriSilicon during fiscal 2016, 2015 and 2014,
respectively. As of January 30, 2016, the Company had $0.3 million of liability to VeriSilicon. Weili Dais brother (and Dr. Sehat Sutardjas brother-in-law) Wayne Dai, is the Chairman, President and Chief Executive Officer of VeriSilicon.
Ms. Dai and Dr. Sutardja are also shareholders of VeriSilicon. Ms. Dai was the President of the Company and Dr. Sehat Sutardja was the Companys Chief Executive Officer until their departures in April 2016 (see Note
15 Subsequent Events), and continue to serve as members of the Companys Board of Directors. Dr. Sehat Sutardja and Ms. Dai are husband and wife.
In December 2009, MIL entered into a technology license agreement with Vivante Corporation (Vivante) that provides for the license of graphics technology and associated services. This
agreement restates, expands and succeeds previous agreements between the parties for the same technology. In December 2012, the parties renewed this technology license agreement for another three years. The total amount of the license fee was
approximately $13.0 million (to be paid over three years) and ten percent for support fees (to be paid over three years). In February 2012, the parties entered into a separate services agreement, pursuant to which Vivante agreed to provide support
services to MIL. In connection with all of its transactions with Vivante, MIL paid $4.0 million, $9.1 million and $6.9 million to Vivante during fiscal 2016, 2015 and 2014, respectively. As of January 30, 2016, the Company had $1.5 million of
liability to Vivante. As a result of their ownership of and control of Estopia LLC and their existing shareholdings, Dr. Sutardja and Ms. Dai are now direct and indirect shareholders of VeriSilicon. In addition, as a result of the acquisition of
Vivante by VeriSilicon in late 2015, Ms. Dais brother Weijin Dai, who was the Chief Executive Officer and member of the board of directors of Vivante is now an executive officer and board member of VeriSilicon. Dr. Sutardja, who was Chairman
of the board of directors of Vivante, is not on the board of directors of VeriSilicon.
In February 2015, the Executive
Compensation Committee (Committee) of the Companys Board of Directors approved a cash payment of approximately $15.4 million to Dr. Sehat Sutardja. The U.S. Court of Federal Claims ruled against Dr. Sutardja in his legal challenge
with the Internal Revenue Service and the California Franchise Tax Board related to the tax treatment of several stock options granted in fiscal 2004. After discussing and evaluating the alternatives to a continuing legal challenge of the
courts determination, the likelihood of success of further appeal by Dr. Sutardja and the potential negative impact on the Company of a continuation of the case regardless of the outcome, the Committee determined to provide Dr. Sutardja with
relief from the financial effects of the penalty taxes. Accordingly, the Committee approved the cash payment to Dr. Sutardja equal to the amount of his penalty taxes owed under the Tax Codes, plus accrued interest owed with respect to such
liabilities, all grossed-up for income taxes that will be owed by Dr. Sutardja on receipt of such cash payment. The Company recorded the payment in general and administrative expense in fiscal 2016. A payment of $8.4 million was made to Dr.
Sutardja in fiscal 2016 representing reimbursement for the U.S. federal tax portion. As of January 30, 2016, the Company had a remaining $7.0 million liability to Dr. Sutardja.
Note 15 Subsequent Events
In April 2016, the employment
of Dr. Sehat Sutardja as Chief Executive Officer and Weili Dai as President was terminated by the Companys Board of Directors. Dr. Sutardja and Ms. Dai remain on the Board of Directors at this time. The Board of Directors then formed an
Interim Office of the Chief Executive and appointed Maya Strelar-Migotti, Executive Vice President of the Smart Networked Devices and Solutions Business Group, and Dr. Pantelis Alexopoulos, Executive Vice President of the Storage Business Group, as
Interim Co-Chief Executive Officers, each having the authority to exercise all powers of the Chief Executive Officer. In June 2016, the Board of Directors appointed Matthew J. Murphy to serve as the Companys President and Chief Executive
107
MARVELL TECHNOLOGY GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Officer, effective July 11, 2016. Upon the commencement of Mr. Murphys employment, Ms. Strelar-Migotti and Dr. Alexopoulos returned to their roles as Executive Vice Presidents of the
Company. The Board subsequently appointed Richard S. Hill, the Chairman of the Board, as the Companys Interim Principal Executive Officer, to serve in that capacity until the Company files its Quarterly Report on Form 10-Q for the second
quarter of fiscal 2017 (Q217 Form 10-Q). Mr. Murphy will assume the role of the Companys principal executive officer immediately following the filing of the Q217 Form 10-Q. Mr. Murphy also joined the Board of Directors on July 11,
2016.
Also in April 2016, the Company announced that it entered into an agreement with Starboard Value LP
(Starboard), regarding the composition of its Board of Directors. Under the terms of the agreement, the Company elected Peter A. Feld, Richard S. Hill, Oleg Khaykin, Michael Strachan and Robert Switz to serve on its board. Mr. Hill
replaced Dr. Sutardja as the Chairman of the Board in May 2016. The agreement specifies that the Board will recommend and the Company will support and solicit proxies only for the election at the 2016 annual general meeting of Messrs. Feld, Hill,
Khaykin, Murphy, Strachan and Switz and the four independent directors serving on the Board immediately prior to the execution of the agreement, Dr. Gromer, Dr. Kassakian, Mr. Krueger and Dr. Thakur.
In February 2016, the Company and CMU settled their patent infringement lawsuit pursuant to a court-ordered mediation and entered
into a Settlement Agreement and Patent License (the Agreement). The parties agreed to mutual release of claims, license and covenant not to sue provisions for which the Company will pay an aggregate of $750 million to CMU. See CMU
litigation under Note 10 Commitments and Contingencies for further information about the lawsuit.
The Agreement was accounted for as a multiple-element arrangement and accordingly, a valuation was completed to determine the estimated
fair value of each identifiable element. As a result, the Company allocated $654.7 million to the mutual release of claims and covenant not to sue provisions; $81.3 million to the licensing of intellectual property in fiscal 2016; and the remaining
$14.0 million representing the future use of the license through April 2018.
The $654.7 million for the mutual release of
claims and covenant not to sue was recorded in fiscal 2016 as a settlement charge in operating expenses since there is no future benefit. The $81.3 million license fee was recorded in fiscal 2016 as a charge in cost of goods sold for past use of the
license. The $14.0 million representing the future use of the license, will be recognized in cost of goods sold over the remaining term of the license from February 2016 through April 2018.
The Company considers its existing cash, cash equivalents and short-term investments to be sufficient to cover payment of the $750
million settlement, and in April 2016, the Company completed full payment of the $750 million to CMU.
108
MARVELL TECHNOLOGY GROUP LTD.
SUPPLEMENTARY DATA
(Unaudited)
The following table presents the unaudited consolidated
statements of operations data for each of the eight quarters in the period ended January 30, 2016. In managements 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 2016
|
|
|
|
First
Quarter (1)
|
|
|
Second
Quarter (2)
|
|
|
Third
Quarter (3)
|
|
|
Fourth
Quarter (4)
|
|
|
|
(In thousands, except per share amounts)
|
|
Net revenue
|
|
$
|
724,288
|
|
|
$
|
710,492
|
|
|
$
|
674,890
|
|
|
$
|
616,158
|
|
Gross profit
|
|
$
|
373,135
|
|
|
$
|
248,773
|
|
|
$
|
295,636
|
|
|
$
|
313,548
|
|
Net income (loss)
|
|
$
|
14,090
|
|
|
$
|
(771,940
|
)
|
|
$
|
(57,750
|
)
|
|
$
|
4,200
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.03
|
|
|
$
|
(1.49
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
0.01
|
|
Diluted
|
|
$
|
0.03
|
|
|
$
|
(1.49
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
0.01
|
|
|
|
|
|
Fiscal 2015
|
|
|
|
First
Quarter (5)
|
|
|
Second
Quarter (6)
|
|
|
Third
Quarter (7)
|
|
|
Fourth
Quarter (8)
|
|
|
|
(In thousands, except per share amounts)
|
|
Net revenue
|
|
$
|
957,830
|
|
|
$
|
961,545
|
|
|
$
|
930,136
|
|
|
$
|
857,452
|
|
Gross profit
|
|
$
|
463,970
|
|
|
$
|
483,804
|
|
|
$
|
475,162
|
|
|
$
|
440,321
|
|
Net income
|
|
$
|
99,479
|
|
|
$
|
138,870
|
|
|
$
|
115,304
|
|
|
$
|
81,693
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.20
|
|
|
$
|
0.27
|
|
|
$
|
0.22
|
|
|
$
|
0.16
|
|
Diluted
|
|
$
|
0.19
|
|
|
$
|
0.27
|
|
|
$
|
0.22
|
|
|
$
|
0.16
|
|
(1)
|
The first quarter of fiscal 2016 includes a charge for a cash payment authorized by our Board of Directors of $15.4 million to Dr. Sehat Sutardja (see Note
14 Related Party Transactions in the Notes to the Consolidated Financial Statements) and $2.9 million of costs for the surety bonds related to the litigation with CMU.
|
(2)
|
The second quarter of fiscal 2016 includes a $745.6 million charge for litigation matters recognized by the Company including the settlement reached with CMU (see
Note 15 Subsequent Events in the Notes to the Consolidated Financial Statements) and certain other pending litigation, $13.0 million of restructuring and other related charges, and $2.7 million of costs for the surety
bonds related to the litigation with CMU.
|
(3)
|
The third quarter of fiscal 2016 includes $45.5 million of restructuring and other related charges that include $8.0 million for the write down of inventory and $6.2
million for the impairment of equipment and other assets due to the restructuring of the mobile platform business, and $2.9 million of costs for the surety bonds related to the litigation with CMU.
|
(4)
|
The fourth quarter of fiscal 2016 includes $4.4 million of restructuring and other related charges, $3.8 million related to the settlement of litigation matters
including a charge for the settlement reached with CMU (see Note 15 Subsequent Events in the Notes to the Consolidated Financial Statements) and $2.9 million of costs for the surety bonds related to the litigation with
CMU.
|
(5)
|
The first quarter of fiscal 2015 includes $8.5 million of restructuring and other exit-related costs that includes a $3.4 million write-off of IPR&D.
|
(6)
|
The second quarter of fiscal 2015 includes an $8.8 million gain from the sale of an investment and $2.2 million of costs for the surety bonds related to the litigation
with CMU.
|
(7)
|
The third quarter of fiscal 2015 includes $2.3 million of costs for the surety bonds related to the litigation with CMU.
|
(8)
|
The fourth quarter of fiscal 2015 includes $3.4 million of restructuring and other exit-related costs, and $2.8 million of costs for the surety bonds related to the
litigation with CMU.
|
109