UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 110-K
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| þ | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| | For the fiscal year ended October 2, 2009 |
For the fiscal year ended October 1, 2010OR
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| o | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| | For the TransitionFor the transition period from to |
Commission file number
001-5560
SKYWORKS SOLUTIONS, INC.
(Exact Namename of Registrantregistrant as Specifiedspecified in its Charter)charter)
| | | |
Delaware | | 04-2302115 |
Delaware
(State or Other Jurisdictionother jurisdiction of Incorporationincorporation or Organization)organization) | | 04-2302115
(I.R.S. Employer Identification No.) |
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20 Sylvan Road, Woburn, Massachusetts
(Address of Principal Executive Offices)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:
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| Title of Each Class | | Name of Each Exchange on Which Registered |
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| 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 Yeso 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 Yesþ 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 Yeso No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every interactiveInteractive 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).oþYeso 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 a 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 | | | | | | |
Large Accelerated filerþ | | Accelerated filero | | Non-accelerated filero
(Do not check if a smaller reporting company) | | Smaller reporting companyo |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yesþ 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 3, 2009))2, 2010) was approximately $1,467,316,160.$2,716,065,796. The number of outstanding shares of the registrant’s common stock, par value $0.25 per share, as of November 16, 2009,21, 2010 was 174,378,774.183,287,033.
DOCUMENTS INCORPORATED BY REFERENCE
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| 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
TABLE OF CONTENTS
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EXPLANATORY NOTECAUTIONARY STATEMENT
This Amendment No. 1 amends Skyworks Solutions, Inc.’s (“Skyworks” or the “Company”) 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; |
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| • | | our estimates regarding our capital requirements and our needs for additional financing; |
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| • | | our estimates of expenses and future revenues and profitability; |
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| • | | our estimates of the size of the markets for our products and services; |
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| • | | the rate and degree of market acceptance of our products; and |
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| • | | 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 Form 10-K forfacts 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 year ended October 2, 2009, which wasresults 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”) on November 30, 2009 (the “Original Filing”). The Company is filing this Amendment No. 1 for the sole purpose of providing the information required in Part III of Form 10-K, as the Company’s 2010 Annual Meeting of Stockholders is scheduled for May 11, 2010,evaluating our forward-looking statements. We have no plans, and accordingly, the Company’s Proxy Statement relatingundertake no obligation, to such Annual Meeting will be filedrevise or update our forward-looking statements to reflect any event or circumstance that may arise after the date hereof. Exceptof this report. We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as described above, this Amendment No. 1 doesof 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 amend any other information set forth in the Original Filing,to give undue weight to such estimates. In addition, projections, assumptions and estimates of our future performance and the Company has not updated disclosures included therein to reflect any subsequent events.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth for each director and executive officerfuture performance of the Company his position with the Company asindustries in which we operate are necessarily subject to a high degree of January 15, 2010:
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Name | | | Title |
David J. McLachlan | | | Chairman of the Board |
David J. Aldrich | | | President, Chief Executive Officer and Director |
Kevin L. Beebe | | | Director |
Moiz M. Beguwala | | | Director |
Timothy R. Furey | | | Director |
Balakrishnan S. Iyer | | | Director |
Thomas C. Leonard | | | Director |
David P. McGlade | | | Director |
Robert A. Schriesheim | | | Director |
Donald W. Palette | | | Vice President and Chief Financial Officer |
Bruce J. Freyman | | | Vice President, Worldwide Operations |
Liam K. Griffin | | | Senior Vice President, Sales and Marketing |
George M. LeVan | | | Vice President, Human Resources |
Mark V.B. Tremallo | | | Vice President, General Counsel and Secretary |
Gregory L. Waters | | | Executive Vice President and General Manager, Front-End Solutions |
David J. Aldrich,age 52, has served as Chief Executive Officer, Presidentuncertainty and Director of the Company since April 2000. From September 1999risk due to April 2000, Mr. Aldrich served as President and Chief Operating Officer. From May 1996 to May 1999, when he was appointed Executive Vice President, Mr. Aldrich served as Vice President and General Manager of the semiconductor products business unit. Mr. Aldrich joined the Company in 1995 as Vice President, Chief Financial Officer and Treasurer. From 1989 to 1995, Mr. Aldrich held senior management positions at M/A-COM, Inc. (developer and manufacturer of radio frequency and microwave semiconductors, components and IP networking solutions), including Manager Integrated Circuits Active Products, Corporate Vice President of Strategic Planning, Director of Finance and Administration and Director of Strategic Initiatives with the Microelectronics Division. Mr. Aldrich has also served since February 2007 as a director of Belden Inc. (a publicly traded designer and manufacturer of cable products and transmission solutions).
Kevin L. Beebe, age 50, has been a director since January 2004. Since November 2007, he has been President and Chief Executive Officer of 2BPartners, LLC (a partnership that provides strategic, financial and operational advice to investors and management, and whose clients include Carlyle Group, GS Capital Partners, KKR and TPG Capital). Previously, beginning in 1998, he was Group President of Operations at ALLTEL Corporation, a telecommunications services company. From 1996 to 1998, Mr. Beebe served as Executive Vice President of Operations for 360° Communications Co., a wireless communication company. He has held a variety of executiveimportant factors, including those described in “Risk Factors” and senior management positions at several divisions“Management’s Discussion and Analysis of Sprint, including Vice PresidentFinancial Condition and Results of Operations and Vice President of Marketing and Administration for Sprint Cellular, Director of Marketing for Sprint North Central Division, Director of Engineering and Operations Staff and Director of Product Management and Business Development for Sprint Southeast Division, as well as Staff Director of Product Services at Sprint Corporation. Mr. Beebe began his career at AT&T/Southwestern Bell as a Manager. Mr. Beebe also serves as a director for SBA Communications Corporation (a publicly traded North American operator of wireless communications towers)Operation”.
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Moiz M. Beguwala, age 63, has been a director since June 2002. He served as Senior Vice President and General Manager of the Wireless Communications business unit of Conexant from January 1999 to June 2002. Prior to Conexant’s spin-off from Rockwell International Corporation, Mr. Beguwala served as Vice President and General Manager, Wireless Communications Division, Rockwell Semiconductor Systems, Inc. from October 1998 to December 1998; Vice President and General Manager Personal Computing Division, Rockwell Semiconductor Systems, Inc. from January 1998 to October 1998; and Vice President, Worldwide Sales, Rockwell Semiconductor Systems, Inc. from October 1995 to January 1998. Mr. Beguwala serves on the Board of Directors of Powerwave Technologies, Inc. (a publicly traded wireless solutions supplier for communications networks worldwide) and as Chairman of the Board of RF Nano Corporation (a privately held semiconductor company in Newport Beach, CA).
Timothy R. Furey,age 51, has been a director since 1998. He has been Chief Executive Officer of MarketBridge (a privately owned sales and marketing strategy and technology professional services firm) since 1991. His company’s clients include organizations such as IBM, British Telecom These and other global Fortune 500 companies selling complex technology productsfactors could cause results to differ materially and services into both OEM and end-user markets. Prior to 1991, Mr. Furey held a variety of consulting positions with Boston Consulting Group, Strategic Planning Associates, Kaiser Associates and the Marketing Science Institute.
Balakrishnan S. Iyer,age 53, has been a director since June 2002. He served as Senior Vice President and Chief Financial Officer of Conexant Systems, Inc.adversely from October 1998 to June 2003, and has been a director of Conexant since February 2002. Prior to joining Conexant, Mr. Iyer served as Senior Vice President and Chief Financial Officer of VLSI Technology Inc. Prior to that, he was corporate controller for Cypress Semiconductor Corp. and Director of Finance for Advanced Micro Devices, Inc. Mr. Iyer serves on the Board of Directors of Conexant, Life Technologies Corp., Power Integrations, Inc., QLogic Corporation, and IHS Inc. (each a publicly traded company).
Thomas C. Leonard,age 75, has been a director since August 1996. From April 2000 until June 2002, he served as Chairman of the Board of the Company, and from September 1999 to April 2000, he served the Company as Chief Executive Officer. From July 1996 to September 1999, he served as President and Chief Executive Officer. Mr. Leonard joined the Company in 1992 as a Division General Manager and was elected a Vice President in 1994. Mr. Leonard has over 30 years of experiencethose expressed in the microwave industry, having held a variety of executiveestimates made by the independent parties and senior level management and marketing positions at M/A-COM, Inc., Varian Associates, Inc. and Sylvania.
David P. McGlade,age 49, has been a director since February 2005. Since April 2005, he has served as the Chief Executive Officer and Deputy Chairman of Intelsat Global SA (a privately held worldwide provider of fixed satellite services). Previously, Mr. McGlade served as an Executive Director of mmO2 PLC and as the Chief Executive Officer of O2 UK (a subsidiary of mmO2), a position he held from October 2000 until March 2005. Before joining O2 UK, Mr. McGlade was President of the Western Region for Sprint PCS.
David J. McLachlan,age 71, has been a director since 2000 and Chairman of the Board since May 2008. Mr. McLachlan served as a senior advisor to the Chairman and Chief Executive Officer of Genzyme Corporation (a publicly traded biotechnology company) from 1999 to 2004. He also was the Executive Vice President and Chief Financial Officer of Genzyme from 1989 to 1999. Prior to joining Genzyme, Mr. McLachlan served as Vice President and Chief Financial Officer of Adams-Russell Company (an electronic component supplier and cable television franchise owner). Mr. McLachlan also serves on the Board of Directors of Dyax Corp. (a publicly traded biotechnology company) and HearUSA, Ltd. (a publicly traded hearing care services company).
Robert A. Schriesheim,age 49, has been a director since 2006. Mr. Schriesheim currently serves as the Chief Financial Officer of Hewitt Associates, Inc. (a publicly traded global human resources consulting and outsourcing company). Previously, from October 2006 until December 2009, he was the Executive Vice President, Chief Financial Officer and Principal Financial Officer of Lawson Software, Inc. (a publicly traded ERP software provider). From August 2002 to October 2006, he was affiliated with ARCH Development Partners, LLC, a seed stage venture capital fund. Before joining ARCH, Mr. Schriesheim held executive positions at Global TeleSystems, SBC Equity Partners, Ameritech, AC Nielsen, and Brooke Group Ltd. Mr. Schriesheim is also a director of Lawson Software, Inc. and Enfora (a privately held provider of intelligent wireless machine-to-machine modules and integrated platform solutions).
Donald W. Palette, age 52, joined the Company as Vice President and Chief Financial Officer of Skyworks in August 2007. Previously, from May 2005 until August 2007, Mr. Palette served as Senior Vice President, Finance and Controller of Axcelis Technologies, Inc. (a publicly traded semiconductor equipment manufacturer). Prior to May 2005, he was Axcelis’ Controller beginning in 1999, Director of Finance beginning August 2000, and Vice President and Treasurer beginning in 2003. Before joining Axcelis in 1999, Mr. Palette was Controller of Financial Reporting/Operations for Simplex, a leading manufacturer of fire protection and security systems. Prior to that, Mr. Palette was Director of Finance for Bell & Howell’s Mail Processing Company, a leading manufacturer of high speed mail insertion and sorting equipment.by us.
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Bruce J. Freyman,age 49, joinedIn this document, the Company as Vice President, Worldwide Operations in May 2005. Previously, he served as Presidentwords “we”, “our”, “ours” and Chief Operating Officer of Amkor Technology“us” refer only to Skyworks Solutions, Inc., and also held various senior management positions, including Executive Vice President of Operations from 2001 to 2004. Earlier, Mr. Freyman spent 10 years with Motorola managing their semiconductor packaging operations for portable communications products.
Liam K. Griffin,age 43, joined the Company in August 2001its consolidated subsidiaries and serves as Senior Vice President, Sales and Marketing. Previously, Mr. Griffin was employed by Vectron International, a division of Dover Corp., as Vice President of Worldwide Sales from 1997 to 2001, and as Vice President of North American Sales from 1995 to 1997. His prior experience included positions as a Marketing Manager at AT&T Microelectronics, Inc. and Product and Process Engineer at AT&T Network Systems. Mr. Griffin also serves as a director of Vicor Corp. (a publicly traded designer, developer, manufacturer and marketer of modular power components and complete power systems).
George M. LeVan,age 64, has served as Vice President, Human Resources since June 2002. Previously, Mr. LeVan served as Director, Human Resources, from 1991 to 2002 and has managed the human resource department since joining the Company in 1982. Prior to 1982, Mr. LeVan held human resources positions at Data Terminal Systems, Inc., W.R. Grace & Co., Compo Industries, Inc. and RCA.
Mark V.B. Tremallo,age 53, joined the Company in April 2004 and serves as Vice President, General Counsel and Secretary. Previously, from January 2003 to April 2004, Mr. Tremallo was Senior Vice President and General Counsel at TAC Worldwide Companies (a technical workforce solutions provider). Prior to TAC, from May 1997 to May 2002, he was Vice President, General Counsel and Secretary at Acterna Corp. (a global communications test equipment and solutions provider). Earlier, Mr. Tremallo served as Vice President, General Counsel and Secretary at Cabot Safety Corporation.
Gregory L. Waters,age 49, joined the Company in April 2003, and has served as Executive Vice President and General Manager, Front-End Solutions since October 2006, Executive Vice President beginning November 2005, and Vice President and General Manager, Cellular Systems as of May 2004. Previously, from February 2001 until April 2003, Mr. Waters served as Senior Vice President of Strategy and Business Development at Agere Systems and, beginning in 1998, held positions there as Vice President of the Wireless Communications business and Vice President of the Broadband Communications business. Prior to working at Agere, Mr. Waters held a variety of senior management positions within Texas Instruments, including Director of Network Access Products and Director of North American Sales.
Audit Committee: We have established an Audit Committee comprised ofnot any other person or entity. In addition, the following individuals, each of whom qualifies as independent withinindustry standards are referenced throughout the meaningdocument:
| • | | 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 |
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| • | | CDMA (Code Division Multiple Access): a method for transmitting simultaneous signals over a shared portion of the Radio Frequency (“RF”) spectrum |
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| • | | EDGE (Enhanced Data Rates for GSM Evolution): an enhancement to the GSM and TDMA wireless communications systems that increases data throughput to 474Kbps |
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| • | | GPRS (General Packet Radio Service): an enhancement to the GSM mobile communications system that supports transmission of data packets |
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| • | | 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 |
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| • | | LTE (Long Term Evolution): 4th generation (4G) radio technologies designed to increase the capacity and speed of mobile telephone networks |
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| • | | 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 |
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| • | | Satcom (Satellite Communications): where a satellite stationed in space is used for the purpose of telecommunications |
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| • | | 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 |
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| • | | WCDMA (Wideband CDMA): a 3G technology that increases data transmission rates |
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| • | | WEDGE: an acronym for technologies that support both WCDMA and EDGE wireless communication systems |
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| • | | 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 |
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| • | | 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 applicable Listing Rules of the NASDAQ Stock Market LLC (the “NASDAQ Rules”)star design logo, Intera and meets the criteria for independence set forth in Rule 10A-3(b)(1) under the Securities Exchange Act of 1934 (“Exchange Act”): Robert A. Schriesheim (Chairman), Kevin L. Beebe, Balakrishnan S. Iyer, Moiz M. Beguwala and David J. McLachlan.
Audit Committee Financial Expert: The Board of Directors has determined that each of Mr. Schriesheim (Chairman), Mr. Iyer and Mr. McLachlan, meets the qualifications of an “audit committee financial expert” under SEC Rules and the qualifications of “financial sophistication” under the NASDAQ Rules, and qualifies as “independent” as defined under the NASDAQ Rules.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 (a) of the Exchange Act requires our directors, executive officers and beneficial owners of more than 10% of our equity securities to file reports of holdings and transactions in securitiesTrans-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 SEC. Based solely on a review“Company”) is an innovator of Forms 3, 4high reliability analog and 5mixed signal semiconductors. Leveraging core technologies, Skyworks offers diverse standard and any amendments thereto furnished to us,custom linear products supporting automotive, broadband, cellular infrastructure, energy management, industrial, medical, military and written representations provided to us, with respect to our fiscal year ended October 2, 2009, we believe that all Section 16(a) filing requirements applicable to our directors, executive officers and beneficial owners of more than 10% of our common stock with respect to such fiscal year were timely made.cellular handset applications. The Company’s portfolio includes amplifiers, attenuators, detectors, diodes, directional couplers, front-end modules, hybrids, infrastructure RF
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CODE OF ETHICSsubsystems, mixers/demodulators, phase shifters, PLLs/synthesizers/VCOs, power dividers/combiners, receivers, switches and technical ceramics.
We have adoptedaligned 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 written code ofhighly 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 conductcombination. We have worldwide operations with engineering, manufacturing, sales and ethics that applies to our directors, officersservice facilities throughout Asia, Europe and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.North America. Our Internet address is www.skyworksinc.com. We make available on our code of business conductWebsite 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 ethics free of charge through our website, which is located at www.skyworksinc.com. We intend to disclose any5, and amendments to or waivers from,those reports as soon as practicable after we electronically submit such material to the SEC. The information contained in our code of business conductWebsite is not incorporated by reference in this Annual Report. You may read and ethicscopy materials that are required to be publicly disclosed pursuant to rules of the SEC and the NASDAQ Rules by posting any such amendment or waivers on our website and disclosing any such waivers in a Form 8-Kwe have filed with the SEC.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, |
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| • | | simultaneous transmission of voice and data, |
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| • | | 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 |
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| • | | Automotive |
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| • | | CATV/Satcom |
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| • | | Smart Energy |
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| • | | Medical |
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| • | | Military |
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| • | | RFID |
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| • | | Test & Measurement |
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| • | | WiMAX |
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| • | | 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 |
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| • | | Attenuators:circuits that allow a known source of power to be reduced by a predetermined factor (usually expressed as decibels) |
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| • | | Detectors:intended for use in power management applications |
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| • | | Diodes:semiconductor devices that pass current in one direction only |
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| • | | Directional Couplers:transmission coupling devices for separately sampling the forward or backward wave in a transmission line |
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| • | | Front-End Modules: power amplifiers that are integrated with switches, diplexers, filters and other components to create a single package front-end solution |
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| • | | Hybrid:a type of directional coupler used in radio and telecommunications |
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| • | | Infrastructure RF Subsystems:highly integrated transceivers and power amplifiers for wireless base station applications |
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| • | | 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 |
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| • | | Mixers/Demodulators:integrated, high-dynamic range, zero IF architecture downconverter for use in wireless communication applications |
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| • | | Modulators:designed for direct modulation of high frequency AM, PM or compound carriers |
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| • | | Phase Locked Loops (PLL):closed-loop feedback control system that maintains a generated signal in a fixed phase relationship to a reference signal |
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| • | | Phase Shifters:designed for use in power amplifier distortion compensation circuits in base station applications |
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| • | | Power Dividers/Combiners:utilized to equally split signals into in-phase signals as often found in balanced signal chains and local oscillator distribution networks |
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| • | | Receivers:electronic devices that change a radio signal from a transmitter into useful information |
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| • | | Switches:components that perform the change between the transmit and receive function, as well as the band function for cellular handsets |
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| • | | Synthesizers:provides ultra-fine frequency resolution, fast switching speed, and low phase-noise performance |
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| • | | Technical Ceramics:polycrystalline oxide materials used for a wide variety of electrical, mechanical, thermal and magnetic applications |
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| • | | Transceivers:devices that have both a transmitter and a receiver which are combined and share common circuitry or a single housing |
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| • | | 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 |
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| • | | Technology leadership in power amplifier and FEM product segments |
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| • | | Solutions for key air interface standards, including CDMA2000, GSM/GPRS/EDGE, LTE, WCDMA, WLAN and WiMAX |
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| • | | Engagements with a diverse set of top-tier customers |
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| • | | Analog, RF and mixed signal design capabilities |
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| • | | Strategic partnerships with all leading baseband providers |
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| • | | Access to key process technologies: GaAs HBT, pHEMT, BiCMOS, SiGE, CMOS, RF CMOS, and silicon |
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| • | | World-class manufacturing capabilities and scale |
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| • | | High level of customer service and technical support |
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| • | | 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 11. EXECUTIVE COMPENSATION.1A. RISK FACTORS.
COMPENSATION DISCUSSION AND ANALYSISYou 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.
Who Sets Compensation for Senior Executives?We operate in the highly cyclical wireless communications semiconductor industry, which is subject to significant downturns.
The Compensation Committee,We operate primarily in the wireless communications semiconductor industry, which is comprised solely of independent directors withincyclical and subject to rapid declines in demand for end-user products in both the meaning of applicable NASDAQ Rules, outside directors withinconsumer and enterprise markets. Since late 2008, uncertain economic conditions worldwide, together with other factors such as the meaning of Section 162continued volatility of the Internal Revenue Code (“Section 162(m)”)financial markets, have made it difficult for our customers and non-employee directors withinfor us to accurately forecast and plan future business activities.
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Although we believe that the meaningmarket 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 Rule 16b-3 underoperations 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 Exchange Act, is responsible for determining all components,wireless communications semiconductor industry may be prolonged, and amounts,any extended delay or failure of compensationthe 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 paidadversely 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 Chief Executive Officer, our Chief Financial Officercontrol.
These factors include, among others:
| • | | changes in end-user demand for the products (principally cellular handsets) manufactured and sold by our customers, |
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| • | | the effects of competitive pricing pressures, including decreases in average selling prices of our products, |
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| • | | production capacity levels and fluctuations in manufacturing yields, |
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| • | | availability and cost of materials and services from our suppliers, |
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| • | | the gain or loss of significant customers, |
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| • | | our ability to develop, introduce and market new products and technologies on a timely basis, |
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| • | | new product and technology introductions by competitors, |
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| • | | changes in the mix of products produced and sold, |
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| • | | market acceptance of our products and our customers, |
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| • | | our ability to continue to generate revenues by licensing and/or selling non-core intellectual property, and |
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| • | | 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 each of our other executive officers,these, as well as any other officersfactors, could materially and adversely affect our quarterly or employeesannual 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, |
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| • | | uncertainty regarding the prospects of the domestic and foreign economies, |
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| • | | our performance and prospects, |
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| • | | the performance and prospects of our major customers, |
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| • | | the depth and liquidity of the market for our common stock, |
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| • | | investor perception of us and the industry in which we operate, |
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| • | | changes in earnings estimates or buy/sell recommendations by analysts, and |
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| • | | 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 reportoften 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, |
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| • | | timely new product innovation, |
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| • | | product quality, reliability and performance, |
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| • | | product price, |
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| • | | features available in products, |
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| • | | compliance with industry standards, |
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| • | | strategic relationships with customers, |
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| • | | 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, |
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| • | | brand recognition, |
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| • | | high levels of customer satisfaction, |
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| • | | ownership or control of key technology or intellectual property, and |
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| • | | 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, |
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| • | | the ability to obtain capacity sufficient to meet customer demand, |
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| • | | the ability to define new products that meet customer and market requirements, |
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| • | | the ability to complete development of new products and bring products to market on a timely basis, |
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| • | | the ability to differentiate our products from offerings of our competitors, |
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| • | | overall market acceptance of our products, |
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| • | | the length of time that a particular product is in demand, and |
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| • | | 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 Chief Executive Officer.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.
This Compensation DiscussionOur manufacturing processes are extremely complex and Analysis section discussesspecialized 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 compensation policiesclean 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 programstest 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, |
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| • | | limited control over delivery schedules, manufacturing yields, production costs and quality assurance, and |
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| • | | 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 Chief Executive Officer,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 Chief Financial Officerproducts, which could impair our ability to meet our customers’ needs and have a material adverse effect on our three next most highly paid executive officers during fiscal 2009 as determined underoperating 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 rulesamount 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 SEC. risks described above.
We refer to this groupare dependent upon third parties for the supply of executive officers as our “Named Executive Officers.”
What are the Objectives of Our Compensation Program?raw materials and components.
The objectivesOur 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 executive compensation programraw 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 highly qualified executives to operate our business,personnel, including executive officers and to link the compensation of those executives to improvements in the Company’s financial performanceother key management and increases in stockholder value. Accordingly, the Compensation Committee’s goals in establishing our executive compensation program include:
(1) ensuring that our executive compensation programtechnical personnel. The competition for management and technical personnel is competitive with a group of companiesintense 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 competeoperate.
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 executive talent;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.
(2) providingUncertainties 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 base salary that servesportion 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 foundationreturn 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 compensation packagechange 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 attractswe license third-party technology, which could result in significant expense and retainsprevent 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 executive talent neededfuture assert patent, copyright, trademark and other
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intellectual property rights to achievetechnologies that are important to our business objectives;and have demanded and may in the future demand that we license their technology or refrain from using it.
(3) providing short-term variable compensationAny litigation to determine the validity of claims that motivates executives and rewards them for achieving financial performance targets;
(4) providing long-term stock-based compensation that aligns the interestour products infringe or may infringe intellectual property rights of another, including claims arising from our contractual indemnification of our executives with stockholderscustomers, regardless of their merit or resolution, could be costly and rewards them for increases in stockholder value;divert the efforts and
(5) ensuring that our executive compensation program is perceived as fundamentally fair to all attention of our employees.
How Do We Determinemanagement and technical personnel. Regardless of the Componentsmerits of any specific claim, we may not prevail in litigation because of the complex technical issues and Amount of Compensationinherent uncertainties in intellectual property litigation. If litigation were to Pay?
The Compensation Committee sets compensation for the Named Executive Officers, including salary, short-term incentives and long-term stock-based awards, at levels generally intended toresult in an adverse ruling, we could be competitive with the compensation of comparable executives in semiconductor companies with which the Company competes for executive talent.required to:
| | • | Retention | pay substantial damages, |
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| • | | cease the manufacture, import, use, sale or offer for sale of Compensation Consultantinfringing products or processes, |
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| • | | discontinue the use of infringing technology, |
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| • | | expend significant resources to develop non-infringing technology, and |
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| • | | license technology from the third party claiming infringement, which license may not be available on commercially reasonable terms. |
The Compensation Committee has engaged Aon/Radford ConsultingOur operating results or financial condition may be materially adversely affected if we, or one of our customers, were required to assisttake any one or more of the Compensation Committeeforegoing 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 determininga 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 componentsintellectual property of our customers, suppliers or other third parties into our designs, and amount of executive compensation. The consultant reports directlywe have obligations with respect to the Compensation Committee, through its chairperson,non-use and non-disclosure of such third-party intellectual property. In the Compensation Committee retainsfuture, 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 rightvalidity and scope of proprietary rights of others, including our customers. This could require us to terminate or replaceexpend significant resources and to divert the consultant at any time. The consultant advises the Compensation Committee on such compensation matters as are requested by the Compensation Committee. The Compensation Committee considers the consultant’s advice on such matters in addition to any other information or factors it considers relevant in making its compensation determinations.efforts and attention of our management and technical personnel from our business operations. We cannot be assured that:
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| | • | Role | the steps we take to prevent misappropriation, infringement, dilution or other violation of Chief Executive Officerour intellectual property or the intellectual property of our customers, suppliers or other third parties will be successful, |
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| • | | any existing or future patents, copyrights, trademarks, trade secrets or other intellectual property rights or ours will not be challenged, invalidated or circumvented, or |
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| • | | any of the measures described above would provide meaningful protection. |
The Compensation Committee also considersDespite 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 recommendationspatent 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 Chief Executive Officer regardingmethods used, or be unable to prevent the compensationrelease of each of his direct reports, including the other Named Executive Officers. These recommendations include an assessment of each individual’s responsibilities, experience, individual performance and contributionour proprietary information.
We are subject to the Company’s performance, and also generally takes into account internal factors such as historical compensation and levelrisks 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 organization,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 additionthe Asia-Pacific region. Finally, we have our own packaging, assembly and test facility in Mexicali, Mexico. Our international sales and operations are subject to external factors such as the current environment for attractinga number of risks inherent in selling and retaining executives.operating abroad. These include, but are not limited to, risks regarding:
| | • | Establishment | currency exchange rate fluctuations, including changes in commodities prices related to such fluctuations, |
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| • | | local economic and political conditions, including social, economic and political instability, |
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| • | | disruptions of Comparator Group Datacapital and trading markets, |
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| • | | inability to collect accounts receivable, |
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| • | | 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), |
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| • | | changes in, or non-compliance with, legal or regulatory import/export requirements, |
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| • | | natural disasters, acts of terrorism, widespread illness and war, |
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| • | | limitations on the repatriation of funds, |
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| • | | difficulty in obtaining distribution and support, |
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| • | | cultural differences in the conduct of business, |
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| • | | 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, |
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| • | | 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, |
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| • | | the possibility of being exposed to legal proceedings in a foreign jurisdiction, and |
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| • | | 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 determining compensationaddition, 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, |
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| • | | limiting our ability to obtain additional financing, |
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| • | | 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 |
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| • | | 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.
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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, |
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| • | | large, one-time write-offs, |
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| • | | the incurrence of substantial debt and assumption of unknown liabilities, |
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| • | | the potential loss of key employees from the acquired company, |
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| • | | amortization expenses related to intangible assets, and |
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| • | | 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, |
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| • | | the ability of our Board of Directors to issue shares of preferred stock in one or more series without further authorization of stockholders, |
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| • | | a prohibition on stockholder action by written consent, |
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| • | | elimination of the right of stockholders to call a special meeting of stockholders, |
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| • | | 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, |
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| • | | 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, |
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| • | | 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, |
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| • | | 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, |
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| • | | a fair price provision, and |
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| • | | 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 Named Executive Officers, the committee utilizes “Comparator Group” data for each position. Forlast two fiscal year 2009, the Compensation Committee approved Comparator Group data consistingyears, see Note 18 of a 50/50 blendItem 8 of (i) Aon/Radford survey data of 45 semiconductor companies1 and (ii) the public “peer” group data for 14 publicly-traded semiconductor companies with which the Company competes for executive talent (the “Peer Group”):this Annual Report on Form 10-K. The following table sets forth our principal facilities:
| | | | | | | | | |
*Anadigics
*Analog Devices
*Broadcom
*Cypress SemiconductorLocation | | *Fairchild Semiconductor
*Integrated Device Technology
*Intersil
*Linear TechnologyOwned/Leased | | *LSI Logic
*National Semiconductor
*ON Semiconductor
*RF Micro DevicesSquare Footage | | *Silicon Laboratories
*TriQuint Semiconductor |
Utilization of Comparator Group Data
The Compensation Committee annually compares the components and amounts of compensation that we provide to our Chief Executive Officer and other Named Executive Officers with the components and amounts of compensation provided to their counterparts in the Comparator Group and uses this comparison data as a guideline in its review and determination of base salaries, short-term incentives and long-term stock-based compensation awards. In addition, in setting fiscal year 2009 compensation, the Compensation Committee sought and received input from its consultant regarding the base salaries for the Chief Executive Officer and each of his direct reports, the award levels and performance targets relating to the short-term incentive program for executive officers, and the individual stock-based compensation awards for executive officers, as well as the related vesting schedules.
After reviewing the data and considering the input, the Compensation Committee established (and the full Board of Directors was advised of) the base salary, short-term incentive target and long-term stock-based compensation award for each Named Executive Officer. In establishing individual compensation, the Compensation Committee also considered the input of the Chief Executive Officer, as well as the individual experience and performance of the executive. In determining the compensation of our Chief Executive Officer, our Compensation Committee focused on (i) competitive levels of compensation for chief executive officers who are leading a company of similar size and complexity, (ii) the importance of retaining a chief executive officer with the strategic, financial and leadership skills necessary to ensure our continued growth and success, (iii) the Chief Executive Officer’s role relative to other Named Executive Officers and (iv) the considerable length of his 15-year service to the Company. Aon/Radford advised the Compensation Committee that the base salary, annual performance targets and short-term incentive target opportunity, and equity-based compensation for 2009 were competitive for chief executive officers in the sector. The Chief Executive Officer was not present during voting or deliberations of the Compensation Committee concerning his compensation. As stated above, however, the Compensation Committee did consider the recommendations of the Chief Executive Officer regarding the compensation of all of his direct reports, including the other Named Executive Officers. | | Primary Function |
1 | | Where sufficient data was not available in the semiconductor survey data — for example, for a VP/General Manager position — the Comparator Group data reflected survey data regarding high-technology companies, which included a larger survey sample. Semiconductor companies included in the survey had average annual revenue of approximately $1 billion, whereas the high-technology companies included in the survey were segregated based on the annual revenue of the general manager’s business unit. | | | | | | |
| 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 |
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What areITEM 3. LEGAL PROCEEDINGS.
From time to time, various lawsuits, claims and proceedings have been, and may in the Components of Executive Compensation?
The key elements of compensation for our Named Executive Officers are base salary, short-term incentives, long-term stock-based incentives, 401(k) plan retirement benefits, and medical and insurance benefits. Consistent with our objective of ensuring that executive compensation is perceived as fair to all employees, the Named Executive Officers do not receive any retirement benefits beyond those generally available to our full-time employees, and we do not provide medicalfuture be, instituted or insurance benefits to Named Executive Officers that are different from those offered to other full-time employees.
Base Salary
Base salaries provide our executive officers with a degree of financial certainty and stability. The Compensation Committee determines a competitive base salary for each executive officer using the Comparator Group data and input provided by its consultant. Based on these factors, base salaries of the Named Executive Officers for fiscal year 2009 were generally targeted at the Comparator Group median, with consideration given to role, responsibility, performance and length of service. After taking these factors into account, the base salary increase for each Named Executive Officer for fiscal year 2009 was approximately 4%, with the exception of the Chief Financial Officer, who received a 10% increase in order to bring his base salary closer to the median.
Our short-term incentive compensation plan for executive officers is established annually by the Compensation Committee. For fiscal year 2009, the Compensation Committee adopted the 2009 Executive Incentive Plan (the “Incentive Plan”). The Incentive Plan established short-term incentive awards that could be earned semi-annually by certain officers ofasserted against the Company, including those pertaining to patent infringement, intellectual property, environmental, product liability, safety and health, employment and contractual matters.
Additionally, the Named Executive Officers, based onsemiconductor 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 achievementfinancial condition, or results of certain corporate performance metrics established on a semi-annual basis. Short-term incentivesoperations. From time to time we are intended to motivate and reward executives by tying a significant portion of their total compensation to the Company’s achievement of pre-established performance metrics that are generally short-term (i.e., less than one year). In establishing the short-term incentive plan, the Compensation Committee first determined a competitive short-term incentive target for each Named Executive Officer based on the Comparator Group data, and then set threshold, target and maximum incentive payment levels. At the target payout level, Skyworks’ short-term incentive was designed to resultalso involved in an incentive payout equal to the median of the Comparator Group, while a maximum incentive payout for exceeding the performance metrics would result in a payout above the median of the Comparator Group, and a threshold payout for meeting the minimal corporate performance metrics would result in a payout below the median. The following table shows the incentive payment levels the Named Executive Officers could earn in fiscal year 2009 (shown as a percentage of base salary), depending on the Company’s achievement of the performance metrics. Actual performance between the threshold and the target metrics or between the target and maximum metrics was determined based on a linear sliding scale.
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| | | Threshold | | | Target | | | Maximum | |
| Chief Executive Officer | | | 50% | | | | 100% | | | | 200% | |
| Other Named Executive Officers | | | 30% | | | | 60% | | | | 120% | |
For fiscal year 2009, in establishing the Incentive Plan, the Compensation Committee considered the fact that for the first half of fiscal 2009 our primary corporate goal was to increase revenue in excess of the market growth rate by gaining market share, while at the same time leveraging our fixed cost structure to generate higher earnings. Aslegal proceedings in the prior year, for fiscal year 2009,ordinary course of business.
We believe that there is no pending litigation involving the Compensation Committee splitCompany that will have, individually or in the Incentive Plan into two six month performance periods, with the performance metrics focusedaggregate, a material adverse effect on achieving business unit revenue, non-GAAP gross margin and specified non-GAAP operating margin targets, in addition to a cash and customer satisfaction metric. The weighting of the different metrics for the first half of fiscal year 2009 is set forth as follows.our business.
ITEM 4. REMOVED AND RESERVED.
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| | | | | | | Non-GAAP | | GAAP | | Customer | | |
| | | | | | | Operating | | Gross | | Satisfaction | | Cash |
| | | Revenue | | Margin % | | Margin | | Metric | | Metric |
| President and Chief Executive Officer; Vice President and Chief Financial Officer | | 20% | | 40% | | 20% | | 10% | | 10% |
| Vice President, Worldwide Operations | | 20% | | 20% | | 40% | | 10% | | 10% |
| Executive Vice President and General Manager, Front-End Solutions | | 30% (based on business
unit revenue) | | 20% (based on business
unit OM%) | | 30% | | 10% | | 10% |
| Senior Vice President, Sales and Marketing | | 30% | | 30% (based on | | 20% | | 10% | | 10% |
| | | | | | | business unit OM%) | | | | | | | | | | | | |
ForPART 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 first halfNASDAQ Global Select Market under the symbol “SWKS”. The following table sets forth the range of fiscal 2009, each executive officer’s incentive award was consistent withhigh and low closing prices for our common stock for the metrics set forth above, although the Compensation Committee exercised discretion permittedperiods indicated, as reported by the planNASDAQ Global Select Market. The number of stockholders of record of Skyworks’ common stock as of November 21, 2010, was approximately 29,000.
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| | | High | | | Low | |
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Fiscal year ended October 1, 2010: | | | | | | | | |
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| First quarter | | $ | 14.30 | | | $ | 10.27 | |
| Second quarter | | | 16.41 | | | | 12.69 | |
| Third quarter | | | 17.91 | | | | 14.23 | |
| Fourth quarter | | | 21.09 | | | | 16.33 | |
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Fiscal year ended October 2, 2009: | | | | | | | | |
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| 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 make such award payments by waiving the minimum operating income margin metric, given thatwhich the Company nearly achieved such objective despite the severe and unanticipated economic downturn that occurred during the first half of fiscal 2009. The Company only made payments for the performance metrics that were achieved, and no payment was made based on the operating income margin metric. Accordingly, the Chief Executive Officer, Vice-President and Chief Financial Officer, Executive Vice President and General Manager, Front-End Solutions, Senior Vice President, Sales and Marketing, and Vice President, Worldwide Operations earned a first half incentive award equalis authorized to approximately 14%, 8%, 14%, 26% and 11% of their annual base salary, respectively. In addition, in recognition of their contributionsrepurchase up to the Company’s performance during the first half of fiscal 2009, the Compensation Committee approved payments to approximately 800 other non-executive employees under non-executive incentive plans containing terms and conditions similar to the Incentive Plan. Consistent with the Incentive Plan (and other employee incentive plans), actual payments for the first six month performance period were capped at 80% of the award earned, with 20% of the award held back until the end of the fiscal year to ensure sustained financial performance. The amount held back was subsequently paid after the end of the fiscal year since the Company sustained its financial performance throughout fiscal year 2009.
For the second half of fiscal year 2009, the Committee again established performance metrics based on achieving specified revenue, non-GAAP gross margin, non-GAAP operating margin targets and a cash and customer satisfaction metric. The weighting of the different metrics for the second half of fiscal year 2009 is set forth as follows.
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| | | | | | | | | | | Non- | | | | | | |
| | | | | | | Non-GAAP | | GAAP | | Customer | | |
| | | | | | | Operating | | Gross | | Satisfaction | | Cash |
| | | Revenue | | Margin % | | Margin % | | Metric | | Metric |
| President and Chief Executive Officer; Vice President and Chief Financial Officer | | 20% | | 40% | | 20% | | 10% | | 10% |
| Vice President, Worldwide Operations | | 20% | | 20% | | 40% | | 10% | | 10% |
| Executive Vice President and General Manager, Front-End Solutions | | 10% (based on corporate revenue)
30% (based on business unit revenue) | | 20% (based on business unit OM%) | | 30% | | 10% | | 0% |
| Senior Vice President, Sales and Marketing | | 30% | | 10% (based on
corporate OM%)
20% (based
on business unit OM%) | | 20% | | 10% | | 10% |
In determining the weightings among the Named Executive Officers, the Compensation Committee’s goal was to align the incentive compensation of each Named Executive Officer with the performance metrics such executive could most impact. For instance, the performance metrics for the Chief Executive Officer, Vice-President and Chief Financial Officer and Vice President, Worldwide Operations were designed to focus such executives on improving the Company’s competitive position and achieving profitable growth overall. The performance metrics for the Executive Vice President and General Manager, Front-End Solutions were designed to focus such executive on business unit revenue (i.e., the ramping of new products and expansion of the customer base), and the performance metrics for the Senior Vice President, Sales and Marketing were designed to focus such executive on increasing overall corporate revenue while at the same time increasing gross margin.
8
In the second half of the year, the Company met or exceeded its targets. Accordingly, the Chief Executive Officer, Vice- President and Chief Financial Officer, Executive Vice President and General Manager, Front-End Solutions, Senior Vice President, Sales and Marketing, and Vice President, Worldwide Operations earned a second half incentive award equal to approximately 95%, 57%, 57%, 57% and 57% of their annual base salary, respectively. The Compensation Committee determined to pay, in lieu of cash, unrestricted common stock of the Company for the portion of each of the Named Executive Officer’s second half short-term incentive earned above the “target” level. Accordingly, the Chief Executive Officer, the Vice-President and Chief Financial Officer, the Executive Vice President and General Manager, Front-End Solutions, Senior Vice President, Sales and Marketing, and the Vice President, Worldwide Operations each received approximately 47% of their respective second half incentive payments in the form of unrestricted common stock of the Company. In addition, the 20% “holdback” of the first half incentive was paid out to each executive officer due to the Company’s sustained financial performance.
For the full fiscal year, the total payments under the Incentive Plan to the Chief Executive Officer, Vice-President and Chief Financial Officer, the Executive Vice President and General Manager, Front-End Solutions, the Senior Vice President, Sales and Marketing, and the Vice President, Worldwide Operations were approximately 109%, 65%, 71%, 83% and 68% of their respective annual base salaries.
The target financial performance metrics established by the Compensation Committee under the Incentive Plan are based on our historical operating results and growth rates as well as our expected future results, and are designed to require significant effort and operational success on the part of our executives and the Company. The maximum financial performance metrics established by the Committee have historically been difficult to achieve and are designed to represent outstanding performance that the Committee believes should be rewarded. The Compensation Committee retains the discretion, based on the recommendation of the Chief Executive Officer, to make payments even if the threshold performance metrics are not met or to make payments in excess of the maximum level if the Company’s performance exceeds the maximum metrics. The Compensation Committee believes it is appropriate to retain this discretion in order to make short-term incentive awards in extraordinary circumstances, such as existed during the severe and unanticipated economic downturn that occurred during the first half of fiscal 2009.
Long-Term Stock-Based Compensation
The Compensation Committee generally makes stock-based compensation awards to executive officers on an annual basis. Stock-based compensation awards are intended to align the interests of our executive officers with stockholders, and reward them for increases in stockholder value over long periods of time (i.e., greater than one year). It is the Company’s practice to make stock-based compensation awards to executive officers in November of each year at a pre-scheduled Compensation Committee meeting. For fiscal year 2009, the Compensation Committee made awards to executive officers, including certain Named Executive Officers, on November 4, 2008, at a regularly scheduled Compensation Committee meeting. Stock options awarded to executive officers at the meeting had an exercise price equal to the closing price$200 million of the Company’s common stock from time to time on the meeting date.
In making stock-based compensation awards to certain executive officers for fiscal year 2009, the Compensation Committee first reviewed the Comparator Group data to determine the percentage of the outstanding number of shares that are typically used for employee compensation programs.open market or in privately negotiated transactions as permitted by securities laws and other legal requirements. The Compensation Committee then set the number of Skyworks shares of common stock that wouldprogram will be made available for executive officer awards at approximately the median of the Comparator Group based on the business need, internal and external circumstances and RiskMetrics/ISS guidelines. The Compensation Committee then reviewed the Comparator Group by executive position to determine the allocation of the available shares among the executive officers. The Compensation Committee then attributed a long-term equity-based compensation value to each executive officer. One-half of that value was converted to a number of stock optionsfunded using an estimated Black-Scholes value, and the remaining half of the value was converted to a number of performance share awards (at target) based on the fair market value of the common stock. The Compensation Committee’s rationale for awarding performance shares is to further align the executive’s interest with those of the Company’s stockholders by using equity-awards that will vest only if the Company achieves a pre-established performance metric(s).
In addition, given the significant changes in the economic environmentworking capital and the financial markets in the first half of fiscal 2009, and that certain previously granted performance share awards were not exempt from the deduction limitations under Section 162(m), on June 4, 2009, the Company gave each of its executive officers, including the Named Executive Officers, the opportunity to forfeit an outstanding Performance Share Award dated November 6, 2007, such executive had previously been granted (the “2007 PSA”) and receive, in its place, the following equity awards:
(1) a restricted stock award (the “2009 Replacement RSA”) covering shares equal to the “Threshold/Nominal” tranche of
9
shares of the Company’s common stock that could be earned under the executive’s 2007 PSA, which shares will vest on November 6, 2010, provided that the executive continues employment with the Company through such date, and
(2) a Section 162(m) compliant performance share award (the “2009 Replacement PSA”, and together with the 2009 Replacement RSA, the “2009 Replacement Awards”) pursuant to which the executive will receive a number of shares of the Company’s common stock equal to the aggregate amount of the “Target” and “Maximum/Stretch” tranches of shares of the Company’s common stock that could be earned under the 2007 PSA, if certain conditions are satisfied. The conditions that must be satisfied are as follows:
(a)Relative Stock Price Performance Condition
The “Target” relative stock price condition, which covers 50% of the underlying shares, shall be deemed met on November 6, 2010, if the percentage change in the price of Skyworks’ common stock exceeds the 60th percentile of the Peer Group1 during the Measurement Period. The “Stretch” relative stock price condition, which covers 50% of the underlying shares, shall be deemed met on November 6, 2010, if the percentage change in the price of Skyworks’ common stock exceeds the 70th percentile of the Peer Group during the Measurement Period. For purposes of the 2009 Replacement PSA, the “Measurement Period” was deemed to have started on November 6, 2007, and will end on November 6, 2010.
(b)Continued Employment Condition
If the Relative Stock Price Performance Condition is met for either the “Target” or “Stretch” tranche (or both), then 50% of the total shares for which the relative stock price performance metric was met would be issuable to the executive on November 6, 2010, and the other 50% of such total shares would be issuable to the executive on November 6, 2011, provided that the executive is employed with Skyworks through such date(s).
Each of the Named Executive Officers accepted the Company’s offer and agreed to have his 2007 PSA cancelled and replaced with the 2009 Replacement Awards. The maximum number of shares issued under the 2009 Replacement Awards for each Named Executive Officer on June 10, 2009, is equal to the maximum number of shares that would have been issuable to such executive under his cancelled 2007 PSA.
| | Other Compensation and Benefits |
We also provide other benefits to our executive officers that are intended to be part of a competitive overall compensation program and are not tied to any company performance criteria. Consistent with the Compensation Committee’s goal of ensuring that executive compensation is perceived as fair to all stakeholders, the Company offers medical plans, dental plans, vision plans, life insurance plans and disability insurance plans to executive officers under the same terms as such benefits are offered to all other employees. Additionally, executive officers are permitted to participate in the Company’s 401(k) Savings and Investment Plan and Employee Stock Purchase Plan under the same terms as all other employees. The Company does not provide executive officers with any enhanced retirement benefits (i.e., executive officers are subject to the same limits on contributions as other employees, as the Company does not offer any SERP or other similar non-qualified deferred compensation plan), and they are eligible for 401(k) company-match contributions under the same terms as other employees.
Although certain Named Executive Officers were historically provided an opportunity to participate in the Company’s Executive Compensation Plan (the “Executive Compensation Plan”) — an unfunded, non-qualified deferred compensation plan, under which participants were allowed to defer a portion of their compensation — as a result of deferred compensation legislation under Section 409A of the Internal Revenue Code (“IRC”), effective December 31, 2005, the Company no longer permits employees to make contributions to the plan. Although the Company had discretion to make additional contributions to the accounts of participants while the Executive Compensation Plan was active, it never did so.
| | Severance and Change of Control Benefits |
None of our executive officers, including the Named Executive Officers, has an employment agreement that provides a specific term of employment with the Company. Accordingly, the employment of any such employee may be terminated at any time. We do provide certain benefits to our Named Executive Officers upon certain qualifying terminations and in connection with terminations under certain circumstances following a change of control. A description ofDuring fiscal year 2010 the material terms
| | |
1 | | For purposes of the 2009 Replacement PSAs, Maxim Integrated Products was included in the Peer Group. |
10
of our severance and change of control arrangements with the Named Executive Officers can be foundCompany did not repurchase any shares under the “Potential Payments Upon Termination or Change of Control” section below.program.
The Company believes that severance protections can play a valuable role in recruiting and retaining superior talent. Severance and other termination benefits are an effective way to offer executives financial security to incent them to forego an opportunity with another company. These agreements also protect the Company as the Named Executive Officers are bound by restrictive non-compete and non-solicit covenants for two years after termination of employment. Outside of the change in control context, severance benefits are payable to the Named Executive Officers if their employment is involuntarily terminated by the Company without cause, or if a Named Executive Officer terminates his own employment for a good reason (as defined in the agreement). In addition, provided he forfeits certain equity awards and agrees to serve on the Company’s Board of Directors for a minimum of two years, the Chief Executive Officer is entitled to certain severance benefits upon termination of his employment for any reason on or after January 1, 2010. The Compensation Committee believes that this provision facilitates his retention with the Company. The level of each Named Executive Officer’s severance or other termination benefit is generally tied to his respective annual base salary and targeted short-term incentive opportunity (or past short-term incentive earned).
Additionally, the Named Executive Officers would receive enhanced severance and other benefits if their employment terminated under certain circumstances in connection with a change in control of the Company. These benefits are described in detail under the “Potential Payments Upon Termination or Change of Control” section below. The Named Executive Officers are also entitled to receive a tax gross-up payment (with a $500,000 cap for Named Executive Officers other than the Chief Executive Officer) if they become subject to the 20% golden parachute excise tax imposed by Section 280G of the IRC, as the Company believes that the executives should be able to receive their contractual rights to severance without being subject to punitive excise taxes. The Company further believes these enhanced severance benefits are appropriate because the occurrence, or potential occurrence, of a change in control transaction would likely create uncertainty regarding the continued employment of each Named Executive Officer, and these enhanced severance protections encourage the Named Executive Officers to remain employed with the Company through the change in control process and to focus on enhancing stockholder value both before and during the change in control process.
Lastly, each Named Executive Officer’s outstanding unvested stock options and restricted stock awards fully vest upon the occurrence of a change in control. In addition, each outstanding performance share award shall be deemed earned as to the greater of (a) the “target” level or (b) the number of shares that would have been deemed earned under the award as of the day prior to the change in control. The Company believes this accelerated vesting is appropriate given the importance of long-term equity awards in our executive compensation program and the uncertainty regarding the continued employment of Named Executive Officers that typically occurs in a change in control context. The Company’s view is that this vesting protection helps assure the Named Executive Officers that they will not lose the expected value of their equity awards because of a change in control of the Company and encourages the Named Executive Officers to remain employed with the Company through the change in control process and to focus on enhancing stockholder value both before and during the process.
11
Compensation Tables for Named Executive Officers
Summary Compensation Table
The following table summarizes compensation earnedprovides information regarding repurchases of common stock made by or awarded or paid to, our Named Executive Officers forus during the fiscal year 2009, fiscal year 2008 and fiscal year 2007.quarter ended October 1, 2010:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | Non-Equity | | | | | | | |
| | | | | | | | | | | Stock | | | Option | | | Incentive Plan | | | All Other | | | | |
| | | | | | | | | | | Awards | | | Awards | | | Compensation | | | Compensation | | | Total | |
| Name and Principal Position | | Year | | | Salary ($) | | | ($)(2) | | | ($)(2) | | | ($)(3) | | | ($)(4) | | | ($) | |
| David J. Aldrich | | | 2009 | | | $ | 598,077 | | | $ | 2,207,652 | | | $ | 932,825 | | | $ | 653,750 | | | $ | 12,879 | | | $ | 4,405,183 | |
| President and Chief | | | 2008 | | | $ | 583,404 | | | $ | 1,936,986 | | | $ | 933,064 | | | $ | 1,048,220 | | | $ | 12,191 | | | $ | 4,513,865 | |
| Executive Officer | | | 2007 | | | $ | 552,000 | | | $ | 837,318 | | | | 719,233 | | | | 691,276 | | | $ | 11,838 | | | | 2,811,665 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Donald W. Palette | | | 2009 | | | $ | 327,692 | | | $ | 346,441 | | | $ | 268,214 | | | $ | 215,738 | | | $ | 11,471 | | | $ | 1,169,556 | |
| Vice President and Chief | | | 2008 | | | $ | 305,769 | | | $ | 195,917 | | | $ | 195,653 | | | $ | 328,138 | | | $ | 12,199 | | | $ | 1,037,676 | |
| Financial Officer | | | 2007 | (1) | | $ | 34,615 | | | $ | 5,005 | | | $ | 18,507 | | | $ | 56,354 | | | $ | 340 | | | $ | 114,821 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gregory L. Waters | | | 2009 | | | $ | 378,846 | | | $ | 464,160 | | | $ | 278,907 | | | $ | 270,085 | | | $ | 10,025 | | | $ | 1,402,023 | |
| Executive Vice President and | | | 2008 | | | $ | 370,635 | | | $ | 393,257 | | | $ | 270,445 | | | $ | 397,347 | | | $ | 9,464 | | | $ | 1,441,148 | |
| General Manager, Front-End Solutions | | | 2007 | | | $ | 353,000 | | | $ | 240,198 | | | $ | 325,824 | | | $ | 252,715 | | | $ | 9,810 | | | $ | 1,181,547 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Liam K. Griffin | | | 2009 | | | $ | 352,923 | | | $ | 696,259 | | | $ | 258,069 | | | $ | 295,148 | | | $ | 44,888 | | | $ | 1,647,287 | |
| Senior Vice President, Sales | | | 2008 | | | $ | 344,000 | | | $ | 568,901 | | | $ | 249,207 | | | $ | 365,526 | | | $ | 82,132 | | | $ | 1,609,766 | |
| and Marketing | | | 2007 | | | $ | 318,000 | | | $ | 201,410 | | | $ | 189,483 | | | $ | 256,603 | | | $ | 136,062 | | | $ | 1,101,558 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Bruce J. Freyman | | | 2009 | | | $ | 350,923 | | | $ | 453,887 | | | $ | 308,879 | | | $ | 240,680 | | | $ | 11,772 | | | $ | 1,366,141 | |
| Vice President, Worldwide | | | 2008 | | | $ | 343,000 | | | $ | 344,246 | | | $ | 313,207 | | | $ | 335,879 | | | $ | 11,218 | | | $ | 1,347,550 | |
| Operations | | | 2007 | | | $ | 325,000 | | | $ | 121,820 | | | $ | 258,473 | | | $ | 262,252 | | | $ | 10,189 | | | $ | 977,734 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | 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) | | Mr. Palette was hired as Vice-President and Chief Financial Officer effective August 20, 2007, at an annual salaryAll shares of $300,000. In addition, he was guaranteed a short-term incentive payment for fiscal year 2007 equal to 25% of the incentive payout he would have received under the 2007 Incentive Plan had he been employed for the entire fiscal year. |
|
(2) | | The aggregate dollar amount of the expense recognized in fiscal years 2009, 2008 and 2007 for outstandingcommon stock and options was determined in accordance with the provisions of ASC 718-Compensation-Stock Compensation(“ASC 718”), but without regard to any estimated forfeitures related to service-based vesting provisions. For a description of the assumptions used in calculating the fair value of equity awards under ASC 718, see Note 11 of the Company’s financial statements includedreported in the Original Filing. The reported expense also reflects incremental expenses relating to the 2009 Replacement Awards as follows: Mr. Aldrich ($117,470), Mr. Palette ($13,705), Mr. Waters ($15,663), Mr. Griffin ($39,157) and Mr. Freyman ($19,578). |
|
(3) | | Reflects amounts paid to the Named Executive Officers pursuant to the Incentive Plan. For the second half of fiscal years 2008 and 2009, the portion of the Incentive Plan attributable to Company performancetable above the “target” performance metric was paid in the form of unrestricted common stock of the Company as follows: Mr. Aldrich (2008: $248,508; 2009: $270,000), Mr. Palette (2008: $77,794; 2009: $89,100), Mr. Waters (2008: $80,866; 2009: $102,600), Mr. Griffin (2008: $87,342; 2009: $95,580) and Mr. Freyman (2008: $64,839; 2009: $95,040). The number of shares awarded in lieu of cash was based onwere repurchased by Skyworks at the fair market value of the common stock on November 4, 2008,as of the period stated above, in connection with the satisfaction of tax withholding obligations under stock agreements between Skyworks and November 10, 2009, the dates the second half Incentive Plan payment for each fiscal year was approved by the Compensation Committee. For fiscal year 2007, all short-term incentive payments were made in cash.certain of its employees. |
| |
(4)(2) | | “All Other Compensation” includesOn August 3, 2010, the Company’s contributionsBoard of Directors approved a stock repurchase program, pursuant to each Named Executive Officer’s 401(k) plan accountwhich 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 the cost of group term life insurance premiums. Mr. Griffin’s amount includes subsidized mortgage and miscellaneous relocation expenses of $72,381, $124,741 and $34,548 for fiscal years 2007, 2008, and 2009, respectively.other legal requirements. |
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ITEM 6. SELECTED FINANCIAL DATA.
You should read the data set forth below in conjunction with Item 7,GrantsManagement’s Discussion and Analysis of Plan-Based Awards TableFinancial 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 table summarizes all grantsbalance sheet data and statements of plan-based awards made tooperations data for the Named Executive Officersfive 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 fiscal year 2009, including incentive awards payable under our Fiscal Year 2009 Executive Incentive Plan.this Annual Report on Form 10-K.
27
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | All Other | | All Other | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock | | Option | | Exercise | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Awards: | | Awards: | | or Base | | Grant |
| | | | | | | Possible Payouts Under | | Estimated Future Payouts | | Number | | Number of | | Price of | | Date Fair |
| | | | | | | Non-Equity Incentive | | Under Equity Incentive | | of Shares | | Securities | | Option | | Value of |
| | | | | | | Plan Awards(1) | | Plan Awards(2) | | of Stock | | Underlying | | Awards | | Stock and |
| | | Grant | | Threshold | | Target | | Maximum | | Threshold | | Target | | Maximum | | or Units | | Options | | ($/Sh) | | Option |
| Name | | Date | | ($) | | ($) | | ($) | | (#) | | (#) | | (#) | | (#) | | (#)(3) | | (4) | | Awards (5) |
| David J. Aldrich | | | 11/4/2008 | | | $ | 300,000 | | | $ | 600,000 | | | $ | 1,200,000 | | | | 75,000 | | | | 150,000 | | | | 300,000 | | | | n/a | | | | 300,000 | | | $ | 7.18 | | | $ | 3,505,921 | |
| President and Chief Executive Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Donald W. Palette | | | 11/4/2008 | | | $ | 99,000 | | | $ | 198,000 | | | $ | 396,000 | | | | 23,500 | | | | 47,000 | | | | 94,000 | | | | n/a | | | | 90,000 | | | $ | 7.18 | | | $ | 1,085,656 | |
| Vice President and Chief Financial Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gregory L. Waters | | | 11/4/2008 | | | $ | 114,000 | | | $ | 228,000 | | | $ | 456,000 | | | | 26,000 | | | | 52,000 | | | | 104,000 | | | | n/a | | | | 100,000 | | | $ | 7.18 | | | $ | 1,202,520 | |
| Executive Vice President and General Manager, Front-End Solutions | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Liam K. Griffin | | | 11/4/2008 | | | $ | 106,200 | | | $ | 212,400 | | | $ | 424,800 | | | | 26,000 | | | | 52,000 | | | | 104,000 | | | | n/a | | | | 100,000 | | | $ | 7.18 | | | $ | 1,202,520 | |
| Senior Vice President, Sales and Marketing | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Bruce J. Freyman | | | 11/4/2008 | | | $ | 105,600 | | | $ | 211,200 | | | $ | 422,400 | | | | 23,500 | | | | 47,000 | | | | 94,000 | | | | n/a | | | | 90,000 | | | $ | 7.18 | | | $ | 1,085,656 | |
| Vice President, Worldwide Operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | 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) | | Actual performance betweenDuring the Threshold and Target metrics are paid on a linear sliding scale beginning at the Threshold percentage and moving up to the Target percentage. The same linear scale applies for performance between Target and Maximum metrics. The amounts actually paid to the Named Executive Officers under the Incentive Plan are shown above in the Summary Compensation Table under Non-Equity Incentive Plan Compensation. Forsecond 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 portionplan were $19.4 million of the Incentive Plan payment attributablewhich $3.5 million was charged to Company performance above the Target levelcost of goods sold for the second half of theinventory write-downs. |
|
| | During fiscal year was paid2006, we recorded $23.3 million of inventory charges and reserves primarily related to the Named Executive Officers in the formexit of unrestricted common stock of the Company.our baseband product area. |
| |
| (2) | | Represents performance share awards made on November 4, 2008, under the Company’s 2005 Long-Term Incentive Plan (the “FY09 PSA”). The FY09 PSAs have both “performance” and “continued employment” conditions that must be met in order for the executive to receive shares underlying the award. The “performance” condition required that the Company achieve certain pre-established non-GAAP operating margin metrics (i.e., “minimum”, “target” and “maximum” non-GAAP operating margin levels), with the “minimum” number of shares equal to one-half (1/2) the “target” share level, and the “maximum” number of shares equal to two times (2x) the “target” share level. For purposes of the FY09 PSAs, the “non-GAAP operating margin” meant the Company’s non-GAAP operating margin for Fiscal Year 2009 as reported publicly by the Company following theDuring fiscal year end. Actual Company performance between the “minimum” and the “maximum” performance metrics was2006, we recorded bad debt expense of $35.1 million related to be determined based on a linear sliding scale. The “continued employment” condition of the FY09 PSAs provides that, to the extent that the non-GAAP operating margin performance metric is met for the fiscal year, then one-third (33%) of the total shares for which the performance metric was met would be issuable to the executive on the first anniversary of the Grant Date, the next one-third (33%) of such shares would be issuable to the executive on the second anniversary of the Grant Date (the “Second Issuance Date”) , and the final one-third (33%) of such shares would be issuable to the Participant on the third anniversary of the Grant Date (the “Third Issuance Date”), provided that the executive continues employment with the Company through each such vesting date(s).certain baseband customers. |
1328
| | |
| (3) | | The options vest over four years at a rate of 25% perincrease in amortization expense in fiscal year commencing one year after2008 is primarily due to the date of grant, provided the holder of the option remains employed by the Company. Options may not be exercised beyond three months after the holder ceases to be employed by the Company, exceptacquisitions completed in the event of termination by reason of death or permanent disability, in which event the option may be exercised for specific periods not exceeding one year following termination.October 2007. |
| |
| (4) | | Stock options awardedIn 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 executive officers had an exercise price equalreduce global headcount by approximately 4% or 150 employees. The total charges related to the closing priceplan 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 Company’s common stock onbaseband product area. |
|
| | In fiscal year 2006, we recorded restructuring and other charges of $27.0 million related to the grant date.exit of our baseband product area. |
| |
| (5) | | Amount reflects stock optionsIn fiscal years 2010, 2009, and performance share awards granted2008 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 November 4, 2008. The total excludes the incremental FMVearly 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, Replacement Awards as follows: Mr. Aldrich ($775,200), Mr. Palette ($90,440), Mr. Waters ($103,360), Mr. Griffin ($258,400)October 3, 2008 and Mr. Freyman ($129,200). As described above in “Long–Term Stock Based Compensation”,September 28, 2007, respectively. For fiscal year 2009, the 2009 Replacement Awardsamount reversed consisted of (1)$25.4 million recognized as income tax benefit, and $13.2 million recognized as a reduction to goodwill. For fiscal year 2008, the 2009 Replacement RSAs that vest on November 6, 2010,amount reversed consisted of $36.4 million recognized as follows: Mr. Aldrich (150,000 shares), Mr. Palette (17,500 shares), Mr. Waters (20,000 shares),income tax benefit, and Mr. Griffin (50,000 shares),$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 Mr. Freyman (25,000 shares); and (2) the$13.3 million recognized as a reduction to goodwill. |
|
| (8) | | Effective October 3, 2009, Replacement PSAs as follows (at the “maximum” share level): Mr. Aldrich (300,000 shares), Mr. Palette (35,000 shares), Mr. Waters (40,000 performance shares), and Griffin (100,000 shares), and Mr. Freyman (50,000 performance shares). The 2009 Replacement PSAs have both “performance” and “continued employment” conditions that must be met in order for the executive to receive any shares underlying the award. The “performance” conditions requires that the percentage change in the price of Skyworks’ common stock exceeds the 60th percentile (i.e., “target” level of shares, which is equal to 50% of the total shares), and/or the 70th percentile (i.e., the “maximum” level of shares, which is equal to the other 50% of the total shares), of the Peer Group during the Measurement Period. The percentage change in the price of the common stock of the Company as well as each member of the Peer Group, during the Measurement Period will be determined by comparing (x) the average of such entity’s stock price for the ninety (90) day period beginning on November 6, 2007 to (y) the average of the entity’s stock price for the ninety (90) day period ending on November 6, 2010. For purposes of calculating the average price of the common stock of an entity during such ninety (90) day periods, only “trading days” (days on which the NASDAQ Global Select Market is open for trading) shall be usedadopted ASC 470-20-Debt, Debt with Conversion and Other Options(“ASC 470-20”) in such calculation and trading volume on any such trading day shall not be factored into such calculation. For purposes of the 2009 Replacement PSAs, the “Measurement Period” was deemed to have started on November 6, 2007, and will end on November 6, 2010.accordance with GAAP. The “continued employment” condition provides that, if the relative stock price performance condition is met for either the “Target” or “Maximum” tranche (or both), then 50% of the total shares for which the relative stock price performance metric was met would be issuable to the executive on November 6, 2010,Company’s financial statements and the other 50%accompanying footnotes for all prior periods presented have been adjusted to reflect the retrospective adoption of such total shares would be issuable to the executive on or about November 6, 2011, provided that the executive is employed with Skyworks through such date(s).this new accounting principle. |
29
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
Outstanding Equity Awards atThe 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 Year End Tableyears 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
RESULTS OF OPERATIONS
YEARS ENDED OCTOBER 1, 2010, OCTOBER 2, 2009, AND OCTOBER 3, 2008.
The following table summarizessets forth the unvested stock awardsresults 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 all stock options heldcash 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. |
31
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 Named Executive Officersflexibility 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.
32
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.
33
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 470-20Debt, 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 endfiscal year ended October 1, 2010 as compared to fiscal year 2009 is primarily due to the decline in interest payments and amortization of Fiscal Yeardiscount associated with the early retirement and settlement of $53.0 million in aggregate principal amount of our 2007 Convertible Notes.
34
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 $57.9 million in aggregate principal amount of the Company’s 2007 Convertible Notes in fiscal year 2009.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Option Awards | | | Stock Awards |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity | | Equity |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Incentive | | Incentive |
| | | | | | | | | | | | | Plan | | Plan |
| | | | | | | | | | | Equity | | | | | | | | | | | | | | | | | | Awards: | | Awards: |
| | | | | | | | | | | Incentive | | | | | | | | | | | | | | | | | | Number of | | Market or |
| | | | | | | | | | | Plan | | | | | | | | | | Number | | Market | | Unearned | | Payout Value |
| | | | | | | | | | | Awards: | | | | | | | | | | of Shares | | Value of | | Shares, | | of Unearned |
| | | Number of | | Number of | | Number of | | | | | | | | | | or Units | | Shares or | | Units or | | Shares, |
| | | Securities | | Securities | | Securities | | | | | | | | | | of Stock | | Units of | | Other | | Units |
| | | Underlying | | Underlying | | Underlying | | | | | | | | | | That | | Stock | | Rights | | or Other |
| | | Unexercised | | Unexercised | | Unexercised | | Option | | | | | | Have | | That | | That | | Rights That |
| | | Options | | Options | | Unearned | | Exercise | | Option | | Not | | Have Not | | Have Not | | Have Not |
| | | (#) | | (#) | | Options | | Price | | Expiration | | Vested | | Vested | | Vested | | Vested |
| Name | | Exercisable | | Unexercisable | | (#) | | ($) | | Date | | (#) | | ($)(1) | | (#)(9) | | ($)(1) |
| David J. Aldrich | | | 75,000 | | | | 0 | | | | 0 | | | $ | 44.688 | | | | 4/26/10 | | | | 210,000 | (2) | | $ | 2,499,000 | | | | 300,000 | | | $ | 3,570,000 | |
| President and Chief | | | 75,000 | | | | 0 | | | | 0 | | | $ | 28.938 | | | | 10/6/10 | | | | | | | | | | | | | | | | | |
| Executive Officer | | | 160,000 | | | | 0 | | | | 0 | | | $ | 13.563 | | | | 4/4/11 | | | | | | | | | | | | | | | | | |
| | | | 175,000 | | | | 0 | | | | 0 | | | $ | 12.650 | | | | 4/25/12 | | | | | | | | | | | | | | | | | |
| | | | 500,000 | | | | 0 | | | | 0 | | | $ | 9.180 | | | | 1/7/14 | | | | | | | | | | | | | | | | | |
| | | | 274,254 | | | | 0 | (3) | | | 0 | | | $ | 8.930 | | | | 11/10/14 | | | | | | | | | | | | | | | | | |
| | | | 187,500 | | | | 62,500 | (4) | | | 0 | | | $ | 4.990 | | | | 11/8/12 | | | | | | | | | | | | | | | | | |
| | | | 125,000 | | | | 125,000 | (5) | | | 0 | | | $ | 6.730 | | | | 11/7/13 | | | | | | | | | | | | | | | | | |
| | | | 45,000 | | | | 135,000 | (6) | | | 0 | | | $ | 9.330 | | | | 11/6/14 | | | | | | | | | | | | | | | | | |
| | | | 0 | | | | 300,000 | (10) | | | | | | $ | 7.180 | | | | 11/4/15 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Donald W. Palette | | | 12,000 | | | | 100,000 | (7) | | | 0 | | | $ | 7.500 | | | | 8/20/14 | | | | 36,666 | (2) | | $ | 436,325 | | | | 64,500 | | | $ | 767,550 | |
| Vice President and | | | 5,000 | | | | 15,000 | (6) | | | 0 | | | $ | 9.330 | | | | 11/6/14 | | | | | | | | | | | | | | | | | |
| Chief Financial Officer | | | 0 | | | | 90,000 | (10) | | | 0 | | | $ | 7.180 | | | | 11/4/15 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gregory L. Waters | | | 100,000 | | | | 0 | | | | 0 | | | $ | 9.180 | | | | 1/7/14 | | | | 36,666 | (2) | | $ | 436,325 | | | | 72,000 | | | $ | 856,800 | |
| Executive Vice President | | | 64,530 | | | | 0 | (3) | | | 0 | | | $ | 8.930 | | | | 11/10/14 | | | | | | | | | | | | | | | | | |
| and General Manager, | | | 75,000 | | | | 25,000 | (4) | | | 0 | | | $ | 4.990 | | | | 11/8/12 | | | | | | | | | | | | | | | | | |
| Front-End Solutions | | | 37,500 | | | | 37,500 | (5) | | | 0 | | | $ | 6.730 | | | | 11/7/13 | | | | | | | | | | | | | | | | | |
| | | | 12,500 | | | | 37,500 | (6) | | | 0 | | | $ | 9.330 | | | | 11/6/14 | | | | | | | | | | | | | | | | | |
| | | | 0 | | | | 100,000 | (10) | | | 0 | | | $ | 7.180 | | | | 11/4/15 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Liam K. Griffin | | | 100,000 | | | | 0 | | | | 0 | | | $ | 24.780 | | | | 9/7/11 | | | | 66,666 | (2) | | $ | 793,325 | | | | 102,000 | | | $ | 1,213,800 | |
| Senior Vice President, | | | 50,000 | | | | 0 | | | | 0 | | | $ | 12.650 | | | | 4/25/12 | | | | | | | | | | | | | | | | | |
| Sales and Marketing | | | 110,000 | | | | 0 | | | | 0 | | | $ | 9.180 | | | | 1/7/14 | | | | | | | | | | | | | | | | | |
| | | | 64,530 | | | | 0 | (3) | | | 0 | | | $ | 8.930 | | | | 11/10/14 | | | | | | | | | | | | | | | | | |
| | | | 0 | | | | 17,500 | (4) | | | 0 | | | $ | 4.990 | | | | 11/8/12 | | | | | | | | | | | | | | | | | |
| | | | 37,500 | | | | 37,500 | (5) | | | 0 | | | $ | 6.730 | | | | 11/7/13 | | | | | | | | | | | | | | | | | |
| | | | 12,500 | | | | 37,500 | (6) | | | 0 | | | $ | 9.330 | | | | 11/6/14 | | | | | | | | | | | | | | | | | |
| | | | 0 | | | | 100,000 | (10) | | | 0 | | | $ | 7.180 | | | | 11/4/15 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Bruce J. Freyman | | | 150,000 | | | | 0 | (8) | | | 0 | | | $ | 5.120 | | | | 5/2/15 | | | | 40,000 | (2) | | $ | 476,000 | | | | 72,000 | | | $ | 856,800 | |
| Vice President, | | | 30,000 | | | | 10,000 | (4) | | | 0 | | | $ | 4.990 | | | | 11/8/12 | | | | | | | | | | | | | | | | | |
| Worldwide Operations | | | 30,000 | | | | 30,000 | (5) | | | 0 | | | $ | 6.730 | | | | 11/7/13 | | | | | | | | | | | | | | | | | |
| | | | 11,250 | | | | 33,750 | (6) | | | 0 | | | $ | 9.330 | | | | 11/6/14 | | | | | | | | | | | | | | | | | |
| | | | 0 | | | | 90,000 | (10) | | | 0 | | | $ | 7.180 | | | | 11/4/15 | | | | | | | | | | | | | | | | | |
(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.
35
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 Taxes, 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
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) | | Assumes a price of $11.90 per share, the fair market value as of October 2, 2009.Does not include restricted cash balances |
14
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:
| | |
(2)• | | Other than Mr. Palette’s restricted stock grant on August 20, 2007, which was made as partFiscal year 2010 net income included a deferred tax expense of $38.5 million compared to a new hire grant package and vests 25% per year over four years, unvested restricted shares shown are comprised of (a) two-thirds (66%)$24.9 million deferred tax benefit included in 2009 net income due to the release of the November 6, 2007, grant and (b) 100% of the 2009 Replacement RSAs (as describedtax valuation allowance in footnote 5 of the “Grants of Plan-Based Awards Table”above). The restricted stock awards made on November 6, 2007, had both performance and service based vesting conditions. The performance condition allowed for accelerated vesting of an award as of the first anniversary, second anniversary and, if not previously accelerated, the third anniversary of the grant date. Specifically, if the Company’s stock performance met or exceeded the 60th percentile of its selected peer group for the years ended on each of the first three anniversaries of the grant date, then one-third of the award vests upon each anniversary (up to 100%). If the restricted stock recipient met the service condition but not the performance condition in years one, two, three and four, the restricted stock would have vested in three equal installments on the second, third and fourth anniversaries of the grant date. In November 2008, the first third (33%) of the November 6, 2007 grant vested as a result of a performance accelerator triggered as the Company exceeded the 60th percentile of its peers on the basis of stock performance. In November 2009, another third (33%) of such grant vested as a result of a performance accelerator triggered as the Company exceeded the 60th percentile of it peers. In addition, the last third (33%) of such grant vested in November 2009 as a result of the passage of time. |
|
(3) | | These options were granted on November 10, 2004, and vested at a rate of 25% perfiscal year until they became fully vested on November 10, 2008. |
|
(4) | | These options were granted on November 8, 2005, and vested at a rate of 25% per year until they became fully vested on November 8, 2009. |
| |
(5) | • | | These options were granted on November 7, 2006, and vest at a rate of 25% perDuring fiscal year until fully vested on November 7, 2010. |
|
(6) | | These options were granted on November 6, 2007, and vest at a rate of 25% per year until fully vested on November 6, 2011. |
|
(7) | | These options were granted on August 20, 2007, and vest at a rate of 25% per year until fully vested on August 20, 2011. |
|
(8) | | These options were granted on May 2, 2005, and vested at a rate of 25% per year until they became fully vested on May 2, 2009. |
|
(9) | | Reflects the FY09 PSAs and 2009 Replacement PSAs awarded to the Named Executive Officers on November 4, 2008, and June 10, 2009, respectively, both at the “target” level, and as described in footnotes 2 and 5 of the “Grants of Plan-Based Awards Table”above, respectively. With respect to the FY09 PSAs,2010, the Company achieved 95.8%invested in working capital as result of the “maximum” non-GAAP operating marginhigher business activity. Compared to fiscal year 2009, accounts receivable, inventory and accordingly, on November 4, 2009, the Company issued one-third of each executive’s “earned” shares,accounts payable increased by $60.9 million, $38.8 million and held back the other two-thirds of such “earned” shares for possible issuance on the Second and/or Third Issuance Dates provided the executive meets the continued employment condition. |
|
(10) | | These options were granted on November 4, 2008, and vest at a rate of 25% per year until fully vested on November 4, 2012.$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:
1537
| • | | 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. |
Option ExercisesLiquidity:
Cash and Stock Vested Tablecash 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.
The following table summarizesOur invested cash balances primarily consist of money market funds and repurchase agreements where the Named Executive Officers’ option exercisesunderlying 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 stock award vesting duringhighly 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 2009.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 $0.9 million in other comprehensive income and the auction rate security balance was reclassified to non-current other assets. We continue to monitor the liquidity and accounting classification of this security. If in a future period we determine that the impairment is other than temporary, we will impair the security to its fair value and charge the loss to earnings.
| | | | | | | | | | | | | | | | | |
| | | Option Awards | | | Stock Awards | |
| | | Number of | | | | | | | Number of | | | | |
| | | Shares | | | Value | | | Shares | | | Value | |
| | | Acquired on | | | Realized | | | Acquired on | | | Realized | |
| | | Exercise | | | on Exercise | | | Vesting | | | on Vesting | |
| Name | | (#) | | | ($) | | | (#)(1) | | | ($)(2) | |
| David J. Aldrich | | | 225,000 | | | $ | 1,531,130 | | | | 148,843 | | | $ | 992,375 | |
| President and Chief Executive Officer | | | | | | | | | | | | | | | | |
| Donald W. Palette | | | 88,000 | | | $ | 586,714 | | | | 9,584 | | | $ | 93,342 | |
| Vice President and Chief Financial Officer | | | | | | | | | | | | | | | | |
| Gregory L. Waters | | | 225,000 | | | $ | 965,724 | | | | 37,767 | | | $ | 250,946 | |
| Executive Vice President and General Manager, Front-End Solutions | | | | | | | | | | | | | | | | |
| Liam K. Griffin | | | 102,500 | | | $ | 919,040 | | | | 37,767 | | | $ | 250,946 | |
| Senior Vice President, Sales and Marketing | | | | | | | | | | | | | | | | |
| Bruce J. Freyman | | | 100,000 | | | $ | 826,230 | | | | 27,500 | | | $ | 174,150 | |
| Vice President, Worldwide Operations | | | | | | | | | | | | | | | | |
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:
38
| | | | | | | | | | | | | | | | | | | | | |
| | | 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) | | Includes restricted stock that vested on November 6, 2008,Short-Term Debt obligation represents the cancellation and November 7, 2008, for Mr. Aldrich (30,000 shares and 100,000 shares), Mr. Waters (8,334 shares and 25,000 shares), Mr. Griffin (8,334 shares and 25,000 shares) and Mr. Freyman (7,500 shares and 20,000 shares) and restricted stock that vested on May 11, 2009 for Mr. Aldrich (18,843), Mr. Waters (4,433), and Mr. Griffin (4,433). For Mr. Palette,repayment of the table includes restricted stock that vested on November 6, 2008 (3,334 shares) and August 20, 2009 (6,250 shares).Credit Facility which will occur during the first quarter of fiscal year 2011. |
| |
| (2) | | Represents the aggregate fair market valueOther Commitments consist of the stock awards on the applicable vesting dates. |
Nonqualified Deferred Compensation Table
In prior fiscal years, certain executive officers were provided an opportunity to participate in the Company’s Executive Compensation Plan, an unfunded, non-qualified deferred compensation plan, under which participants were allowed to defer a portion of their compensation, as a result of deferred compensation legislation under Section 409A of the IRC. Effective December 31, 2005, the Company no longer permits employees to make contributions to the Executive Compensation Plan. Mr. Aldrich is the only Named Executive Officer that participated in the Executive Compensation Plan. Mr. Aldrich’s contributions are credited with earnings/losses based upon the performance of the investments he selects. Upon retirement, as defined, or other separation from service, or, if so elected, upon any earlier change in control of the Company, a participant is entitled to a payment of his or her vested account balance, either in a single lump sum or in annual installments, as elected in advance by the participant. Although the Company had discretion to make additional contributions to the accounts of participants while it was active, it never made any company contributions.
The following table summarizes the aggregate earnings in the fiscal year 2009 for Mr. Aldrich under the Executive Compensation Plan.
| | | | | | | | | | | | | | | | | | | | | |
| | | Executive | | | Registrant | | | Aggregate | | | | | | | Aggregate | |
| | | Contributions | | | Contributions | | | Earnings | | | Aggregate | | | Balance at | |
| | | in Last | | | in Last | | | in Last | | | Withdrawals / | | | Last Fiscal | |
| | | Fiscal Year | | | Fiscal Year | | | Fiscal Year | | | Distributions | | | Year-End | |
| Name | | ($) | | | ($) | | | ($) | | | ($) | | | ($)(1) | |
| David J. Aldrich, | | $ | 0 | | | $ | 0 | | | $ | 1,302 | | | $ | 0 | | | $ | 622,469 | |
| President and Chief Executive Officer | | | | | | | | | | | | | | | | | | | | |
| | |
(1) | | Balance as of October 2, 2009. This amount is comprised of Mr. Aldrich’s individual contributionscontractual license and the return/(loss) generated from the investment of those contributions. |
16
Potential Payments Upon Termination or Change of Control
Chief Executive Officer
In January 2008, the Company entered into an amended and restated Change of Control / Severance Agreement with Mr. Aldrich (the “Aldrich Agreement”). The Aldrich Agreement sets out severance benefits that become payable if, within two (2) years after a change of control, Mr. Aldrich either (i) is involuntarily terminated without cause or (ii) voluntarily terminates his employment. The severance benefits provided to Mr. Aldrich in such circumstances will consist of the following: (i) a payment equal to two and one-half (21/2) times the sum of (A) his annual base salary immediately prior to the change of control and (B) his annual short-term incentive award (calculated as the greater of (x) the average short-term incentive awards received for the three years prior to the year in which the change of control occurs or (y) the target annual short incentive award for the year in which the change of control occurs); (ii) all then outstanding stock options will remain exercisable for a period of thirty (30) months after the termination date (but not beyond the expiration of their respective maximum terms); and (iii) continued medical benefits for a period of eighteen (18) months after the termination date. The foregoingroyalty payments, are subject to a gross-up payment for any applicable excise taxes incurred under Section 4999 of the IRC. Additionally, in the event of a change of control, Mr. Aldrich’s Agreement provides for full acceleration of the vesting of all then outstanding stock options and restricted stock awards and partial acceleration of any outstanding performance share awards.
The Aldrich Agreement also sets out severance benefits outside of a change of control that become payable if, while employed by the Company, Mr. Aldrich either (i) is involuntarily terminated without cause or (ii) terminates his employment for good reason. The severance benefits provided to Mr. Aldrich under either of these circumstances will consist of the following: (i) a payment equal to two (2) times the sum of (A) his annual base salary immediately prior to such termination and (B) his annual short-term incentive award (calculated as the greater of (x) the average short-term incentive awards received for the three years prior to the year in which the termination occurs or (y) the target annual short-term incentive award for the year in which the termination occurs); and (ii) full acceleration of the vesting of all outstanding stock options and restricted stock awards, with such stock options to remain exercisable for a period of two (2) years after the termination date (but not beyond the expiration of their respective maximum terms), and, with respect to any performance share awards outstanding, shares subject to such award will be deemed earned to the extent any such shares would have been earned pursuant to the terms of such award as of the day prior to the date of such termination (without regard to any continued service requirement) (collectively, “Severance Benefits”). In the event of Mr. Aldrich’s death or disability, all outstanding stock options will vest in full and remain exercisable for a period of twelve (12) months following the termination of employment (but not beyond the expiration of their respective maximum terms).
In addition, the Aldrich Agreement provides that if Mr. Aldrich voluntarily terminates his employment after January 1, 2010, subject to certain notice requirements and his availability to continue to serve on the Board of Directors of the Company and as chairman of a committee thereof for up to two (2) years, he shall be entitled to the Severance Benefits; provided however, that all Company stock options, stock appreciation rights, restricted stock, and any other equity-based awards, which were both (a) granted to him in the eighteen (18) month period prior to such termination and (b) scheduled to vest more than two (2) years from the date of such termination, will be forfeited.
The Aldrich Agreement is intended to be compliant with Section 409A of the IRC and has a three (3) year term. Additionally, the Aldrich Agreement requires Mr. Aldrich to sign a release of claims in favor of the Company before he is eligible to receive any benefits under the agreement, and contains non-compete and non-solicitation provisions applicable to him while he is employed by the Company and for a period of twenty-four (24) months following the termination of his employment.
17
Other Named Executive Officers
In January 2008, the Company entered into Change of Control / Severance Agreements with each of Bruce J. Freyman, Liam K. Griffin, Donald W. Palette and Gregory L. Waters (each a “COC Agreement”). Each COC Agreement sets out severance benefits that become payable if, within twelve (12) months after a change of control, the executive either (i) is involuntarily terminated without cause or (ii) terminates his employment for good reason. The severance benefits provided to the executive in such circumstances will consist of the following: (i) a payment equal to two (2) times the sum of (A) his annual base salary immediately prior to the change of control and (B) his annual short-term incentive award (calculated as the greater of (x) the average short-term incentive awards received for the three years prior to the year in which the change of control occurs or (y) the target annual short-term incentive award for the year in which the change of control occurs); (ii) all then outstanding stock options will remain exercisable for a period of eighteen (18) months after the termination date (but not beyond the expiration of their respective maximum terms); and (iii) continued medical benefits for eighteen (18) months after the termination date. The foregoing payments are subject to a gross-up payment limited to a maximum of $500,000 for any applicable excise taxes incurred under Section 4999 of the IRC. Additionally, in the event of a change of control, each COC Agreement provides for full acceleration of the vesting of all then outstanding stock options and restricted stock awards and partial acceleration of any outstanding performance share awards. In the case of Mr. Freyman’s COC Agreement, the severance payment due will be paid out in bi-weekly installments over a twelve (12) month period.
Each COC Agreement also sets out severance benefits outside a change of control that become payable if, while employed by the Company, the executive is involuntarily terminated without cause. The severance benefits provided to the executive under such circumstance will consist of the following: (i) a payment equal to the sum of (x) his annual base salary and (y) any short-term incentive award then due; and (ii) all then vested outstanding stock options will remain exercisable for a period of twelve (12) months after the termination date (but not beyond the expiration of their respective maximum terms). In the case of Mr. Freyman’s COC Agreement, any severance payment due will be paid out in bi-weekly installments over a 12 month period. In the event of the executive’s death or disability, all outstanding stock options will vest and remain exercisable for a period of twelve (12) months following the termination of employment (but not beyond the expiration of their respective maximum terms).
Each COC Agreement is intended to be compliant with Section 409A of the IRC and has an initial two (2) year term, which is thereafter renewable on an annual basis for up to five (5) additional years upon mutual agreement of the Company and the executive. Additionally, each COC Agreement requires that the executive sign a release of claims in favor of the Company before he is eligible to receive any benefits under the agreement, and, except for Mr. Freyman’s COC Agreement, each contains non-compete and non-solicitation provisions applicable to the executive while he is employed by the Company and for a period of twenty-four (24) months following the termination of his employment. Mr. Freyman’s COC Agreement contains non-solicitation provisions applicable to him while he is employed by the Company and for a period of twelve (12) months following the termination of his employment.
The terms “change in control,” “cause,” and “good reason” are each defined in the COC Agreements. Change in control means, in summary: (i) the acquisition by a person or a group of 40% or more of the outstanding stock of Skyworks; (ii) a change, without Board of Directors approval, of a majority of the Board of Directors of Skyworks; (iii) the acquisition of Skyworks by means of a reorganization, merger, consolidation or asset sale; or (iv) the approval of a liquidation or dissolution of Skyworks. Cause means, in summary: (i) deliberate dishonesty that is significantly detrimental to the best interests of Skyworks; (ii) conduct constituting an act of moral turpitude; (iii) willful disloyalty or insubordination; or (iv) incompetent performance or substantial or continuing inattention to or neglect of duties. Good reason means, in summary: (i) a material diminution in base compensation or authority, duties or responsibility, (ii) a material change in office location, or (iii) any action or inaction constituting a material breach by Skyworks of the terms of the agreement.
18
The following table summarizes payments and benefits that would be made to the Named Executive Officers under their change of control/severance agreements with the Company in the following circumstances as of October 2, 2009:
| • | | termination without cause or for good reason in the absence of a change of control; |
|
| • | | termination without cause or for good reason after a change of control; |
|
| • | | after a change of control not involving a termination of employment for good reason or for cause; and |
|
| • | | in the event of termination of employment because of death or disability. |
19
The following table does not reflect any equity awards made after October 2, 2009.
| | | | | | | | | | | | | | | | | | | |
| | | | | Before | | | After | | | | | | | |
| | | | | Change in | | | Change in | | | | | | | |
| | | | | Control: | | | Control: | | | | | | | |
| | | | | Termination | | | Termination | | | | | | | |
| | | | | w/o Cause | | | w/o Cause | | | | | | | |
| | | | | or for | | | or for | | | Upon Change | | | Death/ | |
| | | | | Good Reason | | | Good Reason | | | in Control | | | Disability | |
| Name | | Benefit | | (1) | | | (1) | | | (1) | | | (1) | |
| David J. Aldrich | | Salary and Short-Term Incentive(4) | | $ | 2,396,154 | | | $ | 2,995,192 | | | $ | 0 | | | $ | 0 | |
| President and Chief | | Accelerated Options | | $ | 2,841,075 | | | $ | 2,841,075 | | | $ | 2,841,075 | | | $ | 2,841,075 | |
| Executive Officer(2) | | Accelerated Restricted Stock | | $ | 2,499,000 | | | $ | 2,499,000 | | | $ | 2,499,000 | | | $ | 2,499,000 | |
| | | Accelerated Performance Shares | | $ | 0 | | | $ | 3,570,000 | | | $ | 3,570,000 | | | $ | 0 | |
| | | Medical | | $ | 0 | | | $ | 20,590 | | | $ | 0 | | | $ | 0 | |
| | | Excise Tax Gross-Up(3) | | $ | 0 | | | $ | 2,085,024 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | |
| | | TOTAL | | $ | 7,736,229 | | | $ | 14,010,881 | | | $ | 8,910,075 | | | $ | 5,340,075 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Donald W. Palette | | Salary and Short-Term Incentive(4) | | $ | 525,692 | | | $ | 1,051,385 | | | $ | 0 | | | $ | 0 | |
| Vice President and | | Accelerated Options | | $ | 0 | | | $ | 903,350 | | | $ | 903,350 | | | $ | 903,350 | |
| Chief Financial Officer | | Accelerated Restricted Stock | | $ | 0 | | | $ | 436,325 | | | $ | 436,325 | | | $ | 436,325 | |
| | | Accelerated Performance Shares | | $ | 0 | | | $ | 767,550 | | | $ | 767,550 | | | $ | 0 | |
| | | Medical | | $ | 0 | | | $ | 23,219 | | | $ | 0 | | | $ | 0 | |
| | | Excise Tax Gross-Up(3) | | $ | 0 | | | $ | 500,000 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | |
| | | TOTAL | | $ | 525,692 | | | $ | 3,681,829 | | | $ | 2,107,225 | | | $ | 1,339,675 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | �� | | | | |
| Gregory L. Waters | | Salary and Short-Term Incentive(4) | | $ | 606,846 | | | $ | 1,213,692 | | | $ | 0 | | | $ | 0 | |
| Executive Vice President | | Accelerated Options | | $ | 0 | | | $ | 935,000 | | | $ | 935,000 | | | $ | 935,000 | |
| and General Manager, | | Accelerated Restricted Stock | | $ | 0 | | | $ | 436,325 | | | $ | 436,325 | | | $ | 436,325 | |
| Front-End Solutions | | Accelerated Performance Shares | | $ | 0 | | | $ | 856,800 | | | $ | 856,800 | | | $ | 0 | |
| | | Medical | | $ | 0 | | | $ | 23,219 | | | $ | 0 | | | $ | 0 | |
| | | Excise Tax Gross-Up(3) | | $ | 0 | | | $ | 500,000 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | |
| | | TOTAL | | $ | 606,846 | | | $ | 3,965,037 | | | $ | 2,228,125 | | | $ | 1,371,325 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Liam K. Griffin | | Salary and Short-Term Incentive(4) | | $ | 565,323 | | | $ | 1,130,646 | | | $ | 0 | | | $ | 0 | |
| Senior Vice President, | | Accelerated Options | | $ | 0 | | | $ | 883,175 | | | $ | 883,175 | | | $ | 883,175 | |
| Sales and Marketing | | Accelerated Restricted Stock | | $ | 0 | | | $ | 793,325 | | | $ | 793,325 | | | $ | 793,325 | |
| | | Accelerated Performance Shares | | $ | 0 | | | $ | 1,213,800 | | | $ | 1,213,800 | | | $ | 0 | |
| | | Medical | | $ | 0 | | | $ | 23,219 | | | $ | 0 | | | $ | 0 | |
| | | Excise Tax Gross-Up(3) | | $ | 0 | | | $ | 500,000 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | |
| | | TOTAL | | $ | 565,323 | | | $ | 4,544,166 | | | $ | 2,890,300 | | | $ | 1,676,500 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Bruce J. Freyman | | Salary and Short-Term Incentive(4) | | $ | 562,123 | | | $ | 1,124,246 | | | $ | 0 | | | $ | 0 | |
| Vice President, | | Accelerated Options | | $ | 0 | | | $ | 735,738 | | | $ | 735,738 | | | $ | 735,738 | |
| Worldwide Operations | | Accelerated Restricted Stock | | $ | 0 | | | $ | 476,000 | | | $ | 476,000 | | | $ | 476,000 | |
| | | Accelerated Performance Shares | | $ | 0 | | | $ | 856,800 | | | $ | 856,800 | | | $ | 0 | |
| | | Medical | | $ | 0 | | | $ | 20,590 | | | $ | 0 | | | $ | 0 | |
| | | Excise Tax Gross-Up(3) | | $ | 0 | | | $ | 500,000 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | |
| | | TOTAL | | $ | 562,123 | | | $ | 3,713,374 | | | $ | 2,568,538 | | | $ | 1,211,738 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | |
(1) | | Assumes a price of $11.90 per share, based on the closing sale price of the Company’s common stock on the NASDAQ Global Select Market on October 2, 2009. Excludes Mr. Aldrich’s contributions to deferred compensation plan as there have been no employer contributions. |
|
(2) | | Good reason in change in control circumstances for Mr. Aldrich includes voluntarily terminating employment. other purchase obligations. |
| |
| (3) | | Other than Mr. Aldrich,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 Named Executive Officer’s excise tax gross-up is capped at $500,000. |
|
(4) | | Assumes an Incentive Plan payment atuncertain nature of the target level, and does not include the value of accrued vacation/paid time off to be paid upon termination as required by law.commitment. |
20
Director CompensationCRITICAL ACCOUNTING ESTIMATES
Directors whoThe discussion and analysis of our financial condition and results of operations are not employeesbased 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 Companyreported 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 paid, in quarterly installments, an annual retainer of $50,000. Additional annual retainers are paid, in quarterly installments,both most important to the Chairmanportrayal 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 Board ($17,500);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 Chairmanjudgments and estimates underlying all of the Audit Committee ($15,000); the Chairman of the Compensation Committee ($10,000);our accounting policies. These estimates and the Chairmanunderlying 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 Nominatingcurrent economic environment, which we believe to be reasonable under the circumstances. We adjust such estimates and Governance Committee ($5,000). Additional annual retainersassumptions 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 also paid,discussed in quarterly installments, to directors who servedetail in Note 1 in Item 8 In this Annual Report on committees in roles other than as Chairman as follows: Audit Committee ($5,000); Compensation Committee ($3,000); and Nominating and Corporate Governance Committee ($2,000). In addition, the Compensation Committee retains discretion to recommend to the full Board of Directors that additional cash payments be made to a non-employee director(s) for extraordinary service during a fiscal year.
In addition, non-employee directors receiveForm 10-K. We believe the following stock-based compensation: each non-employee director, when first elected to serve as a director, automatically receives a nonqualified stock option to purchase 25,000 sharescritical accounting policies affect the more significant judgments and estimates used in the preparation of common stock, at an exercise price equal to the fair market value of the common stock on the date of grant, and a restricted stock award for 12,500 shares of common stock. In addition, following each annual meeting of stockholders, each non-employee director who is continuing in office or re-elected receives a restricted stock award for 12,500 shares. Unless otherwise determined by the Board of Directors, the nonqualified stock options awarded under the 2008 Director’s Plan will vest in four (4) equal annual installments and the restricted stock awards under the 2008 Director’s Plan will vest in three (3) equal annual installments. In the event of a change of control of the Company, the outstanding options and restricted stock under the 2008 Director’s Plan shall become fully exercisable and deemed fully vested, respectively.our consolidated financial statements.
No director who is also an employee receives separate compensation for services rendered as a director. David J. Aldrich is currently the only director who is also an employee of the Company.
Director Compensation Table
The following table summarizes the compensation paid to the Company’s non-employee directors for fiscal year 2009.
| | | | | | | | | | | | | | | | | |
| | | Fees Earned | | | | | | |
| | | or | | Stock | | Option | | |
| | | Paid in Cash | | Awards | | Awards | | Total |
| Name | | ($) (3) | | ($)(1)(2) | | ($)(1)(2) | | ($) |
| David J. McLachlan, Chairman | | $ | 74,500 | | | $ | 42,402 | | | $ | 35,047 | | | $ | 151,949 | |
| Timothy R. Furey | | $ | 62,000 | | | $ | 42,402 | | | $ | 35,047 | | | $ | 139,449 | |
| Kevin L. Beebe | | $ | 61,750 | | | $ | 42,402 | | | $ | 35,047 | | | $ | 139,199 | |
| David P. McGlade | | $ | 58,750 | | | $ | 42,402 | | | $ | 51,147 | | | $ | 152,299 | |
| Robert A. Schriesheim | | $ | 68,000 | | | $ | 42,402 | | | $ | 58,864 | | | $ | 169,266 | |
| Balakrishnan S. Iyer | | $ | 57,500 | | | $ | 42,402 | | | $ | 35,047 | | | $ | 134,949 | |
| Moiz M. Beguwala | | $ | 54,500 | | | $ | 42,402 | | | $ | 35,047 | | | $ | 131,949 | |
| Thomas C. Leonard | | $ | 50,000 | | | $ | 42,402 | | | $ | 35,047 | | | $ | 127,449 | |
| | |
(1) | | Represents the dollar amount recognized for financial statement reporting purposes for the year ended October 2, 2009 in accordance with ASC 718 and, accordingly, includes amounts from options granted prior to fiscal year 2009. For a description of the assumptions used in calculating the fair value of equity awards under ASC 718, see Note 11 of the Company’s financial statements included in the Original Filing. The non-employee members of our board of |
21
| | |
| | directors who held such position on October 2, 2009, held the following aggregate number of unexercised options as of such date: |
| | | | | |
| | | Number of | | Effect if Actual Results Differ |
| Description | | Judgments and Uncertainties | | From Assumptions |
| | | Securities Underlying |
Name | | Unexercised Options |
David J. McLachlan, Chairman | | | 180,000 | |
Timothy R. Furey | | | 135,000 | |
Kevin L. Beebe | | | 105,000 | |
David P. McGlade | | | 90,000 | |
Robert A. Schriesheim | | | 60,000 | |
Balakrishnan S. Iyer | | | 309,435 | |
Moiz M. Beguwala | | | 216,840 | |
Thomas C. Leonard | | | 150,000 | |
(2) | | The following table presents the fair value of each grant of restricted stock in fiscal 2009 to non-employee members of our board of directors, computedRevenue Recognition
We recognize revenue in accordance with ASC 718: |
605Revenue Recognitionnet 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.| | | | | | | | | | | | | |
| | | | | | | Number | | Grant Date |
| | | Grant | | of Securities | | Fair Value |
| Name | | Date | | Awarded | | of Shares(4) |
| David J. McLachlan, Chairman | | | 5/12/09 | | | | 12,500 | | | $ | 105,875 | |
| Timothy R. Furey | | | 5/12/09 | | | | 12,500 | | | $ | 105,875 | |
| Kevin L. Beebe | | | 5/12/09 | | | | 12,500 | | | $ | 105,875 | |
| David P. McGlade | | | 5/12/09 | | | | 12,500 | | | $ | 105,875 | |
| Robert A. Schriesheim | | | 5/12/09 | | | | 12,500 | | | $ | 105,875 | |
| Balakrishnan S. Iyer | | | 5/12/09 | | | | 12,500 | | | $ | 105,875 | |
| Moiz M. Beguwala | | | 5/12/09 | | | | 12,500 | | | $ | 105,875 | |
| Thomas C. Leonard | | | 5/12/09 | | | | 12,500 | | | $ | 105,875 | |
(3) | | Director meeting fees were not prorated
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 committee assignment changes that became effective May 12, 2009 (i.e., when Mr. Iyer replaced Mr. Beebe as Chairmanproduct returns, price protection and stock rotation. Our estimates of the Nominatingamount and Corporate Governance Committee, and Mr. Beguwala replaced Mr. McGlade as a membertiming of the Audit Committee, each director received quarterly fees as if they had held both positions throughout the applicable quarter). |
|
(4)reserves is based primarily on historical experience and specific contractual arrangements. | | Based on
We have not made any material changes in our accounting methodology used to record revenue reserves during the fair market value of $8.47 per share of common stock on May 12, 2009.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. |
39
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors currently comprises, and during fiscal year 2009 was comprised of, Messrs. Beebe, Furey (Chairman), McGlade and Schriesheim. No member of this committee was at any time during the past fiscal year an officer or employee of the Company, was formerly an officer of the Company or any of its subsidiaries, or had any employment relationship with the Company or any of its subsidiaries. No executive officer of Skyworks has served as a director or member of the compensation committee (or other committee serving an equivalent function) of any other entity, one of whose executive officers served as a director of or member of the Compensation Committee of Skyworks.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis included herein with management, and based on the review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Form 10-K/A.
| | | | |
| | | The Compensation Committee | | Effect if Actual Results Differ |
| Description | | Judgments and Uncertainties | | From Assumptions |
| | | Kevin L. Beebe | | |
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. |
| | | Timothy R. Furey, Chairman | | |
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. |
| | | David P. McGlade | | |
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
| | | | |
| | | Robert A. Schriesheim | | 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. |
2241
| | | | |
| | | | 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
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
| | |
ITEM 12. 8. | | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERSFINANCIAL STATEMENTS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.SUPPLEMENTARY DATA. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following consolidated financial statements of the Company for the fiscal year ended October 1, 2010 are included herewith:
To | | | | |
|
| | 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 |
44
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
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 knowledge,internal control over financial reporting based on our audits.
We conducted our audits in accordance with the following table sets forth the beneficial ownershipstandards of the Company’s common stock asPublic 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 January 15, 2010, by the following individuals or entities: (i) each person who beneficially owns 5% or morematerial misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the outstanding sharesconsolidated 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 Company’s common stockassets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of January 15, 2010; (ii)financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Named Executive Officers (as defined herein under the heading “Compensation Tables for Named Executive Officers”); (iii) each director and nominee for director; and (iv) all current executive officerscompany are being made only in accordance with authorizations of management and directors of the Company, as a group.
Beneficial ownership is determined in accordance with the rulescompany; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the SEC, iscompany’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not necessarily indicativeprevent or detect misstatements. Also, projections of beneficial ownership for any other purpose, and does not constitute an admission that the named stockholder is a direct or indirect beneficial ownerevaluation of those shares. As of January 15, 2010, there were 175,342,941 shares of Skyworks common stock issued and outstanding.
In computing the number of shares of Company common stock beneficially owned by a person and the percentage ownership of that person, shares of Company common stock thateffectiveness to future periods are subject to stock options or other rights held bythe risk that person that are currently exercisablecontrols may become inadequate because of changes in conditions, or that will become exercisable within sixty (60) daysthe degree of January 15,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 are deemed outstanding. These shares are not, however, deemed outstandingand October 2, 2009, and the results of their operations and their cash flows for each of the purposeyears in the three-year period ended October 1, 2010, in conformity with accounting principles generally accepted in the United States of computingAmerica. Also in our opinion, the percentage ownershiprelated 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 any other person.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 Optionsand retrospectively adjusted all periods presented in the consolidated financial statements referred to above.
| | | | | | | | | |
| | | Number of Shares | | Percent |
| Names and Addresses of Beneficial Owners(1) | | Beneficially Owned(2) | | of Class |
| Wellington Management Company, LLP | | | 17,993,820 | (3) | | | 10.3 | % |
| The Vanguard Group, Inc. | | | 10,682,689 | (4) | | | 6.1 | % |
| Dimensional Fund Advisors L.P. | | | 10,197,121 | (5) | | | 5.8 | % |
| Barclays Global Investors, N.A | | | 10,953,178 | (6) | | | 6.2 | % |
| Fidelity Management and Research Company | | | 8,586,594 | (7) | | | 4.9 | % |
| David J. Aldrich | | | 2,319,383 | (8) | | | 1.3 | % |
| Kevin L. Beebe | | | 118,750 | | | | (* | ) |
| Moiz M. Beguwala | | | 221,445 | | | | (* | ) |
| Bruce J. Freyman | | | 378,129 | (8) | | | (* | ) |
| Timothy R. Furey | | | 148,750 | | | | (* | ) |
| Liam K. Griffin | | | 520,120 | (8) | | | (* | ) |
| Balakrishnan S. Iyer | | | 329,267 | | | | (* | ) |
| Thomas C. Leonard | | | 195,307 | | | | (* | ) |
| David P. McGlade | | | 103,750 | | | | (* | ) |
| David J. McLachlan | | | 196,350 | | | | (* | ) |
| Donald W. Palette | | | 112,343 | (8) | | | (* | ) |
| Robert A. Schriesheim | | | 66,250 | | | | (* | ) |
| Gregory L. Waters | | | 530,717 | (8) | | | (* | ) |
| All current directors and executive officers as a group (15 persons) | | | 5,728,528 | (8) | | | 3.2 | % |
Boston, Massachusetts
November 29, 2010
45
SKYWORKS SOLUTIONS, INC.
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 | |
| | | | | | | | | | |
| | |
* | | Less than 1% |
|
| (1) | | Unless otherwise notedEffective 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 following notes, each person’s address isaccompanying footnotes for all prior periods presented have been adjusted to reflect the addressretrospective adoption of the Company’s principal executive offices at Skyworks Solutions, Inc., 20 Sylvan Road, Woburn, MA 01801 and stockholders have sole voting and sole investment power with respectthis new accounting principle. See Note 9 to the shares, except to the extent such power may be shared by a spouse or otherwise subject to applicable community property laws.Consolidated Financial Statements for further discussion. |
See the accompanying notes to the consolidated financial statements.
2346
SKYWORKS SOLUTIONS, INC.
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 | |
| | | | | | | |
| | |
(2)(1) | | IncludesEffective October 3, 2009, the numberCompany 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 shares of Company common stock subjectthis new accounting principle. See Note 9 to stock options held by that person that are currently exercisable or will become exercisable within sixty (60) days of January 15, 2010 (the “Current Options”), as follows: Mr. Aldrich — 1,772,754 shares under Current Options; Mr. Beebe — 93,750 shares under Current Options; Mr. Beguwala — 183,090 shares under Current Options; Mr. Freyman — 280,000 shares under Current Options; Mr. Furey — 123,750 shares under Current Options; Mr. Griffin — 374,530 shares under Current Options; Mr. Iyer — 298,185 shares under Current Options; Mr. Leonard — 138,750 shares under Current Options; Mr. McGlade — 78,750 shares under Current Options; Mr. McLachlan — 168,750 shares under Current Options; Mr. Palette — 44,500 shares under Current Options; Mr. Schriesheim — 41,250 shares under Current Options; Mr. Waters — 370,780 shares under Current Options; current directors and executive officers as a group (15 persons) — 4,277,660 shares under Current Options.the Consolidated Financial Statements for further discussion. |
See the accompanying notes to the consolidated financial statements.
47
SKYWORKS SOLUTIONS, INC.
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 | |
| | | | | | | | | | |
| | |
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(3)(1) | | ConsistsEffective 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 shares beneficially owned by Wellington Management Company, LLP, which has shared voting control as to 13,823,929 shares and shared dispositive power over all such shares. With respectthis new accounting principle. See Note 9 to the information relating to Wellington Management Company, LLP,Consolidated Financial Statements for further discussion. |
See the accompanying notes to the consolidated financial statements.
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SKYWORKS SOLUTIONS, INC.
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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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | 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 has relied on information supplied by Wellington Management Company, LLP on a Schedule 13G filedadopted ASC 470-20 —Debt, Debt with Conversions and Other Options(“ASC 470-20”) in accordance with GAAP. The Company’s financial statements and the SEC on January 11, 2010. The address and principal business officeaccompanying footnotes for all prior periods presented have been adjusted to reflect the retrospective adoption of Willington Management Company, LLP is 75 State Street, Boston, Massachusetts 02109. |
|
(4) | | Consists of shares beneficially owned by The Vanguard Group, Inc., which has sole voting control as to 189,911 shares and sole dispositive power over all such shares. With respectthis new accounting principle. See Note 9 to the information relating to The Vanguard Group, Inc., the Company has relied on information supplied by The Vanguard Group, Inc. on a Schedule 13G filed with the SEC on February 13, 2009. The address and principal business office of the Vanguard Group, Inc. is 100 Vanguard Blvd., Malvern, Pennsylvania 19355. |
|
(5) | | Consists of shares beneficially owned by Dimensional Fund Advisors L.P., an investment advisor registered under Section 203 of the Investment Advisors Act of 1940, in its capacity as investment advisor to certain investment companies, trusts and accounts. Dimensional Fund Advisors L.P. has sole voting power with respect to 9,828,608 shares and sole dispositive power over 10,197,121 shares. With respect to the information relating to Dimensional Fund Advisors L.P., the Company has relied on information supplied by Dimensional Fund Advisors L.P. on a Schedule 13G/A filed with the SEC on February 9, 2009. The address of Dimensional Fund Advisors L.P. is Palisades West, Building One, 6300 Bee Cave Road, Austin, Texas 78746. |
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(6) | | Consists of shares beneficially owned by Barclays Global Investors, NA. and a group of affiliated entities, which reported sole voting and dispositive power as of December 31, 2008, as follows: (i) Barclays Global Investors, N.A., sole voting power as to 3,150,393 shares and sole dispositive power as to 3,667,026 shares; (ii) Barclays Global Fund Advisors, sole voting power as to 5,287,026 shares and sole dispositive power as to 7,173,996 shares; and (iii) Barclays Global Investors, Ltd., sole voting power as to 5,880 shares and sole dispositive power as to 112,156 shares. With respect to the information relating to the affiliated Barclays Global Investors entities, the Company has relied on information supplied by Barclays Global Investors, NA on a Schedule 13G filed with the SEC on February 5, 2009. The address of the principal business office of Barclays Investors Global, NA is 400 Howard Street, San Francisco, California 94105. |
|
(7) | | Consists of shares beneficially owned by FMR LLC, an investment adviser registered under Section 203 of the Investment Advisers Act of 1940, as a result of its sole ownership of Fidelity Management & Research Company (“Fidelity Research”) and indirect ownership of Pyramis Global Advisors Trust Company (“PGATC”). Fidelity Research, an investment advisor registered under Section 203 of the Investment Advisors Act of 1940, is the beneficial owner of 8,201,904 shares as a result of acting as investment advisor to various investment companies registered under Section 8 of the Investment Company Act of 1940 that hold the shares. PGATC, a bank as defined in Section 3(a)(6) of the Securities Exchange Act of 1934, is the beneficial owner of 384,690 shares as a result of its serving as investment manager of institutional accounts owning such shares. Of the shares beneficially owned, FMR LLC. (through its ownership Fidelity Research and PGATC) has sole voting power with respect to 373,680 shares and sole disposition power with respect to 8,586,594 shares. The address of Fidelity Research and Fidelity Trust is 82 Devonshire Street, Boston, Massachusetts 02109. The address of PGATC is 900 Salem Street, Smithfield, Rhode Island, 02917. With respect to the information relating to the affiliated FMR LLC entities, the Company has relied on information supplied by FMR LLC on a Schedule 13G/A filed with the SEC on September 10, 2009. |
|
(8) | | Includes shares held in the Company’s 401(k) Savings and Investment Plan.Consolidated Financial Statements for further discussion. |
See the accompanying notes to the consolidated financial statements.
2450
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
51
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 718Compensation-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
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 350Intangibles-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.
53
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
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):
55
| | | | | | | | | | | | | |
| | | | | | | | | | | 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.
56
4. MARKETABLE SECURITIES
The Company accounts for its investment in accordance with ASC 320-Investments-Debt and Equity Compensation Plan InformationSecurities, 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 | |
| | | | | | | | | | | | | |
57
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 | |
| | | | | | | | | | | | | | | | | | | | | | | |
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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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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 | | | $ | — | |
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| (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 | |
| | | | |
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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 | |
| | | | | | | |
63
| | | | | | | | | |
| | | 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 maintainsbeing 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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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 (9) stock-basedequity compensation plans under which ourits equity securities arewere authorized for issuance to ourits 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 and |
| |
| | • | | the 2008 Director Long-Term Incentive Plan.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 stock-basedequity compensation plans was approved by ourthe Company’s stockholders. A description of the material features of each non-stockholder approved plan is provided below under the headings “1999 Employee Long-Term Incentive Plan,” “Washington Sub, Inc. 2002 Stock Option Plan” and “Non-Qualified Employee Stock Purchase Plan.”
The following table presents information about these plans as ofsummarizes 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, 2009.2009, and October 3, 2008, respectively.
| | | | | | | | | | | | | |
| | | | | | | | | | | Number of Securities |
| | | Number of Securities | | | | | | Remaining Available for |
| | | to be Issued Upon | | Weighted-Average | | Future Issuance Under |
| | | Exercise of | | Exercise Price of | | Equity Compensation |
| | | Outstanding | | Outstanding | | Plans (Excluding |
| | | Options, Warrants, | | Options, Warrants | | Securities Reflected in |
| Plan Category | | and Rights (a) | | and Rights (b) | | Column(a)) (c) |
| Equity compensation plans approved by security holders | | | 6,122,380 | (1) | | $ | 9.17 | | | | 14,971,285 | (3) |
| Equity compensation plans not approved by security holders | | | 12,228,500 | | | $ | 11.07 | | | | 0 | (4) |
| | | | | | | | | | | | | |
| Total | | | 18,350,880 | (2) | | $ | 10.44 | | | | 14,971,285 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | 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 | |
| | | | | | | | | | |
| | |
(1) | | Excludes 748,979 unvested restricted shares and 3,001,915 unvested shares under performance shares awards. |
|
(2) | | Includes 1,642,149 options held by non-employees (excluding non-employee directors). |
|
(3) | | No further grants will be made under the 1994 Non-Qualified Stock Option Plan. |
|
(4) | | No further grants will be made under the Washington Sub Inc. 2002 Stock Option Plan or the 1999 Employee Long-Term Incentive Plan. |
1999 Employee Long-Term Incentive Planand Director Stock Option Plans
The Company’s 1999 Employee Long-Term Incentive Plan (the “1999 Employee Plan”) provided for the grant of non-qualified stockCompany 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 ofare authorized for grant under the Company’s share-based compensation plans, with 15.3 million options outstanding. The number of common stockshares reserved for granting of future awards to employees other than officers and non-employee directors.directors under these plans was 9.3 million at October 1, 2010. The term of theseremaining unrecognized compensation expense on stock options may not exceed 10at 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. The 1999 Employee Plan contains provisions, which permit restrictions on vesting or transferability, as well as continued exercisability upon a participant’s termination of
2566
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
67
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 of options granted thereunder. The 1999 Employee Plan provides for full accelerationthrough 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 vestingplan, the executives would earn up to 675,000 additional shares based on a comparison of options granted thereunder upon a “change(x) the change in control” of the Company, as defined in the 1999 Employee Plan. The Board of Directors generally may amend, suspend or terminate the 1999 Employee Plan in whole or in part at any time; provided that any amendment which affects outstanding options be consented to by the holder of the options. As of April 26, 2009, no additional grants were issuable under the 1999 Employee Long-Term Incentive Plan.
Washington Sub, Inc. 2002 Stock Option Plan
The Washington Sub, Inc. 2002 Stock Option Plan (the “Washington Sub Plan”) became effective on June 25, 2002. At the time of the spin-off of Conexant’s wireless business and merger of such business into Alpha Industries, Inc., outstanding Conexant options granted pursuant to certain Conexant stock-based compensation plans were converted so that following the spin-off and merger each holder of those certain Conexant options held (i) options to purchase shares of ConexantSkyworks’ common stock and (ii) optionsprice to purchase shares of Skyworks common stock. The purpose of(y) the Washington Sub Plan is to provide a means for the Company to perform its obligations with respect to these converted stock options. The only participants in the Washington Sub Plan are those persons who, at the time of the spin-off and merger, held outstanding options granted pursuant to certain Conexant stock option plans. No further options to purchase shares of Skyworks common stock have been or will be granted under the Washington Sub Plan. The Washington Sub Plan contains a number of sub-plans, which contain terms and conditions that are applicable to certain portions of the options subject to the Washington Sub Plan, depending upon the Conexant stock option plan from which the Skyworks options granted under the Washington Sub Plan were derived. The outstanding options under the Washington Sub Plan generally have the same terms and conditions as the original Conexant options from which they are derived. Most of the sub-plans of the Washington Sub Plan contain provisions related to the effect of a participant’s termination of employment with the Company, if any, and/or with Conexant on options granted pursuant to such sub-plan. Several of the sub-plans under the Washington Sub Plan contain specific provisions related to a change in control of the Company.
Non-Qualified ESPP
The Company also maintains a Non-Qualified Employee Stock Purchase Plan to provide employees of the Company and participating subsidiaries with an opportunity to acquire a proprietary interest in the Company through the purchase, by means of payroll deductions, of shares of the Company’s common stock at a discount from the market 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 70th 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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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 purchase.grant. The Non-Qualified 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 is intended for use primarily by employees of the
The Company located outside the United States.maintains a domestic and an international employee stock purchase plan. Under the plan,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 six-month offering period.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Certain Relationshipsperiod (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 Related Transactions: Other than2008 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 agreements and other arrangements which are described above in Item 11 “Executive Compensation”, since October 4, 2008, there has not been a transaction or seriesexpense of related transactions to which the Company was or is a party involving an amount in excess of $120,000 and in which any director, executive officer, holder of more than five percent (5%) of any class of our voting securities, or any member of the immediate family of any of the foregoing persons, had or will have a direct or indirect material interest. In January 2008, the Board of Directors adopted a written related person transaction approval policy which sets forth the Company’s policies and procedures$1.9 million for the review, approval or ratificationfiscal 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 any transaction required to be reportedstock option transactions follows (shares in its filings with the SEC. The Company’s policy with regard to related person transactions is that all related person transactions between the Company and any related person (as defined in Item 404 of Regulation S-K) or their affiliates, in which the amount involved is equal to or greater then $120,000, be reviewed by the Company’s General Counsel and approved in advance by the Audit Committee. In addition, the Company’s Code of Business Conduct and Ethics requires that employees discuss with the Company’s Compliance Officer any significant relationship (or transaction) that might raise doubt about such employee’s ability to act in the best interest of the Company.thousands):
Director Independence: Each year, the Board of Directors reviews the relationships that each director has with the Company and with other parties. Only those directors who do not have any of the categorical relationships that preclude them from being independent within the meaning of applicable NASDAQ Rules and who the Board of Directors affirmatively determines have no relationships that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, are considered to be independent directors. The Board of Directors has reviewed a number of factors to evaluate the independence of each of its members. These factors include its members’ current and historic relationships with the Company and its competitors, suppliers and customers; their relationships with management and other directors; the relationships their current and former employers have with the Company; and the relationships between the| | | | | | | | | | | | | |
| | | | | | | 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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Company and other companies of which a member of the Company’s Board of Directors is a director or executive officer. After evaluating these factors, the Board of Directors has determined that a majority of the members of the Board of Directors, namely, Kevin L. Beebe, Moiz M. Beguwala, Timothy R. Furey, Balakrishnan S. Iyer, Thomas C. Leonard, David J. McLachlan, David P. McGlade and Robert A. Schriesheim, do not have any relationships that would interfere with the exercise of independent judgment in carrying out their responsibilities as a director and are independent directors of the Company within the meaning of applicable NASDAQ Rules.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
KPMG LLP provided audit services to the Company consisting of the annual audit of the Company’s 2009 consolidated financial statements contained in the Company’s Annual Report on Form 10-K and reviews of the financial statements contained in the Company’s Quarterly Reports on Form 10-Q for fiscal year 2009. The following table summarizes the fees of KPMG LLP billed to the Company for the last two fiscal years.
| | | | | | | | | | | | | | | | | |
| | | Fiscal Year | | | | | | | Fiscal Year | | | | |
| Fee Category | | 2009 | | | % of Total | | | 2008 | | | % of Total | |
| Audit Fees — Integrated Audit(1) | | $ | 1,215,000 | | | | 97 | % | | $ | 1,356,000 | | | | 97 | % |
| Audit-Related Fees(2) | | | 5,000 | | | | 0 | % | | | — | | | | 0 | % |
| Tax Fees(3) | | | 33,000 | | | | 3 | % | | | 45,000 | | | | 3 | % |
| All Other Fees(4) | | | 2,000 | | | | 0 | % | | | 2,000 | | | | 0 | % |
| | | | | | | | | | | | | |
| Total Fees | | $ | 1,255,000 | | | | 100 | % | | $ | 1,403,000 | | | | 100 | % |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | 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) | | Audit fees consist“Granted” under “Shares Available for Grant” at the maximum amount of feesshares per the share-based plans includes restricted and performance stock awards for the audit of our financial statements, the review of the interim financial statements included in our quarterly reports on Form 10-Q, and other professional services provided in connection with statutory and regulatory filings or engagements. Fiscal yearyears ended October 1, 2010, October 2, 2009, and fiscal yearOctober 3, 2008 audit fees also included fees for services incurred in connection with rendering an opinionof 1.6 million, 3.8 million, and 2.0 million shares, respectively. Pursuant to the plan under Section 404which they were awarded, these restricted and performance stock grants are deemed equivalent to the issue of the Sarbanes Oxley Act.2.5 million, 5.7 million, and 3.0 million stock options, respectively. |
| |
| (2) | | Audit related fees consist“Cancelled” under “Shares Available for Grant” at the maximum amount of feesshares 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 assuranceGrant” also include restricted and related services thatperformance 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 reasonablydeemed 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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| | | | | | | | | | | | | |
| | | 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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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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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
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 performanceplan 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 auditimpairment of long-lived assets, $2.0 million related to lease obligations, $2.3 million related to the impairment of technology licenses and the review of our financial statementsdesign software and which are not reported under “Audit Fees.” These services relate$1.5 million related to registration statement filings for financing activities and consultations concerning financial accounting and reporting standards.other charges. |
| |
| (3) | | Tax fees consistEffective 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 fees for tax compliance, tax advice and tax planning services. Tax compliance services, which relate to preparation or review of original and amended tax returns, claims for refunds and tax payment-planning services, accounted for $33,000 and $45,000 of the total tax fees for fiscal year 2009 and 2008, respectively. Tax advice and tax planning services relate to assistance with tax audits.this new accounting principle. |
| | |
|
(4)ITEM 9. | | All other fees for fiscal year 2009 and 2008 consist of licenses for accounting research software.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
In 2003,None.
| | |
| ITEM 9A. | | CONTROLS AND PROCEDURES. |
Evaluation of disclosure controls and procedures.
Our management, with the Audit Committee adoptedparticipation 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 formal policy concerning approval of audit and non-audit servicescompany that are designed to ensure that information required to be provideddisclosed 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
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 KPMG LLP. The policy requires that all services to be provided by KPMG LLP, includinghas issued an audit services and permitted audit-related and non-audit services, must be pre-approved byreport on the Audit Committee. The Audit Committee pre-approved all audit and non-audit services provided by KPMG LLP during fiscal 2009 and fiscal 2008.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
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| | |
| 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.
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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 AND FINANCIAL STATEMENT SCHEDULES. | | |
| ITEM 15. | | EXHIBITS, FINANCIAL STATEMENT SCHEDULES. |
(a) The list of Exhibitsfollowing are filed as part of this report are set forthAnnual Report on the Exhibit Index immediately preceding such exhibits, and is incorporated herein by this reference. This list includes a subset containing each management contract, compensatory plan, or arrangement required to be filed as an exhibit to this report.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. |
| | 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). |
2781
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: February 1, 2010
| | | | | |
Date: November 29, 2010
|
| | SKYWORKS SOLUTIONS, INC.
Registrant
| |
| | By: | /s/ David J. Aldrich | |
| | | David J. Aldrich | |
| | | President and Chief Executive Officer
President
Director | |
| |
2882
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
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(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
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 WachoviaWells 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
| | | | | | | | | | | | | | | |
| 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 In.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
| | | | | | | | | | | | | | |
| 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.CC*10.DD* | | Change in Control/Severance Agreement, | | | | | | | | | | | | |
| | dated January 22, 2008, between the | | | | | | | | | | | | |
| | Company and Bruce FreymanStan Swearingen | | 10-Q | | 001-5560 | | 10.KK10-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 |
| | | | | | | | | | | | | | | |
| Exhibit | | | | | | Incorporated by Reference | | Filed | |
| Number | | Exhibit Description | | Form | | File No. | | Exhibit | | Filing Date | | Herewith | |
| 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 2009 Executive Incentive | | | | | | | | | | | | |
| | | Compensation Plan | | 10-Q | | 001-5560 | | 10-II | | 2/11/2009 | | | | |
| | | | | | | | | | | | | | | |
| 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 | | 10-K | | 001-5560 | | 12 | | 11/30/2009 | | | | |
| | | | | | | | | | | | | | | |
| 21 | | Subsidiaries of the Company | | 10-K | | 001-5560 | | 21 | | 11/30/2009 | | | | |
| | | | | | | | | | | | | | | |
| 23.1 | | Consent of KPMG LLP | | 10-K | | 001-5560 | | 23.1 | | 11/30/2009 | | | | |
| | | | | | | | | | | | | | | |
| 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 | | 10-K | | 001-5560 | | 31.1 | | 11/30/2009 | | | | |
| | | | | | | | | | | | | | | |
| 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 | | 10-K | | 001-5560 | | 31.2 | | 11/30/2009 | | | | |
| | | | | | | | | | | | | | | |
| 31.3 | | 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 | |
| | | | | | | | | | | | | | | |
| 31.4 | | 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 | | 10-K | | 001-5560 | | 32.1 | | 11/30/2009 | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Exhibit | | | | | | Incorporated by Reference | | Filed | |
| Number | | Exhibit Description | | Form | | File No. | | Exhibit | | Filing Date | | Herewith | |
| 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 | | 10-K | | 001-5560 | | 32.2 | | 11/30/2009 | | | | |
| | |
| * | | Indicates a management contract or compensatory plan or arrangement. |
87
