Marvell Technology Group (MRVL)

Net Cash Provided by Operating Activities (restated)

During fiscal 2007, net cash provided by operating activities was $337.3 million for fiscal 2007 compared to $402.3 million for fiscal 2006 and $221.5 million for fiscal 2005. The cash inflows from operations in fiscal 2007 were primarily the result of our generation of income during the period and changes in working capital. Non-cash charges in fiscal 2007 included $110.0 million related to amortization of acquired intangible assets and other, $77.2 million of depreciation and amortization expense, $192.1 million of stock-based compensation and $77.8 million of acquired in-process research and development. Significant working capital changes contributing to positive cash flows in fiscal 2007 included an increase of $48.4 million in accounts payable resulting primarily from amounts due to our suppliers relating to increased inventory purchases during fiscal 2007 as well as higher overall spending activity related to our expanding operations, an increase of $30.2 million in income tax payable resulting from taxable income for fiscal 2007 and an increase of $21.1 million in deferred income resulting from an increase in the number of distributors as well as increased shipments of product to our distributors.

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Net Cash Provided by Operating Activities (Restated)

Net cash provided by operating activities was $215.0 million for the six months ended July 29, 2006 compared to $181.0 million for the six months ended July 30, 2005. The cash inflows from operations in the six months of fiscal 2007 was primarily a result of our generation of income during the period and changes in working capital. Non-cash charges in the first six months of fiscal 2007 included $44.8 million related to amortization of acquired intangible assets, $32.6 million of depreciation and amortization expense and $104.4 million of stock-based compensation.  Significant working capital changes contributing to positive cash inflow in the first six months of fiscal 2007 included an increase of $25.4 million in income tax payable resulting from higher taxable income in the first six months of fiscal 2007 and an increase in accounts payable of $15.5 million resulting primarily from amounts due to our suppliers relating to increased inventory purchases as well as higher overall spending activity related to our expanding operations.  Inventory

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decreased $7.1 million, primarily as a result of the build up of inventory to support our increasing revenue and additional inventory from our acquisitions.  The number of days in inventory has increased at the end of the second quarter of fiscal 2007 to 75 days compared to 56 days at the end of the second quarter of fiscal 2006 due primarily to a higher comparable inventory balance at the end of each respective quarter.  We expect the number of days in inventory to fluctuate in the range of approximately 60 to 75 days depending on our wafer starts and the inventory purchase needs of our customers as well as lead times and competitive situations in the marketplace.

Significant working capital changes offsetting positive cash flows in the first six months of fiscal 2007 included an increase in accounts receivable of $97.6 million primarily due to higher total net revenue in the first six months of fiscal 2007 compared to the first six months of fiscal 2006. Accounts receivable increased and the days sales outstanding, or DSO, metric increased to 54 days at the end of fiscal 2007 compared to 48 days at the end of fiscal 2006.  Many of our larger customers have regularly scheduled payment dates with some of the dates falling immediately before or after our fiscal quarter-end. As a result, our accounts receivable balance and DSO may fluctuate depending on the timing of large payments made by our customers.  Also contributing to working capital changes offsetting positive cash flow in the first six months of fiscal 2007 was an increase in prepaid expenses and other current assets of $28.5 million due primarily to payments made in connection with a capacity reservation agreement with a foundry.

Net cash provided by operating activities was $181.0 million for the six months ended July 30, 2005.  The cash inflow from operations in the six months of fiscal 2006 was primarily a result of our generation of income during the period and changes in working capital. Non-cash charges in the first six months of fiscal 2006 included $39.5 million related to amortization of acquired intangible assets, $27.6 million of depreciation and amortization expense and $39.2 million of stock-based compensation.  Significant working capital changes contributing to positive cash inflow in the first six months of fiscal 2006 included an increase in income taxes payable of $18.1 million resulting from higher taxable income in the first six months of fiscal 2006 and a decrease in inventory of $14.7 million, primarily as a result of the timing of wafer starts at foundries, as well as increased cycle times from our foundry vendors.

Significant working capital changes offsetting positive cash flows in the first six months of fiscal 2006 included an increase in prepaid and other assets of $65.3 million due primarily to a $60.0 million payment in connection with a capacity reservation agreement with a foundry.  Also contributing to working capital changes offsetting positive cash flow in the first six months of fiscal 2006 was an increase in accounts receivable of $9.3 million primarily due to higher total net revenue in the first six months of fiscal 2006 compared to the first six months of fiscal 2005

 Due to the nature of our business, we experience working capital needs for accounts receivable and inventory. We typically bill customers on an open account basis with net thirty to sixty day payment terms. If our sales levels were to increase as they have in prior fiscal years, it is likely that our levels of accounts receivable would also increase. Our levels of accounts receivable would also increase if customers delayed their payments or if we offered extended payment terms to our customers. Additionally, in order to maintain an adequate supply of product for our customers, we must carry a certain level of inventory. Our inventory level may vary based primarily upon orders received from our customers and our forecast of demand for these products, as well as the initial production ramp for significant design wins. Other considerations in determining inventory levels may include the product life cycle stage of our products, foundry lead times and available capacity, and competitive situations in the marketplace. Such considerations are balanced against risk of obsolescence or potentially excess inventory levels.

Net Cash Provided by Operating Activities (restated)

Net cash provided by operating activities was $46.7 million for the three months ended April 29, 2006 compared to $68.9 million for the three months ended April 30, 2005. The cash inflows from operations in the three months of fiscal 2007 was primarily a result of our generation of income during the period and changes in working capital. Non-cash charges in the first three months of fiscal 2007 included $17.4 million related to amortization of acquired intangible assets, $15.6 million of depreciation and amortization expense and $48.8 million of stock-based compensation.  Significant working capital changes contributing to positive cash inflow in the first three months of fiscal 2007 included an increase of $15.1 million in income tax payable resulting from higher taxable income in the first three months of fiscal 2007 and a decrease in inventory of $8.7 million, primarily as a result of a reduction in wafer starts.  The number of days in inventory has increased at the end of the first quarter of fiscal 2007 to 77 days compared to 58 days at the end of the first quarter of fiscal 2006 due primarily to a higher comparable inventory balance at the end of each respective quarter.  We expect the number of days in inventory to fluctuate in the range of approximately 60 to 75 days depending on our wafer starts and the inventory purchase needs of our customers as well as lead times and competitive situations in the marketplace.

Significant working capital changes offsetting positive cash flows in the first three months of fiscal 2007 included an increase in accounts receivable of $48.4 million primarily due to higher total net revenue in the first three months of fiscal 2007 compared to the first three months of fiscal 2006. Although accounts receivable increased, the days sales outstanding, or DSO, metric has remained consistent in the first three months of both fiscal 2007 and 2006 at 51 days.  Many of our larger customers have regularly scheduled payment dates with some of the dates falling immediately before or after our fiscal quarter-end. As a result, our accounts receivable balance and DSO may fluctuate depending on the timing of large payments made by our customers.  Also contributing to working capital changes offsetting positive cash flow in the first three months of fiscal 2007 was a decrease in accounts payable of $45.9 million due to payments on outstanding balances and an increase in prepaid and other assets of $25.8 million due primarily to a $23.0 million payment in connection with a capacity reservation agreement with a foundry.

Net cash provided by operating activities was $68.9 million for the three months ended April 30, 2005. The cash inflow from operations in the first three months of fiscal 2006 was primarily a result of our generation of income during the period and changes in working capital. Non-cash charges in the first three months of fiscal 2006 included $19.8 million related to amortization of acquired intangible assets, $13.4 million of depreciation and amortization expense and $9.6 million of amortization of stock-based compensation.  Significant working capital changes contributing to positive cash inflow in the first three months of fiscal 2006 included a decrease in inventory of $15.7 million, primarily as a result of better visibility of forecasted demand, as well as reduced cycle times from our foundry vendors.  Accordingly, the number of days in inventory decreased at the end of the first quarter of fiscal 2006 to 58 days compared to 76 days at the end of the first quarter of fiscal 2005.  Other working capital changes contributing to positive cash inflow in the first three months of fiscal 2006 included an increase of $8.1 million in income tax payable resulting from higher taxable income in the first three months of fiscal 2006 and an increase of $2.6 million in deferred income due to increased shipments of product to distributors during the first quarter of fiscal 2006.

Significant working capital changes offsetting positive cash flows in the first three months of fiscal 2006 included an increase in prepaid and other assets of $43.8 million due primarily to a $37.0 million payment in connection with a capacity reservation agreement with a foundry.  Also contributing to working capital changes offsetting positive cash flow in the first three months of fiscal 2006 was a decrease in accounts payable of $7.4 million due to payments on outstanding balances and the decrease in inventory balances and an increase in accounts receivable of $4.2 million primarily due to higher total net revenue in the first three months of fiscal 2006 compared to the first three months of fiscal 2005.

Due to the nature of our business, we experience working capital needs for accounts receivable and inventory. We typically bill customers on an open account basis with net thirty to sixty day payment terms. If our sales levels were to increase as they have in prior fiscal years, it is likely that our levels of accounts receivable would also increase. Our levels of accounts receivable would also increase if customers delayed their payments or if we offered extended payment terms to our customers. Additionally, in order to maintain an adequate supply of product for our customers, we must carry a certain level of inventory. Our inventory level may vary based primarily upon orders received from our customers and our forecast of demand for these products, as well as the initial production ramp for significant design wins. Other considerations in determining inventory levels may include the product life cycle stage of our products, foundry lead times and available capacity, and competitive situations in the marketplace. Such considerations are balanced against risk of obsolescence or potentially excess inventory levels.

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Net Cash Provided by Operating Activities (Restated)

Net cash provided by operating activities was $346.5 million for the nine months ended October 28, 2006 compared to $266.2 million for the nine months ended October 28, 2005. The cash inflows from operations in the nine months of fiscal 2007 was primarily a result of our generation of income during the period and changes in working capital. Non-cash charges in the first nine months of fiscal 2007 included $72.2 million related to amortization of acquired intangible assets, $52.5 million of depreciation and amortization expense and $146.5 million of stock-based compensation.  Significant working capital changes contributing to positive cash inflow in the first nine months of fiscal 2007 included an increase of $29.1 million in income tax payable resulting from higher taxable income in the first nine months of fiscal 2007 and an increase in accrued liabilities of $13.8 million resulting primarily from accruals for contingent consideration in connection with our acquisitions.  Inventory increased $10.3 million, primarily as a result of the build up of inventory to support our increasing revenue and additional inventory from our acquisitions.  The number of days in inventory has increased at the end of the third quarter of fiscal 2007 to 81 days compared to 68 days at the end of the third quarter of fiscal 2006 due primarily to a higher comparable inventory balance at the end of each respective quarter.  We expect the number of days in inventory to fluctuate in the range of approximately 70 to 80 days depending on our wafer starts and the inventory purchase needs of our customers as well as lead times and competitive situations in the marketplace.

Significant working capital changes offsetting positive cash flows in the first nine months of fiscal 2007 included an increase in prepaid expenses and other current assets of $51.8 million due primarily to payments made in connection with a capacity reservation agreement with a foundry.  Also contributing to working capital changes offsetting positive cash flow in the first nine months of fiscal 2007 was an increase in accounts receivable of $49.1 million primarily due to higher total net revenue in the first nine months of fiscal 2007 compared to the first nine months of fiscal 2006. Although accounts receivable increased, the days sales outstanding, or DSO, metric decreased to 51 days at the end of the third quarter of fiscal 2007 from 54 days at the end of the third quarter of 2006.  Many of our larger customers have regularly scheduled payment dates with some of the dates falling immediately before or after our fiscal quarter-end. As a result, our accounts receivable balance and DSO may fluctuate depending on the timing of large payments made by our customers.

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Net cash provided by operating activities was $263.9 million for the nine months ended October 29, 2005.  The cash inflow from operations in the nine months of fiscal 2006 was primarily a result of our generation of income during the period and changes in working capital. Non-cash charges in the first nine months of fiscal 2006 included $59.3 million related to amortization of acquired intangible assets, $41.8 million of depreciation and amortization expense and $48.8 million of stock-based compensation expense.  Significant working capital changes contributing to positive cash inflow in the first nine months of fiscal 2006 included an increase in accounts payable of $60.4 million resulting from the overall increase in activity and inventory levels, an increase in income taxes payable of $29.6 million resulting from higher taxable income in the first nine months of fiscal 2006 and an increase in deferred income of $9.9 million due to the increase in inventory levels at distributors to replenish and build up inventory for year-end sales as well as new distributors building up inventory.

Significant working capital changes offsetting positive cash flows in the first nine months of fiscal 2006 included an increase in prepaid and other assets of $105.0 million due primarily to an $83.0 million payment in connection with a capacity reservation agreement with a foundry, a $12.3 million security deposit for long-term assets under construction and a $10.6 million receivable from a foundry for reimbursements under a capacity reservation agreement.  Also contributing to working capital changes offsetting positive cash flow in the first nine months of fiscal 2006 was an increase in accounts receivable of $52.4 million primarily due to higher total net revenue in the first nine months of fiscal 2006 compared to the first nine months of fiscal 2005.  Inventory also increased $21.0 million, primarily as a result of additional wafer starts to meet forecasted demand and build in buffer stock to compensate for longer foundry lead times.

Due to the nature of our business, we experience working capital needs for accounts receivable and inventory. We typically bill customers on an open account basis with net thirty to sixty day payment terms. If our sales levels were to increase as they have in prior fiscal years, it is likely that our levels of accounts receivable would also increase. Our levels of accounts receivable would also increase if customers delayed their payments or if we offered extended payment terms to our customers. Additionally, in order to maintain an adequate supply of product for our customers, we must carry a certain level of inventory. Our inventory level may vary based primarily upon orders received from our customers and our forecast of demand for these products, as well as the initial production ramp for significant design wins. Other considerations in determining inventory levels may include the product life cycle stage of our products, foundry lead times and available capacity, and competitive situations in the marketplace. Such considerations are balanced against risk of obsolescence or potentially excess inventory levels.