NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, AND SIGNIFICANT ACCOUNTING POLICIES
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, as amended by Amendment No. 1 to such Annual Report on Form 10-K, filed with the SEC on January 29, 2021 (“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 three and nine months ended July 2, 2021, and June 26, 2020, each consisted of 13 weeks and 39 weeks, respectively.
Treasury Stock
The Company accounts for treasury stock using the cost method. The Company accounts for the retirement of treasury stock by charging any excess of cost over par value as a deduction from additional paid-in capital and the remaining excess as a deduction to retained earnings on the consolidated balance sheets. Retired treasury shares revert to the status of authorized but unissued shares.
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
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Nine Months Ended
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July 2,
2021
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|
June 26,
2020
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July 2,
2021
|
|
June 26,
2020
|
United States
|
$
|
636.0
|
|
|
$
|
425.2
|
|
|
$
|
2,372.6
|
|
|
$
|
1,431.0
|
|
China
|
262.0
|
|
|
166.5
|
|
|
759.6
|
|
|
512.9
|
|
Taiwan
|
90.4
|
|
|
64.9
|
|
|
310.6
|
|
|
165.9
|
|
South Korea
|
70.6
|
|
|
46.0
|
|
|
205.0
|
|
|
178.9
|
|
Europe, Middle East, and Africa
|
49.5
|
|
|
29.0
|
|
|
128.7
|
|
|
91.9
|
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Other Asia-Pacific
|
7.9
|
|
|
5.2
|
|
|
21.7
|
|
|
18.3
|
|
Total
|
$
|
1,116.4
|
|
|
$
|
736.8
|
|
|
$
|
3,798.2
|
|
|
$
|
2,398.9
|
|
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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July 2,
2021
|
|
October 2,
2020
|
|
July 2,
2021
|
|
October 2,
2020
|
U.S. Treasury and government
|
$
|
10.5
|
|
|
$
|
129.4
|
|
|
$
|
3.3
|
|
|
$
|
5.0
|
|
Corporate bonds and notes
|
106.8
|
|
|
276.8
|
|
|
—
|
|
|
—
|
|
Municipal bonds
|
11.9
|
|
|
1.9
|
|
|
0.6
|
|
|
0.2
|
|
Total
|
$
|
129.2
|
|
|
$
|
408.1
|
|
|
$
|
3.9
|
|
|
$
|
5.2
|
|
The contractual maturities of noncurrent available-for-sale marketable securities were due within two years or less. There were no gross unrealized gains or losses as of July 2, 2021. There were 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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|
|
|
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|
|
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|
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|
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|
|
|
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|
|
As of July 2, 2021
|
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As of October 2, 2020
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|
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Fair Value Measurements
|
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|
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Fair Value Measurements
|
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Total
|
|
Level 1
|
|
Level 2
|
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Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents*
|
$
|
2,845.0
|
|
|
$
|
2,845.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
566.7
|
|
|
$
|
561.2
|
|
|
$
|
5.5
|
|
|
$
|
—
|
|
U.S. Treasury and government securities
|
13.8
|
|
|
4.4
|
|
|
9.4
|
|
|
—
|
|
|
134.4
|
|
|
43.2
|
|
|
91.2
|
|
|
—
|
|
Corporate bonds and notes
|
106.8
|
|
|
—
|
|
|
106.8
|
|
|
—
|
|
|
276.8
|
|
|
—
|
|
|
276.8
|
|
|
—
|
|
Municipal bonds
|
12.5
|
|
|
—
|
|
|
12.5
|
|
|
—
|
|
|
2.1
|
|
|
—
|
|
|
2.1
|
|
|
—
|
|
Total
|
$
|
2,978.1
|
|
|
$
|
2,849.4
|
|
|
$
|
128.7
|
|
|
$
|
—
|
|
|
$
|
980.0
|
|
|
$
|
604.4
|
|
|
$
|
375.6
|
|
|
$
|
—
|
|
* 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 and nine months ended July 2, 2021.
5. INVENTORY
Inventory consists of the following (in millions):
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|
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|
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As of
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|
July 2,
2021
|
|
October 2,
2020
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Raw materials
|
$
|
56.0
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|
|
$
|
37.8
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Work-in-process
|
593.8
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|
|
566.4
|
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Finished goods
|
157.4
|
|
|
198.9
|
|
Finished goods held on consignment by customers
|
1.5
|
|
|
2.9
|
|
Total inventory
|
$
|
808.7
|
|
|
$
|
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
|
|
July 2,
2021
|
|
October 2,
2020
|
Land and improvements
|
$
|
11.8
|
|
|
$
|
11.8
|
|
Buildings and improvements
|
443.3
|
|
|
424.8
|
|
Furniture and fixtures
|
54.6
|
|
|
46.5
|
|
Machinery and equipment
|
2,897.0
|
|
|
2,556.1
|
|
Construction in progress
|
186.0
|
|
|
140.7
|
|
Total property, plant, and equipment, gross
|
3,592.7
|
|
|
3,179.9
|
|
Accumulated depreciation
|
(2,140.5)
|
|
|
(1,930.4)
|
|
Total property, plant, and equipment, net
|
$
|
1,452.2
|
|
|
$
|
1,249.5
|
|
7. GOODWILL AND INTANGIBLE ASSETS
There were no changes to the carrying amount of goodwill during the three and nine months ended July 2, 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 and nine months ended July 2, 2021.
Intangible assets consist of the following (in millions):
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|
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|
|
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|
|
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As of
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|
As of
|
|
Weighted
Average
Amortization
Period (Years)
|
July 2, 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
|
|
|
$
|
(18.2)
|
|
|
$
|
—
|
|
|
$
|
18.2
|
|
|
$
|
(15.8)
|
|
|
$
|
2.4
|
|
Developed technology and other
|
4.6
|
76.6
|
|
|
(55.1)
|
|
|
21.5
|
|
|
101.0
|
|
|
(81.6)
|
|
|
19.4
|
|
Trademarks
|
3.0
|
—
|
|
|
—
|
|
|
—
|
|
|
1.6
|
|
|
(1.5)
|
|
|
0.1
|
|
Technology licenses
|
2.7
|
31.5
|
|
|
(22.1)
|
|
|
9.4
|
|
|
26.3
|
|
|
(14.2)
|
|
|
12.1
|
|
IPR&D
|
|
3.8
|
|
|
—
|
|
|
3.8
|
|
|
19.5
|
|
|
—
|
|
|
19.5
|
|
Total intangible assets
|
|
$
|
130.1
|
|
|
$
|
(95.4)
|
|
|
$
|
34.7
|
|
|
$
|
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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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining 2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
Thereafter
|
Amortization expense, cost of goods sold
|
$
|
1.3
|
|
|
$
|
5.4
|
|
|
$
|
5.4
|
|
|
$
|
1.9
|
|
|
$
|
0.1
|
|
|
$
|
1.7
|
|
Amortization expense, operating expense
|
$
|
3.5
|
|
|
$
|
6.2
|
|
|
$
|
1.8
|
|
|
$
|
1.4
|
|
|
$
|
1.1
|
|
|
$
|
1.1
|
|
Total amortization expense
|
$
|
4.8
|
|
|
$
|
11.6
|
|
|
$
|
7.2
|
|
|
$
|
3.3
|
|
|
$
|
1.2
|
|
|
$
|
2.8
|
|
8. INCOME TAXES
The provision for income taxes consists of the following components (in millions):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
July 2,
2021
|
|
June 26,
2020
|
|
July 2,
2021
|
|
June 26,
2020
|
United States income taxes
|
$
|
(13.8)
|
|
|
$
|
4.1
|
|
|
$
|
63.7
|
|
|
$
|
27.3
|
|
Foreign income taxes
|
12.2
|
|
|
10.2
|
|
|
46.8
|
|
|
30.4
|
|
Provision (benefit) for income taxes
|
$
|
(1.6)
|
|
|
$
|
14.3
|
|
|
$
|
110.5
|
|
|
$
|
57.7
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
(0.5)
|
%
|
|
9.9
|
%
|
|
8.6
|
%
|
|
9.2
|
%
|
The difference between the Company’s effective tax rate and the 21.0% United States federal statutory rate for the three and nine months ended July 2, 2021, and June 26, 2020, respectively, resulted primarily from foreign earnings taxed at rates lower than the federal statutory rate, a benefit related to a change in the reserve for uncertain tax positions, 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”).
During fiscal 2021, the Company concluded an Internal Revenue Service (“IRS”) examination of its federal income tax returns for fiscal 2015 and 2016. With the conclusion of the audit, the Company decreased the reserve for uncertain tax positions, which resulted in the recognition of an income tax benefit of $42.8 million and $34.8 million during the three and nine months ended July 2, 2021, respectively.
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 26, 2021, 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 26, 2023, on the open market or in privately negotiated transactions, as permitted by securities laws and other legal requirements. This authorized stock repurchase plan replaced in its entirety the January 30, 2019, stock repurchase program. The timing and amount of any shares of the Company’s common stock that are repurchased under the repurchase program are determined by the Company’s management based on its evaluation of market conditions and other factors.
During the three months ended July 2, 2021, the Company did not repurchase any shares of its common stock. During the nine months ended July 2, 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), all of which shares were repurchased pursuant to the January 30, 2019, stock repurchase program. As of July 2, 2021, $2.0 billion remained available under the January 26, 2021, stock repurchase program. In connection with the Asset Purchase and the debt incurred to finance the Asset Purchase (as discussed in Notes 13 and 14 of the Notes to Consolidated Financial Statements), the Company has temporarily suspended repurchase activities under the January 26, 2021, stock repurchase program.
During the three and nine months ended July 2, 2021, the Board of Directors approved the retirement of 68.5 million shares of treasury stock at an aggregated historical cost of $4,342.6 million.
During the three months ended June 26, 2020, the Company paid $58.5 million (including commissions) in connection with the repurchase of 0.7 million shares of its common stock (paying an average price of $87.42 per share). During the nine months ended June 26, 2020, the Company paid $416.5 million (including commissions) in connection with the repurchase of 4.6 million shares of its common stock (paying an average price of $89.56 per share).
Dividends
On July 29, 2021, the Company announced that the Board of Directors had declared a cash dividend on the Company’s common stock of $0.56 per share. This dividend is payable on September 7, 2021, to the Company’s stockholders of record as of the close of business on August 17, 2021.
Dividends charged to retained earnings were as follows (in millions, except per share data):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Per Share
|
|
Total Amount
|
|
Per Share
|
|
Total Amount
|
First quarter
|
$
|
0.50
|
|
|
$
|
83.0
|
|
|
$
|
0.44
|
|
|
$
|
75.1
|
|
Second quarter
|
0.50
|
|
|
82.6
|
|
|
0.44
|
|
|
74.9
|
|
Third quarter
|
0.50
|
|
|
82.5
|
|
|
0.44
|
|
|
73.5
|
|
Total
|
$
|
1.50
|
|
|
$
|
248.1
|
|
|
$
|
1.32
|
|
|
$
|
223.5
|
|
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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|
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|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
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Nine Months Ended
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July 2,
2021
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June 26,
2020
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July 2,
2021
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|
June 26,
2020
|
Cost of goods sold
|
$
|
4.9
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|
|
$
|
4.7
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|
|
$
|
24.0
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|
|
$
|
16.1
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|
Research and development
|
17.9
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|
|
17.0
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|
|
62.2
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|
|
49.0
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Selling, general, and administrative
|
20.6
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|
|
16.1
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|
|
58.1
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|
|
46.5
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Total share-based compensation
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$
|
43.4
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|
|
$
|
37.8
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|
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$
|
144.3
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|
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$
|
111.6
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11. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share (in millions, except per share amounts):
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|
|
|
|
|
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|
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Three Months Ended
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Nine Months Ended
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July 2,
2021
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June 26,
2020
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July 2,
2021
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June 26,
2020
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Net income
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$
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337.8
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|
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$
|
129.7
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|
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$
|
1,172.0
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$
|
567.9
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|
|
|
|
|
|
|
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Weighted average shares outstanding – basic
|
165.1
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|
|
167.0
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|
|
165.2
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|
|
169.1
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Dilutive effect of equity-based awards
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1.9
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|
|
1.3
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|
1.7
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|
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1.2
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Weighted average shares outstanding – diluted
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167.0
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|
|
168.3
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|
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166.9
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|
170.3
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|
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Net income per share – basic
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$
|
2.05
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|
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$
|
0.78
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|
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$
|
7.10
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|
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$
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3.36
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Net income per share – diluted
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$
|
2.02
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|
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$
|
0.77
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|
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$
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7.02
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$
|
3.33
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|
|
|
|
|
|
|
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Anti-dilutive common stock equivalents
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—
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—
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|
—
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|
0.2
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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 and nine months ended July 2, 2021, and June 26, 2020, 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, assuming the end of the reporting period was the end of the
contingency period. 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 FINANCIAL INFORMATION
Other current liabilities consist of the following (in millions):
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As of
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July 2,
2021
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October 2,
2020
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Accrued taxes
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$
|
65.0
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$
|
31.2
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Operating lease liability
|
31.5
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|
|
28.2
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Accrued customer liabilities
|
28.8
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|
|
20.3
|
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Other
|
25.0
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|
|
28.3
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Total other current liabilities
|
$
|
150.3
|
|
|
$
|
108.0
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Other income (expense), net consists of the following (in millions):
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|
|
|
|
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|
|
|
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Three Months Ended
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Nine Months Ended
|
|
July 2,
2021
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|
June 26,
2020
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|
July 2,
2021
|
|
June 26,
2020
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Interest income
|
$
|
0.3
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|
|
$
|
1.2
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|
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$
|
1.1
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|
|
$
|
8.8
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Net gains (losses) on marketable securities
|
0.1
|
|
|
—
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|
|
0.1
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|
|
0.1
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Other income
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1.2
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|
|
5.4
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|
|
4.0
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|
|
7.4
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Other expense
|
(2.6)
|
|
|
(10.1)
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|
|
(5.3)
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|
|
(14.9)
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Total other income (expense), net
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$
|
(1.0)
|
|
|
$
|
(3.5)
|
|
|
$
|
(0.1)
|
|
|
$
|
1.4
|
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13. DEBT
Long-term debt consists of the following (in millions, except percentages):
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As of
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Effective Interest Rate
|
|
July 2,
2021
|
|
October 2,
2020
|
0.90% Senior Notes due 2023
|
1.15
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%
|
|
$
|
500.0
|
|
|
$
|
—
|
|
1.80% Senior Notes due 2026
|
1.97
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%
|
|
500.0
|
|
|
—
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|
3.00% Senior Notes due 2031
|
3.13
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%
|
|
500.0
|
|
|
—
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|
Unamortized debt discount and issuance costs
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|
|
(12.9)
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|
|
—
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|
Total debt
|
|
|
$
|
1,487.1
|
|
|
$
|
—
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Senior Notes
On May 26, 2021, the Company issued $500.0 million of its 0.90% Senior Notes due 2023 (the “2023 Notes”), $500.0 million of its 1.80% Senior Notes due 2026 (the “2026 Notes”), and $500.0 million of its 3.00% Senior Notes due 2031 (the “2031 Notes” and, together with the 2023 Notes and the 2026 Notes, the “Notes”). The Notes are senior unsecured obligations of the Company and rank equally in right of payment with all of its existing and future senior unsecured debt but effectively junior to any of the Company’s senior secured debt to the extent of the value of collateral securing such debt, and are structurally subordinated to all existing and future obligations of the Company’s subsidiaries. The Notes will mature on each respective maturity date, unless earlier redeemed in accordance with their terms. Interest on the Notes is payable on June 1 and December 1 of each year.
The Company may redeem all or a portion of the 2023 Notes at any time after June 1, 2022, and all or a portion of the 2026 Notes and the 2031 Notes at any time and from time to time prior to maturity, in whole or in part, for cash at the applicable redemption prices set forth in the respective supplemental indenture. If the Company undergoes a change of control repurchase event, as defined in the indenture governing the Notes (as supplemented, the “Indenture”), holders may require the Company to repurchase the Notes in whole or in part for cash at a price equal to 101% of the principal amount of the Notes to be purchased, plus any accrued and unpaid interest.
The terms of the Indenture provided that, if (i) the consummation of the Asset Purchase (as defined in Note 14 of the Notes to Consolidated Financial Statements) had not occurred prior to 5:00 p.m., New York City time, on October 29, 2021, (ii) the Company had notified the trustee and the holders of the 2023 Notes that it would not pursue the consummation of the Asset Purchase or (iii) the Asset Purchase Agreement had been terminated without the consummation of the Asset Purchase, the 2023 Notes would be subject to a special mandatory redemption at 101% of the principal amount of the Notes then outstanding plus accrued interest. The 2026 Notes and the 2031 Notes were not subject to any special mandatory redemption if the Asset Purchase had not been completed. As of July 2, 2021, the Company considered the likelihood of acceleration and recorded the Notes as long-term debt, net of discount and issuance costs, which are amortized to interest expense over the respective terms of these borrowings.
The Indenture contains customary events of default, including failure to make required payments of principal and interest, certain events of bankruptcy and insolvency, and default in the performance or breach of any covenant or warranty contained in the Indenture or the Notes.
Term Credit Agreement
On May 21, 2021, the Company entered into a term credit agreement (the “Term Credit Agreement”) providing for a $1.0 billion term loan facility (the “Term Loan Facility”). As of July 2, 2021, there were no borrowings outstanding under the Term Credit Agreement.
Borrowings under the Term Loan Facility are not currently guaranteed by any of the Company’s subsidiaries.
The Term Credit Agreement contains customary representations and warranties and covenants, including restrictions on the incurrence of indebtedness by non-guarantor subsidiaries and the creation of liens, and a financial covenant consisting of a limitation on leverage, defined as consolidated total indebtedness divided by consolidated earnings before interest, taxes, depreciation, and amortization for the period of four consecutive quarters not to exceed a ratio of 3.0 to 1.0. The Term Credit Agreement also contains customary events of default, which include failure to make required payments of principal and interest, breaches of representations and warranties, changes of control or failures to pay money judgments and certain defaults in respect of specified material indebtedness, upon the occurrence of which, among other remedies, the lenders may accelerate the maturity of the indebtedness and other obligations under the Term Credit Agreement.
Revolving Credit Agreement
On May 21, 2021, the Company entered into a revolving credit agreement (the “Revolving Credit Agreement”) providing for a $750 million revolving credit facility (the “Revolver”). The proceeds of the Revolver will be used for general corporate purposes and working capital needs of the Company and its subsidiaries.
The Revolver provides for revolving credit borrowings and letters of credit, with sublimits for letters of credit. The Revolver may be increased in specified circumstances by up to $250 million at the discretion of the lenders. The Revolver matures on July 26, 2026, and all unpaid borrowings, together with accrued and unpaid interest thereon, are repayable at maturity.
The Revolving Credit Agreement contains customary representations and warranties and covenants, including restrictions on the incurrence of indebtedness by non-guarantor subsidiaries and the creation of liens, and a financial covenant consisting of a limitation on leverage, defined as consolidated total indebtedness divided by consolidated earnings before interest, taxes, depreciation, and amortization for the period of four consecutive quarters not to exceed a ratio of 3.0 to 1.0. As of July 2, 2021, there were no borrowings outstanding under the Revolver.
Fair Value of Debt
The Company’s debt is carried at amortized cost and is measured at fair value quarterly for disclosure purposes. The estimated fair values are based on Level 2 inputs as the fair value is based on quoted prices for the Company’s debt and comparable instruments in inactive markets.
The estimated fair value of debt consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
July 2,
2021
|
|
October 2,
2020
|
0.90% Senior Notes due 2023
|
$
|
501.6
|
|
|
$
|
—
|
|
1.80% Senior Notes due 2026
|
507.0
|
|
|
—
|
|
3.00% Senior Notes due 2031
|
513.1
|
|
|
—
|
|
Total debt
|
$
|
1,521.7
|
|
|
$
|
—
|
|
14. SUBSEQUENT EVENTS
On July 26, 2021, the Company completed the acquisition of certain assets, rights, and properties, and the assumption of certain liabilities, comprising Silicon Laboratories Inc. (“Silicon Labs”) Infrastructure and Automotive business (the “Business”) in an all-cash transaction valued at $2.75 billion (the “Asset Purchase”).
The Company expects to account for the Asset Purchase as a business combination and is currently evaluating the purchase price allocation. It is not practicable to disclose the preliminary purchase price allocation or unaudited pro forma combined financial information for this transaction, given the short period of time between the acquisition date and the issuance of these consolidated financial statements.
In connection with the Asset Purchase, on July 26, 2021, the Company borrowed $1.0 billion in aggregate principal amount of term loans (the “Term Loans”) under the Term Loan Facility to finance a portion of the purchase price for the Asset Purchase and to pay fees and expenses incurred in connection therewith. Interest on the Term Loans is based on the applicable floating interest rate, plus an applicable margin based on the Company’s public debt credit ratings. The Term Loans mature on July 26, 2024, and all amounts then-outstanding under the Term Loans, together with accrued and unpaid interest thereon, are repayable at maturity. There is no premium or penalty for prepayment.