Skyworks Solutions Inc.
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 30, 2007
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
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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20 Sylvan Road, Woburn, Massachusetts
(Address of principal executive offices)
Registrants telephone number, including area code:
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01801
(Zip Code)
(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,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act:
Large accelerated filer þ Accelerated filer o Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o Yes þ No
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 2, 2007 |
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Common Stock, par value $.25 per share
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159,898,909 |
SKYWORKS SOLUTIONS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 30, 2007
TABLE OF CONTENTS
2
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)
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Three-months Ended |
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Six-months Ended |
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March 30, |
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March 31, |
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March 30, |
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March 31, |
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2007 |
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2006 |
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2007 |
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2006 |
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Net revenues |
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$ |
180,210 |
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$ |
185,234 |
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$ |
376,240 |
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$ |
383,559 |
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Cost of goods sold (includes
share-based compensation expense
of $276 and $401 for the three
and six-months ended March 30,
2007, respectively, and $560 and
$910 for the three and six-months
ended March 31, 2006,
respectively) |
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111,508 |
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115,884 |
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232,222 |
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239,486 |
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Gross profit |
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68,702 |
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69,350 |
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144,018 |
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144,073 |
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Operating expenses: |
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Research and development
(includes share-based
compensation expense of $1,622
and $2,108 for the three and
six-months ended March 30, 2007,
respectively, and $1,531 and
$2,949 for the three and
six-months ended March 31, 2006,
respectively) |
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31,383 |
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40,557 |
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61,795 |
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82,987 |
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Selling, general and
administrative (includes
share-based compensation expense
of $2,147 and $3,562 for the
three and six-months ended March
30, 2007, respectively, and $1,497
and $2,759 for the three and
six-months ended March 31, 2006,
respectively) |
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23,750 |
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25,710 |
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47,778 |
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48,963 |
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Restructuring and special
charges |
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5,473 |
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Amortization of intangible assets |
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536 |
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536 |
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1,072 |
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1,072 |
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Total operating expenses |
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55,669 |
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66,803 |
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116,118 |
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133,022 |
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Operating income |
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13,033 |
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2,547 |
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27,900 |
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11,051 |
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Interest expense |
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(4,114 |
) |
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(4,446 |
) |
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(7,363 |
) |
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(8,258 |
) |
Other income, net |
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2,903 |
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2,430 |
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5,058 |
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4,749 |
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Income before income taxes |
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11,822 |
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531 |
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25,595 |
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7,542 |
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Provision for income taxes |
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(375 |
) |
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(395 |
) |
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1,361 |
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2,329 |
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Net income |
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$ |
12,197 |
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$ |
926 |
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$ |
24,234 |
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$ |
5,213 |
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Per share information: |
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Net income, basic and diluted |
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$ |
0.08 |
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$ |
0.01 |
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$ |
0.15 |
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$ |
0.03 |
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Number of weighted-average shares
used in per share computations,
basic |
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160,687 |
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159,084 |
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160,935 |
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158,828 |
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Number of weighted-average shares
used in per share computations,
diluted |
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161,972 |
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159,629 |
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162,125 |
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159,212 |
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The accompanying notes are an integral part of these consolidated financial statements.
3
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
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As of |
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March 30, |
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2007 |
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September 29, |
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(Unaudited) |
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2006 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
152,447 |
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$ |
136,749 |
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Short-term investments |
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64,050 |
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28,150 |
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Restricted cash |
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6,302 |
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6,302 |
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Receivables, net of allowance for doubtful accounts of $36,824 and
$37,022, respectively |
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161,192 |
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158,798 |
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Inventories |
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76,186 |
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81,529 |
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Other current assets |
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8,004 |
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9,315 |
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Total current assets |
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468,181 |
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420,843 |
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Property, plant and equipment, less accumulated depreciation and
amortization of $263,939 and $250,195, respectively |
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148,921 |
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150,383 |
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Goodwill |
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492,716 |
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493,389 |
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Intangible assets, less accumulated amortization of $12,005 and $10,933,
respectively |
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14,514 |
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15,586 |
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Deferred tax assets |
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743 |
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251 |
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Other assets |
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15,740 |
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10,044 |
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Total assets |
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$ |
1,140,815 |
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$ |
1,090,496 |
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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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$ |
89,406 |
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$ |
50,000 |
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Accounts payable |
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60,698 |
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73,071 |
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Accrued compensation and benefits |
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29,307 |
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25,297 |
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Other current liabilities |
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17,760 |
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27,252 |
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Total current liabilities |
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197,171 |
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175,620 |
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Long-term debt, less current maturities |
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200,000 |
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179,335 |
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Other long-term liabilities |
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6,658 |
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6,448 |
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Total liabilities |
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403,829 |
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361,403 |
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Commitments and contingencies (Note 8) |
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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, $0.25 par value: 525,000 shares authorized; 163,931 shares
issued and 159,559 shares outstanding at March 30, 2007 and 161,690
shares issued and 161,659 shares outstanding at September 29, 2006 |
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39,890 |
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40,414 |
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Additional paid-in capital |
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1,366,040 |
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1,351,190 |
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Treasury stock |
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(30,840 |
) |
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(173 |
) |
Accumulated deficit |
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(637,505 |
) |
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(661,739 |
) |
Accumulated other comprehensive loss |
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(599 |
) |
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(599 |
) |
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Total stockholders equity |
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736,986 |
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729,093 |
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Total liabilities and stockholders equity |
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$ |
1,140,815 |
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$ |
1,090,496 |
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The accompanying notes are an integral part of these consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
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Six-months Ended |
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March 30, |
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March 31, |
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2007 |
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2006 |
|
Cash flows from operating activities: |
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Net income |
|
$ |
24,234 |
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$ |
5,213 |
|
Adjustments to reconcile net income to net cash provided
by operating activities: |
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Share-based compensation expense |
|
|
6,071 |
|
|
|
6,618 |
|
Depreciation |
|
|
18,830 |
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|
18,429 |
|
Charge in lieu of income tax expense |
|
|
673 |
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Amortization of intangible assets |
|
|
1,072 |
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|
1,072 |
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Amortization of deferred financing costs |
|
|
1,290 |
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|
1,370 |
|
Contribution of common shares to savings and
retirement plans |
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|
3,633 |
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4,521 |
|
Non-cash restructuring expense |
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|
419 |
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Deferred income taxes |
|
|
(510 |
) |
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|
1,801 |
|
Loss (gain) on sales of assets |
|
|
209 |
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(760 |
) |
Property held for sale |
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(517 |
) |
Provision for losses (recoveries) on accounts
receivable |
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(198 |
) |
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|
161 |
|
Changes in assets and liabilities: |
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Receivables |
|
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(2,197 |
) |
|
|
(1,125 |
) |
Inventories |
|
|
5,646 |
|
|
|
(14,644 |
) |
Other assets |
|
|
114 |
|
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(2,706 |
) |
Accounts payable |
|
|
(12,373 |
) |
|
|
2,457 |
|
Other liabilities |
|
|
(5,271 |
) |
|
|
959 |
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Net cash provided by operating activities |
|
|
41,642 |
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|
22,849 |
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Cash flows from investing activities: |
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Capital expenditures |
|
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(17,577 |
) |
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(26,060 |
) |
Sale of short-term investments |
|
|
353,533 |
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|
729,905 |
|
Purchase of short-term investments |
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(389,433 |
) |
|
|
(676,836 |
) |
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Net cash provided by (used in) investing activities |
|
|
(53,477 |
) |
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|
27,009 |
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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 |
) |
|
|
(50,665 |
) |
Deferred financing costs |
|
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(6,189 |
) |
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|
Repurchase of common stock |
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(30,667 |
) |
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Exercise of stock options |
|
|
4,318 |
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|
|
1,039 |
|
|
|
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Net cash provided by (used in) by financing activities |
|
|
27,533 |
|
|
|
(49,626 |
) |
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|
|
|
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|
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|
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Net increase in cash and cash equivalents |
|
|
15,698 |
|
|
|
232 |
|
Cash and cash equivalents at beginning of period |
|
|
136,749 |
|
|
|
116,522 |
|
|
|
|
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Cash and cash equivalents at end of period |
|
$ |
152,447 |
|
|
$ |
116,754 |
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Supplemental cash flow disclosures: |
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Taxes paid |
|
$ |
483 |
|
|
$ |
1,356 |
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|
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Interest paid |
|
$ |
8,238 |
|
|
$ |
7,862 |
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Supplemental disclosure of non-cash activities: |
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Non-cash proceeds received from non-monetary exchange |
|
$ |
|
|
|
$ |
760 |
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|
|
|
|
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|
|
The accompanying notes are an integral part of these consolidated financial statements.
5
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Skyworks Solutions, Inc. (Skyworks or the Company) is an innovator of high performance analog
and mixed signal semiconductors enabling mobile connectivity. The Companys power amplifiers,
front-end modules and direct conversion radios are at the heart of many of todays leading-edge
multimedia handsets. Leveraging core technologies, Skyworks also offers a diverse portfolio of
linear products that support automotive, broadband, cellular infrastructure, industrial and medical
applications.
Skyworks was formed through the merger (Merger) of the wireless business of Conexant Systems,
Inc. (Conexant) and Alpha Industries, Inc. (Alpha) on June 25, 2002, pursuant to an Agreement
and Plan of Reorganization, dated as of December 16, 2001, and amended as of April 12, 2002, by and
among Alpha, Conexant and Washington Sub, Inc. (Washington), a wholly-owned subsidiary of
Conexant to which Conexant spun off its wireless communications business. Pursuant to the Merger,
Washington merged with and into Alpha, with Alpha as the surviving corporation. Immediately
following the Merger, Alpha purchased Conexants semiconductor assembly and test facility located
in Mexicali, Mexico and certain related operations (the Mexicali Operations). The Washington
business and the Mexicali Operations are collectively referred to as Washington/Mexicali. Shortly
thereafter, Alpha, which was incorporated in Delaware in 1962, changed its corporate name to
Skyworks Solutions, Inc.
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 period ended
March 30, 2007 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 29, 2006 as filed with the
SEC.
The Companys fiscal year ends on the Friday closest to September 30. Fiscal 2006 consisted of 52
weeks and ended on September 29, 2006, and the second quarters of fiscal 2007 and fiscal 2006 ended
on March 30, 2007 and March 31, 2006, respectively. There were 13 and 26 weeks, respectively, in
the second quarter and six month period ended March 30, 2007 and
March 31, 2006, respectively.
NOTE 2. COMPREHENSIVE INCOME (LOSS)
The Company accounts for comprehensive income (loss) in accordance with the provisions of SFAS No.
130, Reporting Comprehensive Income (SFAS No. 130). SFAS No. 130 is a financial statement
presentation standard that requires the Company to disclose non-owner changes included in equity
but not included in net income or loss. Other items of comprehensive income (loss) presented in the
financial statements consists of adjustments to the Companys minimum pension liability as follows
(in thousands):
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Accumulated |
|
|
|
|
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Other |
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|
|
Pension |
|
|
Comprehensive |
|
|
|
Adjustments |
|
|
Loss |
|
Balance as of September 29, 2006 |
|
|
(599 |
) |
|
|
(599 |
) |
Change in period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 30, 2007 |
|
$ |
(599 |
) |
|
$ |
(599 |
) |
|
|
|
|
|
|
|
6
NOTE 3. MARKETABLE SECURITIES
Marketable securities are categorized as available for sale and are summarized as follows as of
March 30, 2007 (in thousands):
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Gross |
|
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Gross |
|
|
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|
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Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Market |
|
Short-term available for sale securities: |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
Auction rate securities |
|
$ |
64,050 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
64,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities |
|
$ |
64,050 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
64,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities are categorized as available for sale and are summarized as follows as of
September 29, 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Market |
|
Short-term available for sale securities: |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
Auction rate securities |
|
$ |
28,150 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
28,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities |
|
$ |
28,150 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
28,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 4. INVENTORY
Inventories consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 30, |
|
|
September 29, |
|
|
|
2007 |
|
|
2006 |
|
Raw materials |
|
$ |
8,725 |
|
|
$ |
9,476 |
|
Work-in-process |
|
|
46,374 |
|
|
|
52,097 |
|
Finished goods |
|
|
21,087 |
|
|
|
19,956 |
|
|
|
|
|
|
|
|
|
|
$ |
76,186 |
|
|
$ |
81,529 |
|
|
|
|
|
|
|
|
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 30, |
|
|
September 29, |
|
|
|
2007 |
|
|
2006 |
|
Land |
|
$ |
9,423 |
|
|
$ |
9,423 |
|
Land and leasehold improvements |
|
|
4,075 |
|
|
|
3,990 |
|
Buildings |
|
|
61,459 |
|
|
|
55,983 |
|
Machinery and equipment |
|
|
315,307 |
|
|
|
308,618 |
|
Construction in progress |
|
|
22,596 |
|
|
|
22,564 |
|
|
|
|
|
|
|
|
|
|
|
412,860 |
|
|
|
400,578 |
|
Accumulated depreciation and amortization |
|
|
(263,939 |
) |
|
|
(250,195 |
) |
|
|
|
|
|
|
|
|
|
$ |
148,921 |
|
|
$ |
150,383 |
|
|
|
|
|
|
|
|
7
NOTE 6. GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
|
|
|
|
March 30, 2007 |
|
|
September 29, 2006 |
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Gross |
|
|
|
|
|
|
Net |
|
|
Gross |
|
|
|
|
|
|
Net |
|
|
|
Amortization |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
|
Period (Years) |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
Goodwill |
|
|
|
|
|
$ |
492,716 |
|
|
$ |
|
|
|
$ |
492,716 |
|
|
$ |
493,389 |
|
|
$ |
|
|
|
$ |
493,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized intangible |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed technology |
|
|
10 |
|
|
$ |
10,550 |
|
|
$ |
(5,962 |
) |
|
$ |
4,588 |
|
|
$ |
10,550 |
|
|
$ |
(5,525 |
) |
|
$ |
5,025 |
|
Customer relationships |
|
|
10 |
|
|
|
12,700 |
|
|
|
(6,043 |
) |
|
|
6,657 |
|
|
|
12,700 |
|
|
|
(5,408 |
) |
|
|
7,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,250 |
|
|
|
(12,005 |
) |
|
|
11,245 |
|
|
|
23,250 |
|
|
|
(10,933 |
) |
|
|
12,317 |
|
Unamortized intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
|
|
|
|
|
3,269 |
|
|
|
|
|
|
|
3,269 |
|
|
|
3,269 |
|
|
|
|
|
|
|
3,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets |
|
|
|
|
|
$ |
26,519 |
|
|
$ |
(12,005 |
) |
|
$ |
14,514 |
|
|
$ |
26,519 |
|
|
$ |
(10,933 |
) |
|
$ |
15,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense related to intangible assets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended |
|
Six-months Ended |
|
|
March 30, |
|
March 31, |
|
March 30, |
|
March 31, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
Amortization expense |
|
$ |
536 |
|
|
$ |
536 |
|
|
$ |
1,072 |
|
|
$ |
1,072 |
|
The changes in the gross carrying amount of goodwill and intangible assets are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed |
|
|
Customer |
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
Technology |
|
|
Relationships |
|
|
Trademarks |
|
|
Total |
|
Balance as of September 29, 2006 |
|
$ |
493,389 |
|
|
$ |
10,550 |
|
|
$ |
12,700 |
|
|
$ |
3,269 |
|
|
$ |
519,908 |
|
Deductions during period |
|
|
(673 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(673 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 30, 2007 |
|
$ |
492,716 |
|
|
$ |
10,550 |
|
|
$ |
12,700 |
|
|
$ |
3,269 |
|
|
$ |
519,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The deduction to goodwill during the six-month period ended March 30, 2007 reflects the recognition
of a portion of the deferred tax assets for which no benefit was previously recognized as of the
date of the Merger. The future realization of certain pre-Merger deferred tax assets will be
applied to reduce the carrying value of goodwill. The remaining pre-Merger deferred tax assets
that could reduce goodwill in future periods are $31.3 million as of March 30, 2007.
Annual amortization expense related to intangible assets for the next five years is expected to be
as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2008 |
|
2009 |
|
2010 |
|
2011 |
Amortization
expense |
|
$ |
2,144 |
|
|
$ |
2,144 |
|
|
$ |
2,144 |
|
|
$ |
2,144 |
|
|
$ |
2,144 |
|
NOTE 7. BORROWING ARRANGEMENTS
LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 30, |
|
|
September 29, |
|
|
|
2007 |
|
|
2006 |
|
Junior Notes |
|
$ |
49,335 |
|
|
$ |
179,335 |
|
2007 Convertible
Notes |
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
$ |
249,335 |
|
|
$ |
179,335 |
|
|
|
|
|
|
|
|
Less-current maturities |
|
|
49,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
200,000 |
|
|
$ |
179,335 |
|
|
|
|
|
|
|
|
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 consists of $100.0 million of 1.25% convertible subordinated notes due March 2010. The
second tranche consists of $100.0 million of 1.50% convertible subordinated notes due March 2012.
The initial redemption price of the 2007 Convertible Notes prior to maturity 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.
8
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 with respect to the 2007 Convertible Notes issued in
March 2007.
SHORT-TERM DEBT
Short-term debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 30, |
|
|
September 29, |
|
|
|
2007 |
|
|
2006 |
|
Junior Notes |
|
$ |
49,335 |
|
|
$ |
|
|
Facility Agreement |
|
|
40,071 |
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
$ |
89,406 |
|
|
$ |
50,000 |
|
|
|
|
|
|
|
|
Junior Notes represent the Companys 4.75% convertible subordinated notes due November 2007. These
Junior Notes can be converted into 110.4911 shares of common stock per $1,000 principal balance,
which is the equivalent of a conversion price of approximately $9.05 per share. The Company may
redeem the Junior Notes at any time for $1,000 per $1,000 principal amount of notes to be redeemed,
plus accrued and unpaid interest, if any, to the redemption date. Holders may require the Company
to repurchase the Junior Notes upon a change in control of the Company. The Company pays interest
in cash semi-annually in arrears on May 15 and November 15 of each year. On March 29, 2007, the
Company redeemed $130.0 million in aggregate principal amount of the Junior Notes at a redemption
price of $1,000 per $1,000 principal amount of notes plus $2.3 million in accrued and unpaid
interest.
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 fully 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 30, 2007,
Skyworks USA had borrowed $40.1 million under this agreement.
NOTE 8. CONTINGENCIES
From time to time, various lawsuits, claims and proceedings have been, and may in the future be,
instituted or asserted against the Company, including those pertaining to patent infringement,
intellectual property, environmental, product liability, safety and health, employment and
contractual matters.
Additionally, the semiconductor industry is characterized by vigorous protection and pursuit of
intellectual property rights. From time to time, third parties have asserted and may in the future
assert patent, copyright, trademark and other intellectual property rights to technologies that are
important to 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 could have, individually or
in the aggregate, a material adverse effect on our business, financial condition, and results of
operations or cash flows.
9
NOTE 9. GUARANTEES AND INDEMNITIES
The Company does not currently have any guarantees. The Company generally indemnifies its customers
from third-party intellectual property infringement litigation claims related to its products. 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.
NOTE 10. RESTRUCTURING AND SPECIAL CHARGES
Restructuring and special charges consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended |
|
|
Six-months Ended |
|
|
|
March 30, |
|
|
March 31, |
|
|
March 30, |
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Restructuring and special charges |
|
$ |
|
|
|
$ |
|
|
|
$ |
5,473 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,473 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and special charges consist of charges for asset impairments and restructuring
activities, as follows:
2006 RESTRUCTURING CHARGES 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 |
) |
Cash payments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring balance, September 29, 2006 |
|
$ |
105 |
|
|
$ |
3,157 |
|
|
$ |
13,070 |
|
|
$ |
|
|
|
$ |
16,332 |
|
Charged to costs and
expenses |
|
|
4,079 |
|
|
|
1,394 |
|
|
|
|
|
|
|
|
|
|
|
5,473 |
|
Reclassification of reserves |
|
|
|
|
|
|
(643 |
) |
|
|
643 |
|
|
|
|
|
|
|
|
|
Non-cash items |
|
|
|
|
|
|
(419 |
) |
|
|
|
|
|
|
|
|
|
|
(419 |
) |
Cash payments |
|
|
(888 |
) |
|
|
(977 |
) |
|
|
(11,736 |
) |
|
|
|
|
|
|
(13,601 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring balance, March 30, 2007 |
|
$ |
3,296 |
|
|
$ |
2,512 |
|
|
$ |
1,977 |
|
|
$ |
|
|
|
$ |
7,785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company identified approximately $0.6 million of excess license and software write-off reserves
at March 30, 2007, and reclassified these reserves for additional requirements for workforce
reductions.
The Company anticipates that most of the remaining payments associated with the exit of the
baseband product area will be remitted by the end of fiscal year 2007. However, certain costs
primarily associated with the facility closings (where the operating leases extend beyond the end
of fiscal year 2007) and severance payments that extend beyond fiscal 2007 will be remitted in
periods beyond fiscal 2007.
10
PRE-MERGER ALPHA RESTRUCTURING PLAN
The Company assumed approximately $7.8 million of restructuring reserves from Alpha in connection
with the Merger. As of March 30, 2007 the restructuring reserve balance related to Alpha was $0.5
million, and primarily related to estimated future payments on a lease that expires in 2008.
NOTE 11. SEGMENT INFORMATION
The Company follows SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information (SFAS No. 131). SFAS No. 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
the way that management organizes the 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. Based on the guidance in SFAS No.
131, the Company has one operating segment for financial reporting purposes, which designs,
develops, manufactures and markets proprietary semiconductor products, including intellectual
property, for manufacturers of wireless communication products.
NOTE 12. EMPLOYEE STOCK BENEFIT PLANS
Net income for the three-month period ended March 30, 2007 and March 31, 2006 included share-based
compensation expense under SFAS 123(R) of $4.1 million and $3.6 million, respectively. Net income
for the six-month period ended March 30, 2007 and March 31, 2006 included share-based compensation
expense under SFAS 123(R) of $6.1 million and $6.6 million, respectively. Share-based compensation
expense for the three-month period ended March 30, 2007 included $2.3 million on employee stock
options, $1.0 million on non-vested restricted stock with service and market conditions, $0.3
million on non-vested restricted stock with service conditions, $0.2 million on performance shares,
and $0.3 million on the Employee Stock Purchase Plan (ESPP). Share-based compensation expense
for the three-month period ended March 31, 2006 included $2.9 million on employee stock options,
$0.2 million on non-vested restricted stock with service and market conditions, $0.1 million on
non-vested restricted stock with service conditions and $0.4 million on the Companys ESPP.
Share-based compensation expense for the six-month period ended March 30, 2007 included $3.1
million on employee stock options, $1.6 million on non-vested restricted stock with service and
market conditions, $0.5 million on non-vested restricted stock with service conditions, $0.2
million on performance shares, and $0.7 million on the Employee Stock Purchase Plan (ESPP).
Share-based compensation expense for the six-month period ended March 31, 2006 included $5.3
million on employee stock options, $0.3 million on non-vested restricted stock with service and
market conditions, $0.1 million on non-vested restricted stock with service conditions and $0.9
million on the Companys ESPP.
Distribution and Dilutive Effect of Stock Options
The following table illustrates the grant dilution and exercise dilution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended |
|
Six-months Ended |
|
|
March 30, |
|
March 31, |
|
March 30, |
|
March 31, |
(In thousands) |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
Shares of common stock outstanding |
|
|
159,559 |
|
|
|
160,246 |
|
|
|
159,559 |
|
|
|
160,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
213 |
|
|
|
453 |
|
|
|
2,763 |
|
|
|
3,431 |
|
Cancelled/forfeited |
|
|
(1,643 |
) |
|
|
(1,506 |
) |
|
|
(3,358 |
) |
|
|
(2,427 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net options granted |
|
|
(1,430 |
) |
|
|
(1,053 |
) |
|
|
(595 |
) |
|
|
1,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant dilution (1) |
|
|
(0.9 |
%) |
|
|
(0.7 |
%) |
|
|
(0.4 |
%) |
|
|
0.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
240 |
|
|
|
174 |
|
|
|
911 |
|
|
|
230 |
|
Exercise dilution (2) |
|
|
0.1 |
% |
|
|
0.1 |
% |
|
|
0.6 |
% |
|
|
0.1 |
% |
11
|
|
|
(1) |
|
The percentage for grant dilution is computed based on net options granted as a
percentage of shares of common stock outstanding. |
|
(2) |
|
The percentage for exercise dilution is computed based on options exercised as
a percentage of shares of common stock outstanding. |
During the six-month period ended March 30, 2007, the dilutive effect of in-the-money
equity-based awards was approximately 1.2 million shares or 0.7% of the basic shares outstanding
based on the Companys average share price of $6.83.
Valuation and Expense Information under SFAS 123(R)
The following table summarizes share-based compensation expense related to employee stock options,
employee stock purchases, and restricted stock grants under SFAS 123(R) for the three and six-month
period ended March 30, 2007 and March 31, 2006 which was allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended |
|
|
Six-months Ended |
|
|
|
March 30, |
|
|
March 31, |
|
|
March 30, |
|
|
March 31, |
|
(In thousands) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Cost of sales |
|
|
276 |
|
|
|
560 |
|
|
|
401 |
|
|
|
910 |
|
Research and development |
|
|
1,622 |
|
|
|
1,531 |
|
|
|
2,108 |
|
|
|
2,949 |
|
Selling, general and administrative |
|
|
2,147 |
|
|
|
1,497 |
|
|
|
3,562 |
|
|
|
2,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
included in operating
expenses |
|
$ |
4,045 |
|
|
$ |
3,588 |
|
|
$ |
6,071 |
|
|
$ |
6,618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 30, 2007 and March 31, 2006, the Company had capitalized share-based compensation
expense of $0.3 million and $0.4 million in inventory. The Company did not recognize any tax
benefit on the share-based compensation recorded in the three and six-month period ended March 30,
2007 and March 31, 2006 because we have established a valuation allowance against our net U.S.
deferred tax assets.
The weighted-average estimated fair value of employee stock options granted during the three and
six-month period ended March 30, 2007 was $3.47 per share and $3.75 per share, respectively, and
the weighted-average fair value of employee stock options granted during the three and six-month
period ended March 31, 2006 was $3.66 per share and $3.14 per share, respectively using the Black
Scholes option-pricing model with the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
Three and Six-months Ended |
|
|
March 30, |
|
March 31, |
|
|
2007 |
|
2006 |
Expected volatility |
|
|
57.32 |
% |
|
|
66.02 |
% |
Risk free interest rate (7 year contractual life options) |
|
|
4.68 |
% |
|
|
4.86 |
% |
Risk free interest rate (10 year contractual life options) |
|
|
4.68 |
% |
|
|
4.86 |
% |
Dividend yield |
|
|
0.00 |
|
|
|
0.00 |
|
Expected option life (7 year contractual life options) |
|
|
4.57 |
|
|
|
4.42 |
|
Expected option life (10 year contractual life options) |
|
|
5.86 |
|
|
|
5.84 |
|
The Company used an arithmetic average of historical volatility and implied volatility to calculate
its expected volatility at March 30, 2007. Historical volatility was determined by calculating the
mean reversion of the daily-adjusted closing stock price over the past 4.75 years of the Companys
existence (post-Merger). The implied volatility was calculated by analyzing the 52-week minimum and
maximum prices of publicly traded call options on the Companys common stock. The Company concluded
that an arithmetic average of these two calculations provided for the most reasonable estimate of
expected volatility under the guidance of SFAS 123(R).
12
The risk-free interest rate assumption is based upon observed Treasury bill interest rates
(risk free) appropriate for the term of the Companys employee stock options.
The expected life of employee stock options represents a calculation based upon the historical
exercise, cancellation and forfeiture experience for the Company over the 4.75 years between June
2002 (post-Merger) and March 30, 2007. The Company determined that it had two populations with
unique exercise behavior. These populations included stock options with a contractual life of 7
years and 10 years, respectively.
As share-based compensation expense recognized in the Consolidated Statement of Operations for the
three and six-month period ended March 30, 2007 is actually based on awards ultimately expected to
vest, it has been reduced for annualized estimated forfeitures of 12.85%. SFAS 123(R) requires
forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical
experience.
NOTE 13. EARNINGS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share amounts) |
|
Three-months Ended |
|
|
Six-months Ended |
|
|
|
March 30, |
|
|
March 31, |
|
|
March 30, |
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Net income |
|
$ |
12,197 |
|
|
$ |
926 |
|
|
$ |
24,234 |
|
|
$ |
5,213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
basic |
|
|
160,687 |
|
|
|
159,084 |
|
|
|
160,935 |
|
|
|
158,828 |
|
Effect of dilutive stock options and
restricted stock |
|
|
1,285 |
|
|
|
545 |
|
|
|
1,190 |
|
|
|
384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
diluted |
|
|
161,972 |
|
|
|
159,629 |
|
|
|
162,125 |
|
|
|
159,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic |
|
$ |
0.08 |
|
|
$ |
0.01 |
|
|
$ |
0.15 |
|
|
$ |
0.03 |
|
Effect of dilutive stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share diluted |
|
$ |
0.08 |
|
|
$ |
0.01 |
|
|
$ |
0.15 |
|
|
$ |
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 stock options
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.
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 period ended March 30, 2007, respectively, the Junior Notes would have been
dilutive to earnings per share. In addition, the Company issued $200.0 million aggregate principal
amount of convertible subordinated notes (2007 Convertible Notes) in March 2007. These 2007
Convertible Notes contain cash settlement provisions which permit the application of the treasury
stock method in determining potential share dilution of the conversion spread should the share
price of the 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 with respect to the 2007
Convertible Notes issued in March 2007. These shares have not been included in the computation of earnings per share for the
three or six-month period ended March 30, 2007 as their effect would have been anti-dilutive.
13
Debt securities convertible into approximately 19.8 million shares and stock options exercisable
into approximately 25.0 million shares were outstanding but not included in the computation of
earnings per share for the three-month period ended March 31, 2006 as their effect would have been
anti-dilutive. Debt securities convertible into approximately 19.8 million shares and stock options
exercisable into approximately 25.1 million shares were outstanding but not included in the
computation of earnings per share for the six-month period ended March 31, 2006 as their effect
would have been anti-dilutive. If the Company had earned at least $19.8 million and $39.3 million
in net income for the three and six-month period ended March 31, 2006, respectively, the debt
securities would have been dilutive to earnings per share.
|
|
|
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 29, 2006, 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 30, 2007 AND MARCH 31, 2006
The following table sets forth the results of our operations expressed as a percentage of net
revenues for the three and six-month period ended March 30, 2007 and March 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended |
|
Six-months Ended |
|
|
March 30, |
|
March 31, |
|
March 30, |
|
March 31, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
Net revenues |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of goods sold |
|
|
61.9 |
|
|
|
62.6 |
|
|
|
61.7 |
|
|
|
62.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
38.1 |
|
|
|
37.4 |
|
|
|
38.3 |
|
|
|
37.6 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
17.4 |
|
|
|
21.9 |
|
|
|
16.4 |
|
|
|
21.6 |
|
Selling, general and administrative |
|
|
13.2 |
|
|
|
13.8 |
|
|
|
12.7 |
|
|
|
12.8 |
|
Restructuring and other charges |
|
|
|
|
|
|
|
|
|
|
1.5 |
|
|
|
|
|
Amortization |
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
30.9 |
|
|
|
36.0 |
|
|
|
30.9 |
|
|
|
34.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended |
|
Six-months Ended |
|
|
March 30, |
|
March 31, |
|
March 30, |
|
March 31, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
Operating income |
|
|
7.2 |
|
|
|
1.4 |
|
|
|
7.4 |
|
|
|
2.9 |
|
Interest expense |
|
|
(2.3 |
) |
|
|
(2.4 |
) |
|
|
(2.0 |
) |
|
|
(2.2 |
) |
Other income, net |
|
|
1.6 |
|
|
|
1.3 |
|
|
|
1.3 |
|
|
|
1.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
6.5 |
|
|
|
0.3 |
|
|
|
6.7 |
|
|
|
1.9 |
|
Provision for income taxes |
|
|
(0.2 |
) |
|
|
(0.2 |
) |
|
|
0.4 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
6.7 |
% |
|
|
0.5 |
% |
|
|
6.3 |
% |
|
|
1.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GENERAL
During the six-month period ended March 30, 2007, certain key factors contributed to our
overall results of operations and cash flows from operations. More specifically:
|
§ |
|
Our linear products, front-end solutions and multimode radios comprise our three key
ongoing product areas (Core Products). While overall revenues declined by $7.3 million,
or 1.9%, from the six-month period ended March 31, 2006 to the six-month period ended March
30, 2007, revenues from our Core Products increased by $22.7 million, or 6.4%, from the
six-month period ended March 31, 2006 to the six-month period ended March 30, 2007. Revenue
growth in our linear products area was the principal contributor to the overall revenue
growth from our Core Products. This increase in Core Product revenue was offset by a
decrease in revenues of approximately $30 million from our baseband product area (due to
our exit of this product area at the end of fiscal 2006) for the six-month period ended March 30, 2007 as compared to
the six-month period of fiscal 2006. |
|
|
§ |
|
We completed a $200.0 million convertible debt offering in March 2007 at an average
interest rate of 1.375% and achieved an approximate 35% conversion premium at the time of
the offering over the closing market price of our common stock. A portion of these proceeds
were utilized to retire $130.0 million of the Junior Notes due in November 2007 carrying an
interest rate of 4.75%. We also used $30.7 million to repurchase approximately 4.3 million
common shares and reduced the borrowings under our Facility Agreement by $9.9 million to
$40.1 million at March 30, 2007. |
|
|
§ |
|
We achieved cash provided by operations of $41.6 million for the six-month period ended
March 30, 2007 and increased cash and short-term investment balances to $222.8 million at
March 30, 2007 from $171.2 million at September 29, 2006. |
|
|
§ |
|
We achieved operating income of $27.9 million in the six-month period ended March 30,
2007 as compared to operating income of $11.1 million in the six-month period ended March
31, 2006. This 152.5% increase in operating income was primarily the result of a reduction
in research and development costs of $21.2 million, somewhat offset by a $5.5 million
charge to restructuring and other charges in the six-month period ended March 30, 2007.
Additionally, gross profit as a percentage of sales improved to
38.3% from 37.6% for the six-month period ended March 30, 2007 as compared to the same
period in fiscal 2006, as a result of a richer revenue mix achieved due to the higher gross
profit margin Core Products being a greater percentage of overall sales since we
exited the lower margin baseband product area. Additionally, we benefited from higher
contribution margins received from the licensing and sale of intellectual property during
the six-month period ended March 30, 2007, as compared to the corresponding period in fiscal
2006. |
|
|
§ |
|
We recorded $6.1 million in share-based compensation expense during the six-month period
ended March 30, 2007 as compared to $6.6 million in the corresponding period in fiscal
2006. Approximately $0.4 million, $2.1 million and $3.6 million were included in cost of
goods sold, research and development expense and selling, general and administrative
expense, respectively, for the six-month period ended March 30, 2007. |
NET REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended |
|
Six-months Ended |
|
|
March 30, |
|
|
|
|
|
March 31, |
|
March 30, |
|
|
|
|
|
March 31, |
(dollars in thousands) |
|
2007 |
|
Change |
|
2006 |
|
2007 |
|
Change |
|
2006 |
|
|
|
Net revenues |
|
$ |
180,210 |
|
|
|
(2.7 |
)% |
|
$ |
185,234 |
|
|
$ |
376,240 |
|
|
|
(1.9 |
)% |
|
$ |
383,559 |
|
15
We market and sell our semiconductor products (including power amplifiers, front-end modules, radio
solutions and linear products among others) 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.
Net revenues decreased 2.7% overall for the second fiscal
quarter of 2007 as compared to the second
fiscal quarter of 2006. Net revenues decreased 1.9% overall for the six-month period ended March
30, 2007 as compared to the corresponding period in fiscal 2006. These overall declines were
principally due to an approximate $30 million decline in baseband product area revenues between the
first six-months of fiscal 2007 as compared to the first six-months of fiscal 2006. However,
revenues from our Core Products increased by $7.7 million or 4.4% for the quarter ended March 30,
2007, as compared to the same period in the prior fiscal year and $22.7 million, or 6.4%, for the
six-month period ended March 30, 2007, as compared to the six-month period ended March 31, 2006.
Revenue growth in our linear products area was the principal contributor to the overall revenue
growth from our Core Products. As a result of the sales of a greater mix of higher functionality,
more complex, higher content and differentiated front end solutions and multimode radios as
compared to simpler, less complex and lower content solutions, overall average selling prices
declined by only 1.7% in the second quarter of fiscal 2007 as compared to 13.5% in the
corresponding period of the prior year. Average selling prices declined by only 6.0% in the first
six-month period of fiscal 2007 as compared to 15.1% in the
corresponding period of fiscal 2006. Net
revenues from our top three customers increased to 52.9% in the second quarter of fiscal 2007 from
46.2% in the second quarter of fiscal 2006.
GROSS PROFIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended |
|
Six-months Ended |
|
|
March 30, |
|
|
|
|
|
March 31, |
|
March 30, |
|
|
|
|
|
March 31, |
(dollars in thousands) |
|
2007 |
|
Change |
|
2006 |
|
2007 |
|
Change |
|
2006 |
|
|
|
Gross profit |
|
$ |
68,702 |
|
|
|
(0.9 |
)% |
|
$ |
69,350 |
|
|
$ |
144,018 |
|
|
|
(0.0 |
)% |
|
$ |
144,073 |
|
% of net revenues |
|
|
38.1 |
% |
|
|
|
|
|
|
37.4 |
% |
|
|
38.3 |
% |
|
|
|
|
|
|
37.6 |
% |
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
expenses) associated with product manufacturing and sustaining engineering expenses pertaining to
products sold.
The increase in gross profit as a percentage of revenue for both the three and six-month period
ended March 30, 2007 as compared to the corresponding periods in the previous fiscal year was
principally the result of a richer revenue mix achieved due to the higher gross profit margin
Core Products being a greater percentage of overall sales since we exited the lower margin
baseband product area. Additionally, we benefited from higher contribution margins received from
the licensing and sale of intellectual property during the six-month period ended March 30, 2007,
as compared to the corresponding period in fiscal 2006. Gross profit in aggregate dollars was
relatively unchanged for the three and six-month period ended March 30, 2007 as compared to the
prior fiscal year periods because of lower overall revenues, primarily resulting from our exit of
the baseband product area.
RESEARCH AND DEVELOPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended |
|
Six-months Ended |
|
|
March 30, |
|
|
|
|
|
March 31, |
|
March 30, |
|
|
|
|
|
March 31, |
(dollars in thousands) |
|
2007 |
|
Change |
|
2006 |
|
2007 |
|
Change |
|
2006 |
|
|
|
Research and development |
|
$ |
31,383 |
|
|
|
(22.6 |
)% |
|
$ |
40,557 |
|
|
$ |
61,795 |
|
|
|
(25.5 |
)% |
|
$ |
82,987 |
|
% of net revenues |
|
|
17.4 |
% |
|
|
|
|
|
|
21.9 |
% |
|
|
16.4 |
% |
|
|
|
|
|
|
21.6 |
% |
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.
16
The decrease in research and development expenses both in aggregate dollars and as a percentage of
net revenues for the three and six-month period ended March 30, 2007 when compared to the
corresponding periods in the previous fiscal year is predominantly attributable to decreased labor
and benefit costs as a result of the workforce reductions associated with the exit of our baseband
product area at the end of fiscal 2006. In addition, efficiencies were achieved in the utilization
of outside services, business travel and hardware/software costs. We also incurred lower research
and development related share-based compensation expense during the six-month period ended March
30, 2007, as compared to the same period in the prior year related to terminated baseband product
personnel.
SELLING, GENERAL AND ADMINISTRATIVE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended |
|
Six-months Ended |
|
|
March 30, |
|
|
|
|
|
March 31, |
|
March 30, |
|
|
|
|
|
March 31, |
(dollars in thousands) |
|
2007 |
|
Change |
|
2006 |
|
2007 |
|
Change |
|
2006 |
|
|
|
Selling, general and administrative |
|
$ |
23,750 |
|
|
|
(7.6 |
)% |
|
$ |
25,710 |
|
|
$ |
47,778 |
|
|
|
(2.4 |
)% |
|
$ |
48,963 |
|
% of net revenues |
|
|
13.2 |
% |
|
|
|
|
|
|
13.8 |
% |
|
|
12.7 |
% |
|
|
|
|
|
|
12.8 |
% |
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.
Selling, general and administrative expenses decreased both in aggregate dollars and as a
percentage of net revenues for the three and six-month period ended March 30, 2007 when compared to
the corresponding periods in the previous fiscal year primarily as the result of lower legal and
other professional fees. These cost reductions were partially offset by higher incentive costs
incurred in the first six months of fiscal 2007 as compared to the prior period.
RESTRUCTURING AND SPECIAL CHARGES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended |
|
Six-months Ended |
|
|
March 30, |
|
|
|
|
|
March 31, |
|
March 30, |
|
|
|
|
|
March 31, |
(dollars in thousands) |
|
2007 |
|
Change |
|
2006 |
|
2007 |
|
Change |
|
2006 |
|
|
|
Restructuring and special charges |
|
$ |
|
|
|
|
0.0 |
% |
|
$ |
|
|
|
$ |
5,473 |
|
|
|
100.0 |
% |
|
$ |
|
|
% of net revenues |
|
|
0.0 |
% |
|
|
|
|
|
|
0.0 |
% |
|
|
1.5 |
% |
|
|
|
|
|
|
0.0 |
% |
Restructuring and special charges consist of charges for asset impairments and restructuring
activities, as follows:
For the six-month period ended March 30, 3007, 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.
On September 29, 2006, we implemented a plan to exit our baseband product area in order to focus on
our Core Products encompassing linear products, radio solutions, power amplifiers and front-end
modules.
For additional information regarding restructuring charges and liability balances, see Note 10 of
Notes to Interim Consolidated Financial Statements.
AMORTIZATION OF INTANGIBLE ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended |
|
Six-months Ended |
|
|
March 30, |
|
|
|
|
|
March 31, |
|
March 30, |
|
|
|
|
|
March 31, |
(dollars in thousands) |
|
2007 |
|
Change |
|
2006 |
|
2007 |
|
Change |
|
2006 |
|
|
|
Amortization |
|
$ |
536 |
|
|
|
0.0 |
% |
|
$ |
536 |
|
|
$ |
1,072 |
|
|
|
0.0 |
% |
|
$ |
1,072 |
|
% of net revenues |
|
|
0.3 |
% |
|
|
|
|
|
|
0.3 |
% |
|
|
0.3 |
% |
|
|
|
|
|
|
0.3 |
% |
17
In 2002, we recorded $36.4 million of intangible assets consisting of developed technology,
customer relationships and a trademark. These assets are principally being amortized on a
straight-line basis over a 10-year period.
INTEREST EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended |
|
Six-months Ended |
|
|
March 30, |
|
|
|
|
|
March 31, |
|
March 30, |
|
|
|
|
|
March 31, |
(dollars in thousands) |
|
2007 |
|
Change |
|
2006 |
|
2007 |
|
Change |
|
2006 |
|
|
|
Interest expense |
|
$ |
4,114 |
|
|
|
(7.5 |
)% |
|
$ |
4,446 |
|
|
$ |
7,363 |
|
|
|
(10.8 |
)% |
|
$ |
8,258 |
|
% of net revenues |
|
|
2.3 |
% |
|
|
|
|
|
|
2.4 |
% |
|
|
2.0 |
% |
|
|
|
|
|
|
2.2 |
% |
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).
The decrease in interest expense both in aggregate dollars and as a percentage of net revenues for
the three and six-month period ended March 30, 2007 when
compared to the corresponding periods in
fiscal 2006 is primarily due to the retirement of $50.7 million of our Junior Notes in March 2006
and the associated decrease in required interest payments. We anticipate our interest expense will
decline in future periods due to the issuance of our 2007 Convertible Notes at an average rate of
1.375% and the redemption of $130.0 million in higher interest Junior Notes.
See Note 7 of Notes to Interim Consolidated Financial Statements for information related to our
borrowing arrangements.
OTHER INCOME, NET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended |
|
Six-months Ended |
|
|
March 30, |
|
|
|
|
|
March 31, |
|
March 30, |
|
|
|
|
|
March 31, |
(dollars in thousands) |
|
2007 |
|
Change |
|
2006 |
|
2007 |
|
Change |
|
2006 |
|
|
|
Other income, net |
|
$ |
2,903 |
|
|
|
19.5 |
% |
|
$ |
2,430 |
|
|
$ |
5,058 |
|
|
|
6.5 |
% |
|
$ |
4,749 |
|
% of net revenues |
|
|
1.6 |
% |
|
|
|
|
|
|
1.3 |
% |
|
|
1.3 |
% |
|
|
|
|
|
|
1.2 |
% |
Other income, net is comprised primarily of foreign exchange gains/losses, interest income on
invested cash balances and other non-operating income and expense items.
The increase in other income both in aggregate dollars and as a percentage of net revenues for the
three and six-month period ended March 30, 2007 when compared to the corresponding periods in the
previous fiscal year is primarily related to both increased interest rates and higher invested cash
balances.
PROVISION FOR INCOME TAXES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months Ended |
|
Six-months Ended |
|
|
March 30, |
|
|
|
|
|
March 31, |
|
March 30, |
|
|
|
|
|
March 31, |
(dollars in thousands) |
|
2007 |
|
Change |
|
2006 |
|
2007 |
|
Change |
|
2006 |
|
|
|
(Benefit) Provision for income taxes |
|
$ |
(375 |
) |
|
|
(5.0 |
)% |
|
$ |
(395 |
) |
|
$ |
1,361 |
|
|
|
(41.6 |
)% |
|
$ |
2,329 |
|
% of net revenues |
|
|
(0.2 |
)% |
|
|
|
|
|
|
(0.2 |
)% |
|
|
0.4 |
% |
|
|
|
|
|
|
0.6 |
% |
As a result of our history of operating losses and the expectation of future operating results, we
determined that it is more likely than not that historical income tax benefits will not be realized
except for certain future deductions associated with our foreign operations. Consequently, as of
March 30, 2007, we have maintained a valuation
18
allowance against all of our net U.S. deferred tax
assets. Deferred tax assets have been recognized for foreign operations when management believes
they will be recovered during the carry forward period.
The provision for income taxes for the three and six-month period ended March 30, 2007 consists of
approximately $(0.6) million and $1.0 million, respectively, of U.S. income taxes. Of the total
U.S. income tax provision, $(0.7) million and $0.7 million were recorded as a (benefit) charge
reducing the carrying value of goodwill for the three and six-month period ended March 30, 2007.
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 period ended March 30, 2007, consists of
approximately $0.2 million and $0.3 million, respectively, of foreign income taxes incurred by
foreign operations.
The provision for income taxes for the three and six-month period ended March 31, 2006 consisted of
approximately $1.2 million and $2.3 million, respectively, of foreign income taxes incurred by
foreign operations. The provision for income taxes for the three and six-month period ended March
31, 2006 consisted of $0.5 million and $1.4 million of foreign taxes related to the reduction of
the carrying value of the deferred tax asset attributable to our Mexico operations. In the fourth
quarter of fiscal 2006, the Company reorganized its Mexico operations. As a result, the long-term
deferred tax asset relating to the impairment of its Mexico assets was written off because the
machinery and equipment was transferred to a United States company. Therefore, the income tax
provision for the three and six-month period ended March 30, 2007 does not include any
amortization related to the deferred to tax asset.
For the six-month period ended March 30, 2007, U.S. income tax was provided on current earnings
attributable to our Mexico operations. No provision has been made for U.S. federal, state, or
additional foreign income taxes, which would be due upon the actual or deemed distribution of
undistributed earnings of the other foreign subsidiaries, which have been or are, intended to be
permanently reinvested. The effect on our financial statements is immaterial.
LIQUIDITY AND CAPITAL RESOURCES
|
|
|
|
|
|
|
|
|
|
|
Six- months Ended |
|
(dollars in thousands) |
|
March 30, 2007 |
|
|
March 31, 2006 |
|
Cash and cash equivalents at
beginning of period |
|
$ |
136,749 |
|
|
$ |
116,522 |
|
Net cash provided by operating
activities |
|
|
41,642 |
|
|
|
22,849 |
|
Net cash (used in) provided by
investing activities |
|
|
(53,477 |
) |
|
|
27,009 |
|
Net cash provided by (used in)
financing activities |
|
|
27,533 |
|
|
|
(49,626 |
) |
|
|
|
|
|
|
|
Cash and cash equivalents at end of
period |
|
$ |
152,447 |
|
|
$ |
116,754 |
|
|
|
|
|
|
|
|
Based on our results of operations for fiscal 2006 and the first six months of fiscal 2007 along
with current trends, we expect our existing sources of liquidity, together with cash expected to be
generated from operations and short-term investments will allow us to sufficiently fund our
research and development, capital expenditures, debt obligations (to replace existing or maturing
debt instruments), 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
19
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 and short-term investments increased $51.6 million to $216.5
million at March 30, 2007 from $164.9 million at September 29, 2006. The number of days sales
outstanding for the three-month period ended March 30, 2007 decreased to 81 from 85 for the
corresponding period in the previous fiscal year. Annualized inventory turns for the three-month
period ended March 30, 2007 were 5.9 compared to 5.0 for the corresponding period in the previous
fiscal year.
During the six-month period ended March 30, 2007, we generated $41.6 million in cash from operating
activities as we achieved net income of $24.2 million, and experienced a decrease in inventory
balances of $5.6 million offset by an increase in receivables of $2.2 million, a decrease in
accounts payable of $12.4 million, and a decrease in other liabilities of $5.3 million. We incurred
multiple non-cash charges (e.g., depreciation, amortization, contribution of common shares to
savings and retirement plans, charges in lieu of income tax expense, share-based compensation
expense and non-cash restructuring expense) totaling $31.5 million.
Cash used in investing activities for the six-month period ended March 30, 2007, consisted of net
purchases of $35.9 million in auction rate securities and capital expenditures of $17.6 million. 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 acquisition opportunities to extend our
technology portfolio and design expertise and to expand our product offerings.
Cash provided by financing activities for the six-month period ended March 30, 2007, primarily is
comprised of gross proceeds of $200.0 million from our 2007 Convertible Notes offering and stock
option exercises of $4.3 million, offset by repayment of $130.0 million on our Junior Notes,
repayment of $9.9 million on our Facility Agreement, a common stock buyback of 4.3 million shares
at a cost of $30.7 million, and financing costs associated with our 2007 Convertible Notes offering
of $6.2 million.
In connection with our exit of the baseband product area, we anticipate making remaining cash
payments of approximately $7.8 million in future periods. We anticipate the majority of these
payments will be remitted in fiscal 2007. However, 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 and short-term investments, will be sufficient to fund these costs associated with the
exit of our baseband product area.
CONTRACTUAL OBLIGATIONS
Our contractual obligations disclosure in our annual report on Form 10-K for the year ended
September 29, 2006 has not materially changed since we filed that report, with the exception that
we reclassified our Junior Notes from long-term debt to short-term debt in the quarter ended
December 29, 2006 due to the fact that such notes are due in November 2007. Our short-term debt is
more fully described in Note 7 of this Form 10-Q. In addition, on
March 2, 2007, the Company issued $200.0 million aggregate
principal amount of Convertible Subordinated Notes (2007
Convertible Notes). Our long-term debt is more fully described
in Note 7 of this Form 10-Q.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxesan interpretation of FASB Statement No. 109 (FIN 48), which clarifies the accounting and
disclosure for uncertainty in tax positions, as defined. FIN 48 seeks to reduce the diversity in
practice associated with certain aspects of the recognition and measurement related to accounting
for income taxes. This interpretation is effective for fiscal years beginning after December 15,
2006. The Company expects to adopt FIN 48 on September 29, 2007, the first day of fiscal 2008 and
has not yet determined the impact this interpretation will have on our results from operations or
financial position.
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
20
beginning after November 15, 2007 and interim
periods within those fiscal years. The Company has not yet determined the impact this FASB will
have on our results from operations or financial position.
In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension
and Other Postretirement Plansan amendment of FASB Statements No. 87, 88, 106, and 132(R) (SFAS
158) which requires an employer to: (a) recognize in its statement of financial position an asset
for a plans over funded status or a liability for a plans under funded status; (b) measure a
plans assets and its obligations that determine its funded status as of the end of the employers
fiscal year; and (c) recognize changes in the funded status of a defined benefit postretirement
plan in the year in which the changes occur. Those changes will be reported in other comprehensive
income. The requirement to recognize the funded status of a benefit plan and the disclosure
requirements are effective as of the end of fiscal years ending after December 15, 2006. The
requirement to measure plan assets and benefit obligations as of the date of the employers fiscal
year-end statement of financial position is effective for fiscal years ending after December 15,
2008, although earlier adoption is permitted. The Company has not yet determined the impact that
SFAS 158 will have on our results from operations or financial position.
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108,
Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year
Financial Statements (SAB 108), which provides interpretive guidance on how the effects of the
carryover or reversal of prior year misstatements should be considered in quantifying a current
year misstatement. SAB 108 is effective for
fiscal years ending after November 15, 2006. The Company does not expect the impact of SAB 108
will be material to its financial statements.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have exposure to foreign exchange and interest rate risk. 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 29, 2006.
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 30, 2007. 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 30, 2007, 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.
21
(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 30, 2007 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
CERTAIN BUSINESS RISKS
In addition to the other information set forth in this report, including in the first paragraph
under Managements Discussion and Analysis of Financial Condition and Results of Operation, you
should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our Annual
Report on Form 10-K for the fiscal year ended September 29, 2006, which could materially affect our
business, financial condition or future results. The risks
described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional
risks and uncertainties not currently known to us or that we currently deem to be immaterial also
may materially adversely affect our business, financial condition and/or operating results. The
risk factors below were disclosed in our Annual Report on Form 10-K and have been updated as of
March 30, 2007.
The wireless semiconductor markets are characterized by intense competition which may cause pricing
pressures, decreased gross margins and loss of market share and may materially and adversely affect
our business, financial condition and results of operations.
The wireless communications semiconductor industry in general and the markets in which we compete
in particular are intensely competitive. We compete with U.S. and international semiconductor
manufacturers of all sizes in terms of resources and market share, including RF Micro Devices,
Anadigics and TriQuint Semiconductor. As we expand in the linear products market, we will compete
with companies in other industries, including Analog Devices, Hittite Microwave, Linear Technology
and Maxim Integrated Products.
We currently face significant competition in our markets and expect that intense price and product
competition will continue. This competition has resulted in, and is expected to continue to result
in, declining average selling prices for our products and increased challenges in maintaining or
increasing market share. Furthermore, additional competitors may enter our markets as a result of
growth opportunities in communications electronics, the trend toward global expansion by foreign
and domestic competitors and technological and public policy changes. We believe that the principal
competitive factors for semiconductor suppliers in our markets include, among others:
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rapid time-to-market and product ramp, |
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timely new product innovation, |
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product quality, reliability and performance, |
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product price, |
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features available in products, |
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compliance with industry standards, |
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strategic relationships with customers, and |
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access to and protection of intellectual property. |
22
We cannot assure you that we will be able to successfully address these factors. Many of our
competitors enjoy the benefit of:
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long presence in key markets, |
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name recognition, |
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high levels of customer satisfaction, |
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ownership or control of key technology or intellectual property, and |
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strong financial, sales and marketing, manufacturing, distribution, technical or other resources. |
As a result, certain competitors may be able to adapt more quickly than we can to new or emerging
technologies and changes in customer requirements or may be able to devote greater resources to the
development, promotion and sale of their products than we can.
Current and potential competitors have established or may in the future establish, financial or
strategic relationships among themselves or with customers, resellers or other third parties. These
relationships may affect customers purchasing decisions. Accordingly, it is possible that new
competitors or alliances among competitors could emerge and rapidly acquire significant market
share. Furthermore, some of our customers have divisions that internally develop or manufacture
products similar to ours, and may compete with us. We cannot assure you that we will be able to
compete successfully against current and potential competitors. Increased competition could result
in pricing pressures, decreased gross margins and loss of market share and may materially and
adversely affect our business, financial condition and results of operations.
Our reliance on a small number of customers for a large portion of our sales could have a material
adverse effect on the results of our operations.
Significant portions of our sales are concentrated among a limited number of customers. If we
lost one or more of these major customers, or if one or more major customers significantly
decreased its orders for our products, our business would be materially and adversely affected.
Sales to our three largest customers in fiscal 2006, Motorola, Inc., Sony Ericsson Mobile
Communication AB and Asian Information Technology, Inc., including sales to their manufacturing
subcontractors, represented approximately 50% of our net revenue for fiscal 2006. Although we
expect that our largest customers will continue to account for a substantial portion of our net
revenue in fiscal 2007, a large customer of ours recently experienced reduced demand for its
products. A decrease in orders from this customer could materially and adversely affect our
results from operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c)
The following table provides information regarding repurchases of common stock made by us during
the fiscal quarter ended March 30, 2007:
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Maximum Number |
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(or Approximately |
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Total Number of |
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Dollar Value) of |
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Shares Purchased |
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Shares that May |
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as Part of Publicly |
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Yet Be Purchased |
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Total Number of |
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Average Price Paid |
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Announced Plans |
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Under the Plans or |
Period |
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Shares Purchased |
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per Share |
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or Programs |
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Programs |
February 8, 2007 |
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3,192 |
(1) |
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$ |
6.88 |
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N/A |
(2) |
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N/A |
(2) |
February 26, 2007 |
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6,917 |
(1) |
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$ |
7.06 |
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N/A |
(2) |
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N/A |
(2) |
March 6, 2007 |
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1,596 |
(1) |
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$ |
6.50 |
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N/A |
(2) |
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N/A |
(2) |
February 27, 2007 |
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4,255,000 |
(3) |
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$ |
7.07 |
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N/A |
(2) |
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N/A |
(2) |
23
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(1) |
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All shares of common stock reported in the table above were purchased by us, at the fair market
value of the common stock on the period date, in connection with the satisfaction of tax
withholding obligations under restricted stock agreements between us and certain of our executive
officers and key employees. |
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(2) |
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We have no publicly announced plans or programs. |
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(3) |
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On February 27, 2007, in connection with our offering of $200.0 million in convertible
notes, we repurchased 4.3 million shares of our outstanding
common stock at a price of $7.07 per share, including commissions paid to the broker. |
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Our annual meeting of shareholders was held on March 29, 2007 in Burlington, 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 |
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Votes Withheld/ |
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For |
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Against |
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Abstentions |
Election of directors: |
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Proposal to elect
three members of the
Board of Directors of the
Company to serve as Class
II directors with terms
expiring at the 2010
annual meeting of
stockholders |
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Kevin L. Beebe |
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134,966,423 |
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6,876,928 |
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Timothy R. Furey |
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134,598,890 |
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7,244,461 |
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David J. McLachlan |
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139,184,796 |
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2,658,555 |
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Proposal to ratify
the selection by our
Audit Committee of KPMG
LLP as the independent
registered public
accounting firm for the
Company for fiscal year
2007 |
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136,953,105 |
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4,690,010 |
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200,236 |
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24
ITEM 6. EXHIBITS
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Number |
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Description |
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31.1*
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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. |
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31.2*
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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. |
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32.1*
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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. |
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32.2*
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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. |
25
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 9, 2007 |
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By:/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:/s/ Allan M. Kline |
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Allan M. Kline, Chief Financial Officer |
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(Principal Financial Officer) |
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26
EXHIBIT INDEX
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Number |
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Description |
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31.1
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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. |
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31.2
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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. |
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32.1
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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. |
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32.2
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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. |
27
Exhibit 31.1
EXHIBIT 31.1
CERTIFICATION OF THE CEO 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
I, David J. Aldrich, certify that:
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1. |
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I have reviewed this quarterly report on Form 10-Q of Skyworks Solutions, Inc.; |
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2. |
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Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statement made, in light of the
circumstances under which such statements were made, not misleading with respect to the
period covered by this report; |
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3. |
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Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
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4. |
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The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
|
designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this
report is being prepared; |
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b) |
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designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted
accounting principles; |
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c) |
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evaluated the effectiveness of the registrants disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such
evaluation; |
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d) |
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disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter (the
registrants fourth quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrants internal control
over financial reporting; and |
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5. |
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The registrants other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrants
auditors and the audit committee of the registrants board of directors (or persons
performing the equivalent functions): |
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a) |
|
all significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information;
and |
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b) |
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any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting. |
Date: May 9, 2007
/s/ David J. Aldrich
David J. Aldrich
Chief Executive Officer
President
28
Exhibit 31.2
EXHIBIT 31.2
CERTIFICATION OF THE CFO 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
I, Allan M. Kline, certify that:
|
1. |
|
I have reviewed this quarterly report on Form 10-Q of Skyworks Solutions, Inc.; |
|
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statement made, in light of the
circumstances under which such statements were made, not misleading with respect to the
period covered by this report; |
|
|
3. |
|
Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report and |
|
|
4. |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
|
designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this
report is being prepared; |
|
|
b) |
|
designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted
accounting principles; |
|
|
c) |
|
evaluated the effectiveness of the registrants disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such
evaluation; |
|
|
c) |
|
disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter (the
registrants fourth quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrants internal control
over financial reporting; and |
|
5. |
|
The registrants other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrants
auditors and the audit committee of the registrants board of directors (or persons
performing the equivalent functions): |
|
a) |
|
all significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information;
and |
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|
b) |
|
any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting. |
Date: May 9, 2007
/s/ Allan M. Kline
Allan M. Kline
Chief Financial Officer
Vice President
29
Exhibit 32.1
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Skyworks Solutions, Inc. (the Company) on Form 10-Q
for the period ending March 30, 2007 as filed with the Securities and Exchange Commission on the
date hereof (the Report), I, David J. Aldrich, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
|
(1) |
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and |
|
|
(2) |
|
The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
A signed original of this written statement required by Section 906 has been provided to the
Company and will be retained by the Company and furnished to the Securities and Exchange Commission
or its staff upon request.
/s/ David J. Aldrich
David J. Aldrich
Chief Executive Officer
President
May 9, 2007
30
Exhibit 32.2
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Skyworks Solutions, Inc. (the Company) on Form 10-Q
for the period ending March 30, 2007 as filed with the Securities and Exchange Commission on the
date hereof (the Report), I, Allan M. Kline, Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
|
(1) |
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and |
|
|
(2) |
|
The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
A signed original of this written statement required by Section 906 has been provided to the
Company and will be retained by the Company and furnished to the Securities and Exchange Commission
or its staff upon request.
/s/ Allan M. Kline
Allan M. Kline
Chief Financial Officer
Vice President
May 9, 2007
31