e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For the quarterly period ended March 28, 2008
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-5560
SKYWORKS SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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04-2302115 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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20 Sylvan Road, Woburn, Massachusetts
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01801 |
(Address of principal executive offices)
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(Zip Code) |
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Registrants telephone number, including area code:
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(781) 376-3000 |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. þ Yes o No
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. (Check one):
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Large accelerated filer þ |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o Yes þ No
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
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Class
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Outstanding at May 1, 2008 |
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Common Stock, par value $.25 per share
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162,996,011 |
SKYWORKS SOLUTIONS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 28, 2008
TABLE OF CONTENTS
i
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
SKYWORKS SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)
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Three-months Ended |
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Six-months Ended |
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March 28, |
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March 30, |
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March 28, |
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March 30, |
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2008 |
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2007 |
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2008 |
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2007 |
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Net revenues |
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$ |
201,708 |
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$ |
180,210 |
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$ |
412,241 |
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$ |
376,240 |
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Cost of goods sold |
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121,341 |
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111,508 |
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249,536 |
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232,222 |
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Gross profit |
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80,367 |
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68,702 |
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162,705 |
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144,018 |
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Operating expenses: |
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Research and development |
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36,581 |
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31,383 |
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70,675 |
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61,795 |
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Selling, general and administrative |
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23,346 |
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23,750 |
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48,633 |
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47,778 |
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Amortization of intangible assets |
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1,871 |
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536 |
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3,803 |
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1,072 |
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Restructuring and special charges |
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5,473 |
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Total operating expenses |
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61,798 |
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55,669 |
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123,111 |
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116,118 |
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Operating income |
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18,569 |
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13,033 |
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39,594 |
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27,900 |
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Interest expense |
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(1,769 |
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(4,114 |
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(3,977 |
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(7,363 |
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Other income, net |
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1,883 |
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2,903 |
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3,933 |
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5,058 |
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Income before income taxes |
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18,683 |
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11,822 |
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39,550 |
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25,595 |
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Provision for income taxes |
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2,010 |
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(375 |
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3,799 |
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1,361 |
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Net income |
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$ |
16,673 |
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$ |
12,197 |
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$ |
35,751 |
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$ |
24,234 |
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Per share information: |
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Net income, basic and diluted |
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$ |
0.10 |
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$ |
0.08 |
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$ |
0.22 |
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$ |
0.15 |
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Number of weighted-average shares
used in per share computations,
basic |
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161,165 |
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160,687 |
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160,742 |
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160,935 |
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Number of weighted-average shares
used in per share computations,
diluted |
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162,982 |
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161,972 |
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162,740 |
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162,125 |
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The following table summarizes share-based compensation expense for the three and six-month periods
ended March 28, 2008 and March 30, 2007 which is included in the financial statement line items
above as follows:
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Three-months |
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Six-months Ended |
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Ended |
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March 28, |
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March 30, |
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March 28, |
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March 30, |
(In thousands) |
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2008 |
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2007 |
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2008 |
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2007 |
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Cost of goods sold |
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677 |
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276 |
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1,511 |
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401 |
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Research and development |
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2,620 |
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1,622 |
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3,765 |
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2,108 |
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Selling, general and administrative |
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2,346 |
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2,147 |
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5,374 |
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3,562 |
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The accompanying notes are an integral part of these consolidated financial statements.
3
SKYWORKS SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
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As of |
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March 28, |
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September 28, |
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2008 |
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2007 |
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(Unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
222,157 |
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$ |
241,577 |
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Short-term investments |
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5,700 |
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Restricted cash |
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6,302 |
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6,502 |
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Receivables, net of allowance for doubtful accounts of $1,903 and $1,662 |
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164,604 |
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167,319 |
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Inventories |
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94,272 |
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82,109 |
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Other current assets |
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8,926 |
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10,511 |
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Total current assets |
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496,261 |
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513,718 |
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Property, plant and equipment, net |
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168,881 |
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153,516 |
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Goodwill |
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491,929 |
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480,890 |
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Intangible assets, net |
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22,568 |
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13,442 |
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Deferred tax assets |
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14,528 |
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14,459 |
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Other assets |
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14,124 |
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13,883 |
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Total assets |
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$ |
1,208,291 |
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$ |
1,189,908 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Short-term debt |
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$ |
50,000 |
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$ |
99,335 |
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Accounts payable |
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76,691 |
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56,417 |
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Accrued compensation and benefits |
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28,967 |
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28,392 |
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Other current liabilities |
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8,306 |
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13,079 |
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Total current liabilities |
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163,964 |
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197,223 |
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Long-term debt, less current maturities |
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200,000 |
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200,000 |
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Other long-term liabilities |
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6,879 |
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6,338 |
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Total liabilities |
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370,843 |
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403,561 |
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Commitments and contingencies (Note 9) |
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Stockholders equity: |
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Preferred stock, no par value: 25,000 shares authorized, no shares issued |
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Common stock, $0.25 par value: 525,000 shares authorized; 167,560 shares
issued and 162,882 shares outstanding at March 28, 2008 and 165,593
shares issued and 161,101 shares outstanding at September 28, 2007 |
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40,720 |
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40,275 |
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Additional paid-in capital |
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1,400,257 |
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1,382,230 |
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Treasury stock |
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(33,473 |
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(31,855 |
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Accumulated deficit |
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(568,338 |
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(604,089 |
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Accumulated other comprehensive loss |
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(1,718 |
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(214 |
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Total stockholders equity |
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837,448 |
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786,347 |
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Total liabilities and stockholders equity |
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$ |
1,208,291 |
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$ |
1,189,908 |
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The accompanying notes are an integral part of these consolidated financial statements.
4
SKYWORKS SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
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Six-months Ended |
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March 28, |
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March 30, |
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2008 |
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2007 |
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Cash flows from operating activities: |
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Net income |
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$ |
35,751 |
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$ |
24,234 |
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Adjustments to reconcile net income to net cash provided by
operating activities: |
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Share-based compensation expense |
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10,650 |
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6,071 |
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Depreciation |
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21,993 |
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18,830 |
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Charge in lieu of income tax expense |
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2,720 |
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673 |
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Amortization of intangible assets |
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4,112 |
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1,072 |
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Amortization of deferred financing costs |
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892 |
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1,290 |
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Contribution of common shares to savings and retirement plans |
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5,016 |
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3,633 |
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Non-cash restructuring expense |
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419 |
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Deferred income taxes |
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(300 |
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(510 |
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Loss on sales of assets |
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58 |
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209 |
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Provision for (losses) recoveries on accounts receivable |
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241 |
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(198 |
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Changes in assets and liabilities: |
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Receivables |
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2,474 |
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(2,197 |
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Inventories |
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(6,730 |
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5,646 |
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Other current and long-term assets |
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2,376 |
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114 |
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Accounts payable |
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20,274 |
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(12,373 |
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Other current and long-term liabilities |
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(3,654 |
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(5,271 |
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Net cash provided by operating activities |
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95,873 |
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41,642 |
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Cash flows from investing activities: |
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Capital expenditures |
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(37,416 |
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(17,577 |
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Payments for acquisitions |
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(32,627 |
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Sale of short-term investments |
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32,400 |
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353,533 |
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Purchase of short-term investments |
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(29,900 |
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(389,433 |
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Net cash used in investing activities |
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(67,543 |
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(53,477 |
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Cash flows from financing activities: |
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Proceeds from notes offering |
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200,000 |
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Payments on short-term borrowings |
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(9,929 |
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Payments on long-term borrowings |
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(130,000 |
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Deferred financing costs |
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(6,189 |
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Retirement of Junior Notes |
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(49,335 |
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Change in restricted cash |
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200 |
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Repurchase of common stock |
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(1,619 |
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(30,667 |
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Net proceeds from exercise of stock options |
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3,004 |
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4,318 |
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Net cash provided by (used in) financing activities |
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(47,750 |
) |
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27,533 |
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Net increase (decrease) in cash and cash equivalents |
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(19,420 |
) |
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15,698 |
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Cash and cash equivalents at beginning of period |
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241,577 |
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136,749 |
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Cash and cash equivalents at end of period |
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$ |
222,157 |
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$ |
152,447 |
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Supplemental cash flow disclosures: |
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Taxes paid |
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$ |
482 |
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$ |
483 |
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Interest paid |
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$ |
3,747 |
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$ |
8,238 |
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The accompanying notes are an integral part of these consolidated financial statements.
5
SKYWORKS SOLUTIONS, INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Skyworks Solutions, Inc. (Skyworks or the Company) designs, manufactures and markets a broad
range of high performance analog and mixed signal semiconductors that enable wireless connectivity.
Our power amplifiers (PAs), front-end modules (FEMs) and integrated radio frequency (RF) solutions
can be found in many of the cellular handsets sold by the worlds leading manufacturers. Leveraging
our core analog technologies, we also offer a diverse portfolio of linear integrated circuits (ICs)
that support automotive, broadband, cellular infrastructure, industrial and medical applications.
The accompanying unaudited consolidated financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission (the SEC). Certain information
and footnote disclosures, normally included in annual consolidated financial statements prepared in
accordance with accounting principles generally accepted in the United States of America, have been
condensed or omitted pursuant to those rules and regulations. However, in the opinion of
management, the financial information reflects all adjustments, consisting of adjustments of a
normal recurring nature necessary to present fairly the financial position, results of operations,
and cash flows of the Company. The results of operations for the three and six-month periods ended
March 28, 2008 are not necessarily indicative of the results to be expected for the full year. This
information should be read in conjunction with the Companys financial statements and notes thereto
contained in the Companys Form 10-K for the fiscal year ended September 28, 2007 as filed with the
SEC.
The Companys fiscal year ends on the Friday closest to September 30. Fiscal 2007 consisted of 52
weeks and ended on September 28, 2007, and the second quarters of fiscal 2008 and fiscal 2007 each
consisted of 13 weeks and ended on March 28, 2008 and March 30, 2007, respectively. Fiscal 2008
will consist of 53 weeks and end on October 3, 2008, with the first three quarters of fiscal 2008
consisting of 13 weeks, and the fourth quarter of fiscal 2008 consisting of 14 weeks.
2. BUSINESS COMBINATIONS
In October 2007, the Company paid $32.6 million in cash to acquire certain assets from two separate
companies. The Company acquired raw materials, die bank, finished goods, proprietary GaAs PA/FEM
designs and related intellectual property in a business combination from Freescale Semiconductor.
We also acquired sixteen fundamental HBT and RF MEMs patents in an asset acquisition from another
company. The purchase accounting on these acquisitions was finalized in March 2008.
The purchase prices as of October 23, 2007 were allocated based upon the fair value of the tangible
and intangible assets acquired to allocate the purchase prices in accordance with Statement of Financial Accounting Standards (SFAS) 141,
Business Combinations. Based upon those calculations, the Company has definitively concluded
that customer relationships have a fair value of $8.5 million, order backlog has a fair
value of $1.6 million, developed technology has a fair value of $1.3 million, the Master Foundry Services agreement has a fair value of $0.9 million, patents have a fair value of $0.9 million, inventories have a fair value of $5.6 million
and the remaining purchase price of $13.8 million is allocated to goodwill. The intangible assets will be
amortized over periods ranging from .5 years to 5 years.
The Companys primary reasons for the above acquisitions were to expand its market share in power
amplifiers and front end modules at certain existing customers, and increase the probability of
future design wins with these
6
SKYWORKS SOLUTIONS, INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Continued
customers. The significant factors that resulted in recognition of
goodwill in one of the transactions were: (a) the purchase price was based on cash flow projections assuming the sale of the
acquired inventory and the sale of the Companys next generation product (a derivative of the
acquired inventory); and (b) there were very few tangible and identifiable intangible assets that
qualified for recognition.
The Consolidated Financial Statements include the operating results of the acquired business from
the date of acquisition. Pro forma results of operations for these acquisitions completed during the
six-month period ended March 28, 2008 have not been presented because the effects of the
acquisitions were not material to the Companys financial results.
3. AVAILABLE FOR SALE SECURITIES
The Company accounts for its investment in debt and equity securities in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and
Equity Securities, and classifies them as available for sale. These securities consist of $3.2
million in amortized cost of auction rate securities (ARS), which are long-term debt instruments
which provide liquidity through a Dutch auction process that resets interest rates each month. The
recent uncertainties in the credit markets have disrupted the liquidity of this process resulting
in failed auctions.
In the three and six-month periods ended March 28, 2008, the carrying value of these securities was
reduced by $0.8 million and $1.5 million, respectively, reflecting a change in fair value. The
Company assessed these declines 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 these ARS and evaluate the appropriate accounting treatment in each reporting period. The
Company holds no other auction rate securities.
ARS were classified in prior periods as current assets under Short-term Investments. Given the
failed auctions, the Companys ARS are considered to be illiquid until there is a successful
auction. Accordingly, the remaining ARS balance has been reclassified to non-current other assets.
4. INVENTORIES
Inventories consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 28, |
|
|
September 28, |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
Raw materials |
|
$ |
8,150 |
|
|
$ |
6,624 |
|
Work-in-process |
|
|
52,312 |
|
|
|
48,128 |
|
Finished goods |
|
|
33,810 |
|
|
|
27,357 |
|
|
|
|
|
|
|
|
|
|
$ |
94,272 |
|
|
$ |
82,109 |
|
|
|
|
|
|
|
|
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 28, |
|
|
September 28, |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
Land |
|
$ |
9,423 |
|
|
$ |
9,423 |
|
Land and leasehold improvements |
|
|
4,453 |
|
|
|
4,394 |
|
Buildings |
|
|
39,974 |
|
|
|
39,730 |
|
Furniture and Fixtures |
|
|
25,372 |
|
|
|
24,485 |
|
Machinery and equipment |
|
|
367,304 |
|
|
|
343,551 |
|
Construction in progress |
|
|
23,792 |
|
|
|
12,671 |
|
|
|
|
|
|
|
|
|
|
|
470,318 |
|
|
|
434,254 |
|
Accumulated depreciation and amortization |
|
|
(301,437 |
) |
|
|
(280,738 |
) |
|
|
|
|
|
|
|
|
|
$ |
168,881 |
|
|
$ |
153,516 |
|
|
|
|
|
|
|
|
7
SKYWORKS SOLUTIONS, INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Continued
6. GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
March 28, 2008 |
|
|
September 28, 2007 |
|
|
|
Average |
|
|
Gross |
|
|
|
|
|
|
Net |
|
|
Gross |
|
|
|
|
|
|
Net |
|
|
|
Amortization |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
|
Period |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
|
(Years) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
$ |
491,929 |
|
|
$ |
|
|
|
$ |
491,929 |
|
|
$ |
480,890 |
|
|
$ |
|
|
|
$ |
480,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed technology |
|
|
5-10 |
|
|
$ |
11,850 |
|
|
$ |
(6,965 |
) |
|
$ |
4,885 |
|
|
$ |
10,550 |
|
|
$ |
(6,399 |
) |
|
$ |
4,151 |
|
Customer relationships |
|
|
5-10 |
|
|
|
21,210 |
|
|
|
(8,164 |
) |
|
|
13,046 |
|
|
|
12,700 |
|
|
|
(6,678 |
) |
|
|
6,022 |
|
Patents |
|
|
3 |
|
|
|
900 |
|
|
|
(150 |
) |
|
|
750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
.5-3 |
|
|
|
2,649 |
|
|
|
(2,031 |
) |
|
|
618 |
|
|
|
122 |
|
|
|
(122 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,609 |
|
|
|
(17,310 |
) |
|
|
19,299 |
|
|
|
23,372 |
|
|
|
(13,199 |
) |
|
|
10,173 |
|
Unamortized intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
|
|
|
|
|
3,269 |
|
|
|
|
|
|
|
3,269 |
|
|
|
3,269 |
|
|
|
|
|
|
|
3,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets |
|
|
|
|
|
$ |
39,878 |
|
|
$ |
(17,310 |
) |
|
$ |
22,568 |
|
|
$ |
26,641 |
|
|
$ |
(13,199 |
) |
|
$ |
13,442 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense related to intangible assets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended |
|
Six-months Ended |
|
|
March 28,
2008 |
|
March 30,
2007 |
|
March 28,
2008 |
|
March 30,
2007 |
|
|
|
Amortization expense |
|
$ |
2,180 |
|
|
$ |
536 |
|
|
$ |
4,112 |
|
|
$ |
1,072 |
|
The changes in the gross carrying amount of goodwill and intangible assets are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and Intangible Assets |
|
|
|
|
|
|
|
Developed |
|
|
Customer |
|
|
|
|
|
|
Patents |
|
|
|
|
|
|
Goodwill |
|
|
Technology |
|
|
Relationships |
|
|
Trademarks |
|
|
and Other |
|
|
Total |
|
Balance as of September 28, 2007 |
|
$ |
480,890 |
|
|
$ |
10,550 |
|
|
$ |
12,700 |
|
|
$ |
3,269 |
|
|
$ |
122 |
|
|
$ |
507,531 |
|
Additions during period |
|
|
13,759 |
|
|
|
1,300 |
|
|
|
8,510 |
|
|
|
|
|
|
|
3,427 |
|
|
|
26,996 |
|
Deductions during period |
|
|
(2,720 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,720 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 28, 2008 |
|
$ |
491,929 |
|
|
$ |
11,850 |
|
|
$ |
21,210 |
|
|
$ |
3,269 |
|
|
$ |
3,549 |
|
|
$ |
531,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In October 2007, the Company paid $32.6 million in cash to acquire certain assets from two separate
companies resulting in the allocation of approximately $13.8 million to goodwill. For additional
information regarding these acquisitions see Note 2, Business Combinations.
Goodwill was reduced by $2.7 million in the six-month period ended March 28, 2008 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. The remaining deferred tax
assets that could reduce goodwill in future periods are $15.9 million as of March 28, 2008.
8
SKYWORKS SOLUTIONS, INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Continued
Annual amortization expense related to intangible assets for the next five years is expected to be
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
2012 |
Amortization expense |
|
$ |
6,933 |
|
|
$ |
4,406 |
|
|
$ |
4,406 |
|
|
$ |
4,106 |
|
|
$ |
3,560 |
|
7. BORROWING ARRANGEMENTS
Long-Term Debt
Long-term debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 28, |
|
|
September 28, |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
Junior Notes |
|
$ |
|
|
|
$ |
49,335 |
|
2007 Convertible Notes |
|
|
200,000 |
|
|
|
200,000 |
|
|
|
|
|
|
|
|
Long-term debt |
|
$ |
200,000 |
|
|
$ |
249,335 |
|
Less-current maturities |
|
|
|
|
|
|
49,335 |
|
|
|
|
|
|
|
|
|
|
$ |
200,000 |
|
|
$ |
200,000 |
|
|
|
|
|
|
|
|
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
second tranche consisted of $100.0 million of 1.50% convertible subordinated notes due March 2012.
The conversion price of the 2007 Convertible 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 may require the
Company to repurchase the 2007 Convertible Notes upon a change in control of the Company. The
Company pays interest in cash semi-annually in arrears on March 1 and September 1 of each year. It
has been the Companys 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, including
settlement of the 2007 Convertible Notes.
On December 21, 2006, the Financial Accounting Standards Board (FASB) issued FASB Staff Position
Emerging Issues Task Force 00-19-2 (FSP EITF 00-19-2). FSP EITF 00-19-2 specifies that the
contingent obligation to make future payments, or otherwise transfer consideration under a
registration payment arrangement, should be separately recognized and measured in accordance with
FASB Statement No. 5, Accounting for Contingencies (FASB 5). The Company adopted FSP EITF 00-19-2
on September 29, 2007. The Company agreed to file a shelf registration statement under the
Securities Act of 1933 (the Securities Act) not later than 120 days after the first date of original issuance of the 2007
Convertible Notes. The Company agreed to utilize commercially reasonable efforts to have this shelf
registration statement declared effective not later than 180 days after the first date of original
issuance of the notes, and to keep it effective until the earliest of: 1) two years from the
effective date of the shelf registration statement; 2) the date when all registrable securities
have been registered under the Securities Act and disposed of; and 3) the date on which all
registrable securities held by non-affiliates are eligible to be sold to the public pursuant to
Rule 144(k) under the Securities Act. The Company filed the shelf registration statement within 120
days of the original issuance of the 2007 Convertible Notes and the shelf registration statement
was declared effective within 180 days after the first date of original issuance of the notes. If
the shelf registration statement ceases to be effective within two years from the effective date of
the shelf registration statement the Company will be obligated to pay an additional 0.25% interest
per annum for the first 90 days after the occurrence of the registration default and at the rate of
0.50% per annum thereafter. The Company has concluded that it is not probable that a contingent
liability has been incurred as March 28, 2008 pursuant to the application of FASB 5 and thus has
not recorded a liability.
Junior Notes represent the Companys 4.75% convertible subordinated notes due November 2007. During
the three-month period ended December 28, 2007, the Company retired the entire $49.3 million in
aggregate principal amount of the Junior Notes at a price of $1,000 per $1,000 principal amount of
notes plus $1.2 million in accrued and unpaid interest.
9
SKYWORKS SOLUTIONS, INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Continued
Short-Term Debt
Short-term debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 28, |
|
|
September 28, |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
Junior Notes |
|
$ |
|
|
|
$ |
49,335 |
|
Facility Agreement |
|
|
50,000 |
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
$ |
50,000 |
|
|
$ |
99,335 |
|
|
|
|
|
|
|
|
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 Wachovia Bank, N.A. providing
for a $50.0 million credit facility (Facility Agreement) 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 Facility Agreement is recorded as interest expense in the Companys results of
operations. The Company performs collections and administrative functions on behalf of Skyworks
USA. Interest related to the Facility Agreement is at LIBOR plus 0.4%. As of March 28, 2008,
Skyworks USA had borrowed $50.0 million under this agreement.
8. INCOME TAXES
We recorded tax provisions of $2.0 million and $3.8 million for the three and six-month periods
ended March 28, 2008 and $(0.4) million and $1.3 million for the three and six-month periods ended
March 30, 2007. Our effective tax rates were 10.8% and 9.6% for the three and six-month periods
ended March 28, 2008 and (3.2)% and 5.3% for the three and six-month periods ended March 30, 2007.
The difference between our effective tax rates and the 35% federal statutory rate resulted
primarily from a tax benefit related to a reduction in the federal and state deferred tax asset
valuation allowance and foreign earnings taxed at rates lower than the federal statutory rate.
As noted in our most recent Annual Report on Form 10-K, no benefit has been recognized for certain pre-Merger
deferred tax assets. The benefit from the recognition of these deferred items reduces the carrying
value of goodwill instead of reducing income tax expense. We will evaluate the realization of the
pre-Merger deferred tax assets on a quarterly basis and adjust the provision for income taxes
accordingly. As a result, the effective tax rate may vary in subsequent quarters.
We utilize the asset and liability method of accounting for income taxes as set forth in SFAS No.
109, Accounting for Income Taxes, (SFAS 109). Under the asset and liability method, deferred
taxes are determined based on the temporary differences between the financial statement and tax
basis of assets and liabilities using tax rates expected to be in effect during the years in which
the basis differences reverse. A valuation allowance is recorded when it is more likely than not
that some of the deferred tax assets will not be realized.
In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes-an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprises financial statements in accordance with
SFAS 109. FIN 48 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, disclosure, and
transition. The Company adopted FIN 48 on September 29, 2007, and the provisions of FIN 48 will be
applied to all income tax provisions commencing from that date.
Of the total unrecognized tax benefits at March 28, 2008, $0.6 million would impact the effective
tax rate, if recognized. The Company has accrued $0.5 million of interest related to this tax
position. This position could change within the next twelve months because of the expiration of a
statute of limitations period.
10
SKYWORKS SOLUTIONS, INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Continued
On October 1, 2007, Mexico enacted a new flat tax regime which became effective January 1, 2008.
SFAS 109 prescribes that the effect of the new tax on deferred
taxes must be included in tax expense in the period that includes the enactment date. The effect
of recording deferred taxes in the first fiscal quarter of 2008 to the foreign tax provision
(benefit) was ($0.2) million. In addition to the deferred taxes, the Company has accrued flat tax
for the three-month period ended March 28, 2008 of $0.1 million.
9. COMMITMENTS AND CONTINGENCIES
Legal Matters
From time to time, various lawsuits, claims and proceedings have been, and may in the future be,
instituted or asserted against the Company, including those pertaining to patent infringement,
intellectual property, environmental, product liability, safety and health, employment and
contractual matters.
Additionally, the semiconductor industry is characterized by vigorous protection and pursuit of
intellectual property rights. From time to time, third parties have asserted and may in the future
assert patent, copyright, trademark and other intellectual property rights to technologies that are
important to our business and have demanded and may in the future demand that we license their
technology. The outcome of litigation cannot be predicted with certainty and some lawsuits, claims
or proceedings may be disposed of unfavorably to the Company. Intellectual property disputes often
have a risk of injunctive relief, which, if imposed against the Company, could materially and
adversely affect the Companys financial condition, or results of operations.
From time to time we are involved in legal proceedings in the ordinary course of business. We
believe that there is no such ordinary course litigation pending that will have, individually or in
the aggregate, a material adverse effect on our business.
Guarantees and Indemnifications
The Company has no guarantees. 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 Companys 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.
10. RESTRUCTURING AND SPECIAL CHARGES
Restructuring and special charges consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended |
|
|
Six-months Ended |
|
|
|
March 28, |
|
|
March 30, |
|
|
March 28, |
|
|
March 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
Restructuring and special charges |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
SKYWORKS SOLUTIONS, INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Continued
Restructuring and special charges consist of charges for asset impairments and restructuring
activities, as follows:
2006 Restructuring and Other
On September 29, 2006, the Company implemented a plan to exit its baseband product area in order to
focus on its core products encompassing linear products, power amplifiers, front-end modules and
radio solutions. The Company recorded various charges associated with this action.
The Company recorded additional restructuring charges of $5.5 million related to the exit of the
baseband product area in the first six-month period of 2007. These charges consist of $4.1 million
relating to the exit of certain operating leases and $1.4 million for the write down of a
technology license.
Activity and liability balances related to the fiscal 2006 restructuring actions are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License and |
|
|
|
|
|
|
|
|
|
|
|
|
Facility |
|
|
Software |
|
|
Workforce |
|
|
Asset |
|
|
|
|
|
|
Closings |
|
|
Write-offs |
|
|
Reductions |
|
|
Impairments |
|
|
Total |
|
|
|
|
Charged to costs and expenses |
|
$ |
105 |
|
|
$ |
9,583 |
|
|
$ |
13,070 |
|
|
$ |
4,197 |
|
|
$ |
26,955 |
|
Non-cash items |
|
|
|
|
|
|
(6,426 |
) |
|
|
|
|
|
|
(4,197 |
) |
|
|
(10,623 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring balance, September 29, 2006 |
|
$ |
105 |
|
|
$ |
3,157 |
|
|
$ |
13,070 |
|
|
$ |
|
|
|
$ |
16,332 |
|
Charged to costs and expenses |
|
|
4,483 |
|
|
|
(83 |
) |
|
|
530 |
|
|
|
|
|
|
|
4,930 |
|
Reclassification of reserves |
|
|
(128 |
) |
|
|
(508 |
) |
|
|
636 |
|
|
|
|
|
|
|
|
|
Non-cash items |
|
|
|
|
|
|
(419 |
) |
|
|
|
|
|
|
|
|
|
|
(419 |
) |
Cash payments |
|
|
(1,690 |
) |
|
|
(1,847 |
) |
|
|
(13,242 |
) |
|
|
|
|
|
|
(16,779 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring balance, September 28, 2007 |
|
$ |
2,770 |
|
|
$ |
300 |
|
|
$ |
994 |
|
|
$ |
|
|
|
$ |
4,064 |
|
Reclassification of reserves |
|
|
|
|
|
|
(75 |
) |
|
|
75 |
|
|
|
|
|
|
|
|
|
Cash payments |
|
|
(812 |
) |
|
|
(225 |
) |
|
|
(608 |
) |
|
|
|
|
|
|
(1,645 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring balance, March 28, 2008 |
|
$ |
1,958 |
|
|
$ |
|
|
|
$ |
461 |
|
|
$ |
|
|
|
$ |
2,419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company anticipates that most of the remaining payments associated with the exit of the
baseband product area will be remitted during fiscal years 2008 and 2009.
11. SEGMENT INFORMATION
In accordance with SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information (SFAS 131), the Company has one reportable operating segment which designs,
develops, manufactures and markets proprietary semiconductor products, including intellectual
property, for manufacturers of wireless communication products. SFAS 131 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 managements organization of segments within the Company for
making operating decisions and assessing financial performance. In evaluating financial
performance, management uses sales and operating profit as the measure of the segments profit or
loss. All of the Companys operating segments share similar economic characteristics as they have a
similar long term business model, and have similar research and development expenses
and similar selling, general and administrative expenses, thus, the Company has concluded at March 28,
2008 that it has only one reportable operating segment. The Company will re-assess its conclusions
at least annually.
12. EMPLOYEE STOCK BENEFIT PLANS
Net income for the three-month period ended March 28, 2008 and March 30, 2007 included share-based
compensation expense under SFAS No. 123(R) (revised 2004), Share-Based Payment (SFAS 123(R)) of $5.6 million and $4.1 million, respectively. Net income
for the six-month period ended March 28, 2008 and March 30, 2007 included share-based compensation
expense under SFAS 123(R) of $10.6 million and $6.1 million, respectively.
12
SKYWORKS SOLUTIONS, INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Continued
The following table summarizes share-based compensation expense related to employee stock options,
employee stock purchases, performance stock grants, and restricted stock grants under SFAS 123(R)
for the three and six-month periods ended March 28, 2008 and March 30, 2007 which were allocated as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended |
|
|
Six-months Ended |
|
|
|
March 28, |
|
|
March 30, |
|
|
March 28, |
|
|
March 30, |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
Stock Options |
|
$ |
2,743 |
|
|
$ |
2,308 |
|
|
$ |
5,047 |
|
|
$ |
3,085 |
|
Non-vested restricted stock with service and market conditions |
|
|
766 |
|
|
|
1,018 |
|
|
|
2,367 |
|
|
|
1,586 |
|
Non-vested restricted stock with service conditions |
|
|
244 |
|
|
|
232 |
|
|
|
529 |
|
|
|
523 |
|
Performance shares |
|
|
1,413 |
|
|
|
160 |
|
|
|
1,814 |
|
|
|
199 |
|
Employee Stock Purchase Plan |
|
|
379 |
|
|
|
327 |
|
|
|
795 |
|
|
|
678 |
|
Other |
|
|
98 |
|
|
|
|
|
|
|
98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,643 |
|
|
$ |
4,045 |
|
|
$ |
10,650 |
|
|
$ |
6,071 |
|
The Compensation Committee of the Companys Board of Directors recommended the modification of
certain of the terms of options to purchase the Companys common stock held by Board of Directors
Chairman Dwight Decker effective upon his retirement from the Board of Directors on March 27, 2008.
The Board of Directors voted on and accepted this recommendation in January 2008. The modification
impacted stock options granted 24 months or prior to Mr. Deckers retirement and those stock
options scheduled to vest within 12 months following his retirement date. Specifically, the vesting
of 18,750 of Mr. Deckers outstanding stock options was accelerated such that they are now
exercisable. In addition, the exercise period of 107,250 of Mr. Deckers stock options (including
the 18,750 accelerated options discussed above) was extended so that, instead of expiring on June
25, 2008, such options would continue to be exercisable for a period of two years from his
retirement date. The modification of the 107,250 above-referenced options resulted in the Company
incurring a non-cash credit of approximately $0.1 million since the Company had previously
recognized expense on these awards.
The following table summarizes share-based compensation expense related to employee stock options,
employee stock purchases, performance stock grants, and restricted stock grants under SFAS 123(R)
for the three and six-month periods ended March 28, 2008 and March 30, 2007 which was allocated as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended |
|
|
Six-months Ended |
|
|
|
March 28, |
|
|
March 30, |
|
|
March 28, |
|
|
March 30, |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
` |
|
|
Cost of sales |
|
|
677 |
|
|
|
276 |
|
|
|
1,511 |
|
|
|
401 |
|
Research and development |
|
|
2,620 |
|
|
|
1,622 |
|
|
|
3,765 |
|
|
|
2,108 |
|
Selling, general and administrative |
|
|
2,346 |
|
|
|
2,147 |
|
|
|
5,374 |
|
|
|
3,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
included in operating expenses |
|
$ |
5,643 |
|
|
$ |
4,045 |
|
|
$ |
10,650 |
|
|
$ |
6,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company utilized the following weighted average assumptions in calculating its share-based
compensation expense using the Black Scholes model at March 28, 2008 and March 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
Three and Six-months Ended |
|
|
March 28, |
|
March 30, |
|
|
2008 |
|
2007 |
|
|
|
Expected volatility |
|
|
51.56 |
% |
|
|
57.32 |
% |
Risk free interest rate (7 year contractual life options) |
|
|
2.93 |
% |
|
|
4.68 |
% |
Risk free interest rate (10 year contractual life options) |
|
|
3.49 |
% |
|
|
4.68 |
% |
Dividend yield |
|
|
0.00 |
|
|
|
0.00 |
|
Expected option life (7 year contractual life options) |
|
|
4.42 |
|
|
|
4.57 |
|
Expected option life (10 year contractual life options) |
|
|
5.80 |
|
|
|
5.86 |
|
13
SKYWORKS SOLUTIONS, INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Continued
13. EARNINGS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended |
|
|
Six-months Ended |
|
|
|
March 28, |
|
|
March 30, |
|
|
March 28, |
|
|
March 30, |
|
(In thousands, except per share amounts) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
Net income |
|
$ |
16,673 |
|
|
$ |
12,197 |
|
|
$ |
35,751 |
|
|
$ |
24,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic |
|
|
161,165 |
|
|
|
160,687 |
|
|
|
160,742 |
|
|
|
160,935 |
|
Effect of dilutive stock options |
|
|
1,817 |
|
|
|
1,285 |
|
|
|
1,998 |
|
|
|
1,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted |
|
|
162,982 |
|
|
|
161,972 |
|
|
|
162,740 |
|
|
|
162,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic |
|
$ |
0.10 |
|
|
$ |
0.08 |
|
|
$ |
0.22 |
|
|
$ |
0.15 |
|
Effect of dilutive stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share diluted |
|
$ |
0.10 |
|
|
$ |
0.08 |
|
|
$ |
0.22 |
|
|
$ |
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 using the treasury stock method, the Junior Notes on an if-converted basis and the 2007
Convertible Notes using the treasury stock method, if their effect is dilutive.
Equity based awards exercisable for approximately 23.5 million shares were outstanding but not
included in the computation of earnings per share for the three-month period ended March 28, 2008
as their effect would have been anti-dilutive. Junior Notes convertible into approximately 1.4
million shares and equity based awards exercisable for approximately 22.8 million shares were
outstanding but not included in the computation of earnings per share for the six-month period
ended March 28, 2008 as their effect would have been anti-dilutive. If the Company had earned at
least $39.5 million in net income for the six-month period ended March 28, 2008, the Junior Notes
would have been dilutive to earnings per share.
The 2007 Convertible Notes contain
cash settlement provisions, which permit the application of the treasury stock method in
determining potential share dilution associated with the conversion spread should the share price of the
Companys common stock exceed $9.52. It has been the Companys 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, including settlement of the 2007 Convertible Notes. These shares have not been included in the computation of earnings per share for the three or
six-month period ended
March 28, 2008 as their effect would have been anti-dilutive. The maximum potential dilution from
the settlement of the 2007 Convertible Notes would be approximately 21.0 million shares.
Junior Notes convertible into approximately 5.5 million shares and equity based awards exercisable
for approximately 22.7 million shares were outstanding but not included in the computation of
earnings per share for the three-month period ended March 30, 2007 as their effect would have been
anti-dilutive. Junior Notes convertible into approximately 5.5 million shares and equity based
awards exercisable for approximately 20.2 million shares were outstanding but not included in the
computation of earnings per share for the six-month period ended March 30, 2007 as their effect
would have been anti-dilutive. If the Company had earned at least $19.8 million and $39.6 million
in net income for the three and six-month periods ended March 30, 2007, respectively, the Junior
Notes would have been dilutive to earnings per share.
14
SKYWORKS SOLUTIONS, INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Continued
14. COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended |
|
|
Six-months Ended |
|
|
|
March 28, |
|
|
March 30, |
|
|
March 28, |
|
|
March 30, |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
Net Income |
|
$ |
16,673 |
|
|
$ |
12,197 |
|
|
$ |
35,751 |
|
|
$ |
24,234 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on auction rate securities |
|
|
(768 |
) |
|
|
|
|
|
|
(1,504 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
15,905 |
|
|
$ |
12,197 |
|
|
$ |
34,247 |
|
|
$ |
24,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
This report and other documents we have filed with the Securities and Exchange Commission (SEC)
contain 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 are subject
to the safe harbor created by those sections. Words such as believes, expects, may, will,
would, should, could, seek, intends, plans, potential, continue, estimates,
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 report. Additionally, statements concerning future matters such
as the development of new products, enhancements or technologies, sales levels, expense levels and
other statements regarding matters that are not historical are forward-looking statements. Although
forward-looking statements in this report reflect the good faith judgment of our management, such
statements can only be based on facts and factors currently known by us. Consequently,
forward-looking statements involve inherent risks and uncertainties and actual results and outcomes
may differ materially and adversely from the results and outcomes discussed in or anticipated by
the forward-looking statements. A number of important factors could cause actual results to differ
materially and adversely from those in the forward-looking statements. We urge you to consider the
risks and uncertainties discussed in our Annual Report on Form 10-K for the fiscal year ended
September 28, 2007, under the heading Certain Business Risks and in the other documents filed
with the SEC in evaluating our forward-looking statements. We have no plans, and undertake no
obligation, to revise or update our forward-looking statements to reflect any event or circumstance
that may arise after the date of this report. We caution readers not to place undue reliance upon
any such forward-looking statements, which speak only as of the date made.
In this document, the words we, our, ours and us refer only to Skyworks Solutions, Inc. and
not any other person or entity.
RESULTS OF OPERATIONS
THREE AND SIX-MONTHS ENDED MARCH 28, 2008 AND MARCH 30, 2007
The following table sets forth the results of our operations expressed as a percentage of net
revenues for the three and six-month periods ended March 28, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended |
|
|
Six-months Ended |
|
|
|
March 28, |
|
|
March 30, |
|
|
March 28, |
|
|
March 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
Net revenues |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of goods sold |
|
|
60.2 |
|
|
|
61.9 |
|
|
|
60.5 |
|
|
|
61.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
39.8 |
|
|
|
38.1 |
|
|
|
39.5 |
|
|
|
38.3 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
18.1 |
|
|
|
17.4 |
|
|
|
17.2 |
|
|
|
16.4 |
|
Selling, general and administrative |
|
|
11.6 |
|
|
|
13.2 |
|
|
|
11.8 |
|
|
|
12.7 |
|
Amortization of intangible assets |
|
|
0.9 |
|
|
|
0.3 |
|
|
|
0.9 |
|
|
|
0.3 |
|
Restructuring and special charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
30.6 |
|
|
|
30.9 |
|
|
|
29.9 |
|
|
|
30.9 |
|
Operating income |
|
|
9.2 |
|
|
|
7.2 |
|
|
|
9.6 |
|
|
|
7.4 |
|
Interest expense |
|
|
(0.8 |
) |
|
|
(2.3 |
) |
|
|
(1.0 |
) |
|
|
(2.0 |
) |
Other income, net |
|
|
0.9 |
|
|
|
1.6 |
|
|
|
1.0 |
|
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
9.3 |
|
|
|
6.5 |
|
|
|
9.6 |
|
|
|
6.7 |
|
Provision for income taxes |
|
|
1.0 |
|
|
|
(0.2 |
) |
|
|
0.9 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
8.3 |
% |
|
|
6.7 |
% |
|
|
8.7 |
% |
|
|
6.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
16
GENERAL
During the six-month period ended March 28, 2008, certain key factors contributed to our overall
results of operations and cash flows from operations. More specifically:
|
|
|
We increased revenues by $36.0 million, a 9.6% increase for the six-month
period ended March 28, 2008 as compared to the same period in the prior year, principally
due to diversifying our product portfolio and entering new, adjacent markets, as well
as adding new mobile platforms customers and increasing our front-end module content at
existing customers. |
|
|
|
|
We generated $95.9 million in cash from operations in the six-month period ended March
28, 2008, an increase of $54.3 million from the comparable six-month period ended March 30,
2007. |
|
|
|
|
We expanded our catalog business and worldwide distribution network allowing
us to sell into a broader set of end markets including broadband, industrial, medical,
computing, wireless networking and cellular infrastructure. We increased gross profit by
$11.7 million in the second quarter of fiscal 2008 (a gross profit margin of 39.8%) as
compared to the same period in 2007, and by $18.7 million during the six-month period ended
March 28, 2008 as compared to the same period in the prior year (a gross profit margin of
39.5%). This gross profit margin improvement is principally the result of a richer revenue
mix, higher equipment efficiency cycle times and factory utilization, progress on yield
improvement initiatives and, year-over-year material cost reductions and increased overall
revenues. |
|
|
|
|
We increased operating income to $39.6 million for the first six-month period of fiscal
2008 as compared to operating income of $27.9 million in the corresponding period of fiscal
2007. This 41.9% increase in operating income was primarily the result of margin
improvements driven by improvement in yields, equipment efficiency cycle times, increased
return on invested capital and increased revenue. |
|
|
|
|
In October 2007, we paid $32.6 million in cash to acquire certain assets from two
separate companies. We acquired raw materials, die bank, finished goods, proprietary GaAs
PA/FEM designs and related intellectual property in a business combination from Freescale
Semiconductor. We also acquired sixteen fundamental HBT and RF MEMs patents from another
company in an asset acquisition, and in November 2007 we retired the entire $49.3 million
balance of our Junior Notes and in the process reduced the future potential dilution of our
share base. |
NET REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended |
|
Six-months Ended |
|
|
March 28, |
|
|
|
|
|
March 30, |
|
March 28, |
|
|
|
|
|
March 30, |
(dollars in thousands) |
|
2008 |
|
Change |
|
2007 |
|
2008 |
|
Change |
|
2007 |
|
|
|
Net revenues |
|
$ |
201,708 |
|
|
|
11.9 |
% |
|
$ |
180,210 |
|
|
$ |
412,241 |
|
|
|
9.6 |
% |
|
$ |
376,240 |
|
We market and sell our mobile platforms and linear products to top tier Original Equipment
Manufacturers (OEMs) of communication electronic products, third-party Original Design
Manufacturers (ODMs) and contract manufacturers, and indirectly through electronic components
distributors. We periodically enter into strategic arrangements leveraging our broad intellectual
property portfolio by licensing or selling our patents or other intellectual property. We
anticipate continuing this intellectual property strategy in future periods.
Net revenues increased 11.9% for the second fiscal quarter of 2008 as compared to the second fiscal
quarter of 2007. Net revenues for the six-month period ended March 28, 2008 increased 9.6% as
compared to the corresponding period in fiscal 2007. The revenue increases were principally due to
diversifying our product
portfolio by entering new, adjacent markets, as well as adding new mobile platform customers and
increasing our
17
front-end module content at existing customers. Net revenues from our top three
customers decreased to 41% in the second quarter of fiscal 2008 from 53% in the second quarter of
fiscal 2007. Average selling prices declined 4.6% for the six-month period ended March 28, 2008 as
compared to the corresponding period in fiscal 2007.
GROSS PROFIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended |
|
Six-months Ended |
|
|
March 28, |
|
|
|
|
|
March 30, |
|
March 28, |
|
|
|
|
|
March 30, |
(dollars in thousands) |
|
2008 |
|
Change |
|
2007 |
|
2008 |
|
Change |
|
2007 |
|
|
|
Gross profit |
|
$ |
80,367 |
|
|
|
17.0 |
% |
|
$ |
68,702 |
|
|
$ |
162,705 |
|
|
|
13.0 |
% |
|
$ |
144,018 |
|
% of net revenues |
|
|
39.8 |
% |
|
|
|
|
|
|
38.1 |
% |
|
|
39.5 |
% |
|
|
|
|
|
|
38.3 |
% |
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.
The increase in gross profit as a percentage of revenue and in aggregate dollars for both the three
and six-month periods ended March 28, 2008 as compared to the corresponding periods in the previous
fiscal year was principally the result of a richer revenue mix as compared to the same periods in
the prior year. Additionally, this gross profit margin improvement is the result of higher
equipment efficiency and factory utilization associated with our hybrid manufacturing model,
progress on yield improvement initiatives, year-over-year material cost reductions and increased
overall revenue. In the three and six-month periods ended March 28, 2008 and the corresponding
periods in 2007, we also benefited from higher contribution margins associated with the licensing
and/or sale of intellectual property.
RESEARCH AND DEVELOPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended |
|
Six-months Ended |
|
|
March 28, |
|
|
|
|
|
March 30, |
|
March 28, |
|
|
|
|
|
March 30, |
(dollars in thousands) |
|
2008 |
|
Change |
|
2007 |
|
2008 |
|
Change |
|
2007 |
|
|
|
Research and development |
|
$ |
36,581 |
|
|
|
16.6 |
% |
|
$ |
31,383 |
|
|
$ |
70,675 |
|
|
|
14.4 |
% |
|
$ |
61,795 |
|
% of net revenues |
|
|
18.1 |
% |
|
|
|
|
|
|
17.4 |
% |
|
|
17.2 |
% |
|
|
|
|
|
|
16.4 |
% |
Research and development expenses consist principally of direct personnel costs, costs for
pre-production evaluation and testing of new devices, and design and test tool costs.
The increase in research and development expenses in both aggregate dollars and as a percentage of
net revenues for the three and six-month periods ended March 28, 2008 when compared to the
corresponding periods in the previous fiscal year is predominantly attributable to increased labor
and benefit costs and increases in materials and supplies expenses as we continue to diversify our
handset product area and grow our linear products area.
SELLING, GENERAL AND ADMINISTRATIVE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended |
|
Six-months Ended |
|
|
March 28, |
|
|
|
|
|
March 30, |
|
March 28, |
|
|
|
|
|
March 30, |
(dollars in thousands) |
|
2008 |
|
Change |
|
2007 |
|
2008 |
|
Change |
|
2007 |
|
|
|
Selling, general and administrative |
|
$ |
23,346 |
|
|
|
(1.7 |
)% |
|
$ |
23,750 |
|
|
$ |
48,633 |
|
|
|
1.8 |
% |
|
$ |
47,778 |
|
% of net revenues |
|
|
11.6 |
% |
|
|
|
|
|
|
13.2 |
% |
|
|
11.8 |
% |
|
|
|
|
|
|
12.7 |
% |
Selling, general and administrative expenses include personnel costs (legal, accounting, treasury,
human resources, information systems, customer service, etc.), bad debt expense, sales
representative commissions, advertising and other marketing costs.
18
Selling, general and administrative expenses in aggregate dollars remained relatively flat for both
the three months and six months ended March 28, 2008 as compared to the prior periods. Selling,
general and administrative expenses as a percentage of net revenues decreased for both the three
and six-month periods ended March 28, 2008 as compared to the prior periods due to the increase in
revenues for both periods in fiscal 2008.
AMORTIZATION OF INTANGIBLE ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended |
|
Six-months Ended |
|
|
March 28, |
|
|
|
|
|
March 30, |
|
March 28, |
|
|
|
|
|
March 30, |
(dollars in thousands) |
|
2008 |
|
Change |
|
2007 |
|
2008 |
|
Change |
|
2007 |
|
|
|
Amortization |
|
$ |
1,871 |
|
|
|
249.1 |
% |
|
$ |
536 |
|
|
$ |
3,803 |
|
|
|
254.8 |
% |
|
$ |
1,072 |
|
% of net revenues |
|
|
0.9 |
% |
|
|
|
|
|
|
0.3 |
% |
|
|
0.9 |
% |
|
|
|
|
|
|
0.3 |
% |
The increase in amortization expense during the three and six-month periods ended March 28, 2008 as
compared to the corresponding periods of fiscal 2007 is due to the acquisitions completed in
October 2007 and the associated amortizable customer relationships, patents, order backlog, foundry
services agreement and developed technology that was acquired. In the six-month period of fiscal
2008, the base of our amortizable intangible assets increased by approximately $13.2 million.
RESTRUCTURING AND SPECIAL CHARGES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended |
|
Six-months Ended |
|
|
March 28, |
|
|
|
|
|
March 30, |
|
March 28, |
|
|
|
|
|
March 30, |
(dollars in thousands) |
|
2008 |
|
Change |
|
2007 |
|
2008 |
|
Change |
|
2007 |
|
|
|
Restructuring and special charges |
|
$ |
|
|
|
|
0.0 |
% |
|
$ |
|
|
|
$ |
|
|
|
|
100.0 |
% |
|
$ |
5,473 |
|
% of net revenues |
|
|
0.0 |
% |
|
|
|
|
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
|
|
|
|
1.5 |
% |
Restructuring and special charges consist of charges for asset impairments and restructuring
activities, as follows:
On September 29, 2006, the Company exited its baseband product area in order to focus on its core
business encompassing linear products, power amplifiers, front-end modules and radio solutions. The
Company recorded various charges associated with this action.
For the six-month period ended March 30, 2007, we recorded an additional $1.4 million related to
the write-down of technology licenses and design software, and $4.1 million related to lease
obligations associated with the shut-down of certain locations associated with the baseband product
area.
For additional information regarding restructuring charges and liability balances, see Note 10 of
Notes to Unaudited Interim Consolidated Financial Statements.
INTEREST EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended |
|
Six-months Ended |
|
|
March 28, |
|
|
|
|
|
March 30, |
|
March 28, |
|
|
|
|
|
March 30, |
(dollars in thousands) |
|
2008 |
|
Change |
|
2007 |
|
2008 |
|
Change |
|
2007 |
|
|
|
Interest expense |
|
$ |
1,769 |
|
|
|
(57.0 |
)% |
|
$ |
4,114 |
|
|
$ |
3,977 |
|
|
|
(46.0 |
)% |
|
$ |
7,363 |
|
% of net revenues |
|
|
0.8 |
% |
|
|
|
|
|
|
2.3 |
% |
|
|
1.0 |
% |
|
|
|
|
|
|
2.0 |
% |
Interest expense is comprised principally of payments in connection with the $50.0 million credit
facility between Skyworks USA, Inc., our wholly owned subsidiary, and Wachovia Bank, N.A.
(Facility Agreement), the
Companys 4.75% convertible subordinated notes (the Junior Notes), and the Companys 1.50% and
1.25% convertible subordinated notes (the 2007 Convertible Notes).
19
The decrease in interest expense both in aggregate dollars and as a percentage of net revenues for
the three and six-month periods ended March 28, 2008 when compared to the corresponding period in
fiscal 2007, is due to the retirement of our higher interest rate Junior Notes.
See Note 7 of Notes to Unaudited Interim Consolidated Financial Statements for information related
to our borrowing arrangements.
OTHER INCOME, NET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended |
|
Six-months Ended |
|
|
March 28, |
|
|
|
|
|
March 30, |
|
March 28, |
|
|
|
|
|
March 30, |
(dollars in thousands) |
|
2008 |
|
Change |
|
2007 |
|
2008 |
|
Change |
|
2007 |
|
|
|
Other income, net |
|
$ |
1,883 |
|
|
|
(35.1 |
)% |
|
$ |
2,903 |
|
|
$ |
3,933 |
|
|
|
(22.2 |
)% |
|
$ |
5,058 |
|
% of net revenues |
|
|
0.9 |
% |
|
|
|
|
|
|
1.6 |
% |
|
|
1.0 |
% |
|
|
|
|
|
|
1.3 |
% |
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 both the three and
six-month periods ended March 28, 2008 as compared to the prior periods is due to declining
interest rates in 2008 and a slight decrease in invested cash balances.
PROVISION FOR INCOME TAXES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended |
|
Six-months Ended |
|
|
March 28, |
|
|
|
|
|
March 30, |
|
March 28, |
|
|
|
|
|
March 30, |
(dollars in thousands) |
|
2008 |
|
Change |
|
2007 |
|
2008 |
|
Change |
|
2007 |
|
|
|
(Benefit) Provision for income taxes |
|
$ |
2,010 |
|
|
|
(636.0 |
)% |
|
$ |
(375 |
) |
|
$ |
3,799 |
|
|
|
179.2 |
% |
|
$ |
1,361 |
|
% of net revenues |
|
|
1.0 |
% |
|
|
|
|
|
|
(0.2 |
)% |
|
|
0.9 |
% |
|
|
|
|
|
|
0.4 |
% |
In accordance with SFAS 109, Accounting for Income Taxes, management has determined that 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 March 28, 2008, we have established a valuation allowance of $133.7
million related to our United States deferred tax assets. Deferred tax assets have been recognized
for foreign operations when management believes that it is more likely than not that they will be
recovered during the carryforward period.
Realization of benefits from our net operating losses is dependent upon generating U.S. source
taxable income in the future, which may result in the existing valuation reserve being reversed in
the near term to the extent that the related deferred tax assets no longer require a valuation
allowance under the provisions of SFAS 109.
The provision for income taxes for the three and six-month period ended March 28, 2008 consists of
approximately $1.7 million and $3.6 million, respectively, of U.S. income taxes. Of the total U.S.
income tax provision, $1.2 million and $2.7 million were recorded as a charge reducing the carrying
value of goodwill for the three and six-month periods ended March 28, 2008. The tax benefit of
$(0.4) for the three-months ended March 28, 2007 was the result of recognizing additional tax
benefits related to a reduction in the federal and state deferred tax asset valuation allowance.
20
As noted in our Annual Report on Form 10-K, no benefit has been recognized for certain pre-Merger
deferred tax assets. The benefit from the recognition of these deferred items reduces the carrying
value of goodwill instead of reducing income tax expense. We will evaluate the realization of the
pre-Merger deferred tax assets on a quarterly basis and adjust the provision for income taxes
accordingly. As a result, the effective tax rate may vary in subsequent quarters. In addition,
the provision for the three and six-month periods ended March 28, 2008, consists of approximately
$0.3 million and $0.2 million, respectively, of foreign income taxes incurred by foreign
operations.
On October 1, 2007, Mexico enacted a new flat tax regime which became effective January 1, 2008.
SFAS 109, Accounting for Income Taxes, prescribes that the effect of the new tax on deferred
taxes must be included in tax expense in the period that includes the enactment date. The effect
of recording deferred taxes in the first fiscal quarter of 2008 to the foreign tax provision
(benefit) was $(0.2) million. In addition to the deferred taxes, the Company has accrued flat tax
for the three month period ended March 28, 2008 of $0.1 million.
The Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxesan
interpretation of FASB Statement No. 109, as of the beginning of fiscal year 2008. Of
the total unrecognized tax benefits at March 28, 2008, $0.6 million would impact the effective tax
rate, if recognized. The Company has accrued $0.5 million of interest related to this tax
position. This position could change within the next twelve months because of the expiration of a
statute of limitations period.
LIQUIDITY AND CAPITAL RESOURCES
|
|
|
|
|
|
|
|
|
|
|
Six- months Ended |
|
(dollars in thousands) |
|
March 28, 2008 |
|
|
March 30, 2007 |
|
Cash and cash equivalents at beginning of period |
|
$ |
241,577 |
|
|
$ |
136,749 |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
95,873 |
|
|
|
41,642 |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(67,543 |
) |
|
|
(53,477 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(47,750 |
) |
|
|
27,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
222,157 |
|
|
$ |
152,447 |
|
|
|
|
|
|
|
|
Based on our results of operations for fiscal 2007 and the first six months of fiscal 2008 along
with current trends, we expect our existing sources of liquidity, together with cash expected to be
generated from operations, will allow us to sufficiently fund our research and development, capital
expenditures, debt obligations, purchase obligations, working capital and other cash requirements
for at least the next 12 months. However, we cannot assure you 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 to help us grow our business may require additional capital
resources. If we are unable to obtain enough capital to meet our capital needs on a timely basis or
at all, our business and operations could be materially adversely affected.
Cash and cash equivalent balances decreased $25.3 million to $228.5 million at March 28, 2008 from
$253.8 million at September 28, 2007. This overall decrease was the result of payments for
acquisitions of $32.6 million, capital expenditures of $37.4 million, and the retirement of the
entire balance of the Junior Notes of $49.3 million offset by cash generated from operating
activities of $95.9 million. The number of days sales outstanding for the three-month period ended
March 28, 2008 decreased to 74 from 81 for the corresponding period in the previous
fiscal year. Annualized inventory turns for the three-months March 28, 2008 were 5.1 compared to
5.9 for the corresponding period in the previous fiscal year.
21
During the six-month period ended March 28, 2008, we generated $95.9 million in cash from operating
activities as we achieved net income of $35.8 million, experienced an increase in accounts payable
balances of $20.3 million, a decrease in receivables of $2.5 million and a decrease in other assets
of $2.4 million. We incurred multiple non-cash charges (e.g., depreciation, amortization, charge in
lieu of income tax expense, contribution of common shares to savings and retirement plans and
share-based compensation expense) totaling $45.4 million. This was offset by an increase in
inventories of $6.7 million and a decrease in other accrued liabilities of $3.7 million.
Cash used in investing activities for the six-month period ended March 28, 2008, consisted of net
sales of $2.5 million in auction rate securities and investments in demand-driven capital
expenditures of $37.4 million primarily for fabrication and assembly and test capacity. In
addition, we paid $32.6 million in cash to acquire certain assets from two separate companies. We
acquired raw materials, die bank, finished goods, proprietary GaAs PA/FEM designs and related
intellectual property in a business combination from Freescale Semiconductor. We also acquired
sixteen fundamental HBT and RF MEMs patents from another company in an asset acquisition. We
believe a focused program of capital expenditures will be required to sustain our current
manufacturing capabilities. Future capital expenditures will be funded by the generation of
positive cash flows from operations. We may also consider additional future acquisition
opportunities to extend our technology portfolio and design expertise and to expand our product
offerings.
Cash used in financing activities for the six-month period ended March 28, 2008, consisted of the
retirement of the remaining $49.3 million in Junior notes, repurchase of common stock of $1.6
million and cash provided by stock option exercises of $3.0 million.
In connection with our exit of the baseband product area, we anticipate making remaining cash
payments of approximately $2.4 million in future periods. Certain payments on long-term lease
obligations resulting from facility closures and severance payments will be remitted in fiscal 2008
and beyond. We expect our existing sources of liquidity, together with cash expected to be
generated from operations will be sufficient to fund these costs associated with the exit of our
baseband product area.
Our invested cash balances primarily consist of highly rated commercial paper, United States
treasury obligations, United States agency obligations, overnight repurchase agreements backed by
United States treasuries or United States agency obligations, certificates of deposit and foreign
bank obligations. At March 28, 2008, we also held a $3.2 million auction rate security which
provides liquidity through a Dutch auction process. The recent uncertainties in the credit markets
have disrupted the liquidity of this process resulting in failed auctions. Accordingly, in the
first six-month period of fiscal 2008, we recorded unrealized losses on this auction rate security
of approximately $1.5 million. We assessed these declines in fair market value to be temporary and
consider the security to be illiquid until there is a successful auction. Accordingly, the
remaining ARS balance has been reclassified to non-current other assets. We expect to continue to
monitor the liquidity and accounting classification of this security in future periods.
CONTRACTUAL OBLIGATIONS
On November 15, 2007, we retired $49.3 million of Junior Notes from cash funds. Other than this
debt retirement, the contractual obligations disclosure described in our Annual Report on Form 10-K
for the year ended September 28, 2007 has not materially changed since we filed that report. Our
short-term and long-term debt obligations are more fully described in Note 7 of Notes to Unaudited Interim Financial Statements.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS 157
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157) which defines
fair value, establishes a framework for measuring fair value in generally accepted accounting
principles and expands disclosures about fair value measurements. SFAS 157 is effective for
financial statements issued for fiscal years
22
beginning after November 15, 2007 and interim periods
within those fiscal years. The Company has not yet determined the impact that SFAS 157 will have on
its results from operations or financial position.
SFAS 159
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS 159) including an amendment of SFAS No. 115, 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. SFAS 159 is effective for the Company beginning in
fiscal 2009. The Company is currently evaluating SFAS 159 and the impact that it may have on
results of operations or financial position.
SFAS 141(R)
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS 141(R)). SFAS 141(R) applies
to any transaction or other event that meets the definition of a business combination. Where
applicable, SFAS No. 141(R) establishes principles and requirements for how the acquirer recognizes
and measures identifiable assets acquired, liabilities assumed, noncontrolling interest in the
acquiree and goodwill or gain from a bargain purchase. In addition, SFAS 141(R) determines what
information to disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. This statement is to be applied prospectively for
fiscal years beginning after December 15, 2008. The Company is in the process of evaluating the
impact of SFAS No. 141(R) on its Consolidated Financial Statements.
SFAS 160
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements, An Amendment of ARB No. 51 (SFAS 160). SFAS 160 amends ARB 51 to establish accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of
a subsidiary. It also amends certain of ARB 51s consolidation procedures for consistency with the
requirements of SFAS 141(R). This statement is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15, 2008. The statement
shall be applied prospectively as of the beginning of the fiscal year in which the statement is
initially adopted. The Company is currently evaluating SFAS 160 and the impact that it may have on
results of operations or financial position.
SFAS 161
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activitiesan amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 amends FASB Statement No. 133 to
require enhanced disclosures about an entitys derivative and hedging activities thereby improving
the transparency of financial reporting. Entities are required to provide enhanced disclosures
about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and
related hedged items are accounted for under Statement 133 and its related interpretations, and (c)
how derivative instruments and related hedged items affect an entitys financial position,
financial performance, and cash flows. This Statement is effective for financial statements issued
for fiscal years and interim periods beginning after November 15, 2008, with early application
encouraged. The Company is currently evaluating SFAS 161 and the impact that it may have on its
Consolidated Financial Statements.
PROPOSED ACCOUNTING PRONOUNCEMENTS
In August 2007, the FASB released proposed Financial Statement of Position APB 14-a, Accounting For
Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash
Settlement)
(FSP APB 14-a) that would alter the accounting treatment for convertible debt instruments that
allow for either mandatory or optional cash settlements. FSP APB 14-a, if adopted as proposed,
would significantly impact the accounting associated with the Companys $200.0 million 2007
Convertible Notes. This FSP would require the Company to recognize additional (non-cash) interest
expense based on the market rate for similar debt instruments
23
without the conversion feature.
Furthermore, it would require recognizing interest expense in prior periods pursuant to the
proposed retrospective accounting treatment. The proposed FSP was issued for a 45-day comment
period. The FASB began its re-deliberations of the guidance in FSP APB 14-a in the first quarter of
2008 and it is anticipated that the final FSP will be issued in the second calendar quarter of 2008
and is expected to be effective for fiscal years beginning after December 15, 2008. The Company
would not be required to adopt this FSP until the first quarter of fiscal 2010.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are subject to market risks, such as changes in foreign currency exchange rates and interest
rates. Our financial instruments include cash and cash equivalents, short-term investments,
short-term debt and long-term debt. Our main investment objective is the preservation of investment
capital. Consequently, we invest with only high-credit-quality issuers and we limit the amount of
our credit exposure to any one issuer. We do not use derivative instruments for speculative or
investment purposes. There have been no material changes in market risk exposures from those
disclosed in our Annual Report on Form 10-K for the fiscal year ended September 28, 2007.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Our management, with the participation of our chief executive officer and chief financial officer,
evaluated the effectiveness of our disclosure controls and procedures as of March 28, 2008. The
term disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act, means controls and other procedures of a company that are designed to ensure that
information required to be disclosed by a company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time periods specified in
the SECs 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
companys management, 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 the
evaluation of our disclosure controls and procedures as of March 28, 2008, 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.
(b) 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 March 28, 2008 that has
materially affected, or is reasonably likely to materially affect, Skyworks internal control over
financial reporting.
PART II OTHER INFORMATION
Item 1A. Risk Factors
There have been no significant changes in the risk factors disclosed in Item 1A of our Annual
Report on Form 10-K for the year ended September 28, 2007.
24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Recent Sales of Unregistered Securities
During the quarter ended March 28, 2008, the Company issued an aggregate of 100,000 shares of
restricted common stock to the eight (8) non-employee directors on its Board of Directors. These
restricted stock grants were made pursuant to the Companys 2008 Director Long-Term Incentive Plan
and the standard forms of award agreements adopted by the Company in connection with the plan. No
consideration was received by the Company in connection with the issuance of the restricted common
stock. The foregoing issuances of restricted stock were completed pursuant to Section 4(2) of the
Securities Act (and/or Regulation D promulgated thereunder) as a transaction by an issuer not
involving a public offering. The shares of restricted common stock are deemed restricted
securities for the purposes of the Securities Act.
(c) The following table provides information regarding repurchases of common stock made by us
during the fiscal quarter ended March 28, 2008:
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Number (or |
|
|
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|
|
|
|
|
|
|
|
|
|
|
Approximately |
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|
|
|
|
|
|
|
|
Total Number of |
|
Dollar Value) of |
|
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
Shares that May Yet |
|
|
|
|
|
|
|
|
|
|
Part of Publicly |
|
Be Purchased Under |
|
|
Total Number of |
|
Average Price Paid |
|
Announced Plans or |
|
the Plans or |
Period |
|
Shares Purchased |
|
per Share |
|
Programs |
|
Programs |
February 24, 2008 |
|
|
7,075 |
(1) |
|
$ |
8.74 |
|
|
|
N/A |
(2) |
|
|
N/A |
(2) |
February 29, 2008 |
|
|
634 |
(1) |
|
$ |
8.26 |
|
|
|
N/A |
(2) |
|
|
N/A |
(2) |
March 6, 2008 |
|
|
1,604 |
(1) |
|
$ |
8.06 |
|
|
|
N/A |
(2) |
|
|
N/A |
(2) |
March 7, 2008 |
|
|
22,435 |
(1) |
|
$ |
7.78 |
|
|
|
N/A |
(2) |
|
|
N/A |
(2) |
March 20, 2008 |
|
|
5,319 |
(1) |
|
$ |
6.71 |
|
|
|
N/A |
(2) |
|
|
N/A |
(2) |
|
|
|
(1) |
|
All shares of common stock reported in the table above were repurchased by Skyworks at the
fair market value of the common stock on February 24, 2008, February 29, 2008, March 6, 2008,
March 7, 2008, and March 20, 2008, respectively, in connection with the satisfaction of tax
withholding obligations under restricted stock agreements between Skyworks and certain of its
key employees. |
|
(2) |
|
We have no publicly announced plans or programs. |
Item 4. Submission of Matters to a Vote of Security Holders
Our annual meeting of shareholders was held on March 27, 2008 in Bedford, Massachusetts. At the
meeting, the following matters were voted on by our shareholders and approved by the following
votes:
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|
|
Shares Voted |
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|
Shares Voted |
|
|
Votes Withheld/ |
|
|
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For |
|
|
Against |
|
|
Abstentions |
Election of directors: |
|
|
|
|
|
|
|
|
|
|
|
|
Proposal to elect
three (3) members of
the Board of Directors
of the Company as
Class III Directors
with terms expiring at
the fiscal year 2011
Annual Meeting of
Stockholders: |
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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David J. Aldrich |
|
|
127,719,727 |
|
|
|
|
|
|
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16,685,381 |
|
Moiz M. Beguwala |
|
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127,634,933 |
|
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|
|
|
|
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16,770,176 |
|
David P. McGlade |
|
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126,954,704 |
|
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|
|
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17,450,405 |
|
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|
|
|
|
|
|
|
|
|
|
|
|
Proposal to approve
the adoption of the
Companys 2008
Director Long-Term
Incentive Plan |
|
|
99,696,165 |
|
|
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22,863,377 |
|
|
|
409,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proposal to approve an
amendment to the
Companys 2002
Employee Stock
Purchase Plan to
increase the aggregate
number of shares
authorized for
issuance under the
plan by 2.25 million
shares |
|
|
121,523,340 |
|
|
|
1,107,872 |
|
|
|
337,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proposal to ratify the
selection by the
Companys Audit
Committee of KPMG LLP
as the independent
registered public
accounting firm for
the Company for fiscal
year 2008 |
|
|
142,815,747 |
|
|
|
1,253,053 |
|
|
|
366,310 |
|
25
Item 6. Exhibits
|
|
|
Number |
|
Description |
|
|
|
10.H*
|
|
Skyworks Solutions, Inc. Non-Qualified Employee Stock Purchase Plan, as amended |
|
|
|
10.W*
|
|
Severance and Change in Control Agreement between the Company and David J.
Aldrich dated January 22, 2008 |
|
|
|
10.X*
|
|
Severance and Change in Control Agreement between the Company and Liam K.
Griffin dated January 22, 2008 |
|
|
|
10.AA*
|
|
Severance and Change in Control Agreement between the Company and George M.
LeVan dated January 22, 2008 |
|
|
|
10.BB*
|
|
Severance and Change in Control Agreement between the Company and Gregory L.
Waters dated January 22, 2008 |
|
|
|
10.DD*
|
|
Severance and Change in Control Agreement between the Company and Mark V.B.
Tremallo dated January 22, 2008 |
|
|
|
10.II*
|
|
Severance and Change in Control Agreement between the Company and Donald W.
Palette dated January 22, 2008 |
|
|
|
10.KK*
|
|
Severance and Change in Control Agreement between the Company and Bruce J.
Freyman dated January 22, 2008 |
|
|
|
10.LL*
|
|
Severance and Change in Control Agreement between the Company and Stanley A.
Swearingen dated January 22, 2008 |
|
|
|
10.MM*
|
|
Skyworks Solutions, Inc. 2008 Director Long-Term Incentive Plan |
|
|
|
10.NN*
|
|
Form of Restricted Stock Agreement under Skyworks Solutions, Inc. 2008 Director Long-Term Incentive Plan |
|
|
|
10.OO*
|
|
Form of Stock Option Agreement under Skyworks Solutions, Inc. 2008 Director Long-Term Incentive Plan |
|
|
|
10.PP*
|
|
Skyworks Solutions, Inc. 2002 Employee Stock Purchase Plan, as amended |
|
|
|
31.1*
|
|
Certification of the Companys Chief Executive Officer pursuant to Securities
Exchange Act of 1934, as amended, Rules 13a- 14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
31.2*
|
|
Certification of the Companys Chief Financial Officer pursuant to Securities
Exchange Act of 1934, as amended, Rules 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.1*
|
|
Certification of the Companys Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 |
|
|
|
32.2*
|
|
Certification of the Companys Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 |
26
SIGNATURES
Pursuant to the requirements 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.
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|
|
SKYWORKS SOLUTIONS, INC. |
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Date: May 7, 2008
|
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By:
|
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/s/ David J. Aldrich
|
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|
|
David J. Aldrich, President and Chief |
|
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|
|
Executive Officer (Principal Executive Officer) |
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By:
|
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/s/ Donald W. Palette |
|
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|
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|
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|
|
Donald W. Palette, Chief Financial Officer |
|
|
|
|
Vice President (Principal Accounting and Financial Officer) |
|
|
27
EXHIBIT INDEX
|
|
|
Number |
|
Description |
|
|
|
10.H
|
|
Skyworks Solutions, Inc. Non-Qualified Employee Stock Purchase Plan, as amended |
|
|
|
10.W
|
|
Severance and Change in Control Agreement between the Company and David J.
Aldrich dated January 22, 2008 |
|
|
|
10.X
|
|
Severance and Change in Control Agreement between the Company and Liam K.
Griffin dated January 22, 2008 |
|
|
|
10.AA
|
|
Severance and Change in Control Agreement between the Company and George M.
LeVan dated January 22, 2008 |
|
|
|
10.BB
|
|
Severance and Change in Control Agreement between the Company and Gregory L.
Waters dated January 22, 2008 |
|
|
|
10.DD
|
|
Severance and Change in Control Agreement between the Company and Mark V.B.
Tremallo dated January 22, 2008 |
|
|
|
10.II
|
|
Severance and Change in Control Agreement between the Company and Donald W.
Palette dated January 22, 2008 |
|
|
|
10.KK
|
|
Severance and Change in Control Agreement between the Company and Bruce J.
Freyman, dated January 22, 2008 |
|
|
|
10.LL
|
|
Severance and Change in Control Agreement between the Company and Stanley A.
Swearingen dated January 22, 2008 |
|
|
|
10.MM
|
|
Skyworks Solutions, Inc. 2008 Director Long-Term Incentive Plan |
|
|
|
10.NN
|
|
Form of Restricted Stock Agreement under Skyworks Solutions, Inc. 2008 Director Long-Term Incentive Plan |
|
|
|
10.OO
|
|
Form of Stock Option Agreement under Skyworks Solutions, Inc. 2008 Director Long-Term Incentive Plan |
|
|
|
10.PP
|
|
Skyworks Solutions, Inc. 2002 Employee Stock Purchase Plan, as amended |
|
|
|
31.1
|
|
Certification of the Companys Chief Executive Officer pursuant to Securities
Exchange Act of 1934, as amended, Rules 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
31.2
|
|
Certification of the Companys Chief Financial Officer pursuant to Securities
Exchange Act of 1934, as amended, Rules 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.1
|
|
Certification of the Companys Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 |
|
|
|
32.2
|
|
Certification of the Companys Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 |
28