This excerpt taken from the MRVL 8-K filed Jul 2, 2007.
Direct Operating Expenses
The caption direct operating expenses on the accompanying statements of net revenues and direct expenses represents the total direct expenses recorded within or allocated to the Business. Not all of the research, development, sales, general and administrative expenses for the Business were recorded in accounts or cost centers exclusively related to the Business. Certain research, development, sales, and general and administrative costs were extracted or allocated from Intel accounts based upon specifically identifiable cost centers associated with the activities of the Business. These cost centers capture a portion of the Business total operating expenses. All other operating expenses, including portions of research, development, sales, and general and administrative expenses, are allocations based primarily on headcount, normalized square footage, revenue, direct attribution of costs to the Business, or other applicable metrics. Certain allocation methodologies were changed during the periods presented to reflect the effect of reorganizations of Intels operating segments and other circumstances. Allocation methodologies are consistent with Intel policies that existed during the periods presented and have not been restated to reflect consistent allocation methodologies across the periods presented. Management believes the allocation of operating expenses captured in accounts or cost centers not exclusive to the Business fairly reflect the direct operating expenses of the Business. Additionally, the Business statements of net revenues and direct expenses also exclude allocations of gains or losses on derivative instruments, interest income, interest expense, and income taxes. The Business selling, general and administrative expenses also include allocations for certain corporate-related activities incurred by Intel such as human resources, finance, legal, and sales and marketing support.
Total allocations were $88,100,000, $135,753,000, and $94,216,000 for 2005, 2004, and 2003, respectively. Total allocations were $46,533,000 (unaudited) and $49,065,000 (unaudited) for the six months ended July 1, 2006 and July 2, 2005, respectively.
The direct operating expenses are not necessarily indicative of the expenses that would have been incurred had the Business operated as a separate stand-alone company during the periods presented. It is not practical for management to reasonably estimate the expenses that would have been incurred had the Business operated as an unaffiliated independent business.
Advertising costs are expensed as incurred and totaled $1,532,000, $2,054,000, and $1,165,000 for 2005, 2004, and 2003, respectively. Advertising costs totaled $821,000 (unaudited) and $724,000 (unaudited) for the six months ended July 1, 2006 and July 2, 2005, respectively.