filings.toolsItem 1. Financial Statements
127K characters. Original on sec.gov · Markdown
Item 1. Financial Statements
MARVELL TECHNOLOGY, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except par value per share)
| October 29, 2022 | January 29, 2022 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 723.4 | $ | 613.5 | |||||||
| Accounts receivable, net | 1,390.7 | 1,048.6 | |||||||||
| Inventories | 957.5 | 720.3 | |||||||||
| Prepaid expenses and other current assets | 107.7 | 111.0 | |||||||||
| Total current assets | 3,179.3 | 2,493.4 | |||||||||
| Property and equipment, net | 521.5 | 462.8 | |||||||||
| Goodwill | 11,579.0 | 11,511.1 | |||||||||
| Acquired intangible assets, net | 5,372.6 | 6,153.4 | |||||||||
| Deferred tax assets | 451.8 | 493.5 | |||||||||
| Other non-current assets | 1,417.9 | 994.4 | |||||||||
| Total assets | $ | 22,522.1 | $ | 22,108.6 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 476.2 | $ | 461.5 | |||||||
| Accrued liabilities | 1,111.7 | 622.6 | |||||||||
| Accrued employee compensation | 248.3 | 241.3 | |||||||||
| Short-term debt | 584.0 | 63.2 | |||||||||
| Total current liabilities | 2,420.2 | 1,388.6 | |||||||||
| Long-term debt | 3,927.6 | 4,484.8 | |||||||||
| Other non-current liabilities | 615.3 | 533.1 | |||||||||
| Total liabilities | 6,963.1 | 6,406.5 | |||||||||
| Commitments and contingencies (Note 5) | |||||||||||
| Stockholders’ equity: | |||||||||||
| Common stock, $0.002 par value | 1.7 | 1.7 | |||||||||
| Additional paid-in capital | 14,367.9 | 14,209.0 | |||||||||
| Accumulated other comprehensive loss | (0.8) | — | |||||||||
| Retained earnings | 1,190.2 | 1,491.4 | |||||||||
| Total stockholders’ equity | 15,559.0 | 15,702.1 | |||||||||
| Total liabilities and stockholders’ equity | $ | 22,522.1 | $ | 22,108.6 |
See accompanying notes to unaudited condensed consolidated financial statements
MARVELL TECHNOLOGY, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||
| October 29, 2022 | October 30, 2021 | October 29, 2022 | October 30, 2021 | ||||||||||||||||||||||||||||||||
| Net revenue | $ | 1,537.3 | $ | 1,211.2 | $ | 4,501.1 | $ | 3,119.4 | |||||||||||||||||||||||||||
| Cost of goods sold | 760.0 | 623.4 | 2,186.9 | 1,741.6 | |||||||||||||||||||||||||||||||
| Gross profit | 777.3 | 587.8 | 2,314.2 | 1,377.8 | |||||||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||
| Research and development | 448.1 | 371.9 | 1,341.2 | 1,025.0 | |||||||||||||||||||||||||||||||
| Selling, general and administrative | 207.8 | 243.4 | 640.2 | 704.1 | |||||||||||||||||||||||||||||||
| Legal settlement | — | — | 100.0 | — | |||||||||||||||||||||||||||||||
| Restructuring related charges | 15.6 | 5.9 | 18.1 | 31.1 | |||||||||||||||||||||||||||||||
| Total operating expenses | 671.5 | 621.2 | 2,099.5 | 1,760.2 | |||||||||||||||||||||||||||||||
| Operating income (loss) | 105.8 | (33.4) | 214.7 | (382.4) | |||||||||||||||||||||||||||||||
| Interest income | 1.5 | 0.2 | 2.8 | 0.6 | |||||||||||||||||||||||||||||||
| Interest expense | (45.2) | (35.4) | (121.3) | (104.3) | |||||||||||||||||||||||||||||||
| Other income, net | 3.2 | 1.0 | 12.1 | 0.5 | |||||||||||||||||||||||||||||||
| Interest and other income (loss), net | (40.5) | (34.2) | (106.4) | (103.2) | |||||||||||||||||||||||||||||||
| Income (loss) before income taxes | 65.3 | (67.6) | 108.3 | (485.6) | |||||||||||||||||||||||||||||||
| Provision (benefit) for income taxes | 52.0 | (5.0) | 256.4 | (58.4) | |||||||||||||||||||||||||||||||
| Net income (loss) | $ | 13.3 | $ | (62.6) | $ | (148.1) | $ | (427.2) | |||||||||||||||||||||||||||
| Net income (loss) per share - basic | $ | 0.02 | $ | (0.08) | $ | (0.17) | $ | (0.55) | |||||||||||||||||||||||||||
| Net income (loss) per share - diluted | $ | 0.02 | $ | (0.08) | $ | (0.17) | $ | (0.55) | |||||||||||||||||||||||||||
| Weighted-average shares: | |||||||||||||||||||||||||||||||||||
| Basic | 852.6 | 828.6 | 850.5 | 781.0 | |||||||||||||||||||||||||||||||
| Diluted | 858.4 | 828.6 | 850.5 | 781.0 |
See accompanying notes to unaudited condensed consolidated financial statements
MARVELL TECHNOLOGY, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||
| October 29, 2022 | October 30, 2021 | October 29, 2022 | October 30, 2021 | ||||||||||||||||||||||||||||||||
| Net income (loss) | $ | 13.3 | $ | (62.6) | $ | (148.1) | $ | (427.2) | |||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||||||||||||||
| Net change in unrealized gain (loss) on cash flow hedges | (0.8) | — | (0.8) | — | |||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | (0.8) | — | (0.8) | — | |||||||||||||||||||||||||||||||
| Comprehensive income (loss), net of tax | $ | 12.5 | $ | (62.6) | $ | (148.9) | $ | (427.2) |
See accompanying notes to unaudited condensed consolidated financial statements
MARVELL TECHNOLOGY, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions, except per share amounts)
| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Retained Earnings | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 29, 2022 | 846.7 | $ | 1.7 | $ | 14,209.0 | $ | — | $ | 1,491.4 | $ | 15,702.1 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with equity incentive plans | 4.1 | — | 2.4 | — | — | 2.4 | |||||||||||||||||||||||||||||||||||||||||||||||
| Tax withholdings related to net share settlement of restricted stock units | — | — | (137.6) | — | — | (137.6) | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 129.7 | — | — | 129.7 | |||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | (0.3) | — | (15.0) | — | — | (15.0) | |||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared and paid ($0.06 per share) | — | — | — | — | (50.9) | (50.9) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | (165.7) | (165.7) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at April 30, 2022 | 850.5 | $ | 1.7 | $ | 14,188.5 | $ | — | $ | 1,274.8 | $ | 15,465.0 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with equity incentive plans | 2.9 | — | 48.9 | — | — | 48.9 | |||||||||||||||||||||||||||||||||||||||||||||||
| Tax withholdings related to net share settlement of restricted stock units | — | — | (34.1) | — | — | (34.1) | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 147.2 | — | — | 147.2 | |||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | (0.9) | — | (50.0) | — | — | (50.0) | |||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared and paid ($0.06 per share) | — | — | — | — | (51.1) | (51.1) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 4.3 | 4.3 | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at July 30, 2022 | 852.5 | $ | 1.7 | $ | 14,300.5 | $ | — | $ | 1,228.0 | $ | 15,530.2 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with equity incentive plans | 1.7 | — | 1.1 | — | — | 1.1 | |||||||||||||||||||||||||||||||||||||||||||||||
| Tax withholdings related to net share settlement of restricted stock units | — | — | (29.5) | — | — | (29.5) | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 145.8 | — | — | 145.8 | |||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | (1.1) | — | (50.0) | — | — | (50.0) | |||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared and paid ($0.06 per share) | — | — | — | — | (51.1) | (51.1) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 13.3 | 13.3 | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | (0.8) | — | (0.8) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at October 29, 2022 | 853.1 | $ | 1.7 | $ | 14,367.9 | $ | (0.8) | $ | 1,190.2 | $ | 15,559.0 |
MARVELL TECHNOLOGY, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - (Continued)
(In millions, except per share amounts)
| Common Stock | Additional Paid-in Capital | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Retained Earnings | Total | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 30, 2021 | 675.4 | $ | 1.4 | $ | 6,331.0 | $ | 2,103.4 | $ | 8,435.8 | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with equity incentive plans | 2.2 | — | 0.5 | — | 0.5 | ||||||||||||||||||||||||||||||||||||||||||
| Tax withholdings related to net share settlement of restricted stock units | — | — | (68.3) | — | (68.3) | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 92.7 | — | 92.7 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with acquisitions | 129.2 | 0.3 | 5,910.9 | — | 5,911.2 | ||||||||||||||||||||||||||||||||||||||||||
| Equity related issuance cost | — | — | (8.2) | — | (8.2) | ||||||||||||||||||||||||||||||||||||||||||
| Replacement equity awards attributable to pre-acquisition service | — | — | 82.3 | — | 82.3 | ||||||||||||||||||||||||||||||||||||||||||
| Conversion feature of convertible notes | — | — | 244.2 | — | 244.2 | ||||||||||||||||||||||||||||||||||||||||||
| Impact of repurchases of convertible notes | 7.1 | — | 234.3 | — | 234.3 | ||||||||||||||||||||||||||||||||||||||||||
| Conversion of convertible notes to common stock | 2.5 | — | 59.7 | — | 59.7 | ||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared and paid ($0.06 per share) | — | — | — | (40.6) | (40.6) | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | (88.2) | (88.2) | ||||||||||||||||||||||||||||||||||||||||||
| Balance at May 1, 2021 | 816.4 | $ | 1.7 | $ | 12,879.1 | $ | 1,974.6 | $ | 14,855.4 | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with equity incentive plans | 2.9 | — | 40.2 | — | 40.2 | ||||||||||||||||||||||||||||||||||||||||||
| Tax withholdings related to net share settlement of restricted stock units | — | — | (42.0) | — | (42.0) | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 122.3 | — | 122.3 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with acquisitions | 0.1 | — | 6.6 | — | 6.6 | ||||||||||||||||||||||||||||||||||||||||||
| Conversion of convertible notes to common stock | 3.9 | — | 84.4 | — | 84.4 | ||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared and paid ($0.06 per share) | — | — | — | (49.3) | (49.3) | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | (276.4) | (276.4) | ||||||||||||||||||||||||||||||||||||||||||
| Balance at July 31, 2021 | 823.3 | $ | 1.7 | $ | 13,090.6 | $ | 1,648.9 | $ | 14,741.2 | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with equity incentive plans | 1.7 | — | 2.1 | — | 2.1 | ||||||||||||||||||||||||||||||||||||||||||
| Tax withholdings related to net share settlement of restricted stock units | — | — | (52.8) | — | (52.8) | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 121.2 | — | 121.2 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with acquisitions | 16.5 | — | 954.3 | — | 954.3 | ||||||||||||||||||||||||||||||||||||||||||
| Replacement equity awards attributable to pre-acquisition service | — | — | 33.2 | — | 33.2 | ||||||||||||||||||||||||||||||||||||||||||
| Conversion of convertible notes to common stock | — | — | 0.1 | — | 0.1 | ||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared and paid ($0.06 per share) | — | — | — | (50.4) | (50.4) | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | (62.6) | (62.6) | ||||||||||||||||||||||||||||||||||||||||||
| Balance at October 30, 2021 | 841.5 | $ | 1.7 | $ | 14,148.7 | $ | 1,535.9 | $ | 15,686.3 |
See accompanying notes to unaudited condensed consolidated financial statements
MARVELL TECHNOLOGY, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
| Nine Months Ended | |||||||||||
| October 29, 2022 | October 30, 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net loss | $ | (148.1) | $ | (427.2) | |||||||
| Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 227.0 | 189.6 | |||||||||
| Stock-based compensation | 421.7 | 325.9 | |||||||||
| Amortization of acquired intangible assets | 814.2 | 684.6 | |||||||||
| Amortization of inventory fair value adjustment associated with acquisitions | 26.0 | 191.1 | |||||||||
| Other expense, net | 58.5 | 84.4 | |||||||||
| Deferred income taxes | 53.6 | (67.6) | |||||||||
| Changes in assets and liabilities, net of acquisitions: | |||||||||||
| Accounts receivable | (341.5) | (341.4) | |||||||||
| Prepaid expenses and other assets | (382.4) | (65.3) | |||||||||
| Inventories | (263.4) | (200.6) | |||||||||
| Accounts payable | (33.9) | 93.8 | |||||||||
| Accrued employee compensation | 6.3 | 13.0 | |||||||||
| Accrued liabilities and other non-current liabilities | 499.3 | (7.2) | |||||||||
| Net cash provided by operating activities | 937.3 | 473.1 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of technology licenses | (9.1) | (9.3) | |||||||||
| Purchases of property and equipment | (152.2) | (130.4) | |||||||||
| Acquisitions, net of cash acquired | (103.0) | (3,539.8) | |||||||||
| Other, net | 0.1 | (2.6) | |||||||||
| Net cash used in investing activities | (264.2) | (3,682.1) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Repurchases of common stock | (115.0) | — | |||||||||
| Proceeds from employee stock plans | 52.5 | 42.8 | |||||||||
| Tax withholding paid on behalf of employees for net share settlement | (201.2) | (169.1) | |||||||||
| Dividend payments to stockholders | (153.1) | (140.3) | |||||||||
| Payments on technology license obligations | (103.6) | (97.9) | |||||||||
| Proceeds from issuance of debt | 200.0 | 3,806.1 | |||||||||
| Principal payments of debt | (243.8) | (425.9) | |||||||||
| Payment for repurchases and settlement of convertible notes | — | (181.2) | |||||||||
| Proceeds from capped calls | — | 160.3 | |||||||||
| Payment of equity and debt financing costs | — | (11.8) | |||||||||
| Other, net | 1.0 | 1.0 | |||||||||
| Net cash provided by (used in) financing activities | (563.2) | 2,984.0 | |||||||||
| Net increase (decrease) in cash and cash equivalents | 109.9 | (225.0) | |||||||||
| Cash and cash equivalents at beginning of period | 613.5 | 748.5 | |||||||||
| Cash and cash equivalents at end of period | $ | 723.4 | $ | 523.5 |
See accompanying notes to unaudited condensed consolidated financial statements
MARVELL TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The unaudited condensed consolidated financial statements of Marvell Technology, Inc. (“MTI”), a Delaware corporation, and its wholly owned subsidiaries (the “Company”), as of and for the three and nine months ended October 29, 2022, have been prepared as required by the U.S. Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted as permitted by the SEC. These unaudited condensed consolidated financial statements and related notes should be read in conjunction with the Company’s fiscal year 2022 audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2022. In the opinion of management, the financial statements include all adjustments, including normal recurring adjustments and other adjustments, that are considered necessary for fair presentation of the Company’s financial position and results of operations. All inter-company accounts and transactions have been eliminated. Operating results for the periods presented herein are not necessarily indicative of the results that may be expected for the entire year. Certain prior period amounts have been reclassified to conform to current period presentation. These financial statements should also be read in conjunction with the Company’s critical accounting policies included in the Company’s Annual Report on Form 10-K for the year ended January 29, 2022 and those included in this Form 10-Q below. All dollar amounts in the financial statements and tables in these notes, except per share amounts, are stated in millions of U.S. dollars unless otherwise noted.
The Company’s fiscal year is the 52- or 53-week period ending on the Saturday closest to January 31. Accordingly, every fifth or sixth fiscal year will have a 53-week period. The additional week in a 53-week year is added to the fourth quarter, making such quarter consist of 14 weeks. Fiscal 2022 had a 52-week year. Fiscal 2023 is a 52-week year.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to revenue recognition, provisions for sales returns and allowances, inventory excess and obsolescence, goodwill and other intangible assets, assets acquired and liabilities assumed in connection with acquisitions, restructuring, income taxes, litigation and other contingencies. Actual results could differ from these estimates and such differences could affect the results of operations reported in future periods. In the current macroeconomic environment, these estimates require increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, these estimates may change materially in future periods.
Note 2. Recent Accounting Pronouncements
Accounting Pronouncements Recently Adopted
In October 2021, the FASB issued an accounting standards update that requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers. The guidance should be applied prospectively to acquisitions occurring on or after the effective date. The new standard was early adopted by the Company on January 30, 2022 and did not have a material effect on the Company’s condensed consolidated financial statements.
MARVELL TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)
Note 3. Revenue
The majority of the Company’s revenue is generated from sales of the Company’s products.
The following table summarizes net revenue disaggregated by end market (in millions, except percentages):
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
| October 29, 2022 | % of Total | October 30, 2021 | % of Total | October 29, 2022 | % of Total | October 30, 2021 | % of Total | |||||||||||||||||||||||||||||||||||||||||||
| Net revenue by end market: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Data center | $ | 627.3 | 41 | % | $ | 499.8 | 41 | % | $ | 1,911.2 | 42 | % | $ | 1,210.6 | 39 | % | ||||||||||||||||||||||||||||||||||
| Enterprise networking | 376.0 | 24 | % | 247.2 | 20 | % | 1,002.9 | 22 | % | 644.7 | 21 | % | ||||||||||||||||||||||||||||||||||||||
| Carrier infrastructure | 271.4 | 18 | % | 215.1 | 18 | % | 808.6 | 18 | % | 579.4 | 19 | % | ||||||||||||||||||||||||||||||||||||||
| Consumer | 178.4 | 12 | % | 182.5 | 15 | % | 521.3 | 12 | % | 514.6 | 16 | % | ||||||||||||||||||||||||||||||||||||||
| Automotive/industrial | 84.2 | 5 | % | 66.6 | 6 | % | 257.1 | 6 | % | 170.1 | 5 | % | ||||||||||||||||||||||||||||||||||||||
| $ | 1,537.3 | $ | 1,211.2 | $ | 4,501.1 | $ | 3,119.4 |
The following table summarizes net revenue disaggregated by primary geographical market based on destination of shipment (in millions, except percentages):
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| October 29, 2022 | % of Total | October 30, 2021 | % of Total | October 29, 2022 | % of Total | October 30, 2021 | % of Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net revenue based on destination of shipment: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| China | $ | 604.1 | 39 | % | $ | 558.9 | 46 | % | $ | 1,941.7 | 43 | % | $ | 1,388.3 | 45 | % | ||||||||||||||||||||||||||||||||||||||||||||||
| United States | 184.6 | 12 | % | 123.9 | 10 | % | 519.1 | 12 | % | 334.5 | 11 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Thailand | 115.2 | 7 | % | 97.4 | 8 | % | 289.4 | 6 | % | 258.2 | 8 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Malaysia | 85.1 | 6 | % | 65.6 | 5 | % | 280.2 | 6 | % | 196.6 | 6 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Singapore | 134.5 | 9 | % | 46.7 | 4 | % | 251.7 | 6 | % | 156.6 | 5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Japan | 70.1 | 5 | % | 68.2 | 6 | % | 208.2 | 5 | % | 168.4 | 5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Taiwan | 89.4 | 6 | % | 51.3 | 4 | % | 204.3 | 5 | % | 108.9 | 3 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Philippines | 42.3 | 3 | % | 53.0 | 4 | % | 141.1 | 3 | % | 156.3 | 5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | 212.0 | 13 | % | 146.2 | 13 | % | 665.4 | 14 | % | 351.6 | 12 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| $ | 1,537.3 | $ | 1,211.2 | $ | 4,501.1 | $ | 3,119.4 |
These destinations of shipment are not necessarily indicative of the geographic location of the Company’s end customers or the country in which the Company’s end customers sell devices containing the Company’s products. For example, a substantial majority of the shipments made to China relate to sales to non-China based customers that have factories or contract manufacturing operations located within China.
MARVELL TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)
The following table summarizes net revenue disaggregated by customer type (in millions, except percentages):
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| October 29, 2022 | % of Total | October 30, 2021 | % of Total | October 29, 2022 | % of Total | October 30, 2021 | % of Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net revenue by customer type: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Direct customers | $ | 986.0 | 64 | % | $ | 893.5 | 74 | % | $ | 2,955.9 | 66 | % | $ | 2,284.6 | 73 | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Distributors | 551.3 | 36 | % | 317.7 | 26 | % | 1,545.2 | 34 | % | 834.8 | 27 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| $ | 1,537.3 | $ | 1,211.2 | $ | 4,501.1 | $ | 3,119.4 |
Contract Liabilities
Contract liabilities consist of the Company’s obligation to transfer goods or services to a customer for which the Company has received consideration or the amount is due from the customer. Contract liability balances are comprised of deferred revenue. The amount of revenue recognized during the nine months ended October 29, 2022 that was included in deferred revenue balance at January 29, 2022 was not material.
As of the end of a reporting period, some of the performance obligations associated with contracts will have been unsatisfied or only partially satisfied. In accordance with the practical expedients available in the guidance, the Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less.
Sales Commissions
The Company has elected to apply the practical expedient to expense commissions when incurred as the amortization period is typically one year or less. These costs are recorded in selling, general and administrative expenses in the unaudited condensed consolidated statements of operations.
MARVELL TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)
Note 4. Debt
Summary of Borrowings and Outstanding Debt
The following table summarizes the Company’s outstanding debt at October 29, 2022 and January 29, 2022 (in millions):
| October 29, 2022 | January 29, 2022 | |||||||||||||
| Face Value Outstanding: | ||||||||||||||
| 2024 Term Loan - 3 Year Tranche | $ | 735.0 | $ | 735.0 | ||||||||||
| 2026 Term Loan - 5 Year Tranche | 809.4 | 853.1 | ||||||||||||
| Term Loan Total | 1,544.4 | 1,588.1 | ||||||||||||
| 4.200% MTG/MTI 2023 Senior Notes | 500.0 | 500.0 | ||||||||||||
| 4.875% MTG/MTI 2028 Senior Notes | 499.9 | 499.9 | ||||||||||||
| 1.650% 2026 Senior Notes | 500.0 | 500.0 | ||||||||||||
| 2.450% 2028 Senior Notes | 750.0 | 750.0 | ||||||||||||
| 2.950% 2031 Senior Notes | 750.0 | 750.0 | ||||||||||||
| Senior Notes Total | 2,999.9 | 2,999.9 | ||||||||||||
| Total borrowings | $ | 4,544.3 | $ | 4,588.0 | ||||||||||
| Less: Unamortized debt discount and issuance cost | (32.7) | (40.0) | ||||||||||||
| Net carrying amount of debt | $ | 4,511.6 | $ | 4,548.0 | ||||||||||
| Less: Current portion (1) | 584.0 | 63.2 | ||||||||||||
| Non-current portion | $ | 3,927.6 | $ | 4,484.8 |
(1)As of October 29, 2022, the current portion of outstanding debt includes the MTG/MTI 2023 Senior Notes and the portion of the 2026 Term Loan - 5 Year Tranche, which are due within twelve months. The Company intends to repay the amount with operating cash flow. The weighted average interest rate on short-term debt outstanding at October 29, 2022 and January 29, 2022 was 4.299% and 1.485%, respectively.
On April 20, 2021, the Company completed its acquisition of Inphi Corporation (“Inphi”). As part of the acquisition, the Company assumed $15.7 million principal amount of Inphi’s 0.75% convertible senior notes due 2021 (the “Inphi 2021 Convertible Notes”) and $506.0 million principal amount of Inphi’s 0.75% convertible senior notes due 2025 (the “Inphi 2025 Convertible Notes”, and together with the 2021 Notes, the “Inphi Convertible Notes”). As of January 29, 2022, the Inphi Convertible Notes have been settled.
In connection with the acquisition, the Company entered into a series of financing arrangements from December 2020 through April 2021 as summarized below. In April 2021, the Company also terminated a $2.5 billion bridge loan commitment. This bridge loan commitment was provided by the underwriting bankers at the time of the Inphi merger agreement execution in October 2020. The bridge loan was never drawn upon. The Company recognized a write-off of $11.4 million in capitalized debt issuance costs related to the termination of the bridge loan commitment during the quarter ended May 1, 2021.
In December 2020, the Company executed a debt agreement to obtain a 3-year $875.0 million term loan and a 5-year $875.0 million term loan. The Company also executed a debt agreement to obtain a 5-year $750.0 million revolving credit facility in December 2020, replacing its previous $500.0 million revolving credit facility. On April 12, 2021, the Company completed a debt offering and issued (i) $500.0 million of Senior Notes with a 5-year term due in 2026, (ii) $750.0 million of Senior Notes with a 7-year term due in 2028, and (iii) $750.0 million of Senior Notes with a 10-year term due in 2031.
On May 4, 2021, in conjunction with the U.S. domiciliation, the Company exchanged certain existing senior notes due in 2023 and 2028 that were previously issued by the Bermuda-domiciled Marvell Technology Group Ltd. (the “MTG Senior Notes”) with like notes that are now issued by the Delaware-domiciled Marvell Technology, Inc. (the “MTI Senior Notes”). Below is further discussion of the terms of the various debt agreements.
MARVELL TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)
2024 and 2026 Term Loans
On December 7, 2020, the Company entered into a term loan credit agreement with a lending syndicate led by JP Morgan Chase Bank, N.A (the “2024 and 2026 Term Loan Agreement”) in order to finance the merger with Inphi. The 2024 and 2026 Term Loan Agreement provides for borrowings of $1.75 billion consisting of: (i) $875.0 million loan with a three-year term from the funding date (the “3-Year Tranche Loan”) and (ii) $875.0 million loan with a five-year term from the funding date (the “5-Year Tranche Loan” and, together with the 3-Year Tranche Loan, the “2024 and 2026 Term Loans”).
The 3-Year Tranche Loan has a stated floating interest rate which equates to reserve-adjusted LIBOR + 125 bps. The effective interest rate for the 3-Year Tranche Loan was 3.605% as of October 29, 2022. The 5-Year Tranche Loan has a stated floating interest rate which equates to reserve-adjusted LIBOR + 137.5 bps. The effective interest rate for the 5-Year Tranche Loan was 4.096% as of October 29, 2022. The 3-Year Tranche Loan does not require any scheduled principal payments prior to final maturity but does permit the Company to make early principal payments without premium or penalty. The 5-year Tranche Loan requires scheduled principal payments at the end of each fiscal quarter equal to (i) 1.25% of the aggregate principal amount on the term funding date for the first four full fiscal quarters following the term loan funding date, (ii) 2.50% of the aggregate principal amount on the term funding date for the fifth through twelfth full fiscal quarters following the term loan funding date, and (iii) 3.75% of the aggregate principal amount on the term funding date for each fiscal quarter following the twelfth full fiscal quarter following the term loan funding date. During the three and nine months ended October 29, 2022, the Company repaid $21.9 million and $43.7 million of the principal outstanding on the 5-Year Tranche Loan.
The 2024 and 2026 Term Loan Agreement requires that the Company and its subsidiaries comply with covenants relating to customary matters, including with respect to creating or permitting certain liens, entering into sale and leaseback transactions, and consolidating, merging, liquidating or dissolving. It also prohibits subsidiaries of the Company from incurring additional indebtedness, subject to certain exceptions, and requires that the Company maintain a leverage ratio financial covenant as of the end of any fiscal quarter. As of October 29, 2022, the Company has $1.5 billion borrowings outstanding under the 2024 and 2026 Term Loans, and is in compliance with its debt covenants.
2020 Revolving Credit Facility
On December 7, 2020, the Company entered into a revolving line of credit agreement (the “2020 Revolving Credit Facility”) with a lending syndicate led by JP Morgan Chase Bank, N.A for borrowings of up to $750.0 million. Borrowings from the 2020 Revolving Credit Facility are intended for general corporate use, which may include among other things, the financing of acquisitions, the refinancing of other indebtedness and the payment of transaction expenses related to the foregoing. The 2020 Revolving Credit Facility has a five-year term and a stated floating interest rate which equates to reserve-adjusted LIBOR plus an applicable margin. The Company may prepay any borrowings at any time without premium or penalty. During the quarter ended July 30, 2022, the Company drew down $200.0 million on the 2020 Revolving Credit Facility of which $130.0 million was repaid in the same quarter. During the quarter ended October 29, 2022, the Company repaid the remaining outstanding amount of $70.0 million. As of October 29, 2022, the 2020 Revolving Credit Facility is undrawn and will be available for draw down through December 7, 2025. An unused commitment fee is payable quarterly based on unused balances at a rate that is based on the ratings of the Company’s senior unsecured long-term indebtedness. This annual rate was 0.175% at October 29, 2022.
The 2020 Revolving Credit Facility requires that the Company and its subsidiaries comply with covenants relating to customary matters. The covenants are consistent with the 2024 and 2026 Term Loan covenants discussed above.
The Company currently carries debt that relies on one-month LIBOR as the benchmark rate. The one-month LIBOR is expected to cease publication after June 30, 2023. To the extent the one-month LIBOR ceases to exist, the 2024 and 2026 Term Loans and 2020 Revolving Credit Facility agreements contemplate an alternative benchmark rate without the need for any amendment thereto.
MARVELL TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)
2026, 2028, and 2031 Senior Unsecured Notes
On April 12, 2021, the Company completed an offering of (i) $500.0 million aggregate principal amount of the Company’s 1.650% Senior Notes due 2026 (the “2026 Senior Notes”), (ii) $750.0 million aggregate principal amount of the Company’s 2.450% Senior Notes due 2028 (the “2028 Senior Notes”) and (iii) $750.0 million aggregate principal amount of the Company’s 2.950% Senior Notes due 2031 (the “2031 Senior Notes”, and, together with the 2026 Senior Notes and the 2028 Senior Notes, the “Senior Notes”). On October 8, 2021, the Senior Notes issued on April 12, 2021 were exchanged for new notes. The terms of the new notes issued in the exchange are substantially identical to the notes issued in April 2021, except that the new notes are registered under the Securities Act of 1933 and the transfer restrictions and registration rights applicable to the Senior Notes issued in April 2021 do not apply to the new notes.
The 2026 Senior Notes mature on April 15, 2026, the 2028 Senior Notes mature on April 15, 2028, and the 2031 Senior Notes mature on April 15, 2031. The stated and effective interest rates for the 2026 Senior Notes are 1.650% and 1.839%, respectively. The stated and effective interest rates for the 2028 Senior Notes are 2.450% and 2.554%, respectively. The stated and effective interest rates for the 2031 Senior Notes are 2.950% and 3.043%, respectively. The Company may redeem the Senior Notes, in whole or in part, at any time prior to their respective maturity at the redemption prices set forth in the indenture governing the Senior Notes. In addition, upon the occurrence of a change of control repurchase event (which involves the occurrence of both a change of control and a ratings event involving the Senior Notes being rated below investment grade), the Company will be required to make an offer to repurchase the Senior Notes at a price equal to 101% of the principal amount of the notes, plus accrued and unpaid interest to, but excluding, the repurchase date. The indenture governing the Senior Notes also contains certain limited covenants restricting the Company’s ability to incur certain liens, enter into certain sale and leaseback transactions and merge or consolidate with any other entity or convey, transfer or lease all or substantially all of the Company’s properties or assets to another person, which, in each case, are subject to certain qualifications and exceptions. As of October 29, 2022, the Company had $2.0 billion Senior Notes borrowings outstanding.
2023 and 2028 Senior Unsecured Notes
On June 22, 2018, the Company’s Bermuda-based parent company Marvell Technology Group, Ltd. (“MTG”) completed a public offering of (i) $500.0 million aggregate principal amount of 4.200% Senior Notes due 2023 (the “MTG 2023 Notes”) and (ii) $500.0 million aggregate principal amount of 4.875% Senior Notes due 2028 (the “MTG 2028 Notes” and, together with the 2023 Notes, the “MTG Senior Notes”).
In April 2021, in conjunction with the Company’s U.S. domiciliation, the Company commenced Exchange Offers on April 19, 2021 for the outstanding $1.0 billion in aggregate principal amount of MTG Senior Notes outstanding in exchange for corresponding senior notes to be issued by the Company’s U.S. domiciled parent MTI. MTI made an offer to (i) exchange any and all of the outstanding MTG 2023 Notes for up to an aggregate principal amount of $500.0 million of new 4.200% Senior Notes due 2023 issued by MTI (the “MTI 2023 Notes”) and to (ii) exchange any and all of the outstanding MTG 2028 Notes for up to an aggregate principal amount of $500.0 million of new 4.875% Senior Notes due 2028 issued by MTI (the “MTI 2028 Notes” and, together with the MTI 2023 Notes, the “MTI Senior Notes”). Each new series of MTI Senior Notes have the same interest rate, maturity date, redemption terms and interest payment dates and are subject to substantially similar covenants as the corresponding series of the MTG Senior Notes for which they were offered in exchange.
The settlement of the Exchange Offers occurred on May 4, 2021 with $433.9 million aggregate principal amount of the MTG 2023 Notes and $479.5 million aggregate principal amount of the MTG 2028 Notes. The exchange was accounted for as a debt modification in accordance with applicable accounting guidance. On December 16, 2021, the MTI Senior Notes issued on May 4, 2021 were exchanged for new notes. The terms of the new notes issued in the exchange are substantially identical to the notes issued in May 2021, except that the new notes are registered under the Securities Act of 1933 and the transfer restrictions and registration rights applicable to the MTI Senior Notes issued in May 2021 do not apply to the new notes.
MARVELL TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)
The MTI 2023 Notes mature on June 22, 2023 and the MTI 2028 Notes mature on June 22, 2028. The stated and effective interest rates for the MTI 2023 Notes are 4.200% and 4.502%, respectively. The stated and effective interest rates for the MTI 2028 Notes are 4.875% and 4.988%, respectively. The Company may redeem the MTI Senior Notes, in whole or in part, at any time prior to their maturity at the redemption prices set forth in MTI Senior Notes. In addition, upon the occurrence of a change of control repurchase event (which involves the occurrence of both a change of control and a ratings event involving the MTI Senior Notes being rated below investment grade), the Company will be required to make an offer to repurchase the MTI Senior Notes at a price equal to 101% of the principal amount of the notes, plus accrued and unpaid interest to, but excluding, the repurchase date. The indenture governing the MTI Senior Notes also contains certain limited covenants restricting the Company’s ability to incur certain liens, enter into certain sale and leaseback transactions and merge or consolidate with any other entity or convey, transfer or lease all or substantially all of the Company’s properties or assets to another person, which, in each case, are subject to certain qualifications and exceptions.
The MTG 2023 Notes mature on June 22, 2023 and the MTG 2028 Notes mature on June 22, 2028. The stated and effective interest rates for the MTG 2023 Notes are 4.200% and 4.360%, respectively. The stated and effective interest rates for the MTG 2028 Notes are 4.875% and 4.940%, respectively. The Company may redeem the MTG Senior Notes, in whole or in part, at any time prior to their maturity at the redemption prices set forth in MTG Senior Notes.
As of October 29, 2022, the Company had $1.0 billion MTG/MTI Senior Notes borrowings outstanding.
Inphi Convertible Notes
As a result of the Inphi acquisition, the Company assumed all of Inphi’s outstanding convertible notes.
Inphi 2021 Convertible Notes
A total of $9.6 million in aggregate principal of the Inphi 2021 Convertible Notes was settled pursuant to the Exchange Agreements (discussed below). Between April 20 and September 1, 2021, $6.1 million in aggregate principal of the Inphi 2021 Convertible Notes was converted into 0.2 million shares of the Company’s common stock and $7.1 million in cash pursuant to the contractual terms of the Inphi 2021 convertible notes indenture.
The Inphi 2021 Convertible Notes matured on September 1, 2021 and the Company settled the remaining outstanding balance.
Inphi 2025 Convertible Notes
A total of $199.5 million in aggregate principal of the Inphi 2025 Convertible Notes was settled pursuant to the Exchange Agreements (discussed below). Between April 20 and May 1, 2021, $114.0 million in aggregate principal of the Inphi 2025 Convertible Notes was converted pursuant to the contractual terms of the Inphi 2025 convertible notes indenture into 2.3 million shares of the Company’s common stock and $64.7 million in cash. Between May 2, 2021 and June 3, 2021, $192.5 million in aggregate principal of the Inphi 2025 Convertible Notes was converted pursuant to the contractual terms of the Inphi 2025 convertible notes indenture into 3.8 million shares of the Company’s common stock and $109.2 million in cash. After these conversions, there was no outstanding balance of Inphi 2025 Convertible Notes.
Inphi Capped Calls
In connection with the issuance of each of the Inphi Convertible Notes, Inphi entered into capped call transactions (the “Inphi 2021 Capped Calls” and the “Inphi 2025 Capped Calls,” collectively, the “Inphi Capped Calls”) in private transactions. In connection with the Inphi acquisition, the Company entered into unwind agreements related to the Inphi Capped Calls. Under the unwind agreements, the Company and the counterparties agreed to settle a portion of Inphi Capped Calls for a fixed payment of $74.1 million, which were settled on April 23, 2021. The remaining Inphi Capped Calls provided for variable cash settlement based on the Company’s stock price. The Company reports cash flows from capped calls in cash flows from financing activities. In connection with the Exchange Agreements (discussed below), a portion of the remaining Inphi Capped Calls were settled for $35.5 million on April 29, 2021. As of October 29, 2022, there was no outstanding balance of Inphi Capped Calls.
MARVELL TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)
Exchange Agreements
On April 20, 2021, the Company entered into separate, privately negotiated exchange agreements (the “Exchange Agreements”) with a limited number of holders (“Noteholders”) of the Inphi Convertible Notes. Under the terms of the Exchange Agreements, the Noteholders agreed to exchange approximately $9.6 million in aggregate principal amount of Inphi 2021 Convertible Notes and $199.5 million in aggregate principal amount of Inphi 2025 Convertible Notes for a number of shares of the Company’s common stock that was partially based on a trailing daily volume-weighted average of the Company’s stock price.
The Exchange Agreements were settled on April 29, 2021. In exchange for $9.6 million and $199.5 million in aggregate principal of the Inphi 2021 Convertible Notes and Inphi 2025 Convertible Notes, respectively, the Company issued a total of 7.1 million shares of its common stock to the Noteholders.
Interest Expense and Future Contractual Maturities
During the three and nine months ended October 29, 2022, the Company recognized $42.4 million and $112.7 million of interest expense in its unaudited condensed consolidated statements of operations related to interest, amortization of debt issuance costs and accretion of discount associated with the outstanding term loans and senior notes.
During the three and nine months ended October 30, 2021, the Company recognized $33.6 million and $86.6 million of interest expense in its unaudited condensed consolidated statements of operations related to interest, amortization of debt issuance costs and accretion of discount associated with the outstanding term loans and senior notes.
As of October 29, 2022, the aggregate future contractual maturities of the Company’s outstanding debt, at face value, were as follows (in millions):
| Fiscal Year | Amount | |||||||
| Remainder of 2023 | $ | 21.9 | ||||||
| 2024 | 587.5 | |||||||
| 2025 | 844.4 | |||||||
| 2026 | 131.2 | |||||||
| 2027 | 959.4 | |||||||
| Thereafter | 1,999.9 | |||||||
| Total | $ | 4,544.3 |
Note 5. Commitments and Contingencies
Warranty Obligations
The Company’s products carry a standard one-year warranty with certain exceptions in which the warranty period can extend to more than one year based on contractual agreements. The Company’s warranty expense has not been material in the periods presented.
Commitments
The Company’s commitments primarily consist of wafer purchase obligations with foundry partners, supply capacity reservation payment commitments with foundries and test & assembly partners, and technology license fee obligations.
MARVELL TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)
Total future unconditional purchase commitments as of October 29, 2022 are as follows (in millions):
| Fiscal Year | Purchase Commitments to Foundries and Test & Assembly Partners | Technology License Fees | ||||||||||||
| Remainder of 2023 | $ | 402.2 | $ | 28.7 | ||||||||||
| 2024 | 599.7 | 173.2 | ||||||||||||
| 2025 | 543.1 | 115.1 | ||||||||||||
| 2026 | 532.7 | 37.9 | ||||||||||||
| 2027 | 374.6 | 34.9 | ||||||||||||
| Thereafter | 714.1 | 193.5 | ||||||||||||
| Total unconditional purchase commitments | $ | 3,166.4 | $ | 583.3 |
Technology license fees include the liabilities under agreements for technology licenses between the Company and various vendors.
Under the Company’s manufacturing relationships with its foundry partners, cancellation of outstanding purchase orders is allowed but requires payment of all costs and expenses incurred through the date of cancellation, and in some cases, may result in incremental fees, loss of amounts paid in advance, or loss of priority to reserved capacity for a period of time as discussed below.
The Company entered into manufacturing supply capacity reservation agreements with foundries and test & assembly suppliers during the current and prior fiscal year due to the current global supply shortage environment. Under these arrangements, the Company agreed to pay capacity fees or refundable deposits to the suppliers in exchange for reserved manufacturing production capacity over the term of the agreements, which ranges from 4 to 10 years. In addition, the Company committed to certain purchase levels that were in line with the capacity reserved. If the Company does not meet the purchase level commitments, the agreements either require the Company to pay a fee for the difference between the actual purchases and the purchase commitment or lose priority to reserved capacity for a period of time. The Company currently estimates that it has agreed to purchase level commitments of at least $2.6 billion of wafers, substrates, and other manufacturing products for the remainder of fiscal 2023 through fiscal 2033 under the capacity reservation agreements. In addition, total fees and refundable deposits payable under these arrangements are $134.6 million for the remainder of fiscal 2023 through fiscal 2026. Such purchase commitments are summarized in the preceding table.
In September 2021, the Company entered into an IP licensing agreement with a vendor which provides complete access to the vendor’s IP portfolio for 10 years. The arrangement provides access to IP over the term of the contract, including existing IP, as well as IP in development, and to be developed in the future. The contract provides support and maintenance over the term of the contract as well. Aggregate fees of $354.0 million are payable quarterly over the contract term.
MARVELL TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)
Contingencies and Legal Proceedings
The Company currently is, and may from time to time become, a party to claims, lawsuits, governmental inquiries, inspections or investigations and other legal proceedings (collectively, “Legal Matters”) arising in the course of its business. Such Legal Matters, even if not meritorious, could result in the expenditure of significant financial and managerial resources.
In the first quarter of fiscal 2023, the Company reserved $15.0 million in relation to an on-going contractual dispute with a customer. In connection with this dispute, an additional $85.0 million was accrued in the second quarter of fiscal 2023. During the third quarter of fiscal 2023, the Company entered into a definitive agreement with this customer to fully resolve this matter pursuant to which the Company will pay the customer $100.0 million in cash over several quarters.
The Company is currently unable to predict the final outcome of its other pending Legal Matters and therefore cannot determine the likelihood of loss or estimate a range of possible loss, except with respect to amounts where it has determined a loss is both probable and estimable and has made an accrual. The Company evaluates, at least on a quarterly basis, developments in its Legal Matters that could affect the amount of any accrual, as well as any developments that would result in a loss contingency to become both probable and reasonably estimable. The ultimate outcome of Legal Matters involves judgments, estimates and inherent uncertainties. An unfavorable outcome in a Legal Matter could require the Company to pay damages or could prevent the Company from selling some of its products in certain jurisdictions. While the Company cannot predict with certainty the results of the Legal Matters in which it is currently involved, the Company does not expect that the ultimate costs to resolve these Legal Matters will individually or in the aggregate have a material adverse effect on its financial condition, however, there can be no assurance that the current or any future Legal Matters will be resolved in a manner that is not adverse to the Company’s business, financial statements, results of operations or cash flows.
Indemnities, Commitments and Guarantees
During its normal course of business, the Company has made certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions. These indemnities may include indemnities for general commercial obligations, indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease, and indemnities to directors and officers of the Company to the maximum extent permitted under the laws of Delaware. In addition, the Company has contractual commitments to various customers, which could require the Company to incur costs to repair an epidemic defect with respect to its products outside of the normal warranty period if such defect were to occur. The duration of these indemnities, commitments and guarantees varies, and in certain cases, is indefinite. Some of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential future payments that the Company could be obligated to make. In general, the Company does not record any liability for these indemnities, commitments and guarantees in the accompanying unaudited condensed 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 and estimable.
Intellectual Property Indemnification
In addition to the above indemnities, the Company has agreed to indemnify certain customers for claims made against the Company’s products where such claims allege infringement of third-party intellectual property rights, including, but not limited to, patents, registered trademarks, and/or copyrights. Under the aforementioned indemnification clauses, the Company may be obligated to defend the customer and pay for the damages awarded against the customer as well as the attorneys’ fees and costs under an infringement claim. The Company’s indemnification obligations generally do not expire after termination or expiration of the agreement containing the indemnification obligation. Generally, but not always, there are limits on and exceptions to the Company’s potential liability for indemnification. Historically the Company has not made significant payments under these indemnification obligations and 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.
MARVELL TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)
Note 6. Business Combinations
Innovium
On October 5, 2021, the Company completed the acquisition of Innovium, Inc. (“Innovium”), a leading provider of networking solutions for cloud and edge data centers, in an all-stock transaction for total purchase consideration of $1.0 billion attributable to stock consideration of $994.2 million and the fair value of a previously held equity interest of $10.0 million. The Innovium acquisition was primarily intended to allow the Company to immediately participate in the fastest growing segment of the switch market with a cloud-optimized solution. In accordance with the terms of the Agreement and Plan of Merger dated August 2, 2021 (the “Innovium merger agreement”), the Company’s common stock was issued in exchange for all outstanding equity of Innovium, including shares of Innovium’s preferred and common stock, employee equity awards and warrants.
The factors contributing to the recognition of goodwill were based upon the Company’s conclusion that there are strategic and synergistic benefits that are expected to be realized from the acquisition. Goodwill recorded for the Innovium acquisition is not expected to be deductible for tax purposes.
The following table summarized the total merger consideration (in millions):
| Common stock issued | $ | 971.0 | |||
| Stock consideration for replacement equity awards attributable to pre-combination service | 33.2 | ||||
| Total merger consideration | $ | 1,004.2 |
In accordance with U.S. GAAP requirements for business combinations, the Company allocated the fair value of the purchase consideration to the tangible assets, liabilities and intangible assets acquired, including in-process research and development (“IPR&D”), generally based on their estimated fair values. The excess purchase price over those fair values is recorded as goodwill. IPR&D is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment thereafter. When an IPR&D project is completed, the IPR&D is reclassified as an amortizable purchased intangible asset and amortized over the asset’s estimated useful life. The Company’s valuation assumptions of acquired assets and assumed liabilities require significant estimates, especially with respect to intangible assets. Acquisition-related costs are expensed in the periods in which such costs are incurred. See “Note 7 – Goodwill and Acquired Intangible Assets, Net” for additional information.
The purchase price allocation is as follows (in millions):
| Cash and cash equivalents | $ | 60.4 | |||||||||||||||
| Inventories | 70.0 | ||||||||||||||||
| Goodwill | 462.4 | ||||||||||||||||
| Acquired intangible assets, net | 433.0 | ||||||||||||||||
| Other, net | (21.6) | ||||||||||||||||
| Total merger consideration | $ | 1,004.2 |
The Company incurred total acquisition related costs of $11.9 million which were recorded in selling, general and administrative expense in the unaudited condensed consolidated statements of operations.
Inphi
On April 20, 2021, the Company completed the acquisition of Inphi (the “Inphi acquisition”). Inphi is a global leader in high-speed data movement enabled by optical interconnects. The Inphi acquisition was primarily intended to create an opportunity for the combined company to be uniquely positioned to serve the data-driven world, addressing high growth, attractive end markets such as cloud data center and 5G. In accordance with the terms of the Agreement and Plan of Merger dated as of October 29, 2020, by and among the Company and Inphi (the “Inphi merger agreement”), the Company acquired all outstanding shares of common stock of Inphi for $66 per share in cash and 2.323 shares of the Company’s common stock exchanged for each share of Inphi common stock. The merger consideration paid in cash was funded with a combination of cash on hand and funds from the Company’s debt financing. See “Note 4 – Debt” for additional information.
MARVELL TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)
The factors contributing to the recognition of goodwill were based upon the Company’s conclusion that there are strategic and synergistic benefits that are expected to be realized from the acquisition. Goodwill recorded for the Inphi acquisition is not expected to be deductible for tax purposes.
The following table summarized the total merger consideration (in millions):
| Cash consideration | $ | 3,673.2 | |||
| Common stock issued | 5,917.8 | ||||
| Stock consideration for replacement equity awards attributable to pre-combination service | 82.3 | ||||
| Equity component of convertible debt | 244.2 | ||||
| Total merger consideration | $ | 9,917.5 |
In accordance with U.S. GAAP requirements for business combinations, the Company allocated the fair value of the purchase consideration to the tangible assets, liabilities and intangible assets acquired, including IPR&D, generally based on their estimated fair values. The excess purchase price over those fair values is recorded as goodwill. IPR&D is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment thereafter. When an IPR&D project is completed, the IPR&D is reclassified as an amortizable purchased intangible asset and amortized over the asset’s estimated useful life. The Company’s valuation assumptions of acquired assets and assumed liabilities require significant estimates, especially with respect to intangible assets. Acquisition-related costs are expensed in the periods in which such costs are incurred. See “Note 7 – Goodwill and Acquired Intangible Assets, Net” for additional information.
The purchase price allocation is as follows (in millions):
| Previously Reported January 29, 2022 (Provisional) | Measurement Period Adjustment | October 29, 2022 | |||||||||||||||
| Cash and cash equivalents | $ | 72.3 | $ | — | $ | 72.3 | |||||||||||
| Accounts receivable, net | 99.7 | — | 99.7 | ||||||||||||||
| Inventories | 270.4 | — | 270.4 | ||||||||||||||
| Prepaid expenses and other current assets | 213.3 | — | 213.3 | ||||||||||||||
| Property and equipment, net | 98.5 | — | 98.5 | ||||||||||||||
| Acquired intangible assets, net | 4,420.0 | — | 4,420.0 | ||||||||||||||
| Other non-current assets | 98.8 | (2.2) | 96.6 | ||||||||||||||
| Goodwill | 5,686.2 | 2.2 | 5,688.4 | ||||||||||||||
| Accounts payable and accrued liabilities | (189.8) | — | (189.8) | ||||||||||||||
| Convertible debt – short-term | (313.7) | — | (313.7) | ||||||||||||||
| Convertible debt – long-term | (240.3) | — | (240.3) | ||||||||||||||
| Other non-current liabilities | (297.9) | — | (297.9) | ||||||||||||||
| Total merger consideration | $ | 9,917.5 | $ | — | $ | 9,917.5 |
The provisional amounts presented in the table above pertained to the preliminary purchase price allocation reported in the Company’s Form 10-K for the year ended January 29, 2022. The measurement period adjustments were associated with change in deferred tax assets as a result of changes in estimates related to finalizing Inphi’s short period 2021 U.S. tax return. The Company does not believe that the measurement period adjustment had a material impact on its consolidated statements of operations, balance sheets, or cash flows in any periods previously reported.
The Company incurred $50.8 million in acquisition related costs which were recorded in selling, general and administrative expense. The Company also incurred $39.8 million of aggregate debt financing costs. As of October 29, 2022, $3.4 million is included in short-term debt, and $24.7 million is included in long-term debt on the accompanying unaudited condensed consolidated balance sheets. See “Note 4 – Debt” for additional information. Additionally, the Company incurred $8.2 million of equity issuance costs, which were recorded in additional paid-in capital in the unaudited condensed consolidated balance sheets.
MARVELL TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)
Unaudited Supplemental Pro Forma Information
The unaudited supplemental pro forma financial information presented below is for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the acquisitions had been completed on the date indicated, does not reflect synergies that might have been achieved, nor is it indicative of future operating results or financial position. The pro forma adjustments are based upon currently available information and certain assumptions the Company believes are reasonable under the circumstances.
The following unaudited supplemental pro forma information presents the combined results of operations for each of the periods presented, as if Innovium and Inphi had been acquired as of the beginning of fiscal 2021. The unaudited supplemental pro forma information includes adjustments to amortization and depreciation for acquired intangible assets and property and equipment, adjustments to stock-based compensation expense, the purchase accounting effect on inventories acquired, interest expense, and transaction costs. The unaudited supplemental pro forma information presented below is for informational purposes only and is not necessarily indicative of our unaudited condensed consolidated results of operations of the combined business had the Innovium and Inphi acquisitions actually occurred at the beginning of fiscal 2021 or of the results of our future operations of the combined business.
The unaudited supplemental pro forma financial information for the periods presented is as follows (in millions):
| Nine Months Ended | ||||||||||||||
| October 30, 2021 | ||||||||||||||
| Pro forma net revenue | $ | 3,295.5 | ||||||||||||
| Pro forma net loss | $ | (262.2) | ||||||||||||
Note 7. Goodwill and Acquired Intangible Assets, Net
Goodwill
Goodwill represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets acquired in a business combination.
In the second quarter of fiscal 2023, the Company purchased IPR&D as well as hired technical staff to expand engineering resources for purchase consideration of $60.1 million of which $40.0 million was allocated to goodwill. In the first quarter of fiscal 2023, the Company completed the acquisition of two semiconductor design services companies located in India, for purchase consideration of $33.7 million, primarily for the purpose of expanding engineering resources to address customer design opportunities, of which $25.8 million was allocated to goodwill. The carrying value of goodwill as of October 29, 2022 and January 29, 2022 is $11.6 billion and $11.5 billion, respectively. See “Note 6 – Business Combinations” for discussion of acquisitions and changes to the carrying value of goodwill.
Acquired Intangible Assets, Net
As of October 29, 2022 and January 29, 2022, net carrying amounts excluding fully amortized intangible assets are as follows (in millions, except for weighted-average remaining amortization period):
| October 29, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| Gross Carrying Amounts | Accumulated Amortization | Net Carrying Amounts | Weighted-Average Remaining Amortization Period (Years) | ||||||||||||||||||||||||||||||||||||||||||||
| Developed technologies | $ | 4,980.0 | $ | (1,855.7) | $ | 3,124.3 | 4.73 | ||||||||||||||||||||||||||||||||||||||||
| Customer contracts and related relationships | 2,179.0 | (768.6) | 1,410.4 | 4.48 | |||||||||||||||||||||||||||||||||||||||||||
| Trade names | 66.0 | (29.1) | 36.9 | 3.31 | |||||||||||||||||||||||||||||||||||||||||||
| Total acquired amortizable intangible assets | $ | 7,225.0 | $ | (2,653.4) | $ | 4,571.6 | 4.64 | ||||||||||||||||||||||||||||||||||||||||
| IPR&D | 801.0 | — | 801.0 | n/a | |||||||||||||||||||||||||||||||||||||||||||
| Total acquired intangible assets | $ | 8,026.0 | $ | (2,653.4) | $ | 5,372.6 |
MARVELL TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)
| January 29, 2022 | |||||||||||||||||||||||
| Gross Carrying Amounts | Accumulated Amortization | Net Carrying Amounts | Weighted-Average Remaining Amortization Period (Years) | ||||||||||||||||||||
| Developed technologies | $ | 4,744.1 | $ | (1,333.7) | $ | 3,410.4 | 5.17 | ||||||||||||||||
| Customer contracts and related relationships | 2,184.0 | (519.6) | 1,664.4 | 5.21 | |||||||||||||||||||
| Trade names | 73.0 | (26.2) | 46.8 | 3.95 | |||||||||||||||||||
| Order backlog | 70.0 | (67.2) | 2.8 | 0.03 | |||||||||||||||||||
| Total acquired amortizable intangible assets | $ | 7,071.1 | $ | (1,946.7) | $ | 5,124.4 | 5.17 | ||||||||||||||||
| IPR&D | 1,029.0 | — | 1,029.0 | n/a | |||||||||||||||||||
| Total acquired intangible assets | $ | 8,100.1 | $ | (1,946.7) | $ | 6,153.4 |
The intangible assets are amortized on a straight-line basis over the estimated useful lives, except for certain Cavium customer contracts and related relationships, which are amortized using an accelerated method of amortization over the expected customer lives, which more closely align with the pattern of realization of economic benefits expected to be obtained. The IPR&D will be accounted for as an indefinite-lived intangible asset and will not be amortized until the underlying projects reach technological feasibility and commercial production at which point the IPR&D will be amortized over the estimated useful life. Useful lives for these IPR&D projects are expected to range between 3 to 10 years. In the event the IPR&D is abandoned, the related assets will be written off.
Amortization expense for acquired intangible assets for the three and nine months ended October 29, 2022 was $269.9 million and $814.2 million, respectively. Amortization expense for acquired intangible assets for the three and nine months ended October 30, 2021 was $279.3 million and $684.6 million, respectively.
The following table presents the estimated future amortization expense of acquired amortizable intangible assets as of October 29, 2022 (in millions):
| Fiscal Year | Amount | |||||||
| Remainder of 2023 | $ | 268.3 | ||||||
| 2024 | 1,070.4 | |||||||
| 2025 | 1,017.8 | |||||||
| 2026 | 969.6 | |||||||
| 2027 | 818.6 | |||||||
| Thereafter | 426.9 | |||||||
| $ | 4,571.6 |
Note 8. Fair Value Measurements
Fair value is an exit price representing the amount that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level 1—Observable inputs that reflect quoted prices for identical assets or liabilities in active markets.
Level 2—Other inputs that are directly or indirectly observable in the marketplace.
Level 3—Unobservable inputs that are supported by little or no market activity.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
MARVELL TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)
The Company’s Level 1 assets include marketable equity investments that are classified as other non-current assets and which are valued primarily using quoted market prices. The Company’s Level 2 assets include time deposits, as the market inputs used to value these instruments consist of market yields. In addition, forward contracts and the severance pay fund are classified within Level 2 of the fair value hierarchy as the valuation inputs are based on quoted prices and market observable data of similar instruments.
The tables below set forth, by level, the Company’s assets and liabilities that are measured at fair value on a recurring basis. The tables do not include assets and liabilities that are measured at historical cost or any basis other than fair value (in millions):
| Fair Value Measurements at October 29, 2022 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Items measured at fair value on a recurring basis: | |||||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Time deposits | $ | — | $ | 228.2 | $ | — | $ | 228.2 | |||||||||||||||
| Other non-current assets: | |||||||||||||||||||||||
| Marketable equity investments | 1.8 | — | — | 1.8 | |||||||||||||||||||
| Severance pay fund | — | 0.7 | — | 0.7 | |||||||||||||||||||
| Total assets | $ | 1.8 | $ | 228.9 | $ | — | $ | 230.7 | |||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Accrued liabilities: | |||||||||||||||||||||||
| Foreign currency forward contracts | $ | — | $ | 1.1 | $ | — | $ | 1.1 | |||||||||||||||
| Total liabilities | $ | — | $ | 1.1 | $ | — | $ | 1.1 | |||||||||||||||
MARVELL TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)
The carrying value of investments in non-marketable equity securities recorded to fair value on a non-recurring basis is adjusted for observable transactions for identical or similar investments of the same issuer or for impairment. These securities relate to equity investments in privately-held companies. These items measured at fair value on a non-recurring basis are classified as Level 3 in the fair value hierarchy because the value is estimated based on valuation methods using the observable transaction price at the transaction date and other unobservable inputs such as volatility, rights and obligations of the securities held. As of October 29, 2022 and January 29, 2022, non-marketable equity investments had a carrying value of $35.7 million and $30.7 million, respectively, and are included in other non-current assets in the Company’s unaudited condensed consolidated balance sheets.
| Fair Value Measurements at January 29, 2022 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Items measured at fair value on a recurring basis: | |||||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Time deposits | $ | — | $ | 177.6 | $ | — | $ | 177.6 | |||||||||||||||
| Other non-current assets: | |||||||||||||||||||||||
| Marketable equity investments | 1.2 | — | — | 1.2 | |||||||||||||||||||
| Severance pay fund | — | 0.7 | — | 0.7 | |||||||||||||||||||
| Total assets | $ | 1.2 | $ | 178.3 | $ | — | $ | 179.5 | |||||||||||||||
Fair Value of Debt
The Company classified the 2024 and 2026 Term Loans, the 2023 Notes, the 2026 Notes, 2028 Notes, and 2031 Notes as Level 2 in the fair value measurement hierarchy. The carrying value of the 2024 and 2026 Term Loans approximate their fair value as the 2024 and 2026 Term Loans are carried at a market observable interest rate that resets periodically. The estimated aggregate fair value of the unsecured senior notes was $2.6 billion at October 29, 2022 and $3.0 billion at January 29, 2022, and were classified as Level 2 as there are quoted prices from less active markets for the notes. See “Note 4 – Debt” for additional information.
Note 9. Restructuring
The Company continuously evaluates its existing operations to increase operational efficiency, decrease costs and increase profitability. Restructuring charges are mainly comprised of severance and other one-time termination benefits, facility closures where sites may be redundant within the same region or no longer suitably sized for the local employee base, and other costs. The Company recorded restructuring and other related charges of $15.6 million and $18.1 million for the three and nine months ended October 29, 2022, respectively. The Company expects to complete these restructuring actions by the end of fiscal 2024.
In prior years, the Company initiated restructuring plans in order to realign the organization and enable further investment in key priority areas. Restructuring charges were mainly comprised of severance and other one-time termination benefits, facility closures where sites were redundant within the same region or no longer suitably sized for the local employee base, and other costs. These plans are substantially complete. The Company recorded restructuring related charges of $5.9 million and $31.1 million for the three and nine months ended October 30, 2021, respectively.
MARVELL TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)
Note 10. Income Tax
The Company’s tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items, if any, that arise during the period. Each quarter, the Company updates its estimate of the annual effective tax rate, and if the estimated annual effective tax rate changes, the Company makes a cumulative adjustment in such period. The Company’s quarterly tax provision, and estimate of its annual effective tax rate, is subject to variation due to several factors, including variability in accurately predicting our pre-tax income or loss and the mix of jurisdictions to which they relate, intercompany transactions, changes in tax laws, the applicability of special tax regimes, changes in how the Company does business, discrete items, and acquisitions, as well as the integration of such acquisitions.
On April 20, 2021, the Company completed its acquisition of Inphi. Since closing of this transaction, the parent company has been domiciled in the United States and not Bermuda. Therefore, for periods after closing, the income from all foreign subsidiaries is now subject to the U.S. provisions applicable to Global Intangible Low Taxed Income (“GILTI”), which generally requires for GILTI income to be included in the taxable income of U.S. entities, and which may adversely impact future effective tax rates and tax liabilities.
The Company recorded income tax expense of $52.0 million and $256.4 million for the three and nine months ended October 29, 2022, respectively. The Company’s estimated effective tax rate for the year differs from the U.S. statutory rate of 21% primarily due to a substantial portion of its earnings, or in some cases, losses being taxed or benefited at rates lower than the U.S. statutory rate, net of the impact of U.S. taxation of foreign operations, benefits from tax credits, and valuation allowance releases, as well as discrete tax benefits for excess deductions on stock-based compensation and the discrete impact of the remeasurement of the Company’s Singapore deferred taxes upon extension of the Company’s tax incentive in Singapore (see below).
The Company operates under tax incentives in Israel that generally require a repayment (“clawback”) of certain tax benefits upon distribution of related earnings. To encourage the distribution of earnings and the collection of related taxes, the Israel government provided for an elective temporary relief provision at a reduced clawback tax rate. During the third quarter of fiscal 2023, the Company determined that it would avail itself of this temporary relief provision and therefore, recorded tax expense of $22.4 million related to estimated clawback taxes on prior earnings.
The Company operates under tax incentives in certain countries that may be extended and/or renewed if certain additional requirements are satisfied. The tax incentives are conditional upon meeting certain employment and investment thresholds. No tax incentive net benefits have been recorded for the three and nine months ended October 29, 2022. In the first quarter of our current fiscal year, the Singapore Economic Development Board (“EDB”) agreed to extend the Company’s Development and Expansion Incentive (“DEI”) by five years until June 30, 2029. As a result, the Company expects to continue to enjoy a reduced DEI tax rate on its future qualifying income in Singapore. To retain these DEI tax benefits through June 2029 in Singapore, the Company must meet certain operating conditions, headcount and investment requirements, as well as maintain certain activities in Singapore. As a result of the DEI extension, the Company remeasured its Singapore net deferred tax assets that are scheduled to reverse during these future periods at the new incentive tax rate that the Company expects to apply during these periods, which resulted in a net reduction to our Singapore deferred tax assets of $213.6 million and a corresponding deferred income tax expense during the first quarter of fiscal 2023.
The amount of unrecognized tax benefits could increase or decrease due to changes in tax law in various jurisdictions, the effects of income tax audits, and changes in the U.S. dollar as compared to foreign currencies within the next 12 months. It is reasonably possible that our uncertain tax positions may be reduced by as much as $7.4 million within the next 12 months as a result of the lapses of statutes of limitation. The Company is currently under audit in certain U.S. State and non-U.S. taxing jurisdictions. The Company believes that it has adequately provided for the expected outcomes related to these tax audits and that any settlements with respect to these audits will not have a material effect on its results or financial position at this time.
The Company’s principal source of liquidity as of October 29, 2022 consisted of approximately $723.4 million of cash and cash equivalents, of which approximately $500.8 million was held by subsidiaries outside of the United States. The Company has not recognized a deferred tax liability on $430.6 million of these assets as those amounts are deemed to be indefinitely reinvested. The Company manages its worldwide cash requirements by, among other things, reviewing available funds held by its foreign subsidiaries and the cost effectiveness by which those funds can be accessed in the United States.
MARVELL TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)
Note 11. Net Income (Loss) Per Share
The Company reports both basic net income (loss) per share, which is based on the weighted-average number of shares of common stock outstanding during the period, and diluted net income (loss) per share, which is based on the weighted-average number of shares of common stock 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 millions, except per share amounts):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| October 29, 2022 | October 30, 2021 | October 29, 2022 | October 30, 2021 | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income (loss) | $ | 13.3 | $ | (62.6) | $ | (148.1) | $ | (427.2) | |||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted-average shares — basic | 852.6 | 828.6 | 850.5 | 781.0 | |||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||
| Stock-based awards | 5.8 | — | — | — | |||||||||||||||||||
| Weighted-average shares — diluted | 858.4 | 828.6 | 850.5 | 781.0 | |||||||||||||||||||
| Net income (loss) per share: | |||||||||||||||||||||||
| Basic | $ | 0.02 | $ | (0.08) | $ | (0.17) | $ | (0.55) | |||||||||||||||
| Diluted | $ | 0.02 | $ | (0.08) | $ | (0.17) | $ | (0.55) |
Potential dilutive securities include dilutive common stock from stock-based awards attributable to the assumed exercise of stock options, restricted stock units and employee stock purchase plan shares using the treasury stock method. Potential dilutive securities include dilutive common stock from stock-based awards attributable to the shares that could be issued upon conversion of the Company’s convertible debt using the if-converted method. Under the treasury stock method and if-converted method, potential common stock 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 millions):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||
| October 29, 2022 | October 30, 2021 | October 29, 2022 | October 30, 2021 | ||||||||||||||||||||||||||||||||
| Weighted-average shares outstanding: | |||||||||||||||||||||||||||||||||||
| Stock-based awards | 11.3 | 17.6 | 14.1 | 15.3 | |||||||||||||||||||||||||||||||
| Convertible debt | — | — | — | 0.7 |
Anti-dilutive potential shares from stock-based awards are excluded from the calculation of diluted earnings per share for all periods reported above because either their exercise price exceeded the average market price during the period or the stock-based awards were determined to be anti-dilutive based on applying the treasury stock method. Anti-dilutive potential shares from convertible debt are excluded from the calculation of diluted earnings per share for all periods reported above because the shares that would be issued upon conversion of the Company’s convertible debt were determined to be anti-dilutive based on applying the if-converted method. Anti-dilutive potential shares from stock-based awards are excluded from the calculation of diluted earnings per share for the three months ended October 30, 2021, and the nine months ended October 29, 2022 and October 30, 2021 due to the net losses reported in those periods.
MARVELL TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)
Note 12. Supplemental Financial Information (in millions)
Consolidated Balance Sheets
| October 29, 2022 | January 29, 2022 | ||||||||||
| Inventories: | |||||||||||
| Work-in-process | $ | 734.3 | $ | 578.9 | |||||||
| Finished goods | 223.2 | 141.4 | |||||||||
| Inventories | $ | 957.5 | $ | 720.3 |
The inventory balance at October 29, 2022 and January 29, 2022 includes $12.7 million and $38.7 million respectively related to the remaining inventory fair value adjustment from the Innovium acquisition.
| October 29, 2022 | January 29, 2022 | ||||||||||
| Property and equipment, net: | |||||||||||
| Machinery and equipment | $ | 1,017.9 | $ | 895.4 | |||||||
| Land, buildings, and leasehold improvements | 299.5 | 293.6 | |||||||||
| Computer software | 112.1 | 109.1 | |||||||||
| Furniture and fixtures | 30.8 | 30.1 | |||||||||
| 1,460.3 | 1,328.2 | ||||||||||
| Less: Accumulated depreciation | (938.8) | (865.4) | |||||||||
| Property and equipment, net | $ | 521.5 | $ | 462.8 |
| October 29, 2022 | January 29, 2022 | ||||||||||
| Other non-current assets: | |||||||||||
| Technology and other licenses | $ | 462.2 | $ | 490.2 | |||||||
| Prepaid ship and debit | 433.5 | 215.9 | |||||||||
| Prepayments on supply capacity reservation agreements | 226.9 | 54.6 | |||||||||
| Operating right-of-use assets | 200.8 | 142.0 | |||||||||
| Non-marketable equity investments | 35.7 | 30.7 | |||||||||
| Other | 58.8 | 61.0 | |||||||||
| Other non-current assets | $ | 1,417.9 | $ | 994.4 |
MARVELL TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)
| October 29, 2022 | January 29, 2022 | ||||||||||
| Accrued liabilities: | |||||||||||
| Variable consideration estimates (1) | $ | 519.3 | $ | 258.6 | |||||||
| Accrued income tax payable | 167.4 | 23.3 | |||||||||
| Technology license obligations | 118.7 | 84.2 | |||||||||
| Accrued legal reserve | 104.9 | 8.5 | |||||||||
| Deferred revenue | 47.0 | 39.0 | |||||||||
| Lease liabilities - current portion | 41.6 | 38.2 | |||||||||
| Deferred non-recurring engineering credits | 29.7 | 71.2 | |||||||||
| Accrued interest payable | 20.9 | 20.1 | |||||||||
| Accrued royalty | 15.9 | 17.4 | |||||||||
| Other | 46.3 | 62.1 | |||||||||
| Accrued liabilities | $ | 1,111.7 | $ | 622.6 |
(1) Variable consideration estimates consist of estimated customer returns, price discounts, price protection, rebates, and stock rotation programs.
| October 29, 2022 | January 29, 2022 | ||||||||||
| Other non-current liabilities | |||||||||||
| Technology license obligations | $ | 280.3 | $ | 304.3 | |||||||
| Lease liabilities - non current | 190.8 | 140.3 | |||||||||
| Non-current income tax payable | 58.1 | 35.0 | |||||||||
| Deferred tax liabilities | 45.9 | 34.5 | |||||||||
| Other | 40.2 | 19.0 | |||||||||
| Other non-current liabilities | $ | 615.3 | $ | 533.1 |
MARVELL TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ‑ (Continued)
Accumulated Other Comprehensive Loss
The changes in accumulated other comprehensive loss, net of tax, by components for the current period are presented in the following table:
| Unrealized Gain (Loss) on Cash Flow Hedges | ||||||||||||||||||||||||||
| Balance as at January 29, 2022 | $ | — | ||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | (1.1) | |||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | 0.3 | |||||||||||||||||||||||||
| Net current-period other comprehensive income (loss), net of tax | (0.8) | |||||||||||||||||||||||||
| Balance as at October 29, 2022 | $ | (0.8) |
For the three and nine months ended October 30, 2021, there were no reconciling differences between net income (loss) and comprehensive income (loss).
Stock Repurchase Program
On November 17, 2016, the Company announced that its Board of Directors authorized a $1.0 billion stock repurchase plan with no fixed expiration. The stock repurchase program replaced in its entirety the prior $3.25 billion stock repurchase program. On October 16, 2018, the Company announced that its Board of Directors authorized a $700.0 million addition to the balance of its existing stock repurchase program. As of October 29, 2022, $449.5 million remained available for future stock repurchases. The Company intends to effect stock 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 stock 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 shares of its common stock and the repurchase program may be extended, modified, suspended or discontinued at any time.
The Company resumed its stock repurchase program in the first quarter of fiscal 2023, which had been temporarily suspended in fiscal 2021 to preserve cash during the COVID-19 pandemic. During the three months ended October 29, 2022, the Company repurchased 1.1 million shares of its common stock for $50.0 million. During the nine months ended October 29, 2022, the Company repurchased 2.3 million shares of its common stock for $115.0 million, including 0.9 million shares of its common stock repurchased for $50.0 million pursuant to a 10b5-1 trading plan. There were no stock repurchases during the three and nine months ended October 30, 2021. The Company records all repurchases, as well as investment purchases and sales, based on their trade date. The repurchased stock are retired immediately after repurchases are completed.
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