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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
All Skyworks 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 2018, 2017, and 2016 each consisted of
52
weeks and ended on September 28, 2018, September 29, 2017, and September 30, 2016, respectively.
USE OF ESTIMATES
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 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 overall fair value assessments of assets and liabilities, inventory, intangible assets associated with business combinations, share-based compensation, loss contingencies, and income taxes. 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 testing. Actual results could differ significantly from these estimates.
CASH AND CASH EQUIVALENTS
The Company invests excess cash in time deposits, certificate of deposits, money market funds, U.S. Treasury securities, agency securities, other government securities, corporate debt securities and commercial paper. The Company considers highly liquid investments with maturities of 90 days or less when purchased as cash equivalents.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company maintains general allowances for doubtful accounts related to potential losses that could arise due to customers’ inability to make required payments. These reserves require management to apply judgment in deriving these estimates. In addition, the Company performs ongoing credit evaluations of its customers’ financial condition and if it becomes aware of any specific receivables which may be uncollectable, it performs additional analysis including, but not limited to, factors such as a customer’s credit worthiness, intent and ability to pay and overall financial position, and reserves are recorded if deemed necessary. 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 results of operations could be materially affected.
INVESTMENTS
The Company classifies its investment in marketable securities as “available-for-sale.” Available-for-sale securities are carried at fair value with unrealized holding gains or losses recorded in other comprehensive income. Gains or losses are included in earnings in the period in which they are realized.
FAIR VALUE
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principle or most advantageous market in an orderly transaction between market participants at 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:
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•
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Level 1 - Quoted prices in active markets for identical assets or liabilities.
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•
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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.
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•
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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.
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It is the Company’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements. When available, the Company uses quoted market prices to measure fair value. If market prices are not available, the Company is required to make judgments about assumptions market participants would use to estimate the fair value of a financial instrument.
The Company measures certain assets and liabilities at fair value on a recurring basis in three levels, based on the market in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. It 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.
The carrying value of cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued liabilities approximates fair value due to the short-term maturities of these assets and liabilities.
INVENTORY
Inventory is stated at the lower of cost or net realizable value on a first-in, first-out basis. Reserves for excess and obsolete inventory are established on a quarterly basis and are based on a detailed analysis of aged material, forecasted demand in relation to on-hand inventory, salability of our inventory, general market conditions, and product life cycles. Once reserves are established, write-downs of inventory are considered permanent adjustments to the cost basis of inventory.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost less accumulated depreciation, with significant renewals and betterments being capitalized and retired equipment written off in the respective periods. Maintenance and repairs are expensed as incurred.
Depreciation is calculated using the straight-line method over the estimated useful lives, which range from
five
to
thirty
years for buildings and improvements and
three
to
ten
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 based on the pattern of benefit to be recognized from the underlying asset over its estimated useful life. Carrying values for long-lived assets and definite lived intangible assets 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 values are deemed to be unrecoverable relative to future undiscounted cash flows expected to be generated by that particular asset group. The determination of recoverability is based on an estimate of undiscounted cash flows expected to result from the use of an 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 is less than the carrying value of an 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 group.
GOODWILL AND INDEFINITE-LIVED INTANGIBLE ASSETS
Goodwill and indefinite-lived intangible assets are not amortized but are tested at least annually as of the first day of the fourth fiscal quarter for impairment or more frequently if indicators of impairment exist during the fiscal year. The Company assesses its conclusion regarding segments and reporting units in conjunction with its annual goodwill impairment test, and has determined that it has one reporting unit for the purposes of allocating and testing goodwill.
The Company’s impairment analysis compares its fair value to its net book value to determine if there is an indicator of impairment. In the Company’s calculation of fair value, it 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 reporting unit, an impairment loss is recognized equal to that excess; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.
BUSINESS COMBINATIONS
The Company uses the acquisition method of accounting for business combinations and recognizes assets acquired and liabilities assumed 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 using a combination of market, income or cost approaches. 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 from the viewpoint of a market participant.
EMPLOYEE RETIREMENT BENEFIT PLANS
The funded status of benefit pension plans, or the balance of plan assets and benefit obligations, is recognized on the consolidated balance sheet and pension liability adjustments, net of tax, are recorded in Accumulated Other Comprehensive Income. The Company determines discount rates considering the rates of return on high-quality fixed income investments, and the expected long-term rate of return on pension plan assets by considering the current and expected asset allocations, as well as historical and expected returns on various categories of plan assets. Decreases in discount rates lead to increases in benefit obligations that, in turn, could lead to an increase in amortization cost through amortization of actuarial gain or loss. A decline in the market values of plan assets will generally result in a lower expected rate of return, which would result in an increase of future retirement benefit costs.
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 reasonably assured. Revenue from license fees and intellectual property is recognized when due and payable, and all other criteria previously noted 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 stock rotation on unsold products. Reserves for sales returns and allowances are recorded based on historical experience or pursuant to contractual arrangements necessitating revenue reserves. Reserves for sales returns and allowances of
$32.2 million
and
$14.7 million
were recorded as of
September 28, 2018
and
September 29, 2017
, respectively.
SHARE-BASED COMPENSATION
The Company recognizes compensation expense for all share-based payment awards made to employees and directors including non-qualified employee stock options, share awards and units, employee stock purchase plan and other special share-based awards based on estimated fair values.
The fair value of share-based payment 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. Awards with both performance and service conditions are expensed over the service period for each separately vesting tranche.
Share-based compensation expense recognized during the period includes actual expense on vested awards and expense associated with unvested awards. Forfeitures are recorded as incurred.
The Company determines the fair value of share-based option awards based on the Company’s closing stock price on the date of grant using a Black-Scholes options pricing model. Under the Black-Scholes model, a number of variables are used including, but not limited to: the expected stock price volatility over the term of the award, the risk-free rate, the expected life of the award and dividend yield. The determination of fair value of restricted and certain performance share awards and units is based on the value of the Company’s stock on the date of grant with performance awards and units adjusted for the actual outcome of the underlying performance condition.
For more complex performance awards including units with market-based performance conditions the Company employs a Monte Carlo simulation valuation method to calculate the fair value of the awards based on the most likely outcome. Under the Monte Carlo simulation, a number of highly complex and subjective variables are used including, but not limited to: the expected stock price volatility over the term of the award, a correlation coefficient, the risk-free rate, the expected life of the award, and dividend yield.
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 minimum estimated liability related to the claim is recorded. As additional information becomes available, the Company assesses the potential liability related to the potential pending loss contingency and revises its estimates. Loss contingencies are disclosed if there is at least a reasonable possibility that a loss or an additional loss may have been incurred and include estimated legal costs.
RESTRUCTURING
A liability for post-employment benefits is recorded when payment is probable, the amount is reasonably estimable, and the obligation relates to rights that have vested or accumulated. Contract exit costs include contract termination fees and future contractual commitments for lease payments. A liability for contract exit costs is recognized in the period in which the Company terminates the contract or on the cease-use date for leased facilities.
FOREIGN CURRENCIES
The Company’s primary functional currency is the United States dollar. 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. For certain foreign entities that utilize local currencies as their functional currency, the resulting unrealized translation gains and losses are reported as currency translation adjustment through other comprehensive income (loss) for each period.
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 or penalties, if incurred, on any unrecognized tax liabilities or benefits as a component of income tax expense.
EARNINGS PER SHARE
Basic earnings per share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share incorporate the potentially dilutive incremental shares issuable upon the assumed exercise of stock options, the assumed vesting of outstanding restricted stock units, and the assumed issuance of common stock under the stock purchase plan using the treasury share method.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09,
Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”)
,
which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company adopted ASU 2016-09 at the beginning of the first quarter of fiscal 2018. As a result of adoption, the Company recognized a discrete income tax benefit of
$25.6 million
to the income tax provision for excess tax benefits generated by the settlement of share-based awards during fiscal 2018. The adoption also resulted in an increase in cash flow from operations and a decrease of cash flow from financing of
$25.6 million
during fiscal 2018. Prior periods have not been adjusted. The Company has elected to account for forfeitures as they occur and will no longer estimate future forfeitures. The change in accounting for forfeitures was applied using a modified retrospective transition method and resulted in a cumulative-effect adjustment to retained earnings as of the beginning of the first quarter of fiscal 2018 in the amount of
$1.9 million
. Forfeitures in the future will now be recorded as a benefit in the period they are realized.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). This ASU simplifies the subsequent measurement of goodwill and eliminates Step 2 from the goodwill impairment test. The annual or interim goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount, and an impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The Company early adopted ASU 2017-04 during the second quarter of fiscal 2018 and applied it prospectively, as permitted by the standard. The adoption of this standard did not impact the Company’s consolidated financial statements.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In August 2015, the FASB deferred the effective date of ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance. The new guidance is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. The Company will adopt this guidance during the first quarter of fiscal 2019 and will apply the modified retrospective approach, with the cumulative effect of applying the new guidance recognized as an adjustment to the opening retained earnings balance. The Company has established a cross-functional team to assess the potential impact of the new revenue standard. The assessment process consists of reviewing the Company’s current accounting policies and practices to identify potential differences that would result from applying the requirements of the new standard to its revenue contracts and identifying appropriate changes to the business processes, systems and controls to support revenue recognition and disclosure requirements under the new standard. The Company has determined the impact of the new revenue standard on its business processes, systems, controls and consolidated financial statements is not material.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). This ASU requires lessees to reflect most leases on their balance sheet as assets and obligations. The effective date for the standard is for fiscal years beginning after December 15, 2018, with early adoption permitted. The standard is to be applied under the modified retrospective method, with elective reliefs, which requires application of the new guidance for all periods presented. The Company is currently evaluating the effect that ASU 2016-02 will have on the consolidated financial statements and related disclosures.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), (“ASU 2016-15”). This ASU provides guidance on the presentation and classification of specific cash flow items to improve consistency within the statement of cash flows. The effective date for the standard is for fiscal years beginning after December 15, 2017, with early adoption permitted. The Company will early adopt ASU 2016-15 during the first quarter of fiscal 2019 and does not expect it to have a material impact on the consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740), Intra-entity Transfers of an Asset Other than Inventory (“ASU 2016-16”). This ASU provides guidance that changes the accounting for income tax effects of intra-entity transfers of assets other than inventory. Under the new guidance, the selling (transferring) entity is required to recognize a current tax expense or benefit upon transfer of the asset. Similarly, the purchasing (receiving) entity is required to recognize a deferred tax asset or deferred tax liability, as well as the related deferred tax benefit or expense, upon receipt of the asset. The effective date for the standard is for fiscal years beginning after December, 15, 2017, on a modified retrospective basis, and early adoption is permitted. The Company will early adopt ASU 2016-16 during the first quarter of fiscal 2019 and does not expect it to have a material impact on the consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718), Scope of Modification Accounting (“ASU 2017-09”). This ASU provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The effective date for the standard is for interim periods in fiscal years beginning after December 15, 2017, with early adoption permitted, including adoption in any interim period for which financial statements have not yet been issued. The Company will early adopt ASU 2017-09 during the first quarter of fiscal 2019 and does not expect it to have a material impact on the consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 320), (“ASU 2016-13”). This ASU requires a financial asset (or a group of financial assets) measured on the basis of amortized cost to be presented at the net amount expected to be collected. This ASU requires that the income statement reflect the measurement of credit losses for newly recognized financial assets as well as the expected increases or decreases of expected credit losses that have taken place during the period. This ASU requires that credit losses of debt securities designated as available-for-sale be recorded through an allowance for credit losses. The ASU also limits the credit loss to the amount by which fair value is below amortized cost. This ASU will be effective for the Company in the first quarter of 2021, with early adoption permitted. This ASU requires modified retrospective adoption, with prospective adoption for debt securities for which an other-than-temporary impairment had been recognized before the effective date. The Company is currently evaluating the effect ASU 2016-13 will have on the consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 320), (“ASU 2016-01”). This ASU provides guidance for the recognition, measurement, presentation, and disclosure of financial assets and liabilities. This ASU will be effective for the Company in the first quarter of fiscal 2019 and requires modified retrospective adoption, with prospective adoption for amendments related to equity securities without readily determinable fair values. The Company is evaluating the effect ASU 2016-01 will have on the consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718), Improvements to Nonemployee Share-based Payments (“ASU 2018-07”). This ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The effective date for the standard is for interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted, but no earlier than the Company's adoption date of Topic 606. The new guidance is required to be applied retrospectively with the cumulative effect recognized at the date of initial application. The Company will early adopt ASU 2018-07 during the first quarter of fiscal 2019 and does not expect it to have a material impact on the consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820),
(“ASU 2018-13”)
.
The updated guidance
improves the disclosure requirements on fair value measurements. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures. The Company early adopted the removed or modified disclosures in the fourth quarter of fiscal 2018 and is currently assessing the timing and impact of adopting the updated provisions.
There have been no other recent accounting pronouncements or changes in accounting pronouncements that are of significance, or potential significance, to the Company.
Supplemental Cash Flow Information
As of
September 28, 2018
, the Company had
$13.9 million
accrued to other long-term liabilities for capital equipment, and
$94.1 million
accrued to accounts payable for capital equipment. These amounts accrued for capital equipment purchases have been excluded from the consolidated statements of cash flows for fiscal 2018 and are expected to be paid in subsequent periods. The prior period amount under the description “Proceeds from employee stock purchase plan” has been reclassified from net cash provided by operating activities to net cash used in financing activities.
3. BUSINESS COMBINATIONS
On
August 17, 2018
, the Company completed its acquisition of Avnera Corporation (“Avnera”). Avnera designs and develops analog system-on-chip (“SoC”) technology products for audio, speech, sensor and artificial intelligence (“AI”) applications. The Company acquired Avnera to expand its leadership in wireless connectivity by adding ultra-low power analog circuits to enable smart interfaces via acoustic signal processing, sensors and integrated software. The acquisition of Avnera is expected to enable the Company to capitalize on the rapid proliferation of audio functionality and its convergence with its advanced connectivity solutions.
The Company acquired the business for total cash consideration, net of cash acquired, of
$404.0 million
together with future contingent payments for a total aggregated fair value of
$407.1 million
. The future contingent consideration payments range from
zero
to
$20.0 million
and are based upon the achievement of specified revenue objectives that are payable up to one fiscal year from the anniversary of the acquisition, which at closing had a total estimated fair value of
$3.1 million
.
Net revenue and net income from this acquisition has been included in the Consolidated Statements of Operations from the acquisition date through the end of the fiscal year on September 28, 2018, and the impact of the acquisition to the ongoing operations on the Company’s net revenue and net income was not material. The Company incurred immaterial transaction-related costs during the fiscal year ended September 28, 2018, which were included within the selling, administrative and general expense.
The allocation of the purchase price to the assets and liabilities recognized in the Company’s acquisition of Avnera was considered final at the time of filing this Annual Report on Form 10-K. The 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 Avnera acquisition and are reflected, as of the acquisition date, in the accompanying financial statements as follows (in millions):
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As of
|
Estimated fair value of assets acquired, net of cash
|
|
August 17,
2018
|
Accounts receivable
|
|
$
|
7.3
|
|
Inventory, including step up
|
|
9.8
|
|
Property, plant and equipment
|
|
1.5
|
|
Other assets
|
|
11.7
|
|
Intangible assets
|
|
94.0
|
|
Goodwill
|
|
306.8
|
|
Liabilities assumed
|
|
(24.0
|
)
|
Estimated fair value of net assets acquired
|
|
$
|
407.1
|
|
Goodwill is primarily attributable to the assembled workforce and Company specific revenue synergies expected from the integration of the Avnera business. This goodwill will not be deductible for tax purposes.
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As of
|
Intangible Assets
|
|
August 17,
2018
|
Developed technology
|
|
$
|
37.3
|
|
Customer relationships and backlog
|
|
10.4
|
|
Tradename
|
|
0.3
|
|
Total identified finite-lived intangible assets
|
|
48.0
|
|
In process research and development
|
|
46.0
|
|
Total identified intangible assets
|
|
$
|
94.0
|
|
Developed technology relates to SoC-based wireless audio solutions and sound processors. Developed technology was valued using the multi-period excess earnings method under the income approach. This method reflects the present value of the projected cash flows that are expected to be generated by the developed technology less charges representing the contribution of other assets to those cash flows. The economic useful life of two years was determined based on the technology cycle related to each developed technology, as well as the cash flows over the forecast period.
Customer relationships and backlog represent the fair value of future projected revenue that will be derived from sales of products to existing customers of Avnera. Customer relationships and backlog were valued using the with-and-without method under the income approach. In the with-and-without method, the fair value was measured by the difference between the present values of the cash flows with and without the existing customers in place over the period of time necessary to reacquire the customers. The economic useful life of one year was determined based on historical customer acquisition rates.
Tradename relates to the “Avnera” trade name. The fair value was determined by applying the relief-from-royalty method under the income approach. This method is based on the application of a market royalty rate to forecasted revenue under the trade name.
The fair value of in-process research and development, or IPR&D, was determined using the multi-period excess earnings method under the income approach. This method reflects the present value of the projected cash flows that are expected to be generated by the IPR&D, less charges representing the contribution of other assets to those cash flows.
The unaudited pro forma financial results for the fiscal years ended September 28, 2018, and September 29, 2017, combine the unaudited historical results of Skyworks with the unaudited historical results of Avnera for the fiscal years ended September 28, 2018, and September 29, 2017, respectively. The results include the effects of unaudited pro forma adjustments as if Avnera was acquired at the beginning of the prior fiscal year. 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 millions, except per share amounts):
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Fiscal Years-Ended
|
|
|
September 28,
2018
|
|
September 29,
2017
|
Revenue
|
|
$
|
3,914.3
|
|
|
$
|
3,693.9
|
|
Net income
|
|
926.0
|
|
|
977.8
|
|
Diluted earnings per common share
|
|
$
|
5.05
|
|
|
$
|
5.24
|
|
4. MARKETABLE SECURITIES
The Company's portfolio of available-for-sale marketable securities consists of the following (in millions):
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Current
|
|
Noncurrent
|
Available for sale:
|
September 28,
2018
|
|
September 29,
2017
|
|
September 28,
2018
|
|
September 29,
2017
|
U.S. Treasury and government
|
$
|
65.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Corporate bonds and notes
|
204.1
|
|
|
—
|
|
|
12.0
|
|
|
—
|
|
Municipal bonds
|
2.0
|
|
|
—
|
|
|
0.8
|
|
|
—
|
|
Other government
|
23.0
|
|
|
—
|
|
|
10.0
|
|
|
—
|
|
Total
|
$
|
294.1
|
|
|
$
|
—
|
|
|
$
|
22.8
|
|
|
$
|
—
|
|
The contractual maturities of noncurrent available-for-sale marketable securities were due within
two years or less
.
The Company recorded unrealized gains and losses on sales of available-for-sale marketable securities as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 28, 2018
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Estimated Fair Value
|
U.S. Treasury and government
|
$
|
65.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
65.0
|
|
Corporate bonds and notes
|
216.1
|
|
|
—
|
|
|
(0.1
|
)
|
|
216.0
|
|
Municipal bonds
|
2.8
|
|
|
—
|
|
|
—
|
|
|
2.8
|
|
Other government
|
33.1
|
|
|
—
|
|
|
—
|
|
|
33.1
|
|
Total
|
$
|
317.0
|
|
|
$
|
—
|
|
|
$
|
(0.1
|
)
|
|
$
|
316.9
|
|
The Company concluded that the unrealized losses were temporary at September 28, 2018. Further, for bonds and other debt securities held by the Company with unrealized losses, the Company did not have the intent to sell, nor was it more likely than not that the Company would be required to sell, such securities before recovery or maturity.
5. FAIR VALUE
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 its financial instruments. There have been no transfers between Level 1, 2 or 3 assets or liabilities during the fiscal year ended
September 28, 2018
.
Contingent consideration related to business combinations is recorded as a Level 3 liability because management uses significant judgments and unobservable inputs to determine the fair value. The Company reassesses the fair value of its contingent consideration liabilities on a quarterly basis and records any fair value adjustments to earnings in the period that they are determined. The decrease in Level 3 liabilities during fiscal 2018, relates to net adjustments to the fair value of contingent consideration liabilities, which were included in selling, general and administrative expenses, partially offset by the fair value of the contingent consideration associated with a business combination completed during the period, as detailed in
Note 3
of these Notes to Consolidated Financial Statements. The fair value of the contingent consideration was determined using a probabilistic Black-Scholes pricing model calibrated to the expected revenue forecast to be generated from the acquired business over a one-year period.
Assets and liabilities recorded at fair value on a recurring basis consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 28, 2018
|
|
As of September 29, 2017
|
|
|
|
Fair Value Measurements
|
|
|
|
Fair Value Measurements
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents*
|
$
|
79.3
|
|
|
$
|
29.7
|
|
|
$
|
49.6
|
|
|
$
|
—
|
|
|
$
|
592.6
|
|
|
$
|
592.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
U.S. Treasury and government securities
|
65.0
|
|
|
15.0
|
|
|
50.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Corporate bonds and notes
|
216.0
|
|
|
—
|
|
|
216.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Municipal bonds
|
2.8
|
|
|
—
|
|
|
2.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other government securities
|
33.1
|
|
|
—
|
|
|
33.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
396.2
|
|
|
$
|
44.7
|
|
|
$
|
351.5
|
|
|
$
|
—
|
|
|
$
|
592.6
|
|
|
$
|
592.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
$
|
3.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3.1
|
|
|
$
|
11.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11.9
|
|
Total
|
$
|
3.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3.1
|
|
|
$
|
11.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11.9
|
|
* 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.
The following table summarizes changes to the fair value of the Level 3 liabilities (in millions):
|
|
|
|
|
|
Contingent Consideration
|
Balance as of September 29, 2017
|
$
|
11.9
|
|
Increases to Level 3 liabilities
|
3.1
|
|
Changes in fair value included in earnings
|
(11.9
|
)
|
Balance as of September 28, 2018
|
$
|
3.1
|
|
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.
6. INVENTORY
Inventory consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
As of
|
|
September 28,
2018
|
|
September 29,
2017
|
Raw materials
|
$
|
20.2
|
|
|
$
|
24.6
|
|
Work-in-process
|
340.7
|
|
|
330.6
|
|
Finished goods
|
124.8
|
|
|
123.0
|
|
Finished goods held on consignment by customers
|
4.5
|
|
|
15.3
|
|
Total inventory
|
$
|
490.2
|
|
|
$
|
493.5
|
|
7. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
As of
|
|
September 28,
2018
|
|
September 29,
2017
|
Land and improvements
|
$
|
11.6
|
|
|
$
|
11.6
|
|
Buildings and improvements
|
238.0
|
|
|
137.8
|
|
Furniture and fixtures
|
31.5
|
|
|
29.5
|
|
Machinery and equipment
|
2,089.6
|
|
|
1,715.3
|
|
Construction in progress
|
179.0
|
|
|
164.8
|
|
Total property, plant and equipment, gross
|
2,549.7
|
|
|
2,059.0
|
|
Accumulated depreciation
|
(1,408.8
|
)
|
|
(1,176.7
|
)
|
Total property, plant and equipment, net
|
$
|
1,140.9
|
|
|
$
|
882.3
|
|
8. GOODWILL AND INTANGIBLE ASSETS
The changes to the carrying amount of goodwill are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
As of
|
|
September 28,
2018
|
|
September 29,
2017
|
Goodwill at beginning of the period
|
$
|
883.0
|
|
|
$
|
873.3
|
|
Goodwill recognized through business combinations (
Note 3
)
|
306.8
|
|
|
9.7
|
|
Goodwill impairment
|
—
|
|
|
—
|
|
Goodwill at the end of the period
|
$
|
1,189.8
|
|
|
$
|
883.0
|
|
The Company performed an impairment test of its goodwill as of the first day of the fourth fiscal quarter in accordance with its regularly scheduled testing. The results of this test indicated that the Company’s goodwill was not impaired. There were no other indicators of impairment noted during the fiscal year ended
September 28, 2018
.
Intangible assets consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
As of
|
|
Weighted
average
amortization
period (years)
|
September 28, 2018
|
|
September 29, 2017
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net
carrying
amount
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net
carrying
amount
|
Customer relationships
|
3.4
|
$
|
31.7
|
|
|
$
|
(13.2
|
)
|
|
$
|
18.5
|
|
|
$
|
29.7
|
|
|
$
|
(14.6
|
)
|
|
$
|
15.1
|
|
Developed technology and other
|
5.3
|
89.9
|
|
|
(23.5
|
)
|
|
66.4
|
|
|
59.9
|
|
|
(20.6
|
)
|
|
39.3
|
|
Trademarks
|
3.0
|
1.6
|
|
|
(0.8
|
)
|
|
0.8
|
|
|
1.6
|
|
|
(0.3
|
)
|
|
1.3
|
|
Capitalized software
|
3.0
|
18.0
|
|
|
(6.0
|
)
|
|
12.0
|
|
|
12.1
|
|
|
—
|
|
|
12.1
|
|
IPR&D
|
|
46.0
|
|
|
—
|
|
|
46.0
|
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
Total intangible assets
|
|
$
|
187.2
|
|
|
$
|
(43.5
|
)
|
|
$
|
143.7
|
|
|
$
|
103.3
|
|
|
$
|
(35.5
|
)
|
|
$
|
67.8
|
|
Fully amortized intangible assets have been eliminated from both the gross and accumulated amortization amounts. The increase in the gross amount of intangible assets is primarily related to the business combination that closed during the fourth quarter of fiscal 2018. For further information regarding the acquired intangibles see
Note 3
, Business Combinations, in these Notes to the Consolidated Financial Statements.
Annual amortization expense for the next five fiscal years related to intangible assets is expected to be as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
Thereafter
|
Amortization expense, cost of goods sold
|
$
|
24.8
|
|
|
$
|
22.5
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
1.9
|
|
Amortization expense, operating expense
|
22.6
|
|
|
11.8
|
|
|
9.0
|
|
|
1.0
|
|
|
1.0
|
|
|
2.8
|
|
Total amortization expense
|
$
|
47.4
|
|
|
$
|
34.3
|
|
|
$
|
9.1
|
|
|
$
|
1.1
|
|
|
$
|
1.1
|
|
|
$
|
4.7
|
|
9. INCOME TAXES
Income before income taxes consists of the following components (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
September 28,
2018
|
|
September 29,
2017
|
|
September 30,
2016
|
United States
|
$
|
712.2
|
|
|
$
|
681.2
|
|
|
$
|
697.5
|
|
Foreign
|
619.9
|
|
|
575.8
|
|
|
503.1
|
|
Income before income taxes
|
$
|
1,332.1
|
|
|
$
|
1,257.0
|
|
|
$
|
1,200.6
|
|
The provision for income taxes consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
September 28,
2018
|
|
September 29,
2017
|
|
September 30,
2016
|
Current tax expense (benefit):
|
|
|
|
|
|
Federal
|
$
|
347.7
|
|
|
$
|
215.7
|
|
|
$
|
181.8
|
|
State
|
0.3
|
|
|
0.3
|
|
|
0.1
|
|
Foreign
|
31.2
|
|
|
24.4
|
|
|
25.8
|
|
|
379.2
|
|
|
240.4
|
|
|
207.7
|
|
Deferred tax expense (benefit):
|
|
|
|
|
|
Federal
|
20.3
|
|
|
5.0
|
|
|
(0.8
|
)
|
Foreign
|
14.2
|
|
|
1.4
|
|
|
(1.5
|
)
|
|
34.5
|
|
|
6.4
|
|
|
(2.3
|
)
|
|
|
|
|
|
|
Provision for income taxes
|
$
|
413.7
|
|
|
$
|
246.8
|
|
|
$
|
205.4
|
|
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 is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
September 28,
2018
|
|
September 29,
2017
|
|
September 30,
2016
|
Tax expense at United States statutory rate
|
$
|
327.4
|
|
|
$
|
439.9
|
|
|
$
|
420.2
|
|
Foreign tax rate difference
|
(111.9
|
)
|
|
(174.6
|
)
|
|
(160.8
|
)
|
Tax on deemed repatriation
|
224.6
|
|
|
—
|
|
|
—
|
|
Effect of stock compensation
|
(25.6
|
)
|
|
—
|
|
|
—
|
|
Change of tax rate on deferred taxes
|
18.3
|
|
|
—
|
|
|
—
|
|
Research and development credits
|
(19.9
|
)
|
|
(16.3
|
)
|
|
(33.7
|
)
|
Change in tax reserve
|
6.7
|
|
|
12.6
|
|
|
(2.5
|
)
|
Domestic production activities deduction
|
(13.9
|
)
|
|
(19.8
|
)
|
|
(19.1
|
)
|
Other, net
|
8.0
|
|
|
5.0
|
|
|
1.3
|
|
Provision for income taxes
|
$
|
413.7
|
|
|
$
|
246.8
|
|
|
$
|
205.4
|
|
The Company operates in foreign jurisdictions with income tax rates lower than the United States tax rate for the fiscal years ended September 28, 2018, and September 29, 2017, which were
24.6%
and
35.0%
, respectively. The Company’s tax benefits related to foreign earnings taxed at a rate less than the United States federal rate were
$111.9 million
and
$174.6 million
for the fiscal years ended
September 28, 2018
, and
September 29, 2017
, respectively.
The Tax Reform Act includes, among other things, a reduction of the United States corporate tax rate from 35% to
21%
, a mandatory deemed repatriation tax on foreign earnings, repeal of the corporate alternative minimum tax and the domestic production activities deduction, and expensing of certain capital investments. The new law makes fundamental changes to the taxation of multinational entities, including a shift from worldwide taxation with deferral to a hybrid territorial system, featuring a participation exemption regime, a minimum tax on low-taxed foreign earnings, and new measures to deter base erosion and promote export from the United States. As a result of this legislation, the Company recognized a one-time transition tax related to the deemed repatriation of foreign earnings of
$224.6 million
, and a charge related to the revaluation of its deferred tax assets at the new corporate tax rate of
$18.3 million
. The
$224.6 million
deemed repatriation tax is payable over the next eight years,
$18.0 million
per year for each of the next five years, followed by payments of
$33.6 million
,
$44.9 million
, and
$56.1 million
in years six through eight, respectively. The Company has accrued
$206.6 million
of the deemed repatriation tax in long-term liabilities within the consolidated balance sheet as of September 28, 2018.
Staff Accounting Bulletin 118 (“SAB 118”) provides a measurement period during which companies may analyze the impacts of newly enacted legislation when the company does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the new legislation, not to exceed one year. The Company does not expect to record any further adjustments within the measurement period as of September 28, 2018, but will continue to monitor the estimate if new guidance becomes available.
In addition to the introduction of a modified territorial tax system, the Tax Reform Act includes two new sets of provisions aimed at preventing or decreasing U.S. tax base erosion—the global intangible low-taxed income (“GILTI”) provisions and the base erosion and anti-abuse tax (“BEAT”) provisions. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The Company expects to make an accounting policy election to account for GILTI as a component of tax expense in the period in which the Company is subject to the rules and therefore will not provide any deferred tax impacts of GILTI in its consolidated financial statements for the year ended September 28, 2018. The BEAT provisions eliminate the deduction of certain base-erosion payments made to related foreign corporations, and impose a minimum tax if greater than regular tax. The Company does not presently expect that it will be subject to the minimum tax imposed by the BEAT provisions.
The Company’s federal income tax returns for fiscal 2015 and fiscal 2016 are currently under IRS examination. As a result, the Company increased the reserve for uncertain tax positions by
$18.9 million
, including interest.
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
, and is conditional upon the Company’s compliance with certain employment and investment thresholds in Singapore. The impact of the tax holiday decreased Singapore’s taxes by
$38.4 million
and
$37.4 million
for the fiscal years ended
September 28, 2018
, and
September 29, 2017
, respectively, which resulted in tax benefits of
$0.21
and
$0.20
of diluted earnings per share, respectively.
Deferred income tax assets and liabilities consist of the tax effects of temporary differences related to the following (in millions):
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
September 28,
2018
|
|
September 29,
2017
|
Deferred tax assets:
|
|
|
|
Inventory
|
$
|
5.7
|
|
|
$
|
7.4
|
|
Bad debts
|
1.2
|
|
|
0.1
|
|
Accrued compensation and benefits
|
4.9
|
|
|
7.1
|
|
Product returns, allowances and warranty
|
4.6
|
|
|
5.2
|
|
Restructuring
|
—
|
|
|
0.1
|
|
Intangible assets
|
—
|
|
|
10.6
|
|
Share-based and other deferred compensation
|
26.1
|
|
|
40.2
|
|
Net operating loss carry forwards
|
15.5
|
|
|
7.7
|
|
Non-United States tax credits
|
20.3
|
|
|
20.1
|
|
State tax credits
|
97.0
|
|
|
71.0
|
|
Property, plant and equipment
|
9.1
|
|
|
7.9
|
|
Other, net
|
3.3
|
|
|
2.7
|
|
Deferred tax assets
|
187.7
|
|
|
180.1
|
|
Less valuation allowance
|
(118.6
|
)
|
|
(90.9
|
)
|
Net deferred tax assets
|
69.1
|
|
|
89.2
|
|
Deferred tax liabilities:
|
|
|
|
Prepaid insurance
|
(0.6
|
)
|
|
(0.9
|
)
|
Property, plant and equipment
|
(25.6
|
)
|
|
(24.8
|
)
|
Intangible assets
|
(19.3
|
)
|
|
(6.2
|
)
|
Other, net
|
(2.0
|
)
|
|
—
|
|
Net deferred tax liabilities
|
(47.5
|
)
|
|
(31.9
|
)
|
Total net deferred tax assets
|
$
|
21.6
|
|
|
$
|
57.3
|
|
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, 2018
, the Company has a valuation allowance of
$118.6 million
. This valuation allowance is comprised of
$100.5 million
related to United States state tax credits, of which
$1.5 million
are state tax credits acquired from Avnera in fiscal 2018, and
$18.1 million
are related to foreign deferred tax assets. The Company does not anticipate sufficient taxable income or tax liability to utilize these state and foreign credits. If these benefits are recognized in a future period the valuation allowance on deferred tax assets will be reversed and up to a
$118.6 million
income tax benefit may be recognized. The Company will need to generate
$88.5 million
of future United States federal taxable income to utilize its United States deferred tax assets as of
September 28, 2018
. The Company believes that future reversals of taxable temporary differences, and its forecast of continued earnings in its domestic and foreign jurisdictions, support its decision to not record a valuation allowance on other deferred tax assets.
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, 2018
, the Company has United States federal net operating loss carry forwards of approximately
$41.0 million
, including
$32.7 million
related to the acquisition of Avnera. 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 United States federal net operating loss carry forwards expire at various dates through
2035
. The Company also has state income tax credit carry forwards of
$97.0 million
, net of federal benefits, for which the Company has provided a valuation allowance. The state tax credits relate primarily to California research tax credits that 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. Due to the enactment of the Tax Reform Act,
all of the Company’s previously undistributed earnings were deemed repatriated during the year ended September 28, 2018, resulting in a one-time transition tax of
$224.6 million
.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in millions):
|
|
|
|
|
|
Unrecognized tax benefits
|
Balance at September 29, 2017
|
$
|
90.4
|
|
Increases based on positions related to prior years
|
13.5
|
|
Decreases based on positions related to prior years
|
(0.5
|
)
|
Increases based on positions related to current year
|
0.5
|
|
Decreases relating to settlements with taxing authorities
|
—
|
|
Decreases relating to lapses of applicable statutes of limitations
|
(10.5
|
)
|
Balance at September 28, 2018
|
$
|
93.4
|
|
Of the total unrecognized tax benefits at
September 28, 2018
,
$77.7 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 that were required to be capitalized.
The Company anticipates reversals within the next 12 months related to items such as the lapse of the statute of limitations, audit closures, and other items that occur in the normal course of business. Due to open examinations, an estimate of anticipated reversals within the next 12 months cannot be made. During the fiscal year ended
September 28, 2018
, the Company recognized
$10.5 million
of previously unrecognized tax benefits related to the expiration of the statute of limitations and
$4.1 million
of accrued interest or penalties related to unrecognized tax benefits. As of September 28, 2018, accrued interest and penalties of
$7.5 million
related to uncertain tax positions have been included in long-term tax liabilities within the consolidated balance sheet.
The Company’s major tax jurisdictions as of
September 28, 2018
, are the United States, California, Canada, Luxembourg, Mexico, Japan, and Singapore. For the United States, the Company has open tax years dating back to fiscal
2000
due to the carry forward of tax attributes. For California, the Company has open tax years dating back to fiscal
1999
due to the carry forward of tax attributes. For Canada, the Company has open tax years dating back to fiscal
2012
. For Luxembourg, the Company has open tax years back to fiscal
2012
. For Mexico, the Company has open tax years back to fiscal
2012
. For Singapore, the Company has open tax years dating back to fiscal
2012
. The Company is subject to audit examinations by the respective taxing authorities on a periodic basis, of which the results could impact its financial position, results of operations or cash flows.
10. STOCKHOLDERS’ EQUITY
COMMON STOCK
At
September 28, 2018
, the Company is authorized to issue
525.0 million
shares of common stock, par value
$0.25
per share, of which
228.4 million
shares are issued and
177.4 million
shares are outstanding.
Holders of the Company’s common stock are entitled to dividends in the event 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.
PREFERRED STOCK
The Company’s Certificate of Incorporation has authorized and permits the Company to issue up to
25.0 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, 2018
, the Company had no shares of preferred stock issued or outstanding.
SHARE REPURCHASE
On
January 31, 2018
, the Board of Directors approved a stock repurchase program, pursuant to which the Company is authorized to repurchase up to
$1.0 billion
of its common stock from time to time prior to
January 31, 2020
, on the open market or in privately negotiated transactions as permitted by securities laws and other legal requirements. This authorized stock repurchase program replaced in its entirety the January 17, 2017, stock repurchase program. During the fiscal year ended
September 28, 2018
, the Company paid approximately
$759.5 million
(including commissions) in connection with the repurchase of
7.7 million
shares of its common stock (paying an average price of
$98.84
per share) under the
January 31, 2018
, stock repurchase plan and the January 17, 2017, stock repurchase plan. As of
September 28, 2018
,
$413.0 million
remained available under the
January 31, 2018
, share repurchase plan.
During the fiscal year ended
September 29, 2017
, the Company paid approximately
$432.3 million
(including commissions) in connection with the repurchase of
4.7 million
shares of its common stock (paying an average price of
$92.97
per share).
DIVIDENDS
On
November 8, 2018
, the Company announced that the Board of Directors had declared a cash dividend on the Company’s common stock of
$0.38
per share. This dividend is payable on
December 18, 2018
, to the Company’s stockholders of record as of the close of business on
November 27, 2018
. Future dividends are subject to declaration by the Board of Directors. The dividends charged to retained earnings in fiscal 2018 and 2017 were as follows (in millions except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
September 28,
2018
|
|
September 29,
2017
|
|
Per Share
|
|
Total
|
|
Per Share
|
|
Total
|
First quarter
|
$
|
0.32
|
|
|
$
|
58.8
|
|
|
$
|
0.28
|
|
|
$
|
51.8
|
|
Second quarter
|
0.32
|
|
|
58.5
|
|
|
0.28
|
|
|
51.8
|
|
Third quarter
|
0.32
|
|
|
57.8
|
|
|
0.28
|
|
|
51.7
|
|
Fourth quarter
|
0.38
|
|
|
68.1
|
|
|
0.32
|
|
|
58.9
|
|
|
$
|
1.34
|
|
|
$
|
243.2
|
|
|
$
|
1.16
|
|
|
$
|
214.2
|
|
EMPLOYEE STOCK BENEFIT PLANS
As of
September 28, 2018
, 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 2002 Employee Stock Purchase Plan
|
|
|
•
|
the Non-Qualified Employee Stock Purchase Plan
|
|
|
•
|
the 2005 Long-Term Incentive Plan
|
|
|
•
|
the AATI 2005 Equity Incentive Plan
|
|
|
•
|
the 2008 Director Long-Term Incentive Plan
|
|
|
•
|
the 2015 Long-Term 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 was approved by the Company’s stockholders.
As of
September 28, 2018
, a total of
85.3 million
shares are authorized for grant under the Company’s share-based compensation plans, with
1.9 million
options outstanding. The number of common shares reserved for future awards to employees and directors under these plans was
13.8 million
at
September 28, 2018
. The Company currently grants new equity awards to employees under the 2015 Long-Term Incentive Plan and to non-employee directors under the 2008 Director Long-Term Incentive Plan.
2015 Long-Term Incentive Plan.
Under this plan, officers, employees, non-employee directors and certain consultants may be granted stock options, restricted stock awards and units, performance stock awards and units and other share-based awards. The plan has been approved by the stockholders. Under the plan, up to
19.4 million
shares have been authorized for grant. A total of
13.1 million
shares are available for new grants as of
September 28, 2018
. The maximum contractual term of options under the plan is
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 units granted under the plan at the determination of the compensation committee generally vest over
four
or more years. With respect to restricted stock awards, dividends are accumulated and paid when the underlying shares vest. If the underlying shares are forfeited for any reason, the rights to the dividends with respect to such shares are also forfeited. No dividends or dividend equivalents are paid or accrued with respect to restricted stock unit awards or other awards until the shares underlying such awards become vested and are issued to the award holder. Performance stock awards and units are contingently granted depending on the achievement of certain predetermined performance goals and generally vest over
two
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 grant. A total of
0.7 million
shares are available for new grants as of
September 28, 2018
. The maximum contractual term of options granted under the plan is
ten
years from the date of grant. Options granted under the plan are generally exercisable over
four
years. Restricted stock awards and units granted under the plan generally vest over
one
or more years. With respect to restricted stock awards, dividends are accumulated and paid when the underlying shares vest. If the underlying shares are forfeited for any reason, the rights to the dividends with respect to such shares are also forfeited.
Employee Stock Purchase Plans.
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
9.7 million
shares. Shares of common stock purchased under these plans in the fiscal years ended September 28, 2018, September 29, 2017, and September 30, 2016, were
0.2 million
,
0.2 million
, and
0.3 million
, respectively. At
September 28, 2018
, there are
0.5 million
shares available for purchase. The Company recognized compensation expense of
$5.2 million
,
$4.5 million
and
$4.6 million
for the fiscal years ended
September 28, 2018
,
September 29, 2017
, and
September 30, 2016
, respectively, related to the employee stock purchase plan. The unrecognized compensation expense on the employee stock purchase plan at
September 28, 2018
, was
$1.9 million
. The weighted average period over which the cost is expected to be recognized is approximately
four
months.
Stock Options
The following table represents a summary of the Company’s stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares (in millions)
|
|
Weighted average exercise price
|
|
Weighted average remaining contractual life (in years)
|
|
Aggregate intrinsic value (in millions)
|
Balance outstanding at September 29, 2017
|
3.0
|
|
|
$
|
50.36
|
|
|
|
|
|
Granted
|
0.1
|
|
|
$
|
26.66
|
|
|
|
|
|
Exercised
|
(1.1
|
)
|
|
$
|
35.92
|
|
|
|
|
|
Canceled/forfeited
|
(0.1
|
)
|
|
$
|
72.42
|
|
|
|
|
|
Balance outstanding at September 28, 2018
|
1.9
|
|
|
$
|
57.12
|
|
|
3.0
|
|
$
|
64.3
|
|
|
|
|
|
|
|
|
|
Exercisable at September 28, 2018
|
1.2
|
|
|
$
|
50.15
|
|
|
2.3
|
|
$
|
50.8
|
|
The weighted-average grant date fair value per share of employee stock options granted during the fiscal years ended
September 28, 2018
,
September 29, 2017
, and
September 30, 2016
, was
$68.32
,
$23.25
, and
$26.30
, respectively. The increase in the weighted-average grant date fair value per share of employee stock options granted during fiscal 2018 was due to replacement awards granted as a result of the Avnera acquisition completed during the period. The total grant date fair value of the options vested during the fiscal years ended
September 28, 2018
,
September 29, 2017
, and
September 30, 2016
, was
$22.6 million
,
$19.3 million
and
$21.9 million
, respectively.
Restricted and Performance Awards and Units
The following table represents a summary of the Company’s restricted and performance awards and units:
|
|
|
|
|
|
|
|
|
Shares (In millions)
|
|
Weighted average
grant date fair value
|
Non-vested awards outstanding at September 29, 2017
|
2.9
|
|
|
$
|
75.49
|
|
Granted (1)
|
1.3
|
|
|
$
|
108.86
|
|
Vested
|
(1.2
|
)
|
|
$
|
69.55
|
|
Canceled/forfeited
|
(0.3
|
)
|
|
$
|
86.64
|
|
Non-vested awards outstanding at September 28, 2018
|
2.7
|
|
|
$
|
92.37
|
|
(1)
includes performance shares granted and earned based on maximum performance under the underlying performance metrics
|
The weighted average grant date fair value per share for awards granted during the fiscal years ended
September 28, 2018
,
September 29, 2017
, and
September 30, 2016
, was
$108.86
,
$72.84
, and
$62.02
, respectively. The total grant date fair value of the awards vested during the fiscal years ended
September 28, 2018
,
September 29, 2017
, and
September 30, 2016
, was
$81.1 million
,
$57.9 million
and
$71.2 million
, respectively.
The following table summarizes the total intrinsic value for stock options exercised and awards vested (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
September 28,
2018
|
|
September 29,
2017
|
|
September 30,
2016
|
Awards
|
$
|
134.4
|
|
|
$
|
137.8
|
|
|
$
|
197.6
|
|
Options
|
$
|
75.0
|
|
|
$
|
116.1
|
|
|
$
|
68.9
|
|
Valuation and Expense Information
The following table summarizes pre-tax share-based compensation expense by financial statement line and related tax benefit (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
September 28,
2018
|
|
September 29,
2017
|
|
September 30,
2016
|
Cost of goods sold
|
$
|
14.4
|
|
|
$
|
13.6
|
|
|
$
|
11.3
|
|
Research and development
|
42.6
|
|
|
35.3
|
|
|
32.2
|
|
Selling, general and administrative
|
50.8
|
|
|
39.6
|
|
|
34.5
|
|
Total share-based compensation expense
|
$
|
107.8
|
|
|
$
|
88.5
|
|
|
$
|
78.0
|
|
|
|
|
|
|
|
Share-based compensation tax benefit
|
$
|
25.6
|
|
|
$
|
25.1
|
|
|
$
|
22.5
|
|
Capitalized share-based compensation expense at period end
|
$
|
2.9
|
|
|
$
|
4.0
|
|
|
$
|
3.7
|
|
The following table summarizes total compensation costs related to unvested share based awards not yet recognized and the weighted average period over which it is expected to be recognized at
September 28, 2018
:
|
|
|
|
|
|
|
|
Unrecognized compensation cost for unvested awards
(in millions)
|
|
Weighted average remaining recognition period
(in years)
|
Awards
|
$
|
106.1
|
|
|
1.5
|
Options
|
$
|
11.1
|
|
|
1.1
|
The fair value of the restricted stock awards and units is equal to the closing market price of the Company’s common stock on the date of grant.
The Company issued performance share units during fiscal 2018, fiscal 2017 and fiscal 2016 that contained market-based conditions. The fair value of these performance share units was estimated on the date of the grant using a Monte Carlo simulation with the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
September 28,
2018
|
|
September 29,
2017
|
|
September 30,
2016
|
Volatility of common stock
|
35.54
|
%
|
|
39.60
|
%
|
|
38.24
|
%
|
Average volatility of peer companies
|
36.78
|
%
|
|
39.78
|
%
|
|
34.76
|
%
|
Average correlation coefficient of peer companies
|
0.47
|
|
|
0.42
|
|
|
0.49
|
|
Risk-free interest rate
|
1.74
|
%
|
|
0.68
|
%
|
|
0.44
|
%
|
Dividend yield
|
1.15
|
%
|
|
1.44
|
%
|
|
1.23
|
%
|
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:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
September 28,
2018
|
|
September 29,
2017
|
|
September 30,
2016
|
Expected volatility
|
35.86
|
%
|
|
40.31
|
%
|
|
42.93
|
%
|
Risk-free interest rate
|
2.00
|
%
|
|
1.60
|
%
|
|
0.98
|
%
|
Dividend yield
|
1.15
|
%
|
|
1.44
|
%
|
|
1.23
|
%
|
Expected option life (in years)
|
4.0
|
|
|
4.0
|
|
|
4.0
|
|
The Company used a historical volatility calculated by the mean reversion of the weekly-adjusted closing stock price over the expected life of the options. 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 dividend yield was calculated based on the annualized dividend and the stock price on the date of grant.
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.
On November 15, 2017, the Company agreed to potentially issue not more than
1%
of its common stock to an unaffiliated third party as a contingent consideration for its role under a multi-year collaboration agreement, upon the achievement of certain product sales milestones. The shares have been valued utilizing a probability weighted series of Black-Scholes pricing models and could be issued after mid-2020. The shares will be marked to estimated fair value each reporting period through earnings. The amount recorded in the statement of operations within selling, general and administrative expense for the fiscal year ended 2018, is not material.
11. EMPLOYEE BENEFIT PLAN, PENSIONS AND OTHER RETIREE BENEFITS
The Company maintains a 401(k) plan covering substantially all of its employees based in the United States under which all employees at least
twenty-one
years old are eligible to receive discretionary Company contributions. Discretionary Company contributions in the form of cash are determined by the Board of Directors. The Company has generally contributed a match of up to
4%
of an employee’s contributed annual eligible compensation. The Company no longer provides shares of its common stock as contributions to the 401(k) plan.
Defined Benefit Pension:
The Company has a defined benefit pension plan for certain employees in Japan. This plan has been frozen and new employees are not eligible. However, the Company is obligated to make future contributions to fund benefits to the participants with the benefits under the plan being based primarily on a combination of years of service and compensation.
The net amount of the unfunded obligation recognized in other long-term liabilities on the balance sheet consists of (in millions):
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
September 28,
2018
|
|
September 29,
2017
|
Pension benefit obligations at the end of the fiscal year
|
$
|
16.1
|
|
|
$
|
17.0
|
|
Fair value of plan assets at the end of the fiscal year
|
11.3
|
|
|
11.5
|
|
Unfunded status, net
|
$
|
(4.8
|
)
|
|
$
|
(5.5
|
)
|
The pension obligation and the net periodic benefit costs associated with the pension have an immaterial impact to the Company’s results of operations and financial position and accordingly, the disclosures required have been excluded from this Annual Report on Form 10-K.
12. COMMITMENTS
The Company has various operating leases primarily for buildings, computers and equipment. Rent expense amounted to
$20.5 million
,
$20.6 million
, and
$19.5 million
in the fiscal years ended
September 28, 2018
,
September 29, 2017
, and
September 30, 2016
, respectively. Future minimum payments under these non-cancelable leases for the next five fiscal years are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
Thereafter
|
|
Total
|
Future minimum payments
|
|
$
|
21.6
|
|
|
18.3
|
|
|
14.2
|
|
|
12.2
|
|
|
5.3
|
|
|
15.2
|
|
|
$
|
86.8
|
|
13. 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.
14. 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.
15. RESTRUCTURING AND OTHER CHARGES
During fiscal 2018, the Company recorded restructuring and other charges of approximately
$0.8 million
related to a leased facility. The Company does not anticipate any material charges in future periods related to these plans. Charges associated with the restructuring plan are categorized in the "Other restructuring programs" in the table below.
During fiscal 2017, the Company implemented immaterial restructuring plans and recorded
$0.6 million
related to employee severance and other costs.
During fiscal 2016, the Company recorded restructuring and other charges of approximately
$4.8 million
primarily related to restructuring plans to reduce redundancies associated with acquisitions during the year.
16. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
September 28,
2018
|
|
September 29,
2017
|
|
September 30,
2016
|
Net income
|
$
|
918.4
|
|
|
$
|
1,010.2
|
|
|
$
|
995.2
|
|
|
|
|
|
|
|
Weighted average shares outstanding – basic
|
181.3
|
|
|
184.3
|
|
|
188.7
|
|
Dilutive effect of equity based awards
|
1.9
|
|
|
2.4
|
|
|
3.4
|
|
Weighted average shares outstanding – diluted
|
183.2
|
|
|
186.7
|
|
|
192.1
|
|
|
|
|
|
|
|
Net income per share – basic
|
$
|
5.06
|
|
|
$
|
5.48
|
|
|
$
|
5.27
|
|
Net income per share – diluted
|
$
|
5.01
|
|
|
$
|
5.41
|
|
|
$
|
5.18
|
|
|
|
|
|
|
|
Anti-dilutive common stock equivalents
|
0.2
|
|
|
0.6
|
|
|
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 fiscal years ended
September 28, 2018
,
September 29, 2017
, and
September 30, 2016
, 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.
17. SEGMENT INFORMATION AND CONCENTRATIONS
The Company considers itself to be a single reportable operating segment which designs, develops, manufactures and markets similar proprietary semiconductor products, including intellectual property. In reaching this conclusion, management considers the definition of the chief operating decision maker (“
CODM
”), how the business is defined by the CODM, the nature of the information provided to the CODM and how that information is used to make operating decisions, allocate resources and assess performance. The Company’s CODM is the president and chief executive officer. The results of operations provided to and analyzed by the CODM are at the consolidated level and accordingly, key resource decisions and assessment of performance is performed at the consolidated level. The Company assesses its determination of operating segments at least annually.
GEOGRAPHIC INFORMATION
Net revenue by geographic area presented based upon the location of the OEMs' headquarters are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
September 28,
2018
|
|
September 29,
2017
|
|
September 30,
2016
|
United States
|
$
|
1,946.2
|
|
|
$
|
1,615.4
|
|
|
$
|
1,455.0
|
|
China
|
982.8
|
|
|
1,018.8
|
|
|
971.2
|
|
South Korea
|
432.7
|
|
|
531.8
|
|
|
393.0
|
|
Taiwan
|
339.1
|
|
|
335.4
|
|
|
323.6
|
|
Europe, Middle East and Africa
|
144.6
|
|
|
117.4
|
|
|
102.1
|
|
Other Asia-Pacific
|
22.6
|
|
|
32.6
|
|
|
44.1
|
|
Total
|
$
|
3,868.0
|
|
|
$
|
3,651.4
|
|
|
$
|
3,289.0
|
|
During fiscal 2018, the Company updated the table above from prior period presentation of net revenue based on the country of destination to current period presentation of net revenue based on the location of the OEMs' headquarters. Prior periods have been reclassified to match the current period presentation.
The Company’s revenue to 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.
Net property, plant and equipment balances, based on the physical locations within the indicated geographic areas are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
As of
|
|
September 28,
2018
|
|
September 29,
2017
|
Mexico
|
$
|
449.4
|
|
|
$
|
465.9
|
|
Japan
|
328.4
|
|
|
166.4
|
|
United States
|
123.5
|
|
|
126.9
|
|
Singapore
|
222.7
|
|
|
112.1
|
|
Rest of world
|
16.9
|
|
|
11.0
|
|
|
$
|
1,140.9
|
|
|
$
|
882.3
|
|
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 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 2018, 2017, and 2016, Apple, through sales to multiple distributors, contract manufacturers and direct sales for multiple applications including smartphones, tablets, desktop and notebook computers, watches and other devices, in the aggregate accounted for
47%
,
39%
and
40%
of the Company’s net revenue, respectively. In fiscal 2017 and 2016, Samsung in the aggregate accounted for
12%
and
10%
of the Company’s net revenue, respectively. In fiscal 2017, Huawei in the aggregate accounted for
10%
of the Company’s net revenue.
At
September 28, 2018
, the Company’s three largest accounts receivable balances comprised
66%
of aggregate gross accounts receivable. This concentration was
53%
and
54%
at
September 29, 2017
, and
September 30, 2016
, respectively.
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes the quarterly and annual results (in millions, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
Second quarter
|
|
Third quarter
|
|
Fourth quarter
|
|
Fiscal year
|
Fiscal 2018
|
|
|
|
|
|
|
|
|
|
Net revenue
|
$
|
1,051.9
|
|
|
$
|
913.4
|
|
|
$
|
894.3
|
|
|
$
|
1,008.4
|
|
|
$
|
3,868.0
|
|
Gross profit
|
536.8
|
|
|
458.7
|
|
|
451.6
|
|
|
503.6
|
|
|
1,950.7
|
|
Net income
|
70.4
|
|
|
276.0
|
|
|
286.5
|
|
|
285.5
|
|
|
918.4
|
|
Per share data (1)
|
|
|
|
|
|
|
|
|
|
Net income, basic
|
$
|
0.38
|
|
|
$
|
1.51
|
|
|
$
|
1.58
|
|
|
$
|
1.60
|
|
|
$
|
5.06
|
|
Net income, diluted
|
$
|
0.38
|
|
|
$
|
1.50
|
|
|
$
|
1.57
|
|
|
$
|
1.58
|
|
|
$
|
5.01
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2017
|
|
|
|
|
|
|
|
|
|
Net revenue
|
$
|
914.3
|
|
|
$
|
851.7
|
|
|
$
|
900.8
|
|
|
$
|
984.6
|
|
|
$
|
3,651.4
|
|
Gross profit
|
463.9
|
|
|
425.4
|
|
|
453.6
|
|
|
498.9
|
|
|
1,841.8
|
|
Net income
|
257.8
|
|
|
224.9
|
|
|
246.2
|
|
|
281.3
|
|
|
1,010.2
|
|
Per share data (1)
|
|
|
|
|
|
|
|
|
|
Net income, basic
|
$
|
1.39
|
|
|
$
|
1.22
|
|
|
$
|
1.34
|
|
|
$
|
1.53
|
|
|
$
|
5.48
|
|
Net income, diluted
|
$
|
1.38
|
|
|
$
|
1.20
|
|
|
$
|
1.32
|
|
|
$
|
1.51
|
|
|
$
|
5.41
|
|
____________
|
|
(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.
|