SKYWORKS SOLUTIONS, INC.
10-Qs and 10-Ks
PROXIES
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended October 1, 2010
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
to
Commission file number 001-5560
SKYWORKS SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
|
Delaware
(State or other jurisdiction of incorporation or organization) |
04-2302115
(I.R.S. Employer Identification No.) |
|
|
20 Sylvan Road, Woburn, Massachusetts
(Address of principal executive offices) |
01801
(Zip Code) |
Registrant’s telephone number, including area code:
(781) 376-3000
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Name of Each Exchange on Which Registered | |
| Common Stock, par value $0.25 per share | NASDAQ Global Select Market | |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
þ Yes o No
þ Yes o No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
15(d) of the Act.
o Yes þ No
o Yes þ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
þ Yes o No
þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
þ
Yes
o
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
þ
Indicate by check mark whether the registrant is large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated
filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer þ | Accelerated filer o |
Non-accelerated filer
o
(Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o Yes þ No
o Yes þ No
The aggregate market value of the registrant’s common stock held by non-affiliates of the
registrant (based on the closing price of the registrant’s common stock as reported on the NASDAQ
Global Select Market on the last business day of the registrant’s most recently completed second
fiscal quarter (April 2, 2010) was approximately $2,716,065,796. The number of outstanding shares
of the registrant’s common stock, par value $0.25 per share, as of November 21, 2010 was
183,287,033.
DOCUMENTS INCORPORATED BY REFERENCE
| Part of Form 10-K | Documents from which portions are incorporated by reference | |
|
Part III
|
Portions of the Registrant’s Proxy Statement relating to the Registrant’s 2011 Annual Meeting of Stockholders (to be filed) are incorporated by reference into Items 10, 11, 12, 13 and 14 of this Annual Report on Form 10-K. |
SKYWORKS SOLUTIONS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED OCTOBER 1, 2010
FOR THE YEAR ENDED OCTOBER 1, 2010
TABLE OF CONTENTS
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CAUTIONARY STATEMENT
This Annual Report contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as
amended, and is subject to the “safe harbor” created by those sections.
Any
statements that are not statements of historical fact should be considered to be
forward-looking statements.
Words such as “believes”,
“expects”, “may”, “will”, “would”, “should”, “could”, “seek”, “intends”, “plans”, “projects”,
“potential”, “continue”, “estimates”, “targets”, “anticipates”, “predicts” and similar expressions
or variations or negatives of such words are intended to identify forward-looking statements, but
are not the exclusive means of identifying forward-looking statements in this Annual Report. Additionally, forward-looking statements include, but are not limited
to:
| • | our plans to develop and market new products, enhancements or technologies and the timing of these development programs; | ||
| • | our estimates regarding our capital requirements and our needs for additional financing; | ||
| • | our estimates of expenses and future revenues and profitability; | ||
| • | our estimates of the size of the markets for our products and services; | ||
| • | the rate and degree of market acceptance of our products; and | ||
| • | the success of other competing technologies that may become available. |
Although forward-looking statements in this Annual Report reflect the good faith judgment of our
management, such statements can only be based on facts and factors currently known by us.
Consequently, forward-looking statements involve inherent risks and uncertainties and actual
results and outcomes may differ materially and adversely from the results and outcomes discussed in
or anticipated by the forward-looking statements. A number of important factors could cause actual
results to differ materially and adversely from those in the forward-looking statements. We urge
you to consider the risks and uncertainties discussed elsewhere in this report and in the other
documents filed by us with the Securities and Exchange Commission (“SEC”) in evaluating our
forward-looking statements. We have no plans, and undertake no obligation, to revise or update our
forward-looking statements to reflect any event or circumstance that may arise after the date of
this report. We caution readers not to place undue reliance upon any such forward-looking
statements, which speak only as of the date made.
This Annual Report also contains estimates made by independent parties and by us relating to market
size and growth and other industry data. These estimates involve a number of assumptions and
limitations and you are cautioned not to give undue weight to such estimates. In addition,
projections, assumptions and estimates of our future performance and the future performance of the
industries in which we operate are necessarily subject to a high degree of uncertainty and risk due
to a variety of important factors, including those described in “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operation”. These and other factors
could cause results to differ materially and adversely from those expressed in the estimates made
by the independent parties and by us.
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In this document, the words “we”, “our”, “ours” and “us” refer only to Skyworks Solutions, Inc.,
and its consolidated subsidiaries and not any other person or entity. In addition, the following
industry standards are referenced throughout the document:
| • | CATV (Cable Television): a system of providing television to consumers via radio frequency signals transmitted to televisions through fixed optical fibers or coaxial cables as opposed to the over-the-air method used in traditional television broadcasting | |
| • | CDMA (Code Division Multiple Access): a method for transmitting simultaneous signals over a shared portion of the Radio Frequency (“RF”) spectrum | |
| • | EDGE (Enhanced Data Rates for GSM Evolution): an enhancement to the GSM and TDMA wireless communications systems that increases data throughput to 474Kbps | |
| • | GPRS (General Packet Radio Service): an enhancement to the GSM mobile communications system that supports transmission of data packets | |
| • | GSM (Global System for Mobile Communications): a digital cellular phone technology based on TDMA that is the predominant system in Europe, and is also used around the world | |
| • | LTE (Long Term Evolution): 4th generation (4G) radio technologies designed to increase the capacity and speed of mobile telephone networks | |
| • | RFID (Radio Frequency Identification): refers to the use of an electronic tag (typically referred to as an RFID tag) for the purpose of identification and tracking objects using radio waves | |
| • | Satcom (Satellite Communications): where a satellite stationed in space is used for the purpose of telecommunications | |
| • | TD-SCDMA (Time Division Synchronous Code Division Multiple Access): a 3G (third generation wireless services) mobile communications standard, being pursued in the People’s Republic of China | |
| • | WCDMA (Wideband CDMA): a 3G technology that increases data transmission rates | |
| • | WEDGE: an acronym for technologies that support both WCDMA and EDGE wireless communication systems | |
| • | WiMAX (Worldwide Interoperability for Microwave Access): a standards-based technology enabling the delivery of last mile wireless broadband access as an alternative to cable and DSL | |
| • | WLAN (Wireless Local Area Network): a type of local-area network that uses high-frequency radio waves rather than wires to communicate between nodes |
Skyworks, Breakthrough Simplicity, the star design logo, Intera and Trans-Tech are trademarks or
registered trademarks of Skyworks Solutions, Inc. or its subsidiaries in the United States and in
other countries. All other brands and names listed are trademarks of their respective companies.
PART l
ITEM 1. BUSINESS
Skyworks Solutions, Inc. together with its consolidated subsidiaries, (“Skyworks” or the “Company”)
is an innovator of high reliability analog and mixed signal semiconductors. Leveraging core
technologies, Skyworks offers diverse standard and custom linear products supporting automotive,
broadband, cellular infrastructure, energy management, industrial, medical, military and cellular
handset applications. The Company’s portfolio includes amplifiers, attenuators, detectors, diodes,
directional couplers, front-end modules, hybrids, infrastructure RF
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subsystems, mixers/demodulators, phase shifters, PLLs/synthesizers/VCOs, power dividers/combiners,
receivers, switches and technical ceramics.
We have aligned our product portfolio around two broad markets: cellular handsets and analog
semiconductors. In general, our handset portfolio includes highly customized power amplifiers and
front-end solutions that are in many of today’s cellular devices, from entry level to multimedia
platforms and smart phones. Some of our primary handset customers include LG Electronics, Motorola,
Nokia, Samsung, Sony Ericsson, Research in Motion, and HTC. Our competitors include Avago
Technologies, RF Micro Devices and Triquint Semiconductor.
In parallel, we offer over 2,500 different catalog and custom linear products to a highly
diversified non-handset customer base. Our customers include infrastructure, automotive, energy
management, medical and military providers such as Huawei, Ericsson, Landis + Gyr, Sensus, Itron,
Siemens, and Northrop Grumman. Our competitors in the linear products markets include Analog
Devices, Hittite Microwave, Linear Technology and Maxim Integrated Products.
Headquartered in Woburn, Massachusetts, the Company is a Delaware corporation that was formed in
1962. The Company changed its corporate name from Alpha Industries, Inc. to Skyworks Solutions,
Inc. on June 25, 2002, following a business combination. We have worldwide operations with
engineering, manufacturing, sales and service facilities throughout Asia, Europe and North America.
Our Internet address is www.skyworksinc.com. We make available on our Website our Annual Report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Section 16 filings on Forms
3, 4 and 5, and amendments to those reports as soon as practicable after we electronically submit
such material to the SEC. The information contained in our Website is not incorporated by reference
in this Annual Report. You may read and copy materials that we have filed with the SEC at the SEC
public reference room located at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference room. Our SEC filings are also
available to the public on the SEC’s Internet Website at www.sec.gov.
INDUSTRY BACKGROUND
We believe there are several key growth trends shaping the wireless industry. First is the advent
of the mobile Internet, where consumers are increasingly demanding mobile devices with faster data
rates, advanced image quality and improved Web connections. We believe this demand is one of the
biggest secular growth trends in technology.
On the
high-end of the cellular handset market, the smart phone growth -
which is at the heart of the mobile Internet phenomenon - is
fostering this industry wide sea change. In effect, the smart phone
is moving from a higher end tool reserved for the corporate executive
to an increasingly mainstream communication platform necessity - one
that is changing the way in which we live, work and play. Social
networking sites such as Facebook and Twitter are only fueling this
trend. Furthermore, this segment is being embraced and widely
promoted by carriers who benefit from the highly profitable data
services revenue stream as subscribers move to enhanced data plans.
The increased presence of multimedia-rich mobile devices has led manufacturers to recognize the
increasingly important role multimode Front-End Modules (“FEM”) play in the rapidly evolving
wireless handset market, particularly as the industry migrates to 3G and 4G technologies which
enable applications such as Web browsing, video streaming, gaming, MP3 players and cameras.
Next-generation EDGE, WEDGE and WCDMA wireless platforms are now being used in the majority of the
more than one billion cellular phones the industry produces annually which results in increasing
complexity in the FEM because each new wireless platform and operating frequency band requires
additional amplifier, filtering and switching content to support:
| • | backward compatibility to existing networks, | ||
| • | simultaneous transmission of voice and data, | ||
| • | international roaming, and |
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| • | broadband functionality to accommodate music, video, data, and other multimedia features. |
Further, given constraints on handset size and power consumption, these complex FEMs must remain
physically small, energy efficient and cost effective, while also managing an unprecedented level
of potential signal interference within the handset.
Finally, and a direct result of this increasing FEM complexity, the addressable semiconductor
content within the transmit and receive chain portion of the mobile device is increasing. We
believe this trend is creating an incremental market opportunity measured in the billions of
dollars as switching, filtering and wireless local area networking functionality are integrated.
Meanwhile, outside of the handset market, wireless technologies and the opportunity for
applications for analog semiconductor products are also rapidly proliferating. According to
Gartner, a leading independent market research firm, the total available market for the analog
semiconductor segment is expected to exceed $18 billion in 2014. Today, this adjacent analog
semiconductor market, which is characterized by longer product lifecycles and relatively high gross
margins, is fragmented and diversified among various end-markets, customer bases and applications
including:
| • | Infrastructure | ||
| • | Automotive | ||
| • | CATV/Satcom | ||
| • | Smart Energy | ||
| • | Medical | ||
| • | Military | ||
| • | RFID | ||
| • | Test & Measurement | ||
| • | WiMAX | ||
| • | WLAN |
SKYWORKS’ STRATEGY
Skyworks’ mission is to achieve mobile connectivity leadership through semiconductor innovation.
Key elements in our strategy include:
Diversifying Our Business
By leveraging our core analog and mixed signal technology, Skyworks is able to deliver solutions to
a broad and diverse set of end markets and customers. In the handset market, we currently support
all top tier handset manufacturers as well as the leading smart phone suppliers, and have strategic
relationships with each key baseband supplier. In non-handset markets, we continue to take
advantage of our catalog business, intellectual property and worldwide distribution network, to
bolster our product pipeline and expand our addressable markets beyond the approximately 1,000
global customers and 2,500 analog components currently marketed.
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Diversifying our Business
Gaining Market Share
Our customer engagements are increasingly centered on solving highly complex multimode, multiband,
switching, filtering, digital control and amplification challenges — system-level requirements
which intersect with Skyworks’ core competencies. Skyworks continues to invest in developing
architectures which optimize power efficiency while minimizing cost and footprint, which we believe
will allow us to meet our customers’ demanding next-generation technology requirements as well as
stringent quality standards and manufacturing scale necessities.
Capitalizing on Content Growth in Third and Fourth Generation Applications
As the industry migrates to multi-mode EDGE, WEDGE, WCDMA and LTE architectures across a multitude
of wireless broadband applications, RF complexity in the transmit and receive chain substantially
increases given simultaneous voice and high speed data communications requirements, coupled with
the need for backward compatibility to existing networks. As a result of this complexity in the
FEM, we believe that our addressable market is increasing significantly.
Delivering Operational Excellence
Skyworks’ strategy is to either vertically integrate our supply chain where we can differentiate or
otherwise enter alliances and strategic relationships for leading-edge capabilities. This hybrid
manufacturing approach allows us to better balance external capacity with the demands of the
marketplace. Internally, our capacity utilization remains high and we are therefore able to
maintain margins and our return on invested capital on a broader range of revenues. We continue to
focus on achieving the industry’s shortest cycle times, highest yields and ultimately lowest
product cost structure.
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SKYWORKS’ PRODUCT PORTFOLIO
Our product portfolio consists of:
| • | Amplifiers : the modules that strengthen the signal so that it has sufficient energy to reach a base station | ||
| • | Attenuators: circuits that allow a known source of power to be reduced by a predetermined factor (usually expressed as decibels) | ||
| • | Detectors: intended for use in power management applications | ||
| • | Diodes: semiconductor devices that pass current in one direction only | ||
| • | Directional Couplers: transmission coupling devices for separately sampling the forward or backward wave in a transmission line | ||
| • | Front-End Modules : power amplifiers that are integrated with switches, diplexers, filters and other components to create a single package front-end solution | ||
| • | Hybrid: a type of directional coupler used in radio and telecommunications | ||
| • | Infrastructure RF Subsystems: highly integrated transceivers and power amplifiers for wireless base station applications | ||
| • | MIS Silicon Chip Capacitors: used in applications requiring DC blocking and RF bypassing, or as a fixed capacitance tuning element in filters, oscillators, and matching networks | ||
| • | Mixers/Demodulators: integrated, high-dynamic range, zero IF architecture downconverter for use in wireless communication applications | ||
| • | Modulators: designed for direct modulation of high frequency AM, PM or compound carriers | ||
| • | Phase Locked Loops (PLL): closed-loop feedback control system that maintains a generated signal in a fixed phase relationship to a reference signal | ||
| • | Phase Shifters: designed for use in power amplifier distortion compensation circuits in base station applications | ||
| • | Power Dividers/Combiners: utilized to equally split signals into in-phase signals as often found in balanced signal chains and local oscillator distribution networks | ||
| • | Receivers: electronic devices that change a radio signal from a transmitter into useful information | ||
| • | Switches: components that perform the change between the transmit and receive function, as well as the band function for cellular handsets | ||
| • | Synthesizers: provides ultra-fine frequency resolution, fast switching speed, and low phase-noise performance | ||
| • | Technical Ceramics: polycrystalline oxide materials used for a wide variety of electrical, mechanical, thermal and magnetic applications | ||
| • | Transceivers: devices that have both a transmitter and a receiver which are combined and share common circuitry or a single housing | ||
| • | VCOs/Synthesizers: fully integrated, high performance signal source for high dynamic range transceivers |
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We believe we possess broad technology capabilities and one of the most complete wireless
communications product portfolios in the industry.
THE SKYWORKS ADVANTAGE
By turning complexity into simplicity, we provide our customers with the following
competitive advantages:
| • | Broad front-end module and precision analog product portfolio | ||
| • | Technology leadership in power amplifier and FEM product segments | ||
| • | Solutions for key air interface standards, including CDMA2000, GSM/GPRS/EDGE, LTE, WCDMA, WLAN and WiMAX | ||
| • | Engagements with a diverse set of top-tier customers | ||
| • | Analog, RF and mixed signal design capabilities | ||
| • | Strategic partnerships with all leading baseband providers | ||
| • | Access to key process technologies: GaAs HBT, pHEMT, BiCMOS, SiGE, CMOS, RF CMOS, and silicon | ||
| • | World-class manufacturing capabilities and scale | ||
| • | High level of customer service and technical support | ||
| • | Commitment to technology innovation |
MARKETING AND DISTRIBUTION
Our products are primarily sold through a direct Skyworks sales force. This team is globally
deployed across all of our major market regions. In some markets we supplement our direct sales
effort with independent manufacturers’ representatives, assuring broader coverage of territories
and customers. We also utilize distribution partners, some of
which are franchised globally with others focused in specific regional markets (e.g., Europe, North
America, China and Taiwan).
We maintain an internal marketing organization that is responsible for developing sales and
advertising literature, print media, such as product announcements and catalogs, as well as a
variety of Web-based content. Skyworks’ sales engagement begins at the earliest stages in a
customer design. We strive to provide close technical collaboration with our customers at the
inception of new programs. This relationship allows our team to facilitate customer-driven
solutions, which leverage the unique strength of our product portfolio while providing high value
and greatly reducing time-to-market.
We believe that the technical and complex nature of our products and markets demand an
extraordinary commitment to maintain intimate ongoing relationships with our customers. As such, we
strive to expand the scope of our customer relationship to include design, engineering,
manufacturing, purchasing and project management. We also employ a collaborative approach in
developing these relationships by combining the support of our design teams, applications
engineers, manufacturing personnel, sales and marketing staff and senior management.
We believe that maintaining frequent and interactive contact with our customers is paramount to our
continuous efforts to provide world-class sales and service support. By listening and responding to
feedback, we are able to mobilize resources to raise our level of customer satisfaction, improve
our ability to anticipate future product needs, and enhance our understanding of key market
dynamics. We are confident that diligence in following this path will position Skyworks to
participate in numerous opportunities for growth in the future.
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REVENUES FROM AND DEPENDENCE ON CUSTOMERS; CUSTOMER CONCENTRATION
For information regarding customer concentration and revenues from external
customers, see Note 18 of Item 8 of this Annual Report on Form 10-K.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We own and are licensed under numerous United States and foreign patents and patent applications
related to our products, our manufacturing operations and processes, and other activities. In
addition, we own a number of trademarks and service marks applicable to certain of our products and
services. We believe that intellectual property, including patents, patent applications, trade
secrets and trademarks are of material importance to our business. We rely on patent, copyright,
trademark, trade secret and other intellectual property laws, as well as nondisclosure and
confidentiality agreements and other methods, to protect our confidential and proprietary
technologies, devices, algorithms and processes. We cannot guarantee that these efforts will
meaningfully protect our intellectual property, and others may independently develop substantially
equivalent proprietary technologies, devices, algorithms or processes. In addition, the laws of
some foreign countries do not protect proprietary rights to the same extent as the laws of the
United States, and effective copyright, patent, trademark and trade secret protection may not be
available in those jurisdictions. In addition to protecting our proprietary technologies and
processes, we strive to strengthen our intellectual property portfolio to enhance our ability to
obtain cross-licenses of intellectual property from others, to obtain access to intellectual
property we do not possess and to more favorably resolve potential intellectual property claims
against us. Furthermore we seek to generate high gross margin revenue through the sale and license
of non-core intellectual property and occasionally purchase intellectual property to support our
core business. Due to rapid technological changes in the industry, we believe that establishing and
maintaining a technological leadership position depends primarily on our ability to develop new
innovative products through the technical competence of our engineering personnel.
COMPETITIVE CONDITIONS
We compete on the basis of time-to-market, new product innovation, overall product quality and
performance, price, compliance with industry standards, strategic relationships with customers and
baseband vendors, and protection of our intellectual property. Certain competitors may be able to
adapt more quickly than we can to new or emerging technologies and changes in customer
requirements, or may be able to devote greater resources to the development, promotion and sale of
their products than we can.
RESEARCH AND DEVELOPMENT
Our products and markets are subject to continued technological advances. Recognizing the
importance of such technological advances, we maintain a high level of research and development
activities. We maintain close collaborative relationships with many of our customers to help
identify market demands and target our development efforts to meet those demands. We focus our
development efforts on new products, design tools and manufacturing leveraging our core
technologies.
RAW MATERIALS
Raw materials for our products and manufacturing processes are generally available from several
sources. It is our policy not to depend on a sole source of supply unless market or other
conditions dictate otherwise. Consequently, there are limited situations where we procure certain
components and services for our products from single or limited sources. We purchase materials and
services primarily pursuant to individual purchase orders. However, we have a limited number of
long-term supply contracts with our suppliers. Certain of our suppliers consign raw materials to
us at our manufacturing facilities. We request these raw materials and take title to them as they
are needed in our manufacturing process. We believe we have adequate sources for the supply of raw
materials and components for our manufacturing needs with suppliers located around the world.
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BACKLOG AND INVENTORY
Our sales are made primarily pursuant to standard purchase orders for delivery of products, with
such purchase orders officially acknowledged by us according to our own terms and conditions. We
also maintain Skyworks-owned finished goods inventory at certain customer “hub” locations. We do
not recognize revenue until these customers consume the Skyworks-owned inventory from these hub
locations. Due to industry practice, which allows customers to cancel orders with limited advance
notice to us prior to shipment, and with little or no penalty, we believe that backlog as of any
particular date may not be a reliable indicator of our future revenue levels. The cancellation or
deferral of product orders, the return of previously sold products, or overproduction due to a
change in anticipated order volumes could result in us holding excess or obsolete inventory, which
could result in inventory write-downs and, in turn, could have a material adverse effect on our
financial condition.
ENVIRONMENTAL REGULATIONS
Federal, state and local requirements relating to the discharge of substances into the environment,
the disposal of hazardous wastes, and other activities affecting the environment have had, and will
continue to have, an impact on our manufacturing operations. Most of our customers have mandated
that our products comply with local and regional lead free and other “green” initiatives. We
believe that our current expenditures for environmental capital investment and remediation
necessary to comply with present regulations governing environmental protection, and other
expenditures for the resolution of environmental claims, will not have a material adverse effect on
our liquidity and capital resources, competitive position or financial condition. We are unable to
assess the possible effect of compliance with future requirements.
SEASONALITY
Sales of our products are subject to seasonal fluctuation and periods of increased demand in
end-user consumer applications, such as cellular handsets. The highest demand for our handset
products generally occurs in the calendar quarter ending in December. The lowest demand for our
handset products generally occurs in the calendar quarter ending in March.
GEOGRAPHIC INFORMATION
For information regarding net revenues by geographic region for each of the last three fiscal
years, see Note 18 of Item 8 of this Annual Report on Form 10-K. The majority of our tangible long
lived assets are located in the United States of America and Mexico (see Note 18 of Item 8). Risks
attendant to our foreign operations are discussed in Item 1A-Risk Factors.
EMPLOYEES
As of October 1, 2010, we employed approximately 3,700 persons. Approximately 450 of our employees
in Mexico are covered by collective bargaining agreements.
ITEM 1A. RISK FACTORS.
You should carefully consider the risks described below in addition to the other information
contained in this report, before making an investment decision. Our business, financial condition
or results of operations could be harmed by any of these risks. The risks and uncertainties
described below are not the only ones we face. Additional risks not currently known to us or other
factors not perceived by us to present significant risks to our business at this time also may
impair our business operations, financial condition or results from operations.
We operate in the highly cyclical wireless communications semiconductor industry, which is subject
to significant downturns.
We operate primarily in the wireless communications semiconductor industry, which is cyclical and
subject to rapid declines in demand for end-user products in both the consumer and enterprise
markets. Since late 2008, uncertain economic conditions worldwide, together with other factors such
as the continued volatility of the financial markets, have made it difficult for our customers and
for us to accurately forecast and plan future business activities.
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Although we believe that the
market for wireless communications semiconductor products has
stabilized, continued
uncertainty and economic weakness could result in another market contraction and, as a result, our
business, financial condition and results of operations would likely be
materially and adversely affected. Such periods of industry downturn are characterized by
diminished product demand and revenues, manufacturing overcapacity, excess inventory levels,
accelerated erosion of average selling prices, and restructuring and/or impairment charges.
Furthermore, downturns in the wireless communications semiconductor industry may be prolonged, and
any extended delay or failure of the wireless semiconductor market to recover from an economic
downturn would materially and adversely affect our business, financial condition and results of
operations beyond our current fiscal year.
Our operating results may be adversely affected by substantial quarterly and annual fluctuations
and market downturns.
Our revenues, earnings and other operating results have fluctuated significantly on a quarterly and
annual basis in prior fiscal years and our revenues, earnings and other operating results may
fluctuate in the future. These fluctuations are due to a number of factors, many of which are
beyond our control.
These factors include, among others:
| • | changes in end-user demand for the products (principally cellular handsets) manufactured and sold by our customers, | ||
| • | the effects of competitive pricing pressures, including decreases in average selling prices of our products, | ||
| • | production capacity levels and fluctuations in manufacturing yields, | ||
| • | availability and cost of materials and services from our suppliers, | ||
| • | the gain or loss of significant customers, | ||
| • | our ability to develop, introduce and market new products and technologies on a timely basis, | ||
| • | new product and technology introductions by competitors, | ||
| • | changes in the mix of products produced and sold, | ||
| • | market acceptance of our products and our customers, | ||
| • | our ability to continue to generate revenues by licensing and/or selling non-core intellectual property, and | ||
| • | intellectual property disputes, including those concerning payments associated with the licensing and/or sale of intellectual property. |
The foregoing factors are difficult to forecast, and these, as well as other factors, could
materially and adversely affect our quarterly or annual operating results. If our operating results
fail to meet the expectations of analysts or investors, it could materially and adversely affect
the price of our common stock.
Our stock price has been volatile and may fluctuate in the future.
The trading price of our common stock has and may continue to fluctuate significantly. Such
fluctuations may be influenced by many factors, including:
| • | the recent unprecedented volatility of the financial markets, | ||
| • | uncertainty regarding the prospects of the domestic and foreign economies, |
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| • | our performance and prospects, | ||
| • | the performance and prospects of our major customers, | ||
| • | the depth and liquidity of the market for our common stock, | ||
| • | investor perception of us and the industry in which we operate, | ||
| • | changes in earnings estimates or buy/sell recommendations by analysts, and | ||
| • | domestic and international political conditions. |
Public stock markets have recently experienced extreme price and trading volume volatility. This
volatility significantly and negatively affected the market prices of securities of many technology
companies, including the market price of our common stock in late 2008 and early 2009. The return
of such volatility could result in broad market fluctuations that could materially and adversely
affect the market price of our common stock in future periods.
In addition, fluctuations in our stock price, volume of shares traded, and changes in our trading
multiples may make our stock attractive to momentum, hedge or day-trading investors who often shift
funds into and out of stocks rapidly, exacerbating price fluctuations in either direction. Our
company has been, and in the future may be, the subject of commentary by financial news media. Such
commentary may contribute to volatility in our stock price. If our operating results do not meet
the expectations of securities analysts, the financial news media or investors, our stock price may
decline, possibly substantially over a short period of time.
The wireless communications semiconductor markets are characterized by significant competition
which may cause pricing pressures, decreased gross margins and rapid loss of market share and may
materially and adversely affect our business, financial condition and results of operations.
The wireless communications semiconductor industry in general and the markets in which we compete
in particular are very competitive. We compete with United States and international semiconductor
manufacturers of all sizes in terms of resources and market share, including Avago Technologies, RF Micro Devices and Triquint Semiconductor.
We currently face significant competition in our markets and expect that intense price and product
competition will continue. This competition has resulted in, and is expected to continue to result
in, declining average selling prices
for our products and increased challenges in maintaining or increasing market share. Furthermore,
additional competitors may enter our markets as a result of growth opportunities in communications
electronics, the trend toward global expansion by foreign and domestic competitors and
technological and public policy changes. We believe that the principal competitive factors for
semiconductor suppliers in our markets include, among others:
| • | rapid time-to-market and product ramp, | ||
| • | timely new product innovation, | ||
| • | product quality, reliability and performance, | ||
| • | product price, | ||
| • | features available in products, | ||
| • | compliance with industry standards, | ||
| • | strategic relationships with customers, | ||
| • | access to and protection of intellectual property, and |
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| • | maintaining access to raw materials, supplies and services at a competitive cost. |
We might not be able to successfully address these factors. Many of our competitors enjoy the
benefit of:
| • | long presence in key markets, | ||
| • | brand recognition, | ||
| • | high levels of customer satisfaction, | ||
| • | ownership or control of key technology or intellectual property, and | ||
| • | strong financial, sales and marketing, manufacturing, distribution, technical or other resources. |
As a result, certain competitors may be able to adapt more quickly than we can to new or emerging
technologies and changes in customer requirements or may be able to devote greater resources to the
development, promotion and sale of their products than we can.
Current and potential competitors have established, or may in the future establish, financial or
strategic relationships among themselves or with customers, resellers or other third parties. These
relationships may affect customers’ purchasing decisions. Accordingly, it is possible that new
competitors or alliances among competitors could emerge and rapidly acquire significant market
share. We may not be able to compete successfully against current and potential competitors.
Increased competition could result in pricing pressures, decreased gross margins and loss of market
share and may materially and adversely affect our business, financial condition and results of
operations.
Our success depends upon our ability to develop new products and reduce costs in a timely manner.
The wireless communications semiconductor industry generally and, in particular, the markets into
which we sell our products are highly cyclical and characterized by constant and rapid
technological change, continuous product evolution, price erosion, evolving technical standards,
short product life cycles, increasing demand for higher levels of integration, increased
miniaturization, reduced power consumption and wide fluctuations in product supply and demand. Our
operating results depend largely on our ability to continue to cost-effectively introduce new and
enhanced products on a timely basis. The successful development and commercialization of
semiconductor devices and modules is highly complex and depends on numerous factors, including:
| • | the ability to anticipate customer and market requirements and changes in technology and industry standards, | ||
| • | the ability to obtain capacity sufficient to meet customer demand, | ||
| • | the ability to define new products that meet customer and market requirements, | ||
| • | the ability to complete development of new products and bring products to market on a timely basis, | ||
| • | the ability to differentiate our products from offerings of our competitors, | ||
| • | overall market acceptance of our products, | ||
| • | the length of time that a particular product is in demand, and | ||
| • | the ability to obtain adequate intellectual property protection for our new products. |
Our ability to manufacture current products, and to develop new products, depends, among other
factors, on the viability and flexibility of our own internal information technology systems, or IT
Systems.
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We will be required to continually evaluate expenditures for planned product development and to
choose among alternative technologies based on our expectations of future market growth. We may
not be able to develop and introduce new or enhanced wireless communications semiconductor products
in a timely and cost-effective manner, and our products may not satisfy customer requirements or
achieve market acceptance or we may not be able to anticipate new industry standards and
technological changes. We also may not be able to respond successfully to new product announcements
and introductions by competitors or to changes in the design or specifications of complementary
products of third parties with which our products interface. If we fail to rapidly and
cost-effectively introduce new and enhanced products in sufficient quantities that meet our
customers’ requirements, our business and results of operations would be materially and adversely
harmed.
In addition, prices of many of our products decline, sometimes significantly, over time. Our
products may become obsolete earlier than planned or may not have life cycles long enough to allow
us to recoup the cost of our investment in designing such products. Accordingly, we believe that
to remain competitive, we must continue to reduce the cost of producing and delivering existing
products at the same time that we develop and introduce new or enhanced products. We may not be
able to continue to reduce the cost of our products to remain competitive.
If Original Equipment Manufactures, or OEMs and Original Design Manufacturers, or ODMs, of communications electronics products do not
design our products into their equipment, we will have difficulty selling those products. Moreover,
a “design win” from a customer does not guarantee future sales to that customer.
Our products are not sold directly to the end-user, but are components or subsystems of other
products. As a result, we rely on OEMs and ODMs of wireless communications electronics products to
select our products from among alternative offerings to be designed into their equipment. Without
these “design wins,” we would have difficulty selling our products. If a manufacturer designs
another supplier’s product into one of its product platforms, it is more difficult for us to
achieve future design wins with that platform because changing suppliers involves significant cost,
time, effort and risk on the part of that manufacturer. Also, achieving a design win with a
customer does not ensure that we will receive significant revenues from that customer. Even after a
design win, the customer is not obligated to purchase our products and can choose at any time to
reduce or cease use of our products, for example, if its own products are not commercially
successful, or for any other reason. We may not continue to achieve design wins or to convert
design wins into actual sales, and failure to do so could materially and adversely affect our
operating results.
Our manufacturing processes are extremely complex and specialized and disruptions could have a
material adverse effect on our business, financial condition and results of operations.
Our manufacturing operations are complex and subject to disruption, including due to causes beyond
our control. The fabrication of integrated circuits is an extremely complex and precise process
consisting of hundreds of separate steps. It requires production in a highly controlled, clean
environment. Minor impurities, contamination of the clean room environment, errors in any step of
the fabrication process, defects in the masks used to print circuits on a wafer, defects in
equipment or materials, human error, or a number of other factors can cause a substantial
percentage of wafers to be rejected or numerous die on each wafer to malfunction. Because our
operating results are highly dependent upon our ability to produce integrated circuits at
acceptable manufacturing yields, these factors could have a material adverse affect on our
business.
Additionally, our operations may be affected by lengthy or recurring disruptions of operations at
any of our production facilities or those of our subcontractors. These disruptions may result from
electrical power outages, fire,
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earthquake, flooding, war, acts of terrorism, health advisories or
risks, or other natural or manmade disasters, as well as equipment maintenance, repairs and/or
upgrades. Disruptions of our manufacturing operations could cause
significant delays in shipments until we are able to shift the products from an affected facility
or subcontractor to another facility or subcontractor. In the event of such delays, the required
alternative capacity, particularly wafer production capacity, may not be available on a timely
basis or at all. Even if alternative wafer production or assembly and test capacity is available,
we may not be able to obtain it on favorable terms, which could result in higher costs and/or a
loss of customers. We may be unable to obtain sufficient manufacturing capacity to meet demand,
either at our own facilities or through external manufacturing or similar arrangements with others.
Due to the highly specialized nature of the gallium arsenide integrated circuit manufacturing
process, in the event of a disruption at the Newbury Park, California or Woburn, Massachusetts
semiconductor wafer fabrication facilities for any reason, alternative gallium arsenide production
capacity would not be immediately available from third-party sources. These disruptions could have
a material adverse effect on our business, financial condition and results of operations.
We may be subject to warranty claims, product recalls and liability claims.
Although we invest significant resources in the testing of our products, we
may discover from time to time defects in our products after they have been shipped, and we may be
required to incur additional development and remediation costs, pursuant to warranty and
indemnification provisions in our customer contracts and purchase orders. The potential liabilities
associated with these, and similar, provisions in certain of our customer contracts are capped at
significant amounts, or are uncapped. These problems may divert our technical and other resources
from other product development efforts and could result in claims against us by our customers or
others, including liability for costs associated with product recalls, or other obligations under
customer contracts, which may adversely impact our operating results. If any of our products
contain defects, or have reliability, quality or compatibility problems, our reputation may be
damaged and we could be subject to liability claims, which could make it more difficult for us to sell our products to existing and prospective
customers and could adversely affect our operating results.
We may not be able to maintain and improve manufacturing yields that contribute positively to our
gross margin and profitability.
Minor deviations or perturbations in the manufacturing process can cause substantial manufacturing
yield loss, and in some cases, cause production to be suspended. Manufacturing yields for new
products initially tend to be lower as we complete product development and commence volume
manufacturing, and typically increase as we bring the product to full production. Our forward
product pricing includes this assumption of improving manufacturing yields
and, as a result, material variances between projected and actual manufacturing yields will have a
direct effect on our gross margin and profitability. The difficulty of accurately forecasting
manufacturing yields and maintaining cost competitiveness through improving manufacturing yields
will continue to be magnified by the increasing process complexity of manufacturing semiconductor
products. Our manufacturing operations will also face pressures arising from the compression of
product life cycles, which will require us to manufacture new products faster and for shorter
periods while maintaining acceptable manufacturing yields and quality without, in many cases,
reaching the longer-term, high-volume manufacturing conducive to higher manufacturing yields and
declining costs.
We are dependent upon third parties for the manufacture, assembly and test of our products.
We rely upon independent wafer fabrication facilities, called foundries, to provide silicon-based
products and to supplement our gallium arsenide wafer manufacturing capacity. There are significant
risks associated with reliance on third-party foundries, including:
| • | the lack of wafer supply, potential wafer shortages and higher wafer prices, | ||
| • | limited control over delivery schedules, manufacturing yields, production costs and quality assurance, and | ||
| • | the inaccessibility of, or delays in, obtaining access to, key process technologies. |
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Although we have long-term supply arrangements to obtain additional external manufacturing
capacity, the third-party foundries we use for our standby manufacturing capacity may allocate
their limited capacity to the production requirements of other customers. If we choose to use a new
foundry, it will typically take an extended period of time to complete the qualification process
before we can begin shipping products from the new foundry. The foundries may experience financial
difficulties, be unable to deliver products to us in a timely manner or suffer damage or
destruction to their facilities, particularly since some of them are located in earthquake zones.
If any disruption of manufacturing capacity occurs, we may not have alternative manufacturing
sources immediately available. We may therefore experience difficulties or delays in securing an
adequate supply of our products, which could impair our ability to meet our customers’ needs and
have a material adverse effect on our operating results.
Although we own and operate a test and assembly facility, we still depend on subcontractors to
package, assemble and test certain of our products at cost-competitive rates. We do not have
long-term agreements with any of our assembly or test subcontractors and typically procure services
from these suppliers on a per order basis. If any of these subcontractors experiences capacity
constraints or financial difficulties, suffers any damage to its facilities, experiences power
outages or any other disruption of assembly or testing capacity, we may not be able to obtain
alternative assembly and testing services in a timely manner and/or at cost-competitive rates. Due
to the amount of time that it usually takes us to qualify assemblers and testers, we could
experience significant delays in product shipments if we are required to find alternative
assemblers or testers for our components. Any problems that we may encounter with the delivery,
quality or cost of our products could damage our customer relationships and materially and
adversely affect our results of operations. We are continuing to develop relationships with
additional third-party subcontractors to assemble and test our products. However, even if we use
these new subcontractors, we will continue to be subject to all of the risks described above.
We are dependent upon third parties for the supply of raw materials and components.
Our manufacturing operations depend on obtaining adequate supplies of raw materials and the
components used in our manufacturing processes at a competitive cost. Although we maintain
relationships with suppliers located around the world with the objective of ensuring that we have
adequate sources for the supply of raw materials and components for our manufacturing needs,
increases in demand from the semiconductor industry for such raw materials and components, as well
as increased demand for commodities in general, can result in tighter supplies and higher costs.
Our suppliers may not be able to meet our delivery schedules, we may lose a significant or sole
supplier, a supplier may not be able to meet performance and quality specifications and we may not
be able to purchase such supplies or material at a competitive cost. If a supplier were unable to
meet our delivery schedules or if we lost a supplier or a supplier were unable to meet performance
or quality specifications, our ability to satisfy customer obligations would be materially and
adversely affected. In addition, we review our relationships with suppliers of raw materials and
components for our manufacturing needs on an ongoing basis. In connection with our ongoing review,
we may modify or terminate our relationship with one or more suppliers. We may also enter into
other sole supplier arrangements to meet certain of our raw material or component needs. While we
do not typically rely on a single source of supply for our raw materials, we are currently
dependent on a sole-source supplier for epitaxial wafers used in the gallium arsenide semiconductor
manufacturing processes at our manufacturing facilities. If we were to lose this sole source of
supply, for any reason, a material adverse effect on our business could result until an alternate
source is obtained. To the extent we enter into additional sole supplier arrangements for any of
our raw materials or components, the risks associated with our supply arrangements would be
exacerbated.
Our reliance on a small number of customers for a large portion of our sales could have a material
adverse effect on the results of our operations.
Significant portions of our sales are concentrated among a limited number of customers. If we lost
one or more of these major customers, or if one or more major customers significantly decreased its
orders for our products, our business could be materially and adversely affected. In fiscal year 2010, the Company had three customers, each with greater than ten percent of our net revenues: Samsung, Nokia and Foxconn.
If we are unable to attract and retain qualified personnel to contribute to the design,
development, manufacture and sale of our products, we may not be able to effectively operate our
business.
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As the source of our technological and product innovations, our key technical personnel represent a
significant asset. Our success depends on our ability to continue to attract, retain and motivate
qualified personnel, including executive officers and other key management and technical personnel.
The competition for management and technical personnel is intense in the semiconductor industry,
and therefore we may not be able to continue to attract and retain the qualified management and
other personnel necessary for the design, development, manufacture and sale of our products. We may
have particular difficulty attracting and retaining key personnel during periods of poor operating
performance and/or declines in the price of our common stock, given among other things, the use of
equity-based compensation by us and our competitors. The loss of the services of one or more of our
key employees or our inability to attract, retain and motivate qualified personnel, could have a
material adverse effect on our ability to operate our business.
Our business would be adversely affected by the departure of existing members of our senior
management team or if our senior management team is unable to effectively implement our strategy.
Our success depends, in large part, on the continued contributions of our senior management team,
none of whom is bound by a written employment contract to remain with us for a specified period.
The loss of any of our senior management could harm our ability to implement our business strategy
and respond to the rapidly changing market conditions in which we operate.
Lengthy product development and sales cycles associated with many of our products may result in
significant expenditures before generating any revenues related to those products.
After our product has been developed, tested and manufactured, our customers may need three to six
months or longer to integrate, test and evaluate our product and an additional three to six months
or more to begin volume production of equipment that incorporates the product. This lengthy cycle
time increases the possibility that a customer may decide to cancel or change product plans, which
could reduce or eliminate our sales to that customer. As a result of this lengthy sales cycle, we
may incur significant research and development expenses, and selling, general and administrative
expenses, before we generate the related revenues for these products. Furthermore, we may never
generate the anticipated revenues from a product after incurring such expenses if our customer
cancels or changes its product plans.
Uncertainties involving the ordering and shipment of, and payment for, our products could adversely
affect our business.
Our sales are typically made pursuant to individual purchase orders and not under long-term supply
arrangements with our customers. Our customers may cancel orders before shipment. Additionally, we
sell a portion of our products through distributors, some of whom have rights to return unsold
products if the product is defective. We may purchase and manufacture inventory based on estimates
of customer demand for our products, which is difficult to predict. This difficulty may be
compounded when we sell to OEMs indirectly through distributors or contract manufacturers, or both,
as our forecasts of demand will then be based on estimates provided by multiple parties. In
addition, our customers may change their inventory practices on short notice for any reason. The
cancellation or deferral of product orders, the return of previously sold products, or
overproduction due to a change in anticipated order volumes could result in us holding excess or
obsolete inventory, which could result in inventory write-downs and, in turn, could have a material
adverse effect on our financial condition.
In addition, if a customer encounters financial difficulties of its own as a result of a change in
demand or for any other reason, the customer’s ability to make timely payments to us for
non-returnable products could be impaired.
We may be subject to claims of infringement of third-party intellectual property rights, or demands
that we license third-party technology, which could result in significant expense and prevent us
from using our technology.
The semiconductor industry is characterized by vigorous protection and pursuit of intellectual
property rights. From time to time, third parties have asserted and may in the future assert
patent, copyright, trademark and other
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intellectual property rights to technologies that are important to our business and have demanded
and may in the future demand that we license their technology or refrain from using it.
Any litigation to determine the validity of claims that our products infringe or may infringe
intellectual property rights of another, including claims arising from our contractual
indemnification of our customers, regardless of their merit or resolution, could be costly and
divert the efforts and attention of our management and technical personnel. Regardless of the
merits of any specific claim, we may not prevail in litigation because of the complex technical
issues and inherent uncertainties in intellectual property litigation. If litigation were to result
in an adverse ruling, we could be required to:
| • | pay substantial damages, | ||
| • | cease the manufacture, import, use, sale or offer for sale of infringing products or processes, | ||
| • | discontinue the use of infringing technology, | ||
| • | expend significant resources to develop non-infringing technology, and | ||
| • | license technology from the third party claiming infringement, which license may not be available on commercially reasonable terms. |
Our operating results or financial condition may be materially adversely affected if we, or one of
our customers, were required to take any one or more of the foregoing actions.
In addition, if another supplier to one of our customers, or a customer of ours itself, were found
to be infringing upon the intellectual property rights of a third party, the supplier or customer
could be ordered to cease the manufacture, import, use, sale or offer for sale of its infringing
product(s) or process(es), either of which could result, indirectly, in a decrease in demand from
our customers for our products. If such a decrease in demand for our products were to occur, it
could have an adverse impact on our operating results.
Many of our products incorporate technology licensed or acquired from third parties. If licenses to
such technology are not available on commercially reasonable terms and conditions, our business
could be adversely affected.
We sell products in markets that are characterized by rapid technological changes, evolving
industry standards, frequent new product introductions, short product life cycles and increasing
levels of integration. Our ability to keep pace with this market depends on our ability to obtain
technology from third parties on commercially reasonable terms to allow our products to remain
competitive. If licenses to such technology are not available on commercially reasonable terms and
conditions, and we cannot otherwise integrate such technology, our products or our customers’
products could become unmarketable or obsolete, and we could lose market share. In such instances,
we could also incur substantial unanticipated costs or scheduling delays to develop substitute
technology to deliver competitive products.
If we are not successful in protecting our intellectual property rights, it may harm our ability to
compete.
We rely on patent, copyright, trademark, trade secret and other intellectual property laws, as well
as nondisclosure and confidentiality agreements and other methods, to protect our proprietary
technologies, information, data, devices, algorithms and processes. In addition, we often
incorporate the intellectual property of our customers, suppliers or other third parties into our
designs, and we have obligations with respect to the non-use and non-disclosure of such third-party
intellectual property. In the future, it may be necessary to engage in litigation or like
activities to enforce our intellectual property rights, to protect our trade secrets or to
determine the validity and scope of proprietary rights of others, including our customers. This
could require us to expend significant resources and to divert the efforts and attention of our
management and technical personnel from our business operations. We cannot be assured that:
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| • | the steps we take to prevent misappropriation, infringement, dilution or other violation of our intellectual property or the intellectual property of our customers, suppliers or other third parties will be successful, | ||
| • | any existing or future patents, copyrights, trademarks, trade secrets or other intellectual property rights or ours will not be challenged, invalidated or circumvented, or | ||
| • | any of the measures described above would provide meaningful protection. |
Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use
our technology without authorization, develop similar technology independently or design around our
patents. If any of our intellectual property protection mechanisms fails to protect our technology,
it would make it easier for our competitors to offer similar products, potentially resulting in
loss of market share and price erosion. Even if we receive a patent, the patent claims may not be
broad enough to adequately protect our technology. Furthermore, even if we receive patent
protection in the United States, we may not seek, or may not be granted, patent protection in
foreign countries. In addition, effective patent, copyright, trademark and trade secret protection
may be unavailable or limited for certain technologies and in certain foreign countries.
We attempt to control access to and distribution of our proprietary information through
operational, technological and legal safeguards. Despite our efforts, parties, including former or
current employees, may attempt to copy, disclose or obtain access to our information without our
authorization. Furthermore, attempts by computer hackers to gain unauthorized access to our systems
or information could result in our proprietary information being compromised or interrupt our
operations. While we attempt to prevent such unauthorized access we may be unable to anticipate the
methods used, or be unable to prevent the release of our proprietary information.
We are subject to the risks of doing business internationally.
A substantial majority of our net revenues are derived from customers located outside the United
States, primarily in countries located in the Asia-Pacific region and Europe. In addition, we have
suppliers located outside the United States, and third-party packaging, assembly and test
facilities and foundries located in the Asia-Pacific region. Finally, we have our own packaging,
assembly and test facility in Mexicali, Mexico. Our international sales and operations are subject
to a number of risks inherent in selling and operating abroad. These include, but are not limited
to, risks regarding:
| • | currency exchange rate fluctuations, including changes in commodities prices related to such fluctuations, | ||
| • | local economic and political conditions, including social, economic and political instability, | ||
| • | disruptions of capital and trading markets, | ||
| • | inability to collect accounts receivable, | ||
| • | restrictive governmental actions (such as restrictions on transfer of funds and trade protection measures, including export duties, quotas, customs duties, increased import or export controls and tariffs), | ||
| • | changes in, or non-compliance with, legal or regulatory import/export requirements, | ||
| • | natural disasters, acts of terrorism, widespread illness and war, | ||
| • | limitations on the repatriation of funds, | ||
| • | difficulty in obtaining distribution and support, | ||
| • | cultural differences in the conduct of business, | ||
| • | the laws and policies of the United States and other countries affecting trade, foreign investment and loans, and import or export licensing requirements, |
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| • | changes in current or future tax law or regulations or new interpretations thereof, by federal or state agencies or foreign governments could adversely affect our results of operations, | ||
| • | our future results could be adversely affected by changes in the effective tax rate as a result of our overall profitability and mix of earnings in countries with differing statutory tax rates and the results of audits and examinations of previously filed tax returns, | ||
| • | the possibility of being exposed to legal proceedings in a foreign jurisdiction, and | ||
| • | limitations on our ability under local laws to protect or enforce our intellectual property rights in a particular foreign jurisdiction. |
Additionally, we are subject to risks in certain global markets in which wireless operators provide
subsidies on handset sales to their customers. Increases in cellular handset prices that negatively
impact handset sales can result from changes in regulatory policies or other factors, which could
impact the demand for our products. Limitations or changes in policy on phone subsidies in South
Korea, Japan, China and other countries may have additional negative impacts on our revenues.
We face a risk that capital needed for our business will not be available when we need it.
To the extent that our existing cash and cash equivalents and cash generated from operations are
insufficient to fund our future activities or repay debt when it becomes due, we may need to raise
additional funds through public or private equity or debt financing. If unfavorable capital market
conditions exist if and when we were to seek additional financing, we may not be able to raise
sufficient capital on favorable terms and on a timely basis (if at all). Failure to obtain capital
when required by our business circumstances would have a material adverse effect on us.
In addition, any strategic investments and acquisitions that we may make to help us grow our
business may require additional capital resources. The capital required to fund these investments
and acquisitions may not be available in the future.
Our leverage and our debt service obligations may adversely affect our cash flow.
On October 1, 2010, we had total indebtedness of approximately $74.7 million, which represented
approximately 5.4% of our total capitalization. As of October 1, 2010, we have short-term debt of
$50.0 million under the credit facility with Wells Fargo
Bank, N.A. (the “Credit
Facility”). Our ability to borrow under the Credit Facility
expired in October 2010 and, given our strong cash position,
management has determined that the Credit Facility is no longer
required and accordingly, has been substantially repaid as of November 29, 2010. Also as of October 1, 2010, we
have long-term debt obligations of $26.7 million in aggregate principal value ($24.7 million
carrying value) that mature in March 2012, which are described in more detail in Note 9 to Item 8
of this Annual Report on Form 10-K. We may require additional financing prior to the maturity of
such debt.
Our indebtedness could have negative consequences, including:
| • | increasing our vulnerability to general adverse economic and industry conditions, | ||
| • | limiting our ability to obtain additional financing, | ||
| • | requiring the dedication of a portion of any cash flow from operations to service our indebtedness, thereby reducing the amount of cash flow available for other purposes, |
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| • | limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete, and | ||
| • | placing us at a possible competitive disadvantage to less leveraged competitors and competitors that have better access to capital resources. |
Remaining competitive in the semiconductor industry requires transitioning to smaller geometry
process technologies and achieving higher levels of design integration.
In order to remain competitive, we expect to continue to transition our semiconductor products to
increasingly smaller geometries. This transition requires us to modify the manufacturing processes
for our products, design new products to more stringent standards, and to redesign some existing
products. In the past, we have experienced some difficulties migrating to smaller geometry process
technologies or new manufacturing processes, which resulted in sub-optimal manufacturing yields,
delays in product deliveries and increased expenses. We may face similar difficulties, delays and
expenses as we continue to transition our products to smaller geometry processes in the future. In
some instances, we depend on our relationships with our foundries to transition to smaller geometry
processes successfully. Our foundries may not be able to effectively manage the transition or we
may not be able to maintain our foundry relationships. If our foundries or we experience
significant delays in this transition or fail to efficiently implement this transition, our
business, financial condition and results of operations could be materially and adversely affected.
As smaller geometry processes become more prevalent, we expect to continue to integrate greater
levels of functionality, as well as customer and third party intellectual property, into our
products. However, we may not be able to achieve higher levels of design integration or deliver new
integrated products on a timely basis, or at all.
Increasingly stringent environmental laws, rules and regulations may require us to redesign our
existing products and processes, and could adversely affect our ability to cost-effectively produce
our products.
The electronics industry has been subject to increasing environmental regulations. A number of
domestic and foreign jurisdictions seek to restrict the use of various substances, a number of
which have been or are currently used in our products or processes. For example, the European Union
Restriction of Hazardous Substances in Electrical and Electronic Equipment (RoHS) Directive now
requires that certain substances which may be found in certain products we have manufactured in the
past, be removed from all electronics components. Eliminating such substances from our
manufacturing processes requires the expenditure of additional research and development funds to
seek alternative substances for our products, as well as increased testing by third parties to
ensure the quality of our products and compliance with the RoHS Directive. While we have
implemented a compliance program to ensure our product offering meets these regulations, there may
be instances where alternative substances will not be available or commercially feasible, or may
only be available from a single source, or may be significantly more expensive than their
restricted counterparts. Additionally, if we were found to be non-compliant with any such rule or
regulation, we could be subject to fines, penalties and/or restrictions imposed by government
agencies that could adversely affect our operating results.
We may be liable for penalties under environmental laws, rules and regulations, which could
adversely impact our business.
We have used, and will continue to use, a variety of chemicals and compounds in manufacturing
operations and have been and will continue to be subject to a wide range of environmental
protection regulations in the United States and in foreign countries. Current or future regulation
of the materials necessary for our products may have a material adverse effect on our business,
financial condition and results of operations. Environmental regulations often require parties to
fund remedial action for violations of such regulations regardless of fault. Consequently, it is
often difficult to estimate the future impact of environmental matters, including potential
liabilities. Furthermore, our customers increasingly require warranties or indemnity relating to
compliance with environmental regulations. The amount of expense and capital expenditures that
might be required to satisfy environmental liabilities, to complete remedial actions and to
continue to comply with applicable environmental laws may have a material adverse effect on our
business, financial condition and results of operations.
22
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Our gallium arsenide semiconductors may cease to be competitive with silicon alternatives.
Among our product portfolio, we manufacture and sell gallium arsenide semiconductor devices and
components, principally power amplifiers and switches. The production of gallium arsenide
integrated circuits is more costly than the production of silicon circuits. The cost differential
is due to higher costs of raw materials for gallium arsenide and higher unit costs associated with
smaller sized wafers and lower production volumes. Therefore, to remain competitive, we must offer
gallium arsenide products that provide superior performance over their silicon-based counterparts.
Although we manufacture and sell silicon-based power amplifiers, if we do not continue to offer
GaAs products that provide sufficiently superior performance to justify the cost differential, our
operating results may be materially and adversely affected. We expect the costs of producing
gallium arsenide devices will continue to exceed the costs of producing their silicon counterparts.
Silicon semiconductor technologies are widely used process technologies for certain integrated
circuits and these technologies continue to improve in performance. We may not continue to
identify products and markets that require performance attributes of gallium arsenide solutions.
To be successful we may need to effect investments, alliances and acquisitions, and to integrate
companies we acquire.
Although we have invested in the past, and intend to continue to invest, significant resources in
internal research and development activities, the complexity and rapidity of technological changes
and the significant expense of internal research and development make it impractical for us to
pursue development of all technological solutions on our own. On an ongoing basis, we review
investment, alliance and acquisition prospects that would complement our product offerings, augment
our market coverage or enhance our technological capabilities. We may not be able to identify and
consummate suitable investment, alliance or acquisition transactions in the future. Moreover, if
such transactions are consummated, they could result in:
| • | issuances of equity securities dilutive to our stockholders, | ||
| • | large, one-time write-offs, | ||
| • | the incurrence of substantial debt and assumption of unknown liabilities, | ||
| • | the potential loss of key employees from the acquired company, | ||
| • | amortization expenses related to intangible assets, and | ||
| • | the diversion of management’s attention from other business concerns. |
Moreover, integrating acquired organizations and their products and services may be difficult,
expensive, time-consuming and a strain on our resources and our relationship with employees and
customers and ultimately may not be successful. Additionally, in periods following an acquisition,
we will be required to evaluate goodwill and acquisition-related intangible assets for impairment.
When such assets are found to be impaired, they will be written down to estimated fair value, with
a charge against earnings.
Certain provisions in our organizational documents and Delaware law may make it difficult for
someone to acquire control of us.
We have certain anti-takeover measures that may affect our common stock. Our certificate of
incorporation, our by-laws and the Delaware General Corporation Law contain several provisions that
would make more difficult an acquisition of control of us in a transaction not approved by our
Board of Directors. Our certificate of incorporation and by-laws include provisions such as:
| • | the division of our Board of Directors into three classes to be elected on a staggered basis, one class each year, | ||
| • | the ability of our Board of Directors to issue shares of preferred stock in one or more series without further authorization of stockholders, |
23
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| • | a prohibition on stockholder action by written consent, | ||
| • | elimination of the right of stockholders to call a special meeting of stockholders, | ||
| • | a requirement that stockholders provide advance notice of any stockholder nominations of directors or any proposal of new business to be considered at any meeting of stockholders, | ||
| • | a requirement that the affirmative vote of at least 66 2/3 percent of our shares be obtained to amend or repeal any provision of our by-laws or the provision of our certificate of incorporation relating to amendments to our by-laws, | ||
| • | a requirement that the affirmative vote of at least 80% of our shares be obtained to amend or repeal the provisions of our certificate of incorporation relating to the election and removal of directors, the classified board or the right to act by written consent, | ||
| • | a requirement that the affirmative vote of at least 80% of our shares be obtained for business combinations unless approved by a majority of the members of the Board of Directors and, in the event that the other party to the business combination is the beneficial owner of 5% or more of our shares, a majority of the members of Board of Directors in office prior to the time such other party became the beneficial owner of 5% or more of our shares, | ||
| • | a fair price provision, and | ||
| • | a requirement that the affirmative vote of at least 90% of our shares be obtained to amend or repeal the fair price provision. |
In addition to the provisions in our certificate of incorporation and by-laws, Section 203 of the
Delaware General Corporation Law generally provides that a corporation may not engage in any
business combination with any interested stockholder during the three-year period following the
time that such stockholder becomes an interested stockholder, unless a majority of the directors
then in office approves either the business combination or the transaction that results in the
stockholder becoming an interested stockholder or specified stockholder approval requirements are
met.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
We are headquartered in Woburn, Massachusetts and have executive offices in Irvine, California. For
information regarding property, plant and equipment by geographic region for each of the last two
fiscal years, see Note 18 of Item 8 of this Annual Report on Form 10-K. The following table sets
forth our principal facilities:
| Location | Owned/Leased | Square Footage | Primary Function | |||||
|
|
||||||||
|
Woburn, Massachusetts
|
Owned | 158,000 | Corporate headquarters and manufacturing | |||||
|
Adamstown, Maryland
|
Owned | 146,100 | Manufacturing and office space | |||||
|
Newbury Park, California
|
Owned | 111,600 | Manufacturing and office space | |||||
|
Newbury Park, California
|
Leased | 108,400 | Design center | |||||
|
Irvine, California
|
Leased | 63,400 | Office space and design center | |||||
|
Cedar Rapids, Iowa
|
Leased | 28,500 | Design center | |||||
|
Mexicali, Mexico
|
Owned | 380,000 | Manufacturing and office space | |||||
24
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ITEM 3. LEGAL PROCEEDINGS.
From time to time, various lawsuits, claims and proceedings have been, and may in the future be,
instituted or asserted against the Company, including those pertaining to patent infringement,
intellectual property, environmental, product liability, safety and health, employment and
contractual matters.
Additionally, the semiconductor industry is characterized by vigorous protection and pursuit of
intellectual property rights. From time to time, third parties have asserted and may in the future
assert patent, copyright, trademark and other intellectual property rights to technologies that are
important to our business and have demanded and may in the future demand that we license their
technology. The outcome of any such litigation cannot be predicted with certainty and some such
lawsuits, claims or proceedings may be disposed of unfavorably to the Company. Generally speaking,
intellectual property disputes often have a risk of injunctive relief, which, if imposed against
the Company, could materially and adversely affect the Company’s financial condition, or results of
operations. From time to time we are also involved in legal proceedings in the ordinary course of
business.
We believe that there is no pending litigation involving the Company that will have, individually
or in the aggregate, a material adverse effect on our business.
ITEM 4. REMOVED AND RESERVED.
25
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES.
Our common stock is traded on the NASDAQ Global Select Market under the symbol “SWKS”. The
following table sets forth the range of high and low closing prices for our common stock for the
periods indicated, as reported by the NASDAQ Global Select Market. The number of stockholders of
record of Skyworks’ common stock as of November 21, 2010, was approximately 29,000.
| High | Low | |||||||
|
Fiscal year ended October 1, 2010:
|
||||||||
|
|
||||||||
|
First quarter
|
$ | 14.30 | $ | 10.27 | ||||
|
Second quarter
|
16.41 | 12.69 | ||||||
|
Third quarter
|
17.91 | 14.23 | ||||||
|
Fourth quarter
|
21.09 | 16.33 | ||||||
|
|
||||||||
|
Fiscal year ended October 2, 2009:
|
||||||||
|
|
||||||||
|
First quarter
|
$ | 7.51 | $ | 3.81 | ||||
|
Second quarter
|
8.84 | 4.07 | ||||||
|
Third quarter
|
10.50 | 8.02 | ||||||
|
Fourth quarter
|
14.28 | 9.50 | ||||||
Skyworks has not paid cash dividends on its common stock and we do not anticipate paying cash
dividends in the foreseeable future. On August 3, 2010 the Board of Directors approved a stock
repurchase program, pursuant to which the Company is authorized to repurchase up to $200 million of
the Company’s common stock from time to time on the open market or in privately negotiated
transactions as permitted by securities laws and other legal requirements. The program will be funded using the Company’s working
capital and may be terminated at any time. During fiscal year 2010 the Company did not repurchase
any shares under the program.
The following table provides information regarding repurchases of common stock made by us during
the fiscal quarter ended October 1, 2010:
| Total Number of Shares | Maximum Number (or | |||||||||||
| Purchased as Part of Publicly | Approximately Dollar Value) of | |||||||||||
| Total Number of | Average Price Paid | Announced Plans or | Shares that May Yet Be Purchased Under | |||||||||
| Period | Shares Purchased | per Share | Programs (2) | the Plans or Programs (2) | ||||||||
|
7/03/10-7/30/10
|
— | — | N/A | N/A | ||||||||
|
7/31/10-8/27/10
|
4,923 | (1) | $ | 17.59 | — | $200 million | ||||||
|
8/28/10-10/01/10
|
— | — | — | $200 million | ||||||||
| (1) | All shares of common stock reported in the table above were repurchased by Skyworks at the fair market value of the common stock as of the period stated above, in connection with the satisfaction of tax withholding obligations under stock agreements between Skyworks and certain of its employees. | |
| (2) | On August 3, 2010, the Company’s Board of Directors approved a stock repurchase program, pursuant to which the Company is authorized to repurchase up to $200 million of the Company’s common stock from time to time on the open market or in privately negotiated transactions as permitted by securities laws and other legal requirements. |
26
Table of Contents
ITEM 6. SELECTED FINANCIAL DATA.
You should read the data set forth below in conjunction with Item 7,
Management’s Discussion and
Analysis of Financial Condition and Results of Operation
, and our consolidated financial statements
and related notes appearing elsewhere in this Annual Report on Form 10-K. The Company’s fiscal year
ends on the Friday closest to September 30. Fiscal years 2010 and 2009 each consisted of 52 weeks
and ended on October 1, 2010 and October 2, 2009, respectively. Fiscal 2008 consisted of 53 weeks
and ended on October 3, 2008. The following balance sheet data and statements of operations data
for the five years ended October 1, 2010, were derived from our audited consolidated financial
statements. Consolidated balance sheets at October 1, 2010 and at October 2, 2009, and the related
consolidated statements of operations, cash flows, stockholders equity and comprehensive income
(loss) for each of the three fiscal years ended October 1, 2010, and notes thereto appear elsewhere
in this Annual Report on Form 10-K.
27
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| Fiscal Year | ||||||||||||||||||||
| (In thousands except per share data) | 2010 (6) | 2009 (6)(8) | 2008 (6)(8) | 2007 (6)(8) | 2006 (6)(8) | |||||||||||||||
|
|
||||||||||||||||||||
|
Statement of Operations Data:
|
||||||||||||||||||||
|
Net revenues
|
$ | 1,071,849 | $ | 802,577 | $ | 860,017 | $ | 741,744 | $ | 773,750 | ||||||||||
|
|
||||||||||||||||||||
|
Cost of goods sold (1)
|
615,016 | 484,357 | 517,054 | 454,359 | 511,071 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Gross profit
|
456,833 | 318,220 | 342,963 | 287,385 | 262,679 | |||||||||||||||
|
|
||||||||||||||||||||
|
Operating expenses:
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Research and development
|
134,140 | 123,996 | 146,013 | 126,075 | 164,106 | |||||||||||||||
|
|
||||||||||||||||||||
|
Selling, general and administrative (2)
|
117,853 | 100,421 | 100,007 | 94,950 | 135,801 | |||||||||||||||
|
|
||||||||||||||||||||
|
Amortization of intangible assets (3)
|
6,136 | 6,118 | 6,005 | 2,144 | 2,144 | |||||||||||||||
|
|
||||||||||||||||||||
|
Restructuring and other charges (4)
|
(1,040 | ) | 15,982 | 567 | 5,730 | 26,955 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Total operating expenses
|
257,089 | 246,517 | 252,592 | 228,899 | 329,006 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Operating income (loss)
|
199,744 | 71,703 | 90,371 | 58,486 | (66,327 | ) | ||||||||||||||
|
|
||||||||||||||||||||
|
Interest expense
|
(4,246 | ) | (8,290 | ) | (16,324 | ) | (24,187 | ) | (26,929 | ) | ||||||||||
|
|
||||||||||||||||||||
|
(Loss) gain on early retirement of
convertible debt (5)
|
(79 | ) | 4,590 | 2,158 | (6,964 | ) | (5,489 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
Other (loss) income, net
|
(345 | ) | 1,753 | 5,983 | 11,438 | 8,921 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Income (loss) before income taxes
|
195,074 | 69,756 | 82,188 | 38,773 | (89,824 | ) | ||||||||||||||
|
|
||||||||||||||||||||
|
Provision (benefit) for income taxes (7)
|
57,780 | (25,227 | ) | (28,818 | ) | (880 | ) | 15,378 | ||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Net income (loss)
|
$ | 137,294 | $ | 94,983 | $ | 111,006 | $ | 39,653 | $ | (105,202 | ) | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Per share information:
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Net income (loss), basic
|
$ | 0.78 | $ | 0.57 | $ | 0.69 | $ | 0.25 | $ | (0.66 | ) | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Net income (loss), diluted
|
$ | 0.75 | $ | 0.56 | $ | 0.67 | $ | 0.25 | $ | (0.66 | ) | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Balance Sheet Data:
|
||||||||||||||||||||
|
Working capital
|
$ | 585,541 | $ | 393,884 | $ | 345,916 | $ | 316,808 | $ | 245,223 | ||||||||||
|
|
||||||||||||||||||||
|
Total assets
|
1,564,052 | 1,352,591 | 1,235,371 | 1,188,834 | 1,090,002 | |||||||||||||||
|
|
||||||||||||||||||||
|
Long-term liabilities
|
43,132 | 47,569 | 125,026 | 173,382 | 171,846 | |||||||||||||||
|
|
||||||||||||||||||||
|
Stockholders’ equity
|
1,316,596 | 1,108,779 | 961,604 | 818,543 | 742,536 | |||||||||||||||
| (1) | During the second quarter of fiscal year 2009, we implemented a restructuring plan that reduced global headcount by approximately 4% or 150 employees. The total charges related to the plan were $19.4 million of which $3.5 million was charged to cost of goods sold for inventory write-downs. | |
| During fiscal year 2006, we recorded $23.3 million of inventory charges and reserves primarily related to the exit of our baseband product area. | ||
| (2) | During fiscal year 2006, we recorded bad debt expense of $35.1 million related to certain baseband customers. |
28
Table of Contents
| (3) | The increase in amortization expense in fiscal year 2008 is primarily due to the acquisitions completed in October 2007. | |
| (4) | In fiscal year 2010, we recognized a gain of $1.0 million on the sale of an asset that was previously impaired during the 2009 restructuring noted below. | |
| In fiscal year 2009, we implemented a restructuring plan to reduce global headcount by approximately 4% or 150 employees. The total charges related to the plan were $19.4 million of which $16.0 million was charged to restructuring and other charges. This primarily consisted of $4.5 million related to severance and benefits, $5.6 million related to the impairment of long-lived assets, $2.1 million related to lease obligations, $2.3 million related to the impairment of technology licenses and design software and $1.5 million related to other charges. | ||
| In fiscal year 2007, we recorded restructuring and other charges of $4.9 million related to the exit of the baseband product area. | ||
| In fiscal year 2006, we recorded restructuring and other charges of $27.0 million related to the exit of our baseband product area. | ||
| (5) | In fiscal years 2010, 2009, and 2008 we retired approximately $53.0 million, $57.9 million, and $62.4 million aggregate principal amount of our $200.0 million aggregate principal amount convertible subordinate notes due in March 2010 and March 2012 (the “2007 Convertible Notes”), respectively. We recorded approximately $0.1 million loss relating to the early retirement in fiscal year 2010 and gains of $4.6 million and $2.2 million for fiscal year 2009 and fiscal year 2008, respectively. | |
| In fiscal years 2007 and 2006 we retired approximately $130.0 million and $50.7 million aggregate principal balance of our 4.75% convertible subordinated notes due November 2007, respectively. We recognized losses of $7.0 million and $5.5 million on the early retirement of these notes for fiscal year 2007 and fiscal year 2006, respectively. | ||
| (6) | Fiscal years ended October 1, 2010, October 2, 2009, October 3, 2008, September 28, 2007 and September 29, 2006 included $40.7 million, $23.5 million, $23.2 million, $13.7 million and $14.2 million, respectively, of share-based compensation expense due to the adoption of the Statement of ASC 718- Compensation-Stock Compensation (“ASC 718”) . | |
| (7) | Based on the Company’s evaluation of the realizability of its United States net deferred tax assets through the generation of future taxable income, $38.6 million, $40.0 million and $15.0 million of the Company’s valuation allowance was reversed during the fiscal years ended October 2, 2009, October 3, 2008 and September 28, 2007, respectively. For fiscal year 2009, the amount reversed consisted of $25.4 million recognized as income tax benefit, and $13.2 million recognized as a reduction to goodwill. For fiscal year 2008, the amount reversed consisted of $36.4 million recognized as income tax benefit, and $3.6 million recognized as a reduction to goodwill. For fiscal year 2007, the amount reversed consisted of $1.7 million recognized as income tax benefit, and $13.3 million recognized as a reduction to goodwill. | |
| (8) | Effective October 3, 2009, the Company adopted ASC 470-20- Debt, Debt with Conversion and Other Options (“ASC 470-20”) in accordance with GAAP. The Company’s financial statements and the accompanying footnotes for all prior periods presented have been adjusted to reflect the retrospective adoption of this new accounting principle. |
29
Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
The following discussion and analysis of our financial condition and results of operations should
be read in conjunction with our consolidated financial statements and related notes that appear
elsewhere in this Annual Report on Form 10-K. In addition to historical information, the following
discussion contains forward-looking statements that are subject to risks and uncertainties. Actual
results may differ substantially and adversely from those referred to herein due to a number of
factors, including but not limited to those described below and elsewhere in this Annual Report on
Form 10-K.
OVERVIEW
Skyworks Solutions, Inc., together with its consolidated subsidiaries, (“Skyworks” or the
“Company”) is an innovator of high reliability analog and mixed signal semiconductors. Leveraging
core technologies, Skyworks offers diverse standard and custom linear products supporting
automotive, broadband, cellular infrastructure, energy management, industrial, medical, military
and cellular handset applications. The Company’s portfolio includes amplifiers, attenuators,
detectors, diodes, directional couplers, front-end modules, hybrids, infrastructure RF subsystems,
mixers/demodulators, phase shifters, PLLs/synthesizers/VCOs, power dividers/combiners, receivers,
switches and technical ceramics.
BUSINESS FRAMEWORK
We have aligned our product portfolio around two broad markets: cellular handsets and analog
semiconductors. In general, our handset portfolio includes highly customized power amplifiers and
front-end solutions that are in many of today’s cellular devices, from entry level to multimedia
platforms and smart phones. Some of our primary handset customers include LG Electronics, Motorola,
Nokia, Samsung, Sony Ericsson, Research in Motion, and HTC. Our competitors include Avago
Technologies, RF Micro Devices and Triquint Semiconductor.
In parallel, we offer over 2,500 different catalog and custom linear products to a highly
diversified non-handset customer base. Our customers include infrastructure, automotive, energy
management, medical and military providers such as Huawei, Ericsson, Landis + Gyr, Sensus, Itron,
Siemens, and Northrop Grumman. Our competitors in the linear products markets include Analog
Devices, Hittite Microwave, Linear Technology and Maxim Integrated Products.
BASIS OF PRESENTATION
The Company’s fiscal year ends on the Friday closest to September 30. Fiscal years 2010 and 2009
each consisted of 52 weeks and ended on October 1, 2010 and October 2, 2009, respectively. Fiscal
year 2008 consisted of 53 weeks and ended on October 3, 2008.
Effective October 3, 2009, we adopted ASC 470-20-
Debt, Debt with Conversion and Other Options
(“ASC 470-20”) in accordance with GAAP. Our financial statements and the accompanying footnotes
for all prior periods presented have been adjusted to reflect the retrospective adoption of this
new accounting principle.
30
Table of Contents
RESULTS OF OPERATIONS
YEARS ENDED OCTOBER 1, 2010, OCTOBER 2, 2009, AND OCTOBER 3, 2008.
The following table sets forth the results of our operations expressed as a percentage of net
revenues for the fiscal years below:
| 2010 | 2009 | 2008 | ||||||||||
|
Net revenues
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
|
Cost of goods sold
|
57.4 | 60.4 | 60.1 | |||||||||
|
|
||||||||||||
|
Gross margin
|
42.6 | 39.6 | 39.9 | |||||||||
|
Operating expenses:
|
||||||||||||
|
Research and development
|
12.5 | 15.4 | 17.0 | |||||||||
|
Selling, general and administrative
|
11.0 | 12.5 | 11.6 | |||||||||
|
Amortization of intangible assets
|
0.6 | 0.8 | 0.7 | |||||||||
|
Restructuring and other charges (credits)
|
(0.1 | ) | 2.0 | 0.1 | ||||||||
|
|
||||||||||||
|
Total operating expenses
|
24.0 | 30.7 | 29.4 | |||||||||
|
|
||||||||||||
|
Operating income
|
18.6 | 8.9 | 10.5 | |||||||||
|
Interest expense
|
(0.4 | ) | (1.0 | ) | (1.9 | ) | ||||||
|
Loss on early retirement of convertible debt
|
0.0 | 0.6 | 0.2 | |||||||||
|
Other income, net
|
0.0 | 0.2 | 0.7 | |||||||||
|
|
||||||||||||
|
Income before income taxes
|
18.2 | 8.7 | 9.5 | |||||||||
|
Provision (benefit) for income taxes
|
5.4 | (3.1 | ) | (3.4 | ) | |||||||
|
|
||||||||||||
|
Net income
|
12.8 | % | 11.8 | % | 12.9 | % | ||||||
|
|
||||||||||||
GENERAL
During fiscal year 2010, certain key factors contributed to our overall results of operations and
cash flows from operations. More specifically:
| • | According to some industry estimates, sales of smart phones and mobile internet devices are growing four times faster than traditional cellular handsets given consumer’s appetite for anytime, anywhere connectivity. We believe that this is the driving force behind the higher overall demand for our wireless semiconductor products that support mobile internet, wireless infrastructure, energy management and diversified analog applications. The increase in the overall market coupled with an increase in our market share are the primary drivers of the approximately 33.6% or $269.3 million year-over-year revenue growth. | ||
| • | Gross profit increased by $138.6 million or 300 basis points to 42.6% of net revenue for the fiscal year ending October 1, 2010 as compared to fiscal year 2009. The increase in gross profit in aggregate dollars and as a percentage of net revenue is primarily the result of continued factory process and productivity enhancements, product end-to-end yield improvements, year-over-year material cost reductions, targeted capital expenditure investments, and the aforementioned increase in net revenues. | ||
| • | Operating income increased by $128.0 million or 178.6% over the prior year to 18.6% of revenue for fiscal year 2010. The increase is primarily due to the aforementioned increases in net revenue and gross margin along with a higher degree of operating leverage as the Company maintained relatively constant operating expenditures. | ||
| • | We generated $223.0 million in cash from operations during fiscal year 2010 resulting in a cash, cash equivalents and restricted cash balance of $459.4 million at October 1, 2010. | ||
| • | In fiscal year 2010, we retired $53.0 million in aggregate principal amount of our 2007 Convertible Notes. These retirements reduced the remaining aggregate outstanding principal balance on our 2007 Convertible Notes to $26.7 million (carrying value of $24.7 million) resulting in a net cash position of $384.6 million at October 1, 2010. |
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NET REVENUES
| Fiscal Years Ended | ||||||||||||||||||||
| October 1, | October 2, | October 3, | ||||||||||||||||||
| (dollars in thousands) | 2010 | Change | 2009 | Change | 2008 | |||||||||||||||
|
|
||||||||||||||||||||
|
Net revenues
|
$ | 1,071,849 | 33.6 | % | $ | 802,577 | (6.7 | )% | $ | 860,017 | ||||||||||
We market and sell our products directly to Original Equipment Manufacturers (“OEMs”) of
communication electronic products, third-party Original Design Manufacturers (“ODMs”), contract
manufacturers, and indirectly through electronic components distributors. We periodically enter
into revenue generating arrangements that leverage our broad intellectual property portfolio by
licensing or selling our non-core patents or other intellectual property. We anticipate continuing
this intellectual property strategy in future periods.
Overall revenues in fiscal year 2010 increased by $269.3 million, or 33.6%, from fiscal year 2009.
This revenue increase was principally driven by market share gains and higher overall demand for
our products used in mobile internet, wireless infrastructure, energy management and diversified
analog applications.
Overall revenues in fiscal year 2009 decreased by $57.4 million, or 6.7%, from fiscal year 2008.
This revenue decline was principally due to a reduction in demand in our end markets as a result of
adverse global macroeconomic conditions, in addition to our exit from certain product areas such as
mobile transceivers in the second fiscal quarter of 2009.
For information regarding net revenues by geographic region and customer concentration, see Note 18 of Item 8 of this Annual Report on Form 10-K.
GROSS PROFIT
| Fiscal Years Ended | ||||||||||||||||||||
| October 1, | October 2, | October 3, | ||||||||||||||||||
| (dollars in thousands) | 2010 | Change | 2009 | Change | 2008 | |||||||||||||||
|
|
||||||||||||||||||||
|
Gross profit
|
$ | 456,833 | 43.6 | % | $ | 318,220 | (7.2 | )% | $ | 342,963 | ||||||||||
|
% of net revenues
|
42.6 | % | 39.6 | % | 39.9 | % | ||||||||||||||
Gross profit represents net revenues less cost of goods sold. Cost of goods sold consists primarily
of purchased materials, labor and overhead (including depreciation and equity based compensation
expense) associated with product manufacturing.
We increased our gross profit by $138.6 million for the fiscal year ending October 1, 2010 as
compared to the prior fiscal year, resulting in a 300 basis point expansion in gross profit margin
to 42.6%. This was principally the result of continued factory process and productivity
enhancements, product end-to-end yield improvements, year-over-year material cost reductions,
targeted capital expenditure investments and the aforementioned increase in net revenue.
During fiscal 2010 we continued to benefit
from higher contribution margins associated with the licensing and/or sale of intellectual property.
We maintained relatively consistent gross profit margins of 39.6% for the fiscal year ended October
2, 2009 as compared to fiscal year 2008 despite a year-over-year decrease in the overall revenue
base between the two fiscal years. This was principally the result of aggressive year-over-year
material cost reductions, yield improvements, leverage of our fixed costs and cost control measures
including capacity management enhanced by the flexibility of our hybrid manufacturing model. Gross
profit in aggregate dollars decreased by $24.7 million between fiscal year 2009 and fiscal year
2008 primarily as the result of the aforementioned $57.4 million decrease in overall revenues. In
fiscal year 2009, we continued to benefit from higher contribution margins associated with the licensing and/or sale of intellectual
property.
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RESEARCH AND DEVELOPMENT
| Fiscal Years Ended | ||||||||||||||||||||
| October 1, | October 2, | October 3, | ||||||||||||||||||
| (dollars in thousands) | 2010 | Change | 2009 | Change | 2008 | |||||||||||||||
|
|
||||||||||||||||||||
|
Research and development
|
$ | 134,140 | 8.2 | % | $ | 123,996 | (15.1 | )% | $ | 146,013 | ||||||||||
|
% of net revenues
|
12.5 | % | 15.4 | % | 17.0 | % | ||||||||||||||
Research and development expenses consist principally of direct personnel costs, costs for
pre-production evaluation and testing of new devices, masks and engineering prototypes, equity
based compensation expense and design and test tool costs.
The 8.2% increase in research and development expenses in fiscal year 2010 when compared to fiscal
year 2009 is principally attributable to higher head count and related compensation costs. In
addition, the Company had ramped design activity resulting in higher mask, prototype and materials
costs in support of increased product development for our target markets. Research and development
expenses decreased as a percentage of net revenue for fiscal year 2010 as a result of the
aforementioned increase in net revenue.
The decrease in research and development expenses in aggregate dollars and as a percentage of net
revenues for fiscal year 2009 when compared to fiscal year 2008 was principally attributable to the
restructuring plan implemented on January 22, 2009 in which we exited non-core product areas.
SELLING, GENERAL AND ADMINISTRATIVE
| Fiscal Years Ended | ||||||||||||||||||||
| October 1, | October 2, | October 3, | ||||||||||||||||||
| (dollars in thousands) | 2010 | Change | 2009 | Change | 2008 | |||||||||||||||
|
|
||||||||||||||||||||
|
Selling, general and administrative
|
$ | 117,853 | 17.4 | % | $ | 100,421 | 0.4 | % | $ | 100,007 | ||||||||||
|
% of net revenues
|
11.0 | % | 12.5 | % | 11.6 | % | ||||||||||||||
Selling, general and administrative expenses include legal, accounting, treasury, human resources,
information systems, customer service, bad debt expense, sales commissions, share-based compensation expense, advertising, marketing and other costs.
The increase in selling, general and administrative expenses for fiscal year 2010 as compared to
fiscal year 2009 is principally due to share-based compensation which
increased primarily as a result of our
increased stock price in fiscal year 2010 as compared to
2009. Selling, general and administrative expenses as a percentage of net revenues decreased for
fiscal year 2010, as compared to fiscal year 2009, due to the aforementioned increase in fiscal
year 2010 revenue.
Selling, general and administrative expenses remained relatively unchanged for fiscal year 2009 as
compared to fiscal year 2008. Selling, general and administrative expenses as a percentage of net
revenues increased for fiscal year 2009, as compared to fiscal year 2008, mainly due to the
aforementioned decline in fiscal year 2009 revenue.
AMORTIZATION OF INTANGIBLE ASSETS
| Fiscal Years Ended | ||||||||||||||||||||
| October 1, | October 2, | October 3, | ||||||||||||||||||
| (dollars in thousands) | 2010 | Change | 2009 | Change | 2008 | |||||||||||||||
|
|
||||||||||||||||||||
|
Amortization
|
$ | 6,136 | 0.3 | % | $ | 6,118 | 1.9 | % | $ | 6,005 | ||||||||||
|
% of net revenues
|
0.6 | % | 0.8 | % | 0.7 | % | ||||||||||||||
Amortization expense remained consistent during the fiscal years presented above.
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For additional information regarding goodwill and intangible assets, see Note 8 of Item 8 of
this Annual Report on Form 10-K.
RESTRUCTURING AND OTHER CHARGES
| Fiscal Years Ended | ||||||||||||||||||||
| October 1, | October 2, | October 3, | ||||||||||||||||||
| (dollars in thousands) | 2010 | Change | 2009 | Change | 2008 | |||||||||||||||
|
Restructuring and other charges
|
$ | (1,040 | ) | (106.5 | )% | $ | 15,982 | 2718.7 | % | $ | 567 | |||||||||
|
% of net revenues
|
(0.1 | )% | 2.0 | % | 0.1 | % | ||||||||||||||
Restructuring and other charges consist of charges for asset impairments and restructuring
activities.
On January 22, 2009, we implemented a restructuring plan to realign our costs given the business
conditions at the time. We exited our mobile transceiver product area and reduced global headcount
by approximately 4%, or 150 employees which resulted in a reduction to annual operating
expenditures of approximately $20 million. We recorded various charges associated with this action.
In total, we recorded $16.0 million of restructuring and other charges and $3.5 million in
inventory write-downs that were charged to cost of goods sold.
During fiscal year 2010 we recorded a gain of $1.0 million on the sale of a capital asset
previously impaired during the 2009 restructuring.
For additional information regarding restructuring charges and liability balances, see Note 16 of
Item 8 of this Annual Report on Form 10-K.
INTEREST EXPENSE
| Fiscal Years Ended | ||||||||||||||||||||
| October 1, | October 2, | October 3, | ||||||||||||||||||
| (dollars in thousands) | 2010 | Change | 2009 | Change | 2008 | |||||||||||||||
|
Interest expense
|
$ | 4,246 | (48.8 | )% | $ | 8,290 | (49.2 | )% | $ | 16,324 | ||||||||||
|
% of net revenues
|
0.4 | % | 1.0 | % | 1.9 | % | ||||||||||||||
Interest expense is comprised principally of interest expense related to the Company’s 2007
Convertible Notes which has been calculated under ASC 470-20
Debt, Debt with Conversion and Other
Options
.
Interest
expense includes charges in connection with our $50.0 million Credit
Facility between Skyworks USA, Inc., our wholly owned subsidiary, and
Wells Fargo Bank, N.A.
Our ability to borrow under the Credit Facility expired in October
2010 and, given our strong cash position, management has determined
that the Credit Facility was no longer required and accordingly, has
been substantially repaid as of November 29, 2010.
The decrease in interest expense for the fiscal year ended October 1, 2010 as compared to fiscal
year 2009 is primarily due to the decline in interest payments and amortization of discount
associated with the early retirement and settlement of $53.0 million in aggregate principal amount
of our 2007 Convertible Notes.
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Table of Contents
The decrease in interest expense for the fiscal year ended October 2, 2009 as compared to fiscal
year 2008 in aggregate dollars and as a percentage of net revenues is due to the early retirement
of $57.9 million in aggregate principal amount of the Company’s 2007 Convertible Notes in fiscal
year 2009.
For additional information regarding our borrowing arrangements, see Note 9 of Item 8 of this
Annual Report on Form 10-K.
(LOSS) GAIN ON EARLY RETIREMENT OF CONVERTIBLE DEBT
| Fiscal Years Ended | ||||||||||||||||||||
| October 1, | October 2, | October 3, | ||||||||||||||||||
| (dollars in thousands) | 2010 | Change | 2009 | Change | 2008 | |||||||||||||||
|
(Loss) gain on
early retirement of
convertible debt
|
$ | (79 | ) | (101.7 | )% | $ | 4,590 | 112.7 | % | $ | 2,158 | |||||||||
|
% of net revenues
|
(0.0 | )% | 0.6 | % | 0.2 | % | ||||||||||||||
We retired
$32.6 million and $20.4 million in aggregate principal amount of our 2007 Convertible Notes due in 2010 and 2012,
respectively, during the fiscal year.
We recorded a net loss of $0.1 million during fiscal year 2010 related to the early retirement of these notes.
We retired
$57.9 million and $62.4 million in aggregate principal amount of our 2007 Convertible Notes
and recorded a net gain of $4.6 million and $2.2 million in fiscal year 2009 and fiscal year 2008, respectively.
For additional information regarding our borrowing arrangements, see Note 9
of Item 8 of this Annual Report on Form 10-K.
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OTHER (LOSS) INCOME, NET
| Fiscal Years Ended | ||||||||||||||||||||
| October 1, | October 2, | October 3, | ||||||||||||||||||
| (dollars in thousands) | 2010 | Change | 2009 | Change | 2008 | |||||||||||||||
|
Other (loss) income, net
|
$ | (345 | ) | (119.7 | )% | $ | 1,753 | (70.7 | )% | $ | 5,983 | |||||||||
|
% of net revenues
|
(0.0 | )% | 0.2 | % | 0.7 | % | ||||||||||||||
Other income, net is comprised primarily of interest income on invested cash balances, other
non-operating income and expense items and foreign exchange gains/losses.
The decreases in other income in both aggregate dollars and as a percentage of net revenues for the
fiscal year ended October 1, 2010 as compared to fiscal year 2009 related to an overall decline in
interest income on invested cash balances due to lower rates combined with a net loss on foreign
currency translation.
For the fiscal year ended October 2, 2009 as compared to fiscal year 2008, the overall decline in
interest income on invested cash balances is due to lower interest rates in fiscal year 2009.
PROVISION (BENEFIT) FOR INCOME TAXES
| Fiscal Years Ended | ||||||||||||||||||||
| October 1, | October 2, | October 3, | ||||||||||||||||||
| (dollars in thousands) | 2010 | Change | 2009 | Change | 2008 | |||||||||||||||
|
Provision
(benefit) for income
taxes
|
$ | 57,780 | 329.0 | % | $ | (25,227 | ) | 12.5 | % | $ | (28,818 | ) | ||||||||
|
% of net revenues
|
5.4 | % | (3.1 | )% | (3.4 | )% | ||||||||||||||
The income tax provision for the fiscal year ended October 1, 2010 was $57.8 million as compared to
a benefit of $25.2 million in fiscal year 2009.
The annual effective tax rate for fiscal year 2010
was 29.6% as compared to a tax benefit of 36.2% for fiscal year 2009.
The income tax provision for fiscal year 2010 consisted of $51.9
million, $5.0 million and $0.9 million for United States tax expense,
reserves for tax uncertainties, and foreign tax expense, respectively.
The fiscal year 2009 benefit
of $25.2 million was primarily due to a $25.4 million reduction in the valuation allowance related
to the utilization and recognition of future tax benefits on United States federal and state net
operating loss and credit carry forwards and other items, and United States income tax benefit of
$1.0 million, offset by increases to reserves for tax
uncertainties of $0.3 million and foreign tax expense of $0.9
million.
The income tax benefit was $25.2 million and $28.8 million for fiscal year 2009 and 2008,
respectively. The fiscal year 2008 benefit of $28.8 million is due to a $36.4 million reduction in
the valuation allowance related to the partial recognition of future tax benefits from United
States federal and state net operating loss and credit carry forwards, offset by United States
income tax expense of $1.2 million, a charge in lieu of tax
expense of $7.0 million, and foreign tax benefit of $0.6 million. The fiscal
year 2008 charge in lieu of tax expense resulted from a partial recognition of certain acquired tax
benefits that were subject to a valuation allowance at the time of acquisition, the realization of
which required a reduction of goodwill.
In accordance with ASC 740,
Income Taxe
s, we have determined it is more likely than not that a
portion of our historic and current year income tax benefits will not be realized. Accordingly, as
of October 1, 2010, we have maintained a valuation allowance of $25.6 million of which $24.0
million relates to our United States deferred tax assets (principally related to state research tax
credits), and $1.6 million relates to our foreign operations. If these benefits are recognized in
a future period the valuation allowance on deferred tax assets will be reversed and up to a $25.2
million income tax benefit, and up to a $0.4 million reduction to goodwill may be recognized.
Our balance of deferred tax assets, net of deferred tax liabilities, as of October 1, 2010 is $93.0
million. Realization of our deferred tax assets is dependent upon generating taxable income in the
future. We will continue to evaluate our valuation allowance in future periods and depending upon
the outcome of that assessment, additional amounts could be reversed or recorded and recognized as
a reduction to goodwill or an adjustment to income tax benefit or expense. Such adjustments could
cause our effective income tax rate to vary in future periods. We will need to
36
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generate $189.9 million of future United States federal taxable income to utilize our United States
deferred tax assets as of October 1, 2010.
No provision has been made for United States, state, or additional foreign income taxes related to
approximately $52.3 million of undistributed earnings of foreign subsidiaries which have been or
are intended to be permanently reinvested. It is not practicable to determine the United States
federal income tax liability, if any, which would be payable if such earnings, were not permanently
reinvested.
Our gross unrecognized tax benefits totaled $19.9 million and $8.9 million as of October 1, 2010
and October 2, 2009, respectively. Of the total unrecognized tax benefits at October 1, 2010,
$11.4 million would lower the effective tax rate, if recognized. The remaining unrecognized tax
benefits would not impact the effective tax rate, if recognized, due to our valuation allowance and
certain positions which were required to be capitalized. There are no positions which we anticipate
could change materially within the next twelve months.
LIQUIDITY AND CAPITAL RESOURCES
| Fiscal Years Ended | ||||||||||||
| October 1, | October 2, | October 3, | ||||||||||
| (dollars in thousands) | 2010 | 2009 | 2008 | |||||||||
|
Cash and cash equivalents at beginning of period
|
$ | 364,221 | $ | 225,104 | $ | 241,577 | ||||||
|
|
||||||||||||
|
Net cash provided by operating activities
|
222,962 | 218,805 | 182,673 | |||||||||
|
Net cash used in investing activities
|
(95,329 | ) | (49,528 | ) | (94,959 | ) | ||||||
|
Net cash used in financing activities
|
(38,597 | ) | (30,160 | ) | (104,187 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Cash and cash equivalents at end of period (1)
|
$ | 453,257 | $ | 364,221 | $ | 225,104 | ||||||
|
|
||||||||||||
| (1) | Does not include restricted cash balances |
Cash Flow from Operating Activities:
Cash provided from operating activities is net income adjusted for certain non-cash items and
changes in certain assets and liabilities. For fiscal year 2010 we generated $223.0 million in
cash flow from operations, an increase of $4.2 million when compared to the $218.8 million
generated in fiscal year 2009. During fiscal year 2010, net income increased by $42.3 million to
$137.3 million when compared to fiscal year 2009. Despite the increase in net income, net cash
provided by operating activities remained relatively consistent. This was primarily due to:
| • | Fiscal year 2010 net income included a deferred tax expense of $38.5 million compared to a $24.9 million deferred tax benefit included in 2009 net income due to the release of the tax valuation allowance in fiscal year 2009. | ||
| • | During fiscal year 2010, the Company invested in working capital as result of higher business activity. Compared to fiscal year 2009, accounts receivable, inventory and accounts payable increased by $60.9 million, $38.8 million and $42.9 million, respectively. |
Cash Flow from Investing Activities:
Cash flow from investing activities consists primarily of capital expenditures and acquisitions.
We had net cash outflows of $95.3 million in fiscal year 2010, compared to $49.5 million in fiscal
year 2009. The increase is primarily due to an increase of $49.8 million in capital expenditures.
We anticipate our capital spending to be consistent in fiscal year 2011 to maintain our projected
growth rate.
Cash Flow from Financing Activities:
Cash flows from financing activities consist primarily of cash transactions related to debt and
equity. During fiscal year 2010, we had net cash outflows of $38.6 million, compared to $30.2
million in fiscal year 2009. During the year we had the following significant transactions:
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| • | We retired $53.0 million in aggregate principal amount (carrying value of $51.1 million) of 2007 Convertible Notes for $80.7 million, which included a $29.6 million premium paid for the equity component of the instrument. | ||
| • | We received net proceeds from employee stock option exercises of $40.5 million in fiscal year 2010, compared to $38.7 million in fiscal year 2009. |
Liquidity:
Cash and cash equivalent balances increased $89.0 million to $453.3 million at October 1, 2010 from
$364.2 million at October 2, 2009. Our net cash position, after deducting our short and long term
debt, increased by $137.7 million to $378.5 million at October 1, 2010 from $240.8 million at
October 2, 2009. Based on our historical results of operations, we expect our existing sources of
liquidity, together with cash expected to be generated from operations, will be sufficient to fund
our research and development, capital expenditures, debt obligations, working capital and other
cash requirements for at least the next 12 months. However, we cannot be certain that the capital
required to fund these expenses will be available in the future. In addition, any strategic
investments and acquisitions that we may make may require additional capital resources. If we are
unable to obtain sufficient capital to meet our capital needs on a timely basis and on favorable
terms, our business and operations could be materially adversely affected.
Our invested cash balances primarily consist of money market funds and repurchase agreements where
the underlying securities primarily consist of United States treasury obligations, United States
agency obligations, overnight repurchase agreements backed by United States treasuries and/or
United States agency obligations and highly rated commercial paper. Our invested cash balances also
include time deposits and certificates of deposit. At October 1, 2010, we also held a $3.2 million
par value auction rate security. Disruptions in the credit markets have impaired the value of this
security. During the fiscal year ended October 3, 2008, we concluded the fair value of the auction
rate security was $2.3 million, and the carrying value was reduced by $0.9 million. In the fiscal
year ended October 3, 2008, we recorded temporary unrealized losses of approximately $0.9 million
in other comprehensive income and the auction rate security balance was reclassified to non-current
other assets. We continue to monitor the liquidity and accounting classification of this security.
If in a future period we determine that the impairment is other than temporary, we will impair the
security to its fair value and charge the loss to earnings.
On July 15, 2003, we entered into a receivables purchase agreement under which we have agreed to
sell from time to time certain of our accounts receivable to Skyworks
USA, Inc., a
wholly-owned special purpose entity that is fully consolidated for accounting purposes.
Concurrently, Skyworks USA entered into the Credit Facility. Any interest incurred by Skyworks USA
related to monies it borrows under the Credit Facility is recorded as interest expense in the
Company’s consolidated results of operations. Interest related to the Credit Facility is at
LIBOR plus 0.75%. As of October 1, 2010, Skyworks USA had borrowed $50.0 million under this
agreement. Our ability to borrow under the Credit Facility expired in
October 2010 and, given our strong cash position, management has determined
that the Credit Facility was no longer required and accordingly, has
been substantially repaid as of November 29, 2010.
OFF-BALANCE SHEET ARRANGEMENTS
We have no significant contractual obligations not fully recorded on our consolidated balance sheet
or fully disclosed in the notes to our consolidated financial statements. We have no material
off-balance sheet arrangements as defined in SEC Regulation S-K- 303(a)(4)(ii).
CONTRACTUAL CASH FLOWS
Following is a summary of our contractual payment obligations for consolidated debt, purchase
agreements, operating leases, other commitments and long-term liabilities at October 1, 2010 (see
Notes 9 and 13 of Item 8 of this Annual Report on Form 10-K), in thousands:
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| Payments Due By Period | ||||||||||||||||||||
| Less Than 1 | ||||||||||||||||||||
| Obligation | Total | Year | 1-3 years | 3-5 Years | Thereafter | |||||||||||||||
|
Short-Term Debt Obligations(1)
|
$ | 50,000 | $ | 50,000 | $ | — | $ | — | $ | — | ||||||||||
|
Long-Term Debt Obligations
|
26,677 | — | 26,677 | — | — | |||||||||||||||
|
Other Commitments (2)
|
11,401 | 7,720 | 3,681 | — | — | |||||||||||||||
|
Operating Lease Obligations
|
21,811 | 5,553 | 7,274 | 4,956 | 4,028 | |||||||||||||||
|
Other Long-Term Liabilities (3)
|
18,389 | 1,753 | 791 | 262 | 15,583 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
$ | 128,278 | $ | 65,026 | $ | 38,423 | $ | 5,218 | $ | 19,611 | ||||||||||
|
|
||||||||||||||||||||
| (1) | Short-Term Debt obligation represents the cancellation and repayment of the Credit Facility which will occur during the first quarter of fiscal year 2011. | |
| (2) | Other Commitments consist of contractual license and royalty payments, and other purchase obligations. | |
| (3) | Other Long-Term Liabilities includes our gross unrecognized tax benefits, as well as executive deferred compensation which are both classified as beyond five years due to the uncertain nature of the commitment. |
CRITICAL ACCOUNTING ESTIMATES
The discussion and analysis of our financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in accordance with GAAP. The
preparation of these financial statements requires us to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. The SEC has defined critical accounting policies as those that
are both most important to the portrayal of our financial condition and results and which require
our most difficult, complex or subjective judgments or estimates. Based on this definition, we
believe our critical accounting policies include the policies of revenue recognition, allowance for
doubtful accounts, inventory valuation, share-based compensation, impairment of long-lived assets,
goodwill and intangibles, and income taxes.
On an ongoing basis, we evaluate the judgments and estimates underlying all of our accounting
policies. These estimates and the underlying assumptions affect the amounts of assets and
liabilities reported, disclosures, and reported amounts of revenues and expenses. These estimates
and assumptions are based on our best estimates and judgment. We evaluate our estimates and
assumptions using historical experience and other factors, including the current economic
environment, which we believe to be reasonable under the circumstances. We adjust such estimates
and assumptions when facts and circumstances dictate. As future events and their effects cannot be
determined with precision, actual results could differ significantly from these estimates. Changes
in those estimates resulting from continuing changes in the economic environment will be reflected
in the financial statements in future periods.
Our significant accounting policies are discussed in detail in Note 1 in Item 8 In this Annual
Report on Form 10-K. We believe the following critical accounting policies affect the more
significant judgments and estimates used in the preparation of our consolidated financial
statements.
| Effect if Actual Results Differ | ||||
| Description | Judgments and Uncertainties | From Assumptions | ||
|
|
||||
|
Revenue Recognition
We recognize revenue in accordance with ASC 605 Revenue Recognition net of estimated reserves. We maintain revenue reserves for product returns and allowances for price protection / stock rotation for certain electronic component distributors. These reserves are based on historical experience or specific identification of a contractual arrangement necessitating a revenue reserve. |
Our revenue recognition accounting methodology contains uncertainties because it requires management to make assumptions and to apply judgment to estimate the value of future credits to customers for product returns, price protection and stock rotation. Our estimates of the amount and timing of the reserves is based primarily on historical experience and specific contractual arrangements. |
We have not made any material changes in our accounting methodology used to record revenue reserves during the last three fiscal years. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions that would have a material impact to earnings. |
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Table of Contents
| Effect if Actual Results Differ | ||||
| Description | Judgments and Uncertainties | From Assumptions | ||
|
|
||||
|
Allowance for Doubtful Accounts
We record an allowance for doubtful accounts for amounts that we estimate will arise from customers’ inability to make required payments against amounts owed on credit sales. The reserve is based on the analysis of credit risk and aged receivable balances. |
Our allowance for doubtful accounts methodology contains uncertainties because it requires management to apply judgment to evaluate credit risk and collectability of aged accounts receivables based on historical experience and forward looking assumptions. |
During fiscal year 2010 we modified the process in which we evaluate customers’ creditworthiness when establishing our allowance. This did not have a material effect in our balance. We do not believe there is a reasonable likelihood that there will be a material change in future estimates or assumptions that would have a material impact to earnings. |
||
|
|
||||
|
Inventory Valuation
We value our inventory at the lower of cost of the inventory or fair market value through the establishment of excess and obsolete inventory reserves. Our reserve is based on a detailed analysis of forecasted demand in relation to on-hand inventory, salability of our inventory, general market conditions, and product life cycles. |
Our inventory reserves contain uncertainties because the calculation requires management to make assumptions and to apply judgment regarding historical experience, forecasted demand and technological obsolescence. |
We have not made any material changes to our inventory reserve methodology during the last three fiscal years. We do not believe that significant changes will be made in future estimates or assumptions we use to calculate these reserves. However, if our estimates are inaccurate or changes in technology affect consumer demand we may be exposed to unforeseen gains or losses. A 10% difference in our inventory reserves as of October 1, 2010 would affect fiscal year 2010 earnings by approximately $1.2 million. |
||
|
|
||||
|
Stock-Based Compensation
We have a stock-based compensation plan which includes non-qualified stock options, share awards, and an employee stock purchase plan. See Note 11 of Item 8 for a detailed listing and complete discussion of our stock-based compensation programs. We determine the fair value of our non-qualified stock-based compensation at the date of grant using the Black Scholes options-pricing model. Our determination of fair value of share-based payment awards on the date of grant contains assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to; our expected stock price volatility over the term of the award, risk-free rate, the expected life and potential forfeitures of awards. Management periodically evaluates these assumptions and updates stock based compensation expense accordingly. |
Option-pricing models and generally accepted valuation techniques require management to make assumptions and to apply judgment to determine the fair value of our awards. These assumptions and judgments include estimating the future volatility of our stock price, future employee turnover rates and future employee stock option exercise behaviors. Changes in these assumptions can materially affect the fair value estimate and stock based compensation recognized by the Company. |
We have not made any material changes in the accounting methodology we used to calculate stock-based compensation during the past three fiscal years. We do not believe that there is a reasonable likelihood there will be a material change in future estimates or assumptions used to determine stock-based compensation expense. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to a material change in stock-based compensation expense. A 10% difference in our stock-based compensation expense for the year ended October 1, 2010 would affect fiscal year 2010 earnings by approximately $4.1 million. |
40
Table of Contents
| Effect if Actual Results Differ | ||||
| Description | Judgments and Uncertainties | From Assumptions | ||
|
|
||||
|
Valuation of Long-Lived Assets
Long-lived assets other than goodwill and indefinite-lived intangible assets, which are separately tested for impairment, are evaluated for impairment whenever events or circumstances arise that may indicate that the carrying value of the asset may not be recoverable. When evaluating long-lived assets for potential impairment, we first compare the carrying value of the assets to the asset’s estimated undiscounted future cash flows (excluding interest). If the estimated undiscounted future cash flows are less than the carrying value of the asset or asset group, we would recognize an impairment loss, measured as the amount by which the carrying value exceeds the fair value of the asset or asset group. |
Our impairment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate asset fair values, including estimating future cash flows, useful lives and selecting an appropriate discount rate that reflects the risk inherent in future cash flows. |
We have not made any material changes in the accounting methodology we use to assess impairment loss during the past three fiscal years. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses. However, if actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may incur material losses. |
||
|
|
||||
|
Income Taxes
|
||||
|
We account for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between tax and financial reporting. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. Significant management judgment is required in developing our provision for income taxes, including the determination of deferred tax assets and liabilities and any valuation allowances that might be required against the deferred tax assets. ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with GAAP. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This statement also provides guidance on derecognition, classification, interest and penalties, accounting in the interim periods and disclosure. |
The application of tax laws and regulations to calculate our tax liabilities is subject to legal and factual interpretation, judgment, and uncertainty in a multitude of jurisdictions. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations, and court rulings. We recognize potential liabilities for anticipated tax audit issues in the United States and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes and interest will be due. We record an amount as an estimate of probable additional income tax liability at the largest amount that we feel is more likely than not, based upon the technical merits of the position, to be sustained upon audit by the relevant tax authority. We record a valuation allowance against deferred tax assets that we feel are more likely than not to not be realized. |
We have not made any material changes in the accounting methodology we used to measure our deferred tax assets and liabilities or reserves for additional income tax liabilities. If our estimate of income tax liabilities proves to be less than the ultimate assessment, or events caused us to change our estimate of probable additional income tax liability, a further charge to expense would be required. The Company expects to continue to be profitable and therefore has determined that a valuation allowance is not required against our deferred tax assets, except for certain state and foreign tax credits. If certain events caused us to change our estimate of the realizability of our deferred tax assets and liabilities, a further charge to expense would be required. |
41
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| Effect if Actual Results Differ | ||||
| Description | Judgments and Uncertainties | From Assumptions | ||
|
|
||||
|
Goodwill and Intangible Assets
We evaluate goodwill and other indefinite-lived intangible assets for impairment annually on the first day of the fiscal fourth quarter and whenever events or circumstances arise that may indicate that the carrying value of the goodwill or other intangibles may not be recoverable. Intangible assets with indefinite useful lives comprise an insignificant portion of the total book value of our goodwill and intangible assets. Pursuant to the guidance provide under ASC 280- Segment Reporting , we have determined that we have only one reporting unit for the purposes of allocating and testing goodwill. The impairment evaluation involves comparing the fair value to the carrying value of the reporting unit. We use the market price of the Company’s stock adjusted for a market premium to calculate the fair value of the reporting unit. If the fair value exceeds the carrying value, then it is concluded that no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its fair value, a second step is required to measure the possible goodwill impairment loss. In the second step, we would use a discounted cash flow methodology to determine the implied fair value of our goodwill. The implied fair value of the reporting unit’s goodwill would then be compared to the carrying value of the goodwill. If the carrying value of the goodwill exceeds the implied fair value of the goodwill, we would recognize a loss equal to the excess. |
Our impairment analysis contains uncertainties because it requires management to make assumptions and to apply judgment to estimate control premiums, discount rate, future cash flows and the profitability of future business strategies. |
We have not made any material changes in the accounting methodology we use to assess impairment loss during the past three fiscal years. The carrying value of goodwill and indefinite-lived intangible assets at October 1, 2010 were $485.6 million and $3.3 million, respectively. Based on the results of our impairment test, we had a significant excess fair value over the carrying value. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate goodwill and intangible asset impairment losses. However, if actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to losses that could be material. |
OTHER MATTERS
Inflation did not have a material impact upon our results of operations during the three-year
period ended October 1, 2010.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are subject to investment risk, interest rate risk, and foreign exchange rate risk as described
below.
42
Table of Contents
Investment and Interest Rate Risk
Our exposure to interest rate and general market risks relates principally to our investment
portfolio, which as of October 1, 2010 consisted of the following (in thousands):
|
Cash and cash equivalents (time deposits, overnight repurchase agreements and money market funds)
|
$ | 453,257 | ||
|
Restricted cash (time deposits and certificates of deposit)
|
6,128 | |||
|
Available for sale securities (auction rate securities)
|
2,288 | |||
|
|
||||
|
|
$ | 461,673 | ||
|
|
||||
The main objective of our investment activities is the liquidity and preservation of capital. In
general, our cash and cash equivalent investments have short-term maturity periods which dampen the
impact of significant market or interest rate risk. Credit risk associated with our investments is
not material as our investment policy prescribes high credit quality standards and limits the
amount of credit exposure to any one issuer. We currently do not use derivative instruments for
trading, speculative or investment purposes; however, we may use derivatives in the future.
We are subject to overall financial market risks, such as changes in market liquidity,
credit quality and interest rates. Available for sale securities carry a longer maturity period
(contractual maturities exceed ten years).
Our short-term debt consists of borrowings under our Credit Facility of $50.0 million. Interest
related to our borrowings under our Credit Facility is at a variable rate of LIBOR plus 0.75% and
was approximately 1.01% at October 1, 2010. Our ability to borrow under the Credit Facility expired
in October 2010 and, given our strong cash position, management has determined that the
Credit Facility was no longer required and accordingly, has been substantially repaid as of November 29, 2010.
Our long-term debt at October 1, 2010 consists of $26.7 million aggregate principal amount our 2007
Convertible Notes. The 2007 Convertible Notes contain cash settlement provisions, which permit the
application of the treasury stock method in determining potential share dilution of the conversion
spread should the share price of the Company’s common stock exceed $9.52. It has been the Company’s
historical practice to cash settle the principal and interest components of convertible debt
instruments, and it is our intention to continue to do so in the future. These shares have been
included in the computation of fully diluted earnings per share for the fiscal year ended October
1, 2010.
We do not believe that investment of interest rate risk is material to our business or results of
operations.
Exchange Rate Risk
Substantially all sales to customers and arrangements with third-party manufacturers provide for
pricing and payment in United States dollars, thereby reducing the impact of foreign exchange rate
fluctuations on our results. A small percentage of our international operational expenses are
denominated in foreign currencies. Exchange rate volatility could negatively or positively impact
those operating costs. For the fiscal years ended October 1, 2010, October 2, 2009, and October 3,
2008, the Company had foreign exchange gains/(losses) of $(0.6) million, $0.7 million,
and $(0.6) million, respectively. Increases in the value of the U.S. dollar relative to other
currencies could make our products more expensive, which could negatively impact our ability to
compete. Conversely, decreases in the value of the U.S. dollar relative to other currencies could
result in our suppliers raising their prices to continue doing business with us. Fluctuations in
currency exchange rates could have a greater effect on our business in the future to the extent our
expenses increasingly become denominated in foreign currencies.
43
Table of Contents
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. |
The following consolidated financial statements of the Company for the fiscal year ended
October 1, 2010 are included herewith:
44
Table of Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Skyworks Solutions, Inc.:
Skyworks Solutions, Inc.:
We have audited the accompanying consolidated balance sheets of Skyworks Solutions, Inc. and
subsidiaries as of October 1, 2010 and October 2, 2009, and the related consolidated statements of
operations, cash flows, and stockholders’ equity and comprehensive income (loss) for each of the
years in the three-year period ended October 1, 2010. In connection with our audit of the
consolidated financial statements, we also have audited the financial statement schedule listed in
Item 15 of the 2010 Form 10-K. We also have audited Skyworks Solutions Inc.’s internal control over
financial reporting as of October 1, 2010, based on criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Skyworks Solutions, Inc.’s management is responsible for these consolidated financial
statements and financial statement schedule, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on these consolidated financial statements
and financial statement schedule, and an opinion on the Company’s internal control over financial
reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement and
whether effective internal control over financial reporting was maintained in all material
respects. Our audits of the consolidated financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Skyworks Solutions, Inc. and subsidiaries
as of October 1, 2010 and October 2, 2009, and the results of their operations and their cash flows
for each of the years in the three-year period ended October 1, 2010, in conformity with accounting
principles generally accepted in the United States of America. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the information set forth
therein. Also in our opinion, Skyworks Solutions, Inc. and subsidiaries maintained, in all material
respects, effective internal control over financial reporting as of October 1, 2010, based on
criteria established in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
As discussed in Note 9 to the consolidated financial statements, effective October 3, 2009, the Company adopted the provisions of Accounting Standards Codification Topic 470-20, Debt with Conversion and Other Options and retrospectively adjusted all periods presented in the consolidated financial statements referred to above.
As discussed in Note 9 to the consolidated financial statements, effective October 3, 2009, the Company adopted the provisions of Accounting Standards Codification Topic 470-20, Debt with Conversion and Other Options and retrospectively adjusted all periods presented in the consolidated financial statements referred to above.
/s/ KPMG
LLP
Boston, Massachusetts
November 29, 2010
November 29, 2010
45
Table of Contents
SKYWORKS SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
| Fiscal Years Ended | ||||||||||||
| October 1, | October 2, | October 3, | ||||||||||
| 2010 | 2009 (1) | 2008 (1) | ||||||||||
|
Net revenues
|
$ | 1,071,849 | $ | 802,577 | $ | 860,017 | ||||||
|
Cost of goods sold
|
615,016 | 484,357 | 517,054 | |||||||||
|
|
||||||||||||
|
Gross profit
|
456,833 | 318,220 | 342,963 | |||||||||
|
|
||||||||||||
|
Operating expenses:
|
||||||||||||
|
Research and development
|
134,140 | 123,996 | 146,013 | |||||||||
|
Selling, general and administrative
|
117,853 | 100,421 | 100,007 | |||||||||
|
Amortization of intangible assets
|
6,136 | 6,118 | 6,005 | |||||||||
|
Restructuring and other charges (credits)
|
(1,040 | ) | 15,982 | 567 | ||||||||
|
|
||||||||||||
|
Total operating expenses
|
257,089 | 246,517 | 252,592 | |||||||||
|
|
||||||||||||
|
Operating income
|
199,744 | 71,703 | 90,371 | |||||||||
|
Interest expense
|
(4,246 | ) | (8,290 | ) | (16,324 | ) | ||||||
|
(Loss) gain on early retirement of convertible debt
|
(79 | ) | 4,590 | 2,158 | ||||||||
|
Other (expense) income, net
|
(345 | ) | 1,753 | 5,983 | ||||||||
|
|
||||||||||||
|
Income before income taxes
|
195,074 | 69,756 | 82,188 | |||||||||
|
Provision (benefit) for income taxes
|
57,780 | (25,227 | ) | (28,818 | ) | |||||||
|
|
||||||||||||
|
Net income
|
$ | 137,294 | $ | 94,983 | $ | 111,006 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Per share information:
|
||||||||||||
|
|
||||||||||||
|
Net income, basic
|
$ | 0.78 | $ | 0.57 | $ | 0.69 | ||||||
|
|
||||||||||||
|
Net income, diluted
|
$ | 0.75 | $ | 0.56 | $ | 0.67 | ||||||
|
|
||||||||||||
|
Number of weighted-average shares used in per share
computations, basic
|
175,020 | 167,047 | 161,878 | |||||||||
|
|
||||||||||||
|
Number of weighted-average shares used in per share
computations, diluted
|
182,738 | 169,663 | 164,755 | |||||||||
|
|
||||||||||||
| (1) | Effective October 3, 2009, the Company adopted ASC 470-20 — Debt, Debt with Conversions and Other Options (“ASC 470-20”) in accordance with GAAP. The Company’s financial statements and the accompanying footnotes for all prior periods presented have been adjusted to reflect the retrospective adoption of this new accounting principle. See Note 9 to the Consolidated Financial Statements for further discussion. |
See the accompanying notes to the consolidated financial statements.
46
Table of Contents
SKYWORKS SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
| As of | ||||||||
| October 1, | October 2, | |||||||
| 2010 | 2009 (1) | |||||||
|
ASSETS
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 453,257 | $ | 364,221 | ||||
|
Restricted cash
|
6,128 | 5,863 | ||||||
|
Receivables, net of allowance for doubtful accounts of $1,177 and
$2,845, respectively
|
175,232 | 115,034 | ||||||
|
Inventories
|
125,059 | 86,097 | ||||||
|
Other current assets
|
30,189 | 18,912 | ||||||
|
|
||||||||
|
Total current assets
|
789,865 | 590,127 | ||||||
|
Property, plant and equipment, net
|
204,363 | 162,299 | ||||||
|
Goodwill
|
485,587 | 482,893 | ||||||
|
Intangible assets, net
|
12,509 | 18,245 | ||||||
|
Deferred tax assets
|
60,569 | 89,163 | ||||||
|
Other assets
|
11,159 | 9,864 | ||||||
|
|
||||||||
|
Total assets
|
$ | 1,564,052 | $ | 1,352,591 | ||||
|
|
||||||||
|
|
||||||||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
|
|
||||||||
|
Current liabilities:
|
||||||||
|
Short-term debt
|
$ | 50,000 | $ | 81,865 | ||||
|
Accounts payable
|
111,967 | 69,098 | ||||||
|
Accrued compensation and benefits
|
35,695 | 29,449 | ||||||
|
Other current liabilities
|
6,662 | 15,831 | ||||||
|
|
||||||||
|
Total current liabilities
|
204,324 | 196,243 | ||||||
|
Long-term debt, less current maturities
|
24,743 | 41,483 | ||||||
|
Other long-term liabilities
|
18,389 | 6,086 | ||||||
|
|
||||||||
|
Total liabilities
|
247,456 | 243,812 | ||||||
|
|
||||||||
|
Commitments and contingencies (Note 13 and Note 14)
|
||||||||
|
|
||||||||
|
Stockholders’ equity:
|
||||||||
|
Preferred stock, no par value: 25,000 shares authorized, no shares issued
|
— | — | ||||||
|
Common stock, $0.25 par value: 525,000 shares authorized; 185,683 shares
issued and 180,263 shares outstanding at October 1, 2010 and 177,873
shares issued and 172,815 shares outstanding at October 2, 2009
|
45,066 | 43,204 | ||||||
|
Additional paid-in capital
|
1,641,406 | 1,568,416 | ||||||
|
Treasury stock, at cost
|
(40,719 | ) | (36,307 | ) | ||||
|
Accumulated deficit
|
(327,860 | ) | (465,154 | ) | ||||
|
Accumulated other comprehensive loss
|
(1,297 | ) | (1,380 | ) | ||||
|
|
||||||||
|
Total stockholders’ equity
|
1,316,596 | 1,108,779 | ||||||
|
|
||||||||
|
Total liabilities and stockholders’ equity
|
$ | 1,564,052 | $ | 1,352,591 | ||||
|
|
||||||||
| (1) | Effective October 3, 2009, the Company adopted ASC 470-20 — Debt, Debt with Conversions and Other Options (“ASC 470-20”) in accordance with GAAP. The Company’s financial statements and the accompanying footnotes for all prior periods presented have been adjusted to reflect the retrospective adoption of this new accounting principle. See Note 9 to the Consolidated Financial Statements for further discussion. |
See the accompanying notes to the consolidated financial statements.
47
Table of Contents
SKYWORKS SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| Fiscal Years Ended | ||||||||||||
| October 1, | October 2, | October 3, | ||||||||||
| 2010 | 2009 (1) | 2008 (1) | ||||||||||
|
Cash flows from operating activities:
|
||||||||||||
|
Net income
|
$ | 137,294 | $ | 94,983 | $ | 111,006 | ||||||
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
||||||||||||
|
Share-based compensation expense
|
40,741 | 23,466 | 23,212 | |||||||||
|
Depreciation
|
46,573 | 44,413 | 44,712 | |||||||||
|
Charge in lieu of income tax expense
|
— | — | 7,014 | |||||||||
|
Amortization of intangible assets
|
6,136 | 6,118 | 6,933 | |||||||||
|
Amortization of discount and deferred financing costs on
convertible debt
|
2,693 | 5,589 | 10,748 | |||||||||
|
Contribution of common shares to savings and retirement plans
|
11,706 | 8,502 | 10,407 | |||||||||
|
Non-cash restructuring expense
|
— | 955 | 567 | |||||||||
|
Deferred income taxes
|
38,543 | (24,866 | ) | (36,648 | ) | |||||||
|
Excess tax benefit from share-based payments
|
(6,287 | ) | — | — | ||||||||
|
Loss on disposal of assets
|
292 | 411 | 276 | |||||||||
|
Inventory write-downs
|
— | 3,458 | — | |||||||||
|
Asset impairments
|
— | 5,616 | — | |||||||||
|
Provision for losses (recoveries) on accounts receivable
|
703 | 1,797 | (614 | ) | ||||||||
|
Changes in assets and liabilities net of acquired balances:
|
||||||||||||
|
Receivables
|
(60,901 | ) | 29,947 | 21,223 | ||||||||
|
Inventories
|
(38,818 | ) | 15,678 | (16,082 | ) | |||||||
|
Other current and long-term assets
|
(8,349 | ) | (3,932 | ) | 2,860 | |||||||
|
Accounts payable
|
42,869 | 9,219 | 2,110 | |||||||||
|
Other current and long-term liabilities
|
9,767 | (2,549 | ) | (5,051 | ) | |||||||
|
|
||||||||||||
|
Net cash provided by operating activities
|
222,962 | 218,805 | 182,673 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Cash flows from investing activities:
|
||||||||||||
|
Capital expenditures
|
(88,929 | ) | (39,172 | ) | (64,832 | ) | ||||||
|
Payments for acquisitions
|
(6,400 | ) | (10,356 | ) | (32,627 | ) | ||||||
|
Sale of investments
|
— | — | 10,000 | |||||||||
|
Purchase of investments
|
— | — | (7,500 | ) | ||||||||
|
|
||||||||||||
|
Net cash used in investing activities
|
(95,329 | ) | (49,528 | ) | (94,959 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Cash flows from financing activities:
|
||||||||||||
|
|
||||||||||||
|
Retirement of 2007 Convertible Notes
|
(51,107 | ) | (51,107 | ) | (56,570 | ) | ||||||
|
Reacquisition of equity component of Convertible Notes
|
(29,602 | ) | (15,432 | ) | (14,809 | ) | ||||||
|
Retirement of Junior Notes
|
— | — | (49,335 | ) | ||||||||
|
Excess tax benefit from share-based payments
|
6,287 | — | — | |||||||||
|
Change in restricted cash
|
(265 | ) | 100 | 541 | ||||||||
|
Repurchase of common stock
|
(4,412 | ) | (2,389 | ) | (2,063 | ) | ||||||
|
Net proceeds from exercise of stock options
|
40,502 | 38,668 | 18,049 | |||||||||
|
|
||||||||||||
|
Net cash used in financing activities
|
(38,597 | ) | (30,160 | ) | (104,187 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net increase (decrease) in cash and cash equivalents
|
89,036 | 139,117 | (16,473 | ) | ||||||||
|
Cash and cash equivalents at beginning of period
|
364,221 | 225,104 | 241,577 | |||||||||
|
|
||||||||||||
|
Cash and cash equivalents at end of period
|
$ | 453,257 | $ | 364,221 | $ | 225,104 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Supplemental cash flow disclosures:
|
||||||||||||
|
Taxes paid
|
$ | 14,757 | $ | 1,009 | $ | 1,156 | ||||||
|
|
||||||||||||
|
Interest paid
|
$ | 715 | $ | 2,323 | $ | 6,023 | ||||||
|
|
||||||||||||
| (1) | Effective October 3, 2009, the Company adopted ASC 470-20 — Debt, Debt with Conversions and Other Options (“ASC 470-20”) in accordance with GAAP. The Company’s financial statements and the accompanying footnotes for all prior periods presented have been adjusted to reflect the retrospective adoption of this new accounting principle. See Note 9 to the Consolidated Financial Statements for further discussion. |
See the accompanying notes to the consolidated financial statements.
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Table of Contents
SKYWORKS SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)
(In thousands)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)
(In thousands)
| Par value | Accumulated | |||||||||||||||||||||||||||||||
| Shares of | of | Shares of | Value of | Additional | Other | Total | ||||||||||||||||||||||||||
| Common | Common | Treasury | Treasury | Paid-in | Accumulated | Comprehensive | Stockholders’ | |||||||||||||||||||||||||
| Stock | Stock | Stock | Stock | Capital | Deficit | Loss | Equity | |||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Balance at September 28,
2007 (1)
|
161,101 | $ | 40,275 | 4,492 | $ | (31,855 | ) | $ | 1,481,481 | $ | (671,143 | ) | $ | (215 | ) | $ | 818,543 | |||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Net income
|
— | — | — | — | — | 111,006 | — | 111,006 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Impairment of Auction Rate
Security
|
— | — | — | — | — | — | (912 | ) | (912 | ) | ||||||||||||||||||||||
|
Pension adjustment
|
— | — | — | — | — | — | (53 | ) | (53 | ) | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Other comprehensive loss
|
— | — | — | — | — | — | (965 | ) | (965 | ) | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Comprehensive income
|
— | — | — | — | — | — | — | 110,041 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Issuance and expense of
common shares for stock
purchase plans, 401(k) and
stock option plans
|
3,951 | 988 | — | — | 40,308 | — | — | 41,296 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Reacquisition of equity
components of convertible
notes (1)
|
— | — | — | — | (14,809 | ) | — | — | (14,809 | ) | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Issuance and expense of
common shares for restricted
stock and performance shares
|
780 | 195 | — | — | 8,401 | — | — | 8,596 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Shares withheld for taxes
|
(240 | ) | (60 | ) | 240 | (2,063 | ) | 60 | — | — | (2,063 | ) | ||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Balance at October 3, 2008 (1)
|
165,592 | $ | 41,398 | 4,732 | $ | (33,918 | ) | $ | 1,515,441 | $ | (560,137 | ) | $ | (1,180 | ) | $ | 961,604 | |||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Net income
|
— | — | — | — | — | 94,983 | — | 94,983 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Pension adjustment
|
— | — | — | — | — | — | (200 | ) | (200 | ) | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Other comprehensive loss
|
— | — | — | — | — | — | (200 | ) | (200 | ) | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Comprehensive income
|
— | — | — | — | — | — | — | 94,783 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Issuance and expense of
common shares for stock
purchase plans, 401(k) and
stock option plans
|
7,159 | 1,790 | — | — | 59,214 | — | — | 61,004 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Reacquisition of equity
components of convertible
notes (1)
|
— | — | — | — | (15,432 | ) | — | — | (15,432 | ) | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Issuance and expense of
common shares for restricted
stock and performance shares
|
390 | 98 | — | — | 9,111 | — | — | 9,209 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Shares withheld for taxes
|
(326 | ) | (82 | ) | 326 | (2,389 | ) | 82 | — | — | (2,389 | ) | ||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Balance at October 2, 2009 (1)
|
172,815 | $ | 43,204 | 5,058 | $ | (36,307 | ) | $ | 1,568,416 | $ | (465,154 | ) | $ | (1,380 | ) | $ | 1,108,779 | |||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Net income
|
— | — | — | — | — | 137,294 | — | 137,294 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Pension adjustment
|
— | — | — | — | — | — | 83 | 83 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Other comprehensive income
|
— | — | — | — | — | — | 83 | 83 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Comprehensive income
|
— | — | — | — | — | — | — | 137,377 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Issuance and expense of
common shares for stock
purchase plans, 401(k) and
stock option plans
|
6,083 | 1,521 | — | — | 69,410 | — | — | 70,931 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Reacquisition of equity
components of convertible
notes (after-tax) (1)
|
— | — | — | — | (28,832 | ) | — | — | (28,832 | ) | ||||||||||||||||||||||
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| Par value | Accumulated | |||||||||||||||||||||||||||||||
| Shares of | of | Shares of | Value of | Additional | Other | Total | ||||||||||||||||||||||||||
| Common | Common | Treasury | Treasury | Paid-in | Accumulated | Comprehensive | Stockholders’ | |||||||||||||||||||||||||
| Stock | Stock | Stock | Stock | Capital | Deficit | Loss | Equity | |||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Excess tax benefit from share
based compensation
|
— | — | — | — | 11,491 | — | — | 11,491 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Issuance and expense of
common shares for restricted
stock and performance shares
|
1,727 | 432 | — | — | 20,830 | — | — | 21,262 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Shares withheld for taxes
|
(362 | ) | (91 | ) | 362 | (4,412 | ) | 91 | — | — | (4,412 | ) | ||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Balance at October 1, 2010
|
180,263 | $ | 45,066 | 5,420 | $ | (40,719 | ) | $ | 1,641,406 | $ | (327,860 | ) | $ | (1,297 | ) | $ | 1,316,596 | |||||||||||||||
|
|
||||||||||||||||||||||||||||||||
| (1) | Effective October 3, 2009, the Company adopted ASC 470-20 — Debt, Debt with Conversions and Other Options (“ASC 470-20”) in accordance with GAAP. The Company’s financial statements and the accompanying footnotes for all prior periods presented have been adjusted to reflect the retrospective adoption of this new accounting principle. See Note 9 to the Consolidated Financial Statements for further discussion. |
See the accompanying notes to the consolidated financial statements.
50
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Skyworks Solutions, Inc. together with its consolidated subsidiaries, (“Skyworks” or the “Company”)
is an innovator of high reliability analog and mixed signal semiconductors. Leveraging core
technologies, Skyworks offers diverse standard and custom linear products supporting automotive,
broadband, cellular infrastructure, energy management, industrial, medical, military and cellular
handset applications. The Company’s portfolio includes amplifiers, attenuators, detectors, diodes,
directional couplers, front-end modules, hybrids, infrastructure RF subsystems,
mixers/demodulators, phase shifters, PLLs/synthesizers/VCOs, power dividers/combiners, receivers,
switches and technical ceramics.
The Company has evaluated subsequent events through the date of issuance of the audited
consolidated financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
All majority owned subsidiaries are included in the Company’s Consolidated Financial Statements and
all intercompany balances are eliminated in consolidation.
FISCAL YEAR
The Company’s fiscal year ends on the Friday closest to September 30. Fiscal years 2010 and 2009
each consisted of 52 weeks and ended on October 1, 2010 and October 2, 2009, respectively. Fiscal
year 2008 consisted of 53 weeks and ended on October 3, 2008.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at
the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. On an ongoing basis, management reviews its estimates based upon currently
available information. Actual results could differ materially from those estimates.
REVENUE RECOGNITION
Revenues from product sales are recognized upon shipment and transfer of title, in accordance with
the shipping terms specified in the arrangement with the customer. Revenue from license fees and
intellectual property is recognized when due and payable, and all other criteria of ASC 605-
Revenue
Recognition,
have been met. The Company ships product on consignment to certain customers and only
recognize revenue when the customer notifies us that the inventory has been consumed. Revenue
recognition is deferred in all instances where the earnings process is incomplete. Certain product
sales are made to electronic component distributors under agreements allowing for price protection
and/or a right of return (stock rotation) on unsold products. A reserve for sales returns and
allowances for customers is recorded based on historical experience or specific identification of a
contractual arrangement necessitating a revenue reserve.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company maintains general allowances for doubtful accounts for losses that they estimate will
arise from their customers’ inability to make required payments. These reserves require management
to apply judgment in deriving estimates. As the Company becomes aware of any specific receivables
which may be uncollectable, they perform additional analysis and reserves are recorded if deemed
necessary. Determination of such additional specific reserves require management to make judgments
and estimates pertaining to factors such as a customer’s credit worthiness, intent and ability to
pay, and overall financial position. If the data the Company uses to calculate the
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Table of Contents
allowance for doubtful accounts does not reflect the future ability to collect outstanding
receivables, additional provisions for doubtful accounts may be needed and its results of
operations could be materially affected.
CASH AND CASH EQUIVALENTS
The Company’s cash and cash equivalents primarily consist of cash money market funds and repurchase
agreements where the underlying securities primarily consist of United States treasury obligations,
United States agency obligations, overnight repurchase agreements backed by United States
treasuries and/or United States agency obligations and highly rated commercial paper.
INVESTMENTS
The Company’s investment is classified as available for sale and consists of an auction rate
security (“ARS”).
RESTRICTED CASH
Restricted cash is primarily used to collateralize the Company’s obligation under
the Credit Facility, which management plans to repay during the first
quarter of fiscal 2011.
For further information regarding the Credit Facility, please see Note 9 to the Consolidated Financial Statements.
INVENTORIES
Inventories are stated at the lower of cost, determined on a first-in, first-out basis, or market.
Each quarter, the Company estimates and establishes reserves for excess, obsolete or unmarketable
inventory. These reserves are generally equal to the historical cost basis of the excess or
obsolete inventory and once recorded are considered permanent adjustments. Calculation of the
reserves requires management to use judgment and make assumptions about forecasted demand in
relation to the inventory on hand, competitiveness of its product offerings, general market
conditions and product life cycles upon which the reserves are based. When inventory on hand
exceeds foreseeable demand (generally in excess of twelve months), reserves are established for the
value of such inventory that is not expected to be sold at the time of the review.
If actual demand and market conditions are less favorable than those the Company projects,
additional inventory reserves may be required and its results of operations could be materially
affected. Some or all of the inventories that have been reserved may be retained and made available
for sale; however, they are generally scrapped over time.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost less accumulated depreciation and amortization.
Depreciation is calculated using the straight-line method. Significant renewals and betterments are
capitalized and equipment taken out of service is written off. Maintenance and repairs, as well as
renewals of a minor amount, are expensed as incurred.
Estimated useful lives used for depreciation purposes are 5 to 30 years for buildings and
improvements and 3 to 10 years for machinery and equipment. Leasehold improvements are depreciated
over the lesser of the economic life or the life of the associated lease.
SHARE-BASED COMPENSATION
The Company applies ASC 718
Compensation-Stock Compensation
(“ASC 718”) which requires the
measurement and recognition of compensation expense for all share-based payment awards made to
employees and directors including employee stock options, employee stock purchases related to the
Company’s 2002 Employee Stock Purchase Plan, restricted stock
and other special share-based awards based
on estimated fair values. The Company
52
Table of Contents
adopted ASC 718 using the modified prospective transition method, which requires the application of
the applicable accounting standard as of October 1, 2005, the first day of the Company’s fiscal
year 2006.
The fair value of stock-based awards is amortized over the requisite service period, which is
defined as the period during which an employee is required to provide service in exchange for an
award. The Company uses a straight-line attribution method for all grants that
include only a service condition. Due to the existence of both performance and service
conditions, certain restricted stock grants are expensed over the service period for each
separately vesting tranche.
Share-based compensation expense recognized during the period is based on the value of the portion
of share-based payment awards that is ultimately expected to vest during the period. Share-based
compensation expense recognized in the Company’s Consolidated Statement of Operations for the
fiscal year ended October 1, 2010 only included share-based payment awards granted subsequent to
September 30, 2005 based on the grant date fair value estimated in accordance with the provisions
of ASC 718. As share-based compensation expense recognized in the Consolidated Statement of
Operations for the fiscal year ended October 1, 2010 is based on awards ultimately expected to
vest, it has been reduced for estimated forfeitures. ASC 718 requires forfeitures to be estimated
at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ
from those estimates.
Upon adoption of ASC 718, the Company elected to retain its method of valuation for share-based
awards using the Black-Scholes option-pricing model (“Black-Scholes model”) which was also
previously used for the Company’s pro forma information required under the previous authoritative
literature governing stock compensation expense. The Company’s determination of fair value of
share-based payment awards on the date of grant using the Black-Scholes model is affected by the
Company’s stock price as well as assumptions regarding a number of highly complex and subjective
variables. These variables include, but are not limited to; the Company’s expected stock price
volatility over the term of the awards, and actual and projected employee stock option exercise
behaviors. For more complex awards with market-based performance conditions, the Company employs a
Monte Carlo simulation method which calculates many potential outcomes for an award and establishes
fair value based on the most likely outcome.
VALUATION OF LONG-LIVED ASSETS
Carrying values for long-lived assets and definite lived intangible assets, which exclude goodwill,
are reviewed for possible impairment as circumstances warrant. Factors considered important that
could result in an impairment review include significant underperformance relative to expected,
historical or projected future operating results, significant changes in the manner of use of
assets or the Company’s business strategy, significant negative industry or economic trends and a
significant decline in its stock price for a sustained period of time. In addition, impairment
reviews are conducted at the judgment of management whenever asset / asset group values are deemed
to be unrecoverable relative to future undiscounted cash flows expected to be generated by that
particular asset / asset group. The determination of recoverability is based on an estimate of
undiscounted cash flows expected to result from the use of an asset / asset group and its eventual
disposition. Such estimates require management to exercise judgment and make assumptions regarding
factors such as future revenue streams, operating expenditures, cost allocation and asset
utilization levels, all of which collectively impact future operating performance. The Company’s
estimates of undiscounted cash flows may differ from actual cash flows due to, among other things,
technological changes, economic conditions, changes to its business model or changes in its
operating performance. If the sum of the undiscounted cash flows (excluding interest) is less than
the carrying value of an asset/asset group, the Company would recognize an impairment loss,
measured as the amount by which the carrying value exceeds the fair value of the asset or asset
group.
GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets with indefinite useful lives are tested at least annually for
impairment in accordance with the provisions of ASC 350
Intangibles-Goodwill and Other
(“ASC 350”)
.
Intangible assets with indefinite useful lives comprise an insignificant portion of the total book
value of the Company’s goodwill and intangible assets. The Company assesses the need to test its
goodwill for impairment on a regular basis. Pursuant to the guidance provided under ASC 280-
Segment
Reporting
(“ASC 280”), the Company has determined that it has only one reporting unit for the
purposes of allocating and testing goodwill under ASC 350.
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The goodwill impairment test is a two-step process. The first step of the Company’s impairment
analysis compares its fair value to its net book value to determine if there is an indicator of
impairment. To determine fair value, ASC 350 allows for the use of several valuation methodologies,
although it states that quoted market prices are the best evidence of fair value and shall be used
as the basis for measuring fair value where available. In the Company’s assessment of its fair
value, the Company considers the average market price of its common stock surrounding the selected
testing date, the number of shares of its common stock outstanding during such period and other
marketplace activity and related control premiums. If the calculated fair value is determined to be
less than the book value of the Company, then the Company performs step two of the impairment
analysis. Step two of the analysis compares the implied fair value of the Company’s goodwill, to
the book value of its goodwill. If the book value of the Company’s goodwill exceeds the implied
fair value of its goodwill, an impairment loss is recognized equal to that excess. In step two of
the Company’s annual impairment analysis, the Company primarily uses the income approach
methodology of valuation, which includes the discounted cash flow method as well as other generally
accepted valuation methodologies, to determine the implied fair value of the Company’s goodwill.
Significant management judgment is required in preparing the forecasts of future operating results
that are used in the discounted cash flow method of valuation. Should step two of the impairment
test be required, the estimates management would use would be consistent with the plans and
estimates that the Company uses to manage its business. In addition to testing goodwill for
impairment on an annual basis, factors such as unexpected adverse business conditions,
deterioration of the economic climate, unanticipated technological changes, adverse changes in the
competitive environment, loss of key personnel and acts by governments and courts, are considered
by management and may signal that the Company’s intangible assets have become impaired and result
in additional interim impairment testing.
In fiscal year 2010, the Company performed impairment tests of its goodwill as of the first day of
the fourth fiscal quarter in accordance with the Company’s regularly scheduled annual testing. The
results of this test indicated that none of the Company’s goodwill was impaired based on step one
of the test; accordingly step two of the test was not performed.
DEFERRED FINANCING COSTS
Financing costs are capitalized as an asset on the Company’s balance sheet and amortized on a
straight-line basis over the life of the financing. If debt is extinguished early, a proportionate
amount of deferred financing costs is charged to earnings.
INCOME TAXES
The Company uses the asset and liability method of accounting for income taxes. Under the asset and
liability method, deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis. This method also requires the
recognition of future tax benefits such as net operating loss carry forwards, to the extent that
realization of such benefits is more likely than not. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period that includes the
enactment date.
The carrying value of the Company’s net deferred tax assets assumes the Company will be able to
generate sufficient future taxable income in certain tax jurisdictions, based on estimates and
assumptions. If these estimates and related assumptions change in the future, the Company may be
required to record additional valuation allowances against its deferred tax assets resulting in
additional income tax expense in its consolidated statement of operations. Management evaluates the
realizability of the deferred tax assets and assesses the adequacy of the valuation allowance
quarterly. Likewise, in the event the Company were to determine that it would be able to realize
its deferred tax assets in the future in excess of their net recorded amount, an adjustment to the
deferred tax assets would increase income or decrease the carrying value of goodwill in the period
such determination was made.
The determination of recording or releasing tax valuation allowances is made, in part, pursuant to
an assessment performed by management regarding the likelihood that the Company will generate
future taxable income against
54
Table of Contents
which benefits of its deferred tax assets may or may not be realized. This assessment requires
management to exercise significant judgment and make estimates with respect to its ability to
generate revenues, gross profits, operating income and taxable income in future periods. Amongst
other factors, management must make assumptions regarding overall business and semiconductor
industry conditions, operating efficiencies, the Company’s ability to develop products to its
customers’ specifications, technological change, the competitive environment and changes in
regulatory requirements which may impact its ability to generate taxable income and, in turn,
realize the value of its deferred tax assets. In addition, the current uncertain economic
environment limits the Company’s ability to confidently forecast its taxable income. In fiscal
years 2010 and 2009, the Company’s estimates of future taxable income were prepared in a manner
consistent with its assessment of various factors, including market and industry conditions,
operating trends, product life cycles and competitive and regulatory environments.
The calculation of the Company’s tax liabilities includes addressing uncertainties in the
application of complex tax regulations. With the implementation effective September 29, 2007, ASC
740 (formerly referenced as FASB Interpretation No. 48,
Accounting for Uncertainty in Income
Taxes-an interpretation of FASB Statement No. 109
), clarifies the accounting for uncertainty in
income taxes recognized in an enterprise’s financial statements in accordance with GAAP. ASC 740
prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return.
The Company recognizes liabilities for anticipated tax audit issues in the United States and other
tax jurisdictions based on its recognition threshold and measurement attribute of whether it is
more likely than not that the positions the Company has taken in tax filings will be sustained upon
tax audit, and the extent to which, additional taxes would be due. If payment of these amounts
ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits
being recognized in the period in which it is determined the liabilities are no longer necessary.
If the estimate of tax liabilities proves to be less than the ultimate assessment, a further charge
to expense would result.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, accounts receivable, other current assets,
accounts payable, short-term debt and accrued liabilities approximates fair value due to short-term
maturities of these assets and liabilities. Fair values of long-term debt and investments are based
on quoted market prices if available, and if not available a fair value is determined through a
discounted cash flow analysis at the date of measurement.
ACCUMULATED OTHER COMPREHENSIVE LOSS
The Company accounts for comprehensive loss in accordance with the provisions of ASC 220 -
Comprehensive Income
(“ASC 220”). ASC 220 is a financial statement presentation standard that
requires the Company to disclose non-owner changes included in equity but not included in net
income or loss. Accumulated other comprehensive loss presented in the financial statements consists
of adjustments to the Company’s auction rate securities and minimum pension liability as follows
(in thousands):
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| Accumulated | ||||||||||||
| Auction Rate | Other | |||||||||||
| Pension | Securities | Comprehensive | ||||||||||
| Adjustments | Adjustment | Loss | ||||||||||
|
Balance as of October 3, 2008
|
$ | (268 | ) | $ | (912 | ) | $ | (1,180 | ) | |||
|
Pension adjustment
|
(200 | ) | — | (200 | ) | |||||||
|
|
||||||||||||
|
Balance as of October 2, 2009
|
$ | (468 | ) | $ | (912 | ) | $ | (1,380 | ) | |||
|
Pension adjustment
|
83 | — | 83 | |||||||||
|
|
||||||||||||
|
Balance as of October 1, 2010
|
$ | (385 | ) | $ | (912 | ) | $ | (1,297 | ) | |||
|
|
||||||||||||
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
ASC 810
In December 2007, the FASB issued amendments to ASC 810-
Consolidation
(“ASC 810”). ASC 810 amends
previously issued authoritative literature to amend accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also amends
certain of consolidation procedures for consistency with the requirements of ASC 805. This
statement is effective for fiscal years, and interim periods within those fiscal years, beginning
on or after December 15, 2008. The statement was applied prospectively as of the beginning of the
fiscal year. The adoption of ASC 810 did not have an impact on the Company’s results of operations
or financial position because the Company does not have any minority interests.
ASC 825
In February 2007, the FASB issued ASC 825-
Financial Instruments
(“ASC 825”), including an
amendment of ASC 320-
Investments-Debt and Equity Securities
(“ASC 320”), which permits entities to
choose to measure many financial instruments and certain other items at fair value that are not
currently required to be measured at fair value. ASC 825 was effective for the Company beginning on
October 3, 2009. The adoption of ASC 825 did not have a material impact on the Company’s results
from operations or financial position.
ASU 2009-13 and ASU 2009-14
In September 2009, the FASB reached a consensus on Accounting Standards Update
(“ASU”)-2009-13-
Revenue Recognition (“ASC 605”) — Multiple-Deliverable Revenue Arrangements
(“ASU
2009-13”) and ASU 2009-14-
Software (“ASC 985”) — Certain Revenue Arrangements That Include
Software Elements
(“ASU 2009-14”). ASU 2009-13 modifies the requirements that must be met for an
entity to recognize revenue from the sale of a delivered item that is part of a multiple-element
arrangement when other items have not yet been delivered. ASU 2009-13 eliminates the requirement
that all undelivered elements must have either: i) Vendor Specific Objective Evidence or VSOE or
ii) third-party evidence, or TPE, before an entity can recognize the portion of an overall
arrangement consideration that is attributable to items that already have been delivered. In the
absence of VSOE or TPE of the standalone selling price for one or more delivered or undelivered
elements in a multiple-element arrangement, entities will be required to estimate the selling
prices of those elements. Overall arrangement consideration will be allocated to each element (both
delivered and undelivered items) based on their relative selling prices, regardless of whether
those selling prices are evidenced by VSOE or TPE or are based on the entity’s estimated selling
price. The residual method of allocating arrangement consideration has been eliminated. ASU 2009-14
modifies the software revenue recognition guidance to exclude from its scope tangible products that
contain both software and non-software components that function together to deliver a product’s
essential functionality. These new updates are effective for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010. The Company is currently
evaluating the impact that the adoption of these ASUs will have on its consolidated financial
statements.
3. BUSINESS COMBINATIONS
The Company did not complete any business combinations during its fiscal year ended October 1,
2010.
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Table of Contents
4. MARKETABLE SECURITIES
The Company accounts for its investment in accordance with ASC 320-
Investments-Debt and Equity
Securities
, and classifies them as “available for sale”. At October 1, 2010, these securities
consisted of $3.2 million par value in auction rate securities, which are long-term debt
instruments intended to provide liquidity through a Dutch auction process that resets interest
rates each period. The uncertainties in the credit markets have caused the ARS to become illiquid
resulting in failed auctions.
During the fiscal year ended October 3, 2008, the Company performed a comprehensive valuation and
discounted cash flow analysis on the ARS. The Company concluded the value of the ARS was $2.3
million thus the carrying value of these securities was reduced by $0.9 million, reflecting this
change in fair value. The Company assessed the decline in fair value to be temporary and recorded
this reduction in shareholders’ equity in accumulated other comprehensive loss. The Company will
continue to closely monitor the ARS and evaluate the appropriate accounting treatment in each
reporting period. If in a future period the Company determines that the impairment is other than
temporary, the Company will impair the security to its fair value and charge the loss to earnings.
The Company holds no other auction rate securities.
5. FINANCIAL INSTRUMENTS
On October 4, 2008, the Company adopted ASC 820-
Fair Value Measurements and Disclosure
(“ASC 820”)
for financial assets and liabilities measured at fair value. The Company adopted ASC 820-10-55,
for non-financial assets and liabilities including intangible assets and reporting units measured
at fair value in the first step of a goodwill impairment test on October 3, 2009. In accordance
with ASC 820, the Company groups its financial assets and liabilities measured at fair value on a
recurring basis in three levels, based on the markets in which the assets and liabilities are
traded and the reliability of the assumptions used to determine fair value. These levels are:
| • | Level 1 — Valuation is based upon quoted market price for identical instruments traded in active markets. | ||
| • | Level 2 — Valuation is based on quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. | ||
| • | Level 3 — Valuation is generated from model-based techniques that use significant assumptions not observable in the market. Valuation techniques include use of discounted cash flow models and similar techniques. |
The Company has cash equivalents classified as Level 1 and has no Level 2 securities. The Company’s
ARS, discussed in Note 4, Marketable Securities, is classified as level 3 assets. There have been
no transfers between Level 1, Level 2 or Level 3 assets during the fiscal year ending October 1,
2010. There have been no purchases, sales, issuances or settlements of the marketable securities
classified as Level 3 assets during the fiscal year.
Financial Instruments Measured at Fair Value on a Recurring Basis
The following table presents the balances of cash equivalents and marketable securities measured at
fair value on a recurring basis as of October 1, 2010 (in thousands):
| Fair Value Measurements | ||||||||||||||||
| Quoted Prices in | Significant | Significant | ||||||||||||||
| Active Markets for | Other | Unobservable | ||||||||||||||
| Identical Assets | Observable Inputs | Inputs | ||||||||||||||
| Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
|
Cash equivalents:
|
||||||||||||||||
|
Money market/repurchase agreements
|
$ | 427,789 | $ | 427,789 | $ | — | $ | — | ||||||||
|
Auction rate securities
|
2,288 | — | — | 2,288 | ||||||||||||
|
|
||||||||||||||||
|
Total
|
$ | 430,077 | $ | 427,789 | $ | — | $ | 2,288 | ||||||||
|
|
||||||||||||||||
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Table of Contents
Non-Financial Assets Measured at Fair Value on a Nonrecurring Basis
The Company’s non-financial assets, such as goodwill, intangible assets, and other long lived
assets resulting from business combinations are measured at fair value at the date of acquisition
and subsequently re-measured if there is an indicator of impairment. There was no impairment
recognized during the fiscal year ending October 1, 2010.
6. INVENTORY
Inventories consist of the following (in thousands):
| As of | ||||||||
| October 1, | October 2, | |||||||
| 2010 | 2009 | |||||||
|
Raw materials
|
$ | 16,108 | $ | 9,889 | ||||
|
Work-in-process
|
74,701 | 56,074 | ||||||
|
Finished goods
|
20,209 | 12,950 | ||||||
|
Finished goods held on consignment by customers
|
14,041 | 7,184 | ||||||
|
|
||||||||
|
Total inventories
|
$ | 125,059 | $ | 86,097 | ||||
|
|
||||||||
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
| As of | ||||||||
| October 1, | October 2, | |||||||
| 2010 | 2009 | |||||||
|
Land
|
$ | 9,423 | $ | 9,423 | ||||
|
Land and leasehold improvements
|
5,475 | 5,063 | ||||||
|
Buildings
|
42,918 | 39,992 | ||||||
|
Furniture and fixtures
|
24,784 | 24,450 | ||||||
|
Machinery and equipment
|
455,157 | 393,566 | ||||||
|
Construction in progress
|
28,901 | 19,209 | ||||||
|
|
||||||||
|
Total property, plant and equipment, gross
|
566,658 | 491,703 | ||||||
|
Accumulated depreciation and amortization
|
(362,295 | ) | (329,404 | ) | ||||
|
|
||||||||
|
Total property, plant and equipment, net
|
$ | 204,363 | $ | 162,299 | ||||
|
|
||||||||
8. GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets consist of the following (in thousands):
| Weighted | As of | As of | ||||||||||||||||||||||||||
| Average | October 1, 2010 | October 2, 2009 | ||||||||||||||||||||||||||
| Amortization | Gross | Net | Gross | Net | ||||||||||||||||||||||||
| Period Remaining | Carrying | Accumulated | Carrying | Carrying | Accumulated | Carrying | ||||||||||||||||||||||
| (Years) | Amount | Amortization | Amount | Amount | Amortization | Amount | ||||||||||||||||||||||
|
Goodwill
|
$ | 485,587 | $ | — | $ | 485,587 | $ | 482,893 | $ | — | $ | 482,893 | ||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Amortized intangible assets
|
||||||||||||||||||||||||||||
|
Developed technology
|
1.7 | $ | 14,150 | $ | (10,862 | ) | $ | 3,288 | $ | 13,750 | $ | (8,899 | ) | $ | 4,851 | |||||||||||||
|
Customer relationships
|
1.9 | 21,510 | (15,894 | ) | 5,616 | 21,510 | (12,697 | ) | 8,813 | |||||||||||||||||||
|
Patents and other
|
1.2 | 5,966 | (5,630 | ) | 336 | 5,966 | (4,654 | ) | 1,312 | |||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
|
41,626 | (32,386 | ) | 9,240 | 41,226 | (26,250 | ) | 14,976 | ||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Unamortized intangible assets
|
||||||||||||||||||||||||||||
|
Trademarks
|
3,269 | — | 3,269 | 3,269 | — | 3,269 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Total intangible assets
|
$ | 44,895 | $ | (32,386 | ) | $ | 12,509 | $ | 44,495 | $ | (26,250 | ) | $ | 18,245 | ||||||||||||||
|
|
||||||||||||||||||||||||||||
58
Table of Contents
Amortization expense related to intangible assets was $6.1 million for each of fiscal years
2010 and 2009 and $6.9 million for fiscal year 2008.
The changes in the gross carrying amount of goodwill and intangible assets are as follows:
| Developed | Customer | Patents and | ||||||||||||||||||||||
| Goodwill | Technology | Relationships | Other | Trademarks | Total | |||||||||||||||||||
|
Balance as of October 3, 2008
|
$ | 483,671 | $ | 11,850 | $ | 21,210 | $ | 3,549 | $ | 3,269 | $ | 523,549 | ||||||||||||
|
Additions during period
|
6,395 | 1,900 | 300 | 2,417 | — | 11,012 | ||||||||||||||||||
|
Deductions during year
|
(7,173 | ) | — | — | — | — | (7,173 | ) | ||||||||||||||||
|
|
||||||||||||||||||||||||
|
Balance as of October 2, 2009
|
$ | 482,893 | $ | 13,750 | $ | 21,510 | $ | 5,966 | $ | 3,269 | $ | 527,388 | ||||||||||||
|
Additions during period
|
2,731 | 400 | — | — | — | 3,131 | ||||||||||||||||||
|
Deductions during year
|
(37 | ) | — | — | — | — | (37 | ) | ||||||||||||||||
|
|
||||||||||||||||||||||||
|
Balance as of October 1, 2010
|
$ | 485,587 | $ | 14,150 | $ | 21,510 | $ | 5,966 | $ | 3,269 | $ | 530,482 | ||||||||||||
|
|
||||||||||||||||||||||||
Goodwill is adjusted as required as a result of the realization of deferred tax assets. The
benefit from the recognition of a portion of these deferred items reduces the carrying value of
goodwill instead of reducing income tax expense. Accordingly, future realization of certain
deferred tax assets will reduce the carrying value of goodwill. For the fiscal year ended
October 2, 2009 goodwill was reduced by $7.2 million. The remaining deferred tax assets that could
reduce goodwill in future periods are $0.4 million as of October 1, 2010.
Annual amortization expense for the next five years related to intangible assets is expected to be
as follows (in thousands):
| 2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||
|
Amortization expense
|
$ | 5,319 | $ | 3,783 | $ | 138 | $ | — | $ | — | ||||||||||
9. BORROWING ARRANGEMENTS
LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
| Fiscal Years Ended | ||||||||
| October 1, | October 2, | |||||||
| 2010 | 2009 | |||||||
|
2007 Convertible Notes
|
$ | 24,743 | $ | 73,348 | ||||
|
Less-current maturities
|
— | 31,865 | ||||||
|
|
||||||||
|
Total long-term debt
|
$ | 24,743 | $ | 41,483 | ||||
|
|
||||||||
On March 2, 2007, the Company issued $200.0 million aggregate principal amount of convertible
subordinated notes (“2007 Convertible Notes”). The offering contained two tranches. The first
tranche consisted of $100.0 million of 1.25% convertible subordinated notes due March 2010 (the
“1.25% Notes”). The second tranche consisted of $100.0 million aggregate principal amount of 1.50%
convertible subordinated notes due March 2012 (the “1.50% Notes”). The Company pays interest in
cash semi-annually in arrears on March 1 and September 1 of each year on the 1.50% Notes. The
conversion price of the 1.50% Notes is 105.0696 shares per $1,000 principal amount of notes to be
redeemed, which is the equivalent of a conversion price of approximately $9.52 per share, plus
accrued and unpaid interest, if any, to the conversion date. Holders of the 1.50% Notes may
require the Company to repurchase the 2007 Convertible Notes upon a change in control of the
Company.
These 2007 Convertible Notes contain cash settlement provisions, which permit the application of
the treasury stock method in determining potential share dilution of the conversion spread should
the share price of the Company’s common stock exceed $9.52. It has been the Company’s historical
practice to cash settle the principal and interest components of convertible debt instruments, and
it is our intention to continue to do so in the future.
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Table of Contents
On October 3, 2009, the Company adopted ASC 470-20 —
Debt, Debt with Conversions and Other Options
(“ASC 470-20”). Our financial statements and the accompanying footnotes for all prior periods
presented have been adjusted to reflect the retrospective adoption of this new accounting
principle. ASC 470-20 requires the issuer of convertible debt instruments with cash settlement
features to separately account for the liability and equity components of the convertible debt
instrument and requires retrospective application to all periods presented in the financial
statements to which it is applicable. ASC 470-20 applies to the Company’s 2007 Convertible Notes.
Using a non-convertible borrowing rate of 6.86%, the Company estimated the fair value of the
liability component of the 1.50% Notes to be $77.3 million. As of the issuance date, the difference
between the fair value of the liability component of the 1.50% Notes and the corresponding
aggregate principal amount of such notes, which is equal to the fair value of the equity component
of the 1.50% Notes ($22.7 million), was retrospectively recorded as a debt discount and as an
increase to additional paid-in capital, net of tax. The discount of the liability component of the
1.50% Notes is being amortized over the life of the instrument.
During the fiscal year ending October 1, 2010, the Company redeemed the remaining $32.6 million of
aggregate principal amount of the 1.25% Notes and redeemed $20.4 million of aggregate principal
amount of the 1.50% Notes. The Company paid a cash premium (cash paid less principal amount) of
$15.1 million and $12.4 million on the retirements of the 1.25% and 1.50% Notes, respectively.
After applying ASC 470-20, the Company recorded a total gain on the transaction of approximately
$0.1 million (including commissions and deferred financing).
The following tables provide additional information about the Company’s 2007 Convertible Notes (in
thousands):
| Fiscal Years Ended | ||||||||
| October 1, | October 2, | |||||||
| 2010 | 2009 | |||||||
|
Equity component of the convertible notes outstanding
|
$ | 6,061 | $ | 15,670 | ||||
|
Principal amount of the convertible notes
|
26,677 | 79,733 | ||||||
|
Unamortized discount of the liability component
|
1,934 | 6,385 | ||||||
|
Net carrying amount of the liability component
|
24,743 | 73,348 | ||||||
| Fiscal Years Ended | ||||||||
| October 1, | October 2, | |||||||
| 2010 | 2009 | |||||||
|
Effective interest rate on the liability component
|
6.86 | % | 6.86 | % | ||||
|
Cash interest expense recognized (contractual interest)
|
$ | 734 | $ | 1,391 | ||||
|
Effective interest expense recognized
|
$ | 2,502 | $ | 4,954 | ||||
The remaining unamortized discount on the 1.50% Notes will be amortized over the next seventeen
months. As of October 1, 2010, the if converted value of the remaining 1.50% Notes exceeds the
related principal amount by approximately $31.2 million. As of October 1, 2010 and October 2, 2009,
the number of shares of the Company’s common stock underlying the then remaining 2007 Convertible
Notes (which at October 2, 2009 included both the 1.25% Notes and the 1.50% Notes) were 2.8 million
and 8.4 million, respectively.
The retrospective application of ASC 470-20 had the following effect on the Company’s Consolidated
Statements of Operations as follows (in thousands):
| Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||||||||||
| October 2, 2009 | October 3, 2008 | |||||||||||||||||||||||
| Previously | As | Effect of | Previously | As | Effect of | |||||||||||||||||||
| Reported | Adjusted | Change | Reported | Adjusted | Change | |||||||||||||||||||
|
Interest expense
|
$ | (3,644 | ) | $ | (8,290 | ) | $ | (4,646 | ) | $ | (7,330 | ) | $ | (16,324 | ) | $ | (8,994 | ) | ||||||
|
(Loss) Gain on early
retirement of convertible debt
(1)
|
(4,066 | ) | 4,590 | 8,656 | (6,836 | ) | 2,158 | 8,994 | ||||||||||||||||
|
(Benefit) for income
taxes
|
(27,543 | ) | (25,227 | ) | (2,316 | ) | (28,818 | ) | (28,818 | ) | — | |||||||||||||
|
Net income
|
93,289 | 94,983 | 1,694 | 111,006 | 111,006 | — | ||||||||||||||||||
|
Per share information:
|
||||||||||||||||||||||||
|
Net income, basic
|
$ | 0.56 | $ | 0.57 | $ | 0.01 | $ | 0.69 | $ | 0.69 | $ | — | ||||||||||||
|
Net income, diluted
|
$ | 0.55 | $ | 0.56 | $ | 0.01 | $ | 0.67 | $ | 0.67 | $ | — | ||||||||||||
60
Table of Contents
| (1) | The previously reported gain on early retirement of the 1.25% and 1.50% Notes for the fiscal year ended October 2, 2009 was net of deferred financing cost write-downs of $0.9 million. |
The retrospective application of ASC 470-20 had the following effect on the Company’s Consolidated
Balance Sheet as of October 2, 2009 (in thousands):
| Previously Reported | As Adjusted | Effect of Change | ||||||||||
|
Other assets
|
$ | 10,283 | $ | 9,864 | $ | (419 | ) | |||||
|
Deferred tax assets
|
91,479 | 89,163 | (2,316 | ) | ||||||||
|
Short-term debt
|
82,617 | 81,865 | (752 | ) | ||||||||
|
Long-term debt
|
47,116 | 41,483 | (5,633 | ) | ||||||||
|
Additional paid-in capital
|
1,499,406 | 1,568,416 | 69,010 | |||||||||
|
Accumulated deficit
|
(399,794 | ) | (465,154 | ) | (65,360 | ) | ||||||
The retrospective application of ASC 470-20 had the following effect on the Company’s Consolidated
Statement of Cash Flows as follows (in thousands):
| Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||||||||||
| October 2, 2009 | October 3, 2008 | |||||||||||||||||||||||
| Previously | As | Effect of | Previously | As | Effect of | |||||||||||||||||||
| Reported | Adjusted | Change | Reported | Adjusted | Change | |||||||||||||||||||
|
Cash flows from operating
activities:
|
||||||||||||||||||||||||
|
Net income
|
$ | 93,289 | $ | 94,983 | $ | 1,694 | $ | 111,006 | $ | 111,006 | $ | — | ||||||||||||
|
Amortization of
deferred financing
costs and
discount on
convertible debt
|
943 | 5,589 | 4,646 | 1,753 | 10,748 | 8,995 | ||||||||||||||||||
|
Deferred income taxes
|
(27,182 | ) | (24,866 | ) | 2,316 | (36,648 | ) | (36,648 | ) | — | ||||||||||||||
|
Net cash
provided by
operating
activities:
|
210,149 | 218,805 | 8,656 | 173,678 | 182,673 | 8,995 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Cash flows from
financing
activities:
|
||||||||||||||||||||||||
|
Retirement of 2007
Convertible Notes
|
$ | (57,883 | ) | $ | (51,107 | ) | $ | 6,776 | $ | (62,384 | ) | $ | (56,570 | ) | $ | 5,814 | ||||||||
|
Reacquisition of
equity component of
convertible notes
|
— | (15,432 | ) | (15,432 | ) | — | (14,809 | ) | (14,809 | ) | ||||||||||||||
|
Net cash used in
financing
activities:
|
(21,504 | ) | (30,160 | ) | (8,656 | ) | (95,192 | ) | (104,187 | ) | (8,995 | ) | ||||||||||||
Aggregate annual maturities of long-term debt are as follows (in thousands):
| Fiscal Year | Maturity | |||
|
|
||||
|
2011
|
$ | — | ||
|
2012
|
24,743 | |||
|
|
||||
|
|
$ | 24,743 | ||
|
|
||||
61
Table of Contents
SHORT-TERM DEBT
Short-term debt consists of the following (in thousands):
| Fiscal Years Ended | ||||||||
| October 1, | October 2, | |||||||
| 2010 | 2009 | |||||||
|
Current maturities of long-term debt
|
$ | — | $ | 31,865 | ||||
|
Credit Facility
|
50,000 | 50,000 | ||||||
|
|
||||||||
|
|
$ | 50,000 | $ | 81,865 | ||||
|
|
||||||||
On July 15, 2003, the Company entered into a receivables purchase agreement under which it has
agreed to sell from time to time certain of its accounts receivable to Skyworks USA, Inc.
(“Skyworks USA”), a wholly-owned special purpose entity that is consolidated for accounting
purposes. Concurrently, Skyworks USA entered into an agreement with Wells Fargo Bank, N.A.
(previously Wachovia Bank, N.A.) providing for a $50.0 million Credit Facility secured by the purchased accounts receivable. As a part of the consolidation, any
interest incurred by Skyworks USA related to monies it borrows under
the Credit Facility is
recorded as interest expense in the Company’s results of operations. The Company performs
collections and administrative functions on behalf of Skyworks USA. The Company extended the
Credit Facility effective on July 9, 2010 for an additional term of three months.
Interest related to the Credit Facility is at LIBOR plus 0.75% and was approximately 1.01% at
October 1, 2010. As of October 1, 2010, Skyworks USA had borrowed $50.0 million under this
agreement. Our ability to borrow under the Credit Facility expired in
October 2010 and, given our strong cash position, management has determined that the
Credit Facility was no longer required and accordingly, has been substantially repaid as of November 29, 2010.
10. INCOME TAXES
Income before income taxes consists of the following components (in thousands):
| Fiscal Years Ended | ||||||||||||
| October 1, | October 2, | October 3, | ||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
United States
|
$ | 164,094 | $ | 65,603 | $ | 79,931 | ||||||
|
Foreign
|
30,980 | 4,153 | 2,257 | |||||||||
|
|
||||||||||||
|
|
$ | 195,074 | $ | 69,756 | $ | 82,188 | ||||||
|
|
||||||||||||
The provision (benefit) for income taxes consists of the following (in thousands):
| Fiscal Years Ended | ||||||||||||
| October 1, | October 2, | October 3, | ||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Current tax expense (benefit):
|
||||||||||||
|
Federal
|
$ | 11,855 | $ | (251 | ) | $ | 1,310 | |||||
|
State
|
946 | (413 | ) | (72 | ) | |||||||
|
Foreign
|
684 | 966 | (94 | ) | ||||||||
|
|
||||||||||||
|
|
13,485 | 302 | 1,144 | |||||||||
|
Deferred tax expense (benefit):
|
||||||||||||
|
Federal
|
44,072 | (25,436 | ) | (36,405 | ) | |||||||
|
State
|
(12 | ) | — | — | ||||||||
|
Foreign
|
235 | (93 | ) | (571 | ) | |||||||
|
|
||||||||||||
|
|
44,295 | (25,529 | ) | (36,976 | ) | |||||||
|
|
||||||||||||
|
Charge in lieu of tax expense
|
— | — | 7,014 | |||||||||
|
|
||||||||||||
|
Provision (benefit) for income taxes
|
$ | 57,780 | $ | (25,227 | ) | $ | (28,818 | ) | ||||
|
|
||||||||||||
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The actual income tax expense is different than that which would have been computed by applying the
federal statutory tax rate to income before income taxes. A reconciliation of income tax expense as
computed at the United States Federal statutory income tax rate to the provision for income tax
expense follows (in thousands):
| Fiscal Years Ended | ||||||||||||
| October 1, | October 2, | October 3, | ||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Tax expense at United States statutory rate
|
$ | 68,276 | $ | 24,415 | $ | 28,766 | ||||||
|
Foreign tax rate difference
|
(8,889 | ) | (580 | ) | (436 | ) | ||||||
|
Deemed dividend from foreign subsidiary
|
884 | 774 | 102 | |||||||||
|
Research and development credits
|
(5,820 | ) | (7,211 | ) | (7,970 | ) | ||||||
|
Change in tax reserve
|
4,413 | 295 | (999 | ) | ||||||||
|
Change in valuation allowance
|
2,834 | (39,089 | ) | (54,011 | ) | |||||||
|
Charge in lieu of tax expense
|
— | — | 7,014 | |||||||||
|
Non deductible debt retirement premium
|
64 | (3,508 | ) | (3,563 | ) | |||||||
|
Alternative minimum tax
|
— | (958 | ) | 1,306 | ||||||||
|
Domestic production activities deduction
|
(2,263 | ) | — | — | ||||||||
|
International restructuring
|
(3,468 | ) | — | — | ||||||||
|
Other, net
|
1,749 | 635 | 973 | |||||||||
|
|
||||||||||||
|
Provision (benefit) for income taxes
|
$ | 57,780 | $ | (25,227 | ) | $ | (28,818 | ) | ||||
|
|
||||||||||||
During
fiscal year 2010, the Company restructured its international
operations resulting in a tax benefit of $3.5 million. This consisted of a tax benefit of $6.3 million due to reassessing the United States income tax
required to be recorded on earnings of our operations in Mexico,
offset by $2.8 million of tax provision related to the transfer of
assets to an affiliated foreign company. As a result of this
restructuring, the Company is no longer required to assess United
States income tax on the earnings of its Mexican business.
Deferred income tax assets and liabilities consist of the tax effects of temporary differences
related to the following (in thousands):
| Fiscal Years Ended | ||||||||
| October 1, | October 2, | |||||||
| 2010 | 2009 | |||||||
|
Deferred Tax Assets:
|
||||||||
|
Current:
|
||||||||
|
Inventories
|
$ | 4,451 | $ | 5,261 | ||||
|
Bad debts
|
427 | 1,025 | ||||||
|
Accrued compensation and benefits
|
2,536 | 3,219 | ||||||
|
Product returns, allowances and warranty
|
572 | 686 | ||||||
|
Restructuring
|
794 | 1,503 | ||||||
|
Other — net
|
943 | — | ||||||
|
|
||||||||
|
Current deferred tax assets
|
9,723 | 11,694 | ||||||
|
Less valuation allowance
|
(2,130 | ) | (963 | ) | ||||
|
|
||||||||
|
Net current deferred tax assets
|
7,593 | 10,731 | ||||||
|
|
||||||||
|
Long-term:
|
||||||||
|
Property, plant and equipment
|
— | 3,762 | ||||||
|
Intangible assets
|
9,422 | 11,121 | ||||||
|
Retirement benefits and deferred compensation
|
21,327 | 15,576 | ||||||
|
Net operating loss carry forwards
|
6,120 | 24,438 | ||||||
|
Federal tax credits
|
28,243 | 42,787 | ||||||
|
State investment credits
|
24,173 | 21,513 | ||||||
|
|
||||||||
|
Long-term deferred tax assets
|
89,285 | 119,197 | ||||||
|
Less valuation allowance
|
(23,480 | ) | (25,630 | ) | ||||
|
|
||||||||
|
Net long-term deferred tax assets
|
65,805 | 93,567 | ||||||
|
|
||||||||
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| Fiscal Years Ended | ||||||||
| October 1, | October 2, | |||||||
| 2010 | 2009 | |||||||
|
|
||||||||
|
Deferred tax assets
|
99,008 | 130,891 | ||||||
|
Less valuation allowance
|
(25,610 | ) | (26,593 | ) | ||||
|
|
||||||||
|
Net deferred tax assets
|
73,398 | 104,298 | ||||||
|
|
||||||||
|
|
||||||||
|
Deferred Tax Liabilities:
|
||||||||
|
Current:
|
||||||||
|
Prepaid insurance
|
(724 | ) | (787 | ) | ||||
|
Other — net
|
— | (5,439 | ) | |||||
|
|
||||||||
|
Current deferred tax liabilities
|
(724 | ) | (6,226 | ) | ||||
|
|
||||||||
|
Long-term:
|
||||||||
|
Property, plant and equipment
|
(4,636 | ) | — | |||||
|
Other — net
|
(272 | ) | (2,136 | ) | ||||
|
Intangible assets
|
(329 | ) | (2,267 | ) | ||||
|
|
||||||||
|
Long-term deferred tax liabilities
|
(5,237 | ) | (4,403 | ) | ||||
|
|
||||||||
|
|
||||||||
|
Net deferred tax liabilities
|
(5,961 | ) | (10,629 | ) | ||||
|
|
||||||||
|
Total deferred tax assets
|
$ | 67,437 | $ | 93,669 | ||||
|
|
||||||||
In accordance with GAAP, management has determined that it is more likely than not that a
portion of its historic and current year income tax benefits will not be realized. As of October 1,
2010, the Company has maintained a valuation allowance for deferred tax assets of $25.6 million,
principally related to state research tax credits. If these benefits are recognized in a future
period the valuation allowance on deferred tax assets will be reversed and up to a $25.2 million
income tax benefit, and up to a $0.4 million reduction to goodwill may be recognized. During
fiscal year 2010, the Company recognized a net decrease in its valuation allowance of $1.0 million.
The change in the valuation allowance resulted in a tax expense of
$2.8 million and an increase to additional paid-in capital of $3.8
million.
The Company will need to generate $189.9 million of future United States federal taxable income to
utilize our United States deferred tax assets as of October 1, 2010.
Based on the Company’s evaluation of the realizability of its United States net deferred tax assets
and other future deductible items through the generation of future taxable income, $38.6 million of
the Company’s valuation allowance was reversed at October 2, 2009. The amount reversed consisted of
$25.4 million recognized as income tax benefit, and $13.2 million recognized as a reduction to
goodwill.
Deferred tax assets are recognized for foreign operations when management believes it is more
likely than not that the deferred tax assets will be recovered during the carry forward period. The
Company will continue to assess its valuation allowance in future periods.
As of October 1, 2010, the Company has United States federal net operating loss carry forwards of
approximately $17.7 million, which will expire at various dates through 2029 and aggregate state
net operating loss carry forwards of approximately $1.4 million, which will expire at various dates
through 2019. The utilization of these net operating losses is subject to certain annual
limitations as required under Internal Revenue Code section 382 and similar state income tax
provisions. The Company also has United States federal and state income tax credit carry forwards
of approximately $75.3 million, of which $9.9 million of federal income tax credit carry forwards
have not been recorded as a deferred tax asset. The United States federal tax credits expire at
various dates through 2030. The state tax credits relate primarily to California research tax
credits which can be carried forward indefinitely.
The Company has continued to expand its operations and increase its investments in numerous
international jurisdictions. These activities will increase the Company’s earnings attributable to
foreign jurisdictions. As of October 1, 2010, no provision has been made for United States
federal, state, or additional foreign income taxes related to approximately $52.3 million of
undistributed earnings of foreign subsidiaries which have been or are
intended to be permanently reinvested. It is not practicable to determine the United States federal
income tax liability, if any, which would be payable if such earnings, were not permanently
reinvested.
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The Company’s gross unrecognized tax benefits totaled $19.9 million and $8.9 million as of
October 1, 2010 and October 2, 2009, respectively. Included in the $19.9 million is $11.4 million
which would impact the effective tax rate, if recognized. The remaining unrecognized tax benefits
would not impact the effective tax rate, if recognized, due to the Company’s valuation allowance
and certain positions which were required to be capitalized. There are no positions which the
Company anticipates could change within the next twelve months.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as
follows (in thousands):
|
Balance at October 2, 2009
|
$ | 8,859 | ||
|
Increases based on positions related to prior years
|
437 | |||
|
Increases based on positions related to current year
|
11,221 | |||
|
Decreases relating to settlements with taxing authorities
|
— | |||
|
Decreases relating to lapses of applicable statutes of limitations
|
(617 | ) | ||
|
|
||||
|
Balance at October 1, 2010
|
$ | 19,900 | ||
|
|
||||
The Company’s major tax jurisdictions as of October 1, 2010 are the United States, California, and
Iowa. For the United States, the Company has open tax years dating back to fiscal year 1998 due to
the carry forward of tax attributes. For California and Iowa, the Company has open tax years dating
back to fiscal year 2002 due to the carry forward of tax attributes.
During the year ended October 1, 2010, $0.6 million of previously unrecognized tax benefits related
to the expiration of the statute of limitations period were recognized. The Company’s policy is to
recognize accrued interest and penalties, if incurred, on any unrecognized tax benefits as a
component of income tax expense. The Company did not incur any significant accrued interest or
penalties related to unrecognized tax benefits during fiscal year 2010.
11. STOCKHOLDERS’ EQUITY
COMMON STOCK
The Company is authorized to issue (1) 525,000,000 shares of common stock, par value $0.25 per
share, and (2) 25,000,000 shares of preferred stock, without par value.
Holders of the Company’s common stock are entitled to such dividends as may be declared by the
Company’s Board of Directors out of funds legally available for such purpose. Dividends may not be
paid on common stock unless all accrued dividends on preferred stock, if any, have been paid or
declared and set aside. In the event of the Company’s liquidation, dissolution or winding up, the
holders of common stock will be entitled to share pro rata in the assets remaining after payment to
creditors and after payment of the liquidation preference plus any unpaid dividends to holders of
any outstanding preferred stock.
Each holder of the Company’s common stock is entitled to one vote for each such share outstanding
in the holder’s name. No holder of common stock is entitled to cumulate votes in voting for
directors. The Company’s second amended and restated certificate of incorporation provides that,
unless otherwise determined by the Company’s Board of Directors, no holder of common stock has any
preemptive right to purchase or subscribe for any stock of any class which the Company may issue or
sell.
On August 3, 2010, the Company’s Board of Directors approved a stock repurchase program, pursuant
to which the Company is authorized to repurchase up to $200 million of the Company’s common stock
from time to time on the open market or in privately negotiated transactions as permitted by
securities laws and other legal requirements. The Company had not repurchased any shares under the
program for the fiscal year ended October 1, 2010. As of November 29, 2010, the Company had
repurchased 786,400 shares of common stock for approximately $18.2
million. These shares were not
retired and are currently being held in our Treasury Stock.
At October 1, 2010, the Company had 185,683,236 shares of common stock issued and 180,263,009
shares outstanding.
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Table of Contents
PREFERRED STOCK
The Company’s second amended and restated certificate of incorporation permits the Company to issue
up to 25,000,000 shares of preferred stock in one or more series and with rights and preferences
that may be fixed or designated by the Company’s Board of Directors without any further action by
the Company’s stockholders. The designation, powers, preferences, rights and qualifications,
limitations and restrictions of the preferred stock of each series will be fixed by the certificate
of designation relating to such series, which will specify the terms of the preferred stock. At
October 1, 2010, the Company had no shares of preferred stock issued or outstanding.
EMPLOYEE STOCK BENEFIT PLANS
As of October 1, 2010, the Company had nine equity compensation plans under which its equity
securities were authorized for issuance to its employees and/or directors:
| • | the 1994 Non-Qualified Stock Option Plan | ||
| • | the 1996 Long-Term Incentive Plan | ||
| • | the 1999 Employee Long-Term Incentive Plan | ||
| • | the Directors’ 2001 Stock Option Plan | ||
| • | the Non-Qualified Employee Stock Purchase Plan | ||
| • | the 2002 Employee Stock Purchase Plan | ||
| • | the Washington Sub, Inc. 2002 Stock Option Plan | ||
| • | the 2005 Long-Term Incentive Plan | ||
| • | the 2008 Director Long-Term Incentive Plan |
Except for the 1999 Employee Long-Term Incentive Plan, the Washington Sub, Inc. 2002 Stock Option
Plan and the Non-Qualified Employee Stock Purchase Plan, each of the foregoing equity compensation
plans was approved by the Company’s stockholders.
The following table summarizes pre-tax share-based compensation expense related to employee stock
options, restricted stock grants, performance stock grants, employee stock purchases, and
management incentive compensation under ASC 718 for the fiscal years ended October 1,
2010, October 2, 2009, and October 3, 2008, respectively.
| Fiscal Years Ended | ||||||||||||
| October 1, | October 2, | October 3, | ||||||||||
| (In thousands) | 2010 | 2009 | 2008 | |||||||||
|
|
||||||||||||
|
Stock Options
|
$ | 12,682 | $ | 10,518 | $ | 11,382 | ||||||
|
Non-vested restricted stock with service and market conditions
|
689 | 3,144 | 3,935 | |||||||||
|
Non-vested restricted stock with service conditions
|
1,040 | 1,088 | 1,111 | |||||||||
|
Non-vested performance shares
|
19,545 | 5,003 | 3,525 | |||||||||
|
Management Incentive Plan stock awards
|
4,873 | 2,151 | 1,664 | |||||||||
|
Employee Stock Purchase Plan
|
1,912 | 1,562 | 1,595 | |||||||||
|
|
||||||||||||
|
|
$ | 40,741 | $ | 23,466 | $ | 23,212 | ||||||
|
|
||||||||||||
Employee and Director Stock Option Plans
The Company has share-based compensation plans under which employees and directors may be granted
options to purchase common stock. Options are generally granted with exercise prices at not less
than the fair market value on the grant date, generally vest over 4 years and expire 7 or 10 years
after the grant date. As of October 1, 2010, a total of 83.1 million shares are authorized for
grant under the Company’s share-based compensation plans, with 15.3 million options outstanding.
The number of common shares reserved for granting of future awards to employees and directors under
these plans was 9.3 million at October 1, 2010. The remaining unrecognized compensation expense on
stock options at October 1, 2010 was $21.1 million, and the weighted average period over which the
cost is expected to be recognized is approximately 2.2 years.
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Table of Contents
Non-Vested Restricted Stock Awards with Service and Market Conditions
The Company granted 576,688 shares of restricted stock during fiscal year ended October 3,
2008 with service and market conditions on vesting. The remaining portion of these grants were fully vested and expensed
during the first quarter of fiscal year 2010.
Non-Vested Restricted Stock Awards with Service Conditions
The Company’s share-based compensation plans provide for awards of restricted shares of common
stock and other stock-based incentive awards to employees and directors. Restricted
stock awards are subject to forfeiture if employment terminates during the prescribed retention
period.
For the fiscal year ended October 1, 2010, the Company granted 100,000 shares of restricted stock
that vest in varying amounts over a three-year period. The remaining unrecognized compensation
expense on restricted stock with service conditions outstanding at October 1, 2010 was $1.6
million, and the weighted average period over which the cost is expected to be recognized is 2.9
years.
For the fiscal year ended October 2, 2009 the Company granted 47,500 shares of restricted stock
that vest in varying amounts over a four-year period. The remaining unrecognized compensation
expense on restricted stock with service conditions outstanding at October 1, 2010 was $0.1
million, and the weighted average period over which the cost is expected to be recognized is 1.5
years.
For the fiscal year ended October 3, 2008 the Company granted 50,000 shares of restricted stock
that vest in varying amounts over a four-year period. The remaining unrecognized compensation
expense on restricted stock with service conditions outstanding at October 1, 2010 was $0.1
million, and the weighted average period over which the cost is expected to be recognized is 1.7
years.
In addition, during each of the fiscal years ended October 1, 2010, October 2, 2009, and October 3,
2008, under the 2008 Director Long-Term Incentive Plan, the Company issued a total of 100,000
restricted stock awards to Directors with a three-year graded vesting. The remaining unrecognized
compensation expense on restricted stock with service conditions outstanding at October 1, 2010 was
$1.8 million. The weighted average period over which the cost is expected to be recognized is
approximately 1.9 years.
Performance Share Awards with Milestone-Based Performance Conditions
The Company granted 219,000, 56,000, and 160,500 performance awards with milestone-based performance
conditions to non-executives during the fiscal years ended October 1, 2010, October 2, 2009, and
October 3, 2008, respectively. The performance awards will convert to common stock at such time that
the performance conditions are deemed to be achieved. The performance awards will be expensed over
implicit performance periods ranging from 6-40 months. The Company will utilize both quantitative
and qualitative criteria to judge whether the milestones are probable of achievement. If the
milestones are deemed to be not probable of achievement, no expense will be recognized until such
time as they become probable of achievement. If a milestone is initially deemed probable of
achievement and subsequent to that date it is deemed to be not probable of achievement, the Company
will discontinue recording expense on the awards. If the milestone is deemed to be improbable of
achievement, any expense recorded on those performance awards will be reversed. As of the fiscal
year ended October 1, 2010, October 2, 2009, and October 3, 2008, the fair value of the performance
awards at the date of grant were $3.5 million, $0.6 million, and $1.4 million, respectively. The
Company issued 24,331 shares, 30,419 shares, and 100,466 shares in fiscal year 2010, 2009, and
fiscal year 2008, respectively as a result of milestone achievement. In addition, certain other
milestones were deemed to be probable of achievement thus, the Company recorded total compensation
expense of $1.2 million, $(0.1) million, and $1.2 million, and in the fiscal years ended October
1, 2010, October 2, 2009, and October 3, 2008, respectively.
2007 Executive Performance Share Awards
The Company awarded 725,000 performance shares based on future stock price appreciation to
executives during the fiscal year ended October 3, 2008. On June 10, 2009, the 2007 Executive
Performance Share Award was
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modified. The awards under this plan were forfeited by the executives and replaced with the 2009
Executive Restricted Stock and Performance Share Awards as described below.
2009 Executive Restricted Stock and Performance Share Awards
On June 4, 2009, the Company gave its executives the opportunity to forfeit the aforementioned
performance shares that were originally granted on November 6, 2007 and the executives received in its place a
modified award with both a restricted stock and performance share component.
On June 10, 2009, the Company modified the November 6, 2007 performance shares by issuing 337,500
restricted stock awards based on a service condition: The restricted shares would cliff vest on
November 6, 2010 provided the executive continued employment with the Company through such date. At
November 6, 2010 the service condition was met and the Company released 337,500 shares to the
executives.
Under the performance share award component of the plan, the executives would earn up to 675,000
additional shares based on a comparison of (x) the change in Skyworks’ common stock price to (y)
the change in the price of the common stock of companies in a peer group over a three year period.
The change in price of both the Company’s common stock price and each peer company’s common stock
was determined by comparing its average stock price for the 90 day period beginning November 6,
2007 to its average stock price for the 90 day period ending November 6, 2010. If the percentage
change in Skyworks’ stock price exceeded the 70th percentile of the peer group, then the target
metrics under the award would be deemed to have been met and all of the shares would have been
earned. The Company determined that the Company’s relative stock price, measured as described
above, did exceed the 70
th
percentile of the peer group selected by the Company’s
compensation committee as of November 6, 2010. As a result, under the terms of the plan, the
shares were earned and the executives were entitled to receive the shares in two tranches (50% on
November 6, 2010 and 50% on November 6, 2011 should the executive continue employment with the
Company through such dates). The Company released 337,500 shares to the executives. The Company
recorded compensation expense of $3.2 million, $2.4 million, and $2.3 million, and in the fiscal
years ended October 1, 2010, October 2, 2009, and October 3, 2008, respectively. The remaining
unrecognized compensation expense on these performance share awards at October 1, 2010 was $0.8
million.
2010 Operating Margin Performance Share Awards
The Company awarded 0.9 million performance shares to executives and key employees based on
operating margin performance for fiscal year 2010. The fair value of these shares at target on the
grant date was $10.3 million. Each participant had the ability to earn minimum (50% of target),
target, stretch, or maximum (200% of target), depending on performance as publicly announced by the
Company following the fiscal year end. Upon achievement of the performance target, the participants
would earn the corresponding number of shares issued as follows: One-third on the initial issuance
date anniversary of November 10, 2010 and one-third on each of the second and third anniversary of
the initial issuance date, providing the employee was actively employed. On November 10, 2010,
performance was met at the maximum level and 1.7 million performance shares were issued to
executives and key employees. For the fiscal year ended October 1, 2010, the Company recorded
compensation expense of $10.7 million. The remaining unrecognized compensation expense on these
performance share awards at October 1, 2010 was $9.6 million.
2009 Operating Margin Performance Share Awards
The Company awarded 0.8 million performance shares to executives and key employees based on
operating margin performance for fiscal year 2009. Each participant had the ability to earn
Minimum (50% of Target), Target, Stretch, or Maximum (200% of Target), depending on performance as
publicly announced by the Company following the fiscal year end. Upon achievement of the
performance target, the participants will earn the corresponding number of shares issued as
follows: One-third on the initial issuance date anniversary of November 4, 2009 and one-third on
each of the second and third anniversary of the initial issuance date, providing the employee is
actively employed. As of November 4, 2009, performance was met
at the maximum level. The Company’s performance
earned 1.5 million shares, two-thirds of which have been released to the executives and key employees as of November 4, 2010 and
one-third of which is to be released on the third anniversary assuming the employee is still actively employed. As of the fiscal year ended October 1, 2010, the fair value of the performance awards at
the date of grant was $13.3 million. At October 1, 2010, the Company had recorded total
compensation expense of $7.0 million.
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Table of Contents
Restricted Stock Awards Issued in Fiscal Year 2010 in connection with the Management Incentive
Plans
The Company issued 298,830 shares of common stock in fiscal year 2010
in lieu of cash under the Management Incentive Plans. In November 2009, the Company issued 178,006 shares
in lieu of cash under the Fiscal Year 2009
Management Incentive Plan for performance related to the second half of fiscal year 2009.
In May 2010, 120,824 shares were issued to certain key employees for the first half of
fiscal year 2010 based on the Company exceeding its target metrics under the Fiscal Year 2010
Management Incentive Plan. The Company recorded $4.8 million in expense related to the
Fiscal Year 2010 Management Incentive Plan during the fiscal year. The expenses associated with
the 2009 Management Incentive Plan were expensed during fiscal year 2009.
Share-Based Compensation Plans for Directors
The Company has three share-based compensation plans under which options and restricted stock have
been granted for non-employee directors — the 1994 Non-Qualified Stock Option Plan, the Directors’
2001 Stock Option Plan, and the 2008 Directors’ Long-Term Incentive Plan. Under the three plans, a
total of 1.9 million shares have been authorized for option grants. Under the current 2008
Directors’ Long-Term Incentive Plan, a total of 0.3 million shares are available for new grants as
of October 1, 2010. The 2008 Directors’ Long-Term Incentive Plan is structured to provide options
and restricted common stock to non-employee directors as follows: a new director receives a total
of 25,000 options and 12,500 shares of restricted common stock upon becoming a member of the Board;
and continuing directors receive 12,500 shares of restricted common stock after each Annual Meeting
of Stockholders. Under this plan, the option price is the fair market value at the time the option
is granted. All options granted are exercisable at 25% per year beginning one year from the date
of grant. The maximum contractual term of the director awards is 10 years. As of October 1,
2010, a total of 0.7 million options at a weighted average exercise price of $10.41 per share were
outstanding under these four plans, and 0.7 million options were exercisable at a weighted average
exercise price of $10.62 per share. The remaining unrecognized compensation expense on director
stock options at October 1, 2010 was $0.1 million and the weighted average period over which the
cost is expected to be recognized is approximately 0.5 years. There were 121,500, 105,000, and
60,000 options exercised under these plans during the fiscal years ended October 1, 2010, October
2, 2009, and October 3, 2008, respectively. The above-mentioned activity for the share-based
compensation plans for directors is included in the option tables below.
Employee Stock Purchase Plan
The Company maintains a domestic and an international employee stock purchase plan. Under these
plans, eligible employees may purchase common stock through payroll deductions of up to 10% of
compensation. The price per share is the lower of 85% of the market price at the beginning or end
of each offering period (generally six months). The plans provide for purchases by employees of up
to an aggregate of 8.1 million shares through December 31, 2012. Shares of common stock purchased
under these plans in fiscal years 2010, 2009, and 2008 were 640,341, 1,058,736, and 790,556,
respectively. At October 1, 2010, there are 1.0 million shares available for purchase. The Company
recognized compensation expense of $1.9 million for the fiscal year ended October 1, 2010 and $1.6
million for both the fiscal years ended October 2, 2009 and October 3, 2008.
General Option Information
A summary of stock option transactions follows (shares in thousands):
| Options Outstanding | ||||||||||||
| Shares Available | Weighted average | |||||||||||
| for | exercise price of | |||||||||||
| Grant | Shares | shares under plan | ||||||||||
|
Balance outstanding at September 28, 2007
|
13,754 | 27,868 | $ | 11.96 | ||||||||
|
Granted (1)
|
(5,965 | ) | 3,002 | 9.25 | ||||||||
|
Exercised
|
— | (2,582 | ) | 6.99 | ||||||||
|
Cancelled/forfeited (2)
|
826 | (3,628 | ) | 17.52 | ||||||||
|
Additional shares reserved
|
720 | — | — | |||||||||
|
|
||||||||||||
|
Balance outstanding at October 3, 2008
|
9,335 | 24,660 | $ | 11.38 | ||||||||
|
Granted (1)
|
(9,342 | ) | 3,596 | 7.33 | ||||||||
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| Options Outstanding | ||||||||||||
| Shares Available | Weighted average | |||||||||||
| for | exercise price of | |||||||||||
| Grant | Shares | shares under plan | ||||||||||
|
Exercised
|
— | (5,203 | ) | 7.43 | ||||||||
|
Cancelled/forfeited (2)
|
2,478 | (4,702 | ) | 16.32 | ||||||||
|
Additional shares reserved
|
12,500 | — | — | |||||||||
|
|
||||||||||||
|
Balance outstanding at October 2, 2009
|
14,971 | 18,351 | $ | 10.44 | ||||||||
|
Granted (1)
|
(5,737 | ) | 3,234 | 12.57 | ||||||||
|
Exercised
|
— | (4,823 | ) | 8.40 | ||||||||
|
Cancelled/forfeited (2)
|
113 | (1,473 | ) | 21.22 | ||||||||
|
|
||||||||||||
|
Balance outstanding at October 1, 2010
|
9,347 | 15,289 | $ | 10.49 | ||||||||
|
|
||||||||||||
| (1) | “Granted” under “Shares Available for Grant” at the maximum amount of shares per the share-based plans includes restricted and performance stock awards for the years ended October 1, 2010, October 2, 2009, and October 3, 2008 of 1.6 million, 3.8 million, and 2.0 million shares, respectively. Pursuant to the plan under which they were awarded, these restricted and performance stock grants are deemed equivalent to the issue of 2.5 million, 5.7 million, and 3.0 million stock options, respectively. | |
| (2) | “Cancelled” under “Shares Available for Grant” at the maximum amount of shares per the share-based plans do not include any cancellations under terminated plans. For the years ended October 1, 2010, October 2, 2009, and October 3, 2008, cancellations under terminated plans were 1.2 million, 3.0 million, and 2.5 million shares, respectively. “Cancelled” under “Shares Available for Grant” also include restricted and performance grants cancellations of 0.1 million, 1.4 million, and 0.2 million for the fiscal years ended October 1, 2010, October 2, 2009, and October 3, 2008, respectively. Pursuant to the plan under which they were awarded, these cancellations are deemed equivalent to the cancellation of 0.1 million, 2.1 million, and 0.3 million stock options for the fiscal years ended October 1, 2010, October 2, 2009, and October 3, 2008, respectively. |
Options exercisable at the end of each fiscal year (shares in thousands):
| Weighted average | ||||||||
| Shares | exercise price | |||||||
|
2010
|
7,921 | $ | 11.09 | |||||
|
2009
|
11,398 | $ | 12.20 | |||||
|
2008
|
17,687 | $ | 12.86 | |||||
The following table summarizes information concerning currently outstanding and exercisable options
as of October 1, 2010 (shares and aggregate intrinsic value in thousands):
| Options Outstanding | Options Exercisable | |||||||||||||||||||||||||||||||
| Weighted | Weighted | |||||||||||||||||||||||||||||||
| average | Weighted | average | Weighted | |||||||||||||||||||||||||||||
| remaining | average | Aggregate | remaining | average | Aggregate | |||||||||||||||||||||||||||
| Range of exercise | Number | contractual | exercise price | Intrinsic | Options | contractual | exercise price | Intrinsic | ||||||||||||||||||||||||
| prices | outstanding | life (years) | per share | Value | exercisable | life (years) | per share | Value | ||||||||||||||||||||||||
|
$3.45 - $6.73
|
2,591 | 4.6 | $ | 5.84 | $ | 38,373 | 2,013 | 4.4 | $ | 5.64 | $ | 30,219 | ||||||||||||||||||||
|
$6.74 - $7.50
|
2,873 | 6.2 | $ | 7.19 | 38,690 | 581 | 5.9 | $ | 7.17 | 7,826 | ||||||||||||||||||||||
|
$7.51 - $9.33
|
3,852 | 5.0 | $ | 9.14 | 44,339 | 2,657 | 4.3 | $ | 9.09 | 30,713 | ||||||||||||||||||||||
|
$9.40 - $12.07
|
3,714 | 5.4 | $ | 11.55 | 33,787 | 868 | 3.2 | $ | 10.12 | 9,150 | ||||||||||||||||||||||
|
$12.08 - $22.29
|
1,830 | 2.6 | $ | 18.41 | 4,792 | 1,373 | 1.4 | $ | 19.33 | 2,495 | ||||||||||||||||||||||
|
$23.96 - $39.8
|
429 | 0.4 | $ | 29.96 | — | 429 | 0.4 | $ | 29.96 | — | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
15,289 | 4.9 | $ | 10.49 | $ | 159,981 | 7,921 | 3.6 | $ | 11.09 | $ | 80,403 | ||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value,
based on the Company’s closing stock price of $20.65 as of October 1, 2010, which would have been
received by the option holders had all option holders exercised their options as of that date. The
aggregate intrinsic value of options exercised for the fiscal years ended October 1, 2010, October
2, 2009, and October 3, 2008 were $40.8 million, $20.9 million, and $7.5 million, respectively.
The fair value of stock options vested at October 1, 2010, October 2,
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2009, and October 3, 2008 were $30.2 million, $39.1 million, and $54.7 million, respectively. The
total number of in-the-money options exercisable as of October 1, 2010 was 6.5 million.
Restricted Shares and Performance Share Award Information
A summary of the share transactions follows (shares in thousands):
| Weighted average | ||||||||
| Grant-date | ||||||||
| Shares | fair value | |||||||
|
Non-Vested Awards Outstanding at September 28, 2007
|
1,220 | $ | 6.04 | |||||
|
Granted
|
827 | 8.82 | ||||||
|
Vested(1)
|
(691 | ) | 6.08 | |||||
|
Forfeited
|
(47 | ) | 6.76 | |||||
|
|
||||||||
|
Non-Vested Awards Outstanding at October 3, 2008
|
1,309 | $ | 7.75 | |||||
|
Granted
|
754 | 8.27 | ||||||
|
Vested(1)
|
(1,012 | ) | 7.22 | |||||
|
Forfeited
|
(136 | ) | 8.33 | |||||
|
|
||||||||
|
Non-Vested Awards Outstanding at October 2, 2009
|
915 | $ | 8.69 | |||||
|
Granted
|
2,037 | 11.50 | ||||||
|
Vested(1)
|
(1,246 | ) | 9.64 | |||||
|
Forfeited
|
(11 | ) | 7.18 | |||||
|
|
||||||||
|
Non-Vested Awards Outstanding at October 1, 2010
|
1,695 | $ | 9.03 | |||||
|
|
||||||||
| (1) | Restricted stock vested during the fiscal years ended October 1, 2010, October 2, 2009, and October 3, 2008 were 417,979 shares, 743,062 shares, and 590,092 shares, respectively. Performance awards issued during the fiscal years ended October 1, 2010, October 2, 2009, and October 3, 2008 were 528,846 shares, 30,419 shares, and 100,466 shares, respectively. During the fiscal year ended October 1, 2010 and October 2, 2009, 298,830 shares and 238,706 shares of common stock were issued to certain key employees based on exceeding target metrics of the fiscal management incentive programs. |
Valuation and Expense Information under ASC 718
The following table summarizes pre-tax share-based compensation expense related to employee stock
options, employee stock purchases, restricted stock grants, and performance stock grants for the
fiscal years ended October 1, 2010, October 2, 2009, and October 3, 2008 which was allocated as
follows:
| Fiscal Years Ended | ||||||||||||
| October 1, | October 2, | October 3, | ||||||||||
| (In thousands) | 2010 | 2009 | 2008 | |||||||||
|
Cost of sales
|
3,857 | 3,129 | 2,974 | |||||||||
|
Research and development
|
7,419 | 6,195 | 8,700 | |||||||||
|
Selling, general and administrative
|
29,465 | 14,142 | 11,538 | |||||||||
|
|
||||||||||||
|
Share-based compensation expense included
in operating expenses
|
$ | 40,741 | $ | 23,466 | $ | 23,212 | ||||||
|
|
||||||||||||
During both of the fiscal years ended October 1, 2010 and October 2, 2009, the Company capitalized
share-based compensation expense of $0.1 million. During the fiscal year ended October 3, 2008,
the Company capitalized share-based compensation expense of $(0.1) million in inventory.
The weighted-average estimated grant date fair value of employee stock options granted during the
fiscal years ended October 1, 2010, October 2, 2009, and October 3, 2008 were $5.76 per share,
$3.93 per share, and $4.78 per share, respectively, using the Black Scholes option-pricing model
with the following weighted-average assumptions:
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Table of Contents
| Fiscal Years Ended | ||||||||||||
| October 1, | October 2, | October 3, | ||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Expected volatility
|
56.19 | % | 60.90 | % | 53.87 | % | ||||||
|
Risk free interest rate (7 year contractual life options)
|
1.12 | % | 2.36 | % | 3.08 | % | ||||||
|
Risk free interest rate (10 year contractual life options)
|
N/A | 2.67 | % | 3.54 | % | |||||||
|
Dividend yield
|
0.00 | 0.00 | 0.00 | |||||||||
|
Expected option life (7 year contractual life options)
|
4.23 | 4.42 | 4.42 | |||||||||
|
Expected option life (10 year contractual life options)
|
N/A | 5.79 | 5.80 | |||||||||
The Company used an arithmetic average of historical volatility and implied volatility to calculate
its expected volatility during the year ended October 1, 2010. Historical volatility was determined
by calculating the mean reversion of the weekly-adjusted closing stock price over the 7.40 years
between June 25, 2002 and November 10, 2009. The implied volatility was calculated by analyzing the
52-week minimum and maximum prices of publicly traded call options on the Company’s common stock.
The Company concluded that an arithmetic average of these two calculations provided for the most
reasonable estimate of expected volatility under the guidance of ASC 718.
The risk-free interest rate assumption is based upon observed Treasury bill interest rates (risk
free) appropriate for the expected life of the Company’s employee stock options.
The expected life of employee stock options represents a calculation based upon the historical
exercise, cancellation and forfeiture experience for the Company over the 7.25 years between June
25, 2002 and October 2, 2009. The Company determined that it had two populations with unique
exercise behavior. These populations included stock options with a contractual life of 7 years and
10 years, respectively.
12. EMPLOYEE BENEFIT PLAN, PENSIONS AND OTHER RETIREE BENEFITS
The Company maintains the following pension and retiree benefit plans:
| • | 401(k) plan covering substantially all employees based in the United States | ||
| • | Pre-merger defined benefit pension and retiree health plans covering certain former employees |
401(k) Plan:
The Company maintains a 401(k) plan covering substantially all of its employees based in the United
States under which all employees at least 21 years old are eligible to receive discretionary
Company contributions. Discretionary Company contributions are determined by the Board of Directors
and may be in the form of cash or the Company’s stock. The Company has generally contributed a
match of up to 4.0% of an employee’s annual eligible compensation. For the fiscal years ended
October 1, 2010, October 2, 2009, and October 3, 2008, the Company contributed shares of 0.3
million, 0.7 million, and 0.6 million, respectively, and recognized expense of $4.8 million, $4.6
million, and $5.0 million, respectively.
Pre-Merger Defined Benefit Pension and Retiree Health Plans:
The Pension Benefits and Retiree Medical Benefits plans identified below were inherited as part of
the merger in 2002 that created Skyworks. Since the plans were inherited, no new participants have
been added. In accordance with ASC 715, the liability and related plan assets have been reported
in the Company’s consolidated balance sheet as follows (in thousands):
| Pension Benefits | Retiree Medical Benefits | |||||||||||||||
| Fiscal Years Ended | Fiscal Years Ended | |||||||||||||||
| October 1, | October 2, | October 1, | October 2, | |||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Benefit obligation at end of fiscal year
|
$ | 3,035 | $ | 3,120 | $ | — | $ | 431 | ||||||||
|
Fair value of plan assets at end of fiscal year
|
2,650 | 2,652 | — | — | ||||||||||||
|
|
||||||||||||||||
|
Funded status
|
$ | (385 | ) | $ | (468 | ) | $ | — | $ | (431 | ) | |||||
|
|
||||||||||||||||
The Company incurred net periodic benefit costs of $0.1 million for pension benefits during the
fiscal year ended October 1, 2010, and $0.2 million for pension benefits in fiscal year ending
October 2, 2009.
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The Company realized a benefit of $0.4 million for the fiscal year ended October 1, 2010 related to
the curtailment of the Retiree Medical Benefits Health Plan, and incurred net periodic benefit of
$0.4 million in fiscal year ending October 2, 2009. In fiscal year 2008, the Company began phasing
out the Retiree Medical Benefits Health Plan and participants were informed that Skyworks’ contributions
to the Plan would be phased-out over a three year period as follows:
| Calendar | ||
| Year | Skyworks | |
|
2008
|
Employer portion of contribution will be reduced by 20% | |
|
2009
|
Employer portion of contribution will be reduced by 40% | |
|
2010
|
Employer portion of contribution will be reduced by 80% | |
|
2011
|
Employer portion of contribution will be reduced by 100% |
13. COMMITMENTS
In April 2010, the Company entered into a manufacturing services supply agreement which contained a
minimum purchase obligation. Pursuant to the terms of this agreeement, the Company is committted
to approximately $13 million in minimum purchases between April 2010 and December 2010. As of
October 1, 2010, the Company expects to meet the minimum purchase obligations under this agreement.
The Company has various operating leases primarily for computer equipment and buildings. Rent
expense amounted to $7.6 million, $8.0 million, and $8.6 million in fiscal years ended October 1,
2010, October 2, 2009, and October 3, 2008, respectively. Future minimum payments under these
non-cancelable leases are as follows (in thousands):
| Fiscal Year | ||||
|
2011
|
$ | 5,553 | ||
|
2012
|
4,289 | |||
|
2013
|
2,985 | |||
|
2014
|
2,663 | |||
|
2015
|
2,293 | |||
|
Thereafter
|
4,028 | |||
|
|
||||
|
|
$ | 21,811 | ||
|
|
||||
In addition, the Company has entered into licensing agreements for intellectual property rights and
maintenance and support services. Pursuant to the terms of these agreements, the Company is
committed to making aggregate payments of $4.1 million, $3.0 million, and $0.7 million in fiscal
years 2011, 2012, and 2013, respectively.
14. CONTINGENCIES
From time to time, various lawsuits, claims and proceedings have been, and may in the future be,
instituted or asserted against the Company, including those pertaining to patent infringement,
intellectual property, environmental, product liability, safety and health, employment and
contractual matters.
Additionally, the semiconductor industry is characterized by vigorous protection and pursuit of
intellectual property rights. From time to time, third parties have asserted and may in the future
assert patent, copyright, trademark and other intellectual property rights to technologies that are
important to the Company’s business and have demanded and may in the future demand that the Company
license their technology. The outcome of any such litigation cannot be predicted with certainty and
some such lawsuits, claims or proceedings may be disposed of unfavorably to the Company. Generally
speaking, intellectual property disputes often have a risk of injunctive relief, which, if imposed
against the Company, could materially and adversely affect the Company’s financial condition, or
results of operations. From time to time the Company is also involved in legal proceedings in the
ordinary course of business.
The Company believes that there is no litigation pending that will have, individually or in the
aggregate, a material adverse effect on its business.
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Table of Contents
15. GUARANTEES AND INDEMNITIES
The Company has made no contractual guarantees for the benefit of third parties. However, the
Company generally indemnifies its customers from third-party intellectual property infringement
litigation claims related to its products, and, on occasion, also provides other indemnities
related to product sales. In connection with certain facility leases, the Company has indemnified
its lessors for certain claims arising from the facility or the lease.
The Company indemnifies its directors and officers to the maximum extent permitted under the laws
of the state of Delaware. The duration of the indemnities varies, and in many cases is indefinite.
The indemnities to customers in connection with product sales generally are subject to limits based
upon the amount of the related product sales and in many cases are subject to geographic and other
restrictions. In certain instances, the Company’s indemnities do not provide for any limitation of
the maximum potential future payments the Company could be obligated to make. The Company has not
recorded any liability for these indemnities in the accompanying consolidated balance sheets and
does not expect that such obligations will have a material adverse impact on its financial
condition or results of operations.
16. RESTRUCTURING AND OTHER CHARGES
Restructuring and other charges consists of the following (in thousands):
| Fiscal Years Ended | ||||||||||||
| October 1, | October 2, | October 3, | ||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Asset impairments
|
$ | (1,040 | ) | $ | 5,616 | $ | — | |||||
|
Restructuring and other charges
|
— | 10,366 | 567 | |||||||||
|
|
||||||||||||
|
|
$ | (1,040 | ) | $ | 15,982 | $ | 567 | |||||
|
|
||||||||||||
2009 RESTRUCTURING CHARGES AND OTHER
On January 22, 2009, the Company implemented a restructuring plan to realign its costs given
current business conditions.
The Company exited its mobile transceiver product area and reduced global headcount by
approximately 4%, or 150 employees which resulted in a reduction to annual operating expenditures
of approximately $20 million. The Company recorded various charges associated with this action. In
total, they recorded $16.0 million of restructuring and other charges and $3.5 million in inventory
write-downs that were charged to cost of goods sold.
The $16.0 million charge includes the following: $4.5 million related to severance and benefits,
$5.6 million related to the impairment of certain long-lived assets which were written down to
their salvage values, $2.1 million related to the exit of certain operating leases, $2.3 million
related to the impairment of technology licenses and design software, and $1.5 million related to
other charges. These charges total $16.0 million and are recorded in restructuring and other
charges.
The Company made cash payments related to the restructuring plan of $1.5 million during fiscal year
2010 and recorded a gain of $1.0 million on the sale of a capital asset previously impaired during
the 2009 restructuring.
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Table of Contents
Activity and liability balances related to the fiscal year 2009 restructuring actions are as
follows (in thousands):
| License and | ||||||||||||||||||||
| Facility | Software Write- | Workforce | Asset | |||||||||||||||||
| Closings | offs and Other | Reductions | Impairments | Total | ||||||||||||||||
|
Charged to costs and expenses
|
$ | 1,967 | $ | 3,892 | $ | 4,507 | $ | 5,616 | $ | 15,982 | ||||||||||
|
Other
|
9 | (368 | ) | 161 | — | (198 | ) | |||||||||||||
|
Non-cash items
|
— | (955 | ) | — | (5,616 | ) | (6,571 | ) | ||||||||||||
|
Cash payments
|
(766 | ) | (983 | ) | (4,185 | ) | — | (5,934 | ) | |||||||||||
|
|
||||||||||||||||||||
|
Restructuring balance, October 2, 2009
|
$ | 1,210 | $ | 1,586 | $ | 483 | $ | — | $ | 3,279 | ||||||||||
|
Other
|
450 | 248 | (247 | ) | — | 451 | ||||||||||||||
|
Cash payments
|
(648 | ) | (657 | ) | (236 | ) | — | (1,541 | ) | |||||||||||
|
|
||||||||||||||||||||
|
Restructuring balance, October 1, 2010
|
$ | 1,012 | $ | 1,177 | $ | — | $ | — | $ | 2,189 | ||||||||||
|
|
||||||||||||||||||||
17. EARNINGS PER SHARE
| Fiscal Years Ended | ||||||||||||||||
| October 1, | October 2, | October 3, | ||||||||||||||
| (In thousands, except per share amounts) | 2010 | 2009 | 2008 | |||||||||||||
|
Net income
|
$ | 137,294 | $ | 94,983 | $ | 111,006 | ||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Weighted average shares outstanding — basic
|
175,020 | 167,047 | 161,878 | |||||||||||||
|
Effect of dilutive stock options and restricted stock
|
5,928 | 2,093 | 2,172 | |||||||||||||
|
Dilutive effect of 4.75% Notes
|
— | — | 705 | |||||||||||||
|
Dilutive effect of 2007 Convertible Notes
|
1,790 | 523 | — | |||||||||||||
|
|
||||||||||||||||
|
Weighted average shares outstanding — diluted
|
182,738 | 169,663 | 164,755 | |||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Net income per share — basic
|
$ | 0.78 | $ | 0.57 | $ | 0.69 | ||||||||||
|
Effect of dilutive stock options
|
0.03 | 0.01 | 0.02 | |||||||||||||
|
|
||||||||||||||||
|
Net income per share — diluted
|
$ | 0.75 | $ | 0.56 | $ | 0.67 | ||||||||||
|
|
||||||||||||||||
Basic earnings per share is calculated by dividing net income by the weighted average number of
common shares outstanding. Diluted earnings per share includes the dilutive effect of equity based
awards and the 2007 Convertible Notes using the treasury stock method.
Equity based awards exercisable for approximately 4.6 million shares, 16.5 million shares and 23.0
million shares were outstanding but not included in the computation of earnings per share for the
fiscal year ended October 1, 2010, October 2, 2009 and October 3, 2008, respectively, as their
effect would have been anti-dilutive.
In addition, the Company issued $200.0 million aggregate principal amount of convertible
subordinated notes in March 2007. These 2007 Convertible Notes contain
cash settlement provisions, which permit the application of the treasury stock method in
determining potential share dilution of the conversion spread should the share price of the
Company’s common stock exceed $9.52. It has been the Company’s historical practice to cash settle
the principal and interest components of convertible debt instruments, and it is the Company’s
intention to continue to do so in the future. The convertible debt was anti-dilutive for the
fiscal year ended October 3, 2008 and therefore was not included in the calculation of diluted
earnings per share.
18. SEGMENT INFORMATION AND CONCENTRATIONS
In accordance with ASC 280-
Segment Reporting
(“ASC 280”), the Company has one reportable operating
segment which designs, develops, manufactures and markets proprietary semiconductor products,
including intellectual property. ASC 280 establishes standards for the way public business
enterprises report information about operating segments in annual financial statements and in
interim reports to shareholders. The method for determining what information to report is based on
management’s use of financial information for the purposes of assessing
performance and making operating decisions. In evaluating financial performance and making
operating decisions, management primarily uses consolidated net revenue, gross profit, operating
profit and earnings per share. The
75
Table of Contents
Company’s business units share similar economic
characteristics, long term business models, research and development expenses and selling, general
and administrative expenses. Furthermore, the Company’s chief decision makers base operating
decision on consolidated financial information. The Company has concluded at October 1, 2010 that
it has only one reportable operating segment. The Company will re-assess its conclusions at least
annually.
GEOGRAPHIC INFORMATION
Net revenues by geographic area are presented based upon the country of destination. Net revenues
by geographic area are as follows (in thousands):
| Fiscal Years Ended | ||||||||||||
| October 1, | October 2, | October 3, | ||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
United States
|
$ | 115,610 | $ | 76,435 | $ | 79,952 | ||||||
|
Other Americas
|
36,724 | 26,078 | 10,636 | |||||||||
|
|
||||||||||||
|
Total Americas
|
152,334 | 102,513 | 90,588 | |||||||||
|
|
||||||||||||
|
China
|
628,858 | 414,208 | 410,645 | |||||||||
|
South Korea
|
144,758 | 174,744 | 184,208 | |||||||||
|
Taiwan
|
51,353 | 48,443 | 86,544 | |||||||||
|
Other Asia-Pacific
|
30,922 | 23,098 | 36,005 | |||||||||
|
|
||||||||||||
|
Total Asia-Pacific
|
855,891 | 660,493 | 717,402 | |||||||||
|
|
||||||||||||
|
Europe, Middle East and Africa
|
63,624 | 39,571 | 52,027 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
|
$ | 1,071,849 | $ | 802,577 | $ | 860,017 | ||||||
|
|
||||||||||||
The Company’s revenues by geography do not necessarily correlate to end market demand by
region. For example, if the Company sells a power amplifier module to a customer in South Korea,
the sale is recorded within the South Korea account although that customer, in turn, may integrate
that module into a product sold to an end customer in a different geography.
Net property, plant and equipment balances, including property held for sale, based on the physical
locations within the indicated geographic areas are as follows (in thousands):
| As of | ||||||||
| October 1, | October 2, | |||||||
| 2010 | 2009 | |||||||
|
United States
|
$ | 104,846 | $ | 100,254 | ||||
|
Mexico
|
98,667 | 61,455 | ||||||
|
Other
|
850 | 590 | ||||||
|
|
||||||||
|
|
$ | 204,363 | $ | 162,299 | ||||
|
|
||||||||
CONCENTRATIONS
Financial instruments that potentially subject the Company to concentration of credit risk consist
principally of trade accounts receivable. Trade accounts receivables are primarily derived from
sales to manufacturers of communications and consumer products and electronic component
distributors. Ongoing credit evaluations of customers’ financial condition are performed and
collateral, such as letters of credit and bank guarantees, are required whenever deemed necessary.
In fiscal year 2010, the Company had three customers, each with greater than ten percent of our net
revenues: Samsung, Nokia and Foxconn.
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19. QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands, except per share data)
| First | Second | Third | Fourth | |||||||||||||||||
| Quarter | Quarter | Quarter | Quarter | Year | ||||||||||||||||
|
Fiscal 2010
|
||||||||||||||||||||
|
Net revenues
|
$ | 245,138 | $ | 238,058 | $ | 275,370 | $ | 313,283 | 1,071,849 | |||||||||||
|
Gross profit
|
102,554 | 99,854 | 118,266 | 136,159 | 456,833 | |||||||||||||||
|
Net income
|
28,010 | 27,744 | 34,736 | 46,804 | 137,294 | |||||||||||||||
|
Per share data (1)
|
||||||||||||||||||||
|
Net income, basic
|
0.16 | 0.16 | 0.20 | 0.26 | 0.78 | |||||||||||||||
|
Net income, diluted
|
0.16 | 0.15 | 0.19 | 0.25 | 0.75 | |||||||||||||||
|
|
||||||||||||||||||||
|
Fiscal 2009 (2,3)
|
||||||||||||||||||||
|
Net revenues
|
$ | 210,228 | $ | 172,990 | $ | 191,213 | $ | 228,146 | $ | 802,577 | ||||||||||
|
Gross profit
|
83,867 | 64,875 | 76,950 | 92,528 | 318,220 | |||||||||||||||
|
Net income (loss)
|
23,584 | (5,678 | ) | 18,740 | 58,337 | 94,983 | ||||||||||||||
|
Per share data (1)
|
||||||||||||||||||||
|
Net income (loss), basic
|
0.14 | (0.03 | ) | 0.11 | 0.34 | 0.57 | ||||||||||||||
|
Net income (loss), diluted
|
0.14 | (0.03 | ) | 0.11 | 0.33 | 0.56 | ||||||||||||||
| (1) | Earnings per share calculations for each of the quarters are based on the weighted average number of shares outstanding and included common stock equivalents in each period. Therefore, the sums of the quarters do not necessarily equal the full year earnings per share. | |
| (2) | During the second quarter of fiscal year 2009, the Company implemented a restructuring plan to reduce global headcount by approximately 4%, or 150 employees. The total charges related to the plan were $19.4 million. Due to accounting classifications, the charges associated with the plan are recorded in various lines and are summarized as follows: Cost of goods sold adjustments include approximately $3.5 million of inventory write-downs. Restructuring and other charges primarily consisted of $4.5 million related to severance and benefits, $5.6 million related to the impairment of long-lived assets, $2.0 million related to lease obligations, $2.3 million related to the impairment of technology licenses and design software and $1.5 million related to other charges. | |
| (3) | Effective October 3, 2009, the Company adopted ASC 470-20- Debt, Debt with Conversion and Other Options (“ASC 470-20”) in accordance with GAAP. The Company’s financial statements and the accompanying footnotes for all prior periods presented have been adjusted to reflect the retrospective adoption of this new accounting principle. |
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
None.
| ITEM 9A. | CONTROLS AND PROCEDURES. |
Evaluation of disclosure controls and procedures.
Our management, with the participation of our chief executive officer and chief financial officer,
evaluated the effectiveness of our disclosure controls and procedures as of October 1, 2010. The
term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act, means controls and other procedures of a company that are designed to ensure that
information required to be disclosed by a company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time periods specified in
the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by a company in the
reports that it files or submits under the Exchange Act is accumulated and communicated to the
company’s management,
77
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including its principal executive and principal financial officers, as appropriate to allow timely
decisions regarding required disclosure. Management recognizes that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of achieving their
objectives and management necessarily applies its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Based on management’s evaluation of our
disclosure controls and procedures as of October 1, 2010, our chief executive officer and chief
financial officer concluded that, as of such date, our disclosure controls and procedures were
effective at the reasonable assurance level.
Changes in internal controls over financial reporting.
No changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) of the Exchange Act) occurred during the fiscal quarter ended October 1, 2010 that have
materially affected, or is reasonably likely to materially affect, the Company’s internal control
over financial reporting.
Management’s Annual Report on Internal Control over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting for the Company. Internal control over financial reporting is
defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a
process designed by, or under the supervision of, the Company’s principal executive and principal
financial officers and effected by the Company’s board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted
accounting principles and includes those policies and procedures that:
| • | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
| • | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and |
| • | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
The Company’s management assessed the effectiveness of the Company’s internal control over
financial reporting as of October 1, 2010. In making this assessment, the Company’s management
used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control-Integrated Framework.
Based on their assessment, management concluded that, as of October 1, 2010, the Company’s internal
control over financial reporting is effective based on those criteria.
The Company’s independent registered public accounting firm has issued an audit report on the
effectiveness of the Company’s internal control over financial reporting. This report appears on
page 45.
| ITEM 9B. | OTHER INFORMATION. |
The following information would have otherwise been disclosed by the Company in a current report on
Form 8-K but for the timing of the filing of this Annual Report on Form 10-K
78
Table of Contents
| Item 5.02 | Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. |
On November 23, 2010, the Company amended and restated the Change of Control / Severance Agreement
of Mr. David J. Aldrich, the Company’s Chief Executive Officer (the “Agreement”). Specifically,
the Agreement was amended as follows: (1) the initial term of the Agreement was extended for three
(3) years until January 22, 2014, at which time the Agreement will become renewable on an annual
basis by mutual agreement of the parties for up to five (5) additional one year periods; and (2) in
order to ensure that Performance Share Awards (“PSAs”) issued to Mr. Aldrich continue to be treated
as performance based compensation under Section 162(m) of the Internal Revenue Code, the Agreement
was amended to clarify that if Mr. Aldrich is involuntarily terminated, terminates his employment
for good reason or for no reason, he is entitled to receive only the number of performance shares
under outstanding PSAs that he would have received had he actually remained employed through the
end of the performance period applicable to such PSAs. All other terms and conditions of the
Agreement remain the same.
79
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PART III
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. |
The information under the captions “Directors and Executive Officers”, “Corporate
Governance-Committees of the Board of Directors” and “Other Matters-Section 16(a) Beneficial
Ownership Reporting Compliance” in our definitive proxy statement for the 2011 Annual Meeting of
Stockholders is incorporated herein by reference.
We have adopted a written code of business conduct and ethics that applies to our directors,
officers and employees, including our principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar functions. We make
available our code of business conduct and ethics free of charge through our website, which is
located at www.skyworksinc.com. We intend to disclose any amendments to, or waivers from, our code
of business conduct and ethics that are required to be publicly disclosed pursuant to rules of the
SEC and the NASDAQ Global Select Market by posting any such amendment or waivers on our website and
disclosing any such waivers in a Form 8-K filed with the SEC.
| ITEM 11. | EXECUTIVE COMPENSATION. |
The information to be included under the caption “Information about Executive and Director
Compensation” in our definitive proxy statement for the 2011 Annual Meeting of Stockholders is
incorporated herein by reference.
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. |
The information to be included under the captions “Security Ownership of Certain Beneficial Owners
and Management” and “Equity Compensation Plan Information” in our definitive proxy statement for
the 2011 Annual Meeting of Stockholders is incorporated by reference.
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. |
The information to be included under the captions “Certain Relationships and Related Transactions”
and “Corporate Governance-Director Independence” in our definitive proxy statement for the 2011
Annual Meeting of Stockholders is incorporated herein by reference.
| ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES. |
The information to be included under the caption “Ratification of Independent Registered Public
Accounting Firm-Audit Fees” in our definitive proxy statement for the 2011 Annual Meeting of
Stockholders is incorporated herein by reference.
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PART IV
| ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES. |
(a) The following are filed as part of this Annual Report on Form 10-K:
|
1. Index to Financial Statements
|
Page number in this report | |
|
|
||
|
Report of Independent Registered Public Accounting Firm
|
Page 45 | |
|
Consolidated Statements of Operations for the Years Ended October 1, 2010,
October 2, 2009, and October 3, 2008
|
Page 46 | |
|
Consolidated Balance Sheets at October 1, 2010 and October 2, 2009
|
Page 47 | |
|
Consolidated Statements of Cash Flows for the Years Ended October 1, 2010,
October 2, 2009, and October 3, 2008
|
Page 48 | |
|
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss)
for the Years Ended October 1, 2010, October 2, 2009, and October 3, 2008
|
Page 49 | |
|
Notes to Consolidated Financial Statements
|
Pages 51 through 77 | |
|
|
||
|
2. The schedule listed below is filed as part of this Annual Report on Form 10-K:
|
Page number in this report | |
|
|
||
|
Schedule II-Valuation and Qualifying Accounts
|
Page 84 |
| All other required schedule information is included in the Notes to Consolidated Financial Statements or is omitted because it is either not required or not applicable. |
| 3. | The Exhibits listed in the Exhibit Index immediately preceding the Exhibits are filed as a part of this Annual Report on Form 10-K. |
| (b) | Exhibits |
| The exhibits required by Item 601 of Regulation S-K are filed herewith and incorporated by reference herein. The response to this portion of Item 15 is submitted under Item 15 (a) (3). |
81
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
Date:
November 29, 2010
|
||||
|
SKYWORKS SOLUTIONS, INC.
Registrant |
||||
| By: | /s/ David J. Aldrich | |||
| David J. Aldrich | ||||
|
Chief Executive Officer
President Director |
||||
82
Table of Contents
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities indicated
on November 29, 2010.
| Signature and Title | ||||
| /s/ David J. Aldrich | ||||
| David J. Aldrich | ||||
|
Chief Executive Officer
President and Director (principal executive officer) |
||||
| /s/ Donald W. Palette | ||||
| Donald W. Palette | ||||
|
Chief Financial Officer
Vice President (principal accounting and financial officer) |
||||
| Signature and Title | ||||
| /s/ David J. McLachlan | ||||
| David J. McLachlan | ||||
| Chairman of the Board | ||||
| /s/ Kevin L. Beebe | ||||
| Kevin L. Beebe | ||||
| Director | ||||
| /s/ Moiz M. Beguwala | ||||
| Moiz M. Beguwala | ||||
| Director | ||||
| /s/ Timothy R. Furey | ||||
| Timothy R. Furey | ||||
| Director | ||||
| /s/ Balakrishnan S. Iyer | ||||
| Balakrishnan S. Iyer | ||||
| Director | ||||
| /s/ Thomas C. Leonard | ||||
| Thomas C. Leonard | ||||
| Director | ||||
| /s/ David P. McGlade | ||||
| David P. McGlade | ||||
| Director | ||||
| /s/ Robert A. Schriesheim | ||||
| Robert A. Schriesheim | ||||
| Director | ||||
83
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SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
(In thousands)
| Charged to | ||||||||||||||||||||
| Beginning | Cost and | Ending | ||||||||||||||||||
| Description | Balance | Expenses | Deductions | Misc. | Balance | |||||||||||||||
|
|
||||||||||||||||||||
|
Year Ended October 3, 2008
|
||||||||||||||||||||
|
Allowance for doubtful accounts
|
$ | 1,662 | $ | 2,258 | $ | (2,872 | ) | $ | — | $ | 1,048 | |||||||||
|
Reserve for sales returns
|
$ | 2,482 | $ | 1,926 | $ | (2,273 | ) | $ | — | $ | 2,135 | |||||||||
|
Allowance for excess and obsolete inventories
|
$ | 16,157 | $ | 4,515 | $ | (12,843 | ) | $ | — | $ | 7,829 | |||||||||
|
|
||||||||||||||||||||
|
Year Ended October 2, 2009
|
||||||||||||||||||||
|
Allowance for doubtful accounts
|
$ | 1,048 | $ | 2,507 | $ | (710 | ) | $ | — | $ | 2,845 | |||||||||
|
Reserve for sales returns
|
$ | 2,135 | $ | 3,132 | $ | (3,501 | ) | $ | — | $ | 1,766 | |||||||||
|
Allowance for excess and obsolete inventories
|
$ | 7,829 | $ | 8,665 | $ | (4,784 | ) | $ | — | $ | 11,710 | |||||||||
|
|
||||||||||||||||||||
|
Year Ended October 1, 2010
|
||||||||||||||||||||
|
Allowance for doubtful accounts
|
$ | 2,845 | $ | 728 | $ | (2,396 | ) | $ | — | $ | 1,177 | |||||||||
|
Reserve for sales returns
|
$ | 1,766 | $ | 2,130 | $ | (2,644 | ) | $ | — | $ | 1,252 | |||||||||
|
Allowance for excess and obsolete inventories
|
$ | 11,710 | $ | 7,259 | $ | (7,169 | ) | $ | — | $ | 11,800 | |||||||||
84
Table of Contents
EXHIBIT INDEX
| Exhibit | Incorporated by Reference | Filed | ||||||||||||
| Number | Exhibit Description | Form | File No. | Exhibit | Filing Date | Herewith | ||||||||
|
3.A
|
Amended and Restated Certificate of Incorporation | 10-K | 001-5560 | 3.A | 12/23/2002 | |||||||||
|
|
||||||||||||||
|
3.B
|
Second Amended and Restated By-laws | 10-K | 001-5560 | 3.B | 12/23/2002 | |||||||||
|
|
||||||||||||||
|
4.A
|
Specimen Certificate of Common Stock | S-3 | 333-92394 | 4 | 7/15/2002 | |||||||||
|
|
||||||||||||||
|
4.B
|
Indenture dated as of March 2, 2007 between the Registrant and U.S. Bank National Association, as Trustee | 8-K | 001-5560 | 4.1 | 3/5/2007 | |||||||||
|
|
||||||||||||||
|
10.A*
|
Skyworks Solutions, Inc., Long-Term Compensation Plan dated September 24, 1990; amended March 28, 1991; and as further amended October 27, 1994 | 10-K | 001-5560 | 10.B | 12/14/2005 | |||||||||
|
|
||||||||||||||
|
10.B*
|
Skyworks Solutions, Inc. 1994 Non-Qualified Stock Option Plan for Non-Employee Directors | 10-K | 001-5560 | 10.C | 12/14/2005 | |||||||||
|
|
||||||||||||||
|
10.C*
|
Skyworks Solutions, Inc. Executive Compensation Plan dated January 1, 1995 and Trust for the Skyworks Solutions, Inc. Executive Compensation Plan dated January 3, 1995 | 10-K | 001-5560 | 10.D | 12/14/2005 | |||||||||
|
|
||||||||||||||
|
10.D*
|
Skyworks Solutions, Inc. 1997 Non-Qualified Stock Option Plan for Non-Employee Directors | 10-K | 001-5560 | 10.E | 12/14/2005 | |||||||||
|
|
||||||||||||||
|
10.E*
|
Skyworks Solutions, Inc. 1996 Long-Term Incentive Plan | 10-K | 001-5560 | 10.F | 12/13/2006 | |||||||||
|
|
||||||||||||||
|
10.F*
|
Skyworks Solutions, Inc. 1999 Employee Long-Term Incentive Plan | 10-K | 001-5560 | 10.L | 12/23/2002 | |||||||||
|
|
||||||||||||||
|
10.G*
|
Washington Sub Inc., 2002 Stock Option Plan | S-3 | 333-92394 | 99.A | 7/15/2002 | |||||||||
|
|
||||||||||||||
|
10.H*
|
Skyworks Solutions, Inc. Non-Qualified Employee Stock Purchase Plan | 10-Q | 001-5560 | 10.H | 5/7/2008 | |||||||||
|
|
||||||||||||||
|
10.I*
|
Skyworks Solutions Inc. 2002 Qualified Employee Stock Purchase Plan (as amended 1/31/2006) | 10-Q | 001-5560 | 10.L | 2/07/2007 | |||||||||
|
|
||||||||||||||
|
10.J
|
Credit and Security Agreement, dated as of July 15, 2003, by and between Skyworks USA, Inc. and Wells Fargo Bank, N.A. | 10-Q | 001-5560 | 10.A | 8/11/2003 | |||||||||
|
|
||||||||||||||
|
10.K
|
Servicing Agreement, dated as of July 15, 2003, by and between the Company and Skyworks USA, Inc. | 10-Q | 001-5560 | 10.B | 8/11/2003 | |||||||||
|
|
||||||||||||||
|
10.L
|
Receivables Purchase Agreement, dated as of July 15, 2003, by and between Skyworks USA, Inc. and the Company | 10-Q | 001-5560 | 10.C | 8/11/2003 | |||||||||
85
Table of Contents
| Exhibit | Incorporated by Reference | Filed | ||||||||||||
| Number | Exhibit Description | Form | File No. | Exhibit | Filing Date | Herewith | ||||||||
|
10.N*
|
Skyworks Solutions, Inc. 2005 Long-Term Incentive Plan (as amended and restated 5/12/2009) | DEF 14A | 001-5560 | APPENDIX | 3/30/2009 | |||||||||
|
|
||||||||||||||
|
10.O*
|
Skyworks Solutions, Inc. Directors’ 2001 Stock Option Plan | 8-K | 001-5560 | 10.2 | 5/04/2005 | |||||||||
|
|
||||||||||||||
|
10.P*
|
Form of Notice of Grant of Stock Option under the Company’s 2001 Directors’ Plan | 8-K | 001-5560 | 10.3 | 5/04/2005 | |||||||||
|
|
||||||||||||||
|
10.Q*
|
Form of Notice of Stock Option Agreement under the Company’s 2005 Long-Term Incentive Plan | 10-Q | 001-5560 | 10.A | 5/11/2005 | |||||||||
|
|
||||||||||||||
|
10.R*
|
Form of Notice of Restricted Stock Agreement under the Company’s 2005 Long-Term Incentive Plan | 10-Q | 001-5560 | 10.B | 5/11/2005 | |||||||||
|
|
||||||||||||||
|
10.S*
|
Amended and Restated Change in Control/Severance Agreement, dated January 22, 2008, between the Company and David J. Aldrich | 10-Q | 001-5560 | 10.W | 5/7/2008 | |||||||||
|
|
||||||||||||||
|
10.T*
|
Change in Control/Severance Agreement, dated January 22, 2008, between the Company and Liam K. Griffin | 10-Q | 001-5560 | 10.X | 5/7/2008 | |||||||||
|
|
||||||||||||||
|
10.U*
|
Change in Control/Severance Agreement, dated January 22, 2008, between the Company and George M. LeVan | 10-Q | 001-5560 | 10.AA | 5/7/2008 | |||||||||
|
|
||||||||||||||
|
10.V*
|
Change in Control/Severance Agreement, dated January 22, 2008, between the Company and Gregory L. Waters | 10-Q | 001-5560 | 10.BB | 5/7/2008 | |||||||||
|
|
||||||||||||||
|
10.W*
|
Change in Control/Severance Agreement, dated January 22, 2008, between the Company and Mark V. B. Tremallo | 10-Q | 001-5560 | 10.DD | 5/7/2008 | |||||||||
|
|
||||||||||||||
|
10.X*
|
Form of Restricted Stock Agreement under the Company’s 2005 Long-Term Incentive Plan | 8-K | 001-5560 | 10.1 | 11/15/2005 | |||||||||
|
|
||||||||||||||
|
10.Y*
|
Skyworks Solutions Inc. Cash Compensation Plan for Directors | 10-Q | 001-5560 | 10.HH | 8/8/2007 | |||||||||
|
|
||||||||||||||
|
10.Z
|
Registration Rights Agreement dated March 2, 2007 between the Registrant and Credit Suisse Securities (USA) LLC | 8-K | 001-5560 | 10.HH | 3/5/2007 | |||||||||
|
|
||||||||||||||
|
10.AA*
|
Change in Control/Severance Agreement, dated January 22, 2008, between the Company and Donald W. Palette | 10-Q | 001-5560 | 10.II | 5/7/2008 | |||||||||
|
|
||||||||||||||
|
10.BB*
|
Form of Performance Share Agreement Under the 2005 Long-Term Incentive Plan | 10-Q | 001-5560 | 10.JJ | 2/06/2008 | |||||||||
86
Table of Contents
| Exhibit | Incorporated by Reference | Filed | ||||||||||||
| Number | Exhibit Description | Form | File No. | Exhibit | Filing Date | Herewith | ||||||||
|
10.CC*
|
Change in Control/Severance Agreement, dated January 22, 2008, between the Company and Bruce Freyman | 10-Q | 001-5560 | 10.KK | 5/7/2008 | |||||||||
|
|
||||||||||||||
|
10.DD*
|
Change in Control/Severance Agreement, dated January 22, 2008, between the Company and Stan Swearingen | 10-Q | 001-5560 | 10-LL | 5/7/2008 | |||||||||
|
|
||||||||||||||
|
10.EE*
|
2008 Director Long-Term Incentive Plan | 10-Q | 001-5560 | 10-MM | 5/7/2008 | |||||||||
|
|
||||||||||||||
|
10.FF*
|
Form of Restricted Stock Agreement under the Company’s 2008 Director Long-Term Incentive Plan | 10-Q | 001-5560 | 10-NN | 5/7/2008 | |||||||||
|
|
||||||||||||||
|
10.GG*
|
Form of Nonstatutory Stock Option Agreement under the Company’s 2008 Director Long-Term Incentive Plan | 10-Q | 001-5560 | 10-OO | 5/7/2008 | |||||||||
|
|
||||||||||||||
|
10.HH*
|
Skyworks Solutions, Inc. 2002 Employee Stock Purchase Plan | 10-Q | 001-5560 | 10-PP | 5/7/2008 | |||||||||
|
|
||||||||||||||
|
10.II*
|
Fiscal 2010 Executive Incentive Compensation Plan | 10-Q | 001-5560 | 10-II | 2/09/2010 | |||||||||
|
|
||||||||||||||
|
10.JJ*
|
Form of Executive Performance Award Forfeiture and Replacement Agreement Dated June 4, 2009. | 10-Q | 001-5560 | 10-QQ | 8/11/2009 | |||||||||
|
|
||||||||||||||
|
12
|
Computation of Ratio of Earnings to Fixed Charges | X | ||||||||||||
|
|
||||||||||||||
|
21
|
Subsidiaries of the Company | X | ||||||||||||
|
|
||||||||||||||
|
23.1
|
Consent of KPMG LLP | X | ||||||||||||
|
|
||||||||||||||
|
31.1
|
Certification of the Company’s Chief Executive Officer pursuant to Securities and Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||||
|
|
||||||||||||||
|
31.2
|
Certification of the Company’s Chief Financial Officer pursuant to Securities and Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||||
|
|
||||||||||||||
|
32.1
|
Certification of the Company’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||||
|
|
||||||||||||||
|
32.2
|
Certification of the Company’s Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||||
| * | Indicates a management contract or compensatory plan or arrangement. |
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TABLE OF CONTENTS
Part IIIprintPart LprintItem 1. BusinessprintItem 1A. Risk FactorsprintItem 1B. Unresolved Staff CommentsprintItem 2. PropertiesprintItem 3. Legal ProceedingsprintItem 4. Removed and ReservedprintPart IIprintItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesprintItem 6. Selected Financial DataprintItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationprintItem 7A. Quantitative and Qualitative Disclosures About Market RiskprintItem 8. Financial Statements and Supplementary DataprintItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureprintItem 9A. Controls and ProceduresprintItem 9B. Other InformationprintItem 10. Directors, Executive Officers and Corporate GovernanceprintItem 11. Executive CompensationprintItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersprintItem 13. Certain Relationships and Related Transactions, and Director IndependenceprintItem 14. Principal Accounting Fees and ServicesprintPart IVprintItem 15. Exhibits, Financial Statement Schedulesprint