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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
MARCH 19, 2001
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
MARVELL TECHNOLOGY GROUP LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
BERMUDA 0-30877 77-0481679
(STATE OR OTHER JURISDICTION OF (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
RICHMOND HOUSE
3RD FLOOR
12 PAR LA VILLE ROAD
HAMILTON HM DX
BERMUDA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (441) 296-6395
N/A
(FORMER NAME AND FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
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INFORMATION TO BE INCLUDED IN THE REPORT
On January 21, 2001, Marvell Technology Group Ltd., a Bermuda
corporation ("Marvell" or the "Registrant") completed its acquisition of Galileo
Technology Ltd., a company organized under the laws of Israel ("Galileo"),
pursuant to the merger of Toshack Acquisitions Ltd., a company organized under
the laws of Israel and a direct wholly owned subsidiary of Marvell into Galileo.
On February 5, 2001, Marvell filed with the Securities and Exchange Commission a
Current Report on Form 8-K reporting this event.
This Amendment No. 1 to Current Report on Form 8-K has been filed to
provide the information required by with Items 7(a)(1) and (b)(1) of Form 8-K.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired.
The following financial statements of Galileo are filed herewith as Item 7(a):
Audited Financial Statements as of December 31, 1999 and for the year
then ended, as follows:
- Independent Auditors' Report
- Consolidated Balance Sheets as of December 31, 1999 and 1998
- Consolidated Statements of Operations for each of the three
years in the period ended December 31, 1999
- Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1999
- Notes to Consolidated Financial Statements
Unaudited Financial Statements as of September 30, 2000 and for the nine
months then ended, as follows:
- Consolidated Balance Sheet as of September 30, 2000
- Consolidated Statements of Operations for each of the nine
months ended September 30, 2000 and 1999
- Consolidated Statements of Cash Flows for each of the nine
months ended September 30, 2000 and 1999
- Notes to Consolidated Financial Statements (unaudited)
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GALILEO AUDITED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND FOR THE YEAR THEN ENDED
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Galileo Technology Ltd.
We have audited the accompanying consolidated balance sheets of Galileo
Technology Ltd. as of December 31, 1999 and 1998, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1999. Our audits also included the
financial statement schedule listed in the Index at Item 19(a)(2). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Galileo
Technology Ltd. at December 31, 1999 and 1998, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
Palo Alto, California
January 14, 2000
except for Note 12,
as to which the date is February 29, 2000
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GALILEO TECHNOLOGY LTD.
CONSOLIDATED BALANCE SHEETS
(U.S. dollars, in thousands, except share and per share data)
December 31,
-------------------------
1999 1998
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 42,648 $ 45,607
Short-term investments 63,005 40,838
Accounts receivable, net of allowances of $203 in 1999 and $207 in 1998 12,523 5,207
Inventories 8,094 2,851
Prepaid expenses and other assets 3,049 1,745
--------- ---------
Total current assets 129,319 96,248
Other assets 2,031 1,857
Property and equipment, net 9,388 4,816
--------- ---------
Total assets $ 140,738 $ 102,921
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,495 $ 4,826
Accrued and other current liabilities 8,969 6,078
Deferred income 1,817 771
Current maturities of long-term debt -- 128
--------- ---------
Total current liabilities 17,281 11,803
Accrued severance pay 500 283
Long-term debt -- 6
Other liabilities 1,652 1,030
Commitments
Shareholders' equity:
Ordinary Shares--nominal value approximately $0.003 per share; at amounts paid
in; 100,000,000 shares authorized; 41,989,908 and 40,953,118 shares issued
and outstanding at December 31, 1999 and 1998, respectively 74,440 70,148
Treasury shares at cost; 305,376 Ordinary Shares at December 31, 1998 -- (1,451)
Deferred compensation (432) (941)
Accumulated other comprehensive income (loss) (124) 155
Retained earnings 47,421 21,888
--------- ---------
Total shareholders' equity 121,305 89,799
--------- ---------
Total liabilities and shareholders' equity $ 140,738 $ 102,921
========= =========
See accompanying notes.
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GALILEO TECHNOLOGY LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. dollars, in thousands, except per share data)
Year ended December 31,
--------------------------------------
1999 1998 1997
-------- -------- --------
Net sales $ 79,717 $ 51,643 $ 36,505
Cost of sales 28,041 19,272 13,561
-------- -------- --------
Gross profit 51,676 32,371 22,944
Operating expenses:
Research and development 16,633 10,656 6,234
Sales and marketing 7,849 6,006 4,427
General and administrative 4,374 3,653 3,345
-------- -------- --------
Total operating expenses 28,856 20,315 14,006
-------- -------- --------
Operating income 22,820 12,056 8,938
Interest income 4,921 4,383 1,689
Interest and other expense (252) (229) (133)
-------- -------- --------
Income before provision for income taxes 27,489 16,210 10,494
Provision for income taxes 1,380 760 158
-------- -------- --------
Net income $ 26,109 $ 15,450 $ 10,336
======== ======== ========
Earnings per share:
Basic $ 0.63 $ 0.38 $ 0.32
======== ======== ========
Diluted $ 0.58 $ 0.36 $ 0.27
======== ======== ========
Shares used in computing earnings per share:
Basic 41,233 40,698 31,896
======== ======== ========
Diluted 44,845 42,614 38,024
======== ======== ========
See accompanying notes.
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GALILEO TECHNOLOGY LTD.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(U.S. dollars, in thousands, except share data)
ORDINARY
PREFERRED SHARES ORDINARY SHARES TREASURY SHARES
---------------------- ---------------------- --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------- ---------- ------- -------- -------
Balance at December 31, 1996 1,190,293 $ 7,723 24,518,376 $ 3,977 -- $ --
Comprehensive income:
Other comprehensive income--change in net
unrealized gain (loss) on available-for-sale
investments -- -- -- -- -- --
Net income -- -- -- -- -- --
Comprehensive income -- -- -- -- -- --
Issuance of Preferred Shares, net of issuance
costs 270,300 1,450 -- -- -- --
Conversion of Series B and D Preferred Shares
into Ordinary Shares (1,460,593) (9,173) 8,763,558 9,173 -- --
Issuance of Ordinary Shares -- -- 40,800 102 -- --
Issuance of Ordinary Shares, in conjunction with
the Company's initial public offering, net of
issuance costs -- -- 6,900,00 52,981 -- --
Issuance of Ordinary Shares pursuant to warrant
exercise -- -- 30,994 -- -- --
Issuance of Ordinary shares under share option
plans -- -- 229,102 29 -- --
Tax benefit of stock option transactions -- -- -- 132 -- --
Deferred compensation related to certain options
granted to employees prior to the initial
public offering -- -- -- 1,086 -- --
Amortization of deferred compensation -- -- -- -- -- --
---------- ------- ---------- ------- -------- -------
Balance at December 31, 1997 -- -- 40,482,830 67,480 -- --
Comprehensive income:
Other comprehensive income--change in net -- -- -- -- -- --
ACCUMULATED RETAINED
OTHER EARNINGS TOTAL
DEFERRED COMPREHENSIVE (ACCUMULATED SHAREHOLDERS'
COMPENSATION INCOME (LOSS) DEFICIT) EQUITY
------------ ------------ ----------- ------------
Balance at December 31, 1996 $(1,058) $ -- $ (3,276) $ 7,366
Comprehensive income:
Other comprehensive income--change in net
unrealized gain (loss) on available-for-sale
investments -- (15) -- (15)
Net income -- -- 10,336 10,366
---------
Comprehensive income -- -- -- 10,366
---------
Issuance of Preferred Shares, net of issuance
costs -- -- -- 1,450
Conversion of Series B and D Preferred Shares
into Ordinary Shares -- -- -- --
Issuance of Ordinary Shares -- -- -- 102
Issuance of Ordinary Shares, in conjunction with
the Company's initial public offering, net of
issuance costs -- -- -- 52,981
Issuance of Ordinary Shares pursuant to warrant
exercise -- -- -- --
Issuance of Ordinary shares under share option
plans -- -- -- 29
Tax benefit of stock option transactions -- -- -- 132
Deferred compensation related to certain options
granted to employees prior to the initial
public offering (1,086) -- -- --
Amortization of deferred compensation 617 -- -- 617
------- ----- -------- ---------
Balance at December 31, 1997 (1,527) (15) 7,060 72,998
Comprehensive income:
Other comprehensive income--change in net -- 170 -- 170
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ORDINARY
PREFERRED SHARES ORDINARY SHARES TREASURY SHARES
---------------------- --------------------- --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------- ---------- ------- -------- -------
unrealized gain (loss) on available-for-sale
investments -- -- -- -- -- --
Net income -- -- -- -- -- --
Comprehensive income: -- -- -- -- -- --
Purchase of Treasury Shares at cost -- -- -- -- (455,200) (2,203)
Issuance of Ordinary Shares under share option
and employee stock purchase plans -- -- 470,288 1,930 149,824 752
Tax benefit of stock option transactions -- -- -- 738 -- --
Amortization of deferred compensation -- -- -- -- -- --
---------- ------- ---------- ------- -------- -------
Balance at December 31, 1998 -- -- 40,953,118 70,148 (305,376) (1,451)
Comprehensive income: -- -- -- -- -- --
Other comprehensive income--change in net
unrealized gain (loss) on available-for-sale
investments -- -- -- -- -- --
Net income -- -- -- -- -- --
Comprehensive income: -- -- -- -- -- --
Issuance of Ordinary Shares under share option
and employee stock purchase plans -- -- 1,036,790 3,594 305,376 1,451
Tax benefit of stock option transactions -- -- -- 698 -- --
Amortization of deferred compensation -- -- -- -- -- --
---------- ------- ---------- ------- -------- -------
Balance at December 31, 1999 -- $ -- 41,989,908 $74,440 -- $ --
========== ======= ========== ======= ======== =======
ACCUMULATED RETAINED
OTHER EARNINGS TOTAL
DEFERRED COMPREHENSIVE (ACCUMULATED SHAREHOLDERS'
COMPENSATION INCOME (LOSS) DEFICIT) EQUITY
------------ ------------ ----------- ------------
unrealized gain (loss) on available-for-sale
investments -- -- -- --
Net income -- -- 15,450 15,450
---------
Comprehensive income: -- -- -- 15,620
---------
Purchase of Treasury Shares at cost -- -- -- (2,203)
Issuance of Ordinary Shares under share option
and employee stock purchase plans -- -- (622) 2,060
Tax benefit of stock option transactions -- -- -- 738
Amortization of deferred compensation 586 -- -- 586
------- ----- -------- ---------
Balance at December 31, 1998 (941) 155 21,888 89,799
Comprehensive income: -- -- -- --
Other comprehensive income--change in net
unrealized gain (loss) on available-for-sale
investments -- (279) -- (279)
Net income -- -- 26,109 26,109
---------
Comprehensive income -- -- -- 25,830
---------
Issuance of Ordinary Shares under share option
and employee stock purchase plans -- -- (576) 4,469
Tax benefit of stock option transactions -- -- -- 698
Amortization of deferred compensation 509 -- -- 509
------- ----- -------- ---------
Balance at December 31, 1999 $ (432) $(124) $ 47,421 $ 121,305
======= ===== ======== =========
See accompanying notes
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GALILEO TECHNOLOGY LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(U.S. dollars, in thousands)
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
-------- -------- --------
Cash flows from operating activities
Net income $ 26,109 $ 15,450 $ 10,336
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 2,863 1,635 897
Amortization of deferred compensation 509 586 617
Change in deferred tax assets 456 (380) (642)
Changes in operating assets and liabilities:
Accounts receivable (7,316) (641) (2,743)
Inventories (5,243) (464) (1,237)
Prepaid expenses and other assets (697) (356) (174)
Accounts payable 1,669 1,894 886
Accrued and other current liabilities 2,891 1,837 4,392
Deferred income 1,046 (243) 1,014
Accrued severance pay 217 73 100
Other liabilities 83 1,030 --
-------- -------- --------
Net cash provided by operating activities 22,587 20,421 13,446
Cash flows from investing activities
Purchases of short-term investments (35,789) (57,041) (29,364)
Proceeds from sales and maturities of short-
term investments 13,343 43,722 4,304
Purchases of property and equipment (7,435) (3,484) (2,281)
Other assets -- (1,530) --
-------- -------- --------
Net cash used in investing activities (29,881) (18,333) (27,341)
Cash flows from financing activities
Proceeds from issuance of Preferred Shares -- -- 1,450
Proceeds from issuance of Ordinary Shares 4,469 2,060 131
Repurchase of Ordinary Treasury Shares -- (2,203) --
Proceeds from initial public offering -- -- 52,981
Proceeds from issuance of debt -- -- 2,264
Repayment of debt (134) (225) (4,376)
-------- -------- --------
Net cash provided by (used in) financing
activities 4,335 (368) 52,450
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YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents (2,959) 1,720 38,555
Cash and cash equivalents at beginning of year 45,607 43,887 5,332
-------- -------- --------
Cash and cash equivalents at end of year $ 42,648 $ 45,607 $ 43,887
======== ======== ========
Supplemental disclosure
Interest paid $ 4 $ 15 $ 133
======== ======== ========
Income taxes paid $ 1 $ 498 $ --
======== ======== ========
Noncash financing activities
Conversion of Preferred Shares to Ordinary
Shares $ -- $ -- $ 9,173
======== ======== ========
See accompanying notes
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GALILEO TECHNOLOGY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Galileo Technology Ltd. (the "Company") was incorporated under the laws
of Israel in November 1992 and commenced operations in March 1993. The Company,
together with its United States subsidiary, Galileo Technology, Inc. ("GTI"), a
California corporation, and its United Kingdom subsidiary, Galileo Technology
Europe Ltd., defines, develops and markets advanced digital semiconductor
devices that perform critical functions for New World converged-network systems,
in which voice, video, and data are handled seamlessly using Internet Protocol
techniques.
The consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States and include
the accounts of the Company and its subsidiaries. Intercompany accounts and
transactions have been eliminated in consolidation.
The Company has elected to prepare its financial statements in U.S.
dollars, which is also the Company's functional currency. Substantially all of
the Company's sales are made in U.S. dollars. In addition, a substantial portion
of the Company's costs are incurred in U.S. dollars. Since the U.S. dollar is
the primary currency in the economic environment in which the Company operates,
the U.S. dollar is its functional currency.
NATURE OF OPERATIONS AND RELATED CONCENTRATIONS
The Company's sales are concentrated with a few customers. For 1999,
five customers represented approximately 66% of the Company's net sales. The
following provides information on sales to major customers which each
constituted more than 10% of net sales. Sales to one customer represented 22%,
26% and 12% of net sales for 1999, 1998 and 1997, respectively. Sales to two
other customers represented 13% and 12% of net sales for 1999. Sales to another
customer represented 14% and 10% of net sales for 1999 and 1997, respectively.
Sales to another customer represented 17% of net sales for 1997.
The Company uses a single independent foundry in Taiwan to fabricate and
manufacture substantially all of its semiconductor products. The Company's
reliance on a single independent foundry involves a number of risks, including
the possible absence of adequate capacity as the Company expands, the
unavailability of, or interruption in access to, certain process technologies
and reduced control over delivery schedules, quality assurance, manufacturing
yields and costs.
The loss of any of the Company's major customers or its supplier would
have a material adverse effect on the Company's business, financial condition
and results of operations.
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USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REVENUE RECOGNITION
Net sales represent revenues derived from sales of semiconductor devices
including system controllers and switched Ethernet LAN controllers. Revenues
from product sales to customers, other than sales to distributors, are recorded
when title transfers. Sales to distributors, which are made under agreements
allowing price protection and right of return on products unsold by the
distributor, are not recognized until the products are sold by the distributor.
The Company's anticipated profit on such distribution sales are recorded as
deferred income.
The Company accrues estimated sales returns for sales made to customers,
other than distributors, and accrues warranty costs upon recognition of net
sales. The Company has not experienced significant warranty claims to date.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred, in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 2, "Accounting for
Research and Development Costs."
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with a maturity of
three months or less, when purchased, to be cash equivalents.
Pursuant to SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," the Company's debt securities have been designated as
available-for-sale. Available-for-sale securities are carried at fair value,
which is determined based upon the quoted market prices of the securities, with
unrealized gains and losses reported in accumulated other comprehensive income,
a component of shareholders' equity. Realized gains and losses and declines in
value judged to be other than temporary on available-for-sale securities are
included in interest income. The Company views its available-for-sale portfolio
as available for use in its current operations.
Accordingly, the Company has classified all investments as short term,
even though the stated maturity date may be one year or more from beyond the
current balance sheet date. The cost of securities sold is based on the specific
identification method. Interest and dividends on securities classified as
available-for-sale are included in interest income.
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INVENTORIES
Inventories are stated at the lower of cost or market value. Cost is
determined by the first-in, first-out method. Substantially all of the
inventories are finished goods.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation of property and
equipment is recognized on the straight-line method over the estimated useful
lives of the assets (generally from three to five years).
FOREIGN CURRENCY TRANSACTIONS
Monetary accounts maintained in currencies other than the dollar
(principally cash and liabilities) are remeasured 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 remeasurement are reported in
current operations. The effect of foreign currency remeasurement was not
significant in 1999, 1998 or 1997.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that subject the Company to credit risk consist
primarily of uninsured cash, cash equivalents and short-term investment balances
held at high-quality financial institutions and trade receivables from its
customers. The Company sells primarily to large network system vendors. The
Company extends reasonably short collection terms and performs ongoing credit
evaluations but does not require collateral. The Company provides reserves for
potential credit losses, and such losses have been within management's
expectations.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee share options because, as
discussed below, the alternative fair value accounting provided for under SFAS
No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123") requires use of
option valuation models that were not developed for use in valuing employee
share options. Under APB 25, when the exercise price of the Company's employee
share purchase rights or options equals the market price of the underlying
ordinary shares on the date of the grant, no compensation expense is recognized.
In connection with the grant of certain share options to employees
through July 1997, the Company recorded deferred compensation of approximately
$3.0 million for the aggregate differences between the respective exercise
prices of options at their dates of grant and the deemed fair value for
accounting purposes of the ordinary shares subject to such options. Such amount
is presented as a reduction of shareholders' equity and is amortized ratably
over the vesting period of the related options.
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EARNINGS PER SHARE
Earnings per share has been computed in accordance with the SFAS No.
128, "Earnings Per Share," which requires disclosure of basic and diluted
earnings per share. Basic earnings per share has been computed using the
weighted-average number of ordinary shares outstanding during the period and the
conversion of convertible preferred stock from the original date of issuance.
Basic earnings per share excludes any dilutive effects of options,
shares subject to repurchase, warrants, and convertible securities. Diluted
earnings per share includes the impact of potentially dilutive securities.
Following the guidance given by the Securities and Exchange Commission ("SEC")
in Staff Accounting Bulletin ("SAB") No. 98, ordinary shares and preferred
shares that had been issued or granted for nominal consideration prior to the
Company's initial public offering would be included in the calculation of basic
and diluted earnings per share as if these shares had been outstanding for all
periods presented. No such issuances or grants have been made.
On June 12, 1997, the Company's shareholders approved a 3-for-1 ordinary
share split in the form of a share dividend which was effected on June 24, 1997.
On September 8, 1999, the Company's shareholders approved a 2-for-1 ordinary
share split in the form of a share dividend which was effected on September 17,
1999. All share and per share amounts have been retroactively adjusted to
reflect these splits.
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
------- ------- -------
Numerator used for both basic and diluted
earnings per share $26,109 $15,450 $10,336
======= ======= =======
Denominator for basic earnings per share--
Weighted average shares outstanding 41,233 40,698 31,896
======= ======= =======
Denominator for diluted earnings per share:
Denominator for basic earnings per share 41,233 40,698 31,896
Effect of dilutive securities:
Employee share options 3,612 1,916 2,700
Warrants -- -- 6
Convertible preferred shares -- -- 3,422
------- ------- -------
44,845 42,614 38,024
======= ======= =======
Basic earnings per share $ 0.63 $ 0.38 $ 0.32
======= ======= =======
Diluted earnings per share $ 0.58 $ 0.36 $ 0.27
======= ======= =======
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RECENT ACCOUNTING STANDARDS
In June 1999, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133." This
Statement defers for one year the effective date of Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). The
rule will now apply for years beginning after June 15, 2000. Because of the
Company's minimal use of derivatives, the Company does not anticipate that the
adoption of SFAS 133 will have a significant effect on the Company's
consolidated results of operations or financial position.
In December 1999, the SEC issued SAB No. 101 ("SAB 101"), "Revenue
Recognition in Financial Statements." SAB 101 summarizes certain areas of the
Staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. The Company believes that its current
revenue recognition policies comply with SAB 101.
2. AVAILABLE-FOR-SALE-SECURITIES
The fair value and the amortized cost of available-for-sale securities
at December 31, 1999 and 1998 are presented in the following tables (in
thousands):
DECEMBER 31, 1999
---------------------------------------------------------
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
Corporate debt securities $35,854 $ -- $ (285) $35,569
Debt securities of states of the
United States and political
subdivisions of the states 23,342 -- (79) 23,263
Israel government securities 24,700 328 (88) 24,940
------- ----- -------- -------
$83,896 $ 328 $ (452) $83,772
======= ===== ======== =======
Reported as:
Cash equivalents $20,767 $ -- $ -- $20,767
Short-term investments 63,129 328 (452) 63,005
------- ----- -------- -------
$83,896 $ 328 $ (452) $83,772
======= ===== ======== =======
DECEMBER 31, 1999
---------------------------------------------------------
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
Corporate debt securities $37,907 $ 83 $ (8) $37,982
Debt securities of states of the
United States and political
subdivisions of the states 15,524 34 -- 15,558
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DECEMBER 31, 1999
---------------------------------------------------------
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
Israel government securities 11,942 88 (42) 11,988
------- ----- -------- -------
$65,373 $ 205 $ (50) $65,528
======= ===== ======== =======
Reported as:
Cash equivalents $24,690 $ -- $ -- $24,690
Short-term investments 40,683 205 (50) 40,838
------- ----- -------- -------
$65,373 $ 205 $ (50) $65,528
======= ===== ======== =======
The contractual maturities of available-for-sales debt securities
classified as short-term investments at December 31, 1999 are as follows (in
thousands):
AMORTIZED COST FAIR VALUE
-------------- ----------
Due in one year or less $22,129 $22,049
Due after one year through three years 20,446 20,179
Due after three years through five years 20,554 20,777
------- -------
$63,129 $63,005
======= =======
Proceeds from the sale of available-for-sale securities were
approximately $4,974,000 and $1,934,000 for 1999 and 1998. The Company realized
a net gain of approximately $59,000 and $11,000 from the sale of
available-for-sale securities for 1999 and 1998. The Company had no sales of
available-for-sale securities in 1997.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
DECEMBER 31,
-------------------------
1999 1998
-------- -------
Computer equipment $ 12,035 $ 5,728
Furniture, fixtures and other 3,223 2,095
-------- -------
15,258 7,823
Accumulated depreciation (5,870) (3,007)
-------- -------
$ 9,388 $ 4,816
======== =======
4. LONG-TERM DEBT
The Company had no outstanding long-term debt as of December 31, 1999.
As of December 31, 1998, the Company had $134,000 of long-term debt. The fair
market value of the Company's long-term debt approximated the carrying value.
The fair value was estimated using a
15
16
discounted cash flow analysis, based on the Company's incremental borrowing rate
for similar types of borrowing arrangements.
5. ACCRUED AND OTHER CURRENT LIABILITIES
Accrued and other current liabilities consists of the following (in
thousands):
DECEMBER 31,
---------------------
1999 1998
------ ------
Compensation and benefits $3,415 $2,710
Income and other tax authorities 3,120 901
Other 2,434 2,467
------ ------
$8,969 $6,078
====== ======
6. ACCRUED SEVERANCE LIABILITIES
The Company's liability for severance pay pursuant to Israeli law is
fully provided for through insurance contracts and by accrual. The net accrued
severance pay liability reported in the balance sheet reflects the following (in
thousands):
DECEMBER 31,
-------------------
1999 1998
------ ----
Accrued severance pay $1,431 $832
Less amount funded 931 549
------ ----
Unfunded portion, net accrued severance pay $ 500 $283
====== ====
Severance expenses for 1999, 1998 and 1997 amounted to approximately
$599,000, $324,000 and $257,000, respectively.
7. COMMITMENTS
LEASE COMMITMENTS
The Company leases its facilities and other equipment under operating
lease agreements which expire through 2025. Aggregate future minimum annual
payments under noncancelable operating leases as of December 31, 1999 were as
follows (in thousands):
2000 $ 656
2001 455
2002 256
2003 149
2004 96
Thereafter 2,016
------
$3,628
======
16
17
Total rent expense for 1999, 1998 and 1997 was $657,000, $384,000 and
$297,000, respectively.
8. SHAREHOLDERS' EQUITY
INITIAL PUBLIC OFFERING
In July 1997, the Company completed an initial public offering of
6,900,000 ordinary shares at a price of $8.50 per share. Net proceeds from the
initial public offering were approximately $53.0 million. Warrants to purchase
225,000 Series B convertible preferred shares were exercised prior to the
initial public offering resulting in net proceeds to the Company of $1,050,000.
Concurrent with the initial public offering, each of the 860,593 shares of
Series B convertible preferred shares and each of the 600,000 shares of Series D
convertible preferred shares outstanding were converted into 8,763,558 shares of
the Company's ordinary shares. Net proceeds of the initial public offering were
approximately $53.0 million.
SHARE REPURCHASE PROGRAM
In June 1998, the Company's wholly-owned subsidiary, GTI, commenced a
program to buy an aggregate of up to five percent of the ordinary shares of the
Company. During 1998, GTI acquired 455,200 ordinary shares for an aggregate
purchase price of $2,203,000. No additional ordinary shares were repurchased
during 1999. Such repurchased ordinary shares were accounted for as treasury
shares and resulted in a reduction of shareholders' equity. When treasury shares
were reissued, the Company used a last-in, first-out method and the excess of
the repurchase cost over the reissuance price was treated as a reduction of
retained earnings. As of December 31, 1999, all of the Company's treasury shares
have been reissued.
OPTIONS AND SHARE PURCHASE RIGHTS
In 1993, the Company issued 3,000,000 ordinary shares to an independent
trustee (the "Trust Arrangement"). The shares under the Trust Arrangement are
restricted for use under individual share purchase agreements and share options
to employees and consultants. No purchase rights or options have been granted
subsequent to 1997. The shares under the Trust Arrangement cannot be returned to
the Company, have voting and dividend rights, and are considered issued and
outstanding. The shares remain in trust until paid for pursuant to the exercise
of a purchase right or option grant.
In June 1997, the Company's shareholders approved the Galileo Technology
Ltd. 1997 Employees' Stock Option Plan (the "GTL Plan") under which the Company
is authorized to issue options to purchase ordinary shares to its Israeli
employees. Options granted under the GTL Plan expire eight years from the date
of grant and are subject to earlier termination upon termination of the
optionee's employment or other relationship with the Company. Unless otherwise
determined by the Board of Directors, one half of the optioned shares vest two
years from the date of grant and an additional 1/48th of the optioned shares
vest each month thereafter. ordinary shares subject to outstanding options that
expire or terminate prior to exercise will be available for future issuance
under the GTL Plan. Subject to applicable laws, the Board of Directors may amend
or modify the GTL Plan at any time. The GTL Plan will terminate in June 2005,
unless sooner terminated by the Board of Directors.
17
18
The Galileo Technology Ltd. 1997 GTI Stock Option Plan amended and
restated the GTI Stock Option Plan (together, the "GTI Plan") under which the
Company is authorized to issue options to purchase shares to its U.S. employees.
The GTI Plan was approved by the Company's shareholders in June 1997. Ordinary
shares subject to outstanding options that expire or terminate prior to exercise
will be available for future issuance under the GTI Plan.
Under the GTI Plan, employees (including officers and directors) of GTI
may, at the discretion of the Board of Directors, be granted incentive stock
options to purchase ordinary shares at an exercise price not less than 100% of
the fair market value of such shares on the date of grant. The exercise price
for options to a 10% shareholder must not be less than 110% of the fair market
value of such shares on the grant date. Non-statutory stock options granted
pursuant to the GTI Plan must have an exercise price of not less than 85% of the
fair market value of such shares on the date of grant. The Board of Directors
has complete discretion to determine which eligible individuals are to receive
stock option grants, the number of shares subject to each such grant, the status
of any option as either an incentive option or a non-statutory option, the
vesting schedule for each option and the maximum term for which each option is
to remain outstanding. Unless otherwise determined by the Board of Directors,
one quarter of the optioned shares vest one year from the date of the grant and
an additional 1/48th of the optioned shares vest each month thereafter as long
as the holder continues to be an employee or consultant of GTI or the Company.
In August 1998, the Company's shareholders approved the Galileo
Technology Ltd. 1998 Nonemployee Directors' Stock Option Plan (the "Directors
Plan") under which the Company is authorized to issue options to purchase
ordinary shares to its nonemployee directors. Options granted under the
Directors Plan expire ten years from the date of grant and are subject to
earlier termination if the optionee ceases to be a director of the Company.
ordinary shares subject to outstanding options that expire or terminate prior to
exercise will be available for future issuance under the Directors Plan. The
Directors Plan will terminate in June 2008.
During 1998, the Company adopted two separate Option Exchange Programs
to allow employees to exchange their out-of-the-money options for new options
with an exercise price equal to the fair value of the Company's ordinary shares
on the date of the exchange. The first program resulted in a total of
approximately 1,328,000 options with a weighted average exercise price of $14.57
being exchanged for new options with an exercise price of $6.50. The second,
subsequent program resulted in a total of approximately 2,374,000 options with a
weighted average exercise price of $8.40 being exchanged for new options with an
exercise price of $3.50. The new options will continue to vest in accordance
with the original options' vesting schedules and cannot be exercised prior to
one year from the date of the exchange. These programs are reflected in the
following table as cancellations and grants.
As of December 31, 1999, 15,557,436 ordinary shares have been authorized
for issuance pursuant to options and purchase rights under the above terms. Of
these shares, 1,019,136 shares were available for future grant. The Board of
Directors has appointed officers of the Company to determine the allocation of
the shares between the plans.
As of December 31, 1999, 200,000 ordinary shares have been authorized
for issuance under the Directors Plan. Of these shares, 75,000 shares were
available for future grant.
18
19
A summary of option and purchase right activity is as follows:
ACTIVITY OUTSTANDING
-------------------------------- -------------------------------
WEIGHTED AVERAGE
TRUST NUMBER OF PURCHASE/
SHARE OPTIONS ARRANGEMENT SHARES EXERCISE PRICE
------------- ----------- --------- ----------------
Balance, January 1, 1997 1,111,200 3,446,262 4,557,462 $ 0.068
Grant of purchase rights or options 2,148,222 82,278 2,230,500 $ 8.755
Exercise of purchase rights or
options (229,102) (460,492) (689,594) $ 0.046
Forfeited and cancelled (57,000) -- (57,000) $ 2.523
---------- ---------- ----------
Balance, December 31, 1997 2,973,320 3,068,048 6,041,368 $ 3.255
Grant of options 6,413,302 -- 6,413,302 $ 6.034
Exercise of purchase rights or
options (563,724) (877,830) (1,441,554) $ 1.218
Forfeited and cancelled (3,783,028) -- (3,783,028) $10.540
---------- ---------- ----------
Balance, December 31, 1998 5,039,870 2,190,218 7,230,088 $ 2.435
Grant of options 3,163,113 -- 3,163,113 $17.542
Exercise of purchase rights or
options (1,259,697) (1,144,897) (2,404,594) $ 2.553
Forfeited and cancelled (391,813) -- (391,813) $ 3.807
---------- ---------- ----------
Balance, December 31, 1999 6,551,473 1,045,321 7,596,794 $ 8.797
========== ========== ========== =======
Exercisable at:
December 31, 1999 2,124,238 $ 3.099
========== =======
December 31, 1998 1,880,954 $ 0.270
========== =======
December 31, 1997 2,114,636 $ 0.068
========== =======
The options and purchase rights outstanding at December 31, 1999 have
been segregated into ranges of exercise prices as follows:
OUTSTANDING EXERCISABLE
-------------------------------------------------------------------------------
NUMBER OF WEIGHTED-AVERAGE WEIGHTED-AVERAGE NUMBER OF
OPTIONS/ REMAINING PURCHASE/ OPTIONS/
RANGE OF EXERCISE PURCHASE CONTRACTUAL EXERCISE PURCHASE WEIGHTED-AVERAGE
PRICES RIGHTS LIFE PRICE RIGHTS EXERCISE PRICE
----------------- ---------- ---------------- ---------------- --------- ----------------
$ 0.001--$ 2.500 1,447,236 6.7 $ 0.358 801,825 $ 0.230
$ 3.500 1,978,936 8.1 $ 3.500 830,921 $ 3.500
$ 4.125--$ 9.688 1,520,591 8.8 $ 6.209 438,943 $ 6.574
$10.250--$20.500 1,035,070 9.4 $13.941 52,549 $11.500
$21.063--$29.063 1,614,961 9.7 $21.996 -- $ --
--------- ---------
$ 0.001--$29.063 7,596,794 8.8 $ 8.797 2,124,238 $ 3.099
========= ======= ======= ========= =======
The weighted average fair value of purchase rights and options granted
during 1999, 1998 and 1997 was $12.37, $3.30 and $4.58, respectively. In 1997,
the Company granted 797,400 purchase rights or options at below deemed fair
value with a weighted average exercise
19
20
price of $1.15 and a weighted average fair value of $2.20. Deferred compensation
of approximately $1,086,000 was recorded in connection with these grants.
PRO FORMA DISCLOSURES
Pro forma information regarding net income and earnings per share is
required by SFAS 123, which also requires that the information be determined as
if the Company had accounted for its employee share options granted subsequent
to December 31, 1994 under the fair value method of that statement. The fair
value for these options was estimated at the date of grant using the
Black-Scholes option pricing model using a graded vesting approach with the
following assumptions for 1999, 1998 and 1997: risk-free interest rates of 5% to
6.25%; no dividend yield; weighted-average expected term of the option of
approximately three years for options granted in 1999 and 1998, respectively and
approximately four years for options granted in 1997; and volatility of 0.83,
0.85 and 0.71, respectively.
The Black-Scholes option pricing model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected share price
volatility.
Because the Company's employee share options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee share options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands, except for per share information):
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
------- ------- -------
Net income as reported $26,109 $15,450 $10,336
Pro forma net income $11,995 $ 9,907 $ 8,291
Pro forma earnings per share:
Basic $ 0.29 $ 0.24 $ 0.26
Diluted $ 0.28 $ 0.24 $ 0.22
Shares used in calculating pro forma
earnings per share:
Basic 41,233 40,698 31,896
Diluted 43,565 41,528 37,728
20
21
EMPLOYEE STOCK PURCHASE PLAN
On January 6, 1998, the shareholder's approved the Galileo Technology
Ltd. 1997 Employee Stock Purchase Plan (the "ESPP"). The ESPP permits eligible
employees to purchase shares at a price equal to 85% of the lower of the fair
market value at the beginning or end of each offering period. As of December 31,
1999, a total of 103,043 shares have been reserved for further issuance under
the ESPP. During 1999 and 1998, respectively, there were 83,189 and 56,388
shares issued under the ESPP. The number of shares reserved for issuance under
the ESPP automatically increases by 105 percent of the number of shares
purchased under the ESPP in the previous calendar year. The increase is effected
each year on January 1.
ORDINARY SHARES RESERVED FOR FUTURE ISSUANCE
As of December 31, 1999, approximately 7,748,652 ordinary shares are
reserved for future issuance under the Company's share option plans and the
ESPP.
9. NONQUALIFIED DEFERRED COMPENSATION PLAN
During 1998, the Company adopted a nonqualified deferred compensation
plan. This plan allows officers and certain other employees of the Company to
defer all or part of their compensation, to be paid to the participants or their
designated beneficiaries upon retirement, death or separation from the Company.
The amount of compensation deferred and related investment earnings are held in
an irrevocable rabbi trust and is included in other assets in the Company's
balance sheet. The offsetting liability is included in other liabilities
reflecting the amounts due employees.
10. INCOME TAXES
The tax provision consists of the following (in thousands):
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
------- ------- -----
Current:
United States $ 924 $ 1,140 $ 800
Israel -- -- --
------- ------- -----
924 1,140 800
Deferred:
United States 456 (380) (642)
Israel -- -- --
------- ------- -----
456 (380) (642)
======= ======= =====
$ 1,380 $ 760 $ 158
Tax benefits resulting from the exercise of nonqualified share options
and the disqualifying dispositions of shares acquired under the Company's
employee share option plans reduced United States taxes currently payable as
shown above by approximately $698,000, $738,000 and $132,000 for 1999, 1998 and
1997 respectively. Such benefit was credited to shareholders' equity.
21
22
The Company has been granted "Approved Enterprise" status by the Israeli
Government under the Law for the Encouragement of Capital Investments, 1959 (the
"Investment Law"). The Approved Enterprise status will allow the Company a tax
holiday on undistributed Israeli income. The benefits under these investment
plans are scheduled to fully expire in 2006.
In the event of distribution of cash dividends from income which is tax
exempt due to the above, the Company would have to pay tax at the rate of 20% on
an amount equal to the amount distributed. The Company currently has no plans to
distribute dividends and intends to retain future earnings to finance the
development of its business. The tax exempt income attributable to the Approved
Enterprise can be distributed to shareholders without subjecting the Company to
taxes only upon the complete liquidation of the Company. All of the Company's
retained earnings are attributable to the Company's "approved enterprises" and
are not available for distribution without the payment of tax. Should all of the
earnings be distributed, the Company would be required to pay $10.7 million in
taxes.
The entitlement to the above tax holiday is conditional upon the
Company's fulfilling the conditions stipulated by the Investment Law,
regulations published thereunder and the instruments of approval for the
specific investments in Approved Enterprises. In the event of a failure to
comply with these conditions, the benefits may be canceled and the Company may
be required to refund the amount of the benefits, in whole or in part, with the
addition of CPI-adjustment differences and interest. The Company's management
believes that the Company is in compliance with all of the required terms.
Israeli taxable income not eligible for "Approved Enterprise" benefits
mentioned above is taxed at the regular corporate tax rate of 36% in 1999, 1998
and 1997.
Pretax income from foreign (U.S.) operations was $1,659,000 in 1999,
$1,103,000 in 1998 and $550,000 in 1997.
A reconciliation between the Company's effective tax rate and the
Israeli statutory rate is as follows (in thousands):
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
-------- -------- --------
Income before provision for income taxes $ 27,489 $ 16,210 $ 10,494
Statutory Israeli rate 36% 36% 36%
Expected tax (benefit) $ 9,896 $ 5,836 $ 3,778
"Approved Enterprise" benefit (9,896) (5,836) (3,778)
United States tax on foreign (U.S.) operations, net 1,380 760 158
-------- -------- --------
$ 1,380 $ 760 $ 158
======== ======== ========
The per share basic and diluted benefit of the Israeli "Approved
Enterprise" benefit is $0.24 and $0.22, respectively, for 1999, $0.14 for 1998,
and $0.12 and $0.10, respectively, for 1997.
22
23
Significant components of the Company's deferred tax assets are as
follows (in thousands):
December 31,
----------------------
1998 1999
----- -------
Deferred tax assets:
Certain accrued expenses and reserves that are not currently
deductible for income tax purposes $ 506 $ 731
Compensation expense not currently deductible 70 394
Other, net (9) (46)
----- -------
Total deferred assets 567 1,079
Valuation allowance -- (56)
----- -------
Net deferred tax assets $ 567 $ 1,023
===== =======
The valuation allowance decreased by $94,000 and $100,000 during 1998
and 1997, respectively.
11. GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS
The Company and its subsidiaries operate in one segment, principally the
definition, development and marketing of semiconductor devices for the data
communication market. Operations in Israel include research and development and
production contracting. Operations in the U.S. include marketing and sales. The
following is a summary of operations within geographic areas (in thousands).
Revenue is attributed to the geographic area in which the sale originates.
Long-lived assets primarily represent property and equipment, net.
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
------- ------- -------
Revenues from external customers:
United States $79,654 $51,589 $36,505
Israel 63 54 --
------- ------- -------
$79,717 $51,643 $36,505
======= ======= =======
Long-lived assets:
United States $ 602 $ 543
Israel 9,091 4,773
------- -------
$ 9,693 $ 5,316
======= =======
12. SUBSEQUENT EVENTS
On February 29, 2000, the Company announced that it expects to record
non-recurring charges of approximately $2.5 million in the quarter ended March
31, 2000. These charges will reflect increased inventory reserve requirements
and the write off of investments and intellectual property for discontinued
projects that no longer fit with the Company's business strategies.
23
24
GALILEO UNAUDITED FINANCIAL STATEMENTS AS OF
DECEMBER 31, 1999 AND FOR THE YEAR THEN ENDED
GALILEO TECHNOLOGY LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. DOLLARS, IN THOUSANDS)
September 30, December 31,
2000 1999
--------- ---------
(Unaudited) (1)
ASSET
Current assets:
Cash and cash equivalents $ 71,483 $ 42,648
Short-term investments 39,946 63,005
Accounts receivable, net 12,599 12,523
Inventories 12,875 8,094
Prepaid expenses and other assets 3,238 3,049
--------- ---------
Total current assets 140,141 129,319
Other assets 11,090 2,031
Property and equipment, net 16,236 9,388
--------- ---------
Total assets $ 167,467 $ 140,738
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,274 $ 6,495
Accrued and other liabilities 10,024 8,969
Deferred income 3,948 1,817
--------- ---------
Total current liabilities 25,246 17,281
Accrued severance pay 651 500
Other liabilities 1,652 1,652
Commitments
Shareholders' equity:
Ordinary shares 78,010 74,440
Deferred compensation (67) (432)
Accumulated other comprehensive income (loss) 153 (124)
Retained earnings
Total shareholders' equity 61,822 47,421
--------- ---------
139,918 121,305
--------- ---------
Total liabilities and shareholders' equity $ 167,467 $ 140,738
========= =========
(1) The balance sheet at December 31, 1999 has been derived from audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
24
25
GALILEO TECHNOLOGY LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
Net sales $28,786 $22,024 $73,256 $55,447
Cost of sales 11,489 7,620 30,308 19,314
------- ------- ------- -------
Gross profit 17,297 14,404 42,948 36,133
Operating expenses:
Research and development 7,016 4,689 18,995 11,653
Selling,
marketing and administrative 4,761 3,404 12,709 8,786
Total operating expenses 11,777 8,093 31,704 20,439
------- ------- ------- -------
Operating income 5,520 6,311 11,244 15,694
Other income (expense), net 1,509 1,123 3,915 3,415
------- ------- ------- -------
Income before provision for income
taxes 7,029 7,434 15,159 19,109
Provision for income taxes 350 375 758 955
------- ------- ------- -------
Net income $ 6,679 $ 7,059 $14,401 $18,154
======= ======= ======= =======
Earnings per share:
Basic $ 0.16 $ 0.17 $ 0.34 $ 0.44
======= ======= ======= =======
Diluted $ 0.15 $ 0.16 $ 0.32 $ 0.41
======= ======= ======= =======
Shares used in computing
earnings per share:
Basic 42,816 41,472 42,543 41,059
======= ======= ======= =======
Diluted 45,906 45,399 45,401 44,676
======= ======= ======= =======
See accompanying notes.
25
26
GALILEO TECHNOLOGY LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(U.S. dollars, in thousands)
(Unaudited)
Nine Months Ended
September 30, September 30,
2000 1999
------------- -------------
Cash flows from operating activities
Net income $ 14,401 $ 18,154
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and other
Amortization of deferred compensation 3,681 2,012
Changes in operating assets and liabilities: 365 383
Accounts receivable (76) (5,783)
Inventories (4,781) (3,995)
Prepaid expenses and other assets (189) (1,328)
Accounts payable 4,779 6,123
Accrued and other liabilities 1,055 2,366
Deferred income 2,131 709
Accrued severance pay and other liabilities 151 124
-------- --------
Net cash provided by operating activities 21,517 18,765
Cash flows from investing activities
Purchases of short-term investments (6,800) (28,022)
Maturities of short-term investments 30,136 11,462
Purchases of property and equipment (10,529) (5,187)
Other assets (9,059) (51)
-------- --------
Net cash provided by (used in) investing activities 3,748 (21,798)
Cash flows from financing activities
Proceeds from issuance of ordinary shares 3,704 2,990
Repurchase of treasury shares (134) --
Repayment of long-term debt -- (124)
-------- --------
Net cash provided by financing activities 3,570 2,866
Net increase (decrease) in cash and cash equivalents 28,835 (167)
Cash and cash equivalents at beginning of period 42,648 45,607
-------- --------
Cash and cash equivalents at end of period $ 71,483 $ 45,440
======== ========
See accompanying notes.
26
27
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation:
The condensed consolidated financial statements have been prepared by
Galileo Technology Ltd. and include the accounts of Galileo Technology Ltd. and
its wholly-owned subsidiaries ("Galileo" or collectively the "Company"). Certain
information and footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
the Company, the financial statements reflect all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
financial position at September 30, 2000 and December 31, 1999, and the
operating results and cash flows for the reported periods. These financial
statements and notes should be read in conjunction with the Company's audited
financial statements and notes thereto for the year ended December 31, 1999,
which were filed with the Securities and Exchange Commission on Form 20-F.
The results of operations for the three and nine months ended September
30, 2000 are not necessarily indicative of the results that may be expected for
the future quarters or the year ending December 31, 2000.
2. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
----------------------- -----------------------
2000 1999 2000 1999
Numerator used for both basic and
diluted earnings per share - net income $ 6,679 $ 7,059 $14,398 $18,154
Denominator for basic earnings per
share-Weighted average shares 42,816 41,472 42,543 41,059
------- ------- ------- -------
Denominator for diluted earnings per share:
Weighted average shares 42,816 41,472 42,543 41,059
Effect of dilutive securities-Employee
share options 3,090 3,927 2,858 3,617
------- ------- ------- -------
45,906 45,399 45,401 44,676
======= ======= ======= =======
Earnings per share:
Basic $ 0.16 $ 0.17 $ 0.34 $ 0.44
======= ======= ======= =======
Diluted $ 0.15 $ 0.16 $ 0.32 $ 0.41
======= ======= ======= =======
Potentially dilutive securities excluded
from computations as the effect would be
antidilutive 270 26 1,467 50
======= ======= ======= =======
27
28
3. Inventories
Inventories are stated at the lower of cost or market value. Cost is
determined by the first-in, first-out (FIFO) method. Substantially all of the
inventories are finished goods.
4. Comprehensive Income
Total comprehensive income for the three months ended September 30, 2000
and 1999 was $6,444,000 and $7,087,000, respectively. For the nine months ended
September 30, 2000 and 1999, total comprehensive income was $14,678,000 and
$18,024,000, respectively. Other comprehensive income represents the net change
in unrealized gain (loss) on available-for-sale investments.
5. Segment Information
The Company and its subsidiaries operate in one segment, principally the
definition, development and marketing of semiconductor devices for the
communications market. Operations in Israel include research and development and
production contracting. Operations in the U.S. include marketing and sales.
6. Stock Split
On September 17, 1999, the Company effected a two-for-one stock split in
the form of a stock dividend. Accordingly, all references to share and per-share
data for all periods presented have been adjusted to reflect this event.
7. New Accounting Standards
In June 1999, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133." This
Statement defers for one year the effective date of Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). The
rule will now apply for fiscal years beginning after June 15, 2000. Because of
the Company's minimal use of derivatives, the Company does not anticipate that
the adoption of SFAS 133 will have a significant effect on the Company's
consolidated results of operations or financial position.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 summarizes certain areas of the SEC's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. The Company believes that its current revenue recognition policies
comply with SAB 101.
8. Subsequent Event
On October 16, 2000, the Company entered into a Merger Agreement with
Marvell Technology Group Ltd., a corporation organized under the laws of
Bermuda, and Toshack Acquisitions Ltd., a wholly-owned subsidiary of Marvell.
The Merger Agreement provides that,
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subject to the terms and conditions set forth therein, Toshack Acquisitions will
merge with and into the Company and the Company will become a direct
wholly-owned subsidiary of Marvell. At the effective time of the merger, each
outstanding ordinary share of the Company will be converted into the right to
receive 0.674 shares of common stock of Marvell.
(b) Pro Forma Financial Information
The Unaudited Pro Forma Combined condensed Financial Information,
including the notes thereto, included under the heading "Unaudited Pro Forma
Combined Condensed Financial Information" on pages 92 through 97, inclusive, of
Amendment No. 1 to the registration statement on Form S-4 of the Registrant
(Registration No. 333-50206) filed with the Securities and Exchange Commission
on December 12, 2000, is incorporated herein by reference.
(c) Exhibits
2.1 Agreement of Merger, as amended, by and among Marvell Technology Group
Ltd., Galileo Technology Ltd. and Toshack Acquisitions Ltd., dated as of
October 16, 2000 (incorporated by reference to Exhibit 2.1 of the
Registrant's registration statement on Form S-4 (Registration No.
333-50206)).
23.1 Consent of Ernst & Young LLP, Independent Auditors
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Date: March 16, 2001
MARVELL TECHNOLOGY GROUP LTD.
By: /s/ Sehat Sutardja
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Sehat Sutardja
President and Chief Executive Officer
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EXHIBIT INDEX
Exhibit No. Document
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Exhibit 2.1 Agreement of Merger, as amended, by and among Marvell Technology
Group Ltd., Galileo Technology Ltd. and Toshack Acquisitions
Ltd., dated as of October 16, 2000 (incorporated by reference to
Exhibit 2.1 of the Registrant's registration statement on Form
S-4 (Registration No. 333-50206)).
Exhibit 23.1 Consent of Ernst & Young LLP, Independent Auditors