NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Skyworks Solutions, Inc., together with its consolidated subsidiaries (“Skyworks” or the “Company”), is empowering the wireless networking revolution. The Company’s analog semiconductors are connecting people, places, and things, spanning a number of new applications within the aerospace, automotive, broadband, cellular infrastructure, connected home, entertainment and gaming, industrial, medical, military, smartphone, tablet, and wearable markets.
The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. 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 (“GAAP”), have been condensed or omitted pursuant to those rules and regulations. However, in management’s opinion, the financial information reflects all adjustments, including those of a normal recurring nature, necessary to present fairly the results of operations, financial position, and cash flows of the Company for the periods presented. The results of operations, financial position, and cash flows for the Company during the interim periods are not necessarily indicative of those expected for the full year. This information should be read in conjunction with the Company’s financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended October 2, 2020, filed with the SEC on November 17, 2020 (“2020 10-K”).
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, revenue, expenses, comprehensive income, and accumulated other comprehensive loss that are reported in these unaudited consolidated financial statements and accompanying disclosures. The Company evaluates its estimates on an ongoing basis using historical experience and other factors, including the current economic environment. Judgment is required in determining the reserves for, and fair value of, items such as overall fair value assessments of assets and liabilities, particularly those classified as Level 2 or Level 3 in the fair value hierarchy, marketable securities, inventory, intangible assets associated with business combinations, share-based compensation, loss contingencies, and income taxes. In addition, judgment is required in determining whether a potential indicator of impairment of long-lived assets exists and in estimating future cash flows for any necessary impairment testing. Actual results could differ significantly from these estimates.
The Company’s fiscal year ends on the Friday closest to September 30. Fiscal 2021 consists of 52 weeks and ends on October 1, 2021. Fiscal 2020 consisted of 53 weeks and ended on October 2, 2020. The first quarters of fiscal 2021 and 2020 each consisted of 13 weeks and ended on January 1, 2021, and December 27, 2019, respectively.
2. REVENUE RECOGNITION
The Company presents net revenue by geographic area based upon the location of the original equipment manufacturers’ (“OEMs”) headquarters as it believes that doing so best depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. Net revenue by geographic area is as follows (in millions):
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Three Months Ended
|
|
|
|
January 1,
2021
|
|
December 27,
2019
|
|
|
|
|
United States
|
$
|
1,101.6
|
|
|
$
|
590.4
|
|
|
|
|
|
China
|
212.6
|
|
|
168.4
|
|
|
|
|
|
Taiwan
|
87.5
|
|
|
42.0
|
|
|
|
|
|
South Korea
|
68.0
|
|
|
59.0
|
|
|
|
|
|
Europe, Middle East, and Africa
|
33.8
|
|
|
30.3
|
|
|
|
|
|
Other Asia-Pacific
|
6.5
|
|
|
6.0
|
|
|
|
|
|
Total
|
$
|
1,510.0
|
|
|
$
|
896.1
|
|
|
|
|
|
The Company’s revenue from external customers is generated principally from the sale of semiconductor products that facilitate various wireless communication applications. Accordingly, the Company considers its product offerings to be similar in nature and therefore not segregated for reporting purposes.
3. MARKETABLE SECURITIES
The Company's portfolio of available-for-sale marketable securities consists of the following (in millions):
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Current
|
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Noncurrent
|
Available for sale:
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January 1,
2021
|
|
October 2,
2020
|
|
January 1,
2021
|
|
October 2,
2020
|
U.S. Treasury and government
|
$
|
128.4
|
|
|
$
|
129.4
|
|
|
$
|
0.7
|
|
|
$
|
5.0
|
|
Corporate bonds and notes
|
258.1
|
|
|
276.8
|
|
|
—
|
|
|
—
|
|
Municipal bonds
|
14.9
|
|
|
1.9
|
|
|
—
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
401.4
|
|
|
$
|
408.1
|
|
|
$
|
0.7
|
|
|
$
|
5.2
|
|
The contractual maturities of noncurrent available-for-sale marketable securities were due within two years or less. There were gross unrealized gains of $0.2 million on U.S. Treasury securities and $0.1 million on corporate bonds and notes as of January 1, 2021, and gross unrealized gains of $0.3 million on U.S. Treasury securities and $0.2 million on corporate bonds and notes as of October 2, 2020.
4. FAIR VALUE
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis
The Company groups its financial assets and liabilities measured at fair value on a recurring basis in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:
•Level 1 - Quoted prices in active markets for identical assets or liabilities.
•Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-driven valuations in which all significant inputs are observable or can be derived principally from, or corroborated with, observable market data.
•Level 3 - Fair value is derived from valuation techniques in which one or more significant inputs are unobservable, including assumptions and judgments made by the Company.
Assets and liabilities recorded at fair value on a recurring basis consisted of the following (in millions):
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As of January 1, 2021
|
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As of October 2, 2020
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|
|
|
Fair Value Measurements
|
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Fair Value Measurements
|
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Total
|
|
Level 1
|
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Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Cash and cash equivalents*
|
$
|
617.2
|
|
|
$
|
602.4
|
|
|
$
|
14.8
|
|
|
$
|
—
|
|
|
$
|
566.7
|
|
|
$
|
561.2
|
|
|
$
|
5.5
|
|
|
$
|
—
|
|
U.S. Treasury and government securities
|
129.1
|
|
|
38.1
|
|
|
91.0
|
|
|
—
|
|
|
134.4
|
|
|
43.2
|
|
|
91.2
|
|
|
—
|
|
Corporate bonds and notes
|
258.1
|
|
|
—
|
|
|
258.1
|
|
|
—
|
|
|
276.8
|
|
|
—
|
|
|
276.8
|
|
|
—
|
|
Municipal bonds
|
14.9
|
|
|
—
|
|
|
14.9
|
|
|
—
|
|
|
2.1
|
|
|
—
|
|
|
2.1
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
1,019.3
|
|
|
$
|
640.5
|
|
|
$
|
378.8
|
|
|
$
|
—
|
|
|
$
|
980.0
|
|
|
$
|
604.4
|
|
|
$
|
375.6
|
|
|
$
|
—
|
|
|
|
|
|
|
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|
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* Cash equivalents included in Levels 1 and 2 consist of money market funds and corporate bonds and notes, commercial paper, and agency securities purchased with less than ninety days until maturity.
Assets Measured and Recorded at Fair Value on a Nonrecurring Basis
The Company’s non-financial assets and liabilities, such as goodwill, intangible assets, and other long-lived assets resulting from business combinations, are measured at fair value using income approach valuation methodologies at the date of acquisition and are subsequently re-measured if there are indicators of impairment. There were no indicators of impairment identified during the three months ended January 1, 2021.
5. INVENTORY
Inventory consists of the following (in millions):
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As of
|
|
January 1,
2021
|
|
October 2,
2020
|
Raw materials
|
$
|
39.9
|
|
|
$
|
37.8
|
|
Work-in-process
|
547.0
|
|
|
566.4
|
|
Finished goods
|
129.7
|
|
|
198.9
|
|
Finished goods held on consignment by customers
|
1.9
|
|
|
2.9
|
|
Total inventory
|
$
|
718.5
|
|
|
$
|
806.0
|
|
6. PROPERTY, PLANT, AND EQUIPMENT, NET
Property, plant, and equipment, net consists of the following (in millions):
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As of
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|
January 1,
2021
|
|
October 2,
2020
|
Land and improvements
|
$
|
11.8
|
|
|
$
|
11.8
|
|
Buildings and improvements
|
431.9
|
|
|
424.8
|
|
Furniture and fixtures
|
49.1
|
|
|
46.5
|
|
Machinery and equipment
|
2,642.5
|
|
|
2,556.1
|
|
Construction in progress
|
167.3
|
|
|
140.7
|
|
Total property, plant, and equipment, gross
|
3,302.6
|
|
|
3,179.9
|
|
Accumulated depreciation
|
(1,997.2)
|
|
|
(1,930.4)
|
|
Total property, plant, and equipment, net
|
$
|
1,305.4
|
|
|
$
|
1,249.5
|
|
7. GOODWILL AND INTANGIBLE ASSETS
There were no changes to the carrying amount of goodwill during the three months ended January 1, 2021.
The Company tests its goodwill for impairment annually as of the first day of its fourth fiscal quarter and in interim periods if certain events occur indicating the carrying value of goodwill may be impaired. There were no indicators of impairment noted during the three months ended January 1, 2021.
Intangible assets consist of the following (in millions):
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As of
|
|
As of
|
|
Weighted
Average
Amortization
Period (Years)
|
January 1, 2021
|
|
October 2, 2020
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Gross
Carrying Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
Customer relationships
|
5.0
|
$
|
18.2
|
|
|
$
|
(16.7)
|
|
|
$
|
1.5
|
|
|
$
|
18.2
|
|
|
$
|
(15.8)
|
|
|
$
|
2.4
|
|
Developed technology and other
|
5.0
|
60.9
|
|
|
(46.3)
|
|
|
14.6
|
|
|
101.0
|
|
|
(81.6)
|
|
|
19.4
|
|
Trademarks
|
3.0
|
—
|
|
|
—
|
|
|
—
|
|
|
1.6
|
|
|
(1.5)
|
|
|
0.1
|
|
Technology licenses
|
3.1
|
27.3
|
|
|
(16.5)
|
|
|
10.8
|
|
|
26.3
|
|
|
(14.2)
|
|
|
12.1
|
|
IPR&D
|
|
19.5
|
|
|
—
|
|
|
19.5
|
|
|
19.5
|
|
|
—
|
|
|
19.5
|
|
Total intangible assets
|
|
$
|
125.9
|
|
|
$
|
(79.5)
|
|
|
$
|
46.4
|
|
|
$
|
166.6
|
|
|
$
|
(113.1)
|
|
|
$
|
53.5
|
|
Fully amortized intangible assets are eliminated from both the gross and accumulated amortization amounts in the first quarter of each fiscal year.
Annual amortization expense for the next five fiscal years related to definite-lived intangible assets, excluding IPR&D, is expected to be as follows (in millions):
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|
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|
|
|
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|
|
|
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|
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|
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|
|
|
|
|
|
|
|
Remaining 2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
Thereafter
|
Amortization expense, cost of goods sold
|
$
|
3.0
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
1.7
|
|
Amortization expense, operating expense
|
$
|
12.2
|
|
|
$
|
5.3
|
|
|
$
|
1.3
|
|
|
$
|
1.0
|
|
|
$
|
1.0
|
|
|
$
|
1.0
|
|
Total amortization expense
|
$
|
15.2
|
|
|
$
|
5.4
|
|
|
$
|
1.4
|
|
|
$
|
1.1
|
|
|
$
|
1.1
|
|
|
$
|
2.7
|
|
8. INCOME TAXES
The provision for income taxes consists of the following components (in millions):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
January 1,
2021
|
|
December 27,
2019
|
|
|
|
|
United States income taxes
|
$
|
41.0
|
|
|
$
|
11.5
|
|
|
|
|
|
Foreign income taxes
|
20.6
|
|
|
10.1
|
|
|
|
|
|
Provision for income taxes
|
$
|
61.6
|
|
|
$
|
21.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
10.8
|
%
|
|
7.8
|
%
|
|
|
|
|
The difference between the Company’s effective tax rate and the 21.0% United States federal statutory rate for the three months ended January 1, 2021 and December 27, 2019, respectively, resulted primarily from foreign earnings taxed at rates lower than the federal statutory rate, a benefit from foreign-derived intangible income deduction (“FDII”), windfall tax deductions, and research and experimentation and foreign tax credits earned, partially offset by a tax on global intangible low-taxed income (“GILTI”), and tax expense related to a change in the reserve for uncertain tax positions.
The Company operates under a tax holiday in Singapore, which is effective through September 30, 2030. The current tax holiday is conditioned upon the Company’s compliance with certain employment and investment thresholds in Singapore.
9. COMMITMENTS AND CONTINGENCIES
Legal Matters
From time to time, various lawsuits, claims and proceedings have been, and may in the future be, instituted or asserted against the Company, including those pertaining to patent infringement, intellectual property, environmental hazards, product liability and warranty, safety and health, employment, and contractual matters.
The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights. From time to time, third parties have asserted and may in the future assert patent, copyright, trademark, and other intellectual property rights to technologies that are important to the Company’s business and have demanded and may in the future demand that the Company license their technology. The outcome of any such litigation cannot be predicted with certainty and some such lawsuits, claims, or proceedings may be disposed of unfavorably to the Company. Generally speaking, intellectual property disputes often have a risk of injunctive relief, which, if imposed against the Company, could materially and adversely affect the Company’s financial condition or results of operations. From time to time the Company may also be involved in legal proceedings in the ordinary course of business.
The Company monitors the status of legal proceedings and other contingencies on an ongoing basis to ensure loss contingencies are recognized and/or disclosed in its financial statements and footnotes. The Company does not believe there are any pending legal proceedings that are reasonably possible to result in a material loss. The Company is engaged in various legal actions in the normal course of business and, while there can be no assurances, the Company believes the outcome of all pending litigation involving the Company will not have, individually or in the aggregate, a material adverse effect on its business or financial statements.
Guarantees and Indemnities
The Company has made no significant contractual guarantees for the benefit of third parties. However, the Company generally indemnifies its customers from third-party intellectual property infringement litigation claims related to its products and, on occasion, also provides other indemnities related to product sales. In connection with certain facility leases, the Company has indemnified its lessors for certain claims arising from the facility or the lease.
The Company indemnifies its directors and officers to the maximum extent permitted under the laws of the state of Delaware. The duration of the indemnities varies and in many cases is indefinite. The indemnities to customers in connection with product sales generally are subject to limits based upon the amount of the related product sales and in many cases are subject to geographic and other restrictions. In certain instances, the Company’s indemnities do not provide for any limitation of the maximum potential future payments the Company could be obligated to make. The Company has not recorded any liability for these indemnities in the accompanying consolidated balance sheets and does not expect that such obligations will have a material adverse impact on its financial statements.
10. STOCKHOLDERS’ EQUITY
Stock Repurchase Program
On January 30, 2019, the Board of Directors approved a stock repurchase program, pursuant to which the Company is authorized to repurchase up to $2.0 billion of its common stock from time to time prior to January 30, 2021, on the open market or in privately negotiated transactions, as permitted by securities laws and other legal requirements. During the three months ended January 1, 2021, the Company paid $195.6 million (including commissions) in connection with the repurchase of 1.4 million shares of its common stock (paying an average price of $138.85 per share). During the three months ended December 27, 2019, the Company paid $74.2 million (including commissions) in connection with the repurchase of 0.7 million shares of its common stock (paying an average price of $100.01 per share). As of January 1, 2021, $0.78 billion remained available under the January 30, 2019, stock repurchase authorization.
On January 26, 2021, the Board of Directors approved a new stock repurchase program, pursuant to which the Company is authorized to repurchase up to $2.0 billion of its common stock from time to time prior to January 26, 2023, on the open market or in privately negotiated transactions, as permitted by securities laws and other legal requirements. This newly authorized stock repurchase plan replaces in its entirety the aforementioned January 30, 2019, plan. The timing and amount of any shares of the Company’s common stock that are repurchased under the new repurchase program will be determined by the Company’s management based on its evaluation of market conditions and other factors. The repurchase program may be suspended or discontinued at any time. The Company currently expects to fund the repurchase program using the Company’s working capital.
Dividends
On January 28, 2021, the Company announced that the Board of Directors had declared a cash dividend on the Company’s common stock of $0.50 per share. This dividend is payable on March 9, 2021, to the Company’s stockholders of record as of the close of business on February 16, 2021.
During the three months ended January 1, 2021, the Company declared and paid a $0.50 dividend per share of common stock with a total charge to retained earnings of $83.0 million.
Share-based Compensation
The following table summarizes the share-based compensation expense by line item in the Statements of Operations (in millions):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
January 1,
2021
|
|
December 27,
2019
|
|
|
|
|
Cost of goods sold
|
$
|
6.4
|
|
|
$
|
4.2
|
|
|
|
|
|
Research and development
|
20.3
|
|
|
14.8
|
|
|
|
|
|
Selling, general and administrative
|
17.8
|
|
|
14.6
|
|
|
|
|
|
Total share-based compensation
|
$
|
44.5
|
|
|
$
|
33.6
|
|
|
|
|
|
11. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
January 1,
2021
|
|
December 27,
2019
|
|
|
|
|
Net income
|
$
|
509.3
|
|
|
$
|
257.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding – basic
|
165.4
|
|
|
170.2
|
|
|
|
|
|
Dilutive effect of equity-based awards
|
1.6
|
|
|
1.4
|
|
|
|
|
|
Weighted average shares outstanding – diluted
|
167.0
|
|
|
171.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share – basic
|
$
|
3.08
|
|
|
$
|
1.51
|
|
|
|
|
|
Net income per share – diluted
|
$
|
3.05
|
|
|
$
|
1.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive common stock equivalents
|
—
|
|
0.5
|
|
|
|
|
Basic earnings per share are calculated by dividing net income by the weighted average number of shares of the Company’s common stock outstanding during the period. The calculation of diluted earnings per share includes the dilutive effect of equity-based awards that were outstanding during the three months ended January 1, 2021, and December 27, 2019, using the treasury stock method. Shares issuable upon the vesting of performance stock awards are likewise included in the calculation of diluted earnings per share as of the date the condition(s) have been satisfied. Certain of the Company’s outstanding share-based awards, noted in the table above, were excluded because they were anti-dilutive, but they could become dilutive in the future.
12. SUPPLEMENTAL BALANCE SHEET INFORMATION
Other current liabilities consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
January 1,
2021
|
|
October 2,
2020
|
Accrued taxes
|
80.5
|
|
31.2
|
Operating lease liability
|
30.8
|
|
28.2
|
Accrued customer liabilities
|
21.5
|
|
20.3
|
|
|
|
|
Other
|
25.2
|
|
28.3
|
Total other current liabilities
|
158.0
|
|
108.0
|