Quarterly Report (10-q)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 26, 2020

☐ 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 001-05560

Skyworks Solutions, Inc.

(Exact name of registrant as specified in its charter)

Delaware

04-2302115

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

5260 California Avenue

Irvine

California

92617

(Address of principal executive offices)

(Zip Code)

(949)

231-3000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.25 per share

SWKS

Nasdaq Global Select Market

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 ¨ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). þ Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes þ No

As of July 17, 2020, the registrant had 167,036,087 shares of common stock, par value $0.25 per share, outstanding.

SKYWORKS SOLUTIONS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED JUNE 26, 2020

TABLE OF CONTENTS


			PAGE NO.
PART I. FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)			2

CONSOLIDATED STATEMENTS OF OPERATIONS			2

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME			3

CONSOLIDATED BALANCE SHEETS			4

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY			5

CONSOLIDATED STATEMENTS OF CASH FLOWS			7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS			8

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			16

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			22

ITEM 4: CONTROLS AND PROCEDURES			22

PART II. OTHER INFORMATION			24

ITEM 1: LEGAL PROCEEDINGS			24

ITEM 1A: RISK FACTORS			24

ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			25

ITEM 6: EXHIBITS			26

SIGNATURES			27

Table of Contents

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

SKYWORKS SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in millions, except per share amounts)


	Three Months Ended						Nine Months Ended
	June 26, 2020		June 28, 2019		June 26, 2020		June 28, 2019
Net revenue	$	736.8	$	767.0	$	2,398.9	$	2,549.4
Cost of goods sold	402.7		454.5		1,244.9		1,351.6
Gross profit	334.1		312.5		1,154.0		1,197.8
Operating expenses:
Research and development	117.0		100.6		337.9		317.3
Selling, general and administrative	55.0		46.8		169.1		142.5
Amortization of intangibles	2.8		5.5		9.0		18.6
Restructuring, impairment and other charges	11.8		—		13.8		1.3
Total operating expenses	186.6		152.9		529.8		479.7
Operating income	147.5		159.6		624.2		718.1
Other income (expense), net	(3.5)		2.3		1.4		8.9
Income before income taxes	144.0		161.9		625.6		727.0
Provision for income taxes	14.3		17.8		57.7		84.0
Net income	$	129.7	$	144.1	$	567.9	$	643.0
Earnings per share:
Basic	$	0.78	$	0.83	$	3.36	$	3.69
Diluted	$	0.77	$	0.83	$	3.33	$	3.67
Weighted average shares:
Basic	167.0		172.6		169.1		174.3
Diluted	168.3		173.4		170.3		175.2

Cash dividends declared and paid per share	$	0.44	$	0.38	$	1.32	$	1.14

See accompanying Notes to Consolidated Financial Statements.

Table of Contents

SKYWORKS SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited, in millions)


	Three Months Ended						Nine Months Ended
	June 26, 2020		June 28, 2019		June 26, 2020		June 28, 2019
Net income	$	129.7	$	144.1	$	567.9	$	643.0
Other comprehensive income, net of tax
Fair value of investments	(0.1)		0.3		0.3		0.5
Pension adjustments	—		—		—		0.5
Comprehensive income	$	129.6	$	144.4	$	568.2	$	644.0

See accompanying Notes to Consolidated Financial Statements.

Table of Contents

SKYWORKS SOLUTIONS, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except per share amounts)


	As of
	June 26, 2020		September 27, 2019
ASSETS	(unaudited)
Current assets:
Cash and cash equivalents	$	791.3	$	851.3
Marketable securities	347.0		203.3
Receivables, net of allowance of $0.9 and $0.8, respectively	346.1		465.3
Inventory	698.2		609.7
Other current assets	154.8		105.0
Total current assets	2,337.4		2,234.6
Property, plant and equipment, net	1,206.9		1,205.6
Operating lease right-of-use assets	172.7		—
Goodwill	1,189.8		1,189.8
Intangible assets, net	62.9		107.9
Deferred tax assets, net	42.6		40.8
Marketable securities	24.1		27.6
Other long-term assets	36.0		33.3
Total assets	$	5,072.4	$	4,839.6
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	200.9	$	190.5
Accrued compensation and benefits	94.6		76.0
Other current liabilities	105.6		107.5
Total current liabilities	401.1		374.0
Long-term tax liabilities	300.6		312.4
Long-term operating lease liabilities	155.8		—
Other long-term liabilities	32.5		30.9
Total liabilities	890.0		717.3
Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred stock, no par value: 25.0 shares authorized, no shares issued	—		—
Common stock, $0.25 par value: 525.0 shares authorized; 232.1 shares issued and 167.1 shares outstanding at June 26, 2020, and 230.2 shares issued and 170.1 shares outstanding at September 27, 2019	41.8		42.5
Additional paid-in capital	3,351.5		3,188.0
Treasury stock, at cost	(3,860.3)		(3,412.9)
Retained earnings	4,657.0		4,312.6
Accumulated other comprehensive loss	(7.6)		(7.9)
Total stockholders’ equity	4,182.4		4,122.3
Total liabilities and stockholders’ equity	$	5,072.4	$	4,839.6

See accompanying Notes to Consolidated Financial Statements.

Table of Contents

SKYWORKS SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions)


	Shares of common stock	Par value of common stock		Shares of treasury stock	Value of treasury stock		Additional paid-in capital		Retained earnings		Accumulated other comprehensive loss		Total stockholders’ equity
Balance at September 27, 2019	170.1	$	42.5	60.1	$	(3,412.9)	$	3,188.0	$	4,312.6	$	(7.9)	$	4,122.3
Net income	—	—		—	—		—		257.1		—		257.1
Exercise and settlement of share-based awards, net of shares withheld for taxes	1.1	0.3		0.3	(26.7)		34.6		—		—		8.2
Share-based compensation expense	—	—		—	—		29.1		—		—		29.1
Stock repurchase program	(0.7)	(0.2)		0.7	(74.2)		0.2		—		—		(74.2)
Dividends declared	—	—		—	—		—		(75.1)		—		(75.1)
Other comprehensive loss	—	—		—	—		—		—		(0.1)		(0.1)
Balance at December 27, 2019	170.5	$	42.6	61.1	$	(3,513.8)	$	3,251.9	$	4,494.6	$	(8.0)	$	4,267.3
Net income	—	$	—	—	$	—	$	—	181.1		—		181.1
Exercise and settlement of share-based awards and related tax benefit, net of shares withheld for taxes	0.3	0.1		—	(2.0)		20.4		—		—		18.5
Share-based compensation expense	—	—		—	—		34.1		—		—		34.1
Stock repurchase program	(3.2)	(0.8)		3.2	(283.8)		0.8		—		—		(283.8)
Dividends declared	—	—		—	—		—		(74.9)		—		(74.9)
Other comprehensive income	—	—		—	—		—		—		0.5		0.5
Balance at March 27, 2020	167.6	$	41.9	64.3	$	(3,799.6)	$	3,307.2	$	4,600.8	$	(7.5)	$	4,142.8
Net income	—	—		—	—		—		129.7		—		129.7
Exercise and settlement of share-based awards and related tax benefit, net of shares withheld for taxes	0.2	0.1		—	(2.2)		8.9		—		—		6.8
Share-based compensation expense	—	—		—	—		35.2		—		—		35.2
Stock repurchase program	(0.7)	(0.2)		0.7	(58.5)		0.2		—		—		(58.5)
Dividends declared	—	—		—	—		—		(73.5)		—		(73.5)
Other comprehensive loss	—	—		—	—		—		—		(0.1)		(0.1)
Balance at June 26, 2020	167.1	$	41.8	65.0	$	(3,860.3)	$	3,351.5	$	4,657.0	$	(7.6)	$	4,182.4

Balance at September 28, 2018	177.4	$	44.4	51.0	$	(2,732.5)	$	3,061.0	$	3,732.9	$	(8.8)	$	4,097.0
Net income	—	—		—	—		—		284.9		—		284.9
Exercise and settlement of share-based awards, net of shares withheld for taxes	0.7	0.1		0.2	(19.6)		5.1		—		—		(14.4)
Share-based compensation expense	—	—		—	—		21.3		—		—		21.3
Stock repurchase program	(4.0)	(1.0)		4.0	(284.0)		1.0		—		—		(284.0)
Dividends declared	—	—		—	—		—		(67.1)		—		(67.1)
Other comprehensive income	—	—		—	—		—		—		0.6		0.6
Balance at December 28, 2018	174.1	$	43.5	55.2	$	(3,036.1)	$	3,088.4	$	3,950.7	$	(8.2)	$	4,038.3
Net income	—	—		—	—		—		214.0		—		214.0
Exercise and settlement of share-based awards and related tax benefit, net of shares withheld for taxes	0.3	0.1		0.1	(1.5)		15.5		—		—		14.2
Share-based compensation expense	—	—		—	—		21.8		—		—		21.8
Stock repurchase program	(1.7)	(0.4)		1.7	(141.5)		0.5		—		—		(141.5)
Dividends declared	—	—		—	—		—		(66.0)		—		(66.0)
Other comprehensive income	—	—		—	—		—		—		0.1		0.1

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Balance at March 29, 2019	172.7	$	43.2	57.0	$	(3,179.1)	$	3,126.2	$	4,098.7	$	(8.1)	$	4,080.9
Net income	—	—		—	—		—		144.1		—		144.1
Exercise and settlement of share-based awards and related tax benefit, net of shares withheld for taxes	0.2	—		—	(0.7)		7.8		—		—		7.1
Share-based compensation expense	—	—		—	—		19.0		—		—		19.0
Stock repurchase program	(1.2)	(0.3)		1.2	(85.8)		0.2		—		—		(85.8)
Dividends declared	—	—		—	—		—		(65.7)		—		(65.7)
Other comprehensive income	—	—		—	—		—		—		0.3		0.3
Balance at June 28, 2019	171.6	$	42.9	58.2	$	(3,265.6)	$	3,153.3	$	4,177.1	$	(7.8)	$	4,099.9

See accompanying Notes to Consolidated Financial Statements.

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SKYWORKS SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in millions)


	Nine Months Ended
	June 26, 2020		June 28, 2019
Cash flows from operating activities:
Net income	$	567.9	$	643.0
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation	111.6		58.6
Depreciation	238.2		235.4
Amortization of intangible assets, including inventory step-up	35.4		43.3
Deferred income taxes	(1.8)		(12.1)
Asset impairment charges	11.8		—
Changes in fair value of contingent consideration	—		(3.1)
Other, net	2.8		0.1
Changes in assets and liabilities:
Receivables, net	119.2		98.0
Inventory	(83.5)		(89.7)
Accounts payable	12.7		(24.5)
Other current and long-term assets and liabilities	(76.8)		1.4
Net cash provided by operating activities	937.5		950.4
Cash flows from investing activities:
Capital expenditures	(243.5)		(314.0)
Purchased intangibles	(7.6)		(11.8)
Purchases of marketable securities	(439.9)		(243.7)
Sales and maturities of marketable securities	300.0		334.4
Net cash used in investing activities	(391.0)		(235.1)
Cash flows from financing activities:
Repurchase of common stock - payroll tax withholdings on equity awards	(30.9)		(21.6)
Repurchase of common stock - stock repurchase program	(416.5)		(511.3)
Dividends paid	(223.5)		(198.8)
Net proceeds from exercise of stock options	52.2		14.6
Proceeds from employee stock purchase plan	12.2		11.3
Net cash used in financing activities	(606.5)		(705.8)
Net increase (decrease) in cash and cash equivalents	(60.0)		9.5
Cash and cash equivalents at beginning of period	851.3		733.3
Cash and cash equivalents at end of period	$	791.3	$	742.8
Supplemental cash flow disclosures:
Income taxes paid	$	103.4	$	116.5
Non-cash investing in capital expenditures, accrued but not paid	$	105.8	$	121.5

See accompanying Notes to Consolidated Financial Statements.

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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, 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 September 27, 2019, filed with the SEC on November 14, 2019, as amended by Amendment No. 1 to such Annual Report on Form 10-K, filed with the SEC on January 27, 2020 (the “2019 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 2020 consists of 53 weeks and ends on October 2, 2020. Fiscal 2019 consisted of 52 weeks and ended on September 27, 2019. The third quarters of fiscal 2020 and 2019 each consisted of 13 weeks and ended on June 26, 2020, and June 28, 2019, respectively.

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASU 2016-02”). This ASU requires lessees to reflect leases with a term greater than one year on their balance sheet as assets and obligations. The Company adopted the standard in the first quarter of fiscal 2020, using the modified retrospective approach, whereby the Company was not required to adjust comparative period financial statements for the new standard. Upon adoption, the Company recorded a right-of-use asset of $141.4 million and a lease liability of $143.1 million. This standard did not have a material impact on the Consolidated Statement of Operations or Consolidated Statement of Cash Flows.

Upon adoption, the Company elected the package of three practical expedients that permits the Company to maintain its historical conclusions about lease identification, lease classification and initial direct costs for leases that exist at the date of adoption. Further, the Company elected the practical expedient to not separate lease and non-lease components.

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						Nine Months Ended
	June 26, 2020		June 28, 2019		June 26, 2020		June 28, 2019
United States	$	425.2	$	355.7	$	1,431.0	$	1,358.9
China	166.5		212.9		512.9		606.8
South Korea	46.0		76.9		178.9		282.0
Taiwan	64.9		78.0		165.9		182.8
Europe, Middle East and Africa	29.0		36.5		91.9		100.2
Other Asia-Pacific	5.2		7.0		18.3		18.7
Total	$	736.8	$	767.0	$	2,398.9	$	2,549.4

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. Accrued customer liabilities of $24.2 million and $38.5 million have been included in other current liabilities within the consolidated balance sheets as of June 26, 2020, and September 27, 2019, respectively.

Concentrations

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of trade accounts receivable. Trade accounts receivable are primarily derived from sales to electronic component distributors and manufacturers of communication products. The Company performs ongoing credit evaluations of its customers.

At June 26, 2020, and September 27, 2019, the Company's three largest accounts receivable balances comprised 64% and 67%, respectively, of aggregate gross accounts receivable.

Significant portions of the Company's sales are concentrated among a limited number of customers. The duration, severity, and future impact of the COVID-19 pandemic are highly uncertain and could result in significant disruptions to the business operations of the Company's customers. If one or more of these major customers significantly decreased its orders for the Company's products, the Company's business could be materially and adversely affected.

3. MARKETABLE SECURITIES

The Company's portfolio of available-for-sale marketable securities consists of the following (in millions):


	Current						Noncurrent
Available for sale:	June 26, 2020		September 27, 2019		June 26, 2020		September 27, 2019
U.S. Treasury and government	$	53.9	$	34.2	$	15.4	$	20.0
Corporate bonds and notes	257.9		66.2		3.2		5.9
Municipal bonds	35.2		102.9		5.5		1.7

Total	$	347.0	$	203.3	$	24.1	$	27.6

The contractual maturities of noncurrent available-for-sale marketable securities were due within two years or less. There were gross unrealized gains of $0.5 million on U.S. Treasury securities and $0.2 million on corporate bonds and notes as of June 26, 2020, and $0.1 million in gross unrealized losses on municipal bonds as of September 27, 2019.

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.

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•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):


	As of June 26, 2020														As of September 27, 2019
			Fair Value Measurements												Fair Value Measurements
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents*	$	791.3	$	648.0	$	143.3	$	—	$	851.3	$	809.5	$	41.8	$	—
U.S. Treasury and government securities	69.3		32.7		36.6		—		54.2		28.4		25.8		—
Corporate bonds and notes	261.1		—		261.1		—		72.1		—		72.1		—
Municipal bonds	40.7		—		40.7		—		104.6		—		104.6		—

Total	$	1,162.4	$	680.7	$	481.7	$	—	$	1,082.2	$	837.9	$	244.3	$	—

* Cash equivalents included in Levels 1 and 2 consist of money market funds and corporate bonds and notes, foreign government bonds, 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. During the three and nine months ended June 26, 2020, the Company abandoned a previously capitalized in-process research and development (“IPR&D”) project and recorded an impairment charge of $9.8 million.

5. INVENTORY

Inventory consists of the following (in millions):


	As of
	June 26, 2020		September 27, 2019
Raw materials	$	37.7	$	24.4
Work-in-process	484.4		336.2
Finished goods	173.2		245.7
Finished goods held on consignment by customers	2.9		3.4
Total inventory	$	698.2	$	609.7

6. PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consists of the following (in millions):


	As of
	June 26, 2020		September 27, 2019
Land and improvements	$	11.8	$	11.7
Buildings and improvements	413.4		354.4
Furniture and fixtures	44.2		33.8
Machinery and equipment	2,495.1		2,311.5
Construction in progress	118.9		172.5
Total property, plant and equipment, gross	3,083.4		2,883.9
Accumulated depreciation	(1,876.5)		(1,678.3)
Total property, plant and equipment, net	$	1,206.9	$	1,205.6

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7. GOODWILL AND INTANGIBLE ASSETS

There were no changes to the carrying amount of goodwill during the three and nine months ended June 26, 2020.

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 June 26, 2020.

Intangible assets consist of the following (in millions):


		As of															As of
	Weighted Average Amortization Period (Years)	June 26, 2020															September 27, 2019
				Gross Carrying Amount			Accumulated Amortization			Net Carrying Amount			Gross Carrying Amount			Accumulated Amortization			Net Carrying Amount
Customer relationships	5.0	$	18.2		$	(14.8)		$	3.4		$	25.6		$	(19.5)		$	6.1
Developed technology and other	3.8	101.0			(74.5)			26.5			94.4			(48.9)			45.5
Trademarks	3.0	1.6			(1.6)			—			1.6			(1.3)			0.3
Technology licenses	3.1	25.1			(11.6)			13.5			24.9			(4.8)			20.1
IPR&D		19.5			—			19.5			35.9			—			35.9
Total intangible assets		$	165.4		$	(102.5)		$	62.9		$	182.4		$	(74.5)		$	107.9

Fully amortized intangible assets are eliminated from both the gross and accumulated amortization amounts in the first quarter of each fiscal year. Accrued technology licenses payable of $11.9 million and $20.1 million have been included in other current liabilities within the consolidated balance sheets as of June 26, 2020, and September 27, 2019, respectively.

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):


	Remaining 2020		2021		2022		2023		2024		Thereafter
Amortization expense, cost of goods sold	$	5.3	$	6.0	$	0.1	$	0.1	$	0.1	$	1.8
Amortization expense, operating expense	$	5.0	$	16.2	$	5.0	$	1.0	$	0.9	$	1.9
Total amortization expense	$	10.3	$	22.2	$	5.1	$	1.1	$	1.0	$	3.7

8. INCOME TAXES

The provision for income taxes consists of the following components (in millions):


	Three Months Ended									Nine Months Ended
	June 26, 2020			June 28, 2019			June 26, 2020			June 28, 2019
United States income taxes	$	4.1		$	1.8		$	27.3		$	52.7
Foreign income taxes	10.2			16.0			30.4			31.3
Provision for income taxes	$	14.3		$	17.8		$	57.7		$	84.0

Effective tax rate	9.9		%	11.0		%	9.2		%	11.6		%

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 June 26, 2020 and June 28, 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”), and research and experimentation and foreign tax credits earned, partially offset by a tax on global intangible low-taxed income (“GILTI”), and an increase in 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.

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Accrued taxes of $29.5 million and $29.7 million have been included in other current liabilities within the consolidated balance sheets as of June 26, 2020, and September 27, 2019, respectively.

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. 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 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). As of June 26, 2020, $1.2 billion remained available under the existing stock repurchase authorization.

Dividends

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On July 23, 2020, 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 September 1, 2020, to the Company’s stockholders of record as of the close of business on August 11, 2020.

During the three and nine months ended June 26, 2020, dividends charged to retained earnings were as follows (in millions, except per share data):


	2020
	Per Share		Total Amount
First quarter	$	0.44	$	75.1
Second quarter	0.44		74.9
Third quarter	0.44		73.5
Total	$	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):


	Three Months Ended						Nine Months Ended
	June 26, 2020		June 28, 2019		June 26, 2020		June 28, 2019
Cost of goods sold	$	4.7	$	1.3	$	16.1	$	8.2
Research and development	17.0		9.5		49.0		31.9
Selling, general and administrative	16.1		5.2		46.5		18.5
Total share-based compensation	$	37.8	$	16.0	$	111.6	$	58.6

11. LEASES

The Company determines if an arrangement is a lease at its inception. Right-of-use (“ROU”) assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The Company uses its estimated incremental borrowing rate in determining the present value of lease payments considering the term of the lease, which is derived from information available at the lease commencement date. The lease term includes renewal options when it is reasonably certain that the option will be exercised and excludes termination options. To the extent that the Company’s agreements have variable lease payments, the Company includes variable lease payments that depend on an index or a rate and excludes those that depend on facts or circumstances occurring after the commencement date, other than the passage of time. Lease expense for these leases is recognized on a straight-line basis over the lease term. The Company has elected not to recognize ROU assets and lease liabilities that arise from short-term (12 months or less) leases for any class of underlying asset. Operating leases are included in operating lease ROU assets, other current liabilities, and long-term operating lease liabilities in the Company's condensed consolidated balance sheet.

The Company’s lease arrangements consist primarily of corporate, manufacturing and other facility agreements as well as various machinery and office equipment agreements. The leases expire at various dates through 2033, some of which include options to extend the lease term. The options with the longest potential total lease term consist of options for extension of up to three five-year periods following expiration of the original lease term.

During the three and nine months ended June 26, 2020, the Company recorded $7.9 million and $20.2 million of operating lease expense and $1.2 million and $5.2 million of variable lease expense, respectively. During the three and nine months ended June 28, 2019, the Company recorded $4.4 million and $13.7 million of rent expense, respectively. The Company's finance leases and short-term leases are immaterial.

Supplemental cash information and non-cash activities related to operating leases are as follows (in millions):


	Nine Months Ended
	June 26, 2020
Operating cash outflows from operating leases	$	18.2
Operating lease assets obtained in exchange for new lease liabilities	$	30.5

Maturities of lease liabilities under operating leases by fiscal year are as follows (in millions):

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	June 26, 2020
2020 (remainder)	$	3.0
2021	29.1
2022	28.1
2023	24.7
2024	21.5
Thereafter	101.9
Total lease payments	208.3
Less: imputed interest	(28.5)
Present value of lease liabilities	179.8
Less: current portion (included in other current liabilities)	(24.0)
Total	$	155.8

Future minimum lease liabilities under non-cancelable operating leases are as follows (in millions):


	September 27, 2019
2020	$	26.7
2021	25.9
2022	24.8
2023	23.3
2024	21.5
Thereafter	97.7
Total	$	219.9

Weighted-average remaining lease term and discount rate related to operating leases are as follows:


	June 26, 2020
Weighted-average remaining lease term (years)	8.4
Weighted-average discount rate	3.4	%

12. 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						Nine Months Ended
	June 26, 2020		June 28, 2019		June 26, 2020		June 28, 2019
Net income	$	129.7	$	144.1	$	567.9	$	643.0

Weighted average shares outstanding – basic	167.0		172.6		169.1		174.3
Dilutive effect of equity-based awards	1.3		0.8		1.2		0.9
Weighted average shares outstanding – diluted	168.3		173.4		170.3		175.2

Net income per share – basic	$	0.78	$	0.83	$	3.36	$	3.69
Net income per share – diluted	$	0.77	$	0.83	$	3.33	$	3.67

Anti-dilutive common stock equivalents	—		1.0		0.2		1.5

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 and nine months ended June 26, 2020, and June 28, 2019, using the treasury stock method. 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.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This report and other documents we have filed with the SEC contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and are subject to the “safe harbor” created by those sections. Words such as “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “seek,” “should,” “will,” “would,” 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 possible impacts of the COVID-19 pandemic, the development of new products, enhancements of 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 as of the date the statement is first made, such statements can only be based on facts and factors then 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 this Quarterly Report on Form 10-Q and the 2019 10-K, under the heading “Risk Factors” and in the other documents we have 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 the initial filing of this Quarterly Report on Form 10-Q. We caution readers not to place undue reliance upon any such forward-looking statements.

In this document, the words “we,” “our,” “ours,” and “us” refer only to Skyworks Solutions, Inc. and its subsidiaries and not any other person or entity.

IMPACT OF COVID-19

The COVID-19 pandemic and the resulting economic downturn are affecting business conditions in our industry. Overall demand for our products has decreased as a result of the pandemic, which impacted our operating results for the three and nine months ended June 26, 2020. The duration, severity, and future impact of the pandemic continue to be highly uncertain and could still result in significant disruptions to our business operations, including our supply chain, as well as negative impacts to our financial condition. As a result of the temporary suspension of our operations in Mexicali, Mexico, for approximately two weeks in April 2020, we incurred a $23.4 million production utilization charge, as described below. A renewed suspension of our operations in Mexicali, or a continued reduction in our production capacity due to employee quarantines, employee absenteeism, and restrictions on certain of our employees’ ability to work, would negatively impact our future operating results.

RESULTS OF OPERATIONS

THREE AND NINE MONTHS ENDED JUNE 26, 2020, AND JUNE 28, 2019

The following table sets forth the results of our operations expressed as a percentage of net revenue:


	Three Months Ended						Nine Months Ended
	June 26, 2020		June 28, 2019		June 26, 2020		June 28, 2019
Net revenue	100.0	%	100.0	%	100.0	%	100.0	%
Cost of goods sold	54.7		59.3		51.9		53.0
Gross profit	45.3		40.7		48.1		47.0
Operating expenses:
Research and development	15.9		13.1		14.1		12.4
Selling, general and administrative	7.5		6.1		7.0		5.6
Amortization of intangibles	0.4		0.7		0.4		0.7
Restructuring, impairment and other charges	1.6		—		0.6		0.1
Total operating expenses	25.4		19.9		22.1		18.8
Operating income	19.9		20.8		26.0		28.2
Other income (expense), net	(0.5)		0.3		—		0.2
Income before income taxes	19.4		21.1		26.0		28.4
Provision for income taxes	1.9		2.3		2.4		3.3
Net income	17.5	%	18.8	%	23.6	%	25.1	%

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OVERVIEW

We, together with our consolidated subsidiaries, are empowering the wireless networking revolution. Our analog semiconductors are connecting people, places, and things spanning a number of new applications within the aerospace, automotive, broadband, cellular infrastructure, connected home, industrial, medical, military, smartphone, tablet and wearable markets.

GENERAL

During the nine months ended June 26, 2020, the following key factors contributed to our overall results of operations, financial position and cash flows:

•Net revenue decreased by 5.9% to $2,398.9 million for the nine months ended June 26, 2020, as compared with the corresponding period in fiscal 2019. This decrease in revenue was driven primarily by reduced demand resulting from the U.S. Bureau of Industry and Security of the U.S. Department of Commerce continuing to keep Huawei Technologies Co., Ltd. and certain of its affiliates (collectively, “Huawei”) on the Bureau’s Entity List (the “Entity List”). Additionally, demand for our products was negatively impacted by the ongoing COVID-19 pandemic. These decreases in revenue were partially offset by an increase in demand for the Company's new 5G solutions being deployed across a growing set of customers.

•Our ending cash, cash equivalents and marketable securities balance increased 7.4% to $1,162.4 million as of June 26, 2020, from $1,082.2 million as of September 27, 2019. This increase in cash, cash equivalents and marketable securities during the nine months ended June 26, 2020, was primarily the result of cash generated from operations of $937.5 million, partially offset by the repurchase of 4.6 million shares of common stock for $416.5 million, capital expenditures of $243.5 million, and dividend payments of $223.5 million.

NET REVENUE


	Three Months Ended								Nine Months Ended
	June 26, 2020		Change	June 28, 2019		June 26, 2020		Change	June 28, 2019
(dollars in millions)
Net revenue	$	736.8	(3.9)%	$	767.0	$	2,398.9	(5.9)%	$	2,549.4

We market and sell our products directly to OEMs of communications and electronics products, third-party original design manufacturers and contract manufacturers, and indirectly through electronic components distributors. We generally experience seasonal peaks during our fourth and first fiscal quarters (which correspond to the second half of the calendar year), primarily as a result of increased worldwide production of consumer electronics in anticipation of increased holiday sales, whereas our second and third fiscal quarters are typically lower and in line with seasonal industry trends.

The decrease in net revenue for the three and nine months ended June 26, 2020, as compared with the corresponding periods in fiscal 2019, was driven by reduced demand resulting from Huawei continuing to remain on the Entity List as well as the ongoing COVID-19 pandemic, partially offset by an increase in demand for the Company's new 5G solutions being deployed across a growing set of customers.

GROSS PROFIT


	Three Months Ended											Nine Months Ended
	June 26, 2020			Change	June 28, 2019			June 26, 2020			Change	June 28, 2019
(dollars in millions)
Gross profit	$	334.1		6.9%	$	312.5		$	1,154.0		(3.7)%	$	1,197.8
% of net revenue	45.3		%		40.7		%	48.1		%		47.0		%

Gross profit represents net revenue less cost of goods sold. Our cost of goods sold consists primarily of purchased materials, labor and overhead (including depreciation and share-based compensation expense) associated with product manufacturing. Erosion of average selling prices of established products is typical of the semiconductor industry. As part of our normal course of business, we mitigate the gross margin impact of declining average selling prices with efforts to increase unit volumes, reduce material costs, improve manufacturing efficiencies, lower manufacturing costs of existing products and by introducing new and higher value-added products.

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The increase in gross profit for the three months ended June 26, 2020, as compared with the corresponding period in fiscal 2019, was primarily the result of a favorable product mix, partially offset by lower unit volumes and lower average selling prices. In addition, there was a $23.4 million production utilization charge in the three months ended June 26, 2020, due to the temporary suspension of our operations in Mexicali in the government's effort to contain the COVID-19 pandemic. This one-time charge was less than the $66.6 million inventory-related one-time charge incurred in the three months ended June 28, 2019, due to lower expected demand as a result of Huawei being added to the Entity List. Gross profit margin increased to 45.3% of net revenue for the three months ended June 26, 2020, as compared with 40.7% in the corresponding period in fiscal 2019.

The decrease in gross profit for the nine months ended June 26, 2020, as compared with the corresponding period in fiscal 2019, was primarily the result of lower unit volumes and lower average selling prices, partially offset by a favorable product mix. In addition, there was a $23.4 million production utilization charge in the nine months ended June 26, 2020, due to the temporary suspension of our operations in Mexicali in the government's effort to contain the COVID-19 pandemic. This one-time charge was less than the $66.6 million inventory-related one-time charge incurred in the nine months ended June 28, 2019, due to lower expected demand as a result of Huawei being added to the Entity List. Gross profit margin increased to 48.1% of net revenue for the nine months ended June 26, 2020, as compared with 47.0% in the corresponding period in fiscal 2019.

RESEARCH AND DEVELOPMENT


	Three Months Ended											Nine Months Ended
	June 26, 2020			Change	June 28, 2019			June 26, 2020			Change	June 28, 2019
(dollars in millions)
Research and development	$	117.0		16.3%	$	100.6		$	337.9		6.5%	$	317.3
% of net revenue	15.9		%		13.1		%	14.1		%		12.4		%

Research and development expenses consist primarily of direct personnel costs including share-based compensation expense, costs for pre-production evaluation and testing of new devices, masks, engineering prototypes and design tool costs.

The increase in research and development expenses for the three and nine months ended June 26, 2020, as compared with the corresponding periods in fiscal 2019, was primarily related to an increase in employee-related compensation expense due to higher performance achievement with respect to performance stock awards.

SELLING, GENERAL AND ADMINISTRATIVE


	Three Months Ended											Nine Months Ended
	June 26, 2020			Change	June 28, 2019			June 26, 2020			Change	June 28, 2019
(dollars in millions)
Selling, general and administrative	$	55.0		17.5%	$	46.8		$	169.1		18.7%	$	142.5
% of net revenue	7.5		%		6.1		%	7.0		%		5.6		%

Selling, general and administrative expenses include legal and related costs, accounting, treasury, human resources, information systems, customer service, bad debt expense, sales commissions, share-based compensation expense, advertising, marketing, costs associated with business combinations completed or contemplated during the period, and other costs.

The increase in selling, general and administrative expenses for the three and nine months ended June 26, 2020, as compared with the corresponding periods in fiscal 2019, was primarily related to increases in employee-related share-based compensation expense due to higher performance achievement with respect to performance stock awards.

AMORTIZATION OF INTANGIBLES


	Three Months Ended								Nine Months Ended
	June 26, 2020		Change	June 28, 2019		June 26, 2020		Change	June 28, 2019
(dollars in millions)


Total amortization of intangibles, including inventory step-up	12.7		(13.6)%	14.7		35.4		(18.2)%	43.3
% of net revenue	1.7	%		1.9	%	1.5	%		1.7	%

The decrease in total amortization expense for the three and nine months ended June 26, 2020, as compared with the corresponding periods in fiscal 2019, was primarily due to the end of the useful lives of certain intangible assets that were acquired in prior fiscal years.

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PROVISION FOR INCOME TAXES


	Three Months Ended											Nine Months Ended
	June 26, 2020			Change	June 28, 2019			June 26, 2020			Change	June 28, 2019
(dollars in millions)
Provision for income taxes	$	14.3		(19.7)%	$	17.8		$	57.7		(31.3)%	$	84.0
% of net revenue	1.9		%		2.3		%	2.4		%		3.3		%

We recorded a provision for income taxes of $14.3 million (which consisted of $4.1 million and $10.2 million related to United States and foreign income taxes, respectively) and $57.7 million (which consisted of $27.3 million and $30.4 million related to United States and foreign income taxes, respectively) for the three and nine months ended June 26, 2020, respectively.

The decrease in income tax expense for the three and nine months ended June 26, 2020, as compared with the corresponding periods in fiscal 2019, was primarily due to benefits related to increased foreign earnings taxed at rates lower than the federal statutory rate and increased windfall tax deductions.

LIQUIDITY AND CAPITAL RESOURCES


	Nine Months Ended
(in millions)	June 26, 2020		June 28, 2019
Cash and cash equivalents at beginning of period	$	851.3	$	733.3
Net cash provided by operating activities	937.5		950.4
Net cash used in investing activities	(391.0)		(235.1)
Net cash used in financing activities	(606.5)		(705.8)
Cash and cash equivalents at end of period	$	791.3	$	742.8

Cash provided by operating activities:

Cash provided by operating activities consists of net income for the period adjusted for certain non-cash items and changes in certain operating assets and liabilities. The $12.9 million decrease in cash provided by operating activities during the nine months ended June 26, 2020, as compared with the corresponding period in fiscal 2019, was primarily related to unfavorable changes in working capital.

Cash used in investing activities:

Cash used in investing activities consists primarily of capital expenditures and cash paid related to the purchase of marketable securities, offset by cash received related to the sale or maturity of marketable securities. The $155.9 million increase in cash used in investing activities during the nine months ended June 26, 2020, as compared with the corresponding period in fiscal 2019, was primarily related to a $230.6 million difference in the net purchase and sale of marketable securities, partially offset by a $70.5 million decrease in cash used for capital expenditures.

Cash used in financing activities:

Cash used in financing activities consists primarily of cash transactions related to equity. The $99.3 million decrease in cash used in financing activities during the nine months ended June 26, 2020, as compared with the corresponding period in fiscal 2019, was primarily related to a decrease of $94.8 million in stock repurchase activity and an increase of $37.6 million in net proceeds from employee stock option exercises. These decreases in cash used in financing activities were partially offset by an increase of $24.7 million in dividend payments and an increase of $9.3 million related to the minimum statutory payroll tax withholdings upon vesting of employee performance and restricted stock awards.

Liquidity:

Cash, cash equivalents and marketable securities totaled $1,162.4 million as of June 26, 2020, representing an increase of $80.2 million from September 27, 2019. The increase resulted primarily from $937.5 million in cash generated from operations, partially offset by $416.5 million used to repurchase 4.6 million shares of stock, $223.5 million in cash dividend payments, and $243.5 million in capital expenditures. Based on our historical results of operations, we expect that our cash, cash equivalents and marketable securities on hand and the cash we expect to generate from operations will be sufficient to fund our research and development, capital expenditures, potential acquisitions, working capital, quarterly cash dividend payments (if such dividends are declared by the Board of Directors), outstanding commitments and other liquidity requirements associated with existing operations for at least the next 12 months. However, we cannot be certain that our cash on hand and cash generated from operations will be

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available in the future to fund all of our capital and operating requirements. In addition, any future strategic investments and acquisitions may require additional cash and capital resources. If we are unable to obtain sufficient cash or capital to meet our needs on a timely basis and on favorable terms, our business and operations could be materially and adversely affected.

Our invested cash balances primarily consist of highly liquid marketable securities that are available to meet near-term cash requirements including: term deposits, certificate of deposits, money market funds, U.S. Treasury securities, agency securities, other government securities, corporate debt securities and commercial paper.

CONTRACTUAL OBLIGATIONS

Our contractual obligations disclosure in the 2019 10-K has not materially changed since we filed that report.

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OFF-BALANCE SHEET ARRANGEMENTS

We have no material off-balance sheet arrangements as defined in SEC Regulation S-K Item 303(a)(4)(ii).

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are subject to overall financial market risks, such as changes in market liquidity, credit quality, investment risk, interest rate risk, and foreign exchange rate risk as described below.

Investment and Interest Rate Risk

Our exposure to interest rate and general market risks relates principally to our investment portfolio, which consists of cash and cash equivalents (money market funds and marketable securities purchased with less than ninety days until maturity) that total approximately $791.3 million and marketable securities (U.S. Treasury and government securities, corporate bonds and notes, municipal bonds, other government securities) that total approximately $347.0 million and $24.1 million within short-term and long-term marketable securities, respectively, as of June 26, 2020.

The main objectives of our investment activities are liquidity and preservation of capital. Our cash equivalent investments have short-term maturity periods that dampen the impact of market or interest rate risk. Our marketable securities consist of short-term and long-term maturity periods between 90 days and two years. Credit risk associated with our investments is not material because our investments are diversified across several types of securities with high credit ratings, which reduces the amount of credit exposure to any one investment.

Based on our results of operations for the three and nine months ended June 26, 2020, a hypothetical reduction in the interest rates on our cash, cash equivalents, and other investments to zero would result in an immaterial reduction of interest income with a de minimis impact on income before taxes.

Given the low interest rate environment, the objectives of our investment activities, and the relatively low interest income generated from our cash, cash equivalents, and other investments, we do not believe that investment or interest rate risks currently pose material exposures to our business or results of operations.

Foreign Exchange Rate Risk

Substantially all sales to customers and arrangements with third-party manufacturers provide for pricing and payment in United States dollars, thereby reducing the impact of foreign exchange rate fluctuations on our results. A percentage of our international operational expenses are denominated in foreign currencies and exchange rate volatility could positively or negatively impact those operating costs. Increases in the value of the United States dollar relative to other currencies could make our products more expensive, which could negatively impact our ability to compete. Conversely, decreases in the value of the United States dollar relative to other currencies could result in our suppliers raising their prices to continue doing business with us. Given the relatively small number of customers and arrangements with third-party manufacturers denominated in foreign currencies, we do not believe that foreign exchange volatility currently has a material impact on our business or results of operations. However, fluctuations in currency exchange rates could have a greater effect on our business or results of operations in the future to the extent our expenses increasingly become denominated in foreign currencies.

We may enter into foreign currency forward and option contracts with financial institutions to protect against foreign exchange risks associated with certain existing assets and liabilities, certain firmly committed transactions, forecasted future cash flows and net investments in foreign subsidiaries. However, we may choose not to hedge certain foreign exchange exposures for a variety of reasons, including, but not limited to, accounting considerations and the prohibitive economic cost of hedging particular exposures. For the three months ended June 26, 2020, we had no outstanding foreign currency forward or option contracts with financial institutions.

ITEM 4. CONTROLS AND PROCEDURES.

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 June 26, 2020. 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 SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, 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

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cost-benefit relationship of possible controls and procedures. Based on management’s evaluation of our disclosure controls and procedures as of June 26, 2020, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There are no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the third quarter of fiscal 2020 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

Due to the ongoing COVID-19 pandemic, a significant number of our employees are now working from home. The design of our processes, systems, and controls allows for remote execution with accessibility to secure data.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

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.

ITEM 1A. RISK FACTORS.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A Risk Factors in the 2019 10-K, which could materially affect our business, financial condition or future results. The ongoing COVID-19 pandemic has heightened, and in some cases manifested, certain of the risks we normally face in operating our business, including those disclosed in the 2019 10-K, and such prior risk factor disclosure is qualified by the information relating to COVID-19 that is described in this Quarterly Report on Form 10-Q, including the new risk factor set forth below. There have been no other material changes to the risk factors previously disclosed in the 2019 10-K.

The effects of the global COVID-19 pandemic are adversely affecting our business operations, sales, and financial condition.

The ongoing COVID-19 pandemic—including both the resulting public health crisis as well as the measures being taken by governments, businesses, and individuals in an effort to limit COVID-19’s spread—has adversely affected, and is likely to continue to adversely affect, our business operations. The negative impacts of the COVID-19 pandemic on our business operations and financial condition and on our workforce, and the duration of such impacts, are uncertain, constantly evolving, and difficult to quantify, but have thus far included, or in the future may include, the following:

•We have experienced an overall decrease in the demand for our products. We may experience further decreases in demand or in the pricing of our products, or an increased cost to manufacture our products, any of which could be exacerbated by a global economic downturn or recession or by delays in the widespread commercial deployment of 5G technology.

•In April 2020, we suspended our operations in Mexicali, Mexico, for approximately two weeks pursuant to an order by the government of the state of Baja California, Mexico, resulting in the temporary reduction in our production levels. In the event that our manufacturing operations in Mexicali become subject to significant restrictions or are suspended again, or in the event that one or more of our other facilities is forced to suspend or limit its activities, including, but not limited to, as a result of such operations or activities not being considered to be an “essential” business under applicable laws, regulations, or orders, we may experience further reductions in production levels, which would limit our ability to meet customer demand and impact our operating results.

•We have implemented certain measures at our facilities worldwide in an effort to protect our employees’ health and well-being (including social distancing, encouraging remote-work options wherever possible, limiting the number of employees attending meetings, reduced shift staffing, and suspending employee travel) which has reduced the overall efficiency of our operations.

•We have experienced reduced production capacity as a result of employee quarantines, employee absenteeism, and restrictions on certain of our employees’ ability to work. Additionally, we may experience negative impacts to our sales, marketing, research and development and other critical business functions for similar reasons.

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•Given that our suppliers are facing similar challenges as a result of the pandemic, it is possible that we will experience disruptions to our supply chain in connection with the sourcing of materials, equipment, engineering support, and other services.

•We may experience increased disruptions to global transportation networks, limiting or delaying our ability to send or receive products and materials at one or more of our facilities, including as a result of trade restrictions, border closures, or disruptions in the operations of third-party carriers.

•Significant portions of our sales are concentrated among a limited number of customers. We may experience negative impacts to our business operations if one or more of these major customers were to significantly decrease its orders for our products due to disruptions to its business operations.

•Our business operations, as well as the business operations of our customers, suppliers, and other third-party service providers, are subject to frequent and unpredictable changes in the political, regulatory, legal, or economic conditions in the jurisdictions in which they operate.

•The deterioration of worldwide credit and financial markets could limit the ability of our customers to pay for product purchases in a timely manner, or pay at all.

•In the event we are unable to fulfill our contractual obligations, lawsuits may be threatened or filed against us by customers or other third parties.

These effects, alone or taken together, could have a material adverse effect on our business, results of operations, customer and supplier relations, employee relations, cash flows, and financial condition. A prolonged COVID-19 outbreak could exacerbate the adverse impact of such effects. The resumption of normal business operations after any such business interruptions may be delayed or constrained by lingering effects of COVID-19 on our customers, suppliers, and other third-party service providers. There can be no assurance that any decrease in sales resulting from COVID-19 will be offset by increased sales in subsequent periods.

The degree to which COVID-19 impacts us will depend on future developments that are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the pandemic, its severity, the actions to contain COVID-19 or treat its impact, and how quickly and to what extent normal economic and operating conditions resume. Even after the COVID-19 pandemic has subsided as a public health matter, we may experience material adverse impacts to our business as a result of its adverse impact on the global economy.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

The following table provides information regarding repurchases of common stock made during the three months ended June 26, 2020:


Period	Total Number of Shares Purchased		Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
03/28/20-04/24/20	660,493	(2)	$87.26	645,931	$1.21 billion
04/25/20-05/22/20	31,463	(3)	$97.55	22,920	$1.21 billion
05/23/20-06/26/20	—		$—	—	$1.21 billion
Total	691,956			668,851

(1) The stock repurchase program approved by the Board of Directors on January 30, 2019, authorizes the repurchase of up to $2.0 billion of our common stock from time to time on the open market or in privately negotiated transactions as permitted by securities laws and other legal requirements. The January 30, 2019, stock repurchase program replaced in its entirety the January 31, 2018, plan and is scheduled to expire on January 30, 2021.

(2) 645,931 shares were repurchased at an average price of $87.19 per share as part of our stock repurchase program, and 14,562 shares were repurchased by us at the fair market value of the common stock as of the applicable purchase date, in connection with the satisfaction of tax withholding obligations under equity award agreements with an average price of $90.00 per share.

(3) 22,920 shares were repurchased at an average price of $93.73 per share as part of our stock repurchase program, and 8,543 shares were repurchased by us at the fair market value of the common stock as of the applicable purchase date, in connection with the satisfaction of tax withholding obligations under equity award agreements with an average price of $107.80 per share.

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ITEM 6. EXHIBITS.

Exhibit

Number

Exhibit Description

Form

Incorporated by Reference

Filed Herewith

File No.

Exhibit

Filing Date

10.1*

2002 Employee Stock Purchase Plan, as Amended

10.2*

Non-Qualified Employee Stock Purchase Plan, as Amended

31.1

Certification of the Company’s Chief Executive Officer pursuant to Securities Exchange Act of 1934, as amended, Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of the Company’s Chief Financial Officer pursuant to Securities Exchange Act of 1934, as amended, Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of the Company’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification of the Company’s Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101)

* Indicates a management contract or compensatory plan or arrangement.

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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.