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 an innovator of high performance analog semiconductors. Leveraging core technologies, Skyworks supports automotive, broadband, cellular infrastructure, energy management, GPS, industrial, medical, military, wireless networking, smartphone and tablet applications. The Company's portfolio consists of amplifiers, attenuators, circulators, demodulators, detectors, diodes, directional couplers, front-end modules, hybrids, infrastructure radio frequency ("RF") subsystems, isolators, lighting and display solutions, mixers, modulators, optocouplers, optoisolators, phase shifters, PLLs/synthesizers/VCOs, power dividers/combiners, power management devices, receivers, switches and technical ceramics.
The Company has evaluated subsequent events through the date of issuance of the audited consolidated financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
All majority owned subsidiaries are included in the Company’s Consolidated Financial Statements and all intercompany balances are eliminated in consolidation.
FISCAL YEAR
The Company’s fiscal year ends on the Friday closest to September 30. Fiscal years 2012, 2011 and 2010 each consisted of
52
weeks and ended on September 28, 2012, September 30, 2011 and October 1, 2010, respectively.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company evaluates its estimates on an ongoing basis using historical experience and other factors, including the current economic environment. Significant judgment is required in determining the reserves for and fair value of items such as reserves for inventory, income taxes, share-based compensation, loss contingencies, bad debt, contingent consideration associated with business combinations, and fair value assessments of assets and liabilities. In addition, significant 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 tests. Management’s estimates could differ significantly from actual results.
REVENUE RECOGNITION
Revenue from product sales is recognized when there is persuasive evidence of an arrangement, the price to the buyer is fixed and determinable, delivery and transfer of title have occurred in accordance with the shipping terms specified in the arrangement with the customer and collectability is reasonable assured. Revenue from license fees and intellectual property is recognized when due and payable, and all other criteria of the Financial Accounting Standards Board's Accounting Standards Codification ("ASC") 605
Revenue Recognition,
have been met. The Company ships product on consignment to certain customers and only recognizes revenue when the customer notifies the Company that the inventory has been consumed. Revenue recognition is deferred in all instances where the earnings process is incomplete. Certain product sales are made to electronic component distributors under agreements allowing for price protection and/or a right of return (stock rotation) on unsold products. A reserve for sales returns and allowances for customers is recorded based on historical experience or specific identification of a contractual arrangement necessitating a revenue reserve.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company maintains general allowances for doubtful accounts for losses that they estimate will arise from their customers’ inability to make required payments. These reserves require management to apply judgment in deriving estimates. As the Company becomes aware of any specific receivables which may be uncollectable, they perform additional analysis and reserves are recorded if deemed necessary. Determination of such additional specific reserves require management to make judgments and estimates pertaining to factors such as a customer’s credit worthiness, intent and ability to pay, and overall financial position. If the data the
Company uses to calculate the allowance for doubtful accounts does not reflect the future ability to collect outstanding receivables, additional provisions for doubtful accounts may be needed and its results of operations could be materially affected.
CASH AND CASH EQUIVALENTS
The Company’s cash and cash equivalents primarily consist of cash money market funds where the underlying securities primarily consist of United States treasury obligations, United States agency obligations, and repurchase agreements collateralized by United States Government and agency obligations with weighted average maturities of 90 days or less.
RESTRICTED CASH
Restricted cash is primarily used to collateralize the Company’s outstanding letters of credit for insurance and lease obligations.
INVESTMENTS
The Company’s investments are classified as available for sale and currently consist of auction rate securities (“ARS”). Available for sale securities are carried at fair value with unrealized holding gains or losses being recorded in other comprehensive income. Gains or losses are included in earnings in the period in which they are realized.
FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, accounts receivable, other current assets, accounts payable, short-term debt and accrued liabilities approximates fair value due to short-term maturities of these assets and liabilities. Fair values of long-term investments are based on quoted market prices if available, and if not available a fair value is determined through a discounted cash flow analysis at the date of measurement.
INVENTORY
Inventories are stated at the lower of cost, determined on a first-in, first-out basis, or market. Each quarter, the Company estimates and establishes reserves for excess, obsolete or unmarketable inventory. These reserves are generally equal to the historical cost basis of the excess or obsolete inventory and once recorded are considered permanent adjustments. Calculation of the reserves requires management to use judgment and make assumptions about forecasted demand in relation to the inventory on hand, competitiveness of its product offerings, general market conditions and product life cycles upon which the reserves are based. When inventory on hand exceeds foreseeable demand (generally in excess of twelve months), reserves are established for the value of such inventory that is not expected to be sold.
If actual demand and market conditions are less favorable than those the Company projects, additional inventory reserves may be required and its results of operations could be materially affected. Some or all of the inventories that have been reserved may be retained and made available for sale; however, they are generally scrapped over time.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation is calculated using the straight-line method. Significant renewals and betterments are capitalized and equipment taken out of service is written off. Maintenance and repairs, as well as renewals of a minor amount, are expensed as incurred.
Estimated useful lives used for depreciation purposes are
five
to
30
years for buildings and improvements and
three
to
10
years for machinery and equipment. Leasehold improvements are depreciated over the lesser of the economic life or the life of the associated lease.
VALUATION OF LONG-LIVED ASSETS
Definite lived intangible assets are carried at cost less accumulated amortization. Amortization is calculated on a straight-line basis over the estimated useful lives of the assets. Carrying values for long-lived assets and definite lived intangible assets, which exclude goodwill, are reviewed for possible impairment as circumstances warrant. Factors considered important that could result in an impairment review include significant underperformance relative to expected, historical or projected future operating results, significant changes in the manner of use of assets or the Company’s business strategy, or significant negative industry or economic trends. In addition, impairment reviews are conducted at the judgment of management whenever asset / asset group values are deemed
to be unrecoverable relative to future undiscounted cash flows expected to be generated by that particular asset / asset group. The determination of recoverability is based on an estimate of undiscounted cash flows expected to result from the use of an asset / asset group and its eventual disposition. Such estimates require management to exercise judgment and make assumptions regarding factors such as future revenue streams, operating expenditures, cost allocation and asset utilization levels, all of which collectively impact future operating performance. The Company’s estimates of undiscounted cash flows may differ from actual cash flows due to, among other things, technological changes, economic conditions, changes to its business model or changes in its operating performance. If the sum of the undiscounted cash flows (excluding interest) is less than the carrying value of an asset/asset group, the Company would recognize an impairment loss, measured as the amount by which the carrying value exceeds the fair value of the asset or asset group.
GOODWILL AND INDEFINITE INTANGIBLE ASSETS
Goodwill and intangible assets with indefinite useful lives are not amortized but are tested at least annually for impairment in accordance with the provisions of ASC 350
Intangibles-Goodwill and Other
(“ASC 350”)
.
Intangible assets with indefinite useful lives comprise an insignificant portion of the total book value of the Company’s intangible assets. The Company assesses the need to test its goodwill for impairment on a regular basis. Pursuant to the guidance provided under ASC 280
Segment Reporting
(see Note 18 of Item 8 of this Annual Report on Form 10-K for further discussion), the Company has determined that it has one reporting unit for the purposes of allocating and testing goodwill under ASC 350.
The goodwill impairment test is a two-step process. The first step of the Company’s impairment analysis compares its fair value to its net book value to determine if there is an indicator of impairment. To determine fair value, ASC 350 allows for the use of several valuation methodologies, although it states that quoted market prices are the best evidence of fair value and shall be used as the basis for measuring fair value where available. In the Company’s assessment of its fair value, the Company considers the closing price of its common stock on the selected testing date, the number of shares of its common stock outstanding and other marketplace activity such as a related control premium. If the calculated fair value is determined to be less than the book value of the Company, then the Company performs step two of the impairment analysis. Step two of the analysis compares the implied fair value of the Company’s goodwill to its book value. If the book value of the Company’s goodwill exceeds its implied fair value, an impairment loss is recognized equal to that excess. In step two of the Company’s annual impairment analysis, if required, the Company primarily uses the income approach methodology of valuation, which includes the discounted cash flow method as well as other generally accepted valuation methodologies, to determine the implied fair value of the Company’s goodwill. Significant management judgment is required in preparing the forecasts of future operating results that are used in the discounted cash flow method of valuation. Should step two of the impairment test be required, the estimates management would use would be consistent with the plans and estimates that the Company uses to manage its business. In addition to testing goodwill for impairment on an annual basis, factors such as unexpected adverse business conditions, deterioration of the economic climate, unanticipated technological changes, adverse changes in the competitive environment, loss of key personnel and acts by governments and courts, are considered by management and may signal that the Company’s intangible assets including goodwill have become impaired and result in additional interim impairment testing.
In fiscal year 2012, the Company performed an impairment test of its goodwill as of the first day of the fourth fiscal quarter in accordance with the Company’s regularly scheduled annual testing. The results of this test indicated that the Company’s goodwill was not impaired based on step one of the test; accordingly step two of the test was not performed.
BUSINESS COMBINATIONS
The Company uses the acquisition method of accounting for business combinations and recognizes assets acquired and liabilities assumed measured at their fair values on the date acquired. Goodwill represents the excess of the purchase price over the fair value of the net assets. The fair values of the assets and liabilities acquired are determined based upon the Company’s valuation. The valuation involves making significant estimates and assumptions which are based on detailed financial models including the projection of future cash flows, the weighted average cost of capital and any cost savings that are expected to be derived in the future.
SHARE-BASED COMPENSATION
The Company applies ASC 718
Compensation-Stock Compensation
(“ASC 718”) which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including non-qualified employee stock options, share awards, employee stock purchase plan and other special share-based awards based on estimated fair values. The Company adopted ASC 718 using the modified prospective transition method, which requires the application of the applicable accounting standard as of October 1, 2005, the first day of the Company’s fiscal year 2006.
The fair value of share-based awards is amortized over the requisite service period, which is defined as the period during which an employee is required to provide service in exchange for an award. The Company uses a straight-line attribution method for all grants that include only a service condition. Due to the existence of both performance and service conditions, certain restricted stock grants are expensed over the service period for each separately vesting tranche.
Share-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. Share-based compensation expense recognized in the Company’s Consolidated Statement of Operations for the fiscal year ended September 28, 2012 only included share-based payment awards granted subsequent to September 30, 2005 based on the grant date fair value estimated in accordance with the provisions of ASC 718. As share-based compensation expense recognized in the Consolidated Statement of Operations for the fiscal year ended September 28, 2012 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Upon adoption of ASC 718, the Company elected to retain its method of valuation for share-based awards using the Black-Scholes option-pricing model (“Black-Scholes model”) which was also previously used for the Company’s pro forma information required under the previous authoritative literature governing stock compensation expense. The Company’s determination of fair value of share-based payment awards on the date of grant using the Black-Scholes model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to; the Company’s expected stock price volatility over the term of the awards, risk free interest rate, and actual and projected employee stock option exercise behaviors. The determination of fair value of restricted share awards is based on the value of the Company's stock on the date of grant. The Company may from time to time offer more complex awards with market-based performance conditions. In the event the Company offers its employees such awards, the Company would employ a Monte Carlo simulation valuation method to calculate the potential outcome for awards and establishes fair value based on the most likely outcome.
DEFERRED FINANCING COSTS
Financing costs are capitalized as an asset on the Company’s balance sheet and amortized on a straight-line basis over the life of the financing. If debt is extinguished early, a proportionate amount of deferred financing costs is charged to earnings.
CURRENCIES
The Company’s functional currency for all operations worldwide is the U.S. dollar. Accordingly, gains and losses related to foreign currency transactions, conversion of foreign denominated cash balances and translation of foreign currency financial statements are included in current results.
INCOME TAXES
The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. This method also requires the recognition of future tax benefits such as net operating loss carry forwards, to the extent that realization of such benefits is more likely than not. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The carrying value of the Company's net deferred tax assets assumes the Company will be able to generate sufficient future taxable income in certain tax jurisdictions, based on estimates and assumptions. If these estimates and related assumptions change in the future, the Company may be required to record additional valuation allowances against its deferred tax assets resulting in additional income tax expense in its consolidated statement of operations. Management evaluates the realizability of the deferred tax assets and assesses the adequacy of the valuation allowance quarterly. Likewise, in the event the Company were to determine that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, an adjustment to the deferred tax assets would increase income or decrease the carrying value of goodwill in the period such determination was made.
The determination of recording or releasing tax valuation allowances is made, in part, pursuant to an assessment performed by management regarding the likelihood that the Company will generate future taxable income against which benefits of its deferred tax assets may or may not be realized. This assessment requires management to exercise significant judgment and make estimates with respect to its ability to generate revenues, gross profits, operating income and taxable income in future periods. Amongst other factors, management must make assumptions regarding overall business and semiconductor industry conditions, operating
efficiencies, the Company's ability to develop products to its customers' specifications, technological change, the competitive environment and changes in regulatory requirements which may impact its ability to generate taxable income and, in turn, realize the value of its deferred tax assets.
The calculation of the Company’s tax liabilities includes addressing uncertainties in the application of complex tax regulations and is based on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
The Company recognizes liabilities for anticipated tax audit issues in the United States and other tax jurisdictions based on its recognition threshold and measurement attribute of whether it is more likely than not that the positions the Company has taken in tax filings will be sustained upon tax audit, and the extent to which additional taxes would be due. If payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period in which it is determined the liabilities are no longer necessary. If the estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to expense would result. The Company recognizes any interest and penalties, if incurred, on any unrecognized tax benefits as a component of income tax expense.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
LOSS CONTINGENCIES
The Company records its best estimates of a loss contingency when it is considered probable and the amount can be reasonably estimated. When a range of loss can be reasonably estimated with no best estimate in the range, the Company records the minimum estimated liability related to the claim. As additional information becomes available, the Company assesses the potential liability related to the Company's pending loss contingency and revises its estimates. The Company's records its legal costs as expense in the period in which they are incurred.
ACCUMULATED OTHER COMPREHENSIVE LOSS
The Company accounts for comprehensive loss in accordance with the provisions of ASC 220 -
Comprehensive Income
(“ASC 220”). ASC 220 is a financial statement presentation standard that requires the Company to disclose non-owner changes included in equity but not included in net income or loss. Accumulated other comprehensive loss presented in the financial statements consists of adjustments to the Company’s auction rate securities and minimum pension liability as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Pension
Adjustments
|
|
Auction Rate Securities Adjustment
|
|
Accumulated
Other
Comprehensive
Loss
|
Balance as of October 1, 2010
|
(385
|
)
|
|
(912
|
)
|
|
(1,297
|
)
|
Period adjustments
|
(34
|
)
|
|
—
|
|
|
(34
|
)
|
Balance as of September 30, 2011
|
(419
|
)
|
|
(912
|
)
|
|
(1,331
|
)
|
Period adjustments
|
(256
|
)
|
|
(6
|
)
|
|
(262
|
)
|
Balance as of September 28, 2012
|
(675
|
)
|
|
(918
|
)
|
|
(1,593
|
)
|
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2011, the Financial Accounting Standards Board revised the authoritative guidance for comprehensive income to require an entity to present total comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements and eliminated the option to present the components of other comprehensive income as part of the statement of equity. The guidance will be effective for us beginning in the first quarter of fiscal 2013 and should be applied retrospectively. The adoption of the guidance will impact the presentation of the financial statements only and will not impact our financial position, results of operations or cash flows.
In September 2011, the Financial Accounting Standards Board revised the authoritative guidance for goodwill and other intangibles to allow entities the ability to first assess the qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. The guidance will be effective for us beginning in fiscal 2013. The adoption of this guidance is not expected to impact our annual goodwill impairment test, financial position or results of operations.
In June 2012, The Financial Accounting Standards Board proposed guidance regarding the disclosures for liquidity and interest rate disclosures. Comments on the exposure draft were due in September 2012. This Accounting Standards Update has not been finalized as of the date of this filing; however the Company does not believe this guidance will impact our financial position or results of operations.
In July 2012, the Financial Accounting Standards Board revised the authoritative guidance for indefinite-lived intangible asset impairment testing to allow entities the ability to first assess the qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset, other than goodwill, is impaired. The guidance will be effective for us beginning in fiscal 2013. The adoption of this guidance is not expected to impact our indefinite-lived intangible asset impairment testing, financial position or results of operations.
3. BUSINESS COMBINATIONS
On
January 9, 2012
, the Company acquired Advanced Analogic Technologies Inc. ("AATI"). The Company acquired all of the outstanding shares of AATI in exchange for an aggregate purchase price of
$277.3 million
, substantially comprised of cash consideration. AATI is an analog semiconductor company focused on enabling energy-efficient power management devices for consumer electronics, computing and communications markets. The acquisition expands the Company's product portfolio across new vertical markets with highly complementary analog semiconductor products including battery chargers, DC/DC converters, voltage regulators and LED drivers.
The allocation of the purchase price to the assets and liabilities recognized in the Company’s acquisition of AATI was not finalized at the time of filing this annual report on Form 10-K. The preliminary allocation of the purchase price reflected in the accompanying financial statements is based upon estimates and assumptions which are subject to change within the measurement period (up to one year from the acquisition date as prescribed in the ASC 805
Business Combinations)
. The preliminary allocation of the purchase price is based on the estimated fair values of the assets acquired and liabilities assumed by major class related to the AATI acquisition and are reflected, as of the acquisition date, in the accompanying financial statements as follows (in thousands):
|
|
|
|
|
|
|
|
As of
|
Estimated fair value of assets acquired
|
|
January 9,
2012
|
Cash
|
|
$
|
42,605
|
|
Short-term investments
|
|
20,900
|
|
Accounts receivable
|
|
10,962
|
|
Inventory
|
|
15,470
|
|
Deferred tax assets
|
|
22,219
|
|
Property, plant and equipment
|
|
3,693
|
|
Other assets
|
|
2,139
|
|
Identifiable intangible assets
|
|
40,240
|
|
Goodwill
|
|
133,958
|
|
Total assets acquired
|
|
292,186
|
|
Liabilities assumed
|
|
(14,842
|
)
|
Estimated fair value of assets acquired
|
|
$
|
277,344
|
|
The preliminary amount of the AATI purchase price allocated to goodwill of
$134.0 million
(including measurement period adjustments recognized) represents the expected synergies from cost efficiencies and cross-selling opportunities. The Company expects that substantially all of the goodwill recognized as a result of the AATI acquisition will not be deductible for tax purposes.
The preliminary amount of the AATI purchase price allocated to identifiable intangible assets recognized in the acquisition of AATI and the respective useful lives of such intangible assets as of January 9, 2012 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Estimated Useful Life (Years)
|
Customer relationships
|
|
$
|
21,200
|
|
|
4.7
|
Developed technology
|
|
15,500
|
|
|
5.0
|
In process research and development ("IPR&D")
|
|
1,540
|
|
|
TBD
|
Trade name
|
|
900
|
|
|
5.0
|
Backlog
|
|
1,100
|
|
|
0.3
|
Total identifiable intangible assets
|
|
$
|
40,240
|
|
|
|
Customer relationships represent the fair value of established relationships with original equipment manufacturers and distributors. Developed technology primarily represents the fair value of acquired AATI patented and unpatented technologies related to product designs. IPR&D represents the fair value of incomplete AATI research and development projects that had not reached technological feasibility but are expected to generate future economic benefit as of the acquisition date, January 9, 2012. Because of the uncertainty related to the completion of these projects, the Company has determined that the amortization period will be established when the projects reach technological feasibility or are discontinued. If a project is discontinued or fails to meet technological feasibility, the value associated with that project will be written off in the period the determination is made. The trade name line item in the table above represents the brand and name recognition associated with the marketing of AATI products and was determined to have a finite life. Backlog represents the fair value of AATI unfilled firm orders as of the acquisition date. All intangible assets acquired in connection with the AATI acquisition will be amortized on a straight-line basis over their respective estimated useful lives. The estimated fair values of the intangible assets acquired were primarily determined using the income approach based on significant inputs that were not observed. The Company considers the fair value of each of the acquired intangible assets to be Level 3 assets due to the significant estimates and assumptions used by management in establishing the estimated fair values. See Note 5, Fair Value in these Notes to the Consolidated Financial Statements for the definition of Level 3 assets.
Net revenue and net income for AATI have been included in the Consolidated Statements of Operations from the acquisition date through the end of the fiscal year on
September 28, 2012
. The impact of AATI's ongoing operations on the Company's net revenue and net income were not significant for the fiscal years ended
September 28, 2012
. The Company recognized transaction related costs associated with the AATI acquisition of approximately
$10.9 million
, including arbitration costs, during the fiscal year ended
September 28, 2012
which were included within the sales, administrative and general expense.
The unaudited pro forma financial results for the fiscal years ended
September 28, 2012
and
September 30, 2011
combine the unaudited historical results of Skyworks with the unaudited historical results of AATI for the fiscal year ended
September 28, 2012
and
September 30, 2011
, respectively. The results include the effects of unaudited pro forma adjustments as if AATI was acquired at the beginning of the prior fiscal year, October 2, 2010. The unaudited pro forma results presented include amortization charges for acquired intangible assets, adjustments for increases in the fair value of acquired inventory, other charges and related tax effects. The pro forma financial results presented below do not include any anticipated synergies or other expected benefits of the acquisition. These unaudited results are presented for informational purposes only and are not necessarily indicative of future operations (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year-Ended
|
|
|
September 28,
2012
|
|
September 30,
2011
|
Revenue
|
|
$
|
1,585,022
|
|
|
$
|
1,509,709
|
|
Net income
|
|
$
|
218,364
|
|
|
$
|
177,443
|
|
Diluted earnings per common share
|
|
$
|
1.14
|
|
|
$
|
0.93
|
|
4. MARKETABLE SECURITIES
The Company accounts for its investment in marketable securities in accordance with ASC 320-
Investments-Debt and Equity Securities
, and classifies them as “available for sale.” At
September 28, 2012
, these securities included
$4.0 million
of par value ARS, with a carrying value of
$3.1 million
as compared to the September 30, 2011 balances of
$3.2 million
and
$2.3 million
, respectively. The ARS balances are scheduled to mature through 2017. The increase in the balances held at
September 28, 2012
relates to ARS acquired as a result of the acquisition of AATI with a par and carrying value of approximately
$0.8 million
. The difference between the par and carrying values is categorized as a temporary loss in other comprehensive income. The Company receives the scheduled interest payments in accordance with the terms of the securities and evaluates the appropriate accounting treatment in each period presented.
In addition to the ARS, the Company acquired
$20.9 million
in US treasury bills as part of the acquisition of AATI on January 9, 2012. These securities matured or were sold prior to
September 28, 2012
.
5. FAIR VALUE
Fair value is the price that would be received from selling an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date. Applicable accounting guidance provides a hierarchy for inputs used in measuring fair value that prioritize the use of observable inputs over the use of unobservable inputs, when such observable inputs are available. The three levels of inputs that may be used to measure fair value are as follows:
|
|
•
|
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 are classified based on the lowest level of input that is significant to the fair value measurements. The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the observable inputs may result in a reclassification of assets and liabilities within the three levels of the hierarchy outlined above.
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis
The Company measures certain assets and liabilities at fair value on a recurring basis such as our financial instruments, marketable securities and contingent consideration related to business combinations and recognizes transfers within the fair value hierarchy at the end of the fiscal quarter in which the change in circumstances that caused the transfer occurred. There have been no transfers between Level 1, 2 or 3 assets or liabilities during the fiscal year ended
September 28, 2012
.
Due to the illiquid markets for the Company's ARS, these securities are appropriately classified as a Level 3 asset.
The Company has classified its contingent consideration, which was primarily related to the acquisition of SiGe Semiconductor Inc. ("SiGe") in fiscal 2011, as a Level 3 liability. The fair value of the contingent consideration liabilities were primarily computed based on expected revenue to be generated by the acquired enterprises using a weighted probability income approach. Revenue and other assumptions used in the calculation require significant management judgment. Accordingly, the contingent consideration liabilities were classified as Level 3. The Company reassessed the fair value of the contingent consideration liabilities on a quarterly basis. Based on that assessment, the Company recognized a reduction of approximately
$5.4 million
related to the actual calculation of the earn-out obligations during the fiscal year ended
September 28, 2012
. The resulting gain was recorded in the selling, general and administrative line item on the Consolidated Statement of Operations. The Company paid
$52.9 million
in cash during the fourth fiscal quarter to settle the contingent consideration liability associated with the acquisition of SiGe.
As of
September 28, 2012
, assets and liabilities recorded at fair value on a recurring basis consist of the following (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
Total
|
|
Quoted prices in active markets for identical assets
(Level 1)
|
|
Significant
other
observable inputs
(Level 2)
|
|
Significant unobservable inputs
(Level 3)
|
Assets
|
|
|
|
|
|
|
|
Money market
|
$
|
141,480
|
|
|
$
|
141,480
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Auction rate securities
|
3,093
|
|
|
—
|
|
|
—
|
|
|
3,093
|
|
Total
|
$
|
144,573
|
|
|
$
|
141,480
|
|
|
$
|
—
|
|
|
$
|
3,093
|
|
Liabilities
|
|
|
|
|
|
|
|
Contingent consideration liability recorded for business combinations
|
$
|
1,046
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,046
|
|
The following table summarizes changes to the fair value of the ARS, which is a Level 3 asset (in thousands):
|
|
|
|
|
|
|
|
Auction rate securities
|
Balance at September 30, 2011
|
|
$
|
2,288
|
|
Acquisition related additions (see Notes 3 and 4 for further detail)
|
|
805
|
|
Balance at September 28, 2012
|
|
$
|
3,093
|
|
The following table summarizes changes to the fair value of the contingent consideration, which is a Level 3 liability (in thousands):
|
|
|
|
|
|
|
|
Contingent consideration
|
Balance at September 30, 2011
|
|
$
|
59,400
|
|
Changes in fair value
|
|
(5,414
|
)
|
Payments
|
|
(52,940
|
)
|
Balance at September 28, 2012
|
|
$
|
1,046
|
|
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 subsequently re-measured if there are indicators of impairment. There were no indicators of impairment identified during the fiscal year ended
September 28, 2012
.
6. INVENTORY
Inventory consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
As of
|
|
September 28,
2012
|
|
September 30,
2011
|
Raw materials
|
$
|
27,170
|
|
|
$
|
18,565
|
|
Work-in-process
|
111,190
|
|
|
92,601
|
|
Finished goods
|
83,037
|
|
|
73,633
|
|
Finished goods held on consignment by customers
|
11,523
|
|
|
13,384
|
|
Total inventories
|
$
|
232,920
|
|
|
$
|
198,183
|
|
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
As of
|
|
September 28,
2012
|
|
September 30,
2011
|
Land and improvements
|
$
|
12,009
|
|
|
$
|
11,024
|
|
Buildings and improvements
|
56,969
|
|
|
53,397
|
|
Furniture and fixtures
|
25,380
|
|
|
26,325
|
|
Machinery and equipment
|
623,328
|
|
|
568,563
|
|
Construction in progress
|
36,902
|
|
|
13,929
|
|
Total property, plant and equipment, gross
|
754,588
|
|
|
673,238
|
|
Accumulated depreciation and amortization
|
(475,205
|
)
|
|
(421,873
|
)
|
Total property, plant and equipment, net
|
$
|
279,383
|
|
|
$
|
251,365
|
|
8. GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying amount of goodwill are as follows (in thousands):
|
|
|
|
|
|
Goodwill
|
Balance as of September 30, 2011
|
$
|
663,041
|
|
Goodwill recognized through business combinations (Note 3)
|
133,958
|
|
Goodwill adjustments
|
3,514
|
|
Goodwill as of September 28, 2012
|
$
|
800,513
|
|
The increase in goodwill for the fiscal year ended
September 28, 2012
resulted primarily from the acquisition of AATI as discussed in Note 3, Business Combinations in these Notes to the Consolidated Financial Statements. In addition, the Company recorded the final measurement period adjustment related to the acquisition of SiGe which resulted in an increase to goodwill.
The Company tests its goodwill and non-amortizing trademarks 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 or non-amortizing trademarks may be impaired. There were no indicators of impairment noted during the fiscal year ended
September 28, 2012
. However, based on the results of our annual testing, the Company determined that one of its non-amortizing trademarks did in fact have a finite life and accordingly the asset was reclassified and will be amortized over its estimated useful life as of September 28, 2012.
Intangible assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
As of
|
|
Weighted
average
amortization
period remaining (years)
|
September 28, 2012
|
|
September 30, 2011
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net
carrying
amount
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net
carrying
amount
|
Customer relationships
|
3.5
|
$
|
78,710
|
|
|
$
|
(36,242
|
)
|
|
$
|
42,468
|
|
|
$
|
57,510
|
|
|
$
|
(21,828
|
)
|
|
$
|
35,682
|
|
Developed technology and other
|
3.8
|
89,366
|
|
|
(42,266
|
)
|
|
47,100
|
|
|
70,046
|
|
|
(27,039
|
)
|
|
43,007
|
|
IPR&D
|
1.4
|
6,050
|
|
|
(3,177
|
)
|
|
2,873
|
|
|
4,510
|
|
|
(260
|
)
|
|
4,250
|
|
Trademarks
|
Indefinite
|
1,569
|
|
|
—
|
|
|
1,569
|
|
|
3,869
|
|
|
—
|
|
|
3,869
|
|
Total intangible assets
|
|
$
|
175,695
|
|
|
$
|
(81,685
|
)
|
|
$
|
94,010
|
|
|
$
|
135,935
|
|
|
$
|
(49,127
|
)
|
|
$
|
86,808
|
|
The increase in intangible assets for the fiscal year ended
September 28, 2012
resulted from the acquisition of AATI as discussed in Note 3, Business Combinations in these Notes to the Consolidated Financial Statements.
Annual amortization expense for the next five years related to intangible assets is expected to be as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2014
|
|
2015
|
|
2016
|
|
2017
|
|
Thereafter
|
Amortization expense
|
$
|
29,199
|
|
|
$
|
23,981
|
|
|
$
|
21,041
|
|
|
$
|
16,247
|
|
|
$
|
1,972
|
|
|
$
|
—
|
|
9. BORROWING ARRANGEMENTS
On March 2, 2007, the Company issued
$200.0 million
aggregate principal amount of convertible subordinated notes ("2007 Convertible Notes"). The offering contained
two
tranches. The first tranche consisted of
$100.0 million
of
1.25%
convertible subordinated notes due March 2010 (the "1.25% Notes") which have been retired. The second tranche consisted of
$100.0 million
aggregate principal amount of
1.50%
convertible subordinated notes due March 2012 (the "1.50% Notes"). During the
fiscal year ended
September 28, 2012
, the Company redeemed and retired the remaining
$26.7 million
of aggregate principal amount of the
1.50%
Notes, paying a cash premium of
$21.3 million
which was accounted for as a reacquisition of equity instruments in accordance with ASC 470-20 -
Debt, Debt with Conversions and Other Options
.
The following tables provide additional information regarding the Company's 2007 Convertible Notes (in thousands):
|
|
|
|
|
|
|
|
|
|
As of
|
|
September 28,
2012
|
|
September 30,
2011
|
Equity component of the convertible notes outstanding
|
$
|
—
|
|
|
$
|
6,061
|
|
Principal amount of the convertible notes
|
$
|
—
|
|
|
$
|
26,677
|
|
Unamortized discount of the liability component
|
$
|
—
|
|
|
$
|
588
|
|
Net carrying amount of the liability component
|
$
|
—
|
|
|
$
|
26,089
|
|
The following table provides additional information regarding interest expense related to the Company's 2007 Convertible Notes (in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
September 28,
2012
|
|
September 30,
2011
|
Effective interest rate on the liability component
|
6.86
|
%
|
|
6.86
|
%
|
Cash interest expense recognized (contractual interest)
|
$
|
105
|
|
|
$
|
400
|
|
Effective interest expense recognized
|
$
|
428
|
|
|
$
|
1,345
|
|
10. INCOME TAXES
Income before income taxes consists of the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
September 28,
2012
|
|
September 30,
2011
|
|
October 1,
2010
|
United States
|
$
|
113,140
|
|
|
$
|
208,926
|
|
|
$
|
164,094
|
|
Foreign
|
141,836
|
|
|
84,960
|
|
|
30,980
|
|
Income before income taxes
|
$
|
254,976
|
|
|
$
|
293,886
|
|
|
$
|
195,074
|
|
The provision for income taxes consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
September 28,
2012
|
|
September 30,
2011
|
|
October 1,
2010
|
Current tax expense (benefit):
|
|
|
|
|
|
Federal
|
$
|
32,414
|
|
|
$
|
25,421
|
|
|
$
|
11,855
|
|
State
|
(1,741
|
)
|
|
422
|
|
|
946
|
|
Foreign
|
8,623
|
|
|
4,340
|
|
|
684
|
|
|
39,296
|
|
|
30,183
|
|
|
13,485
|
|
Deferred tax expense (benefit):
|
|
|
|
|
|
Federal
|
12,998
|
|
|
35,053
|
|
|
44,072
|
|
State
|
(3,670
|
)
|
|
(1,048
|
)
|
|
(2,846
|
)
|
Foreign
|
405
|
|
|
961
|
|
|
235
|
|
|
9,733
|
|
|
34,966
|
|
|
41,461
|
|
|
|
|
|
|
|
Change in valuation allowance
|
3,869
|
|
|
2,152
|
|
|
2,834
|
|
Provision for income taxes
|
$
|
52,898
|
|
|
$
|
67,301
|
|
|
$
|
57,780
|
|
The actual income tax expense is different than that which would have been computed by applying the federal statutory tax rate to income before income taxes. A reconciliation of income tax expense as computed at the United States federal statutory income tax rate to the provision for income tax expense follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
September 28,
2012
|
|
September 30,
2011
|
|
October 1,
2010
|
Tax expense at United States statutory rate
|
$
|
89,241
|
|
|
$
|
102,860
|
|
|
$
|
68,276
|
|
Foreign tax rate difference
|
(44,733
|
)
|
|
(24,394
|
)
|
|
(8,889
|
)
|
Deemed dividend from foreign subsidiary
|
2,446
|
|
|
43
|
|
|
884
|
|
Research and development credits
|
(1,689
|
)
|
|
(17,720
|
)
|
|
(5,820
|
)
|
Change in tax reserve
|
10,419
|
|
|
9,405
|
|
|
4,413
|
|
Change in valuation allowance
|
3,869
|
|
|
2,152
|
|
|
2,834
|
|
Non deductible debt retirement premium
|
—
|
|
|
—
|
|
|
64
|
|
Domestic production activities deduction
|
(3,923
|
)
|
|
(6,055
|
)
|
|
(2,263
|
)
|
International restructuring
|
—
|
|
|
—
|
|
|
(3,468
|
)
|
Other, net
|
(2,732
|
)
|
|
1,010
|
|
|
1,749
|
|
Provision for income taxes
|
$
|
52,898
|
|
|
$
|
67,301
|
|
|
$
|
57,780
|
|
The Company operates in foreign jurisdictions with income tax rates lower than the United States tax rate of
35%
. The Company's tax benefits related to foreign earnings taxed at a rate less than the United States federal rate were
$44.7 million
and
$24.4 million
as of September 28, 2012 and September 30, 2011, respectively.
As of September 28, 2012, the United States Congress has not taken action to extend the federal tax credit available under the Internal Revenue Code for research and development. Accordingly, the income tax provision for the year ended September 28, 2012 does not include the impact of such research and development tax credits earned after December 31, 2011.
On October 2, 2010, the Company expanded its presence in Asia by launching operations in Singapore. The Company operates under a tax holiday in Singapore, which is effective through September 30, 2020. The tax holiday is conditional upon the Company's compliance in meeting certain employment and investment thresholds in Singapore. The impact of the tax holiday decreased Singapore's taxes by
$5.9 million
which resulted in a benefit of
$0.03
of basic and diluted earnings per share for the fiscal year ended September 28, 2012. The impact of the tax holiday to fiscal 2011 was not material.
As a result of the enactment of the Tax Relief Act of 2010 which retroactively reinstated and extended the research and development tax credit,
$6.2 million
of federal research and development tax credits which were earned in fiscal year 2010 reduced our tax rate during the year ended September 30, 2011.
During fiscal year 2010, the Company restructured its international operations resulting in a tax benefit of
$3.5 million
. This consisted of a tax benefit of
$6.3 million
due to reassessing the United States income tax required to be recorded on earnings of our operations in Mexico, offset by
$2.8 million
of tax provision related to the transfer of assets to an affiliated foreign company. As a result of this restructuring, the Company is no longer required to assess United States income tax on the earnings of its Mexican business.
Deferred income tax assets and liabilities consist of the tax effects of temporary differences related to the following (in thousands):
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
September 28,
2012
|
|
September 30,
2011
|
Deferred Tax Assets:
|
|
|
|
Current:
|
|
|
|
Inventory
|
$
|
5,293
|
|
|
$
|
4,181
|
|
Bad debts
|
170
|
|
|
162
|
|
Accrued compensation and benefits
|
4,041
|
|
|
3,946
|
|
Product returns, allowances and warranty
|
1,916
|
|
|
1,222
|
|
Restructuring
|
606
|
|
|
515
|
|
Other – net
|
520
|
|
|
998
|
|
Current deferred tax assets
|
12,546
|
|
|
11,024
|
|
Less valuation allowance
|
(3,162
|
)
|
|
(2,431
|
)
|
Net current deferred tax assets
|
9,384
|
|
|
8,593
|
|
Long-term:
|
|
|
|
Intangible assets
|
6,638
|
|
|
7,660
|
|
Share-based and other deferred compensation
|
37,601
|
|
|
27,921
|
|
Net operating loss carry forwards
|
35,809
|
|
|
22,143
|
|
Federal tax credits
|
17,199
|
|
|
37,717
|
|
State tax credits
|
33,628
|
|
|
26,111
|
|
Other - net
|
1,785
|
|
|
—
|
|
Long-term deferred tax assets
|
132,660
|
|
|
121,552
|
|
Less valuation allowance
|
(43,791
|
)
|
|
(36,943
|
)
|
Net long-term deferred tax assets
|
88,869
|
|
|
84,609
|
|
|
|
|
|
Deferred tax assets
|
145,206
|
|
|
132,576
|
|
Less valuation allowance
|
(46,953
|
)
|
|
(39,374
|
)
|
Net deferred tax assets
|
98,253
|
|
|
93,202
|
|
Deferred Tax Liabilities:
|
|
|
|
Current:
|
|
|
|
Prepaid insurance
|
(894
|
)
|
|
(723
|
)
|
Current deferred tax liabilities
|
(894
|
)
|
|
(723
|
)
|
Long-term:
|
|
|
|
Property, plant and equipment
|
(17,567
|
)
|
|
(18,084
|
)
|
Other – net
|
(3
|
)
|
|
(208
|
)
|
Intangible assets
|
(6,157
|
)
|
|
(5,943
|
)
|
Long-term deferred tax liabilities
|
(23,727
|
)
|
|
(24,235
|
)
|
|
|
|
|
Net deferred tax liabilities
|
(24,621
|
)
|
|
(24,958
|
)
|
Total deferred tax assets
|
$
|
73,632
|
|
|
$
|
68,244
|
|
In accordance with GAAP, management has determined that it is more likely than not that a portion of its historic and current year income tax benefits will not be realized. As of
September 28, 2012
, the Company has maintained a valuation allowance of
$47.0 million
. This valuation allowance is comprised of
$33.6 million
related to U.S. State tax credits, of which
$3.6 million
are state tax credits acquired from AATI in fiscal year 2012, and
$13.4 million
related to foreign deferred tax assets. If these benefits are recognized in a future period the valuation allowance on deferred tax assets will be reversed and up to a
$46.6 million
income tax benefit, and up to a
$0.4 million
reduction to goodwill may be recognized. The Company will need to generate
$209.0 million
of future United States federal taxable income to utilize our United States deferred tax assets as of
September 28, 2012
.
Deferred tax assets are recognized for foreign operations when management believes it is more likely than not that the deferred tax assets will be recovered during the carry forward period. The Company will continue to assess its valuation allowance in future periods.
As of
September 28, 2012
, the Company has United States federal net operating loss carry forwards of approximately
$74.3 million
, including
$29.5 million
related to the acquisition of SiGe, which will expire at various dates through
2030
and
$28.1 million
related to the acquisition of AATI, which will expire at various dates through
2031
. The utilization of these net operating losses is subject to certain annual limitations as required under Internal Revenue Code section 382 and similar state income tax provisions. The Company also has United States federal income tax credit carry forwards of
$37.8 million
, of which
$30.4 million
of federal income tax credit carry forwards have not been recorded as a deferred tax asset. The Company also has state income tax credit carry forwards of
$33.6 million
, for which the Company has provided a valuation allowance. The United States federal tax credits expire at various dates through
2032
. The state tax credits relate primarily to California research tax credits which can be carried forward indefinitely.
The Company has continued to expand its operations and increase its investments in numerous international jurisdictions. These activities will increase the Company’s earnings attributable to foreign jurisdictions. As of
September 28, 2012
, no provision has been made for United States federal, state, or additional foreign income taxes related to approximately
$371.5 million
of undistributed earnings of foreign subsidiaries which have been or are intended to be permanently reinvested. It is not practicable to determine the United States federal income tax liability, if any, which would be payable if such earnings were not permanently reinvested.
The Company’s gross unrecognized tax benefits totaled
$52.4 million
and
$32.1 million
as of
September 28, 2012
and
September 30, 2011
, respectively. Of the total unrecognized tax benefits at
September 28, 2012
,
$38.8 million
would impact the effective tax rate, if recognized. The remaining unrecognized tax benefits would not impact the effective tax rate, if recognized, due to the Company’s valuation allowance and certain positions which were required to be capitalized. There are no positions which the Company anticipates could change within the next twelve months.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
|
Unrecognized tax benefits
|
Balance at September 30, 2011
|
$
|
32,136
|
|
Increases based on positions related to prior years
|
9,004
|
|
Increases based on positions related to current year
|
11,265
|
|
Decreases relating to settlements with taxing authorities
|
—
|
|
Decreases relating to lapses of applicable statutes of limitations
|
(25
|
)
|
Balance at September 28, 2012
|
$
|
52,380
|
|
The current year increase in positions related to prior years of
$9.0 million
primarily includes
$9.7 million
of positions acquired from AATI during the fiscal year.
During the year ended
September 28, 2012
, the Company did not recognize any significant amount of previously unrecognized tax benefits related to the expiration of the statute of limitations. The Company recognized
$0.6 million
of accrued interest or penalties related to unrecognized tax benefits during fiscal year 2012.
The Company’s major tax jurisdictions as of
September 28, 2012
are the United States, California, Iowa, Singapore and Canada. For the United States, the Company has open tax years dating back to fiscal year 2002 due to the carry forward of tax attributes. For California and Iowa, the Company has open tax years dating back to fiscal year 2002 due to the carry forward of tax attributes. For Singapore, the Company has open tax years dating back to fiscal year 2011. For Canada, the Company has open tax years dating back to fiscal year 2004.
11. STOCKHOLDERS’ EQUITY
COMMON STOCK
At
September 28, 2012
, the Company is authorized to issue
525 million
shares of common stock, par value
$0.25
per share of which
202,937,547
shares are issued and
192,296,130
shares outstanding.
Holders of the Company’s common stock are entitled to such dividends as may be declared by the Company’s Board of Directors
out of funds legally available for such purpose. Dividends may not be paid on common stock unless all accrued dividends on preferred stock, if any, have been paid or declared and set aside. In the event of the Company’s liquidation, dissolution or winding up, the holders of common stock will be entitled to share pro rata in the assets remaining after payment to creditors and after payment of the liquidation preference plus any unpaid dividends to holders of any outstanding preferred stock.
Each holder of the Company’s common stock is entitled to one vote for each such share outstanding in the holder’s name. No holder of common stock is entitled to cumulate votes in voting for directors. The Company’s restated certificate of incorporation as amended to date, ("the Certificate of Incorporation") provides that, unless otherwise determined by the Company’s Board of Directors, no holder of stock has any preemptive right to purchase or subscribe for any stock of any class which the Company may issue or sell.
On August 3, 2010, the Board of Directors approved a stock repurchase program, pursuant to which the Company is authorized to repurchase up to
$200.0 million
of the Company's common stock from time to time on the open market or in privately negotiated transactions as permitted by securities laws and other legal requirements. During the fiscal year ended
September 28, 2012
, the Company paid approximately
$12.4 million
(including commissions) in connection with the repurchase of
0.8 million
shares of its common stock (paying an average price of
$16.54
per share). This plan expired on August 3, 2012 and had
$117.6 million
remaining on the original amount.
On November 8, 2012 the Board of Directors approved a new share repurchase program, pursuant to which we are authorized to repurchase up to
$200.0 million
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 repurchase program is set to expire on November 8, 2014; however, it may be suspended, discontinued or extended at any time prior to November 8, 2014 upon approval of the Board of Directors. This repurchase program will be funded with our working capital.
PREFERRED STOCK
The Company’s Certificate of Incorporation has authorized and permits the Company to issue up to
25 million
shares of preferred stock without par value in one or more series and with rights and preferences that may be fixed or designated by the Company’s Board of Directors without any further action by the Company’s stockholders. The designation, powers, preferences, rights and qualifications, limitations and restrictions of the preferred stock of each series will be fixed by the certificate of designation relating to such series, which will specify the terms of the preferred stock. At
September 28, 2012
, the Company had no shares of preferred stock issued or outstanding.
EMPLOYEE STOCK BENEFIT PLANS
As of
September 28, 2012
, the Company has the following equity compensation plans under which its equity securities were authorized for issuance to its employees and/or directors:
|
|
•
|
the 1999 Employee Long-Term Incentive Plan
|
|
|
•
|
the Directors’ 2001 Stock Option Plan
|
|
|
•
|
the Non-Qualified Employee Stock Purchase Plan
|
|
|
•
|
the 2002 Employee Stock Purchase Plan
|
|
|
•
|
the 2005 Long-Term Incentive Plan
|
|
|
•
|
the 2008 Director Long-Term Incentive Plan
|
|
|
•
|
AATI 1998 Amended Stock Plan
|
|
|
•
|
AATI 2005 Equity Incentive Plan
|
Except for the 1999 Employee Long-Term Incentive Plan and the Non-Qualified Employee Stock Purchase Plan, each of the foregoing equity compensation plans were approved by the Company’s stockholders.
As of
September 28, 2012
, a total of
76.8 million
shares are authorized for grant under the Company's share-based compensation plans, with
11.9 million
options outstanding. The number of common shares reserved for granting of future awards to employees and directors under these plans was
10.5 million
at
September 28, 2012
. The Company grants equity awards under the 2005 Long-Term Incentive Plan to employees and the 2008 Director Long-Term Incentive Plan for non-employee directors.
During 2012, the Company assumed a total of
1.1 million
outstanding stock-options awards and
0.4 million
restricted stock units ("RSUs") under various stock based incentive plans as a result of the acquisition of AATI. These AATI plans were assumed on the date of the acquisition and no additional shares may be granted under these plans.
2005 Long-Term Incentive Plan.
Under this plan officers, employees, non-employee directors and certain consultants may be granted stock options, restricted stock awards, RSUs, performance awards and other share-based awards. The plan has been approved by the stockholders. Under the plan up to
41.8 million
shares have been authorized for grant. A total of
9.3 million
shares are available for new grants as of
September 28, 2012
. The maximum contractual term of the awards is up to
seven
years from the date of grant. Options granted under the plan are exercisable at the determination of the compensation committee and generally vest ratably over
four
years. Restricted stock awards and RSUs granted under the plan are exercisable at the determination of the compensation committee and generally vest over
three
or more years. Performance awards are contingently granted depending on the achievement of certain predetermined performance goals and generally vest over
three
or more years.
2008 Director Long-Term Incentive Plan.
Under this plan, non-employee directors may be granted stock options, restricted stock awards and other share-based awards. The plan has been approved by the stockholders. Under the plan a total of
1.5 million
shares have been authorized for option grants. A total of
0.9 million
shares are available for new grants as of
September 28, 2012
. The maximum contractual term of the director awards is
seven
years. Options granted under the plan are generally exercisable over
four
years. Restricted stock awards granted under the plan are exercisable at the determination of the compensation committee and generally vest over
three
or more years.
2002 Employee Stock Purchase Plan.
The Company maintains a domestic and an international employee stock purchase plan. Under these plans, eligible employees may purchase common stock through payroll deductions of up to
10%
of their compensation. The price per share is the lower of
85%
of the fair market value of the common stock at the beginning or end of each offering period (generally six months). The plans provide for purchases by employees of up to an aggregate of
10.6 million
shares through December 31, 2012. Shares of common stock purchased under these plans in fiscal years 2012, 2011, and 2010 were
0.5 million
,
0.5 million
, and
0.6 million
, respectively. At
September 28, 2012
, there are
2.5 million
shares available for purchase. The Company recognized compensation expense of
$3.5 million
,
$2.5 million
and
$1.9 million
for the fiscal years ended
September 28, 2012
,
September 30, 2011
, and
October 1, 2010
, respectively. The unrecognized compensation expense on the employee stock purchase plan at
September 28, 2012
was
$1.3 million
. The weighted average period over which the cost is expected to be recognized is approximately
0.33
years.
Stock Options
The following table represents a summary of the Company's stock options for the year ended
September 28, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares (in thousands)
|
|
Weighted average exercise price
|
|
Weighted average remaining contractual life (in years)
|
|
Aggregate intrinsic value (in thousands)
|
Balance outstanding at September 30, 2011
|
12,403
|
|
|
$
|
13.45
|
|
|
|
|
|
Granted
|
2,609
|
|
|
$
|
18.91
|
|
|
|
|
|
Options assumed (1)
|
1,122
|
|
|
$
|
21.00
|
|
|
|
|
|
Exercised
|
(3,574
|
)
|
|
$
|
10.90
|
|
|
|
|
|
Canceled/forfeited
|
(676
|
)
|
|
$
|
23.44
|
|
|
|
|
|
Balance outstanding at September 28, 2012
|
11,884
|
|
|
$
|
15.57
|
|
|
4.6
|
|
|
$
|
100,504
|
|
|
|
|
|
|
|
|
|
Exercisable at September 28, 2012
|
5,009
|
|
|
$
|
11.63
|
|
|
3.8
|
|
|
$
|
62,098
|
|
(1) Includes stock options assumed in the acquisition of AATI, see Note 3.
The weighted-average grant date fair value per share of employee stock options granted during the fiscal years ended
September 28, 2012
,
September 30, 2011
, and
October 1, 2010
was
$8.91
,
$9.63
, and
$5.76
, respectively. The total grant date fair value of the options vested during the fiscal years ending
September 28, 2012
,
September 30, 2011
and
October 1, 2010
was
$25.4 million
,
$22.1 million
and
$30.2 million
, respectively.
Restricted and Performance Awards
The following table represents a summary of the Company's restricted stock awards, RSUs and performance award transactions:
|
|
|
|
|
|
|
|
|
Shares (In thousands)
|
|
Weighted average
grant date fair value
|
Non-vested awards outstanding at September 30, 2011
|
4,673
|
|
|
$
|
17.67
|
|
Granted
|
3,560
|
|
|
$
|
19.31
|
|
RSUs assumed (1)
|
372
|
|
|
$
|
11.82
|
|
Vested
|
(2,502
|
)
|
|
$
|
15.11
|
|
Canceled/forfeited
|
(182
|
)
|
|
$
|
18.91
|
|
Non-vested awards outstanding at September 28, 2012
|
5,921
|
|
|
$
|
19.79
|
|
(1)
Includes RSUs assumed in the acquisition of AATI, see Note 3.
The weighted average grant date fair value per share for awards granted during the fiscal years ended
September 28, 2012
,
September 30, 2011
, and
October 1, 2010
was
$19.31
,
$23.61
, and
$12.91
, respectively. The total grant date fair value of the awards vested during the fiscal years ending
September 28, 2012
,
September 30, 2011
and
October 1, 2010
was
$53.8 million
,
$28.4 million
and
$3.1 million
, respectively.
The following table summarizes the total intrinsic value for stock options exercised and awards vested (i.e., the difference between the market price at the exercise and the price paid by the employees to exercise the awards) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
September 28
2012
|
|
September 30
2011
|
|
October 1
2010
|
Options
|
$
|
54,460
|
|
|
$
|
90,062
|
|
|
$
|
40,837
|
|
Awards
|
$
|
53,759
|
|
|
$
|
53,569
|
|
|
$
|
15,030
|
|
Valuation and Expense Information under ASC 718
The following table summarizes pre-tax share-based compensation expense by financial statement line (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
September 28,
2012
|
|
September 30,
2011
|
|
October 1,
2010
|
Cost of sales
|
$
|
9,419
|
|
|
$
|
7,557
|
|
|
$
|
3,857
|
|
Research and development
|
27,982
|
|
|
18,100
|
|
|
7,419
|
|
Selling, general and administrative
|
34,771
|
|
|
32,681
|
|
|
29,465
|
|
Share-based compensation expense included in operating expenses
|
$
|
72,172
|
|
|
$
|
58,338
|
|
|
$
|
40,741
|
|
The Company had capitalized share-based compensation expense of
$2.0 million
,
$2.1 million
and
$0.8 million
in inventory at
September 28, 2012
,
September 30, 2011
and
October 1, 2010
, respectively.
The following table summarizes total compensation costs related to unvested awards not yet recognized and the weighted average period over which it is expected to be recognized at
September 28, 2012
:
|
|
|
|
|
|
|
|
|
Unrecognized compensation cost for unvested awards
(in thousands)
|
|
Weighted average remaining recognition period
(in years)
|
Options
|
$
|
36,767
|
|
|
2.1
|
|
Awards
|
$
|
51,951
|
|
|
1.5
|
|
The fair value of each stock option is estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions. The fair value of the restricted and performance awards is equal to the closing market price of the Company's common stock on the date of grant.
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
September 28,
2012
|
|
September 30,
2011
|
|
October 1,
2010
|
Expected volatility
|
59.21
|
%
|
|
49.26
|
%
|
|
56.19
|
%
|
Risk free interest rate (7 year contractual life options)
|
0.52
|
%
|
|
0.63
|
%
|
|
1.12
|
%
|
Dividend yield
|
0.00
|
|
|
0.00
|
|
|
0.00
|
|
Expected option life (7 year contractual life options)
|
4.09
|
|
|
4.10
|
|
|
4.23
|
|
The Company used an arithmetic average of historical volatility and implied volatility to calculate its expected volatility during the year ended
September 28, 2012
. Historical volatility was determined by calculating the mean reversion of the weekly-adjusted closing stock price over the expected life of the options. The implied volatility was calculated by analyzing the 52-week minimum and maximum prices of publicly traded call options on the Company’s common stock. The Company concluded that an arithmetic average of these two calculations provided for the most reasonable estimate of expected volatility under the guidance of ASC 718.
The risk-free interest rate assumption is based upon observed Treasury bill interest rates appropriate for the expected life of the Company’s employee stock options.
The expected life of employee stock options represents a calculation based upon the historical exercise, cancellation and forfeiture experience for the Company across its demographic population. The Company believes that this historical data is the best estimate of the expected life of a new option and that generally all groups of the Company's employees exhibit similar behavior.
12. EMPLOYEE BENEFIT PLAN, PENSIONS AND OTHER RETIREE BENEFITS
The Company maintains the following pension and retiree benefit plans:
|
|
•
|
401(k) plan covering substantially all employees based in the United States
|
|
|
•
|
Pre-merger defined benefit pension plan covering certain former employees
|
401(k) Plan:
The Company maintains a 401(k) plan covering substantially all of its employees based in the United States under which all employees at least
21
years old are eligible to receive discretionary Company contributions. Discretionary Company contributions are determined by the Board of Directors and may be in the form of cash or the Company’s stock. The Company has generally contributed a match of up to
4%
of an employee’s contributed annual eligible compensation. For the fiscal years ended
September 28, 2012
,
September 30, 2011
, and
October 1, 2010
, the Company contributed shares of
0.3 million
,
0.2 million
, and
0.3 million
, respectively, and recognized expense of
$6.0 million
,
$5.5 million
, and
$4.8 million
, respectively.
Pre-Merger Defined Benefit Pension:
The Pension Benefit plan identified below was inherited as part of the merger in 2002 that created Skyworks. Since the plan was inherited, no new participants have been added. The liability and related plan assets have been reported in the Company’s Consolidated Balance Sheet as follows (in thousands):
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
September 28,
2012
|
September 30,
2011
|
Benefit obligation at end of fiscal year
|
$
|
3,546
|
|
$
|
2,955
|
|
Fair value of plan assets at end of fiscal year
|
3,077
|
|
2,536
|
|
Funded status
|
$
|
(469
|
)
|
$
|
(419
|
)
|
The Company incurred net periodic benefit costs of
$0.1 million
for pension benefits during the fiscal year ended
September 28, 2012
, and
$0.1 million
for pension benefits in fiscal year ending
September 30, 2011
.
13. COMMITMENTS
The Company has various operating leases primarily for computers, buildings and equipment. Rent expense amounted to
$10.5 million
,
$7.6 million
, and
$7.6 million
in fiscal years ended
September 28, 2012
,
September 30, 2011
, and
October 1, 2010
, respectively. Future minimum payments under these non-cancelable leases are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2014
|
|
2015
|
|
2016
|
|
2017
|
|
Thereafter
|
|
Total
|
Future minimum payments
|
|
$
|
8,491
|
|
|
7,700
|
|
|
6,919
|
|
|
4,222
|
|
|
2,769
|
|
|
4,084
|
|
|
$
|
34,185
|
|
In addition, the Company has entered into licensing agreements for intellectual property rights and maintenance and support services. Pursuant to the terms of these agreements, the Company is committed to making aggregate payments of
$6.6 million
and
$3.0 million
in fiscal years 2013 and 2014, respectively.
14. CONTINGENCIES
Legal Matters
From time to time, various lawsuits, claims and proceedings have been, and may in the future be, instituted or asserted against the Company, including those pertaining to patent infringement, intellectual property, environmental, product liability and warranty, safety and health, employment and contractual matters.
Additionally, the semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights. From time to time, third parties have asserted and may in the future assert patent, copyright, trademark and other intellectual property rights to technologies that are important to 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. Legal costs are expensed as incurred.
On June 6 and 7, 2011, two putative stockholder class action lawsuits (Case No. 111CV202403 (the “Bushansky action”) and Case No. 111CV202501 (the “Venette action”), respectively) were filed in California Superior Court in Santa Clara County naming AATI, members of AATI's board of directors, the Company and PowerCo Acquisition Corp. (“Merger Sub”) as defendants. The lawsuits related to conduct surrounding the Company's acquisition of AATI. On July 26, 2011, the Court issued an order consolidating the Bushansky action and Venette action into a single, consolidated action captioned In re Advanced Analogic Technologies Inc. Shareholder Litigation, Lead Case No. 111CV202403, and designating an amended complaint filed on July 14, 2011 in the Venette action as the operative complaint in the litigation.
On November 30, 2011, following confidential arbitration proceedings in the Delaware Court of Chancery, the Company announced that it and AATI had amended their previously announced merger agreement whereby the Company would acquire AATI at a reduced price through a tender offer. The Company and AATI completed the transaction on January 9, 2012. On March 2, 2012, the Court stayed all discovery in the matter and ordered that Plaintiffs file an amended complaint by April 20, 2012.
On April 20, 2012, Plaintiffs filed an amended complaint (“First Amended Complaint”) against each of the original defendants with the exception of Merger Sub. The First Amended Complaint alleges, among other things, that (1) members of AATI's board of directors breached their fiduciary duties by (a) failing to take steps to maximize the value of AATI to its public shareholders by failing to adequately consider potential acquirers, (b) agreeing to the merger for inadequate consideration on unfair terms; (c) causing the filing of a materially misleading Schedule 14D-9 that failed to (i) disclose a basis for the price reduction, (ii) describe the arbitration proceedings, and (iii) include any financial valuation or fairness opinion concerning whether the revised merger consideration was fair; and (d) causing the issuance of amendments to the Schedule 14D-9 that failed to respond adequately to the SEC's disclosure directives; and (2) Skyworks and AATI allegedly aided and abetted these purported breaches of fiduciary duties. On June 22, 2012, the defendants filed demurrers to the First Amended Complaint. The Court will hold a hearing on those demurrers on December 7, 2012.
The Company monitors the status of these and other contingencies on an ongoing basis to ensure amounts are recognized and/or disclosed in our financial statements and footnotes as required by ASC 450,
Loss Contingencies
. At the time of this filing, the Company had not recorded any accrual for loss contingencies associated with its legal proceedings as losses resulting from such matters were determined not to be probable. In addition, the Company does not believe there are any legal proceedings that are
reasonably possible to result in a material loss. We are engaged in various other legal actions, not described above, 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 our business.
15. GUARANTEES AND INDEMNITIES
The Company has made no 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 condition or results of operations.
16. RESTRUCTURING AND OTHER CHARGES
Restructuring and other charges consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
September 28,
2012
|
|
September 30,
2011
|
|
October 1,
2010
|
Asset impairments
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1,040
|
)
|
Restructuring and other charges
|
7,752
|
|
|
2,363
|
|
|
—
|
|
Restructuring and other charges (credits)
|
$
|
7,752
|
|
|
$
|
2,363
|
|
|
$
|
(1,040
|
)
|
RESTRUCTURING CHARGES AND OTHER
During the fiscal year ended September 28, 2012, the Company implemented a restructuring plan to reduce redundancies associated with the acquisition of AATI. The Company recorded approximately
$5.8 million
related to employee severance and
$0.5 million
related to lease termination costs associated with the AATI restructuring actions during the fiscal year. The Company expects to incur approximately
$6.4 million
in costs related to the AATI restructuring activities. The Company began formulating the restructuring plans prior to the acquisition of AATI and none of these costs were included in the purchase accounting for AATI. As of September 28, 2012, cash payments are significantly completed and the Company does not anticipate any further contingencies related to the AATI restructuring.
During the fiscal year ended September 30, 2011, the Company implemented a restructuring plan to reduce the repetitive functions associated with its
acquisition of SiGe and recorded a restructuring charge for severance costs of
$2.4 million
. During the fiscal year ended September 28, 2012, The Company recorded an additional charge of
$0.7 million
related to this plan. The Company has made cash payments of
$1.2 million
related to this restructuring plan during the fiscal year ended September 28, 2012. This restructuring plan is substantially complete. The Company began formulating the restructuring plan prior to the acquisition of SiGe.
In fiscal year ended October 1, 2010, the Company recorded a gain of
$1.0 million
on the sale of a capital asset previously impaired through a restructuring during fiscal year 2009.
Activity and liability balances related to the Company's restructuring actions are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility closings
|
|
License and
software write-offs and other
|
|
Workforce
reductions
|
|
Total
|
Restructuring balance, October 2, 2009
|
$
|
1,210
|
|
|
$
|
1,586
|
|
|
$
|
483
|
|
|
$
|
3,279
|
|
Other
|
450
|
|
|
248
|
|
|
(247
|
)
|
|
451
|
|
Cash payments
|
(648
|
)
|
|
(657
|
)
|
|
(236
|
)
|
|
(1,541
|
)
|
Restructuring balance, October 1, 2010
|
1,012
|
|
|
1,177
|
|
|
—
|
|
|
2,189
|
|
Charged to costs and expenses
|
—
|
|
|
—
|
|
|
2,363
|
|
|
2,363
|
|
Cash payments
|
(193
|
)
|
|
(470
|
)
|
|
(2,189
|
)
|
|
(2,852
|
)
|
Other
|
—
|
|
|
—
|
|
|
328
|
|
|
328
|
|
Restructuring balance, September 30, 2011
|
819
|
|
|
707
|
|
|
502
|
|
|
2,028
|
|
Charged to costs and expenses
|
553
|
|
|
—
|
|
|
7,199
|
|
|
7,752
|
|
Cash payments
|
(228
|
)
|
|
(572
|
)
|
|
(7,254
|
)
|
|
(8,054
|
)
|
Other
|
—
|
|
|
—
|
|
|
2
|
|
|
2
|
|
Restructuring balance, September 28, 2012
|
$
|
1,144
|
|
|
$
|
135
|
|
|
$
|
449
|
|
|
$
|
1,728
|
|
17. EARNINGS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share amounts)
|
Fiscal Years Ended
|
|
September 28,
2012
|
|
September 30,
2011
|
|
October 1,
2010
|
Net income
|
$
|
202,078
|
|
|
$
|
226,585
|
|
|
$
|
137,294
|
|
|
|
|
|
|
|
Weighted average shares outstanding – basic
|
185,839
|
|
|
182,879
|
|
|
175,020
|
|
Effect of dilutive equity based awards
|
5,672
|
|
|
6,019
|
|
|
5,928
|
|
Dilutive effect of convertible debt
|
335
|
|
|
1,769
|
|
|
1,790
|
|
Weighted average shares outstanding – diluted
|
191,846
|
|
|
190,667
|
|
|
182,738
|
|
|
|
|
|
|
|
Net income per share – basic
|
$
|
1.09
|
|
|
$
|
1.24
|
|
|
$
|
0.78
|
|
Net income per share - diluted
|
$
|
1.05
|
|
|
$
|
1.19
|
|
|
$
|
0.75
|
|
Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share includes the dilutive effect of equity based awards and convertible debt using the treasury stock method.
Equity based awards exercisable for approximately
4.0 million
,
2.0 million
, and
4.6 million
shares were outstanding but not included in the computation of earnings per share for the fiscal year ended
September 28, 2012
,
September 30, 2011
and
October 1, 2010
, respectively, as their effect would have been anti-dilutive.
18. SEGMENT INFORMATION AND CONCENTRATIONS
In accordance with ASC 280-
Segment Reporting
("ASC 280"), the Company has one reportable operating segment which designs, develops, manufactures and markets proprietary semiconductor products, including intellectual property. ASC 280 establishes standards for the way public business enterprises report information about operating segments in annual financial statements and in interim reports to shareholders. The method for determining what information to report is based on management's use of financial information for the purposes of assessing performance and making operating decisions. In evaluating financial performance and making operating decisions, management primarily uses consolidated net revenue, gross profit, operating profit and earnings per share. The Company's business units share similar economic characteristics, long term business models, research and development expenses and selling, general and administrative expenses. In light of the recent acquisition of AATI, the Company reassessed its operations and concluded that there have been no changes and the Company continues to consider itself to have one reportable operating segment at September 28, 2012. The Company will re-assess its conclusions at least annually.
GEOGRAPHIC INFORMATION
Net revenues by geographic area are presented based upon the country of destination and are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
September 28,
2012
|
|
September 30,
2011
|
|
October 1,
2010
|
United States
|
$
|
70,259
|
|
|
$
|
76,764
|
|
|
$
|
115,610
|
|
Other Americas
|
18,373
|
|
|
38,863
|
|
|
36,724
|
|
Total Americas
|
88,632
|
|
|
115,627
|
|
|
152,334
|
|
|
|
|
|
|
|
China
|
820,134
|
|
|
914,678
|
|
|
628,858
|
|
South Korea
|
103,213
|
|
|
148,370
|
|
|
144,758
|
|
Taiwan
|
311,728
|
|
|
93,753
|
|
|
51,353
|
|
Other Asia-Pacific
|
207,337
|
|
|
91,521
|
|
|
30,922
|
|
Total Asia-Pacific
|
1,442,412
|
|
|
1,248,322
|
|
|
855,891
|
|
|
|
|
|
|
|
Europe, Middle East and Africa
|
37,537
|
|
|
54,973
|
|
|
63,624
|
|
|
$
|
1,568,581
|
|
|
$
|
1,418,922
|
|
|
$
|
1,071,849
|
|
The Company’s revenues by geography do not necessarily correlate to end market demand by region. For example, if the Company sells a power amplifier module to a customer in South Korea, the sale is recorded within the South Korea account although that customer, in turn, may integrate that module into a product sold to an end customer in a different geography.
Net property, plant and equipment balances, based on the physical locations within the indicated geographic areas are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
As of
|
|
September 28,
2012
|
|
September 30,
2011
|
United States
|
$
|
124,777
|
|
|
$
|
114,492
|
|
Mexico
|
145,935
|
|
|
131,862
|
|
Rest of world
|
8,671
|
|
|
5,011
|
|
|
$
|
279,383
|
|
|
$
|
251,365
|
|
CONCENTRATIONS
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of trade accounts receivable. Trade accounts receivables are primarily derived from sales to manufacturers of communications and consumer products and electronic component distributors. Ongoing credit evaluations of customers’ financial condition are performed and collateral, such as letters of credit and bank guarantees, are required whenever deemed necessary.
In fiscal year 2012 the Company had two customers, Foxconn Technology Group ("Foxconn") and Samsung Electronics, each of which accounted for greater than 10% of our net revenue. In both fiscal year 2011 and 2010, the Company had three customers, each with greater than ten percent of net revenue: Foxconn, Nokia and Samsung Electronics.
The Company's greater than ten percent customers comprised the following percentages of net revenue:
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
September 28,
2012
|
|
September 30,
2011
|
|
October 1,
2010
|
Company A
|
|
29%
|
|
27%
|
|
13%
|
Company B
|
|
17%
|
|
11%
|
|
13%
|
Company C
|
|
*
|
|
13%
|
|
12%
|
* Customer did not represent greater than ten percent of net revenue
At
September 28, 2012
, the Company's three largest accounts receivable balances comprised
60%
of aggregate gross accounts receivable. This concentration was
53%
and
60%
at
September 30, 2011
and
October 1, 2010
, respectively.
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
Second quarter
|
|
Third quarter
|
|
Fourth quarter
|
|
Fiscal year
|
Fiscal 2012
|
|
|
|
|
|
|
|
|
|
Net revenue
|
$
|
393,740
|
|
|
$
|
364,690
|
|
|
$
|
389,038
|
|
|
$
|
421,113
|
|
|
$
|
1,568,581
|
|
Gross profit
|
171,850
|
|
|
152,272
|
|
|
165,302
|
|
|
177,673
|
|
|
667,097
|
|
Net income
|
57,126
|
|
|
34,033
|
|
|
49,317
|
|
|
61,602
|
|
|
202,078
|
|
Per share data (1)
|
|
|
|
|
|
|
|
|
|
Net income, basic
|
$
|
0.31
|
|
|
$
|
0.18
|
|
|
$
|
0.26
|
|
|
$
|
0.33
|
|
|
$
|
1.09
|
|
Net income, diluted
|
$
|
0.30
|
|
|
$
|
0.18
|
|
|
$
|
0.26
|
|
|
$
|
0.32
|
|
|
$
|
1.05
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011
|
|
|
|
|
|
|
|
|
|
Net revenue
|
$
|
335,120
|
|
|
$
|
325,411
|
|
|
$
|
356,075
|
|
|
$
|
402,316
|
|
|
$
|
1,418,922
|
|
Gross profit
|
148,538
|
|
|
140,981
|
|
|
156,225
|
|
|
174,560
|
|
|
620,304
|
|
Net income
|
60,868
|
|
|
49,960
|
|
|
51,548
|
|
|
64,209
|
|
|
226,585
|
|
Per share data (1)
|
|
|
|
|
|
|
|
|
|
Net income, basic
|
$
|
0.34
|
|
|
$
|
0.27
|
|
|
$
|
0.28
|
|
|
$
|
0.35
|
|
|
$
|
1.24
|
|
Net income, diluted
|
$
|
0.32
|
|
|
$
|
0.26
|
|
|
$
|
0.27
|
|
|
$
|
0.34
|
|
|
$
|
1.19
|
|
____________
|
|
(1)
|
Earnings per share calculations for each of the quarters are based on the weighted average number of shares outstanding and included common stock equivalents in each period. Therefore, the sums of the quarters do not necessarily equal the full year earnings per share.
|